[Senate Hearing 114-524]
[From the U.S. Government Publishing Office]
S. Hrg. 114-524
FREIGHT RAIL REFORM: IMPLEMENTATION
OF THE SURFACE TRANSPORTATION BOARD
REAUTHORIZATION ACT OF 2015
=======================================================================
FIELD HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
AUGUST 11, 2016
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri MARIA CANTWELL, Washington
MARCO RUBIO, Florida CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas EDWARD MARKEY, Massachusetts
DAN SULLIVAN, Alaska CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin TOM UDALL, New Mexico
DEAN HELLER, Nevada JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado GARY PETERS, Michigan
STEVE DAINES, Montana
Nick Rossi, Staff Director
Adrian Arnakis Deputy Staff Director
Rebecca Seidel, General Counsel
Jason Van Beek, Deputy General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Clint Odom, Democratic General Counsel and Policy Director
C O N T E N T S
----------
Page
Hearing held on August 11, 2016.................................. 1
Statement of Senator Thune....................................... 1
Witnesses
Dan Mack, Vice President, Transportation and Terminal Operations,
CHS Inc........................................................ 3
Prepared statement........................................... 5
Thomas J. Heller, Chief Executive Officer, Missouri River Energy
Services; and Board Member, Freight Rail Customer Alliance..... 7
Prepared statement........................................... 9
Michael Skuodas, Vice President, Distribution and Business
Development, POET, LLC......................................... 14
Prepared statement........................................... 15
Troy Knecht, Vice President, South Dakota Corn Growers
Association.................................................... 16
Prepared statement........................................... 18
Hon. Daniel R. Elliott III, Chairman, Surface Transportation
Board.......................................................... 26
Prepared statement........................................... 28
Hon. Deb Miller, Vice Chairman, Surface Transportation Board..... 31
Prepared statement........................................... 33
Hon. Ann D. Begeman, Board Member, Surface Transportation Board.. 43
Prepared statement........................................... 47
Appendix
Statement of BNSF................................................ 61
Response to written questions submitted to Hon. Daniel R. Elliott
III by:
Hon. John Thune.............................................. 62
Hon. Steve Daines............................................ 65
Response to written questions submitted by Hon. John Thune to:
Hon. Deb Miller.............................................. 67
Hon. Ann D. Begeman.......................................... 70
FREIGHT RAIL REFORM: IMPLEMENTATION
OF THE SURFACE TRANSPORTATION BOARD
REAUTHORIZATION ACT OF 2015
----------
THURSDAY, AUGUST 11, 2016
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Sioux Falls, SD.
The Committee met, pursuant to notice, at 1:30 p.m. in
Carnegie Town Hall, 235 West 10th Street, Hon. John Thune,
Chairman of the Committee, presiding.
Present: Senator Thune [presiding].
OPENING STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
The Chairman. Good afternoon. I know it's not customary for
any kind of congressional event to start early, but we actually
have everybody here. So I'm going to call this hearing of the
Commerce, Science, and Transportation Committee to order.
Welcome, everybody. Thank you for being here.
From the farmers who help put food on our tables to the
energy suppliers who help power our homes and fuel our cars,
businesses and households in South Dakota and across the Nation
depend on efficient and reliable freight rail. About 40 percent
of our Nation's freight ton-miles moves by rail, including
about 15 million tons that originate in South Dakota each year.
In fact, about three times as many rail cars originate in South
Dakota as terminate here in South Dakota, meaning that South
Dakotans are disproportionately dependent on rail to get our
products to market, to create jobs, and to grow incomes.
That's why it's so important that when problems arise in
our Nation's rail system, we have efficient and effective
oversight. Despite concerns from businesses about the
burdensome processes at the Surface Transportation Board, or
STB, which is the Federal Government agency responsible for
overseeing the efficiency of our freight rail network, Congress
had not reformed or reauthorized the agency since its creation
in 1996.
Needless to say, Congress did not get it right on the first
try. The Surface Transportation Board did not have the
authority to proactively investigate issues of regional or
national significance, hindering its ability to examine
emerging issues. In addition, rate disputes before the Board
have taken more than $5 million and more than three years to
get resolved, and changes to rate reviews had not yielded
sufficient results. And because the STB had three members, and
two members could form a quorum, members could not talk to one
another about important regulatory and managerial issues
without encountering procedural hurdles.
This committee took action to address those issues. Last
year, following intensive oversight activity, I introduced the
Surface Transportation Board Reauthorization Act of 2015 to
make the STB a more efficient and effective agency. After
working on a bipartisan basis with co-sponsor and Ranking
Member Bill Nelson and working with my colleagues in the House
of Representatives, I was pleased to see it signed into law by
the President last December.
This hearing marks about 8 months since the enactment of my
legislation, and it is an opportunity to examine completed and
ongoing implementation work at the STB and hear about ways to
maximize the law's benefits for the businesses that depend on
rail. These benefits can be thought of, really, in three
categories.
First, the law improves the way rate cases are handled. It
expedites rate review timelines, and it expands voluntary
arbitration to better serve as an alternative to lawsuits. The
Board has already set those new timelines, and it has issued a
proposal to implement the new arbitration procedures, which I
expect to be finalized well ahead of the end-of-the-year
deadline. The law also requires the STB to look at simpler ways
to do rate reviews, and I understand this important study and
work is ongoing. I encourage the Board to expansively survey
possible alternatives to identify rate review options that make
economic sense, particularly for small businesses.
Second, the law increases proactive problem solving and
accountability. It provides the STB with the authority to
launch investigations based on its own initiative, and the
Board has published a proposed rule to implement this
authority. It also requires the STB to submit quarterly reports
on complaints and unfinished regulatory proceedings, and the
Board has sent two versions of these quarterly reports already
that have greatly increased transparency and enhanced
congressional and public oversight of its work.
Third, the law creates a more functional and collaborative
Board. It expands the Board from three to five members. I am
hopeful that the next president will quickly nominate, and the
Senate quickly confirm, these additional members. The bill also
allows Board members to talk to one another about important
policy issues. The Board has already used this new authority to
hold group discussions, and I am eager to see further increased
collaboration on regulatory proceedings and agency management
between the Board and its members. The law also grants the
Board administrative independence and authorizes the agency for
the first time since its creation.
While many of the most important provisions of the law are
still in progress, thus far the Board has met or is on track to
meet each deadline in the legislation, a feat most other
Federal agencies regularly fail to do, and I greatly appreciate
their efforts. This activity comes as the Board makes progress
on several other important regulatory proceedings, including a
rule to make permanent certain rail performance metrics, with
fertilizer included. I hope the Board will continue the good
progress that they've made since enactment of the legislation,
and I expect this committee to continue its active oversight to
maximize the benefits of the law.
This legislation is another example of the Senate getting
back to work for the American people. That work includes the 5-
year, $305 billion highway bill, FAA reauthorization and
aviation security bill, and the pipeline safety bill as
significant committee achievements within the past year to
improve our Nation's transportation and infrastructure. All of
those bills were signed into law by the President in the last
18 months.
With that said, I am eager to hear the perspectives of our
first distinguished panel. I want to welcome today Mr. Skuodas,
who is Vice President for Distribution and Business Development
at POET, a South Dakota company and one of the Nation's leading
biorefineries; Mr. Troy Knecht, who is Vice President of the
South Dakota Corn Growers, who runs an outstanding diversified
farming operating near Houghton, South Dakota; Mr. Tom Heller,
who is the CEO of Missouri River Energy Services, a critical
energy supplier with 12 municipal members in South Dakota; and
Dan Mack, who is Vice President of Transportation and Terminal
Operations for CHS, Inc., one of the Nation's largest rail
shippers with over 900 employees here in the state of South
Dakota.
South Dakota is consistently one of the top five states for
the export by rail of farm products and ethanol to other
states, and coal is the number one commodity imported into the
state by rail, so we have a great panel that is representative
of shippers in the state who depend on strong rail service.
After testimony and questions of this panel, I will convene
a second panel with all of the Surface Transportation Board
members who are here. I am pleased to welcome Chairman Dan
Elliott, Vice Chairman Deb Miller, and Board Member Ann
Begeman, all of whom have been working hard to implement the
law day in and day out. Ann was born and raised on a farm near
Humboldt, South Dakota, which means she not only understands
agriculture and the importance of reliable rail service, but as
a native South Dakotan, she can also help the other Board
members find a good place to eat later today.
So I want to thank you all for being here. I want to thank
our distinguished panelists for joining us, and I look forward
to your testimony. I will start--let's go from my left with Mr.
Mack and allow you to proceed. And if you could confine your
testimony as close to five minutes as possible--we'll submit
the entire written testimony for the record--it'll give us an
opportunity to have some give-and-take with some questions and
answers.
So, Mr. Mack, welcome.
STATEMENT OF DAN MACK, VICE PRESIDENT, TRANSPORTATION AND
TERMINAL OPERATIONS, CHS INC.
Mr. Mack. Good afternoon and thank you, Chairman Thune. My
name is Dan Mack. I am Vice President of Transportation and
Terminal Operations for CHS Incorporated, the Nation's largest
cooperative, headquartered in Inver Grove Heights, Minnesota,
and owned by 600,000 producers and 1,100 member cooperatives
throughout the United States.
CHS is a highly diversified Fortune 100 company that
supplies energy, crop nutrients, grain marketing services,
animal feed, food and food ingredients, as well as a range of
financial and risk management services. We're also among the
top rail shippers in the United States and one of the largest
agricultural shippers on both the BNSF railway and Canadian
Pacific railway. CHS currently employs approximately 12,500
people with 900 of those being located here in South Dakota.
I'm here on behalf of The Fertilizer Institute, commonly
known as TFI. TFI is a national trade organization representing
the fertilizer industry. TFI represents companies that are
engaged in all aspects of the fertilizer supply chain. Research
confirms that approximately 50 percent of the crop yields are
attributable to the utilization of commercial fertilizer.
The fertilizer industry directly employs 1,500 people in
South Dakota, with an economic impact of approximately $1.75
billion. The fertilizer industry depends greatly on a safe and
efficient rail transportation network to deliver its products.
The U.S. freight rail industry is an indispensable partner and
key to our competitiveness in a global economy.
Given the importance of rail service to our business, CHS
has greatly benefited from the collaborative work of TFI's
partnership with the Rail Customer Coalition. RCC is an
assortment of trade associations representing manufacturing,
agriculture, and the energy industries. TFI and the Coalition
are committed to practical reforms to modernize the Surface
Transportation Board so that it works better for both railroads
as well as its customers.
Fertilizer volumes are significant. In the year 2012 to
2013, 63 million material tons of fertilizer products were sold
in the United States, much of that handled by railroads.
Fertilizer is critical to crop yields and must move year round
over great distances. All shippers, including CHS, experience
logistical challenges from time to time. Practical reforms are
critical to mitigating those challenges. One such example is
the inclusion of fertilizer in the STB's rulemaking on railroad
performance service metrics. We are pleased fertilizer is part
of that rulemaking and urge that to become a permanent
component in the final rule.
Regarding the subject of today's hearing, I want to
especially thank Chairman Thune and Ranking Member Nelson and
members of the Committee for your bipartisan work in passing
the STB Reauthorization Act. As mentioned earlier, this is the
first freight rail policy reform to pass Congress in a
generation.
Equally important is the ongoing interest and oversight of
Chairman Thune, Ranking Member Nelson, and their staffs. Their
efforts are making a significant difference. They are vital to
ensuring that STB Reauthorization Act is successfully
implemented. The Commissioners of the Board have a big job in
front of them as well. They have been working in good faith to
get the job done in a transparent manner.
The STB Reauthorization Act makes common sense changes,
perhaps the most obvious being that Board members can now meet
in private to discuss agency matters. As the authority over
rail rates and service disputes, being able to initiate its own
investigations on issues of national and regional significance
is another sensible reform. The fertilizer industry is also
pleased with the improvements made to the voluntary arbitration
process, including the increase of the maximum damage awards
that could be achieved.
TFI supports the comments submitted by the Rail Customer
Coalition and looks forward to the issuance of the final
rulemaking later this year. In addition, the monthly
implementation of updates on proceedings, rulemakings, and
other matters are also appreciated and are helpful. The STB
Reauthorization Act also promotes ways to modernize
methodologies to resolve rail disputes. This is an important
task. To help address the need to modernize this essential
oversight function, the STB Reauthorization Act requires a
study on alternative methodologies related to rate issues, a
proceeding on expediting cases, new timelines, as well as the
alternative methodology.
Since enactment of the law, the Board has taken steps to
provide a faster and less burdensome process to resolve rate
disputes between shippers and railroads. The fertilizer
industry supports the Board's proposal for allowing parties to
use arbitration for such disputes. We further support the
Board's ongoing effort to improve existing rate case
methodologies.
The fertilizer industry is also encouraged by the recently
proposed rulemaking on competitive switching. Competitive
switching is a practical way to give rail customers access to a
measure of competition where none currently exists today. The
fertilizer industry looks forward to continued engagement in
this important matter.
Thank you, Chairman Thune, for the opportunity to share
TFI's view on freight rail reform and implementation of the STB
Reauthorization Act of 2015.
Thank you.
[The prepared statement of Mr. Mack follows:]
Prepared Statement of Dan Mack, Vice President, Transportation
and Terminal Operations, CHS Inc.
Good afternoon, Chairman Thune, Ranking Member Nelson, and members
of the Committee.
My name is Dan Mack. I am Vice President of Transportation and
Terminal Operations for CHS Inc., the Nation's largest farmer-owned
cooperative. Headquartered in Inver Grove Heights, Minnesota, CHS Inc.
is owned by more than 600,000 producers and 1,100 member cooperatives
from around the United States, including 77,000 direct producer-owners.
CHS is governed by a 17-member board of directors elected by our
producer and member co-op stockholders. Our directors are all active
farmers and ranchers with a broad range of experience in agribusiness.
CHS is a highly diversified Fortune 100 company that supplies
energy, crop nutrients, grain marketing services, animal feed, food and
food ingredients, as well as a range of financial and risk management
services. We're also among the top rail shippers in the United States,
and one of the largest agricultural users of both the BNSF and Canadian
Pacific rail lines.
As a cooperative, CHS returns cash to our owners every year, based
on the company's performance and the amount of business an owner
conducts with CHS during the year. During its Fiscal Year 2016, CHS
will distribute about $519 million to farmers, ranchers and
cooperatives across the country. Between fiscal 2012 and 2016 CHS
distributed a total of $2.7 billion in cash, a $544 million annual
average.
CHS currently has nearly 12,500 employees worldwide, including 908
working here in South Dakota. I am proud to work for CHS and proud to
serve our owners in rural America and to do our part to help feed the
world.
I am here on behalf of The Fertilizer Institute (TFI), which is the
national trade association representing the fertilizer industry. TFI
represents companies that are engaged in all aspects of the fertilizer
supply chain. This includes fertilizer manufacturers, wholesalers,
distributors, brokers, and retailers. TFI's members play a key role in
producing and distributing vital crop nutrients, such as nitrogen,
phosphorus and potassium. These products are used to replenish soils
throughout the United States and elsewhere to facilitate the production
of healthy and abundant supplies of food, fiber and fuel. Fertilizers
make it possible for farmers to grow enough food to feed the world's
more than 7 billion people. Research confirms that approximately 50
percent of crop yields are attributable to the use of commercial
fertilizers.
The fertilizer industry directly employs nearly 1,500 people in
South Dakota with an economic impact in excess of $1.75 billion. I
would be remiss if I did not highlight for the Ranking Member that
TFI's members employ nearly 6,000 people in his home State of Florida.
TFI maintains information on the impact of the fertilizer industry in
each State and Congressional District and we are happy to provide it to
members of the Committee.\1\
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\1\ https://www.tfi.org/advocacy/fertilizerjobs/data
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The fertilizer industry depends on a safe and efficient rail
transportation network to deliver its products. While fertilizer
shippers utilize waterways and motor carriers to move their products,
the majority of fertilizer moves through the United States by rail.\2\
The reason is simple: freight railroads are safe and a good way to
transport our products to our customers. This is not to say there are
not challenges from time to time, but the U.S. freight rail industry is
an indispensable partner and key to our competitiveness in the global
economy.
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\2\ In 2014, approximately 41 percent of fertilizer moved by rail
on a per ton, per mile basis
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Given the importance of rail service to our business, CHS has
greatly benefited from the collaborative work of TFI's partnership with
the Rail Customer Coalition (RCC), which is an assortment of trade
associations representing manufacturing, agricultural, and energy
industries with operations and employees throughout the United States.
Members of the coalition represent the largest users of freight rail
that depend on the railroads to deliver reliable and affordable
service. TFI and the Coalition are committed to practical reforms to
modernize the Surface Transportation Board (STB) so that it works
better for both the railroads and their customers.
In Fiscal Year 2012-2013, 63 million material tons of fertilizer
products were sold in the United States. Fertilizer moves year-round by
rail, and the timely delivery of fertilizer products is critical to
farmers. If farmers do not receive their fertilizer in a timely manner,
there are potential consequences for food security and the environment.
In terms of logistics, there are instances where fertilizer travels
a short distance from a production facility to the farm. However,
fertilizer often travels thousands of miles to its ultimate
destination.
As I mentioned previously, fertilizer is critical to crop yields.
It also must move year-round over great distances. All shippers,
including CHS, experience logistical challenges. The added challenges
of competing in a global economy underscore the importance of making
practical reforms to enhance our Nation's distribution system. One such
example is the inclusion of fertilizer in the Surface Transportation
Board's (STB's) rulemaking on railroad performance service metrics. We
are pleased fertilizer is part of this rulemaking and urge that it be
part of the reporting requirements when the Board issues a final rule.
Regarding the subject of today's hearing, I want to especially
thank Chairman Thune and Ranking Member Nelson and members of the
Committee for your bipartisan work passing the STB Reauthorization Act
of 2015 (S. 808). This is the first freight rail policy reforms to pass
Congress in a generation and the first time the agency was reauthorized
since its creation. The rail industry has changed a great deal over the
past twenty years, and this law is helping to modernize the STB to
better reflect this new reality.
Equally important is the ongoing interest and oversight of Chairman
Thune, Ranking Member Nelson, and your staffs. Your efforts are making
a big difference, and are vital to ensuring the STB Reauthorization Act
is successfully implemented. To their credit, the Commissioners of the
Board have a big job in front of them and they have been working in
good faith to get the job done in a transparent fashion.
The STB Reauthorization Act makes common sense changes, perhaps the
most obvious being that Board Members can now meet in private to
discuss agency matters. As the authority over rail rates and service
disputes, being able to initiate its own investigations on issues of
national or regional significance is another sensible reform. The
fertilizer industry is also pleased with the improvements made to the
voluntary arbitration process, including the increase in the maximum
damage awards. TFI supports the comments submitted by the Rail Customer
Coalition, and looks forward to the issuance of a final rulemaking
later this year. Moreover, the monthly implementation updates on
proceedings, rulemakings and other matters are appreciated and helpful.
The STB Reauthorization Act also promotes ways to modernize
methodologies for resolving rate disputes. This is an important task.
In fact, an expert report by the National Research Council's
Transportation Research Board concluded that the STB's rate review
procedures are now ``unusable by most shippers.'' The report went on to
say that the system lacks a sound economic basis and ``has the effect
of safeguarding railroad revenues by making it too costly for most
shippers to litigate a case.'' \3\
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\3\ http://onlinepubs.trb.org/onlinepubs/sr/sr318.pdf
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To help address the need to modernize this essential oversight
function of the Board, the STB Reauthorization Act requires a study on
alternative methodologies, a proceeding on expediting cases, new
timelines, and an alternative methodology.
Since enactment of the law, the Board has taken steps to provide a
faster and less burdensome process to resolve rate disputes between
shippers and railroads. The fertilizer industry supports the Board's
proposal for allowing parties to use arbitration for such disputes. We
further support the Board's ongoing efforts to improve its existing
rate case methodologies. However, it is increasingly clear that the
Board's primary rate case methodology, the Stand Alone Cost (SAC) test,
is too complex, costly, and burdensome.
The Board has also been making progress on initiatives that are not
just directly tied to implementation of S. 808. The fertilizer industry
is encouraged by the recently proposed rulemaking on competitive
switching. It is already being done successfully in Canada. This may
have contributed to comments made by Canadian Pacific Railway, which,
during its recent proposed merger discussions with Norfolk Southern,
stipulated its support for competitive switching and said it would
allow competitive switching for its customers if it acquired Norfolk
Southern.
Shippers often have access to only one major railroad, which can
create a challenging power dynamic with the rail industry. Competitive
switching is a practical way to give rail customers access to a measure
of competition where none currently exists. The fertilizer industry
appreciates the Board's efforts on competitive switching and looks
forward to continued engagement on this important matter.
As I mentioned earlier, rail is a vital part of the transportation
network. A competitive, safe and efficient rail industry allows TFI's
members to successfully serve and supply America's farmers.
Thank you, Chairman Thune and Ranking Member Nelson, for the
opportunity to share TFI's views on freight rail reform and
implementation of the STB Reauthorization Act of 2015. TFI and its
members look forward to our continued engagement with you and members
of the Committee.
The Chairman. Thank you, Mr. Mack.
I'll now proceed to Mr. Heller.
STATEMENT OF THOMAS J. HELLER, CHIEF EXECUTIVE
OFFICER, MISSOURI RIVER ENERGY SERVICES;
AND BOARD MEMBER, FREIGHT RAIL CUSTOMER ALLIANCE
Mr. Heller. Thank you, Senator Thune. My name is Tom
Heller. I'm the CEO of Missouri River Energy Services here in
Sioux Falls, South Dakota. I'd like to thank the Chairman and
the members of the Committee for the invitation to speak today
on the STB Reform Act of 2015.
My following remarks highlight the written testimony that
was earlier submitted to the Committee. Not only am I pleased
to testify on behalf of MRES, but also as a Board Member of the
Freight Rail Customer Alliance, FRCA.
First, Missouri River Energy Services is a municipal power
agency which supplies power and energy services to 60 municipal
electric utilities in rural Iowa, Minnesota, and North and
South Dakota. Western Minnesota Municipal Power Agency is our
financing agent along with five other customer-owned utilities
on a base-load coal plant called the Laramie River Station in
Wheatland, Wyoming. LRS operating agent, Basin Electric Power
Cooperative, pays BNSF Railway to transport substantial amounts
of coal on a daily basis to LRS.
In 2004, LRS's contract with BNSF to deliver coal from the
Powder River Basin mines to the LRS plant expired. We were
unable to renegotiate an acceptable agreement with BNSF and
they filed a rate tariff at the STB. LRS participants then
filed for rate relief with the STB as well.
After 10 years and over $10 million in legal and consulting
fees, we still had no settled rate. Several STB orders were
followed by legal action by both LRS participants and BNSF. In
May 2015, we successfully negotiated a settlement agreement
with BNSF, ending the dispute at STB. Without our settlement,
we firmly believe that we still may be fighting that case
before the STB today.
Second, I'm here sharing views of FRCA, as I mentioned. Its
members include large trade associations representing more than
3,500 manufacturing, agriculture, alternative fuels companies,
electric utilities, and their customers. Based on the
experience of MRES as a participant in the recent BNSF case
involving LRS combined with the experiences of FRCA members,
let me offer a few observations, if I may, please, on how the
STB can work more effectively in today's economy.
First, we look forward to the release of the STB's survey
and the study of rate case methodologies. It is our hope in its
analysis that the consultant hired by the STB may provide
recommendations that would allow the STB to use a more
streamlined yet appropriate methodology to supplement the SAC
test in appropriate cases. The length and cost of the current
approach has proven to be an impediment to many rail customers
obtaining rate protection under the STB rules.
Second, the STB has been moving ahead on developing rules
regarding its authority to investigate rates and practices
without a complaint. We believe this authority allows the STB
to act in an expedited manner on unreasonable rates and
practices.
Third, the development of arbitration procedures may allow
for some cases to be even further expedited.
Fourth, we particularly thank you, Senator Thune, for the
March 31 letter that was sent to all three members of the STB
welcoming the Board's steps to complete rulemaking for data
collection. FRCA, in particular, views data collection and
timely access to data as a cornerstone in enhancing
transparency and accountability.
And, fifth, the quarterly reports on unfinished regulatory
proceedings have increased transparency and may have helped
increase efficient use of limited resources at the STB.
In conclusion, MRES and FRCA applauds you, Mr. Chairman,
Senator Thune, for holding this very important hearing on the
implementation of the STB Reauthorization Act of 2015. I do
want to finally say that we understand that there needs to be a
balance between the financial health of the railroads so that
they are able to maintain the current system and invest in the
facilities and at the same time protect consumers from
excessive costs. Your personal oversight is helping to make the
difference in transforming the STB into a more effective,
accountable, and transparent agency.
Thank you very much.
[The prepared statement of Mr. Heller follows:]
Prepared Statement of Thomas J. Heller, CEO, Missouri River Energy
Services; and Board Member, Freight Rail Customer Alliance
Introduction
My name is Tom Heller and I am CEO of Missouri River Energy
Services. I'd like to thank Chairman John Thune, Ranking Member Bill
Nelson and the Members of this Committee for the invitation to speak
with you today on ``Freight Rail Reform: Implementation of the Surface
Transportation Board Reauthorization Act of 2015''.
Freight rail is a vital component of our Nation's economy to help
our farmers produce, deliver grains and agricultural products to
market, heat our homes and businesses, ensure our drinking water is
safe, and enhance our global competitiveness. The Surface
Transportation Board Reauthorization Act of 2015 is helping our entire
nation--the U.S. Congress, the Surface Transportation Board, railroads,
shippers, and the communities we all serve--better meet today's freight
rail shipping demands and expectations.
Not only am I pleased to testify on behalf of Missouri River Energy
Services, but as a Board member of the Freight Rail Customer Alliance
(FRCA).
