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39–357 PDF 2007

S. HRG. 110–199

AN EXAMINATION OF S. 772, THE RAILROAD

ANTITRUST ENFORCEMENT ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 3, 2007

Serial No. J–110–36

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

PETER LEVITAS, Republican Chief Counsel 

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Page 

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement ................................................................................................... 101

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 3

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1

prepared statement .......................................................................................... 103

WITNESSES 

Berg, William L., President and Chief Executive Officer, Dairyland Power 

Cooperative, La Crosse, Wisconsin ..................................................................... 8

Bush, Darren, Associate Professor of Law, University of Houston Law Center, 

Houston, Texas ..................................................................................................... 15

Moates, G. Paul, Esq., Partner, Sidley Austin LLP, Washington, D.C. .............. 17

Nottingham, Charles D., Chairman, Surface Transportation Board, Washington, D.C. ........................................................................................................... 5

Szabo, Robert G., Member, Van Ness Feldman, Executive Director and Counsel, Consumers United for Rail Equity (CURE) ................................................ 13

Vander Schaaf, Ken, Director, Supply Chain Management, Alliant 

Techsystems, Inc., Radford, Virginia .................................................................. 10

QUESTIONS AND ANSWERS 

Responses of William L. Berg to questions submitted by Senator Kohl ............. 29

Responses of Darren Bush to questions submitted by Senators Kohl and 

Specter .................................................................................................................. 32

Responses of G. Paul Moates to questions submitted by Senators Kohl and 

Specter .................................................................................................................. 46

Responses of Charles D. Nottingham to questions submitted by Senator Kohl . 52

Responses of Robert G. Szabo to questions submitted by Senators Kohl and 

Specter .................................................................................................................. 61

Responses of Ken Vander Schaaf to questions submitted by Senator Kohl ....... 70

SUBMISSIONS FOR THE RECORD 

Berg, William L., President and Chief Executive Officer, Dairyland Power 

Cooperative, La Crosse, Wisconsin, prepared statement .................................. 71

Bush, Darren, Associate Professor of Law, University of Houston Law Center, 

Houston, Texas, prepared statement .................................................................. 76

Department of Justice, Office of Legislative Affairs, William E. Moschella, 

Assistant Attorney General, Washington, D.C., letter ...................................... 96

Federal Trade Commission, Deborah Platt Majoras, Chairman, Washington, 

D.C., letter ............................................................................................................ 99

Moates, G. Paul, Esq., Partner, Sidley Austin LLP, Washington, D.C., prepared statement ................................................................................................... 105

Nottingham, Charles D., Chairman, Surface Transportation Board, Washington, D.C., prepared statement and letter ...................................................... 123

Szabo, Robert G., Member, Van Ness Feldman, Executive Director and Counsel, Consumers United for Rail Equity (CURE), prepared statement ............. 152

Vander Schaaf, Ken, Director, Supply Chain Management, Alliant 

Techsystems, Inc., Radford, Virginia, prepared statement ............................... 166

(1)

AN EXAMINATION OF S. 772, THE RAILROAD 

ANTITRUST ENFORCEMENT ACT 

WEDNESDAY, OCTOBER 3, 2007

U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND

CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:30 a.m., in 

room SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, 

Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Feinstein, and Hatch. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. We will get started. Senator Hatch is on the 

way. We welcome one and all here this morning. Today we are 

meeting to consider an important piece of legislation to halt what 

I regard as anticompetitive practices harming businesses and consumers that do depend on freight railroads across our country. Our 

legislation, S. 772, is a bipartisan bill which passed the Judiciary 

Committee without dissent just 2 weeks ago. Nevertheless, we are 

holding this hearing today at the request of some members of the 

Committee who do want to further explore this issue. 

Our legislation will eliminate obsolete antitrust exemptions that 

protect freight railroads from competition and result in higher 

prices to millions of consumers every day all across our country. 

The railroad industry—unlike every other form of freight transportation, including trucking and aviation—enjoys immunity from 

most aspects of antitrust law. No good reason exists for this antitrust exemption. The best argument that the defenders of the current antitrust exemption can make is that it is unfair to subject the 

railroads to antitrust law because they are already subject to regulation. We believe that this argument is without merit. 

First, dozens of other industries in our economy are regulated 

and yet remain subject to antitrust law. Most importantly, all the 

other parts of the transportation industry are subject to extensive 

regulation—including aviation, under the supervision of the Department of Transportation, and trucking, under the supervision of 

the Surface Transportation Board. And yet they are also subject to 

antitrust law in almost every respect. 

Other examples abound, ranging from telecom to energy. No 

other regulated industry possesses the total immunity from Justice 

Department merger review enjoyed by the railroad industry. And 

yet the need for antitrust enforcement is greatest in the case of 

2

railroads. Unlike the dozens of airline and trucking competitors 

that shippers may choose from, in many areas of our Nation only 

one freight railroad serves businesses that rely on railroad shipping. Defenders of the railroad antitrust exemption, therefore, bear 

a very heavy burden to explain why their industry should be treated any differently from other regulated industries. 

Second, as railroad advocates themselves often point out, the 

railroad industry has, in fact, been substantially deregulated by 

legislation in recent decades. Most importantly, most railroad rate 

setting has been removed from the oversight of the Surface Transportation Board. Despite this deregulation, the obsolete antitrust 

exemptions remain in place, insulating a consolidating industry 

from obeying the rules of fair competition. 

The effects of this unwarranted antitrust exemption are plain to 

see. Consolidation in the railroad industry in recent years has resulted in only four Class I railroads providing over 90 percent of 

the Nation’s freight rail transportation. Just less than three decades ago, in 1979, there were 42. The lack of competition in the 

railroad industry was documented in an October 2006 GAO report. 

That report found that, shippers in many geographic areas ‘‘may be 

paying excessive rates due to a lack of competition in these markets.’’ These unjustified cost increases cause harm throughout the 

economy. Consumers suffer higher electricity bills because a utility 

must pay for the high cost of transporting coal; manufacturers who 

rely on railroads to transport raw materials charge a higher price 

for their goods; and American farmers who ship their products by 

rail pass on these cost increases in the form of higher food prices. 

The ill effects of this consolidation are exemplified in the case of 

‘‘captive shippers’’—industries which are served by only one railroad. Two of these captive shippers are testifying at our hearing 

today. Over the past several years, these captive shippers have 

faced spiking rail rates—price increases which they are forced to 

pass along into the price of their products, and ultimately, to consumers. In August of 2006, the Attorneys General of 17 States and 

the District of Columbia sent a letter to Congress citing problems 

due to a lack of competition and urged that the antitrust exemptions be removed. The letter stated that ‘‘rail customers in our 

States in a variety of industries are suffering from the classic 

symptoms of unrestrained monopoly power: unreasonably high and 

arbitrary rates and as well as poor service.’’

In my State of Wisconsin as well as around the Nation, victims 

of a lack of railroad competition abound. About 40 affected organizations in my State have told us that they are feeling the crunch 

of years of railroad consolidation and anticompetitive railroad practices. The reliability, efficiency, and affordability of freight rail 

have all declined, and consumers are feeling the pinch. For example, to help offset a 93-percent increase in shipping rates in 2006, 

Dairyland Power Cooperative in Wisconsin had to raise electricity 

rates by 20 percent. Similar stories exist across the country. Dozens of organizations, unions and trade groups—including the American Public Power Association, the American Chemistry Council, 

American Corn Growers Associations, and AFL–CIO and many 

more affected by monopolistic railroad conduct—have endorsed our 

legislation. 

3

Adoption of our legislation will be an excellent first step to bring 

needed competition to the railroad industry. By clearing out this 

thicket of outmoded antitrust exemptions, railroads will be subject 

to the same laws as virtually every other industry throughout our 

country. Government antitrust enforcers will finally have the tools 

to prevent anticompetitive transactions and practices by railroads. 

And, likewise, private parties will be able to utilize the antitrust 

laws to deter anticompetitive conduct as well as to seek redress for 

their injuries. 

On the Antitrust Subcommittee, we have seen that in industry 

after industry, vigorous application of our Nation’s laws is the best 

way to keep prices low and the quality of service high. The railroad 

industry is no different. All those who rely on railroads to ship 

their products—whether it is an electric utility for its coal, a farmer to ship grain, or a factory to acquire its raw materials or ship 

out its finished product—deserve the full application of the laws to 

end anticompetitive abuses which are too prevalent in this industry 

today. 

[The prepared statement of Senator Kohl appears as a submission for the record.] 

So we are happy to have our witnesses here today. We look forward to your testimony, and we are delighted to have the co-Chairman of this Committee, Senator Hatch from Utah, and we welcome 

his comments. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I appreciate you 

having these hearings, and I appreciate your leadership on this 

Committee. 

Mr. Chairman, I am very concerned about the reports I received 

from a variety of Utah businesses. They believe that they are being 

charged excessive and unwarranted prices for the rail shipment of 

their goods. I am especially concerned that these same businesses 

believe that they would be charged considerably less in an environment free of railroad antitrust exemptions. 

As a matter of legal principle, I have always been inherently suspicious of any special industry exemptions from our antitrust laws 

unless those exemptions served an important purpose in maintaining market competition or other significant public policy considerations. 

The greatness and resilience of the American economy is based 

on the foundation of competition. Only through competition does 

the American economy renew itself to meet the challenges of the 

future. 

Over the past 30 years, Congress has enhanced that notion by 

deregulating and removing antitrust exemptions for a number of 

industries, including airlines, trucking, and telephone industries. 

