STB Should Restrike Balance for Shippers

May 25, 2015, Agweek, Mike Pates

The U.S. Surface Transportation Board recently announced it will hold hearings in June to address whether the system for challenging rail rates can or should be made simpler and less expensive.

It’s “long overdue,” says Deb Miller, acting STB chairwoman, in a press release.

That’s an understatement.

The last grain case filed with the STB (or predecessor Interstate Commerce Commission) was in 1980. A group of about 10,000 Montana wheat and barley farmers, as well as elevators, filed a class action suit against Burlington Northern Railroad (now BNSF Railway) in McCarty Farms v. Burlington Northern Inc. The farmers alleged the railroad charged unreasonably high freight rates to the Pacific Northwest in the previous two years.

The court referred the case to the ICC, which approved a $16 million payment to the farmers. But McCarty Farms’ lawyer expected a much larger judgment, so appealed it in Washington, D.C. The appeals court remanded the case back to the ICC. The ICC then vacated the judgment.
The case was restarted by the ICC/STB, taking 18 years and costing $3.2 million in legal fees. Farmers and elevators lost confidence in the STB.
Terry Whiteside, of Whiteside & Associates in Billings, Mont., was the transportation director for the Montana Department of Agriculture at the time, and is still working as a lawyer on behalf of farm groups.

“That was the last one anybody tried,” Whiteside says of rate challenges, adding he’s happy about the new STB announcement.

About eight years ago, the STB developed new regulatory solutions that don’t directly apply to grain.

“This is the very first time since [then] that the STB is looking for a rate regulatory review on grain,” he says.

Captive shippers

In a 2009 article from the Montana Law Review, “Captive Regulators, Captive Shippers: The Legacy of McCarty Farms,” Anthony Johnstone, a former solicitor for the Montana Department of Justice who now teaches at the University of Montana Law School, described the McCarty Farms case.

The farmers lost, even though the ICC found that the railroad indeed enjoyed market dominance, and that its wheat and barley rates were unreasonable. The ICC determined the share of costs borne by captive shippers was vulnerable to the railroad’s abuse of monopolistic power in the absence of regulation, Johnstone wrote.
He said the ICC was created in 1886 to ensure rail rates were “reasonable and just.” The railroads were failing financially in 1976, and Congress deregulated them in 1980 with the Staggers Rail Act, requiring that rates be just and reasonable.

The railroad argued the McCarty Farms case farmers did not have legal standing because they didn’t directly pay the rates — the elevators did.
“That’s what makes farmers unique,” Whiteside says. “The farmers bear the freight, but they don’t physically pay the rate.”

Over the years, the ICC has tried to develop ways for shippers to challenge rates, none of which seems to properly fit the grain industry. The ICC developed a “stand-alone cost” test that creates a hypothetical competitor (curiously dubbed the Farmers Railroad, from Chicago to Seattle) to compare with the challenged rates charged by the real, monopolistic railroad. The agency developed a three-benchmark process dealing with rail revenues and comparable rates and ratios.

Again, apparently excessively complex.

Johnstone says ICC was changed to the STB at a time when the railroads were doing poorly and needed looking after. Now, maybe it’s time to rebalance things for the grain shipper.

I know it’s about time because the McCarty Farms case started when I was 24.

Today, I’m 58.