Missouri River Energy Services http://www.mrenergy.com/
To begin, Missouri River Energy Services (MRES) is a municipal
power agency which supplies power and energy, and energy services to
sixty (60) municipal utility members throughout Iowa, Minnesota, North
Dakota, and South Dakota. Each member municipal utility is owned by the
customers it serves; likewise, MRES was created and is owned by the
member communities that it serves. Also, like its member-owners, MRES
is a not-for-profit, member-owned and member-
controlled public entity. MRES is a political subdivision of the
state of Iowa, and is headquartered in Sioux Falls, South Dakota. It
was created under the Iowa Code Chapter 28E.
As an Iowa 28E entity, MRES must use a separate entity for
financing of generation facilities or similar projects; that financing
entity is Western Minnesota Municipal Power Agency (Western Minnesota).
Western Minnesota is a municipal corporation and political subdivision
of the State of Minnesota. Western Minnesota finances and owns the
generation and transmission facilities used to serve members of MRES
under the terms of power supply and transmission capacity contracts
between Western Minnesota and MRES. All output and capacity of Western
Minnesota facilities is dedicated exclusively to MRES.
All 60 MRES members are in Iowa, Minnesota, North Dakota, and South
Dakota. Our municipal utility communities range in size from nearly
40,000 to those with populations around 200 people. The average
population of MRES member communities is about 5,000. In total, our
members serve a population of approximately 300,000 people, with over
150,000 customer meters. The MRES member communities are spread widely
over a geographic area which is primarily rural.
Fifty-eight of the 60 MRES members have allocations of Federal
hydropower from Western Area Power Administration (WAPA) to supply some
of their needs through 2050, and MRES serves the balance of each
community's needs over and above the hydropower allocation. In addition
to this hydropower, MRES members are also served by five wind energy
projects located in Iowa, Minnesota, and North Dakota. These renewable
energy investments mean that MRES members are served, on average, with
42 percent renewable energy.
In addition to wind energy projects, MRES relies on a single, base-
load coal plant in Wheatland, Wyoming, called the Laramie River Station
(LRS) to serve the needs of its members. The three units of LRS began
commercial operations in 1980-1982, and generate 1,710 megawatts (MW).
LRS has six owners: Basin Electric Power Cooperative (Basin), Tri-State
Generation and Transmission Association, Lincoln Electric System,
Heartland Consumers Power District, Western Minnesota, and Wyoming
Municipal Power Agency. Western Minnesota is one of six owners of LRS,
and it owns 16.5 percent of LRS, corresponding to approximately 282 MW.
LRS obtains its fuel from coal from the Power River Basin, located
approximately 175 miles from LRS. In order to transport the coal to the
plant, LRS, through its operating agent Basin Electric Cooperative
(Basin), pays BNSF Railway to transport substantial amounts of coal
daily to LRS. The owners of LRS own the railcars that the coal is
shipped in; BNSF supplies the engines and engineers.
Based on the experience of MERS as a participant in a recent rate
case involving LRS, let me offer of few observations on how future rate
cases can be expedited.
STB Reauthorization Act Implementation and Expediting Rate Cases
Last year, the U.S. Congress passed, and President Obama signed
into law, the Surface Transportation Board Reauthorization Act of 2015
(the Act), P. 114-110 (S. 808, S. Rpt. 114-52).
Thanks to your steadfast leadership, Mr. Chairman, and support from
your colleagues also serving on the Senate Commerce Committee, MRES
strongly believes that there are aspects of the Act that may assist
other shippers in future cases.
First, the STB has been working on streamlining rail rate cases and
published the revised rate review procedural schedule in SAC tests
(Docket No. EP 733, Advanced Notice of Proposed Rulemaking, Expedited
Rate Cases). This new schedule is a step in the right direction at
expediting rate reviews. However, MRES looks forward to the release of
STB's survey and study of rate case methodologies. It is our hope that
in its analysis, that the consultant hired by the STB, may provide
recommendations that would allow the STB to use more stream-lined, yet
appropriate, methodologies, to supplement SAC in appropriate cases.
Second the Act requires quarterly reports on unfinished regulatory
proceedings. These reports have increased transparency and may have
helped increase efficient use of resources at the STB, but they would
be more useful and effective if they included additional detail such as
delays or continuances, reasons for delays or continuances, and
anticipated dates for procedural orders. It would promote not only
transparency of the process to the parties and impacted customers, but
it may assist the STB and staff in determining if there is a pattern in
delays that can be addressed. For example, if delays are due to need
for additional staffing, that is something that could be identified
with the data and potentially addressed earlier rather than later, or
not at all.
Third, the STB has also been moving ahead on developing rules
regarding its authority to investigate rates and practices without a
complaint being filed (Docket No. EP 731, Notice of Proposed
Rulemaking, Rules Relating to Board-Initiated Investigations). We
believe that this authority granted by the Act allows the STB to act in
an expedited manner on unreasonable rates and practices, and look
forward to seeing these proposed rules developed further during the
current comment period.
Fourth, the development of revised arbitration procedures, as also
specified in the Act, may allow for some rate cases to be even further
expedited (Docket No. EP 730, Notice of Proposed Rulemaking, Revisions
to Arbitration Procedures). Even though the case MRES was involved in
would not have been eligible for arbitration, the availability of an
effective and ``usable'' arbitration process may further expedite
future cases to the benefit of the shipper, the railroad and the
customers and also free up agency resources for those disputes where
arbitration is not utilized. MRES also looks forward to seeing these
proposed rules developed further during this promulgation period.
Freight Rail Customer Alliance http://railvoices.org/
As stated earlier, I am also sharing the views of the Freight Rail
Customer Alliance (FRCA). An umbrella membership organization, FRCA
members include large trade associations representing more than 3,500
manufacturing, agriculture, and alternative fuels companies, electric
utilities, and their customers. Its membership base is expanding to
include other industries and commodities.
FRCA is an alliance of freight rail shippers impacted by continued
unrestrained freight rail market dominance over rail-dependent
shippers. Its mission is to seek changes in Federal law and policy that
will provide all freight rail shippers with reliable freight rail
service at competitive prices.
As with MRES, FRCA thanks you Mr. Chairman for your continued
commitment in helping to enhance our Nation's overall freight rail
network. This includes your attention to and keen awareness of those
issues and concerns unique to freight rail shippers--particularly those
dependent upon receiving and distributing their products by rail.
FRCA was pleased to have actively supported the development of S.
808 during the legislative process--the first authorization for the STB
since 1998. FRCA is continuing to work with the STB and industry
stakeholders in helping to ensure that the Act is effectively
implemented.
Considering FRCA' thoughts are aligned with the comments I
previously shared on behalf of MRES, the remainder of my remarks will
focus on other elements of the Act which are also proving helpful to
freight rail shippers.
STB Reauthorization Act Implementation
Appropriations
For the past two decades, the STB's budget has remained essentially
flat.
Even in our sustained difficult budget environment, the Act
provides increased annual authorization levels for the STB. Without
these levels providing the foundation, it would have been and will
continue to be extremely difficult for the STB to secure the necessary
funding for it to meet the new requirements specified in the Act and
meet existing responsibilities.
For the current FY 2016, the Act sought to address this by
authorizing an FY 2016 appropriation of $35 million. The subsequent
increased funding for the STB approved by Congress in the FY 2016
Omnibus (P.L. 114-13) was a crucial step in helping to implement this
new Act.
In addition for FY 2017, on May 19, the U.S. Senate approved H.R.
2577 (S. 2844, S. Rpt. 114-243) providing $37 million for the STB of
which $2.046 million is directed to IT system upgrades and
enhancements. This appropriations amount is above the level authorized
in the Act and the current FY 2016 enacted level.
In a letter to the House Appropriations Committee, FRCA advised
that STB needs to have the adequate annual appropriated funds to
provide necessary and effective oversight over our country's growing
reliance on freight rail. Freight rail is a vital component of our
Nation's economy to help our farmers produce, deliver grains and
agricultural products to market, heat our homes and businesses, ensure
our drinking water is safe, and enhance our global competitiveness.
Further, FRCA stressed that of particular importance to its members
is adequate funding of enhancements to the STB's outdated information
technology (IT) system. Freight rail shippers heavily rely on industry
data provided through the STB to help: (1) make vital daily and longer
term operational decisions; (2) forecast industry emerging trends; and,
(3) monitor a railroad's level of service and performance.
FRCA is pleased that the FY 2017 measure (H.R. 5394, H. Rpt. 114-
640) passed by the House Appropriations Committee on May 24 also
includes the $37 million for the STB and directs spending for IT
improvements. FRCA remains hopeful that a final FY 2017 appropriations
package will be realized providing this critical funding for the STB.
Data Reporting
FRCA applauds you, Mr. Chairman, and your colleague serving on the
Senate Commerce Committee for instilling in the Act various provisions
establishing new requirements or encouraging the completion of
longstanding pending procedures before the STB. This is notably
recognized in the Act's commitment to update and enhance STB's
information technology and data needs to help ensure transparency,
consistency, timeliness, and ease of access.
FRCA particularly thanks you for your March 31, 2016 letter you
sent to all three Members of the STB welcoming the STB's steps to
advance the expeditious completion of the rulemaking for data
collection [Docket No. EP 724 (Sub-No.4), Supplemental Notice of
Proposed Rulemaking Rail Service Issues--Performance Data Reporting].
As stated earlier in the appropriations discussion, FRCA views data
collection and timely access to data as a cornerstone in enhancing
transparency and accountability. FRCA participated in Ex-Parte
Communications and signed-on to comments submitted by the Western Coal
Traffic League (WCTL), and others.
Unfinished Regulatory Proceedings
FRCA also welcomed your requests to the STB, as stated in your
March 31, 2016 letter, regarding the required quarterly reports on
Unfinished Regulatory Proceedings. FRCA appreciates the STB responding
to some of your requests as included in the Board's most recent
quarterly report issued July 1st. FRCA finds the listing of the pending
Dockets and their respective status helpful and the fact that it easily
accessible via this required quarterly reporting mechanism. The
alliance looks forward to the STB continuing to enhance these quarterly
reports which would include incorporating the other suggestions you
made.
Informal and Formal Rail Service Complaints
FRCA could not agree with you more, Mr. Chairman, as you also
stated in your March 31, 2016 letter, that the STB providing a brief
description of the type of rail service associated with an informal
complaint and a write-up of the guidance offered by STB would be
helpful to shippers.
Rate Case Methodologies
FRCA echoes the comments I shared earlier on behalf of MERS
pertaining to the Act's direction to the STB to evaluate the cost-
effectiveness of large rate case methodologies and potential,
economically sound additional and alternative approaches to expedite
particularly large rate cases. The length and cost of the current
approach has proven to be an impediment to many rail customers
obtaining rate protection under the STB rules. In addition to the
report that is to be released by the consultant that STB hired to
conduct this analysis and report, the STB should consider similar
reports that have been produced by sister governmental agencies.
As an aside, FRCA signed-on to comments filed by the WCTL, and
others, in response to Docket No. EP 733, Advanced Notice of Proposed
Rulemaking, Expedited Rate Cases.
Board-Initiated Investigations
FRCA is supportive of the STB having the authority to initiate its
own investigations. The alliance looks forward to the further
development of a process in the pending proceeding, Docket No. EP 731,
Notice of Proposed Rulemaking, Rules Relating to Board-Initiated
Investigations.
Revenue Adequacy Procedures
Another issue that you, Mr. Chairman, included in your March 31,
2016 letter to the STB Members was on the Act's Section 16, Criteria.
FRCA greatly appreciates you clarifying for the STB and industry that
Section 16 does not mandate the use of replacement cost methodologies
when evaluating revenue adequacy.
In addition, FRCA submitted written comments in Docket No. 722,
Railroad Revenue Adequacy, during public hearings that were held by the
STB in July 2015.
U.S. General Accountability Office Study
Earlier this year, FRCA members met with analysists from the U.S.
Government Accountability Office (GAO) on its study, as required in the
Act, on rail transportation contract proposals that cover movements
from multiple origins to multiple destinations (commonly referred to as
``bundled'' contracts).
FRCA members appreciated the opportunity to meet with the GAO
analysts. While the focus of its study is on bundled contracts, the
analysts sought information on a wider range of topics relating to
shipper experiences in dealing with the railroads and the level of
competition in the railroad industry. In response to questions
regarding contracts, FRCA explained how efforts to standardize terms
and conditions of service reduce the ability of shippers to obtain
transportation arrangements that fit their particular needs and
constraints in serving their customers.
Other STB Proceedings
Although the Act did not specifically address some items of concern
to freight rail shippers, FRCA is pleased that the STB is making
progress on several very important proceedings.
Competitive Switching
Of note, FRCA is pleased that the STB issued its Decision on a
request to adopt revised competitive switching rules--a matter that has
been pending before the Board since 2011 [Docket No. EP 711 (Sub-No. 1)
a Notice of Proposed Rulemaking (NPRM), Petition for Rulemaking to
Adopt Revised Competitive Switching Rules].
FRCA has long supported efforts at the STB to increase competition
in the railroad industry and spread its benefits more widely,
especially for rail-dependent captive shippers. Reciprocal switching is
one avenue to help achieve this. FRCA views this NPRM as an important
step. The alliance will be reviewing the proposal in the coming weeks
and looks forward to the further development of revised rules during
this rulemaking.
Commodity Exemptions
FRCA submitted comments in response to STB's Notice of Proposed
Rulemaking, Review of Commodity, Boxcar, and TAFC/COFC Exemptions,
Docket No. EP 704 (Sub-No. 1).
The alliance has long stated that exemptions are no longer needed
and are counterproductive for the reasons stated in the STB's notice--
these decisions were instrumental when the transition was being made
from a heavily regulated industry to a less regulated industry, but
there have been many economic market changes during the past 30 years.
Also, FRCA encourages the STB to give meaningful consideration to
reviewing and reducing or eliminating most or all or its other existing
commodity, boxcar, and TOFC/COFC exemptions (this NPRM applies to
certain Standard Transportation Commodity Code groups)
Additional Recommendations and Acknowledgements
Reports
As noted in my remarks on behalf of MRES, FRCA also recommends that
the STB review and consider other reports or studies that could help
meet the requirements of the Act and enhance its overall effectiveness.
One such report is ``Modernizing Freight Rail Regulation'' a study
conducted by the National Research Council's Transportation Research
Board (TRB) and National Academy of Sciences, released in June 2015.
FRCA is pleased that many of the issues discussed and recommendations
made mirror the positions advocated by the alliance over the years and
were included in the Act.
Some of the issues discussed in the report, although not included
in the Act, could be considered by the STB including reviewing and
introducing means to improve the accuracy, utility, timeliness, and
availability of the Carload Waybill Sample.
STB's Interactive Maps
FRCA would like to acknowledge the STB on its interactive mapping
portal that can be accessed on its website. Again keeping in mind that
FRCA members heavily rely on data, these interactive maps are extremely
valuable and STB is encouraged to continue developing these tools.
Conclusion
MRES and FRCA applauds you, Mr. Chairman, for holding this very
important hearing on the implementation of the STB Reauthorization Act
of 2015. Your personal and steadfast oversight, accompanied by the
efforts of your staff, is helping to make the difference in
transforming the STB into a more effective, accountable, and
transparent agency--desperately needed in today's market for both
shippers and railroads as freight demands increase here at home and
overseas.
Again on behalf of MRES and FRCA, thank you for providing me the
opportunity to testify before you and the Senate Commerce Committee
today.
I am more than happy to answer any questions you might have.
[Appendix Follows.]
Appendix
Rate Case
Missouri River Energy Services (MRES) relies on a single, base-load
coal plant in Wheatland, Wyoming, called the Laramie River Station
(LRS) to serve the needs of its members. The three units of LRS began
commercial operations in 1980-1982, and generate 1,710 megawatts (MW).
Western Minnesota is one of six owners of LRS, and it owns 16.5 percent
of LRS, corresponding to approximately 282 MW.
LRS obtains its fuel from coal from the Power River Basin, located
approximately 175 miles from LRS. In order to transport the coal to the
plant, LRS, through its operating agent Basin Electric Cooperative
(Basin), pays BNSF Railway to transport substantial amounts of coal
daily to LRS. The owners of LRS own the railcars that the coal is
shipped in; BNSF supplies the engines and engineers.
In 2004, Burlington Northern Santa Fe (BNSF) imposed one of the
single largest rate increases for the 175-mile trek; the rate increase
would have increased consumer bills by over $1 billion between 2004 and
2024.
On behalf of all of the owners of LRS, Basin and Western Fuels
Association Inc., sought to moderate BNSF's rate actions by filing a
rate complaint at the STB in 2004.
In the case, Basin proved it was entitled to substantial relief
under the STB's very complex stand-alone cost (SAC) standards. These
standards required Basin to model a ``Stand Alone Railroad'' (SARR) to
show the full costs of building and operating its own theoretical
railroad versus that of BNSF. Under SAC, the shipper bears the burden
of proof of showing that the SARR provides an adequate replacement for
the BNSF and does at a lower cost, taking into account each shovel of
dirt, each section of rail, each employee, etc. Basin and the other
owners in LRS met this burden and showed that they were in fact
entitled to substantial relief.
However, the STB decided to change some key aspects of its SAC
rules in 2006. In doing so, the STB applied the new rules retroactively
to the pending LRS case, which the STB said ``prejudiced'' the case
when it initially ruled in 2007. The STB permitted Basin and WFA to
revise their SAC evidence, which resulted in a final 2009 decision in
favor of Basin/WFA. At the time, it was the largest relief ever granted
to a shipper in an STB rate case.
BNSF appealed that ruling to the D.C. District Court, which led to
a multi-year ping pong match as the court remanded portions of the
decision back to the STB, and even more appeals by BNSF. The STB again
changed their SAC rules in 2013, and by 2015 Basin/WFA had spent more
than $10 million and more than 10 years on the case, Basin/WFA entered
settlement talks with BNSF to avoid further delays. A final settlement
was entered into in May 2015.
The Chairman. Thank you, Mr. Heller.
You guys are all getting done ahead of your allotted five
minutes here. So we'll give you bonus points or something for
that. But, anyway, thank you.
We'll turn now to Mr. Skuodas. Please feel free to proceed.
STATEMENT OF MICHAEL SKUODAS, VICE PRESIDENT, DISTRIBUTION AND
BUSINESS DEVELOPMENT, POET, LLC
Mr. Skuodas. Thank you. Good afternoon, Chairman Thune.
Thank you for the opportunity to speak to you today and provide
the Committee with our perspective on the recently enacted
Surface Transportation Board reform legislation. My name is
Michael Skuodas, and I am Vice President of Distribution and
Business Development at POET, LLC.
POET is headquartered here in South Dakota and is one of
the Nation's leading biorefinery companies. Of our 27
refineries spread across seven states, 23 rely on rail
transportation to deliver their many products to market. Today,
nearly 70 percent of all ethanol produced in this country is
shipped by rail. Similarly, a significant portion of ethanol
co-products, like distiller grains and corn oil, rely on rail
to reach market.
This makes our industry particularly susceptible to rail
rate increases, of which there have been many over recent
years. Because ethanol is used in nearly every gallon of
gasoline sold in this country, these rates and any rail issues
affecting service have a direct and immediate impact on
consumers throughout the country. Likewise, distiller grains,
or DDGS, are vital to the feed market for livestock production,
as is corn oil for biodiesel.
If I could boil our position down into one sentence today,
it would be that we support policy aimed at providing fair,
efficient, and competitive rail services for our industry.
Prior to the enactment of this critical legislation, the
procedures and institutional barriers at the Surface
Transportation Board made lodging legitimate complaints about
rail service difficult and costly to execute. Timely,
effective, and meaningful resolution to genuine issues was
elusive for so many in our industry.
With this in mind, we're here to say thank you on behalf of
POET, the ethanol industry, and shippers from South Dakota for
your leadership in all of these key rail issues and, in
particular, for your work to enact and implement the recent STB
reform legislation. You, your Senate colleagues, and your staff
gave us the opportunity to be heard. And while we still have
work to do to ensure STB will fully implement the new
regulations, we have reason to be optimistic that conditions
will improve.
With the remainder of my time and in the spirit of this
committee's mandate to oversee the rollout of its legislation,
I would like to turn to a discussion of what we feel is
important for this committee to focus on as the STB moves
forward to address the needs of ethanol shippers. We continue
to support the reporting of rail service data and the ability
of the STB to proactively investigate rail service issues.
Chairman Thune, as you know, we in South Dakota experienced
terrible rail service several years ago that impacted our
industry as well as almost every rail shipper in the Northern
Plains. By continuing this critical reporting and by giving the
STB more authority to investigate, we believe the STB and
others can identify potential service problems before they
snowball and impact larger sections of our Nation's economy as
they did in late 2013 and throughout 2014.
As we have noted in previous comments, we support the
inclusion of rate cases as matters eligible for arbitration, as
well as increasing the cap of potential relief from $200,000 to
$25 million for rate cases and from $200,000 to $2 million for
practice disputes. We also support the ability of parties
entering into arbitration to have the ability to concede the
issue of market dominance by the railroad and continue to
support the STB's work to streamline the process for these
cases so they can be dealt with expeditiously.
Finally, we are very pleased to see the STB move forward
with a competitive rail switching proposal. Our company
competes each and every day in the national fuel market along
with nearly 200 other biorefineries. But rarely do any of these
plants have any sort of choice in rail service. We're hopeful
that this rule can be implemented and our industry can start to
see meaningful competition for rail service.
Chairman Thune, you've been instrumental in addressing the
rail concerns of our industry including the service related
issues in 2014 and now with enactment of STB reform. On behalf
of all of our employees and their families we thank you. We
look forward to continuing our work with you and your fellow
committee members to implement these changes at the Board and
to improve competition and service among railroads and rail
shippers.
I would be happy to answer any questions you may have.
[The prepared statement of Mr. Skuodas follows:]
Prepared Statement of Michael Skuodas, Vice President, Distribution and
Business Development, POET, LLC
Good afternoon Chairman Thune. Thank you for the opportunity to
speak to you today and provide the Committee with our perspective on
the recently enacted Surface Transportation Board reform legislation.
My name is Michael Skuodas and I am Vice President of Distribution and
Business Development at POET, LLC (``POET''). POET is headquartered
here in South Dakota, and is one of the Nation's leading biorefinery
companies. Of our 27 refineries spread across seven states, 23 rely on
rail transportation to deliver their many products to market.
Today, nearly 70 percent of all ethanol produced in this country is
shipped by rail. Similarly a significant portion of ethanol plant co-
products, like distiller grains and corn oil, rely on rail to reach
market. This makes our industry particularly susceptible to rail rate
increases, of which there have been many over recent years. Because
ethanol is used in nearly every gallon of gasoline sold in this
country, these rates and any rail issues affecting service have a
direct and immediate impact on consumers throughout the country.
Likewise, DDGS are vital to the feed market for livestock production,
as is corn oil for biodiesel. If I could boil our position down into
one sentence today it would be that we support policy aimed at
providing fair, efficient, and competitive rail services for our
industry.
Prior to the enactment of this critical legislation, the procedures
and institutional barriers at the Surface Transportation Board
(``STB'') made lodging legitimate complaints about rail service
difficult and costly to execute. Timely, effective, and meaningful
resolution to genuine issues was elusive for so many in our industry.
With this in mind, we are here to say thank you on behalf of POET,
the ethanol industry, and shippers from South Dakota for your
leadership on all of these key rail issues and in particular for your
work to enact and implement the recent STB reform legislation. You,
your Senate colleagues, and your staff gave us the opportunity to be
heard, and while we still have work to do to ensure STB will fully
implement the new regulations, we have reason to be optimistic that
conditions will improve.
With the remainder of my time, and in the spirit of this
committee's mandate to oversee the roll out of its legislation, I would
like to turn to a discussion of what we feel is important for this
committee to focus on as the STB moves forward to address the needs of
ethanol shippers.
We continue to support the reporting of rail service data and the
ability of the STB to proactively investigate rail service issues.
Chairman Thune, as you know, we in South Dakota experienced terrible
rail service problems several years ago that impacted our industry as
well as almost every rail shipper in the northern plains. By continuing
this critical reporting and by giving the STB more authority to
investigate, we believe the STB and others can identify potential
service problems before they snowball and impact larger sections of our
Nation's economy as they did in late 2013 and throughout 2014.
As we have noted in previous comments, we support the inclusion of
rate cases as matters eligible for arbitration as well as increasing
the cap in potential relief from $200,000 to $25M for rate cases and
from $200,000 to $2M for practice disputes. We also support the ability
of parties entering into arbitration to have the ability to concede the
issue of ``market dominance'' by the railroad, and continue to support
the STB's work to streamline the process for these cases, so that they
can be dealt with expeditiously.
Finally, we are very pleased to see the STB move forward with the
competitive rail switching proposal. Our company competes each and
every day in the national fuel market along with nearly 200 other
biorefineries, but rarely do any of these plants have any sort of
choice in rail service. We're hopeful that this rule can be implemented
and our industry can start to see meaningful competition for rail
service.
Chairman Thune, you have been instrumental in addressing the rail
concerns of our industry including the service related issues in 2014
and now with enactment of STB reform. On behalf of all of our employees
and their families we thank you. We look forward to continuing our work
with you and your fellow committee members to implement these changes
at the Board to improve competition and service among railroads and
rail shippers.
I would be happy to answer any questions you may have.
The Chairman. Thank you, Mr. Skuodas.
We'll turn now to Mr. Knecht.
STATEMENT OF TROY KNECHT, VICE PRESIDENT,
SOUTH DAKOTA CORN GROWERS ASSOCIATION
Mr. Knecht. Mr. Skuodas left an extra minute out there.
Could I use that?
[Laughter.]
The Chairman. You can snap it up. Go ahead.
Mr. Knecht. Good afternoon. My name is Troy Knecht. I'm a
fourth-generation family farmer from Houghton, South Dakota. I
serve as Vice President of the South Dakota Corn Growers
Association, and I appreciate the opportunity to be with you
today.
