WPC 0  6ES6&/PCeiSŞ^$w"u[plWP8Pq1z8Wt  Lmι7) #IE:pT ew"H2GP<4A8 6 P#+`N[AvG‹"KT/9>0`){F&AڼEb_IJ&fwRRךݓkבXjKrzE.3jլ8~`9b,cf/~;NH0 @ Da QPW6j{ qAGh H6g<rp{YpCo=Eo*MLUj<P 0U 0'U0 0S8 0 0<- 0i 0 01< 0! > 0H 0!  U6 0Cn6m"" !"&(D+  -  - 0-. 0.UN/ %//w/4// m/\  `$Times NewRoman<:Default Para<o{:Envelope Ret   E q $MarigoldE #YYXXXQ\  `$Times NewRomanQ #dd q $Marigold8  6Body Text     2$K0Footer  .  !>44 <DL!> . <:Page Number 2>0Header  !>44 <DL!><jj:Footnote TexQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQ<:Footnote Ref*nq(p3      2( D <DL!2 X       5+ 4 <DL!5  *WW(p8 G     5+# #D <DL!5      5+ 4 <DL!5*]c(p9      /% <DL!/ X      5+ 4 <DL!5  ' May 28, 1998 $DAVID L. HALL 0 .   <6X9`(Courier New($     d "!  5+ 4 <DL!5        US Q\  `$Times NewRomanQ         ݀#aaSTBExParteNo.575,ReviewofRailAccessandCompetitionIssues,DecisionServedApril17,1998,p.8#ddXXXQ\  `$Times NewRomanQ , "!  5+ 4 <DL!5          US Q\  `$Times NewRomanQ         ݀See,BrownShoeCo.v.UnitedStates,370U.S.:294(1962)XXXQ\  `$Times NewRomanQ c "!  5+ 4 <DL!5        US Q\  `$Times NewRomanQ         ݀MarketDominanceDetermination,365I.C.C.118(1981),affd,WesternCoalTrafficLeaguev.U.S.,719F.2d.122(5thcir.1983).XXXQ\  `$Times NewRomanQ  "!  5+ 4 <DL!5        US Q\  `$Times NewRomanQ         ݀Pub.L.94210,90Stat.31.XXXQ\  `$Times NewRomanQ  "!  5+ 4 <DL!5        US Q\  `$Times NewRomanQ         ݀49U.S.C.10701a.XXXQ\  `$Times NewRomanQ  "!  5+ 4 <DL!5        US Q\  `$Times NewRomanQ         ݀49U.S.C.10709.XXXQ\  `$Times NewRomanQ  "!  5+ D <DL!5        US Q\  `$Times NewRomanQ         ݀SpecialProc.for  Findings  ԀofMarketDominance,353I.C.C.875(1976),mod.,355I.C.C.12(1976),aff'dinpartandremanded,Atchison.T.&S.F/Ry. v.ICC,580F.2d623(D.C.Cir.)1978)XXXQ\  `$Times NewRomanQ  "!  5+ D <DL!5        US Q\  `$Times NewRomanQ         ݀No.37466,TheAluminumAssociation.Inc.v.TheAkron.Canton&YoungstownR.Co.,servedJune8,1983,aff'd,AluminumCo.ofAmericav.I.C.C.,761F.2d746(D.C.Cir.1985).XXXQ\  `$Times NewRomanQ  "!  5+ D <DL!5        /% <DL!/ X    5+ D <DL!5  US Q\  `$Times NewRomanQ         ݀Q\  `$Times NewRomanQIncentiveRatesonCoal"Axial,  CO  ԀtoColetoCreek,TX,362I.C.C.572,583(1980),aff'dinpartandremanded,CentralPowerandLightCo.v.UnitedStates,634F.2d137(5thCir.1980),639F.2d1104(5thCir.1981),cert.den.,454U.S.831(1981).XXXQ\  `$Times NewRomanQ  XXXQ\  `$Times NewRomanQ  "!  5+ D <DL!5        US Q\  `$Times NewRomanQ         ݀MarketDominanceDeterminations,365I.C.C.118(1981),aff'd,WesternCoalTrafficLeaguev.UnitedStates,719F.2d772(5thCir.1983),cert.den.,466U.S.953(1984).XXXQ\  `$Times NewRomanQ  "!  5+ D <DL!5        US Q\  `$Times NewRomanQ         ݀No.38412S,AlliedChemicalCorp.,etal.v.AnnArborR.  System,  Ԁetal.,servedJune10,1985,aff'd,GeneralChemicalCorp.v...U.S.,817F.2d844(D.C.Cir.1987).XXXQ\  `$Times NewRomanQ : "!  5+ D <DL!5        US Q\  `$Times NewRomanQ         ݀No.38262S,EliLilly&Co.v.BurlingtonNorthernR.Co.,etal.,decidedJuly13,1984.XXXQ\  `$Times NewRomanQb12b4(2c$ "W!  #XٓXX#XXٓXX#Xٓ  XXٓ  0  #|x(fW$  #XٓXX#XXٓXX#XٓxhH  Z6Times New Roman Regular#Xf$,oMU "W!  #XٓXX#XXٓXX#Xٓ  ݛ      ݌̌        8݌̌      ݌̌        6݌̌      ݌̌       May28,1998&%XXٓ 4݌ `  Ќ      ݌̌    F  Fq݌̌      ݌̌    D  Do݌̌  XٓX%&  OfficeoftheSecretary    CaseControlUnit̢ATTN:STBExParteNo.627SurfaceTransportationBoard1925KStreet,N.W.Washington,DC204230001 ` 3< <DL!X3 ` 9% <DL!<<X9 0DL!  X0Re:Q #aaddԢSTBExParteNo.627 @   MarketDominanceDeterminations"Product&GeographicCompetition #ddaa  p   E+ 4 <DL!DXE DearSecretaryWilliams:0DL!X0Enclosedforfilingintheabovereferenceddocketareanoriginalandtwelvecopiesofthe   #aaddJointCommentsofQFFShellOilCompanyandShellChemicalCompany.Alsoenclosedisa3.5inchdiskette,containing  theJointCommentsinaformatwhichmaybeconvertedtoWordPerfect7.0.#ddaa  E+ 4 <DL!DXECopiesoftheseJointCommentsarealsoconcurrentlyservedonallotherpartiesofrecord.Respectfullysubmitted,DavidL.Hall   (P#&   0DL!X0#aaddQ%BEFORETHEB  C  ԀQQ Q SURFACETRANSPORTATIONBOARD  H.4 <DL!DXHWASHINGTON,D.C.   ___________________  p    0DL!X0 Q"EXPARTENO.627  MARKETDOMINANCEDETERMINATIONSPRODUCTANDGEOGRAPHICCOMPETITIONH.4 <DL!DXH __________________   0DL!X0JOINTCOMMENTSOF  Q  "SHELLOILCOMPANYQ)ANDQSHELLCHEMICALCOMPANY Q* D   BrianP.Felker jQ* D   ManagerofProductsTraffic jQ* D   ShellChemicalCompanyQ* D   OneShellPlazaQ* D   PostOfficeBox2463DueDate:May29,1998Q* D   Houston,Texas77252 ($(   E+ 4 <DL!DXE 4  )%)   0DL!X0 Q%BEFORETHEB  C  Ԁ  QQ Q SURFACETRANSPORTATIONBOARD  H.4 <DL!DXHWASHINGTON,D.C. ___________________ @    0DL!X0Q"EXPARTENO.627  MARKETDOMINANCEDETERMINATIONSPRODUCTANDGEOGRAPHICCOMPETITION    H.4 <DL!DXH ___________________       0DL!X0JOINTCOMMENTSOF  Q  "SHELLOILCOMPANYQ)ANDQSHELLCHEMICALCOMPANY E+ 4 <DL!DXE  4 ShellOilCompanyand/orShellChemicalCompany foritselfandasagentforShellOil "  Company(hereinafterjointlyreferredtoas Shell)herebyfilejointcommentsinresponsetotherequestforcommentsbytheSurfaceTransportationBoard(BoardorSTB)byitsDecisionservedApril29,1998inExParteNo.627,MarketDominanceDetermination"Productand P(#& GeographicCompetition.Bothcompaniesarecorporations,theaddressofwhichisOneShell 0*%( Plaza,PostOfficeBox2463,Houston,Texas77252.      XRECOMMENDATIONSI݌ -@), Ќ  ݜ      ShellagreeswiththeBoardthatproductandgeographiccompetitionshouldberemovedaltogetherfromconsiderationinSTBdeterminationofrailroadmarketdominanceandrecommendsthattheBoardissuesuchanorderexpeditiouslyuponconclusionofthetimeperiodforrepliesinthisproceeding.ShellalsorecommendsthattheeliminationofconsiderationofproductandgeographiccompetitionbeextendedtocasescurrentlybeforetheBoard,includingShellsattempttoobtainrelieffromunreasonablerailratesonPETfromAppleGrove,WestVirginia,FinanceDocketNo.41670,ShellChemicalCo.,etal.v.B.&M.Corp.,etal..Itisnot @  Shellspurposeinthisproceedingtolitigatetheissuesintheratecase;nevertheless,ShellsexperienceinseekingrelieffromwhatitdeemstobetheexorbitantratesassessedbytherailroadsonPETshipmentsfromShellsAppleGrove,WVfacility,bearsdirectlyonthemattersbeforetheBoardinthisproceeding. ݌̌    Y  Y݌ P Ќ        BACKGROUND݌ 0 Ќ        Shellfavorsahandsoffapproachbythegovernmentregardingbusinessissueswhichare ` bestregulatedbythemarketinafreeenterprisesystem.Thisincludesrailroadratesandservice.However,wherethereisnotruecompetition,thereisnomarketonlycustomerscaptivetoamonopolyandsubjecttotheabuseofmarketpower.Whileourpreferenceiscompetitionoverregulation,Shellrealizesthatwherenotruecompetitionexists,effectiveregulationmustbeimplementedtoprotectcaptiveshippers.݌̌    8   Shellhashadmoreexperiencewiththeregulatorysystemthanwewouldprefer.As P(#& previouslystated,wearecurrentlyinvolvedinaproceedingbeforetheBoardinanattempttoobtainrelieffromunreasonableratesoncaptivePETtraffic.Ourexperienceprovidesaclearillustrationoftheineffectivenessofthecurrentregulatoryenvironmentasfarasprotecting -@), captiveshippers.ThefactthattheShellPETproceedingisoneofthefewratereasonablenesscasesfiledbyanoncoalshippersincetheStaggersActwaspassedillustratesthemountingconcernthatratereliefisunattainablefromtheBoardbyshippers.8 c ݌̌    O#  Oneofthewayscaptiveshipperscanbebetterprotectedisbyrestoringtheeffectiveness P  of,andconfidencein,theregulatorysystem.Eliminationofthegeographicalandproductcompetitionbarrierstoamarketdominancedeterminationisagoodfirststep.O#z#݌̌    $  $%݌ @  Ќ    y%    SHELLEXPERIENCEy%%݌   Ќ    .&    Theeffectthatalackofcompetitioncombinedwithineffectiveregulatoryprotectionhas  onrailratesispainfullyobvioustoShellOilandShellChemical.Wehaveseveralfacilitieswhicharecaptivetoasinglerailroadaswellasanumberoffacilitieswhichareservedbymorethanonerailcarrier.#ddaa.&Y&݌ P Ќ  InternalShellmetrics,confirmedbyaCommonwealthConsultingAssociatesbenchmark 0 studyofShellplants,showedthattheratesfromShellcaptivefacilitieswereunreasonablyhigh.#aaddByeverymeasure,captivetrafficwasshowntobepricedsignificantlyhigherthan @ competitivetraffic.