[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]]
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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.)
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\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.
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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.)
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\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.
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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\
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\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'').
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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).
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\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.
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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\
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\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).
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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.)
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\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.)
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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\
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\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.
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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