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February 2010
by Pat Foran, editor
Sun soaked the District of Columbia on the day Sen.-elect Scott Brown (R-Mass.) made the rounds on Capitol Hill. On Jan. 21, reporters and cameramen co-mingled in the Capitol halls to catch a glimpse — not just of Brown, who two days earlier had won a seat held for nearly 50 years by the late Ted Kennedy, but of the moment in time that it may or may not have represented.
Amid "Scott Brown For President" murmurs, a series of rhetorical questions clouded this otherwise crystal-clear winter day. If the people of Massachusetts had spoken, what exactly had they spoken about? Did their concerns mirror the rest of the country's? Was it a referendum on "change," as in that it hadn't come quickly enough, or had there been a misread about what change and the mandate for same meant? Was health care reform dead? What would become of the oft-discussed second stimulus package? Had the 111th Congress' priority list now changed? Would much of anything happen legislatively this session?
Rail leaders, lobbyists and other transportation industry observers were among those asking and answering those questions during Scott Brown Week. For the most part, though, they kept their contemplating and speculating to themselves.
"In this town, I've learned that it's best to wait 48 to 72 hours before weighing in on something like this," as one longtime rail lobbyist put it.
Of course, the rail lobby has had a bit of practice on the "think before you speak" front of late. For the better part of a year, those who advocate on behalf of railroads and rail customers have been biting their tongues (at least publicly) while offering up what they hoped would be considered constructive feedback during the crafting of S. 2889, the Surface Transportation Board Reauthorization Act of 2009.
The goal: develop a piece of legislation that all stakeholders could support.
Written with extensive bipartisan input from a range of stakeholders shrouded under a "Cone of Silence" that kept them from discussing even the tenor of the dialogue surrounding the "balanced competition" measure, S. 2889 was introduced on Dec. 17, 2009. If passed, it would represent the first comprehensive reauthorization of the STB since it was established under the ICC Termination Act of 1995.
Stakeholders' respective takes won't truly take shape until S. 2889 includes (or doesn't include) the type of "antitrust" language that Sen. John "Jay" Rockefeller (D-W. Va.) indicated it would when he introduced the bill. But railroads, shippers and their advocates are well aware that how they talk about the measure as it wends its way through Congress could have a considerable impact on rail-shipper relations, as well as the transportation legislation dynamic in D.C.
Can railroads, shippers and lawmakers keep the collaborative faith — and peace in the rhetorical valley — as the STB reauthorization bill wends its way through Congress?
As of early February, many seemed more than willing to try, if for none other than pragmatic reasons. Railroads have their eyes on other legislative prizes, from tax credits to TIGER grants. If they don't do their part to keep the rail-shipper peace, and let the tenor of the STB bill debate devolve into fightin' words, they could put those want-list items in jeopardy. But there's more to the stick-to-it-iveness than that: Keeping their rhetorical thoughts to themselves had served them well so far, so why not stay the constructive course?
"We're going to see this through," said Association of American Railroads' President and Chief Executive Officer Ed Hamberger in a Jan. 21 interview.
For the rails, the trip down perspective lane began a little more than a year ago, when Sen. Herb Kohl (D-Wis.) and Rep. Tammy Baldwin (D-Wis.) reintroduced the Railroad Antitrust Enforcement Act of 2009, which proposes to repeal railroads' antitrust exemptions. In 2008, the House and Senate judiciary committees approved the bill — which railroads vehemently opposed — but the legislation didn't advance to a full vote. Although similar measures also failed to gather enough support in 2006 and 2007, Kohl and Baldwin believed the bill had a better chance to advance, given that the Democrats now controlled Congress.
Meanwhile, railroads knew an STB reauthorization bill, one that Rockefeller ultimately would call "the first significant rail competition reform policy in 30 years," was coming, as well.
"We recognized he was going to want to address the economic regulatory system for the railroads," Hamberger said. "He invited us to come in and talk."
