[Senate Hearing 110-199]
[From the U.S. Government Publishing Office]
S. Hrg. 110-199
AN EXAMINATION OF S. 772, THE RAILROAD ANTITRUST ENFORCEMENT ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 3, 2007
__________
Serial No. J-110-36
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
------
Subcommittee on Antitrust, Competition Policy and Consumer Rights
HERB KOHL, Wisconsin, Chairman
PATRICK J. LEAHY, Vermont ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York SAM BROWNBACK, Kansas
BENJAMIN L. CARDIN, Maryland TOM COBURN, Oklahoma
Jeffrey Miller, Chief Counsel
Peter Levitas, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin, prepared statement.................................. 101
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 3
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 1
prepared statement........................................... 103
WITNESSES
Berg, William L., President and Chief Executive Officer,
Dairyland Power Cooperative, La Crosse, Wisconsin.............. 8
Bush, Darren, Associate Professor of Law, University of Houston
Law Center, Houston, Texas..................................... 15
Moates, G. Paul, Esq., Partner, Sidley Austin LLP, Washington,
D.C............................................................ 17
Nottingham, Charles D., Chairman, Surface Transportation Board,
Washington, D.C................................................ 5
Szabo, Robert G., Member, Van Ness Feldman, Executive Director
and Counsel, Consumers United for Rail Equity (CURE)........... 13
Vander Schaaf, Ken, Director, Supply Chain Management, Alliant
Techsystems, Inc., Radford, Virginia........................... 10
QUESTIONS AND ANSWERS
Responses of William L. Berg to questions submitted by Senator
Kohl........................................................... 29
Responses of Darren Bush to questions submitted by Senators Kohl
and Specter.................................................... 32
Responses of G. Paul Moates to questions submitted by Senators
Kohl and Specter............................................... 46
Responses of Charles D. Nottingham to questions submitted by
Senator Kohl................................................... 52
Responses of Robert G. Szabo to questions submitted by Senators
Kohl and Specter............................................... 61
Responses of Ken Vander Schaaf to questions submitted by Senator
Kohl........................................................... 70
SUBMISSIONS FOR THE RECORD
Berg, William L., President and Chief Executive Officer,
Dairyland Power Cooperative, La Crosse, Wisconsin, prepared
statement...................................................... 71
Bush, Darren, Associate Professor of Law, University of Houston
Law Center, Houston, Texas, prepared statement................. 76
Department of Justice, Office of Legislative Affairs, William E.
Moschella, Assistant Attorney General, Washington, D.C., letter 96
Federal Trade Commission, Deborah Platt Majoras, Chairman,
Washington, D.C., letter....................................... 99
Moates, G. Paul, Esq., Partner, Sidley Austin LLP, Washington,
D.C., prepared statement....................................... 105
Nottingham, Charles D., Chairman, Surface Transportation Board,
Washington, D.C., prepared statement and letter................ 123
Szabo, Robert G., Member, Van Ness Feldman, Executive Director
and Counsel, Consumers United for Rail Equity (CURE), prepared
statement...................................................... 152
Vander Schaaf, Ken, Director, Supply Chain Management, Alliant
Techsystems, Inc., Radford, Virginia, prepared statement....... 166
AN EXAMINATION OF S. 772, THE RAILROAD ANTITRUST ENFORCEMENT ACT
----------
WEDNESDAY, OCTOBER 3, 2007
U.S. Senate,
Subcommittee on Antitrust, Competition Policy and
Consumer Rights, Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:30 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
Chairman of the Subcommittee, presiding.
Present: Senators Kohl, Feinstein, and Hatch.
OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Chairman Kohl. We will get started. Senator Hatch is on the
way. We welcome one and all here this morning. Today we are
meeting to consider an important piece of legislation to halt
what I regard as anticompetitive practices harming businesses
and consumers that do depend on freight railroads across our
country. Our legislation, S. 772, is a bipartisan bill which
passed the Judiciary Committee without dissent just 2 weeks
ago. Nevertheless, we are holding this hearing today at the
request of some members of the Committee who do want to further
explore this issue.
Our legislation will eliminate obsolete antitrust
exemptions that protect freight railroads from competition and
result in higher prices to millions of consumers every day all
across our country. The railroad industry--unlike every other
form of freight transportation, including trucking and
aviation--enjoys immunity from most aspects of antitrust law.
No good reason exists for this antitrust exemption. The best
argument that the defenders of the current antitrust exemption
can make is that it is unfair to subject the railroads to
antitrust law because they are already subject to regulation.
We believe that this argument is without merit.
First, dozens of other industries in our economy are
regulated and yet remain subject to antitrust law. Most
importantly, all the other parts of the transportation industry
are subject to extensive regulation--including aviation, under
the supervision of the Department of Transportation, and
trucking, under the supervision of the Surface Transportation
Board. And yet they are also subject to antitrust law in almost
every respect.
Other examples abound, ranging from telecom to energy. No
other regulated industry possesses the total immunity from
Justice Department merger review enjoyed by the railroad
industry. And yet the need for antitrust enforcement is
greatest in the case of railroads. Unlike the dozens of airline
and trucking competitors that shippers may choose from, in many
areas of our Nation only one freight railroad serves businesses
that rely on railroad shipping. Defenders of the railroad
antitrust exemption, therefore, bear a very heavy burden to
explain why their industry should be treated any differently
from other regulated industries.
Second, as railroad advocates themselves often point out,
the railroad industry has, in fact, been substantially
deregulated by legislation in recent decades. Most importantly,
most railroad rate setting has been removed from the oversight
of the Surface Transportation Board. Despite this deregulation,
the obsolete antitrust exemptions remain in place, insulating a
consolidating industry from obeying the rules of fair
competition.
The effects of this unwarranted antitrust exemption are
plain to see. Consolidation in the railroad industry in recent
years has resulted in only four Class I railroads providing
over 90 percent of the Nation's freight rail transportation.
Just less than three decades ago, in 1979, there were 42. The
lack of competition in the railroad industry was documented in
an October 2006 GAO report. That report found that, shippers in
many geographic areas ``may be paying excessive rates due to a
lack of competition in these markets.'' These unjustified cost
increases cause harm throughout the economy. Consumers suffer
higher electricity bills because a utility must pay for the
high cost of transporting coal; manufacturers who rely on
railroads to transport raw materials charge a higher price for
their goods; and American farmers who ship their products by
rail pass on these cost increases in the form of higher food
prices.
The ill effects of this consolidation are exemplified in
the case of ``captive shippers''--industries which are served
by only one railroad. Two of these captive shippers are
testifying at our hearing today. Over the past several years,
these captive shippers have faced spiking rail rates--price
increases which they are forced to pass along into the price of
their products, and ultimately, to consumers. In August of
2006, the Attorneys General of 17 States and the District of
Columbia sent a letter to Congress citing problems due to a
lack of competition and urged that the antitrust exemptions be
removed. The letter stated that ``rail customers in our States
in a variety of industries are suffering from the classic
symptoms of unrestrained monopoly power: unreasonably high and
arbitrary rates and as well as poor service.''
In my State of Wisconsin as well as around the Nation,
victims of a lack of railroad competition abound. About 40
affected organizations in my State have told us that they are
feeling the crunch of years of railroad consolidation and
anticompetitive railroad practices. The reliability,
efficiency, and affordability of freight rail have all
declined, and consumers are feeling the pinch. For example, to
help offset a 93-percent increase in shipping rates in 2006,
Dairyland Power Cooperative in Wisconsin had to raise
electricity rates by 20 percent. Similar stories exist across
the country. Dozens of organizations, unions and trade groups--
including the American Public Power Association, the American
Chemistry Council, American Corn Growers Associations, and AFL-
CIO and many more affected by monopolistic railroad conduct--
have endorsed our legislation.
Adoption of our legislation will be an excellent first step
to bring needed competition to the railroad industry. By
clearing out this thicket of outmoded antitrust exemptions,
railroads will be subject to the same laws as virtually every
other industry throughout our country. Government antitrust
enforcers will finally have the tools to prevent
anticompetitive transactions and practices by railroads. And,
likewise, private parties will be able to utilize the antitrust
laws to deter anticompetitive conduct as well as to seek
redress for their injuries.
On the Antitrust Subcommittee, we have seen that in
industry after industry, vigorous application of our Nation's
laws is the best way to keep prices low and the quality of
service high. The railroad industry is no different. All those
who rely on railroads to ship their products--whether it is an
electric utility for its coal, a farmer to ship grain, or a
factory to acquire its raw materials or ship out its finished
product--deserve the full application of the laws to end
anticompetitive abuses which are too prevalent in this industry
today.
[The prepared statement of Senator Kohl appears as a
submission for the record.]
So we are happy to have our witnesses here today. We look
forward to your testimony, and we are delighted to have the co-
Chairman of this Committee, Senator Hatch from Utah, and we
welcome his comments.
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE
OF UTAH
Senator Hatch. Well, thank you, Mr. Chairman. I appreciate
you having these hearings, and I appreciate your leadership on
this Committee.
Mr. Chairman, I am very concerned about the reports I
received from a variety of Utah businesses. They believe that
they are being charged excessive and unwarranted prices for the
rail shipment of their goods. I am especially concerned that
these same businesses believe that they would be charged
considerably less in an environment free of railroad antitrust
exemptions.
