Monday, May 7, 2012

RIsk and Reward

The Pittsburgh to Harrisburg line is owned by the Norfolk Southern Railroad Company.

What might be the risks to a private railroad company in having a higher speed dedicated passenger track added to its freight right of way?

1. If the planning process to add a dedicated higher speed track is done by a public entity, then the resulting plan document will be part of the public domain. That could create an unintended breech to private corporate business planning. While the document might not on its face create a competitive information problem; it could be the link in assembling the links of information that reveals confidential data.

2. If the confidentiality concerns were overcome, planning might actually proceed. But as the planning will require diversion of engineering and managerial talent from the actual task of providing freight transportation services; there will be a cost placed upon the private corporation.

3. If the cost to the private corporation caused by the planning process is overcome, then the actual plan should address he following: Why should a dedicated higher speed track be built? How and where will the dedicated track be built? Who will build it? Who will own it? Who will operate trains over the higher speed dedicated track? When will the dedicated track be completed? How will the dedicated track be funded? How should the private owner of the right of way be paid for the use of its real estate?  How should liabilities for interfering with operations on the dedicated higher speed track be defined and compensated? What liability might the private company have for harm to passengers harmed by an accident on the higher speed rack?

In every railroad company boardroom there is the specter of government policy that has hurt the railroad industry. It is a historic concern.  The Interstate Commerce Commission's policies after World War II set the stage for the bankruptcy of many of the railroad companies in the Northeast United States by 1972. Even before that, the effects of government ownership and operation of the railroad companies during World War One cast a shadow over the industry for decades! Arguably the passage of the Rail Safety Improvement Act of 2008 is an example of government policy creating unanticipated costs. The 2008 Act mandated application of Positive Train Control to be part of railroad signal system that controlled operation of freight and passenger trains on the same track. Positive Train Control would have prevented the loss of life at Chadderton, California when a commuter passenger was operated past a stop signal colliding with a freight rain on September 12, 2008. The implementing legislation mandating Positive Train Control was signed into law by President Bush on October 16, 2008. It provided for funding to develop the Positive Train Control signal system design. It did not, however, provide funding for purchase, engineering design and construction for Positive Train Control by the railroad companies. The estimated cost to accomplish compliance with the law is $10 billion.

Some years ago while investigating a logistics concept to be operated by the Bessemer and Lake Erie Railroad, it was discovered that the railroad in places along its right of way from the port on Lake Erie at Conneaut, Ohio to the vicinity of Pittsburgh in places was as wide as 600 feet. The railroad management indicated they had no interest whatsoever in selling any of the wide right of way. That conservative approach to ownership may pay dividends given the potential for mineral rights income as the line is over the marcellus gas formation.

The private ownership of  right of way for transportation is unique to among the transportation modes. It is that private ownership and the flexibility allowed to the private corporation to competitively exploit its basic and fundamental resource, the right of way, that a railroad board of directors will jealously and zealously protect. Fiduciary responsibility requires this.

What might the rewards be to a private railroad company having a dedicated higher speed track added to its right of way?

1. Assuming that the dedicated track is built by a third party and right of way rental fees are negotiated by the third party owner; the private railroad company would have a new,  predictable flow of real estate rental income from the owner of the dedicated higher speed track.

2. Assuming that the dedicated track is owned by a third party and the private right of way owner controls and operates the signal system for the dedicated track; the private right of way owner may generate management and maintenance fees for dispatching trains and maintaining the signal system.

3. Assuming that fees for operating over the dedicated higher speed track built and funded by a third party are negotiated, the freight railroad would have added capacity and new business opportunities provided by higher speed track capacity.

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