Now, that being said, important questions remain regarding S. 

772. Paramount among them is the inquiry into what effect this 

bill will have if enacted. Simply put, if the bill is passed, will the 

result be reduced prices for shippers? That is a central question 

that I hope can be answered today or will be answered today. 

4

Now, Mr. Chairman, transportation costs are an important part 

of any business plan. When businesses choose where to locate their 

factories and operations, they make this choice based on the cost 

of shipping their products from the place of manufacture to the 

marketplace. 

Now, I have been informed that when large manufacturers seek 

new locations to build factories, many of these companies stipulate 

that they will only choose sites that are serviced by two railroads. 

And why? Well, because manufacturers do not wish to be beholden 

to one railroad and find themselves held captive to a sole transporter. 

This point was enforced by an August 17th letter written to the 

Judiciary Committee by the Attorneys General of several States. 

And I find this point to be particularly troubling since Utah is primarily served by only one large railroad corporation. Indeed, one 

of today’s witnesses, Mr. Ken Vander Schaaf, will testify that ATK, 

Utah’s largest defense contractor, has seen the shipping costs from 

its Promontory plant increase by 50 percent over the last 5 years. 

I am also concerned about a practice that is currently permitted 

by the Surface Transportation Board called ‘‘bottlenecking.’’ Under 

this practice, if a railroad owns the tracks for the last few miles 

of a shipment, that railroad is not required to quote prices for portions of the shipment that other railroads can offer. This creates 

what is referred to in the business as ‘‘captive shippers,’’ and these 

corporations are justifiably concerned that they are paying higher 

rates because of the lack of competition. 

Equally as disconcerting are the reports of paper barriers where 

short-line railroads are provided with overly discounted if not free 

access to railroad lines if the short-line operators agree only to 

transfer shipments through the major railroad that owns the lines, 

that particular line used by the short-rail operator. 

Now, Mr. Chairman, these are troubling points that require close 

scrutiny. I appreciate your calling this hearing and the willingness 

of the distinguished panel of witnesses to come before us today and 

report on their knowledge of the transportation industry. 

I might add there is another side to it, too, and that is, we are 

going to have to upgrade the railroads in this country, and we are 

going to have to create more of them. Just the energy costs alone 

and savings alone through railroad use are really substantial, and 

we cannot ignore that either. But if railroads are charging too 

much and taking advantage of their antitrust exemption in ways 

that really were not contemplated, then we have got to look at this 

very, very seriously, as I know you are doing. 

So I want to thank you for your energy in this matter, and I 

want to thank you for holding this hearing and the willingness of 

these distinguished witnesses on this panel to come before us today 

to report on their knowledge of the transportation industry. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Hatch. 

Before I introduce our witnesses, I would like to note that Senator Dianne Feinstein is with us today. She is from California, and 

we very much appreciate her presence at this hearing. 

Our first witness today will be Charles Nottingham. Mr. Nottingham is the Chairman of the Surface Transportation Board. Since 

5

2002, Chairman Nottingham has also served as the Associate Administrator for Policy and Governmental Affairs at the Federal 

Highway Administration. 

Our next witness will be William Berg. Mr. Berg is President 

and CEO of Dairyland Power Cooperative in La Crosse, Wisconsin. 

He serves on a variety of boards and committees, including the Rail 

Energy Transportation Advisory Committee of the Surface Transportation Board. 

Our next witness will be Ken Vander Schaaf. Mr. Vander Schaaf 

is the Director of Supply Chain Management at ATK in Radford, 

Virginia, where his responsibilities include management of transportation services. He is a member of the Institute for Supply Management of the Carolinas and Virginia. 

Our next witness will be Bob Szabo. Mr. Szabo is a partner at 

the Van Ness Feldman law firm. He is also Executive Director of 

Consumers United for Rail Equity, or CURE, where he provides 

legislative and legal counsel as well as management services. 

Our next witness will be Darren Bush. Dr. Bush is an Associate 

Professor of Law at the University of Houston Law Center, where 

his primary research interests are antitrust and regulated industries, energy, and intellectual property. Dr. Bush also served in the 

Transportation, Energy, and Agriculture Section of the Antitrust 

Division at the Department of Justice. 

Our final witness will be G. Paul Moates, testifying on behalf of 

the Association of American Railroads. Mr. Moates is a partner at 

Sidley Austin LLP, where is head of the firm’s transportation practice. Mr. Moates regularly represents railroads and the railroad industry’s trade association, and he has served as lead counsel in a 

number of large railroad merger cases before the Surface Transportation Board. 

We thank you all for appearing here, and we would like you to 

stand and raise your right hand and repeat after me. Do you swear 

and affirm that the testimony you are about to give before the 

Committee will be the truth, the whole truth, and nothing but the 

truth, so help you God? 

Mr. NOTTINGHAM. I do. 

Mr. BERG. I do. 

Mr. VANDER SCHAAF. I do. 

Mr. SZABO. I do. 

Mr. BUSH. I do. 

Mr. MOATES. I do. 

Chairman KOHL. We thank you so much. 

Chairman Nottingham, we will take your testimony at this time. 

STATEMENT OF CHARLES D. NOTTINGHAM, CHAIRMAN, 

SURFACE TRANSPORTATION BOARD, WASHINGTON, D.C. 

Mr. NOTTINGHAM. Good morning, Chairman Kohl, Ranking Member Hatch, and Senator Feinstein. My name is Charles Nottingham, and I am Chairman of the Surface Transportation Board. I 

appreciate the opportunity to appear before this Subcommittee 

today to provide the Board’s views on S. 772, the Railroad Antitrust Enforcement Act. I will briefly summarize my written testimony. 

6

It is important to state at the outset that railroads today are already largely subject to the antitrust laws. For example, they face 

civil and criminal liability for violations of the Sherman Act, such 

as price fixing, market allocation, and bid rigging, and they have 

been successfully sued for violating that Act. 

Where the railroads do have express statutory immunities, they 

are narrowly drawn, and in administering the Interstate Commerce 

Act, the Board vigorously enforces core antitrust principles. Rail 

carriers should be subject to the full weight of Federal antitrust 

laws, except where the enforcement of the antitrust laws may conflict with the need for single, uniform, and integrated economic regulation of the rail industry by the Board. 

The Board does not believe that immunities once granted under 

particular economic and legal circumstances should remain in place 

regardless of changes in the economic and legal environment that 

occur over time. For example, in May of this year, the Board used 

its discretion to terminate antitrust immunities for motor carrier 

rate bureaus that had been recognized for more than 70 years. The 

Board’s decision in the area of motor carrier rate bureaus demonstrates out commitment to the antitrust laws and our willingness 

not to be constrained by past policy decisions or jurisdictional turf 

considerations. 

We are concerned that at least two provisions of the proposed 

legislation would interfere with the Board’s ability to effectively 

regulate this Nation’s interconnected rail network. First, let me address Section 2 of the bill. 

Presently, only the Department of Justice or the STB may bring 

suit for injunctive relief against a common carrier subject to STB 

jurisdiction. The bill would permit private parties to obtain injunctive relief against rail carriers in individual Sherman or Clayton 

Act challenges. This proposal presents serious risks to centralized 

oversight of the National Rail Transportation System. 

District courts are not responsible for meeting national rail 

transportation policy goals, nor do the district courts possess the 

institutional expertise to consider how a decision resolving one case 

will affect other carriers and shippers on that line, or on other lines 

in different parts of the country. 

Unlike many other industries, the National Rail System, while 

comprising hundreds of individual railroads, nevertheless operates 

as a single, integrated, complex, and interdependent network. 

Operational changes or issues arising in one location can have significant operational ramifications hundreds of miles away, including effects on other freight carriers as well as on Amtrak and commuter lines. Only the Board is charged with looking at the rail industry from a national perspective and ensuring that remedies to 

resolve individual disputes comport with national rail policy objectives and do not cause unintended operational and service problems 

elsewhere. 

Giving district court’s injunctive power in rail-related disputes 

would also create a great potential for conflicting decisions from individual courts. The Board, and the ICC before it, has developed 

a consistent body of law that approaches competition issues with 

a viewpoint broadened by other rail transportation goals and that 

provides the basis upon which both carriers and shippers shape 

7

their conduct and assess potential remedies. In contrast, district 

courts looking solely at the antitrust laws without regard to the 

many public interest considerations mandatory in board review 

might well come up with different rules and different remedies to 

fix competition issues. Finally, many of the injunctive remedies 

that a district court might order in an antitrust case may themselves require board approval. In sum, we believe that Section 2 of 

the bill is antithetical to Congress’ longstanding support for a rail 

regulatory system that charges a single economic regulatory body 

with oversight over the rail industry. 

Let me now turn to the Board’s concerns regarding Section 3 of 

the bill. 

In 1995, Congress declined to repeal the antitrust exemption for 

rail mergers, acquisitions, and other transactions, choosing instead 

to keep that review with the agency that regulates the economic activity of the industry. Section 3 would subject rail mergers, acquisitions, leases, joint use, and trackage rights agreements to both the 

approval process and criteria of the Interstate Commerce Act and 

separate Clayton Act standards and procedures. We are concerned 

that this dual enforcement regime could result in some of the same 

problems raised by the potential for district court injunctions described above. We are also concerned that it would diminish the 

considerable benefits of a single, comprehensive review in which 

the views of all parties, including those of DOJ, and affected shippers are transparent and considered. 

