this hearing of the committee on the judiciary subcommittee on courts and competition policy will now come to order without objection a chair is authorized to declare a recess today's hearing is about h r two thirty three a bill that would eliminate antitrust exemption from the railroad industry the bill would enable the department of justice in the federal trade commission to in force and to trust flaws in the railroad industry the bill would also restore the full range of antitrust rights and remedies to private parties under the interstate commerce commission and later the surface transportation board the number of class one railroads in this country shrank from sixty three to seven as of now four of the class ones handle ninety percent of the nation's rail carrier traffic t to the east and two to which the effect of this consolidation has been an increase in prices according to an october two thousand and six g a o study the volume of traffic option on part of that route are on average almost twenty one percent higher than on competitive routes cost of shippers an additional one point three billion every year these cost ultimately passed on to consumers has higher prices they mean higher prices at the dealership for the cards transported by rail they mean higher prices at the grocery store for the crops shipped by rail at cetera et cetera et cetera as a matter of public policy we shy away from and to trust exemptions and a trust modernization commission created by this committee made the following observations about exempt kids quote antitrust exemption to create economic benefits to flow to small groups while the cost or usually passed on to a large population of consumers through higher prices reduced our output lower quality and reduced innovation the bill before us today would leave the real carrier industry no differently situated than any other number of industries subject to both antitrust laws as well as regulation it would however remove antiquated and to trust exemptions favoring the industry which will spur innovation drive appreciate your having called today's hearing last year mr chairman the full committee approve similar legislation by voice vote i have not changed my views on the impact of shipping costs have all many industries in the district i represent many of which provide essential services but as i did not serve on the antitrust task force last session appreciate this opportunity to do more closely review h r two three three and to discuss its impact as you have just done my concern with the rail shipping industry and hope for today's harry is that we approve the most effective solution perhaps antitrust review by the justice department i have to see what is the most effective solution are there are needed improvements at the service transportation more known as a s t b and visit back down memory operations including the rates that they charge customers to ship goods across the country congress regulation of the railroads began about at about the same time as it passed the sherman antitrust act as the two laws develop over time the courts and congress recognized that heavily regulated industries such as railroads should not be subject to the full reach of antitrust laws the courts develop exempted certain pulling a right humans from ad trust purity over time the nation's attitude towards heavy regulation changed particularly have some heavily regulated industry that including the r began to suffer but nine hundred eighty the rail industry had become glaringly inefficient and as a result the congress passed the steiger's act which deregulated the industry and shortly thereafter replaced interstate commerce commission with the s t b current of the s t b is not required to approve shipping rates and the rail industry is not covered by the antitrust laws which is why the justice department cannot independently challenge a royal merger at the heart of h r two three three and today's hearing many shippers who also claim to be captive to justified rates and rigid schedules argue that their ends just as worship from other countries can be more cost effective that ship within two points in the united states meanwhile we all know the benefit of railroads they are energy efficient they can move massive massive amounts of goods and they are indeed a driving force in our economy i've heard from constituents back in my district mr chairman about this issue i want to help solve the problem feel very strongly that we should understand how h two three three well affect the rail industry while i'm here with an open mind in my view the onus today moving forward is on the rail industry to help us identify problems and to recommend solutions are improve ranking member of the of the full committee thank you mr chairman ms sherrod let me begin by saying that i appreciate the concerns of the shipping industry like many others in this economy they are suffering rising costs mean that when the existing long term contracts for the shipment of coal expire for example some power companies in my district will face drastically higher rates on the railroad while i am sympathetic and concerned about the plight of the captive shippers i am also concerned that the legislation before us will not necessarily solve their problems the bulk of the shippers concerned seem to live with what they view as an ineffectual regulatory body the surface transportation border like the members of the any trust modernization commission i skeptical about many any trust exemptions to me the elimination of some anti trust exemptions for the railroad industry such as subjecting mergers in the industry to review before the any trust division of the department of justice makes sense however the railroad any enforcement act of two thousand and nine does more than just that it would subject railroad junk to relief throughout the country because railroads are widespread networks that are not easily diverted into other channels and injunction in one part of the network could have serious repercussions throughout in addition a railroad that runs across multiple districts and circuits as most do could be subject to an injunction in one district where the exact same conduct could be deemed