[Federal Register Volume 65, Number 192 (Tuesday, October 3, 2000)]
[Proposed Rules]
[Pages 58974-58981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25043]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1180

[STB Ex Parte No. 582 (Sub-No. 1)]


Major Rail Consolidation Procedures

AGENCY: Surface Transportation Board, DOT.

ACTION: Notice of proposed rulemaking

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SUMMARY: The Surface Transportation Board (Board) seeks public comment 
on proposed modifications to its regulations governing proposals for 
major rail consolidations. These proposed new rules would substantially 
increase the burden on applicants to demonstrate that a proposed 
transaction is in the public interest, requiring them, among other 
things, to demonstrate that the transaction would enhance competition 
as an offset to negative impacts resulting from service disruptions and 
competitive harms likely to be caused by the merger.

DATES: Comments are due on November 17, 2000. Replies are due on 
December 18, 2000. Rebuttal submissions are due on January 11, 2001.

ADDRESSES: An original and 25 copies of all paper documents filed in 
this

[[Page 58975]]

proceeding must refer to STB Ex Parte No. 582 (Sub-No. 1) and must be 
sent to: Surface Transportation Board, Office of the Secretary, Case 
Control Unit, Attn: STB Ex Parte No. 582 (Sub-No. 1), 1925 K Street, 
NW., Washington, DC 20423-0001.
    In addition to submitting an original and 25 copies of all paper 
documents, parties must submit to the Board, on 3.5-inch IBM-compatible 
floppy diskettes (in, or convertible by and into, WordPerfect 9.0 
format), an electronic copy of each such paper document. Any party may 
seek a waiver from the electronic submission requirement. Documents 
transmitted by facsimile (FAX) or electronic mail (e-mail) will not be 
accepted.

FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 565-1613. [TDD 
for the hearing impaired: 1-800-877-8339.]

SUPPLEMENTARY INFORMATION: Additional information is contained in the 
Board's decision. A printed copy of the Board's decision is available 
for a fee by contacting: Da-To-Da Office Solutions, Room 405, 1925 K 
Street, NW., Washington, DC 20006, telephone (202) 466-5530. The 
Board's decision is also available for viewing and downloading on the 
Board's website at ``www.stb.dot.gov.''
    Initial Regulatory Flexibility Analysis: The Board preliminarily 
concludes that the proposed revisions to its regulations, if adopted, 
will not have a significant economic impact on a substantial number of 
small entities within the meaning of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.). These rules will create additional filing 
requirements only for Class I applicants, which are very large rail 
carriers. At the same time the Board has given increased weight to 
issues and concerns of smaller railroads and shippers, a change that 
should benefit these small entities.
    The Board nevertheless seeks public input on whether the proposed 
revisions to its regulations would have significant economic impacts on 
a substantial number of small entities. If submissions made by the 
parties to this proceeding provide information that there would be 
significant economic impacts on a substantial number of small entities, 
the Board will prepare a regulatory flexibility analysis at the final 
rule stage.
    Environmental and Energy Considerations: The Board preliminarily 
concludes that the proposed action will not significantly affect either 
the quality of the human environment or the conservation of energy 
resources.
    Request for Comments, Replies, and Rebuttal: The Board invites 
comments, replies, and/or rebuttal on all aspects of the proposed 
regulations, including impacts on small entities and effects on either 
the quality of the human environment or the conservation of energy 
resources.
    Final Stage of This Proceeding: After considering the comments due 
on November 17, 2000, the replies due on December 18, 2000, and the 
rebuttal due on January 11, 2001, the Board will issue final rules by 
June 11, 2001.

    Authority: 49 U.S.C. 721 and 11323-11325.

List of Subjects in 49 CFR Part 1180

    Administrative practice and procedure, Bankruptcy, Railroads, 
Reporting and recordkeeping requirements.

    Decided: September 25, 2000.

    By the Board, Chairman Morgan, Vice Chairman Burkes, and 
Commissioner Clyburn. Vice Chairman Burkes and Commissioner Clyburn 
commented with separate expressions.
Vernon A. Williams,
Secretary.

    For the reasons set forth in the preamble, Title 49, Subtitle B, 
Chapter X, Part 1180 of the Code of Federal Regulations is proposed to 
be amended as follows:

PART 1180--RAILROAD ACQUISITION, CONTROL, MERGER, CONSOLIDATION 
PROJECT, TRACKAGE RIGHTS, AND LEASE PROCEDURES

    1. The authority citation for part 1180 continues to read as 
follows:

    Authority:  5 U.S.C. 553 and 559; 11 U.S.C. 1172; 49 U.S.C. 721, 
10502, 11323-11325.

    2. Section 1180.0 is proposed to be revised to read as follows:


Sec. 1180.0  Scope and purpose.