Let me begin by thanking the Senate Committee on Commerce,
Science, and Transportation in passing the Surface
Transportation Board Reauthorization Act of 2015 and Chairman
Thune for holding today's hearing and his leadership on this
issue. On behalf of the 12,500 corn growers in South Dakota, I
appreciate the opportunity to be here today to represent my
association.
Agriculture is South Dakota's largest industry. Our great
state has 43.3 million acres of farmland. Last year, South
Dakota Corn Growers grew over 800 million bushels of corn. Corn
Growers used the rail system to export over a billion gallons
of ethanol, over 1 million metric tons of distillers grain, and
over 300 million bushels of corn. Simply put, rail is our
gateway to the marketplace.
Because of our proximity to the Pacific Northwest, exports
are an enormous market for us. Ninety-nine percent of our corn
moves on the Burlington Northern Santa Fe. Recently, the BNSF
put over $4 billion in over 35,000 miles of tracks in the
western United States, which was very appreciated by corn
growers.
These investments are needed to address the growing demand
for grain worldwide. According to the U.S. Grains Council,
Japan has been the number one buyer of U.S. corn this decade,
South Korea has been the number three, and Taiwan is number
four. Japan alone purchased $14 billion worth of U.S. corn
during the previous 5 years. China is the number one buyer of
U.S. soybeans and currently ranks second in ethanol purchases.
To successfully serve those Asian markets, it is imperative
that we are able to smoothly transport our commodities from the
middle of the U.S. to the Pacific Northwest, and we sincerely
appreciate BNSF's vision in infrastructure.
South Dakota corn growers are grateful to Senator Thune for
addressing rail concerns shared by everyone in agriculture. We
appreciate his leadership in passing of the STB reauthorization
bill. It is a critical piece of legislation that affects all
major markets.
The STB Reauthorization Act was a needed piece of rail
legislation. It had not been reauthorized since its formation
in 1996 when it replaced the Interstate Commerce Commission.
The legislation expanded the Board from three to five, enhanced
the Board's ability to address rail issues as they arise,
streamlined rate case procedures, and created an alternate
dispute resolution process. All of these have major impacts to
shippers and growers, but none more than the new authority to
investigate rail issues having regional or national
significance.
Over the past decade, the Government Accountability Office
and the Department of Justice Antitrust Division have published
reports raising concerns about the efficiency of rate review
processes for shippers, particularly captive shippers served by
a single railroad. Reports state that the rate review process,
including the stand-alone cost test, is often burdensome and
inefficient, costing millions of dollars to litigate and years
to resolve.
So the ability of the STB to investigate rail issues is
enormous to South Dakota, as we are the definition of a captive
shipper. Our corn is railed on the Burlington Northern Santa
Fe, the only Class One rail in South Dakota.
The Act empowered the STB to conduct investigations and
required changes in the arbitration process. It is incredibly
important that the STB Board has the ability to proactively
investigate issues. It is equally important that they share
that information in a transparent manner. We certainly
appreciate the basic three-stage process proposed by the STB
for implementing its new investigative authority, which would
involve preliminary fact finding by the STB's staff, a board-
initiated investigation, and initiation of a formal STB
proceeding if the investigation warrants it.
South Dakota corn growers believe that the STB should adopt
an appropriate degree of public transparency on the alleged
issue or rail practice that potentially warrants an
investigation, while still protecting the identity and
reputation of the rail carrier and rail used involved. We would
also ask the STB to provide an appropriate degree of public
transparency and accountability to inform freight rail users
about the outcome of investigations that are not pursued or
investigations that are not pursued or are discontinued, as
well as the agency's general reasoning for its decision.
In the fall of 2013 and part of 2014, our state faced a
significant rail crisis. The rail crisis not only affected
South Dakota, but gripped the Nation. It opened up the need for
transparency in our transportation industry.
Once again, I want to thank you for the opportunity to
speak on behalf of the 12,500 corn farmers of South Dakota, and
Senator Thune for his vision in addressing this issue. It has
been over 20 years since Congress addressed STB legislation. It
is critical that it is done right for everyone involved.
Thank you.
[The prepared statement of Mr. Knecht follows:]
Prepared Statement of Troy Knecht, Vice President,
South Dakota Corn Growers Association
Good afternoon, my name is Troy Knecht, I am a fourth generation
family farmer from Houghton, SD. I serve as Vice President of the South
Dakota Corn Growers Association, and I appreciate the opportunity to be
with you today. Let me begin by thanking the Senate Committee on
Commerce, Science and Transportation in passing the Surface
Transportation Board Reauthorization Act of 2015 and Chairman Thune for
holding today's hearing and his leadership on this issue.
On behalf of the 12,500 corn growers in South Dakota, I appreciate
the opportunity to be here today to represent the South Dakota Corn
Growers Association. Agriculture is South Dakota's largest industry.
Our great state has 43.3 million acres of farmland. Last year South
Dakota Corn Growers grew over 800 million bushels of corn. Corn Growers
used the rail system to export over a billion gallons of ethanol, over
1 million metric tons of distillers grain, and over 300 million bushels
of corn. Simply put, rail is our gateway to the marketplace.
Because of our proximity to the Pacific Northwest, exports are an
enormous market for us. 99 percent of our corn moves on the Burlington
Northern Santa Fe. Recently, the BNSF put in over $4 billion in over
35000 miles of tracks in the western United States, which was very
appreciated by corn growers.
These investments are needed to address the growing demand for
grain worldwide. According to the U.S. Grains Council, Japan has been
the number one buyer of U.S. Corn this decade, South Korea has been the
number three and Taiwan is number four. Japan alone purchased $14
billion worth of U.S. corn during the previous five years. China is the
No. 1 buyer of U.S. soybeans and currently ranks second in ethanol
purchases. To successfully serve those Asian markets, it is imperative
that we are able to smoothly transport our commodities from the middle
of the U.S. to the Pacific Northwest and we sincerely appreciate BNSF's
vision in infrastructure.
The SDCGA is grateful to Senator Thune for addressing rail concerns
shared by everyone in agriculture. We appreciate his leadership in
passing of the SRB reauthorization bill. It is a critical piece of
legislation that affects all major markets.
The STB Reauthorization Act was a needed piece of rail legislation.
The STB had not been reauthorized since its formation in 1996 when it
replaced the Interstate Commerce commission.
The legislation expanded the board from three members to five,
enhanced the board's ability to address rail issues as they arise,
streamlined rate case procedures, and created an alternate dispute
resolution process. All of these have major impacts to shippers and
growers, but none more than the new authority to investigate rail
issues having regional or national significance.
Over the past decade, the Government Accountability Office (GAO)
and the Department of Justice (DOJ) Antitrust Division have published
reports raising concerns about the efficiency of rate review processes
for shippers, particularly captive shippers served by a single
railroad. Reports state that the rate review process, including the
``standalone'' cost test, is often burdensome and inefficient, costing
millions to litigate and years to resolve.
So the ability of the STB to investigate rail issues is enormous to
South Dakota, as we are the definition of captive shippers. Our corn is
railed on the Burlington Northern Santa Fe (BNSF), the only Class one
rail in South Dakota.
This Act empowered the STB to conduct investigations and required
changes in the arbitration process. It is incredibly important that the
STB board has the ability to proactively investigate issues. It is
equally important that they share that information in a transparent
manner.
We certainly appreciate the basic three-stage process proposed by
the STB for implementing its new investigative authority, which would
involve preliminary fact-finding by the STB's staff; a board-initiated
investigation; and initiation of a formal STB proceeding if the
investigation warrants it.
The SDCGA believes that the STB should adopt an appropriate degree
of public transparency on the alleged issue or rail practice that
potentially warrants an investigation, while still protecting the
identity and reputation of the rail carrier and rail used involved.
We would also ask the STB to provide an appropriate degree of
public transparency and accountability to inform freight rail users
about the outcome of investigations that are not pursued or
investigations that are not pursued or are discontinued, as well as the
agency's general reasoning for its decision.
In the fall of 2013 and part of 2014 our state faced a significant
rail crisis. The rail crisis not only affected South Dakota, but
gripped the Nation. It opened up the need for transparency in our
transportation industry.
Once again, I want to thank you for the opportunity to speak on
behalf of the 12,500 corn farmers of South Dakota, and Senator Thune
for his vision in addressing this issue. It has been over 20 years
since Congress addressed STB legislation. It is critical that it is
done right for everyone involved.
The Chairman. Thank you, Mr. Knecht.
And I would just say that when I get into some of the
questions here, I may specifically reference testimony from any
one of the witnesses here. But feel free, anybody, to jump in
if you've got a response to any of the questions that we put
forward. And I would also reiterate that your entire written
statements--I know you summarized some of those--will be
included in the record for the hearing.
Mr. Mack, in your testimony, you noted that prior to the
enactment of the law, the Transportation Research Board found
the rate review procedures at the STB to be unusable by most
shippers. You also noted the importance of the law's provisions
for quicker rate case timelines, expedited administrative
practices, and, as you mentioned, alternative rate review
methodologies. I'm just wondering maybe if you could speak to
the limitations or the burdens of the stand-alone cost test,
which has been the standard sort of way of challenging some of
these--dealing with these rate cases in the past, and the best
way that you see the STB using the provisions of the new law to
reduce some of those burdens.
So maybe you could talk about sort of where we are and how
you see perhaps us being able to better address not only the
shortcomings, but the burdens and barriers that existed in the
past.
Mr. Mack. Sure. Thank you. The stand-alone cost rate
component really is factored on and best utilized for something
that is very high density in terms of rail shipments. So the
more density you have, the more likely you're going to have a
higher risk, in terms of risk financially due to a rate.
The challenges have been really around, as Mr. Heller had
mentioned in his testimony, the time and cost that it takes to
bring a stand-alone cost case. It's extremely burdensome. It's
extremely costly and takes a tremendous amount of time. And
during those periods of time that it takes to resolve some of
those scenarios, of course, you've got shifts in the market and
changes in the market, and what was relevant perhaps on day one
may or may not be relevant five or 10 years down the road. So
that's one of the challenges, not to mention the overall cost.
If you look at agriculture, specifically, which is what I'm
representing here today, you don't have the same origin-
destination density that you might have in some other
commodities. And probably the most common one that's always
identified that fits best into the SAC methodology would be
coal, where you have some fairly consistent high densities
between an origin--in this case, a mine--and a power plant,
where coal moves back and forth on a consistent basis.
In agriculture, what happens is you have multiple markets.
You may have a single origin, but that grain, depending on the
commodity, depending on the geography, depending on demand
factors, shifts to many different markets, so you don't
necessarily have that density. So the justification to be able
to spend the number of years and the amount of money and the
time and effort doesn't justify itself.
There are other methodologies, of course, that the Surface
Transportation Board does provide that probably fit that
better. But the challenges we've always continued to face is
that, regardless, you're still running into the time, cost, and
complications that result around it, as well as the possibility
that markets will shift.
How you deal with that is the challenge that has been
before the STB for quite some time. How do you balance the
ability to make sure that the rail industry maintains its
ability to reinvest, its ability to be profitable, its ability
to serve a customer, but at the same time at a fair rate? So
the challenge is really around how do you streamline the
process in terms of what types of things need to be
discoverable, and what are the criteria to determine what's a
fair rate, and then how do you shorten the timeline?
I think some of the steps that have been taken so far,
particularly around timeline, have been really positive. So
there are some prescribed processes, prescribed timelines that
I think are very relevant, probably very similar to how you
would manage an arbitration type of process, where it's very
prescriptive on what types of procedures, what types of
information, and what type of timeline.
So if we can narrow that in even further, coupled with some
additional emphasis around how do you determine--what do you
use for benchmarking, what types of data that's required--I
know the STB is working on their URCS platform, which is a key
component to some of this as well. I think coupling a lot of
those together can improve the process dramatically.
The Chairman. Just for purposes of people here in the
audience who perhaps aren't familiar with what you just
described, the stand-alone cost test--kind of describe, if
you're going to contest before the Board a rate, how you would
go about doing that, because it's a very complicated and, as
you said, expensive and time consuming process. So that's what
we have today available, so maybe just for purposes of--I'm
sure you guys have been through it.
Mr. Mack. Actually, we have not as a company.
The Chairman. Oh, you have not?
Mr. Mack. We have not. But the way I look at it--and maybe
Mr. Heller can share some of that as well--but, essentially,
the concept is really around evaluating the cost of the actual
movement as if it was an individual stand-alone railroad that
was put in place--so, obviously, a fictitious railroad--put in
place essentially to move that product from the point of
origin--the complaint describes the destination it describes.
And it defines what it would actually cost to put that railroad
in place. So that's kind of the foundation around the stand-
alone cost.
So when you look at that, you say, ``Well, that may have
some relevance in terms of what the actual rate should be,''
but it's also a fictitious approach to the world. The market
doesn't work that way. The scope and scale and efficiency of a
railroad is based on handling multiple products, multiple
geographies, multiple different scenarios. So really the big
burden that has to be overcome is how do you create this
fictitious railroad and how does that drive what the rate
should be, which is really one of the challenges.
The Chairman. And my understanding of it is that you
literally create out of thin air a railroad, and you would
compare what that movement would be with a stand-alone railroad
compared to what the rate structure is today.
So, Mr. Heller, you highlighted the importance of the study
that's being done on simplifying the rate review methodologies
as a supplement to that stand-alone cost test. So I'm wondering
if maybe you could elaborate on your views, your ideas about
the alternative rate review methodologies for simplifying this
process and maybe in doing that describe your experience a
little bit, how that stand-alone cost model worked. But I guess
I'm more interested in where we go from here and what we can do
as far as perhaps some alternatives.
Mr. Heller. Thank you, Senator Thune. As you mentioned,
we've had--or as I mentioned in my testimony, we have had
experience with the stand-alone cost. It took us 10 years and
$10 million and we still had no settled case. The stand-alone
cost, from what I understand from information given to me by
Ann Warner of the FRCA, our national association, actually was
developed in 1985 by the ICC. So it predates, evidently, the
Surface Transportation Board.
The stand-alone cost test, as you've been discussing, is a
way--it's a model that's developed of designing out of thin
air--designing, building, operating an imaginary railroad. The
test here is to see what it would cost if there was a brand new
railroad built, and the standard is to see then how much it
would cost to operate that railroad, and are the rates
reasonable, then, that are being charged on the real one. So
it's kind of a comparison there.
From what we understand, there's no other economic
regulatory agency in the United States or any other nation that
uses this kind of a standard. I think it might have been--it
had its place in time in 1985. But a lot of things have changed
since 1985. We look forward to the consultant's report to
address the alternatives to the SAC test.
You know, we're not sure we want to throw the whole thing
out. We have had some real problems with it, but are there some
things that can be done to supplement that stand-alone cost
test to make the process faster and less expensive? And maybe
the best thing to do is to throw it out. We look forward to
working with the STB, providing comments to them when the
report comes out.
You know, you look at the whole situation of creating an
imaginary system--I mean, if we're an electric utility, and if
our members were to increase rates, the burden--if you were to
hold that same type of standard on electric utilities, the
customers, then, would have the burden of proof to show that
the utility had an excessively high and costly rate. And they
would have to design a whole new electric system, submit that
testimony to the utility board or regulatory agency to prove--
the burden of proof is on the customers. They'd have to prove
that it wrong. That's one of the problems with the SAC test--is
that the burden of proof is on the shippers. The burden of
proof of the rate is not on the railroads.
You know, I don't know--we don't have an answer to what it
should be. But I can tell you for sure what we know it
shouldn't be, and it shouldn't be just the SAC test by itself.
We look forward to working with the Surface Transportation
Board on future alternatives.
The Chairman. Thank you, Mr. Heller.
Mr. Knecht, could you speak to the issue of--if you're a
typical grain shipper or some other shipper in South Dakota,
speak to the accessibility of the current procedures for that
shipper and ways maybe that the STB could improve accessibility
for farmers. I mean, if you've got a big, kind of, utility
company or something like that that has a lot of money that
they can put out there and has the--you know, to pay for the
lawyers and everything that it takes to construct a stand-alone
railroad--but what if you're a grain elevator in a town in
South Dakota that doesn't have those kinds of resources?
Mr. Knecht. Right. I've obviously never been involved in a
rate case. But it's too costly for a regular shipper, let alone
a farmer. It's not reasonable to expect that they could take on
the likes of a railroad.
I want to quote you, actually, Senator Thune. You read this
from Myrtle McKenzie, and this is interesting. He was
testifying before the Senate Commerce Committee in 1903, and
this demonstrates how this is not a new issue. And he said--and
you said, ``What show has he to go into the courts to make the
railroads pay for this? He has none. And even if he does
succeed, it takes years to get it, and it costs him more than
the whole thing is worth.'' I think that's the bottom line.
It's just too costly.
The Chairman. I want to follow up, too, because in your
testimony, you mentioned--and I think it's important to point
this out--that there has been a $4 billion investment made by
the Burlington Northern Santa Fe Railroad in the western United
States and the importance of those investments to meet the
growing demand for grain worldwide. And I would like for you,
if you could, to speak maybe specifically to some of the
investments that have been made in or near South Dakota that
have been particularly important for rail service in the state.
I say that in fairness, because I think the railroads, in
response to the challenges that we went through in 2013 and
2014, have aggressively upped their capital investment in cars
and locomotives and rail improvements and all the things that
are necessary. And, frankly, as I talk to shippers across South
Dakota--and I do quite often--I think we're in a much better
place today, and I think the level of satisfaction in the
shipper community is significantly higher, and I think that's
partly--I think to be fair, we've got to give the railroads
credit for the investments they've made. So maybe you could
speak to that from a South Dakota standpoint.
Mr. Knecht. Absolutely. You've got your core line that runs
from Aberdeen to Sioux City, and that's 368 miles. I believe
last year, BNSF made a $69 million investment to improve that,
to do maintenance on that track. Since 2013, they've located 11
new or expanding facilities, and as you mentioned, the $4.2
billion investment, which is huge for us, to get us to the
Pacific Northwest. That's imperative. They have been very
proactive and responsive, I think, and, obviously, they should
be commended for that.
The Chairman. Mr. Skuodas, you, in your testimony, pointed
out that the legislation expanded arbitration procedures
including increasing damage caps and making rate cases eligible
for arbitration in order to better incentivize this alternative
to what is a very costly litigation process. So what effects do
you anticipate these changes having on the biofuels industry,
if you can maybe speak to it from your perspective as someone
who ships and is very dependent upon the railroad to get your
product to the marketplace?
Mr. Skuodas. Well, to kind of, I guess, sum it up just in a
few words, it really ups the ante, and I think what it does is
it encourages the carriers to act in good faith and be involved
on the front end. You know, our disposition is always if we can
work something out commercially, that's always the best
alternative. We don't want to have an adversarial relationship
that leads to arbitration and litigation, ultimately, the idea
being if it's taken seriously, and the potential liability is
big enough, it forces activity on the commercial side on the
front end, so, hopefully, you never get to that point, just to
sum it up that way.
The Chairman. One of the things that we really tried to
highlight, too, is the importance of transparency in the fact
finding and decisionmaking process. So I'll direct that to
anybody that wants to respond to it. But maybe you could speak
to the ways in which additional transparency could benefit the
shipper community and maybe start, Mr. Knecht, with grain
shippers since that's your area of expertise. Just more
information, more--you know, what are the types of things that
would be helpful in terms of just giving you more information
to make good decisions.
Mr. Knecht. Well, I think, you know, in my testimony, I
mentioned that we want to make sure--be cognizant of the rail
carrier and protect them. But transparency, as far as just
information as to what's going on out there, why is it
happening, what's the situation--I just think that to have that
open transparency, to have that back-and-forth, the grain
shipper won't feel like they're at a disadvantage. I just think
it's just imperative. Maybe these guys have been involved with
a little bit more, and maybe they can expand on that, I guess.
The Chairman. And I would add, just for the panel, too, as
required by the law, the STB has now published two iterations
of quarterly reports that track unfinished regulatory
proceedings in rail service complaints, which is designed to
increase transparency and help Congress and the public hold the
STB accountable. So if any of the other panelists could maybe
give your assessment of the level of detail in those reports
and what, if anything, the STB could do to increase their
usefulness.
Mr. Heller. Thank you, Senator Thune, and, again, thank you
for the March 31 letter to the STB commissioners. That really
spelled out that it would be more useful and effective if they
could include additional details, such as delays, continuances,
reason for delays or continuances, and anticipated dates for
procedural orders. I think those three things would really be
important. If they could be added, it would help transparency
substantially.
The Chairman. Anything else?
Mr. Mack?
Mr. Mack. I think I'll take a perspective a little bit
about what we had in place as recent as maybe a year or two ago
versus what we have today. So I think we've come a long way
when you think about the service metrics that are currently
available that are collected by the STB and disseminated and
provided to shippers, large and small, and I think that's an
important distinction, because when you're a large shipper, you
have opportunities that a small shipper doesn't have, or to the
point of a single location, doesn't have that. So service
metrics, I think, are important.
Second, just having the insight on where the procedural
process is at. Oftentimes--and I'm a member of a number of
organizations and associations, trade organizations, where I
would serve on either committees or in leadership positions,
and oftentimes, it was really kind of a guess as to exactly
what the next steps would be, what the expected next action
would be. You know, oftentimes, there was some insight that was
provided. In some cases, that may have been the case. In some
cases, it may not have been.
But now you have a kind of ability to follow--and it may
not always be completely clear, but there are generally reasons
why there may be some vagueness in that. But it's significantly
improved around that, and then just really around how do you
identify from a trending perspective what people are talking
about as a shipper, and that kind of gets to this complaint
tally, if you will, or concern tally, depending on how you want
to call it. It gives you a sense as to maybe what are some of
the things that are trending, and are you feeling the same.
Oftentimes, sometimes we feel that maybe if you're a single
location or a couple of locations, it's just a regional small
issue, or it's just about your particular location. But you
start to see some trends, and you can start to make some
analysis around that, and maybe that becomes something that
gets dealt with quicker. So I think the transparency that's
been provided has been really positive, and I think it has been
a direct link to the reauthorization bill.
The Chairman. Mr. Skuodas, anything to add?
Mr. Skuodas. I'll just say that it brings some consistency,
I think, to it. We have locations throughout several states in
the U.S. and deal with a lot of the different carriers, and in
terms of service metrics, responsiveness, information, it was
kind of hit and miss. This brings a little bit more consistency
so you have a good idea what's going on, and I think that helps
us in terms of the strategic planning, you know--do we need
more rail cars, fewer rail cars, should we ship into L.A.
versus New York--those kinds of decisions. I think it helps us
do a better job of that.
The Chairman. Mr. Mack, in your testimony, you mentioned
the importance of including fertilizer in the forthcoming
railroad performance service metrics final rule. I'm wondering
if maybe you could provide some additional insight into the
value of those metrics for logistical planning purposes.
Mr. Mack. When the first metrics came out, fertilizer was
noticeably missing. I'm not sure if that was an oversight or if
that was for a particular reason, but, certainly, when you look
at the mix of movements of fertilizers--and it's really across
the North American landscape, Canada, United States, Eastern
movements, Western movements--it was just noticeably missing.
Fertilizer ships in all different types and forms, single cars,
unit trains. It ships 12 months a year. There's a peak season.
There's a non-peak season. But it does move on a consistent
basis throughout the year.
There has been a tremendous amount of investment made in
South Dakota, as well as other locations, on receiving
facilities that can handle unit train type quantities. The time
periods that the farmer can put their crop in the ground have
shortened every year, so that becomes much more sensitive,
logistics becomes much more sensitive. And it just seemed very
obvious that that was something that needed to be included so
that fertilizer users, producers, farmers could basically use
that as a gage on what the logistical expectations are in any
given time period as it relates to crop nutrients and
fertilizer products.
The Chairman. Let me ask--we have time maybe for one or
two--if anyone on the panel has any additional comments or
perspectives regarding these improvements in the way rate cases
are handled as well as the proactive problem solving and
transparency improvements in the STB.
Mr. Mack. I can start. I think when you think about that
capability--and it has some limitations on it, certainly. But
when you think about that capability, it's really kind of
untied the hands of the Board. You know, there's a process that
the Board has to deal with informal concerns and issues,
service issues or what-not, and they've done a nice job of
bringing that forward.
But you start to see trends over time, and I think we
probably got a lot of experience in the last maybe two or three
years ago, where you started to really see some clear trends.
In the old scenario, an individual company or shipper would
have to actually bring a complaint to really get the necessary
traction to really start to get it, you know, really viewed
as--is this a systemic issue, is it an unreasonable practice,
is there a major service concern?
And in this scenario, if you start to get a trend, if the
Board can see a trend, and they're starting to see a lot of
consistency around some of the concerns that shippers are
bringing forward, or others, they can go out and do some
investigation. They can start to try and understand it better.
They can probably have some further conversations about it. And
it doesn't mean that it turns into a full proceeding, but it
gives them the opportunity to be much more proactive and,
hopefully, deal with the issues in a quicker and more efficient
manner.
The Chairman. Anybody else want to add anything to that?
Mr. Skuodas. I would just say it addresses the things we've
brought up, the time and money. You know, it's proactively
investigate, not necessarily to have to make a decision or do
anything, but start the process, and maybe there's something
there and maybe there's not. But it gives them the ability to
do so.
The Chairman. All right. Well, listen, I think we've kind
of covered most of the questions that I had for the panel. I
appreciate very much, again, all of you being here, and I thank
you for your expertise and your knowledge and your time. We're
very interested in making sure that the legislation gets
implemented in a timely way, which the STB, as everybody has
pointed out, has been great about, and also that it's on the
mark in terms of getting the things done that we intended when
Congress passed it.
And, of course, it was shaped, as you know, with a lot of
input from folks in the shipper community, and a lot of issues
were raised that I think needed to be raised. As also was
pointed out earlier, we haven't done this in 20 years, so we
were due for a reauthorization and another look at what we
could do better and what we could improve upon. So we thank you
for that, and we've come a long way since Myrtle McKenzie.