#ddaaTheresultsfromtwoofourlargefacilities,AppleGrove,WestVirginiaandGeismar, "  Louisianawhichareeachservedbyonlyonerailroadwereparticularlydisturbing.WhileshipmentsfromShellfacilitieswithaccesstomultiplerailcarriers,generatedrevenuetovariablecostratiosaveraginglessthanthe180%regulatorythreshold,therevenuetovariablecostratiosforshipmentsfromGeismaraveragedover250%.Theaveragerevenue tovariablecostratiogeneratedbytrafficfromAppleGrovewasnear300%.Asaresultof ,`'* thisanalysis,Shellendeavoredtonegotiatewiththeinvolvedrailcarrierstoaddressthisdisparity.   N,  Aftermorethantwoyearsoffruitlessnegotiations,Shellbeganpursuingalternativeapproachestodealingwiththesesituations.WebeganworkingwithothershippersintheϢGeismarareatopursueabuildinofan8milespurlinebytheKansasCitySouthernRailwayCompany(KCS).Thecommercialagreementstosupportthisprojectwereconsummatedinabout18months.TheinitialapplicationforapprovalofthisprojectwasfiledwiththeBoardin1995.TheinvolvedshippersarestillawaitingBoardapprovalofthisprojectinordertobegintorealizethepotentialbenefitsofcompetitiverailservice.N,y,݌̌    4/  #aaddShelldidnothavethesameoptionatAppleGrove.Thenearestcarrierotherthanthe  ТCSXis14milesfromtheShellplantwithapotentialbuildinprecludedbymountainsononesideandtheOhioRiverontheother.Havingexhaustedallotheroptions,ShellenteredacomplaintagainsttheCSXrailroadandconnectingcarriersforunreasonableratesoncaptivetrafficfromShellsAppleGrove,WestVirginiaPETplant.ThecomplaintwasfiledwiththethenInterstateCommerceCommissioninDecember,1995andwasinheritedbytheBoardwiththeeffectivedateoftheICCTerminationAct.4/_/݌̌    /2  Everymajorconnectingcarrierinthisratecase,includingConrailwhichCSXisintheprocessofpurchasing,hassettledwithShellandabandonedthefighttoCSXbecausetheyknowthatthesePETratesareunreasonableandindefensible.CSXhasconcededthattherevenuetovariablecostratiosonthetrafficatissueexceedthequantitativemarketdominancehurdleof180%ofvariablecost.Theaveragerevenuetovariablecostratioonthemovementsinvolved isover300%./2Z2݌ ,`'* Ќ    4  Shellscomplainthasbeeninprocessforovertwentyninemonths.Thediscoveryportion oftheMarketDominancephasehasyettobecompleted.TothispointShellhasproducedover22,000pagesofdocumentsrequestedbyCSX.WehavenotyetreachedthepointofpresentingtheevidenceuponwhichtheBoardwillbaseitsdecisionastowhetheritevenhasjurisdictionoverourtraffic.44݌̌    6  ShellcontinuestopayratesontheAppleGrovetrafficthatinsomecasesexceed500%ofvariablecost.Withinthelastmonth,wewereforcedtoimplementdrasticcostcuttingmeasuresattheplantinanattempttorestoretheShellcompetitivepositioninthePETmarket.InthemeantimetheCSXfeelsnosenseofurgencytonegotiateseriously,tellingusinonerecentmeetingthattheyexpectthecasetodragonforatleastanotherfiveyears.66݌  Ќ    %9  Thiscanhardlybecalledeffectiveregulationandsuchanexampleisnotlikelytoinstill p confidenceinothershipperstoseek regulatoryrelief.Therailroadsknowthis.Thatiswhy,aftertwoyearsofnegotiationsinwhichShellofferedtoinvestinadditionaltrackandlocomotivecrews,aswellasproceduralandorganizationalchangestohelpCSXimproveitsefficiencyandreduceitscosts,therailroadrefusedallentreatiesforevenminorratereductions.%9P9݌̌    ;  AsignificantpartofthedelayintheShellCSXPETratecasecanbeattributedtothegeographicandproductcompetitionbarrierstomarketdominancedetermination.TheCSXhasskillfullyusedthesecriteria,whichareunrelatedtoitsabuseofmarketpoweratAppleGrove,todelaytheproceedingwithproductandmarketdominancebasedinterrogatories,requestsfordocuments,andrequeststodeposepeoplewithnorelationtothecase.;;݌̌    =  ShellisawarethattheBoardsrecentdecisioninSTBDocketNo.42022,FMC 0*%( WyomingCorp.,etal.v.UnionPacificR.Co.,servedApril17,1998,soughttolimittheability ,`'* ofrespondentrailroadstogoonafishingexpeditionfordatarelatingtoproductandgeographic -@), competitioninthepossessionofthecomplainingshipper;however,thatdecisioncomesalittlelatetohavebeenmuchhelptoShellinitspendingrateproceeding.