commented on by the people who run the railroads. It is a concern to us when we talk about the operating plan, a standard procedure when you have a merger, that you have to look at to safeguard the shippers like the North Dakota State Mill & Elevator, and again like Allyn Fagerholt, and like my colleague Senator Lautenberg's shippers, and we find out that in this case the procedure has not been followed.

You are now about to go out and find this operating plan. You kind of wonder whether you really put things together.

PROTECTION OF SHIPPERS

Let me ask one final question before I yield to my colleague, Senator Lautenberg. Are the same protections afforded shippers in the Northeast as are given those in the Southwest? I mentioned that Santa Fe-Southern Pacific merger.

Mr. BURNLEY. Senator, we think that when you lay those two studies side by side, you will find in each instance the Justice Department used a very stiff set of what are called economic screens. Let me just broaden the answer as follows, to pick up on your last point.

It was not the decision of the U.S. Department of Transportation or the Reagan administration not to use standard ICC methods of studying this. The U.S. Congress made that decision in 1981 when it passed NERSA, and it said on the face of NERSA for all to see that this transaction was going to be exempted from ICC scrutiny.

Now, one may second guess the Congress, I suppose, as to whether that was wise or not, but nonetheless that was Congress' decision, and we have not again tried to keep any of this secret from anybody.

I think you will find that the Justice Department review in both of those merger cases was very stiff, and that the same kind of analytical techniques were used on each. Obviously, the prescription as to what remedies Justice recommends in one versus the other are going to depend very much on the conditions of the particular merger.

Senator ANDREWS. Mr. Burnley, I appreciate that comment, but I doubt that very many people would put me in bed with the ICC. [Laughter.]

Mr. BURNLEY. That is a fair guess.

Senator ANDREWS. Now, I am not sitting up here trying to protect the ICC, and, in fact, we have a few problems with the ICC, but let me point out to you that some of the procedures the ICC has used over the years are pretty darn good procedures. They work.

And in the orderly progression of getting the facts on the record, it would seem to me that we can extract these techniques that the ICC has used over the years and use them for yardsticks. That is precisely what this hearing is doing today.

We try to get those yardsticks. We want the others at the table to comment on them. And you will in the record. But then let me also point out that I am well aware the ICC was left out of this picture deliberately by an act of Congress.

But I am also well aware, and you should be, too, that ultimately there will be a vote in Congress on whether or not this Conrail sale is going ahead, and I for one, and I am sure my colleagues share that feeling, want to have the best possible information we can have with comments from everybody so we are sure we have not overlooked some of the appropriate individuals to comment.

I find it rather appalling that this operating plan has not been put together, and that these studies that you have talked about have not been commented on by the people. There are some gaps that we intend to correct, and when we correct them, we will have the facts, and individual Senators will make the decision on whether or not we go ahead with this sale.

Senator Lautenberg.

ICC REVIEW

Senator LAUTENBERG. Thank you, Mr. Chairman.

I find your questions so illuminating and helpful that it kind of took care of almost everything, but we have a few questions that I would like to put to the panel.

Mr. Burnley, could you see any negatives coming from review by the ICC here?

Mr. BURNLEY. Just one, Senator, and I think it is a very substantial one. Let me just say this is the third hearing this week that I am aware of-we have so many hearings, I certainly do not have to explain to you-going on in both Houses right now. There may have been more, but this is the third hearing this week where Department witnesses have testified on the sale of Conrail.

So, we are, I think, giving the Congress full opportunity to examine us about this. The one major concern is that both the employees and the shippers, and most of all those of you who represent the States where Conrail operates, are entitled sooner or later to an answer to the large question about how Conrail shall be operated in the years to

come.

Now, Secretary Dole did not get up one morning and decide that it would be entertaining or challenging to go sell Conrail. Again, in 1981, the Congress enacted NERSA and directed the Secretary to hire an investment advisor and to go to work on putting a plan together for Conrail's sale, and USRA was given the responsibility for oversight and making the profitability determinations.

