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have a virtual market lock on this traffic, and the extent to which they can exercise their monopoly power has formed the subject of numerous disputes between western shippers and carriers.

BN is dominant in the transportation of coal out of the Powder River Basin area of Wyoming a principal source of low

sulfur coal

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and has felt no compunction in the past to attempt to set monopoly rates on coal traffic. Indeed, due in large measure to the Energy Crisis, the principal source of BN's traffic profits comes from coal traffic. As reported in BN's 1980 SEC Form 10K, revenues from coal comprise the single largest commodity component of its freight revenues. Indeed, this Report shows that while its coal tonnages doubled from 1976-1980, the revenues it derived from coal over the same period tripled:

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Because BN, before the advent of the holding company,

attempted with much success to cash-in on captive coal traffic, the League fears that the added pressures of generating even more cash to fund non-railroad projects will lead BN to seek even greater coal rate increases. In fact, this very result is happening, as BN has instituted a highly publicized campaign designed to dramatically increase its revenues on captive coal traffic. On June 15, 1981 less than one (1) month after BN's

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stockholders approved its reorganization plan

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the President of

the BN Railroad sent a letter to all of BN's major coal customers indicating that major increases were on the way. (See Exhibit E). Since that time, BN has begun to implement this plan.

It is particularly galling to members of the Western Coal Traffic League that the coal rates its members are paying and the increases BN is now attempting to foist upon them are apparently going to be used by BN to buy oil and lumber companies. While such non-transportation investments may benefit BN's shareholders, they provide no benefits to shippers using BN's transportation network, or to the interests of national rail

transportation policy.

Moreover, the picture of financial health now being painted in the financial press is wholly at odds with the picture the BN has conjured up in ratemaking proceedings before the ICC and in its recent increase campaign. At the ICC, BN continually postures itself as "revenue inadequate" and in dire need of every rate increase it requests, else it go the way of the Penn Central, and other bankrupt roads. Witness, for example, a verified statement made by a BN Senior Vice President in the ongoing rate case involving Western Coal Traffic League member, San Antonio,

Texas:

The Nation's railroads, as a group, have long
suffered from inadequate earnings. Unfortu-
nately, Burlington Northern's rail operations
are no exception. The historically inade-
quate revenue levels and earnings from rail
operations make it extremely difficult for BN
to continue the huge capital demands placed
upon it by the movement of coal.

Docket No. 36180, Statement of Robert F. Garland at 3 (Oct. 30, 1981).

Based upon representations such as that just quoted,

the ICC has permitted the BN to reap extremely high rates on coal, and the BN's current campaign shows that the carrier is out for even more.

Thus, the formation by BN of its holding company appears to have contributed to its desire to inflict rate increases on captive coal traffic in order to obtain cash for non-rail related investments.

(2) Chilling National Energy Goals

Many current shippers of western coal became coal

shippers as a direct and positive response to legislation enacted

by Congress calling for increased use of coal as a boiler fuel.* Coal freight rates that vastly exceed the cost of providing coal transportation service are acknowledged and serious impediments to the attainment of national energy goals. See, e.g., The President's Commission on Coal, Recommendations and Summary Findings, at 7 (March 1980); House Subcommittee on Oversight and Investigation of the Committee on Interstate and Foreign Commerce, Railroad Coal Rates and Public Participation in Oversight of ICC Decisionmaking, H. R. Comm. Print 96 I.F.C. 40, 96th Cong. 2d Sess. 92-104 (1980); Coal Bridge to the Future: Report of the World Coal Study, at 126-127 (1980).

The importance of focusing on national energy concerns in formulating coal rates has also been emphasized by the courts. For example, the Fifth Circuit stated in a decision involving Western Coal Traffic League member Celanese Chemical Company: All parties to this dispute acknowledge that transportation is a large portion of the cost of coal, and no one can dispute that the cost of coal in comparison to the cost of other energy sources is the primary factor which major industrial users will consider in deciding whether to use coal rather than oil or gas. Railroads enjoy a near monopoly in the transportation of coal. It is thus obvious that the establishing of railroad rates for the transportation of coal has a great impact on our national energy policy.

