Segment 2 Of 2 Previous Hearing Segment(1)
SPEAKERS CONTENTS INSERTS
Page 114 PREV PAGE TOP OF DOC Segment 2 Of 2
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
DISPOSITION OF INTERSTATE COMMERCE COMMISSION'S RAILROAD MERGER RAIL AUTHORITY
TUESDAY, FEBRUARY 22, 1995
U.S. House of Representatives,
Subcommittee on Railroads,
Committee Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:07 a.m. in room 2167, Rayburn House Office Building, Hon. Susan Molinari (chairman of the subcommittee) presiding.
Ms. MOLINARI. Good morning. Thank you all for being with us.
Today, we complete our first cycle of rail hearings by examining the Interstate Commerce Commission's authority in rail matters other than mergers. While we normally think of the ICC as dealing with issues such as rail abandonments, rail disputes, and line sales, the agency, in reality, has a wide range of diverse responsibilities under scores of different statutory provisions. Perhaps the most amazing is that the ICC actually has some statutory responsibilities under the Federal election law concerning extensions of credit by transportation companies to candidates. We will be giving that serious consideration.
Page 115 PREV PAGE TOP OF DOC Segment 2 Of 2
This illustrates how complex the task of sunsetting the ICC really is. There seems to be broad sentiment for eliminating the ICC's current status as an independent agency and for reducing Federal regulatory burdens. In this respect, Congress has received the public's message, that Federal regulation costs should be minimized. Congress, as one observer put it, may be the country's principal trailing indicator but we do listen.
At the same time, after we review the ICC's responsibilities and dispense with those that have now become historically superfluous, we must also ensure an orderly transition that avoids any disruptive or unintended consequences for the private sector businesses who rely on the ICC authority in their day-to-day transactions.
I'd like to now recognize Mr. Lipinski, the Ranking Minority Member, for his statement.
Mr. LIPINSKI. Thank you, Madam Chairwoman.
I appreciate everyone being here and because we have a long day ahead of us, I request unanimous consent to revise and extend my remarks and submit my statement for the record.
Ms. MOLINARI. Thank you. Without objection, so ordered.
[Mr. Lipinski's prepared statement follows:]
Page 116 PREV PAGE TOP OF DOC Segment 2 Of 2
[INSERT HERE.]
Ms. MOLINARI. I'd like to welcome the Vice Chair of the committee, Mrs. Kelly.
Mrs. KELLY. Thank you, Madam Chairwoman.
I'd like to thank everyone who has agreed to be a witness here on the panels. We appreciate your attendance and your willingness to speak to us this morning.
Thank you.
Ms. MOLINARI. Thank you.
The gentleman from California, Mr. Kim.
Mr. KIM. No statement.
Ms. MOLINARI. Thank you.
We will now turn to our first panel of witnesses: Mr. Edwin Harper, President, Association of American Railroads; Mr. James Hagen, Chairman and CEO, Consolidated Rail Corp.; and David R. Goode, Chairman, President and CEO, Norfolk Southern Corp.
Mr. Harper, welcome.
Page 117 PREV PAGE TOP OF DOC Segment 2 Of 2
TESTIMONY OF EDWIN L. HARPER, PRESIDENT AND CEO, ASSOCIATION OF AMERICAN RAILROADS; JAMES A. HAGEN, CHAIRMAN AND CEO, CONSOLIDATED RAIL CORPORATION; DAVID R. GOODE, CHAIRMAN, PRESIDENT AND CEO, NORFOLK SOUTHERN CORPORATION
Mr. HARPER. Thank you very much, Madam Chairwoman and members of the subcommittee.
My role this morning is one of background, to note the context of these hearings and to sketch the challenge which they present.
The context is simple, the ICC is going out of business after 108 years. It's the longest act in town, even longer than sheer madness at the Kennedy Center. The challenge is just as simple, in a sense. For the railroads, the ICC can disappear but its functions can go on as usual, or the ICC can disappear but it's regulatory grasp in another form can be tightened, or Congress can pursue the path it has pursued for the last 20 years, to bring the railroad industry and the Nation it serves into the bright light of the marketplace.
The first two, I submit, would truly be sheer madness. The last is the challenge which this hearing sets down. You will hear from those who will say this is just a budget and housekeeping function, the status quo is fine. You will hear from others who will bring you back 108 years and say, let's try a stronger dose of regulation.
Jim Hagen and David Goode may disagree in a degree but not in kind. They both urge the Congress to take up the challenge and move railroads, not backwards or standing in place, but forward. The committee has the opportunity to take the next step forward in deregulation.
Page 118 PREV PAGE TOP OF DOC Segment 2 Of 2
The 4R Act of 1976 was the beginning of serious deregulatory reform of the railroad industry. The Staggers Act of 1980 implemented massive reforms by recognizing that most transportation in the U.S. is competitive and providing railroads with some relief against burdensome regulation. The Staggers Act reforms placed increased reliance on the marketplace rather than regulation and allowed carriers increased freedom to rationalize their facilities.
Deregulation of the industry, however, is still only partial. Significant, unnecessary regulatory restrictions, many of which reflect the regulatory scheme of the original 1887 Interstate Committee Commerce Act, such as tariff filing requirements, still hinder the industry's ability to compete. Deregulation has been a success. Shippers have obtained lower rates and higher quality of service and the railroads have staved off bankruptcy and improved their financial performance.
During the 1970s, the industry's return on investment never got as high as 3 percent. In recent years, it's hovered between 6 and 8 percent, but the industry's cost of capital is about 11.5 percent. The average freight rate shippers pay has declined by 21 percent in current dollars and by 50 percent in constant dollars, by our estimate, since the Staggers Act has passed, and as you can see on the chart at my right and your left.
Replacing regulation with the competitive marketplace is the secret of this success. The railroads provide their services in a highly competitive market. An isolated shipper served by only one railroad does not sound very competitive, but look beyond the appearances to the facts. For example, the soda ash mines in Green River, Wyoming are served by only one railroad. The rates and prices of soda ash from the Green River mines are effectively constrained by at least two factors—one, soda ash is mined or produced in other locations and two, trucks move the product to other railroads that have established transloading facilities.
Page 119 PREV PAGE TOP OF DOC Segment 2 Of 2
Other bulk commodity movements exhibit the same kind of competition. For example, all grain movements originate by truck and grain shippers have the option to transport grain to numerous rail head and barge-loading points.
The competitive fact is that railroads must compete for business in every lane for every commodity. They compete with each other and with trucks and barges; they compete against other geographic sources for consuming points. The commodities they haul compete with other commodities. The bottom line is that there have been no market abuses as evidenced by rate declines in constant dollars since the Staggers Act. The average rate is down 50 percent; coal rates are down 51 percent; chemicals down 44 percent; grain and farm products are down 50 percent. These numbers demonstrate a highly competitive marketplace, one in which competition, not regulation should be relied upon to establish fare rates and efficient service conditions. Seize the day.
Ms. MOLINARI. Thank you very much, Mr. Harper.
Mr. Hagen, thank you.
Mr. HAGEN. Madam Chairwoman, members of the committee, good morning.
My name is Jim Hagen; I'm Chairman and CEO of Conrail. I'm pleased to have this opportunity to appear before you again, this time to discuss the future of rail regulation other than mergers.
Page 120 PREV PAGE TOP OF DOC Segment 2 Of 2
We believe the time has come to repeal the rail provisions of the Interstate Commerce Act. Regulation has outlived its purpose. The public is fully protected by the fierce competition that effectively constrains rail rates in every market for every commodity.
There are going to be some who may disagree, and I invite them to explain why these competitive forces that I think pervade industry to not apply to them. We will listen to it with an open mind and we will respond to those particular concerns.
Former Chairman Harley Staggers, for whom the Staggers Act is named, said that ''The presence of competition forecloses the need for regulation and the burden is on those who see regulation to establish clearly the absence of competition.'' I believe that burden can no longer be carried.
As Mr. Harper mentioned, since the Staggers Act, the rail rates have declined in real terms by one-third; rate declines occur for all commodities; and the most important thing to understand about this data is that regulation did not cause these rates to cause down, competition did.
Let me illustrate the kinds of competitive pressures we face in the coal business, which I know is assumed by some to be an area where the railroads have huge market power. First, I want to tell you the statistics that often surprise people. Less than 60 percent of the Nation's electricity is generated by coal and only half that amount is moved by rail. We've gotten these numbers from the National Coal Association data.
Page 121 PREV PAGE TOP OF DOC Segment 2 Of 2
I've got some charts set up here on the easel and each of you I think have a smaller copy in your material that show some particular utilities that maybe will demonstrate the point.
Peco Energy Company serves Philadelphia and only 17 percent of their electric generation is from coal, approximately 8 percent of that is from a couple minemouth-served plants. Nearly 60 percent is nuclear and the rest, of course, comes from purchased power.
The Edison plant is located on the Delaware and I think on this chart you can see where it is, and receives it's coal from Conrail but last year, it purchased CSX coal and had it moved by rail to Baltimore and shipped by vessel up the C&D Canal to the plant. So effectively, they were served by coal from other sources than Conrail. It also could have moved NS to Norfolk and then shipped by vessel from there. So the move could have gone a couple of different ways. In addition, they also use long-haul trucks to compete with Conrail. The Cromby plant, which is in the Philadelphia area, is also served by a gasline pipe.
The next one goes to the other end of our system and is the Consolidated Edison in Chicago which Conrail does not serve, but it relies on nuclear power for 82 percent of its electricity and only 14 percent comes from coal. Numerous other railroads and modes participate in the coal movement and many more could because they have a lot of options.
For example, the Waukegan plant has two rail carriers serving it. The Kincaid plant used to burn local coal which moved up there by conveyor, but it now basically uses western coal. The Powerton plant can take coal from three different railroads and the Stateline plant near Chicago is served by a small carrier which connects to all of the major coalhauling roads in Chicago. The final point is that the three downtown plants are all barge-served. The Joliet plant has two different railroads, one on each side of it. So essentially, you have a huge utility serving a huge market that has basically lots of competition.
Page 122 PREV PAGE TOP OF DOC Segment 2 Of 2
Another important competitive aspect that can't be shown on the chart is that the utilities purchase power from each other in the so-called grids. The lowest-cost electricity is used by the grid participants and then the next lowest and so on and this puts pressure on the rail rates.
Let me just talk about grain rates for a second here. The grain business is no longer just made up of a series of family farms; it is a huge industry and a lot of those particular firms are in fact larger than many of the railroads or even the industry. The fact is, as Ed mentioned, all grain begins its journey on a truck. They can go to a different railhead, they can go to a river, they can go to a lake facility, and as you can see, this has had enormous pressure on the prices.
Also, when you're buying grain, they can make their purchases from locations on different railroads, so that we have a competitive level that continues to drive down. This is evidenced by the fact that the rates have dropped 47 percent in real terms since 1980.
Anytime that there is a particular change in the regulatory scheme, you get a lot of concern about his there going to be chaos, is there going to be disruption, and what's going to happen. I think these concerns are probably unwarranted from our recent experience in the last years on the Staggers Act.
Another area that is of importance is the abandonment and line sales. Conrail, for example, I looked up the statistics, recently we abandoned 405 miles since 1990 and only affected 2,360 carloads. That is contrasted with the 4 million carloads that we handle over our entire system. What we did with those lines is 1,500 miles got sold to short-line railroads who are our partners and work with us to make sure that the business continues out there. So we will, for this reason, working with the short lines, continue to negotiate mutually-beneficial sales, to interchange the profitable traffic, maintain the necessary rates and routes, and to supply the cars necessary to make sure the business moves.
Page 123 PREV PAGE TOP OF DOC Segment 2 Of 2
Madam Chairwoman, let's work together to take the next and final step. Let's end the outmoded, unnecessarily costly and burdensome system of regulation and to assure a more efficient and effective government, and a more competitive rail system.
Thank you for your time.
Ms. MOLINARI. Thank you very much, Mr. Hagen.
Mr. Goode.
Mr. GOODE. Thank you, Madam Chairwoman.
My name is David Goode and I'm Chairman, President and CEO of Norfolk Southern Corporation. In addition to my own company, I am speaking this morning on behalf of Union Pacific, Southern Pacific, Burlington Northern, Canadian National and Grand Truck, Chicago and Northwestern, Kansas City Southern, and Canadian Pacific/Soo Line. I hope I can assume the heavy burden of speaking for a group like that. I have filed a statement representing the views of all of this group.
Our business is competitive across the whole spectrum of commodities. Many provisions of the Interstate Commerce Act, we agree, can be repealed for the reasons Ed Harper and Jim Hagen have set out so cogently. Norfolk Southern provides a concrete example of the trends they have summarized. In our own case between 1982 and 1993, our rail revenue per ton mile, measured in inflation-adjusted dollars, has declined 37 percent. So pervasive economic regulation is hardly needed in an industry where we have not maintained, much less increased, our price levels.
Page 124 PREV PAGE TOP OF DOC Segment 2 Of 2
My filed statement identifies dozens of sections of the Interstate Commerce Act comprising the great majority of the rail provisions of the Act which should be repealed. It also, however, identifies a smaller number of core provisions of the Act which are still useful and which we believe should be retained in an independent board within the Department of Transportation. These provisions do not rise to the level of comprehensive economic regulation. In most instances, they provide a forum and a mechanism for preventing or resolving disputes which inevitably arise in our tightly interconnected industry.
Briefly, the areas in which we envision some continued Federal role are maximum rate regulation so there will be an expert forum for resolving the complaints of those few shippers who feel they are subject to rail market power; abandonments; line sales and new construction so that community interests can be accommodated for example, by letting local interests buy abandoned lines for net liquidation value; pooling agreements, trackage rights, lines sales and similar matters so that the competitive and labor issues raised by such transactions can continue to be effectively resolved under the present statutes.
We also believe that preemption of State and local economic regulation should be continued and we believe that there should be a continued prohibition of State tax discrimination. Securities interests and lien recordation should be continued so as with airplanes, a national system for recording security interest in railroad rolling stock can continue to supersede local recording in a multitude of jurisdictions.
We suggest that the cost of administering these scaled-back provisions would be much less than the present ICC budget. Decisions that the group will continue to be neutral and nonpartisan. We would also suggest that the existing exemption authority be continued and its use accelerated to enlarge the deregulated arena even more. We believe this greatly reduced scope would accommodate the remaining legitimate interest without being an undue regulatory burden.
Page 125 PREV PAGE TOP OF DOC Segment 2 Of 2
Thank you and along with my colleagues, I'd be pleased to answer any questions.
Ms. MOLINARI. Thank you very much.
Mr. Lipinski.
Mr. LIPINSKI. Thank you very much, Madam Chairwoman.
Mr. Hagen, you assert that the ICC regulation is costly to your customers. Do you have any estimates of how costly this regulation is?
Mr. HAGEN. I think you'd have to judge it in terms of does it slow up progress and does it hinder the working of the marketplace. That's one of the values of the Staggers Act as we demonstrated on the chart, that when you lessen regulation, it immediately translates into cheaper prices for the customer.
My concern is that solidify the gains that we've made so far and therefore, we don't really need any additional regulation, nor do we need the regulation we have because it can work fine without it.
Mr. LIPINSKI. I noticed that you gave a number of examples on the competition. The examples you gave were principally in the northeast and in the midwest around Chicago where I grant you there is considerable competition. How does this work out in other parts of the country though, particularly further out west? Is there sufficient competition out there that gives you the same scenario that you have around the northeast and the northwest, principally Chicago?
Page 126 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HAGEN. I think it probably does in this respect, in the sense that especially with the lessening of regulation in the power area, the use of the grids becomes more important so that it would be foolish for a carrier in the west, who served a particular utility, to price that utility up out of the market because he could just buy the power off the grid from the low cost producer and it would harm the railroad in the long run.
In the short run, the customer might pay it until he can make other arrangements to do it. Oftentimes, I find in our business anytime we have a firm local on our line and we want him to compete out in the marketplace with other customers, we definitely favor him because we get the haul and he's our partner, and therefore, we want to help him work out in the marketplace. So I think that's one of the big constraints, competition from other locations.
Mr. LIPINSKI. You mentioned when one of your charts was being displayed coal from southern Illinois coming up to Commonwealth Edison in the Chicago metropolitan area. That no longer can be done, unfortunately, because of the Clean Air Act.
Mr. HAGEN. Right.
Mr. LIPINSKI. And it's put an awful lot of people out of work in southern Illinois. You mentioned a conveyor that they brought it up on?
Mr. HAGEN. At one time, one of the plants there had a conveyor to burn local coal and it's no longer operating. It's no longer in existence.
Page 127 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. But they didn't bring this coal up from southern Illinois to the Chicago metropolitan area on a conveyor?
Mr. HAGEN. No. It was a more southern plant.
Mr. LIPINSKI. Because I was wondering where that might be. I've driven around Illinois and I've never seen that conveyor.
Mr. HAGEN. You probably would have seen it, right.
Mr. GOODE. If I may Congressman, it would be fair to say that Commonwealth Edison receives coal from a number of sources that are competitive into the Chicago area from our railroad and others and Jim's railroad. So there are a number of options.
Mr. LIPINSKI. I don't doubt that and it is a tremendous amount. What was it, 64 percent nuclear power, did you say?
Mr. HAGEN. That's right.
Mr. LIPINSKI. Mr. Hagen, you assert that trucks can and do move grain over long hauls directly to destinations. Can you give some examples of such movements and tell us what the relative cost is of moving long-hauled grain by truck and by rail?
Mr. HAGEN. What you have is, with trucks, you probably wouldn't take a truck, for example, out of Kansas and take it directly to a Houston port. What you can do is you can move a truck over to the Missouri River and take it down the river to New Orleans and go out of a different port.
Page 128 PREV PAGE TOP OF DOC Segment 2 Of 2
I originally come from Iowa and one of the things that I noticed in Iowa, the unit train now tends to move a lot of the grain out of there, but one of the things always that drives the rates is the fact that you can truck it to the Missouri or you can truck it to the Mississippi and get on a very low cost barge operation. So that's what drives the answer. You're not going to truck it all the way; you're going to truck it to either another railhead or you're going to truck it to a water operation.
Mr. LIPINSKI. But you couldn't give me any figures at this particular time of the relative cost of moving the grain by truck or by rail, could you?
Mr. HAGEN. If you're going to move by truck, and don't hold me to these numbers, basically you're probably in the area of $1 a mile. A single car rate by railroad, I don't have a good number but I guess, David, maybe 60 cents or something like that a mile?
Mr. GOODE. Clearly well under the other.
Mr. HAGEN. It would be well under it. If you had a carload and a truck going the same distance, it would be under it by rail.
Mr. LIPINSKI. Thank you very much.
Madam Chairwoman, I see my time is up. I have a number of other questions, but I'll catch up to those on the second round.
Page 129 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. Thank you, Mr. Lipinski.
I'd like to welcome and ask for either his opening statement or for questions, the Chairman of the full committee, Mr. Shuster.
Mr. SHUSTER. Thank you very much.
I really don't have any questions. I just want to welcome the witnesses and I very much appreciate your being here.
Ms. MOLINARI. Thank you, Mr. Shuster.
Mr. Kim.
Mr. KIM. Thank you, Madam Chairwoman. I do have just a couple of questions.
You mentioned on page three that all the inter carrier transactions other than merger should be subjected to the same regulation as present. I understand that European and also some other railroads suggests that all the merger transactions should be dealt with by the Justice Department instead of DOT. I was wondering your opinion on that.
My second question is, you mentioned labor protection, this mandate should be reconsidered. I agree, I think it's a critical issue, but DOT and rail labor suggested that not only the labor protection provision be retained, but also transfer all this responsibility to the Labor Department. I'd like to ask your opinion on that.
Page 130 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOODE. To answer the second question first, we believe that the better solution is to leave the labor protection questions that arise in connection with abandonments, line sales and the other matters where it would be appropriate to have them considered, should better be left with the Department of Transportation, assuming that is the locale of the continued board simply because it provides a single locale, a single place for the resolution and consideration of all these issues where the economic factors can be taken into account. We think that's a better solution than a fragmentation of the responsibilities in that area.
Mr. KIM. So the labor disputes should be handled by DOT, is that what you're saying?
Mr. GOODE. That would be out suggestion, yes.
Mr. KIM. The first question about mergers?
Mr. GOODE. The first question on our view on the locale of the merger jurisdiction, we would suggest—there is a difference among the roads as you've recognized on that question as well. My own suggestion would be that is better located again in the Department of Transportation as the continuing group as opposed to the Department of Justice because of the residual expertise and the body of knowledge that exists in that group for dealing with the overall economic interest questions in such transactions.
Mr. KIM. I'd like to make a comment. It seems like your own industry is sharply divided on this issue. A lot of them are saying it should be handled by DOJ and the other half says it should stay under DOT. I'm a little confused why some of you feel the other way.
Page 131 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOODE. We're a very diverse industry and this is one of those instances where the industry has reasonable differences and views on that question. So as a result, we simply are stating them.
I think on the nonmerger questions which we've addressed this morning, the differences are far less sharp and we all agree that there should be a very significant reduction in the number of areas. Some of us in the industry believe that there are a few areas where it would be useful to retain jurisdiction. Others, as Mr. Hagen has pointed out, believe that there is no need for there. I think the industry is much closer together because there is a very short list of items that we believe should be retained.
Mr. KIM. It seems like the labor issue is divided, the merger issue is divided. I think we need to somehow get something agreed upon so we have a clear picture.
Thank you, Madam Chairwoman.
Ms. MOLINARI. That would make our decision a lot easier, that's for sure.
The gentleman from Florida, Congressman Mica.
Mr. MICA. Thank you.
Just one question maybe to all of you. I'm probably one of the strongest advocates for deregulation and letting the market decide prices and economic activity but you really have, with the rail industry, I guess they call it a quasi-monopoly or whatever it is, with limited opportunities for true competition in some of these things with some of the commodities and other things that you carry.
Page 132 PREV PAGE TOP OF DOC Segment 2 Of 2
How do you best envision regulation in a restructured environment that also protects, for example, you can't very well carry coal in some areas by truck or by alternative methods or certain areas in which there is not the ability to truly compete. In this newly-constituted ICC, maybe you could give me a little bit of your perspective to maintain some regulation and fairness in pricesetting in those areas where we lack true competition?
Mr. HAGEN. Let me tackle that first. I guess I would say that even under the current regulatory scheme, there is no a lot of rate regulation going on because the marketplace, as you mentioned, has really replaced the regulatory aspect of it. So really it comes down to the basic question that you asked, does competition substitute for regulation? I think that our current history has shown that it really does so that we're always looking for this rather elusive, captive shipper because we don't know where he is or what he looks like because basically the prices on places that are basically served by Conrail have come down sharply because we want those firms to be competitive with other firms in the marketplace, whether it be producing coal to sell it on the grid or whether it be some other way. So I think competition has proven its merit and it really does work.
Mr. MICA. What place do you see again in a newly-restructured ICC and do you envision this?
Mr. GOODE. I think the group of roads that I'm here representing this morning agrees with Mr. Hagen on the principles, that there are really very few, if any, areas where there is not competition in the transportation business because the nature of the business is such that all the modes are competing, but recognizing that there are other points of view, what we have tried to do is sit down and think about the minimum list of items that need to be encompassed in a continuing body and in continuing legislation. That is the appendix that is filed with my testimony which sort of represents the best efforts on the part of the roads that are listed to come up with a minimal regulatory list that will accommodate all of these interests we know are out there without creating a burdensome regulatory structure. I think reasonable people might differ about exactly what should be on that list.
