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110th Congress                                            Rept. 110-860
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
               RAILROAD ANTITRUST ENFORCEMENT ACT OF 2008

                                _______
                                

               September 18, 2008.--Ordered to be printed

                                _______
                                

    Mr. Conyers, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1650]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 1650) to amend the Federal antitrust laws to provide 
expanded coverage and to eliminate exemptions from such laws 
that are contrary to the public interest with respect to 
railroads, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     3
Background and Need for the Legislation..........................     4
Hearings.........................................................     8
Committee Consideration..........................................     9
Committee Votes..................................................     9
Committee Oversight Findings.....................................     9
New Budget Authority and Tax Expenditures........................     9
Congressional Budget Office Cost Estimate........................     9
Performance Goals and Objectives.................................    10
Constitutional Authority Statement...............................    11
Advisory on Earmarks.............................................    11
Section-by-Section Analysis......................................    11
Changes in Existing Law Made by the Bill, as Reported............    13

                             The Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Railroad Antitrust Enforcement Act 
of 2008''.

SEC. 2. APPLICATION OF THE ANTITRUST LAWS TO RAIL COMMON CARRIERS.

    (a) Application of the Antitrust Laws.--The antitrust laws shall 
apply to a common carrier by railroad that is subject to the 
jurisdiction of the Surface Transportation Board under subtitle IV of 
title 49, United States Code, without regard to whether such common 
carrier filed a rate or whether a complaint challenging a rate is 
filed.
    (b) Definition.--The term ``antitrust laws'' has the meaning given 
it in subsection (a) of the 1st section of the Clayton Act (15 U.S.C. 
12(a)), but includes section 5 of the Federal Trade Commission Act to 
the extent such section 5 applies to unfair methods of competition

SEC. 3. MERGERS AND ACQUISITIONS OF RAILROADS.

    The last undesignated paragraph of section 7 of the Clayton Act (15 
U.S.C. 18) is amended by inserting ``(excluding transactions described 
in section 11321 of title 49 of the United States Code)'' after 
``Surface Transportation Board''.

SEC. 4. ANTITRUST ENFORCEMENT AUTHORITY.

    Section 11(a) of the Clayton Act (15 U.S.C. 21(a)) is amended by 
inserting ``(excluding agreements described in section 10706 of such 
title and transactions described in section 11321 of such title)'' 
after ``Code''.

SEC. 5. INJUNCTIONS AGAINST RAILROAD COMMON CARRIERS.

    The proviso in section 16 of the Clayton Act (15 U.S.C. 26) is 
amended by inserting ``(excluding a common carrier by railroad)'' after 
``Board''.

SEC. 6. REMOVAL OF PRIMARY JURISDICTION AS LIMITATION.

    The Clayton Act (15 U.S.C. 12 et seq.) is amended by adding at the 
end thereof the following:
    ``Sec. 29.  In any civil action against a common carrier railroad 
under section 4, 4A, 4C, 15, or 16, the district court shall not be 
required to defer to the jurisdiction of the Surface Transportation 
Board.''.

SEC. 7. UNFAIR METHODS OF COMPETITION.

    Section 5(a)(2) of the Federal Trade Commission Act (15 U.S.C. 
45(a)(2)) is amended by adding at the end the following:
``For purposes of this paragraph with respect to unfair methods of 
competition, the term `common carrier' excludes a common carrier by 
railroad that is subject to jurisdiction of the Surface Transportation 
Board under subtitle IV of title 49 of the United States Code.''.

SEC. 8. TERMINATION OF EXEMPTIONS IN TITLE 49.

    (a) In General.--Section 10706 of title 49, United States Code, is 
amended--
            (1) in subsection (a)--
                    (A) in the 3d sentence of paragraph (2)(A) by 
                striking ``, and the Sherman Act (15 U.S.C. 1 et 
                seq.),'' and all that follows through ``or carrying out 
                the agreement'',
                    (B) in paragraph (4)--
                            (i) by striking the 2d sentence, and
                            (ii) in the 3d sentence by striking 
                        ``However, the'' and inserting ``The'', and
                    (C) in paragraph (5)(A) by striking ``, and the 
                antitrust laws set forth in paragraph (2) of this 
                subsection do not apply to parties and other persons 
                with respect to making or carrying out the agreement'',
            (2) in subsection (d) by striking the last sentence, and
            (3) by striking subsection (e) and inserting the following:
    ``(e) Nothing in this section exempts a proposed agreement 
described in subsection (a) from the application of the antitrust laws 
(as defined in subsection (a) of the 1st section of the Clayton Act, 
but including section 5 of the Federal Trade Commission Act to the 
extent such section 5 applies to unfair methods of competition).
    ``(f) In reviewing any proposed agreement described in subsection 
(a), the Board shall take into account, among any other considerations, 
the impact of the proposed agreement on shippers, consumers, and 
affected communities. The Board shall make findings regarding such 
impact, which shall be--
            ``(1) made part of the administrative record;
            ``(2) submitted to any other reviewing agency for 
        consideration in making its determination; and
            ``(3) available in any judicial review of the Board's 
        decision regarding such agreement.''.
    (b) Combinations.--Section 11321 of title 49, United States Code, 
is amended--
            (1) in subsection (a)--
                    (A) by striking ``The authority'' and inserting 
                ``Except as provided in sections 4, 4A, 4C, 15, and 16 
                of the Clayton Act, the authority''; and
                    (B) in the 3d sentence by striking ``is exempt from 
                the antitrust laws and from all other law,'' and 
                inserting ``is exempt from all other law (except the 
                laws referred to in subsection (c)),'', and
            (2) by adding at the end the following:
    ``(c) Nothing in this subchapter exempts a transaction described in 
subsection (a) from the application of the antitrust laws (as defined 
in subsection (a) of the 1st section of the Clayton Act, but including 
section 5 of the Federal Trade Commission Act to the extent such 
section 5 applies to unfair methods of competition). The preceding 
sentence shall not apply to any transaction relating to the pooling of 
railroad cars approved by the Surface Transportation Board or its 
predecessor agency pursuant to section 11322.
    ``(d) In reviewing any transaction described in subsection (a), the 
Board shall take into account, among any other considerations, the 
impact of the transaction on shippers and affected communities.''.
    (c) Conforming Amendments.--
            (1) Heading.--The heading for section 10706 of title 49, 
        United States Code, is amended to read as follows: ``Rate 
        agreements''.
            (2) Analysis of sections.--The analysis of sections of 
        chapter 107 of such title is amended by striking the item 
        relating to section 10706 and insert the following:

``10706. Rate agreements.''.

