[Federal Register Volume 76, Number 10 (Friday, January 14, 2011)]
[Notices]
[Pages 2748-2751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-774]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
[Docket No. EP 705]
Competition in the Railroad Industry
AGENCY: Surface Transportation Board.
ACTION: Notice.
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SUMMARY: The Surface Transportation Board will receive comments and
hold a public hearing to explore the current state of competition in
the railroad industry and possible policy alternatives to facilitate
more competition, where appropriate. The Board is seeking written
comments prior to the hearing addressing the legal, factual, and policy
matters described below.
DATES: Initial comments are due on February 18, 2011. Reply comments
are due 28 days thereafter, on March 18, 2011. The hearing will begin
at 9:30 a.m., on Tuesday, May 3, 2011, in the Board's hearing room at
the Board's headquarters located at 395 E Street, SW., Washington, DC.
The Board plans to hold the hearing in a single day, but may extend the
hearing if the number of participants or the breadth of submitted
written testimony so requires. The hearing will be open for public
observation. However, only parties who have notified the Board of their
intent to participate will be permitted to speak. Any party wishing to
speak at the hearing shall file with the Board a notice of intent to
participate (identifying the party, the proposed speaker, and the time
requested) no later than April 4, 2011. With the notice of intent, the
party shall provide written testimony on the issues it will address at
the hearing.
ADDRESSES: All filings may be submitted either via the Board's e-filing
format or in the traditional paper format. Any person using e-filing
should attach a document and otherwise comply with the instructions at
the ``E-FILING'' link on the Board's ``www.stb.dot.gov'' Web site. Any
person submitting a filing in the traditional paper format should send
an original and 10 copies of the filing to: Surface Transportation
Board, Attn: Docket No. EP 705, 395 E Street, SW., Washington, DC
20423-0001.
[[Page 2749]]
Copies of written submissions will be posted to the Board's Web
site and will be available for viewing and self-copying in the Board's
Public Docket Room, Suite 131. Copies of the submissions will also be
available (for a fee) by contacting the Board's Chief Records Officer
at (202) 245-0236 or 395 E Street, SW., Washington, DC 20423-0001.
FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391.
Assistance for the hearing impaired is available through the Federal
Information Relay Service (FIRS) at (800) 877-8339.
SUPPLEMENTARY INFORMATION: The rail network in the United States is a
series of interconnected lines owned by various rail carriers. Because
of the high fixed cost associated with building a rail network,
sometimes there is only one railroad serving a particular destination
and origin. Some companies that either ship by rail, or would like to
do so, have complained about being physically limited to a single rail
carrier and would like to have greater access to competition from other
railroads. Some shippers have suggested that mandated access by a
second carrier to singly served businesses would be in the public
interest. Railroads have responded that such an action would undermine
their ability to price their services differentially based on demand
and that, as a result, they would be unable to earn enough revenue to
invest sufficiently in their networks. Over the years, various possible
measures that would change the way rail shippers currently obtain
access to rail service have been debated, including: (1) Requiring
railroads to quote a rate between any two points they serve to allow
another railroad to serve the shipper from an intermediate point to the
final destination; and (2) imposing new rules for competitive access,
such as mandated reciprocal switching or mandated terminal use
arrangements, including trackage rights.
It has been some time since the agency has conducted a thorough
analysis of these issues. More than a decade ago, the Board conducted a
comprehensive analysis of ``captive shippers'' and their available
remedies for rate relief, as well as the incumbent railroad's rights
and obligations. This analysis culminated in a series of decisions
collectively known as the ``Bottleneck'' cases. Cent. Power & Light v.
S. Pac., et al., 1 S.T.B. 1059 (1996) (Bottleneck I), clarified, 2
S.T.B. 235 (1997) (Bottleneck II), aff'd sub nom. MidAmerican Energy
Co. v. STB, 169 F.3d 1099 (8th Cir. 1999).
