Open Access, How Would it be Established and Administered?

[CSSHEGEWISCH]

Those who have followed my postings know that I believe that the concept of open access is unrealistic. However, since its proponents believe that it will solve problems as varied as too-high rates and capacity constraints, I feel that they are entitled to their day in court.

1. How would open access be established, legally and constitutionally?

2. How would it be administered fairly, in view of the constraints imposed by track capacity?

3. How would user fees (trackage rights charges) be determined?

[edblysard]

Hang on a second,,,I'm gonna have to get more bells!
[:D]

[kenneo]

Charlie

The only way to make it work is for the Feds to purchase the right-of-way - all of the railroad right-of-way - nationally and also each individual railroad. Then open the tracks to "owner-operator" "rail transport companies" on a ton-mile basis similar to what is charged by the various states.

This hasn't worked well in Britain, so why should it work here? It's sort of like Minneta's remarks about Amtrack - Bust up Amtrack like Bush wants and Amtrack will get 1.2 billion $$$ to run the trains that won't be there.

[Anonymous]

http://www.zetatech.com/CORPQIII44.htm

http://www.railcompetition.org/index2.htm - look under "Railroad Regulation: Changes in Railroad Rates and Service Quality Since
1990 (Chapter Report, 04/16/99, GAO/RCED-99-93)"

The Australian experience: http://www.doi.vic.gov.au/DOI/Internet/Freight.nsf/AllDocs/6B33905E20D6D3AECA256E0500058650?OpenDocument#opt

The only thing I would add is my belief that a private open access operator would not be viable without an "equalization" with other modes ROW taxation and funding, which means elimination of the ROW property taxes, an extension of the shortline maintenance tax credit to all open access operations regardless of Class, and an eligibility for funding under an Infrastructure Trust Fund.

[Anonymous]

QUOTE: Originally posted by futuremodal

<http://www.zetatech.com/CORPQIII44.htm>

<http://www.railcompetition.org/index2.htm> - look under "Railroad Regulation: Changes in Railroad Rates and Service Quality Since
1990 (Chapter Report, 04/16/99, GAO/RCED-99-93)"

The Australian experience: <http://www.doi.vic.gov.au/DOI/Internet/Freight.nsf/AllDocs/6B33905E20D6D3AECA256E0500058650?OpenDocument#opt>

The only thing I would add is my belief that a private open access operator would not be viable without an "equalization" with other modes ROW taxation and funding, which means elimination of the ROW property taxes, an extension of the shortline maintenance tax credit to all open access operations regardless of Class, and an eligibility for funding under an Infrastructure Trust Fund.

Hmmmm. And not a single one of those links works, go figger...

LC

[dehusman]

You have to remove the carets (<,>) at the ends and then they work.

Dave H.

[Anonymous]

There, I removed the carets for you LC. If you need anymore help, give Bill Gates a call.

[daveklepper]

We'd use the British experience and end up in the pickle.

[Anonymous]

QUOTE: Originally posted by daveklepper

We'd use the British experience and end up in the pickle.

When have we ever emulated the British regarding any industrial action? The only way we'd copy their example or worse is if the current Amtrak folks were put in charge of implementing open access here in the U.S.

[tree68]

If you apply the airline model, you end up with very busy corridors where owner/operators bid for the capacity. If the line needs more capacity, it will be built, or other ways will be found (alternate routing). On the other hand, little used branches would be subject to the same things that little used airports are - we still want our service, but we'll need some help to keep it open.

It's such a different paradigm that most people can't wrap their heads around it. I'm not saying it would or wouldn't work, but if it did happen, railroading as we know it would have to go. Not in the steel flanged wheel on rail arena, but in the operations arena.

[Anonymous]

QUOTE: Originally posted by tree68

If you apply the airline model, you end up with very busy corridors where owner/operators bid for the capacity. If the line needs more capacity, it will be built, or other ways will be found (alternate routing). On the other hand, little used branches would be subject to the same things that little used airports are - we still want our service, but we'll need some help to keep it open.

