In comments filed with the Surface Transportation Board regarding Reciprocal Switching, STB Ex Parte No. 711 (Sub-No. 1), the Association of American Railroads said the proposed rules are “unlawful” and “contrary to established law dating back well before the Staggers Act.”
Following is the AAR’s summary. A PDF of the full comments can be downloaded from the link below.
The proposed reciprocal switching rules are unlawful. They are contrary to established law dating back well before the Staggers Act and providing that a shipper must show “actual necessity” to obtain an order of forced switching. Jamestown, N.Y., Chamber of Commerce v. Jamestown, Westfield & N.W. R.R. Co., 195 I.C.C. 289, 292 (1933). They ignore the statutory language that itself requires a showing of necessity for a switching order. The rules give no weight to provisions of the Rail Transportation Policy (“RTP”) directing the agency to allow market forces to govern railroad commercial activity to the maximum extent possible and to minimize regulatory intervention into the market. In contrast to the existing competitive harm standard of the Board’s Competitive Access Rules (“CARs”), the proposed switching rules would allow a shipper to obtain a forced switching order without any showing of need to remedy a harm. They are a “no fault” recipe for regulatory intervention that turns the existing access regime upside down. The omission of the requirement that a shipper show need to obtain an order of forced switching is particularly puzzling in light of the Board’s unambiguous statement in the Decision that a shipper seeking a switching order “would be required . . . to bear the burden of showing that reciprocal switching is needed. There would be no presumption of need.”
The Board in its Decision also acknowledges that granting access “on demand” is impermissible under the governing statute, Decision at 15, but the proposed rules contain no mechanism for preventing this admittedly unlawful result. As written, the rules would allow access on demand, particularly under the second prong where a sole-served shipper would only have to show that it is located near a working interchange and served by a market dominant railroad to justify a switching order. Even under the first prong, the Board does not reflect the governing law that limits its discretion to order forced switching. The Board’s suggestion that it might tighten the access spigot on a case-by-case basis cannot remedy the rules’ infirmities when there is no mechanism for accomplishing this result, no recognition of the statutory limits on the Board’s authority, and no set of standards to guide the Board in complying with those statutory limits.
The Board avoids addressing the substance of the central policy directives that led the ICC to adopt the existing standard—the policies set forth in 49 U.S.C. § 10101(1)-(3) to rely on demand-based pricing, to “minimize the need for Federal regulatory control over the rail transportation system,” and to allow rail carriers “to earn adequate revenues.” The Board’s newly proposed reciprocal switching rules would undermine demand-based pricing, entail a significant increase in regulatory control, and threaten rail carriers’ revenue adequacy by substituting artificial competition for marketplace decisions involving the routing of traffic and the setting of rates. It is not lawful for the Board to launch a program of increased regulatory activity without first assessing whether the program can be reconciled with the deregulatory policies set out in the RTP.
The Decision refers repeatedly to the Board’s discretion under the statute as justification for a rules change. But the Board’s predecessor recognized that Congress’s strong deregulatory intent in the Staggers Act and the RTP imposed significant constraints on the ICC’s discretion to order reciprocal switching. The ICC and the courts clearly understood that whatever discretion the agency had under the statute, it did not include the discretion to create artificial competition, to restructure the rail industry, or to permit shippers to use forced switching to circumvent statutory requirements governing rate reasonableness. ICCTA, which created the Board, reinforced the deregulatory approach Congress adopted in the Staggers Act.
The proposed rules are also legally flawed because the Board has failed to set forth a coherent rationale for moving from a model of access as a remedy for harm to a model where access can be granted without a demonstration of need. The Administrative Procedure Act requires a reasoned explanation of an agency’s change in policy. But the reasons given by the Board for reversing long-standing policy—dearth of cases under the existing standards, increased industry concentration leading to reduced “naturally occurring” switching, improved financial health, and technological advances—are makeweights. They are not supported by salient facts. They are not connected to the substance of access policy.
