Interpretation of the Term “Contract” in 49 U.S.C. 10709, 16316-16318 [E7-6215]
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16316
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Proposed Rules
DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
49 CFR Parts 1300 and 1313
[STB Ex Parte No. 669]
Interpretation of the Term ‘‘Contract’’
in 49 U.S.C. 10709
AGENCY:
Surface Transportation Board,
DOT.
cprice-sewell on PROD1PC61 with PROPOSALS
ACTION:
Notice of proposed rulemaking.
SUMMARY: The Surface Transportation
Board seeks public comments on a
proposal to interpret the term ‘‘contract’’
in 49 U.S.C. 10709 as embracing any
bilateral agreement between a carrier
and a shipper for rail transportation in
which the railroad agrees to a specific
rate for a specific period of time in
exchange for consideration from the
shipper, such as a commitment to
tender a specific amount of freight
during a specific period or to make
specific investments in rail facilities.
DATES: Comments are due by June 4,
2007. Reply comments are due August
2, 2007.
ADDRESSES: Comments may be
submitted either via the Board’s e-filing
format or in the traditional paper
format. Any person using e-filing should
comply with the instructions at the EFILING link on the Board’s Web site, at
https://www.stb.dot.gov. Any person
submitting a filing in the traditional
paper format should send an original
and 10 copies to: Surface Transportation
Board, Attn: STB Ex Parte No. 669, 395
E Street, SW., Washington, DC 20423–
0001.
Copies of written comments will be
available from the Board’s contractor,
ASAP Document Solutions (mailing
address: Suite 103, 9332 Annapolis Rd.,
Lanham, MD 20706; e-mail address:
asapdc@verizon.net; telephone number:
202–306–4004). The comments will also
be available for viewing and selfcopying in the Board’s Public Docket
Room, Room 755, and will be posted to
the Board’s Web site at https://
www.stb.dot.gov.
FOR FURTHER INFORMATION CONTACT:
Joseph H. Dettmar at 202–245–0395.
[Assistance for the hearing impaired is
available through the Federal
Information Relay Service (FIRS) at 1–
800–877–8339.]
SUPPLEMENTARY INFORMATION: Until the
late 1970s, the Board’s predecessor, the
Interstate Commerce Commission (ICC),
had found contract rates between a
railroad and a shipper to be per se
unlawful. They were regarded as a
destructive competitive practice that
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would have the effect of damaging
existing rate structures and reducing
competition.1 In 1978, the ICC changed
course, issuing a policy statement
acknowledging that contract rates may
be beneficial in many circumstances
because ‘‘a shipper is guaranteed a
certain rate for the period of the contract
while the carrier knows what service
that shipper will receive.’’ 2 In that
proceeding, the ICC adopted the
following definition of a rail ‘‘contract
rate’’:
a railroad freight rate arrived at through
mutual agreement between a railroad * * *
and a shipper in which the railroad agrees to
provide service for a given price and the
shipper agrees to tender a given amount of
freight during a fixed period.3
Rather than finding all such agreements
lawful, however, the ICC undertook to
review the legality of contract rates on
a case-by-case basis.
Congress viewed the ICC’s changed
policy as insufficient, because it had ‘‘a
number of restrictions and uncertainties
and [had] resulted in the limited use of
contracts.’’ 4 To ensure that shippers
and railroads would be free to enter into
rail transportation contracts ‘‘without
concern about whether the ICC would
disapprove a contract,’’ 5 in the Staggers
Rail Act of 1980 (Staggers Act),6
Congress amended the statute to provide
that railroads ‘‘may enter into a contract
with one or more purchasers of rail
services to provide specified services
under specified rates and conditions.’’
Former 49 U.S.C. 10713(a) (1995) (now
codified at 49 U.S.C. 10709(a)). When
originally enacted, the provision further
stated that ‘‘a rail carrier may not enter
into a contract with purchasers of rail
service except as provided in this
section.’’ Former 49 U.S.C. 10713(a)
(1995).
Congress also expressly removed all
matters and disputes arising from rail
transportation contracts from the ICC’s
(and now the Board’s) jurisdiction. See
former 49 U.S.C. 10713(i) (1995) (now
codified at 49 U.S.C. 10709(c)). If the
1 See Contract Rates on Rugs and Carpeting from
Amsterdam, N.Y., to Chicago, 313 I.C.C. 247, 254
(1961); Guaranteed Rates from Sault Ste. Marie,
Ontario, Canada, to Chicago, 315 I.C.C. 311, 323
(1961).
2 Change of Policy Railroad Contract Rates, Ex
Parte No. 358–F (ICC served Nov. 9, 1978).
3 See former 49 CFR 1039.1 (1979).
4 H.R. Rep. No. 96–1035, 96th Cong., 2nd Sess.
(May 16, 1980) at 57 (House Report); see also S.
