The chairman of the Senate Commerce, Science and Transportation Committee is expected soon to introduce legislation that could toughen rail competition rules for the first time since railroads were deregulated in 1980.
Washington sources think Sen. Jay Rockefeller (D-W.Va.), who chairs that panel, could unveil the bill or at least key details within days, and try to move it through his committee by late September or soon after. That could allow the full Congress to act on the measure this year, rather than have it spill into the 2010 election year.
The measure would reauthorize the Surface Transportation Board, the rail regulator for economic issues ranging from mergers to disputes between shippers and railroads. The STB also resolves complaints by communities affected by rail operations.
The bill would give the STB new marching orders from Congress that could alter what shippers have long complained is a pro-railroad stance by that agency. They say the result of current regulatory policy is that many customers are held captive to a single railroad, without enough power to negotiate rates or service issues.
A new law could also expand that board from its current three voting members to five, and beef up the agency's budget. Some sources think the legislation could direct the STB to initiate more enforcement actions rather than wait for shippers or other parties to file challenges to railroads with the agency.
Railroads, though, have long warned that toughening regulation could also endanger the solid profits that allow them to invest in track system upgrades, and prevent the industry from heading back toward the numerous railroad bankruptcies that led to deregulation.
Both sides have been working for months with committee staff in a series of separate, behind-the-scenes negotiations. Few details have emerged from those discussions, but word is now seeping out that Rockefeller wants to wrap up the proposed language.
Railroads have reportedly sought changes in regulatory accounting methods to help them weather any revenue impact from policy changes the legislation might bring. Some carrier executives say they should be allowed to list replacement cost of equipment and track infrastructure, but critics say that would allow railroads to set much higher rates.
Rail customers also complain that current regulations allow individual carriers to lock in or "bottleneck" their shippers for the entire long haul of a cargo and keep shippers from using a nearby rival railroad for better long-haul rates. If new legislation overturns that practice, railroads want to make sure the law would also help them recover profits by other means.
Railroads helped head off a scheduled June Senate vote on separate legislation to subject them to all the antitrust laws that govern other industries, instead of a type of exemption they now enjoy because the STB handles most types of economic disputes. But many features of that antitrust measure were expected to be in the Rockefeller bill, under an earlier agreement between lawmakers when the antitrust bill was removed from the docket.
Stock analysts are warning investors, who have warmed to railroad shares for months as carriers maintained strong profits despite the recession, that regulatory reform could pose more risk for rail firms.
Morgan Stanley analyst William Greene told clients that "the mere introduction of rail legislation will create headline risk for rails," but he also said it could finally bring clarity after hanging over railroads for months.
And Greene said the fast timeline to get a bill passed by Congress "decreases risk of draconian legislation." He said "it may be in the rails' best interest to support a compromise bill to avoid potentially more onerous legislation, while shippers may accept a compromise to avoid potentially walking away with nothing."
---By John D. Boyd