Coal shippers, complaining the Interstate Commerce Commission is treating them and the public unfairly, yesterday urged the ICC to abandon proposed railroad rate guidelines and adopt a coal industry method instead.
The recommendation came in oral arguments as the ICC heard testimony from both shippers and railroads, who supported the commission's proposal with some modification. The arguments were over at 1:10 p.m., 10 minutes after the ICC officially ran out of money to operate, and Chairman Reese H. Taylor Jr. sent everyone home.
The ICC is making at least its fourth attempt since 1978 to draft understandable, predictable and legally acceptable guidelines to answer one of transportation's toughest issues: how to set a fair freight rate in a monopoly situation.
The coal issue is one of the most controversial that has arisen since transportation deregulation. Railroad rates were partially deregulated with the Staggers Rail Act of 1980.
Coal interests and electrical utility companies have been fighting a multifront war to roll back some heavy rate increases that followed the oil embargoes of the early 1970s and to keep a brake on future price hikes. Proposals to modify the Staggers Act are certain to be a major issue in the next Congress; several were introduced in the session winding down now.
Many of the nation's coal mines have but one choice when they want to ship their coal, and that choice is rail. Only a relative few have access to more than one railroad or to a competitive barge line.
What the ICC is trying to do is set a formula that will preclude extended regulatory proceedings for routine rate increases. Its proposal says, in effect, that railroads can 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 calls its proposal "constrained market pricing" and contended in its draft that it will permit railroads "to use market demand as the basis for rate-making."
The proposal protects "differential pricing," something the railroads say they must have to be profitable and something the Staggers Act permits. Under differential pricing, railroads are permitted to charge some shippers less than cost (plus a profit) to capture traffic in competitive situations, but to charge more than the costs plus profit in less competitive situations.
Based on testimony yesterday and earlier briefings by interest groups, the biggest single issue with the shippers seems to be the ICC's definition of "revenue adequacy." If a railroad reaches revenue adequacy, it would have a tougher time justifying a rate increase.
The shippers have proposed a method of rate-setting under which the commission would "equitably allocate a carrier's true net unavoidable revenue shortfall among all captive traffic." That would involve setting up complicated tests to determine "unavoidable revenue shortfall," but only in that way can the ICC strike a fair balance between reasonable rates and the revenue needs of the railroads, the shippers argue.
If revenue adequacy is defined at a rate railroads will never realistically reach, they could theoretically raise coal-hauling prices at the 15 percent rate annually without review. William L. Slover, an attorney for the shippers, cited data that says the Santa Fe Railroad would have to raise rates 179 percent to meet the ICC definition of "revenue adequate."