|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|CANADIAN NATIONAL RAILWAY COMPANY, GRAND TRUNK CORPORATION AND GRAND TRUNK WESTERN RAILROAD INCORPORATED--CONTROL--ILLINOIS CENTRAL CORPORATION, ILLINOIS CENTRAL RAILROAD COMPANY, CHICAGO, CENTRAL AND PACIFIC RAILROAD COMPANY, AND CEDAR RIVER RAILROAD COMPANY|
|GRANTED, WITH CERTAIN CONDITIONS, THE ACQUISITION OF CONTROL OF ILLINOIS CENTRAL CORPORATION, ET. AL., BY THE CANADIAN NATIONAL RAILWAY COMPANY, ET. AL.|
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|Full Text of Decision|
The Board approves, with certain conditions, the acquisition, by Canadian National Railway Company, Grand Trunk Corporation, and Grand Trunk Western Railroad Incorporated (collectively, CN), of control of Illinois Central Corporation, Illinois Central Railroad Company, Chicago, Central & Pacific Railroad Company, and Cedar River Railroad Company (collectively, IC).
THE CN/IC CONTROL APPLICATION 9
APPLICABLE STANDARDS 19
Criteria For Imposing Conditions 21
DISCUSSION AND CONCLUSIONS 22
GENERAL ISSUES and SPECIFIC CONDITIONS SOUGHT BY PARTIES 24
The Alliance Agreement 24
The Control Issue 25
The Collusion Issue 28
The Build-in/Build-out Issue 29
The Pooling Issue 30
NITL Stipulation with Applicants 31
The Access Agreement: Geismar 32
The Detroit River Tunnel 34
North Dakota Grain 37
American Forest and Paper Association 37
Lumber Pricing Issues 39
OVERSIGHT CONDITION 39
LABOR MATTERS 40
The implementing agreement process 41
Protection for non-applicant employees 43
DETAILS OF PUBLIC BENEFITS 45
Quantifiable and Unquantifiable Public Benefits 45
DETAILS OF FINANCIAL MATTERS 48
Financial Condition and Fixed Charges 48
Fairness Determination 50
RELATED APPLICATION 51
KCS-GWWR (Sub-No. 1) Trackage Rights Application 51
ENVIRONMENTAL MATTERS 53
CHAIRMAN MORGAN, comment 58
VICE CHAIRMAN CLYBURN, comment 61
COMMISSIONER BURKES, comment 63
APPENDIX A: ABBREVIATIONS 66
APPENDIX B: THE KCS TRACKAGE RIGHTS APPLICATION 69
APPENDIX C: COMMENTING PARTIES OTHER THAN LABOR 81
UNION PACIFIC 81
CANADIAN PACIFIC 88
ONTARIO MICHIGAN RAIL CORPORATION 95
COMMENTS RESPECTING TUNNEL ISSUE 99
NORTH DAKOTA 100
OCCIDENTAL CHEMICAL CORPORATION 106
RUBICON AND UNIROYAL. 107
AMERICAN FOREST & PAPER ASSOCIATION 117
U.S. DEPARTMENT OF TRANSPORTATION 119
COMMENTS RESPECTING LUMBER PRICING SCHEME 123
APPENDIX D: LABOR PARTIES 126
BROTHERHOOD OF LOCOMOTIVE ENGINEERS 126
UNITED TRANSPORTATION UNION 131
AMERICAN TRAIN DISPATCHERS DEPARTMENT 132
INTERNATIONAL ASSOCIATION OF MACHINISTS 136
TRANSPORTATIONCOMMUNICATIONS INTERNATIONAL UNION 137
JOHN D. FITZGERALD 141
ALLIED RAIL UNIONS 141
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES 142
APPENDIX E: ENVIRONMENTAL CONDITIONS 144
SAFETY: HAZARDOUS MATERIALS TRANSPORT CONDITIONS 144
ENVIRONMENTAL JUSTICE CONDITIONS 147
CONSTRUCTION CONDITIONS 148
SAFETY INTEGRATION CONDITIONS 150
MONITORING AND ENFORCEMENT CONDITION 150
ATTACHMENT A: Best Management Practices for Construction Activities 151
The CN/IC Control Application. By application(3) filed July 15, 1998, Canadian National
Railway Company (CNR), Grand Trunk Corporation (GTC), and Grand Trunk Western Railroad
Incorporated (GTW),(4) and Illinois Central Corporation (IC Corp.), Illinois Central Railroad
Company (ICR), Chicago, Central & Pacific Railroad Company (CCP), and Cedar River Railroad
Company (CRRC),(5) seek approval under 49 U.S.C. 11321-26 for:(6) (1) the acquisition by CN of
control of IC; and (2) the integration of the rail operations of CN and IC.(7)
Parties Supporting The CN/IC Control Application. The CN/IC control application has
been endorsed by more than 240 parties, including more than 190 shippers. See CN/IC-8 and
The KCS Trackage Rights Application. By application (referred to as the KCS trackage
rights application) filed July 15, 1998, CNR, ICR, The Kansas City Southern Railway Company,
and Gateway Western Railway Company(9) seek the entry of an order under 49 U.S.C. 11102
permitting GWWR to use without restriction three connected segments of track in Springfield, IL,
that total approximately 4.6 miles in length and that are owned in part by Union Pacific Railroad
Company (UP) and in part by Norfolk Southern Railway Company (NS). The evidence and
arguments submitted by applicants and KCS with respect to the KCS trackage rights application are
summarized in Appendix B.(10)
Commenting Parties Other Than Labor. Submissions respecting the CN/IC control
application and/or the KCS trackage rights application have been filed by Union Pacific Railroad
Company (UP), Canadian Pacific Railway Company (CPR), St. Lawrence & Hudson Railway
Company Limited (St.L&H),(11) Ontario Michigan Rail Corporation (OMR),(12) North Dakota
Governor Edward T. Schafer, the North Dakota Public Service Commission (NDPSC), the
North Dakota Department of Transportation (NDDOT), the North Dakota Department of
Agriculture (NDDA),(13) Exxon Chemical Americas,(14) Occidental Chemical Corporation (Oxy
Chem), Rubicon Inc. (Rubicon), Uniroyal Chemical Company, Inc. (Uniroyal),(15) Vulcan Chemicals
(Vulcan),(16) The National Industrial Transportation League (NITL), The Fertilizer Institute (TFI),(17)
American Forest & Paper Association (AF&PA), Champion International Corporation (CIC),
Weldwood of Canada, Limited (Weldwood),(18) and the United States Department of Transportation
(DOT). The evidence and arguments, and any related requests for affirmative relief, contained in
these submissions are summarized in Appendix C.(19)
Labor Parties. Submissions respecting the CN/IC control application and/or the KCS
trackage rights application have been filed by various labor parties, including the Brotherhood of
Locomotive Engineers (BLE), the United Transportation Union (UTU), the American Train
Dispatchers Department of the Brotherhood of Locomotive Engineers (ATDD), the International
Association of Machinists and Aerospace Workers (IAM), the TransportationCommunications
International Union (TCU), John D. Fitzgerald,(20) the Allied Rail Unions (ARU), and the
Brotherhood of Maintenance of Way Employes (BMWE). The evidence and arguments, and any
related requests for affirmative relief, contained in these submissions are summarized in
Additional Parties. A number of additional parties have also participated in this proceeding.
Their submissions have generally been limited to expressions of either support for or opposition to
the CN/IC control application, the KCS trackage rights application, or the conditions requested by
one or more of the parties urging the imposition of conditions upon any approval of the CN/IC
Summary of Decision. In this decision, we are taking the following action: (1) we are
approving the acquisition by CN of control of IC, and the integration of the rail operations of CN
and IC, as proposed in the CN/IC control application;(21) (2) with respect to Geismar, LA, the location
at which KCS will receive, under the CN/KCS Access Agreement, access to three shippers named
therein, we are imposing a condition requiring applicants to grant KCS access to Rubicon, Uniroyal,
and Vulcan under the same terms and conditions that will govern KCS's access to the three Geismar
shippers named in the Access Agreement; (3) we are imposing a condition holding applicants to their
representation to facilitate the movement of North Dakota grain to points at or near the Gulf Coast
by keeping open and competitive their Chicago gateway with CP's Soo subsidiary; (4) we are
imposing a condition holding CN to its commitment not to exercise unfairly any rights it may have
under its Partnership Agreement with CP to oppose any proposed Detroit River Tunnel
improvement project that has sufficient engineering, operational, and economic merit to attract the
necessary capital for its construction without derogating the value of CN's existing investment in the
CNCP Partnership; (5) we are imposing the New York Dock labor protective conditions(22) on the
CN/IC control transaction, but we are augmenting those conditions, with respect to this transaction,
so that employees who choose not to follow their work to Canada will not thereby be deemed to
have forfeited their New York Dock protections; (6) we are imposing as conditions the commitments
applicants' made to the United Transportation Union, the terms of the settlement agreements
applicants reached with the Brotherhood of Maintenance of Way Employes, and the terms of the two
implementing agreements applicants entered into with International Brotherhood of Electrical
Workers; (7) we are imposing certain environmental mitigating conditions; (8) we are imposing an
oversight condition of up to 5 years to address various matters respecting the CN/IC control
transaction, including without limitation (a) concerns regarding the operation of the Alliance
Agreement, particularly with respect to ongoing competition within the Baton Rouge-New Orleans
corridor, (b) concerns of North Dakota grain shippers with respect to the Chicago gateway, (c)
concerns with respect to investment in and operation of the Detroit River Tunnel, (d) concerns with
respect to any merger-related link to any unfair pricing practices in the lumber industry, (e) labor's
concerns with respect to lack of appropriate labor protective conditions if unauthorized control of
applicants and KCS should occur, and (f) any necessary monitoring of the environmental mitigating
conditions we have imposed; (9) in connection with our oversight condition, we are retaining
jurisdiction to impose additional remedial conditions if, and to the extent, we determine that it is
necessary to impose additional remedial conditions and/or to take other actions to address the
concerns that prompted the imposition of the oversight condition; (10) we are denying the KCS
trackage rights application, the OMR responsive application, and the CPR/St.L&H responsive
application; and (11) we are denying all other conditions heretofore sought by the various parties to
Canadian National. CN operates approximately 14,150 route miles in Canada and
approximately 1,150 route miles in the United States. CN's routes, which extend west to Prince
Rupert and Vancouver, BC, east to Halifax, NS, and south to Chicago, IL, reach every major
metropolitan area in Canada and the major U.S. cities of Duluth, MN/Superior, WI, Chicago, IL,
Detroit, MI, and Buffalo, NY. CN's Western Service Corridor extends from Prince Rupert and
Vancouver on the Pacific Coast of Canada to Thunder Bay, ON, and Chicago, IL. CN's Eastern
Service Corridor extends from Halifax on the Atlantic Coast of Canada through Montreal, PQ, and
Toronto, ON, and, via the St. Clair Tunnel,(23) on to Chicago, IL. Between Duluth/Superior and
Chicago, CN's traffic is carried under haulage agreements over the lines of BNSF and Wisconsin
Central Ltd. (WCL).
Illinois Central. IC operates approximately 3,370 route miles running north-south between
Chicago, in the north, and the Gulf of Mexico, in the south, and west-east between Sioux City, IA,
and Omaha, NE/Council Bluffs, IA, in the west, and Chicago, in the east. IC's main north-south
route reaches every major metropolitan area on or near the Mississippi River, including Chicago, IL,
St. Louis, MO, Memphis, TN, Jackson, MS, and New Orleans, LA. IC also reaches Baton Rouge,
LA, and Mobile, AL. IC has efficient rail connections with all major railroads in the United States,
particularly at Chicago, IL, Effingham, IL, Memphis, TN, Jackson, MS, Mobile, AL, New Orleans,
LA, and Baton Rouge, LA.
The Combined CN/IC Network. The CN/IC control transaction, which envisions the
integration of the rail operations now conducted separately by CN and IC,(24) will join the CN system
with the IC system at Chicago, resulting in a combined CN/IC network of approximately 14,150
route miles in Canada and approximately 4,520 route miles in the United States. Applicants claim
that, given the end-to-end nature of the CN/IC control transaction (Chicago is both the southern
terminus of the CN system and the northern terminus of the IC system), the CN/IC control
transaction: will create no track redundancies; will result in neither abandonments nor substantial
reroutings; and will not reduce any shipper's independent rail alternatives from 3-to-2 or 2-to-1 rail
Construction Projects. Applicants indicate that, in connection with the CN/IC control
transaction, they plan to construct, at Cicero, Cook County, IL (west of Chicago), a connection
between a CCP line and a BRC (The Belt Railway Company of Chicago) line. Applicants claim
that this connection will allow more efficient movement of traffic to/from points already served by
applicants but will not extend service to any new shippers, and that, therefore, construction and
operation of this connection does not require approval under 49 U.S.C. 10901. See CN/IC-6 at 25
n.6. Applicants have further indicated that, while the CN/IC control application is pending, they
will be upgrading an existing CN/IC connection at Harvey, Cook County, IL (south of Chicago) in
order to improve the movement of traffic between CN and IC lines at that location. Applicants
claim that this upgrade is one that CN and IC have long been planning and is not dependent on the
CN/IC control transaction, and that, therefore, construction and operation of this upgrade does not
require approval under 49 U.S.C. 10901. See CN/IC-7 at 113.
Public Interest Justifications. Applicants contend that the CN/IC control transaction, by
uniting the east-west CN system (which extends between the Atlantic and the Pacific) with the north-south IC system (which extends between Chicago and the Gulf of Mexico): will create the first
integrated, three-coast, single-line railroad in North America; will enable the combined CN/IC
system to provide more competitive service; will intensify competition along the increasingly
significant north-south traffic corridors linking U.S. markets to their counterparts in Canada and
Mexico; will meet shipper needs for an improved rail infrastructure to handle the rapidly growing
north-south trade flows stimulated by the North American Free Trade Agreement (NAFTA); will
result in strengthened competition among rail and motor carriers in every market and at every
gateway served by the combined CN/IC; and will improve the quality of rail service available to the
public.(25) Applicants further contend that the CN/IC control transaction will enable the combined
CN/IC system to provide its customers: new and improved through train service and extended
single-line service;(26) increased routing options and gateway choices;(27) improved coordination; more
efficient car and train handling; faster and more reliable deliveries; and better utilization of car and
locomotive equipment.(28) Applicants claim that the CN/IC control transaction will generate, each
year, $137.4 million in total quantifiable public benefits (i.e., operating efficiencies and cost savings,
see CN/IC-56A at 534-36) as well as substantial unquantifiable public benefits (e.g., more
competitive options in the transportation marketplace).(29)
Tender Offer, Merger, and Voting Trust. CNR has already acquired, at a cost of
approximately $1.821 billion(30) and pursuant to a series of transactions(31) that included a cash tender
offer consummated on March 14, 1998,(32) and a merger consummated on June 4, 1998,(33) indirect
beneficial ownership of 100% of the common stock of IC Corp. The IC Corp. common stock thus
acquired by CNR has been held, and is now being held, in a voting trust pursuant to a voting trust
agreement(34) that provides that the voting trustee:(35) will act by written consent or will vote all IC
Corp. stock held by the voting trust in favor of any proposal necessary to effectuate the Merger
Agreement, and, so long as the Merger Agreement is in effect, against any other proposed merger,
business combination, or similar transaction involving IC Corp; and will generally, with respect to
other matters (including the election or removal of directors),(36) vote the IC Corp. stock held by the
voting trust in the voting trustee's sole discretion, unless the holder(s) of trust certificate(s), with the
prior written approval of the Board, directs the voting trustee as to any such vote.(37) The voting trust
agreement further provides, in essence, that the voting trust shall cease and come to an end if the
CN/IC control transaction is approved by the Board and implemented by CNR.(38) CNR has
indicated that it intends to acquire the IC Corp. stock from the voting trust and to exercise control
over IC as quickly as possible after the effectiveness of a final order of the Board approving the
CN/IC control application.
Fairness Determination. Applicants seek a determination that the terms under which CNR
acquired all of the common stock of IC Corp. are fair and reasonable to the stockholders of CNR
and to the stockholders of IC Corp. See Schwabacher v. United States, 334 U.S. 192 (1948).
Labor Impact. Applicants indicate that the combined CN/IC system will have
approximately 26,000 employees, approximately 5,200 of whom will be in the United States.
Applicants contend that, because the CN/IC control transaction is an end-to-end combination, the
impact of the transaction on the combined CN/IC workforce will be limited: applicants estimate
that, within the United States, the transaction will result in the abolishment of approximately 311
positions and the transfer of approximately 138 other positions, and applicants claim that these
impacts will be accommodated largely by normal attrition during the 3-year implementation
period.(39) Applicants add that the CN/IC control transaction is actually expected to increase work
opportunities for the combined CN/IC workforce in the United States:(40) applicants estimate that,
within the United States, the transaction will result in the creation of approximately 384 positions
(which amounts to a net increase of approximately 73 positions). See CN/IC-7 at 273-80 (Labor
Impact Statement). See also CN/IC-7 at 281-88 (verified statement of applicants' labor relations
Labor Protective Conditions. Applicants have indicated that they expect that employees
adversely affected as a result of changes made possible by the CN/IC control transaction will be
covered by the New York Dock labor protective conditions, or, where applicable, the standard labor
protective conditions applicable to trackage rights or other transactions subject to Board jurisdiction.
See CN/IC-7 at 201 and 283. Applicants have also indicated that they expect that the Norfolk and
Western labor protective conditions(42) will cover employees adversely affected by any authorizations
of trackage rights. See CN/IC-56A at 44.
Two Settlement Agreements With KCS. Applicants contend that the benefits of the CN/IC
control transaction will be enhanced by two settlement agreements entered into on April 15, 1998,
with KCS:(43) an agreement entered into by CN, IC, and KCS (hereinafter referred to as the Alliance
Agreement or, on occasion, the CN/IC/KCS Alliance Agreement);(44) and an agreement entered into
by CN and KCS (hereinafter referred to as the Access Agreement or, on occasion, the CN/KCS
Access Agreement).(45) Applicants and KCS contend, in essence, that the two agreements are bona
fide settlement agreements(46) and must therefore be deemed to be "related" to the CN/IC control
transaction. Applicants and KCS, however, have not asked us to impose the terms of these
agreements as conditions upon approval of the CN/IC control application, and indeed (as noted
below) applicants and KCS have insisted that the two agreements are not subject to our jurisdiction
and, therefore, do not require our approval.(47)
The Alliance Agreement. Applicants claim that the Alliance Agreement: establishes a 15-year CN/IC/KCS "alliance;"(48) contemplates the coordination, by CN, IC, and KCS (hereinafter
referred to as the Alliance railroads), of marketing, operating, investment, and other functions;(49)
seeks to improve CN-IC-KCS interline service by enabling the Alliance railroads to offer
single-transaction, through-priced movements and expanded routing options;(50) and, as opposed to
the CN/IC control transaction, will facilitate through train service by the Alliance railroads from/to
U.S. markets accessed by KCS but not by IC(51) and, via two KCS affiliates, from/to Mexican markets
as well.(52) Applicants further claim that, on account of the Alliance, the new routing options,
extended market reach, and increased efficiencies offered by the CN/IC control transaction will
benefit not only shippers served by CN/IC but also shippers served by KCS. Applicants add: that
the Alliance creates the potential for the first coordinated rail network under NAFTA;(53) and that,
although the Alliance is not contingent on implementation of the CN/IC control transaction (and,
indeed, is already in place), the Alliance will not be as beneficial as anticipated if the CN/IC control
transaction is not implemented.
Restrictions On The Alliance. Applicants claim that, because the Alliance is intended only
to promote (and not to reduce) competition, the Alliance will not apply to any movement: (a) which
more than one of the Alliance railroads can compete to serve and which is to or from a customer that
receives rail service only from such railroads (either by direct physical access or via switching) at
either origin or destination of the movement; or (b) which is to or from a customer facility served by
a rail carrier not participating in the Alliance and which is open to service by more than one of the
Alliance railroads, unless rail competition would not be materially lessened as a result of the
application of the Alliance to such movement. See CN/IC-6 at 142; CN/IC-57 at 269.
Furthermore: applicants have stipulated that the Alliance Agreement will not apply to any
exclusively served shipper if and when that shipper obtains direct access to both CN/IC and KCS via
a railroad build-in, a shipper build-out, a grant of haulage or trackage rights, or reciprocal
switching; and applicants have promised that if, in the future, there is a question regarding the
application of this stipulation, applicants will not object on jurisdictional grounds if parties seek to
reopen this proceeding in order to enforce the stipulation. See CN/IC-56A at 21 and 73; see also
KCS-17 at 14-15 and 50-51. See also CN/IC-56A at 234-35 (applicants have pledged that IC will
set up a regular reporting system to monitor the steps that IC is taking to compete with KCS at all of
the points where IC and KCS have competed in the past or will compete in the future).
The Access Agreement. The Access Agreement: provides for the granting of certain
haulage and trackage rights (and, as respects such rights, will be effective upon implementation of
the CN/IC control transaction); and contemplates new investments in certain joint facilities (and, as
respects such new investments, was effective on April 15, 1998).(54) The Access Agreement provides,
in particular:(55) (1) that KCS will receive access to the IC-served chemical plants of three shippers at
Geismar, LA,(56) (a) with CN/IC to provide haulage for KCS between Baton Rouge, LA, and IC's
Geismar Yard, and with CN/IC to provide or arrange for switching at Geismar, and (b) with CN/IC
to provide haulage for KCS between Baton Rouge, LA, and Jackson, MS, for traffic moving from/to
specified Mid-Atlantic and Southeastern origins and destinations;(57) (2) that KCS will receive
overhead trackage rights on CN/IC between Jackson, MS, and Palmer, MS, for traffic other than
coal;(58) (3) that KCS will receive overhead haulage rights on CN/IC between Hattiesburg, MS, and
Mobile, AL, for traffic other than coal;(59) (4) that CN/IC will provide switching for KCS to and from
the Terminal Railway Alabama State Docks for traffic other than coal; (5) that CN/IC will receive
overhead haulage rights on KCS between Hattiesburg, MS, and Gulfport, MS;(60) (6) that KCS will
provide switching for CN/IC to and from the Port of Gulfport; (7) that CN/IC and KCS, to capitalize
on the growth potential represented by the Alliance, will invest in joint automotive, intermodal, and
transload facilities at key locations, including Dallas, Jackson, Kansas City, Memphis, Chicago, and
Shreveport (Reisor), and in the New Orleans area; (8) that access by CN/IC and KCS to these joint
facilities will be assured for the projected 25-year life span of the facilities, regardless of any change
in corporate control; and (9) that new facilities may be built under the auspices of the Alliance at
other locations as well.
The Two Agreements: Approval Not Sought. Applicants and KCS contend that the
Alliance and Access Agreements are not subject to our jurisdiction, and, therefore, they have not
submitted such agreements for our approval.(61) (1) Applicants and KCS insist that the Alliance
Agreement does not require approval under 49 U.S.C. 11323, which provides that certain
transactions involving rail carriers (consolidations, mergers, purchases, leases, contracts to operate,
acquisitions of control, acquisitions of trackage rights, and acquisitions of joint ownership in or joint
use of railroad lines) may be carried out only with the approval of the Board. Nor, applicants and
KCS add, does the Alliance Agreement require approval under 49 U.S.C. 11322, which provides
that rail carriers may not pool or divide traffic or services or any part of their earnings without the
approval of the Board. The Alliance, applicants and KCS argue, is merely a highly developed
version of what is typically called a voluntary coordination agreement (VCA), and, like any other
VCA, is not subject to review by the Board, not under 49 U.S.C. 11323 and not under 49 U.S.C.
11322 either. (2) Applicants and KCS have not sought approval for the Access Agreement,
apparently on the theory: that approval is not required for the haulage rights and the new
investments contemplated by the Access Agreement; and that, although approval is required for the
trackage rights contemplated by such agreement, such approval (presumably via an exemption) can
be sought at a later date (i.e., after the CN/IC control transaction has been approved but before
Access Agreement trackage rights operations are to commence).
Traffic Diversions. Applicants project that the CN/IC control transaction, as augmented by
the CN/IC/KCS Alliance and the various arrangements provided for in the CN/KCS Access
Agreement, will result in $248.1 million in total annual CN/IC gross revenues from traffic
diversions.(62) This projection consists of: approximately $217 million in total annual CN/IC gross
revenues from rail-to-rail diversions;(63) approximately $23.4 million in total annual CN/IC gross
revenues from truck-to-rail diversions; and approximately $7.5 million in total annual CN/IC gross
revenues from port diversions. See CN/IC-7 at 31.(64)
Overview. The applicable statutory provisions are codified at 49 U.S.C. 11321-26.
Despite the several factors contained in those provisions, "[t]he Act's single and essential standard of
approval is that the [Board] find the [transaction] to be 'consistent with the public interest.'"
Missouri-Kansas-Texas R. Co. v. United States, 632 F.2d 392, 395 (5th Cir. 1980), cert. denied,
451 U.S. 1017 (1981). Accord Penn-Central Merger and N & W Inclusion Cases, 389 U.S. 486,
498-99 (1968). In determining the public interest, we balance the benefits of the merger against any
harm to competition, essential service(s), labor, and the environment that cannot be mitigated by
In making our public interest determination in proceedings such as this one involving the
merger of at least two Class I railroads, section 11324(b) requires us to consider at least five factors:
(1) the effect of the proposed transaction on the adequacy of transportation to the public; (2) the
effect on the public interest of including, or failing to include, other rail carriers in the area involved
in the proposed transaction; (3) the total fixed charges that result from the proposed transaction;
(4) the interest of carrier employees affected by the proposed transaction; and (5) whether the
proposed transaction would have an adverse effect on competition among rail carriers in the affected
region or in the national rail system.
Section 11324(b)(1), requiring that we examine the effect of the transaction on the adequacy
of transportation to the public, necessarily involves an examination of the qualitative and
quantitative public benefits of the transaction. Quantitative public benefits include estimates of
operating efficiencies and other cost savings permitting a railroad to provide the same rail services
with fewer resources or improved rail services with the same resources. An integrated railroad can
often realize efficiency gains by achieving the economies of scale, scope, and density stemming from
expanded operations. Cost savings may result from elimination of interchanges, internal reroutes,
more efficient movements between the merging parties, reduced overhead, and elimination of
redundant facilities. These efficiency gains, in varying degrees depending on competitive
conditions, have generally been passed on to most shippers as reduced rates and/or improved
services.(65) Qualitative public benefits include enhanced opportunities for single-line service
preferred by shippers and more vigorous competition that may result from a transaction.
Competitive harm results from a merger to the extent that the merging parties gain sufficient
market power to profit from raising rates or reducing service (or both).(66) In evaluating claims of
competitive harm, we distinguish harm caused by a transaction from disadvantages that other
railroads, shippers, or communities may have already been experiencing. Wherever feasible, we
impose conditions to ameliorate significant harm that is caused by a merger.
Our general policy statement on rail consolidations, codified at 49 CFR 1180.1,(67) recognizes
that potential harm from a merger may occur from a reduction in competition, 49 CFR
1180.1(c)(2)(i), or from harm to a competing carrier's ability to continue to provide essential
services. 49 CFR 1180.1(c)(2)(ii).(68) In assessing the probable impacts and determining whether to
impose conditions, our concern is the preservation of competition and essential services, not the
survival of particular carriers. An essential service is defined as one for which there is a sufficient
public need, but for which adequate alternative transportation is not available. 49 CFR
Finally, because our statutory mandate requires a balancing of efficiency gains against
competitive harm, the antitrust laws provide guidance, but are not determinative in our merger
proceedings. As the Supreme Court noted in McLean Trucking Co. v. United States, 321 U.S. 67,
In short, the [Board] must estimate the scope and appraise the effects of the
curtailment of competition which will result from the proposed consolidation and
consider them along with the advantages of improved service, safer operations, lower
costs, etc., to determine whether the consolidation will assist in effectuating the
overall transportation policy . . . . "The wisdom and experience of that [Board]," not
of the courts, must determine whether the proposed consolidation is "consistent with
the public interest."(69)
Criteria For Imposing Conditions. The various conditions requested by parties involve
the exercise of our conditioning power under section 11324(c), which gives us broad authority to
impose conditions governing railroad consolidations. Because conditions generally tend to reduce
the benefits of a consolidation, they will be imposed only where certain criteria are met. 49 CFR
1180.1(d); Grainbelt Corporation v. STB, 109 F.3d 794, 796 (D.C. Cir. 1997). Conditions will
generally not be imposed unless a merger produces effects harmful to the public interest that a
condition will ameliorate or eliminate. The principal harms for which conditions are appropriate are
a significant loss of competition or the loss by another rail carrier of the ability to provide essential
A condition must be operationally feasible, and produce net public benefits. We are
disinclined to impose conditions that would broadly restructure the competitive balance among
railroads with unpredictable effects. See, e.g., Santa Fe Southern Pacific Corp. -- Control -- SPT
Co., 2 I.C.C.2d 709, 827 (1986) (SF/SP), 3 I.C.C.2d 926, 928 (1987); and Union Pacific Corp. Et
Al. -- Cont. -- MO-KS-TX Co. Et Al., 4 I.C.C.2d 409, 437 (1988) (UP/MKT). A condition must
address an effect of the transaction, and will generally not be imposed "to ameliorate longstanding
problems which were not created by the merger."(71) Finally, a condition should also be tailored to
remedy adverse effects of a transaction, and should not be designed simply to put its proponent in a
better position than it occupied before the consolidation.(72)
OVERVIEW. This transaction will create a highly efficient rail transportation system spanning the central part of the United States from the Canadian border to the Gulf of Mexico. CN operates a 14,150-mile system throughout Canada, connecting with its 1,150-mile system in the United States, which operates mainly in Minnesota, Wisconsin, Michigan, and Northern Illinois and Indiana. IC operates a profitable 3,370-mile system between Chicago and the Gulf of Mexico.
The chief benefit of the merger is that it will make possible a new, single-line service
alternative for many shippers. Applicants will thus be positioned to provide stronger competition to
UP, BNSF, CSX, and NS in certain markets. In particular, the merger should significantly intensify
competition for the north-south traffic that has achieved greater significance due to NAFTA. As
detailed below, the transaction should also generate quantifiable public benefits of more than $100
million a year. These are made possible mainly through integration of support functions, and more
efficient use of equipment and crews.
This transaction is entirely end-to-end, with no overlapping routes. The number of
independent railroads currently serving particular shippers is not reduced at any location. The
United States Department of Justice (DOJ) has not found it necessary to participate in this
proceeding. The application is supported by more than 240 parties, including many shippers, The
National Industrial Transportation League (NITL), unions representing more than half of
applicants' employees, and local communities. It is opposed in part by only a handful of shippers,
certain rail unions, and two of applicants' competitors, UP and CP.
As a threshold matter, we note that we find totally unpersuasive the arguments of UP,
Exxon, and others that the Alliance Agreement makes this case a three-way control transaction
involving CN, IC, and KCS. As explained below, the Alliance Agreement does not result in
common control. All decisions of the Alliance are consensual, and each participant retains the
managerial prerogative to veto any action. Thus, control is retained in the management of each
carrier. Accordingly, there is no need to recast this case as a three-way merger and require
applicants to refile their application on that basis.(73) Moreover, the argument of UP and Exxon that
the Alliance Agreement will lead to tacit collusion between CN/IC and KCS is contrary both to the
evidence applicants have presented here and to our well-established precedents and experience in
regulating railroads in two-carrier markets. We have also considered the argument raised by the
United States Department of Transportation (DOT) that the Alliance Agreement may impede
potential build-in competition between KCS and applicants for traffic in the New Orleans to Baton
Rouge, LA corridor. The condition DOT suggests is unwarranted, but we have decided to monitor
that situation to ensure that build-in and other competition within this corridor is not diminished.
Very few other competitive issues have been raised, and these are either easily remedied or
without merit. The other principal issues raised -- relating to the Access Agreement; shippers at
Geismar, LA; the Detroit River Tunnel; North Dakota grain movements; the concerns of DOT; the
concerns of The Fertilizer Institute (TFI); and the need for Board oversight -- are treated in detail
below. After carefully examining the record, including the oral argument, we have concluded that
the transaction, as conditioned, will result in no competitive harm. It will not diminish competition
among rail carriers either in the affected region or in the national rail system. Indeed, the transaction
should enhance competition, especially for north-south traffic.
These two systems, CN and IC, will be joined at a single point, Chicago. Therefore, the
transaction will result in no track redundancies, abandonments or reroutings. As such, any
disruptions to employees, shippers, and communities should be relatively slight, and the risk of
service and safety problems during implementation of the merger should be low. Moreover,
applicants have filed their Safety Integration Plan (SIP) with us and with the Federal Railroad
Administration (FRA), and they and KCS are continuing the process of coordination with FRA
concerning the implementation process, which will remain under our oversight until safely
completed. Further, as detailed below, our Section of Environmental Analysis (SEA) prepared a
thorough Environmental Assessment (EA) in which SEA identified hazardous materials transport as
the only aspect of the transaction with potentially significant adverse environmental impacts. SEA
believes that, with its recommended conditions, which address hazardous materials transportation
and related impacts to environmental justice populations, this transaction will not result in
significant environmental impacts. We agree and, accordingly, are imposing those conditions as
well as the other environmental conditions that SEA recommends.
The net impact of this merger upon the number of employees of these carriers in the United
States should be positive. Applicants anticipate, however, the abolishment of 311 positions, and the
transfer of 138 positions, as a result of this transaction. Applicants note that they should be able to
achieve most of the reduction in positions through attrition over the 3-year implementation period.
At the same time, the transaction will result in the creation over the next 3 years of approximately
384 positions, mainly to handle increased traffic flows. All employees who are adversely affected
by the transaction will be protected by the New York Dock conditions, as augmented in this
We have also carefully examined the impact of this transaction on the ability of the
combined carriers to meet their financial obligations, pay their fixed charges, and continue to
provide quality service to the shipping public. Traffic and revenues will increase substantially due
both to the Alliance Agreement and to this transaction. Even without these traffic increases and
savings derived from operating synergies, applicants should have no difficulty meeting their
financial obligations and continuing to provide quality service. Further, the terms of the acquisition
agreement and transactions are just and reasonable to shareholders.
In sum, this transaction meets the public interest test for approval under section 11324. As
conditioned, the merger should result in no significant competitive, operational, or environmental
problems. Its impact on rail employees should be relatively small, and will be adequately mitigated
by our augmented New York Dock conditions. The transaction will make possible significantly
improved single-line service for many shippers, and will result in merger synergies that should allow
the carriers to provide service at lower cost. A substantial portion of these savings should be passed
along to shippers in terms of reduced rates or improved service. Finally, the ability of these carriers
to provide quality service will not be impaired, and should be enhanced.
GENERAL ISSUES and SPECIFIC CONDITIONS SOUGHT BY PARTIES.
The Alliance Agreement. UP, CP, and Exxon have argued that the Alliance Agreement
results in common control of, or a pooling agreement among, CN, IC, and KCS. They have also
argued that it will result in tacit collusion between CN/IC and KCS. DOT has argued that the
existence of the agreement may decrease the incentive of IC and KCS to build in to reach shipper
facilities that are exclusively served by the other carrier on the important corridor between Baton
Rouge and New Orleans, where KCS and IC maintain parallel routes. After carefully examining
this agreement and the arguments of the various parties concerning it,(74) we conclude that it does not
result in common control or pooling, and that it is not likely to reduce competition between
applicants and KCS. It has been our practice to encourage settlement agreements in merger
proceedings. This derives from our experience that such agreements can be procompetitive and
beneficial because they can go beyond what the agency could do with its authority. Such settlement
agreements are in the public interest. Overall, this agreement seems procompetitive as well.
Because of the concerns raised by DOT, however, we will monitor the operation of the Alliance
Agreement, particularly as it relates to competition within the Baton Rouge-to-New Orleans
The Alliance Agreement is a voluntary agreement among the three railroads to facilitate
cooperation on an ongoing basis concerning through routes, including quality of service, joint rates
and contracts, and revenue divisions for rail movements using these routes. This type of agreement
is entered into regularly by rail carriers without the need for our approval. Applicants have noted
that the merger provides a unique opportunity to take advantage of increased north-south and south-north traffic flows made possible by NAFTA. The agreement, which has already been in place for a
year and will continue whether or not the merger is approved, is aimed at increasing the ability of
these carriers to offer more efficient through service to meet the competitive challenge posed by the
larger Class I carriers. The Alliance should be able to enhance the attractiveness of these
movements to shippers (although to a lesser extent than will the control transaction)(75) through
service coordination among the participants. Nothing has been presented here to indicate that the
agreement is anticompetitive or contrary to the ICCTA, and the agreement does not require our
regulatory approval. Nevertheless, the Alliance Agreement is an important settlement agreement
related to this merger, and thus it is appropriate for us to scrutinize carefully all of the issues relating
to it that have been raised in this proceeding.
a. The Control Issue. "Control" is defined by 49 U.S.C. 10102(3) to include "actual
control, legal control, and the power to exercise control, through or by (A) common directors,
officers, stockholders, a voting trust, or a holding or investment company, or (B) any other means."
The ICC and the Board have frequently described control as "the power to manage the day to day
affairs of the entity assertedly controlled." See Declaratory Order -- Control -- Rio Grande Indus.,
Inc., Finance Docket No. 31243, slip op. at 3 (ICC served Aug. 25, 1988). Protestants have not
shown that the Alliance Agreement (by itself or in combination with the Access Agreement and the
transaction before us here) has resulted or will result in common control of KCS, IC, and CN.
We emphasize that these three carriers have not sought, and we are not approving, the
common control of these carriers through this agreement. Thus, there can be no "legal control"
within the meaning of section 10102. DOT has indicated concern that our statute does not require
approval of this agreement, while alliance agreements related to airlines are subject to regulatory
scrutiny. We emphasize that any collusive efforts that the participants might undertake under the
auspices of this agreement to allocate markets or otherwise diminish competition where they
compete with each other (and no such actions appear to be contemplated) would subject these
carriers and their management personnel to severe criminal and civil penalties under the antitrust
laws. Accordingly, we expect that these carriers will zealously avoid such behavior. Moreover, we
will continue to monitor the Alliance Agreement as part of our general oversight in this proceeding,
and we are prepared to take any remedial action we deem necessary.
Likewise, the record does not support a finding of actual control. The claim of UP, CP, and
Exxon that these three carriers have somehow given over control of their companies to the common
enterprise of the Alliance is simply not supported by the record. Indeed, the Alliance Agreement
itself makes very clear that all actions of the Alliance must be consensual. This means that any one
carrier can veto an Alliance action. Control of KCS, IC and CN remains in the hands of each
carrier's individual management; it has not been surrendered to the Management Group of the
Alliance. In fact, the Alliance is not an economic entity at all. It collects no revenues, pays no taxes,
and redistributes no profits. As applicants point out, for KCS and IC to surrender control to another
entity without shareholder approval would contravene their fiduciary duties under Delaware law.
Del. Code Ann. Tit. 8, section 141(a).