not problematic just one district over were still discrepancies among district and circuit courts may lead to form shopping by aggressive plaintiff's lawyers which is something that has created problems in the class action arena before another issue raised by this bill is the provision that specifies that federal district court do not have to defer to the discretion of the surface transportation board in the suit as it is currently worded this provision which is any consistent with your early accepted principles of administrative law is likely to encourage judges to be overly reluctant to refer suits it would most appropriately be handled by the surface transportation board to that regulatory body finally i am concerned that the section of the bill that provides for a grace period for civil suits a of the bill may actually invite courts to look retroactively into practices that were exempted from the any trust laws were specifically approved by the at the time they occurred i'm worried that in an effort to address the shippers concerns today i'm hopeful that this hearing will give us the opportunity to consider the concerns that i have with this legislation and i'm also hopeful that we will be able to come up with solutions that will address the shipper's concerns without ruining our vital railroad  infrastructure or undermining widely and long held aspects of regulatory law and practicing with that i'll yield back i think the gentleman for his statement and without objection other members opening statements will be included in the record i'm not pleased to introduce the witness witnesses at today's hearing out on our first panel is the honorable rodney alexander congressman alexander proudly represents the fifth district of the please thank you mr chairman for staying alive to do this thank you and the ranking member for allowing me the opportunity to be here today and to thank the full committee for hearing this bipartisan deal that attempts to level the playing field out there today i'd like to be clear in starting that this bill does not about read regulation or the railroad industry the bill does nothing of the sort it simply places the rail industry on to the science and it draws flaws that every other industry such as energy telecommunications or even other forms of great transportation including trucking and a valuation faces these laws of course are the nation's basic laws for ensuring competitive markets as you know mr chairman thirty years ago the railroad industry was failing and congress will move much of the regulatory oversight over the end and merger authority was transformed to the industry's only regulator the swordfish transportation forward unfortunately at that time congress did not remove the ana trust exemptions from the industry that had accumulated through various acts of congress and the courts during the nineteenth hundreds since one thousand nine hundred eighty the railroad industry has been able to use the ana trust exemptions that they still currently enjoy to consolidate over forty major class one railroads into four major carriers that today carry ninety percent of our nation's rail freight the problem that this poses is that freight rail customers are subject to abusive without the protection of our nation's and a trough for laws this problem is now evident not only to consumers but to the department of justice as well in her senate nomination hearings who is now the chief and a trust enforcer at the justice department recognize the need for competition in the rail industry when she stated that she enthusiastically supports the video that we are debating today shippers continue to report skyrocketing rights and on reliable sources louisiana is a second largest chemical manufacturing state in the nation as such the chemical industry provides significant economic benefits to the state and to the nation as a whole i think it's important to remind our sales that over ninety six percent of all manufactured goods are directly touched by the business of chemistry making the industry an essential part of every facet of louisiana and the national economy but these businesses do not see the railroads as a reliable source of transportation especially when you can  compare that service to the rates they are forced to play the chemical companies are not alone utility companies are being forced to raise the cost of electricity provided to the businesses and households that they when the next panel of terria who will the director of you tell it as well to see a laugh the at will testify concerning a bottleneck that prevents a large coal fired electricity generating plant near boys louisiana  micro plant from gaining access to competitive coal transportation rights for own over ninety five percent of the length of the coal haul from wyoming an organization known as the louisiana energy and power authority also receives electricity from the road a maker plant and distributes it to six towns in my congressional district alexandria jones will new roads black  winfield those citizens businesses and schools in these towns are facing a college of captivity that is standard to the college that terry will describe for the city alathia in two thousand and four the bush administration i want to see my constituents relieved of this cost of captivity through the enactment of this legislation of which i am proud to be a lead co sponsor of my political party with congress woman ta baldwin coal fired electric generating stations starting citizens across our nation are facing similar problems recently in florida the c s x railroad which is the sole source of transportation or coal from the appalachians to seminal electric co op doubles that's right for coal shipments to cement all seminal states that this rate hike will cost electricity consumers an additional one hundred million annually beginning in two thousand and nine american manufacturing agriculture timber and paper common is that all blazing rising rates that they are forced to attempt to pass on to their consumers at a time when their customers can't afford the cost of these increases while these rate hikes don't work for most americans and most businesses the hikes have served the