[Federal Register Volume 71, Number 135 (Friday, July 14, 2006)]
[Notices]
[Pages 40187-40190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-10831]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 34844; STB Finance Docket No. 34890]


Pyco Industries, Inc.--Feeder Line Acquisition--South Plains 
Switching, Ltd. Co.; Pyco Industries, Inc.--Feeder Line Application--
Lines Of South Plains Switching, Ltd. Co.\1\
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    \1\ These proceedings are not consolidated. A single decision is 
being issued for administrative convenience. For the same reason, 
the Board, rather than the Director of the Office of Proceedings, is 
deciding whether to accept or reject the new feeder line application 
submitted in STB Finance Docket No. 34890.
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    In a decision in STB Finance Docket No. 34844 served on June 2, 
2006, the Director of the Office of Proceedings (the Director) rejected 
as incomplete the application of PYCO Industries, Inc. (PYCO), under 
the feeder line provisions of 49 U.S.C. 10907 and 49 CFR part 1151, to 
acquire all of the rail lines of South Plains Switching, Ltd. Co. 
(SAW), in Lubbock, TX (the ``All-SAW option''). The Director also 
rejected as incomplete PYCO's alternative request to acquire a portion 
of SAW's rail lines to allow PYCO to provide rail service to itself and 
to two other shippers located in close proximity to one of PYCO's two 
plants in Lubbock, TX (``Alternative Two'').\2\ The rejections were 
without prejudice to PYCO's filing a new application.
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    \2\ PYCO describes the rail lines it seeks to acquire under 
Alternative Two as follows: (See reference above.)

 
 
 
 
Track 5, SAW yard,........................  2,400 feet;
(continued * * *).........................  ............................
(* * * continued).........................  ............................
Track 1, SAW yard,........................  2,100 feet;
 Track 9200,..............................  3,900 feet;
Track 9298, east of BNSF main,............  4,320 feet;
Track lead to PYCO plant 2 to 50th St.,...  6,280 feet;
Track 231 lead to 9200/9298,..............  960 feet;
Track 310 through Farmers 1,..............  5,600 feet
                                           -----------------------------
  Total:..................................  25,560 feet
 

    In addition, PYCO seeks to acquire all of Track No. 6 from the 
western end of SAW yard to the western clearpoint of the easternmost 
switch of the ``wye'' track connecting to Track No. 6 from the south, 
and also the western branch of said ``wye'' from its southern 
clearpoint north to and including its connection with Track No. 6, 
estimated to be 1,100 feet. Also, PYCO would acquire a crossing right 
as follows: Crossing right Track 9298 to and through SAW yard, 5,000 
feet.
    On June 12, 2006, PYCO appealed the Director's decision and 
petitioned to

[[Page 40188]]

amend its original application with newly tendered evidence. SAW 
opposed both the appeal and the petition to amend in pleadings filed on 
June 22 and June 28, 2006, respectively.
    In STB Finance Docket No. 34890, filed on June 14, 2006, PYCO has 
submitted a new feeder line application for Alternative Two, renewed 
its earlier request for issuance of a protective order, and indicated 
that it wishes to propound discovery requests tendered with its 
original application.\3\ SAW moved to reject the new feeder line 
application in a pleading filed on July 3, 2006.
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    \3\ The Director found that the rejection of PYCO's feeder line 
application rendered moot PYCO's requests for a protective order and 
a procedural schedule.
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    We will deny the appeal of the Director's rejection of the original 
feeder line application in STB Finance Docket No. 34844; accept the new 
feeder line application for Alternative Two in STB Finance Docket 
No.34890, authorize discovery, and set a procedural schedule; and deny 
SAW's motion to reject the new feeder line application.

Background

    In 1999, SAW acquired approximately 14.1 miles of rail lines in 
Lubbock, TX, from The Burlington Northern and Santa Fe Railway Company 
(BNSF).\4\ PYCO, whose rail service was provided only by SAW, 
experienced a substantial, measurable deterioration in SAW's service in 
2005. This led us to issue, under 49 U.S.C. 11123 and 49 CFR part 1146, 
an alternative service order authorizing West Texas & Lubbock Railway 
Company, Inc. (WTL), to provide service to PYCO, over SAW's lines, for 
an initial period of 30 days. PYCO Industries, Inc.--Alernative Rail 
Service--South Plains Switching, Ltd. Co., STB Finance Docket No. 34802 
(STB served Jan. 26, 2006). In two subsequent decisions, we extended 
the authorization for alternative service to the full 270 days 
permitted by the statute, through October 23, 2006.\5\ During the 
period of alternative service, SAW has continued to provide rail 
service to the other shippers on its lines.
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    \4\ BNSF has since changed its name to BNSF Railway Company. We 
will refer to both entities as BNSF.
    \5\ See decisions in STB Finance Docket No. 34802 served 
February 24, and June 21, 2006.
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    Seeking a permanent solution to the inadequate rail service it 
experienced from SAW, PYCO filed a feeder line application in May 2006. 
The Director found that the application was incomplete for both the 
All-SAW option and Alternative Two because PYCO had not made a 
sufficient showing as to all of the required elements of a feeder line 
application (set forth at 49 CFR 1151.3(a)), and some of these 
deficiencies would not have been cured by obtaining discovery of 
information in SAW's possession.

