**TESTIMONY OF**

**CHARLES D. NOTTINGHAM**

**CHAIRMAN**

**SURFACE TRANSPORTATION BOARD**

**395 E STREET, SW**

**WASHINGTON, DC 20423**

**(202) 245-0200**

![](media/image1.png)

**BEFORE THE**

**U.S. SENATE**

**COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION'S**

**SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
INFRASTRUCTURE, SAFETY, AND SECURITY**

**OVERSIGHT HEARING**

**ON THE**

**SURFACE TRANSPORTATION BOARD**

**OCTOBER 23, 2007**

**10:00 A.M.**

**October 23, 2007**

**Number range CHAPTERTestimony of Charles D. Nottingham**

**Chairman of the Surface Transportation Board**

**Before the**

**U.S. Senate Committee on Commerce, Science, and Transportation's**

**Subcommittee on Surface Transportation and**

**Merchant Marine Infrastructure, Safety, and Security**

Good morning Chairman Lautenberg, Ranking Member Smith and Members of
the Subcommittee. My name is Charles Nottingham, and I am Chairman of
the Surface Transportation Board (STB or Board). I appreciate the
opportunity to appear before this Subcommittee today to address issues
related to this Subcommittee's oversight of the Board.

This is my first appearance before this Subcommittee since I became
Chairman of the STB in August 2006. It has been an extraordinary year
for me personally, and an unusually busy year for the Board. In addition
to handling its normal workload of formal actions, the Board has taken
numerous steps this year to proactively monitor the rail industry and
reform the Board's existing regulations to modernize and improve how we
regulate the railroads.

Before elaborating on these efforts in this written testimony, I will
first provide an overview of the Board and its responsibilities.

**Overview Of The STB**

[Administration]{.underline}

The Board has kept up with its steady workload, and issued 1,139
decisions and court-related matters in FY 2007, with new cases being
filed even as pending cases were resolved. A summary of significant
decisions and hearings is included as Attachment 1 to this testimony. In
recent years, the Board experienced an increase in the number of major
rail rate disputes and work related to these disputes. In past years,
the Board had two or three of these cases pending at any one time. At
the end of FY 2007, it had three rail rate cases pending. The Board had
one pipeline rate dispute, which was resolved during the fiscal year,
and one water carrier rate dispute that was pending at the end of FY
2007, but has since been dismissed. The Board also defended numerous
decisions in court during the fiscal year. A list of court cases decided
within the past twelve months and court cases currently pending is
attached to this testimony as Attachment 2.

Congress has authorized a 150 FTE staffing level for the STB. Currently,
we have 141 employees on board. We are actively seeking to fill the
remaining vacancies. In addition, we are cognizant that pending
legislation on Amtrak and commuter rail issues could require additional
Board staff and we have analyzed what our staffing needs will be should
the pending legislation become law.

The Board is also aware that it, like many other Federal agencies, is
facing a major drain on its human capital through attrition. In the
latest government-wide statistics available from the Office of Personnel
Management (OPM), the average age of the Federal worker is 45.3 years.
The average STB employee is 50 years old. Forty-five percent of the
Board's employees have over 25 years of service. Thirty-three percent of
those in management positions are eligible for immediate retirement.
While it is not expected that the majority of these employees will
retire when eligible, the STB has prepared a draft succession planning
framework, which it has submitted to OPM, to ensure that the STB has a
viable workforce from which to groom future leaders.

[Statutory Responsibilities]{.underline}

The STB is charged by statute with resolving railroad rate and service
disputes and reviewing railroad restructuring transactions (mergers,
line sales, line constructions, and line abandonments). In addition, the
Board has limited jurisdiction over certain trucking, bus, household
goods, ocean carrier, and pipeline matters.

It is important to note that the substantial deregulation effected in
the Staggers Rail Act of 1980 was carried forward by the ICC Termination
Act of 1995 (ICCTA), which retains the directive that the Board issue
administrative "exemptions" that suspend active regulation in areas
where the market is competitive. The Board's governing statute, like
virtually all other modern statutes of economic regulatory agencies,
assumes that aggressive regulation is not necessary where there is
competition, because in such circumstances competition will discipline
businesses and prevent market abuse. Our statute, at 49 U.S.C. 10101,
establishes a Federal policy "to allow, to the maximum extent possible,
competition and the demand for services to establish reasonable rates
for transportation by rail," and to "minimize the need for Federal
regulatory control over the rail transportation system," but "to
maintain reasonable rates where there is an absence of effective
competition." It also permits the Board to intervene with respect to
railroad rates only "\[i\]f the Board determines . . . that a rail
carrier has market dominance over the transportation to which \[the\]
rate applies." 49 U.S.C. 10701(d)(1).

Under the law, a carrier is considered not to have market dominance
where its rates produce revenues that are less than 180% of its
"variable costs" of providing the service. (Variable costs are the
portion of a carrier's costs that change with the amount of traffic
handled, unlike the fixed portion of its costs.) Also, if there are
competitive alternatives for moving the traffic between the same points
-- that is, competition either from other railroads (intramodal
competition) or from other modes of transportation such as trucks,
pipelines, or barges (intermodal competition) -- then the Board does not
have authority to regulate the rate, even if the revenues exceed 180% of
the variable costs of providing the service. Finally, the Board has
limited jurisdiction over rail transportation contracts between shippers
and carriers.

When Congress passed the Staggers Act in 1980, the Nation's rail system
was in desperate financial straits. It was burdened with unproductive
assets, forced to provide unprofitable services, and hampered by
excessive government regulation. Recognizing that a sound, healthy rail
transportation system is essential to the Nation's economy, Congress put
in place reforms directing that railroads be treated, in most respects,
more like other businesses. Since that time, the railroad industry's
financial condition has steadily improved. Today the industry is
considered by most independent analysts to be relatively healthy.

Unlike most businesses, however, railroads are common carriers. As
common carriers, they have an obligation to provide service to the
general public on reasonable request. In order to ensure that shippers
receive the needed level of service, the railroads' financial resources
must be sufficient to maintain a sound and sufficient infrastructure. At
the same time, transportation of commodities vital to the Nation's
economic wellbeing must be efficient and reasonably priced.

In 1980, the rail system was faced with excess capacity, which made it
difficult for railroads to provide service efficiently and on a
financially sustainable basis. The Staggers Act made it easier to shed
excess capacity and become more efficient in other ways, and the system
has now been largely rationalized and made more productive.

In recent years, the U.S. economy has expanded, and the rail network,
like other transportation sectors, has become capacity-constrained.
Railroads, however, cannot respond as readily to capacity constraints
(by quickly building new track and other facilities) as some other
transportation sectors can. For example, trucking companies can purchase
new equipment or hire new drivers. Not only are rail construction
projects expensive and time-consuming, but these projects can generate
significant opposition on environmental and community-impact grounds.

On April 11, 2007, the Board held a public hearing focused on rail
capacity, traffic forecasts, and infrastructure requirements. Because
the Nation\'s freight rail system will be relied upon to handle
significant increases in traffic in the years ahead, the Board wanted to
get a better understanding of whether current and planned or forecasted
investments will be adequate to meet rail capacity demands, and, if not,
what new policies and strategies need to be pursued. That hearing, which
lasted 12 hours, brought together representatives of large railroads;
short-line railroads; Federal, state, regional, and local government
interests; many different shipper interests; rail passenger carrier
interests; and rail labor. The hearing documented widespread consensus
among stakeholders that rail capacity will become increasingly
constrained by traffic growth. A representative of one of the Nation's
ports testified that container traffic typically carried by truck or
rail entering North American ports from overseas will grow by more than
100% by the year 2020, from over 48 million Twenty Foot Equivalent Units
(TEUs) in 2005 to an anticipated 130 million TEUs. Furthermore,
representatives of the large railroads that make up the Class I railroad
industry testified that -- despite their plans to increase investment
levels in the system every year -- their anticipated capacity
investments will not keep up with forecasted increases in rail service
demands. In sum, the rail system's capacity shortfall that we see in
many markets today will dramatically worsen unless bold new policies and
strategies are adopted.