The fact that the interrelationship among the Alliance carriers is much less pervasive than
the overall relationship between UP and CNW that was found by the ICC not to be control in a
series of decisions examining this issue severely undercuts UP's claim that the Alliance results in
common control. See Union Pacific RR. et al. -- Trackage Rights Over CNW, 7 I.C.C.2d 177,
193-94 (1990) (UP Trackage Rights), and cases described therein. On three separate occasions, the
ICC found that UP's increasingly extensive agreements with CNW, which went well beyond what is
under consideration here with regard to the Alliance, did not constitute control of that railroad. UP
admitted in UP/CNW that UP and CNW "already cooperate and coordinate their services to a
degree unmatched by any other large railroads in America." UP/CNW-6, V.S. Salzman, in
UP/CNW. These relationships included marketing coordinations, haulage rights, joint upgrading of
physical facilities, computerized exchange of train location information, permitting UP to quote
rates for movements over CNW lines, UP's financing of CNW's purchase of a half interest in rail
lines serving the Powder River Basin, UP's ownership of 30% of CNW's common stock,(76) and
UP's right to designate one member of CNW's Board of Directors.
Another situation involving UP that counters UP's argument here was presented in the
Finance Docket No. 32760 proceeding.(77) There UP entered into a very extensive settlement
agreement with BNSF that was much broader in geographic scope, and longer in duration, than the
Alliance Agreement. We did not find, and no one even argued, that the BNSF/UP agreement
represented an issue of common control. Those precedents strongly support our finding that the
Alliance Agreement does not result in common control.
Protestants' attempt to paint the Alliance as a creature that has taken over, or will ultimately
take over, the lesser enterprises of the participating railroads, is unpersuasive. Their claim that the
Alliance railroads will forgo aggressive competition for certain traffic in favor of cooperation for
their more important Alliance traffic is both illogical and contrary to fact. The argument is illogical
because KCS and CN/IC will have every incentive to continue to compete aggressively for traffic
where they are able to provide service alternatives, just as they have competed in the past. For these
carriers to behave otherwise would not be consistent with their economic self interests to compete for
traffic they can handle profitably. The argument is contrary to fact because the record demonstrates
that Alliance traffic is likely to be a relatively small percentage of the overall traffic of the
participating railroads. See, e.g., CN-IC-56A at 73-75; KCS-16 at 51.
It is also significant that the Alliance Agreement, by its terms, does not apply to situations
where two or more of the Alliance participants,(78) now or in the future, are the only head- to-head
competitors either at the origin or destination. The agreement states, however, that the agreement
may be applied where two of the participants serve an origin or destination that is also served by
other railroads, provided that Alliance interline traffic can be coordinated without decreasing
competition, and where such coordination is necessary to permit the Alliance carriers to compete
with a non-alliance carrier. Of course, coordination in these instances would still be subject to the
antitrust laws. These safeguard provisions of the Alliance Agreement are in keeping with its basic
purpose, which is to facilitate competition with non-alliance carriers for joint movements where the
Alliance carriers meet end-to-end, not to permit collusion where the Alliance carriers compete with
TFI and Oxy Chem raise a related issue. They ask for reassurance from applicants and KCS
that the Alliance Agreement will not be applied where future build-outs, build-ins, reciprocal
switching, or other agreements make what is now a solely served point a point served by both KCS
and IC. Applicants have stipulated that they will apply the Alliance Agreement precisely as these
parties have suggested.
b. The Collusion Issue. We find the argument that the Alliance Agreement is likely to
facilitate tacit collusion through the improper dissemination of confidential data to be without merit.
There is nothing about the Alliance Agreement that requires these connecting carriers to reveal to
each other any confidential information. Further, carriers are not free under the Act to exchange
commercially sensitive information about competitive traffic. 49 U.S.C. 11904. Even before the
Alliance Agreement, KCS and IC both competed on some movements and cooperated on others.
The same is true of most rail carriers serving overlapping territories. Indeed, competing railroads
are required by the Act to cooperate in the formation of through routes and rates. 49 U.S.C. 10703.
At the same time, railroads, like other firms, are not permitted to collaborate where they compete.
Such collaboration is not permitted under the antitrust laws, and we may not immunize it from
antitrust scrutiny under 49 U.S.C. 10706.
The agreement does not compel or make more likely the release of competitively sensitive
information about the requirements of particular shippers or about the Alliance carriers' own actual
costs of providing service. Carriers that cooperate in the provision of joint rates have always
exchanged information about their revenue requirements on a joint movement. The need for such
exchanges is limited under the Alliance Agreement to situations where one of the participating
carriers believes that the general formula that they have agreed to yields a division that is too low to
meet the carrier's revenue requirements. Applicants and KCS have shown that during the time the
Alliance Agreement has been in effect, use of this provision has been limited.(79)
Applicants have submitted substantial testimony to the effect that tacit collusion between
CN/IC and KCS will not result here. R.V.S. Vellturo, CN/IC-56A (Vol. 1A) at 433-50. Applicants
correctly noted on brief and at oral argument that this economic testimony has not been rebutted, and
that witness Vellturo was not even deposed by protestants. Neither UP nor Exxon mentioned this
evidence at oral argument. Vellturo's testimony is fully consistent with our findings in UP/SP, slip
op. at 116-19, and 267, where we agreed with evidence submitted by UP that tacit collusion would
be very difficult to accomplish and extremely unlikely in two-railroad markets. Our decision on this
precise issue was recently affirmed by the United States Court of Appeals for the D.C. Circuit in
Western Coal Traffic League v. STB, F.3d (D.C. Cir. 1999), slip op. at 6-8.
As we explained in the UP/SP decision affirmed by the court, there are three elements, all of
which are present here, that each make tacit collusion unlikely for markets in which two railroads
operate. First, tacit collusion cannot flourish where, as in railroading, rate concessions can and are
made secretly through confidential contracts. Second, rail services are extremely heterogenous,
making price comparisons for purposes of collusive behavior difficult. Finally, high and declining
fixed costs in the rail industry strongly induce carriers to compete for additional traffic through rate
concessions. Despite the fact that DOJ has been informed of this proceeding and has been served
with the merger application, and with pleadings containing and discussing the Alliance Agreement,
DOJ has not participated in this proceeding. We may conclude from this that DOJ does not find this
agreement any more troubling than the normal activities that rail carriers typically undertake in
negotiating interline pricing and service arrangements.
c. The Build-in/Build-out Issue. DOT concedes that "[t]he Alliance applies by its terms
only to interline traffic, which is a relatively small proportion of Applicants' total business."
Further, DOT does "not submit that the Alliance is necessarily anticompetitive or otherwise contrary
to the public interest." Nonetheless, DOT is concerned that applicants and KCS may not continue to
compete vigorously where they did so head-to-head before the Alliance Agreement, most notably for
shippers located along the rail corridor connecting Baton Rouge and New Orleans, LA. But, with
one exception, DOT maintains that the proper response is for us to "monitor developments and
determine, through experience, whether the participants in the Alliance will behave in the way that
they say they will."
DOT explains that monitoring would provide sufficient protection to those plants served by
both KCS and IC, because the Alliance Agreement does not apply to those locations, and the
Alliance railroads maintain that they will continue to compete for this traffic. DOT is concerned,
however, that monitoring may not be sufficient to preserve the existing level of indirect competition
represented by the prospect of IC and KCS each threatening to build in to reach shippers exclusively
served by the other:
Given the close relationship of the Alliance railroads, it seems unlikely that they
would jeopardize the broader benefits of the Alliance by continuing the aggressive
use of build-in tactics.
DOT-3 at 16. DOT requests that we impose a condition giving some other Class I carrier trackage
rights over both the IC and KCS lines between Baton Rouge and New Orleans to all points in the
corridor where solely served shippers and that carrier believe a build-in/build-out is feasible.
Although we agree with DOT that potential build-ins and build-outs provide important
competitive leverage to solely served shippers in their negotiations with rail carriers, we do not
expect this competition to be undermined here. Because of DOT's concern, however, we will
closely monitor the competitive situation within the Baton Rouge to New Orleans corridor, with
particular emphasis on any changes in build-in activity within the corridor. We believe that there
remains a very strong incentive for each carrier to be able to originate or terminate movements that
are now solely served by the other carrier.
The record shows that Alliance movements will account for only a very small portion of the
through movements handled by the important shippers in this corridor. R.V.S. Kammerer, CN/IC-56A (Vol. 1A) at 302. These shippers, many of whom are plastics and chemicals shippers, send and
receive shipments to and from users and suppliers all over the United States. Because a majority of
these movements require the participation of railroads with a broader geographic reach than either
IC or KCS, the preponderance of the interline movements originating or terminating within this
corridor for both KCS and IC are not with each other, but with the larger Class I railroads, that is,
UP, BNSF, CSX, and NS. Thus, under the Alliance Agreement, KCS and IC will share in the
revenues only for a small portion of interline movements originated or terminated by the other
carrier. Becoming an origin or destination carrier through a build-in clearly gives these carriers
substantial advantages that are not available under the Alliance Agreement. Even if KCS and IC
were not prepared to build in to provide service now exclusively provided by the other, the shipper
could still build out to reach the other carrier, which would be required to provide service, and
presumably would be happy to do so. Thus, overall, very strong incentives for both build-ins and
build-outs remain in place.
We note that a key component of the remedy proposed by DOT, the proposed trackage rights
over the lines of KCS, is not generally available under the ICCTA. No provision of the Act gives us
a general authority to impose trackage rights over the lines of a non-applicant carrier such as KCS.
As explained below in the section concerning the application for trackage rights at Springfield, IL,
neither the Board nor the ICC has imposed trackage rights over non-applicant carriers in these
circumstances. We also seriously question the operational feasibility of permitting another Class I
carrier to operate over these densely traveled lines of KCS and IC solely to pick up the inbound and
outbound movements of one or two shippers. No evidence has been presented to support the
feasibility of such a condition.
d. The Pooling Issue. Protestants have not demonstrated that the Alliance Agreement is a
pooling agreement that requires our approval under 49 U.S.C. 11322.(80) Under that provision, a
railroad "may not agree to combine with another . . . rail carrier to pool or divide traffic or services
or any part of their earnings without the approval of the Board . . . ." This provision applies to a
division of competitive traffic and service between two or more competing carriers. See UP
Trackage Rights, 7 I.C.C.2d at 184. There the ICC explained that "[t]he Commission has defined
pooling as a situation where carriers which otherwise would be competitors take a common position
toward the public and divide the benefits and costs equally or by special agreement, rather than
according to individual performance." The ICC also said that "[f]irst the arrangement must be
between competitors and, second, the arrangement must involve some restraint or potential restraint
on competition." Id.
As we have explained, the Alliance Agreement does not allocate competitive service or
markets among KCS, IC, and CN. The Alliance merely sets forth guidelines that facilitate the
ability of these carriers to cooperate in the provision of through service in competition with other
carriers such as UP with whom they jointly compete. The Alliance Agreement is procompetitive for
the same reason that the trackage rights agreement approved between UP and CNW in UP Trackage
Rights was procompetitive. It allows several carriers to combine in an efficient through service to
compete more vigorously with other carriers, some of whom can provide single-line service. See UP
Trackage Rights, 7 I.C.C.2d at 186.
The pooling provision of the statute has no application in these circumstances. No traffic is
pooled here, and no revenues are redistributed. Rather, the Alliance Agreement contains a typical
division of revenue agreement such as railroads have long used to carry out their obligations to
provide rates on through routes under the statute. Interline movements frequently require revenue
divisions among the carriers that collaborate to provide interline service. The general formula for
division of revenue set forth in the Alliance Agreement may be readjusted where a carrier believes
that the formula does not cover its costs. If the carriers reach a consensus, a new division is
determined for the movement. If not, then the Alliance Agreement does not apply. This procedure
preserves the independence of each participating railroad and ensures that each satisfies its revenue
requirements on a particular movement, regardless of the general division of revenue formula that
the Alliance carriers have agreed to in advance.
In sum, the Alliance Agreement is not a vehicle for common control, it is not a pooling
arrangement, and it is not likely to result in collusion, either overt or tacit. It does not require our
approval under the statute, and it remains subject to the antitrust laws.
NITL Stipulation with Applicants. On the day before oral argument, NITL and applicants
submitted a stipulation and agreement and requested that we approve that agreement as a condition
to our approval of this transaction. TFI has also requested that we impose as a condition certain
representations made by applicants earlier in this proceeding, which appear to be embraced by the
first part of the NITL agreement. We are pleased to see that applicants and these organizations have
negotiated an agreement to allay shipper concerns about changes brought about by this transaction.
Among other things, the NITL agreement provides special protections for certain shippers in
the Baton Rouge to New Orleans corridor. For eight shipper facilities in that corridor served by
KCS and IC and by no other carriers, the Alliance Agreement would not apply. Moreover, for those
facilities, and for any others that are similarly situated, rate increases are limited to the RCAF-A,(81)
and service quality is guaranteed, for 10 years.(82)
DOT is concerned, however, that our formal approval of the NITL agreement might
unnecessarily immunize it and related parts of the Alliance Agreement from the antitrust laws. The
NITL agreement itself does not require our approval for it to take effect. Absent our approval, the
agreement makes clear that shippers are contractually protected.(83) Given that contractual protection,
DOT's concerns, and the lack of any apparent need for us to impose either the NITL settlement
agreement or the representations made to TFI as conditions to remedy competitive harm stemming
from the merger, we will not approve the NITL agreement or impose either that agreement or the
representations cited by TFI as conditions. We will, however, monitor the concerns expressed by
DOT and others over the ongoing competition within the Baton Rouge to New Orleans corridor.
The Access Agreement: Geismar. Three shippers located near Geismar, LA -- Rubicon,
Uniroyal, and Vulcan -- have requested that we condition approval of this merger on CN's granting
to KCS haulage rights to allow KCS to serve these three shippers in competition with IC. They seek
the same KCS competitive service that will be made available for Shell, Borden, and BASF in the
Access Agreement -- haulage service by applicants on behalf of KCS beginning on October 1,
2000, or upon final approval and consummation of the merger, whichever is later. This will permit
both IC and KCS to quote single-line rates to these shippers. With certain limitations, we will grant
the requested condition so that these three additional shippers will obtain precisely the same relief
that is available for the first three shippers under the Access Agreement.
Rubicon, Uniroyal, and Vulcan are now exclusively rail-served by IC. Nevertheless, they
would likely have been able to take advantage of a competing KCS service as the result of a
construction project for which KCS sought our regulatory approval in Finance Docket No. 32530,
Kansas City Southern Railway -- Construction and Operation Exemption -- Geismar Industrial
Area (Geismar). Despite the fact that none of these three shippers came forward to support the
Geismar construction application, it now appears that, if the construction had been approved and
completed, each could have easily reached the proposed Geismar branch line by constructing short
segments of connecting track. Now, because of this merger and the related Access Agreement, it
seems improbable that any Geismar construction project will ever be authorized and built. Indeed,
because of the pendency of the instant case, we issued a decision holding the construction
application in abeyance. Geismar (STB served Aug. 27, 1998).
A loss of a build-in/build-out option may constitute a significant loss of potential
competition, depending upon the circumstances. Here, now that KCS has obtained access to the
three shippers that would have provided the preponderance of the traffic necessary to make the
construction economically viable, it is improbable that KCS will pursue, or that we would approve,
this construction project. The Draft Environmental Impact Statement that was prepared in the
Geismar construction proceeding identified significant environmental issues. Whether the public
need for the line would be sufficient to warrant this construction given that KCS already can provide
competitive service to the three original Geismar shippers is far from certain.
We reject applicants' argument that any loss of competition due to the Access Agreement
may not be considered by us because it results from a non-jurisdictional settlement agreement. The
Access Agreement is clearly merger-related because: it does not become effective unless and until
the consolidation is approved; it is between KCS and CN, not IC; and CN entered the agreement to
enlist KCS's support for the merger.
We also find that the condition would be operationally feasible. IC is now handling this
traffic for its own account without incident. Applicants have already agreed to haul similar traffic
for KCS's account to allow KCS to serve shippers in the same area as Rubicon, Uniroyal and
Vulcan: Shell, Borden, and BASF. The shipments of Uniroyal, Rubicon, and Vulcan can be
handled in the same manner, and perhaps in the same trains, as the shipments of these three other
The Detroit River Tunnel (DRT). The Detroit River Tunnel Company is wholly owned
by an Ontario partnership, in which CN and CP each has a 50% interest. CP and OMR,(84) among
other parties,(85) allege that after the transaction CN will be disinclined to allow needed improvements
on the DRT. CP and OMR argue that improvements are or will soon be needed to accommodate a
new generation of large containers and tri-level auto cars. CN's own recently built St. Clair tunnel
at Sarnia can already accommodate this equipment. At oral argument, CP emphasized alleged
operational problems that it argues stem from CN's control of the DRT's operations. CP and OMR
seek divestiture of CN's interest in the DRT. OMR also seeks divestiture of the Canadian Southern
Railway Company (CASO), a Canadian railroad running from Windsor to Niagara Falls, that is
also owned by the same partnership.
It is undisputed that all of the events and relationships of which protestants complain were
already in place well before this proceeding began. Specifically, the joint ownership and control of
the DRT is based on a 1983 contract, and CN constructed its St. Clair tunnel and opened it for
service in 1995. CN already connected with its wholly owned U.S. subsidiary, GTW, at both
Detroit and Sarnia. CASO fell into disuse long ago, when Conrail was formed, so that this line has
not been a factor in traffic moving to and from the DRT. Despite these facts, improvements were
made in the DRT in the early 1990s at CP's request and without obstruction by CN, even though
CN had already decided to invest much of its available capital in the Sarnia Tunnel.(86) See R.V.S.
McManaman and Goodwine, CN/IC-56A (Vol. 1A) at 279-81.
CP claims, however, that CN will now be less likely to agree to additional DRT
improvements because of its $3 billion investment in IC. CP now interchanges traffic at Chicago
with IC, UP, and BNSF. CP contends that, because of its new investment in IC, CN will now have a
stronger incentive to impede the flow of CP's cross-border traffic, in an effort to force a shift of that
traffic to CN lines in Canada and in the United States, including IC, which will now extend all the
way to the Gulf of Mexico.
Similarly, OMR argues that the transaction will give CN an incentive to disadvantage DRT
traffic, and that divestiture to it of the DRT and of the CASO lines would permit OMR to upgrade
the tunnel,(87) thereby mitigating that harm by allowing other railroads to compete more effectively
against CN and by providing carriers with the incentive to enter into efficient joint-line arrangements
at Detroit. OMR also contends that applicants will be able to divert even more traffic than they
forecast, creating congestion of the St. Clair Tunnel, which OMR predicts will result in rate
We agree with the assessment of DOT that these protestants have failed to demonstrate a
significant causal link between this transaction and the situation they describe. Their concerns over
the DRT largely reflect a preexisting situation with little nexus to the merger. Ordinarily, our policy
is to deny relief in such circumstances. But, because of the importance of the DRT to international
trade, we will impose a condition holding applicants to their representation that they will not
frustrate necessary improvements to the DRT.(88) We accept applicants' representation that they will
not oppose DRT improvements that economically benefit the tunnel partnership.(89) As CN points
out, CN derives sufficient revenues from its 50% ownership interest in the DRT to ensure that CN
will have an incentive to continue to cooperate in investments that make sense for the partnership.
The condition we are imposing and our continued oversight will ensure that CP's position is not
undermined in the future.(90)
In light of the condition we are imposing, the divestiture remedies protestants seek are
unnecessary, and would not be in the public interest. We have often said that divestiture is an
extreme remedy not to be imposed lightly, and requiring divestiture of Canadian railroad assets
would additionally involve us in difficult issues of sovereignty. Our more narrowly tailored remedy
will suffice. There is no reason to believe that the vertical integration of CN and IC at Chicago will
diminish competition for cross-border traffic moving through Detroit. Both CN and CP operate
there on both sides of the border. CP has available independent connecting railroads at Detroit and
at Chicago to arrange service in competition with CN/IC's. Given our condition, traffic flows for
this very competitive traffic should be influenced by efficiencies of routing and rates reflecting those
efficiencies, and not by constraints imposed by any CN stranglehold on tunnel improvements or
tunnel operations. The arguments raised by CP concerning existing operational problems are not
convincing. The partnership agreement contains remedies for complaints concerning existing
operations, and there is no evidence that these remedies have even been tested.(91) Of course, we will
continue to monitor these issues as appropriate. Moreover, CN notes that it is willing to sell its
portion of the DRT for fair market value, as determined through private negotiations or by a neutral
third party. CN/IC-62 at 33. We encourage the parties actively to pursue this private sector
solution, which could result in the best long-term resolution of this issue.(92)
OMR's argument that the transaction will result in congestion at CN's St. Clair tunnel and
in rate increases on CN's lines is totally unsupported. The congestion it predicts is highly unlikely,
but if it were to occur, this would merely divert traffic to the DRT, precisely the opposite of the main
premise of OMR's responsive application.(93) After the merger, CN would continue to have every
incentive to avoid congestion at Sarnia, which would impede the efficiency and competitiveness of
its service. And even if congestion were to occur at the Sarnia Tunnel, CN's rates over that route
would continue to be constrained by the rates on traffic moving via the DRT. We note that the
competition for automotive cross-border traffic is overwhelmingly with motor carriers, while both
CN and CP face stiff competition for east-west container traffic (using the Port of Halifax) from
CSX and NS (using the Port of New York). In sum, OMR's predicted rate increases have no
North Dakota Grain. North Dakota, acting through its Governor, Public Service
Commission, and Departments of Transportation and Agriculture, is concerned that after the merger,
CN would close or restrict its Chicago gateway for grain movements. North Dakota claims that CN
would do this to discourage North Dakota grain shipments so as to favor its new single-line
movements of grain from CN origins in Western Canada to destinations on or near the Gulf of
Mexico. North Dakota claims that the Soo/IC routing is the most efficient routing for its export
grain moving to transfer points in Louisiana and Mississippi. Accordingly, it requests that we
impose a condition granting CP's Soo Line, or another carrier designated by North Dakota, haulage
rights on agricultural commodities originating at North Dakota points to all points served by IC.
This would permit CP to quote rates all the way to New Orleans without consulting with IC. Under
North Dakota's proposed condition, IC's current "net contribution" for interline movements to and
from Chicago would be frozen.
Applicants note that they cannot close their Chicago gateway with CP's Soo subsidiary and
still continue to participate in North Dakota grain traffic moving from Soo origins. They also point
to our frequent pronouncements that freezing gateways, rates and routes in railroad mergers has
anticompetitive consequences and is not in the public interest. Detroit, T. & I.R.R. v. United States,
725 F.2d 47 (6th Cir. 1984) (aff'g in part and rev'g in part Traffic Protective Conditions, 366
I.C.C. 112 (1982)). Applicants indicate that Soo presently may interchange traffic with five other
Class I railroads at the Chicago gateway for movements to Gulf Coast destinations, and that BNSF
can provide North Dakota shippers direct access to the Gulf Coast. Because applicants would like
to retain this competitive traffic, they emphasize that it is in their interest to keep the Chicago
gateway open, and to cooperate with CP's Soo subsidiary in providing reasonable joint rates and
efficient through service.
We have carefully reviewed the submissions of applicants and North Dakota. According to
North Dakota, any action by applicants that discourages the interchange of traffic between IC and
applicants' post-merger competitor CP would harm the state's interests. Applicants emphasize that
they would have little, if any, incentive to forgo a productive relationship with North Dakota grain
shippers merely to favor their other long-haul prospects because this would result in the loss of this
valued traffic to other competitors. According to applicants, CP interchanged a very substantial
amount of grain with IC at Chicago in 1996 alone. Applicants have stated that they have no
intention of closing the CP/IC gateway. Given this assurance, we will impose a condition holding
applicants to their representation to keep this gateway open and competitive. The more extensive
remedy sought by North Dakota is thus unnecessary. We will monitor this condition as part of our
American Forest and Paper Association (AFPA). AFPA asks that we impose conditions
that would: (1) remove "paper barriers" in line sales agreements which, according to AFPA, limit
the ability of short-lines to interchange traffic with other carriers; (2) prohibit the imposition of such
provisions with respect to all Class III carriers connecting with IC or with CN's U.S. subsidiaries;
and (3) require IC and CN's U.S. subsidiaries to enter into "interswitching" arrangements with all
major connecting railroads, as required in Canada under the Canadian Transportation Act of 1996.
AFPA states that we should exercise our broad conditioning authority to enhance competitive rail
alternatives for shippers. Applicants contend that AFPA's conditions are unsupported legislative
changes in Board policy that have no nexus to the transaction whatever.
We recognize the importance of AFPA's concerns regarding contractual barriers to routing
between and among rail carriers. Issues similar to those raised by AFPA, such as the effect of paper
barriers,(94) continue to be the subject of our proceedings and of an industry-wide agreement entered
into by smaller railroads and Class I carriers pursuant to Review of Rail Access and Competition
Issues, STB Ex Parte No. 575 (STB served Apr. 17, 1998, and Mar. 2, 1999) (Review of Rail
AFPA acknowledges that the CN/IC merger is in the public interest, and it points to no
particular "paper barrier" in current IC or CN interchange arrangements that prevents or inhibits the
interchange of traffic between rail carriers. Therefore, AFPA has shown no nexus between this
merger and the relief it seeks. Moreover, we recently stated in CSX/NS/CR, slip op. at 57, 77, that,
in view of the ongoing negotiations in Review of Rail Access, we will not undo or undermine these
private contractual arrangements between rail carriers. As regards the request that applicants be
required to enter into Canadian-style interswitching arrangements, AFPA has presented no evidence
to show that this relief is required here. This proposal would result in a fundamental restructuring of
applicants' relationships with connecting carriers without any showing that the merger causes any
harm that needs to be redressed.
Champion. Champion indicates that its paper mill at Bucksport, ME, shipped 2,185
carloads of paper to destinations in the United States in 1997. Champion states that, although its
Bucksport facility is solely served by Springfield Terminal Railway, it has alternative rail routings
via CN and Conrail and that both it and its customers have benefitted from the cooperative
arrangement among these carriers. Champion asks that we impose a condition requiring applicants
to maintain rail competition in areas where rail competition is available and to set reasonable rates
for captive shippers. Champion, which did not submit a brief or appear at oral argument, has not
shown that this transaction will result in any material change or have any negative impact on the
rates or routings of the carriers serving Champion. We will review any specific complaints
Champion may have under our general oversight condition.
Lumber Pricing Issues. Just prior to oral argument, U.S. Senator Mike DeWine,
U.S. Representative Ralph Regula, and U.S. Representative Tom Sawyer submitted letters
requesting that we hold this proceeding in abeyance until DOJ(95) completes an investigation into
allegations that Canadian lumber producers have used confidential transportation contracts with CN
to engage in unfair pricing practices that adversely affect domestic lumber wholesalers. One week
later, U.S. Representative Regula submitted a second letter in which he expressed his support for our
immediate approval of this merger, but requested that we take the necessary steps to allow for future
conditions to the merger that would be linked to any determinations with respect to adverse impacts
arising from applicants' role in any unfair pricing schemes.
We have not been provided with sufficient evidence to make any findings with respect to
either the existence of any ongoing unfair pricing practices in the lumber industry or any potential
link of these practices to the transaction before us. We believe the proper response to these concerns
is to note that we are explicitly retaining jurisdiction to impose conditions to remedy any
unanticipated merger-related harms that arise during our oversight of this transaction.
OVERSIGHT CONDITION. We are establishing oversight for a period of up to 5 years
so that we may assess the competitiveness of service provided by the Alliance Agreement carriers
upon implementation of the CN/IC transaction and the effectiveness of the various conditions we
have imposed. While NITL/TFI suggest that only a limited oversight condition is needed, DOT has
requested that we impose up to a 5-year oversight period. Present circumstances, we believe,
warrant imposition of an oversight condition, although we recognize that we might later find that
continued oversight is no longer necessary. We therefore will evaluate the necessity for continued
oversight on an annual basis.
In addition, we will also monitor whether applicants have adhered to the various
representations that they have made on the record during the course of this proceeding. This
includes applicants' representation that they will not oppose DRT improvements that economically
benefit the tunnel partnership or use their control of tunnel operations to impede CP so that CP's
position is not undermined in the future. This also includes applicants' commitment that they will
keep the Chicago gateway open and cooperate with CP in providing reasonable joint rates and
efficient through service for North Dakota grain movements. We will also monitor competition
between applicants and KCS within the Baton Rouge to New Orleans corridor, and stand ready to
receive and examine evidence of any merger-related link to any unfair pricing practices in the
lumber industry. And, we will continue appropriate monitoring of the environmental mitigating
conditions we have imposed, as listed in Appendix E.
Other parties requesting that we impose an oversight condition include UP and IAM. UP
contends that a reasonable oversight period will be needed to enable the Board to address any
competitive problems created by the Alliance; and IAM, the collective bargaining representative for
the craft or class of machinists on GTW, IC, and CCP, contends that, if we determine that the
Alliance does not amount to a three-way control transaction, then we should retain oversight
jurisdiction to monitor the operation of the Alliance so that, if a transfer of control requiring Board
approval does in fact result, New York Dock protection for affected employees will be imposed. If
that agreement ultimately does result in control for which approval is authorized, then we will
impose New York Dock conditions for the protection of employees.
If problems do arise after approval and consummation of the transaction, involving these or
other matters, our oversight condition should provide a fully effective mechanism for quickly
identifying and resolving them. We are retaining jurisdiction to impose additional conditions if, and
to the extent, we determine that additional conditions are necessary to address unforeseen harms
caused by the transaction.
LABOR MATTERS. Our public interest analysis includes consideration of the interests of carrier employees affected by the proposed transaction. 49 U.S.C. 11324(b)(4); Norfolk & Western v. ATDA, 499 U.S. 117, 120 (1991). Applicants have shown that the net impact of this transaction on rail labor should be positive, as the merger will result in a net increase in union jobs. Unions representing more than half of applicants' organized employees (UTU, BMWE, International Brotherhood of Electrical Workers, and Brotherhood of Railway Signalmen) have reached agreement and now support the application.(96) Applicants acknowledge that the transaction will have limited adverse consequences for employees for particular crafts and in certain areas. Applicants anticipate abolishment of 311 positions, and the transfer of 138 positions. They indicate that they should be able to achieve most of this reduction in positions through attrition over the 3-year implementation period. Offsetting these losses, the transaction will also result in the creation over the next 3 years of approximately 384 positions, mainly operating personnel to handle increased traffic flows. These basic projections are unchallenged.
Having weighed the impact upon carrier employees against the other public benefits that
should result from the transaction, we conclude that the impacts on employees do not require us to
deny approval of the transaction. This is particularly clear when our mitigation of these impacts
with the labor protective conditions we are imposing is taken into account.
The basic framework for mitigating the labor impacts of rail consolidations is embodied in
the New York Dock conditions. They provide both substantive benefits for affected employees (up
to 6 years of full wages, moving allowances, preferential hiring, and other benefits) and procedures
(negotiation, or, if necessary, arbitration) for resolving disputes regarding implementation of
particular transactions. New York Dock, 360 I.C.C. at 84-90. We may tailor employee protective
conditions to the special circumstances of a particular case. This is done where unusual
circumstances require more stringent protection than the level mandated in our usual conditions. As
specifically indicated below, we will grant certain requests to modify or clarify our basic
a. The implementing agreement process. A number of parties have raised questions about the implementing agreement process. Under New York Dock, the carriers and employees must arrive at an implementing agreement before any changes in operations affecting employees may occur. If timely agreement cannot be reached, these matters are subject to binding arbitration. As part of this process, under the law as interpreted by the Supreme Court, collective bargaining agreement (CBA) terms may be modified as necessary to carry out a transaction in the public interest. Norfolk & W. Ry. v. American Train Dispatchers Ass'n, 499 U.S. 117 (1991) (Dispatchers).
In approving a rail merger or consolidation such as this, we have never decided in advance
precisely what CBA changes, if any, will be required to carry out the transaction, and we will not do
so here.(98) As we recognized in Conrail Merger, and as DOT urges here, those details are best left to
the process of negotiation and, if necessary, arbitration under the New York Dock procedures. We
will resolve any labor implementing agreement issues only as a last resort, giving deference to the
arbitrator. Specifically, our approval of this transaction does not constitute a finding that any
override of a CBA is necessary to carry out the transaction; rather, such matters should be left to
negotiation and arbitration.
We admonish the parties to bargain in good faith to embody implementing agreements in
CBAs rather than having such agreements arbitrally imposed. Good faith bargaining has always
been an integral component of the New York Dock process. Applicants conceded at oral argument
that the arbitrator, and the Board, if necessary, could properly take notice of any abuse of process in
As noted previously, unions representing at least more than 50% of applicants' workforce
have reached agreement with applicants and now support the transaction.(99) The increasing return to
negotiated agreements is one of the most positive developments in the consolidations we have
recently approved, and we intend to encourage the continuation of that trend.
Various unions claim that Article I, section 3 of New York Dock precludes modification of
certain benefits they received as the result of agreements implementing prior mergers approved by
the ICC. ATDD stresses that certain ATDD employees enjoy "lifetime protection" as the result of a
merger approved by the ICC in 1979, and subsequent CBA modifications made in 1996.(100) But
these issues are not yet ripe for us to decide here. First applicants and the unions need to negotiate
an implementing agreement. Only if that process fails, and applicants claim that changes need to be
made in these CBAs, will it be necessary for an arbitrator to rule on these issues in the first instance.
And those arbitrators will be constrained in this process not to change any protected "rights,
privileges, and benefits," and only to make those changes that are necessary to carry out this
transaction as significantly limited by the Board in Carmen III. See, generally, Carmen III.(101)
The ICC stated in Railroad Consolidation Procedures, 363 I.C.C. at 793, that, unless
unusual circumstances make more stringent protection necessary, it would provide only the
protections mandated by section 11347 (now section 11326). Here, however, TCU and others have
presented valid concerns that require us to clarify or modify the application of our conditions as they
relate to employees whose work may be transferred to Canada as the result of this transaction.
A basic part of the bargain embodied in the Washington Job Protection Agreement, upon
which the New York Dock conditions are based, is that rail carriers are permitted to move
employees from one work site to another in order to achieve the benefits of a merger transaction.
Such displacements do result in hardships for employees whenever they are required to move their
place of residence, and New York Dock thus compensates the employee for the cost of the move.
Ordinarily, applicants are not required to make protective payments to these employees who are
offered continued employment, but decline to take advantage of it.
That being said, we do not believe that it would be appropriate for us to require employees to
move to Canada or else forfeit their New York Dock protections. Such a move could be impeded by
Canadian immigration laws, and could create unusually harsh dislocation problems for the families
of these employees. We will not construe our conditions to have this effect.(102) Cf. Independent
Union of Flight Attendants v. Pan Am. World Airways, 923 F.2d 678 (9th Cir. 1991) (Railway
Labor Act (RLA) does not apply extraterritorially); Great Northern Pac. -- Merger -- Great
Northern Ry., 6 I.C.C.2d 919 (1990). Instead, where work is moved to Canada, employees cannot
be required to follow their work to Canada or else be deemed to have forfeited their New York Dock
b. Protection for non-applicant employees. TCU has asked that we impose New York
Dock conditions for the benefit of KCS employees under the theory that the transaction before us is
really a three-carrier transaction involving KCS, IC, and CN. UTU GCA-386 has asked us to
extend New York Dock to the employees of a non-applicant carrier, BNSF. UTU GCA-386 claims
that BNSF employees will be harmed because applicants will divert traffic away from BNSF, and
that there is an inadequate record on this issue because BNSF has withdrawn from the case.
The ICC, with the approval of the courts, consistently ruled that the employees of a non-applicant carrier, or a carrier not directly involved in a transaction governed by 49 U.S.C. 11323,
are not entitled to labor protection under 49 U.S.C. 11326.(103) In essence, labor protection was
intended to cushion the impact on employees of merger-related restructuring of the carriers for which
they work, not to insulate employees from competitive impacts of mergers not involving their
As discussed in detail above in the "Alliance Agreement" section, this is not a three-carrier
control transaction. Nevertheless, TCU objects that, under the Alliance Agreement, these three
carriers have agreed to consider the coordination of work that is now performed by the employees of
each of the three carriers pursuant to their respective CBAs. This may be so, but we are not here
approving the Alliance Agreement, nor are we approving any consolidation of KCS and the other
two carriers, or of any of their employee functions. This means that, before KCS and CN can
change any of these work relationships or employee functions in such a way that would be
inconsistent with their existing CBAs, each railroad would have to obtain modification of its own
CBAs through the RLA bargaining process.(104)
In sum, no valid reason has been presented to depart from our consistent practice of not
imposing labor protection for the benefit of non-applicant employees, and the RLA process thus will
continue to govern their relations with their respective railroads.
c. Safety. Several unions have raised issues relating to the safe implementation of the
merger. They raise issues such as deferral of action on this merger until our final rules about safe
implementation of mergers are in place,(105) the use of Canadian operating employees unfamiliar with
lines in the United States, hours of service and fatigue, and possible transfer of dispatching functions
As noted in greater detail in the environmental portion of this decision and as detailed in the
Final Environmental Assessment (Final EA) issued on March 8, 1999, the carriers have worked
closely with FRA, the agency responsible for enforcement of rail safety regulations, to prepare and
submit detailed SIPs that have been scrutinized by both FRA and SEA. As DOT notes, the SIP is a
comprehensive written plan detailing how the parties will meld areas such as dispatching, hazardous
materials transport and handling, planning and training, and the overall safety management process.
DOT-3 at 19.
DOT also notes that: "From the date of their initial SIP filing (August 14, 1998) until the
present, the Applicants and FRA have met frequently and have addressed all of FRA's concerns as
they apply to CN and IC." DOT-3 at 19. SEA reached precisely the same conclusion in its
extremely thorough Final EA. Finally, the Board and FRA, with DOT's concurrence, have entered
into a Memorandum of Understanding for monitoring of the safe implementation of this transaction.
In light of the success of this cooperative effort between applicants and FRA that will continue
throughout the implementation of this transaction under the oversight of the Board, we believe that
rail labor's safety arguments will be properly addressed through that process.
ATDD says we should impose a condition to forbid transfer of train dispatching
responsibilities over domestic trackage to dispatchers in Canada without certification from FRA that
the transfer can be accomplished without compromising safety. At oral argument, applicants stated
that they intend to centralize dispatching in Illinois, not in Canada, and that they would continue to
engage in a consultative role with FRA with respect to any future merger-related changes with safety
implications for the territorial United States, such as moving the dispatching function to Canada, and
they would give sufficient notice of any such proposed changes. We will hold them to this
DETAILS OF PUBLIC BENEFITS.
Quantifiable and Unquantifiable Public Benefits. The record indicates that this
transaction should result in many qualitative benefits to the shipping public, including more single-line service, new and improved routes, more gateway choices, more reliable service, and reduced
terminal delay. Applicants also indicate that they expect the acquisition of IC to produce annual
quantitative public benefits in a normal year,(106) giving effect to full implementation of the operating
plan, of $137.4 million.(107) These consist of operating efficiencies and other cost savings, including
As applicants have explained, the transaction presents significant opportunities for cost
savings (public benefits), while the main focus of the Alliance Agreement is revenue growth (private
benefits). Below, we present applicants' projections of public benefits:(108)
It appears that all of these cost reductions can be achieved from combining certain CN and IC operations, and from other synergies connected with CN's acquisition of IC. Protestants have not challenged the availability of those benefits through this transaction. Rather, they are claiming that all of these benefits should be disregarded because they were already available from cooperation between CN and IC under the Alliance Agreement. We note, however, that protestants have not even attempted to detail which particular benefits could have been achieved without the merger, and they are unable to point to any that have already been achieved through the Alliance Agreement. To the contrary, UP concedes that "many of the contemplated coordinations and joint activities have yet to be implemented." UP-8 at 45.