Discussion and Conclusions

[STB Finance Docket No. 34844]

I. Appeal of Rejection of PYCO's Original Application.

    PYCO appeals the Director's decision rejecting its application as 
deficient.
    A. Inadequacy of SAW's Rail Service (49 CFR 1151.3(a)(11)). The 
Director found that PYCO did not provide evidence required under 49 
U.S.C. 10907(c)(1)(B) showing that the majority of shippers using SAW's 
lines experienced inadequate service from SAW. PYCO argues that its 
application met that requirement by showing that service was inadequate 
for a majority of the shipments on the line. PYCO also claims that 
other shippers were too intimidated to state that their rail service 
was inadequate for fear that SAW would retaliate by degrading or 
cutting off their rail service.
    We do not find any error in the Director's interpretation of the 
statutory language of 49 U.S.C. 10907(c)(1)(B) as requiring evidence to 
support a finding that there is inadequate service for a majority of 
the line's shippers. We agree with the Director that the statutory 
language is clear and that to grant a feeder line application, the 
Board must make a finding that the owning carrier's service is 
inadequate for a majority of the line's shippers, not a majority of the 
shipments by volume. See discussion in the Director's order, slip op. 
at 6.
    There is a fundamental problem with PYCO's argument that silence of 
a majority of the shippers should be excused because shippers may be 
reluctant to speak out for fear of retribution by SAW. The other 
shippers' silence can just as well be read to indicate that they are 
satisfied with the service that SAW is providing to them.
    We contrast this application with another feeder line proceeding 
cited by SAW in its appeal, Keokuk Junction Railway Company--Feeder 
Line Acquisition--Line of Toledo Peoria and Western Railway, STB 
Finance Docket No. 34335 (STB served Oct. 28, 2004) (Keokuk Junction). 
In that case, the initial application included statements from five of 
the six shippers located on the line and five of ten ``overhead'' 
shippers (those not located on the line, but transporting shipments 
over the line) that the incumbent's rail service was inadequate. See 
Keokuk Junction, slip op. at 7 (describing the shipper statements 
included in the initial feeder line application). In contrast, here, 
the majority of the shippers on SAW's lines provided no statements at 
all.
    In light of the silence from a majority of the lines' shippers, the 
Director correctly found that the original application did not provide 
evidence to permit the Board to find that the transportation over the 
line is adequate for the majority of shippers who transport traffic 
over the line, as required by statute and our own regulations at 49 CFR 
1151.3(a)(11)(i)(B).
    B. Financial Responsibility (49 CFR 1151.3(a)(3)). Citing an early 
decision in Keokuk Junction (STB served May 9, 2003), PYCO contends 
that the Director should have conditionally accepted its showing and 
afforded the opportunity to submit additional financial evidence under 
a protective order preserving confidentiality.
    But the application in Keokuk Junction did not have the ``fatal'' 
deficiency in the evidence concerning adequacy of service to a majority 
of shippers, as discussed above. Given that deficiency, the Director 
correctly found that PYCO's request for issuance of a protective order 
was moot and that there was no basis for issuance of a procedural 
schedule.
    Accordingly, PYCO has not met the standard for granting an appeal.

II. Petition To Allow Amendment of Feeder Line Application

    Together with its appeal, PYCO petitioned to amend the original 
application, tendering additional evidence that could have been 
included in the original application. We will not permit PYCO to amend 
the original application with this evidence, but we will permit PYCO to 
submit the additional evidence in a new application and will 
incorporate by reference the information in its original application, 
as discussed below.

[STB Finance Docket No. 34890]

    In its new feeder line application, PYCO seeks to acquire the rail 
lines described as Alternative Two in the original application and 
provides information to make the required showing. The new application 
also includes newly tendered evidence. This evidence and related issues 
will be discussed below.