Another important indicator of the adequacy of an individual railroad's
revenues is the railroad's cost of capital. The Board is required by
statute to make an annual assessment of the railroad industry's cost of
capital. This determination is an input in the Board's review of rail
rate challenges and rail line abandonment proposals. A railroad's cost
of capital reflects the carrier's cost to raise capital both through
debt and through equity arrangements. While the cost of debt is easy to
determine, the cost of equity is far more difficult. Indeed, how best to
calculate the cost of equity is the subject of a vast literature
spanning the fields of finance, economics, and regulation. Since 1981,
the Board has been using the same basic approach to estimate the cost of
equity, but concerns recently have been raised that the approach is
outdated and may be overstating the industry's cost of capital and thus
the revenue needs of the industry.[^1]

Given the importance of this cost-of-capital figure in many of our
regulatory procedures, we launched a rulemaking to improve our
methodology and to ensure the accuracy of this important measurement.
The comment period is scheduled to close at the end of October, and we
will carefully consider all comments before issuing a final rule.

**GAO Report and STB Competition Study**

The Government Accountability Office (GAO) prepared a report in
2006,[^2] and a supplement in 2007,[^3] addressing railroad rates,
competition, and capacity. The 2006 Report analyzed general trends in
the industry and also highlighted particular markets. The 2007
Supplement updated some of the information in the 2006 Report.

As GAO documented in the 2007 Supplement, between 1985 and 2005, rates
did not keep pace with inflation for each of the four major categories
of rail traffic separately tracked by GAO (coal, grain, motor vehicles,
and miscellaneous mixed shipments). Moreover, GAO found that despite an
uptick in recent years, rail rates overall for 2005 remained below 1985
levels even in nominal terms. At the same time, the Board's index for
tracking changes in railroad costs (the Railroad Cost Adjustment Factor)
shows that the costs that the railroads themselves had to pay for the
goods and services that they use in their business increased by 80% from
1985 to 2005. Thus, the fact that rates overall remained at or below
1985 levels even with these recent cost increases demonstrates that, in
general, rail rates have been held down for most shippers. []{.mark}

The 2006 GAO Report focused to some extent on concerns over higher rate
levels in parts of the agriculture sector. Last November, the Board held
a public hearing to obtain information from interested parties about the
grain transportation market in general, and in particular about the
market conditions in the grain industry that may have caused grain rates
to diverge from the long-term general trend of reduced rail rates for
most shippers. Because U.S. and Canadian grain producers compete, both
with each other and in a global marketplace, the agency also wanted to
hear about the interplay between the American and Canadian wheat
markets, how the Canadian regulatory system differs from the American
system, and what impact those differences might have on grain production
in the United States.

There are of course areas -- states like North Dakota and Montana -- in
which rail rates tend to be higher than average, as the 2006 GAO Report
points out.[^4] That is largely because of the economics of the railroad
industry: under principles of "differential pricing," railroads, with
high "sunk" costs and with fierce competition for most traffic, are
expected to charge more, even substantially more, from their captive
traffic than from their competitive traffic if they are to achieve
enough revenues to cover their costs and invest in necessary facilities.
Although differential pricing is practiced in many other industries --
such as airlines, utilities, hotels, and movie theaters -- we understand
that shippers on the captive end of this differential pricing scale
would not be satisfied with the status quo. But if differential pricing
is to be substantially tempered in the industry, then revenues will have
to come from some source other than captive shippers. And if other
sources of revenue cannot be found, then infrastructure investment will
suffer, as will rail service.

To further address GAO's observations about areas with less competition,
the Board recently commissioned an extensive study on the extent of
competition in the railroad industry. The study will also assess various
policy issues, including current and near-future capacity constraints in
the industry; how competition and regulation impact capacity investment;
how capacity constraints impact competition; and how competition,
capacity constraints, and other factors affect the quality of service
provided by railroads. The economic consulting firm Christensen
Associates, based in Madison, Wisconsin, has begun work on a contract
valued at approximately \$1 million to deliver this study to the STB for
publication in the Fall of 2008.

Another rulemaking that the Board is currently completing involves
interchange commitments that may be part of sale or lease contracts when
large carriers sell or lease lighter-density portions of their lines to
smaller carriers (referred to by some as the "paper barrier" issue).
Some parties take the view that these arrangements have helped
facilitate the growth of the short-line industry into a vibrant force in
the transportation sector -- with well over 500 carriers today operating
nearly 46,500 miles of track with nearly 20,000 employees -- while
others are concerned that they have tended to freeze in place the
competitive status quo, rather than allowing the development of new
competitive options not available before the transaction. A Board
decision addressing a request for a general rule regarding such
contractual interchange commitments is imminent.

**Rate Regulation**

As is the case with other industries, when capacity is tight, carriers
will seek to raise their rates. As a result of differential pricing,
those shippers without competitive options often see their rates rise
the most. Thus, with tight capacity throughout the industry today, the
Board's rate processes are particularly important, and I will now turn
to that matter.

[Rate Disputes]{.underline}. Under the statute, the Board is directed to
ensure that rates are reasonable while at the same time not precluding
railroads from obtaining adequate revenues. Balancing these potentially
conflicting objectives is not an easy task. Rates that are too high can
harm rail-dependent businesses, while rates that are held down too low
will deprive railroads of the revenues needed to pay for the
infrastructure investments that are in turn needed to give shippers the
level and quality of service that they require. The Board has recently
improved its procedures for handling rate cases, with one set of
procedures for large rate cases and two other procedures for smaller
cases.

[Large Rate Cases]{.underline}. With often hundreds of millions of
dollars at stake, large rate disputes raise complex questions over the
value of the assets needed to serve the shipper, the operating costs to
serve the shipper, and the degree of differential pricing a carrier
needs to earn a reasonable return. To resolve these large disputes, in
1985 the Board's predecessor agency, the ICC, created a sophisticated,
although complex, approach known as "Constrained Market Pricing," or
CMP. CMP provides a framework for the Board to regulate rates while
affording railroads the opportunity to cover their costs. Although CMP
is premised on the need for differential pricing, CMP principles also
impose constraints on a railroad's ability to price, even for their
captive traffic.

CMP sets up four potential constraints on railroad pricing. The
constraint that is typically used is the stand-alone cost (SAC) test.
Under SAC, a railroad may not charge a shipper more than what a
hypothetical new, optimally efficient carrier would need to charge the
complaining shipper if such a carrier were to design, build, and operate
-- with no legal or financial barriers to entry into or exit from the
industry -- a system to serve only that shipper and whatever group of
traffic that shipper selects to be included in the analysis. The
ultimate objective of the SAC test is to ensure that the complaining
shipper is not charged for a carrier's inefficiencies or for facilities
or services from which the shipper derives no benefit. This assures that
the complaining shipper is not required to unfairly subsidize other
customers of the railroad.

