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RAILROAD ANTITRUST ENFORCEMENT ACT 

OF 2007 

HEARING 

BEFORE THE

TASK FORCE ON ANTITRUST 

AND COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON

H.R. 1650 

FEBRUARY 25, 2008 

Serial No. 110–171 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

TASK FORCE ON ANTITRUST AND COMPETITION POLICY

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

BETTY SUTTON, Ohio 

ANTHONY D. WEINER, New York 

DEBBIE WASSERMAN SCHULTZ, Florida 

RIC KELLER, Florida 

STEVE CHABOT, Ohio 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

LAMAR SMITH, Texas, Ex Officio 

PERRY APELBAUM, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

FEBRUARY 25, 2008 

Page 

OPENING STATEMENT 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Task Force on Antitrust and Competition 

Policy ..................................................................................................................... 1 

The Honorable Darrell Issa, a Representative in Congress from the State 

of California, Member, Task Force on Antitrust and Competition Policy ....... 2 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Member, Task Force on Antitrust and Competition Policy ........ 3 

The Honorable Sheila Jackson Lee, a Representative in Congress from the 

State of Texas, and Member, Task Force on Antitrust and Competition 

Policy ..................................................................................................................... 3 

WITNESSES 

The Honorable Tammy Baldwin, a Representative in Congress from the State 

of Wisconsin, and Member, Committee on the Judiciary 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 13 

Ms. Susan M. Diehl, Senior Vice President, Logistics and Supply Chain 

Management, Holcim (US) Inc. 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 25 

Mr. Terry Huval, Director of Utilities, Lafayette Utilities System, Lafayette, 

LA 

Oral Testimony ..................................................................................................... 30 

Prepared Statement ............................................................................................. 32 

Mr. G. Paul Moates, Sidley Austin, LLP, on behalf of the Association of 

American Railroads 

Oral Testimony ..................................................................................................... 55 

Prepared Statement ............................................................................................. 58 

Mr. Darren Bush, Professor, University of Houston Law Center 

Oral Testimony ..................................................................................................... 76 

Prepared Statement ............................................................................................. 79 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Task Force on Antitrust 

and Competition Policy ........................................................................................ 4 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 125 

(1) 

RAILROAD ANTITRUST ENFORCEMENT ACT 

OF 2007 

MONDAY, FEBRUARY 25, 2008 

HOUSE OF REPRESENTATIVES,

TASK FORCE ON ANTITRUST

AND COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Task Force met, pursuant to notice, at 4:02 p.m., in room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Task Force) presiding. 

Present: Representatives Conyers, Jackson Lee, Smith, Goodlatte, Cannon and Issa. 

Mr. CONYERS. Good afternoon. The hearing on the Antitrust Task 

Force will come to order. 

We are pleased to have everyone here. I would like to begin our 

discussion this afternoon by observing that under current law, the 

Department of Justice and the Federal Trade Commission have 

limited authority to enforce Federal antitrust laws in the railroad 

industry. This is a subject that has not been on the front of the 

minds of many Members of Congress, and we thank Congresswoman Baldwin, a Member of the Judiciary Committee, for putting 

a little focus on this today. 

The Department of Justice and the Federal Trade Commission 

have limited authority to enforce Federal antitrust laws in the railroad industry. Why is this important? Well, certain transactions 

among rail carriers, if approved by the industry’s regulatory body, 

the Surface Transportation Board or STB, are exempt from Federal 

antitrust enforcement. And so this hearing seeks to examine 

whether the roles of the Department of Justice and the FTC, Federal Trade Commission, in the railroad industry need to be expanded. 

So the measure under scrutiny today would eliminate some of 

the antitrust immunities that specifically apply to railroads, providing the Department of Justice, the Trade Commission, and the 

STB, with concurrent jurisdiction over antitrust matters. In addition, it proposes to eliminate some of the restrictions on remedies 

available to private plaintiffs in antitrust actions against rail carriers. The bill removes the carve-out in the Clayton Act that prevents private plaintiffs from obtaining injunctive relief in railroad 

antitrust suits. The bill would enable private plaintiffs to be awarded treble damages. Judicial precedent currently limits damages to 

the rail carriers’ filed rate. 

2 

So there are several issues I will be looking at carefully: Under 

current law, do shippers have an effective method of challenging 

rate increases? Would the industry benefit from having concurrent 

jurisdiction among DOJ, FTC, and the STB? And, is there any reason to continue preserving antitrust immunities for railroads? 

So I come to the hearing to listen to a distinguished panel of witnesses, but I will be listening most carefully to see if the railroads 

are able to convince the Members of this Committee that eliminating antitrust immunities will somehow harm their industry, 

and ultimately the consumers. 

So I look forward to all of our witnesses today, and I would turn 

now to my friend and colleague from California, Darrell Issa, who 

is the acting Ranking Member this afternoon. Welcome. 

Mr. ISSA. Thank you, Mr. Chairman. Thank you for holding this 

hearing today. I, too, look forward to hearing my colleague’s views 

on the bill that she has offered. Certainly, H.R. 1650, the ‘‘Railroad 

Antitrust Enforcement Act of 2007,’’ gives us a starting point to 

have this discussion. It is rather familiar that the Antitrust Task 

Force hears not about small companies needing to be protected 

from large trusts, but rather, as today, we are going to hear more 

about large companies, the railroads, and whether or not they are 

using monopolistic power and some other way gaming the pricing 

structure against other large companies, such as chemical and 

other large bulk shippers. 

That is not altogether different than it was in 1887, when Congress passed the Interstate Commerce Act. Although many small 

farmers and rural individuals found themselves with no market 

power, you also had the titans of the industry, some of them owners of rails, some not, who used the rail system to set prices arbitrarily and to the benefit of their companies and to the detriment 

of their competitors. 

Whether it is the Sherman Antitrust Act or other regulatory acts, 

we in Congress have had an active role for more than 100 years, 

actually about 150 years, in dealing with antitrust and the railroads. Notwithstanding that, it is clear that the railroad today is 

not the railroad of yesterday. Since 1980, and, again, since 1995, 

when Congress abolished the Interstate Commerce Commission, we 

have seen an unusual shift in the role of the railroad. The railroad 

today competes without any monopolistic power against trucks and 

other surface transportation that operate on subsidized highways. 

It competes against air freight. Certainly the growth of DHL and 

UPS and others shows us that people are willing to pay an awful 

lot more than a regulatory rate of a rail in order to move their 

goods. 

Notwithstanding that, though, there are and will always be 

items whose value is such that they can only be moved over the 

surface by rail, or in which the clear need of society is to have them 

moved over rail and not on our highways. To that end Congress 

will always have a role in making sure that rails are in existence 

and able to do those jobs for which there is no competition. 

It is that balancing act that today we are going to look at of realizing that many, many people ship with rail only when they are the 

least expensive, while others ship with them not just because they 

are the least expensive, but, in fact, because they have no choice. 

3 

It is that latter situation that we will deal with from an antitrust 

standpoint. Would the abolishment of the limited antitrust exemptions in itself cure this problem, or, in fact, is more needing to be 

done? We in Congress have an oversight role over regulatory agencies, and perhaps what we will discover is that it is that oversight 

that is lacking. I look forward to the hearing because I believe it 

will give us a better understanding of which of these two paths, or 

perhaps both, have to be explored. 

Last, but not least, it is very, very clear to me that what we have 

today is a rail structure which has now reached virtually 100 percent capacity. In a free-market system, without regulation, it is 

very, very clear that rail would choose, with no other intervention 

by the government, to move those items which have the greatest 

return for them, and that is likely not to be those that have no 

choice but to ship by rail. 

So, in light of that, I hope that we not only will work on the antitrust, but I would hope that our other Committees of Congress, 

such as Energy and Commerce, and others, particularly T&I, would 

work on the fact that rail needs to expand. We cannot expect to 

have rail prices and rail delivery continue to improve if, in fact, we 

do not have enough rail lines and capacity. 

Mr. Chairman, I very much look forward to this. I believe that 

this is a very timely hearing, and I yield back. 

Mr. CONYERS. Thanks very much, Darrell. 

I notice that Lamar Smith, our Ranking Member, is here. If he 

had an observation at this point, I would be happy to yield to him. 

Mr. SMITH. Thank you, Mr. Chairman. I do not have an opening 

statement, other than to welcome my colleague, Tammy Baldwin. 

I look forward to her testimony, as well as the testimony of the 

panel. I have to say I won’t be able to stay too long because of a 

conflict. I appreciate you having a hearing on this subject. 

Mr. CONYERS. We will be working together on this, and Darrell 

and I will be happy to debrief you. 

I notice that Chris Cannon is here. I wondered if he wanted to 

make any observations at this time. 

Mr. CANNON. Thank you, Mr. Chairman. 

I appreciate you holding this hearing. You may not know, but I 

actually owned, depending on how you count, between a quarter 

and a half of the largest shipper on the Union Pacific line, so I am 

familiar with the issues. I care about these issues a lot. I appreciate your opening statement, and Mr. Issa’s, and look forward to 

a very pleasant hearing. Thank you. 

Mr. CONYERS. I am glad you made that disclosure before these 

hearings went too far along the way. 

Mr. CANNON. I suspect that means I am on your side on this one 

as well. 

Mr. CONYERS. Sheila Jackson Lee, welcome all the way from 

Houston. Any opening comments? 

Ms. JACKSON LEE. Mr. Chairman, I don’t own any railroads, but 

I will say to you that the city of Houston has had for a very long 

time as a symbol of its existence a train or railroad in its city symbol. So I want to thank my colleague Congresswoman Baldwin for 

her legislation, which calls us to question the extent of government 

oversight and, therefore, whether or not it needs to be refixed. 

4 

I remain open. I am cautious, however, about treading on antitrust exemptions, and hope that as the legislation proceeds in this 

hearing, and as I listen to the testimony of Ms. Baldwin, we will 

find an opportunity to reach common ground or a response to what 

I think is a very vital issue, and that is the expansion of freight 

service in areas not hereto utilized or serviced. I think that is an 

important message. 

I look forward, Mr. Chairman, to the witnesses and this hearing. 

Thank you very much. I yield back and ask that my entire statement may be submitted into the record, unanimous consent. 

Mr. CONYERS. Thank you. 

I will accept all Members’ statements into the record at this 

time, including Sheila Jackson Lee’s. 

[The prepared statement of Ms. Jackson Lee follows:] 

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, TASK FORCE ON ANTI- TRUST AND COMPETITION POLICY

Thank you, Mr. Chairman, for your leadership in convening today’s very important hearing on H.R. 1650, the Railroad Antitrust Enforcement Act of 2007. I would 

also like to thank the ranking member, the Honorable Ric Keller, and welcome our 

panelists. I look forward to their testimony. 

This hearing could not be more timely, Mr. Chairman. 

This legislation was introduced in 110th Congress and it eliminates the limited 

antitrust immunity that currently exists for the U.S. freight railroads. The basic 

premise of H.R. 1650 is that freight railroads enjoy wide-ranging immunity from out 

antitrust laws, giving them freedom from government oversight. This premise is not 

entirely correct. While I am a proponent of fair and equitable competition, I believe 

that we should tread cautiously in removing any antitrust exemptions and in allowing a right of private injunctive relief as a remedy. 

RAILROADS ARE GENERALLY SUBJECT TO MOST ANTITRUST LAWS

Freight railroads are subject to most antitrust laws, including those that prohibit 

agreements among railroads to set rates, allocate markets, or unreasonably restrain 

trade. The few, limited antitrust exemptions applicable to railroad pertain only to 

conduct for which the Surface Transportation Board (STB), an independent agency 

within the U.S. Department of Transportation, has regulatory authority over railroads. The exemptions prevent dual and potentially conflicting oversight of railroads 

by the STB and the courts, while promoting safer, more efficient rail service. 

Critics of U.S. freight railroads complain that railroads are ‘‘broadly exempt from 

the nation’s antitrust laws.’’ The implication is that railroads can engage in anticompetitive conduct free of government oversight. This is simply not true. 

In fact, freight railroads are subject to antitrust laws that prohibit agreements 

among railroads to set rates, allocate markets, or otherwise unreasonably restrain 

trade. In addition, railroads are subject to extensive economic regulation by the 

STB. Among other things, the STB has jurisdiction over rail mergers and a range 

of rail service- and rate-related issues, including the level of rail rates in cases 

where railroads face no effective competition. 

RAILROADS HAVE CERTAIN LIMITED ANTITRUST EXEMPTIONS

A few limited antitrust exemptions are available to railroads, but the exemptions 

are narrowly applied and only cover aspects of railroad conduct that are already 

subject to oversight by the STB. Because the railroads’ conduct is subject to regulation by the STB, the limited antitrust exemptions exist to avoid dual (and potentially conflicting) oversight by the STB and the courts. The exemptions also allow 

railroads to work together in a limited way to increase efficiency and enhance safety. 

Mr. Chairman, to further demonstrate we should tread cautiously with H.R. 1650, 

I will outline the narrow antitrust exemptions that currently apply to rail carriers 

and the STB’s consideration of traditional antitrust principles in its administration 

of the Interstate Commerce Act. Next, I will discuss the portions of the proposed 

legislation that may make effective, integrated economic regulation of the rail industry more difficult. 

5 

As I stated earlier, railroads today are already subject to antitrust laws. They face 

civil and criminal liability for violations of the Sherman Act (e.g., price-fixing, market allocation, bid rigging), and they have been successfully sued for violating that 

Act. See, e.g., In re Burling N., Inc., 822 F.2d 518 (5th Cir. 1987); see also, In re 

Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d 1144 (3rd Cit. 1993). Moreover, the survival of the judicially created Keogh doctrine, which had long immunized the railroads from certain antitrust civil suits involving rates that were filed 

with the Board’s predecessor, the Interstate Commerce Commission (ICC), is in serious doubt. Keogh v. Chicago & Nw. Ry, 260 U.S. 156 (1922); Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 (1986). And, although rail carriers 

may argue that a court in a particular case should find implied antitrust immunity, 

courts do not favor implied immunities and require a showing of ‘‘clear repugnancy’’ 

between the regulatory regime and the imposition of the antitrust laws. See Credit 

Suisse Securities, LLC v. Billing, 127 S. Ct. 2383 (2007). 

EXPRESS STATUTORY IMMUNITIES FROM THE ANTITRUST LAWS

The railroads have several express statutory immunities. 

First, rail transactions reviewed and approved by the TSB under 49 U.S.C. Secs. 

11321–11328 (which include consolidations, mergers, acquisitions, some leases, 

trackage rights, pooling arrangements, and agreements to divide traffic) cannot be 

separately challenged in federal court under the antitrust laws. 

Second, the TSB may grant antitrust immunity to certain types of agreements related to rates or charges. See 49 U.S.C. Sec. 10706. It should be noted that this provision cannot be used to immunize something akin to a price-fixing agreement between competing railroads because the TSB cannot authorize rail carriers to discuss 

or participate in agreements related to single-line rates, or to inter-line rates of a 

particular movement unless the rail carrier can practicably participate in the movement. See 49 U.S.C. Sec. 1076(a)(3)(A)(i),(ii). 

Additionally, there are two main categories of express immunities for railroads 

under the Clayton Act. Specifically, Section 16 provides that only the federal government may bring suit for injunctive relief against any common carrier subject to the 

TSB’s jurisdiction. See 15 U.S.C. Sec. 26. Second, railroads, as common carriers subject to the TSB’s jurisdiction, are expressly immune from the Federal Trade Commission (FTC) Act, which bans methods of unfair competition. See 15 U.S.C. Sec. 

45(a)(2). However, the TSB prohibits the railroads from unreasonable competition 

within the rail industry. See 49 U.S.C. Sec. 10702. 

PROBLEMS WITH THE PROPOSED LEGISLATION

Presently, only the United States Department of Justice (DOJ) or the STB may 

bring suit for injunctive relief against a common carrier subject to STB jurisdiction. 

15 U.S.C. Sec. 26. The purpose behind this provision is to preclude any interference 

by injunction with any business or transaction of interstate carriers of sufficient 

public significance and importance to be within the jurisdiction of the STB, except 

when the suit is brought by the Government. 

One area of concern that I have with this legislation is that H.R. 1650 would permit private parties to obtain injunctive relief against rail carriers in individual 

Sherman or Clayton Act challenges. This presents a serious risk to the centralized 

oversight of the TSB. Courts are not responsible for, nor do they possess the expertise to consider, how a decision revolving a discrete dispute between a single carrier 

and a single shipper will affect other carriers and shippers on that line or even in 

other parts of the country. Only the TSB is charged with examining the rail industry from both a national, regional, and local perspective. 

Giving courts injunctive power in rail-related disputes would also create a great 

potential for conflicting decision from individual courts. Presently, the TSB has developed a consistent body of law that approaches competition issues with a viewpoint broadened by other rail transportation goals and provides the basis upon 

which both carriers and shippers shape their conduct and can assess their remedies. 

Courts would not the benefit of examining the broad public interest considerations 

that are at the disposal of the TSB. For example, the TSB has more experience in 

determining the adequacy of rail revenues to support capitol investment, health and 

public safety, fair wages, etc. In addition, some rail disputes might not lend themselves to one-time remedies and might need to be revisited often. In these instances, 

the court cannot be a substitute for regulators. 

Many of the injunctive remedies that a court might order in an antitrust case may 

themselves require Board approval. This would simply add another layer of complexity and expense that would be added to the rail disputes. 

6 

Finally, because the STB already reviews rail mergers, H.R. 1650 would subject 

rail mergers and acquisitions to both the approval process and criteria of the TSB 

and traditional Clayton Act standards and procedures. Under the current scheme, 

the TSB must consult the DOJ before approving any merger. The TSB takes into 

consideration, and generally follows the recommendation of the DOJ because both 

are concerned with improper mergers. My concern, and the concern echoed by the 

TSB, is that dual merger review would frustrate the TSB’s ability to fashion merger 

conditions based upon public interest concerns. These decisions are best left to the 

TSB and not to courts or federal antitrust agencies. 

