smaller railroads owned by Class I firms, then a competitor may be able to calculate data for the
Class I railroad owned smaller railroad by subtracting the AAR data fror: that reported to the
Board. Thus, :he Board should consicer the impacts that combined reporting could have upor.
the comparabitity of data o>tained from R-1 reports and that available in publications obtained
from the Association of American Railroaés (AAR).

In addition, the re-classification of commonly-owned short line and regional railroad
firms as either Class [ or Class II railroads could have effects upon reporting requirements.
merger rules, and labor protection. Smaller railroads, although they have preserved rail service
to agricultural and other regions, are often only marginaily profitable since they typically operate
lines having lower railear traffic densities. Many of these lines were a result of Class I railroad
barkruptcies or abandonments.

Thus, to preserve <ail service on these lines, the regulatory requirements have been
relaxed fcr these smaller firms, particularly with regard to the burdensome Federal reports
required of Class I railroads that smaller ra‘lroads are not required to file. Should the Board
require consolidated reporting of commonly-ownec U.S. railscads, USDA is concerned that the
additional costs of the reporting requirements coulc result in some of these smaller [ines no
longer being competitive, Furthermore, reclassification as either a Class [ or Class II railroad
would result in the application of more stringent ruces regarding labor protection anc mergers,
adding to costs and making it more difficult :o sell some of these lines. USDA also asserts that
commonly-owned non-con-iguous lines should not have the same reporting requirements as

those that are commonly-owned con:iguous ‘ines.


tequire mardatory consclidated reporting only for Annual Report Form R-:, Schedule 250
(related to revenue adequacy filings), and to permit, but not require, consolidated reposting for
other R-] schedules and reports filed with the Board.

The Board intends to require reporting of all U.S. railroad and U.S. railroad-related
activities on a consolidated basis Zor all regulatory purpeses since it believes that consolidated
data would provide more meaningful and accurate information on major rail systems operating in

the United States.

POSSIBLE EFFECTS UPON SMALLER RAILROADS SERVING RURAL AREAS

USDA agrees with the Board that consolidated reporting of data wou!d add uniformity
and consistency to the U.S. raiiroad data that is reported to the Board. Allowing railroad <irms to
report data on a consolidated basis on one form, but not requiring it for all forms, makes iz more
difficult to interpret and compare the reports.

However, USDA wishes to caution the Board that vital information may be lost due to
the aggregatior. of many firms’ data into that of only one firm. For instance, consider the SOO
and the Delaware and Hucson, which are zailroads owned by Canadian Pacific. These railroads
have very different characteristics and are distant frora each other. USDA would have much
more interest in data reported by the SOO Railroad only, which serves a major agricultural
production region, than for combined data for the SOO and the Delaware ané Hudson railroads.

Furthermore, consolidated reporting of financial data could result in the unintended
disclosure of proprietary information for those short line and regional railroads owned by Class [
tailroads. Should the data reperted for Class I railroads by the AAR not include data from those

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CONCLUSION

Due to the importance of short line and regional railroad service to agricultural producers,
shippers, and ccmmunities, USDA requests that the Board give special consideration to the
effects that consolidated reporting of ccmmonly-owned U.S. railroads and U.S. railroaé-related

a‘filiates could have upon the cost structure of short line railroads.

Respectfully submitted,

Michael V. Dunn

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington. D.C. 20250


receiver |
NO Tm 5

MANAGEMENT &
sie A
,

Oy

BEFORE THE

SURFACE TRANSPORTATION BOARD

STB EX PARTE NO. 634
CONSOLIDATED FINANCIAL REPORTING BY

COMMONLY CONTROLLED RAILROADS

COMMENTS OF THE

U.S. DEPARTMENT OF AGRICULTURE

Michae: V. Dunn

Under Secretary

Marketing and Regulatory Pregrams
US. Department of Agriculture
Washington, D.C. 20250

Date: November 27, 2000



AUTHORITY AND INTEREST

The Secretary of Agriculture is charged with the responsibility under the Agricultural

Adjustreent Act of 1938 and the Agricultural Marketing Act of 1946 to represent the interests of
agr-cultural producers and shippers in improving :rarsportation services and facilities by, among
other things, initiating and par-icipating in Surface Transportation Board proceedings involving
cates. charges, tariffs. practices, and services.

The U.S. Department ef Agriculture (USDA) offers the following comments on the
Surface Transportation Board’s (Board) proposal te require consolidated financial reporting Dy
commorly controllec U.S. zailroads. USDA is particularly interested because of che possible
adverse effects this proposal could have upon the operating costs of short line an¢ regional
railzoads. Since any inczease in shipping costs are borne by the agriculturai producer, any policy
change that may increase short line and regional railroad operating costs could be harmful to
agricultural producers, shippers and rural communicies. In addition, if any of these changes
result in the abanconment cf lines operated by shor: line and regiona’ railroads, agricultural
producers would lose vital rail connections te markets and would have to use more expensive
transportation modes. The diversion of rail traffic to truck-one railcar can haul up te four truck
loads- also dramatically affects road maintenance costs. Althouga USDA generally supports the
Board’s proposal, USDA requests that the Board give special consideration to the effects that
consolidated reporting of commonly-owned U.S. railroads and U.S. railroad-related affiliates

could have upon the cost structure of short line railroads.


BACKGROUND

By the end of .998, 550 short line ard regional railroads operated 49,985 route miles in
the United States- more than 29 percent of the rail network—and accounted for nearly 9 percent
of all railroad freight revenues. In many agricu“tural States, the importance of these smaller
railroads has become even greater; by the end of 1998, they operated 58 percen: of the rail
network in Wisconsin, $2 percent in South Dakota, 49 percent in Michigan, 43 percent ir. Iowa,
and 42 percent in Kansas.

Short line and regional railroads provide en important gathering and supply function for
producers of grain and oilseed crops. Nationwide, short line and regional railroads in the U.S
now participate in the movement of an estimated 33 percent of the total carloads, 45 percent of
the lumber carloads, 34 percent of the farm product carloads, and 23 percent of the food product
carloads. Short line railroads also originated nearly 20 percent of all U.S. raileer loadings of
grair. in 1996.

The Board intends, consistent with Financial Accounting Standards Board (FASB)
Statement No. 94, to require consolidated repor-ing by commonly controlled U.S. railroads and
their U.S. railroad-related affiliates. FASB No. 94 requires the preparer of financial statements
to use consolidated reporting for ail majority-owned subsidiaries unless contro! is temporary or
does not rest with the majority owner.

In Supplemental Reporting of Laformation for Revenue Adecuacy, 5 LC.C.2d 65 (1988),
the Interstate Commerce Commission (ICC) required railzcads to use consolidated reporting ia
conformance with Generally Accepted Accounting Princip.es (GAAP) for reports related to the
calculat-on of "revenue adequacy." Over the past cecade, that decision has been interpreted to

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