STB REPORT #23 - DECEMBER 1 - 15, 1998 ****************************************************************************** A compilation of decisions and notices published by the Surface Transportation Board. Includes information on track abandonments, ownership changes and trackage rights agreements. Condensed for readability. The full text is available at www.stb.dot.gov/ ****************************************************************************** SURFACE TRANSPORTATION BOARD DECISION STB Finance Docket No. 33134 NORTH CAROLINA RAILROAD COMPANY PETITION TO SET TRACKAGE COMPENSATION AND OTHER TERMS AND CONDITIONS NORFOLK SOUTHERN RAILWAY COMPANY, NORFOLK & WESTERN RAILWAY COMPANY, AND ATLANTIC AND EAST CAROLINA RAILWAY COMPANY On September 23, 1996, North Carolina Railroad Company (NCRR) filed petitions seeking the prescription of compensation for the exclusive use of its 317-mile rail line between Charlotte and Morehead City, NC, by operating subsidiaries of Norfolk Southern Corporation -- Norfolk Southern Railway Company, Norfolk & Western Railway Company, and Atlantic and East Carolina Railway Company. In a decision served May 29, 1997, the Board instituted a proceeding and prescribed interim compensation, but placed the proceeding in abeyance pending a proposed buyout by the State of North Carolina of minority shareholders and the subsequent reopening of lease negotiations. The due date for petitions to reopen the May 1997 decision was later extended to December 1, 1998. On November 30, 1998, NCRR and NS filed a joint motion for an additional extension of time to March 1, 1999. They express their belief that an extension would facilitate negotiations and avoid litigation over the interim compensation. Reportedly, the State consents to the proposed extension, and counsel for the interveners has been notified. The extension request is reasonable and will be granted. It is ordered: 1. The due date for filing petitions to reopen the Board's decision, served May 29, 1997, is extended to March 1, 1999. Decided: December 1, 1998 Service Date - Late Release December 1, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Docket No. AB-477 (Sub-No. 3X) OWENSVILLE TERMINAL COMPANY, INC.--ABANDONMENT EXEMPTION-- IN EDWARDS AND WHITE COUNTIES, IL, AND GIBSON AND POSEY COUNTIES, IN This decision denies a petition for reconsideration and reopening of a Board decision served February 25, 1998, filed by persons owning land underlying a rail line between Browns, IL, and Poseyville, IN. On November 7, 1997, Owensville Terminal Company, Inc. (OTC) filed a petition to abandon a line of railroad known as the Browns Poseyville Line, between milepost 205.0 at or near Browns, IL, and milepost 227.5 near Poseyville, IN, a distance of 22.5 miles in Edwards and White Counties, IL, and Gibson and Posey Counties, IN. The Board published a notice in the Federal Register on November 28, 1997, instituting an exemption proceeding. On December 5, 1997, Indiana Trails Fund, Inc. filed a request for issuance of a notice of interim trail use (NITU) and for imposition of a public use condition. A request for a public use condition was also filed by the Indiana Department of Transportation (INDOT) on December 30, 1997. In a decision and notice of interim trail use or abandonment served February 25, 1998, the Board granted the sought exemption, subject to trail use, public use, historic preservation, environmental, and employee protective conditions. On March 30, 1998, 19 persons who allegedly own land underlying the Browns Poseyville Line right-of-way jointly filed a petition for reconsideration and reopening. On April 15, 1998, the landowners filed nine affidavits that they had inadvertently failed to append to their petition. OTC replied to the petition on April 20, 1998. On May 12, 1998, Margaret Marriott, another person who allegedly owns land underlying the right-of-way, filed a petition for leave to intervene in support of the landowners petition. On June 4, 1998, Indiana Trails replied to Ms. Marriott's petition. The landowners argue that the Board committed errors of law in its February 25 decision. First, they assert that the Board erred in granting an exemption on the record in this proceeding. The landowners maintain that the Board's class exemption procedures, which require, in part, that a carrier certify that no local traffic has moved over the subject line for at least 2 years, supersede the general statutory language of 49 U.S.C. 10502, which, in part, requires a finding that regulation of the abandonment is not necessary to carry out the rail transportation policy (RTP). The landowners assert that OTC has not owned the line long enough to qualify for abandonment under section 1152.50 and, moreover, that trains have been operating on the line within the past 2 years. Moreover, the landowners argue, even if section 10502 can be interpreted to permit an exemption that does not meet the requirements of section 1152.50, the statutory standards nevertheless have not been met because an exemption would be contrary to the RTP. The landowners also state that they believe that the Board's procedures are unfair, arbitrary and capricious because they assertedly do not provide for any notice that a proceeding might be forthcoming or that a decision has been reached. Petitioners also assert that these procedures, by allowing OTC and Indiana Trails to convert petitioners right-of-way land to a non-railroad purpose, deny the latter due process of law, and unlawfully deprive them of their reversionary rights. The landowners also argue that the Board erred in simultaneously imposing a public use condition and issuing a NITU. The landowners assert that a public use condition and a NITU are mutually inconsistent and cannot be applied at the same time. In essence, petitioners argue that, whereas under public use conditions property is transferred in the context of consummation after an abandonment is authorized, under a NITU full abandonment does not occur and the status of the right-of-way as property used for railroad purposes is preserved. The landowners assert also that the practice of imposing a public use condition and issuing a NITU simultaneously allows circumvention of the statutory 180-day limit on public use conditions, as the Board routinely grants extensions to trail use negotiating periods. Petitioners complain that this practice allows a trail use requester to obtain the benefits of public use conditions to preserve the right-of-way. OTC replies that, in arguing that the record does not support a grant of an exemption, the landowners fail to understand that there are two separate processes for obtaining abandonment exemption authority: notices of exemption filed under the class exemption rules and individual petitions for exemption. OTC explains that, when a railroad files an individual petition for exemption under the latter regulations, there is no requirement that the line has been out of service, and the Board considers the petition under the exemption criteria of section 10502(a), as it did here. OTC also disputes the landowners claim that they were not afforded proper notice of the abandonment exemption proceeding. The railroad indicates that it published notice of its petition in newspapers of general circulation in the four involved counties, as required by the Board's rules, and that the Board published notice of OTC's filing in the Federal Register. OTC emphasizes that the Board's procedures provide adequate notice and that both the Board and the ICC considered and rejected arguments that adjoining landowners should be given specific notice of abandonment application or exemption proceedings that might affect them. OTC replies also that there is nothing unlawful about the simultaneous imposition of a public use condition and the issuance of a NITU. The railroad asserts that, contrary to the landowners contention, both public use and trail use conditions are imposed only after abandonment is authorized or exempted and before abandonment is consummated. Finally, OTC disputes the landowners contention that the practice of simultaneously imposing public use and trail use conditions enables a potential trail user to obtain the benefit of a public use condition beyond 180 days by requesting an extension of the trail use negotiating period. OTC points out that a public use condition cannot be extended beyond the 180-day statutory limit, and that extension of a trail use negotiating period does not revive any of the benefits of a public use condition. OTC adds that the landowners argument is moot in any event, as the subject right-of- way is being conveyed pursuant to a trail use condition.(By a letter filed August 3, 1998, Indiana Trails has notified the Board that it has purchased the 22.5-mile line for interim trail use subject to the Trails Act and our implementing regulations). Ms. Marriott contends that the Board's procedures failed to give her actual notice of, and an opportunity to intervene and participate in, proceedings and negotiations that could result in the taking of her property. The result, she asserts, is that she is deprived of due process of law. Ms. Marriott, a California resident, asserts that publication of notice in local newspapers does not reach landowners who do not have access to those newspapers. The Board's Federal Register notice, she asserts, does not sufficiently specify the location of the abandonment or identify the individuals or class of persons who would be affected by it. Further, Ms. Marriott argues, even had personalized individual notice been given here, it would not have put her on notice that the proceedings before the Board could result in the loss of her property. To the contrary, she avers, notice of an abandonment proceeding is an indication that the landowner's property will no longer be used for railroad purposes and that the landowner may expect that an easement for railroad use is about to terminate. Ms. Marriott complains also that landowners do not receive adequate notice of actions the Board takes during the 180-day trail use negotiation period or during extensions of those periods. Ms. Marriott contends, further, that due process requires that she be permitted to participate in proceedings during Trails Act negotiation periods, and that the Board's procedures arbitrarily exclude her from doing so. Ms. Marriott asserts that she has the right to monitor, as a participant, the integrity of negotiations and the trail implementation process. She complains that Board regulations terminate a landowner's right to intervene and participate before reasons to challenge the trail use process might even arise. She complains further that a landowner has no way of providing the Board with information about the activities of an abandoning railroad and a trail use group, or of informing the Board of any fraudulent activities. Indiana Trails replies that the Board and its predecessor agency have found that actual notice to landowners is not feasible or warranted and that the agency's notice regulations provide adequate notice to all interested parties of proposed abandonments and the possibility that a right-of-way approved for abandonment may be used as a trail. Indiana Trails adds that Ms. Marriott had actual notice of the Board's decision in this proceeding in time to file a timely petition for reconsideration; in support, it notes that Ms. Marriott filed a letter regarding the proceeding on February 27, 1998, two days after service of the Board's decision granting the exemption. The persons who submitted letters in this proceeding raise issues of notice, transferability of property interests, and feasibility of a trail on the right-of-way. In the latter area, the letter writers express concerns regarding maintenance of the property, safety of trail users, and protection of persons whose property adjoins the trail. It is incumbent upon a petitioner to show material error, new evidence, or substantially changed circumstances. As previously noted, in this case the landowners and Ms. Marriott contend that the Board has committed material error. We may revoke an exemption if we find that regulation is necessary to carry out the RTP. As previously noted, the landowners seek revocation, and Ms. Marriott's petition can be viewed as seeking that same relief. Petitions to revoke must be based on reasonable, specific concerns demonstrating that reconsideration of the exemption is warranted. The party seeking revocation has the burden of proving that regulation of the transaction is necessary. Our inquiry when revocation of an exemption is sought is similar to the analysis for determining if exemption is proper at the outset of a proceeding, i.e., whether regulation of the transaction is necessary to carry out the RTP. This analysis focuses on the sections of the RTP related to the underlying statutory section from which exemption is sought. As next discussed, petitioners have failed to establish either that our prior action involved material error or that regulation of the transaction is necessary to carry out the RTP. Accordingly, we will not reconsider or reopen our prior decision, nor will we revoke the abandonment exemption granted in that decision. The landowners argue that the Board materially erred in finding that the record supports a grant of an exemption and in simultaneously imposing a public use condition and issuing a NITU. Neither of these claims has merit. As OTC notes, OTC did not file a notice of exemption under the Board's class exemption regulations, which govern abandonment of rail lines that have been out of service for at least 2 years. Thus, it is not relevant that OTC might not have owned the subject line for 2 years or that some traffic moved over the line during that period. Rather, OTC's petition for an individual exemption was filed under 49 CFR 1152.60 and part 1121 and was processed accordingly. Petitioners have failed to demonstrate that we erred in concluding that regulation of this transaction is not necessary to carry out the RTP. The landowners second argument also lacks merit. The Board frequently grants abandonment authority subject to both trail use and public use conditions. Contrary to the landowners assertions, this is not inappropriate. Both public use and trail use conditions are imposed only after abandonment is authorized or exempted and before it is consummated. When both conditions are imposed, the railroad and the party seeking to acquire the right-of-way may choose to transfer the property under either condition, depending on the quality of the rail carrier's title. The Board has not been apprised of any problems encountered as a result of this approach. The simultaneous issuance of a NITU and a public use condition does not extend the 180-day statutory limit on public use conditions. After the 180-day period expires, so does the public use condition. Thereafter, negotiation by the railroad is purely voluntary pursuant to a NITU. The landowners and Ms. Marriott assert that Board procedures do not afford adequate notice of abandonment proceedings and trail use requests and thus are unfair. Ms. Marriott also advances due process arguments relating to the trail use negotiation process. It is unclear how these arguments relate to the criteria for reconsideration, reopening, or revocation; rather, they appear to amount to collateral attacks on our established rules of procedure. Nevertheless, we will deem petitioners arguments as constituting allegations of material error and will address them. As OTC correctly states, the Board recently declined to revisit the ICC's determination that actual notice to each adjoining landowner that petitioners here seek