And talk, they did. As chair of the Senate Committee on Commerce, Science and Transportation (SCC), Rockefeller told the rail contingent that he wouldn't be re-introducing "his old bill" to reauthorize the STB, Hamberger said. That bill — railroads referred to iterations of it as "re-reg" while shippers called it "pro-competitive" — never came close to becoming law. This time, Rockefeller's aim was to craft a bill that would have 80 senators supporting it.
"That meant everybody would have to buy in," Hamberger said.
As in railroads and rail shippers.
"Was there a way to resolve this so that it didn't continue to get in the way of other issues, and, if possible, have peace in the valley?" Hamberger said. "We decided, as an industry and at the CEO level, to try to put on the table some ideas that we knew [would address] the senator's major concerns."
Those concerns included a few of the issues railroads and some shipper groups have fought over for years — from bottleneck rates to terminal access points to paper barriers.
"We did not think there were major changes to Staggers that needed to happen — our position was, 'If it ain't broke, don't fix it,'" Hamberger said. "But we recognized that not everybody shares that view."
The senator/SCC appreciated that perspective.
"I think the words were, 'We are surprised, impressed and pleased,'" Hamberger said. "That was the beginning of the process."
Before that process could begin in earnest, the SCC insisted that stakeholders keep their thoughts to themselves — from "insider"/behind-the-scenes stuff to any external communications rhetoric — for the duration of the bill writing process. All agreed to operate under a "Cone of Silence."
The conversations continued during the next several months, albeit in separate sessions — representatives from both rail and shipper constituencies characterized them as "educational" in nature, with SCC staffers soaking in as much information and nuance as they could from both parties.
"There weren't any meetings between railroads and us — [SCC] would meet with us, then the railroads," said Robert Szabo, executive director of Consumers United for Rail Equity (CURE), a coalition of rail shippers "seeking changes in federal law and policy that would require railroads to provide more competitive pricing and reliable service," as CURE's Web site states. The organization's members include the American Chemistry Council, American Forest & Paper Association, American Public Power Association, Edison Electric Institute, National Rural Electronic Cooperative Association and Portland Cement Association.
"We never sat down together, one on one, negotiating — which is fine," Szabo said. "I always thought it would work this way once we were serious."
Meanwhile, Rockefeller continued to let it be known that he believed in rail. On May 14, he and Sen. Frank Lautenberg (D-N.J.) introduced The Federal Surface Transportation Policy and Planning Act of 2009. The legislation's goal: to establish a "comprehensive and unifying mission for the nation's surface transportation system," in part by boosting the use of intercity passenger rail and the proportion of freight transportation provided by rail and other modes by 10 percent by 2020.
AAR's Hamberger praised the senators' "vision in setting the stage for the creation of a comprehensive, integrated plan that addresses the challenges facing our nation's surface transportation infrastructure," in a prepared statement.
Then, a couple weeks later, Kohl and Rockefeller announced they'd reached an agreement to remove Kohl's antitrust bill from Senate consideration and include antitrust language in the STB reauthorization measure.
"We hope to shortly have a bipartisan package that reforms the [STB] and repeals the railroads' antitrust exemption available for the consideration by the full Senate," Kohl and Rockefeller said in a June 1 joint statement, characterizing the reform package to come as "robust."
"Though we had concerns, we felt, 'Let's keep the process going,'" AAR's Hamberger said.
Work on the bill continued through summer and fall. It was clear, Hamberger and others said, that SCC wanted to get the bill out of committee by year's end.
On Dec. 17, Rockefeller finally introduced S. 2889. Co-sponsored by Sens. Lautenberg, Kay Bailey Hutchison (R-Texas), John Thune (R-S.D.) and Byron Dorgan (D-N.D.), the bill was "carefully crafted to address rail-shipper imbalances and strengthen the rail industry," according to an SCC bill summary.