    The regulations in this subpart set out the information to be filed 
and the procedures to be followed in control, merger, acquisition, 
lease, trackage rights, and any other consolidation transaction 
involving more than one railroad that is initiated under 49 U.S.C. 
11323.
    Section 1180.2 separates these transactions into four types: Major, 
significant, minor, and exempt. The informational requirements for 
these types of transactions differ. Before an application is filed, the 
designation of type of transaction may be clarified or certain of the 
information required may be waived upon petition to the Board. This 
procedure is explained in Sec. 1180.4. The required contents of an 
application are set out in Secs. 1180.6 (general information supporting 
the transaction), 1180.7 (competitive and market information), 1180.8 
(operational information), 1180.9 (financial data), 1180.10 (service 
assurance plans), and 1180.11 (additional information needs for 
transnational mergers). A major application must contain the 
information required in Secs. 1180.6(a), 1180.6(b), 1180.7(a), 
1180.7(b), 1180.8(a), 1180.8(b), 1180.9, 1180.10, and 1180.11. A 
significant application must contain the information required in 
Secs. 1180.6(a), 1180.6(c), 1180.7(a), 1180.7(c), and 1180.8(b). A 
minor application must contain the information required in 
Secs. 1180.6(a) and 1180.8(c).
    Procedures (including time limits, filing requirements, 
participation requirements, and other matters) are contained in 
Sec. 1180.4. All applications must comply with the Board's Rules of 
General Applicability, 49 CFR parts 1100 through 1129, unless otherwise 
specified. These regulations may be cited as the Railroad Consolidation 
Procedures.
    3. Section 1180.1 is proposed to be revised to read as follows:


Sec. 1180.1  General policy statement for merger or control of at least 
two Class I railroads.

    (a) General. To meet the needs of the public and the national 
defense, the Surface Transportation Board seeks to ensure balanced and 
sustainable competition in the railroad industry. The Board recognizes 
that the railroad industry (including Class II and III carriers) is a 
network of competing and complementary components, which in turn is 
part of a broader transportation infrastructure that also embraces the 
nation's highways, waterways, ports, and airports. The Board welcomes 
private sector initiatives that enhance the capabilities and the 
competitiveness of this transportation infrastructure. Although mergers 
of Class I railroads may advance our nation's economic growth and 
competitiveness through the provision of more efficient and responsive 
transportation, the Board does not favor consolidations that reduce the 
railroad and other transportation alternatives available to shippers 
unless there are substantial and demonstrable public benefits to the 
transaction that cannot otherwise be achieved. Such public benefits 
include improved service, enhanced competition, and greater economic 
efficiency. The Board also will look with disfavor on consolidations 
under which the controlling entity does not assume full responsibility 
for carrying out the controlled carrier's common

[[Page 58976]]

