The Milwaukee Road

[jeaton]

Michael Sol

Your post today on the development of the conditions granted to the MILW in the BN merger case reminded me that I wanted to ask if you would continue to comment on the Milwaukee Road history for the time after Hillman resigned as Trustee. If I have it straight, former Illinois Governor *** Ogilvie replaced Hillman, got the Wisconsin Central spin-off going, and was there until the Soo Line got the remaining lines.

By the way, I seem to recall that the ICC gave the Milwaukee to the Soo because they felt the MILW-CNW combine would eliminate two line competition at far to many points served by both the MILW and CNW. At the time, it was my view that the Soo (and parent CP) was more interested in getting a route to Chicago far superior than the one they held. Correct me if I am wrong, but I don't think they were that interested in picking up much of the Milwaukee traffic other than possibly the Mineapolis-Milwaukee-Chicago-Kansas City origin/destination traffic.

Jay Eaton

[Anonymous]

Just a wonderful topic, with very intelligent responses. Along with GN, I miss the Milwaukee Road deeply.

[Modelcar]

...Wish Amtrak had a talent like Mark Hemphill to support Pres. Gunn in his effort to make something viable out of Amtrak...and...to solidify a means of proper funding and make any needed policy and procedure changes....Wouldn't that have been great...!!

[arbfbe]

Paul,

In short, go back and read the article about the Iraqi railways in the July 2004 Trains magazine. Substitute the Mark Hemphill name for Rick Degman and that is the situation. It appears he won't be driving any unescorted Nisan pickups with $1,000,000 in cash under the front seat, though. Civilization has reared it's ugly head on the railroad once again.

Alan

[Anonymous]

QUOTE: Originally posted by SPandS-fan

Hemphill's in Iraq?!!!!!

Paul,

Go to the "Controversy again" thread made a week ago in reference to the Easter Holiday, and you will find more info on Hemphill.

[Anonymous]

Hemphill's in Iraq?!!!!!

[greyhounds]

QUOTE: Originally posted by SPandS-fan

Why are all of Mark Hemphill's posts deleted in this topic?

Iraq - security - no politics, at least that's what I think.

Railroad to run. War to win. All else doesn't count.

[Anonymous]

Why are all of Mark Hemphill's posts deleted in this topic?

[arbfbe]

The March issue of CTC Board magazine is out and it is heavy on MILWAUKEE ROAD features. It is a great issue if you are interested in the MILW out west.

Alan

[fievel]

I used to wonder what all the fuss was about the Milwaukee Road.
That is, until I saw the Little Joes.
What a grand railroad! [^]

[Anonymous]

I saw a Milwaukee Road F-7 being pulled by CSX to the Chattanooga, TN railway museum a couple of months ago. I'm still kicking myself for not having my camera with me. I know I wasn't hallucinating because I've spoken to another railfan who saw it also. He's the one who got the info about it's destination.

[Anonymous]

QUOTE: Originally posted by arbfbe

I am not optimistic about restoration of rail competition on the northern tier. The sad fact is the BNSF will donate more money to more candidates to block such legislation than all of the people in Montana and North Dakota will. Guess which squeak will be herad as louder.

Search the internet for information about San Antonio Public Utilities and McCarty Farms and thier rate cases against the BN. See how they came out and how little has changed since. The Railroads are big, massive and powerful. They do not like their momentum disturbed by measely powers like the public, the customers or regulatory agencies.

Alan

Alan, you make a good point. It would take a concerted effort by a consortium of states and captive shippers to get any action on this. The interesting thing is that the STB has not enforced the caveats of the Staggers Act that are meant to maintain competition. The railroads have been very persuasive that they cannot make the necessary ROI if they are forced to compete rail to rail for most of their traffic. They claim that the typical competitive rate only brings in revenues that provide 108% of variable costs, that they need to make 180% of variable costs to be considered "profitable", and therefore they are justified in charging their captive customers an average of 237% above variable costs. Clearly, the railroads are engaged in a risky practice of charging half their customers outrageous rates in order to internally subsidize the cut rates of the other half.

