Regulators Raise the Bar for Railroad Mergers

WASHINGTON -- The federal Surface Transportation Board yesterday imposed rules that would make freight-railroad mergers much more difficult and said the regulators will view "with skepticism" the promises of benefits made by future merger applicants, the Washington Post reports.

The new rules, which grew from the chaos of rail mergers in the 1990s, will require railroads to show that a proposed merger is in the public interest and that it will give proper protection to smaller railroads, ports and passenger operations that might be adversely affected.

Railroads should show how a merger would increase competition, the rules say. The rules also contain new paperwork and information requirements.

A railroad executive who was intimately involved in a major 1990s merger said the rules make the merger task "daunting." The executive, who asked not to be identified, said it is likely that for at least the next two years railroads will concentrate on joint service agreements rather than mergers.

The board said that railroads no longer have excess capacity and excess facilities, so the justification for future mergers must shift from the need for greater railroad efficiency toward greater competition and also must put more emphasis on the public interest.

There are six major railroads in North America -- Canadian National, Canadian Pacific, Burlington Northern Santa Fe, CSX Transportation, Norfolk Southern and Union Pacific.

In December 1999, BNSF and Canadian National announced plans to merge, which prompted the board to impose a moratorium on new merger applications while it considered new rules. The moratorium expired yesterday.

In explaining its actions, the board said a new major merger might begin the "end game" that would leave North American with only two huge rail systems. "While mergers have their place," Chairman Linda Morgan wrote in comments attached to the rules, "recent events have shown that no major merger takes place in isolation, and that, once a round of mergers begins, it can be all-consuming, distracting, and disruptive, to the detriment of the nation's transportation system, rail shippers, rail employees and communities across the country."

The new rules require railroads to prepare a "service assurance plan" to detail how a proposed merged railroad would deal with service problems during a transition period.

The board said that "future merger proposals should be met with a more skeptical 'show me' attitude towards claims of merger benefits and towards claims that transitional service problems will not occur."