Watching Washington: To mend the SAC, STB must act

The process is soured by unacceptable delay, excessive cost, confrontation and third-party decision making that wrests control from parties of interest.

Recently retired National Mediation Board (NMB) Chief of Staff Dan Rainey forged an international reputation teaching and refining alternative dispute resolution practices to guide disputants into non-confrontational, fact-based dialogue emphasizing shared interests and joint problem solving rather than arguing opposing positions.

With a doctorate in rhetorical communication, Rainey taught at George Mason University; designed conflict resolution programs in the public and private sectors; and was recruited by the NMB to help apply alternative dispute resolution theories that helped avoid collective bargaining failures and national railroad strikes.

“With strong support from NMB members, we created a new environment for parties in a dispute to communicate with each other,” Rainey says. “Alternative dispute resolution re-channels and re-orientates the parties toward finding common ground by defining shared interests and engaging in problem-solving behavior.” Application of alternative dispute resolution theory has earned Rainey numerous professional awards and invitations to lecture globally.

Such success commends alternative dispute resolution’s expansion to rate reasonableness cases before the Surface Transportation Board (STB) as a substitute for the long-maligned, tortuous and intimidating Stand-Alone-Cost (SAC) process requiring design of an elaborate hypothetical railroad for cost comparison purposes.

Few captive shippers can afford the multi-million-dollar cost and three-year or longer process of hiring a squad of specialists in a range of disciplines to do battle with railroads—first before the STB; often afterward in federal court if the regulatory decision is challenged.

While data show shippers prevail as often as railroads, shippers allege the “wins” deliver meaningfully less rate relief than justified by the costs of litigation. Chemicals and coal shippers have lost confidence in the process; grain shippers haven’t filed a major rate case since 1981.

In recognition, Congress in 2015 instructed the STB to develop a more simplified and expedited method than the SAC process to determine rate reasonableness where railroads are market-dominant. Yet there hasn’t been progress beyond a stalled, limited-focus rulemaking; a controversial consultant’s report endorsing the SAC process, and a National Academy of Sciences study recommending final offer arbitration—an alternative dispute resolution process used in Canada.

As final offer arbitration means selecting just one of the offers, it encourages parties to converge toward a more conciliatory outcome than conventional arbitration, where the arbitrator designs a compromise based on more extreme positions. Compared with the SAC process, say advocates, final offer arbitration is sounder, more transparent and more economical.

While the STB offers voluntary conventional arbitration, it repeatedly has been shunned by at least one side. Shippers may be dissuaded by its cap on awards; railroads understandably prefer the status quo of the SAC process.

Impeding a simplified and expedited substitute for the SAC process are the STB’s outdated regulatory devices. While identification and assignment of joint and common costs has been described as “finding a black cat in a dark room,” the STB’s Uniform Rail Costing System (URCS)—used to estimate variable and total unit costs—hasn’t been meaningfully revised since created in the early 1980s, before substantial advancements in analytical tools that could add illumination.

Admittedly, the STB lacks authority to mandate final offer arbitration as a substitute for the SAC process, and with three of five authorized seats unfilled, Acting Chairman Ann Begeman and Vice Chairman Deb Miller may be hesitant to approach Congress or take other initiatives. Yet Congress spoke clearly about mending the problematic SAC process, of which both also are critical.

What the two could do while awaiting the empty seats to be filled, is to develop a policy statement or draft a legislative recommendation on a range of alternative dispute resolution methods, including mandated final offer arbitration; set staff to work fashioning new analytical tools, including a reconstruction of URCS, and hold a public hearing—all of which would improve the body of knowledge and reduce delay when reinforcements arrive.

Frank N. Wilner is author of six books, including, Amtrak: Past, Present, Future; Understanding the Railway Labor Act; and, Railroad Mergers: History, Analysis, Insight. He earned undergraduate and graduate degrees in economics and labor relations from Virginia Tech. He has been assistant vice president, policy, for the Association of American Railroads; a White House appointed chief of staff at the Surface Transportation Board; and director of public relations for the United Transportation Union. He is a past president of the Association of Transportation Law Professionals. Wilner drafted the railroad section of the Heritage Foundation’s Mandate for Change (Volumes I and II), which were policy blueprints for the two Reagan Administrations; and was a guest columnist for the Cato Institute’s Regulation magazine.