[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73080-73085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27903]



[[Page 73080]]

-----------------------------------------------------------------------

SURFACE TRANSPORTATION BOARD

[Docket Nos. FD 36503; FD 36504; FD 36505; and FD 36506]


Grand Elk Railroad, Inc.--Acquisition Exemption--Lines of 
Wisconsin Central Ltd. in the State of Michigan; Fox Valley & Lake 
Superior Rail System, L.L.C.--Acquisition and Operation Exemption--
Lines of Wisconsin Central Ltd. in the State of Wisconsin; Watco 
Holdings, Inc.--Exemption for Intra-Corporate Family Transaction--Fox 
Valley & Lake Superior Rail System, L.L.C. and Wisconsin & Southern 
Railroad, L.L.C.; Watco Holdings, Inc.--Continuance in Control 
Exemption--Fox Valley & Lake Superior Rail System, L.L.C.

    Watco Holdings, Inc. (Watco Holdings), a noncarrier holding 
company, Grand Elk Railroad, Inc. (Grand Elk), a Class III carrier and 
Watco Holdings subsidiary, and Watco Holdings' newly created noncarrier 
subsidiary Fox Valley & Lake Superior Rail System, L.L.C. (Fox System) 
(collectively, Applicants), filed for a series of exemptions in 
furtherance of the acquisition of rail lines in Wisconsin and Michigan 
from Wisconsin Central Ltd. (WCL). In particular, Grand Elk filed a 
verified notice of exemption to acquire lines in Michigan, Fox System 
filed a verified notice of exemption to acquire and operate lines in 
Wisconsin, Watco Holdings filed both a verified notice of exemption for 
an intra-corporate family transaction to transfer some of the acquired 
assets between its subsidiaries and a petition for exemption to 
continue in control of Fox System once Fox System becomes a carrier.
    The Board received numerous comments supporting the overall 
transaction and numerous comments opposing it, including requests for 
revocation or stay of the acquisition exemptions. To permit the Board 
time to consider the issues raised, the effectiveness of the notices of 
exemption was postponed pending further order of the of the Board. See 
Grand Elk R.R.--Acquis. Exemption--Lines of Wis. Cent. in the State of 
Mich. (April Order), FD 36503 et al. (STB served Apr. 27, 2021). That 
decision noted that the proposed acquisitions by Grand Elk and Fox 
System involve the transfer of some lines as to which the Board 
previously had authorized discontinuance of service and that Grand Elk 
and Fox System intended to keep those lines in their ``discontinued 
state.'' See id. at 3. The decision directed Applicants to file a 
supplement explaining how transfer of those lines would be an 
appropriate use of the acquisition exemption and responding to the 
requests for revocation or stay. See id. at 3-4. The Board received a 
joint reply from Applicants responding to the April Order and further 
comments from stakeholders.
    As discussed below, the Board finds that the issues raised do not 
demonstrate regulation is necessary to carry out the rail 
transportation policy (RTP) and that it is appropriate to allow 
Applicants to proceed with the exemption process. The Board therefore 
will allow the exemptions sought by the verified notices to become 
effective and publish notice of these exemptions in the Federal 
Register. The Board will also grant the petition for exemption sought 
by Watco Holdings and publish notice of that exemption in the Federal 
Register.

Background

    On April 5, 2021, Applicants separately filed for their various 
exemptions in furtherance of the overall transaction to acquire lines 
from WCL, which is controlled by Canadian National Railway Company 
(CN). Specifically, in Docket No. FD 36503, Grand Elk filed a verified 
notice of exemption under 49 CFR 1150.41 to acquire approximately 
142.64 miles of rail line owned by WCL in Michigan, consisting of 95.38 
miles of active line and 47.26 miles of line over which discontinuance 
of service previously had been authorized. (Grand Elk Verified Notice 
1.) In Docket No. FD 36504, Fox System filed a verified notice of 
exemption under 49 CFR 1150.31 to acquire and operate approximately 
509.27 miles of rail line in Wisconsin, including 328.52 miles of 
active rail line and 180.75 miles of line over which discontinuance of 
service previously had been authorized. (Fox System Verified Notice 1, 
3-5.) \1\ Under the proposed transaction, Fox System would become a 
Class III carrier. (Id. at 1.) Accordingly, Watco Holdings filed in 
Docket No. FD 36506 a petition for exemption under 49 U.S.C. 10502 from 
the prior approval requirements of 49 U.S.C. 11323-24 to continue in 
control of Fox System upon Fox System's becoming a Class III carrier. 
(Watco Holdings Pet. 1.) Finally, in Docket No. FD 36505, Watco 
Holdings filed a verified notice of exemption pursuant to 49 CFR 
1180.2(d)(3) for an intra-corporate transfer of the Eden Spur, the West 
Bend Subdivision, and the Saukville Subdivision (collectively, the 
Southern Cluster), totaling approximately 42 miles, of the Wisconsin 
lines at issue in Docket No. FD 36504 from Fox System to Wisconsin & 
Southern Railroad, L.L.C. (WSOR), a Class II subsidiary of Watco 
Holdings. (Watco Holdings Verified Notice 2-3; id. at Ex. 1.)
---------------------------------------------------------------------------