As a matter of legal principle, I have always been
inherently suspicious of any special industry exemptions from
our antitrust laws unless those exemptions served an important
purpose in maintaining market competition or other significant
public policy considerations.
The greatness and resilience of the American economy is
based on the foundation of competition. Only through
competition does the American economy renew itself to meet the
challenges of the future.
Over the past 30 years, Congress has enhanced that notion
by deregulating and removing antitrust exemptions for a number
of industries, including airlines, trucking, and telephone
industries.
Now, that being said, important questions remain regarding
S. 772. Paramount among them is the inquiry into what effect
this bill will have if enacted. Simply put, if the bill is
passed, will the result be reduced prices for shippers? That is
a central question that I hope can be answered today or will be
answered today.
Now, Mr. Chairman, transportation costs are an important
part of any business plan. When businesses choose where to
locate their factories and operations, they make this choice
based on the cost of shipping their products from the place of
manufacture to the marketplace.
Now, I have been informed that when large manufacturers
seek new locations to build factories, many of these companies
stipulate that they will only choose sites that are serviced by
two railroads. And why? Well, because manufacturers do not wish
to be beholden to one railroad and find themselves held captive
to a sole transporter.
This point was enforced by an August 17th letter written to
the Judiciary Committee by the Attorneys General of several
States. And I find this point to be particularly troubling
since Utah is primarily served by only one large railroad
corporation. Indeed, one of today's witnesses, Mr. Ken Vander
Schaaf, will testify that ATK, Utah's largest defense
contractor, has seen the shipping costs from its Promontory
plant increase by 50 percent over the last 5 years.
I am also concerned about a practice that is currently
permitted by the Surface Transportation Board called
``bottlenecking.'' Under this practice, if a railroad owns the
tracks for the last few miles of a shipment, that railroad is
not required to quote prices for portions of the shipment that
other railroads can offer. This creates what is referred to in
the business as ``captive shippers,'' and these corporations
are justifiably concerned that they are paying higher rates
because of the lack of competition.
Equally as disconcerting are the reports of paper barriers
where short-line railroads are provided with overly discounted
if not free access to railroad lines if the short-line
operators agree only to transfer shipments through the major
railroad that owns the lines, that particular line used by the
short-rail operator.
Now, Mr. Chairman, these are troubling points that require
close scrutiny. I appreciate your calling this hearing and the
willingness of the distinguished panel of witnesses to come
before us today and report on their knowledge of the
transportation industry.
I might add there is another side to it, too, and that is,
we are going to have to upgrade the railroads in this country,
and we are going to have to create more of them. Just the
energy costs alone and savings alone through railroad use are
really substantial, and we cannot ignore that either. But if
railroads are charging too much and taking advantage of their
antitrust exemption in ways that really were not contemplated,
then we have got to look at this very, very seriously, as I
know you are doing.
So I want to thank you for your energy in this matter, and
I want to thank you for holding this hearing and the
willingness of these distinguished witnesses on this panel to
come before us today to report on their knowledge of the
transportation industry.
Thank you, Mr. Chairman.
Chairman Kohl. Thank you, Senator Hatch.
Before I introduce our witnesses, I would like to note that
Senator Dianne Feinstein is with us today. She is from
California, and we very much appreciate her presence at this
hearing.
Our first witness today will be Charles Nottingham. Mr.
Nottingham is the Chairman of the Surface Transportation Board.
Since 2002, Chairman Nottingham has also served as the
Associate Administrator for Policy and Governmental Affairs at
the Federal Highway Administration.
Our next witness will be William Berg. Mr. Berg is
President and CEO of Dairyland Power Cooperative in La Crosse,
Wisconsin. He serves on a variety of boards and committees,
including the Rail Energy Transportation Advisory Committee of
the Surface Transportation Board.
Our next witness will be Ken Vander Schaaf. Mr. Vander
Schaaf is the Director of Supply Chain Management at ATK in
Radford, Virginia, where his responsibilities include
management of transportation services. He is a member of the
Institute for Supply Management of the Carolinas and Virginia.
Our next witness will be Bob Szabo. Mr. Szabo is a partner
at the Van Ness Feldman law firm. He is also Executive Director
of Consumers United for Rail Equity, or CURE, where he provides
legislative and legal counsel as well as management services.
Our next witness will be Darren Bush. Dr. Bush is an
Associate Professor of Law at the University of Houston Law
Center, where his primary research interests are antitrust and
regulated industries, energy, and intellectual property. Dr.
Bush also served in the Transportation, Energy, and Agriculture
Section of the Antitrust Division at the Department of Justice.
Our final witness will be G. Paul Moates, testifying on
behalf of the Association of American Railroads. Mr. Moates is
a partner at Sidley Austin LLP, where is head of the firm's
transportation practice. Mr. Moates regularly represents
railroads and the railroad industry's trade association, and he
has served as lead counsel in a number of large railroad merger
cases before the Surface Transportation Board.
We thank you all for appearing here, and we would like you
to stand and raise your right hand and repeat after me. Do you
swear and affirm that the testimony you are about to give
before the Committee will be the truth, the whole truth, and
nothing but the truth, so help you God?
Mr. Nottingham. I do.
Mr. Berg. I do.
Mr. Vander Schaaf. I do.
Mr. Szabo. I do.
Mr. Bush. I do.
Mr. Moates. I do.
Chairman Kohl. We thank you so much.
Chairman Nottingham, we will take your testimony at this
time.
STATEMENT OF CHARLES D. NOTTINGHAM, CHAIRMAN, SURFACE
TRANSPORTATION BOARD, WASHINGTON, D.C.
Mr. Nottingham. Good morning, Chairman Kohl, Ranking Member
Hatch, and Senator Feinstein. My name is Charles Nottingham,
and I am Chairman of the Surface Transportation Board. I
appreciate the opportunity to appear before this Subcommittee
today to provide the Board's views on S. 772, the Railroad
Antitrust Enforcement Act. I will briefly summarize my written
testimony.
It is important to state at the outset that railroads today
are already largely subject to the antitrust laws. For example,
they face civil and criminal liability for violations of the
Sherman Act, such as price fixing, market allocation, and bid
rigging, and they have been successfully sued for violating
that Act.
Where the railroads do have express statutory immunities,
they are narrowly drawn, and in administering the Interstate
Commerce Act, the Board vigorously enforces core antitrust
principles. Rail carriers should be subject to the full weight
of Federal antitrust laws, except where the enforcement of the
antitrust laws may conflict with the need for single, uniform,
and integrated economic regulation of the rail industry by the
Board.
The Board does not believe that immunities once granted
under particular economic and legal circumstances should remain
in place regardless of changes in the economic and legal
environment that occur over time. For example, in May of this
year, the Board used its discretion to terminate antitrust
immunities for motor carrier rate bureaus that had been
recognized for more than 70 years. The Board's decision in the
area of motor carrier rate bureaus demonstrates out commitment
to the antitrust laws and our willingness not to be constrained
by past policy decisions or jurisdictional turf considerations.
We are concerned that at least two provisions of the
proposed legislation would interfere with the Board's ability
to effectively regulate this Nation's interconnected rail
network. First, let me address Section 2 of the bill.
Presently, only the Department of Justice or the STB may
bring suit for injunctive relief against a common carrier
subject to STB jurisdiction. The bill would permit private
parties to obtain injunctive relief against rail carriers in
individual Sherman or Clayton Act challenges. This proposal
presents serious risks to centralized oversight of the National
Rail Transportation System.
District courts are not responsible for meeting national
rail transportation policy goals, nor do the district courts
possess the institutional expertise to consider how a decision
resolving one case will affect other carriers and shippers on
that line, or on other lines in different parts of the country.
Unlike many other industries, the National Rail System,
while comprising hundreds of individual railroads, nevertheless
operates as a single, integrated, complex, and interdependent
network. Operational changes or issues arising in one location
can have significant operational ramifications hundreds of
miles away, including effects on other freight carriers as well
as on Amtrak and commuter lines. Only the Board is charged with
looking at the rail industry from a national perspective and
ensuring that remedies to resolve individual disputes comport
with national rail policy objectives and do not cause
unintended operational and service problems elsewhere.
Giving district court's injunctive power in rail-related
disputes would also create a great potential for conflicting
decisions from individual courts. The Board, and the ICC before
it, has developed a consistent body of law that approaches
competition issues with a viewpoint broadened by other rail
transportation goals and that provides the basis upon which
both carriers and shippers shape their conduct and assess
potential remedies. In contrast, district courts looking solely
at the antitrust laws without regard to the many public
interest considerations mandatory in board review might well
come up with different rules and different remedies to fix
competition issues. Finally, many of the injunctive remedies
that a district court might order in an antitrust case may
themselves require board approval. In sum, we believe that
Section 2 of the bill is antithetical to Congress' longstanding
support for a rail regulatory system that charges a single
economic regulatory body with oversight over the rail industry.
Let me now turn to the Board's concerns regarding Section 3
of the bill.
In 1995, Congress declined to repeal the antitrust
exemption for rail mergers, acquisitions, and other
transactions, choosing instead to keep that review with the
agency that regulates the economic activity of the industry.