For those of you who didn't get Mr. Knecht's reference,
Myrtle McKenzie was the founder of my home town back in 1905 or
1906, sometime in that time frame, and he testified in front of
the Senate Commerce Committee once years ago on some of these
very issues. So that was the historical reference there for
that. It's interesting to go back. There's a lot of--in the
annals of time, you see a lot of the same issues debated and
discussed that we're talking about today.
So that concludes our questions for Panel 1. Again, I want
to thank each of you for your thoughtful testimony today and
providing your insights about implementation of the STB
Reauthorization Act. So I'm going to allow all of you to be
excused, and we'll call up the Surface Transportation Board
members and ask them if they would come up and take their
seats, and we'll get into their testimony and some questions
for them.
So thank you all very much.
As I mentioned in my opening statement, I very much
appreciate the efforts of the Board today to implement the
reauthorization bill in a timely manner, and I also appreciate
the Board's responsiveness to the Committee. We have a shared
goal of ensuring efficient, reliable, and competitive freight
rail service, and I look forward to hearing your insights on
implementation of the law and some of the emerging issues. So
I'll start with the Chairman, Mr. Elliott, and allow him to
make some comments, and then we'll proceed to Vice Chairman
Miller and Board Member Begeman in that order.
So, Mr. Chairman, please proceed.
STATEMENT OF HON. DANIEL R. ELLIOTT III, CHAIRMAN, SURFACE
TRANSPORTATION BOARD
Mr. Elliott. Thank you very much. Chairman Thune and
esteemed guests, I appreciate your invitation to testify at
this hearing to provide an update on our agency's
accomplishments in implementing the Surface Transportation
Board Reauthorization Act of 2015.
I want to reiterate my thanks to you, Chairman Thune, for
your deep interest in freight railroad issues both in South
Dakota and throughout the Nation and your work with the Surface
Transportation Board on rail service issues and for this
committee's thoughtful oversight of the STB.
As a result of the Reauthorization Act, the Board has
achieved greater transparency and efficiency. As you know, the
STB has been providing voluntary monthly and required quarterly
written updates to our congressional oversight committees and
to our stakeholders. I would like to thank Chairman Thune, in
particular, for this enhanced reporting provided by the
Reauthorization Act.
As you may have seen, we have issued a number of major
decisions in the first 6 months of this year. Significant
credit for this development is due to the reporting established
by the Reauthorization Act. The Act enhances our authorities
and creates new responsibilities. Our first year working under
reauthorization has been one of implementation. We are making
steady progress in all of the major actions that the Board is
undertaking to execute these enhanced responsibilities. To
date, the Board has implemented the Act in a timely fashion and
intends to continue to do so.
Here are some of the highlights of implementation. With
respect to arbitration, on May 12, 2016, the Board issued a
Notice of Proposed Rulemaking amending our procedures for the
arbitration of disputes before the Board to conform to the
statutory requirements in Section 13 of the Reauthorization
Act. We are on track to deliver final rules by the end of
September.
Regarding investigative authority, Section 12 of the
Reauthorization Act gave our agency new power to investigate
nationally or regionally significant railroad issues on our own
initiative. On May 16, 2016, we issued a Notice of Proposed
Rulemaking to establish procedures for these investigations.
With our new authority, the Board is better equipped than it
has been in the past to explore and resolve significant
railroad issues such as the service problems that emerged in
late 2013 and lasted through 2014. We intend to issue final
rules on this proceeding by December.
Rate cases are another focus of the Reauthorization Act.
First, Section 11 of the Act instructed us to look for ways to
expedite rate cases by examining procedures available in court
litigation. On June 15, the Board released an Advance Notice of
Proposed Rulemaking to implement this element of the
Reauthorization Act. The ANPRM raises numerous topics and
suggests methods to expedite rate reasonableness cases,
especially the stand-alone cost rate cases that were discussed
earlier.
Also, on the subject of rate cases, I note that on March 9,
2016, we issued final rules amending our regulations to comply
with the rate case procedural schedule set forth in Section
11(b) of the Act. In addition, we are working on our report on
the sufficiency of STB rate case methodologies and alternatives
as required under Section 15 of the Act, which we intend to
complete by December of this year. My intent is to hold a
hearing or hearings to discuss the report shortly thereafter in
conjunction with our Section 11 expediting rate cases
proceeding and, hopefully, a grain rate case rulemaking.
Last but certainly not least, the Board is close to a
proposal on our grain rate case rulemaking. I'm acutely aware
that the Board's rate complaint procedures need to be more
accessible to grain shippers and smaller shippers, generally,
and provide effective protection against unreasonable rates. I
have heard the frustrations of farmers and elevators alike.
Later this month, I hope to unveil a proposed new rate case
methodology that is intended to be streamlined and small and
that addresses the concerns I've heard from the agricultural
community and today.
Moreover, Section 5 of the Act granted the Board the
ability to hold nonpublic collaborative discussions related to
agency matters that you heard discussed earlier. The Board has
already held four of these Section 5 meetings, which have been
extremely beneficial to me.
In closing, I want to thank you again for this opportunity
to speak about the Board and its progress in implementing the
STB Reauthorization Act. There's no doubt that freight rail
transportation will benefit from the innovative provisions of
this law. Behind this reauthorization is a message of
transparency and increased efficiency, and that is what I
intend to deliver to the public.
I'd be happy to answer any questions you might have, and,
also, I'd like to make myself available after the hearing. If
anybody has any questions, I'd be happy to meet with you.
[The prepared statement of Mr. Elliott follows:]
Prepared Statement of Daniel R. Elliott III, Chairman,
Surface Transportation Board
Good afternoon, I am Dan Elliott, Chairman of the Surface
Transportation Board.
Chairman Thune, Ranking Member Nelson, Members of the Committee,
and esteemed guests, I appreciate your invitation to testify at this
hearing to provide an update on our agency's accomplishments in
implementing the Surface Transportation Board (STB) Reauthorization Act
of 2015. I want to reiterate my thanks to you, Chairman Thune, for your
deep interest in freight railroad issues both in South Dakota and
throughout the nation, and your work with the Surface Transportation
Board on rail service issues, and for this Committee's thoughtful
oversight of the STB.
As a result of the Reauthorization Act, the Board has achieved
greater transparency and efficiency, which directly benefits the
stakeholders that we serve. As you know, the STB has been providing
voluntary monthly and required quarterly written updates to our
congressional oversight committees and to our stakeholders, tracking
our steady progress in meeting the mandates of the Act. I would like to
thank Chairman Thune in particular for the enhanced reporting provided
by the Reauthorization Act. As you may have seen, we have issued a
number of major decisions in the first six months of this year.
Significant credit for this development is due to the reporting
established by the Reauthorization Act and the support it provides to
our continuing timeliness improvements.
This hearing will allow me to provide further information, and to
elaborate on our efforts in response to any questions that you may
have.
The Reauthorization Act made the STB a wholly independent Federal
agency, terminating our administrative affiliation with the U.S.
Department of Transportation. The Act also changed the agency and some
of our processes in other significant ways. Most notably, the Act
Increased the Board's membership from three to five Board
Members;
Directed the Board to adjust its existing voluntary
arbitration procedures, including increasing the maximum damage
awards;
Shortened timelines applicable to large rate case
proceedings, including limits on the time allowed for discovery
and for development of the evidentiary record;
Instructed us to initiate a proceeding to find ways to
expedite major rate case proceedings;
Allowed a majority of Board Members to meet directly in
private to discuss agency matters, subject to certain
requirements; and
Bestowed authority on the Board to initiate investigations
of railroad issues of regional or national significance.
The Act enhances our authorities and creates new responsibilities.
Our first year working under reauthorization has been one of
implementation. We are making steady progress in all of the major
actions that the Board is undertaking to execute these enhanced
responsibilities. To date, the Board has implemented the Act in a
timely fashion and intends to continue to do so. Some of the highlights
of implementation are as follows:
Arbitration
On May 12, 2016, the Board issued a notice of proposed rulemaking
amending our procedures for the arbitration of disputes before the
Board to conform to the statutory requirements in Section 13 of the
Reauthorization Act. We are expanding our rules to encompass rate
proceedings and raising the cap on damages to $25 million in rate
matters and $2 million in other matters. The comment period closed on
July 1, 2016. I have reviewed the thoughtful opening and reply comments
we received and I am working on the changes we need to make to our
proposed rules, as a result of those comments. We are on track to
deliver final rules by the end of September.
Investigative Authority
Section 12 of the Reauthorization gave our agency new power to
investigate nationally or regionally significant railroad issues on our
own initiative. On May 16, 2016, we issued a notice of proposed
rulemaking to establish procedures for these investigations. Our rules
contemplate a three-stage process consisting of:
(1) preliminary fact-finding,
(2) Board-initiated investigations, and
(3) formal Board proceedings.
In fashioning our rules, we are working to ensure that we have
incorporated appropriate protections for due process, separation of
fact-finding versus adjudication and, very importantly, timely
resolution of cases. We received opening comments on July 15, 2016, and
I eagerly await what stakeholders have to say in reply comments, which
are due by August 12, 2016. In determining what changes we need to make
in the final rules, I will take into account the valuable input that
stakeholders provide through the comments. With our new authority, the
Board is better equipped than it has been in the past to explore and
resolve significant railroad issues, such as the service problems that
emerged in late 2013 and lasted through 2014.
Rate Cases
I have heard our stakeholders when they express their concerns
about the complexity and expense of bringing a SAC case. During my
first term, the Board initiated several reforms, including adopting
rules that (1) clarified certain revenue allocation issues in large
rate cases, (2) raised the award caps for smaller rate cases, and (3)
changed the interest rate for damage awards. The Reauthorization Act
directs us to build on these efforts.
First, Section 11 of the Act instructed us to look for ways to
expedite rate cases by examining procedures available in court
litigation. In preparing for this proceeding, we held informal meetings
with attorneys, consultants, and stakeholders that have the most
experience with these cases. On June 15, the Board released an advance
notice of proposed rulemaking to implement this element of the
Reauthorization Act. We proposed several measures, such as
standardizing discovery requests and evidentiary submissions, limiting
the scope of certain filings, and enhanced technical meetings between
the parties and STB staff. The ANPRM raises numerous topics and
suggests methods to expedite rate reasonableness cases, especially
stand-alone cost rate (SAC) cases. First round comments were due August
1, 2016, and reply comments are due by August 29, 2016.
Also on the subject of rate cases, I note that on March 9, 2016, we
issued final rules amending our regulations to comply with the rate
case procedural schedule set forth in Section 11(b) of the Act. Second,
we are working on our report on the sufficiency of STB rate case
methodologies and alternatives, as required under Section 15 of the
Act, which we intend to complete by December of this year. I hired
independent outside experts InterVISTAS in 2014 to look at our current
SAC methodology and our other rate reasonableness methodologies. We
asked them to do a global search for potential other methodologies that
are superior to SAC that could be used in the U.S. freight rail
context. In particular, we directed them to look at alternatives that
are likely to reduce the time, complexity, and expense of rate cases,
and the scope of the search included regulation of other network
industries in the U.S., as well as the approaches used by regulators
around the world. InterVISTAS is putting the final touches on their
report, and I look forward to delivering that to you and our
stakeholders before the end of this year. My intent is to hold a
hearing (or hearings) to discuss the report shortly thereafter in
conjunction with our Section 11 Expediting Rate Cases proceeding and
our grain rate case rulemaking.
Third, last year we also engaged the services of outside experts to
help the agency look for process efficiencies in our rate
reasonableness cases. We are taking much of what we learned and
dovetailing that with our STB Reauthorization Expediting Rate Cases
proceeding, as well as the shorter timelines laid out in Section 11(b).
Last, but certainly not least, the Board is close to a proposal on
our grain rate case rulemaking. I am acutely aware that the Board's
rate complaint procedures need to be more accessible to grain shippers,
and smaller shippers generally, and provide effective protection
against unreasonable rates. I have heard the frustrations of farmers
and elevators. Later this month, I hope to unveil a proposed new rate
case methodology that is intended to be streamlined and small and that
addresses the concerns I have heard from the agricultural community.
Collaborative Discussions
Section 5 of the Act granted the Board the ability to hold non-
public collaborative discussions related to agency matters. In my view,
these Section 5 meetings have really given the agency greater
flexibility and opportunity to discuss complex proceedings and issues
that are before the Board. I have used this tool on several occasions
already to have discussions on issues such as proposed rules for
railroad performance data reporting, new arbitration rules, and rules
for our new investigative authority, and it has proved to be very
effective. My hope is to continue to have more Section 5 meetings in
the coming weeks and months to further discuss Reauthorization Act
initiatives like arbitration, investigations, and expedited rate case
proceedings.
Because of the importance of the Reauthorization Act to our agency
and our stakeholders, we have created a specific webpage on our website
to disseminate information about the Act and our progress in meeting
its requirements. You can find copies of monthly and quarterly status
reports that we have submitted to our congressional oversight
committees, including reports on formal and informal rail service
complaints, pending and completed rate cases, and unfinished regulatory
proceedings. We also post summaries of non-public collaborative
discussions on this page.
Before closing my testimony, I would like to briefly comment on two
matters, which I believe are of significant interest to the Committee.
The first is that on July 27, we proposed regulations that would allow
a shipper to seek rail service from another railroad. By doing so--in
response to a petition filed by The National Industrial Transportation
League--we are attempting to breathe life into a statutory remedy that
was enacted by Congress, but which has been virtually dormant due to
precedent established by our predecessor, the Interstate Commerce
Commission. Our proposed rules mirror the language of the statute,
which allows us to grant reciprocal switching when it is practicable
and in the public interest or necessary for competitive rail service.
My approach has always been to apply an even, balanced hand when
regulating, and I look forward to reviewing comments on our proposal
and meeting directly with stakeholders.
The second matter pertains to our jurisdiction over Amtrak under
Passenger Rail Investment and Improvement Act of 2008 (PRIIA). On July
28, we issued two decisions. In the first, we decided to analyze on
time performance (OTP) by looking at arrival and departure at all
stations along a passenger train's route, as opposed to only the
train's end point performance. After reviewing comments that we
received in response to a proposed rule, issued in December 2015, we
believe that ``all stations OTP'' is a superior metric that is more
responsive to the traveling public. In the second decision, we decided
to withdraw a proposed policy statement on the meaning of the term
``preference'' for purposes of cases under PRIIA. Comments revealed
strikingly divergent viewpoints as to how preference should be defined,
so we decided to examine the term on a case-by-case basis.
In closing, I want to thank you for this opportunity to speak about
the Board and its progress in implementing the STB Reauthorization Act.
Our stakeholders have waited 20 years for the Board to be reauthorized,
and there is no doubt that freight rail transportation will benefit
from the innovative provisions of this law. Behind this reauthorization
is a message of transparency and increased efficiency. That is what I
will deliver to the public.
I am happy to answer any questions you might have.
The Chairman. Thank you very much, Chairman Elliott.
We'll turn now to Vice Chair Miller.
STATEMENT OF HON. DEB MILLER, VICE CHAIRMAN,
SURFACE TRANSPORTATION BOARD
Ms. Miller. Thank you. Let me begin by expressing my thanks
to you, Senator Thune, as well as to Senator Nelson, and the
Senate Committee on Commerce, Science, and Transportation, for
your efforts and your doggedness in passing the Surface
Transportation Board Reauthorization Act of 2015.
I very much appreciate your interest in freight and the
freight rail industry and the shippers that depend on it, and I
believe that the Act is already having a positive impact.
Today, I want to talk about some of those positive impacts and
provide my own perspective on the Act and on the Board. In my
reading of the Act, I believe its primary goals are increasing
the transparency, accountability, and collaboration of the
Board, and those are goals that I wholeheartedly support.
The Act increases collaboration by increasing the number of
Board members from three to five. This allows two members to
communicate about pending matters. Secondly, it also allows a
majority of the Board to meet under certain circumstances to
discuss pending cases. Currently, the Board is very siloed, and
I believe having the opportunity to have interaction between
the members will improve our understanding of each other's
perspectives, and I believe it will lead to better-reasoned
decisions.
I would note that while these changes are very helpful, I
believe the Board itself could increase collaboration by taking
a more sensible approach to the Sunshine Act. I want to say
that I certainly support the aims of the Sunshine Act, but I
believe the Board has been overly conservative in its
adherence. For example, the Board staff briefs all three
members individually, increasing the time and workload of the
staff, but also denying members the benefit of hearing the same
presentation and the opportunity to hear the questions that are
raised by other members.
Turning to the issue of transparency and accountability, I
would say that the Act requires the Board to submit quarterly
reports on various matters, the most significant being the
report that requires an update on unfinished regulatory
proceedings. Since joining the Board, the case backlog has
troubled me. Thanks to this requirement, the Board has taken
action on a number of rulemakings that have been pending for
years and is on pace to move forward on others.
I'd like to see the Board apply some of the same principles
of the Act's reporting requirements for regulatory proceedings
to our other proceedings, particularly setting deadlines and
prioritizing the order of the cases. One of the most common
criticisms I hear from stakeholders is that the Board is too
much of a black box. Once a proceeding is started, there's no
way for parties to know where it stands or when it might be
acted on.
I also believe the Board could increase our transparency
and accountability through greater use of ex parte meetings.
These are meetings where stakeholders can come in and discuss
their position on pending Board matters. Commissioner Begeman
and I have both advocated for ex parte meetings. As a result,
the Board waived our prohibition in two proceedings.
I think these ex parte meetings are extremely important.
They allow members to delve more deeply into the issues than
reading pleadings will ever allow for. The ability to ask
questions and resolve misunderstandings is so vital. For these
reasons, I urge the Board to repeal our rule that prohibits
these meetings rather than simply waiving them on a case-by-
case basis.
Unrelated to the Reauthorization Act, I believe there is
another way that the Board could increase its transparency and
accountability, and that is by doing more of its work in
public. This could include voting conferences or public work
sessions in which staff provides briefings and reports to the
members on key cases. Not only would this pay dividends to
members and to our stakeholders, but once we have five members,
it may be crucial to the ability of the Board to operate.
Another area where the Committee recognized changes were
needed involves the Board rate case processes. We've clearly
already heard a lot about that today from the shipper groups
who were here. The Act requires us to consider expedited
litigation in civil courts to see if that would be helpful to
us. It reduces the timeline for processing cases, and, most
importantly, it requires a study of whether or not there are
alternatives to what's known as SAC, the stand-alone cost test
methodology, and then to report those findings.
I believe that making improvements to SAC as well as giving
serious consideration to alternatives to SAC is vital. The
Board is already implementing improvements to our internal work
flow processes for handling this, and the expedited rate case
rulemaking which we have underway very likely will help reduce
the time.
However, that does not resolve the serious concerns many
stakeholders have about the SAC process itself, and I would
have to say since my appointment to the Board, I've also
developed concerns. I have concerns that are both practical and
substantive. From the practical standpoint, as you've already
heard, the SAC test is very complicated. It imposes significant
costs on shippers and on railroads. From a substantive
perspective, I question a test that requires a shipper to
compare the hypothetical cost of building a new railroad at
today's cost to the real-world, historic cost of an existing
railroad. So I am very pleased that the Act has raised the
issue of our looking at this.
Let me quickly end up by saying though the Board has
engaged an outside consultant--thank you, Senator. I'm going to
use Mr. Mack's extra minute.
[Laughter.]
Though the Board engaged an outside consultant to explore
the academic literature and other regulatory schemes to look
for options to SAC, I don't believe this report on its own is
sufficient to respond to the Act's requirement. I have
advocated that the Board release the report and allow our
stakeholders an opportunity to comment, perhaps in a hearing
format. I think it's really important that we report to
Congress that we have feedback from railroads and shippers, in
terms of their reactions to it, that we're able to provide to
the Committee.
Even if we as a Board end up concluding that there are no
feasible alternatives to SAC, I think the only way shippers are
going to regain any confidence and any faith in SAC is if they
believe the Board has truly exhausted all options, and I don't
believe yet we have done that.
I'd like to conclude by noting that Chairman Elliott has
taken the implementation and the deadlines in this Act very
seriously, and he has certainly been diligent ensuring that the
Board works to meet those deadlines, and I'm pleased to see
that, so far, we have stayed right on target. And I want to say
that it has been a bit of a struggle for our staff--lots of new
requirements. But they've done a marvelous job so far, and I
appreciate the hard work that our staff has done. I know that
we're also putting some burdens on our stakeholders who are
having to keep up as well.
Although the implementation of the Act is still in the
early stages, I do believe it's already having positive
effects, and I believe that those effects will only grow as
implementation continues. I also believe that the Board can and
should take additional actions that are consistent with the
spirit of the Act to increase its positive benefits. These
changes are within the control of the Board, and I hope that we
will utilize them.
Senator, thank you very much for having us here, and I'm,
of course, happy to stand for questions when it's appropriate.
[The prepared statement of Ms. Miller follows:]
Prepared Statement of Hon. Deb Miller, Vice Chairman,
Surface Transportation Board
Let me begin by thanking the Senate Committee on Commerce, Science,
and Transportation, for their efforts in passing the Surface
Transportation Board Reauthorization Act of 2015 (Act), as well as
Chairman Thune for holding today's hearing. I appreciate the
Committee's interest in the freight rail industry and its impact on
shippers, and its willingness to take the necessary steps to help the
Surface Transportation Board (Board) better do its job.
Prior to passage of the Act, the Board was operating under statutes
that had not been revised in almost two decades and many of these
provisions clearly needed updating. Under the leadership of Senators
Thune and Nelson, the Committee was finally able to devise a bill that
both railroads and shippers could support, where prior attempts had
failed. The members of the Committee deserve credit for bringing the
major stakeholders together to craft provisions most could agree on but
that also effect real change. And I am glad to report that the Act is
already starting to have a positive impact. The Act has significantly
reformed many of the Board's functions in a way that is allowing the
agency to streamline its processes and work more effectively. In this
testimony, I want to provide my perspective on the progress the Board
has made in implementing these reforms as well as my views on what
additional steps the agency needs to take going forward.
Reading the Act, one of the primary goals appears to be increasing
the transparency and accountability of the Board, an effort that I
whole-heartedly support and applaud. The Act achieves this goal in a
number of ways. Most notably, it increases the number of Board Members
from three to five. The purpose of this change is to allow two members
to communicate about pending Board matters without running afoul of the
Sunshine Act, which requires that communications involving a majority
of the Board (which currently would be two Members) to be publicly
disclosed. While I understand that the Sunshine Act is needed to
prevent Members from working in secret on important policy issues that
impact the public, it also creates a number of difficulties. Since
joining the Board, it has indeed been frustrating that I so rarely have
an opportunity to communicate with my fellow Members.
As a practical matter, I think more contact between the Members
will allow us to develop better working relationships. Today, the
Members are essentially silo-ed from one another and can often go weeks
without talking. Being able to communicate more directly with one
another should also lead to better-reasoned decisions. Being able to
speak directly with the other Members will ensure that we fully
understand each other's views, perspectives, and concerns about matters
before us. It should also make it easier to resolve disagreements.
Another important change made by the Act was to allow the Board to
conduct meetings on pending cases in certain situations, which we have
taken to calling ``Section 5'' meetings (as this was enumerated in
Section 5 of the Act). In my view, this may be the most far-sighted and
thoughtful changes made by the Act. Even with the increase to five
Members, there will still be times were it is simply more practical for
all the Members to meet jointly. The Act now provides us the ability to
do so. We have held a handful of these meetings already and they have
been helpful. In fact, I would like to see us take advantage of this
opportunity more frequently. By not being able to communicate, the
Members have to rely heavily on staff, which I believe oftentimes puts
too much of the agency's responsibility in their hands. I think holding
more Section 5 meetings would re-empower the Members to set the
agency's direction.
Again, I commend the Committee for recognizing the difficulties
that the Sunshine Act has presented and crafting clever ways of
addressing the problem. I would note that even though these changes are
extremely beneficial in reducing the obstacles created by the Sunshine
Act, it is my belief that the Board itself needs to take a more
sensible approach to the Sunshine Act. While I support the aims of the
Sunshine Act, I believe that the Board has been overly conservative in
its adherence. For example, because of Sunshine Act concerns, the Board
staff currently briefs all three Members on cases individually. This
means not only does the staff have to perform the same exercise three
times (which, given scheduling issues, can add days if not weeks to the
processing time of a case), but it means that the Board Members do not
have the benefit of hearing the same presentation or the other Members
questions and staff's responses. This holds true not only for pending
issues before the Board but also for administrative issues like our
budget. I do not believe that the Sunshine Act prohibits joint
briefings, so long as the Members are careful not to express their
views on a pending matter, even tacitly. At my suggestion, we have held
a handful of joint briefings (subject to the restriction about
expressing views) and I have found them to be helpful.
Another requirement the Committee recognized was necessary to
improve transparency and accountability is for the Board to start
submitting quarterly reports on various matters. The most significant
of these reports is the one that requires the Board to give status
updates on its unfinished regulatory proceedings (i.e., rulemakings),
including expected dates for next action. Since joining the Board, the
number of proceedings that the agency has opened but not completed has
troubled me. Many of these rulemakings appear to have been initiated
without any sense of the ultimate goal, or timelines for when they
would be completed. The Committee's vision to create a reporting
requirement was extremely pragmatic. Absent the reporting requirements
of the Act, I strongly suspect that many of these proceedings would
still be in a state of regulatory limbo. Only after having to provide
Congress with a report on when action would be taken was there any
discussion given to deadlines and prioritization of proceedings. I
think the positive results of the report are already being seen, as the
Board has taken action on a number of rulemakings that had been pending
for years and is on pace to move forward on several others. The only
downside has been that the effort to move forward on all these
proceedings simultaneously has placed a considerable strain on staff
and likely on the parties as well.
