Appendix — United States v. Interstate Commerce Commission

IN THE

Supreme Court of the United States

OCTOBER TERM, 1969

NORTHERN LINES MERGER CASE

No. 28

UNITED STATES OF AMERICA, APPE!)¢

Vv.

INTERSTATE COMMERCE COMMISSION, ET AL.

No. 38

CHARLES E. BRUNDAGE, ET AL., APPELLANTS

Vv.

INTERSTATE COMMERCE COMMISSION, ET AL.

No. 43

CITY OF AUBURN, APPELLANT

Vv.

INTERSTATE COMMERCE COMMISSION, ET AL.

No. 44

LIVINGSTON ANTI-MERGER COMMITTEE, APPELLANT

Vv.

INTERSTATE COMMERCE COMMISSION, ET AL.

ON APPEALS FROM THE UNITED STATES DISTRICT COURT FOR

THE DISTRICT OF COLUMBIA

ii INDEX

VOLUME I

Page

Inn I a cnessarenenienolisimssinnpions iv

a ee 1

Judgment of District Court . lindane : 59

1966 Report of ae wean authorization for

Lene al Ste asa ANE Nes Saiciiegios 61

1967 Report of Commission on reconsideration, authorizing

aie EEE See aoe eee 245

Second Report of Commission on Reconsideration, denying

petitions for reconsideration and ee certain con-

TSE RIOR PALES NEN Gat EC

Third Report of Commission on ———— re

a ID sino 498

VOLUME II

Order of Commission extending period for exercise of merger

authorizations previously granted, April 23, 1969 505

Report of the Hearing Examiner, served August 24, 1964 507

VOLUME III

Report of the Hearing Examiner (continued) - bata die” | ae

Report of the Commission on Petitions for Rehearing

March 31, 1966 silcahcapligsaneicaiainauantaancialinti . 1268

Complaint by the United States, filed May 9, 1968 1275

Answer of Intervening Defendants, filed May 10, 1968 1280

Answer of Interstate Commerce sdaonsaniesiicls filed “—* 14,

ERE 1284

* Includes minor corrections noted in sua sponte orders dated

December 11, 1968 and April 16, 1969.

Pete NaS ai eS

INDEX (Continued)

Motion of Charles E. Brundage, et al., to Intervene as Plain-

tiffs, together with complaint, filed May 15, 1968. =>

Order of District Court denionaneses Motions to ena filed

May 16, 1968 _ ae

Motion of Livingston Anti-merger Committee to Intervene

as Plaintiff, together with complaint, filed May 23, 1968 ..

Court order granting aforesaid motion, filed June 3, 1968 _._..

Answer of Intervening Defendants Great Northern Railway

Company, et al. to — sean sveniedh of —

Anti-merger Committee _

Answer of Intervening Defendants Great Northern Railway

Company, et al., to Intervening ee of Charles E.

Brundage, et al., filed June 5, 1968 .

Answer of Intervening Defendants 230 Pacific Northwest

Shippers to Complaint of Plaintiff United States of Amer-

ica, filed June 10, 1968 .

Answer of Intervening Defendant Public Utility Commis-

sioner of Oregon, filed June 17, 1968

Answer of Chicago, Milwaukee, St. Paul and Pacific Railroad

Company, filed June 24, 1968 .

Notice of Appeal of Livingston Anti-Merger Committee...

Supreme Court’s Order of vlsinanaiantie 24, 1969 Scan —

I sk

PPLE BOLL IRL LEG ETN BE PEGE LES EGET EAE Y NOAH

iii

Page

1286

1294

1295

1302

1303

1306

1309

1325

1327

1336

1337

ELISA NUOD OS

951

- Chamber of Commerce, is composed of 70 wholesalers,

- manufacturers, jobbers and distributors, whose business

as shippers and receivers of freight is directly involved

in the city and its environs. It is concerned with their

traffic and transportation needs, and favors unification

as proposed. Intervener views the three applicant rail-

roads serving Billings as having performed a satisfac-

tory service to the area, but feels that there is much

room for improvement. It anticipates that the pro-

posed unification would provide the desired improvement,

and it supports applicants’ cause, stressing the import-

ance of the expected economies through elimination of

duplicate facilities which should result in an improved

service from eastern origins, improved car supply, and

advantages of stop-offs, transit and diversion privileges,

and expected hold-down on rate increases.

Intervener Cargill, Inc., of Minneapolis, supports the

proposed unification for faster and more dependable

freight service, better car supply, wider routing with

more stop-off, transit and diversion privileges, and bet-

ter ability to provide economical transportation. Its evi-

dence, introduced through stipulation, shows it ships

annually about 20,000 carloads of grain and processed

agricultural commodities over applicants’ lines.

Intervener Everett (Washington) Chamber of Com-

merce, through a resolution supports unification as per-

mitting a better car supply, elimination of unneeded por-

tions of line and effectuation of operating economies and

savings while strengthening the railroads’ economic con-

ditions. It views protection of employees through im-

position of conditions indicated by applicants as ade

quate. While it has not concluded whether merger would

strengthen those railroads not involved in the transac-

tion, it is deeply concerned with adequate, competitive

rail service to and from transcontinental and Pacific

points.

Intervener Husky Oil Co., of Cody, Wyo., operates an

oil refinery on the lines of Burlington. In 1961 it shipped

5,108 carloads of asphalt to the Minneapolis area routed

)

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Burlington to Sioux City and Great Northern beyond.

Its support is predicated on the basis that such move-

ment could be handled via Laurel, single-line over a

route some 369 miles shorter, which is not now feasible

as Burlington is reluctant to short-haul itself. It also

supports unification for improved schedules, better utili-

zation of leased tank cars and facilitated rate adjust-

ments with single-line. It ships about 400 cars annually

via the Milwaukee, is concerned that both Milwaukee

and C&NW remain competitive, but doesn’t think the loss

estimated to affect C&NW would affect its service.

Intervener Missouri Farmers’ Association, an agri-

cultural cooperative, processes and markets products

from 32 districts; has a membership of 155,000 farm-

ers; had gross sales in 1960 of $320 million; has 31 ele-

vators and other facilities on the lines of Burlington; and

ships many thousands of carloads annually over the lines

of Burlington, and between 50-100 cars annually over

Milwaukee. It supports the proposed unification to bring

about economies resulting from elimination of duplicate

facilities and allow more competitive service with other

modes of transportation and improved car supply.

Intervener the State of Nebraska through its single

witness, its Governor, expressed strong support for the

proposals, directed primarily to anticipated benefits and

improvements which on the basis of the proposals would

accrue to users in Nebraska; including (1) greater avail-

ability of cars, (2) routing of traffic through Billings,

and prospects for increase of traffic through Nebraska as

economically beneficial, (3) prospective increase of em-

ployment in Nebraska, and (4) anticipated reduction of

costs of operation through elimination of duplication of

facilities—all of which would strengthen the railroads

involved, urging that while merger might adversely af-

fect some interests it is the “price of progress.”

Intervener Nebraska Lumber Merchants Association,

of Lincoln, Nebr., represents about 456 retail lumber and

building materials dealers in Nebraska, and receives

from mills and wholesalers in the Pacific Northwest

about 5,000 carloads annually. It supports unification

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in the belief, stressed by limited data which it obtained

from Burlington officials, that the result will be an elimi-

nation of interchange, improvement of freight schedules,

elimination of much car tracing, and an improvement of

service in transit cars, all of which would assure a more

economical and efficient transportation service.

Intervener Omaha (Nebraska) Chamber of Commerce,

a voluntary association of individuals, firms and corpo-

rations located in the Omaha area with approximately

5,500 members, evidences concern with the development,

improvement and protection of the transportation in-

terests of Omaha and its trade area. Omaha, located in

the heart of a rich and resourceful agricultural region

virtually in the geographical center of the United States,

is one of the nation’s primary grain markets and mill-

ing centers, a livestock and meat packing center, and an

important transportation center served by nine class I

railroads. It supports unification for improved freight

schedules between Omaha and the northwest and elimi-

nation of interchanges, improved car supply, better rout-

ings and transit privileges through Laurel and Sioux

City gateways. With such improvements, traffic is ex-

pected to increase need for improved freight handling

facilities and equipment. It stresses significantly the

view that greater traffic volume through Omaha would

tend to stabilize the employment of railroad operational

personnel in that area. Moreover, its support is predi-

cated on the belief that unification would tend to place

business in Omaha in a better competitive position be-

cause of the benefits enumerated. The record also shows

that it would be to the interests of Omaha and its ship-

pers that Milwaukee maintain its financial stability and

its ability to continue to provide its present service to

and from that point.

Intervener Omaha (Nebraska) Grain Exchange, com-

prised of members who buy, sell, receive, ship and store

grain and its by-products, support unification on the ba-

sis that single-line operation would liberalize transit

privileges, expedite service, increase operating efficiency,

reduce costs, reduce transit time, with accompanying re-

7, PL TRO LO CUP Ye Res © WN APN

duction of switching and terminal delays, and improve

car supply. Indicative of the extent to which it is con-

cerned with grain transportation, in 1960 Burlington

(one of nine railroads serving Omaha), terminated for

it 13,498 carloads of grain out of a total of 38,493 and

originated for it 14,101 out of a total of 34,708 at

Omaha.

Intervener St. Paul (Minnesota) Area Chamber of

Cor merce, a non-profit organization (3,000 members),

concerned with matters affecting transportation and the

business community, insofar as it pertains to its area

of interest (which covers Ramsey County and adjacent

areas of Washington and Dakota Counties, Minn.),

strongly supports the proposed unification. Numerous

other chambers of commerce and civic organizations in

its trade area lend support to its position. Its concern

here is primarily because the economic and industrial

development of St. Paul and its adjacent market are. is

directly dependent on the ability to acquire raw materials

at the lowest possible delivered cost and to distribute

manufactured and processed goods throughout the Paci-

fic Northwest speedily and cheaply. In order for its

trade area to prosper, long-haul transportation service

must be available at rates low enough for its products

to be marketed in midwestern and eastern centers, in-

cluding St. Paul, in the face of competition from other,

more conveniently located products of like kind.

Because over the past ten-year period rail carloads re-

ceived and forwarded at St. Paul dropped nearly 100,-

000 carloads or 30.9 percent, it evidenced a strong con-

cern over a major problem of obtaining and providing

efficient transportation service at charges low enough to

permit the city and its trade area to grow and prosper.

Intervener acknowledges the likelihood railroad em-

ployment in St. Paul will eventually be reduced by uni-

fication as an important factor in considering its posi-

tion, but recognizes as a far more important matter the

stability of employment of its member businesses and

industries as its proper area of concern. It asserts that

the effect unification may have on the job opportunities

on the separate applicant railroads should not stand in

954

a

the way of its endorsement. Moreover, that the end

result should help to maintain and improve the employ-

ment levels among the 55,000 manufacturing employees

in St. Paul and among the additional 9,000 employees

engaged in wholesaling, provides it with a stronger basis,

economic and otherwise, for its support.

It considers applicants’ proposed construction in the

Twin Cities area also a matter of prime importance, al-

though supporting other advantages advocated by appli-

cants. With the advantages which unification should

bring, the number of interchanging railroads would be

reduced, eliminating many physical transfers, permitting

faster service and improved terminal operations, all of

which contribute to a better and more desirable trans-

pertation service.

Intervener Quincy (Illinois) Chamber of Commerce,

located in a commercial and industrial center adjacent

to a large fertile agricultural area, supports unification

in the belief that it would produce a strengthened and

improved carrier providing faster and more dependable

service with economies allowing modernization and im-

provement of equipment.

Intervener Lilliam Widmyer, of Seattle, owner of 500

acres of forest land in eastern Washington has in the

past shipped forest products via Great Northern, and

supports unification on the assurance that through uni-

fication the available service would be continued.

Intervener Zonolite Company, of Chicago, mines and

processes vermiculite at Libby, Mont. In 1961 it shipped

2,276 carloads from Libby and received 135 cars at that

point. Since its product competes with Canadian prod-

ucts, its customers’ inventories are held to a minimum,

and thus a steady flow from mine to processing plant to

customer is essential. It supports unification for im-

proved single management, improved interchange at ma-

jor terminals, and in the belief that an adequate supply

of box cars and covered hopper cars would be available,

and the financial stability of the merged lines would

allow an upgrading of equipment.

955

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Another group of interveners entering their appear-

ances support the proposed unification for various rea-

sons. They, however, qualify their support in the sense

that they urge the imposition of specific conditions pri-

marily dealing with those matters which would to some

extent assure them t’1e availability of the strong degree

of competitive transportation service they feel their evi-

dence and the circumstances of record warrant. Simi-

larly, their interests should be identified and are thus

summarized.

Intervener Minneapolis Traffic Association, an adjunct

of the Minneapolis (Minn.) Chamber of Commerce, ex-

pressing only limited knowledge on the unification pro-

gram proposed, supports it in the belief it would benefit

the city by providing more expeditious and improved

less-than-carload service, reduce transit time by 12 hours,

eliminate terminal delays through the new and proposed

electronic classification yards, improve car supply, pro

vide broader transit privileges, all resulting in increased

traffic to the New Company. While it believes Milwau-

kee’s entry to Portland would be advantageous to its

member shippers, it offered no evidence on the subject.

Interveners The Public Service Commission of the

State of North Dakota, and the Chamber of Commerce

of Fargo, N. Dak., jointly support the proposed unifica-

tion because of certain stated assurances by applicants

looking towards a guarantee of continuance of present

service. The latter and intervener Grand Forks Cham-

ber of Commerce (Grand Forks, N. Dak.), are volun-

tarv non-profit organizations representing many con-

met..al, professional and industrial businesses con-

cerned with fostering and promoting civic and business

interests (including transportation rates and services).

Fargo, and Grand Forks, 75 miles north, are served

by the main line of Great Northern and the branch line

of the Northern Pacific. Fargo is a large wholesale

distribution center and a major city on the lines of both

railroads. Grand Forks is in the center of the Red River

Valley potato industry, has other agricultural and in-

956

Other interveners—in support with conditions.

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dustrial facilities, is the principal grain inspection point

on the Great Northern and the Northern Pacific and,

as such, is the gateway to the North Dakota grain fields.

Interveners foresee, upon unification, improved car

supply, a financially stronger railroad, greater ability to

finance adequate and appropriate equipment, as well as

more flexibility to existing supply of equipment, result-

ing in greater car efficiency and a more readily available

supply of equipment closer at hand to meet the demands

of the shipping public, which in the aggregate would

assist grain and livestock shippers in North Dakota.

They also expect that through rates will immediately be-

come available via any new and shorter routes resulting

from unification.

However, interveners support Milwaukee’s request for

trackage rights, opening of gateways and routes, etc., in-

sisting that no lessening of service to the people of the

State of North Dakota result from such unification, if

authorized. Interveners’ paramount concern is the pres-

ervation of the competitive position of other railroads

which serve the State of North Dakota, and the impact

of unification on the competitive position of those rail-

roads. They point out that (1) the maintenance of the

competitive position of the Milwaukee will more clearly

assure the continued operation of a competitor that has

been of benefit to the State; (2) the benefit has not al-

ways been confined to any particular community directly

served by Milwaukee, but extends beyond the city limits,

and provides what is commonly known as cross-country

competition; and (3) it is that competition which pro-

vides for favorable service and favorable rate adjust-

ments, which they want continued.

Interveners are aware of the conditions sought by the

intervening carriers and indicate that some would have

little, if any, direct effect on North Dakota. However,

to the extent denial or failure to adopt such conditions

affects Milwaukee’s ability to provide competitive serv-

| ice, they are concerned. Specifically, interveners strong-

ly support Milwaukee’s requested condition 2 (access to

Portland), and 5 (inclusion of switching in the line-haul

rates of both competitive and non-competitive traffic).