SEC. 9. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), this Act and 
the amendments made by this Act shall take effect on the date of 
enactment of this Act.
    (b) Limitation.--A civil action under section 4, 4A, 4C, 15, or 16 
of the Clayton Act, or a complaint under section 5 of the Federal Trade 
Commission Act (15 U.S.C. 45) to the extent such section 5 applies to 
unfair methods of competition, may not be filed with respect to any 
conduct or activity that--
            (1) occurs before the expiration of the 180-day period 
        beginning on the date of enactment of this Act; and
            (2) was exempted from the antitrust laws (as defined in 
        subsection (a) of the 1st section of the Clayton Act (15 U.S.C. 
        12(a)), but including section 5 of the Federal Trade Commission 
        Act (15 U.S.C. 45) to the extent such section 5 applies to 
        unfair methods of competition) by an order of the Interstate 
        Commerce Commission or the Surface Transportation Board issued 
        before the date of the enactment of this Act and pursuant to 
        law.

                          Purpose and Summary

    H.R. 1650, the Railroad Antitrust Enforcement Act of 2008, 
will eliminate certain carve-outs from the Federal antitrust 
laws enjoyed by railroad common carriers, thereby subjecting 
railroad industry practices to the pro-competitive influence of 
the antitrust laws. The carve-outs are a holdover from a bygone 
period in which railroads were subject to extensive regulation. 
In the modern environment of deregulation that commenced more 
than thirty years ago with the passage of the Railroad 
Revitalization and Regulatory Reform (4R) Act\1\ and the 
Staggers Rail Act,\2\ these carve-outs work primarily to 
subvert the free-market dynamics that would otherwise prevail 
in the industry.
---------------------------------------------------------------------------
    \1\Pub.L. No. 94-210 (1976).
    \2\Pub.L. No. 96-448 (1980).
---------------------------------------------------------------------------
    The bill will extend to the railroad industry remedies and 
enforcement mechanisms generally applicable to other industries 
under the Federal antitrust laws. Those harmed by antitrust 
violations perpetrated by a rail carrier will now have the full 
range of remedies available under the Federal antitrust laws. 
The Federal Trade Commission (FTC) and the Department of 
Justice (DOJ) (collectively, the Agencies) and State attorneys 
general acting in parens patriae on behalf of their citizens 
will be able to enforce the Federal antitrust laws with respect 
to anticompetitive business practices and mergers and 
acquisitions in the railroad industry.
    The bill is prospective in effect. Any merger or 
acquisition consummated prior to the date of the bill's 
enactment, or conduct that will have occurred prior to that 
date and that was immunized under an order by the Surface 
Transportation Board (STB) or its predecessor, the Interstate 
Commerce Commission, will not become subject to antitrust 
action as a result of this bill. Any merger or acquisition or 
conduct taking place after passage of the bill, however, will 
be subject to the bill's provisions.
    There is an additional 180-day grace period for conduct 
that began pursuant to immunity under the previous law and that 
is continuing at the date of enactment. After the expiration of 
that 180-day period, however, that conduct will also become 
subject to the new law.
    Except with respect to conferring antitrust immunity, the 
bill fully preserves the STB's regulatory authority. With 
respect to reviewing railroad mergers and acquisitions, the STB 
will retain its public interest authority alongside the 
Agencies' antitrust authority. The two reviews will be 
conducted concurrently yet separately.

                Background and Need for the Legislation

    By eliminating Federal antitrust exemptions from the 
railroad industry, H.R. 1650 would subject railroad industry 
practices to appropriate antitrust enforcement. This completes 
a process begun nearly three decades ago with the 
procompetitive deregulation of the railroad industry. Absent 
the bill's corrective measures, the railroad industry can only 
partially achieve the pro-competitive benefits of deregulation.