In sum, railroads are generally subject to antitrust laws. All aspects of railroad 

conduct that are exempt from antitrust laws are subject to the STB’s regulatory jurisdiction. Therefore, ending railroad antitrust exemptions would not fill any void 

in the law. Instead, it would provide a dual remedy to shippers, reduce the efficiency 

of rail operations, and interfere with the STB’s implementation of national rail 

transportation policies set by Congress. Limited antitrust exemptions for railroads 

exist because railroads are subject instead to economic regulation. We should think 

very hard about removing the railroads limited antitrust exemptions and we should 

look more closely at whether a right of private injunctive relief would benefit the 

railroads and the public at large. 

Thank you, Mr. Chairman, I yield the remainder of my time. 

Mr. CONYERS. We turn now to our only Member from Congress, 

the author of the measure, Tammy Baldwin, who is the first 

woman to serve in the House of Representatives from the great 

State of Wisconsin. She has been with us since 1998, and how she 

works on two major Committees, Judiciary and Energy and Commerce, is something I can’t figure out. She is a forceful supporter 

of civil rights, an advocate for those in our society whose voices too 

often are not heard. She is a pragmatist that has brought together 

conservative as well as progressive thinkers, and she spent a great 

deal of time on health care, almost as much as me. 

So I am happy to welcome her to begin her discussions. Of 

course, her statement will be in the record. 

Welcome to your Committee, Tammy Baldwin. 

STATEMENT OF THE HONORABLE TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN, AND MEMBER, COMMITTEE ON THE JUDICIARY 

Ms. BALDWIN. Thank you, Mr. Chairman. I am delighted to have 

the opportunity today to address H.R. 1650, and delighted that you 

have chosen to have this hearing, and very interested in hearing 

our expert panel that will follow my presentation. 

This important bipartisan legislation will restore competition to 

the rail industry by providing relief to thousands of shippers across 

the country dependent upon freight rail. 

Let me begin with a little bit of history. Our Nation’s railroad 

system was designed to serve our country, to transport goods and 

products from rural areas and cities to distribution points across 

the Nation. And over the years they have seen good times and bad 

times, but they have always provided an essential service to the 

Nation. 

Back in 1980, the railroad industry was in poor financial health, 

overbuilt and failing. Seeking a remedy, Congress removed much 

of the regulatory oversight over the industry, and merger authority 

was placed under the industry’s sole regulator, the Surface Transportation Board. Unfortunately, in 1980, Congress did not remove 

the antitrust exemptions that the industry had accumulated 

through various acts of Congress during the 1900’s. 

7 

Free from government oversight by the DOJ or the FTC, the rail 

industry has undergone dramatic consolidation, shrinking from 

over 40 major Class 1 railroads to 4 major carriers today, carrying 

90 percent of our Nation’s freight. This level of concentration and 

the resulting lack of competition certainly were never envisioned by 

Congress back in 1980. 

Over the years, while the railroads have profited, record profits, 

in fact, in recent years, the effects on shippers with little or no access to transportation competition along their route has been striking and largely ignored by the STB. Specifically, shippers report 

spiking rail rates and unreliable service. 

Take one example in my home State of Wisconsin, Dairyland 

Power. This rural cooperative located in LaCrosse, Wisconsin, provides electricity for approximately 575,000 people in Wisconsin, 

Minnesota, Iowa and Illinois. Their three coal-fired power plants 

consume 3.2 million tons of coal per year, with 75 percent of that 

coal coming from the Powder River Basin located in Wyoming. All 

of this coal, all of it, is dependent upon rail for transportation, and 

Dairyland’s power plants are served by only one railroad. 

Over the years Dairyland has reported deteriorating service quality, at times forcing them to cut back on generation due to the insufficient coal inventories. But the real kicker came at the end of 

2005 when the railroad that holds Dairyland captive raised their 

rates dramatically. The energy cooperative saw average rate increases of 93 percent as of January 2006 for 1 year of rail transportation service. It now costs Dairyland $75 million per year to ship 

by rail $30 million worth of coal; $75 million to ship $30 million 

worth of coal. The increase has translated into a 15 to 20 percent 

increase in electricity rates for the customers served by the cooperatives that depend on Dairyland for their power. 

Let me be clear, utilities are not the only companies passing on 

these transportation rate hikes to their customers. Consumers also 

face increased rates from other captive shippers, including chemical 

companies, the manufacturing industry, the agricultural sector, forest and paper companies, among many others. Of course, consumers also pay the increased costs of the electricity consumed by 

restaurants, hospitals, dry cleaners, and other producers of good 

and services. 

The trade associations representing many of these industry sectors, like the American Chemistry Council, the American Corn 

Growers, and the Steel Manufacturers Association, have endorsed 

the Railroad Antitrust Enforcement Act as a means of obtaining relief from the railroad monopoly power, and you will be hearing 

some of their stories later today. 

To help ease the burden felt by consumers and shippers alike, 

Representatives Pomeroy, Alexander, Walz and I introduced H.R. 

1650, the Railroad Antitrust Enforcement Act of 2007 in the House. 

Let me take a quick moment to explain what the bill does. First, 

it eliminates the antiquated railroad antitrust exemption that has 

no current public policy justification and is protecting anticompetitive conduct by the railroad industry. 

A November 2007 letter from 21 State attorneys general to the 

House leadership and Senate leadership is asking Congress to remove the railroad antitrust exemption, and it reflects my belief 

8 

that this provision is necessary, and I ask that this letter be made 

a part of the record. 

Mr. CONYERS. Without objection. 

[The information referred to follows:] 


TB-1.eps
9 


TB-2.eps
10 


TB-3.eps
11 


TB-4.eps
12 


TB-5.eps
13 

Ms. BALDWIN. Second, the bill permits the Department of Justice 

and FTC to review railroad mergers under the antitrust law to ensure competitive markets. 

Finally, the bill allows State attorneys general and other private 

parties to sue for damages to halt anticompetitive conduct, both of 

which are not currently allowable under Federal law. 

I might add that the companion bill to H.R. 1650, which was introduced by Wisconsin senior Senator and Chairman of the Senate 

Antitrust Committee has already been reported out of the Senate 

Judiciary Committee by voice vote with no objection and is awaiting action on the floor. 

Before I conclude, there is one big myth regarding the legislation 

that I would like to dispel. Opponents argue that by subjecting the 

railroads to our Nation’s antitrust laws, we will somehow be reregulating them. Our legislation does nothing of the sort. Subjecting the railroads to antitrust laws is about competition, not reregulation. The bill simply places the rail industry under the same 

antitrust laws that every other industry, such as telecommunications, energy, or even other forms of freight transportation, including trucking and aviation, already face. 

This bill will not fix all the problems with the railroad industry, 

but it will be a starting point for good-faith negotiation between 

rails and shippers, and it will restore some of the public interest 

responsibilities to our Nation’s rail system. 

Again, thank you, Mr. Chairman and Members of the Committee, 

for consideration of this important legislation. I look forward to 

working with you for its advancement in this Congress. 

Mr. CONYERS. Thank you, Congresswoman Baldwin. We are appreciative that you brought our attention to this matter. 

[The prepared statement of Ms. Baldwin follows:] 

PREPARED STATEMENT OF THE HONORABLE TAMMY BALDWIN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF WISCONSIN, AND MEMBER, COMMITTEE ON THE JU- DICIARY

Thank you Mr. Chairman for the opportunity to testify today. I am very appreciative of the Committee’s consideration of HR 1650, the Railroad Antitrust Enforcement Act of 2007. This important bipartisan legislation will restore competition to 

the rail industry and provide relief to thousands of shippers across the nation who 

are dependent on freight rail. 

First, let me begin with a little history. Our nation’s railroad system was designed 

to serve our country—to transport goods to rural areas and distribution points 

across the nation. And over the years, they have seen good and bad times. Back in 

1980, the railroad industry was in poor financial health. Seeking a remedy, Congress granted them an exemption from U.S. antitrust statutes and merger authority 

was placed under the industry’s sole regulator—the Surface Transportation Board. 

But, free from government oversight by the DOJ or the FTC, the rail industry has 

undergone dramatic consolidation, shrinking from over 40 major Class 1 railroads 

to four major carriers today carrying 90% of our nation’s freight. This level of concentration and resulting lack of competition certainly were never envisioned by Congress in 1980. 

And, over the years while the railroads have profited—record profits, in fact—the 

effect on shippers with little or no competition along their route has been striking, 

and largely ignored by the STB. 

Specifically, shippers report spiking rail rates and unreliable service. Take 

Dairyland Power in my home state of Wisconsin, for example. This rural cooperative 

located in La Crosse represents the power needs of approximately 575,000 people 

in Wisconsin, Minnesota, Iowa, and Illinois. Their three coal-fired power plants consume 3.2 million tons of coal per year, with 75% of that coal coming from the Powder River Basin located in Wyoming. All of this coal is dependent on rail for transportation. 

14 

Over the years, Dairyland has reported deteriorating service quality; at times 

forcing them to cut back generation due to insufficient coal inventories. 

But the real kicker came in the last few years when the supply chain railroad 

raised Dairyland’s rates dramatically. The energy cooperative saw average rates increase 93% as of January 2006 for one year of rail transportation service. It now 

costs about $75 million to ship by rail $30 million worth of coal. 

With increases this high, Dairyland and other captive utilities have no choice but 

to raise their electric rates. So it is consumers—our constituents—who bear the burden of this unwarranted antitrust exemption manipulated by the rail system. And, 

let me be clear, the costs passed on to consumers are not solely by the utility companies. Consumers also face increased rates from other captive shippers—including 

chemical companies, the manufacturing industry, agricultural sector, forest and 

paper companies, among others. These sectors too can provide story after story of 

exorbitant rates, delayed service, and surcharge fees. I might mention that many 

of them (such as the American Chemistry Council, American Corn Growers, and the 

Steel Manufacturers Association) have endorsed the Railroad Antitrust Enforcement 

Act as a means for some future relief. And, you will be hearing some of their stories 

today. 

To help ease the burden felt by consumers and shippers alike, Representatives 

Pomeroy, Alexander, Walz, and I introduced the Railroad Antitrust Enforcement Act 

in the House. Let me take a minute to explain what this bill does: 

• First, it eliminates the antiquated railroad antitrust exemption that has no 

current public policy justification and is protecting anticompetitive conduct by 

the railroad industry. A November 2007 letter from 21 state Attorneys General to the House and Senate Leadership asking Congress to remove the railroad antitrust exemption reflects my belief that this provision is necessary— 

and I ask that this letter be made a part of the record. 

• Second, the bill permits the Justice Department and FTC to review railroad 

mergers under antitrust law 

• And finally, the bill allows state Attorneys General and other private parties 

to sue for damages and to halt anticompetitive conduct, both of which are not 

currently allowable under federal law. 

I might add that the companion bill, introduced by Mr. Kohl in the Senate, already passed out of the Senate Judiciary Committee by voice vote and is awaiting 

a vote on the floor. 

Before I conclude, there is one big myth regarding the legislation that I would like 

to dispel. Opponents argue that by subjecting the railroads to our nation’s antitrust 

laws, we will somehow be ‘‘reregulating them.’’ Our legislation does nothing of the 

sort. Subjecting the railroads to antitrust laws is about competition . . . not reregulation. This bill simply places the rail industry under the same antitrust laws that 

every other industry such as telecommunications, energy, or even other forms of 

freight transportation—including trucking and aviation—faces. 

This bill will not fix all of the problems with the railroad industry. But, it will 

be a starting point for good faith negotiations between the rails and shippers. And, 

it will restore some of the public interest responsibilities to our nation’s rail system. 

Again, thank you Mr. Chairman for the committee’s consideration of this important legislation. I look forward to working with you and other members of this committee to ensure that this bill is passed into law in the remaining months of the 

110th Congress. 

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Mr. CONYERS. As Darrell Issa has observed, the other body has 

for once gotten ahead of us. That is an unusual state of affairs. 

I thank you very much. We will all be working with you, of 

course, after we hear from our very excellent witnesses today. 

We now would like to invite to the witness table Susan Diehl, 

Terry Huval, G. Paul Moates, Dr. Darren Bush. Please join us. 

Ms. Diehl had a great deal of experience in her business career. 

She is senior vice president of logistics and supply chain management for Holcim, Incorporated, one of the Nation’s largest producers of cement. We will put other items concerning her career 

into the record. 

We will accept your statement into the record and invite you to 

begin the conversation among us this afternoon. Welcome, Ms. 

Diehl, to the Judiciary Committee. 

TESTIMONY OF SUSAN M. DIEHL, SENIOR VICE PRESIDENT, 

LOGISTICS AND SUPPLY CHAIN MANAGEMENT, HOLCIM (US) 

INC. 

Ms. DIEHL. Thank you, Mr. Chairman. Good afternoon. Thank 

you, Members of the Task Force. 

My name is Susan Diehl, and I am the senior vice president of 

logistics and supply chain management at Holcim U.S., Incorporated. Mr. Chairman, as a life-long resident of the great State of 

Michigan, I tracked your distinguished career for so many years, 

and it really is a distinct pleasure for me to be here today to speak 

to your Committee about Holcim’s experience as a captive shipper. 

I want to thank you for your service to our State over so many 

years, and also to our country. 

Mr. CONYERS. Thank you. 

Ms. DIEHL. As a Michiganian like you, I have seen too many jobs 

shipped overseas and Americans displaced because of regulations 

that defy law and logic and favor the few. 

Mr. Chairman, I realize the rail lobby is powerful, but enough is 

enough. It is time Congress passes H.R. 1650 and levels the playing field between captive shippers and Class I railroads. 

Holcim is a shipper of a strategic building material, namely cement. Cement is a critical component of concrete, which is an environmentally responsible building product used to build and repair 

our country’s vital infrastructure. Concrete, as many of you may 

not know, is the second most consumed product on the planet. 

Water is the first. Holcim is one of the largest producers of cement 

in the world and in the United States, with operations in more 

than 70 countries, and across the U.S. in Michigan, Texas, Utah, 

and in Congresswoman Baldwin’s State of Wisconsin. I am proud 

to say, Mr. Chairman, Holcim has been in Michigan for over 45 

years and employs nearly 500 people in the State. 

Reliable and cost-effective transportation options are critical to 

our industry. Average cement shipments range between 250 and 

300 miles. Truck transportation increases our carbon footprint, 

clogs our already crowded highways, and is not economical much 

beyond 150 miles. Simply put, we are relying on railroads to deliver our product and to transport necessary fuels such as coal to 

our facilities. 

24 

More than 80 percent of U.S. cement-manufacturing plants are 

captive to a single railroad. Most cement plants are unable to secure competitive rail rates. To deal with the failings of the railroads and to remain competitive, we consistently make significant 

capital investments in our country and our own infrastructure to 

meet the demands of our customers. In the last decade, Holcim has 

invested over $1 billion in the U.S. to upgrade its capacity and better serve its customers while improving its environmental performance. 

Holcim is investing an additional $1 billion in Ste. Genevieve, 

Missouri, on what will be the largest cement plant in the United 

States. A major reason for the location of this investment is the 

harbor on the Mississippi River that will allow us to ensure costeffective, environmentally friendly, and reliable transport of cement 

by water. We are determined to protect these significant investments and the good jobs they create for many of your constituents. 

As much as anyone, we are committed to protecting these jobs; 

however, to do so, we need relief and removal of the antitrust exemptions for the railroads such as what is proposed in H.R. 1650. 

The current system is broken, and the Surface Transportation 

Board is little more than a rubber stamp for the increasingly monopolistic practices of today’s Class I railroads. Throughout the rail 

competition debate, Mr. Chairman, we have long sought to be part 

of the solution, and we have taken action. In 2003, we created our 

own railroad, Holrail, for the purpose of constructing and operating 

a 2.3-mile common carrier rail line to establish our own competition at our cement production facility in Holly Hill, South Carolina. 

Our captivity at Holly Hill allowed the railroads to provide us with 

poor and unresponsive service and charge unreasonably high rates. 

Under the protections afforded in H.R. 1650, we believe Holcim 

would not have had to take such extreme measures as to construct 

a railroad at a significant cost. Our captivity leads to rates that we 

estimate to be 35 percent higher than our two largest competitors, 

who are only 3 miles away and have access to dual rail, while we 

are captive. This situation exists because the STB has failed its 

public responsibility to keep competition after the Staggers Act. 

They have done little to protect shippers or restrain the increasingly consolidated rail industry. 

Given the track record of the STB issuing decisions in favor of 

the Class 1 railroads, it is not surprising that after several years, 

our petition and appeal were denied. It has cost us over $600,000 

to pursue this case. While our company has the resources to take 

on this challenge, many companies do not. 

If competition is to be restored, we believe that Congress must 

change the system to create a more level playing field. What is currently being proposed in H.R. 1650 under your leadership, Mr. 

Chairman, and that of your Committee and Congresswoman Baldwin, we seek many key proposals that will help to strike the right 

balance between growth and oversight. Indeed, we would not advocate for this bill if we believed it would deter growth of our critical 

rail infrastructure, it is so vital to our future. 

We believe that Congress must promote rate competition by removing the railroad’s antitrust exemptions and allowing normal 

protections afforded to all consumers to be in place. We think that 

25 

they should be subject to the rule that it apply to shippers like 

Holcim and promote competition. 

We deeply appreciate this opportunity to speak about issues that 

are not only vital to our industry, but to our national infrastructure 

and future growth as well. Thank you very much. 

Mr. CONYERS. Thanks for starting us off in this discussion, Ms. 

Diehl. I appreciate your bringing the experience in real time of 

Holcim to the Committee. 