is not feasible or necessary. There simply is no practical way to name and locate all of the landowners that might have a reversionary interest in a railroad right-of-way. Moreover, our current procedures -- which facilitate and improve notice to the general public -- ensure extensive notice to the public of proposed abandonments and the possibility that the right-of-way may be used as a trail. Also, failure to receive actual notice of proposed abandonments does not prejudice any rights landowners may have, because landowners have remedies to obtain just compensation if they can demonstrate in the Court of Federal Claims that a compensable taking of their property has occurred. Ms. Marriott contends that the Board's procedures preclude her participation in the trail use negotiation process. But the Trails Act does not grant us discretionary authority to disapprove a voluntary trail use agreement that meets the stated requirements. Rather, as we and the ICC have repeatedly pointed out, our authority under the Trails Act is ministerial. We have no involvement in the negotiations between the railroad and the trail use proponent. Nor do we analyze, approve, or set the terms of trail use agreements. In short, when a Trails Act request is made, we ascertain only whether the requirements of the statute have been met, i.e., whether the party wishing to negotiate with the carrier is willing to assume legal and financial responsibility for management of the right-of-way, and acknowledges that use of the right-of-way as a trail is subject to restoration or reconstruction for railroad purposes. If those requirements are met, and the railroad agrees to negotiate, we issue an appropriate order allowing for the parties Trails Act negotiations to take place. The procedures established by the ICC and the Board to meet our obligations under the Trails Act repeatedly have been upheld by the courts. Contrary to Ms. Marriott's contentions, landowners can and do participate in the Board's abandonment and Trails Act proceedings. Landowners, like any other interested persons, can request to be placed on the list for service of all decisions in a proceeding. Landowners also can seek revocation of a trail condition at any time if they can demonstrate that the statutory conditions are not being met. Thus, Ms. Marriott is not correct in her belief that landowners have no way of providing the Board with information about allegedly fraudulent activities. Nor has she even attempted to demonstrate that the parties here have engaged in such activities or that they will not satisfy relevant statutory requirements. Concerns have also been raised regarding the feasibility of a trail on the Browns Poseyville line right-of-way, maintenance of the property, safety of trail users, and protection of adjoining landowners. We recently discussed these and related issues at length. We pointed out that the agency has never become involved in determining the type or level of trail that is appropriate for a specific right-of-way, much less whether use of the right-of-way as a recreational trail is desirable at all. We noted also that the trail user is obligated to use the right- of-way so that it does not become a public nuisance. We emphasized, however, that this is a state or local requirement, not a Board requirement. All additional arguments raised by the parties have been considered and found not to warrant individual discussion. In sum, we conclude that petitioners have not established grounds for reconsideration or reopening of our prior decision in this matter; nor have they demonstrated that revocation of the exemption granted in that decision is warranted. Accordingly, the relief petitioners seek will be denied. It is ordered: 1. Margaret Marriott is granted leave to intervene, but the relief she seeks is otherwise denied. 2. The landowners petition for reconsideration and reopening is accepted for filing, but the relief they seek is otherwise denied. Decided: November 24, 1998 Service Date - December 2, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD STB Finance Docket No. 33555 ROCHELLE RAILROAD CO. PETITION TO SET TRACKAGE RIGHTS COMPENSATION AND OTHER TERMS AND CONDITIONS CITY OF ROCHELLE, IL On February 11, 1998, Rochelle Railroad Co. (RRCO) filed a petition requesting that the Board institute a proceeding to determine the compensation and other terms for its continued operation over a 2.1-mile rail line owned by the City of Rochelle, IL. On March 2, 1998, the City filed a motion to dismiss RRCO's petition claiming that the Board lacks jurisdiction in this matter. RRCO replied to the City's motion on March 23, 1998. By letter filed November 24, 1998, RRCO requests that this proceeding be terminated because the parties have entered into a settlement agreement which addresses and resolves the issues in its petition. The request will be granted, and the proceeding will be dismissed. It is ordered: 1. This proceeding is dismissed. Decided: November 30, 1998 Service Date - December 2, 1998 ------------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Docket No. AB-55 (Sub-No. 568X)] CSX Transportation, Inc.--Abandonment Exemption--in Franklin County, PA On November 16, 1998, CSX Transportation, Inc. (CSXT), filed a petition to abandon a portion of its line of railroad known as the Baltimore Service Lane, Lurgan Subdivision, extending between milepost BAV-20.5 at 4th Street and milepost BAV-22.4 at Commerce Street in Chambersburg, a distance of 1.9 miles in Franklin County, PA. The line includes no stations. By issuance of this notice, the Board is instituting an exemption proceeding. A final decision will be issued by March 5, 1999. Decided: November 23, 1998. Service Date - December 4, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Docket No. AB-103 (Sub-No. 12X) THE KANSAS CITY SOUTHERN RAILWAY COMPANY--ABANDONMENT EXEMPTION--IN WEBSTER, BIENVILLE, NATCHITOCHES AND WINN PARISHES, LA The Kansas City Southern Railway Company (KCS) filed a notice to abandon a 61.62- mile line of railroad between milepost 83.02 at or near Sibley, and milepost 144.64 at or near Carla, in Webster, Bienville, Natchitoches and Winn Parishes, LA. Notice of the exemption was served on June 6, 1997. On July 3, 1997, a decision and notice of interim trail use or abandonment (NITU) was served, that reopened the proceeding to implement interim trail use/rail banking for the entire line and provided a 180-day period for the National Salvage & Service Corp. to negotiate an interim trail use/rail banking agreement with KCS for the right-of- way involved in this proceeding. The negotiation period under the NITU expired on January 2, 1998. On November 26, 1997, a NITU was served, which authorized a 180-day period for the Louisiana Department of Culture, Recreation and Tourism to negotiate an interim trail use/rail banking agreement with KCS for the right-of-way involved in this proceeding. The negotiation period under this NITU expired on May 25, 1998. On June 2, 1998, a NITU was served authorizing a 180-day period for the Louisianans Parks and Tourism (LPT) to negotiate an interim trail use/rail banking agreement with KCS. The 180-day period under this NITU expired on November 29, 1998. By letter dated November 19, 1998, LPT filed a request to extend the negotiation period for an additional 180 days. LPT states that negotiations between the parties have progressed to an agreement concerning the general terms of a purchase contract, but that there are items to be resolved, including continued salvage operations and liability insurance requirements. By letter filed November 24, 1998, KCS agreed to the extension request. It is ordered: 1. The negotiating period under the NITU is extended to May 31, 1999. Decided: December 2, 1998 Service Date - December 4, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Finance Docket No. 31700 (Sub-No. 13) CANADIAN PACIFIC LIMITED, ET AL.--PURCHASE AND TRACKAGE RIGHTS--DELAWARE & HUDSON RAILWAY COMPANY (ARBITRATION REVIEW) This proceeding involves appeals by the American Train Dispatchers Department of the International Brotherhood of Locomotive Engineers of an arbitrator's decisions: (1) approving the transfer by Canadian Pacific Railway Company (Canadian Pacific) of five Delaware & Hudson Railway Company (Delaware & Hudson) dispatch positions from Milwaukee, WI, to Montreal, Quebec, Canada; and (2) imposing an implementing agreement to effectuate the transfer. The Train Dispatchers asked that the Board review and set aside the arbitrator's decisions. By decision served September 18, 1998, the Board declined to review the decisions. By decision served November 6, 1998, the Board denied a motion by the Train Dispatchers for stay pending judicial review. On December 3, 1998, the Train Dispatchers filed a petition requesting, in essence, that the Board reopen the proceeding to reconsider its prior decisions and that, pending further action, the Board order the carriers to refrain from consummating the transaction by effecting the transfer of dispatch positions. The Train Dispatchers base their pleading on new evidence of safety concerns and actions by the Federal Railroad Administration (FRA). They assert that the carriers intend to effect the transfers on December 5, 1998. The Board now has in the record for the first time a definitive statement from the FRA that these positions should not be moved. Given this statement by FRA that the transfer of these positions could adversely affect rail safety, we will not allow their transfer to go forward under the authority of our labor conditions. Therefore, the carriers are hereby ordered to refrain from consummating their transaction by effecting these transfers until we have been advised that the safety concerns of FRA have been satisfied. It is ordered: 1. A copy of this decision will be served on the Federal Railroad Administration. 2. The carriers shall refrain from consummating the transaction by effecting the transfer of dispatch positions. Decided: December 4, 1998 Service Date - Late Release December 4, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD STB Finance Docket No. 33388 Decision No. 106 CSX CORPORATION AND CSX TRANSPORTATION, INC., NORFOLK SOUTHERN CORPORATION AND NORFOLK SOUTHERN RAILWAY COMPANY --CONTROL AND OPERATING LEASES/AGREEMENTS--CONRAIL INC. AND CONSOLIDATED RAIL CORPORATION In Decision No. 89, we approved the acquisition of control of Conrail Inc. (CRR) and Consolidated Rail Corporation (CRC), and the division of the assets thereof, by (1) CSX Corporation (CSXC) and CSX Transportation, Inc. (CSXT), and (2) Norfolk Southern Corporation (NSC) and Norfolk Southern Railway Company (NSR). Acquisition of control of Conrail was effected by CSX and NS on August 22, 1998. The division of the assets of Conrail will be effected on a date not yet determined (that date is generally referred to as Day One; it has also been referred to as the Closing Date and the Split Date). In approving the CSX/NS/CR transaction, we noted our expectation that the transaction would result in the creation of head-to-head, two-railroad competition in several corridors in which the pre-transaction Conrail had no Class I competition. One of these corridors links Chicago, IL, and Northern New Jersey. Prior to the CSX/NS/CR transaction, Conrail was the only Class I railroad operating over the length of this corridor. On Day One, however, two railroads -- CSX and NS -- will operate between Chicago and Northern New Jersey. By petition filed December 2, 1998, CSX has brought to our attention a problem that, if CSX's assertions are accurate, threatens to weaken the CSX vs. NS competition we intended to create in the Chicago-Northern New Jersey corridor. CSX contends: that, some years ago, its intermodal affiliate, CSX Intermodal, Inc. (CSXI), entered into contracts with Conrail and NS respecting the movement of traffic between Chicago and Northern New Jersey, via Buffalo, NY. The traffic moves between Chicago and Buffalo on Conrail (under the Conrail contract) and on NS (under the NS contract). The traffic moves between Buffalo and Northern New Jersey on the New York, Susquehanna and Western Railroad (NYS&W); that these contracts contain volume and trainset commitments, which are expressed as percentages of the total traffic handled by CSXI in this corridor; and that these contracts also provide for liquidated damages, which are applicable in the event CSXI fails to comply with its contractual commitments. CSX further contends that these contracts, which had in the past no anticompetitive impacts (because CSX did not in the past, and does not now, operate between Chicago and Northern New Jersey), will have anticompetitive impacts commencing on Day One. The CSX vs. NS competition that would otherwise exist on Day One will be thwarted, CSX claims, by the continued existence of these contracts, which will require CSXI to ship most of its Chicago-Northern New Jersey intermodal movements on NS (under the NS contract) or under a 50-50 pooling arrangement with NS (under the Conrail contract, as modified by the terms of the CSX/NS/CR Transaction Agreement). CSX therefore asks that we declare that, effective on Day One, the volume and trainset requirements contained in the two CSXI contracts will be null and void, and unenforceable by Conrail and NS. CSX concedes that, until now, nothing has been said, in this proceeding, about the two CSXI contracts. CSX excuses its own failure to mention these contracts before now, claiming that it understood that discussion of these contracts was unnecessary since obviously they would not be enforced or deemed to be applicable after the Split Date. The CSX petition implies, however, that NS does not share this understanding. In view of the extensive preparations required to make Day One a success, CSX has urged us to expedite our consideration of the CSX petition and, in particular, to require NS to file its reply within 12 days of the filing of that petition (i.e., by December 14, 1998). In a pleading filed December 4, 1998, NS has urged the denial of CSX's request that NS be required to file its response 12 days. NS notes: that CSX has not explained adequately why it waited until December 2nd to bring this matter to our attention; that, if there is indeed any need for expedited action, it is entirely the result of CSX's failure to raise this matter sooner; and that CSX's inaction provides no basis for reducing the time available to NS to address the substantial issues raised by the petition. NS adds that, because both of the CSXI contracts, as well as the CSX/NS/CR Transaction Agreement, require arbitration of all disputes arising under them, there is a substantial question whether the Board is the proper forum for the issues raised by the petition. While we understand that CSX believed that the two CSXI contracts would not be enforced after Day One, we agree with NS that CSX should have brought this matter to our attention quite some time ago. Matters of this sort are generally committed to writing, as was the case with so many of the details of the CSX/NS/CR transaction, and it is unclear why this issue was not so handled. Nevertheless, we do not agree with NS that CSX's delay in bringing this matter to our attention justifies the further delay that will occur if NS is allowed to take the full time ordinarily available for filing a reply to the petition. The public interest in the expanded CSX vs. NS competition made possible by the CSX/NS/CR transaction must be protected, and a resolution of this matter must be made well in advance of Day One. We are therefore directing NS to file its reply no later than close of business on Thursday, December 17, 1998, and