freight rail industry well as can be same by the returns of the four major freight railroads in the fourth quarter of two thousand and eight these four railroad companies each posted owning increases only decreased volumes of traffic in the unfortunately few if any of their justice department and the f t c to review railroad mergers land sales and other railroad transactions under the anna trust law and standard to ensure competitive markets third to be able to ensure that the regula program developed by the surface transportation board will be competitive and finally the bill allows the state's attorney general and other private parties to sue for damages and for injunctions to halt anti competitive conduct both of which are currently allowed due to the railroad industry has exemptions from the antitrust laws in march of this year the senate judiciary committee passed unanimously by a vote o but in fact they would not be overlapping nor would they conflict rail transportation that is subject to s t b us diction is the only major federal regulated activity that operates outside the s and across a lot of all other u s industry activities they are subject to federal economic regulation are also subject to the antitrust laws that protect consumers from  a giant step forward in that direction again i thank you mr chairman for allowing me to testify in support of this legislation and i look forward to working with the committee as we move forward with this legislation thank you congressman alexander they subcommittee appreciate you being with us today and we will now turn to our second panel and ask them to take their seats here at the table and while they and reese before joining the firm mr morris spent ten years at the federal trade commission where he served as assistant director of the bureau of competition mr morsi is here today on behalf of the american bar association's section of an to trust law and he is currently chair of the sections exemptions and immunities committee next  mike hammer and and by the way mr moore welcome to day next is mike him a vice chairman of the policy and advocacy committee of the association of american railroads addition to his position with a our mr hemmer is a senior vice president and general counsel of union pacific railroad prior to his appointment mr hima was a partner in the washington c office of covington and burling specializing in transportation alone welcome sir next we have mr terry who've all  utility providing electric water and wastewater services to over sixty thousand customers finally we have to mark cooper dr cooper is director of research at the consumer federation of america he has provided expert testimony in over two hundred cases for public interest clients including state attorneys general and citizen interven state and federal agencies courts and legislatures in united states and canada thank you for being here dr cooper and and i appreciate all of you all's willingness it in today's hearing without objection your written statement will be placed into the record and we would ask that you limit your oral remarks to five minutes you will note that we have a lighting goes after each witness has presented his testimony a committee members will be permitted to ask questions subject to the five minute limit mr morse please pick and your testimony chairman johnson congress when coble members of the subcommittee my name is howard morris i am an antitrust partner here in washington with drinker peddling read as your introduction indicated i also serve as chair of the exemptions and immunities committee of the american bar association section of an i trust law and i am testifying today on behalf of the section the antitrust section appreciate the opportunity to be here and express support for h r two thirty three the railroad and i trust enforcement act which would dismantle and i trust exemptions that insulate the railroad industry from antitrust action the section counsel has approved this position our testimony has not been reviewed however by the a b a house of delegates or board of governors and so i speak only for the section the section believes that statutory exemptions and in the unities from the antitrust laws should be strongly disfavored competition has proven time and again to lead to lower prices better quality and service and more innovation for more than a century the antitrust laws of effectively promoted competition consumer welfare and efficient markets indeed the supreme court in a hundred seventy two opinion by justice marshall called the antitrust laws the magna carta free enterprise as important to the preservation of economic freedom and our free enterprise system as the bill of rights is to the protection of our fundamental personal freedoms they and i trust laws encourage firms to compete aggressively they permit collaboration's that generate pro competitive efficiencies but they prohibit conduct that excludes rivals to the detriment of consumers collusion among competitors and mergers that lessen competition the section of an i trust law has frequently noted its opposition and i trust exemptions based on claims the new unity is needed because of unique characteristics of particular industries section as opposed exemptions in industries from baseball to health care to ocean shippey claims that an antitrust exemption is necessary for competition to flourish or because competition is itself harmful or undesirable or that competition does not work in an industry or that an immunity is necessary in order to provide an industry with certainty and predictability to encourage investment should not prevail the two thousand and seven report of the congressionally mandated and i trust modernization commission which was already mentioned today similarly advises that statutory immunities from the antitrust laws should be disfavored should be granted rarely and only where and for so long as necessary the section of an i trust law believes that it's time to repeal exemption adopted in an era that considered protection of particular industries to be beneficial it is the sections of you that even if and i trust exemptions may have made some sense in a regulated environment deregulation of the