Since 1981, first under Secretary Lewis and then under Secretary Dole, we have had a very lengthy, involved, elaborate process. We have consulted fully and repeatedly with Conrail's management, with Conrail's rail labor leadership, with Conrail's shippers, and with those of you in the Congress who represent the States or otherwise have an interest in this issue.

We have tried to continue that process right up until this day. And at some point again an individual who in North Dakota, for example, is worried about the future of his grain movements is entitled to some satisfaction on that, to know what the U.S. Government in its wisdom will ultimately do and how it will impact on him.

Similarly, someone who has given up 12 percent per year as compared to employees on other railroads and who have seen many of their fellow employees lose their jobs ought to be given an answer as well.

The bottom line is, if the ICC procedure is going to further extend that, Senator, then I would have real concerns about that.

Senator LAUTENBERG. If they are going to extend

Mr. BURNLEY. If it is going to greatly extend this very lengthy process that I have just outlined, I would wonder whether the Congress wished to revisit its decision in 1981 that that was not the wise way to go.

Senator LAUTENBERG. It is a pretty important decision. It is one getting an awful lot of attention. Considerable doubts are being raised about its long-term viability, and I think that wherever we can solicit expert review, and especially since there is there precedent for avoiding an ICC review ever before in a situation such as this?

Mr. BURNLEY. Senator, I am unaware of such a precedent, but I must go back to the legislative record. I think Congress, in fact, was also aware of the fact that this was unusual and unique in 1981 when it made its decision.

Senator LAUTENBERG. But that decision was then, and conditions have certainly changed-perhaps no transaction of this type has ever come up before. But certainly it has never been-there is hardly anything that has ever been reviewed this closely by so many different parties.

So, there is no precedent. We are concerned about some unanswered questions, and therefore, I cannot see any reason why the ICC should be excluded from this process.

Mr. Crane, do you see any reason?

Mr. CRANE. I know of no reason, Senator. Let me say again—I reiterate, Mr. Burnley says he has consulted with Conrail's management. He must have talked to other people on the railroad. I do not think I have had a conversation with him.

Senator LAUTENBERG. Who would you have appointed, Mr. Crane, to talk to him?

Mr. CRANE. I beg your pardon?

Senator LAUTENBERG. Who did you appoint to talk to

Mr. CRANE. I do not know. I am not aware of that.

Mr. BURNLEY. Just for starters, Senator, Mr. Roy Opitz has been for some 2 years senior vice president of Conrail, in weekly contact by phone and messages with the Department and Goldman Sachs, working on this. We have had extensive discussions with the members of Conrail's board. We have had extensive discussions for 2 years off and on with Conrail management.

So whether or not Mr. Crane and I have chatted personally is not the issue. There are many avenues of communication, and we try to use them.

Senator LAUTENBERG. You are the CEO?

Mr. CRANE. I am. Yes; that is right.

Senator LAUTENBERG. So I guess it is an unusual procedure not to have the CEO included?

Mr. BURNLEY. Senator, he has been included. I want to be very clear about that. He has been included.

Senator LAUTENBERG. I do not know how long this debate ought to go on, Mr. Chairman, in terms of who is in and who is out, but the fact of the matter is that no matter what we conclude about the direction of the sale, if the sale goes forward, no one can deny Mr. Crane's expert management in a very delicate, very difficult situation over several years.

And even though I am not persuaded that a public offering, which is Mr. Crane's recommendation, is the way to go, his advice and his input is essential in terms of how we do this.

LONG-TERM VIABILITY

Mr. Burnley, as I see the chart, what the bottom of the chart says, in addition to the incline of the plane, it says we had better get out of this business pretty quick, because otherwise there is not going to be much left.

Fortunately, we are able to conduct this hearing in private. The buyers out there, they do not know what we have planned for this hot potato here.