From a substantive viewpoint, there is very little disagreement 

between the Board and the antitrust enforcers on the outcome of 

mergers. Although critics of the Board make much of those few instances of disagreement between the Board and DOJ, there has 

only been one recent case, in 1996, where the Board did not follow 

DOJ’s recommendation that merger authority either be denied or 

conditioned on expansive divestitures. The benefit of hindsight 

shows that the Board made the right decision in that one recent 

case, which was the UP–SP merger, a decision supported by the 

vast majority of impacted rail customers. 

Further, the Board’s new merger rules anticipate the types of 

major rail merger proposals we could see in the future, which 

would likely involve the creation of a transcontinental railroad, by 

merging one carrier from the West with another carrier from the 

East. Under traditional merger analysis by DOJ or the FTC, such 

a vertical integration of two partners with complementary, not 

overlapping, systems would not be perceived to carry as significant 

a risk of competitive harm as a horizontal merger of two direct 

competitors. However, under the new STB merger rules, to offset 

any harm that could not be mitigated merging carriers would need 

to show how the proposed merger would enhance competition. We 

are concerned that dual merger review would frustrate the Board’s 

ability to fashion merger conditions based on public interest concerns. 

The Board has also found that continued oversight of larger rail 

mergers is critical to ensuring that remedies are working effectively. These types of chores are best left to a single decisionmaker. 

That decisionmaker should be the one that is least limited in both 

8

what it can consider and what conditions it can and will impose, 

which in this instance would be the Board. 

I am concerned, therefore, that this bill is not targeted to remove 

just those exemptions that have grown outdated or are no longer 

useful but, rather, is a sweeping change that removes them all. 

These changes would make it more difficult for the STB to perform 

its regulatory oversight responsibilities. 

The Board understands and is sensitive to the concerns of rail 

customers about rail rates and service. During my 14-month tenure 

at the Board, we have implemented an unprecedented series of regulatory actions and reforms aimed at halting unreasonable rail industry practices, increasing access to the Board’s dispute resolution 

procedures, and examining the accuracy of our industry cost-of-capital determination that impacts rates and affects many aspects of 

the relationship between railroad and their customers. We have 

also initiated a $1 million national study of rail competition being 

managed by Christensen Associates, an economic consulting firm 

based in Madison, Wisconsin. 

In conclusion, S. 772 would make efficient, uniform regulation of 

the rail industry more difficult by creating duplicative and overlapping regulatory schemes. Likewise, subjecting the rail industry to 

a potential patchwork of judicial injunctions scattered across the 

country could cause a ripple effect of operational problems for 

freight, Amtrak, and commuter rail transportation. These complications could increase the cost of providing rail service—costs that 

likely would be passed on to rail customers in the form of higher 

rates. Therefore, I am concerned that the legislation may create 

more rate and service problems, not fewer problems. 

Thank you for giving me the opportunity to testify here today, 

and I will be happy to answer any questions you may have. 

[The prepared statement of Mr. Nottingham appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Nottingham. 

Mr. Berg, you may commence, and I would like to request that 

the witnesses keep their comments to 5 minutes. Mr. Berg? 

STATEMENT OF WILLIAM L. BERG, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DAIRYLAND POWER COOPERATIVE, LA 

CROSSE, WISCONSIN 

Mr. BERG. Chairman Kohl and members of the Subcommittee, 

my name is William Berg. I am President and CEO of Dairyland 

Power Cooperative, headquartered in La Crosse, Wisconsin. 

Dairyland Power is a nonprofit generation and transmission cooperative supplying at wholesale the electricity needs of our 25 

member distribution cooperatives, who in turn serve over 575,000 

people living in Minnesota, Iowa, Illinois, and Wisconsin. As a relatively small electric utility serving mostly rural residences and 

farms, we are very concerned about holding down costs because, ultimately, all the costs that we incur in the generation and distribution of electricity flow through to our members. Our largest single 

cost item in generating electricity is rail transportation, and as I 

will explain, those costs have mushroomed. 

We annually use about 3.2 million tons of coal in three coal-fired 

plants in western Wisconsin. Three-quarters of that coal comes 

9

from the Powder River Basin in Wyoming. For the delivery of that 

coal, we are captive to and dependent upon the only two railroads 

currently serving the Powder River Basin, or PRB, as it is called. 

Because of the virtually unrestrained market power that these railroads have over PRB movements, we are, in fact, paying more and 

receiving less. In 2005, Dairyland experienced a 13-percent shortfall of scheduled coal shipments, yet we were hit with rate increases averaging about 93 percent beginning in 2006—resulting in 

more than $35 million of increased annual costs. 

These dramatic rate increases were the major factor in our 

board’s decision to increase electricity rates to our members by over 

20 percent during 2006. Our members are truly suffering as a result of the railroads’ predatory price increases, and we cannot tolerate a virtual doubling of rates, especially at a time when our 

service quality is actually declining. Moreover, these rate increases 

came at the end of a short-term, 3-year contract that already included annual escalations and provided adequate cost recovery. 

We are certainly not alone in this situation. BadgerCURE, an organization of over 45 Wisconsin groups, businesses, and organizations, has been formed to pursue sensible policies to help address 

railroad competition and service problems. 

Since utilities have no viable alternative to rail in moving coal 

from the Powder River Basin to their power plants, and since the 

two railroads now appear to have no incentive to improve the existing demand/supply imbalance, we cannot protect ourselves through 

normal business negotiations. At our largest plant, we have rail access from only one provider. At our other plants, which receive coal 

by barge, we must still secure rail delivery to the barges. Although 

there may be more than one railroad for those hauls, the absence 

of competition and apparent allocation of markets have allowed the 

railroads to preserve market share even while eliminating performance guarantees and dramatically raising prices. The railroads 

seem to be able to exercise almost absolute market power, with little effective recourse by Dairyland or other, even much larger, railroad customers. 

We strongly support S. 772, legislation that will provide for a 

more competitive landscape in the Nation’s freight railroad industry. Along with S. 953, the Railroad Competition and Service Improvement Act of 2007, which has been referred to the Senate Commerce, Science, and Transportation Committee. With the enactment of S. 772, rail customers will have the full range of the Nation’s antitrust laws to help deal with anticompetitive railroad actions, and the legislation may help serve as a deterrent to future 

anticompetitive behavior. For instance, S. 772 may help defer the 

following competitive problems: 

Bottlenecks. Dairyland is a ‘‘bottleneck: utility, that is, the last 

segment of the trip to our unit-train plant is served by only one 

railroad. Railroads often refuse to quote rates for shipments to or 

on the bottleneck segment, denying the benefits of competition on 

the other segments. 

Paper barriers. Major railroads have spun off or leased segments 

of their tracks to short-line carriers with contractual terms that 

prohibit the acquiring carrier from competing with the major railroads. 

10

Public pricing. Dairyland traditionally received coal transportation via confidential contracts. Now, approximately two-thirds of 

our rail business moves under so-called ‘‘public pricing’’ documents 

manufactured by the railroads. We are concerned that high public 

rail prices provide signals between these western carriers regarding elevated pricing aspirations for Dairyland’s traffic. 

Refusal to bid. Even in what should be considered ‘‘competitive’’ 

situations where two railroads are able to serve a property, increasingly we do not see competitive bids. For example, coal we receive 

by barge is theoretically competitive, since there are several railto-barge transloading facilities in different locations. Our experience is that one railroad offers public pricing while the other railroad offers nothing or exceedingly high prices. Competition does 

not work in a duopoly market if one of the duopolists refuses to bid. 

In response to recent regulation, rail representatives suggest 

that legislative relief is ‘‘re-regulation.’’ We disagree. We have also 

heard the railroads state that the legislative relief would result in 

their decision not to add infrastructure. We understand that the 

railroads need a reasonable profit to operate, and they must have 

enough capital to make needed improvements. However, the rate 

increases to Dairyland have no correlation to improved service and 

infrastructure improvements. Of necessity, we are going to be partners for many decades to come, but I question whether the railroads will ever have an incentive to improve service, properly 

maintain and grow infrastructure, and effectively compete for service unless changes are made by Congress. 

Railroads also aggregate numbers as they defend themselves 

from the issue of high rates. Those aggregate numbers really do not 

tell the real impact for an individual shipper like Dairyland Power. 

The bottom line is this: every month Dairyland has to pay millions 

of dollars more because of rail rates that have nearly doubled, and 

as a cooperative, every single cent of that has to come out of our 

members’ pockets. 

In light of the current consolidated state of the railroad industry 

and the problems we are experiencing in obtaining competitive rail 

service, Dairyland respectfully submits that the Committee got it 

right when it recently approved S. 772, and we urge the full Senate 

to pass this important bill as soon as possible. 

Thank you again for the opportunity to testify. 

[The prepared statement of Mr. Berg appears as a submission for 

the record.] 

Chairman KOHL. Thank you, Mr. Berg. 

Mr. Vander Schaaf? 

STATEMENT OF KEN VANDER SCHAAF, DIRECTOR, SUPPLY 

CHAIN MANAGEMENT, ATK, RADFORD, VIRGINIA 

Mr. VANDER SCHAAF. Chairman Kohl, Senator Hatch, and distinguished members of the Committee, thank you for the opportunity 

to discuss the issue of rail transportation costs and the quality of 

service experienced by a captive customer. I am Ken Vander 

Schaaf, the Director of Supply Chain Management at the Radford 

Army Ammunition Plant, operated by my employer, ATK Ammunition Systems, which is headquartered in Utah. ATK is an advanced 

weapons and space systems company headquartered in Edina, MinVerDate 0ct 09 2002 15:25 Dec 10, 2007 Jkt 039357 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39357.TXT SJUD1 PsN: CMORC
11

nesota, with 52 facilities in 21 States, including the States of Utah 

and Wisconsin. Given our large number of facilities spread across 

the country, our company has an overarching interest in the competitive transportation environment in general, including via rail. 

