In the new TRAINS Mag is the story of how utilities and mines are suing UP and BNSF for and winning lower transportation rates for coal retroactive to old contracts. Is there any other business in the US besides railroads, and perhaps utilities themselves, that can suffer retroactive losses like that?. I mean, you can’t go to Apple or Ford or GE and say that they’ve charged you too much for your computer or truck or washing machine and therefore they should pay you back the money you spent. Why are railroads the only companies that have that happen to them. If it was a fair price in 2000 why all of a suddent in 2010 deemed ten years of overcharging?
The political winds are blowing from a different direction.
Jeff
But it can’t be all political and the winds ain’t a changing, this has been a rail problem for years. Does it have someting to do with being a utility-- both the railroad and the electric generator? Is it a leftover from the ICC era?
(1) The pendulum swings both ways. If you go back and look, STB/ICC looks and acts in a quasi-judicial manner like the administrative law court that is charged with being. They don’t take sides, but what does change is what they are allowed to rule on by congressional caveat. The cases these days tend to deal more with large shipments in a deregulated era than back in most of the pre 1983-1996 ICC regulated era.
(2) Utilities still lose more cases than they succeed with*. What would be interestesting to see is what some of the proprietary data is that gets screened in these hearings. (Case in point being the current ruckus between chemical shippers and railroads over rates and special handling.)
(3) What does change, and often, is the ICC Commissioners. (political?- Yes; Does it change the outcome of “the process”? - Not always in the way you would think)
*some of what gets argued over and complained about by utilities is ludicrous.(read the STB filings)
Of course the ICC is gone and it is the STB that is handling all this now. But still, I can’t go to any government agency and have Ford give me back any of my money for buying a Taurus, say, in 2000, nor going to IBM nor looking for a rebate on an 8 year old computer system. I don’t think there is any business like it.
And also, do we consider a railroad a utility anymore? Used to be so, especially in conjunction with passenger services and abanonment of branch lines or stations.
Is there a government attempting to provide regulation? In the trucking Federal Regulations require that shippers and receivers are required to provide equipment and trained personal to load and unload trucks. Ask Ed Benton sometime about that rule.
At most grocery warehouses the carrier is required to pay for unload the receivers cargo.
My apologies if this is off subject.
Rgds IGN
Apples and oranges Hank. And the number of cases where a Utility gets an old rate, is rare. Most times, when a contract expires, they can either give them tarrif rates, or negotiate. If the customer thinks it unreasonable, then they can file a case with the STB. And until the STB rules, no court in the U.S. will touch such a case.
The State of Texas has demanded a refund of several million dollars from State Farm Insurance to homeowners for overcharges (in the view of the state) in insurance premiums going back to 2003. State Farm is fighting the order as hard as it can. Please see this site for more info. You can also do a Google on “Texas State Farm Refund” to get even more.
What I find curious in all these rate challenges is that the companies that are complaining about the railroads monopolistic pricing practices have much more of a monopoly on the pricing of their products in their markets.
That’s a good point, BaltAC, most utiilties have had a monopoly of some kind in their area. But this is changing. Here in NY (and phasing in in PA) the consumer has a choice of power providers but still have a single delivery company.
As for apples and oranges, Ken, I’m not sure what you mean. Railroads, telephone and power companies all used to be considered and regulated as utilities often under the same state authortiy or agency. And while the STB is not the ICC it is charged in settling and approving rate cases.
I am still concerned that, as a railroad, I can agree to a contract with a company to move their product for X number of dollars, buy my equipment, build and maintain my track, contract with and pay my employees, and deliver the product for five or ten years then have the other party go to a government authority to complain and rescind the agreement. Who pays for my inestment and expenses? Sounds like divorce lawyers have been hired by the utilities!
Hank, the apples and oranges were the comparison to one’s consumer goods, and those covered under contract or regulation of the STB. Different animals.