carrier obligation to provide adequate service upon reasonable demand.
    (b) Consolidation criteria. The Board's consideration of the merger 
or control of at least two Class I railroads is governed by the public 
interest criteria prescribed in 49 U.S.C. 11324 and the rail 
transportation policy set forth in 49 U.S.C. 10101. In determining the 
public interest, the Board must consider the various goals of effective 
competition, carrier safety and efficiency, adequate service for 
shippers, environmental safeguards, and fair working conditions for 
employees. The Board must ensure that any approved transaction will 
promote a competitive, efficient, and reliable national rail system.
    (c) Public interest considerations. The Board believes that mergers 
serve the public interest only when substantial and demonstrable gains 
in important public benefits--such as improved service, enhanced 
competition, and greater economic efficiency--outweigh any 
anticompetitive effects, potential service disruptions, or other 
merger-related harms. Although the Board cannot rule out the 
possibility that further consolidation of the few remaining Class I 
carriers could result in efficiency gains and improved service, the 
Board believes additional consolidation in the industry is also likely 
to result in a number of anticompetitive effects, such as loss of 
geographic competition, that are increasingly difficult to remedy 
directly or proportionately. Additional consolidations could also 
result in service disruptions during the system integration period. To 
maintain a balance in favor of the public interest, merger applications 
must include provisions for enhanced competition. Unless merger 
applications are so framed, approval of proposed combinations where 
both carriers are financially sound will likely cause the Board to make 
broad use of the powers available to it in 49 U.S.C. 11324(c) to 
condition its approval to preserve and enhance competition. When 
evaluating the public interest, the Board will also consider whether 
the benefits claimed by applicants could be realized by means other 
than the proposed consolidation. The Board believes that other private 
sector initiatives, such as joint marketing agreements and interline 
partnerships, can produce many of the efficiencies of a merger while 
risking less potential harm to the public.
    (1) Potential benefits. By eliminating transaction cost barriers 
between firms, increasing the productivity of investment, and enabling 
carriers to lower costs through economies of scale, scope, and density, 
mergers can generate important public benefits such as improved 
service, enhanced competition, and greater economic efficiency. A 
merger can strengthen a carrier's finances and operations. To the 
extent that a merged carrier continues to operate in a competitive 
environment, its new efficiencies will be shared with shippers and 
consumers. Both the public and the consolidated carrier can benefit if 
the carrier is able to increase its marketing opportunities and provide 
better service. A merger transaction can also improve existing 
competition or provide new competitive opportunities, and such enhanced 
competition will be given substantial weight in our analysis. 
Applicants shall make a good faith effort to calculate the net public 
benefits their merger will generate, and the Board will carefully 
evaluate such evidence. To ensure that applicants have no incentive to 
exaggerate these projected benefits to the public, the Board expects 
applicants to propose additional measures that the Board might take if 
the anticipated public benefits fail to materialize in a timely manner.
    (2) Potential harm. The Board recognizes that consolidation can 
impose costs as well as benefits. It can reduce competition both 
directly and indirectly in particular markets, including product 
markets and geographic markets. Consolidation can also threaten 
essential services and the reliability of the rail network. In 
analyzing these impacts we must consider, but are not limited by, the 
policies embodied in the antitrust laws.
    (i) Reduction of competition. Although in specific markets 
railroads operate in a highly competitive environment with vigorous 
intermodal competition from motor and water carriers, mergers can 
deprive shippers of effective options. Intramodal competition is 
reduced when two carriers serving the same origins and destinations 
merge. Competition in product and geographic markets can also be 
eliminated or reduced by end-to-end mergers. Any railroad combination 
entails a risk that the merged carrier will acquire and exploit 
increased market power. Applicants shall propose remedies to mitigate 
and offset competitive harms. Applicants shall also explain how they 
would at a minimum preserve competitive options such as those involving 
the use of major existing gateways, build-outs or build-ins, and the 
opportunity to enter into contracts for one segment of a movement as a 
means of gaining the right separately to pursue rate relief for the 
remainder of the movement.
    (ii) Harm to essential services. The Board must ensure that 
essential freight, passenger, and commuter rail services are preserved. 
An existing service is essential if there is sufficient public need for 
the service and adequate alternative transportation is not available. 
The Board's focus is on the ability of the nation's transportation 
infrastructure to continue to provide and support essential services. 
Mergers should strengthen, not undermine, the ability of the rail 
network to advance the nation's economic growth and competitiveness, 
both domestically and internationally. The Board will consider whether 
projected shifts in traffic patterns could undermine the ability of the 
various network links (including Class II and Class III rail carriers 
and ports) to sustain essential services.
    (iii) Transitional service problems. Experience shows that 
significant service problems can arise during the transitional period 
when merging firms integrate their operations, even after applicants 
take extraordinary steps to avoid such disruptions. Because service 
disruptions harm the public, the Board, in its determination of the 
public interest, will weigh the likelihood of transitional service 
problems. In addition, under paragraph (h) of this section, the Board 
will require applicants to provide a detailed service assurance plan. 
Applicants also should explain how they will cooperate with other 
carriers in overcoming natural disasters or other serious service 
problems during the transitional period and afterwards.
    (iv) Enhanced competition. To offset harms that would not otherwise 
be mitigated, applicants shall explain how the transaction and 
conditions they propose will enhance competition.
    (d) Conditions. The Board has broad authority under 49 U.S.C. 
11324(c) to impose conditions on consolidations, including divestiture 
of parallel tracks or requiring the granting of trackage rights and 
access to other facilities. The Board will condition the approval of 
Class I combinations to mitigate or offset harm to the public interest, 
and will carefully consider conditions proposed by applicants in this 
regard. The Board will impose conditions that are operationally 
feasible and produce net public benefits so as not to undermine or 
defeat beneficial transactions by creating unreasonable operating, 
financial, or other problems for the combined carrier. Conditions are 
generally not appropriate to compensate parties who may be 
disadvantaged by increased competition. In this regard, the Board 
expects that any merger of Class I carriers will create some 
anticompetitive effects that are difficult to mitigate through 
appropriate

[[Page 58977]]