It's such a different paradigm that most people can't wrap their heads around it. I'm not saying it would or wouldn't work, but if it did happen, railroading as we know it would have to go. Not in the steel flanged wheel on rail arena, but in the operations arena.

Little used branchlines are already on the way out under the current system, so not much would change regarding their collective futures under open access.

You are correct that operations would see significant change. No more of this warehousing a car up and down the system until a buyer is found for the cargo, because all moves would be charged a fee, even repostitioning. You may see a return to the shorter/faster model aka D&RGW/Europe, since occupation of slots becomes a premium. Of course, no more 100% rate increases overnight fostered upon captive shippers, since there would be no more captive shippers. With an open market, you would see shippers return to the rails in droves. The subsequent demand for rail services would result in a reversal of the policy of retrenchment that has dominated railroading over the past century. And finally, with open access the incentive for deferring maintenance is eliminated, and the rail serive providers will have to find some other way to sex up the balance sheet.

[CSSHEGEWISCH]

One question that has not been answered: Since the concept of open access as predicated in this thread is based on government ownership of the rights of way, where would the money come from to accompli***his and how would the rights of way be purchased without a statutory basis for such purchase and without contravening the 5th Amendment?

Also, the Law of Unintended Consequences is still in effect. Since it is also held that the rights of way would be exempt from property taxes, how would the school districts which depend heavily on property tax revenue replace the revenue lost from such an exemption?

[bobwilcox]

QUOTE: Originally posted by CSSHEGEWISCH

One question that has not been answered: Since the concept of open access as predicated in this thread is based on government ownership of the rights of way, where would the money come from to accompli***his and how would the rights of way be purchased without a statutory basis for such purchase and without contravening the 5th Amendment?

Also, the Law of Unintended Consequences is still in effect. Since it is also held that the rights of way would be exempt from property taxes, how would the school districts which depend heavily on property tax revenue replace the revenue lost from such an exemption?

The Fed has all the authority they need in the interstate commerce clause. However, the must pay a "fair" value. Is a fair value the original cost, replacement cost, deprciated cost or something else?

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

One question that has not been answered: Since the concept of open access as predicated in this thread is based on government ownership of the rights of way, where would the money come from to accompli***his and how would the rights of way be purchased without a statutory basis for such purchase and without contravening the 5th Amendment?

Also, the Law of Unintended Consequences is still in effect. Since it is also held that the rights of way would be exempt from property taxes, how would the school districts which depend heavily on property tax revenue replace the revenue lost from such an exemption?

1. The ROW wouldn't necessarily have to be publicly owned. It could be either private or a public/private ownership. Vertical splits of corporations are not unheard of, and if the intent is to "equalize" rail ROW with that of other modes, it would make sense for the privately owned ROW to be run as a regulated utility to keep access charges reasonable, while the transporters would be unregulated to ensure market based competition and innovation. There's also the possibility of an Interstate Highway-type of new rail corridor development, paid for primarily by an Infrastructure Trust Fund, and these new Interstate rail corridors would either supplement or supplant the current proprietary rail grid. The concepts put forth for HSR are logical examples of open access, given the now obvious national detriments of the proprietary rail systems we have now e.g. massive retrenchments, monopolistic pricing, et al.

2. It is doubtful that property taxes on railroad ROW's have that much impact on the overall property tax base used by school districts, especially if open access results in positive unintended consequences such as new commercial development or reduced road damage due to publicly perserved branchlines. Indeed, public entities have the right and finacial access to purchase branch lines to perserve them, but what's the use of doing so if the only connection is a less than cooperative Class I? School districts take greater hits when the Nature Conservancy buys up property and takes it off the tax rolls.

[tree68]

QUOTE: Originally posted by CSSHEGEWISCH

One question that has not been answered: Since the concept of open access as predicated in this thread is based on government ownership of the rights of way, where would the money come from to accompli***his and how would the rights of way be purchased without a statutory basis for such purchase and without contravening the 5th Amendment?

Also, the Law of Unintended Consequences is still in effect. Since it is also held that the rights of way would be exempt from property taxes, how would the school districts which depend heavily on property tax revenue replace the revenue lost from such an exemption?

