RAILROADED!
	TOUTING TIMBER
	Editorial
	Wisconsin Favorites Heritage Days BELOIT

Railroaded!
Rates, Service Worsen for Captive Shippers

   Electric cooperatives are waiting for coal. Grain is piling up. Logs are rotting in the yards. Paper mills are shutting down machines and closing their doors.

   Exorbitant freight-rail rates and poor service that Wisconsin captive shippers—those without access to rail competition—have had to tolerate from the Class I railroads have taken a toll on the state’s economy and have reached a critical point. But captive shippers are demanding changes. Across the country they are banding together to back three pieces of federal legislation that take on the kings of “big business.”

   “Currently, Class I railroads overcharge and under-serve captive shippers with impunity and with an antitrust exemption preventing meaningful oversight by Congress. Customers have no power,” said Senator John D. Rockefeller IV (D–WV). “This means higher prices for electricity, food, medicine, paper products; the chemicals to protect our water supply and crops; and the basic ingredients of the plastics in many of the goods we purchase. This is crucial to protecting commerce in the United States.”

An Old Fight

   Following decades of conflict with shippers, the railroads became a regulated industry in the early 1900s. But along with regulation came certain antitrust exemptions that they still enjoy today.

   The railroad industry became bloated and it deteriorated financially through the 20th century, culminating in the late 1970s when 21 percent of the country’s track was operated by bankrupt railroads. It was in this environment that Congress passed the 1980 Staggers Act and largely deregulated the railroad industry. In the 25 years since, consolidations and mergers have cut the number of Class I railroads serving North America from 42 to seven, with four railroads controlling more than 95 percent of the industry.

   With the Staggers Act came the theory of differential pricing, which meant that captive shippers would pay more for their services to cover the fixed costs of operating the railroads. A study in 2000 found that captive shippers pay rates 20.9 percent higher than non-captive shippers and there is mounting evidence that the quality of service is decreasing. In Wisconsin, with only four Class I railroads operating and Canadian National (CN) dominating the tracks within the state, most industries are being affected by the expense of captive shipping.

Electric Co-ops Impacted

   Dairyland Power Cooperative is a generation and transmission co-op providing electric power to 525,000 residents of Wisconsin, Minnesota, Iowa, and Illinois. Each year Dairyland spends about $40 million to transport 3 million tons of coal, but with rising rates and deteriorating service its transportation expenses could skyrocket.

   Other shippers of Western coal have recently experienced rate increases of 50 to 100 percent. Similar increases in the cost of moving Dairyland’s coal would increase Dairyland’s total annual expenditures by 8 to 16 percent. In 2004, one of the Western railroads failed to deliver more than 25 percent of scheduled shipments, causing Dairyland’s fuel budget to jump 10 percent.

   “We have seen railroads move away from negotiating contracts and going to tariff rates,” said Brian Rude, director of external relations at Dairyland. “Basically, instead of working with us it’s a take-it-or-leave-it rate.”

Farm Co-op, Lumber and Paper Woes

   Cooperative Plus Inc. (CPI), a farm supply co-op with several locations in southeastern Wisconsin, has seen its rates to ship grain from Burlington to Chicago more than double since December 2003 due to unannounced rate hikes last November. These increases have put the co-op at a substantial disadvantage because its rates with CN are now more than twice those of some of its competitors who can use Wisconsin & Southern Railroad.

   “Ten years ago, the railroad encouraged us to expand and offered attractive rates and incentives to build the business. Now we are left with uncompetitive shipping rates and underutilized assets,” said Pat Vogel, president and CEO of CPI. “Instead of helping our farmer patrons with market opportunities, we have saddled them with higher cost of operations and reduced company profits. Our margins are among the lowest by industry standards, and few expenses are left to be trimmed.”

   As one of the top five industries in the state, the paper industry employs nearly 40,000 Wisconsinites. The industry’s heavy reliance on shipping by rail means that its bottom line has been cut, leading to mill closures and putting the industry at the center of the battle with the railroads.

   “What we have been witnessing the last couple of years has us really alarmed and concerned because we are an industry that is struggling right now,” said Patrick Schillinger, president of the Wisconsin Paper Council. “We cannot absorb the types of increases that we are seeing in rail rates and the decreases in overall service that we are receiving.”