then the Board will proceed from there. The Board as always would hope that NS and CSX could settle this matter privately. Nevertheless, the Board is prepared to resolve this matter if necessary. In this regard, we note the following. (1) We do not agree with NS's suggestion that the Board is not the proper forum for the issues raised by the CSX petition. The arbitration remedies provided in the CSXI contracts and in the CSX/NS/CR Transaction Agreement do not extend to the core issue raised in the petition: whether the continued existence of the requirements provisions of the two CSXI contracts would thwart the CSX vs. NS competition that we intended to create in the Chicago-Northern New Jersey corridor. (2) Given the Board's concern about the effect of the contracts on the competition that the Board intends to begin in the Chicago-Northern New Jersey corridor on Day One between CSX and NS, we encourage NS to address, in its reply to the CSX petition, a question that will arise if we decide to order CSX not to comply with the requirements provisions in the two CSXI contracts: What then will become of the liquidated damages provisions? Perhaps the future handling of this matter could reflect the way it might have been handled if these contracts had been on the table during the negotiation of the CSX/NS/CR Transaction Agreement and had been subject, at that time, to the general give-and-take that accompanied the negotiation of that agreement. It is ordered: 1. NS must file its reply to the CSX petition no later than close of business on Thursday, December 17, 1998. Decided: December 7, 1998 Service Date - Late Release December 7, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD ENVIRONMENTAL ASSESSMENT NO. AB- 6 (SUB-NO. 381X) Burlington Northern and Santa Fe Railway Co. --Abandonment Exemption -- in Hennepin and Ramsey Counties, MN In this proceeding, the Burlington Northern and Santa Fe Railway Co. (BNSF) has filed a notice in connection with the abandonment of its railroad line located between MP 0.00 near East Minneapolis and MP 2.43 near Rollins Oil, a distance of 2.43 miles in Hennepin and Ramsey Counties, MN. The Minnesota Pollution Control Agency expressed several concerns that could result from salvage activities, including: avoiding possible impacts to streams; avoiding use of fertilizers containing phosphorus, implementing a site erosion control plan, and removing and disposing of railroad ties. Therefore, we recommend that the following condition be placed on any decision granting abandonment authority: Prior to commencing any salvage activities, BNSF shall consult with the Minnesota Pollution Control Agency to address possible impacts resulting from salvage activities. Service Date - December 8, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Finance Docket No. 21989 (Sub-No. 3) PENNSYLVANIA RAILROAD COMPANY MERGER NEW YORK CENTRAL RAILROAD COMPANY (ARBITRATION REVIEW) We are partially granting the appeal brought by 17 former employees of the Cleveland Union Terminals Company of the decision of an arbitration panel denying these employees claim for benefits under an agreement entered into on January 1, 1964, for the protection of railroad employees who would be affected by the 1968 merger of the Pennsylvania Railroad Company and the New York Central Railroad Company to form the Penn Central Transportation Company. In 1962, the Pennsylvania Railroad Company and the New York Central Railroad Company agreed to a merger that resulted in the formation of the Penn Central Transportation Company. In the 1970s, the Penn Central went bankrupt, and the great bulk of its assets were transferred in 1976 to a new carrier, Consolidated Rail Corporation (Conrail). The estate of the Penn Central continued to survive in possession of real estate holdings and lines that were not transferred to Conrail. When the appeal in this docket was filed, the surviving company of the estate of the Penn Central was called the Penn Central Corporation, the respondent in this proceeding. We refer to the respondent Penn Central Corporation as the carrier because its predecessor was a rail carrier subject to our jurisdiction when this controversy first arose. On May 20, 1964, the Brotherhood of Railway Trainmen (BRT) and the two merging carriers entered into an agreement for the protection of employees. The 1964 merger protection agreement provided considerably more than the standard levels of protection that applied under our New York Dock and pre-New York Dock formulas. This agreement was signed by the two carriers alone and did not directly refer to any subsidiary carriers. Before the merger, the N.Y. Central owned 93% of a passenger carrier subsidiary, the Cleveland Union Terminals Company (CUT). The 17 claimant petitioners in this proceeding were all yard workers on the CUT. On February 16, 1965, the N.Y. Central and the BRT negotiated an agreement to allow CUT employees an opportunity to work at a nearby N.Y. Central freight yard by merging the CUT seniority roster with the pre-merger seniority roster for N.Y. Central employees who worked at the freight yard. The rosters were merged by placing the former CUT employees at the bottom of the merged roster in the order of their seniority on the CUT, with a common seniority date of September 10, 1964. The N.Y. Central employees who were already working at the freight yard were placed on the roster in order of their dates of employment on the N.Y. Central. All of those dates predated September 10, 1964. The merger was finalized on February 1, 1968. On February 21, 1968, the claimants and other CUT employees, except for some CUT employees who were retained in the CUT workforce, were furloughed from their CUT jobs effective on February 25, 1968. The furlough notice told the furloughed CUT employees to immediately contact the freight yardmaster to stand for work in the freight yard under the February 16, 1965 agreement merging the rosters. The CUT was not merged into the Penn Central until July 11, 1969, but the prior furlough and reporting notices show that workforce coordination began before the CUT was formally folded into the Penn Central. As explained below, we must distinguish between those of the 17 petitioning claimants who accepted the carrier's invitation to stand for work in the freight yard and those who did not. When the claimants were furloughed, the BRT and the merging carriers were disputing whether the 1964 merger protection agreement applied to employees of subsidiary railroads like the CUT. The carrier's position was that the agreement applied only to employees of the N.Y. Central and the Pennsylvania Railroad Company. The furloughed employees were fully aware of this dispute. The parties settled this dispute as to the CUT (but not as to other subsidiaries) by an agreement reached on July 11, 1969, under which the parties agreed to apply the 1964 merger protection agreement to CUT employees. This proceeding involves the efforts of claimants to obtain labor protection benefits pursuant to the 1964 merger protection agreement. While the carrier now agrees that the 1964 merger protection agreement applies to former CUT employees, the carrier has consistently denied that claimants have individually satisfied the conditions established in that agreement for claiming and receiving benefits. On September 15, 1969, the claimants filed suit in a U.S. District Court, alleging two causes of action: (1) failure by the carrier to provide benefits claimed under the 1964 merger protection agreement; and (2) failure by the BRT to provide adequate representation of their interests. By oral ruling issued on July 14, 1976, and a written decision issued on November 29, 1979, the court dismissed the complaint as to inadequate representation and ordered that the remaining issue of claimants entitlement to benefits under the merger protection agreement be resolved by arbitration. In compliance with the court's arbitration order, the parties entered into an arbitration agreement on June 18, 1980. An initial arbitration panel met in 1983 but was subsequently disbanded. The current arbitration panel was convened in 1988. The panel held a 3-day oral evidentiary hearing in May 1990. On June 22, 1992, the panel entered its Decision, which was followed by issuance of a supplemental Decision on July 16, 1994, and a dissenting opinion on August 25, 1994. The panel denied all of the claims for benefits, finding that: (1) those claimants who refused to report for work at the freight yard did not have a reasonable basis for their refusal and thereby failed to comply with requirements in the 1964 agreement that employees exercise their seniority rights to obtain available work; and (2) the claimants who reported for work failed to process grievance claims adequately, admitted their ineligibility for benefits, or lost work due to causes that were deemed by the panel not to trigger benefit payments, such as declining business, physical incapacity, or voluntarily quitting work. On November 16, 1994, claimants filed an appeal of the panel's Decision with the ICC, which docketed the appeal as Finance Docket No. 21989 (Sub-No. 2). By decision served on August 1, 1996, in the (Sub-No. 2) proceeding, the Board denied the appeal, finding that claimants cursory appeal failed to define any issues for, or provide any evidence in support of, review. An appeal of this decision to the Court of Appeals for the 6th Circuit was dismissed by the court based on a stipulation that the Board would re-docket the appeal if claimants filed documents in support of it. On April 17, 1997, claimants re-filed their appeal with supporting documentation, and the appeal was re-docketed as the instant (Sub-No. 3) proceeding. The carrier filed a reply in opposition to the appeal on June 24, 1997. The Board does not review "issues of causation, the calculation of benefits, or the resolution of other factual questions" in the absence of "egregious error." We will partially grant the appeal. We find that the panel erred egregiously and failed to observe the imposed labor protection conditions in summarily denying benefits to the claimants who reported for work at the freight yard. We uphold the panel's denial of benefits to the claimants who did not report for work. We will remand the panel's Decision to the parties for action in conformity with this decision. I. Claimants Who Reported For Work The parties agreed on a bifurcation of the arbitration process, whereby claimants basic eligibility for compensation would be explored in Phase I, and thereafter, if they were found eligible, the precise amount of compensation would be determined in a subsequent Phase II. The panel denied all benefits for the 10 former CUT employees who reported for work at the freight yard, refusing to proceed to Phase II on the grounds that the claimants failed to establish their basic eligibility for compensation. The panel found that the claimants who reported for work did not process and establish their grievance claims adequately, in that they failed to pursue arbitration when benefits were not awarded, failed to turn in wage guarantee forms, and failed to show that their wages in their new positions were less than the amounts guaranteed under the protective benefits. The panel also held that employees were required to show that their losses were as a result of the merger (hereafter, the causation requirement ) and that this condition was not met, at least for a key witness, Christ Steimle, who mentioned loss of jobs due to declining business and a physical incapacity. The panel also found that at least the key witness Christ Steimle held the belief at the time that he was not entitled to wage guarantee payments and that the belief had a sound fact basis. As explained below, these findings reflect egregious error and failure to observe the imposed labor protection conditions. A review of the history of this proceeding shows that the panel erred egregiously in finding that the claimants who reported for work should be denied all relief because they did not pursue arbitration in a timely manner. As noted, the claimants, instead of proceeding immediately to arbitration of their claims for benefits, brought suit in a federal district court for the benefits and joined an additional claim alleging failure by the BRT to provide adequate representation of their interests. We cannot fault claimants for going to court before they agreed to arbitration, because, as indicated in the court's decision directing arbitration of the claim for benefits, it was not clear at the time that individual employees, as distinguished from their unions, could invoke arbitration. In any event, the arbitration that was actually before the panel was the only arbitration that claimants needed to pursue in this matter. The court ordered that the issue of claimants eligibility for benefits be submitted to arbitration. The parties responded by entering into an arbitration agreement. Because the court's order was never appealed and remains in effect today, it is the law of the case, and it may not be collaterally attacked with the argument that claimants request for benefits must be denied because claimants did not seek arbitration first but rather began their quest for benefits in court. The panel erred in citing failure to arbitrate as a reason for dismissal when the required arbitration was actually before the panel. In denying the claims, the panel relied on the fact that lead witness Steimle, who testified that he was the only living claimant who reported for work, ceased to file claim forms. The panel used this to support its finding that he and the other claimants who reported believed at the time that they were not entitled to benefits. We disagree with the panel's approach. The fact that witness Steimle and other claimants ceased to file claim forms does not by itself show that they believed at the time that they were not entitled to benefits. Mr. Steimle testified that he and his fellow employees sent claim forms to the payroll department and received no response whatsoever. A lack of response by the carrier would not be surprising, because claimants were in litigation with the carrier over the provision of benefits. Witness Steimle further testified that his supervisor thought it was a joke that he would even bother to apply for protective benefits because he was not going to get benefits anyway. The panel ignored evidence that claimants ceased to file claim forms because of lack of response from the carrier and because of negative feedback from supervisors, rather than because they believed that they were not entitled to benefits. The panel might have been able to infer that the claimants doubted their eligibility for benefits if they had totally neglected to file claims forms, but the record reveals no such neglect. As discussed above, witness Steimle testified that claimants filed the claims forms and ceased doing so only after receiving no response. Former Assistant Supervisor of Labor Relations George Ellert, the only witness called by the carrier, admitted on cross examination that he did not know whether any of the claimants filed forms and in any event would have been aware only of any appeals that may have been filed. We can draw no inference from the panel's observation that claimants (specifically referring to witness Steimle) did not retain copies of their claims forms. The carrier arguably was the proper repository of the forms because only the carrier could take the information on them and compare it with the base ( test period ) earnings information in its possession so as to compute any compensation that may have been owed. Because the carrier was