Rep. No. 96–470, 96th Cong., 1st Sess. (Dec. 7,
1979) at 24 (Senate Report) (the changes are
‘‘intended to clarify the status of contract rate and
service agreements in an effort to encourage carriers
and purchasers of rail service to make widespread
use of such agreements’’).
5 House Report at 58; see also Senate Report at
24.
6 Pub. L. No. 96–448, 94 Stat. 1895 (1980).
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parties have a dispute regarding such a
contract—such as whether there has
been adequate performance or whether
the contract is void because it was
signed under duress—such matters are
to be decided by the courts under
applicable state contract law. See former
49 U.S.C. 10713(i)(2) (1995) (now
codified at 49 U.S.C. 10709(c)(2)).
Congress also explained that, if someone
believes that a contract is
anticompetitive, ‘‘the antitrust laws are
the appropriate and only remedy
available.’’ 7 Congress considered the
contract rate provision of the Staggers
Act to be ‘‘among the most important in
the bill.’’ 8 But there is no clear
distinction in the statute or our
precedent between a contract and a
common carrier rate.
In a recent proceeding, Kansas City
Power & Light Company v. Union
Pacific Railroad Company, STB Docket
No. 42095 (KCPL), the Board asked the
parties to submit briefs to discuss a
hybrid pricing mechanism that the
carrier designated a common carrier
pricing arrangement, but could be
viewed as a rail transportation contract.
See Kansas City Power & Light Co. v.
Union Pac. R.R., STB Docket No. 42095
(STB served July 27, 2006). The parties
took the position that the rates at issue
were common carrier rates subject to the
Board’s jurisdiction. The parties cited
agency precedent for the proposition
that a common carrier rate ‘‘is nothing
more than a special kind of contract
between a carrier and its shippers,’’
citing National Grain & Feed Assoc. v.
BN RR. Co., et al., 8 I.C.C.2d 421, 437
(1992), and whether a contract or
common carrier rate exists has been
examined on a case-by-case basis in
light of the parties’ intent, citing
Aggregate Volume Rate on Coal, Acco,
UT to Moapa, NV, 364 I.C.C. 678, 689
(1981) (Utah). The parties also pointed
out that the agency has in the past stated
that the purpose of allowing for contract
rates is to establish negotiated, mutually
agreeable rates to which parties intend
to be bound. See Utah, 364 I.C.C. at 689;
see also Product and Geographic
Competition, 2 I.C.C.2d 1, 11 (1985);
Market Dominance Determinations, 365
I.C.C. 118, 125 (1981). The Union
Pacific Railroad Company (UP) also
argued that it can enter into any kind of
bilateral agreement with a shipper, but
maintain Board jurisdiction by labeling
the agreement a common carrier rate
rather than a contract rate. It contended
that a carrier has the authority to
designate what type of rate it is
establishing, based on section 10701(c),
7 House
8 Senate
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Report at 58.
Report at 9.
04APP1
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Proposed Rules
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arguing ‘‘[u]nless a specific prohibition
applies, ‘a rail carrier may establish any
rate for transportation or other service
provided by the rail carrier.’ Rail
carriers thus have broad flexibility to
design common carrier offerings as
alternatives to rail transportation
contracts in response to business
needs.’’ 9 Because the parties could have
reasonably relied on prior agency
precedent to conclude that this kind of
hybrid pricing mechanism is subject to
Board jurisdiction, we concluded that it
would be inappropriate to set aside or
reexamine that ICC precedent in that
adjudication.
Nevertheless, we have serious
concerns about the lack of any clear
demarcation between contract and
common carrier rates because of the
boundaries on our jurisdiction. The
carrier in the KCPL proceeding has
crafted a hybrid pricing mechanism that
appears to have all of the characteristics
of a rail transportation contract, but
avoids some important consequences of
entering into such a contract by its
choice of label. Traditionally, common
carrier pricing has been a holding out to
the public to provide a specified
transportation services for a given price
that a shipper accepts by tendering
traffic. Under these unilateral
contracts,10 the carrier has the right to
change the common carrier rates or
terms upon 20 days’ notice under 49
U.S.C. 11101(c). In other words, where
there is no mutuality of consideration,
a carrier can unilaterally withdraw one
offer and replace it with another.
The new pricing structures we are
witnessing as reflected in the KCPL
proceeding, however, contain a
mutuality of obligation between the
carriers and shippers that appear to
have the hallmarks of a contractual
relationship. These bilateral agreements
mutually bind both the shipper and the
carrier for a given period of time. In
exchange for some sort of consideration
from the shipper, the carrier commits to
a specific rate or service for a specific
term. While Congress intended to
permit carriers to have the pricing
flexibility to enter into these kinds of
agreements, we believe that Congress
also intended for these contractual
agreements to be confidential, outside
Board jurisdiction, and subject to the
9 See STB Docket No. 42095, UP’s Response to
Order to Show Cause, at 8 (filed Sept. 25, 2006).