I can't speak to constitutional law, so I won't try. On the other hand, we're breaking new ground here. Let's consider making the purchaser of the ROWs not the government, but a quasi-government "authority." After all, somebody has to manage this thing, and theoretically it's going to have to at least break even in the end.

On the subject of property taxes, even if the "rail authority" is tax exempt, the enabling legislation could easily include some method of "payment in lieu of taxes" (or PILOT). I'll be optomistic and suggest that a system-wide formula could be determined that would make the taxes fair and equitable (ie, track "downtown" is worth more than that on the prairie). Properly done it would both create a situation where a local municipality couldn't gouge the track owner (as has been suggested sometimes happens), yet the income from said taxes would still be there, albeit adjusted somewhat.

This does raise the possibility that "landing fees" in some areas would be higher than others, dependent on a lot of factors.

An offsetting factor to the reduced income from property taxes, as received from the RRs, might be the growth futuremodal suggests will occur, which would increase property tax revenue, and very possibly other tax revenue (ie, sales tax).

[dehusman]

How does open access ensure the rates will be lower? It requires an entire additional layer of management (the entity that controls the track) that has to be financially supported, it requires duplication of facilities and services (switching, storage, crews, engine facilities, inspection locations engine and car repair) or if one railroad will have to contract with another to use its facilities. If railroad A contracts to use the facilities of railroad B, you know railroad B is going to attatch a certain level of profit to it. All in all I can't see where it will be cheaper to operate the physical plant if you separate it from the railroads. So if you raise the costs and reduce the revenue (because that's what this is really all about isn't it, getting cheaper rates for the shippers) that means the railroads rate of return would drop even further than it is now.

Dave H.

[Anonymous]

QUOTE: Originally posted by dehusman

How does open access ensure the rates will be lower? It requires an entire additional layer of management (the entity that controls the track) that has to be financially supported, it requires duplication of facilities and services (switching, storage, crews, engine facilities, inspection locations engine and car repair) or if one railroad will have to contract with another to use its facilities. If railroad A contracts to use the facilities of railroad B, you know railroad B is going to attatch a certain level of profit to it. All in all I can't see where it will be cheaper to operate the physical plant if you separate it from the railroads. So if you raise the costs and reduce the revenue (because that's what this is really all about isn't it, getting cheaper rates for the shippers) that means the railroads rate of return would drop even further than it is now.

Dave H.

Railroad companies are already divided into MOW divisions along with the other divisions, with open access (the privatized version) you're just splitting the MOW division from the rest of the company and treating it as an independent company, so there's no new layer of management.

You wouldn't necessarily see lower rates with open access unless some of the current ROW costs are ameliorated under separate ownership, such as property taxes, surcharges for track damage from flat spots on wheels, MOW tax credits (now available to shortlines), etc. One thing you'd never see under regulated open access is defered maintenance, since the access charge is based in part on attributable usage costs, and since the past usage of deferred maintenance by Class I's was usually used to sex up the balance sheet to attract a merger partner or attract new investment. Remember, the point of implementing open access is to equalize the infrastructure playing field among railroads, highways, and waterways, so that shipping choices will be based on economic fundamentals derived mostly from user fees and the tax advantages of public ROW ownership.

Right now railroad use differential pricing imposed upon captive shippers to make up for tighter profit margins on their quasi-competitive corridors e.g. robbing Peter to pay Paul. Under the proprietary ROW ownership setup, railroad companies need to earn 180% over costs (e.g. revenue adaquacy) to achieve decent ROI's. Profit margins on competitive corridors are as low as 108%, so to make up for this they charge their captive shippers over 237% above cost. Since so much of their capital costs are tied up in infrastructure maintenance, by taking the ROW out of their hands and putting it into a state of equalization with highways and waterways, they can then lower their revenue adequacy requirements, perhaps enough to pass some of those cost savings on to shippers

Railroads are going to have to do something about this rate differentiation eventually, because the indubitable laws of economics will cause plants/warehouses/etc located on captive raillines to shut down as they reach their replacement age, and any new plants/warehouses will be built where their is de facto rail competition. Thus, the pool of captive shippers paying 237% will be reduced over time while the pool of uncaptive shippers paying 108% will grow over time. Either it will be open access, or one giant rail monopoly for the whole nation (e.g. all rail shippers will be captive). Which one do you think will benefit GDP the most?

