One For the Lawyers

I'm almost always reading something, and the work of choice for the past few weeks has been the multiple-volume Oxford History of the United States, which is being produced piecemeal and doesn't cover all segments as yet, or in sequence.

But at any rate, I've finished the Depression/WW II volume, and am now working on the first great age of innovation (1815-1848), The author, UCLA's Daniel Howe, devotes a fair amount of space to the role of the Federal government in "internal improvements', including President James Madison's apparent ambivalence, and the establishment of Federal regulation of interstate commerce (a role which seems to perplex ideologues at both ends of the spectrum on a regular basis).

Wondering fi any of the more legally-astute among our memebrship might have some thoughts on what might emerge in this area if our transport system has to be re-defined in the wake of energy- and globalization-induced economic ternds ("open access" to cite one example)?

2nd trick op wrote:Wondering fi any of the more legally-astute among our memebrship might have some thoughts on what might emerge in this area if our transport system has to be re-defined in the wake of energy- and globalization-induced economic ternds ("open access" to cite one example)?

Open access has been one of the recurring themes advocated by shippers since railroad deregulation has virtually eliminated competition for transportation of commodities where other tranporters, e.g., trucks are impractical. The model would follow that of the electric transmission industry where open access was mandated in 1996, see FERC Order 888 and its progeny. http://www.ferc.gov/legal/maj-ord-reg/l ... der888.asp

Electric transmission companies transport so-called "bulk electric power." Federal Energy Regulatory Commission ("FERC") Order 888 required these companies (generally 100,000 volts and higher transmission lines on the towers one sees on private rights of way) to transport all shippers' power at the same rates, terms and conditions as they transport their own power. The transmission companies' dispatchers must treat their employer's shipments exactly as they treat competitors' or other shipments. The mandate by FERC was litigated and passed Constitution muster as the transmission companies are allowed regulatory rates that are in a "zone of reasonableness" and are not so low as to be confiscatory. In some regions, Texas, California, the Midwest and the Midatlantic and northeast, Independent System Operator entities were established to dispatch power, while in the remainder of the Country, the transmission owners set up functionally separate dispatch entities to ensure no favoratism.

There is no legal basis, and minimal logistical reasons, that a similar arrangement could not also be mandated for railroads. Any financially qualified entity would be granted de jure trackages rights to operate trains over all railroads and those trains would be handled at the same rates, terms and conditions at which the host railroad operates its own trains. The railroads would have to file an open access tariff with the FRA, just as electric transmission companies must file an open access tariff with FRA sister-agency FERC.

I am not a EE, but as I see it, there is one problem with the analogy of electric transport and rail open access. People are assuming that the same "electrons" that enter the power grid in say CO are the same ones that exit the grid to the consumer in ILL. It's not. There is substitution, meaning that power put into the grid in CO may be consumed in western NE, substituting for power generated in NE, that instead substitues for the power to the consumer in ILL. Financially there is transport, but not in reality. The same principal holds true for open access in the natural gas pipeline business. The gas I buy from a specific well the TX is not physically the gas that the pipleine delivers to me in NC. The TX gas may be consumed in east TX and the gas I actually get may have entered the pipeline in LA or MS. (I was in the natural gas business at one time). The "transport" is one sense an "accounting fiction", not a real physical, end to end transportation.

In the RR example the cars or trains that enter the "open access" line at one end run the whole length, no short substitution. Customer wants his own cars, not someone else's similar cars. This creates a much more complex dispatching scene, since your off-line train will occupy evey mile of track and sidings. Open access may work, but its not as simple as many on this board, the "Trains" boards, or congress for that matter think.

To a first approximation, you're right about the electrons. (Actually, it's electric current that matters. The electrons themselves are almost standing still. http://www.newton.dep.anl.gov/askasci/p ... y99092.htm)

However, this should have nothing to do with the question of open access because the rate should be set to adequately compensate the owner of the infrastructure. For electricity, the rate can be set low because they can substitute electricity from other sources. For rail, that rate will have to be set higher to account for the lack of subsitutability.

And that ignores the fact that many commodities shipped by rail are traded at standardized specifications on the commodities markets. Wheat, coal, pork bellies, etc. John McPhee's book Uncommon Carriers follows a barge which ships one commodity up the Mississippi River, and then ships the same commodity down the river. With computerization and standardization, we ought to be able to squeeze this inefficiency out of the transportation system just like we can with the electric or natural gas systems.

