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Surface Transportation Board Delays Consideration of Regulatory Reform Petition

Yesterday, the Surface Transportation Board (STB) published a decision on a March 2019 rulemaking petition from the Association from American Railroads (AAR). The AAR petition called on the STB to require benefit-cost analysis for legislative rulemakings undertaken by this independent agency, similar to what federal departmental agencies must already do and some other independent agencies now require.

The Competitive Enterprise Institute submitted comments in support of AAR’s petition while industrial and agricultural shipper groups opposed the benefit-cost proposal. But STB’s decision yesterday won’t be satisfying to either side. That’s because the STB, as in other recent major rulemaking proceedings, has again delayed action.

The STB’s decision keeps AAR’s petition alive for now, but waives the requirement at 49 C.F.R. § 1110.2(d) that the agency must grant or reject a rulemaking petition within 120 days of receipt. This shouldn’t be shocking to STB observers, who are by now accustomed to seeing sometimes multi-year delays in regulatory proceedings, such as the debate over forced reciprocal switching.

In our comments in support of AAR’s petition, we highlighted the stalled forced reciprocal switching proceeding (see CEI’s analysis of the proposed rule) as a prime example demonstrating the need for the STB to adopt modern regulatory analysis and implement the benefit-cost requirements proposed in AAR’s petition:

In 2016, the STB opened a rulemaking proceeding that proposed to eliminate the longstanding anticompetitive conduct requirement from its rules governing mandatory reciprocal switching.

Two Interstate Commerce Commission decisions—Intramodal Rail Competition, 1 I.C.C.2d 822 (1985) and Midtec Paper Corp. v. Chicago & North Western Transportation Co., 3 I.C.C.2d 171 (1986)—formally established the anticompetitive conduct requirement. The regulation was adopted in the Intramodal Rail Competition proceeding and is presently codified at 49 C.F.R. § 1144.2(a)(1). It states that reciprocal switching would only be mandated if it “is necessary to remedy or prevent an act that is contrary to the competition policies of 49 U.S.C. § 10101 or is otherwise anticompetitive.”

The Midtec decision in the year following Intramodal Rail Competition interpreted the rule as requiring a showing that a carrier has either (1) “used its market power to extract unreasonable terms,” or (2) “shown a disregard for the shipper’s needs by rendering inadequate service” due to its monopoly position. Both of these interpretations of 49 U.S.C. § 11102(c) were upheld by the courts.

The STB’s stated rationale for eliminating the anticompetitive conduct requirement was the fact that shippers had not demonstrated anticompetitive harm to warrant mandated reciprocal switching in the last three decades, with the agency concluding that the anticompetitive conduct requirement “effectively operated as a bar to relief rather than as a standard under which relief could be granted.” The STB provided no economic analysis to support this claim. Indeed, this dearth of analysis could just as easily be used to support the opposite conclusion: that the lack of successful demonstrations by shippers of anticompetitive abuse on the part of carriers effectively shows no such abuse exists and thus no relief is warranted.

The STB’s actions in choosing to open the competitive switching proceeding demonstrate the need for incorporating robust benefit-cost analysis in agency rulemaking proceedings. Other independent agencies such as the Securities and Exchange Commission and Federal Communications Commission have recently made reforms to improve their economic analysis of regulations. The STB should follow suit to avoid the missteps of its past.

Until recently, the STB had claimed it was waiting for additional board members to be confirmed before making decisions on important regulatory matters. This changed earlier this year, with board members signaling that their three-member panel (with two seats vacant under the recently expanded STB from three to five members in 2015) planned to proceed as if the board was at full strength. But the STB’s decision yesterday to kick the can on AAR’s benefit-cost analysis petition suggests that the STB may not yet be prepared to do the job it claimed it could do.

Fortunately, yesterday also saw Michelle Schultz, most recently a senior attorney at Philadelphia area transit authority SEPTA, sail out of the Senate Commerce Committee on a voice vote with a positive confirmation recommendation. She is expected to be easily confirmed once her nomination is brought to the floor for a vote by the full Senate. Once this happens, the STB will have even less of an excuse for its now-routine dilatory behavior. We hope some of these important regulatory matters languishing before the board will be promptly taken up.