[The prepared statement of Ms. Diehl follows:] 

PREPARED STATEMENT OF SUSAN M. DIEHL

Good morning Chairman Conyers and Members of the Committee. My name is 

Susan Diehl and I am the Senior Vice President, Logistics and Supply Chain Management at Holcim (US) Inc., which I will refer to today as ‘‘Holcim’’. I am here to 

speak to the Committee about Holcim’s experiences as a captive shipper. I commend 

you Mr. Chairman, and your Committee, for the leadership you are taking on this 

very important issue. As a person who was born and raised in Michigan, and whose 

company has a significant presence in Michigan, I see the devastating effects when 

companies cannot be cost competitive. 

I sincerely appreciate the opportunity to express my deep concern over the fundamental flaws in the current rail system, which permits and indeed invites four 

major monopoly powers to dominate U.S. shippers, the vast majority of whom are 

unable to seek cost and eco-efficient competition. There exist impenetrable barriers 

to entry and an oversight system that is, at best, ineffective and undeniably available to only the privileged few who possess the ability to pay the high costs of access. Few, if any, industries can claim the benefit that the rail industry has of owning near-exclusive rights to its infrastructure, and to prevent the meaningful entry 

of new competitors. 

Holcim is a shipper of a strategic building material, namely cement. In most of 

the markets it serves, Holcim faces unfair and non-competitive rates, on the heels 

of years of massive rail consolidation and utter lack of oversight by the STB and 

its predecessor. What is currently being proposed in H.R. 1650, under your leadership, Mr. Chairman and that of your Committee, has many key proposals that 

would help captive shippers like Holcim, for example: 1. removing the antitrust exemption under the Nation’s antitrust laws; 2. allowing Federal Courts to assert jurisdiction in actions against common carriers and, 3. extending treble damages to 

carriers 

Holcim submits this testimony fully recognizing that by doing so, it assumes certain risks: the rail lobby is effective and Holcim, as a captive shipper, has few alternatives if confronted with further erosion of service and cost competitiveness. Nevertheless, we hold a deep belief that the only way to continue to supply our country 

with its most fundamental building material and keep jobs in this country is to 

share our experience with you, Mr. Chairman, and your Task Force. The current 

system is unfair and needs change. 

HOLCIM IS A LEADER IN THE MANUFACTURE OF CEMENT SERVING CUSTOMERS IN MORE

THAN FORTY STATES, WITH A FOCUS ON SUSTAINABLE DEVELOPMENT

My Company, Holcim (US) Inc., is based in Waltham, MA and has its largest 

presence in Dundee, Michigan, where it contributes more than $85 million to the 

Michigan economy. It is a subsidiary of Holcim Ltd, a worldwide leader in the building materials sector, with over 150 million tons of cement and almost 200 million 

tons of aggregates supplied annually. Holcim Ltd is a leader in sustainable development and for the last three years, has been recognized as the ‘‘Leader of Industry’’ 

by the Dow Jones Sustainability Index for the building materials sector. 

As a leader in the US cement industry, Holcim produces and supplies nearly 16 

million tons of cement and cementitious products annually from its 16 manufacturing and 3 import facilities. We have more than 3000 employees, 475+ of whom 

are in Michigan and over $1.5 billion in annual revenue. We have invested nearly 

$1 billion to upgrade and expand our existing U.S. facilities over the last decade, 

and are investing another $1 billion in Ste. Genevieve County near St. Louis, Missouri, to build the world’s largest single cement production line. Still, this massive 

investment in capacity and efficiency upgrades is not enough to serve the Nation’s 

need for cement, as the industry must import approximately 20 million tons of additional cement to meet the domestic demand. 

26 

Holcim has four regions in the United States, including the Atlantic coast and 

southern US, the Great Lakes and Mississippi River system, Texas and Oklahoma, 

and the Rocky Mountains. We serve customers in over 40 states from our 16 plant 

facilities, and from over 55 additional remote distribution sites, or terminals. Roughly 7.5 million tons of cement moves from our manufacturing facilities to these remote company terminals, for final distribution to customers; 4.5 million tons or more 

(or 60%) of that volume moves by rail. In addition, Mr. Chairman, we bring critical 

raw materials such as coal and gypsum to our manufacturing facilities to feed their 

continuous operations. 

How Cement is Made 

The Committee may want to understand that cement is produced from various 

abundant raw materials including limestone, shale, clay and silica sand. These minerals are ground and heated in large rotary kilns to temperatures as high as 3,400 

degrees Fahrenheit. The heat of the combustion fuses these materials into clumps 

of an intermediate material called clinker. When the clinker is discharged from the 

kiln, it is cooled and later ground with a small amount of gypsum to produce the 

gray powder known as portland cement. Different types of portland cement are 

manufactured to meet various physical and chemical requirements. 

Portland cement manufacturing facilities use an enormous amount of energy. In 

fact, energy is the largest cost component in the manufacture of portland cement. 

The U.S. cement industry is largely coal fired with over 80% percent of all plants 

using coal, pet coke, or some combination of the two as primary kiln fuel in 2004. 

The domestic cement industry is one of the largest industrial consumers of coal. 

Much of the coal utilized to heat cement kilns is delivered by rail. 

The cement industry is regional in nature, Mr. Chairman. Most cement manufacturing plants are located in rural areas near large limestone deposits, the principal 

ingredient in producing cement. However, at the same time plants also must be located near markets because the cost of shipping cement quickly exceeds its value. 

As such, customers traditionally purchase cement from local sources. In 2007, we spent in excess of $60 million on rail freight and fuel surcharges (to 

move cement within our company, and even more when adding what is spent to 

bring raw materials into our facilities). What is interesting to note, Mr. Chairman, 

is that these costs cannot always be passed along to our customers, because sometimes our competitors have a local manufacturing presence and have no need to 

move cement by rail. In this type of situation, we need to be as cost competitive 

as possible. 

As evidenced by the amount of product that moves by rail, and the remote areas 

served (e.g., Bliss, ID, Lehi, UT, Superior, NE), we recognize the railroads as an important component of our business. Unreliable service can force our operations to 

shut down due to lack of raw materials and fuels, and worse yet, leave customers 

stranded with no cement to complete their building work. 

THE CEMENT INDUSTRY IS STRATEGICALLY IMPORTANT DOMESTICALLY AND HOLCIM IS

COMMITTED TO CONTINUING INVESTMENTS TO IMPROVE ITS ENVIRONMENTAL EFFI- CIENCY AND INCREASE ITS CAPACITY

Considering the regional nature of the cement industry, it is critical that there 

are reliable and cost-effective transportation options available. Average cement shipments range between 250 to 300 miles. Truck transportation is not economical much 

beyond 150 miles; it is also not as environmentally friendly as rail. We are reliant 

on railroads to deliver our product. Only five of Holcim’s sixteen cement plants have 

access to water transportation for domestic shipments and then only to select markets. The railroads have sometimes argued that these cement facilities are not captive since there are alternative modes of transportation available. This simply is not 

the case, Mr. Chairman. The US Cement Industry relies on rail transportation to 

move approximately 50 percent of all shipments between cement plants and distribution terminals, according to 2004 U.S. Geological Survey data, the most recent 

independent figures. It is highly important to our industry that the railroads provide reliable, efficient and cost-effective service to meet the widespread demand for 

our product. More than 80 percent of U.S. cement manufacturing plants are captive 

to a single railroad. Due to the absence of competition, these plants are unable to 

secure competitive rail rates and often receive poor service. On the other hand, dual 

rail-served facilities promote competition, leading to better rates and more reliable 

service. 

The railroads also transport millions of tons of inbound coal shipments to fuel cement manufacturing plants each year. There are examples within the industry in 

which cement plants that are served by two railroads receive coal from a supplier 

that is captive to a single railroad. There are also instances where both the cement 

27 

plant and the coal supplier are captive to a single railroad. These situations result 

in unnecessarily high rail rates that add to the cost of cement and, ultimately, to 

the cost of infrastructure. 

INCREASING COMPETITION IS THE BEST WAY TO DRIVE EFFICIENCIES AND PROMOTE

INVESTMENT IN RAIL INFRASTRUCTURE

Mr. Chairman, the railroads’ argument that ‘‘re-regulation’’ will have a chilling 

effect on business growth is flawed and presents a false choice. H.R. 1650, currently 

before Congress, presents an opportunity to improve service, and increase rate competition, without impacting rail capacity. 

The Staggers Act of 1980, which selectively removed regulations of the railroad 

industry in instances where transportation competition exists, has improved the industry’s efficiency and financial stability. However, since deregulation, there has 

been a sharp decline from 63 Class I railroads in 1976 to just four major Class I 

railroads today handling 90% of the nation’s rail traffic. This consolidation has contributed to diminished competition as well as ineffective and inconsistent rail service for the cement industry and many others. 

Inconsistent and unreliable service from the Class I railroads is one of the most 

serious problems Holcim faces in its efforts to bring an affordable and essential 

product to market. Service encompasses many aspects of rail transportation, including picking up rail cars (covered hoppers), on-time delivery of rail cars and providing 

empty rail cars. The cars supplied by the railroads are typically old, poorly maintained and frequently a safety concern. 

In recent years, Mr. Chairman, Holcim has been forced to purchase private rail 

cars because Class I railroads have refused to add cement rail cars to their fleets. 

Meanwhile the railroads have added tariff provisions charging for the storage (demurrage) of Holcim-owned (private) rail cars. This results in increased costs (in the 

form of capital investment, maintenance and service fees) to the cement shipper 

while providing no incentive to the rail carriers to improve their service. 

We face uncertainty daily regarding the service reliability of the railroads. The 

Company is also disadvantaged competitively when competitors have dual service 

to serve markets where we are captive. Holcim has had to take extraordinary measures to try to remedy this disadvantage. 

HOLRAIL IS CREATED TO CREATE COMPETITION WITH THE RAILROADS: 13 YEARS AND

HUNDREDS OF THOUSANDS OF DOLLARS LATER, AND STILL NO COMPETITION

Holcim created HolRail LLC (‘‘HolRail’’) in 2003 for the purpose of constructing 

and operating a 2.3 mile common carrier rail line, to establish competitive rail service at Holcim’s cement production facility in Holly Hill, South Carolina (‘‘Holly Hill 

Facility’’). The Holly Hill Facility is heavily dependent upon both inbound and outbound rail service to produce and distribute up to 2 million tons of cement annually. 

However, the Holly Hill Facility is captive to a single railroad, the CSXT. This captivity has allowed CSXT to provide poor and unresponsive service while charging 

unreasonably high rates to Holcim (comparable to truck rates for similar distances), 

which has placed Holcim at a competitive disadvantage in the cement market. In 

order to improve its rail service and obtain competitive rates, Holcim concluded that 

it needed competitive rail service at Holly Hill. 

Although the Holly Hill Facility is closed to the CSXT, the Norfolk Southern Railway (‘‘NSR’’) comes within approximately two miles of the Holly Hill Facility, at 

Giant, South Carolina. Therefore, Holcim determined that it could obtain competitive rail service at Holly Hill by constructing its own railroad over that distance to 

connect with the NSR. Holcim separately incorporated HolRail for this purpose. 

Holcim has two competitors located within 5 miles of the Holly Hill Facility, both 

of whom are dual served by the CSXT and the NSR. So, not only must Holcim try 

to compete without having a level playing field, Mr. Chairman, it must commit to 

invest in excess of $20+ million to level that playing field, incurring more costs due 

to the CSXT’s failure to allow a shared right of way. 

HolRail identified two potential routes to connect the Holly Hill Facility with the 

NSR, a ‘‘Preferred’’ and an ‘‘Alternate’’ route. Both routes would extend 2.3 miles, 

from north to south, across the Four Hole Swamp and parallel to CSXT’s existing 

track. The Alternate Route, however, lies approximately 105 feet east of the Preferred Route over most of that distance. The key distinction between the two routes 

is that the Alternate Route can be constructed almost entirely on property owned 

by Holcim, whereas the Preferred Route must cross over CSXT’s property for 1.7 

miles and would be constructed within the existing CSXT right-of-way. 

Despite having a clear path across Holcim-owned property via the Alternate 

Route, HolRail proposed the Preferred Route across CSXT’s property to minimize 

28 

the environmental consequences of constructing a railroad across the Four Hole 

Swamp, which is a unique and environmentally sensitive wetland. Since there is an 

existing transportation corridor, which includes the CSXT track, State Highway 453, 

above ground power lines, and a buried gas line, which already constricts the flow 

of water through the swamp, HolRail determined that simply widening that corridor, by constructing the Preferred Route immediately adjacent to the CSXT track, 

would cause the least environmental harm. 

In contrast, the Alternate Route would exacerbate the harmful effects of the existing corridor by creating a second, entirely separate, transportation corridor approximately 130 feet further downstream, and deeper into the Four Hole Swamp. In addition to disturbing the portion of the swamp actually occupied by the railroad, the 

Alternate Route would disturb the entire area between the two corridors, which is 

referred to as an ‘‘island’’ effect. Consequently, the Alternate Route would more than 

double the acres of pristine wetlands that would be disturbed by the rail construction. 

The Army Corps of Engineers, the South Carolina Department of Natural Resources, and The National Audubon Society submitted letters to the Surface Transportation Board independently confirming HolRail’s observations and expressing 

their preference for the Preferred Route over the Alternate Route. 

The Alternative Route, which the STB ordered HolRail to pursue without legal 

basis, would not only disturb these precious wetlands, but will also more than double the costs of construction and would force the Company to invest well over $20 

million to construct. It took over 2 years to get the denial of HolRail’s crossing petition from the STB, costing hundreds of thousands of dollars in legal fees and consulting fees. The DC Circuit Court of Appeals just denied our appeal, applying the 

Chevron doctrine to afford wide deference to the STB’s decision. The Company may 

now be forced to pursue an environmentally damaging option to create much needed 

competition. 

DAILY OPERATIONAL ISSUES CONTINUE TO ABOUND

• In May, 2007, the Canadian National Railroad utterly failed to service a distribution facility in Green Bay, WI. There was no option but to truck product 

from another facility in Duluth, MN. During this time, the Company paid 2.5 

times more than the rail rate, a cost that cannot be passed on to customers. 

In addition, the truck haulage is less efficient from an environmental perspective than rail. 

• In the fall of 2006, the Union Pacific Railroad threatened to stop serving a 

manufacturing facility for inbound coal. The Union Pacific Railroad stated 

that the Company did not unload cars quickly enough and insisted that 

Holcim share unit trains full of coal with our competitor in the area. 

• Some basic analysis reveals that in 98% of all of the origins/destinations 

Holcim serves; either the origin or the destination is ‘‘closed’’ or captive on 

one railroad. In one instance where competition does exist in our system, the 

rates are over 60% less than a comparable captive haul. 

• In 2007 alone, on selected hauls of less than 225 miles, trucking rates in 

Holcim are nearly $1.8 million more favorable than rail rates, despite the fact 

that it takes approximately 4 trucks to move the same amount of product as 

1 rail car. Holcim wants to be able to leverage rail infrastructure to avoid the 

extra congestion and emissions occasioned by having more trucks on the road. 

Mr. Chairman, given that the Company moves more than 45,000 rail cars per 

year, converting this haulage to truck would put nearly 180,000 extra trucks 

on the road every year! 

THE STB’S FAILURE TO PROTECT SHIPPERS AND PROVIDE LOW COST, UNBIASED ACCESS

TO PURSUE CLAIMS IS A DETERRENT TO SHIPPERS AND FURTHER EMBOLDENS THE

RAILROADS TO EXERT THEIR MONOPOLY POWER

As evidenced by the examples above, Holcim lives with the grim reality that there 

is little or no recourse when it can neither obtain favorable rates nor service from 

the Class I railroads. The STB has done little since it was formed to protect shippers from the increasingly consolidated rail industry, with almost impenetrable barriers to entry and few, if any options available. 

The impediments to moving through the system created by the STB are evidenced 

by the fact that HolRail has been trying since 2004 to establish a short line; when 

a decision was finally issued earlier this year, the STB ordered HolRail to pursue 

an ecologically and environmentally inefficient option, at nearly twice the cost. In 

addition, to date, legal and consulting fees are in excess of $600,000. 

29 

1Statement of Congressman Wise, Ranking Member, Hearing on STB Reauthorization, March 

12, 1998, U.S. House of Representatives, Subcommittee on Railroads, Committee on Transportation and Infrastructure. 

Holcim has no recourse regarding rates since cement (officially ‘‘hydraulic cement’’) is classified as an exempt product from rate regulation by the STB. Since 

the STB has done little to address service issues, Holcim believes Congress should 

expand the STB’s authority to promote transparency around rail service. Congress 

should also require the STB to submit an annual report regarding rail service complaints and describe the procedures the STB took to resolve them. Further, either 

party should be allowed to submit a dispute over rail service to the STB for ‘‘final 

offer’’ arbitration. 

At present, the Surface Transportation Board does not fulfill its mandate ‘‘to respond to the demands of maintaining a healthy and competitive . . . national transportation infrastructure. . . . [T]he STB [is] charged with ensuring that the nation 

maintains a strong railroad infrastructure that serves passengers and shippers 

well.’’ 1 The STB has not fostered competition and improved service during its tenure and has not responded well to the needs of shippers. 

CONCLUSION

As a shipper of a strategic building material, Holcim needs a vibrant and profitable rail industry to support the nation’s economic growth. Holcim must have access 

to a competitive rail transportation system, to ensure timely and efficient delivery 

of cement to those who build our nation’s critical infrastructure. It simply requires 

the rail industry to re-invest to grow and stay competitive, like its customers. Congress must level the playing field following decades of consolidation and growth of 

monopoly power in the rail industry. 

During the last decade, Holcim has invested over $1 billion to upgrade its capacity 

and better serve its customers while improving its environmental performance. 

Holcim is investing an additional $1 billion in Ste. Genevieve, Missouri, on the Mississippi River, to ensure cost effective, environmentally friendly and reliable transport of cement, in part based on concerns that the railroads will not have the capacity or service levels necessary to serve customer needs in the years to come. We believe that the railroads must also re-invest; however, that investment need not be 

conditioned on receiving a mandate to continue with monopolistic practices. 