10 A unilateral contract is one in which one party
makes an express engagement or undertakes a
performance, without receiving in return any
express engagement or promise of performance
from the other. The essence of a unilateral contract
is that neither party is bound until the promisee
accepts the offer by performing the proposed act.
Black’s Law Dictionary 277 (6th abr. Ed. 1991).
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scrutiny of the antitrust laws, rather
than regulation under the Interstate
Commerce Act.
We also have concerns that the
increased used of these hybrid pricing
mechanisms could create an
environment where collusive activities
in the form of anticompetitive price
signaling could occur. Whereas the
terms and conditions of common carrier
rates must be publicly disclosed under
section 11101,11 the terms of a rail
transportation contract are to be kept
confidential, a factor that makes
collusion in this highly concentrated
industry more difficult.12 Thus, a
carrier’s hybrid pricing mechanism may
not contain the same protections against
collusion as do traditional confidential
transportation contracts. An important
competitive benefit of contracts is that
they often enable shippers to obtain
service commitments and lower rates
that carriers might not otherwise offer
through the public tariff process.
We also question whether the position
advanced by UP that these sorts of rates
are authorized by section 10701(c) is
consistent with the statutory scheme.
Read in context with the other
provisions of section 10701, we believe
that subsection (c) addresses the level of
the rate that a carrier may set in the first
instance, and does not allow the carrier
to control the designation of the type of
rate that is involved. Moreover, under
the railroad’s interpretation, there
would appear to be no type of
agreement between a carrier and a
shipper—no matter how long the term
or how individually tailored or bilateral
the responsibilities created—that a
carrier could not unilaterally label
common carrier rate and service terms.
If that were so, the contract provision in
section 10709 would become largely
superfluous.
Similarly, the carrier’s interpretation
would render section 10722 redundant.
In that provision, Congress expressly
11 See 49 CFR 1300.2 (‘‘A rail carrier must
disclose to any person, upon formal request, the
specific rates(s) requested * * *. as well as all
charges and service terms * * *.’’).
12 See, e.g., Canadian National, et al.—Control—
Illinois Central, et al., 4 S.T.B. 122, 149 (1999) (‘‘As
we explained in the UP/SP decision affirmed by the
court, there are three elements, all of which are
present here, that each make tacit collusion
unlikely for markets in which two railroads operate.
First, tacit collusion cannot flourish where, as in
railroading, rate concessions can and are made
secretly through confidential contracts.’’); see also
Water Transport Ass’n v. ICC, 722 F.2d 1025 (2d
Cir. 1983) (‘‘[I]t has long been recognized under the
antitrust laws that public disclosure of contract
terms can undermine competition by stabilizing
prices at an artificially high level.’’); see generally
Petition To Disclose Long-Term Rail Coal Contracts,
ICC Ex Parte No. 387 (Sub-No. 961) (ICC served July
29, 1988) (lengthy discussion of the confidentiality
of rail transportation contracts).
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16317
authorized rail carriers to establish
premium charges in common carrier
rates for special services or special
levels of service in order to encourage
more efficient use of freight cars. See 49
U.S.C. 10722. If, however, section 10701
authorizes common carrier tariffs that
embrace any kind of special rates and
terms, it would not have been necessary
for Congress to separately authorize
special rates in section 10722.
We are inclined to find that a more
reasonable interpretation of the statute
is that section 10701 does not authorize
carriers to enter into either special
common carrier rates or bilateral
contractual agreements. Both the
authority for, and limitations on, those
types of rates are set forth in sections
10722 and 10709, respectively. Section
10709, in turn, removes those contracts
from the regulatory scheme associated
with common carrier service.
In light of the above concerns, we
seek public comment on our proposed
interpretation of the term ‘‘contract’’ in
section 10709 as embracing any bilateral
agreement between a carrier and a
shipper for rail transportation in which
the railroad agrees to a specific rate for
a specific period of time in exchange for
consideration from the shipper, such as
a commitment to tender a specific
amount of freight during a specific
period or to make specific investments
in rail facilities. Under the proposed
interpretation, notwithstanding any
carrier representation that the rate
specified in the agreement is a common
carrier rate, such a bilateral agreement
would be regarded by the Board as a rail
transportation contract under section
10709 and therefore outside the Board’s
jurisdiction. See Columbia Gas
Transmission Corp. v. FERC, 404 F.3d
459, 463 (D.C. Cir. 2005) (‘‘jurisdiction
cannot arise from the absence of
objection, or even from affirmative
agreement. To the contrary, as a
statutory entity, [the agency] cannot
acquire jurisdiction merely by
agreement of the parties before it.’’); see
also Weinberger v. Bentex Pharms., Inc.,
412 U.S. 645, 652 (1973) (only Congress,
not parties, may confer jurisdiction).
Though we need not seek public
comments before issuing an
interpretative rule of this nature, we do
so here to ensure that we have fully
considered the issues and ramifications
before taking this action. We do not
intend to stifle innovation in
transportation markets or otherwise
disadvantage any party.
