[Federal Register Volume 87, Number 1 (Monday, January 3, 2022)]
[Proposed Rules]
[Pages 62-65]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28396]


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SURFACE TRANSPORTATION BOARD

49 CFR Parts 1144 and 1145

[Docket No. EP 711 (Sub-No. 1)]


Reciprocal Switching

AGENCY: Surface Transportation Board.

ACTION: Notification of public hearing.

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SUMMARY: The Surface Transportation Board (Board) will hold a public 
hearing on March 15 and 16, 2022, concerning the reciprocal switching 
regulations it proposed in this proceeding. The hearing will be held in 
the Hearing Room of the Board's headquarters, located at 395 E Street 
SW, Washington, DC 20423-0001. All interested persons are invited to 
appear. In addition, the Board will pause the period for ex parte 
discussions, beginning January 24, 2022, and modify the instructions 
for ex parte communications in this proceeding to permit ex parte 
discussions with up to two Board members in the same meeting.

DATES: The hearing will be held on March 15 and 16, 2022, beginning at 
9:30 a.m., in the Hearing Room of the Board's headquarters and will be 
open for public observation.\1\ The hearing will be available for 
viewing on the Board's website. Any person wishing to speak at the 
hearing should file with the Board a notice of intent to participate 
(identifying the party, proposed speaker, and time requested) as soon 
as possible but no later than January 27, 2022. Written comments, 
including required written testimony by hearing participants, may be 
submitted by all interested persons by February 14, 2022. Hearing 
participants are required to submit written testimony by February 14, 
2022. Additionally, by the same date, any interested person, including 
those who will not appear at the hearing, may submit written comments 
addressing matters related to the proceeding, including the areas of 
interest identified below.
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    \1\ The Board will provide additional instructions and 
requirements for facility entry in a subsequent decision. If the 
Board determines that the hearing should be held virtually, either 
entirely or in part, the Board will issue a subsequent decision by 
no later than March 1, 2022, indicating whether that is the case and 
containing registration instructions.

ADDRESSES: All filings should be submitted via e-filing on the Board's 
website at www.stb.gov. Filings will be posted to the Board's website 
and need not be served on the other hearing participants, written 
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commenters, or any other party to the proceeding.

FOR FURTHER INFORMATION CONTACT: Sarah Fancher at (202) 245-0355. 
Assistance for the hearing impaired is available through the Federal 
Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: In Reciprocal Switching (NPRM), EP 711 (Sub-
No. 1) et al., (STB served July 27, 2016),\2\ the Board proposed new 
regulations under which the Board would exercise its statutory 
authority to require rail carriers to establish switching arrangements 
in certain circumstances. The Board received numerous comments in 
response to the proposal. In addition, Board members have been 
participating in ex parte meetings with interested persons, and 
summaries of those meetings are posted in the docket pursuant to the 
procedure detailed in the NPRM. To allow interested persons to submit 
testimony to update the record, the Board will hold a public hearing 
and invite comments.
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    \2\ The proposed rule was published in the Federal Register, 81 
FR 51149 (Aug. 3, 2016).
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Background

    Competitive access generally refers to the ability of a shipper or 
a competitor railroad to use the facilities or services of an incumbent 
railroad to extend the reach of the services provided by the competitor 
railroad. The provisions of 49 U.S.C. 11102 and 10705 make three 
competitive access remedies available to shippers and carriers: The 
prescription of through routes, terminal trackage rights, and, as 
relevant here, reciprocal switching. Under reciprocal switching, an 
incumbent carrier transports a shipper's traffic to an interchange 
point, where it switches the rail cars over to the competing carrier. 
The competing carrier pays the incumbent carrier a switching fee for 
bringing or taking the cars from the shipper's facility to the 
interchange point, or vice versa. The switching fee is incorporated in 
some manner into the competing carrier's total rate to the shipper. 
Reciprocal switching thus enables a competing carrier to offer its own 
single-line rate to