conditions, and that transitional service disruptions may temporarily 
negate any shipper benefits. Therefore, to offset these harms, 
applicants will be required to propose conditions that will not simply 
preserve but also enhance competition. The Board seeks to enhance 
competition in ways that strengthen and sustain the rail network as a 
whole (including that portion of the network operated by Class II and 
III carriers).
    (e) Labor protection. The Board is required to provide adequate 
protection to the rail employees of applicants who are affected by a 
consolidation. The Board supports early notice and consultation between 
management and the various unions, leading to negotiated implementing 
agreements, which the Board strongly favors. Otherwise, the Board 
respects the sanctity of collective bargaining agreements and will look 
with extreme disfavor on overrides of collective bargaining agreements 
except to the very limited extent necessary to carry out an approved 
transaction. The Board will review negotiated agreements to assure fair 
and equitable treatment of all affected employees. Absent a negotiated 
agreement, the Board will provide for protection at the level mandated 
by law (49 U.S.C. 11326(a)), and if unusual circumstances are shown, 
more stringent protection will be provided to ensure that employees 
have a fair and equitable arrangement.
    (f) Environment and safety. (1) We encourage negotiated agreements 
between railroad-applicants and affected communities, including groups 
of neighborhood communities and other entities such as state and local 
agencies. Agreements of this nature can be extremely helpful and 
effective in addressing local and regional environmental and safety 
concerns, including the sharing of costs associated with mitigating 
merger-related environmental impacts.
    (2) Applicants will be required to work with the Federal Railroad 
Administration, on a case-by-case basis, to formulate Safety 
Integration Plans to ensure that safe operations are maintained 
throughout the merger implementation process. Applicants will also be 
required to submit evidence about potentially blocked grade crossings 
as a result of merger-related traffic increases.
    (g) Oversight. As a condition to its approval of any major 
transaction, the Board will establish a formal oversight process. For 
at least the first 5 years following approval, applicants will be 
required to present evidence to the Board, on no less than an annual 
basis, to show that the merger conditions imposed by the Board are 
working as intended, that the applicants are adhering to the various 
representations they made on the record during the course of their 
merger proceeding, that no unforeseen harms have arisen that would 
require the Board to alter existing merger conditions or impose new 
ones, and that the merger benefit projections accepted by the Board are 
being realized in a timely fashion. Parties will be given the 
opportunity to comment on applicants' submissions, and applicants will 
be given the opportunity to reply to the parties' comments. During the 
oversight period, the Board will retain jurisdiction to impose any 
additional conditions it determines are necessary to remedy or offset 
unforeseen adverse consequences of the underlying transaction.
    (h) Service assurance and operational monitoring. (1) Good service 
is of vital importance to shippers. Accordingly, applicants must file, 
with the initial application and operating plan, a service assurance 
plan, identifying the precise steps to be taken to ensure continuation 
of adequate service and to provide for improved service. This plan must 
include the specific information set forth at Sec. 1180.10 on how 
shippers and connecting railroads (including Class II and III carriers) 
across the new system will be affected and benefitted by the proposed 
consolidation. As part of this plan, the Board will require applicants 
to establish contingency plans that would be available to address the 
negative impacts if projected service levels do not materialize in a 
timely fashion.
    (2) The Board will conduct extensive post-approval operational 
monitoring to help ensure that service levels after a merger are 
reasonable and adequate.
    (3) We will require applicants to establish problem resolution 
teams and specific procedures for problem resolution to ensure that 
post-merger service problems, related claims issues, and other matters 
are promptly addressed. Also, we would envision the establishment of a 
Service Council made up of shippers, railroads, and other interested 
parties to provide an ongoing forum for the discussion of 
implementation issues.
    (i) Cumulative impacts and crossover effects. Because there are so 
few remaining Class I carriers and the railroad industry constitutes a 
network of competing and complementary components, the Board cannot 
evaluate the merits of a major transaction in isolation--the Board must 
also consider the cumulative impacts and crossover effects likely to 
occur as rival carriers react to the proposed combination. The Board 
expects applicants to anticipate with as much certainty as possible 
what additional Class I merger applications are likely to be filed in 
response to their own application and explain how these applications, 
taken together, could affect the eventual structure of the industry and 
the public interest. When calculating the likely public benefits that 
their merger will generate, applicants are to measure these benefits in 
light of the anticipated downstream mergers. Applicants will be 
expected to discuss whether and how the type or extent of any 
conditions imposed on their proposed merger would have to be altered, 
or any new conditions imposed, following approval by us of any future 
consolidation(s).
    (j) Inclusion of other carriers. The Board will consider requiring 
inclusion of another carrier as a condition to approval only where 
there is no other reasonable alternative for providing essential 
services, the facilities fit operationally into the new system, and 
inclusion can be accomplished without endangering the operational or 
financial success of the new company.
    (k) Transnational issues. (1) Future merger applications may 
present novel and significant transnational issues. In cases involving 
major Canadian and Mexican railroads, applicants must submit ``full 
system'' competitive analyses and operating plans--incorporating their 
operations in Canada or Mexico--from which we can determine the 
competitive, service, employee, safety, and environmental impacts of 
the prospective operations within the United States. With respect to 
rail safety in the United States, applicants must explain how 
cooperation with the Federal Railroad Administration will be maintained 
without regard to the national origins of merger applicants. When an 
application would result in foreign control of a Class I railroad, 
applicants must assess the likelihood that commercial decisions made by 
foreign railroads could be based on national or provincial rather than 
broader economic considerations and be detrimental to the interests of 
the United States rail network, and applicants must address how any 
ownership restrictions imposed by foreign governments should affect our 
public interest assessment.
    (2) The Board will consult with relevant officials as appropriate 
to ensure that any conditions it imposes on a transaction are 
consistent with the North American Free Trade Agreement and other 
pertinent international agreements to which the United States is a 
party. In addition, the Board will

[[Page 58978]]

cooperate with those Canadian and Mexican agencies charged with 
approval and oversight of a proposed transnational railroad 
combination.
    (l) National defense. Rail mergers must not detract from the 
ability of the United States military to rely on rail transportation to 
meet the nation's defense needs. Applicants must discuss and assess the 
national defense ramifications of their proposed merger.
    (m) Public participation. To ensure a fully developed record on the 
effects of a proposed railroad consolidation, the Board encourages 
public participation from federal, state, and local government 
departments and agencies; affected shippers, carriers, and rail labor; 
and other interested parties.
    4. Section 1180.3 is proposed to be amended by revising paragraphs 
(a) and (b) to read as follows:


Sec. 1180.3  Definitions.