railroad industry has a roted the basis for continuing exemption and i trust in forstmann is all the more important where there may be uncertainty as to whether activity is subject to regulation while the railroad industry today is not immune from all and i trust actions the industry does benefit from express statutory and judicially created immunities which would be eliminated by the railroad and i trust enforcement act even after the act becomes law of course the implied immunity doctrine will prevent and i trust from imposing obligations that conflict with regulation the act would however among other things remove railroads from the protection of the judicially created filed rate or keogh doctrine which insulates firms from and i trust damages action the act would also allow private parties to seek injunctive relief against railroads so called bottleneck rates and paper barriers or tying arrangements and exclusive dealing would be subject to scrutiny as in other industries but whether they would be unlawful would be would depend upon the facts in the particular situation the act would also bring railroad mergers within the ambit of section seven of the claimant act and empower the department of justice and federal trade commission to block acquisitions which lessen competition as the agencies can even in other regulated industries the section of and i trust law supports these steps i thank you for your time and welcome your  this this subject matter is so riveting that i don't want anyone to get over excited about it so i put  mr moore set a high standard for performance i'll try to call it chairman johnson ranking member coble ranking member smith and members of the committee i my camera from union pacific railroad thank you for the opportunity to comment on h r two thirty three today during my testimony today i'll review three points and refer you otherwise to the rather lengthy written testimony that i supplied previously the first point is if this bill did nothing more then what mr morris said that is to repeal statutory immunities the railroad industry would not have much trouble with it my second point is that this bill goes considerably beyond repealing statutory immunities and i will explain why and finally we are concerned about what we believe is the likely retroactive application of those additional changes have antitrust remedies that is a myth going to hold up a law firm bill it's typical of a bill that i receive every month for about a quarter of a million dollars to defend union pacific against an anti trust class action tempted class action cases like this are brought periodically we win most we lose but we are by no means exempt from the anti trust laws as i explained in my written testimony where the railroads have statutory today and some other exemptions and we are prepared to work with you to remove them this includes allowing to do a review of all rail mergers by the department of justice and the surface transportation board so i hope we get that opportunity this bill however extends beyond simply removing exemptions and you don't have to take my word for it there's been several mentions today of the antitrust modernization commission which was quite hostile to exemptions as was the a b a in and the commission's report listed all of the major exemptions from the antitrust laws i assume you in a copy of it it was something like this i commend it to you that list did not include the doctrine of primary jurisdiction which h r two thirty three curtails for railroads only it did not include the exclusion of f t c jurisdiction over common carriers which this bill overturns for railroads only and it certainly didn't mention anything about protecting local communities p transactions which of course has nothing whatsoever to do with the antitrust laws but is in this bill we believe that h r two thirty three overrides for railroads only fundamental principles of anti trust jurisdiction and of civil procedure which are embodied in numerous supreme court cases for example it guides courts that they may not choose to apply the doctrine of primary jurisdiction which is a fundamental set of principles embodied in numerous supreme court cases that instructs courts about how to interact with regulated industries frankly i don't know what a trial judge should do with that guidance moreover the report accompanying sessions comparable bill virtually instructed anti trust courts that they should disregard antitrust analysis and instead should override certain surface transportation board decisions in doing so they counsel courts not to follow supreme court jurisprudence on such issues as unilateral behavior and applied immunity to put it simply  does not merely open up the railroads to antitrust that we have little objection to it alters subsidy when it comes to railroads and only to where we think antitrust discrimination against one industry ought to be at least as troubling as antitrust protech antitrust protection of one industry so why is this happening in this bill last session's committee report made it quite clear that in the jacked of of the bill was to overturn certain s p v decisions that some shipper groups disliked but that i must say were crucial in transforming the railroad industry from the chrysler motor company of its day into a very vibrant and affect the industry that meets national needs with all due respect if congress wishes to change s p v regulation it should do that rather than attempting to the blunt cudgel of antitrust policy changes  override legislation and create conflicts with regulation override regulation i'm sorry we urge as the antitrust modernization commission urge that antitrust changes be coordinated with changes if any in regulation finally we also urge you to repair effective section nine which we believe would allow retroactive application of antitrust law to literally one hundred years of s t v and i c c decisions which have confer express antitrust immunity we know you don't intend retroactivity but as you know retroactivity is highly unusual it creates constitutional issues it may create taking issues and we believe that you did that that section needs to be repaired in closing i ask that we be