==݌̌    U@    U@@݌ p Ќ    @  CONCLUSIONS@"A݌ P  Ќ  X  ItappearstoShellthatthecurrentregulatoryprocessesimpedeactionbyshipperstoutilizetheremediessetforthintheICCTerminationActof1995andservetoinsulaterailcarrierswillingtoabusetheirmarketpowerfromchallengestounreasonableratesorpredatorypricingpractices.Eliminatingtheproductandgeographiccompetitioncriteriafrommarketdominancedeterminationwouldnotonlyremoveguidelineswhichareunrelatedtotheissueofrailroadmarketpower,butwouldalsoeliminateamajorobstacletherailroadshaveusedtodelayordissuadenumerousshippersfromobtaining,orevenseeking,  p   B.4 <DL!XBRespectfullysubmitted, 4    <   SHELLCHEMICALCOMPANY 4    <   ForitselfandasAgentforShellOilCompany 4    <   ByitsManagerofProductsTraffic 4    4    <    4    <   BrianP.Felker 4    <   OneShellPlazaDated:May28,1998  <   Houston,Texas77252 P    B+ 4 <DL!XB#ddaa  X&XXXٓ  B.4 <DL!XBXٓXXX&#aadd  p   B+ 4 <DL!XB#ddaa  H    CERTIFICATEOFSERVICE&%XXٓ HH݌  Ќ    I  II݌̌    J  JEJ݌̌  XٓX%&  J    Iherebycertifythatonthis28thdayofMay,1998,copiesoftheJointCommentsof#aaddShell 8  OilCompanyandShellChemicalCompany#ddaaԀwereservedbyfirstclassmail,postageprepaid,  h inaccordancewiththerulesoftheSurfaceTransportationBoardontheU.S.SecretaryofTransportation,andallotherpartiesofrecord.JJ݌̌    L  -DL!X- X&%XXٓL M݌   Ќ    M  MN݌ p  Ќ    mN    mNN݌̌  XXٓX%& 0DL!X0 #aaddQ* D BrianP.Felker 0 Q* D ManagerofProductsTrafficQ* D ShellChemicalCompanyQ* D OneShellPlazaQ* D PostOfficeBox2463Q* D Houston,Texas77252  P    &%XXٓ #ddaaPP݌̌    Q  QQ݌̌  XٓX%&   $#   6DL!DX6#aaddBEFORETHE  H.4 <DL!DXH0DL!X0SURFACETRANSPORTATIONBOARDWASHINGTON,D.C. p  ______________________________________ P    Q"EXPARTENO.627  MARKETDOMINANCEDETERMINATIONSPRODUCTANDGEOGRAPHICCOMPETITION _______________________________________  H.4 <DL!DXH 0DL!X0VERIFIEDSTATEMENTOFH.4 <DL!DXH0DL!X0DAVIDL.HALLH.4 <DL!DXH0DL!X0_______________@..  H.4 <DL!DXH    IDENTIFICATIONANDQUALIFICATIONSOFAFFIANT  ,`'*   ?+ 4 <DL!X? 4 MynameisDavidL.Hall.IamPresidentofCommonwealthConsultingAssociates (Commonwealth),withofficesat13103F.M.1960West,Suite204,Houston,Texas,77065.CommonwealthConsultingAssociatesprovidesmanagementconsultingservices,includingpracticeareasinlogisticsandinformationsystems.AstatementofmyqualificationsisattachedasAppendixAhereto.  INTRODUCTION @     4 ThisVerifiedStatementissubmittedinsupportoftherecommendationsofShellOilCompanyand/orShellChemicalCompany foritselfandasagentforShellOilCompany(hereinafterjointlyreferredtoas Shell),assetforthbyBrianP.FelkerinresponsetotherequestforcommentsbytheSurfaceTransportationBoard(BoardorSTB)byitsDecisionservedApril29,1998inExParteNo.627,MarketDominanceDetermination"ProductandGeographic P Competition. 0  4 TheBoardinitiatedthisproceedinginresponsetoconcernsexpressedbycaptiveshippersinSTBExParteNo.575,ReviewofRailAccessandCompetitionIssues,thatthereisinadequate @ accesstostatutorilyguaranteedregulatoryreliefforunreasonablerailrates.Amongthespecificconcernsexpressedbyparticipants,includingShellOilandShellChemical,istheinappropriateapplicationoftheconceptsofgeographicandproductcompetitionbytheSTBinitsdeterminationofrailroadmarketdominanceinratereasonablenesscases.ThisstatementwilldetailthedistortionoftheconceptsofproductandgeographiccompetitionwhentheywereborrowedbytheInterstateCommerceCommission(ICC)fromantitrustlaw,illustratetheresultsofthecontinuedmisapplicationoftheseconceptsbytheICCandSTB,andprovideconclusionswhichsupportShellrecommendationsforrestoringeffectiveprotectiontocaptiveshippers. -@), М  MISAPPLICATIONOFTHECONCEPTSOFPRODUCTANDGEOGRAPHICCOMPETITION    X InitsDecisioninExParteNo.575,servedApril17,1998,theBoardspokeofactionithastakentocurbrailroadabuseofthediscoveryprocessinthemarketdominanceportionofratereasonablenessproceedingsandwentontosaythat webelievethatitisalsotimetoconsiderremovingproductandgeographiccompetitionaltogetherfromthemarketdominanceanalysis.  US Q\  `$Times NewRomanQ          ׀Itisindeedtimetoremoveproductandgeographiccompetitionaltogetherfromthemarketdominanceanalysisandreturntotheessenceofthemarketdominancestatute;todeterminewhethermeaningfultransportationcompetitionexistsbetweenaspecificoriginandaspecificdestination.  X #ddItisnotthatproductandgeographiccompetitionareinappropriatefactorstobeconsideredindelineatingtherelevantmarketinwhichtoassesstheanticompetitiveeffectsofaparticulartransaction;itisthattheICCmisunderstoodthemandgavethemameaninginitsratereasonablenessdeterminationsforwhichtherewerenoconceptualbasesorjudicialprecedents.