March 17, 2010

Legislators' plan: Force sale of rail

TOM BELL

— By

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Jack Milton/Staff Photographer

Jack Milton

Staff Writer

State lawmakers' latest plan for improving freight rail service in Maine essentially comes down to this: engineering a hostile takeover of the rail lines owned by the state's largest railroad.

A legislative committee believes that the state could use an obscure federal statute to force Pan Am Railways to sell the company's lines in Maine to the state. The action would put the state in the position of choosing another railroad company to operate trains on the lines.

Proponents say tax dollars would not be spent because the new railroad company would pay Pan Am the market value of its Maine properties.

The privately owned railroad, formerly known as Guilford Rail Systems, is controlled by Timothy Mellon of the Mellon banking family of Pittsburgh.

Legislators allege that the railroad fails to provide timely and consistent service to many of its manufacturing customers, particularly smaller companies.

There is no evidence that the railroad has improved service since the Legislature first began prodding it to do so three years ago, said Rep. Stacey Fitts, R-Pittsfield, whose district includes Pan Am customers, including a fertilizer manufacturer and a grain mill.

He said the railroad's poor service is hurting the manufacturers' ability to compete because they can't meet their customers deadlines. In some cases, he said, manufacturers are shipping heavy products by truck, which is not only more expensive but causes additional wear and tear on the state's road system.

''We are putting them on notice,'' he said of Pan Am Railways. ''If you don't respond and treat us seriously, we will have to take serious action.''

Maine manufacturers are already operating at a competitive disadvantage because of high energy costs and distance from markets, said Sen. Philip Bartlett, D-Gorham, co-chair of the Utilities and Energy Committee. Unless rail service is improved, some companies could leave the state, he said.

He said the state has the right to intervene because there is not a competitive marketplace; manufacturers aren't able to pick and chose a railroad company unless they are willing to move their plants.

''There is a real question about monopoly power,'' he said.

PAN AM PRESIDENT PUZZLED

David Fink, president of Pan Am Railways, said he is puzzled by the accusations. The federal Surface Transportation Board is the proper authority to deal with service complaints, he said.

During his 10-year tenure with the railroad, Fink said, the board has called the railroad about four complaints -- and not one has been from Maine shippers.

During the first two months of this year, he said, six Maine companies increased their shipments by 1,000 cars over the same period last year.

Since Mellon and Fink's father, David Andrew Fink, bought the railroad in 1981, it has been profitable and safe.

''We have been the only folks who have been able to do that in the state of Maine in 30 years,'' he said. ''I hope we can continue.''

The Surface Transportation Board declined to comment.

VOTE ON RESOLUTION TODAY

The Legislature's Utilities and Energy Committee voted 12-0 on Feb. 26 to direct the Maine Department of Transportation, with the help of the attorney general, to consider petitioning the Surface Transportation Board to force Pan Am to sell the line. The agencies would report back to the Legislature at the start of the next legislative session.

The utilities committee is scheduled today to vote again, this time on a formal resolution, which would then be sent to the Transportation Committee. The two committees have been jointly working on the rail freight issue for three years.

While the state has no authority over regulating railroads, lawmakers said the state could use a federal statute that allows the Surface Transportation Board to require a railroad to sell the line to a ''financially responsible person'' if the railroad does not make an effort to provide adequate service.

The law is normally applied to short ''feeder'' lines because the statute does not allow the board to force a sale that would significantly hurt the overall operations of a railroad company.

An important question is whether forcing Pan Am to sell its Maine properties would hurt its overall business in New England, said Chalmers ''Chop'' Hardenbergh, editor of Atlantic Northeast Rails & Ports, an industry newsletter.

''Nobody knows,'' he said.

The federal law sets a high bar for compelling the sale, and the process works much like that of eminent domain proceeding, said Greg Nadeau, deputy commissioner of the Maine Department of Transportation. He called the proposal a ''pretty drastic remedy'' and said it will only work if shippers get behind it and testify to the federal board that the service in inadequate.

The rail freight industry nationally is enjoying a resurgence, Hardenbergh said, and he believes there would be companies interested in purchasing the lines.

Under a forced sale, the company would be able to acquire the rails, the land underneath the rails, and rail yards, such as the Rigby Yard in South Portland. It would not buy the trains.

The state would own the properties for a few moments before transferring the rights to the new owner, Rep. Fitts said.

MAINE'S BUSIEST RAILROAD

Pan Am Railways operates freight lines in all the New England states expect Rhode Island and offers the only rail route between Maine and southern New England

It is by far the busiest railroad in the state, with a network stretching from the Penobscot County town of Mattawamkeag to the New Hampshire border in York County.

The railroad carries more than 69,000 carloads of freight a year, more than double the amount of all the state's railroads combined. Amtrak's Downeaster travels on Pan Am rails.

The railroad has 45 customers south of Portland and 30 customers north of the city. Customers include the Sprague Energy terminals in South Portland and Portland, New Page paper mill in Rumford, Verso paper mills in Jay and Bucksport, the Sappi paper mill in Hinckley and Madison Paper in Madison.

Bartlett said companies are reluctant to speak publicly about their issues with the railroad because they fear retaliation.

For that reason, the Legislature three years ago asked the Public Advocate Office to conduct regular anonymous surveys with the customers of all six of the state's railroads companies.

Public Advocate Dick Davies said that 86 percent of the complaints were about one company: Pan Am Railways.

He said the complaints were mainly about the company's inability to provide timely and consistent service.

Several companies said they stopped using rail altogether and are now shipping products by truck.

Davies said the number of companies responding to the survey has declined significantly since he first started three years ago. He views the decline as a sign that shippers have concluded that the state has no power to fix problems. Fink said the decline is due to the fact service is better and there is nothing to complain about.

Part of the problem is that customers' expectations have changed, said Tony Lyons, a spokesman for the New Page mill in Rumford, which makes paper for magazines and catalogs.

Companies these days don't have much warehouse space to store lots of paper, so deadlines for delivering paper are much more important than they used to be, he said.

He said the mill has begun shipping more paper by truck because the railroad has not been able to offer the kind of predictable service that would allow the mill to meet customers' deadlines.

Lyons said it's not always the railroad's fault. Some of the problem is due to the mill's location at the end of line. Other delays are related to the equipment, infrastructure and unionized labor issues that many railroads struggle with.

Nadeau, of the DOT, said the lack of an adequate supply of rail cars is a national problem. He said his department's relationship with Pan Am has significantly improved since Fink became president 15 months ago, and he added that several shippers have said Pan Am's service has been improving.

Staff Writer Tom Bell can be contacted at 791-6369 or at:

tbell@pressherald.com

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