The Board also conducted a review of its competitive access
standards in Review of Rail Access & Competition Issues, 3 S.T.B. 92
(1998).\1\ More recently, in response to a recommendation of the United
States Government Accountability Office (GAO),\2\ the Board
commissioned Christensen Associates, Inc. (Christensen Associates), to
perform an independent study to examine these issues. The resulting
report, A Study of Competition in the U.S. Freight Railroad Industry
and Analysis of Proposals That Might Enhance Competition (November
2009), is available on the Board's Web site or at http://www.lrca.com/railroadstudy/.\3\
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\1\ The competitive access standards were originally adopted by
the Interstate Commerce Commission (ICC), the Board's predecessor
agency, in the mid-1980s. Intramodal Rail Competition, 1 I.C.C. 2d
822 (1985), aff'd sub nom. Balt. Gas & Elec. v. United States, 817
F.2d 108 (DC Cir. 1987); and applied in Midtec Paper Corp. v. Chi. &
Nw. Transp. Co., 3 I.C.C. 2d 171 (1986), aff'd sub nom. Midtec Paper
Corp. v. United States, 857 F.2d 1487 (DC Cir. 1988).
\2\ Government Accountability Office, Freight Railroads:
Industry Health Has Improved, but Concerns about Competition and
Capacity Should Be Addressed, GAO-07-94, October 6, 2006, pp. 1-2.
The GAO stated: ``We are recommending that STB conduct a rigorous
analysis of the state of competition nationwide and, where
appropriate, consider the range of actions available to address
problems associated with the potential abuse of market power.''
\3\ In addition to the original November 2008 report (which was
revised as of November 2009), Christensen Associates has provided
the Board with two supplemental reports: An Update to the Study of
Competition in the U.S. Freight Railroad Industry (January 2010)
(Christensen Update); and Supplemental Report to the U.S. Surface
Transportation Board on Capacity and Infrastructure Investment
(March 2009). These reports are also available in the E-Library on
the Board's Web site under ``Studies,'' and at the URL provided
above. In this notice, ``Christensen Study'' refers collectively to
the original and supplemental reports.
The Board solicited and received public comments on the
Christensen Study. Supplemental Report on Capacity & Infrastructure
Inv., EP 680 (Sub-No. 1) (STB served Apr. 8, 2009); Study of
Competition in the Freight R.R. Indus., EP 680 (STB served Nov. 6,
2008). Many of the issues discussed in the Christensen Study are
also relevant to the proceeding that is being initiated here. As
such, parties are invited to discuss in EP 705 any aspect of the
Christensen Study that is relevant to the topic of competition in
the railroad industry. Because EP 680 and EP 680 (Sub-No. 1) have
served their limited purpose of initiating a discussion on
competition and capacity in the United States freight rail industry,
and because a significant portion of that discussion can continue in
the proceeding being initiated here, EP 680 and EP 680 (Sub-No. 1)
will be discontinued on the service date of this decision.
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The United States railroad industry has changed in many significant
ways since the Board's competitive access standards were originally
adopted in the mid-1980s. Among the more salient developments have been
the improving economic health of the railroad industry, increased
consolidation in the Class I railroad sector,\4\ the proliferation of a
short line railroad network, and an increased participation of rail
customers in car ownership and maintenance, as well as other activities
previously undertaken by the carrier. Since 1980, railroad productivity
improved dramatically, resulting in lower transportation rates.
However, productivity gains appear to be diminishing and, since 2004,
overall rail transportation prices have increased. See Christensen
Update at i & 3-26. Taken together, these events suggest that it is
time for the Board to consider the issues of competition and access
further.
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\4\ The Board designates 3 classes of freight railroads based
upon their operating revenues, for 3 consecutive years, in 1991
dollars, using the following scale: Class I--$250 million or more;
Class II--less than $250 million but more than $20 million; and
Class III--$20 million or less. These operating revenue thresholds
are adjusted annually for inflation. 49 CFR pt. 1201, 1-1. Today,
there are 7 Class I carriers and approximately 550 short line
carriers (i.e., Class II and Class III carriers) operating in the
United States.
