November 20, 2000

USDA has submitted comments to the Surface Transportation Board (STB) regarding its proposal to require consolidated financial reporting by commonly controlled U.S. railroads and railroad-related affiliates and while agreeing that consolidated reporting would have some benefits, Michael V. Dunn, Under Secretary for Marketing and Regulatory Programs, expressed concern that consolidated financial reporting could have adverse effects on smaller railroads serving rural areas.

"Consolidated reporting of financial data could result in the reclassification of smaller railroads as either Class I or Class II railroads, which would greatly increase their reporting requirements, as well as impose more stringent merger rules on them," said Dunn. "Although they have preserved rail service to agricultural and other regions, smaller railroads are often only marginally profitable since they typically operate lines having lower railcar traffic densities. Increased regulatory burdens could affect their ability to continue serving rural areas."

The STB is considering changing the reporting rules to ensure conformity with Financial Accounting Standards Board Statement Number 94 and to ensure uniformity and consistency of reports. In addition, the STB believes consolidated reporting would allow it to obtain more meaningful and accurate information on major rail systems operating in the United States than can be obtained from separate reports from individual affiliated railroads.

For its part, the National Grain and Feed Association urged the STB to improve and strengthen its proposed rules that would govern future rail mergers and consolidations. "What really has been eliminated by rail mergers, and by the last few in particular, has been competition," the NGFA said in a statement filed with the STB. "If further mergers take place, the nation's rail system will be in danger of evolving not into a duopoly but into a dual monopoly - two transcontinental systems that are at best highly selective regarding, and at worst downright opposed to, the flow of rail traffic between each other."

The NGFA said the STB's proposed rules, issued on Oct. 3, were deficient because they did not provide specific steps for ensuring competition among rail carriers or for compensating rail users for service disruptions that may result in the aftermath of future rail mergers. Among other things, the NGFA urged the STB to require that rail carriers agree to binding arbitration to resolve claims involving merger-related service disruptions that cannot be settled voluntarily.

"We believe that future rail mergers must be scrutinized by the STB with extreme care to insure that efficiencies and other benefits claimed are realistically obtainable and not otherwise available through alternative strategies," said the NGFA.