[CSSHEGEWISCH]

Several points which I have observed in this thread:
There is an assumption that multiple service providers will seek to operate on all lines. Nowhere is there a guarantee that this will occur or that a service provider will even seek to operate on a given line, especially a branch in Montana that sees traffic only when the wheat crop is harvested.

Many of the benefits touted for open access seem to be based on "Field of Dreams" wishful thinking: "If you build it, they will come".

The issue of fair value will probably wind up being determined in court in a condemnation proceeding, which could take a long time.

How would the qualifications of service providers be established and who would make this determination? You can't let anybody with an old GP7, a few covered hoppers and no operating experience run a grain train on some branchline in North Dakota.

The experience of the airlines under dereg is revealing. You have a situation similar to open access and while some rates are cheaper, the overall rate structure seems to have no rhyme or reason. Some smaller cities do not have multiple airlines serving them. You have a lot of smaller carriers starting up and then discontinuing service a few years later, often leaving passengers stranded. There are also a lot of airliners parked in the Arizona desert when the carriers who were leasing them folded.

[Anonymous]

One can make a reasonable calculation that the dynamics of an open access rail system will emulate the open access characteristics of highways and waterways to some degree. True, not all rail lines will host multiple carriers, that will be determined by business strateties and free market forces. Not all areas of the country are served by all the major truck lines, and in these cases you typically have a local carrier or independent taking up the slack. In a branch line rail case, you would probably have a local carrier deliver carloads to a major junction for the major carriers to pick up, if they so choose. You wouldn't likely have all seven Class I's serving every major rail market, but in areas like LA and Chicago you might see all seven. Similar to the low cost air carriers (who are all doing quite well), you may very well have similar startups in the Class I market, guys who see a market niche or who innovate a better way of carriage, and these guys might actually trump the current Class I field.

To characterize the actions of the free market as just a "Field of Dreams" is to underestimate the power of consumer choice in enhancing overall GDP. The market will do what it does, all we need is to level the playing field and let it do what it does.

[Junctionfan]

For me anyways, I always thought that open access lines should be run by the railroads and who ever operates the most trains is responsible for the upkeep and dispatching and other operations of the line. The other "tenents" would simply provide rent and would be subjected to a lease agreement.

Rent Control maybe introduced if necessary but generally would be private cooperation between the interested parties whether they are big like UP or small like RJ Corman R.R. As long as they have a legitamate cause to use that line and have the motive power and equipment to keep the line operational and avoid delays (alco breaks down and fouls the line and shortline doesn't have anything else to get the train moving), it would work.

It is something that should be almost a partnership agreement like NATO where there are senior members which has special privilages and junior members which has basic privlages.

[Anonymous]

the only comment i can add is that open access is being developed in a number of european
countries. all of these countries are small by comparison than u.s.a. in fact, most would compare
in size to large and small states in america. they also are backgrounded in a national railway
system with a few localized so-called private lines, often in fact operated by a regional political
entity. i haven' t the faintest notion how well open access is working in european countries. i'm
not sure their experience can offer any guidance in the u.s., their previous operation is so vastly
different and they have sophisticated and heavily scheduled passenger systems which are
moving quickly to high-speed operation even in sleepy countries as spain. the private passenger
system in sweden, lynx, i'm told is on the verge of collapse--correct me if you jave better information.
how open access freight railroading would function could result in chaos or orderly operation.
theo sommerkamp [e-mail]

[tree68]

Re: "Lower" Rates. Rates might not go down. What they would tend to do is reflect something closer to their true cost of service, especially where there was active competition. The rate structure futuremodal mentions would likely get evened out. Even on a little used branchline, a local independent who can afford to buy himself a suitable locomotive would provide some level of competition. For that matter, a captive industry could choose to provide their own service to the nearest or otherwise most logical "interchange" point. And because the lines are all open access, that one locomotive wouldn't be captive on its branch - it could wander around an area servicing several such branches.

