WASHINGTON, D.C. — Shippers told a Senate panel Wednesday that railroads are gouging them on rates, but the chief of CSX Corp. said different prices for competitive and single-source routes are necessary for railroads to survive, according to a wire service report.
Income from rail traffic on competitive freight routes isn’t enough to keep the railroads on a solid financial footing, CSX Chairman John W. Snow said. He said “captive” shippers – those serviced by only one carrier – need to pay a higher price to help make up the difference.
“For the life of me, I don’t know how we can have on the one hand a successful private sector industry and on the other not have differential pricing,” he said.
Even at current levels, Snow said the industry isn’t generating enough cash flow to replace aging track, equipment and other parts of the system.
Sen. John Breaux, D-Crowley, chairman of the Senate’s surface transportation subcommittee, noted that in 1980, Congress deregulated an unhealthy and over-regulated railroad system and provided railroads with greater flexibility in providing services and determining rates. Since then, the number of large U.S. railroads has declined from 40 to eight.
Breaux said he recently received a letter hundreds of shippers had signed pointing out a problem with the existing regulatory structure.
“My predilection is ordinarily to support competition and to oppose government intrusion into commerce,” he said. “However, if the competition is of such a limited nature or quality, I firmly believe that the government has a right, if not an obligation, to take steps to prevent abuses that result from the lack of competition.”
Most shippers told the panel that monopolistic rates were costing consumers millions of dollars in higher freight costs.
Terry Huval, director of the Lafayette Utilities System in Louisiana, said his utility is part owner of an electric generating plant that burns coal shipped more than 1,500 miles from Wyoming’s Powder River Basin.
Multiple railroads serve all but the final 19 miles to the plant, over which only one carrier operates. As a consequence, the plant is captive to that railroad, Huval said.
Current law allows the rail provider to push its pricing monopoly all the way back to the Powder River Basin, Huval said. The current carrier quotes rates only from the Powder River Basin to the plant.
“It has no incentive to join in any other cooperative bids with alternative rail carriers that would provide LUS the benefits of competition,” he said.
The contract with the rail carrier keeps his utility from disclosing freight rate levels, Huval said. But publicly available information suggests the company’s prices are at least 50 percent higher than rates where there is competition.
“For the case of Lafayette, Louisiana, the annual cost of these captivity payments is about $5 million to $6 million,” he said.
Mark W. Schwirtz, chief operating officer of the Arizona Electric Power Cooperative, said the utility was a captive coal shipper. While railroads note that average rates have dropped since deregulation, the electric power cooperative has faced continuous rate increases from its carriers, Union Pacific and Burlington Northern Santa Fe.
“As a result, AEPCO’s rail rates no longer bear any reasonable relationship to the railroads’ cost of providing service,” he said. The power plant is in Cochise, about 80 miles east of Tucson.
The utility took its complaint to the Surface Transportation Board, which adjudicates rates where competition doesn’t exist and oversees rail mergers. But Schwirtz said the railroads threw up a series of legal hurdles to block the case in the 19 months since it’s been filed.
Schwirtz called on Congress to ensure that the board acts in a timely manner. In addition, he said the regulatory approach, which depends on the board, could be changed by allowing competitive access by other carriers to segments of another railroad’s tracks as a substitute for rate regulation, he said.