litigating the issue of compensation, it was on notice to keep records of what forms were or were not submitted. Claimants had no duty to administer the compensation scheme and to act as record keepers for that purpose. Moreover, the wage and hour information on the claims forms was relevant only to the subsequent, damages (Phase II) hearing that was never held because the prior, liability (Phase I) hearing resulted in a finding that the employees were not eligible for benefits. The panel found that the claimants who reported to the yard failed to show that their losses were as a result of the merger. This finding will be vacated. The record shows that the claimants who reported for work suffered losses as a result of the merger and provides no reason to find that claimants losses were due to other causes that would excuse the carrier from paying benefits. Before the merger and furloughs took place, claimants were fully employed at the CUT passenger yard with many years of seniority. If the claimants had been on furlough from their prior job at the CUT passenger terminal, the carrier might have been able to argue that their lack of work was pre-existing and thus not due to the furlough, but this was not the case. Moreover, we will not speculate as to whether claimants would have kept their jobs at the CUT passenger yard if the merger had never taken place, as no evidence was introduced on this topic. Moreover, we note that Amtrak was not created until the early 1970s. Immediately after the merger, claimants were asked to stand for work at a nearby freight yard where no work was available for them for many years because they were placed at the bottom of a new seniority list that was created as a result of the merger. The pre-merger CUT seniority roster had 63 men on it. About 50 of those men transferred to the new, merged seniority roster. Because there were 509 persons on the merged seniority roster, including the former CUT employees, work had to be found for many former N.Y. Central employees before it could be offered to the former CUT employees. While the July 11, 1969 agreement allocated 2.46% of the total yard force to former CUT employees, this guaranteed work for only about 9 former CUT employees, none of whom included claimants. Claimant Christ Steimle stated that he did not have enough new list seniority to obtain a job until 1984 or 1985. As Mr. Steimle was the senior man of the CUT claimants, it is clear that if he lacked enough seniority to obtain work, the other claimants did also. The jobs for which the claimants were expected to stand were not actual jobs. George Ellert, a former superintendent at the freight yard, initially testified that jobs were available for those who reported for work, but on cross examination he admitted that claimants were not called back to regular, full-time positions but were instead assigned to an extra board or an extra list, whose members were not guaranteed a specific number of hours of work. The carrier did not respond with evidence to the contrary, such as, for example, a list of the claimants who readily found work at the freight terminal. The claimants experienced a drop in income immediately after they reported for work at the freight yard and their drop in income was not due to sickness, discipline, or failure to exercise seniority rights. The panel failed even to mention the voluminous evidence submitted by complainants to show injury. It is not clear what else claimants could have submitted to satisfy the panel that they suffered losses as a result of the merger. The panel's Decision is especially questionable because the carrier produced no evidence at all that any of the conditions specified for refusing benefits in the 1964 merger protection agreement were satisfied for the 10 claimants who reported to the freight yard. The carrier defends the panel's Decision on the grounds that the testimony presented at the hearing shows that the claimants had lost work due to declining business. Our examination of the hearing record, however, shows that the carrier made no effort whatsoever to identify specific periods of general business decline, emergency conditions, or other supervening events that would justify nonpayment of benefits under section 1(b) of the agreement. The fact that claimants losses began to be experienced shortly after the merger and furlough makes it unlikely that supervening causes could explain claimants losses. Nor did the carrier come forward with evidence showing that any claimants were disabled or disciplined in accordance with that provision. Under the circumstances presented on the record before us, we find that the panel committed egregious error by finding that none of the claimants who reported for work were entitled to any compensation. Unless an arbitral panel can point to evidence supporting total denial that we have overlooked and that is considerably more compelling than the evidence cited in its 1992 Decision, summary denial of all benefits is completely unjustified. Some of the reasons cited by the panel here for totally denying compensation, such as the fact that claimants may have found work elsewhere or suffered illness, will be relevant to any determination of the amount of compensation for individual claimants, but these reasons do not justify the denial of all compensation for all of the claimants. II. Claimants Who Did Not Report For Work The panel denied the claims of the 7 claimants who never reported for work at the freight yard. The panel ruled that those claimants contravened the 1964 merger protection agreement by failing to exercise their seniority rights to work at the freight yard. The panel rejected two defenses raised by those claimants for their failure to report, i.e., that: (1) the work offered at the freight yard was not comparable work; and (2) a doctrine of anticipatory breach excused them from reporting to work on the theory that the carrier was simultaneously breaching its duty to provide protective benefits. We affirm the panel's Decision as it pertains to the 7 claimants who do not report for work at the freight yard. III. Conduct Of Future Proceedings For the reasons explained above, we are vacating the panel's denial of damages for the 10 claimants who reported to work at the freight yard after the furlough. In accordance with standard practice, we will not affirmatively find that claimants are entitled to compensation but will remand the issue of the entitlement to compensation to the parties, who may attempt to resolve the issue among themselves or seek additional arbitration on this issue consistent with this decision. The current record is not, and was not intended to be, adequate for the computation of the compensation to be received by each individual claimant. For each individual claimant, the parties, or an arbitration panel if the parties cannot agree, will have to gather facts that are relevant to determining the amount of compensation under the 1964 merger protection agreement, in areas such as the following: (1) test period earnings and benefits with the carrier; (2) actual earnings with the carrier; (2) replacement income earned with other employers; (3) periods of disability; (4) dismissal for cause; and (5) whether there was a general or seasonal business decline that could excuse compensation under section 1(b) of the 1964 merger protection agreement. We recognize that the task may be a difficult one for the parties as the issues were pending for about 28 years before our jurisdiction was properly invoked in 1997. Because so much time has passed, we would prefer to be in a position to have rendered a decision that provided final resolution or greater certainty for the parties. Having found that the panel's Decision summarily denying all claims was fundamentally unfair to the claimants who reported for work at the freight yard, however, we find it necessary to remand the matter for the unfairness to be corrected. Despite the difficulties they will face, the parties are in the best position to accomplish that. We urge them to work together to reach a just and speedy resolution of all remaining issues. It is ordered: 1. Claimants request for oral argument is denied. 2. The Decision of the panel is vacated as it pertains to the 10 claimants who reported for work, and the proceeding is remanded to the parties for further action consistent with our findings. Decided: December 2, 1998 Service Date - December 8, 1998 ------------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Docket No. AB-391 (Sub-No. 5X)] Red River Valley & Western Railroad Company--Abandonment Exemption--in Burleigh, Kidder and Stutsman Counties, ND Red River Valley & Western Railroad Company (RRVW) has filed a notice to abandon approximately 59.70 miles of rail line from milepost 21.55, west of Woodworth, to milepost 81.25, in Regan, in Burleigh, Kidder and Stutsman Counties, ND. Provided no formal expression of intent to file an offer of financial assistance (OFA) has been received, this exemption will be effective on January 8, 1999, unless stayed pending reconsideration. RRVW shall file a notice of consummation with the Board to signify that it has exercised the authority granted and fully abandoned the line. If consummation has not been effected by RRVW's filing of a notice of consummation by December 9, 1999, and there are no legal or regulatory barriers to consummation, the authority to abandon will automatically expire. Decided: December 1, 1998. Service Date - December 9, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD STB Finance Docket No. 33388 Decision No. 107 CSX CORPORATION AND CSX TRANSPORTATION, INC., NORFOLK SOUTHERN CORPORATION AND NORFOLK SOUTHERN RAILWAY COMPANY--CONTROL AND OPERATING LEASES/AGREEMENTS--CONRAIL INC. AND CONSOLIDATED RAIL CORPORATION STB Finance Docket No. 33388 (Sub-No. 80) RESPONSIVE APPLICATION--WHEELING & LAKE ERIE RAILWAY COMPANY This decision addresses the petition for clarification filed October 22, 1998, by Wheeling & Lake Erie Railway Company with respect to the transaction we authorized in Decision No. 89, served July 23, 1998. In its petition, W&LE states that, as directed by the Board, it has negotiated with applicants with the goal of reaching an agreement on the conditions we imposed in Decision No. 89, but several matters remain unresolved. W&LE therefore asks us to resolve these issues in the manner and to the extent it requests. By separate replies filed November 10, 1998, applicants CSX and NS oppose W&LE's requested relief. In our decision approving the primary transaction, we granted in part and denied in part W&LE's responsive application in Sub-No. 80. As pertinent here, in Decision No. 89, we stated: We will require applicants to provide certain remedies to W&LE to prevent further erosion of W&LE's financial viability due to this transaction. We will require applicants to provide: (a) overhead haulage or trackage rights access to Toledo, OH, with connections to the Ann Arbor Railroad and other railroads there; (b) an extension of W&LE's lease for the Huron Docks and trackage rights access to the Huron Docks over NS Huron Branch; (c) overhead haulage or trackage rights to Lima, OH, including a connection to the Indiana and Ohio Railroad. Further, we will require that applicants negotiate with W&LE concerning mutually beneficial arrangements, including allowing W&LE to provide service to aggregate shippers or to serve shippers along CSX's main line from Benwood to Brooklyn Junction, WV. As regards items (a), (b), and (c) above, we required the parties to attempt to negotiate an agreement; and, if negotiations were not fully successful, applicants and W&LE could submit separate proposals 90 days after the service date of Decision No. 89. With regard to the mutually beneficial arrangements, we required the parties to enter into negotiations and inform us of any arrangements that they have reached. W&LE asserts that applicants CSX and NS have taken too narrow of an approach to the negotiations over the imposed conditions. According to petitioner, the conditions imposed on its behalf must be viewed from the broader perspective that W&LE provides essential rail services in a highly industrialized area, that the Conrail transaction threatens W&LE's viability as a strategic regional railroad, and that each of the Board's conditions was designed to provide W&LE with new traffic and revenue opportunities to promote the carrier's financial viability and well-being. Therefore, petitioner maintains that, in order to provide meaningful relief, applicants should be directed to grant W&LE: access to local industries in Toledo and Lima, OH, via reciprocal switching at a switching rate of $184 per car; permanent, lease-to-own trackage rights access to NS Huron Docks without the existing restriction as to commodity; local trackage rights over CSX's line between Benwood and Brooklyn Junction, WV; and trackage rights over NS to institute service on behalf of aggregates shippers. With respect to trackage rights to Lima, OH, W&LE also seeks: direct access to Clark Oil Refinery and the BP refining complex, including the right to purchase Conrail's tracks leading to these facilities; and an interchange with Indiana & Ohio Railway Company (IORY) and R.J. Corman Railroad Company/Western Ohio Line (RJC). CSX and NS contend that the relief sought by W&LE goes beyond the scope of our conditions and should be denied. Applicants argue that W&LE is not seeking clarification, but instead is seeking reconsideration and the imposition of new conditions on applicants. As regards W&LE's request for access to local industries in Toledo and Lima, applicants assert that petitioner is asking for additional concessions beyond anything the carrier sought in its responsive application. Such relief, according to applicants, can only properly be sought in a petition to reopen, not through a clarification request. With respect to mutually beneficial arrangements, applicants maintain that W&LE is asking for conditions that will not benefit either CSX or NS. Applicants assert that the Board's language is unambiguous and requires no clarification. Trackage rights access to Toledo. W&LE states that it has elected to serve Toledo by way of trackage rights from Bellevue to Toledo, OH, via the existing NS route between these two points. According to petitioner, the parties have agreed to submit to the Board those regulatory filings necessary to enable W&LE to initiate trackage rights operations to Toledo and to permit the sale of NS Maumee River pivot bridge to W&LE, with NS retaining operating rights over the bridge. W&LE states that discussions are progressing concerning its use of two tracks at NS Homestead Yard for the pickup and delivery of traffic. W&LE asks that it be given access to these yard tracks for the purposes of staging its traffic. W&LE also proposes that the Board require the parties to reach an agreement as to NS reconstruction of certain track facilities (i.e., a so-called Bellevue mini-plant) that will facilitate operations around Bellevue, subject to terms and conditions to be agreed upon by the parties. W&LE maintains that the Board intended it to have access to local Toledo industries, and not merely to connections with other railroads in the Toledo area, including CSX and NS. According to petitioner, the Board did not intend to limit W&LE's access to Toledo only for the purpose of interchanging traffic there with the Ann Arbor and other railroads in the vicinity, as applicants have contended in negotiations. W&LE submits that, if the Board adopts applicants interpretation of the Toledo condition, W&LE will lack sufficient traffic and revenue opportunities to support viable