Appendix — Kansas City Southern Railway Co. v. United States
Supreme Court brief1985
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84-
Nos. aT 17 ae
IN THE ; CLERK
Supreme Court of the Auited States
OCTOBER TERM, 1984
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
and
LOUISIANA & ARKANSAS RAILWAY COMPANY,
- Petitioners,
THE UNITED STATES OF AMERICA
and
THE INTERSTATE COMMERCE COMMISSION,
Respondents.
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYEES,
BROTHERHOOD OF RAILWAY SIGNALMEN,
BROTHERHOOD OF RAILWAY & AIRLINE CLERKS,
INTERNATIONAL ASSOCIATION OF MACHINISTS &
AEROSPACE WORKERS,
and UNITED TRANSPORTATION UNION,
‘ Petitioners,
THE UNITED STATES OF AMERICA
and
THE INTERSTATE COMMERCE COMMISSION,
Respondents.
EDWARD K. WHEELER,
Petitioner,
Vv.
UNITED STATES OF AMERICA
and
THE INTERSTATE COMMERCE COMMISSION,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
[List of Attorneys Appears on Inside Cover]
EIT EES, «=| OSE SSIES I NEN VOT OES SE OE IED ITE
WILSON - EPES PRINTING Co.,. INC. - 789-0096 - WASHINGTON, D.C. 20001
JOHN O’B. CLARKE, JR.*
HIGHSAW & MAHONEY
Suite 210
1050 17th Street, N.W.
Washington, D.C. 20036
Attorneys for Brotherhood
of Maintenance of Way
Employes, et al.
RICHARD H. STREETER *
WHEELER & WHEELER
1728 H Street, N.W.
Washington, D.C. 20006
(202) 337-6500
Attorneys for
Edward H. Wheeler
* Counsel of Record
JOSEPH AUERBACH *
Morris RAKER
HARVEY E. BINES
MARGARET H. RAYMOND
SULLIVAN & WORCESTER
One Post Office Square
Boston, Massachusetts 92109
(617) 338-2800
ROBERT E. ZIMMERMAN
ROBERT K. DREILING
114 W. Eleventh Street
Kansas City, Missouri 64105
(816) 556-0410
Of Counsel:
DAVID M. ScHWarRTz
SULLIVAN & WORCESTER
1025 Connecticut Ave., N.W.
Washington, D.C. 20036
(202) 775-8190
Attorneys for The Kansas City
Southern Railway Company
and Louisiana & Arkansas
Railway Company
APPENDIX A.
APPENDIX B.
APPENDIX C.
APPENDIX D.
APPENDIX E.
TABLE OF CONTENTS?
Opinion of Court of Appeals for
District of Columbia Circuit ............
Opinion of Interstate Commerce
ae aeabietihisaiion
Judgment of Court of Appeals for
District of Columbia Circuit .............
Denial of Petitions for Rehearing
and Suggestions for Rehearing En
la eheabodemmaie
I lee
Se accom wren
ng ae
Constitutional Provision, Statutes
and Regulation Involved ....................
Due Process Clause of the United
States Constitution, 5th Amend-
Administrative Procedure Act, 5
ch eae S| Bs ee
Interstate Commerce Act, 49
U.S.C. $1010la (1962) ................
Interstate Commerce Act, 49
U.S.C. §10701a (1982) ................
Interstate Commerce Act, 49
U.S.C. § 10709 (1982) -...... Paonia
Interstate Commerce Act, 49
U.S.C. § 11343 (Supp. IV 1980)..
Interstate Commerce Act, 49
U.S.C. § 11344 (Supp. IV 1980)..
49 C.F.R. § 1180.1 (1983) .............
Page
la
39a
616a
621la
621la
623a
626a
630a
630a
630a
63la
633a
635a
6394
641la
644a
1The list of subsidiaries, parents and affiliates of petitioners
The Kansas City Southern Railway Company and Louisiana &
Arkansas Railway Company (KCS) required by Supreme Court
Rule 28.1 appear in KCS’ petition for certiorari.
ii
TABLE OF CONTENTS—Continued
Page
APPENDIX F. Excerpt from Brief of Department
of Transportation to Commission... 649a
APPENDIX G. Commission Memoranda Relating to
Votes of Commissioners and Concur-
rences of Commissioners Taylor and
NEO rat Pa 653a
APPENDIX H. Excerpt from Commission’s Brief to
Court of Appeals 00 678a
on econ
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 82-2253
SOUTHERN PACIFIC TRANSPORTATION COMPANY and
St. Louis SOUTHWESTERN RAILWAY COMPANY,
-. Petitioners
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
| Respondents
DENVER & R10 GRANDE WESTERN RAILROAD COMPANY,
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
UNION PACIFIC CORPORATION, ET AL., and
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenors
No. 82-2323
DENVER & RIO GRANDE WESTERN RAILROAD COMPANY,
- ‘Petitioner
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenor
2a
[2] No. 82-2342
EDWARD K. WHEELER,
Petitioner
Vv.
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondenis
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenor
No. 82-2370
KANSAS CITY SOUTHERN RAILWAY COMPANY and
LOUISIANA & ARKANSAS RAILWAY COMPANY,
. Petitioners
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
UNION PACIFIC RAILROAD COMPANY,
DENVER & RIO GRANDE WESTERN RAILROAD COMPANY,
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
SOUTHERN PACIFIC TRANSPORTATION COMPANY, and
ST. LouIs SOUTHWESTERN RAILWAY COMPANY,
Intervenors
No. 82-2371
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
. Petitioner
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
UNION PACIFIC RAILROAD COMPANY, ET AL.,
DENVER & WESTERN RAILROAD COMPANY, and
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenors
3a
[3] No. 82-2418
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYEES,
BROTHERHOOD OF RAILWAY SIGNALMEN,
BROTHERHOOD OF RAILWAY & AIRLINE CLERKS,
INTERNATIONAL ASSOCIATION OF MACHINISTS & AEROSPACE
WORKERS, and UNITED TRANSPORTATION UNION,
. Petitioners
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
UNION PACIFIC RAILROAD COMPANY, ET AL., and
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenors
No. 82-2340
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
. Petitioner
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION,
Respondents
UNION PACIFIC RAILROAD COMPANY, ET AL., and
DENVER & RIO GRANDE WESTERN RAILROAD COMPANY,
Intervenors
No. 82-2479
AMERICAN TRAIN DISPATCHERS ASSOCIATION,
. Petitioner
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY,
Intervenor
4a
[4] Petitions for Review of an Order of the
Interstate Commerce Commission
Argued June 6, 1983
Decided May 22, 1984
Richard L. Dashefsky for petitioners in No. 82-2370.
William R. Hyde, Jr., Robert C. Eager, and Peter Sul-
ivan entered appearances for petitioners in No. 82-2253.
John H. Caldwell, with whom Kendall T. Sanford and
Denise M. O’Brien were on the brief, for petitioner in
No. 82-2323. John G. DeGooyer entered an appearance
for petitioner in No. 82-2323.
Richard H. Streeter for petitioner in No. 82-2342. Ed-
ward K. Wheeler entered an appearance for petitioner
in No. 82-2342.
Joseph Auerbach for petitioners in No. 82-2370. Hay-
wood H. Hillyer, Jr., David M. Schwartz, Robert L.
Calhoun, and Morris Raker entered appearances for pe-
titioners in No. 82-2370.
Dennis W. Wilson, with whom Milton E. Nelson, Jr.
and Robert R. Cowell were on the brief, for petitioner in
Nos. 82-2371 and 82-2430. Richard E. Weicher entered
an appearance for petitioner in No. 82-2371.
John O’B. Clarke, Jr., with whom Kimberly A. Madigan
was on the brief, for petitioner in No. 82-2418.
Gordon P. MacDougall was on the brief for petitioner
in No. 82-2479.
Henri F. Rush, Associate General Counsel, Interstate
Commerce Commission, with whom John Broadley, Gen-
eral Counsel, and Laurence H. Schecker and John J.
McCarthy, Jr., Attorneys, Interstate Commerce Commis-
5a
sion, and John J. Powers, III and Neil R. Ellis, Attor-
neys, [5] Department of Justice, were on the brief, for
respondents. Nancy C. Garrison and Kenneth P. Kolson,
Attorneys, Department of Justice, entered appearances
for respondents.
Fritz R. Kahn, William C. Evans, L. John Osborn, and
Elizabeth A. Campbell were on the brief for intervenor
Chicago & North Western Transportation Company.
M. Lauck Walton was on the brief for intervenors
Missouri Pacific Corporation and Missouri Pacific Rail-
road Company.
Charles A. Miller, Joanne B. Grossman, and Gregg H.
Levy were on the brief for intervenors Union Pacific
Corporation, et al.
Walter G. Treanor entered an appearance for inter-
venor Western Pacific Railroad Company.
Before WRIGHT, Mikva, and Bork, Circuit Judges.
Opinion per curiam.
PER CURIAM: The Interstate Commerce Commission
decision that gives rise to these appeals responds to ap-
plications seeking authority for the Union Pacific Cor-
poration (UPC) and its subsidiaries to acquire and exer-
cise control over Missouri Pacific Corporation (MPC) and
its carrier subsidiaries, and over Western Pacific Rail-
road Company (WP) and its carrier subsidiaries. Under
the proposed consolidations the existing railroads and
holding companies will retain their separate corporate
identities but will be under the control of UPC and a
new railroad holding company, Pacific Rail System, Inc.
(PRSI). After extensive hearings, the Commission ap-
proved the consolidations, subject to certain conditions.
Union Pacific Corp., Pacific Rail System, Inc., and Union
Pacific R.R.—Control—Missouri Pacific Corp. and Mis-
souri Pacific R.R. (UPC-Control], 366 I.C.C. 459 (1982).
6a
[6] The Commission Decision
The applications for authority to create the consolida-
tions at issue were filed on September 15, 1980.1 The
Commission accepted these applications for filing and pub-
lished notice of the filing in the Federal Register, 45 Fed.
Reg. 68,484 (Oct. 15, 1980). In response a long list of
shippers, railroads, labor organizations, state governments,
federal agencies, and shareholders filed comments either
supporting or opposing the proposed consolidations or, in
the event of Commission approval, seeking imposition of
conditions upon the consolidations.”
Public hearings were conducted before two Administra-
tive Law Judges from March 3, 1981 until January 6,
1982. On October 20, 1982, the Commission issued its
final decision approving the consolidations but attaching
certain conditions.* The opinion explaining the Commis-
sion’s decision is comprehensive, consisting of 166 pages
C7] with 12 appendices that comprise an additional 164
pages. See UPC-Control, 366 I.C.C. at 459-819.
1 The case involves two separate applications. Union Pacific Cor-
poration, Pacific Rail System, Inc., and Missouri Pacific Railroad
Company jointly filed an application seeking authority for UPC
to control MPC. At the same time UPC and Western Pacific Rail-
road Company jointly filed an application seeking authority for
UPC to control WP.
2 For a useful summary of the positions taken toward the pro-
posed consolidation by various parties, see UPC-Control, 366 I.C.C.
at 474-482.
% At a press conference on September 13, 1982, the chairman of
the Commission announced that the Commission had voted to
approve the consolidations, with conditions, and that the decision
of the Commission would be issued on or before October 20, 1982.
That announcement immediately gave rise to a petition for review.
This court dismissed that petition, however, because it was filed
before the Commission’s issuance of a final order. Southern Pacific
Transportation Co. v. ICC, No. 82-2057 (D.C. Cir. Nov. 15, 1982).
See also Denver & Rio Grande Western R.R. Co. v. United States,
No. 82-2106 (10th Cir. Nov. 2, 1982) (dismissing related petition
on same basis).
ON Oe CE EEE
Ta
In considering the applications to consolidate UPC,
MPC and WP the Commission noted first that under the
Interstate Commerce Act (the Act) it is required to ap-
prove the consolidation if it finds the transaction to be
“consistent with the public interest.” See 49 U.S.C.
§ 11344(c) (Supp. V 1981). The Commission looked to
a variety of factors that Congress has directed it to con-
sider in determining whether a proposed consolidation
meets the Act’s broad public interest standard. These
factors include criteria set forth in the Interstate Com-
merce Act, 49 U.S.C. § 11844(b) (Supp. V 1981), includ-
ing an additional criterion added by the Staggers Act, 49
U.S.C. § 11344(b) (3); the Transportation Policy of 49
U.S.C. § 10101 (Supp. V 1981), as amended by the Bus
Regulatory Reform Act of 1982, Pub. L. No. 97-261, § 5,
96 Stat. 11038, and the Rail Transportation Policy of 49
U.S.C. § 10101a (Supp. V 1981); recent rai! reform leg-
islation, especially the Railroad Revitalization and Regu-
latory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat.
31 (4R Act); antitrust legislaticn, especially the Clay-
ton and Sherman Acts; and the Commission’s own policy
statement on rail consolidations, Railroad Consolidation
Procedures, 366 I.C.C. 75 (1982), see UPC-Control, 366
1.C.C. at 483-87.
After considering this multitude of factors, the Com-
mission weighed the public benefits likely to result from
the proposed consolidation against its likely harmful con-
sequences. In evaluating the potential harm arising from
the consolidation, the Commission stated that it was par-
ticularly attentive to detrimental effects upon competition,
the essential services of competing carriers, and the in-
terests of employees. UPC-Centrol, 366 I.C.C. at 487.
The Commission concluded that the consolidation will re-
sult in substantial public benefits stemming from the im-
proved efficiency and reliability of a single-system service.
[8] The Commission estimated that in quantitative terms
the benefits will result in public savings of $47 million
annually. /d.
8a
On the other hand, the Commission observed that the
proposed consolidation would entail certain negative con-
sequences. Specifically, the Commission found that the
proposed consolidation will have a significant adverse
competitive effect on rail transportation of transconti-
nental traffic and on rail transportation in the Midwest.
366 I.C.C. at 533. The Commission, however, imposed
conditions on the consolidations to allay these negative
effects. As conditioned, the Commission found that the
public benefits from the consolidations outweighed their
negative effects. The Commission therefore approved the
applications for consolidations, subject to the conditions
it imposed. Jd. at 642.
The Conditions Imposed
In deciding whether and what conditions to impose, the
Commission’s guide is the pubiic interest. 49 U.S.C.
§ 11344(c). The conditions at issue were initially pro-
posed by competitors or other opponents of the carriers
seeking consolidation. In general, these opponents sought
to convince the Commission to disapprove the consolida-
tion altogether. Failing that, they sought to convince the
Commission to impose conditions upon the consolidation
that would lessen its impact upon their interests. The
Commission adopted some of their proposals but rejected
others.*
Kansas City Southern Railway Company (KCS) sought
(1) imposition of trackage rights over MPC lines, (2)
the right to purchase segments of MPC right-of-way
trackage, and (3) certain traffic-protective conditions.
[9] The Commission denied ali of KCS’s proposed con-
ditions. It rejected empowering KCS with trackage rights
and the right to purchase segments of MPC’s right-of-
way trackage because, in the Commission’s view, neither
* We discuss only those proposals that are at issue in this appeal.
For a summary of al] the proposals directed to the Commission
in these proceedings, see UPC-Control, 366 I.C.C. at 562-601.
a cen Cae Me
9a
of these conditions was shown to relate to the effects of
the consolidation. The Commission rejected imposing
traffic-protective conditions upon the consolidation on be-
half of KCS because KCS had failed to demonstrate ade-
quately its need for such protection. See UPC-Control,
366 I.C.C. at 593-97.
Denver & Rio Grande Western Railroad Company
(DRGW) sought (1) trackage rights over lines owned
by MPC and the Atchison, Topeka & Santa Fe Railway
Company (ATSF), (2) independent ratemaking authority
(IRA) over WP, and (3) traffic-protective conditions.
The Commission granted DRGW’s request for trackage
rights, noting that this condition will mitigate competi-
tive harms resulting from the consolidation, that it is
operationally feasible, and that any harm the condition
might cause to the consolidated system will be outweighed
by the public benefit of added competition. 366 I.C.C. at
578. ATSF challenged that part of the Commission’s or-
der which provided DRGW with trackage rights over
certain segments of ATSF lines. ATSF claimed that the
Commission was without jurisdiction to impose trackage
rights over these segments of its lines. The Commission
rejected ATSF’s challenge on the ground that the line
segments at issue come within its statutory authority
under 49 U.S.C. § 11103 (Supp. V 1981) to require ter-
minal facilities, including mainline tracks for a reasonable
distance outside of a terminal, to be used by another rail
carrier if the Commission finds that use to be practicable
and in the public interest. 366 I.C.C. at 573-78.
The Commission denied DRGW’s request for independ-
ent ratemaking authority and traffic-protective conditions.
DRGW sought the merged system’s automatic concur-
rence to rates set by DRGW when it uses a route which
includes WP’s northern California lines. The proposed
[10] independent ratemaking authority would enable
DRGW to quote rates between northern California and
Kansas City while providing service between Utah and
10a
Kansas City. The Commission rejected the proposal on
the ground that empowering DRGW with the authority it
sought would decrease its incentive to cooperate with an-
other carrier, Southern Pacific Transportation Company
(SP), in creating alternative services to those provided
by the consolidated systems and therefore decrease over-
all competition. 366 I.C.C. at 578-79. The Commission
rejected DRGW’s request for traffic-protective conditions
because, in its view, such conditions are generally anti-
competitive and DRGW failed to show any special cir-
cumstances justifying imposition of such conditions. Id.
The Commission stated that in addition to considering
the effects of the proposed consolidation upon competing
carriers, it must also consider the interests of, and provide
protection for, the employees of the consolidating carriers.
See 49 U.S.C. §§ 11847 and 11344(b) (4) (Supp. V 1981).
Labor organizations, including the Brotherhood of Mainte-
nance of Way Employees (BMWE) and the American
Train Dispatchers Association (ATDA), proposed impos-
ing a wide variety of labor-protective conditions upon the
consolidations. The Commission imposed what it describes
as “the minimum protections to be afforded those em-
ployees affected by a consolidation, absent a voluntarily
negotiated agreement.” UPC-Control, 366 I.C.C. at 619.
