[BETA] Fortnightly

The U.S. Court of Appeals for the District of Columbia has affirmed a 1995 order by the Interstate Commerce Commission (now the Surface Transportation Board) approving the merger of two major railways serving the western U.S., despite claims by several electric utilities that the merger would result in unfair rail prices.

The appeals court rejected claims by the electric utilities that the ICC should have assigned trackage rights and imposed rate caps while approving the merger of Burlington Northern Inc. and The Atchinson, Topeka and Santa Fe Railway Co. According to the utilities, as captive customers of the Santa Fe rail line, the "end-to-end" merger of the two rail systems would harm their ability to ship coal to their generating facilities. The utilities claimed that the merger would give the new rail company greater power to foreclose competition among carriers serving the mines where the coal supplies originate. Santa Fe rail line is the only transporter with delivery service to the generating facilities.

The court found adequate support for the ICC's order, finding that the merger would not harm consumers. It explained that the ICC had consistently applied the "one-lump" theory to the rail market. The theory states that where the monopolist is located at the end of the delivery process, upstream integration normally does not enable it to raise the profit-maximizing price. Under the theory, the destination carrier is the one with the power to raise the price for the through rate. The destination carrier will naturally seek to establish service with the origin carriers, whether affiliates or not, who are willing to take the lowest payment for its part of the haul. The court said the ICC had correctly ruled the utilities did not prove the merged rail line would bar unaffiliated carriers from participating in the traffic movements. It said the utilities also did not prove the merged company would favor their affiliates in arranging for coal delivery from the mine to the bottleneck rail facilities.

The ICC had said the merger would yield significant operating efficiencies and cost reductions and would create new competition for railroads, trucks and water carriers in several regions. Western Resources, Inc. v. Surface Transp. Bd., Nos. 95-1435 et al., March 28, 1997 (D.C.Cir.).

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