service to Toledo. To minimize interfering with existing rail operations in the Toledo area, W&LE proposes to limit its local presence by depending upon other carriers in Toledo, including NS and CSX, to provide reciprocal switching services to W&LE at all points and stations in the Toledo area currently open for such service. W&LE proposes to pay $184 per car for such reciprocal switching service. W&LE submits that the applicants have no basis to reject W&LE's reciprocal switching proposal, and urges the Board to grant its requested arrangement (including the proffered reciprocal switch charge) as necessary for W&LE to compete successfully in the Toledo market. NS contends that the Board quite plainly granted W&LE overhead haulage or trackage rights access to Toledo and that nowhere in Decision No. 89 does the Board even suggest that its condition includes local access to shippers at Toledo. NS points out that W&LE's own responsive application and operating plan sought access to Toledo expressly to effect an interchange with IORY, Ann Arbor Railroad Company (AA), and Canadian National Railway Company (CN). Although NS disputes petitioner's claim that the imposed condition permits W&LE to interchange with all other railroads at Toledo, including the applicants, NS states that it is willing to permit W&LE to interchange with NS and CSX at Toledo, provided that any interchange between W&LE and CSX takes place at CSX's yard facilities. NS also indicates that it has agreed to provide W&LE with overhead trackage rights to interchange points in Toledo with AA and CN, and that it has reached agreement with W&LE as to route, compensation, and effective date of those rights. As regards petitioner's proposals for access to NS Homestead Yard and the construction project at Bellevue, NS maintains that these matters are not directly linked to the Board's conditions and, in view of the parties ongoing negotiations, should not be imposed as conditions now. Huron Docks. W&LE indicates that, although some progress has been made on the issue of its access to Huron Docks, NS disagrees with its proposal concerning the appropriate terms and duration of an agreement. Accordingly, W&LE renews its request for permanent, lease-to- own trackage rights access to NS Huron Docks without the current restrictions in the lease as to commodity. W&LE maintains that its proposal provides for long-term operations that are consistent with the Board's intent to accomplish two objectives: (1) to preserve a meaningful competitive transportation alternative for Wheeling-Pittsburgh Steel at Mingo Junction, OH; and (2) to protect for the long term W&LE's access to the substantial revenue opportunity W&LE already enjoys by having access to the Huron Docks. W&LE also contends that its access to the Huron Docks is critical to its refinancing of long-term debt and consequently to W&LE's future viability. NS states that the Board clearly did not order divestiture of the Huron Docks and did not order unrestricted access by W&LE. NS maintains that, to the contrary, the Board required applicants to extend W&LE's lease at, and trackage rights access to, Huron Docks at Lake Erie. NS contends that, rather than accepting petitioner's overreaching request, the Board should adopt its proposal offering W&LE: an extension of longer duration than the original lease term; the right to terminate the lease on 6-months notice, without reserving a similar right for NS; and consideration, on a case-by-case basis, of exceptions to the current commodity restrictions. Trackage rights access to Lima, OH. W&LE states that CSX has agreed to its proposed route (CSX from Carey, OH, to Lima via Upper Sandusky) and trackage rights rates. Contrary to CSX's remaining position, however, W&LE contends that the Board's condition permits W&LE to obtain access to local industries in Lima, in addition to a connection with IORY. W&LE asks the Board to extend the scope of the relief at Lima to include direct access to the BP refining complex and Clark Oil Refinery at Lima and an interchange with RJC, a short line rail carrier also serving the Lima area. W&LE states that it has identified a route to the Clark Oil Refinery and adjacent BP facilities that appears to be a short rail segment between the IORY and the Clark/BP properties (a line that apparently will be conveyed to CSX). Petitioner believes that CSX can serve the above-mentioned facilities without the need for the Conrail branch trackage. In the event that CSX seeks to dispose of the trackage in question through abandonment or sale, W&LE requests that it be given the right to purchase this line to ensure its continued access to the industry immediately surrounding the Clark Oil Refinery. W&LE states that access to Lima was not a part of its responsive application, but rather is a novel component of the Board's remedies extended to W&LE. Although W&LE originally sought a connection with IORY and other carriers at Toledo, there is no available interchange with IORY at that location. We therefore granted W&LE overhead haulage or trackage rights to Lima to enable petitioner to connect with IORY. According to W&LE, applicants incorrectly assume that W&LE would derive significant economic benefit by merely having a connection with IORY. Petitioner states that, after a number of meetings with IORY, it does not appear that the two carriers have the ability to generate any appreciable interchange business between themselves. Without access to local industry, W&LE has determined that the prospective volume of interchange between W&LE and IORY (and RJC) at Lima is so small that W&LE's service to and from this point would result in an operating deficit. W&LE stresses that its access to Lima will be meaningless unless the condition is interpreted to include local access. As it proposes in the case of Toledo, W&LE offers to limit its service to local industry at Lima to access via reciprocal switch to all industries and stations in Lima currently open to reciprocal switching, at a switching charge of $184 per car. W&LE submits that its proposal is not merely reasonable, but also offers the least disruptive arrangement to the applicants planned operations in Lima. W&LE believes that its reciprocal switch access to Lima, along with access to Clark Oil Refinery and the BP refining complex, IORY, and RJC, will generate sufficient traffic and revenue opportunities to permit W&LE to sustain its trackage rights operations, and maintain a constructive presence. CSX maintains that, as in the case of Toledo, petitioner requests concessions at Lima that are not supported in the record. According to CSX, W&LE seeks rights at Lima that not only go beyond the Board's decision, but also beyond anything that W&LE sought in its responsive application and request for conditions. CSX contends that petitioner's new proposal for local access should not be entertained because the Board expressly denied the carrier's numerous requests in its responsive application for direct commercial access. CSX also opposes petitioner's request for additional trackage rights to interchange with RJC at Lima. Aggregate and Benwood-to-Brooklyn Junction Service. In its responsive application, W&LE requested haulage rights, with underlying trackage rights, between Benwood and Brooklyn Junction. W&LE states that these rights would allow it to provide single-carrier service in moving British Petroleum coke traffic from Toledo to Cressup, WV, via a more direct route, and that PPG, Bayer, and other shippers on the line would benefit from its local access. W&LE states that, although it believes that access to customers on this line is an essential component of settlement negotiations, CSX refuses to discuss W&LE operations over this line. Accordingly, W&LE seeks confirmation from the Board that conclusion of a mutually acceptable arrangement is an integral part of the remedial condition and that CSX must grant W&LE local trackage rights over the Benwood-Brooklyn Junction line. W&LE proposes trackage rights fees at NS/CSX merger-related charges of 29 cents per car-mile. With respect to negotiations over an aggregate traffic agreement, W&LE states that NS has asserted that many of the aggregate locations where W&LE could previously have been a part of a mutually beneficial solution have essentially retained single-line CSX or NS service by virtue of other protective conditions included in Decision No. 89. In view of that response, W&LE believes that the parties have reached an impasse. Furthermore, W&LE notes that the applicants seem committed to negotiating on aggregate-related matters only at the exclusion of discussions on Benwood to Brooklyn Junction. W&LE believes that the Board intended that the full scope of relief to be afforded W&LE should include agreements for access to provide additional service to aggregate shippers. For that reason, W&LE urges the Board to direct applicants to enter into arrangements which will allow W&LE to provide expanded service for aggregate shippers. As in the case of its Benwood- to-Brooklyn Junction operations, W&LE offers to pay trackage rights compensation equal to the CSX/NS merger related charges of 29 cents per car-mile. CSX and NS indicate that, although they are willing to continue discussions with W&LE to identify mutually beneficial opportunities, they are not willing to provide W&LE with local trackage rights to all aggregates shippers and customers located on the Benwood-Brooklyn Junction line. Applicants contend that it would not make business sense for them to allow petitioner to use their lines and directly serve their customers with no reciprocal benefits for them. CSX indicates that it has submitted a number of proposals to W&LE for its consideration, including a proposal concerning movements on behalf of a shipper on the Benwood-Brooklyn Junction line. NS maintains that neither it nor CSX has ever taken the position that negotiations on aggregate-related matters could only proceed if discussions as to Benwood-Brooklyn Junction are excluded, or vice versa. The relief sought by W&LE will not be granted. In Decision No. 89, we found that W&LE's projection of an annual diversion of between $12.7 and $15 million in traffic revenue to applicants was overstated, and that a more realistic estimate was probably between $1.4 and $3.0 million. We also found that the extensive conditions sought by W&LE were a substantial overreach both in terms of geographic scope and financial impact. We concluded nevertheless that the traffic losses and W&LE's precarious financial situation warranted the imposition of less intrusive conditions. In imposing those conditions, we intended to give W&LE the opportunity to achieve operational cost savings and expand its market reach through connections with other regional carriers. Despite petitioner's assertions to the contrary, it was not our intention to maximize W&LE's financial prospects in each instance where we imposed a condition on its behalf. To address petitioner's situation, we granted W&LE overhead haulage or trackage rights to Toledo with rights to connect to AA and other railroads there. We also granted W&LE identical overhead rights to Lima that included a connection with IORY. Our conditions in this regard mirrored the relief sought by W&LE in its responsive application. In its responsive application, petitioner requested access to certain carriers, including AA and IORY, and to one shipper, British Petroleum, at Toledo, but W&LE did not seek access to local industries in Toledo. W&LE stated that it wanted these new carrier connections to provide operational flexibility and opportunities to develop new, more efficient traffic patterns: * * * By the addition of a series of relatively short and simple connections, the W&LE will have the ability to bring many efficiencies to rail transportation in this region. In addition, W&LE seeks the ability to establish new interchanges that will develop traffic patterns that do not exist today. With a location central to a geographic area that includes the heart of Conrail, the W&LE needs to reach out to connections that make sense to our customers, and to provide a real transportation alternative. * * * [W&LE would operate] one train in each direction per day, six days per week between an existing connection with the Norfolk Southern at Yeomans, Ohio, and Toledo for interchange with the Ann Arbor Railroad, Canadian National, and the Indiana & Ohio. Additional traffic would be loaded hoppers of petroleum coke received from British Petroleum. Thus, the relief that W&LE seeks goes beyond the conditions that the Board imposed as relates to Toledo and Lima--conditions that largely reflected what W&LE had originally sought and that adequately incorporate the Board's concerns regarding W&LE's viability. Regarding the other relief that W&LE seeks, W&LE also requested in its responsive application local trackage rights on CSX's Benwood-Brooklyn Junction line, access to shippers PPG and Bayer at Natrium, WV, and to BP coke traffic moving between Toledo and Cressup, WV, and commercial access to specific aggregates shippers. We did not, however, grant direct commercial access to British Petroleum, Lafarge, or any other specific shippers or locations. Instead, we required applicants to negotiate with W&LE concerning mutually beneficial arrangements, including the various rights sought by W&LE in its requests for local access. By definition, our imposition of the arrangements now sought by petitioner, over applicants objections, would not be of mutual benefit. W&LE renews its request for permanent, lease-to-own trackage rights access to NS Huron Dock with the current lease's restrictions as to commodity. We did not grant that relief in Decision No. 89. To the contrary, we quite plainly required applicants to extend W&LE's lease at, and trackage rights access to, Huron Dock on Lake Erie. NS indicates that it has offered petitioner an extension of even longer duration than the current lease term and it is willing to consider exceptions to the commodity restrictions now in force. Again, petitioner's divestiture request is overreaching. We ask the parties to continue good faith negotiations in a manner consistent with our findings in Decision No. 89. We will continue to assess this situation carefully during the course of our oversight proceeding to ensure that W&LE has the opportunity to achieve operational cost savings and remain a viable carrier in the region where it currently operates. It is ordered: 1. The petition for clarification and further instruction (WLE-10) is denied. Decided: December 8, 1998 Service Date - December 9, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Finance Docket No. 33407 DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION CONSTRUCTION INTO THE POWDER RIVER BASIN We are making a finding, based on the information available to date, that the application filed by the Dakota, Minnesota & Eastern Railroad Corporation (DM&E) seeking authority to construct and operate some 280 miles of new rail line, which would extend the DM&E rail system into the Powder River Basin (PRB or Basin) coal fields in northeastern Wyoming, satisfies the transportation-related requirements of 49 U.S.C. 10901. The extent and nature of the environmental impacts associated with this project, and whether they can be adequately mitigated, will not be entirely clear until the environmental review process, now under way, has been completed. We will issue a subsequent decision on the entire proposed project after completion of the environmental review process assessing the potential environmental effects, and the cost of any environmental mitigation we might impose. This