UP also loses sight of the fact that the Alliance Agreement is itself a settlement agreement
related to the merger, and as such it is even appropriate for us to consider its benefits as well, just as
we did in UP/SP. In that case, we weighed the significant competitive benefits of the entire
UP/BNSF settlement agreement as merger benefits, not just those elements that we determined were
necessary to remedy merger-related competitive harm.
In any event, we and the ICC have consistently recognized that railroad mergers frequently
can achieve a degree of coordination beyond that which is available under voluntary coordination
agreements such as the Alliance Agreement. This was true in the UP/CNW control transaction,
where the ICC specifically rejected arguments that there were no additional merger synergies
resulting from UP's control of CNW that were not available under the extensive voluntary
coordination agreements between those two carriers that were already in place (UP/CNW, slip op. at
[M]any of the projected efficiency gains from control require more structure than can
be realized through selective cooperative agreements. To achieve the efficiency
gains and improve service, applicants need to be able to develop and implement a
coordination plan based on common management objectives.
The same is true here. Although some unidentified portion of the merger synergies perhaps
could have been achieved through cooperation between IC and CN pursuant to the Alliance
Agreement, many others could not have been realized absent a full merger. This view is entirely
consistent with those expressed by us and by the ICC in earlier rail mergers. For example, in SF/SP,
the ICC said: "It seems clear to us that without the unified management resulting from the merger,
few if any of the operating economies projected under the Operating Plan are attainable." SF/SP, 2
I.C.C.2d at 872.
Finally, one key element of UP's argument -- that the projected public benefits incorporate
the impact of savings made possible by increased traffic flows due to the Alliance Agreement -- is
simply wrong. The 1996 base-year data used by applicants cannot reflect Alliance activities
because that agreement was not made until 1998. Applicants have further explained that none of the
expected Alliance traffic growth has been incorporated in their estimates of quantitative public
benefits, since their benefit calculations are "derived solely as a result of combining historic CN and
IC into a single operating entity."(109)
In sum, the criticisms that have been raised here are unpersuasive. Moreover, the precise
level of quantifiable benefits is not of great moment. Because the modest merger-related harms are
fully addressed by the conditions we are imposing, the substantial qualitative benefits shown on this
record, by themselves, justify our approval. Further, even if it were appropriate to disregard all
merger savings that might have been achieved by some means short of merger,(110) applicants will still
achieve substantial quantifiable merger synergies that were not otherwise available.
DETAILS OF FINANCIAL MATTERS.
Financial Condition and Fixed Charges. As detailed below, the record clearly
demonstrates that, after its acquisition of IC, CN will remain financially sound, CN's assumption of
the payment of IC's fixed charges will be consistent with the public interest, the terms of the
acquisition agreements and transactions are just and reasonable to shareholders, and new
transaction-related debt issued by CN, together with the assumption by CN of the liabilities of IC,
will not impair the acquiring carrier's ability to continue to provide quality service to the shipping
This transaction involves the acquisition and control of IC by CN through two separate
tender offers, one for the purchase of IC stock, and one for the exchange of IC stock for CN stock.
The first tender offer, consummated March 14, 1998, resulted in the acquisition of 75% of IC's
common stock (46,051,761 shares) at $39.00 per share. CN financed this purchase with $1.8
billion in new debt. The second tender offer, consummated on June 4, 1998, resulted in the
remaining 15,350,587 IC shares being exchanged for 10.1 million new common shares of CN stock.
All of the IC stock has been placed in a voting trust to avoid unauthorized control pending our
Despite this new debt incurred by applicants, their already favorable financial condition will
be improved once the merger is fully implemented. CN expects the acquisition to improve its
financial position in a normal year by $216.2 million, including the $137.4 million in operating
efficiencies and cost savings discussed above under "Details of Public Benefits," and an additional
$78.8 million in net operating revenue gains that are private financial benefits. The following table
summarizes these projections.
The private financial benefits to applicants here are derived from several sources, including
diversion of traffic from other rail carriers,(111) diversion of intermodal traffic from truck to rail,(112) and
intermodal port diversions.(113) The total net increased revenue from these sources in a normal year is
projected to be $78.8 million ($248.1 million in gross revenues minus $157.8 million in costs to
move this additional traffic and minus employee separation and relocation costs of $11.5 million).
Applicants freely admit that some unquantified portion of the projected revenue gains from traffic
diversions derives from the Alliance Agreement.
The argument of UP and Exxon that the Alliance Agreement unduly clouds the
determination of CN's fiscal soundness, however, is without merit. It is irrelevant to this issue
whether these benefits result from the Alliance Agreement or from the merger. Regardless of their
derivation, these financial benefits will have the same positive impact upon the financial fitness and
fixed charge coverage ability of applicants after the merger.
The record indicates that CN's financial ratios following its merger with IC will remain
highly favorable. IC has historically been the best performing Class I railroad in the United States.
It has had significantly better financial ratios than other carriers, and we or the ICC have found it to
be revenue adequate every year since 1990. Protestants have simply failed to demonstrate that this
acquisition would be a financial burden on CN. To the contrary, CN should be even stronger
financially after the merger.
Applicants submitted pro forma financial statements showing consolidated data for CN after
completion of its acquisition of IC, based on 1996 data, for a base year and for each of the first 3
years after completion of the acquisition. These statements reflect the anticipated financial gains
from CN's acquisition and operation of IC's assets and the resulting changes in various revenue and
expense accounts. Applicants also submitted financial statements for a "normal" year depicting the
expected total benefits to be achieved from the acquisition and any normalized additional debt and
interest expenses that will be incurred.
Consolidated pro forma income before fixed charges should exceed fixed charges (interest
payments for long-term debt) by ratios that gradually rise from 3.3 during the first year after the
acquisition to 4.9 during the third year. Similarly, other financial ratios will improve, including the
cash throw-off-to-debt ratio, and the operating ratio. Return on equity would move from 9.8% for
the first year to 11.3% for a normal year. CN/IC's net income is projected to increase from $306
million during the first year to $497 million for the normal year. In sum, the pro forma data
presented by applicants indicate that CN, after completion of its acquisition of IC, will possess
considerable financial strength. CN should easily be able to generate sufficient income to pay fixed
charges, including interest associated with all debt issued to purchase IC stock and debt assumed in
the transfer of IC's assets.
Fairness Determination. Section 11324(c) directs us to approve transactions under 49
U.S.C. 11323 when we find that they are consistent with the public interest. Under that standard, we
are required to determine whether terms are fair to the shareholders. Schwabacher v. United States,
334 U.S. 182 (1948); Zatz, et al. v. STB, 149 F.3d 144 (2d Cir. 1998).
Applicants' financial advisors, Goldman Sachs (for CN) and the Beacon Group Capital
Services and Lehman Brothers (for IC), employed various valuation techniques to determine the
fairness of the terms of the stock purchase to the shareholders of each company. No opposing parties
presented evidence to challenge this evidence. These investment firms, which have substantial
expertise in the valuation of businesses and securities in connection with mergers and acquisitions,
found that the consideration paid by CN was fair to its shareholders and to those of IC. After
carefully reviewing the arguments and conclusions of these investment firms, we find that the terms
of the acquisition agreement are just and reasonable to the shareholders of CN and IC.
KCS-GWWR (Sub-No. 1) Trackage Rights Application. KCS, supported by applicants,
has asked us to grant its affiliate, Gateway Western Railroad (GWWR), unrestricted trackage rights
over a short segment of a line owned by UP to permit an improved interchange with IC at or near
Springfield, IL. Although GWWR currently uses UP's Springfield tracks to interchange with IC,
NS and UP, the so-called Ridgely Yard agreement under which UP granted GWWR those rights
allegedly impedes GWWR's use of this segment to interchange traffic moving to, from, or via the
Chicago Switching District with any carrier other than UP. KCS seeks trackage rights authority
under section 11102, which would obviate the Ridgely Yard agreement(114) and give KCS unfettered
interline access to its Alliance partner IC at Springfield.(115)
Section 11102 allows us to grant trackage rights to one carrier over another carrier's tracks in or near terminal areas if the grant is in the public interest.(116) Where the trackage rights are not merger-related, the applicant is required to meet our competitive access standards.(117)
In previous railroad mergers, the Board or the ICC has required non-applicant carriers to
grant terminal trackage rights to another carrier only in limited circumstances where the rights were
designed to bridge a gap within broader trackage rights imposed on applicants and deemed necessary
to remedy or mitigate anticompetitive effects in the transaction, UP/SP, Dec. No. 44, slip op. at 168-69.
In Rio Grande Industries, et al. -- Pur. & Track. -- CMW Ry. Co., 5 I.C.C.2d 952, 978
(1989) (RGI/CMW), the ICC explained that it could not use its "plenary" authority under former
section 11341 "to compel a carrier to grant trackage rights over its line to another carrier." In that
case, the ICC did grant terminal trackage rights under section 11103(a). There in what it termed an
"unusual case," the ICC permitted the assignment of terminal trackage rights against the owner's
wishes in part to allow a service continuation over the CMW lines. The CMW was already in
bankruptcy, and the line in question was critical to the CMW operation.
Shortly thereafter, in ruling on a motion to reject a consolidation application in Rio Grande
Industries, Inc., et al. -- Purchase and Related Trackage Rights -- Soo Line Railroad Company
Line Between Kansas City, MO and Chicago, IL, Finance Docket No. 31505, Decision No. 6 (ICC
served Nov. 15, 1989) (RGI/Soo), the ICC again stated its position that it could not use the
pendency of a consolidation proceeding as an excuse for imposition of trackage rights over the lines
of a non-applicant. RGI/Soo, slip op. at 8. The ICC also stated that it could not under these
circumstances assign trackage rights which are unassignable or assignable only with consent. The
ICC explained that it could grant terminal trackage rights under section 11103 if a case could be
made under the Midtec standard. The ICC also stressed that RGI/CMW was an unusual case in that
the agency was trying to maintain the competitive status quo that was being threatened by the
insolvency of CMW, while in RGI/Soo it was being asked to alter the existing competitive
relationship for no apparent public interest reason.
None of these precedents supports the instant terminal trackage rights application because
the rights sought by KCS-GWWR are not designed to remedy any anticompetitive effects of, or fill
in any gaps in, a consolidated CN/IC system. An expanded interchange with KCS's affiliate at
Springfield approximately 600 miles north of Jackson, MS, would clearly assist the long-haul
interests of KCS, and, to a lesser extent, applicants. Although it might promote the purposes of the
Alliance, it is not necessary to carry out the merger.(118) Based on applicants' theory, any railroad
that connects anywhere with the merged CN/IC could override its preexisting contractual obligations
simply by asserting that the proposal would allow the merger to be more efficient.
It is not clear to us that removing the Ridgely Agreement restrictions is even necessary for
Alliance Agreement purposes. UP has been willing to negotiate amendments to the Ridgely
Agreement on two occasions, in 1993, and more recently in 1996. UP asserts that these
amendments have resulted in a substantial increase in traffic interchanged between KCS and IC, so
that three trains per week now move through this Alliance gateway, as compared to the one car per
day that KCS and UP interchange there. We prefer and encourage the parties to resolve these sorts
of issues, which have little nexus to the merger, through private negotiations.
Moreover, it appears that IC and KCS can effectively accomplish this interchange west of
the UP tracks at issue here through construction of additional side track or through the grant by KCS
to IC of trackage rights to permit access to a more convenient interchange point on GWWR.(119)
In sum, there is an insufficient nexus between the merger and applicants' trackage rights proposal to justify consideration under the less demanding public interest standard we have applied in appropriate circumstances within the context of rail merger proceedings. Nor have applicants shown that they need to override GWWR's contractual obligations to UP in order to implement the CN/IC merger.
Thus, the Springfield terminal trackage rights can be granted only if applicants meet the
generally applicable competitive access standards. That standard requires that a party seeking
terminal trackage rights show that the incumbent carrier has engaged, or is likely to engage, in
competitive abuse and that the terminal rights would ameliorate that conduct. See 49 CFR 1144.
Applicants have not shown, nor do they even allege, anticompetitive conduct by UP or any other
carrier at the Springfield interchange. Accordingly, the application in Sub-No. 1 for terminal
trackage rights will be denied, and the Ridgely Agreement restrictions will not be overridden.
ENVIRONMENTAL MATTERS. The National Environmental Policy Act requires that
we take environmental considerations into account in our decisionmaking. We must consider the
environmental effects of a transaction in deciding whether to approve the transaction as proposed,
deny the proposal, or grant it with conditions, including environmental conditions. Accordingly, our
Section of Environmental Analysis (SEA) conducted a comprehensive review of the potential
environmental impacts. SEA determined that, with its recommended environmental mitigation, the
transaction will not result in any significant environmental impacts. We have thoroughly reviewed
SEA's analysis. We agree with that analysis, and we will impose SEA's recommended conditions
with minor clarifying changes.
Our environmental rules normally call for the preparation of an Environmental Assessment
(EA) in railroad merger cases(120) (49 CFR 1105.6(b)(4)), and SEA followed that process here. SEA
issued a Draft EA on November 9, 1998, which analyzed 19 topics, including safety, hazardous
materials transport, transportation systems, land use, energy, air quality, noise, biological resources,
water resources, historic and cultural resources, and environmental justice.(121) Safety was of primary
concern to SEA in conducting its environmental review. The Draft EA included SEA's preliminary
recommendations for environmental mitigation addressing hazardous materials transport safety,
related environmental justice concerns, and safety integration. SEA conducted comprehensive
public outreach to ensure that the affected public, including government agencies and communities,
had an opportunity to raise environmental concerns and review and comment on the Draft EA.
In preparing its Final EA, SEA reviewed and responded to the public comments, conducted
further analysis, and consulted with appropriate government agencies. SEA issued the Final EA on
March 8, 1999, prior to the oral argument and voting conference. In the Final EA, SEA concluded
that the transaction would result in system-wide environmental benefits, including reductions in air
pollution emissions, fuel consumption, highway traffic, and highway accidents. SEA further
concluded that there would be potentially significant environmental impacts only with regard to
hazardous materials transport safety and related environmental justice impacts and proposed
mitigation to address those effects. As the Draft EA and Final EA show, SEA has taken the requisite
"hard look" at environmental issues in these very thorough documents.
An important part of the environmental process here is safety integration. We have required
applicants to prepare and file a detailed Safety Integration Plan (SIP), in consultation with FRA,
addressing safety integration concerns, including those raised by rail labor and others. The SIP
outlines applicants' plans for safe integration of their rail lines, equipment, personnel, and operating
practices. Because safety integration is an ongoing process, the SIP will continue to be modified and
refined as this transaction moves forward. The Board and FRA also have entered into a
Memorandum of Understanding (MOU), with the concurrence of DOT, regarding the ongoing
safety integration process.(122) We will impose SEA's recommended conditions requiring applicants
to comply with their SIP and to cooperate with the Board and FRA until FRA advises us that the
transaction has been safely implemented.
In sum, based on its thorough environmental review in the EA process and consideration of
the public comments, SEA has recommended, and we are imposing, 15 environmental conditions,
the majority of which address safety. These conditions address such issues as hazardous materials
transport, environmental justice, construction activity, and safety integration. There is also a
condition providing that we may review the continuing applicability of our final environmental
mitigation where warranted.
Our final environmental conditions are attached at Appendix E. We will continue
appropriate monitoring of these environmental conditions under our general oversight for this
In STB Finance Docket No. 33556, we find: (a) that the acquisition by CN of control of IC,
and the integration of the rail operations of CN and IC, through the proposed transaction, as
conditioned herein, is within the scope of 49 U.S.C. 11323 and is consistent with the public interest;
(b) that the proposed transaction will not adversely affect the adequacy of transportation to the
public; (c) that no other railroad in the area involved in the proposed transaction has requested
inclusion in the transaction, and that failure to include other railroads will not adversely affect the
public interest; (d) that the proposed transaction will not result in any guarantee or assumption of
payment of dividends or any increase in fixed charges except such as are consistent with the public
interest; (e) that the interests of employees affected by the proposed transaction do not make such
transaction inconsistent with the public interest, and any adverse effect will be adequately addressed
by the conditions imposed herein; (f) that the proposed transaction, as conditioned herein, will not
significantly reduce competition in any region or in the national rail system; and (g) that the terms of
the proposed transaction are just, fair and reasonable to the stockholders of CNR and to the
stockholders of IC Corp. We further find that the conditions imposed in STB Finance Docket No.
33556, including but not limited to the oversight condition, are consistent with the public interest.
We further find that any rail employees of applicants or their rail carrier affiliates affected by the
transaction authorized in STB Finance Docket No. 33556 should be protected by the New York
Dock labor protective conditions, as augmented, unless different conditions are provided for in a
labor agreement entered into before the carriers make changes affecting employees in connection
with the transaction authorized in STB Finance Docket No. 33556, in which case protection shall be
at the negotiated level, subject to our review to assure fair and equitable treatment of affected
In STB Finance Docket No. 33556 (Sub-No. 1), we find that requiring UP to permit the use
by GWWR of unlimited terminal trackage rights would not be in the public interest.
In STB Finance Docket No. 33556 (Sub-No. 2), we find that the OMR responsive
application is not consistent with the public interest.
In STB Finance Docket No. 33556 (Sub-No. 3), we find that the CPR/St.L&H responsive
application is not consistent with the public interest.
We further find that this action, with the environmental mitigation conditions set forth in
Appendix E, will not significantly affect the quality of the human environment or the conservation of
We further find that all conditions requested by any party to the STB Finance Docket
No. 33556 proceeding or any of the embraced proceedings but not specifically approved in this
decision are not in the public interest and should not be imposed.
It is ordered:
1. The CN/IC control application filed in STB Finance Docket No. 33556 is approved,
subject to the imposition of the conditions discussed in this decision. The Board expressly reserves
jurisdiction over the STB Finance Docket No. 33556 proceeding and the embraced proceedings in
STB Finance Docket No. 33556 (Sub-No. 2) and STB Finance Docket No. 33556 (Sub-No. 3) in
order to implement the 5-year oversight condition imposed in this decision and, if necessary, to
impose additional conditions and/or to take other action if, and to the extent, we determine it is
necessary to impose additional conditions and/or to take other action to address matters respecting
the CN/IC control transaction, including without limitation: (a) concerns regarding the operation of
the Alliance Agreement, particularly with respect to ongoing competition within the Baton Rouge-New Orleans corridor; (b) concerns of North Dakota grain shippers with respect to the Chicago
gateway; (c) concerns with respect to investment in and operation of the Detroit River Tunnel;
(d) concerns with respect to any merger-related link to any unfair pricing practices in the lumber
industry; (e) concerns with respect to lack of appropriate labor protective conditions if unauthorized
control of applicants and KCS should occur; and (f) any necessary monitoring of the environmental
mitigating conditions imposed in this decision.
2. If applicants consummate the approved transaction, they shall confirm in writing to the
Board, within 15 days of the date of such consummation. Where appropriate, applicants shall
submit to the Board five copies of the journal entries recording consummation of the transaction.
3. All notices to the Board as a result of any authorization shall refer to this decision by date
and docket number.
4. No change or modification shall be made in the terms and conditions approved in the
authorized application without the prior approval of the Board.
5. Applicants must comply with all of the conditions imposed in this decision, whether or
not such conditions are specifically referenced in these ordering paragraphs.
6. Applicants must adhere to all of the representations they made on the record during the
course of this proceeding, whether or not such representations are specifically referenced in this
7. With respect to Geismar, LA, applicants must modify the CN/KCS Access Agreement to
grant KCS access to Rubicon, Uniroyal, and Vulcan under the same terms and conditions that will
govern KCS's access to BASF, Borden, and Shell.
8. Approval of the application in STB Finance Docket No. 33556 is subject to the New
York Dock labor protective conditions. Those conditions will be augmented so that employees who
choose not to follow their work to Canada will not lose their otherwise applicable New York Dock
9. Applicants must adhere to the commitments they made to UTU.
10. Applicants must adhere to the terms of the CN/IC-BMWE implementing agreement.
Applicants must also adhere to the terms of the two implementing agreements entered into with
11. Approval of the application in STB Finance Docket No. 33556 is subject to the
environmental mitigation conditions set forth in Appendix E.
12. In STB Finance Docket No. 33556 (Sub-No. 1), the KCS trackage rights application is
13. In STB Finance Docket No. 33556 (Sub-No. 2), the responsive application filed by
OMR is denied.
14. In STB Finance Docket No. 33556 (Sub-No. 3), the responsive application filed by
CPR and St.L&H is denied.
15. All conditions that were requested by any party in the STB Finance Docket No. 33556
proceeding and/or in the three embraced proceedings but that have not been specifically approved in
this decision are denied.
16. As respects certain procedural matters not previously addressed: (a) the CPR-17
petition to initiate an investigation is denied; (b) the KCS-13 motion to strike is denied; (c) the
BMWE-6 joint motion for adoption of the CN/IC-BMWE implementing agreement as a condition of
approval of the CN/IC control application is granted; (d) the UTU-10 joint request for adoption of
applicants' commitments to UTU as a condition of approval of the CN/IC control application is
granted; and (e) the CN/IC-64 motion to strike is denied, and the CN/IC-64 response is included in
17. This decision shall be effective on June 24, 1999.
By the Board, Chairman Morgan, Vice Chairman Clyburn, and Commissioner Burkes.
Chairman Morgan, Vice Chairman Clyburn, and Commissioner Burkes commented with separate
Vernon A. Williams
CHAIRMAN MORGAN, commenting:
The Board is presented today with another pro-competitive rail transaction that will provide
substantial transportation benefits for many shippers throughout the Nation. In particular, it will
provide for expanded service options such as single-line rail service for shippers in the NAFTA
corridor and throughout the central United States. In addition, in light of the efficiencies that it will
produce, it will provide quantifiable public benefits in excess of $100 million annually.
The transaction before us also represents another illustration of the positive direction in
which labor-management relations have moved in recent years, and should continue to move.
Indeed, in the three most recent mergers -- those involving the Union Pacific-Southern Pacific,
CSX-Norfolk Southern-Conrail, and the CN-IC transaction before us here -- the respective
applicants have obtained through negotiation the support of unions representing a majority of the
carriers' union employees for each of their proposed consolidations.
Notwithstanding this support, there is a concern among rail labor interests about the
modification of collective bargaining agreements (CBAs) as a result of Board-approved rail
consolidations. This concern extends not only to the breadth of the provisions that may be changed,
but also to the duration of the period during which changes may be made. The courts, including the
Supreme Court, have held that under the law CBAs may be modified as necessary to implement a
Board-approved transaction, and that the period during which they may be changed can extend for a
number of years.(123) The Board is bound by court decisions interpreting our statute until the law is
changed by Congress,(124) and when I was named ICC Chairman in 1995, the agency was subject to
the constraints imposed by the case law on these issues. However, I note that in none of the merger
proceedings decided under my watch prior to the transaction before us here -- Burlington Northern-Santa Fe, Union Pacific-Southern Pacific, and CSX-Norfolk Southern-Conrail -- has the Board or
the ICC affirmatively found it necessary to override a CBA.
Nevertheless, labor interests have expressed concern that cases that were decided before I
joined the ICC, along with the ICC's active involvement in the arbitration process, had the effect of
skewing negotiations in favor of management. I understand that concern, and I respect and believe
in the collective bargaining process. Even given existing law and precedent, I have worked
diligently to bring about a level playing field to ensure that management as well as labor have every
incentive to engage in good faith negotiations to resolve disputes over the implementation of Board-approved transactions. Under my leadership, in the so-called "Carmen III" case the Board limited to
the maximum extent possible under current law the power to override or modify a CBA, returning to
the modification authority exercised by arbitrators during the period of 1940-1980 pursuant to the
Washington Job Protection Agreement of 1936 negotiated by labor and management. Additionally,
the Board has moved away from interjecting itself into the arbitral process and, rather, has
emphasized its strong preference for voluntary private-sector resolution of issues such as labor
matters. And when more aggressive action has seemed necessary, the Chairman order authority has
been used to issue injunctions in order to facilitate and expand opportunities for bargaining.
These efforts to encourage negotiation rather than arbitration have produced significant
results. The applicants in the CSX-Norfolk Southern-Conrail transaction have concluded all
implementing agreements for that transaction through private negotiation with the many involved
unions without the substantive involvement of the Board.(125) As in CSX-Norfolk Southern-Conrail, I expect the parties in this case that have not yet reached agreement to work diligently to
resolve their issues privately.
As I noted earlier, this positive direction for labor-management relations continues in the
CN-IC case. A number of labor parties to this case already have negotiated agreements. The
Brotherhood of Maintenance of Way Employes, for the first time, is supporting a major merger and
has entered into an agreement with the applicants, which the union believes should serve as a model
for how mergers should be implemented. The United Transportation Union, the largest rail union,
has again engaged in productive bargaining, and has reached a privately negotiated agreement for
the benefit of its membership in yet another merger proceeding. Other unions have also reached
agreement, as a result of which, as noted, unions representing a majority of the applicants' work
forces support the merger. I applaud the commitment to good faith and the leadership of those
involved in these negotiations, and I am certain that the applicants will, in good faith, seek to use
private negotiations to arrive at all implementing agreements necessary to implement their
Certain specific labor concerns have been voiced in this proceeding, which our decision
addresses in a variety of ways. First, with respect to moving jobs to Canada, our decision augments
New York Dock in this proceeding to provide that workers who do not move to Canada can still
retain the benefits of those protective conditions. Second, our decision reiterates the policy that all
bargaining in the implementing process is to be conducted in good faith. Third, our decision makes
it clear, in line with the Board's recent decision in the CSX-Norfolk Southern-Conrail proceeding,
that a decision to approve this merger does not in any way indicate that any particular collective
bargaining agreement should be overridden. In this regard, our decision also highlights applicants'
recognition of the respect due to prior labor agreements. Fourth, our decision holds applicants to
their representations that they will provide advance notice and will consult with the Federal Railroad
Administration regarding the safety implications of transferring dispatching functions to Canada,
should they decide to do that in the future. Furthermore, our decision, in declining to approve the
Alliance Agreement, provides that any changes in CBAs to implement the Alliance will remain
subject to the Railway Labor Act process. And finally, our decision imposes oversight to address
other concerns of labor about the Alliance Agreement and ongoing safety matters.
Beyond labor matters, I also applaud the applicants and various other parties for working to
reach privately negotiated settlement agreements. The applicants reached agreements with the
National Industrial Transportation League, several railroads, and various other interested parties,
and these negotiated settlements are reflected in the fact that this merger is widely supported by over
240 parties. These agreements also are in line with the Board's continuing emphasis on private-sector resolution.
The Board has been presented with a number of other issues related to the merger. Those
issues -- concerning the benefits of the merger; the Alliance and in particular the Baton Rouge/New
Orleans corridor; trackage rights at Springfield; access at Geismar; the movement of North Dakota
grain; the Detroit tunnel; and environmental and safety issues -- have been addressed fully and
fairly in our decision that we are issuing today. And we are imposing oversight to address any
significant issues that may arise in the future.
In closing, I believe that this transaction offers clear transportation benefits with minimal
adverse consequences. With the agreements that have been reached and the additional conditions
that are being imposed, this transaction will advance the public interest for all concerned. Therefore,
I support approval of the transaction, as conditioned in our decision.
VICE CHAIRMAN CLYBURN, commenting:
The Surface Transportation Board is required to approve and authorize this acquisition of
control if, after consideration of congressionally mandated criteria, the Board finds this transaction
to be consistent with the public interest. Accordingly, after careful evaluation of the application,
pleadings, and testimony, and after long sessions evaluating the record and the law with the Board
staff, I am approving the proposed Canadian National (CN)/Illinois Central (IC) merger transaction.
With the carefully constructed Board conditions, this merger should not diminish competition
among rail carriers in the affected region or in the national rail system. Indeed, the transaction
should enhance competition. This transaction will create a pro-competitive transportation system
spanning most of Canada, the central part of the United States, and the Gulf of Mexico. The
combination of CN and IC will make possible a new, single-line service alternative for many
shippers, and the applicants will be able to provide better, more efficient service throughout their
merged system. In particular, the merger should significantly increase competition for international
traffic that is gaining greater strategic importance due to NAFTA. In addition, the Board's staff has
found that the merger should generate quantifiable public benefits of more than $137 million a year
through increased single-line service, new and improved routes and gateway choices, more reliable
service, and reduced terminal delays.
Because this is an end-to-end merger, the number of independent railroads currently serving particular shippers is not reduced at any location served by CN or IC. The United States Department of Justice has not raised any anticompetitive concerns. The application is supported by more than 240 parties, including many shippers, rail employee unions, and local communities.
I support the concept of privately-negotiated agreements. Parties to these agreements have a
vested interest in maximizing efficiencies and enhancing their financial viability. However, the
statute does not contemplate blind reliance on projections and claims, nor can the Board ignore the
concerns of other participants in this proceeding. In an increasingly concentrated rail industry, it is
important for the Board to carefully consider, and promptly resolve, the petitions of affected parties
other than the transaction's principals, including small or infrequent rail shippers, communities,
carrier employees, and shortlines and regional railroads. Each of these parties also has an important
stake in the successful implementation of this transaction.
I am persuaded that the Alliance Agreement between CN, IC, and Kansas City Southern is
an example of a privately-negotiated cooperative effort between parties seeking to enhance
competition. The Alliance Agreement in this case does not result in the common control of CN, IC,
and KCS -- all decisions of the Alliance are consensual, and each participant retains the managerial
prerogative to veto any action by the Alliance. Thus, there is no need to require KCS to be a co-applicant in this proceeding. I have also carefully considered the argument raised by the United
States Department of Transportation (DOT) that the Alliance Agreement may reduce competition
between KCS and applicants for traffic in the New Orleans-Baton Rouge, LA, corridor. It is
appropriate that we condition this decision to carefully monitor this situation to protect against any
harmful diminution of competition.
The Board is also granting haulage rights to KCS over IC's line to serve three additional
shippers at Geismar, LA. Because of this merger and its related Access Agreement, it is unlikely
that any Geismar construction project will occur even though KCS has previously requested our
regulatory approval for such construction. This loss of the build-in/build-out option by the three
shippers could have a significant adverse effect on potential competition in the area. Accordingly,
the Board's grant of haulage rights to KCS is in the public interest because the Geismar condition is
intended to preserve these shippers' pre-merger competitive position.
This transaction should result in no track redundancies, abandonments, or reroutings
because the CN and IC systems will be joined at a single point, Chicago. Therefore, I expect that
there will be only minimal or no disruptions to employees,(126) shippers, and communities, and
minimal risk of service and safety problems during implementation of the merger. The Board's
Section of Environmental Analysis (SEA) has prepared a thorough Environmental Assessment in
which SEA evaluated the potential significant impacts of increased rail traffic and has recommended
conditions to mitigate any potential harm to communities from the transportation of hazardous
materials. Because the Board considers safety integration an important part of its decisional and
oversight role, applicants have been required to prepare and file a comprehensive Safety Integration
Plan (SIP) addressing safety concerns raised by the Federal Railroad Administration (FRA), rail
labor, and others. As applicants implement their transaction, they will update and refine the SIP to
reflect their compliance. We have imposed SEA's recommendation that applicants comply with
their SIP and cooperate with the Board and FRA until FRA advises us that the transaction has been
While this transaction was pending, rail employee unions representing more than half of
applicants' employees have reached settlement agreements with applicants, and those employees and
unions now support the application. I encourage and expect the participants to recognize the
integrity of existing collective bargaining agreements to the maximum extent possible. I commend
both the unions and rail management for their cooperative attitude that has been exhibited during
this proceeding. I encourage and expect good-faith cooperation in negotiating issues remaining
between rail management and those unions that have not yet settled with the applicants.
I conclude that this transaction meets the statutory public interest test for approval. As
conditioned, I expect the merger to result in no significant competitive, operational, or
environmental problems. I expect any negative impact on rail employees to be ameliorated. I
expect the transaction to improve significantly single-line service for many shippers, and result in
substantial merger benefits that should allow the carriers to provide service at lower cost. A
significant portion of these savings should be passed along to shippers in terms of reduced rates or
improved service. I approve of the merger, as conditioned, including the necessary Board oversight.
The parties must now work to ensure effective and positive integration of all the elements to truly
realize all of the benefits, public and private.
COMMISSIONER BURKES, commenting:
The statute sets forth several factors to be determined when approving or disapproving rail
mergers; but in my opinion, chief among the factors is the consideration of whether the Board can
find the transaction to be consistent with the public interest. In arriving at that determination the
Board is required to balance the benefits of a merger against any harm to competition or to essential
services that cannot be mitigated by conditions. Thus, from my point of view, when the Board
determines, based on economic and competitive merits, that a transaction is consistent with the
public interest, the Board is required by statute to approve and authorize the proposed transaction.
In deciding whether I should vote to approve this merger, I asked myself a very direct
question: How do I decide, in the context of a transaction of this sort, with attributes that must be
weighed within the framework of rigorous statutory standards, just what is the public interest based
on the statute and agency and judicial precedent. In the context of a proposed merger, and from the
shipping public's point of view, the public interest should mean competitive options and reasonable
rail service. By contrast, for railroads, the public interest should reflect growth and opportunity,
better returns on investments, greater and efficient use of assets, and infrastructure improvements.
Not lost in this should be the interests of rail-labor. From my point of view, a finding of the
public interest must include a determination of fair working conditions, wages, and enhanced job
In addition, the environment and concerns of impacted communities must be considered. In
this regard, I believe a finding of public interest should mean the merger presents fair and equitable
arrangements in enhancement of the economy, the environment, and the quality of life.
So it was within this overall framework that I looked at the facts of this case. As I stressed at
the outset of oral argument in these proceedings, while I may be new to the STB, I was not new to
this process, since I have deliberated over many proceedings involving, among others, the legal,
economic, and social aspects of transportation issues. I also stressed that I consider myself
experienced and adept at listening to arguments, filtering out irrelevancies, and discerning when
issues are being adequately addressed by all sides. Know also that I studied the record in these
Based on the facts, evidence, arguments of record, and the briefing and recommendations of
the Board's professional staff, I find that this merger satisfies the public interest factors of 49 U.S.C.
11324(c), and I vote to approve it, with the suggested conditions outlined by the Board.
Specifically, first, this merger is end-to-end, with CN and IC joining operations at a single
point, Chicago. Thus, at the outset, in the context of this merger, the analysis is fundamentally
different from that of recent mergers. For example, this transaction should not result in any track
redundancies, abandonments, or reroutings. As such, I believe that any disruptions to employees,
shippers, and communities should be minimal, as should the risks of the kinds of service failures that
have recently plagued the industry.
The Board's Section of Environmental Analysis prepared a detailed and thorough
environmental assessment in which they identified the hazardous material transport concerns and
recommended appropriate conditions. I am satisfied.
Likewise, I am convinced that the merger will not disproportionately impact employees of
these carriers in the United States. Applicants state that 311 positions may be abolished, and 138
positions may be transferred as a result of the transaction. In my opinion, however, the Board has
carefully measured these effects and has appropriately determined that effected rail employees shall
enjoy every form of protective benefit, both substantively and procedurally, they are entitled to,
including no diminution, whatsoever, of any right under New York Dock for those who may refuse
to accept a site transfer to Canada, regardless of the reason. This aspect of the merger too, satisfies
Finally, with respect to the Alliance and Access agreements between the applicants and the
Kansas City Southern, I find unconvincing the arguments of some that such agreements have
transformed this proceeding to a three-way merger, or that such agreements amount to unauthorized
control and/or collusive activity. The genesis of these agreements pre-dates the merger, and I am
satisfied, based on the record, the parties' arguments, and the views of the Board's professional staff,
that the agreements do not give rise to the kinds of economic and competitive harms feared by some
critics. Indeed, I find it not just noteworthy, but persuasive, that the agreements, by their terms, do
not apply to situations where two or more participants, now or in the future, are the only head-to-head competitors at origin or destination. I suspect that it was such internal safeguards that resulted
in the Department of Justice's abstention here. I am satisfied.
Furthermore, I am a firm believer in the Board's oversight. Just as we expect the parties to
honor their commitments and representations, be advised that so too will the Board adhere to its
responsibility to monitor these proceedings; and on a moment's notice, will be ready to take
corrective action now or in the future.
In conclusion, I find that this merger meets the public interest tests under the statute. I believe that the merger, as conditioned by the Board, will enhance single-line service for many shippers, and produce positive economies of scale, that should result in lower carrier costs and rates. This merger should not result in significant competitive, operational, or environmental problems. And its impact on rail employees, while significant, should nonetheless be mitigated by appropriate substantive and procedural protective benefits.
I vote to approve this merger, subject to the conditions recommended by the Board's staff.
AF&PA ....................... American Forest & Paper Association
ARU ........................... Allied Rail Unions
ATDA ......................... American Train Dispatchers Association
ATDD ......................... American Train Dispatchers Department of BLE
BASF .......................... BASF Corporation
BC .............................. Province of British Columbia
BLE ............................ Brotherhood of Locomotive Engineers
BMWE ....................... Brotherhood of Maintenance of Way Employes
BNSF .......................... The Burlington Northern and Santa Fe Railway Company
Board .......................... Surface Transportation Board
Borden ........................ Borden Chemicals and Plastics Ltd.
BRC ............................ The Belt Railway Company of Chicago
BRCP ......................... Exxon's Baton Rouge Chemical Plant
BRFP .......................... Exxon's Baton Rouge Finishing Plant
BRPO ......................... Exxon's Baton Rouge Polyolefins Plant
BRPP .......................... Exxon's Baton Rouge Plastics Plant
BRRF ......................... Exxon's Baton Rouge Refinery
BRS ............................ Brotherhood of Railroad Signalmen
CASO ......................... Canada Southern Railway Company
CBA ........................... Collective Bargaining Agreement
CCP ............................ Chicago, Central & Pacific Railroad Company
CCPH ......................... CCP Holdings, Inc.
CFR ............................ Code of Federal Regulations
Champion ................... CIC and Weldwood
CIC ............................. Champion International Corporation
CMW .......................... Chicago, Missouri and Western Railway Co.
CN .............................. CNR, GTC, and GTW, and their wholly owned subsidiaries (excluding IC Corp. and its wholly owned subsidiaries)
CNCP Partnership ...... CNCP Niagara Detroit Partnership
CNR ........................... Canadian National Railway Company
CNW .......................... Chicago and North Western Railway Company
Conrail, CR................. Consolidated Rail Corporation
CP ............................... CPR, St.L&H, Soo, and D&H
CPR ............................ Canadian Pacific Railway Company
CRRC ......................... Cedar River Railroad Company
CSX ............................ CSX Transportation, Inc.
D&H ........................... Delaware and Hudson Railway Company, Inc.
DEA ........................... Draft Environmental Assessment
DOJ ............................ United States Department of Justice
DOT ........................... United States Department of Transportation
DRGW ....................... The Denver and Rio Grande Western Railroad Company
DRT ............................ Detroit River Tunnel
DRTC ......................... Detroit River Tunnel Company
DTI ............................. Detroit, Toledo and Ironton Railroad Company
DTSL .......................... Detroit and Toledo Shore Line Railroad Company
DWP ........................... Duluth, Winnipeg and Pacific Railway Company
EA .............................. Environmental Assessment
ECA ............................ Exxon Chemical Americas
ECC ............................ Exxon Chemical Company
EUSA ......................... Exxon Company, U.S.A.