Section 3 would subject rail mergers, acquisitions, leases,
joint use, and trackage rights agreements to both the approval
process and criteria of the Interstate Commerce Act and
separate Clayton Act standards and procedures. We are concerned
that this dual enforcement regime could result in some of the
same problems raised by the potential for district court
injunctions described above. We are also concerned that it
would diminish the considerable benefits of a single,
comprehensive review in which the views of all parties,
including those of DOJ, and affected shippers are transparent
and considered.
From a substantive viewpoint, there is very little
disagreement between the Board and the antitrust enforcers on
the outcome of mergers. Although critics of the Board make much
of those few instances of disagreement between the Board and
DOJ, there has only been one recent case, in 1996, where the
Board did not follow DOJ's recommendation that merger authority
either be denied or conditioned on expansive divestitures. The
benefit of hindsight shows that the Board made the right
decision in that one recent case, which was the UP-SP merger, a
decision supported by the vast majority of impacted rail
customers.
Further, the Board's new merger rules anticipate the types
of major rail merger proposals we could see in the future,
which would likely involve the creation of a transcontinental
railroad, by merging one carrier from the West with another
carrier from the East. Under traditional merger analysis by DOJ
or the FTC, such a vertical integration of two partners with
complementary, not overlapping, systems would not be perceived
to carry as significant a risk of competitive harm as a
horizontal merger of two direct competitors. However, under the
new STB merger rules, to offset any harm that could not be
mitigated merging carriers would need to show how the proposed
merger would enhance competition. We are concerned that dual
merger review would frustrate the Board's ability to fashion
merger conditions based on public interest concerns.
The Board has also found that continued oversight of larger
rail mergers is critical to ensuring that remedies are working
effectively. These types of chores are best left to a single
decisionmaker. That decisionmaker should be the one that is
least limited in both what it can consider and what conditions
it can and will impose, which in this instance would be the
Board.
I am concerned, therefore, that this bill is not targeted
to remove just those exemptions that have grown outdated or are
no longer useful but, rather, is a sweeping change that removes
them all. These changes would make it more difficult for the
STB to perform its regulatory oversight responsibilities.
The Board understands and is sensitive to the concerns of
rail customers about rail rates and service. During my 14-month
tenure at the Board, we have implemented an unprecedented
series of regulatory actions and reforms aimed at halting
unreasonable rail industry practices, increasing access to the
Board's dispute resolution procedures, and examining the
accuracy of our industry cost-of-capital determination that
impacts rates and affects many aspects of the relationship
between railroad and their customers. We have also initiated a
$1 million national study of rail competition being managed by
Christensen Associates, an economic consulting firm based in
Madison, Wisconsin.
In conclusion, S. 772 would make efficient, uniform
regulation of the rail industry more difficult by creating
duplicative and overlapping regulatory schemes. Likewise,
subjecting the rail industry to a potential patchwork of
judicial injunctions scattered across the country could cause a
ripple effect of operational problems for freight, Amtrak, and
commuter rail transportation. These complications could
increase the cost of providing rail service--costs that likely
would be passed on to rail customers in the form of higher
rates. Therefore, I am concerned that the legislation may
create more rate and service problems, not fewer problems.
Thank you for giving me the opportunity to testify here
today, and I will be happy to answer any questions you may
have.
[The prepared statement of Mr. Nottingham appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Nottingham.
Mr. Berg, you may commence, and I would like to request
that the witnesses keep their comments to 5 minutes. Mr. Berg?
STATEMENT OF WILLIAM L. BERG, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, DAIRYLAND POWER COOPERATIVE, LA CROSSE, WISCONSIN
Mr. Berg. Chairman Kohl and members of the Subcommittee, my
name is William Berg. I am President and CEO of Dairyland Power
Cooperative, headquartered in La Crosse, Wisconsin.
Dairyland Power is a nonprofit generation and transmission
cooperative supplying at wholesale the electricity needs of our
25 member distribution cooperatives, who in turn serve over
575,000 people living in Minnesota, Iowa, Illinois, and
Wisconsin. As a relatively small electric utility serving
mostly rural residences and farms, we are very concerned about
holding down costs because, ultimately, all the costs that we
incur in the generation and distribution of electricity flow
through to our members. Our largest single cost item in
generating electricity is rail transportation, and as I will
explain, those costs have mushroomed.
We annually use about 3.2 million tons of coal in three
coal-fired plants in western Wisconsin. Three-quarters of that
coal comes from the Powder River Basin in Wyoming. For the
delivery of that coal, we are captive to and dependent upon the
only two railroads currently serving the Powder River Basin, or
PRB, as it is called. Because of the virtually unrestrained
market power that these railroads have over PRB movements, we
are, in fact, paying more and receiving less. In 2005,
Dairyland experienced a 13-percent shortfall of scheduled coal
shipments, yet we were hit with rate increases averaging about
93 percent beginning in 2006--resulting in more than $35
million of increased annual costs.
These dramatic rate increases were the major factor in our
board's decision to increase electricity rates to our members
by over 20 percent during 2006. Our members are truly suffering
as a result of the railroads' predatory price increases, and we
cannot tolerate a virtual doubling of rates, especially at a
time when our service quality is actually declining. Moreover,
these rate increases came at the end of a short-term, 3-year
contract that already included annual escalations and provided
adequate cost recovery.
We are certainly not alone in this situation. BadgerCURE,
an organization of over 45 Wisconsin groups, businesses, and
organizations, has been formed to pursue sensible policies to
help address railroad competition and service problems.
Since utilities have no viable alternative to rail in
moving coal from the Powder River Basin to their power plants,
and since the two railroads now appear to have no incentive to
improve the existing demand/supply imbalance, we cannot protect
ourselves through normal business negotiations. At our largest
plant, we have rail access from only one provider. At our other
plants, which receive coal by barge, we must still secure rail
delivery to the barges. Although there may be more than one
railroad for those hauls, the absence of competition and
apparent allocation of markets have allowed the railroads to
preserve market share even while eliminating performance
guarantees and dramatically raising prices. The railroads seem
to be able to exercise almost absolute market power, with
little effective recourse by Dairyland or other, even much
larger, railroad customers.
We strongly support S. 772, legislation that will provide
for a more competitive landscape in the Nation's freight
railroad industry. Along with S. 953, the Railroad Competition
and Service Improvement Act of 2007, which has been referred to
the Senate Commerce, Science, and Transportation Committee.
With the enactment of S. 772, rail customers will have the full
range of the Nation's antitrust laws to help deal with
anticompetitive railroad actions, and the legislation may help
serve as a deterrent to future anticompetitive behavior. For
instance, S. 772 may help defer the following competitive
problems:
Bottlenecks. Dairyland is a ``bottleneck: utility, that is,
the last segment of the trip to our unit-train plant is served
by only one railroad. Railroads often refuse to quote rates for
shipments to or on the bottleneck segment, denying the benefits
of competition on the other segments.
Paper barriers. Major railroads have spun off or leased
segments of their tracks to short-line carriers with
contractual terms that prohibit the acquiring carrier from
competing with the major railroads.
Public pricing. Dairyland traditionally received coal
transportation via confidential contracts. Now, approximately
two-thirds of our rail business moves under so-called ``public
pricing'' documents manufactured by the railroads. We are
concerned that high public rail prices provide signals between
these western carriers regarding elevated pricing aspirations
for Dairyland's traffic.
Refusal to bid. Even in what should be considered
``competitive'' situations where two railroads are able to
serve a property, increasingly we do not see competitive bids.
For example, coal we receive by barge is theoretically
competitive, since there are several rail-to-barge transloading
facilities in different locations. Our experience is that one
railroad offers public pricing while the other railroad offers
nothing or exceedingly high prices. Competition does not work
in a duopoly market if one of the duopolists refuses to bid.
In response to recent regulation, rail representatives
suggest that legislative relief is ``re-regulation.'' We
disagree. We have also heard the railroads state that the
legislative relief would result in their decision not to add
infrastructure. We understand that the railroads need a
reasonable profit to operate, and they must have enough capital
to make needed improvements. However, the rate increases to
Dairyland have no correlation to improved service and
infrastructure improvements. Of necessity, we are going to be
partners for many decades to come, but I question whether the
railroads will ever have an incentive to improve service,
properly maintain and grow infrastructure, and effectively
compete for service unless changes are made by Congress.
Railroads also aggregate numbers as they defend themselves
from the issue of high rates. Those aggregate numbers really do
not tell the real impact for an individual shipper like
Dairyland Power. The bottom line is this: every month Dairyland
has to pay millions of dollars more because of rail rates that
have nearly doubled, and as a cooperative, every single cent of
that has to come out of our members' pockets.
In light of the current consolidated state of the railroad
industry and the problems we are experiencing in obtaining
competitive rail service, Dairyland respectfully submits that
the Committee got it right when it recently approved S. 772,
and we urge the full Senate to pass this important bill as soon
as possible.
Thank you again for the opportunity to testify.
[The prepared statement of Mr. Berg appears as a submission
for the record.]
Chairman Kohl. Thank you, Mr. Berg.
Mr. Vander Schaaf?
