I.     INTRODUCTION
 

A.     Will discuss topic in context of the service crisis involving UP/SP in Western U.S.
 
        --     in particular, coal transportation

B.    Will focus first on individual shipper's (i.e., a utility shipping coal) rights when railroad fails to provide service.
 
C.     Will then expand the focus to STB's role where there is a massive service failure affecting a large number of shippers or a region of U.S.

D.     Will review what STB decided in its Decision served late Friday, October 31, 1997 in Ex Parte 573.
 
 
II.     THE PROBLEM

--      Failure of railroad to provide required transportation
 

III.     LEGAL CONTEXT
 
    A.     Contract Service (§ 10709)
 
            1.     Virtually all coal transportation today is in contract service
 
            2.     Contract service not subject to Interstate Commerce Act
 
                    a.     parties have only those obligations provided by terms of contract
 
                    b.     exclusive remedy for breach is action in state or federal court unless otherwise agreed
 
            3.     So, if you have a contract, go to its terms to determine:
 
                    a.     railroad's obligations on service; and
 
                    b.     any remedies specified for failure to perform
 
            4.     Contract terms are typically confidential, but certain aspects of service commitments generally known:
 
                    a.     cycle time standards
 
                    b.     make-up
 
                    c.     liquidated damages
 
        5.     Real problem in serious service failure situation is that utility doesn't want liquidated damages -- wants coal
 
        6.     Two court cases pending claiming material breach of service commitments
 
                    a.     Entergy - 13 million tons (White Bluff and Independence plants in Arkansas)
 
                    b.     Empire District Electric Company
 
        7.     In both cases (which we are handling), utilities seek damages and termination of contract
 
    B.     Common Carrier Service
 
        1.     Aware of only three significant coal movements involving common carrier service at present
 
        2.     Two involve prescribed rates
 
                    a.     West Texas Utilities -- STB found BNSF rate unreasonably high
 
                    b.     Arizona Public Service Company/PacifiCorp (Cholla Station) -- STB found BNSF rate unreasonable
 
                    c.     PEPCO (Dickerson Station) -- CSXT now in litigation at STB (Eastern movements)
 
                    d.     Our firm counsel in each of those situations
 
        3.     § 11101 "shall provide transportation or service on reasonable request."
 
                --     fulfill "reasonable" contract obligations "before responding to reasonable requests for common carrier service not a violation

                BUT commitments that deprive railroad of ability to respond to reasonable requests for common carrier service are not reasonable
 
        4.     New statutory language -- essentially no case law for guidance

        5.     Basically, common carrier obligation in time of constrained resources is non-discriminatory treatment:

                --     150 units of demand
 
                --     100 units of supply

                        everyone should get 2/3

        6.     Remedy if common carrier obligation violated -- go to STB -- file complaint
 

IV.     STB'S ROLE IN SERVICE EMERGENCY -- § 11123
 
    A.     "(a) When the Board determines that shortage of equipment, congestion of traffic, unauthorized cessation of operations, or other failure of traffic movement exists which creates an emergency situation of such magnitude as to have substantial adverse effects on shippers, or on rail service in a region of the United States, or that a rail carrier providing transportation subject to the jurisdiction of the Board under this part cannot transport the traffic offered to it in a manner that properly serves the public, the Board may, to promote commerce and service to the public, for a period not to exceed 30 days" . . . [take various actions]

    B.     Traditional use of this power limited to bankruptcy-type situations
 
    C.     With UP/SP situation in the West, STB first started hearing about the problems in Merger Oversight Proceeding
 
    D.     Because that proceeding was focused on conditions Board imposed to alleviate anti-competitive effects (i.e., economic effects) of merger, Board initiated new proceeding Ex Parte 573, Rail Service in the Western United States on October 2, 1997 to consider service situation
 
    E.     On October 15, 1997, Board ordered UP/SP to file weekly reports with service-related information
 
    F.     On October 27, 1997, Board had 12-hour hearing
 
            1.     UP:
 
                   --     admitted problems
 
                   --     apologized
 
                   --     said it has turned corner
 
                   --     released contract obligations where it believed doing so would help service situation
 
        2.     FRA - generally supported UP/SP
 
        3.     UTU - situation improving, beware safety problems associated with directed service
 
        4.     Coal Shippers
 
                --     N.M.A.
 
                --     WCTL
 
                --     LCRA (UP contract obligations released)
 
                --     San Antonio (UP contract obligations released)
 
                --     WCTA
 
                --     Southern Companies (UP contract obligations released)
 
                --     Entergy (contract obligations not released)
 
                --     AEP (contract obligations not released)
 
         5.     Basically explained problems and supported UP/SP service plan

                --     i.e., leave UP/SP to work it for additional 45 - 60 days

        6.     Rob Krebs (BNSF)

                --     BNSF had many of same problems

                --     BNSF is currently capacity constrained

                --     BNSF believes it could help out in Houston
 

    G.     STB's 10/31/97 Service Order

            1.     Finds service emergency

            2.     Declines to impose broad service orders

            3.     Imposes limited rights for Tex-Mex in, and around Houston
 
            4.     Ordered UP/SP to report on responses to individual shipper complaints by 11/14/97
 
            5.     Requires additional information for UP/SP weekly reports
 
            6.     Scheduled hearing for 12/3/97 for UP/SP report