STB Unveils Rail Merger Rules

WASHINGTON -- The long-anticipated rules for mergers involving major railroads were issued by the Surface Transportation Board on Monday, the Journal of Commerce Online reports.

The rules take effect July 11, following expiration of a 15-month moratorium on rail combinations that was imposed by the agency in March 2000.

"The new rules substantially increase the burden on rail merger and consolidation applicants to demonstrate that a proposed transaction would be in the public interest," the STB said in a statement. "The new rules require applicants to demonstrate that, among other things, a proposed transaction would enhance competition where necessary to offset negative effects of the transaction, such as competitive harm, and to address fully the impact of the transaction on service, including plans for service reliability.

"Future merger applicants will be required to bear a heavier burden to show that a major rail combination is consistent with the public interest," the board said. This is a shift in policy that reflects fewer remaining Class 1 railroads, less of a need to deal with excess capacity through mergers, and the service problems that have followed previous mergers.

In a move that may lead to court challenges of the new rules, according to some legal experts, the STB said it intends to offset merger-related harms that cannot be directly mitigated by adopting conditions for competitive merger enhancements. Such competitive enhancements could include reciprocal switching arrangements, trackage rights, and efforts to eliminate restrictions on interchanges by short line railroads.

Railroads have said that such requirements, known as competitive access, would erode the value of mergers by reducing rates and cutting into the overall revenue and profitability a merger would be expected to produce.

The STB said that because the realization of benefits in recent mergers has been delayed or frustrated by transitional service problems, future mergers would be met with a more skeptical "show me" attitude towards carrier claims of merger benefits and claims that service problems will not occur.

The agency said that it will also consider the extent to which various claimed merger benefits can be achieved, short of merger, through cooperative agreements among railroads.

Merging railroads will be required to submit a Service Assurance Plan with their initial application and operating plan. These plans must spell out how the carriers will deal with service disruption during implementation.