(I'm not sure why this topic is on the Amtrak forum. It really seems to be related to freight rail. "Open access" for passenger rail involves other political considerations such as the future of Amtrak, appropriate compensation for differential speeds on the rails, etc.)

How is this an Amtrak topic?

I'm not sure, either, why this is an Amtrak question but I'll go ahead with a response as it would affect Amtrak.

Massive disclaimer -- I'm not at this point advocating what I'm about to mention below though I will say it's worth debating for merit.

Why not recognize that ownership, maintenance, and operation of infrastructure is fundamentally separate and different than the transportation of goods? The barriers to entry for a railroad are now so great that for all practical purposes there won't be new rail lines developed by private enterprise. In essence, no market forces can or will be able to create an entirely new railroad from the ground up. The implication is that each railroad, in many places, operates as it's own monopoly.

So, if a huge collection of little monopolies is what the rail world really looks and acts like, what to do? The traditional responses have fallen into two categories: regulate or sufficiently dismantle to create effective competition.

Regulation didn't work for anyone. It didn't create competition and it ruined the railroads as well. As an alternative, I think effective competition could be created through a dismantling of the industry -- specifically the separation of infrastructure from transportation.

Why not have separate companies own and maintain rail infrastructure and then other companies operate trains? Competition would be created on two fronts: competition for the business of having a transportation company operate trains on your rails instead of someone else's and competition for services of moving goods by any train operating company.

Clearly, there are a number of issues that would need to be looked at but probably none that would automatically stand in the way of doing this. Also, it's hard to say how this would impact Amtrak. On one hand, an infrastructure company would be inclined to give priority access to whichever train company is most important to them, Amtrak being one of them and certainly not a big one. On the other hand, the divorcing of the rails from the trains could change the mindset of companies that might not otherwise give two hoots about anything other than "their trains".

In some ways, this would mold rail transportation to look more like the trucking industry. Trucks pay money to use infrastructure either directly (tolls) or indirectly (motor fuel and tire taxes). Could it work for the rail industry?

This is most definitely an appropriate topic for the Amtrak thread, since Amtrak is the "open access" tenant on freight railroads for most of its route network.

That having been said, open access is a complex topic and one that generates strong emotions. Of course the European Union has adopted open access, and it has been interesting to follow the progress of things there, as freight carriers have consolidated across national boundaries while passenger services (for the most part) remain strongly identified with individual countries.

While open access does appear to provide competition for both freight and passenger rail service, it poses several other large problems. Perhaps the biggest is how to set access fees. The premium-fare, high speed services can (and do) pay high prices for fast schedules, but any attempt to collect tolls that fully recover the costs associated with freight traffic will most likely drive the freight trains right off the network. The same is true of commuter services. Therefore, access fees have evolved into an elaborate web of cross-subsidies, and even at that the tolls don't cover the full cost of maintaining the infrastructure. Thus, the infrastructure has remained in government hands (with the sole exception of Railtrack, which of course collapsed spectacularly a couple of years back).

The other problem is that, with competition, prices will inevitably be driven down to long run variable cost, and nobody will make much money. That is what has been happening in Great Britain, where privatization has not (based on ridership) been the "failure" it has been called by folks here in the US, but the private train companies continually operate on the edge of bankruptcy.

I don't see open access happening in the US (and I work for a regulatory agency, so I'd hear any talk about this). But if it did, and railroads were forced to split themselves into an infrastructure company and an operating company, which would you buy stock in?

The infrastructure companies would be de facto monopolies, and so their prices would have to be regulated just as those of electric transmission companies are. I don't see that kind of return to regulation as likely either.

If open access were to be created in the USA I think we would be re-creating the airline deregulation scenario, with one possible huge difference. Because of the high cost of railroad labor we would undoubtedly see the rise of low cost train operating companies that would hire new workers at entry level wages and knock the socks off the established "legacy" carriers. Access fees would be high for the new competitors, but they'd be able to compete based on their lower labor costs. So over the long run, the legacy railroads would more and more be relegated to the role of infrastructure maintenance and dispatching, roles that are assumed by the FAA for the airlines. If the legacy railroads turn out to be outstanding performers in their new roles and rail transportation enters a new golden age, then I think we have an argument for privatizing the FAA. But if the legacy railroads find that there isn't much money in maintaining tracks for low-ball train operating companies and the system begins to deteriorate, we'll be in a deep hole. My guess is that things would trend more to the deep hole scenario and less to the golden age scenario. Which leads to result that in order to allow open access we would need to have more and more government regulation of the infrastructure and dispatch operations to insure that the tracks are safe and access is open to all qualified parties.

