RXR Anti Trust Exemptions. Is it a problem?

[Anonymous]

QUOTE: Originally posted by greyhounds

The truth is that the railroads are unique in that they must: 1) compete with each other and, 2) cooperate with each other at the same time.

Outside the Midwest, railroads operate under a duopoly environment. Some areas suffer under a monopolist environment. That ain't competition. Your statement 1) is a gross overgeneralization. As for 2), are you kidding me? Cooperation?! How are paper barriers and bottleneck rates "cooperation"?

QUOTE:
Even under your cherished open access, which you have yet to make a case for, no one rail company could get trainloads together to go everywhere from everywhere. They'd still have to: 1) compete with each other while, 2) cooperating with each other.

Since 1) and 2) have been discredited, the only thing to discuss is the case for open access, which is simple: OA forces rail transporters to compete with each other for all rail customers. It puts railroading on the same footing as trucking, barging, et al. Whether they cooperate with each other or not is dependent on market forces and federal oversight.

QUOTE:
The taxes are scewed so as to make the SUV's/passenger cars cross subsidize the large trucks.

Under your "user fees are subsidies" definition (a skewed definition if there ever was one), if SUV's/passenger cars cross subsidize trucks, then by association they are also cross subsidizing the railroads, since outside the coal transportation market railroads are now completely dependent on trucks to get the cargo between the railhead and the customer's dock.

Of course, that whole line of thought is ridiculous, because user fees are not subsidies. Although we could argue that highway user fees are being used as a cross subsidy for railroads via the RR's dependence on trucks, since without them most rail lines would be rusting right now.

[MichaelSol]

QUOTE: Originally posted by greyhounds
The relavent discussion about highway subsidies is the advantage it gives to trucking. An 80,000 pound truck does far more damage, and requires far more design and construction, than the largest SUV. The taxes are scewed so as to make the SUV's/passenger cars cross subsidize the large trucks.

How so?

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
You can't have this cooperation without some form of exemption from anti-trust. They've got to talk to each other about through charges, divisions of revenue, etc.

"Anit-trust" is a specialty area of both law and economics, and particularly in a regulatory context.

"Price fixing" is a completely different legal consideration, economic phenomenon, and invokes a different regulatory mechanism.

Nearly all national-scale industries compete, yet cooperate through their trade and lobbying associations. That this occurs has nothing to do with anti-trust economic theory, does not invoke anti-trust regulation, and while it presents temptations to price fixing, sophisticated industries invoke sets of rules to avoid any appearance of such efforts, including third party discussions with other competitors.

Best regards, Michael Sol

[greyhounds]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by PNWRMNM

FM

The highway system is subsidized as described. Whether it is the Feds, the state or the locals does not make any difference and you know it.

Mac

Sorry Mac, but you are in denial. You want so much to believe that highway users are subsidized, because it buttresses your case that the "competition" to railroads is subsidized, and without that point of contention you whole case is eroded.

The truth is, just the opposite is the reality. By allowing railroads anti-trust exemption, the federal government is actually subsidizing the railroads. What other transportation mode is allowed monopoly power and anti-trust exemption? None but the steel rails.

I know it makes your head hurt to have to contemplate that reality, but you gotta face the truth sooner or later.

The truth is that the railroads are unique in that they must: 1) compete with each other and, 2) cooperate with each other at the same time. Even under your cherished open access, which you have yet to make a case for, no one rail company could get trainloads together to go everywhere from everywhere. They'd still have to: 1) compete with each other while, 2) cooperating with each other.

You can't have this cooperation without some form of exemption from anti-trust. They've got to talk to each other about through charges, divisions of revenue, etc.

When I was setting freight rates for the old ICG, as Jay also did, the rule was explained to me as folllows: "You and I can talk and agree, but we can't talk and agree with someone else." I could leaglly talk to the SP about establishing a through rate from Chicago to Dallas over Memphis (it was a breakthough - they had always insissted on St. Louis). But if we brought the Santa Fe into the conversation or agreement we were illegal. Makes sense to me.

