[Congressional Record Volume 142, Number 96 (Wednesday, June 26, 1996)]
[Extensions of Remarks]
[Pages E1171-E1173]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 OPPOSITION LETTERS TO THE UNION PACIFIC AND SOUTHERN PACIFIC RAILROAD 
                                 MERGER

                                 ______
                                 

                         HON. ROBERT A. BORSKI

                            of pennsylvania

                    in the house of representatives

                        Wednesday, June 26, 1996

  Mr. BORSKI. Mr. Speaker, I am offering recent submissions to the 
Surface Transportation Board regarding the proposed merger of the Union 
Pacific and Southern Pacific railroads by members of the Committee on 
Transportation and Infrastructure describing their opposition to the 
proposal.
  This merger proposal has generated substantial opposition including 
from shippers, all levels of government (Federal, State, and local), 
farm interests, and labor interests. I am confident the Board will 
consider this opposition as it deliberates on the merger proposal next 
week.
         House of Representatives, Committee on Transportation and 
           Infrastructure,
                                    Washington, DC, June 20, 1996.
     Hon. Linda J. Morgan,
     Chairman, Surface Transportation Board,
     Washington, DC.
       Dear Chairman Morgan: I am writing to express my strong 
     concerns about the proposed merger between the Union Pacific 
     Railroad and the Southern Pacific Railroad. The Merger as 
     proposed appears likely to substantially reduce competition 
     and raise rates for shippers and consumers. For these 
     reasons, the Departments of Justice, Transportation, and 
     Agriculture have all opposed the merger. I agree with the 
     recommendations of these agencies and urge that the merger be 
     disapproved, unless it is possible

[[Page E1172]]

