[Federal Register Volume 81, Number 73 (Friday, April 15, 2016)]
[Notices]
[Pages 22361-22363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08785]


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SURFACE TRANSPORTATION BOARD

[Docket No. FD 36005]


KCVN, LLC and Colorado Pacific Railroad, LLC--Feeder Line 
Application--Line of V and S Railway, LLC, Located in Crowley, Pueblo, 
Otero, and Kiowa Counties, Colorado

    On March 18, 2016, KCVN, LLC (KCVN) and its wholly owned 
subsidiary, Colorado Pacific Railroad, LLC (Colorado Pacific) 
(collectively applicants) jointly filed an application under the feeder 
line provision at 49 U.S.C. 10907 to acquire a 121.9-mile line of 
railroad owned by V and S Railway, LLC (V&S) in southeast Colorado. The 
line, known as the Towner Line, extends between milepost 747.5 near 
Towner and milepost 869.4 near NA Junction in Pueblo, Crowley, Kiowa, 
and Otero Counties, Colo. As discussed below, the application is 
substantially complete and will be accepted. However, the applicants 
should provide certain supplemental material described below by April 
29, 2016. This decision also establishes a procedural schedule.

Background

    The Towner Line has been the subject of two other Board proceedings 
during the past two years. In Docket No. NOR 42140, KCVN, the Colorado 
Wheat Administrative Committee, the Colorado Association of Wheat 
Growers, and the Colorado Wheat Research Foundation (collectively, the 
Colorado Interests) filed a complaint on October 28, 2014, alleging 
that V&S violated 49 U.S.C. 11101 and 10903 by removing certain track 
and related assets from a segment of the Towner Line (the Western 
Segment) without first seeking abandonment authority.\1\ On May 7, 
2015, the Board partially granted the Colorado Interests' concurrently 
filed motion for preliminary injunction, and barred V&S from removing 
and dismantling track and related assets from the Western Segment 
pending the Board's ruling on the complaint. Thereafter the parties 
moved to hold the complaint case in abeyance pending V&S's decision to 
seek abandonment authority for the Towner Line. The Board granted this 
request in a decision served on July 17, 2015, and the complaint case 
remains in abeyance.
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    \1\ The Western Segment extends between milepost 808.3 near 
Haswell, Colo., and milepost 868.5, which is approximately 0.9 miles 
short of the Towner Line's western terminus at milepost 869.4.
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    On August 3, 2015, V&S filed a verified notice of exemption in 
Docket No. AB 603 (Sub-No. 4X) to abandon the Towner Line, as it had 
agreed to do in Docket No. NOR 42140. The Board served and published 
notice of the exemption in the Federal Register, and KCVN and Colorado 
Pacific sought information from V&S to allow them to file an offer of 
financial assistance under 49 U.S.C. 10904 to purchase the line. V&S 
provided the information, but that information suggested that the 
Towner Line passes through a county and zip code not included in V&S's 
verified notice. The Board therefore directed V&S to supplement its 
verified notice if necessary. Rather than filing a supplement, V&S 
attempted to amend the notice to seek authority to only discontinue 
operations over the Towner Line rather than abandon it. KCVN opposed 
that amendment. In a decision served on January 15, 2016, the Board

[[Page 22362]]

rejected V&S's November 30 amendment. The Board found that, if V&S 
wished to pursue discontinuance authority for the Towner Line, it must 
either file a petition for exemption under 49 U.S.C 10502 or a formal 
application under 49 U.S.C. 10903. The Board further stated that V&S 
could supplement its original notice of exemption if it instead decided 
to continue seeking abandonment authority. On January 27, 2016, V&S 
gave notice of its desire to withdraw its notice of exemption seeking 
abandonment authority.\2\
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    \2\ Withdrawal of the notice of abandonment exemption will be 
addressed in a separate decision.
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    On March 18, 2016, KCVN and Colorado Pacific initiated this 
proceeding by filing a feeder line application under 49 U.S.C. 10907 to 
acquire the Towner Line and 12 miles of related track and facilities. 
Under section 10907(b)(1), the Board is authorized to require the sale 
of a rail line to a financially responsible person if the public 
convenience and necessity require or permit the sale.\3\ The applicants 
claim that the proposed sale is required under the public convenience 
and necessity criterion and that Colorado Pacific is a financially 
responsible person willing to pay not less than the constitutional 
minimum value of the line. The applicants allege that V&S engaged in a 
systemic plan to drive traffic off the Towner Line with the ultimate 
aim of abandoning it and selling the line's rail assets. The applicants 
assert that V&S raised rates to a prohibitive level around 2011 and 
engaged in other behavior forcing traffic off the line rather than 
meeting its common carrier obligation and maintaining the line. The 
applicants argue that the Board has found previously that this type of 
behavior can lead to a forced sale under the feeder line statute. See 
Keokuk Junction Ry.--Feeder Line Acquis.--Line of Toledo Peoria & W. 
Ry. Between La Harpe & Hollis, Ill., 7 S.T.B. 893 (2004).
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    \3\ The Board also is to require a sale to a financially 
responsible person if the line is currently in category 1 or 2 of 
the owning railroad's system diagram map and the owning railroad has 
not filed an application to abandon the line. See 49 U.S.C. 
10907(b)(1)(A)(ii); 49 CFR 1151.1. The applicants argue that the 
Towner Line also satisfies this criterion.
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    According to the applicants, Colorado Pacific seeks to acquire the 
Towner Line and its related track and facilities and lease them to a 
connecting carrier, Kansas & Oklahoma Railroad (K&O), to operate. 
Although the parties are still in negotiations, the applicants provide 
a supporting verified statement from a representative of K&O's owner. 
The applicants also include verified statements supporting the 
application from a local farmer and representatives of Bartlett Grain 
Co., LP, Tallman Grain Co., Inc., and Thunderbird L&L, Inc.
    The applicants state that Colorado Pacific offers to buy the Towner 
Line for its net liquidation value (NLV), which the applicants estimate 
to be $2,594,551, rather than the line's going concern value (GCV), 
which they estimate to be $0 given that V&S provides no service. The 
applicants assert that rehabilitating the Towner Line would cost an 
additional $3,500,000, bringing the total cost to restore service to $6 
million. The applicants claim that Colorado Pacific can afford these 
costs and that it is financially responsible. Specifically, they note 
that KCVN would fund Colorado Pacific's acquisition and other expenses 
with cash. As support, they provide a KCVN account statement showing 
assets of approximately $6.5 million. The applicants also note that 
KCVN owns 58,000 acres of farmland primarily dedicated to dryland wheat 
within 25 miles of the Towner Line, which collectively are valued at 
approximately $50 million (Application 8), and that KCVN has wealthy 
principals and would make funds available to meet additional 
acquisition, rehabilitation, maintenance, and operations costs if 
necessary (Application, Exhibit A at 5).