ATK strongly supports S. 772, the Railroad Antitrust Enforcement Act. If S. 772 had been the law of the land over the last few 

decades, we would see a more competitive rail industry today, with 

fewer of the problems that I am here to discuss. Today I will address our captive customer status at two of our facilities. The first 

is ATK’s Launch Systems facility near Promontory, Utah, a private 

facility that supplies large solid rocket boosters for NASA’s Space 

Shuttle program, the Department of Defense’s Minuteman and Trident strategic missile systems, and other large defense, commercial, and civil rocket programs. The second is the Army’s Radford 

Army Ammunition Plant, which ATK operates under a Government-owned, contractor-operated agreement with the U.S. Army. 

ATK’s Promontory facility is a captive customer of the Union Pacific Railroad. The solid rocket motors manufactured here are loaded by ATK onto railcars at our facility in Corinne, Utah. Union Pacific then transports the solid rockets to Titusville, Florida, among 

other locations. Because of the enormous size of most of these rocket motors, there is no other way to ship these products. 

In recent years, Union Pacific has instituted substantial price in- creases. In 2002, ATK Promontory paid about $14,000 per rail car 

to Union Pacific to move the shuttle’s rocket boosters. By April 

2007, the rate increased to over $21,000 per rail car, an increase 

of over 50 percent in 5 years. 

Union Pacific cites two main reasons for these rate increases: a 

‘‘special train’’ service and increased fuel costs. The special train 

service was initiated in 1994 by Union Pacific to facilitate the flow 

of traffic across their lines. The creation of the service was Union 

Pacific’s decision, not ATK’s, yet we are now paying for it. The second reason given for these rate hikes is that the Surface Transportation Board now requires all fuel surcharges to be based on transportation mileage. This now permanent rate hike is an added cost 

to previous fuel surcharges that were already in excess of the actual cost of fuel expended. 

Our Promontory facility also experiences a lack of reliability by 

their rail carrier. Union Pacific often misses promised pick-up or 

delivery dates, and the transit times are routinely longer than 

promised. Because we are limited to only one rail carrier at each 

of our locations, we are forced to comply with the carrier’s performance, prices, and attitude toward service. 

A solid rocket booster shipping to Cape Canaveral in Florida is 

too massive to move in any other way than a railroad. These financial and schedule costs ultimately add excess cost and risk to our 

Government customers at NASA and the Department of Defense. 

ATK and its heritage companies have continuously operated 

Radford Army Ammunition Plant in southern Virginia under the 

contract with the U.S. Army since the 1940’s. Radford is the only 

domestic source of nitrocellulose, which is required in the production of all ammunition products, including those utilized by the 

military, law enforcement, and civilian sportsmen. At Radford, we 

annually produce 21 million pounds of nitrocellulose, 8.5 million 

12

pounds of propellant, and 4.5 million pounds of commercial powder. 

In other to produce nitrocellulose and the resulting propellants, significant quantities of chemicals must be safely transported to 

Radford. Radford has historically relied almost exclusively on rail 

shipments to receive these raw materials. The deliveries are critical to our ability to supply the Army and other customers with 

propellants. 

Of increasing concern are rising transportation costs and the decreased quality of rail service experienced by ATK at Radford. Historically, the Radford Plant was served by two railroads—the Virginian and Norfolk Western. The Virginian was acquired by the 

Norfolk Southern, and we are now a ‘‘captive customer,’’ relying on 

a single rail provider for the receipt of chemicals. We frequently experience rail schedule slips at Radford. We plan around those potential scheduled slips by building excess inventory into our business plans so that operations continue uninterrupted to meet the 

Department of Defense’s required delivery schedules. This practice 

adds cost and overhead to our operations. 

Norfolk Southern has raised transportation substantially. Prior 

to the last few years, we viewed Norfolk Southern’s price increases 

as both realistic and relatively justified. However, in May 2006 

things changed. Cherokee Nitrogen, ATK’s supplier for ammonia, 

advised us that, effective June 1, 2006, Norfolk Southern’s freight 

rate for ammonia shipments to Radford would increase from $39 

per ton to $65 per ton—a 69-percent increase. This massive price 

increase demonstrates the ability of a monopoly railroad to levy 

price increases at will, with little if any notice. 

In the last 15 months, the rail increases to move ammonia have 

increased from $39 per ton to $132 per ton in July 2007, an increase of over 330 percent. 

Significant fuel surcharges have also added to the cost of shipments. Whenever the cost of oil increases, our rail carrier has unilaterally added the fuel surcharge to the cost of shipments. Our experience is that the railroads then quickly modify the tariff rates 

to incorporate the higher rates such that there is never a corresponding drop in cost of freight when the price of oil does fall. 

At Radford, we believe that the Norfolk Southern Railroad is deliberately trying to price itself out of the business of shipping some 

chemicals. The end result of this strategy will be the movement of 

hazardous materials from the railroads to the highways. In ATK’s 

perspective, movement by rail has several inherent safety advantages over shipping by truck on the highway: railcars are constructed of stronger materials than are tank trucks; rail traffic is 

more segregated from other modes of transportation; and the number of railcars required to transport the same quantity of material 

via highway increases by as much as a factor of five. 

Likewise, there are significant advantages to the shipper and to 

the receiver when shipping with larger volumes. As the number of 

individual shipments increases—as it would if we were to ship via 

truck rather than rail—the potential exposure of our workers to 

these potential hazardous chemicals increases as well. While the 

chemical industry has a very good safety record in handling chemicals properly, each unnecessary transfer increases the opportunity 

for an incident or an accident 

13

All of us at ATK are extremely proud of the role we play in support of our homeland security, law enforcement, space exploration, 

and outdoor sportsmen customers. However, our ability to perform 

those missions safely and economically for our customers is negatively impacted by the quality of the service we receive and the extremely high rates demanded by the monopoly rail carriers. There 

is also the larger issue of increased costs borne by NASA and the 

Department of Defense, and ultimately the U.S. taxpayer, as they 

annually transport by rail millions of tons of equipment, products, 

and supplies to and from depots, military bases, and ports. 

Thank you again, Chairman Kohl and Senator Hatch, for your 

leadership on this issue, and for your Committee’s continued interest in looking for ways to redress these important issues. We look 

forward to working with you in support of this and other possible 

legislation needed to solve the issues facing ATK and other companies held captive by this monopoly of railroad companies. 

In closing, in addition to S. 772, I would like to direct your attention to S. 953, the Railroad Competition and Service Improvement 

Act, which seeks to improve the rate challenge process, provide for 

service complaint remedies by the Surface Transportation Board, 

and a more proactive STB in general. We hope that the Senate 

Commerce Committee before which this bill is pending will move 

this bill quickly and encourage members of this Committee to work 

with their colleagues there to move S. 953 rapidly to the floor. 

I would be pleased to respond to any questions you might have. 

Thank you. 

[The prepared statement of Mr. Vander Schaaf appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Vander Schaaf. 

Mr. Szabo? And, again, I would like to request that you keep 

your comments to 5 minutes or less. Mr. Szabo? 

STATEMENT OF ROBERT G. SZABO, MEMBER, VAN NESS FELDMAN, EXECUTIVE DIRECTOR AND COUNSEL, CONSUMERS 

UNITED FOR RAIL EQUITY (CURE) 

Mr. SZABO. Mr. Chairman and Senator Hatch and Senator Feinstein, thank you for the opportunity to speak today. I am the Executive Director of CURE, which is a membership organization that 

advocates S. 772 and other remedies for the current rail customer 

problem. We strongly support your legislation. We strongly support 

this Committee’s action in reporting the bill. 

We believe if S. 772 becomes law, it will address three of the 

major problems confronting—would address the major problem confronting rail customers, which is a lack of access to competition. We 

think there are three specific problems that it will correct that lead 

to that lack of competition: the first one is overconcentration of the 

rail industry; the second one is the paper barriers or tie-in agreements that Senator Hatch mentioned; the third is the bottleneck or 

failure to quote rates, again that Senator Hatch mentioned. And, 

by the way, we are in complete agreement with both of your opening statements, and I believe you set forth the problem very clearly. 

Mergers and acquisitions. Most of them are done. There are some 

that could still happen. We believe that some have not occurred 

14

properly. Some did not occur with the right conditions to address 

anticompetitive impacts. We do not agree with the Chairman that, 

in retrospect, the one that the Department of Justice opposed, 

which was the UP and the Southern Pacific, has worked out well. 

It has not worked out well for some rail customers. And, therefore, 

we believe that any further mergers and acquisitions should be 

both under the Board, which has the first call on these matters, 

but that the Department of Justice should have the right to go to 

Federal district court and enjoin the merger and acquisition if it 

violates the antitrust laws. 

S. 772 will not prevent the STB from having a higher standard 

than the antitrust laws. We are happy that they are more vigilant 

today than they were once upon a time. They have a more progressive policy than they used to have, but it has not been tested by 

any merger. So that is the first issue. 