Oh, understood, Ken. But my question, or concern, is why are utilities so special that they can do that to a railroad. If after ten years the railroad spent the money on equipment, infrastructure, and labor, how fair is it to come in and take the money back leaving the rairoad with…well, what are the left with? If the spent the money on the service, the utility cannot, or at least should not, have grounds for complaint; they did agree on day one that the contract was fair and acceptable. I use the purchase of a car as an example of how this would be to the general population: buy a car for $30,000 bucks but ten years later go back to the manufacturer or dealer and say it wasn’t worth it, they made too much money for what I got out of it. I know there is a difference but I think it puts it in perscpective to a degree. So what does the railroad do? It made the financial outlay, it provided the service, it delivered on its part of the bargain. Why should the other party be legally able to reneg? And should the utility win the rebate, can I go to the utility and get a rebate based on the rebate it got? What I mean is that the whole thing doesn’t make sense. Whats the value of a contract or an agreement or the performance of an agreed upon service and price if one party can retroactively ignore it or have it overturned? I’ve seen several of my bosses do the same thing: make a written deal, then break it saying that any contract can be broken because they didn’t want to pay for what they got. I think its wrong but apparently the laws don’t.
Actually, it happens all of the time outside the railroading context, and my collegues and I make a pretty good living off it. Because the trust structure for railroads and utilities is different when compared to other consumer items, the judicial process is somewhat different. But, if you look at the core of what goes on, it is definitely related and is more alike than different. To give you an example, my firm just got wholesale/bulk/direct purchasers of concrete an appoximately $60,000,000 rebate for concrete that they had alread purchased.
To address your last point, the actual price paid by the consumer in terms of how much/how little is all but irrelevant in such cases. Rather, it is how that price comes into existence that means everything. I suspect deep down, you understand that. As a consumer, I am sure you understand that, due to market factors, comparing the 2000 price of natural gas, gassoline, computers, cell phones, or airline tickets is little if any reflection of the 2010 price.
Someone may rightly point out that I am being tendentious in saying this, but nonetheless, I strongly believe that, were it not for such rules, our free market system would collapse in a matter of month
Unnfortunately, this is the answer I was looking for. I don’t understand it, but nonetheless it is the answer. Gabe: will you please explain, without divulging what you can’t divulge, how you got the rebate on concrete and why? Was your client a private corporation or a public or government agency?
Here’s another one - Motorcycle Insurance Refunds in Massachusetts. What is it with insurance companies, anyway?
To me, the issue is one of fair pricing. There are those who believe that a fair price is whatever a company can charge and get away with. Others believe that a company should not charge more for a product or service than a reasonable amount over their costs. In the Massachusetts motorcycle insurance case people believed that the companies unfairly jacked up the premiums by assigning values to the customers’ motorcycles that were much higher than the real market values, where the premium rates for a particular motorcycle depended on the value of the motorcycle. To me, that is unreasonable, unfair, and dishonest. And I guess that the state government, like the government of Texas (see my previous post), thinks it is also illegal.
The other side of the coin is that under our free market system we are free to buy insurance, or transportation of coal, from someone else, if we can get a better deal. And the government should stay out of it. The coal mines are free to go get contracts with trucking companies, if they don’t like RR rates. The trucking companies are hurting for business, so they should be available.
But in this case, I think transporting coal by truck would be much more costly than any rates the RRs have tried to charge so far.
The question then is whether or not to let the RRs charge whatever they can, even if it gets them revenues far exceeding their costs. Is the govt meddling where it shouldn’t and punishing the RRs for being more efficient than trucking companies? Is the govt unfairly keeping business from trucking companies by tryin
I’m not sure what “much more of a monopoly” is supposed to mean. Kind of like “he’s much more dead,” I guess.
They [the electric power companies] generally enjoy attributes of monopoly pricing power and are generally highly regulated. What’s “curious” about that? I would bet that you wouldn’t want it any other way if your power bill doubled because you live out on a farm somewhere and have no choice but to pay it.
Railroads are utilities. Utilities enjoy the benefits of eminent domain and therefore place themselves under public regulation. Historically, when you can literally take what you want from anybody in your way to build your business, invoking the power of the State to forcibly take it regardless of whether somebody wants to sell to you or not, that invokes regulation by the State (the philosophical entity of central power, not the geographical entity). It always has. It should.
