5.3. ERMUSR 02-12-2008 - Laserfiche WebLink

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M~:~::~~ Minnesota Municipa/ Uti/ities Association Position Statement Lack of Rail Competition Hampers Coal Deliveries Railroad transportation is the principal method of delivering coal to the electric generation facilities that provide power to Minnesota municipal electric utilities and their customers. This heavy reliance on rail has left these utilities vulnerable to significant market power abuses caused by the absence of competitors in the railroad industry. Those utilities and other rail commodity shippers, including those who are served by only one railroad and are often referred to as captive shippers, are facing significant rate increases due to the lack of competition in the railroad industry. The consolidation of the railroad industry that has occurred over the last twenty-five years has been stunning. When Congress passed the Staggers Rail Act in 1980, the resulting industry deregulation was supposed to have ushered in a new era of competition that would benefit customers. However, instead of experiencing the intended result, shippers endured a period of unprecedented consolidation as the number of Class I railroad companies in the United States was reduced from 42 to 5. This has resulted in a duopoly of two major railroads serving the Western regions of the U.S. and a similar duopoly of two different railroads serving the East. The federal government has been ineffective in its effort to control these uncompetitive rail transportation practices. In 1995, Congress abolished the Interstate Commerce Commission and gave the newly created Surface Transportation Board (STB) authority over mergers, rate and service disputes, construction, and operation and abandonment of railroad lines. Since that time, the STB has declined to use its legal and regulatory authority to protect railroad customers from the monopolistic practices of the railroad industry. The lack of real competition in the railroad industry, coupled with an absence of effective regulation of industry operations, has had a negative effect on many Minnesota municipal utilities. Shipping costs are skyrocketing as current contracts expire and new rates are set. Furthermore, even as the railroads dramatically increase their rate, they have begun refusing to provide service commitment guarantees or remedies for service failures. In 2006, the General Accountability Office (GAO) issued a report titled "Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should Be Addressed "which validated rail customer concerns. The report described a lack of competition in the national railroad industry, inadequate STB efforts to ensure rail customer access to competition and to protect rail customers from monopoly abuse, failure of the STB to collect adequate data from the railroads on all of their annual revenues from rail customers, and uncertainty about the national rail system's capacity to provide sufficient, reliable service in the future. The railroads argue that any rail customer relief legislation is an attempt at re-regulation. However, the goal of rail Minnesota Municipal Utilities Association February 2007