[Congressional Record Volume 151, Number 57 (Wednesday, May 4, 2005)]
[Extensions of Remarks]
[Pages E875-E877]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 INTRODUCING THE RAILROAD COMPETITION IMPROVEMENT AND REAUTHORIZATION 
                              ACT OF 2005

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                         Wednesday, May 4, 2005

  Mr. OBERSTAR. Mr. Speaker, twenty-five years ago, Congress voted to 
deregulate the Nation's railroad industry and enacted the Staggers Rail 
Act. The railroad industry at that time was in dire straits. Years of 
low profits, deferred maintenance, and ill-conceived regulatory 
policies had resulted in a very sick industry. We were assured that 
deregulation was the cure. We were told that economic regulation had 
outlived its usefulness; that it was preventing the industry from 
competing effectively with trucks, barges, and pipelines; and that 
there were still a sufficient number of rail carriers to provide 
significant rail-to-rail competition. We deregulated the industry.
  At the outset, some good things did happen. America's railroads are 
much healthier today than they were in 1980. Industry rates of return 
that hovered in the 1-2 percent range in the 1970s were up in the 6-9 
percent range in the 1990s. Today, U.S. railroads account for 42 
percent of intercity freight ton-miles; more than any other mode of 
transportation. In fact, U.S. railroads move four times more freight 
than all of Western Europe's freight railroads combined.
  North American railroads currently earn $42 billion in annual 
revenues. The most recent financial reports are strong. For the first 
quarter of 2005, BNSF Railway's freight revenues increased $451 
million, or 18 percent, to a first quarter record of $2.9 billion. 
Consumer products revenues increased $203 million, or 22 percent. 
Agricultural products revenues were up $86 million, or 20 percent, to 
$524 million. Industrial products revenues increased $84 million, or 15 
percent, to $647 million. And coal revenues rose $78 million, or 15 
percent, to $598 million resulting from record haulage of 66 million 
tons for utility customers.
  Union Pacific reported a first quarter 2005 record for commodity 
revenue: $3 billion in 2005, up 8 percent from 2004. Energy revenues 
were up $81 million, or 14 percent, to $668 million. Agricultural 
revenues were up $37 million, or 9 percent, to $448 million. Industrial 
products revenues were up $67 million, or 12 percent, to $630 million. 
And chemical revenues were up $31 million, or 8 percent, to $441 
million.
  CSX's surface transportation revenue for the 2005 first quarter was 
$2.1 billion versus $1.9 billion in 2004. Metals revenues were up $19 
million, or 16 percent, to $138 million. Forest products revenues were 
up $84 million, or 11 percent, to $176 million. Coal, coke, and iron 
ore revenues were up $84 million, or 20 percent, to $506 million. And 
automotive products revenues were up $6 million, or 3 percent, to $208 
million.
  Norfolk Southern's general merchandise revenues for the 2005 first 
quarter reached a record $1.1 billion, an increase of 12 percent over 
the same period in 2004. Metals and construction revenues led the 
growth with a 22 percent increase, followed by paper, up 19 percent, 
and chemicals, up 14 percent. Coal revenues increased 17 percent to 
$467 million in the first quarter compared with the same quarter last 
year.
  With the exception of Union Pacific, all of the Class I railroads in 
the U.S. are making higher profits. BNSF's net earnings for the first 
quarter of 2005 were $321 million, up $128 million from the same period 
in 2004. CSX's net income was $579 million, up $30 million from 2004. 
Norfolk Southern's net income was $194 million, up $36 million from 
2004. And although Union Pacific's profits were lower than 2004 
figures, the railroad's net income was $128 million in 2005.

[[Page E876]]

  But all of these gains have come at a price. Competition requires 
competitors. Yet since 1980, over 40 Class I railroads have 
consolidated into just seven Class I railroads serving the entire North 
American continent, four of which--two in the West (Union Pacific and 
BNSF Railway) and two in the East (CSX and Norfolk Southern)--control 
over 95 percent of the railroad business. This unprecedented 
consolidation has resulted in entire States, regions, and industries 
becoming captive to a single Class I railroad.
  These captive shippers often tell me that the Surface Transportation 
Board (STB) has been too concerned about the financial health of the 
railroads and not concerned enough with the financial health of the 
railroads' customers.
  I believe them. The STB's procedures have made it difficult for rail 
customers to secure meaningful relief from high rail rates and poor 
rail service, even though the Staggers Rail Act directed the STB's 
predecessor, the Interstate Commerce Commission, to ensure that rail 
rates remain reasonable when there is an absence of effective 
competition.