What is currently being proposed in H.R. 1650, under your leadership, Mr. Chairman and that of your Committee, has many key proposals that would help captive 

shippers like Holcim, for example: 1. removing the antitrust exemption under the 

Nation’s antitrust laws; 2. allowing Federal Courts to assert jurisdiction in actions 

against common carriers and, 3. extending treble damages to carriers. Indeed, Mr. 

Chairman, we would not advocate for reform that would deter growth of our critical 

rail infrastructure. What we believe is that stronger competition creates incentives 

to become efficient operators with a strong customer focus—much like the incentives 

of the free market economy that drive efficiencies and competitive investment by 

Shippers. Competition, not monopoly power, is essential to fuel the railroads’ and 

Shippers’ growth. Continued monopoly power is by definition anti-competitive and 

will yield no growth. Every business must and does invest in renewing its infrastructure in order to remain competitive and railroads should be no exception. 

I believe that Congress must especially consider provisions that promote rate competition and provide greater oversight on rail service related issues. 

I sincerely thank you, Mr. Chairman, and Members of the Committee for your 

time and I again appreciate this opportunity to speak about issues vital to our national infrastructure and future growth. 

Mr. CONYERS. We turn now to the director of utilities for the Lafayette Utility System in Louisiana and the chairman of the American Public Power Association. We have Mr. Huval, with a very important background, a little bit different from anyone else that is 

a witness. But Mr. Terry Huval, your experience and engineering 

background, your work over the years in Louisiana, and your particular experiences make us very pleased that you are before us 

today. 

We are going to put your testimony in the record and invite you 

to talk with us at this time. 

30 

TESTIMONY OF TERRY HUVAL, DIRECTOR OF UTILITIES, 

LAFAYETTE UTILITIES SYSTEM, LAFAYETTE, LA 

Mr. HUVAL. Thank you, Mr. Chairman, and thank you to the 

Members of the Committee here this afternoon. My name is Terry 

Huval, I am from Lafayette, Louisiana, the heart of Cajun country. 

We speak more French than we speak English sometimes. In case 

I just jump into French, stop me and I will go ahead and get back 

to the English part of the story. 

I am serving at the pleasure of the APPA as the chairman of the 

board this year. I have been in the utility business all my working 

career since I graduated in electrical engineering from college. I am 

also representing the Consumers United for Rail Equity, which is 

representing a large number of captive shippers not only in the 

utility business, but also in the grain, petrochemical, and many 

other areas. 

My message to you today is to speak of the STB and how they 

have conducted their business, especially since I noted that the rail 

providers have indicated that the antitrust issues that we are trying to address by this bill 1650 are actually being overseen by the 

STB. I will share with you some stories about Lafayette. 

We have a coal plant that we co-own that is located about 90 

miles north of us. To get coal to that particular plant is a 1,500- 

mile trek from Wyoming to Louisiana. Of that 1,500 miles, we have 

a competitive rail solution for all but 20 miles. So only the last 20 

miles is only served by one rail provider. 

The STB, in their assessment of how they should be overseeing 

the railroads, takes the position that unless we have two rail providers, or these two rail providers, that come all the way from the 

beginning, from the source point, to the destination, that the company serving us cannot be forced to open up part of their line for 

competition. So what that means is of the 1,500 miles of train track 

coming to Lafayette, of which 1,480 miles we have a competitive 

option, we are forced under a monopoly rate structure for the entire 1,500 miles. That is, to us, not reasonable, and I think anyone 

who would be looking at these issues from an antitrust perspective 

would have to question why that takes place. 

Unfortunately, as time has gone on in this business, we have 

noted even when there are alternate rail providers, that because to 

ship coal requires rail, unless you have a river close by, requires 

rail, you are not seeing much meaningful competition between the 

rail providers. That is unfortunate, and it has an impact on our 

customers. In our particular case, when we provide electric service 

to our customers, our total cost of providing service is what we 

charge the customers. If we are being overcharged by the rail companies, then 100 percent of that overcharge goes to our customers. 

In the case of the city of Lafayette, based on experts that we 

have got, we have consulted with, they have indicated to us that 

we are probably spending about $15 million a year or more than 

we should to serve our 120,000 customers in Lafayette. Bringing 

that to something more manageable, if we look at the entire education system in Lafayette, whether it is the university or the technical college or the community college or public schools or private 

schools, that is almost 10 percent of our total electrical usage. So 

31 

that means that those schools are paying about $1.5 million a year 

extra for electricity because of this circumstance. 

It is my suggestion that I think those schools could find a better 

way to use that $1.5 million, and all the rest of our customers also. 

You know, $15 million each year comes up to a lot of money. Those 

are the dollars that our customers and the customers of most electric utility companies are being forced to pay. 

The last point I wanted to bring up to you has to do with the 

whole notion that we should have a major industry like this that 

is not subject to all of the antitrust requirements that other companies are. I have read some of the testimony from the rail companies, and I don’t understand how every other business in this country can operate and be under those types of antitrust requirements, 

but yet the rail companies feel that they should not be. I believe 

that if the jurisdiction of dealing with antitrust issues was moved 

away from the Surface Transportation Board, there would be a 

much more level playing field for the captive customers, and still 

at the same time recognizing the need of the railroads to continue 

to operate. 

With that, I have reached the end of my comments. I thank you 

for your attention. 

Mr. CONYERS. Thank you so much for your testimony. 

[The prepared statement of Mr. Huval follows:] 

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PREPARED STATEMENT OF TERRY HUVAL


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Mr. CONYERS. We now move to Attorney Paul Moates, who has 

had an extensive career in the transportation law. As a matter of 

fact, he heads up that part of his firm’s operation. He has been a 

representative on the National Arbitration Panel, which hears disputes between freight, railroads and Amtrak. He has served as a 

member in the United States Army, and was assigned to the White 

House Communications Agency, and has written extensively with 

the law symposiums. He is on the Public Utility Section of the 

American Bar Association. 

So we think that your perspective will be very helpful. Welcome 

to the Committee. We have your prepared statement. 

TESTIMONY OF G. PAUL MOATES, SIDLEY AUSTIN, LLP, ON 

BEHALF OF THE ASSOCIATION OF AMERICAN RAILROADS 

Mr. MOATES. Thank you very much, Mr. Chairman, for those 

kind remarks. I appreciate it. It does put in mind of how many 

years I have been doing this, but I think I have a few more left, 

and I welcome the opportunity to appear here today. 

I appreciate this opportunity to appear here today on behalf of 

the Association of American Railroads, which is, I am sure you are 

aware, the national trade association, really, the North America 

trade association, of railroads. 

Just to clarify one thing that Congresswoman Baldwin mentioned before I get to my prepared remarks, she is correct, there 

are four major U.S. carriers we are all pretty much familiar with 

after the large consolidations, those, of course, being the Union Pacific, the Burlington Northern-Sante Fe, in the East Norfolk Southern, and CSX. However, there are several other important large 

railroads, and they are members of the AAR. In fact, two of them 

operate in Congresswoman Baldwin’s State, referring to the Canadian Pacific system, which includes the former Soo Line Railroad, 

and in the East, the Delaware and Hudson, and the Canadian National system, which includes indeed the Illinois Central and the 

former Wisconsin Central Railroad. Of course, there is also the 

Kansas City Southern Railway that operates essentially in the 

middle of the country. So there are a few more than four large systems. 

Mr. CONYERS. Do you want to put that in the record? 

Mr. MOATES. I would be happy to do that. 

With all due respect to my co-panelists, we believe this legislation is a solution looking for a problem. In developing what we 

think is a needless solution, it would subject railroads to an unwarranted dual system of regulation. We would submit that the longstanding statutory scheme should be altered only if there is an 

identified problem, and only if the proposed legislation would be effective remedying the perceived problem. Again, with respect, we 

do not believe either condition exists with respect to this legislation. 

I think the two panelists to my left both who have spoken ahead 

of me had fairly critical things to say about the Surface Transportation Board. Obviously, the elimination or the major reform and 

the responsibilities and jurisdiction of that Board, as I understand 

it, is not part of this legislation, is really not before us here today. 

56 

I think the legislation that is before us is based on a number of 

faulty premises. The first is, and this gets repeated a lot, the railroads enjoy broad antitrust immunities. Mr. Chairman, that is simply not true. Railroads are generally subject to the antitrust laws, 

and the immunities that we do enjoy are limited in scope and also 

subject to regulatory oversight by the STB. Specifically, the antitrust laws prohibit anticompetitive agreements among railroads to 

collude in the setting of rates, to collude in allocation of markets, 

or in otherwise unreasonably restraining trade. We can’t do that. 

If we do, we are subject to the Sherman Act and the Clayton Act 

and the other antitrust laws that you are very familiar with. 

Railroads continue to be subject to the STB’s regulatory jurisdiction with respect to certain rates and services, the terms of entry 

and exit from the industry, and mergers and other restructurings. 

That is all pursuant to, of course, the guidance of Congress as laid 

out in the Interstate Commerce Commission Termination Act of 

1995. The few statutory antitrust exemptions that remain exist because of the need to avoid dual and potentially conflicting regulation by the courts and the STB. Moreover, and this is an important 

point, those limited exemptions do allow the railroads to work together in a very limited way to efficiently address some of the 

issues created because of our industry’s network characteristics, 

and I will come back to that in a minute. 

The second faulty premise is this legislation would benefit shippers by subjecting railroads to dual-merger jurisdiction. I might say 

the suggestion was made previously that all we are trying to do is 

level the playing field and make railroads subject to the same statutory scheme as other previously regulated industries and other 

freight providers. Again, with respect, that is not true. None of 

those other industries have dual-merger jurisdiction of an agency 

like the STB, which is charged with a very specific statute, 49 

United States Code, sections 11321 to 323, in reviewing and approving, and approving with conditions, if it deems that appropriate, mergers and other consolidations in the railroad industry, 

and at the same time, as this legislation would do, have those 

kinds of transactions subject to the review of the Department of 

Justice and/or the Federal Trade Commission under the antitrust 

statutes. 

Even more troubling to us in some sense is that this bill appears—and I hope I am reading it wrong—the bill appears to allow 

the Justice Department or the Federal Trade Commission retroactively after 180 days to look at and challenge mergers that have 

been previously approved by the ICC or the STB long ago. Hopefully, that isn’t the intent. Hopefully that isn’t what the drafters 

have in mind. But it does appear to be a possibility in the way the 

legislation is written. 

Mr. Chairman, there is no reason to believe that this change in 

the law, that is the merger portion of this statute, this legislation, 

excuse me, 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 any more 

protection, somewhat less perhaps, than the STB standard for 

major rail mergers, which now requires that merger applicants 

demonstrate that their transaction would result in enhancements 

57 

to competition. There must be a demonstration of procompetitive 

benefits, not just neutral. 

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

referred to by Congresswoman Baldwin, the STB and its predecessor, the Interstate Commerce Commission, have consistently 

used their conditioning authority to ensure that as a result of a 

merger, no customer has lost two-railroad service prior to the 

merger. 

Ms. Diehl mentioned her concern about being exclusively served, 

or captive, in her terms, to a railroad in South Carolina, and competitors a short distance away having two-railroad competition. If 

those two railroads were to merge, the STB has the authority and 

typically would impose conditions to preserve that two-railroad 

competition. 

Another of the solutions in H.R. 1650 looking for a problem is 

elimination of the limited exemption the railroads have under section 10706 establishing procedures for handling car hire payments. 

That exemption, although severely limited, nonetheless remains 

important since is fosters coordination on matters that enhance 

network efficiency that we don’t believe are controversial. It is also 

important to recognize that even those rules do not provide for carriers collectively to discuss the setting of car hire rates. Those rates 

are established through bilateral negotiations between the owners 

and users of the equipment, and I want to emphasize again that 

under this exemption, competing railroads do not and have not for 

many years collectively set freight rates of any kind. 

This legislation would not replace the existing STB regulatory regime with antitrust remedies where limited immunities exist. 

Rather, it would superimpose antitrust remedies on top of STB regulation. Moreover, it will not, I submit, provide rail customers with 

any new protections from allegedly high rates because high rates 

alone do not constitute an antitrust violation. 

Finally, we have a major concern about section 2 of the bill, 

which permits private injunctions and 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 rail industry—and I realize some of my copanelists might prefer not to have that body, but as long as it is there, it is imperative 

that the antitrust laws and the national transportation policy be 

implemented in a harmonious fashion. In permitting courts to fashion equitable remedies in individual civil actions and also by discouraging from deferring to the STB’s expertise, as section 4 of this 

bill does, the legislation threatens to disrupt that harmony. 

In summary, we believe the legislation is flawed on several 

counts. It fails to recognize the railroads are subject to antitrust 

scrutiny today where there is no regulatory oversight, so that 

eliminating the industry’s limited exemptions would not fill any 

void in the law. It also fails to recognize the public benefits from 

the existing limited railroad antitrust exceptions. Indeed, it would 

discourage activities that are in the public interest and subject railroads to dual and potentially inconsistent standards in areas that 

are being addressed as effectively, if not more effectively, through 

regulatory oversight. 

Thank you, Mr. Chairman. 

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Mr. CONYERS. Thank you very, very much, Attorney Moates. 

[The prepared statement of Mr. Moates follows:] 

PREPARED STATEMENT OF G. PAUL MOATES


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Mr. CONYERS. We now turn to Professor Darren Bush, California 

State University, and the University of Utah. He has written extensively and lectured about antitrust laws and economics, and received many awards. I am going to include in your introduction a 

list of selected publications which you have contributed over the 

years. 

We welcome you to the hearing. 

TESTIMONY OF DARREN BUSH, PROFESSOR, 

UNIVERSITY OF HOUSTON LAW CENTER 

Mr. BUSH. Thank you, Mr. Chairman and other distinguished 

Members of this Antitrust Task Force. I want to thank you today 

for giving me the opportunity 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. This makes me feel free to discuss the nature and effect of the 

proposed legislation with a certain degree of specificity. 

As an antitrust professor and as an economist, there are certain 

things in the legislation that give me pause, there are certain 

things in this legislation that I think are very productive, and I 

think it is very important to discuss all of those things. 

The first thing I want to start out by asking is: Is there ever a 

reason to keep an antitrust immunity? As I and others have set 

forth in a recent report to the Antitrust Modernization Commission, we believe the burden of establishing the case for any immunity should fall upon the proponents of the immunity who at a minimum should, one, clearly explain why the conduct in the scope of 

the immunity is both prohibited or unduly limited by antitrust liability and is in the public interest; make some estimation as to 

the effects the proposed immunity will have in addition to its intended effect; and, three, demonstrate that the proposed 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 

has certainly led, to serious consumer injury. 

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

Board and its predecessor, the ICC, have rarely met a merger they 

did not like. This isn’t due to incompetence; as stated in my written 

testimony, it is by design. While the goal of a promerger stance is 

increased investor returns and system stability, it is not clear the 

policy has accomplished either. Some recent mergers have created 

service disruptions and spawned shipper complaints, and while the 

STB has revamped its merger policy to some degree, it has 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, nor can we conclude much about what appears to 

an be agreement between the DOJ and the STB with respect to 

many of the mergers approved by the STB. The DOJ, in absence 

of an ability to join a merger, will not dedicate resources to a thorough examination of the transaction. Thus, the DOJ is unlikely to 

77 

have the same type of information available in the context of a railroad merger as it possesses in virtually every other industry, including but not limited to the ability to issue a second request for 

documentary materials, the ability to submit investigative demands 

to third parties for documentary materials, conducting of interviews with relevant third parties, conducting of civil investigative 

demands for oral testimony, and other methods necessary to paint 

a full and complete picture of the nature of competition in the marketplace. 

More troubling than STB’s merger policy is the STB’s view with 

respect to other transactions with clear anticompetitive effect and 

perhaps no procompetitive benefit. This is the case with paper barriers. In many sales of secondary trackage to small regional players 

who wish to interconnect with the seller’s, a major trunk line operator’s, main lines, the seller, in exchange for interconnection, often 

demanded that the regional player only interchange its traffic from 

the divested line to the seller, foreclosing any opportunity for the 

buyer to interchange with operators. These paper barrier restraints 

were often permanent. The ICC and the STB historically approved 

such restraints. Those would certainly change if they were subject 

to antitrust review by the DOJ, as they would typically be somewhat per se illegal since they have no terminating time period. 

There are some issues with respect to rates, however. There was 

mention earlier that much of what the railroads do is subject to 

antitrust attack. However, it is not the nature of what is addressed 

in the statute as sort of the umbrella that goes beyond the statute. 

In other words, where there is not a statutory exception, there is 

still pause in the courts to address any sort of antitrust issue when 

there is some realm of perhaps immunity. 

This is certainly the case where the STB has sought to move certain rates or other activities away from regulation and into the 

marketplace, because the STB often has the option of reregulating 

that conduct. And courts, where potentially challenged conduct 

could be rendered moot upon reregulation, are not likely to render 

any judgment. In other words, the fact that the STB could, in fact, 

render the issue moot would not cause judges to allow antitrust 

suits to continue. The only remedy for this potentially judicial hesitation for this conduct is to clearly define what is within the STB’s 

realm and what is not. 

One other point I want to make, I know I am testing your time 

limitations, is there are certain other aspects of immunity that the 

legislation does not address. There is a notion of what is called immunity by proxy. If you read the Supreme Court’s recent Verizon 

Communication v. Trinko decision, Justice Scalia laments in part 

for the decision that where a regulatory body exists, the benefits 

of the antitrust enforcement will tend to be small. This sentiment 

was also carried forth in the Supreme Court’s recent Credit Suisse 

Securities v. Billing decision. 

Now, the question becomes if there is a repeal of the express 

antitrust immunity, will the courts find an implied immunity merely because there is regulatory conduct at issue? In other words, 

merely removing the antitrust immunity will not necessarily remove all immunity. This is also true of primary jurisdiction. The 

legislation in it has a provision that dictates that the courts do not 

78 

have to defer to the primary jurisdiction of the agency, but the primary jurisdiction issue is one of discretion for the courts, and there 

is a question as to whether the primary jurisdiction provision will 

actually eliminate primary jurisdiction. 