Now if two trucklines talked it would be collusion, since they both went to Dallas and Chicago. But since (at that time) the ICG didn't run to Dallas and the SP didn't touch Chicago, we could talk.

The relavent discussion about highway subsidies is the advantage it gives to trucking. An 80,000 pound truck does far more damage, and requires far more design and construction, than the largest SUV. The taxes are scewed so as to make the SUV's/passenger cars cross subsidize the large trucks.

When I worked for International Harvester/Navistar, then the largest manufacturer of larger trucks, I came to realize that such trucks were basically designed by state legislatures - whatever they said was legal is what got designed. Their laws mandated a vehicle that was cross subsidized by the driving public. And that's what got built.

[Anonymous]

Geez you two, get a room.





Preferably a padded one with rose colored windows.

[PNWRMNM]

Jay,

Thank you for reminding me. I know the FM's acquaintance wtih reality is fleeting at best. Clearly you understand it, I hope the rest of the participants do too.

Mac

[jeaton]

Mac

You have to understand-if he says it, it's the truth.

Jay

[Anonymous]

QUOTE: Originally posted by PNWRMNM

FM

The highway system is subsidized as described. Whether it is the Feds, the state or the locals does not make any difference and you know it.

Mac

Sorry Mac, but you are in denial. You want so much to believe that highway users are subsidized, because it buttresses your case that the "competition" to railroads is subsidized, and without that point of contention you whole case is eroded.

The truth is, just the opposite is the reality. By allowing railroads anti-trust exemption, the federal government is actually subsidizing the railroads. What other transportation mode is allowed monopoly power and anti-trust exemption? None but the steel rails.

I know it makes your head hurt to have to contemplate that reality, but you gotta face the truth sooner or later.

[Anonymous]

QUOTE: Originally posted by jeaton

If I do not use the federal highway system and I pay the Federal Gasoline Excise Tax am I not subsidizing the federal highway system?

So what you're saying is that you buy lots of gasoline, but you don't use the federal highway system? How much gas does your lawnmower use, anyway?

If what you're saying is that you mostly drive on local roads (and thus you are paying a federal fuel tax but not using the federal highway system), keep in mind that much of the money from the Highway Trust Fund does go the construction and maintenace of local roads. In addition, some is siphoned off for spending on mass transit, bike paths, etc.

If anything, it seems you non-federal highway users should be giving us regular highway users a rebate.

[PNWRMNM]

FM

The highway system is subsidized as described. Whether it is the Feds, the state or the locals does not make any difference and you know it.

Mac

[jeaton]

If I do not use the federal highway system and I pay the Federal Gasoline Excise Tax am I not subsidizing the federal highway system? If I paid a certain amount per mile to drive down a federal highway, then it would be a user fee. With the exception of toll roads, local, state and FEDERAL highways are built and maintained with money collected from the public through taxes. It does not follow that because an expenditure is made from taxes dedicated to a specific purpose that the tax becomes a "user fee".

[Anonymous]

QUOTE: Originally posted by PNWRMNM

In his post of September 19 Futuremodal claims the highway system was and is financed with user fees so motor carriers are not subsidized.

In footmote 230 or "Perkins/Budd' by Richard C. Overton 1982 the author states " . . . The truth apears to be that for the period 1921 through 1974, approximately two-thirds of the combined federal, state, and local expenditures for highways were met by user charges of one sort or another, while the remaining one-third was paid from gerneral tax sources. In other words, vehicular traffic by no means paid its way (the one third paid by general taxes amounted to $128 billion), nor was it accurate to imply that all ulta-modern highways were fully paid for by public expense. As is so often the case, the answer lay somewhere in between. (us DOT, Bureau of Public Roads, Highway Finance, Summary to 1965, Table HF-1 for years 1965-1967 and Table HF-11 for years 1968-74{Washington DC 1965-1974}.)"

