consolidations can lead to a reduction in redundant facilities and thereby to an increase in traffic density on underused lines, operating efficiencies may be realized. Consolidations can also lead to increased marketing opportunities. There are two potential results from consolidations which would harm the public and which the Commission must carefully consider in any merger case --- reduction of competition and harm to essential services. If two carriers serving the same market consolidate, the result would be the elimination of the competition between the two. Even if the consolidating carriers do not serve the same market, there may be a lessening of potential competition in other markets. While the reduction in the number of competitors serving a market is not in itself harmful, a reduction of competition resulting from the elimination of a competitor may be contrary to the public interest. In its consideration of merger applications, the Commission considers competition from other modes of transportation as well as competition among rail carriers. In assessing the probable impact of a rail merger, the Commission is also concerned with the preservation of essential services. A service is essential if there is a sufficient public need for the service and adequate alternative transportation is not available. If it is shown that essential services will be adversely affected by a consolidation, the Commission may impose conditions on the transaction. Normally, the Commission will impose conditions on a consolidation only if the condition is designed to enable shippers to receive adequate service, would not pose unreasonable operating or other problems for the consolidated carrier, and would not frustrate the ability of the consolidated carrier to obtain the anticipated benefits. The Commission will consider requiring inclusion of another carrier as a condition to approval only where there is no reasonable alternative for providing essential service. In making such a decision, the Commission must determine that the facilities of the carrier to be included fit operationally into the new system, and that inclusion can be accomplished without endangering the operational or financial success of the new company. The Commission has recently revised its procedures governing railroad consolidations. proceeding instituted on our own motion, we adopted final rules in this area by a decision dated February 19, 1982 in Ex Parte No. 282 (Sub-No. 3), Railroad Consolidation Procedures. In that decision, we revised the informational requirements for rail carriers seeking authority to consolidate. We also incorporated the new time limits for consideration of merger applications contained in the Staggers Rail Act of 1980, as well as other changes necessitated by that legislation. These revisions will result in better use of both Commission and carrier resources by reducing required information and avoiding lengthy and costly proceedings when unwarranted by their impact. The Commission recognizes the problems that can be caused by undue delay in the consideration of rail merger applications. Therefore, we are committed to an expedited timetable for such Our commitment to expeditious yet thorough consideration. analysis of merger applications is demonstrated by the fact that we anticipate that final decisions will be rendered in all of the currently pending merger applications well before the statutory deadlines mandated by the Staggers Act. The time table for our consideration of major merger applications is outlined below: 3-6 months prior to filing of the application - the applicant files a prefiling notice with the Commission briefly describing the transaction. Within 30 days of receipt of the prefiling notice the Commission publishes a notice in the Federal Register briefly describing the transaction and listing any additional information which must be filed with the application. No later than 30 days after the application is filed 45 days after the application's acceptance -- written comments are filed. The Secretary of Transportation and the U.S. Attorney General must file their comments within 60 days of the date of acceptance of the application. 24 months after an application is accepted - the evidentiary proceeding (either oral public hearing, hearing by written submissions, or another kind of evidentiary proceeding) is completed. 180 days after conclusion of the evidentiary proceeding the final decision is issued. Although the Commission has experienced staff reductions as a result of budgetary constraints, we do not believe this will affect our ability to review merger applications. The Office of Transportation Analysis, which has largely been responsible for assisting the Commission in merger analyses, has in the past allotted approximately 4 to 5 staff years on merger cases, depending on the number of applications filed at any particular Currently, that office has 4 staff members working time. full-time on rail merger proposals. In addition, for major mergers, teams are ordinarily assembled to analyze the prospective merger. Typically, such a team would include representatives from the Office of Proceedings, the Office of Hearings, the Bureau of Accounts, and the Office of Compliance and Consumer Assistance, as well as the Office of Transportation Analysis. Thus, unless there is a significant increase in the number of merger applications filed, present staffing levels should be sufficient to provide adequate analyses of these applications. PENDING RAIL MERGERS The Commission currently has four major rail merger proposals pending consideration. I would like to provide the Committee with a brief status report on these proceedings. If more detailed information is desired with regard to any of these proceedings, we will, of course, supply such information. In December 1980, the Norfolk Southern Corporation, a non-carrier holding company, filed an application for control of the Norfolk and Western Railway Company and the Southern Railway Company. The evidentiary record in this proceeding was closed on October 31, 1981, and yesterday, on March 25, 1982, well before the statutory deadline of April 28, 1982, the Commission issued a final decision in the Norfolk Southern matter. Union Pacific Corporation (UPC) is a non-carrier holding company which controls the Union Pacific Railroad Company, among other interests. The UPC filed applications to bring the Missouri Pacific Railroad Company and the Western Pacific Railroad Company under its control on September 15, 1980. This proposal has generated considerable controversy and has resulted in several extensive requests for trackage rights by competing railroads as a condition of the merger. Reply briefs are due April 23, 1982. The Commission is required to issue a final decision 6 months after the evidentiary record is closed, but in no event later than April 15, 1983. The last two mergers before the Commission relate to the efforts of Guilford Transportation Industries, Inc. (GTI), a non-carrier holding company, to put together a regional rail system in the Northeast. GTI presently controls the Maine Central Railroad Company. In October of 1981, GTI filed an application for approval to control the Boston and Maine Corporation. proceeding is subject to the expedited time limits imposed by section 1164 of the Northeast Rail Service Act of 1981, which requires the Commission to issue a final decision by April 26, 1982. This GTI's application for approval to control the Delaware and Hudson Railway Company was filed on January 29, 1982. The application is contingent upon approval of GTI's acquisition of the Boston and Maine Corporation. In accordance with the expedited time limits of the Northeast Rail Service Act of 1981, the Commission must issue a final decision by July 28, 1982. Oral hearing in this proceeding began on March 22, 1982. POST-MERGER STUDIES As a general rule, the Commission has not conducted comprehensive, ex post evaluations of rail mergers. However, the Commission has, in some instances, conducted or evaluated postmerger studies. Beginning with the Penn Central merger, the Commission imposed requirements for post-merger reporting on progress and status. These study conditions were designed to enable us to examine the performance of the merged carrier to determine if the projected benefits of the merger were realized and potentially harmful effects avoided. However, the reports prepared by the carriers were largely self-serving and did not provide the type of analysis necessary to evaluate the effects of the merger. The Commission has encountered a number of difficulties with post-merger analysis, because there are so many non-merger related variables which can affect a carrier's performance. For example, the state of the economy, availability of capital, and changes in government policy and regulation can all affect projections made by carriers during merger proceedings. Carriers should not be held accountable for failures in performance beyond their control. Among carriers in the transportation industry, railroads are perhaps the most susceptible to the vagaries of the general economy. As a result, rail traffic flows vary considerably from factors other than merger-related diversions. In addition, benefits from railroad mergers may not become evident for some time. Therefore, a considerable period must elapse after consummation of a merger before a final conclusion can be reached regarding the impacts of the merger. Obviously, this delay reduces the usefulness of any post-merger study. Another factor affecting the impact of post-merger analysis is the fact that findings and conclusions cannot realistically be utilized for further Commission action. Once a merger is consummated, it is all but impossible to reverse it. Moreover, information from one merger is of dubious value in evaluating later mergers, since the facts in each case differ so greatly. Therefore, it appears that the cost of comprehensive post-merger analyses, in terms of our resources, may far outweigh any benefits. However, the Commission's Bureau of Accounts does examine the subsequent performance of merged carriers as a part of the general oversight of the financial condition of the railroad industry. |