   Butch Johnson, owner and president of Johnson Timber Corporation, had his rates double at a moment’s notice and his logs deteriorate while waiting for freight cars to arrive. “Our costs need to go down instead of going up because it will make us uncompetitive. As an example, there was the closure of the pulp mill in Brokaw. That could just be the start of other ones to follow,” said Johnson.

Readying Relief

   So what’s a captive shipper to do? Due to current antitrust exemptions, the only recourse is to file a rate case with the Surface Transportation Board (STB), the regulatory body that oversees the railroad industry to ensure competition and reasonable rates for captive shippers. The problem that many shippers face, however, is the amount of time and money that must be devoted to a rate case: about $5 million and a minimum of two years, according to Robert Szabo, executive director of Consumers United for Rail Equity (CURE). The shipper is very rarely the victor in such a case, which adds to the disillusionment with the system.

   To answer the pleas of captive shippers across the country, Congress is currently considering three pieces of legislation that would remove the antitrust exemptions and STB policies that give railroads the upper hand.

   In July, Representative Mark Green (R–WI) introduced the Railroad Antitrust and Competition Enhancement Act of 2005 (H.R.3318) after hearing from Wisconsinites about their problems with the current situation and its effects on the economy. Green’s bill would give shippers, states, and the U.S. Justice Department the ability to bring antitrust cases against the railroads if they believe anti-competitive measures are being taken as well as give the Justice Department a role in reviewing railroad merger proposals.

   “Our principal purpose in this legislation is to update the antitrust law and to really get at the long-standing exemption that the railroad industry has had,” said Green. “Railroads have now been operating in a deregulated environment for 25 years and I think we’re long past the time when we need to re-examine the antitrust law in respect to railroads.”

   In addition, companion bills were introduced this spring in the U.S. House of Representatives and Senate (H.R.2047 and S.919). At the heart of these Railroad Competition Acts are promotion of more competition within the railroad industry, more reasonable rates for captive shippers, and more affordable access to the STB.

   “This is hardly the competitive environment envisioned when Congress voted to deregulate the railroad industry,” said Representative James Oberstar (D–MN) in his statement introducing H.R.2047. “This bill will preserve existing rail-to-rail competition in areas of the United States where competition is working and take action to reduce impediments to competition that adversely affect rail customers.”

Shippers Optimistic

   Similar legislation has been introduced previously without success, but captive shippers and their allies believe this time will be different due to unified support from industries across the board and strong bipartisan co-sponsorships in both the House and Senate.

   “We’re off to a good start and there’s a lot of sympathy from members of Congress to our problem,” Szabo said. “More and more people from all over the country and from all kinds of industries are getting involved in the issue and talking to Congress.”

   Captive shippers are ready for the fight of their lives and for their livelihoods. But they need members of Congress to understand the plight of captive shippers and that without increased freight mobility in the state the economy is bound to suffer.

   “They need to hear from people, their constituents, that this is a problem,” said Szabo. “Talk to your members of Congress, talk to your senators, talk to your governor. Let people know about this problem.”—Keisha Rovick

Touting Timber
Farm Woodlots Growing Valuable Crops

“The most profitable acreage on the farm may not be the best corn ground. It’s often the farm woodlot.” —from A Farmer’s Guide to Woodland Management by Dick Hall

  Wisconsin farmers usually don’t think of the trees on their land as a crop. Instead, farmers tend to see woodlots as a place to hunt, gather firewood, and harvest every two or three decades or when they need some cash.

   According to Paul Bader, forestry services coordinator at Kickapoo Woods Cooperative in southwestern Wisconsin, this attitude toward trees may go back to the pioneer days. “Trees were in the way. They had to be cleared so that people could farm.” This perspective has persisted despite the fact that mills have been paying record prices for sawlogs and pulpwood in 2004 and 2005.

   Fifty-six percent all the timberland in Wisconsin is family-owned. About a third of these family-owned woods are on farms. That’s more than 3 million acres of trees owned by farmers. These private forests sell more wood to the mills than federal, state, and industry land combined.