Mac

Mac,

You might want to contact the author and ask him why he combines federal, state, and local expenditures to facilitate his conclusion, rather than doing the professional thing and comparing federal funding to state and local funding. The two are very different, as most federal highway funding comes from user fees, while state and local highway funding uses a combination of funding methods. It is at the state and local level where the 128 billion figure arises.

I was very careful to differentiate between the federal and state methods of highway funding in my previous posts, and I was the one that made the point regarding the use of non-user fees at the state level for a typical state's share of highway funding. Nothing is served by clouding those differences and packaging them all into a one size fits all critique, unless one is motivated by a desire to propagandize for the sake of the railroad industry.

The fact remains: The federal share of highway funding comes from user fees, not subsidies from the general fund. Therefore, it is a non-sensical statement to say "highways are subsidized", and implying that such is characteristic of federal highway expeditures.

[PNWRMNM]

In his post of September 19 Futuremodal claims the highway system was and is financed with user fees so motor carriers are not subsidized.

In footmote 230 or "Perkins/Budd' by Richard C. Overton 1982 the author states " . . . The truth apears to be that for the period 1921 through 1974, approximately two-thirds of the combined federal, state, and local expenditures for highways were met by user charges of one sort or another, while the remaining one-third was paid from gerneral tax sources. In other words, vehicular traffic by no means paid its way (the one third paid by general taxes amounted to $128 billion), nor was it accurate to imply that all ulta-modern highways were fully paid for by public expense. As is so often the case, the answer lay somewhere in between. (us DOT, Bureau of Public Roads, Highway Finance, Summary to 1965, Table HF-1 for years 1965-1967 and Table HF-11 for years 1968-74{Washington DC 1965-1974}.)"

Mac

[Anonymous]

Yes, I have a great admiration for Theodore Roosevelt. Anti-trust laws are essential for maintaining the integrity of the free market system, and TR had tremendous foresight.

Paul, the reason I believe issues such as open access for railroads is apolitical is that open access for energy transmission was a bipartisan effort, neither a left wing or a right wing ideal, e.g. centrist in nature. The same should apply in extending anti-trust laws to railroads.

[CSSHEGEWISCH]

I would hardly describe the open access issue as apolitical since it would require a major rewrite of anti-trust statutes or a pretty liberal interpretation of eminent domain. Since both of these options would require an action by the Congress or the legislatures of the several states, the issue is by definition political.

[bobwilcox]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by jeaton

futuremodal You really are quite the left wing socialist.

Rather than get drawn into yet another flame war with Jay, I will give you a brief history of my political life. The only reason I did not achieve a 4.0 GPA through college was due to a half dozen left-wing professors who graded me down because of my right-of-center views. I belong to no political party, but every election year I usually end up voting Republican (I have only voted for three Democrats my entire life, all at the local level). I voted for Reagan, I voted for Bu***he elder, I voted for Dole, and I voted for Bu***he younger. I am quite certain I will end up voting for the Republican nominee in 2008 (unless it's McCain). I am proud to reside in a conservative State such as Idaho, and I am a proud supporter of Gov. Dirk Kempthorne (an ideal candidate for a 2008 Presidential bid).

Yeah, I guess in Jay's Bizzaro World I am a left wing socialist.

Jay, your problem is that you cannot discern between a general ideology and a specific apolitical issue such as open access.

QUOTE:
By the way, is there anyway I can get a refund of the federal fuel tax I pay for gas I use when I am on non-federal highways? Oh yah, how about a federal gas tax refund for the 1000 or so earmarks that go to projects other than federal highways.
Jay

Jay, if such issues concern you, you should contact your elected representative to Congress. I seriously doubt you'll have any credibility down that avenue either.

Dave-Sounds like you would have loved Theodore Roosevlet.

[Anonymous]

QUOTE: Originally posted by jeaton

futuremodal You really are quite the left wing socialist.