    \1\ Detailed descriptions of the lines that Grand Elk and Fox 
System seek to acquire are provided in the verified notices of 
exemption filed in Docket Nos. FD 36503 and FD 36504, respectively.
---------------------------------------------------------------------------

    Several submissions were filed raising various issues concerning 
the proposed exemptions and the resulting acquisitions. On April 8 and 
April 9, 2021, U.S. Representative Tom Tiffany, Western Upper Peninsula 
Planning & Development Regional Commission (Upper Peninsula 
Commission), the Northwoods Rail Transit Commission (Northwoods 
Commission), and the Timber Professionals Cooperative separately filed 
comments seeking revocation or stay of the exemptions sought in Docket 
Nos. FD 36503 and FD 36504. These comments each point out that Watco 
Holdings already controls some 600 miles of rail lines in Wisconsin 
through WSOR and that, after consummation of the proposed transaction, 
Watco Holdings would control more than 1,250 miles of rail line in 
Wisconsin and Michigan. The comments also express concern regarding 
whether shippers on the acquired lines would continue to have the 
benefit of the conditions the Board imposed when approving CN's 
acquisition of control of WCL. See Canadian Nat'l Ry.--Control--Wis. 
Cent. Transp. Corp. (CN/WCL), 5 S.T.B. 890 (2001). The commenters 
assert that the proposed transaction should be designated as 
``significant'' under 49 CFR part 1180 and question whether Applicants 
should be permitted to acquire the lines through the Board's exemption 
procedures, including the class exemptions at 49 CFR 1150.31 and 
1150.41.
    The Wisconsin Department of Transportation (WisDOT) commented on 
April 12, 2021, noting that it has been concerned about rates and 
reliability of service for shippers on the affected lines and that it 
supports the sale because of its understanding that this transaction 
would address these issues. (WisDOT Comment 1, FD 36504.) WisDOT also 
asks the Board to consider the shippers' concerns, including whether 
the shippers would continue to benefit from the conditions imposed in 
CN/WCL. (Id.)
    On April 14, 2021, Branch Line Railroad, LLC (Branch Line), filed a 
comment stating that Northwoods Distribution Services, Inc. (Northwoods 
Distribution), and Branch Line (collectively, N&B) object to the 
transfer of trackage in northern Wisconsin

[[Page 73081]]

absent public hearings. (Branch Line Comment 1, Apr. 14, 2021, FD 
36503.) N&B later filed a comment on April 21, 2021, requesting that 
the Board revoke or stay the exemptions sought in Docket Nos. FD 36503 
and FD 36504. (N&B Comment 4, Apr. 21, 2021, FD 36503 & FD 36504.) On 
April 22, 2021, Northwoods Distribution and Dahlquist Trucking, Inc. 
(collectively, N&D), jointly filed a submission urging the Board to 
revoke or stay the exemptions.
    Applicants jointly filed on April 15 and 21, 2021, various letters 
supporting Docket Nos. FD 36503, FD 36504, and FD 36506 and praising 
Watco-provided rail service. In Docket No. FD 36504, the Wisconsin 
Paper Council and the Wisconsin Office of the Commissioner of Railroads 
filed letters of support on April 16, 2021, and April 22, 2021, 
respectively. Wisconsin Central Group and Lake States Shippers 
Association have also indicated their support for the acquisitions. 
(Wis. Cent. Group & Lake States Shippers 1, Apr. 23, 2021, FD 36503 & 
FD 36504.) And, on April 22, 2021, WCL submitted a letter it previously 
sent to WisDOT claiming that nothing in the proposed sale to Fox System 
would affect the conditions imposed in CN/WCL or change whether or how 
those conditions apply for shippers on the lines. (WCL Reply, Letter 1, 
Apr. 22, 2021, FD 36504.)
    As noted above, the April Order postponed the effectiveness of the 
exemptions in Docket Nos. FD 36503, FD 36504, and FD 36505 and directed 
Applicants to submit a supplemental filing explaining how the transfer 
of lines as to which a discontinuance of service had been authorized 
would be an appropriate use of the acquisition exemption and responding 
to the commenters seeking revocation or stay.
    Applicants filed their joint response to the April Order on May 7, 
2021. At the outset, Applicants note that numerous shippers and other 
stakeholders, including WisDOT, support the overall transaction. 
(Applicants Reply 2, May 7, 2021, FD 36503, FD 36504, FD 36505, & FD 
36506.) \2\ Applicants also note that among the supporters are several 
entities that had initially sought greater regulatory scrutiny. (Id. at 
3.) Applicants assert that the remaining parties with objections have 
expressed only general concerns about the exemption process. (Id.) They 
further argue that those expressing concern provide no legitimate basis 
for departing from the established Board class exemption procedures 
applicable to these proposed rail line acquisitions and identify no 
lessening of competition or other competitive harm from the proposed 
transaction. (Id. at 4.) Applicants add that, although styled as 
petitions for stay and to revoke the exemptions, the objecting 
commenters make no effort to satisfy the Board's standards for stay or 
revocation. (Id.) As to the acquisition of lines over which 
discontinuance had been granted, Applicants assert that their intent 
and goal is to restore rail service on these lines in due course and 
that acquisition of the lines is consistent with Board precedent and 
sound policy. (Id.)
---------------------------------------------------------------------------