The Board has provided no rational explanation for changing its reciprocal switching rules. The failure of the Board to articulate a reasonable justification for reversing established regulatory policy is accompanied by the inexplicable failure to conduct any assessment of the likely impact of its proposed switching rules. When the Board launched its original EP 711 proceeding, it believed that assessing the likely impact of the National Industrial Transportation League’s (“NITL”) proposed rules was crucial. But once the Board had collected extensive information on impact from multiple parties, it essentially ignored it. Moreover, the Board failed to make any assessment of the likely impact of its proposed rules. AAR’s witness Michael Baranowski shows that the Board’s proposed rules potentially affect a significantly greater number of carloads than the NITL proposal, and even under the second prong of the proposed rules, the number of carloads potentially subject to forced switching substantially exceeds the level that the Board considers to be “significant.” Decision at 34.
The Decision contains no analysis of the potential benefits and costs of the proposed rules, notwithstanding the clear legal requirement that an agency assess the costs imposed by new regulatory schemes. Michigan v. EPA, 135 S. Ct. 2699 (2015). AAR’s witness Mark Fagan explains why the Board’s failure to analyze costs and benefits in its Decision has resulted in the formulation of rules that are not rational or grounded in sound policy. Despite its failure to address the evidence of impact in EP 711, the Board acknowledges concerns over possible service impacts of forced switching, yet appears to believe that those concerns can be addressed on a case-by-case basis. But as AAR’s witness William Rennicke explains, the unintended consequences of expanded use of access remedies cannot be adequately addressed through case-by-case litigation.
The proposed rules are invalid. The Board should withdraw them and terminate this proceeding.
Railway Age Contributing Editor Frank Wilner offers some historical perspective on forced access:
“Just prior to the 1973 Regional Rail Reorganization (3-R) Act (it actually became law in January 1974), and following the Penn Central insolvency, then-ICC Chairman George Stafford, a Kansas Republican with no transportation background at all, and nominated to the ICC by Lyndon Johnson—and later named by Richard Nixon as the first permanent chairman of the ICC—urged, as ICC chairman, open access for all solvent connecting railroads to Northeast insolvents’ trackage that would be folded into what became Conrail. The rationale: The insolvents were to be subsidized by taxpayers. Stafford also recommended a 1% waybill tax on all rail, truck and barge shipments to provide dedicated future funding beyond congressional appropriations to keep the insolvents operating in the short term.
“A shocked Union Pacific Chairman Frank Barnett then enlisted Rep. Dick Shoup (R-Mont.), and Rep. Brock Adams (D-Wash.), who would later be Secretary of Transportation in the Carter Administration and then be elected to the Senate, to advance the legislation that did become the 3-R Act and that created Conrail out of the then-seven Northeastern insolvents. With the support of House Commerce Committee Chairman Harley Staggers (D-W.Va.), the bill moved quickly through the House; and Senate Commerce Committee Chairman Warren Magnuson (D-Wash.) moved the 3-R Act successfully through the Senate. The ICC’s “radical” notion of open access and a waybill tax was fed to the dust bin of history. After Nixon signed the 3-R Act into law ICC Chairman Stafford quickly fell into line in support.
“The point is that open access is nothing new at the ICC/STB.
“For their efforts, Shoup became Union Pacific’s chief lobbyist; Adams eventually accepted a lucrative lobbying deal with CSX and other railroads; and Adams’ legislative assistant, Woody Price, who did much of the heavy lifting on 3-R, became CSX’s chief lobbyist.”
Similar comments to AAR’s are in other submissions filed to the STB:
“UPS’s experience in other contexts leads us to conclude the that implementation of a new reciprocal switching scheme will lead to decreased network velocity, diminished capital investments into the freight network, and deteriorating rail intermodal service levels.” United Parcel Service, 10/26/16.
“The proposed regulations would further undermine the existing regulatory framework and could have a chilling ripple effect on areas affecting labor, including the wages, rules and working conditions of employees. Any reduction to railroad revenue will directly impact employee wages and benefits.” SMART-TD, 10/26/16.
“The regulatory proceeding regarding revised reciprocal switching rules that was recently opened by the STB reverses three decades of precedent.” Competitive Enterprise Institute, American Commitment, American Conservative Union et al, 10/26/16.
Download attachments: AAR comments on STB reciprocal switching proposal