Modernizing Freight Rail Regulation: Recommendations from the TRB Study
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Modernizing Freight Rail Regulation:Recommendations from the TRB Study*
Jerry Ellig, Ph.DSenior Research FellowMercatus Center at George Mason University
*The speaker served on the committee that produced the TRB report, but unless otherwise indicated, opinions and conclusions in this presentation are solely those of the speaker.
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Staggers Act’s partial deregulation
• Deregulated most rates• Legalized confidential contracting• Liberalized abandonment of unprofitable
lines• Time limits for merger decisions under
“public interest” standard• Ended “open routing”
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Staggers Act’s effects
Figures in $1998. Source: Jerry Ellig, “Railroad Deregulation and Consumer Welfare,” Journal of Regulatory Economics 21:2 (2002)
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More recent rate trends
Source: Transportation Research Board, Modernizing Freight Rail Regulation (2015), p. 55.
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Lingering controversies• Maximum rate regulation
• Mandated switching
• Revenue adequacy
• Service complaints
• Merger approval
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Current rate regulation
• Rate exceeds 180% of “variable cost”
• Absence of effective transportation competition
• Rate exceeds “stand-alone cost”-- or one of several simpler
benchmarks
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Problem: Cost allocation is arbitrary
180% R/VC thresholds under different cost allocation rules
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Percent of ton-miles priced <100% R/VC
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2001-02 2003-04 2005-06 2007 2008 20120
5
10
15
20
25
30
35
40
Percen
t
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Problems beyond cost allocation• Geographic/product competition
included, then excluded
• Shipper cost of bringing a case– Full SAC: $5.8 million– Simplified SAC: $4 million– 3 Benchmark: $250,000
($4 million cap on rate relief)
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Proposal: Rate benchmarking• Use rates from competitive markets to
estimate how shipment characteristics affect rates
• Use this model to predict rate based on shipment characteristics
• Actual rates exceeding predicted competitive rate by some multiple qualify for arbitration
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Example: Chemicals
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Arbitration• Arbitrator determines market
dominance
• Strict time limit
• No limit on types of evidence
• Final-offer arbitration if market dominance is found
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Mandated switching
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Other issues
• Revenue adequacy
• Service complaints
• Merger approval
• Review of data gathering
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To get the full report …
http://www.trb.org/Main/Blurbs/172736.aspx
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