Union Pacific Corporation, Union Pacific Railroad Company, and Missouri Pacific Railroad CompanyControl and MergerSouthern Pacific Rail Corporation, Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company; [Oversight]

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 32760 (Sub-No. 21) \1\]

Union Pacific Corporation, Union Pacific Railroad Company, and

Missouri Pacific Railroad Company--Control and Merger--Southern Pacific

Rail Corporation, Southern Pacific Transportation Company, St. Louis

Southwestern Railway Company, SPCSL Corp., and The Denver and Rio

Grande Western Railroad Company; [Oversight]

AGENCY: Surface Transportation Board.

\1\ This decision embraces the proceeding in Finance Docket No.

32760, Union Pacific Corporation, Union Pacific Railroad Company,

and Missouri Pacific Railroad Company--Control and Merger--Southern

Pacific Rail Corporation, Southern Pacific Transportation Company,

St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver

and Rio Grande Western Railroad Company.

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ACTION: Decision No. 12; Notice of oversight proceeding. Requests for

additional conditions to the UP/SP Merger for the Houston, Texas/Gulf

Coast area.

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[[Page 16629]]

SUMMARY: Pursuant to a petition filed February 12, 1998, by the Texas

Mexican Railway Company and the Kansas City Southern Railway Company

(Tex Mex/KCS) and a request filed March 6, 1998, by the Greater Houston

Partnership (GHP), the Board is instituting a proceeding as part of the

5-year oversight condition that is imposed in Union Pacific

Corporation, Union Pacific Railroad Company, and Missouri Pacific

Railroad Company--Control and Merger--Southern Pacific Rail

Corporation, Southern Pacific Transportation Company, St. Louis

Southwestern Railway Company, SCPSL Corp., and The Denver and Rio

Grande Western Railroad Company, Finance docket No. 32760 (UP/SP

Merger), Decision No. 44 (STB served Aug. 12, 1996), to examine their

requests, and others that may be made, for additional remedial

conditions to the UP/SP merger as they pertain to rail service in the

Houston, Texas/Gulf Coast region. The Board is establishing a

procedural schedule (attached) for the submission of evidence, replies,

and rebuttal. The Board requests that persons intending to participate

in this oversight proceeding notify the agency of that intent. A

separate service list will be issued based on the notices of intent to

participate that the Board receives.

DATES: The proceeding will commence on June 8, 1998. On that date, all

interested parties must file requests for new remedial conditions to

the UP/SP merger regarding the Houston/Gulf Coast area, along with all

supporting evidence. The Board will publish a notice of acceptance of

requests for new conditions in the Federal Register by July 8, 1998.

Notices of intent to participate in the oversight proceeding are due

July 22, 1998. All comments, evidence, and argument opposing the

requested new conditions are due August 10, 1998. Rebuttal in support

of the requested conditions is due September 8, 1998. The full

procedural schedule is set for at the end of this decision.

ADDRESSES: An original plus 25 copies \2\ of all documents, referring

to STB Finance Docket No. 32760 (Sub-No. 21), must be sent to the

Office of the Secretary, Case Control Unit, ATTN: STB Finance Docket

No. 32760 (Sub-No. 21), Surface Transportation Board, 1925 K Street,

N.W., Washington, DC 20423-0001.

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\2\ In order for a document to be considered a formal filing,

the Board must receive an original plus 25 copies of the document,

which must show that it has been properly served. As in the past,

documents transmitted by facsimile (FAX) will not be considered

formal filings and thus are not acceptable.

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Electronic Submissions

In addition to an original and 25 copies of all paper documents

filed with the Board, the parties shall also submit, on 3.5 inch IBM-

compatible diskettes or compact discs, copies all textual materials,

electronic workpapers, data bases and spreadsheets used to develop

quantitative evidence. Textual material must be in, or convertible by

and into, WordPerfect 7.0. Electronic spreadsheets must be in, or

convertible by and into, Lotus 1-2-3 97 Edition, Excel Version 7.0, or

Quattro Pro Version 7.0.

The data contained on the diskettes or compact discs submitted to

the Board may be submitted under seal (to the extent that the

corresponding paper copies are submitted under seal), and will be for

the exclusive use of Board employees reviewing substantive and/or

procedural matters in this proceeding. The flexibility provided by such

computer data is necessary for efficient review of these materials by

the Board and its staff. The electronic submission requirements set

forth in this decision supersede, for the purposes of this proceeding,

the otherwise applicable electronic submission requirements set forth

in our regulations. See 49 CFR 1104.3(a), as amended in Expedited

Procedures for Processing Rail Rate Reasonableness, Exemption and

Revocation Proceedings, STB Ex Parte No. 527, 61 FR 52710, 711 (Oct. 8,

1996), 61 FR 58490, 58491 (Nov. 15, 1996).\3\

\3\ A copy of each diskette or compact disc submitted to the

Board should be provided to any other party upon request.