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The Bottleneck Issue. A rail bottleneck rate issue arises when more
than one railroad can provide service over at least a portion of the
movement of a shipper's goods from an origin to a destination, but
where either the origin or destination is served by only one carrier,
i.e., the bottleneck carrier. In each of the Bottleneck cases, an
electric utility company sought to require the bottleneck carrier to
establish a ``local rate'' for a segment of the through movement that
was served only by that carrier, so that the utility could combine that
local rate with a rate for the remainder of the movement by another
carrier. The utilities further sought to be able to separately
challenge the reasonableness of the rate for the bottleneck segment of
the movement, rather than having to challenge the origin-to-destination
rate in its entirety. Each of the utilities in the Bottleneck cases
sought to divide the bottleneck carrier's long-haul and through rate
into smaller portions that could be priced and, accordingly challenged,
independently. The utilities believed that the total charges would be
lower if the reasonableness of the rates were adjudicated only for the
bottleneck portion of the movement (with the rate set by head-to-head
rail competition for the remainder of the movement), rather than for
the entire movement. Because the Bottleneck cases raised issues of
broad importance, the Board provided for extensive public input and
held an oral argument.
In the resulting decisions, the Board concluded that a shipper
could not routinely direct a bottleneck carrier that
[[Page 2750]]
was capable of providing origin-to-destination rail service for that
shipper to ``short-haul'' itself by routing traffic over the lines of
the non-bottleneck carrier. Rather, the Board held that a shipper could
seek to force an alternative routing that would include the line of the
non-bottleneck carrier only if it could show, under 49 U.S.C. 10705 and
the Board's ``competitive access'' rules developed in Intramodal Rail
Competition, that there would be sufficient benefits associated with
the alternative routing.\5\ The Board also held that, under 49 U.S.C.
11101(a) and 10742, a bottleneck carrier generally cannot refuse
traffic from other carriers originating at sources that the bottleneck
carrier does not serve, even if the bottleneck carrier can carry the
identical commodity in its own single-line service from another source.
Bottleneck I, 1 S.T.B. at 1063-64.
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\5\ Specifically, the Board's rules state that the shipper must,
in such a case, demonstrate the requested alternative route ``is
necessary to remedy or prevent an act that is contrary to the
competition policies of 49 U.S.C. 10101 or is otherwise
anticompetitive, and otherwise satisfies the criteria of 49 U.S.C.
10705 * * *'' The Board will also consider several other enumerated
factors, including efficiency, revenues, costs, and rates charged.
The Board must further find that the complaining shipper (or
carrier) would use the alternative route for a ``significant portion
of its current or future service * * *'' See 49 CFR 1144.2.
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Finally, for either type of movement--same-source movements for
which a shipper has successfully obtained an alternative routing, or
different-source movements that the bottleneck carrier cannot handle in
single-line service--the Board held that it could not force the
bottleneck carrier to quote a separately challengeable rate for the
bottleneck segment unless the requesting shipper had already entered
into a rail contract for the non-bottleneck segment at the time that
the bottleneck rate was requested. In so ruling, the Board relied on
the Supreme Court decision in Great Northern Railway v. Sullivan, 294
U.S. 458, 463 (1935), which held that the reasonableness of through
rates established by carriers should in general be evaluated from
origin-to-destination, rather than on a segment-by-segment basis.\6\
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\6\ The Board rejected the notion that the shipper could first
request the bottleneck rate, and then enter into a contract for the
remaining portion of the route. Rather, under Great Northern
Railway, the Board considered the contract to be a condition
antecedent to the request for the bottleneck tariff quote.
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Competitive Access. Competitive access can take the form of
mandated reciprocal switching, terminal use, or trackage rights.
Reciprocal switching involves the incumbent railroad transporting
traffic, usually for a short distance, over its own track on behalf of
a competing railroad for a fee. Reciprocal switching thus enables the
competing railroad to offer its own single-line rate, even though it
cannot physically serve the shipper's facility, to compete with the
incumbent's single-line rate. The agency has in the past held that
reciprocal switching should not be ordered absent a showing of
competitive abuse. More specifically, the complaining party must show
that the incumbent railroad has used its market power to extract
unreasonable terms or, because of its monopoly position, has
disregarded the shipper's needs by rendering inadequate service.
Midtec, 3 I.C.C. 2d at 181.
Unlike reciprocal switching, forced terminal arrangements
(including some forms of trackage rights) involve the physical presence
of a competing carrier on a host carrier's facilities owned by the
incumbent railroad. Under terminal agreements, an incumbent railroad
grants access to its terminal facilities or tracks to another carrier's
trains for a fee so that the non-incumbent can serve traffic it would
otherwise be unable to access.
