By Kenneth E. Siegel*

On December 17, 2009, the Senate Commerce Committee reported out S. 2889, the Surface Transportation Board Reauthorization Act of 2009. The bill, which is still subject to amendment and reconciliation with any corresponding legislation that passes in the House of Representatives, would be the most significant revision of federal regulation of the rail freight industry since enactment of the Staggers Act in 1980. The bill was introduced by Commerce Committee Chairman Jay Rockefeller (D-WV) and co-sponsored by Ranking Member Kay Bailey Hutchison (R-TX), Senator Frank Lautenberg (D-NJ), Senator John Thune (R-SD), and Senator Byron Dorgan (D-ND), for the purpose of increasing rail industry competition, improving federal oversight, and enhancing rail customer access to regulatory relief.  The following is a summary of the key provisions of the bill as it was initially introduced in the Senate (a substitute bill with some technical amendments made by the Committee during mark-up has not been released to the public):

Restructuring the Surface Transportation Board (STB)

• The STB would increase from three to five commissioners.  Two members must possess private sector “professional or business experience (including agriculture or other rail customers).”
• There would be a directive for the STB to be a proactive agency, rather than a reactive or adjudicatory body.  This would permit the Board to initiate investigations into rail practices and procedures rather than having to wait for a formal complaint from a shipper.
• Fees for filing a complaint with the STB would be limited to $350 – the same filing fee as in U.S. District Courts.
• The STB would be taken out from under the jurisdiction of the U.S. Department of Transportation and would become an independent federal agency – similar to the structure that exists for the Commodity Futures Trading Commission.
• The STB would be directed to create a new position – rail customer advocate – charged with investigating and assisting with rail rate and service disputes.

 Redefining National Rail Transportation Policy

• Promoting competition within the rail industry would be included among the Surface Transportation Board’s overall goals.  In the absence of competition, the STB would be directed to ensure rail rates are reasonable.  This would be balanced by another STB goal to “ensure that rail carriers can earn adequate revenues to provide and sustain consistent, efficient, and reliable transportation services and to maintain and expand rail infrastructure, equipment, and technology.”

 Rail Rate Disputes 

• Medium-sized rate cases – under the STB’s “Simplified Stand Alone Cost” procedure – would have to be completed within 1 ½ years vs. the current 3 years. The maximum permissible award in such rate disputes would be increased from $5 million to $10 million.
• The maximum permissible award in small rate cases – under the STB’s “Three-Benchmark” procedure – would be increased from $1 million to $1.5 million.
• Within one year of enactment, the bill would direct the STB to establish a binding arbitration process to resolve disputes over rates, common-carrier obligations, and service concerns. The maximum permissible award under the arbitration system would be $250,000 per year for a maximum of 2 years.

 Paper Barriers 

• Shippers would have greater access to challenging certain interchange limitation commitments (“paper barriers”) unless such commitments are “reasonable and in the public interest.”  Paper barriers restrict the ability of a purchasing or leasing railroad to interchange traffic with a railroad other than the selling or landlord railroad.

 Bottleneck Rates 

• On many occasions, only one railroad (the “bottleneck carrier”) serves either an origin or a destination of a potential movement (the “bottleneck segment”). However, another railroad may serve a portion of that movement between origin and destination. Currently, shippers are not permitted to request a separate rate for the bottleneck segment.  S.2889 would require railroads to quote so called “bottleneck rates” provided that it does not produce any economic hardship to the railroad.

 Reciprocal Switching and Terminal Access 

• The STB would be authorized to require a railroad to provide access to its terminals to a competing railroad provided that: (1) this would not significantly adversely affect the operations of the terminal, (2) it would not negatively affect the railroad’s network efficiency, (3) it would not negatively impact service to other rail customers, and (4) it would be in the public interest.

 Surface Transportation Board Studies 

• The STB would be directed to perform studies of the following issues: Uniform Rail Costing System, replacement cost accounting for railroads, performance metrics, and rail car interchanges.

 As mentioned earlier, the bill is likely to be further modified as it is considered by the full Senate in 2010.  It is likely that language will be inserted that would amend the rail industry’s limited antitrust exemptions.  It is expected that the House Transportation and Infrastructure committee, chaired by Congressman James Oberstar (D-MN), will produce its own version of rail reform legislation in 2010.  Thus, S.2889, if passed by the full Senate in 2010, would ultimately need to be reconciled with any version considered and passed by the House of Representatives.

 *The editor is Of Counsel in Strasburger’s Washington, D.C. office and can be contacted for further information at (202) 742-8602 or kenneth.siegel@strasburger.com.