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NS and other railroads facing criticism about pollution, pricing

Updated: July 1, 2011 - 3:15 pm

Posted: July 1, 2011

By Philip Newswanger

philip.newswanger@insidebiz.com

Railroads have become the darlings of Wall Street and mega-investors like Warren Buffett, who owns Burlington Northern Santa Fe Railway Co.

But major U.S. railroads have been confronted with a lawsuit challenging their pricing policies and the threat of a lawsuit accusing them of polluting the air with hazardous waste.

The railroads had to defend their practices in a two-day hearing, June 22-23, at the Surface Transportation Board, the federal commission that oversees the railroad industry.

First in line is Oxbow, a mining and mineral conglomerate, which filed a lawsuit against Union Pacific Railroad and Burlington Northern Santa Fe June 7, accusing the two western railroads of violating antitrust laws through price fixing and collusion.

The two railroads are named as defendants in the lawsuit, although Oxbow accused Norfolk Southern and CSX Corp. Inc. of conspiring to fix prices through fuel surcharges.

The lawsuit contends that the four railroads receive 90 percent of all freight revenue in the U.S.

The lawsuit said UP and BNSF monopolize freight traffic in the western U.S. and arrogantly abuse their monopolies.

The lawsuit exemplifies the characteristic tension between railroads and shippers, with shippers accusing railroads of price fixing and being uncompetitive and with railroads denying the accusations and adding that competition is thriving since the Staggers Act of 1980 deregulated most of the rail industry.

Worse, an environmental group, the National Resources Defense Council, has sent letters to UP and BNSF threatening a federal lawsuit in 90 days if they don't clean up hazardous waste from diesel emissions from their locomotives at 16 of their rail yards in California.

The NRDC can sue the railroads under the the federal Resource Conservation and Restoration Act.

If NRDC succeeds, it could open the door for lawsuits against CSX and Norfolk Southern, which own numerous rail yards in heavily populated areas on the East Coast.

Ending the month on an even sourer note was the two-day hearing in Washington, D.C.

The first day consisted of 11 panels; the next day, six panels.

Mark Manion, executive vice president and chief operations officer, and James Hixon, executive vice president of law and corporate relations, represented Norfolk Southern at the hearings.

Shippers and buyers of freight, such as utilities, chemical companies and agricultural conglomerates, criticized the railroads for inefficiency and anticompetitive behavior.

Defending their pricing policies and operations, railroads said they were innovative, competitive and invested heavily in assets over the past decade to become even more efficient.

Surface Transportation Board Vice Commissioner Ann Begeman described comments from four utilities as "informative," "enlightening" and "alarming."

"Just because you have competition, doesn't mean it's effective," said James Sobule, vice president and deputy general counsel for Ameren Corp., which supplies electric and natural gas to customers in Missouri and Illinois.

"We find them [railroads] to be creative, cooperative and competitive," said Christopher Marsh, vice president for Consul Energy, which sells coal to utilities and to foreign steel-makers.

"Please be cautious and careful so you don't create uncertainty and inhibit investment," he said, addressing the three STB commissioners.

Commissioner Francis P. Mulvey asked the panel if there is a need for the board, a question no one answered.

"Should industry be totally deregulated?" he asked. No one responded.

Mulvey said there was a proposal to nationalize the track and let the railroads compete for freight.

He added that it copied the highway system model.

Manion, the executive vice president for Norfolk Southern, told the commissioners that any change in policy would undermine investment in infrastructure.

Norfolk Southern has invested $2.2 billion in 10 years in its infrastructure, Manion said.

"Norfolk Southern is implementing numerous innovations to compete," Manion said, rebuffing comments that railroads aren't innovative because they don't compete.

Manion mentioned Norfolk Southern's unified train control system as an example of the company's drive to innovate.

The computer-driven system is supposed to increase efficiency, save fuel and prevent accidents.

"The system looks at the topography of railroads, trains eight hours out and trains entering the system," Manion said.

NS has been working on the system for 15 years.

Manion said Norfolk Southern is the only railroad worldwide pursuing a unified train control system.nib

Post-event coverage

To view a handouts from the speaker, click this link:
Useful Websites Resource Guide.