WASHINGTON, D.C. – Senator John D. (Jay) Rockefeller IV, Chairman of the Senate Committee on Commerce, Science, and Transportation, last week submitted a statement to the Surface Transportation Board’s (STB) Ex Parte Proceeding 722 on Railroad Revenue Adequacy, urging STB to address the concerns of the shipper community, and focus on individuals and businesses who use the rail system, in order to move toward a more balanced system.
“While the railroads prosper under the regulatory system established by the Staggers Act, today’s shippers and consumers hardly enjoy those same benefits. The intended goal of the Staggers Acts was to ‘provide a regulatory process that balances the needs of carriers, shippers, and the public,’ not just enrich the railroads. Therefore, it is critical that the STB focus more on the businesses and individuals who use the rail network and address persistent complaints coming from the shipper community,” said Rockefeller in his statement.
The 1980 Staggers Rail Act instructed regulators to promote a safe and efficient rail system by allowing railroads to earn adequate revenues including the ability to charge "captive shippers" – those with limited or no alternative transposition options – higher rates than they charge their other customers. The law also established a rate relief process for shippers under which shippers could challenge the reasonableness of their rail rates. As part of the test, a railroad's “revenue adequacy” was made a component of the STB’s standards for reasonableness. “Revenue adequacy” is defined in the Staggers Act as revenues sufficient to cover total operating expenses including any depreciation plus a reasonable and economic profit or return on the capital employed by the railroad.
Recognizing that many of the largest rail companies are increasingly being found “revenue adequate” under the STB’s existing test, the EP 722 proceeding is examining the methodology for determining revenue adequacy and how it should be used in judging the reasonableness of shipper-challenged freight rates.
In November 2013, the Commerce Committee released a report on the financial well-being of the rail industry, which found that the financial performance of dominant Class I freight rail companies is at its strongest since the passage of the Staggers Act of 1980. The report concluded that in recent years the STB has routinely found Class I Freight Railroads revenue adequate.
On Wednesday, Rockefeller will chair a hearing titled, “Freight Rail Service: Improving the Performance of America’s Rail System.” The hearing will address rail service issues throughout the country, and will discuss the impact of rail service issues on various industries and the economy.
Read the Chairman’s full statement for the proceeding below.
Docket No. EP 722 Railroad Revenue Adequacy
Statement of Senator John D. Rockefeller IV
Chairman, Senate Committee on Commerce, Science, and Transportation
September 5, 2014
For nearly three decades, I have been working to help businesses get a fair deal when shipping their goods by rail. This has not always been an easy task. For too long, the regulatory regime of the Surface Transportation Board worked against shippers and consumers. While I have long fought to change that dynamic, there have been too many times when I have been let down by the actions of the Board. However, I am very pleased to see the Board move forward with a proceeding on railroad revenue adequacy.
Anyone who follows the railroad industry and its history knows the Class I railroads are financially strong, and have been for several years. It is far past time that we continue pandering to the freight railroads, and start moving toward a more balanced system that also allows businesses and people who use the rail network to prosper.
By the late 1970s, the United States freight rail network was a system in physical disrepair that was on the verge of bankruptcy. The rapid growth of the nation’s interstate highway system was providing shippers with cheaper truck based alternatives for long distance freight shipments, and intercity passenger rail traffic was declining.
Recognizing the importance of a robust freight rail system, Congress enacted the Staggers Act in 1980, making sweeping regulatory changes to give the industry the opportunity to improve its finances and the ability to compete against other transportation modes. With this law, Congress sought to provide “the opportunity for railroads to obtain adequate earnings to restore, maintain and improve their physical facilities while achieving the financial stability of the national rail system.” The law allowed railroads to rid themselves of unprofitable lines and to consolidate their operations. It also allowed them to charge lower rates to their customers who operated in a competitive environment and higher rates to those who were “captive” shippers or those customers who were reliant on one railroad carrier for service.
As Chairman of the Senate Committee on Commerce, Science, and Transportation, I have seen the freight rail industry achieve record-breaking financial performance. They have done this by becoming more efficient and by increasing their share of the freight transportation market. As documented in a Commerce Committee majority staff report released in November 2013, the freight railroads are setting new financial records every quarter. These companies are raising their dividends and buying back stock at record levels. In recent public statements, several major freight railroads have confidently predicted that their record-setting financial performance will continue for the foreseeable future.
In addition to performing well for Wall Street investors, the freight railroads have also been performing well according to the Surface Transportation Board’s own “revenue adequacy” determinations. Since 2006, the leading U.S.-based Class I railroads – BNSF, CSX, Norfolk Southern, and Union Pacific – have been found to be “revenue adequate” in 14 out of 32 instances. This pattern contrasts sharply with the preceding 25 years of “revenue adequacy” determinations in which the STB and its predecessor agency the Interstate Commerce Commission found just 32 instances of railroads being revenue adequate in 445 individual determinations of revenue adequacy between 1980 and 2005.
Make no mistake, the Staggers Act has worked. Today, the American freight rail industry is financially strong. However, this is no cause for celebration. Many other businesses have been suffering for decades with unfair rates and deteriorating service. Sadly, the situation is only getting worse.
While the railroads prosper under the regulatory system established by the Staggers Act, today’s shippers and consumers hardly enjoy those same benefits. The intended goal of the Staggers Acts was to “provide a regulatory process that balances the needs of carriers, shippers, and the public,” not just enrich the railroads. Therefore, it is critical that the STB focus more on the businesses and individuals who use the rail network and address persistent complaints coming from the shipper community.
We all know that extreme winter weather and rapidly expanding crude-by-rail service has caused service problems throughout the country, but those problems will only persist unless the STB begins to change its perspective If not, shippers will continue to see rates climb with no comparable improvements in service. Things must change.
As mentioned at the outset, I appreciate that the Surface Transportation Board has opened this proceeding and I hope this marks a step towards achieving the appropriate balance of stakeholder interests, for both railroads and shippers, as required under the Staggers Act. As you review your revenue adequacy determinations, I urge you to be scrupulous in your review of the current rail industry. I encourage you to act boldly where you can and where you can’t, make incremental changes. But doing nothing is not an option – the future of many businesses and industries rely on the decisions you make.
Finally, I would also like to include, for the STB’s consideration and to be included in the record, a copy of the November 2013 report by my Committee staff analyzing the financial status of the freight rail industry.