Exxon ......................... Exxon Corporation, ECA, ECC, and EUSA
FEA ............................ Final Environmental Assessment
FRA ............................ Federal Railroad Administration
Frisco .......................... St. Louis-San Francisco Railway Company
GTC ............................ Grand Trunk Corporation
GTW ........................... Grand Trunk Western Railroad Incorporated
GWWR ....................... Gateway Western Railway Company
IAM ............................ International Association of Machinists and Aerospace Workers
IBB ............................. International Brotherhood of Boilermakers, Blacksmiths, Forgers and Helpers
IBEW ......................... International Brotherhood of Electrical Workers
IC ................................ IC Corp., ICR, CCP, and CRRC, and their wholly owned subsidiaries
IC Corp. ...................... Illinois Central Corporation
ICC ............................. Interstate Commerce Commission
ICCTA or Act ............. ICC Termination Act of 1995
ICR ............................. Illinois Central Railroad Company
IMRL .......................... I & M Rail Link, LLC
KCS ............................ The Kansas City Southern Railway Company and Gateway Western Railway
Company, and all other wholly owned subsidiaries of Kansas City Southern Industries, Inc.
Merger Sub ................. Blackhawk Merger Sub, Inc.
MP .............................. Milepost
NAFTA ...................... North American Free Trade Agreement
NCFO ......................... National Council of Firemen and Oilers
NDDA ........................ North Dakota Department of Agriculture
NDDOT ...................... North Dakota Department of Transportation
NDPSC ....................... North Dakota Public Service Commission
NEPA ......................... National Environmental Policy Act
NITL ........................... The National Industrial Transportation League
North Dakota .............. North Dakota Governor Edward T. Schafer, NDDA, NDDOT, and NDPSC
NRBC ......................... Niagara River Bridge Company
NS ............................... Norfolk Southern Railway Company
NS ............................... Province of Nova Scotia
OMR ........................... Ontario Michigan Rail Corporation
ON .............................. Province of Ontario
Oxy Chem .................. Occidental Chemical Corporation
PQ ............................... Province of Quebec
RGI ............................. Rio Grande Industries, Inc.
RLA ............................ Railway Labor Act
RLEA ......................... Railway Labor Executives' Association
Rubicon ...................... Rubicon Inc.
SCTC .......................... St. Clair Tunnel Company
SF ............................... The Atchison, Topeka and Santa Fe Railway Company
Shell............................ Shell Corporation
Soo ............................. Soo Line Railroad Company
SMWIA ...................... Sheet Metal Workers International Association
SP ............................... SPT, SSW, SPCSL, and DRGW
SPCSL ........................ SPCSL Corp.
SPT ............................. Southern Pacific Transportation Company
SSW ........................... St. Louis Southwestern Railway Company
STB ............................ Surface Transportation Board
St.L&H ....................... St. Lawrence & Hudson Railway Company Limited
TCU ............................ TransportationCommunications International Union
Tex Mex ..................... The Texas Mexican Railway Company
TFI .............................. The Fertilizer Institute
TFM ........................... Transportación Ferroviaria Mexicana, S.A. de C.V.
TPA ............................ Test Period Allowance
Uniroyal ..................... Uniroyal Chemical Company, Inc.
UP ............................... Union Pacific Railroad Company
UTU ........................... United Transportation Union
VCA ........................... Voluntary Coordination Agreement
Vulcan ........................ Vulcan Chemicals
WCL ........................... Wisconsin Central Ltd.
Weldwood .................. Weldwood of Canada, Limited
WJPA ......................... Washington Job Protection Agreement of 1936
WRC ........................... Waterloo Railway Company
The KCS/IC Springfield Interchange. The KCS/IC interchange at Springfield, IL, that is
projected to be one of the two main interchange points for traffic handled by the CN/IC/KCS Alliance,
already exists. Applicants and KCS contend, however, that the GWWR trackage rights on which this
interchange rests are subject to restrictions that will preclude applicants from achieving all of the
efficiencies made possible by the CN/IC control transaction. The KCS trackage rights application seeks,
in essence, the removal of these restrictions.
Background. The restrictions to which the GWWR trackage rights are subject, and the precise
tracks over which GWWR's trackage rights operations are now conducted, reflect a series of transactions
that have occurred over the past decade and a half.(127)
(1) In the mid-1980s: (a) the Chicago, Missouri and Western Railway Co. (CMW) acquired (i)
two IC lines (a north-south Chicago-Springfield-East St. Louis line and a west-east Kansas City-Springfield line) that connected in Springfield at a point now known as IC Connection,(128) and
(ii) trackage rights in Springfield over IC tracks not acquired by CMW that ran between IC Connection
and Brickyard Junction, and between Brickyard Junction and IC's Avenue Yard;(129) and (b) IC apparently
received back (or retained) trackage rights over a few miles of track at the eastern end of the
Kansas City-Springfield line, i.e., the portion lying between (i) an elevator located southwest of
Cockrell, IL, at or near MP 193.5, and (ii) IC Connection.
(2) In August 1989, CMW,(130) N&W,(131) and IC,(132) and various local authorities, entered into an
agreement that provided for the relocation of operations then conducted over certain CMW and N&W
tracks(133) to new tracks that would be owned by N&W after having been constructed: (a) on a right-of-way extending in a generally west-east direction between (i) approximately the point of intersection of
the N&W line and U.S. Hwy. 36, and (ii) a point on the Chicago-Springfield-East St. Louis line known
as Hazel Dell (located at or near MP 188.9); and (b) on a right of way extending in a generally north-south direction, and running parallel to (and, indeed, immediately adjacent to) the Chicago-Springfield-East St. Louis line, between (i) Hazel Dell and (ii) a point on the Chicago-Springfield-East St. Louis line
known as Iles (which was, in 1989, the junction of the N&W line and the Chicago-Springfield-East St. Louis line).(134)
(3) At a later date in 1989: (a) SPCSL Corp. (SPCSL) acquired from CMW (i) the Chicago-Springfield-East St. Louis line, (ii) a short segment at the eastern end of the Kansas City-Springfield
line, i.e., the segment lying between MP 192.4 (at or near Cockrell, IL) and IC Connection, and (iii) the
trackage rights over the IC tracks between IC Connection and IC's Avenue Yard;(135) and (b) in an
agreement referred to as the Ridgely Agreement, CMW acquired from SPCSL (i) certain limited
trackage rights over SPCSL's (formerly CMW's) lines between the CMW/SPCSL connection at
MP 192.4 and SPCSL's (formerly CMW's) Ridgely Yard (located on the Chicago-Springfield-East St.
Louis line, approximately 6 miles north of IC Connection), and (ii) certain limited rights to use
Ridgely Yard. The rights acquired by CMW (i.e., the trackage rights and Ridgely Yard use rights) were
limited in this crucial respect: CMW could not use such rights to handle any traffic moving from, to, or
via the Chicago Switching District, other than traffic handled on a joint-line basis with SPCSL or under
haulage arrangements with SPCSL.(136)
(4) In January 1990, GWWR, which was then known as CMW Acquisition Corp., acquired from
CMW: (a) the Kansas City-Springfield line between Kansas City, MO, and MP 192.4; (b) the limited
trackage rights over SPCSL's lines between the CMW/SPCSL connection at MP 192.4 and SPCSL's
Ridgely Yard; and (c) the limited rights to use Ridgely Yard.(137)
(5) In 1994, operations were commenced by N&W, by SPCSL, by GWWR, and by IC on the
newly constructed N&W tracks.(138) SPCSL commenced operations over the portion of the new N&W
tracks that lies between a point known as New KC Jct. (located at or near MP 190.6) and Iles. GWWR
commenced operations: over the New KC Jct.-Hazel Dell portion of the new N&W tracks (as respects
traffic interchanged with SPCSL at Ridgely Yard or with IC at Avenue Yard); over the Hazel Dell-Iles
portion of the new N&W tracks (as respects traffic interchanged with SPCSL at Ridgely Yard); and over
the Hazel Dell-IC Connection portion of the Chicago-Springfield-East St. Louis line (as respects traffic
interchanged with IC at Avenue Yard). IC commenced operations over the New KC Jct.-Hazel Dell
portion of the new N&W tracks and over the Hazel Dell-IC Connection portion of the Chicago-Springfield-East St. Louis line. The operations conducted over the new N&W tracks by SPCSL, by
GWWR, and by IC are governed by a SPCSL/N&W trackage rights agreement that permits SPCSL, as
N&W's tenant, to allow GWWR and IC to operate over the N&W tracks as SPCSL's tenants.(139) The
operations conducted over the Hazel Dell-IC Connection portion of the Chicago-Springfield-East St.
Louis line by GWWR and IC are apparently governed by one or more agreements negotiated with UP,
although the record is not entirely clear in this regard.
(6) In 1996, SPCSL became a wholly owned subsidiary of Union Pacific Corporation, of which
UP is also a wholly owned subsidiary.(140)
(7) In November 1996, the Ridgely Agreement was amended by an agreement between GWWR
and SPCSL that had the effect of allowing a GWWR/IC interchange at Springfield for traffic moving
from, to, or via the Chicago Switching District, provided, however, that such traffic is originated or
terminated (a) on GWWR or its corporate affiliates as they existed on December 20, 1993, (b) at stations
west of the 100th meridian(141) that were not served by SPCSL or its corporate affiliates as they existed on
December 20, 1993, (c) at stations in Missouri, Arkansas, or Oklahoma that were not served by SPCSL
or its corporate affiliates as they existed on December 20, 1993, or (d) in the Kansas City, MO, or
Kansas City, KS, switching districts.(142)
The Alliance. The CN/IC/KCS Alliance envisions an increased GWWR/IC interchange at
Springfield, with GWWR trackage rights bridging the gap between MP 192.4 and Avenue Yard. Such
operations will have to be conducted over UP tracks (between MP 192.4 and New KC Jct.),(146) over NS
tracks (between New KC Jct. and Hazel Dell),(147) over UP tracks (between Hazel Dell and
IC Connection),(148) and (using the Brickyard Junction route) over IC tracks (between IC Connection and
Brickyard Junction, and between Brickyard Junction and Avenue Yard).(149) Applicants and KCS insist
that the Brickyard Junction route is the only efficient and practical way for GWWR and IC to
interchange traffic moving between the Chicago area, on the one hand, and, on the other, Kansas City
and points west or south of Kansas City.(150)
Applicants and KCS note, however, that Sections 1 and 12 of the 1989 CMW/SPCSL Ridgely
Agreement, as amended by the 1996 GWWR/SPCSL agreement, pose obstacles to the GWWR/IC
interchange at Avenue Yard that is contemplated by the Alliance. These obstacles would apply to each
of the two routings that could be utilized by GWWR between MP 192.4 and Avenue Yard: the
Brickyard Junction route (which applicants and KCS would prefer to use); and the Ridgely Yard route
(which applicants and KCS would prefer not to use, except on an emergency basis on occasions on which
use of the Brickyard Junction route is not feasible).
Section 1 provides, in essence, that the rights granted to GWWR can be used to handle IC traffic
moving from, to, or via the Chicago Switching District if, but only if, such traffic is originated or
terminated (a) on GWWR or its corporate affiliates as they existed on December 20, 1993, (b) at stations
west of the 100th meridian which were not served by SPCSL or its corporate affiliates as they existed on
December 20, 1993, (c) at stations in Missouri, Arkansas, or Oklahoma which were not served by
SPCSL or its corporate affiliates as they existed on December 20, 1993, or (d) in the Kansas City, MO,
or Kansas City, KS, switching districts.(151)
Section 12 provides, in essence, that the rights granted to GWWR will terminate forthwith if
GWWR gains access broader than the access provided by Section 1 to traffic moving from, to, or via the
Chicago Switching District, or takes any other action which expands the access provided by Section 1 to
traffic moving from, to, or via the Chicago Switching District and which is inconsistent with using UP as
GWWR's sole connecting carrier for such traffic.(152)
The KCS Trackage Rights Application. In view of the restrictions imposed by the Ridgely
Agreement, applicants and KCS seek the entry of an order under 49 U.S.C. 11102 permitting GWWR to
use without restriction the three connected segments of trackage that lie between MP 192.4 and
IC Connection: the UP tracks between MP 192.4 and New KC Jct.; the NS tracks between New KC Jct.
and Hazel Dell; and the UP tracks between Hazel Dell and IC Connection. Applicants and KCS insist
that, without such relief, GWWR and IC will be unable to establish an efficient interchange necessary to
serve effectively the new competitive traffic movements made possible by the CN/IC control transaction,
as augmented by the CN/IC/KCS Alliance. Applicants and KCS claim that establishment of a
CN/IC-GWWR interchange in Springfield may also alleviate congestion in Chicago and reduce the level
of traffic potentially implicating environmental concerns. See CN/IC-56A at 217; KCS-17 at 116-17.
Applicants and KCS add that, unless UP consents to the removal of the restrictions imposed by the
Ridgely Agreement, the imposition of terminal trackage rights under 49 U.S.C. 11102 will be necessary
to override this impediment to efficient implementation of the CN/IC control transaction. See CN/IC-7
Applicants and KCS contend: that the short segments of track subject to the KCS trackage
rights application are "terminal facilities," as that term is used in 49 U.S.C. 11102(a);(154) that the sought
trackage rights would enhance the competition provided by the CN/IC control transaction, particularly in
the Canada-Chicago-Kansas City corridor, and are therefore clearly in the public interest; and that
denial of the sought trackage rights would significantly constrict the efforts of applicants and KCS to
provide competitive interline service via Springfield, and would thereby frustrate the public interest.(155)
Applicants and KCS further contend that use, by GWWR, of the described terminal facilities is
practicable, and would not substantially interfere with the ability of UP and NS to handle their own
Applicants and KCS indicate that they are prepared to negotiate compensation terms with UP as
provided in 49 U.S.C. 11102(a), and, with an eye to expediting the full achievement of the public
benefits of the CN/IC control transaction, they ask that we not require that compensation terms be
established before GWWR is able to begin unrestricted use of the described terminal facilities.
Compensation issues, applicants add, need not be addressed unless and until we grant the KCS trackage
rights application. See CN/IC-56A at 221.
The KCS Trackage Rights Application: Purposes Served. The KCS trackage rights
application, as initially filed on July 15, 1998, emphasizes both the CN/IC control transaction and the
CN/IC/KCS Alliance: the restrictions must be removed, it is argued, to allow CN/IC and KCS to serve
effectively the new competitive traffic movements made possible by the control transaction, as
augmented by the Alliance. See CN/IC-6 at 405. The rebuttal submissions filed on December 16, 1998,
continue to emphasize the control transaction, but generally place less emphasis on the Alliance. The
relief sought, applicants claim, will enable applicants to achieve the efficiencies fostered by the control
transaction by interchanging at Springfield with GWWR significant traffic that they otherwise could not
effectively interchange; "[t]hat the Alliance would be a part of the existing environment when the CN/IC
merger is implemented," applicants further claim, "does not mean that the trackage rights are sought in
aid of the Alliance as opposed to the Transaction"; and the KCS trackage rights application, applicants
add, "has its nexus to and is primarily in aid of the Transaction, not the Alliance." See CN/IC-56A at
210-11. "A removal of the Springfield restrictions (which is the practical impact of the grant of terminal
trackage rights) is necessary," KCS argues, "to realize one of the major benefits of the CN/IC merger,
and to facilitate the flow of traffic between CN/IC and KCS/GWWR." See KCS-17 at 104.
Midtec Analysis. UP contends that the KCS trackage rights application must be denied for
failure to meet the competitive access standards of Midtec Paper Corporation v. CNW et al., 3 I.C.C.2d
171 (1986) (Midtec). Applicants disagree: "UP also relies erroneously upon the ICC's Midtec standard
for competitive access via reciprocal switching under Section 11102 in contexts other than merger
conditions. In UP/SP the Board made clear that (as UP had argued there) Midtec does not apply to
imposition of terminal trackage rights in the context of a merger." CN/IC-62 at 48. KCS takes an even
more expansive view of our 49 U.S.C. 11102(a) jurisdiction: "[T]he scope of the Board's authority
under the 'public interest' test is not limited to granting a terminal trackage rights application simply to
alleviate an anticompetitive impact of a merger or to impose a merger condition. The public interest test
has also been applied to grant terminal trackage rights in a number of different circumstances: (1) to
supply short missing links between merging carriers; (2) to ameliorate the anticompetitive effects of a
merger; (3) to impose conditions on a merger; and (4) to implement privately negotiated settlement
agreements as part of a merger proceeding. As with the prior merger cases, the grant of the terminal
trackage rights application is in the 'public interest,' as that term is defined in the merger context,
because it is required to implement the Alliance, will improve the interchange between CN/IC and
KCS/GWWR, enhance service capabilities, and provide an effective alternative to ineffective and
problematic haulage rights." KCS-20 at 21 (record citation and paragraph break omitted).
Certain Technical Details. (1) Most of the relevant pleadings submitted in this proceeding by
applicants and/or KCS indicate that the STB Finance Docket No. 33556 (Sub-No. 1) trackage rights are
being sought for GWWR. See, e.g., CN/IC-6 at 49 (line 8) and 404 (line 22); CN/IC-56A at 205 (line
12); KCS-17 at 134 (lines 21-22). Applicants and KCS, however, have also asked that we order that the
tracks subject to the KCS trackage rights application "may be used by GWWR and IC for movements of
traffic they interchange in Springfield without regard to the limitations of the Ridgely Yard agreement
and related agreements that would preclude or restrict such interchange or terminate the Ridgely Yard
agreement." See CN/IC-6 at 415 (emphasis added). We will assume that the trackage rights sought in
the KCS trackage rights application are sought only for GWWR, and not also for IC: (1) because, as
noted above, most of the relevant pleadings indicate that such trackage rights are being sought for
GWWR, not for IC; and (2) because, as noted below, applicants and KCS have argued that operation by
IC between MP 193.5 and IC Connection would be neither practical nor efficient.
(2) Applicants and KCS indicate that, because it is unclear whether the limitations of the
Ridgely Agreement apply to GWWR's use of the new NS tracks (as to which UP has the authority to
grant trackage rights to GWWR), they have included the new NS tracks in the KCS trackage rights
application as a precaution.
(3) There are, between Hazel Dell and Iles (or, more precisely, between the Hazel Dell
Interlocking Plant and the Iles Avenue Interlocking Plant), three north-south tracks that all concerned
apparently regard as one set of "joint" tracks: an NS siding track (this is the westernmost track); an NS
mainline track (this is the center track); and a UP mainline track (this is the easternmost track, and is
part of the Chicago-Springfield-East St. Louis line). Between Hazel Dell and Iles, the only crossovers
between these tracks are located at the Hazel Dell and Iles Avenue Interlocking Plants. Because there is
not, at IC Connection, a crossover between the NS tracks and the UP tracks, GWWR trains moving via
the Brickyard Junction route between MP 192.4 and Avenue Yard must run, between Hazel Dell and IC
Connection, on the UP tracks. See NS-8, Tab E, Ex. F (a schematic drawing submitted by NS prior to
the withdrawal of its NS-8 comments).
(4) GWWR apparently has, pursuant to a GWWR/UP agreement entered into in November
1996, the right to purchase the UP tracks between MP 192.4 and New KC Jct. See UP-8, Tab D at 10
(lines 3-4 and 8-11). The implications, if any, of this right to purchase do not appear to have been
addressed by any of the parties to this proceeding. The evidence of record suggests that the purchase of
these tracks by GWWR would allow GWWR to create, via the Brickyard Junction route, an unrestricted
GWWR/IC interchange at Avenue Yard if but only if: (a) GWWR has, or can acquire, unrestricted
trackage rights over the NS track between New KC Jct. and Hazel Dell; (b) GWWR has, or can acquire,
unrestricted trackage rights over the NS mainline track between Hazel Dell and a point in the vicinity of
IC Connection; and (c) a crossover extending several hundred feet and cutting across the UP mainline
track can be constructed in the vicinity of IC Connection between the NS mainline track and the IC
track running east from IC Connection.
An Alternative GWWR/IC Interchange. Applicants and KCS concede that IC has the right to
operate trains between MP 193.5 and IC Connection, over GWWR tracks (between MP 193.5 and
MP 192.4), over UP tracks (between MP 192.4 and New KC Jct.), over NS tracks (between New KC
Jct. and Hazel Dell), and over UP tracks (between Hazel Dell and IC Connection). Applicants and KCS
insist, however, that a GWWR/IC interchange conducted via IC's trackage rights would be neither
practical nor efficient: because there are, at the eastern end of GWWR's Kansas City-Springfield line
(i.e., between MP 193.5 and MP 192.4), no facilities that would allow for a GWWR/IC interchange;(157)
and because, even if GWWR and IC could move their interchange point to the eastern end of GWWR's
Kansas City-Springfield line, such a move might trigger certain provisions of the Ridgely Agreement
(the reference is apparently to Section 12) that might jeopardize GWWR's ability to use the Ridgely
Yard route, both as an alternative GWWR/IC interchange route(158) and as a route to facilitate
GWWR/I&M and GWWR/NS interchanges.(159)
Declaratory Order. Applicants and KCS contend, in essence, that, if we approve the CN/IC
control transaction but do not grant the KCS trackage rights application in its entirety, we should hold
that any consent requirements in the underlying trackage rights agreements(160) that would prevent the
CN/IC control transaction from being carried out as contemplated(161) will be overridden pro tanto(162) by
the immunizing force of 49 U.S.C. 11321(a). See CN/IC-6 at 412 n.9; CN/IC-56A at 208 n.136; KCS-17 at 130-33.(163)
UNION PACIFIC. UP contends that, whether the transaction contemplated by applicants is a
two-way CN/IC control transaction (as applicants argue)(164) or a three-way CN/IC/KCS control
transaction (as UP argues), the CN/IC control application is fatally deficient and must therefore be
dismissed (with leave to re-file). UP also contends that, if the CN/IC control application is not
dismissed, UP should be granted haulage rights on IC's line between Baton Rouge and New Orleans to
overcome the anticompetitive effects in that corridor of the CN/IC/KCS Alliance. UP further contends
that the KCS trackage rights application should be denied.
CN/IC Control Application: Dismissal Urged. (1) UP contends that the transaction
contemplated by applicants is a three-way CN/IC/KCS control transaction. UP argues: that the CN/IC
control transaction, the CN/IC/KCS Alliance Agreement, and the CN/KCS Access Agreement are
interrelated pieces of a single, unitary, three-way transaction aimed at achieving the close alignment and
coordination of the three Alliance railroads; that what the Alliance establishes is not an ordinary
interline relationship but, rather, an extraordinary alignment of interests that will focus the operational,
marketing, and administrative efforts of the Alliance railroads on furthering their shared Alliance
interests; that the Alliance establishes an extensive and unique set of institutional mechanisms and
contractual obligations that bind the interests and activities of the Alliance railroads together to further
their collective pursuit of Alliance objectives; that, to carry out their shared Alliance objectives, the
Alliance railroads are in the process of integrating their operations, customer service, marketing, and
information systems functions to a degree unprecedented for independent carriers; that the scope and
degree of coordination that the Alliance entails is reflected in the substantial benefits that the Alliance
railroads themselves anticipate will flow from the Alliance, and the difficulty they have in distinguishing
the effects of the Alliance with respect to CN and IC from those achieved by the CN/IC control
transaction; and that, under governing precedents, the relationships that the Alliance railroads are in the
process of creating involve common control among CN, IC, and KCS.(165)
(2) UP contends that, because the transaction for which approval has been sought (the two-way
CN/IC control transaction) is not the transaction actually contemplated by applicants (the three-way
CN/IC/KCS control transaction), the CN/IC control application filed by applicants must be dismissed.
UP further contends that, on the present record, the CN/IC control application cannot be treated as if it
were the CN/IC/KCS control application that should have been filed: (a) because KCS is not a party to
the application, and, therefore, the application contains none of the essential facts concerning the
impacts on KCS (traffic impact, financial impact, labor impact, environmental impact, etc.) of the three-way CN/IC/KCS control transaction; and (b) because the application does not analyze the competitive
issues raised by a CN/IC/KCS control transaction, which (unlike a CN/IC control transaction) would not
be entirely end-to-end.(166)
(3) UP contends that, even if we accept applicants' claim that the transaction contemplated by
applicants is a two-way CN/IC control transaction, the CN/IC control application filed by applicants is
fatally deficient (and, therefore, will have to be dismissed), because (UP argues) all of the claims of
public benefits in the CN/IC control application are based on both the CN/IC control transaction and the
CN/IC/KCS Alliance. This, UP argues, is a fatal flaw (even assuming that the transaction contemplated
by applicants is a two-way CN/IC control transaction), because (UP claims) the Alliance is intended to
achieve, and is already achieving, all of the benefits attributed to the CN/IC control transaction. UP
contends: that the Alliance-sponsored integrations of the operations, marketing, customer service, and
other functions of the Alliance railroads apply to all CN/IC interline traffic, not merely the portion of
such traffic in which KCS also participates; that it necessarily follows that the Alliance is intended to
achieve the same benefits that the CN/IC control application attributes to the CN/IC control transaction;
that, in fact, there is nothing in the CN/IC control application that demonstrates that the CN/IC control
transaction itself will have any measurable public benefits; and that, at the very least, there is no way to
determine what portion, if any, of the benefits set forth in the CN/IC control application can be achieved
only by CN/IC common control. UP insists that, because the CN/IC control application fails to
demonstrate the effects of the CN/IC control transaction, it fails to establish that the CN/IC control
transaction will be in the public interest.
(4) UP contends that, if the CN/IC control application is not dismissed, we will have to decide
whether to include, in our consideration of that application, the effects of the CN/IC/KCS Alliance. UP
further contends that, if our approval of the CN/IC control transaction will imply, pursuant to 49 U.S.C.
11321(a), a grant of antitrust immunity for all steps entailed in carrying out the Alliance, we will have to
include, in our consideration of the CN/IC control application, the effects of the CN/IC/KCS Alliance.
See UP-8 at 29-30.
Baton Rouge-New Orleans Corridor. UP argues that, prior to the establishment of the
CN/IC/KCS Alliance, there was IC vs. KCS competition in the Baton Rouge-New Orleans corridor. UP
contends: that, in this corridor, IC and KCS have, on the east bank of the Mississippi River, closely
parallel tracks that serve a large number of chemical plants and other shipper facilities;(167) that many of
these facilities are served by both IC and KCS, either directly or by reciprocal switching; that several of
these facilities are rail-served only by IC and KCS; and that, although certain other facilities are served
by IC and KCS and are also accessible to UP, UP's ability to provide a competitive alternative is greatly
reduced by very high reciprocal switch charges. UP further contends: that IC and KCS compete
head-to-head for significant volumes of traffic moving from/to the points that both railroads serve in the
Baton Rouge-New Orleans corridor; that both IC and KCS can handle traffic from/to these shippers via
competing single-line routes to/from points such as New Orleans, Jackson, and St. Louis; and that both
IC and KCS can offer fully independent routes for all traffic flows moving via the New Orleans, Baton
Rouge, St. Louis, and Chicago gateways. UP adds that, in addition to the benefits of actual head-to-head competition in the Baton Rouge-New Orleans corridor, the close physical proximity of IC's and
KCS's lines in this corridor has led each of IC and KCS to compete aggressively by constructing build-ins between its lines and shipper facilities located on the lines of the other. And, UP indicates, a large
number of potential future build-in opportunities still exist.
UP argues that, whether the transaction contemplated by applicants is a two-way CN/IC control
transaction (as applicants claim) or a three-way CN/IC/KCS control transaction (as UP claims), the
Alliance will result in a diminution of the pre-Alliance IC vs. KCS competition. UP contends: that the
Alliance will weld IC and KCS together in a community of interests that IC and KCS are unlikely to
breach through vigorous competition among themselves;(168) that the melding of interests achieved by the
Alliance will cause personnel at IC and KCS who would otherwise be responsible for carrying out
aggressive competition against the other railroad to behave cooperatively, not antagonistically, vis-à-vis
their Alliance partner; that the Alliance relationship will substantially diminish the incentives that IC
and KCS will have to pursue build-ins in this corridor;(169) and that there is a substantial question whether
the Alliance Agreement's "carve-out" provision makes the Alliance inapplicable, even as a formal
matter, to all of the situations where IC and KCS are or could be head-to-head competitors.(170)
UP argues that, to remedy the anticompetitive effects that the CN/IC control transaction and the
Alliance will have in the Baton Rouge-New Orleans corridor, we should grant UP haulage rights on IC's
Baton Rouge-New Orleans line, to permit UP to access, in the Baton Rouge area and between Baton
Rouge and New Orleans:(171) all existing "2-to-1" facilities;(172) all facilities to which IC or KCS has
committed to build in (or from which the shipper shall build out); and all facilities that are served
directly by IC and KCS and that are also accessed by UP, but only via reciprocal switching at a switch
charge so high that reciprocal switching access by UP will not attenuate the loss of IC vs. KCS
UP indicates: that the haulage rights it seeks would allow UP to move haulage traffic to/from
UP's established points of interchange with IC at Baton Rouge and New Orleans; that the haulage rights
it seeks would be identical, in their compensation, service, and other pertinent terms,(174) to the haulage
rights that UP entered into with BNSF, and the Board approved, to preserve competition at various "2-to-1" points in the UP/SP merger proceeding;(175) and that, to replicate the IC vs. KCS competition that
exists today via potential build-ins/build-outs, new industry sitings, and transload facilities, the haulage
rights UP seeks would also give UP the right to serve (a) any existing transload facilities at "2-to-1"
points, (b) any new industries or transload facilities located on the IC line over which UP will have
haulage rights, and (c) any future build-ins to or build-outs from a KCS industry from/to the IC line or an
IC industry from/to the KCS line (with, in either case, UP's haulage rights running to/from the point of
connection between the build-in/build-out and the IC line).(176)
KCS Trackage Rights Application. UP views the KCS trackage rights application as seeking a
Board override, either via a trackage rights grant under 49 U.S.C. 11102(a) or via a declaratory order
under 49 U.S.C. 11321(a), of the restriction in the Ridgely Agreement that requires GWWR to use UP
as its connecting carrier for specific categories of interchange traffic moving from, to, or via the Chicago
Switching District. UP insists that the request for a trackage rights grant under 49 U.S.C. 11102(a)
should be denied, and the alternative request for a declaratory order under 49 U.S.C. 11321(a) should
also be denied.(177)
(1) UP contends: that the restriction applicants and KCS seek to avoid was an integral part of
the transactions under which GWWR and SPCSL acquired their respective portions of CMW's lines;
that this restriction was established in order to ensure that CMW's Chicago-Springfield-East St. Louis
line (purchased by SPCSL) would continue to handle traffic moving (a) over CMW's Kansas City-Springfield line (purchased by GWWR) and (b) from, to, or via Chicago; that, given the context in which
this restriction was established, it was legitimate when established; and that, had this restriction not been
established in 1989, SP(178) would not have paid as much as it did for the Chicago-Springfield-East St.
Louis line. The KCS trackage rights application, UP argues, seeks to eliminate the restriction without
returning the money that SP paid for it. See UP-8 at 69-74.(179) See also UP-22 at 21 n.19 (UP claims
that applicants and KCS have not demonstrated that the Alliance will actually generate any Springfield-interchange traffic in addition to that traffic which GWWR is already able to interchange with IC at
(2) UP contends that there is no nexus between the control transaction and the trackage rights or
override sought by KCS. (a) UP insists that, if the transaction contemplated by applicants is a two-way
CN/IC control transaction, there cannot possibly be a nexus. UP argues that, because CN's lines end
more than 150 miles from Springfield, the trackage rights or override sought by KCS has nothing to do
with combining the CN and IC systems. (b) UP also insists that, even if the transaction contemplated by
applicants is a three-way CN/IC/KCS control transaction, there is still no nexus between that transaction
and the trackage rights or override sought by KCS. UP argues: that CN/IC/KCS traffic intended to be
interchanged at Springfield could instead be interchanged at Chicago,(180) East St. Louis or Jackson; and
that CN/IC/KCS traffic that must move via the Chicago-Springfield corridor could be handled in that
corridor by UP, consistent with the existing trackage rights agreements and pursuant to haulage rights
granted to GWWR as part of the same transaction that gave rise to the GWWR's restricted trackage
(3) UP concedes, in essence, that terminal trackage rights can be granted under 49 U.S.C.
11102(a) or an override approved under 49 U.S.C. 11321(a) if necessary to effectuate conditions
intended to remedy competitive harms arising from a merger. UP contends, however, that, because the
KCS trackage rights application does not seek to create a competitive alternative to CN/IC, neither the
trackage rights sought by KCS nor the override sought by KCS has anything to do with carrying out any
condition needed to rectify any competitive harm created either by the CN/IC control transaction or by
the CN/IC/KCS Alliance. And, although UP all but concedes that the trackage rights or override sought
by KCS might facilitate the CN/IC/KCS Alliance, UP insists that neither the trackage rights nor the
override can be approved on that basis. If it were otherwise, UP argues, any railroad that connects at any
junction with the merged CN/IC would be able to avoid its contractual obligations by arguing that this
would allow the merger to be more beneficial.
(4) UP contends that, because the 49 U.S.C. 11102(a) trackage rights sought by KCS cannot
properly be considered merger-related, they can only be granted if applicants and KCS meet the
competitive access standards announced in Midtec Paper Corporation v. CNW et al., 3 I.C.C.2d 171
(1986) (Midtec). These standards have not been met, UP claims, because there has been no showing that
UP, the owner of the trackage at issue, has engaged in competitive abuse with respect to that trackage.(181)
(5) UP contends that the trackage at issue is not terminal trackage within the scope of 49 U.S.C.
11102(a). UP argues: that the tracks covered by the KCS trackage rights application pass through a
rural area south of Springfield; that these tracks lie well to the south of Springfield's yards, interchange
points, and industries; that no interchange or classification is conducted on or along these tracks; that the
only work other than through-movement work conducted on these tracks is switching at one isolated
industry;(182) and that the end point of these tracks (at MP 192.4) is simply a milepost location on a single
track line in the middle of a cornfield. And, UP adds, the tracks over which terminal trackage rights
have been sought do not even provide direct access to the terminal area of Springfield; it is the tracks to
which these tracks connect at IC Connection, UP claims, that actually run into the terminal area.
(6) UP concedes that the UP tracks covered by the KCS trackage rights application could handle
the additional traffic anticipated by applicants and KCS. UP insists, however, that operation of GWWR
trains via the alternative Ridgely Yard route would not be practical, as doing so would require GWWR
to use Ridgely Yard to run around its trains, which (UP claims) would seriously interfere with UP's own
use of that yard. See UP-8 at 92 n.122.
(7) UP contends that, if we override, either via a trackage rights grant under 49 U.S.C. 11102(a)
or via a declaratory order under 49 U.S.C. 11321(a), the restriction in the Ridgely Agreement that
requires GWWR to use UP as its connecting carrier for specific categories of interchange traffic moving
from, to, or via the Chicago Switching District: the entire UP-GWWR relationship will have to be
renegotiated to compensate UP for the value of the bargain it is losing; and, to this end, we should
completely override the Ridgely Agreement and all UP-GWWR agreements relating to the former
CMW lines. The "limited" override sought by KCS, UP argues, would result in an unbalanced
agreement that SPCSL would not have negotiated and that no agency would ever have imposed. See
UP-8 at 84 n.118.(183)
CANADIAN PACIFIC. CP notes: that it is the only railroad (other than CN) that has lines
linking all of the major commercial centers of Canada with all of the U.S. Class I rail systems; that, in
particular, its lines serving Ontario and Quebec connect at Detroit with CSX and NS, and connect at
Chicago with CSX, NS, UP, and BNSF;(184) and that, because each of CSX, NS, UP, and BNSF reaches
the Gulf Coast, and because each of UP and BNSF has lines linking Chicago with gateways to Mexico,
it should be possible for CP, by working with one or more of these U.S. connections, to provide efficient,
integrated "NAFTA Corridor" rail services in competition with those that will be offered by CN/IC and
the CN/IC/KCS Alliance.(185) CP claims, however, that, unless an appropriate condition is imposed, CN
will have the wherewithal to thwart the "NAFTA Corridor" rail services envisioned by CP.
Two Ontario/Michigan Crossings. CP insists that there are, on the Ontario/Michigan border,
only two important crossings for traffic moving by rail between points in Canada, on the one hand, and,
on the other, points in the United States and Mexico (including container traffic moving via the Port of
Montreal between points in Europe and points in the United States): the St. Clair Tunnel, which links
Port Huron, MI, and Sarnia, ON, which was constructed in the 10th decade of the 20th century, and
which is used only by CN; and the Detroit River Tunnel, which links Detroit, MI, and Windsor, ON,
which was constructed in the 1st decade of the 20th century, and which is used by CP, CN, CSX, NS,
and Conrail.(186) The key difference between the two tunnels, from CP's perspective, is that the relatively
new St. Clair Tunnel has something that the relatively old Detroit River Tunnel lacks: sufficient vertical
clearance to handle double-stacked 9'6" containers and the new generation of high-dimension rail cars.
CP indicates that the Detroit River Tunnel: cannot handle double-stacked 9'6" containers; cannot even
handle containers in a 9'6"/8'6" double-stack configuration; can handle only 8'6" or smaller containers in
double-stack service; and cannot handle the new generation of high-dimension rail cars.(187)
A Third Ontario/Michigan Crossing. CP acknowledges that there is, at Sault Ste. Marie, a
third Ontario/Michigan rail crossing. CP insists, however, that the Sault Ste. Marie crossing is not as
important as the St. Clair and Detroit River Tunnels: because Sault Ste. Marie is located too far to the
north, on Michigan's Upper Peninsula; and because the line that crosses between the United States and
Canada at Sault Ste. Marie is operated by WCL, a regional carrier that (unlike CP and CN) does not
reach Canada's commercial centers.
Improved Clearance Needed. CP recognizes that, given the capacity differences between the
St. Clair and Detroit River Tunnels, CP will be able to offer efficient, integrated "NAFTA Corridor" rail
services in competition with those that will be offered by CN/IC and the CN/IC/KCS Alliance only if CP
can develop an improved clearance route capable of handling double-stack intermodal containers and
the newest generation of high-dimension rail cars increasingly favored by automotive shippers. CP
claims, in essence, that, as a practical matter, any such improved route will have to be developed either
by enlarging the Detroit River Tunnel itself or by building a new tunnel immediately adjacent to the
Detroit River Tunnel. CP contends that, because its only cross-border route serving the
Ontario/Michigan border is via its line passing through Detroit and Windsor, it cannot, as a practical
matter, develop an improved clearance route by constructing a tunnel at some location other than
Detroit-Windsor. CP further contends that, again as a practical matter, any replacement tunnel
constructed at Detroit-Windsor will have to be constructed in the Detroit River Tunnel's right-of-way.