The third thing that I have that is an issue with the legislation 

is the filed rate doctrine. Now, if you followed the electricity cases 

that have come out of the ninth circuit and now the tenth circuit, 

even where the regulatory agency has not expressly authorized a 

rate, but merely where the rates are subject to just submission ex 

post, market prices submitted ex post to a regulatory agency, the 

courts have found those to be filed rates, and therefore they are immune from private plaintiff antitrust attack. So merely having a 

repeal of the express antitrust immunity, I think, is insufficient to 

deal with some of those issues that are still plaguing us within the 

courts with respect to deregulated industries. 

I look forward to entertaining questions as to these issues. 

Thank you very much for your time. 

[The prepared statement of Mr. Bush follows:] 

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PREPARED STATEMENT OF DARREN BUSH


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Mr. CONYERS. Thank you, Professor Bush. 

There’s been a point rasied about whether we have an answer 

that is in search of a problem. I’m going to ask anyone to respond 

to any parts of these questions. Do railroads really have that much 

immunity in the first place? Is there any reason to keep antitrust 

immunity? 

Opponents of this bill claim concurrent jurisdiction is unnecessary; that not only is insufficient oversight provided by STB, but 

STB uses a tougher standard than DOJ. And then there was the 

last question that you raised about the imperfection of the legislation, Professor Bush. 

What have you been thinking about all of this, Ms. Diehl, since 

you started it off? 

Ms. DIEHL. Thank you, Mr. Chairman. What I’ve been thinking 

is, my goodness, of course, they don’t want their antitrust exemption lifted. Why would they? Because they’re able to maintain two 

duopolies in this country. So really there is no question about fixing prices when you are a monopoly by the very nature of what you 

do in business. You have the power to set prices. And so what we 

find to be very challenging as a private shipper is that we have to 

be super competitive. And when we go in for merger analysis, the 

DOJ is looking at, are you going from six to five. Here we’re going 

from two to one, and there is no recourse. And the railroads own 

their own highways. So even when people like us go to try and be 

part of the solution and build our own rail, we are thwarted, and 

it costs us hundreds of thousands of dollars and potentially leads 

us to having to go and build across a wetland because we haven’t 

gotten anyone to concur with our position that we should be able 

to co-exist on the railroad’s property. 

So, for me, I look at it, and I think absolutely the right thing to 

do is to make sure that all of us are playing by the same set of 

rules that are going to promote true efficiency and competition that 

help the consumers. 

Mr. CONYERS. Thank you very much. Director of utilities for Lafayette, what are your impressions? How have you been moved by 

what you’ve heard here today? 

Mr. HUVAL. I don’t think it takes too much digging into it to see 

that there is some anti-competitive behavior being taken by the 

railroads. And that is—that is the kind of issues we need to deal 

with. To suggest that the Surface Transportation Board is really 

overseeing that, when you look at the various examples on how 

railroads can take advantage of captive customers, there is no regulator that I’m aware of that would allow that sort of thing to take 

place without putting some limits on that. The comment raised 

about the railroads have a network, and so, therefore, they need to 

have this exemption from antitrust in order to be able to incorporate with each other, to build—to work out their networks, we 

in the electrical utility industry have networks that are subject to 

regulation by the Federal Interregulatory Commission, by State 

public service commissions. We have to engage in those kinds of 

discussions also. It doesn’t require us to have some type of exemption from antitrust. I think just the concept of a solution looking 

for a problem is just a spin job, and it really has no merit in what 

the issue is here. And the issue is clearly that the STB has taken 

100 

its role as being the overseer of antitrust in a way—to protect antitrust in a way that is favorable to the railroads and not favorable 

to the people of this country. 

Mr. CONYERS. Thank you very much. Professor Darren Bush. 

Mr. BUSH. I was thinking, while listening to my colleagues on 

the panel, that there are certain types of conduct that the antitrust 

laws can prevent, and there are certain types of conduct that regulators can prevent. And those two are often compliments to—substitutes for one another. Mr. Moates had mentioned, for example, 

in the anti-trust laws, as currently applied to the railroad, industry 

suggest that they cannot collude in prices or rates, which is perfectly fine except that the antitrust exemption has allowed them to 

gain monopoly power. And if I have monopoly power, I don’t have 

to collude with anyone because in fact I am a monopoly. Certain 

other types of regulation can run at loggerheads with antitrust as 

well. For example, the fact that I’m subject—that railroads are subject to STB regulation can certainly create problems for antitrust 

plaintiffs both in the sense of judges who are unwilling to step 

upon an agency’s turf where that turf is not clearly defined in 

terms of filed rate doctrine, in terms of primary jurisdiction, in 

terms of implied immunity. So there are clearly some inabilities for 

any sort of remedy apart from going to the STB. And it doesn’t 

seem clear to me that the STB has been effective in promoting 

competition, nor was it designed to. The STB was not designed to 

promote competition. The STB was designed—and ICC prior to 

that to consolidate the railroads. In fact, that was its legislative, 

essentially, mandate, was to consolidate the railroads in the wake 

of shortages during World War II. So when you have a mandate 

that suggests to you consolidation, that runs antithetical to the 

antitrust laws certainly. In other industries, you do not have this 

type of—this need for consolidation. In the electric utility industry, 

we certainly have some degree of competition, as you pointed out. 

There is no need for interlocutory directorates, there is no need for 

an antitrust exemption. In fact, the electric utilities are subject to 

concurrent jurisdiction with FERC and the Department of Justice, 

and State and public utility commissions. It may drive them a little 

crazy, but in fact, it has proven to be an effective check on the competitive process. So if you ask me whether or not there is a problem, it seems to me that just by looking at the legislative mandate 

of the Surface Transportation Board, there is a problem. Certainly 

the testimony here today suggested there is a problem, and the 

antitrust laws can help resolve some of those problems. 

Mr. CONYERS. Thank you very much. 

Counselor, Mr. Moates. 

Mr. MOATES. Thank you, Mr. Chairman. I think my colleagues 

here and friends have given me one or two things I need to respond 

to. The first thing I’d like to do is ask us all to take three or four 

or five metaphorical steps back and pause and think about where 

we are and how we got to where we are with the actually very efficient and pared down large rail systems that we have today that 

we’ve talked about. The Congressman in his opening remarks made 

reference to the fact that it wasn’t that many years ago that we 

had a real problem with the railroad industry in this country. It 

101 

was overbuilt. It was underfunded, and it was undercapitalized, 

and there were a lot of bankruptcies. 

Congress did indeed—I agree with Professor Bush on this—very 

clearly first in the Railroad Revitalization and Regulatory Reform 

Act of 1976, the 4R Act, and then in the Staggers Rail Act of 1980 

address a lot of the ills that the railroad industry had faced, including over-regulation by the Interstate Commerce Commission and 

its rates, including the fact that it had way too much capacity, and 

it took way too long to rationalize the plant by abandoning and 

selling lies. 

We’ve come a long way, I’m very happy to say, and most of this 

has been during my career. And it has been an interesting thing 

to be part of and to observe. But where we are today is with a very 

large efficient railroad system. What we do lose sight of is, this 

country’s freight rail system is frankly the unparalleled best 

freight-rail system in the world. We hear that all the time from 

people around the world. And it’s a system that the taxpayers don’t 

pay for. It is a system that the railroads pay for. And they have 

to pay a lot for it. And another reference is made by the Congressman in his opening remarks to the capacity and the infrastructure 

concerns that we all share about all this Nation’s infrastructure. 

But from our perspective, the railroad industry infrastructure, 

which indeed is at unparalleled strains because of the capacity and 

the very near-capacity situation it faces in most major corridors; 

railroading is an expensive business. We have to earn a lot of capital to be able to reinvest in our business and to attract scarce investment dollars to the industry. We are regulated to a significant 

degree in how we do that. The STB does regulate rates. I represent 

railroads in rate cases right now. The STB has in the last couple 

of years reformed the way that it calculates the industry’s cost of 

capital. I work with the AAR on that matter. The STB has issued 

a decision, that has not been mentioned here and was not mentioned in your staff’s paper, just in the last few months about this 

paper barriers issue, which again is one that on its face appears 

easy to target; look what the railroads did, they sold their branch 

lines to startup railroads, to regional railroads, and they put these 

gimmicks in there to make sure that they got all the traffic. Well, 

of course they did, Mr. Chairman. Because of the gimmick, that is 

the requirement that the new short line railroads, formerly part of 

the big railroad, didn’t funnel the traffic that did come off of that 

line to the big railroad, it wouldn’t make any sense for the big railroad to have done the transaction. It would have been better off, 

all things being equal, to have just abandoned the line or done 

something else with it. We’re all glad it didn’t happen. We’re glad 

that there aren’t a lot more rights of way in this country with 40- 

foot trees in the middle of them as opposed to a very robust regional and short line railroad industry that partners with the big 

railroads. 

I don’t mean to get on my high horse here, but there are one or 

two other things that I just wanted to address that were mentioned 

by the other witnesses. Ms. Diehl has mentioned several times this 

proceeding that she and her company went through at Holly Hills, 

South Carolina—to serve their Holly Hills, South Carolina, facility 

to build, she says, their own railroad. What they wanted to build 

102 

was a 2.3 mile line coming out of their property that is presently 

served by the CSX Transportation, a very large class one railroad 

to build to a line 2 miles away from the Norfolk Southern Railroad 

so they would get access to a second railroad. But their proposal 

was to build on the right of way of CSX. You guys are there. Sure 

it is your property. But there is enough room for all of us. And they 

filed an application with the STB to do that and at the same time 

an application for authority to cross CSX’s line. And there is a provision in the commerce act that allows for that crossing under very 

specified, carefully controlled circumstances, not the least of which 

is you’re not going to unduly burden the operation of the other railroad. 

After a full proceeding, full adjudication, the STB ruled against 

them and said that their application did not meet the standards of 

such a crossing. I think she said—and we can check the record— 

she referred to that as the STB rubber stamping of what the railroad wanted. 

Last Friday, a nondivided, unanimous panel of the United States 

Circuit Court of Appeals for the District of Columbia Circuit affirmed the STB decision, and I don’t think anybody—and I’m sure 

not even Ms. Diehl—would suggest the D.C. Circuit was rubber 

stamping anything. They took a hard look at it and concluded that 

the agency’s decision was absolutely appropriate and consistent 

with the statute. 

One last point if I may. Professor Bush said that—and he has a 

point here, but I fear he overstates it a bit. He said the Department of Justice will not devote resources to railroad mergers while 

the STB has exclusive jurisdiction. It is another way of saying, you 

know, we’re the Justice Department; if we can’t control things and 

play them by our rules, we’re not going to play. Again, with all due 

respect, I know from personal experience it isn’t true. The Department of Justice, again, pursuant to the Commerce Act, is a statutory—let me be more clear. The Attorney General of the United 

States and the Secretary of Transportation are statutory parties to 

all railroad merger cases. Their Departments participate. And in 

my experience, the Justice Department usually participates in a 

vigorous and very meaningful way. 

I told this story—we had a hearing on this bill on the Senate 

side, and I’m embarrassed to have to do it again. But one of the 

not so great moments of my legal career was in the 1980’s when 

I was one of the lawyers representing the proposal, the proponents 

of the merger of the Santa Fe Railway with the Southern Pacific 

Railway. And the Interstate Commerce Commission, at the urging 

of the Department of Justice and after 2 years of hearings, turned 

that merger down. It didn’t happen. It was rejected as being anticompetitive. It would violate the antitrust laws. I think we all 

know that subsequently the Santa Fe Railway merged with the 

Burlington Northern Railroad, and the Southern Pacific Railroad 

later merged with the Union Pacific Railroad. So those railroads 

are somewhere else today if you will. They are part of a bigger system, but not the system that was proposed. And—— 

Mr. CONYERS. Darrell Issa, can you throw a little light on this 

discussion, please? 

103 

Mr. ISSA. I think that the Chairman just said that your time is 

up. He will do the same to me in due course. Look, I want to take 

a line of questioning because I think we have two things before us. 

We have Ms. Baldwin’s legislation, which I have no doubt will depart this Committee after many, many opportunities to amend and 

to view it in light of the details you’ve brought up. So I’m not going 

to go back down that same line, although it was an interesting line. 

Let me go through just a couple of sort of businessmen questions. 

Ms. Diehl, I’ll start with you. You make cement. You know, after 

unbottled water, I don’t know of anything that is more of a commodity than cement. I said unbottled, because clearly bottled water 

you could afford to airfreight. Why aren’t you operating at a seaport? Why is it you depend on rail, which is four times more expensive than water since you’re in Michigan, and there is a body of 

water there? 

Ms. DIEHL. That is a great question because—I mean—and some 

of our competitors, in fact, in Michigan, do operate on the water. 

Well, what we have to do, though, is—we are burning millions and 

millions of tons of raw materials every year. And so we locate our 

plants right at the site of our quarries, which make us very driven 

to places where we have good limestone quarries and reserves. Our 

parent company happened to find Dundee, Michigan, as the place 

in the U.S., but we have three or four of our facilities—I think 

maybe even five now that are on the water. But most of them— 

if we’re going to get to people in Utah or the State of Colorado, unfortunately, there is not a lot of water there. And so we do have 

to move by rail. And not only Holcim, but over 50 percent of our 

industry moves their product by rail. 

Mr. ISSA. And my reason for my question was, if you had water, 

a deep body of water at your front door, you wouldn’t even be asking rail to bid on the job, would you? 

Ms. DIEHL. Well, we believe that the water facet of the business 

certainly makes us more environmentally responsible. It is lower 

cost. It doesn’t have the congestion. And our recent billion dollar 

plus investment is on the Mississippi River and—— 

Mr. ISSA. And I bring that point up because whether it is trucks 

or trains or other forms of transportation, ultimately this Committee should not be making those business decisions for you. And 

I ask that I think because that is one of my concerns, is that rail 

is cheaper than truck, and ships are cheaper per ton mile than rail. 

And some of those decisions we can’t change even from the dais of 

this great Committee, although the Chairman I’m sure will try 

some day. 

Mr. Huval, you oversee a regulated utility; is that right? 

Mr. BUSH. That’s correct. 

Mr. ISSA. And what are the profits of that regulated utility, and 

how does it compare in the delivery of electricity based on its cost 

base and return to its stockholders versus the average rail company? 

Mr. HUVAL. Well, we are a regulated utility by our city council. 

We are owned by the citizens of the City of Lafayette. So whatever 

dollars we make on providing electric service goes back to reinvesting into the system. 

Mr. ISSA. So if you’re inefficient, the taxpayers just pay more? 

104 

Mr. HUVAL. If we’re inefficient, the taxpayers either pay more or 

they would decide they don’t want us to provide the service to them 

and decide for some other company to provide the service. 

Mr. ISSA. Have you bid against private utilities and other utilities to just shut down your operation the way the City of Cleveland 

did and just run the power in through your power lines and not 

produce it? In other words—— 

Mr. HUVAL. Yes, we have looked at the cost of trying to buy 

power from others and have found that generally we could provide 

more reliable power at a lower cost by generating it ourselves. 

Mr. ISSA. Okay. Because again, you know, the rail company can’t 

make you more competitive than your production facilities are. Mr. 

Bush, Professor Bush, a hypothetical question. If we modify this 

act to eliminate the rate system and make rail completely antitrust 

eligible and just got rid of surface transportation, would that meet 

your requirement or do you want the Surface Transportation Board 

to do a better job, and oh, by the way, you want these other entities 

to have access to a piece of the backside of rail? I’m not trying to 

lead you, but I am trying to ask if we’re going to make rail, and 

maybe we will, less exempt or not exempt, why should we regulate 

them if, in fact, sans antitrust, they’re entitled to whatever the 

market will bear? 

Mr. BUSH. I’m thankful you raised that point, and I was going 

to object to the question as being leading. 

Mr. ISSA. I would, too. 

Mr. BUSH. I’m not in a position intellectually to determine 

whether or not the STB should exist. I am in a position intellectually to determine what are the effects of STB’s existence on antitrust cases. And if you, in your hypothetical, remove the STB from 

existence, I would say that the initial effect is you already have 

monopoly power in existence because of the STB’s actions. But for 

a challenge under the merger laws that have no statute of limitations really to undo those mergers which you can’t really practically undo anyway, they are already a monopoly in many areas, 

and you can’t—and the antitrust laws do not bring—take offense 

at monopolies. They take offense at monopolization. So I can charge 

as high a price if I want to if I’m a monopoly. So the removal of 

STB does not actually counteract a monopoly. It does however 

counteract three basic issues. If you remove the STB to three 

issues that would immediately be challengeable are the paper barriers, interlocking directorates and, as we’ve just talked about, the 

mergers that have taken place. Those are the three issues where 

you see the greatest tension there. And as Mr. Moates has discussed earlier, while—while the DOJ is certainly involved in the 

merger review before the STB, let’s not make any mistake about 

this—this is an agency I used to work for, and in fact, I used to 

work for the Transportation, Energy and Agriculture section which 

used to do all the merger stuff for the Antitrust Division. And I will 

assure you that when you have a whole bunch of active mergers 

where we can actually bring a case, you would certainly not see a 

lot of resources wasted of trying to plea with the STB about challenging a merger, particularly when we don’t have all—— 

Mr. ISSA. I got that point. Mr. Moates, lest you think that I’m 

just going to pick on the three of them and give you a pass, I’ve 

105 

given you a lot of fodder here, and I’ll give you a fair chance to 

maybe disagree with some of the positions. But let me look at it 

another way. I’ve done a little bit of the research, and regulated 

public utilities are doing pretty well, like electric companies, for example, relative to the rail. The rail is not competing effectively for, 

if you will, the first dollar of venture capital. So I have one question which is, if it is a monopoly, where is the money going? But 

I have a second one, and I’m going to—this is the only question exclusively for you in addition to responding. Ms. Diehl had an interesting point when trying to create a competition, even if it was on 

CSX’s lines. And that was for 21⁄2 miles, why am I a single source, 

why is it I can’t essentially get some sort of relief on a deminutus 

cost; 21⁄2 miles is not what rail—you know, you take the highest 

rail rate you can think of for 21⁄2 miles. It is not going to make the 

difference of having real competition beyond. So I can understand 

what their company tried to achieve. I can understand why any rail 

company would try to not give away their right of way for purposes 

of being in a competitive situation and perhaps making less money. 

