(The following column by Lawrence H. Kaufman appeared on The Free Press website on August 9. Kaufman is the author of the book, “Leaders Count: The Story of BNSF Railway,” published in 2005.)
MANKATO, Minn. — Mark Glaess’ My View —” Big Rail hurts rural communities” — is significant for what it does not say than for what it does.
Are railroads “financially flattening” rural America by monopolistic rail practices as he charges? On the contrary, they help preserve it. Railroads require large volumes of freight to provide needed revenue. Unfortunately, many lines in rural areas do not have the necessary volumes. Large railroads help preserve rural rail service when they sell or lease light density lines to short line operators that have lower cost structures.
Nor do railroads operate with virtually no accountability or federal oversight, as Glaess alleges. Railroads are regulated by the federal Surface Transportation Board. As vice president-public affairs of the Association of American Railroads in 1980, I was involved in passage of the Staggers Rail Act of 1980, which was intended to allow railroads freedom to raise rates and generate enough revenue to justify reinvesting in their fixed plants and provide improved service to customers. This they have done.
Before deregulation, railroads often were prevented from lowering rates to keep business they already had or to raise rates for customers that should have paid a larger portion of the fixed costs of the physical plant. Congress feared it would have to nationalize the railroads and taxpayers would be saddled with the expense of maintaining rail facilities. A coalition of railroads, unions, investment banks, and customers supported deregulation. Unions did not want to negotiate contracts with Congress; banks did not want to compete with the U.S. Treasury to finance railroads; and most rail customers understood they only would get better service from free and prosperous railroads. The Staggers Rail Act of 1980 was seen as the last, best chance of saving the private railroad industry.
The Staggers Act has succeeded. Railroads now provide more transportation service at lower cost than ever before. And just the opposite of Glaess’ allegations, they do it at rates that are lower on average than in 1980. I doubt that many electric cooperatives can make that claim.
Railroad pricing has changed, which Mr. Glaess and the people he represents do not like. The Staggers Act allowed railroads to charge customers most dependent on rail service — utilities that burn coal, among others — rates that include a larger portion of fixed costs.
Any rate that is less than 180 percent of the variable cost of handling the business is completely unregulated under the presumption that competition causes it to be below that level. If a rate is above that, and if the railroad is found to have market dominance, the rate can be challenged. In more than half the rate cases, the STB has ruled in favor of the complaining customer or the railroad and utility have reached a mutually satisfactory settlement before the STB issued a ruling
Glaess cries “monopoly” but he knows there is no such thing. Most electricity is generated by coal carried from mine to utility by rail because it is the most efficient, least costly method. Utilities say they want more rail oversight, but they really want the government to put its thumb on the scale and favor utilities and other bulk shippers who finally are paying their fair share of the rail system they use. That’s called “re-regulation,” and it would put the railroads back where they were in the days of bankruptcy and poor service.
Glaess engages in sophistry when he refers to shoddy rail service and states: “When there’s no coal, utilities turn to natural gas, which is five times more expensive to use than coal.” No utility ever has run out of coal because a railroad failed to meet its commitments. While rail coal rates have fallen, the electric co-ops that Glaess represents have raised their rates.
Who is behaving badly? Railroads are financially healthier today than at any time in more than half a century. Our country — and Minnesota — benefit. Railroads are investing nearly $10 billion dollars of their own money this year to maintain and expand their capacity, more than other industries, including electric cooperatives, invest in their businesses.
If Glaess had his way, the cost of electricity and just about everything we buy would be considerably higher. His arguments have been heard — and dismissed — by Congress for the past 27 years. Given a choice of a vibrant rail system in the private sector or a government-managed nationalized system, Congress wisely chose the former.