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Additionally, interveners seek a modification of the au-

thority vested in various subcommittees of the Western

Trunk Line Committee, a part of the Western Traffic

Agreement, approved in Western Traffic Association—

Agreement, 276 I.C.C. 183, to implement section 5a pro-

visions granting common carriers exemption from the

anti-trust laws. At the outset, interveners stress the im-

portance to them of the requested opening of Fargo and

Linton as gateways. Under Milwaukee’s proposal, the

Fargo gateway would be restricted to traffic to or from

points east of McKenzie, N. Dak., and the Linton gate-

way would be restricted to traffic to and from Miles City,

Mont., and points between Miles City and Linton. Inter-

veners point out that Fargo would be the furthest

western substantial distribution point on the main and

secondary main lines of the consolidated system; that

the two lines join again at Sandpoint, Idaho, and 1,118

miles distant and that a Milwaukee-merged lines route

via Fargo would provide shippers with stop privileges

at Milwaukee stations and consolidated system stations;

and that the same would apply at Linton and less poten-

tial tonnage. However, little support is provided to war-

rant a departure from the conclusions reached on that

subject, previously discussed. Interveners request that

limitations be modified to extend the territory for traffic

moving via both gateways to and from Billings and

Great Falls, Mont., and stations east thereof. Inter-

veners’ support for opening the indicated gateways as

conditions requested by Milwaukee is not impressive.

For reasons stated, such a condition is neither prac-

ticable nor feasible. However, other conditions request-

ed do meet with some favor, as previously discussed.

Interveners also point out correctly that Portland is

one of the most important seaports on the West Coast

and an important railroad center where traffic is inter-

changed between all of the major railroads serving it,

yet Milwaukee, a major transcontinental railroad with

its eastern termini at Chicago is held less than 50 miles

short of reaching Portland; that entry would provide di-

rect connections with other lines, would provide direct

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single-line service to points local to Milwaukee, and that

any evidence or statements pointing out the adverse re-

sults that would flow from such a provision merely em-

phasizes the necessity of imposition of such a condition.

Entry would permit Milwaukee to contribute to its abil-

ity to better provide the competition in the area served

by it and by the merged lines, as previously discussed.

In respect of the arguments dealing with switching

charges, interveners point out that those factors simi-

larly affect Milwaukee’s ability to serve Fargo and other

North Dakota points on its line. Additionally, present

practices of Great Northern and Northern Pacific re-

quire payment of switch charges on movements from

industries located on Milwaukee at Fargo when shipping

to local or “non-competitive” industries on either of the

lines. As previously indicated, the charges are excessive

by any standard and are no doubt designed to discourage

the use of Milwaukee and militate against Milwaukee’s

efforts to attract industry to its line at Fargo, prevent it

from participating in the economic expansion of the city

and operate against its ability to be a strong competitor.

However, in view of the conclusions reached, further

discussion is not necessary.

In respect of interveners’ request for modification of

the authority vested in the various subcommittees of the

Western Trunk Line Committee, they point out that cer-

tain articles contained in the agreement approved by the

Commission in the last-mentioned and cited case, now

contain certain provisions which are objectionable and

which will become more objectionable on unification. The

agreement created what is known as Western Trunk

Line Territory, among others, with approximately 31

member lines with jurisdiction over all traffic having

origin or destination or passing through Colorado, IIli-

nois, Iowa, Kansas, Minnesota, Nebraska, North Da-

kota, South Dakota, Wisconsin and Wyoming, and in-

cluding certain portions of Idaho, Indiana, Michigan,

Missouri, Montana, Nevada, New Mexico, Oregon and

Utah. Great Northern and Northern Pacific are mem-

bers of that committee with participation limited to

matters pertaining to traffic to or from points served by

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them in the territory subject to the jurisdiction of that

committee. In addition, C&NW, Milwaukee and Soo,

all serving North Dakota, are members of that commit-

tee without restriction.

The agreement also created the Northern Lines com-

mittee with approximately eight member lines with jur-

isdiction over all traffic originating and terminating in

North Dakota (except points on Milwaukee west of Mo-

bridge, S. Dak.), and those parts of Minnesota and South

Dakota on and west of Great Northern line from Super-

ior to Hinckley, and the Northern Pacific line from

Hinckley to St. Paul, including St. Paul, Minnesota

Transfer and Minneapolis, and north of the Milwaukee

between Minneapolis and Nobridge, S. Dak., through Or-

tonville, Minn., Milbank, Andover, Aberdeen, and Ros-

coe, S. Dak., and covering all interterritorial traffic be

tween points within that territory and points outside

that territory except traffic subject to jurisdiction of the

Trans-Continental, North Pacific Coast and Pacific

Southcoast Freight Bureaus. The net result of such

machinery is that identical railroads vote twice on the

same subject matter between the same points. Soo, Mil-

waukee, Great Northern, Northern Pacific and C&NW

each vote as one of eight member lines (contrasted to one

of approximately thirty lines in Western Trunk Line

Committee), on the same subject between the same

points. Thus, two rate committees have jurisdiction over

the same subject matter between the same points and five

large railroads have representation on both committees.

Interveners contend that while there may be some justi-

fication for such a situation when Great Northern and

Northern Pacific terminate at St. Paul, there would be a

change of circumstances when, after unification, the

merged lines terminate at Chicago, with extensive lines

throughout Western Trunk Line territory. Accordingly,

it requests that as a condition of unification, the juris-

diction of the Northern Lines committee be restricted to

freight traffic moving within the geographical confines of

that committee.

Interveners’ proposal involves a complex problem of

modification of agreement approved under section 5a,

'

and while approval of the transactions as proposed

would no doubt have some effect on the rights of the

parties under the agreement, it does not appear appro-

priate in these proceedings to take the action requested

because all the parties involved in the proceedings in

which that agreement was authorized, particularly the

three North Dakota carriers not identified on this rec-

ord, are not before the Commission in these proceedings.

While interveners face a serious problem resulting from

unification, it is not without an appropriate remedy.

However, interveners’ remedy does not become available

to it until unification is accomplished, in which case, if

it considers its position aggrieved, it may seek reopening

of the Western Traffic Association Agreement case,

supra, with a view to obtaining appropriate modification.

In addition, Intervener Red River Valley Potato

Growers Association (East Grand Forks, Minn.), a simi-

lar organization to those just mentioned, although con-

fining its interest to growing, promoting, handling and

marketing potatoes grown in eastern North Dakota and

western Minnesota, supports unification on a similarly

qualified basis. It points out that the Red River Valley

is the third largest potato producing area in the country,

is some distance from competitive markets, and is, there-

fore, concerned with rates. Its concern over car supply

deals primarily with refrigerator cars by which merger

would provide a broader source of supply. In addition,

unification would result in all Great Northern and

Northern Pacific points in the Red River Valley area

becoming one-line points and thus open up new oppor-

tunities for processing and storing. Since exempt truck-

ing is increasing, intervener looks for lower rail rates,

since it prefers to ship by rail. It supports rail trans-

portation because it feels it could better control the in-

tegrity of its product on the nation’s markets by use

of such mode.

Since competition among exempt truckers tends to

concentrate at certain points, such as along major high-

ways and at points where there is a concentration of

storage, it feels truckers would reduce their rates at such

points and not at the smaller points, thus working to the

961

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disadvantage of many of its members. It has found the

rails have maintained a uniform level of rates for all,

which contributes toward maintenance of a cohesive or-

ganization.

Intervener urges that all present railroads be retained

in their present competitive position. Moreover, it en-

courages the continuance of present level of service on

the various branch lines in the Red River Valley. In

short, it urges no discontinuance or curtailment of serv-

ices on those important branch lines. Unification would

provide it with many more rail stations that can be

reached on a single-line basis, thus eliminating many

switching charges and facilitating potato transit opera-

tions. Intervener’s evidence deals much with generali-

ties and argument and is devoid of specifics. For the

most part, it is concerned with competition, although it

offered little evidence to show the significance of competi-

tion and how it meets its transportation requirements.

Its fears for Milwaukee are in general terms and does

give some support to consideration of appropriate pro-

tective conditions for that railroad.

Interveners the Seattle Traffic Association and the

Seattle Chamber of Commerce, of Seattle, support the

proposed unification as a step in enabling the railroads

through financial solidarity to hold the line on rates, to

attract and recapture lost business and provide efficient

and better service. The former, a voluntary nonprofit

shipper organization with 130 members, manufacturers,

wholesalers, jobbers, etc., located in Seattle and its metro-

politan area, is concerned with matters relating to serv-

ices, rates, fares and charges via the several modes of

transportation, including rail carriers. The latter, with

about 4,000 members, many representing wide variety of

businesses, is vitally concerned with traffic development,

and with favorable rate structure to enable its members

(many of which are substantial shippers and receivers

of rail freight via applicant lines and other rail lines

serving the area), to compete in distant markets and

receive its goods and raw materials. It views rail com-

petition an important factor, has considered its success-

963

ful role in the past in the economic health of the Pacific

Northwest, acknowledges that healthy and vigorous com-

petition between rail carriers produces better service at

lower rates, and concurrently requests herein imposi-

tion of such conditions as may be necessary to safeguard

(1) other rail carriers in the area, preferably the stand-

ard routing conditions, and (2) the rights of employees

now in service on the merging lines, in accordance with

federal laws or existing agreement, if any.

Interveners point out that the welfare of the Pacific

Northwest is greatly dependent upon the continuation

of a rail rate structure which would enable that great

producing area to market its products at distant points,

and to receive from distant points products and raw

materials needed in its manufacturing and production

facilities. They are aware of railroads’ loss of business

to other modes and the desire to retain and recapture as

much business as they can, but emphasize strongly that

such a course would require not only efficient railroad op-

erations and better service, but a strong financial posi-

tion that will enable avoidance of extensive rate increases.

One of their members, with a plant located at Renton,

is engaged in the manufacture of aircraft and related

assemblies. Although concerned mostly with inbound

traffic (3,000 cars annually), its outbound traffic (6,000

cars annually), is significant. Time in transit is an im-

portant factor in its movements. It utilizes considerable

special rail equipment (it owns 55 cars specially

equipped), and foresees a single-line service from its

plant with simplified accounting available as a result of

elimination of many separate demurrage agreements. It

has high hopes the railroads will be able to meet the ever

changing needs for newer types of services and special

equipment and supports the proposed merger to that end.

Interveners Tacoma Chamber of Commerce, and The

Port of Tacoma (Wash.), the former a voluntary non-

profit organization representing approximately 2,000

commercial, professional and industrial concerns in Ta-

coma and environs, many of which are the principal

users of freight services, and the latter, a Washington

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municipal corporation, responsible for developing cargoes

for movement through Tacoma harbor, and development

and administration of industrial districts, support the

proposed unification, contingent upon the imposition of

adequate safeguards to assure the continued competitive

balance.

Tacoma is highly industrialized, with over 550 manu-

facturers of a wide variety of products. It is served by

four trunk line railroads, Milwaukee, Great Northern,

Northern Pacific, and Union Pacific, and by its own mu-

nicipally owned Belt Line Railroad. The Port of Ta-

coma owns and operates its own switching railroad which

connects with trunk lines serving Tacoma either directly

or through the Tacoma Municipal Belt Line Railroad.

Because of the vital role of the railroad in Tacoma’s

continued economic growth and industrial development,

interveners devoted considerable study to the proposed

unification. The Chamber of Commerce, after consid-

erable discussion with representatives of the rail lines,

and of civie and labor interests, in June 1961 enacted a

resolution supporting the proposal, contingent upon the

Commission’s final order containing adequate safeguards

to protect the competitive opportunities of other railroads

serving Tacoma. Subsequently, in March 1962, The Port

of Tacoma adopted the same position. Because of the

type of manufacturing engaged in Tacoma, the type of

import and export commodities handled through the

Port, the distances which its products must be trans-

ported to reach important eastern and midwestern mar-

kets, it has a vital interest in reasonably priced, reliable

transportation.

Interveners support the proposition that every reason-

able opportunity should be granted railroads to help

them meet ever increasing costs and competition—

through maintaining rates which will enable shippers

and receivers at Tacoma to remain competitive with

other areas of production. In addition to their stated

position of support with adequate competitive safe-

guards, they evidence strong concern over the mainte-

nance of the present competitive route between Tacoma

965

and British Columbia and the elimination of non-com-

petitive switching charges. In view of the conclusions

reached here and the resulting recommendations, further

discussion on those points is unnecessary.

Interveners the Tolin Group, representing some 230

Pacific Northwest shippers or receivers of freight, asso-

ciations of shippers or receivers of freight, and trans-

portation advisory organizations, and comprising the

Alaska Copper Companies and 92 others jointly, Washing-

ton-Oregon Shippers Cooperative Association and 56 oth-

ers jointly, and Whatcom County Traffic & Rates Bureau

and 79 others jointly, all intervenors, support the unifica-

tion with the qualification that the Commission impose as

conditions to approval Milwaukee’s requested conditions

2 and 5 involving (1) trackage rights from Longview

Junction to Portland on the same terms and conditions

as the Union Pacifle has over that track, and (2) elimi-

nation of non-competitive switching charges on traffic

switched at common points on the merged lines with

Milwaukee or other lines, subject to reasonable terms

and conditions for such reciprocal switching services.

The Tolin Group takes no position, for or against other

conditions sought by Milwaukee or other interested rail-

roads.

The broad scope and intensive interest of the several

shippers or associations comprising the Tolin Group

cover 13 associations or ports or shipping igroups, 30

fresh fruit and vegetable shippers, 55 wholesalers, job-

bers or distributors, 5 lumber or related products ship-

pers, 12 clothing manufacturers, 17 department store or

retail chain organizations, 5 peat moss shippers, 6 ever-

green or Christmas tree shippers, 16 fish or fish prod-

ucts’ shippers, 36 furniture or mattress, ete., manufac-

turers, and 35 miscellaneous manufacturers, located pri-

marily in Washington and Oregon, with branches and

divisions in virtually all of Mountain-Pacific Territory,

in British Columbia and Alaska, They also include three

major pool car shippers’ associations, the Port of Pasco

with its giant warehousing complex at Pasco, Washing-

ton, the Port of Bellingham and the Bellingham Chamber

of Commerce so vitally interested in freight rates to and

966

from Northwest Washington, the Northwest Fisheries

Association, the Washington Potato & Onion Growers &

Shippers Association, and the Northwest Furniture

Manufacturers Association. Six of the shipper associa-

tions annually ship over 16,000 carloads of freight. The

interest of the intervener shippers in the merging lines

and Milwaukee is not an academic or political interest,

but a “hard dollar” interest, real and vital to the suc-

cess of their businesses, and rail transportation; its cost

and its quality, is of prime importance,

Interveners favor unification with conditions for sev-

eral reasons, in support of which strong and persuasive

evidence demonstrates numerous significant facts and fac-

tors. The shippers represented feel that the proposed uni-

fication is vital to the development of, and transporta-

tion to and from, the Pacific Northwest, and that the

benefits to them far outweighs the negative points brought

out by opponents of the proposal who are primarily in

the railroad labor or political or nonshipper fields. Its

evidence shows that unification will result in many sub-

stantial benefits in the form of more advantageous car-

load stop-off and carload intransit privileges, more effi-

cient handling and servicing of railroad car supply prob-

lems, and in faster transcontinental schedules, with two

alternative open routes to provide greater dependability

of service than any one line or route can provide today.

It would also broaden territorial coverage, open up origin

areas and destination markets, provide faster service,

more cars and better stop-off possibilities and thus pro-

vide Pacific Northwest shippers with greater opportunity

to broaden their markets, and its evidence also shows that

the shipping public generally supports unification with

and without conditions favoring Milwaukee, or other,

railroads. Moreover, it shows that unification should re-

sult in a better financial position for the merging lines

which should be a restraint on future rate increases and

permit lower freight rates for Pacific Northwest ship-

pers. It points out that a strong consolidated line and

a more competitive Milwaukee can help the whole North-

west better meet Canadian railroad competition moving

967

via Prince Rupert, B. C., for the vitally important Alaska

trade, since lower freight rates cannot come except by

lower costs, which should result from unification and

make possible railroad freight reductions or absorptions

that cannot otherwise develop. Its evidence confirms that

of applicants that unification will substantially reduce

the costs of operation of the subject lines by consolidating

terminals and operating and traffic and administrative

functions, by shortening routes, eliminating circuitous

hauls, and in diverse other ways. Moreover, the growing

competitive situation faced by the railroads in the inter-

coastal trades, coastwise along the Pacific Coast, with

barge and inland water carriers on the Columbia River

after the John Day dam (midway between Portland and

Pasco), is completed in 1965-66, from air freight serv-

ices, and from the large transcontinental and western

motor carriers which have expanded through merger and

acquisition proceedings in recent years, some of which

have systems which blanket an area far greater than the

area of the proposed unified lines, is such that unifica-

tion will clear.y assist the railroads involved to better

meet the current and anticipated added competition.