STATEMENT OF KEN VANDER SCHAAF, DIRECTOR, SUPPLY CHAIN
MANAGEMENT, ATK, RADFORD, VIRGINIA
Mr. Vander Schaaf. Chairman Kohl, Senator Hatch, and
distinguished members of the Committee, thank you for the
opportunity to discuss the issue of rail transportation costs
and the quality of service experienced by a captive customer. I
am Ken Vander Schaaf, the Director of Supply Chain Management
at the Radford Army Ammunition Plant, operated by my employer,
ATK Ammunition Systems, which is headquartered in Utah. ATK is
an advanced weapons and space systems company headquartered in
Edina, Minnesota, with 52 facilities in 21 States, including
the States of Utah and Wisconsin. Given our large number of
facilities spread across the country, our company has an
overarching interest in the competitive transportation
environment in general, including via rail.
ATK strongly supports S. 772, the Railroad Antitrust
Enforcement Act. If S. 772 had been the law of the land over
the last few decades, we would see a more competitive rail
industry today, with fewer of the problems that I am here to
discuss. Today I will address our captive customer status at
two of our facilities. The first is ATK's Launch Systems
facility near Promontory, Utah, a private facility that
supplies large solid rocket boosters for NASA's Space Shuttle
program, the Department of Defense's Minuteman and Trident
strategic missile systems, and other large defense, commercial,
and civil rocket programs. The second is the Army's Radford
Army Ammunition Plant, which ATK operates under a Government-
owned, contractor-operated agreement with the U.S. Army.
ATK's Promontory facility is a captive customer of the
Union Pacific Railroad. The solid rocket motors manufactured
here are loaded by ATK onto railcars at our facility in
Corinne, Utah. Union Pacific then transports the solid rockets
to Titusville, Florida, among other locations. Because of the
enormous size of most of these rocket motors, there is no other
way to ship these products.
In recent years, Union Pacific has instituted substantial
price increases. In 2002, ATK Promontory paid about $14,000 per
rail car to Union Pacific to move the shuttle's rocket
boosters. By April 2007, the rate increased to over $21,000 per
rail car, an increase of over 50 percent in 5 years.
Union Pacific cites two main reasons for these rate
increases: a ``special train'' service and increased fuel
costs. The special train service was initiated in 1994 by Union
Pacific to facilitate the flow of traffic across their lines.
The creation of the service was Union Pacific's decision, not
ATK's, yet we are now paying for it. The second reason given
for these rate hikes is that the Surface Transportation Board
now requires all fuel surcharges to be based on transportation
mileage. This now permanent rate hike is an added cost to
previous fuel surcharges that were already in excess of the
actual cost of fuel expended.
Our Promontory facility also experiences a lack of
reliability by their rail carrier. Union Pacific often misses
promised pick-up or delivery dates, and the transit times are
routinely longer than promised. Because we are limited to only
one rail carrier at each of our locations, we are forced to
comply with the carrier's performance, prices, and attitude
toward service.
A solid rocket booster shipping to Cape Canaveral in
Florida is too massive to move in any other way than a
railroad. These financial and schedule costs ultimately add
excess cost and risk to our Government customers at NASA and
the Department of Defense.
ATK and its heritage companies have continuously operated
Radford Army Ammunition Plant in southern Virginia under the
contract with the U.S. Army since the 1940's. Radford is the
only domestic source of nitrocellulose, which is required in
the production of all ammunition products, including those
utilized by the military, law enforcement, and civilian
sportsmen. At Radford, we annually produce 21 million pounds of
nitrocellulose, 8.5 million pounds of propellant, and 4.5
million pounds of commercial powder. In other to produce
nitrocellulose and the resulting propellants, significant
quantities of chemicals must be safely transported to Radford.
Radford has historically relied almost exclusively on rail
shipments to receive these raw materials. The deliveries are
critical to our ability to supply the Army and other customers
with propellants.
Of increasing concern are rising transportation costs and
the decreased quality of rail service experienced by ATK at
Radford. Historically, the Radford Plant was served by two
railroads--the Virginian and Norfolk Western. The Virginian was
acquired by the Norfolk Southern, and we are now a ``captive
customer,'' relying on a single rail provider for the receipt
of chemicals. We frequently experience rail schedule slips at
Radford. We plan around those potential scheduled slips by
building excess inventory into our business plans so that
operations continue uninterrupted to meet the Department of
Defense's required delivery schedules. This practice adds cost
and overhead to our operations.
Norfolk Southern has raised transportation substantially.
Prior to the last few years, we viewed Norfolk Southern's price
increases as both realistic and relatively justified. However,
in May 2006 things changed. Cherokee Nitrogen, ATK's supplier
for ammonia, advised us that, effective June 1, 2006, Norfolk
Southern's freight rate for ammonia shipments to Radford would
increase from $39 per ton to $65 per ton--a 69-percent
increase. This massive price increase demonstrates the ability
of a monopoly railroad to levy price increases at will, with
little if any notice.
In the last 15 months, the rail increases to move ammonia
have increased from $39 per ton to $132 per ton in July 2007,
an increase of over 330 percent.
Significant fuel surcharges have also added to the cost of
shipments. Whenever the cost of oil increases, our rail carrier
has unilaterally added the fuel surcharge to the cost of
shipments. Our experience is that the railroads then quickly
modify the tariff rates to incorporate the higher rates such
that there is never a corresponding drop in cost of freight
when the price of oil does fall.
At Radford, we believe that the Norfolk Southern Railroad
is deliberately trying to price itself out of the business of
shipping some chemicals. The end result of this strategy will
be the movement of hazardous materials from the railroads to
the highways. In ATK's perspective, movement by rail has
several inherent safety advantages over shipping by truck on
the highway: railcars are constructed of stronger materials
than are tank trucks; rail traffic is more segregated from
other modes of transportation; and the number of railcars
required to transport the same quantity of material via highway
increases by as much as a factor of five.
Likewise, there are significant advantages to the shipper
and to the receiver when shipping with larger volumes. As the
number of individual shipments increases--as it would if we
were to ship via truck rather than rail--the potential exposure
of our workers to these potential hazardous chemicals increases
as well. While the chemical industry has a very good safety
record in handling chemicals properly, each unnecessary
transfer increases the opportunity for an incident or an
accident
All of us at ATK are extremely proud of the role we play in
support of our homeland security, law enforcement, space
exploration, and outdoor sportsmen customers. However, our
ability to perform those missions safely and economically for
our customers is negatively impacted by the quality of the
service we receive and the extremely high rates demanded by the
monopoly rail carriers. There is also the larger issue of
increased costs borne by NASA and the Department of Defense,
and ultimately the U.S. taxpayer, as they annually transport by
rail millions of tons of equipment, products, and supplies to
and from depots, military bases, and ports.
Thank you again, Chairman Kohl and Senator Hatch, for your
leadership on this issue, and for your Committee's continued
interest in looking for ways to redress these important issues.
We look forward to working with you in support of this and
other possible legislation needed to solve the issues facing
ATK and other companies held captive by this monopoly of
railroad companies.
In closing, in addition to S. 772, I would like to direct
your attention to S. 953, the Railroad Competition and Service
Improvement Act, which seeks to improve the rate challenge
process, provide for service complaint remedies by the Surface
Transportation Board, and a more proactive STB in general. We
hope that the Senate Commerce Committee before which this bill
is pending will move this bill quickly and encourage members of
this Committee to work with their colleagues there to move S.
953 rapidly to the floor.
I would be pleased to respond to any questions you might
have. Thank you.
[The prepared statement of Mr. Vander Schaaf appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Vander Schaaf.
Mr. Szabo? And, again, I would like to request that you
keep your comments to 5 minutes or less. Mr. Szabo?
STATEMENT OF ROBERT G. SZABO, MEMBER, VAN NESS FELDMAN,
EXECUTIVE DIRECTOR AND COUNSEL, CONSUMERS UNITED FOR RAIL
EQUITY (CURE)
Mr. Szabo. Mr. Chairman and Senator Hatch and Senator
Feinstein, thank you for the opportunity to speak today. I am
the Executive Director of CURE, which is a membership
organization that advocates S. 772 and other remedies for the
current rail customer problem. We strongly support your
legislation. We strongly support this Committee's action in
reporting the bill.
We believe if S. 772 becomes law, it will address three of
the major problems confronting--would address the major problem
confronting rail customers, which is a lack of access to
competition. We think there are three specific problems that it
will correct that lead to that lack of competition: the first
one is overconcentration of the rail industry; the second one
is the paper barriers or tie-in agreements that Senator Hatch
mentioned; the third is the bottleneck or failure to quote
rates, again that Senator Hatch mentioned. And, by the way, we
are in complete agreement with both of your opening statements,
and I believe you set forth the problem very clearly.
Mergers and acquisitions. Most of them are done. There are
some that could still happen. We believe that some have not
occurred properly. Some did not occur with the right conditions
to address anticompetitive impacts. We do not agree with the
Chairman that, in retrospect, the one that the Department of
Justice opposed, which was the UP and the Southern Pacific, has
worked out well. It has not worked out well for some rail
customers. And, therefore, we believe that any further mergers
and acquisitions should be both under the Board, which has the
first call on these matters, but that the Department of Justice
should have the right to go to Federal district court and
enjoin the merger and acquisition if it violates the antitrust
laws.