[daveklepper]

Would these "anyone who could buy a used locomotive" types skimp on safety? Could one enter the business, skim of some cream, and then leave before caught with safety violations? How much tax money will be required for policing this sort of thing? Are we going to have scales all over the place to make sure the track structure isn't overloaded by people overloading freight cars? Is the service going to be excellent when one service provider gets a shippers car from siding to siding but absolutely rotton when two service providers have to interchange? Will any derailment become a finger-pointing excecise between the track structure owner and the service provider owning the rolling stock and thus the line tied up for months until a court decides the issue?

[jchnhtfd]

QUOTE: Originally posted by daveklepper

Would these "anyone who could buy a used locomotive" types skimp on safety?

Yes!

QUOTE: br]Could one enter the business, skim of some cream, and then leave before caught with safety violations?

Yes!

QUOTE: br]How much tax money will be required for policing this sort of thing?

Lots

QUOTE: br]Are we going to have scales all over the place to make sure the track structure isn't overloaded by people overloading freight cars?

You'd have to -- look at trucking

QUOTE: br]Is the service going to be excellent when one service provider gets a shippers car from siding to siding but absolutely rotton when two service providers have to interchange?

Probably

QUOTE: br]Will any derailment become a finger-pointing excecise between the track structure owner and the service provider owning the rolling stock and thus the line tied up for months until a court decides the issue?

No doubt. and the Lawyers will have a field day.

[CSSHEGEWISCH]

A few other unanswered questions:
Where would the cash come from to purchase the rights of way? Railroading already has a relatively poor return on investment so why would private investors invest in a right of way company.

Who would set operating standards for operating companies and how would they be policed and enforced? The FAA has analogous standards for start-up airlines.

How would terminal operations such as Chicago, Kansas City, New York/New Jersey area, etc. be established and operated?

So far I'm seeing a lot of wishful thinking and theorizing but not too many real world responses.

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

A few other unanswered questions:
Where would the cash come from to purchase the rights of way? Railroading already has a relatively poor return on investment so why would private investors invest in a right of way company.

Who would set operating standards for operating companies and how would they be policed and enforced? The FAA has analogous standards for start-up airlines.

How would terminal operations such as Chicago, Kansas City, New York/New Jersey area, etc. be established and operated?

So far I'm seeing a lot of wishful thinking and theorizing but not too many real world responses.

CSSHEGEWISCH,

Since the concept of an open access system "laid" over an existing proprietary rail network has not been done anywhere in the world, it is still a theoretical concept and therefore discussions of such will employ theorization. One can only use the open access systems of other nations as a template, and then use economic theory and our ability to think abstractly and constructively to discern that such a system would work here. Just because an idea is untried does not make it invalid.

To answer your questions more specifically,

1. if open access came in the form of a split of the current rail networks into infrastructure and operations, there would be no purchase required. If there is a need for new rail lines (something that is already apparent today), the "best" option in terms of "fairness" across modes is for new rai lines to be funded out of an infrastructure trust fund, supplemented by a tax credit similar to the recent shortline ROW tax credit. With these two aids, it is possible for private investment in rail infrastructure, if you approach it as a regulated utility with the "safe harbor" low risk but low yield ROI's. Most portfolio managers will advise investors to have a diversified portfolio inclusive of both low return safe investments and riskier high return investments, so the ability to attract private capital would not be compromised. With the tax incentives, it is conceivable that an open access rail system would be more attractive to private investors than the currently imploding proprietary system.

2. FRA is the logical choice, but it is possible that it could be self regulated in terms of standards.

3. As is done with airports and port districts, it is logical for the states and localities to provide the necessary terminal characteristics, since terminal points are the main beneficiaries of transportation operations. It is also logical that each transporter company would be responsible for its own terminal operations, and/or a private terminal company as is done with trucking companies.

[CSSHEGEWISCH]

If operations and right of way are to be divided into separate entities, where is the statutory authority required to accompli***his?

