The STB, the Congress, The STB, the Congress, and the Nation’s Railroadsand the Nation’s Railroads

Commissioner Francis P. Mulvey Commissioner Francis P. Mulvey

Southwest Association of Rail Southwest Association of Rail ShippersShippers

October 1, 2009October 1, 2009

The Woodlands, Texas The Woodlands, Texas

STB BackgroundSTB Background• Three member board—non-partisan Three member board—non-partisan

• New Chairman New Chairman

• Railroad rate and service disputesRailroad rate and service disputes

• Railroad mergers and acquisitionsRailroad mergers and acquisitions

• Board considers approval of Board considers approval of abandonments and new constructionabandonments and new construction

• Limited jurisdiction over other modesLimited jurisdiction over other modes

Rail Rate Cases at the STBRail Rate Cases at the STB

• Much railroad traffic exempt from STB Much railroad traffic exempt from STB regulationregulation

• Many claimed that cases took too long Many claimed that cases took too long and cost too much to adjudicateand cost too much to adjudicate

• Many shippers felt they had no access Many shippers felt they had no access to STB’s processes for rate reliefto STB’s processes for rate relief

• Congress directed the Board to develop Congress directed the Board to develop procedures for small rate casesprocedures for small rate cases

Changes to Large Rate Case Changes to Large Rate Case ProceduresProcedures

• Streamlined procedures to reduce Streamlined procedures to reduce time and cost for adjudicating large time and cost for adjudicating large rate cases—Court of Appeals upheldrate cases—Court of Appeals upheld

• First large rate cases handled under First large rate cases handled under new guidelines—AEP Texas North, new guidelines—AEP Texas North, Western Fuels, KCPL, Oklahoma Gas Western Fuels, KCPL, Oklahoma Gas & Electric& Electric

• Major shipper win in Western FuelsMajor shipper win in Western Fuels

• Major case involving DuPont and Major case involving DuPont and CSX resolved through STB CSX resolved through STB facilitated mediationfacilitated mediation

New Approaches to Small Rail Rate New Approaches to Small Rail Rate CasesCases

• Provides access to the rate Provides access to the rate reasonableness process for all sizes of rail reasonableness process for all sizes of rail rate disputes, and in particular, to the rate disputes, and in particular, to the estimated 73% of challengeable rail estimated 73% of challengeable rail traffic for which the large rate case traffic for which the large rate case process would be financially process would be financially impracticableimpracticable

• Requires, for all rail rate disputes, Requires, for all rail rate disputes, mandatory, nonbinding mediation—a mandatory, nonbinding mediation—a mechanism that has been used mechanism that has been used successfully in previous cases to arrive at successfully in previous cases to arrive at negotiated settlementsnegotiated settlements

New Approaches to Small Rail New Approaches to Small Rail Rate CasesRate Cases

• Allows rail customers to choose the Allows rail customers to choose the methodology that is most appropriate for methodology that is most appropriate for consideration of their complaint:consideration of their complaint:– A rail customer choosing the simplest A rail customer choosing the simplest

approach, the “Three-Benchmark” approach, the “Three-Benchmark” methodology, is eligible to recover up to $1 methodology, is eligible to recover up to $1 million over a 5-year period.million over a 5-year period.

– A rail customer choosing the “Simplified Stand-A rail customer choosing the “Simplified Stand-Alone Cost” methodology is eligible to recover Alone Cost” methodology is eligible to recover up to $5 million over a 5-year periodup to $5 million over a 5-year period

Experience with Small Rate Experience with Small Rate Case GuidelinesCase Guidelines

• First cases brought by DuPontFirst cases brought by DuPont• Six lines of traffic found to be market Six lines of traffic found to be market

dominant; rate relief ordereddominant; rate relief ordered• Cases were on appeal; court docket held in Cases were on appeal; court docket held in

abeyance while STB considers correctionabeyance while STB considers correction• Recently, parties notified the Board that Recently, parties notified the Board that

they have reached a settlementthey have reached a settlement• STB currently Adjudicating 2 UP/USM cases STB currently Adjudicating 2 UP/USM cases

(1 SSAC; 1 3BM) (1 SSAC; 1 3BM)

Review of Carrier Review of Carrier Operating PracticesOperating Practices

• Two hearings on the railroads’ Two hearings on the railroads’ common carrier obligationcommon carrier obligation

