CLOSING REMARKS

Mr. FAZIO. If there are no further questions from other members of the Subcommittee we thank you. We appreciate both of you gentlemen staying with us for the entire hearing and the staff for their helpful comments.

Thank you.

TUESDAY, FEBRUARY 28, 1984.

PUBLIC WITNESSES

RAILROAD ACCOUNTING PRINCIPLES BOARD

WITNESSES

HON. HAROLD ROGERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KENTUCKY

FREDERICK L. WEBBER, EXECUTIVE VICE PRESIDENT, EDISON ELECTRIC INSTITUTE

CARL BAGGE, PRESIDENT, NATIONAL COAL ASSOCIATION

JOHN JARVIS, DIRECTOR, GOVERNMENT RELATIONS, UNITED MINE WORKERS

RAILROAD ACCOUNTING PRINCIPLES BOARD

Mr. Fazio. We would like to welcome Hal Rogers, our colleague on the Committee, a Member from Kentucky with a great deal of interest in the problems of the coal industry, and in particular the question of the rail cost system which we need to develop pursuant to some rail deregulation legislation of several years ago. This subcommittee has been attempting to work with you and Congressman Rahall of West Virginia to focus on the need for an independent agency that can objectively deal with the rate structure in the context of some of the most important commodities that the U.S. will be utilizing in the years ahead.

Hal, I am going to ask you to introduce to all the Members-although I have a feeling some of them know them well-the people from the various elements of the industry and interested users community who have come along with you.

INTRODUCTION OF PANEL

Mr. ROGERS. Thank you, Mr. Chairman.

I am pleased to present this panel, many of whom you know— perhaps all of them. But, of course, Carl Bagge, the President of the National Coal Association.

Mr. FAZIO. Known as Elmer to Mr. Myers.

Mr. BAGGE. That is what he calls me.

Mr. ROGERS. Fred Webber, Executive Vice President of the Edison Electric Institute; and John Jarvis, Federal Relations Representative for the United Mine Workers Union.

Mr. Chairman, let me say thank you for the opportunity to testify before your subcommittee this afternoon and to present these other witnesses. I would like to begin by thanking you for the support you gave to us last year for the Railroad Accounting Principles Board and then to ask your continued support in the fiscal

1984 supplemental appropriations bills as well as the fiscal 1985 bill.

STAGGERS ACT

As you know, this Board, the Railroad Accounting Principles Board, is an essential part of the delicate balance of the Staggers Act. The Act gave the railroads much greater flexibility in setting their rates if they met certain requirements. It gave the ICC the job of determining whether or not they met those requirements. But it gave the Accounting Board the job of overseeing the accounting methods to be used in making these decisions.

And the constant aura of controversy which has surrounded ICC decisions under the Staggers Act gives clear proof of the need for this Board. As Chairman Florio stated on the House floor during the debate on the Board's reauthorization, the common theme voiced by shippers during his subcommittee's oversight hearings was the need for this Board.

In case after case, the ICC has implemented procedures and accounting methods which, at least on paper, make the railroads' revenue adequacy appear poorer, make their expenses appear higher, and make their variable costs appear higher still. All this to give the railroads greatly increased margins of rate flexibility, altogether immune from ICC control.

Perhaps the most important decision was the definition of revenue adequacy. A finding of revenue adequacy or inadequacy is the key determinant of how much oversight the ICC maintains in ratesetting. Since the implementation of the Staggers Act, the ICC has begun using a new accounting method to measure the railroads' financial condition. This new method means that the ICC only looks at their return on investment rather than at a broad range of variables.

Using this skewed method, the ICC has made the startling discovery that every single Class One railroad in the entire country is revenue inadequate! I don't care what their profit statements show. I don't care what kind of freight they are hauling. They are all inadequate.

RAILROAD PROPERTY

Mr. FAZIO. Hal, at this point let me ask a question. Are the railroads accounting for property they own and potential gain they may make on property that is held by them?

Mr. ROGERS. Some of the other witnesses may be able to answer that better than I.

Mr. FAZIO. If our state railroads are more known as land owners than they are as a purveyor of goods and facilities, I am wondering if that definition is perhaps broad enough. Will we get to that?

TRANSPORTATION COSTS

Mr. ROGERS. Perhaps we can address that for you later.

Accounting is a complex and mystifying field for many Members of the House, including this one. But buried deep in those neat

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rows of ICC accounts are sleight of hand stunts which have proven extremely costly to many sectors of our country.

These decisions have led to skyrocketing transportation costs for utilities. And it is estimated that over the next ten years these costs will quadruple as a result of ICC decisions. And of course, it is residential and industrial customers who will foot this bill.

These decisions have also proven costly in terms of lost coal business and coal mining jobs, especially on the overseas market. The American share of the world market is already slipping further and further into oblivion, as we become the supplier of last resort. Japanese and European coal purchasers have already announced plans to reduce their purchases of American coal specifically because of the rail transportation costs.

We have before us today some experts who will be able to tell us in greater detail exactly what the true costs of ICC policies have been and why the Accounting Board is so badly needed. We have representatives from the utilities, the coal industry and from the mine workers.

The problems they point out are acute and I would greatly appreciate any help you could give us.

These people represent the broad range of the spectrum that is concerned with this, utilities, coal industry, mine workers and others and the problems they will point out to you are acute and can be resolved or at least improved with this Railroad Accounting Principles Board, which was mandated by the Staggers Act and has never gotten off the ground. It was recently reauthorized and given basic apprporiations through the efforts of the Chairman and others.

We are hoping that it can be adequately funded for the balance of fiscal year 1984 and then funded fully in fiscal year 1985.

Mr. Chairman, thank you for allowing us to be here to air this problem with you again and for allowing us to have this platform. We thank you again for your kind help on the Board.

Mr. FAZIO. First, let me thank you, Hal, for being the prime mover within the Committee for making this the subject for the attention of this subcommittee and I am sure for others on the Full Committee. In fact, I want to place in the record a letter from Mr. Murtha, an active Member of this Subcommittee, although he couldn't be here today, who was a great interest in the coal industry and its problems.

He is recommending in the letter that we appropriate some $750,000. That is his estimate of what would be required to get us off to a good start.

[The letter follows:]

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