Elizabeth Hanford Dole, transportation secretary, finally has acknowledged what has been obvious for the better part of a year: The government's interest in Conrail will not be sold to Norfolk Southern Corp. Instead, the secretary announced, the Reagan administration will support a proposal to sell the giant Eastern railroad to the public.
Rep. John Dingell, D-Mich., chairman of the House Commerce and Transportation Committee, has made it clear he intends to clear legislation to sell Conrail before Congress adjourns for the fall election season. Sensing a certain amount of urgency in the matter, some members of Congress plan to make a "Christmas tree" of the bill, attaching baubles and bangles to the basic measure. In this case, the decoration would be a measure providing for partial reregulation of the railroad industry.But, just as putting too many decorations on a Christmas tree can make it unwieldy and ugly, the additional provisions could make the Conrail sale legislation into an object no one would want to display with pride.
A curious group calling itself Consumers United for Rail Equity (CURE) - it represents no consumers and the equity it seeks certainly isn't for railroads - has persuaded at least some members of Congress that its bauble belongs on the tree.
CURE wants stricter Interstate Commerce Commission regulation over rates charged so-called "captive" shippers, those who must rely on a single railroad. Not surprisingly, CURE's consumer members, for the most part, turn out to be electric utilities and coal mining interests. Almost before the ink was dry on Jimmy Carter's signature on the Staggers Act, the utility and coal interests have been crying for relief. There's no question their transportation charges for coal have increased. The question Congress should ask is whether they have increased unreasonably or unfairly.
Most Congressmen have conveniently short memories, so a bit of history (if five years can be considered such) is in order. Railroad deregulation was passed to allow railroads to generate greater revenues and earnings, not necessarily to lower rates. So far, Staggers has been successful. In the years leading to deregulation, several railroads entered bankruptcy. From the Penn Central and a half dozen smaller Eastern lines to the Rock Island and the Milwaukee, a sizable part of the industry was under trusteeship. Since Staggers became law, no railroad has gone bankrupt despite having weathered the 1981-82 recession, the most severe since the Great Depression.
Efforts by regulators at the ICC failed to provide either prosperity for railroads or particularly good service for rail customers. So, the authors of Staggers decided to try a novel approach to the national railroad problem: Give the railroads a substantial degree of freedom and perhaps they can avoid bankruptcy and provide better service.
Before Staggers, Congress went eyeball to eyeball with nationalization and blinked. The 3R and 4R Acts of the 1970s were to provide a "private sector solution." Conrail was created by those earlier rail acts, combining the hulks of some seven bankrupt railroads. Not surprisingly, the taxpayer provided some $7 billion for this private sector solution.
Congress clearly does not want to deal again with the kind of railroad mess it faced a decade ago. Yet, if it loads the Conrail sale bill with CURE's
bauble, there is every likelihood that it will cause the very thing it fears: more rail failures.
CURE really opposes the principle of differential pricing. Ironically, utilities embrace this pricing philosophy for themselves, but would deny it to railroads. Railroads face varying degrees of competition for business, depending on the availability and existence of trucks, barges, other railroads, and even substitute materials. Railroad rate-makers must set rates that will cover the variable and fixed costs of operation and, hopefully, provide a reasonable profit, yet not set the rates so high as to drive business away. In an ideal world, all commodities would bear the same fixed cost and profit relationship. The world is not ideal.
Utilities contend they are captive to the railroad; that they have no choice but to ship coal by train, and that railroads are charging unreasonably high rates. Railroads respond that coal was a favored commodity under regulation and only now is it bearing its fair share of railroad costs. A truly captive shipper, and many economists contend there is no such creature, has no choice but to use the railroad. Presumably that customer could be charged ever higher rates until the railroad recovered all its fixed costs or until the commodity became uneconomical and no longer moved at all.
So much for economic pedagogy. The fact is utilities are being asked to pay a higher share of rail costs than they paid under regulation. In part, this is because other rail business is more susceptible to truck or barge diversion and those rates must be held down to retain the business.
If CURE succeeds in rolling back railroad rate-making freedoms of the Staggers Rail Act of 1980, the one thing Congress really fears will become a virtual certainty. Railroads once again will be unable to recover all of their fixed costs and the downward spiral of insufficient revenue and capital leading to deteriorating service, loss of traffic, and financial collapse will be repeated.
The ICC already has the authority to protect captive shippers. Therefore, Congress should authorize the sale of Conrail without additional legislative baubles and go home to campaign. Railroads weren't meant to carry "Christmas trees" and if they are forced to do so, the result may be economic disaster for the railroads - and the taxpayer.