allowed to submit for the record three letters from major railroad unions which recognize that this bill has hurt today appearing on behalf of my community i'm laughing at the louisiana american public power association which represents two thousand and publicly owned utilities systems in the country and the consumers united for real equity what we're asking is to seek removal of any antitrust law exemptions applicable to railroads which we believe and we will build to show you in a couple of minutes  affects the marketplace and create create significant harm to our customers and the customers of many other entities house resolution two thirty three the railroad antitrust enforcement act of two thousand and nine we think is a necessary step we congratulate of course it's just that you dish our committee last year for having voted for similar legislation and believe that taking this to the final conclusion would be in the best interests of the public well tell you a little story about last year's louisiana we serve our twenty five thousand people those are residents  miles fourteen heard eighteen miles of that track has a competitive option in other words it could be to choose in a purely competitive environment to buy rail transportation from the company in re are we could purchase from the company in green or blue the all the part that's subject montopoli control where there's only one provider is the last twenty miles of our plant but as the surf transportation board dresses an issue like this they will not force or put the railroad companies in a position where they have to give us a price either for the last twenty miles or so therefore we could get a competitive option for the fourteen models coming in are far to bill to get a price from a competitive provider so we could make a decision on how we would do with the last twenty miles and that's tied down to the surface transportation board's nine hundred ninety six bottleneck decision which which allows this practice take place where we are forced to have to take rail service on from one provider so bring it to some simple conclusions and that  that that description nessus one percent of our rail the rail it takes to get the service of that one percent monopoly transforms itself to monopoly over the entire train route what does that do to our customers so it's mighty not in and we have i made it our customers have paid over sixty five million dollars more in energy costs because of those additional costs for r transportation those costs are passed the record to our customers as an example ten percent of our total electrical service in life at louisiana is provided to educational institutions public and private that means that at sixty five million dollars translates to six and a half million dollars of those public and private educational institutions that the pay over the last ten years there are a manger up to six five million of course schools to everybody else all of the businesses all of the residences in our community in addition to cost we've had service quality level interruptions where because of the rail months because of lack of proper ma tracks that we've had to purchase coal from venezuela and have that shipped to our plant we've had to use lignite which creates operational problems with our plant we've had to move forward with prematurely retiring steel coal cars in exchange for aluminum coal cars at a price of about sixty million dollars the purpose of that being of course to be able to get all of our coal india event of a disruption and so assets committ strongly consider and to vote into this bill to move forward we believe it's what's necessary to negate the anti competitive behavior that we have experienced and until the surface transportation  thank you mr chairman members of the committee the consumer federation of america has been involved in public policy affecting the rail sector for thirty years for a simple reason two thirds of the coal shipped by rail is captive to a single railroad and excessive colwell rates end up in the electricity bills paid every month by american consumers excessive rail rates paid by other captive shippers of agriculture chemical commodities automobiles industrial commodities distort the economy lowering output and reducing employment the report we have filed for the record today demonstrates the pervasive abuse of market power that afflicts the rail sector the vast majority of real markets are highly concentrated abusing their market power the railroad accumulated billions of dollars of excess profits in cost subsidies on large quantities of traffic that they carry below cost the current rail sector is a textbook case of abuse of market power run rampant and we gave about a dozen indicators of that in our analysis combining the fact that we warn congress this would happen before the staggers act was passed with a dramatic increase in abuse in the recent years we conclude that as implemented by the interstate commerce commission and the surface transportation board the stagg israel act is among the first and worst examples of irrational exuberance for deregulation that has brought our economy to the brink of disaster we must reaffirm our commitment to competition and the prevention of the abuse of market power if we are to rebuild our economy and acting h r two three three the railroad and i trust and force me to act in two thousand and nine is a perfect place to start to stagger israel act is a particularly pernicious example of excessive deregulation because of the talk at the same time that congress deregulated the rails it also exempted the sector from the antitrust laws in trusting the protection and promotion of competition to a regulatory agency that has been thoroughly captured by the industry it is supposed to oversee the result has been a double whammy for captive shippers and consumers over the objection of the department of justice the s t v has allowed the railroads to increase their market power through mergers and anti competitive tactics while simultaneously failing to implement the residual regulation contained in the staggies act to prevent the abuse of market power let's be clear you cannot look at what this s t v in the have done