As I recently noted in my separate comment in our competitive
(reciprocal) switching proceeding,\1\ I want the Board to apply some of
the same principles of the Act's reporting requirement for regulatory
proceedings to our other proceedings. This would give stakeholders more
information regarding the status of their cases. One of the most common
criticisms I hear from our stakeholders is that the Board is too much
of a black box--once a proceeding is started, there is no way to know
where it stands or what progress has been made. The Board might rule in
three months or three years, but a stakeholder has no idea which it is
likely to be. Although the Board needs to be careful about sharing too
much information that could compromise its internal deliberations,
stakeholders should be given some idea of where their matters stand
when possible, particularly when important business decisions are at
stake. As one of the goals of the Act was to improve transparency, this
is one action the Board could take.
---------------------------------------------------------------------------
\1\ Petition for Rulemaking to Adopt Revised Competitive Switching,
Docket EP 711, et al., (STB served July 27, 2016) (Miller comment).
---------------------------------------------------------------------------
In addition, I think the Board could increase transparency on our
own, as well as enhance our understanding of the issues before us,
through greater use of ex parte meetings.\2\ These are meetings with
stakeholders to discuss their positions on pending Board matters.
Although such meetings are permitted by law (subject to certain
disclosure requirements), the agency many years ago imposed its own
rule that prohibits all ex parte communications. At my and Commissioner
Begeman's urging, the Board has waived this prohibition in two
proceedings, including our Notice of Proposed Rulemaking on competitive
(reciprocal) switching--though the meetings will not occur until this
fall. In the other proceeding, which involves new data reporting
requirements on the railroads, ex parte meetings were conducted between
stakeholders and Board staff. I know that our staff found these
meetings extremely helpful and I have heard positive reaction from the
stakeholders as well. I think ex parte meetings are extremely useful.
They allow the Members to delve more deeply into the issues than simply
reading the pleadings will ever provide. The ability to ask questions
and clarify misunderstandings would be very helpful. In my meetings
with stakeholders, they also express a desire for more interaction with
the Board. For this reason, I urge the Board to simply repeal our rule
that prohibits these meetings, rather than waiving them on a case-by-
case basis.
---------------------------------------------------------------------------
\2\ United States Rail Sesrvice Issues--Performance Data Reporting,
Docket EP 724 (Sub-No. 4) (STB served Nov. 9, 2015) (Miller
concurrence).
---------------------------------------------------------------------------
In terms of increasing transparency and accountability, I also
believe that the Board should explore ways to conduct more of its work
in public. This could include voting conferences or public work
sessions, in which staff would provide briefings and reports to the
Members on key cases. I will note that I am glad that the Board, at my
suggestion, just this week announced that it would be hold a workshop
in which staff will give a presentation and answer questions from
stakeholders on a particularly technical proposal that the agency is
making involving its Uniform Rail Costing System.\3\ I think this
workshop will help stakeholders better understand the proposal, which
in turn will ensure that the Board receives more meaningful comments.
---------------------------------------------------------------------------
\3\ Review of the General Purpose Costing System, Docket EP 431
(Sub-No. 4) (STB served Aug. 4, 2016).
---------------------------------------------------------------------------
Another area where the Committee recognized that changes were
needed involves the Board's rate case processes. The Act imposed three
specific requirements on the Board. First, it required the Board to
initiate a proceeding to assess whether procedures that are used to
expedite litigation in civil court could be used in our rate cases.
Second, it reduced the timeline for processing rate cases under our
Stand-Alone Cost (SAC) methodology, most notably, by limiting the
amount of time for the Board to reach a final decision after the close
of the record from nine months to six months. Lastly, the Act required
the Board to study whether there are other viable alternatives to the
SAC methodology and report our findings to this Committee, and the
House Committee on Transportation and Infrastructure.
I commend the Committee for including these requirements in the
Act. In regard to the first two requirements, which are both aimed at
speeding up rate cases, this past spring the Board conducted informal
meetings with stakeholders to get their thoughts on ways this could be
done. Out staff has reported that these meetings were very successful.
Not only were stakeholders appreciative of the opportunity to provide
input, but they offered a number of interesting and practical ideas on
ways to streamline rate cases--many of which had not occurred to us.
The Board then took these ideas and packaged them into a series of
proposed reforms, which has now been put out for public comment.\4\ The
success of these meetings reinforces my belief that more face-to-face
interaction with our stakeholders is beneficial.
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\4\ Dispute Resolution Procedures Under the Fixing America's
Surface Transportation Board Transp. Act of 2015, Docket EP 734 (STB
served July 28, 2016).
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The Board also continues working to implement a number of internal
changes to our workflow process in rate cases. In FY 2014, the Board
hired an outside consultant to perform a review of our process in these
cases and to look for ways to make it more efficient. The consultant
finished its assessment and provided recommendations in FY 2015. With
the help of the consultant, the staff has begun employing a number of
these recommendations in the two rate cases currently pending.
Although these reforms will hopefully result in quicker processing
of rate cases, as I have now noted in the three rate case decisions in
which I have participated, I still have significant concerns with the
SAC methodology itself. My concerns are both practical and substantive.
From a practical perspective, the SAC test has morphed over the last 30
years into an overly complicated analysis that imposes significant
costs on the shipper and railroad.\5\ From a substantive perspective, I
am concerned that the test requires a shipper to compare the
hypothetical costs of building a ``new'' railroad against the real
world ``historic'' costs of an existing system.\6\ It was for these
reasons that I was enthusiastic that the Act required the Board to
conduct a review to determine if there are other approaches that could
be used.
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\5\ Sunbelt v. Norfolk Southern, Docket NOR 42130 (STB served June
20, 2014) (Miller concurrence).
\6\ E.I. DuPont de Nemours & Co. v. Norfolk S. Ry. Co., Docket NOR
42125 (STB served Dec. 23, 2015) (Miller concurrence).
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Prior to my joining the Board, it had engaged an outside consultant
(different from the one reviewing our workflow process) to explore
academic literature and other regulatory schemes to see if there were
other approaches that had potential application to U.S. rail industry.
It was my hope that the report would have been completed by now,
particularly as a nearly completed draft was presented to me several
months ago. More importantly though, I have advocated that the Board
release the report and allow our stakeholders an opportunity to provide
feedback, perhaps at a hearing.\7\ My hope is that the Board will do so
well in advance of the December 2016 deadline for our report to the
Committees, so that we can incorporate not only the consultant's
report, but other approaches that may arise out of stakeholder
feedback. However, despite my continued requests, I have received no
indication of the direction the agency intends to proceed. Given that
we are only four months from having to submit our report, the window
for obtaining stakeholder feedback seems to be closing. If the intent
is to satisfy the requirement of the Act by simply forwarding the
consultant's report to the Committee, I find that unfortunate. Even if
we conclude that alternatives to SAC are not in fact feasible, the only
way that shippers can regain faith in SAC is if they believe the Board
has truly exhausted all other options.
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\7\ Sunbelt v. Norfolk Southern, Docket NOR 42130 (STB served June
30, 2016) (Miller concurrence).
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The two other important changes to the Board's processes made by
the Act are empowering the Board to conduct investigations and
requiring changes to the arbitration process. I think that both of
these changes are positive, particularly the investigative function. In
order for the Board to properly carry out its regulatory mission, I
think it is important that we have the ability to proactively go out
and make inquiries, rather than simply rely on the parties to present
issues to us. The investigative function will allow us to now do so. As
for arbitration, I am a strong supporter of alternative dispute
resolution and it is my hope that the changes the Board implements
pursuant to the Act will help them overcome their reluctance to using
arbitration.
Perhaps the biggest change mandated by the Act, at least from an
administrative standpoint, was to make the Board independent from the
U.S. Department of Transportation (DOT). Prior to the Act, the Board
was decisionally-independent, but administratively housed under the
DOT. This meant that the Board had to rely on DOT to perform a number
of administrative and information technology (IT) functions, such as
human resource services, procurement, payroll, auditing, and Internet
access. By becoming independent, the Board will have to now assume
these functions.
In the long-run, I hope this will improve the Board's
administrative functions. Although I appreciate the work that DOT
performed on the Board's behalf over the years (and that we have agreed
to have them continue providing in certain instances), it is simply
more useful for the Board to control these functions itself. We
understand our needs and priorities better than an outside entity
could, and I think that this will translate into greater administrative
efficiency. Getting to the point that we can stand on our own though
will require work and money. Right now, the Board is not equipped with
the manpower or resources to take on a number of these functions. Our
staff has performed admirably since the Act was passed to devise plans
for us to do so, but it will take time. In addition, there will be a
significant cost resulting from this independence. According to an
estimate that the Board staff conducted prior to passage of the Act, it
is conservatively estimated that the annual cost for assuming these
functions will be $2.4 million.\8\
---------------------------------------------------------------------------
\8\ Chairman Elliott letter to Senators Thune, Nelson, Collins, and
Reed, Dec. 15, 2015, attached Chart I.
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In addition to the costs of becoming independent, there are
significant costs associated with some of the Board's new
responsibilities. For example, the cost simply of adding two new
Members (salaries, office space, staff) is estimated to be about $1
million annually.\9\ There will also be costs for implementing our new
investigative functions, reporting requirements, and rate case
improvements. It also must be noted that the Board is in the midst of
overhauling its IT infrastructure and will need funding to ensure that
we can complete it. Accordingly, I am concerned that the total sum of
these costs will likely exceed the amounts authorized in the Act. In
addition, the Board's lease expires in February 2017, at which point
the agency will either have to relocate to new office space, or reduce
the footprint at its existing location by having its offices
retrofitted (which would also require the Board to temporarily move to
a ``swing'' space). Either way, there will be a substantial cost
resulting from this process. Although it will be a one-time cost, if
the Board does not receive funding for it in the next Fiscal Year, the
money for the move/retrofit will have to come from money that is
normally dedicated to our regulatory functions.
---------------------------------------------------------------------------
\9\ Chairman Elliott letter to Senators Thune, Nelson, Collins, and
Reed, Dec. 15, 2015, attached Chart II.
---------------------------------------------------------------------------
In conclusion, although implementation of the Act is still in its
early stages, I think so far it has had a truly positive impact.
However, there are additional steps that are within the Board's control
that I hope we will take to ensure that the spirit of the Act is fully
achieved. I believe that the reason the Board's major stakeholders and
members of Congress overwhelming supported the Act's passage was that
they shared the view that the Board needs to become more effective in
carrying out its duties by changing the manner in which it does
business. I personally believe that the Act should be seen as an
opportunity for the Board to seriously rethink our processes and long-
held practices which may be obsolete or inefficient.
One of these long-held practices is the very limited involvement of
the Vice Chairman and Commissioner in developing policies and practices
of the Board. Since joining the Board, I have been struck by how little
involvement the other two Members have in these matters. As I noted
earlier, the Members are limited in their communication on substantive
issues, but those restrictions have oftentimes been expanded to non-
substantive issues as well. While the Members have recently begun to
hold meetings to discuss such matters, there are still too many
instances where there is no collaboration or no input is sought, or if
it is, it is done as an afterthought.
Another long-held practice that the Board needs to re-think is the
manner in which it processes cases. One of my frustrations with the
Board has been the lack of any systematic way of managing our caseload.
Little effort is given to track how long matters have been pending and,
as a result, decisions tend to sit for too long. Little thought is also
given to how pending matters should be prioritized and, as a result,
decisions are issued in no particular order, rather than based on their
importance or duration. The reporting requirement for unfinished
regulatory proceedings mandated by the Act has helped in this regard,
but I believe that there is more the Board could do. During my time as
Acting Chairman, I began two initiatives to try to address these
problems: setting target dates for the completion of all pending
matters in our formal proceedings and creating a set of internal
performance metrics to measure how the Board is performing in terms of
managing its docket. It was my hope that these initiatives would be
continued, but they were not. This is unfortunate, as I believe that
they would help the Board manage its workload better and issue
decisions more timely, which would benefit our stakeholders.
These issues aside, Senators Thune and Nelson and the entire
Committee drafted and passed an excellent bill and I think the Board
has done an excellent job in carrying out the goals of the Act. I
particularly want to express my gratitude and appreciation for the job
the Board's staff has done over these last several months. The Board
already had a substantial workload prior to passage of the Act, and
that workload increased greatly once the Act was passed. I am pleased
to say that our staff has risen to the occasion.
Again, I also want to thank the Committee for the interest they
have shown in the work of the Board and the opportunity to testify
today about the positive effect the Act has had. The Act has wisely
addressed the need for the Board to be more transparent and accountable
by allowing the Board Members to communicate more easily and by
providing progress reports on its workload. I also appreciate the
requirements under the Act for the Board to examine ways to improve our
rate case processes and methodologies, which are long overdue. The
addition of investigative power and changes to the arbitration process
will also be beneficial, as they will give the Board additional means
of resolving issues between railroads and shippers. Lastly, once the
Board is able to complete the steps necessary to become fully
independent, the Board will be able to carry out its administrative
duties much more efficiently. The cumulative effect of these changes
will only continue to result in positive developments for our
stakeholders.
Attachment
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Vice Chair Miller.
We're very proud here in South Dakota to have one of our
own on the Surface Transportation Board and to represent our
great state. So it's nice to welcome Ann Begeman back to South
Dakota, and we look forward to hearing from you.
STATEMENT OF HON. ANN D. BEGEMAN, BOARD MEMBER, SURFACE
TRANSPORTATION BOARD
Ms. Begeman. Thank you very much, and thank you, Senator,
for inviting all three of us here to talk with you about the
STB Reauthorization Act implementation. As you've already
heard, the new law really--we've already made some good
progress on implementation, which is changing the way the Board
works. Thank you to your committee, thank your staff. It's so
appreciative.
I'm going to go into some of the specifics, which my
colleagues have as well. But before that, I really appreciate--
you know, you mentioned my South Dakota background, and I see a
number of familiar faces in the room, many of you whom I
actually know because of my current job at the Board. You've
come in and have visited with us.
Mr. Heller, I certainly appreciated your testimony. I've
known you for a number of years, and Mr. Mack as well--I'm not
sure where he went--not just in my current job but my previous
job as well.
As you know, I grew up on a dairy farm just south of
Humboldt, about 20 miles west of here. I graduated from USD and
went to work in Washington for my hometown Senator. My
colleague was Lisa Richardson, Executive Director of the Corn
Growers. I'm not sure if she's here for my shout-out. She was.
All right. Well, I'm going to use more than my five minutes,
obviously.
When I worked in Washington for--I was in the Senate for
about 20 years as a staffer. Much of my time there was working
on transportation issues, including the legislation that
created the STB in 1996. And I know it wasn't dig about the
fact that it wasn't quite a perfect bill, but time does change
things as well, and it's always good to have some really good
oversight and fresh perspective.
One of the things I want to talk about first about the bill
is--your new law, our new law--is the fact that we can now talk
about things that are pending before us. Prior to that--I mean,
could you imagine not being able to work with your colleagues
on legislation or hearing from stakeholders what they think
when something actually became pending? We could read what
someone writes to us, as long as it's formally submitted, not
just, you know, slipped under the door. You know, again, we
were just following the law, the Sunshine Act, the concern that
somehow we would be working in secrecy.
But thanks to the Commerce Committee and the full Senate
and the House and the President for signing the law, we can
become much more productive and effective and efficient for our
stakeholders. So thank you for that.
I won't touch too much more on the fact that we've had a
number of what we call Section 5 meetings, which allows us to
speak. One thing that's very important to note, though, is we
have to have--our general counsel joins us in our meetings. We
then have to have summaries of those meetings posted on the
website within 2 days of a meeting, unless it is on a
particular regulatory proceeding. Then it will be in our final
rule.
So, so far, we have two of those summaries posted, and I
hope that as we get more posted, as we get more work done,
we'll get some good feedback from interested stakeholders as to
whether they think that it's providing them a good enough
amount of information.
Another key provision which both of my colleagues have
talked about is the requirement for quarterly public reporting.
This is a game changer from my perspective. Stakeholders get to
kind of know what we're up to. Even I know now what we're up to
in terms of deadlines and, you know, the fact--and I think it
helps the staff know what the expectation is, and I really
think it's helped all of us to really kind of come together.
While we don't necessarily choose the deadline, the
Chairman--he's in charge. He has special powers that the Vice
Chairman and I don't quite have, but we certainly do our best
to be collaborative, and he takes our input on--sometimes he
ignores our input, but he certainly will listen to what we
think as far as what could be timely, and I certainly
appreciate that.
You know, some of the discussion has been on the
arbitration revisions that we're making to our rules. The Board
certainly wants that to be successful. We have an arbitration
program. We've had it for years. It has not been called upon.
If I recall, Senator, one time you--you may be the only
arbiter that has ever actually--the only case that ever had
been arbitrated before the Board. So I thank folks for their
input. I can't say much more on it, because it's pending. But
we plan to get out final rules, and, hopefully, people won't be
too afraid to just dive in and try to give it a shot.
Because of the arbitration provision, which is trying to
get things done without expensive litigation--I do want to
highlight a program that is at the Board currently that some of
you may not know about, and it really--I would say it's one of
our biggest success stories. It's called the Rail Customer
Assistance Program, and it's a group of really smart, capable
staff. Some of them are former shippers. Some of them are
former railroad workers. They really have total insight as to a
lot of what's going on in the shipper and railroad community.
Anyone can call in, ask a question about our jurisdiction, or
how does a certain process work. They will also even try to do
some informal mediation on your behalf. And it's not just a
shipper with a problem, but a railroad. Maybe a short line
railroad has a problem.
So we certainly are so proud of the staff that work on that
program. We try to get our pamphlets out to bigger groups when
folks go around the country and meet with people. But I really
want to give a shout-out to that group. I know some of you in
the room have used it, and some of you spread the word for us
on your own website. So thank you for that.
Oh, I haven't even used up all my time. Oh, goodness.
The Chairman. Go ahead.
Ms. Begeman. You know, one of the things that I would be
happy to talk about if you'd like to ask questions on it
later--but, you know, part of, I think, what prompted the
Committee to do the investigative authority for us was, of
course, the very difficult service crisis or service troubles,
if you will, from 2013 and 2014. It really was probably the
most difficult challenge that the Board has faced in my time,
and I hope it stays that way. You know, I'm very proud of the
work that the Board did to try to be responsive in a
reasonable, pushing way. You know, the railroads certainly
worked their tails off trying to get things--the network back
moving, and in time, that has all worked out.
But we had a hearing--actually, we had two hearings. But
the first hearing we had in April 2014--it was a South Dakota
witness--and I believe he represented CHS with Mr. Mack--talked
about fertilizer and the fact that, you know, if I don't get my
fertilizer in the next week, I may not be able to plant. And
then the rest of the shipper witnesses started chiming in, and
it truly informed us about what was happening with this very
important commodity.
We immediately did a directive for the two railroads that
were most affected with the service issues at that time for
them to tell us their plan to deliver and report to us until
you have it done. And, again, I'm not in any way crediting the
Board's action for saving the spring planting. But I really do
think that it helped focus the railroads' and the shippers'
attention so that they would know we were watching and we were
expecting results. So thank you for that.
Finally, the topic of SAC and rate review processes. I will
say that none of us are responsible for the creation of SAC. We
do want to be responsible for the creation of new effective
methods. And I appreciate, Mr. Heller--you said that you don't
know that you want to throw away the entirety of SAC out the
door.
So we really do have a lot on our plate, but we need to
find the best processes and put together the best methodologies
so that a shipper can decide what process he or she may want to
choose. The coal shippers, as I understand--they helped create
the SAC process, and some of them are more comfortable with it,
or at least some of their representatives are.
We also have something called the Three Benchmark Case,
which is for the smallest of cases. We have a simplified SAC
case, which no one has ever had the will to try. And one of the
things that Chairman Elliott mentioned was the grain proceeding
that we have been working on, and it actually was a result of a
proceeding we had been looking at on all rate regulation
reforms. And during that time in 2012 and 2013, we heard,
particularly, from the ag community. It was like, you know, you
have some great ideas, great changes you've put forward, and we
aren't opposed to it, but it doesn't help us a bit.
So thanks to the Chairman's leadership, we announced that
we would have a new proceeding to really hear ideas, to help us
understand why doesn't--why don't these current processes work
for you? What could we do to establish perhaps a different
process? We had a hearing on this. I'm very hopeful that we
will have a new proposal for people to provide comment on. It
may not be perfect, but we welcome input, and I really hope
that that will happen very soon. I note that on the quarterly
reporting, it is due sometime this month. So let's not let
ourselves down.
One last issue I want to talk about, which the Vice
Chairman did a great job talking about, is our real interest in
changing the way we are able to talk to people about ongoing
matters. We have now waived two of our--in two of our
proceedings waived the prohibition on ex parte communications.
We did it late last year in the data rulemaking, which allowed
staff to speak with a number of stakeholders. I actually wanted
you to talk to me, but I didn't win that fight. But I certainly
was pleased that we were able to let folks come in and talk
with our staff, and it was really helpful in putting together
the most recent proposal.
Two weeks ago or so, we announced in the 711 competitive
switching proposal that we were going to waive this rule for
both--for members and staff for a certain time period so that
we can really hear from shippers, that we can hear from
railroads. We really need to hear from all interested
stakeholders so that we know what we are doing. I value the
ability to hear ideas, thoughts, concerns, red flags. So please
ring up my phone and I'll be happy to meet with you.
So, finally--I know I have more to say, but just thank you
so much for giving us this opportunity, holding us accountable.
We're OK to be held accountable. We want the Board to work
better, and I think that we are starting to really go in the
right direction, and I want to be--I don't always agree with
the Chairman. I always agree with Deb.
[Laughter.]
Ms. Begeman. But, really, the fact that we can start to
spend some time, more time together, and try to hone in on some
of the problems, it can only result in more positive outcomes.
And after all, this is about public service, and we need to
improve the Board for all stakeholders. So thank you.
[The prepared statement of Ms. Begeman follows:]
Prepared Statement of Hon. Ann D. Begeman, Member,
Surface Transportation Board
Thank you, Chairman Thune, for inviting me to appear here today
along with my colleagues, Chairman Dan Elliott and Vice Chairman Deb
Miller. I appreciate your strong interest in the Board's work and your
Committee's oversight of our ongoing efforts to implement the STB
Reauthorization Act, which you championed. I believe the Board Members
and the staff are fully committed to fulfilling the new law's
directives, and importantly, meeting its deadlines. I can assure you
that I am. And, I am pleased to report that the new law has already
produced improvements in how the Board operates.
Since Chairman Elliott's testimony addressed each of the new law's
directives and the actions the Board has taken over the past eight
months to implement the STB Reauthorization Act, I will not repeat that
information, but will offer my own views on the Board's implementation
progress to date. In addition, I will offer my thoughts on additional
actions that I would like the Board to take to further improve our way
of doing business to better serve our stakeholders and the public.
First, however, I'd like to briefly mention my background for those
here in attendance who may not know that I am also a fellow South
Dakotan.
I grew up 20 miles west of here, on a dairy farm south of Humboldt.
After graduating from the University of South Dakota, I moved to
Washington, D.C., to work for my hometown Senator. I worked as a Senate
staffer for over 20 years until my appointment to the Surface
Transportation Board five years ago. Much of my work in the Senate
focused on transportation policy, including working on the legislation
that created the STB in 1996. That background gives me as an STB Board
Member a unique perspective. I know how important reliable and
affordable rail service is to South Dakota's producers and the state's
economy--and, indeed, its importance to shippers and economic
prosperity across the country. And, I know how important it is to our
stakeholders, Congress, and the Board for our agency to function
effectively.
Frankly, I have had many frustrations serving as the Board's
minority Member over the past five years. I certainly was aware of the
Board's reputation for its sometimes glacial pace long before my
appointment. But to experience it first-hand, in a position from which
I expected to positively influence that pace through collaboration with
my fellow Members--I was in for a big surprise.
While the Chairman serves as the ``executive head'' of the Board
and has many important overall management responsibilities, I strongly
disagree with the Chairman's stated view that he alone is ``the person
responsible for moving the docket forward.'' \1\ I believe that all of
us must share in that responsibility. All of the Board Members and the
very capable staff must and can work together to make the agency more
efficient and effective. I want to help improve the functioning of the
agency, not embrace the status quo. Thanks to the STB Reauthorization
Act, some long overdue progress is starting to be made.
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\1\ Sunbelt Chlor Alkali P'ship v. Norfolk S. Ry., NOR 42130, (STB
served June 20, 2014) (Elliott separate expression).
STB Reauthorization Act (Section 5) allows for nonpublic collaborative
discussions between a majority of Board Members; Summaries of such
---------------------------------------------------------------------------
discussions must be made publicly available.
First, Board Members can now meet and talk about important pending
issues. This has been made possible by Section 5 of the STB
Reauthorization Act, which allows for nonpublic collaborative
discussions among a majority of Board Members. Prior to that
provision's enactment, we couldn't talk about pending issues unless it
was in an open meeting, such as a hearing like this one, due to
constraints imposed by the Sunshine Act. Such restrictions clearly
hindered the Board's productivity.
We held our first ``Section 5'' meeting in February to discuss the
pending data collection rulemaking to require Class I railroads to
publicly file various weekly reports on their service performance in
United States Rail Service Issues--Performance Data Reporting, Docket
No.
EP 724 (Sub-No. 4). That meeting ultimately led to the inclusion of
additional targeted data reporting in our supplemental proposed
rulemaking than what was first under consideration. I won't comment
further on that important rulemaking because it is pending, but I do
want to thank you, Chairman Thune, for your interest in the rail
service data collection, and want to note that a number of agricultural
and other interests have provided helpful comments in response to our
proposal. I am very hopeful that we will issue a final rule before the
end of the year.
We have also held Section 5 meetings to discuss the Reauthorization
Act's requirements concerning both arbitration and investigations and
how best to implement those directives. In addition, we have made use
of the new authority to meet and discuss the petition for rulemaking to
adopt revised competitive switching rules in Docket No. EP 711, which
the Board recently acted on.