The huge loss of Washington intrastate rail revenues

(from $13,658,861 in 1946 to $10,275,000 in 1960), in

relation to intrastate truck revenues (from $30,861,525

in 1946 to $65,949,000 in 1960), shows the effect truck

competition has had on the railroads, and justifies the

merger proposal which would be a great aid in reducing

costs and improving services. Unless the costs of railroad

operations can be reduced, private, exempt and other mo-

tor carrier trucking, which is growing at an alarming

rate, will continue to erode the shorter-haul railroad busi-

ness (below 500 miles* in length of haul), and it is

obvious unification proposed can reduce the cost of rail-

road operations for the subject railroads. Moreover, its

evidence shows that the subject railroads face drastic

%* System average haul—1960—for Northern Pacific 461 miles.

—for Great Northern 330 miles.

—for Burlington 323 miles.

—for Milwaukee 355 miles.

968

reductions in their revenues from many competitively-

forced freight rate reductions, from added direct import

competition, which can eliminate much domestic rail

transportation, from a possible large reallocation of rail-

road divisions of revenues to Eastern railroads as a re

sult of the determination in No. 31503, A.C. & W. Rail-

road v. A.T. & S.F. Railroad, 321 I1.C.C. 17, decided

March 21, 1968, on reconsideration 1.C.C. , de-

cided December 31, 1963 (Division’s case), and from

loss of much freight weight revenue by the mushrooming

use of light-weight materials such as plastics and dehy-

drated foods in place of older heavier-weight materials,

and that the loss of such substantial existing revenues

could materially injure the respective lines, whereas

under unification, the merged lines can better stand such

adjustments.

Intervener correctly points out that to compete the

railroads will have to purchase vast new quantities of

special equipment, such as wide-door cars, “D-F” cars,

covered hopper cars, mechanical refrigerator cars, piggy-

back trailers and flat cars and trucking equipment and

will have to give more transloading and terminal services

to stay competitive. Additionally, sales efforts must be

intensified to meet the large and stronger motor carrier

solicitation to make the railroad system stronger and bet-

ter financed. It also points out that unification will dras-

tically reduce transcontinental mileage and that unification

can recover lost rail transcontinental tonnage if rail costs

can be reduced, and that these factors will greatly assist

Pacific Northwest shippers and manufacturers to service

their Pacific Northwest markets. It also points out clear-

ly that reduced costs as here proposed can well justify

reduced rates or stabilize the situation against further

rate increases which it considers are the most important

bases of its support. Moreover, the proposed faster and

more dependable freight schedules with two California

routes and two transcontinental routes provide a depend-

ability no single railroad can now give. Intervener gives

strong support for the added stop-off privileges, more effi-

cient dispatch of rai’ cars, eas™r tracing of cars, less

a

accounting and clerical costs and other savings so well

demonstrated in this record.

Intervener’s evidence demonstrates that a competi-

tively strong Milwaukee is essential to the economy and

shipping public of the area involved, and that Milwaukee,

the financial condition of which is not favorable, will sus-

tain substantial revenue losses to the merged lines follow-

ing unification, unless conditions such as Milwaukee’s

conditions 2 and 5 are imposed to any approval order

herein, which would permit it to be competitive. Further,

it points out that Milwaukee will face substantially

greater competition from the merged lines than it faces

from the separate applicant lines, and that non-competi-

tive switching charges to and from shippers located on

the smaller Milwaukee, which would not be charged ship-

pers located on the merged lines at competitive points,

could result in few, if any, new industries locating on

Milwaukee after unification, and that if unification is

approved without conditions to assist Milwaukee, it is

questionable whether Milwaukee could continue to exist

as an effective competitive railroad to the merged lines.

Its evidence shows that because there has been a great

increase in stop-offs involving Portland with Seattle, Port-

land and Spokane and other points, that stop-off cars to

serve Portland is a rule and not an exception, on a vast

amount of general merchandise traffic, since railroad

carload minimums have been greatly increased under in-

centive rates while shippers desire lower and lower in-

ventories. Its evidence shows that Portland is an essen-

tial part of the Pacific Northwest market area and Mil-

waukee must service it direct to be truly competitive, and

that without a Portland gateway, Milwaukee would con-

tinue to decline. Significantly, it shows that direct access

to Portland will enable some of its shippers in Portland

to obtain rail service without withdrawing all of its busi-

ness from Milwaukee and unless Milwaukee matches the

new faster service of the New Company to Seattle, Ta-

coma, and Spokane that entire traffic will have to be

taken from Milwaukee. Significantly, it points to the lack

of any coordinated schedules (after three years of effort),

969

—_—

970

between Union Pacific and Milwaukee via Marengo which

convinces its shippers that a direct Portland gateway is

the only real solution to Milwaukee’s problems. Its evi-

dence shows Milwaukee will lose substantial revenue to

the merged lines unless it obtains direct entry to Port-

land on a time schedule timetable with the merged lines

and that it will face substantially greater competition

from the merged lines than it faces from those of indi-

vidual lines.

Non-competitive switching charges to and from ship-

pers located on Milwaukee which would not be charged

shippers located on the larger merged lines at competi-

tive points could also result in few, if any, new industries

locating on Milwaukee after unification.

However, while the evidence of the Tolin Group pro-

vides strong support to the necessity for consideration of

imposition of the requested conditions, further discussion

is unnecessary in view of the action recommended in con-

nection with those requested conditions, as previously

discussed.

Intervener Proviice BC supports the proposed unifi-

cation with the qualification that ample terms, safeguards

and conditions be prescribed by the Commission to assure

through routes and joint rates be protected should the

unification be authorized and consummated to insure the

maintenance of competitive connections with American

rail carriers other than Great Northern and Northern Pa-

cific. Its position is predicated on the propositions that

shippers and receivers of freight to and from British Co-

lumbia need competitive railroads (as regards rates and

services), to insure proper development of an increasing

volume of traffic to, from and via western United States

which can best be achieved by maintenance of competition

at Sumas and the retention of present rates and routes

including those presently established by Milwaukee

through that gateway; that the proposed unification,

though otherwise desirable, could reduce traffic through

that gateway and impair the competitive strength at that

point; and that present operating arrangements between

Milwaukee and Great Northern between the points of

Everett and Bellingham be continued and made perma-

nent as part of the Commission’s order herein, It fears

that upon unification, Milwaukee would revert as a barge

service operation which was superseded by the present

operating arrangement between Milwaukee and Great

Northern between Bellingham and Everett, and that pres-

ent arrangements be ccntinued and strengthened.

Its evidence shows that British Columbia has an area

of 365,815 square miles; that forest lands form 58.2 per-

cent of that area; that agricultural and urban land form

0.7 percent of that area, and 57 percent (920,872), of the

population of the Province (1,629,082—1961 est.), live in

the area of the lower mainland, the area immediately

served by Milwaukee, Great Northern and Northern Pa-

cific, and that the most economical market to which the

Province would naturally and normally look for its source

of supply is the western United States, and in particular

Washington, Oregon and California. The population of

the area has evidenced a marked increase in recent years,

and the rate of growth is exceptionally high.

The amount of agricultural products imported into

British Columbia and a large proportion of the agricul-

tural products consumed therein come from Washington,

Oregon and California. British Columbia offers an in-

creasing market for both agricultural and manufactured

products from principally those States. Intervener’s con-

cern of potential monopoly over rates and services is

strong and it fears that applicants, if unification is ap-

proved without appropriate conditions, would gain an

exclusive monopolistic control over transportation serv-

ices by rail between the Province of British Columbia

and a large area of the United States, unless Milwaukee’s

competitive position is preserved.

The Pacific Great Eastern Railway Company (PGE),

and the railways of the former British Columbia Electric

Railway Company (BCE), operate within the Province

865.18 miles of mainline railway under Provincial juris-

diction, as against 3,294.06 miles of mainline railway

operated by other companies and within the jurisdiction

of the Board of Transport Commissioners for Canada.

The railway gateways and border connections within the

971

ie

ee “oe

972

Province are the ports of entry of Squamish Dock, D. C.,

at which PGE connects with barge lines to Seattle con-

necting with Milwaukee, Northern Pacific and Union Pa-

cific; Douglas, B. C.—Blaine, Wash., at which Great

Northern operates through interchanging with Canadian

National Railway (CNR), Canadian Pacific Railway

(CPR), and BCE at New Westminster, B. C., with CNR

and CPR at Vancouver, B. C., and with PGE at Van-

couver through CNR or CPR; Huntington, B. C.—Sumas,

Wash., at which BCE interchanges with Milwaukee and

Northern Pacific and CPR interchanges with Northern

Pacific; Oroville, Wash., through which Great Northern

operates a branch line to Keremos, B. C.; Laurier, Wash.,

through which Great Northern operates interchanging

with CPR at Grand Forks, B. C.; Northport, Wash.,

through which Great Northern operates interchanging

with CPR at Nelson, B. C.; and Kingsgate, B. C.—East-

port, Idaho, at which Spokane International connects with

CPR (Spokane International connecting at Spokane with

Great Northern, Milwaukee, Northern Pacific and Union

Pacific).

The ports of entry of Blaine and Sumas should be con-

sidered as one railway gateway, as they serve the area

in the Province containing the largest part of the popu-

lation of the Province. The development of freight traf-

fic between the western United States and the Province

of British Columbia requires the maintenance of compe-

tition at those gateways. Moreover, the evidence shows

that while motor truck transport provides substantial

competition, particularly in the movement of fruits and

vegetables inbound to Vancouver, it also amply supports

the conclusions that Milwaukee is a competitive rail fac-

tor and should continue to be maintained as an effective

competitor at the gateway of Sumas. Likewise, that if

effective competition is not maintained at those railway

gateways, it would disrupt the rate structure beween the

western United States and British Columbia. If effective

competition is not maintained at Sumas, it would, no

doubt, become monopolistic under the control of the merged

company. That situation, in conjunction with control of

all

Everett-Bellingham traffic and the Portland gateway

would give the merged company a further hold on all

north-south traffic. With Milwaukee as an effective com-

petitor, however, if it could provide a single-line service

via Sumas comparable in time and rates with the service

of the merged company to and from Seattle, Tacoma and

Portland, and establish competitive through routes via

Portland in connection with Southern Pacific, the four

Canadian carriers, CPR, CNR, PGE, and BCE, could

find the new line would effectively replace the competi-

tive force lost through merger of Great Northern and

Northern Pacific. Thus, the retention of a strong effective

competitive railroad at the Sumas-Huntington gateway

which would benefit those concerned in the movement of

north-south traffic is a necessity to the British Columbia

economy.

Other interveners—In support of conditions, but neither

in support of, or opposed to, unification as such,

973

Another group of interveners entered their appear-

ances primarily or exclusively in support of imposition

of specific conditions or conditions generally as their in-

terests appear which would assure to them the preserva-

tion or improvement of their respective interests, al-

though they are not opposed to unification as such. Their

interests, evidence, and arguments advanced are broad

and substantial, and are thus identified and will be dis-

cussed.

The Michigan Public Service Commission intervened in

support of the requests of Milwaukee, C&NW and Soo

for the imposition of conditions as a prerequisite to au-

thorization of the transactions here involved. As those

railroads serve the Upper Peninsula of Michigan, a large

land area with a population of about 305,000 people,

which intervener considers an economically depressed

area, it feels that if deterioration or curtailment of serv-

ice by those carriers becomes necessary as a result of the

proposed unification that such will take place in the de-

pressed area from which those carriers obtain lesser pro-

portions of their revenues. Industry in the considered

| RRO 2

974

area is in process of a real and serious revival, and a

sound transportation system in the area is essential to

its success. Intervener urges imposition of the conditions

requested by those above-named intervening railroads in

order that diversion of traffic from them may not reach

the point where it would result in their destruction or

the impairment of their financial condition to the point

where curtailment or deterioration of service would be

the inevitable result. Its witness’ knowledge of the effect

of the conditions requested appears limited. It argues

that imposition of the conditions requested is reasonable

and will minimize the diversion of traffic from those car-

riers, and also minimize the threat of injury to the Upper

Peninsula of Michigan. However, on the basis of the

conclusions reached herein, those carriers which it sup-

ports should encounter little, if any, adverse effect upon

consummation of the proposed unification, if authorized.

Intervener Southwest Oregon Shippers’ Traffic Associa-

tion, Incorporated, of Roseburg, Oregon, a nonprofit cor-

poration supported by lumber, plywood, and forest prod-

ucts mills in southwest Oregon, promotes transportation

facilities which are on or can be located within, or are

available to southwest Oregon. Concerned with adequate

and competitive transcontinental railroad service in its

area, intervener supports Milwaukee’s requested condi-

tion dealing with entry to Portland, because it (1) would

add greatly to the car supply in Oregon, in that Milwau-

kee has one of the largest box car fleets in the United

States, (2) would preserve a choice of competitive rail

service over northern routes, (3) would provide addi-

tional rail competition for northbound and southbound

traffic along the Pacific coast, and (4) would offer its

members an additional rate-making route north and east

of Portland gateway.

Intervener provides freight traffic counseling service

to its 35 members, which shipped a total of 47,400 rail

carloads of their products in 1961, the bulk moving on

transcontinental routes. All its members are located on

the lines of Southern Pacific, on which they depend for

car supply, and approximately 97 percent of production

by rail.

975

While its shipper members have an abundance of rout-

ing available, some with restrictions, intervener expresses

strong need for competitive rates. Other than its support

for imposition of the stated Milwaukee condition, it ex-

presses no support for or opposition to the proposed uni-

fication.

Intervener Wisconsin expresses no support for or oppo-

sition to the applications, but contends that approval of

the unification as proposed would impede rail competi-

tion outside of Wisconsin to an extent detrimental to

Wisconsin’s principal railroads, ultimately to be reflected

in deteriorated rail service to the state. Thus, it supports

imposition of such conditions in any approval herein as

are necessary to protect the financial integrity of those

competing railroads of vital importance to its state, viz.,

C&NW, Milwaukee, and Soo. Those carriers provide in

excess of 90 percent of the rail service based on commu-

nities served, miles of road cperated, and tonnage trans-

ported. Wisconsin recommends no specific conditions re-

quested by the several interveners, but relies on the judg-

ment and expertise of the Commission as the circum-

stances and the record may warrant.

Since applicants’ estimate of revenue gain from diver-

sion of traffic from other carriers would approximate

$12,044,709, the difference of approximately $38 million

between applicants’ total estimate and the potential of

$50 million additional revenues from long-hauls of inter-

line traffic by the unified company is of vital concern

to it due to the impact any substantial diversion of traf-

fic would have on the railroads serving the state. Equally

significant to it is the fact that virtually no consideration

was given to the benefits the unified company would

attain by reason of improved service and facilities, ex-

tensive single-line service, faster through schedules, in-

creased car supply, broadening of transit provisions and

mechanization, since all of those factors are in the nature

of added competitive advantages the unified company

could offer as contrasted to the level of competition that

exists between the applicant railroads and other carriers.

The amount of diversion of potential longer haul of in-

terline traffic by the merged lines is not susceptible to

976

accurate measurement but would be related to competitive

advantages obtained by the merged lines. Moreover, the

various described benefits advocated by applicants are

added competitive advantages the merged lines could offer

as contrasted to the level of competition presently exist-

ing.

Each of the three carriers’ operations in Wisconsin

cover wide areas of the state and involve numerous main

and branch lines. Intervener’s evidence shows that for

1960, of 1,138 rail freight stations in Wisconsin, 325

were located on Milwaukee, 454 on C&NW, 259 on Soo,

and 61 on applicants (Great Northern, Northern Pacific

and Burlington), that of those 1,138 freight stations, 248

are located at competitive points—78 on Milwaukee, 79

on C&NW, 60 on Soo and 21 on applicants, that 890 are

located at non-competitive points—252 on Milwaukee, 375

on C&NW, 199 on Soo and 40 on applicants; of miles of

road operated in Wisconsin (6,090) Milwaukee operated

1,520, CENW 2,633, Soo 1,331, applicants 344, and others

262, of tons of freight originated in Wisconsin ( 16,355,-

000 tons) Milwaukee originated 5,013,000, C&2NW 7,057,-

000, Soo 3,072,000, applicants 788,000, and others 425,-

000, of tons of freight terminated in Wisconsin ( 27,760,-

000 tons) Milwaukee terminated 8,611,000, C&ENW 12,-

122,000, Soo 4,004,000, applicants 1,629,000 and others

894,000.