The Problem. CP contends: that the Detroit River Tunnel is wholly owned by the Detroit River
Tunnel Company (DRTC);(188) that DRTC is wholly owned by the CNCP Niagara Detroit Partnership
(CNCP Partnership), an Ontario partnership in which CN and CP have equal 50% interests; and that the
Detroit River Tunnel has been leased by DRTC to the CNCP Partnership pursuant to a 999-year lease.(189)
CP further contends: that the CNCP Partnership Agreement (see CPR-14 at 39-98) designates CN as
the partner responsible for day-to-day operation and maintenance of the tunnel (including dispatching
and security); that the CNCP Partnership Agreement requires the consent of both partners for any
expenditure to improve the clearances of the tunnel; that the CNCP Partnership Agreement requires the
consent of both partners for any project involving either construction of a replacement tunnel by DRTC
or the use by CP (or a third party) of DRTC approach trackage or right-of-way in constructing a new
tunnel; and that, under the CNCP Partnership Agreement, CN would be entitled to ½ of the base charges
(net of operating and maintenance expenses) collected for use of any enlarged or replacement tunnel
built by DRTC or the CNCP Partnership, even if such enlargement or replacement were funded entirely
by CP. CP claims that, although most of the trains using the Detroit River Tunnel are operated by CP,(190)
the CNCP Partnership Agreement, as a practical matter: effectively confers upon CN the power to veto
any effort by CP to improve the clearance of the Detroit River Tunnel route; and thereby confers upon
CN the power to prevent CP and its U.S. Class I connections from creating a second integrated "NAFTA
Corridor" route that would compete with CN/IC and the CN/IC/KCS Alliance for the growing volumes
of traffic, particularly automotive and intermodal traffic, in that corridor. And, CP adds, it is reasonable
to expect that CN, having invested a great deal of money to acquire IC, and having invested more money
to construct new intermodal and automotive facilities on the lines of IC and KCS, will have every
incentive to "protect" its investments by rejecting any CP proposal that might weaken CN/IC's
competitive position vis-à-vis CP.
Relief Sought By CP. CP contends that the CN/IC control application should be denied, unless
we condition any order approving that application by requiring CN: to cause the CNCP Partnership to
convey to St.L&H 100% of the outstanding shares of DRTC;(191) and to make such ancillary changes to
the CNCP Partnership Agreement and other agreements relating to the Detroit River Tunnel as may
reasonably be necessary to transfer full ownership and management of DRTC and the Detroit River
Tunnel from CN to St.L&H. CP contends that the sought divestiture: is necessary to assure the ability
of CP and its U.S. Class I connections to mount an effective competitive response to the CN/IC merger
and the CN/IC/KCS Alliance; is operationally feasible; would not dilute any public benefits that might
otherwise result from the CN/IC merger; would not have a negative impact on CN (because, in recent
years, CN's use of the Detroit River Tunnel has been minimal, and because, in any event, CN would
retain the right to operate through the Detroit River Tunnel); and would not have a negative impact on
competition (because CN and all other current users of the Detroit River Tunnel would retain their
existing rights with respect to use of that tunnel).(192)
Nexus. CP concedes that CN's prerogatives under the CNCP Partnership Agreement predate the
CN/IC control transaction, but insists that the CN/IC control transaction will increase CN's incentives to
exercise those prerogatives. CP claims, in particular, that, post-transaction, CN will have, for the first
time, an incentive to use its ownership position in the Detroit River Tunnel for the benefit of IC (which
will be under common control with CN) and to the detriment of carriers such as UP and BNSF (which
will not). And, CP adds, the CN/IC control transaction in conjunction with the CN/IC/KCS Alliance
will give CN a new incentive to hinder construction of a high-clearance tunnel at Detroit in order to
enhance its own ability to compete for certain Ontario automotive shipments for which CN does not
compete aggressively today. See CPR-26 at 012-014.
Extraterritoriality. CP insists that, although the CNCP Partnership Agreement is governed by
Canadian law and although the Canadian end of the Detroit River Tunnel is located in Canada, we have
jurisdiction to require CN to vote its interest in the CNCP Partnership to cause the sale of DRTC's stock
to St.L&H. See CPR-26 at 006-008.
CN's Pledge; CP's Response; OMR's Response. CN has indicated that, "to render moot any
concern the Board might have with respect to [the 'veto' allegations made by CP and OMR], CN will
agree not to exercise unfairly any 'rights' it may have under the [CNCP] Partnership Agreement to
oppose any proposed Tunnel improvement project that has sufficient engineering, operational and
economic merit to attract the necessary capital for its construction without derogating the value of CN's
existing investment in the Partnership. This agreement would be subject to CP's reciprocal agreement to
the same effect." See CN/IC-56A at 158. CP insists, however, that despite CN's "highly-caveated"
representations concerning its future behavior, and despite CN's claim that its "fiduciary duty" under
Canadian law to the CNCP Partnership will discipline CN in the exercise of its partnership
prerogatives,(193) a commonly controlled CN/IC will have, if we do not approve the relief sought by CP, a
variety of lawful means at its disposal to prevent the development of an alternative high-clearance rail
route on the Ontario/Michigan border. See CPR-26 at 004. See also CPR-26 at 019-025 (CP's analysis
of the arguments CN might raise in support of an effort to block a major enlargement of the existing
tunnel or the construction of a replacement tunnel). See also OMR-8 at 10-11 (OMR insists that CN's
"waffling" has left "plenty of wiggle room" to render the construction of a replacement tunnel at Detroit-Windsor highly unlikely).(194)
Schedule Proposed by CP. CP contemplates that the divestiture of CN's interest in DRTC to
St.L&H will occur as soon as practicable following the effective date of a final order of the Board
requiring such divestiture. CP proposes that the Board grant the parties a period of 60 days following
issuance of the Board's order to negotiate a definitive stock purchase agreement as well as appropriate
changes to the CNCP Partnership Agreement and certain ancillary agreements relating to the Detroit
River Tunnel. CP suggests that, given the possibility that the parties may be unable to reach a
negotiated agreement with respect to these matters, the Board should retain jurisdiction to establish fair
and equitable terms.
The Finance Docket No. 30387 Proceeding. CP contends that, in view of the competitive
impact of CN's ownership of the St. Clair Tunnel and CN's heightened incentive to exercise its
ownership interest in DRTC to thwart effective competition following consummation of the CN/IC
control transaction, we have jurisdiction under 49 U.S.C. 722(c): to reopen the Finance Docket No.
30387 proceeding on the grounds of substantially changed circumstances; and to determine that, in view
of such substantially changed circumstances, CN's joint control of DRTC is no longer in the public
interest. CP adds, however, that we need not invoke our 49 U.S.C. 722(c) jurisdiction, because
(CP claims) we possess ample power to deal with the issue by granting the relief sought by CP in this
proceeding. See CPR-26 at 007 n.5.
Questions Respecting The Alliance. CP urges careful scrutiny of the CN/IC/KCS Alliance, to
determine whether the Alliance and Access Agreements should be subject to regulation pursuant to the
carrier control provisions (49 U.S.C. 11323 et seq.) and/or the pooling statute (49 U.S.C. 11322). CP
claims: that the Alliance and Access Agreements create a unique and unprecedented long-term
relationship among CN, IC, and KCS; that, pursuant to these agreements, the three Alliance railroads
will closely coordinate their sales and marketing functions, operations, information systems, investments,
and equipment fleets; that the relationship between CN/IC, on the one hand, and KCS, on the other hand,
will be far more interdependent than that created by the typical "Voluntary Coordination Agreement"
between connecting carriers; and that, all things considered, the Alliance may amount to a de facto
consolidation of CN, IC, and KCS. CP further claims: that the Alliance specifies the use of two
interchange points (Springfield, IL, and Jackson, MS) for all Alliance traffic; that, under this
arrangement, on southbound traffic IC effectively surrenders its long haul (to Jackson) to KCS, while on
northbound traffic KCS effectively surrenders its long haul (to Kansas City or, via GWWR, to
Springfield) to IC; and that the agreement of IC and KCS to surrender traffic to one another at specified
gateways for the good of the Alliance may constitute a pooling of services between those carriers.
CPR-17 Petition. In its CPR-17 petition filed November 17, 1998, CP claims that, to enable a
better understanding of the CN/IC/KCS Alliance and its impact on the public interest, we should initiate
an investigation with respect to the Alliance and, in connection with that investigation, we should require
supplementation of the record. CP contends: that the Alliance and Access Agreements may involve a
pooling or division of traffic or services under 49 U.S.C. 11322(a); that the Alliance appears to involve
elements of common control among, and may result in a diminution of competition in corridors served
by, the three Alliance railroads;(195) and that there is a question as to whether, and to what degree, CN
might have exercised control or undue influence over IC in connection with the execution of the Alliance
Agreement. CP therefore asks that we require that applicants and KCS supplement the record with
further information addressing the structure, implementation, and competitive effects of the Alliance and
Access Agreements. CP asks, in particular, that we require applicants and KCS to address and provide
facts regarding the following: (1) the precise nature of the present and future relationship among CN, IC,
and KCS created by the Alliance; (2) the criteria of 49 U.S.C. 11323 as applied to the de facto
consolidation of KCS operations with those of CN and IC; and (3) the competitive impacts of the
Alliance and Access Agreements. CP adds that, if we require applicants and KCS to supplement the
record, we should also afford CP and other interested parties an opportunity to conduct discovery and to
file supplemental comments, and, to the extent that we determine that the Alliance is subject to Board
approval, we should afford CP and other interested parties an opportunity to seek appropriate conditions
upon such approval.(196)
Replies To The CPR-17 Petition. Pleadings responsive to the CPR-17 petition have been filed
by applicants (CN/IC-40), KCS (KCS-13), UP (UP-19), and John D. Fitzgerald (JDF-5). (1) Applicants
argue: that CP has neither identified any specific respect in which it was denied adequate discovery nor
clearly identified the respects in which it seeks supplementation; that the issues raised in the CPR-17
petition are essentially the same as the issues previously raised by UP and other parties in their
opposition submissions filed October 27, 1998; that there is no need to consider the CPR-17 issues
outside of the process and schedule established for this proceeding; and that, for these reasons, the CPR-17 petition should be stricken or denied, or disposition thereof should be deferred until after the filing of
applicants' rebuttal submissions (subsequently filed on December 16, 1998). (2) KCS, in its KCS-13
motion to strike filed November 30, 1998, argues that the CPR-17 petition should be stricken, because it
is (in KCS's view) a surreptitious attempt by CP to supplement the arguments already presented in its
comments filed October 27, 1998, because it seeks (again in KCS's view) reconsideration of two
decisions (Decisions Nos. 6 and 11) after the expiration of the deadline to petition for reconsideration of
those decisions, and because (KCS claims) the issues raised in the CPR-17 petition are being fully
addressed within the context of the existing procedural schedule.(197) (3) UP argues that, although there is
indeed (in UP's view) substantial evidence that the Alliance involves a common control relationship
requiring Board approval, the CN/IC control application filed by applicants is subject to a fatal defect
that cannot be cured by any amount of supplementation. (4) Mr. Fitzgerald supports the CPR-17
ONTARIO MICHIGAN RAIL CORPORATION. OMR's submissions, much like CP's, are
focused upon the anticompetitive impacts that will assertedly exist post-transaction in view of CN's
100% interest in the St. Clair Tunnel and its 50% interest in the Detroit River Tunnel.
Vertical Foreclosure. OMR contends that the CN/IC control transaction will have
anticompetitive effects of the "vertical foreclosure" variety because (OMR claims) applicants, to secure
the long-haul movement of freight for which they compete with connecting carriers and to maximize
their ability to render single-line service, will close existing gateways and through-route, joint-rate
arrangements. OMR insists, by way of example, that applicants can be expected to close the Detroit
gateway and to cancel whatever through-route, joint-rate arrangements CN may have had (a) with CSX,
on traffic moving between CN points in Ontario, on the one hand, and, on the other, points such as
St. Louis, Memphis, and New Orleans (which are served by IC and CSX), and (b) with NS, on traffic
moving between CN points in Ontario, on the one hand, and, on the other, points such as Peoria,
Springfield, and Centralia, IL (which are served by IC and NS). OMR argues that, once CN/IC has
closed the Detroit gateway and canceled any present CN-CSX and CN-NS through-route, joint-rate
arrangements, the elimination of CSX and NS as competitors for cross-border traffic moving via the
Detroit gateway will result in a substantial lessening of competition in the considered markets.(198)
The Two Tunnels. OMR argues that the vertical foreclosure effects it anticipates will reflect
CN's 100% interest in the St. Clair Tunnel (which OMR calls the Port Huron-Sarnia tunnel, and which
can accommodate every kind of rail equipment) and CN's 50% interest in the Detroit River Tunnel
(which OMR calls the Detroit-Windsor tunnel, and which can accommodate neither double-stacked 9'6"
container flatcars, nor 20'2" tri-level automobile rack cars, nor high-capacity automobile frame cars).
OMR contends: that CN/IC's exclusive access to the St. Clair Tunnel will enable CN/IC to foreclose
other railroads from participating in the handling of international container and automotive traffic; that,
indeed, CN/IC, in conjunction with KCS and KCS's affiliates (Tex Mex and TFM), will endeavor to
monopolize that segment of NAFTA traffic flows, effectively denying CP, CSX, and NS, and other
North American railroads as well, the opportunity to share in the movement of that traffic; and that, as a
result of the CN/IC control transaction, the unified CN/IC (acting in conjunction with KCS, Tex Mex,
and TFM) will be the only railroad able (a) to transport double stacked 9'6" containers from the Port of
Montreal to such major U.S. markets as St. Louis, Memphis, and New Orleans, and (b) to transport
automobiles and sports utility vehicles on 20'2" tri-level cars from Mexican assembly plants to
distributors in Ontario and Quebec. OMR further contends: that the Detroit River Tunnel, which is
incapable of handling much of today's traffic, will become functionally obsolete over the next 10 years
as 9'6" containers in double stack service and high cube automobile rail cars become the norm for long-distance movements; that, however, CN, given its access to the St. Clair Tunnel, will have no economic
incentive to participate in the construction of a replacement for the Detroit River Tunnel; and that,
indeed, CN's economic incentive will be to use its 50% interest in the Detroit River Tunnel and in the
lines affording access thereto to block the construction of a replacement tunnel.
Relief Sought By OMR. OMR seeks a Board order requiring CN to convey to OMR CN's 50%
interest in the CNCP Partnership. OMR contends that the relief it seeks:(199) will allow for the
construction by OMR of a replacement Detroit-Windsor tunnel not controlled by CN, that will have
sufficient clearance to accommodate double-stacked 9'6" containers, 20'2" tri-level automobile rack
cars, and high-capacity frame cars; will thereby allow for the maintenance of efficient, direct routings
alternative to the single-line service to be offered by a unified CN/IC on cross-border shipments of
containers, automobiles, automobile parts, and NAFTA traffic flows between the U.S. and Canada,
between the U.S. and Mexico, and between Canada and Mexico; and will, therefore, alleviate the
anticompetitive consequences of the CN/IC control transaction, enhance the adequacy of transportation
service to the public, and safeguard essential railroad services.(200)
Nexus. OMR concedes that the clearance limitations of the Detroit River Tunnel predate the
CN/IC control transaction. OMR contends, however: that the CN/IC control transaction, which will
result in a substantial increase in CN's revenue potential from long-haul moves within the United States,
will significantly exacerbate the problems posed by the clearance limitations of the Detroit River Tunnel
and will thereby increase the need for its early replacement; that the consequences that approval of the
CN/IC control application would occasion (the closing of the Detroit gateway, the cancellation of
previously existing through-route arrangements, and the loss of intramodal competition) call for
remediation by the Board;(201) and that an unobtrusive means by which a replacement tunnel could be
constructed and the needed remediation accomplished would be a Board order allowing OMR to
succeed to CN's 50% interest in the CNCP Partnership, which (OMR claims) would permit OMR to
build, immediately adjacent to the Detroit River Tunnel, a high-clearance replacement tunnel between
Detroit and Windsor.
Canada Southern. The CNCP Partnership has a 100% interest in the Detroit River Tunnel
Company (DRTC); it also has a 100% interest in the Canada Southern Railway Company (CASO),
which itself has a 100% interest in the Niagara River Bridge Company (NRBC); and the relief sought by
OMR therefore envisions the transfer, from CN to OMR, not only of CN's 50% interest in DRTC but
also of CN's 50% interest in CASO and its 50% interest in NRBC. In support of the CASO/NRBC
aspect of the relief sought by OMR, OMR contends: that the CASO mainline runs 231 miles between
Detroit and Niagara Falls; that, however, CN and CP, each of which has parallel lines of its own, have
made little effort to develop CASO's operations; that, at present, roughly 77 miles of the CASO
mainline are out of service; that, under OMR's partial ownership, CASO would be developed to handle
increasing amounts of overhead and local traffic; that overhead traffic can indeed be developed, given
that CASO's Detroit-Buffalo route north of Lake Erie is 110 miles shorter than the CSX and NS routes
south of Lake Erie; that local traffic can also be developed, given that CASO has excellent sites for
industrial development and given also that southern Ontario has significant prospects for economic
development, especially for NAFTA-related businesses; that, therefore, the CASO mainline has the
potential to produce significant levels of traffic; and that the additional traffic flows of a rehabilitated
CASO would significantly improve the economics of the Detroit-Windsor tunnel project that OMR
intends to undertake. OMR adds that, if it is allowed to purchase CN's interest in the
CNCP partnership, it intends to work with CP and a regional railroad operator to aggressively develop
the CASO route as a major rail feeder to the Detroit River Tunnel.
Extraterritoriality. OMR insists that, although the CNCP Partnership's railroad properties and
transportation activities are located mainly in Canada, we have sufficient jurisdiction to grant the relief
sought by OMR. OMR contends: that CN is a party to this proceeding, and, as a party, has submitted
itself to the jurisdiction of the Board; that CN, by seeking approval for the CN/IC control transaction, is
subject to the broad conditioning power with which the Board is vested to assure that the proposed
transaction is consistent with the public interest; and that, "[s]o long as the Board has jurisdiction over
the railroad or railroads before it, it matters not that the effect of its decision largely impacts Canadian
operations." See OMR-8 at 6-9. With respect to the CASO/NRBC aspect of the relief sought by OMR,
OMR contends: that CASO was built principally as an overhead route for U.S. origin and destination
traffic moving between eastern and western points; that CASO has the most direct route between Detroit
and Buffalo; that the rehabilitation of CASO as an overhead route could significantly reduce congestion
on U.S. rail lines south of Lake Erie; and that it would be contrary to U.S. and Canadian transportation
interests to allow the CASO route to disappear. See OMR-8, V.S. Roach at 3.
Schedule Proposed By OMR. OMR contemplates: that the terms and conditions for its
acquisition of CN's 50% interest in the CNCP Partnership will be negotiated by the parties within 90
days of the effective date of the Board's decision; and that, if negotiations fail, the Board will, upon the
request of either party, set the terms and conditions for the acquisition.
Status Of OMR And The New Tunnel. OMR contends: that it is not a railroad or an entity in
control of a railroad; that DRTC, CASO, and NRBC comprise a single railroad system; that it therefore
follows that acquisition by OMR of control of the CNCP Partnership would not be a transaction
requiring approval under 49 U.S.C. 11323; that, in any event, the transaction contemplated by OMR
will not involve acquisition by OMR of control of the CNCP Partnership (because, given CP's 50%
interest in that partnership, acquisition by OMR of CN's 50% interest will not result in "control" within
the meaning of 49 U.S.C. 11323); that OMR's acquisition of CN's 50% interest in the
CNCP Partnership will merely safeguard OMR's ability to build and operate, immediately adjacent to
the Detroit River Tunnel, a new high-clearance tunnel that would be available for the use of the railroads
serving the area; that OMR does not contemplate that OMR itself will become a railroad even if OMR
constructs a new tunnel; and that the new tunnel will simply replace the existing tunnel, and will not
involve any "invasion" of new territory. OMR therefore argues that, even if the relief it seeks is granted
and the new tunnel it contemplates is constructed: OMR will not become subject to the jurisdiction of
the Board; and construction and operation of the new tunnel will not require the approval of the Board.
OMR also argues that, because it is not a railroad and will not become a railroad, and because rail
operations through the replacement tunnel that OMR proposes to build will be conducted by the railroads
in the area, no employees will be affected by the Board's approval of the relief sought by OMR.(202)
The OMR-CP Relationship. CP contends: that CP and OMR are not acting in concert; that the
only agreements that CP has made with OMR (or with its predecessor, American East Corporation) are
an agreement concerning the provision of CP traffic data to the predecessor (in order to facilitate its
analysis of a possible new rail tunnel at Detroit) and, more recently, an agreement pursuant to which CP
agreed to bear half the cost of retaining a consultant to perform a feasibility study for a possible new
tunnel; that CP has not entered into any agreement with OMR concerning development of the DRTC
property; and that there are no undisclosed "interrelationships" between CP and OMR. See CPR-26 at
016-017. CP has also indicated that it opposes the application filed by OMR in STB Finance Docket
No. 33556 (Sub-No. 2). See CPR-27 at 2. See also CPR-28 at 23-24 (CP contends that OMR's
divestiture proposal does not represent a viable alternative to the relief sought by CP).
Comments Of Michigan Gov. John Engler. Governor Engler, who supports the CN/IC control
application, indicates that he would like to see a new privately developed rail tunnel between Detroit
and Windsor and that he encourages CN and CP to work together to remove impediments to the
development of such a tunnel. Governor Engler adds, however, that his support for the CN/IC merger is
not predicated upon the resolution of the tunnel issue.
Comments Of U.S. Rep. Carolyn Kilpatrick, U.S. Rep. John Conyers, Jr., And U.S. Sen. Carl
Levin. Rep. Kilpatrick, Rep. Conyers, and Sen. Levin contend: that the Detroit-Windsor area needs a
new railroad tunnel to provide competition in routes and services along the U.S.-Canada border; that
CN's control of both the St. Clair Tunnel and the Detroit River Tunnel will preclude construction of a
new tunnel and the competition that would result; and that CN should therefore be required to sell its
ownership interest in the Detroit River Tunnel so that a modern new tunnel may be constructed in the
Comments Of Detroit Mayor Dennis W. Archer. Mayor Archer, who is concerned by CN's
ownership of the St. Clair Tunnel and its co-ownership of the Detroit River Tunnel, asks that we examine
whether the proposed merger will limit options available to shippers engaged in U.S.-Canadian trade.
Mayor Archer asks, in particular, that we address the following questions: (1) Do we agree that an
increasing volume of rail traffic is being diverted from Detroit to Port Huron? If so, do we agree that this
is due to the limitations of the current Detroit-Windsor tunnel? (2) Do we believe that CN's ownership
of the St. Clair Tunnel and its co-ownership of the Detroit River Tunnel limit rail transportation options
to shippers in southeast Michigan or elsewhere? If so, could this lead to higher (perhaps monopolistic)
prices for shippers moving goods across the U.S.-Canada border? (3) Do we believe that CN's
co-ownership of the Detroit-Windsor rail tunnel prevents or limits the ability of others to construct and
operate a new rail tunnel in Southeast Michigan?
Comments Of Windsor Mayor Michael D. Hurst. Mayor Hurst contends that, because CN
controls the two Michigan-Ontario rail tunnels, the CN/IC merger, if not properly conditioned, will give
CN too much control over U.S.-Canada rail traffic, and will thereby result in a substantial drop in rail
competition and the economic dislocations that are associated with monopolistic environments. Mayor
Hurst therefore asks that we condition the CN/IC merger by requiring CN to divest its 50% interest in
the Detroit-Windsor Tunnel and its approaches.
Comments Of Dewitt J. Henry, Assistant County Executive Of Wayne County, MI. Mr. Henry
contends: that the merger of CN and IC will reduce transportation competition and economic
development potential in the Detroit area; that it will reduce the importance of Detroit as an interchange
location with other railroads; that, for these reasons (among others), continued control by CN of both the
St. Clair and Detroit River Tunnels is unacceptable; and that CN should therefore be required to sell its
ownership interest in the Detroit River Tunnel.
Comments Of Paul E. Tait, Executive Director Of The Southeast Michigan Council Of
Governments. Mr. Tait contends that a new Detroit-Windsor area rail tunnel, one able to accommodate
modern rail equipment, could provide competition in routes and services along the U.S.-Canada border.
Mr. Tait, noting the recent designation by Congress of the I-94 corridor from Port Huron to Chicago
through Detroit as a high priority transportation corridor, insists that it is important that any decision we
make should not run counter to efforts to increase international trade in Southeast Michigan. And, Mr.
Tait adds, in view of the recent allocation by Congress of funds for a new freight intermodal terminal to
serve the needs of the automotive industry and other shippers in the Detroit area, it is also important that
any decision we make should not adversely affect the viability of this intermodal facility.
Comments Of Albert A. Martin, Director Of The Detroit Department Of Transportation. Mr.
Martin contends that, in view of CN's ownership interests in the two Michigan-Ontario rail tunnels, the
CN/IC merger may have a detrimental impact on the economic development of the City of Detroit.
Mr. Martin adds: that there is a clear need for a new railroad tunnel between Detroit and Windsor; that
such a tunnel would provide much needed competition and preclude monopolistic transportation by CN;
and that CN should therefore be required to commit to taking all necessary actions to make a new
Detroit-Windsor rail tunnel a reality at the earliest possible date.
Comments Of W. Steven Olinek, Deputy Director Of The Detroit/Wayne County Port
Authority. Mr. Olinek, who fears that the CN/IC merger will reduce transportation competition and
economic development potential in the Detroit area, urges that CN be required to sell its ownership
interest in the Detroit River Tunnel.
NORTH DAKOTA. North Dakota farms produce substantial quantities of spring wheat, durum,
barley, beans, and oilseeds (these and similar products produced on North Dakota farms are hereinafter
referred to generally as "agricultural commodities"). North Dakota indicates that 90% of the
agricultural commodities produced in North Dakota are exported from the state, and that the vast
majority of North Dakota agricultural products exported from the state are transported by rail. North
Dakota further indicates: that it is absolutely dependent upon rail service for the movement of its
agricultural commodities to market; that it receives rail service from two Class I railroads (BNSF and
Soo), and also from three shortlines that feed traffic to the two Class I railroads; that access to the Pacific
North West is provided by BNSF; that access to Minneapolis and Chicago is provided by a single-line
BNSF routing and also by a single-line Soo routing; and that access to the Gulf of Mexico is provided by
a single-line BNSF routing and also by a joint-line Soo-IC routing (the Soo-IC routing is via Chicago).(203)
The Soo-IC Routing. North Dakota claims that the Soo-IC routing to the Gulf provides access to
elevators in Louisiana, Mississippi, and Alabama that are critical to the sale of North Dakota agricultural
products on world markets. North Dakota contends that the service package provided by the Soo-IC
routing is vastly superior to other service routes: because the cycle times for equipment used on the Soo-IC route are much lower than the comparable cycle times for equipment used on alternative routes;
because Soo and IC, unlike BNSF and UP, are regional railroads that have significant financial
incentives for moving North Dakota agricultural commodities, that do not serve competing grain markets
that make demands on equipment or service, and that have no reason to favor their own long-haul single-line routes; and because certain important elevators in the Gulf region are rail-served exclusively by IC.
Consequences Of CN/IC Merger. North Dakota contends: that farmers in Alberta,
Saskatchewan, and Manitoba compete with farmers in North Dakota for the sale of identical agricultural
commodities on the world market; that the economic interests of a unified CN/IC (i.e., its desire to
maximize its single-line long-hauls) will invariably lead CN/IC to favor agricultural commodities
produced in Western Canada vis-à-vis agricultural commodities produced in North Dakota; that CN/IC,
to maximize its single-line long-hauls, will raise rates charged to North Dakota shippers for movements
on IC from Chicago to the Gulf; and that the resulting loss of the IC gateway (i.e., the resulting loss of
the "friendly" IC connection at Chicago) will reduce the competitiveness of North Dakota agricultural
commodities on world markets. North Dakota insists that, because North Dakota is so rail-dependent
and has already been so hard hit by the recent fall in grain prices world-wide, the reduction in
competitiveness that would accompany an unconditioned CN/IC merger would have a catastrophic
impact. And, North Dakota warns, the loss of the Chicago gateway with IC might cause Soo to become
non-viable in the North Dakota market, which would give BNSF (the only other Class I railroad in North
Dakota) a stranglehold on North Dakota's economy.(204)
Consequences Of The Alliance. North Dakota contends that, just as the CN/IC merger will
jeopardize the ability of many North Dakota elevators to compete in southeastern domestic markets and
in foreign markets accessed via the Gulf of Mexico, the CN/IC/KCS Alliance will similarly impair North
Dakota's access to southern domestic markets and Mexican markets.(205)
Relief Requested. North Dakota urges the imposition of a "gateway protection" condition
intended to preserve a competitive gateway for Soo through Chicago to points served by IC. The
specific condition sought by North Dakota: would require CN/IC to grant haulage rights to Soo, or to
such other carrier as may be designated by North Dakota, to allow that carrier to quote rates on
agricultural commodities originating in North Dakota and moving to points served by IC; and would
require CN/IC to carry all traffic to and from these elevators or other receivers as agent for the selected
carrier in a non-discriminatory manner and at rates which provide IC the same net contribution it
currently receives handling traffic at interline rates today to and from Chicago. North Dakota, which
opposes the CN/IC merger absent the imposition of the requested condition, insists that the relief it seeks
provides the only way to preserve both the ability of Soo to provide essential services in North Dakota
and the ability of North Dakota producers of agricultural commodities to compete on a level playing
field with producers in Canada and in other regions of the United States. And, North Dakota adds, the
haulage condition it seeks: will not adversely affect CN/IC's ability to achieve the announced benefits
of the merger; is, in fact, consistent with public statements made by applicants regarding their plans to
maintain open gateways post-merger;(206) and is, in reality, nothing more than a commercial alternative to
an open gateway.(207)
Response By CP. CP contends that, in view of applicants' assurances that they will have no
incentive to close gateways, there should be no reason why applicants would object to the haulage rights
proposed by North Dakota. CP adds that, if we elect to impose such rights, Soo will exercise such rights
to provide vigorous competition for north-south grain shipments. See CPR-28 at 24 n.31.
EXXON. Exxon, the largest U.S.-based petroleum refiner and the third largest U.S.-based
chemical company, contends that the CN/IC control transaction, together with the CN/IC/KCS Alliance,
effects a de facto CN/IC/KCS merger that has harmed and will continue to harm competition at Exxon's
Baton Rouge facilities.(208)
Exxon's Baton Rouge Facilities. Exxon operates, in or near Baton Rouge, five facilities that
originate approximately 25% of Exxon's total nationwide rail shipments: its Baton Rouge Plastics Plant
(BRPP); its Baton Rouge Polyolefins Plant (BRPO); its Baton Rouge Refinery (BRRF); its Baton
Rouge Chemical Plant (BRCP); and its Baton Rouge Finishing Plant (BRFP). Exxon contends that, as a
practical matter, these facilities, for the most part: (a) are rail-served both by IC and KCS, but by no
other railroad; or (b) are rail-served solely by IC, but have a KCS build-in/build-out option; or (c) are
rail-served solely by KCS, but have an IC build-in/build-out option. See ECA-7, V.S. Townsend,
Exhibit I (a map). Exxon therefore argues: that, in the context of the Alliance, all of these facilities
should be regarded as 2-to-1 facilities; and that the Alliance, by uniting the two carriers (IC and KCS)
that together originate 94% of the rail cars moving outbound from these facilities, will have
anticompetitive impacts at all of these facilities.(209)
(1) BRPP is located approximately 2 miles north of Baton Rouge, and has direct rail access both
to IC (to which BRPP has always had direct access) and to KCS (to which BRPP has had direct access
since the completion, in 1996, of a build-in project). Exxon concedes that UP has access to BRPP via
switching, but insists that UP is effectively foreclosed by high switch charges (access via IC would cost
$675 per car; access via KCS would cost $777 per car).(210)
(2) BRPO is located approximately 3.2 miles north of Baton Rouge, and has direct rail access to
KCS only. Exxon concedes that both UP and IC have access to BRPO via switching, but insists that
both are effectively foreclosed by high switch fees. Exxon contends, however: that it has an IC build-in
option; that, in fact, a build-in project from IC to BRPO is under development; and that, prior to the
establishment of the Alliance, Exxon and IC intended to complete the build-in by mid-2001.
(3) BRRF and BRCP are located in a single "complex" that is itself located immediately west
and north of Baton Rouge. (a) Some of the loading facilities in the BRRF/BRCP complex have direct
rail access both to IC and to KCS. Exxon concedes that UP has access to these loading facilities via
switching, but insists that, for most of the traffic originating at facilities in the BRRF/BRCP complex,
UP is effectively foreclosed by high switch charges (Exxon indicates that UP would have to pay KCS a
$314 per car switch fee and would have to pay IC a $400 per car switch fee).(211) (b) Some of the loading
facilities in the BRRF/BRCP complex have direct rail access either to IC only or to KCS only. Exxon
insists, however, that it could, with a modest investment and at its sole discretion (because it is the sole
owner of the entire BRRF/BRCP complex), lay track or construct new loading facilities within the
complex to access the other railroad.
(4) BRFP is located approximately 3 miles north of Baton Rouge, and has direct rail access to
KCS only. Exxon concedes that both UP and IC have access to BRFP via switching, but insists that both
are effectively foreclosed by high switch fees. Exxon claims, however, that, because an IC line is
located only a mile from BRFP, Exxon has an IC build-in/build-out option at BRFP.
A Three-Way Transaction. Exxon argues that the transaction contemplated by applicants is a
three-way CN/IC/KCS transaction. Exxon contends: that the Alliance railroads designed the Alliance to
emulate, in every way possible, the single-line service that only a single rail network can provide; that
the Alliance railroads have marketed Alliance services as if the three railroads were one; that the level
of CN/IC/KCS integration contemplated by the Alliance Agreement has all the hallmarks of a de facto
CN/IC/KCS merger; and that, as a practical matter, there is, from the perspective of a shipper like
Exxon, no difference between a CN/IC/KCS merger and the CN/IC/KCS Alliance. Exxon further
contends that the CN/IC control application confirms that the CN/IC control transaction and the
CN/IC/KCS Alliance are inextricably intertwined. Exxon claims, by way of illustration of this point:
that the rail-to-rail diversion study submitted by applicants does not evaluate the effects of the CN/IC
control transaction in and of itself, but, rather, evaluates the effects of the CN/IC control transaction in
conjunction with the CN/IC/KCS Alliance and the CN/KCS Access Agreement; that, as a practical
matter, many of the benefits that applicants claim will be generated by the CN/IC control transaction
cannot be realized absent the CN/IC/KCS Alliance; and that the KCS trackage rights application clearly
has nothing to do with the CN/IC control transaction in and of itself, but, rather, is entirely related to
implementation of the CN/IC/KCS Alliance. The control transaction and the Alliance, Exxon argues,
are, in practical effect, two indivisible parts of a single transaction that is intended to effect a de facto
Alleged Harmful Effects Of The Alliance. Exxon insists that the control transaction in
conjunction with the Alliance has already had anticompetitive effects that will become more and more
significant as existing contracts expire and as CN, IC, and KCS gain experience with the implementation
of the Alliance. Exxon contends, in particular: that the Alliance will involve the exchange by IC and
KCS of competitively sensitive information; that information gained by IC and/or KCS in Alliance
transactions will inevitably be applied in connection with non-Alliance transactions; that IC and KCS
cannot be expected both to exchange information with respect to the relatively large amount of traffic
that can move via the Alliance and also to remain unaffected by such exchanges when purporting to
compete for the relatively small amount of non-Alliance traffic; and that, given the relatively small
amount of non-Alliance traffic, the Alliance railroads will have every incentive to divert their assets and
personnel to Alliance movements, and will have no incentive to compete on non-Alliance movements.
Exxon further contends: that the Alliance railroads do not intend to establish the kinds of safeguards
necessary to preserve IC vs. KCS competition; that, because the carve-out provision(212) permits the
Alliance railroads to determine for themselves the traffic for which they will compete, the protections
purportedly afforded by that provision will prove to be ineffectual; and that, in any event, no protections
at all have been afforded to 1-to-1 shippers that now have build-in options.(213) Exxon therefore concludes
that the combination of the control transaction and the Alliance will result in a reduction of competition
(particularly IC vs. KCS competition), which will itself result (Exxon claims) in increases in rates and
decreases in service quality.
Relief Sought. Exxon asks that we condition approval of the CN/IC control transaction by
granting another Class I railroad cost-based direct access to Exxon's Baton Rouge facilities for the
duration of the "de facto merger" (by which Exxon means the CN/IC control transaction in combination
with the CN/IC/KCS Alliance). Exxon also asks that we condition approval of the CN/IC control
transaction by imposing, to the extent feasible, conditions that will preserve Exxon's build-in options.
Exxon insists that only direct physical access by another Class I railroad will redress the competitive
harm caused by the combination of the control transaction and the Alliance.
Response To Applicants. Applicants have stipulated that the Alliance Agreement will not apply
to any shipper if and when that shipper obtains direct access to both CN/IC and KCS via a railroad
build-in, a shipper build-out, a grant of haulage or trackage rights, or reciprocal switching. Exxon claims
that this stipulation lacks an enforcement mechanism. See ECA-14 at 5. Exxon also questions
(apparently with reference to KCS) whether applicants consider this stipulation to be enforceable against
every Alliance railroad. See ECA-14 at 6 n.19.
OCCIDENTAL CHEMICAL CORPORATION. Oxy Chem supports the CN/IC merger but
is concerned that the CN/IC/KCS Alliance may adversely impact future competition at an Oxy Chem
chemical production facility located in Convent, LA, on IC's line between Baton Rouge and New
Orleans. Oxy Chem indicates: that its Convent facility is presently rail-served exclusively by IC; that,
however, the facility is located approximately 7 miles from KCS's parallel Baton Rouge-New Orleans
line; and that, therefore, the construction of a 7-mile connector line would give Oxy Chem access to the
KCS line and would allow Oxy Chem to enjoy the benefits of IC vs. KCS competition. Oxy Chem
further indicates that it is worried that the Alliance Agreement may adversely affect the
build-in/build-out opportunity that presently exists at Convent. The existence of the Alliance
Agreement, Oxy Chem claims, creates a substantial risk that KCS will be unwilling to compete
aggressively against IC to serve Oxy Chem's Convent facility, especially in view of the fact that it is not
entirely clear that the Alliance Agreement's carve-out provision is intended to encompass a situation in
which direct access to more than one of the Alliance railroads is obtained in the future.(214)
Oxy Chem argues that we should consider, in our review of the CN/IC control transaction, the
competitive impacts of the CN/IC/KCS Alliance Agreement as it relates to existing and future
competition between IC and KCS. (1) Oxy Chem contends that we should exercise jurisdiction over the
Alliance Agreement: because the Alliance Agreement is an integral part of the CN/IC merger
transaction; because the substantial coordination of marketing, operations, equipment, and information
systems by the Alliance railroads may impact competition between these railroads in the territories where
more than one Alliance railroad presently operates; and because, given the degree of coordination
envisioned among the Alliance railroads, the Alliance Agreement may amount to an "acquisition of
control" under 49 U.S.C. 11323 that has given and will continue to give each Alliance railroad the
power to affect the "day-to day affairs" of each other Alliance railroad. (2) Oxy Chem further contends
that, even if we conclude that the Alliance Agreement does not equate to an "acquisition of control"
under 49 U.S.C. 11323, we should still undertake to analyze the competitive impact of the Alliance
Agreement as part of our review of the CN/IC merger application. We should do so, Oxy Chem insists,
on account of the intrinsic relationship that exists between the CN/IC merger and the CN/IC/KCS
Alliance, as evidenced by the fact that details respecting the Alliance have been submitted by applicants
as integral aspects of the merger.