When these meetings are held, the Board's General Counsel is
required to be in attendance, and our meetings must be disclosed. I
want to make clear that we can't meet together in secrecy, but instead,
the Reauthorization Act promotes transparency by requiring that a
summary be prepared and made public two days after a meeting, unless
the meeting relates to an ongoing proceeding, and then it is made
public on the date of the final Board decision.
I think it is very important that the Section 5 summaries be as
informative as possible. Currently, meeting summaries have been posted
regarding our discussions concerning the formal investigations
rulemaking (April 5, 2016), and discussions concerning the voluntary
and binding arbitration rulemaking (March 23, 2016). I hope that once a
few more of the meeting summaries are made public, the Board will
receive feedback regarding their adequacy. I expect we will continue to
make good use of the new collaborative discussion authority and, again,
want to thank you and your Committee for allowing us to do so.
STB Reauthorization Act (Section 15) requires quarterly progress
reports on unfinished regulatory proceedings.
A second, key provision of the Reauthorization Act that has been a
game-changer from my perspective is the requirement for deadlines and
quarterly reporting of pending rulemakings. While the Chairman
determines the dates that are established in the report, for the first
time, I know that deadlines exist and the target dates for Board
action. This information is not only helpful to Board stakeholders, but
it is absolutely essential to me in trying to fulfill my
responsibilities.
Several rulemaking proceedings identified in the quarterly report
started before I joined the Board. One of those very dusty items has
recently been acted on and is now off the Board's plate. A couple of
other older proceedings have also received the Board's attention
recently, which I believe is due largely to the prompting of the new
law's quarterly reporting directive.
I thank you and the Committee for imposing this helpful, practical
requirement.
STB Reauthorization Act (Section 13) requires the Board to establish a
voluntary and binding arbitration process for rate and practice
complaints.
The new law also requires the Board to establish a voluntary,
binding arbitration process for rate and practice complaints. This
directive has already resulted in the Board issuing a notice of
proposed rulemaking on May 12, 2016, to alter our existing arbitration
regulations, last updated in May 2013. We updated those regulations
three years ago in an effort to make them more useful to stakeholders,
but did not have authority then to include rate complaints among the
issues that could be arbitrated. We also had a different process for
selecting an arbitrator, so we need to amend the process to comply with
the one established in the new law.
The Board wants to do whatever it reasonably can to make
arbitration a viable and effective litigation alternative. Comments on
the NPRM were filed in June and July, and the Board intends to issue
new final rules before the one-year anniversary of the STB
Reauthorization Act's enactment, as directed.
Another litigation alternative that deserves mentioning is the
Board's existing Rail Customer and Public Assistance (RCPA) Program in
which anyone can seek informal assistance from a group of Board staff
regarding a wide range of matters, including getting clarification
about the Board's jurisdiction and procedures. The RCPA Program also
helps with informal dispute resolution through mediation. The RCPA
Program really stands out in my view as an agency success story, and
the more we can do to spread the word of its existence and the RCPA
staff's willingness to help, the better. In my opinion, RCPA epitomizes
one of your main themes of the STB Reauthorization Act, i.e., to head
off problems between rail customers and carriers whenever possible, and
to quickly resolve them when they do occur. That is the RCPA Program.
STB Reauthorization Act (Section 12) allows the Board to initiate
investigations on its own initiative, rather than only on complaint.
Such investigations must be of regional or national significance.
Mr. Chairman, I am hopeful that the Board's new investigative
authority provided by the Reauthorization Act proves very useful,
should it be needed, to help the Board in its work to oversee the
national rail network. It will be essential for the agency to use it
wisely. The Board issued a proposed rulemaking in May, and the last
round of comments are due tomorrow, August 12, 2016. I cannot say much
more on it since it is pending, other than that the Board intends to
issue final rules by the December deadline. I do, however, want to
acknowledge the service crisis of late 2013 and 2014, which I think
prompted your Committee to include the investigative provision in the
Reauthorization Act.
I must say that the service crisis was probably the most important
and difficult matter the Board has faced during my time at the agency.
It was very difficult for shippers, for railroads, and for the Board.
But I believe the Board worked to the meet the difficult challenges in
a responsible way. Board Members and staff held countless meetings with
rail officials and affected shippers. We held hearings in Washington,
D.C., and in Fargo, N.D., to allow interested stakeholders to report on
service problems, to hear from rail industry executives on their plans
to fix the problems, and to explore additional options to improve
service.
It was during the April hearing that witnesses from South Dakota
and neighboring states alerted us to a very real danger that fertilizer
would not be delivered in time for spring planting. I recall asking the
agricultural witnesses if fertilizer wasn't delivered, despite the best
of efforts of the carriers, ``Is there a Plan B, a Plan C?'' The
answers were pretty grim, including one grower who indicated his
alternative was not growing a crop, stating that ``There is no plan B,
no Plan C, no Plan D.''
A few days after that hearing, the Board directed Canadian Pacific
Railway Company and BNSF Railway Company to each report their plans to
ensure delivery of fertilizer shipments for spring planting and to
provide weekly status reports for a six-week period. While I don't
suggest that the Board's action be credited with saving that crop
year's spring planting, I do think we helped focus needed attention on
the critical importance of the fertilizer deliveries.
Following the April hearing, I met with a group of staff on a
weekly basis in an attempt to monitor service to determine whether it
was improving. My strong preference was to give the rail carriers time
to fix their problems, but with close Board oversight, rather than
thinking government intervention or micromanagement could resolve
things. But as I continued to witness the ever-growing backlog of rail
car deliveries in the Midwest, particularly in North Dakota, South
Dakota, Minnesota, and Montana, I thought we had no choice but to
ratchet up our focus. At my urging, the Board directed CP and BNSF to
publicly file their plans to resolve their backlogs of grain car
orders, as well to provide us weekly status reports pertaining to grain
car service, beginning in June 2014. Our attention to the service
problems also led to the weekly rail service performance reporting,
beginning in October 2014. And, as already mentioned, the Board is
considering a proposed rulemaking to make service data reporting
permanent.
Although that service crisis is behind us, I have not forgotten and
will not forget the many difficulties experienced during that time, nor
the lessons learned. That experience helps inform almost every decision
that I make as a Board Member. The Board must be ever vigilant in
overseeing the rail network, and the Board's new investigative
authority targeted toward matters of national or regional significance
could help the Board address looming trouble, should it be found
necessary.
STB Reauthorization Act (Sections 11 and 15) establishes procedures for
rate cases (directing the Board to maintain one or more simplified and
expedited rate review methods; requiring expedited handling of rate
cases and shortened rate review timelines, and instructing the Board to
assess procedures available in litigation before courts that could be
applicable to expedite rate cases.
Finally, I want to call attention to the Reauthorization Act's
provisions that address the Board's rate case procedures. The new law
directs the Board to resolve cases more quickly and provides shortened
timelines for rate cases brought under the Stand-Alone Cost
methodology, also known as SAC. It also requires us to maintain one or
more streamlined processes for cases in which the SAC test is too
costly--and it is costly. And, the Reauthorization Act also directs the
Board to initiate a proceeding to assess procedures used in court
litigation that may help in expediting rate cases before the Board.
During my service at the Board, I have often voiced my serious
reservations and concerns about the Board's rate review processes,
particularly SAC, so I welcomed Congress's attention to these important
matters. The SAC process is too costly, too time consuming, and too
unpredictable. And, based on what I have heard repeatedly from
agriculture industry representatives, they do not believe that any of
the Board's current rate reasonableness methodologies--Three Benchmark,
Simplified SAC, or SAC--provide meaningful access for the agricultural
community. Their concerns prompted me to urge the Board to open the
current proceeding in Docket No. EP 665 (Sub-No. 1), Rail
Transportation of Grain, Rate Regulation Review.
My objective in that proceeding is to ensure the Board's rate
complaint procedures are accessible to grain shippers and provide
effective protection against unreasonable freight rail transportation
rates. After all, the Board has a statutory responsibility to ensure
that any captive shipper--including a grain shipper--has access to rate
review if the shipper wishes to pursue it. I am very hopeful the Board
will soon move the ball forward on this important proceeding. Since
opening that proceeding at the end of 2013, the Board has received over
20 written comments and suggestions, in addition to oral testimony
received at a public hearing on June 10, 2015, when we met to hear
interested stakeholders' views on whether the Board's rate complaint
procedures are accessible for grain shippers. In my view, this
proceeding is also responsive to the Reauthorization Act's directive
for the Board to maintain one or more streamlined rate review processes
for cases in which the SAC test is too costly.
With respect to assessing court litigation strategies, the Board
initiated a proceeding on June 15, 2016. That proceeding, which was a
directive of the Reauthorization Act, also invites ideas on ways to
expedite SAC cases in particular. Before this proceeding began, the
Board gathered information by informally meeting with stakeholders.
Board staff met with 22 participants over the course of a month. These
meetings were extremely helpful to the Board in preparing for this
proceeding. And although I can't touch on substance, as it's a pending
matter, I'll note that last week the Board received a number of
comments in response to the Board's Advanced Notice of Proposed
Rulemaking that appear to provide very constructive feedback.
I do want to mention that some actions have already been taken to
improve the rate case process for pending cases, following on the heels
of two very complicated and time consuming SAC cases. The Chairman has
appointed a rate case project manager to help ensure rate cases do not
get delayed. Other actions include the Board's recognition of the value
of instructing parties on basic procedures for the format and
submission of evidence (see Consumers \2\), the importance of holding
technical conferences between Board staff and the parties (held
initially at my urging), and the need to require supplements when
presented with mismatched evidence (see TPI \3\). It is my strong hope
that we will build on these improvements with the conclusion of the
rate review directives of the Reauthorization Act.
---------------------------------------------------------------------------
\2\ Consumers Energy Co. v. CSX Transp., Inc., NOR 42142 (STB
served July 15, 2015).
\3\ Total Petrochemicals & Ref. USA, Inc. v. CSX Transp., Inc., NOR
42121 (STB served May 18, 2015); Total Petrochemicals & Ref. USA, Inc.
v. CSX Transp., Inc., NOR 42121 (STB served July 24, 2015).
---------------------------------------------------------------------------
Looking beyond the STB Reauthorization Act, there will always be
more we can do to improve the functioning of the Board. If I had to
point to the one thing that could provide the most bang for the buck
(although it doesn't cost anything nor require Congressional action),
it would be to change this Board's extreme ex parte communication
regulations, which prevent Members and staff from discussing the merits
of pending matters with any stakeholders or outside experts. I strongly
believe that the Board needs to move into the 21st Century and embrace
more interactive, timely, and responsive decision-making.
I am pleased to report that the Board has taken a couple of steps
to make some changes on a case-by-case basis. The first action taken
was last November when the Board waived the prohibition on ex parte
communications to permit interested parties to meet with Board staff to
discuss the proposed rules on railroad performance data reporting, and
summaries of those meetings were posted on the agency's website.
Although I would have preferred to have included the Board Members in
that waiver, it certainly was a positive first step at opening up some
needed dialogue on a pending rulemaking.
The second action was recently announced in the new proceeding on
competitive switching, Docket No. EP 711 (Sub-No.1). There, the Board
acknowledged that it would be beneficial for Board Members themselves
to hear directly from stakeholders on the issues in that proceeding and
to be able to ask follow-up questions. Special procedures will be
followed to ensure that the public has a complete record of the
evidence and arguments that the Board will consider in its decision-
making and to maintain both fairness and accessibility. The Board will
disclose the substance of each meeting by posting a summary of the
arguments, information, and data presented to the Board Member at each
meeting (including the names/titles of attendees of the meeting) and a
copy of any handout given or presented to the Board Member.
I hope this is only the beginning of the Board's efforts to alter
its ex parte restrictions. It would be a definite benefit to the Board
and the public for Members and staff to meet and hear directly from
stakeholders during rulemaking and other proceedings so that we can
establish the most informed policies and make the most informed
decisions. We need to loosen the Board's ex parte shackles, and we can
do so while being transparent about any non-public meeting.
Again, Chairman Thune, thank you for your efforts to reauthorize
our agency and hold the Board more accountable to shippers, rail
carriers, and the public. Because of you and your Committee's efforts,
the agency can no longer operate under a ``business as usual''
mentality. I would be happy to answer any questions.
The Chairman. Thank you, Ms. Begeman.
Do you want to comment on that, Mr. Chairman?
Mr. Elliott. No, I----
Ms. Begeman. That's why he's over there.
[Laughter.]
Mr. Elliott. I have no idea what Ann is talking about. We
always agree.
The Chairman. Well, we're having a good spirited
discussion, and we're not always on the same viewpoint coming
into an issue.
Ms. Begeman, you mentioned that the new authority for Board
members to talk to one another without procedural hurdles
removes an impediment to productivity. You also noted that the
Board has made use of the new authority a few times. I'm
wondering maybe if you could speak to the process by which the
Board decides to make use of this new authority. And could the
authority be further utilized to enhance collaboration?
Ms. Begeman. I think that we have been slowly feeling our
way on how to make the best use of the authority. I really
commend Vice Chair Miller. I think she was the first one to
say, ``Hey, will someone come meet with me?'' Like, ``Hmmm.''
And, you know, we started in February, and we've had meetings
almost every month. We've had four different meetings. You
know, I think that we are starting to really appreciate the
value of those meetings and the fact that we've started to
include the staff who are assigned to some of the particular
proceedings that we are meeting on so that they can hear what
we are saying to try to ultimately expedite drafting.
One of the things that we may want to consider is to sort
of maybe every 2 weeks, like, ``Hey, anything you want to talk
about?'' It doesn't just have to be on a rulemaking. You know,
besides all of these things we've been talking about in the
quarterly reportings, we have so many important hard cases, and
I think it might be very useful to us to try to kind of get
into some of the details and maybe figure out really where we
want to end up sooner than--a lot sooner than where we
ultimately end up.
The Chairman. And I understand that only a limited number
of summaries have been posted. What's your assessment of the
level of detail that's been conveyed in the summaries of each
of those collaborative discussions, and what changes, if any,
could the Board make to increase transparency?
Ms. Begeman. You know, I don't get to have input on the--I
don't write the summaries. As you can probably imagine, I like
to have input. I like to make my mark. I like to, you know, add
my comma. But they are written by our great general counsel,
who is just an institution at the Board. He has been there
since the 1970s, and he----
The Chairman. Did he write SAC?
Ms. Begeman. If you like it, he did. If you don't, he
didn't.
[Laughter.]
Ms. Begeman. I think that maybe the first summary that I
saw, I thought it was a little--I thought it could be more
detailed, and I think that as we've gone forward in the
meetings, they've gotten more detailed. I know that our ex
parte summaries that the staff put together for the data
rulemaking--they were really detailed, and I think that
there's----
Ms. Miller. Appropriately detailed.
Ms. Begeman. They were appropriately--yes, thank you, Deb.
You know, there's a fine line. We don't want to say so much
that someone will be afraid to speak--Ann said X. But I think
that we--it's sort of like implementation in what we're
trying--we want to do a better job. So this is sort of a new
thing, and I think that we can build on it. And, again, as
folks read what the summaries say, I think no one is ever too
shy to say, ``Come on.''
The Chairman. Are there any other near-term steps that you
can think of that the Board could take to further promote and
advance or increase the amount of collaboration between
members?
Ms. Begeman. Well, I think it's going to be very different
when there are two more members, because then we don't have to
have the big formal meetings. I don't think those formal
meetings will go away. I think that they will always have
value. But if I could just go down the hall and talk with Deb,
and then I could go down the hall and talk with Dan--because as
long as there are five people, that wouldn't be a--you know, we
can have conversations one-on-one. I really think that is going
to be another game changer.
The Chairman. And if anybody else wants to jump in here,
feel free, on that subject.
But, Chairman Elliott, I have, as I said, greatly
appreciated the inclusion of clear schedules and explanations
for delays pursuant to the law's requirement for quarterly
reports on unfinished regulatory proceedings. And I'm wondering
maybe if you can provide a little bit more insight on how the
deadlines are formulated, and after two iterations of reports,
any views on ways to improve that process as it goes forward.
Mr. Elliott. Sure. First of all, I'd like to start off by
saying that as far as the unfinished regulatory proceeding
reports themselves, I think they've been excellent. I think the
results speak for themselves. You've seen things coming out of
the agency at a pace that didn't occur in the past. So,
personally, I very much appreciate that transparency, and it's
created, I think, some great efficiencies at the Board that
didn't exist before. So, you know, all in all, it has been
great.
The way we get together to determine the deadlines, as was
mentioned in some of the earlier testimony, kind of at a lower
level, we get together with the directors and see what the--
especially the directors obviously involved in the cases, and
we have a discussion on what is feasible. We have internal
timelines built in at the agency that we look at. So we bring
that together. We try to reach a reasonable time.
And then the three of us have been working on those reports
together, so we try to come to an agreement, and, apparently,
Ann and I don't always agree on those dates, but we do try to
come to some form of agreement. There's a little give and take,
and I think it's worked out, I think, very well. So, as you can
see, we've kind of spread out each big one over a monthly
period, and, you know, I think, thanks to that guideline, those
reports, we have the grain rate proceeding decision, hopefully,
coming out this month, and I think a lot of that is owed to the
guidelines--I mean, to the reports themselves.
I do want to mention one thing. Ann was very complimentary
about the grain rate case proceeding. But she had a lot to do
with that, you know, getting started. Her commitment to the ag
community is unquestionable and has been a priority of hers,
and she had a lot to do with bringing that. So I certainly
don't want to take all the credit for it.
But as far as improvement, we have worked with your staff,
and we did change the unfinished regulatory proceeding reports,
and I think they've met to everyone's liking. We will continue
to listen to the public to see if there are ways to improve it
and make them--and be more responsive to what they need to
follow our caseload. And, like Ann said, we're kind of working
our way through some of these things. So, you know, it's early,
but I think it's working very well.
The Chairman. We're glad she hasn't forgotten where she
came from.
Mr. Elliott. That's right.
The Chairman. Ms. Miller, you mentioned that a common
criticism of the agency is that it has been a black box, and
that the law's requirements for reports on regulatory
proceedings has greatly enhanced transparency and
accountability, and you suggested expanding those reporting
principles to other types of proceedings. So could you
elaborate on how you see this expansion working in practice?
What agency business, for example, would you include and
exclude along with the information on regulatory proceedings,
and what do you view as the most critical elements for each
action?
Ms. Miller. Sure. I'd be happy to. You know, it's
interesting that through this conversation with a lot of our
stakeholders, what you hear about are the rate cases that cost
millions of dollars. They take years. If, in fact, a
stakeholder wins, you know, it might turn into hundreds of
millions of dollars. So, clearly, they capture people's
attention.
But, day to day, the work the Board is doing and the
majority of the cases before us have to do with other issues,
whether it's abandonments or a railroad that's building
something or a question that people need help from the Board in
terms of understanding how to apply the law. And we don't have
a schedule, really, for how we're going to deal with those
things.
My view, since I've come to the Board is that everything,
when it comes in the door, should be assigned a schedule. It
should be very public to the staff. You can't always meet the
schedule. It's like constructing a house or reconstructing a
house. You find things beyond the walls you weren't expecting.
But, still, there's no reason why you can't always have a
publicly known schedule in terms of when you think you can get
things done. I think in any public agency, it's simply what you
owe to the people that you, in this case, regulate, and it's
what you owe to the public, and, currently, the Board doesn't
use that sort of a process.
I think, as you can see, it has spurred action on the part
of the Board to pick up the pace on regulatory decisions, and I
think by being very public in terms of the expectation we have
for ourselves in terms of when we'll take action on other
issues that have been filed before us, you would see some more
things happening there as well.
The Chairman. Mr. Chairman, Ms. Miller noted her support
for soliciting public feedback on the draft alternative rate
review methodology report and for adding the Board's own views
and findings prior to formally sending that report to Congress.
So what are your views on soliciting public comment, and to
what extent do you anticipate the STB will add to the report
prepared by its outside consultants?
Ms. Elliott. Sure. As I mentioned in my testimony, the
Board intends to have a hearing shortly after we put out the
report itself. And I'd just like to note one thing about the
report. When that report was put out--I mean, it's an
independent report, and I think that's very important, to an
extent that we get feedback from someone who doesn't have any
skin in the game. So, to me, the independence of the report is
significant, I think, for our stakeholders to know that that's
not coming from, you know, one side or the other or from the
agency itself, which has a procedure in place which, you know,
hasn't been satisfactory, to say the least.
So as far as the addition to the report, what I said was we
first have the hearing, possibly comments beforehand or
afterwards, and then we would use the report, that hearing and
the comments as a springboard to, hopefully, look for
alternatives to SAC. My opinion is no different than my fellow
Board members, and I mentioned this in my confirmation hearing,
that I think the SAC process itself is inherently unfair, and
we're seeing more and more of that as we've been looking at
some of the more recent cases and how complex they are.
And we also have, as I mentioned, the grain rate regulatory
proceeding itself, and we also have the expedited--I guess the
attempt to expedite rate case proceedings through court
litigation, and we kind of broaden that a little bit. So what
I'd like to do is, hopefully, meld all that together and search
not just from the report but from some of these other sources
and have something--a proceeding that comes out of that, and
then go from there. So it essentially gets to the same place,
but it's not exactly in the same timeline.
The Chairman. Anybody else on that subject?
[No verbal response.]
The Chairman. Ms. Begeman, in discussing the law's expanded
arbitration procedures and your support for alternatives to
litigation, you also noted that the Rail Customer and Public
Assistance Program, which provides informal dispute resolutions
through mediation, is one of the agency's successful stories.
What more can be done to raise public awareness of that program
as a potential resource for shippers and for railroads?
Ms. Begeman. Well, you know, I know the three of us, when
we go visit with folks out in the real world, we always--I
don't want to speak for you, but I know I always take a big
stack of pamphlets and spread them around. Our groups, such as
the Rail Shipper Transportation Council--and we have Shelly
from Lincoln Electric, who is our Chairman of the Rail Shipper
Transportation Council, here. I know that she has talked with
all of her folks--all the folks on the Council, and they have
pamphlets.
It's a lot of word of mouth. It's on our website. We
advertise it on the website. I think some of the shipper groups
have tried to, you know, advertise it on their websites. I'm
open to any other great ideas, and I know there will probably
be really good ideas out there that I can't think of on my
own--sky writing. You know, really, they can resolve a lot of
things before we can.
Ms. Miller. I have an idea.
Ms. Begeman. Deb has an idea.
Ms. Miller. I think we should use graffiti on the side of
train cars.
[Laughter.]
The Chairman. That's good stuff. Lord knows, there's plenty
of that. All right. This would be for the entire panel, but the
Board has instituted interim rail service performance metrics,
and it's currently moving forward with a rulemaking to make
certain metrics permanent. Based on the results to date, could
you speak to what you see as the value of those metrics, both
for the Board's oversight functions and also for public use?
Mr. Elliott. Sure. I mean, I think we heard the prior panel
discuss some of the usefulness with respect to the shipper
community and that it's a good way to understand what's going
on in the industry and to anticipate any trends or to see any
trends that are forming and, hopefully, take some action. I
think it was mentioned in one of the testimonies that you would
be able to look and see possibly if New York looks jammed up,
maybe we'll take it over to the Pacific Northwest. I don't
think that's probably the greatest example or if that ever
happens. But that's my limit of geography.
Anyhow, I think it's very helpful along those lines. I also
think it's helpful to us. You know, I think the last service
crisis was a confluence of events that occurred, including
things that were happening earlier on that may have been seen
if we had that type of extensive reporting.
I think you made an example of the hearing and the
testimony on fertilizer. You know, we really didn't know that
that was going on until that hearing took place, and then all
of a sudden, everyone was talking about fertilizer and were
like, well, they're not going to get their fertilizer to the
crops, and that's going to be--I can say that is something of
regional or national significance. I mean, we need to have that
stuff happening. So that's one of the great things.
And I think the most important thing that I--you know, I
didn't really think about it until I was thinking about the Act
a lot more closely in preparing for this hearing. But, you
know, a lot of the big corporations out there, the railroads
and the big shippers--you know, they have access to a lot of
data. They have a lot of money. They can go out and acquire
that data. But, you know, the ag community, the farmer around
here, isn't going to have the accessibility of that data. So I
think that is one incredibly helpful thing. This brings that
knowledge to everyone out there, not just the big corporations.
So I think that, in itself, is very important.
The Chairman. Did anybody else want to talk about that?
Ms. Miller. I would just add one thing, if that's OK. I
think, one, from the beginning, I was a big advocate for
requiring more data just in my public career. I've always found
it to be important and useful. Information is a very powerful
thing. People can make better decisions. I think that for
shippers who are running their own business, when they have
information, even if things aren't working the way they want
them to work, they can make better decisions for their own
business by having it.
And I think it's important to remember that while railroads
are private entities and own their own land--their own
railroads, their own track--I'll get there in a minute--own
their own track, it is still a shared network. And as we saw in
the service crisis, what happens on one portion of the network
ends up impacting people on another portion of the network, and
what might be to the benefit of one particular shipper in one
part of the country might be to the detriment of other
shippers. So that notion of shared impact, I think, is a really
important one we need to keep in mind.
I think it calls for greater transparency in the data,
which is one of the reasons why the Board acted. And I'm always
pleased when I'm out and hearing shipper groups talk to hear
what I think is confirmation that they believe as well that
it's important to have that information, that they found it
helpful.
Ms. Begeman. If I could, you know, during those service
difficulties, we established the fertilizer reporting
requirement. A few months later, we had the railroads filing
weekly reports on filling the grain car shortage, how they were
getting cars allocated, keeping track of what the shortages--
you know, I'm certainly not interested in making the railroads
do more work or regulating them. But, as Mr. Heller said,
there's a balance, and that's something I always strive for.
I recognize that the industry would prefer for the data
rulemaking to not be made permanent. I read their filings.