Under the "increasing rail competition" banner, the bill would require major railroads to quote bottleneck rates and direct the STB to establish a new "rate reasonableness" process; set standards for reciprocal switching and terminal access rates; allow parties to challenge existing and future paper barriers; and increase STB scrutiny of future railroad mergers — including those between Class Is and Class IIs — for competitive, service and environmental effects. The bill also seeks to boost STB's oversight authority. It would update the federal rail transportation policy, provide the board independent investigative authority (now, STB only can investigate if there's a complaint) and create a rail customer advocate to help resolve disputes. The legislation also would expand the STB from three commissioners to five to "ensure a broader representation of interests and expertise."
In addition, the legislation would allow certain complaints to be resolved through binding arbitration, open STB's simplified rate case process to more shippers and larger cases, require the board to review current class exemptions for unregulated rail traffic and set lower fees for filing complaints. The bill also would "send a clear message that railroads must provide not only a reasonable rate but also reasonable service" by requiring roads to provide shippers with a range of service expectations for every common carrier rate.
Notably missing were the antitrust reforms. Rockefeller said he planned to continue working with Kohl to add them to the bill as it moved to the floor. In a prepared statement, Kohl said he believed that when the full Senate considered the bill, it would include a repeal of railroads' antitrust exemption, which "is wholly undeserved, shared by virtually no other industry and clearly anti-competitive."
The early returns from the shipper groups essentially were favorable, the absence of antitrust language notwithstanding. The bill might not have contained all the policy changes the National Grain and Feed Association (NGFA) had hoped, but it provides "meaningful corrections" to current law and "hopefully will set the stage for a more balanced regulatory environment," said President Kendell Keith in a prepared statement, echoing the sentiments of several organizations.
Yet to weigh in on the bill as of early February was the National Industrial Transportation League, which represents a range of rail shippers. The league expected to issue a statement sometime in early February, said President Bruce Carlton via email.
CURE's response? The measure is "very good" when it comes to transforming the STB into a "more robust, proactive and rail-customer-sensitive organization," said Szabo. It also goes a long way toward "knocking down some of the barriers to competition erected by the STB and ICC," he added.
"Where we didn't get as much as we wanted to get was in the rate-challenging process," Szabo said. "But we understand this is a compromise."
The quick-hit characterizations of a few investment analysts days after the bill was introduced implied the compromise was something the rails probably could live with, as well — a sentiment that surprised a few rail advocates. As independent analyst and Progressive Railroading columnist Tony Hatch noted a few days after the bill mark-up: "So far, it seems that most investors and analysts are sanguine — 'It's not so bad; let's move on' — but that is not what I am hearing from the carriers."
Or from those who supply and/or serve them.
"We have serious concerns about this bill because of the bottleneck and terminal access provisions — both of those are almost certainly going to lower freight revenue," said National Railroad Construction & Maintenance Association Inc. President Chuck Baker.
Meanwhile, the more rail execs peeled back the bill's layers, the more questions they had, particularly with respect to concepts like "reasonable service" and, ultimately, about whether the bill represented a philosophical rethink of the STB. By mid-January, they began to express their concerns publicly.
"The bill, as is, is something we could not support," AAR Vice President of Communications Patti Reilly said in a Jan. 21 interview. "We could be backed into corners we don't want to get into."
For example, the "undefined nature" of the bill's costs, from bottleneck rates and other access issues, are "overly dependent on undefined future STB decisions," Hatch said. The bill also didn't feature enough "compensating wins, such as in the critical area of 'replacement costs,'" he added.
Class I CEOs weighed in last month during their 2009 year-end financials teleconferences. During an eight-day span, CSX Corp.'s Michael Ward, Union Pacific Corp.'s Jim Young and Norfolk Southern Corp.'s Wick Moorman each said they couldn't support the bill in its current form, but that they'd continue to work with SCC to "forge," as Ward characterized it, "a balanced regulatory approach."
The expressions of CEO concern shouldn't have come as a surprise, a few legislative staffers said. "Remember, these were their first forays outside the 'Cone of Silence' — they had a lot of people waiting to hear what they had to say," as one put it. "Remember, too, that they never wanted any changes in the first place. But not one of them said they were bailing on it."