[[Page 63]]

compete with the incumbent carrier's single-line rate, even if the 
competing carrier's lines do not physically reach a shipper's facility. 
NPRM, EP 711 (Sub-No. 1) et al., slip op. at 2.
    Reciprocal switching can occur as part of a voluntary arrangement 
between carriers, or it may be ordered by the Board. Under section 
11102, the Board may require the establishment of a switching 
arrangement when it finds that the arrangement either (1) is 
practicable and in the public interest, or (2) is necessary to provide 
competitive rail service. 49 U.S.C. 11102(c)(1). Section 11102(c)(1) 
authorizes the Board to establish the conditions of and compensation 
for switching service if the affected carriers cannot reach agreement 
on those matters within a reasonable period. The Board's implementation 
of section 11102 is guided by the rail transportation policy set forth 
in 49 U.S.C. 10101. See NPRM, EP 711 (Sub-No. 1) et al., slip op. at 
16.
    The Board's current regulations governing reciprocal switching were 
promulgated in 1985 by the Board's predecessor, the Interstate Commerce 
Commission (ICC), see Intramodal Rail Competition, 1 I.C.C.2d 822 
(1985), aff'd sub nom. Balt. Gas & Elec. v. United States, 817 F.2d 108 
(D.C. Cir. 1987), and are codified at 49 CFR 1144.\3\ The regulations 
provide that reciprocal switching would only be prescribed if the 
agency determines that it ``is necessary to remedy or prevent an act 
that is contrary to the competition policies of 49 U.S.C. [Sec. ] 10101 
or is otherwise anticompetitive,'' and ``otherwise satisfies the 
criteria of . . . [Sec. ] 11102(c).'' 49 CFR 1144.2(a)(1). The Board's 
regulations also provide relevant factors that the agency shall 
consider in determining whether to prescribe competitive access, along 
with a ``standing'' requirement. 49 CFR 1144.2(a)(1)-(2). The 
regulations do not address how the Board should establish compensation 
for Board-ordered switching when the carriers cannot reach agreement 
within a reasonable period.\4\
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    \3\ 49 CFR 1144 also contains the Board's regulations governing 
through routes under 49 U.S.C. 10705.
    \4\ The Board's current regulations in Part 1144 also state that 
``[t]he Board will not consider product competition,'' and, ``[i]f a 
railroad wishes to rely in any way on geographic competition, it 
will have the burden of proving the existence of effective 
geographic competition by clear and convincing evidence.'' 49 CFR 
1144.2(b)(1)-(2). See also NPRM, EP 711 (Sub-No. 1) et al., slip op. 
at 27.
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    In Midtec Paper Corp. v. Chicago & North Western Transportation 
Co., 3 I.C.C.2d 171 (1986), the first case where the ICC applied 49 CFR 
1144.2, the agency explained that the key issue under its then-new 
regulations was whether the incumbent railroad ``has engaged in or is 
likely to engage in conduct that is contrary to the rail transportation 
policy or is otherwise anticompetitive.'' Id. at 181. The ICC further 
explained that it would find anticompetitive behavior only when an 
incumbent carrier had ``used its market power to extract unreasonable 
terms on through movements'' or ``because of its monopoly position . . 
. shown a disregard for the shipper's needs by rendering inadequate 
service.'' Id. The agency's competitive access regulations have not 
changed substantively since 1985 and few requests for reciprocal 
switching have been filed since then.
    The Board proposed modified regulations as set forth in the 
NPRM.\5\ NPRM, EP 711 (Sub-No. 1) et al., slip op. at 13-28. Under the 
Board's proposed regulations, there would be no need to show 
anticompetitive conduct, as had been required in the ICC's Midtec 
decision. Rather, under the Board's proposed regulations, the Board 
