In another move designed to encourage price competition among railroads, the Interstate Commerce Commission yesterday proposed to eliminate the rate and route protective conditions it has imposed routinely on rail mergers over the last 30 years.
In the past, various conditions were imposed on the partners to a rail merger in an attempt to prevent adverse effects on transportation service to the public by railroads that were not participants in a consolidation.
The conditions, for instance required a consolidation railroad to keep the freight rates it charged on its single-line services -- moving freight from its origination to destination without having to connect to another railroad -- on a par with joint rates which existed at the time of consolidation or which were subsequently entered into with other carriers.
The commission reasoned that to allow a single-line rate to be reduced without the concurrence of all connecting carriers in lowering the corresponding joint-line rates would result in a diversion of traffic to the single-line carrier and the closing of some of the other lines, thereby reducing competition.
In recent rail consolidation cases, however, it became clear the commission was reconsidering the usefulness of the protective conditions that the competing railroads always ask for. In a case decided last year, the commission said it would impose protective conditions only if the consolidation would result in substantial impairment of a carrier's ability to provide essential services or the loss of adequate transportation service to a significant number of shippers.
Yesterday, the commission said it wass prepared to broaden its current thinking and asked for comment on whether it should impose protective conditions on any future rail consolidations and whether it should eliminate the conditions it has imposed in past railroad consolidation proceedings.
Underlying the imposition of conditions in the past has been the policy assumption that changes in traffic patterns damage the system as a whole whenever they injure individual railroads, the ICC noted yesterday. But, "by keeping rates high and carrier relations static, the conditions thus prevent carriers from pricing their more efficient routings at lower rates." the ICC said. "This in turn removes the incentives for shippers to use the most efficient routes . . . an especially important consideration in light of the energy problems facing our nation."
Further, the ICC said, carriers subject to conditions find themselves prohibited from seeking to attract new business by offering shippers the price reductions they might like and are confined to offering better or more specialized service instead. The conditions also act as "a blanket regulatory device" that impedes streamlining the rail system, the ICC said.
The ICC said re-evaluating the wisdom of retaining the conditions imposed in past rail merger cases was consistent with the declaration of policy contained in the Railroad Revitalization and Regulatory Reform Act of 1976 which emphasized the fostering of competition in the rail industry. Almost 80 percent of the revenues generated by the nation's major railroads are subject to protective conditions.
In the proceeding it began yesterday, the commission said that railroads that want to keep protective conditions intact have to show that their elimination would substantially impair their ability to provide essential service, while rail freight users must show that they would lose adequate transportation if the conditions were lifted.
In another action, the ICC approved rail freight rate increases averaging 5.43 percent nationwide -- 5.22 percent in the East, 3.69 percent in the South, and 6.16 percent in the West. The increase is effective Sept. 1 in the East; the others are effective July 12.