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62 A.B.A. J. 121 (1976)
Regulatory Reform in a Nutshell

handle is hein.journals/abaj62 and id is 123 raw text is: The Lawyer's Washington Regulatory Reform in a Nutshell By Roy Nerenberg T HE MOVEMENT for deregula- tion or regulatory reform, once the near exclusive province of a handful of scholars and Washington policymak- ers, is rapidly gaining momentum. The Ford administration has proposed legisla- tion to ease or modify the regulation of railroads, airlines, and motor carriers, and its proposal for reform in the field of telecommunications is expected. Reform of government regulation of American business is no longer just an esoteric sub- ject of academic interest; rather, regula- tory change-particularly in federal regu- lation by independent commissions-in varying degrees now seems inevitable. Because of the pervasive impact of government regulation on the nation's economy, it is important for the members of the bar at least to be aware of the broad regulatory issues being debated in Washington and of the changes that could be introduced into the economic system. Let's briefly highlight the background of the present proposals, the substance of legislation to reform the regulation of transportation and banking and the pros- pects in other areas for procedural re- form. Regulation Is Questioned The idea of regulatory reform probably is as old as governmental regulation of business itself. But today's prevailing economic climate has prompted the most comprehensive move toward reform in the nation's history. The continuation of long-standing regulation and the recent proliferation of government regulatory agencies was seriously questioned, and the present move toward reform had its impetus in the 1975 economic report of the president. Dissatisfied with the tradi- tional rationales for regulation (for exam- ple, the regulation of monopoly, preven- tion of destructive competition, alloca- tion of scarce resources, and the protec- tion of buyers and sellers), that report concludes that the existing laws and in- stitutions are imposing significant costs on the economy. In the case of regulated monopolies, such as telephone service and electric power distribution, the ad- ministration expressed concern that regu- lation is inherently limited in its ability to promote efficient production and alloca- tion of resources, because of a lack of reliable cost information, over- or under- capitalization due to a fixed allowable rate of return, and too much or too little capacity as a result of rate regulation. On the other hand, reflecting historical and technological evolution, the bulk of gov- ernment regulation is concerned with the regulation of competition rather than the regulation of monopoly. The transportation industry, financial institutions, and natural gas industry come under heavy fire in the president's report. Interstate trucking rates agreed on through rate bureau negotiations; the operation of uneconomic, low density rail service and cross subsidization and equalization of rail rates; excessive capacity and fares and restricted entry in the airline field are cited as examples of areas in which the economic cost of regu- lation has become significant. In the case of banks and thrift institutions, several reforms are suggested, such as to reduce restrictions on the type of assets they may hold and to allow thrift institutions to issue checking accounts. As to the in- terstate shipment of natural gas, price regulation is identified as the source of our gas shortage. Although the Ford administration had a number of actions in prospect that did not materialize, such as a national com- mission on regulatory reform, several de- tailed programs of regulatory reform have been submitted to Congress, and others are under serious review. Old Rail Ways Change The administration's proposal to elimi- nate regulatory restrictions on the rail- roads was the first of a three-part program of fundamental reform of the regulation of transportation. The Railroad Revitaliza- tion Act (S. 1876 and H.R. 7681) has been incorporated into H.R. 9802, along with changes in the Railroad Reorganization Act of 1973, as the Railroad Revitaliza- tion and Regulatory Reform Act of 1975. The reform provisions of the bill are sig- nificant. In addition to removing certain regulatory restriction they attempt to in- crease competition in the railroad indus- try, improve the ability of the railroads to meet changing economic conditions, and provide financial assistance through loan guarantees for facilities and equipment. Several titles of the act are of special interest to the legal profession. The first of these, which was not a part of the origi- nal bill, provides for procedural reform of the Interstate Commerce Commission, both with respect to the commission's own internal and housekeeping matters and the reform of its rules of practice. The latter would require extensive revisions of the rules of practice, subject to review by the administrative conference and the Congress. In addition, it would impose rigid time limits on the processing and disposition of administrative proceedings (for example, 60 days for initial decision and 180 days for completion). New, ex- panded procedures also would be estab- lished to ensure adequate advance notice of abandonment of lines because of low traffic density. With respect to substantive matters, one section spells out new principles of ratemaking in terms of actions the I.C.C. would be permitted to take. For example, rates could not be found to be too low, i.e., unreasonable, if compensatory; or rates could not be held up to protect rail- roads from competition from another mode of transportation. Flexibility in rail service pricing would be phased in by limiting the I.C.C.'s rate suspension power, allowing the railroads freedom to adjust rates, either up or down, within certain prescribed limits known as a zone of reasonableness, and by with- drawing antitrust immunity from rate bureau ratemaking activity. Other provisions amplify the respon- sibilities of the United States Railway January, 1976 e Volume 62 121

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