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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

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-
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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