Page 133 PREV PAGE TOP OF DOC Segment 2 Of 2
What we have offered is the product of a lot of hard thought and hard work on the part of the industry in order to get that list of continued regulatory matters to be as short and workable as possible and at the same time, accommodating the kind of concerns that you mentioned. I think we understand we're not dealing with rocket science and that reasonable people can differ as to exactly what ought to be on that. What we've tried to do is come up with what we think is a good list and then we're prepared to work with the subcommittee or with the committee on refining that.
Mr. MICA. Maybe Mr. Harper could comment?
Mr. HARPER. If I could go back to the factual premise of your question, I would suggest again it's important to look beyond theoretical constructions, begin the generalization that there must be a captive shipper out there and dive into the facts and examine the facts of particular situations.
For example, the Illinois Central serves a number of power plants. Every single power plant they serve, except one, is served by another railroad as well. Even that one power plant can shift productions to other power plants that they own or take the power from other places on the grid. So if you want to keep moving coal into that plant by rail, you've got to have a competitive price.
The same thing is true in other situations. For example, the Illinois Central serves a number of chemical companies in the State of Louisiana. They are the only railroad serving several of these large plants. More than three-quarters of the in-and outbound traffic to those plants moves by truck or barge or pipeline. So whenever the Illinois Central talks to their customers about the need to raise rates, they remind us that they can shift production away from rail to trucks, to barges, or to pipelines, or simply move their production to other plants.
Page 134 PREV PAGE TOP OF DOC Segment 2 Of 2
So it is very competitive. The key is looking beyond the generalization, beyond the theory to what are the facts in the particular instance. Only then are you going to see what you've really got.
Mr. MICA. Again, in conclusion, my time is up, I'm not looking for whether there is, in fact, competition but where there is not competition, there is not a real market, and what I'm trying to solicit from you is how we can best handle those situations. I can name some even within the confines of the area I represent where there may not be the ability to compete.
Mr. HARPER. Those are the ones we need to look at because we find it difficulty to find people who would say here is a captive shipper that doesn't have any choice but to move by rail.
Mr. MICA. Thank you, Madam Chairwoman.
Ms. MOLINARI. Let me follow up if I may and using some of my time to further prod that. In trying to come to these conclusions in redefining the roles and responsibilities of ICC, acknowledging that there are captive shippers, what do we do? Is it your recommendation that the benefits outweigh the price in those instances and therefore, we just stay out of rate regulation altogether?
Mr. HAGEN. In the current regulatory scheme, there are no basic rate standards except for coal which were set up and I guess I was trying to make the case, is there an opportunity to not have those. Then, as David said, is there someplace in there that we can figure that out? I don't know.
Page 135 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOODE. And we say, we agree with the premise that it's pretty hard to find a case where there is a true, noncompetitive situation, but people differ in the way they look at that. Understanding that is a reality, what we've tried to do is accommodate that and come up with sort of a minimum list of regulatory areas where we think continuation would answer most or all of those issues without recreating a heavy regulatory structure.
Ms. MOLINARI. Mr. Hagen and Mr. Harper, what are your reactions to Mr. Goode's proposal to create a little mini-FERC, ICC, three-member NDOT to handle these and sort of be the safety net for these cases that he described?
Mr. HAGEN. Well, in my particular case, obviously I wouldn't want to have anything but if that's the way it had to be, then we could do that. I think one intermediate step would be that we need to think about where are these needs and what do they look like so that we can kind of respond to them and talk about them because the theory of it drives me crazy, to talk about and not be able to have any firm hand on it. Do you have that chart that shows the rate of return for the railroads there?
Part of our problem, of course, is the cost of capital is running about 11.5 percent and we're all in the 8 or 9 percent return on invested capital. What we need to do is one, compete in the marketplace out there and continue to try to improve our return on vested capital. If we had the market power that some allege that we have, that chart would look much different.
Ms. MOLINARI. Mr. Harper, did you want to comment on that?
Page 136 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HARPER. I would only say I support my friends and my friends, Mr. Hagen and Mr. Goode, have expressed themselves very well.
Ms. MOLINARI. Nicely done, Mr. Harper.
[Laughter.]
Ms. MOLINARI. Let me just ask one final question. People have stated, and I'm sure who follow your testimony will state that one of the reasons why there have been the reductions in terms of rate agreements and that it's all working in rail is that it's under the backdrop of the ICC, that there is a hammer out there, and so therefore, everyone is forced to behave, if you will. How do you respond to that?
Mr. HAGEN. I think one of the beauties of what's been going on in the last few years is that our marketing people don't have to concern themselves with what the law says. They concern themselves with the marketplace, so they compete effectively in the marketplace with other competitors and we don't have to worry about that. So I don't see it in our marketing strategy as a great threat out there that all of the prices would go up if there was not this regulatory hammer out there because basically, under the current regulatory scheme, we could take the prices up more than we have now. That's been part of the process; over the years the prices have been coming down, not up.
Mr. GOODE. When push comes to shove in our business, what we have found is the way we really do succeed is if our customer's business is good, so there is a built-in, a lot of tensions and pulling and tugging, but there really is, in the final analysis, a mutual interest on the part of shippers and the transportation industry because experience has shown us that when we're doing well is in the periods when our customers are doing well. The just don't work together so there is a lot of inherent self-regulation built into the way the transportation system works, particularly since in today's world, there are so few instances where there is not competition between rail and truck and air carriers and barge lines. It is so pervasive that there really is a lot of competition. That's why the differences I think you're seeing between Mr. Hagen and me here today are really those of degree rather than principle. We agree on deregulation, no question about that.
Page 137 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. I understand that. I appreciate that. Thank you.
I'd like to welcome and ask for his questions, Mr. Clement. Thank you for being here.
Mr. CLEMENT. Thank you, Madam Chairwoman.
I'm pleased to have all of you here today.
Mr. Hagen, you suggest that grain companies are all big conglomerates or cooperatives with billions of dollars in revenues. The National Grain and Feed Association is composed of about 10,000 companies. Do you really believe that most of these companies have enough clout in the marketplace to bargain equally with one of the big seven railroads?
Mr. HAGEN. What I find is that usually the smaller units, all of which are all of those particular companies, have banded together in coops and are very effective in the operation. As you can see from the chart, the cost of moving or the rail revenue per ton on farm products was above the $25 mark; they are down now in the $16 mark, coming down pretty sharply.
My experience in my territory is essentially that the markup that we have on grain is one of the lower ones on the commodities. We cover our marginal costs but we really don't add a lot to the net with it, but it is good business. I don't deny that.
Page 138 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. CLEMENT. Mr. Goode, you say you want to repeal the common carrier obligation. What would be gained by that and do we have any assurance that large railroads would treat all their customers fairly in the absence of that obligation?
Mr. GOODE. Well, I think our suggestion is that is a provision that really has not had enforcement actions, it hasn't had much interest. I think the interest on the part of today's rail is in serving our customers and in doing business. We suggest the repeal of that really as an unnecessary provision. I really don't think there is a problem about providing service and performing. We're in business to do business.
Mr. CLEMENT. You also propose getting rid of regulatory authority over terminal trackage rights. Isn't it essential for the efficient operation of the rail system for all carriers to have access to terminals on reasonable terms?
Mr. GOODE. Well, again, I think that's something that historically has been worked out by the industry and the carriers. What we've tried to do is identify the areas where we believe that the industry is able to do self regulation, and that is one of them.
Mr. CLEMENT. Mr. Harper, if the ICC were eliminated and State preemption no longer existed, can you explain what effects it would have on the national railroad system?
Mr. HARPER. Well, it wouldn't be a national railroad system anymore for starters. Instead of having a system, you'd have railroads trying to operate under 50 different regulatory regimes. As the tracks crossed the Stated border and then perhaps looped back into a State, you'd have different operating regulations from one State to the next. This is already a practical problem that we experience right now in terms of track operations in terms of safety regulations in some cases where there is confusion about who is in charge of safety on the tracks because of varying State regulations preempting OSHA.
Page 139 PREV PAGE TOP OF DOC Segment 2 Of 2
The State regulation issue is an extremely important one that I think all of us in this room respect the rights and the role of States, but the Constitution also very specifically focused on the issue of interstate commerce and the duty of the central government to protect interstate commerce from unreasonable interference by the States. I think to eliminate preemption is an invitation for a wave of problems like we've never seen in this industry.
Mr. CLEMENT. Thank you, Madam Chairwoman.
Ms. MOLINARI. Thank you, Mr. Clement.
Mr. Bachus, thank you for being here. Do you have an opening statement or question for our witnesses?
Mr. BACHUS. No statement.
Ms. MOLINARI. Thank you.
Mr. Lipinski.
Mr. LIPINSKI. Thank you very much, Madam Chairwoman.
Mr. Hagen and Mr. Harper, what is your feeling in regards to repealing the common carrier obligation?
Page 140 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HAGEN. Basically, we haven't really had any litigation or anything going on in that particular of late because here again, it comes down to a matter of economics. The ICC basically does not—the standards are such that they don't force us to stay on lines where we lose money. If we can demonstrate that, we can leave. If we make money, there's no reason that we wouldn't go there and continue to serve. So the economic threshold is you'd only apply the law of the common carrier obligation to make you go someplace where it's uneconomical and therefore, you'd lose money. Even with the current law, there is no provision that says you have to do that. It may take you a little time to get out but I would say it's basically unnecessary is where I come out.
Mr. LIPINSKI. Mr. Harper, what about your opinion?
Mr. HARPER. It's not been a very active element of the ICC and I really don't have anything to add beyond that to Mr. Hagen's comments on the common carrier issue.
Mr. LIPINSKI. Mr. Hagen, in your written testimony, you talk about some regulations have to continue and should be done by a bipartisan, independent board in DOT. Could you tell me how big you think the board should be, how should the board be constituted? Would you elaborate on your idea?
Mr. HAGEN. Okay. Essentially, here again, if you have some residual things you do need to move over there, it probably ought to go to DOT. I would have a tribunal over there perhaps walled off from the DOT policy side. It could have three to five members or whatever it would take, probably smaller is better, and that it would operate with a relatively small staff.
Page 141 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. Who would appoint these members, a minority member of the Railroad Committee?
[Laughter.]
Mr. HAGEN. I'm like Mr. Harper, I agree with my friends.
[Laughter.]
Mr. LIPINSKI. That's an old story in politics, you know, some of my friends are for it, some of my friends are against. I never heard it apply to the railroads.
[Laughter.]
Mr. LIPINSKI. Getting back to the point, you'd want it to be nonpartisan, bipartisan. Who is going to do the appointing? Are we going to have the President appoint these people?
Mr. HAGEN. I would say perhaps the current system of appointing. I really haven't thought about this. This is a relatively uninformed view because I didn't think I needed them, but now that you tell me I need them, maybe I've got to think about it.
Mr. LIPINSKI. You think about it for a few moments while either one of the other gentlemen puts forth their plan for this board.
Page 142 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOODE. Well, the plan that my group of the industry came up with is on the attachment to my formal statement which I filed with the committee. Again, I don't know that we thought this was really the place where we had the greatest expertise, but we suggested a three-member board, no more than two from one party so that there would be sort of a similar—and we suggested it follow the FERC model and we made some suggestions about how it would treat existing precedents under the ICC rules which would be respected by the new group and sort of outlined the structure which is on the attachment to my testimony. We carefully, or otherwise, didn't address the appointment issue except to suggest that FERC might be a model that could be followed.
Mr. LIPINSKI. I don't mean to push you on this but I do believe we're going to wind up with something in the Department of Transportation and there's going to be probably some kind of board, and I'm just trying to elicit from you if you have any real suggestions or ideas, a bipartisan board, how many members, if you have anything further to amplify that.
Mr. Harper, if you have anything further to amplify?
Mr. HARPER. I have nothing to add to that. I think the plans that Mr. Goode and Mr. Hagen are developing are something we'd be glad to work with the committee on.
Mr. HAGEN. One of the ways that may be helpful on this that you could think about would be if you use this as a tribunal or an appeal group rather than in there regulating on their own hook. They would be the arbitrators or the settlers of disputes, so they would be viewed as an arbitration type board or something. So that's another possibility on the scenario that you just painted.
Page 143 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. Thank you very much.
Thank you, Madam Chairwoman.
Ms. MOLINARI. Thank you, Mr. Lipinski.
I just have one more question for Mr. Goode. You suggested that labor protection mandates should be reconsidered during this markup time. As you know, there is also a major issue with respect to AMTRAK. Since the AMTRAK labor protection statutes and the ICC statutes are explicitly linked, do you see an overall as both being necessary if Congress changes the AMTRAK mandate?
Mr. GOODE. Yes. I think if the AMTRAK mandate is changed, it could encompass the overall labor standards as well, but it certainly needs to be addressed. We suggest that under current standards, the labor protection rules are more generous than they needed to be and should be reconsidered in light of current practice. I think that could be done either way as part of the legislation, but they just need to be considered.
Mr. HAGEN. I think that's fair. I see it basically as if you didn't have the standards, you could negotiate it and that's probably the way to go.
Ms. MOLINARI. Mr. Bachus.
Mr. BACHUS. Yes. I have a question. I didn't want to walk in and start asking questions not knowing what was said.
Page 144 PREV PAGE TOP OF DOC Segment 2 Of 2
I don't know if you all talked about this but with many shortline railroads, I want to ask you a question about interchange. I want to go back and tell you that some 7 or 8 years ago in a county where I owned one of the businesses, Chaney Railroad bought a section about 50 miles of line from the CSX that tied on and bought the Penson and Atala which is up near Gadsen. CSX had wanted to abandon that line and Chaney was a cement company about halfway down the line, so they bought it with the intention of being able to interchange at both the southern terminus and the northern terminus.
CSX and I maybe historically wrong but let's just use this as an example, they were never able to interchange at the northern end of that line. At least according to newspaper reports and what I knew of having probably the third largest business in that county, they were not allowed to interchange.
I know that you are saying that it's not necessary to continue that regulation because the big railroads are going to allow all that, but I have my own personal knowledge, and I am aware that the loose car business is sort of becoming what appears to be a stepchild. You all are running the unit trains and everything, and there's not a lot of money in this. Can you give me your comment?
Are not large railroads—you represent two of the largest railroads—on occasions not allowing these small railroads to interchange? I know that there's an argument that their cars sometimes don't meet your standards but let's assume they do.
Mr. GOODE. I guess we looked at this, the group that I'm representing, in terms of experience in this. I know my own railroad has done a lot of shortlining of lines and our thoroughbred, shortline program, and we had not had any instances where the issue had come up because we have found it to be good business. The thoroughbred shortline program sort of assembles the business for us and we think it's very good business and we've made good money on it. We encourage the continued operation where there is a customer—in the sort of example you're talking about and we had not seen that.
Page 145 PREV PAGE TOP OF DOC Segment 2 Of 2
We had not thought that it was really necessary to include that in the list of things to be retained. On the other hand, we had heard some comments from some of the short lines and some other folks that maybe there is a need to have that on. I think again our view is that we don't purport to have absolutely the final word on the list of things. We'd be happy to work with the committee and the staff to see if there is a problem or an issue that needs to be addressed. We simply didn't think that it was one that needed to be continued.
Mr. BACHUS. I will say this, from my standpoint, the short lines, you all are trying to get rid of a lot of lines that don't make business and I think validly so. You sort of get the short lines to take them over and they can make a profit, but then when you don't allow them to interchange, that's a life or death situation for them, or if your terms of interchange as far as frequency are so unreasonable as to basically drive them out of business because I think their loose car business is their business. They don't have any unit trains.
I would say this. The thoroughbred is probably not a great example because you own the thoroughbred as I understand. You own those systems in Georgia and Alabama, do you know?
Mr. GOODE. Some we do, but others we bring in the program.
Mr. BACHUS. I've not heard where Southern or Norfolk Southern has been unreasonable but I, for one, just based on that limited experience, and also knowing the economy of the business, it's probably to your economic advantage not to take cars off at least the smaller lines because you've got to stop a train.
Page 146 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HAGEN. Let me answer that part of the question. We have probably one of the more aggressive branch line sales businesses in the country. Since 1990, we've sold 1,500 miles and prior to that, we sold a lot more. We find that it's in our economic best interest to deal with these people.
My unit coal train business is a lot smaller than a lot of the others, so I'm in that same, as you call it, loose car business as anybody else.
One comment on the interchange being at both ends of the railroad. Oftentimes that is reflected in the price. A carrier will say, if you bring the traffic down around this way and serve these markets, I'll sell it to you for x. If you want to go out the other end and therefore short haul me and I'll have less business, and you'll interchange with other people, I'll sell it to you for y. So the purchaser has an opportunity to pick one out of column A or one out of column B, but you can't have the low price and the other interchange as well. So I think it's always a matter of economics is what I find.
Mr. BACHUS. I think Conrail has done a good job of interchange. That's a very valid point. I don't know now moving it one way or the other probably in 99 percent of the cases shouldn't make a difference. I don't know that it did in that case.
Mr. HAGEN. It doesn't come up very often, but like you say, when it does come up, it's usually a matter of price.
Mr. BACHUS. Would you all agree that there are cases where because of the very low volume, sometimes economically it's going to be your disadvantage, but if there's a shipper on that line and you all want to get rid of that short line, I think it's going to be something that is going to be your economic disadvantage but will be to the advantage of the short line and they are taking over a line that is not profitable to you all.
Page 147 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HAGEN. It makes economic sense for us to provide that service and because we run a large number of what we call general merchandise type trains, which would be the box cars and the occasional carloads, it makes sense for us. If you added up all the short lines on Conrail, they are our biggest customer. They exceed General Motors and Ford and all the big guys that you'd think about.
Mr. BACHUS. Let's take Norfolk Southern. Let's say you've got a 60-mile mainline and halfway done that mainline you've got a shortline that interchanges two cars twice a week and all you have is unit trains running through there. It's never going to be to your economic advantage to go out 30 miles and take those cars, is it?
Mr. GOODE. What I'm suggesting is that the instances where there is the kind of absolute situation you're positing are virtually unknown—I'm tempted to say unknown—our experience is that when we sit down with the shortlines, if it's enough of a line and there is enough business on it to justify it being shortlined, then there is enough business on it so that we and the shortline can work out a way to interchange that traffic in such a way that everybody can make a buck.
Our experience has been that if there's enough business on it to justify the shortline in the first place, then we can work out a way to do it so that it's not really been a problem for us except one of negotiations between the two.
Mr. BACHUS. You wouldn't have a problem with some protection being built in or some residual jurisdiction on the part of the Department of Transportation to see that the shortlines had some protection, would you?
Page 148 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOODE. We'd be willing to sit down with committee staff and the shortlines and see if there is a way to accommodate everybody.
Mr. BACHUS. Let me say this, Mr. Goode. Your first response, I appreciated that and expressed a willingness to work with them, so I certainly don't think we have a disagreement. I appreciate your positive response.
Ms. MOLINARI. Thank you, Mr. Bachus.
Mr. Rahall.
Mr. RAHALL. No statement.
Ms. MOLINARI. Gentlemen, thank you very much. As we approach the markup on March 21st, we will be in contact with you as a result of this discussion. Thank you for being with us this morning.
Mr. HAGEN. Glad to help out.
Ms. MOLINARI. Our next panel will be: William Loftus, President, American Short Line Railroad Association; Reilly McCarren, President, Gateway & Western Railroad; and Gilbert M. Robert, Executive Director, Florida Tri-County Commuter Authority.
Good morning, Mr. Loftus. Please begin.
Page 149 PREV PAGE TOP OF DOC Segment 2 Of 2
WILLIAM E. LOFTUS, PRESIDENT, AMERICAN SHORT LINE RAILROAD ASSOCIATION, ACCOMPANIED BY K. EARL DURDEN, PRESIDENT, RAIL MANAGEMENT & CONSULTING CORPORATION; REILLY MCCARREN, PRESIDENT, GATEWAY WESTERN RAILROAD, ON BEHALF OF REGIONAL RAILROADS OF AMERICA; GILBERT M. ROBERT, EXECUTIVE DIRECTOR, FLORIDA TRI-COUNTY COMMUTER RAIL AUTHORITY (TRI-RAIL), ON BEHALF OF THE AMERICAN PUBLIC TRANSIT ASSOCIATION
Mr. LOFTUS. Thank you, Madam Chairwoman.
I am William E. Loftus, President of the American Short Line Railroad Association. I appreciate the opportunity to present the views of the Association's 415 shortline and regional railroad members on the subject of the future of Federal economic regulation for the railroad industry.
Accompanying me today is Mr. Earl Durden, President of Rail Management and Consulting Corporation. We both have very brief oral statements and we have supplied for the record very extensive written statements.
In 1993, shortline and regional railroads accounted for 9 percent of the rail industry's freight revenue, 25 percent of its route mileage, 11 percent of railroad employment and at least one-third of the Nation's rail traffic moves over a shortline or regional railroad.
This country's railroad network is a national asset. It functions smoothly and responsibly to move freight from origin to destination in an efficient, cost effective, and environmentally manner. To work properly, the system depends upon fair dealing by all parties involved. The shortlines and regionals, along with their large railroad partners, provide the service which is demanded by the shippers and communities they serve. Although changes to update the regulatory system are in order, this should be accomplished with a transitional approach rather than a meat cleaver that some of our colleagues are proposing.
Page 150 PREV PAGE TOP OF DOC Segment 2 Of 2
The major trunk lines move large amounts of traffic over mainline routes for long distances at high speeds. Their primary customers include the giants of steel, auto, grain, coal and chemical. The shortlines and regionals feed traffic to the trunk lines and are able to focus on customer service to smaller shippers and smaller communities. Their cost structure is lower in many cases, which makes their operation economically even on less dense lines than the larger railroads had been able to operate profitably. Many of these lines would have been abandoned if the shortline operator had not come in and taken over.
Congress is now considering dramatic changes that will take place in connection with the eminent sunsetting of the oldest Federal regulatory agency. As the ICC's duties are pared back and then transferred to a new body, it is essential to the shortline and regional railroads that a core of Interstate Commerce Act provisions be retained. This core must include: the common carrier obligation and mandatory interchange; authority over joint rates and through routes; and authority over freight car service rules and car supply. These remaining functions can be housed in an independent entity within some other Federal agency like DOT. An orderly transfer of the ICC's remaining authority to this new body is essential in order to avoid disruption in rail transportation.
Some Class I railroads favor a middle ground in that they propose to eliminate some regulation. However, their proposal contains none of the three essential areas that we are concerned with. The first of these is common carrier obligation and the requirement of mandatory interchange. These govern the relationship between railroads and require railroads to work together reasonably to serve shippers. If these were to be eliminated, any railroad would be free to refuse traffic from any connecting railroad or from any shipper at any time. No reason would be required and the party that was refuse service would have no recourse short of unwieldy, time-consuming and expensive court action if the refusal was sufficiently anticompetitive in motivation. The common carrier obligation is the underpinning without which any other regulatory requirements are meaningless.
Page 151 PREV PAGE TOP OF DOC Segment 2 Of 2
The second area of essential provisions are those governing through routes and joint rates. These protections, though rarely used in recent years, provide a framework that is valuable, particularly to smaller carriers, that rely on cooperation with other carriers to move a majority of their freight. Just as the elimination of the mandatory interchange requirement could lead to routes being closed physically, elimination of joint rate and route protections could lead to no rates being available to move traffic or rates so high they effectively would close routes economically.