     to develop a divestiture plan that would preserve competition 
     and protect shippers and consumers.
       Union Pacific and Southern Pacific are major competitors in 
     hundreds of markets in the West and Midwest. A merger between 
     the two would create a monopoly rail carrier in markets 
     accounting for between $800 million and $1.5 billion in 
     annual revenues. In hundreds of additional markets, 
     accounting for between $2.14 and $4.75 billion in annual 
     revenues, the number of rail competitors would be reduced 
     from three to two.
       For many of the shippers in these markets, rail is the only 
     cost-effective transportation mode, either because these 
     shipments are too heavy relative to their value to be 
     economically moved by truck, or because of the distance that 
     the shipment must be transported, or both. These shippers who 
     depend on rail include shippers of forest products, grain, 
     and plastic pellets and, on longer hauls, automobiles, iron 
     and steel, and intermodal traffic. The Justice Department 
     estimates that these shippers can expect a 20 percent price 
     increase when competition is reduced from two rail carriers 
     to one, and a 10 percent price increase when competition is 
     reduced from three rail carriers to two. The Justice 
     Department has estimated that consumers would have to pay 
     higher prices resulting from the reduction in competition in 
     these markets amounting to $800 million per year.
       The applicants assert that in the ``three to two'' markets, 
     contrary to our experience in most other markets, they will 
     compete vigorously with the remaining competitor and no one 
     need worry. In the ``two to one'' markets, the applicants 
     propose to remedy the loss of competition through a trackage 
     rights agreement that would give the Burlington Northern 
     Santa Fe Railroad (BNSF) the right to operate over portions 
     of the combined UP/SP system and serve certain specified 
     points that currently receive direct service from both UP and 
     SP. I am not convinced that this trackage rights agreement 
     would preserve competition for shippers currently benefiting 
     from two-carrier competition.
       I do not believe that a trackage rights agreement would 
     permit BNSF to compete with UP/SP as effectively as would an 
     independent railroad. Under the agreement, BNSF would be 
     conducting its operations as a ``tenant'' over the tracks of 
     the landlord UP/SP. The landlord, UP/SP, would have 
     opportunities to favor its own operations over those of the 
     competing tenant. For example, UP/SP could give preference in 
     dispatching and switching its own trains and could give lower 
     priority in track maintenance to track primarily used by 
     BNSF. UP/SP would have incentives to use these powers to 
     limit BNSF's effectiveness as a competitor. As one railroad 
     put it, a trackage rights agreement ``is the competitive 
     equivalent of having United Airlines and American Airlines 
     operating out of the same busy airport, but giving United 
     exclusive authority over the control tower!''
       The proposed trackage rights agreement also generally 
     limits BNSF to serving customers who are on the lines of both 
     SP and UP. BNSF is generally prohibited from serving shippers 
     who are on one line but close enough to the other line that 
     they benefit from competition from the other railroad. Such 
     shippers are close enough to both UP and SP that they can 
     currently use short-haul truck transport or the threat of 
     building a branch rail line to maintain competitive pricing, 
     for these shippers, the trackage rights agreement provides no 
     remedy for lost competition.
       Even the shippers that can receive BNSF service under the 
     trackage rights agreement, the trackage rights agreement is 
     hemmed in with restrictions that limit the effectiveness of 
     the competition that BNSF can provide. In some cases, the 
     agreement limits the number of trains BNSF can run. More 
     generally, because the agreement only allows BNSF to carry 
     freight between certain points, it will be difficult for BNSF 
     to generate sufficient traffic volumes to make its costs 
     competitive. It is important to observe that nothing in the 
     agreement obligates BNSF to provide service where the 
     agreement allows it to provide service. BNSF pays nothing for 
     the rights until they are actually used, so BNSF's incentives 
     are not to offer service unless it can be sure of earning a 
     profit on it. If SP is marginally profitable serving these 
     lines with its unlimited access to the traffic, BNSF may not 
     be able to offer service under the more restrictive 
     conditions imposed by the Settlement Agreement.
       The applicants have emphasized in their recent rebuttal 
     that they have agreed to five years of annual oversight by 
     the STB to confirm that the BNSF Settlement Agreement is 
     working. But is was not the intent of the Congress in 
     enacting either the Staggers Act or the ICC Termination Act 
     to depend on STB oversight to ensure competition. The intent 
     of Congress was to maintain structural conditions that would 
     ensure competition. We preferred, from a policy standpoint, 
     relying on competition rather than regulatory interventions 
     by the ICC/STB. Moreover, we believe that limited resources 
     make continuing oversight by the STB an inadequate substitute 
     for an industry structure that would ensure competition. Even 
     in its heyday, the ICC did not have enough staff to track the 
     practices of railroads closely enough to ensure competition. 
     Now, with its staff cut 90 percent, and facing continuing 
     budgetary pressures, we clearly cannot rely on STB oversight 
     to ensure.
       UP and SP claims that hundreds of millions of dollars in 
     economies will flow from their merger, but it appears that a 
     substantial portion of these ``economies'' in fact represent 
     losses for workers who will lose their jobs and for shippers 
     who will pay higher prices for rail transportation. In any 
     case, it is not clear that the proposed merger is the least 
     anti-competitive way of achieving these economies.
       UP and SP also claim that the imminent collapse of SP makes 
     the merger inevitable. SP made the same arguments when it 
     proposed merging with the Santa Fe railroad a decade ago, but 
     it has somehow managed to stave off collapse and maintain 
     itself as a competitive force in the market. Even if the 
     collapse of SP is inevitable (and the issue is debatable), it 
     is not clear that transferring all its assets to UP is in the 
     public interest. The market power that UP would gain by 
     acquiring SP allows it to pay the highest price to SP's 
     shareholders, but the public interest requires that those 
     assets be transferred to parties that will provide effective 
     competition, not to parties that are willing to pay a high 
     price for the assets because they foresee monopolistic 
     profits in the future. Other carriers have expressed an 
     interest in buying those assets, and could provide continuing 
     effective competition for UP.
       As I stated in my earlier letter, I am confident that you 
     and your colleagues, confronted with all the facts, will make 
     the right decision in this case. I offer my views only 
     because there has been speculation by commentators in the 
     news media that further consolidation of the railroad 
     industry is ``inevitable.'' I do not view it as inevitable, 
     and I hope you do not as well. I believe a merger is 
     consistent with the public interest only if the public is 
     clearly not harmed by the merger. In the event that the Board 
     should approve the merger, I encourage you to attach such 
     conditions to this proposal as are necessary, including 
     divestitures of parallel lines, to ensure that the public is 
     not harmed, without relying on your continuing oversight to 
     achieve that objective. UP regards divestiture proposals as 
     ``killer conditions.'' Even if that is true, there would be 
     little harm and much potential gain in denying the merger and 
     inviting the applicants to develop a less anti-competitive 
     proposal.
           Sincerely,
                                                James L. Oberstar,
     Ranking Democratic Member.
                                                                    ____