I’ve been in that position in consumer electronics. It is a little different than Mr. Cannon. But very clearly I have a sensitivity to it. 

But this committee has this piece of legislation in front of it—or 

this Task Force has this piece of legislation, and the full committee 

will have legislation in front of it. But it also has the bigger issue 

of, in fact, is there a better way to deregulate rail. And my question 

to you is, if the CSX-type situation, if the Congress were to say 

that the right of ways belong to the American people because of 

their historic right and like the airways—airwaves and the airways 

that the radio frequency people operate in and the airlines operate 

in, we’ll recognize that you have certain preferred rights but not 

exclusive right to landing rights or a particular frequency and so 

on. If Congress in order to see that there not be excess or windfall 

profits, if we can’t do it through a regulatory scheme, what would 

you say to the fact that that 21⁄2 miles from the dais appeared to 

be an unreasonable barrier to what would otherwise be ordinary 

competition? Not on behalf of a company that didn’t want to have 

it happen, but from the dais, why shouldn’t we have modified the 

law to say that the short distance—and I think it was Congresswoman Baldwin that also talked about—oh, no. Actually, it was 

you, Mr. Huval. They talked about 1,500 miles versus 20 miles. 

Why shouldn’t we look at those short distances, relative to the 

whole amount, and make sure that they not dictate the overall 

price in opposition to what would otherwise be a competitive environment that would provide a lower price? So that is the question 

for you. The others you can answer, but that one does from the dais 

look like it flies in the face of fair competition. 

Mr. MOATES. I’ll settle for just that one. 

Mr. ISSA. Wise move. 

Mr. MOATES. That’s a very good question and a difficult one in 

many ways. But I would start by saying—and I don’t want to be 

argumentative—but unlike the airwaves, this is our property. We 

built those railroads. We have deeds. That is our track. That is our 

ballast. It is our billions of dollars of investment. I’m not sure what 

you mean, Congressman. If you mean—— 

106 

Mr. ISSA. No, the history of right of ways and how they were 

gleaned by your forefathers’ forefathers is one in which we’re not 

granting such deals again, that many, many, many right of ways— 

and for that matter, it is true of all public utilities, not that you’re 

a public utility. But I can’t get two transmission lines to my house. 

I can’t get two cables to my house. I can’t get two telephone lines 

to my house because, although I have these three wires and they 

might be able to compete, the truth is each of them was granted 

a monopoly. And so this Committee and the Congress for years in 

other areas, such as telecommunications and so on, has tended to 

say that the access to these roads, these access—should not be unreasonably the exclusive right of somebody who has been given an 

exclusive right meaning it is understandable—nobody should get a 

right to your right of way without a fair return. But at the other 

end, we didn’t grant an exclusive right to that. You don’t have the 

right to exclude, if you will. And part of it is how you got the right 

of ways, no different than other utilities did in various communities. That’s what I was getting to. 

Mr. MOATES. Well, with all due respect, I think in many cases 

it was and is different. The—we’re all thinking probably about the 

Pacific Railroad Act of Abraham Lincoln and how the Union Pacific 

and the Central Pacific were built and the land grants out west. 

And that has all been looked at very caefully by the way. In fact, 

I believe—I could stand to be corrected on this. I think the General 

Accounting Office did an analysis of rail rates within the last 10 

years that included a look at the issue of how much of the return 

that the railroads are getting were attributable to land grants and 

how they got their right of ways. And my recollection is, they concluded at this point in time it was gone, whatever had been there 

is gone. The railroads, if you will, have rebuilt their systems many 

times, over, just—and in some parts of this country, we rebuild 

them every 3 or 4 or 5 years, like out of the Powder River Basin 

in Wyoming where there is such heavy, dense traffic. So my first 

concern would be—I would have to take a little issue with your 

premise, that it is not in my view analogous to the airwaves. It is 

our private property. If we’re talking about a public taking for 

some public purpose, I recognize there are legal doctrines for that. 

But I would urge you not to think about going down that way. I 

would come back to Ms. Diehl’s concerns and ask about a couple 

of things. Number one, surely when Holcim built that facility in 

Holly Hill—and I don’t know the facts at all—but it had to be 

aware that it was building it on one railroad. It made a business 

decision for whatever reason. Number two, if it later concluded the 

business decision was a bad one and the railroad raised the rates— 

as far as I know, it has never filed a rate case at the STB to complain about those rates. And if—and to get a finding that they are 

unreasonably and unlawfully high under the Commerce Act, it has 

the legal ability to do that. Number three, this 2.3 miles here, 20 

miles in the gentleman’s case from Louisiana, part of what they 

refer to is this bottleneck. The STB has promulgated regulations 

for challenging bottleneck rates. The regulations are laid out in 49 

CFR. There is a decision back in the mid ’90’s that says what the 

standards are. They haven’t been invoked. So I really would urge 

107 

the Committee to take a hard look at those kind of issues before 

it concludes that there is no effective possible relief today. 

One answer might be, but we don’t like the way the STB regulates rates. It defines all rates to be reasonable. Well, in a sense, 

I wish that were true because I try rate case, but it isn’t true, number one. And number two, the standards by which the STB judges 

these cases have been to the court of appeals numerous times and 

have been affirmed and have been found to be lawful. So I think 

what we’re hearing here is a much greater broader concern about 

the STB and the way it administers the Commerce Act as opposed 

to specific concerns about the antitrust exemptions. 

Mr. CONYERS. Thank you very much. I’d like to ask the distinguished and thoughtful lady from Texas, Sheila Jackson Lee, to ask 

her questions of the witnesses and also sit in the Chair. 

Ms. JACKSON LEE [presiding]. I yield to myself. Thank you very 

much, Mr. Issa. Let me thank the witnesses very much, and I 

thank Ms. Baldwin for her thoughtful legislation as well. And let 

me try to query some of the persons present and acknowledge Professor Bush from the University of Houston Law Center in my congressional district, one of the Nation’s outstanding law schools. And 

we certainly thank you for your thoughtful presentation. I’m going 

to start with Ms. Diehl and see if I can understand your story from 

the perspective of the role that railroads play in impacting your 

bottom line. You are poised or in a posture where you’re not near 

water, so you are using rail lines. And I imagine that these rail 

lines come right up to your property and right—connected to your 

product and you use these rail lines to get your product to market. 

Start me there. What happens that is the result of an unregulated 

or an antitrust exempt railroad system, what happens to your business? 

Ms. DIEHL. Well, let me step back one step and say that we, in 

fact, to Mr. Moates’ point, have had to actually construct our networks around where the railroads exist because we ship 5 million 

or so tons of product just between our plants and our distribution 

facilities around this country. 

Ms. JACKSON LEE. And you ship them by rail? 

Ms. DIEHL. And we ship them by rail. We ship about 10 million 

total but 5 million of that goes by rail. And so when we actually 

make our decision, we cannot really say, awe, we are going to go 

to some new facility and expand. We have to serve our customers 

and our consumers, and we have to make these decisions even 

when we understand that we are captive. And, in fact, we are captive, if you were to look at our origin and destination pairs, in 

nearly 98 percent of our facilities, so it is a false choice that Mr. 

Moates presents that somehow we can go somewhere else. We’re 

bound by the raw materials that we utilize in our process which 

is primarily limestone and—— 

Ms. JACKSON LEE. So you’ve chosen to be near that product, to 

build your factory near that product? 

Ms. DIEHL. That’s correct. 

Ms. JACKSON LEE. And therefore, the rail lines connect—do they 

connect to you, or were the rail lines there first? 

108 

Ms. DIEHL. Some of our facilities go back over 100 years. And so 

we have chosen facilities that are not only by our product, but we 

have had to, to connect—— 

Ms. JACKSON LEE. The rail lines would obviously draw to a place 

that would provide them with business? 

Ms. DIEHL. That’s correct. 

Ms. JACKSON LEE. All right. So take me forward. 

Ms. DIEHL. So in the case that Mr. Moates refers to, the Holly 

Hill case we were talking about in South Carolina—— 

Ms. JACKSON LEE. One of your business—— 

Ms. DIEHL. One of our business entities, a major plant. We just underwent a $250 million expansion of that facility to be able to 

serve the markets in the Carolinas and also in the south. When we 

did that, of course, we did it based on business decisions. But we 

knew from the beginning that there was this secret document that 

we are not aware of called the Carolinas plan that somehow prevented us from being able to access the Norfolk Southern. And hydraulic cement is actually an exempt product, and so we are, you 

know, not under the rate regulation scheme. And when we have 

done this, what we have chosen to do is to really be part of the solution. We’ve chosen to be part of the solution. And in the case— 

yes, Mr. Moates is right, the D.C. Circuit did deny our appeal. But 

in doing so, they didn’t even get to the question of what fair compensation we—— 

Ms. JACKSON LEE. Let me—what I really want to get at—you’re 

captive. You have a rail line that passes by the—98 percent of your 

businesses. What actions are the rail lines taking that interfere 

with your business bottom line? 

Ms. DIEHL. Well, there are a couple of things. First of all, we 

don’t have the access to an alternative. We are really stuck. So in 

normal business dealings, if we don’t like one coal supplier, we can 

go and talk to another one. In normal business dealings, we can go 

and shop to find the best possible rates and service, and we can 

have that leverage. The only leverage that we have relative to the 

railroads is only when there is another mode available. So, for example, in the southern corridor, we do have truck rates, but it is 

not really economical beyond 150 miles. 

Ms. JACKSON LEE. So you can’t negotiate a lower rate with the 

sole provider of the service? That is one. 

Ms. DIEHL. Correct. 

Ms. JACKSON LEE. That one railroad. What else? 

Ms. DIEHL. The second thing is, in terms of getting the bottleneck issue taken care of where they won’t quote the small part of 

the line, where they actually refuse to quote the small part of the 

entire route, that is another area where we could get competition 

where we can’t actually go ahead and do it because of this bottleneck issue. One of the issues that—— 

Ms. JACKSON LEE. Jammed up on the rails, just trains just sitting there? 

Ms. DIEHL. The bottleneck meaning when you have a really long 

route and a very small part of it can’t be served by another railroad 

competitively, the main carrier won’t even quote the rate separately for that small part saying, you know, we’ll only quote for the 

whole rate. And that is an issue where Chairman Nottingham of 

109 

the Surface Transportation Board said it was the most talked 

about issue. 

Ms. JACKSON LEE. So another line cannot interject itself in the 

open area because the rail bids on the whole—the whole line? 

Ms. DIEHL. We can’t get a breakout rate for that small portion 

where we could actually get competition. That’s correct. 

Ms. JACKSON LEE. Anything else? 

Ms. DIEHL. In terms of getting service, generally, we have been 

asked by the railroads to actually invest in their capital. So we at 

Holcim actually own 2,100 railcars where we have taken the burden of investing in capital equipment so that we can be served by 

the railroads. We have to invest in rail cars, and it costs us millions and millions of dollars to do that. 

Ms. JACKSON LEE. With the bill that is before us, what relief 

would you get directly? The same rail line is there, meaning a certain track rather is there. How would you get relief? 

Ms. DIEHL. I would say that it is a good place to start because 

the argument has been made, and I think it is a good one, that the 

railroads own their own highways. So, right now, we’re in this situation where we only have these four class-one railroads moving 90 

percent of the business in this country. So we have to get to a point 

where we can actually allow competition in any way possible 

through debottlenecking, and this bottleneck issue I talked about, 

looking at issues where if there is this agreement that prevents 

someone from, you know—or has these track agreements, that 

somehow we can challenge them in district court and have it be 

open and transparent for the shippers. 

Ms. JACKSON LEE. So the idea of removing the exemption would 

put you in a better posture? Just the idea, just the concept of removing the exemption helps you? 

Ms. DIEHL. I believe that the concept of having that exemption 

lifted puts us all on the field where we have to behave by a certain 

set of rules that are common to us. You can’t be a monopoly and 

unregulated. I mean, they have both. They are both a monopoly, 

and they’re unregulated. And so, because of that, there is no power 

that is really holding them accountable to making sure they are as 

competitive as they can be relative to rates and service. 

Ms. JACKSON LEE. And again, I’m asking—so the removal of the 

exemption would help you? 

Ms. DIEHL. Yes. 

Ms. JACKSON LEE. Mr. Moates, tell me why a provision that allows private plaintiff actions is so detrimental. Two, I noticed there 

are 21 attorneys general that have joined in support of this legislation. I noticed that the State of Texas has not. If you understand 

the landscape there, explain to me why our attorney general, you 

think, is not involved. I do have an experience with the cement 

issue, and to Ms. Diehl, it may be very different from what you are 

speaking of, but my contractors, my builders, a year or two ago 

were incensed about their inability to get cement and the trains 

stuck on the tracks and not moving, and maybe you’ll comment on 

that as to what my dilemma was, and we were just frustrated. 

But I ask Mr. Moates, one, about the private plaintiff action that 

is allowed by this legislation and why that would be, if you will, 

a posture that you’d not like to have us put the railroads in. And 

110 

if you know any more details about the railroad structure in Texas, 

why would you think that the attorney general in Texas has not 

joined or made mention of their support for this particular legislation? Answer the first question first, please. 

Mr. MOATES. I’ll address but I can’t answer it because I don’t 

know the answer to that. I know that Professor Bush is from 

Texas. Possibly he may have insights that I don’t have. 

Ms. JACKSON LEE. He is going to get his chance. 

Mr. MOATES. Yeah. I would answer if I knew. I honestly have no 

idea. 

Ms. JACKSON LEE. That—the plaintiff provision, I assume you 

have some comment on that. 

Mr. MOATES. Yes, and it was part of my prepared remarks. What 

it comes down to—— 

Ms. JACKSON LEE. It is always better to get it in the question. 

Mr. MOATES. Yes, it is. Thank you very much. What it comes 

down to fundamentally is our very grave concern that the reason 

that Congress in its wisdom had prohibited private plaintiff actions 

when it drafted these acts initially still obtains, and that is that 

there is a very real possibility out here that if private injunctive 

actions were permitted as this legislation would allow, that we 

could see a real patchwork, a set of regulations and outcomes. The 

district court judge here decides one thing. The State court judge 

here decides something else. The STB decides a third thing, and it 

is the same railroad running through various judicial districts, 

maybe even different States, and it would have different kinds of, 

if you will, injunctive behavioral mandates applicable to it. You 

know, I’m not going to try to build a giant house of cards, but it 

doesn’t take a lot of imagination, I would submit, to think that a 

judge here or a judge there may conclude that something about the 

local situation—well, I’ll make up a hypothetical. What if a shipper 

brought an injunctive action and convinced a judge somewhere that 

its plant should be served twice a day by that railroad because the 

cement wasn’t getting to people who wanted the cement. I’m just— 

I’m literally making this up. But suppose further that one of the 

reasons for their not serving the plant twice a day was there hadn’t 

been sufficient volume for that, and the railroad had a limited 

number of crews, and it had other shippers that were also demanding service. At the end of the day, railroads are businesses, and 

they make decisions like all businessmen do about the best way to 

serve their customers. They’re not there to anger their customers. 

They are there to provide the best service they can. If sometimes 

that results in someone not getting the service as promptly or in 

the manner that they would immediately like to see, do we want 

judges in private injunctive actions sort of telling the railroad that 

is the way it must be? If you have to go switch my plant twice a 

day, maybe you can only go to that plant down the line or in the 

next county or in the next State once a week. Again, I’m making 

this up. I don’t know of anything—— 

Ms. JACKSON LEE. You’re putting your best argument forward for 

the railroads, and you should be commended, and they should be 

grateful. Let me—as I go to Professor Bush, let me just make this 

one point. The point is that—of course, Mr. Issa made the comment 

that this bill will probably see a number of amending processes 

111 

going forward. I understand there will be a hearing or a markup 

or it is moving toward Committee in the Senate. And I would argue 

that there are probably opportunities to put provisions in the bill 

that provide some guidance to the courts, some consistency through 

policies or language from the SBT because most Federal judges 

have the sense, if you will, of the catastrophic impact of their decisions, particularly as it relates to Congress. And so we might help 

them along with language that gives them structure to their decisions. We wouldn’t want an injunction so deeply embedded and so 

long lasting that the entire commerce as handled by railroads 

would be shut down. That wouldn’t be advantageous to us as well. 

So I would offer to say that we have some work on that. You raise 

a valid point, that we have some work to do on it. But I would 

counter and say that the Federal courts might be responsive to the 

fact that they couldn’t shut down commerce either. Let me just go 

to Professor Bush to comment again on how interfering the bill 

would be to commerce. I believe you support the bill. And coming 

out of Texas, have you studied why our attorney general is not engaged or advocating or aware of this bill because we certainly have 

sort of the same situation that Ms. Diehl is talking about, where 

railroads come right up to businesses, tracks come right up to businesses, and they also come right up to neighborhoods. Maybe you 

might comment on the impact this bill would have on people living 

in neighborhoods where railroads are coming right up to their window. In the old days, they appreciated it because they had a house; 

they had no place else to live. Today, I think in my community, 

they are certainly raising concerns as to whether they continuously 

have to be subjected to railroads right outside their backyard. 

Speak to this bill in particular as it relates to Texas, if you have 

any knowledge of that and the last point about the antitrust, the 

provision of plaintiff lawsuits that this bill will provide. 

Mr. BUSH. Thank you. They are both excellent questions. And 

also thank you for plugging the University of Houston Law Center, 

which I concur is an excellent law center. 