Asking local government to provide the terminal facilities is unrealistic since they barely have enough money to finance their current services. Although the Port Authority of New York and New Jersey operates the PATH subway and has financed MU cars for the Long Island, they may not be willing to provide the complete infrastructure for all raial operations in the New York metro area.

[tree68]

QUOTE: Originally posted by CSSHEGEWISCH

If operations and right of way are to be divided into separate entities, where is the statutory authority required to accompli***his?

That law hasn't been passed yet... Remember, we're in the conceptual stage.

QUOTE:
Asking local government to provide the terminal facilities is unrealistic since they barely have enough money to finance their current services. Although the Port Authority of New York and New Jersey operates the PATH subway and has financed MU cars for the Long Island, they may not be willing to provide the complete infrastructure for all raial operations in the New York metro area.

Depends a lot on what "local terminal facilities" are. Current trackage? More than a few municipalities have picked up track that was going to be abandoned, if for no other reason than to prevent a local industry from leaving town. If they can charge for the use of the facility (which most airports do), then it's not the money pit it could be, and they can often balance the cost with the income that's derived from property and sales taxes generated by the business served by the rails. It's not a cash cow, either, so don't expect a lot of "get rich quick" types to be picking up these little branches.

Would a municipality build an intermodal terminal? I believe stuff like that has happened before...

[Junctionfan]

QUOTE: Originally posted by CSSHEGEWISCH

A few other unanswered questions:
Where would the cash come from to purchase the rights of way? Railroading already has a relatively poor return on investment so why would private investors invest in a right of way company.

Who would set operating standards for operating companies and how would they be policed and enforced? The FAA has analogous standards for start-up airlines.

How would terminal operations such as Chicago, Kansas City, New York/New Jersey area, etc. be established and operated?

So far I'm seeing a lot of wishful thinking and theorizing but not too many real world responses.

As far as terminal operations go, it depends on the customer using the containers and where it is. To avoid competition and create efficient movement, intermodal containers can be loaded up and the loads be divided in a way so that they go out at different times. To explain myself better forexample, Via and Amtrak operate between Toronto and Niagara Falls, Ontario. They don't go at the same time though. VIA heads to Toronto at 7:07am EST, then an Amtrak from yesterday heads to Niagara Falls at 11:15am, then another Amtrak heads to Toronto at 6:30pm and the VIA returns at 7:15pm.

Same kind of thing can happen for the intermodal trains. For New York to Chicago forexample, CSX has a South Kearny to Chicago train at 7:00am then a NS has a South Kearny to Chicago train at 8:00am, CN at 9:00, CSX at 10am, CP at 11am etc.

Now for places like Chicago and New York area where several railroads have their own yards, the staging can be from their own yards but their loads could be picked up whenever as containers always arriving from somewhere land or sea, and the loaded are picked up by local switchers from whatever railroad and delivered to their own yard. CSX picks up or drops off whatever is available at 5am, 7am, 12pm; CN at other times, CP at other times but neither encroches on each others schedules unless it is a different destination.

In theory, that would cause a surge of domestic intermodal traffic as a train will leave with goods within an hour. Trucking companies will have timing options sort of like in a city where you may have missed the bus but another one will come around in an hour.

[Anonymous]

I noticed something interesting in MWH's April 2005 column "Investors aren't public servants". He states, "If we don't like this type of hardball railroading" (refering to monopolistic pricing practices of railroads in general and CN in particular) ", then we must head to the polls and demand the federalization of railroads, or at least purchase the track and pay for the repairs ourselves."

Could it be that the armour of anti-open access is starting to crack? He makes the argument, perhaps inadvertently, that the public response to monopolistic railroad practices should be a takeover of the infrastructure. This sounds like a subtle approval of the open acces arguments made by rail shippers. Of course, he leaves out the option of the vertical corporate split of rail companies (with infrastructure co. becoming a regulated and perhaps public/private utiltiy, and transporter operations given unregulated freedom to roam the nation's rail grid where ever it pleases them), but since this article remark comes from the "Rail management is infallable / rail shippers are ignorant greedy SOB's" clique of Hemphill/Kaufman/ et al, it is rather remarkable.