Oxy Chem contends that, if we approve the CN/IC merger, we should condition our approval by
ensuring the preservation of all presently existing opportunities for shippers to receive future competition
by obtaining access to more than one of the Alliance railroads. Oxy Chem urges, in particular, the
adoption of a condition that would require that the provisions of the Alliance Agreement be clarified to
ensure that that agreement will not apply to situations where a shipper obtains direct access to more than
one Alliance railroad in the future. This condition, Oxy Chem claims, would ensure that the Alliance
Agreement will not eliminate or render meaningless Oxy Chem's presently existing opportunity to obtain
future competition at its Convent plant via a build-in from or a build-out to the nearby KCS line.
RUBICON AND UNIROYAL. Rubicon and Uniroyal contend that the CN/IC control
transaction, in conjunction with the CN/IC/KCS Alliance and the CN/KCS Access Agreement, will
eliminate the KCS build-in option that their IC-served Geismar facilities would otherwise have enjoyed.
The Rubicon/Uniroyal Facilities At Geismar. Rubicon indicates: that it produces seven
chemical products at its Geismar facility, which is rail-served exclusively by IC; that approximately 37%
of its outbound shipments move by rail; that, in addition, approximately 173,000 tons of chlorine used
annually at its facility move inbound by rail; and that, together, the inbound and outbound movements
amount to approximately 6,000 rail car shipments a year. Uniroyal indicates: that it produces various
products at its Geismar facility, which is rail-served exclusively by IC; and that it relies upon rail service
for inbound and outbound shipments amounting to approximately 600 carloads of material per year.
The Finance Docket No. 32530 Proceeding. By petition filed February 24, 1995, KCS sought
an exemption from the prior approval requirements of 49 U.S.C. 10901 to construct and operate
approximately 9 miles of track beginning at approximately MP 814 on its Baton Rouge-New Orleans
line (MP 814 is located on the KCS line in the general vicinity of the intersection of Highways 30 and
61) and extending in a northwesterly direction to the Geismar industrial complex near Gonzales and
Sorrento, in Ascension Parish, LA. KCS indicated that the new track would connect with the industrial
track and facilities of three large shippers (BASF, Borden, and Shell) that were, and without the new
KCS track would continue to be, rail-served exclusively by IC.
By decision served June 30, 1995, our predecessor agency conditionally granted the requested
exemption from the prior approval requirements of 49 U.S.C. 10901 for the construction and operation
of the new track, subject, however, to further consideration of the anticipated environmental impacts.(215)
In a Draft Environmental Impact Statement served July 16, 1997, our Section of Environmental
Analysis (SEA): preliminarily concluded that construction and operation of either of two feasible
alternatives (referred to as Route A and Route B) would have no significant environmental impacts,
provided that KCS were to implement the mitigation recommended by SEA; and preliminarily
recommended that we impose on any final decision approving construction of Route A or Route B
conditions requiring KCS to implement the mitigation recommended by SEA.(216)
By decision served August 27, 1998, we ordered that the Finance Docket No. 32530 proceeding
be held in abeyance until the issuance of a final written decision in the STB Finance Docket No. 33556
proceeding. We indicated: that the CN/KCS Access Agreement purports to allow KCS to serve the
same shippers that the new track would allow it to serve; that, furthermore, the access envisioned by the
Access Agreement would avoid the disruptive environmental consequences that would be involved with
the physical construction of new track; that it would be hard to justify, either economically or
environmentally, the construction contemplated in the Finance Docket No. 32530 proceeding when it
had become apparent that approval of the CN/IC control transaction would mean that service by KCS
could be provided over existing IC track; and that, given the circumstances, it would be inappropriate to
take any further action in the Finance Docket No. 32530 proceeding prior to the issuance of our written
decision in the STB Finance Docket No. 33556 proceeding.(217)
The KCS Build-In Option. Rubicon and Uniroyal argue: that each now has a KCS build-in
option; that these options will be eliminated by the CN/KCS Access Agreement; and that, in the context
of the CN/IC control transaction, Rubicon and Uniroyal must therefore be regarded as 2-to-1 shippers.
(1) Uniroyal, in support of its claim that it now has a KCS build-in option, contends: that the
new track contemplated by KCS in the Finance Docket No. 32530 proceeding includes an "industry
connector" that would run through, or immediately adjacent to, Uniroyal's property; that Uniroyal, when
it gave its permission for the industry connector to cross its property, did so with the understanding that
the industry connector would be extended to the Uniroyal facility; that the planned industry connector is
located only a short distance (approximately 2,500 feet) from the Uniroyal facility; and that there are no
public rights-of-way which would need to be crossed for the industry connector to be extended to the
(2) Rubicon, in support of its claim that it now has a KCS build-in option, contends: that the
planned industry connector is located only a short distance (less than a mile) from the Rubicon facility;
that, although an extension to the Rubicon facility would have to cross Uniroyal's property, Uniroyal
(which is a partial owner of Rubicon) has advised that it would allow the industry connector, when
constructed, to be extended to the Rubicon facility; and that there are no public rights-of-way which
would need to be crossed for the industry connector to be extended to the Rubicon facility.(218)
(3) Rubicon and Uniroyal acknowledge that KCS, in its Finance Docket No. 32530 petition, did
not explicitly include Rubicon and Uniroyal among the shippers that would be served by KCS's planned
Geismar build-in line. Rubicon and Uniroyal contend, however: that the only reason that neither
Rubicon nor Uniroyal was mentioned by name in KCS's Finance Docket No. 32530 petition is because
neither was then prepared to commit traffic to KCS; that, however, KCS never intended to restrict itself
to serving only those shippers (BASF, Borden, and Shell) that had made traffic commitments prior to the
filing of KCS's Finance Docket No. 32530 petition; that KCS, in fact, has acknowledged that,
regardless of whether a shipper committed in advance to use KCS, KCS did not intend to limit service
via the Geismar build-in to the three shippers named in the build-in petition; and that there is nothing in
the June 1995 decision conditionally granting the requested exemption that indicates that the build-in, if
constructed, would be limited to providing service to the three named shippers only.
(4) Rubicon and Uniroyal insist that their KCS build-in options will be effectively superseded by
the CN/KCS Access Agreement, which will provide KCS with access to three Geismar shippers (BASF,
Borden, and Shell) via IC haulage between Baton Rouge and Geismar, and via IC switching (or
switching arranged for by IC) at Geismar. Rubicon and Uniroyal contend that, as a practical matter, the
KCS access provided for in the Access Agreement: will render moot the construction by KCS of its
proposed build-in track; and will thereby remove KCS as a potential competitor in Geismar for Rubicon
and Uniroyal (and, indeed, for all shippers other than BASF, Borden, and Shell).
(5) Rubicon adds that the loss of its KCS build-in option will cause Rubicon to suffer
particularly onerous consequences. Rubicon contends: that one of its primary competitors is BASF,
which competes with Rubicon with respect to products comprising more than 95% of Rubicon's product
line, and which (like Rubicon) is now rail-served exclusively by IC; that BASF, however, will be one of
the beneficiaries of the Geismar access that KCS will receive under the Access Agreement; that BASF
will therefore enjoy the benefits of IC vs. KCS competition; and that this differential impact will leave
Rubicon in a precarious market position.
Analytical Approaches. Rubicon and Uniroyal contend that the anticipated loss of their KCS
build-in options should be regarded in one of two ways.
(1) Rubicon and Uniroyal argue, first of all, that the CN/IC merger, the CN/IC/KCS Alliance,
and the CN/KCS Access Agreement constitute a singular arrangement and must therefore be reviewed as
such. Rubicon and Uniroyal contend: that the Alliance contemplates an extremely close marketing and
operational relationship among the three pre-transaction Alliance railroads (CN, IC, and KCS) and
among the two post-transaction Alliance railroads (CN/IC and KCS); that, as a practical matter, the
Alliance and Access Agreements are products of, and opportunities created by, the CN/IC merger; that,
given the two agreements, KCS must be regarded as an integral element of the CN/IC merger; that the
CN/IC merger, coupled with the two agreements, will have an anticompetitive effect on Rubicon and
Uniroyal by eliminating the parallel IC vs. KCS competition at Geismar arising out of the planned KCS
build-in; and that the loss of competition at Geismar is a circumstance requiring the imposition of a
remedial condition under 49 U.S.C. 11324(c).
(2) Rubicon and Uniroyal argue, in the alternative, that the CN/IC-KCS relationship created by
the Alliance and Access Agreements should be regarded as a "pooling" arrangement. Rubicon and
Uniroyal contend: that KCS has agreed not to compete with IC in certain geographical areas (i.e., the
Baton Rouge-New Orleans corridor) in return for what KCS deems to be a better opportunity (i.e., status
as the favored connection for CN/IC in the Canada-to-Mexico corridor); that the agreement by KCS not
to compete in certain corridors equates to a pooling agreement; and that, because pooling agreements
may be approved only if they do not unreasonably restrain competition, the loss of competition at
Geismar is a circumstance requiring the imposition of a remedial condition under 49 U.S.C. 11322(a).
Relief Sought. Rubicon and Uniroyal ask that we require that the Access Agreement as it
pertains to Geismar be expanded to include access by KCS to Rubicon and Uniroyal. The sought
requirement, Rubicon and Uniroyal argue, would preserve the KCS competitive option that the KCS
build-in line would have provided to Rubicon and Uniroyal.(219)
VULCAN. Vulcan contends that the CN/IC control transaction, in conjunction with the
CN/IC/KCS Alliance and the CN/KCS Access Agreement, will eliminate the KCS build-in option that
its IC-served Geismar facility would otherwise have enjoyed.(220)
The Vulcan Facility At Geismar. Vulcan indicates: that it produces various chemical products
at its Geismar chloralkali manufacturing facility, which is rail-served exclusively by IC; that it ships
approximately 2,800 rail cars of outbound chemical products a year; that it receives between 2,600 and
3,120 rail cars of inbound raw materials a year; and that it anticipates, in late 1999 or early 2000, a
major expansion of its Geismar facility that will result in an increase in its demand for rail services on
both inbound and outbound movements.
The KCS Build-In Option. Vulcan insists: that it now has a KCS build-in option; and that this
build-in option will be eliminated by the CN/KCS Access Agreement.
(1) Vulcan contends: that, for several years prior to the negotiation of the Access Agreement,
KCS sought to have Vulcan build out to the KCS build-in line; that KCS knew that Vulcan intended to
build out to the KCS build-in line; that, in fact, the build-out by Vulcan was virtually assured (assuming,
of course, that KCS constructed the build-in line); and that KCS was planning to serve Vulcan following
completion of the KCS build-in and the Vulcan build-out.(221)
(2) Vulcan acknowledges that KCS, in its Finance Docket No. 32530 petition, did not explicitly
include Vulcan among the shippers that would be served by KCS's planned build-in line. Vulcan also
acknowledges that, even after that petition was filed, Vulcan never made any public commitment to
build out to the KCS build-in. Vulcan contends, however, that its silence reflected nothing more than a
concern for community sentiment (Vulcan claims that opposition to the build-in by many local residents
made Vulcan somewhat reluctant to support the build-in plan aggressively) and a sensitivity to KCS's
needs (Vulcan claims that KCS, because it was afraid that any indication that the line might serve
additional shippers might trigger a delay in the release of the Board's Environmental Impact Statement,
did not want Vulcan to make any public commitment to build out to the build-in until after release of
that Statement). But Vulcan insists that, despite its silence at the time, it did support the build-in plan
and was prepared to use the services of KCS when available.
(3) Vulcan insists: that, as a practical matter, the CN/IC merger, with the associated Alliance
and Access Agreements, has effectively halted the previously ongoing build-in process; and that, again
as a practical matter, the Access Agreement, if implemented, will eliminate the access to KCS that
Vulcan would have enjoyed under the KCS build-in plan.
Analytical Approach. Vulcan contends: that KCS is such a vital part of the transaction crafted
by applicants that the various traffic and economic studies undertaken by applicants include KCS as an
inseparable component;(222) that the rail system that will emerge post-transaction will reflect the CN/IC
control transaction in conjunction with the Alliance and Access Agreements (and will not reflect the
CN/IC control transaction in and of itself); that, therefore, the transaction crafted by CN, IC, and KCS
must be regarded, in substantial part, as a three-way CN/IC/KCS transaction; that, in crafting this
transaction, CN, to preserve IC's position as Vulcan's exclusive rail carrier, used the inducements of a
three-carrier "Alliance" to induce KCS to limit its access to Geismar to fewer shippers than it would
have served with the build-in; and that we are therefore required to provide a remedy for the substantial
reduction in rail competition that will occur post-transaction as a result of this three-way transaction.
Vulcan further contends: that this is not a situation in which a potential build-in/build-out option has
been eliminated by a merger; that, to the contrary, this is a situation in which an actual build-in/build-out
that was in progress has been eliminated by a merger; that, furthermore, this is a situation in which the IC
vs. KCS competition that would have existed upon construction of the planned build-in was eliminated
by agreement of CN and KCS; and that, as a practical matter, Vulcan's loss of its KCS build-out option
is exactly the same kind of loss that would have occurred in connection with an outright IC/KCS merger.
The CN/IC merger with its related agreements, Vulcan adds, is the sole reason that Vulcan will not enjoy
the benefits of the IC vs. KCS competition that would have been made possible by the KCS build-in.
Relief Sought. Vulcan contends that, in view of the circumstances surrounding the Alliance and
Access Agreements and the apparent cancellation of the build-in plan, we should require that the Access
Agreement as it pertains to Geismar be expanded to include access by KCS to Vulcan under the same
terms and conditions applicable to KCS's access to BASF, Borden, and Shell.
Reply By Applicants To The Geismar Parties. Applicants claim that, even if the KCS build-in
line had ultimately been constructed, the Geismar parties (i.e., Rubicon, Uniroyal, and Vulcan) would
not have obtained access to KCS service any earlier than the third quarter of 2003. Applicants therefore
contend that, even if we decide that relief for the Geismar parties is warranted, any conditions imposed
for the benefit of these parties should have an effective date not earlier than 2003. See CN/IC-56A at
NITL. On March 17, 1999, NITL(223) and applicants entered into an agreement (hereinafter
referred to as the NITL Agreement) that contains nine numbered paragraphs. See CN/IC-65 and NITL-5
(a single pleading, filed March 17, 1999).(224)
Paragraph 1 of the NITL Agreement recites that CN, IC, and KCS have provided NITL with
specific assurances: that the Alliance Agreement may not be used where two or more of the Alliance
railroads, and no other carriers, directly serve a particular shipper; and that the Alliance Agreement will
not abridge a shipper's right to route its traffic.
Paragraph 2 of the NITL Agreement recites that CN, IC, and KCS have also provided NITL with
specific assurances that the Alliance Agreement would not apply once a shipper, currently served by only
one Alliance member, subsequently gains access to a second Alliance member through a build-in, build-out, or any other access arrangement that permits the second Alliance member to compete with the first
to originate or terminate a move at the point of access.
Paragraph 3 of the NITL Agreement contains a list (hereinafter referred to as the Paragraph 3
list) of shippers that are located at or between Baton Rouge and New Orleans and that are jointly served
by IC and KCS and by no other carrier: Colonial Sugar at Gramercy, LA; Nalco Chemicals at Garyville,
LA; Cargill at Reserve, LA; Archer Daniels Midland at Reserve, LA; Dupont Chemical at LaPlace, LA;
Bayou Steel at LaPlace, LA; Shell Chemicals at Norco, LA; and Gattermin at Good Hope, LA.
Paragraph 3 provides that, if a shipper (i.e., a shipper not listed in the Paragraph 3 list) that is currently
served by only one Alliance member gains access to a second Alliance member through a build-in, build-out or any other access arrangement that permits the second Alliance member to compete with the first to
originate or terminate a move at the point of access, that shipper would be added to the Paragraph 3 list.
Paragraph 3 further provides: that, if a shipper located at or between Baton Rouge and New Orleans
believes that it is similarly situated so that its only competitive alternatives for the origination or
termination of traffic by rail at one of its facilities are KCS and IC, such shipper may request to be added
to the Paragraph 3 list; and that, if CN or IC declines to do so, the shipper will have the right to seek
addition to the list by submitting the matter to arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules.
Paragraph 4 of the NITL Agreement provides that, for those customers described in Paragraph 3,
CN and IC have agreed to limit annual adjustments to rates and charges to an amount not greater than
the annual rate of change in the Adjusted Rail Cost Adjustment Factor (RCAF(A)), for a period of ten
years. Paragraph 4 further provides: that this limitation will apply to both contract and common carrier
rates and charges; but that, at the Cargill and Archer Daniels Midland facilities at Reserve, LA, these
rate protections will apply only on outbound traffic.
Paragraph 5 of the NITL Agreement provides: that, for a period of ten years, service provided
by CN and IC to the shippers described in Paragraph 3 will be equal to or better than that provided by IC
at the time of the NITL Agreement for comparable movements and volumes of traffic; that "service" will
be defined as frequency of switching, average transit time by lane, car supply or such other factors as
identified by mutual agreement between CN, IC, and the shipper; and that current service levels will be
reviewed and documented for the purpose of the NITL Agreement.
Paragraph 6 of the NITL Agreement provides: that if a shipper described in Paragraph 3
believes that CN or IC has violated the NITL Agreement, the shipper will so advise the Senior Vice-President of Marketing of CN/IC; that, if the shipper does not obtain satisfaction through this course of
action, the shipper will have the right to submit the matter to binding arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules; and that, if CN or IC is found
at fault, CN or IC would be required either to remedy the fault or to pay damages (determined by the
arbitrator) to the shipper, or both. Paragraph 6 further provides that no other remedy would be available.
Paragraph 7 of the NITL Agreement provides: that the parties thereto will submit it by
stipulation to the Board and request that it be approved as a condition of approval of the CN/IC control
transaction; and that, if the Board does not approve the NITL Agreement as a condition of approval of
the CN/IC control transaction, individual shippers affected by any of the provisions of the NITL
Agreement shall be third-party beneficiaries. Paragraph 7 further provides: that NITL's concerns
respecting the CN/IC control transaction have been addressed by the NITL Agreement; that NITL will
not advocate or support any other condition to Board approval of the CN/IC control transaction or any
responsive or inconsistent application that is not also supported by applicants; but that this is not to be
construed as an expression by NITL of opposition to any condition or responsive or inconsistent
application requested by any other party to this proceeding.
Paragraph 8 of the NITL Agreement provides: that the rights and obligations set forth in the
NITL Agreement are contingent upon and will become effective on the date of consummation of the
CN/IC control transaction; and that the NITL Agreement will have no continuing force or effect if the
Board does not authorize or CN does not consummate the CN/IC control transaction.
Paragraph 9 of the NITL Agreement provides that the NITL Agreement will be governed by the
law of the District of Columbia.
Response By UP. UP contends that the NITL Agreement is inadequate to preserve competition
in the Baton Rouge-New Orleans corridor. See UP's letter (not designated) filed Mar. 19, 1999. (1) UP
claims that the NITL Agreement fails to preserve genuine rail-to-rail competition for 2-to-1 traffic in the
Baton Rouge-New Orleans corridor. The NITL Agreement, UP insists, merely imposes a 10-year rate
cap, and provides that the quality of service shall not be worsened for that same period. Genuine
competition, UP argues, covers much more than this. (2) UP claims that the NITL Agreement fails to
accord 2-to-1 status to the four shipper facilities where KCS or IC had committed, prior to the
announcement of the CN/IC control transaction and the CN/IC/KCS Alliance, to build in to bring
competition to IC or KCS, respectively: the Borden, BASF, and Shell facilities at Geismar (subject to a
KCS build-in), and the Exxon Polyolefins Plant at Baton Rouge (subject to an IC build-in). UP also
claims that the NITL Agreement does not list as covered facilities certain other facilities where high
switch fees applicable to UP make KCS and IC the only actual rail competitors. (3) UP claims that the
NITL Agreement fails to preserve competition for future build-ins, future transload facilities, and future
industry sitings. (4) UP claims that there is no indication that the adversely affected shippers regard the
NITL Agreement as an adequate remedy.
Response By DOT. DOT contends that the NITL Agreement contains many provisions that
could present competitive problems if implemented. See DOT's letter (not designated) filed Mar. 22,
1999. (1) DOT notes that Paragraph 1 provides that the Alliance will not apply where two or more of
the Alliance railroads, and no other carriers, directly serve a particular shipper. DOT interprets this to
mean: that the Alliance will apply where two Alliance railroads and a third railroad directly serve a
particular shipper; and that, in situations of that sort, the two Alliance partners will cease to compete
with each other for the shipper's business. This, DOT insists, is unacceptable. And, DOT adds, it is
unclear whether the phrase "and no other carriers" includes motor, barge, or pipeline carriers. (2) DOT
notes that Paragraph 2 provides that the Alliance will not apply once a shipper, currently served by only
one Alliance member, subsequently gains access to a second Alliance member through a build-in, build-out, or any other access arrangement that permits the second Alliance member to compete with the first
to originate or terminate a move at the point of access. DOT claims that Paragraph 2 does nothing to
alter the provision in the Alliance Agreement that allows the partners to determine together, on an
individual movement basis, whether or not they will continue to compete for a shipper's business. DOT
further claims that the language of Paragraph 2 is quite restrictive; DOT notes, by way of example, that,
although the "build-in, build-out, or any other access" provision applies only to a single shipper, such
undertakings frequently require a group of shippers to justify the project. (3) DOT questions whether the
NITL Agreement would be enforceable as against KCS, which (DOT notes) is not a signatory thereto.
(4) DOT insists that the NITL Agreement provides yet another reason why the Alliance Agreement (not
to mention the NITL Agreement itself) should not be approved by the Board in circumstances where that
approval would immunize these undertakings from antitrust purview.
Applicants' Reply To UP. Applicants (in a letter dated March 23, 1999) insist that the NITL
Agreement does not recognize that CN/IC and KCS will not compete for 2-to-1 traffic in the Baton
Rouge-New Orleans corridor; the longstanding and unquestioned IC vs. KCS competition in that
corridor, applicants contend, will continue. Applicants also insist that the Alliance Agreement does not
enable the Alliance railroads to accomplish any of the three elements necessary to sustain tacit collusion:
the Alliance Agreement, applicants claim, does not enable the railroads to reach tacit agreement without
any express communication; the Alliance Agreement, applicants also claim, does not enable the railroads
to monitor each other's adherence to any tacit agreement; and the Alliance Agreement, applicants
further claim, does not provide the railroads with any credible ability to punish cheating swiftly and
Applicants' Reply To DOT. (1) Applicants (in a letter dated March 23, 1999) insist that the
decades-long competitive rivalry between IC and KCS will continue where it exists today and will
expand wherever the economics of new construction make expansion feasible. And, applicants add, the
reference to "no other carrier" in Paragraph 1 was understood and will be construed by applicants to
mean no other rail carrier. (2) Applicants insist that the reference in Paragraph 2 to "a shipper" was
intended and will be construed by applicants to mean any shipper involved in a build-in/build-out.
(3) Applicants insist that the fact that only CN and IC are parties to the NITL Agreement merely reflects
the fact that CN and IC are the applicants with respect to the CN/IC control transaction; KCS, applicants
note, is not an applicant with respect to that transaction. And, applicants add, KCS cannot act
unilaterally on behalf of the Alliance.
The Alliance And Access Agreements. TFI urges careful review of the potential competitive
effects of the Alliance and Access Agreements. TFI contends that there are concerns: that the three
Alliance railroads will have, and indeed may already have, the power to restrict, regulate, oversee, or
otherwise affect each others' "day-to day affairs"; that the involvement of each of the Alliance railroads
in essential aspects of the operations of each other Alliance railroad will make each of them, and perhaps
has already made each of them, less likely to compete with each other; and that, therefore, the Alliance
and Access Agreements will have, and perhaps have already had, a dampening effect on IC vs. KCS
competition. TFI insists that, because these potential effects act in combination with the proposed CN/IC
control transaction, and because the Alliance and Access Agreements appear to be integral parts of the
CN/IC control application, we have the authority to consider the concerns voiced by TFI and to impose
necessary conditions to ensure that the feared adverse effects on competition do not occur.
Relief Sought. TFI contends that, given the uncertainties regarding the scope and effect of the
Alliance Agreement's carve-out provision,(225) and given also the critical importance of preserving
competition between IC and KCS, the Board should condition approval of the CN/IC control transaction
by giving legal force and effect to applicants' assurances that the Alliance and Access Agreements will
not result in a diminution of competition. TFI requests, in particular, the adoption of a condition that
will require that applicants and KCS not apply the Alliance Agreement to any shipper that now has or
that in the future may obtain access to both CN/IC and KCS, including access by means of build-ins or
build-outs, or by any other means of competitive access.
Limited Oversight Sought. TFI also requests the imposition of a limited oversight condition, in
order to ensure that the Alliance and Access Agreements do not have adverse effects on competition
between CN/IC and KCS.
Stipulation By Applicants; Response By TFI. Applicants have stipulated, in their rebuttal
submissions, that the Alliance Agreement will not apply to any shipper if and when that shipper obtains
direct access to both CN/IC and KCS via a railroad build-in, a shipper build-out, a grant of haulage or
trackage rights, or reciprocal switching; and applicants have promised that if, in the future, there is a
question regarding the application of this stipulation, applicants will not object on jurisdictional grounds
if parties seek to reopen this proceeding in order to enforce the stipulation. See CN/IC-56A at 21 and 73
(filed Dec. 16, 1998). TFI has argued, in essence, that this stipulation should be imposed as a condition.
See TFI-2 at 1 (filed Feb. 18, 1999).
AMERICAN FOREST & PAPER ASSOCIATION. AF&PA, the national trade association
of the forest products and paper industry, believes that the CN/IC control transaction has the potential to
benefit the forest products and paper industry, and that, subject to the imposition of conditions intended
to eliminate "paper barriers" and to enhance competitive switching alternatives, the CN/IC control
application should be approved by the Board. AF&PA insists that the two conditions it seeks: would
help to ensure that there will be meaningful competition between a unified CN/IC and other railroads;
would thereby promote efficient and cost-effective transportation services and alternatives for shippers;
and would also help to prevent service failures and disruptions of the type recently experienced on the
UP system in the West.
Condition #1: Paper Barriers. AF&PA asks that we condition approval of the CN/IC merger
by requiring the elimination of "paper barriers" that prevent or restrict access to or from Class III
shortlines that connect with IC or with any U.S. subsidiary of CN. AF&PA contends: that shortlines can
provide reliable and efficient service on lower density rail lines that have been "spun-off" by the larger
Class I carriers as a result of mergers; that, however, "paper barriers" instituted in line sale agreements
and pricing policies of the larger railroads have severely restricted, either directly or indirectly, the
ability of their shortline spin-offs to interchange traffic with other rail carriers, even where such routings
and connections would be efficient; and that such paper barriers are anticompetitive and, therefore, do
not serve the public interest. AF&PA further contends that we should exercise our broad conditioning
authority to require the removal of existing paper barriers and to prevent the imposition of such barriers
in the future, with respect to Class III shortlines that connect or will connect with IC or with U.S.
subsidiaries of CN. AF&PA insists that a condition requiring the removal of paper barriers in connection
with this proceeding would be in the best interests of all concerned, including CN/IC and connecting
shortlines, and also the shippers and receivers they serve.
Condition #2: Interswitching Arrangements. AF&PA asks that we condition approval of the
CN/IC merger by requiring IC and the U.S. subsidiaries of CN to allow increased competitive switching
opportunities and alternatives by the use of "interswitching" arrangements comparable to those
implemented in Canada under to the Canadian Transportation Act, 1996.(226) AF&PA contends: that
enhanced rail-to-rail-competition is necessary to ensure low cost, efficient transportation for shippers;
that, given our broad conditioning power in merger proceedings(227) and the significant changes
occasioned by the ongoing restructuring of the U.S. railroad industry, it would be appropriate to require
IC and the U.S. subsidiaries of CN to enter into "interswitching" arrangements with all major connecting
railroads, including BNSF, UP, CSX, and NS; and that, because such a condition would allow increased
competitive opportunities for shippers, it would be in the public interest.
CHAMPION. Champion, an integrated forest products company that originates a substantial
volume of traffic at mills served directly by CN, supports the CN/IC control transaction provided that
rail competition for shippers is maintained in areas where rail competition is physically available and
further provided that reasonable rates are set for captive shippers.
The CN/IC Control Transaction. DOT contends that the CN/IC merger, looked at separate and
apart from the two KCS agreements, presents no overarching competitive difficulties. This merger, DOT
believes, is a classic "end-to-end" consolidation in which there is virtually no overlap or head-to-head
competition between the merging parties.
The Alliance And Access Agreements. DOT contends that the Alliance and Access Agreements
present competitive difficulties and will affect the public interest in a sound and efficient national
transportation system, and that we are therefore required to conduct a thorough evaluation of the
consequences of these two agreements. DOT notes, in this respect, that the Alliance and Access
Agreements:(228) are, in timing, in content, and in legal and practical effect, integral to the CN/IC merger
transaction; more closely align the interests of IC and KCS, carriers whose north-south systems parallel
each other and who directly compete in particular corridors and points; and will affect large volumes of
traffic and rail operations over broad regions of the continent.(229)
DOT contends: that the joint marketing, operations, and facility investments contemplated by
the Alliance Agreement bespeak a collaborative undertaking that emphasizes broad cooperation; that,
although the Alliance by its terms applies only to interline traffic (which, DOT concedes, is a relatively
small proportion of applicants' total business), it is unprecedented in scope, going beyond customary
VCAs; that the combined efforts of CN/IC and KCS to attract traffic onto the Alliance rail network will
necessitate significantly increased communication and information exchanges, as well as a great many
specific steps to harmonize their operations; that the emphasis on cooperation inherent in such a venture
strongly suggests a concomitant de-emphasis on competition among the participants; and that, all things
considered, there is reason for concern that the Alliance will adversely affect the incentives of the
Alliance railroads to continue to pursue shippers that now receive service from only one of them, but that
could be served by the other in the future. DOT cites, by way of example, the Baton Rouge-New Orleans corridor, in which (DOT notes) the lines of IC and KCS are very close together, which
means (DOT claims) that either carrier, in the absence of the Alliance, could easily expand service to
shippers that now are solely-served by the other. And, DOT adds, neither the Alliance Agreement's
"carve-out" provision nor statements by applicants and KCS that they intend to compete vigorously can
eliminate the concern that the Alliance may weaken future competition.
DOT emphasizes, however, that, although it believes that the Alliance Agreement presents
competitive difficulties, it is not arguing that this agreement is necessarily anticompetitive or otherwise
contrary to the public interest. DOT notes, in this regard, that, although the Alliance may be akin to
pooling in some respects, and envisions a level of cooperation that is apparently unprecedented in the rail
industry, the Alliance appears to be analogous to joint arrangements (often referred to as "alliances")
that are commonplace today among air carriers and water carriers, and that may (in DOT's view)
represent the future trend among rail carriers as well. DOT has concluded, however, that, aside from the
special problem of IC vs. KCS competition in the Baton Rouge-New Orleans corridor, it cannot now be
determined whether the Alliance will or will not reduce the incentives for IC vs. KCS competition.
(1) DOT therefore contends, with respect to the effects of the Alliance Agreement in general,
that we should establish a period of oversight of 3 to 5 years, to allow for further consideration of
evidence and arguments that may be raised by shippers, carriers, and others respecting the effects of the
Alliance. See DOT-3 at 15.
(2) DOT further contends, with respect to the effects of the Alliance Agreement in the Baton
Rouge-New Orleans corridor in particular, that, in order to assure continued vigorous IC vs. KCS
competition: we should closely monitor the behavior of CN/IC and KCS at jointly-served points along
this corridor, whether the CN/IC merger is approved or not, see DOT-3 at 16; and, "[t]o restore the
status quo ante," see DOT-3 at 24,(230) we should also grant to an independent Class I railroad trackage
rights to operate over IC and KCS lines to all points in the corridor where solely-served shippers and that
carrier believe a build-in/build-out is feasible, see DOT-3 at 18. With respect to the Baton Rouge-New
Orleans corridor, DOT insists: that the unprecedented partnership of the Alliance railroads presents an
unacceptable risk of loss of IC vs. KCS competition; that the Alliance particularly threatens the indirect
competition represented by the prospect of build-ins to and build-outs from solely-served shippers; and
that, in this context, the introduction of an independent Class I railroad is needed to restore the pre-merger competitive environment.
(3) DOT argues that we should deny the request made by Exxon, which has asked that another
Class I railroad be granted direct access to Exxon's Baton Rouge facilities. DOT contends: that
Exxon's interests are comparable to the interests of other shippers located in the Baton Rouge-New Orleans corridor; that the condition sought by Exxon would provide three-railroad service at some
of its facilities that are now served by two railroads only, and would provide two-railroad service at other
facilities that are now served by one railroad only; and that it would be more appropriate to preserve the
indirect competition that Exxon could lose because of the Alliance by granting the condition urged by
DOT (i.e., by allowing a neutral carrier to serve the point of the potential build-in/build-out).
(4) DOT contends that the Access Agreement will have the effect of making KCS much less
likely to continue efforts to construct, at Geismar, a build-in that, upon completion, would ultimately
have benefitted all shippers in the immediate area and that perhaps would have drawn additional
shippers as well. See DOT-3 at 13. DOT argues, however, that we should deny the request made by
Rubicon, Uniroyal, and Vulcan, which have asked that KCS haulage rights under the Access Agreement
be extended to Geismar shippers not named in that agreement. This request, DOT contends, is too broad.
"These shippers are directly served by a single railroad today, and would continue to be served by a
single railroad if the proposed merger is approved." See DOT-3 at 17.
Safety Integration Plan. DOT indicates: that applicants and KCS have cooperated with FRA in
the development and updating of a Safety Integration Plan (SIP); that the SIP now in existence
encompasses operations under the two KCS agreements and addresses the important touchstones of
integration, such as the allocation of financial, personnel, and technological resources, as well as the
timing and sequence of pertinent events; and that the commitments contained in the expanded SIP to
carry out and monitor safety integration among CN/IC and KCS appear to be adequate to assure a safe
transition in the event the CN/IC control application is approved. DOT adds that FRA will monitor the
actual implementation of the SIP and will inform the Board if necessary to resolve any problems.
Transfer Of Dispatching Function To Canada. DOT indicates that it is pleased that applicants
do not contemplate moving U.S.-based dispatchers to Canada; the laws and policies of the two countries,
DOT notes, differ significantly as respects drug and alcohol abuse, as well as hours of service. DOT
adds that it is working to ensure that all dispatchers directing the movement of trains within the United
States are subject to the same high levels of scrutiny and safety.
KCS Trackage Rights Application. DOT contends that the terminal trackage rights sought by
GWWR cannot be granted as a remedy for any merger-related competitive problem, because (as DOT
has already advised) the CN/IC merger will not generate any such problem (and certainly will not
generate any such problem in the Springfield area). DOT adds that it takes no position on whether there
might be some other basis for a grant of the sought trackage rights, which (DOT insists) are intended to
close a "gap" in the Alliance railroads' systems and thereby allow for the smooth interchange of traffic
with KCS, and which (DOT also insists) will benefit KCS and the Alliance at least as much as, if not
more than, applicants. DOT notes, however, that we have previously indicated that a 49 U.S.C.
11321(a) override of contractual terms requires "a compelling reason." See CSX/NS/CR, slip op. at 73.
The Detroit River Tunnel. DOT urges denial of the requests made by CP and OMR. DOT
contends that, although the concerns voiced by CP and OMR are plausible, the problem created by CN's
50% interest in the Detroit River Tunnel constitutes a preexisting situation that will neither be created
by nor fundamentally changed by the CN/IC merger and the KCS agreements. DOT adds: that the
problem respecting the tunnel is ultimately based in contract; that an appropriate resolution to that
problem should therefore be left to the parties to that contract and to other entities with interests therein
(like OMR); and that, if the anticompetitive effects anticipated by CP and OMR occur, resort can be
had to the antitrust laws.
North Dakota. DOT concedes: that the economic vitality of North Dakota depends on efficient
rail access to national and world markets; that, whereas Canadian grain moving in CN single-line service
cannot now go beyond Chicago, the merger will allow Canadian grain moving in CN/IC single-line
service to move to IC points far beyond Chicago; and that the concerns expressed by North Dakota are
therefore understandable. DOT insists, however, that the relief sought by North Dakota should be
denied; marketplace incentives, competitive circumstances, and applicants' representations, DOT
advises, should ensure that North Dakota growers will not be disadvantaged by the CN/IC control
transaction. DOT contends: that, even though the railroad that now originates so much North Dakota
grain (Soo) is part of a system (the CP system) that also originates Canadian grain, calculations of
economic self-interest have led CP/Soo to originate North Dakota grain; that the same calculations of
economic self-interest should lead a unified CN/IC to continue to accept at Chicago Soo-originated grain
that IC now accepts at Chicago; and that, in any event, even if CN/IC were to close the Chicago gateway
in order to favor long-haul shipments from Canada, it would still face competition from BNSF, as well as
from other railroads and barges. DOT further contends that, even if North Dakota's competitive position
vis-à-vis Canadian producers on CN is harmed because these latter shippers will gain single-line service
to the Gulf, that harm results from greater, not less, competition, and therefore does not warrant a grant
of haulage or trackage rights for Soo. DOT adds, however, that applicants should be held to their
representations regarding the Chicago gateway.(231)
Railroad Labor. DOT contends that we should emphasize: that our decision approving the
CN/IC control application does not determine the necessity for, or the extent of, any CBA overrides that
applicants may have in mind; that negotiations conducted in good faith are the appropriate means for
resolving merger-related labor issues, such as transfer of employees, impact on protected employees, and
limited reductions in certain crafts; and that arbitration, if necessary to resolve such issues, should be
conducted by neutral parties familiar with railroad labor relations.(232)
Regula-DeWine Letter. By letter dated March 16, 1999, U.S. Rep. Ralph Regula and U.S. Sen.
Mike DeWine have expressed concerns that approval of the CN/IC merger, prior to the resolution of
allegations regarding a two-tier, railroad phantom freight pricing scheme assertedly used by Canadian
lumber producers, would have a substantial impact on U.S. independent wholesale distributors of
softwood lumber. Rep. Regula and Sen. DeWine claim: that the alleged pricing scheme, which they
contend violates the Robinson-Patman Act and which they have therefore asked the U.S. Department of
Justice (DOJ) to review, disadvantages U.S. independent wholesale distributors who sell and distribute
Western Canadian softwood lumber in the southeastern United States; and that this two-tier pricing
practice, which they contend is analogous to the motor carrier billing practices that were banned by the
1993 Negotiated Rates Act, constitutes a hidden subsidy to the vertically integrated Western Canadian
lumber producers' wholly owned operations. Rep. Regula and Sen. DeWine further claim that the
proposed CN/IC merger would expand the Canadian phantom freight pricing scheme and might therefore
provide an unfair pricing advantage to the Western Canadian lumber mills. Rep. Regula and
Sen. DeWine have therefore urged that the CN/IC merger be held in abeyance pending the final outcome
of DOJ's review of the alleged trade abuses involving the Western Canadian lumber mills and
confidential CN contracts.