                                Congress of the United States,

                                    Washington, DC, April 4, 1996.
     Mr. Vernon Williams,
     Office of the Secretary, U.S. Surface Transportation Board, 
         Washington, DC
       Dear Mr. Williams: We wish to express our concern about the 
     merger application of the Union Pacific (UP) and Southern 
     Pacific (SP) Railroads.
       If this merger is approved, the consolidated UP/SP system 
     will create the nation's largest rail carrier and could spur 
     additional mergers in the Eastern United States. The merger 
     could mean a significant decrease in competition, rail 
     service and jobs, and would harm shippers and rail-dependent 
     businesses. It could eliminate thousands of jobs in a 
     workforce already struggling from a large number of mergers, 
     reductions and corporate dowsizing in other major sectors of 
     the economy.
       A consolidated UP/SP rail system certainly will create a 
     monopolistic situation in the West but the trend toward 
     megarailroads could lead to a wave of similar mergers in the 
     East. This disturbing trend of consolidation is not in the 
     public interest. Shippers will be left with few 
     transportation choices. Communities and workers will face the 
     threat of job loss and dislocation.
       We question the wisdom of granting this merger when there 
     are no compelling reasons to create such a large railroad. UP 
     and SP have other options available to allow them to compete 
     in the marketplace short of this merger.
       We believe this merger is anti-competitive and will have 
     far-reaching implications. It will harm shippers, consumers, 
     communities, and working men and women. We urge the Board to 
     preserve rail competition and protect American workers by 
     rejecting the UP/SP merger.
           Sincerly,
     Bob Borski.
     Tim Holden.
     Paul E. Kanjorski.
     Paul McHale.
     Chaka Fattah.
                                  ____
                                  


                                      House of Representatives

                                      Washington, DC, May 2, 1996.
     Hon. Vernon A. Williams,
     Secretary, Surface Transportation Board,
     Washington, DC.
       Dear Secretary Williams: As you consider the application 
     pending before the Surface Transportation Board regarding the 
     proposed merger between the Union Pacific Railroad Company 
     (UP) and Southern Pacific Lines (SP), I wish to bring before 
     you a number of concerns which have been brought to my 
     attention considering this proposal. Specifically, I am 
     requesting that the Board consider the potential reduction in 
     rail competition along the Chicago-Memphis-Houston corridor 
     and the impact that would have on rates or consumers and 
     shippers in Tennessee.
       As proposed, the merger would grant UP control over 
     approximately 90% of rail traffic into and out of Mexico, 70% 
     of the petrochemical shipments from the Texas Gulf

[[Page E1173]]

     Coast, and 86% of the plastics storage capacity in the Texas/
     Louisiana Gulf region. I understand that the proposal 
     includes a trackage rights agreement with Burlington Northern 
     Santa Fe (BNSF) to address this issue.
       On the other hand, Conrail has submitted a proposal to 
     purchase the lines referred to as SP East, i.e., the lines 
     from Chicago through St. Louis to Houston, the line from New 
     Orleans to El Paso as well as lines to Dallas/Fort Worth, 
     Eagle Pass, Brownsville and Memphis.
       There are clear advantages of having a railroad own the 
     line as opposed to having a railroad operate over another 
     company's line. First, owners of rail lines will have every 
     incentive to invest in track and work with the local 
     communities to attract economic development. In addition, 
     owners who control the service they provide, i.e. its 
     frequency, reliability and timeliness. Finally, an owning 
     railroad offers the best opportunity to retain employment for 
     railroad workers who would otherwise be displaced by the 
     proposed merger.
       I support Conrail's proposal and urge you to carefully 
     review it as you consider the UP-SP merger application. I 
     believe it addresses many of the issues raised with respect 
     to the merger's impact on cities like Memphis.
       I look forward to hearing from you.
           Sincerely,
                                                      Bob Clement,
                                               Member of Congress.
                                  ____
                                  


