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October 2010
by Jeff Stagl, managing editor
Railroads' and rail shippers' long-running debate over proposed "re-regulation" legislation had simmered down a bit the past few months while the Senate Commerce Committee (SCC) considered the controversial Surface Transportation Board Reauthorization Act of 2009 (S. 2889), which proposes to increase rail competition, strengthen federal rail oversight and improve shippers' access to regulatory relief. But a Senate hearing on federal rail policy held Sept. 15 — and a report on Class Is' finances issued shortly beforehand by S. 2889's author Sen. John "Jay" Rockefeller (D-W.Va.) — re-heated the debate.
Rockefeller, who chairs the SCC, released a committee staff report stating that Class Is are charging "extraordinarily high" rates and that the Staggers Rail Act of 1980 needs to be reformed. Titled "The Current Financial State of the Class I Freight Rail Industry," the report claims Class Is are earning record profits at the expense of shippers, said Rockefeller in a prepared statement.
"If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on. But the reality is that Class I railroads have become some of the most profitable companies in the United States," he said.
Although railroads have told federal regulators they aren't making high enough profits to cover all of their long-term capital investment needs, they're using billions of dollars to buy back shares and boost the short-term values of their stocks, said Rockefeller.
"It's past time to update our rail policies to change a system that allows railroads to grossly overcharge captive shippers," he said.
The Association of American Railroads (AAR) "vehemently disagrees" with the report's findings and the need to reform the Staggers Act, according to a statement issued Sept. 15.
Imposing new federal regulations will undermine railroads' ability to sustain investments in their rail networks, which serve as a foundation for both freight and passenger rail, AAR officials said
"The report makes 'profits' and 'corporate efficiency' sound like dirty words. The reality is the railroad industry's return to financial health has resulted in private capital — not taxpayer dollars — getting turned back into building and maintaining the nation's rail network," said AAR President and Chief Executive Officer Ed Hamberger. "This report is aimed not at leveling the playing field, but at justifying attempts to regulate lower rates for some large shippers, like chemical companies, agribusiness and electric utilities. And as the Surface Transportation Board's own report found, lowering rates for some shippers through re-regulation would result in increased rates for other shippers, or decreased investments in the rail network."
Despite its title about Class Is' current financial state, the report "is simply a fundamental misunderstanding of finance and investing," said independent rail industry analyst and Progressive Railroading columnist Tony Hatch in an investment report issued Sept. 15.
"Rails are doing well now, but they need to do better to justify investment (by shareholders in rails and by rails in their own operations)," he wrote.
However, officials at freight-rail shipper coalition Consumers United for Rail Equity (CURE) — which backs S. 2889 and efforts to re-regulate the rail industry — believe the report shows how railroads "paint a bleak picture of their finances" to help delay rail reform efforts, yet "tout strong profits and robust growth to investors," according to a statement released Sept. 15.
"The railroads plead poverty to protect their monopoly and charge excessive rates to shippers, then turn around and boast of their strong profits to Wall Street," said CURE Chairman Glenn English.
Following the report's release, Rockefeller testified at the Senate hearing, which was titled "The Federal Role in National Rail Policy." Along with S. 2889 co-sponsors Sens. Byron Dorgan (D-N.D.), Kay Bailey Hutchinson (R-Texas), Frank Lautenberg (D-N.J.) and John Thune (R-S.D.), Rockefeller has engaged a dialogue with stakeholders to address their concerns before the bill is brought to the Senate floor, he said.
"Whether we do it this year or next year, railroad reform is going to happen," said Rockefeller. "Either Congress will do it, or it will need to be done through regulation."
But Hatch doubts S. 2889 or any type of "re-regulation" bill will ever pass muster.
"Despite the hullabaloo, the key thing to know is that it remains highly unlikely that a re-reg bill will become law over the objections of the rails and their employees, investors and supporters, including many (most?) in the shipping community," he wrote in his report.
On Labor Day, President Obama announced a $50 billion spending plan aimed at expanding and renewing the nation's transportation infrastructure, including railways.
The proposed plan — which President Obama aims to pair with the next surface transportation reauthorization bill — would build on investments already made under the American Recovery and Reinvestment Act and provide new allocations.
The plan calls for providing a $50 billion "upfront investment" to help build and maintain 4,000 miles of rail, rebuild 150,000 miles of roads, and rehabilitate or reconstruct 150 miles of runways.
The rail dollars target transit systems that have "fallen into a state of ill-repair," public transit system expansions and "significant" new funding for the federal New Starts program, according to President Obama. In addition, the plan would build on high-speed-rail investments and provide funding to overhaul Amtrak's fleet, he said.
The plan also proposes to establish an "Infrastructure Bank" to leverage federal dollars and focus on investments of national and regional significance, basing decisions on performance measures rather than politics, according to President Obama.
Building America's Future voiced support for plan and pledged to help identify funding options.
"A reformed, robust transportation infrastructure program will speed needed repairs for our crumbling assets, eliminate time Americans waste in traffic and establish a true high-speed passenger-rail network," said organization founder and Pennsylvania Gov. Ed Rendell in a prepared statement.
The OneRail Coalition also has spoken out in favor of the plan.
"The investment ... will build on the commitment made last year by Congress and the Administration to move forward with high-speed and intercity passenger rail, reinforce our vibrant freight-rail network and enhance our infrastructure to enable America to compete in the global economy," said Anne Canby, president of the Surface Transportation Policy Project and founding partner of the OneRail Coalition.
However, the Republican leader of the House Transportation and Infrastructure Committee is less than sanguine about the plan.
"Instead of proposing a plan to more quickly invest the billions of dollars in infrastructure projects already approved in the first failed stimulus, we get another Obama tax-and-spend program," said U.S. Rep. John Mica (R-Fla.).
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