• Issued new disclosure rules on Issued new disclosure rules on paper barriers; Entergy Casepaper barriers; Entergy Case

• Fuel surcharge decision, changes Fuel surcharge decision, changes in how railroads assess in how railroads assess surchargessurcharges

Railroad RestructuringRailroad Restructuring

• The Board’s classification of railroad The Board’s classification of railroad mergers mergers

• Canadian Pacific’s acquisition of the Canadian Pacific’s acquisition of the DM&E—first significant caseDM&E—first significant case

• Canadian National’s acquisition of the Canadian National’s acquisition of the EJ&E—minor transaction but full EISEJ&E—minor transaction but full EIS

• Patriot CorridorPatriot Corridor

Environmental ReviewsEnvironmental Reviews• Overall responsibility for Overall responsibility for

environmental review of new environmental review of new railroad construction and railroad construction and abandonments abandonments

• DM&E Powder River Basin DM&E Powder River Basin expansion project and the IC&E expansion project and the IC&E

• Environmental review of the Environmental review of the CN/EJ&E acquisitionCN/EJ&E acquisition

• Patriot Corridor Patriot Corridor • Alaskan ProjectsAlaskan Projects

• Rail cost of capital methodology revision Rail cost of capital methodology revision and adoption of Capital Asset Pricing and adoption of Capital Asset Pricing ModelModel

• Inclusion of Multi-Stage Discounted Cash Inclusion of Multi-Stage Discounted Cash Flow Model Flow Model

• Creation of Rail Energy Transportation Creation of Rail Energy Transportation Advisory CouncilAdvisory Council

• Merger of Compliance and Enforcement Merger of Compliance and Enforcement and Public Affairs Sections and Public Affairs Sections

• Hearing on Uniform Railroad Costing Hearing on Uniform Railroad Costing System, April 30, 2009System, April 30, 2009

Changes in the STB’s Changes in the STB’s Practices and ProceduresPractices and Procedures

Changes in STB’s Changes in STB’s ResponsibilitiesResponsibilities

• Changes incorporated in Clean Changes incorporated in Clean Railroads ActRailroads Act

• Requirements to mediate Requirements to mediate commuter/freight rail access disputescommuter/freight rail access disputes

• Requirements to decide causes of Requirements to decide causes of intercity passenger train delays and intercity passenger train delays and prescribe remedial actions prescribe remedial actions

Pending Legislation Involving Pending Legislation Involving the STBthe STB

• House and Senate drafting House and Senate drafting legislation that proposes tolegislation that proposes to– Reauthorize the STBReauthorize the STB– Change how the railroad Change how the railroad

industry is regulated industry is regulated

• Removal of railroad antitrust Removal of railroad antitrust exemptionsexemptions

• Rail infrastructure tax creditsRail infrastructure tax credits

State of the Railroad IndustryState of the Railroad Industry

• After several years of constrained After several years of constrained capacity, railroads again have excess capacity, railroads again have excess capacitycapacity

• Traffic has been down for virtually every Traffic has been down for virtually every commodity hauled by railcommodity hauled by rail

• Nearly one-half million railcars idled as are Nearly one-half million railcars idled as are thousands of locomotivesthousands of locomotives

• Capital expansion plans are on hold and Capital expansion plans are on hold and thousands of workers are being furloughedthousands of workers are being furloughed

• Railroads are going ahead with other Railroads are going ahead with other capital projectscapital projects

State of the Railroad IndustryState of the Railroad Industry• When will railroads recover??When will railroads recover??• Rail carloads are generally a leading Rail carloads are generally a leading

indicator—some positive signs that we indicator—some positive signs that we have reached bottomhave reached bottom

• Employment has increased slightly, Employment has increased slightly, although changes in HOS could be a although changes in HOS could be a factorfactor

• Traffic declines slightly reversed and Traffic declines slightly reversed and some commodities are upsome commodities are up

• New study for STB by Christensen New study for STB by Christensen Associates takes into account Associates takes into account economic downturn and the trends in economic downturn and the trends in composition of rail traffic composition of rail traffic

Class Rail I Carloads 1/07-PresentTotal Traffic

U.S. Class I Railroads 2007- Present

190,000

220,000

250,000

280,000

310,000

340,000

370,000

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Thank youAny Questions?