Ms. JACKSON LEE. Any time. 

Mr. BUSH. With respect to why Texas is not a signatory to this 

letter, I haven’t the foggiest idea. 

Ms. JACKSON LEE. And you’ll go and look for me if you would. 

Ms. DIEHL. I will. 

Ms. JACKSON LEE. Investigate for me. Thank you. 

Mr. BUSH. My notion is that there are certain States—and I can 

think of them off the top of my head—that are more active in legislative processes at the Federal level than others and also active in 

antitrust enforcement at higher levels than others. Many Sates, because of budget considerations, are—their antitrust laws are only 

enforced with respect to what is called naked price-fixing agreements to restrain trade, and that is the extent of their antitrust enforcement. But I will go, and I’ll actually find out what the nature 

of Texas’s antitrust enforcement is. 

Ms. JACKSON LEE. Thank you. 

Mr. BUSH. With respect to the private plaintiffs issue, there’s a 

couple of points that need to be made. First of all, when we talk 

about private plaintiff actions in Federal antitrust law, we think in 

terms of this notion of treble damages, which is provided for in the 

112 

Clayton Act. In reality, however—and this is something that was 

there for a reason—treble damages were thought to deter anti-competitive conduct because, of course single damages is just 

disgorgement. If I steal a computer, you know, I have a chance of 

getting caught, right, but if my only penalty is giving it back, then 

it is really not much of a deterrent. So we have treble damages in 

Federal antitrust law for that reason. 

However, studies have kind of shown—I’m thinking of Bob 

Lande’s study out of—from the University of Baltimore with John 

Connor, that treble damages are rarely effectuated in Federal antitrust law. So what we’re talking about is really not a threat of treble damages to the railroads but single damages. With respect to 

injunctive relief and this notion that, gee, one—one district court 

might actually have us paint our railcars red and the other district 

court will have us paint our railcars green, Federal courts are 

much more sensitive to regulatory agencies and regulated entities 

than that. And I’ve already mentioned two Supreme Court cases 

that—as evidence of that. For example, in part four of Trinko—of 

the Trinko case, Justice Scalia is very cautious about the use of 

antitrust law where there is regulation. I’m not as cautious as he 

is. But courts are much more savvy than that. And, in fact, there 

is a history in every other industry apart from railroads where 

there is a substantial degree of coordination across circuits, electric 

utilities, natural gas transportation, airlines, a whole host of other 

industries that were once regulated that are now—that have been 

subject to the antitrust laws. So we’ve not seen that kind of effect. 

So I think, unless—we can come up with hypothetical after hypothetical, but it has just not been the practice that we’ve seen that 

kind of effect. 

Ms. JACKSON LEE. Let me thank you, Professor Bush. You might 

contemplate some more questions along those lines. As I have an 

opportunity, I want to pose that line of questioning again. Because 

Mr. Moates makes a point, and I want to be clear that we’ve looked 

at every aspect that would give us comfort that that would not be 

the result of the private lawsuits that would be allowed. So I thank 

you very much. 

And at this time, I’d like to recognize the distinguished gentleman from Virginia, Mr. Goodlatte for 5 minutes. 

Mr. GOODLATTE. Thank you, Madam Chairman. 

And I find both the difficulty that the complainants have disturbing, but I’m also concerned about the solution that is proposed 

with this legislation. 

Mr. Moates, is it correct that as I’ve heard, that captive shippers 

are charged considerably more? I’ve heard 20 percent or more than 

those shippers who are not captive. 

Mr. MOATES. Congressman, there is no single lever to apply to 

a captive shipper. Captive shippers is a group. And of course, that 

is sort of a pejorative sounding term. We all understand what we’re 

talking about. 

Mr. GOODLATTE. They only have one choice. 

Mr. MOATES. If it is a shipper that only has one railroad serving 

its facility. As a group, they are definitely charged more, and they 

should be. And the STB and the ICC before it and the reviewing 

courts of appeals have all agreed they should be. Why? Because in 

113 

the words of the economists, they are the most demand in elastic 

customers of the railroad. I don’t mean to lecture, but a railroad 

is a very large system, has very large fixed and common costs that 

must be paid for by all of the users. Some of the users of the system don’t need the railroad as much. The paradigm is the—you 

know, the UPS trailer going down on the flatcar. It doesn’t take a 

whole lot to get that thing off the flatcar and onto the road. So, 

therefore, that kind of service is typically priced at a lower profit 

margin, if you will, than coal to an electric utility that absolutely 

has to have the railroad provide the service because economic theory and experience teaches and the STB’s regulatory philosophy 

about these rates, which has been again affirmed by several courts 

of appeal, say you have to charge the so-called captive shipper 

more if the railroad is ever going to have a reasonable opportunity 

to earn what in the words of the statute are adequate revenues defined as sufficient capital to pay for its whole system. 

Mr. GOODLATTE. Mr. Huval, is that how you pronounce your 

name? I’m sorry. 

Mr. HUVAL. That’s correct, yes. 

Mr. GOODLATTE. Would you want to respond to that since he just 

identified you as somebody who should pay more because of the inelasticity of your demand? 

Mr. HUVAL. I was glad to hear him admit it that that is indeed 

the case, and that’s what we’ve known for some time on our end. 

You know, I guess our concern is that we may agree that perhaps 

that maybe there should be some additional costs applied to captive 

shippers. It is a matter of degree. If you take a look at how the 

Surface Transportation Board handles these sorts of rate cases, 

compare it to what happened in other regulated areas—for example, electric utility companies. The electric utility company that 

serves people who are served by monopoly, the electrical utilities, 

cannot decrease your rates without getting prior authority from 

their public service commission or from the city council In the case 

of the City of Lafayette or from some entity that oversees them, 

and it is supposed to be based on some type of cost base plus a rate 

of return for doing so. In the case of the Surface Transportation 

Board, the way it works is that the railroad company decides one 

morning they want to change the rate and charge the different 

rate, a much higher rate, that is up to the customers to have to 

appeal that to the Surface Transportation Board. And our burden 

of proof is to show that we could build our own railroad and provide service to ourselves cheaper than the railroad company can 

and that shows how lopsided—— 

Mr. GOODLATTE. Let me interrupt you there and just say I understand that. But quite frankly, when you go and appeal, you’re 

basically asking for one or it might be one consumer rate or one 

business rate, but for the entire State of Virginia, in the case of 

utility companies serving most or all of that State, there are only 

a few questions to be raised there. But the railroad has to set a 

different fee for a whole array of different types of products that 

it hauls for a wide array of different types of equipment that it has 

to provide to haul those products for literally thousands of different 

customers. And to each time they have to do that, go to a commission and ask for them to meet and to consider a change would be— 

114 

I hope you would agree—a very inflexible way to do that. It takes— 

your utility—I don’t know about your utility. But in Virginia, it 

takes many months, sometimes a year or more, to get a rate 

change and go through the process of presenting that evidence. 

When you’re talking about a—one change meaning a multimillion 

dollar change in revenue to the utility, I understand that. But 

when you’re talking about one change meaning one of thousands of 

decisions that have to be made by the railroad each time, I’m not 

sure that type of system would work. And it would seem to me that 

the cure would be worse than the disease here. 

Mr. HUVAL. Well, I guess—then I’m not sure how—I don’t know 

how the railroad company comes up with their rates. But obviously, 

they have some structure to decide what they’re going to charge 

captive customers. I mean, they actually have a circular that indicates what the rate charges are going to be. So if there is more 

transparency in that process so people can understand how it 

works and what is in there, I think that would certainly be a lot 

of benefit. But right now—— 

Mr. GOODLATTE. I would be interested in knowing of a mechanism that worked efficiently to give a captive shipper some way of 

utilizing the antitrust laws to be able to do that. But having to go 

through a rate review process like that for each change, it sounded 

like where we came from, not where we ought to be headed to. 

Professor Bush, what do you believe is the relevant market for 

antitrust purposes here? Should we look at just railroads alone, or 

should we look at the competition that they face in some markets 

but don’t face in others from trucking, from shipping—from water 

shipping and so on, pipelines. 

Mr. BUSH. This will sound facetious, but the answer is yes. The 

answer is, it depends upon which consumer we’re talking about 

and the types of alternatives available to that consumer. When we 

talk about relevant markets in antitrust, we talk about what used 

to be called a hypothetical monopolist test. And in that test, which 

is under the 1992 U.S. Department of Justice Federal Trade Commission of Horizontal Merger Guidelines, the question is, could a 

hypothetical monopolist raise the price by a small and significant 

nontransitory amount profitably? And this is to gauge whether or 

not consumers could actually seek alternatives. It is harder to do 

that in the railroad industry because I believe in many instances 

we are already at a monopoly price, if not a duopolistic price. So 

you have to think about what would be a competitive price. And 

if you raised the competitive price by a certain amount, would consumers switch? In many instances, it would not be that consumers 

would switch from railroads to other modes of transportation. For 

example, take Ms. Diehl’s problem. She has an input that is located 

at a certain location, and she needs to transport that after it is 

processed to other locations. Where should I put my facility? If I 

put it near a seaport so that I can have alternative modes of transportation for the output market, I may still only have a monopoly 

on the input market. If I locate my plant where the input is, I will 

have—I may have a monopoly on the output market, but I won’t 

have any issues on the input market. So it really depends on the 

consumer. Now, one other thing I was thinking about when listening to my colleagues on the panel—— 

115 

Mr. GOODLATTE. Let me interrupt you and ask you, as you consider what Mr. Moates said to me, do you agree or disagree that 

in order for railroads to be profitable—and these are private, you 

know, stock corporations that have to report a profit and so on if 

they are going to stay in business—do you agree with him that 

they have to charge captive shippers more than they charge shippers who are in a competitive situation, or they will never make 

a profit because it will drive—the competition will drive them 

below what they can operate profitably at? 

Mr. BUSH. I would be hesitant to buy that argument mostly because I don’t see a lot of situations where we’re talking about some 

sort of vibrant competition. A competitive market of two—for example, two railroad lines is not competitive, it is a duopoly. And therefore, any price that will be charged in that market will still be substantially above cost, and I don’t necessarily buy the argument that 

we need to charge the captive shippers more. We can charge the 

captive shippers more because we have monopoly power over them. 

If you want to do something about that—which the antitrust laws, 

by the way, will not do anything about. If you remove the exemption, then the captive shippers will still be charged monopoly 

prices. Absent some other conduct, the antitrust laws can’t get at 

that. The only way you can do something about that is to have 

some sort of requirement of an open access provision which is done 

in every single network industry. With electricity, with gas pipelines, we have this open access provision which does put some degree of regulation on top of a competitive framework. 

Mr. GOODLATTE. Thank you. 

Madam Chairman, might I ask if Mr. Moates could—I know my 

time has expired—if he might be able to respond to the observations of Professor Bush? 

Ms. JACKSON LEE. Mr. Moates, please respond. 

Mr. MOATES. Thank you. And I’ll be brief. 

But thank you, Congressman. With all due respect to Professor 

Bush, He is an antitrust professor. He is not a regulatory economist. It may be his view that what I described, which is called differential pricing or Ramsey pricing, has been adopted by the STB 

and the ICC before it as the regulatory standard for determining 

maximum reasonable coal rates, which is what we were talking 

about. The Third Circuit and the D.C. Circuit and other courts of 

appeals have affirmed that reasoning. So it isn’t a matter of my 

making it an argument here today to see if anybody agrees with 

me. I’m telling you that is the law, and it is sound regulatory policy. And again, with all due respect, removing antitrust exemptions 

that deal with things like railroad mergers and whether district 

courts should defer to the doctrine of primary jurisdiction of the 

STB and the like has nothing to do with any of that. What we’re 

talking about here is the way the STB administers its regulation 

of the maximum reasonable rail rates under the Commerce Act, not 

the antitrust laws. Thank you. 

Mr. GOODLATTE. Thank you, Madam Chairman. 

Ms. JACKSON LEE. I’m going to yield to Mr. Cannon, but I do 

want Professor Bush to clarify his background. 

Mr. BUSH. I do have a Ph.D. In economics that is based upon 

antitrust law and regulation. Thank you. 

116 

Ms. JACKSON LEE. I yield now to the gentleman from Utah, Mr. 

Cannon, for 5 minutes. 

Mr. CANNON. Thank you. Professor Bush, do you also have a law 

degree, or do you teach at the law school with—— 

Mr. BUSH. I also have a law degree, sir. 

Mr. CANNON. Great. Thank you. So—and you have worked in the 

area of antitrust for a long time; is that not true? 

Mr. BUSH. I’ve worked in—my mike keeps going on and off. I 

worked in the Department of Justice for 3 years. I’ve also done substantial consulting on antitrust matters for quite longer than that. 

Mr. CANNON. Thank you. I began earlier by suggesting a similar 

interest of Ms. Diehl and my personal background. But let me just 

say, this is a very complex area, and I haven’t jumped to my conclusions on this bill yet. But, Mr. Moates, Mr. Huval recently—or 

just a little while ago—stated that what he thought the burden of 

proof was and that was essentially you could show that you could 

build your own railroad for less. Do you want to respond to what 

the burden of proof is on the shipper? 

Mr. MOATES. Thank you, Congressman. 

Yes. I think what the gentleman was referring to is what is 

known as the stand-alone cost test, which is how the STB implements this differential pricing standard I was just talking about. 

As a somewhat oversimplified but a not wholly inaccurate way 

of describing the test, what the STB has developed in this rate 

standard—again, I keep seeing this multiple times in reviewing 

United States Courts of Appeals—is a determination that if you 

can show that to replicate the rail facilities needed to serve you at 

a cost that is less than that generated or incurred by the railroad, 

the real railroad in the real world to provide you the services that 

are supported by the rate that is being challenged, if you can call 

it that, then you win. You prevail under what is called the standalone cost test. 

It is really sort of a surrogate for, and the rubric is what is the 

least cost, most efficient alternative method of transportation to the 

railroad you are complaining about, their rate, that could conceivably be invented? It is pretty conceivable. I mean, in doing these 

analyses, the STB has declared that we are not going to consider 

barriers to entry. 

Something we talked about earlier, the land grants, take them 

out. You can’t consider that. A railroad spent a lot of money to put 

a grade crossing in on this line. It can’t be considered. This is a 

barrier to entry, because the railroad didn’t have that cost when it 

was first built. Environmental mitigation. Take the cost out. 

It is a complicated test. It is controversial. The Congress has had 

multiple hearings with the STB to talk about it. The Board has refined its test over the years; and, in fact, as we speak, there is yet 

another appeal to the D.C. Circuit pending, dealing with the most 

recent change by the Board on those rules. The shippers appealed, 

and the railroads appealed. So everybody has concerns. 

May I have just one moment of privilege? I misspoke earlier, and 

Ms. Diehl corrected me, and she is right, and I want the record to 

be clear. I gave an answer about the things she could do to deal 

with her rate other than to build on to the CSX right-of-way in 

Holly Hill. I said one thing she could do is file a rate case. She abVerDate Aug 31 2005 13:47 Mar 26, 2009 Jkt 000000 PO 00000 Frm 00120 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST2\022508\40922.000 HJUD1 PsN: 40922
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solutely correctly reminded me, because I had forgotten, hydraulic 

cement is a commodity that the ICC a long time ago exempted from 

rate regulation. Now there is a procedure where they can move to 

have that exemption revoked as to them on a demonstration of 

need, essentially, and then file a rate case. But she is correct, and 

I don’t like to misspeak. 

Mr. CANNON. You have cleansed your conscience, cleansed the 

record, even though we are getting awfully technical on some of 

these issues. 

Ms. Diehl or Mr. Huval or Professor Bush, would you like to respond to the statement by Mr. Moates about what the standard is? 

I think Mr. Moates has laid out the illegal standard. Do you want 

to respond either to whether or not this was a correct statement 

of the law or whether that makes sense in today’s world? 

Mr. HUVAL. I am not going to dispute whether it is a correct interpretation of the law. But I will say that, from the standpoint of 

how typical regulation of monopolies take place, it is 180 degrees 

out of synch with that. If you look at every type of oversight of an 

entity that has a monopoly, whether it is a real monopoly or de 

facto monopoly, that it is done based on some process that starts 

from the bottom up versus having a customer have to stand up and 

react to it. 

And can you imagine if a person wasn’t happy with their electric 

rates, if the electric company just said, look, build your own generator if you can do it cheaper than we can? It is really an observed 

concept, from our perspective; and all it does is it results in very 

few appeals being filed because the burden of proof is so heavily 

upon the entity that is suffering the rate impact. 

Mr. CANNON. Thank you. I think the fact that we have so few 

rate appeals makes your statement self-evident. 

I would like to make a few comments. Seems to me the suggestion by Mr. Moates—and if you would like to respond, you may— 

but I would like to comment that the private litigation as a function of different courts coming to different conclusions, I think Mr. 

Bush answered that well. I don’t think that is a significant problem 

to this legislation. 

I was intrigued by Mr. Issa’s questioning about creating—I am 

not sure how to characterize it—but having some kind of, I think 

he said, people of the United States owning the rights-of-way. I 

suppose that would come with some kind of compensation or property rights. 

But we have learned a lot in America. In 1977, we had a large 

power plant in Utah that entered in 30-year contracts for coal. 

Those contracts were for $85-a-ton coal. I have a ball asking my 

constituents what the price of coal was in 2007, and they think 

maybe $300, because that would have been inflation, but the price 

is down in the range, I think, based on Ms. Baldwin’s testimony, 

about $15 a ton. So $30 million for her local utility and $75 million 

for transportation. 

It is not the same, but a telephone, mobile phone or an Internet 

access uses a common line much more effectively, much more efficiently than our current railroads do. It would seem to me if we 

had more competitive pressure we might find that there are better 

ways to make money. And not to suggest that we ought to nationVerDate Aug 31 2005 13:47 Mar 26, 2009 Jkt 000000 PO 00000 Frm 00121 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST2\022508\40922.000 HJUD1 PsN: 40922
118 

alize our railroads, but it seems to me that in this debate we need 

to be thinking about efficiencies. 

