Market Matters Blog

At the end of last year, the U.S. Surface Transportation Board appeared on track to finalize several rules that would affect the nation's railroads and shippers who use rail service to move products, including agricultural products and fertilizer. Now a move by the new presidential administration to freeze regulations pending review is raising questions about whether some of those rules might be derailed.

The U.S. Surface Transportation Board (STB) has been in the process of taking comments and replies on the Dec. 28, 2016, Notice of Proposed Rulemaking (NPRM) of rail transportation of grain, rate regulation review and rate complaint procedures as well as the NPRM on July 27, 2016, proposing revisions to the current rules governing the provision of reciprocal switching service. The board had also adopted a final rule to establish new regulations requiring all Class I railroads and the Chicago Transportation Coordination Office (CTCO), through its Class I members, to report certain service performance metrics on a weekly, semiannual and occasional basis. This rule was to be effective on Jan. 29, 2017, with the initial reporting date of Feb. 8, 2017.

In the Dec. 28, 2016, NPRM, the STB proposed amendments to its regulations governing the publication, availability and retention for public inspection of rail carrier rate and service terms for agricultural products and fertilizer. The board also clarified its policies on standing and aggregation of claims as they relate to rate complaint procedures. https://goo.gl/…

In the July 27, 2016, NPRM, the board proposed new regulations governing reciprocal switching in Docket No. EP 711 (Sub-No. 1), which would allow a party to seek a reciprocal switching prescription that is either practicable and in the public interest or necessary to provide competitive rail service. https://goo.gl/…

I reached out to the Dennis Watson, media officer for the STB and asked if the regulatory freeze would affect any of these issues. He told me midweek that the STB was currently reviewing the Jan. 20 memo. Here is link to the entire memo on the White House website: https://goo.gl/…

Late Friday, Jan. 27, I received word from Watson that the board is extending the effective date of the final rule for service performance metrics reporting in response to a memorandum issued Jan. 20, 2017, by the White House. "The new effective date of the final rule will be March 21, 2017, with the first reports to be filed by Class I railroads on March 29, 2017. Class I railroads are instructed to continue reporting under the board's Interim Data Order until March 23, 2017," reported the STB on their website.

As of Late Friday, there was no word on what the status of the pending NPRM decisions is based on the White House memorandum.

RECIPROCAL SWITCHING: A HOT-BUTTON ISSUE

On Jan. 13, 2017, the Alliance for Rail Competition and 18 state grain and transportation organizations filed a reply to the STB saying, "Not only are the Board's proposals in the public interest, but they should be strengthened through removal of barriers to switching, including the requirement of showing market dominance, which finds no support in the statute or in sound policy considerations. Competitive switching can offer qualifying shippers a new option for addressing pricing and service issues."

The filing went on to say that to the extent that railroads are allowed to avoid market discipline in the form of competition, the need for effective regulatory remedies is increased. "This is the fundamental premise of the Staggers Act, and increases in railroad industry financial strength means that the era of minimal competition and minimal regulation, at the expense of captive rail customers, needs to end," noted the reply.

On Jan. 13, 2017, in a press release, the Association for American Railroads (AAR) noted that they sent a reply to the STB in response to comments filed by groups of shippers "pushing the STB for a new regulation that would force railroads to turn their traffic over to competitor railroads."

In its reply comments, the AAR outlined to the STB how the shipper comments "...do nothing to contradict the conclusion that the Board's proposed reciprocal switching rules are unlawful..." and "...the shippers are using the proposed rule as a means of circumventing existing rate regulation standards." The filing also states: "...The narrow self-interest of certain shippers in a revenue transfer in their favor -- based on government intervention that they would never tolerate in their own industries -- cannot offset the multiple flaws in the Board's proposal." Here is a link to the entire 46-page reply by the AAR: https://goo.gl/…

The AAR contends the shipper comments underscore the need for the STB to "terminate the proceeding and withdraw its forced access proposal" because it violates the STB's governing statute, principles of sound economics, and longstanding policy without any coherent rationale.

In the reply made by the National Grain and Feed Organization (NGFA) to the STB, they included, among other comments, remarks by Thomas Wilcox, attorney for the NGFA. He said: "The arguments of Class 1 railroad commenters that the Board has acted arbitrarily or capriciously are wrong and have no support in law or case precedent. Their claims of the potential harm this modest proposal will cause the railroad industry are wildly speculative and exaggerated." Here is the link to the entire 21 page NGFA reply comments to the STB: https://goo.gl/…

If you would like to see all the reply comments by shippers and Class 1 railroads, here is a link to the filings: (Scroll down to Jan. 13, 2017) https://goo.gl/…

CHANGES AT THE STB

On Wednesday, Jan. 25, the STB released a statement saying that President Trump appointed Ann Begeman to serve as acting chairman of the Surface Transportation Board, replacing recent Chairman Daniel Elliot. Ms. Begeman is currently serving a second, five-year term as a member of the board confirmed by the U.S. Senate on Dec. 9, 2016. Her current term expires Dec. 31, 2020. Here is the press release from the STB in its entirety: https://goo.gl/…

The next change that may or may not take place, will be if the board increases its current membership from three to five members. The STB Reauthorization Act of 2015 authorized that STB's membership could be extended from three to five board members, but there have been no additions up to this date. Currently, any two members cannot communicate directly with each other on pending matters unless a public meeting is called. The addition of two more members allows a majority of STB members to meet in private to discuss agency matters, subject to certain rules and procedures.

The Surface Transportation Board Reauthorization Act of 2015 was a bill to establish the STB as "an independent establishment, and for other purposes" and was passed by the U.S. Senate on June 18, 2015, and then by the U.S. House of Representatives on Dec. 10, 2015. The bill reauthorized and strengthened the oversight functions of the STB of the U.S. freight railroads, giving them authority to investigate issues of national or regional significance and requires them to establish regulations governing such investigations. The bill was intended to help make the STB more efficient, effective and accountable for the benefit of both shippers and railroads. Here is a link to the full text of bill s.108: https://goo.gl/…

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow Mary Kennedy on Twitter @MaryCKenn

(AG/BAS)

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