These protections are derived from the Commission’s
decision in New York Dock, New York Dock Ry.—Con-
trol—Brooklyn Eastern District, 360 1.C.C. 60, aff'd sub
nom. New York Dock Ry. v. United States, 609 F.2d 83
(2d Cir. 1979). These protections include a mandated
90-day notice of employment actions, negotiated imple-
mentation of employment changes resulting from a con-
solidation with compulsory arbitration of disputes, and
~ compensation for dismissed employees. The Commission
rejected labor-protective conditions broader in scope than
those established in New York Dock because, in the [11]
Commission’s view, these organizations failed to show un-
usual circumstances which would warrant increased pro-
tection. UPC-Control, 366 I.C.C. at 620.
Picci
lla
In deciding whether to approve the proposed consolida-
tions, the Commission also considered whether the terms
it offered to affected stockholders were fair and reason-
able. See 49 U.S.C. § 11344; Schwabacher v. United
States, 334 U.S. 182 (1948). Edward K. Wheeler, a
minority stockholder of SP stock, objected to the $20 per
share price offered for WP Class A common stock on the
ground that that price fails to reflect the full range of
WP’s assets and is therefore unreasonably low. The
Commission, using a different method of computation
from that suggested by Wheeler, found that the $20 per
share price was fair and rejected Wheeler’s objection.
UPC-Control, 366 I.C.C. at 632-40.
Standard of Judicial Review
The Interstate Commerce Act has empowered the Com-
mission with broad authority to approve railroad con-
solidations and to impose conditions upon them. A corol-
lary to this grant of wide authority is that courts must
show considerable deference to the Commission’s deter-
minations. The Administrative Procedure Act (APA),
5 U.S.C. § 706 (1982), governs the scope of our review
of the Commission. See Illinois Central R.R. v. Norfolk
& Western Ry., 385 U.S. 57, 66 (1966); Missouri-
Kansas-Texas R.R. v. United States, 632 F.2d 392, 399
(5th Cir. 1980), cert. denied, 451 U.S. 1017 (1981).
Under the APA we must
(2) hold unlawful and set aside agency actions,
findings, and conclusiess found to be—
(A) arbitrary, capricious, an abuse of discre-
tion, or otherwise not in accordance with law;
[or]
[12] (E) unsupported by substantial evidence
** # [.]
5 U.S.C. § 706(2) (A) & (E).
12a
The Fifth Circuit has ably described the practical ap-
plication of this standard to Commission decisions, ob-
serving that it is not a court’s task “to re-weigh the
evidence or to draw our own inferences from the evidence
before the Commission. * * * We can ask only whether
the Commission has observed the statutory limits that
Congress has set for its discretion, whether its action was
arbitrary or capricious, or whether its findings are sup-
ported by adequate analysis and substantial evidence in
the record considered as a whole.” Missouri-Kansas-Texas
R.R. v. United States, 632 F.2d at 398-99. If the Com-
mission’s decision meets these deferential standards, we
must affirm it. We are persuaded that it does.
Issues on Appeal ®
This appeal principally involves six issues. They are
as follows:
1. Did the Commission properly decide that the
proposed consolidation is consistent with the
public interest?
2. Did the Commission properly deny KCS’s re-
quest for certain trackage rights?
[13] 3. Did the Commission have jurisdiction to order
that certain segments of ATSF track be made
available to SP and DRGW?
5 This appeal marks the fourth time this court has encountered
this case. We mention above that this court dismissed a petition
for review that was filed prior to issuance of the Commission’s final
order. See note 3 supra. This court encountered this case a second
time when petitions for review were filed immediately upon issuance
of the Commission’s final order. Southern Pacific i‘ransportation
Co. v. ICC, No. 82-2253 (D.C. Cir. filed Oct. 20, 1982). Petitioners
filed motions to stay the Commission’s decision. This court denied
the motions for stay but entered a temporary stay to allow the
parties to seek a stay from the Supreme Court. The Supreme
Court also denied petitioners’ request. Subsequently, two of the
petitioners filed motions with this court requesting that it sum-
marily reverse the Commission’s decisions. These motions, too,
were denied.
13a
4. Did the Commission properly deny DRGW’s
request for independent ratemaking authority?
5. Did the Commission properly deny protective
conditions requested by labor organizations?
6. Did the Commission properly evaluate the fair-
ness of the price per share offered to minority
shareholders of WP stock?
We affirm the Commission’s decision on all issues ex-
cept the fourth, which we remand to the Commission for
further proceedings not inconsistent with this opinion.
Additional, relatively minor, issues were raised by peti-
tioners and will be referred to where appropriate. How-
ever, having carefully considered these subsidiary issues
and the challenges giving rise to them, we find petition-
ers’ arguments concerning these matters to be without
merit.
1. The Public Interest Decision
Petitioners challenge the Commission’s determination
that the proposed consolidation is “consistent with the
public interest” on a number of grounds. Petitioners’ pri-
mary contention is that the ICC ignored Congress’ direc-
tive that “competitive considerations and the policies of
the antitrust laws assume critical and, indeed, controlling
significance in any assessment of whether a merger should
be approved.” Brief for Petitioners SP at 14. Petition-
ers argue that the conceded anticompetitive effects of the
merger outweigh any public benefits the merger may
create. Brief of Petitioners KCS at 17-24. In addition,
petitioners maintain that the ameliorative conditions im-
posed on the merger by the ICC were insufficient to offset
the anticompetitive consequences of the merged system.
See, e.g., Brief for Petitioner DRGW at 16.
[14] (a) The role of competitive effects in the statutory
scheme
Petitioners’ basic contention is that Congress has re-
cently changed the law so as to forbid the Commission
14a
from approving any merger with admittedly anticompeti-
tive effects such as this one. See, e.g., Brief for Petition-
ers SP at 14 (“[T]he ICC... refused to employ a
standard which incorporates recent changes in Congres-
sional direction regarding the rail industry.”). We do
not agree that the Commission is required to give anti-
competitive effects not merely substantial but dispositive
weight. We think that the Commission properly recog-
nized that while competition is a “major factor” in its
calculus, its “primary inquiry” is still to be conducted
under the terms of the Interstate Commerce Act. In
deciding whether a proposed merger is “consistent with
the public interest,” 49 U.S.C. §11344(c) (Supp. III
1979), the Commission has traditionally considered
four factors:
1. the effect of the proposed transaction on the
adequacy of transportation to the public.
2. the effect on the public interest of including, or
failing to include, other rail carriers in the area
involved in the proposed transaction.
3. the total fixed charges that result from the pro-
posed transaction.
4, the interest of carrier employees affected by the
proposed transaction.
49 U.S.C. §$11844(b) (Supp. III 1979). After this
merger had been submitted to the Commission, Congress
passed the Staggers Act, which added a fifth factor to
this list: “whether the proposed transaction would have
an adverse effect on competition among carriers in the
affected area.” 49 U.S.C. §11344(b) (5) (Supp. IV
1980). Although the Staggers Act is not formally ap-
plicable to this proceeding, the Commission elected to ad-
here to its policies. UPC-Control, 366 I.C.C. at 488. The
Commission’s determination as to a proposed merger is
also guided by the criterion set forth in the Transporta-
[15] tion Policy of 49 U.S.C. 10101 (Supp. V 1981), as
15a
amended by the Bus Regulatory Reform Act of 1982,
Pub. L. No. 97-261, § 5, 96 Stat. 1103,* the Rail Trans-
portation Policy of 49 U.S.C. §1010la (Supp. V 1981),’
6 49 U.S.C. § 10101
(a) Except where policy has an impact on rail carriers, in
which case the principles of section 10101a of this title shall
govern, to ensure the development, coordination, and preser-
vation of a transportation system that meets the transporta-
tion needs of the United States, including the United States
Postal Service and national defense, it is the policy of the
United States Government to provide for the impartial regula-
tion of the modes of transportation subject to this subtitle,
and—
(1) in regulating those modes—
(A) to recognize and preserve the inherent advan-
tage of each mode of transportation;
(B) to promote safe, adequate, economical, and
efficient transportation ;
(C) to encourage sound economic conditions in
transportation, including sound economic conditions
among carriers;
(D) to encourage the establishment and mainte-
nance of reasonable rates for transportation, without
unreasonable discrimination or unfair or destructive
competitive practices ;
(E) to cooperate with each State and the officials
of each State on transportation matters; and
(F) to encourage fair wages and working condi-
tions in the transportation industry;
749 U.S.C. § 10101a
In regulating the railroad industry, it is the policy of the
United States Government—
(1) to allow, to the maximum extent possible, compe-
tition and the demand for services to establish reasonable
rates for transportation by rail;
(2) to minimize the need for Federal regulatory con-
trol over the rail transportation system and to require
fair and expeditious regulatory decisions when regula-
tion is required ;
[Continued ]
l6a
[16] and the Railroad Revitalization and Regulatory Re-
form Act of 1976 (4R Act), which encourages “efforts to
7 [Continued ]
(3) to promote a safe and efficient rail transportation
system by allowing rail carriers to earn adequate reve-
nues, as determined by the Interstate Commerce Com-
mission;
(4) to ensure the development and continuation of a
sound rail transportation system with effective competi-
tion among rail carriers and with other modes, to meet
the needs of the public and the national defense;
(5) to foster sound economic conditions in transporta-
tion and to ensure effective competition and coordination
between rail carriers and other modes;
(6) to maintain reasonable rates where there is an
absence of effective competition and where rail rates pro-
vide revenues which exceed the amount necessary to main-
tain the rail system and to attract capital;
(7) to reduce regulatory barriers to entry into and
exit from the industry ;
(8) to operate transportation facilities and equipment
without detriment to the public health and safety;
(9) to cooperate with the States on transportation
matters to assure that intrastate regulatory jurisdiction
is exercised in accordance with the standards established
in this subtitle;
(10) to encourage honest and efficient management of
railroads and, in particular, the elimination of noncom-
pensatory rates for rail transportation;
(11) to require rail carriers, to the maximum extent
practicable, to rely on individual rate increases, and to
limit the use of increases of general applicability;
(12) to encourage fair wages and safe and suitable
working conditions in the railroad industry;
(18) to prohibit predatory pricing and practices, to
avoid undue concentrations of market power and to pro-
hibit unlawful discriminaticn;
(14) to ensure the availability of accurate cost informa-
tion in regulatory proceedings, while minimizing the
burden on rail carriers of developing and maintaining
the capability of providing such information; and
(15) to encourage and promote energy conservation.
eae, ei ahaa
17a
re- [17] structure the [railway system of the Unitea
States] on a more economically justified basis.” 45 U.S.C.
§ 801 (1982). Taken together, these statutes, both new
and old, evince Congress’ intent that a merger’s effects on
competition be accorded substantial weight in determin-
ing whether the merger should be approved. The recent
changes—more specifically, the Staggers Act and section
1010la—have not, however, changed the law so drasti-
cally such that the Commission was incorrect in stating
that its “primary inquiry is conducted under the terms
of the Interstate Commerce Act.” 366 I.C.C. at 503.
The very terms of the relevant statutes, focusing as they
do on numerous factors in addition to competition, belie
the assertion that Congress intended the effect upon com-
petition to outweigh all other factors combined.
The increased emphasis upon competition required by
Congress modifies but does not basically alter the ICC’s
traditional approach, which has always considered the
competitive impact of a proposed merger, but not to the
exclusion of other factors. The antitrust laws do give
“understandable content to the broad statutory concept of
the public interest,” Federal Maritime Commission v.
Aktiebolaget Svenska Amerika Linien, 390 U.S. 238, 244
(1968), but the Supreme Court has held that, in deciding
whether to approve a carrier consolidation
the Commission must estimate the scope and ap-
praise the effects of the curtailment of competition
[18] which will result from the proposed consolida-
tion and consider them along with the advantages of
improved service, safer operation, lower costs, etc.,
to determine whether the consolidation will assist in
effectuating the over-all transportation policy. Re
solving these considerations is a complex task which
requires extensive facilities, expert judgment and
considerable knowledge of the transportation indus-
try. Congress left that task to the Commission “to
the end that the wisdom and experience of that Com-
18a
mission may be used not only in connection with this
form of transportation, but in its coordination of all
other forms.” “The wisdom and experience of that
commission,” not of the courts, must determine
whether the proposed consolidation is “consistent
with the public interest.”
McLean Trucking Co. v. United States, 321 U.S. 67, 87-
88 (1944) (citations omitted). In short, the Commission
has never sat “as an antitrust court [to determine] com-
pliance with the Clayton, Sherman, or related antitrust
acts.” 366 I.C.C. at 485, citing United States v. ICC, 396
U.S. 491, 514 (1970). Its statutory mandate is consider-
ably broader. The ICC can disapprove mergers which
would not violate the antitrust laws and can approve
mergers even if they otherwise would violate the anti-
trust laws. United States v. ICC, 396 U.S. at 513-14.
The Commission has acknowledged that section 1010la
and the Staggers Act require it to “take even greater
care to identify harmful competitive effects and to miti-
gate those effects where possible,” 366 I.C.C. at 502, but
its basic approach remains unchanged. The Commission
has always, and should continue, to perform a balancing
test which takes a myriad of factors—including competi-
tion—into consideration and weighs “the potential bene-
fits to applicants and the public against the potential
harm to the public.” Jd. at 486, quoting 49 C.F.R.
§1111.10(¢c) (1981).
Here, the Commission did just that. Basically, the ICC
balanced the admittedly serious anticompetitive effects of
[19] the proposed merger against the benefits anticipated
to the public and concluded that, subject to certain condi-
tions, this merger is consistent with the public interest.
It is a truism that we owe the Commission substantial
deference in reviewing its decisions. Jilinois Central R.R.
v. Norfolk & Western Ry., 385 U.S. 57, 69 (1966) (in
reviewing Commission consolidation decisions, courts are
limited to determining whether the Commission’s conclu-
19a
sions are reasonably drawn from the evidence and find-
ings in the case); Florida East Coast Ry. v. United
States, 259 F. Supp. 993, 1002 (M.D. Fla. 1966), aff'd,
386 U.S. 544 (1967) (three-judge district court) (A
court’s “task is at an end when [the court is satisfied]
that the Commission has made adequate findings sup-
ported by substantial evidence, that it has perceived the
danger areas, and judging by the statutory standards
has concluded that the public interest is best served by
allowing the merger.’’).
Given this standard of review, it is clear that the
Commission’s decision here must be upheld. A review of
the Commission’s opinion reveais that it did not ignore
the importance of competition in considering whether to
approve the proposed consolidation. See, e.g., UPC-Con-
trol, 366 I.C.C. at 501-33. On the contrary, the Commis-
sion expressly stated that “[t]he competitive impact of a
consolidation proposal is a major factor in our considera-
tion of the public interest.” Jd. at 501. The Commission
was “cognizant of the increased importance of [its] com-
petitive analysis,” zd. at 502, and took “substantial guid-
ance” from the antitrust laws but held that, ultimately,
its “primary inquiry is conducted under the terms of the
Interstate Commerce Act.” Jd. at 503. The Commis-
sion’s opinion exhaustively reviews the competitive effects
of the proposed merger. /d. at 501-33. Its survey of
both the parallel and end-to-end effects (roughly analo-
gous to horizontal and vertical effects, respectively, see
id. at 505) in the relevant geographic markets and sub-
markets led it to conclude that
[20] [t]he proposed transactions will have a sig-
nificant adverse competitive effect (1) on rail trans-
portation of transcontinental traffic, especially in the
central corridor; and (2) on rail transportation in
the Midwest, especially traffic moving through the
corridor between Omaha/Council Bluffs and destined
to the Gulf.
20a
Id. at 533. The Commission found no “significant ad-
verse competitive effects in any other area which arise
from the consolidations.” Jd. Because the Commission
believed that the negative effects could be ameliorated,
it approved the proposed merger.
Petitioners are not satisfied with this. They object to
the ICC’s failure to base its decisions on a post-merger
“market share analysis.” See, e.g., Brief of Petitioner
ATSF at 21-30. Had such an analysis been conducted,
petitioners maintain, the mammoth market share ac-
quired by intervenor UP in the central corridor route
would have compelled the Commission to disapprove of
the proposed merger. There are at least two problems
with this argument. First, as noted above, the Commis-
sion is not limited to a consideration of only the competi-
tive impact of the merger. If the Commission believes
that. a proposed merger will substantially benefit the
public, it can approve that merger even if those benefits
are unrelated to competition. Petitioners’ argument here
is simply a repetition of their contention, which we have
already rejected, that a showing of the likelihood of anti-
competitive consequences sweeps the board. Second, the
traditiona] market-share analysis may not be mechani-
cally applied in this context. The market shares in the
rail industry, both before and after the merger, are “ex-
tremely high by conventional antitrust standards.” 366
I.C.C. at 512. But merely adding the pre-market shares
of the merging railroads would not necessarily have told
the Commission anything definitive. One of the condi-
tions the Commission imposed on this merger created a
wholly new competitor in the central corridor, the SP/
[21] DRGW route. The Commission sought to predict
the economic viability of the new route based upon the
known technical and business characteristics of its com-
ponent railroads. In reviewing other mergers, the Com-
mission has recognized that diversion projections are of
limited utility because they presuppose a static market
21a
when experience has shown that the competitive response
of competing carriers following Commission approval of
a consolidation will dramatically alter a marketplace’s
dynamics. Burlington Northern, Inc.—Control & Merger
—St. Louis-San Francisco Ry., 360 I.C.C. 784, 962, aff'd
sub nom. Missouri-Kansas-Texas R.R. v. United States,
632 F.2d 392, 406 (5th Cir. 1980), cert. denied, 451
U.S. 1017 (1981) ; CSX Corp.—Control—Chessie & Sea-
board Coast Line Industries, Inc., 363 I.C.C. 518, 631-32
(1980).* This is especially relevant here, where the Com-
8 This competitive response is also at the heart of the Commis-
sion’s decision to remove the so-called “Bieber” conditions it
imposed on Burlington Northern (“BN”) in Great Northern
Pacific—Merger—Great Northern, 331 I.C.C. 228, 281-82, 352-54
(1967), aff'd sub nom. United States v. United States, 296 F. Supp.
853 (D.D.C. 1968) (three-judge court), aff'd sub nom. Northern
Lines Merger Cases, 396 U.S. 441 (1970). These traffic protective
conditions help preserve the route between Bieber and Keddie, Cali-
fornia by requiring BN to maintain rates over that route that are
at least as favorable as those offered over alternative routes.