S. 772 will not prevent the STB from having a higher
standard than the antitrust laws. We are happy that they are
more vigilant today than they were once upon a time. They have
a more progressive policy than they used to have, but it has
not been tested by any merger. So that is the first issue.
The second issue, paper barriers, I would like to refer to
a schematic that is on the back of my testimony which sets
forth this problem. After partial deregulation, the railroad
industry began to rationalize its system to meet the needs of
the country, and 500 short-line railroads were created. In each
case, that transaction had to be approved by the STB and was
not subject to Department of Justice approval. What happened,
shippers thought that this would be a means of competition.
Unfortunately, what happened is most of these transactions
creating the short line were not sales of track to the short
line. They were leases of operating rights on the tracks.
The terms of these agreements were not made public during
the public comment period. Later, we came to understand that in
most of these lease agreements there are prohibitions that
prevent the short line from doing business with any railroad
other than the one from which they are leasing the track. This
means that the customers on that track can only go to one major
railroad, even though the track that is being operated by the
short line may go to two major railroads. So we are prevented
from competition.
The schematic that I have, Attachment A, is one example. It
is a Union Pacific example, moving coal from the Powder River
Basin. I do not mean to be picking on the UP, but this happens
throughout the rail system. There are two railroads in the
Powder River Basin that can move coal out of the basin. That is
the Burlington Northern and the UP--the two major railroads in
the West. But often there is only one railroad that can bring
it to the power plant. In this case, the Red Railroad is the
UP, and they can bring it to the plant. This line, which is not
coming through very well, that goes down through Memphis is the
Burlington Northern. But there is a short line that can
intersect with the Burlington Northern and bring the coal to
the power plant.
On a map, you would think that this power plant is in good
shape, that it has competition. But if you look at the next
page, this is a provision extracted from the lease agreement
that basically says if the short line does 95 percent--unless
the short line does 95 percent of its business with UP, it pays
a confiscatory annual rent for the track. The first 5 percent,
no annual rent; 95 percent, $10 million. It escalates to $90
million.
This lease was not made--agreement is not public, but it
was filed on the record of the Securities and Exchange
Commission and was found by a law firm. UP does not like us to
talk about this, but we believe these are in many of the
agreements that prevent competition. We think those are
anticompetitive. We do not think they would stand under the
antitrust laws.
The second mechanism is the one Senator Hatch mentioned
previously-the bottleneck, or the failure to quote a rate. I
have another schematic. This is, again, UP. We are not trying
to pick on UP.
Chairman Kohl. Mr. Szabo, we are at 5 minutes. Would you
conclude?
Mr. Szabo. I will. At any rate, this prevents access to
competition. The utility in Lafayette testified that the
captivity that they pay for their coal which passes through to
the ratepayers is costing the school systems in Lafayette,
Louisiana, $1.5 million extra a year.
We believe, Mr. Chairman, that antitrust laws will help
with competition in the rail industry. Thank you.
[The prepared statement of Mr. Szabo appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Szabo.
Dr. Bush?
STATEMENT OF DARREN BUSH, ASSOCIATE PROFESSOR OF LAW,
UNIVERSITY OF HOUSTON LAW CENTER, HOUSTON, TEXAS
Mr. Bush. Mr. Chairman, Ranking Member Senator Hatch from
my home State of Utah, and other distinguished members of the
Subcommittee, I want to thank you for giving me the opportunity
today to speak about competition policy in the context of a
deregulated railroad industry. My remarks today are my own, as
I, quite sadly, do not represent anyone in this matter.
As I and others have set forth in a fairly recent report to
the United States Antitrust Modernization Commission, the
burden of establishing the case for any immunity should fall on
the proponents of the immunity who, at a minimum, should
clearly explain why conduct within the scope of an immunity is
both prohibited or unduly inhibited by antitrust liability and
is in the public interest, make some estimation as to the
effects of the proposed--of the immunity, what the immunity
will have in addition to its intended effect--in other words,
other external effects; and demonstrate that the immunity is
necessary to achieve the desired policy outcome.
In the case of railroads, I find no clear benefit to the
immunity except perhaps to the railroads and to the Surface
Transportation Board in the form of exclusive jurisdiction. The
benefits of such a regulatory scheme are dubious at best, and
the conduct sought for continued immunization has
characteristics that could lead and perhaps has led to serious
consumer injury. I only have time today to talk about this in
the context of mergers.
For example, it is fair to say that the Surface
Transportation Board and its predecessor, the Interstate
Commerce Commission, have rarely met a merger that they did not
like. However, this is by design. As I mentioned in my written
testimony, the purpose of the STB's merger authority harkening
back to the 1920's was to consolidate the railroad industry.
The formulaic requirements of balancing the total effect of the
merger's cost and benefits naturally led to a pro-merger stance
with immediate potential speculative efficiency gains and other
potential benefits accruing to interested stakeholders such as
the railroads and labor outweighing consumer injury.
Sadly, the goal of the policy, which was consolidation and
increased investor returns, along with system stability, did
not come to fruition. Some recent mergers have created service
disruptions and spawned shipper complaints, some of which you
have heard here today. And while the STB has revamped its
merger policy to some degree, it is yet to be tested by any
railroad merger. The question arises as to whether the STB will
be able to resist its past practices of allowing mergers to
come to fruition with Acela-like speed.
Moreover, in the context of today's discussion, I find no
reason to conclude that there is something so special in the
railroad regulation realm that should isolate it from other
industries that exhibit similar issues, including potential
natural monopoly conditions in some component of the industry,
high coordination needs for purposes of providing service and
protecting public safety, and where exists some modicum of
competition. Absent such a showing, there appears little
argument against concurrent jurisdiction. Rather, it is the
case that much of railroad policy has moved away from
regulation to market forces. In that instance, it is imperative
that antitrust fill the gap left by regulators. Otherwise, we
are left with the worst of all possible worlds: a business
subject to neither competition policy nor regulation.
Because the world of railroads is one of extreme levels of
market concentration, the anticompetitive stakes are high. Any
future merger could potentially yield strong and persistent
anticompetitive effects. The consideration of these effects
might be lost in the STB's calculus of total benefits to
consumers, the railroads, labor, or other stakeholders to the
transaction. The antitrust laws, in contrast, do not
necessarily consider transfers from consumers to stakeholders
to be a good thing. Moreover, the antitrust agencies more
readily consider the full spectrum of competitive harms.
I find it similarly disingenuous to argue that courts will
likely cause disruption of national railroad policy in the wake
of an antitrust suit brought by a private plaintiff or a State
attorney general acting as parens patriae. Many agencies live
with the potential of court action against a company subject to
the agency's regulation. Unless there is something unique about
railroads--and I do understand that there is something about a
train that is magic--there is little justification for granting
immunity here while embracing competition policy elsewhere. In
most instances, historically such choices between immunity and
antitrust law application were not made due to industry
idiosyncrasies, but rather due to industry lobbying and
political pressure.
Antitrust immunity without justification is merely special
interest legislation transferring wealth from consumers,
shippers and others to railroads. It is not just in the context
of mergers that this exists, but you have also heard testimony
with respect to paper barriers and other things. Therefore, the
Surface Transportation Board has let a lot of anticompetitive
effects take place without any justification.
I see that I am out of time, and I will play by the rules
and entertain any questions afterward. Thank you.
[The prepared statement of Mr. Bush appears as a submission
for the record.]
Chairman Kohl. Thank you very much, Dr. Bush.
Mr. Moates?
STATEMENT OF G. PAUL MOATES, ESQ., PARTNER, SIDLEY AUSTIN LLP,
WASHINGTON, D.C., ON BEHALF OF ASSOCIATION OF AMERICAN
RAILROADS
Mr. Moates. Chairman Kohl, Senator Hatch, Senator
Feinstein, my name is Paul Moates, and I am testifying here
today on behalf of the Association of American Railroads. I am
a senior partner in the Washington office of the international
law firm of Sidley Austin, and I have approximately 30 years of
experience in representing individual freight railroads as well
as the AAR on antitrust and regulatory matters, including most
of the major merger cases and rate cases that have occurred in
the last 25 or 30 years. I thank the mt for this opportunity to
present the railroad industry's views on S. 772, the Railroad
Antitrust Enforcement Act of 2007.
Frankly, we believe this legislation is a solution looking
for a problem. In developing that needless solution, it would
subject railroads to an unwarranted dual system of regulation.
Longstanding statutory schemes should be altered only if there
is an identified problem and only if the proposed legislation
would be effective in remedying that perceived problem.
With respect, neither condition exists with respect to this
legislation. Indeed, it is based on a number of faulty
premises. The first is that railroads enjoy broad antitrust
immunities. That is simply not true. As Chairman Nottingham
said before me this morning, railroads are generally subject to
antitrust laws, and the immunities they do have are limited in
scope and also subject to regulatory oversight by the STB.
In particular, the antitrust laws prohibit anticompetitive
agreements among railroads to collude in the setting of rates,
the allocation of markets, or otherwise unreasonably
restraining trade. Railroads also continue to be subject to the
STB's regulatory jurisdiction with respect to certain rates and
services, the terms of entry and exit, and mergers and other
restructurings. The statutory antitrust exemptions that remain
exist because of the need to avoid dual and potentially
conflicting regulation by the courts and the STB. Moreover,
they allow the railroads to work together in a limited way, a
very limited way, to efficiently address some of the issues
created because of the industry's network characteristics.
