Rosenak, Janice M.

English

University of Denver

Transportation Law JournalTHE ICC AND THE RAILROAD REFORM ACTSJANICE M. ROSENAKMS. ROSENAK: Thank you.I am very pleased to participate in this program today. It is great tosee so many old friends and, of course, the Centennial of the oldest regu-latory agency is an occasion to celebrate.The topic of this panel is the 1980s legislation. However, before turn-ing to that legislation, Dan O'Neal asked that I touch on the rationale thatcaused Congress to decide in 1887 that there ought to be an InterstateCommission.I am sure that all of you are aware of the background in generalterms. The Act to Regulate Commerce, which established the ICC effec-tive in April of 1887, grew out of public agitation and Congressional inves-tigations of rail rates and financing practices. The Granger movementwas very active during the 1870's. The farmers complained about dis-criminatory rail practices and high rail freight rates. A decline in the priceof agricultural products made the burden on farmers particularly severe.In response to problems of this nature, a number of midwestern leg-islatures enacted fairly extreme railroad laws in the 1870's. A series ofSupreme Court decisions generally upheld the validity of railroad regula-tion, but an 1886 decision, the Wabash case (118 U.S. 557), held that aState could not control rates on interstate traffic. This undoubtedly has-tened Congressional action. In addition, it should be noted that the rail-roads actively supported some type of Federal regulation - to avert thepossibility of burdensome State laws.Actually, numerous bills were introduced in the years preceding pas-sage of the Interstate Commerce Act. Several bills passed the House, butthe Senate failed to take action. A Texas Congressman named Reagan[Vol. 161Rosenak: The ICC and the Railroad Reform ActsPublished by Digital Commons @ DU, 1987Proceedingswas particularly active. He introduced bills year after year (from 1877on). In 1884, the House passed Reagan's bill. In, 1885, the Senatepassed the Cullom bill (named after Senator Cullom of Illinois). It was atthis point that Senator Cullom appointed a select committee to study thematter, resulting in the famous "Cullom Report" submitted in January of1886 - a report that helped shape the final form of the Act. The Cullombill, setting up a Commission, passed the Senate. The House thenpassed the Reagan bill which left enforcement to the courts. Again, thetwo Houses were deadlocked. But this time a compromise was reached.An Act establishing a Commission was agreed to, and the bill was signedinto law by President Grover Cleveland on February 4, 1887.It should be noted that, by this time, the Granger movement had lostits strength, and competition had forced rail rates down. Thus, discrimi-nation in its various forms was considered the greatest evil at which thebill was aimed. The first Chairman, Thomas Cooley, a law professor andjustice of the Michigan Supreme Court, was generally well regarded. Thesalary of the Commissioners was $7,500, an amount higher than that ofall other judges at the time with the exception of Supreme Court mem-bers. The first budget was $100,000.In brief, the legislation as passed required that all rates be "just andreasonable." Discrimination and undue preference and prejudice wereprohibited, and the publication of rates and fares was required, with strictadherence to published charges. Under the long-and-short haul clause,no common carrier could receive greater compensation for a shorter thanlonger distance over the same line "under similar circumstances and con-ditions." (This provision was at issue in many of the early ICC cases). Inits final form, the Act was, interestingly enough, to be administered by anindependent Commission of five members. Thus, in a sense, the Com-mission is back where it started - although the rail law it administerstoday differs substantially from the 1887 legislation.One of the parties in an 1897 case describes the situation at the timeof passage of the Act in the following terms:At the time of passage, the railway carriers were the absolute and irresponsi-ble masters of all interstate commerce. The several States, in trying to breakup, or at least to mitigate the unjust tyranny of these great corporations andcombinations that held the largest part of the intercourse of the people intheir grasp (and which in many instances undertook to control political aswell as commercial affairs) found themselves baffled, and practically de-feated in their efforts by the national constitutional provision that only Con-gress could regulate interstate commerce. In this state of affairs, and toredress such enormous grievances, the Interstate Commerce Act waspassed.As is apparent, feelings were running very high at the time.A further description of the