[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Notices]
[Pages 16628-16631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8827]


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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