In a long-awaited decision on the significant issue of rail competition, the Surface Transportation Board (STB) has proposed a substantial revision of its reciprocal switching rules, under which rail shippers can seek to obtain single-line pricing from railroads that do not directly serve their facilities. The STB published its proposal in a Notice of Proposed Rulemaking (NPRM) on July 27, 2016, which responds to the Petition for Rulemaking filed by The National Industrial Transportation League (NITL) on July 7, 2011. In the NPRM, the STB found that it is “appropriate to revisit” the existing reciprocal switching rules for two main reasons. First, there has been an extreme lack of reciprocal switching cases in the past several decades. Second, there have been “significant changes” in the railroad industry since the current rules were adopted in the 1980s; most importantly, railroads are in much better financial health now and have benefited from productivity and technological advances since then. Thus, the current rules, which require a showing of competitive abuse, “make[ ] less sense in today’s regulatory and economic environment.”

The STB found the NITL proposal to be a valuable starting point, but stated that the conclusive presumptions included therein were problematic because of fairness concerns. Therefore, the STB has proposed a reciprocal switching remedy that would be available “more equally … to all shippers.” Under the STB’s proposed rules, a shipper has two paths to obtain reciprocal switching based on a case-by-case evaluation of factual evidence provided by the parties. Both paths are based upon the governing statutory language in 49 U.S.C. § 11102(c), such that the STB would order reciprocal switching if a shipper shows that either (1) the proposed switching “would be practicable and in the public interest” or (2) the proposed switching is “necessary to provide competitive rail service.” Under the first path, the STB would balance the likely benefits of the switching arrangement against any detriments to the involved railroads. Under the second path, a shipper would need to establish that there are no effective competitive transportation alternatives available. The STB also stated that an affirmative defense to reciprocal switching, one that would likely be asserted by railroads, would be evidence that the proposed switching “is not feasible or is unsafe” or that the presence of such switching would “unduly hamper the ability of that carrier to serve its shippers.”

The proposed rules would only apply to Class I railroads. The STB also proposed two alternative methods by which the STB would set the access price that would be paid by the new competing railroad to the incumbent railroad, if the two railroads cannot reach agreement.

The STB invited public comment in response to the proposed rules. Written comments are due September 26, 2016 and reply comments are due October 25, 2016. The STB has also issued a limited waiver of its ex parte prohibition for this proceeding. Interested persons may schedule ex parte meetings with STB members for the period of October 25th through November 14th. Requests for ex parte meetings must be made by October 10th. Summaries of ex parte meetings will be publicly available.