underlying rationale for the original Act is1987]2Transportation Law Journal, Vol. 16 [1987], Iss. 1, Art. 20https://digitalcommons.du.edu/tlj/vol16/iss1/20Transportation Law Journalset forth in the first annual report of the Commission, dated December 1,1887:The Act to regulate Commerce was passed. . .. in recognition of a dutywhich, though long delayed, had at length, in the opinion of Congress, be-come imperative. The reasons for the delay are well understood. When thegrant was made by the Constitution, the commerce between the States wasquite insignificant... On the land, there was very little that could be said torise to the dignity of interstate commerce.The report details the circumstances of railroad development. Because ofthe demand of every city for a railroad, there was substantial overbuilding,and a large proportion of public money sunk in railroads was lost. By thetime of the ICC's first report, the Commission noted that 108 roads were thenin the hands of receivers. Rate wars and secret rebates are cited.The memorandum book carried in the pocket of the general freight agentoften contained the only record of the rates made to different patrons of theroad; and it was in his power to concede a special rate on one day, and tonullify it on the next by doing even better by a competitor.Similar problems existed in the transportation of passengers. According tothe report, the general fact was that those able to pay the most paid the least;for the poor man seldom had any ground on which to demand free transpor-tation, while the rich man was likely to have many grounds on which he couldmake it for the interest of the railroad company to favor him.The manner in which corporate stocks were manipulated was referred to as"often a great scandal," and the persons in control of the railroad "amassedgreat fortunes" in a very short time. This gave the public the impression thatthese fortunes were unfairly acquired at the expense of the public, andstrengthened the demand for legislation.In closing, the Commission noted that "the Act to Regulate Commerce" laiddown certain rules to be observed by the carriers which were intended tobe" and emphatically are rules of equity and equality and which, if properlyobserved, ought to and no doubt will restore the management of the trans-portation business of the country to public confidence."Incidentally, the original Act was about 10 pages long. However, theCommission's power was restricted by several early Supreme Courtcases, and Congress subsequently expanded the ICC's jurisdiction -first, as to railroads, and later by conferring jurisdiction over other modesof transportation. By the time of the recodification of the Act in 1978, the"green book" had grown to almost 300 pages.But, by then, we were in a new era. Alternative modes of transporta-tion were available for most rail traffic. The railroads were experiencingserious financial difficulties. This led in 1976 to enactment of the 4-R Act,legislation intended to eliminate unnecessary restraints on competition,through such concepts as market dominance. In addition to more limitedregulation, the process itself was expedited. And the Commission was[Vol. 163Rosenak: The ICC and the Railroad Reform ActsPublished by Digital Commons @ DU, 1987Proceedingsdirected for the first time "to make a continuing effort to assist the carriersin obtaining (adequate) revenue levels."Despite the substantial nature of the 4-R Act reforms, the legislationwas less successful than anticipated, in part because little activity oc-curred, while many of the major changes, such as market dominance,were litigated.Further rail legislation became necessary. The Administration intro-duced its proposal, S. 796, and, following extensive hearings, the Senateand House developed rail bills (S. 1946 and H.R. 7235, respectively). Iwas with the Senate Commerce Committee at the time. As some of youwill remember, in addition to the Congressional hearing process, numer-ous informal meetings were held with Senate and House staff. There wasa consensus that less regulation was desirable. At the same time, a con-sensus was lacking on certain familiar issues: jurisdictional thresholds;revenue adequacy; maximum-rate provision; joint rates.Nevertheless, the bill introduced by Senators Cannon, Long, andPackwood was generally favorably received and proceeded throughCommittee fairly smoothly. Then the trouble began. Certain utilities con-tinued to express concern with regard to coal rates which led to the Can-non-Long controversy on maximum rates. Additional hearings were held;there was intense lobbying on this issue. All efforts at compromise faileduntil about 30 minutes before the rail bill was scheduled to go to the flooron April 1. At that time, a compromise was reached - the so-called"Long-Cannon Amendment," 49 U.S.C. 10707a(e)(2). With