would require the establishment of a switching arrangement when the 
switching arrangement either was practicable and in the public interest 
or was necessary to provide competitive rail service. NPRM, EP 711 
(Sub-No. 1) et al., slip op. at 16.
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    \5\ The Board's proposal left in place the Board's existing 
regulations that govern through routes. See NPRM, EP 711 (Sub-No. 1) 
et al., slip op. at 26, 39-40.
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    In assessing whether a switching arrangement would be practicable 
and in the public interest under the proposed regulations, the Board 
would consider whether the benefits of a proposed arrangement would 
outweigh its potential detriments. In making that determination, the 
Board would consider all relevant factors, such as (1) whether the 
arrangement would further the rail transportation policies in 49 U.S.C. 
10101; (2) the efficiency of the proposed route; (3) whether the 
arrangement would allow access to new markets; (4) the impacts, if any, 
of the arrangement on capital investment, quality of service, and 
employees; (5) the amount of traffic that would be moved under the 
arrangement; and (6) the impact, if any, of the arrangement on the rail 
transportation network. NPRM, EP 711 (Sub-No. 1) et al., slip op. at 
18.
    In assessing whether a reciprocal switching arrangement would be 
necessary to provide competitive rail service, the Board would consider 
whether intermodal and intramodal competition were effective with 
respect to the movements for which the switching arrangement was 
sought. The Board would evaluate the effectiveness of competition using 
quantitative and qualitative factors that the Board has developed in 
the context of assessing market dominance in rate challenges, but it 
would not consider product competition or geographic competition. Id. 
at 27.
    The Board's proposed regulations also state that reciprocal 
switching would not be ordered, even if one or both of the foregoing 
standards were met, if the switching was not feasible, would be unsafe, 
or would unduly hamper a carrier's ability to serve its customers. As 
additional limitations, the Board would require the establishment of a 
switching arrangement only when (1) the shipper or receiver was served 
by a single Class I carrier; and (2) there was or could be, within a 
reasonable distance of the shipper or receiver's facilities, a working 
interchange between the incumbent carrier and another Class I rail 
carrier. Id. at 19-21.
    The NPRM sought comments on two alternatives regarding the 
compensation the Board could impose for switching service if the 
carriers could not agree within a reasonable time period. Under the 
first alternative, compensation would be based on factors such as: (1) 
The geography where the proposed switch would occur; (2) the distance 
between the shipper/receiver and the proposed interchange; (3) the cost 
of the service; (4) the capacity of the interchange facility; and (5) 
other case-specific factors. The NPRM asked for comment on whether the 
agency should also consider what have been referred to as the incumbent 
carrier's lost contribution or opportunity costs. Under the second 
alternative, compensation would be based on the cost of providing the 
service plus a fair and reasonable return on the capital that was used 
to provide the service, analogous to the rental income that applies 
when the Board orders a carrier to provide trackage rights to another 
carrier (the Board's ``SSW methodology''). (Id. at 25-26); see, e.g., 
New England Cent. R.R.--Trackage Rts. Ord.--Pan Am S. LLC, FD 35842 
(STB served Oct. 31, 2017); St. Louis Sw. Ry.--Trackage Rts. over Mo. 
Pac. R.R.--Kan. City to St. Louis, 4 I.C.C.2d 668 (1987); St. Louis Sw. 
Ry.--Trackage Rts. over Mo. Pac. R.R.--Kan. City to St. Louis, 1 
I.C.C.2d 776 (1984).