Sawyer Letter. By letter dated March 17, 1999, U.S. Rep. Tom Sawyer indicates: that, for
several years, he has been working with U.S. independent lumber wholesalers in an attempt to obtain
relief from the Canadian lumber producers' two-tier railroad phantom freight pricing practice; that,
however, Canadian lumber producers, with the full cooperation of CN, have continued to charge U.S.
independent lumber wholesalers inflated rates; and that the Canadian lumber producers and CN, by
requiring U.S. lumber wholesalers to purchase lumber products at a rate that includes undisclosed freight
costs, have engaged and are continuing to engage in a pricing scheme that many believe is analogous to
the motor carrier billing practices that were banned by the 1993 Negotiated Rates Act. Rep. Sawyer
further indicates: that U.S. independent lumber wholesalers have already been seriously harmed by the
pricing activities of CN and IC; and that, if the CN/IC merger is approved before the two-tier pricing
practice is fully investigated by DOJ, the injury to the U.S. lumber wholesalers may well place the entire
industry in jeopardy. Rep. Sawyer has therefore urged us to postpone any final action on the CN/IC
merger until DOJ concludes its review and reports its findings.
Response By Applicants. By letter dated March 23, 1999, applicants have responded to the
arguments made in the Regula-DeWine and Sawyer letters. Applicants contend: that U.S. lumber
interests have raised no objections to the CN/IC merger; that DOJ, which has not even participated in
this proceeding, has raised no objections to the CN/IC merger; that, in fact, the time for raising any such
objections is long past; that, furthermore, the objections raised in the Regula-DeWine and Sawyer letters
concern pre-existing conditions; that there is no reason to believe that the CN/IC merger would have any
relevant relationship to such pre-existing conditions; and that the Regula-DeWine and Sawyer requests
to suspend the procedural schedule should therefore be rejected.
Regula Letter. By letter dated March 23, 1999, Rep. Regula, citing the ongoing DOJ
investigation, has suggested that, if we approve the CN/IC merger, we should retain jurisdiction to
impose additional conditions should it be determined that unfair pricing practices have impacted
domestic lumber wholesalers.
Response By Applicants. By letter dated March 25, 1999, applicants have responded to the arguments made in the Regula letter dated March 23, 1999. Applicants contend: that the phantom freight issue is part of a long-standing U.S.-Canada lumber dispute that has been a matter of public discussion, international negotiation, and governmental investigation for many years; that, because rail rates for lumber or wood products have been exempted from regulation, and because rate contracts between railroads and lumber shippers (on which, applicants suggest, the phantom freight allegations are based) are themselves not subject to regulation, the Board would appear to have no jurisdiction outside the context of a merger proceeding to take action concerning these phantom freight allegations; and that, because no party has timely made a record indicating that there is a problem involving CN that is in any way relevant to the Board's consideration of the CN/IC control application, and because there is no allegation that the phantom freight concerns are even related to the CN/IC control transaction, there would appear to be no basis for the retention of jurisdiction requested in the Regula letter dated March 23, 1999.
BROTHERHOOD OF LOCOMOTIVE ENGINEERS. BLE, the collective bargaining
representative for the craft or class of locomotive engineers on GTW, ICR, and CCP, contends that the
CN/IC control transaction will serve only to transfer wealth from CN/IC workers to CN/IC stockholders,
and, in particular, to CN/IC officers. BLE adds that, because the transaction contemplated by applicants
envisions integrations of workforces and consolidations of seniority districts and CBAs within unlimited
parameters (and does not envision that the two rail systems will be maintained as separate entities with
necessary coordinations), the transaction contemplated by applicants is not a "control" transaction but is,
in reality, a "merger" transaction.
Premature Control Alleged; Efforts To Reduce Number Of Protected GTW Employees Alleged;
Ongoing Safety Violations Alleged. BLE claims that applicants have taken various actions intended to
allow applicants an advance start on their merger and/or to reduce the number of protected GTW
employees. BLE claims, in particular: that certain IC employees have been working for CN;(233) that
applicants have coordinated the IC and GTW labor relations departments; that GTW has mimicked an
IC program pursuant to which IC has used road switchers to perform work formerly performed by yard
service; that GTW has abolished certain assignments at Flat Rock, MI, and has transferred other work
elsewhere; that GTW has mothballed the hump at Flat Rock; that GTW has pulled engineers out of
service without charges and subjected them to harassment and discipline for marking off for illness,
injuries, and inadequate rest; that GTW has violated immigration and naturalization laws by allowing
CNR crews to pick up in the United States and to drop off the same cars at other locations within the
United States; and that GTW has imposed unsafe operating conditions upon yard engineers and the train
dispatchers who transmit orders and instructions to the engineers.
Adverse Effects Anticipated. BLE fears that, if applicants are allowed to do what BLE believes
they intend to do, employees represented by BLE will suffer a variety of adverse consequences. BLE
contends, among other things: that a net of 34 GTW locomotive engineer positions in and around
Detroit, MI, will be abolished; that there will be adverse consequences for IC employees at Chicago, IL,
and Jackson, MS;(234) that applicants intend to establish a new consolidated Chicago-area seniority district
and a common Chicago-area seniority roster through integration of the western portion of GTW with the
northern portion of IC (including the Chicago-area portions of CCP); that applicants intend to adopt one
agreement from one railroad in the consolidated seniority district, and to place that agreement in effect
for all employees of all railroads involved in the consolidation at that area;(235) and that applicants intend
to accomplish, in the Chicago area, the wholesale abolition of the GTW/BLE CBA and the wholesale
adoption, in lieu thereof, of the IC/BLE CBA, which (BLE claims) will enable CN to achieve what it
was unable to achieve in Canadian National Railway Company -- Contract To Operate -- Grand Trunk
Western Railroad Inc. and Duluth, Winnipeg & Pacific Railway Co., Finance Docket No. 32640 (ICC
served Apr. 18, 1995).(236)
Canada-U.S. Implications. BLE contends that applicants intend both (a) to move work from the
United States to Canada (even though United States employees will not be able to follow this work), and
(b) to have Canadian nationals operate trains in the United States. BLE further contends that, in view of
the involvement in this merger of a foreign government,(237) in view too of the many differences in the
safety, immigration, and labor relations laws applicable to work in the United States and work in
Canada,(238) and in view also of the safety implications arising from the use in the United States of
Canadian nationals with different training and certification procedures,(239) the issue of appropriate labor
protection and proper safety measures needs to be explored further by the Board in conjunction with the
FRA. BLE suggests that the merger should be put on hold until this process has been completed.(240)
Limited Purpose Of An Implementing Agreement. BLE insists: that the sole purpose of an
implementing agreement negotiated or arbitrated under New York Dock, Article I, § 4 is to provide a
fair and equitable scheme or method for the allocation of jobs and selection of workforces among the
employees of the carriers involved in a particular consolidation or coordination, and for the modification
of seniority provisions, district parameters, and other contractual provisions necessary to complete the
transaction; that only those provisions that must be changed in order to effectuate the transaction are
subject to change through the § 4 negotiation or arbitration procedures; that the wholesale abrogation of
one agreement and its replacement by another agreement is not necessary for the effectuation of the
CN/IC control transaction; and that we should announce that the approval of the CN/IC control
transaction does not sanction the wholesale abolishment and replacement of contractual rights. BLE also
insists: that, in any event, the "rights, privileges, and benefits" of GTW employees as set forth in the
GTW/BLE CBA simply cannot be abrogated; and that provisions that need not be changed or that would
transfer wealth from the employees to the carrier and its stockholders are not subject to alteration.
Delay In Action Urged. BLE contends that we should withhold any action on the CN/IC control
application until such time as the Board and FRA issue regulations establishing procedures for the
development and implementation of safety integration plans (SIPs) by railroads proposing to engage in
transactions of the nature of the CN/IC control transaction. See Regulations on Safety Integration Plans
Governing Railroad Consolidations, Mergers, Acquisitions of Control, and Start Up Operations; and
Procedures for Surface Transportation Board Consideration of Safety Integration Plans in Cases
Involving Railroad Consolidations, Mergers, and Acquisitions of Control, STB Ex Parte No. 574 (STB
served Dec. 24, 1998) (a notice of proposed rulemaking issued jointly by the Board and FRA).(241)
Denial Of CN/IC Application Urged. BLE urges the denial of the CN/IC control application:
in view of the efforts by applicants to exercise premature control; in view of the attempts of applicants to
reduce the number of protected GTW employees; in view of the anticipated adverse effects on the CBA
rights of BLE members;(242) and in view of the adverse effects the merger will have upon the employees of
other railroads doing business with CN in the Chicago area.(243) BLE claims that the CN/IC merger, like
many another railroad merger in recent years, is merely a means to transfer wealth from employees to the
railroad through the substitution of more favorable CBAs, through the closing of facilities, through
reductions in employment, and through the creation of new and larger seniority districts. And, BLE
adds, the CN/IC merger: will not benefit the public; will not promote sound and competitive
transportation; and will have adverse effects on public health and safety.
Alternative Relief Sought. BLE contends that, if we do not deny the CN/IC control application,
we should, at the very least: add to New York Dock certain conditions; and make, with respect to New
York Dock, certain declarations that will govern the negotiation and/or arbitration of any implementing
agreements under Article I, §4 of New York Dock. These conditions and declarations, BLE argues, are
necessary to fulfill the statutory mandate to provide a fair arrangement for employees.
(1) BLE asks that we impose a condition that would provide that all employees listed on the
consolidated seniority rosters would be considered adversely affected and would receive New York
Dock protective benefits, and that would require applicants: (a) to calculate and furnish Test Period
Allowances (TPAs) of employees to the organization representing them within 30 days following the
effective date of the transaction; (b) to provide and pay a TPA to all employees in a consolidated
seniority district until implementation of the merger in that district or zone is finalized; and (c) to pay
allowances to the employees adversely affected by the merger for the maximum period provided by New
York Dock with a deduction of no more than a year of any temporary allowance actually received by the
individual pursuant to subparagraph (b).
(2) BLE asks that we impose a condition that would provide that any termination of seniority
provisions contained in any national agreement between the organization and the carrier would be
inapplicable to any employee hired prior to the effective date of the CN/IC control transaction.
(3) BLE asks that we impose a condition that would provide that an employee, upon furnishing
proof of actual relocation, would be given an option to elect to receive an "in lieu of" cash relocation
allowance of either $15,000 (for a non-homeowner) or $25,000 (for a homeowner).(244)
(4) BLE asks that we make declarations to the effect: that approval of the CN/IC control
transaction does not constitute approval for the substitution of an entire CBA on one carrier (the IC
CBA) for the CBA covering the employees of another carrier (the GTW CBA); that applicants may not
impose an entirely new, complete CBA upon GTW employees under the auspices of a § 4 implementing
agreement; and that the only contract changes that may be made by a § 4 implementing agreement are
those changes necessary to effectuate the merger and then only if necessary to obtain a transportation
benefit that is not labor-related.
(5) BLE asks that we make a declaration to the effect that applicants must negotiate fairly and
equitably (i.e., in good faith) with the representatives (i.e., the general chairmen) of the employees
affected by the particular consolidation and coordination covered by the § 4 notice and implementing
Response By Applicants. Applicants contend: that BLE's allegations that applicants have not
bargained in "good faith" are false; that BLE's allegations that applicants have not accorded proper
consideration to safety are also false; that BLE's allegations that GTW has threatened, harassed, and/or
intimidated engineers are similarly false; and that BLE's allegations that applicants have exercised
premature common control are likewise false.(246) Applicants also contend that BLE, which has warned
that applicants intend to have Canadian nationals operate trains in the U.S., has neglected to mention
that, under a practice of long standing, Canadian crews are already operating in the U.S., just as U.S.
crews are already operating in Canada; applicants add that, because of the frequency of such movements,
and the experience of U.S. and Canadian regulators in overseeing them, each country recognizes
locomotive engineer certifications issued by the other. Applicants further contend that we should reject
all of BLE's requests for conditions and benefits other than the customary New York Dock conditions,
and should direct BLE to pursue its demands in an Article I, § 4 forum; BLE, applicants claim, seeks to
have the Board bypass negotiation and compromise and impose up-front numerous special benefits and
procedural advantages for BLE. Applicants further contend, in their CN/IC-64 motion filed Mar. 10,
1999 (CN/IC-64 at 1-2), that, because many of BLE's allegations were first made and/or were
elaborated upon in BLE's BLE-6 brief, the "new evidence" improperly included in the BLE-6 brief
should be stricken or, in the alternative, applicants' CN/IC-64 response (CN/IC-64 at 3-10, including
attached statements) should be included in the record.(247)
UNITED TRANSPORTATION UNION. Applicants and UTU(248) have jointly asked the
Board to condition any approval of the CN/IC control application on the following commitments made
by applicants, in exchange for which UTU has offered its support for the application. See UTU-10 (filed
Mar. 24, 1999).
(1) Applicants have committed that they will provide work opportunities to active UTU-represented employees employed as of the date of approval of the transaction which allows those
employees, provided they utilize those work opportunities, to maintain their current level of annual
compensation during the protective period, unless applicants experience a significant downturn in their
businesses due to the loss of a major customer during the protective period, which will be taken into full
account and the employees' protections will be reduced proportionately.
(2) Applicants have committed that in any notice served in this transaction after Board approval,
they will propose only those changes to existing CBAs that are necessary to implement the proposed
transaction, meaning changes that are related to operational changes that will produce a public
transportation benefit not based solely on savings achieved by agreement changes. Applicants have
explained in their Operating Plan and Appendices that a unified workforce and single CBA in the
Chicago area are necessary to implement the transaction as are the changes related to the proposed
service between Battle Creek and Champaign. Further, applicants have indicated their preference for
the CBA to be applied in those areas. Applicants will not seek through the implementing agreement
process the application of the entire IC agreement on the GTW or vice versa.
(3) Applicants and UTU have committed that they will attempt to negotiate a voluntary
implementing agreement before July 1, 1999, and that neither party will seek arbitration under the
New York Dock conditions before that date. Applicants recognize that differences of opinion may occur
in the implementing agreement process. If the parties have not reached a voluntary agreement, then in
order to ensure that any such differences are dealt with promptly and fairly, applicants and UTU agree
that applicant and UTU personnel will meet within five (5) days notice from either side if a dispute
arises and will agree to expedited arbitration procedures under the New York Dock conditions 10 days
after the initial meeting if the matter is not resolved.
(4) Applicants and UTU have committed to address the safety issues raised in the UTU filings
that were submitted in this proceeding.
(5) Applicants have consented to the imposition as conditions of the commitments expressed in
the foregoing paragraphs.
AMERICAN TRAIN DISPATCHERS DEPARTMENT. ATDD contends that the CN/IC
control application should be denied unless conditions are imposed to assure: (1) that train dispatching
operations on U.S. lines will not be transferred or otherwise relocated outside the United States as part
of, in connection with, or as a result of approval of the CN/IC control transaction; (2) that protective
arrangements already in place that guarantee ATDD-represented workers a job for the remainder of their
working careers will be unaffected by the CN/IC control transaction; and (3) that the rates of pay, rules,
working conditions, and all collective bargaining and other rights, privileges, and benefits under
applicable laws and/or existing CBAs or otherwise will be preserved.
Transfers To Canada. ATDD insists that the CN/IC control application should be denied unless
applicants are required to continue to control rail traffic on their domestic lines from train dispatching
offices located in the United States. ATDD contends: that FRA believes that a transfer of train
dispatching responsibilities over domestic trackage to train dispatchers located outside U.S. borders
would be inconsistent with the interests of safety; that, in fact, FRA is considering the initiation of a
rulemaking that would establish a blanket prohibition on such cross-border transfers; that, however, there
is reason to suspect that applicants intend to use the merger as a basis for transferring train dispatching
responsibilities to Canada; and that, therefore, we should not permit the CN/IC control transaction to go
forward without enforceable assurances that control of rail traffic on domestic trackage remains in
facilities inside the United States subject to all applicable federal oversight and regulation. ATDD
therefore asks that we impose a condition that would read as follows: "The Applicants shall not in the
future propose the transfer to Canada of any train dispatching operations over any rail lines located in the
United States without first obtaining a written certification from the FRA that such transfer is consistent
with the operation of a safe and efficient rail transportation system as required by 49 U.S.C.
Prior Protective Arrangements. ATDD contends that, pursuant to various agreements(249) reached
in connection with the GTW/DTI&DTSL control transaction:(250) every train dispatcher employed by
GTW, DTI, and DTSL who was in active status on August 1, 1986, enjoys protection from wage loss for
any reason other than those set forth in Article I, §§ 5(c) and 6(d) of the New York Dock conditions(251)
until he/she qualifies for the early retiree major medical benefits provided under a certain group
policy;(252) and any train dispatcher who might be subject to losing his/her job can elect "voluntary
furlough status" either (a) subject to recall, or (b) not subject to recall.(253)
ATDD further contends that, although the CN/IC control application does not mention these
existing protective arrangements and gives no indication how applicants intend to treat covered
employees in the event the CN/IC control transaction is implemented, applicants, in their rebuttal
submissions, have "confirmed that they do not intend to take the position that imposition of New York
Dock on this Transaction will preclude an employee otherwise eligible for protective benefits under
Finance Docket No. 28676 from making an election of benefits that is consistent with the principles
established under Article I, Section 3 of New York Dock."(254)
ATDD insists, however, that we should reject the CN/IC control application unless conditions
are imposed to assure that existing protective arrangements will not be disturbed or overridden in
connection with implementation of the CN/IC control transaction. ATDD contends: that the protective
arrangements it seeks to preserve were negotiated as part of the carriers' compliance with conditions
imposed by the ICC in earlier transactions;(255) that, however, there is reason to suspect that CN intends to
use the New York Dock conditions that will be imposed on approval of the CN/IC control transaction as
a mechanism by which to evade the obligations contained in the agreements entered into in connection
with the GTW/DTI&DTSL control transaction;(256) and that, in this situation, a blanket condition
preserving existing protective arrangements is appropriate to assure the preservation of these
Preservation Of Rates Of Pay, Etc. Applicants have indicated: that there are currently three
separate train dispatching centers on the combined CN/IC U.S. rail system (CN trains moving over the
physically discrete GTW and DWP lines are dispatched from separate centers in Troy, MI, and
Pokegama Yard near Superior, WI, respectively, and IC trains are dispatched from IC's Network
Operations Center in Homewood, IL); that the three dispatching centers utilize separate train control and
information systems and somewhat different operating practices; that the CN/IC control transaction
offers the opportunity to consolidate the dispatching functions and to unify operating practices for the
GTW/DWP and IC lines in a manner that will improve efficiency, service, and safety; and that, in order
to achieve these changes and efficiencies, it will be necessary to bring these dispatching groups under a
single CBA with a single seniority roster.
Applicants have further indicated: that, following implementation of the CN/IC control
transaction, the dispatching function will be consolidated at Homewood; that the physical relocation, the
training on various dispatching systems, and the unification of operating practices will be accomplished
in distinct steps; that there will therefore be, for a short interval following the physical relocation, three
dispatching operations at Homewood; that, during this interval, the GTW/DWP and IC dispatchers will
continue to dispatch their own territories using the equipment and processes with which they are familiar
(and, although they will be under the same roof, will dispatch as though they were separate entities); and
that, during this interval, a combined operating practices rule book will be produced and the existing
dispatching systems will be modified, and all dispatchers will be trained on CN/IC's consolidated
U.S. operating rules. See CN/IC-7 at 176-78 and 204. See also the Revised Safety Integration Plan at
ATDD contends: that, during the "short interval" referenced by applicants (i.e., during the
period that will begin with the physical relocation to Homewood and that will end with the actual
consolidation of train dispatching operations), it will not be necessary to bring the three dispatching
groups under a single CBA with a single seniority roster; that, until such time as all train dispatching
systems themselves are unified, the carriers should be required not to disturb existing collective
bargaining relationships; that, because there will be, during the "short interval," separate dispatching
operations, there is no warrant for any disruption of CBAs or representation during that interval; and that
any disruption of ATDD's existing representative status and agreements would undermine the stability of
the labor/management relationship. ATDD further contends: that, even assuming arguendo that
pre-transaction representation arrangements are not a "right, privilege or benefit" that must be preserved,
no CBA provision may be modified if the modification is not necessary to implementation of the
transaction; and that there is, in the present context, no necessity at all, given that ATDD-represented
GTW dispatchers are scheduled to continue to work independently from the other train dispatchers at
Homewood, just as they did in Troy.
As respects the later integrations contemplated by applicants, ATDD contends: that they should
be allowed only if they are directly related to the CN/IC control transaction; and that we should insist
that the rates of pay, rules, working conditions, and all collective bargaining and other rights, privileges,
and benefits under applicable laws and/or existing CBAs or otherwise will be preserved. And, ATDD
adds, should the day come when a single CBA is applied to all train dispatchers at Homewood, that
CBA should be the ATDD-GTW CBA.
INTERNATIONAL ASSOCIATION OF MACHINISTS. IAM, the collective bargaining
representative for the craft or class of machinists on GTW, ICR, and CCP, contends that we should
condition approval of the CN/IC control transaction on the imposition of New York Dock protection.
IAM further contends: that we should make certain declarations respecting the operation of Article I, §
3 and Article I, § 4 of the New York Dock conditions; and that, if we determine that the CN/IC/KCS
Alliance does not constitute a control transaction subject to New York Dock protection, we should retain
oversight jurisdiction to monitor the operation of the Alliance so that any future transfer of control will
not be effected without the requisite labor protection.
Actions Taken In Anticipation Of Merger. IAM claims that, in May 1998, GTW announced
furloughs of machinists at its Flat Rock Terminal and Battle Creek Reliability Center that clearly were
in anticipation of the CN/IC merger.
Prior Protective Arrangements. IAM is concerned that applicants intend to assert that
implementing agreements imposed by an Article I, § 4 arbitrator acting under the auspices of the New
York Dock conditions that will be imposed on the CN/IC control transaction can supersede protective
arrangements negotiated in connection with the GTW/DTI&DTSL control transaction. IAM notes, in
essence, that, although applicants have acknowledged that New York Dock, Article I, § 3 requires the
preservation of existing protective arrangements, applicants have also suggested that certain provisions in
the protective arrangements arising out of the GTW/DTI&DTSL control transaction may have to be
overridden as "impediments" to implementation of the CN/IC control transaction. IAM therefore
requests that we affirm: that, pursuant to Article I, § 3, employees subject to protective arrangements
arising out of past mergers retain the right to elect the protections afforded under these pre-existing
arrangements; and that, consistent with the terms of Article I, § 3, pre-existing protections enjoyed by
GTW employees cannot be superseded by the protective conditions imposed in this proceeding.
Article I, § 4. IAM asks that we affirm that, under Article I, § 4, issues regarding CBA
overrides are subject first to negotiation, and thereafter, if necessary, are subject to arbitration. IAM also
asks that we affirm that the Article I, § 4 negotiation requirement requires that the carrier engage in
good faith bargaining.
Oversight Jurisdiction. IAM contends that the CN/IC/KCS Alliance amounts to a CN/IC/KCS
control transaction within the meaning of 49 U.S.C. 11323, subject to the imposition of the New York
Dock protective conditions. IAM further contends that, if we determine that the Alliance does not
amount to a control transaction, we should retain oversight jurisdiction. Such jurisdiction, IAM argues,
will enable us to monitor the operation of the Alliance so that, if a transfer of control requiring Board
approval does in fact result, New York Dock protection for affected employees will be imposed.
TRANSPORTATIONCOMMUNICATIONS INTERNATIONAL UNION. TCU, which
represents employees of CNR, GTW, DWP, ICR, CCP, and KCS in the clerical, carman, and
supervisory crafts and classes, contends: that we should review the Alliance Agreement as part of the
CN/IC control transaction, and impose New York Dock labor protection on all of the Alliance railroads;
or, if we decide not to impose such protection, that we should, at the very least, retain jurisdiction to
monitor the Alliance to ensure that no control transaction is in effect. TCU also contends: that we
should impose enhanced New York Dock conditions requiring lifetime attrition protection for those
employees who, because of Canadian immigration laws, will be adversely affected by their inability to
follow transferred clerical work to Canada; and, if we do not impose such enhanced conditions, that we
should, at the very least, mandate that employees unable to follow work transferred to Canada will be
considered "dismissed employees" entitled to receive dismissal allowances under New York Dock.
The CN/IC/KCS Alliance. TCU contends that the Alliance, taken in conjunction with the
CN/IC control transaction, must be viewed as a transaction that will enable CN and KCS to achieve joint
control of IC's interline operations. TCU further contends that the labor protection mandates of the
Interstate Commerce Act, as interpreted in New York Dock, must be applied to employees, including
KCS employees, affected by the Alliance.
TCU cites: the geographic scope of the Alliance;(257) the duration of the Alliance;(258) the extent to
which the Alliance is intertwined with the CN/IC control transaction; the commitment of the
management of the day-to-day affairs of the Alliance to a Management Group made up of the chief
executive officers of the Alliance railroads; the intent to coordinate service operations between CN, IC,
and KCS to create what will amount to "single-line" service along the north-south NAFTA corridor; and
the establishment of a joint marketing strategy to be undertaken by the Alliance railroads. TCU insists:
that, because the business of the Alliance will be governed by the Management Group, implementation
of the CN/IC control transaction will mean that key marketing decisions and strategies relative to IC's
interline operations will be set by a group of which IC will not be an independent member; that, because
the Management Group's decisionmaking process will be (by admission of both CN and KCS)
consensual, KCS will have an effective veto over decisions respecting IC's interline operations; and that,
because this veto will constitute "control" in its purest form, the existence of this veto demonstrates that
the Alliance and KCS are subject to the Board's jurisdiction in this matter.(259) TCU contends: that,
under 49 U.S.C. 11326, New York Dock must be imposed to protect employees affected by the
acquisition by any carrier of control over the operations of another carrier; that, therefore, New York
Dock must be imposed to protect employees affected by the acquisition, by CN and KCS, of control of
the interline operations of IC; and that, given the context of the Alliance, this means that New York
Dock must be imposed not only on CN but also on KCS.(260)
TCU is especially concerned that, given the wording of the Alliance Agreement, a
"coordination" of CN, IC, and/or KCS clerical work, and particularly customer service work, could be
approved by the Management Group without the need for another agreement. TCU insists: that a
"transaction" (as that term is defined in New York Dock, 360 I.C.C. at 84) includes a "coordination" (as
that term is defined in the Washington Job Protection Agreement of 1936, see New York Dock,
360 I.C.C. at 70); that, under the Washington Job Protection Agreement, the term "coordination" means
"joint action by two or more carriers whereby they unify, consolidate, merge or pool in whole or in part
their separate railroad facilities or any of the operations or services previously performed by them
through such separate facilities," see CSX Corp. -- Control -- Chessie and Seaboard C.L.I., 6 I.C.C.2d
715, 778 (1990); that the clerical work "coordinations" that may occur under the Alliance must
therefore be regarded as "transactions" for purposes of New York Dock; and that, in this light and given
the relationship of the Alliance to the CN/IC control transaction, New York Dock is clearly applicable to
the "transactions" contemplated by the Alliance railroads.
TCU further contends that, if we do not see fit to evaluate the Alliance as part of the CN/IC
control transaction, we should, at the very least, retain jurisdiction to oversee and monitor the Alliance to
ensure that it is not used as a device to circumvent the statutory process for approving 49 U.S.C. 11323
control transactions. TCU argues that, even if we determine that the Alliance does not, in and of itself,
amount to a control transaction, we must recognize that the Alliance Agreement provides the framework
for even more substantial coordinations. And, TCU adds, the retention of jurisdiction will allow us to
ensure that, in the event the activities of the Alliance rise to the level of a control transaction, the artful
drafting of the Alliance Agreement will not serve to circumvent our authority to review such
Enhanced Protection. Applicants have indicated that they intend to consolidate various general
and administrative functions, including certain information technology activity and certain accounting
activity, in Montreal, PQ. Applicants have further indicated that they may also find it necessary to
consolidate other general and administrative functions, including such functions as customer service,
clearance, and other centralized tasks. See CN/IC-7 at 205-06.
TCU contends that cases decided by the Board and by the ICC establish that when a carrier, in
the course of implementing a Board-approved transaction, transfers an employee's work:
(1) an employee has a right to follow the transferred work (assuming, of course, that sufficient positions
are available);(262) and (2) an employee who declines an opportunity to follow the transferred work forfeits
any otherwise available right to New York Dock protection.(263) TCU further contends that, given the
restrictions imposed by Canadian immigration laws, the consolidation of various CN/IC clerical and
administrative functions at CN facilities located in Canada will effectively deprive clerical employees of
their right to follow transferred work.(264) TCU therefore asks that we impose enhanced New York Dock
benefits for these employees.
TCU contends: that New York Dock's requirement of 6 years of labor protection was
established as a "fair arrangement" under the presumption that employees would have the right to follow
their work; that, however, the "unusual circumstances" of the CN/IC control transaction (i.e., its
diminution of the right to follow work) demand enhanced New York Dock protections for all employees
who are affected by (i.e., who are either dismissed or displaced as a result of) the inability to follow
work that is consolidated in Canada;(265) and that the required enhancement should take the form of
lifetime attrition protection. TCU further contends that, at the very least, we should mandate that
employees unable to follow work transferred to Canada will be considered "dismissed employees"
entitled to receive dismissal allowances under New York Dock.
Applicants insist: that New York Dock provides adequate protection to any TCU-represented
clerical employees whose positions may be abolished in connection with the CN/IC control transaction;
that the fact that a consolidation of work may involve the Canadian border is simply irrelevant to the
level of protection adversely affected employees are entitled to receive; and that, in any case, any issues
related to the transfer of work to Canada should be referred to the implementing agreement process.
"[L]ifetime attrition protection is strongly disfavored; and a transfer of work to another location, or the
inability of some adversely affected employees to follow their work, do not amount to 'unusual
circumstances' warranting imposition of enhanced protective conditions. Employees are often unable to
follow work that is being consolidated. That is precisely why New York Dock (and other protective
arrangements beginning with the Washington Job Protection Agreement) provide for protective benefits.
Under New York Dock, if an employee is unable to keep a position because work is being consolidated
into a limited number of positions, that employee will be entitled to protective benefits -- whether the
work is consolidated in Montreal or Memphis." See CN/IC-56A at 198-99.
Prior Protective Arrangements. TCU cites CSX/NS/CR, slip op. at 126, in support of the
proposition that issues regarding changes that may be sought by applicants in TCU's preexisting
protective arrangements with GTW, DWP, and ICR should not be addressed in this decision but, rather,
should be left to the process of negotiation and, if necessary, arbitration under Article I, § 4 of New York
JOHN D. FITZGERALD. Mr. Fitzgerald is primarily concerned with the impact of the CN/IC
control transaction upon employees of BNSF. Mr. Fitzgerald contends: that the CN/IC control
transaction will recreate an IC affiliation with a transcontinental carrier;(266) that this affiliation will work
to the detriment of BNSF, because CN and BNSF compete with respect to traffic moving between the
Pacific Coast and the U.S. Midwest, including points extending to the South and Southeast; that BNSF
will lose traffic to a unified CN/IC; that this loss of traffic will have adverse impacts on BNSF
employees; that these adverse impacts may differ as between different groups of BNSF employees; and
that, because BNSF has not played an active role in this proceeding, a less than adequate record has been
developed with respect to the adverse impacts that will fall upon BNSF employees. Mr. Fitzgerald
therefore argues: that the CN/IC control application should be denied;(267) and that, if it is not denied,
BNSF employees should receive at least the full benefits of the employee protective conditions
mandated for applicants' employees. Mr. Fitzgerald also argues: that, if we had issued Decision No. 31
prior to February 9, 1999, his attorney would have sought to participate in the oral argument we held on
March 18, 1999;(268) that, however, we issued Decision No. 31 after February 9, 1999; and that, because
Mr. Fitzgerald's attorney did not participate in the oral argument, Mr. Fitzgerald stands to be prejudiced
by our late action respecting the two agreements.
ALLIED RAIL UNIONS. The Brotherhood of Railroad Signalmen (BRS), the International
Brotherhood of Boilermakers, Blacksmiths, Forgers and Helpers (IBB), the National Council of Firemen
and Oilers (NCFO), and the Sheet Metal Workers International Association (SMWIA), participating
collectively as the Allied Rail Unions (ARU), indicated, in their comments filed October 26, 1998, that,
although they had not yet taken a position with respect to approval or disapproval of the CN/IC control
transaction and/or any conditions that might be necessary in connection with approval thereof, their
major concerns regarding the CN/IC control transaction related to: transfers of employees in the crafts
represented by the ARU unions; the potential impact of the transaction on existing CBAs and seniority
rights; and the position that applicants might take with respect to the continued effect of the employee
protective arrangements negotiated in connection with the GTW/DTI&DTSL control transaction.
The ARU unions also indicated, in their comments filed October 26, 1998, that, although they
had not yet taken a position, they were prepared to ask the Board to reject the transaction and to make
the following declarations in connection with any approval thereof: (1) that rates of pay, rules, and
working conditions under existing CBAs must be preserved, except to the extent New York Dock
arbitrators permit variances solely in seniority and scope rules in connection with arrangements for
selection of forces and assignment of employees; (2) that actions contrary to CBAs will be permitted
only upon a showing of real necessity, as opposed to mere convenience or a simple reduction in labor
costs; (3) that applicants have shown no necessity for CBA modification, except to some extent for
seniority integration under New York Dock; (4) that approval of the transaction does not constitute
explicit or implicit approval of the CBA changes described by applicants in their operating plans and
attachments; and (5) that employee rights under existing protective agreements, including the agreements
entered into pursuant to the GTW/DTI&DTSL control transaction, are preserved and will remain
available to covered employees regardless of approval of the CN/IC control transaction.
The ARU unions further indicated, in their comments filed October 26, 1998, that they would
reserve a final position for their brief (which, however, they never filed).(269)
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES. BMWE, the collective
bargaining representative for all maintenance of way forces working for applicants, urges approval of the
CN/IC control transaction and indicates that it has already negotiated an implementing agreement
(hereinafter referred to as the CN/IC-BMWE implementing agreement) that resolves all merger-related
issues between applicants (i.e., GTW, ICR, and CCP) and BMWE.(270) BMWE contends that the CN/IC-BMWE implementing agreement does what a New York Dock implementing agreement should do: it
provides for a limited rearrangement of forces, and it reflects an understanding that long-term changes in
the collective bargaining relationship must be made through the traditional processes of collective
bargaining under the Railway Labor Act. BMWE adds that we might want to use the CN/IC-BMWE
implementing agreement as a guide to the type of reasonable adjustment of interests that the New York
Dock implementing agreement process is intended to achieve.
The CN/IC-BMWE implementing agreement consists of 18 numbered sections. Sections 1
through 7 provide for the transfer of certain GTW and CCP trackage and a number of GTW and CCP
employees to ICR, and provide the transferred employees with continuity of service credit for longevity-based benefits, prior rights to the transferred assignments, and an option to preserve pre-transfer medical
and dental benefits. Section 8 provides that, except as otherwise provided, New York Dock shall be
applicable to the CN/IC control transaction. Sections 9 through 12 create a process for the
administration of dismissal and displacement allowance claims. Section 13 creates for certain laid-off
employees of CCP and GTW a preferential right for consideration for certain ICR positions. Section 14
provides for the distribution, to each CN/IC-BMWE employee, of a copy of the CN/IC-BMWE
implementing agreement. Section 15 (discussed in more detail below) states certain understandings of
the parties. Section 16 provides a mechanism for resolving disputes arising out of the CN/IC-BMWE
implementing agreement. Section 17 provides that the provisions of the CN/IC-BMWE implementing
agreement are without precedent or prejudice to the position of either party. Section 18 provides that the
CN/IC-BMWE implementing agreement will become effective 30 days after the Board's approval of the
CN/IC control application.
BMWE places particular emphasis on Section 15 of the CN/IC-BMWE implementing
agreement, which states: that the parties understand that future modifications to the CN/IC-BMWE
implementing agreement may be necessary to carry out the "financial transaction" set forth in STB
Finance Docket No. 33556; that BMWE understands that those changes are subject to notice,
negotiation, and possible arbitration under Article I, § 4 of New York Dock; and that the carriers
understand "that changes such as the imposition of a system-wide collective bargaining agreement or the
abrogation of an entire existing collective bargaining agreement, the merger of or substantial change to
existing seniority districts, and/or the creation of system-wide maintenance of way production gangs or
regional maintenance of way production gangs not otherwise permissible under current collective
bargaining agreements shall not be sought pursuant to the notice, negotiation and possible arbitration
process under Article I, Section 4 of the New York Dock conditions." Section 15, in BMWE's view,
represents an acknowledgment by BMWE that applicants may need to fine tune their operations, and a
corresponding acknowledgment by applicants that the implementing agreement process will only be used
for such fine tuning and will not be used to abrogate entire agreements, to impose regional and system
gang agreements, or to create a single system-wide CBA.
BMWE contends that we should find that the CN/IC-BMWE implementing agreement adequately addresses the interests of applicants' maintenance of way employees. BMWE further contends that, in view of this agreement, and in view also of applicants' estimate that there will be a net increase in maintenance of way forces on a unified CN/IC, the CN/IC control application should be approved.(271)
SAFETY: HAZARDOUS MATERIALS TRANSPORT CONDITIONS
Condition 1. Applicants shall comply with current Association of American Railroads (AAR) "key
train" guidelines and any subsequent revisions for a period of 5 years from the effective
date of the Board's decision. (See "Recommended Railroad Operating Practices for
Transportation of Hazardous Materials," AAR Circular No. OT-55-B.)
AAR guidelines define key trains as any trains with five or more tank carloads of
chemicals classified as a poison inhalation hazard or any train with a total of 20 rail cars
with any combination of poison inhalation hazards, flammable gases, explosives, or
environmentally sensitive chemicals. The AAR key train guidelines include measures
for a maximum operating speed of 50 mph and full train inspections by the train crew
whenever a train is stopped by an emergency application of the train air brake or
following the report of a defect by a wayside defect detector.
Condition 2. Applicants shall continue to manage the four rail line segments listed in the table below,
"Rail Line Segments that Warrant Hazardous Materials (Key Route) Mitigation," as
Key Routes for a period of 5 years from the effective date of the Board's decision.
Applicants shall certify to the Board compliance with AAR's Key Route guidelines prior
to increasing the number of rail cars carrying hazardous materials on these four rail line
segments and annually for the 5-year oversight period established by the Board. (See
"Recommended Railroad Operating Practices for Transportation of Hazardous
Materials," AAR Circular No. OT-55-B.)
Condition 3. Applicants shall distribute a copy of their current hazardous materials emergency
response plans to each local emergency response organization or coordinating body in
the communities along the four Key Route rail line segments listed in Condition No. 2
and the ten Major Key Routes rail line segments listed in Condition No. 4. Applicants
shall certify to the Board compliance with this condition within 6 months of the effective
date of the Board's decision. In addition, for a period of 3 years from the effective date
of the Board's decision, Applicants shall distribute hazardous materials emergency
response plans at least once or whenever they materially change their plans in a manner
that affects coordination with the local emergency response organizations.