I. Newly Tendered Evidence

    A. Financial Responsibility. The newly tendered evidence \6\ 
clearly

[[Page 40189]]

demonstrates that PYCO has sufficient financial resources, through its 
own strong financial position and an operating line of credit, to 
purchase the rail lines at issue at the higher of net liquidation value 
or going concern value and to cover expenses associated with providing 
services over those lines for at least 3 years. 49 U.S.C. 10907(a); 49 
CFR 1151.3(a)(3).
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    \6\ The new evidence of financial responsibility consists of a 
letter from PYCO's Chief Financial Officer, a new letter from CoBank 
of Denver, CO, and PYCO's 2005 Annual Report.
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    B. Inadequacy of Rail Service for a Majority of the Shippers. There 
are currently three shippers on the portions of the lines comprising 
Alternative Two: PYCO, Farmers Cooperative Compress, and Attebury 
Grain, LLC. The revised application includes letters from the latter 
two shippers indicating that, in light of incidents in which SAW 
threatened retaliation against, and degraded service to, shippers that 
questioned the quality of SAW's service, both Farmers Compress and 
Attebury Grain consider SAW's service to them to be unreliable and 
inadequate.
    SAW contends that service can be considered inadequate to a shipper 
only if the rail carrier either is unduly late, or fails altogether, in 
picking up or delivering a specific shipment as requested by that 
shipper. We disagree. A shipper's affirmative statement that it fears 
that it could suffer retaliation in the form of poor service for 
criticizing its rail service provider is sufficient in our view to 
constitute a showing of inadequate service to the shipper that makes 
the statement.\7\
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    \7\ A shipper's affirmative statement is different from shipper 
silence, from which no inference can be made.
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    When combined with PYCO's convincing statements of the inadequacy 
of the service it received from SAW (in the original application), the 
statements of Farmers Compress and Attebury Grain constitute credible 
evidence of the inadequacy of SAW's rail service for all of the 
shippers in Alternative Two. Thus, PYCO's new application is complete 
as to that alternative.

II. SAW's Renewed Motion to Reject Application for Alternative Two and 
Motion to Reject New Application \8\
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    \8\ SAW treated PYCO's new feeder line application as 
encompassing both the All-SAW option and Alternative Two. PYCO 
contends that the new application is complete only as to Alternative 
Two. See Cover Letter submitted with new application on June 14, 
2006. Therefore, we will not further discuss SAW's arguments 
directed at rejection of the All-SAW option, which stands rejected.
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    In its opposition to PYCO's appeal, SAW renewed its earlier motion 
to reject the application for Alternative Two.\9\ SAW argues that 
Alternative Two constitutes less than the entirety of a rail line that 
is operated as a unit, contrary to the language in the feeder line 
provision authorizing the sale of ``a particular line of railroad,'' 49 
U.S.C. 10907(b)(1)(A)(i). Citing Caddo Antoine and Little Mo. R.R. v. 
United States, 95 F.3d 740, 747 (8th Cir. 1996) (Caddo Antoine), SAW 
contends that a feeder line applicant may not ``cherry pick'' by 
seeking to acquire only the most attractive part of a rail line, while 
leaving the incumbent rail line owner with a remaining portion that 
allegedly cannot be operated successfully.
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    \9\ The motion was filed on May 16, 2006; PYCO submitted a reply 
on May 18, 2006.
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    The Caddo Antoine decision is inapposite, however, because in that 
case it was the incumbent rail carrier that arguably sought to ``cherry 
pick'' the line's heaviest user. Initially in Caddo Antoine, the 
incumbent listed the entire rail line as subject to future 
abandonment--a listing that automatically subjects a line to potential 
acquisition under the feeder line provision at 49 U.S.C. 
10907(b)(1)(A)(ii). See Caddo Antoine, 95 F.3d at 742. Preferring to 
retain the revenue from the line's heaviest shipper, however, the 
incumbent subsequently removed from that listing the very small portion 
of the line that was needed to serve that one shipper.
    In contrast, PYCO, the heaviest user of SAW's rail services in the 
past, would like to purchase the entirety of SAW's lines and serve all 
of SAW's shippers, both large and small. It is only PYCO's inability to 
make the requisite showing that SAW's rail service is inadequate for a 
majority of the shippers on the entirety of SAW's rail lines that 
prevents the All-SAW application from going forward. SAW's claim that 
PYCO is ``cherry picking'' therefore falls flat. Rather, in Alternative 
Two, PYCO seeks to purchase the amount of rail lines necessary to 
assure adequate rail service to itself and to two other shippers 
located in close proximity to one of PYCO's two plants in Lubbock. 
Because we have no doubt that PYCO has demonstrated that SAW's rail 
service to PYCO was inadequate and has now shown the inadequacy of 
service to the other two shippers on the lines at issue in Alternative 
Two as well, its application for Alternative Two lawfully may go 
forward. For these reasons, we deny SAW's renewed motion to reject the 
application for Alternative Two.
    In its motion to reject the new application for Alternative Two, 
SAW argues that PYCO's application does not have sufficient evidence to 
show that sale of the tracks comprising Alternative Two will not have a 
significant adverse financial effect on SAW. See 49 U.S.C. 
10907(c)(1)(C). In the decision rejecting PYCO's original application, 
the Director found that, with regard to PYCO purchasing the tracks 
comprising Alternative Two, PYCO's showing was sufficient that the 
remainder of SAW's system would be viable both financially and 
operationally. We agree that PYCO has made a sufficient showing in this 
regard, which of course SAW is free to contest as the new application 
in STB Finance Docket No. 34890 goes forward. See PYCO's original 
application in STB Finance Docket No. 34844, at 38-39. For this reason, 
we will deny PYCO's motion to reject the new application.