Other evidence reflecting freight and passenger oper-

ating data demonstrates the importance of Milwaukee,

C&NW and Soo to Wisconsin. In 1960 its three principal

railroads contributed $4,326,000, or more than three

fourths of the total railroad tax burden to the state, and

employed more than 86 percent of the total railroad em-

ployment in Wisconsin. Viewing 1960 annual net railway

operating income of all the Wisconsin rail carriers, the

three principal railroads’ income aggregated $10,927,137,

or 16 percent of the total as against applicants group $45,-

183,486, or 65 percent of the total. Further, in respect of

net income, the three principal Wisconsin carriers encount-

ered combined deficit aggregating $6,191,373, whereas ap-

plicants’ net income aggregated $51,763,546, or 91 percent

of the total. It contends that if unification is approved

without conditions the disparity will become considerably

977

greater considering the additional income which would

gecrue to the merged lines through claimed savings and

economies.

While the proposed unification would not result in ma-

terial change in operations in Wisconsin, except certain

terminal revamping at the Head-of-the-Lakes area, and

since little competition exists between applicant lines and

the Wisconsin principal railroads, the factor of competi-

tion between applicants and the three principal Wisconsin

railroads is that which exists in the vast territories be-

yond the State of Wisconsin, and is intervener’s princi-

pal cause for concern. It maintains that the estimates of

applicants dealing with prospective diversion of traffic

and revenue from other rail carriers, particularly on

longer hauls, are predicated on judgment percentages for

yarious commodities and commodity groups and could

prove to be unreliable.

Aside from the varied estimates of traffic losses to the

principal Wisconsin rail carriers, it is significant that

the losses of the magnitude portrayed of record by both

applicants and interveners Milwaukee, C&NW and Soo

are such that any reductions on freight revenue unac-

companied by equivalent savings in expense would threat-

en the Wisconsin rail carriers’ solvency, which makes

imposition of conditions imperative.

Intervener Wisconsin Manufacturers’ Association ex-

presses no opposition to unification so long as conditions

are imposed to safeguard Milwaukee and C&NW should

the unification be authorized and consummated. Inter-

vener association is composed of some 1,200 manufac-

turers in Wisconsin, about 4 percent of which are served

by Burlington, Great Northern or Northern Pacific, the

remaining 96 percent are served by Milwaukee, C&NW

or Soo. Although other rail carriers operate in Wiscon-

sin, the latter three lines operate 90 percent of the rail

mileage and carry 90 percent of the total rail tonnage in

Wisconsin. Intervener fears that since those carriers come

into active and vital competition with applicant railroads

in areas other than Wisconsin, the competition would be

affected seriously by the proposed unification. It ex-

presses concern that losses anticipated by Milwaukee,

C&NW and Soo, if realized, would cause service to suffer.

wer 7

Bintan cs.

978

It recognizes the scope and significance of the stipula- —

tion between Soo and applicants and urges the stipulated

conditions be imposed. While it undertakes no analysis

or evaluation of the differences in losses to Milwaukee

and C&NW as claimed by them as against applicants’

projections, it feels that any conclusion must be a matter

of judgment and assumes that substantial revenue losses

would, nevertheless, accrue to Milwaukee and C&NW

upon unification. Because it fears those carriers are un-

able to withstand substantial revenue losses, it concludes

that resulting reductions and impairment of services to

shippers and receivers cannot be doubted. It, therefore,

concludes that the Wisconsin railroads cannot absorb sub-

stantial losses of traffic and revenues without offsetting

economies through withdrawal of essential services, aban-

donment of branch lines, and the like. It indicates that

if unification is denied it sees no reasons why the present

climate of active and vigorous competition would not

continue.

It urges that recognition be made that the conditions

proposed by Milwaukee and C&NW are designed and

purposed for a necessary and desirable end in the public

interest and that they be given careful consideration as

the means whereby the continuance of adequate railroad

service to shippers within and throughout Wisconsin may

be preserved.

Other interveners—In opposition.

A number of interveners express opposition to the pro-

posed unification. Only four, Iowa, South Dakota, Ore-

gon, and Agriculture, alternatively would support impo-

sition of specific conditions for the protection of certain

railroad interveners in the event the Commission finds

the transactions otherwise consistent with the public in-

terest. The remainder are unalterably opposed to unifica-

tion for various reasons. Their evidence and arguments

cover broad fields of interest and will be discussed.

Intervener Iowa opposes the applications contending

unification as proposed would adversely affect the com-

petitive position of interveners Milwaukee and C&NW

a

to the extent that they would suffer serious traffic losses

which would substantially affect their ability to serve the

State of Iowa and other areas they now serve and thus

impair their present usefulness, and is particularly con-

cerned with preserving rail service to the 259 Iowa com-

munities now served by Milwaukee. Alternatively, it

urges, if the Commission finds the transactions otherwise

consistent with the public interest, imposition of condi-

tions requested by Milwaukee and C&NW (which it as-

serts would benefit some Iowa shippers located on those

lines) in any order approving the proposals, although it

expresses no knowledge or concern of the effect upon

applicants of imposition of such conditions. If such con-

ditions were imposed, it would withdraw its opposition.

Intervener’s position is predicated primarily on the

evidence introduced by Milwaukee and C&NW in support

of their contentions of harmful adverse effect. Faced

with a choice between improved service to shippers on

the lines of Burlington and economic disadvantage claimed

by Milwaukee on the one hand, and the continuance of

the status quo, it prefers the latter. While Iowa’s ob-

jections are clearly defined of record, its position is di-

ametrically opposite to that of its governor who, as the

highest elected state official, testified in support of appli-

cants’ proposal in general terms. It concludes that appli-

cants as unified would be in a stronger position competi-

tively in relation to Milwaukee and C&NW, and in a

much better position financially.

Its evidence shows that seven major railroads and

three or four other lines serve the State of Iowa, of which

only Great Northern (60 miles), Union Pacific (10 miles)

and Milwaukee (1,782 miles) provide single-line service

to the Northwest Pacific coast, that the state has a popu-

lation (1960) of 2,757,537, of which 862,869 are located

at 259 points in the state served by Milwaukee, that of

those points, 184 are incorporated cities or towns of

which 127 are served exclusively by Milwaukee, and 75

unincorporated communities or stations of which most

are dependent solely upon Milwaukee for rail service;

that Milwaukee serves 56 of the 99 counties in Iowa; that

Milwaukee operated 1,782 miles of rail lines in Iowa of

979

aie 7

980

which 549 miles were branch line; that in 1960 91,239

carloads of freight aggregating 3,159,504 tons originated,

and 87,956 carloads of freight aggregating 3,459,159

tons terminated on the lines of Milwaukee in Iowa; and

that Milwaukee paid taxes to the State of Iowa for 1960

aggregating $1,501,649, and employed in the state in 1960

a total of 2,062 employees with an aggregate payroll of

$12,474,938. Further, the C&NW operates 2,153 miles

of rail line in Iowa, which includes the lines of M. & St.

L. acquired; that in 1960 82,473 carloads of freight origi-

nated and 83,885 carloads of freight terminated on its

lines in Iowa (exclusive of M. & St. L. carloadings) ;

that together with M. & St. L., C&NW paid taxes to the

State of Iowa for 1960 aggregating $1,343,368.

Intervener is impressed with the testimony of nine

shippers with plants and facilities located in the State

of Iowa concerned with favorable action on the conditions

1 and 2 requested by Milwaukee and those conditions re-

quested by C&NW relating to the Oakes and Crawford

gateways, who are dependent upon the services of those

railroads. On the basis of the data presented by Milwau-

kee and C&NW and concerned with the continued main-

tenance of that service in Iowa, on the one hand, and,

on the other, the data presented by applicants concern-

ing Burlington, and its service in Iowa, intervener as-

serts there can be no argument that Burlington will not

be able to continue to perform its present service without

unification.

However, it is clear the arguments advanced by inter-

vener Iowa are primarily directed in support of those

of interveners Milwaukee and C&NW, previously dis-

cussed. Significantly, the maintenance of continued oper-

ations by Milwaukee and C&NW in Iowa, are essential.

The findings, appropriately conditioned, would insure the

continued stability of those carriers in the event of con-

summation of the proposed unification. The improved

services available to Iowa shippers and receivers both by

applicant New Company, upon unification, and the named

competing intervener carriers, would be beneficial and

clearly in the public interest.

—

981

Intervener South Dakota opposes unification contend-

ing consummation thereof would be harmful to interveners

Milwaukee and C&NW, upon whom the farmers and ship-

pers of that state primarily depend for direct rail service

throughout the state, to the extent they would suffer seri-

ous traffic losses. However, if the Commission finds the

transactions otherwise consistent with the public inter-

est, it supports imposition of appropriate terms and con-

ditions, in addition to those agreed to by applicants, to

fully protect the two principal rail carriers in South

Dakota (Milwaukee and C&NW), in their competitive

relations with the applicant railroads, Its governor, deep-

ly concerned, indicated that if unification should be au-

thorized without imposition of conditions requested by

Milwaukee and C&NW, it would cripple and diminish

their power to compete adequately with the merging lines,

which would be detrimental to the State of South Dakota,

and its shippers and receivers.

South Dakota fears that unification as proposed would

create a rail network under single management between

Chicago and the West Coast, eliminate competition be-

tween the merging lines, and that if granted without

imposition of the conditions requested would adversely af-

fect Milwaukee and C&NW and their ability to compete

with the merged lines, would imperil the service Milwau-

kee and C&NW provide and the continued maintenance

of the many needed branch lines in South Dakota upon

which the impact of such losses would first fall which

would be harmful to shippers and receivers of freight in

South Dakota, and thus impels it to urge the adoption

of the conditions advocated by Milwaukee and C&NW.

Its evidence, through two witnesses, shows that four

major railroads serve the State of South Dakota (popu-

lation 708,000, 1960 est.), Milwaukee, C&NW, Great

Northern and Burlington. Data for 1960 in respect of

the mileages of rail lines, revenue, assessed valuation

and number of stations in South Dakota shows:

T

j

982

; Mileage Assessed No. of

% Line Total Branch Revenue Valuation Stations

\ Milwaukee 1,738 (695) $15,917,085 $43,114,313 166

_ C&NW 1,459 (742) 7,896,673 24,183,766 131

_ Great Nor. 358 (345) 846,560 8,045,435 38

Burlington —183 (135) 1,495,243 5,048,600 10

In 1961 Milwaukee and C&NW paid a total of $1,173,-

000 in taxes to South Dakota as against Great Northern

and Burlington which paid $174,288, During 1960, 2,633

carloads of freight traffic of Milwaukee originated or

terminated in South Dakota from or to points in Wash-

ington, Oregon, Idaho and Montana reépresenting $1,-

412,903 in freight revenue of which Milwaukee’s division

aggregated $1,000,672. During that year, South Da-

kota produced commodities with an aggregate value of

$1,039,724,000 available for rail transportation. During

1960, 4,516,436 tons of carload traffic originated and

3,174,620 tons of carload terminated in South Dakota,

and in 1961, 5,153,848 tons of carload traffic originated

and 3,319,098 tons of carload traffic terminated in South

Dakota. Moreover, 83 percent of all traffic originating

and 86 percent of all traffic terminating in South Da-

kota during 1960 was handled by Milwaukee and C&NW.

South Dakota does not refute applicants’ estimates of

economies, improved service, added strength and antici-

pated benefits unification would afford. It argues that

they are not in the public interest to the extent con-

tributed by its farmers, shippers and industries which

are essential to its economy, It fears elimination of

competitive relationships between the merging lines, and

affording to industries on their lines the benefits por-

trayed would result in a competitive transportation serv-

ice with which shippers and industries located in and

served by the South Dakota rail carriers would find it

difficult to compete unless adequate terms and condi-

tions are imposed to assure an equal quality of rail

service.

983

Intervener The Public Utility Commissioner of Ore-

gon opposes the proposals, contending that the economic

base of the State of Oregon will continue to support

competitive rai] service and that loss of competition re-

sulting from unification is not warranted; that New

Company’s car supply will not be improved; that loss of

SP&S key personnel at Portland (through reductions and

transfers) will not serve the public interest; and that

discrimination in the rate structures will result.

Oregon is served by applicants, including SP&S, South-

ern Pacific and Union Pacific, which provide the state

with three transcontinental routes: (1) traffic to south-

ern and eastern points may move via the Southern Pa-

cific or over a combination of the SP&S system and

Great Northern through Klamath Falls, and then West-

ern Pacific to Stockton, and then Santa Fe to form a

southern route through Arizona and New Mexico to

Chicago and other eastern points; (2) traffic to and

through central gateways for termination at eastern

points may move from Portland via Union Pacific over

its Columbia River route to Omaha and points east, or

from Portland via Southern Pacific to the Ogden gate-

way and a connection with Union Pacific to eastern

points, or via a combination of the SP&S, Great North-

ern and Western Pacific through the Utah gateway and

connecting principally with carriers which compete with

Union Pacific; and (3) traffic to the northern tiers to

states may move via the Great Northern or Northern

Pacific.

Intervener contends that on unification, the benefits

of competition now existing between applicants will be

lost and New Company “will have an iron hand of

monopoly” on the Portland gateway through which traf-

fic to northern and eastern transcontinental points now

moves, and it thus seeks either denial of the application

or, if granted, the imposition of all of the proposed Mil-

waukee conditions and the adoption of the Oregon pro-

posal as subsequently described.

Its evidence included a proposal that SP&S be with-

held from the instant transaction, that Great Northern

and Northern Pacific be required to dispose of their

een

Late Ry

984

stockholder interests in the SP&S, and that control of

SP&S be acquired by Milwaukee; that SP&S dispose of

Oregon Electric and Oregon Trunk to Great Northern

and Northern Pacific and redeem its bonds now held by

the latter companies; that New Company be granted

trackage rights over SP&S between Spokane and Port-

land; and that Milwaukee be given joint trackage rights

over the present Oregon Electric from Portland to Eu-

gene in addition to trackage rights which it seeks be-

tween Longview and Portland. Since Milwaukee does

not serve Oregon directly, and the use of that railroad

by Oregon shippers is inhibited as a result of certain

routing restrictions, Oregon contends its proposal would

provide Milwaukee with competitive tools to avoid an

unwarranted reduction in competition in terms of a con-

centration of wealth and traffic potential in the hands

of New Company assuming that the authority sought is

granted without condition or modification.

The evidence and arguments raised by intervener

Oregon indicate its concern with rail competition and

the effect on the growth and development of the var-

ious industries within the state. Its evidence shows the

increases, since 1940, in carload movements, to, from and

through the state, population, employment and _ indus-

trial growth, and in some instances, also reveals declines

in carload movements by the Northern Lines on traffic

originating within the state and in one industry.

Oregon’s population in 1960 was 1,768,687 which rep-

resents an increase of 63.2 percent over 1940. Farm

employment in 1960 declined to 59,265, a decrease of

35.1 percent from 1940; while industrial employment in-

creased by 97.2 percent between 1940 and 1958 to 182,-

572. The lumber industry, which accounts for two-

thirds of all rail carloads originating in the state, had

2,760 establishments in 1958, an increase of 278.6 per-

cent over 1940. Pulp and paper industries increased to

55 establishments in 1958, an increase of 89.7 percent

compared to 1940, The increase in carload originations

in the state from 1947 to 1960 in such commodities as

veneer, plywood and build-up wood was 1,116 percent;

pulpwood, up 294 percent; printing paper, up 159 per-

a

cent; paperboard, etc., up 2,718 percent; and wallboard,

up 455 percent. The number of food establishments de-

creased by 14.9 percent to 566 from the number main-

tained in 1940. Canned goods and frozen fruits and

vegetables are also important and growing industries in

the Pacific Northwest. From 1940 to 1960, the amount

of available carloads of canned goods increased from

10,236 to 18,891, an increase of 8&5 percent, and car-

loads of frozen foods increased from 2,385 in 1940 to

20,305 in 1960, an increase of 751 percent. As of 1958,

there were 95 canning and freezing plants located in

Oregon, with 52 in the Willamette Valley of which 13

are located in Salem. The Oregon Electric serves 24,

and 28 are located on Southern Pacific. The services of

both roads are available to many of these plants through

spur or team tracks or because they are located at a

point where competitive traffic is interchanged.