These requirements level the playing field for negotiations. Smaller carriers know they cannot be forced into a one-sided and unreasonable commercial arrangement because the requirements of the ICA are always in the background.
The third essential IC area relates to car supply and car hire matters. These are essential to a smoothly functioning national rail transportation network. Freight cannot move by rail without rail cars, so car supply obligations are important. Lacking this requirement, large railroads could exercise their economic power to withhold cars from shippers if they decide the traffic does not fit the core network plan.
I would now like to ask Mr. Durden to comment on these issues from the perspective of a small railroad owner-operator.
Mr. DURDEN. Mr. Chairman, committee members, my name is Earl Durden. I am President and Chief Executive Officer of Rail Management and Consulting Corporation, which is a noncarrier holding company and is the co-owner of 14 shortline railroads located in Alabama, Florida, North Carolina, Georgia, Texas, Missouri, Arizona, Tennessee, Kentucky, Wisconsin, and Arkansas. These shortlines are more fully described in the attachment to my submission to you.
Page 152 PREV PAGE TOP OF DOC Segment 2 Of 2
My purpose here today is to impress upon this committee that certain core, rail regulatory provisions of the Interstate Commerce Act remain vital today. Indeed, my personal experience with shortline railroads is representative of the Interstate Commerce Act's continued importance. Short lines such as those owned by our company rely on the Interstate Commerce Act to level the playing field with the larger carriers to which they connect.
Speaking from personal experience, I completely agree with Mr. Loftus about the core regulatory protections that must be preserved. They include: regulation, governing, the common carrier obligation, and duty of mandatory interchange, regulation of through routes and joint rates and regulations governing car supply and car hire matters. Without mandatory interchange, the Nation's rail network would cease to be a network at all and would become nothing more than a collection of regional and local fiefdoms. Interstate commerce, as we know it, would come to a halt. A personal example is appropriate here.
In 1980, our company's subsidiary, Little Rock and Western Railway Corporation in Arkansas faced a Class I carrier's threat of refusal to interchange. A parade of horribles did not ensue from that threat. However, as the mere implication of the relevant Interstate Commerce Act provisions, the duty of mandatory interchange, diffused the Class I carrier's threat entirely. The Interstate Commerce Act kept the threat empty. This is not an isolated example. From time to time, one of our new shortline railroads will be offered a division that is much lower than the previous Class I got for operating over the same property and handling that traffic.
Without the Interstate Commerce Act, we could not be able to challenge them on this. If they didn't have to do the mandatory interchange, they could simply leave the traffic. Continued regulation of through routes and joint rates also remains essential to the shortline industry.
Page 153 PREV PAGE TOP OF DOC Segment 2 Of 2
Through routes which, in essence, are cooperative agreements among carriers for the continuous movement of freight over their lines are absolutely necessary if traffic is to move efficiently over interchange with through routes. A large carrier could insist on treating all traffic received on an interchange point with another carrier, especially a smaller, dependent shortline as local traffic originating at the interchange point. This would entail separate bills of lading, separate communication between shipper and carrier, and so forth.
If railroads could refuse to cooperate in handling through movements over through routes, the obligation to interchange traffic would be essentially meaningless. The current regulatory provisions under the Interstate Commerce Act can step in and resolve through route disputes, serve to protect the uninterrupted flow of railroad traffic, and must be preserved.
The ICA's regulations governing car supply and car hire matters have also protected short lines.
In sum, I would submit to this committee that because of the protection afforded by the key Interstate Commerce Act provisions that I have addressed above, the shortline industry has been able to thrive without the fear that larger, connecting carriers could treat shortline railroads and their customers unfairly.
Thank you.
Mr. BACHUS [assuming Chair]. Mr. McCarren.
Page 154 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MCCARREN. My name is Reilly McCarren. I'm President of Gateway & Western Railway, a 400-mile regional railroad operating in southern Illinois, Missouri and eastern Kansas. I appreciate the opportunity to present the views of Regional Railroads of America, an organization of 130 regional and local railroads. We are new, small businesses, most having been formed after the Staggers Act deregulated portions of the rail industry in 1980.
I have submitted our full testimony which discusses five recommendations. These recommendations have to do with the rules governing entry, acquisition and exit in our industry. These rules are particularly important to the regional segment of the rail industry because that is where most such activity occurs.
In the time I have this morning, I want to highlight one of those recommendations, the repeal of so-called labor protection payments. Railroad labor protection is the ultimate, unfunded Federal mandate. It requires employers to pay up to 6 years of guaranteed income and benefits protection to any employee affected by a railroad transaction. Nothing like it exists for any other industry in the United States.
For decades, railroads could not restructure or downsize without the terms being dictated by the Federal Government through the imposition of labor protection payments. Under the rules, the only way these unreasonable payments could be avoided was if employees were laid off due to loss of business on a line segment.
Prior to Staggers, underutilized line segments were gradually demarketed by the large carriers, themselves in financial trouble and desperate to shed their money-losing assets. After most of the employees were gone, the lines could be abandoned with minimal labor protection costs. Not surprisingly, at the end of this process, the track had deteriorated and the customers had fled. So there was nothing left to preserve.
Page 155 PREV PAGE TOP OF DOC Segment 2 Of 2
Tens of thousands of miles of rail line were lost to this process prior to the Staggers Act. Staggers mandated that the ICC exempt from detailed oversight transactions which posed no competitive threat. Since then, the ICC has used its discretionary authority to exempt the sale of rail lines to new noncarriers form both lengthy regulatory review and from labor protection.
The results have been dramatic. Since the passage of Staggers over 300 new regional and local railroad companies have been formed, preserving some 30,000 miles of rail line. The vast majority of these railroads serve rural America where shippers have few transportation alternatives. Unfortunately, this process, known as the 10909 Exemption Process, exists today only in ICC regulation which could be repealed by a majority vote of the ICC or its successor agency. Moreover, it has been reserved for the most distressed line sale situations, leaving all to be dealt with in the context of labor protection's economic straitjacket.
Previous to the November election, the ICC had signaled that it was prepared to restrict even further the applicability of the 10901 process. Had the 10901 Exemption Process been in place and widely applicable during the railroad crises of the 1970s, thousands of miles of rail line abandoned at that time would be functioning today. Hundreds of communities, perhaps thousands, would still enjoy the development and employment of freight rail service.
Rail labor will argue forcefully about the historic nature of rail labor protection, how it is embedded in decades of labor management negotiations and agreements, and therefore cannot be eliminated. As you consider all the arguments, I ask you to weigh the following. When the then government-owned Conrail was about to fail in the early 1980s, Congress realized that they must let the railroad reduce down to its profitable core and that labor protections could not be afforded by the Federal Government in the process.
Page 156 PREV PAGE TOP OF DOC Segment 2 Of 2
In the Northeast Rail Service Act of 1981, Congress eliminated labor protection for Conrail employees, allowed Conrail to abandon money-losing lines without criteria, exit unprofitable lines of business, and resize its labor force appropriately. In lieu of protection, Congress provided a one-time $25,000 payment to any employee who lost his job as a result.
From all indications, it appears that Congress is coming to a similar decision with regard to AMTRAK, eliminating 6-year income protection so that the coming restructuring doesn't cost the Government more than it saves. The point is that when it's the Government's money, the Government doesn't pay income protection. The private should not be held to a higher standard. I doubt there is a single member who would vote to impose labor protection on any other industry if asked to do so today. Unfortunately, the years of emotional debate on this subject in the Commerce Committee hardened positions on both sides making even hearings on the subject difficult to negotiate.
Your committee starts afresh. We hope you will use that opportunity to consider this issue, not on the basis of past history, but on the basis of what is best today for the industry, it's customers and the Nation's transportation system.
I appreciate the opportunity to testify and will be glad to answer any questions.
Mr. Robert, I understand you're from John Mica's district, is that right?
Page 157 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. ROBERT. That's correct, Mr. Chairman.
Mr. Chairman and members of the Subcommittee on Railroads, my name is Gilbert Robert. I am the Executive Director of Florida Tri-County Commuter Rail Authority, known as Tri-Rail. Tri-Rail is a three-county commuter rail authority created by the State of Florida. I am appearing today on behalf of the American Public Transit Association and its members with commuter railroads.
Commuter rail authorities today are also some form of entity of State government including local and regional authorities. Mr. Chairman, my message today is short and to the point. When this subcommittee writes its bill addressing Interstate Commerce Act issues, please clearly exclude all State commuter rail authorities from the Interstate Commerce Act.
The Interstate Commerce Act was written, as were most railroad laws, during a time when passenger rail service was provided by private freight railroads. The original purpose of the Interstate Commerce Act of 1887 was public oversight for those private railroads not State and local transportation authorities.
Today, commuter railroads are all subject to close public scrutiny by State- and local-elected officials over such matters as routes, rates and other practices that the Interstate Commerce Act regulates. An additional layer of Federal economic oversight on top of the State and local oversight is redundant and a historical anachronism. The economic regulation of railroads mandated by the Interstate Commerce Act was intended to safeguard captive shippers and others dependent upon the actions of private freight railroad. There is no purpose served by applying this Federal regulatory scheme to State commuter railroads providing essentially local passenger services regardless of whether those services are provided interstate or intrastate. On the other hand, subjecting State commuter rail authorities to this layer of Federal economic regulation increases their costs without benefits.
Page 158 PREV PAGE TOP OF DOC Segment 2 Of 2
I wish to point out that the ICC itself recognized the same point in its October 25, 1994 report entitled, ''Study of Interstate Commerce Commission Regulatory Responsibilities.'' On page 63 of that report, the ICC concluded, ''If the Federal regulation of these mostly commuter rail services were eliminated, the practices and concerns of such passenger carriers could effectively be governed by the involved State or regional bodies.''
At a time when the Congress is evaluating unfunded mandates on States, it is appropriate to review Federal regulation of State commuter rail in the same light. Federal funding is being reduced to commuter rail authorities which are primarily funded at the State and local level. The cost associated with the various Federal railroad laws provide no benefit to commuter rail while imposing significant costs on operations. Accordingly, we urge that State commuter rail authorities be clearly excluded from Interstate Commerce Act jurisdiction.
Mr. Chairman, thank you for having a commuter rail witness at today's hearing. I'll be happy to answer any questions.
Thank you.
Mr. BACHUS. Thank you.
Would you like to make an opening statement?
Mr. MINETA. Thank you, Mr. Chairman.
Page 159 PREV PAGE TOP OF DOC Segment 2 Of 2
I apologize to the panel for not having been here for the presentation but in listening to your testimony and looking at what we have here, first of all, if I could ask maybe Mr. McCarren, if you could give me a quick, short definition in terms of the difference between—and Mr. Loftus, maybe you could help me out on this as well—the difference between the Regional Railroad Association and the Association of Short Line Railroads?
Mr. LOFTUS. I'd like to answer first. The American Short Line Railroad Association is 82 years old; we're the trade association. Some 10 or 12 years ago, our members, regional railroads as Reilly has described, wanted a much sharper and more active focus on legislative affairs and a lot of new entrepreneurs coming into the business decided to establish the Regional Railroads of America with a primarily legislative focus.
So while we're kind of married and very close, we have the broad base of a trade association where they emphasize legislative activities, not to an exclusion of us but that is their primary focus.
Mr. MINETA. Mr. McCarren said in his testimony, I think it was 400 miles roughly in terms of the length of your lines. Is that an average length of your membership?
Mr. MCCARREN. I honestly couldn't say. Our members do tend to be probably the larger of the American Short Line Association members, yes.
Mr. MINETA. It's not based on average miles of length of the line?
Page 160 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LOFTUS. It's hard to talk about average miles, Mr. Mineta, because we will go from a 2-mile interchange into a coal-using power plant to Wisconsin Central that has 2,000 miles. Essentially, the way the industry is structured now is we're the non-Class I railroads. All the railroads you saw earlier in the first panel are the Class I railroads, the major 13 systems where we encompass everybody else.
Mr. MINETA. Mr. McCarren, when you talk about this 10901 exemption process and you wanted to have that legislated into law since it's just a regulation of the ICC right now, are you under any State PUC jurisdiction or is it totally preempted by the ICC regulation right now?
Mr. MCCARREN. We have ICC preemption in most areas. Some States retain rate authority; some States have given up that authority and discontinued it pursuant to proceedings at the Interstate Commerce Commission.
Mr. MINETA. So you're asking that the 10901 be legislated and that it be given to whatever FERC-like regulatory body or whatever creation we come up with in this legislation?
Mr. MCCARREN. Actually, our preference is for repeal of labor protection in the various provisions in the Interstate Commerce Act and other legislation where it appears currently. We feel it is a matter of principle, it's uniquely discriminatory against our industry. It should be eliminated. Failing that, codification of 10901 would help our segment of the industry.
Page 161 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MINETA. So your first preference is total elimination but if we have to do something in terms of an exemption process, then legislate it?
Mr. MCCARREN. Yes. To legislate it and make it a part of the statute as opposed to a discretionary authority would be significantly beneficial to our industry.
Mr. MINETA. And that is only as it applies to Class II and III carriers?
Mr. MCCARREN. We present Class II and III carriers. Today, in some situations, 1090l can be applied even for some Class I transactions.
Mr. MINETA. Could you expand a little more on what you were explaining on page four about abandonment?
Mr. MCCARREN. Are you speaking to me?
Mr. MINETA. Yes, sir.
Mr. MCCARREN. Yes. Abandonment is a difficult process in our industry today. There are numerous regulations that cover it. It's been made somewhat easier since the Staggers Act but it still can be very timeconsuming and very expensive.
What we're basically proposing is a streamlined procedure taking the view that if one of our Class II and Class III brethren is unable to operate a line profitably, it's highly unlikely that another operator can and therefore, if we identify a line as being uneconomic, the burden should fall to an organization that wishes to preserve the line to provide the financial support to do so and not to be able to block and delay the abandonment for an almost indefinite period of time through the regulatory process.
Page 162 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MINETA. What do you do in the case of a shipper or maybese a bulk shipper who is 10 miles away who has built this line and asked you to come in and operate this and you want to pull out. Is that an abandonment or is this where you would own the trackage in terms of abandonment?
Mr. MCCARREN. Normally, an abandonment is where a carrier owns the trackage. Other circumstances could arise but in general, the economic rationale for abandonment is the cost of maintenance of the track and the permanent way. So if the track and permanent way are owned by the shipper, usually abandonment is not an issue.
Mr. MINETA. And that filing fee would not be a contention at that point then if it were owned by the shipper because it would not come under the abandonment process?
Mr. MCCARREN. Normally, that would not fall under the abandonment process. The filing fee, obviously, is burdensome and it's particularly burdensome in very small abandonments.
Mr. MINETA. The $11,600 filing fee is one that is set by the ICC presently?
Mr. MCCARREN. I believe it is, yes.
Mr. MINETA. If I might just quickly ask Mr. Robert, in terms of commuter rail, does that come under any kind of State public utility commissions?
Page 163 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. ROBERT. In terms of what, Congressman, for safety?
Mr. MINETA. Safety or rates, routes?
Mr. ROBERT. For safety, obviously it comes under the Federal Rail Safety Act. Everybody is governed by that. There are some States, and I'll have to check, that the respective State public utility commissions also have some oversight responsibilities there.
Mr. MINETA. You would prefer to have commuter rail to be totally excluded then from the provisions of the ICC?
Mr. ROBERT. That's correct.
Mr. MINETA. Very well.
Thank you very much, Mr. Chairman.
Mr. BACHUS. Mr. Lipinski.
Mr. LIPINSKI. Thank you very much. I'll pass to Mr. Rahall.
Mr. MICA. Could I ask unanimous consent to submit my statement as part of the opening remarks?
Page 164 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. BACHUS. Without objection.
[Mr. Mica's prepared statement follows:]
[INSERT HERE.]
Mr. LIPINSKI. I'll pass to Mr. Clement.
Mr. CLEMENT. Mr. Loftus, you mention in your testimony that a good deal of rail traffic moves under contract or some other form of mutually-agreed upon rates. How important is the ICC regulations on routes and joint rates to smaller carriers and what would happen if these regulations were repealed?
Mr. LOFTUS. Again, we have moved of course to predominant contract rates in how our railroads do business with shippers and how railroads do business with each other. The fact that you have the requirement of establishing through routes and joint rates or maintaining them evens the playing field in the sense that your large connecting railroads indeed have to establish those rates.
Mr. Durden may want to add a specific example.
Mr. DURDEN. Yes. They are very important to us and without them, that and the mandatory interchange, then we could be really orchestrated or left out of the national railway systems, the short lines and our customers could.
Page 165 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. CLEMENT. Mr. Loftus, you also mention in your testimony that you favor keeping all rail regulations in a single, independent agency for several reasons, including cost. If various ICC regulations were farmed out to different agencies, how would this affect the shortline railroad?
Mr. LOFTUS. Let me start with the merger situation. While we're not a major player in mergers, we do have a situation where we have multiple ownership. Now we're able to achieve or gain approval of line purchase from the ICC. At the same time, they also approve common ownership. As we read some of the proposals of how you would split between DOJ and DOT, we could end up going to DOJ for approval of common ownership.
On the aspect of labor protection, while we have not had to pay labor protection in the current situation under the exemption followed by the ICC, that is under ICC control. As I noticed later, the Department of Transportation proposed that labor protection matters be assigned to the Department of Labor. So we'd have a third agency that would becoming into it. From a small railroad perspective, Mr. Clement, the idea of going to one single agency is not only quicker, cheaper and more effective, and certainly less costly.
Mr. CLEMENT. Mr. McCarren, in your written testimony, you mention that few regional and local railroads could afford to pay nonworking, former employees for up to 6 years. Can you quantify the cost that is actually paid out to workers that have received labor protection benefits? Can you also provide the number of employees that work for the regional railroads that have received these benefits?
Page 166 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MCCARREN. In general, it's not the employees who would go to work for a regional railroad that would receive the benefits, but it would be the employees of the selling carrier who would receive the benefits. I can't quantify them here today and especially to break out the various types of labor protection, what's paid by Class I's, what's paid by Class II's and Class III's, et cetera. I think the principal problem with labor protection is not the dollars that are actually paid out, but the fact that the potential to pay those dollars imposes a huge burden on potential transactions and discourages many transactions from every taking place that could benefit shippers and communities.
Mr. CLEMENT. Mr. Robert, do you want to comment?
Mr. ROBERT. Again, consistent with my testimony, we strongly urge that when this matter is taken up for consideration that you exclude State commuter rail authorities from the jurisdiction of this act.
Mr. CLEMENT. Thank you.
Mr. BACHUS. Mr. Mica.
Mr. MICA. I guess our job is to figure out where everything is sort of going to land when this reorganization takes place. I guess, Mr. Robert, you don't want any part of any of it. The rest of you are left.
I saw Mr. Goode's little presentation. Are you familiar with his little mini-FERC idea? Do you think that's the best solution or in the right direction?
Page 167 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LOFTUS. To Mr. Goode's offer to continue to work with the committee and the short lines?
Mr. MICA. I mean the whole structure to handle this. You know when we get through with this, we've got questions of rate regulation, merger, securities, we have disputes and then you've already stated your opinion on labor protection. My question is what do we do with it. You said a single entity and he proposed a mini-FERC. What do you think of it?
Mr. LOFTUS. We would prefer a FERC type of entity, yes. I think it's very important that the committee consider that we have very talented people at the ICC. Not all of them are going to go to whatever new entity there is but they are very talented and knowledgeable people. We have significant pending cases before the ICC which we need to have handled, smaller railroads. The last thing we would want to see is any kind of new entity being built in some other agency like DOT where that agency would then start writing regulations about how we're going to relate to them. That would be an 18-month to 2 year effort and which would stall everything.
The proposal we would put forward for your consideration is that essentially the ICC, in whatever form is left, is moved to DOT but all its precedents, the appropriate number of people, certainly its procedures, go with it so that it's up and running the very first day that it opens in the DOT building. To do that, I think, could create an 18-month to 2-year delay in handling even the pending cases.
Mr. MCCARREN. We would concur at Regional Railroads that the mini-FERC is probably the most practical solution to various concerns. We have a great concern with political independence. If administration regulation is going to be handled within DOT. We would like to that to be insulated as much as possible from pressures that might be brought from various sources. We understand that the Congress has a great concern with cost and hopefully by establishing a mini-FERC type situation in DOT, the cost of the administration could be minimized.
Page 168 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MICA. That's really my only question unless anyone else wanted to comment.
Thank you, Mr. Chairman.
Mr. BACHUS. Thank you.
Mr. Rahall is next.
Mr. RAHALL. Thank you, Mr. Chairman.
Mr. Robert, I'd like to ask you about something you responded to in an earlier question from Mr. Clement, as well as on the main thrust of your testimony.
As you know, I've had a chance to work with you and the Florida State delegation, and particularly with my good friend, John Mica, from Florida, on the Tri-Rail project. I think it's an excellent project and have the pleasure to work with you on it in my capacity first as Chairman and now as ranking Democrat on the Surface Transportation Subcommittee.
With that said, I am a little concerned about APTA's proposal to exempt commuter railroads from the Interstate Commerce Act and what adverse effect that may have on the employees of these commuter lines. I did not see much emphasis on that or discussion of that in your testimony and would ask you now if you could comment on what the effects would be on your employees?
Page 169 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. ROBERT. Let me put it in perspective, Congressman. First of all, we are the only commuter railroad—and this is what I think you're specifically talking about operates exclusively out from the under the rail laws, the Railway Labor Act and railroad retirement and whatnot. This was done in 1989 where we purchased the railroad from CSX Transportation; they maintained the common carrier status; they have a perpetual freight easement on the railroad. They do what I would consider the traditional functions of dispatching and track maintenance.
Our sole responsibility is to operate the commuter service which is a new service. We contract that out. Our is unionized with the United Transportation Union, the Teamsters and this is done under Taft-Hartley.
Relative to the impact on employees for other commuter systems, obviously commuter systems have in place labor agreements which they have to honor. There's not going to be a drastic impact on employees from my perspective. Those agreements would have to run their term. I think what everybody in the commuter industry is looking at is that there are substantial savings to be incurred, we feel there are substantial savings to be incurred, to basically organize our operations under either a State employee system contracted out under Taft-Hartley like we do and these savings are going to be realized just with the differences of the retirement plans.
To give you an example, our contractor, the cost to payroll is probably about 20 percent. The retirement plan that our employees have right now cost to payroll is about 20 percent. From what I'm told, the traditional cost with the railroad retirement is about 36 percent or 35 percent. Our employees have the option to invest in their own 401(k) program as they desire, they're picking the thing, they're ensuring that it's getting the return that they want. So we see a tremendous benefit there for the employees while realizing a tremendous savings also.
Page 170 PREV PAGE TOP OF DOC Segment 2 Of 2
The employees on the traditional railroads or commuter railroads that I think you're talking about, they would have to, as I previously stated, work under their current agreements they have. When those agreements expire, those State commuter rail authorities would have the opportunity at that time to renegotiate the best agreements with their employees to the best terms they see fit.
Mr. RAHALL. Let me ask you the same question I've asked other witnesses when they appeared before the Surface Transportation Subcommittee. If we were to lift all these regulatory burdens and grant the exemption you're asking for, would you be willing to forgo all Federal subsidies?
