Road Warriors
Co-op Leaders Get the View from Both
Sides of the Tracks
In the 109th Congress, some members on both
sides of the aisle supported a federal response to anticompetitive
practices by major railroads. What reform efforts lacked was
the backing of committee chairs to advance legislation. Then
came last November’s midterm elections, undoubtedly the
most consequential in more than a decade and changing the leadership
of every committee in both houses. One result was the elevation
of Rep. James Oberstar (D–Minnesota) to the chairmanship
of the House Committee on Transportation and Infrastructure.
As the committee’s ranking minority member in the 109th
Congress, Oberstar was the primary House author of a bill to
give rail-shipping customers more efficient and affordable access
to federal regulatory redress. In the 110th, he heads the committee,
and it oversees the federal agency responsible for providing
that redress.
So the timing couldn’t have been more
appropriate when hundreds of Wisconsin and Minnesota co-op leaders
gathered in La Crosse for the 2006 annual meeting of the Wisconsin
Federation of Cooperatives. Exactly one week after the elections,
they heard a spokesman for one of the nation’s four largest
railroads and a leader of a national rail-reform organization
square off in debate.
Keeping it Cordial
The Great Debate is popular, entertaining,
good-humored, and absolutely serious. Since its introduction
five years ago at the statewide co-op association’s annual
meeting, it has featured well-versed debaters arguing the merits
of contentious public policy issues including campaign finance
regulation, nuclear energy, global warming, property rights
versus eminent domain, and now, reform of railroad business
practices.
The advocates were not new to the issue. Robert
Szabo, of the Van Ness Feldman law firm in Washington, D.C.,
is executive director of the nationwide CURE (Consumers United
for Rail Equity) organization, formed to provide a unified voice
for “captive shippers”—businesses and industries
that depend on railroads for bulk shipment of materials and
have no access to competitive service providers.
Brian Sweeney is legislative counsel for the
Burlington Northern Santa Fe Railway (BNSF), a dominant entity
in the nation’s long-haul freight business and one of
the two (along with the Union Pacific) that deliver low-sulfur
coal from Wyoming’s Powder River Basin to electric generating
plants serving the central United States. Based in St. Paul,
Minnesota, Sweeney has been in the railroad industry for more
than 25 years and is responsible for his company’s government
affairs activities in Minnesota and the Dakotas.
In keeping with the event’s objective
to draw out the strongest arguments and have a good time doing
it, the two are on the platform and in their seats, energetically
making notes and offering the occasional dry-humored observation,
at least 20 minutes ahead of schedule.
Key to a Healthy Economy
The proposition to be debated is that the health
of the rural economy demands federal legislative intervention
because major railroads have effectively suppressed competition
while their shipping rates have climbed and service quality
has declined. Szabo, taking the affirmative position, speaks
first, with a strictly timed, 10-minute opening statement.
“This nation needs its railroads, and
customers need effective, healthy railroads,” Szabo says,
before noting that the nature of the business can invite abuses.
The infrastructure railroads decide to build
or not build, in turn, decides what areas and communities have
economic development, “which areas win and which lose,”
he says. Because of that enormous effect on economies and livelihoods,
it’s inappropriate for railroads to operate as unregulated
monopolies, Szabo says, yet that’s what they’ve
become as a result of a bill passed by Congress and signed into
law in October 1980.
The Staggers Rail Act of 1980 was intended
to resuscitate a rail industry that was “bankrupt and
in disarray,” Szabo says. It allowed companies to consolidate
operations and end economically unsustainable activities previously
mandated by law and regulation. “The federal government
said we should deregulate in areas where competition exists
and regulate where it doesn’t,” he notes. But instead
of this economic ideal, what really happened was the abandonment
of thousands of miles of track in the 1980s, leading to the
creation of about 500 short-line railroads and a great many
bike trails. There was also massive consolidation. The U.S.
went from more than 40 major railroads to four, and those four,
Szabo says, “don’t compete and are Balkanizing the
country.”
As to the regulatory safeguards supposedly
in place to address just such problems, Szabo says, “The
Surface Transportation Board is weak, and doesn’t regulate.”
Both debaters know cooperatives providing electric utility services
ac
ount for a large contingent in the audience
of about 300, and Szabo pitches his argument straight to them:
“If you think your state public utility commissions are
doing a good job as regulators, don’t confuse that with
the STB (Surface Transportation Board),” he says. “Customers
are without competition and unable to get reliable, affordable
rail service,” and to ask the STB for relief is to enter
a costly, time-consuming, and generally futile process, he adds.
The STB is a 1990s creation that replaced
the Interstate Commerce Commission (ICC), a relic of early-20th
century trust busting. But Szabo contends that in this case,
change has gone in the wrong direction. “The ICC was weak
but the STB is even weaker,” he says. Moreover, the railroads
received an exemption from federal antitrust law when they came
under regulation by the ICC, but under Staggers Act deregulation,
the government didn’t take the exemption back.
