SENATOR CHILES: Did the ICC advise either the DOT or the Justice Department on the proposed sale of Conrail to the Norfolk Southern?

ANSWER: The ICC did not advise either the DOT or the Justice Department on the proposed sale of Conrail to Norfolk Southern.

SENATOR CHILES: In the legislation introduced by Senator Danforth to permit the sale of Conrail, there is the following provision: "Such implementation of the Secretary's plan and the coordinated operation of the Corporation's properties with those of Norfolk Southern Corporation and its affiliates is deemed approved by the Commission under Chapter 113 of Title 49, United States Code." What is Chapter 113 of Title 49, United States Code?

ANSWER: Chapter 113 of Title 49, United States Code, deals with finance matters between railroads. In particular, subchapter III sets out the grounds for ICC review of carrier combinations. Specifically, carriers cannot combine without prior Commission approval under 49 U.S.C. 11343(a and b). The Commission can approve a combination of Class I railroads (railroads with revenues in excess of $50 million) if it is consistent with the public interest under 49 U.S.C. 11344(b). If the ICC approves a consolidation under these standards, the transaction is exempt from the antitrust laws and from all other law, including State and municipal law, as necessary to let the person carry out the transaction. 49 U.S.C. 11341(a).

SENATOR CHILES: Would enactment of this provision into law grant antitrust immunity to the merged NS/Conrail?

ANSWER: Enactment of this provision into law would, in our opinion, grant antitrust immunity to the merged NS/Conrail under 49 U.S.C. 11341(a).

SENATOR CHILES: What is the process that would be followed if the merger of Conrail and Norfolk Southern were handled in the normal manner, as a merger application from two class I rail carriers?

ANSWER: The process that would be followed if the merger of Conrail and Norfolk Southern were handled in the normal manner is described in the following paragraphs.

In processing a railroad consolidation application, the Commission follows its statute (49 U.S.C. 11343-11345) and its regulations (49 C.F.R. Part 1180). These contain the underlying procedural guidelines and substantive criteria that are used in ruling on an application.

Prior to filing an application, consolidating railroads are required to give the Commission between 3 and 6 months' notice. The Commission publishes notice in the Federal Register to alert any interested parties that the combination will be submitted to the Commission for approval.

The next step involves the filing of the application. The application contains general background information on the consolidating companies. It also specifically describes the transaction. The application also contains the plans of the combining railroads for their new operation.

The keystone of this information is the market impact analysis. This contains information on the impact of the proposal on other carriers, the markets served by the consolidating system,

and competition in general. An operating plan for the new rail system is then submitted based on proposed efficiencies and additional traffic projected by the market impact analysis. The railroads then submit financial statements taking into account the changes in their financial condition brought about by the operating plan and the traffic that they project that they will capture in the market impact analysis. All of this information is supported by sworn testimony that is publicly available.

The applicant railroads send their application to anyone who requests a copy. The Commission also publishes a notice in the Federal Register to notify the public that the application has been filed, and to give them an opportunity to comment on the proposal. At this time, the Commission also issues a procedural schedule.

Anyone who opposes or supports the proposed consolidation is given an opportunity to present evidence supporting their position and contradicting the evidence submitted by the applicant railroads. One of the main areas of controversy is the competitive effect of the combination, particularly the amount of traffic that the new system will divert from other carriers. These parties also submit requests for conditions that allegedly will either ameliorate the harm to individual competitors, or to competition that would result from the combination. In major cases, the parties are permitted to cross-examine witnesses at oral hearings.

After the opposition has presented its case, government agencies are permitted to present testimony on the same issues. Then the applicant railroads are permitted to present rebuttal testimony. All of this evidence is publicly available and is subject to cross-examination.