   So, why don’t most farmers consider their trees to be a valuable crop? Bader believes, “Trees are a different kind of crop. To grow them successfully, you need to think in terms of decades rather than annual growing seasons. Because many woodlots have been “cherry-picked” and, thus, have few high-value trees, farmers can’t make a short-term return on them. So the pattern of neglect continues.”

Tending the Trees

   Not all farmers think this way. For example, take Vince Hundt, who farms in Coon Valley. Vince is a KWC member who has been tending the woodlands on his farm since the late 1970s. In most years, he does a “patch cut” on a few acres, sells the marketable wood, and manages his woods to regenerate red oak. He usually makes enough money to pay his property taxes from the wood sales. The quality of his woods is getting better every year.

   As in many areas of the state, deer are a big threat to red oak and other young trees in southwestern Wisconsin. Hundt has experimented over the years with ways to address this problem. His solution is to let everything grow in the patch cuts for a couple of years after the harvest. That way, there’s plenty of food for the deer and enough red oaks survive to get above deer-browse height. Then he thins out the trees and brush he doesn’t want.

   Phil Gudgeon, also a KWC member, takes a different approach. He and other family members produce and sell 500–1,000 gallons of maple sugar per year under the Kickapoo Gold label. “It’s going to take a while to get my woodlot in shape,” says Gudgeon. “In the meantime, my crop is maple syrup.”

   KWC provides an array of services to its 112 members—eight forestry workshops per year, “walks in the woods” with new members to help them get a sense of the strengths and weaknesses in their woods, help in developing forest management plans, and coordination of timber harvests. KWC members are served by Vernon, Scenic Rivers, and Richland electric cooperatives.

Cooperative Approaches

   There are forestry co-ops and associations working with farmers in other parts of the state as well.

   Martin Pionke, a dairy farmer in Waushara County and a member of Adams–Columbia Electric Co-op, was one of the organizers of Wisconsin Family Forests (WFF), a statewide non-profit organization comprised of township-level alliances.

   Over the past year, Pionke and other members of the Deerfield Alliance of WFF organized a group timber sale to provide pulpwood to the Domtar paper plant in Wisconsin Rapids. Almost 600 acres of low-grade red oak and pine were harvested. The group approach to the sale allowed 20 landowners to clean up their woods and make some money in the process. “Without the group approach,” reports Pionke, “Many of these parcels would have been too small to harvest profitably.”

   Living Forest Cooperative (LFC), headquartered in Ashland, has about 120 woodland owner-members, many of whom are served by Bayfield Electric Co-op. As with Kickapoo Woods Cooperative, LFC provides a range of educational and forestry services to its members. The co-op is currently in discussion with two farm supply cooperatives regarding the potential to coordinate forestry services and forest product marketing among the three co-ops.

   Thus, there is a growing number of farmers who are beginning to take a closer look at that tall, woody crop they may have neglected in the past, and some local landowner organizations around the state who are working with them on the best ways to manage that crop.—E.G. Nadeau, director of research, planning, and development for Cooperative Development Services

   A resource for those interested in this topic is A Farmer’s Guide to Woodland Management, published by Cooperative Development Services, which is available free of charge from the DNR (publication number PUB-FR-322 2005). Contact your local DNR office or call 1-608-267-7494.

Editorial
by Perry Baird

Fight for Oversight

When competitors are shut out from markets by discrimination and denied either transportation, raw material, or credit on equal terms, we do not have competition. We have the modern form of highway robbery.

You might think the above statement was on the mind of the cartoonist who produced the illustration below, so accurately does it reflect the sentiment displayed. The cartoon comes to us courtesy of Basin Electric Power Cooperative, which recently experienced stifling rate hikes at the hands of the Burlington Northern Santa Fe Railway—the only carrier the co-op is able to use for transporting coal to its generating stations. Our feature this month (see page 10) describes similar situations involving “captive shippers” in Wisconsin who are obliged to swallow unprecedented increases in freight rates imposed by rail companies.

Or maybe they’re not unprecedented. You see, the quote atop this column isn’t from a frustrated, modern-day rail customer but by Wisconsin’s most famous political figure: Robert M. “Fighting Bob” La Follette.

A Personal Narrative of Political Experiences, a 1912 autobiography penned by U.S. Senator La Follette when he was the Progressive Party’s candidate for president, recounts the history of regulating railroads and other large business conglomerates. The topic was central to the 1912 presidential campaign.

