(The following article by Hil Anderson was circulated by United Press International on March 19.)
LOS ANGELES — The price of gasoline and electricity will play a new role in the latest move to change the regulatory environment of U.S. railroads that are the primary movers of ethanol and coal.
Energy security and the major role that rail plays in the movement of coal and ethanol was offered up as a theme of the latest move to right what supporters insist is a too-cozy relationships between the major railroads and the federal regulators at the Surface Transportation Board who set freight rates.
“A reliable freight rail system is critical for a strong economy,” said Jack Gerard president of the American Chemistry Council and a member of Consumers United for Rail Equity, a coalition of companies that are among the railroads’ best customers. “The lack of competition in the nation’s freight rail system is jeopardizing the economic security of the country.”
CURE this spring has championed a pair of bills that would remove anti-trust exemptions currently enjoyed by railroads, and would force the STB to “give equal consideration to both the railroads and freight rail customers.”
Railroads and the prices they charge to customers who have few alternatives, if any, to get their goods to market have been an occasional sore point in American history since the robber barons and trust busters of the Gilded Age. But the new conflict simmering in Washington adds the major components of electricity and gasoline prices to the stew.
It is the contention of CURE that the energy sector is increasingly in a position to be squeezed, if not gouged, by an uncompetitive rail industry that seemingly has the STB in its back pocket. The Railroad Antitrust Enforcement Act of 2007, which was introduced March 6, would allow state and federal prosecutors to go to court to block railroad mergers and would also remove anti-trust exemptions for collective rulemaking.
“It is time to put an end to the abusive practices of the nation’s freight railroads and force railroads to play by the rules of free competition like all other businesses,” stated Sen. Herb Kohl, D-Wis., chairman if the Senate Judiciary Antitrust Subcommittee and a sponsor of the act. Kohl illustrated his point with the case of Dairyland Power, which in 2005 saw a 13-percent shortfall in its coal deliveries by train but a 93-percent rate increase that cost the utility $35 million.
“Over the past several years, industries that are served by only one railroad have faced spiking rail rates,” Kohl said in a news release. “They are the victims of price gouging by the single railroad that serves them.”
Such horror stories from the heartland coupled with reports of record profits by the major railroads last year will no doubt raise eyebrows in Washington; however as has been the case in many arguments over energy profits, the industry has a familiar response: The railroads contend that that the profits will be plowed into the expansion of service, particularly on the major coal and ethanol routes. Last Spring, Union Pacific and Burlington Northern Santa Fe announced a $100 project to build a third and fourth line stretching 40 miles out of the South Powder River Basin of Wyoming, a major source of low-sulfur coal. Burlington Northern says its capital investments in 2004-2006 topped $3.5 billion and created 14,300 jobs.
The Association of American Railroads, the Washington industry group that represents the rail companies, argues that the antitrust act of 2007 is not needed for the same reasons similar measures introduced and then left forgotten on the sidings in 2005 and 2006 weren’t necessary.
The companies point to overall lower rates for all customers and increased efficiencies that keep the entire U.S. supply train, including coal and ethanol, running on time.
“Re-regulation would be ruinous,” the AAR said in a position paper earlier this year. “It would prevent railroads from earning enough to adequately maintain their existing system, much less make the huge investments in new capacity that must be made if our future freight transportation needs are to be met.”
The need for higher prices to pay for infrastructure expansion has been used in the recent past by the oil industry — and even the electric-power sector that is now crying foul over its railroad costs. The promise in the end is that more production will lead to lower prices.
It’s an argument that has worked so far on Capitol Hill when the debate involved energy and will be given another try when the role of rail transportation comes up.