[Congressional Record (Bound Edition), Volume 153 (2007), Part 9]
[Extensions of Remarks]
[Pages 12234-12235]
[From the U.S. Government Publishing Office, www.gpo.gov]




  INTRODUCING THE RAILROAD COMPETITION AND SERVICE IMPROVEMENT ACT OF 
                                  2007

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                         Thursday, May 10, 2007

  Mr. OBERSTAR. Madam Speaker, on May 3rd, I joined with the gentleman 
from Louisiana, Mr. Baker, and ten of our colleagues, to introduce the 
``Railroad Competition and Service Improvement Act of 2007.''
  Twenty-six years ago, Congress voted to deregulate the Nation's 
railroad industry and enacted the Staggers Rail Act. The railroad 
industry was in crisis: Years of low profits, deferred maintenance, and 
ill-conceived regulatory policies had resulted in a very debilitated 
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 a sufficient number of rail carriers 
to provide significant rail-to-rail competition. Congress voted to 
deregulate the industry.
  Deregulation did produce some of the benefits predicted: America's 
railroads are financially much stronger 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. U.S. Class I railroads move 
three times more freight than all of Western Europe's freight railroads 
combined.
  The 40 Class I railroads that existed in 1980 have consolidated into 
just seven Class I railroads serving the entire United States, four of 
which 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.
  Example: Laramie River Station is served by a single railroad--BNSF--
that delivers 8.3 million tons of coal annually from Wyoming's Powder 
River Basin to Laramie River Station, a distance of approximately 175 
miles. When a long-standing contract for that service expired in 2004, 
BNSF published new rates for the same service that more than doubled 
the prior rate. Without Federal intervention, these increased rail 
rates are estimated to cost consumers $1 billion over the next 20 
years.
  Example: 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 later this year.
  Example: Montana grain producers advise me that their counterparts in 
Nebraska--where a limited amount of rail competition exists--pay less 
in transportation costs than do Montana farmers to ship grain to 
Portland, Oregon, despite the 200 miles in additional distance the 
Nebraska grain must travel. The Montana farmers estimate that this 
disparity has cost them about $60 million a year.
  This lack of competition has resulted in record profits for 
railroads. North American railroads earned $42 billion in revenue in 
2006. In 2006, BNSF achieved $15 billion in revenues, a 15 percent 
increase over 2005, exceeded $5.10 in earnings per share, and attained 
$712 million in free cash flow after dividends. The railroad's net 
income was $1.89 billion, compared to $1.53 billion in 2005.
  BNSF's 2006 intermodal revenues increased to a record $5.14 billion, 
an 18 percent increase from 2005's then-record levels. Consumer 
products revenues climbed to $5.61 billion, a 14.6 percent increase. 
Agricultural products revenues were up 14 percent to $2.43 billion. 
Industrial products revenues increased by 15 percent to $3.60 billion. 
And coal revenues rose $480 million--or 19 percent--to $2.92 billion.
  Union Pacific Railroad achieved $14.9 billion in revenues in 2006, a 
15 percent increase from 2005 revenues. The railroad's net income was 
$1.6 billion or $5.91 per diluted share, versus $1 billion, or $3.85 
per diluted share, in 2005. Energy revenues increased by $376 million, 
or 15 percent, to $2.95 billion. Agricultural revenues were up 22 
percent to $2.4 billion. Industrial products revenues were up 13 
percent to $3.17 billion. And intermodal revenues were up 14 percent to 
$2.81 billion.
  CSX's revenues for 2006 were $9.57 billion, a 12 percent increase 
over 2005 revenues. CSX's net income was $1.31 billion in 2006, a 14 
percent improvement from 2005, and the $2.82 earnings per share is a 31 
percent improvement over 2005. Metals revenues were up 18 percent to 
$673 million. Forest products revenues were up 8 percent to $773 
million. Coal, coke, and iron ore revenues were up 14 percent to $2.38 
billion.
  Norfolk Southern's net income for 2006 was a record $1.5 billion, or 
$3.57 per diluted share, an increase of 15 percent compared with net 
income of $1.3 billion, or $3.11 per diluted share, for 2005. General 
merchandise revenues for 2006 climbed to a record $5.1 billion, an 11 
percent increase from 2005's then-record levels. Coal revenues 
increased 11 percent to a record $2.33 billion. Intermodal revenues 
rose 9 percent to a record $1.97 billion.
  All of these gains for the railroads have come at a price for captive 
shippers, who look to the Surface Transportation Board (STB) for help. 
They quickly realize that they can't afford the $178,200 filing fee or 
the millions of additional dollars necessary to fight their rate cases. 
Shippers see that the Board is more concerned about the financial 
health of the railroads than with the financial health of railroad 
customers, and they decide it's not worth the effort and cost to 
protest a rate case. Instead of alleviating the problems shippers face, 
the STB is actually discouraging captive shippers from filing rate 
cases.
  This is hardly the competitive environment envisioned when Congress 
voted to deregulate the railroad industry, and when Congress tasked the 
STB's predecessor, the Interstate Commerce Commission, to ensure that 
rail rates remain reasonable when there is an absence of effective 
competition.
  That is why I introduced legislation in the past four Congresses to 
reform STB's policies and procedures. Other Members of Congress, 
including Congressman Baker, introduced similar legislation to reform 
railroad regulation. But to date Congress has failed to act upon these 
bills.
  The ``Railroad Competition and Service Improvement Act of 2007'' 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 affects rail customers. The 
bill provides directives to the STB for implementing current law. It 
requires the STB to: (1) Ensure, to the maximum extent possible, 
effective competition among rail carriers at origins and destinations; 
(2) ensure reasonable rates for rail customers in the absence of 
competition; and (3) ensure consistent, efficient, and reliable rail 
transportation service for rail customers, including the timely 
provision of rail cars requested by rail customers.
  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

[[Page 12235]]

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, the 
STB must terminate these restrictions, 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, 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 1 year of the date of enactment.
  Address rail service problems. The bill clarifies the railroad's 
obligation to provide reliable and efficient service, and allows rail 
customers to hold railroads liable for damages sustained due to poor 
service. The bill also requires the STB to post on its website a 
description of each complaint from a customer about rail service, and 
how and when the STB ultimately resolved the complaint. 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 one party to submit a dispute over rail rates, rail service, and 
other matters involving any agricultural product, including timber, 
paper, and fertilizer under the jurisdiction of the S11B for ``final 
offer'' binding arbitration.
  Reduce fees for filing rail rate cases. Shippers are now required to 
pay a $178,200 fee for filing a rate case. This rate is expected to 
rise again this year. Under this legislation, filing a rate case would 
cost the same as filing before a federal district court, about $500.
  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, or 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.
  Direct the 5TB to investigate complaints over service. Our bill 
directs the STB to follow up on complaints over rail carrier service, 
and suspend the action in dispute if it finds the allegation has merit.
  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.

                          ____________________