this change,S. 1946 passed the Senate by an overwhelming vote of 91-4 on that day,April 1, 1980.Another compromise was reached just before Senate floor action.That concerned the joint rate surcharge provision. This issue had beenconsidered during the hearing and drafting process, but specific lan-guage was not included in the legislation. Then, Conrail and SouthernRailway agreed on a proposal which became a part of the bill. Becausenot all railroads or other interested parties had the opportunity to study theprovision, Senator Cannon offered assurance that appropriate changeswould be made as the legislation proceeded to the conference process.Meanwhile, on the House side, most of the controversy centered onthe maximum-rate provisions - and, to some extent, the surcharge provi-sions. As the bill was reported out of committee, H.R. 7235 provided thatthe railroads could establish any rate, unless there was no actual or pres-ent potential transportation alternative and the rate resulted in a revenue-variable cost percentage equal to or less than the cost-recovery percent-age. (Increases were limited to 10 percent a year for two years to easethe transition.)Shippers did not perceive the House bill as providing sufficient pro-1987]4Transportation Law Journal, Vol. 16 [1987], Iss. 1, Art. 20https://digitalcommons.du.edu/tlj/vol16/iss1/20Transportation Law Journaltection for captive traffic. In addition, there was serious concern by carri-ers and shippers with regard to the practicality and reliability of the cost-recovery percentage. As on the Senate side, the utilities contended thebill would have a serious effect on coal rates and on conversion.The House bill came to the floor in early July but action was not com-pleted before the July recess. When consideration was resumed in lateJuly, Congressman Eckhardt offered an amendment substantially chang-ing the maximum-rate provisions. When that amendment was adopted,the bill was withdrawn. Subsequently, during the rest of July and themonth of August, various compromise negotiations took place. Agree-ment was ultimately reached in early September (the Stag-gers/Rahall/Lee amendment), and the House passed H.R. 7235.Following weeks of conference consideration and approval of the reportby the House and Senate, S. 1946 was signed by the President on Octo-ber 14, 1980 (most provisions were effective October 1, 1980), and the"Staggers Rail Act of 1980" became law.Since that time, the Commission has been involved in implementationof the Staggers Act. I came back to the ICC as Legislative Counsel in1981 and was involved in the annual oversight hearings on the effects ofthe Staggers Rail Act. In general, as you know, the Commission has con-sistently testified that the Staggers Act is working well. These were notalways easy hearings, however, particularly on the Senate side whereCommerce Committee members like Senator Long and Senator Fordusually had a few comments on the ICC and its performance. Things willcertainly not be the same now that Senator Long has retired. I rememberone hearing at which the witness, as is customary, started out by trying togive his name and the name of the Association he represented. At thispoint, he was interrupted by Senator Long who commented that it didn'tmatter who he was or whom he represented - just get on with the testi-mony, the Committee had a full schedule.But one of the strangest experiences at a hearing during my tenureinvolved not Staggers oversight, but a hearing on coal-slurry pipelines. Ithappened that, on this day, the Chairman was scheduled to testify at twohearings. When the coal-slurry hearing fell behind schedule, we left toattend a Joint Economic Committee hearing on motor carrier matters. Af-ter completing that testimony, the Chairman and accompanying staff re-turned to the pipeline hearing. Most of the Committee had left by thistime; the two Congressmen remaining had only one interest: water. TheChairman struggled valiantly to convince the Congressmen that this wasnot a matter within ICC jurisdiction. Nevertheless, the questioning contin-ued. Becoming increasingly annoyed, one of the Congressmen finallysaid, "Well, you've got a big staff down there at the Commission. Putthem to work and get back to me with answers on these questions about[Vol. 165Rosenak: The ICC and the Railroad Reform ActsPublished by Digital Commons @ DU, 1987Proceedingsstate water rights." And that is how it happened that our officeresearched the constitutional question of whether it is possible for Con-gress to protect state water laws in light of the commerce clause - learn-ing more than we ever wanted to know about water law in the process!