Mr. ROBERT. I can tell you right now, we're looking at a 30 percent cut right now in the President's proposal. Not knowing what is going to happen in the Congress, we are planning a 50 percent reduction. From the State of Florida's perspective, they pick up an inordinate amount right now of the cost of operating the system. When I say the State, it's actually the State and locals.
If you're looking for a yes, I'm not going to say that. It would be difficult. That's what we're working for. That's the commitment relative to Florida from the State and the locals to fund these projects as much as possible. What's interesting in our case, we're a new system as you know. We started in 1989. Yes, we have been up here looking for the operating assistance and we've been up here looking for the capital earmarks also. Prior to that the State was the entity that basically invested close to $400 million to get this project up and running. The State has continued to make that commitment. Were they to get out of the picture and basically turn it over to the locals, they're funding 50 percent of our operating deficit; the locals fund the other 50 percent of our operating deficit. So I guess what I'm saying is that we are making every attempt and we will continue to make every attempt to fund the system on a State and local basis.
Page 171 PREV PAGE TOP OF DOC Segment 2 Of 2
Relative to capital dollars, the capital dollars are extremely important. I've got to be candid with you. It's extremely important with all the systems around the country. One thing I would like to add, the commuter rail properties are not hesitant at all to subject their projects to any investment criteria that the Congress would want to impose on us. To put it into perspective, in our system, to build our system, to operate it for 5 years with all the capital and whatnot, it comes to less than $4 million a mile. There are some heavy rail systems out there as you know that are $70 to $100 million a mile. The interstate in south Florida, 595, was just completed at over $100 million a mile.
I think our systems are extremely cost effective. Cutting the dollars, you're looking for that yes, I'm not going to give it to you. It would impact us to some degree.
Mr. RAHALL. Thank you, Mr. Chairman.
Mr. BACHUS. Mr. Lipinski.
Mr. LIPINSKI. Thank you.
My first question was going to be for Mr. Robert to find out if it was a yes or no but I finally did get to yes. I had a feeling you were going in that direction but it was taking you a long time to get there, but I can understand your position. I can certainly appreciate it.
I'd like to ask Mr. McCarren a question. You've already answered the question in regards to your testimony as far as paying people for 6 years not to work and you were asked a question about how much that would cost the regional railroads. Your answer really was that you don't know how much it would cost and it's not so much that the railroads have paid this money out. It is the fear of having to pay out this money.
Page 172 PREV PAGE TOP OF DOC Segment 2 Of 2
I was wondering if you could expand on that statement and explain that a little more in detail to me?
Mr. MCCARREN. Yes. It is really the economic effect which is devastating. Most of our companies could never have started in business had we had to face paying 6 years' full wage and benefit protection. We only exist because of the exemptions that the ICC has granted. One concrete example, because it's been a hotly publicized case, the recent sale of the Central Vermont where the ICC did impose some level of labor protection although far short of the 6-year standard that prior to Staggers was routine.
That was a railroad with annual revenues of $19.5 million. Had the new owners of the Central Vermont been required to pay the full boat for labor protection, the bill would have come to $25 million, substantially in excess of the annual revenues of the company. The sale would never have occurred.
Mr. LIPINSKI. Can you tell me what they did pay for the labor provisions?
Mr. MCCARREN. I'm not aware of the specifics. They offered, I believe, a 1-year wage subsidy with placement elsewhere in the system. The seller at the same time offered a buyout ranging from $25,000 to $50,000. Not only did all the excess employees take the buyout, but more employees took it so that the new company had to actually hire employees off the street.
Page 173 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. That was Railtex?
Mr. MCCARREN. That's correct. Railtex was the acquiring company.
Mr. LIPINSKI. So you're saying that it is really not what oftentimes comes down to they have to pay out in reality but it is simply the fear of these regulations out there that deter some of these sales from taking place?
Mr. MCCARREN. Or would deter if the regulatory regime was to change. I safely say that in almost every line sale and purchase agreement I've seen, there's a contingency that the agreement can be scuttled if the ICC imposes labor protection. Those contingencies are very important parts of those agreements and were labor protection to be imposed, the deals don't happen. None of these companies generate enough economic return to pay 6 years labor and wage and benefit protection to affected employees. You have to remember affected employees are defined very widely under the labor protection statutes.
Mr. LIPINSKI. Are there any cases where they have had to pay out for a full 6 years?
Mr. MCCARREN. Oh, yes, there are many cases, but they are generally transactions between Class I railroads or where multiple Class I railroads are involved, but yes, there are many times where employees do receive the full 6 years of labor protection.
Mr. LIPINSKI. Do you have any idea how many cases such as that have occurred maybe in the last 5 years?
Page 174 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MCCARREN. No. Honestly, I don't.
Mr. LIPINSKI. Thank you very much, Mr. Chairman.
Mr. BACHUS. Thank you.
First of all, Mr. Roberts, your case is totally different from the other three people on the panel. Can we all agree on that?
Mr. ROBERT. That's correct.
Mr. BACHUS. You're just on this panel I guess not because you fit in with these others but we had to find a place for you?
Mr. ROBERT. That's correct.
Mr. BACHUS. What is the difference between what the ICA said about discontinuance and what you said about elimination of ICC? Is there a difference in what they are proposing and what you are proposing?
Mr. ROBERT. I'm not sure. When you say the discontinuance?
Mr. BACHUS. They are proposing to discontinue a certain amount of their jurisdiction but is my understanding they are saying they still want oversight of some degree and you're wanting elimination from the Act altogether?
Page 175 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. ROBERT. That's correct.
Mr. BACHUS. Is that their position, do you know?
Mr. ROBERT. To be candid with you, Mr. Chairman, I'm really not sure on the ICC's position. From our perspective again, we go back to the original intention of the Act.
Mr. BACHUS. I agree with you. Let me say this. I'm totally in agreement with your position. I'm trying to figure out why there needs to be regulation of the State commuter line. The freight lines which come in and pick up freight service are still regulated if they run over the line?
Mr. ROBERT. That's correct.
Mr. BACHUS. What about maybe if it's an interstate line? You're saying they ought to be if there is one in New Jersey and New York, are you saying those ought to also be eliminated?
Mr. ROBERT. Exactly. They are governed by their own local and State authorities.
Mr. BACHUS. Who objects to you all being eliminated from the Act?
Page 176 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. ROBERT. I think you will find that organized labor would object.
Mr. BACHUS. Is that the one group?
Mr. ROBERT. I can't think of any other. That's it.
Mr. BACHUS. Let me turn to Mr. Durden or Mr. Loftus. You've raised three main points. One is regulation of through routes and joint rates and then the common carrier obligation to interchange. The third one you mention is this car supply-car hire matter. I can see where that could be a real bone of contention because they may have freight cars they want to utilize on their own system and you want them too. Presently, how does ICA treat you have if there is one box car and you want it and they want it? Is there a priority now? Or how is it presently handled?
Mr. LOFTUS. Well, the priorities are worked out by the industry itself but essentially it's a shipper issue too. A shipper will call and order cars and large railroad, through the short line if we're the serving carrier, would provide those cars. If they did not have to provide those cars, they would say that traffic really is not the type of traffic that they are interested in moving and could withhold cars.
Mr. BACHUS. They can't do that now or can they do that now?
Mr. LOFTUS. In terms of car shortages, we do not have the cars, yes, but no, you'd have recourse with the Interstate Commerce Commission to say you're being denied cars.
Page 177 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. DURDEN. If you were being discriminated against and could prove it in the car distribution because you'll order cars just like any other shipper and if you could prove you were being discriminated against, then you would have a cause to go to the Commission with.
Mr. BACHUS. Are we talking about both the cars of the Class I railroads and leased cars that happen to be on their system?
Mr. LOFTUS. Leased cars normally would be running with railroad marks, so they would be the same. Privately-owned cars like some of the big grain companies have their own cars, would not be involved.
Mr. BACHUS. What if they just said buy your own cars; if you want cars, buy your own cars?
Mr. LOFTUS. Small railroads?
Mr. BACHUS. Yes?
Mr. LOFTUS. We have 116,000 cars and it's about 10 percent of the car fleet. We have about 89 percent of the revenue of the industry, so we essentially provide cars based on our revenue, but we're very short-haul carriers and for us to provide the car given the revenue base, it's not economically appropriate.
Page 178 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. BACHUS. So you don't have that economic ability?
Mr. LOFTUS. Correct.
Mr. BACHUS. One more question about abandonments. Suppose that this feeder line development program, who testified about that?
Mr. MCCARREN. That was part of my written testimony, yes.
Mr. BACHUS. You said it's been abused?
Mr. MCCARREN. Correct.
Mr. BACHUS. Let's say I agree with you. Can you give us some examples, a live example of that?
Mr. MCCARREN. Without naming names and specific cases, there's one particular individual in our own State who is currently trying to procure some rail lines under the feeder line development process.
Mr. BACHUS. Is that Illinois?
Mr. MCCARREN. This is actually in Missouri. We operate in three States but I live in Missouri.
Page 179 PREV PAGE TOP OF DOC Segment 2 Of 2
This particular individual has a track record of wreckage and carnage throughout the midwest and the south in the short-line railroad industry—lines abandoned, torn up, State and local government authorities left holding the bag on loans and grants—and this is exactly the type of situation that we're trying to prevent.
Mr. BACHUS. What if we repeal that program, which many in the industry—in fact has labor objected? Do they have a position on that, do you know?
Mr. MCCARREN. I don't believe they do. You'll have to ask their witness. I don't think it is an important issue to them.
Mr. BACHUS. Let's suppose we did away with that, which would be one less hurdle and then we gave no labor protection on abandonment. Give me your best judgment as to how much rail service or how many rail lines we could save in the next 5 years?
Mr. MCCARREN. If you look at the track record of the 1970s versus the 1980s, that's probably the best gauge as to the impact of labor protection. In the 1970s, the dominant mode of getting rid of rail lines was abandonment, tens of thousands of miles abandoned. In the 1980s, we still had abandonment but tens of thousands of miles were saved. That's really the contrast we look at going forward. It's pure speculation on my part but my guess is that roughly 50 percent of the lines which become uneconomic can be preserved, perhaps slightly higher than that in the absence of labor protection. Once labor protection becomes a reasonable threat, the behavior of Class I railroads changes significantly and instead of trying to protect the business and sell it before it goes under water completely, what they do is allow the business to atrophy so that when abandonment time does come, there are no employees affected and no labor protection has to be paid. A very substantial portion can be saved.
Page 180 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. BACHUS. Of potential abandonments.
Mr. MCCARREN. The feeder line provision probably doesn't have as much of an impact but it will reduce a lot of unnecessary litigation and regulatory proceedings that add to cost in our segment of the industry, removes the threat of someone just coming in and essentially confiscating your property under one of these provisions and having to spend tens, maybe hundreds of thousands of dollars in legal fees to defend these predatory actions. So it reduces the general cost and that will benefit shippers.
Mr. LOFTUS. I agree with that, Mr. Bachus. The feeder line development is really unnecessary. There is plenty of regulatory controls and access to the abandonment process and transfer of line sales under 10901 without that.
Mr. BACHUS. You agree it's been an often abused program and has not done what it was designed to do?
Mr. LOFTUS. That's right and most of the work we have done has been under 10901 and the regular abandonment procedures.
Mr. BACHUS. Is there any organization that still is arguing that it is a good program?
Mr. LOFTUS. Not to my knowledge. Everybody has their A and B list as you see from the testimony and I've not seen it on anybody's A list.
Page 181 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. BACHUS. I'm sure that individuals who profited from it would argue it is.
Mr. Mineta.
Mr. MINETA. No.
Mr. BACHUS. Thank you, gentlemen.
We are going to take about a 5-minute recess at this time.
[Recess.]
Ms. MOLINARI [resuming Chair.] Good afternoon.
I thank you for your indulgence and allowing me to step out for a few moments for another event that we had.
We are now about to convene panel three which features: Mr. Sonny Hall, President, Transportation Workers Union and President, Save Transit and Rail Transportation. He is accompanied by William Mahoney and Greg Lawler. Thank you, gentlemen for being with us this afternoon.
SONNY HALL, PRESIDENT, TRANSPORT WORKERS UNION OF AMERICA, AFL–CIO, AND PRESIDENT, SAFE TRANSIT AND RAIL TRANSPORTATION (START), ACCOMPANIED BY BILL MAHONEY, COUNSEL, AND GREG LAWLER, EXECUTIVE DIRECTOR
Page 182 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HALL. Thank you, Madam Chairwoman.
First, I would like to submit for the record my written testimony and hopefully I've shortened what I all an oral testimony which I will promptly read from.
Madam Chair and members of the subcommittee, I am here on behalf of START, Safe Transit and Rail Transportation, a coalition of organized united unions. I'd like to mention that issue about united unions. I was obviously greatly saddened to see the division between management in the first panel and the second panel but as you know, the history of rail labor has not always been united. START is a new day for the labor unions. I want you to know we are here speaking together with one voice for not only what we believe in but what we think maybe needs to be changed, so that we do not mislead you or confuse you as to what we are for as much as what we are against, so I think this new start will help us get through these very difficult times.
Accompanying me are Greg Lawler and START Counsel, Bill Mahoney.
I would also note for the record that I am President of the Transport Union Workers of America, AFL–CIO, a union which represents approximately 115,000 workers of which we have some 6,00 rail employees. We also represent very large groups of airline and urban transit workers, including as I believe you know, some 35,000 MTA employees in the four boroughs. The written statement says the five, we do not represent any members within the Chairlady's borough but we have many members that live in it.
In order to save time, I would ask that my written statement be submitted for the record and that I be allowed to add some brief comments.
Page 183 PREV PAGE TOP OF DOC Segment 2 Of 2
My main concern in testifying today is not the fate of ICC but rather, the fate of railworkers. In this respect, I would note that in 1950, rail employment stood at over 1 million. By 1980, it had been reduced to 480,000 including AMTRAK. Today, there are less than 250,000 rail workers, yet railworkers today carry more freight at greater profit than at any time in recent history. In our view, this sort of increase and productivity would not have occurred without the cooperation of rail workers who had to absorb huge job losses as well as pay and work rule concessions.
The labor protective measures traditionally imposed by ICC were in legitimate recognition of the sacrifices made by rail labor. As the Supreme Court stated, ''the minimum necessary for just and reasonable treatment of rail employees.''
Unfortunately, in the present debate over whether ICC or any successor agency should continue to require labor protection, there have been continual distortions of what employees actually receive. Frankly, I was greatly saddened by the statements of some just prior. We will be contacting them so they can at least know where they got their figures. For the record, we are unaware, all the rail labor unions are unaware of any employee ever receiving, not one, ever receiving 6 years of wages under the rail protection. We'd be interested to see what that is.
I'm sure you have heard, as I did for many years, the stories about rail employees receiving 6 years of protection and 6 years of full wages. These stories are mythical. In reality, the protections are based upon employee attrition in this industry. On average, over 10 percent of railroad jobs turn over every year. Employees who lose their jobs have seniority to come back and take a job that is open. If they fail to do so, they lose all protection.
Page 184 PREV PAGE TOP OF DOC Segment 2 Of 2
The formulas imposed by the Commission place very stringent obligations upon employees. No one can just sit back and receive 6 years of monthly allowance and they rarely do if ever.
These provisions have been a part of the working conditions of every railroad employee in this country for almost 60 years. They involve no tax dollars. They have been found to be fair and equitable to both management and labor as stated repeatedly by the Congress, the Commission and the courts. They are, above all, the recognition of the major sacrifices made over a number of years by railworkers in job security, rates of pay and retirement, concessions which are too often forgotten by everyone except the worker themselves.
In prior hearings, and we will assure you in future hearings, we will detail all the concessions and things that rail employees and their families have contributed to keep this rail industry alive, both freight and commuter.
The authority for determining the protections to be afforded employees now handled by ICC should be transferred to the Secretary of Labor who has over 30 years of experience considering the interest of employees in these kinds of issues. In addition, he already has in his department an experienced staff thoroughly familiar with the application of these formulas.
We appreciate the opportunity to share these views with you. We are anxious to work with the members of the committee in any way so that we can ensure that the sound rail transportation we have today, which we all so hard to achieve will be preserved.
Page 185 PREV PAGE TOP OF DOC Segment 2 Of 2
There will be need for change and we want to be part of that reasonable and fair change, identifying and working with it.
I am speaking for the railworkers and I'm greatly saddened by some of the statements I've heard today and in prior hearings. I'm saddened by the fact that professional railworkers seem to be irrelevant or expendable and I would hope that in serious deliberation we will be able to decide in a fair way what is reasonable and what is good for the taxpayer and for those who have provided their many, many years of service to the rail industry.
I will respond to any questions. I have two gentlemen here to help me, so I am at your disposal.
Ms. MOLINARI. Thank you, Mr. Hall.
Mr. Hall, let me assure you that at least from this committee's standpoint, all we're trying to do is keep business alive and as I'm sure you're aware, these are very difficult times in the United States Congress as we attempt on both sides of the aisle to balance the budget.
When we are faced with some members of both parties who want to zero out AMTRAK or completely disallow any regulations under ICC, we're just trying to really track a middle ground and entertain as many possibilities as possible to keep people working in the first place. So I hope you understand that, what we're trying to do is save the industry as it stands today.
Page 186 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HALL. There is a dramatic difference between freight and AMTRAK commuter rail. Obviously there is a great need for all of us to sit down and see if there is a better way, and there is a better way, but it will only be accomplished if we do it together. We need some time frankly for that.
In terms of freight, I heard people talk today about how they need to do more business, the bottom line. If the bottom line is to drive what happens to professional railroaders, it's extremely cruel and not what America speaks about.
Ms. MOLINARI. I'll go to the Ranking Member of the full committee, Mr. Mineta.
Mr. MINETA. Mr. Hall, thank you very much for your testimony and it's good to see Mr. Lawler who we know, having formerly been with Mr. Florio and with Mr. Mahoney, with whom I worked very closely when we were doing deregulation of airlines.
In your testimony you mentioned that no employee can even be eligible for labor protection coverage unless he or she can show a causal nexus between the approved transaction and the particular event that he or she believes affected them.
I'm wondering, given the fact you said you can't recall anyone, I assume this is very difficult to prove in terms of the causal nexus between the approved transaction and the particular event that lays off a person?
Mr. HALL. Yes, Mr. Mineta. It is very difficult to sit down and work out a position for somebody. The protection may be there for 6 years but they are not paid. They come back and fill a vacancy or maybe some other transfers of employees. Perhaps Mr. Mahoney could give a little more response to that.
Page 187 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MAHONEY. Yes, Mr. Mineta. It is very difficult to prove. The conditions themselves state that the burden of proof shall be on the carrier and that was set by the Secretary of Labor many years ago and adopted by the Congress when it imposed in 1986 in the 4R Act the extended protections for employees which includes what is now the protection they receive in merger and abandonment cases.
The Commission has interpreted that so that the employee really has the burden of proof. Because of a number of things that happen in addition to the merger, the loss of business, internal reorganization, all of these other things, when the railroad challenges an employee's claim on the grounds that he wasn't affected by the merger but by some thing else, most of the time they win because the employee simply doesn't have the wherewithal to prove that he was affected by the transaction as opposed to all of the material that the carrier can present to an arbitrator. He's left with just what he knows about what happened to him and not the reasons why he was affected. The carrier says the reasons were for other than the merger, so very often they don't get protected, and that's the first step.
If they happen to win an arbitration and they are entitled to the protection, then they have a number, as Mr. Hall mentioned, any number of things restrictions upon them before they can collect or keep collecting any protection at all.
Mr. MINETA. The other part of the labor protection provision is relating to the 30-mile labor protection provision. I'm wondering if you could explain any misconceptions that are associated with that as well, Mr. Hall?
Page 188 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HALL. Again, I'd like to defer to Bill.
Mr. MAHONEY. The 30-mile rule came about through collective bargaining and it is in effect on AMTRAK. It is in effect through private agreements, not labor protection the ICC imposes but through private agreements with a number of unions and a number of railroads because of the geographic size of the seniority district and employee.
AMTRAK has seniority districts that go from coast to coast, clerical I think is one of them, and so they have a 30-mile rule in their agreements, I think. There was also a 30-mile rule negotiated into C–2, the AMTRAK labor protection. It was negotiated into C–2 by AMTRAK and the labor unions when they negotiated and put into effect C–2 under Section 405(c) and (d) of the Act.
That is a negotiated 30-mile rule. Myself as a lawyer, I think that could be negotiated out because you don't find it in C–2 protections which were imposed for the railroad employees when AMTRAK was created. All I think 405(c) I think it is says that A&B have to be imposed at least for AMTRAK. So if A&B didn't contain a 30-mile rule, you don't need a 30-mile rule. You've got a 30-mile rule on AMTRAK but I think that's negotiable out if AMTRAK agrees to it.
Mr. MINETA. How long has that provision been in there?
Mr. MAHONEY. Since 1973.
Mr. MINETA. How many payments have been made under the 30-mile provision as compared to the 6-year provision?
Page 189 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MAHONEY. I could not say. AMTRAK should be able to tell you that, I couldn't.
Mr. LAWLER. If I could also add to that. In the hearing on AMTRAK last week, that subject came up. I think it was Mr. Downs who said that the 30-mile rule was a problem for him. We are preparing a list because the 30-mile rule has been renegotiated by at least many of the unions. For example, that very day there were four people working out on the tracks to the left of this people, they are from Providence, Boston, Baltimore and one other place They are here four days a week, they are paid $35 a day to eat and live in Washington. There is no 30-mile rule for that crew working on the track and that's because there is a negotiated agreement with AMTRAK which is very different than the 30-mile rule. We're going to get for the committee a precise list of just what the rules are with AMTRAK. The 30-mile rule is negotiated far different than it was originally implied.
Mr. MINETA. Thank you, Madam Chairwoman.
Ms. MOLINARI. Thank you, Mr. Mineta.
Let me jump in here for just a second. I guess being new to this I have some problems in understanding that time after time, people have come to testify before this committee to say that 6 year severance is never enjoined, the 30-mile rule is never employed, so as members of Congress we're trying to understand why we should keep it in the statute if in fact you're saying it's never really been brought into existence before. Why don't we just get out of the way if you've been able to renegotiate better and keep this industry going?
Page 190 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HALL. I think some of it is twofold and frankly I'm a little new from it. As you know, I come from the mass transit industry and I've only recently been in the national process. Frankly, I've never seen with the people I represent throughout the country the difficulties right now that's going on with the rail and the threatening of workers.
You don't have some—even though they are very rarely used—if I were to listen to the testimony of the second panel, if I had a family and I was a railroad worker, I'd be scared to death because they want to have free rein, already making lots of money but they'd like to make more. So what they'd like to do is talk about how we get free rein to merge, sell and move over with no concern because they said they wanted to eliminate some of it, with no concern.
If you give them free rein—the fact that protection was not used was the very reason for the protection, so people wouldn't be abused. We're not looking to collect the benefit; we're not looking to do that. The protection is to see that they don't abuse it and they would abuse it if you eliminate it. Let there be no doubt, it would be the bottom line. That is what is going on in our Nation with a lot of common sense. I'm not saying that's all bad but there has to be some limit. I think the opposite argument is true. If it really is not hurting anybody as bad as they claim it is, a few people—and we will be able to give you information where very, very few have received this, then why tinker with it, why open the door for abuse?