for a quarter of a century and say that this is a regulated industry the regulator has been absent irresponsible and absolutely useless in terms of protecting shippers that claim zero credibility if this congress in this administration cannot quickly restore the commitment to vibrant competition is the cornerstone of the american economy we will be doomed as a nation to economic mediocrity all across the economy congress is beginning to repair the damage of excessive deregulation in the financial sector in the energy sector but and i trust has a special place in our economy because it should effect and drive competition in all sectors now in some areas restoring the vitality of antitrust requires administrative actions and court cases those will take a great deal of time the real sector is one area where congress can quickly and decisively correct a mistake that congress made we urge you to a verse that era and passed h r two three three which we restore and i trust scrutiny in the real sector this will eliminate artificial barriers to competition called paper barriers because they are a blatant affront a contract obligation not to compete there are blatant affront to the antitrust laws the threat of and i trust suits will also put pressure on railroads to behave more reasonably with respect to bottleneck disability and reciprocal switching rates as you have heard by the previous witness and i trust alone will not solve the problem of market power in the real sector because the fabric of competition has been so severely damaged by more than a quarter of a century of neglect that we'll need more will need and will need regulation to restoring and i trust oversight of this sector is a critical first step to addressing the problem of market power we must use and i trust to drive competition as deeply as possible into our economy and then rely on regulation where market power cannot be addressed where market failure is likely in the real rail sector we really do not know how far competition will carry the court because it was never allowed to have a chance on the just august that now is the time to give competition a chance and reform this industry as much as it is can and then we'll deal with regulation someplace else competition is the first thing we need to do to fix this sector thank you thank you  cooper we will now begin the questions and i'll recognize myself for five minutes for all of you  i like to well prior to that i'd like to enter into the record a letter from a letter to the subcommittee signed by hundreds of companies across the country that ship their products by railroad any objection without objection it is so into these companies believe that the and to trust exemptions are raising their costs which in turn raised the prices that consumers have to pay is there anything that makes railroads different from any other industry that should make but hesitate before applying anybody who wishes to respond please abide by the antitrust laws so we think that ought to be uniform and we think that that that type of rela requirement to rebel companies would create a different behavior on how they deal with customers like l if i may i've already pointed out that in many respects h r two thirty three would treat union pacific and other major railroads differently than other regulated industries so  lease start with the proposition that you should treat us the same way other regulated industries are treated are there unique characteristics of the railroad industry that make them appropriate for antitrust exemption so given the fact that i've already told you that we would be relatively untroubled by eliminating the statutory exemptions i'm not going to make that claim what you have to do to look at and what would be looked at by any antitrust court looking at any regulated or partially regulated industry is what is the structure of that regulation and how does that regulation in or act with an antitrust court's jurisdiction we would expect to be accorded the same treatment my colleague on the right said something very important he said the up in pa immunity doctrine would still apply to railroad i am very concerned especially given the ledge ladies history that was prepared for us years bill that this committee was instructing courts not to apply the applied immunity doctrine so if i had some reassurance about that again about equal treatment with other regulated industries i'd feel more comfortable with the suggestion that regulation has somehow should be accorded any credibility in this industry is literally absurd you can go back over twenty five year history and look at the number of cases that shippers have won and you can count on one hand and then you look at the relief they got and you'll discover that the hand was just slapping them in the face there is literally no notion that there's regulation of rates over captive shippers whatsoever so that leads to the reason why there may be an effort to look back a little bit because we have had a twenty five year history of the rampant exercise of of market power under a lack of regulation and a lack of competition and a lack of and i trust oversight and so you combine that twenty five year history  with an incredible increase in profitability in rates in the last few years a tightness of capacity and the answer is that this is a an old problem and i i worked on the  went through this congress and we knew this could happen and it has happened you can look at the mergers of the mid ninety's a tremendous increase in market power the department of justice oppose those mergers anti competitive and the out the result has been abuse of market power so yes we have to look back to try and unravel a quarter of a century of abuse the chairman if i may try to unravel some of the misstatements that were r mr cooper by removing the railroad industries antitrust exemption how much do you think we could save consumers every year well we we've  estimated a total figure for that we see is abuse a combination of excess profits and a cross subsidy it's remarkable after a quarter of a century that so much traffic is carried on the rail that doesn't cover its cost s we think there are three billion dollars or more