Although the U.S. courts of appeals have affirmed every challenged SAC
case issued by the Board since the agency was created in 1996[^5]
(whether they were challenged by the shipper or the railroad involved),
during the past few years it became apparent that a loophole gave
railroads the ability to "game" the outcome of future SAC
determinations. Moreover, in a recent court decision, the Board was
warned that part of its SAC methodology was on "shaky ground."[^6]
Finally, the complexity and costs of litigating a SAC case had increased
over time, often costing \$3-5 million and 2-4 years for a shipper to
bring, or a railroad to defend, a case. For these reasons, the Board
found it necessary in 2006 to make some significant changes in how we
will apply the SAC test and how we will calculate the amount of relief
in a large rate case. The revisions reflect a significant milestone in
the STB's ongoing effort to reduce litigation costs, create incentives
for private settlement of disputes, and shorten the time required to
develop and present large rail rate cases to the STB. These rules were
completed last Fall ─ within 8 months of the notice of proposed
rulemaking.

In the first test of our new guidelines for large rate cases, the
shippers in two recent cases may have been disadvantaged by the changes.
Those cases were initiated under the old rules and decided under the new
rules. Because of the unique procedural posture of those cases, the
Board has taken the nearly unprecedented step of allowing those shippers
to redesign significant portions of their cases if they choose to do so.

> [Small Rate Cases]{.underline}. In 1996, in response to a
> Congressional directive, the

STB adopted simplified guidelines for assessing the reasonableness of
challenged rail rates in cases in which a full SAC presentation is too
costly. Under these guidelines, the agency established three
"benchmarks" to determine the reasonableness of a challenged rate in a
small rate case. The three benchmarks look at the carrier's overall
revenue needs, how the railroad prices its other captive traffic, and
how comparable traffic is priced.

Shippers, however, noted several shortcomings to the small rate case
procedures that discouraged them from filing cases. For example, many
stated that it was unclear what shippers would qualify to use the
guidelines. In addition, shippers (and railroads) wanted greater clarity
as to how the three benchmarks would be applied in a particular case.
Shippers also expressed concerns about how railroads might use the
discovery process to unreasonably prolong a case. As a result of these
ambiguities, no cases were decided under the 1996 simplified guidelines,
although two cases were filed and then settled.

The agency held several public hearings on this matter from 2003 through
2007, and its staff met with staff from other economic regulatory
agencies to gather information on how those agencies handle smaller
disputes. On September 5, 2007, the Board issued a decision updating our
process for reviewing rate complaints in cases too small to warrant the
cost of litigating a full SAC case. The Board's decision, which makes
the rate review process available to shippers of all sizes, allows
smaller rate cases to proceed on one of two tracks. First, freight rail
customers may seek up to \$1 million in relief over a 5-year period,
using a revised version of the three-benchmark test with more
predictability built into it. A shipper using that approach would have a
Board ruling on its case within 8 months of the filing of its complaint.

Under a second approach, freight rail customers can seek up to \$5
million in relief over a 5-year period, by using a process that focuses
on whether the carrier is abusing its market power by charging more than
it needs to earn a reasonable return on the replacement cost of the
infrastructure used to serve that shipper. This is a simpler form of the
SAC test that is applied in large cases; it relies on standardization of
many of the components in order to reduce the cost and complexity of
litigating the case. A Board decision in a rate case brought under this
approach would be issued within 17 months after the filing of the
complaint.

In finalizing this rule, the Board received a number of suggestions and
comments from the shipper community on how to improve that proposal. The
Board implemented the following changes to the initial proposal, at the
urging of a shipper or to respond to shipper criticisms with the initial
approach:

-   Modified the eligibility approach to ensure that all captive
    shippers have a meaningful forum for seeking protection from
    unreasonable rates by raising the relief available under the
    simplified guidelines;

-   Increased the maximum value of recovery under the
    \"Three-Benchmark\" approach five-fold, from \$200,000 to
    \$1,000,000;

-   Removed the formal "aggregation" approach, which may have
    unnecessarily prevented a captive shipper that ships to numerous
    destinations from a single origin from seeking relief under the
    simplified guidelines;

-   Required railroads to participate in mandatory 20-day, non-binding
    mediation at the beginning of the case;

-   Expedited the procedural schedules to the maximum extent practical;

-   For the Simplified-SAC analysis:

    -   Excluded depreciation on equipment when calculating operating
        expenses;

    -   Removed the annual adjustment process for a rate prescription to
        make the case simpler and less expensive;

-   For the Three-Benchmark analysis:

    -   Provided equal access for shippers to the confidential Waybill
        Sample;

    -   Permitted the shipper to submit evidence of "other relevant
        factors" to rebut certain presumptions established in the
        methodology.

In addition, the Board rejected numerous proposed changes by the
railroad community that were opposed by the shippers. For example, the
railroads asked the Board to permit movement-specific adjustments to its
Uniform Rail Costing System used to estimate the variable cost of a
movement and whether it falls above or below the 180% jurisdictional
threshold. The Board, at the shippers' urging, rejected that change,
which would have made these cases more expensive.

Before the Board's recent changes, the majority of captive rail traffic
had been effectively blocked from Board rate review due to the
complexity and resulting high costs of the previous procedures. The
Board's new procedures -- which have been challenged in court by
numerous rail interests -- ensure that the rate review process will be
accessible to all captive traffic that moves under common carrier rates.
[]{.mark}

In all rate cases, the Board will require mediation up front, which we
have found is a good way of encouraging adversaries to narrow their
differences and possibly reach a mutually satisfactory settlement.
Indeed, earlier this year a small rate case involving Williams Olefins,
LLC and Grand Trunk Corporation was resolved privately within only a few
weeks pursuant to mediation by Board staff.

[Fuel Surcharges]{.underline}. Another matter that has concerned
shippers in the past few years is the way the railroads were assessing
fuel surcharges. In recent years fuel costs have been unpredictable and
volatile, with some sharp upward spikes. Fuel is a substantial component
of railroad costs, and carriers have sought to recover their increased
fuel costs through surcharges. Some shippers felt that the surcharges
they were being assessed were greater than the increased fuel costs that
could be attributed to their movements. Captive shippers voiced concerns
that the fuel surcharge programs of the carriers, which were expressed
as a percentage of the base rate, virtually guaranteed that captive
shippers with high base rates would bear the increased fuel costs of
other shippers. They also objected to the carriers' practices of "double
dipping" by first raising the base rate using an index that includes
changes in fuel costs and then adding a separate fuel surcharge to the
same movement.

In May 2006, the Board held a public hearing on the matter. In January
of this year we issued a decision declaring it an unlawful practice for
carriers to use a fuel surcharge to recover more than the increased fuel
costs attributable to the particular movement to which the surcharge is
applied. This action, with industry-wide effect, demonstrates that the
Board will use aggressively the authority granted to it by statute to
stop unreasonable practices, thereby protecting shippers and advancing
the public interest.

**Service Quality and Railroad-Shipper Relationships**

The Board actively monitors railroad industry performance. We receive
monthly reports from each Class I railroad, tracking such indicators of
congestion and efficiency as the number of freight cars on line, train
speeds, and terminal dwell time (the amount of time cars spend in
railroad terminals to make connections between trains). Moreover, as it
has done for several years now, the Board has asked each of those
carriers to provide forward-looking information on how the railroads are
preparing to handle end-of-year peak shipping demands in several key
markets: agriculture (grain, grain products, and ethanol); coal;
chemicals; and intermodal traffic. This year the Board also asked the
carriers for their performance goals (with respect to cars-on-line,
terminal dwell time, train speed, and employment levels), as well as
information on critical capacity-related infrastructure needs this year
and their capital needs for increasing capacity in 2008. The carriers'
responses are available on our website.

