A HOLLOW VICTORY FOR SHIPPERS

A HOLLOW VICTORY FOR SHIPPERS

No wonder shippers don't trust the Surface Transportation Board to regulate fairly when it comes to disputes with railroads.

The STB last week issued a news release trumpeting, ''Surface Transportation Board Affirms '2-to-1' Shipper's Use of Rights Under 'omnibus clause' imposed on 'Union Pacific/Southern Pacific' Rail Merger.''What wasn't said in the release is more significant than what was said.

For those with short memories, the 1996 acquisition of Southern Pacific by Union Pacific had serious competitive problems. The two railroads competed throughout the West, and the merger faced possible rejection if steps weren't taken to preserve competition.

Even before the merger application was filed, UP, SP and Burlington Northern Santa Fe negotiated an agreement that appeared to eliminate the anticompetitive problems. BNSF gained nearly 4,000 miles of trackage rights over UP and SP lines, and the merging carriers agreed that BNSF would have access to all customers that would have gone from having two carriers to one, the so-called 2-to-1 shippers. The STB imposed the settlement terms as a condition of its merger approval.

Other conditions were imposed that were intended to enhance implementation of the massive trackage rights agreement. Any 2-to-1 shipper not covered specifically by the BNSF trackage rights still would be able to receive competitive rail service from BNSF - the so-called omnibus clause.

And, to make the trackage rights really meaningful, UP was ordered to make available to BNSF up to 50 percent of the volume covered by contracts with 2-to-1 shippers at the shipper's request, the so-called contract modification condition.

In its news release, the agency related how it had rejected UP's contention that Union Electric Co.'s coal-fired electric generating plant at Labadie, Mo., did not fall under the omnibus clause of the 2-to-1 conditions.

''The Board anticipates that, now that the omnibus clause issue has been resolved, UP and BNSF will attempt to negotiate an arrangement 'under which, through trackage rights, haulage, ratemaking authority or other mutually acceptable means, BNSF will be able to provide competitive service' to Union Electric at Labadie,'' the STB said.

The news release went on to cite six - count 'em, six - other decisions in which the STB enforced various pro-competitive conditions imposed on the UP-SP merger.

So, this is an example of a victory for the shipping public, right? The STB has seen the light and become shipper friendly, right? Wrong.

The news release failed to mention another part of the decision that effectively

ified the pro-competitive finding. Nor did it point out that STB Vice Chairman Wayne Burkes disagreed with the other part of the decision in a separate opinion. The STB majority gutted its own decision, deciding that the contract modification condition does not apply in this instance, which means UP does not have to open up 50 percent of the traffic to BNSF competition.

Without opening the contract, the 2-to-1 right is meaningless.

The contract modification condition applies to every contract between a 2-to-1 shipper and either UP or SP, provided only that the contract was in effect at the time the merger was consummated. The STB found that the contract between UP and Union Electric was in effect at the time the merger was consummated.

''It therefore follows that, at the time the merger was consummated, the contract modification condition applied to this contract,'' the STB said.

Clearly, a shipper win, right? But wait.

The STB majority agreed with UP that amendments to the Union Electric contract amounted to ''major surgery'' of the original contract. We don't know what the surgery was because the contract details are under seal ''and, given the essentially financial nature of these details, we are reluctant to put these details into the public record,'' STB says.

Now the twisted logic becomes fascinating. The STB wrote, ''We believe, however, that because Addendum Three relieved Union Electric of 'significant liabilities'...the...contract, as amended by Addendum Three, should not be regarded, for contract modification condition purposes, as the contract that was in effect at the time the UP/SP merger was consummated. We therefore conclude that the contract modification condition does not now apply to this contract.''

The STB acknowledges that there is a dispute whether the amended contract amounts to a ''new'' contract as that term is understood in Missouri law. Not to be deterred, the STB wrote, ''We think it sufficient to say that, new or not new, we never intended that the contract modification condition would apply to a contract that had received the kind of post-merger 'major surgery' that this contract has received.''

Burkes disagreed that the contract modification condition does not apply.

''The contract modification condition applies to contracts that were 'in effect at the time the merger was consummated,' '' Burkes wrote. ''Although the contract was amended, it does not eliminate the fact that the original contract...was in effect at the time the merger was consummated. Moreover, the amendment at issue states that 'nothing herein contained shall be construed as amending or modifying (the contract) except as herein provided.' I disagree with the conclusion that the amendment amounted to 'major surgery' to the contract.''

At least one member of the STB can claim to be logical and fair-minded.