                               BACKGROUND

    The railroad industry is in its third decade of 
deregulation after a long history as a regulated industry. In 
the 1920's, while the industry was still heavily regulated, 
Congress granted the industry a number of antitrust immunities. 
Thirty years ago, the industry was largely deregulated 
following enactment of the 4R Act and the Staggers Act, which 
provided carriers with greater flexibility in setting their own 
rates. However, many of the industry's antitrust exemptions 
remained in place.
    As a result, the Agencies are limited in their ability to 
enforce the Federal antitrust laws in the railroad industry. 
STB-approved transactions under 49 U.S.C. Sec. 11321-11328 
(consolidations, mergers, acquisitions, some leases, trackage 
rights, pooling arrangements, and agreements to divide traffic) 
are exempt from antitrust enforcement. Certain rate- and 
charge-related agreements approved by the STB under 49 U.S.C. 
Sec. 10706 are similarly exempt.
    Under current law, the STB has the exclusive authority to 
approve a railroad merger or acquisition (including other forms 
of consolidation or market divisions that would alter the 
competitive landscape). The Board evaluates mergers and 
acquisitions under a broad ``public interest'' standard, which 
differs markedly from the standard used by the Agencies in 
performing an antitrust review. Because common carrier mergers 
subject to the STB's jurisdiction are expressly exempt from the 
FTC Act, the FTC has no authority to review them. And, DOJ's 
role is limited to submitting advisory recommendations to the 
STB for its consideration, which the STB is free to reject.
    Private parties are similarly precluded from relying on the 
antitrust laws to protect themselves against or seek remedies 
for anticompetitive harm caused by the railroads. Under Section 
16 of the Clayton Act,\3\ injunctive relief against a common 
carrier subject to the STB's jurisdiction is available only in 
a suit filed by the Federal Government. In addition, the so-
called Keogh Doctrine\4\ precludes private parties from 
recovering damages.
---------------------------------------------------------------------------
    \3\15 U.S.C. Sec. 126.
    \4\Keogh v. Chicago & Northwestern Railway, 260 U.S. 152 (1922).
---------------------------------------------------------------------------
    Businesses that ship by rail argue that the antitrust 
exemptions have enabled railroads to engage in a number of 
anticompetitive practices. Some shippers claim that the rates 
charged when the shippers have no competing rail options (i.e., 
when they are ``captive shippers'') are unfairly inflated, and 
that the rate appeal process at the STB favors the rail 
carriers. In addition, certain practices by the rail carriers--
such as entering into contracts with operators of connecting 
short line tracks that unduly punish them for doing business 
with competing carriers (also known as ``paper barriers'') and 
refusals to segment long-haul transportation quotes so as to 
permit interconnecting rail carriers to compete on some 
portions (a.k.a. ``bottlenecks'')--may be resulting in 
anticompetitive rates that are ultimately passed on to 
consumers in the form of higher prices. In fact, in a September 
2004 letter, the DOJ indicated that these practices could very 
well violate Federal antitrust laws.\5\
---------------------------------------------------------------------------
    \5\Letter from Assistant Attorney General William E. Moschella to 
Rep. F. James Sensenbrenner, Jr. (September 27, 2004).
---------------------------------------------------------------------------