    \2\ On May 3, 2021, Applicants submitted letters from two 
shippers supporting the acquisitions and the use of the class 
exemption for the transfers. The National Industrial Transportation 
League and Packaging Corporation of America submitted similar 
letters on May 6, 2021. Wisconsin Central Group and Lake States 
Shippers Association jointly filed supporting comments on May 10, 
2021.
---------------------------------------------------------------------------

    WCL also responded to the April Order on May 7, 2021. Among other 
things, it reiterates that nothing in the proposed sale of WCL rail 
lines to Applicants would affect the conditions imposed in CN/WCL or 
change whether or how those conditions apply for customers on the 
lines. (WCL Reply 4, May 7, 2021, FD 36503 & FD 36504.) It adds that, 
upon closing of the proposed line sales, Grand Elk and Fox System would 
serve as ``handling carriers'' for WCL, and WCL would continue to quote 
and invoice linehaul freight rates to customers on those lines, which 
rates would include the Grand Elk/Fox System transportation charge. 
(Id.) WCL states that customers would retain a direct commercial 
relationship with it and would have the same routing access to WCL 
gateways and rate-making interface with WCL that they do today. (Id.) 
WCL adds that its representation also applies to the lines in Michigan. 
(Id.) Finally, WCL asserts that permitting the sale of the lines where 
discontinuance would continue is appropriate. (Id. at 6-7.)
    Also on May 7, 2021, Upper Peninsula Commission filed a comment 
withdrawing its April 9, 2021 request for revocation or stay of the 
exemption sought in Docket No. FD 36503. (Upper Peninsula Comm'n 
Comment 1, May 7, 2021, FD 36503.) It states that it has met with 
numerous stakeholders, including ``Watco management and staff,'' to 
address its concerns and that, based on those meetings, it is 
optimistic about the future of the rail lines at issue. Upper Peninsula 
Commission also, however, notes WCL's representation to WisDOT that 
nothing in the proposed sale of the WCL lines to Fox System would 
affect the CN/WCL conditions or change whether or how those conditions 
apply for shippers on the line and asks the Board to hold WCL to a 
similar representation with respect to the Grand Elk lines in upper 
Michigan and any inactive rail lines that are brought back into 
service. (Id. at 2.)
    Northwoods Commission similarly filed on May 7, 2021, withdrawing 
its request for revocation and stay filed on April 9, 2021, for similar 
reasons. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD 36503 & FD 
36504.) Northwoods Commission, however, encourages the Board to review 
the outcome of this transaction at its one- and two-year anniversaries. 
(Id.) Like Upper Peninsula Commission, Northwoods Commission also asks 
the Board to hold WCL to its representation to WisDOT and confirm that 
it applies to the Grand Elk lines in upper Michigan as well as any rail 
lines brought back into service. (Id.)
    On May 11, 2021, the Great Lakes Timber Professionals Association 
(Timber Association) filed a comment also asking for review of the 
transaction at the one- and two-year anniversaries of the acquisitions 
by Grand Elk and Fox System. (Timber Ass'n Comment 1, FD 36503 & FD 
36504.) The Lake States Lumber Association also filed on May 11, 
requesting that the Board delay the sales pending an agreement that the 
purchases include the right to connect to a Class I railroad. (Lake 
States Lumber Ass'n 1, FD 36503 & FD 36504.)
    N&B also provided further comment on May 11, 2021. Primarily, N&B 
assert that, although the sales would benefit shippers in southern and 
central Wisconsin, the sales would not benefit shippers located further 
north in Wisconsin and Michigan in an area N&B term the Northwoods. 
(N&B Comment 2, 3-4, May 11, 2021, FD 36503 & FD 36504.) N&B claim that 
Northwoods shippers currently must use CN to access markets and the 
proposed sales provide no access to other Class I railroad connections. 
(Id. at 4.) They contend that CN does not reach as many U.S. markets as 
other carriers and complain of CN's alleged predatory practices, 
monopoly position, and continual disinvestment in the Northwoods 
region. (Id.) N&B ask the Board to bifurcate the sale and not approve 
the acquisition of track located along the ``Route 8 Corridor'' and 
associated feeder lines. (Id. at 5-6.) N&B instead ask the Board to 
order CN to sell track in the corridor on a stand-alone basis, 
preferably to a locally owned company with local management and local 
employees, whose sole interest, purpose, and commitment is to serve the 
Northwoods shippers. (Id. at 6-7.) Per N&B's proposal, CN would be 
required to sell branch lines and two segments that are not part of Fox

[[Page 73082]]

