• Rail Industry Consolidations
  
  
  
• Inadequate regulatory protection of captive shippers from increasing rail market power (the "Bottleneck Rate Cases")

 
• Deregulation of the electric utility industry

 
• The result: shipper calls for "open rail access" legislation

Rail Industry Consolidations
 

•  Rail mergers are resulting in a significant concentration of market power in the hands of a few huge rail systems

• As a result of BN/Santa Fe and UP/SP, two railroads now control virtually all coal transportation in the West

 
• Source competition among western coal-producing regions has been eliminated for all practical purposes

 
•  Conrail will soon disappear as a separate entity, producing a similar situation in the east -- and possibly leading to the creation of two giant transcontinental railroads
 
• The likely result: rate increases for captive shippers to help the railroads recover the premiums they are paying to buy each other

• A different animal from other rail mergers due to politics (concept of increased competition interjected for first time)

 
•  Some coal producers and shippers will benefit; however, the extent to which CSX and MS will compete with each other in jointly-served terminal areas is unclear (the devil is in the details)

 
•  Most utility power plants that are now captive to Conrail will remain captive to either NS (in most cases) or CSX

 
•  Competitors should not decide how Conrail should be divided up and which markets and shippers will get increased competition

 
• Captive shippers should not have to bear the $4 billion premium over book value being paid for Conrail

 
• Procedural schedule
 
• Application filed in mid-June

 
•  Notification of intent to participate due 45 days after application filed (late July)

 
• Comments, protests, requests for conditions due 120 days after application filed (mid October)

 
• Final STB decision due 255 to 300 days after application filed (late February to mid-April 1998)

• STB regulation does not provide adequate protection against the increasing concentration of rail market power

 
• Regulation is irrelevant for shippers who have competitive options, but it is the only protection many captive utility coal shippers have from monopoly rail pricing

 
• Two basic forms of STB regulation: competitive-access regulation and maximum-rate regulation

 
• To win a competitive-access case, a shipper must show that a carrier has foreclosed a more efficient route or otherwise acted anti-competitively; the availability of lower rates is not enough

 
• Bringing a maximum-rate case is a last resort, especially after the STB's recent decision in the Bottleneck cases

• Examples of bottleneck situations

 
• Bottlenecks are becoming increasingly important due to rail mergers

Principal STB Holdings in the Bottleneck Cases

• Where the involved carriers offer only origin-to-destination common carrier rates, the shipper's only maximum rate remedy is to challenge the origin-to-destination rate

 
• Shippers can't challenge railroad agreements on where interline traffic should be interchanged

 
• A shipper can seek STB prescription of a bottleneck segment rate only if it first enters into a contract with another carrier over the competitive) (non-bottleneck) segment
 
• If the bottleneck destination carrier also serves the origin, the shipper must first demonstrate it is entitled to competitive-access relief

 
• If the bottleneck destination carrier does not also serve the proposed origin, then the shipper need not demonstrate entitlement to competitive access relief to obtain a prescribed bottleneck rate (but it must still have a contract in advance with the origin carrier)

• Shipper calls for legislatively-mandated additional rail-to-rail competition (which may include various forms of open access) are being driven by the increasing consolidation in the rail industry and the Bottleneck decision

 
• Deregulation of the electric utility industry is also a factor; if electric rates and service are to be subject to competition, why shouldn't a major cost input also be subject to competition?

 
• Open rail access is being actively discussed on a number of fronts

 
• CURE
 
• Alliance for Rail Competition (ARC)

• Increased physical access

 
• Trackage rights limited to bottleneck line segments

 
• Trackage rights on all lines

 
• Complete separation of ownership and operation of rail lines (similar to unbundling of transmission and generation in the electric industry)

• Increased economic access

• Unqualified availability of maximum-rate relief for transportation over bottleneck line segments

 
• Shipper right to route traffic over any reasonable interchange

 
• Simplification of maximum-rate cases (eliminate 180% jurisdictional-threshold ceiling, product/geographic competition)

• Full application of the antitrust laws to the rail industry (including Justice Department approval for rail mergers)