Objectives, Scope, and Methodology

Concerned about the potential barriers that shippers face in seeking relief from allegedly unreasonable rail rates, Senators Byron L. Dorgan, Conrad R. Burns, John D. Rockefeller IV, and Pat Roberts asked us to describe (1) the Board’s rate relief complaint process and how it has changed since the ICC Termination Act of 1995 became law, (2) the number and outcome of rate relief cases pending or filed since 1990, and (3) the opinions of shippers as to the barriers they face when bringing rate complaints to the Board and potential changes to the process to reduce these barriers. The Board’s Rail Rate Complaint Process

While there have been some changes to the rate complaint process since the ICC Termination Act, the process continues to be relatively complex and time-consuming. The Board first determines whether the railroad dominates the shipper’s transportation market. Rate Relief Cases Require Determination of Market Dominance

By statute, the Board may assess whether a challenged rate is reasonable only if the railroad dominates the shipper’s transportation market. Under the stand-alone cost approach routinely used in rate cases, a shipper develops a model of a hypothetical, optimally efficient railroad that could serve the complaining shipper. Since 1986, the Board or its predecessor has attempted to develop simplified guidelines. These standard procedures address the concerns that the Board must consider under the statute as it seeks to balance two competing goals: considering the needs of the railroad industry for adequate revenues while simultaneously ensuring that the industry does not exert an unfair advantage over captive shippers. However, we have modified the report to reflect the Board’s views that important aspects of the rate-relief process or the competitive structure of the railroad industry can only be changed with the support and approval of the Congress. Accordingly, we believe that it is still too early to declare the simplified procedures a success. Decline in Complaints Filed, and Few Rates Have Been Found Unreasonable

Very few shippers served by class I railroads have complained to the Board or the ICC about the railroads’ rates. In addition, the challenged rates were found to be unreasonable in two cases, seven complaints were dismissed in favor of the railroad, and five were dismissed for other reasons. II for a complete list of these complaints.) Our survey responses suggest that the remaining 75 percent believe that their rates were unreasonable and that barriers kept them from filing a complaint under the standard procedures. Generally, shippers found cost, complexity, and time to be significant barriers that kept them from filing standard rate complaints. While the railroads recognize shippers’ concerns, they contend that the Board’s process is well suited to determining rate reasonableness. U.S. Legal costs associated with filing outweigh the benefits Rate complaint process is too complex Rate complaint process takes too long Stand-alone cost model is too costly to prepare Railroad will most likely win case Getting information from railroads is too difficult Consulting costs are too high Discovery requests from railroad difficult Fear of reprisal from railroads Other parts of the process are too costly 40.8 Table III.8: Percentage of Rail Shippers That Believe Suggested Changes for Improving the Rate Complaint Process Were Extremely to Very Important (Table 4.2)
Chemicals and plastics shippers Missing Each percentage represents rail shippers who expressed an opinion regarding a particular suggestion.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on: (1) the Surface Transportation Board's rate relief complaint process and how it has changed since the Interstate Commerce Commission (ICC) Termination Act of 1995 became law; (2) the number and outcome of rate relief cases pending or filed since 1990; and (3) the barriers that shippers face when bringing rate complaints to the Board and potential changes to the process to reduce these barriers.

What GAO Found

GAO noted that: (1) the Surface Transportation Board's standard procedures for obtaining rate relief are highly complex and time-consuming; (2) under these standard procedures, the Board: (a) evaluates all competition within the market allegedly dominated by a railroad; and (b) typically assesses the results of a shipper-developed model of a hypothetical, optimally efficient railroad that could provide comparable service in place of the shipper's railroad; (3) the process reflects a statutory scheme whereby the Board must balance two competing objectives: considering the need of the railroad industry for adequate revenues while simultaneously ensuring that the industry does not exert an unfair advantage over shippers without competitive alternatives; (4) since the ICC Termination Act, the Board has attempted to improve the rate complaint process and simplify the process for shippers; (5) it is too early to tell if these steps will significantly lessen the burden of the rate complaint process; (6) very few shippers served by class I railroads have complained to the Board about railroads' rates; (7) generally, only those shippers that depend on rail transportation, such as coal, chemical, and grain shippers, have filed complaints; (8) 18 of these complaints were resolved by negotiated settlements with the railroads before the Board or its predecessor determined whether the contested rate was reasonable; (9) in addition, seven complaints were dismissed in favor of the railroad, five were dismissed for other reasons, and two complaints resulted in rate relief to shippers; (10) nine complaints remain before the Board; (11) GAO's results suggest that of the 709 rail shippers that responded, 531 do not believe that their rail rates are always reasonable and therefore might use the rate complaint process; (12) of the shippers who expressed an opinion about the rate complaint process, GAO estimates that over 70 percent believe that the time, complexity, and costs of filing complaints are barriers that often preclude them from seeking rate relief; (13) all the major U.S. railroads, on the other hand, are generally satisfied with the standard rate complaint process, contending that it is well suited to determining whether a railroad dominates the shipper's market and what rate relief may be needed; (14) however, railroads do not support the simplified procedures or the Board's December 1998 decision to change aspects of its market dominance approach; and (15) this divergence of opinion may make responding to shippers' concerns about the barriers in the rate relief process difficult to resolve.