  During the years since the STB was first authorized in 1997, I have 
received numerous complaints from captive shippers about the high rates 
they are charged and the poor service they sometimes receive.
  Laramie River Station is an example. Laramie River Station (LRS) is a 
coal-based electric generating plant that produces power for more than 
1.8 million consumers in Colorado, Iowa, Minnesota, Montana, Nebraska, 
New Mexico, North Dakota, South Dakota, and Wyoming. LRS is served by a 
single railroad, BNSF Railway, which delivers 8.3 million tons of coal 
annually from the Wyoming Powder River Basin to LRS, a distance of 
approximately 175 miles. In September 2004, the LRS contract expired 
and BNSF unilaterally imposed massive freight rate hikes on the LRS 
traffic. Basin Electric Power Cooperative, one of the owners of LRS, 
tells me that these increases call for more than double LRS' prior 
freight rates. The initial tariff rates are projected to double again 
over time. According to LRS' owners, these increased rates are four 
times BNSF's average coal rates, and will cost electric power consumers 
$1 billion over the next 20 years.
  Dairyland Power Cooperative, a generation and transmission 
cooperative located in LaCrosse, Wisconsin, has experienced similar 
problems. The Cooperative asserts that failure by the Union Pacific 
Railroad to deliver 25 percent of scheduled shipments of Utah coal 
resulted in Dairyland's overall fuel budget increasing by roughly 10 
percent. Dairyland is also bracing for a 49 percent increase in rail 
rates in 2006. Other shippers have suffered similar fates.
  The lack of true competition has also affected farmers. Montana grain 
producers advise me that their counterparts in Nebraska--where a 
limited amount of rail competition exists--pay less in transportation 
costs than Montana farmers to ship grain to Portland, Oregon, despite 
the 200 miles in additional distance the Nebraska grain has had to 
travel. The Montana farmers estimate that this disparity has cost them 
about $60 million a year.
  In these and other similar cases, the captive shippers have found 
that there is no realistic possibility of meaningful relief from the 
STB. This is hardly the competitive environment envisioned when 
Congress voted to deregulate the railroad industry.
  Unfortunately, my concerns have fallen on deaf ears at the STB. This 
year, Chairman Roger Nober has discussed the possibility of moving a 
``clean'' STB reauthorization bill (i.e., one with no change to 
existing law other than funding levels) in the 109th Congress. I have 
told him the same thing I told him in the 108th Congress and the same 
thing I told his predecessor: I believe that any STB reauthorization 
bill must adequately address the concerns of captive shippers.
  That is why I introduced legislation in the 106th Congress, the 107th 
Congress, and the 108th Congress that would reauthorize the STB and 
reform its policies and procedures. Other Members of Congress, 
including Congressman Richard Baker, introduced similar legislation to 
reform railroad regulation. But to date Congress has failed to act upon 
these bills, and the STB has operated without an authorization since 
1998.
  When the Transportation and Infrastructure Committee held hearings on 
railroad competition last Congress, it was obvious that Congressman 
Baker and I shared the same concerns about captive shippers and the 
lack of competition in the railroad industry. So this year, we've 
decided to join forces. Congressman Baker and I, and 13 of our 
colleagues on both sides of the aisle, are introducing a bipartisan STB 
reauthorization and reform bill, entitled the Railroad Competition and 
Improvement Act of 2005. A bipartisan companion bill, S. 919, has been 
introduced in the Senate.
  This bill will preserve existing rail-to-rail competition in areas of 
the United States where competition is working, and take action to 
reduce impediments to competition that adversely affect rail customers. 
The bill establishes four new primary objectives of U.S. rail 
transportation policy, all of which focus on competition and shipper 
needs. These primary objectives are: (1) To maintain consistent and 
efficient rail transportation service for shippers, including the 
timely provision of rail cars requested by shippers; to promote 
effective competition among rail carriers at origins and destinations; 
and to maintain reasonable rates in the absence of effective 
competition.
  The bill will also:
  Eliminate ``bottlenecks.'' Under the bill, on the request of a 
shipper, the carrier must establish a rate for any two points on the 
carrier's system where traffic originates, terminates, or can be 
interchanged. In addition, the reasonableness of the rate would be 
subject to challenge. This bill will give shippers access to 
competitive rail service even if a single carrier has monopoly control 
over a short, bottleneck portion of a route.
  Create competitive rail service at switching points. The bill 
requires rail carriers to enter into reciprocal switching agreements 
where the STB finds that such agreements are in the public interest or 
where agreements are needed to ensure rail service is competitive. The 
bill also prohibits the STB from requiring that the petitioning carrier 
show conduct inconsistent with antitrust laws.
  Eliminate ``paper barriers.'' These barriers are contractual 
agreements that prevent short-line railroads that cross two or more 
major rail systems from providing rail customers access to competitive 
service on one of these systems. The agreements require the short-line 
railroads to deliver all or most of its traffic to the major carrier 
that originally owned the short line facilities. Under the bill, where 
such restrictions were approved prior to the enactment of this Act and 
have been in effect for at least 10 years, the STB must terminate the 
restriction, upon request, unless the STB finds that the termination 
would be inconsistent with the public interest or materially impair the 
ability of an affected rail carrier to provide service to the public.