Frankly, I find the information invaluable. Every Wednesday, I
log on, and I look to see what has been filed, just to see what
it looks like, and then if we have a report for the trend of
it.
But one of the filings that I go to first, actually, is the
filing for what's going on in Chicago. Now, it's pretty boring,
of course, in the summer, but it won't stay that way, and, you
know, the--one of the catalysts for the service crisis was the
Chicago winter. There will always be a Chicago winter. It just
depends on how extreme.
But I think that has been--it has been helpful, and I hope
that for the next Chicago winter that will affect service, we
will all know more than we did before, and we will be able to
plan accordingly. I'm not saying it's going to make it easier,
but you won't have been in the dark. And the more that we can
share information and promote that, I think, the better. So,
again, I really think it's the right thing to do.
The Chairman. Yes. I think we all discovered how important
Chicago is in the network a couple of years ago.
Mr. Chairman, your colleagues both noted that the Board
spoke very positively of your action to waive ex parte
communication restrictions, and both indicated support for
broader changes to the rules to allow for more ex parte
communications. And I have two quick questions for you. What is
your assessment of the benefits and tradeoffs of the ex parte
meetings conducted under waivers? And what's your view on
changing the Board's rules to allow for more ex parte
communication?
Mr. Elliott. Sure. First of all, as far as the positives, I
don't think--I think they've already been discussed here today.
It's great to sit in an office and discuss difficult matters
with your stakeholders and the participants. And the
proceedings--I have found that to be very helpful. Staff have
found it to be very helpful, especially in the data reporting
proceeding that we just discussed. It's just--you know, people
know so much out there, and it's great to get the benefit of
their knowledge. So I think, you know, that part--the benefits
pretty much speak for themselves. I mean, we'd all like to sit
down and talk.
And, you know, I'd just mention that these ex parte rules
have been in place for a long time. They've been in place since
1977, so for over 40 years. Nobody has ever waived these ex
parte rules, and I learned that from our general counsel, who
was around and who did not write SAC. But I did discuss that
with him, and I said, ``Has this ever happened before?'' And it
has not, so I'm glad that we are blazing this trail.
The tradeoff--and I think this goes back to my practicing
law days--is that there's the Constitution, due process, and
the right to a fair hearing, and that right to a fair hearing
includes impartiality and integrity of the process. That's just
a basic fact that you see in the courts, that you don't go in
and talk to the judges behind doors without other people there,
and that's how our system works, and it's supposed to be out in
the public as much as possible as well. That's a very important
principle, you know, in our judicial system that has
transferred over into the regulatory agency itself.
So I take that very seriously. I, myself, believe that I'm
very impartial, and I think that is something I'm not concerned
about, but at the same time, there's an appearance to our
stakeholders out there. So I just want to be careful in rolling
this out. We've rolled it out in a few proceedings, and the
feedback I have gotten has been very positive. I've heard no
concerns about integrity or impartiality. So I'm very excited
about what has happened so far. We intend to continue this
process, and as it goes along, hopefully, we can make further
advancements.
The Chairman. A final question for any of you that want to
take a stab at it. What do you view as the most significant
challenge facing the Board when it comes to implementation of
the legislation, and how do you plan to address that? What's
the hardest part of all this?
Ms. Begeman. Managing expectations. I believe we, the three
of us and the staff, are firmly committed to implementing it
and meeting the deadlines. I don't want to meet a deadline just
for the sake of meeting it if we can actually have a better
product if it's a week later. But, you know, we need to hold
ourselves accountable. We need to hold our feet to the fire,
and we need to be willing to say, ``Oh, you know what? We need
another week, or maybe we need two.''
I don't want a delay, and I certainly don't want to be the
cause of delay. I never have been. But I'm worried that folks
may expect something that we haven't delivered as quickly, and
they're going to say, ``You see. There they go again.''
The Chairman. Anything else?
[No verbal response.]
The Chairman. All right. Well, I don't want to cut anybody
off here, but, you know, it's funny, but it was like 2 days
after the bill was signed into law, I ran into a producer here
in South Dakota, and he was complaining that it hadn't lowered
his rates yet. He didn't think it was working. It wasn't--he
wasn't seeing any improvement in the transportation cost or
anything like that. So, anyway, you're right. Managing
expectations is really important, and always under-promise and
over-deliver.
Well, thank you all for your testimony, for your candid
responses to the questions, and for taking the time to trip out
here to South Dakota and be a part of this. We're very
interested, as you are, in making sure that we get it right,
and it is critically important to our economy here in South
Dakota. I can't overstate just the importance of the freight
railroads to this economy. We just can't live without them. So
having an efficient, effective system with competitive rates is
really critical.
I know that you have an incredibly important role to play
in overseeing all this. And since you weren't there when they
invented the SAC process, none of you can be held accountable
for that. I'm still trying to figure out whoever dreamed that
one up: let's create an imaginary railroad and see what that
would cost.
But I do appreciate talking about something other than
Presidential politics. So even if we have to talk about stand-
alone railroads--and you can be glad that under your
jurisdiction, you don't deal with--because one of the other
areas that we deal with on our committee--we've got kind of
what we call planes, trains, and automobiles, all the modes of
transportation.
But, you know, in the aviation space, the whole issue of
drones is something that we're going to be dealing a lot with,
and I'd be willing to bet there were a lot of the shippers
represented here today who in some way, form, or fashion are
probably going to be looking to use those in the future. So
that's a whole new area that we're going to be paying a lot of
attention to.
I will just close by saying that the hearing record will
remain open for 2 weeks, during which time if there are any
additional questions, we'll make sure we get them to you and
would ask that you submit any written answers to the Committee
as soon as possible.
Again, thank you for your responsiveness. Thank you for the
good work that you've undertaken in implementing the
legislation, and I do see marked improvement, as I said, across
the country in terms of the relationship, it seems, between the
shipper community and the railroads. It's not perfect. There's
always room for improvement. But, certainly, I think we've seen
some significant gains.
So thank you. And with that, this hearing is adjourned.
[Whereupon, at 3:21 p.m., the hearing was adjourned.]
A P P E N D I X
Statement of BNSF
BNSF provides the following comments to supplement the record of
the August 11, 2016, U.S. Senate Commerce Committee Field Hearing
entitled Freight Rail Reform: Implementation of the Surface
Transportation Board (STB). The hearing reviewed the status of the
Surface Transportation Board Reauthorization Act of 2015, Public Law
114-110 and highlighted some of the directives of the Act and
rulemakings that the STB is currently considering.
BNSF has been an industry leader in innovating its operations and
marketing programs which enable producers in South Dakota and beyond to
access new destination markets, including overseas markets, Mexico, or
previously unreached domestic markets. The freight railroad economic
regulatory policies discussed at the hearing directly impact BNSF's
investment decisions. Those decisions, as was pointed out at the
hearing, directly impact South Dakota's agricultural shippers, now and
in the future.
South Dakota shippers, and all BNSF grain customers, benefit from
agriculture sector-specific investments, like the purchase of grain
cars. They also benefit directly from BNSF's regional investments like
the recent $3.5 billion investment in the Northern lines that
facilitate access to export markets in Asia and beyond.\1\ South Dakota
shippers can also benefit from specific projects that increase overall
network reliability on rail lines in other regions because of the
interconnected nature of its rail network. In 2014, shippers operating
on BNSF's Central and Southern regions saw benefits of the increased
overall velocity resulting from the significant investments made on the
Northern lines. Of course, all shippers benefit from network-wide
investments, such as locomotive purchases. Each of these capital
investment decisions requires an analysis demonstrating an ability to
generate a reasonable rate of return--simply put, will the projected
returns justify BNSF making the investment? However, even BNSF's $2
billion investment in Positive Train Control technology, required by
regulation and not based on return or productivity, benefits not only
the shippers of the hazardous cargo that triggers the regulatory
mandate, but others as well.
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\1\ Essentially, the Great Northern Corridor has been transformed
to the functional capacity equivalent of the Los Angeles to Chicago
Transcon Corridor, the busiest route on the BNSF network. The Great
Northern Corridor now has two main lines on nearly 50 percent of the
route between the Pacific Northwest and Chicago. BNSF additionally has
added about 1,000 miles of Centralized Traffic Control (CTC), 16
sidings and extended 24 sidings.
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Since 2000, BNSF has invested $53 billion in capital across its
network, and $15.3 billion over the last three years. These investments
have taken place across business cycles, including periods when many
farmers were storing grain in recent years. BNSF in 2016 plans to spend
$4.2 billion on capital projects across its network to support
maintenance and expansion. This includes $2.8 billion for network
maintenance, $300 million for continued implementation of positive
train control, and $600 million for locomotives, freight cars and other
equipment acquisitions, the acquisition of 150 locomotives under a
minimum purchase agreement with the manufacturer, and $500 million on
various capacity expansion projects, primarily a continuation of
projects that were started in 2015. This year's investments are being
made in a present downturn in the freight economy which began in 2015.
Given the significant harvest that is expected this season, grain
shippers will be a significant beneficiary of this decade of
investment, particularly those made in the last several years. Since
July, BNSF has seen record shuttle sales at levels that are expected to
continue through the end of 2016 as U.S. grain farmers contend with
supplies that are at their highest levels in almost 30 years. Week-
over-week its velocity remains about 10 percent better than averages
from a year ago, and the shippers we serve have been the recipients of
this advantage in the global marketplace.
We know that the freight economy will continue to grow. Earlier
this year, the U.S. Department of Transportation released new 30-year
freight projections which show that freight tons moving on the Nation's
transportation network will grow 40 percent in the next three decades.
We expect growth, but also more volatility. Ongoing investment in a
well-functioning network, therefore, is even more important to overcome
this challenge, and to advantage all the shippers that are located on
BNSF. While BNSF's belief in its customers' future growth has driven
investment historically, a critical factor allowing these private
sector investments to occur is the relatively stable economic
regulatory environment conducive to investment.
The proposals to change rail rate review and to expand access
ordered by the STB should be very carefully reviewed, if they are to be
finalized by the Board. Potential perceived benefits for individual
shippers could have dramatic impacts on railroad returns and,
therefore, not just affect railroads, but also all customers. Potential
consequences can be most significant for those shippers who depend on
freight rail investment to run their businesses.
BNSF expects to participate and more fully provide its unique
perspective in each of the many proceedings of consequence now pending
before the STB. However, because these proceedings were discussed at
the field hearing alongside discussions of BNSF investment and
operations, we want to ensure that its concerns about the potential
regulations and their impact on BNSF investment are reflected in the
hearing record. BNSF is concerned about the proposals by some parties
to create a separate rate reasonableness process for agricultural
shippers that would replace market-responsive grain rates with
formulaic, outcome-oriented regulatory intervention. Agricultural
markets are highly competitive, and regulatory processes proposed in
this proceeding would jeopardize the ability of the railroad to
maintain the efficient market-responsive products agricultural
customers want and need. Specifically, BNSF is concerned that the
pervasive regime of cost-based rate regulation envisioned in these
proposals would penalize railroads that seek to reduce costs and
eliminate the incentive to innovate and make the investments in
efficiency and productivity that are the hallmark of BNSF's
agricultural program.
Also, the Board cannot ignore the cumulative effect of the various
regulatory proceedings that it is currently weighing, including its
modifications to arbitration and rate reasonableness review mechanisms,
its recent reciprocal switching and exemptions proposals and its
declared intention to issue a decision in the Revenue Adequacy docket
in October. The Board should be concerned about creating overlapping
layers of regulatory intervention that distort market signals in
sophisticated commercial markets and require significant, resource-
consuming activity by the Board in areas where markets are properly
functioning. The totality of the impact of individual regulations under
consideration must be taken into consideration, along with the changed
economic outlook of the rail industry.
Balanced regulatory oversight is critical to the health of the
freight rail industry and its customers who depend on BNSF to deliver
consistent and cost-effective rail service. Any changes to this dynamic
should provide clear benefits to the freight rail system, as a whole.
The threshold question before the STB, and Congress, for any policy
change affecting railroads should be: ``What will be the consequence
for investment?'' BNSF is concerned that actions taken by the Board on
pending matters can pose significant risk to its ability to invest in
its network. Proposals for Board action in all of these proceedings
should continue to be weighed against the public interest and the
interest of its customers in continuing the significant investment
necessary to maintain the national freight rail network.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Daniel R. Elliott III
Question 1. What do you view as the most significant challenges
facing the Board as it completes implementation of this legislation,
and how do you plan to address those challenges?
Answer. Overall, implementation of the STB Reauthorization Act of
2015 is going very well. As I stated at the hearing in South Dakota, I
provide monthly updates in addition to the required quarterly updates
of the major actions that the Board is undertaking to execute the Act's
provisions. These are available online for anyone who wants to track
our progress. For the majority of initiatives, we are on track to
completing implementation by the deadlines outlined in the
Reauthorization Act.
The most significant challenge at the moment will be funding,
specifically entering Fiscal Year 2017 as an independent agency at our
current level of appropriation, $32,375,000. I assure you that this
agency will operate in the most fiscally responsible manner to avoid or
limit furloughs while carrying out its regulatory responsibilities.
However, we are faced with an office move required by the General
Services Administration and the arrival of two additional Board Members
and their support staff. While we welcome these changes, I am hopeful
that a budget will be passed for the Surface Transportation Board that
covers these expenses and the additional costs of independence.
Question 2. What do you view as the greatest opportunities and
challenges facing the rail industry over the period of this
authorization and in the long-term?
Answer. Based on the latest projections by the U.S. DOT's Bureau of
Transportation Statistics, freight tons moving on the Nation's
transportation network will grow 40 percent in the next three decades.
This includes total freight on all modes (rail, truck, vessel, pipeline
and air), but the bulk of that freight is expected to move via truck
and rail. Considering congestion challenges on our roads and highways,
one would expect to see a larger share of the tonnage moving by rail.
This presents a great opportunity for growth in rail business. Within
that opportunity lies the challenge of building enough capacity to
handle this growth.
Intermodal growth, which is closely related to the above, will
probably outpace growth in other business areas as long-and mid-haul
shipments are transferred from truck to rail. The railroads have
invested considerably in this business and will have to continue to do
so to grow capacity in order to handle the forecasted volume growth.
Another area of opportunity and challenge is the business and
geographic shifts that we are currently seeing. We are all aware of the
decline in coal shipments over the last few years as well as the growth
and decline of oil shipments by rail. Energy markets especially have
proven to be able to create massive shifts and are probably going to
continue to be in flux given the global growth in demand for energy.
The great challenge for railroads here is having the capability to
quickly answer these types of market changes.
Question 3. Understanding the investigative authority rulemaking is
an on-going proceeding and you cannot divulge information about the
final rule, I have a couple of questions of clarification about the
proposed rule.
a. Under the proposed rule, what do you anticipate as the timeline
for the initial fact-finding phase? Under the proposed rule, how long
do you think a fact-finding phase would typically take, and could you
explain the policy or factors limiting the time of that phase?
Answer. Under the proposed rule, my goal in setting time frames for
a fact-finding phase is two-fold: (1) to allow for the administration
and logistics of travel, meeting with relevant stakeholders and time to
organize and analyze gathered information; (2) to avoid undue delay or
uncertainty for the industry in the decision-making process. As you
state, the investigative authority rulemaking is an on-going
proceeding, and I cannot pre-judge the matter. However, in my view, the
time-frame must be as short as possible. As the STB experienced during
the service challenges of 2014, time is of the essence if an issue of
national or regional significance is occurring on the rail network. The
STB must do everything possible to be agile in its assistance to our
stakeholders in averting such challenges and to pose no further harm
through regulatory intervention, if any is needed.
b. Under the proposed rule, how do you anticipate the agency will
determine whether an issue is of national or regional significance?
Answer. An issue of regional or national significance is one where
widespread harm is occurring across the rail network nationally or in a
region of the United States. Without STB intervention, serious or far-
reaching consequences could impair or disable the flow of goods and
commerce in the U.S. economy.
The STB prides itself on its open lines of communication with
stakeholders--railroads, shippers, congressional offices, trade
associations, media outlets, and state and local communities. Due to
frequent industry interaction and weekly railroad service data, I have
confidence that we will be able to know when an event of regional or
national significance is on the horizon.
Question 4. As you know, the law requires the Board to separate
investigative and decision-making functions of staff to the extent
practicable. Understanding that some hiring of investigative staff may
depend on appropriations, in the near-term, what protections do you
anticipate instituting to separate these functions and ensure due
process is preserved?
Answer. Should the current state of the rail network change and an
investigation become warranted, I anticipate choosing a team of
investigators from current staff that would be walled off from any
formal decision-making functions related to the on-going investigation.
As an adjudicatory agency, this is not an uncommon practice. For
example, our Rail Customer and Public Assistance staff working on
informal service complaints are prohibited from working or sharing
information with staff on the formal decision-making side so as to
avoid any conflicts that could unfairly influence the outcome of a
future formal proceeding. I am confident in our ability to keep our
investigative and decision-making functions separate, thereby
preserving due process.
I have reviewed all comments in the record for the investigations
proceeding, and the STB is on target to issue final rules by December
18, 2016.
Question 5. Understanding you may be somewhat limited by the on-
going proceeding, could you speak to potential ways you believe the
Board could improve its administrative handling of rate cases?
Answer. Improvements to the administrative handling of rate cases
have been underway since before passage of the STB Reauthorization Act.
In late 2014, I retained outside consultants to help the Board improve
and streamline its processing of rate cases, specifically our stand-
alone cost (SAC) rate reasonableness cases. We continuously look for
ways to improve our processing of Stand-Alone-Cost (SAC) cases, which
are among the most important and complicated matters adjudicated at the
Board. Over the last year, we have been working on a set of ``best
practices'' process guidelines to make sure that Board staff assigned
to rate cases will have in place the most efficient team dynamic and
collaboration tools to move the process forward. As one initial step in
our best-practices review, we established a formal Rate Case Project
Manager position, with the job of ensuring that the decision-making
process is running smoothly and that process adjustments are made when
necessary (e.g., allocating staff, setting up required meetings,
ensuring that quality reviews are completed on time). Additional steps
to ensure best practices will continue to be implemented as we move
forward.
The agency has also made concerted efforts to engage parties and
stakeholders in helping to identify additional process improvements.
For example, in a pending case, we recently held an early technical
conference with the parties to discuss common evidentiary formatting
issues, followed by an order documenting the formatting requirements in
that case. In April 2016, Board staff held informal meetings with
stakeholders to gather ideas about SAC process improvements. The Board
used that feedback to develop the pending proceeding in EP 733,
Expediting Rate Cases, which seeks to improve SAC processes in ways
that would benefit both parties and the agency. Finally, as indicated
in the Board's most recent budget request, another critical factor that
impacts rate case process efficiency is the ability to hire additional
staff.
I will continue this multi-pronged process improvement effort and
am confident that the Board will make beneficial changes.
Question 6. S. 808 required the Board to make a report to Congress
with recommendations on alternative rate case methodologies to reform
the rate case process. I understand that a paid consultant has
developed a draft report. Given that it is a report from the Board, I
strongly encourage you to include the Board's views in the report to
Congress, and to solicit comments from the public. Could you provide in
detail the Board's plans for communication of its views on this matter
and on the potential solicitation of public comment?
Answer. I retained independent consultants in late 2014 to conduct
a report on alternative rate case methodologies, and I am pleased that
the final report was delivered to Congress and released to the public
through significant outreach efforts on September 22, 2016. The scope
of work required InterVISTAS Consulting LLC to look for alternative
methodologies to SAC that exist or could be developed and that could be
used to reduce the time, complexity, and expense historically involved
in rate cases; determine whether SAC is sufficient for large rate
cases; and whether our simplified methodologies were appropriate
alternatives to SAC.
I plan to hold an economic roundtable this fall to discuss the
report's issues and conclusions with InterVISTAS and other independent
economists, and the Board's own economists. I then intend to hold a
public hearing at a reasonable time after the roundtable so that all
interested stakeholders can participate in this important discourse.
After consideration of stakeholder views from these public fora, the
Board will deliberate on a path forward concerning large rate cases.
The Board released the report without an overlay of commentary from the
STB at this time so as not to delay the public's access to the report
and not to deprive the Board of the benefit of public views on the
report's findings before commenting.
Question 7. As the Board and the Federal Railroad Administration
propose and finalize statutorily-required and discretionary rules on
railroad stakeholders, I have a couple of broader questions.
a. Has the Board engaged, or considered engaging, in any
interagency effort to assess cumulative regulatory burden or the
cumulative effects of regulation on railroad investment, operations,
and customers?
Answer. No, the Board has not specifically engaged in interagency
efforts to assess cumulative regulatory effects of regulation on
railroad investment, operations, and customers. However, Board staff
regularly meet with FRA and other Department of Transportation staff to
keep each other abreast of current developments and regulatory efforts
underway at each entity. The majority of the STB's regulatory proposals
currently underway are either statutorily required or were instituted
as a result of industry and congressional urging due to long-standing
issues arising under the economic regulation of the railroads as
opposed to safety regulation. I welcome all opportunities to interact
and engage with our colleagues at the Federal Railroad Administration,
and would be happy to discuss this topic further with the staff of the
Senate Commerce Committee.
b. How does the STB ensure balanced regulation--providing shippers
with meaningful access to regulatory remedies while allowing rail
carriers to earn adequate revenues and reinvest in infrastructure--when
proposals are considered together, as opposed to individually?
Answer. Balanced regulation is paramount in every action the Board
takes. The various provisions in the U.S. Federal Rail Transportation
Policy, 49 U.S.C. 10101, point to the importance of allowing rail
carriers to earn adequate revenues to reinvest in their privately-owned
networks, while ensuring that shippers have real access to rail service
and regulatory relief. As such, I fully understand the importance of
considering all of our proposals together.
The focus of my second term as STB chairman has been to proceed on
regulatory matters and address transportation and STB efficiency/
administrative issues that have remained open before the agency, in
some cases, for years. It is a busy time at the STB, and I am cognizant
of the number of issues we are placing before our stakeholders. The
issues we are working through--competitive switching, revenue adequacy,
commodity exemptions, expanding rate case access and methodology
review, to name a few--are complex and need clarification or
settlement. The only way to provide the regulatory certainty that the
rail transportation industry deserves is to address these issues
through a transparent, public process whereby stakeholders comment on
STB proposals, and the Board takes action based on public input. And it
is important to keep in perspective that our proposals are not final
actions. They can morph and develop based on comments received, or
depending on input from the comments, can be tabled. However, if the
Board were instead to merely take no action, the agency would risk
stagnation--something for which the Board has been sharply criticized
for in the past. As balanced regulators, we see the larger picture and
remain acutely aware that our proposals must be considered together.
______
Response to Written Questions Submitted by Hon. Steve Daines to
Hon. Daniel R. Elliott III
Chairman Elliott, the ability for Montana farmers and others to
efficiently move their goods to market is critical to the economic
viability of our state and for the livelihood of thousands of Montana
families. In the past, there have been capacity concerns on our freight
railroads. Through investment and collaboration, freight railroads in
Montana have been able to meet the demand for capacity and keep our
agricultural products in addition to energy products moving safely. In
working with the Montana Grain Growers Association (MGGA), they have
raised the questions below about the implementation of S. 808, Surface
Transportation Board Reauthorization Act of 2015.
Question 1. Regarding Section 11, can the Surface Transportation
Board (STB) build a simple rate case model which contains enough detail
to consider all the moving parts of a dynamic grain market?
Answer. During my tenure, I have focused considerable attention on
improving the transparency and timeliness of STB decision-making. In
particular, I have implemented several initiatives to improve our
processes for reviewing the reasonableness of railroad rates in
complaint proceedings. Despite improvements, I have been concerned that
rate relief has not been readily available to grain shippers because
even our streamlined processes are too complex or too costly for the
smallest of rate disputes. Therefore, in December of 2013, I initiated
a rulemaking proceeding specifically focused on grain-shipping
stakeholders in order to find ways to make our rate review regulations
more accessible and more viable for obtaining meaningful relief. After
receiving public comment, the agency issued an advance notice of
proposed rulemaking in August of 2016, which proposed a new method to
judge rate reasonableness for small shippers, including grain shippers.
The proposal includes a number of innovative ideas to simplify all
facets of these cases from discovery through the parties' evidentiary
presentations.
Question 2. How will you balance a looming rate case deadline
against missing data which would be relevant in your decision?
Answer. In March of 2016, the Board issued final rules to align its
deadlines for processing stand-alone cost (SAC) rate reasonableness
cases with the deadlines established under the STB Reauthorization Act.
The rules compress the timeline for these cases. Under the new
timeline, the Board will have approximately five months from the
parties' filing of closing briefs until a decision is due. I believe
that this creates a tight timeline, but the Board issued an advance
notice of proposed rulemaking in June aimed at expediting rate cases,
including potential changes in methodology to allow us to meet the new
timeline. Also, as part of my efforts to improve the Board's processing
of cases, I have reviewed our internal procedures to make sure that our
staff are coordinating their efforts, adhering to schedules, and
working efficiently on our caseload. We have made great strides in
these internal efforts, and I believe that these process improvements
will also help to minimize the likelihood of encountering the kind of
scenario that you describe.
Question 3. Regarding Section 12, is there a danger of unintended
growth of the STB, since it now has investigative powers? How will you
guard against this?
Answer. I believe that Section 12 of the Reauthorization Act
greatly enhances the Board's ability to carry out its mission and
provides the agency with an important tool, going forward. While I
certainly understand and share your concern regarding ``unintended
growth,'' I believe that a key aspect of Section 12 is that it carries
its own limiting principle: our investigative power can only be
deployed for matters of ``national'' or ``regional'' significance. As I
view this important limitation, it clearly means that the agency must
be cautious and circumspect in invoking this authority. Proper subjects
for investigation must reach beyond a single shipper or single event
and affect the Nation as a whole or an identifiable region, such as the
South or the Midwest. Even before taking this qualification into
account, it is not my intention that the agency initiate investigations
without a substantial basis for doing so, and I believe that the rules
we proposed in May 2016, as modified based on comments received, will
prevent us from doing so. Under the proposal, investigations would
involve several distinct phases and there will be checks and balances
to protect against unwarranted uses of the statute. Finally, I note
that the Reauthorization Act did not modify Congressional policy for
the agency, as enacted in the Rail Transportation Policy--our animating
principles strongly caution against overzealous regulatory intervention
and strongly promote competition and market forces. We understand that
the rail industry has greatly benefited from successive waves of
deregulation, starting in the late 1970s and continuing into the mid-
1990s. I do not view the Board's investigative authority as a mandate
to turn back the clock.