On July 18, 2007, the Board held a field hearing in Kansas City,
Missouri, to examine issues related to the efficiency and reliability of
railroad transportation of resources critical to the Nation's energy
supply, including coal, ethanol and other biofuels. Speakers at the
hearing represented the interests of railroads, utilities, coal
shippers, and other energy commodities such as ethanol. To address these
issues further, the Board has established a Rail Energy Transportation
Advisory Committee (RETAC) to provide advice and guidance to the agency
and to serve as a forum for the discussion of emerging issues regarding
the railroad transportation of energy resources such as coal and ethanol
and other biofuels. RETAC is expected to address matters such as rail
performance, capacity constraints, infrastructure planning and
development, and effective coordination among suppliers, railroads and
energy-resource users. The first meeting of RETAC will be held on
October 24.

The Board has a very effective Rail Consumer Assistance Program, run by
our Office of Compliance and Consumer Assistance (OCCA), which handles
about 100 disputes in a typical year. A few of these informal disputes
concern rate issues, but the majority relate to service. The process is
easy to use and shipper-friendly. It can be engaged by a simple
telephone call, fax, letter, or email. The follow-up by our staff is
prompt and effective. Our consumer assistance staff has addressed a
variety of issues, in addition to rates and service, including: car
supply issues; claims for damages; demurrage issues (charges for holding
rail cars for too long); fuel surcharges; employee complaints; and
community concerns. Our staff cannot always resolve the issues
informally, but they are often successful at bringing the parties closer
together and getting them to talk to each other without resorting to
litigation or formal Board adjudication.

During the past year, the staff working in the consumer assistance
program proactively negotiated changes to the railroad industry's
embargo rules (rules that govern temporary stoppage of railroad service
due to track damage or other causes) that will do much to hold carriers
to their common carrier obligation to their shippers. We also resolved
two situations in which the crossing or interchange point between two
railroads had been blocked, in each case getting the railroad or
railroads involved to work out mutually acceptable compromises. We
successfully secured rail service for a new shipper in Texas when a
large railroad refused to serve it. We assisted a small grain shipper in
Nebraska with a rate dispute, persuading the carrier to compromise with
the shipper, and assisted a shipper in Missouri with its freight claims,
persuading the carrier to honor the claims. And we assisted a shipper
organization by persuading a large carrier to modify its freight car
information system to provide information that was needed for the
businesses of the involved shippers.

When parties cannot resolve their differences informally, they can
engage the Board's formal processes by filing a complaint. For example,
the Board may temporarily substitute another carrier for a carrier that
is unable or unwilling to provide adequate service on its lines. We have
used those rules several times in the past few years. This past year,
following up on a 2006 authorization of such alternative rail service at
the request of a shipper in Texas, the Board extended the temporary
relief until a long-term solution could be developed. In August, the
Board ordered the lines involved to be sold, at a price set by the Board
to reflect the value of the property, to either of two entities which
the Board found should result in improved rail service to shippers. This
particular "forced sale" was complex and lengthy. The Board's decisions
demonstrate that we will use every available tool, where necessary, to
protect shippers receiving inadequate service.

The Board acted to preserve shippers' service options in a case in Ohio
this year involving a railroad that would not let another railroad cross
its line. In that case, a Class I rail carrier had unilaterally removed
the crossing diamonds that were needed for a short line to serve several
potential shippers. The Board made clear that a carrier may not undercut
another carrier's ability to fulfill its common carrier obligation by
unilaterally severing track of the other carrier that is part of the
national transportation system. The Board directed the Class I carrier
to promptly reinstall the crossing.

**Preemption**

One of the most difficult issues facing the Board this year is how to
improve the Board's ability to ensure effective regulation of rail
operations that handle solid waste. We have made significant progress in
this area, and I would like to take this opportunity to highlight some
of our recent actions.

The express Federal preemption contained in the STB's governing statute
at 49 U.S.C. 10501(b) gives the Board exclusive jurisdiction over
transportation by rail carriers. It is important to keep in mind that
preemption applies both to cases that require STB licensing authority,
and also to some that do not.

[New Rail Construction]{.underline}

If a project involves building a new rail line into what would be a new
service area for the railroad, it requires a license from the Board and
an environmental review under NEPA. In such cases, the Board's existing
processes are sufficient to allow full consideration of the
environmental and other issues that arise. This is shown by *New England
Transrail*, which involves a plan to construct, acquire and operate
track in Massachusetts to carry a variety of commodities, including
municipal solid waste (MSW) and construction and demolition debris (C&D)
for connection to other rail carriers. In that case, the Board, in a
preliminary decision issued in July 2007, made clear that the Board will
conduct a detailed NEPA review and that New England Transrail will not
be allowed to enter the rail business until extensive environmental,
safety, public health, and other public interest considerations are
fully addressed.

[Acquisition of an Existing Rail Line]{.underline}

If a project involves a new carrier seeking to acquire or operate an
existing rail line, the new carrier must also obtain authority from the
Board. While NEPA review can be triggered, the Board has grown concerned
recently that the summary class exemption process used in many of these
cases does not always provide enough information about a pending
proposal to allow us to handle our regulatory responsibilities
effectively and efficiently.

Indeed, we recently have begun a proceeding to consider whether to
increase the information required from all of those seeking to use the
class exemption procedure to acquire, lease and operate rail lines. In a
number of recent cases, including matters involving Freehold, New Jersey
and Croton-on-Hudson, New York, the Board has stayed the effectiveness
of a notice invoking the class exemption to allow a more searching
inquiry and to solicit further evidence. We hope that our rulemaking
will improve this process and lessen the need for stay requests.

[Construction of Facilities Ancillary to an Already-Authorized Rail
Line]{.underline}

Finally, there are those activities that although part of rail
transportation, may not be subject to STB licensing. These activities
include making improvements to existing railroad operations, such as
adding track or facilities -- including transload facilities where
materials are transferred between truck and rail -- at existing railroad
locations, to better serve the needs of a railroad's service territory.
They also include construction of ancillary spur, industrial, team,
switching, or side tracks by an already-authorized rail carrier.

Because no Board license is required in these types of cases, there is
no occasion for the Board to conduct a formal NEPA review or impose
specific environmental conditions. However, as the Board has repeatedly
explained, other Federal environmental laws continue to apply, and state
and local police powers are not preempted entirely. In addition, any
interested party, community, or state or local authority concerned that
the Federal preemption is being wrongly claimed to shield activities
that are not "transportation by rail carrier" can ask the Board to issue
a declaratory order addressing that issue. Alternatively, they can go
directly to court to have that issue addressed.

The Board tries to be proactive where environmental concerns are brought
to our attention. STB staff conducts site visits to rail facilities
where MSW or C&D is handled, if appropriate. This month, the Board
issued an order in a matter in Yaphank, New York requiring an entity
constructing facilities there to immediately cease that activity and to
either obtain Board authorization for the construction or a Board
decision finding that such activity does not require our approval.

Moreover, some states have adopted regulations, such as New Jersey's 2D
regulations, that accommodate Federal preemption but allow the states to
inspect and impose other requirements on rail-related waste facilities
under the police powers they retain. I believe it would be consistent
with everything the Board has said about the scope of preemption that
states can apply their regulations to rail-related waste facilities so
long as the regulations are not applied in a discriminatory manner and
do not unreasonably interfere with the railroad's ability to conduct its
operations.

While the statutory and regulatory issues presented in cases involving
rail-related waste facilities are quite complex, the public interest and
public policy considerations involved in these controversies require
policy makers to balance several important, and often conflicting,
policies. The Board will continue to work hard to identify and implement
administrative and regulatory strategies that improve our ability to
ensure effective regulation in this area.