                                Congress of the United States,

                                     Washington, DC, May 15, 1996.
     Re finance docket 32760.
     Hon. Vernon A. Williams,
     Secretary, Surface Transportation Board, 12th Street and 
         Constitution Avenue
     Washington, DC.
       Dear Secretary Williams: I am writing in regard to an 
     application pending before you that seeks approval of a 
     merger between the Union Pacific Railroad (UP) and Southern 
     Pacific Lines (SP). I am very concerned that the merger of 
     these two railroads will significantly reduce rail 
     competition and result in higher rates for shippers and 
     consumers.
       As proposed, the merger would grant UP control over a 
     reported 90% of rail traffic in to and out of Mexico, 70% of 
     the petrochemical shipments form the Texas Gulf Coast, and 
     86% of the plastics storage capacity in the Texas/Louisiana 
     Gulf region. UP acknowledges that the merger would greatly 
     reduce rail competition and proposes a trackage rights 
     agreement with Burlington Northern Santa Fe (BNSF) as the 
     solution. A trackage rights agreement, however, does not 
     solve the problem as the several sets of changes in the 
     agreement attest.
       Owners of rail lines have incentives to invest in track and 
     to work with local communities to attract economic 
     development. Owners have control over the service they 
     provide--its frequency, its reliability, and its timeliness. 
     None of these things can be said about railroads that merely 
     operate over someone else's tracks, subject to someone else's 
     control, and required to pay the owner for every carload of 
     traffic the tenant moves. An owning railroad, faced with none 
     of these difficulties, and having major incentives to develop 
     traffic for the line, can be more readily and consistently 
     counted on to provide quality service and investment that is 
     the best solution for shippers, communities, and economic 
     development.
       Conrail has offered to purchase the lines referred to as SP 
     East, i.e. the lines from Chicago through to Houston, the 
     line from New Orleans to El Paso as well as lines to Dallas/
     Fort Worth, Eagle Pass, Brownsville and Memphis. An offer 
     from an owning railroad such as has been proposed by Conrail 
     represents the best opportunity to preserve competition, 
     enhance economic development potential, and save jobs.
       For these reasons, I urge the Board to oppose UP/SP merger 
     unless it is conditioned on a property-owning divestiture 
     plan such as the one put forth by Conrail.
           Sincerely,
                                            Eddie Bernice Johnson,
     Member of Congress.
                                                                    ____



                                Congress of the United States,

                                     Washington, DC, May 21, 1996.
     Re finance docket 32760.
     Mrs. Linda J. Morgan,
     Chairman, Surface Transportation Board,
     Washington, DC.
       Dear Chairman Morgan: I am writing regarding the proposed 
     Union Pacific (UP) and Southern Pacific (SP) merger.
       The UP-SP merger will create one of the largest railroads 
     in the world. While I do not have a problem with this 
     concept, I am concerned that if this transaction is approved 
     in its current form it will have severe consequences. 
     Specifically, data I have reviewed supports arguments that 
     the UP-SP merger, as proposed, is not in the public interest 
     and will result in the loss of thousands of jobs nationally.
       Furthermore, some of the proposals to address the anti-
     competitive aspects of the merger appear to unfairly 
     discriminate against Northeastern Ohio, negatively impacting 
     its economy and employment. I am troubled by this and believe 
     a solution in the national interest can be reached without 
     discriminating against the State of Ohio.
       One such solution may be Conrail's proposal to purchase 
     lines which have been referred to as SP East. I believe a 
     proposal of this nature is the best way to ensure 
     competition, boost economic growth and preserve jobs.
       With this in mind, I respectfully request that the Surface 
     Transportation Board give every consideration to conditioning 
     approval of the UP-SP on a property-owning divestiture plan 
     to ensure that this merger will be an equitable one in the 
     national interest.
           Sincerely,
                                             Steven C. LaTourette,
     Member of Congress.

                          ____________________