Overview of Comments

    The NPRM generated divergent responses, briefly described below, 
from a variety of stakeholders.
    Many of the comments address the scope of the Board's authority to

[[Page 64]]

promulgate revised competitive access regulations. Commenters who 
generally support the proposed regulations assert that the regulations 
are within the Board's statutory authority under 49 U.S.C. 11102(c). 
These commenters argue that the showing of anticompetitive conduct 
required in Midtec is not required by statute, as section 11102(c) 
establishes two bases for reciprocal switching: When ``practicable and 
in the public interest'' or when ``necessary to provide competitive 
rail service.'' These commenters further argue that the proposed 
regulations (1) would not interfere with rail carriers' ability to set 
their own rates; and (2) would not offend any statutory right to the 
long haul, given that the statutory provision that supports a carrier's 
right to the long haul (49 U.S.C. 10705) is expressly conditioned by 
the Board's authority to require the establishment of switching 
arrangements.
    In contrast, commenters who generally oppose the proposed 
regulations assert that the regulations would exceed the scope of the 
Board's statutory authority. These commenters argue that Congress 
authorized the Board to compel switching only upon a showing of 
anticompetitive behavior because railroads, as common carriers, 
undertake investment and operational responsibilities. These commenters 
further argue that, in the absence of anticompetitive behavior, the 
Board's order of a switching arrangement would impermissibly interfere 
with both the incumbent carrier's right to the long haul under section 
10705 and carriers' discretion to engage in differential pricing, i.e., 
to charge rates that vary according to the elasticity of a shipper's 
demand.
    The same commenters assert that, even if the proposed regulations 
fall within the Board's statutory authority, they are misguided as a 
matter of policy because they would drive rates down to the point of 
undermining carriers' ability to raise sufficient capital, thereby 
threatening the ability of carriers to make the investments necessary 
to maintain and operate the rail network efficiently and effectively. 
They also argue that the proposed approach would lead to switching 
arrangements that are economically inefficient.
    Commenters who generally support the proposal counter that the 
proposed regulations would substantially advance the public interest. 
They argue that the proposed regulations would: (1) Foster competition 
among rail carriers at a time when (due to mergers and acquisitions) 
shippers' rail transportation options are limited; (2) limit the 
availability of switching orders to certain locations and certain 
conditions, such that the current structure of the rail industry would 
largely remain in place; and (3) promote competition and efficiency in 
the U.S. economy overall.
    Many commenters urge the Board to adopt revisions to the proposed 
regulations. Some sought more specific standards or thresholds for when 
the Board would require the establishment of a switching arrangement. 
Some suggest expanding the availability of Board-prescribed switching, 
for example by making it available to shippers who are served by more 
than one Class I carrier, shippers who are served by carriers other 
than Class I carriers, or shippers who are seeking to switch to a 
carrier other than a Class I carrier. Several commenters urge the Board 
to adopt streamlined procedures for reviewing requests for switching 
arrangements, while others offer proposals on how to allocate the 
burden of proof in switching proceedings.
    In response to an invitation in the NPRM, many commenters address 
what would constitute a reasonable distance between a shipper's 
facilities and a location where the Board could require switching. 
Commenters who generally support the proposed regulations suggest that 
what constitutes a reasonable distance should be liberally construed. 
Some advocate a mileage-based approach to determining a reasonable 
distance. Others suggest that what constitutes a reasonable distance 
should turn on case-by-case operational considerations, such as where a 
switch could be accomplished effectively. Commenters who generally 
oppose the proposed regulations argue, in contrast, that the Board's 
authority to require the establishment of switching arrangements is 
limited to terminal areas.
    Also in response to an invitation in the NPRM, many commenters 
address how the Board should establish compensation for switching if 
carriers cannot reach agreement within a reasonable time. Some 
commenters assert that compensation should include a contribution to 
the fixed and common costs of the incumbent carrier's network that the 
carrier would have recouped from the switching shipper. Other 
commenters disagree, suggesting that this approach would unreasonably 
require a shipper to pay twice for service. Most of these commenters 
assert that compensation should be based on the incumbent carrier's 
fully allocated cost of providing that service, including a reasonable 
rate of return on the capital that is used to provide the service.

Public Hearing

    The Board will hold a public hearing in this proceeding on March 15 
and 16, 2022. Participants in the hearing may address the issues 
described below and any other matters relevant to this proceeding. 
Hearing participants are required to submit written testimony by 
February 14, 2022.

Comments Requested

    Since the issuance of the NPRM and the Board's receipt of written 
comments and the occurrence of some of the ex parte meetings, there 
have been significant operational changes in and affecting the freight 
rail industry. For example, Class I carriers have changed their means 
of designing rail service. Commenters may have additional or modified 
views on the effects and/or need for the proposed regulations.
    To ensure a full and updated record in this proceeding, the Board 
invites written comments on several broad areas of interest. First, 
comments may identify new developments (i.e., developments that have 
occurred since the Board previously invited comments in this 
proceeding) that a commenter finds are relevant to a final decision in 
this matter and address any change or significant development in a 
commenter's views since the previous round of comments. Second, 
comments may address topics that were discussed in ex parte 
communications that have taken place since October 25, 2016, in this 
proceeding.\6\ Participants should understand that the Board has 
reviewed the comments filed to date, and that repeating those same 
arguments in the written comments is strongly discouraged.
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    \6\ A party must submit a summary of an ex parte meeting it 
participated in within two business days of the meeting, per the 
instructions set forth in the NPRM. Should a party wish to reply to 
a meeting summary, it must do so within the time period for written 
comments, set out above. To ensure adequate time for parties to 
consider ex parte meeting summaries in advance of the deadline for 
written comments, the Board expects that summaries of meetings held 
between now and January 21, 2022, will be posted to the docket 
within five business days of submission, but not later than February 
4, 2022.
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    Written comments on these areas of interest may be filed by any 
interested person, regardless of intent to participate at the hearing, 
by February 14, 2022. Those intending to participate at the hearing may 
include in their written testimony comments on the issues raised above 
and any other matters relevant to this proceeding.