To the extent this interpretation could
be seen as contradicting past agency
statements regarding whether a bilateral
agreement can constitute a common
carrier rate, we would apply this
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Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Proposed Rules
interpretation prospectively only.
However, we do not want to create
incentives for a carrier to rush to put
into place as many rates as possible in
hybrid ‘‘common carrier’’ agreements
during the period of unavoidable delay
associated with seeking public
comments. Therefore, should we adopt
this interpretative rule, we intend to
apply the rule to all agreements entered
into after the date of publication of this
decision in the Federal Register. Parties
are hereby placed on notice that if this
proposal is adopted, the reasonableness
of a rate reflected in a bilateral
agreement entered into after this date
will be treated as a confidential contract
governed by section 10709 and outside
the Board’s jurisdiction.
Our proposed changes to the Code of
Federal Regulations are set forth in the
appendix. Parties are specifically
invited to comment on the proposed
rules, particularly concerning 49 CFR
1313.1(c). Parties are asked to consider
whether the proposed changes would
have unforeseen consequences for
agricultural contracts and whether there
are differences between agricultural and
other types of rail transportation
contracts.
Pursuant to 5 U.S.C. 605(b), the Board
certifies that this action will not have a
significant economic effect on a
substantial number of small entities
within the meaning of the Regulatory
Flexibility Act.
This action will not significantly
affect either the quality of the human
environment or the conservation of
energy resources.
Authority: 49 U.S.C. 721, 49 U.S.C. 10709.
Decided: March 28, 2007.
By the Board, Chairman Nottingham, Vice
Chairman Buttrey, and Commissioner
Mulvey.
Vernon A. Williams,
Secretary.
For the reasons set forth in the
preamble, the Surface Transportation
Board proposes to amend part 1300 and
1313 of title 49, chapter x, of the Code
of Federal Regulations as follows:
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PART 1300—DISCLOSURE,
PUBLICATION, AND NOTICE OF
CHANGE OF RATES AND OTHER
SERVICE TERMS FOR RAIL COMMON
CARRIAGE
1. The authority citation for Part 1300
continues to read as follows:
Authority: 49 U.S.C. 721(a) and 11101(f).
2. Amend § 1300.1 by adding
paragraphs (c)(1) and (c)(2) to read as
follows:
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§ 1300.1
Scope; definitions.
*
*
*
*
(c) * * *
(1) The term contract in 49 U.S.C.
10709 is defined as any bilateral
agreement between a carrier and a
shipper for rail transportation in which
the carrier agrees to a specific rate for
a specific period of time in exchange for
consideration from the shipper, such as
a commitment to tender a specific
amount of freight during a specific
period or to make specific investments
in rail facilities.
(2) Notwithstanding any
representation that a rate specified in an
agreement is a common carrier rate, a
bilateral agreement as described in
paragraph (c)(1) of this section will be
treated by the Board as a rail
transportation contract authorized
under 49 U.S.C. 10709 and therefore
outside the Board’s jurisdiction.
*
*
*
*
*
PART 1313—RAILROAD CONTRACTS
FOR THE TRANSPORTATION OF
AGRICULTURAL PRODUCTS
3. The authority citation for Part 1313
continues to read as follows:
Authority: 49 U.S.C. 721(a) and 10709.
4. Amend § 1313.1 by revising the
first sentence of paragraph (c) to read as
follows:
§ 1313.1
Scope; definitions of terms.
*
*
*
*
*
(c) For purposes of this part, the term
contract means a contract as defined in
49 CFR 1300.1(c), including any
amendment thereto, to provide specified
transporation of agricultural products
(including grain, as defined in 7 U.S.C.
75 and products thereof). * * *
[FR Doc. E7–6215 Filed 4–3–07; 8:45 am]
BILLING CODE 4915–01–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 635
[Docket No. 070330073–7073–01; I.D.
030507A]
RIN 0648–AU87
Atlantic Highly Migratory Species;
Atlantic Bluefin Tuna Quota
Specifications and Effort Controls
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
AGENCY:
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Proposed rule; request for
comments; notice of public hearings.
ACTION:
*
SUMMARY: NMFS proposes initial 2007
fishing year specifications for the
Atlantic bluefin tuna (BFT) fishery to set
BFT quotas for each of the established
domestic fishing categories and to set
effort controls for the General category
and Angling category. This action is
necessary to implement
recommendations of the International
Commission for the Conservation of
Atlantic Tunas (ICCAT), as required by
the Atlantic Tunas Convention Act
(ATCA), and to achieve domestic
management objectives under the
Magnuson-Stevens Fishery
Conservation and Management Act
(Magnuson-Stevens Act). A minor
administrative change to the permit
regulations is also proposed. NMFS
solicits written comments and will hold
public hearings in April 2007 to receive
oral comments on these proposed
actions.