The second issue, paper barriers, I would like to refer to a schematic that is on the back of my testimony which sets forth this 

problem. After partial deregulation, the railroad industry began to 

rationalize its system to meet the needs of the country, and 500 

short-line railroads were created. In each case, that transaction 

had to be approved by the STB and was not subject to Department 

of Justice approval. What happened, shippers thought that this 

would be a means of competition. Unfortunately, what happened is 

most of these transactions creating the short line were not sales of 

track to the short line. They were leases of operating rights on the 

tracks. 

The terms of these agreements were not made public during the 

public comment period. Later, we came to understand that in most 

of these lease agreements there are prohibitions that prevent the 

short line from doing business with any railroad other than the one 

from which they are leasing the track. This means that the customers on that track can only go to one major railroad, even 

though the track that is being operated by the short line may go 

to two major railroads. So we are prevented from competition. 

The schematic that I have, Attachment A, is one example. It is 

a Union Pacific example, moving coal from the Powder River Basin. 

I do not mean to be picking on the UP, but this happens throughout the rail system. There are two railroads in the Powder River 

Basin that can move coal out of the basin. That is the Burlington 

Northern and the UP—the two major railroads in the West. But 

often there is only one railroad that can bring it to the power plant. 

In this case, the Red Railroad is the UP, and they can bring it to 

the plant. This line, which is not coming through very well, that 

goes down through Memphis is the Burlington Northern. But there 

is a short line that can intersect with the Burlington Northern and 

bring the coal to the power plant. 

On a map, you would think that this power plant is in good 

shape, that it has competition. But if you look at the next page, 

this is a provision extracted from the lease agreement that basically says if the short line does 95 percent—unless the short line 

does 95 percent of its business with UP, it pays a confiscatory annual rent for the track. The first 5 percent, no annual rent; 95 percent, $10 million. It escalates to $90 million. 

15

This lease was not made—agreement is not public, but it was 

filed on the record of the Securities and Exchange Commission and 

was found by a law firm. UP does not like us to talk about this, 

but we believe these are in many of the agreements that prevent 

competition. We think those are anticompetitive. We do not think 

they would stand under the antitrust laws. 

The second mechanism is the one Senator Hatch mentioned previously-the bottleneck, or the failure to quote a rate. I have another 

schematic. This is, again, UP. We are not trying to pick on UP. 

Chairman KOHL. Mr. Szabo, we are at 5 minutes. Would you conclude? 

Mr. SZABO. I will. At any rate, this prevents access to competition. The utility in Lafayette testified that the captivity that they 

pay for their coal which passes through to the ratepayers is costing 

the school systems in Lafayette, Louisiana, $1.5 million extra a 

year. 

We believe, Mr. Chairman, that antitrust laws will help with 

competition in the rail industry. Thank you. 

[The prepared statement of Mr. Szabo appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Szabo. 

Dr. Bush? 

STATEMENT OF DARREN BUSH, ASSOCIATE PROFESSOR OF 

LAW, UNIVERSITY OF HOUSTON LAW CENTER, HOUSTON, 

TEXAS 

Mr. BUSH. Mr. Chairman, Ranking Member Senator Hatch from 

my home State of Utah, and other distinguished members of the 

Subcommittee, I want to thank you for giving me the opportunity 

today to speak about competition policy in the context of a deregulated railroad industry. My remarks today are my own, as I, quite 

sadly, do not represent anyone in this matter. 

As I and others have set forth in a fairly recent report to the 

United States Antitrust Modernization Commission, the burden of 

establishing the case for any immunity should fall on the proponents of the immunity who, at a minimum, should clearly explain why conduct within the scope of an immunity is both prohibited or unduly inhibited by antitrust liability and is in the public 

interest, make some estimation as to the effects of the proposed—

of the immunity, what the immunity will have in addition to its intended effect—in other words, other external effects; and demonstrate that the immunity is necessary to achieve the desired policy outcome. 

In the case of railroads, I find no clear benefit to the immunity 

except perhaps to the railroads and to the Surface Transportation 

Board in the form of exclusive jurisdiction. The benefits of such a 

regulatory scheme are dubious at best, and the conduct sought for 

continued immunization has characteristics that could lead and 

perhaps has led to serious consumer injury. I only have time today 

to talk about this in the context of mergers. 

For example, it is fair to say that the Surface Transportation 

Board and its predecessor, the Interstate Commerce Commission, 

have rarely met a merger that they did not like. However, this is 

by design. As I mentioned in my written testimony, the purpose of 

16

the STB’s merger authority harkening back to the 1920’s was to 

consolidate the railroad industry. The formulaic requirements of 

balancing the total effect of the merger’s cost and benefits naturally 

led to a pro-merger stance with immediate potential speculative efficiency gains and other potential benefits accruing to interested 

stakeholders such as the railroads and labor outweighing consumer 

injury. 

Sadly, the goal of the policy, which was consolidation and increased investor returns, along with system stability, did not come 

to fruition. Some recent mergers have created service disruptions 

and spawned shipper complaints, some of which you have heard 

here today. And while the STB has revamped its merger policy to 

some degree, it is yet to be tested by any railroad merger. The 

question arises as to whether the STB will be able to resist its past 

practices of allowing mergers to come to fruition with Acela-like 

speed. 

Moreover, in the context of today’s discussion, I find no reason 

to conclude that there is something so special in the railroad regulation realm that should isolate it from other industries that exhibit similar issues, including potential natural monopoly conditions in some component of the industry, high coordination needs 

for purposes of providing service and protecting public safety, and 

where exists some modicum of competition. Absent such a showing, 

there appears little argument against concurrent jurisdiction. Rather, it is the case that much of railroad policy has moved away from 

regulation to market forces. In that instance, it is imperative that 

antitrust fill the gap left by regulators. Otherwise, we are left with 

the worst of all possible worlds: a business subject to neither competition policy nor regulation. 

Because the world of railroads is one of extreme levels of market 

concentration, the anticompetitive stakes are high. Any future 

merger could potentially yield strong and persistent anticompetitive effects. The consideration of these effects might be lost in the 

STB’s calculus of total benefits to consumers, the railroads, labor, 

or other stakeholders to the transaction. The antitrust laws, in contrast, do not necessarily consider transfers from consumers to 

stakeholders to be a good thing. Moreover, the antitrust agencies 

more readily consider the full spectrum of competitive harms. 

I find it similarly disingenuous to argue that courts will likely 

cause disruption of national railroad policy in the wake of an antitrust suit brought by a private plaintiff or a State attorney general 

acting as parens patriae. Many agencies live with the potential of 

court action against a company subject to the agency’s regulation. 

Unless there is something unique about railroads—and I do understand that there is something about a train that is magic—there 

is little justification for granting immunity here while embracing 

competition policy elsewhere. In most instances, historically such 

choices between immunity and antitrust law application were not 

made due to industry idiosyncrasies, but rather due to industry 

lobbying and political pressure. 

Antitrust immunity without justification is merely special interest legislation transferring wealth from consumers, shippers and 

others to railroads. It is not just in the context of mergers that this 

exists, but you have also heard testimony with respect to paper 

17

barriers and other things. Therefore, the Surface Transportation 

Board has let a lot of anticompetitive effects take place without any 

justification. 

I see that I am out of time, and I will play by the rules and entertain any questions afterward. Thank you. 

[The prepared statement of Mr. Bush appears as a submission 

for the record.] 

Chairman KOHL. Thank you very much, Dr. Bush. 

Mr. Moates? 

STATEMENT OF G. PAUL MOATES, ESQ., PARTNER, SIDLEY 

AUSTIN LLP, WASHINGTON, D.C., ON BEHALF OF ASSOCIATION OF AMERICAN RAILROADS 

Mr. MOATES. Chairman Kohl, Senator Hatch, Senator Feinstein, 

my name is Paul Moates, and I am testifying here today on behalf 

of the Association of American Railroads. I am a senior partner in 

the Washington office of the international law firm of Sidley Austin, and I have approximately 30 years of experience in representing individual freight railroads as well as the AAR on antitrust and regulatory matters, including most of the major merger 

cases and rate cases that have occurred in the last 25 or 30 years. 

I thank the mt for this opportunity to present the railroad industry’s views on S. 772, the Railroad Antitrust Enforcement Act of 

2007. 

Frankly, we believe this legislation is a solution looking for a 

problem. In developing that needless solution, it would subject railroads to an unwarranted dual system of regulation. Longstanding 

statutory schemes should be altered only if there is an identified 

problem and only if the proposed legislation would be effective in 

remedying that perceived problem. 

With respect, neither condition exists with respect to this legislation. Indeed, it is based on a number of faulty premises. The first 

is that railroads enjoy broad antitrust immunities. That is simply 

not true. As Chairman Nottingham said before me this morning, 

railroads are generally subject to antitrust laws, and the immunities they do have are limited in scope and also subject to regulatory 

oversight by the STB. 

In particular, the antitrust laws prohibit anticompetitive agreements among railroads to collude in the setting of rates, the allocation of markets, or otherwise unreasonably restraining trade. Railroads also continue to be subject to the STB’s regulatory jurisdiction with respect to certain rates and services, the terms of entry 

and exit, and mergers and other restructurings. The statutory antitrust exemptions that remain exist because of the need to avoid 

dual and potentially conflicting regulation by the courts and the 

STB. Moreover, they allow the railroads to work together in a limited way, a very limited way, to efficiently address some of the 

issues created because of the industry’s network characteristics. 