Senator ANDREWS. They are good potatoes. They have to get those reds in because of the quality. Just like New Jersey buys our buses. Senator LAUTENBERG. We buy your buses, and we eat your potatoes, Mr. Chairman. Is there anything else that I can do? [Laughter.]

Senator ANDREWS. Our pasta products, too.

Senator LAUTENBERG. I did not know that Hersheyola was the biggest producer of pasta.

Senator ANDREWS. You bet. You buy San Gorgio or Skinner or the rest, you are buying a North Dakota product. We just want to get it to you economically, because it is the staff of life.

Senator LAUTENBERG. We would like that, and we would like to be able, after digesting the pasta, to use it in turning out good quality product and moving it rapidly and so forth.

So that is the reason for this prolonged discussion, but again, it looks a bit like a hot potato. It looks like it is almost hot merchandise, so we had better dump it while we can get out. I am surprised that the buyers are not more sophisticated than this.

I guess they just do not know? Put $1.2 billion up there and they have no idea what is coming. So, good, let us get out of it.

In a serious vein, and you get a chance to get out of the fire, Mr. Burnley, very shortly, if the projections are as grim as they are. Then why, Mr. Crane, in a public offering would there be so many eager buyers out there and so naive and not really concerned? They are infatuated with the Crane management record and saying, well, it is going to go on forever, we may as well get on this train, the Crane train.

Mr. CRANE. Senator, I do not share the opinion it is a piece of damaged merchandise that you had better unload right away or you will get in trouble. I suggest to you that if that were so, the effort that

the Norfolk Southern is mounting in order to persuade the Congress that their way should be supported is really unprecedented in my judgment.

Senator LAUTENBERG. Maybe they just do not know how bad this thing is.

Mr. CRANE. Let me say I have no doubt that they know what an excellent plum they are getting. They have been crawling over my railroad for the last year and a half, and they know every facet of the railroad, and they know what a bargain it is.

Senator LAUTENBERG. Mr. Burnley?

TIMELINESS OF CONRAIL SALE

Mr. BURNLEY. Senator, let me make two points. First, as Mr. Crane said, his railroad has been crawled all over, and it is true Norfolk Southern has taken a close look. We have hardly had a fire sale. This process again has been under way since the Congress instructed the Secretary to go forth in 1981.

And I cannot imagine any particular public interest in it dragging out another 3 or 4 years. At some point there is a need to bring it to a conclusion. It is clearly the case that Norfolk Southern achieved some things that it believes will strengthen its company in the long run, first and foremost, access to New York City, access to Philadelphia, and, for that matter, an opportunity in the Baltimore port that it does not now have.

And it is clearly the case, as Mr. Berger commented earlier, that we have had movement in this country for the last 20 years toward railroad mergers to achieve those efficiencies. So I do not think there is any secret about why they are interested.

I might just mention that in terms of why Norfolk Southern is so busy on the Hill in mounting the effort, it may have something to do with the counter efforts being mounted by CSX and by Mr. Crane.

Senator LAUTENBERG. OK, we will let the silence provide the curious an answer. The fact is that it suggests that NS will, in order to continue the profitable opportunity that is presented, reduce staff. One of the things that I am concerned about is what happens to things that might be redundant, whether it is people or facilities, port direction. Those are the primary concerns, as I think you know, for me from New Jersey.

Mr. Crane, your projections as presented, your public offering proposal, how do they compare to USRA's figures on your net income traffic flow projections?

Mr. CRANE. Well, I do not think our projections are too far away from USRA's projections, Senator, and I guess-let me say when I look at USRA's projections, the only place where I see any financing is the financing that the railroad normally requires in order to buy the equipment that they buy. Isn't that correct, Mr. Berger, in your analysis here? Senator LAUTENBERG. How do you respond?

Mr. CRANE. Let me say I might point out to you that the level of that external borrowing is no greater than it was at the time that Conrail