DATES: Written comments must be
received on or before May 4, 2007.
The public hearings dates are:
1. April 24, 2007, 7 p.m. to 9 p.m.,
Morehead City, NC.
2. April 26, 2007, 6:30 p.m. to 8:30
p.m., West Islip, NY.
3. April 27, 2007, 3:30 p.m. to 5:30
p.m., Gloucester, MA.
ADDRESSES: Comments may be
submitted through any of the following
methods:
• E-mail: 07BFTSPECS@noaa.gov.
Include in the subject line the following
identifier: ‘‘Comments on 2007 Atlantic
bluefin tuna specifications.’’
• Federal e-Rulemaking Portal: https://
www.regulations.gov.
• Mail: Sarah McLaughlin, Highly
Migratory Species Management
Division, Office of Sustainable Fisheries
(F/SF1), NMFS, One Blackburn Dr.,
Gloucester, MA 01930.
• Fax: (978) 281–9340.
The hearing locations are:
1. Morehead City — Carteret
Community College (Joselyn Hall, H.J.
McGee, Jr. Building), 3505 Arendell
Street, Morehead City, NC 28557.
2. West Islip — West Islip Public
Library, 3 Higbie Lane, West Islip, NY
11795.
3. Gloucester — NMFS, One
Blackburn Drive, Gloucester, MA 01930.
Supporting documents including the
Environmental Assessment, Initial
Regulatory Flexibility Analysis, and
Regulatory Impact Review are available
by sending your request to Sarah
McLaughlin at the mailing address
specified above.
FOR FURTHER INFORMATION CONTACT:
Sarah McLaughlin, 978–281–9260.
E:\FR\FM\04APP1.SGM
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Agencies
[Federal Register Volume 72, Number 64 (Wednesday, April 4, 2007)]
[Proposed Rules]
[Pages 16316-16318]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6215]
[[Page 16316]]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
49 CFR Parts 1300 and 1313
[STB Ex Parte No. 669]
Interpretation of the Term ``Contract'' in 49 U.S.C. 10709
AGENCY: Surface Transportation Board, DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Surface Transportation Board seeks public comments on a
proposal to interpret the term ``contract'' in 49 U.S.C. 10709 as
embracing any bilateral agreement between a carrier and a shipper for
rail transportation in which the railroad agrees to a specific rate for
a specific period of time in exchange for consideration from the
shipper, such as a commitment to tender a specific amount of freight
during a specific period or to make specific investments in rail
facilities.
DATES: Comments are due by June 4, 2007. Reply comments are due August
2, 2007.
ADDRESSES: Comments may be submitted either via the Board's e-filing
format or in the traditional paper format. Any person using e-filing
should comply with the instructions at the E-FILING link on the Board's
Web site, at https://www.stb.dot.gov. Any person submitting a filing in
the traditional paper format should send an original and 10 copies to:
Surface Transportation Board, Attn: STB Ex Parte No. 669, 395 E Street,
SW., Washington, DC 20423-0001.
Copies of written comments will be available from the Board's
contractor, ASAP Document Solutions (mailing address: Suite 103, 9332
Annapolis Rd., Lanham, MD 20706; e-mail address: asapdc@verizon.net;
telephone number: 202-306-4004). The comments will also be available
for viewing and self-copying in the Board's Public Docket Room, Room
755, and will be posted to the Board's Web site at https://
www.stb.dot.gov.
FOR FURTHER INFORMATION CONTACT: Joseph H. Dettmar at 202-245-0395.
[Assistance for the hearing impaired is available through the Federal
Information Relay Service (FIRS) at 1-800-877-8339.]
SUPPLEMENTARY INFORMATION: Until the late 1970s, the Board's
predecessor, the Interstate Commerce Commission (ICC), had found
contract rates between a railroad and a shipper to be per se unlawful.
They were regarded as a destructive competitive practice that would
have the effect of damaging existing rate structures and reducing
competition.\1\ In 1978, the ICC changed course, issuing a policy
statement acknowledging that contract rates may be beneficial in many
circumstances because ``a shipper is guaranteed a certain rate for the
period of the contract while the carrier knows what service that
shipper will receive.'' \2\ In that proceeding, the ICC adopted the
following definition of a rail ``contract rate'':
---------------------------------------------------------------------------
\1\ See Contract Rates on Rugs and Carpeting from Amsterdam,
N.Y., to Chicago, 313 I.C.C. 247, 254 (1961); Guaranteed Rates from
Sault Ste. Marie, Ontario, Canada, to Chicago, 315 I.C.C. 311, 323
(1961).
\2\ Change of Policy Railroad Contract Rates, Ex Parte No. 358-F
(ICC served Nov. 9, 1978).
a railroad freight rate arrived at through mutual agreement between
a railroad * * * and a shipper in which the railroad agrees to
provide service for a given price and the shipper agrees to tender a
given amount of freight during a fixed period.\3\
---------------------------------------------------------------------------
\3\ See former 49 CFR 1039.1 (1979).
