Two House Democrats yesterday challenged the Justice Department's antitrust review of the proposed sale of Conrail to Norfolk Southern Corp., charging that Justice officials "ignored" or "assumed away" potential problems with the merger.
Rep. James J. Florio (D-N.J.), chairman of the House subcommittee reviewing the proposed merger, and Rep. Barbara A. Mikulski (D-Md.) said that Justice Department documents raise "extremely serious concerns about the thoroughness of the competitive review conducted by the department."
The Reagan administration has proposed selling the government-owned freight railroad to Norfolk Southern.
The Justice Department ruled in February that the merger would hurt railroad competition in several areas of Pennsylvania, Ohio, Indiana, Illinois and Michigan, where Conrail and Norfolk Southern now compete with each other.
The department said, however that potential antitrust violations could be avoided if Norfolk Southern sells certain lines to other railroads.
The Justice Department documents also raise concerns about "the likelihood that the divestiture remedy would be effective," the lawmakers said in a letter to Charles F. Rule, acting assistant attorney general in charge of Justice's antitrust division.
The Justice Department had no comment on the letter.
Norfolk Southern officials said last week that they expect Senate approval of the merger in September and hope to win House approval before the end of the year.
A Norfolk Southern spokesman said, however, that opponents to the merger are using tactics of "delay and confusion" to obstruct the sale. Norfolk Southern plans to stay in the fight "for the long haul," said Edward T. Breathitt, a company vice president.
Florio has said he wants to resolve the issue by the New Year but repeatedly has expressed concerns about the antitrust implications of the sale. His subcommittee plans to hold more hearings in the fall and has not yet voted on either of two proposed bills: one would sell the government's 85 percent share of Conrail to Norfolk Southern for $1.2 billion; one would turn Conrail into an independent company by selling the government's share for $1.2 billion to a group of investors, who plan to resell it through a public stock offering. Conrail's employes own 15 percent, and its unions have been divided on the proposals.
According to Florio and Mikulski's letter, the Justice Department "admits its methodology 'led us to underestimate the amount of rail revenue that might be affected adversely by the merger.' "
The lawmakers quote Justice officials saying "we simply assumed away the possibility that export coal might be affected adversely by the merger" and "our proposed remedy does not serve to alleviate any of the potential problems created" at certain utilities. The officials say of utility complaints, "three plants complained, we ignored," according to Florio and Mikulski.
"Even if the divestiture worked, many competitive problems would remain unresolved," the lawmakers said. The department documents list markets in nine counties in five states "that would not be assisted by the divestiture," the letter said.
Florio and Mikulski asked Rule to assure them that "the department's analysis of the divestitures will not suffer from the same lack of thoroughness and methodological flaws as its earlier competitive review."