**Amtrak**

Currently there is pending legislation that would give the STB
significant new responsibilities regarding Amtrak. Those
responsibilities include resolving performance complaints, assisting in
the development of service metrics, and determining compensation between
Amtrak and commuter authorities for Northeast Corridor access costs if
agreement cannot be reached.

With those increased responsibilities will also come the need for
additional Board staff in order to ensure that we have the ability both
to meet our current caseload requirements and to provide an evenhanded
and efficient resolution of the Amtrak matters entrusted to us. I would
be remiss if I did not note that the Senate FY 2008 appropriation for
the STB is 5.6% lower than the Board's FY 2008 request. But I am certain
that all involved will continue to work to ensure that the Board has
sufficient appropriations to carry out all of our responsibilities.

**Conclusion**

The past 12 months have been noteworthy for the number of proactive
steps taken by the Board to reform, streamline, and modernize our
oversight and rail regulatory procedures. To summarize, some of the
highlights of the past year include the following:

-   In September 2006, we instituted a rulemaking proceeding to
    modernize the way we calculate the railroad industry's cost of
    capital to more accurately reflect the financial health of the rail
    industry;

-   In October 2006, we reformed the rate review process for large rate
    cases to streamline and improve the accuracy of the process, to
    close a loophole that permitted carriers to manipulate the process,
    and to address a legal vulnerability;

-   In September 2007, we overhauled the procedures for handling smaller
    rail rate cases so that all shippers will have a practical and
    feasible means of challenging rail rates;

-   We investigated the fuel surcharge practices of the railroads, and
    in January 2007 concluded that their fuel-surcharge programs were
    unreasonable because they were misleading and because they required
    captive shippers to bear surcharges that were higher than the
    increased fuel costs attributable to their traffic;

-   In November 2006, we held a hearing on issues related to the
    transportation of grain to explore whether further changes to the
    regulatory framework are necessary;

-   In July 2007, we held a hearing and announced that we are
    establishing an advisory committee on transportation of energy
    commodities to monitor the ability of the railroads to handle the
    future energy needs of the Nation;

-   In August 2007, we ordered a railroad providing inadequate service
    to sell its line to another entity that would provide better
    service;

-   We recently contracted with an independent economic consulting firm
    to conduct a sweeping national study of rail competition-related
    issues; and

-   The Board has taken a number of steps to ensure that waste handling
    facilities do not use preemption to subvert appropriate review and
    regulation.

Of the more important actions that will take place between now and the
end of next year, the STB will:

-   Issue final rules on how to calculate the cost of capital for the
    rail industry;

-   See that the competition study is completed, and analyze the results
    and recommendations contained therein;

-   Test the new simplified rate guidelines on three newly filed small
    rail rate disputes (and perhaps more cases, if filed);

-   Finish our investigation into the concerns about the appropriateness
    of certain interchange commitments that large carriers may enter
    into when they sell or lease light-density portions of their lines
    to smaller carriers;

-   Consult with our new energy advisory committee for guidance on a
    range of significant issues that affect the public interest in a
    reliable delivery network for coal and liquid biofuels;

-   Continue to examine the infrastructure and capacity needs of the
    rail network and the railroads' capital investment levels, and to
    emphasize the critical importance of developing new strategies to
    meet those challenges;

-   Review the recently announced proposal by the Canadian Pacific
    Railway to acquire the Dakota, Minnesota & Eastern Railroad, as well
    as the Canadian National Railway's proposal to acquire the Elgin,
    Joliet & Eastern Railway;

-   Improve the Board's ability to ensure effective regulation of rail
    operations that handle municipal solid waste and related materials;

-   Address the current ambiguity as to whether certain types of
    arrangements between rail carriers and shippers reflect contracts
    (for which regulatory remedies are unavailable), or whether they
    reflect common carrier service subject to Board regulation; and

-   Prepare the STB to have the capability to address potential
    conflicts between passenger rail and freight rail operations and to
    implement potential legislative proposals in this regard.

    I appreciate the opportunity to discuss these issues today, and look
    forward to any questions you might have.

> Attachment 1

**SUMMARY OF**

**SURFACE TRANSPORTATION BOARD**

**SIGNIFICANT DECISIONS AND HEARINGS**

**October 1, 2006 -- October 16, 2007**

**[Rulemakings]{.underline}**

EP 646 (Sub-No. 1) *Simplified Standards for Rail Rate Cases* 9/05/07

Modified the Board's simplified rail rate guidelines by creating a
simplified stand-alone cost approach for medium-sized rail rate disputes
and revising its three-benchmark approach for smaller rail rate
disputes. The Board's decision also places limits on the total relief
available over a 5-year period under these two simplified approaches.

EP 656 *Motor Carrier Bureaus---Periodic Review Proceeding*

-   5/7/07 -- Completed periodic review, pursuant to 49 U.S.C. 13703(c),
    of agreements of motor carriers to engage in rate-related collective
    activities. The Board terminated approval of the agreements of all
    remaining motor carrier bureaus. To provide sufficient time for
    parties to adjust to a new environment without antitrust immunity
    for motor carrier bureau activities, the decision was made effective
    in 120 days.

-   6/28/07 -- Postponed, to January 1, 2008, the effective date of
    Board's decision terminating its approval of antitrust immunity for
    motor carrier bureau agreements.

EP 657 (Sub-No. 1) *Major Issues in Rail Rate Cases* 10/30/06

Decision adopted procedural and substantive changes regarding proper
application of the stand-alone cost test in rail rate cases.

EP 659 *Public Participation in Class Exemption Proceedings* 10/19/06

Decision adopted changes in the procedures for certain exemptions to
ensure that the public is given notice of a proposed transaction before
the pertinent exemption becomes effective, and to allow the Board to
process these notices of exemption, and any related petitions for stay,
in an orderly and timely fashion.

EP 661 *Rail Fuel Surcharges* 1/26/07

Found that computing rail fuel surcharges as a percentage of a base rate
is an unreasonable practice and directed carriers to change this
practice. Board also concluded that the practice of "double dipping,"
i.e., applying to the same traffic both a fuel surcharge and a rate
increase that is based on a cost index that includes a fuel cost
component, such as the Railroad Cost Adjustment Factor (RCAF), is an
unreasonable practice and directed carriers to change this practice as
well. Board announced it would proceed with a proposal to impose
mandatory reporting requirements for all Class I railroads regarding
their fuel surcharges, in STB Ex Parte No. 661 (Sub-No. 1).

EP 661 (Sub-No. 1) *Rail Fuel Surcharges* \[reporting requirement\]

-   1/26/07 -- Proposed to require all large (Class I) railroads to
    submit a monthly report containing the following information: (1)
    total monthly fuel cost; (2) gallons of fuel consumed during the
    month; (3) increased or decreased cost of fuel over the previous
    month; and (4) total monthly revenue from fuel surcharges.

-   8/14/07 -- Adopted final rules to require all Class I railroads to
    submit a quarterly report containing the following information: (1)
    total quarterly fuel cost; (2) gallons of fuel consumed during the
    quarter; (3) increased or decreased cost of fuel over the previous
    quarter; (4) total quarterly revenue from fuel surcharges; and (5)
    revenue from fuel surcharges on regulated traffic.

EP 664 *Methodology to be Employed in Determining* 8/14/07

> *the Rail Industry's Cost Of Capital*

Proposed to revise the Board's method for calculating the railroad
industry's cost of capital by computing the cost of equity using a
capital asset pricing model rather than a discounted cash flow analysis.

EP 669 *Interpretation of the Term "Contract" in 49 U.S.C. 10709*
3/29/07

Requested public comment on a proposal to interpret the term "contract'
in 49 U.S.C. 10709 to embrace "any bilateral agreement between a carrier
and a shipper for rail transportation in which the railroad agrees to a
specific rate for a specific period of time in exchange for
consideration from the shipper."