#aa        X #ddProductandgeographiccompetitionareconceptsborrowedfromtheantitrustlaws.Productcompetitionrecognizesthereadilysubstitutablecommoditiesthatshouldbetakenintoaccountinmeasuringthetransactionsanticompetitiveimpact.Geographiccompetitiondefinesthemarketinwhichtheanticompetitiveeffectsofatransactionareassessed  US Q\  `$Times NewRomanQ        .  XXXQ\  `$Times NewRomanQ      X Properapplicationoftheseconceptsintherailroadtransportationcontext,wouldresultinthedefinitionofthescopeofproduct(railtransportationservices)competitionastheintramodal,orrailroad,andeffectiveintermodal,ortruckandbarge,competitionencounteredbytherailroadinhandlingthesubjecttraffic.Theoriginanddestinationpointsoftheconsideredmovementswoulddefinethescopeofgeographiccompetition.That,however,isnotthewaytheICC,andnowtheBoard,cametoapplytheterms.  XXXQ\  `$Times NewRomanQ      X IntheapplicationoftheseconceptsbytheICCandnowtheBoard,theBoardfindsproductcompetitioniftherearesubstitutesfortheendproductsinthemanufactureofwhichtheconsideredcommodityisconsumed.TheBoardfindsgeographiccompetitionwhenevertheshippercanselltheconsideredcommoditytoothercustomers,oritscustomerscanprocureitfromothersuppliers.  US Q\  `$Times NewRomanQ        ׀Thesepositionsarenotsupportedbythelawwhichintroducedtheconceptofmarketdominancetorailregulation,norweretheyembracedbytheICCuntilafterithadproperlydeterminedmarketdominancestandardsforsomesevenyears.  XXXQ\  `$Times NewRomanQ      X TheenactmentoftheRailroadRevitalizationandRegulatoryReformActofl976,  US Q\  `$Times NewRomanQ        ׀Q\  `$Times NewRomanQ  greatlyrestrictedtheICC'sjurisdictionoverrailroadrates;thereaftertheagencywasempoweredtodeterminethereasonablenessofratesapplicableonlytotrafficastowhichtherailroadhadmarketdominance.  US Q\  `$Times NewRomanQ     XXXQ\  `$Times NewRomanQ     ׀Q\  `$Times NewRomanQ  Marketdominancewasdefinedasthe"absenceofeffectivecompetitionfromothercarriersormodesoftransportationforthetransportationtowhicharateapplies."  US Q\  `$Times NewRomanQ     XXXQ\  `$Times NewRomanQ      XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5ThestatutorystandardobviouslyincorporatedthestandardofproductandgeographicmarketoftheSupremeCourt'sBrownShoedecision.Theexistenceofmarketdominancewasdeterminedbytheabsenceofanotherrailroadoracarrierofanothermodeoftransportation,truckorbargeline,thattheshipperwouldregardasanacceptablesubstitutefortheproponentcarrier'srailroadservice.Moreover,thescopeofthemarketdominancedeterminationwaslimitedtothetransportationmovementinquestion,thatis,betweenthepointsoforiginanddestinationtowhichtherateapplied.  XXXQ\  `$Times NewRomanQ      2( D <DL!2 X    5+ D <DL!5TheICCagreedandadoptedcertainrebuttablepresumptionsthatfocusedontherail,motororwatercarrieralternativesfortherailroadtransportationbetweentheoriginandthedestinationpointsonwhichtheratesapplied.  US Q\  `$Times NewRomanQ        ׀At353I.C.C.886,theICCnoted:  XXXQ\  `$Times NewRomanQ     G   5+# #D <DL!5  c 5+? ?D <DL!5AlthoughthelegislativehistoryindicatesthattheCommissionisnottobestrictlyboundbyantitrustconceptsandprecedent,suchprecedentdoesprovideanalytictools.Thestandardsembodiedinthepresumptions,therefore,reflectsuchtraditionalantitrustconceptsasmarketshare,concertedaction,pricingpracticesandbarrierstoentry.XXXQ\  `$Times NewRomanQ      5+ D <DL!5        2( D <DL!2 X    5+ D <DL!5Therailroads,however,urgedthatthestatutorystandardcomprehendedafurtherdimensionofproductandgeographiccompetition.Intheirview,theconsignee'sabilitytosubstituteanotherenduseproductfortheonewhichismadeofthecommoditybeingtransportedtincansforaluminumcans,forexample  US Q\  `$Times NewRomanQ        ׀Q\  `$Times NewRomanQԄservesasarestraintuponarailroad'spricingpracticesand,accordingly,shouldforecloseafindingofmarketdominance.Similarly,thepossibilitythattheconsigneemightbeabletoprocurethecommoditybeingtransportedfromanothersourceSouthAfricanforColoradocoal,forexample  US Q\  `$Times NewRomanQ     XXXQ\  `$Times NewRomanQ    ׀accordingtotherailroads,servestokeeparailroad'sratesincheckand,therefore,sufficestosupportafindingofnomarketdominance.  XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5AlthoughfarremovedfromtheconceptsofproductandgeographiccompetitionwhichwereenunciatedintheSupremeCourt'sBrownShoedecisionandthenfollowedbytheICCinitsrailroadmergerproceedings,therailroads'expansionoftheuniverseofqualifyingfactorsforproductandgeographiccompetitionwasneverthelessadoptedbytheICC.  US Q\  `$Times NewRomanQ         XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5ExpansionofthequalifyingfactorsforproductandgeographiccompetitionledtheICCtoanumberofoutlandishconclusionsinmarketdominancedeterminations.InonesuchmisapplicationtheICCfoundthat"thetransportationrateforsodaashusedinthemanufactureofglassisconstrainedbycompetitionbetweenmanufacturersofaluminumcans,steelcans,andplasticandpaperbottles."  US Q\  `$Times NewRomanQ         XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5Inanotheroutrageousconclusion,theCommissionfoundarailroadspricestobeconstrainedwheresomeofitsnitricacidtrafficisatrisk;"[f]ortheretobegeographiccompetitionitisnotnecessarythatallofthetrafficfromanyspecificsourcebesubjecttodiversion."  US Q\  `$Times NewRomanQ         XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5Itwouldbedifficulttoimagineashipperwhichshipsacommodity,usedbyitscustomerinthemanufactureofaproduct,forwhichthereisnosubstitute;however,undertheBoard'scurrentregulationstheavailabilityofanysubstitutewouldleadtoafindingofproductcompetition.Similarly,itwouldbedifficulttoconceiveofasituationinwhichashipperwouldbeunabletofindacustomerforits%  %  Ԁcommodityotherthantheconsigneeoroneinwhichtheconsigneewouldbeunabletolocateanothersupplierforthecommodityotherthantheshipper;however,undertheBoard'sregulationsthatissufficienttocompelafindingofgeographiccompetition.  XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5AlthoughtheBoardhasbeenupheldinitsformulationofthestandardsfordeterminingwhetherarailroadencounterseffectivecompetitionforthetrafficunderconsideration,theinclusionofgeographicandproductcompetition,asthosetermshavebeenconstruedbythe%  %  agency,hasrendereditvirtuallyimpossibleforshippers,withthepossibleexceptionofshippersofcoal,tosecureadeterminationfromtheBoardthattheirtrafficiscaptivetotherailroadsservingthem.Itislittlewonderthenthatinthepasttwentyyearsnotasinglerailroadrateonanoncoalcommodityhasbeenfoundtobeunreasonable.Thethresholdshowingthatmustbemadetoestablishmarketdominancesimplyis,orisperceivedtobe,toodifficulttoovercome.  XXXQ\  `$Times NewRomanQ        2( D <DL!2 X      5+ D <DL!5CONCLUSIONS  XXXQ\  `$Times NewRomanQ      5+ 4 <DL!5     X #aaTheultimateanswertotheabusesofmarketpowerintherailroadindustryisnotmore,better,oreasieraccessto,regulation.Theanswerismore,better,andeasiershipperaccessto,railroadcompetition.  XXXQ\  `$Times NewRomanQ X #aaItisafactoflifeinaglobaleconomythatproductionwillgravitatetoleastcostsites.EfficientlypricedrailroadtransportationservicesareaprerequisiteforU.S.attractionandretentionofproduction.U.S.railroadtransportationserviceswillnotbepricedefficientlyinanenvironmentcharacterizedbydecreasedcompetition,decreasedeconomicregulation,andinsurmountablebarrierstoentry.  X TheShellcompaniesthriveinthehighlycompetitiveglobalpetrochemicalmarkets.AhighlevelofcompetitionintheU.S.railroadindustrywouldgeneratesimilarsuccessamongthosecompaniesabletoadaptandcompete,resultinginamoreinnovativeandprofitabledomesticdistributionindustry.#dd        X #aaUnfortunatelythecurrentdearthofcompetitionintherailindustryhasleftmuchshippertrafficcaptivetoasinglerailroadandsubjecttomonopolypower.Untilsomebalanceofmarketpowercanberestoredthroughtheintroductionofcompetition,shippersmustbeprotectedfromtheimpositionofunreasonableratesbyrailroadswhichwouldabusetheirmarketpower.  XXXQ\  `$Times NewRomanQ        2( D <DL!2 X    5+ D <DL!5#aaAtthesametimerailroadcompetitionhasbeendiminishedbyconsolidation,thedegreeofshipperprotectionhasalsobeenreducedthroughtheerectionofregulatorybarrierswhichdenyshipperaccesstoraterelief.Oneofthesebarriersisthemisapplicationofgeographicandproductcompetitionastheyrelatetothedeterminationofmarketdominance.  