    (a) Applicant. The term applicant means the parties initiating a 
transaction, but does not include a wholly owned direct or indirect 
subsidiary of an applicant if that subsidiary is not a rail carrier. 
Parties who are considered applicants, but for whom the information 
normally required of an applicant need not be submitted, are:
    (1) In minor trackage rights applications, the transferor; and
    (2) In responsive applications, a primary applicant.
    (b) Applicant carriers. The term applicant carriers means: any 
applicant that is a rail carrier; any rail carrier operating in the 
United States, Canada, and/or Mexico in which an applicant holds a 
controlling interest; and all other rail carriers involved in the 
transaction. This does not include carriers who are involved only by 
virtue of an existing trackage rights agreement with applicants.
* * * * *
    5. Section 1180.4 is proposed to be amended by revising paragraph 
(a)(1) to read as follows, by removing paragraph (a)(4), by adding new 
paragraphs (b)(4) and (c)(6)(vi) to read as follows, and by revising 
paragraphs (d), (e)(2), (e)(3), and (f)(2) to read as follows:


Sec. 1180.4  Procedures.

    (a) * * * (1) The original and 25 copies of all documents shall be 
filed in major proceedings. The original and 10 copies shall be filed 
in significant and minor proceedings.
* * * * *
    (b) * * *
    (4) When filing the notice of intent required by paragraph (b)(1) 
of this section, applicants also must file:
    (i) A proposed procedural schedule. In any proceeding involving 
either a major transaction or a significant transaction, the Board will 
publish a Federal Register notice soliciting comments on the proposed 
procedural schedule, and will, after review of any comments filed in 
response, issue a procedural schedule governing the course of the 
proceeding.
    (ii) A proposed draft protective order. The Board will issue, in 
each proceeding in which such an order is requested, an appropriate 
protective order.
    (iii) A statement of waybill availability for major transactions. 
Applicants must indicate, as soon as practicable after the issuance of 
a protective order, that they will make their 100% traffic tapes 
available (subject to the terms of the protective order) to any 
interested party on written request. The applicants may require that, 
if the requesting party is itself a railroad, applicants will make 
their 100% traffic tapes available to that party only if it agrees, in 
its written request, to make its own 100% traffic tapes available to 
applicants (subject to the terms of the protective order) when it 
receives access to applicants' tapes.
    (iv) A proposed voting trust. In each proceeding involving a major 
transaction, applicants contemplating the use of a voting trust must 
inform the Board as to how the trust would insulate them from an 
unlawful control violation and as to why their proposed use of the 
trust, in the context of their impending control application, would be 
consistent with the public interest. Following a brief period of public 
comment and replies by applicants, the Board will issue a decision 
determining whether applicants may establish and use the trust.
    (c) * * *
    (6) * * *
    (vi) The information and data required of any applicant may be 
consolidated with the information and data required of the affiliated 
applicant carriers.
    (d) Responsive applications. (1) No responsive applications shall 
be permitted to minor transactions.
    (2) An inconsistent application will be classified as a major, 
significant, or minor transaction as provided for in Sec. 1180.2(a) 
through (c). The fee for an inconsistent application will be the fee 
for the type of transaction involved. See 49 CFR 1002.2(f)(38) through 
(41). The fee for any other type of responsive application is the fee 
for the particular type of proceeding set forth in 49 CFR 1002.2(f).
    (3) Each responsive application filed and accepted for 
consideration will automatically be consolidated with the primary 
application for consideration.
    (e) * * *
    (2) The evidentiary proceeding will be completed:
    (i) Within 1 year (after the primary application is accepted) for a 
major transaction;
    (ii) Within 180 days for a significant transaction; and
    (iii) Within 105 days for a minor transaction.
    (3) A final decision on the primary application and on all 
consolidated cases will be issued:
    (i) Within 90 days (after the conclusion of the evidentiary 
proceeding) for a major transaction;
    (ii) Within 90 days for a significant transaction; and
    (iii) Within 45 days for a minor transaction.
* * * * *
    (f) * * *
    (2) Except as otherwise provided in the procedural schedule adopted 
by the Board in any particular proceeding, petitions for waiver or 
clarification must be filed at least 45 days before the application is 
filed.
* * * * *
    6. Section 1180.6 is proposed to be amended by revising paragraphs 
(b)(1), (b)(2), (b)(3), (b)(4), (b)(6), and (b)(8) to read as follows, 
and by adding new paragraphs (b)(9), (b)(10), (b)(11), (b)(12), and 
(b)(13) to read as follows:


Sec. 1180.6  Supporting information.

* * * * *
    (b) * * *
    (1) Form 10-K (exhibit 6). Submit: the most recent filing with the 
Securities and Exchange Commission (SEC) under 17 CFR 249.310 if made 
within the year prior to the filing of the application by each 
applicant or by any entity that is in control of an applicant. These 
shall not be incorporated by reference, and shall be updated with any 
Form 10-K subsequently filed with the SEC over the duration of the 
proceeding.
    (2) Form S-4 (exhibit 7). Submit: the most recent filing with the 
SEC under 17 CFR 239.25 if made within the year prior to the filing of 
the application by each applicant or by any entity that is in control 
of an applicant. These shall not be incorporated by reference, and 
shall be updated with any Form S-4 subsequently filed with the SEC over 
the duration of the proceeding.
    (3) Change in control (exhibit 8). If an applicant carrier submits 
an annual report Form R-1, indicate any change in ownership or control 
of that applicant