Discussion and Conclusions

    Under 49 CFR 1151.2(b), the Board, through the Director of the 
Office of Proceedings, must accept a complete feeder line application, 
or reject one that is incomplete, no later than 30 days after the 
application is filed. An application is complete if it has been 
properly served \4\ and contains substantially all the information 
required by Sec.  1151.3, except as modified by advance waiver. 49 CFR 
1151.2(b)(1). Notice of an acceptance must be published in the Federal 
Register and provide a procedural schedule for the proceeding. Id.
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    \4\ As originally filed, the application failed to indicate 
service on the Board of County Commissioners of Otero County, Colo., 
but that omission was remedied by a certificate of service filed on 
March 28, 2016.
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    The Board has determined that the applicants have provide 
substantially all the information required by Sec.  1151.3 and 
therefore accepts the feeder line application. The applicants should 
provide some additional information, described below, for the Board's 
consideration as the feeder line case proceeds.\5\ See Ore. Int'l Port 
of Coos Bay--Feeder Line Application--Coos Bay Line of Cent. Ore. & 
Pac. R.R., FD 35160 (STB served Aug. 1, 2008) (accepting the feeder 
line application, but encouraging the applicant to provide supplemental 
material).
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    \5\ KCVN and Colorado Pacific request that the Board accept 
their application for filing subject to any environmental reporting 
that might be required under 49 CFR 1105.7. The Board will grant 
this request. The Board's Office of Environmental Analysis will 
determine what, if any, environmental review is required in this 
case and coordinate with the applicants. A historic report is not 
required here because the proposal clearly falls within the 
exception at 49 CFR 1105.8(b)(1).
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    Financial Responsibility (1151.3(a)(3)). An application must 
include information sufficient to demonstrate that it is a financially 
responsible person, able to pay the higher of the NLV or GCV of the 
line and to cover expenses associated with providing service over the 
line for at least the first three years after the line is acquired. 
Based on the information in the application, Colorado Pacific appears 
to have access to considerable funds to pay the expenses of acquiring 
and rehabilitating the Towner Line.\6\ Colorado Pacific states that it 
does not anticipate incurring operating costs because they would be 
borne by K&O, the anticipated operator. Nonetheless, the applicants 
should provide financial statements showing a breakdown of three years 
of K&O service costs, including maintenance costs, to fully demonstrate 
that Colorado Pacific or KCVN could cover any revenue shortfall during 
the first three years.
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    \6\ The applicants state that no financial statements are 
available because Colorado Pacific is a new company.
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    Operating Plan (1151.3(a)(7)). Although the applicants and K&O have 
provided basic information about the common carrier freight operations 
K&O would perform, they indicate that the specifics of an operating 
plan are still being developed. The applicants should provide the Board 
with more detail, including an estimate of the average number of trains 
anticipated to be operated over the line per day.
    Liability Insurance (1151.3(a)(8)). Colorado Pacific and K&O 
anticipate that the lease and operating agreement they are negotiating 
would provide that K&O secure and maintain at all times an insurance 
policy from a reputable insurance company that provides for commercial 
liability coverage in an amount not less than $25 million. In addition 
to the information provided in the application, the applicants should 
also submit to the Board a certificate of K&O's existing insurance 
coverage over its current system.

Procedural Schedule

    The procedural schedule is as follows:

[[Page 22363]]

    Any supplement by KCVN and Colorado Pacific to their application is 
due by April 29, 2016.
    Competing applications by other parties seeking to acquire all or 
any portion of the Towner Line are due by May 16, 2016. See 49 CFR 
1151.2(c)(1).
    Verified statements and comments addressing both the initial and 
competing applications must be filed by June 14, 2016. See 49 CFR 
1151.2(e).
    Verified replies by applicants and other interested parties must be 
filed by July 5, 2016. See 49 CFR 1151.2(f).
    It is ordered:
    1. KCVN's and Colorado Pacific's feeder line application is 
accepted and notice will be published in the Federal Register.
    2. The above schedule will govern this proceeding.
    3. This decision is effective on its service date.

    Decided: April 12, 2016.

    By the Board, Rachel D. Campbell, Director, Office of 
Proceedings.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2016-08785 Filed 4-14-16; 8:45 am]
 BILLING CODE 4915-01-P