Rather than finding all such agreements lawful, however, the ICC
undertook to review the legality of contract rates on a case-by-case
basis.
Congress viewed the ICC's changed policy as insufficient, because
it had ``a number of restrictions and uncertainties and [had] resulted
in the limited use of contracts.'' \4\ To ensure that shippers and
railroads would be free to enter into rail transportation contracts
``without concern about whether the ICC would disapprove a contract,''
\5\ in the Staggers Rail Act of 1980 (Staggers Act),\6\ Congress
amended the statute to provide that railroads ``may enter into a
contract with one or more purchasers of rail services to provide
specified services under specified rates and conditions.'' Former 49
U.S.C. 10713(a) (1995) (now codified at 49 U.S.C. 10709(a)). When
originally enacted, the provision further stated that ``a rail carrier
may not enter into a contract with purchasers of rail service except as
provided in this section.'' Former 49 U.S.C. 10713(a) (1995).
---------------------------------------------------------------------------
\4\ H.R. Rep. No. 96-1035, 96th Cong., 2nd Sess. (May 16, 1980)
at 57 (House Report); see also S. Rep. No. 96-470, 96th Cong., 1st
Sess. (Dec. 7, 1979) at 24 (Senate Report) (the changes are
``intended to clarify the status of contract rate and service
agreements in an effort to encourage carriers and purchasers of rail
service to make widespread use of such agreements'').
\5\ House Report at 58; see also Senate Report at 24.
\6\ Pub. L. No. 96-448, 94 Stat. 1895 (1980).
---------------------------------------------------------------------------
Congress also expressly removed all matters and disputes arising
from rail transportation contracts from the ICC's (and now the Board's)
jurisdiction. See former 49 U.S.C. 10713(i) (1995) (now codified at 49
U.S.C. 10709(c)). If the parties have a dispute regarding such a
contract--such as whether there has been adequate performance or
whether the contract is void because it was signed under duress--such
matters are to be decided by the courts under applicable state contract
law. See former 49 U.S.C. 10713(i)(2) (1995) (now codified at 49 U.S.C.
10709(c)(2)). Congress also explained that, if someone believes that a
contract is anticompetitive, ``the antitrust laws are the appropriate
and only remedy available.'' \7\ Congress considered the contract rate
provision of the Staggers Act to be ``among the most important in the
bill.'' \8\ But there is no clear distinction in the statute or our
precedent between a contract and a common carrier rate.
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\7\ House Report at 58.
\8\ Senate Report at 9.
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In a recent proceeding, Kansas City Power & Light Company v. Union
Pacific Railroad Company, STB Docket No. 42095 (KCPL), the Board asked
the parties to submit briefs to discuss a hybrid pricing mechanism that
the carrier designated a common carrier pricing arrangement, but could
be viewed as a rail transportation contract. See Kansas City Power &
Light Co. v. Union Pac. R.R., STB Docket No. 42095 (STB served July 27,
2006). The parties took the position that the rates at issue were
common carrier rates subject to the Board's jurisdiction. The parties
cited agency precedent for the proposition that a common carrier rate
``is nothing more than a special kind of contract between a carrier and
its shippers,'' citing National Grain & Feed Assoc. v. BN RR. Co., et
al., 8 I.C.C.2d 421, 437 (1992), and whether a contract or common
carrier rate exists has been examined on a case-by-case basis in light
of the parties' intent, citing Aggregate Volume Rate on Coal, Acco, UT
to Moapa, NV, 364 I.C.C. 678, 689 (1981) (Utah). The parties also
pointed out that the agency has in the past stated that the purpose of
allowing for contract rates is to establish negotiated, mutually
agreeable rates to which parties intend to be bound. See Utah, 364
I.C.C. at 689; see also Product and Geographic Competition, 2 I.C.C.2d
1, 11 (1985); Market Dominance Determinations, 365 I.C.C. 118, 125
(1981). The Union Pacific Railroad Company (UP) also argued that it can
enter into any kind of bilateral agreement with a shipper, but maintain
Board jurisdiction by labeling the agreement a common carrier rate
rather than a contract rate. It contended that a carrier has the
authority to designate what type of rate it is establishing, based on
section 10701(c),
[[Page 16317]]
arguing ``[u]nless a specific prohibition applies, `a rail carrier may
establish any rate for transportation or other service provided by the
rail carrier.' Rail carriers thus have broad flexibility to design
common carrier offerings as alternatives to rail transportation
contracts in response to business needs.'' \9\ Because the parties
could have reasonably relied on prior agency precedent to conclude that
this kind of hybrid pricing mechanism is subject to Board jurisdiction,
we concluded that it would be inappropriate to set aside or reexamine
that ICC precedent in that adjudication.
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\9\ See STB Docket No. 42095, UP's Response to Order to Show
Cause, at 8 (filed Sept. 25, 2006).