Rather than get drawn into yet another flame war with Jay, I will give you a brief history of my political life. The only reason I did not achieve a 4.0 GPA through college was due to a half dozen left-wing professors who graded me down because of my right-of-center views. I belong to no political party, but every election year I usually end up voting Republican (I have only voted for three Democrats my entire life, all at the local level). I voted for Reagan, I voted for Bu***he elder, I voted for Dole, and I voted for Bu***he younger. I am quite certain I will end up voting for the Republican nominee in 2008 (unless it's McCain). I am proud to reside in a conservative State such as Idaho, and I am a proud supporter of Gov. Dirk Kempthorne (an ideal candidate for a 2008 Presidential bid).

Yeah, I guess in Jay's Bizzaro World I am a left wing socialist.

Jay, your problem is that you cannot discern between a general ideology and a specific apolitical issue such as open access.

QUOTE:
By the way, is there anyway I can get a refund of the federal fuel tax I pay for gas I use when I am on non-federal highways? Oh yah, how about a federal gas tax refund for the 1000 or so earmarks that go to projects other than federal highways.
Jay

Jay, if such issues concern you, you should contact your elected representative to Congress. I seriously doubt you'll have any credibility down that avenue either.

[Anonymous]

QUOTE: Originally posted by jeaton

Mark in Utah

Are there any statuatory limits on the fees that transmission line owners can charge electric producers for the use of those wires?

Jay

The rates charged are based upon rate-of-return calculations. They're also the same rates they have to charge themselves internally for the use of those lines. Some areas of the country have been allowed to charge "congestion fees", which allow higher rates to encourage increased generation or transmission improvements in an area. Congestionn fees are not popular, and I'm guesing that you'll see them drop be the way side.

There has been some talk of nationalizing the entire interstate transmission system, making it a completely open system, paid for by the public, for the use and benefit of the public, similar to the interstate highway system. Interesting concept, and has some merit on the basic priinciples. It'll be interesting to see what comes of that proposal.

Mark in Utah

[jeaton]

futuremodal You really are quite the left wing socialist. By the way, is there anyway I can get a refund of the federal fuel tax I pay for gas I use when I am on non-federal highways? Oh yah, how about a federal gas tax refund for the 1000 or so earmarks that go to projects other than federal highways.

Mark in Utah Are there any statuatory limits on the fees that transmission line owners can charge electric producers for the use of those wires?

Jay

[Anonymous]

As a RR fan and a heavy user of the RR through my industry (electric power), a few perspectives.

People will be screaming no matter what's done with regulations until "captive shippers" are set free. No amount of regulation will solve the problem until, and ONLY until the RR's are forced to open their rails to any train that wants to pay the fee to run on them. That's being a common carrier. That's often called Open Access.

The electric utility industry fought this approach tooth and nail for years, proclaiming immediate failure, massive outages, and much higher costs. FERC forced it upon them. They had no choice. When Open Access hit, none of the dire predictions came true. True some improvements needed to be made, and still need to be made to the transmission system, but it's all driven by the economics.

In a utility that sees a 40 year return on investment as typical, the transmission improvements being driven by open access are seeing payback times of 5 years or less! I suspect that when the RR's have to open up their system we'll see the same sort of thing going on. Some lines will become VERY heavily used, and additional trackage will be built to accomodate the additional haulage.

Electric utilities used to think they made the most money by generating power. They are now realizing that the money to be made is in the wires. If the RR's realize the same thing, they'll see that the money to be made is not in the running of the trains, but in the operation of the rails. You could conceivably see RR's in the future with no trains, but a lot of rails that they've opened up to multiple carriers under long-term contracts.

The RR industry is in a state of change. Eventually, no matter what the RR's want, they'll be forced to be open access, fully deregulated, and have to play on the same level playing field that all other businesses must work on. Will they still have some "privlidges"? Sure. They'll undoubtedly always have the ability to condemm property and such to be able to establish new routes, similar to electric utilities. In many ways, RR's and electric utilities will be operating under the same types of regulations.

Mark in Utah

[Anonymous]

QUOTE: Originally posted by PNWRMNM
...In contrast the government in this same period set about subsidizing the railroads' motor and water carrier competitors...

And just where did those "subsidies" come from? User fees. Ergo, they are not subsidies, they are pay as you go expenditures.

