House follows Senate’s lead, passes STB Reauthorization Act

Following the Senate’s lead from June, the House of Representatives yesterday unanimously passed S. 808, the Surface Transportation Board Reauthorization (STB) Act.  The bill will now head to President Obama to be signed into law.

Railroad service issues and rates remain front and center, as has been the case in previous incarnations of this legislation. The bill is focused on addressing inefficiencies within the STB, which serves as the federal regulatory body responsible for economic oversight of the U.S. rail system, with regulatory jurisdiction over railroad rate reasonableness, mergers, line acquisitions, new rail-line construction, line abandonment, and other issues.

Some of the highlights of S. 808 include:
-setting timelines for rate reviews and expanding voluntary arbitration procedures when railroads and rail shippers want a quick and efficient resolution;
-grant the STB authority to proactively resolve problems before they can escalate into expensive disputes;
-grant the STB new authority to avoid lengthy and expensive disputes and enhance transparency to benefit shippers and consumers in the U.S.; and
-expand board membership from three members to five, and, with proper disclosure, allow board members to talk with one another without a prior public hearing notice as long as it complies with certain scope and participation limitations

When signed into law, S. 808 would authorize the STB through Fiscal Year 2020.

House Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) lauded the passing of S. 808 in the House.

“The STB plays an important role in ensuring a balanced, fair regulatory environment for both the railroads and its customers, but the agency hasn’t been reauthorized or reformed since it was created,”  Shuster said.   “This bill makes common sense improvements to increase the efficiency of the agency’s processes and decision-making, and ensures that the successful U.S. freight rail transportation system is not smothered by unnecessary regulatory burdens.”

While similar attempts to improve the STB have been proposed in recent years, this effort is different in that rail service, going back to the winter of 2013-2014, saw major delays in various parts of the country even while Class I railroad carriers continue to make record capital expenditure investments, with much of that capital allocated for infrastructure improvements.

A letter penned to House leadership last week by more than 100 railroad shipper and transportation trade groups as part of the Rail Customer Coalition, calling for the passage of S. 808, explained that the freight rail industry is critically important to U.S. economic competitiveness and adoption of the reasonable, commonsense and non-controversial reforms in S. 808 will help ensure a more appropriate balance between the rail industry and their customers.

The RCC added in the letter that the STB has not been reauthorized since it was established in 1995 and that S. 808 would represent the most comprehensive rail economic legislation since 1980, which happens to be when the Staggers Rail Act, which effectively deregulated the industry, was enacted.

And it also cited a July report from the National Research Council’s Transportation Research Board (TRB), entitled “Modernizing Freight Rail Regulation,” that takes the freight railroad sector to task, stating that current federal railroad regulations have not “kept pace with the industry’s transformation” and need to be replaced with a system that better matches what is needed today.

The report’s focus areas included: the performance of the railroads’ service levels, quality, and rates; the projected demand for freight transportation over the next two decades and the constraints limiting the railroads; ability to meet that demand; the effectiveness of public policy in balancing the need for railroads to earn adequate returns with those of shippers for reasonable rates and adequate service; and the future role of the Surface Transportation Board in regulating railroad rates, service levels, and railroads’ common carrier obligations as railroads may become revenue adequate.

At last month’s RailTrends conference in New York, STB Chairman Dan Elliott said that the report presents many thought-provoking ideas with respect to the future of freight rail economic regulation.

“I am excited to see what changes may develop from the recommendations,” he noted. “As a board, we are looking into how we might be able to take some of these ideas…. and make our own regulatory improvements, as well at the same time internally work on best practices and improving the board’s case management, not just for rate cases but for all cases.”

Association of American Railroads President and CEO Ed Hamberger said that with the House following the Senate’s lead in passing this bill, Congress has made it clearly stated the critical need for railroads to be able to earn the revenues to build, maintain, and further modernize the nation’s 140,000-mile privately-owned rail network.

“This legislation strikes the right balance of preserving a market-based structure for shippers and railroads, while also providing commonsense process improvements that will allow the STB to work more efficiently,” he said. “The industry invests revenue it earns, not government funding, to grow the nation’s rail system and respond to the shipping needs of customers, large and small. Congress has reaffirmed balanced economic regulations that allow market-based competition to establish rate and service standards, with a regulatory safety net available to rail customers.”

Class I railroad executives have said many times over the years that the existing regulatory railroad environment has produced—for North American railroad shippers—a freight railroad system that is the envy of the world.  And while it not perfect, depriving the industry of its ability to earn its cost of capital could have a chilling effect on capital investments to support traffic growth and it could begin to reverse the great strides the rail freight sector has made.