                           ANTITRUST ANALYSIS

    This bill will enhance competition by enabling the Agencies 
to enforce the antitrust laws in the railroad industry and by 
providing private parties with the full panoply of relief and 
remedies available under the antitrust laws.
Empowering Federal Agencies to Enforce Antitrust Laws
    Enacement of this legislation would enable the Agencies to 
enforce the antitrust laws in the railroad industry. Under 
current law, DOJ, the agency traditionally charged with 
antitrust oversight of railroad mergers and acquisitions, can 
offer little more than a defanged advisory evaluation of 
railroad industry mergers and acquisitions. DOJ lacks antitrust 
enforcement authority over railroad mergers and acquisitions 
because 49 U.S.C. Sec. 11321 provides that a ``rail carrier, 
corporation, or person participating in [an STB-] approved or 
exempted transaction is exempt from the antitrust laws and from 
all other law including State and municipal law, as necessary 
to let that rail carrier, corporation, or person carry out the 
transaction . . .''
    The STB evaluates rail carrier mergers and acquisitions 
under a broad public interest standard outlined in 49 U.S.C. 
Sec. 11324. This public interest standard is broader and more 
diffuse than the antitrust standard, which is focused on 
preventing mergers and acquisitions that substantially lessen 
competition, resulting in restrictions on output or increases 
in price.
    Although section 11324(d)(2) requires the STB, in making 
its determination regarding a proposed rail carrier merger or 
acquisition, to ``accord substantial weight to any 
recommendations of the Attorney General,'' the STB remains free 
to disregard any such recommendation. The STB's 1996 decision 
approving the Union Pacific/Southern Pacific merger over DOJ's 
vigorous objections, subsequently affirmed on appeal by the 
Eighth Circuit,\6\ starkly demonstrates the limits of DOJ's 
current role under the antitrust laws. The STB ruled that its 
statutory mandate ``sharply contrasts with the approach to 
mergers taken by the DOJ and the Federal Trade Commission. The 
policies embodied in the antitrust laws provide guidance, but 
are not determinative. . . . Thus the [STB] can . . . approve 
transactions even if they otherwise would violate the antitrust 
laws.''\7\
---------------------------------------------------------------------------
    \6\Union Pac. Corp., 1 S.T.B. 233, 1996 WL 467636 (Aug. 12, 1996), 
petition for review denied, Western Coal Traffic League v. STB, 169 F. 
3d 775 (1999), opinion clarified, Union Pac. Corp., 2002 WL 335181 
(Feb. 28, 2002).
    \7\Union Pac. Corp., 1 S.T.B. at 86-88.
---------------------------------------------------------------------------
    Passage of the bill would subject railroads to the same 
kind of concurrent oversight by both a Federal enforcement 
agency and a regulatory body found in other partially-regulated 
industries, including electricity transmission in interstate 
commerce, the operation of liquid natural gas import terminals, 
the transportation of natural gas by interstate pipeline, and 
the transportation of oil by interstate common carrier 
pipelines. While the STB would continue to maintain oversight 
over a variety of other operational issues related to the 
operation of the railroad industry, antitrust enforcement by 
the Agencies as warranted would operate alongside the 
regulatory authority.
Enhanced Ability of Shippers to Challenge Anticompetitive Rail Rates
    So-called ``captive'' shippers (rail carrier customers with 
a single carrier option for part of, or all of, a shipping 
route they depend on) are frequently charged higher rates due 
to a lack of competition among rail carriers and the ability of 
carriers to charge differential pricing under the Staggers Act. 
Some of these rating practices might violate the antitrust 
laws; under current law, however, neither shippers nor the 
Agencies have any effective recourse under the antitrust laws. 
The bill would give shippers additional avenues by which to 
challenge anticompetitive rail practices.
    According to an October 2006 U.S. Government Accountability 
Office report, the volume of traffic traveling at significantly 
non-competitive rates (defined as more than 300% of variable 
cost) has increased since 1985.\8\ The rates paid by these 
captive shippers are, on average, 20.9% higher, costing captive 
shippers an estimated excess of $1.3 billion on an annual 
basis.\9\
---------------------------------------------------------------------------
    \8\October 2006 United States Government Accountability Office 
Report to Congressional Requesters, ``Freight Railroads: Industry 
Health Has Improved, but Concerns about Competition and Capacity Should 
Be Addressed,'' available at http://www.gao.gov/new.items/d0794.pdf. 
Because the total number of rail shippers has increased over the past 
twenty years, the percentage represented by captive shippers has 
decreased, but not their actual number.
    \9\The Status of Economic Railroad Regulation: Hearing before the 
H. Comm. on Transportation and Infrastructure, Subcommittee on 
Railroads, 108th Cong. 1 (2004) (Statement of Dr. Curtis Grimm, 
Professor of Supply Chain and Strategy, University of Maryland).
---------------------------------------------------------------------------
Subjecting ``Bottlenecks'' to Antitrust Scrutiny
    Enactment of this legislation would subject so-called 
``bottlenecks'' to appropriate antitrust scrutiny. Bottlenecks 
are shipping situations in which customers have only a single 
rail line transportation option to a point of interconnection 
with other carriers. Oftentimes, the rail carrier operating the 
bottleneck will quote the shipper a single quote for the 
entire, or ``long haul,'' route, and will refuse to offer the 
alternative of a separate price for the single-carrier portion 
of the route. This practice, which was upheld by the STB in a 
1996 decision and affirmed by the Eighth Circuit,\10\ denies 
captive shippers the benefits of competition on the other 
portions of the route where they are not otherwise captive.
---------------------------------------------------------------------------
    \10\See Central Power & Light Co. v. Southern Pacific 
Transportation Co., 1 S.T.B. 1059 (1996), clarified at 2 S.T.B. 235 
(1997), aff'd by the US Court of Appeals for the Eighth Circuit, 
MidAmerican Energy Co. v. STB, 169 F.3d 1099 (8th Cir. 1999). Note that 
the Eighth Circuit's review was limited to determining whether there 
were compelling indications that the Board's interpretations of the 
applicable statutes were not correct. 169 F.3d at 1106.
---------------------------------------------------------------------------
    There is no justifiable logistical or practical reason 
preventing rail carriers controlling bottleneck situations from 
offering compartmentalized rates other than a calculated 
business decision--legal under current law--to use their 
monopoly power in the segment they control to extract the 
maximum profit possible from shippers who must depend on that 
segment. The higher cost borne by the shippers ultimately 
translates into higher costs for consumers for the goods being 
transported.
    H.R. 1650 would subject bottleneck pricing to the antitrust 
laws. In a 2004 letter to then-Chairman Sensenbrenner, the 
Department of Justice stated that ``[i]f [bottlenecking] were 
subject to the antitrust laws, it could be evaluated as a 
refusal to deal in possible violation of Section 2 of the 
Sherman Act, or as a tying arrangement in possible violation of 
Section 1 of the Sherman Act.''\11\
---------------------------------------------------------------------------
    \11\Letter from Assistant Attorney General William Moschella to 
Hon. F. James Sensenbrenner, Jr. (September 27, 2004).
---------------------------------------------------------------------------
Subjecting ``Paper Barriers'' to Antitrust Scrutiny
    Enactment of this legislation would subject so-called 
``paper barriers'' to appropriate antitrust scrutiny. ``Paper 
barriers,'' also known as ``interchange commitments,'' are a 
range of contractual obligations between smaller railways (so-
called ``short line'' railroads) and the owners of the larger 
interstate (or ``trunk line'') railways off of which the short 
lines branch. Many of these contracts limit the short line 
railroads from doing meaningful business with any major rail 
carrier other than the one from which they leased or purchased 
their track.
    The terms of these leases can be anticompetitive in their 
effect. The rent due on the track leases typically decreases 
markedly with increasing volumes of traffic sent to the trunk 
line. This has the effect of substantially lessening the 
competitive presence of other railways that connect to the 
short line, and effectively eliminating the competitive options 
available to shippers using the short line.
    H.R. 1650 would subject paper barriers to the antitrust 
laws. In its 2004 letter to then-Chairman Sensenbrenner, DOJ 
stated that ``[i]f paper barriers were subject to the antitrust 
laws, they would be evaluated under section 1 of the Sherman 
Act. The Department would examine whether the restraint is 
ancillary to the sale of the trackage--i.e., whether the 
restraint is reasonably necessary to achieve the pro-
competitive benefits of the sale.''\12\
---------------------------------------------------------------------------
    \12\Id.
---------------------------------------------------------------------------
Effectuating Recommendations of the Antitrust Modernization Commission
    Removal of these antitrust immunities would follow the 
recommendations of the Antitrust Modernization Commission 
established by Congress to assess and make recommendations 
regarding antitrust issues warranting attention. According to 
the Commission, ``[s]tatutory exemptions from the antitrust 
laws undermine, rather than upgrade, the competitiveness and 
efficiency of the U.S. economy'' in that they ``reduce the 
competitiveness of the industries that have sought antitrust 
exemptions.''\13\ The railroad industry is precisely the type 
of industry envisioned by the Commission as benefiting from 
heightened competition following the removal of statutory 
antitrust exemptions.
---------------------------------------------------------------------------
    \13\Antitrust Modernization Commission, Report and Recommendations, 
335 (2007).
---------------------------------------------------------------------------
    Passage of H.R. 1650 would open industry practices to 
scrutiny by the Agencies, which should result in more 
competitive rates for shippers and, ultimately, lower prices 
for end consumers. Private parties such as rail shippers who 
are harmed by anticompetitive rail carrier practices would be 
able to seek appropriate monetary remedies and injunctive 
relief. The Agencies would have authority to investigate rail 
carrier mergers and acquisitions and conduct and, where 
appropriate, bring enforcement actions to prevent or remedy 
anticompetitive results. In addition, State attorneys general 
will also be able to bring actions in Federal court in parens 
patriae challenging actions by railroad common carriers in 
violation of the Federal antitrust laws.
    The bill is carefully written to be prospective in its 
effect. Mergers that will have taken place prior to the bill's 
enactment and were exempted from antitrust scrutiny under the 
current standards would remain exempt. Conduct that will have 
taken place before the bill's enactment and was exempted would 
not become subject to retroactive antitrust enforcement. 
Mergers and acquisitions that take place after the bill's 
enactment will be subject to the antitrust laws, as will 
conduct that takes place after the bill's enactment. Under a 
special grace period, parties who continue to engage in conduct 
previously exempted by STB approval prior to the bill's passage 
have 180 days to discontinue such conduct, after which any 
continuing conduct will becomes subject to the antitrust laws.