You cannot include property tax expenditures for county and city streets, those are service oriented expenditures, not commerce oriented expenditures. Nor can you include the States' share of non-user fee expenditures for commerce related highways, since that is up to the discretion of each state's legislatures, not the federal government.

In a more gray area, most of the "subsidies" for water carriers are actually expenditures required to maintain navigatability of previously navigatable rivers that have been dammed for energy, irrigation, and/or flood control. You can argue that the resulting slack water from such projects allows greater load factors than had existed prior to such projects, but you also cannot expect a navigation maintenance project to purposefully minimize the load factor for water carriers. It should also be pointed out that railroads are the recipients of the same "subsidy" if a rail line needs to be relocated for a water project. The only difference in that vein is that the railroads must resume maintenance of those relocated tracks once the relocation project is done, while the water carriers pay for channel maintenance via the Waterways Trust Fund.

On the whole, the only real advantage of highway users and water carriers is that the railroads must pay property taxes on their ROW. This property hold is entirely the result of the railroad's choice, and anytime they want to turn their ROW over to a public entity, I'm sure they could do so. Since they choose to keep it private, the property tax argument is also moot.

Since the railroads have held onto proprietary ownership of ROW rather than allowing public ownership in the same vein as highways and waterways, their complaints of "subsidies" for the ROW's of the other modes is specious argument not worthy of credibility or empathy.

[jeaton]

nhs792
Go to this page on the National Industrial Transportation League (NIT League) and click on "STATUS OF RAIL REFORM"

http://www.nitl.org/newsletsamp.htm

This will give you some details of the changes proposed in the existing laws and the benifits that shippers percieve will flow from the changes. The counter arguments are found on the AAR's site listed above. If you read both, you will have a fairly good picture of the position of both sides.

Jay

[Anonymous]

Nobody has explained what railroads are exempt FROM with the anti-trust exemption. If you don'tknow specifically what they are allowed to do that other industries can't , then how do you know that its bad or that whatever it is they are allowed to do won't actually help consumers?

Dave H.

[kenneo]

Rates too high on coal for the utilities?

If they were, the DME would have these boys fighting to give (as in donate) the necessary money to build their approved Powder River Extension. Since we don't see that happening, must be complaints for the sake of taking advantage of others for their own sake.

Since the coal burners have taken nearly all of the railroads productivity increases, and since they want to lower costs and, where possible, raise rates, their only avenue is to force the rail rates down. And believe me, they would really like to railroads to pay them for the opportunity to haul the coal.

[bobwilcox]

QUOTE: Originally posted by PNWRMNM
...In contrast the government in this same period set about subsidizing the railroads' motor and water carrier competitors...

Henry Ford started mass producing Model Ts at Highland Park in 1914. The masses demanded good roads for a Sunday drive and the Federal money spigot was turned on in the 1920s. Regulation and millions in highway subsidies. Talk about a double edge sword!

I beleve the most important year in 20th century US railroading was not 1940 with EMDs FT tour but 1914 with Fords mass production of automobiles.

[PNWRMNM]

For those who are interested in the facts of how the hostile public policy of 1906-1985 caused the near destruction of the railroad industry I offer the following. Sources are "Enterprise Denied, Albro Martin, 1971; "Rates of Return - Class I line Haul Railwarys" 1921-1948, Stanley Miller and others, 1950; and "Performance of US Railroads Since World War II", Kent Healey 1985. "Enterprise" should be available in used book section of Amazon or Barnes and Noble, the others I do not know as I got them from my local University library.

Martin covers the period 1897-1917. The ICC was given extensive regulatory powers in 1906 and 1910. The commission then held down rates in a period of inflation in which only rates were restrained, which by the end of the period place the industry in the capital starved position it has yet to recover from. The rate freeze was in fact a continuing series of real rate reductions.

