APTA LEGAL AFFAIRS SEMINAR PRIVITIZATION PANEL DISSCUSSION FEBRUARY 24, 2014

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1 APTA LEGAL AFFAIRS SEMINAR PRIVITIZATION PANEL DISSCUSSION FEBRUARY 24, 2014 T. BYRON SMITH ASSISTANT ATTORNEY GENERAL AND PRINCIPAL COUNSEL MARYLAND TRANSIT ADMINISTRATION IT HAS BEEN SAID MANY TIMES THAT THE SUCCESS OF A COMMUTER RAIL SERVICE IS LARGELY DEPENDENT UPON ITS RELIABILITY. GOOD MORNING, I AM BYRON SMITH PRINCIPAL COUNSEL FOR THE MARYLAND TRANSIT ADMINISTRATION. THE MARYLAND TRANSIT ADMINISTRATION IS A STATE AGENCY THAT OWNS THE MARC SERVICE WHICH IS A COMMUTER RAIL SERVICE THAT OPERATES ON CORRIDORS THAT ARE OWNED BY AMTRAK AND CSX. OUR PENN LINE SERVICE IS OPERATED BY AMTRAK FROM PERRYVILLE MARYLAND TO UNION STATION IN WASHINGTON, DC OVER THE AMTRAK OWNED NEC. OUR CAMDEN LINE SERVICE IS OPERATED FROM BALTIMORE, MD TO UNION STATION WASHINGTON, DC BY A THIRD PARTY OPERATOR BOMBARDIER OVER THE CSX CORRIDOR; OUR BRUNSWICK LINE IS OPERATED BY BOMBARDIER OVER THE CSX CORRIDOR FROM WASHINGTON, DC TO MARTINSBURG, WEST VIRGINIA; OUR FREDERICK LINE IS OPERATED BY BOMBARDIER OVER A CORRIDOR OWNED BY THE MTA WHICH STARTS OUT FROM WASHINGTON DC ON A CSX CORRIDOR AND IS SWITCHED FROM THE CSX CORRIDOR TO THE FREDERICK BRANCH. CSX DOES ALL DISPATCHING ON ITS CORRIDORS AND THE FREDERICK BRANCH. AMTRAK DOES THE DISPATCHING ON ITS CORRIDOR AND WASHINGTON UNION STATION. UNTIL 2013 CSX

2 WAS OUR OPERATOR FOR THE CAMDEN, BRUNSWICK AND FREDERICK LINES. AS OUR SERVICE HAS GROWN SO HAVE THE EXPECTATIONS OF OUR CUSTOMERS AND HOST RAILROADS. IF OUR CUSTOMERS CAN NOT COUNT ON OUR TRAINS BEING ON TIME, THEY WILL FIND OTHER ALTERNATIVES. AS OUR DEMANDS FOR GREATER ACCESS ARE MADE TO THE HOST RAILROADS SO HAS THEIR DEMAND FOR WHAT THEY DEEM FAIR AND REASONABLE COMPENSATION FOR THE USE OF THEIR R-O-W. WE HAVE FOUND A WAY, ALTHOUGH NOT PERFECT, TO CO- EXIST WITH HOST RAILROADS AND MAINTAIN SERVICE RELIABILITY. OUR APPROACH TO AMTRAK IS DIFFERENT THAN OUR APPROACH TO CSX. BOTH CONTRACTS HAVE INCENTIVES; BUT SERVE DIFFERENT PURPOSES. WE RECOGNIZED THAT WE CAN'T PAY A FREIGHT RAILROAD WHAT IT DEMANDS TO GIVE US GREATER CAPACITY BECAUSE IT WOULD HAVE AN ADVERSE IMPACT ON ITS BUSINESS MODEL. I THINK ALL FREIGHT RAILROADS HAVE EMBRACED THE CONCEPT OF "JUST IN TIME" DELIVERY WHICH HAS SIGNIFICANT FINANCIAL PENALTIES IF DEADLINES ARE MISSED. DELAYING A FREIGHT TRAIN WHICH COULD RESULT IN PENALTIES TO THE RAILROAD FOR FAILURE TO DELIVER ON TIME WILL NOT GAIN TRACTION WITH THE RAILROAD, NOR COULD THE COMMUTER RAILROAD ASBORB SUCH PENALTIES. 2