It's not a big dollar line, it's not costing them a lot of money. Sure when they decide they want to sell or buy a line, they've got to sit down with their employees and talk about it. That's not too much to ask of labor protection.
Page 191 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. Mr. Hall, let me ask you for one more point of clarification. In one of the responses you brought forth, you said also one of the reasons why the 6-year rule isn't applied is that it's fairly easy at this point for people, they don't go off for 6 years, they find reemployment?
Mr. HALL. No, I think it's the opposite. Many times they wonder why the job is gone, the reason and Mahoney can maybe testify to more specific reasons but there many reasons. Most reasons, they don't qualify.
For example, this is a freight hearing but at AMTRAK many of the people who are going to be laid off under that scenario, practically none of them are going to get the protections, practically none. They don't qualify under it.
What I was talking about is the issue that if somebody goes out there and they are waiting for a job and if they are offered a job someplace else with whatever the restrictions are and whatever enhancement there is for that employee, if they reject it, they're gone. You can't reject it.
Some find other work, some don't. Some decide to stay there. Frankly even though in the rail industry, most of the skilled people, and there's many skilled people on board, but take the mechanic if you look around, none of them are getting paid under either freight or commuter rail. None of them are getting paid what they pay New York City motormen or conductors or people who repair buses or in California or even in Texas. So they don't find comparable jobs, so they wait and they wait to be recalled and they will take most anything that is offered to them. That has been the norm. Some would suggest that the norm is that people sit home and get 6 years of pay, just erroneous. The fact is they want to go back to work, they want to work and whenever work is offered to them, they go back under whatever condition it is. Therefore, the penalties are never paid.
Page 192 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. I guess I'm a little confused because on page three of your testimony, you state, ''Because of the rejections of jobs in the industry, most of the remaining employees, because of their age, will find reemployment difficult if not impossible.''
Mr. MAHONEY. As result of the severe reductions in the number of employees in the industry and the use of the seniority system in the industry, the junior employees are laid off first, so the senior employees remain. So as you go along and abolish further the jobs in the industry through mergers or what have you, the older people with 15, 20, 25 years of seniority are the people who are laid off and it is very difficult for them to get work in outside industry because of their age, simply because of their age. That is what that is aimed at.
You mentioned something a few moments ago about why don't we negotiate these things? We used to. In 1957, I participated in the negotiation of the first attrition agreement in the industry when the Norfolk Western and Virginia merged and after that, I participated in the next 10 or 12 years in something like eight major mergers all of which were attrition agreements.
You say why don't we negotiate now, we don't negotiate now for a couple of reasons. In the first place, the Interstate Commerce Commission in those days, as did the railroads, did not believe, did not know, did not think that they had the authority to supersede all our agreements. Now they do, so they do. They supersede all our agreements.
Page 193 PREV PAGE TOP OF DOC Segment 2 Of 2
Under the Railway Labor Act since they supersede our agreements, there is no need for them to negotiate with us about protection agreements. Under the Railway Labor Act, we can't strike. Everywhere else they an negotiate an agreement and if they don't get what they want, they can strike, including the baseball industry, but we can't. So there is no playing field. That is the last weapon in any labor arsenal, the right of strike, the threat of strike.
Mr. McCarren was talking about this awful threat of the money although he said the regionals never paid it. I would like the opportunity to reply to those statements if I may because those statements were, simply, factually and conclusorily erroneous, start to finish. Nevertheless, that's why we can't negotiate because we have no level playing field thanks to the ICC and the Railway Labor Act.
Ms. MOLINARI. Mr. Mica.
Mr. MICA. First of all, we'll end up trying to decide what happens as they dissolve ICC as you know it and where we end up with these various functions. You've recommended labor protection go to Labor; I also read where you're interested in having mergers go to Justice; and I guess there will be some residual in what is left of DOT.
Mr. MAHONEY. The first one, you're correct. We are suggesting that the labor protections for employees should go to the Department of Labor. We have not taken any position on the merger issue.
Mr. MICA. You have no opinion there?
Page 194 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MAHONEY. Not at this point.
Mr. MICA. I should say I think the Administration is moving towards that direction and you have not taken a position?
Mr. MAHONEY. Not at this point.
Mr. MICA. I don't think the Department of Labor, as I know it, has had much experience in this area except for maybe the 13(c) activity and I think that's been fairly limited.
Mr. HALL. Let me comment first and then I'll let my two partners comment.
One, most of my experience over the many years has been with States, California, New York, Texas and so on. I found that if you work together, management, consumer, labor work together and DOT, much can be accomplished. The mission can be done. If you make it in any way more adversarial and give them responsibility of what is labor protection, what are people entitled to, I think you put a burden on them that's unwise to do. It seems to me the Department of Labor is ideally suited for this kind of agenda. Everything I know says they have all the qualified people and all the knowledge so I think it's ideally suited for going into the Department of Labor as opposed to DOT.
Mr. MAHONEY. The Department of Labor protections, the 13(c) protections, are based upon the same formula that the ICC protections are. They are virtually identical. There are some differences but they are virtually identical. The Department of Labor has a staff, the Department of Labor understands these conditions, what they mean, what they do. The DOT, on the other hand, has been opposed to employee protection since 1964 when the Department of Labor was given that chore by the Congress and has actively sought the repeal of the very provisions which the railroads would now gish ty short-haul carriers and for us to provide the car given the revenue base, it's not economically appropriate.
Page 195 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. BACHUS. So you don't have that economic ability?
Mr. LOFTUS. Correct.
Mr. BACHUS. One more question about abandonments. Suppose that this feeder line development program, who testified about that?
Mr. MCCARREN. That was part of my written testimony, yes.
Mr. BACHUS. You said it's been abused?
Mr. MCCARREN. Correct.
Mr. BACHUS. Let's say I agree with you. Can you give us some examples, a live example of that?
Mr. MCCARREN. Without naming names and specific cases, there's one particular individual in our own State who is currently trying to procure some rail lines under the feeder line development process.
Mr. BACHUS. Is that Illinois?
Mr. MCCARREN. This is actually in Missouri. We operate in three States but I live in Missouri.
Page 196 PREV PAGE TOP OF DOC Segment 2 Of 2
This particular individual has a track record of wreckage and carnage throughout the midwest and the south in the short-line railroad industry—lines abandoned, torn up, State and local government authorities left holding the bag on loans and grants—and this is exactly the type of situation that we're trying to prevent.
Mr. BACHUS. What if we repeal that program, which many in the industry—in fact has labor objected? Do they have a position on that, do you know?
Mr. MCCARREN. I don't believe they do. You'll have to ask their witness. I don't think it is an important issue to them.
Mr. BACHUS. Let's suppose we did away with that, which would be one less hurdle and then we gave no labor protection on abandonment. Give me your best judgment as to how much rail service or how many rail lines we could save in the next 5 years?
Mr. MCCARREN. If you look at the track record of the 1970s versus the 1980s, that's probably the best gauge as to the impact of labor prote steamroll that.
Let me interject for a moment the issue of commuter rail, we need to talk about it. There is obviously a need for us to be a part of the solution. You can't do it in a speedy way and you can't do it by throwing out the baby with the bathwater. We need to discuss it, we need to be able to sit down with management.
I believe if we had some reasonable time, we'd find out in many areas management and labor are one, time to change. Then we could come back to the committee and say, we think we will agree to this kind of change and where there are differences, then the committee would help us resolve that, but we need time.
Page 197 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MICA. Again, I think the opportunity is here to make some of those changes and you negotiate very well or can negotiate very well as independent agents with the free enterprise system. I think as we undertake these changes here in Congress you need to come up with positive solutions.
You cited in your opening remarks the diminishing numbers in your industry that people are becoming employed, so you should be looking for ways to actually be working with the private sector to increase employment and reverse the trend, and again throw overboard some of the more outmoded protections or impediments to hiring more people.
This is where we haven't done our job. It's difficult. If I was a railworker, there's many labor leaders sitting behind me and I'm sure they're cringing and saying, am I hearing that we haven't done anything, am I hearing that we've been so hardnosed for the last 10 or 15 years, railworkers and their organizations, that we haven't done anything?
The downsizing, you couldn't have done half the downsizing if we didn't relax on some of our rules, wages. We're below most people who are so-called professionals and they are professionals, people who repair and maintain trains whether on rail or in the subways, people who repair buses whether on highways or the city streets, are professionals and they are entitled to professional wages. They have forgone that in the rail industry; they are below everybody else.
When subsidies were needed out of the farebox, if you compare with mass transit, that farebox, 80 percent comes out of the farebox now, with AMTRAK as an example. Freight is making money. Not that we shouldn't do more, but I'm hard pressed to say we haven't done already a whole host of things.
Page 198 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MICA. Again, this isn't my point and I'm about of time because we're in the middle of a vote and we will conclude this panel with my comments but I'd like to see you at this juncture give us your positive recommendations. You made one about moving labor protection to the Department of Labor but there are other parts of this puzzle and this is going to be done. You can either be part of the train as it moves out or you can be signalling and the thing has already gone by.
I ask unanimous consent and without objection that we leave open the record for your comments to be submitted.
With that, I will recess this panel. Again, I'll just leave you the opportunity to submit some comments if you would and we will reconvene at 1:05 p.m. with the next panel——
Ms. MOLINARI. If we could, Mr. Mica, I believe Mr. Lipinski would like an opportunity to dialogue with Mr. Hall.
Mr. MICA. Have you voted, Madam Chair?
Ms. MOLINARI. No, I have not.
Mr. MICA. So 1:05 p.m and we will reconvene this panel.
[Recess.]
Page 199 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. [presiding] I'd like to go back in session please.
Through the kindheartedness and graciousness of our Chairwoman, she said we can start the proceedings before she returns.
What I would like to try to get to the bottom of is this 6-year labor protection. I hear so many different stories about it. I believe if my ears heard you correctly, you said that no one has ever received the 6-year buyout. Did I hear that or did I not hear that?
Mr. HALL. We caucused a little bit in the back after hearing the other testimony and none of us that represent almost all the rail employees know of anybody who got 6 years of actual wages. So the experience is not that and it's very rare that anybody got anything relatively close to that. I would ask our co-counsel to help us out.
Mr. MAHONEY. That's true, Mr. Lipinski. The 6 years is based upon the attrition rate in the industry, the idea being that over that period of time everybody who is affected in a normal situation where you're reducing the size of a group of employees in an office or a shop or a yard, over that period of time they should be able through normal attrition, 10 percent or thereabouts, to work their way back into full employment or if they are in a lower paying job, to get back to the rate they used to have over that period of time. It's more or less an arbitrary figure to some extent because it might be 6 years, 5 1/2, 6 1/2 but that figure was picked by the Secretary of Labor and that's the one that has been used since then. Congress said that's the one that should be used because that was the figure in use at the time Congress passed the 764–R Act in which they required that protection to be applied to employees.
Page 200 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. But you're testifying here that no one has ever collected for 6 years?
Mr. MAHONEY. No. I want to make very clear, what I am saying, what all of us are saying is that no one has ever received his full wages for a full 6 years. That I would be almost positive and that is the figure that you will hear as testified before we started by Mr. McCarren regarding the Central Vermont—$25 million labor protection, potential costs. The way they do that is they take all of the employees on the railroad times their wages times 6 years and they come up with maybe $25 million, whereas if it's a hundredth of that, it would be surprising, in actual costs. No one has ever received their full wages.
They all have a 6-year period in which they are protected.
Mr. LIPINSKI. I understand, Mr. Mahoney. I understand what you're saying, what your position is.
Now I'm going to say to you do you have any idea of what is the average amount of time a person has collected say in the last 10 years—a year, 2 years, 3 years?
Mr. MAHONEY. I was talking to counsel earlier and we were hearing the second panel. I think it is incumbent upon us as it is with management to get those immediate figures for you as soon as possible, including what has management paid out year by year for labor protection.
Page 201 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. That's very, very important to this subcommittee because I think there are people on this committee who are very enthusiastic about supporting labor; there are other people on this committee who think that labor is overly supported at the present time; but I think it is important for both segments of the subcommittee to get truthful information pertaining to this situation. So I ask you to try to do the best job you can for us with that and I believe that aids and assists your position in reality.
You mentioned you want to keep the Federal labor protection statutes. I can understand that and I can appreciate that. Let me pose a hypothetical question to you.
What if we were to eliminate those as far as statutes so you'd have to keep everything you have or you'd have to get anything new by strictly collective bargaining and we gave you the right to strike, how would you feel about that?
Mr. HALL. I'm game. I'll speak for my union, the Transport Workers Union. I think probably for most unions. Frankly, we're very, very tired of being made the bad people in this argument. If they want free market, then let's have free market. I don't think that's good for the consumer or for the Nation, but they can't have both. They can't have free market and still have the right to do whatever they want to do with their employees.
Mr. LIPINSKI. Mr. Mahoney.
Mr. MAHONEY. I can't speak for the client but I can tell you what I'd advise all of my clients, accept it.
Page 202 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. LIPINSKI. Accept it?
Mr. MAHONEY. Go for it. Sure.
Mr. LIPINSKI. You don't want to comment? You have no opinion on the subject?
Mr. LAWLER. I have no comment.
Mr. LIPINSKI. Well, it is a new day, it's not the 1950s or the 1960s and if labor has to be placed in a more precarious position as far as their employment, then I think they should have the ultimate weapon available to them also to protect their precarious position.
Mr. LIPINSKI. I will now yield to my good friend from Tennessee, who serves in the place of Sam Houston, Davey Crockett, Andrew Jackson, and Daniel Boone, the Honorable Mr. Bob Clement.
Mr. CLEMENT. You can tell Mr. Lipinski and I are very dear friends. We truly are too. We have solved many problems together in various places. It's great to have all of you here today and I thank you for your being here because you're very helpful.
As I understand, Mr. Hall, you represent all the railroad unions here.
Mr. HALL. We started an organization named START and we have met and I was elected the President of the organization within all the rail unions. When I do speak at these kind of hearings, I'm speaking with the complete cooperation and commitment of all of the rail unions.
Page 203 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. CLEMENT. That includes AMTRAK employees?
Mr. HALL. Yes.
Mr. CLEMENT. From my investigation of the so-called 6-year severance pay that there is so much discussion about, isn't it also true that management employees as well as union employees can benefit from that 6-year severance pay with AMTRAK?
Mr. HALL. To my knowledge, most, if not all.
Mr. LAWLER. I believe it is correct on AMTRAK; AMTRAK only, management is included in that protection.
Mr. HALL. At higher levels obviously they have a word called buyout that they handle very effectively but we don't have that.
Mr. CLEMENT. Which means that a lot of these management employees make a lot more money than the rank and file union members that you represent?
Mr. HALL. Yes, but in fairness, as we are stating here, the average employee has not used or abused this protection. I can't honestly say management has either.
Mr. CLEMENT. I do know with management, if they exercise that option, you're talking about monies as high as $750,000 plus.
Page 204 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HALL. If you did the actuarial thing which Mr. Mahoney had talked about like an insurance company and said, let's give the worse case scenario, the largest bite clearly would be the management level by far. It hasn't happened, the potential of it happening is practically nil, but yes, siree, management is the one who would reap the most money, not the hourly employee.
Mr. CLEMENT. But what concerns you most is symbolically it's been 6 years and because it's been that way over the years and plus the fact that your employees, those you represent, those unions you represent, you've taken concessions in the past because of mergers and acquisitions and changes within the system, an that's why a lot of union employees feel like I agreed to certain agreements in the past and now you're trying to change the rules in the middle of the game. Am I saying it correctly?
Mr. HALL. Absolutely correctly. That's why it is so difficult. You try to come up here and speak for employees and they don't understand what's going on. I can tell you right now, they don't understand. They know what they've paid over the last 10 years to keep the system viable, both in freight and of course in commuter rail.
In freight, now when the companies and industry is doing very well, they come before you and say, look, we need the opportunity to be free of these labor rules, we need the opportunity to build more and more bottom line profits and we're not opposed to that, but at what point do we say to the employees, the working people of America, we're not going to take any unfair advantage of you when the industry is going well.
Page 205 PREV PAGE TOP OF DOC Segment 2 Of 2
If the industry is going bad, and that's why I say there is a distinct difference, we understand the difference between freight and commuter rail, we have to bite some tough bullets quite frankly on the commuter rail issue. We have to sit down and work it out but right now in freight, you would think these managers and stockholders would be trying to heap praise on their employees. They say instead, give us the opportunity to trade them off for a better bottom line. That's very tough for us to go back and talk to the workers in the field that are going to keep the system—I don't care how many bosses come into the system, if you don't have the respect of the hourly employee working for you, your company isn't going to survive, whether it's funded or not funded; whether it's private or public. What they are doing in freight is throwing out that respect. I would hope Congress would not let them do that.
Mr. CLEMENT. Besides the 6-year severance pay issue, what other labor protection laws are you very, very concerned about and how do you prioritize those with everything happening now and with the abolition of the ICC?
Mr. HALL. Bill has done most of the bargaining over the years, been deeply involved, and he knows the history of it better than I do, and I would like him to prioritize what our concerns are.
Mr. MAHONEY. The concern, Mr. Clement, is the formula. We feel the formula which is by law now called the New York Dock Protective Conditions, has a protective period of 6 years; severance pay of 1 year; dismissal allowance which is what a furloughed person gets if he's on furlough, is not called back and stays without a job for 6 years, he would get that monthly allowance for 6 years which would be the equivalent of 6 years' wages—that is the one we said no one ever got it; a displacement allowance which is the difference between what the employee had gotten prior to his displacement and what he's now getting if he is in a lower-paying job, and moving expenses.
Page 206 PREV PAGE TOP OF DOC Segment 2 Of 2
There is also a provision for the execution of what they call implementing agreements, in other words, where a carrier, as a result of a merger, wants to consolidate something, move something, they notify the employee representatives, they get together and they work out an agreement to let them do that. That goes to arbitration if they can't work it out.
Those are all part of a formula. I would not prioritize them. It's difficult for me because I've been working with it for so long and it's always been the same with minor changes.
Mr. HALL. If I could add, there may well be a need for us to look at that collectively both with management and with the committee. As was stated earlier, there's probably things that are different now—there are things that are different than they were 20 years ago. Maybe some of them need to be addressed, some need to be amended. We need the opportunity to sit down and resolve that and then work with the committee and management to see what can be sought, what's fair for the employees, and what's fair for the taxpayer and for those who want to make a honest living, stockholders.
Mr. CLEMENT. All right. Thank you.
Ms. MOLINARI. [presiding] All right. Thank you, Mr. Clement.
Let me just ask one last question and then we will let you go. Mr. Hall, again bear with me because I'm trying to do some catchup here, if the present statutory mandates for the New York Dock level of benefits were repealed, would not all the other major railroads, as original signatories or successors of the Washington Job Protection Agreement of 1936, be governed by that agreement or not?
Page 207 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. MAHONEY. They are bound, they would remain bound by that agreement except what I'm concerned about under that agreement is since that agreement was signed, we've had mergers of an enormous number, from 50 railroads to 7, 50 railroads signed it and you've got 7 left. The Washington Agreement applies only between railroads and it would be my position, and I think it's a correct one that if the former Seaboard Railroad wanted to combine with itself and another one of the railroads it combined with years ago, that would be two railroads and the Washington Agreement would apply. I can certainly conceive of the railroads saying, oh, no, that's intrarailroad now, it's intrasystem, so the Washington Agreement doesn't apply. So it's doubtful that it would apply. There is a possibility at least that it would not apply at all.
If it did, one of the problems that the railroads never liked about the Washington Agreement was how long it took to get anything resolved if you had to go to arbitration. The Section 13 Committee sometimes took years and we worked on that and we tried to speed up that. That's one of the reasons why we used to make agreements, attrition agreements in these merger cases up until the Commission decided it could supersede our agreements in 1983 because the Washington Agreement took a long time to resolve disputes.
Ms. MOLINARI. Thank you. I appreciate that clarification, Mr. Mahoney.
Thank you, gentlemen. We appreciate your time and patience with us this afternoon.
Our next panel is: Ed Emmett, President, National Industrial Transportation League; Richard Dauphin, President, Western Coal Traffic League; Joseph Lema, Vice President, Transportation, National Mining Association; Russell Kocemba, Transportation Manager, General Mills on behalf of National Grain and Feed Association; Fred Sasser, President, Chicago Freight Car Leasing Company on behalf of Railway Progress Institute; and Robert Granatelli, Manager, North American Transportation on behalf of the Society of Plastics Industries.
Page 208 PREV PAGE TOP OF DOC Segment 2 Of 2
Thank you very much, gentlemen.
Mr. Emmett, welcome again to this committee and please proceed.
EDWARD M. EMMETT, PRESIDENT, NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE; RICHARD B. DAUPHIN, EXECUTIVE, HOUSTON INDUSTRIES, INC., AND PRESIDENT, WESTERN COAL TRAFFIC LEAGUE; JOSEPH E. LEMA, VICE PRESIDENT FOR TRANSPORTATION, NATIONAL MINING ASSOCIATION; RUSSELL J. KOCEMBA, TRANSPORTATION MANAGER, GENERAL MILLS, INC., THE NATIONAL GRAIN AND FEED ASSOCIATION TRANSPORTATION COMMITTEE; FRED R. SASSER, PRESIDENT, CHICAGO FREIGHT CAR LEASING CO., AND CHAIRMAN, THE RAILWAY PROGRESS INSTITUTE COMMITTEE ON EQUIPMENT LEASING; ROBERT GRANATELLI, MANAGER, TRANSPORTATION OPERATION-NORTH AMERICA, HIMONT USA, INC., ON BEHALF OF THE SOCIETY OF THE PLASTICS INDUSTRY, INC. (SPI), ACCOMPANIED BY ANDREW P. GOLDSTEIN, ATTORNEY, MCCARTHY, SWEENEY & HARKAWAY, P.C., WASHINGTON, DC
Mr. EMMETT. Madam Chairwoman and members, I am Ed Emmett. I appear today as President of the National Industrial Transportation League, the Nation's oldest and largest shippers organization. Our members move all kinds of freight by all modes.
Last Friday, the League submitted 150 copies of our written testimony and subsequent to that, we submitted more specific positions and comments. It's a little bit ironic for us to appear today. The NIT League was founded in 1907 specifically in response to the fact that for the first time, shippers were placed under the jurisdiction of the Interstate Commerce Commission, so we truly have gone full circle in 88 years.
Page 209 PREV PAGE TOP OF DOC Segment 2 Of 2
In my few minutes today, rather than go through my testimony, I'd like to highlight what I consider to be the main points of the shippers' proposal.
This hearing is a little bit unique because unlike most hearings that are adversarial, the circumstances which brought about today's hearing are a little bit different. It's the demise, if you will, of the Interstate Commerce Commission and what to do with the functions.
An opportunity is presented by that fact though, an opportunity to review everything that the ICC does from scratch and in fact, I encourage the League's Railroad Transportation Committee, our members, when they looked at this to, if you will, color outside the lines and don't be bound by what's gone before. They certainly did that.
There are many areas I think we need to emphasize from the beginning in which shippers and carriers will likely agree. For example, we all want to preserve the Carmack Amendment and cargo liability rules; we all want to eliminate needless paperwork, including tariff filing and most financial reports; we all want to streamline the abandonment process. Likewise, we'd like to repeal the Panama Canal Act and other intermodal restrictions that make absolutely no sense in today's world.
