**Oral Statement of Charles D. Nottingham**

**Chairman of the Surface Transportation Board before the Senate
Judiciary Committee, Subcommittee on Antitrust, Competition Policy and
Consumer Rights**

**At a Hearing Entitled**

**"An Examination of S. 772, the Railroad Antitrust Enforcement Act"**

**October 3, 2007**

Good morning Chairman Kohl, Ranking Member Hatch and Senator Feinstein.
My name is Charles Nottingham, and I am Chairman of the Surface
Transportation Board. I appreciate the opportunity to appear before this
Subcommittee today to provide the Board's views on S. 772, the Railroad
Antitrust Enforcement Act. I will briefly summarize my written
testimony.

It is important to state at the outset that railroads today are already
largely subject to the antitrust laws. For example, they face civil and
criminal liability for violations of the Sherman Act such as
price-fixing, market allocation, and bid rigging, and they have been
successfully sued for violating that Act. Where the railroads do have
express statutory immunities, they are narrowly drawn, and in
administering the Interstate Commerce Act, the Board vigorously enforces
core antitrust principles.

Rail carriers should be subject to the full weight of federal antitrust
laws, except where the enforcement of the antitrust laws may conflict
with the need for single, uniform, and integrated economic regulation of
the rail industry by the Board.

The Board does not believe that immunities once granted under particular
economic and legal circumstances should remain in place regardless of
changes in the economic and legal environment that occur over time. For
example, in May of this year, the Board used its discretion to terminate
antitrust immunities for motor carrier rate bureaus that had been
recognized for more than 70 years. The Board's decision in the area of
motor carrier rate bureaus demonstrates our commitment to the antitrust
laws and our willingness not to be constrained by past policy decisions
or jurisdictional "turf" considerations.

We are concerned that at least two provisions of the proposed
legislation would interfere with the Board's ability to effectively
regulate this nation's interconnected rail network.

First, let me address Section 2 of the bill. Presently, only the
Department of Justice or the STB may bring suit for injunctive relief
against a common carrier subject to STB jurisdiction. The bill would
permit private parties to obtain injunctive relief against rail carriers
in individual Sherman or Clayton Act challenges. This proposal presents
serious risks to centralized oversight of the national rail
transportation system.

District courts are not responsible for meeting national rail
transportation policy goals. Nor do the district courts possess the
institutional expertise to consider how a decision resolving one case
will affect other carriers and shippers on that line, or on other lines
in different parts of the country. Unlike many other industries, the
national rail system -- while comprising hundreds of individual
railroads -- nevertheless operates as a single integrated, complex, and
interdependent network. Operational changes or issues arising in one
location can have significant operational ramifications hundreds of
miles away, including effects on other freight carriers as well as on
Amtrak and commuter lines. Only the Board is charged with looking at the
rail industry from a national perspective, and ensuring that remedies to
resolve individual disputes comport with national rail policy objectives
and do not cause unintended operational and service problems elsewhere.

Giving district courts injunctive power in rail-related disputes would
also create a great potential for conflicting decisions from individual
courts. The Board (and the ICC before it) has developed a consistent
body of law that approaches competition issues with a viewpoint
broadened by other rail transportation policy goals, and that provides
the basis upon which both carriers and shippers shape their conduct and
assess potential remedies. In contrast, district courts looking solely
at the antitrust laws without regard to the many public interest
considerations mandatory in Board review, might well come up with
different rules and different remedies to fix competition issues.
Finally, many of the injunctive remedies that a district court might
order in an antitrust case may themselves require Board approval. In
sum, we believe that Section 2 of the bill is antithetical to Congress'
longstanding support for a rail regulatory system that charges a single
economic regulatory body with oversight over the rail industry.

Let me now turn to the Board's concerns regarding Section 3 of the bill.
In 1995, Congress declined to repeal the antitrust exemption for rail
mergers, acquisitions and other transactions, choosing instead to keep
that review with the agency that regulates the economic activity of the
industry. Section 3 would subject rail mergers, acquisitions, leases,
joint use, and trackage rights agreements to both the approval process
and criteria of the Interstate Commerce Act and separate Clayton Act
standards and procedures. We are concerned that this dual enforcement
regime could result in some of the same problems raised by the potential
for district court injunctions described above. We are also concerned
that it would diminish the considerable benefits of a single
comprehensive review in which the views of all parties, including those
of DOJ and affected shippers, are transparent and considered.

From a substantive viewpoint, there is very little disagreement between
the Board and the antitrust enforcers on the outcome of mergers.
Although critics of the Board make much of those few instances of
disagreement between the Board and DOJ, there has only been one recent
case, in 1996, where the Board did not follow DOJ's recommendation that
merger authority either be denied or conditioned on expansive
divestitures. The benefit of hindsight shows that the Board made the
right decision in that one recent case, the UP/SP merger -- a decision
supported by the vast majority of impacted rail customers.

Further, the Board's new merger rules anticipate the types of major rail
merger proposals we could see in the future, which would likely involve
the creation of a transcontinental railroad (by merging one carrier from
the West with another carrier from the East). Under traditional merger
analysis by DOJ or the FTC, such vertical integration of two partners
with complementary (not overlapping) systems would not be perceived to
carry as significant a risk of competitive harm as a horizontal merger
of two direct competitors. However, under the new STB rules, to offset
any harm that could not be mitigated, merging carriers would need to
show how the proposed merger would enhance competition. We are concerned
that dual merger review would frustrate the Board's ability to fashion
merger conditions based on public interest concerns.

The Board has also found that continued oversight of larger rail mergers
is critical to ensuring that remedies are working effectively. These
types of chores are best left to a single decision-maker. That
decision-maker should be the one that is least limited in both what it
can consider and what conditions it can and will impose -- which in this
instance would be the Board.

I am concerned, therefore, that this bill is not targeted to remove just
those exemptions that have grown outdated or are no longer useful, but
rather is a sweeping change that removes them all. These changes would
make it more difficult for the STB to perform its regulatory oversight
responsibilities.

The Board understands, and is sensitive to, the concerns of rail
customers about rail rates and service. During my 14-month tenure at the
Board, we have implemented an unprecedented series of regulatory actions
and reforms aimed at halting unreasonable rail industry practices,
increasing access to the Board's dispute resolution procedures, and
examining the accuracy of our industry cost of capital determination
that impacts rates and affects many aspects of the relationship between
railroads and their customers. We have also initiated a one million
dollar national study of rail competition being managed by Christensen
Associates, an economic consulting firm based in Madison, Wisconsin.

In conclusion, S.772 would make efficient, uniform regulation of the
rail industry more difficult by creating duplicative and overlapping
regulatory schemes. Likewise, subjecting the rail industry to a
potential patchwork of judicial injunctions scattered across the country
could cause a ripple effect of operational problems for freight, Amtrak,
and commuter rail transportation. These complications could increase the
cost of providing rail service -- costs that likely would be passed on
to rail customers in the form of higher rates. Therefore, I am concerned
that the legislation may create more rate and service problems, not
fewer problems.

Thank you for giving me the opportunity to testify here today, and I
will be happy to answer any questions you may have.