On Jan. 29, the rail contingent met with SCC staffers and "were given [an] opportunity to continue educating about the issues crucial to the industry," AAR's Reilly wrote in a Feb. 1 email, adding that the rails "spelled out the specifics of their concerns," although she didn't specify them.
Bottom line: SCC staff and railroads continue to communicate, Reilly wrote, adding that the tenor and tone of the dialogue was "professional É yet firm."
It's all part of what it means to keep the communication lines open. But the conversation piece that is antitrust could prove to be the real test to the parties' respective willingness to keep the dialogue going.
In March 2009, AAR's Hamberger expressed the rails' concerns about the now-defunct Kohl-Baldwin bill thusly: "All aspects of railroad practices exempt from antitrust laws are subject to STB jurisdiction. Eliminating the railroads' exemptions would not fill any void in the law. It would, however, create a scenario where multiple agencies have overlapping authority over railroads."
Moreover, the legislation would have retroactive application, meaning that previously approved mergers, line sales and related activities could come under antitrust attack, which could have raised "constitutional issues," he said. AAR's concerns remain, Hamberger said last month.
CURE's Szabo acknowledged that the antitrust issue represents a potential hurdle.
"I don't know how it's going to play out — all I know is what [Rockefeller] said at his mark-up," he said. "The problem is, in the regulatory system, it's hard to give [railroads] anything because they've got everything already."
That said, Szabo also was quick to add that neither side is interested in "fighting over this" for another 20 years.
"I think there is reason on both sides to reach a compromise, and I think this bill certainly puts us on that path," he said.
The willingness to steer clear of word wars appears to have left the door open for more dialogue. For the SCC, the next step is getting S. 2889 to the Senate floor — and a big part of that is making sure all of the stakeholders stay on board — and working closely with Kohl's staff on the antitrust issue.
"To their credit, the Senate Commerce Committee continues to be open to suggestions," said Keith Hartwell, a partner in Chambers, Conlon & Hartwell L.L.C., which lobbies on behalf of the American Short Line and Regional Railroad Association. "It's been a good legislative process."
Once (or if) S. 2889 reaches the Senate floor, stakeholders are looking forward to "seeking further bill enhancements," as NGFA's Keith put it.
In the meantime, the House Transportation and Infrastructure Committee is expected to develop its own version of rail reform legislation later this year; whether the committee will build on SCC's bill or take their own tack was anybody's guess as this issue went to press.
Historically, T&I Committee Chair James Oberstar's (D-Minn.) views have paralleled Rockefeller's, noted analyst Hatch in a Feb. 1 message to clients, adding that he wondered if Oberstar would "become more of a moderate, as well," on the economic regulation front. On Feb. 11, Rep. Corrine Brown (D-Fla.), who chairs the Subcommittee on Railroads, Pipelines, and Hazardous Materials, planned to conduct T&I's first hearing on the STB reauthorization.
"Congresswoman Brown has long seen the value of freight rail and the need for 'investability,'" Hatch said.
Ultimately, that's an economic regulation issue, rail advocates say.
"It's another reason why we sat down [with the SCC] last February — when you don't know what your industry's regulatory landscape is going to be like, you're less likely to invest," AAR's Hamberger said. "Getting some certainty was a driver."
In the meantime, the rails will continue to clamor for a long-term short-line tax credit extension and a new Class I investment tax credit — one that could help them fund mandated positive train control implementation. In addition, they'd welcome a second stimulus package, presuming it included a rail transportation element.
But expect them also to continue finding ways to bridge whatever gaps remain with respect to the STB reauthorization bill and, where necessary, to do their part to foster constructive dialogue — "the phrase du jour," as Hatch wrote in his Feb. 1 message, which he titled "Peace Pipes Trump War Drums?"
"It's been a good process," Hamberger said.
Good enough to keep the relative peace in the valley for the time being, at least.
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