decision does not in any way prejudge our ultimate decision. Nor can any new construction begin until our final decision has been issued and has become effective. By application filed February 20, 1998, DM&E seeks authority to construct and operate a new railroad line into the Basin. DM&E plans to build a new 262.03- mile line from a point on its existing line near Wasta, SD, in a generally southern and then western direction, terminating at 11 specified mine sites in Campbell and Converse Counties, WY. It also plans to build a new 13.31-mile line near Mankato, MN (to improve its route and to avoid congestion on a line in Mankato over which DM&E currently has trackage rights), and a new 2.94-mile line near Owatona, MN, to connect with I&M Rail Link there. The projected cost to construct the approximately 278 miles of new rail lines envisioned for the project is $532 million. DM&E is a Class II railroad currently operating an 1,100-mile rail system located primarily in South Dakota and Minnesota. It moves in the neighborhood of 60,000 carloads of traffic a year, consisting of a variety of grain and mineral products. In connection with this construction, DM&E also plans to rebuild and comprehensively upgrade some 598 miles of its existing rail line, including relocating and upgrading an existing connection at Winona, MN. The rebuilding and upgrading portions of the project, which would include additional sidings, signaling, grade crossing protections, and other system improvements, would cost approximately $876 million. The total project then, with a few other expected modifications, would cost approximately $1.4 billion. Notice of the construction application was served and published on March 13, 1998. In that notice/decision, we determined that it was premature to establish a procedural schedule for the environmental issues which were raised by the application, but requested comments on a procedural schedule for consideration of the transportation issues. By decision served May 7, 1998, the Board issued a procedural schedule pertaining to the transportation aspects of this proceeding which permitted interested parties to submit comments and replies. After these submissions were received, the Board set the matter for hearing under the modified procedure, which solicited yet another round of evidentiary pleadings from interested parties. In that decision, served July 16, 1998, we discussed the unique issues and concerns that had been raised in the case to date. We provided guidance for the material to be filed in the second round of comments and explained the type of information we would need to go forward with this case, given the serious concerns raised by the Mid States Coalition for Progress (MSC or the Coalition) and others that DM&E is a marginal carrier that should not be considering such a financially risky enterprise, especially since it may not be needed. The record on the transportation aspects of the proceeding, after we granted DM&E an extension of time to file its reply, closed on October 5, 1998. Concurrently, the Board's Section of Environmental Analysis (SEA) held agency and public meetings, called scoping meetings, to determine the scope of the environmental analysis. SEA also accepted written public comments as part of the ongoing environmental impact statement (EIS) process. On June 10, 1998, SEA developed and made available a draft scope of study for the EIS and provided an opportunity for public review and comment. On August 7, 1998, SEA published an Amended Notice of Intent to notify persons and agencies interested in or affected by the proposed project of additional agency decisions by the Forest Service (U.S. Department of Agriculture), the Bureau of Land Management (U.S. Department of the Interior), and the U.S. Army Corps of Engineers, that would be made by those agencies related to the project, and to seek additional comments relating to these decisions. Also, this notice advised the public that the Board would be the lead agency and that the other agencies would be cooperating agencies in the EIS process. The Board and these cooperating agencies provided an additional 30-day period, which closed on September 8, 1998, for the public to submit written comments on the draft scope of study and on the August 7th Amended Notice of Intent. Now that this additional comment period has ended, SEA and the cooperating agencies will issue a final scope of study for the EIS, which will be made available to the public. Thereafter, SEA, working with the cooperating agencies, will prepare a Draft Environmental Impact Statement (DEIS) for the proposed project, including proposed environmental mitigation. The DEIS will then be submitted for public comments. The comments will be taken into account in the preparation of a Final Environmental Impact Statement (FEIS). The Board then will review the entire environmental record in making its final decision in this case. We have received numerous pleadings from landowners, environmental groups, shipper organizations, shippers and receivers (including electric utilities), DM&E and other railroads, government entities, and rail labor unions, both in support of and in opposition to the project. We have reviewed all the pleadings, but will focus in this decision on DM&E's pleadings, the pleadings submitted in support on behalf of the Western Coal Traffic League (WCTL), and the pleading filed in opposition by the Coalition, which reflect the sort of objections being raised by the other parties in opposition. The Coalition maintains generally that DM&E is a marginal railroad which has struggled for years to maintain its current operations, and that to undertake a project of this magnitude with no firm financing or customer commitments would jeopardize its common carrier obligation to serve its existing shippers. MSC claims that DM&E's application fails to meet the section 10901 statutory standard in that the rail carrier is not fit, financially, or otherwise, to undertake the construction and operation of the proposed line; there is no public demand or need for the proposed service, which would duplicate competitive and efficient rail service already being provided; and the proposed project would harm, rather than serve, the public interest. This is not a case, the Coalition argues, in which the Board should defer to the marketplace to decide whether it makes sense to build the DM&E project or not because: (1) the proposed new line can be built only if DM&E is granted the governmental power of eminent domain because DM&E cannot otherwise acquire the private land that it would need to build its new line; and (2) it is clear that the private sector has no interest in investing in this project and that only if the Board were to approve the application would skeptical lenders and equity investors re-think their doubts about the plausibility of DM&E's claims. The Coalition asserts that the most basic problem presented by DM&E's construction application is that its pursuit and subsequent failure would threaten a system-wide loss of DM&E rail service. DM&E's financial projections for the project, MSC argues, are overstated, and are premised upon both unrealistically high forecasts of coal tonnage that DM&E might attract to its system and the rates that could be charged for movement of that coal. The Coalition doubts that DM&E would be able to obtain more than 42 million tons of coal traffic annually and that this volume, in light of MSC's conclusions as to DM&E's costs and revenues, would not permit the railroad to earn revenues sufficient to pay for the line extension and rehabilitation. The project is not economically viable, MSC states, and would destroy DM&E's ability to continue to provide its current services. Further, the Coalition asserts that there has been no credible showing of demand or need for the proposed project, noting that two large Class I railroads, BNSF and UP, currently serve all the mines DM&E proposes to serve and that DM&E does not project that its entry into the market will result in lower rates charged to customers. MSC claims that the public interest is not served by the expenditure of $1.4 billion on the construction of redundant rail facilities, particularly where there has been no showing that existing service is inadequate. DM&E's proposed service, the Coalition concludes, would offer nothing to the marketplace that BNSF and UP do not today provide. The Coalition also questions DM&E's ability to conduct the coal train operations it projects and maintains that applicant has provided no assurance that its PRB coal trains would ever reach a customer. The Coalition asserts that DM&E's aggressive and untested operating plan, calling for highly coordinated and very tightly scheduled train operations, is not workable. Finally, the Coalition, while acknowledging that only the transportation aspects of the project are at issue now, contends that the deleterious environmental impacts of the project require rejection of this application. The Coalition requests that we at least withhold making any findings on the transportation issues until completion of the environmental review process. DM&E responds that the rail transportation policy favors the construction of new rail lines and that, under revised section 10901, there is a heavy burden on opponents to demonstrate clear inconsistency with the public convenience and necessity before a proposal can be denied. DM&E maintains that the appropriate questions are whether the project would benefit shippers more than hurt them, put other carriers at insurmountable risk, or otherwise do more harm than good to the nation's transportation system. DM&E claims that the proposed project would bring major benefits to its existing shippers, to coal utilities and mines, as well as to shippers more generally by improving the nation's rail infrastructure. DM&E also asserts that this project promises significant benefits for communities along DM&E's existing and proposed future lines, and environmental benefits that would largely or fully offset the negative environmental impacts that might be caused due to construction and operation of the line. DM&E claims that its entry into the Basin would bring approximately $236 million in annual public benefits, as well as additional unquantifiable benefits. Fewer resources would be consumed in moving PRB coal, for example, because the new DM&E routes include both shorter rail distances and shorter vessel distances in comparison to existing routes, and because DM&E's incremental costs per ton-mile over those shorter distances are lower than the ton-mile costs of BNSF and UP. These savings account for $202 million of the total. DM&E predicts that an additional $34 million in public benefits would result from railcar cost savings due to cycle time (the time it takes coal unit trains to go from the originating mine to the utility and back to the mine) improvements and railcar pooling. Beyond these quantifiable benefits, DM&E claims that its proposed construction would introduce the benefit of effective competition for the first time at seven plants; would enable utilities to reduce some of the $200 million that they now tie up in PRB coal stockpiles; would add 50-100 million tons of sorely needed PRB coal-transportation capacity; would enable PRB mines to operate more efficiently; and would result in improved service for non-coal DM&E shippers. These benefits would represent major public gains in any transportation market, DM&E argues, and, as the widespread shipper support for this project attests, they are particularly welcome in the PRB transportation market where service on UP and BNSF has been slow and erratic for much of the past 6 years. The public benefits, DM&E asserts, come from the reductions in real resource costs which it maintains would result from this project. Contrary to the Coalition's assertions, DM&E claims that there is tremendous support for this project and, in fact, uniform support for the project among those with a direct interest in the transportation issues. This includes overwhelming support from DM&E's existing shippers, from coal and other shippers and their organizations, and from DM&E's employees. DM&E claims that this project would not harm existing shippers; rather, it states that it represents the best and possibly only hope of efficient continued rail service for these shippers over the long run. DM&E attaches a petition and letters of support from shippers representing 93% of DM&E's 1997 originated and terminated freight revenue (88% by carload). These shippers, DM&E claims, argue that this project would preserve and enhance their rail service, and they urge the Board to promptly approve DM&E's application. The shippers assertedly recognize that DM&E's existing lines need to be rebuilt, and that the existing traffic base on those lines is insufficient to support such a major project. DM&E maintains that its existing shippers are in no way threatened by this project. DM&E argues that the potential impact on these shippers is the only finance-related determination that the Board need make. Once the project is constructed, DM&E's ability to maintain essential rail service turns on whether it can cover its costs, including operating expenses, fixed charges and outlays for needed capital. DM&E claims that it would generate revenues far in excess of ongoing needs and that it would be financially able to maintain quality rail service at annual coal volumes of a mere 27 million tons, one third less than it forecasts for its startup year, and 63% less than it projects for 2007. Apart from Coalition witness Nelson's coal rate and volume projections, which DM&E criticizes as totally unrealistic, DM&E argues that the Coalition does not materially dispute the financial strength of the expanded and extended coal railroad. The effect of all of the Coalition's witnesses financial assessments, DM&E claims, would still leave the railroad substantially cash positive every year of the forecast period and with cumulative positive cash flow of $717 million after 6 years of operation. Even under the extremely unlikely Coalition disaster scenario of a DM&E bankruptcy, DM&E argues that it is highly probable that rail service to existing shippers would be maintained. The going concern value of a reorganized DM&E, the railroad claims, would be about three times its estimated net liquidation value after completion of this construction project. Therefore, another party would undoubtedly come forward to provide rail services profitable to it due to the low acquisition cost of a bankrupt DM&E's assets. DM&E also maintains that its operating plan is sound and would result in highly reliable and safe service. DM&E would operate with greater speed, safety and reliability in carrying PRB coal than either UP or BNSF, it claims, and would have both significant operating and technological advantages over these carriers. Further, DM&E says, the Board need not be concerned with the ability of DM&E's connections to carry PRB coal, because DM&E's east-end connections are established and all affected carriers indicate that they are eager to move coal on terms that they believe would be profitable to them. At these connections, DM&E would have various alternative routings to each of its target markets. Contrary to the Coalition's claims, there are no substantial barriers to moving coal traffic between DM&E and its connecting carriers, and nothing precludes DM&E from offering rate quotations for coal movements from the PRB to destinations with any of these connecting carriers. WCTL notes that the Coalition does not include any evidentiary support for its arguments regarding loss of