For example, another one would be the requirement that railroads maintain local representatives. In today's world of E-Mail and faxes and telephones, that no longer makes sense.
After you look at the hundreds of pieces that make up the Interstate Commerce Act as it relates to rail functions, it looks like a jigsaw puzzle and there are a lot of those pieces that fall into place quite easily and form the boundary. Those are the elimination of paperwork and the things I just mentioned.
Page 210 PREV PAGE TOP OF DOC Segment 2 Of 2
That provides the gist of what this committee has to do.
The middle, however, requires a bit more work and a basic decision. If I could briefly trace the history of railroad regulation, railroad started as a utility, regulated like a utility. Customers had no choice. You used railroads or you didn't move your freight.
The Staggers Act recognized that railroads were coming into competition with trucks, for the most part, and the Staggers Act freed railroads to compete with those other modes.
The next step, in our opinion, is to give the railroads the freedom to compete among themselves, to have true rail-to-rail competition. In doing that, we have to recognize that railroads are fundamentally different because they operate on privately-owned, fixed routes. As a result, most shipper facilities have direct access to only one railroad.
There will be a lot of discussion about whether or not they are captive shippers. I will say a little bit more about that in a minute.
For shippers whose products can readily be moved by truck, competition provides protection. There are many other shippers, though, who still need a means of protection. The League recommends competition there as the best protection.
The first step would be for the Congress to declare for the first time that the national rail transportation policy explicitly encourages rail-to-rail competition.
Page 211 PREV PAGE TOP OF DOC Segment 2 Of 2
The second step would be to simplify the definition of captive shipper. A captive shipper, just on common sense, is a shipper who is served by only one rail carrier and whose product cannot practically be moved by any other mode. You are, by definition at that point, captive.
For such shippers, we need to provide some relief, or at least the potential for relief. And I stress potential because what frequently happens is, if there is that potential, they work things out without ever having to rely to it.
Three brief points. I notice my red light has come on.
The guarantee of competitive switching rates so that you have access to competing railroads to allow captive shippers the right to have their originating railroad move their product to a competing carrier's line. That's not the same as allowing carriers to run over each other's lines.
Finally, for heavy users such as coal and utility companies, to maintain their ability to pursue a stand-alone cost model remedy similar to what is currently in place.
Rather than reregulating the railroads, we believe it is time to take the next step in the deregulation process and create more rail-to-rail competition, and we look forward to working with this committee. Thank you very much.
Ms. MOLINARI. Thank you, Mr. Emmett.
Page 212 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. Dauphin.
Mr. DAUPHIN. Madam Chairwoman and Congressman Rahall, my name is Richard Dauphin. I'm the president of the Western Coal Traffic League, and I'm appearing this morning on behalf of the Coal League.
I work for Houston Industries, the parent company of Houston Lighting and Power Company in Houston, Texas.
We thank you for inviting the Coal League to testify this morning.
Our group is composed of 19 utility organization, including investor-owned, municipal, and rural electric cooperatives—utilities that pay to purchase and transport about 90 million tons of coal each year.
The American Public Power Association, the National Rural Electric Cooperative Association, and the Edison Electric Institute also join in and support the Coal League's written statement filed with you.
The sunset issues being considered today are extremely important to us because the ICC is the only forum where captive shippers can go to obtain relief from monopoly rail prices. It is an issue that is also of great concern to our electric utility customers, because they are the folks who ultimately end up paying in their electric rates the cost of transporting this coal.
Page 213 PREV PAGE TOP OF DOC Segment 2 Of 2
Let me emphasize that, contrary to what might have been said on a previous panel, there are such things as captive shippers. A couple of our Coal League members are currently challenging at the ICC coal rates. One, for example, Central Power and Light, is challenging a tariff that calls for CP&L to pay over $39 million annually for a 16-mile movement. League member Kansas City Power and Light has been quoted a rate that calls for them to pay almost $80 million annually for a 60-mile move. These rates, on the average, are a little over 100 times the normal rate for competitive rail service.
We believe that there are five ICC regulatory functions that work together to prevent monopoly pricing and service abuses. Our written statement discusses them in more detail, and I will summarize them this afternoon.
First, the ICC has protected captive shippers from monopoly pricing by exercise of its maximum rate jurisdiction. From time to time over the years virtually all of our Coal League members have had to go to the ICC for these maximum coal rate cases. The ICC's rate standards, the coal rate guidelines, have worked well at the ICC in litigation to serve as a bench mark, and also help when shippers and railroads can and do get together to negotiate rates.
Secondly, the ICC publishes an index, the rail cost adjustment factor, or the RCAF index, which is used throughout the rail industry to set prices and tariffs. The RCAF took years to create, and it contains a critical productivity component that allows the index to accurately track changes in costs.
The ICC regulates and encourages competitive rail construction. This was a very important factor in the mid 1980s when the southern Powder River basin of Wyoming was opened up to competition, which has greatly benefited many of the coal shippers.
Page 214 PREV PAGE TOP OF DOC Segment 2 Of 2
Currently, the ICC has been looking at allowing construction into utilities who are currently captive to railroads at destination, allowing the utilities to connect to a competing rail carrier.
Fourth, the ICC enforces certain basic common carrier obligations.
Finally, it regulations current rail mergers, including the Burlington-Northern Santa Fe merger which the Coal League, some of our members individually—including Houston Lighting and Power, my company—are participating in individually.
Since the enactment of the Staggers Act, the cost of transportation for western coal has gone down dramatically—a combination of competitive forces, a combination of efficiencies that the railroads have been able to implement which have brought the costs of operation down.
Congressman Rahall on this committee was instrumental in helping to get this Staggers Act passed, and support from both sides of the aisle was instrumental in achieving that act.
Should Congress choose to sunset the ICC—and it certainly appears like that's the choice—the Coal League would suggest that these functions that I have described be retained.
Page 215 PREV PAGE TOP OF DOC Segment 2 Of 2
What we are suggesting is the transfer of these to a newly-created independent commerce board, as several folks are calling it, within an existing agency, while eliminating all the other unnecessary rail regulation that's currently in the law. We are currently working on and will submit late this week or early next week a more detailed listing of those regulations.
We are concerned that the existing ICC case load be transferred to the new agency or entity. Our members need the assurance and the avoidance of undue delays in the cases that are currently pending before the Commission.
In closing, let me emphasize that the Coal League feels like—strongly feels like we don't need Federal regulation when the marketplace provides a competitive alternative, but in those situations—and they do exist—where there is not the competitive alternative, we believe that certain key, core regulatory functions need to be maintained. Those folks who are captive need to have the opportunity to be heard and have their day in court, so to speak.
Thank you.
Ms. MOLINARI. Thank you. We appreciate your suggestions.
Mr. Lema.
Mr. LEMA. Madam Chairwoman and members of the subcommittee, I am Joe Lema, vice president for transportation of the National Mining Association.
Page 216 PREV PAGE TOP OF DOC Segment 2 Of 2
NMA's member companies account for approximately three-fourths of the coal production in the U.S., over 1 billion tons annually, and the vast majority of other minerals, including iron ore, copper, gold, silver, uranium, lead, zinc, phosphate, and other minerals.
Producers and shippers of coal and other minerals are major consumers of railroad transportation services. Coal, itself, represents about 40 percent of total railroad freight tonnage, and with the addition of other minerals and ores, the mining industry accounts for three out of every 5 tons of freight carried by the railroads.
Simply stated, safe, efficient railroad services are crucial to the mining industry, just as they are vital to many other industries, as well as to the overall economy of the U.S. and our national security.
My testimony can be summed up by four points:
First, we believe that marine transportation services providers and trucking operators furnish competitive water carrier and motor carrier freight transportation services on the Nation's public, commercially navigable shipping channels and highway network. With that in mind, we find no reason to seek economic regulation of the marine transportation and trucking industries.
We believe further that, with regard to railroad freight transportation, a single rail carrier may hold transportation market dominance over a shipper for essential railroad services required for all or part of a shipment, as well as over interline shipments for which a shipper and other rail carriers interconnecting with the market-dominant carrier must obtain the dominant carrier's services.
Page 217 PREV PAGE TOP OF DOC Segment 2 Of 2
Therefore, my second point is that it is desirable and warranted in the public interest to continue statutory regulations enacted under the 1980 Staggers Rail Act which are intended to provide timely, equitable recourse for a shipper and/or another carrier when a market-dominant rail carrier refuses to negotiate a fair and equitable private business contract and/or interline carrier agreement and imposes unreasonable tariffs or is unwilling to furnish timely, responsive services for the shipper and/or the interconnecting carrier in situations where there is an absence of effective transportation competition for shipments. That condition is often encountered by shippers of coal and other minerals and ores.
Similarly, the provisions of the Interstate Commerce Act, as amended by the railroad regulatory reform achieved in 1980 by the Staggers Rail Act, which provide for adjustments to rail rates to reflect changes in costs incurred by the carriers in furnishing railroad services and in railroad productivity should remain in force.
The railroad regulatory reform enacted in 1980 has been successful in balancing the needs of rail carriers for revenues and of shippers for recourse against abuses in rail rates and services which may occur in railroad market dominant situations.
It would be unwise, in our estimation, Madam Chairwoman and members of the subcommittee, now to revise such balanced economic regulation when we know that it has succeeded and the need for timely recourse against unreasonable rates and/or non-responsive services still exists and may become even greater as additional railroad mergers take place.
With respect to review and approval of railroad merger proposals, we believe that such responsibilities may well be placed in the hands of the U.S. Department of Justice, just as the department examines merger proposals in other industries or could be given to a railroad regulatory panel in the U.S. Department of Transportation should the Interstate Commerce Commission cease to exist.
Page 218 PREV PAGE TOP OF DOC Segment 2 Of 2
Finally, we conclude that a need remains for the establishment of a railroad regulatory panel to deal with potential shipper complaints against abuses in rail rates and services and to settle disputes among rail carriers in cases involving interline traffic where a market-dominant carrier is unwilling to agree otherwise on reasonable terms and conditions without regulatory intervention.
That panel might well be positioned in the U.S. Department of Transportation, as some have suggested, given that the panel is authorized and directed to function as an independent regulatory body whose decisions are final and appealable to the U.S. Courts of Appeals, not to another unit, whether in the Executive or Legislative offices of the Government.
Its members should be nominated by the President and confirmed by the Congress as a measure taken to assure the panel's independence and ability to function as a nonpartisan unit capable of reaching impartial, objective, and equitable decisions in cases brought before the panel.
Madam Chairwoman and members of the subcommittee, thank you for this opportunity to appear before you.
Madam Chairwoman, the American Bakers Association—that's B-A-K-E-R-S—American Bakers Association has asked me to report that ABA concurs with NMA's testimony. NMA stands ready now and in the future to work with you to assure effective railroad transportation.
Page 219 PREV PAGE TOP OF DOC Segment 2 Of 2
I'll be glad to respond to your questions.
Ms. MOLINARI. Thank you very much, Mr. Lema.
Mr. Kocemba.
Mr. KOCEMBA. Madam Chairwoman and members of the subcommittee, thank you for providing us with this opportunity to present oral testimony with regard to the future of the ICC and rail regulation.
My name is Russell J. Kocemba. I am employed by General Mills; however, I appear today on behalf of National Grain and Feed. I am chairman of National Grain and Feed's Transportation Committee.
National Grain and Feed is the largest organization representing agricultural users of rail transportation. We are a nonprofit trade organization of more than 1,000 grain/feed processing firms who operate over 5,000 facilities. National Grain and Feed membership includes 40 affiliate State and regional associations, whose members include more than 10,000 grain and feed companies nationwide.
Rail deregulation, as accomplished through the 4R Act and the Staggers Act, has resulted in economic resurgence of the rail industry, including beneficial changes in the relationship between railroads and their grain industry customers—especially market competition for non-captive traffic.
Page 220 PREV PAGE TOP OF DOC Segment 2 Of 2
However, Congress did not intend that deregulation eradicate the foundations of a cohesive national system of common carrier railroads with basic common carrier obligations to their customers and with protections for shippers lacking effective competitive alternatives, referred to by many as ''captive shippers.'' Unfortunately, there are plenty of captive facilities in the grain industry.
Just as we do not think that the clock should be turned back to the pre-deregulation era, we also do not believe that protections which Congress carefully crafted for captive grain shippers unable to enjoy the benefits of competition should be repealed; rather, there are some areas where these protections should be fine-tuned to remedy problems where there is an absence of market competition.
Rail transportation is vital to the grain industry. One out of every three bushels of corn and soybeans, over three-fourths of spring wheat and barley production, some 5 billion bushels annually, ship by rail in approximately 1.4 million rail car loadings. Grain mill products account for another 500,000 rail car loadings. Grain farm products and grain mill products are the second-largest commodity group handled by railroads.
Most grain starts its transportation journey at one of approximately 8,000 country elevators, almost all of which have rail service by a single railroad only. Grain moves long distances from the origins to domestic and export markets.
Truck transportation is not always an economical alternative, nor feasible, because of limited truck capacity. It takes between three and four trucks to haul one rail carload of grain. Once grain is in an elevator, the costs of moving the grain to an elevator on another railroad almost invariably outweigh the benefits; therefore, most elevators served by a single railroad, whether a shipping or receiving elevator, are captive to the one railroad that serves them.
Page 221 PREV PAGE TOP OF DOC Segment 2 Of 2
It is in this light of this captivity that National Grain and Feed believes that some continued regulation of rail grain traffic is necessary.
If the ICC is eliminated, we urge Congress to create an independent board with rulemaking and adjudicatory authority comprised of five members with staggered terms. We believe that an experienced, objective, and independent agency is better suited to a quasi-adjudicatory role than a politically-oriented arm of the Executive Branch.
Disputes between railroads and our customers are bound to occur. The Department of Transportation has been exposed to rail industry perspectives and not those of the shippers for more than 30 years, and may not be ideally suited for objective dispute resolution. In the long run, it will be less costly to refer disputes to an independent board because parties are more inclined to settle disputes if both sides realize that they are at risk in litigation.
Let me emphasize the following: to the extent that railroads are not subject to active Federal regulation and would posture themselves as any other commercial enterprise, then railroad customers must be entitled to utilize the courts to resolve disputes with carriers, just as other unregulated businesses resolve disputes.
We recognize that nothing would be gained by replacing Federal regulation with a State regulatory agency, but that is where the line should be drawn. As Congress considers the future of rail regulation, we urge you to take care to ensure that rail users have real, legal recourse for disputes with carriers.
Page 222 PREV PAGE TOP OF DOC Segment 2 Of 2
In our testimony, pages nine through ten, you will find a suggested rail users' rights amendment to the Interstate Commerce Act which will go far to ensure such a result.
National Grain and Feed does not advocate the wholesale repeal of the Interstate Commerce Act, and we recognize that the essential job of protecting captive shippers can be done with a slimmer version of the statute.
The fundamental provisions remaining should be four: maximum rail rate regulation, but replacing the time-consuming, costly ICC standards with speedier and less-expensive, objective tests for commodities such as grain. We estimate that approximately 20 percent of all grain rates are over 180 percent of variable costs, and we believe hundreds of country elevators are faced with rail rates well into the realm of monopoly pricing. Under present tests, it cost $250 to $500,000, at a minimum, to bring a rate case.
Authority over practices, including rules, railroad practices, and rules determine how rates are applied. Tariff publication, 20 days notice for rate increases should be retained, but the tariff filing can be eliminated as soon as another user-friendly means of rate notice is developed.
Common carrier obligation, as in the statute, should be retained. The common carrier obligation requires a railroad to provide service when reasonably requested and to treat customers equitably and goes hand in hand with jurisdiction over maximum rail rates.
Provisions for agricultural commodity contracts should be retained, with lessening the paperwork that has to be filed. Mandatory interchange, joint rates, through rates, and switch connections—these features of the statutes must be retained in order to maintain a cohesive national rail network—abandonment jurisdiction and authority over bills of lading and the Carmac Amendment, which facilities the loss of damage claims.
Page 223 PREV PAGE TOP OF DOC Segment 2 Of 2
Finally, our written testimony contains more comprehensive list of what National Grain and Feed regards as essential components of the basic statutory scheme for minimum regulation of the railroad industry, including provisions which we believe can be eliminated.
Again, I thank you for this opportunity to be heard.
Ms. MOLINARI. Thank you very much for your input.
Mr. Sasser.
Mr. SASSER. Good afternoon, Madam Chairwoman.
My name is Fred Sasser. I am president of Chicago Freight Car Leasing Company, a company which owns almost 4,000 rail cars and provides those rail cars for lease. I am also here today representing the RPI Committee on Equipment Leasing and the RPI Committee on Tank Cars.
The Railway Progress Institute is the international trade association of the railway and rapid transit supply industries. The railway supply industry employs more than 150,000 people in more than 900 companies nationwide, ranging in size from major corporations to individual entrepreneurs, and owns, operates, or manages almost 400,000 freight cars, approximately 35 percent of all freight cars in service on our Nation's railroads today.
It is very important to note that privately-owned cars, cars owned by individual shippers or leasing companies, have become a larger and larger percentage of the total rail car fleet. In 1980, 26 percent were privately owned. In 1993, as railroads downsized their fleets, over 42 percent were privately owned. As rail ton miles increased, private rail cars became an even more integral part of our Nation's freight system.
Page 224 PREV PAGE TOP OF DOC Segment 2 Of 2
The private car fleet is comprised of cars owned by various companies that need cars to ship their own commodities, such as coal, grain, paper, chemicals, and other goods essential to the manufacturing process, and companies that own cars and provide these cars to others through lease arrangements.
The railroad industry has not taken upon itself the responsibility to supply all the rail cars required for the traffic it moves. Should Congress sunset the ICC, we believe that mandatory interchange and oversight of car hire are two aspects of the Interstate Commerce Act that need to be continued.
We also believe that a separate point of recordation of liens needs to be retained, as well.
Mandatory interchange—through their common carrier obligation, railroads are required to interchange cars freely from railroad to railroad. We believe the elimination of the mandatory interchange requirements would place a rail car provider in an unfair bargaining position. Without mandatory interchange, a railroad could refuse to handle the rail car under any conditions.
Numerous shippers are located on rail lines where they are served by only one carrier, with the physical realities of railroading prohibiting another railroad from offering any alternate way for the shipper to move its traffic.
For many bulk commodities, using alternate transportation modes is not feasible. For example, the cost of trucking a heavy bulk commodity such as grain to another rail head or an inland port will render many commercial transactions void. These shippers need to know that their shipments will be handled in an expedited manner by our Nation's rail systems, and mandatory interchange allows that.
Page 225 PREV PAGE TOP OF DOC Segment 2 Of 2
Elimination of mandatory interchange throws the rail car providers into a great period of uncertainty at a time when the railroad industry continues to rely more and more on privately-owned cars.
Car hire regulation—the Interstate Commerce Act requires oversight of compensation systems for the use of rail cars to ensure that the rail car owner has the opportunity to recover his cost of ownership over the life of the investment. The removal of any kind of compensation oversight places the rail car provider in an unfair bargaining position with the railroad, who has vastly greater economic power and physical control over shippers.
Without oversight of the compensation system being used by the industry, a railroad could arbitrarily eliminate or reduce payment of compensation to owners of rail cars the railroad uses to generate revenues for itself.
Again, because of the physical realities of railroading, alternate modes of transportation may not be economically feasible.
Since railroads can and do refuse to supply some rail cars required to move a variety of commodities, a shipper or connecting carrier often fills the void by providing rail cars. Remember that over 40 percent of the Nation's rail car fleet is supplied by shippers and outside investors.
The ICC has made it clear in the past that it prefers to see the industry develop a system that would be market based and meet the requirements of its car hire obligations on a long-term basis. To that end, the industry has just invested a tremendous amount of time and effort to achieve and install a system for railroad marked cars that meets ICC's parameters.
Page 226 PREV PAGE TOP OF DOC Segment 2 Of 2
This market-based system permits railroads to use economics to provide the type of rail car that moves across its lines. There is backup arbitration for small shippers and short lines.
The Interstate Commerce Act has also allowed railroads, shippers, and tank car owners to enter into a private mileage allowance agreement, X Party 328. On most other privately-marked cars, individual railroads have been permitted to make unilateral adjustments through the privilege of independent action to change the compensation they pay; however, the Interstate Commerce Act provides for Federal review of such actions.
With private owners being such an important factor in the continuing investment in the Nation's rail car fleet, they need to know that industry-wide car hire oversight will continue to exist.
Thank you.
Ms. MOLINARI. Thank you, Mr. Sasser.
Mr. Granatelli.
Mr. GRANATELLI. I am Robert Granatelli, manager of Transportation Operations North American for Himont, USA.
I am here today on behalf of the Society of Plastics Industry, and we thank you very much for giving us the opportunity to show you what it is like to be a captive shipper on the rail lines.
Page 227 PREV PAGE TOP OF DOC Segment 2 Of 2
I request my full written testimony be entered into the record, and I would like to offer the following brief comments.
The SPI is the major national trade association of plastics industry. The plastics industry accounts for more than $170 billion of materials, products, and machinery shipped in the U.S. We have a very particular interest in our industry's reliance on the rail Harris Boom for plastic resins.
Plastic resins, according to the railroad's own industry statistics, moves 60 billion pounds of plastic material. It is over 300,000 carloads, and 1.1 billion in freight revenues. That is virtually 4 percent of the railroad's class one operating income.
By the way, all of these pellets move in shipper-owned and -leased cars. In fact, the value of the fleet, alone, is more than $2 billion.
Domestically, transportation constitutes approximately 20 percent of the delivered cost of plastic resin and, in fact, it is the second-biggest cost component.
For such commodity products as plastic resin, margins are measured in pennies per pound. The difference in transportation costs could mean market access and profits or losses to individual companies.
I have changed my testimony a little bit, and I have to thank our railroad friends this morning who said, ''If a captive shipper is around will they please stand up.'' Well, plastics is here today.
Page 228 PREV PAGE TOP OF DOC Segment 2 Of 2
We are captive for a number of reasons. We are concerned about product integrity, product performance, and the purity of our products.
A plastic car holds millions and millions of little pellets. Those pellets can go into syringes, can go into rugs, can go into food packaging. One pebble, a piece of dirt, a stick will make that entire carload have no commercial value; hence, we are mechanically captive to rail system because every time we transfer our product from one container to another it exposes us to a degree of contamination that we simply can't live within today's market.
Therefore, we simply can't load into a truck and go to another railroad, as was pointed out perhaps with some other shippers. That is simply not mechanically feasible, quality feasible, and it certainly is not economically feasible.
To make the situation even worse, the bulk of production on plastic resin is captive to two railroad systems. The Southern Pacific and the Union Pacific Railroads capture the vast majority of the plastic production in the United States.
I'd like to also point out our concern with captivity is in two areas. We are concerned that we are captive economically, and we are also concerned that we are captive from a service standpoint.
I'd like to give you two illustrations, one economically and one on service. If I may use the fine borough of Staten Island of an example of railroad's pricing practices today, we'll assume that Staten Island is the destination and our origin is Rockefeller Center. The only way we can get there is by rail.