System's proposed acquisition, which N&B claim would provide Northwood 
shippers with access to other carriers. (Id. at 4-5, 6-7.)
    By decision served on July 1, 2021, a proceeding under 49 U.S.C. 
10502(b) was instituted in Docket No. FD 36506. N&B submitted a filing 
on August 3, 2021, essentially reiterating their earlier requests for 
relief for the Northwoods shippers. They also suggest that CN had 
``broken promises'' concerning CN/WCL and ask that the Board appoint a 
hearing officer to conduct discovery. (N&B Comment 1-2, 4, Aug. 3, 
2021, FD 36506.) Additionally, N&B request the Board consider WCL's 
proposed sale under the current major merger rules adopted in Major 
Rail Consolidation Procedures, 5 S.T.B. 1 (2001). (N&B Comment 5, Aug. 
3, 2021, FD 36506.)
    On September 7, 2021, U.S. Representative Tom Tiffany submitted an 
additional filing that, among other things, raises concerns that the 
current sale would not provide price competition and dependable service 
for shippers in the Northwoods. (U.S. Representative Tiffany Comment 1, 
Sept. 7, 2021, FD 36503 & FD 36504.) On September 17, 2021, Northwoods 
Distribution filed a comment expressing frustration with CN's service. 
(Northwoods Distrib. Comment 1, Sept. 17, 2021, FD 36503 & FD 36504.) 
WCL filed a response to Representative Tiffany's September 7, 2021 
filing on September 27, 2021, and a response to Northwoods Distribution 
on October 7, 2021.
    Representative Tiffany filed an additional comment on October 29, 
2021, expressing his hope that the transaction would accomplish the 
goals outlined for it and offering additional suggestions, including 
ensuring access over two additional rail segments and providing a 
``look back provision'' to ensure rate and service promises are kept. 
(U.S. Representative Tiffany Comment 1, Oct. 29, 2021, FD 36503 & FD 
36504.) On November 2, 2021, Northwoods Distribution filed a further 
comment, claiming that the Northwoods would be disadvantaged by the 
transaction because Watco Holdings and its subsidiaries would not have 
the ability to lower rates that WCL currently has on the lines in the 
area. (Northwoods Distrib. Comment 3, Nov. 2, 2021, FD 36503, FD 36504, 
FD 36505, & FD 36506.) \3\
---------------------------------------------------------------------------

    \3\ Although a reply to a reply is not permitted under 49 CFR 
1104.13(c), the Board will accept it and other filings in the 
interest of a complete record. See City of Alexandria, Va.--Pet. for 
Declaratory Ord., FD 35157, slip op. at 2 (STB served Nov. 6, 2008) 
(allowing a reply to a reply ``[i]n the interest of compiling a full 
record'').
---------------------------------------------------------------------------

Discussion and Conclusions

    As discussed below, the Board finds that those challenging the 
exemptions sought in Docket Nos. FD 36503, FD 36504, and FD 36505 have 
failed to meet their burden of demonstrating that regulation is 
necessary to carry out the RTP. The Board therefore will allow those 
exemptions to become effective and publish notice of them in the 
Federal Register. The Board also finds that the transfer of the lines 
over which discontinuance authority had been granted is an appropriate 
use of the acquisition exemption here. And, in Docket No. FD 36506, the 
Board will grant Watco Holdings' petition for exemption and publish 
notice of that exemption in the Federal Register.
    Revocation Requests. A party seeking revocation or rejection of a 
notice of exemption has the burden of demonstrating that the notice 
contains false or misleading information, or that regulation is 
necessary to carry out the RTP of 49 U.S.C. 10101. See Oakland Glob. 
Rail Enters.--Acquis. Exemption--Line in Alameda Cnty., Cal., FD 36301 
et al., slip op. at 3 (STB served Oct. 28, 2019). Here, those seeking 
revocation in Docket Nos. FD 36503, FD 36504, and FD 36505 have failed 
to meet their burden.
    The Board's predecessor, the Interstate Commerce Commission (ICC), 
adopted the class exemption at section 1150.31 for the acquisition and 
operation of rail lines by noncarriers because the consideration of 
individual petitions for exemption from 49 U.S.C. 10901 had become a 
``burdensome and unnecessary expenditure of resources'' on the agency 
and the individual petitioners. See SF&L Ry.--Acquis. & Operation 
Exemption--Toledo, Peoria & W. Ry. Between La Harpe & Peoria, Ill., 6 
S.T.B. 408, 418 (2002) (citing Class Exemption for the Acquis. & 
Operation of Rail Lines Under 49 U.S.C. 10901 (Section 10901 Class 
Exemption), 1 I.C.C.2d 810, 811 (1985)). The ICC noted that the 
transfer of a line to a new carrier that can operate the line more 
economically or more effectively than the existing carrier serves 
shipper and community interests by continuing rail service and allows 
the selling railroad to eliminate lines it cannot operate economically. 
Section 10901 Class Exemption, 1 I.C.C.2d at 813.
    The ICC Termination Act of 1995, Public Law 104-88, 109 Stat. 803, 
created the Board and enacted a new provision, at 49 U.S.C. 10902, for 
acquisition or operation of rail lines by Class II and Class III rail 
carriers. The Board adopted a new class exemption at 49 CFR 1150.41, 
similar to that for noncarriers at 49 CFR 1150.31, to apply to 
transactions in which Class III rail carriers seek to acquire 
additional rail properties. Class Exemption for Acquis. or Operation of 
Rail Lines by Class III Rail Carriers--Under 49 U.S.C. 10902 (Section 
10902 Class Exemption), 1 S.T.B. 95 (1996). The Board noted that a 
class exemption from the requirements of section 10902 would facilitate 
the acquisition of rail lines by Class III rail carriers and ensure the 
continuation of rail service on lines that may otherwise be abandoned 
if not for the sale. See Section 10902 Class Exemption, 1 S.T.B. at 
103.
    Here, the acquisitions proposed by Grand Elk and Fox System qualify 
for the class exemption under 49 CFR 1150.41 and 49 CFR 1150.31, 
respectively.\4\ Both sales involve the transfer of rail property for 
continued use. (Applicants Reply 7, May 7, 2021, FD 36503, FD 36504, FD 
36505, & FD 36506.) The amount of track being transferred in the 
acquisitions does not preclude use of the class exemption process or 
warrant greater scrutiny in this case. As an initial matter, the class 
exemption regulations at 49 CFR 1150.41 and 49 CFR 1150.31 do not 
include a mileage limit for rail line acquisitions. As Applicants note, 
acquisitions involving similar or greater track mileage have proceeded 
through the class exemption process. See e.g., Rapid City, Pierre, & E. 
R.R.--Acquis. & Operation Exemption--Dakota, Minn., & E. R.R., FD 35799 
et al. (STB served May 14, 2015) (utilizing class exemption for 
acquisition of approximately 670 miles of rail lines and approximately 
219 miles of incidental trackage rights); Iowa, Chi. & E. R.R.--Acquis. 
& Operation Exemption--Lines of I&M Rail Link, LLC, FD 34177 (STB 
served July 22, 2002) (allowing class exemption for acquisition of 
1,125 miles of rail line and 275 miles of incidental trackage rights). 
In fact, WCL previously acquired approximately 1,800 route miles, 
including lines involved here, through a class exemption. See Wis. 
Cent. Ltd.--Exemption Acquis. & Operation--Certain Lines of Soo Line 
R.R., FD 31102 (ICC served Sept. 16, 1987).
---------------------------------------------------------------------------