service to existing shippers, while numerous letters of support for DM&E's application have been submitted from its existing customers and potential customers, none of whom express concern about potential loss of service. DM&E's customers, WCTL claims, are supportive of the application as a means of maintaining and improving DM&E's existing service. WCTL also claims that there is significant public demand or need for this construction project, and that the transaction would result in downward pressures on rates, demonstrable service improvements and efficiencies, and an increase in the capacity of the national rail system. The project would also assertedly increase incentives for UP and BNSF to be better and more responsive rail service providers and marketplace competitors. WCTL points out that, collectively, the Coal Consumers purchase well over 100 million tons of western coal on an annual basis, most of it PRB origin coal. The Coal Consumers firmly believe that an additional marketplace competitor is necessary to meet growing PRB coal demand -- both from a rate and a service standpoint. WCTL claims that present competition for PRB transportation service is not nearly as vigorous as the opponents of the transaction would have the Board believe. WCTL argues that, if there were adequate competition in the PRB coal transportation service market, none of the utilities would openly support DM&E's application. The DM&E project would establish another PRB transportation competitor, which should have a positive impact on competition, rates, and service, and by approving the proposed transaction, the Board would allow the marketplace -- not the government -- to determine whether a third competitor can succeed. If, as the opponents contend, there turns out to be a lack of public demand for the proposed line, it ultimately would not be built. Finally, WCTL maintains that this construction would help remedy existing PRB rail system capacity constraints and benefit all PRB coal users by the addition of significant new capacity to the western coal transportation system. The Board, WCTL argues, need only look to the recent serious UP service problems in the West, and the severe pressures on the entire western rail system caused by the UP situation, to see that additional PRB coal-carrying capacity is necessary. According to WCTL, access to the PRB by an additional and independent rail carrier would assist in mitigating UP's and BNSF's capacity shortcomings, and thereby improve rail system reliability. Various parties, including South Dakota's Governor and its Attorney General, as well as Olmsted County, MN, and individual opponents Fred R. Seymour and Dwight L. Adams, argue that the application is incomplete because it does not address the entirety of the reconstruction project, and that the proposed rebuilding of DM&E's existing line, as well as the new construction, is subject to the Board's jurisdiction and requires approval under section 10901. It is well settled, however, that a rail carrier merely planning to improve or upgrade its existing lines does not require our approval. The fact that a carrier plans to pursue an upgrade in conjunction with construction activity that requires Board approval under 49 U.S.C. 10901 does not alter this. The Board cannot make any specific determinations on the transportation merits of the rebuilding portion of this project. Nonetheless, consistent with our approach in similar cases, the Board's environmental review of the project will assess potential environmental impacts resulting from increased rail operations over the portion of DM&E's line that would be rebuilt. Moreover, the U.S. Army Corps of Engineers (the Corps) is a cooperating agency with the Board in the environmental review process here. Part of the Corps responsibility under the National Environmental Policy Act (NEPA) and the Clean Water Act involves analyzing potential impacts to wetlands on DM&E's existing line that would result from the proposed rebuild. In order to accommodate the Corps, and to avoid the Corps need to issue its own separate NEPA documents, the EIS in this instance will fully assess the environmental impacts that would result from construction on DM&E's existing line, in addition to assessing impacts from increased rail operations over the current system. Thus, the environmental record in this case will contain information on the rehabilitation and upgrade of DM&E's existing line. This construction application is governed by 49 U.S.C. 10901(c), which specifies that: (c) The Board shall issue a certificate authorizing activities for which such authority is requested in an application filed under subsection (b) unless the Board finds that such activities are inconsistent with the public convenience and necessity. . . . While the statute does not define public convenience and necessity, a three-part test has evolved to evaluate the public convenience and necessity, which requires a determination of whether: (1) the applicant is financially fit to undertake the construction and provide service; (2) there is a public demand or need for the proposed service; and (3) the construction project is in the public interest and will not unduly harm existing services. It has also been held that the interests of shippers are matters of substantial importance in determining the question of public convenience and necessity in railroad construction applications. There is no dispute here between the parties as to the three-part test to be used in determining the public convenience and necessity. In fact, both proponents and opponents specifically refer to the three-part test. However, the parties do disagree as to the meaning of the recent changes made to section 10901 in the ICC Termination Act of 1995 (ICCTA). The Coalition argues that these changes make no substantive modification to the Act, while DM&E and WCTL maintain that the changes were intended to facilitate a finding that a construction project satisfies the public convenience and necessity criteria. It is clear that the current standard favors construction applications to a greater extent than the original standard of the Interstate Commerce Act, which required railroads to show that the public convenience and necessity require or will require the construction of a new line. This provision was changed in the Staggers Rail Act of 1980, where section 10901 was amended to make it easier for a proposal to be found in the public interest by providing that the public convenience and necessity need only permit the construction, and not necessarily require it, as in the prior standard. The Coalition argues, however, that the ICCTA made no change to the statute with respect to the construction of rail lines. Thus, according to the Coalition, it remains DM&E's burden to demonstrate that the PRB line extension it proposes is consistent with applicable public convenience and necessity requirements. We disagree. First, the Coalition misquotes the statute as saying the Board should, rather than shall, approve a project that is not inconsistent with the public interest. The change in the statutory language to requiring approval unless the Board finds that approval is inconsistent with the public convenience and necessity is clear on its face. The Coalition claims that the legislative history establishes that Congress intended no substantive change to existing law in the ICCTA. However, the legislative history merely states that the Board retains jurisdiction over railroad construction, which is not disputed here. It does not follow, however, as the Coalition argues, that the burden of proof has remained the same. We agree with DM&E and WCTL that Congress intended to facilitate rail construction by amending section 10901 in the ICCTA by shifting the emphasis from whether a project is consistent with the public convenience and necessity to whether the project is inconsistent with the public convenience and necessity. Under the revised statute, proposed rail construction projects are to be given the benefit of the doubt. If they are not found to be inconsistent with the public interest, then they are to be approved. DM&E, however, goes beyond merely arguing that the revised statute modifies the burden of proof by also arguing that the statute necessarily imposes on opponents of new railroad construction a heavy burden of rebuttal by demonstrating clear inconsistency with the public convenience and necessity. In this respect, DM&E overstates the effect of the statutory changes. As we explained in our July 16, 1998 decision, the statute merely provides that construction applications shall be granted unless we find that such activities are inconsistent with the public convenience and necessity. This means that where opponents have presented credible evidence challenging the elements that make up the public convenience and necessity determination (i.e., financial fitness and public demand or need) in a broad proposal such as this, it is critical for the applicant to respond to these allegations. In short, although there is now a presumption that construction projects satisfy the statutory standard, the opposition here overcame that presumption by coming forward with credible evidence that required a response by DM&E. Thus, as we stated in our July 16, 1998 decision, even given the more favorable policy toward line constructions evidenced by the recent changes to section 10901, DM&E must still explain with specificity why this rail line is needed and applicant's financial fitness to carry the project through to completion, given the evidence presented by opponents in response to DM&E's initial filings. As noted, the interested parties now have presented additional evidence and arguments on the transportation aspects of this case in response to our July 16, 1998 decision. As we will show, we now have evidence that DM&E would be competitive in a number of markets and, accordingly, that the project is likely to be feasible. Based on all the information now available to us (i.e., the parties filings, including certain DM&E's workpapers and information obtained through discovery submitted into this record by the Coalition, and other public information) it appears that DM&E would likely be more than a marginal carrier. DM&E also has developed the record significantly, per the admonition in our July 16, 1998 decision, regarding such issues as what it believes the benefits of this project will be to the public, its financial fitness, and the extent of support for the proposal from the existing shippers. Based on the current record, we therefore can find that DM&E's application meets the transportation criteria of section 10901. We agree with DM&E that, based on the current record, there likely would be transportation benefits from transportation cost reductions where there are mileage savings. Improved service from this new line construction project should also yield transportation benefits. We also conclude that, based on the information available to date, there is public demand for this project. The Coal Consumers, who collectively purchase and transport by rail well over 100 million tons of coal annually, most of which is from PRB mines, as well as almost all current shippers, have expressed their support. The DM&E project would establish another PRB transportation competitor, which should have a positive impact on rates and service for the increasing volumes of PRB coal. There is presently competition for PRB coal provided by BNSF and UP. But DM&E is offering new PRB coal transportation service that should generate efficiencies and provide important benefits to PRB coal shippers. It is also clear that the current record provides evidence that the public interest would be well served by this construction. DM&E has documented various anticipated public benefits. Western coal shippers that would be able to receive DM&E service directly by joint line rail service or by joint DM&E and barge service should receive direct benefits from DM&E's proposed service. An additional competitor in this marketplace would respond to the growing demands for the service in question. DM&E should bring a lower cost structure (including shorter mileage), faster and more reliable service, and additional capacity. At the same time, existing DM&E shippers rail service should be preserved and improved. We base this conclusion on DM&E's evidentiary presentation and the fact that some 90% of DM&E's current shippers have indicated their support for this project while none has voiced any objections. DM&E's existing shippers and receivers also indicate that they believe that the only real risk associated with this project is the possibility that the Board might not approve it, which could result in the failure of the railroad to continue to operate. Finally, DM&E's shippers and receivers indicate that they see no risk that their services would be adversely affected from increased competition in the PRB. In fact, they contend that this additional source of PRB coal would benefit their entire region. DM&E also claims that this construction project would improve service for existing customers. It explains that complete rehabilitation of the existing line from Wasta, SD, to Winona, MN, is necessary to sustain future railroad operations. DM&E asserts that rehabilitation of its lines could not be justified based on DM&E's existing customer base. The railroad indicates that two-thirds of its ties need replacement, ballast is in generally poor condition, and most of its rail needs replacement. In sum, DM&E argues that its assets are worn out and need to be replaced, and that this will occur, to the benefit of existing shippers, if and when this project is approved and constructed. We agree that DM&E's infrastructure hampers its ability to serve its existing customers. A railroad with annual revenues in the $50 to $60 million range cannot generate sufficient funds to rehabilitate its lines, because normal maintenance expense for over 1,000 miles of track, much of it mainline, runs into millions of dollars per year. Replacing track, ties and ballast that are deteriorating costs millions more. Thus, there appears to be the very real likelihood that, absent the funds generated by this project, DM&E would cease to exist as a viable railroad. In sum, given the financial analysis set out above, the substantial support by its existing shippers, and the possibility of DM&E's being unable to continue to operate for long without a large infusion of capital sufficient to rehabilitate its system, we believe, based on the record now before us, that the public convenience and necessity test of causing no harm to existing shippers and receivers has been met. DM&E's operating plan (Plan) and its operating and construction costs are based on the assumption that DM&E will move 40 million tons of coal starting in 2002, increasing to 60 million tons in 2003, and by 10 million tons per year thereafter until it carries 100 million tons in 2007. The general approach in the Plan is similar to the design format presented by parties proposing the use, as benchmarks, of hypothetical and efficient railroads in railroad stand-alone cost maximum rate proceedings. The line proposed for construction here would be built so as to accommodate the movement of a single heavy-loading commodity carried in large volumes and in dedicated trains. Although MSC disagrees with DM&E's traffic projections, it does not relate its modified traffic projections to a revised construction cost. MSC also claims that DM&E's Plan does not provide the Board with adequate assurance that the Plan can work safely and efficiently, as DM&E claims. MSC voices concerns relative