Senate odd fellows unite to pack STB

Written by Frank N. Wilner, Capitol Hill Contributing Editor

An Iraqi proverb reads, “Show them death and they will accept a fever.”

Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.), whose foreign affairs knowledge trumps an inadequate understanding of economics, appears to have stumbled across the proverb and embraced it as the foundation of his latest strategy to enfeeble the purpose, wisdom, and consequences of the 1980 Staggers Rail Act.

Perennially having failed to muster peer support for steering Staggers-gutting legislation to the Senate floor on behalf of shippers seeking cut-rate prices for high-end service, Democrat Rockefeller, in concert with Republican counterpart Sen. John Thune of South Dakota, has now taken aim at the railroads’ regulatory agency, the Surface Transportation Board (STB). They have crafted legislation to intimidate STB members into giving so-called captive shippers (those with limited or no effective transportation alternatives to rail) undue preference before the agency.

The Surface Transportation Board Reauthorization Act of 2014 (S. 2777) seeks to pack the now three-member STB with two new members—undoubtedly Staggers-averse ringers eager to bully the agency into upsetting 34 years of federal-court-vetted regulatory precedent that delivered on the advertised of restoring to financial health a rail industry on the brink of nationalization.

S. 2777 also would give Congress greater sway over future STB budget requests by removing the STB from the administrative shelter of the Department of Transportation. The packing of the Board and an ability to hold STB budgets hostage is the show of death intended to coerce the Board into accepting the fever—a return to the pre-Staggers Act dark days when railroads were regulated as if social welfare agencies, and their track, equipment, and service were as would be expected in a Third World nation.

That the Rockefeller-chaired Senate Commerce Committee gave S. 2777 a favorable vote Sept. 17 sends a mild chill in Wall Street’s direction, but even Rockefeller, who is retiring at year’s end, confides the measure will not reach the Senate floor for a vote prior to adjournment of the 113th Congress.

Of course, a provision or two from S. 2777 could be slinked into another transportation bill—think highway or Amtrak reauthorization—as a midnight rider. More likely, the son of S. 2777 will lurk below the surface when the 114th Congress convenes in 2015 as a somber reminder that politics can be a sinister art used to bully assumed independent regulatory agencies.

Curious to these events is Rockefeller’s odd fellow traveler, South Dakota Republican Sen. John Thune, co-sponsor of S. 2777 and the presumptive Commerce Committee chairman should Republicans regain control of the Senate in November elections. (Should Democrats retain the Senate, Florida’s Bill Nelson, with no recognized ties to captive shippers, is the presumptive committee chairman; but Thune would remain the committee’s senior Republican.)

What makes Thune an odd fellow traveler is that those struggling to create and retain non-farm jobs in business-savvy South Dakota gobble antacids when talk of more economic regulation commences. South Dakota has attracted a score of corporate relocations owing, in large part, to Republican Gov. Dennis Daugaard’s successful push to repeal almost 4,000 individual regulations since 2011. Unlike Thune, most South Dakota Republican lawmakers share in practice Daugaard’s opinion that “when it comes to laws, more isn’t always better.”

Thune perhaps hopes to encourage South Dakota’s plurality of farm interests (most dependent on railroads) to cast ballots in favor of the Republican Senate candidate in a tightening November race to succeed Democrat Tim Johnson, who is retiring. Thune insists S. 2777 is not about reregulation; but only Lewis Carroll’s Humpty Dumpty gets to assert, “When I use a word, it means just what I choose it to mean.”

Thune’s recent rhetoric also is smearing South Dakota native Ann Begeman, the lone Republican on the STB. The daughter of a dairy farmer, she earned an undergraduate degree in business, has first-hand knowledge of farm economics, and is acknowledged by shippers for her proactive approach to captive-shipper grievances. She told a South Dakota newspaper in July, “It takes a lot of money to have a safe, efficient rail network … and they need to. I just want them to also make sure they are customer-service-oriented.”

In fact, STB Chairman Dan Elliott and Begeman each have voted to reject a railroad petition asking product and geographic competition be allowed as a defense in rate reasonableness cases; they commenced a reform of cumbersome and expensive complaint procedures and shipper evidentiary requirements; they ordered ceilings raised on dollar recoveries available to shippers; and they added mediation and arbitration alternatives to speed decision making.

The voting records of Elliott and Begeman have shippers in the winning column more frequently than railroads. (The third STB member, Democrat Deb Miller, has been on board for too short a time to create a meaningful record, but she has indicated support for the Elliott and Begeman approach.)

Rockefeller, with inherited wealth in the $120 million range, is a great-grandson of oil baron John D. Rockefeller, whose infamous ways he has compared to modern railroad business practices. Yet his feigned arrogance of conscience over profit-generating capitalism is nowhere to be found when advancing objectives of his political supporters—electric utility and agricultural interests organized as Consumers United for Rail Equity (CURE), the National Industrial Transportation League, or the American Chemistry Council.

When Rockefeller recently invited the American Chemistry Council to testify in support of his ad hominem attack on railroad revenue adequacy, he pointed no lance toward Dow Chemical—heavily invested in West Virginia—whose stock price and earnings per share have soared, and which fiercely defends its own market dominance (known in the chemicals trade as monopoly patents worth billions). Dow’s corporate strategy is to “drive returns that exceed the cost of capital,” precisely which Rockefeller and Thune seek to quash for railroads.

In fact, railroad returns on investment trail by some five percentage points returns posted by Fortune 500 companies, and railroads remain shy of revenue adequacy, which requires returns at least equivalent to the cost of capital over the course of an entire business cycle. See, for example, “Rail revenue adequacy? Well, sort of.”

An absurdity of the Rockefeller-Thune approach is that they pursue an arbitrary capping of railroad revenue, prior to the railroads’ economist-accepted demonstration of revenue adequacy throughout an entire business cycle, while simultaneously complaining of insufficient investment in rail plant and equipment to expand capacity and ensure fluidity.

Placing principles ahead of his own job security, Chairman Dan Elliott—who must depart Dec. 31 if not renominated by the White House and reconfirmed by the Rockefeller-chaired Commerce Committee—delivered a gutsy letter to the committee Sept. 10, stressing that “private sector resolutions” are preferable to political ones. “I also believe that [political or regulatory action] should not benefit one industry at the expense of others, or spur unintended negative consequences,” wrote Elliott.

Whatever his own fate, Elliott’s strength of character in shielding the integrity of the STB and its staff against unjustified, unprovoked, and unwarranted meddling by Rockefeller and Thune will be long remembered and celebrated by defenders of science-driven regulatory outcomes.

To his everlasting credit, Elliott has rejected accepting the Rockefeller and Thune fever.

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