The second faulty premise is that this legislation would benefit 

shippers by subjecting railroads to dual merger jurisdiction. It 

would attempt to do this by eliminating the STB’s current exclusive 

jurisdiction over rail mergers while giving the antitrust enforcement agencies concurrent authority to review and challenge such 

mergers. Even more troubling, the bill would allow DOJ or the FTC 

18

retroactively to challenge mergers that were approved by the ICC 

or STB long ago and subsequently consummated. There is no reason to believe that this change in the law will provide shippers 

with additional relief in any possible future merger cases. Indeed, 

the Clayton Act standard of preserving competition does not in any 

way give shippers more protections than the STB standard for 

major rail mergers of requiring that merger applicants demonstrate 

that their proposed transaction would result in enhancements to 

competition. 

Moreover, dating back at least to the passage of the Staggers 

Act, the STB and ICC before it have consistently used their authority to impose conditions on mergers to ensure that no customer has 

lost two-railroad service. 

Another of the solutions in S. 772 looking for a problem is elimination of the limited exemption that railroads have under Title 49, 

Section 10706, establishing procedures for handling car hire payments, railroad car hire payments. That exemption, although severely limited, nonetheless remains important since it fosters coordination on matters that enhance network efficiency and are not 

controversial. It is also important to recognize that even those rules 

do not involve the setting of car hire rates. Such rates are established through bilateral negotiations between the owners and users 

of the equipment. In fact, let me emphasize again that under this 

exemption, competing railroads do not and have not for many years 

collectively set freight rates of any kind. That seems to be a very 

erroneous premise here this morning. 

The third faulty premise is that this legislation would merely 

level the playing field and treat railroads like other industries. But 

I would submit this is belied by the very language in the bill. In 

several instances, the bill addresses specific antitrust exemptions 

that currently apply to a number of industries in addition to railroads, but eliminates them only with respect to railroads. One 

must ask why these exemptions are sound policies for other industries but not for railroads. 

In addition, this legislation would not replace the existing STB 

regulatory scheme with antitrust remedies where limited immunities exist. Rather, it would superimpose antitrust remedies on top 

of STB regulation. Moreover, it will not provide rail customers with 

any new protections from allegedly high rates because high prices 

alone do not constitute an antitrust violation. 

Finally, we have a major concern mentioned by Chairman Nottingham about Section 2 of the bill, which permits private injunctions and thereby introduces the very real possibility of dual but 

inconsistent regulation of railroads. So long as there remains a single regulatory body charged with oversight of the industry, it is imperative that the antitrust laws and national transportation policy 

be implemented in a harmonious fashion, and permitting courts to 

fashion equitable remedies in civil actions and also by discouraging 

courts from deferring to the STB’s expertise, Section 4 of the bill 

threatens to disrupt that harmony. 

My time is up. I will stop, sir. Thank you. 

[The prepared statement of Mr. Moates appears as a submission 

for the record.] 

Chairman KOHL. We thank you very much, Mr. Moates. 

19

We will now start our questions, and I would request that the 

Senators keep to 7 minutes. 

Mr. Berg and Mr. Vander Schaaf, how would repealing the railroad’s antitrust exemption help you? What remedies would it give 

you that you believe you need and don’t have under the current 

law? Mr. Berg first, and then Mr. Vander Schaaf. 

Mr. BERG. I cannot help but feel that this is going to help. I am 

not an antitrust expert, so I do not know the intricacies involved. 

But clearly, as we have been dealing with the railroads recently, 

it is obvious to us that there are many anticompetitive practices 

going on, as I mentioned in my testimony. At least the net result 

of that is what I have declared, and it has increased our rates. 

If we ask going forward will this help our rates, it would be easier for me to answer the question if we did not adopt this legislation 

what would happen to our rates. And I can only see things getting 

worse. I think the rates will go up in the future from the railroads. 

They dealt with us with pretty strong arms. And Dairyland, as I 

mentioned, is a small utility. We have to be considered, I would 

say, easy pickings. To try to do anything to counteract, bring cases 

to the STB and so on, it is a very daunting process for us. 

So we are looking for any help we can get. We think that the elements described in here to make sure that the telegraphing of 

prices through these rate circulars or tariffs is not going to harm 

us in the future, that the railroads be able to bid on certain hauls 

that we have before us, all of this is going to help us in the future. 

Chairman KOHL. Mr. Vander Schaaf? 

Mr. VANDER SCHAAF. My answer is probably going to be a little 

strange because I suspect that S. 772 right now today will not do 

much for us at Radford or Promontory. The damage is already 

done. We are down to one railroad. Even though we had two at 

Radford, I do not see it going back to two railroads. But for our 

other locations around the country and as we expand and grow, we 

do see some of those locations potentially being positively impacted 

by this legislation. And I think it is a foundation for future legislation, for example, S. 953 in combination being able to make it more 

competitive and having better access for a level playing field rather 

than a monopolistic railroad situation where they truly have the 

upper hand; and it is not just what they can do to us today, it is 

the fear of what they can do to us tomorrow. 

For example, the 300-percent increases that we have already experienced, our perception is that they want to get out of some of 

the freight business that they haul for us, and they could continuously increase that until we have a very unsafe or a less safe situation in moving it via truck rather than rail. 

So it is a good foundation step. It is the right direction. We 

strongly support this and other legislation that will support leveling of the playing field for us in the manufacturing industry. 

Chairman KOHL. Mr. Bush, and then Mr. Moates, the railroad 

industry argues that it should not be subject to antitrust regulation 

because the Surface Transportation Board already regulates the 

railroads, but many, in fact most industries, including transportation industries like aviation and trucking, are now under the jurisdiction of various regulatory bodies, and yet antitrust law applies to them. 

20

So the question is: Why should railroads be any different? 

Mr. BUSH. That is a very good question, Senator. I have yet to 

see any reason that the railroads should be different than any 

other industry which requires high degrees of coordination such as 

electricity markets. Other transportation sectors have high—portions of the transportation sector have high degrees of coordination 

as well. So there does not seem to be any reason why the railroads 

should be different. 

The threat that a private plaintiff or some district court will 

somehow usurp national transportation policy has not appeared in 

any way, shape, or form in other industries as well. In fact, quite 

the contrary, when there is a regulatory body there, regardless of 

the degree of the immunity, the courts will be very reluctant to entertain any sort of action. There is judicial hesitation when there 

is even what I call ‘‘immunity by proximity.’’ If the regulator is 

there and there appears to be an antitrust exemption, that exemption spreads out to other conduct within the industry to a degree 

not contemplated by Congress. So—

Chairman KOHL. OK. Thank you. 

Mr. Moates? 

Mr. MOATES. Senator Kohl, my first response is railroads are not 

that different. As I said in my prepared remarks, railroads are 

today and have for a very long time been subject to the vast preponderance of the antitrust laws, including Sections 1 and 2 of the 

Sherman Act and other provisions of the antitrust laws that you 

are familiar with. 

The limited immunities that the industry has enjoyed and that 

are addressed in some respect by this bill have been put in there 

by Congress at different points in time for very sound reasons. 

They were put in there because there were certain efficiencies that 

were recognized that would result. I mentioned, for example, the 

Association of American Railroads has a Car Hire Committee that 

exists under an agreement approved by the Surface Transportation 

Board under Section 10706 for that committee to get together for 

the limited and express and very limited purpose of discussing the 

protocols for how railroads will charge one another for the railroad 

equipment that is on the national system. They do not set the 

rates. As I said, that is done on a bilateral basis. Just how are we 

going to make this clearinghouse work? You know, I am the Norfolk Southern and my car is in California. How do I track that and 

how do I get paid for it? That has served the industry well. It has 

served the customers of the industry, including shippers well, and 

I think those kind of limited immunities should remain. 

If I could make one comment, too, about mergers. Mr. Vander 

Schaaf’s prepared testimony included the statement that he has repeated here this morning that Radford Arsenal became a captive 

shipper as the result of a railroad merger. He cites the merger of 

the Virginia Railway with the Norfolk and Western. Well, he is 

technically correct, but it has to be pointed out that merger took 

place in 1959. In 1959. So we are not talking about some very recent development here that has caused Radford to become captive. 

Chairman KOHL. Senator Hatch? 

21

Senator HATCH. Well, thank you. This is an interesting hearing 

to me, and I am still very much concerned about what is the best 

way to go here. 

Mr. Vander Schaaf, as an expert in supply chain management, 

if you were advising a company on where to build its next largescale manufacturing factory, how important do you believe it is 

that the sites being considered be serviced by more than one railroad? And do you believe that when States are trying to attract 

businesses that companies will look less favorably because they 

only have one railroad provider? And if so, why? 

Mr. VANDER SCHAAF. Prior to my time with ATK, I was working 

with Union Carbide and Dow Chemical, and with Union Carbide 

it was very much a serious consideration of do we have competitive 

access, especially in the Houston area. And we looked at building 

access through secondary lines to get to that second railroad at 

substantial cost. 

So it is a very, very important part of a decision of where you 

are going to be putting your facilities, how you can take the facilities you have and there to create competitive advantage, or competitive access with the railroads, because when you are tied to any 

monopoly, you know that you are coming into the discussions at a 

disadvantage. And so we are—you know, take the example of if you 

wanted to move your rocket boosters from Utah to Florida, would 

you make the decision to build the rockets in Florida instead of 

Utah? I do not think that will ever be the decision for ATK, but 

it is definitely a consideration that becomes more and more as the 

freight becomes greater and greater. Now, I am not making any 

suggestion they are leaving Utah, Senator. 

Senator HATCH. I understand. I have had enough burdens this 

morning without you making those suggestions. 

[Laughter.] 