Question 4. Regarding Section 13, proving market dominance as a
prerequisite to arbitration may be an expensive and protracted
proceeding. Do you have streamlined procedures to allow for this? Would
grain producers be considered a ``relevant party'' to an arbitration?
Is the STB working on a plan to actively encourage participation in the
full arbitration program?
Answer. During my tenure, I have consistently expressed my
preference for private-sector resolution of disputes, as opposed to
government intervention and regulatory outcomes. In my view, the
private sector is far more likely to produce a win-win outcome, as
opposed to a win-lose outcome that typically results from litigation.
To this end, I have revised and updated our rules for arbitration and
mediation, and I have promoted these programs as alternatives to
litigation before the agency. In outreach to stakeholders in public
settings, I have encouraged greater use of arbitration and mediation. I
have also steered our stakeholders to the resources of our Rail
Customer and Public Assistance program, which works informally to
resolve disputes. Although we have conducted several mediations and
RCPA has had many successes in its efforts, the Board's formal
arbitration program is under-utilized. The response to the opportunity
to ``opt in'' for arbitration of certain kinds of disputes was more
limited than we expected. Grain producers generally speaking would have
full access to our arbitration program.
In May 2016, we issued proposed rules to align our existing
arbitration program with the requirements of the Reauthorization Act.
As part of this rulemaking, we specifically sought comment on how to
address the ``market dominance'' threshold for purposes of using
arbitration in rate cases. We asked whether arbitration in rate matters
should be made available only where the parties agree that the
threshold has been met, and for other approaches to confronting this
question.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Deb Miller
Forward-Looking Issues
Question 1. What do you view as the most significant challenge
facing the Board as it completes implementation of this legislation,
and how do you plan to address those challenges?
Answer. Implementation of the STB Reauthorization Act of 2015 (the
Act) continues to progress well. However, a number of challenges still
remain. The most significant is inadequate funding. As I noted in my
written testimony, there will be a significant cost resulting from the
fact that the Board is now independent from the U.S. Department of
Transportation. The Act also directs the Board to issue decisions on
rate cases more quickly and conduct investigations, which will require
more staff. There are also the costs associated with adding two new
Members, continuing to improve our IT infrastructure (where we have
made significant progress), and moving/relocating to new offices. As
noted in my written testimony, even by conservative estimates, there
simply is not enough funding to do all of these things. Accordingly,
the Board is going to have to make some tough choices over which
functions, including certain aspects of the Act, get priority.
Another challenge to implementing the Act is the inefficient nature
of the Board's processes. As I noted in my written testimony, the Board
lacks a systematic way of managing our caseload. While the mandated
reports on unfinished regulatory proceedings have helped speed up
rulemakings, the Board currently has a significant number of non-
rulemaking proceedings before it as well. Juggling all of these cases,
along with the rulemakings and other requirements of the Act, will
require greater organization and discipline.\1\ The Board's processes
are also currently too stove-piped. As an example, I noted in my
written testimony that the Board staff currently briefs all Members on
cases individually. This is difficult enough with three Members, but
will be cumbersome with five.
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\1\ See Tri-City Railroad Co.--Petition for Declaratory Order,
Finance Docket No. 35915 (STB served Sept. 14, 2016) (Miller separate
comment) (urging the Board to apply the same principles for setting
deadlines in regulatory proceedings to all proceedings).
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While I support the Act's expansion of the Board to five Members, I
am concerned that this change will not produce the intended benefits if
the Board does not make some internal changes. In particular, the Board
needs to improve communication and collaboration between the Members.
The Chairman recently sent the just-completed rate methodology study
from our consultant (InterVISTAS) to the House and Senate oversight
committees, with a letter stating that the report satisfied the Act's
requirement that the Board conduct a study on alternatives to the
Stand-Alone Cost (SAC) test. This letter was sent without Board Member
Begeman's or my knowledge, and it was done contrary to my preference
that the Board provide its own analysis of InterVISTAS' conclusions
before reporting to Congress. I believe that unilateral actions such as
this are contrary to the reason Congress established a multi-Member
Board. It eliminates the counterbalance that the other two Members are
supposed to provide and creates confusion among our stakeholders over
the direction the agency is taking.
Lastly, from a substantive standpoint, I think the most challenging
aspect of the Act will be determining what actions, if any, the Board
should take regarding the process for determining rate reasonableness.
In my opinion, this is the most important issue that the Board will
face in the months ahead. As I have made well-known in my separate
expressions in rate cases, I have concerns about continued used of the
SAC test. Many shippers have also clearly lost faith in the test, and
even railroads, which for the most part see the economic underpinnings
of the test as still sound, would be hard-pressed to deny that the
cases have become increasingly cumbersome, expensive, and time-
consuming.
The report from InterVISTAS did not uncover any ``silver bullet''
approaches--either in academic literature or from other countries--that
could be used in SAC's place. However, that does not mean that the
Board should give up on the idea of an alternative to SAC or looking
for ways that the SAC test itself might be improved. The roundtable
discussion that the Chairman recently announced will be an important
first step--though it is important that it is not the last step--in
pursuing this objective. In order to ensure that the Board obtains
meaningful feedback on the InterVISTAS report, it will be important
that the roundtable represent as wide a range of views as possible.
Based on the feedback we receive at the roundtable, the Board will then
have to determine how best to proceed.
Question 2. What do you view as the greatest opportunities and
challenges facing the rail industry over the period of this
authorization and in the long-term?
Answer. The greatest challenge facing the railroad industry is the
shift in the type of traffic that they haul. The fact that the
railroads' coal business has significantly decreased has been well-
publicized, and even if volumes recover, reports suggest that still are
unlikely to return to levels close to those of just a few years ago.
This loss in coal business though may provide the railroad industry an
opportunity in the form of excess capacity, which could be used to grow
other lines of business. However, for this to happen, in my view,
railroads will need to have a greater customer-oriented focus.
Investigations
Question 3. Understanding the investigative authority rulemaking is
an on-going proceeding and you cannot divulge information about the
final rule, I have a couple questions of clarification about the
proposed rule.
a. Under the proposed rule, what do you anticipate as the timeline
for the initial fact-finding phase? Under the proposed rule, how long
do you think a fact-finding phase would typically take, and could you
explain the policy or factors limiting the time of that phase?
Answer. I appreciate the question, given that the concept of the
fact-finding phase appears to have created a great deal of angst among
our stakeholders. Because the rulemaking is still pending, I need to be
careful to not make any statements that could be construed as
prejudging the matter. I can say that, in most cases, I think the fact-
finding will be so organic and unstructured that one could not easily
assign a timeline to it. That being said, the parties to this
proceeding have raised some valid reasons why a set time period would
be helpful. In considering what the final rules should require, I will
keep an open mind to the comments submitted by stakeholders on this
issue.
b. Under the proposed rule, how do you anticipate the agency will
determine whether an issue is of national or regional significance?
Answer. Again, I appreciate the question, as this is another aspect
of the proposed rules on investigation that seems to have caused
consternation among our stakeholders, but must again be careful about
commenting too much. Given our limited resources, I think that when the
Board uses this authority, it is likely to be on matters where we can
have the greatest impact, which will mean matters that by their nature
are without a doubt of national or regional significance. That being
said, I understand the arguments raised by some parties in our
rulemaking for why more guidance is needed on this issue. I will
carefully consider those views in deciding on the final rules.
Question 4. As you know, the law requires the Board to separate
investigative and decision-making functions of staff to the extent
practicable. Understanding that some hiring of investigative staff may
depend on appropriations, in the near-term, what protections do you
anticipate instituting to separate these functions and ensure due
process is preserved?
Answer. To ensure that the investigative and decision-making
functions remain separate, the Board will have to be disciplined about
keeping staff that work on each function separate and ensure that they
do not communicate about the matter. While I cannot comment directly
while the matter remains pending at the Board, no matter what path the
Board ultimately chooses, I am comfortable that the Board will be able
to properly comply with this mandate in the Act. The Board has a lot of
experience separating such functions within the agency. The staff of
our Rail Customer and Public Assistance section, which assists
stakeholders and practitioners on matters that often turn into formal
proceedings, are ``walled off'' from the rest of the agency. This means
that they know not to discuss matters that they work on with anyone
outside the section, and the rest of the staff knows not to ask them
about such matters. The same restrictions apply when the agency uses
Board staff as mediators. In my observation, the staff has taken these
restrictions on communications very seriously.
Rate Cases
Question 5. Understanding you may be somewhat limited by the on-
going proceeding, could you speak to potential ways you believe the
Board could improve its administrative handling of rate cases?
Answer. I think that the steps needed to improve the administrative
handling of rates cases are already being taken. The Board wisely hired
a consultant in 2014 to review the workflow process in rate cases,
after which time the consultant concluded that there essentially was no
process. The consultant therefore issued a long list of recommendations
that the Board should implement. During my time as Acting Chairman, I
directed the agency to extend our contract with the consultant so that
it could advise and assist the agency in the implementation. Although
Commissioner Begeman and I have generally not been part of discussions
with the consultant, it is my understanding that they have worked with
our staff to implement project management practices that did not
previously exists. This includes the appointment of a rate case
manager; establishment of rate case teams; defined roles and
responsibilities for each team member; creation of a detailed schedule;
identification and prioritization of significant ``calls;'' more
structured meetings; and a more rigorous quality assurance process.
Ex Parte Communications
Question 6. Could you provide specific examples of proceedings
where ex parte communication was not used but would have provided a
great benefit?
Answer. I personally feel that ex parte communication would help in
most rulemakings that involve complicated policy matters and that have
broad, industry-wide implications. A few notable examples of where ex
parte meetings would have been particularly useful are the Board's
proceedings involving fuel surcharges, Amtrak on-time performance, and
the original proceeding in which modifying the reciprocal switching
standards were first proposed.
In the fuel surcharge proceeding,\2\ the Board initiated an ANPRM
to determine whether it should eliminate or modify its ``safe harbor''
program, which provides that if railroads base their changes in the
amount of their fuel surcharges on the Highway Diesel Fuel Index, they
are safe from legal challenge. Because this is still a pending matter,
I cannot comment too specifically, but I do believe that this is a
proceeding where ex parte communications would have had significant
value.
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\2\ Rail Fuel Surcharges (Safe Harbor), STB Docket No. EP 661 (Sub-
No. 2).
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The rulemaking setting standards for Amtrak on-time performance \3\
is another example where ex parte communication would have helped, not
just in terms of helping educate the Board, but allowing the Board to
educate our stakeholders. Based on the comments received in the
proceeding, I believe that there was significant confusion from many
parties over the Board's proposal to use end-point arrival times as the
threshold for initiating an investigation. Perhaps had the Board
Members been permitted to engage in face-to-face dialogue with the
stakeholders, they would have better understood the Members thinking,
and the Members would have been more aware of the stakeholders'
perception that using end-point arrival times implied a lack of concern
about late arrivals at intermediate stops.
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\3\ On-Time Performance Under Sect. 213 of the Passenger Rail
Investment and Improvement Act of 2008, STB Docket No. EP 726.
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Finally, I think meetings would have been helpful in the docket in
which the Board considered the National Industrial Transportation
League's proposal rules for increasing use of reciprocal switching.\4\
While the Board did hold two hearings there, in my opinion, conducting
individual ex parte meeting with the parties, rather than directing
them to submit multiple rounds of filings, would have been more useful.
That being said, I am pleased that the Board is holding such meetings
in the new docket on reciprocal switching.
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\4\ Petition for Rulemaking to Adopt Revised Competitive Switching
Rules, STB Docket No. EP 711.
Question 7. During the hearing, in discussing ex parte
communications, Chairman Elliott mentioned the trade-off between the
right to a fair hearing and more efficient communication. If ex parte
communication rules are loosened, could you provide more detail on
potential measures to reinforce principles such as the right to a fair
hearing, impartiality, and transparency?
Answer. I should clarify here that while I have advocated that the
Board eliminate its prohibition on ex parte communications, I do not
advocate that such communications be utilized in every regulatory
proceeding, nor that any of the protections that would be required to
protect parties' rights to due process be ignored. There will certainly
be proceedings where the value of ex parte communications would be
limited and thus not worth pursuing. But if ex parte meetings are held,
the Board should of course implement procedures to ensure that they are
transparent and conducted in a fair manner. The measures that the Board
can take include: having an attorney-advisor from the Board at the
meeting to monitor the conversation and to cut off any discussion that
may be improper; disclosing the date, time, and participants present
for all meetings; placing written summaries of the meetings in the
public record of the agency proceeding (as well as any materials shared
by stakeholders); and providing an opportunity for parties to provide
comments in response to the meeting summaries. As I noted in my written
testimony, I would actually like to see the Board increase transparency
by conducting more of its work in public through actions like voting
conferences, public work sessions, and workshops.
Cumulative Burden
Question 8. As the Board and the Federal Railroad Administration
propose and finalize statutorily-required and discretionary rules on
railroad stakeholders, I have a couple of broader questions.
a. Has the Board engaged, or considered engaging, in any
interagency effort to assess cumulative regulatory burden or the
cumulative effects of regulation on railroad investment, operations,
and customers?
Answer. The Board frequently engages with the Federal Railroad
Administration (FRA), but it is generally at the staff level. Our
governmental affairs office meets with representatives from the FRA on
a monthly basis; a member of the FRA participates in two of the Board's
advisory committees; and our Office of Environmental Analysis works
closely with the FRA staff on environmental reviews for railroad
construction projects. However, there has been no coordinated effort to
discuss the cumulative effects of regulatory efforts. It should be
noted the STB and FRA have different statutory mandates, and as a
result, the actions taken by one may not necessarily having bearing on
the other. However, I can see value in making sure that each agency is
kept apprised of the actions of the other, and I will discuss the idea
of increasing discussions with the FRA with my fellow Board Members.
b. How does the STB ensure balanced regulation--providing shippers
with meaningful access to regulatory remedies while allowing rail
carriers to earn adequate revenues and reinvest in infrastructure--when
proposals are considered together, as opposed to individually?
Answer. I appreciate this question, as the spurt of Board activity
in recent months has been the subject of much recent conversation. In
the Board's decision proposing to revise our reciprocal switching
proposal, I expressed my philosophy on this issue:
The Board's regulatory mission is set out in the Rail
Transportation Policy (RTP) at 49 U.S.C. Sec. 10101. Two
important but competing goals in the RTP are to promote an
efficient, competitive, safe and cost-effective rail network by
enabling railroads to earn adequate revenues that foster
reinvestment in their networks, attract outside capital, and
provide reliable service, while at the same time working to
ensure that effective competitions exists between railroads and
that rates are reasonable where there is a lack of effective
competition. As in all major rulemakings the Board undertakes,
my goal here has been to develop a proposal for reciprocal
switching that properly satisfies both of these goals.
So long as the Board adheres to the guidance set forth in the RTP,
ensures that it develops comprehensive evidentiary records, is careful
and thoughtful in its deliberations, and reaches decisions that are
well-reasoned and based on sound evidence, I believe that the Board's
actions--even when considered together--will strike the appropriate
balance.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Ann D. Begeman
Forward-Looking Issues
Question 1. What do you view as the greatest opportunities and
challenges facing the rail industry over the period of this
authorization and in the long-term?
Answer. The industry is in the midst of responding to a large
number of significant regulatory changes--both final and proposed
rules--including those by the Federal Railroad Administration (FRA),
the Pipeline and Hazardous Materials Safety Administration, the
Environmental Protection Agency, and the Surface Transportation Board
(STB or Board). For example, rail carriers are working to meet
requirements for oil tank cars and locomotive engines, while responding
to proposed changes to braking systems and crew sizes. The carriers are
also adjusting to plummeting coal volume demand that is not likely to
rebound. These and other challenges are coupled with the massive
expense and significant technical demands associated with the creation,
installation, testing, and day-to-day implementation of Positive Train
Control.
Over my objection, the Board has also recently proposed altering
several long-standing regulations that could greatly affect freight
rail operations in the long term.\5\ These proposals include new
competitive switching rules (that are so vague as to invite more
questions than answers) and regulating commodities that have been
exempt from agency regulation for over 30 years. If merely pushed
forward to final rules, the agency will impose the most significant
regulatory changes since implementing the Staggers Act.
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\5\ EP 711(Sub-No. 1), Reciprocal Switching, (STB served July 27,
2016) (Begeman dissenting in part) and EP 704, Review of Commodity,
Boxcar, And Tofc/Cofc Exemptions, (STB served Mar. 23, 2016) (Begeman
dissenting)
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Maintaining successful rail operations, despite the ultimate
requirements and impacts of all these regulatory changes combined, will
be the greatest challenge facing the rail industry through 2020 and
beyond. While I do not subscribe to a view that any regulation is too
much regulation, I firmly believe that we, as regulators, must be very
thoughtful and informed in our approach to regulatory change. And we
simply must listen to stakeholders--including the rail industry--to
ensure that what may be good regulatory intentions do not result in
unintended harm to carriers and their shippers.
Investigations
Question 2. Understanding the investigative authority rulemaking is
an on-going proceeding and you cannot divulge information about the
final rule, I have a couple questions of clarification about the
proposed rule.
a. Under the proposed rule, what do you anticipate as the timeline
for the initial fact-finding phase? Under the proposed rule, how long
do you think a fact-finding phase would typically take, and could you
explain the policy or factors limiting the time of that phase?
Answer. The statute clearly states that the Board may only commence
an investigation on its own initiative to investigate issues that are
of ``national or regional significance.'' In my view, that
investigative criteria demands that the initial fact-finding be carried
out expeditiously (i.e., limited to no more than a 45 to 60-day
period). It is important that the Board and its staff be held
accountable at each phase of this new investigative process. Defined
time frames would help ensure that investigations do not drag-on.
Therefore, I hope the Board will embrace a limited initial fact-finding
period so that it can then respond swiftly to any identified issues of
national or regional significance.
b. Under the proposed rule, how [do] you anticipate the agency will
determine whether an issue is of national or regional significance?
Answer. In identifying issues of national or regional significance,
the Board could look for issues impacting operations at congested rail
hubs, or issues that could disrupt services at moments of peak demand
(e.g., disruptions that could impact propane delivery before winter or
fertilizer delivery before planting). In addition to following regional
and national news reports, the Board should closely monitor any trends
shown through the weekly data reporting of the Class I carriers,
information provided to the Board's Office of Public Assistance,
Government Affairs, and Compliance on monthly calls with the carriers,
any trends shared on the Rail Customer and Public Assistance Program's
call log, and information obtained from the Rail-Shipper Transportation
Council and the Rail Energy Transportation Advisory Committee, and from
meetings attended throughout the year by Board Members or staff.
Question 3. As you know, the law requires the Board to separate
investigative and decision-making functions of staff to the extent
practicable. Understanding that some hiring of investigative staff may
depend on appropriations, in the near-term, what protections do you
anticipate instituting to separate these functions and ensure due
process is preserved?
Answer. Although the statute provides that the Board Chairman is
responsible for administering the Board, I believe a Chairman should
invite his or her colleagues' input on how best to fulfill the Board's
obligations, including agency budgeting, staffing, and other
determinations that could significantly affect the Board's overall
productivity. With regard to how the Board will keep separate the staff
investigative and decision-making functions, the Board's budget should
be allocated in a manner that keeps the two functions separate as a
matter of course. Should the Board find that circumstances have arisen
requiring an overlap of staff duties for the fair and timely resolution
of a particular matter--which I think would be a limited exception--I
believe the Board would have to be transparent and inform the affected
parties and the House and Senate Committees of jurisdiction.
Rate Cases
Question 4. Understanding you may be somewhat limited by the on-
going proceeding, could you speak to potential ways you believe the
Board could improve its administrative handling of rate cases?
Answer. I am a strong advocate for the Board's use of technical
conferences, compliance orders, and other administrative tools to work
with parties to ensure the successful submission of complete cases. The
Board could interact much more with the parties to communicate
expectations--especially when it comes to addressing novel issues
presented in the pleadings. The Board could also do more to limit the
scope of contested issues between the parties and do so early in a
case. Sometimes complainants and defendants go too far on novel
evidentiary issues or obscure technical points that greatly expand the
scope or impact of the case, yet the Board remains silent. The Board
should actively manage rate cases to ensure that they will be handled
within the time frame mandated by Congress, and should avoid asking
parties for supplemental filings (imposing time and expense on the
parties) and then choosing not to make a finding about the information
sought.\6\
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\6\ See Total Petrochems. & Refining USA, Inc. v. CSX Transp.,
Inc., NOR 42121, (STB served Sept. 14, 2016) (Begeman dissenting in
part)
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Ex Parte Communications
Question 5. Could you provide specific examples of proceedings
where ex parte communication was not used but would have provided a
great benefit?
Answer. The Board needs to embrace more interactive, timely, and
responsive decision-making. In order to do so, this agency's extreme
interpretation of its ex parte communication regulations must be
changed. It would be a definite benefit to the Board and the public for
Board Members and staff to meet and hear directly from stakeholders
during rulemaking proceedings so that we can establish the most
informed policies. If the Board were to more broadly engage with its
stakeholders, it would be important to do so in a transparent manner by
disclosing any contacts with individuals or groups and thereby avoid
any appearance of bias or impropriety. Other agencies that balance
adjudications and regulations have managed to strike an appropriate
balance when it comes to ex parte contacts. The Board could and should
do the same, and while I am pleased that we have taken a few recent
steps in this direction, I think we should do so routinely.
With respect to proceedings in which a waiver of the ex parte
communications would have been helpful, one example is EP 704, Review
of Commodity, Boxcar, and Tofc/Cofc Exemptions. The record in this
proceeding was created over half a decade ago, before two of the three
current Board Members were even appointed (and my five-year term since
expired). For this Board to take informed action, we should have asked
interested stakeholders to update the docket and allow an opportunity
for Board Members to hear first-hand from stakeholders. Doing so would
have helped Board Members to better determine whether changes were
necessary, rather than relying on a stale record and a staff analysis
that would have been as relevant five years ago as when the majority
issued its March 2016 proposal repealing certain exemptions and
inviting comment on all exemptions. I believe an ex parte waiver could
still be beneficial and better position each Board Member in
preparation for the recently announced January 2017 ``next action'' in
this proceeding.
Another ongoing proceeding that still could benefit from an ex
parte communication waiver is the grain rate proceeding (EP-665). The
Board started this proceeding at my urging back in 2013. Since then,
the Board has sought multiple rounds of comments, held a hearing, and
created a substantial record. Yet after all of that time and effort,
the Board has proposed only the outlines of an approach, through an
Advanced Notice of Proposed Rulemaking, which will now require the
stakeholders to consider, analyze, and again participate in multiple
rounds of additional comment. These new rounds of comment are necessary
since the Board is using its formal rulemaking process without ``ex
parte'' contact and therefore has limited opportunities for stakeholder
interaction. But if the Board could have pulled in stakeholders from
the beginning (with the requisite transparency) and gotten the specific
information the Board needed about the market, the rate challenges
faced by grain shippers, and the solutions proposed by the
stakeholders, then this whole process may have been made much more
efficient for the Board, the stakeholders, and the public.
Question 6. As the Board and the Federal Railroad Administration
propose and finalize statutorily-required and discretionary rules on
railroad stakeholders, I have a couple of broader questions.
a. Has the Board engaged, or considered engaging, in any
interagency effort to assess cumulative regulatory burden or the
cumulative effects of regulation on railroad investment, operations,
and customers?
Answer. I am unaware of any interagency effort to assess cumulative
regulatory burdens or the cumulative effects of regulation on railroad
investment, operations, and customers. However, I would certainly
embrace coordination with the FRA to perform cumulative regulatory
analysis and thereby help to ensure that a fair regulatory balance is
achieved. Of course, the Board would first have to propose a
discernable regulatory scheme that can be reasonably assessed. For
example, as I noted in my dissent on the Competitive Switching
proposal, the majority proposed a program that lacked a number of
important details. The Board instead committed only to exploring
certain matters through the rulemaking process and then establishing
other key specifics through the course of individual adjudications. In
the near term, that approach may enable the Board to avoid defending
the likely true costs and impacts of its Competitive Switching
proposal. Such an improvised approach makes the assessment of
cumulative regulatory burden, the anticipation of cumulative effects on
railroad investment, operations, and customers, and ensuring balanced
regulation all but impossible.
b. How does the STB ensure balanced regulation--providing shippers
with meaningful access to regulatory remedies while allowing rail
carriers to earn adequate revenues and reinvest in infrastructure--when
proposals are considered together, as opposed to individually?
Answer. Generally, I don't believe the Board, as a whole, has made
any real attempt to ensure a ``balanced'' regulatory agenda. In fact,
even when the Board initiated a regulatory review in 2011 to determine
whether any of the Board's regulations are ``ineffective, insufficient,
or excessively burdensome, and how to modify, streamline, expand, or
repeal them . . .,'' it failed to take any meaningful action as a
result. Despite considerable stakeholder input, the Board merely
replaced obsolete references and corrected spelling and other
regulatory errors.\7\ Certainly a broader view of the Board's
regulatory activity is warranted, especially with the industry
shouldering the significant challenges posed by so many Federal
agencies in so many different ways as I noted in my response to
Question 1.
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\7\ See No. EP 712, Improving Regulation and Regulatory Review (STB
Served Feb. 18, 2016) (Begeman commenting)
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[all]