[[Page 65]]

Pause of the Ex Parte Period and Modification of the Ex Parte Waiver

    As discussed in the NPRM, the Board provided a limited waiver of 
the ex parte prohibitions that otherwise apply to this proceeding.\7\ 
Many stakeholders and interested persons have met with Board members, 
and summaries of those meetings are posted in the public docket. 
Beginning January 24, 2022, the Board will pause the scheduling of any 
further ex parte communications until the completion of the hearing set 
for March 15-16, 2022. The period for further ex parte communication 
will resume following the hearing and will close on April 6, 2022. 
Although allowing for the resumption of ex parte meetings will provide 
an opportunity for hearing participants and other interested persons to 
address any matter that may remain to be addressed following the 
hearing, all interested persons should endeavor to make their hearing 
presentations, both written and oral, complete so that the hearing will 
be as comprehensive as possible, repetition can be avoided, and the 
record in this matter can be closed expeditiously.
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    \7\ In 2018, the Board revised its regulations to permit ex 
parte communications in informal rulemaking proceedings pursuant to 
specified procedures. See Ex Parte Commc'ns in Informal Rulemaking 
Proc., EP 739 (STB served Feb. 28, 2018); 49 CFR 1102.2(g). However, 
those regulations do not apply to informal rulemaking proceedings, 
such as this one, that were initiated prior to April 4, 2018.
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    The Board will also modify the procedures for such ex parte 
communications to allow ex parte discussions with up to two Board 
Members in the same meeting, with the consent of the Board Members with 
whom the meeting is requested. When the NPRM was issued, the Board was 
composed of three Board members, such that two members constituted a 
majority, which could have implications under the Government in the 
Sunshine Act, 5 U.S.C. 552b. Accordingly, the NPRM specified that if a 
party wished to meet with multiple Board members, separate meetings 
must be scheduled. NPRM, EP 711 (Sub-No. 1) et al., slip op. at 29. 
Given that two members no longer constitute a majority under the 
Board's current composition (and provided the composition remains at no 
fewer than four members), interested persons may have ex parte 
discussions with up to two members between now and the closing of the 
period for ex parte communications.
    Board Releases and Transcript Availability: Decisions and notices 
of the Board, including this document, are available on the Board's 
website at www.stb.gov. The Board will issue a separate notice 
containing instructions for attendance at the hearing and the schedule 
of appearances. Once the transcript is available, it will be posted on 
the Board's website.
    It is ordered:
    1. A public hearing will be held on March 15 and 16, 2022, at 9:30 
a.m., in the Hearing Room of the Board's headquarters, located at 395 E 
Street SW, Washington, DC 20423-0001.
    2. The period for ex parte communications in this proceeding will 
be paused beginning January 24, 2022, and will resume from March 17, 
2022 until April 6, 2022.
    3. By January 27, 2022, any person wishing to speak at the hearing 
shall file with the Board a notice of intent to participate identifying 
the party, the proposed speaker, and the time requested.
    4. Written testimony and written comments shall be filed by 
February 14, 2022.
    5. Filings will be posted to the Board's website and need not be 
served on any hearing participants or other commenters.
    6. This decision is effective on its service date.
    7. This decision will be published in the Federal Register.

    Decided: December 27, 2021.

    By the Board, Board Members Fuchs, Oberman, Primus, and Schultz.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2021-28396 Filed 12-30-21; 8:45 am]
BILLING CODE 4915-01-P