Oregon’s dependence on rail service stems from the

state’s production of forest products, agricultural com-

modities, and processed foods which exceeds local de-

mand, and the excess is expected to continue indefinitely.

Conversely, the state’s demand for manufactured goods

exceed local production. Rail transportation is essential

for an adequate balance of trade between Oregon and

other markets. Oregon maintains that truck service can-

not begin to fill the transportation needs of the raw

material economy of the Pacific Northwest since lumber,

plywood, paper products, aluminum, grains, and proc-

essed foods, all with markets thousands of miles away,

are tied to rail transportation.

Railroads have played an important part in the de-

velopment and growth of the state. Thus, intervener

argues that any diminution or withdrawal in present

rail service without replacement would adversely affect

Oregon’s public interest; that intramodal rail competi-

tion has been the backbone of the transportation system

connecting the Pacific Northwest with the rest of the

nation; and that Oregon, being at the end of the line

of the system, has no suitable alternative route of trans-

port. Further, that loss of competition between Great

Northern and Northern Pacific existing between Oregon

985

PPaieesevciccn, idee Rass ae

Carried in

Railroad Originating Terminating Oregon

Great Northern 14,507 2.9% 11,615 3.7% 131,484 9°

Northern Pacific 5,729 = 1.2% 8,621 28% 100,784 74°)

Oregon Electric 34,712 7.0% 10,122 3.3% 38,834 3,’

Oregon Trunk 12,006 2.4% 3,106 1.0% 91,5388 67°

SP&S 27,084 54% 35,089 11.3% 116,715 83

TOTAL 94,038 18.9% 68,553 12.1% 480,355 352°

Southern Pacific 317,039 63.7% 173,546 55.7% 575,729 42)

Union Pacific 86,476 17.4% 69,179 22.2% 310,138 227°

TOTAL 403,515 81.1% 242,725 77.9% 885,867 648

Total by all

railroads 497,553 100% 311,278 100% 1,366,222 100

ST, ase eR ee

986

and those points commonly served by both roads in the

northern tier states militates against public interest,

limits the routes available to shippers, and the access to

available traffic by competing railroads. The traffic

shown by the number of carloads carried by the rail-

roads serving Oregon during 1960, is as follows:

Viewing the above data, it must be borne in mind

that, except for Portland and one agency station, Great

Northern and Northern Pacific do not compete for Ore

gon traffic, and because of the relationship of the SP&S

and its subsidiaries to Great Northern and Northern

Pacific, it cannot be said that competition exists among

these carriers. Moreover, 96.85 percent of the stations

served by applicants will either continue unchanged aft-

er the merger or will continue to have service by two

or more railroads.

While Oregon’s economic base will support competi-

tive rail service in that there will be traffic available

which is expected to increase due to the state’s develop-

ment and growth, the state has viewed ‘competition’ in

a vacuum. It contends that Great Northern and Nor-

thern Pacific are presently the major competitors for

traffic along the northern tier states to Twin Cities and

that following merger, one giant system would compete

_ —

987

with Southern Pacific and Union Pacific for east-west

traffic and with Southern Pacific for north-south traf-

fic over the present “inside gateway”. The conclusion

it draws is the concentration of Great Northern and

Northern Pacific traffic is not needed to enhance effective

rail competition in that state since it already exists;

and that where the applicants are financially sound and

intramodal competition can be maintained, this compe-

tition has been maintained. However, Oregon does not

weigh diminution or loss of competition against the

prospective benefits accruing to the state’s shippers re-

sulting from the merger. Its argument on this point is

in general terms and assumes that a lessening of com-

petition ipso facto requires the denial of the applica-

tions or the imposition of its proposal which literally

rots the foundation on which the applicants expect to

build a sounder transportation system in the Pacific

Northwest. In view of the conclusions herein, providing

for entry of Milwaukee to Portland which would permit

it to be an effective competitor, further discussion on

Oregon’s argument is unnecessary.

Oregon maintains that the availability of cars will not

improve following merger. Of particular concern to it is

the removal from Portland of certain key personnel of

the SP&S system who deal with the car supply problem

in the area. Essentially, Oregon contends that the avail-

ability of cars will decrease under the management of

New Company, and that the present arrangement of

“grass-roots” distribution from Portland is more efficient

than the proposed district transportation points to be

established some 200 miles from the scene at Seattle with

final distribution as between districts to be decided at

headquarters, some 2,000 miles from Oregon.

SP&S, which receives its car supply from Great North-

ern and Northern Pacific, has in recent years suffered

shortages of wide-door cars necessary for the loading of

such commodities as plywood, fibreboard, wallboard and

other like materials. Additionally, cars in bad-order con-

dition are increasing, and those factors, coupled with

greater economic activity, produce an even more severe

shortage of general equipment. The unification, Oregon

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argues, will not alleviate these conditions. Moreover, it

asserts applicants’ data on the indication of availability

of cars following the merger (1,750 more cars) is not

valid since it is based on 1956 levels of freight traffic

and car inventory, whereas substantially higher traffic

levels are predicted for New Company; that to have any

validity, car inventories and traffic levels must bear the

same relationship to determine the availability of cars.

Oregon admits that, since 1956, there has been a down-

ward trend in freight handled, and to a lesser degree, a

downward trend in freight car inventory maintained by

applicants; but those factors did not relieve the wide-

door car shortage in Oregon which existed as late as

1961. Also, it asserts the availability of cars following

the merger, even if it does occur, will be of no avail due

to the rate of decrease of car ownership.

Oregon argues that the merger will not assure a more

equitable car service in the northwest, in that only the

headquarters of New Company would know what cars

are available system-wide, and that distance therefrom

creates a potential problem of communications on car

needs from the Oregon area. Attacking applicants’ re

liance on a general redistribution of cars between Great

Northern and Northern Pacific as increasing availabil-

ity, Oregon argues that no study was made to show the

savings involved in avoiding costly backhauls which the

redistribution would curtail, indicating the significance

of this redistribution cannot be measured in terms of

public benefit.

Applicants’ traffic patterns produce an off-line flow of

ears with return of the cars mainly in the eastern sec-

tions of the system. New Company will have a greater

perimeter and cars will be at home on Burlington points

which would not be common to the present Northern

Lines. Under these conditions, Oregon maintains that

applicants could obtain the maximum dollar return from

originating divisions between New Company and its

eastern connections rather than from long haul revenues

less long haul expenses, and that common business sense

would dictate that course to the detriment of the West

Coast originating traffic rather than returning cars from

989

perimeter points to interior stations. In comparison,

Oregon prefers the present “grass-roots” distribution

problems in that area.

Recognizing the benefits which competition brings re-

garding car supply and fearing that the proposed merg-

er, eliminating the competition between the Northern

Lines, would worsen the car supply available to SP&S

(which relies on the Northern Lines) Oregon seeks,

should unification be approved, the imposition of condi-

tions dealing with car supply requiring (1) New Com-

pany to maintain records of cars ordered and filled on a

daily basis, according to recognized classifications, at

all district and division headquarters, and (2) all re-

quests for information concerning car supply by public

agencies concerned with this problem be honored as ex-

peditiously as possible. That requested condition does

not warrant imposition. The matter involves internal

administration.

The present car supply problem shows that mainte-

nance of the “grass-roots” distribution advocated by Ore-

gon is no panacea. In fact, this problem is one of the

motivating factors of the merger and the proposed meth-

od of distribution is designed to turn the tide. Oregon,

in its presentation, has sketched the problem, but it is

only through belief and conjecture that it arrives at its

conclusion that the new method of car distribution will

not fulfill its expected function. Applicants deny Ore-

gon’s allegation that perimeter points would receive

preference in car supply demands. The very purpose of

centralized car distribution is to provide and facilitate

instructions for equitable car allocation throuchout the

system and that the districts would report at least daily

on the status of cars and loading requirements. Coup-

ling this with the faster return of system cars to svstem

lines, applicants expect that the car supply problem will

improve greatly. To retain the present methods would

be tantamount to a failure to exhaust all of the potential

of New Company within the area of bringing greater

public benefits. Regarding the effect of competition be

tween railroads on car supply. with Milwaukee’s access

into Portland, which is a condition herein of approval of

LS "

AROS os = 4

990

the merger transaction, that competition would be main-

tained.

Intervener submits that loss of personnel at Portland

caused by changes in handling freight in that area fol-

lowing unification will result in a direct, negative, eco-

nomical impact and, ultimately, service will suffer. With-

in the state, 531.2 jobs will be abolished at Portland

(510.2), Klamath Falls (15), and Eugene (6). A total

of 32 jobs will be added resulting in a net loss of 499.2

jobs lost. Gross loss of compensation is $3,114,796, and

the net loss is $2,885,059. Portland will bear the brunt

of this suffering a net loss of $2,918,544. This adverse

affect alone, Oregon argues, warrants denial of the uni-

fication.

The abolishment of jobs and the failure by applicants

to detail the nature of the staff and service at Portland

to be available to the state’s shippers indicates to Ore-

gon that service will suffer. The present SP&S system

will be broken up, in effect, since that portion of it from

Wishram to Spokane, Wash., will be supervised by the

Pasco division of New Company. Oregon contends that

the jobs to be abolished at Portland involve the people

who bear the prime responsibility for operation of their

departments and represent the final authority to ship-

pers desiring their assistance. The rail system that

these officers represent originates most of its traffic in

Oregon. What is to remain in Portland, Oregon main-

tains, is not in evidence and it deduces that personnel re-

moval will change the city from a major rail terminal

to a division point. No industrial development staff will

remain in the state, it contends, and that, plus the eleva-

tion of Seattle to a division headquarters, places Port-

land at a competitive disadvantage with Seattle as sea-

ports which vie for economic edges in rate matters.

Under unification, Oregon fears that the balance will tip

in Seattle’s favor with the removal to that city of the

SP&S personnel now at Portland. Oregon here seeks

a staff representing New Company comparable to the

existing SP&S officials at Portland; otherwise, it feels

adequate transportation service in the state would not

be promoted.

991

The effect of the unification on Portland and the state

as a whole must be weighed against the resultant benefits

and cannot be treated solely as Oregon does, nor is it a

compelling reason for denial, especially with the modifi-

cation permitting the introduction of Milwaukee into

Portland, as described herein. The advent of Milwaukee

into Oregon will compensate to a large extent for the

expected losses due to the administrative and operational

changes of New Company, and in all probability will

completely overcome the expected job loss impact in Port-

land.

Finally, Oregon contends that the record does not clear-

ly indicate the removal of discriminatory rates concern-

ing the movement of woodchips originating at points on

Oregon Electric and Oregon Trunk in Oregon destined

to points on Northern Pacific in and around Longview,

Wash. This results from not merging those two lines

into New Company and will be the only area where two-

line rates exist on applicants’ lines following unification.

Oregon argues that the situation is discriminatory unless

all transit and diversion privileges and routing routes

are accorded to shippers served by Oregon Electric and

Oregon Trunk as if those roads were merged into New

Company. It acknowledges applicants’ commitment that

the rates on woodchips between points on the Oregon Elec-

tric and Oregon Trunk and the New Company points in

Washington will be made on the Washington single-line

distance scale (which is the level generally applied for

the movement of this commodity between points involving

single-line hauls in North Pacific Coast territory), but

does not regard it as unqualifiedly removing the discrim-

inatory possibilities. It requests that the findings herein

dispel this alleged discrimination by conditioning ap-

proval on the full participation of the SP&S system in

New Company’s rates, routes and tariffs as if that sys-

tem were completely merged into New Company.

As previously indicated, Oregon believes that the uni-

fication should be approved only as modified by its pro-

posal, imposition of all of Milwaukee’s conditions, and

adoption of the stipulations between applicants. on the

one hand, and Southern Pacific, Union Pacific, Western

Vihes 22 ¥

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992

Pacific and Santa Fe on the other. Its proposal would

withhold the SP&S from the lease proposal for operation

as a separate entity, although ownership would be re-

tained by New Company, and the SP&S would be main-

tained with key personnel at Portland funnelling traffic

to New Company.

Under those conditions, Milwaukee and New Company

would be required to seriously undertake negotiations by

which New Company would acquire Oregon Electric and

Oregon Trunk stock from SP&S, and the latter’s bonds,

now held by the Northern Lines, would be redeemed.

That, Oregon contends, would clear up the financial struc-

ture of the three companies involved and would be es-

sential to further steps on the proposal. At this point,

under the proposal, Milwaukee should acquire control

of SP&S from New Company, subject to the approval

of the respective shareholders and this Commission. The

SP&S would be maintained as a separate corporate en-

tity. Thus, via SP&S, Milwaukee gains access to Port-

land. To avoid the disintegration of New Company’s

lines in the region, the proposal calls for the grant of

trackage rights from SP&S to New Company between

Spokane and Portland. New Company would be allowed

to carry on the major portions of planned re-routing of

traffic south of Tacoma as well as permitting New Com-

pany access to Portland. To provide Milwaukee with

deeper access into the state, Oregon’s proposal concludes

with the grant of trackage rights to that carrier over

the Oregon Electric from Portland to Eugene and other

Willamette Valley points (including rights over South-

ern Pacific as presently enjoyed by Oregon Electric) as

well as over New Company’s line from Longview to Port-

land.

Oregon maintains that its proposal would broaden ex-

tensively the markets available to Oregon shippers and

to provide transit and diversion privileges on Milwaukee

and New Company points which would bring open and

unrestricted traffic avenues vital to the maintenance of

sound trade. Oregon does not advocate the accomplish-

ment of its proposal as a condition to approval of the

merger. Rather, the condition which it seeks to have

—

imposed is that its proposal be undertaken seriously and

that the SP&S system be divorced entirely from the uni-

fication proceedings for a period of at least 10 years.

The financial aspects of its proposal were roughly

outlined by Oregon as follows: SP&S, in return for the

redemption of its bonds held by the Northern Lines,

would dispose of the Oregon Electric and Oregon Trunk

to New Company. SP&S carries these bonds on its books

at a value of $54,710,000. Deducted from this amount

is $29,608,414 being the book value of Oregon Electric

and Oregon Trunk stock and $821,272 in total advances.

Thus, in acquiring control of SP&S, Milwaukee would

owe on the bonds $24,280,314. Fixed charges on these

bonds is estimated at $971,213 annually (at a rate of

four percent per annum) and assuming the book value

of SP&S stock ($70,334,014) to be acquired by Milwau-

kee, financed for a period of not less than 50 years, the

fixed charges on this transaction would be about $3,516,-

700 at five percent per annum. Thus, the annual fixed

charges that would be incurred by Milwaukee would ap-

proximate $4,487,913 annually. The estimated $25 mil-

lion due New Company on the SP&S bonds, intervener

asserts, could either be assumed or refinanced.

Based on Oregon’s studies of traffic and revenues car-

ried by these lines, it estimated that 45 percent would

accrue to Milwaukee and 55 percent to New Company.

In revenues, those studies indicate that about $30,506,000

would shift to Milwaukee. This results in $7,750,000 net

revenues before taxes and fixed charges from which Mil-

waukee could meet the approximate $4,500,000 in fixed

charges which it would incur as a result of the proposal.

New Company would suffer a loss of about $9,300,000

from its over-all unification benefits, leaving it with

about $35,600,000 under the Oregon computations,

Oregon maintains its proposal would create two compe-

titive direct line service routes to Twin Cities and Chi-

cago for shippers in western Oregon and Southern Wash-

ington on the SP&S system as opposed to applicants’ pro-

posal of only one such line, which would also bring these

shippers a better car supply, especially on the present

Oregon Electric and Oregon Trunk, since the Milwaukee

993

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994

has experienced less severe car shortages than the North-

ern Lines and should be able to accommodate the ship-

pers on the line in Oregon and Washington.