Utilities given the power to set rates in the first instance are always subject to rebates or “reparations” on rates, if those rates are later found to violate a statutory guideline. That’s the way the world works. The utilities want the ability to quickly set a rate to reflect its own cost changes, and know full well that there are guidelines that control those rates and those changes so that they are not completely arbitrary nor impose charges that are “unreasonable.” “Unreasonable” in the context of railroad rates is a statutorily defined process. For both sides to that process, sometimes you win, sometimes you lose. Railroads generally lose when the overreach on a rate and the electric power utilities generally lose when they try to get “too good of a deal.”
The electric power utilit
[quote user=“ICLand”]
I’m not sure what “much more of a monopoly” is supposed to mean. Kind of like “he’s much more dead,” I guess.
They generally enjoy attributes of monopoly pricing power and are generally highly regulated. What’s “curious” about that? I would bet that you wouldn’t want it any other way if your power bill doubled because you live out on a farm somewhere and have no choice but to pay it.
Railroads are utilities. Utilities enjoy the benefits of eminent domain and therefore place themselves under public regulation. Historically, when you can literally take what you want from anybody in your way to build your business, invoking the power of the State to forcibly take it regardless of whether somebody wants to sell to you or not, that invokes regulation by the State (the philosophical entity of central power, not the geographical entity). It always has. It should.
Utilities given the power to set rates in the first instance are always subject to rebates or “reparations” on rates, if those rates are later found to violate a statutory guideline. That’s the way the world works. The utilities want the ability to quickly set a rate to reflect its own cost changes, and know full well that there are guidelines that control those rates and those changes so that they are not completely arbitrary nor impose charges that are “unreasonable.” “Unreasonable” in the context of railroad rates is a statutorily defined process. For both sides to that process, sometimes you win, sometimes you lose. Railroads generally lose when the overreach on a rate and the electric power utilities generally lose when they try to get “too good of a deal.”
The
Well, that’s a new one to me, but the conclusion that they are is hardly “novel.” Most states and the federal government make the claim as well.
Here are some examples:
Ohio. § 5727.01. Definitions.
(A) “Public utility” means each person referred to as a telephone company, telegraph company, electric company, natural gas company, pipe-line company, water-works company, water transportation company, heating company, rural electric company, railroad company, or combined company.
Chapter 2 of Title 54 of the Utah Code: a public utility includes “every railroad corporation, gas corporation, electrical corporation, distribution electrical cooperative, wholesale electrical cooperative, telephone corporation, telegraph corporation, water corporation, sewerage corporation, heat corporation, and independent energy producer not described . . . where the service is performed for, or the commodity delivered to, the public generally.”
California Constitution, Art. IV, § 33.
"Every private corporation, and every individual or association of individuals, owning, operating, managing, or controlling any commercial railroad, interurban railroad, street railroad, canal, pipeline, plant, or equipment, or any part of such railroad, canal, pipeline, plant, or equipment within this State for the transportation or conveyance of passengers, or express matter, or freight of any kind, including crude oil, or for the transmission of telephone or telegraph messages, or for the production, generation, transmission, delivery or furnishing of heat, light, water or power or for the furnishing of storage or wharfage facilities, either directly or indirectly, to or for the public, and every common carrier, is hereby declared to be a public utility
Wyoming: 37-1-101. Definitions.
(vi) "Public utilit
That nails it. Until the US Supreme court and/or Congress passes a law otherwise RRs will be a public utility.
Save me from switch shanty lawyers. A monopoly is:
monopoly |məˈnäpəlē|
noun ( pl. -lies)
1 the exclusive possession or control of the supply or trade in a commodity or service : his likely motive was to protect his regional monopoly on furs.
• [usu. with negative ] the exclusive possession, control, or exercise of something : men don’t have a monopoly on unrequited love.
• a company or group having exclusive control over a commodity or service : areas where cable companies operate as monopolies.
• a commodity or service controlled in this way : electricity, gas, and water were considered to be natural monopolies.
Railroad have not fit this definition since Ike was in the White House!
The railroads have such a monopoly that they take in about 15% of the money spent on inter-city freight transportation. That is a very strange monopoly. Of course Nebbia went on to say that anything is a public utility that the state says is a public utility. In this case milk sold in grocery stores.