Senator HATCH. Chairman Nottingham, I do not understand why 

the Surface Transportation Board would allow such bottlenecks to 

develop in the rail system. When I say ‘‘bottlenecks,’’ I am referring 

to the STB sanction practice of permitting railroads to quote only 

the price for an entire freight movement when the alternative carrier might compete for a portion of the shipment. Now, clearly if 

there was not an exemption from the antitrust laws, those engaging in this activity would be in violation of Section 2 of the Sherman Act for refusing to deal and Section 1 for using a tie-in arrangement. 

Now, the question, I think, needs to be asked. What benefit do 

consumers receive when the STB permits these type of practices? 

And why do these practices not violate Interstate Commerce Act 

Section 10702, the prohibition of unreasonable practices? 

Mr. NOTTINGHAM. Thank you for the question, Senator Hatch. 

The so-called bottleneck controversy is indeed one of the most controversial issues we face. I heard about it as a nominee as I made 

my rounds visiting with stakeholders and Members of the Senate 

and House. It is a policy adopted—its history goes back to the 

1920’s, to be honest, I believe, in some Supreme Court case law, 

and it is not something that I have had the opportunity to get my 

figurative arms around in my first 14 months on the job. We have 

initiated enormous reforms, and one thing you have not heard 

22

today is why more shippers have not been taking advantage, although it has been recent changes in our expedited and much more 

accessible dispute resolution and rate review process. And we invite any shipper—what you are really hearing about today is concerns about rates and service. And, unfortunately, this bill will not 

actually fix that situation, but our new procedures which need to 

be taken advantage of will. 

But getting to your question, to play out this scenario briefly, if 

this bill becomes law—and, of course, if it did, we would dutifully 

and energetically implement it. It presumes that there would then 

be litigation that would somehow result in a railroad quickly and 

cheaply parking basically rail cars and allowing for a switch to 

take place at no added cost and that that would actually all happen 

seamlessly and that there is a big amount of extra capacity at the 

freight yards around our country. 

Having visited many of the freight yards around the country, I 

can tell you that we have a huge—the No. 1 problem we have is 

a lack of capacity. The No. 1 challenge we face is we need to build 

extensive, more rail infrastructure across this country. And, unfortunately, this bill will not help to do that, and it is not clear how 

this bill would actually result in—

Senator HATCH. You would prefer something that would give incentives to do that? 

Mr. NOTTINGHAM. Absolutely. Yes, sir. I think that is where the 

focus of our agency is going to be over the coming years and should 

be for all of who care about transportation. As a highway person, 

by way of background, having run a large State highway department in Virginia and working at the Federal Highway Administration, I just know that the highway system is not standing there 

ready, willing, and able to take more and more freight. We have 

got to have the freight railroads pick it up. 

It is also not completely clear to me—and I stand to be corrected 

by the experts here—as to whether or not the Justice Department 

can look into bottleneck problems. Justice has wide latitude to go 

into, and has in the past on occasion, the antitrust enforcement 

avenues vis-a-vis the rail industry. 

Senator HATCH. Well, Mr. Moates—and I have questions for the 

rest of you, too, but let me ask Mr. Moates this: I understand that 

the railroad industry has taken the position that S. 772 will not 

solve the problem of dramatic shipping cost increases or price increases. They believe that the legislation is designed to penalize 

the railroad industry because prices have increased, yet the bill 

will not have any real effect on costs charged to shippers. 

Now, how can that be? Does not S. 772 amend the Clayton Act 

so that shippers can seek injunctive relief against railroads? And 

granted that the STB currently has brought injunctive relief authority—but even some of STB’s supporters concede that the Board 

needs to improve their handling of these matters. So why not permit the railroad’s own customers the ability to seek injunctive relief? 

Mr. MOATES. Well, Senator Hatch, a couple of points in response 

to your question. 

First, the STB has broad injunctive authority; so does the Justice 

Department. Has not used it, has not had to use it for some time. 

23

As I said during my prepared remarks, a high rate, as you well 

know, is not evidence of a monopoly. If any of the gentlemen here 

represent shippers today believe their rates are unlawfully high 

under the Commerce Act, they have an avenue of redress—that is, 

Chairman Nottingham’s agency. They can complain about the level 

of those rates, and if they can successfully prevail in a maximum 

reasonable rate case, relief is available to them in the form of a 

prescribed reasonable rate and possibly reparations. 

Tying back to your question of Chairman Nottingham on the bottlenecks, too, which I think is implied in what you just asked me, 

the Board does have procedures for complaining about bottleneck 

cases. Those procedures, for reasons best known to the shippers, 

have not been invoked. It is what is called Ex Parte No. 575, and 

it requires that the shippers show an anticompetitive purpose in 

the so-called bottleneck railroad not opening up its facilities. 

If there is such an egregious situation, why haven’t we seen 

those cases? Those procedures have not been tried. 

Senator HATCH. OK. Mr. Chairman, could I ask two more questions? I have to leave, and I would like to just ask these two questions. 

Chairman KOHL. Sure. Go ahead. 

Senator HATCH. OK. I would like to ask Professor Bush—welcome to the Committee, and we are proud of you, and let me ask 

you this question: I was very interested in your testimony where 

you state that ‘‘the existence of an express immunity providing protection from the antitrust laws for some particular conduct may actually provide immunity for other types of antitrust conduct.’’

Now, could you explain in greater detail how that theory applies 

to the railroad antitrust exemptions and, in particular, the merger 

exemption? 

Mr. BUSH. Thank you for the question. As you move away from 

a regulated world where portions of that regulation are sort of 

stripped away, as the STB has done in their ratemaking region—

a lot of the rates are not set in sort of an STB realm, but are subject to the antitrust laws. The fact, for example, that there is a potential for re-regulation by the STB of deregulated—rates that the 

agency has deregulated may give pause to a judge who has a private plaintiff action before him. The judge will sit there and think: 

On the realm of my docket, do I want a case that could be potentially moot if the agency decides to re-regulate? In other words, the 

agency could walk away from regulation and then decide to come 

back to it later. So you can have reluctance by a judge and even 

private plaintiffs to bring an action because of what—this is immunity by proximity. 

With respect to merger authority, while you may repeal the actual express immunity within the act, there is still the notion of 

implied immunity, which I have mentioned in my testimony, and 

the doctrine of primary jurisdiction. In the context of implied immunity, even if it is not express immunity, if the regulation is perceived as so pervasive a judge may find that it is impliedly immune 

because of the pervasiveness of the regulation, and you only need 

to look at two recent Supreme Court cases to have that notion even 

before the Supreme Court, the Credit Suisse case and Part 4 of the 

Trinko case. 

24

Senator HATCH. Mr. Moates, you seem to disagree with that. Did 

you disagree with that comment? 

Mr. MOATES. No. I was not in agreement with his reference to 

Trinko.

Senator HATCH. I am just wondering. You just looked a little dyspeptic there for a minute. 

[Laughter.] 

Mr. MOATES. I am sorry. 

Senator HATCH. No. That is fine. 

Mr. Szabo, how can one argue that the railroads are not scrutinized for antitrust violations? And is that not the responsibility of 

the Surface Transportation Board? And was not the largest civil 

antitrust judgment ever rendered or ever handed down really 

against a railroad by the 5th Circuit in re Burlington N., Inc. 

though admittedly the railroad subsequently settled the case? And 

shouldn’t the Department of Justice be permitted to prosecute railroads that violate the Sherman Antitrust Act? 

Mr. SZABO. I am not familiar with that case, Senator, but absolutely, we believe that the Department of Justice should be able to 

pursue Sherman antitrust violations. We believe the general policy 

that the Congress has set down for rail policy as contained in Title 

49 of the U.S. Code, 10101, is very similar to what an antitrust 

court would look at if it has an antitrust issue before it. We believe 

the STB has not looked at that properly and has not included competition as an important element. So we believe they have not done 

their job, and that is why we want the antitrust laws to apply. 

Senator HATCH. Mr. Chairman, I appreciate you letting me ask 

those two additional questions, and I want to express appreciation 

for this whole group of people. I appreciate all of you. I appreciate 

your being here, and I appreciate the concerns that you have 

raised. Let’s keep looking at this and see what we can do that is 

best for all concerned. 

Thank you. 

Chairman KOHL. Thank you, Senator Hatch. 

Senator Feinstein? 

Senator FEINSTEIN. Well, thank you very much, Mr. Chairman. 

As you know, I am not a member of the Committee, but at the 

markup, I did say that there had not been a Committee hearing, 

and you agreed to have one, and I want you to know I very much 

appreciate that. I tried to listen as carefully as I could, and it 

seems to me a pretty clear case where you have shippers who feel 

one way and the people kind of in charge feeling another. 

I have been reading the letter here from the Department of Justice, and this was a letter sent to James Sensenbrenner back in 

2004. The issue of bottlenecks was raised. I want to just raise the 

paper barrier issue and then ask the Surface Transportation Board 

to respond to what DOJ says in this letter. 

Let me just read it quickly. ‘‘Paper barriers are created when 

Class I railroads spin off of their trackage to short-line or low-density carriers with contractual terms that prohibit the acquiring carriers from competing with the Class I railroads for business. Since 

these contractual terms are part of an underlying sale transaction 

that is reviewed and approved by the Surface Transportation 

Board, they may be exempted from the reach of antitrust laws’’—

25

that would be under the present situation—‘‘depending on the 

scope of the approval language in each of the Board’s relevant orders. If the paper barriers were subject to the antitrust laws, they 

would be evaluated under Section 1 of the Sherman Act. The Department would examine whether the restraint is ancillary to the 

sale of the trackage, i.e., whether the restraint is reasonably necessary to achieve the pro-competitive benefits of the sale.’’