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FOR FURTHER INFORMATION CONTACT: Joseph H. Dettmar, (202) 565-1600.

[TDD for the hearing impaired: (202) 565-1695.]

SUPPLEMENTARY INFORMATION: In UP/SP Merger, Decision No. 44, served

August 12, 1996, the Board approved the common control and merger of

the rail carriers controlled by Union Pacific Corporation (Union

Pacific Railroad Company and Missouri Pacific Railroad Company) and the

rail carriers controlled by Southern Pacific Rail Corporation (Southern

Pacific Transportation Company, St. Louis Southwestern Railway Company,

SPCSL Corp., and the Denver and Rio Grande Western Railroad Company)

(collectively UP/SP), subject to various conditions. Common control was

consummated on September 11, 1996. The Board imposed a 5-year oversight

condition to examine whether the conditions imposed on the merger

effectively addressed the competitive concerns they were intended to

remedy, and retained jurisdiction to impose, as necessary, additional

remedial conditions if the Board determined that the conditions already

imposed were shown to be insufficient. In its initial oversight

proceeding, the Board concluded that, while it was still too early to

tell, there was no evidence at the time that the merger, with the

conditions that the agency had imposed, had caused any adverse

competitive consequences.\4\ Nevertheless, the Board indicated that its

oversight would be ongoing, and that it would continue vigilant

monitoring.\5\

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\4\ Union Pacific Corporation, Union Pacific Railroad Company

and Missouri Pacific Railroad Company--Control and Merger--Southern

Pacific Rail Corporation, Southern Pacific Transportation Company,

St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver

and Rio Grande Western Railroad Company, Finance Docket No. 32760

(Sub-No. 21), Decision No. 10 (STB served Oct. 27, 1997) (UP/SP

Oversight).

\5\ UP/SP Oversight, Decision No. 10, at 2-3.

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UP/SP has experienced serious service difficulties since the

merger, and the Board has issued a series of orders under 49 U.S.C.

11123, effective through August 2, 1998, to mitigate a rail service

crisis in the western United States caused, in large measure, by

severely congested UP/SP lines in the Houston/Gulf Coast region.\6\ In

acting to relieve some of the congestion, the Board made substantial

temporary changes to the way in which service is provided in and around

Houston.\7\ The Board found that, although merger implementation issues

were involved, a key factor in bringing about the service emergency was

the inadequate rail facilities and infrastructure in the region, and,

as such, also ordered UP/SP, BNSF, and

[[Page 16630]]

other involved railroads to submit to the Board their plans to remedy

these inadequacies.\8\

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\6\ STB Service Order No. 1518, Joint Petition for Service Order

(Service Order No. 1518) (STB served Oct. 31 and Dec. 4, 1997, and

Feb. 17 and 25, 1998).

\7\ The Board directed UP/SP to release shippers switched by the

Houston Belt & Terminal Railway Company (HB&T) or the Port Terminal

Railroad Association (PTRA) from their contracts so that they could

immediately route traffic over the Burlington Northern and Santa Fe

Railway Company (BNSF) or Tex Mex, in addition to UP/SP. The agency

also directed UP/SP to permit BNSF and Tex Mex to modify their

operations over UP/SP lines to minimize congestion over UP/SP's

``Sunset Line,'' to move traffic around Houston rather than going

through it, and to have full access to UP/SP's Spring, TX

dispatching facility as neutral observers. More generally, the Board

required UP/SP to cooperate with other railroads and to accept

assistance from other railroads able to handle UP/SP traffic.

UP/SP and BNSF recently have agreed to make other changes

designed to improve service. In particular, the carriers have agreed

to joint ownership of the Sunset Line between Avondale (New

Orleans), LA and Houston; joint dispatching in the Houston area; and

overhead trackage rights for UP/SP over the BNSF line between

Beaumont and Navasota, TX.

\8\ Service Order No. 1518, Feb. 17, 1998 decision, at 5-7; Feb.

25, 1998 decision, at 5. The railroads' plans are due May 1, 1998;

replies are due June 1.

