6.1. ERMUSR 03-09-2010 - Laserfiche WebLink

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Background Railroad transportation is the principal method of delivering coal to the elec- tric generation facilities that provide power to Minnesota municipal utili- ties and their customers. This heavy reliance on rail has left these utilities vulnerable to significant market power abuses caused by the absence of com- petitors in the railroad industry. Utili- ties and other rail commodity shippers, including those who are served by only one railroad and are often referred to as captive shippers, are facing signifi- cant rate increases due to the lack of competition in the railroad industry. The consolidation of the railroad industry that has occurred over the last 25 years has been stunning. When Congress passed the Staggers Rail Act in 1980, the resulting industry deregu- lation was supposed to usher in a new era of competition that would benefit customers. However, instead of experi- encing 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 4. This has resulted in a duopoly of two major railroads serving the Western regions of the U.S. and a similar duopoly of two railroads serving the East. In 1995, Congress responded by abolishing the Interstate Commerce Commission and by giving the newly created Surface Transportation Board (STB) authority over mergers, rate and service disputes, construction, and op- eration and abandonment of railroad lines. Since that time, however, the STB has declined to use its legal and regulatory authority to protect railroad customers from the monopolistic prac- tices of the railroad industry. The lack of real competition in the railroad industry, coupled with an absence of effective regulation of industry operations, has significantly undermined the operations of many Minnesota municipal utilities. Ship- ping costs are skyrocketing as current contracts expire and unreasonably high new rates are set with virtually no negotiation. Furthermore, even as the railroads dramatically increase their rates, in a number of cases, their service has actually declined. In 2006, the Government Account- ability Office (GAO) issued a report, "Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should Be Addressed," which validated rail customer concerns. Among other things, this report highlighted: a lack of competition in the national railroad industry; the inadequate STB efforts to ensure rail customer access to com- petition and to protect rail customers from monopoly abuse; the failure of the STB to collect adequate data from the railroads on all of their annual revenues from rail customers; and concerns over the ability of the na- tional rail system to provide sufficient, reliable service in the future. While the railroads argue that any rail customer legislation is an attempt at re-regulation, the goal of rail custom- ers is not a return to the regulation of the 1970's, but rather a national rail policy that will ensure reliable rail transportation and reasonable rates for all rail customers -particularly for those customers without access to meaningful competitive transportation alternatives. Local Case Studies 'There are a number of examples of the adverse impacts caused by the lack of railroad competition on joint action agencies and Minnesota municipal electric utilities. Rail Shipping: The Need for Reform