The Interstate Commerce Commission proposed a major change yesterday in how it decides whether railroads with coal-hauling monopolies charge too much. The proposal could result in substantially higher costs for coal, according to railroad industry sources.
This is the latest development in a long-running battle between coal shippers on the one hand and the railroads on the other, and says, in effect, that railroads hauling coal can set rates as high as they wish without ICC review, provided those rates do not violate proposed guidelines.
The proposal protects "differential pricing," something the railroads have maintained they must have to be profitable. Under differential pricing, railroads are permitted to charge some shippers less than the cost (plus a profit) to capture traffic in certain competitive situations, but to charge more than the costs plus profit in less competitive situations.
The proposal drew a wrathful response from the National Coal Association, which represents coal shippers. Carl Bagge, NCA president, said that if the pricing rules take effect, consumers will be forced "to relinquish the economic benefit of low-cost, coal-based electricity" and turn to oil.
"It is essential now that Congress act to ensure that the intent of the railroad deregulation act is fulfilled and that the interests of captive shippers of coal are protected in the absence of competitive transportation."
The Association of American Railroads declined comment on the grounds it is not a party to the ICC proposal. However, the AAR has supported differential pricing vigorously.
John Snow, senior vice president of Richmond-based CSXCorp., which derives 40 percent of its railroad business from hauling coal, withheld definitive comment until he has read the proposal. Nonetheless, he said, "We will like it if it gives the railroads pricing flexibility."
Much regulatory authority in coal rate-making was removed from the ICC with the Staggers Rail Act of 1980. That says the ICC shall not intervene in coal cases unless a railroad's rate penetrates a certain ceiling.
If that happens, then the shipper must prove that the only way he can move his product is on one railroad; that he is a "captive shipper." In that case, the proposal said, railroads could charge what they wish, provided:
* The rate does not exceed "stand-alone costs," or what the shipper would pay to provide the transportation for himself at current replacement costs.
* The rate does not impose "artificially high costs" brought on by "obvious management inefficiencies."
* The railroad does not exceed "revenue adequacy," defined by the ICC as the rate of return on net investment equal to the current cost of money.
* The price increase does not exceed 15 percent plus inflation in any year.
The ICC contends this proposal, which it calls "constrained market pricing," will permit railroads "to use market demand as the basis for rate-making." The ICC hopes, officials there said, that railroads and shippers will see the guidelines as a signal to enter into separate rate contracts that are permitted under the Staggers Act.