The second faulty premise is that this legislation would
benefit shippers by subjecting railroads to dual merger
jurisdiction. It would attempt to do this by eliminating the
STB's current exclusive jurisdiction over rail mergers while
giving the antitrust enforcement agencies concurrent authority
to review and challenge such mergers. Even more troubling, the
bill would allow DOJ or the FTC retroactively to challenge
mergers that were approved by the ICC or STB long ago and
subsequently consummated. There is no reason to believe that
this change in the law will provide shippers with additional
relief in any possible future merger cases. Indeed, the Clayton
Act standard of preserving competition does not in any way give
shippers more protections than the STB standard for major rail
mergers of requiring that merger applicants demonstrate that
their proposed transaction would result in enhancements to
competition.
Moreover, dating back at least to the passage of the
Staggers Act, the STB and ICC before it have consistently used
their authority to impose conditions on mergers to ensure that
no customer has lost two-railroad service.
Another of the solutions in S. 772 looking for a problem is
elimination of the limited exemption that railroads have under
Title 49, Section 10706, establishing procedures for handling
car hire payments, railroad car hire payments. That exemption,
although severely limited, nonetheless remains important since
it fosters coordination on matters that enhance network
efficiency and are not controversial. It is also important to
recognize that even those rules do not involve the setting of
car hire rates. Such rates are established through bilateral
negotiations between the owners and users of the equipment. In
fact, let me emphasize again that under this exemption,
competing railroads do not and have not for many years
collectively set freight rates of any kind. That seems to be a
very erroneous premise here this morning.
The third faulty premise is that this legislation would
merely level the playing field and treat railroads like other
industries. But I would submit this is belied by the very
language in the bill. In several instances, the bill addresses
specific antitrust exemptions that currently apply to a number
of industries in addition to railroads, but eliminates them
only with respect to railroads. One must ask why these
exemptions are sound policies for other industries but not for
railroads.
In addition, this legislation would not replace the
existing STB regulatory scheme with antitrust remedies where
limited immunities exist. Rather, it would superimpose
antitrust remedies on top of STB regulation. Moreover, it will
not provide rail customers with any new protections from
allegedly high rates because high prices alone do not
constitute an antitrust violation.
Finally, we have a major concern mentioned by Chairman
Nottingham about Section 2 of the bill, which permits private
injunctions and thereby introduces the very real possibility of
dual but inconsistent regulation of railroads. So long as there
remains a single regulatory body charged with oversight of the
industry, it is imperative that the antitrust laws and national
transportation policy be implemented in a harmonious fashion,
and permitting courts to fashion equitable remedies in civil
actions and also by discouraging courts from deferring to the
STB's expertise, Section 4 of the bill threatens to disrupt
that harmony.
My time is up. I will stop, sir. Thank you.
[The prepared statement of Mr. Moates appears as a
submission for the record.]
Chairman Kohl. We thank you very much, Mr. Moates.
We will now start our questions, and I would request that
the Senators keep to 7 minutes.
Mr. Berg and Mr. Vander Schaaf, how would repealing the
railroad's antitrust exemption help you? What remedies would it
give you that you believe you need and don't have under the
current law? Mr. Berg first, and then Mr. Vander Schaaf.
Mr. Berg. I cannot help but feel that this is going to
help. I am not an antitrust expert, so I do not know the
intricacies involved. But clearly, as we have been dealing with
the railroads recently, it is obvious to us that there are many
anticompetitive practices going on, as I mentioned in my
testimony. At least the net result of that is what I have
declared, and it has increased our rates.
If we ask going forward will this help our rates, it would
be easier for me to answer the question if we did not adopt
this legislation what would happen to our rates. And I can only
see things getting worse. I think the rates will go up in the
future from the railroads. They dealt with us with pretty
strong arms. And Dairyland, as I mentioned, is a small utility.
We have to be considered, I would say, easy pickings. To try to
do anything to counteract, bring cases to the STB and so on, it
is a very daunting process for us.
So we are looking for any help we can get. We think that
the elements described in here to make sure that the
telegraphing of prices through these rate circulars or tariffs
is not going to harm us in the future, that the railroads be
able to bid on certain hauls that we have before us, all of
this is going to help us in the future.
Chairman Kohl. Mr. Vander Schaaf?
Mr. Vander Schaaf. My answer is probably going to be a
little strange because I suspect that S. 772 right now today
will not do much for us at Radford or Promontory. The damage is
already done. We are down to one railroad. Even though we had
two at Radford, I do not see it going back to two railroads.
But for our other locations around the country and as we expand
and grow, we do see some of those locations potentially being
positively impacted by this legislation. And I think it is a
foundation for future legislation, for example, S. 953 in
combination being able to make it more competitive and having
better access for a level playing field rather than a
monopolistic railroad situation where they truly have the upper
hand; and it is not just what they can do to us today, it is
the fear of what they can do to us tomorrow.
For example, the 300-percent increases that we have already
experienced, our perception is that they want to get out of
some of the freight business that they haul for us, and they
could continuously increase that until we have a very unsafe or
a less safe situation in moving it via truck rather than rail.
So it is a good foundation step. It is the right direction.
We strongly support this and other legislation that will
support leveling of the playing field for us in the
manufacturing industry.
Chairman Kohl. Mr. Bush, and then Mr. Moates, the railroad
industry argues that it should not be subject to antitrust
regulation because the Surface Transportation Board already
regulates the railroads, but many, in fact most industries,
including transportation industries like aviation and trucking,
are now under the jurisdiction of various regulatory bodies,
and yet antitrust law applies to them.
So the question is: Why should railroads be any different?
Mr. Bush. That is a very good question, Senator. I have yet
to see any reason that the railroads should be different than
any other industry which requires high degrees of coordination
such as electricity markets. Other transportation sectors have
high--portions of the transportation sector have high degrees
of coordination as well. So there does not seem to be any
reason why the railroads should be different.
The threat that a private plaintiff or some district court
will somehow usurp national transportation policy has not
appeared in any way, shape, or form in other industries as
well. In fact, quite the contrary, when there is a regulatory
body there, regardless of the degree of the immunity, the
courts will be very reluctant to entertain any sort of action.
There is judicial hesitation when there is even what I call
``immunity by proximity.'' If the regulator is there and there
appears to be an antitrust exemption, that exemption spreads
out to other conduct within the industry to a degree not
contemplated by Congress. So--
Chairman Kohl. OK. Thank you.
Mr. Moates?
Mr. Moates. Senator Kohl, my first response is railroads
are not that different. As I said in my prepared remarks,
railroads are today and have for a very long time been subject
to the vast preponderance of the antitrust laws, including
Sections 1 and 2 of the Sherman Act and other provisions of the
antitrust laws that you are familiar with.
The limited immunities that the industry has enjoyed and
that are addressed in some respect by this bill have been put
in there by Congress at different points in time for very sound
reasons. They were put in there because there were certain
efficiencies that were recognized that would result. I
mentioned, for example, the Association of American Railroads
has a Car Hire Committee that exists under an agreement
approved by the Surface Transportation Board under Section
10706 for that committee to get together for the limited and
express and very limited purpose of discussing the protocols
for how railroads will charge one another for the railroad
equipment that is on the national system. They do not set the
rates. As I said, that is done on a bilateral basis. Just how
are we going to make this clearinghouse work? You know, I am
the Norfolk Southern and my car is in California. How do I
track that and how do I get paid for it? That has served the
industry well. It has served the customers of the industry,
including shippers well, and I think those kind of limited
immunities should remain.
If I could make one comment, too, about mergers. Mr. Vander
Schaaf's prepared testimony included the statement that he has
repeated here this morning that Radford Arsenal became a
captive shipper as the result of a railroad merger. He cites
the merger of the Virginia Railway with the Norfolk and
Western. Well, he is technically correct, but it has to be
pointed out that merger took place in 1959. In 1959. So we are
not talking about some very recent development here that has
caused Radford to become captive.
Chairman Kohl. Senator Hatch?
Senator Hatch. Well, thank you. This is an interesting
hearing to me, and I am still very much concerned about what is
the best way to go here.
Mr. Vander Schaaf, as an expert in supply chain management,
if you were advising a company on where to build its next
large-scale manufacturing factory, how important do you believe
it is that the sites being considered be serviced by more than
one railroad? And do you believe that when States are trying to
attract businesses that companies will look less favorably
because they only have one railroad provider? And if so, why?
Mr. Vander Schaaf. Prior to my time with ATK, I was working
with Union Carbide and Dow Chemical, and with Union Carbide it
was very much a serious consideration of do we have competitive
access, especially in the Houston area. And we looked at
building access through secondary lines to get to that second
railroad at substantial cost.
So it is a very, very important part of a decision of where
you are going to be putting your facilities, how you can take
the facilities you have and there to create competitive
advantage, or competitive access with the railroads, because
when you are tied to any monopoly, you know that you are coming
into the discussions at a disadvantage. And so we are--you
know, take the example of if you wanted to move your rocket
boosters from Utah to Florida, would you make the decision to
build the rockets in Florida instead of Utah? I do not think
that will ever be the decision for ATK, but it is definitely a
consideration that becomes more and more as the freight becomes
greater and greater. Now, I am not making any suggestion they
are leaving Utah, Senator.