The record indicates three reasons why under the ap-

plications the SP&S system is to be leased to New Con-

pany rather than merged at this time: (1) To maintain

the availability of the $54 million of SP&S bonds as a

financing medium by New Company if desired; (2) to

avoid a readjustment of freight divisions which would

otherwise be required if a change was made in the formal

ownership of Oregon Electric and Oregon Trunk; and

(3) to avoid the possibility of an approximate $9 million

tax claim on the theory that liquidation incident to merger

may be treated as a sale so that a taxable profit might

be held to arise because the SP&S bonds had been ae-

quired by the Northern Lines at a discount. That un-

certainty makes it desirable to defer the impact of such

a tax in an effort to work out a fair and acceptable plan

to the Commissioner of Internal Revenue and which

would be more consistent with the realities of the trans-

action. However, under the lease arrangement as pro

posed by applicants, the properties of the SP&S system

would be operated as a part of New Company. Indeed,

the operating plan proposed in the Wyer Report and

adopted by applicants shows SP&S is an integral and

necessary part of the new system and represents an in-

vestment by the Northern Lines of $175 million. Its water

level route avoids crossing the Cascade Summit and will

be used as the principal route for all through traffic to or

from points south of Tacoma. A new bridge is to be

built from the Northern Pacific main line, west of Spo-

kane, to connect with the SP&S line for expedited service

to Vancouver. Another connection would be constructed

between these two carriers south of Spokane so that all

of the trains can enter and leave Spokane via the supe-

rior SP&S trackage with the Northern Pacific line at

Marshall being abandoned. Another connection is to be

built between Northern Pacific and Oregon Electric near

Vancouver to permit Oregon Electric trains direct access

to that city rather than moving them to Portland and

then transferred to Vancouver for placement in line-haul

@

trains. Under unification, and during the lease term,

shippers on the SP&S system will receive the benefits of

the merger such as faster service, increased transit and

diversion privileges and increased car supply. To threat-

en the eventual unification of the SP&S system into New

Company is to invite chaos. Assuming applicants would

consider the sale of SP&S, the period of negotiation would

be extensive, and the price probably much higher than

stated book values as contemplated by Oregon. Mean-

while, New Company would have no incentive to main-

tain SP&S at the standard planned under unification; it

would seek to have industries locate on its own lines

rather than SP&S; and it could not justify the SP&S’s

annual $700,000 passenger train deficit, and it would

seek discontinuance of these operations.

The record shows that the public interest would bene-

fit by Milwaukee gaining access to and serving Portland

under Milwaukee’s proposed condition 2, Anything fur-

ther, such as the Oregon proposal, requires a more sub-

stantial and definite basis, and this record affords none.

The corporate emasculation called for by Oregon does

not, to any measurable extent, bolster the shipper’s posi-

tion over that offered by the unification as conditioned

herein. In fact, without the SP&S, the disruption of the

unification by adoption of the Oregon proposal cannot be

foretold except that it may well doom the unification to

the detriment of the public. Further, the proposal re-

quires participation of applicants, Milwaukee and South-

ern Pacific, none of whom has agreed to negotiate and

only the Milwaukee has evidenced an interest if this Com-

mission finds that the proposal might be in the public

interest. But it cannot be said that the public interest

will be served by cutting into the applicants’ system to

provide service by another carrier which may not as well

perform this service as compared to the benefits which

are under consideration herein.

Intervener Agriculture has a dual interest in these pro-

ceedings. Primarily, its Secretary is interested as gov-

ernmental representative or spokesman for the agricul-

tural community in the areas here involved and in the

nation in general. Secondarily, under the directions of

995

996

its Secretary, in connection with various promotional pro-

grams and activities for which it has statutory responsi-

bilities, including the programs and activities of the

Commodity Credit Corporation, it is a shipper, directly

or indirectly, of a very substantial volume of agricultural

products and farm supplies with which, inter alia, these

proceedings are concerned and because of its financial

interest in said corporation, it seeks equitable and rea-

sonable rates and services and adequate facilities for the

transportation of such commodities,

The nation’s annual harvest of agricultural commodi-

ties must reach the various markets without undue delay

and at reasonable rates. Intervener has for many years

supported measures to increase services and transporta-

tion flexibility for marketing products of the farm. The

~area served by applicants is, to a large extent, devoted

to the production of agricultural products as thus defined

by intervener Agriculture.

Intervener indicates it is not opposed to mergers per

. se,-but that in the interest of producers, shippers and

receivers of agricultural commodities and materials for

—

4 production and for the expeditious movement of agricul-

: tural traffic, it requests that serious consideration be

given to the necessity in the public interest of maintain-

ing competition between the railroads seeking merger

herein and competing railroads in the area involved.

While at the outset of these proceedings, it asserted no

position for or against unification, during the hearings

it finalized its position as outright opposition to the pro-

posals. However, it contends that if the Commission

should determine that the unification be approved, re

quirements should be imposed with respect to freight

traffic (1) that all existing gateways among the railroads

seeking merger herein and competing railroads be main-

tained under through routes and joint rates; (2) that

additional gateways, through routes and joint rates be

established between the railroads seeking merger herein

and competing railroads so as to accord producers, ship-

pers, and receivers adequate access to all markets and to

all sources of supplies; and (3) that no lesser quality of

service than at present be furnished over any of the ex-

Ate pee Ee!

RTM ee

POMEG Ee OS Baie Bina

“

isting main or branch lines of the railroads included in

the merger without approval of the Commission after

opportunity for the presentation of possible objections

by interested persons,

Intervener has traditionally been in favor of wide open

routing and has taken that position in a number of pro-

ceedings. Its proposed conditions (2) and (3) are viewed

as dealing with the same quality of service as is now

furnished.

Its evidence shows that the area served by applicant

railroads is, to a large extent, devoted to the production

of agricultural commodities, and that due to substantial

increases in production, commodities must have ready

access to consuming and processing centers with the

greatest degree of transportation fluidity and flexibility

and the lowest possible scale of compensatory rates. Fur-

ther, it shows the percentage the gross freight revenue

from agricultural products is of the total gross freight

revenue of applicant railroads and three of its competi-

tors. Agriculture, including animals and products, and

forest products, produces about one-third of Great North-

err. revenue, about one-half of that of Northern Pacific,

nearly two-thirds in the case of SP&S, better than one-

third of Burlington, and about 30 percent for C&S, the

subsidiary of Burlington. Of the competing railroads,

agriculture accounts for about 40 percent of Milwaukee’s

revenue, 35 percent of C&NW revenue, and almost one-

half of that of Soo. For the United States as a whole,

excluding the named railroads, agriculture contributes

about 22 percent of gross freight revenue.

As this record shows, many engaged in agricultural

pursuits indicated their support for the proposals either

on their own behalf or for their companies, and it is thus

clear the agricultural community recognizes that the pro-

posed unification will be a major advance, that because

of “substantial increases in production, commodities must

have ready access to consuming and processing centers

with the greatest degree of transportation fluidity with

the lowest possible scale of compensatory rates,” and

that in that perspective applicants’ proposal will better

997

998

serve the agricultural community. Intervener’s position

in favor of continuation of the status quo would deny

to the agricultural interests of the Northwest the progress

and betterments of transportation which those interests

want and need and which unification would provide.

With respect to its three requested conditions, the first,

maintenance of existing gateways, is one of the standard

routing conditions, and further discussion of that subject

is not warranted. The second, regarding open gateways

to the extent sought by Milwaukee and C&NW reiterates

a policy advocated unsuccessfully by intervener in the

Spokane Gateway case, supra, and would negate the bene.

fits of the long-haul provisions of the Act, as previously

discussed in connection with Milwaukee’s condition 1.

The third, “that no lesser service than at present be

furnished over any of the former main lines of the

merged railroads” is too vague to warrant further con-

sideration.

Jointly, the interveners City of Auburn, City of Sum-

ner and the Auburn Chamber of Commerce oppose the

proposed unification expressing sympathy with Milwau-

kee’s position and proposed condition, but insist that no

conditions which the Commission might impose would

alter their opposition. Auburn (population 11,000 1960

est.), is situated in the heart of a growing industrial

complex reaching south from Seattle and north from

Tacoma, and is the termination and origination point of

certain eastbound and westbound trains of the Northern

Pacific.

The Northern Pacific yards at Auburn have capacity

to handle approximately 2,400 cars and in event of uni-

fication west coast business originating or terminating

at Tacoma and points north, including Seattle, would be

routed on what is now Great Northern trackage via

Everett, bypassing Auburn as termination or origination

point, and thus Auburn shops and yards would be aban-

doned and the work operations transferred to Seattle.

Thereafter, Northern Pacific trackage between Auburn

and Yakima would become a secondary main line through

freight route.

WITLI ELL LI OTN PENIS

999

Those proposed plans, if accomplished, would result in

a reduction of 260 jobs out of a total of 500 employed by

Northern Pacific in Auburn, with a corresponding pay-

roll loss of $1,906,492, and the remainder of employees

transferred elsewhere. On the basis of what is considered

a normal three times turnover or circulation of wage

dollars in a community, Auburn anticipates a minimum

annual loss in wages approximating $3,235,000 and ap-

proximately $6,825,000 annually would be lost of Auburn

retailers. Overall loss to Auburn by lost wages, lost reve-

nues to the school district, lost revenues otherwise de-

rived from taxation of railroad facilities and lost prop-

erty values caused by mass exodus of workers interveners

argue is incalcuble, and they contend would cause a

major blow to the economy of Auburn and its environs.

It further argued that the abandonments of trackage

in Washington as contained in the study II of the Wyer

Report and probable future abandonments of trackage in

Washington made necessary by the unprofitable contem-

plated usage of trackage in the state would have a dele-

terious effect on the City of Auburn, the State of Wash-

ington and the nation as a whole. Since the abandonments

contemplated by study II of the Wyer Report are not

within the framework of the subject applications, the

arguments advanced in respect thereof are without merit.

Argument dealing with probable future abandonment of

trackage in Washington which may be necessary by fu-

ture unprofitable contemplated usage of trackage is too

remote to these proceedings. There is no evidence sup-

porting any abandonment based on the proposicion of

unprofitable contemplated usage of any trackage, and the

contention is untenable.

Intervener City of Breckenridge, Minn., located on the

Great Northern and Northern Pacific, opposes unifica-

tion, principally on anticipated reduction of service, re-

duction in employment, and a fear that it would result

in a hindrance to its growth. The evidence of its two

witnesses, one representing the chamber of commerce and

the other a grain elevator, indicated that because past

actions of Northern Pacific involving reduction of per-

sonnel at Breckenridge was accomplished without notice,

BOT Be oe

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wt Weyer

Re

1000

the community was adversely affected. The reduction of

personnel by Northern Pacific on a prior occasion has no

relationship to these proceedings. The grain elevator

operator is concerned with competitive rail service. The

record indicates its witnesses’ lack of familiarity with

subject proposals and the present and proposed service,

Intervener E'd Benedict, of Portland, Oreg., a nursery.

man and a member of the Oregon State Legislature op.

poses unification principally on the basis of the effect

anticipated adverse economic impact, job abolishment, re

duction of purchasing power and taxes would have eco

nomically on the State and its industries. However, his

evidence, and that of his supporting witnesses, pertained

to the effect unification would have on a bowling business

which catered to some SP&S employees, the effect which

loss of jobs would have in connection with an SP&S em-

ployees’ medical association, and the desires of the Ore

gon State Grange in support of Milwaukee’s requested

condition dealing with access to Portland, was not impres-

sive and involved for the most part vague and unsup-

ported generalities.

Intervener Clark County Anti-Merger Association, a

non-corporate, non-profit association of individuals, resi-

dents in and about Clark County, Washington, oppose the

transactions expressing concern with the economic impact

of the proposed unification on and the economic stability

of Washington, particularly Vancouver and its surrovnd-

ing area. While it likewise evidenced some concern with

maintenance and improvement of rail service and facili-

ties, contending unification would have an adverse affect

on the area, impede development therein, and result in

reduction of the amount, quality and type of rail service,

its evidence through its supporting witnesses (2) as well

as that to which a stipulation was honored covering others

(18) representing some municipal government officials

and a variety of businessmen in the area, was directed

wholly to anticipated job abolishments, resulting payroll

loss, and other related economic effects which would ac-

crue to the subject area as a result of the proposed unifi-

cation.

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Intervener City of Duluth, Minn., opposes unification

(principally the Northern Lines merger) seeing no gain

therefrom and it fears unification would result in pos-

sible future abandonments, particularly the Hinckley-

Duluth segment, an increase in rates, and an adverse

economic effect on the city, by virtue of loss of taxes

through reduced earnines of the applicant companies

in Minnesota, curta‘iment of switching services and loss

of employment. Its city council expressed its position

through resolution opposing the unification. The sub-

ject of abandonment of the Hinckley-Duluth segment is

not properly before the Commission in those proceedings

and such arguments are without merit.

Intervener Duluth Volunteer Committee Opposing

Merger a non-corporate, non-profit association of indi-

viduals residing in and about Duluth. Its evidence com-

prised introduction of resolution of the Minnesota State

Legislature opposing merger and the testimony of a rep-

resentative of a labor organization two State govern-

ment representatives, and a representative of a cream-

ery association (400 members) which ships 114 million

pounds of its products outbound annually of which 57

carloads move by rail, the balance vy truck. Its evi-

dence, although it dealt only in generalities, shows con-

cern over what it considers an anticipated down grading

of service to the area, the loss of gross earnings tax in

Minnesota, the effect reduced employment would have

upon the area, and the general condition of Minnesota

as result of foreign ore competition.

Intervener City of Jamestown, N. Dak., opposes unifi-

cation contending approval thereof would be detrimental

to the general welfare of the people of the area, would

not preserve competition, that applicants’ economies

could be obtained through cooperation rather than con-

solidation, and that approval of unification would ad-

versely affect the economy of the area in that large num-

bers of employees would be required to move elsewhere.

Its evidence comprised that of testimony of a college

professor of economics, an automobile dealer, a realtor,

and a represnetative of the chamber of commerce, and

is confined to general expressions of fear of job loss,

shrinking agricultural producer market, inability to at-

1001

FLAN IONS ETRE I OE OE OE ENE LE OO

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1002

tract new industry, depreciation of real estate values,

potential reduction of tax values and revenues, disrup-

tion of normal growth patterns of the city and loss of

sales and resulting income to local merchants estimated

at $12,656 per job lost. It offered no evidence of its

transportation needs or of the adecuacy of the service

available or proposed.

Intervener Livingston Anti-Merger Committee, a non-

corporate non-profit association of individuals located in

and about Livingston (population 7,683), Helena, and

Glendive, Mont., organized in December 1960, opposes

the unification and in particular the Northern Lines

merger on numerous grounds, contending that (1) the

Commission lacks jurisdiction to entertain application

for or to approve and authorize the proposed transac-

tions, particularly merger involving Northern Pacific

for the reason that Congress has refused to enact leg-

islation necessary to enable applicant Northern Pacific

to succeed to Northern Pacific Railroad Company’s chart-

er, franchise, right-of-way and other statutory assets,

(2) the Act does not supersede the terms and limitations

on the Federal charter of the predecessor of Northern

Pacific which prohibits the proposed consolidation and

prohibits the proposed mortgage without the consent of

Congress, (3) the Northern Lines merger should be de-

nied because the studies and plan upon wrich the appli-

cation is based are erroneous and contain false assump-

tions to the degree that it is impossible to properly eval-

uate the effect of merger, (4) faster freight service

would be available only to eastern and western termini

of the present Northern Pacific system and that nearly

all intermediate points would get slower and poorer

service, and (5) there is no true economic justification

for the proposed transaction.