EP 670 *Establishment of a Rail Energy Transportation Advisory
Committee*

-   3/9/07 -- Provided notice seeking public comments on the
    establishment of a Rail Transportation Advisory Committee to provide
    independent advice and policy suggestions on issues related to the
    reliability of rail transportation of resources critical to the
    nation's energy supply.

-   7/17/07 -- Announced the establishment of the Rail Energy
    Transportation Advisory Committee and requested nominations of
    candidates to serve on the committee.

-   9/21/07 -- Announced the appointment of 23 individuals to serve on
    the newly established Rail Energy Transportation Advisory Committee.

EP 673 *Information Required in Certain Notices of Exemption* 10/04/07

Granted a petition filed by 6 Class I rail carriers to institute a
rulemaking proceeding to consider requiring more information in notices
of exemption for acquiring and operating rail lines and to reconsider
the Board's *Effingham* decision.

**[Annual Regulatory Determinations]{.underline}**

EP 290 (Sub-No. 4) *Railroad Cost Recovery Procedures---Productivity*
1/31/07

Proposed to adopt 1.017 (1.7% per year) as the measure of average change
in railroad productivity for the 2001-2005 (5-year) averaging period, a
decline of 0.2% from the measure of 1.9% that was developed for the
2000-2004 period.

EP 542 (Sub-No. 14) *Regulations Governing Fees for Services* 4/6/07

> *Performed in Connection with Licensing*
>
> *and Related Services*

Decision adopted 2007 user fee update and revised fee schedule to cover
certain costs.

EP 552 (Sub-No. 10) *Railroad Revenue Adequacy---2005* 10/23/06

Found one Class I carrier, Norfolk Southern, to be revenue adequate in
2005.

EP 558 (Sub-No. 9) *Railroad Cost of Capital---2005 determination*
2/12/07

Denied Western Coal Traffic League's petition for reconsideration of the
cost-of-capital decision for 2005. The Board rejected various technical
challenges and said that it would address the League's argument that the
Board should replace its discounted cash flow methodology with a capital
asset pricing model in a new proceeding, EP 664.

EP 558 (Sub-No. 10) *Railroad Cost of Capital---2006 determination*
5/16/07

Instituted a proceeding to determine the railroad industry's cost of
capital for 2006 and required comments from all Class I railroads.

**[Rail Cases]{.underline}**

**Major Rate Cases**

NOR 42088 *Western Fuels v. BNSF* 9/10/07

Found that BNSF had market dominance over the transportation at issue,
but that the complainant had not demonstrated that the challenged rates
were unreasonably high. The complainant was offered an opportunity to
submit supplemental evidence.

NOR 41191 (Sub-No. 1) *AEP Texas v. BNSF* 9/10/07

Found that BNSF had market dominance over the transportation at issue,
but that the complainant had not demonstrated that the challenged rates
were unreasonably high. The complainant was offered an opportunity to
submit supplemental evidence.

No. 42095 *Kansas City Power and Light v. Union Pacific RR* 3/29/07

Found that the parties had shown cause why the case should not be
dismissed (on grounds that the transportation at issue is covered by
contract) and directed the parties to submit a proposed procedural
schedule.

**Small Rate Cases**

No. 42098 *Williams Olefins, L.L.C. v. Grand Trunk Corporation* 2/15/07

Dismissed this small rate complaint after the parties confirmed that
they had reached a mediated settlement with the assistance of Board
staff.

No. 42099 et al. *E.I. DuPont de Nemours and Co. v. CSX Transportation*
9/7/07

Decided that three small rate cases filed by DuPont in August would be
adjudicated under the Board's new simplified guidelines for small- and
medium-sized rate cases, and directed DuPont to supplement its
complaints as warranted under the new guidelines.

**Acquisition of Control**

FD 35031 *Fortress Investment Group---Control---Florida East Coast Ry.*
9/28/07

Approved the acquisition of control of Florida East Coast Railway by
Newco and Fortress Investment Group LLC.

**Construction, Acquisition, or Operation of Rail Lines and Facilities**

FD 30186 (Sub-No. 3) *Tongue River RR Co.―Construction* 10/9/07

> *and Operation―Western Alignment*

Approved Tongue River's application for construction and operation of a
17.3-mile rail line in Montana as part of a route previously authorized
for construction to move coal out of the Powder River Basin and modified
previously imposed environmental conditions.

FD 34421 *Holrail LLC---Construction and Operation Exemption* 2/12/07

> *---In Orangeburg and Dorchester Counties, SC*

Denied Holrail's petition to cross CSX's right-of-way, because HolRail's
proposal to construct in the right-of-way in the form of a crossing
petition was an inappropriate use of the crossing statute, and denied
Holrail's request for authority to construct and operate its preferred
route.

FD 34797 *New England Transrail---Construction* 7/10/07

*Acquisition and Operation Exemption*

Found that New England Transrail would, if authorized, become a rail
carrier subject to the Board's jurisdiction, but also found that some of
its planned activities related to the handling of construction and
demolition debris would extend beyond the scope of rail transportation
and therefore would not be subject to Federal preemption from most state
and local laws. The Board held an oral argument in this case on 4/19/07.

FD 34909 *CSX, Norfolk Southern and Conrail---Joint Use* 10/5/06

Granted a petition for exemption filed by CSX, Norfolk Southern, and
Conrail to provide for the joint use and joint rail freight operations
over 7.69 miles of abandoned rail line of the former Staten Island
Railway Corporation in New York and New Jersey.

FD 34986 *Ashland RR---Lease and Operation---In Monmouth County, NJ*
8/16/07

Rejected a notice of exemption by Ashland to acquire and operate 1.5
miles of track in Freehold Township because Ashland failed to provide
information on whether it proposed to transload solid waste at a
facility on the line to be acquired.

FD 35020 *Northern and Bergen RR―Acquisition Exemption*

> *―A Line of the New York & Greenwood Lake Ry.*

-   5/25/07 -- Stayed the effective date of the exemption to provide
    additional time for the parties to meet to discuss concerns about
    the rail facility's compliance with health and safety regulations.

-   6/25/07 -- Denied further stay of the exemption.

FD 35024 et al. *Washington State Dept of Transportation* 5/30/07

> *---Acquisition---Palouse River and Coulee City RR*

Granted Washington State DOT authority to acquire a total of 296 miles
of rail line from the Palouse River and Coulee City Railroad on an
expedited basis in four separate and related transactions.

FD 35036 *Suffolk & Southern Rail Road LLC―Lease and Operation
Exemption―Sills Road Realty, LLC*

-   6/1/07 -- Provided that the exemption in this proceeding would not
    become effective until further order of the Board and directed
    Suffolk & Southern to file supplemental information.

-   8/13/07 *--* Directed Suffolk & Southern to file supplemental
    information required in a prior Board decision and to explain why it
    sought to withdraw its petition filed in this case.

-   10/12/07 -- Reopened proceeding in light of evidence that
    construction of intended rail facilities may be occurring despite
    prior reports appearing designed to give a different impression and
    directed that any construction activities cease until the Board
    either grants construction authority or rules that no authority is
    needed.

FD 35042 *U S Rail Corp―Lease and Operation Exemption―Shannon G.*
6/15/07

Ordered that the proposed exemption would not become effective until
further order of the Board and directed U S Rail to file supplemental
information.

FD 35063 *Michigan Central Railway---Acquisition* 8/2/07

*And Operation Exemption---Norfolk Southern*

Commenced a proceeding to consider the petition of Michigan Central
Railway to exempt its acquisition and operation of certain railroad
lines of the Norfolk Southern Railway Company in Michigan and Indiana.