    \4\ And, as discussed below, the acquisition of the lines where 
the Board had granted discontinuance of service is appropriate here. 
Both Grand Elk and Fox System represent that they intend to try to 
restore service on those lines and have detailed plans supporting 
their goals.
---------------------------------------------------------------------------

    As noted above, some commenters argue that greater scrutiny is 
necessary based on competition concerns because, after the transaction, 
Watco Holdings will control more than 1,250 miles of rail line in 
Wisconsin and Michigan. The commenters assert that the

[[Page 73083]]

proposed transaction should be designated as ``significant'' under 49 
CFR part 1180 due to that fact. (N&D Pet. 1, FD 36503 & FD 36504; 
Timber Pros. Coop. Comment 1, FD 36503 & FD 36504; U.S. Representative 
Tom Tiffany Comment 1, Apr. 8, 2021, FD 36503 & FD 36504.) N&B add that 
the transaction would make Watco Holdings and its investors the largest 
owner of track in Wisconsin by a significant margin. (N&B Comment 3, 
Apr. 21, 2021, FD 36503 & FD 36504.) Even though Watco Holdings would 
own substantial rail holdings in Wisconsin and Michigan, nothing on the 
record demonstrates any clear, anticompetitive effects. As WCL notes, 
the shippers on the lines at issue would have the same competitive 
options as they do now--customers would retain a direct commercial 
relationship with WCL and would have the same routing access to WCL 
gateways and rate-making interface with WCL as before the transaction. 
Moreover, numerous shippers, as well as WisDOT, have indicated their 
support for the proposed transaction and Watco-provided rail service. 
Both the Upper Peninsula Commission and the Northwoods Commission have 
withdrawn their requests for revocation and stay and have expressed 
optimism about future rail service.
    Furthermore, requests that the sale of assets by WCL be classified 
as a ``significant'' transaction under 49 CFR part 1180 or that the 
Board consider the sale under the current major merger rules are 
misplaced. Those requests are proper in certain merger proceedings 
filed under 49 U.S.C. 11323. As discussed above, the acquisition of 
lines by Grand Elk and Fox System are properly filed as exemptions from 
49 U.S.C. 10902 and 10901, respectively, different sections of the 
Board's governing statute.
    And although Docket Nos. FD 36505 and FD 36506 deal with the intra-
corporate component and the control component of the overall 
transaction and are governed by 49 U.S.C. 11323, each component 
satisfies the criteria applicable for exemption and thus neither need 
be analyzed under the more stringent classifications found at 49 CFR 
1180.2(a)-(c). The intra-corporate family transaction in Docket No. FD 
36505, where the rail assets are being transferred from one Watco 
Holdings' subsidiary, Fox System, to another, WSOR, qualifies for a 
class exemption because that transaction does not ``result in adverse 
changes in service levels, significant operational changes, or a change 
in the competitive balance with carriers outside the corporate 
family.'' 49 CFR 1180.2(d)(3); see, e.g., Fortress Inv. Grp. LLC--
Exemption for Intra-Corp. Fam. Transaction--Ohio River Partners 
S'holder LLC, FD 36402, (STB served May 15, 2020). And, as discussed in 
detail below, the Board is granting the petition for exemption in 
Docket No. FD 36506 after considering the exemption criteria in section 
10502.\5\
---------------------------------------------------------------------------