Page 229 PREV PAGE TOP OF DOC Segment 2 Of 2
Railroad R—we'll call it the ''R Line''—goes from Rockefeller Center, and somehow they built tracks across the Verrazano Bridge and got to Staten Island. However, Railroad R also has a line through Lincoln Tunnel, and Railroad G—we'll call it the ''Good Railroad''—has a line that goes over the New Jersey Turnpike and goes to the Goethels Bridge and also gets the same customer to Staten Island.
If I, as a shipper, want to say, ''I want to get off the R LIne. I don't want the lousy service that it offers. R Line, you take me to Lincoln Tunnel and I'll get on the G Line.'' They want us, in pricing—want the same gross dollar revenue as if they took it to the Verrazano Bridge. So if they made $1,000 cash going to the Verrazano Bridge, they want that $1,000 to go a few blocks to the Lincoln Tunnel.
So effectively, if we as shippers try to purchase alternate transportation, we are foreclosed from doing so. One of the railroads that was here this morning has publicly stated that is their pricing practice. There is no getting around it. That's what they do.
The other issue I'd like to mention on service is the railroad industry is booming today. They've got more traffic than they can handle. In fact, at the NIT League annual meeting in San Antonio on a railroad panel we confronted a number of railroad executives, and they admitted that they do have a hierarchy of decisions they make when moving traffic.
Guess what? The competitive traffic—i.e., intermodal, steamship traffic, the truck traffic they are now capturing—they always get the locomotives, they always get the crews, they always get the railroad.
Page 230 PREV PAGE TOP OF DOC Segment 2 Of 2
Yes, in fact, they do make decisions. If your product well is stuck, you are stuck, and it simply doesn't move.
Members of the committee, we don't want to return back to regulation. We don't want a third party. What the Society of Plastics would like is a competitive access scheme that is straightforward.
I am also a Canadian shipper. I am very familiar how the Canadian process works, and it works on economics and it works on service. We are looking for nothing more today than what is available on telephone, wholesale electricity, cable TV, and gas pipelines.
I welcome any questions, and I thank you for the time.
Ms. MOLINARI. Thank you, Mr. Granatelli.
In your example you must have been talking about garbage, because that's about the only thing the rest of the city sends to Staten Island.
[Laughter.]
Ms. MOLINARI. But your visual was achieved, nonetheless, albeit a little bit distracted.
Thank you very much.
Page 231 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. Lipinski.
Mr. LIPINSKI. I'm going to waive for the moment to my good friend, Mr. Rahall, for the opening questioning.
Mr. RAHALL. Thank you.
As many of you on this panel know—and I know certainly Joe you'll recall quite vividly—during House consideration of the bill that was to become the Staggers Rail Act in 1980, myself, working in conjunction with former Representative Bob Eckhardt of Texas, offered an amendment which prevailed on the floor to strengthen the Staggers Act bill. The amendment builded protections for captive shippers—those with no alternative means of transportation over which the railroads had market dominance. There were no barge lines available, no truck lines available, etc., over which those products could be shipped, nor were there alternative product competition for those products, as well.
This amendment, after it passed on the floor, caused then Representative Jim Florio to pull the bill from further consideration.
We finally reached a compromise known as the Staggers-Rahall-Lee-Loefler Amendment, which then paved the way for the House passage of the Rail Act.
The reason I mention this brief bit of history is because this amendment, which today represents a central element of the act, was premised upon our accepting a level of differential pricing—or, as I call it, ''cross subsidization''—in return for a maximum rate ceiling. In other words, coal would agree, wheat would agree, and other bulk commodities would agree to cross-subsidize other rail traffic in exchange for that maximum rate ceiling set in the act.
Page 232 PREV PAGE TOP OF DOC Segment 2 Of 2
The bulk commodity shippers were willing to cross-subsidize other rail traffic in order to assist our Nation's railroads in overcoming the financial difficulties they experienced.
At the same time, in order to avoid being—I guess, to use a common term—''gouged'' in the future, for captive shippers—we set in place the market dominance proceedings and provisions relating to rate reasonableness once a certain threshold was passed.
So today, as we are listening to this testimony, we hear arguments against retention of these provisions. Some would say that over 60 percent of rail traffic is moved under contract, thereby making captive shipper protections moot. Mr. Harper, in his testimony this morning, said ''a truly captive rail shipper is an extreme rarity in today's highly-competitive transportation marketplace.'' Others made much the same point.
But I would maintain that, at first, it was because of these captive shipper protections in the first place that helped prompt these contractual relationships that exist today. In the second place, without retention of these captive shipper provisions in the future, the railroads may not be able to restrain themselves when it comes to rate-making and captive shipper provisions. I don't think they are quite as rare as we are being led to believe.
I'm wondering, gentlemen, if any one of you or all of you wish to comment on this scenario, and the need to retain these captive shipper provisions in order to ensure future contracts, because these contracts are not going to last forever. They are going to come up for renewal, and don't we need this type of protection in place?
Page 233 PREV PAGE TOP OF DOC Segment 2 Of 2
Joe, would you wish to go first?
Mr. LEMA. Congressman Rahall, Madam Chairwoman, members of the subcommittee, first of all I certainly agree wholeheartedly with the accuracy of Congressman Rahall's recitation of what has occurred in the last 15 years and what we accomplished 15 years ago.
We believe that same economic regulation, when it comes to maximum rate regulation, in particular, is just as warranted today as it was then. We think it should be retained. That was the nub of our testimony, in fact.
And we do say again, today, that where there is effective transportation competition we don't want economic regulation. We didn't then, we don't want it now. But where there is no effective transportation competition, when a single rail carrier holds market dominance, we'd still prefer for the coal shipper to negotiate a contract, even though the railroad is market dominant. However, the ability to negotiate a contract with someone who holds monopoly power over you is somewhat limited.
We do think the presence of economic regulation, as now constituted, is warranted and desirable. I'll simply end that by saying it is much like a drunken driver law. Certainly people would not drive while drunk because they don't want to kill themselves or anyone else, but they also don't want to incur the wrath of the court, the enforcement agency. The publication of such a drunken driving law, itself, is a deterrent to driving while drunk. The mere presence of having a law on the books that says a captive shipper or a shipper subject to rail market dominance does have effective and timely recourse available if he is abused is worth having.
Page 234 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. RAHALL. Any other panelists?
Mr. KOCEMBA. Congressman, yes.
Even today with shipper protections there are some railroads that do not offer contracts available to grain shippers. Congress, in their wisdom and your input on 180 percent of variable costs, would reflect at that point that the rate is getting near market dominance in its monopoly pricing.
I am glad to hear that. Again, we want to continue that sort of protection for the capita shipper where that shipper is far from any other railroad—agriculturally far from any other railroad, and has no means by which to negotiate a contract, and then therefore is subject to the rates that are in the tariff.
I believe the protection that is there today would be ample for dominant traffic.
I would emphasize also that, as Congress looks to slim down the Interstate Commerce Act, that they look for a simpler approach to this market dominant rate that is less costly, less time consuming, and is available for that country elevator operator, that producer.
Mr. DAUPHIN. Congressman, from the coal shippers' standpoint, I'd like to echo what Mr. Lema said. We have worked long to work with the ICC in helping to develop the maximum rate guidelines under the auspices of the Staggers Act, and we, as a group, are, I guess, happy with our situation as far as the coal rate guidelines and how they are applied. So we would certainly agree that kind of protection needs to be available to us when, as you mentioned, contracts come up and folks end up either without competition as they sat or because of emerged new railroad entity, like is going on right now, and you end up without the competitive alternatives that you might have once had.
Page 235 PREV PAGE TOP OF DOC Segment 2 Of 2
We would encourage that to be continued.
Mr. EMMETT. Mr. Rahall, very quickly, we agree with the sentiment at NIT League; however, we think it could be simplified a great deal. There are some other systems in place. For example, the Canadian system has been mentioned. Right now it can cost half a million dollars for some shipper to bring such a case, and that's just too big of a hurdle for many to get over.
Mr. GRANATELLI. I'd like to thank you for your awareness that a contract, in my mind, does not mean that the shipper has choice, because most of the contracts, if you really look at the contracts, are shotgun marriages. The terms and conditions are far from an arm's length negotiation.
The railroad industry—if you build a new plant site, they require—if you do business with a motor carrier, he simply drives on your property and picks up your cargo and moves. If you have a rail service, you obviously build the site and they build to your siting, but before they will come on your property they give you an agreement that is hard to—well, you simply can't negotiate out of it—that makes you, the shipper, hold them harmless for any actions or activities, negligent or otherwise, that they or their employees do.
You can ask any shipper about the sidetrack agreements, and their eyes will just roll. My management and other companies' management simply can't believe that we have to grant this waiver to the railroad simply to get rail service. So contracts do not at all mean that we have an option. It just means that we settled for something.
Page 236 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. RAHALL. Thank you, gentleman. Thank you, Madam Chairwoman.
Ms. MOLINARI. Thank you, Mr. Rahall.
Mr. Lipinski.
Mr. LIPINSKI. I want to thank all the gentlemen for being here. I really don't have any questions for this panel. I'd just like to comment to Mr. Granatelli, though, that I have no sympathy whatsoever for captive shippers because your name doesn't end in ''ski'' it only ends in an ''i'' over there, and you didn't use any example of the city of Chicago, just Staten Island.
[Laughter.]
Mr. GRANATELLI. Let me think about it.
Ms. MOLINARI. Next time.
Let me just go through a few quick questions.
Mr. Emmett, one of the League's proposals, I believe, is to exclude product and geographic competition from the determinations of railroad market dominance in rail cases. As I understand these terms, that means ignoring the potential substitution of other end products or other sources of the same end products in determining whether the rate being set is in a competitive environment.
Page 237 PREV PAGE TOP OF DOC Segment 2 Of 2
My question is: since you, by definition, represent industrial shippers, don't these same companies have to contend with the very same forms of economic substitution when they set their own prices?
Mr. EMMETT. Well, they do have to contend with it, but the situation with product and geographic competition is truly bizarre when it comes to the rail industry. It supposes that there is a facility that produces a certain product, and perhaps this facility is in Chicago——
[Laughter.]
Mr. LIPINSKI. I agree with everything this man says.
Mr. EMMETT. And there's a competing facility with another company that's in St. Louis—or maybe I should have picked West Virginia. Anyway, it is too late now. I'll stick with St. Louis.
The product and geographic competition theory says that some rate clerk on a railroad is going to price the rate that the railroad charges that facility in Chicago in such a way that the Chicago facility does not lose business to the St. Louis facility.
Now, I think that requires a real leap of faith, to see that that actually goes on in the real world. Instead, the person doing the pricing for that railroad is more than likely to price it in terms of, ''Gee, what can I get?'' That's not an illogical pricing scheme.
Page 238 PREV PAGE TOP OF DOC Segment 2 Of 2
So product and geographic competition just simply doesn't work in the real world.
Ms. MOLINARI. Thank you.
Mr. Sasser, you mentioned that by eliminating the mandatory interchange obligations with respect to the shipper-owned rail cars would create great uncertainty for shippers and an unfair bargaining position for shippers who own rail cars. Explain to me in a little bit more detail why the normal supply and demand of the market doesn't take care of this to allocate car supplies.
Mr. SASSER. Well, I think you need to look at the physical realities of railroading and the fact that there is no practical economic way for a different railroad, a second railroad, to provide service to the vast majority of locations in this country that are served by one railroad.
What that means is that primary railroad has complete control over what types of cars get in and out of that facility. Without mandatory interchange, they can decline to move cars across lines, interchange with other railroads, for no reason whatsoever.
Because of the physical realities of railroading, there is tremendous market power to that handling line.
Ms. MOLINARI. And let me ask one last question to Mr. Kocemba.
Page 239 PREV PAGE TOP OF DOC Segment 2 Of 2
I couldn't help but notice that one of the provisions you nominated for repeal is the ICC's authority to set compensation, an access arrangement for Amtrak trains, over freight railroad tracks. Is this a subtle way of indicating that you don't like Amtrak trains preempting grain-carrying freight trains, or not so subtle?
Mr. KOCEMBA. Is that in Chicago, too?
Ms. MOLINARI. I think you are safe with this panel here.
Mr. KOCEMBA. In that regard, my experience with my company would indicate at this point that I'd ask your indulgence and ask counsel to answer that question. Would that be fine?
Ms. MOLINARI. Counsel, please identify yourself for the record before you respond.
Mr. GOLDSTEIN. My name is Andrew Goldstein. I'm with the Washington firm of McCarthy, Sweeney & Harkaway, and I'm transportation counsel to National Grain and Feed.
Our feeling was simply that—it is nothing to do with Amtrak and the question of whether there should be passenger service or shouldn't be. It was simply a question of trying to get some of the fuzziness out of jurisdiction and narrow things down to the point where we are dealing with a more focused series of statutes that deal with the problems as we shippers see them, which are freight problems, and nothing beyond that.
Page 240 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. Thank you. I appreciate that clarification.
Gentlemen, let me thank you all for your time and your patience.
Mr. RAHALL. Madam Chair.
Ms. MOLINARI. I'm sorry. Go ahead.
Mr. RAHALL. May I have a second round?
Ms. MOLINARI. By all means.
Mr. RAHALL. Okay. Thank you.
I just wanted, first, to ask you, Joe, a question: isn't this your maiden testimony before Congress after your recent merger with American Mining Congress?
Mr. LEMA. Thank you, Congressman Rahall. It is, in fact, the first time that I am aware of that the National Mining Association has appeared before a Congressional committee. The National Mining Association was created by the merger of the American Mining Congress and the National Coal Association, which was effectuated on February 13th. The president and chief executive officer of the National Mining Association is General Dick Lawson, who was the president of National Coal Association.
Page 241 PREV PAGE TOP OF DOC Segment 2 Of 2
This is the first time, and I appreciate the gentleman from West Virginia giving me a chance to advertise a bit.
Mr. RAHALL. I was just wondering how you were getting along with all those hard rock crazies.
Mr. LEMA. Getting along very well. Those who extract solid materials from the earth have common interests.
Mr. RAHALL. Okay. Just one further comment.
Ed, I wanted to follow up on your response to the chairlady's question earlier and your statement that product and geographic competition don't actually work in the real world.
I can recall back under previous Administrations the ICC used to interpret product competition by saying that if a coal fire facility could convert to natural gas, if product competition existed, in the real world that could mean millions and millions of dollars for the industry to have to face to convert such a facility to be able to burn natural gas, so it really didn't work in reality in the real world.
Geographic competition used to be defined: if coal from Colombia, for example, that was imported into the U.S. could be used at a facility, geographic competition existed, and that didn't make sense in the real world. We were hurting our own American workers, our own American industry, by saying to the burner of the coal that you could go off-shore to Colombia, to an operation there, using who knows what type of labor to mine that coal and then ship that back into this country. That didn't make real sense as far as American policy is concerned.
Page 242 PREV PAGE TOP OF DOC Segment 2 Of 2
So I think I just wanted to bring that out to further illustrate the point you said and agree with you on what you said.
Mr. EMMETT. Thank you, Mr. Rahall.
Mr. RAHALL. Thank you, ma'am.
Ms. MOLINARI. Thank you very much, gentlemen, for your patience and participation this afternoon. We'll be back in touch.
We're going to put together our last three panels, because it is just—you all are accompanied by someone, but we ask that the people that are accompanying you either sit next to you or behind you, but to come to the table, if we could please have: Barry Hill, associate director of transportation issues, GAO; the Honorable Gail McDonald, chairman, Interstate Commerce Commission, and accompanying Gail is Vice Chairman Linda Morgan, Commissioner J.J. Simmons, and Commissioner Gus Owen. I'd like the commissioners, if we could, to at least come up to the table and not on the sides. And then the Honorable Joseph Canny, deputy assistant secretary of Transportation for transportation policy.
After 7 hours, everybody gets so excited to testify because you can have a glass of water. Next time I have one of these hearings I'll make sure there is enough water for everybody in the room.
Mr. Hill, please begin.
Page 243 PREV PAGE TOP OF DOC Segment 2 Of 2
BARRY T. HILL, ASSOCIATE DIRECTOR, TRANSPORTATION ISSUES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY FRANK MULVEY, ASSISTANT DIRECTOR, RICHARD JORGENSON, SENIOR EVALUATOR, AND MICHAEL BURROWS, COUNSEL; HON. GAIL MCDONALD, CHAIRMAN, INTERSTATE COMMERCE COMMISSION, ACCOMPANIED BY LINDA MORGAN, VICE CHAIRMAN, J.J. SIMMONS, COMMISSIONER, AND GUS OWEN COMMISSIONER; HON. JOSEPH CANNY, DEPUTY ASSISTANT SECRETARY OF TRANSPORTATION POLICY, U.S. DEPARTMENT OF TRANSPORTATION
Mr. HILL. Thank you, Madam Chairwoman.
Before I begin, allow me to introduce my colleague. With me today is Doctor Frank Mulvey, who is responsible for regulatory analysis issues.
We appreciate the opportunity to discuss the impacts of eliminating the ICC and transferring its functions to other Federal agencies.
My testimony today focuses on three areas: opportunities to reduce or eliminate regulatory functions; secondly, cost savings associated with transferring remaining functions; and, third, implications of how successor agencies may handle these functions.
Let me start by discussing opportunities to reduce or eliminate regulatory functions.
There is general agreement in the transportation community that many of the ICC's current motor carrier and rail activities can be eliminated. For example, recently ICC itself identified 12 motor carrier and 6 rail activities that could be eliminated, including all motor carrier rate regulations; 4 activities that could be absorbed by DOT without additional staff, including inner-city bus regulation; and truck licensing activities that could be accomplished with far fewer staff.
Page 244 PREV PAGE TOP OF DOC Segment 2 Of 2
Altogether, ICC projected the savings would save 182 staff years, which represent a little more than 40 percent of the current work force.
The President's budget suggests that even greater reductions are possible, essentially eliminating all motor carrier regulations and making substantially greater cuts in rail regulation suggested by the ICC.
This proposal would eliminate 301 staff years, or about 70 percent of the current work force, and would transfer the remaining 127 staff years to DOT, the Department of Justice, and the Federal Trade Commission.
Let me now turn to the cost savings associated with transferring the remaining regulatory functions.
We reviewed the budget and other potential impacts of several options.
First, we estimate that simply repealing the ICC's authority could save about $39 million a year.
Second, moving all remaining functions into DOT could save $16 to $28 million annually.
Third, transferring most functions to DOT but sending merger review authority to Justice and household goods/consumer protection to FTC could save about $28 million annually.
Page 245 PREV PAGE TOP OF DOC Segment 2 Of 2
Finally, combining ICC with the Federal Maritime Commission or creating an independent regulatory body within DOT similar to the Federal Energy Regulatory Commission could save about $16 million annually.
This brings me to my final issue. While the budget impact is a key factor in the final transfer decision, we believe an even greater consideration is the manner in which remaining activities, if any, will be handled by the successor agencies. Specifically, careful consideration must be given to the trade-offs between cost savings and the attributes exhibited by an independent regulatory commission, including independence in decision-making and expertise in economic regulatory matters.
In terms of cost, eliminating ICC entirely by repealing the Interstate Commerce Act would save the most—as I said earlier, about $39 million.
Nevertheless, this option has potential for leaving certain regulatory concerns unresolved and entails hidden costs, such as: rate and merger cases now brought to ICC would likely have to be examined by other Federal and State agencies, as well as the judicial system, increasing their work load and costs.
Transferring ICC's functions to DOT or other Executive agencies could provide for a more orderly transition to a reduced regulatory environment; however, such a transfer could affect the impartiality of decision-making, the ability to balance the interests of all concerned parties, and the accessibility of the process to the public and industry.
Page 246 PREV PAGE TOP OF DOC Segment 2 Of 2
Our analysis also shows that DOT could have difficulty in assuming ICC's functions. Merging ICC and FMC, or creating a FERC-like agency would preserve an independent regulatory agency structure, but would also produce the least savings. In addition, there does not appear to be immediate synergies between ICC and FMC. ICC regulates domestic surface transportation, while FMC primarily regulates international water transportation.
Moreover, proposals for eliminating FMC have made this agency's future uncertain and a merger with ICC problematic.
Merging ICC into DOT under the FERC model would preserve the independence of the regulatory and adjudicatory processes, but cost savings would depend almost entirely on which functions were retained.
The transportation community is split on the issue of where the remaining regulatory functions should be placed. As you heard from earlier witnesses, generally the smaller shippers and carriers tend to favor an independent body within DOT, while the larger carriers tend to favor the complete elimination of surface transportation regulation.
There is also controversy over how to handle railroad mergers. Some class one railroads and shippers advocate shifting this authority to the Justice Department and having them considered under the Clayton Act to speed up the merger process. Other railroads and shippers believe that mergers should continue to be reviewed under the Interstate Commerce Act, where the shippers' and communities' interests and railroads' financial health are better taken into account.
Page 247 PREV PAGE TOP OF DOC Segment 2 Of 2
In sorting out this issue, the Congress will need to decide whether railroads continue to require special treatment in merger cases.
Madam Chairwoman, that concludes my testimony.
Ms. MOLINARI. Thank you very much. We do appreciate all the cooperation and information we have received from GAO. Your analysis will help us greatly in the future.
Thank you.
Mr. HILL. Our pleasure.
Ms. MOLINARI. Now I'd like to welcome back the Honorable Gail McDonald, chairwoman of the Interstate Commerce Commission, and ask you if you would, once again, re-introduce the commissioners who are here with you today.
Ms. MCDONALD. Thank you, Madam Chairwoman and distinguished members of the subcommittee.
Joining me again today is Vice Chairman Linda Morgan, Commissioner J. J. Simmons, and Commissioner Gus Owen. Following my brief statement, we will all be pleased to answer your questions.
We appreciate the opportunity to discuss the Commission's rail functions, specifically, which functions should be retained.
Page 248 PREV PAGE TOP OF DOC Segment 2 Of 2
The Commission strongly believes that the remaining core rail functions should be administered in an independent forum. Given the nature of regulatory decisions, shippers, carriers, and communities we believe need the opportunity to participate in an open process with an open public record.
You have heard today that the Staggers Act of 1980 is one of the most successful pieces of deregulatory legislation this Nation has known. We agree. The genius of Staggers is its commitment to allowing the market to operate freely, while recognizing that on occasion markets fail, and providing the opportunity to Government oversight only in those instances of market failure.
As a result of our experience implementing Staggers, the Commission strongly recommends that Federal regulation of the rail industry continue in the following areas: rate regulation, consolidation, service availability, abandonments of rail lines and discontinuance of rail service, line constructions, mandatory interchange, and car supply and car hire.
Given the rail industry's economic characteristics of very high fixed investment costs and of substantial barriers to entry, regulatory oversight in the areas of rate reasonableness and competitive access are important to protect captive shippers and connecting carriers.
The potential for market concentration in the rail industry and the public's interest in the rail network, as a whole, create the need for Federal review of line transfers, leases, and trackage rights, and line sales to non-carriers.
Page 249 PREV PAGE TOP OF DOC Segment 2 Of 2
If mergers are to be reviewed at the Federal level, it is important that these alternative approaches to consolidation also be subject to review. If they are not, railroads and other entities could accomplish piecemeal an absent oversight, but would otherwise require review. The level of review can and should vary according to the need for it.
Our rail network is comprised of many carriers operating across many jurisdictional boundaries. The national interest in uninterrupted rail service establishes a public need for uniformity and cooperation in certain practices among carriers; thus, we recommend continued mandatory interchange, regulation of through-routes, car supply, and car hire.