3 CSX/AMTRAK PACKAGE WHAT WE HAVE DONE WITH CSX IS INCREASE CAPITAL CONTRIBUTIONS FOR TRACK MAINTENANCE AND PERFORMANCE IMPROVEMENTS. WE HAVE PROVIDED FUNDING FOR POSTIVE TRAIN CONTROL, RELOCATION OF FACILITIES AND DEVELOPED A PROCESS FOR MUTUALLY BENEFICIAL PROJECTS THAT THE MTA HAS AGREED TO FUND. WE HAVE ALSO FUNDED THE CONSTRUCTION OF A TANGENT TRACK ON THE CAMDEN LINE WHICH ALLOWS OUR FASTER MOVING COMMUTER TRAIN TO LEAP FROG AROUND THE SLOWER MOVING FREIGHT TRAIN. WE ALSO AGREED THAT ANY UNUSED FUNDS FROM ONE CONTRACT WOULD ROLL OVER TOO THE NEXT. WE KNEW THAT IN ORDER TO GET EXPANDED SERVICE ON ONE OF OUR LINES WE NEEDED TO FUND TRACK INFRASTRUCTURE IMPROVEMENTS. WE ADDRESSED THE SPECIFIC IMPROVEMENTS IN THE CONTRACT, THE FUNDING LEVEL AND THE EXPANDED TRAIN SERVICE WE WOULD GET AS A RESULT OF THE IMPROVEMENTS. THERE IS NOT MUCH I CAN TELL YOU THAT CAN PROVIDE AN INCENTIVE TO A FREIGHT RAILROAD TO GIVE COMMUTER TRAINS PRIORITY OVER THEIR TRAINS WHEN THEY ARE ALREADY REQUIRED BY FEDERAL LAW TO GIVE PRIORITY TO AMTRAK. THAT IS A REALITY THAT WE LIVE WITH; BUT WE MAKE SURE THAT OUR THIRD PARTY OPERATOR HAS TRAINS READY FOR DISPATCH AND WHEN DISPATCHED 3

4 MAINTAIN THE SCHEDULE. WE DO THIS BY OFFERING INCENTIVES FOR TRAINS ARRIVING AT ITS DESTINATION NO LATER THAN 5 MINUTES AND 59 SECONDS BEYOND ITS SCHEDULED TIME. BASICALLY, WE PAY XXXX DOLLARS FOR EACH TRAIN THAT ARRIVES WITHIN THE SPECIFIED WINDOW. IF A TRAIN DOES NOT ARRIVE AS SCHEDULED WE DO NOT PAY AN INCENTIVE NO MATTER THE REASON OR CAUSE. FOR OUR OPERATORS, WE PAY AN EQUIPMENT AVAILABILITY INCENTIVE FOR EACH DAY THAT THE OPERATOR MAKES AVAILABLE FOR SERVICE A CERTAIN NUMBER OF COACHES AND LOCOMOTIVES. WE TRACK THE NUMBER OF COACHES AND LOCOMOTIVES DAILY THAT ARE PUT INTO SERVICE. WE MAKE THE INCENTIVE ATTRACTIVE ENOUGH THAT THE OPERATOR WILL EASILY GOBBLE UP THE LOW HANGING FRUIT. IN TURN, OUR PASSENGERS GET TO THEIR DESTINATIONS ON TIME. IN SOME INSTANCES WE MAKE CAPITAL FUNDS AVAILABLE TO HOST RAILROADS FOR CAPITAL IMPROVEMENTS ON THEIR CORRIDORS THAT ARE NOT ASSOCIATED WITH MARC SERVICE, BUT MARC IS THE BENEFICIARY. FOR EXAMPLE, WE HAVE PAID FOR A CARWASH, BRIDGE AND TUNNEL IMPROVEMENTS FOR OUR SERVICE ON THE NEC. ADDITTIONALLY, WE HAVE FUNDED THE CONSTRUCTION OF TANGENT TRACKS. THESE TRACKS ALLOW OUR TRAINS TO MOVE AROUND SLOW 4