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Recognizing the limitations on its authority under the emergency

service provisions of the law, the Board rejected proposals offered by

certain shipper, carrier, and governmental interests in the Service

Order No. 1518 proceeding to force UP/SP to transfer some of its lines

to other rail carriers and effect a permanent alteration of the

competitive situation in the Houston region; it adopted instead only

those measures designed to facilitate short-term solutions to the

crisis that did not further aggravate congestion in the area or create

additional service disruptions. The Board declared, however, that

interested persons could present proposals for longer-term solutions to

the service situation--including those seeking structural industry

changes based on perceived competitive inadequates--in formal

proceedings outside of section 11123, particularly in the UP/SP merger

oversight process.\9\ Tex Mex/KCS has now requested that we invoke our

oversight jurisdiction over the merger for the purpose of considering

such proposals, including the transfer to it of various UP/SP lines and

yards in Texas.\10\ GHP has also requested the Board's intervention to

provide for Houston's long-term rail service needs, including the

establishment of a neutral switching operation.

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\9\ Service Order No. 1518, Feb. 17, 1998 decision, at 8; Feb.

25, 1998 decision, at 4.

\10\ The Railroad Commission of Texas (RCT) has previously

announced its intent to seek similar relief. See Service Order No.

1518, Feb. 17, 1998 decision, at 8.

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That the service emergency in the Houston/Gulf Coast region remains

ongoing is well known.\11\ Given these circumstances, the Board will

invoke its oversight jurisdiction over the UP/SP merger to consider new

conditions to the merger of the kind proposed here, and others that may

be made. We note that no party as yet has seriously suggested that SP's

inadequate infrastructure would not have produced severe service

problems in the Houston/Gulf Coast area even if there had been no

merger. Nonetheless, the Board believes that, given the gravity of the

service situation, it should thoroughly explore anew the legitimacy and

viability of longer-term proposals for new conditions to the merger as

they pertain to service and competition in that region.

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\11\ In its progress report of March 9, 1998, US/SP announced

that it would take drastic action in 30 days--including the refusal

of new business and the transfer of existing business to its

competitors--if the steps it has taken to deal with the emergency

are not successful. On March 24, 1998, the carrier announced an

embargo of a significant portion of its southbound traffic destined

for the Laredo, TX gateway to clear a backlog of 5,500 cars waiting

to cross into Mexico.

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US/SP and BNSF argue that Tex Mex/KCS' request for conditions that

have been previously rejected, without any new evidentiary

justification, is insufficient grounds for the Board to begin a new

oversight proceeding. We disagree. Our 5-year oversight of the UP/SP

merger is not a static process, but a continuing one, so that the

Board's prior rejection of Tex Mex/KCS' or any other party's requested

conditions--whether in the Board's approval of the merger or in a

subsequent oversight proceeding--does not preclude their fresh

consideration now. Through our oversight condition, we have retained

jurisdiction to monitor the competitive consequences of this merger; to

re-examine whether our imposed conditions have effectively addressed

the consequences they were intended to remedy; and to impose additional

remedial conditions if those previously afforded prove insufficient,

including, if necessary, divestiture of certain of the merged carriers'

property.

The virtual shutdown of rail service in the Houston/Gulf Coast area

that occurred after the UP/SP merger--and which, after many months, has

yet to be normalized--is unprecedented. In our judgment, those

circumstances alone are sufficient for the Board to commence this

proceeding now. Clearly, our 5-year oversight jurisdiction permits us

to examine--and, if necessary, re-examine at any time during this

period--whether there is any relationship between the market power

gained by UP/SP through the merger and the failure of service that has

occurred here, and, if so, whether the situation should be addressed

through additional remedial conditions. UP/SP Merger, Decision No. 44,

at 100.

We caution, however, that we will not impose conditions requiring

UP/SP to divest property that would substantially change the

configuration and operations of its existing network in the region in

the absence of the type of presentation and evidence required for

``inconsistent applications'' in a merger proceeding; i.e., parties

must present probative evidence that discloses ``the full effects of

their proposals.'' UP/SP Merger, Decision No. 44, at 157. Divestiture

is only available ``when no other less intrusive remedy would

suffice,'' and we will impose it only upon sufficient evidentiary

justification. Id.