Senator Hatch. I understand. I have had enough burdens this
morning without you making those suggestions.
[Laughter.]
Senator Hatch. Chairman Nottingham, I do not understand why
the Surface Transportation Board would allow such bottlenecks
to develop in the rail system. When I say ``bottlenecks,'' I am
referring to the STB sanction practice of permitting railroads
to quote only the price for an entire freight movement when the
alternative carrier might compete for a portion of the
shipment. Now, clearly if there was not an exemption from the
antitrust laws, those engaging in this activity would be in
violation of Section 2 of the Sherman Act for refusing to deal
and Section 1 for using a tie-in arrangement.
Now, the question, I think, needs to be asked. What benefit
do consumers receive when the STB permits these type of
practices? And why do these practices not violate Interstate
Commerce Act Section 10702, the prohibition of unreasonable
practices?
Mr. Nottingham. Thank you for the question, Senator Hatch.
The so-called bottleneck controversy is indeed one of the most
controversial issues we face. I heard about it as a nominee as
I made my rounds visiting with stakeholders and Members of the
Senate and House. It is a policy adopted--its history goes back
to the 1920's, to be honest, I believe, in some Supreme Court
case law, and it is not something that I have had the
opportunity to get my figurative arms around in my first 14
months on the job. We have initiated enormous reforms, and one
thing you have not heard today is why more shippers have not
been taking advantage, although it has been recent changes in
our expedited and much more accessible dispute resolution and
rate review process. And we invite any shipper--what you are
really hearing about today is concerns about rates and service.
And, unfortunately, this bill will not actually fix that
situation, but our new procedures which need to be taken
advantage of will.
But getting to your question, to play out this scenario
briefly, if this bill becomes law--and, of course, if it did,
we would dutifully and energetically implement it. It presumes
that there would then be litigation that would somehow result
in a railroad quickly and cheaply parking basically rail cars
and allowing for a switch to take place at no added cost and
that that would actually all happen seamlessly and that there
is a big amount of extra capacity at the freight yards around
our country.
Having visited many of the freight yards around the
country, I can tell you that we have a huge--the No. 1 problem
we have is a lack of capacity. The No. 1 challenge we face is
we need to build extensive, more rail infrastructure across
this country. And, unfortunately, this bill will not help to do
that, and it is not clear how this bill would actually result
in--
Senator Hatch. You would prefer something that would give
incentives to do that?
Mr. Nottingham. Absolutely. Yes, sir. I think that is where
the focus of our agency is going to be over the coming years
and should be for all of who care about transportation. As a
highway person, by way of background, having run a large State
highway department in Virginia and working at the Federal
Highway Administration, I just know that the highway system is
not standing there ready, willing, and able to take more and
more freight. We have got to have the freight railroads pick it
up.
It is also not completely clear to me--and I stand to be
corrected by the experts here--as to whether or not the Justice
Department can look into bottleneck problems. Justice has wide
latitude to go into, and has in the past on occasion, the
antitrust enforcement avenues vis-a-vis the rail industry.
Senator Hatch. Well, Mr. Moates--and I have questions for
the rest of you, too, but let me ask Mr. Moates this: I
understand that the railroad industry has taken the position
that S. 772 will not solve the problem of dramatic shipping
cost increases or price increases. They believe that the
legislation is designed to penalize the railroad industry
because prices have increased, yet the bill will not have any
real effect on costs charged to shippers.
Now, how can that be? Does not S. 772 amend the Clayton Act
so that shippers can seek injunctive relief against railroads?
And granted that the STB currently has brought injunctive
relief authority--but even some of STB's supporters concede
that the Board needs to improve their handling of these
matters. So why not permit the railroad's own customers the
ability to seek injunctive relief?
Mr. Moates. Well, Senator Hatch, a couple of points in
response to your question.
First, the STB has broad injunctive authority; so does the
Justice Department. Has not used it, has not had to use it for
some time. As I said during my prepared remarks, a high rate,
as you well know, is not evidence of a monopoly. If any of the
gentlemen here represent shippers today believe their rates are
unlawfully high under the Commerce Act, they have an avenue of
redress--that is, Chairman Nottingham's agency. They can
complain about the level of those rates, and if they can
successfully prevail in a maximum reasonable rate case, relief
is available to them in the form of a prescribed reasonable
rate and possibly reparations.
Tying back to your question of Chairman Nottingham on the
bottlenecks, too, which I think is implied in what you just
asked me, the Board does have procedures for complaining about
bottleneck cases. Those procedures, for reasons best known to
the shippers, have not been invoked. It is what is called Ex
Parte No. 575, and it requires that the shippers show an
anticompetitive purpose in the so-called bottleneck railroad
not opening up its facilities.
If there is such an egregious situation, why haven't we
seen those cases? Those procedures have not been tried.
Senator Hatch. OK. Mr. Chairman, could I ask two more
questions? I have to leave, and I would like to just ask these
two questions.
Chairman Kohl. Sure. Go ahead.
Senator Hatch. OK. I would like to ask Professor Bush--
welcome to the Committee, and we are proud of you, and let me
ask you this question: I was very interested in your testimony
where you state that ``the existence of an express immunity
providing protection from the antitrust laws for some
particular conduct may actually provide immunity for other
types of antitrust conduct.''
Now, could you explain in greater detail how that theory
applies to the railroad antitrust exemptions and, in
particular, the merger exemption?
Mr. Bush. Thank you for the question. As you move away from
a regulated world where portions of that regulation are sort of
stripped away, as the STB has done in their ratemaking region--
a lot of the rates are not set in sort of an STB realm, but are
subject to the antitrust laws. The fact, for example, that
there is a potential for re-regulation by the STB of
deregulated--rates that the agency has deregulated may give
pause to a judge who has a private plaintiff action before him.
The judge will sit there and think: On the realm of my docket,
do I want a case that could be potentially moot if the agency
decides to re-regulate? In other words, the agency could walk
away from regulation and then decide to come back to it later.
So you can have reluctance by a judge and even private
plaintiffs to bring an action because of what--this is immunity
by proximity.
With respect to merger authority, while you may repeal the
actual express immunity within the act, there is still the
notion of implied immunity, which I have mentioned in my
testimony, and the doctrine of primary jurisdiction. In the
context of implied immunity, even if it is not express
immunity, if the regulation is perceived as so pervasive a
judge may find that it is impliedly immune because of the
pervasiveness of the regulation, and you only need to look at
two recent Supreme Court cases to have that notion even before
the Supreme Court, the Credit Suisse case and Part 4 of the
Trinko case.
Senator Hatch. Mr. Moates, you seem to disagree with that.
Did you disagree with that comment?
Mr. Moates. No. I was not in agreement with his reference
to Trinko.
Senator Hatch. I am just wondering. You just looked a
little dyspeptic there for a minute.
[Laughter.]
Mr. Moates. I am sorry.
Senator Hatch. No. That is fine.
Mr. Szabo, how can one argue that the railroads are not
scrutinized for antitrust violations? And is that not the
responsibility of the Surface Transportation Board? And was not
the largest civil antitrust judgment ever rendered or ever
handed down really against a railroad by the 5th Circuit in re
Burlington N., Inc. though admittedly the railroad subsequently
settled the case? And shouldn't the Department of Justice be
permitted to prosecute railroads that violate the Sherman
Antitrust Act?
Mr. Szabo. I am not familiar with that case, Senator, but
absolutely, we believe that the Department of Justice should be
able to pursue Sherman antitrust violations. We believe the
general policy that the Congress has set down for rail policy
as contained in Title 49 of the U.S. Code, 10101, is very
similar to what an antitrust court would look at if it has an
antitrust issue before it. We believe the STB has not looked at
that properly and has not included competition as an important
element. So we believe they have not done their job, and that
is why we want the antitrust laws to apply.
Senator Hatch. Mr. Chairman, I appreciate you letting me
ask those two additional questions, and I want to express
appreciation for this whole group of people. I appreciate all
of you. I appreciate your being here, and I appreciate the
concerns that you have raised. Let's keep looking at this and
see what we can do that is best for all concerned.
Thank you.
Chairman Kohl. Thank you, Senator Hatch.
Senator Feinstein?
Senator Feinstein. Well, thank you very much, Mr. Chairman.
As you know, I am not a member of the Committee, but at the
markup, I did say that there had not been a Committee hearing,
and you agreed to have one, and I want you to know I very much
appreciate that. I tried to listen as carefully as I could, and
it seems to me a pretty clear case where you have shippers who
feel one way and the people kind of in charge feeling another.
I have been reading the letter here from the Department of
Justice, and this was a letter sent to James Sensenbrenner back
in 2004. The issue of bottlenecks was raised. I want to just
raise the paper barrier issue and then ask the Surface
Transportation Board to respond to what DOJ says in this
letter.