Celanese Chemical Co. v. United States, 632 F.2d 568, 578 (5th

Cir. 1980).

Pressures brought to bear by the BN Holding Company on the railroad to generate cash thus may generate rate increases that serve to deter national energy goals. Indeed, high railroad

In recognition of our over-dependence on imported petroleum in particular, and natural gas and oil in general, Congress has enacted a series of laws designed to reduce reliance on oil and gas wherever possible. Among them are the following: the Emergency Petroleum Allocation Act of 1973 (Pub. L. 93-511, 88 Stat. 1608); the Federal Nonnuclear Energy Research and Development Act of 1974 (Pub. L. 93-577, 88 Stat. 1878); the Energy Reorganization Act of 1974 (Pub. L. 94-438, 88 Stat. 1233); the Energy Supply and Environmental Coordination Act of 1974 (Pub. L. 93-319, 88 Stat. 246); the Energy Policy and Conservation Act (Pub. L. 94-163, 89 Stat. 871); the Energy Conservation and Production Act, (Pub. L. 94-385, 90 Stat. 1125); and the Powerplant and Industrial Fuel Use Act (Pub. L. 95-620, 92 Stat. 246).

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freight rates have often been cited by utilities and industry alike as a principal reason for not converting facilities to low

sulfur coal.

(3) Draining the Railroad of Monies Needed

to Provide Adequate Service

BN has spent substantial sums to build or rehabilitate its coal lines. However, even before the holding company was formed, major coal shippers often experienced service problems, despite the fact that they were paying premium rates for coal transportation. Coal trains are routinely sidetracked and

delayed to allow other rail traffic to pass through, and accidents abound. Rail management puts inordinate energy into car and equipment technology generally but ignores coal cars. Indeed, in most instances, the BN will not even provide equip

ment.

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Of course, if the railroad is now to be used as a "cash cow" there is every reason to fear that past service problems will be exacerbated and new ones will occur. Even though BN management staunchly states that they will not neglect to keep up the railroad, the ICC's 1977 Report on railroad conglomerates found:

Id. at 72.

With few exceptions, our investigation has
shown that capital and maintenance expen-
ditures made by railroads owned by holding
companies have not kept pace with inflation.

Finally, as reported in Business Week, even some of BN's railroad managers fear that upkeep and service may be given a back seat to the holding company's drive for diversification.

(4) The Adverse Financial Effect on Utility
Ratepayers

Most shippers of BN coal are electric utilities. These utilities, as a general rule, pass-on BN's transportation charges to their customers as part of their monthly billings. Thus, for utilities the so-called "bottom line" rests with its customers, and it is totally unfair to these individuals and businesses to pay freight charges that are so high that the carrier is looking

to buy oil companies with its excess cash. Yet, that appears to be the very result of the BN's current coal pricing program.

OTHER CONCERNS

The Coal League shares the concerns expressed by the

Water Transport Association, and others, that the Holding Company plans to strip the Railroad of valuable land grant properties whose income would otherwise be available to the rail network.

CONCLUSION

By creating a holding company, BN has facilitated its

ability to make non-transportation investments.

Unfortunately,

it appears as if the BN may take advantage of this new corporate framework to siphon-off railroad profits and assets to collect cash for its new corporate aggrandizement. Such a policy is detrimental to the interests of both shippers and the general public. In addition, monies that previously would be available to maintain the railroad may now be targeted for non-rail

purposes.

Given these adverse consequences, WCTL would fully support legislative initiatives designed to ensure that railroad holding companies do not funnel away resources earned or owned by the railroad in a manner inconsistent with the protection of the interests of users of the rail network.

On behalf of the League, I would like to again thank the Committee for the opportunity to appear before it today.

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