5 MOVING FREIGHT TRAINS TO MAINTAIN SCHEDULES. ON THE NEC IT ALLOWS OUR TRAINS TO BE SWITCHED TO THESE TRACKS TO ALLOW THE FASTER MOVING ACELA TO PASS. WE ARE STILL ABLE TO MAINTAIN OUR SCHEDULE. TRANSITIONING FROM ONE OPERATOR TO ANOTHER THE MTA HAS ALSO DEALT WITH THE SITUATION OF TRANSITIONING OUR SERVICE FROM ONE OPERATOR TO ANOTHER. FOR A LONG TIME CSX HAS BEEN OUR OPERATOR AND HOST RAILROAD FOR OUR CAMDEM, BRUNSWICK AND FREDERICK LINES. ON JULY 1, 2013, CSX STOPPED BEING OUR OPERATOR AND WE TRANSITIONED TO A THRID- PARTY OPERATOR. AS YOU LOOK AT MOVING FROM ONE OPERATOR TO ANOTHER THERE ARE SEVERAL MATTERS THAT YOU NEED TO PAY PARTICULAR ATTENTION TO AS YOU WORK THROUGH THE TRANSITION. SOME OF THEM ARE LISTED BELOW: TRANSITION AGREEMENT: THE AGREEMENT BETWEEN THE OPERATOR AND THE RAILROAD WHEREBY THE RAILROAD PROVIDES TRAINING AND ASSISTANCE TO THE OPERATOR IN EFFECTING A SMOOTH TRANSITION FROM THE RAILROAD TO THE OPERATOR. LABOR AGREEMENTS IMPLEMENTATION AGREEMENTS BETWEEN THE RAILROAD AND THE UNIONS 5

6 IMPLEMENTATION AGREEMENTS BETWEEN THE OPERATOR AND THE UNIONS COLLECTIVE BARGAINING AGREEMENTS BETWEEN THE OPERATOR AND THE UNIONS REPRESENTING ITS EMPLOYEE WHO WILL BE PERFOMING THE WORK. ANY AGREEMENTS THAT WILL BE REQUIRED BY THE RAILROAD S LABOR PROTECTION AGREEMENTS WITH ITS UNIONS OR REACHED IN SATISFACTION OF BARGAINING, IF ANY, REQUIRED BY THE RAILWAY LABOR ACT. 13 (c) AGREEMENTS (13 (c) IS BEING ADDRESSED DURING ANOTHER SESSION AND WILL NOT BE ADDRESSED HERE.) BUT NOTE, YOU WILL NEED TO ABIDE BY WHATEVER IS IN YOUR 13 (c) AGREEMENTS. IT IS IMPORTANT TO NOTE THAT A HOST RAILROAD MAY NOT ALLOW YOU TO BEGIN OPERATIONS WITH A NEW OPERATOR UNTIL ALL NECESSARY AGREEMENTS ARE IN PLACE. THE MAIN REASON FOR THE HOST RAILROAD S CONCERN IS THAT LABOR UNREST COULD HAVE AN ADVERSE IMPACT ON ITS BUSINESS. ANTI- COMPETITION ISSUE ONE FINAL ITEM THAT YOU SHOULD BE AWARE OF IS THE NECESSITY TO GAGE THE POLITICAL CLIMATE AS YOU PROCURE A NEW CONTRACTOR. THERE HAS BEEN A MOVE BY SOME TO BLOCK 6

7 A PARTICULAR FRENCH RAILROAD COMPANY FROM BIDDING ON RAIL PROJECTS IN AMERICA. IN MARYLAND AND CALIFORNIA LEGISLATION HAS BEEN PROPOSED PRECLUDING IT FROM EITHER BIDDING OR BEING AWARDED A CONTRACT UNTIL THE COMPANY MADE CERTAIN CERTIFICATION ABOUT ITS ROLE IN TRANSPORTING JEWS TO CONCENTRATION CAMPS DURING WORLD WAR II. CALIFORNIA S LEGISLATION WAS VETOED BY ITS GOVENOR. MARYLAND S LEGISLATION WAS PASSED BY THE LEGISLATURE AND SIGNED BY THE GOVERNOR. AS A RESULT OF THAT LEGISLATION, MARYLAND IS UNABLE TO UTILIZE FEDERAL FUNDS FOR ITS MARC SERVICE. THE FTA HAS DETERMINED THAT THIS TYPE OF LEGISLATION VIOLATES THE FEDERAL REQUIREMENTS ON FAIR AND OPEN COMPETITION. 7