Whether the merger of Union Pacific and Southern Pacific railroads will result in higher or lower rates for Utah consumers and shippers depends on which of two things - competition or efficiency - has the biggest impact on performance.
Utah officials must keep a watchful eye on how the merger affects Utah business and consumers and work closely with an oversight board to make sure the lack of competition the merger creates doesn't hurt the state's economy.Combined railroad revenues in Utah total about $1.2 billion, based on an average of $20 per ton to move 60 million each year. If freight prices were to go up significantly, it would have a major impact on consumers, major manufacturers such as Geneva Steel, Utah's coal industry and the state's agriculture.
Predictions about the merger's effects run from positive to negative. Railroad officials say the huge new company will provide better access to new routes and lower prices as a result of increased corporate efficiency. Opponents of the merger counter that the lack of competition could mean rate increases - as large as 15 percent to 40 percent.
The merger, approved by the federal Surface Transportation Board Wednesday, effectively eliminates rail competition in Utah. Gov. Mike Leavitt has expressed concern that the existence of only one rail company could hurt service to consumers and businesses and lead to much higher shipping costs.
The merger was approved along with a lengthy list of conditions that won't be made public until just before the merger takes effect Aug. 12. Leavitt had urged the board to adopt three conditions he says are essential if Utah is to avoid a negative impact from the merger.
Only one of those concerns was directly addressed by the board. It will require expanded access to UP-SP by competitors, especially Burlington Northern-Santa Fe. Leavitt is hoping that will help attract competition in the state from other railroad companies, including Burlington Northern-Santa Fe.
Leavitt's proposals to require the new UP-SP to use annual audits of costs in other markets to set similar rates in Utah, and to lengthen from five to 15 years the period of oversight by the board were not adopted in the merger plan.
Constant vigilance and communication with the oversight board by Leavitt and other state officials is essential to the well-being of Utah's economy as the effects of the railroad merger become more apparent.