                                Hearings

    The Committee on the Judiciary Task Force on Antitrust and 
Competition Policy held a one-day hearing on February 25, 2008 
on H.R. 1650. Testimony was received from Representative Tammy 
Baldwin (D-WI); Susan M. Diehl, Senior Vice President for 
Logistics and Supply Chain Management, Holcim, Inc.; Terry 
Huval, Director of Utilities, Lafayette Utilities System 
(Lafayette, Louisiana) and Chairman, American Public Power 
Association; G. Paul Moates, Partner, Sidley Austin LLP on 
behalf of the Association of American Railroads; and Dr. Darren 
Bush, Associate Professor of Law, University of Houston Law 
Center (Houston, Texas).

                        Committee Consideration

    On April 30, 2008, the Committee met in open session and 
ordered the bill, H.R. 1650, favorably reported, as amended, by 
voice vote, a quorum being present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that there 
were no recorded votes during the Committee's consideration of 
H.R. 1650.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1650, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, September 9, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1650, the Railroad 
Antitrust Enforcement Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres, 
who can be reached at 226-2860.
            Sincerely,
                                           Peter R. Orszag,
                                                  Director.

Enclosure

cc:
        Honorable Lamar S. Smith.
        Ranking Member
H.R. 1650--Railroad Antitrust Enforcement Act of 2008.
    H.R. 1650 would expand the authority of the Department of 
Justice (DOJ) and the Federal Trade Commission (FTC) to 
prosecute, under the Sherman and Clayton Acts, certain 
antitrust violations relating to railroads. Currently, the 
Surface Transportation Board (STB) has the primary authority to 
regulate mergers, acquisitions, rate-setting, and pooling 
arrangements under the Interstate Commerce Act. The roles of 
DOJ and FTC are generally limited to investigating potential 
violations and providing advice to the STB.
    Based on information provided by DOJ, CBO estimates that 
implementing H.R. 1650 would have no significant effect on the 
federal budget. We expect that DOJ would continue to perform 
investigations of railroads, but that very few of those 
investigations would result in enforcement actions. (CBO also 
expects that DOJ, rather than FTC, would handle antitrust 
enforcement matters specified under the bill; thus, we do not 
anticipate that FTC would incur significant additional 
enforcement costs.) Anyone convicted of antitrust violations 
specified in the bill would be subject to criminal fines, which 
are recorded as revenues, deposited in the Crime Victims Fund, 
and later spent. Thus, enacting H.R. 1650 could increase 
revenues and direct spending, but CBO estimates that any such 
effects would be insignificant given the small number of cases 
involved.
    H.R. 1650 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on State, local, or tribal governments.
    H.R. 1650 would impose a private-sector mandate, as defined 
in UMRA, on railroads by eliminating exemptions from certain 
antitrust laws. It is unclear how making railroads subject to 
provisions of those antitrust statutes would affect current 
business practices, if at all. The extent to which railroad 
carriers would have to forgo business opportunities and what 
the value of those lost opportunities would be are also 
uncertain. Because of these uncertainties, CBO has no basis for 
estimating the cost to railroads and whether that cost would 
exceed the annual threshold established in UMRA for private-
sector mandates ($136 million in 2008, adjusted annually for 
inflation).
    On November 21, 2007, CBO transmitted a cost estimate for 
S. 772, the Railroad Antitrust Enforcement Act of 2007, as 
ordered reported by the Senate Committee on the Judiciary on 
September 20, 2007. S. 772 and H.R. 1650 are similar, and CBO's 
estimates of costs are the same.
    The CBO staff contacts for this estimate are Leigh Angres 
(for federal costs), who can be reached at 226-2860, and Jacob 
Kuipers (for the private-sector impact), who can be reached at 
226-2940. This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
1650 will bring the pro-competitive benefits of the antitrust 
laws into the railroad industry by eliminating certain 
antitrust exemptions from current law.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 3 of the 
Constitution.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 1650 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
    Section 1. Short Title. Section 1 sets forth the short 
title of the bill as the ``Railroad Antitrust Enforcement Act 
of 2008.''
    Section 2. Application of the Antitrust Laws to Rail Common 
Carriers. This section amends the Clayton Act to overturn the 
filed rate doctrine, or Keogh Doctrine. This doctrine, created 
by the Supreme Court during the era of pervasive regulation of 
the rail industry, limits damages recoverable in a civil 
antitrust suit to the railroad's filed rate.\14\ Section 2 of 
the bill will make standard damages available regardless of 
whether the railroad has filed rates.
---------------------------------------------------------------------------
    \14\Keogh v. Chicago & Northwestern Railway, 260 U.S. 152 (1922).
---------------------------------------------------------------------------
    Section 3. Mergers and Acquisitions of Railroads. This 
section modifies section 7 of the Clayton Act to empower the 
Agencies to enforce the Federal antitrust laws against certain 
STB-approved rail carrier rate agreements.
    Section 7 of the Clayton Act prohibits mergers and 
acquisitions that are likely to substantially lessen 
competition. The sixth undesignated paragraph of section 7 
exempts ``transactions duly consummated pursuant to the 
authority'' of specified agencies, including the STB. Section 3 
of the bill removes that exemption as to STB-approved 
agreements described in 49 U.S.C. Sec. 11321, which covers 
agreements among rail carriers ``to pool or divide traffic or 
services or any part of their earnings'' pursuant to 49 U.S.C. 
Sec. 11322 as well as consolidations, mergers, and acquisitions 
of control pursuant to 49 U.S.C. Sec. 11323. Under this bill, 
these transactions will now be subject to review under the 
Federal antitrust laws even if approved by the STB.
    Section 4. Antitrust Enforcement Authority. This section 
amends the Clayton Act to authorize the FTC to enforce certain 
sections of the Clayton Act against railroad common carrier 
