[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\
---------------------------------------------------------------------------
    \1\ https://www.tfi.org/advocacy/fertilizerjobs/data
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \2\ In 2014, approximately 41 percent of fertilizer moved by rail 
on a per ton, per mile basis
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \3\ http://onlinepubs.trb.org/onlinepubs/sr/sr318.pdf
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \4\ Dispute Resolution Procedures Under the Fixing America's 
Surface Transportation Board Transp. Act of 2015, Docket EP 734 (STB 
served July 28, 2016).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \7\ Sunbelt v. Norfolk Southern, Docket NOR 42130 (STB served June 
30, 2016) (Miller concurrence).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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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