UPC-Controi, 366 I.C.C. at 592; Joint Brief for the ICC and the
USA at 49 n.27. They also require BN preferentially to solicit
traffic for the Bieber rovte. /d. These conditions were orginally
imposed to cure specific competitive harms which the Commission
believed would befall ATSF, WP and the shipping public if the
Bieber route were allowed to deteriorate. 331 I.C.C. at 282-83.
The Commission removed the conditions for two reasons. First,
“the justification for the Bieber conditions will no longer exist after
consolidation,” because WP will no longer be dependent upor inter-
changes with BN, SP or ATSF. 366 I.C.C. at 592. Second, the
Commission believed that the proposed consolidation might harm
competition in the West Coast north-south market. It was relying
on the competitive response of other railroads, especially the BN,
SP and DRGW, to offset the adverse competitive effects of the
merger in this market. Therefore, the Commission was unwilling to
“limit BN’s competitive response to the new system” by “|c|ontinu-
ing to require BN to hand off traffic to WP at Bieber.” Jd. When
the Bieber conditions were first imposed, the WP was “a small,
neutral interline carrier, and 20 percent of its total freight reve-
nues were obtained from Bieber traffic.” Jd. After the consolida-
tion, the WP will not need the protection of these conditions. To
that extent the Commission is correct that the justification for the
22a
[22] mission has created an entirely new line through
the transcontinental central corridor. See, e.g., 366 I.C.C.
at 515, 576-78 (explaining what will mitigate the anti-
competitive effects of the merger with respect to SP and
assessing the competitive capacity of DRGW). Under
such circumstances, the arithmetic of today’s market
shares cannot control the Commission’s inquiry.
(b) The public benefits
Next, petitioners attack the “benefit” side of the equa-
tion, arguing that the merger would not produce the
[23] benefits to the public that the Commission believes
it would. The Commission found that
[t]he proposed consolidation of UP-MP-WP will re-
sult in substantial public benefits. Shippers and the
general public will benefit by the improved efficiency
and reliability of single system service, as well as
the efficiency related savings of $4% million an-
nually. These savings are likely to result in rate de-
creases, deferrals of rate increases, and a more
financially viable system.
conditions no longer exists. Moreover, ATSF’s contention that
there may be adverse competitive effects which the Commission
failed to consider is based on a premise that is by no means in-
evitable—that BN will down-grade the Bieber route. Brief of
Petitioner ATSF at 61. The Commission expressly found that
“UP will have an economic incentive for continued participation
in movements over WP’s Bieber route.” 366 I.C.C. at 527. As such,
BN will continue to route traffic over WP’s Bieber route (and
eventually to ATSF), so long as it is economically prudent for it
to do so.
It is the ICC’s intention that “economic conditions and competi-
tion . . . dictate appropriate routes” after the merger. 366 I.C.C.
at 528. Removal of the Bieber conditions helps to ensure that
“BN, SP and DRGW are positioned to compete for traffic which
otherwise would go to the new UP system.” Jd. at 592. Given
the importance of the competitive response of other railroads to
the Commission’s approval of this merger, we uphold the Com-
mission’s decision to lift the Bieber conditions.
| 23a
: 366 I.C.C. at 501. This $47 million figure is the sum of
net revenue gains or $7.9 million derived from inter-
modal (motor carrier to rail carrier) diversion; cost
savings of $5 million from the consolidation of facilities
leading to reduced equipment needs, lower car hire and
car maintenance expenses, reduced labor force and lower
terminal company charges; annual cost savings of $32
million due to improved equipment utilization; and sav-
ings of $1.5 million due to improved administrative co-
ordination as a result of the consolidation of UP and
WP mechanical and maintenance departments and be-
catise joint purchases will permit volume discounts by
equipment manufacturers.
OE ONE ae Da
Petitioners challenge these figures as being “wholly
unreliable.” Brief of Petitioners KCS at 25. According
to KCS, the Commission’s calculation of quantifiable pub-
lice advantage was technically faulty and the actual
present-value figure for public benefits (calculated before
the costs of reduced competition are taken into account)
would be, at most, $11.9 million. Jd. at 36. Taking into
account uncorrected anticompetitive effects, KCS main-
tains, the annual net cost to the public of the proposed
merger is at least $7.1 million per year. Id. at 38.
A review of the Cost and Benefit Analysis in Appendix
II to the Commission’s opinion convinces us that we
should accept the Commission’s figures. A decision as
which of two costing methodologies to adopt is precisely
the [24] kind of judgment which agencies, not courts,
ought to make. The Commission satisfied itself that the
methodology employed was acceptable. For example, here
the Commission accepted, and indeed commended, the
applicants’ approach as making “achievable” “a figure
for both the annual net benefits and combined annual
net benefits plus one-time benefits.” 366 I.C.C. at 776.
The Commission was not, however, uncritical; it did not
accept applicants’ approach wholesale. Thus, when the
applicants sought to equate the return on value of equip-
24a
ment saved with the value (replacement cost) for equip-
ment required, the Commission demurred and adjusted
the claimed saving downward. Id. at 777. Moreover, the
Commission recognized that the cost-benefit analyses at-
tempted necessarily required that certain estimates and
assumptions be made. Id. at 776. We do not mean to
focus attention on any particular item in the calculation
but only to illustrate the sort of task that KCS would
have us undertake. Were we to attempt a review so
detailed and searching, we would be duplicating the ex-
tensive work of the Commission and doing so without its
resources or expertise. That is not, and cannot be, the
function of a reviewing court. We are not free to con-
sider whether this consolidation satisfies our own concep-
tion of the public interest—that is the Commission’s job.
Penn Central Merger Cases, 389 U.S. 486, 498-99
(1968) ; Brotherhood of Maintenance of Way Employees
v. United States, 221 F. Supp. 19, 30 (E.D. Mich), aff'd,
375 U.S. 216 (1963). The record clearly shows that the
ICC exercised its independent judgment and expertise
with respect to the calculation of public benefits. That
must be enough for us, particularly in such a fact-bound
and technical area.®
——s.- —_---
[25] (c) The conditions imposed
Petitioners also challenge the conditions imposed by the
ICC on the merger. The Commission did find that this
merger, without certain ameliorative conditions, would
have significant adverse impact on competition. 366
*In this appeal the Commission also emphasizes the significance
of non-quantifiable public benefits. This troubles petitioners be-
cause a reviewing court is forced to defer substantially to the
Commission in assessing such a finding. This may be true, but
it is not particularly germane to this case; the non-quantifiable
benefits on which the Commission relies, for example, the increased
flexibility of a single system’s integrated management, are suffi-
ciently obvious to assure us that the Commission’s decision here
rests on firm ground.
————
25a
1.C.C. at 517, 533. Therefore, the Commission granted
DRGW trackage rights over the merged system from
Kansas City to Pueblo, Colorado and SP rights between
St. Louis and Kansas City. The effect of this extensive
grant was to create a new central corridor route from St.
Louis to the West, with SP at either end and DRGW in
the middle. The Commission concluded that this new
route would “provide an effective competitive alternative
to the UP system in the central corridor.” Jd. at 577.
This finding was based on the Commission’s assessment
of the strategic location of the SP and DRGW lines and
those railroads’ operational capabilities. See, e.g., id. at
515 (western end of SP more extensive and efficient than
WP). Also, the Commission carefully tailored the track-
age rights to match anticompetitive effects. See, e.g., id.
at 515-16 (importance to DRGW of loss of neutral
Pueblo-Kansas City carrier). We noted above that in
analyzing the response of a dynamic market, the Com-
mission was entitled to engage in such operational scru-
tiny without presenting quite possibly irrelevant market-
share figures. Plainly, this issue involved the kind of
“judgmental or predictive’ conclusion with respect to
which judicial deference to agency expertise is especially
appropriate. FCC v. National Citizens Committee for
Broadcasting, 436 U.S. 775, 813-14 (1978). In fact, our
scope of review of the Commission’s decisions as to pro-
tective conditions is even more narrow than our scrutiny
of its public interest determination. See supra p. 24.
The Commission has [26] extraordinarily broad discre-
tion to impose protective conditions, 49 U.S.C. § 11344
(c), and courts have appropriately given the Commis-
sion’s selection of such conditions great deference. Sea-
board Coast Line R.R. v. United States, 599 F.2d 650,
652 (5th Cir. 1979); Florida East Coast Ry. v. United
States, 259 F. Supp. 993, 1001 (M.D. Fla. 1966), aff'd,
386 U.S. 544 (1967).
While the Commission accorded SP and DRGW ex-
tensive trackage rights over the merged line, it did not
set the terms under which UP would be paid for the use
26a
of its track. Rather, the Commission instructed the
parties to seek to negotiate agreeable compensation terms
according to general criteria outlined in the decision, sub-
ject to the ICC’s power to fix terms in the absence of an
agreement. 366 I.C.C. at 589-90. This procedure was
entirely rational, in that the ICC specifically provided
that the terms, whether agreed to or imposed, must be
such as to make the new transcontinental corridor (SP/
DRGW) competitive with the merged system. 7d. at 590.
Southern Pacific’s argument that absent fixed terms it is
impossible to tell whether the SP-DRGW route will be
competitive is thus upside-down; we trust the Commis-
sion to ensure that the compensation terms will not de-
feat the purpose of the trackage rights. The ICC has in
fact guaranteed that it will see to the proper functioning
of the trackage rights. Id. See Baltimore & Ohio R.R. v.
United States, 386 U.S. 372, 389 (1967) (ICC faulted
for failing to provide protection it thought necessary).
Nor was there anything cryptic about the Commission’s
decision on this point, as DRGW suggests, we sustain the
ICC’s decision on trackage rights compensation terms.”
10 Petitioner SP also contends that the ICC’s approval of this
merger violates the Pacific Railroad Acts. Act of July 1, 1862, ch.
120, 12 Stat. 489; Act of July 2, 1864, ch. 216, 13 Stat. 356,
codified at 45 U.S.C. § 83 (1982). We disagree. In approving a
consolidation such as this one, the ICC has the express authority
to “exempt [a carrier] from the antitrust laws and from all other
law, including State and municipal law, as necessary to let that
person carry out the transaction... .” 49 U.S.C. § 11341(a) (Supp.
V 1981) (emphasis added). The Supreme Court long ago expressly
rejected SP’s argument that the ICC’s exemption authority is
limited to antitrust and similar restraining and prohibitory laws.
Texas v. United States, 292 U.S. 522, 534 (1934). The ICC need
only consider the policies expressed in those Acts in determining
whether the consolidation is in the public interest. See Northern
Lines Merger Cases, 396 U.S. at 511-13. We are satisfied that the
Commission adequately considered the Pacific Railroad Acts’ poli-
cies. 366 I.C.C. at 548-62.
The Commission held, first, that the proposed merger did not
violate the statutory requirement that “te whole line of said rail-
road shall be operated and used for all purposes ... as one con-
i CNNERE lain hii
ee a ee se,
RI wk iy alae, nial ce
27a
[27] 2. The Commission’s Denial of Trackage Rights to
KCS
Petitioner KCS challenges the Commission’s denial of
its application for trackage rights on MPC lines to ex-
pand KCS8’s service within eastern Texas and Louisiana.
nected continuous line.” 45 U.S.C. § 83. Southern Pacific’s con-
tention is that the Acts “required much more than a mere physi-
cally continuous railroad.” Brief for Petitioners SP at 65. The
Supreme Court has made clear that this part of the Act was
intended to secure the permanent physical connection of a trans-
continental route and the conduct of through operations over it.
See Union Pacific R.R. v. Hall, 91 U.S. 343, 353-54 (1876). See
also United States v. Union Pacific R.R., 226 U.S. 61, 91-.. (1912);
Seuthern Pacific Co. v. United States, 277 F. Supp. 671, 679 (D.
Neb. 1967). After the consolidation, UP will continue to inter-
change traffic with SP at the Utah gateway, thus ensuring that SP
and UP are still part of “one continuous line” of transcontinental
traffic. Also, we agree with the Commission that “the fundamental
purpose of the ‘one continuous line’ provision will . . . be satisfied
by the existence of several other alternative transcontinental routes
.... 366 I.C.C. at 552. Second, the Commission rejected SP’s
contention that the Pacific Railroad Acts granted to it certain
unspecified “vested rights” that are violated by the merger. South-
ern Pacific’s claim is specious. The Acts create contract rights
between the party railroads and the federal government, not be-
tween the party railroads themselves. The Commission’s action does
not impair any rights SP has with respect to the federal govern-
ment. See Burke v. Southern Pacific R.R., 234 U.S. 669, 680
(1914); United States v. Union Pacific R.R., 98 U.S. 569, 613-14
(1878).
The Commission concedes that SP’s final claim—that the approval
merger violates the nondiscrimination provision of the Pacific Rail-
road Acts—has merit, but it held that it was not barred from
“immuniz[ing] the carriers from operation of the nondiscrimina-
tion provisions where, as here, we have found that the UP/WP
consolidation is in the public interest.” 366 I.C.C. at 553. Although
the ICC’s explanation is not entirely clear, we read its opinion
to mean that, in the Commission’s view, the other benefits of this
merger outweigh the harmful effects of discrimination which the
Pacific Railroad Acts seek to avoid. Since, as noted above, the
Commission’s determination of the public interest is entitled to def-
erence, see supra p. 24, we uphold the Commission’s decision.
28a
[28] The theory of KCS’s application is that the public
interest in effective rail competition requires the imposi-
tion of this condition upon the consolidation. KCS claims
that, absent the grant of the trackage rights its requests,
the public will never have effective rail competition in
these markets.
The conditions KCS proposed were concededly unrelated
to the consolidation at issue. They were not designed to
mitigate any anti-competitive consequences stemming di-
rectly from the consolidation. Rather, KCS’s proposed
conditions represent its vision of what effective rail com-
petition in eastern Texas and Louisiana requires irrespec-
tive of the consolidation.
The Commission properly denied KCS’s request. See
UPC-Control, 366 I.C.C. at 562-65. The Commission’s
criteria regarding the imposition of conditions clearly
establish that conditions are not to be used to address
problems unrelated to a merger or consolidation. See,
e.g., Burlington Northern, Inc.—Control & Merger—St.
Louis-San Francisco Ry., 360 1.C.C. at 952 (“conditions
on a merger are not to be used to ameliorate longstanding
problems which were not created by the merger”); Rail-
road Consolidation Procedures, 366 I.C.C. at 92. This
[29] position, strongly supported by both the Department
of Justice and the Department of Transportation, reason-
ably effectuates the Commission’s statutory mandate. As
the Commission noted, “[i]mposing conditions unrelated
to a merger’s impact, upon a transaction otherwise con-
sistent with the public interest, would be at odds with the
Congressional policy that privately-initiated transactions
should be approved so long as they are consistent with the
public interest.” UPC-Control, 366 I.C.C. at 564. Once
the Commission determined that the conditions imposed
upon the consolidation had rendered that consolidation
consistent with the public interest, it was under no com-
pulsion further to reform the proposed consolidation.
KCS sought to use the proposed consolidation as a spring-
29a
board from which to launch a request for conditions hav-
ing no connection with that consolidation. But the Com-
mission is not required to act as a roving ombudsman re-
structuring railroads on its own in order to satisfy an
; individual carrier’s notion of what effective competition
may require.
3. The Commission’s Jurisdiction over ATSF‘s Track
The MPC lines over which the Commission granted SP
and DRGW trackage rights involve two segments of
track, one eight miles long and the other twelve, owned
by ATSF. ATSF challenges the Commission’s decision
to award SP and DRGW rights over its track on three
grounds: 1) the Commission lacks jurisdiction under 49
U.S.C. § 11103(a) to make such an award; 2) even if
jurisdiction exists, the Commission violated 49 U.S.C.
§ 11103(a) by allowing SP and DRGW to use ATSF’s
track before compensation had been “paid or adequately
secured”; and 3) the interim agreement between UPC
and DRGW allowing DRGW to move its cars in MPC’s
trains along a segment of ATSF’s track is illegal because
it is a pooling arrangement and was not approved under
49 U.S.C. § 11342 (Supp. V 1981). We have fully con-
sidered ATSF’s arguments and conclude that the Com-
[30] mission’s decision to grant SP and DRGW rights
over ATSF’s track was not improper.
Under 49 U.S.C. § 11103(a), the Commission has the
authority to order one carrier to allow another carrier
to use its “terminal facilities, including main-line tracks
for a reasonable distance outside of a terminal” if the use
is “practicable and in the public interest.” ATSF argues
that the term “terminal facilities” is limited in meaning
to trackage that is within the operating limits of the
terminal area and that is used for terminal purposes.
It contends that SP and DRGW will use the segments
for through service only and that the segments are not
within the operating limits of the Kansas City or Pueblo
* - ™ i Maks wg aa
30a
terminals. In addition, ATSF claims that the Commis-
sion did not limit its consideration of the “public inter-
est” to an examination of the improvements in rail serv-
ice in the relevant terminal area.
The Commission has long held that the “terminal fa-
cilities” should be broadly construed because the purpose
of the section is highly remedial. See, e.g., CSX Corp.—
Control—Chessie System, Inc. & Seaboard Coast Line
Industries, Inc., 363 I.C.C. at 585; City of Milwaukee
v. Chicago & N.W. Ry., 283 I.C.C. 311, 314 (1951). The
purpose of this section is to avoid “unnecessarily dupli-
cated” lines, and it is not necessarily limited to benefiting
the rail service in the relevant terminal area. See Spo-
kane, Portland & Seattle Ry., 348 I.C.C. 109, 142-43
(1975). Here, the Commission held that the use of
ATSF’s track was necessary to allow SP and DRGW to
enter the Kansas City and Pueblo terminals and that the
use was practicable and in the public interest because it
allowed the Commission to create a competitive alterna-
tive in the central corridor to the new UPC system. See
UPC-Control, 366 1.C.C. at 573-78 (DRGW-Pueblo), 586-
89 (SP-Kansas City). This determination is consistent
with Commission precedent. In Chicago & Alton R.R.
v. T.P. & W. Ry., 146 I1.C.C. 171, 179 (1928), and
[31] Spokane, Portland & Seattle Ry., 348 1.C.C. at 142-
43, the Commission granted one carrier the right to move
over twelve and six-and-three-quarter mile segments of
another carrier’s line. In both those cases, the Commis-
sion granted the rights so that the carriers might “bridge
the gap” between their line and the terminal. It did not
require in either case that the segments be used for ter-
minal purposes.
