AAR State Relations Policy Committee September 16, 2005 Surface Transportation Board

1. AAR State Relations Policy Committee September 16, 2005 Surface Transportation Board Roger Nober, Chairman

2. Public Issues Affecting Railroads

3. Public Perception of Railroads • As Commercial Entities • As Operating Companies • As Legacy Quasi-Public Utilities

4. Impact of Commercial Practices • Service levels that cause customers to raise issues publicly • Rates that are perceived to effect the competitiveness of industries or regions

5. Impact of Operations • Operations that must coexist with communities • Preemption leaves operations beyond control of state and local authorities • Safety • Accidents/derailments

6. Impact of History • Railroads have “common carrier obligation” and have responsibilities similar to utilities • Public opposition to abandonments • Favorable regulatory regime • Beneficiaries of preemption

7. Preemption • Under federal law, state and local governments cannot regulate “transportation” of rail carriers • Intended to promote uniform national system • Recent questions about application to solid waste facilities • Board has procedures to catch problems

8. Railroads and Communities • Major carriers have rationalized their systems, so they now have more traffic on fewer lines. • Communities now see a greater frequency of rail service on lines, and communities are struggling to co-exist with railroads. • Communities are looking to partner with private carriers, states, and federal government to invest capital to increase rail fluidity, mobility for their citizens and livability. • Will happen more and more, further straining carrier capital investment.

9. Hazmat Traffic • Communities are concerned about risks of moving hazardous materials • Carriers have common-carrier obligation to carry hazmat materials • Washington DC ordinance • Other communities are looking to bar hazmat shipments as well. • Significant public policy issue

10. Rail Line Construction • Significant interest in constructing new or expanded rail lines • Rail construction cases can be as controversial as highway or airport projects • Significant recent cases: • Bayport, Texas • DM&E • Tongue River • New Matters: • Alaska Railroad • Yucca Mountain

11. Capacity

12. Insufficient Capacity – A New Kind of Regulatory Problem • Current and future service issues largely demand and capacity driven • Most commodities are deregulated by virtue of being modally-competitive or shipped by contract • Regulatory powers intended for different type situation • Interstate Commerce Act laws and doctrine look at reasonableness of regulated traffic • Customers want fairness for all movements

13. Capacity Constraints – Causes of Increased Demand • Expanding economy • Large grain harvests in recent years • Soaring demand for coal • Double-digit increases in intermodal growth • Shortness of crew and equipment • Insufficient capital expenditures

14. Capacity Constraints – Long-term Causes • Constraints on capital investment for private companies • Railroads inability to achieve revenue adequacy • Need to cut expenses to maximum extent • Demands of investors • Under capacity and over capacity at the same time • Demands of changing freight flows • Long-term nature of rail investment versus business-cycle fluctuations in demand • Returns will have to justify further investment

15. SAFETEA-LU

16. SAFETEA-LU Legislation -- Overall The Conference Report provides $244.1 billion in guaranteed spending and contract authority for highways, public transit, and highway-safety programs from FY 2005 to 2009 ($286.5 billion if 2004 totals are included).

17. Freight Infrastructure Provisions More than $4 billion will fund projects and improvements whose benefit primarily target goods movement, including: • $1.5 billion in the Projects of National and Regional Significance; • $1.8 billion in the National Corridors program; • $833 million in the Borders program; and, • $140 million for the National Corridor planning and development and Coordinated Border Infrastructure programs for fiscal year 2005.

18. Significant Freight Rail Provisions • Significant Freight Rail Infrastructure: • $100 Million for CREATE • $125 million for Alameda Corridor East • $370 for 6 other significant projects • Increases RRIF Program to $35 billion • $6 million Freight Intermodal Distribution pilot grant program • Increases grade-crossing program to $220 million annually

19. Rail Service Issues

20. 2005 Service Actions • 2005 Letter to railroads asking them to submit Fall Peak plans, capacity bottlenecks and plans to alleviate those identified issues • Industry-wide customer forum in September • Individual carrier meetings where appropriate

21. 2005 Service Complaints to the STB • 90 customer complaints in 2005, YTD • 12.5 percent y/y increase from 2004 • 123 total complaints in 2004, 19 percent increase over 2003 • 2005 Complaints Filed: UP 19 CN 4CSXT 15 KCS 1 BNSF 9 CP 0 NS 7