It does cost a lot of money, Mr. Moates, a lot to build and maintain a railroad. That is, I don’t think, a matter at issue. The question is, can we do the system much more efficiently? Because we 

are suffering for want of cement worldwide. The rest of the world 

is growing so rapidly. Maybe with the housing problem, we will 

drop a little bit off on that. But commercial building is still very 

strong here and worldwide, and cement is in short supply. 

And for a company like Ms. Diehl’s to decide to invest a large 

amount of money in a new plant, her investors have to decide 

whether or not it is worth living with the high cost of real transportation; and, in fact, that marginal increment to your business 

represented by a new cement plant ought to be something you 

should want to induce instead of be the barrier for. Recognizing 

also, at the same time, there is a huge increase in demand from 

rail service, it is going to take a lot more capital in the future. 

It occurs to my mind that we need to be thinking about how we 

can be more efficient, how we make the market more efficient, how, 

regardless of the intransigence and the determination and the historical precedent on how we do rail fees, that we may want to take 

a different look at that. 

So I don’t think I have co-sponsored this bill yet, but I certainly 

think we need to pursue the consideration of this. This is one of 

the really great, perhaps, opportunities in our economy for transformation change and maybe we could even say improvement, since 

change doesn’t always equal improvement. 

So I want to thank you. 

Thank you, Madam Chairman, for indulging me; and I yield back 

Ms. JACKSON LEE. I thank the gentleman from Utah. 

I have a few more questions that I would like to offer, sort of the 

probative practical questions. 

Let me first go to Mr. Huval, who I did not include in my earlier 

round of questions, and just get your take on your presence here 

today as a regulated industry—is that my understanding—and, 

therefore, speak to the unfairness. 

You are a utility and—electricity? 

Mr. HUVAL. That is correct. 

Ms. JACKSON LEE. So you are not engaged in the business of railroad, but you are here today to talk about this concept. Tell me 

why—other than being invited, and we thank you for being here. 

Mr. HUVAL. Thank you. Thank you for the opportunity. 

Certainly our issue is pretty simple. We have 1,500 miles of railroad to get to our plant. Only 20 miles is owned by one company. 

We could have competition on 1,480 miles, but the Surface Transportation Board’s rule and the railroad companies don’t want to let 

that happen. 

So our perspective is that, where there is competition, we should 

be able to enjoy the benefits of competition. When there is no competition, then there should be some kind of regulated price, some 

set price for where there is no competition. It is as simple as that. 

Our customers are paying more because of that. This is not an 

issue where we are taking it on the chin. Our customers, every one 

119 

of them, whether residential or commercial customers, are having 

to pay that extra cost. 

Ms. JACKSON LEE. Educate me in what you are shipping on the 

railroads. 

Mr. HUVAL. We are shipping coal from Wyoming to Louisiana. 

Ms. JACKSON LEE. To provide the utility through coal. 

Mr. HUVAL. Providing for our coal-fired power plant, that is correct. 

Ms. JACKSON LEE. You have the ability to utilize physically a 

wide array of railroads, wide array of different railroad companies. 

Mr. HUVAL. We have an opportunity to have two railroad companies. There are two railroads that will start in Wyoming. They will 

come down to the center of Louisiana. Our plant is located 20 miles 

away from that second railroad, and that is where our issue is. 

Ms. JACKSON LEE. The STB blocks you from utilizing that second 

railroad? 

Mr. HUVAL. That is correct. 

Ms. JACKSON LEE. So this is a plain and simple bottom line for 

you, which is—say, for example, STB issued a regulation that 

would cure your problem. That would satisfy your economic question. 

Mr. HUVAL. I think generally that would be the case, yes. The 

bottom line is, where we have competition, we ought to enjoy the 

benefit of competition. When there is not competition, there ought 

to be some rate set based on some reasonable circumstance. 

Ms. JACKSON LEE. And STB has not given you that relief. 

Mr. HUVAL. That’s correct. 

Mr. CANNON. Would the Chair yield to follow up on that question? 

Ms. JACKSON LEE. I’d be happy to yield. 

Mr. CANNON. Are you saying the STB won’t let you use the second line, or that the cost you would be charge by the second line 

plus the 20 miles of truck transportation are prohibitive? 

Mr. HUVAL. What the STB is telling us is they will not force the 

company that owns the entire line to give us a quote only for the 

20 miles. So without a quote for the 20 miles, that puts us—we 

have to have that 20 miles to get to our plant. So it forces us to 

have to buy service all the way back to the Wyoming plant, the 

Wyoming site for the coal. 

The second thing the STB does is it won’t force a second company. Not only not force a second company, the second company 

won’t even make an offer to provide service, assuming that we 

would build an alternate line. If you want to say, suppose we build 

the last 20 miles to connect up to the second rail company, the second rail company’s position is that we won’t even give you a price 

until you build. So you can’t make a business decision, if it makes 

sense to do that or not. 

Mr. CANNON. Thank you, Madam Chair. Yield back. 

Ms. JACKSON LEE. Mr. Huval, is that a staff answer that you 

have gotten, or you have actually been before the Board and gotten 

a decision? 

Mr. HUVAL. No, it has not been before the Board. It is taking the 

Board’s previous decisions and making requests as we have to the 

120 

rail companies to consider either of those options and not getting 

a response. 

Ms. JACKSON LEE. But did you get an oral response from the 

staff saying, because of these previous decisions, we are not giving 

you any latitude? 

Mr. HUVAL. To appeal one of these things takes—I forget what the number is—like $188,000 to make an appeal. It doesn’t make 

sense for us to do that when we know what the track record has 

been. 

Ms. JACKSON LEE. So you have accepted previous interpretations 

to suggest to you that you wouldn’t find relief, and you are just 

going on. And you have tried to sort of make way on your own negotiations, and you have not been successful. 

Mr. HUVAL. That is correct. There is really no more negotiations 

anymore in that regime. 

Mr. GOODLATTE. Madam Chairman, I wonder if I might follow up 

on that. 

Ms. JACKSON LEE. I would be happy to yield to the gentleman 

from Virginia. 

Mr. GOODLATTE. I thank the Chairwoman. 

I would like to ask Mr. Moates, the gentleman makes a point regarding the fact that they are a captive shipper, and they have 

only one alternative to choose from, and they are getting charged 

what they think is a very excessive rate. What is their alternative? 

What do they do? Do you think that the STB is evenhanded in 

these decisions, or do you think they are biased in favor of the railroad? What is your take? 

I can kind of guess at your answer, but what is your response 

to him? Is it just go to the STB and lump it? 

Mr. CANNON. Would the gentleman yield so I can sort of clarify 

the question? 

Ms. JACKSON LEE. I would be happy to yield to the gentleman, 

reclaiming my time. And I assume Mr. Goodlatte is not finished. 

So let me yield to you and then back to Mr. Goodlatte. 

Mr. CANNON. Suppose Mr. Huval invests $100 million to build 20 

miles of line. Now he has access. But he is now no longer a captive 

user. Does that mean that we should change the STB standard? In 

other words, does he have to buy $100 million—or whatever it 

would take him to build that 20 miles—so he can now not be a captive user and escape from your paradigm of return that is most 

heavily—the burden put on the captive user? 

Mr. GOODLATTE. It is a little different question, but maybe he 

can answer both. 

Mr. MOATES. I will try. 

First, let’s make sure we have the actual facts in mind. There are 

these two large western railroads, as Mr. Huval said, that serve 

the Powder River Basin. It is going to his plant in Lafayette, Louisiana. What he is saying is one of those big railroads has tracks 

that go all the way, they are the ones that serve him, and they 

charge him a rate that he doesn’t like. 

Point number one, he is not hydraulic cement. His rates are regulated. He can file a rate complaint with the STB and complain 

about that. He talked about the filing fee of being $185,000 or 

whatever. The STB in the last month, pursuant to a mandate from 

121 

this Congress, you passed legislation that required the Board to reduce those filing fees dramatically. They are now only a couple 

hundred dollars. 

Back to the economic situation. The other railroad, I will take his 

word for it, is about 20 miles away in Alexandria, Louisiana. You 

asked could he truck it. I don’t know that that was explored. 

Maybe that is too expensive. Maybe there is too much volume. 

Mr. GOODLATTE. I didn’t ask that. What I asked was, leaving 

aside this specific example, he spoke in general terms at the outset 

of his comments about how, when you are a captive shipper, you 

don’t have any recourse other than to a board that he thinks the 

weight of evidence is overwhelmingly siding with the railroads. Is 

that your understanding or do you have a rebuttal to that? 

Mr. MOATES. There are two things that are available. The first 

is, file the maximum rate case against the railroad that goes all the 

way. If the rate is actually unreasonably high under the Act, and 

they can demonstrate that, the STB can and will order a prescription of a rate, new rate, and can and will order rate reparations 

damages. 

Mr. GOODLATTE. How often is that done, and how often does that 

result in a lower rate? 

Mr. MOATES. I am not going to remember the number. There are 

a not insignificant number of coal rate cases, but they are not filed 

every week. Maybe a couple a year, and they are mainly against 

the western railroads. I have defended a couple against the eastern 

railroads filed by a couple of eastern utilities a few years ago. 

Those are the cases I can speak to. 

I have been involved in one or two western cases, and in the 

eastern cases we prevailed. The rates were held to be not unreasonably high. So no relief to the eastern utilities. 

Some of the western utilities have gotten rate relief. They have 

had rate prescriptions, and they have had reparations ordered, not 

in all cases. I am not going to speak for the shippers. But, generally, the shipper community is unhappy with the amount of relief 

it has gotten from these STB rate cases. 

I am a railroad lawyer, and I represent the railroad industry. I 

think the Board has done, all things considered, a reasonable job 

of administering the statute. I disagree with the Board ardently 

sometimes on some of these cases, and I think it has made some 

determinations of this stand-alone cost test that I think are wrong, 

and in some cases we have appealed those to the courts of appeals. 

It is an evolving area, to a degree. 

But the other question, he says, can I make the other railroad— 

can I make the railroad that serves me give the other railroad a 

rate so we can connect that 20 miles? What he means is the second 

railroad would bring it all the way to Alexandria and then it would 

turn it over to the railroad that brings him the coal today for that 

last 20 miles. 

This procedure there is to invoke the so-called bottleneck rate 

standards that I referred to a couple of times that have not been 

used since their implementation. Shippers take the position that 

the standard to get relief is too high. What is the standard? A demonstration that the railroad that is bringing the coal all the way 

122 

today is either engaging in anti-competitive conduct or is abusing 

its market power. 

Those are the concepts we have been grappling with. That is 

available to them. They can file such a cause. 

I hope that is responsive. 

Ms. JACKSON LEE. I thank the gentleman. 

Let me pursue the line of questioning that I started pursuing, 

and I appreciate Mr. Goodlatte and Mr. Cannon expanding on it. 

Let me emphasize, without polling all the Members of this Committee, that you believe there are some individuals who remain 

open-minded or remain quizzical, and ultimately this will be before 

the full Committee. The bill will. 

So, Mr. Moates, you have partly made the statement about the 

STB. In fact, you mentioned successes in your western cases and 

eastern cases. I might make note of the point that you seem to be 

able to work that system. I would argue or ask the question why 

you couldn’t work the western district and the eastern district in 

a variety of Federal courts, because you work with different decisions through the STB. 

Though I know it is regulatory, I just wanted to raise the question, not necessarily asking for an answer on that. Let me move to 

the question I want. But I do want to note that you get different 

decisions in different regions. So we could probably resolve whether 

or not courts would be disruptive, because courts usually are very 

sensitive in being disruptive in commerce. 

But I want to go to the point of the STB saying—and I perceive 

your point is that the railroads—and you are doing a great job for 

them—should not be subject to regulation by both the STB and be 

subject to the antitrust laws as provided for by the Sherman and 

Clayton Acts. You state that the STBs provide that there should 

be balance and sustainable competition, but two of our witnesses 

have spoken about this concept of captive railway situation. 

I have mentioned the plight of those needing cement in Texas 

and being held captive because they have not been able to get the 

product in. In fact, I have had contractors, builders standing in line 

on rail cars to move for their cement to get there. So what then 

is the relief? The STB does not seem to be adequate. What then 

is the relief to this concept of a captive railway situation? 

Mr. MOATES. I will see if I can do the best I can with that. I am 

not an expert on moving cement. 

Ms. JACKSON LEE. I don’t want you to talk about cement. It could 

be coal. I just want you to speak to the captive railway situation. 

We are, in essence, blocked in getting our product to market. 

Mr. MOATES. That sounds to me as though there is a service 

issue. I am not sure what time frame we are talking about or what 

the real problem is. The western railroads in the mid to late 1990’s 

had some very well-publicized problems with service, some of them 

resulting in the wake of two very large mergers. Those issues have 

been resolved. 

Actually, as full as the system is today in the sense of the capacity being heavily used, I think the service metrics—and I think the 

shippers agree with this—the service metrics across the rail industry are really quite good now. The railroads, most of them are running what they call scheduled railroads. That isn’t exactly like 

123 

United Airlines landing within 2 minutes of what it claims it will, 

although it doesn’t do that all the time either, but at least has a 

schedule like that. 

The railroads aren’t, of course, quite that scheduled but much 

more than they used to be. So, in this case, the Texas cement shippers should have a much better idea. 

Ms. JACKSON LEE. But if the STB is a regulatory authority and 

they don’t do anything to enhance competition, what relief do the 

shippers have? 

Mr. MOATES. I am trying to respond to the cement movement in 

the context of competition. I am not sure it is a competitive problem. I think it may be more of an issue of service issues and capacity issues and how many trains can we get through the choke point 

at a given point in time and whose train goes first and are the cement cars on there or are the coal cars on there. I am not sure that 

is a competitive problem. 

If we are talking about expanding the capacity, that is something 

the industry and its customers want to do, the industry is doing 

it, but it is expensive, and it is going to take time, and we have 

to be able to earn our cost to capital, or something close to it, to 

be able to do that. So I bring my point back. 

If I may make one comment on your initial observation. I said— 

and perhaps I misled you, and I apologize if I did. I said there have 

been coal rate cases in the east, generally in the west, generally 

more in the west, but they have all been decided by one decision 

maker, the STB, under the same standards. That is these coal rate 

standards to stand-alone cost tests. 

So I don’t think that would be quite the same as the possibility 

of judges in different parts of the country perhaps approaching 

issues using different standards and different lenses, if you will, in 

terms of how they look at a problem. 

Ms. JACKSON LEE. Thank you for clarifying that. 

I guess, as a lawyer, I would argue in Federal courts they would 

certainly have the STB decisions to be guided by. We do know that 

Federal courts most often try not to be catastrophic in their interference with commerce, or I think there would be some balance, 

but I respect your interpretation. 

Let me just conclude with Professor Bush and take the questions 

that I have just posed to Mr. Moates, who took a very healthy stab 

at it on behalf of his position. But what are the checks and balances in the system if the STB fails to preserve or enhance competition? I am putting it to someone who I think favors the bill. Are 

there any checks and balances on the STB? If not, where does that 

take us? Is it a service problem that Mr. Moates has spoken to? 

Mr. BUSH. I will state that I am generally in favor of the bill, 

with caveats, because there are certainly some issues that the bill 

does not address, particularly the implied immunity, primary jurisdiction issues that I raised before. 

Right now, what we have is I think the worst of all possible 

worlds. We have a business that is subject neither to competition 

policy nor regulation. And keep in mind that—— 

Ms. JACKSON LEE. Does STB foster competition? Do you think 

so? 

124 

Mr. BUSH. Nor was it designed to foster competition. It was designed originally to foster consolidation. And it has done that superbly. 

The antitrust immunities in general—and I have studied all of 

them, actually—are usually not with some economic rationale or 

justification. In most instances, it is some sort of special interest 

legislation that transfers wealth from consumers such as shippers 

to others, for example, railroads. So we should not take the position 

that the antitrust immunity that, just because it is there, should 

always remain there. 

Is there a service problem? Yes, there is a service problem. The 

question is, what is the origin of the service problem? Recall, those 

of you who are old enough, AT&T prior to its deregulation. You 

could have any phone you wanted so long as it was black. It could 

be tossed from a 20-story building, cheap phone cord that tangled, 

and you had to lease it. It was only after the destruction or divestiture of AT&T that you started getting some sort of competition and 

innovation in the industry. You kind of see the same things in a 

different way in the electric utility industry where you started implementing competition in electric generation under the auspices of 

energy conservation in 1978. 

If we did something similar to the railroads, one wonders what 

kinds of service problems we would have, if any. Because competition is the impetus for the creation of service. You do not have any 

sort of incentive to provide service if you are a monopoly it. It only 

exists if there is some level of competition. 

Ms. JACKSON LEE. Let me thank the witnesses for a very 

thoughtful presentation and discussion. In fact, I know that my colleagues and myself would be eager for this to continue into the 

evening. We, unfortunately, will be called soon to the floor of the 

House. But it has been an important, broad discussion and potential roadmap as we move forward. 

Professor Bush, I would appreciate on behalf of the Committee 

if you would expand on your statement, where you talk maybe 

more expansively about your thoughts about the legislation before 

us, particularly those elements that maybe you shortened in your 

remark. Maybe you would have a document that you have case law 

to provide in writing. 

Mr. Moates, if there are some additional thoughts after thinking 

about it, we welcome you having some submissions, as we do the 

other witnesses in clarifying your market. That might be very helpful to us. I know the Committee would welcome this thoughtful 

analysis. 

This will continue to pose a series of questions. This is an antitrust task force. I want to thank Chairman Conyers for his leadership on this issue and Ranking Member Smith. We take our jurisdiction very seriously; and we welcome, again, your additional 

thoughts. 

This hearing is now adjourned. 

[Whereupon, at 6:30 p.m., the Task Force was adjourned.] 

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