Interchange Commitments. Interchange commitments can also fall
under the broad rubric of competition and competitive access in the
railroad industry. These are contractual provisions included with a
sale or lease of a rail line that limit the incentive or the ability of
the purchaser or tenant carrier to interchange traffic with rail
carriers other than the seller or lessor railroad. The Board has
addressed interchange commitments in Review of Rail Access and
Competition Issues--Renewed Petition of the Western Coal Traffic
League, EP 575, et al. (STB served Oct. 30, 2007), and Disclosure of
Rail Interchange Agreements, EP 575 (Sub-No. 1) (STB served May 29,
2008). There are also several pending cases before the Board that will
continue to develop, on a case-by-case basis, the Board's policies.
Because we will continue to consider these issues and look to improve
the processes associated with transactions involving interchange
commitments, this hearing will not focus on interchange commitments or
the approach adopted in EP 575.
Procedures
This proceeding is intended as a public forum to discuss access and
competition in the rail industry, and with a view to what, if any,
measures the Board can and should consider to modify its competitive
access rules and policies; whether such modification would be
appropriate given changes over the last 30 years in the transportation
and shipping industries; the effects on rates and service these rules
and policies have had; and the likely effects on rates and service of
changes to these policies. The Board is providing an opportunity for
any person or entity that wishes to participate to file written
prepared comments in advance of the hearing, and the Board will provide
an opportunity to parties to file replies to those comments.
Subsequently, the Board will hold an oral hearing at the agency to
explore the issues in more depth.
In particular, we urge the parties to focus their comments, and
subsequent testimony and statements for the hearing, as follows:
1. The Financial State of the Railroad Industry. Parties are
invited to comment on the evolving economic state of the railroad
industry. The industry has changed significantly since 1980, when
Congress passed the Staggers Act of 1980, Public Law 96-448, 94 Stat.
1895 (1980) (Staggers) and the ICC began the process of devising the
current competitive access rules and policies. Today, the industry is
in substantially stronger condition financially. In this regard,
parties should address both the findings and conclusions of recent
studies of the railroad industry, including (but not limited to) the
Christensen Study and the joint study of United States Departments of
Agriculture and Transportation.\7\
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\7\ Study of Rural Transportation Issues, http://www.ams.usda.gov (follow ``Publications'' hyperlink; then follow
``Agricultural Transportation'' hyperlink; then follow
``Congressional Studies'' from the dropdown menu; then follow ``04-
10: Study of Rural Transportation Issues'' hyperlink).
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2. 49 U.S.C. 10705 (alternative through routes). Parties are
invited to discuss how to construe this provision in light of current
transportation market conditions. In this regard, parties may address
pre-Staggers practice, Staggers' effect on this issue, and whether
there are statutory constraints on the Board's ability to change policy
at this time. Parties are specifically invited to comment on the
differences between Sec. Sec. 10705(a)(1) and 10705(a)(2), the
circumstances under which carriers may seek to protect their long hauls
under Sec. 10705(a)(2), and whether Sec. 10705(a)(2) should apply
where multiple carriers can originate the traffic, but only a single
carrier can deliver the traffic to its destination.
3. 49 U.S.C. 11102(a) (terminal facilities access). Parties are
invited to discuss how to construe the terminal access provision in
light of current transportation market conditions. Again,
[[Page 2751]]
parties may address pre-Staggers practice, Staggers' effect on this
issue, and whether there are statutory constraints on the Board's
ability to change policy at this time. The Board is also interested in
how the definition of ``terminal facility'' evolved over time.
4. 49 U.S.C. 11102(c) (reciprocal switching agreements). Parties
are invited to discuss, separately from the terminal facilities access
provision, how to construe this provision in light of current
transportation market conditions. Again, parties may address pre-
Staggers practice, Staggers' effect on this issue, and whether there
are statutory constraints on the Board's ability to change policy at
this time. In particular, parties should address whether the broad
``practicable and in the public interest'' standard in the statute
should be constrained by the provision permitting relief ``where * * *
necessary to provide competitive rail service.'' Finally, parties may
discuss the distance limitations, if any, associated with this
provision.