[[Page 58979]]

carrier not indicated in its most recent Form R-1, and provide a list 
of the principal six officers of that applicant carrier and of any 
related applicant, and also of their majority-owned rail carrier 
subsidiaries. If any applicant carrier does not submit an annual report 
Form R-1, list all officers of that applicant carrier, and identify the 
person(s) or entity/entities in control of that applicant carrier and 
all owners of 10% or more of the equity of that applicant carrier.
    (4) Annual reports (exhibit 9). Submit: the two most recent annual 
reports to stockholders by each applicant, or by any entity that is in 
control of an applicant, made within 2 years of the date of filing of 
the application. These shall not be incorporated by reference, and 
shall be updated with any annual or quarterly report to stockholders 
issued over the duration of the proceeding.
* * * * *
    (6) Corporate chart (exhibit 11). Submit a corporate chart 
indicating all relationships between applicant carriers and all 
affiliates and subsidiaries and also companies controlling applicant 
carriers directly, indirectly or through another entity (with each 
chart indicating the percentage ownership of every company on the chart 
by any other company on the chart). For each company: include a 
statement indicating whether that company is a noncarrier or a carrier; 
and identify every officer and/or director of that company who is also 
an officer and/or director of any other company that is part of a 
different corporate family, which includes a rail carrier. Such 
information may be referenced through notes to the chart.
* * * * *
    (8) Intercorporate or financial relationships. Indicate whether 
there are any direct or indirect intercorporate or financial 
relationships at the time the application is filed, not disclosed 
elsewhere in the application, through holding companies, ownership of 
securities, or otherwise, in which applicants or their affiliates own 
or control more than 5% of the stock of a non-affiliated carrier, 
including those relationships in which a group affiliated with 
applicants owns more than 5% of the stock of such a carrier. Indicate 
the nature and extent of such relationships, if they exist, and, if an 
applicant owns securities of a carrier subject to 49 U.S.C. Subtitle 
IV, provide the carrier's name, a description of securities, the par 
value of each class of securities held, and the applicant's percentage 
of total ownership. For purposes of this paragraph (b)(8), 
``affiliates'' has the same meaning as ``affiliated companies'' in 
Definition 5 of the Uniform System of Accounts (49 CFR part 1201, 
subpart A).
    (9) Employee impact exhibit. The effect of the proposed transaction 
upon applicant carriers' employees (by class or craft), the geographic 
points where the impacts will occur, the time frame of the impacts (for 
at least 3 years after consolidation), and whether any employee 
protection agreements have been reached. This information (except with 
respect to employee protection agreements) may be set forth in the 
following format:

                                                        Effects on Applicant Carriers' Employees
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Current location               Classification        Jobs transferred to       Jobs abolished          Jobs created               Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
 
 
 
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (10) Conditions to mitigate and offset merger harms. Applicants are 
expected to propose measures to mitigate and offset merger harms. These 
conditions should not simply preserve, but also enhance, competition.
    (i) Applicants must explain how they will preserve competitive 
options for shippers and for Class II and III rail carriers. At a 
minimum, applicants must explain how they will preserve the use of 
major gateways, the potential for build-outs or build-ins, and the 
opportunity to enter into contracts for one segment of a movement as a 
means of gaining the right separately to pursue rate relief for the 
remainder of the movement.
    (ii) Applicants must explain how the transaction and conditions 
they propose will enhance competition and improve service.
    (11) Calculating public benefits. Applicants must enumerate and, 
where possible, quantify the net public benefits their merger will 
generate (if approved). In making this estimate, applicants should 
identify the benefits arising from service improvements, enhanced 
competition, cost savings, and other merger-related public interest 
benefits. Applicants must also identify, discuss, and, where possible, 
quantify the likely negative effects approval will entail, such as 
losses of competition, potential for service disruption, and other 
merger-related harms. In addition, applicants must suggest additional 
measures that the Board might take if the anticipated public benefits 
identified by applicants fail to materialize in a timely manner.
    (12) Downstream merger applications. (i) Applicants should 
anticipate what additional Class I merger applications are likely to be 
filed in response to their own application and explain how, taken 
together, these applications could affect the eventual structure of the 
industry and the public interest.
    (ii) Applicants are expected to discuss whether and how the type or 
extent of any conditions imposed on their proposed merger would have to 
be altered, or any new conditions imposed, should the Board approve 
additional future rail mergers.
    (iii) In calculating the public benefits arising from their merger, 
applicants should measure them in light of the anticipated downstream 
merger applications.
    (13) Purpose of the proposed transaction. The purpose sought to be 
accomplished by the proposed transaction, e.g., improving service, 
enhancing competition, strengthening the nation's transportation 
infrastructure, creating operating economies, and ensuring financial 
viability.
* * * * *
    7. Section 1180.7 is proposed to be revised to read as follows:


Sec. 1180.7  Market analyses.