The Commission has never held 49 U.S.C. § 11103(a)
or its predecessor to require that the term “terminal
facilities” be limited to the trackage within the operating
limits of the terminal. In any event, the segment near
the Pueblo terminal is actually within that terminal’s
sla
limits, UPC-Control, 366 I.C.C. at 574, and the segment
{ near the Kansas City terminal is halfway within that
terminal’s limits. Jd. at 587-88. We hold, therefore, that
the Commission has the jurisdiction to make the trackage
rights awards.
Under 49 U.S.C. § 11103(a) there is an additional re-
quirement that the compensation for use of the “terminal
facilities’ must be “paid or adequately secured” before
the use can commence. ATSF argues that this condition
} was not met because the trackage rights were made im-
mediately effective and no agreement as to compensation
was made. It is true that the Commission directed the
parties to negotiate the terms of compensation among
themselves, UPC-Control, 366 I.C.C. at 589-90, and that
no agreement was reached prior to the commencement of
the transaction. Nonetheless, the Commission did indi-
cate that if the parties failed to agree it would “apply
the principles for compensation in condemnation proceed-
ings.” Jd. at 576 n.114. We hold that the Commission
is bound by this statement and that it fulfills the require-
ment of the term “adequately secured” under 49 U.S.C.
§ 11103(a). We find it appropriate to note at this time
that, because the use of ATSF’s track was adequately
secured, ATSF has suffered no injury under the Interstate
[32] Commerce Act and that its arguments are more di-
rected at derailing the merger rather than protecting its
rights.
ATSF’s final argument is that the interim agreement
-between UPC and DRGW allowing DRGW to move its
cars in MPC’s trains along a segment of ATSF’s track
is illegal because it is a pooling arrangement and was
not approved under 49 U.S.C. § 11342. This argument
has been fully considered and rejected by the Commission.
See Joint Appendix at 357-62, 365-70. In any event,
ATSF’s claim is now moot because the interim agreement
is no longer in effect.
or
Pha Ph ABR MS OT ok: na Sot
hee ares: ali rs Sia
ee oe
32a
4, DRGW’s Request for Independent Ratemaking Au-
thority
In addition to trackage rights, DRGW requested that
the Commission approve a condition for independent rate-
making authority (“IRA”) over the WP portion of the
merged system. This IRA, set out in Appendix D-2 of
the Commission’s opinion, would have required WP to
accede to rates set by DRGW." It would have provided
the merged system’s automatic concurrence to any rate
the DRGW wished to set in conjunction with WP rout-
ings on competition with the merged system. The IRA
would therefore have allowed DRGW to quote its own
rates from Kansas City to Northern California while,
because of its trackage rights on the UP system, provid-
ing service between Utah and Kansas City. DRGW con-
tends that the IRA was “designed to offset the merged
system’s domination of Utah junction traffic and provide
what would be, in effect, independent competition to the
monopolistic control exerted by UP in the central cor-
ridor.” Brief for Petitioner DRGW at 20. By allowing
the DRGW to offer competitive rates for shipments pass-
[33] ing through the Utah junctions without advance WP
concurrence, “the previous competitive rate environment
at Utah junctions” would be preserved because DRGW
could offer “an independent alternative to the UP in the
central corridor.” /d. at 21. Basically, DRGW fears that
without this IRA it will be foreclosed from participating
in California traffic because UP will favor WP while SP
will shift to its long haul southern routes. Alternately,
DRGW fears that SP will arrive at a collusive accom-
modation with UP in Utah to share California traffic.
The Commission found that granting DRGW the rate
making authority would enable it to attract California
11The UP system, however, would be guaranteed revenue cal-
culated on the basis of WP divisions of revenue according to the
higher of the UP or DRGW formulas as of the date the merger
proposal was submitted to the Commission.
A
33a
traffic itself, thus reducing DRGW’s incentive to work
with SP, its western interchange partner. This would
weaken the new SP/DRGW line, which the Commission
was relying on to provide competition in the central cor-
ridor. 366 I.C.C. at 578-79.
This reasoning does not satisfy our central concerns.
Granting the IRA would have an effect that the Commis-
sion’s opinion simply does not address—namely, it would
create a third transcontinental route over SP from St.
Louis to Kansas City, DRGW from Kansas City to Utah
and from Utah to Northern California on the WP. As-
suming that WP’s lines provide a strong route to Cali-
fornia, this third route would seem to be a good alterna-
tive to the merged system. If the WP lines are inadequate
to serve the Utah-Northern California traffic, SP’s com-
peting line (the gathering area of which impressed the
ICC) would be a sufficiently viable and strong competitor
with WP to force DRGW to deal with SP. Moreover,
given SP’s southern corridor, which is certainly capable
of handling transcontinental traffic, DRGW may need the
“leverage” afforded by an independent route to the West
Coast in order to induce SP participation in the central
corridor route.
In short, if WP’s lines are good enough to serve Cali-
fornia, the Commission has not adequately explained why
[34] the IRA should not be granted to create a third
transcontinental central route. If, on the other hand, the
WP lines are not good enough to create such a route, the
Commission’s theory—that DRGW would have a reduced
incentive to deal with SP—is undercut by the competitive
advantage SP’s lines have over those of WP. Given these
unanswered questions, we remand the decision as to the
requested IRA to the ICC for further consideration and
explanation.
5. The Labor Issues
Petitioners ATDA and BMWE challenge the Commis-
sion’s denial of their requests that the New York Dock
34a
conditions imposed on the applicant carriers be extended
to protect the interests of the employees of non-applicant
carriers. ATDA also challenges the Commission’s refusai
to impose two specific conditions over and above those
outlined in New York Dock. These proposed conditions
would require the Commission to approve, after notice
and opportunity for a hearing, any changes in the form
of UPC’s corporate control over MPC and WP and any
transfer of MPC or WP train dispatching work or train
dispatchers. We have fully considered petitioners’ argu-
ments and conclude that the Commission properly denied
their requests.
Petitioners’ first argument—that 49 U.S.C. §§ 11344
(b) (1) (D) and 11347 require the Commission to protect
the interests of all affected railroad employees—has been
recently considered and rejected by this court. See La-
moille Valley R.R. v. ICC, 711 F.2d 295, 323-24 (D.C.
Cir. 1983). We see no need at this point to add to the
thorough discussion of that opinion nor do we find any
different result warranted.
The Commission’s refusal to impose the two specific
conditions also was proper. First, ATDA is concerned
that, unless the Commission were to require notice and
[35] opportunity for a hearing prior to allowing a change
in the form of UPC’s corporate control over MPC and
WP, the affected employees would not have an effective
right to be-heard with respect to protection above the
minimum level outlined in New York Dock until after
consumation of the transaction. See 49 C.F.R. § 1180.4(g)
(1983). The Commission’s power to allow changes in the
corporate form of a carrier is set out at 49 U.S.C. § 10505
(Supp. V 1981). That section allows the Commission to
exempt a carrier’s change in corporate form from many
requirements of the Interstate Commerce Act, but it spe-
cifically forbids the Commission “to relieve a carrier of
its obligation to protect the interests of employees as re-
quired by [the Interstate Commerce Act].” Jd. § 10505
85a
(g) (2). Thus, regardless of whether the employees are
entitled to complain before or after the transaction oc-
curs, they are entitled to complain if the labor protective
conditions imposed are not sufficient, making imposition
of ATDA’s first condition unnecessary.
Second, ATDA is concerned that, unless the Commis-
sion were to require notice and opportunity for a hearing
prior to allowing UPC to transfer WP and MPC train
dispatching work or train dispatchers, the interests of
the affected train dispatchers would not be adequately
considered. The Commission concluded that, “in the event
employees might be impacted in the future, . . . they will
be afforded the protections [i.e., the New York Dock con-
ditions] we imposed here.” UPC-Control, 366 I.C.C. at
622. This conclusion is consistent with this court’s deci-
tion in American Train Dispatchers Association v. ICC,
671 F.2d 580 (D.C. Cir. 1982). Moreover, it is supported
by the Commission’s findings that there is no evidence in
the record that transfers of work or dispatchers are con-
templated and that requiring a hearing would be “unduly
burdensome” and would “fetter applicants’ operating ca-
pabilities.” The Commission’s refusal to impose this con-
dition is not arbitrary or capricious.
[36] 6. The Fairness of the Terms of the Consolidation
Petitioner Edward K. Wheeler, a minority shareholder
of WP Class A common stock, objects to the finding of the
Commission that the terms of the consolidation with re-
spect to the interests of minority shareholders are “fair
and reasonable” as required by the Act. See 49 U.S.C.
§ 11344; Schwabacher v. United States, 334 U.S. 182,
201 (1948) (the Commission “is under a duty to see that
minority interests are protected, especially when there is
an absence of arm’s length bargaining or the terms of the
merger have been imposed by management interests ad-
verse to any class of stockholders”). He contends that the
$20 per share purchase price offered by UPC to WP
|
86a
stockholders is unreasonably low because that price fails
to reflect WP’s industrial land holdings and, more im-
portantly, fails to reflect the benefits that will accrue to
UPC as a result of its consolidation with WP. Petitioner
Wheeler does not ask that we set aside the Commission’s
approval of the consolidation. He only requests that we
remand the question of the valuation of WP stock back
to the Commission for further consideration. We con-
clude, however, that the Commiasion’s methodology of
valuation is reasonable and that its conclusions are sup-
ported by substantial evidence in the record.
First, contrary to Wheeler’s principal complaint, the
Commission explicitly took into account the enhanced
value of WP stock as a result of the consolidation. See
UPC-Control, 366 I.C.C. at 636-38. It calculated the
difference in the market value of WP stock immediately
prior to UPC’s tender offer and the present value of
the stock in light of the consolidation, describing that
difference in value as “the merger premium.” The Com-
mission then allocated a variable share of the merger
premium to WP shareholders, concluding that the result-
ing amounts added to the market value of the WP stock
before the tender offer would yield a range of reasonable
prices from $16.85 per share to $26.25 per share. Be-
[37] cause the $20 per share to be paid by UPC under
the terms of the consolidation falls within this range, the
Commission found that price to be fair and reasonable.
Petitioner Wheeler attacks the Commission’s conclusion
on the ground that the studies relied upon by the WP
management in accepting UPC’s terms for consolidation
were flawed. Wheeler also contends that the Commission
erred in finding that UPC’s offer was the result of arm’s
length negotiations. These contentions, however, are un-
availing. First, the Commission did not simply rely upon
the judgments of WP’s financial experts in determining
the fairness of the consolidation terms, although it did
consider those judgments. Rather, the Commission found
87a
that the $20 per share price for WP stock was fair on
the basis of its own independent analysis. Second, there
exists substartial record evidence to support the Commis-
sion’s finding of arm’s length negotiations between WP
and UPC. WP was assisted in the negotiations by an
independent investment banking firm, Solomon Brothers,
which advised WP that $20 per share was a fair price for
its stock.* Moreover, this price was approved by WP’s
Board of Directors in light of Solomon Brothers’ advice.
Finally, petitioner Wheeler contends that the Commis-
sion unreasonably disregarded WP’s industrial landhold-
ings in determining the fairness of UPC’s tender offer.
But contrary to Wheeler’s assertions, the Commission did
not simply disregard WP’s landholdings. Rather, it
stated that such holdings are relatively unimportant in
the context of the methodology the Commission used in de-
terminig [sic] a reasonable range of prices for WP’s stock.
Because WP is a going concern, the Commission deter-
mined that the value of its stock can best be measured
by WP’s earning [38] power as reflected by performance
in the stock market rather than the book value of the
company. Cf. Seaboard World Airlines, Inc. v. Tiger In-
ternational, Inc., 600 F.2d 355, 361-62 (2d Cir. 1979);
Mills v. Electric Auto-Lite Co., 552 F.2d 1239, 1247-49
(7th Cir. 1977). Using the stock market as a guide in
ascertaining value, $20 per share for WP’s stock repre-
sented a 38 percent premium over the $14.50 WP’s stock
sold for the day before the public announcement of the
tender offer. It is true that the Commission’s discussion
of this issue is unduly condensed. See UPC-Control, 366
I.C.C. at 636. Nonetheless, the Commission’s approval of
UPC’s tender offer meets the deferential standards of re-
view applicable in this context. “[A]lthough the Com-
‘UPC did not seek outside advice with respect to the fairness
of its offer to UPC stockholders. UPC claims that it did not
obtain such advice because of the relatively small size of the trans-
action. See UPC-Control, supra note 2, 366 ICC at 635.
88a
mission in fulfilling its statutory responsibilities is to
carefully review all of the terms of a merger proposal
and determine whether they are just and reasonable, it
is not for the agency, much less the courts, to dictate the
terms of the merger agreement once this standard has
been met.” Northern Lines Merger Cases, 396 U.S. at
520.
Therefore, we affirm the decision of the Commission to
approve this merger and remand the case for reconsid-
eration of DRGW’s request for independent ratemaking
authority.
So ordered.
39a
APPENDIX B
Served October 20, 1982
F-9932
INTERSTATE COMMERCE COMMISSION
FINANCE DOCKET No. 30,000
UNION PACIFIC CORPORATON,
PACFIC RAIL SYSTEM, INC., AND UNION
PACIFIC RAILROAD COMPANY-CONTROL—
MISSOURI PACIFIC CORPORATION AND
MISSOURI PACIFIC RAILROAD COMPANY
40a
[459] TABLE OF CONTENTS
Page
IIE xscriciicnccsststeneneniniecanasnensesingiionnmniasansnhdaipanitichasienansibmaitl [468]
TI, iveisisticse so cniinsnpsninsecterviniccaingilinsvniaeinaaemenantiadl [471]
Nature and Scope of the Primary Applications .............. [472]
aes OE Se TI isicenrsiceittinstccnccnintntzeessneessnstanintigatontom [474]
Discussion and Conclusions ................-.---.-c-ccc--e-eseeeeeeeoeeeeee [483]
Statutory Criterion: The Public Interest ................ [483]
I DS ssitiictecnitcarapnccmtninlgreinecxcomaintil [483]
Antitrust Considerations ..................-2.222..-2-.22---- [485]
iia voctrenccasacremnaceinntmbeniansscatinnet [485]
Environment and Energy Factors .................... [485]
I ea drctcseoninccenbecbeeneth [486 ]
Standards Applicable to Responsive Applica-
aa nscocnsaumianhassoin [486 ]
Byvaluation of the RGCOre ..........202022....ccccccecereceons [487]
Adequacy of Transportation ..................-.---------------- [487]
a smciisnenmeatouenetscnsin [487]
Service Improvements ................. FCMEY EES TENE [489 ]
Operating Changes ............ ae a i Loa Se [493]
a cedilinabeetie [493]
i csticieniaalibn [494]
Common Point Consolidations _................ [494]
Kansas City Terminal Operations ............ [496]
Equipment Utilization ............................---. [498]
Mechanical and Maintenance-of-Way Co-
ordinations ............ FOL Cra a CT a [498]
Management Information Services and
Communications Operations ................. [500]
I I, aio che Lav ngncicndacibiniencesaielabunsinnti [501]
Ge nt os oc semsndnandaninligooeniee [501]
CI oi eccsnsticccesotioraninncimnegencencagatbanteatinionn [501]
rr CE. | ccnnteanienieseusaaeneien [503 }
UI I sa iene neenanaele [503]
COTES TET 3. oncccecccnccsniccnececsceceseesnes [504]
ee Se ee re
a ee eee Be ee oe re ee te ee. Te
Ala
TABLE OF CONTENTS—Continued
Page
Commute Try niece [505]
nT ae [506]
Transcontinental traffic [506]
(1) Central corridor ................ [507]
(2) Other transcontinental
NED ace [517]
(3) Conclusion on transconti-
nental competitive effects.... [525]
IU CI is etic cco casero ee [525]
(1) Kansas City-Omaha/Coun-
cil Bluffs corridor ................ [526]
I aa [526]
LN LEE EPRI [527]
End-to-End Effects ...00..0.00.....-o.ee eee [528]
Source competition [528]
I I oo ooceecccnacconcceesnsseseane [529]
Conglomerate Effects _......... [531]
en cccauaieicun [533]
[460]
PEAT ee ae [533]
I a [534]
Competition between applicants [535]
Competition with other carriers ..................... [535]
Characteristics of ex ante competition _.. [536]
Characteristics of ex post competition _..... [537]
Application to competition for PRB coal.. [542]
Denver & Rio Grande Western Coal traffic _..... [545]
Transportation of export coal .......................... [545]
IL ARIE SE IER NCS ETT [545]
Den ee Se [546]
STO ee OE [548]
Passage of the Pacific Railroad Acts [549]
Specific Provisions of the Pacific Railroad Acts ...... [550]
42a
TABLE OF CONTENTS—Continued
Page
One Catlins BIO increase eine [550]
The Nondiscrimination Clause ._..................-.... [552]
Contract Rights Under the Pacific Railroad
NDTIS... siniscistanisileicuitdiatse aster dacheas ie reales ade cia ae [553]
The Transportation Act of 1920 ............0022222.0022------.. [556]
The Commission’s Immunity Power _.............. [556]
The Act of 1920 as an Amendment of the Pa-
ee TN TI iin [557]
Application to the Pacific Railroad Acts _................ [558]
Historical Development of the Pacific Railroads
after the Pacific Railroad Acts ..................0.2.2..--... [559]
CaCI nies stenccierinions succeed [562]
CIE <n cxccccsnsssnonecmpssonssiatiesiguestiialammmman aan [562]
BREET, ccsonnssivcncissobentensdeliontataiicatinitac aide aaaaamaoes [566]
BITE, ideacssisscneapscaceeanbaneniaene Paria Spas LER ek ET [572]
TFET occccntutcenicheae ae aOR [579]
Trackage Rights Compensation _...................... [589]
BD scwicasscisnciiisrsssmmmisinaeiieg mana [590]
MII sicwsinnanssins-seioincqpssotaedsidedioiiedaamsaaeta nausea aia uae [593]
I sictacscncdacibebens <sipaiciegpepa eae belegieiaaa ti aeeamanmemianmace [597]
| | nena Me Mere ies Wee ENN a nl Ne: [598]
Renses City Board of Tree ....:...................... [599]
Welle Seen. ee [600]
CD caida eee [600]
TNT RAT TE SIE Seen WB NSN Re [601]
St Rei are rek e PP ae CE [602]
Neen NI Mars enee Rete sehen ee nM | ue [602]
i I ais a ectescncete nia [603]
Pooling Agreement [610]
A Io iin tiie ntkncctalenscncctncancdccnbibn [618]
fn ETT AE [622]
Sy Sr i ns. scaeeeanennnbnscumeting [626]
re [626]
Terms of Transactions and Securities Issuances .... [627]
Nae on ag Bg
Tite wt
43a
TABLE OF CONTENTS—Continued
Page
re [627]
Consolidation Proposals .............................. [627]
as [627]
ae eee Ee eeee ....................-....... [627]
ns. sewwensensorecans [628]
Nee nevutcmsmsaoenn [632]
Consolidation Proposal .........0.0.0000000000000.. [632]
EE [632]
a scnceveseabencees [633]
i [633]
Seeursaes Aponentions ................................. [639]
SELES SR [642]
EGET SETS SRS OS Oe [653]
Appendices
Appendix A: Abbreviations _........................... [655]
Appendix B: Related Applications ................... [658]
Appendix C: CNW Settlement Agreement ...... [660]
Appendix D1: Conrail Settlement Agreement.. [668]
Appendix D2: DRGW Independent Ratemak-
Ie ciceuce [670]
Appendix E: Competition Appendices
1. Product Market Analysis .... [670]
2. Summary of Competitive
a [673]
3. DOT Market Power Study.... [677]
a asian [706]
Appendix F: Traffic Analysis ......................... [707]
Appendix G: Trackage Rights and Pooling
Tie Assis”... [753]
Appendix H: Cost Analysis-Operating Plan... [764]
Appendix I: Cost Analysis-Diversion .............. [792]
Appendix J: Financial Condition of the Par-
ee ua [803]
i ccs hamaanekclios [818]
44a
[462] FINANCE DOcKET No. 30,000 *
UNION PACIFIC CORPORATION, PACIFIC RAIL
SYSTEM, INC., AND UNION PACIFIC RAILROAD
COMPANY—CONTROL—MISSOURI PACIFIC
CORPORATION AND MISSOURI PACIFIC
RAILROAD COMPANY
Decided September 24, 1982
1 This decision embraces Finance Docket No. 30,000 (Sub-No. 1),
Union Pacific Corporation, Pacific Rail System, Inc., and Union
Pacific Railroad Company-Control-The Western Pacific Railroad
Company; Finance Docket No. 30,000 (Sub-No. 2), Application of
Union Pacific Corporation Under 49 U.S.C. § 11301 for Authority to
Issue Securities; Finance Docket No. 30,000 (Sub-No. 3), Applica-
tion of Missouri Pacific Corporation Under 49 U.S.C. § 11301 for
Authority to Issue Securities; Finance Docket No. 30,000 (Sub-No.
