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The long-awaited new merger rules were issued June 11, as expected, by Surface Transportation Board.
And, also as expected, the rules are designed to substantially increase the burden on applicants to demonstrate that a proposed transaction would serve the public interest.
The rules, which govern major rail mergers involving two or more Class Is (or railroads with annual revenues of at least $250 million, as indexed for inflation), also require applicants to demonstrate that a transaction would enhance competition where necessary to offset a merger’s negative effects (such as competitive harm), and fully address service issues, including the development of a service reliability plan.
To preserve competition, merger applicants will be required to adopt competitive enhancements, which could include reciprocal switching arrangements, trackage rights and efforts to eliminate restrictions on short-line interchanges.
The rules, which officially end STB's 15-month merger moratorium, also require applicants to address any ownership restrictions (by law or corporate initiative) and any pertinent governmental restrictions or preferences.
STB members believe that, due to the small number of remaining Class Is, mergers no longer are needed to address excess rail-industry capacity. And transitional service problems that followed recent mergers place a greater emphasis on public-interest concerns.
In the new rules, STB notes a policy shift designed to ensure a stable, balanced and reliable rail transportation system that accounts for smaller railroads, ports and passenger trains.
STB granted Kansas City Southern Railway Co. a waiver from the new rules, although Chairman Linda Morgan voted against the waiver, and parties can attempt to demonstrate in a particular case that the waiver shouldn’t be allowed.
Under the rules, STB plans to continue the board’s recent practice of formally overseeing mergers for no fewer than five years, but expand post-approval monitoring of merger implementations to help ensure that adequate service is provided by merging railroads during, and beyond, transitional periods. If substantial service disruptions occur, the board plans to consider alternative service arrangements.
Although the rules end STB's merger moratorium and will govern any application submitted June 11 or after, the rules won't officially take effect until July 11 per Federal Register and administration requirements, says STB spokesman Dennis Watson.
Missing from the rules is the length of time STB needs to consider merger applications — which would have given railroads a more concrete timetable for merger approvals.