transactions described in 49 U.S.C. Sec. 10706 (STB-approved 
agreements among two or more rail carriers relating to rates) 
and 49 U.S.C. Sec. 11321 (STB-approved agreements or 
combinations).
    Section 11(a) of the Clayton Act extends enforcement 
authority for sections 2, 3, 7, and 8 of the Clayton Act to the 
STB with respect to common carriers subject to its 
jurisdiction, which removes those common carriers from the 
residual clause in section 11(a) that would otherwise give the 
FTC that authority. Section 4 of the bill carves out from the 
authority extended to the STB agreements described in 49 U.S.C. 
Sec. 10706 and 49 U.S.C. Sec. 11321, thereby bringing those 
agreements within coverage of the residual clause.
    Other sections of the bill make agreements now covered by 
49 U.S.C. Sec. 10706 and 49 U.S.C. Sec. 11321 subject to 
antitrust enforcement, and the change to section 11(a) of the 
Clayton Act ensures that the antitrust enforcement authority is 
vested in the FTC as well as the DOJ.
    Section 5. Injunctions Against Railroad Common Carriers. 
This section modifies section 16 of the Clayton Act to remove 
the prohibition on private parties seeking injunctive relief 
against a railroad common carrier for a violation of the 
antitrust laws.
    Section 16 of the Clayton Act permits private parties 
threatened with loss or damage by a violation of the Federal 
antitrust laws to sue for injunctive relief. Under current law, 
section 16 exempts common carriers subject to the jurisdiction 
of the STB from suit for injunctive relief by anyone except the 
United States. Section 5 of the bill removes this carve-out 
with respect to railroads, situating the railroad industry 
identically to all other industries subject to section 16 of 
the Clayton Act.
    Section 6. Removal of Primary Jurisdiction as Limitation. 
This section adds a new section 29 to the Clayton Act, 
clarifying that in a civil antitrust action brought against a 
common carrier railroad, either by a private party seeking 
treble damages or injunctive relief or by the United States or 
by a State attorney general, the Federal district court in 
which the case is brought need not defer to the jurisdiction of 
the STB on these or related issues. Specifically, this section 
rejects the doctrine of primary jurisdiction, which suggests or 
requires Federal district courts to defer to regulatory bodies 
on the adjudication of certain issues that were considered to 
be within the special competence of an administrative body.
    Section 7. Unfair Methods of Competition. This section 
eliminates the carve-out in the FTC Act preventing enforcement 
of the FTC Act with respect to railroads.
    Section 5(a)(2) of the FTC Act prohibits the FTC from 
enforcing the FTC Act's prohibition against ``unfair methods of 
competition in or affecting commerce and unfair or deceptive 
acts or practices in or affecting commerce'' in certain 
industries. Among the industries excluded by this section 
5(a)(2) are ``common carriers subject to the Act to regulate 
commerce.'' Section 7 of the bill removes from this exclusion, 
with respect to unfair methods of competition, railroad common 
carriers subject to the STB's jurisdiction under subtitle IV of 
49 U.S.C., enabling antitrust scrutiny of the railroad industry 
by the FTC under the FTC Act. The scope of the FTC's 
enforcement authority regarding unfair and deceptive acts or 
practices is not affected.
    Section 8. Termination of Exemptions in Title 49. This 
section eliminates antitrust exemptions currently in title 49 
of the United States Code that apply to rail carriers. These 
include exemptions pertaining to STB-approved rate agreements 
in 49 U.S.C. Sec. 10706(a)(2)(A); agreements that provide 
``solely for compilation, publication, and other distribution 
of rates in effect or to become effective'' in 49 U.S.C. 
Sec. 10706(a)(4); STB-approved discussions among shippers 
regarding compensation to be paid by rail carriers for the use 
of rolling stock owned or leased by the shippers in 49 U.S.C. 
Sec. 10706(a)(5)(A); and mergers and acquisitions and 
agreements referred to in 49 U.S.C. Sec. 11321. In addition, 
section 8 of the bill eliminates a requirement for reporting to 
the FTC and DOJ, and substitutes provisions clarifying that the 
Federal antitrust laws apply to all proposed agreements 
described in 49 U.S.C. Sec. 10706(a). Furthermore, section 8 
specifies a reporting requirement for the STB; that such report 
shall become a part of the administrative record of any lawsuit 
against the STB's decision; that such report shall be made 
available to any other reviewing agency; and that such report 
shall be available in any judicial review of the Board's 
decision regarding such agreement.
    Section 8(b) of the bill clarifies that the exemption for 
STB-approved pooling agreements under 49 U.S.C. Sec. 11322 is 
preserved.
    Section 9. Effective Date. This section establishes the 
bill's effective dates. The bill is prospective in effect, with 
a special grace period for continuing conduct.
    Pursuant to this section, mergers and acquisitions that 
will have taken place prior to the bill's enactment and were 
exempted from antitrust scrutiny under the current standards 
would remain exempt. Conduct that will have taken place before 
the bill's enactment and was exempted would not become subject 
to retroactive antitrust enforcement. Mergers and acquisitions 
that take place after the bill's enactment will be subject to 
antitrust laws, as will conduct that takes place after the 
bill's enactment. Under the special grace period, parties who 
are engaging in conduct previously-exempted by STB approval 
prior to the bill's passage will have 180 days to discontinue 
such conduct, after which such conduct will become subject to 
the antitrust laws to the extent it continues.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                              CLAYTON ACT



           *       *       *       *       *       *       *
    Sec. 7. That no person engaged in commerce or in any 
activity affecting commerce shall acquire, directly or 
indirectly, the whole or any part of the stock or other share 
capital and no person subject to the jurisdiction of the 
Federal Trade Commission shall acquire the whole or any part of 
the assets of another person engaged also in commerce or in any 
activity affecting commerce, where in any line of commerce or 
in any activity affecting commerce in any section of the 
country, the effect of such acquisition may be substantially to 
lessen competition, or to tend to create a monopoly.