5. Bottleneck Rates. Parties are invited to discuss whether the
Board could and should change its precedent finding only narrow
authority to compel a railroad to quote a separately challengeable rate
for a portion of a movement. Parties are also asked to comment on how
the Great Northern Railway decision--holding that the reasonableness of
a through rate established by carriers is only relevant to the shipper
as to the total rate charged, and thus should be evaluated from origin
to destination rather than on a segment-by-segment basis--can
reasonably be applied in today's transportation world. In particular,
we want to explore how the agency would evaluate the reasonableness of
the more elaborate through rates used in today's global transportation
industry including, for example, a local truck movement at origin, a
transload to rail for shipment to a port, an international water
movement, and finally a foreign rail or truck movement to destination.
In such an example, do Great Northern Railway and other precedent
require the agency to evaluate the reasonableness of the rates
exclusively from origin to destination? If so, how could the agency
evaluate the entire through rate when a portion of that rate includes
transportation outside the Board's jurisdiction? Or does the agency
have the discretion to permit the shipper to challenge just the rail
carrier's division of the international through rate? Does the agency
have discretion in other purely domestic settings? Participants may
also address the role that short lines play in through rates, and
whether the reasoning in Great Northern Railway encompasses
``bottleneck'' situations and a more highly concentrated rail industry.
Should freight rail customers be allowed to determine intermediate
origin and destination points that would enable a competing carrier or
mode to serve the shipper's final destination?
6. Access Pricing. If the Board were to modify its competitive
access rules, it would also need to address the access price. The Board
seeks comments on what tools it can and should consider using (within
statutory and constitutional limits) in evaluating how the carriers can
assess terminal access prices, reciprocal switch fees, or segment
rates, such as Constrained Market Pricing principles, or an alternative
set of principles, such as cost-based pricing principles or Efficient
Component Pricing. What role, if any, should a carrier's current
financial standing and future prospects bear in this determination? \8\
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\8\ A basis for the Board's historic pricing policy under
Staggers and ICCTA was to permit demand-based differential pricing
and allow captive shippers to bear a greater share of the carriers'
fixed and common costs to help the railroads achieve revenue
adequacy.
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7. Impact. Finally, we invite comments from all interested parties
on the positive and negative impact any proposed change would have on
the railroad industry, the shipper community, and the economy as a
whole. The introduction of greater rail-to-rail competition could
improve service and lower rates for captive shippers. But a loss of
revenue could lead to less capital investment, constraining capacity
and deteriorating service for future traffic. Any party advocating a
change should address these impacts.
In addition to the guidance provided above, parties are welcome to
offer their comments on any other aspect of our competitive access
rules. Parties are also invited to comment on the specific questions in
our prior order on this similar subject. Policy Alts. to Increase
Competition in the R.R. Indus., EP 688 (STB served Apr. 14, 2009).
Board Releases and Live Video Streaming Available Via the Internet:
Decisions and notices of the Board, including this notice, are
available on the Board's Web site at http://www.stb.dot.gov. This
hearing will be available on the Board's Web site by live video
streaming. To access the hearing, click on the ``Live Video'' link
under ``Information Center'' at the left side of the home page
beginning at 9 a.m. on May 3, 2011.
This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.
It is ordered:
1. A public hearing in this proceeding will be held on Tuesday, May
3, 2011, at 9:30 a.m., in the Surface Transportation Board Hearing
Room, at 395 E Street, SW., Washington, DC, as described above.
2. Initial comments are due on February 18, 2011.
3. Reply comments are due on March 18, 2011.
4. By April 4, 2011, parties wishing to speak at the hearing shall
file with the Board a notice of intent to participate identifying the
party, the proposed speaker, and the time requested. With the notice of
intent, the party shall provide written testimony on the issues it will
address at the hearing. Written submissions by interested persons who
do not wish to appear at the hearing are also due by April 4, 2011.
5. This decision is effective on the date of service.
Decided: January 11, 2011.
By the Board, Rachel D. Campbell, Director, Office of
Proceedings.
Andrea Pope-Matheson,
Clearance Clerk.
[FR Doc. 2011-774 Filed 1-13-11; 8:45 am]
BILLING CODE 4915-01-P