    \5\ Some commenters, in their revocation requests, ask the Board 
to stay the transaction, but these commenters do not address or meet 
the stay criteria. See, e.g., Wash. Metro. Area Transit Comm'n v. 
Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977).
---------------------------------------------------------------------------

    Requests for Ordered Sale and Conditioning. N&B argue that CN's 
acquisition of WCL in 2001 made CN the only Class I carrier to serve 
the Northwoods and that it put CN in the position to exercise monopoly 
power. (N&B Comment 2, May 11, 2021, FD 36503 & FD 36504.) N&B claim 
that, because the current sales do not include a segment between 
Pembine, Wis., and Goodman, Wis., which they allege would permit access 
to the Escanaba & Lake Superior Railroad (E&LS), and a segment between 
Tony, Wis., and Ladysmith, Wis., which they allege would permit access 
to Union Pacific Railroad Company (UP), Northwoods shippers would 
continue not to have access to other carriers. (Id. at 4-5.) To rectify 
the situation, N&B ask that the Board order the sale of those segments 
as well as the rest of what it terms the Route 8 Corridor (Wausau north 
from milepost 91) and branch lines from the corridor. (Id. at 5-6.) \6\ 
N&B argue that their proposal would create an economic unit that would 
serve Northwoods shippers and provide interchange. (Id. at 6; see also 
U.S. Representative Tiffany Comment 1, Oct. 29, 2021, FD 36503 & FD 
36504.)
---------------------------------------------------------------------------

    \6\ Specifically, the segments include: (1) 148.6 miles of rail 
line extending between (a) Pembine and Goodman, (b) Prentice, Wis., 
and Rhinelander, Wis., (c) Prentice and Park Falls, Wis., (d) 
Bradley, Wis., and Wausau, Wis., (e) and Tony and Ladysmith; (2) and 
224 miles of line over which the Board had permitted discontinuance 
of service, between (a) Ashland, Wis., and Park Falls, (b) Goodman 
and Rhinelander, (c) Prentice and Tony, and (d) Marengo Junction, 
Wis., and White Pine, Mich. (N&B Comment 6, May 11, 2021, FD 36503 & 
FD 36504.)
---------------------------------------------------------------------------

    In addition, both Timber Association and Northwoods Commission ask 
that the Board review the transaction proposed by Watco Holdings and 
its subsidiaries at its one- and two-year anniversaries. (Timber Ass'n 
Comment 1, FD 36503 & FD 36504; Northwoods Comm'n Amended Pet. 1, May 
7, 2021, FD 36503 & FD 36504.) If conditions on these lines in the 
Northwoods have not improved, Northwoods Commission asks the Board to 
consider reopening CN/WCL and take action to ease pricing impacts, and 
Timber Association asks the Board to reopen the terms of the current 
sales. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD 36503 & FD 
36504; Timber Ass'n Comment 1, FD 36503 & FD 36504.) Northwoods 
Commission, as well as Upper Peninsula Commission, also ask that the 
Board hold WCL to its representation to WisDOT that nothing would 
change concerning the CN/WCL conditions due to the sales to Grand Elk 
and Fox System. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD 
36503 & FD 36504; Upper Peninsula Comm'n Comment 1-2, May 7, 2021, FD 
36503.)
    The Board will not impose the conditions related to the Northwoods 
area. As discussed above, the record does not demonstrate that the 
proposed transaction would result in any clear, anticompetitive 
effects. Indeed, these concerns seem to stem from CN's acquiring 
control over WCL in 2001, and not from the presently proposed 
acquisitions by Grand Elk and Fox System. Board approval of the 
transaction at issue would have no effect on the conditions imposed in 
CN/WCL, including the conditions requiring WCL to adhere to its ``open 
gateways pledge'' and its ``bottleneck-waiver pledge,'' which remain in 
effect. Thus, there is no need for the Board to again hold WCL to its 
representation to WisDOT regarding the CN/WCL conditions.
    N&B's request to order a sale of the corridor and related track to 
a local entity is also misplaced. There is no basis here to condition 
approval of the transaction on a requirement that assets be divested 
given the absence, discussed above, of transaction-related competitive 
concerns. Regardless, the requested relief would not provide shippers 
in the Northwoods area with increased access to a Class I carrier other 
than CN. In response to N&B's concerns about how the sale was 
structured, WCL notes that, while the segment between Pembine and 
Goodman does lead to E&LS, E&LS only has connections with WCL. (WCL 
Reply 2, Sept. 27, 2021, FD 36503 & FD 36504.) Similarly, as to the 
segment between Tony and Ladysmith, WCL notes that UP cannot access 
customers or interchange traffic at Ladysmith. (Id.) UP only conducts 
train operations through Ladysmith on WCL's north-south mainline 
pursuant to overhead trackage rights obtained by a predecessor in a 
series of related transactions from the early 1990s. See Chi. & N. W. 
Transp. Co.--Joint Relocation Project Exemption, FD 32043 (ICC served 
May 27, 1992); Chi. & N. W. Transp. Co.--Trackage Rts.