of abuse how much would come out from any particular decision you cannot predict and the point is that in a certain sense that's the magic of real competition if you  let competition reign if you tear up those paperbag if you put pressure on the bottleneck decisions that frustrate competition that could take place over ninety nine percent of a movement shippers w get lower rates railroads will be more efficient and the economy will be better off i can't put a dollar figure on any particular decision it's the principle of competition that we really need to get back to the competitive marketplace will sort that out lapierre louisiana will get a fair rate because they have an alternative there are many power plants in america that don't have this situation of ninety nine percent potential competition and one percent bottleneck some of those are one hundred percent monopoly and those rates will be decided not in the competitive marketplace but they should be overseen by the surface transportation board thank you and last but not least this question mr him or in his written testimony argues that court's incapable of evaluating the network effect of applying the antitrust laws to a bottleneck situation how would you respond mr morse i think we have seen let let me let me make clear i'm not sure that the and i trust section has addressed that position in its testimony so let me address it personally in answer to your question i think we have seen the benefits of of competition in in other industries when inner connections have been opened up there was a long time when we viewed the telephone industry in this country as a monopoly and we were told that we could not interconnect and connect our personal telephones or other devices within our home to the telephone network for fear that it would cause the entire network to fall apart as as we have seen competition increase in the telecommunications industry in those areas where competition can flourish we've seen tremendous benefits to to consumers and how it would impact could well transactions that have been improved in the past have been fully implemented operations of network industries have been fully combine you can no longer distinguish in my case the missouri pacific from the union pacific from the western pacific all of which were combined back in one thousand nine hundred if an antitrust court were attempt to attempt to disassemble various parts or segments of that network southern pacific merger there were service disruptions those would be modest compared to the disruption that would occur if we were attempting to tangle a railroad system that has been operating as the single system for decades morris what competitive standard will be used by the justice department if in fact two three three s have acted and how would that standard differ from the one currently used by s t b congressman i am not a railroad regulatory expert and therefore i'm not in a position to address the question of how the s t b regulates i have read the testimony that indicates that the s t b with respect to some of these issues with respect to bottleneck rates for instance with the s t b does allow the railroads to quote rates for the entire distance and i believe that and i trust in approaching that issue would look that that is a clarify that past mergers would continue to remain exempt from challenges by the f t c all the justice department and as briefly as you can go to run out of time if that would be an extraordinary exemption from the antitrust laws the fascinating thing as you heard the mention of the a t m case and that was their exact argument was you can't break us up why the network will collapse and my god twenty years later we're a lot better off for having had competition so the question here is that if the department of justice looks at that monopoly situation and discovers that market power is being abused they could well take action against that far short of requiring divestiture they might look upon the paper barriers as illegal restraints on trade and have those removed they might look at the refusal to deal in terms of bottleneck disability and chairman and thank you for convening this important hearing which for some of us has given us an opportunity to focus on this issue for the first time i have two concerns that i want to section nine of the bill allows this bill to be applied retroactively can you concisely give me an example of how that might play out and without getting into a debate with the chairman said he didn't want to encourage i'd like to have mr morris respond to whatever  situation you describe so describe your best situation where you think this would be retroactive i take it dr cooper wants it to be retroactive i'm a little concerned about retroactivity when we're writing laws and applying them so give us give us an example of where and how you believe section one would make that allow this to be retroactive and then for limitations basically it says that conduct that takes place within the first one hundred eighty days after passage of the act and that has been immunized from the antitrust laws cannot be challenged however conduct that takes place after the one hundred eighty eight which is essentially the continued implementation and carrying out of all of those immunize transactions would be subject to attack to take a specific example when the union pacific and southern pacific  merged they formed a very efficient now extremely competitive single line route across the southern tier of the united states from los angeles in texas and other points beyon on the one hundred eighty four de i am fearful that someone might say the surface transportation board creation and authorization of that route can now be attacked under the antitrust that i may take a middle ground between them and what that what our testimony said is we said that we thought that the house bill takes a more sound approach than the senate bill with respect to this issue i read the senate bill as potentially  opening up the issue that that mr hemmer identifies because it talks about previously exempted agreements the house bill as i read it only talks about act and give me something in writing on that let me let me will