This practice of robbing Peter to pay Paul has to stop, because it is destructive to the national interests. It is a de facto subsidy for the uncaptive shippers being paid for by the captive shippers, and over time the captive shippers will recede while any new investment in facilities that produce rail shipped items will occur in uncaptive areas, meaning the gravy train will eventually run dry. It also suggests that the rates being charged to uncaptive shippers are not covering the apportioned costs of the maintenance of the tracks they are accessing. As much as I hate to bring it up, the only way to resolve this is either through reregulation (which would have the effect of lowering shipping costs for captive shippers but would raise the shipping costs of uncaptive shippers, and since the rates are set by the beauracracy the net result will be negative), or through some institution of (drumroll, please) open access. If the rail infrastructure was forced to act as a separate company (and probably run as a public utility), they would have to charge rates that cover the costs of maintenance regardless of location. The big difference between this asset separation and outright reregulation is that market forces would still be setting the price in the asset separation case, thus no beauracratic overhead.

Of course, there is also the option of direct subsidies to the railroads to lower their capital costs, but there is no reason to think they would pass these savings on to the customer, and any such infrastructure subsidy would have to come out of some kind of trust fund, meaning most likely a railroad diesel fuel tax in the same vein as the highway diesel fuel tax and the waterway diesel fuel tax. Such a tax would be helpless to correct the captive vs uncaptive shipper disparity, since the railroads would continue to exploit one to supplement the other.

[arbfbe]

I am not optimistic about restoration of rail competition on the northern tier. The sad fact is the BNSF will donate more money to more candidates to block such legislation than all of the people in Montana and North Dakota will. Guess which squeak will be herad as louder.

Search the internet for information about San Antonio Public Utilities and McCarty Farms and thier rate cases against the BN. See how they came out and how little has changed since. The Railroads are big, massive and powerful. They do not like their momentum disturbed by measely powers like the public, the customers or regulatory agencies.

Alan

[Anonymous]

QUOTE: Originally posted by wrwatkins

No matter how much wining and towel wringing we do the Milwaukee is GONE---forever. Sad to say but it is true.

Yes, the Milwaukee is gone forever. The same cannot be said for bringing rail competition back to the Northern Tier. As long as those captive shippers experience the price abuses brought about BNSF's rail monopoly in that region, there is always the possibility that Congress will eventually act. Remember, the squeaky wheel gets the grease.

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

The comparison made by OS is apt because both are speculative history of a nature which enjoyed a brief vogue in the early 1960's, such as "If the South won the Civil War". It can be a stimulating mental exercise but it doesn't change reality.

No, the comparison is completely inappropriate. To compare the demise of steam with the demise of the Milwaukee's PCE is comparing outdated technology with an incident of government short-sightedness. The former is gone because something superior came along. The latter is gone because federal regulators were lax in their public directive. The market perversions occuring in the Northern Tier today are an indication that a mistake was made when rail competition was eliminated. There is no such market case for bringing back steam.

[Anonymous]

QUOTE: Originally posted by O.S.

If the economic case is so good, borrow the money and rebuild it. Need a phone number for a bank?

OS

If the rails and infrastructure had remained in a mothballed state, the economic case for rebuilding with private funding would be excellent. (Whatever happened to the railbanking caveats of the STB?) The market is definately there today.

Without some kind of federal aid or directive, any project of such magnitude is nearly impossible. Look at the Alaskan natural gas pipeline project for a comparison. The economic case is there, but of course that alone is not sufficient in this day and age of environmental restrictions/government regulations/sky-high land values/obscene liability issues (although that last one may finally be on the way to reform) to inspire any aspiring capitalist(s) to risk such a project.

The federal aid in this case does include but is not limited to outright monetary aid. Retaining the right of eminent domain, a sufficient land grant to secure low cost private financing, and some construction tax credits would as a package deal be more than enough for me to take on the job. After all, it was good enough for BNSF's predecesors.