Oberstar’s bill in the 109th Congress
aimed at unstacking the STB deck, where “all burdens of
proof are on the customer,” Szabo says, adding that Oberstar’s
new chairmanship “will make a significant difference.”
“It’s time rail customers have
a fair shot where they don’t have competition,”
he says. “Take-it-or-leave-it propositions from the railroads
are no longer acceptable.”
A Two-Way Street
Many in the audience chafe under the near-doubled
costs for take-it-or-leave-it coal delivery paid by Dairyland
Power Cooperative to the BNSF and Union Pacific for 2006, compared
with the previous year. The co-op crowd displays its usual openness
and hospitality, but is also clearly partisan. A moderator has
reminded the audience that railroads “will not be entirely
bereft of anything that could be said in their behalf,”
and Brian Sweeney opens with an argument that sounds a lot like
the classic advice about being careful what you wish for.
Railroad companies are investing record amounts
of capital in infrastructure and upgrading their freight-hauling
capacity, Sweeney says, and “re-regulation would reduce
the capital available for those investments.”
The rhetoric is well-chosen; Sweeney knows
the audience is keenly aware of the role infrastructure problems—derailments
and capacity shortages—have played in erratic coal deliveries
and thin power-plant fuel reserves the previous winter.
But they also know power generators like Dairyland
are paying more to ship coal than to buy it in the first place.
Another set of arguments is needed.
Sweeney tries to find it in a parallel between
the capital-intensive nature shared by railroads and electric
utilities. He cites the Edison Electric Institute (EEI) on rate
increases, pointing out that as legislative rate caps expire
in deregulated states, electric rates go up. He adds, “Nine
out of 10 times, the railroads’ rate of return is poorer
than that for electric utilities.”
But Wisconsin and Minnesota have not deregulated
(or more accurately, restructured) their electric utilities,
and EEI member companies are investor-owned utilities, not consumer-owned
co-ops. This crowd has no incentive for pushing up retail rates
to boost the bottom line.
Still, Sweeney is not without something to
say. “Twenty percent of the railroad industry was in bankruptcy
at the time of the 1980 deregulation,” he tells the audience.
Despite capacity shortages and complaints about tardy service
in recent years, “You haven’t seen service problems
like in the late 1970s,” he says.
Back then, this vital sector of the economy
was in such bad shape that “Congress could choose to nationalize
it or deregulate it,” and made the better choice, he says.
Continuing to hammer at the idea that the
problems faced by railroads and energy utilities aren’t
very different, Sweeney constructs another parallel. This one
matches up the early 2005 Wyoming derailments and subsequent
reconstruction that even now puts some limits on delivery of
Powder River coal, with the August 2003 power failure that blacked
out parts of eight Eastern states after haphazard maintenance
let an Ohio transmission line sag into treetops and short out.
Since that costly failure, electric utilities
have had to spend more money to upgrade their maintenance and
system reliability, but they don’t properly credit railroads
for doing the same thing, Sweeney says. “They want us
to spend more money for infrastructure but at the same time
want us to lower our rates.”
The Comebacks
Each debater is allowed five minutes to rebut
the opponent’s claims, and Szabo speaks first, disputing
the idea that CURE wants “re-regulation.”
CURE members (the Wisconsin Federation of
Cooperatives last year led the formation of a state chapter
called Badger-CURE.) have a relatively short list of policy
goals, Szabo says. These include STB procedures that don’t
cost shippers years and millions of dollars to mount a rate
challenge; a requirement that railroads quote prices for hauling
a load over part of their route, not just all of it; and eliminating
“paper barriers” that keep short-line railroads
from hauling loads other than those permitted by the major railroads
who sold them their track.
“We call this competition,” Szabo
says. “They call it re-regulation.”
On this day, however, the last word goes to
the BNSF, and Sweeney isn’t quitting. He reels off a list
of retorts to the points raised in Szabo’s rebuttal. He
has conceded that the STB’s role “as it exists today
is not sufficient” to protect small shippers, but he defends
the paper barriers affecting short lines, saying they “preserve
service in areas that would otherwise have been abandoned.”
Before the Staggers Act only one railroad
served the Powder River Basin and now there are two; and the
railroads’ return on equity is lower than that for some
CURE members, Sweeney says.
Comments afterward make it clear that Sweeney
has won nothing except the audience’s respect for coming
before a plainly unsympathetic crowd and making his best case
with conviction and an affable manner. Still, one remark in
his rebuttal brings a knowing glance and, perhaps, rueful agreement
among those mindful of unintended consequences from more undertakings
than just the Staggers Act.
“Only out of Washington can you force
somebody to do something and not call it a regulation,”
Sweeney says.—Dave Hoopman