let let me let me make one point though with respect to this and that is i do see a difference with respect to mergers and with respect to the paper barrier issue simply because there was a divestiture of trackage at some point in time so let me be clear i don't think the antitrust section does not believe that previously consummated merger should be subject to challenge but  at least looking at the question of a paper barrier where you had a divestiture of trackage that included an agreement that would permanently prohibit competition and stand to allow that continued prohibition on competition is a different situation then the merger situation my time is run out mr chairman but if i could just ask inconsistent liability and outcomes if you have various folks along in various jurisdictions interpretating  particular court as the ultimate arbiter so that we don't end up with courts in different parts of the country reaching results on essentially the same facts that inconsistent with each other i know we don't have time for the for the witnesses to respond but if you could do that in writing that would be wonderful and i'll be have questions from bob goodlatte of the great state of virginia thank the chairman i want to thank all the witnesses i'd like to pick up right where gentleman from north carolina left off and give you an answer could follow up and address i'll ask each of you to do that how we would handle the issue of the fact that these realigned to do transcend not just district court boundaries but even federal court of appeal jurisdiction boundaries how how is a railroad to behave when they have three different decisions from three different jurisdictions instruct them how to  act let me let me say i think that is the nature of the judicial system that we we live in every many of my clients in many industries face the possibility of being in court  in different parts of the country we give advice to clients on how to comply with the law based on the fact that we have different judicial circuit sometimes coming up when you actually end up in litigation  generally we tend to see courts at least listening to what other courts have said but i don't think that's an issue which would confront the railroad industry different than it confronts the other industry in that some respects i mean there are certain types of industries where you can you can and many industries do operate in different fat in different jurisdictions insurance industry operates differently regulated by each state insurance commissioner and they can tailor that but when you're shipping the same goods along the same line between the same communities and you're only operating along that line you could have conflicting opinions that affect the same transaction as opposed to two transactions engaged in by the same company but in different places so i don't if you want to add to that or out certain mr hammer and see what reflection he can give on that let me note at the outset that the railroad industry faces a more complex situation which is typical of regulated industries and that we may have one standard of performance a stablished by the surface transportation board and conflicting standards of performance under this bill set by the f t c and potentially by courts whether they are in different parts of the country or sitting right next to each other but that's my next question which is what you do when you have a conflict between a court decision and the service transportation board is is this legislation tell us the answer that the legislation in my view doesn't clearly instruct a court about what to do with respect to so called paper barriers and so called bottleneck rates the legislative history virtually tells a court what to do and it in my view tells it to ignore several doctrines of antitrust jurisprudence that would normally apply in deciding what the relationship is between the court and the regulatory agency that's a major concern for us and if we could get that cleared up that would make a big difference so i think we might find  i think we might find courts not knowing how to act with regulation whereas for decades they've had basic standards such as primary jurisdiction implied immunity modified recently by the credit suisse session and they can apply those things and we know the standard and they know the standard i believe this bill creates significant confusion dr cooper well ultimately in america we  have federalism and in the court system we do get conflicts between the courts and they get resolved when there is a conflict through the court system and we do get uniformity and that takes time but that is the process that we have in this country for for resolving those those judicial outcomes and frankly we've frequently proud of the fact that federalism let me ask let me ask you doctor would you would you with this legislation would you preserve the surface transportation board or would you if you're going to go to a system where you can have legal action and federal trade commission supervision do you also need the service transportation board or can you go with one of the other of the simple fact  matter is that there is pervasive market power in this industry as several other industries and we as a nation have actually had both and i trust and regulation the problem here is that we didn't have an i trust and so we don't know how far and i trust can carry us and some of the most important and i trust cases haven't been in regulated industries in the electric utility industry or tail require the  integrated grid and believe me an electric utility system is a lot more integrated than a railroad system electrons are more difficult second of all a t n t and i trust cases take place in regulated industries and by introducing competition right that's right i'm sorry out here from to thank all the witnesses for their testimony today without objection members will have five legislative days to submit any additional written questions which we will forward to the witnesses and aspects you answer is promptly as you can be made part of the record without objection the record will remain open for five legislative days for the submission of any other additional material