FD 35068 *Soo Line RR Co. d/b/a Canadian Pac. Ry.* 9/07/07

> *---Acquisition and Operation---BNSF Ry.*

Granted a petition for Soo to acquire BNSF's interest in and to operate
36.26 miles of rail line in North Dakota previously jointly owned by CP
and BNSF and to acquire and operate a contiguous 9.96-mile line owned by
BNSF.

**Unreasonable Practice Complaints**

No. 42060 (Sub-No. 1) *North America Freight Car Association* 1/26/07

> *v. BNSF Ry. Co.*

Denied complaint challenging storage and demurrage charges on empty
private freight cars when held on BNSF property beyond a "free time"
period. Number range CHAPTERComplainants had alleged that the imposition
of such charges, which had not been imposed in the past, was an
unreasonable practice, constituted a failure to furnish adequate car
service, violates requirements regarding demurrage charges, and violates
the shipper allowance provisions.

**Requests for Declaratory Order**

FD 34527 *Maumee & Western RR Co.---Pet. for Dec. Order―* 5/9/07

> *CSXT Crossing Rights at Defiance, OH*

Granted request for declaratory order and found that CSXT is obligated
to restore the crossing diamonds it had removed at Defiance, unless the
parties agree to a different crossing arrangement.

FD 34818 *City of Jersey City, et al.―Pet. for Dec. Order* 8/9/07

Determined that Conrail needs abandonment authorization from the Board
before it may transfer ownership of the pertinent property for nonrail
use.

FD 34865 *Arkansas Midland Railroad Company* 5/2/07

> *―Pet. for Dec. Order―Caddo Valley RR Co.*

Found that the right of first refusal under 49 U.S.C. 10907(h) \[under
which a railroad forced to sell its rail line under the feeder line
railroad provisions has a right of first refusal if the line is
subsequently sold\] applies in a situation where the stock of the feeder
line buyer is proposed to be sold instead of the asset (line) itself.

FD 34914 *DesertXpress―Pet. for Dec. Order* 6/27/07

Granted DesertXpress' petition, finding that its proposed construction
is not subject to state and local environmental review, land use
restrictions, or other discretionary permitting requirements because of
Federal preemption.

FD 35021 *Union Pac. RR Co.---Petition for Declaratory Order* 5/16/07

Denied a request by UP for a declaratory order as to whether "Option 2
of Circular 111" (a rate made available by the UP to its customers which
depended upon certain commitments from both carrier and shipper as to
term, volume, rates and service) was a contract or a tariff. The Board
denied the railroad's request on the grounds that such a determination
depended on the facts surrounding the execution of each particular
Option 2 agreement, and those facts were not placed before the Board.

**Forced Sale and Alternative Service**

AB-556 (Sub-No. 2) *Railroad Ventures-Abandonment Exemption* 2/15/07

> *―Between Youngstown, OH, and Darlington, PA*

Reversed the Board's prior decision to the extent that it had considered
newly introduced evidence pertaining to certain expenditures and
tentatively concluded that none of the \$375,000 portion of the purchase
price set aside for repairs need be turned over to Railroad Ventures.

FD 34890 *PYCO---Feeder Line Application* 8/31/07

Ordered South Plains Switching to sell its rail lines in Lubbock, TX, to
either PYCO Industries or Keokuk Junction Railway under the terms set by
the Board pursuant to 49 U.S.C. 10907.

FD 34917 *Pioneer Industrial Railway Company―Alternative Service*
1/12/07 *Request―Central Illinois Railroad Company*

Denied request for Pioneer to provide alternative rail service over line
of Central Illinois but reopened a prior decision granting an adverse
discontinuance application that sought removal of Pioneer as a carrier
authorized to serve the line.

**[Motor Carrier Cases]{.underline}**

MC-F-21020 *FirstGroup plc---Acquisition---Laidlaw International, Inc.*
4/5/07

Approved, subject to opposing comments being submitted, the application
of FirstGroup, plc to acquire Laidlaw International, Inc., the parent of
Greyhound Lines, Inc. No opposing comments were received, and the
decision therefore became effective 5/21/07.

RR 999 (Amendment No. 4 to Released Rates Decision No. MC-999)

*Released Rates of Motor Common Carriers of Household Goods* 6/13/07

Decision amended the Board's previous decisions authorizing motor
carriers of household goods to offer "released rates," under which they
limit their cargo liability, to comport with a statutory change in the
standard liability of motor carriers for damage to, or loss of, the
household goods they transport.

RR 999 (Amendment No. 5 to Released Rates Decision No. MC-999)

*Released Rates of Motor Common Carriers of Household Goods* 6/13/07

Decision proposed, and sought comment on, three changes to the Board's
released rates authorization to enhance the protection of consumers
whose household goods are damaged or lost by motor common carriers.

**[Pipeline Cases]{.underline}**

NOR 42084 *CF Industries v. Kaneb Pipe Line* 11/21/06

Granted the parties' joint motion to approve their settlement agreement
without condition and place it under seal.

**[Water Carrier Cases]{.underline}**

WCC 101 *Guam v. Sea-Land Service et al.*

-   2/02/07 -- Denied carriers' motion to dismiss and ordered carriers
    to submit all additional evidence regarding effective competition in
    the Guam market by March 19, 2007, and ordered the Government of
    Guam (GovGuam) to submit its reply by April 18, 2007.

-   8/30/07 -- Denied petitions for reconsideration filed by GovGuam and
    the Caribbean Shippers Association and modified the procedural
    schedule.

-   10/12/07 -- Granted GovGuam's motion to dismiss its complaint.

**[Hearings]{.underline}**

EP 665 *Rail Transportation of Grain* 11/02/06

The Board held a public hearing as a forum for interested persons to
provide views and information about the market conditions pertaining to
rail transportation of grain.

EP 646 (Sub-No. 1) *Simplified Standards for Rail Rate Cases* 1/31/07

The Board held a hearing regarding proposed changes to its procedures
for determining the reasonableness of challenged railroad rates in those
small- and medium-sized cases in which a full stand-alone cost (SAC)
presentation is too costly.

EP 664 *Methodology to be Employed in Determining* 2/15/07

> *the Rail Industry's Cost Of Capital*

The Board held a hearing regarding the appropriate methodology to be
employed by the Board in determining the railroad industry's estimated
cost of capital, which would then be used by the agency in future,
annual cost-of-capital decisions.

EP 671 *Rail Capacity and Infrastructure Requirements* 4/11/07

The Board held a hearing as a forum for interested persons to provide
views and information about: rail-freight traffic forecasts; the extent
of capacity constraints and the ability of railroads to meet rising
demand; the infrastructure investment needed to ensure that the Nation's
freight-rail system continues to operate in an efficient and reliable
manner; possible solutions to the challenges presented by growing rail
traffic and limited capacity; and the potential role of public-private
partnerships and innovative financing tools in meeting these challenges.

FD 34797 *New England Transrail---Construction* 4/19/07

*Acquisition and Operation Exemption*

The Board held an oral argument in the *New England Transrail* case to
permit the parties of record to discuss the extent to which NET's
planned activities would constitute transportation by rail carrier and
thus lie within the Board's exclusive regulatory jurisdiction.

EP 672 *Rail Transportation of Resources* 7/18/07

> *Critical to the Nation's Energy Supply*

The Board held a hearing in Kansas City, Missouri, to provide a public
forum for examination of issues related to the efficiency and
reliability of railroad transportation of resources critical to the
Nation's energy supply, including coal, ethanol and biofuels.

