Tuesday, July 31, 2012

The STB’s seemingly new regulatory aggressiveness

Written by  Lawrence H Kaufman

The Surface Transportation Board, which has put as much effort into not attracting attention to itself as it has to deciding disputes between railroads and their customers, seems to be shifting to a more activist approach to the tasks assigned it by Congress.

Having watched the agency take a regulatory version of “don’t fight, kiddies,” for years, the sudden change is noticeable and disturbing. Railroads, at least, are disturbed. A set of proposed rules and changes in the way cases are litigated appears to favor shipper complainants, suggesting that railroads may be forced to deal with a more partisan, less friendly regulator.

At a public hearing August 2, STB commissioners listened to shippers and carriers say what they like and do not like about a rules proposal that would “encourage” greater use of mediation and arbitration, alternative dispute resolution that can produce decisions more quickly and at less expense than litigating disputes before the board.

Another new proceeding takes up the National Industrial Transportation League’s proposal intended to make it more attractive for shippers to pursue rate and service complaints, in part by lifting the cap on maximum monetary awards that shippers can obtain and by making the burden of proof easier to achieve. That case also would encourage the STB to create rail-to-rail competition in many situations where it does not today exist.

The Board may be in danger of forgetting the Congressional mandate of the Staggers Act of 1980: that railroads should be free to go about their business with as little government regulation as possible. The concept of Staggers was and remains that the market should be the regulator of rail pricing and practices, and that government should be a facilitator of fair business practices on behalf of shippers that are captive to one railroad. Even there, the government only can get involved if the disputed rate is above a statutory threshold AND the railroad has market dominance over the particular movement.

The law exists today as it did more than 31 years ago. And, the same parties that didn’t want to see railroads freed of the heavy hand of government regulation back then still don’t like it. The utilities, chemical producers, and other shippers of bulk commodities that effectively cannot be moved other than by rail have lobbied Congress over the years for relief.

Their pleas to amend Staggers have fallen on deaf ears for the most part. They can count on Senators Jay Rockefeller, Herb Kohl, and Al Franken—all Democrats who have personal gripes with railroads. Three senators cannot get legislation passed, so this should not be an issue, right? Wrong. Senators have ways to apply pressure to government agencies to achieve by regulatory process what they cannot get legislatively.

The members of the STB are appointed by the President, and must be confirmed by the Senate. It’s a foolish regulatory agency chairman who ignores Senate requests.

The situation may not be as dire as it first appears. Rail service has improved greatly since passage of Staggers, which the law was intended to encourage. Many shippers are reasonably satisfied with the service quality they receive and most rates are below the regulatory threshold. No one is advocating wholesale re-regulation, and the occasional very expensive shipper rate complaint case has been with us for 31 years without causing untoward grief for railroads.

The odds are that nothing will change materially, and one of the three Senators (Kohl of Wisconsin) is retiring at the end of the year. Two Senators probably are not enough to force significant regulatory change on railroads.

Even some lawyers who represent shippers before the Board consider the proposed rules to be a waste of time.

The STB may adopt a competitive access policy that would enable a carrier that has an active junction within 30 miles of a carrier that serves a customer on a monopoly basis to request terminal trackage rights that would end the first carrier’s effective monopoly. Known by some as terminal trackage, a mechanism would be required that would set the pricing the tenant railroad would have to pay. Allow too high a trackage fee, and the tenant will decide it does not really want to compete for the business. Set the fee too low, and the regulator is in the position of dictating the price of the shipment in question and who gets the business.

There are competitive access rules that were adopted by the former Interstate Commerce Commission as a compromise between the Association of American Railroads, which wants the fewest rules possible, and the National Industrial Transportation League, which advocates for shippers. Since the rules were adopted, no shipper has been able to get the STB to grant terminal trackage, but no shipper has asked the STB for a wavier or exemption, both of which are within the STB’s power to grant.

If STB Chairman Dan Elliott is particularly adroit, he will manage to adopt some new rules that will allow him to tell Senators that he heard them loud and clear, and at the same time will not make any meaningful change in shipper-carrier relationships.