Conditional Conrail Takeover OKd

Two rail carriers will be allowed to carve up Conrail Inc. but they must submit detailed reports to prevent a service meltdown like the one that continues to plague the marriage of Union Pacific Corp. and Southern Pacific in the West, regulators ruled Monday.

In approving the $10-billion plan by CSX Corp. and Norfolk Southern Corp., the federal Surface Transportation Board imposed reporting requirements designed to serve as an early-warning system and allay concerns that railroads are getting too large and unmanageable.

The monthly, weekly and daily reports will detail on-time performance, inventory and other issues affecting rail operations. The board also said it would keep the case under active review for five years, two years longer than what the companies had proposed.

John Snow, chairman and chief executive of CSX, called the requirements unprecedented but understandable in light of congestion and other service-related problems that followed a 1996 merger creating the nation’s largest railroad, Union Pacific.

“We understand the world we’re in, and we intend to avoid a repetition of the problems associated with any other merger,” he said after the board’s 2-0 vote. The three-member board has one vacancy.

Linda Morgan, the board’s chairwoman, said she was confident the merger would be implemented smoothly but was imposing conditions to “ensure that we are on top of the situation in case it does not.”

Despite the expanded oversight, the board largely left intact the companies’ plan to divide Conrail routes and offer direct service to the Northeast from their Southeastern and Midwestern strongholds.

The breakup of Conrail, created by Congress as a monopoly 22 years ago out of six bankrupt railroads, will restore rail competition in several Northeastern markets for the first time in two decades.

The two companies will control virtually all rail traffic in the East and will have nearly 45,000 miles of track between them stretching from Montreal to Miami and from Boston to Kansas City.

More competitive shipping prices are promised for shippers along the East Coast. Some electric utilities could find it cheaper to transport coal, while automobile makers, farmers and other shippers of high-volume goods could reduce their costs with better freight rates.

To protect labor interests, the board imposed a clause to make it clear that the companies should talk with labor unions, and go to arbitration if necessary, before overriding existing collective bargaining contacts for many Conrail employees.

The board will formally issue its order July 23 and allow the railroads to split Conrail as early as August, although officials have said they would not rush the breakup to ensure a smooth transition.

The companies project a net reduction of 1,500 union positions and a requirement for a similar number of transfers. Another 1,150 management positions would be abolished.