to emergency braking distances for the high speed coal trains mentioned in DM&E's Plan. However, MSC has not shown that DM&E's locomotives would not be able to perform emergency stops within sufficient distances to avoid accidents. Contrary to what the Coalition maintains, we are confident that the line would be configured with braking taken into consideration. We also have no reason to believe that DM&E would not comply with, or be able to meet, all applicable Federal Railroad Administration (FRA) safety standards and that the braking aspects of its proposed state-of-the-art train control system would not receive FRA approval. In any event, the safety aspects of this application will be fully assessed in the environmental analysis. Main Line Construction. DM&E's Plan states that main line track and structures are designed for 315,000-lb. cars operating in 135-car consists with three 6,000 horsepower locomotives distributed in each through train. Maximum operating speed would be 45 mph for loaded coal trains and 49 mph for other trains. DM&E's main line track structure in the new and rehabilitation areas would consist of 136-pound continuous welded rail (CWR) on wood ties at 19.5-inch spacing. Ballast would be a minimum of 12 inches under the ties on 12 inches of subballast. Curves greater than 2 degrees would use concrete ties spaced at 24 inches with additional ballast. Sixty percent of the wooden ties would be replaced on the rehabilitated portion of the line. Maximum grade for the line would be 1.4% on tangent track and curves below 2 degrees. The grade would be restricted to 1.0% on curves greater than 2 degrees. Maximum curvature for the main line would be generally less than 2 degrees. Curves up to 4 degrees would occur on less than 10% of the alignment. Right-of-way width would be 200 ft., except where additional land is required for yards, large cuts or fills, and passing sidings. Subgrade width would be 26 feet in single-line areas. At locations where there would be adjacent track, track centers would be separated by 15 feet. DM&E further explains that all timber bridges and steel bridges other than through plate girder bridges would be replaced. Through plate girder bridges would be repaired and reinforced. Passing sidings and communication-based train control (CBTC) would be provided with features similar to those in the new construction. Existing grade crossings would be improved as needed. A grade reduction project is included at Wall, SD. Passing Sidings. DM&E's Plan includes 35-40 passing sidings, with each at least three miles long, located at frequent intervals along the line designed to allow entry at main line speeds of 45 mph and running at reduced speed through the sidings. It proposes to locate sidings to accommodate topographical conditions. Sidings would be constructed using new 115-lb. CWR. Tie and ballast specifications are the same as main track. Sub-ballast would be 9 inches deep. DM&E notes that empty trains would be operating over side tracks, not loaded trains. In the vicinity of passing sidings there would be dragging equipment and hot box detectors, as well as set out tracks for bad order equipment. MSC questions the placement of sidings and criticizes DM&E for changing locations of sidings from optimum locations in order to accommodate topographical conditions. MSC claims that, by failing to locate sidings at the optimum locations, DM&E would impair its claimed efficiencies. DM&E notes, however, that the computer model used for determining passing siding location shows that sidings can be varied. For example, moving the location of a siding to the east could allow an empty westbound train to enter a siding earlier. This may slow the empty westbound trains to a speed that is less than optimal, but would not impair the movement of eastbound loaded trains. Morever, MSC does not quantify the extent to which it believes DM&E's efficiencies would be reduced by the relocation of a siding. We do not view DM&E's placement of sidings as an obstacle to the issuance of this decision. The final location of sidings is bound to change somewhat as the details of property acquisition and engineering considerations and potential environmental impacts, such as the location of wetlands, becomes fully known. DM&E witness Davis persuasively shows that the computer modeling DM&E used allows for flexibility in the location of sidings. Accordingly, the project is not infeasible simply because DM&E may make adjustments in the location of certain sidings. The current record indicates that DM&E's signal and control systems would ensure that trains meet each other only where there is a siding. In the absence of any evidence of serious problems concerning the location of sidings, we will not create an artificial barrier to entry by requiring applicants to risk the expenditure of large sums to design a project of broad scope such as this down to its final details as to siding locations before we determine whether it satisfies the transportation aspects of section 10901. Four Major Staging Yards. DM&E's Plan recognizes that, due to the interfaces with mines and connecting carriers, DM&E would not have complete control over the release of loaded trains and the receipt in interchange of empties. As such, the Plan provides for four staging yards to receive, hold and release through trains as necessary, to slot them efficiently onto DM&E's main line operations and to provide the proper maintenance windows. DM&E states that the West Staging Yard would have train and engine crews to take empty trains to the mines and loaded trains from the mines, and stage the loaded trains for slotting the eastbound movement. The other three staging yards would be located across the system at intervals of approximately 225-275 miles, so as to provide for about 8 hours that each train crew would actually be on duty. These staging yards would have the capacity to hold trains as necessary to coordinate DM&E's operations with those of connecting carriers, as well as to create the necessary maintenance windows. Contrary to what the Coalition maintains, the Plan, based on the information available to date, leaves adequate room for the unexpected and does not depend on clockwork-like movements or train meets scheduled to occur at 15-minute intervals. Grade Crossings. DM&E states that, where feasible, major highway crossings and all rail crossings would be separated. DM&E asserts that it plans to build grade separations at almost all locations where new or rebuilt lines cross those of another railroad. DM&E's specifies grade separations at BNSF's line near Burdock, and in the PRB at Antelope, Cordero, and Bell Ayr. (DM&E does not specify what type of construction will be used at the BNSF/UP crossing near Caballo Rojo or the crossing of BNSF line at Burdock.) DM&E adds that grade crossings would be provided with protection devices. Moreover, appropriate fencing would be provided in cattle country and cattle guards would be provided at road crossings. This information will be used in assessing grade crossings and fencing in the EIS. Train Control. DM&E explains that its Plan assumes the use of a Communication Based Train Control (CBTC) system to manage its train operations. However, DM&E notes that it would also be able to operate efficiently with a standard Centralized Traffic Control (CTC) system and bases its operating and investment cost projections on this type of signal system. MSC claims that the CBTC system DM&E proposes to use is questionable from a safety standpoint because the system is still in the developmental stage and has not yet been approved by FRA. However, because DM&E has not based its operations and investment cost on the CBTC system, MSC's concerns are misplaced. In any event, we note that CBTC systems may be less speculative than alleged by the Coalition. DM&E's Plan farther assumes four crew change points across the system, providing a cushion for through train crews to make their runs in under 8 hours, so that there should be no violation of the Hours of Service Act rules. DM&E states that crew changes would occur at the staging yards. Locomotive and car repair and inspections facilities would be constructed at one of the staging yards if that service is provided by DM&E. Locomotive running repairs, servicing and locomotive and car switching would occur at these yards as needed. By handling these requirements at the same location, DM&E expects to minimize train delay and maximize utilization of its crews and equipment. The Plan also assumes maintenance windows of up to 6 hours every day on the main line. DM&E states that it plans for trains to move across the system in set time slots rather than being dispatched at odd intervals. According to DM&E, such regular movement not only would simplify operations and promote safety, but would also greatly enhance the capacity of the single track. DM&E states that virtually all of the eastbound traffic would be loaded trains that would stop only for crew changes at the staging yards. The use of regularly scheduled slots would also mean that the predominantly empty westbound trains also should not be required to stop between staging yards, as the meeting tracks (in excess of three miles long) would be designed so westbound trains can pass the eastbound trains without losing appreciable speed. As proposed, the scheduled slot system should not only keep trains moving evenly across the main track, but would spread the traffic among the staging and marshaling yards across the system, so that the line would have ample capacity at those facilities. Train headway is the amount of time between trains heading in the same direction. In order to move 40 million tons of PRB coal, plus anticipated growth of existing business, in the first year DM&E would need the ability to move eight loaded trains a day for 363 days. The headway between each of the loaded trains (as well as the returning empty trains) would be one hour, but the headway would be reduced in subsequent years as traffic levels increase. Capacity and Growth. DM&E anticipates that the total amount of traffic available would increase over time, and therefore its Plan takes into account likely traffic growth. This is particularly relevant in the case of meeting tracks. DM&E's proposed system is designed with the necessary expansion capacity built in, so that meeting tracks could be added without the need for any track or structures to be relocated. According to DM&E, the final design for this single- track railroad would provide for the reliable and safe movement of 100 million tons of PRB coal as well as the anticipated growth of existing traffic. Initially, only half of the meeting tracks would be constructed; when the capacity of the originally constructed line becomes constrained, the remainder of the designed-in meeting tracks would be built. The Coalition has not shown that the proposed line would be unable to accommodate all of the projected traffic. The Coalition maintains that DM&E's proposed single track railroad would be inadequate. However, BNSF and UP transport more than 100 million tons of coal over equal or greater distances of bottleneck segments of single line track that, according to the evidence presented, is less efficiently designed than the single line track proposed to be built by DM&E. In recent years, other railroads also have replaced double track with single track or built single line railroads that move comparable numbers of trains with a wider mix of commodities. Eastern Connections. DM&E's Plan depends on its ability to interchange cars with other railroads. The application identifies three primary interchange points with other railroads: (1) UP at Mankato, MN; (2) I&M Rail Link at Owatonna, MN; and (3) UP, CP, and I&M at Winona/Minnesota City, MN. In addition, DM&E asserts that it is negotiating a fourth interchange agreement, the essential details of which appear in the confidential version of DM&E's pleadings. There currently are no signed agreements with the connecting carriers at these interchange points. We disagree with the Coalition's argument that the absence of signed interchange agreements is a reason for disapproval of the transportation related aspects of this project. By adopting the Coalition's approach, we would be imposing a duty on applicants like DM&E to reach agreements with connecting carriers before projects are even approved. This would unduly delay applicants like DM&E and place them at a bargaining disadvantage because connecting carriers are under no duty to negotiate with potential connections before they are built or at least finally approved. Moreover, the Coalition's approach would expose both carriers to the risk that the economic value of their connection would change in the interim between adoption of an interchange agreement and completion of a project. In any event, there is no reason to believe that DM&E's sources of capital would allow DM&E to assume investment risks until the terms of interchange are finalized. The Coalition alleges that the route proposed by DM&E includes a nonexistent interchange with Illinois Central Railroad (IC). However, the Official Railroad Station List, a widely used industry guide, shows an interchange between DM&E and the Cedar River Railroad Company, a wholly owned subsidiary of IC, at Glenville, MN. Based on the current record, DM&E's Plan appears to be feasible. Based on the present record, it appears that DM&E would be competitive in a number of markets and accordingly, that the proposal has not been shown to be infeasible. Giving DM&E every reasonable benefit of the doubt, as the statute requires, we therefore find that, on the record developed to date, the construction and operation of the line of railroad described above satisfies the transportation aspects of 49 U.S.C. 10901. Following the conclusion of the environmental review process, which is ongoing, we will issue a further decision assessing the potential environmental impacts of the proposal and the cost of any environmental mitigation we might impose. This decision does not in any way prejudge our ultimate decision. Nor can any construction begin until our final decision has been issued and has become effective. It is ordered: 1. This decision is effective on December 10, 1998. Decided: December 9, 1998 Service Date - December 10, 1998 ------------------------------------------------------------------------- SURFACE TRANSPORTATION BOARD DECISION STB Docket No. AB-33 (Sub-No. 125X) UNION PACIFIC RAILROAD COMPANY--ABANDONMENT EXEMPTION--IN ORANGE COUNTY, CA By petition filed on August 24, 1998, Union Pacific Railroad Company (UP) seeks an exemption to abandon a 3.84-mile line of railroad known as the Los Alamitos Branch extending from milepost 514.26 near Los Alamitos Junction to the end of the line at milepost 518.10 near Los Alamitos, in Orange County, CA. UP also seeks to be exempted from the offer of financial assistance (OFA) requirements and the public use requirements. The United Transportation Union requests imposition of labor protective conditions. A condition is also requested by the Quarterhorse Racing, Inc., and the Los Alamitos Racing Association, a California general partnership d/b/a Los Alamitos Race Course (LARC). UP replied to LARC's request. In addition, the City of Cypress (the City) filed a letter expressing its interest in the right-of-way. We will grant the exemption, subject to standard employee protective conditions. UP seeks to abandon the line and to discontinue operations because the sole shipper, Barr Lumber, no longer uses the line. According to UP, Barr Lumber ceased receiving shipments of lumber in November 1996, and the spur trac