There also are other questions about open access, like how would passenger rail be treated in comparison to freight rail and how would high speed rail get built? Would the Class Ones be free to abandon marginal lines to the point that wheat farmers in Montana would be told that if they want access to the mainline they'll need to hire their own power, rolling stock, crews and maintain their shortlines to the standards set by open access?

My feeling is that most of the Class Ones take pride in their infrastructure and they realize that their business depends on efficient and modern technology. The billions that they are investing in new capital projects shows that they are confident in the future of their businesses. Would open access sustain the investment needed to build the infrastructure we'll need in 2028? There are undoubtedly many flaws in the current railroad regulations. Captive shippers get screwed and Amtrak sometimes sits in sidings or trails a slow moving coal haul for miles, but open access doesn't seem to fix any of those problems, it just seems to offer a whole lot of new problems to deal with.

Amtrak Forum Moderator's Note:

Moved per offlist direction of the Creative Director to the General Operations Forum.

Everyone is discussing how to price it, how to structure it.....what is being ignored is the fact that railroads are private property. What is next - gas prices are high, should we nationalize the oil industry? Long lines and inefficiency at the grocery store? Let's let anybody who wants to put items on the shelf of the local supermarket and sell them to customers - never mind who presently owns the building! Nationalization, confiscation, whatever you want to call it, flies in the face of the very principles this nation was founded on.

Mr. BR&P, I know ehere you're coming from, and many of the regulars over at the Amtrak forum would tell you that I am in strong agreement with the principle of reducing governmental influence and allowing the market to determine allocation of economic resources.

But the railroad, because of the basic nature of both the technology and the economic principles which apply to it, cannot avoid some degree of interaction with the state. And as I have said on a number of occasions, once the state's power to coerce is coupled with both large amounts of (fixed and immovable) capital and a high degree of energy efficiency, a politicized struggle over that power is impossible to avoid.

Free-market principles and full participatory democracy are inseparable; you can't have one without the other. But the "prefectly competititve" model is likely unattainable. We probably came closest in the America of smajl shopkeepers and artisans which flowered in the the 1840's.

But other trends were underway during those years. The first great concentrations of capital were building canals and railroads, and any number of cycles of growth and retrenchment, regulation, deregulation and mis-regulation were about to commence And the nation itself faced the brutal cost of the resolution of the central issue of slavery, a process which has taken 150 years to resolve, so far.

But to return to my original point, the transportation question today is probably on a paralell with the evolution of the communications and information industry of a generation ago. A fundamental restructuring is in the worrks, and the probability of new technoligical innovations and forms of organization is very high.

Bot when the dust settles, I expect that the basic principles of flanged wheels, steel rails, separable erolling stock, uniform operating rules and standard gauge will still be around, though most of us here likely will not.

I re-read my post, and I don't see anything about "nationalization" there. I merely observed that, in Europe, difficulties in raising enough revenue from access charges have meant that the infrastructure remains in government hands, rather than being privatized.

In North America, instituting open access would most likely mean requiring railroads to split into an infrastructure company and a train company, just as electric utilities have had to separate transmission from generation. However, the problem of how to price access remains, and I presume some governmental regulation would be needed.

As I also said before, I don't see it happening here.

Actually, I have little, substantively to add to this discussion, except to note that the history of government involvement in regulating the railroads is somewhat different than the history of regulation of the electric power industry . For a good description of de-regulation of the electric power industry in Maryland, you can look in the Maryland General Assembly's web site ( simply do a search on Maryland General Assembly)when you reach the actual web site, scroll down to "Bill Indexes" and you will see a place to enter a bill number. Enter HB 82, which is a bill which would re-regulate the de-regulated electric power industry. This will give you a synopsis of the bill ( which received an unfavorable report, which means it will not reach the floor of the House during this session) Scroll down to "Documents" and you will find a link to the Fiscal and Policy Note. Click on that and you will get an analysis prepared for the delegates which has a good explanation of the situation in Maryland with regard to how the companies are organized. This bill was introduced because of the 72% electric rate increase which the Baltimore Gas and Electric Co. imposed on its customers which is the subject of considerable dissatisfaction and controversy here in Maryland.
I will leave it to others to explore how the situation described in that policy note would compare with the present situation of our railroads.