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Nevertheless, we have serious concerns about the lack of any clear
demarcation between contract and common carrier rates because of the
boundaries on our jurisdiction. The carrier in the KCPL proceeding has
crafted a hybrid pricing mechanism that appears to have all of the
characteristics of a rail transportation contract, but avoids some
important consequences of entering into such a contract by its choice
of label. Traditionally, common carrier pricing has been a holding out
to the public to provide a specified transportation services for a
given price that a shipper accepts by tendering traffic. Under these
unilateral contracts,\10\ the carrier has the right to change the
common carrier rates or terms upon 20 days' notice under 49 U.S.C.
11101(c). In other words, where there is no mutuality of consideration,
a carrier can unilaterally withdraw one offer and replace it with
another.
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\10\ A unilateral contract is one in which one party makes an
express engagement or undertakes a performance, without receiving in
return any express engagement or promise of performance from the
other. The essence of a unilateral contract is that neither party is
bound until the promisee accepts the offer by performing the
proposed act. Black's Law Dictionary 277 (6th abr. Ed. 1991).
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The new pricing structures we are witnessing as reflected in the
KCPL proceeding, however, contain a mutuality of obligation between the
carriers and shippers that appear to have the hallmarks of a
contractual relationship. These bilateral agreements mutually bind both
the shipper and the carrier for a given period of time. In exchange for
some sort of consideration from the shipper, the carrier commits to a
specific rate or service for a specific term. While Congress intended
to permit carriers to have the pricing flexibility to enter into these
kinds of agreements, we believe that Congress also intended for these
contractual agreements to be confidential, outside Board jurisdiction,
and subject to the scrutiny of the antitrust laws, rather than
regulation under the Interstate Commerce Act.
We also have concerns that the increased used of these hybrid
pricing mechanisms could create an environment where collusive
activities in the form of anticompetitive price signaling could occur.
Whereas the terms and conditions of common carrier rates must be
publicly disclosed under section 11101,\11\ the terms of a rail
transportation contract are to be kept confidential, a factor that
makes collusion in this highly concentrated industry more
difficult.\12\ Thus, a carrier's hybrid pricing mechanism may not
contain the same protections against collusion as do traditional
confidential transportation contracts. An important competitive benefit
of contracts is that they often enable shippers to obtain service
commitments and lower rates that carriers might not otherwise offer
through the public tariff process.
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\11\ See 49 CFR 1300.2 (``A rail carrier must disclose to any
person, upon formal request, the specific rates(s) requested * * *.
as well as all charges and service terms * * *.'').
\12\ See, e.g., Canadian National, et al.--Control--Illinois
Central, et al., 4 S.T.B. 122, 149 (1999) (``As we explained in the
UP/SP decision affirmed by the court, there are three elements, all
of which are present here, that each make tacit collusion unlikely
for markets in which two railroads operate. First, tacit collusion
cannot flourish where, as in railroading, rate concessions can and
are made secretly through confidential contracts.''); see also Water
Transport Ass'n v. ICC, 722 F.2d 1025 (2d Cir. 1983) (``[I]t has
long been recognized under the antitrust laws that public disclosure
of contract terms can undermine competition by stabilizing prices at
an artificially high level.''); see generally Petition To Disclose
Long-Term Rail Coal Contracts, ICC Ex Parte No. 387 (Sub-No. 961)
(ICC served July 29, 1988) (lengthy discussion of the
confidentiality of rail transportation contracts).
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We also question whether the position advanced by UP that these
sorts of rates are authorized by section 10701(c) is consistent with
the statutory scheme. Read in context with the other provisions of
section 10701, we believe that subsection (c) addresses the level of
the rate that a carrier may set in the first instance, and does not
allow the carrier to control the designation of the type of rate that
is involved. Moreover, under the railroad's interpretation, there would
appear to be no type of agreement between a carrier and a shipper--no
matter how long the term or how individually tailored or bilateral the
responsibilities created--that a carrier could not unilaterally label
common carrier rate and service terms. If that were so, the contract
provision in section 10709 would become largely superfluous.
Similarly, the carrier's interpretation would render section 10722
redundant. In that provision, Congress expressly authorized rail
carriers to establish premium charges in common carrier rates for
special services or special levels of service in order to encourage
more efficient use of freight cars. See 49 U.S.C. 10722. If, however,
section 10701 authorizes common carrier tariffs that embrace any kind
of special rates and terms, it would not have been necessary for
Congress to separately authorize special rates in section 10722.
We are inclined to find that a more reasonable interpretation of
the statute is that section 10701 does not authorize carriers to enter
into either special common carrier rates or bilateral contractual
agreements. Both the authority for, and limitations on, those types of
rates are set forth in sections 10722 and 10709, respectively. Section
10709, in turn, removes those contracts from the regulatory scheme
associated with common carrier service.