4), Application of Western Pacific Railroad Company Under 49
U.S.C. $ 11301 for Authority to Issue Securities; Finance Docket
No. 30,000 (Sub-No. 5), Union Pacific Railroad Company-Trackage
Rights at Kansas City over-Missouri Pacific Railroad Company;
Finance Docket No. 30,000 (Sub-No. 6), Union Pacific Railroad
Company-Trackage Rights at St. Joseph over-Missouri Pacific Rail-
road Company; Finance Docket No. 30,000 (Sub-No. 7), Missouri
Pacific Railroad Company-Trackage Rights at Omaha-Council Bluffs
over-Union Pacific Railroad Company; Finance Docket No. 30,000
(Sub-No. 8), Union Pacific Railroad Company and Missouri Pacific
Railroad Company-Pooling between Omaha-Counci! Bluffs and Kan-
sas City; Finance Docket No. 30,000 (Sub-No. 9), Union Pacific
Railroad Company and Missouri Pacific Railroad Company-Pooling
Between Beloit and Salina, Kansas; Finance Docket No. 30,000
(Sub-No. 10), Union Pacific Railroad Company and Missouri
Pacific Railroad Company-Pooling between Lincoln and Kansas
City; Docket No. MC-F-14448, Union Pacific Corporation, Pacific
Rail System, Inc., and Union Pacific Railroad Company-control-
WPX Freight System, Inc.; Docket No. MC-F-14449, Union Pacific
Corporation, Pacific Rail System, Inc., and Union Pacific Railroad
Company-Control-Missouri Pacific Truck Lines, Inc.; Finance
Docket No. 30,000 (Sub-No. 14), Southern Pacific Transportation
“
ona OP eel Ma, Le
45a
[463]
1. In Finance Docket No. 30,000, acquisition of control
by Union Pacific Corporation, Union Pacific Rail-
road Company, and Pacific Rail System, Inc., of
Company, St. Louis Southwestern Railway Company-Trackage
Rights-Union Pacific Rilroad Company-Ogden to Omaha/Council
Bluffs; Gibbon to Topeka; Finance Docket No. 30,000 (Sub-No.
15), Southern Pacific Transportation Company, St. Louis South-
western Railway Company-Trackage Rights-Union Pacific Railroad
Company-Ogden to Omaha/Council Bluffs; Gibbon to Topeka; Fi-
nance Docket No. 30,000 (Sub-No. 16), St. Louis Southwestern
Railway Company-Trackage Rights-Missouri Pacific Railroad Com-
pany-Kansas City to St. Louis; Finance Docket No. 30,000 (Sub-No.
17), St. Louis Southwestern Railway Company-Trackage Rights-
Atchison, Topeka and Santa Fe Railway Company Utilized By
Missouri Pacific-Vicinity of Kansas City; Finance Docket No. 30,000
(Sub-No. 18), Denver and Rio Grande Western Railroad Company-
Trackage Rights-Missouri Pacific Railroad Company Between
Pueblo, CO and Kansas City, MO; Finance Docket No. 30,000 (Sub-
No. 19), Denver and Rio Grande Western Railroad Company-
Trackage Rights-Western Pacific Railroad Company Between Salt
Lake City, UT and points in Utah, Nevada and California; Finance
Docket No. 30,000 (Sub-No. 20), Missouri-Kansas-Texas Railroad
Company-Trackage Rights-Missouri Pacific Railroad Company-
Between Sedalia and St. Louis, MO; Finance Docket No. 30,000
(Sub-No. 21), Missouri Kansas Texas Railroad Company-Trackage
Rights-Missouri Pacific Railroad Company-Between San Antonio
and Laredo, TX; Finance Docket No. 30,000 (Sub-No. 22), Missouri
Kansas-Texas Railroad Company Use of Terminal Facilities at
Laredo, TX; Finance Docket No. 30,000 (Sub-No. 23), Missouri-
Kansas-Texas Railroad Company-Trackage Rights-Missouri Pacific
Railroad Company-Between San Antonio and Corpus Christi, TX;
Finance Docket No. 30,000 (Sub-No. 24), Missouri-Kansas-Texas
Railroad Company Use of Terminal Facilities at Corpus Christi,
TX; Finance Docket No. 30,000 (Sub-No. 25), Missouri-Kansas-
Texas Railroad Company-Trackage Rights-Missouri Pacific Railroad
Company-Between Kansas City, KS and Omaha, NE; Finance
Docket No. 30,000 (Sub-No. 26), Missouri-Kansas-Texas Railroad
Company-Trackage Rights-Missouri Pacific Railroad Company-
Between Union and Lincoln, NE; Finance Docket No. 30,000 (Sub-
No. 27), Missouri-Kansas-Texas Railroad Company Use of Terminal
Facilities at Lincoln, NE; Finance Docket No. 30.000 (Sub-No. 28), .
Missouri-Kansas-Texas Railroad Company Use of Terminal! Facili-
ties at Atchison, KS; Finance Docket No. 30,000 (Sub-No. 29),
Missouri-Kansas-Texas Railroad Company-Trackage Rights-Union
46a
Missouri Pacific Corporation, and of Missouri Pacific
Railroad Company and its rail carrier subsidiaries,
is authorized, subject to conditions.
2. In Finance Docket No. 30,000 (Sub-No. 1), acquisi-
tion of control by Union Pacific Corporation, Union
Pacific Railroad Company-Between Omaha, NE, and Council Bluffs,
IA; Finance Docket No. 30,000 (Sub-No. 30), Missouri-Kansas-Texas
Railroad Company Use of Terminal Facilities at Council Bluffs, IA;
Finance Docket No. 30,000 (Sub-No. 31), Missouri-Kansas-Texas
Railroad Company-Trackage Rights-Union Pacific Railroad Com-
pany-Between Kansas City and Topeka, KS; Finance Docket No.
30,000 (Sub-No. 32), Missouri-Kansas-Texas Railroad Company Use
of Terminal Facilities at Topeka, KS; Finance Docket No. 30,900
(Sub-No. 33), Missouri-Kansas-Texas Railroad Company-Trackage
Rights-Terminal Railroad Association of St. Louis; Finance Docket
No. 30,000 (Sub-No. 34), Kansas City Southern Railway Company
and Louisiana & Arkansas Railway Company-Acquisition and Track-
age Rights over-Missouri Pacific Railroad Company in LA, TX, AR,
and IL; Finance Docket No. 30,000 (Sub-No. 35), Chicago and
North Western Transportation Company-Trackage Rights-Union
Pacific Railroad Company and Missouri Pacific Railroad Company;
Finance Docket No. 30,000 (Sub-No. 36), Burlington Northern Rail-
road Company-Trackage Rights-Missouri Pacific Railroad Company
Between Claremore, OK and Oologah, OK; Finance Docket No.
30,000 (Sub-No. 37), Burlington Northern Railroad Company-
Trackage Rights-Missouri Pacific Railroad Company Between Falls
City, NE and Kansas City, KS; Finance Docket No. 30,000 (Sub-
No. 38), Burlington Northern Railroad Company-Trackage Rights-
Missouri Pacific Railroad Company-Between Thebes and West
Vienna, IL; Finance Docket No. 30,000 (Sub-No. 39), Burlington
Northern Railroad Company-Trackage Rights-Missouri Pacific Rail-
road Company Between Claremore, OK and Fort Gibson, OK; Fi-
nance Docket No. 30,000 (Sub-No. 40), Burlington Northern Rail-
road Company-Trackage Rights-Missouri Pacific Railroad Company
Between Hoxie, AR and White Bluff, AR; Finance Docket No. 30,000
(Sub-No. 41), Burlington Northern Railroad Company-Trackage
Rights-Missouri Pacific Railroad Company Between Hoxie and
Newark, AR; Finance Docket No. 30,000 (Sub-No. 42), Burlington
Northern Railroad Company-Trackage Rights-Union Pacific Rail-
road Company Between Hastings, NE and Ogden, UT; and Finance
Docket No. 30,000 (Sub-No. 43), Chicago and North Western
Transportation Company and Missouri Pacific Railroad Company-
Pooling Agreement.
47a
Pacific Railroad Company, Pacific Rail System, Inc.,
and Pacific Subsidiary, Inc., of Western Pacific Rail-
road Company and its rail carrier subsidiaries, is
authorized, subject to conditions.
3. In Finance Docket No. 30,000 (Sub-No. 2), issuance
of common stock and $7.50 per share convertible
preferred stock by Union Pacific Corporation is au-
thorized.
4. In Finance Docket No. 30,000 (Sub-No. 3), issuance
of common stock by Missouri Pacific Corporation is
authorized.
5. In Finance Docket No. 30,000 (Sub-No. 4), issuance
of common stock by Western Pacific Railroad Com-
pany is authorized.
6. In Finance Docket No. 30,000 (Sub-No. 5), the ap-
plication of Union Pacific Railroad Company for
trackage rights over the Missouri Pacific Railroad
Company at Kansas City is granted, subject to con-
ditions.
[464]
7. In Finance Docket No. 30,000 (Sub-No. 6), the
application of Union Pacific Railroad Company for
trackage rights over the Missouri Pacific Railroad
Company at St. Joseph, MO, is granted, subject to
conditions.
8. In Finance Docket No. 30,000 (Sub-No. 7), the ap-
plication of Missouri Pacific Railroad Company for
trackage rights over the Union Pacific Railroad Com-
pany at Omaha, NE/Council Bluffs, IA, is granted,
subject to conditions.
9. In Finance Docket No. 30,000 (Sub-No. 8), the ap-
plication of Union Pacific Railroad Company and
Missouri Pacific Railroad Company to conduct pool-
ing operations between Omaha, NE/Council Bluffs,
IA, and Kansas City, MO, is dismissed.
10.
11.
12.
13.
14.
15.
16.
48a
In Finance Docket No. 30,000 (Sub-No. 9), the ap-
plication of Union Pacific Railroad Company and
Missouri Pacific Railroad Company to conduct pool-
ing operations between Beloit and Salina, KS, is dis-
missed.
In Finance Docket No. 30,000 (Sub-No. 10), the ap-
plication of Union Pacific Railroad Company and
Missouri Pacific Railroad Company to conduct pool-
ing operations between Lincoln, NE, and Kansas
City, MO, is dismissed.
In No. MC-F-14448, acquisition of control by Union
Pacific Corporation, Union Pacific Railroad Com-
pany, and Pacific Rail Systems, Inc, of WPX
Freight Systems, Inc., is authorized.
In No. MC-F-14449, acquisition of control by Union
Pacific Corporation, Union Pacific Railroad Com-
pany, and Pacific Rail System, Inc., of Missouri Pa-
cific Truck Lines, Inc., is authorized.
In Finance Docket No. 30,000 (Sub-No. 14), the ap-
plication of Southern Pacific Transportation Com-
pany and St. Louis Southwestern Railway Company
for trackage rights over the Union Pacific Railroad
Company between Ogden, UT, and Omaha, NE/
Council Bluffs, IA, and between Gibbon, NE, and
Topeka, KS, is denied.
In Finance Docket No. 30,000 (Sub-No. 15), the ap-
plication of Southern Pacific Transportation Com-
pany and St. Louis Southwestern Railway Company
for trackage rights over the Union Pacific Railroad
Company between Ogden, UT, and Omaha, NE/
Council Bluffs, IA, and between Gibbon, NE, and
Topeka, KS, is denied.
In Finance Docket No. 30,000 (Sub-No. 16), the ap-
plication of St. Louis Southwestern Railway Com-
pany for trackage rights over the Missouri Pacific
~ AharisS-o motel
ieee gf a fee een Oe
17.
18.
19.
20.
21.
49a
Railroad Company between Kansas City, MO, and
St. Louis, MO, is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 17), the ap-
plication of St. Louis Southwestern Railway Com-
pany for trackage rights over the line segments of
the Atchison, Topeka and Santa Fe Railway Com-
pany utilized by the Missouri Pacific Railroad Com-
pany in the vicinity of Kansas City Between Eton
and Congo, MO, is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 18), the ap-
plication of Denver and Rio Grande Western Rail-
road Company for trackage rights over the Missouri
Pacific Railroad Company between Pueblo, CO, and
Kansas City, MO, is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 19), the ap-
plication of the Denver and Rio Grande Western
Railroad Company for trackage rights over the West-
ern Pacific Railroad Company and its rail carrier
subsidiaries between Salt Lake City, UT, and points
in Utah, Nevada, and California, is dismissed.
In Finance Docket No. 30,000 (Sub-No. 20), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Missouri Pacific
Railroad Company between Sedalia, and St. Louis,
MO, is denied.
In Finance Docket No. 30,000 (Sub-No. 21), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Missouri Pacific
Railroad Company between San Antonio and Laredo,
TX, is denied.
[465]
22.
23.
In Finance Docket No. 30,000 (Sub-No. 22), the
application of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Laredo, TX, is denied.
In Finance Docket No. 30,000 (Sub-No. 23), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
24.
25.
26.
27.
28.
29.
30.
31.
50a
pany for trackage rights over the Missouri Pacific
Railroad Company between San Antonio and Corpus
Christi, TX, is denied.
In Finance Docket No. 30,000 (Sub-No. 24), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Corpus Christi, TX, is denied.
In Finance Docket No. 30,000 (Sub-No. 25), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Missouri Pacific
Railroad Company between Kansas City, MO, and
Omaha, NE, is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 26), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Missouri Pacific
Railroad Company between Union and Lincoln, NE,
is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 27), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Lincoln, NE, is granted.
In Finance Docket No. 30,000 (Sub-No. 28), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Atchison, KS, is granted.
In Finance Docket No. 30,000 (Sub-No. 29), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Union Pacific Rail-
road Company between Omaha, NE, and Council
Bluffs, IA, is granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 30), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Council Bluffs, IA, is granted.
In Finance Docket No. 30,000 (Sub-No. 31), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
32.
33.
34.
35.
36.
37.
38.
5la
pany for trackage rights over the Union Pacific Rail-
road Company between Kansas City and Topeka, is
granted, subject to conditions.
In Finance Docket No. 30,000 (Sub-No. 32), the ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for acquisition of use of terminal facilities at
Topeka, KS, is granted.
In Finance Docket No. 30,000 (Sub-No. 33), tne ap-
plication of Missouri-Kansas-Texas Railroad Com-
pany for trackage rights over the Terminal Railroad
Association of St. Louis, in St. Louis, MO, is denied.
In Finance Docket No. 30,000 (Sub-No. 34), the ap-
plication of Kansas City Southern Railroad Company
and Louisiana & Arkansas Railway Company for
acquisition of lines of, and trackage rights over,
Missouri Pacific Railroad Company in Louisiana,
Texas, Arkansas, Missouri, and Illinois, is denied.
In Finance Docket No. 30,000 (Sub-No. 35), the ap-
plication of Chicago and North Western Transporta-
tion Company for trackage rights over the Union
Pacific Railroad Company and the Missouri Pacific
Railroad Company, is dismissed.
In Finance Docket No. 30,000 (Sub-No. 36), the ap-
plication of Burlington Northern Railroad Company
for trackage rights over the Missouri Pacific Rail-
road Company between Claremore and Oologah, OK,
is denied.
In Finance Docket No. 30,000 (Sub-No. 37), the ap-
plication of Burlington Northern Railroad Company,
for trackage rights over the Missouri Pacific Rail-
road Company between Falls City, NE, and Kansas
City, KS, is denied.
In Finance Docket No. 30,000 (Sub-No. 38), the ap-
plication of Burlington Northern Railroad Company
for trackage rights over the Missouri Pacific Rail-
road Company between Thebes and West Vienna, IL,
is dismissed.