           *       *       *       *       *       *       *

    Nothing contained in this section shall apply to 
transactions duly consummated pursuant to authority given by 
the Secretary of Transportation, Federal Power Commission, 
Surface Transportation Board (excluding transactions described 
in section 11321 of title 49 of the United States Code), the 
Securities and Exchange Commission in the exercise of its 
jurisdiction under section 10 of the Public Utility Holding 
Company Act of 1935, the United States Maritime Commission, or 
the Secretary of Agriculture under any statutory provision 
vesting such power in such Commission, Board, or Secretary.

           *       *       *       *       *       *       *

    Sec. 11. (a) That authority to enforce compliance with 
sections 2, 3, 7, and 8 of this Act by the persons respectively 
subject thereto is hereby vested in the Surface Transportation 
Board where applicable to common carriers subject to 
jurisdiction under subtitle IV of title 49, United States Code 
(excluding agreements described in section 10706 of such title 
and transactions described in section 11321 of such title); in 
the Federal Communications Commission where applicable to 
common carriers engaged in wire or radio communication or radio 
transmission of energy; in the Secretary of Transportation 
where applicable to air carriers and foreign air carriers 
subject to the Federal Aviation Act of 1958; in the Federal 
Reserve Board where applicable to banks, banking associations, 
and trust companies; and in the Federal Trade Commission where 
applicable to all other character of commerce to be exercised 
as follows:

           *       *       *       *       *       *       *

    Sec. 16. That any person, firm, corporation, or association 
shall be entitled to sue for and have injunctive relief, in any 
court of the United States having jurisdiction over the 
parties, against threatened loss or damage by a violation of 
the antitrust laws, including sections two, three, seven and 
eight of this Act, when and under the same conditions and 
principles as injunctive relief against threatened conduct that 
will cause loss or damage is granted by courts of equity, under 
the rules governing such proceedings, and upon the execution of 
proper bond against damages for an injunction improvidently 
granted and a showing that the danger of irreparable loss or 
damage is immediate, a preliminary injunction may issue: 
Provided, That nothing herein contained shall be construed to 
entitle any person, firm, corporation, or association, except 
the United States, to bring suit for injunctive relief against 
any common carrier subject to the jurisdiction of the Surface 
Transportation Board (excluding a common carrier by railroad) 
under subtitle IV of title 49, United States Code. In any 
action under this section in which the plaintiff substantially 
prevails, the court shall award the cost of suit, including a 
reasonable attorney's fee, to such plaintiff.

           *       *       *       *       *       *       *

    Sec. 29. In any civil action against a common carrier 
railroad under section 4, 4A, 4C, 15, or 16, the district court 
shall not be required to defer to the jurisdiction of the 
Surface Transportation Board.
                              ----------                              


                      FEDERAL TRADE COMMISSION ACT



           *       *       *       *       *       *       *
    Sec. 5. (a)(1) * * *
    (2) The Commission is hereby empowered and directed to 
prevent persons, partnerships, or corporations, except banks, 
savings and loan institutions described in section 18(f)(3), 
Federal credit unions described in section 18(f)(4), common 
carriers subject to the Acts to regulate commerce, air carriers 
and foreign air carriers subject to the Federal Aviation Act of 
1958, and persons, partnerships, or corporations insofar as 
they are subject to the Packers and Stockyards Act, 1921, as 
amended, except as provided in section 406(b) of said Act, from 
using unfair methods of competition in or affecting commerce 
and unfair or deceptive acts or practices in or affecting 
commerce. For purposes of this paragraph with respect to unfair 
methods of competition, the term ``common carrier'' excludes a 
common carrier by railroad that is subject to jurisdiction of 
the Surface Transportation Board under subtitle IV of title 49 
of the United States Code.

           *       *       *       *       *       *       *

                              ----------                              


                      TITLE 49, UNITED STATES CODE



           *       *       *       *       *       *       *
Subtitle IV--INTERSTATE TRANSPORTATION

           *       *       *       *       *       *       *


PART A--RAIL

           *       *       *       *       *       *       *


                           CHAPTER 107--RATES

Sec.
10701.    Standards for rates, classifications, through routes, rules, 
          and practices.
     * * * * * * *
[10706.    Rate agreements: exemption from antitrust laws.]
10706.    Rate agreements.

           *       *       *       *       *       *       *


Sec. 10706. [Rate agreements: exemption from antitrust laws] Rate 
                    agreements

    (a)(1) In this subsection--
            (A) * * *

           *       *       *       *       *       *       *

    (2)(A) A rail carrier providing transportation subject to 
the jurisdiction of the Board under this part that is a party 
to an agreement of at least 2 rail carriers that relates to 
rates (including charges between rail carriers and compensation 
paid or received for the use of facilities and equipment), 
classifications, divisions, or rules related to them, or 
procedures for joint consideration, initiation, publication, or 
establishment of them, shall apply to the Board for approval of 
that agreement under this subsection. The Board shall approve 
the agreement only when it finds that the making and carrying 
out of the agreement will further the transportation policy of 
section 10101 of this title and may require compliance with 
conditions necessary to make the agreement further that policy 
as a condition of its approval. If the Board approves the 
agreement, it may be made and carried out under its terms and 
under the conditions required by the Board[, and the Sherman 
Act (15 U.S.C. 1, et seq.), the Clayton Act (15 U.S.C. 12, et 
seq.), the Federal Trade Commission Act (15 U.S.C. 41, et 
seq.), sections 73 and 74 of the Wilson Tariff Act (15 U.S.C. 8 
and 9), and the Act of June 19, 1936 (15 U.S.C. 13, 13a, 13b, 
21a) do not apply to parties and other persons with respect to 
making or carrying out the agreement]. However, the Board may 
not approve or continue approval of an agreement when the 
conditions required by it are not met or if it does not receive 
a verified statement under subparagraph (B) of this paragraph.

