# Appendix — United States v. Interstate Commerce Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1970
- **Citation:** 396 U.S. 491

## Text

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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|

952

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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953

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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.

é

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).

957

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958

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

F
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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

959

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960

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

EA EIT EES:

962

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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964

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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988

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

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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

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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-

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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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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

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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 ‘

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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

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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 rec

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0030%3A03. Public record. Not legal advice.