XXXQ\  `$Times NewRomanQ      2( D <DL!2 X    5+ D <DL!5#aaWhilecurrentlawisclearthatcaptiveshippersaretobeprotectedfromtheimpositionofunreasonablerates,regulatoryreliefisnotviewedasaviableoptionbymostshippers,givencurrentrulesandprocedures.Ratereasonablenesscasesareundulyelongatedandcomplicatedasrailroadsmisusethemarketdominancestandardsandabusetheprocesstoplacelitigationobstaclesinthewayoftheraterelieftowhichcaptiveshippersareentitledbystatute.TheBoardrecognizedininstitutingthisproceedingthatthebarrierswhichinhibitshipperaccesstoregulatoryreliefforunreasonableratesmustberemoved.  XXXQ\  `$Times NewRomanQ      2( D <DL!2 X    5+ D <DL!5AreturntoconsiderationofonlyintramodalandintermodalcompetitionbetweenthepointsoforiginanddestinationonwhichtheassailedrailroadratesapplywouldbeanappropriatemeasureofmarketdominanceinrailroadrateproceedingsandbeconsistentwiththeconceptsofproductandgeographiccompetitionasenunciatedbytheSupremeCourtinitsBrownShoedecisionandfollowedbytheICCinitsmergerproceedings.ConsiderationofproductandgeographiccompetitionasconstruedbytheICCforthemakingmarketdominancedeterminationsinitsrateproceedingshasunnecessarilyencumberedtherateproceedingswithextraneousconsiderationsandhasservedtodiscourageshippersfromseekingregulatoryrelieffromtheBoardfromrailroadratesthoughttobeunreasonablyhigh.#aa  XXXQ\  `$Times NewRomanQ      2( D <DL!2 X    5+ D <DL!5ExcludingconsiderationofgeographicandproductcompetitionwouldcorrectthesituationandwouldobligetheBoard,inmakingitsmarketdominancedetermination,tofocusonwhethertherailroadtransportingthefreightencountersmeaningfulcompetitioninthetransportationofthecommodityfromrail,motororwatercarriersoperatingbetweentheoriginanddestinationpoints.  XXXQ\  `$Times NewRomanQ      2( D <DL!2 X    5+ D <DL!5      8.4 <DL!8Q\  `$Times NewRomanQ#bbVERIFICATIONQ\  `$Times NewRomanQ   XXXQ\  `$Times NewRomanQCOUNTYOFHARRIS)....)ss:STATEOFTEXAS)Q\  `$Times NewRomanQ XXXQ\  `$Times NewRomanQ..DAVIDL.HALL,beingdulysworn,deposesandsaysthathehasreadtheforegoingstatement,knowsthecontentsthereof,andthesamearetrueasstated.............Signed:______________________..............DavidL.HallSubscribedandsworntobeforemethis28thdayofMay,1998................................______________________................NotaryPublicMyCommissionexpires:____________________  5+ 4 <DL!5Ӏ(SEAL)#dd          2( D <DL!2 X    5+ D <DL!5#aa  #dd..............AppendixAXXXQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQ..................XXXQ\  `$Times NewRomanQBACKGROUNDANDQUALIFICATIONSXXXQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQOFXXXQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQDAVIDL.HALLXXXQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQXXXQ\  `$Times NewRomanQ..MynameisDavidL.Hall.IamPresidentofCOMMONWEALTHCONSULTINGASSOCIATES(COMMONWEALTH),withofficesat720NorthPostOakRoad,Suite400,Houston,Texas,77024.COMMONWEALTHprovidesmanagementconsultingservices,includingpracticeareasinlogisticsandinformationsystems.XXXQ\  `$Times NewRomanQ..WithCOMMONWEALTHIhaveconductedandsupervisednumeroustransportationcostandoperationalanalysesforclientsinvariousindustriestoaidinthedeterminationofreasonableratelevels.Weassistshippersinobtainingreasonablerailtransportationratesbydeterminingtargetratelevelsbasedonmovementspecificcostanalyses,identifyingsignificantdifferencesbetweenthosetargetsandtheratesineffect,andprovidingnegotiatingtoolsandstrategieswhichassisttheclientinachievingtargetrates.XXXQ\  `$Times NewRomanQ..Ihaveperformedbenchmarkanalysesandprocessredesignstudiesforclientstoassisttheminemployingbestpracticesandstreamliningoperations.Inthesestudiesweworkwithdistributionserviceproviderstosqueezeexcesscostsfromthesystemtothebenefitofbothcarrierandshipper.XXXQ\  `$Times NewRomanQ..IalsodevelopedtheCommonwealthRailCostingSystem(CRCS)acopyrightedrailrateandcostanalysissoftwarepackagewhichrunsunderMicrosoftWindowsandincludesthreecostdevelopmentmodels,aDataManager,andaReportGenerator.CRCSallowstheusertoevaluatecurrentrates,generatetargetrates,projectannualrailtransportationsavingsandestablishcompanywidemetrics.XXXQ\  `$Times NewRomanQ..BeforeestablishingCOMMONWEALTHCONSULTINGASSOCIATES,IwasaTransportationConsultantwithA.T.Kearney,Inc.,ManagementConsultants,whereIassistedintheimplementationoftheKearneytransportationcostingsystem,aswellasparticipatedintransportationcostandoperationalanalysesforvariousKearneyclients.Thosestudiesincludedthemovementofcoaltopublicutilities,movementsofphosphaterockintheBoneValleyofFlorida,themovementoflimeandsodaashfromMissouriandWyomingtoamidwesternutilityandthemovementofbuildingmaterialsfromTexastomidwesternandwesternplantlocations.IalsodevelopedrailandintermodalcostsforOhioRiverBasinexportcoalandnitrogenousfertilizersdistributedfromtheGulfofMexicotofarmbeltstates.XXXQ\  `$Times NewRomanQ..PriortojoiningKearney,IwasemployedbytheIllinoisCommerceCommissionasaTransportationFinancialAnalyst.WhileemployedbytheCommissionIservedascasemanagerininvestigationsandproceedingspertainingtotheregulationofrailroads,motorcarriersofpassengersandmotorcarriersoffreight.IanalyzedcostandfinancialdatasubmittedbyproponentsandprotestantsinCommissionproceedings,andpreparedcoststudiestoaidtheCommissioninthedeterminationoftransportationcostsandproperratelevels.IalsoappearedasanexpertcostandfinancialwitnessandparticipatedincrossexaminationofwitnessesinvariousCommissionhearings.XXXQ\  `$Times NewRomanQ..PriortomyassociationwiththeIllinoisCommerceCommission,IwasemployedbyM.L.Hall&Associates,TransportationConsultants,asaCostAnalyst.SomeofmyassignmentswhileatM.L.Hall&Associatesincluded;participationinanoperationalanalysisofasubsidizedrailroadfortheStateofMichigan;developmentofdataforuseinRailFormA,RailTerminalFormFandHighwayFormBcostingapplications;useofunitcostsderivedfromtheabovementioncostformulaeindevelopmentofmovementcostsforvariousrailroadsandshippers;participationinthe1978operationsstudyofthePortofHoustonswitchingterminalandassistanceinthedevelopmentofcostsusingdataderivedfromtheHoustonstudy;assistanceindevelopmentofacostsystemfortheAssociationofAmericanRailroadswhichwasfirstusedina1977railroadgeneralrateincreasetodeveloprevenues,costsandrevenue/costratiosforover37,000,000carloadsoftraffic;assistanceindevelopmentofacostmodelfortheIllinoisCommerceCommissiontodevelopcostsforsinglecar,multiplecarandtrainload/unittrainsofcoal.XXXQ\  `$Times NewRomanQ..IalsoheldthepositionofStatisticalAssistantwiththefirmofG.W.Fauth&Associates,TransportationConsultants.Mydutiesincludedgatheringdatafromvariousgovernmentagencies,tradeassociations,railroadsandshippersforuseindevelopingtransportationcostsforvariousmodes.XXXQ\  `$Times NewRomanQInadditiontopreparationoftheabovestudiesandsupportingdocumentswhichweresubmittedtovariousregulatoryagencies,IalsosubmittedtestimonyandexhibitsinDocketNo.38336S,NiagaraMohawkPowerCorporation,v.ConsolidatedRailCorporationandPittsburg&ShawmutRailroad,ExParteNo.347(SubNo.2),RateGuidelines"NonCoalProceedings,#aaDocketsNo.41242,CentralPower&LightCompanyv.SouthernPacificTransportation,No.41295,PennsylvaniaPower&LightCompanyv.ConsolidatedRailCorporation,andNo.41626,MidAmericanEnergyCompanyv.UnionPacificRailroadCompanyandChicagoandNorthWesternRailwayCompany,collectivelytermedthe BottleneckCase,#ddDocketNo.41670ShellChemicalCompanyetal.,v.Boston&MaineCorporationetal.,#aaFinanceDocketNo.33388CSXCorporationandCSXTransportation,Inc.,NorfolkSouthernCorporationandNorfolkSouthernRailwayCompanyControlandOperatingLeases/AgreementsConrailInc.andConsolidatedRailCorporationandExParteNo.575,ReviewOfRailAccessAndCompetitionIssues.#ddXXXQ\  `$Times NewRomanQ..IgraduatedmagnacumlaudefromtheUniversityofRichmondwithaBachelorofScienceDegreeinBusinessAdministrationandadoublemajorinfinanceandeconomics.IearnedaMasterofBusinessAdministrationDegreefromtheUniversityofHoustonandhavecompletedcoursestowardaDoctorateinMarketingInformationSystemsatthesameinstitution.      5+ 4 <DL!5#aa      #ddXXXQ\  `$Times NewRomanQ            2( D <DL!2 X    5+ D <DL!5#aa  XXXQ\  `$Times NewRomanQ    5+ 4 <DL!5