Following completion of the evidentiary phase, briefs are filed. The Commission then usually holds oral argument and a public voting conference to decide the case. This whole process

may take up to 31 months, although the Commission has generally decided these cases in around 18 months. In the Santa Fe/Southern Pacific case now pending, which, like Conrail/Norfolk Southern, involves some parallel lines, we expect more time than this will be needed. The application was filed in March 1984, and the evidentiary record is not yet complete.

The Commission can only approve a rail consolidation if it finds that the consolidation is consistent with the public interest. Factors that the Commission considers include: (1) adequacy of transportation to the public; (2) inclusion of other railroads in the combined system; (3) coverage of fixed debt and equity; (4) employee impact; (5) competitive impacts; and (6) energy and environmental impacts. The Commission also considers the fairness of any labor protection to employees, the fairness of the price of stock to shareholders, and the overall financial viability of the entity.

The two most important factors considered by the Commission are generally adequacy of transportation and competition. In considering adequacy of transportation, the Commission evaluates the public benefits that will result from the combination. These are usually efficiencies that will result in savings to the public instead of just profits to the new system. The competitive analysis considers parallel impacts in corridors and at common points, end-to-end impacts on source competition and traffic diversion (including impact on other railroads and essential

services for shippers), conglomerate effects of the combination, and effects on specific commodities. This includes looking at competitive alternatives including rail, motor, barge, or source competition.

If competitive harm is found, the Commission analyzes any conditions that have been requested to ameliorate that harm. If conditions are imposed, the Commission then balances the competitive impact against the public benefits to determine whether the combination should be approved.

QUESTIONS SUBMITTED BY SENATOR PRESSLER

SENATOR PRESSLER:

SUPPLEMENTAL REQUEST

Do the Administration and OMB fully

support this supplemental request?

ANSWER: The Administration, through the Office of Management and Budget, has fully supported the ICC's FY 1985 Supplemental Request.

SENATOR PRESSLER: In my opening remarks, I mentioned my concern about lack of adequate field operations without this added funding. Is that concern well founded? To what extent will field operations be cut back--for instance, could we expect the same type of assistance in South Dakota if there was another abandonment attempt similar to the one I mentioned?

ANSWER: Field operations will be curtailed if the supplemental appropriation is not approved for FY 1985. The Commission's emergency spending plan, designed to ensure compliance with the $48 million funding level, will require furloughing all field employees one day each week (or 2 days each biweekly pay period) starting April 14, 1985, and continuing for the balance of the fiscal year. This amounts to a 20 percent loss of staff-hours for that period. It will curtail public assistance activities and reduce the amount of compliance and enforcement activities which can be conducted.

Every effort will be made to keep current the processing of applications filed by motor carriers for emergency temporary and temporary authority, as well as monitoring carrier compliance with insurance requirements. Concentrating on these activities will cause further delays or reductions in other work activities. There will be a 30 percent drop in the number of compliance surveys completed, and an estimated 20 percent drop in investigations in high emphasis areas. In the areas of low enforcement priority, there is expected to be a much greater reduction, 50 percent or more. Backlogs are expected to develop in complaint handling, and no roadchecks will be conducted.

The impact described above will apply to all States. In the event of a rail abandonment proceeding, the Office of Special Counsel will offer assistance to a community and/or other parties by telephone, but travel funds will not be available to visit those locations. By the same token, there will be no oral hearings in the field, as most cases will be handled on a written record, by modified procedure. These restrictions will result in the Special Counsel's Office assisting fewer individuals to prepare and submit their pleadings in abandonment proceedings.

SENATOR PRESSLER: What measures has the ICC taken to tight. its belt during this period?

ANSWERS: At the beginning of fiscal year 1985, the ICC was operating at a $54 million level, consistent with the President's Budget Request. The funding level of $48 million set by the Continuing Resolution left the agency $6 million short of its spending rate at the start of the fiscal year. Within two weeks after the Continuing Resolution was approved, the Commission developed, approved, and implemented an action plan which placed a freeze on hiring from outside the agency, sharply curtailed all discretionary non-personnel expenditures, and required a reduction in the use of office space and telecommunications.