52a
[466]
39.
40.
41.
42.
43.
In Finance Docket No. 30,000 (Sub-No. 39), the
application of Burlington Northern Railroad Com-
pany, for trackage rights over the Missouri Pacific
Railroad Company between Claremore and Fort Gib-
son, OK, is denied.
In Finance Docket No. 30,000 (Sub-No. 40), the ap-
plication of Burlington Northern Railroad Company,
for trackage rights over the Missouri Pacific Rail-
road Company between Hoxie and White Bluff, AR,
is denied.
In Finance Docket No. 30,000 (Sub-No. 41), the ap-
plication of Burlington Northern Railroad Company,
for trackage rights over the Missouri Pacific Rail-
road Company between Hoxie and Newark, AR, is
denied.
In Finance Docket No. 30,000 (Sub-No. 42), the ap-
plication of Burlington Northern Railroad Company,
for trackage rights over the Union Pacific Railroad
Company between Hastings, NE, and Ogden, UT, is
dismissed.
In Finance Docket No. 30,000 (Sub-No. 43), the
application of Chicago and North Western Transpor-
tation Company and Missouri Pacific Railroad Com-
pany to conduct pooling operations between Omaha,
NE/Council Bluffs, IA, and Kansas City, MO, is
approved.
William J. McDonald, C. Barry Schaefer, William P.
Higgins, Paul A. Conley, Jr., Charles A. Miller, S. Wil-
liam Livingston, Jr., Stuart C. Stock, Eugene D. Gulland,
Joanne B. Grossman, J. Michael Hemmer, Gregg H. Levy,
Arvid E. Roach II, Forrest N. Krutter, Mark Kalafut,
and Steven J. Rosenbaum, for Union Pacific Corporation,
Pacific Rail System, Inc., and Union Pacific Railroad
Company.
58a
Mark M. Hennelly, M. Lauck Walton, John K. Hen-
dricks, Gary S. Jacobson, Joseph J. Gazzoli, and Gabrielle
V. Albans, for Missouri Pacific Corporation and Missouri
Pacific Railroad Company.
Walter G. Treanor and Eugene J. Toler, for The West-
ern Pacific Railroad Company.
Paul L. Millis, John C. Chernauskas, and Ronald K.
Silver, for United States Department of Agriculture.
Gordon P. MacDougall, for American Train Dispatch-
ers Association R. K. Knowlton, Milton E. Nelson, Jr.,
Michael W, Blazsak, Dennis W. Wilson, Ellen Lubarsky,
and Robert R. Cowell, for The Atchison, Topeka and
Santa Fe Railway Company.
Richard H. Kraushar, for Brotherhood of Locomotive
Engineers Richard Hirn, for Brotherhood of Railway
Carmen of the United States and Canada, International
Brotherhood of Electrical Workers, International Broth-
erhood of Firemen and Oilers, and Sheetmetal Workers
International Association.
Jon C. Hansen, for The Board of Trade of Kansas
City, Missouri, Inc.
Frank S. Farrell, Donald E. Engle, Nicholas P. Moros,
Charles H. White, Jr., Douglas J. Babb, James R. Walker,
Donal L. Turkal, and Megan K. Ricke for Burlington
Northern Railroad Company.
[467] Vincent V. MacKenzie and O. J. Solander, for
People of the State of California, State Department of
Transportation, and the Public Utilities Commission of
the State of California.
Louis T. Duerinck, Stuart F. Gassner, Fritz R. Kahn,
William C. Evans, Robert R. Brinker, Lisa Vogel, and
L. John Osborn, for Chicago and North Western Trans-
portation Company.
54a
Raymond K. Merrill, William L. Phillips, and William
C. Sippel, for Richard B. Ogilvie, Trustee of the Prop-
erty of Chicago, Milwaukee, St. Paul and Pacific Rail-
road Company, Debtor.
Barbara W. Mather, Richard M. Rindler, Charles N.
Marshall, and Charles E. Mechem, for Consolidated Rail
Corporation.
Samuel R. Freeman, Kendall T. Sanford, John H. Cald-
well, John G. DeGooyer, and Denise M. O’Brien, for The
Denver and Rio Grande Western Railroad Company.
Howard D. Koontz, for Illinois Central Gulf Railroad.
James R. Weiss, Richard A. Feinstein, Harriet R.
Brumberg, and Miles B. Rittmaster, for The United
States Department of Justice.
Steve Botts, for Energy and Environmental Branch,
Interstate Commerce Commission.
Dan Watkins, David Tittsworth, and Tom Green, for
the State of Kansas and Kansas Department of Trans-
portation.
Joseph Auerbach, Morris Raker, Harvey E. Bines, Wil-
liam P. Stimson, Paul L. Criswell, Katherine J. Ross,
Frank J. Bailey, Phillip S. Brown, Robert K. Dreiling,
David M. Schwartz, Robert L. Calhoun, Alexander A.
Notopolous, Jr., and Paulette S. Kessler, for The Kansas
City Southern Railway Company and Louisiana & Arkan-
sas Railway Company.
William A. Thie, Eldon S. Olson, Harry G. Silleck, Jr.,
Michael E.. Roper, Richard H. Streeter, and John L. Al-
tieri, Jr., for Missouri-Kansas-Texas Railroad Company.
Edward J. Schack, James A. Clark, Martin L. Schwim-
mer, and Karen A. Nappo, for Office of Special Counsel,
Interstate Commerce Commission.
oda
Herbert A. Waterman, W. Harney Wilson, Douglas E.
Stephenson, Michael A. Smith, Julian O. VonKalinowski,
Robert E. Cooper, Peter Sullivan, Richard L. Dashefsky,
and Mitchell C. Tilner, for Southern Pacific Transporta-
tion Company and St. Louis Southwestern Railway Com-
pany Hugh L. McCulley, for The Texas-Mexican Rail-
way Company.
John M. Fowler, Diane R. Liff, Mary Bennett Reed,
and Cleveland Thornton, for United States Department
of Transportation.
John O’B. Clarke, Jr., Clinton J. Miller, III, Charles A.
Spitulnik, Joseph Guerrieri, and John J. Sullivan, for
Brotherhood of Maintenance of Way Employees, Brother-
hood of Railroad Signalmen, Brotherhood of Railway
and Airline Clerks, International Association of Machin-
ists and [468] Aerospace Workers, and United Transpor-
tation Union (Various Labor Organizations).
Jerome M. Alper, for Water Transport Association
Daniel A. Bruno, pro se
William R. Wesson, Anne G. Wesson, and John Charles
Vaiani, pro se Edward K. Wheeler, pro se
DECISION
BY THE COMMISSION
SYLLABUS
The primary applications seek authority for Union
Pacific Corporation (UPC), and certain subsidiaries, to
acquire and exercise control over Missouri Pacific Corpo-
ration (MPC) and its carrier subsidiaries, and over
Western Pacific Railroad Company (WPRR) and its car-
rier subsidiaries. Under the proposed transactions all of
the involved existing railroads and holding companies will
retain their separate corporate identities, but will be un-
56a
der the control of UPC and a new railroad holding com-
pany, Pacific Rail System, Inc. (PRSI).
Responsive applications seeking trackage rights were
filed by protestants Southern Pacific Transportation Com-
pany, jointly with St. Louis Southwestern Railway Com-
pany (collectively SP); Denver & Rio Grande Western
Railroad Company (DRGW); Missouri-Kansas-Texas
Railroad Company (MKT); Kansas City Southern Rail-
way Company, jointly with Louisiana & Arkansas Rail-
way Co. (collectively KCS) ; Chicago and North Western
Transportation Company (CNW) ; and Burlington North-
ern Railroad Company (BN). CNW has settled with
applicants and withdrew its responsive applications. Ap-
plicants and CNW have filed an application seeking ap-
proval of a pooling agreement entered into pursuant to
their settlement, as well as other terms of the settlement.
Atchison, Topeka, and Santa Fe Railway Company
‘ATSF) opposes the transactions, but does not seek im-
position of any conditions. The Department of Justice,
the Department of Transportation, other State and Fed-
eral agencies, labor organizations, and other railroads
participated in the proceedings.
In considering a consolidation application, we are re-
quired to weigh the public benefits of the proposed trans-
action against any harmful impacts. We are approving
the primary applications, subject to conditions, because
we conclude that the proposed transactions will produce
public benefits. In addition, we expect that the proposed
transactions will produce significant financial benefits for
the consolidating carriers. These [469] private benefits,
however, were not considered in our required analysis of
public benefits.
The public benefits of the proposed transactions gen-
erally consist of reduced transportation costs and im-
proved service. These will be achieved through staff and
facility consolidations at. common points (particularly at
57a
Kansas City and St. Joseph, MO); more efficient use of
equipment resulting in fuel and maintenance savings;
consolidation of the carriers’ marketing departments;
and more efficient service through traffic rerouting within
the consolidated system, added run-through trains, and
improved blocking. A significant though less tangible
benefit also will be realized by providing single system
service to shippers served by the three consolidating car-
riers.
The transactions will result in adverse impacts on com-
petition in some markets, especially for central corridor
transcontinental traffic and for grain shipments between
the Midwest and the Gulf Coast via Kansas City. Un-
conditioned approval might also threaten the ability of
SP and MKT to provide essential rail service. These
effects have been reduced by. our decision to grant certain
applications for trackage rights over some portions of
the consolidated system.
We are addressing the anticompetitive impact of the
proposed transactions in the transcontinental market by
granting the application of the DRGW for trackage rights
between Pueblo, CO and Kansas City, and the applica-
tion of SP for trackage rights between Kansas City and
St. Louis. Taken together, these trackage rights will en-
courage development of a new SP-DRGW-SP route be-
tween the West Coast, Kansas City and the St. Louis
gateway that should provide a competitive alternative in
the central corridor for transcontinental shippers. The
southern routing available to SP over the Tucumcari line
will aiso benefit. We also approve a rate condition volun-
turily agreed upon by the UP and CNW that will retain
competitive transcontinental routes via the CNW where
such routes are cost efficient.
We address the expected loss of competition for grain
traffic moving from Omaha and other grain gathering
centers in the Midwest to the Gulf Coast via the Kansas
58a
City gateway by approving the MKT application for
trackage rights between Kansas City and Omaha and
Council Bluffs, IA, Lincoln, NE, and Topeka, KS. These
trackage rights will permit the MKT to serve terminal
elevators directly and thereby to retain the competitive
service heretofore provided by the UP-MKT joint line
route. (The UP is expected to favor MP over MKT for
traffic interchanged at Kansas City and destined for the
Gulf Coast.)
The possible threat to essential services offered by SP
and MKT will be eliminated as a byproduct of the track-
age rights granted to those carriers [470] to offset the
anticompetitive effects of the consolidation. An incidental
effect of those trackage rights will be to neutralize sub-
stantially the financial impact of the proposed transac-
tions on SP and MKT. The grant of trackage rights over
the MP between Kansas City and St. Louis to the SP
will permit the SP to avoid a significant capital outlay
to rehabilitate its recently acquired route between Kansas
City and St. Louis over the Rock Island line. This will
produce a stream of savings that should offset the loss of
net income to the SP from present SP traffic that will be
diverted to the consolidated system. The trackage rights
granted to the MKT will permit it to remain competitive
in the Midwest grain market and to offset the net income
it will lose through the diversion of UP originated traffic
to the MP at Kansas City.
The proposed transactions present no other significant
competitive problems in any transportation markets, in-
cluding coal transportation markets, and will not harm
essential services. Therefore, no other responsive appli-
cations by opposing parties will be granted.
Upon reaching our conclusion that the proposed trans-
action would be in the public interest, we confront a
number of additional issues, as follows.
PAROLE A MOE CAE Bae OT Io ate sk He
59a
Pacific Railroad Acts
We conclude that the Pacific Railroad Acts of 1862
and 1864 do not prevent our approval of the UP-WP
consolidation. Regardless of whether that consolidation
would violate those Acts, our plenary jurisdiction over
railroad consolidations allows approval of the trans-
actions notwithstanding any requirements of law other
than those found in the Interstate Commerce Act.
CNW Settlement
CNW and MP sought approval of a pooling agreement
between Omaha and Kansas City which CNW entered
into in lieu of the responsive trackage rights application
it had filed. Applicants and CNW also sought approval
of the traffic and rate conditions in their settlement so
that those agreements will have antitrust immunity.
The pooling agreement will promote more efficient and
economical service and will not unduly restrain competi-
tion. Therefore, it will be approved. We also approve
the rate provision of the settlement agreement. That
provision is consistent with the public interest and will
be implemented more effectively if it is specifically ap-
proved and immunized from the antitrust laws. We take
no action on the other terms of the settlement.
[471] Bieber Conditiens
Consummation of the proposed consolidations will
cause the “Bieber” conditions imposed in Great Northern
Pac.-Merger-Great Northern, 331 I.C.C. 228 (1967)
(Northern Lines) to be no longer in the public interest.
Those conditions, therefore, will be removed.
Securities Transactions
The terms of the proposed transactions are fair and
reasonable. The financial terms are consistent with the
public interest and adequately protect the interests of
shareholders. The proposed security issuances satisfy the
statutory criteria and are approved.
60a
Labor Issues
Our public interest analysis includes consideration of
the effects of the proposed transactions on the interests
of railroad employees. The primary transactions will be
subject to our usual labor protection cenditions for rail-
road consolidations. The approved responsive applica-
tions and the pooling agreement will be subject to our
usual labor protection conditions imposed in trackage
rights application proceedings. Subject to these condi-
tions, approval of the primary applications, the pooling
agreement, and the imposed trackage rights will be con-
sistent with the public interest insofar as they affect
railroad labor. No other labor protection conditions will
be imposed.
Energy and Environment
The primary transactions and the approved responsive
applications present no energy consumption or significant
environmental impact problems. We are imposing two
minor environmental conditions on the UP-MP consolida-
tion.
No need has been shown for any other conditions pro-
posed by any party. Therefore all requests for relief,
other than those set forth above, are denied.
INTRODUCTION
On September 15, 1980, Union Pacific Corporation,
Pacific Rail System, Inc., and Union Pacific Railroad
Company, and Missouri Pacific Corporation and Missouri
Pacific Railroad Company jointly filed an application
under 49 U.S.C. 11343 and 11344 seeking authority for
UPC to control MPC.2. On the same date, UP and the
Western Pacific Railroad Company jointly filed an ap-
plication under 49 U.S.C. 11343 and 11344 seeking au-
2 The list of abbreviations used throughout this decision may be
found in Appendix A.
FA meee
6la
thority for UP to control WP. The applications were
consolidated for hearing. The two proposals are divisible.
[472] By related applications, applicants sought au-
thority under 49 U.S.C. 11301 to issue securities, under
49 U.S.C. 11343 to enter into trackage rights arrange-
ments, under 49 U.S.C. 11342 to pool certain transporta-
tion services, and under 49 U.S.C. 11343 and 11344 for
UP to acquire control of motor carrier subsidiaries of
MPRR and WPRR.
We accepted these applications for filing and published
notice of filing in the Federal Register on October 15,
1980, 45 Fed. Reg. 68484 (1980).
Many shippers and several States filed comments in
support of the proposed consolidations, while a number
of railroads, labor organizations, and States are opposed.
Numerous conditions, such as trackage rights, labor pro-
tection, route, rate and traffic protective, were sought.
Twenty-nine responsive applications were filed by rail
protestants and accepted February 12, 1981. Severai
were withdrawn and 25 are now before us for considera-
tion.
Two rail carriers which originally entered the case as
protestants withdrew their opposition after agreeing on
certain conditions with applicants.
Public hearings on the applications were conducted by
Administrative Law Judges Paul S. Cross and Angelo G.
Nicchitta from March 3, 1981 to January 6, 1982. The
evidentiary record was closed approximately 6 months
before the statutory deadline with filing of reply briefs
on April 23, 1982.
NATURE AND SCOPE OF THE PRIMARY APPLICATIONS
As proposed by applicants, a wholly-owned subsidiary
of Union Pacific Corporation, UP Subsidiary Corpora-
tion, would be merged into Missouri Pacific Corporation.
62a
All issued and outstanding shares of MPC stock would
be transferred by UPC to its wholly-owned subsidiary
PRSI. UPC would contribute all issued and outstanding
shares of UPRR stock to PRSI. UPC through PRSI
would indirectly own and control MPC, UPRR, MPRR,
and their rail carrier subsidiaries.
Further, UPC and its wholly-owned subsidiaries PRSI,
Pacific Subsidiary, Inc. (PACS) and UPRR would con-
trol ‘‘\e Western Pacific Railroad Company. PACS and
UPR currently own 87.25 percent of the issued and
outstanding shares of WP Class A common stock, which
is held by a trustee in an independent voting trust.
After Commission and stockholder approval, Union Sub-
sidiary, Inc., a wholly-owned subsidiary of PACS will be
merged into WP, and PACS will own all the issued and
outstanding shares of WP. PACS will contribute the WP
shares to UPRR. Because UPC will contribute all issued
and outstanding shares of UPRR stock to PRSI, UPC
will indirectly own and control WP through UPRR and
PRSI. (The stock transactions are described more fully
below in the section of the decision entitled Terms of
Transactions and Securities Issuances. )
[473] UPC, PRSI and UPRR will also acquire control
of Missouri Pacific Truck Lines, Inc., a wholly-owned
motor carrier subsidiary of MPRR. UPC, PACS, PRSI
and UPRR will acquire control of WPX Freight System,
Inc., a wholly-owned motor carrier subsidiary of WPRR.
UPC and its carrier subsidiaries have no officers or
directors in common with MPC, WPRR, or their carrier
subsidiaries.
UPC is a noncarrier holding company with subsidi-
aries engaged in railroad operations,* real estate and
8 Rail carrier subsidiaries of UPC include: UPRR and its sub-
sidiaries Des Chutes Railroad Company, Los Angeles and Salt Lake
Railroad Company, Mount Hood Railway Company, Oregon-
Washington Railroad and Navigation Company, St. Joseph and
63a
land development, energy and natural resource develop-
ment.* Its gross revenues for 1979 were $4,028,700,000,
and net income was $382,500,000.