Persistent Politics

Railroads first organized in the 1830s. “For 40 years there was no attempt to invoke government control,” La Follette wrote. “The public depended solely on competition between railroads for the protection of public interests.” However, he said the public was to learn an elementary lesson: “The railroad is a natural monopoly.”

As a member of Congress, La Follette backed both the 1887 law that created the Interstate Commerce Commission (ICC) and the Sherman Anti-Trust Act of 1890, which sought to regulate rates and prohibit discriminatory and monopolistic practices. Back in Wisconsin as governor, La Follette successfully ran for re-election in 1904 on a platform calling for control of rail freight rates. In 1905 he promoted and signed a law setting up the state Railroad Commission. “It was more sweeping than any other legislation enacted by any state,” he wrote, commenting that the resulting rate decreases ordered by the commission actually helped promote growth of rail traffic, allowing both shippers and railroads to profit.

History Repeats

The following year, La Follette returned to Washington—as a newly elected U.S. senator—and he encountered national-scale battles over rail rates. In his 1912 memoir, he lamented, “The power of the railroads over Congress has been well-nigh supreme.” He found that government regulatory authority over rail companies had eroded in the years since the ICC and Sherman acts.

“For a generation of time since those decisions people have struggled to secure an interstate commerce law which would establish and enforce reasonable rates,” he wrote in 1912, noting he was offering a bill to give some teeth to the earlier laws.

Jump ahead 93 years to hear Wisconsin Congressman Mark Green, who recently introduced legislation to strengthen laws governing rail rates and competition: “I think we’re long past the time when we need to re-examine the antitrust law in respect to railroads.”

According to La Follette, Wisconsin was one of four states in the 1870s where consumers first began to demand government control of railroad pricing and practices. It’s fitting that Wisconsin is still a leader in the persistent struggle for oversight.

Heritage Days Offers Homespun Diversions

  

   In Beloit, the weekend of September 10–11 is Heritage Days, giving history-minded visitors the opportunity to help the community celebrate its rich beginnings while also joining in the timeless enjoyment of food, music, and art.

   Saturday festivities include an art fair and food vendors at Horace White Park. Perhaps the most historically relevant activities kick in on Sunday, September 11, from 11 a.m. to 4 p.m. At that time, a variety of tours and other activities are available at both the Hanchett-Bartlett Homestead and Beckman Mill—both landmarks of Beloit’s rich heritage.

   Beckman Mill, one of just a handful of working grist mills in Wisconsin, was built in 1868. The mill has now been restored to show how it looked and operated in its heyday in the 1920s. The mill property includes a newly built dam, a one-of-a-kind fish ladder, and the “Cooperage”—constructed in the 1840s for the manufacturing of wooden barrels for whisky produced in a nearby distillery.

   On the Sunday of Heritage Days, visitors to Beckman Mill will be able to tour both the mill, where corn will be ground, and the Cooperage. Those demonstrating will include a blacksmith, a potter, a basket maker, a broom maker, and those who spin wool, create rugs on a loom, and create bobbin lace. A small Civil War enactment will be presented. Meanwhile , the Hanchett-Bartlett Homestead will also be offering its own tours, demonstrations, and entertainment. The Homestead was built in1857, and has been artfully restored and furnished to show how a Victorian “upper middle class” family lived at the turn of the century. The 15 acres that make up the Homestead grounds include a limestone barn, built in 1857, and a schoolhouse that dates from 1873.

   Whether it’s history, homespun arts, or good food you crave, you’ll find what you’re seeking at Heritage Days.—Linda Hilton

Beckman Hill Park approximately six miles west of Beloit on County Road H (one mile south of Highway 81). The 50-acre park is open year-round, with tours of the mill available 1–3 p.m. Saturdays and Sundays, May through October. For information, call 608/362-8912 or visit www.beckmanmill.org. The Hanchett-Bartlett Homestead, located at 845 Hackett Street, is open Wednesday through Sunday, 1–4 p.m., June through August, and by appointment in May, September, and October. Further information is available through the Beloit Historical Society, 608/365-7835. or www.ticon.net/~beloiths/hanchett.htm.