           *       *       *       *       *       *       *

    (4) Notwithstanding any other provision of this subsection, 
one or more rail carriers may enter into an agreement, without 
obtaining prior Board approval, that provides solely for 
compilation, publication, and other distribution of rates in 
effect or to become effective. [The Sherman Act (15 U.S.C. 1 et 
seq.), the Clayton Act (15 U.S.C. 12 et seq.), the Federal 
Trade Commission Act (15 U.S.C. 41 et seq.), sections 73 and 74 
of the Wilson Tariff Act (15 U.S.C. 8 and 9), and the Act of 
June 19, 1936 (15 U.S.C. 13, 13a, 13b, 21a) shall not apply to 
parties and other persons with respect to making or carrying 
out such agreement. However, the] The Board may, upon 
application or on its own initiative, investigate whether the 
parties to such an agreement have exceeded its scope, and upon 
a finding that they have, the Board may issue such orders as 
are necessary, including an order dissolving the agreement, to 
ensure that actions taken pursuant to the agreement are limited 
as provided in this paragraph.
    (5)(A) Whenever two or more shippers enter into an 
agreement to discuss among themselves that relates to the 
amount of compensation such shippers propose to be paid by rail 
carriers providing transportation subject to the jurisdiction 
of the Board under this part, for use by such rail carriers of 
rolling stock owned or leased by such shippers, the shippers 
shall apply to the Board for approval of that agreement under 
this paragraph. The Board shall approve the agreement only when 
it finds that the making and carrying out of the agreement will 
further the transportation policy set forth in section 10101 of 
this title and may require compliance with conditions necessary 
to make the agreement further that policy as a condition of 
approval. If the Board approves the agreement, it may be made 
and carried out under its terms and under the terms required by 
the Board[, and the antitrust laws set forth in paragraph (2) 
of this subsection do not apply to parties and other persons 
with respect to making or carrying out the agreement]. The 
Board shall approve or disapprove an agreement under this 
paragraph within one year after the date application for 
approval of such agreement is made.

           *       *       *       *       *       *       *

    (d) The Board may begin a proceeding under this section on 
its own initiative or on application. [Action of the Board 
under this section--
            [(1) approving an agreement;
            [(2) denying, ending, or changing approval;
            [(3) prescribing the conditions on which approval 
        is granted; or
            [(4) changing those conditions,
has effect only as related to application of the antitrust laws 
referred to in subsection (a) of this section.
    [(e)(1) The Federal Trade Commission, in consultation with 
the Antitrust Division of the Department of Justice, shall 
prepare periodically an assessment of, and shall report to the 
Board on--
            [(A) possible anticompetitive features of--
                    [(i) agreements approved or submitted for 
                approval under subsection (a) of this section; 
                and
                    [(ii) an organization operating under those 
                agreements; and
            [(B) possible ways to alleviate or end an 
        anticompetitive feature, effect, or aspect in a manner 
        that will further the goals of this part and of the 
        transportation policy of section 10101 of this title.
    [(2) Reports received by the Board under this subsection 
shall be published and made available to the public under 
section 552(a) of title 5.]
    (e) Nothing in this section exempts a proposed agreement 
described in subsection (a) from the application of the 
antitrust laws (as defined in subsection (a) of the 1st section 
of the Clayton Act, but including section 5 of the Federal 
Trade Commission Act to the extent such section 5 applies to 
unfair methods of competition).
    (f) In reviewing any proposed agreement described in 
subsection (a), the Board shall take into account, among any 
other considerations, the impact of the proposed agreement on 
shippers, consumers, and affected communities. The Board shall 
make findings regarding such impact, which shall be--
            (1) made part of the administrative record;
            (2) submitted to any other reviewing agency for 
        consideration in making its determination; and
            (3) available in any judicial review of the Board's 
        decision regarding such agreement.

           *       *       *       *       *       *       *


CHAPTER 113--FINANCE

           *       *       *       *       *       *       *


                      SUBCHAPTER II--COMBINATIONS

Sec. 11321. Scope of authority

    (a) [The authority] Except as provided in sections 4, 4A, 
4C, 15, and 16 of the Clayton Act, the authority of the Board 
under this subchapter is exclusive. A rail carrier or 
corporation participating in or resulting from a transaction 
approved by or exempted by the Board under this subchapter may 
carry out the transaction, own and operate property, and 
exercise control or franchises acquired through the transaction 
without the approval of a State authority. A rail carrier, 
corporation, or person participating in that approved or 
exempted transaction [is exempt from the antitrust laws and 
from all other law,] is exempt from all other law (except the 
laws referred to in subsection (c)), including State and 
municipal law, as necessary to let that rail carrier, 
corporation, or person carry out the transaction, hold, 
maintain, and operate property, and exercise control or 
franchises acquired through the transaction. However, if a 
purchase and sale, a lease, or a corporate consolidation or 
merger is involved in the transaction, the carrier or 
corporation may carry out the transaction only with the assent 
of a majority, or the number required under applicable State 
law, of the votes of the holders of the capital stock of that 
corporation entitled to vote. The vote must occur at a regular 
meeting, or special meeting called for that purpose, of those 
stockholders and the notice of the meeting must indicate its 
purpose.

           *       *       *       *       *       *       *

    (c) Nothing in this subchapter exempts a transaction 
described in subsection (a) from the application of the 
antitrust laws (as defined in subsection (a) of the 1st section 
of the Clayton Act, but including section 5 of the Federal 
Trade Commission Act to the extent such section 5 applies to 
unfair methods of competition). The preceding sentence shall 
not apply to any transaction relating to the pooling of 
railroad cars approved by the Surface Transportation Board or 
its predecessor agency pursuant to section 11322.
    (d) In reviewing any transaction described in subsection 
(a), the Board shall take into account, among any other 
considerations, the impact of the transaction on shippers and 
affected communities.

           *       *       *       *       *       *       *