UPRR operates 9,315 miles of railroad in the follow-
ing States: Washington, California, Idaho, Montana,
Oregon, Nevada, Utah, Wyoming, Colorado, Nebraska,
Kansas, Iowa, and Missouri. Its principal lines extend
from Seattle, WA, Portland, OR and Los Angeles, CA,
through Salt Lake City and Ogden, UT, Cheyenne, WY
and Denver, CO, to Omaha, NE-Council Bluffs, IA and
Kansas City, MO.
Based on revenues, the principal commodities handled
by UPRR in 1979 were farm products, chemicals and
allied products, food and kindred products, coal, and
lumber and wood products (excluding furniture).
MPC is a non-carrier holding company with subsidi-
aries engaged in railroad operations,® natural gas trans-
mission and exploration, and cement industries.* Its
gress revenues for 1979 were $1,981,536,000, and net
income was $180,157,000.
MPRR operates 11,500 miles of railroad in the follow-
ing States: Colorado, Texas, Kansas, Nebraska, New
Mexico, Oklahoma, Missouri, Illinois, Arkansas, Tennes-
see, Louisiana and Mississippi. Its principal north-south
Grand Island Railway Company, Yakima Valley Transportation
Company, Oregon Short Line Railroad Company, and Spokane In-
vernational Railroad Company.
*UPC’s ma‘or non-carrier subsidiaries include Champlin Petro-
leum Company. V/pland Industries Corperation, and Rocky Moun-
tain Energy Company.
5 Rail carrier subsidiaries of MPC include: MPRR and its sub-
sidiaries Chicago Heights Terminal Transfer Railroad Company;
Doniphan, Kensett & Searcy Railway; and the Weatherford Mineral
Wells and North Western Railway Company.
®MPC’s major non-carrier activities are controlled by its sub-
sidiary Mississippi River Transmission Company (MRTC).
64a
line extends from Chicago, IL to the Gulf Coast ports of
New Orleans, LA and Galveston, Corpus Christi and
Brownsville, TX. Its northern east-west line extends
from Chicago, IL through St. Louis, MO, to Kansas City,
MO and Omaha, NE, and to Pueblo, CO. Its southern
east-west line serves Shreveport, LA, and Dallas/Ft.
Worth, Sweetwater, and El Paso, TX.
[474] Based on revenues, the principal commodities
handled by MPRR in 1979 were chemicals and allied
products, farm products, transportation equipment, food
and kindred products, and coal.
WPRR operates 1,482 miles of railroad in California,
Nevada and Utah. Its pro forma operating revenues in
1979 were $167,000,000; its net income was $4,700,000.
Its principal line extends between Bieber, Stockton, and
San Francisco, CA in the west, and Sait Lake City, UT
in the east. Rail carrier subsidiaries of WPRR include
Sacramento and Northern Railway and Tidewater South-
ern Railway Company.
Based on revenues, the principal commodities handled
by WPRR in 1979 were food or kindred products, pulp,
paper or allied products, primary metal products, trans-
portation equipment, and miscellaneous mixed shipments
(except forwarder).
The principal points of interchange between UPRR
and MPRR are Omaha, NE-Council Bluffs, IA, Topeka,
KS, and Kansas City, MO. The principal point of inter-
change between UPRR and WPRR is Salt Lake City,
UT.
The consolidated companies will provide single system
rail service connecting the Pacific Northwest, northern
and southern California through the central corridor
with the Midwest (including all major mid-continent
east-west gateways), Mississippi River ports, Gulf Coast
ports, and Texas-Mexico border crossing points. Appli-
cants have filed several related applications to allow
wy Ne ern wit apa AE ARRON Rain canines
65a
operational! changes pursuant to their single system plan.
These involve trackage rights at Kansas City, St. Joseph,
MO, and Omaha-Council Bluffs, and pooling between
Omaha-Council Bluffs, Beloit and Salina, KS, and Lin-
coln, NE and Kansas City. (These applications are de-
scribed more fully in our discussion of the operating
plan. )
POSITIONS OF THE PARTIES
There has been a great deal of participation in this
proceeding, by public parties such as the United States
Departments of Justice and Transportation, State de-
partments of transportation and other public entities,
labor organizations, stock and bond holders, and rail-
roads which believe they and the shippers they serve will
be substantially affected by the proposed consolidations.
Shippers themselves have also participated, supporting
the position of a particular railroad.
Most of the participation was in the form of opposi-
tion to the consolidations. Initially 10 Class I railroads
actively participated in opposi- [475] tion; 2 later with-
drew their opposition after negotiating conditions with
applicants.”
United S.ates Department of Justice
DOJ actively participated in the proceedings in this
case. DOJ argues that the consolidation will result in
modest but significant public benefits largely as a result
of the unquantified attributes of single system service.
DOJ also contends that consolidation will result in a
lessening of competition in certain markets in the cen-
tral corridor, but that the trackage rights sought by
DRGW between Pueblo, CO and Kansas City over MP
will reasonably address the competitive problem without
7The agreement between Conrail and applicants is set out in
Appendix D-1. The agreement between Chicago and North Western
Transportation Company and applicants, set out in Appendix C, is
discussed more fully in a later section.
66a
impeding the attainment of the anticipated benefits.
DOJ does not oppose Commission approval of the con-
solidation provided that DRGW gains independent. access
to Kansas City.
United States Department of Transportation
DOT, which actively participated in these proceedings,
Supports approval of the consolidations because of ex-
pected transit time, equipment, service and reliability
improvements, and cost reductions. DOT anticipates re-
ductions in competition in certain markets or corridors
as a result of consolidation, and recommends condition-
ing approval on the granting of various trackage rights
to avoid these competitive harms.
Office of Special Counsel
OSC, which actively participated in this proceeding,
recommends that the Commission deny the proposed con-
solidations. OSC contends that the consolidations will
produce no legitimate public benefits, would result in a
net public cost, and would result in major anticompeti-
tive consequences in transcontinental movements through
the central corridor, in the north-south Midwest corridor,
and in the transportation of coal.
The Atchison, Topeka and
Sants (sic) Fe Railway Company
ATSF operates over 12,000 miles of track in the States
of Arizona, California, Colorado, Illinois, Iowa, Kansas,
Louisiana, Missouri, Nebraska, New Mexico, Oklahoma
and Texas. ATSF is a major transcontinental and Gulf
carrier with principal lines extending between Chicago
on the one hand and Kansas City, Denver, Los Angeles,
the California [476] Bay area, Houston and Galveston.
In 1979, 39 percent of ATSF’s traffic was local and 61
percent was interlined with connecting carriers. Prin-
cipal interchange points with applicants include Kansas
City, Stockton, Sweetwater and Fort Worth. ATSF
67a
estimates that the UP system will divert from its $64.0
million in gross revenues per year. This figure would be
in addition to its estimated losses of $28.3 miliion from
the BN-Frisco merger and $82.0 million from SSW’s
purchase of the Tucumcari line.
ATSF seeks no protective conditions, but states that
the proposed consolidations should be denied because
(1) they would have serious anticompetitive conse-
quencies, (2) the claimed public benefits could be at-
tained by means short of control, and (3) the affects of
the transaction would jeopardize ATSF’s ability to pro-
vide effective competition.
Burlington Northern Railroad Company
BN opétates over 27,000 miles of track in the States
of Aiabama, Arkansas, California, Colorado, Florida,
Idaho, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mis-
sissippi, Missouri, Montana, Nebraska, New Mexico,
North Dakota, Oklahoma, Oregon, South Dakota, Tennes-
see, Texas, Washington, Wisconsin and Wyoming. BN is
a major transcontinental carrier operating in the north-
ern corridor and a major Gulf carrier operating through
the recently acquired St. Louis-San Francisco Railway
Company and its Ft. Worth and Denver Railway Com-
pany subsidiary. BN is also a major coal carrier, orig-
inating 80.2 million tons of coal in 1979, 41 percent of
its total tonnage carried. BN estimates that the UP
system would divert from it $193.9 million in gross coal
revenues per year by 1985, if CNW begins operations
serving the Powder River Basin in Wyoming.
BN contends that the proposed consolidation together
with the cumulative impact of recent Commission deci-
sions would deny the shipping public competitive rate
and service alternatives in the transportation of coal,
soda ash, sodium sulfate and other commodities, and may
result in unreasonably large market concentrations and
in discrimination against connecting carriers. BN does
not oppose each aspect of the proposed consolidations,
68a
but seeks certain conditions designed to reduce the an-
ticipated harms while preserving the anticipated benefits.
BN seeks modification of traffic protective conditions
previously imposed against it, to enable it to compete
effectively with the consolidated system. BN seeks the
imposition of rate and service conditions on MP. BN
also seeks numerous trackage rights conditions, to en-
able it to serve directly utilities now served solely by
MP, and seeks a condition to require that system equip-
ment be considered a common fleet and deezned home
when delivered to any railroad in the system.
[477] Chicago and
North Western Transportation Company
CNW originally opposed the consolidation due to al-
leged harm to its ability to improve its service to the
public and to provide essential service as a result. CNW
is a substantial interchange partner with UP, particu-
larly for transcontinental traffic. In 1979 CNW inter-
changed over 360,000 carloads with UP at Fremont,
Omaha, and Council Bluffs.
CNW sought several trackage rights as conditions to
the consolidation, as well as various other protective
conditions.
On July 8, 1981, CNW withdrew its opposition and
filed notice of a settlement agreement with applicants.
CNW and UP agreed to maintain their Fremont/Omaha
interchange through a rate provision, and filed an appli-
cation to permit pooling of transportation services be-
tween Omaha/Council Bluffs and Kansas City for cer-
tain traffic.
Chicago, Milwaukee, St. Paul and
Pacific Railroad Company
The Milwaukee Road, formerly a midwestern and
transcontinental carrier operating in the northern cor-
han aha 8
69a
ridor, filed for reorganization on December 19, 1977.
The Milwaukee Road operates over a reduced system
extending principally from Chicago to Louisville, Kansas
City, Milwaukee, Minneapolis, St. Paul and Duluth.
Milwaukee estimates it will lose $5.4 million to the new
UP system.
Milwaukee opposes the proposed consolidations and
seeks a variety of conditions if the applications are
approved.
Milwaukee requests that DRGW be granted trackage
rights over MP between Pueblo, CO and Kansas City.
Milwaukee also seeks to maintain and upgrade its run-
through service with applicants in Kansas City, and
requests the imposition of certain traffic protective
conditions.
Consolidated Rail Corporation
Initially Conrail sought various conditions to remedy
what it considered adverse consequences of the consolida-
tion affecting essential services, competition, and effi-
ciency. At an early stage of the proceeding, Conrail
withdrew its opposition due to a rate equalization agree-
ment arrived at with applicants.
Denver & Rio Grande Western Railroad Company
DRGW operates over 1,800 miles of track in the States
of Colorado and Utah. DRGW is a major transcon-
tinental carrier in the central corridor connecting with
SP and WP at its Utah gateway and BN, UP, ATSF
[478] and MP at its Colorado gateways. DRGW is also
a major originator of coal, originating 16.8 million tons
in 1979, nearly half of its total tonnage carried. DRGW
estimates the UP system will divert from it $35.3 mil-
lion in gross revenue per year.
DRGW opposes the proposed consolidations as anti-
competitive to shippers for transcontinental rail service
through the central corridor. Therefore, it seeks track-
70a
age rights, independent ratemaking authority, and traf-
fic protective conditions to ameliorate the harm foreseen.
DRGW also requests that system equipment be con-
sidered a common fleet and deemed home when delivered
to any of the system railroads.
Illinois Central Gulf Railroad Company
ICG operates over 8,000 miles of track in the States of
Alabama, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Minnesota, Mississippi, Missouri, Nebraska, South Da-
kota, Tennessee and Wisconsin. ICG is a major north-
south carrier extending from the Great Lakes to the Gulf
of Mexico. Principal east-west lines extend from Chicago
to St. Louis, Kansas City, Omaha/Council Bluffs, Sioux
City and Sioux Falls. In 1979, approximately one-third
of ICG’s traffic was local with the remaining two-thirds
interchanged with connecting carriers. ICG estimates it
will lose $11.3 million to the new UP system.
In order to preserve competition and essential services,
ICG seeks imposition of a condition requiring mainte-
nance and competitive rates and routes by applicants in
connection with ICG. ICG did not file briefs in support
of its position.
Kansas City Southern Railway Company
KCS, with its wholly-owned subsidiary Louisiana and
Arkansas Railway Company (collectively KCS), operate
over 1,600 miles of railroad in Arkansas, Kansas, Lou-
isiana, Missouri, Oklahoma and Texas. KCS is prin-
cipally a north-south Gulf carrier with major lines ex-
tending from Kansas City to Dallas, Port Arthur, Lake
Charles and New Orleans. Principal interchange points
with applicants include Kansas City with UP and Alex-
andria, Beaumont, Hope, Jefferson, Kansas City, Shreve-
port and Texarkana with MP. KCS estimates that the
UP system will divert from it $13.6 — in gross
revenue per year.
T1la
KCS opposes UP’s consolidation with MP unless tracn-
age rights are imposed to ameliorate anticompetitive
impacts and to enhance competition in markets served
by MP which do not have adequately competitive rail
service. KCS also expects to suffer as a result of harm
to some of its connecting carriers due to the consolida-
tion.
[479] Missouri-Kansas-Texas Railroad Company
MKT operates over 2,100 miles of track in the States
of Kansas, Missouri, Oklahoma and Texas. MKT is prin-
cipally a north-south Gulf carrier with major lines ex-
tending from St. Louis and Kansas City to San Antonio,
Houston and Galveston. In 1979, 15 percent of MKT’s
traffic was local and 85 percent was interchanged with
connecting carriers. MKT interchanges approximately
one-fifth of its traffic with UP (at Kansas City) and
MP (principally at Dallas-Ft. Worth). MKT estimates
that it will lose $23.5 million in gross revenue per year
to the new UP system.
The expected loss of revenue, MKT argues, would
threaten its ability to provide adequate service, make
necessary capital investments, and eliminate deferred
maintenance. The revenue loss would thereby threaten
the service MKT provides to cities and industries de-
pendent on it for rail service. MKT states that fore-
closure of its mortgages and even bankruptcy could be
possible consequences of this consolidation.
MKT considers the proposal to be anticompetitive be-
cause it would eliminate competition between UP and
MP, would increase the number of shippers captive to
UP and reduce their service alternatives, would create
a huge concentration of economic power in UP, and
would give it market power to divert traffic from other
carriers to an extent that would impair their ability to
provide competitive service. Shippers located on the
72a
lines of non-included carriers wouid, therefore, be unable
to compete with shippers located on the consolidated sys-
tem’s lines. Also, non-included carriers and the com-
munities they serve would be unable to compete for the
location of new industries.
MKT requests a number of conditions, if consolidation
is approved, including indemnification for financial loss
as a result of traffic diversion, and/or trackage rights in
six areas. MKT also requests that system equipment be
considered a common fleet and deemed home when de-
livered to any of the system railroads.
Southern Pacific Transportation Company
and
St. Louis Southwestern Railway Company
SPT and SSW (collectively SP) operate over 12,000
miles of track in Arizona, Arkansas, California, Illinois,
Kansas, Louisiana, Missouri, Nevada, New Mexico, Okla-
homa, Oregon, Tennessee, Texas, and Utah. SP prin-
cipally serves the Pacific Coast region, transcontinental
markets, and Texas/Gulf markets. Major freight lines
extend from Portland, OR to Los Angeles, from the
San Francisco Bay area to Ogden, UT, from Los Angeles
to St. Louis via Tucumcari and via Corsicana, and from
Los Angeles to New Orleans. SP has not yet upgraded
the Kansas City-St. Louis portion of its recently pur-
chased Tucumcari line to operating condition. [480] In
1979, 32 percent of SPT’s and only 4 percent of SSW’s
traffic was local; the remainder was interchanged with
connecting carriers. Among SPT’s principal connecting
carriers is UP which interchanged 230,655 carloads with
SP at Ogden, 44,756 carloads at Portland/E. Portland
and 30,556 carloads at Los Angeles. SSW’s principal
connection is SPT. SP estimates it will lose to the new
UP system $105.2 million per year.
73a
SP opposes the consolidation as anticompetitive and
harmful to essential services. SP argues that UP is a
dominant force in western rail markets and that con-
solidation, especially considering the newly available
ratemaking freedom of the Staggers Rail Act of 1980,
Pub. L. No. 96-448, 94 Stat. 1895 (Staggers Act), would
enable UP to eliminate competition and control prices in
the central corridor and on north-south traffic.
SP argues that there are significant parallel aspects of
the consolidation which would reduce shipper alternatives
in several markets, that competition between Pacific
Coast and Gulf Coast ports will be diminished, and that
essential services provided by SP will be reduced. It
argues that it will lose its long-haul UP connection be-
tween California points to and from Ogden if UP con-
trols WP, and be relegated to a short California junc-
tion haul or a switch. Further, it fears that if the traf-
fic is converted to TOFC (Trailer on Flat Car) it may
lose all its revenue from traffic interlined with UP at
the Utah gateways. The necessary reduction in capital
expenditures as the result of loss of its long haul will
have a substantial detrimental effect on its ability to
originate and terminate traffic in its exclusively served
California and Oregon territory. SP also contends that
the UP-WP consolidation violates the Pacific Railroad
Acts.®
SP seeks several trackage rights as conditions if con-
solidation is approved, as well as several traffic protec-
tion conditions.
8 SP has made allegations that UP is already exercising unauthor-
ized control of WP and has submitted some evidence purported to
support these allegations. This evidence shows that UP has leased
some equipment to WP at below market rates and is working co-
operatively with WP. This evidence does not in any way show UP
to be exercising control over WP and SP has not renewed these alle-
gations on brief. The allegations and evidence do not raise a color-
able issue of unlawful control and will not be considered further.
74a
Other Railroads
The Soo Line Railroad Company requested the imposi-
tion of routing and gateway protective conditions, but
did not otherwise participate in the proceeding. Soo Line
presented no evidence warranting imposition of these
conditions. We will give no further consideration to the
position of Soo Line.
The City of Prineville Railway operates 29 miles of
railroad between Prineville and Redmond, OR. Owned
and operated by the City of Prineville, the railroad con-
nects with UP and BN at Redmond. Both the city
[481] and the railroad depend upon the lumber industry
for their survival. Recently, the railroad sought re-
organization as an employee owned railroad. It opposes
the consolidation but seeks inclusion in the UP system
if approved because of the threat it sees to its existence
as a result of the dominance in rates, equipment and
transit times by large rail systems such as UP and BN.