Its evidence through ten witnesses deals primarily

with job loss and fear of economic impact. It includes

that of two of its officers, one a conductor, the other a

fireman, both employed by Northern Pacific, concerned

with potential influence of an interlocking directorate of

Northern Pacific, the impact of Livingston’s economy

with its 800 railroad employees receiving a bi-weekly

payroll of $180,000, and that selection of Great Nor-

Vd BRO ws ‘

i i RE

“

thern route for movement of transcontinental traffic

would reduce service on the Nortern Pacific line. Inter-

vener disagrees with applicants’ evidence on faster serv-

ice and improved car supply, and aspects of the Wyer

Report dealing with savings in diesel repair costs. Oth-

er evidence includes that of a proprietor of a Livingston

pharmacy (also an officer of the chamber of commerce)

concerned with Livingston’s historically poor employ-

ment relations with Northern Pacific; a state representa-

tive of Park County (population 13,168), Mont., (also,

a conductor-brakeman on Northern Pacific) concerned

with Park County’s unemployment rate, fear of job loss

and effect of merger on tax structure (county property

valuation $38,285,998 with Northern Pacific property

valued at $5,244,308 for tax purposes), in that Nor-

thern Pacific is Livingston’s principal industrial pay-

roll; a Livingston realtor who fears reduction in em-

ployment at Livingston would result in prospects of high

volume of residential properties for sale with few pros-

pective purchasers; a floor covering proprietor, who

sometimes uses Northern Pacific service, fears elimina-

tion of competition in rail service would result in settling

any claims he might have against the railroad; a live-

stock operator, who occasionally uses Northern Pacific

services fears merger would result in lack of rail compe-

tition and create a monopoly; a Livingston hardware

store proprietor, who fears merger would result in mon-

opoly and that prospects of increased unemployment

would adversely affect his business; the Mayor of Liv-

ingston evidencing formal action by its city council in

opposition to merger; and an attorney who made a study

of the Northern Pacific at the request of a relative who

is an officer of a committee of dissenting stockholders

of the predecessor of Northern Pacific.

Its contention in (3) above deals with study X-L of

the Wyer Report. Its argument that the study portrays

savings in diesel repair costs not transposed into em-

ployee reduction figures at specific diesel maintenance

points, and that the result is an inaccurate employee re-

duction figure, is not valid, and is discussed elsewhere

herein dealing with analysis of the various studies of

1003

eS NS ye ee ae ae ge

OO OE ENB I ELON LG SOLE ELS SILI LOE LUTE AIRED ETAT PII

1004

the Wyer Report. The subject matter, which is not lim-

ited to study X-L, runs across the various studies II,

VI, VII, X and XVIII of the Wyer Report. The record

reflects for Livingston, for which that intervener is con-

cerned, a net of 46.6 jobs abolished and a net reduction

in compensation of $497,753.

Its contention that the projected attrition rate is not

applicable to future years because nu consideration was

given to the age group factor, is such that the signifi-

cance of the argument baffles analysis. The record |

shows that the consultants took the actual attrition rate |

as it existed for three years and projected that into the

future. No other data or method is suggested as appro-

priate for analysis of that phase of the subject.

Its contention that the per diem cost savings and fast-

er freight service predicated by applicants cannot be

achieved by shifting the traffic from the Northern Pa-

cific line to the Great Northern line betv-een Casselton

and Sandpoint, is without consideration of the pertinent

evidence. That evidence clearly demonstrates that the

greatest savings in time result from speed up of terminal

operations and that without unification it could not be

accomplished. Livingston’s contention in (4) above that

: faster freight service would be available only at eastern

: and western termini and not to intermediate points ig-

2 nores extensive evidence of record dealing in detail with

service at intermediate points and previously discussed

4 elsewhere herein.

4 Its contention in (5) above that there is no true eco-

4 nomic justification for the proposed unification is predi-

i eated on the fact that Northern Pacific has been richly

ST ee 4 _

cS Sib tv

endowed through land grant and its non-operating reve

nues provide it with economic stability and that it is a

; financially healthy railroad. Suffice it to say, the finan-

j cial condition of a carrier and its economic stability are

: pertinent matters for consideration by the Commission

3 in proceedings of this nature. The economics of the

proposal have been thoroughly explored and the substance

discussed. The savings which would accrue to the New

; Company and the benefits of improved service are ex-

tensive and substantial. Its arguments are without

merit.

Be fs

. at PG a:

DPGOLPLR GILT LILY BEL IEE DAN AID i Oa St Hn pO EBA:

1005

Further, its challenge to the Commission’s jurisdiction

in (1) above, to authorize transfer of the Northern Pa-

cific right-of-way and franchise to New Company, and

to authorize mortgage of the Northern Pacific road by

New Company in (2) above, to secure a bond issue whose

proceeds are to be used for purposes other than the con-

struction and equipment of that road, is that the prohibi-

tion against mortgaging without the consent of Congress

5 is limited to a mortgage on the road and is not applicable

to mortgaging of the public lands granted in aid of con-

| struction, citing Joint Resolution of May 31, 1870, (16

Stats. 370) in support of the proposition that the con-

sent therein was limited to mortgage to secure bonds

issued to aid construction and that such authority was

exhausted prior to 1896. It argues further that Con-

gress (a) refused to pass necessary legislation enabling

Northern Pacific to succeed to the Federal corporation’s

road and franchise, (b) refused to recognize the legality

of the consent decree’ and reserved that question for

determination as a contested matter, citing Act of July

1, 1898 (30 Stats. 546, 620, 621), (c) refused to dis-

solve the Federal corporation (d) treated the Northern

Pacific Railroad Company as having the title interest

under the Act of 1864, citing Mt. Ranier National Park

3° Entered in Farmer’s Loan & Trust Co., et al. vy. Northern Pa-

cific Railroad Co. et al. (no citation), and pertinent portions of the

text set forth in Hearings of the Joint Congressional Committee for

the Investigation of the Northern Pacific Land Grants, pursuant to

Public Resolution No. 24, 68th Congress, approved June 5, 1924.

“0 = provides, in part:

that nothing herein contained shall be construed as

secated or having the effect to recognize the Northern Pacific

Railway Company as the lawful successor of the Northern

Pacific Railroad Company in the ownership of the lands granted

by the United States to the Northern Pacific Railroad Com-

pany under and by virtue of foreclosure proceedings against

said Northern Pacific Railroad Company in the Court of the

United States, but the legal question whether the Northern

Pacific Railway Company is such lawful successor of the

Northern Pacific Railroad Company, should the question be

raised, shall be determined wholly without reference to the pro-

visions of this Act.

— a oe ee re ee

1006

Act of March 2, 1899 (380 Stats. 933), wherein only men-

tion is made of Northern Pacific Railroad Company, no

mention being made of Northern Pacific, (e) recognized

the “present title’ of the Northern Pacific Railroad

Company in the right-of-way and Northern Pacific’s use

thereof “in good faith” for “the operation of said road,”

citing Act of June 25, 1929, sec. 4,° (46 Stats. 41), and

(f) continued the rights reserved to the United States

under the Act of July 2, 1864, and reserved to the

United States the right at any time to enact further

legislation relating thereto, citing Act of June 25, 1929,

sec, 3.° Allegation of lack of power to authorize trans-

fer of the Northern Pacific right-of-way is predicated on

the claim that Northern Pacific does not own those prop-

erties because its purchase thereof at foreclosure sales

under decrees of the court in 1896 was not authorized

by Congress. Allegation of lack of power to authorize

New Company’s proposed mortgage is predicated upon

the contention that no mortgage of the Northern Pa-

cifie’s road can be made except as authorized by the

Joint Resolution of May 31, 1870 (16 Stats. 378), au-

TTA tab ene anew

‘1 Which provides:

“The provisions of this Act shall not be construed as affecting

the present title of the Northern Pacific Railroad Company or

its successors, the Northern Pacific Railway Company, or any

subsidiary of either or both, in the right of way of said road

or lands actually used in good faith by the Northern Pacific

Railway Company in the operation of said road.”

42 Which provides:

“The rights reserved to the United States in the Act of July

2, 1864, to add to, alter, amend, or repeal said Act, and in the

resolution of May 31, 1870, to alter or amend said resolution,

are not to be considered as fully exercised, waived, or de-

stroyed by this Act or the exercise of the authority conferred

hereby; and the passage of this Act shall not be construed as in

anywise evidencing the purpose of intention of Congress to

depart from the policy of the United States expressed in the

resolution of May 31, 1870, relative to the disposition of granted

lands by said grantee, and the right is hereby reserved to the

United States to, at any time, enact further legislation relating

thereto.”

bOI PON ROC RE IR ty ah Pt te «YN RR

1007

||

_ thorizing the Northern Pacific Railroad Company to is-

sue bonds for the construction of its road and to secure

the same by mortgage, which authority was long ago

exhausted, and also upon the contention that the new

_ Delaware corporation cannot be lawfully authorized by

the Commission to mortgage a road and franchise which

Northern Pacific has no lawful right to transfer since

they are the statutorily inalienable property of the Fed-

eral corporation,

Livingston’s challenges to the Commission’s jurisdic-

) tion should be dismissed as lacking in merit. The Act

contemplates that authority granted by the Commission

under section 5(2)(a) thereof to authorize “two or

more carriers to consolidate or merge their properties

or franchises, or any part thereof, into one corporation

for the ownership, management, and operation of the

properties theretofore in separate ownership” does not

contemplate litigation before the Commission of title

to the properties or franchises claimed by and in the

possession of the applicant carriers. Moreover, the exe-

cution of the mortgage of its railroad properties by a

carrier does not constitute an issue of securities within

the purview of section 20(a) of the Act, and according-

ly does not require any determination by the Commission

of the carrier’s corporate power to execute the mort-

gage. Compare Bond of Panhandle & S, F. Ry. Co.,

150 I.C.C. 155; Bond of Gulf, B. & K. C. Ry. Co., 150

LC.C. 677; Chicago & N. W. Ry Co. Purchase Minne-

apolis ¢& St. L, Ry. Co., 312 1.C.C. 285.

The grant of authority to the Federal corporation con-

tained in the Joint Resolution of May 31, 1870, to mort-

gage its property and rights to property of all kinds in-

cluded authority to transfer to any purchaser thereof,

upon forclosure of the mortgage, absolute title to the

properties, unencumbered by any restriction on the

power of the purchaser to sell or mortgage those proper-

ties, Since a corporation obtains its powers from the

same source as does its existence, the powers of any

corporate purchaser of those properties to sell or mort-

gage them would, necessarily, depend upon the laws of

the state of its incorporation and not on anything con-

tained in the charter of the Federal corporation.

—a

Northern Pacific has all necessary powers under its

Wisconsin charter and the laws of the State of Wis-

consin to mortgage its railroad and properties to se

cure its bonds issued for any proper corporate purpose,

without requiring the consent of Congress, It placed

two mortgages on its property without such consent in

1896, when it acquired those properties, and in 1914 it

executed its refunding and improvement mortgage there

on and issued and sold bonds thereunder, and again in

1921 issued and sold additional bonds under that mort-

gage, with the approval and authorization of this Com-

mission, not to aid in the construction and equipment

of its road but to refund its share of joint Great North-

ern-Northern Pacific bonds issued to purchase stock con-

trol of Burlington. Its power to make those mortgages

has not before been questioned,

Northern Pacific contends that it has at all times

recognized that upon itself rests all obligations imposed

on the original company by the Act of July 2, 1864,

which were designed to secure to the government at all

times (but particularly in time of war) the use and

benefit of the railroad for postal, military, and other

purposes. This has not been disputed,

Livingston’s arguments in respect of Northern Pa-

cific’s ownership of the railroad and properties which

it proposes to merge into New Company or of its free-

dom from the mortgage restrictions to which its prede-

cessor, Northern Pacific Railroad Company, was subject

f under the Act of July 2, 1864, and the Joint Resolu-

} tion of May 31, 1870, are without merit.

; Intervener City of Mandan, N. Dak., located on main

line of Northern Pacific, opposes the proposed unifica-

tion, and in particular the Northern Lines merger, on

the grounds that, if approved, it would have a detri-

mental affect on the economy of the city (population

10,300) and its trade area, forestall its growth upon

which it depends for economic stability, impede the

city’s opportunities to attract new industries and busi-

nesses, detrimentally affect the tax structure of the city,

and be contrary to the best interests of shippers. Its

evidence through six witnesses, included that of the Gov-

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1009

ernor of North Dakota who expressed his opposition for

those reasons as well as because of expected elimination

of competition between Great Northern and Northern

Pacific, particularly by virtue of long haul operations

proposed which would diminish competition with trucks,

because schools and other services of political subdivi-

sions now established could suffer a loss in planned tax

revenues, causing a burden on the people remaining,

and because of possibility of relegation of the present

main line service of Northern Pacific to that of a sec-

ondary route would have an adverse affect through loss

of services to those communities located thereon. Other

evidence included that of (1) a representative of the

Board of City Commissions of Mandan, who fears loss

of employment would upset delicate tax planning base

and create depressed property values, ‘2) a furniture

dealer who fears downgrading of service and loss of

business to competitors at Minot as 25 percent of his

customers are railroad employees, (3! 2 printer who

fears unification would adversely affect Mandan in that

it is dependent upon the annual $2 million payroll of

the employees, (4) a dentist who expressed similar fears

although he indicated there was an increase of Mandan’s

population since 1950 by 30 percent, and (5) a creamery

and produce company primarily concerned with rates and

service (secondarily) on shipments (10,500,000 pounds

annually of which 50 percent, or 80 carloads, moves to

west coast destinations via Northern Pacific) to Cali-

fornia points, which fears loca] service proposed would

downgrade through service in that there would be in-

sufficient tonnage to make through trains.

Its evidence, ignoring the beneficial aspects of uni-

fication, is directed primarily to anticipation of fear of

job loss and accompanying effects. In spelling out the

expressed fears of adverse effect, no clear evidence of

transportation requirements is presented, nor is any

evidence adduced which would show that the proposed. __

unification would have any material ddverse affect on

existing transportation requirements or service in the

area. The question of job loss with attendant affects

is discussed elsewhere.

1010

Intervener City of Minneapolis, Minn., evidenced its

opposition through its four witnesses; the mayor and

three aldermen. Its position is based on a resolution

of the city council predicated on two grounds: (1) That

it would impose severe hardships on employees and their

families, and (2) that it would depress the economy of

the city and its metropolitan region, whose economy js

closely tied to the railroads, cause side effect to rail-

road suppliers and elimination of competition where both

Great Northern and Northern Pacific now compete. It

contends that a change of the competitive picture affect-

ing Milwaukee and C&NW would cause further aggraga-

tion of job loss and the risk of developing a monopoly

situation that would result in poor service. On brief,

it adopts the argument of Minnesota, dealing with (1)

projected and proposed abandonments of lines in Minne

sota, (2) breaking of Minnesota intrastate rates and

increased freight charges, (3) retention of all lines

and ore docks in Minnesota as being important to na-

tional defense and the public interest, (4) adverse ef-

fects of merger upon the Twin City gateway and the

State of Minnesota, (5) Minnesota gross earnings tax,

(6) bad order car situation, and (7) feasibility of up-

grading of Northtown yard without merger, which will

be discussed in connection with that intervener, It

points out that of the 22 States and three Canadian

provinces through which the system would extend, Min-

nesota would suffer the greatest loss in 2,124 jobs with

a payroll of $14,512,891 or 45 percent of total payroll

loss, and Twin Cities’ loss would exceed $9 million with

Minneapolis suffering to extent of $2,604,784 with loss

of 430 jobs, that such loss would cost the city an addi-

tional loss of $2,435,000 in goods and services and $225,-

000 in local, State, and Federal taxes, that loss of an

additional 320 non-railroad jobs would result, costing

$1,814,000 in goods and services. Further, that even

with attrition, which would affect 80 percent of worker

reduction, the city would suffer because job opportunities

disappear, that with the city’s population declining

(census figures show a decline in Minneapolis’ popula-

tion and a corresponding increase in the five surround-

S

3

:

ing counties, indicating a mass move to the suburbs)

there results a tightening of tax base, and that sum-

marily, there is no justification for merger as appli-

cants are financially sound.

Intervener takes issue with representations that ad-

verse payroll effects of unification in Minnesota, and

more specifically in Minneapolis, would be offset by

employment of 750 men and an expenditure of $14,429,-

000 in Minneapolis on an electronics classification yard

at Northtown, in that the sum involved is inclusive of

labor costs, that such employment would last only 24

months and that over half the labor costs would be ac-

counted for by existing labor forces of the roads in-

volved, and that total materials cost for such project

accounted for $9,057,900 of the total estimated.

While unification would cause some change, the record

shows that impact on employees financially would be

minimal, and occur over a five-year period, all of which

is protected under appropriate conditions herein. The

change of circumstances affecting Milwaukee and C&NW

as a result of conditions proposed would be improved.