Martin's fundamental question was "what investments were actually made in this period, and what investments should have been made to keep up with the growing demand". The chart on page 131 answers that question as does a table in the appendix that describes in detail how the chart was constructed. His conclusion is that in the period 1889-1906 underinvestment ran about $200 million per year, and did not exceed 300 million per year. In the years 1912-1915 underinvestment averaged over $1,000 million per year. He also shows sources of funds invested, stock issues, bond issues and retained earnings. The peak year for retained earnings was 1906.

Rates of Return is full of small print tables, a statistician's joy On pages 48 and 49 is a table of rates of return for all railroads, page 50 and 51 is same but for Class I railroads only. There is not much difference. Without doing the math the average return over the period for all railroads is about 3.5%. Only in 1942 does return exceed 6%, at 6.46%.

Early in this period there was great hue and cry about what the industry should be allowed to earn. The tansportation act of 1920 decreed that the carriers should earn 5.5%, which did not happen. In 1922 the ICC announced that they should earn 5.75%, that happened once in the study period. The ICC never addressed the issue again in this time period.

By contrast gas and electric utilities at the time were allowed a return of 8%, and telephone companies were allowed 7.5%. These were regulated natureal monopolies where the rates could be maintained by government fiat. In contrast the government in this same period set about subsidizing the railroads' motor and water carrier competitors.

"Performance" covers many areas, including financial. It points out that during the 1945-1970 period, NO investment funds were raised by stock issue, and on an industry basis debt retirement exceeded debt issue, which means the only source of net investment money was retained earnings. This is a huge and adverse change from the situation of 1897-1907.

The wonder is not that the industry has had trouble, the wonder is that it has survived.

Mac

[Anonymous]

QUOTE: Originally posted by bobwilcox

For an interesting look at things, go to :
http://www.aar.org/ViewContent.asp?Content_ID=2786
open the pdf file and scroll down to the first chart. Notice how productivity, rates, revenue and volume are all essentially flat through those "glory days" of regulation. Then in 1981 Staggers was passed. Productivity skyrocketed, volumes went up, rates went and revenue went down (in 1981 dollars). That one chart alone is a ringing endorsement of deregulation.

Considering the source (AAR), a ringing endorsement of partial deregulation is to be expected. If anyone has any evidence of the AAR advertising the not-so-great aspects of partial deregulation, please let us know.

When railroads were regulated, they were given this anti-trust exemption, e.g. there was a trade off of sorts to "balance" out the equation. When Staggers was passed, the anti-trust exemption should have also been lifted. That would have been closer to true deregulation of the railroads, but as it happened the railroads retained anti-trust exemption, so by any measure Staggers was only partial deregulation. The anti-trust exemption is a continuation of regulation, albeit on the shippers rather than the railroads themselves.

Yep, Staggers is a perfect example of railroads "having their cake and eating it too".

[bobwilcox]

QUOTE: Originally posted by dehusman

So far, other than to complain about how the shippers are being so abused and cry for reform, nobody has anwered the question of exactly what anti-trust provisions the railroad is exempt from.

It was my understanding that the anti-trust exemption allowed railroads to make joint rates or to join in rate bureaus.

For an interesting look at things, go to :
http://www.aar.org/ViewContent.asp?Content_ID=2786
open the pdf file and scroll down to the first chart. Notice how productivity, rates, revenue and volume are all essentially flat through those "glory days" of regulation. Then in 1981 Staggers was passed. Productivity skyrocketed, volumes went up, rates went and revenue went down (in 1981 dollars). That one chart alone is a ringing endorsement of deregulation.

Dave H.

[Anonymous]

Mac,

The "capital starvation" to which you refer has nothing to do with public policy, other than the fact that public policy for other modes favors public ownership or public access of ROW's. Railroads choose to bear the entire cost of the ROW rather than splitting that cost among all the carriers and/or allowing public participation in that ROW cost in return for a certain degree of public access to that ROW. Until and if railroads are willing to let others share the cost of ROW in exchange for those others having access to the property, the railroads will always suffer from low ROI's. The inabillity to adaquately cover investment demands is part and parcel of a closed access system. Apparently, blaming "public policy" or "unfair competition" from truckers and barge lines is also part and parcel of railroading's closed access system.