The Board will confine this proceeding under its continuing

oversight jurisdiction to examining requests for new conditions to the

merger relating to rail service in the Houston/Gulf Coast area. As we

have noted, the service crisis in this region, and its significant

impact on the regional economy, clearly warrant our discrete treatment

of these matters now. As a result, the procedures set forth here will

be separate from those in the more general oversight proceeding that,

pursuant to UP/SP Oversight, Decision No. 10, will begin July 1,

1998.\12\

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\12\ In Decision No. 10, at 18-19, the Board provided that

general oversight would commence July 1 upon the filing by UP/SP and

BNSF of their quarterly merger progress reports accompanied by

comprehensive summary presentations. We provided that, as part of

that proceeding, UP/SP and BNSF must make their 100% traffic tapes

available by July 15, 1998; that comments of interested parties

concerning oversight issues are due August 14, 1998; and that

replies are due September 1, 1998. The general oversight proceeding

will continue as planned.

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As set forth in the attached schedule, parties that wish to request

new remedial conditions to the UP/SP merger as they pertain to the

Houston/Gulf Coast region must file them, along with their supporting

evidence, by June 8, 1998.\13\ The Board will publish a notice in the

Federal Register accepting such requests by July 8, 1998. Any person

who intends to participate actively in this facet of oversight as a

``party of record'' (POR) must notify us of this intent by July 22,

1998. In order to be designated a POR, a person must satisfy the filing

requirements discussed above in the ADDRESSES section. We will then

compile and issue a final service list.

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\13\ Tex Mex/KCS stated that it would file its supporting

evidence 45 days after its petition. Petition at 5. If it does so,

it need not file its evidence anew on June 8th, although it may

supplement its filing as appropriate. We decline, however,

petitioner's request (Petition at 11 n. 6) to incorporate by

reference its pleadings in Finance Docket Nos. 33507, 33461, 33462,

and 33463 (titles omitted). In those proceedings, Tex Mex/KCS has

complained that, after the merger, UP/SP (either singly or jointly

with BNSF) unlawfully acquired control of HB&T in violation of 49

U.S.C. 11323, and has petitioned that a series of exemptions the

carriers filed to restructure HB&T's operations leading to that

control should be voided and/or revoked. We will proceed to consider

the discrete matters in those cases--including Tex Mex/KCS' petition

for consolidation and motion to compel discovery, and UP/SP's motion

to dismiss--separately from our consideration in the oversight

proceeding of requests by Tex Mex/KCS and others for new remedial

conditions to the merger.

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Copies of decisions, orders, and notices will be served only on

those persons designated as POR, MOC (Members of Congress), and GOV

(Governors) on the official service list. Copies of filings must be

served on all persons who are designated as POR. We note that Members

of the United States Congress and Governors who are

[[Page 16631]]

designated MOC and GOV are not parties of record and they need not be

served with copies of filings; however, those who are designated as a

POR must be served with copies of filings. All other interested persons

are encouraged to make advance arrangements with the Board's copy

contractor, DC News & Data, Inc. (DC News), to receive copies of Board

decisions, orders, and notices served in this proceeding. DC News will

handle the collection of charges and the mailing and/or faxing of

decisions to persons who request this service. The telephone number for

DC News is: (202) 289-4357.

A copy of this decision is being served on all persons designated

as POR, MOC, or GOV on the service list in Finance Docket No. 32760

(Sub-No. 21). This decision will serve as notice that persons who were

parties of record in the previous oversight proceeding (leading to

Decision No. 10) will not automatically be placed on the service list

as parties of record for this facet of oversight unless they notify us

of their intent to participate further.

Finally, while the requested remedial conditions (and those

reasonably anticipated from other parties) could, if imposed, result in

a transfer of ownership of certain UP/SP rail property or changes in

the way that such properties are operated, they appear unlikely to

produce the kind of significant operational changes that, under 49 CFR

1105.6(b)(4), requires the filing of a preliminary draft environmental

assessment (PDEA).

This action will not significantly affect either the quality of the

human environment or the conservation of energy resources.

Decided: March 30, 1998.

By the Board, Chairman Morgan and Vice Chairman Owen.

Vernon A. Williams,

Secretary.

Procedural Schedule

June 8, 1998: Requests for new remedial conditions (with supporting

evidence) filed.

July 8, 1998: Board notice of acceptance of requests for new conditions

published in the Federal Register.

July 22, 1998: Notice of intent to participate in proceeding due.

August 10, 1998: All comments, evidence, and argument opposing requests

for new remedial conditions to the merger due. Comments by U.S.

Department of Justice and U.S. Department of Transportation due.

September 8, 1998: Rebuttal evidence and argument in support of

requests for new conditions due.

The necessity of briefing, oral argument, and voting conference

will be determined after the Board's review of the pleadings.

[FR Doc. 98-8827 Filed 4-2-98; 845 am]

BILLING CODE 4915-00-M