In light of the above concerns, we seek public comment on our
proposed interpretation of the term ``contract'' in section 10709 as
embracing any bilateral agreement between a carrier and a shipper for
rail transportation in which the railroad agrees to a specific rate for
a specific period of time in exchange for consideration from the
shipper, such as a commitment to tender a specific amount of freight
during a specific period or to make specific investments in rail
facilities. Under the proposed interpretation, notwithstanding any
carrier representation that the rate specified in the agreement is a
common carrier rate, such a bilateral agreement would be regarded by
the Board as a rail transportation contract under section 10709 and
therefore outside the Board's jurisdiction. See Columbia Gas
Transmission Corp. v. FERC, 404 F.3d 459, 463 (D.C. Cir. 2005)
(``jurisdiction cannot arise from the absence of objection, or even
from affirmative agreement. To the contrary, as a statutory entity,
[the agency] cannot acquire jurisdiction merely by agreement of the
parties before it.''); see also Weinberger v. Bentex Pharms., Inc., 412
U.S. 645, 652 (1973) (only Congress, not parties, may confer
jurisdiction).
Though we need not seek public comments before issuing an
interpretative rule of this nature, we do so here to ensure that we
have fully considered the issues and ramifications before taking this
action. We do not intend to stifle innovation in transportation markets
or otherwise disadvantage any party.
To the extent this interpretation could be seen as contradicting
past agency statements regarding whether a bilateral agreement can
constitute a common carrier rate, we would apply this
[[Page 16318]]
interpretation prospectively only. However, we do not want to create
incentives for a carrier to rush to put into place as many rates as
possible in hybrid ``common carrier'' agreements during the period of
unavoidable delay associated with seeking public comments. Therefore,
should we adopt this interpretative rule, we intend to apply the rule
to all agreements entered into after the date of publication of this
decision in the Federal Register. Parties are hereby placed on notice
that if this proposal is adopted, the reasonableness of a rate
reflected in a bilateral agreement entered into after this date will be
treated as a confidential contract governed by section 10709 and
outside the Board's jurisdiction.
Our proposed changes to the Code of Federal Regulations are set
forth in the appendix. Parties are specifically invited to comment on
the proposed rules, particularly concerning 49 CFR 1313.1(c). Parties
are asked to consider whether the proposed changes would have
unforeseen consequences for agricultural contracts and whether there
are differences between agricultural and other types of rail
transportation contracts.
Pursuant to 5 U.S.C. 605(b), the Board certifies that this action
will not have a significant economic effect on a substantial number of
small entities within the meaning of the Regulatory Flexibility Act.
This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.
Authority: 49 U.S.C. 721, 49 U.S.C. 10709.
Decided: March 28, 2007.
By the Board, Chairman Nottingham, Vice Chairman Buttrey, and
Commissioner Mulvey.
Vernon A. Williams,
Secretary.
For the reasons set forth in the preamble, the Surface
Transportation Board proposes to amend part 1300 and 1313 of title 49,
chapter x, of the Code of Federal Regulations as follows:
PART 1300--DISCLOSURE, PUBLICATION, AND NOTICE OF CHANGE OF RATES
AND OTHER SERVICE TERMS FOR RAIL COMMON CARRIAGE
1. The authority citation for Part 1300 continues to read as
follows:
Authority: 49 U.S.C. 721(a) and 11101(f).
2. Amend Sec. 1300.1 by adding paragraphs (c)(1) and (c)(2) to
read as follows:
Sec. 1300.1 Scope; definitions.
* * * * *
(c) * * *
(1) The term contract in 49 U.S.C. 10709 is defined as any
bilateral agreement between a carrier and a shipper for rail
transportation in which the carrier agrees to a specific rate for a
specific period of time in exchange for consideration from the shipper,
such as a commitment to tender a specific amount of freight during a
specific period or to make specific investments in rail facilities.
(2) Notwithstanding any representation that a rate specified in an
agreement is a common carrier rate, a bilateral agreement as described
in paragraph (c)(1) of this section will be treated by the Board as a
rail transportation contract authorized under 49 U.S.C. 10709 and
therefore outside the Board's jurisdiction.
* * * * *
PART 1313--RAILROAD CONTRACTS FOR THE TRANSPORTATION OF
AGRICULTURAL PRODUCTS
3. The authority citation for Part 1313 continues to read as
follows:
Authority: 49 U.S.C. 721(a) and 10709.
4. Amend Sec. 1313.1 by revising the first sentence of paragraph
(c) to read as follows:
Sec. 1313.1 Scope; definitions of terms.
* * * * *
(c) For purposes of this part, the term contract means a contract
as defined in 49 CFR 1300.1(c), including any amendment thereto, to
provide specified transporation of agricultural products (including
grain, as defined in 7 U.S.C. 75 and products thereof). * * *
[FR Doc. E7-6215 Filed 4-3-07; 8:45 am]
BILLING CODE 4915-01-P