    (a) For major and significant transactions, applicants shall submit 
impact analyses (exhibit 12) that describe the impacts of the proposed 
transaction--both adverse and

[[Page 58980]]

beneficial--on inter- and intramodal competition with respect to 
freight surface transportation in the regions affected by the 
transaction and on the provision of essential services by applicants 
and other carriers. An impact analysis should include underlying data, 
a study on the implications of those data, and a description of the 
resulting likely effects of the transaction on transportation 
alternatives available to the shipping public. Each aspect of the 
analysis should specifically address significant impacts as they relate 
to the applicable statutory criteria (49 U.S.C. 11324(b) or (d)), 
essential services, and competition. Applicants must identify and 
address relevant markets and issues, and provide additional information 
as requested by the Board on markets and issues that warrant further 
study. Applicants (and any other party submitting analyses) must 
demonstrate both the relevance of the markets and issues analyzed and 
the validity of the methodology. All underlying assumptions must be 
clearly stated. Analyses should reflect the consolidated company's 
marketing plan and existing and potential competitive alternatives 
(inter- as well as intramodal). They can address: city pairs, 
interregional movements, movements through a point, or other factors; a 
particular commodity, group of commodities, or other commodity factor 
that will be significantly affected by the transaction; or other 
effects of the transaction (such as on a particular type of service 
offered).
    (b) For major transactions, applicants shall submit ``full system'' 
impact analyses (incorporating any operations in Canada or Mexico) from 
which they must demonstrate the impacts of the transaction--both 
adverse and beneficial--on competition within regions of the United 
States and this nation as a whole (including inter- and intramodal 
competition, product competition, and geographic competition) and the 
provision of essential services (including freight, passenger, and 
commuter) by applicants and other network links (including Class II and 
Class III rail carriers and ports). Applicants' impact analyses must at 
least provide the following types of information:
    (1) The anticipated effects of the transaction on traffic patterns, 
market concentrations, and/or transportation alternatives available to 
the shipping public. Consistent with Sec. 1180.6(b)(10), these must 
incorporate a detailed examination of the ways in which the transaction 
would enhance competition and of the specific measures proposed by 
applicants to preserve existing levels of competition and essential 
services;
    (2) Actual and projected market shares of originated and terminated 
traffic by railroad for each major point on the combined system before 
and after the proposed transaction. Applicants may define points as 
individual stations or as larger areas (such as Bureau of Economic 
Analysis statistical areas or U.S. Department of Agriculture Crop 
Reporting Districts) as relevant and indicate the extent of switching 
access and availability of terminal belt railroads. Applicants should 
list points where the number of serving railroads would drop from two 
to one and from three to two, respectively, as a result of the proposed 
transaction (both before and after applying proposed remedies for 
competitive harm);
    (3) Actual and projected market shares of revenues and traffic 
volumes before and after the proposed transaction for major 
interregional or corridor flows by major commodity group. Origin/
destination areas should be defined at relevant levels of aggregation 
for the commodity group in question. The data should be broken down by 
mode and (for the railroad portion) by single-line and interline 
routings (showing gateways used). Applicants should explain relevant 
differences in the effectiveness of competing routings (with respect, 
e.g., to transit time, terrain, track conditions, and capacity);
    (4) For each major commodity group, an analysis of traffic flows 
indicating patterns of geographic competition or product competition 
across different railroad systems, showing actual and projected 
revenues and traffic volumes before and after the proposed transaction;
    (5) Maps and other graphic displays where helpful in illustrating 
the analyses in this section;
    (6) An explicit delineation of the projected impacts of the 
transaction on the ability of various network links (including Class II 
and Class III rail carriers and ports) to participate in the 
competitive process and to sustain essential services; and
    (7) Supporting data for the analyses in this section, such as the 
basis for projections of changes in traffic patterns, including shipper 
surveys and econometric or other statistical analyses. If not made part 
of the application, applicants shall make these data available in a 
repository for inspection by other parties or otherwise supply these 
data on request, for example, electronically. Access to confidential 
information will be subject to protective order. For information drawn 
from publicly available published sources, detailed citations will 
suffice.
    (c) For significant transactions, specific regulations on impact 
analyses are not provided so that the parties will have the greatest 
leeway to develop the best evidence on the impacts of each individual 
transaction. As a general guideline, applicants shall provide 
supporting data that may (but need not) include: current and projected 
traffic flows; data underlying sales forecasts or marketing goals; 
interchange data; market share analysis; and/or shipper surveys. It is 
important to note that these types of studies are neither limiting nor 
all inclusive. The parties must provide supporting data, but are free 
to choose the type(s) and format. If not made part of the application, 
applicants shall make these data available in a repository for 
inspection by other parties or otherwise supply these data on request, 
for example, electronically. Access to confidential information will be 
subject to protective order. For information drawn from publicly 
available published sources, detailed citations will suffice.
    8. Section 1180.8 is proposed to be amended by redesignating 
paragraphs (a) and (b) as paragraphs (b) and (c), respectively, and by 
adding a new paragraph (a) to read as follows:


Sec. 1180.8  Operational data.

    (a) For major transactions applicants must submit a ``full system'' 
operating plan--incorporating any prospective operations in Canada and 
Mexico--from which they must demonstrate how the proposed transaction 
will affect operations within regions of the United States and this 
nation as a whole.
    (1) Safety integration plan. Applicants must submit a safety 
integration plan.
    (2) Blocked crossings. Applicants must indicate what measures they 
plan to take to address potentially blocked grade crossings as a result 
of merger-related changes in operations or increases in rail traffic.
* * * * *
    9. A new Sec. 1180.10 is proposed to be added to read as follows:


Sec. 1180.10  Service assurance plans.