Attachment 2

**STB'S RECORD IN COURT**

Since 10/1/2006

**Cases Decided on the Merits:**

[Mayo Foundation v. STB]{.underline} (8th Cir. No. 06-2031). *Rail Line
Constructions*. In response to challenges brought by various
environmental groups, community interests located along the line, and
others, the court upheld an STB decision on remand re-authorizing Dakota
Minnesota & Eastern to construct a rail line to serve coal mines in the
Powder River Basin. (4 petitions embraced.) *472 F.3d 545.*

[Springfield Term. Ry. v. STB]{.underline} (D. Mass. No. 04-12705-RGS).
*Rail charges.* In response to a challenge brought by a rail carrier,
the court upheld an STB decision addressing court-referred issues as to
when a claim for car mileage allowance accrues. (2 petitions embraced.)
*472 F. Supp. 2d 89.*

[Black et al. v. STB]{.underline} (6th Cir. No. 06-3045). *Rail Labor
Protection*. In response to a challenge brought by individual employees
who were not supported by their union, the court upheld an STB decision
declining to overturn a labor arbitration ruling. *476 F.3d 409.*

[American Orient Express Ry. v. STB]{.underline} (D.C. Cir. Nos. 06-1077
& 06-1080). *Rail Passenger Service.* In response to a challenge brought
by a business that operates passenger services over lines owned by
Amtrak and other rail carriers, the court upheld an STB decision finding
that petitioner is a rail carrier subject to Board jurisdiction. (2
petitions embraced.) *484 F.3d 554.*

[Otter Tail Power Co. v. STB]{.underline} (8th Cir. No. 06-1962). *Rail
Rates.* In response to a challenge brought by a shipper, the court
upheld an STB decision finding that challenged rates had not been shown
to be unreasonably high. (3 petitions embraced.) *484 F.3d 959.*

[DHX, Inc. v. STB]{.underline} (9th Cir. No. 05-74592). *Water Carrier
practices.* The court upheld an STB decision denying a freight
forwarder's challenge to rates and practices of two water carriers
serving Hawaii.

**Pending Cases:**

[Northern Plains Resource Council v. STB]{.underline} (9^th^ Cir. Nos.
97-1011, 97-70099, 97-70217, & 97-70037). *Rail Line Construction.*
Challenges brought by property owners and others to an STB decision
approving the construction and operation of the Tongue River rail line
in Montana. Case held in abeyance. (4 petitions embraced.)

[Railroad Ventures v. STB]{.underline} (6th Cir. No. 05-3157). *Rail
Abandonments; OFA Sales*. Challenge brought by a business that bought a
rail line, but then provided poor service, to an STB decision regarding
one of the terms and conditions for the forced sale of the rail line
under offer of financial assistance procedures.

[District of Columbia v. STB]{.underline} (D.C. Cir. No. 05-1220).
*Preemption.* Challenge brought by the District of Columbia government
and the Sierra Club to an STB decision declaring that an act of the
District of Columbia seeking to govern the transportation of hazardous
materials moving by rail through the District is preempted by the
Interstate Commerce Act. (2 petitions embraced)

[Kershaw Sunnyside Ranches et al. v. STB]{.underline} (9th Cir. No.
05-76364). *Adverse Abandonment.* Challenge brought by a landowner to an
STB decision denying an application for adverse abandonment of rail
track running through a portion of its property.

[Tri-State Brick & Stone of N.Y. v. STB]{.underline} (D.C. Cir. No.
06-1334). *Preemption.* Challenge by a business that leases property
next to a rail yard to an STB decision finding that the petitioner is
not a rail carrier and thus not protected from state and local land use
laws.

[BNSF Ry. v. STB]{.underline} (D.C. Cir. Nos. 06-1372 et al.). *Rail
Rates.* Challenges by various large rail carriers, a carrier
association, and a shipper group to an STB rulemaking decision modifying
the standards and procedures for addressing large rail rate disputes.
(4+ petitions embraced.)

[Western Coal Traffic League v. STB]{.underline} (D.C. Cir. No.
07-1064). *Railroad Cost of Capital.* Challenge by a shipper group to an
STB decision applying established procedure for determining cost of
capital for railroad industry in 2005, while exploring in a separate
rulemaking whether current method for computing cost of equity should be
replaced with some other technique.

[North Am. Freight Car Ass'n v. STB]{.underline} (D.C. Cir. No.
07-1070). *Rail Charges.* Challenge by a group of railcar owners to an
STB decision denying complaint against a carrier's imposition of storage
and demurrage charges on empty private freight cars.

[HolRail LLC v. STB]{.underline} (D.C. Cir. No. 07-1088). *Rail
Crossing.* Challenge by a shipper-owned new rail carrier to an STB
decision denying request to invoke the crossing statute to use another
carrier's right-of-way in connection with the proposed construction of a
new rail line.

[Caddo Valley Railroad Co. v. STB]{.underline} (8th Cir. No. 07-2066).
*Feeder Line Sale.* Challenge by a small rail carrier to an STB decision
finding that the statutory right of first refusal to repurchase the line
applied to the sale of the entire stock of the business.

[CSX Transportation, Inc., et al. v. STB]{.underline} (D.C. Cir. No.
07-1369). *Small Rate Guidelines.* Challenges by four large railroads
and a railroad association to the newly modified small rate guidelines.
(5 petitions embraced.)

[212 Marin Boulevard, LLC, et al. v. STB]{.underline} (D.C. Cir. No.
07-1397). *STB jurisdiction.* Challenge by rail carrier and property
developers to an STB decision finding that certain property sold to a
developer for residential housing is part of a line of railroad that
remains subject to STB jurisdiction until abandonment authority is
obtained. (2 petitions embraced.)

[^1]: The cost of equity for 2005 using the current methodology was
    calculated to be 15.2%, compared to 8.4% using the proposed
    methodology; similar disparities are reflected in prior years'
    calculations (e.g., 2003: 12.7% vs. 8.0%; 2004: 13.2% vs. 8.2%).

[^2]: The report is entitled *Industry Health Has Improved, but Concerns
    about Competition and Capacity Should Be Addressed*.

[^3]: The supplement is entitled *Freight Railroads: Updated Information
    on Rates and Other Industry Trends*.

[^4]: For some areas, rates can be higher because traffic is seasonal
    and there is little volume during off-peak times.

[^5]: *See* *Otter Tail Power Co. v. BNSF Ry.*, 484 F.3d 959 (8th Cir.
    2007); *Arizona Elec. Power Coop., Inc. v. STB*, 454 F.2d 359 (D.C.
    Cir. 2006); *BNSF Ry. v. STB*, 453 F.3d 473 (D.C. Cir. 2006); *PPL
    Mont., LLC v. STB*, 437 F.3d 1240 (D.C. Cir. 2006); *Wisconsin Power
    & Light Co. v. Union Pac. R.R*., 62 Fed. Appx. 354 (D.C. Cir. Apr.
    30, 2003); *McCarty Farms, Inc. v. STB*, 158 F.3d 1294 (D.C. Cir.
    1998); *Burlington N.R.R. v. STB*, 114 F.3d 206 (D.C. Cir. 1997).

[^6]: In particular, the United States Court of Appeals for the District
    of Columbia, in affirming one of the Board's more recent SAC
    decisions that had been challenged by a railroad, explicitly stated
    that, if the Board were "presented with a model \[for allocating
    revenue for so-called "cross-over traffic"\] that took account both
    of the economies of density and of the diminishing returns thereto,
    a decision to adhere to its \[existing\] model would be on shaky
    ground indeed." *BNSF Ry. v. STB*, 453 F.3d 473, 484 (D.C. Cir.
    2006).