What this is saying to me is that if the antitrust exemption were 

removed, it would clearly fall under the antitrust laws, and there 

would be the opportunity to find a remedy. Do you agree with that 

or disagree? And if so, why? 

Mr. NOTTINGHAM. Senator, thank you for the question. I agree 

with some of what you said and disagree with others. We actively 

have before us at the Board—

Senator FEINSTEIN. Excuse me. I am not saying this. This is the 

Department of Justice. 

Mr. NOTTINGHAM. Oh, DOJ. 

Senator FEINSTEIN. I quoted exactly—

Mr. Smith. I saw the letter, and Will Moschella is an old friend. 

When he used to work for Congressman Wolf, I worked next door 

for both Congressman David and Congressman Goodlatte, both Mr. 

Wolf’s neighbors, and he is a good man. 

I have not heard anything in the last period of years from DOJ 

on this issue, but we welcome their input and would work with 

them on this issue. We have right before us now, it is important 

for the Subcommittee to know, a very important rulemaking consideration that is pending. We have told Congress in other venues, 

just last week on the House side, that we expect to have something 

finally out on the issue of paper barriers this month. And we do 

have some concerns in that area. 

I will say it is important to understand what they really are, 

though. These are typically underused track that a railroad that is 

serving a group of customers—so one railroad serving a group of 

customers agrees to let another railroad serve that group of customers. It is not an effort or a technique to reduce competition. In 

fact, one of our concerns—and this will be addressed as we come 

out with final rules. What would the outcome be, in other words, 

if railroads Class I were to stop entering into these agreements? 

Would you actually have more competition or would you just be 

taking business away from short lines who are actually doing an 

excellent job at lower cost providing—meeting shippers’ needs? 

And so the issues are always a little more complicated than we 

can get in in a quick answer, but I do urge the Committee to look 

at our work when we come out in the next few weeks, and I would 

be happy to come up and brief the staff or the members on it. 

Senator FEINSTEIN. All right. We have just begun a vote, so my 

time is limited. But is there a response from the shippers to this 

point? 

Mr. SZABO. Senator Feinstein, we think paper barriers are bad. 

We think that without paper barriers, people would locate on these 

short lines, and they would have access to competition. Short lines 

would become more robust. Perhaps over time several short lines 

would unite to become another rail system. We think they are a 

blight on competition. 

26

Senator FEINSTEIN. Thank you. 

I very much appreciate this, Mr. Chairman. It has certainly 

given me a much clearer view of what the issues are and the legislation, so thank you very, very much. I appreciate it. Thank you, 

gentlemen, too. 

Chairman KOHL. Thank you, Senator Feinstein. 

We do not have a lot of time. There is a vote. But I would like 

to ask another question. 

Mr. Szabo, railroads claim that regulation of their industry is so 

pervasive that applying antitrust is unnecessary. But hasn’t the 

regulation of railroads by the STB been greatly reduced in recent 

decades by such legislation as Staggers and the ICC Termination 

Act? 

Mr. SZABO. Mr. Chairman, that is not correct. The STB is supposed to allow a rate challenge process for rail customers who do 

not have access to competition. The GAO report you cited earlier 

says it does not work, that, in fact, it is inaccessible to most rail 

customers. The new rules that Mr. Nottingham referred to, when 

they were proposed, rail customers united, 36 groups said these 

were worse than current law. No changes were made to the proposed rules, and rail customers do not believe the STB is improving 

its process. So we disagree with that proposition. 

Chairman KOHL. Mr. Berg and Mr. Vander Schaaf, what is your 

view? How effective is the STB for a shipper to challenge an excessive rate charge by a railroad or to get remedy? Mr. Vander 

Schaaf? 

Mr. VANDER SCHAAF. From my experience we have never gone to 

the STB just from a standpoint of the challenges of doing it and 

the perception that the results will not be favorable. Seeing as we 

have not done it, I do not have an answer of proof that it did not 

work. But the perception is that it is one more act of futility. 

Chairman KOHL. Mr. Berg? 

Mr. BERG. I essentially share that. We are considering doing that 

based on our 2006 rate increases from the railroads. But we have 

to take into consideration the recent results that we have seen out 

of the STB, including a sister generation and transmission cooperative who did not get any relief and spent $6 million in the effort 

trying to do that. 

Chairman KOHL. Mr. Nottingham? 

Mr. NOTTINGHAM. Thank you, Senator. I would say Mr. Szabo 

needs to look at the record carefully. In our proceeding he just reference where he said no comments coming from shippers, including 

his coalition, were taken into consideration, I strongly object to 

that. I think the record is very clear that between the public comment period and the final rule, significant changes, including raising the bar to allow cases up to $1 million to be brought into our 

most simply dispute resolution process for only a $150 filing fee, 

were made, and many more. And I would urge him to look back 

at that record and try to correct his statement today. 

But we are in the midst of enormous changes at the STB. We are 

conducting a vigorous oversight. We are being sued by the railroads 

as we sit here today. They object violently to some of our reforms. 

I am also happy to report we are being sued by many, many shipVerDate 0ct 09 2002 15:25 Dec 10, 2007 Jkt 039357 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39357.TXT SJUD1 PsN: CMORC
27

pers. It seems that everybody is suing us, and we feel, if that is 

the case, we must be somewhere in the middle and doing our job. 

Chairman KOHL. All right. Mr. Nottingham, in 1979, there were 

42 Class I freight railroads in the United States, 42 in 1979. Today, 

only four railroads serve 90 percent of the Nation’s railroad traffic, 

and there are only seven freight railroads remaining in total. 

Chairman Nottingham, how many railroad mergers and acquisitions has the STB or its predecessor agency, the ICC, blocked 

among Class I railroads in the last three decades? 

Mr. NOTTINGHAM. Mr. Chairman, I would like to be able to respond on the record to you for that to make sure I get it just right. 

I was a youngest in 1979, but in reading the history, I can say that 

the GAO report you cited last year stated very clearly that rates 

have come down overall over a 25-year period since the Staggers 

Act and now. There are not just seven railroads in the country, although there are seven Class I’s. There are more then 500 short 

line, and they play an increasingly important role. 

We are seeing some merger activity currently. Recently, the Canadian Pacific announced a significant—looking at a substantial 

merger with the DM&E. That is not before us yet, but it is coming 

very soon for our review. We have just seen the announcement by 

the Canadian National of an potentially important merger that 

may get them out of the Chicago gridlock situation. And we have 

seen some other significant short-line activity, the Florida East 

Coast case, recently a merger. 

So there is a lot of merger activity out there. My understanding 

of the history, the Board has approved the vast, vast majority, but 

in recent years, being the last 20 or so years—that is important to 

understand the context—massive bankruptcies and massive underinvestment in the rail industry, not surprising that proposals to 

consolidate and invest more in basically dysfunctional railroads 

would be looked on with some approval by the agency charged 

with, in part, looking after the economic health of the network for 

the benefit of shippers. In most cases, shippers come to us and support mergers because they see the dysfunctional nature. They are 

paying the price of lack of investment pre-merger. But we look at 

each one independently, of course, on the merits. 

Chairman KOHL. Should the Justice Department be able to review railroad mergers? Mr. Moates, Mr. Bush, Mr. Szabo. 

Mr. MOATES. Senator Kohl, thank you for that question. It does, 

and indeed, if you will permit me, I am going to brag about one 

of the defeats of my career. I can help answer the prior question. 

I was counsel to the Santa Fe Pacific in the Atchison, Topeka, 

and Santa Fe Railway in the mid-1980’s when the Interstate Commerce Commission turned down our application for a merger between the Santa Fe and the Southern Pacific. It did that in large 

measure because of the forceful opposition of the Antitrust Division 

of the Department of Justice, which participates per statute as a 

party in all rail merger cases. So the Justice Department, believe 

me, plays a very significant role in all railroad merger cases, and 

the ICC and today the STB pays a lot of attention to its views. 

So I know about one they got turned down because it was my 

case. 

Chairman KOHL. Thank you. 

28

Dr. Bush? 

Mr. BUSH. There is a difference between participating in another 

agency’s regulatory proceeding and actively investigating a transaction. When I worked at the Department of Justice, when I was 

investigating a transaction, I had all sorts of authority to engage 

in document requests, conduct depositions, engage in civil investigative demands of competitors, talk to customers, and all of these 

things that are not traditionally a good use of resources when another agency has exclusive jurisdiction. 

Therefore, the Department of Justice’s guesstimates as to the potential anticompetitive effects of a merger absent those powers does 

not suggest that the agency might have really concurred with those 

decisions had they had that authority. 

Chairman KOHL. Mr. Szabo? 

Mr. SZABO. Mr. Chairman, I think your bill has it right. There 

was the UP–SP merger that was approved by the STB in 1996. I 

believe it was 1996. The Department of Justice strenuously objected in comments. Those comments were ignored. They had no recourse. Your bill would allow them to go in and try to enjoin it if 

the STB had not done it properly. So I believe that is correct. 

Chairman KOHL. Thank you. Well, gentlemen, I have to run to 

a vote. It has been a really good hearing. We will keep the record 

open for some additional questions and your comments. I would appreciate staying in touch with you if I can as we move along in this 

process. We will attempt to find a common ground and the right 

balance and justice in this matter, and your being here helps us 

a great deal. 

Thank you so much for being here. This hearing is closed. 

[Whereupon, at 11:57 a.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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