**STB Hearing─Ex Parte No. 661, Rail Fuel Surcharges, 5/11/2006**

**Chairman Buttrey's Opening Statement**

Good morning. I'd like to call this hearing to order, and welcome
everyone here today for the Surface Transportation Board's public
hearing on Rail Fuel Surcharges, in the proceeding entitled STB Ex Parte
No. 661. I am pleased that today's hearing is being simultaneously
video-webcast and is available for viewing through the Board's website.
I'd like to welcome all those who are tuned in and watching over the
internet, in addition to those who are here in person.

Vice Chairman Mulvey and I are keenly aware of concerns that have been
raised regarding the level of rail fuel surcharges, the way in which
they are calculated, how they are levied, and who is or is not paying
them. After considerable thought and discussion, we concluded that a
public hearing could be very beneficial to provide shippers the
opportunity to address the impact of these added charges and their
effect on the competitiveness of rail-shipped commodities and
merchandise; and to give each of the major railroads the opportunity to
present accurate information about their individual surcharges.

We are all painfully aware that fuel prices are at all-time highs.
Today, volatility of fuel prices and supply seems to be the norm, not
the exception. We all deal with it in our daily lives as we buy gasoline
for our personal vehicles. But for railroads, the "sticker shock" and
unpredictability of the current fuel environment has an even bigger
impact. While railroads are a relatively fuel-efficient way to move
freight ─ and their fuel efficiency has been increasing in recent years
as newer locomotives are added to the fleet ─ the cost of fuel is a very
significant operating expense for railroads. Their U.S. operations
consume several billions of gallons of diesel fuel each year.

I have not heard anyone suggest that railroads should not be able to
respond to the dramatic increases in their fuel costs by imposing
surcharges. After all, for their primary freight-movement competitors,
the trucking industry, diesel fuel surcharges are an accepted practice.
Rather, the concern seems to be focused more on how these rail fuel
surcharges are calculated and applied; or, put another way, with the
transparency, predictability and fairness of the process.

We are not without some guidance in this area. This is not the first
time the Federal regulatory process has struggled with fuel surcharge
issues. Our predecessor, the Interstate Commerce Commission, faced a
near-crisis situation when diesel fuel prices escalated sharply after
OPEC imposed its 1973 oil embargo. Back then, the ICC had jurisdiction
over motor carrier rates and practices, as well as rail. The rapid
escalation of fuel prices hit the independent truckers especially hard.
Those owner-operators were typically under contract to perform
transportation of regulated commodities for a carrier with operating
authority, for which the owner-operator received a fixed percentage of
the transportation rate. The transportation rate was set by the
regulated carrier. The owner-operator was responsible for paying all
initial costs connected with providing the transportation, including
fuel, out of its fixed percentage of the transportation rate.

Fuel costs rose rapidly in the late 1970's, and the owner-operators
faced a severe cost crunch. The ICC authorized the regulated motor
carriers to impose fuel surcharges on short notice, but this was not
enough to solve the problem. Because the carriers did not pay for the
fuel, they had little incentive to impose surcharges promptly, and not
all of the surcharge was passed through to the owner-operator because of
the terms of the contracts.

After several interim steps during the late 1970's also proved
insufficient, the ICC finally mandated that carriers **must** pass
through to their owner-operators the maximum allowable surcharge amount,
regardless of the terms of their agreements with the owner-operators.
This order was issued by the ICC in 1981, in a proceeding called Ex
Parte No. 311 (Sub-No. 4).

Although the ICC issued this order with the best of intentions to help
the hard-pressed owner-operators, a Federal court ultimately struck it
down as being beyond the agency's authority. In a 1983 holding, the
Fifth Circuit Court of Appeals found that the ICC had exceeded its
statutory authority when it intruded so far into the specifics of how
the industry could impose surcharges to recover increased fuel costs,
and in effect altered the terms of the private agreements between the
carriers and the owner-operators. This decision, which is printed at 698
F.2d 1266, is some of the only court guidance we have in this area.

While the facts of that 1983 case are different from the situation
before us today in some respects, the two situations are very similar in
that both involve indexed, mileage-based transportation fuel surcharges.
The court's basic message is a good one to keep in mind as we proceed
here today ─ the agency must be mindful of the limits on its statutory
authority. I think that it is also instructive to consider what the
court did NOT have a problem with in this case ─ it clearly did NOT have
a problem with the idea of fuel surcharges *per se*, to enable carriers
to cope with fluctuating fuel costs.

With that background, let's turn to today's hearing. We have a
substantial list of shippers, railroads, and other interested parties
that will testify. Some of the questions that may be raised include the
nature of the various railroad surcharges, how they are applied, how
much revenue they generate, how different classes of traffic are
affected, what index is used for escalation, and how the Board should
treat rail fuel surcharges in the uniform rail costing system, or
"URCS."

The Board, of course, has an open mind about these issues. All of the
testimony, both oral and written, will be given full consideration in
this proceeding. I would also like to note that the Board has received
comments from two Members of Congress, Senator Conrad Burns and Senator
Byron Dorgan. They have requested that their comments be put in the
record for this proceeding, and they have been, as will comments that
may be received later from any other Members of Congress.