    For major transactions: service assurance plan. Applicants shall 
submit a service assurance plan, which, in concert with the operating 
plan requirements, will identify the precise steps to be taken by 
applicants to ensure that projected service levels are attainable and 
that key elements of the operating plan will improve service. The plan 
shall describe with reasonable precision how operating plan 
efficiencies will translate into present

[[Page 58981]]

and future benefits for the shipping public. The plan must also 
describe any potential area of service degradation that might result 
due to operational changes. The plan must encompass:
    (a) Integration of operations. Based on the operating plan, and 
using benchmarks for the year immediately preceding the filing date of 
the application, applicants must describe how the transaction will 
result in improved service levels and must identify potential instances 
where service may be degraded. While precise in nature, this 
description is expected to be a route level review rather than a 
shipper-by-shipper review. Nonetheless, the plan should be sufficient 
for individual shippers to evaluate the projected improvements and 
respond to the potential areas of service degradation for their 
customary traffic routings. The plan should inform Class II and III 
railroads and other connecting railroads of the operational changes 
that may have an impact on their operations, including operations 
involving major gateways.
    (b) Coordination of freight and passenger operations. If Amtrak or 
commuter services are operated over the lines of the applicant 
carriers, applicants must describe definitively how they will continue 
to operate these lines to fulfill existing performance agreements for 
those services. Whether or not the passenger services operated are over 
lines of the applicants, applicants must establish operating protocols 
that ensure effective communications with Amtrak and/or regional rail 
passenger operators in order to minimize any potential transaction-
related negative impacts.
    (c) Yard and terminal operations. The operational fluidity of yards 
and terminals is key to the successful implementation of a transaction 
and effective service to shippers. Applicants must describe how the 
operations of principal classification yards and major terminals will 
be changed or revised and how these revisions will affect service to 
customers. As part of this analysis, applicants must furnish dwell time 
information for one year prior to the transaction for each facility 
described above, and estimate what the expected dwell time will be 
after the revised operations are implemented. Also required will be a 
discussion of on-time performance for the principal yards and terminals 
in the same terms as required for dwell time.
    (d) Infrastructure improvements. Applicants must identify potential 
infrastructure impediments (using volume/capacity line and terminal 
forecasts), formulate solutions to those impediments, and develop 
timeframes for resolution. Applicants must also develop a capital 
improvement plan (to support the operating plan) for timely funding and 
completing the improvements critical to transition of operations. They 
should also describe improvements related to future growth, and 
indicate the relationship of the improvements to service delivery.
    (e) Information technology systems. Because the accurate and timely 
integration of applicants' information systems are vitally important to 
service delivery, applicants must identify the process to be used for 
systems integration and training of involved personnel. This must 
include identification of the principal operations-related systems, 
operating areas affected, implementation schedules, the realtime 
operations data used to test the systems, and pre-implementation 
training requirements needed to achieve completion dates. If such 
systems will not be integrated and on line prior to implementation of 
the transaction, applicants must describe the interim systems to be 
used and how those systems will assure service delivery.
    (f) Customer service. To achieve and maintain customer confidence 
in the transaction and to ensure the successful integration and 
consolidation of existing customer service functions, applicants must 
identify their plans for the staffing and training of personnel within 
or supporting the customer service centers. This discussion must 
include specific information on the planned steps to familiarize 
customers with any new processes and procedures that they may encounter 
in using the consolidated systems and/or changes in contact locations 
or telephone numbers.
    (g) Labor. Applicants must furnish a plan for reaching necessary 
labor implementing agreements. Applicants must also provide evidence 
that sufficient qualified employees to effect implementation will be 
available at the proper locations prior to the transaction.
    (h) Training. Applicants must establish a plan to provide necessary 
training to employees involved with operations, train and engine 
service, operating rules, dispatching, payroll and timekeeping, field 
data entry, safety and hazardous material compliance, and contractor 
support functions (i.e., crew van service), as well as to other 
employees in functions that will be affected by the transaction.
    (i) Contingency plans for merger-related service disruptions. In 
order to address potential disruptions of service that may occur, 
applicants must establish contingency plans. Those plans, based upon 
available resources and traffic flows and density, must identify 
potential areas of disruption and the risk of occurrence. Applicants 
must provide evidence that contingency plans are in place to minimize 
negative service impacts and promptly restore service.
    (j) Timetable. Applicants must identify all major functional or 
system changes/consolidations that will occur and the time line for 
successful completion.
    10. A new Sec. 1180.11 is proposed to be added to read as follows:


Sec. 1180.11  Additional information needs for transnational mergers.

    (a) Applicants must explain how cooperation with the Federal 
Railroad Administration will be maintained without regard to the 
national origins of merger applicants.
    (b) Applicants must assess the likelihood that commercial decisions 
made by foreign railroads could be based on national or provincial 
rather than broader economic considerations, and be detrimental to the 
interests of the United States, and discuss any ownership restrictions 
imposed on them by foreign governments.
    (c) Applicants must discuss and assess the national defense 
ramifications of the proposed merger.

[FR Doc. 00-25043 Filed 10-2-00; 8:45 am]
BILLING CODE 4915-00-P