[[Page 73084]]

Exemption--over Wis. Cent. Ltd., FD 31882 (ICC served June 6, 1991).
    Although the Board will not grant the relief described above, it 
takes seriously concerns raised about service in the Northwoods and 
emphasizes WCL's, Grand Elk's, and Fox System's responsibility to 
provide rail service consistent with their common carrier obligations.
    Transfer of Lines Over Which Discontinuance of Service Had Been 
Granted. As discussed above, Grand Elk and Fox System seek to acquire 
certain lines over which the Board had granted authority for 
discontinuance of service, and the intended purchasers did not indicate 
an intent to operate those lines. See Apr. Ord., FD 36503 et al., slip 
op. at 3-4. Applicants and WCL filed replies addressing the issue. Upon 
review, the Board will allow the transfer of those lines through the 
exemptions sought in Docket Nos. FD 36503 and FD 36504.
    The class exemption allowing noncarriers (such as Fox System) to 
acquire or operate a rail line was adopted to serve shippers and 
community interests by facilitating continued rail service, and the 
Board has stated that an acquisition exemption is meant to support the 
continued operation of rail lines. See Apr. Ord., FD 36503 et al., slip 
op. at 3 (citations omitted).
    Here, Grand Elk and Fox System explain in their reply to the April 
Order that they are each acquiring the rail lines where discontinuance 
authority had been granted with the goal and intent of restoring rail 
service on those lines. (Applicants Reply 16, May 7, 2021, FD 36503, FD 
36504, FD 36505, & FD 36506.) They note, however, that the lines have 
been out of service for several years and that Watco Holdings has not 
yet fully assessed the condition of the tracks, bridges, and other 
facilities and the costs of restoring the lines to safe operating 
condition. (Id.) In addition, potential rail shippers located on the 
lines would need to be persuaded to use rail and new business would 
need to be developed. (Id.) Accordingly, restoring rail service would 
require both an investment in the physical infrastructure and rail 
customers to warrant the investment. (Id.) Grand Elk and Fox System 
assert that they are already engaged in efforts to develop rail 
customers and hope to work with state economic development officials 
and other interested stakeholders to develop rail business and to 
identify funding opportunities, as Watco Holdings companies previously 
have done in Wisconsin, Michigan, and elsewhere. (Id.) Watco Holdings 
adds that it intends to pursue re-investment in these lines using the 
various options available to short line railroads, such as federal and 
state grant programs coupled with private capital to restore service, 
if market conditions allow, and notes these efforts would take time. 
(Id.) Other stakeholders have filed in support of reactivating service. 
(See, e.g., Northwoods Comm'n Amended Pet. 2, May 7, 2021, FD 36503 & 
FD 36504.)
    Based on this record, the Board concludes that the transfer of the 
lines in question would be consistent with the rationale underpinning 
the Board's class exemption procedures and that it is appropriate to 
allow the transfers to proceed. See also Ventura Cnty. Transp. Comm'n--
Acquis. Exemption--S. Pac. Transp. Co., FD 32794 (ICC served Dec. 29, 
1995); Golden Gate Bridge, Highway & Transp. Dist.--Acquis. Exemption--
NW Pac. R.R., FD 31689 (July 3, 1990).\7\
---------------------------------------------------------------------------

    \7\ The Board notes that none of the line sales at issue in 
Docket Nos. FD 36503 and FD 36504 are subject to interchange 
commitments limiting future interchange with a third-party 
connecting carrier. (Grand Elk Verified Notice 4; Fox Sys. Verified 
Notice 5.) If interchange commitments are imposed at a later date, 
however, the Board expects to be notified about such a development.
---------------------------------------------------------------------------