Let me just read it quickly. ``Paper barriers are created
when Class I railroads spin off of their trackage to short-line
or low-density carriers with contractual terms that prohibit
the acquiring carriers from competing with the Class I
railroads for business. Since these contractual terms are part
of an underlying sale transaction that is reviewed and approved
by the Surface Transportation Board, they may be exempted from
the reach of antitrust laws''--that would be under the present
situation--``depending on the scope of the approval language in
each of the Board's relevant orders. If the paper barriers were
subject to the antitrust laws, they would be evaluated under
Section 1 of the Sherman Act. The Department would examine
whether the restraint is ancillary to the sale of the trackage,
i.e., whether the restraint is reasonably necessary to achieve
the pro-competitive benefits of the sale.''
What this is saying to me is that if the antitrust
exemption were removed, it would clearly fall under the
antitrust laws, and there would be the opportunity to find a
remedy. Do you agree with that or disagree? And if so, why?
Mr. Nottingham. Senator, thank you for the question. I
agree with some of what you said and disagree with others. We
actively have before us at the Board--
Senator Feinstein. Excuse me. I am not saying this. This is
the Department of Justice.
Mr. Nottingham. Oh, DOJ.
Senator Feinstein. I quoted exactly--
Mr. Smith. I saw the letter, and Will Moschella is an old
friend. When he used to work for Congressman Wolf, I worked
next door for both Congressman David and Congressman Goodlatte,
both Mr. Wolf's neighbors, and he is a good man.
I have not heard anything in the last period of years from
DOJ on this issue, but we welcome their input and would work
with them on this issue. We have right before us now, it is
important for the Subcommittee to know, a very important
rulemaking consideration that is pending. We have told Congress
in other venues, just last week on the House side, that we
expect to have something finally out on the issue of paper
barriers this month. And we do have some concerns in that area.
I will say it is important to understand what they really
are, though. These are typically underused track that a
railroad that is serving a group of customers--so one railroad
serving a group of customers agrees to let another railroad
serve that group of customers. It is not an effort or a
technique to reduce competition. In fact, one of our concerns--
and this will be addressed as we come out with final rules.
What would the outcome be, in other words, if railroads Class I
were to stop entering into these agreements? Would you actually
have more competition or would you just be taking business away
from short lines who are actually doing an excellent job at
lower cost providing--meeting shippers' needs?
And so the issues are always a little more complicated than
we can get in in a quick answer, but I do urge the Committee to
look at our work when we come out in the next few weeks, and I
would be happy to come up and brief the staff or the members on
it.
Senator Feinstein. All right. We have just begun a vote, so
my time is limited. But is there a response from the shippers
to this point?
Mr. Szabo. Senator Feinstein, we think paper barriers are
bad. We think that without paper barriers, people would locate
on these short lines, and they would have access to
competition. Short lines would become more robust. Perhaps over
time several short lines would unite to become another rail
system. We think they are a blight on competition.
Senator Feinstein. Thank you.
I very much appreciate this, Mr. Chairman. It has certainly
given me a much clearer view of what the issues are and the
legislation, so thank you very, very much. I appreciate it.
Thank you, gentlemen, too.
Chairman Kohl. Thank you, Senator Feinstein.
We do not have a lot of time. There is a vote. But I would
like to ask another question.
Mr. Szabo, railroads claim that regulation of their
industry is so pervasive that applying antitrust is
unnecessary. But hasn't the regulation of railroads by the STB
been greatly reduced in recent decades by such legislation as
Staggers and the ICC Termination Act?
Mr. Szabo. Mr. Chairman, that is not correct. The STB is
supposed to allow a rate challenge process for rail customers
who do not have access to competition. The GAO report you cited
earlier says it does not work, that, in fact, it is
inaccessible to most rail customers. The new rules that Mr.
Nottingham referred to, when they were proposed, rail customers
united, 36 groups said these were worse than current law. No
changes were made to the proposed rules, and rail customers do
not believe the STB is improving its process. So we disagree
with that proposition.
Chairman Kohl. Mr. Berg and Mr. Vander Schaaf, what is your
view? How effective is the STB for a shipper to challenge an
excessive rate charge by a railroad or to get remedy? Mr.
Vander Schaaf?
Mr. Vander Schaaf. From my experience we have never gone to
the STB just from a standpoint of the challenges of doing it
and the perception that the results will not be favorable.
Seeing as we have not done it, I do not have an answer of proof
that it did not work. But the perception is that it is one more
act of futility.
Chairman Kohl. Mr. Berg?
Mr. Berg. I essentially share that. We are considering
doing that based on our 2006 rate increases from the railroads.
But we have to take into consideration the recent results that
we have seen out of the STB, including a sister generation and
transmission cooperative who did not get any relief and spent
$6 million in the effort trying to do that.
Chairman Kohl. Mr. Nottingham?
Mr. Nottingham. Thank you, Senator. I would say Mr. Szabo
needs to look at the record carefully. In our proceeding he
just reference where he said no comments coming from shippers,
including his coalition, were taken into consideration, I
strongly object to that. I think the record is very clear that
between the public comment period and the final rule,
significant changes, including raising the bar to allow cases
up to $1 million to be brought into our most simply dispute
resolution process for only a $150 filing fee, were made, and
many more. And I would urge him to look back at that record and
try to correct his statement today.
But we are in the midst of enormous changes at the STB. We
are conducting a vigorous oversight. We are being sued by the
railroads as we sit here today. They object violently to some
of our reforms. I am also happy to report we are being sued by
many, many shippers. It seems that everybody is suing us, and
we feel, if that is the case, we must be somewhere in the
middle and doing our job.
Chairman Kohl. All right. Mr. Nottingham, in 1979, there
were 42 Class I freight railroads in the United States, 42 in
1979. Today, only four railroads serve 90 percent of the
Nation's railroad traffic, and there are only seven freight
railroads remaining in total.
Chairman Nottingham, how many railroad mergers and
acquisitions has the STB or its predecessor agency, the ICC,
blocked among Class I railroads in the last three decades?
Mr. Nottingham. Mr. Chairman, I would like to be able to
respond on the record to you for that to make sure I get it
just right. I was a youngest in 1979, but in reading the
history, I can say that the GAO report you cited last year
stated very clearly that rates have come down overall over a
25-year period since the Staggers Act and now. There are not
just seven railroads in the country, although there are seven
Class I's. There are more then 500 short line, and they play an
increasingly important role.
We are seeing some merger activity currently. Recently, the
Canadian Pacific announced a significant--looking at a
substantial merger with the DM&E. That is not before us yet,
but it is coming very soon for our review. We have just seen
the announcement by the Canadian National of an potentially
important merger that may get them out of the Chicago gridlock
situation. And we have seen some other significant short-line
activity, the Florida East Coast case, recently a merger.
So there is a lot of merger activity out there. My
understanding of the history, the Board has approved the vast,
vast majority, but in recent years, being the last 20 or so
years--that is important to understand the context--massive
bankruptcies and massive underinvestment in the rail industry,
not surprising that proposals to consolidate and invest more in
basically dysfunctional railroads would be looked on with some
approval by the agency charged with, in part, looking after the
economic health of the network for the benefit of shippers. In
most cases, shippers come to us and support mergers because
they see the dysfunctional nature. They are paying the price of
lack of investment pre-merger. But we look at each one
independently, of course, on the merits.
Chairman Kohl. Should the Justice Department be able to
review railroad mergers? Mr. Moates, Mr. Bush, Mr. Szabo.
Mr. Moates. Senator Kohl, thank you for that question. It
does, and indeed, if you will permit me, I am going to brag
about one of the defeats of my career. I can help answer the
prior question.
I was counsel to the Santa Fe Pacific in the Atchison,
Topeka, and Santa Fe Railway in the mid-1980's when the
Interstate Commerce Commission turned down our application for
a merger between the Santa Fe and the Southern Pacific. It did
that in large measure because of the forceful opposition of the
Antitrust Division of the Department of Justice, which
participates per statute as a party in all rail merger cases.
So the Justice Department, believe me, plays a very significant
role in all railroad merger cases, and the ICC and today the
STB pays a lot of attention to its views.
So I know about one they got turned down because it was my
case.
Chairman Kohl. Thank you.
Dr. Bush?
Mr. Bush. There is a difference between participating in
another agency's regulatory proceeding and actively
investigating a transaction. When I worked at the Department of
Justice, when I was investigating a transaction, I had all
sorts of authority to engage in document requests, conduct
depositions, engage in civil investigative demands of
competitors, talk to customers, and all of these things that
are not traditionally a good use of resources when another
agency has exclusive jurisdiction.
Therefore, the Department of Justice's guesstimates as to
the potential anticompetitive effects of a merger absent those
powers does not suggest that the agency might have really
concurred with those decisions had they had that authority.
Chairman Kohl. Mr. Szabo?
Mr. Szabo. Mr. Chairman, I think your bill has it right.
There was the UP-SP merger that was approved by the STB in
1996. I believe it was 1996. The Department of Justice
strenuously objected in comments. Those comments were ignored.
They had no recourse. Your bill would allow them to go in and
try to enjoin it if the STB had not done it properly. So I
believe that is correct.
Chairman Kohl. Thank you. Well, gentlemen, I have to run to
a vote. It has been a really good hearing. We will keep the
record open for some additional questions and your comments. I
would appreciate staying in touch with you if I can as we move
along in this process. We will attempt to find a common ground
and the right balance and justice in this matter, and your
being here helps us a great deal.
Thank you so much for being here. This hearing is closed.
[Whereupon, at 11:57 a.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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