In view of the devastating effect the $48 million funding level would have on agency operations, the Commission also voted to request a supplemental appropriation and directed that employment be reduced, through a combination of RIPS and attrition, to a level consistent with the staff-year levels requested in the supplemental. Finally, the Commission directed the Managing Director to develop an emergency plan which would ensure that the Commission would operate within the available funding level ($48 million) if the supplemental appropriation was not approved.

On an annualized basis, the action plan will result in a total savings of about $2.7 million. Of this amount, $1.2 million will be saved from non-personnel costs such as travel, contracts, space, and telecommunications. The balance of the savings will result from attrition and from the RIPS conducted during the first half of this fiscal year. These savings are displayed below:

Although these savings are significant, they fall far short of making up the full $6 million funding deficit.

The emergency plan considered the impact of conducting RIPS in order to make either across-the-board cuts in agency staff, or, as alternatives, to accomplish major program or organizational changes. The only other option available was to conduct furloughs of all agency employees.

The effects of the maximum feasible across-the-board staff reductions, program changes, and/or organizational changes would have been severe. These would have resulted in RIPS of about 400 employees because of the amount of time necessary to plan and implement cuts of this magnitude, as well as the high cost of separating a highly tenured workforce. None of these options would have left the Commission in a position to accomplish its functions as required under current legislation. Therefore, the Commission approved the only realistic option available: to forego further RIPS and implement one-day-per-week furloughs of

11 agency employees during the second half of the fiscal year if supplemental funds were appropriated. This course of actio

W selected because it was the only option that ensured the Comission could operate within the $48 million funding level, while continuing to perform its current functions, as mandated by the Congress.

DEREGULATION

SENATOR PRESSLER: Although I support the supplemental request, I do not do so without some reservation. It is no secret that I am not the biggest deregulator on Capitol Hill. Would you agree with my statement that the Commission may have gone further than Congress intended in deregulation, and is there really hope for legislators like me who have not been so fatally stricken with the deregulation "bug"?

CHAIRMAN TAYLOR: Overall, I believe that the Commission has properly implemented the regulatory reforms recently enacted by Congress that reduced Government regulation of the trucking, rail, and bus industries.

However, there have been some instances in the past where, in my view, the Commission has failed to properly balance the various policy objectives Congress explicitly set forth to guide the Commission in the implementation of the recent reform Acts. For example, I believe that in the rail area the Commission, on occasion, has failed to properly balance the congressional goals of providing increased freedoms to the railroads while at the same time maintaining protections for shippers whenever there is an absence of effective competition.

Several of the more controversial issues that have given rise to the claim that the Commission is not properly implementing the revised Interstate Commerce Act are either still pending or being revisited by the Commission. As a direct result of our proceeding in Ex Parte No. 456, we received shipper-carrier agreements in the areas of competitive rail access and market dominance, and two rulemaking proceedings addressing these issues have been initiated by the Commission. Also, the Coal Rate Guidelines proceeding [Ex Parte No. 347 (Sub-No. 1)], the discovery portion of the Rail Transportation Contracts proceeding (Ex Parte No. 387), and the per diem portion of the Boxcar proceeding [Ex Parte No. 346 (Sub-No. 8)] are matters still pending before the Commission. I am hopeful that the new, full-strength Commission will expeditiously address these matters and achieve a reasonable resolution that balances the interests of the carriers, shippers, and the general public.

VICE CHAIRMAN GRADISON: The ICC was given broad discretion in the surface transportation deregulatory legislation of 1980 and 1982 to place greater reliance on competition and the marketplace and a lesser reliance on Government regulation. I believe the ICC has implemented this legislation consistent with the law and the intent of Congress.

There are still many who are skeptical about the benefits of surface transportation deregulation and our implementation of the law. However, in the last five years the flexibility we have allowed carriers and shippers to work out transportation arrangements in their mutual interest has helped to produce a new