  Establish a new regulatory process for ``Areas of Inadequate Rail 
Competition.'' The bill allows the STB to designate a State or 
substantial part of a State as an Area of Inadequate Rail Competition 
(AIRC), upon petition of a Governor or Attorney General of a State, 
Member of Congress, or the Rail Customer Advocate of the Department of 
Transportation. Upon the designation, the STB has 60 days to provide 
remedies authorized by current law to resolve the anti-competitive 
conduct. The bill also requires the Rail Customer Advocate to conduct 
an oversight study of AIRCs within one year of the date of enactment.
  Highlight rail service problems. The bill requires the STB to post on 
its website a description of each complaint from a customer about rail 
service. The STB is also required to submit an annual report to 
Congress regarding rail service complaints, and the procedures the STB 
took to resolve them.
  Create an arbitration process for certain rail disputes. The bill 
allows either party to submit a dispute over rail rates, rail service, 
and other matters under the jurisdiction of the STB for ``final offer'' 
binding arbitration, for relief within the jurisdiction of the STB.
  Eliminate fees for filing rail rate cases. Shippers are now required 
to pay a $61,000 fee for filing a rate case. Effective May 6, 2005, 
this filing fee will double to $102,000. The filing fee for all other 
complaints will increase from $6000 to $10,100.
  Improve the rate reasonableness standard. The bill prohibits the STB 
from using their current practice of requiring shippers challenging 
rail rates to submit estimates of the costs of constructing and 
operating a new, hypothetical railroad that carries only the commodity 
that the shipper transports. The STB currently compares the expense of 
the hypothetical railroad with existing rates to determine whether the 
challenged rates are reasonable or not. Under the bill, the STB would 
be required to adopt a new method based on the railroad's actual costs, 
including a portion of fixed costs and an adequate return on debt and 
equity.
  Create an Office of Rail Customer Advocacy in the Department of 
Transportation. The Rail Customer Advocate would accept rail customer 
complaints; collect, compile, and maintain information regarding the 
cost and efficiency of rail transportation; and participate as a party 
in STB proceedings. The Rail Customer Advocate may also petition the 
STB for action.
  Authorize a study of rail transportation competition. The bill 
requires the National Academy of Sciences to conduct a comprehensive 
study of rail carrier competition since the enactment of the Staggers 
Rail Act of 1980.
  Require the STB to consider all effects of mergers. Under the bill, 
the STB must consider the effects of mergers on local communities and 
is required to impose conditions to mitigate the effects of those 
mergers.
  Reauthorize the STB. The bill provides the STB $24 million for 
FY2006, $26 million for FY2007, and $28 million for FY2008.
  I am pleased that a number of organizations are supporting this 
bipartisan effort, including

[[Page E877]]

the Alliance for Rail Competition, Consumers United for Rail Equity, 
the American Chemistry Council, the National Industrial Transportation 
League, Edison Electric Institute, the National Association of Wheat 
Growers, and the National Barley Growers Association.
  I join with my colleagues from both sides of the aisle, in 
introducing this bill. Together, we will work to ensure passage of this 
important legislation.

                          ____________________