The critical takeaway from enactment in December of the Surface Transportation Board Reauthorization Act, S.808, is that, absent headline-capturing abuse of captive shippers by railroads, it is unlikely Congress will refocus anytime soon on diluting railroad market power.
PAC-rich railroads could have stopped this legislation as they blocked for more than three decades all previous attempts by captive shippers to tilt the regulatory playing field. It was the centrist approach by Senate Commerce Committee Chairman John Thune (R-S.Dak.) and the committee’s senior Democrat, Florida’s Bill Nelson, that made it propitious for railroads to take this deal and leave for the dustbin of history more draconian expeditions by Thune’s Commerce Committee predecessor, Jay Rockefeller (D-W.Va.), and similarly now-retired Senate Antitrust Subcommittee Chairman Herb Kohl (D-Wis.), both of whom sourly embraced a sock-it-to-the-railroads brashness.
Thune, formerly South Dakota’s railroad director and a lobbyist for Dakota, Minnesota & Eastern Railroad, possesses a keen perception of what is palatable to railroads. That he represents the home state of the STB’s lone Republican, Ann Begeman, was of notable coincidence as railroads stood aside to permit the bill to pass the Senate by unanimous consent in June and then the House by voice vote. Hardly a railroad lackey, Thune vocalized that the acquisition premium paid by Berkshire Hathaway for BNSF not qualify for a return on investment financed by higher freight rates; that no other regulated industry is permitted to glom onto acquisition premiums as a motive to raise rates.
Moreover, Thune’s constituency teems with rail-captive grain shippers, ethanol producers and coal-using electric utilities to whom he said, “We’ve got to provide an expedited way for shippers to have their grievances heard and settled … in a less expensive way [with] an empowered, more robust STB.” The legislation delivers on the advertised.
Unlike Rockefeller, Thune avoided outcome-determinative provisions such as elevating shipper priorities to an equivalent level in the statute as rail revenue adequacy; shifting to railroads the burden of proof in rate challenges; or urging the STB consider two-railroad competition at sole-served terminals (open access). Unlike Kohl, Thune avoided language handing the Justice Department overlapping antitrust authority over railroads or eliminating such immunity for collective ratemaking.
The most consequential provision of the new law is enlargement of the STB from three to five members, creating significant uncertainty. While politics rarely drives rail regulatory decisions, the backgrounds, experience and perceptions of regulators does. There hasn’t been a regulator with robust shipper bonds in generations. The addition of regulators with chemicals, coal or grain ties could inject, in a historically rail-friendly regulatory agency, a viciousness even Rockefeller hadn’t envisioned.
Adding to this trepidation is that the new law permits a majority of STB members to converse privately without violating Government in Sunshine laws. So even a single captive-shipper partisan could influence peers.
The STB now consists of two Democrats (Chairman Dan Elliott and Deb Miller) and Republican Begeman, whose term expired Dec. 31. By statute, if not renominated and reconfirmed, she may remain up to 12 more months or until a successor is confirmed. Thus, the Senate soon could be confirming two new Republicans and one new Democrat. But if the seats remain open through November, and a Republican is elected President, three of the five seats would be Republican. This is a powerful reason for Senate Republicans to avoid a confirmation vote in 2016.
Another significant provision requires establishment of expedited methods for determining rate reasonableness, which some shippers say is problematic “so long as the STB adheres to its view that the incredibly complex stand-alone cost methodology is the only economically appropriate method.” Congress, meanwhile, remains stingy with funding, boosting the current STB budget by only $1.4 million to $32.75 million for fiscal 2016, barely covering the costs associated with two new board members.
In press releases, captive shippers loudly applauded the new law, yet railroads are displaying an Alfred E. Neuman “What, me worry?” smile. Said one railroad captive-shipper attorney, “If railroads didn’t fight this bill, they must have good reason.”