State Governments
A number of States® participated in this proceeding.
Some filed comments when the applications were filed,
some participated actively in the hearing process, and
some submitted verified statements whose sponsors were
subject to cross-examination. The positions of several
States submitting verified statements are set out here.
The people of the State of California, the State De-
partment of Transportation and the Public Utilities
Commission support the UP-MP-WP consolidations be-
cause of a resulting strengthened and more competitive
® The following states filed comments in support of the consolida-
tions; Iowa, Nebraska, Wyoming, Arkansas, Idaho, Missouri, Kan-
sas, Indiana, Utah and Washington. New Mexico filed comments in
opposition to the consolidations. The following states filed comments
in support of one or more protestant railroad’s proposed condi-
tions: Oklahoma, Oregon, California, Arizona, Colorado, Texas,
Wisconsin, and Kansas.
7ba
WP and the benefits of single system service for cer-
tain California shippers. California supports conditions
which will improve the effectiveness of the DRGW as a
transcontinental carrier and provide alternatives for
shippers of traffic between California and southeastern
points. California supports DRGW’s proposed trackage
rights between Pueblo and Kansas City, and SP’s pro-
posed trackage rights between Kansas City and St.
Louis, as inducements to competition.
The Public Utility Commission of Oregon supports the
UP-MP consolidation because of the anticipated benefits
of single system service to shippers, and the enhanced
financial health of the merged system. Oregon opposes
the UP-WP consolidation, but in the alternative supports
the proposed trackage rights of SP between Kansas City
and St. Louis, and DRGW between Pueblo, CO and
Kansas City. This is because of its concern that com-
petition over the central corridor be maintained, and
that SP continue to serve captive Oregon shippers.
The Washington Utilities and Transportation Com-
mission supports the UP-MP-WP consolidations because
a stronger UP will benefit Washington shippers. WUTC
requests the imposition of conditions to protect the finan-
cial viability of BN and the WP’s Bieber route which
connects Stockton and Bieber, CA, as a necessary com-
petitive link for the movement of traffic between the
Pacific Northwest and points in the Southwest.
Kansas City Board of Trade
[482] The Board opposes consolidation unless stand-
ard DTI condition No. 1 is imposed. (Detroit, T. & I.R.
Co., Control, 275 1.C.C. 455, 492 (1950) ). This condition
requires the maintenance of existing routes, gateways
and channels of trade.
The Board argues that without this condition competi-
tion will be eliminated, because UP and MP would main-
tain their present joint service on grain from most UP
76a
origins in Kansas and Nebraska to Galveston and Hous-
ton but would change tariffs to eliminate the other four
presently available routes in which it participates.
Sierra Curtis Neighborhood Association
SCNA, formed by a group of residents in the Sacra-
mento neighborhood which is bordered by the South Sac-
ramento Western Pacific railroad yard, is concerned
about the environmental impact of present WP opera-
tions on the neighborhood, as well as the impact of fu-
ture UP-WP operations.
Labor
Various labor organizations * filed comments in oppo-
sition to the proposed consolidations; they argue that the
transactions will be harmful to the interests of railway
employees. They advocate the imposition of conditions
more protective than those previously imposed (New
York Dock Ry.-Control-Brooklyn Eastern Dist., 360
I.C.C. 60 (1979), affirmed, New York Dock Ry. v. United
States, 609 F.2d 83 (2d Cir. 1979)). They seek protec-
tion for employees of non-applicant railroads who may
be affected by the consolidations.
Water Transport Association
The WTA opposes the proposed consolidations unless
its requested conditions to enhance rail-water competition
and coordination are imposed.
Brotherhood of Maintenance of Way Employees, Brotherhood
of Railroad Signalmen, Brotherhood of Railway, Airline and Steam-
ship Clerks, Freight Handlers, Express and Station Employees, In-
ternational Association of Machinists and Aerospace Workers,
United Transportation Union, Brotherhood Railway Carmen of the
United States and Canada, International Brotherhood of Electrical
Workers, International Brotherhood of Firemen and Oilers, and
Sheet Meta! Workers’ International Association.
77a
Stockholders
Several stock and bond holders object to the consolida-
tion as it may affect their interests. The issues are
specifically discussed in the section entitled Terms of
Transactions and Securities Isswances.
[483] DISCUSSION AND CONCLUSIONS
Statutory Criterion: The Public Interest
Our review of the proposed consolidation of UPC,
MPC and WP is governed by the basic standard of 49
U.S.C. 11344; we are required to approve the transaction
if we find it to be “consistent with the public interest.”
See Missouri-Kansas-Texas R.R. Co. v. United States, 632
F.2d 392, 395 (5th Cir. 1980), cert. denied 447 U.S. 9793
(1981) (Missouri-Kansas-Texas). Several sources help
define this broad standard.
Section 11344(b) Factors: *' Congress has directed us
to consider the following factors in determining whether
to approve a proposed consolidation as consistent with
the public interest:
(1) the effect of the proposed transaction on the
adequacy of transportation to the public;
(2) the effect on the public interest of including,
or failing to include, other rai! carriers in the area
involved in the proposed transaction;
11 Section 228(e) of the Staggers Act specifies that the Act shall
not apply to applications filed under 49 U.S.C. 11344 which were
pending before this Commission on October 1, 1980. See Chicago &
N.W. Transp. Co.-Construction, 363 1.C.C. 906 (1981) (Connector
Line) aff'd sub nom. Mobil Oil Corporation v. Interstate Commerce
Commission, No. 81-2087 (D.C. Cir. July 22, 1982). ‘Therefore, in
evaluating the primary applications in this proceeding we have
applied section 11344 as it existed prior to amendment by the
Staggers Act.
78a
(3) the total fixed charges that result from the
proposed transaction; and
(4) the interest of carrier employees affected by
the proposed transaction.
49 U.S.C. 11344 (b) (1979).
A fifth factor dealing with competitive affects of the
proposed transaction ’* was added by section 228(a) of
the Staggers Act. The addition of this factor was not
meant to change prior law, but rather represented a
codification of our traditional approach to the evaluation
of rail consolidations. See Norfolk Southern Corp.-
Control-Norfolk & W. Ry. Co., 366 1.C.C. 171, 190 (1982)
(Norfolk Southern). While the Staggers Act itself is
not applicable to this proceeding, the policies set forth
in 49 U.S.C. 11344(b) (5) (1980) as a codification of
prior law will be followed.
Statutory Policies: We aiso are guided in our consid-
eration of this rail consolidation by the national trans-
portation policy of 49 U.S.C. 10101 [484] and the
12 (5) whether the proposed transaction would have an adverse
affect on competition among rail carriers in the affected region.
13 It is the policy of the United States Government to provide for
the impartial regulation of the modes of transportation subject to
this subtitle, and in regulating those modes-
(1) to recognize and preserve the inherent advantage of each
mode of transportation;
(2) to promote safe, adequate, economical, and efficient trans-
portation;
(3) to encourage sound economic conditions in transportation,
including sound economic conditions among carriers;
(4) to encourage the establishment and maintenance of reason-
able rates for transportation without unreasonable discrimina-
tion or unfair or destructive competitive practices;
(5) to cooperate with each State and the officials of each State
on transportation matters; and
(6) to encourage fair wages and working conditions in the
transportation industry.
en
79a
stated policies of recent rail reform legislation such as
the Railroad Revitalization and Regulatory Reform Act
of 1976, Pub. L. No. 94-210 (4R Act). In the 4R Act,
Congress provided a policy guideline by declaring its pur-
pose to encourage “efforts to restructure the [railway
system of the United States] on a more economically
justified basis . . .”45 U.S.C. 801. The legislative his-
tory of the 4R Act specifically states that it is “intended
to encourage mergers, consolidations, and joint use of
facilities that tend to rationalize and improve the Na-
tion’s rail system.” S. Rep. No. 94-499, 94th Cong., 1st
Sess. 20 (1975). See also Missouri-Kansas-Texas, 632
F.2d at 396.
The most recent expression of Congressional policy in
the area of rail consolidations, the rail transportation
policy of section 10la of the Staggers Act, 49 U.S.C.
10101a is not specifically applicable in this proceeding.
Nonetheless, we examine “the full implications of each
proposal to determine the potential short-term and long-
term effects,” CSX Corp.-Control-Chessie and S.C.L., 363
I.C.C. 518, 549 (1980) (CSX). In examining future
effects of the proposed transactions we must be cognizant
of the Congressionally-mandated policies that wili then
be applicable. Connector Line, 363 I.C.C. at 916 n.7, 927.
See also Ziffrin, Inc. v. United States, 318 U.S. 73, 78
reh. den., 318 U.S. 800 (1943); Potomac Electric Power
Co. v. United States, 584 F.2d 1058, 1066-67 (D.C. Cir.
1978).
The primary theme of the 15 elements of the rail
transportation policy is that we “ensure the development
and continuation of a sound rail transportation system
with effective competition among rail carriers and with
other modes,” 49 U.S.C. 10101a(4). Indeed, the rail
transportation policy emphasizes the importance of the
relationship between ensuring adequacy of transporta-
tion and retention of competition. We are “to allow...
80a
competition and the demand for services to establish
reasonable [rail] rates,” § 1010la(1); “to foster sound
economic conditions . . . and to ensure effective competi-
tion and coordination between rail carriers and other
modes,” § 10101a(5); “to minimize the need for Federal
regulatory control over the rail transportation system”
while maintaining “reasonable rates where there is an
absence of effective competition,” § 10101a(2), (6); and
“to avoid undue concentrations of market power,” § 10101
a(13). We must also “encourage fair wages and suitable
working conditions in the railroad industry.” 49 U.S.C.
10101a(12).
[485] The rail transportation policy provides a gloss
on our application of prior law in the consideration of
future effects.
Antitrust Considerations: We are required by a long
line of cases to consider the policies embodied in the anti-
trust laws in our analysis of the public interest.* As
the Supreme Court has observed, the antitrust laws give
“understandable content to the broad statutory concept
of the public interest.” FMC v. Aktiebolaget Svenska
Amerika Linien, 390 U.S. 238, 244 (1968).
In McLean Trucking Co. v. United States, 321 U.S. 67,
87 (1944) (McLean), the Supreme Court noted the
proper weight to be accorded to antitrust policy in car-
rier consolidation proceedings:
In short, the Commission must estimate the scope
and appraise the effects of the curtailment of com-
petition which will result from the proposed consoli- |
dation and consider them aiong with the advantages
of improved service, safer operation, lower costs, etc.,
Our antitrust analysis is particularly important because 49
U.S.C. 113841(a) of the Act exempts transactions approved by the
Commission from the antitrust laws. United States v. I.C.C., 396
U.S. 491, 504 (1970).
8la
to determine whether the consolidation will assist in
effectuating the overall transportation policy * * re
“The wisdom and experience of that Commission,”
not of the courts, must determine whether the pro-
posed consolidation is “consistent with the public in-
terest.”
Accord, Bowman Transportation v. Arkansas-Best
Freight, 419 U.S. 281, 298 (1975); Port of Portland v.
United States, 408 U.S. 811, 841 (1972) ; Northern Lines
Merger Case, 396 U.S. 509, 514 (1970); and Denver &
R.G.W.R. Co. v. United States, 387 U.S. 485 (1967)
(Denver & R.G.W.R.).
Notwithstanding our consideration of competition in
analyzing a proposed consolidation, we do not sit as an
antitrust court in determining compliance with the Clay-
ton, Sherman or related antitrust acts. Northern Lines
Merger Case, supra, at 514. As the Supreme Court noted
in McLean, our statutory obligation under the public in-
terest standard is broader. We must balance any anti-
competitive effects of a consolidation against its antici-
pated transportation benefits. We are empowered to dis-
approve consolidations which would not violate the anti-
trust laws and to approve consolidations even if they
otherwise would violate the antitrust laws. United States
v. 1.C.C., 396 U.S. 491 (1970).
Special Findings: We are required by 49 U.S.C. 11344
(c) to make special, narrowly focused public interest
findings (where applicable) on the following aspects of
any major rail consolidation: (1) a guaranty or as-
sumption of the payment of dividends or of fixed charges,
or an increase of total fixed charges; (2) joint rail-motor
operations; or (3) inclusion of rail carriers located in the
area, 49 U.S.C. 11344(c).
Environment and Energy Factors: Environmental and
energy factors also have a bearing on the public interest.
The National Environmental Policy [486] Act of 1969
82a
(NEPA), requires us to consider the effects of the
transaction on the environment; we must consider the
transaction’s effect on the conservation of energy re-
sources, under the Energy Policy and Conservation Act
(EPACA).%*
Policy Statement. On February 2, 1981, we issued a
policy statement on rail consolidations to clarify how we
incorporate the numerous elements of the public interest
in evaluating specific consolidation proposals. Railroad
Consolidation Procedures, 363 I.C.C. 784 (1981). We
announced that we perform a balancing test weighing
“the poter’ial benefits to applicants and the public against
the po. atial harm to the public.” 49 CFR 1111.10(c)
(1981), now codified at 49 CFR 1111.1(c), Railroad Con-
solidation Procedures, 366 I.C.C. 75 (1982).
Benefits from a proposed consolidation arise from op-
erating efficiencies and marketing opportunities which
can make the consolidated carrier a financially stronger
competitor, and better able to provide adequate service on
demand. 49 CFR 1111.10(c) (1) (1981) (now codified at
49 CFR 1111.1(c) (1)). Operating efficiencies often arise
from elimination of duplicative facilities and utilization
of more direct routings. Additionally, we have recognized
that in some instances, consolidations may be the only
feasible way for rail carriers to enter new markets. Our
analysis of the potential harm from a proposed consolida-
tion focuses on two impacts highlighted by the statutes
and policies discussed above: any reduction in either
intra- or intermodal competition which would likely re-
sult from the consolidation; and any harm to essential
services provided by competing carriers occurring, for
example, when traffic shifts expected from the consolida-
tion are so substantial that essential service over a com-
8 42 U.S.C. 4321 et seq., See 49 CFR 1108 (1980).
16 42 U.S.C. 6201 et seq., See 49 CFR 1106 (1980). Energy con-
servation is also a matter for our consideration under the rail
transportation policy, 49 U.S.C. 10101a(15).
83a
peting carrier’s line would no longer be economically
viable. 49 CFR 1111.10(c) (2) (1981) (now codified at
49 CFR 1111.1(c) (2)).
Standards Applicable to Responsive Applications: Sec-
tion 228(e) of the Staggers Act specifies that any “ap-
plication filed or pending on the effective date” of the
Act shall be adjudicated as if the Act had not been en-
acted. While the primary applications were filed pricr to
the effective date of the Staggers Act, it has been argued
that the responsive applications were filed after the effec-
tive date of the Act and are independently subject to its
terms.
We disagree. The responsive applications are not in-
dependent applications. Each requires the exercise of our
conditioning power under 49 U.S.C. 11344(c) as a part of
any approval of the primary transaction. Therefore, a
necessary element of each of the responsive applications,
[487] i.e. the primary applications, was “pending on the
effective date” of the Staggers Act within the meaning
of section 228(e).
If the responsive applications were to be treated other-
wise and considered to be independent applications, then
we would have to disrniss those applications as being in-
complete because they lack the essential element of an
agreement between the parties. In a consolidation pro-
ceeding, however, we consider whether applicants should
be required to enter into agreements, as sought in re-
sponsive applications, as a condition to consummating the
primary transaction.
Evaluation of the Record: The record in this proceed-
ing includes the primary application, numerous respon-
sive applications, opposition statements and traffic studies,
and the transcript of oral hearings conducted over the
course of several months. In reaching our decision in
this proceeding, we are required to look beyond the sep-
arate concerns of the parties and independently deter-
84a
mine whether the proposed consolidation is “consistent
with the public interest” as defined above. In doing so,
we have examined the entire record. We have weighed
elements of the public interest and evaluated both the
potential short- and long-term impacts of the consolida-
tion. In particular, in evaluating the potential harm
arising from the consolidation we have considered, inter
alia, the possible foreclosure of competition, possible ef-
fects on essential services, and the potential impact on
the interst [sic] or employees.
We conclude that the consolidation applications in Fi-
nance Docket 30,000 et al., and each of the directly re-
lated applications, as conditioned, are corsistent with the
public interest and should be approved.
Adequacy of Transportation
Public Benefits
In seeking to determine whether a consolidation is con-
sistent with the public interest, we must first determine
its effect on adequacy of transportation to the public. In
so doing we examine the benefits to the public which will
result from the consolidation.
Of course, proposed consolidations are likely to result
in benefits to the corporate entities seeking our approval.
However, these private benefits, in the form of increased
revenues, do not necessarily reflect public benefits, so we
must distinguish purely private benefits from those which
will also inure to the benefit of the public.
Private benefits which do not also reflect benefits to the
public may include transfers of revenues from one carrier
to another. If these transfers do not at the same time
affect transportation efficiency or the ability of any car-
rier to provide essential services, we consider these bene-
fits to be neutral. Revenue transfers which result in re-
duced com- [488] petition, the ability of a carrier to exact
85a
monopoly profits, and ultimately the reduction of efficient
transportation services reflect private benefits which re-
sult in harm to the public.
The major cause of revenue transfers as a result of
rail consolidations is traffic diversion. Intramodal diver-
sion in itself is neither a public benefit nor a harm. It
may reflect or measure the public benefit of improved
service, or it may result in harm to the public if it re-
sults from the exercise of market power. This may result
in inefficiency, the ability to achieve monopoly profits, re-
duced competition and harm to essential services.
Intermodal diversion may more clearly reflect a public
benefit than intramodal diversion. New rail service which
can attract traffic carried by motor carriers is itself a
benefit because it provides a competitive and fuel-efficient
alternative to shippers who formerly relied only on one
mode.
Private benefits which are also public benefits include
cost reductions and service improvements resulting from
operating efficiencies. With improved service, resources
are used more efficiently and energy, labor and inventory
costs decline throughout the railroad industry as well as
the economy as a whole. Cost reductions resulting from
more efficient operations benefit the public directly to the
extent they are passed on to shippers through reduced
rates and deferred rate increases. Savings generated by
cost reductions reflect the amount of resources freed for
other productive uses. CSX, 363 1.C.C. at 556.
Efficiency-related cost reductions also benefit the public
by cre
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