[Anonymous]

i always thought something wasn t right with the milwaukee reorganisation , it just didn t make sense to me why the trustee would thing the lines in the midwest were a better bet seeing as how the milwaukee had the same problem as the rock had in the midwest. namely that it went everywhere the burlington did but took the long way to get there,

[martin.knoepfel]

@ Michael Sol

thank you for your answers

[Anonymous]

No matter how much wining and towel wringing we do the Milwaukee is GONE---forever. Sad to say but it is true.

[CSSHEGEWISCH]

The comparison made by OS is apt because both are speculative history of a nature which enjoyed a brief vogue in the early 1960's, such as "If the South won the Civil War". It can be a stimulating mental exercise but it doesn't change reality.

[Anonymous]

If the economic case is so good, borrow the money and rebuild it. Need a phone number for a bank?

OS

[Anonymous]

QUOTE: Originally posted by O.S.

A book on this thread? Interesting form of therapy. I wonder if it be helpful or harmful. The resemblence between this thread and "did we scrap steam too soon" is uncanny.

OS

So this guy compares scrapping steam engines to the retrenchment of the Milwaukee west of MIles City, a disasterous economic act which gave BN/BNSF monopoly power over the Northern Tier states.

OS must drink that BNSF kool-aid by the gallon[xx(]!

[MichaelSol]

The usual order of priority of claims is first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors' claims; fourth, unsecured creditors' claims; and fifth, equity claims. For railroad receiverships under the law in effect at the time, the public interest was a priority in a non-financial sense and could be used to modify creditor claims.

In the case of the Milwaukee Road, by far the largest claim was the collective bargaining agreement severance pay requirements which totaled about $1.2 billion, far and away the largest creditor claim, and one with superior priority.

The only party to the proceeding seeking liquidation was the holding company, Chicago, Milwaukee Corporation, that is, the equity holders.

By contrast, the banks representing the secured creditor claims, in the case of the Milwaukee, supported reorganization around a continued transcontinental operation, and opposed liquidation of the company.

Best regards, Michael Sol

[CSSHEGEWISCH]

Secured creditors have first priority on assets, then unsecured creditors, then shareholders in a bankruptcy. Usually, secured creditors get only a fraction of what they are owed and there is very little left for unsecured creditors and nothing for shareholders in either a reorganization or liquidation. Employees with back pay due are considered unsecured creditors.

[Anonymous]

A book on this thread? Interesting form of therapy. I wonder if it be helpful or harmful. The resemblence between this thread and "did we scrap steam too soon" is uncanny.

OS

[mhurley87f]

It goes without saying that I am ignorant about US law, but wouldn't Creditors in this instance include Shareholders (Majority and Minority), Employees, and Pensioners, and was it the case that the opinions of only one of these factions was sought before making the recommendation to liquidate?

Is it only now that the man in the street has been told that this recommendation was so wrong, or has it been an open secret all along amongst Railroad Management?

This has been a fascinating thread to follow (might there be a Book in the offing as it seems the interest has been phenominal???) and it seem certain to run and run.

Many thanks to all contributors for their inputs, they have all been thought inspiring.

[MichaelSol]

QUOTE: Originally posted by futuremodal

Michael,

While I remember to ask, did you have any experiences with the disposal of Milwaukee's ROW after retrenchment? I seem to remember that the ROW complete with the rails intact between Haugen and Avery was bought by a guy named Edwards who also owned a mill near Princeton ID. The line from Avery to St Maries was bought by Potlatch Corporation for running long trains. The story goes that Edwards wanted to preserve the line either for moving logs or even possibly reopening the line as a shortline between the BN line at St Regis and the Potlatch line on to St Maries and eventually Spokane. However, the Forest Service sued to get control of both the Avery-Haugen segment and the Avery St Maries segments, and eventually both Edwards and Potlatch Corp had to give up their claim to the rails.