(Although perhaps this information may yet prove useful - the areawhere we live just outside Santa Fe is presently involved in litigation withseveral nearby Indian pueblos over water rights).What can be said about the Staggers Act? For the most part, it isclear that the Act has accomplished its intended purpose of removing un-necessary regulation, providing an opportunity for carriers to obtain ade-quate earnings, and to respond quickly to satisfy shippers' changingneeds. All of you would agree, I'm sure, that activity under the contractrate provision has been particularly noteworthy. I think the number ofcontracts filed since passage of the Act stands today at over 50,000.There are still issues in the rail area. The Railroad Accounting PrinciplesBoard is presently looking at some of these questions. The RAPB re-leased an Exposure Draft on February 20, 1987; its principles and reportto Congress will be submitted later this year. The recent decision of theThird Circuit affirming the Commission's Final Guidelines in Ex Parte No.347 (Sub-No. 1) should be helpful in resolving some long-standingcontroversies.Other issues, including the future of the ICC, will undoubtedly be de-bated on the Hill as the year progresses. Dan O'Neal is going to focus onwhere we go from here. But it is important to note, I believe, that most ofthose who criticize Staggers have focused on the implementation of theAct by the Commission rather than the Act itself. The legislation wasneeded to assist in the revitalization of the rail system, and both carriersand shippers have benefited from the improved service (tailored to ship-pers' needs), more responsive pricing, and greater reliance on the mar-ketplace which has resulted from the Staggers Act.In closing, I would like to say - in case you're wondering about theabsence of jokes in my presentation - well, since, as Chairman O'Nealwill recall, I tend to forget jokes as well as punch lines, I have decided toleave this to our next speaker, Will Riss. We were on the Hill togetherand, as I recall it was always his task to come up with jokes or anecdotesappropriate for the occasion (though he did accuse those who used themof messing up the timing).Again, I'm delighted to be here today. Thank you.MR. O'NEAL: Thank you, Jan. I do remember some of those hear-ings. I remember we had a problem with the L. & N. Railroad in Kentucky,and we had a meeting down here at the Interstate Commerce Commis-sion with both U.S. Senators from Kentucky, the Governor of Kentucky,Governor Carroll, at that time and Carl Perkins, who was one of the more1987]6Transportation Law Journal, Vol. 16 [1987], Iss. 1, Art. 20https://digitalcommons.du.edu/tlj/vol16/iss1/20Transportation Law Journalsenior members of the House. They brought in local Kentucky television,and we had quite a show in what was the Commissioners' ConferenceRoom at that time. We had a lot of fun trying to close that meeting, Iremember, because I thought that, since the meeting was at the ICC, Ishould be the one who closed the meeting and said, "Thank you verymuch; we'll do what we can." Every time I tried to close it, though, CarlPerkins would insist on having the last word. We went around for aboutten minutes, and finally, I gave up. I figured, well, he's the senior con-gressman up there, and I guess I better get smart and not go any further.We had a hearing later. The Commission adopted a 27 percent in-crease for coal rates into that area, and Senator Wendell Ford, I think,unfortunately, he still remembers this. We had a hearing on the Hillshortly thereafter, and after everybody else had questioned me, and Jan, Ithink, was with me at that time, - Wendell Ford looked at me, and hesaid, "Now, Mr. Chairman, we're going to play some hard ball." Andbelieve me, it was no fun.Next I want to introduce Will Ris. Will was also on Capitol Hill. Hewas also with the Senate Commerce Committee, and he was there duringa very critical period of time. From 1978 to 1981, he was majority coun-sel to the committee, and he was the primary staff person responsible fordrafting the Motor Carrier legislation. He was once at the Civil Aeronau-tics Board. He worked not only on trucking legislation, but he alsoworked on airline deregulation. He is now a principal in the firm of Wex-ler, Reynolds, Harrison & Schule. They do Washington-type things likelobbying and government relations. They have a lot of different clients -American Air Lines, USAir and several others.Will received a B.A. from Northwestern University, an M.A. fromJohns Hopkins and a J.D. from the Denver College of Law and an L.L.M.from Georgetown. So Will, I guess, during the course of that has learneda lot about a lot of things, including good jokes. So, Will?[Vol. 167Rosenak: The ICC and the Railroad Reform ActsPublished by Digital Commons @ DU, 1987

The ICC and the Railroad Reform Acts

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The ICC and the Railroad Reform Acts

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