Intervener’s arguments on service are baseless. On the

subject of abandonment of lines in Minnesota, previous

discussion dealing therewith shows that such abandon-

ments and the breaking of the Minnesota intrastate rates

and increased freight charges, predicated on such aban-

donment are not before the Commission in these pro-

ceedings. The subject of effect on the Twin Cities gate-

way is disposed of in discussions on Milwaukee and

C&NW. Much emphasis is on job opportunities and

job loss. That subject too is discussed in connection with

internerer RLEA.

The Minnesota Railroad and Warehouse Commission

(Minnesota) opposes the proposed unification regardless

of any condition which may be imposed upon a grant

of the authority sought. The State of Minnesota inter-

vened on the last day of hearing and joined with its

Railroad and Warehouse Commission by adopting its

position and evidence. Counsel for interveners Minne-

sota participated throughout the hearings extensively

examining witnesses for applicants and other interveners

1011

1012

in support or those requesting specific conditions.

Through interveners Minnesota, the resolutions of the

cities of Breckenridge, East Grand Forks, St. Cloud,

and the county of St. Louis opposing unification were

introduced.

Minnesota’s opposition is two-pronged: First, it al-

leges the economic and operational effects which will

come to bear on the State of Minnesota would be ad-

verse as a result of the proposed unification, arguing

that applicants have failed to, and indeed could not,

show that unification will be consistent with the public

interest; and, second, that various aspects of the trans-

action are without legal validity or not under the aegis

of this Commission. Considering the first argument, its

evidence points to alleged economic impact on the state

caused by discharge or transfer of employees resulting

from the unification. Its primary exhibit shows that

throughout the state 3,166.3 jobs would be abolished;

1,041.4 jobs would be added, resulting in a net change

of 2,124.9 jobs abolished with a net payroll reduction

of $14,512,891. The alleged adverse effect of that an-

ticipated loss on the counties, cities, villages and school

districts was considered by thera to include reduced

taxes as a result of the payroll reduction as seriously

affecting the continuation of the various governmental

operations. On that basis, intereveners cite section 5

(2) (ce) (4) of the Act requiring the Commission to con-

sider the interests of carrier employees affected as a

facet of the public interest and distinguishes that sec-

tion from section 5(2)(f) (protection of railway em-

ployees) which is effectuated only in an approval order.

The consideration of these interests, intereveners argue,

must be weighed against the efficiencies and economies

resulting from the transaction and that while the ad-

verse effect on employees is known, the efficiencies and

economies are at best dubious and can be known only

in the future, if at all.

Consideration of the employee situation and overall

effect of the unification is discussed elsewhere herein.

Suffice it to say, that consideration does not weigh so

heavily as to require denial. While Minnesota alludes

P

1013

to the normal yearly decrease in railway employment,

in addition to the decrease occasioned by unification, it

ignores New Company’s potential to stem the normal

decrease. That, too, must be considered under section

5(2) (ce) (4).

As the railroads are concerned, Minnesota imposes a

gross earnings tax which relates gross earnings to mile-

age within the state, and the amount of taxes payable

is determined to be that percentage of gross earnings

earned in Minnesota which the mileage within Minnesota

bears to the total mileage of the carrier on any particu-

lar route. It alleges that with the construction of the

new Northtown yard, New Company’s ability to capture

traffic from Milwaukee, Rock Island, and Chicago Great

Western will be enhanced. Minnesota, at great length

on brief, attempts to show the scope of that diversion

and concludes that Minnesota as a result of the diversion

will lose $193,484 annually in taxes. Minnesota admits

that the tax loss is only a possibility and is based on

the excess of gross earnings tax payable by the three

carriers mentioned as compared to Burlington.

Minnesota also alleges that New Company’s gross

earnings in Minnesota will be reduced, with a resultant

tax loss, if (1) other gateways (Laurel and Sioux City)

are used rather than Twin Cities, and (2) the Northern

Pacific intrastate line between Hinckley and Duluth is

abandoned following unification; but no conclusion is

drawn by Minnesota on either of those points. In any

case, Minnesota has not shown, with any degree of

certainty, the severity of tax loss, if any based on gross

earnings. Along that same line, Minnesota alleges that

as a result of diversion of traffic and faster routings,

Twin Cities and Duluth-Superior would suffer since the

carriers serving those cities from which the traffic al-

legedly would be diverted could ill afford the losses,

leading to reduction of service and possible abandonment,

all to the detriment of those cities. Minnesota’s argu-

ment is that New Company would gain such opera-

tional dominance as to crush all rail competition. The

fallacy of that position is that it fails to consider the

conditions requested and their effect if imposed herein.

1014

Minnesota’s statement that the shipping public would

lose (?) because of the diversion and alleged diminution

of competition loses its force in the face of the protec-

tion afforded by the conditions. Minnesota’s allegations

are based on an approval of the transaction without

more. Such is not the case, for the Commission’s re-

sponsibility in disposing of the matter in the aggregate

may well make on imposition of conditions which it

may consider necessary in the public interest, should the

transaction in other respects meet the statutory require-

ments.

Minnesota also opposes unification on the grounds that

coordination of the respective facilities through recrea-

tion of the community of interest among the applicants

as it existed at the time of the Acquisition case, supra,

can accomplish all that is expected of the merger without

a reduction in the plant; and that the merger is not the

method to correct the retention of applicants’ cars on

foreign lines which have a greater percentage of bad-

order cars than do the applicants, adding to the car

shortage.

The duty of the Commission is to act on the facts and

circumstances presented by any given application and

those must be judged against the standard of public in-

terest. If found consistent therewith, the transaction

may be approved, While Minnesota alludes to 1927 when

the applicants enjoyed a wide community of interests,

the deterioration of those interests may well be laid at

the door of the ever-increasing intermodal competition

and loss of rail traffic, as described elsewhere herein,

causing each railroad to jealously guard its own.

Counsel for Minnesota, as well as counsel for Wash-

ington and Justice, among others, throughout the hear-

ings exhaustively cross-examined applicants’ shipper and

community witnesses testing their knowledge concerning

the expected benefits from unification. Much is devoted

on brief by Minnesota and Justice to indicate that many

of the witnesses “hoped” or “felt” that the benefits would

be forthcoming, but could not show with utter clarity that

merger was the panacea for their problems. Minnesota

concludes that applicants were successful in selling to

1015

the shippers the idea that unification would be beneficial.

Minnesota alleges that applicants failed to detail to their

witnesses the future program for car distribution includ-

ing specialized equipment; or that applicants did not

commit themselves to purchase additional equipment from

the savings generated by the unification; or that west-

bound schedules from Twin Cities to Laurel would be

reduced; or that traffic through Laurel would be reduced

in favor of the route via Twin Cities; or that the grain

rate from Minot and west to Duluth may not be pro-

tected; or that circuitous routings, out of line haul,

branch line service, schedules, costs of service, etc., may

limit the beneficial effects of single line service after

unification.

Based on that, Minnesota has labelled applicants’ ex-

hibit 203 “Consolidation—Key to Transportation Prog-

reax” as a “Myth” and that the testimony of the shippers

is sserely an iteration of applicants’ position as explained

by them to the witnesses. However, it must be noted

that included among the witnesses favoring unification

were numerous informed representatives of substantial

shippers, well versed in traffic and transportation mat-

ters, and their expertise was not dispelled. Furthermore,

all of the shipper witnesses, throughout the territory in-

volved, testified as to the transportation problems which

they faced. The ultimate test of the public interest is to

determine the overall effect of unification on these prob-

lems. As noted above, the hearing examiner is convinced

that the shipping public will benefit through the proposed

unification, as conditioned herein.

Concerning the second phase of Minnesota’s position, it

is argued that the application for authority sought by

Burlington to issue $70 million in bonds is defective for

two reasons: First, the Burlington issuance is not within

the purview of section 20a of the Act, since that issuance

is not, on its face, for Burlington purposes, but serves

the interest of New Company, and, therefore, is not for

some lawful object within its corporate purposes as re

quired by the statute, or that such issuance is “reasonably

necessarv for such purposes” since an issuance of new

consolidated bonds secured by the same assets as the pres-

1016

ent Northern Pacific bonds could produce the same result

as an equivalent equal lien; and second, the legal doctrine

of merger extinguishes the debt existing on the Bur.

lington issuance since the creditor (New Company) also

becomes the debtor upon merger of the Burlington into

New Company, there being no intervening equity to pre

serve the debt as the trustee of the consolidated mo

is fully appraised of the entire plan (debtor-creditor be

come one). In short, Minnesota contends that following

consummation of the transactions, the Burlington bonds

would become worthless as a pledge and the issuance

should be denied as a sterile act.

Minnesota’s position here takes on an inconsistent ap-

proach. Its first argument asks that the Burlington issv-

ance be viewed as an entirely separate transaction, and its

second argument insists that the transaction as a whole

be studied. The purpose of the Burlington issuance is in

furtherance of unification and is an integral facet thereof

to preserve the Burlington properties as an encumbered

security. On that basis, the issuance is within Burling-

ton’s corporate purposes and is reasonably necessary for

such purposes as encompassed within section 20a of the

Act. Nor can it be said that the debt represented by those

bonds would be extinguished upon unification for lack of

an intervening equity when the bonds are to be substi-

tuted for the Northern Pacific refunding and improve

ment bonds to be withdrawn as security. Minnesota also

criticizes the preservation of bonding power by the con-

stituent companies under the consolidated mortgage fol-

lowing unification. Minnesota admits that the power

sought would be exercised in the name of New Company.

Retention of the individual bonding serves to identify

specific property within the ownership of New Company

which would be subject to the bonds.

Minnesota also raises a particularly specious argument

concerning the New Company’s lease of SP&S. It notes

that under the lease, New Company may dispose of all

of the SP&S property without the latter’s consent. If

such does occur and then New Company should cease

operations, SP&S, as owner of the properties becomes

responsible for operation of its line. But it will have

1017

F nothing with which to do so, Thus, concludes Minnesota,

the lease is not consistent with the public interest. The

nature of that argument almost defies answer, but it

should be noted in passing that if New Company ceases

operations or otherwise becomes unable to continue, the

operations of SP&S will be, in that event, but a small

pit of a much greater problem. Furthermore, New Com-

pany’s cessation would require this Commission’s author-

ity at which time the matter raised here by Minnesota

may be afforded due consideration.

Since Burlington is wholly complementary to the North-

ern Lines with minor duplicating facilities, Minnesota

argues that there is no substantial evidence warranting

unification of that carrier into New Company and that

many of the benefits such as savings in labor forces, in-

terchanging at Northtown rather than at Dayton’s Bluff,

and some pooling, could be achieved through coordina-

tion. Minnesota alleges that no real improvements will

accrue to Burlington from unification, in fact, it may

even lose some traffic that it now carries through Council

Bluffs and Denver to and from Chicago in favor of the

preferred route through Twin Cities. As described above,

Burlington is an integral part of New Company’s opera-

tions. Without it, it is doubtful if the planned economies

and efficiencies of unification will bear fruit. But Minne

sota makes no reference to this, and its argument here

treats Burlington separately and without identification

to New Company.

Minnesota attacks the exchange ratio arguing that the

value of the Burlington properties was not considered

and it maintains that such action is tantamount to a

surrender by Great Northern and Northern Pacific stock-

holders of their equity in the Burlington properties which

they presently enjoy through their ownership in the

former companies. The exchange ratio has been fully

discussed, is reasonable, and fairly treats all concerned.

Minnesota also strikes out at the pension plan presently

maintained by the applicants for non-union employees

to be continued by New Company. Minnesota contends

that since the public will underwrite the pension plan, it

is a legitimate field of inquiry since it is expected to cost

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1018

$5 million annually. As noted, Minnesota insists that

the effect of unification on employees should be disre-

garded when their fate is subject to New Company’s

decision alone. Furthermore, it cannot be said that the

pension plans are unnecessary to the conduct of carrier

operations. Rather, it appears that to insure proper and

competent management, such plans are in widespread

application.

On brief, Minnesota repeats its contention raised at

the hearing, that the issues concerning certain abandon-

ments not a part of the subject transactions, are relevant

and material hereto and that the hearing examiner’s

refusal to permit testimony on those issues was error.

To the extent that the savings from future abandonments

are foretold in the Wyer Report, those abandonments

have been considered herein. On the main, the savings

result from the elimination of duplicate facilities which

by definition and as found herein do not adversely affect

the public interest.

But Minnesota takes issue with possible savings result-

ing from abandonments not sought by the applications

herein nor upon which the unification is predicated, At

best, the lines with which Minnesota is concerned may

become candidates for abandonment if the unification is

consummated; but no decision was made and their fate

is at best uncertain. As such, any disposition here con-

cerning those items amounts to an unwarranted prejudg-

ment. The decision on unification must be grounded

solidly on the facts developed at the hearing, and the

hearing examiner could not properly admit testimony on

purely speculative matters. To consider matters of that

nature and outside of the factual sphere would be folly

and result in a decision whose foundation is conjecture.

The hearing examiner affirms his ruling.

Minnesota argues that the Commission must deny the

merger of Northern Pacific into New Company because

that carrier’s extensive holdings in land, oil, gas, timber,

and minerals are involved and would pass to New Com-

pany. Its argument here is that Congress intended the

immunities of section 5(11) only for the transportation

industry, and the Commission cannot assume jurisdiction

a See

1019

over the vast non-carrier activities of Northern Pacific.

To follow Minnesota’s argument would lead to the con-

clusion that the Commission is powerless to authorize a

transaction otherwise consistent with the public interest

because an applicant possessed non-carrier investments.

That obviously is not the Congressional intent. On the

other hand, Northern Pacific’s non-carrier activities are

not subject to this Commission’s jurisdiction insofar as

their treatment and disposition is concerned, i.e, the

Form A annual reports require information concerned

with a carrier’s activities. Thus, if the instant transac-

tion violates the anti-trust legislation insofar as non-

earrier activities are concerned, it is not for this Com-

mission to enforce such legislation and such enforcement

by the proper agency would not wreak havoe with any

determination concerning carrier operations. As such, de-

nial of the Northern Lines merger is not warranted nor

should approval of unification be conditioned on the di-

vestiture by Northern Pacific of its non-varrier holdings

which would involve a program of corporate dismember-

ment. Cf. Jordan Bus Co.—Purchase—Baum, 58 M.C.C.

296, 300. However, that subject is treated elsewhere

herein. Intervener Minnesota’s arguments thus discussed

are not meritorious. Other arguments raised by Minne-

sota are discussed elsewhere herein.

Intervener Minnesota Motor Transport Association op-

poses unification on the grounds that one or more of the

applicants have motor carrier rights, both interstate and

intrastate, and if permitted to combine the rights without

restrictions, such action would seriously affect other motor

carrier competition. Intervener participated in the pro-

cedings only briefly, and it offered no evidence. More-

over, except for the intervener association, no single

motor carrier opposed the applications or has sought any

restrictions on the motor carrier operations. Because

other interveners in opposition are also concerned with

the subject matter and have raised a number of argu-

ments in respect thereof, they will be disposed of at this

point. Intervener Iowa expressed concern that the serv-

ices of BTL be continued as at present without imposi-

tion of any additional restrictions to that service which

1020

is auxiliary to or supplemental of rail service, to which

applicants concur. Intervener Justice on brief argues

that the proviso of section 5(2)(b) of the Act, herein

called the proviso, specifically requires that the Com-

mission shall not enter an order authorizing or approy-

ing a merger “involving a motor carrier” unless it finds

that the transaction proposed will be consistent with the

public interest and will enable such carrier to use service

by motor vehicle to public advantage in its operation “and

will not unduly restrain competition,” and that appli-

cants failed to make such a showing. Further, it argues

(a) applicants’ evidence relating to motor carrier and

barge competition is sketchy, inadequate, and incomplete

and does not show the extent and nature of this compe

tition, or (b) that merger would unduly restrain competi-

tion, that any order finding the proposed merger would

not unduly restrain competition “would be arbitrary and

capricious and not supported by reliable, probative, and

substantial evidence,” and that the application should be

dismissed or denied. Additionally, intervener Minnesota

on brief argues similarly with respect to the applicability

of the proviso contending (1) any authority granted is

subject

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