Careful What You Wish For
If you wanted to lower electric energy prices in the US, what would you do? If you answered, "Cripple the domestic railroad industry," you'd be in surprisingly good company. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
That's precisely what, according to the Wall Street Journal, major electric utilities like American Electric Power want to do in their maneuverings to re-impose severe regulation on the railroads. Senator Jay Rockefeller (D.-W.Va.) has agreed to help them by cosponsoring the Railroad Competition Act to roll back most of the reforms since the Staggers Act of 1980 that have gotten America's railroad back on its feet. This would be an extraordinarily retrograde step, the legislative version of cutting off one's nose to spite one's face.
Before the Staggers reforms, the American rail industry was on its last wheels. About 20 percent of railroads were bankrupt. Investment was well-nigh impossible. Government imposed artificial rates for shipping goods that kept shippers happy but starved the railroads of much-needed funds. The service was nationalized in all-but-name. The fact that it was apparent to all but the shippers that this situation was untenable is shown in that it was the Carter Administration, of all things, that began the deregulation initiative.
The resulting Staggers Act breathed new life into the railroads. They were free to charge shippers market rates. For some this meant an increase. For others, a decrease, with the result that consumers have saved about $10 billion annually on the cost of goods shipped by rail. Railroads were at last able to get the income streams that they needed to fund investment. Staggers freed a staggering $360 billion to be spent on maintaining, upgrading and expanding the rail network, which had been crumbling before the Act. Perhaps most importantly, safety improved dramatically. Accident rates have declined by two-thirds.
It has taken 25 years, but the benefits of the Staggers Act have finally led to a couple of the large railroad companies earning a respectable return on their investment, sufficient to persuade Wall Street that they are worth financing. The major railroads will be investing another $8 billion in new track and other investments next year, a full 18 percent of their revenues. This compares with the average of 3.5 percent of revenues invested by manufacturing industry, which includes many industries that ship their goods by rail. The industry is even beginning to talk about "Star Trek" investment -- building infrastructure where no railroad has gone before.
Now Senator Rockefeller and the utilities want to play the role of the Klingons, eliminating the freedoms that have enabled American railroads to build an infrastructure second to none. In doing so, they are calling on many rhetorical tricks to obscure the reality that their plans will badly hurt the infrastructure they depend on; none tugs the heart-strings more than the line that government-imposed rail rates will help America's energy security (by allowing more coal to be shipped, which would mean the companies would be less dependent on expensive gas-fired energy bought via the spot market).
Yet the fact is that even as energy prices have sky-rocketed, rail rates have stayed flat. Other factors are to blame for the increase in energy prices. The railroad industry is a mere scapegoat.
Moreover, the consequences of re-regulation should be plain for anyone to see. The railroads will have less money to invest, meaning a weaker infrastructure. The railroads will be forced to carry some shipments at the expense of others, which will mean an increase in the price of many goods for Americans. And safety will be compromised. The year 2005 was the safest ever on American railroads. If Senator Rockefeller and his associates have their way, that record is likely to stand for some time.
Perhaps the best antidote to rail re-regulation is to consider what would have happened had the Staggers Act not passed. The rail system would likely have collapsed and, in all probability, been nationalized. Goods would be shipped around the country by a freight version of Amtrak, a body that has consistently misallocated resources and provided poor service to its customers. Rail rates would almost certainly be higher than they are now, or the entire body would be kept afloat only by massive Congressional subsidy. Either way, the American consumer would not be the beneficiary.
Re-regulation is not the answer to the problems facing America's—or West Virginia's—utilities. They could do with acting more like America's railroads, sorting out their own problems rather than continually looking to government for the answer. America's rail system is a jewel in our crown. Re-regulation would turn that jewel into a lump of coal.