The national interest in the rail network and the dependence of many businesses and communities on rail service also supports continued review of requests by rail carriers to discontinue service and to abandon lines. Railroads should not be permitted to simply pick up their track and leave without giving affected communities an opportunity to protest an action that will have a tremendous economic impact.
Given the effect of some construction cases on neighborhoods and areas through which lines are built, we also think that some review of rail construction should be continued.
Finally, Federal regulatory oversight is needed to preempt local or State control of the rail network to ensure uniformity and cooperation in the use of the network. For 15 years the Staggers Act has provided a successful balance for safeguarding our Nation's rail network, as well as allowing markets to operate freely. We strongly advocate retaining this careful balance.
Page 250 PREV PAGE TOP OF DOC Segment 2 Of 2
Thank you. I would be pleased to answer questions.
Ms. MOLINARI. Thank you very much.
Mr. Canny.
Mr. CANNY. Thank you, Madam Chairwoman.
We appreciate the opportunity to present the Administration's views on the continuing economic regulation of the railroad industry.
We were directed under the Trucking Industry Regulatory Reform Act to prepare a report for submission to Congress on the ICC functions that should be retained, those that might be amended or repealed, and how those functions ought to be administered in the current environment.
It has taken us much longer than we wished to get that report completed, but we do have it completed today and we are submitting it to the committee for its consideration in a draft form. We are also making it available for public comment for a short period of about 2 weeks, and we will be submitting, at the earliest possible moment, draft legislation that would embody the recommendations in that report for the consideration and use of the committee as you continue your deliberations.
I have submitted extensive testimony which I would like to have entered into the record, if I might, and I will try to summarize it very briefly.
Page 251 PREV PAGE TOP OF DOC Segment 2 Of 2
I recognize that, as I am the last speaker today, your attention span is probably not going to be very high.
We agree with the——
Mr. LIPINSKI [assuming Chair]. I'm waiting on every word you have to say.
Mr. CANNY. We share the view that has generally been espoused today that the rail industry is quite healthy, and that much of the credit for that goes back to the Staggers Rail Act, which was a visionary piece of legislation. We believe that those reforms, the basic approach to regulation of the industry that was embodied in the Staggers Act should be continued.
Specifically, some of the key features that need to be retained are the maximum rate regulation, protection of captive shippers, and the ability to contract, and we would propose that contracts actually be further deregulated. We don't see any use in some of the regulatory restrictions that currently deal with contracts.
Railroad abandonments we think need to be treated very expeditiously. We would like to actually remove the Federal approval authority dealing with abandonments, but retain the ability to deal with other elements pertaining to abandonments, such as keeping the feeder line program, the rails to trails program, and so on, in place.
Page 252 PREV PAGE TOP OF DOC Segment 2 Of 2
Mergers—we have already discussed with this committee 3 weeks ago our suggestion that we believe that reviews of rail industry mergers ought to be performed in the Department of Justice, as they are for virtually every other industry.
Passenger rail issues, specifically resolution of conflicts between Amtrak and the freight railroads, we believe needs continuing oversight and a forum for resolution of those disputes, and that function should be maintained.
We also think that the exemption authority under the act ought to be retained. Chairman McDonald's testimony noted the importance of retaining that authority.
Common carrier obligation and mandatory switching are two important functions that need to be retained for the protection of both smaller railroads and shippers.
The labor protection function is something that we also think needs to be retained in order to permit various transactions to go forward expeditiously. We are recommending that that function be transferred to the Department of Labor for administration, in the same way as labor protection under the Federal Transit Act is handled.
We believe that jurisdiction over car hire and interchange issues should be retained for the duration of the current deprescription agreement, which is a 10-year process that was agreed upon by the industry and approved by the Commission. We think that's an important initiative, and it needs to be carried out to its conclusion. At the end of that time we would basically favor deregulation of car hire arrangements.
Page 253 PREV PAGE TOP OF DOC Segment 2 Of 2
On the issue of State and local regulation of the industry, we think that the State certification process, the process of certifying State regulation that is now in the act, is something of an inefficient anachronism. We would recommend that State regulation in this area be completely preempted, just as Congress preempted State trucking regulation last year.
There are a number of other functions that we think ought to be repealed—rate discrimination, the commodities clause, and so on. Anti-trust immunity we think should be repealed, as well. We don't see any particular need for any remaining anti-trust immunity authority in the act.
Finally, we would suggest that, with respect to administration of these functions, what is left of the Commission's authorities is relatively modest. Our estimates are that there would be approximately 100 to 125 staff years required to administer these remaining functions. Some of those functions could be handled within our Office of Motor Carriers in the Federal Highway Administration. Some would go to Justice. Some would go to the Department of Labor. The remainder would be handled in a rail regulatory unit within the Department of Transportation.
For many of the reasons that GAO has identified, we don't see any benefit in trying to form a merger with the FMC. We think that simply administering these functions within DOT will be quite sufficient. We can put insulated or bubbled processes in place for those particular kinds of transactions where there might be a conflict of interest, and we think that in other cases we can administer those functions quite objectively and fairly, just as we do in dealing with issues in the aviation, trucking, and other industries.
Page 254 PREV PAGE TOP OF DOC Segment 2 Of 2
That concludes my presentation. I would be happy to answer any questions.
Mr. LIPINSKI. Thank you very much. I did listen very attentively to every word.
The ranking minority member of the subcommittee recognizes Mr. Rahall.
Mr. RAHALL. Thank you, Mr. Chairman.
I don't have any particular questions right now. A lot of the testimony is very interesting, and we appreciate your patience in being with us all today. I think all the Commissioners have been with us all day, have you not?
Ms. MCDONALD. Yes.
Mr. RAHALL. Taking notes ferociously during today's testimony, as we noted, as well.
Ms. MCDONALD. Looking for work, I guess.
Mr. RAHALL. Oh, looking for work.
Thank you, Mr. Chairman.
Mr. LIPINSKI. Thank you, Mr. Rahall.
Page 255 PREV PAGE TOP OF DOC Segment 2 Of 2
Before Davey Boone Crockett Clement left, he asked me to ask Mr. Canny: how would the department integrate the ICC's rail functions into its new organizational structure?
Mr. CANNY. That's a tough one, Mr. Lipinski, because we're still going through the process of figuring out how we are going to integrate our new organizational structure within itself. Our basic approach for restructuring is to try to merge the surface transportation agencies—highways, rail, and so on.
There are essentially two options in front of us for the ICC functions, and we haven't reached a conclusion, as yet. We will be doing that within the next couple of weeks.
One is to form a rail regulatory unit that would go within that integrated Intermodal Transportation Administration. The alternative would be to make it a unit within the Office of the Secretary. The latter approach is the one that was taken at the time of CAB sunset, where we took the remaining Civil Aeronautics Board functions that transferred to us and put them, for the most part, in a separate unit within the Office of the Secretary.
I think our inclination now would be to put them within their Intermodal Transportation Administration as a distinct unit, with someone heading that operation who would have direct authority and line responsibilities delegated from the secretary. But that's something that we are still trying to think through, ourselves.
Mr. LIPINSKI. Thank you very much.
Page 256 PREV PAGE TOP OF DOC Segment 2 Of 2
I appreciate all the witnesses being here today and all their testimony. Many of you I have seen individually and talked to, and I appreciate all the information that you have imparted to me. This is a very complex issue. I thought really, before the chairman of this subcommittee came back in, that Mr. Rahall and I were going to be able to move some legislation very quickly.
[Laughter.]
Mr. LIPINSKI. I had in mind keeping the ICC completely intact, giving rail labor unions an opportunity to strike and quadrupling labor protections from 6 to 24 years.
[Laughter.]
Mr. LIPINSKI. Madam Chairwoman, the microphone is yours.
Ms. MOLINARI [resuming Chair]. I have to keep this gavel handy with you now, Mr. Lipinski.
Mr. Rahall.
Mr. RAHALL. Thank you, Madam Chair.
I did think of one question that has been recalled to me.
Page 257 PREV PAGE TOP OF DOC Segment 2 Of 2
In earlier testimony today presented by Norfolk and Southern, on behalf of a number of the railroads, it was stated that the Carmac amendment should be retained. I guess, Gail, I would like to ask you this question: as you know, it does concern uniform terms for loss and damage liability. Do you concur with this position of Norfolk and Southern?
Ms. MCDONALD. Yes, I do. I think it adds stability to the process.
Mr. RAHALL. Second, it is my understanding that the trucking industry may seek repeal of Carmac as it applies to them. Would it be appropriate to retain it for rail but not for trucking?
Ms. MCDONALD. I think we need to retain it for both. As I said——
Mr. RAHALL. Both.
Ms. MCDONALD. It facilitates the efficient handling of freight for either mode.
Mr. RAHALL. Thank you very much.
Ms. MOLINARI. Let me start with Mr. Hill.
Mr. Hill, you mentioned on page 11 of your statement that an independent or a FERC-type agency would produce the least amount of savings. My question is: do we have an option, in your opinion, of maintaining some measure of decisional independence within DOT, but without all of the superstructure that goes with a full-blown FERC?
Page 258 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. HILL. Do you mean not adopt a FERC model but transfer the function?
Ms. MOLINARI. Is there something between just transferring things over to an agency and DOT and FERC, I guess is my question?
Mr. HILL. I think the question focuses on just what level of regulatory review the Congress desires. This is more or less a policy judgment in terms of whether or not there is a continued need for an independent regulatory agency to make these decisions or whether these activities could be folded into an Executive Branch agency like the Department of Transportation.
As you know, those reviews and decisions would be handled, very differently if DOT transferred focus to DOT. On ensuring safety and infrastructure investments, whereas an independent regulatory agency provides a different level of review.
Mr. MULVEY. We offered five options. We looked at five discreet options. Obviously, there is a large number of possibilities and combinations within those options.
To answer your question, you could tease out those particular functions you would want to preserve, as Mr. Canny was saying, and have a FERC-like agency, and then perhaps move some of the others into DOT.
Page 259 PREV PAGE TOP OF DOC Segment 2 Of 2
In our breakout, we create a FERC agency for all the remaining ICC functions and keep them all together.
But yes, to answer your question there is an option of a further subdivision.
Ms. MOLINARI. Ms. McDonald, did you want to comment?
Ms. MCDONALD. I would agree that it is a policy call, and, depending on what combinations of duties you think are core and need to be retained, I think that would lead you to whether or not you felt you needed the independence.
Remember, the independent forum does provide, it seems to me, for the industries regulated, faster resolution of their industries, and sometimes a resolution that is not as easily challenged in the courts, and so there are some cost savings there that might not be calculated just on the surface.
Ms. MORGAN. I would also say that obviously there are other independent agencies dealing with other industries, and so I think the question really is, given the functions that would remain, whether the feeling is that having an independent forum is important to resolve those matters.
Clearly, independence gives you impartiality. It gives you continuity in decision-making, as well as an ability to resolve disputes, as the chairman mentioned, in a forum that I think does provide for efficient government under certain circumstances.
Page 260 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. Commissioner.
Mr. SIMMONS. Madam Chairwoman and Members of Congress, I really believe that you've had a parade of people in front of you today indicating to you that the industry is in good shape, or better shape than it has been in a long time.
I think, in large measure, that is due to our carefully-measured responses to the Interstate Commerce Act, itself. I hesitate to throw flowers upon our Administration, but I do think we've done a good job. I would hope, in your deliberation—you know, the Lord giveth and the Lord taketh away, and that's Congress.
Ms. MOLINARI. You've been talking to Newt Gingrich.
[Laughter.]
Mr. SIMMONS. Actually, I really believe and hope that you maintain the independence of this agency, because we struggle every day for fairness in the smallest cases or the largest cases, and that's after we have taken all the responses from the public. I can't imagine any other forum where you would get a full hearing from everybody. I don't know that these functions can be measured in dollars. They are in the long-range savings to our national security when we actually do that.
I don't want you to think that, in the true spirit of independence—we've got 522, and it is a wonderful document. But there are some—if you notice, I did concur with most of it. I didn't agree with some of the other things.
Page 261 PREV PAGE TOP OF DOC Segment 2 Of 2
I think, Congress, in its deliberations—I would hope that we would have protracted hearings on all the things, even that we suggested in 522 to get rid of, before you actually do it because it has been a proven factor that you gain a lot from hearings, and I would hope that we have protracted hearings when you get in that part of it.
Listening to the testimony today, I would hasten to say that, from our standpoint, that our very presence has meant a lot to lower infractions of the law. It is just like your driving down Independence Avenue in your car at 25 miles an hour. If a policeman drives up beside you, you are going to look down at your speedometer to make sure that you are in compliance with the law, and I think that's the function we have served.
Ms. MOLINARI. Commissioner Owen, did you want to add anything to that?
Mr. OWEN. Maybe I could add a small amount.
Ms. MOLINARI. Sure.
Mr. OWEN. I've only been on the Commission for about 5 months, so I'm really not the authority yet that I thought I was after 2 weeks being on it.
Ms. MOLINARI. It never stops Members of Congress. Jump right on in.
Page 262 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. OWEN. Thank you.
I have also submitted additional comments on the 522 report, as I submitted to each member of the panel here today.
I would like to compliment Congressman Rahall for being part of the Staggers Act and implementing that. I would also like to go further than that and compliment the Interstate Commerce Commission for its deregulatory process and the downsizing it has done since 1980.
When you take a look at this agency, it has been a model of downsizing and cutting the cost of Government and increasing the productivity of the industry, as a whole.
I think that's what we have to take a look at when we are evaluating what we are doing today. I am not here to plead the case. I could go home tomorrow and probably make a little bit more money, and it is a little bit warmer in southern California right now. We haven't had the plague lately or any thing else out there to disturb us.
But when we take a look at this agency and see the downsizing and the savings and the benefit to the consumer and to the public, as a whole, and to the industry, as a whole, and then we take a look in comparison with those agencies that would like to take those portions of the regulations and distribute them to DOJ, DOT, FCC, Department of Labor, whatever they might be, and take a look at their growth factor since 1980, then we say, if we are basing all of this on economy and cutting the cost of Government, then be careful where you place those regulations because there is a growth factor in a lot of these other places.
Page 263 PREV PAGE TOP OF DOC Segment 2 Of 2
I don't mean to point the finger at anybody, but in Congress and in the White House—every one of these agencies has been growing like topsy turvy since 1980. Yet, the Interstate Commerce Commission has continued to go down from—in 1978 I believe they had 2,300 employees, and now they are down. The only time they had to go, according to Congressional action, was last year, I believe, when they chopped 31 percent off. But they have done the downsizing themselves and they have brought forth the 522 report here—at the prodding of Congress, true. They need to do more. We need to identify more regulations that could be gotten rid of there—following the leadership here, this started in 1980—and streamline and bring it up to date to cope with the industry as we know it out there today.
Other than that, I have nothing to say.
Thank you.
Ms. MOLINARI. Thank you very much. We appreciate certainly all of your insights.
Let me just say before I ask one more question—and then we'll close out—I do want to thank the Commission members that are here today and staff for all the work that they have done to project such a positive case and give us, actually, a more difficult job.
As you know, it is beyond our control to keep the ICC alive. Both the republicans voted it—I guess under a democrat majority 2 years ago, actually—and the President included it in the budget, so it is clearly the will of Congress to continue to downsize and go towards elimination; nonetheless, the wonderful job that you all have done, as exemplified during the course of our hearings today and the dedication that brings you here to not only walk away from your mission, but to help us reformulate it, I think is a tremendous tribute to all of you. We appreciate your report and the work that went into it and the work that you have all done.
Page 264 PREV PAGE TOP OF DOC Segment 2 Of 2
I thank you very much, and I hope that you understand that what we are doing here today is certainly not a reflection on your personal dedication to the cause. We thank you very much.
Let me just ask one more question. I guess it was GAO again, kind of as a red flare in light of the discussion that we have had in light of Amtrak's potentially high labor protection liabilities. You estimated that ICC severance cost could be at $16 million if the agency were totally shut down. I guess my question is: is that typical of a civil service severance cost?
Mr. HILL. That is the estimate we present in our testimony. We have not made any comparisons to other agencies.
Ms. MCDONALD. I think, because we have downsized so much, we tend to have employees who have seniority, so perhaps our average cost per employee——
Ms. MOLINARI. That's a good point.
Ms. MCDONALD.——is slightly higher than another agency would be.
Ms. MOLINARI. That's a good point. I appreciate that.
Lastly, Mr. Canny, let me just ask you one question. How do you see either the complete or partial absorption of ICC functions into DOT fitting in with the Administration's new redesign of DOT?
Page 265 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. CANNY. Mr. Lipinski asked the same question while you were out.
Ms. MOLINARI. I'm sorry.
Mr. CANNY. Basically, I said we were still going through our own restructuring thinking. It seems to us that we can handle the remaining functions. We are estimating about 100 people would transfer to DOT from the Commission.
Let me say parenthetically that I share the same views you do. We think the Commission has done terrific work. They have been very helpful to us. Chairman McDonald has assigned staff to help us on some of the technical issues, and we expect to continue to take advantage of that.
We would hope in the transfer to be able to use not only the staff that is expert on and has long history in dealing with some of these issues, but also to carry over many of the procedures, the precedents, and the basic jurisprudence that the Commission has established beyond those functions that we transfer.
The motor carrier functions that would transfer would go directly into our Federal Highway Administration Office of Motor Carriers. For the rail side we would have a rail regulatory unit. It could go either in the Office of the Secretary, as the remaining Civil Aeronautics Board functions that transferred to us did in 1985, or it could be a unit within the new proposed Intermodal Transportation Administration, with appropriate direct lines of authority so that the decision maker in that unit would have the necessary authority to make final decisions, and would also have the capability of bringing in others from within the department—administrative law judges and whatever resources might be most appropriate, to resolve issues.
Page 266 PREV PAGE TOP OF DOC Segment 2 Of 2
Ms. MOLINARI. Anything else, gentlemen?
[No response.]
Ms. MOLINARI. With that, I'd like to thank you all and encourage you all to go out and get lunch as quickly as possible before you all pass out.
I do thank you for your participation, and particularly Mr. Lipinski and Mr. Rahall for hanging in there with us this afternoon.
This hearing is now adjourned.
[Whereupon, at 2:50 p.m. the committee was recessed, to reconvene at the call of the Chair.]
[Insert here.]
CONTENTS
FEBRUARY 22, 1995
TESTIMONY
Canny, Hon. Joseph, Deputy Assistant Secretary of Transportation Policy, U.S. Department of Transportation
Dauphin, Richard B., Executive, Houston Industries, Inc., and
Page 267 PREV PAGE TOP OF DOC Segment 2 Of 2
President, Western Coal Traffic League
Emmett, Edward M., President, National Industrial Transportation League
Goode, David R., Chairman, President and CEO, Norfolk Southern Corporation
Granatelli, Robert, Manager, Transportation Operation-North America, Himont USA, Inc., on behalf of the Society of the Plastics Industry, Inc. (SPI), accompanied by Andrew P. Goldstein, Attorney, McCarthy, Sweeney & Harkaway, P.C., Washington, DC
Hagen, James A., Chairman and CEO, Consolidated Rail Corporation
Hall, Sonny, President, Transport Workers Union of America, AFL–CIO, and President, Safe Transit and Rail Transportation (START), accompanied by Bill Mahoney, Counsel, and Greg Lawler, Executive Director
Harper, Edwin L., President and CEO, Association of American Railroads
Hill, Barry T., Associate Director, Transportation Issues, Resources, Community, and Economic Development Division, U.S. General Accounting Office, accompanied by Frank Mulvey, Assistant Director, Richard Jorgenson, Senior Evaluator, and Michael Burrows, Counsel
Kocemba, Russell J., Transportation Manager, General Mills, Inc., the National Grain and Feed Association Transportation Committee
Page 268 PREV PAGE TOP OF DOC Segment 2 Of 2
Lema, Joseph E., Vice President for Transportation, National Mining Association
Loftus, William E., President, American Short Line Railroad Association, accompanied by K. Earl Durden, President, Rail Management & Consulting Corporation
McCarren, Reilly, President, Gateway Western Railroad, on behalf of Regional Railroads of America
McDonald, Hon. Gail, Chairman, Interstate Commerce Commission, accompanied by Linda Morgan, Vice Chairman, J. J. Simmons, Commissioner, and Gus Owen, Commissioner
Robert, Gilbert M., Executive Director, Florida Tri-County Commuter Rail Authority (Tri-Rail), on behalf of the American Public Transit Association
Sasser, Fred R., President, Chicago Freight Car Leasing Co., and Chairman, the Railway Progress Institute Committee on Equipment Leasing
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Lipinski, Hon. William O., of Illinois
Mica, Hon. John L., of Florida
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Page 269 PREV PAGE TOP OF DOC Segment 2 Of 2
Canny, Hon. Joseph
Dauphin, Richard B
Durden, K. Earl
Emmett, Edward M
Goode, David R
Granatelli, Robert
Hagen, James A
Hall, Sonny
Harper, Edwin L
Hill, Barry T
Kocemba, Russell J
Lema, Joseph E
Page 270 PREV PAGE TOP OF DOC Segment 2 Of 2
Loftus, William E
McCarren, Reilly
McDonald, Hon. Gail
Robert, Gilbert M
Sasser, Fred R
SUBMISSIONS FOR THE RECORD
Hagen, James A., Chairman and CEO, Consolidated Rail Corporation, charts
Hill, Barry T., Associate Director, Transportation Issues, Resources, Community, and Economic Development Division, U.S General Accounting Office, charts:
ICC's Allocation of Staff Years for Regulatory Functions, Fiscal Years 1994 through 1996
ICC's Allocation of Staff Years for Regulatory Functions, Fiscal Years 1995 and 1996
ADDITIONS TO THE RECORD
Augello, William J., Executive Director/General Counsel, Transportation Claims and Prevention Council, Inc., statement
Page 271 PREV PAGE TOP OF DOC Segment 2 Of 2
Burke, Kevin, Vice President, Government Relations, National American Wholesale Grocers' Association (NAWGA), statement
Clark, Ruth A., private citizen, letter, March 3, 1995
Downs, Thomas M., President and Chairman of the Board, National Railroad Passenger Corporation, statement
Kaufman, Kevin, President, North America Freight Car Association (NAFCA), statement
MacDougall, Gordon P., private citizen, statement
Mueller, Richard T., General Manager, Wyndmere Farmers Elevator, letter, February 15, 1995
Oster, Mary Ann, Research Consultant, Oster Researching Services, letter, February 15, 1995
Pomeroy, Hon. Earl, a Representative in Congress from North Dakota, statement
Priest, T. L.,Chairman, Corporate Commerce Manager-Logistics, Coors Brewing Co. on behalf of the Committee Against Revising Staggers, letter, February 27, 1995
Page 272 PREV PAGE TOP OF DOC Segment 2 Of 2
Prugh, John P., President, U.S. Clay Producers Traffic Association, Inc., and Corporate Manager, Transportation Englehard Corporation, statement
Reardon, Andrew F., Vice President, Law & Human Resources, TTX Co., statement
Strege, Steve, Executive Vice President, North Dakota Grain Dealers Association, statement
Sweeney, Daniel J., General Counsel, McCarthy, Sweeney & Harkaway, PC, letter, February 21, 1995
Webber, Frederick L., President and CEO, Chemical Manufacturers Association, statement
(iii)