The Potlatch purchase came right in the middle of Montana Rail Corporation's effort to obtain federal financing for the purchase of the line from Miles City, Montana to Marengo, Washington. Although it turned out that MRC was not going to get the federal financing under any circumstances, at the time it pretty much skewered the idea of retaining the longer line.

Edwards, I am not sure about. He bought the section at a bargain price, then his friend, Senator Craig from Idaho, put an amendment on a Forest Service appropriation bill requiring the Forest Service to purchase the land for recreational purposes, and directed the purchase price to be paid which was about $15 million if I recall correctly. Very unusual for Idaho senators to be directing the purchase of Montana recreation land. Very unusual to not go through normal acquisition (i.e. get an appraisal) procedures. It was a very, very profitable transaction for Mr. Edwards.

Best regards, Michael Sol

[CSSHEGEWISCH]

The legal authority of a trustee in a bankruptcy is strong because his duty is to preserve the assets of the firm for the benefit of the creditors. If the creditors believe that the firm cannot survive as a going concern and can make a strong enough case for it, then the business will be shut down and the assets liquidated, in whole or in parts.

[Anonymous]

Michael,

While I remember to ask, did you have any experiences with the disposal of Milwaukee's ROW after retrenchment? I seem to remember that the ROW complete with the rails intact between Haugen and Avery was bought by a guy named Edwards who also owned a mill near Princeton ID. The line from Avery to St Maries was bought by Potlatch Corporation for running long trains. The story goes that Edwards wanted to preserve the line either for moving logs or even possibly reopening the line as a shortline between the BN line at St Regis and the Potlatch line on to St Maries and eventually Spokane. However, the Forest Service sued to get control of both the Avery-Haugen segment and the Avery St Maries segments, and eventually both Edwards and Potlatch Corp had to give up their claim to the rails.

If this story is accurate, it shows that there were some folks who still had a vision of the line's future value, but they too were shut down by government interference. I know that the Forest Service "needed" the Avery to Calder segment for their new paved road to Avery (which replaced a narrow gravel road on the opposite side of the river). They had less of a percieved need for the Avery to Haugen segment, because even though they utilized part of it as a replacement for a narrow road, it too is still narrow (but admittedly a blast to drive through the tunnels!). One has to wonder why the Forest Service was so adamant to take over the line and have the rails removed, which eliminated a possible revival of that line.

[MichaelSol]

QUOTE: Originally posted by martin.knoepfel

the question is still unanswered why the PCE was shut down, instead of the prairie-lines. Obviously, it does make little sense how the question was handled. I do not easily believe in conspiracy, but was political support the cause?

on the other side: why didn't the port authorities of Seattle and Tacome buy the PCE, if it was so dear and useful to them?

The PCE was shut down because the Trustee(s) shut it down. Politics was certainly part of the picture, but a determined Trustee, with all the powers of the Federal Court behind him, is a formidable force, right or wrong, dumb or smart.

The port authorities are municipal corporations under Washington State law. Their operating budget, in the case of Port of Seattle, for instance, comes from an assessment on King County voters., and the amount of that assessment is restricted by law.

While there is a bonding authority to raise money for capital investment, statutory limitations exist based on the total assessed value of property in King County, Washington., not on the value of a prospective investment, nor does there appear to be that kind of investment authority within the Port's charter.

While the Ports had the financial interest, it is doubtful that they had the legal authority to become involved in that fashion. To become involved would have required a change in the municipal charters, and Washington's governor, at that time, was actively opposed to state efforts to save the Milwaukee Road's Pacific Extension.

Montana's governor at the time, in a recent interview, stated that the White House told him directly, and quite bluntly, that President Jimmy Carter was facing a tough re-election battle, and needed to allocate "federal" resources in a fashion best designed to ensure his re-election. The Milwaukee Road was not a project that the White House felt would help his re-election efforts, and therefore no federal funds were going to be committed by the Executive branch to saving the Pacific Coast Extension.

Best regards, Michael Sol