III. Discovery

    PYCO requests discovery against SAW and BNSF (Exhibits P and Q of 
its original application) and reserves the right to amend its tendered 
valuations of the rail lines involved in Alternative Two after 
discovery. PYCO may propound discovery requests under our regulations 
\10\ and may amend its valuations to reflect the responses it receives 
from SAW and/or BNSF. A protective order issued separately should 
facilitate discovery responses by ensuring confidentiality. Because 
PYCO served its original application on the entities from which it 
seeks discovery, SAW and BNSF, we deem those discovery requests to be 
propounded as of the date this decision takes effect for the purpose of 
calculating the time for responses.
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    \10\ 49 CFR part 1114.
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IV. Environmental Issues

    Under the regulations of the President's Council on Environmental 
Quality and the Board's own environmental rules, actions are separated 
into three classes that prescribe the level of documentation required 
in the process under the National Environmental Protection Act (NEPA). 
As pertinent here, actions whose environmental effects are ordinarily 
insignificant may normally be excluded from the need to prepare 
environmental documentation under 40 CFR 1500.4(p), 1501.4(a)(2), 
1508.4 and 49 CFR 1105.6(c). Included in this category are rail line 
acquisitions that will not result in operating changes that exceed 
certain thresholds: Generally, an increase in rail traffic of at least 
eight trains per day or 100% in traffic volume (measured in gross ton 
miles annually).
    Here, because the acquisition would simply replace the rail carrier 
serving three shippers (PYCO, Farmers

[[Page 40190]]

Compress, and Attebury Grain) with either PYCO itself or a rail carrier 
of PYCO's choosing, it would not result in more than eight additional 
trains per day or an increase of 100% in rail traffic volume on these 
lines. Accordingly, we find that PYCO's proposed operations do not 
exceed the Board's thresholds for environmental review, and that no 
environmental documentation is required.

V. Schedule

    Our regulations set forth time periods that apply for submitting 
competing applications, verified statements and comments addressing 
feeder line applications and any competing applications, and replies, 
unless otherwise provided. In light of the expiration date for 
alternative rail service to PYCO, October 23, 2006, we shall provide a 
shortened schedule for the submission of these pleadings in this case, 
as set forth below. Although our regulations provide that extensions of 
filing dates may be granted for good cause, 49 CFR 1151.2(k), the 
parties should be aware that, to facilitate prompt resolution of this 
application, we will disfavor requests for extensions of filing dates 
in this proceeding except in the most extraordinary circumstances.
    In summary, PYCO has submitted sufficient information in its new 
application for Alternative Two to meet the requirements of 49 CFR 
1151.3. The Board will rule on the merits of the application when the 
record is complete.
    It is ordered:
    1. PYCO's appeal of the order rejecting its original application is 
denied.
    2. SAW's renewed petition to reject the application for Alternative 
Two and motion to reject the new application are denied.
    3. PYCO's new application for Alternative Two is accepted. Notice 
will be published in the Federal Register on July 14, 2006.
    4. Competing applications by any person seeking to acquire the rail 
lines comprising Alternative Two must be filed by July 18, 2006.
    5. Verified statements and comments addressing the initial and/or 
any competing application(s) must be filed by August 2, 2006.
    6. Any amendment by PYCO to its valuation of the rail lines, based 
upon discovery responses, must be filed by 7 days after it receives the 
discovery responses. If the resulting filing date falls after the 
submission of the verified statements and comments in paragraph 5, the 
parties that filed such statements and comments shall have 7 days after 
the filing of the amended valuations to file any verified statements 
and comments concerning the amended valuations.
    7. Verified replies by applicants and other interested parties must 
be filed by August 14, 2006, unless parties have filed any verified 
statements and comments concerning the amendment to valuations referred 
to in paragraph 6. In the event of such filings, applicants and other 
interested parties shall have 15 days after the filing of such verified 
statements and comments to file replies.
    8. This decision is effective on July 14, 2006.
    9. A copy of this decision will be served on BNSF.

    Decided: July 3, 2006.

    By the Board, Chairman Buttrey and Vice Chairman Mulvey.
Vernon A. Williams,
Secretary.
[FR Doc. E6-10831 Filed 7-13-06; 8:45 am]
BILLING CODE 4915-01-P