    Petition for Exemption. In Docket No. FD 36506, Watco Holdings 
filed a petition for exemption under 49 U.S.C. 10502 from the prior 
approval requirements of 49 U.S.C. 11323-24 to continue in control of 
Fox System once Fox System becomes a rail carrier. (Pet. for Exemption 
1.) Watco Holdings notes that granting its petition would also permit 
the consummation in Docket No. FD 36505, in which Fox System would 
transfer the Southern Cluster to WSOR for WSOR to operate as part of 
its system. (Id. at 5.)
    Watco Holdings asserts it is unlikely that its continued control of 
Fox System would result in any anticompetitive effects. (Id. at 8.) 
With the exceptions of the West Bend and Saukville Subdivisions, none 
of Fox System's rail lines connect to those of any other rail carrier 
owned or controlled by Watco Holdings or its affiliates. (Id.)
    With respect to the West Bend Subdivision and the Saukville 
Subdivision, Watco Holdings asserts that no loss of competition is 
likely. (Id.) Although those lines are branch lines currently solely 
served by WCL, they are ``islands'' disconnected from the rest of the 
WCL system. (Id. at 8-9.) To serve those lines, WSOR currently handles 
WCL traffic to and from each line in haulage service for WCL over 
WSOR's own lines. (Id. at 9.) After consummation of the overall 
transaction, traffic on the West Bend Subdivision and the Saukville 
Subdivision would continue to be handled by WSOR in WCL's account to 
and from interchange with WCL pursuant to a contractual handling 
carrier agreement between the parties. (Id.) In addition, shippers on 
the two segments would also be able to ship via WSOR and its interline 
connections. (Id.) Watco Holdings adds that there are no dually served 
shippers at the points where the West Bend and Saukville Subdivisions 
connect with WSOR's rail lines, and no shipper would go from two-
railroad access to one. (Id.)
    The acquisition of control of a rail carrier by a person that is 
not a rail carrier but that controls any number of rail carriers 
requires prior approval by the Board under 49 U.S.C. 11323(a)(5). Under 
49 U.S.C. 10502(a), however, the Board must exempt a transaction from 
regulation if it finds that: (1) Regulation is not necessary to carry 
out the RTP of 49 U.S.C. 10101; and (2) either (a) the transaction is 
limited in scope, or (b) regulation is not needed to protect shippers 
from the abuse of market power.
    Detailed scrutiny of a full application concerning the proposed 
continuance in control is not required here to carry out the 
transportation policy of section 10101. The grant of an exemption will 
minimize the need for federal regulatory control over the rail 
transportation system. 49 U.S.C. 10101(2). An exemption also will 
enable Watco Holdings, a company experienced in the development of 
short line railroads, to bring its experience, knowledge, and resources 
to bear in helping Fox System maintain, operate, and develop the lines 
it is acquiring from WCL. Thus, the grant of an exemption will promote 
a safe and efficient rail transportation system (49 U.S.C. 10101(3)), 
ensure the development of a sound rail transportation system (49 U.S.C. 
10101(4)), foster sound economic conditions in transportation (49 
U.S.C. 10101(5)), and encourage efficient management of railroads (49 
U.S.C. 10101(9)). Granting an exemption will reduce the regulatory 
barriers to entry into and exit from the industry (49 U.S.C. 10101(7)) 
and provide for expeditious handling and resolution of all proceedings 
(49 U.S.C. 10101(15)). Moreover, the grant of the exemption would not 
adversely affect any of the other aspects of the RTP.
    Additionally, regulation is not needed to protect shippers from the 
abuse of market power. As noted above, it is unlikely that Watco 
Holdings' continued control of Fox System would result in any 
anticompetitive effects. (Pet. for Exemption 8.) After the transaction, 
with the exception of two

[[Page 73085]]

short branch lines, none of the Fox System lines will connect to any 
other railroad owned or controlled by Watco Holdings. (Id. at 10.) Most 
of Fox System's lines are branch lines that connect to the WCL system 
and, with the exception of certain lines located in northern Wisconsin, 
do not connect to each other. (Id.)
    Under 49 U.S.C. 10502(g), the Board may not use its exemption 
authority to relieve a rail carrier of its statutory obligation to 
protect the interests of its employees. Because the transaction 
involves one Class II and one or more Class III rail carriers, the 
exemption will be made subject to the labor protection requirements of 
49 U.S.C. 11326(b) and Wisconsin Central Ltd.--Acquisition Exemption--
Lines of Union Pacific Railroad, 2 S.T.B. 218 (1997).
    The continuance in control portion of the transaction is exempt 
from environmental reporting requirements under 49 CFR 1105.6(c)(1)(i) 
because it would not result in any significant change in carrier 
operations. Similarly, the continuance in control component of the 
transaction is exempt from the historic reporting requirements under 49 
CFR 1105.8(b)(3) because it would not substantially change the level of 
maintenance of railroad properties.
    The continuance in control exemption in Docket No. FD 36506 will be 
effective on December 31, 2021, and petitions to stay will be due by 
December 27, 2021. Petitions to reopen also will be due by December 27, 
2021.
    Conclusions. For the reasons discussed above, the Board will allow 
the exemptions to become effective and the sales to Grand Elk and Fox 
System to proceed.
    It is ordered:
    1. All filings to date are accepted into the record.
    2. The requests for revocation or stay in Docket Nos. FD 36503 and 
FD 36504 are denied.
    3. Under 49 U.S.C. 10502, the Board exempts from the prior approval 
requirements of 49 U.S.C. 11323-25 the continued control of Fox System 
by Watco Holdings once Fox System becomes a rail carrier. The exemption 
is subject to the employee protective conditions in Wisconsin Central 
Ltd.--Acquisition Exemption--Lines of Union Pacific Railroad, 2 S.T.B. 
218 (1997).
    4. Notice of the exemptions in Docket Nos. FD 36503, FD 36504, FD 
36505, and FD 36506 will be published in the Federal Register.
    5. The exemptions in Docket Nos. FD 36503, FD 36504, FD 36505, and 
FD 36506 will become effective on December 31, 2021. Petitions for stay 
must be filed by December 27, 2021. Petitions to reopen also must be 
filed by December 27, 2021.
    6. This decision is effective on its service date.

    Decided: December 17, 2021.

    By the Board, Board Members Fuchs, Oberman, Primus, and Schultz.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2021-27903 Filed 12-22-21; 8:45 am]
BILLING CODE 4915-01-P