Condition 4. Applicants shall work with each local emergency response organization or coordinating
body in the communities along the ten rail line segments listed in the table below, "Rail
Line Segments that Warrant Hazardous Materials Emergency Response (Major Key
Route) Mitigation," to develop a local hazardous materials emergency response plan to
be implemented in coordination with the Applicants' hazardous materials emergency
response plans. The individual plans shall be consistent with the National Response
Team Guidance documents NRT-1 (Hazardous Materials Emergency Planning Guide),
NRT-1A (Criteria for Review of Hazardous Materials Emergency Plans), and the U.S.
Environmental Protection Agency's Technical Guidance for Hazardous Analysis or
other equivalent documents that are used by the affected community's local emergency
response organization or coordinating body. Applicants shall certify to the Board
compliance with this condition within 1 year of the effective date of the Board's
Condition 5. Applicants shall implement a simulation emergency response drill or training session
with the voluntary participation of local emergency response committees or coordinating
bodies in affected communities along each Major Key Route identified in Condition 4.
Applicants shall certify to the Board compliance with this condition within 2 years of the
effective date of the Board's decision.
Condition 6. Applicants shall provide dedicated toll-free telephone numbers to the emergency
response organizations or coordinating bodies responsible for each community located
along the four rail line segments identified in Condition 2 and the ten rail line segments
identified in Condition 4. These telephone numbers shall provide access to personnel 24
hours per day, 7 days per week, at the Applicants' dispatch centers where local
emergency responders can quickly obtain and provide information regarding the
transport of hazardous materials on a given train and appropriate emergency response
procedures in the event of a train accident or hazardous materials release. Applicants
need not provide these telephone numbers to the public. Before increasing Acquisition-related hazardous materials traffic on these rail line segments, Applicants shall certify to
the Board that they have complied with this condition.
Condition 7. As requested by the U.S. Fish and Wildlife Service (FWS), Applicants shall notify and
consult with FWS and the appropriate state departments of natural resources in the event
of a reportable hazardous materials release with the potential to affect listed threatened
or endangered species.
ENVIRONMENTAL JUSTICE CONDITIONS
Condition 8. Applicants shall, with the advice and consideration of responsible local governments,
adapt and modify the local component of its required hazardous materials emergency
response plan to account for the special needs of minority and low-income populations
adjacent to or in the immediate vicinity of the rail line segments in the table below,
"Communities that Warrant Tailored Hazardous Materials Emergency Response
Mitigation." Applicants shall certify compliance with this condition within 1 year of the
effective date of the Board's decision.
Condition 9. Applicants shall provide Operation Respond software and any necessary training to the
local emergency response center serving minority and low-income populations adjacent
to or in the immediate vicinity of Applicants' rail line segments in the communities
listed in Condition 8. Applicants shall certify compliance with this condition within 1
year of the effective date of the Board's decision.
Condition 10. As agreed to by the Applicants, Applicants shall provide funds for two representatives of
the emergency response organizations from each community listed in Condition 8 to
attend a training session at AAR's Transportation Technology Center in Pueblo,
Colorado. Such funding shall include reasonable travel expenses.
Conditions 11 and 12 apply to the five Acquisition-related construction activities listed in the
table below, "Proposed Construction Projects," as appropriate, to reduce or avoid the potential for
environmental impacts resulting from the proposed CN/IC Acquisition.
Condition 11. For all proposed CN/IC Acquisition-related construction activities listed in the table
above, "Proposed Construction Projects," Applicants shall employ the Best Management
Practices presented in Attachment A, "Best Management Practices for Construction
Condition 12. For all proposed CN/IC Acquisition-related construction activities listed in the table
above, "Proposed Construction Projects," Applicants shall comply with the following
Federal, state, and/or local regulations, which have particular applicability in mitigating
potential environmental impacts:
Hazardous and Solid Waste Handling
a) Applicants shall observe all applicable Federal, state, and local regulations
regarding the handling and disposal of any waste materials, including hazardous
waste, encountered or generated during construction activities. In the event of a
hazardous waste spill resulting from proposed construction activities, the
Applicants shall implement appropriate emergency response and notification
procedures and the appropriate remediation measures as required by applicable
Federal, state, and local regulations.
b) Applicants shall transport all hazardous materials generated by all proposed
construction activities in compliance with DOT's Hazardous Materials
Regulations (49 CFR Parts 171 to 179).
c) Applicants shall dispose of all materials that cannot be reused in accordance
with applicable Federal, state, and local solid waste management regulations.
d) Applicants shall comply with all applicable Federal, state, and local regulations
to control and minimize fugitive dust emissions resulting from construction
activities. Compliance may involve the use of such control methods as spraying
water, installing wind barriers, or providing chemical treatment.
Water Resources Protection
e) Applicants shall obtain all necessary Federal, state, and local permits for the
alteration of wetlands, ponds, lakes, streams, or rivers or if a likelihood exists for
construction activities to cause soil or other materials to enter into these water
resources. Applicants also shall use Best Management Practices to minimize
other potential environmental impacts on water bodies, wetlands, and
navigation. (see Attachment A, Best Management Practices for Construction
f) Applicants shall obtain all necessary Federal, state, and local permits for
stormwater discharge, including National Pollutant Discharge Elimination
System permits, during construction activities.
Use of Herbicides
g) Applicants shall use only Environmental Protection Agency-approved herbicides
and qualified personnel or contractors for application of right-of-way
maintenance herbicides and shall limit such applications to the extent necessary
for rail operations.
SAFETY INTEGRATION CONDITIONS
Condition 13. Applicants shall comply with the Safety Integration Plan, which may be modified and
updated as necessary to respond to evolving conditions.
Condition 14. Applicants shall participate and fully cooperate with the ongoing regulatory activities
associated with the safety integration process, as described in the Memorandum of
Understanding agreed to by the Board and the Federal Railroad Administration (FRA),
with the concurrence of U.S. Department of Transportation, until FRA affirms to the
Board in writing that integration of the Applicants' systems has been completed safely
MONITORING AND ENFORCEMENT CONDITION
Condition 15. If there is a material change in the facts or circumstances upon which the Board relied in imposing specific environmental mitigation conditions in this Decision and upon petition by any party who demonstrates such material change, the Board may review the continuing applicability of its final mitigation, if warranted.
ATTACHMENT A: Best Management Practices for Construction Activities
1. Applicants shall restore any adjacent properties disturbed during right-of-way construction or
abandonment-related activities to pre-construction or pre-abandonment conditions.
2. Applicants shall encourage regrowth in disturbed areas and stabilize disturbed soils according to
standard construction practices or as required by construction permits.
3. Applicants shall use appropriate signs and barricades to control traffic disruptions during
construction or abandonment-related activities at or near any highway/rail at-grade crossings.
4. Applicants shall restore roads disturbed during construction or abandonment-related activities to
conditions required by state and local jurisdictions.
5. Applicants shall control temporary noise from construction or abandonment-related equipment
through use of work-hour controls, operation and maintenance of muffler systems on machinery,
and/or other noise reduction methods.
6. If Applicants find previously unknown archeological remains during construction or
abandonment-related activities, they shall immediately cease excavation work in the area and
contact the appropriate State Historic Preservation Office for guidance and coordination.
7. Applicants shall use appropriate technologies, such as silt screens and straw bale dikes, to
minimize soil erosion, sedimentation, runoff, and surface instability during construction or
abandonment-related activities. Applicants shall disturb the smallest area possible around any
streams and tributaries and shall consult with the appropriate state agent to properly revegetate
disturbed areas immediately following construction or abandonment-related activities.
8. Applicants shall ensure that all culverts are clear of debris to avoid potential flooding and stream
9. Applicants shall design and construct proposed construction/abandonment activities so as to
preserve effective drainage to maintain the quality of adjacent prime farmland.
10. Applicants shall use appropriate techniques to minimize potential environmental impacts on
water bodies, wetlands, and navigation, including the following specific measures:
a) If necessary, Applicants shall avoid impacts or losses to wetlands wherever possible. If
wetland impacts are unavoidable, Applicants must demonstrate that no practicable
alternatives that would avoid or further minimize impacts to wetlands are available.
Applicants shall compensate for unavoidable wetland losses at ratios determined by the
U.S. Army Corps of Engineers and FWS as to type of wetland affected on a site-by-site
b) If necessary, Applicants shall design and replicate compensatory wetlands to match as
closely as possible the specific mix of types, functions, and values of the affected
wetlands. The compensatory wetlands shall be established via the process of restoration
to the extent feasible, and they shall be located in an area as close as practicable to the
11. Applicants shall ensure that abandonment-related activities are designed to preserve land forms
and drainage patterns that may provide flood protection.
12. Applicants shall ensure that for any construction project, new lighting fixtures installed in new
parking and security areas adjacent to residential zoned areas shall be cut off or shielded to
avoid effects to residences.
13. Applicants shall compensate for trees removed during project activities. Applicants shall replace
trees with native saplings, if practicable, at a minimum ratio of 1:1, and replacement shall occur
as close as possible to the affected areas.
14. Applicants shall establish a staging area for construction equipment in environmentally
nonsensitive areas to control erosion and spills.
15. Should project activities affect previously unidentified threatened or endangered species and/or
their habitat, Applicants shall immediately cease project activities and contact the FWS and the
appropriate State Department of Natural Resources for guidance and coordination.
16. Applicants shall use established standards for recycling or reuse of construction materials such as
ballast and rail ties. When recycling construction materials is not a viable option, Applicants
shall specify disposal methods of materials, such as rail ties and potentially contaminated
surrounding soils and ballast materials, to ensure compliance with applicable solid and hazardous
17. Applicants shall develop a vibration specification for any proposed construction activities associated with the proposed CN/IC Acquisition that involve pile driving, major excavation, or demolition.
1. This decision embraces: STB Finance Docket No. 33556 (Sub-No. 1), Canadian National Railway Company, Illinois Central Railroad Company, The Kansas City Southern Railway Company, and Gateway Western Railway Company -- Terminal Trackage Rights -- Union Pacific Railroad Company and Norfolk & Western Railway Company; STB Finance Docket No. 33556 (Sub-No. 2), Responsive Application -- Ontario Michigan Rail Corporation; and STB Finance Docket No. 33556 (Sub-No. 3), Responsive Application -- Canadian Pacific Railway Company and St. Lawrence & Hudson Railway Company Limited.
2. Abbreviations frequently used in this decision are listed in Appendix A. Unless otherwise indicated, all monetary amounts referenced in this decision are stated in U.S. dollars.
3. The CN/IC control application is docketed as STB Finance Docket No. 33556.
4. CNR is a rail carrier. GTC, a holding company, is a wholly owned subsidiary of CNR. GTW, a rail carrier, is a wholly owned subsidiary of GTC, as are Duluth, Winnipeg and Pacific Railway Company (DWP, a rail carrier) and St. Clair Tunnel Company (SCTC, a rail carrier). CNR, GTC, and GTW, and their wholly owned subsidiaries (including DWP and SCTC, but excluding Illinois Central Corporation and its wholly owned subsidiaries), are referred to collectively as CN.
5. IC Corp. is a holding company, as is CCP Holdings, Inc. (CCPH, a wholly owned subsidiary of IC Corp.). ICR, a rail carrier, is a wholly owned subsidiary of IC Corp. Waterloo Railway Company (WRC, a rail carrier) is a wholly owned subsidiary of ICR. CCP (a rail carrier) and CRRC (also a rail carrier) are wholly owned subsidiaries of CCPH. IC Corp., ICR, CCP, and CRRC, and their wholly owned subsidiaries (including CCPH and WRC), are referred to collectively as IC.
6. The transaction for which approval is sought (i.e., the acquisition by CN of control of IC, and the integration of the rail operations of CN and IC) is variously referred to as the CN/IC control transaction and the CN/IC "merger." Because GTW and ICR are Class I railroads, this transaction is classified as a "major" transaction. See 49 CFR 1180.2(a) (classification of 49 U.S.C. 11323 transactions).
7. CN and IC are referred to collectively as the applicants (or, sometimes, the primary applicants). The CN/IC control application filed July 15, 1998 (CN/IC-6, -7, -8, and -9) was supplemented on August 14, 1998 (the Safety Integration Plan), September 16, 1998 (CN/IC-16, an errata filing), September 21, 1998 (the Revised Safety Integration Plan), and October 16, 1998 (CN/IC-31, supplemental support statements). See also CN-1 (redacted copies of the Alliance and Access Agreements, filed Feb. 22, 1999, by CN).
8. See also CN/IC-56B at 765-832 (statements of support by 42 additional parties, including 30 additional shippers).
9. The Kansas City Southern Railway Company and Gateway Western Railway Company, and all other wholly owned (directly or indirectly) subsidiaries of Kansas City Southern Industries, Inc., are referred to collectively as KCS. Gateway Western Railway Company is referred to separately as GWWR.
10. The KCS trackage rights application is docketed as STB Finance Docket No. 33556 (Sub-No. 1). Applicants and KCS contend that the trackage rights sought in the KCS trackage rights application are "related to" the CN/IC control transaction. See CN/IC-6 at 404.
11. CPR and St.L&H filed jointly. CPR, St.L&H, Soo Line Railroad Company (Soo), and Delaware and Hudson Railway Company, Inc. (D&H), are herein referred to collectively as CP.
12. Comments respecting the Michigan-Ontario tunnel issue raised by CP and OMR have been filed jointly by U.S. Sen. Carl Levin, U.S. Rep. John Conyers, Jr., and U.S. Rep. Carolyn Kilpatrick, and separately by John Engler (Governor of Michigan), Dennis W. Archer (Mayor of the City of Detroit, MI), Michael D. Hurst (Mayor of the City of Windsor, ON), Dewitt J. Henry (Assistant County Executive of Wayne County, MI), Paul E. Tait (Executive Director of the Southeast Michigan Council of Governments), Albert A. Martin (Director of the Detroit Department of Transportation), and W. Steven Olinek (Deputy Director of the Detroit/Wayne County Port Authority).
13. Governor Schafer, NDPSC, NDDOT, and NDDA (herein referred to collectively as North Dakota) filed jointly.
14. Exxon Chemical Americas (ECA) is a division of Exxon Chemical Company (ECC), which is itself a division of Exxon Corporation, as is Exxon Company, U.S.A. (EUSA). ECA, ECC, EUSA, and Exxon Corporation are herein referred to collectively as Exxon.
15. Rubicon and Uniroyal filed jointly.
16. Vulcan Chemicals is a business unit of Vulcan Materials Company.
17. NITL and TFI filed comments jointly. Subsequently, TFI filed a letter in lieu of a brief (TFI-2, filed Feb. 18, 1999) and NITL filed a brief (NITL-4, filed Feb. 19, 1999). Thereafter, NITL and applicants filed a "stipulation" setting forth the terms of a settlement agreement entered into by NITL and applicants. See CN/IC-65 and NITL-5 (a single pleading, filed March 17, 1999).
18. CIC and Weldwood (herein referred to collectively as Champion) filed jointly.
19. Comments respecting certain pricing practices assertedly used by Canadian lumber producers have been submitted by U.S. Senator Mike DeWine, U.S. Representative Ralph Regula, and U.S. Representative Tom Sawyer.
20. Mr. Fitzgerald serves as General Chairman for United Transportation Union-General Committee of Adjustment (GO-386) on lines of The Burlington Northern and Santa Fe Railway Company (BNSF).
21. Applicants have made, both in their written submissions and also at the oral argument that was held on March 18, 1999, various representations. Some of these representations are specifically referenced in this decision; others, however, may not be specifically referenced. Applicants will be required to adhere to all of the representations made on the record during the course of this proceeding, whether or not such representations are specifically referenced in this decision.
22. New York Dock Ry. -- Control -- Brooklyn Eastern Dist., 360 I.C.C. 60 (1979), aff'd sub nom. New York Dock Ry. v. ICC, 609 F.2d 83 (2d Cir. 1979).
23. The St. Clair Tunnel (so called because it crosses the St. Clair River) links Port Huron, MI, and Sarnia, ON. The St. Clair Tunnel is also known as the Sarnia Tunnel. See CN/IC-56A at 152.
24. Applicants have indicated, however, that they intend to preserve IC's separate corporate identity. See CN/IC-6 at 119.
25. Applicants indicate: that existing shipper contracts with CN and IC will be honored by the combined CN/IC and will not be altered by the terms of the CN/IC control transaction, see CN/IC-6 at 140; and that rail passenger operations will not be significantly affected by the CN/IC control transaction, see CN/IC-7 at 112-13 and 162-69.
26. Applicants claim that a core element of the customer benefits to be derived from the CN/IC control transaction will be extended single-line service and the consequent expanded market reach, and enhanced length-of-haul efficiencies.
27. Applicants, which intend to provide shippers with a choice of St. Louis, Memphis, and New Orleans for interchange with UP, BNSF, NS, and CSX Transportation, Inc. (CSX), claim that the new routing options made possible by the CN/IC control transaction will intensify competition: with existing interline routes involving CP, UP, BNSF, and CSX; and also with the single-line routes of NS and CSX.
28. Applicants claim that the CN/IC control transaction will enable the combined CN/IC system to reduce congestion in Chicago by using more run-through trains and by blocking more trains to the north and south of that rail hub.
29. Applicants claim that, because there are few redundancies between the CN and IC systems, the benefits of integrating CN and IC rail operations flow largely from the single-line service, the improved coordination, and the greater length-of-haul efficiencies that are possible with a single operator.
30. The $1.821 billion figure represents the out-of-pocket cost (i.e., $39 per share, plus related fees and expenses) of acquisition of the approximately 75% of the then outstanding IC Corp. common stock that was acquired in connection with the cash tender offer consummated on March 14, 1998. The $1.821 billion figure does not include the non-cash cost of acquisition of (i.e., the "cost" of the approximately 10.1 million CNR common shares given in exchange for) the remaining 25% of IC Corp. common stock that was acquired in connection with the merger consummated on June 4, 1998.
31. These transactions were provided for in the Agreement and Plan of Merger (as subsequently amended, the Merger Agreement) entered into on February 10, 1998, by CNR, Blackhawk Merger Sub, Inc. (Merger Sub, an indirect wholly owned CNR subsidiary), and IC Corp. See CN/IC-9 at 1-104 (the Merger Agreement) and at 105-08 (Amendment No. 1 to the Merger Agreement).
32. The tender offer resulted in the acquisition, by Merger Sub, of 46,051,761 shares of IC Corp. common stock (approximately 75% of the then outstanding IC Corp. common stock) at a price of $39.00 per share.
33. The merger was between IC Corp. and Merger Sub, with IC Corp. being the surviving corporation. In connection with the merger, there was an exchange of the remaining 25% of IC Corp. common stock for approximately 10.1 million common shares of CNR (which represented 10.3% of CNR's post-merger outstanding common shares on a fully diluted basis).
34. See CN/IC-9 at 109-21 (the voting trust agreement).
35. The voting trustee is The Bank of New York.
36. Applicants have indicated: that ICR, CCP, and CRRC remain under the control of their respective boards of directors; and that each present ICR, CCP, and CRRC director either was elected prior to the establishment of the voting trust or was appointed by directors who themselves were elected prior to the establishment of the voting trust.
37. The trust certificate for all IC Corp. stock held by the voting trust is currently held by GTC.
38. See CN/IC-9 at 112-13.
39. Applicants expect to complete full integration of CN and IC rail operations within 3 years.
40. Applicants have indicated that they have no plans to transfer to Canada any dispatching functions presently performed in the United States. Applicants have further indicated that, if they develop such plans at some future time, they will do so only after appropriate consultation with the Federal Railroad Administration (FRA). See CN/IC-56A at 198.
41. Applicants claim that the CN/IC control transaction will require only modest adjustments to collective bargaining agreements (CBAs), seniority districts, seniority rosters, and crew change points. These adjustments, applicants contend, will primarily involve coordination and integration of applicants' combined operations in the Chicago area, and consolidation and integration of functions such as locomotive repair and train dispatching, and also certain general and administrative functions. See CN/IC-7 at 199-207 (Operating Plan, Appendix A: Projected Seniority, Agreement, and Territory Changes Required for the Operating Plan). Applicants add, however, that additional adjustments to existing CBAs (i.e., adjustments beyond those referenced in Appendix A to the Operating Plan) may be necessary as circumstances change, as new traffic and shipping patterns made possible by the CN/IC control transaction evolve, and as applicants acquire experience in operating the combined CN/IC system. See the later discussion of the Board's views on the CBA issue.
42. Norfolk and Western Ry. Co. -- Trackage Rights -- BN, 354 I.C.C. 605 (1978), as modified in Mendocino Coast Ry., Inc. -- Lease and Operate, 360 I.C.C. 653 (1980), aff'd sub nom. RLEA v. ICC, 675 F.2d 1248 (D.C. Cir. 1982).
43. KCS's principal routes extend from Kansas City, MO/KS, via Shreveport, LA, to Beaumont/Port Arthur, TX, Lake Charles, LA, and New Orleans, LA. Other routes extend: between Dallas, TX, and Shreveport, LA; between Shreveport, LA, and Meridian, MS; between Jackson, MS, and Gulfport, MS; and between Meridian, MS, and Birmingham, AL. KCS's GWWR subsidiary operates between Kansas City, KS, and Springfield, IL, and has haulage rights over UP between Springfield, IL, and Chicago, IL. See Kansas City Southern Industries, Inc., KCS Transportation Company, and The Kansas City Southern Railway Company -- Control -- Gateway Western Railway Company and Gateway Eastern Railway Company, STB Finance Docket No. 33311, slip op. at 2-3 (STB served May 1, 1997) (KCS/GWWR).
44. See CN/IC-57 at 253-67; KCS-18 at 7-22. See also CN/IC-57 at 269-72 (the first amendment to the Alliance Agreement); KCS-18 at 23-26 (same).
45. See CN/IC-57 at 273-87; KCS-18 at 27-41. IC will not become a party to the Access Agreement until such time as the CN/IC control transaction is approved by the Board and implemented by CN and IC.
46. "We agree with applicants and KCS that the Alliance and Access agreements are bona fide settlement agreements; these agreements represent the price that applicants had to pay to secure KCS's support for the CN/IC application." See Decision No. 12, slip op. at 7.
47. As indicated in the text, we shall refer to the Alliance Agreement and the Access Agreement as two separate agreements (although we recognize that portions of the Access Agreement amount to an addendum to the Alliance Agreement).
48. The Alliance Agreement was effective on April 15, 1998.
49. Although applicants sometimes refer to the Alliance as a "Marketing Alliance," see, e.g., CN/IC-6 at 142, that description does not quite capture the full scope of the Alliance.
50. The Alliance will use two main gateways for interchange: Springfield, IL, for traffic moving between CN territory or northern IC territory, on the one hand, and, on the other, Midwest KCS territory; and Jackson, MS, for traffic moving between CN territory or IC territory, on the one hand, and, on the other, southern KCS territory or The Texas Mexican Railway Company (Tex Mex) territory or Mexico. See CN/IC-6 at 143-44; CN/IC-57 at 256-57. The Alliance will also maintain, for certain traffic, a KCS/IC connection at East St. Louis, see CN/IC-6 at 186 (the reference here is only to St. Louis, but apparently to a KCS/IC connection at East St. Louis, see CN/IC-56A at 212-17), and may establish one or more additional interchange points as well, see CN/IC-57 at 257-58.
51. Such U.S. markets include Kansas City, KS/MO, Dallas, TX, Shreveport, LA, and Port Arthur, TX.
52. The two KCS affiliates, which connect at Laredo, TX, are: Tex Mex, which operates in Texas between Laredo and Beaumont; and Transportación Ferroviaria Mexicana, S.A. de C.V. (TFM), which operates the largest rail system in Mexico. Mexican markets accessed by TFM include Monterey, Mexico City, and Veracruz, and (on the Pacific Coast) Lazaro Cardenas.
53. Applicants note that the Alliance extends from Canada through the United States to Mexico.
54. Applicants have indicated that the Access Agreement "becomes effective upon the implementation of the [CN/IC control transaction], as authorized by the Board." See CN/IC-6 at 144. This statement is not entirely accurate. As respects the haulage and trackage rights, the Access Agreement will indeed become effective upon implementation of the CN/IC control transaction (except that KCS's access to the chemical plants at Geismar may begin at an even later date, as noted below); but, as respects the new investments, the Access Agreement, like the Alliance Agreement which it supplements as respects such new investments, was effective on April 15, 1998. See CN/IC-57 at 280 (effective date of the Access Agreement, in general) and at 273-74 (effective date of the haulage and trackage rights, in general).
55. The Access Agreement includes additional provisions not noted here. See, especially, CN/IC-57 at 274-75.
56. The three shippers are BASF Corporation (BASF), Borden Chemicals and Plastics Ltd. (Borden), and Shell Corporation (Shell). The Access Agreement contemplates that KCS's access to these shippers will begin on the later of two dates: (1) the date the CN/IC control transaction is implemented and no longer subject to legal challenge; or (2) October 1, 2000. Applicants, noting that KCS has heretofore advanced a proposal to construct a build-in line to obtain access to the three Geismar shippers, see Kansas City Southern Railway Company -- Construction and Operation Exemption -- Geismar Industrial Area Near Gonzales and Sorrento, LA, Finance Docket No. 32530 (STB served Aug. 27, 1998) (ordering the build-in proceeding held in abeyance pending service of a final decision in the CN/IC control proceeding), claim that the Access Agreement will permit access to the three shippers and, at the same time, will save the substantial cost and avoid the environmental impact of a build-in. KCS, however, has indicated that, the Access Agreement notwithstanding, it would like to preserve the competitive option of a Geismar build-in line. See KCS-17 at 69.
57. The Access Agreement provides a procedure whereby KCS's Geismar haulage rights may be converted into trackage rights, if the quality of the services CN/IC provides KCS and its customers is not equal to the quality of the services CN/IC provides with respect to similar movements for its own customers.
58. These trackage rights will enable KCS to operate its own trains directly from Jackson, MS, to Gulfport, MS.
59. These haulage rights will enable KCS to serve the Port of Mobile and to connect with CSX at Mobile.
60. These haulage rights will allow CN/IC customers to reach the Port of Gulfport.
61. KCS, however, has suggested that, if we rule that the Alliance and Access Agreements are subject to our jurisdiction, we should, on the present record, exempt such agreements pursuant to 49 U.S.C. 10502. See KCS-17 at 54 n.29 and 57 n.30.
62. Applicants estimate that the $248.1 million in total annual CN/IC gross revenues from traffic diversions will be offset by $157.8 million in total annual CN/IC incremental costs attributable to traffic diversions. Applicants concede that the difference (i.e., CN/IC's total annual net revenue gain of $90.3 million) must be viewed as a private benefit (not a public benefit) of the CN/IC control transaction. See CN/IC-56A at 542.
63. Applicants have also projected: approximately $68.1 million in total annual KCS gross revenues from rail-to-rail diversions; and approximately $15.9 million in total annual Tex Mex gross revenues from rail-to-rail diversions. See CN/IC-56B at 561.
64. The port diversions are attributable to two ports: Halifax, NS, and Montreal, PQ. See CN/IC-6 at 207.
65. In contrast, benefits to the combining carriers that result from traffic diversions from other carriers and that do not arise from merger-enhanced market power are generally private benefits to the combining carriers that do not add or subtract from public benefits. Benefits to the combining carriers resulting from increased market power are exclusively private benefits that detract from any public benefits associated with a control transaction. See, e.g., Rio Grande Industries, et al. -- Control -- SPT Co., et al., 4 I.C.C.2d 834, 875 (1988) (DRGW/SP).
66. In making our competitive findings under section 11324(b)(5), we do not limit our consideration of competition to rail carriers alone, but examine the total transportation market(s). See Central Vermont Ry. v. ICC, 711 F.2d 331, 335-37 (D.C. Cir. 1983).
67. See Railroad Consolidation Procedures, 363 I.C.C. 784, (1981).
68. We are also guided by the rail transportation policy, 49 U.S.C. 10101, added by the Staggers Rail Act of 1980, and amended by the ICC Termination Act of 1995 (ICCTA or the Act). See Norfolk Southern Corp. -- Control -- Norfolk & W. Ry Co., 366 I.C.C. 171, 190 (1982) (NS Control). That policy emphasizes reliance on competition, not government regulation, to modernize railroad operations and to promote efficiency. H.R. Rep. No. 96-1430, 96th Cong., 2d Sess. 88 (1980), reprinted in 1980 U.S.C.C.A.N. 4110, 4119.
69. Under this standard, we may disapprove transactions that would not violate the antitrust laws and approve transactions even if they otherwise would violate the antitrust laws. United States v. ICC, 396 U.S. 491, 511-14 (1970) (Northern Lines Merger Cases). Moreover, because of our broad conditioning power and our continuing jurisdiction, we may approve transactions with conditions in cases where the antitrust enforcement agencies would either disapprove or approve only following substantial divestiture. Accord Minneapolis & St. L. Ry. Co. v. United States, 361 U.S. 173 (1959); Bowman Transportation v. Arkansas-Best Freight, 419 U.S. 281, 298 (1974); Port of Portland v. United States, 408 U.S. 811, 841 (1972); Northern Lines Merger Cases, 396 U.S. at 514; Denver & R.G.W.R. Co. v. United States, 387 U.S. 485 (1967).
70. We also impose conditions as appropriate to carry out our obligations under various environmental statutes, and to carry out our statutory obligations to protect the interests of affected employees. These are discussed in later sections.
71. Burlington Northern, Inc. -- Control & Merger -- St. L., 360 I.C.C. 788, 952 (footnote omitted) (1980) (BN/Frisco); see also Union Pacific Corporation, Union Pacific Railroad Company and Missouri Pacific Railroad Company -- Control -- Chicago and North Western Transportation Company and Chicago and North Western Railway Company, Finance Docket No. 32133, Decision No. 25 (ICC served Mar. 7, 1995) (UP/CNW), slip op. at 97.
72. See UP/CNW, slip. op. at 97; Milwaukee -- Reorganization -- Acquisition by GTC, 2 I.C.C.2d 427, 455 (1985) (Soo/Milwaukee II). If, for example, the harm to be remedied consists of the loss of a rail option, any conditions should be confined, where possible, to restoring that option rather than creating new ones. See Soo/Milwaukee II, 2 I.C.C.2d at 455; Union Pacific -- Control -- Missouri Pacific; Western Pacific, 366 I.C.C. 462, 564 (1982) (UP/MP/WP). Moreover, conditions are not warranted to indemnify competitors for revenue losses absent a showing that essential service would be impaired. BN/Frisco, 360 I.C.C. at 951.
73. Nor is the Alliance Agreement a pooling arrangement that requires our approval under 49 U.S.C. 11322.
74. CP's claims to the contrary notwithstanding, we see no need to initiate an investigation with respect to the Alliance Agreement. The CPR-17 petition (discussed in detail in Appendix C) will therefore be denied. Because the denial of the CPR-17 petition moots the KCS-13 motion (also discussed in detail in Appendix C), that motion will also be denied.
75. UP and Exxon have urged that the Alliance Agreement must be treated as a transaction resulting in common control because of statements by various executives of the participating railroads that the Alliance carriers will provide the equivalent of single-line service. This promotional hyperbole should not be viewed as evidence that the Alliance is tantamount to a merger.
76. UP's shares of CNW were non-voting, but were convertible into voting common stock at UP's request.
77. See Union Pacific Corporation, Union Pacific Railroad Company, and Missouri Pacific Railroad Company -- Control and Merger -- Southern Pacific Rail Corporation, Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company, Finance Docket No. 32760, Decision No. 44 (STB served Aug. 12, 1996) (UP/SP).
78. This also includes all carriers that the Alliance members control.
79. Any attempts at price-signaling activities for competitive traffic under the guise of interline ratemaking will continue to remain subject to the antitrust laws.
80. Neither UP nor Exxon contended at the oral argument that the Alliance Agreement is a pooling agreement.
81. The Rail Cost Adjustment Factor, or RCAF, was established in the Staggers Act to track quarterly changes in railroad costs. While its initial purpose was to protect from challenge on rate reasonableness grounds rail tariff rate increases that reflected no more than increased costs, it has come to be used by many railroads and shippers as an aide in setting contractual terms. The Board publishes several RCAF series. RCAF-U measures changes in the cost of railroad inputs, unadjusted for productivity change. RCAF-A is formed by adjusting the RCAF-U index to reflect changes in railroad productivity. See 49 U.S.C. 10708.
82. At oral argument, Exxon argued that this condition is superfluous because Exxon acknowledges that rates have been going down in recent years, and it expects them to continue to go down. Exxon claims that the condition is anticompetitive because it will somehow facilitate tacit collusion to limit these ongoing price decreases. The condition serves only as a limit on rate increases. It is not an agreement between applicants and KCS to impose increases at these levels. Such an agreement would seem to be a violation of the antitrust laws.
83. According to the stipulation, absent our approval of the agreement as a condition to our approval of the CN/IC transaction, shippers affected by any of the agreement's provisions are to be third-party beneficiaries. The stipulation also indicates that the agreement is to be governed by the law of the District of Columbia.
84. OMR and CP filed separate responsive applications in this proceeding: STB Finance Docket No. 33556 (Sub-No. 2), Responsive Application--Ontario Michigan Rail Corporation; and STB Finance Docket No. 33556 (Sub-No. 3), Responsive Application -- Canadian Pacific Railway Company and St. Lawrence & Hudson Railway Company Limited.
85. As previously noted, the following political representatives filed comments regarding the Detroit River Tunnel issue raised by CP and OMR: U.S. Senator Carl Levin, U.S. Representative John Conyers, Jr., and U.S. Representative Carolyn Kilpatrick (joint statement); John Engler (Governor of Michigan); Dennis W. Archer (Mayor of the City of Detroit, MI); Michael D. Hurst (Mayor of the City of Windsor, ON); Dewitt J. Henry (Assistant County Executive of Wayne County, MI); Paul E. Tait (Executive Director of the Southeast Michigan Council of Governments); Albert A. Martin (Director of the Detroit Department of Transportation); and W. Steven Olinek (Deputy Director of the Detroit/Wayne County Port Authority).
86. Although CP objects that this construction was completed solely with financing that it provided, it agreed to finance the construction and fully expected the loan to be repaid from DRT revenues.
87. At oral argument, OMR conceded that divestiture of the CASO lines was not essential to the relief it seeks.
88. No proposal to improve the DRT has been presented by CP.
89. Specifically, we accept CN's commitment "not to exercise unfairly any 'rights' it may have under the Partnership Agreement to oppose any proposed Tunnel improvement project that has sufficient engineering, operational and economic merit to attract the necessary capital for its construction without derogating the value of CN's existing investment in the Partnership." CN/IC-56A at 158.
90. DOT suggests, as one reason for denying these divestiture requests, that for CN to block needed tunnel improvements merely to disadvantage CP would be a violation of the antitrust laws.
91. CP controls operations at other facilities jointly used by CP and CN. Reciprocity in the fair and efficient handling of such traffic would seem to be in both carriers' interests.
92. In any event, we do not believe that turning over ownership of this crucial facility and substantial trackage in Canada to a new untested operator, such as OMR, would improve the prospect of necessary capital improvements or be in the public interest. We note that CP opposes OMR's responsive application.
93. We note that the dollar value of cross-border rail flows through the Detroit gateway today significantly exceeds that flowing through the Port Huron gateway.
94. The term "paper barriers" refers to clauses in contracts for the sale or lease of rail lines to shortline carriers by which Class I carrier sellers seek to ensure that the traffic originated or terminated by shortline carriers on the segments (sold or leased) continues to flow over the lines of the seller to the maximum extent possible. BNSF, slip op. at 17, 94.
95. In a letter dated April 12, 1999, from DOJ's Antitrust Division, the Chief of the Transportation, Energy, and Agriculture Section states that DOJ has referred the allegations to the Federal Trade Commission.
96. According to a recent CN press release, the applicants also have negotiated an implementing agreement with the Brotherhood of Railway Carmen Division of TCU, resulting in applicants' having now signed implementing agreements (in one case, a letter of commitment) with unions representing 67% of the organized work force of CN and IC in the United States.
97. BLE has made allegations about premature consummation. We note that all employees are protected against adverse consequences of any actions taken in anticipation of the merger by Article I, section 10 of New York Dock.
98. Several unions have asked that we make a declaration that it would never be appropriate for an arbitrator to override an entire CBA, and impose another one. We caution the arbitrators that, under the law as limited recently by the Board, they are constrained to make only those CBA changes that are necessary to permit the carrying out of the transaction. CSX Corp. -- Control -- Chessie System and Seaboard Coast Line Industries (Arbitration Review), Finance Docket No. 28905 (Sub-No. 22) (STB served Sept. 25, 1998) (Carmen III). This decision limits any CBA changes to those made by arbitrators during the period 1940 - 1980.
99. To the extent that these unions and applicants have asked us to impose their agreements as conditions, we will do so. See UTU-10 and BMWE-6 (discussed in detail in Appendix D). See also IBEW-8, filed Apr. 22, 1999 (request by IBEW, made with the consent of applicants, for adoption of the two implementing agreements entered into by IBEW and applicants).
100. It appears that the particular benefits that concern these unions are actually included in CBAs negotiated as part of the implementing process or thereafter.
101. As noted, due to the end-to-end nature of the proposed combination, applicants themselves have acknowledged that implementation of the CN/IC control transaction will require at the most only modest adjustments to existing CBAs.
102. Although applicants noted at oral argument that New York Dock protections would not be forfeited if an employee could show, as a matter of fact, that he or she was precluded from moving to Canada by Canadian immigration law, we do not believe that employees should be required to make that showing.
103. Crounse Corp. v. ICC, 781 F.2d 1176, 1192-93 (6th Cir. 1986), cert. denied, 479 U.S. 890 (1986); Missouri-Kansas-Texas R. Co. v. United States, 632 F.2d 392, 410-12 (5th Cir. 1980), cert. denied, 451 U.S. 1017 (1981); Lamoille Valley R. Co. v. ICC, 711 F.2d 295, 323-24 (D.C. Cir. 1983); Southern Pacific Transp. Co. v. ICC, 736 F.2d 708, 725 (D.C. Cir. 1984), cert. denied, 469 U.S. 1208 (1985); and Railway Labor Executives' Ass'n v. ICC, 914 F.2d 276, 280-81 (D.C. Cir. 1990).
104. IAM asked at oral argument that we retain oversight over the Alliance so that, if it results in common control of applicants and KCS, we would impose New York Dock conditions. If these parties are forced to seek, and we approve, control, then New York Dock conditions will be imposed for the protection of employees.
105. BLE contends that we should defer any approval of this proceeding until issuance by the Board and FRA of final rules in Regulations on Safety Integration Plans Governing Railroad Consolidations, Mergers, Acquisition of Control, and Start Up Operations, Etc., STB Ex Parte No. 574 (STB served Dec. 24, 1998). BLE asks that we defer action so that the rules developed in that case can be applied in this proceeding. This is unnecessary because the process proposed in Ex Parte No. 574 already is being followed here.
106. "Normal year" refers to a year of operations after the third full year following completion of the transaction.
107. As we explained in CSX/NS/CR, slip op. at 52, "the clear trend since 1980 has been that railroad efficiencies achieved through mergers or other means have been largely passed along to shippers in the form of lower rates and improved service."
108. These data are from CN/IC-7 and CN/IC-56A, R.V.S. Kent & Klick.
109. R.V.S. Kent & Klick, CN/IC-56A (Vol. 1A) at 536.
110. Neither the ICC nor the Board has ever followed this approach in calculating merger benefits.
111. V.S. Woodward & Rogers, CN/IC-7 (Vol. 2) at 1-63.
112. V.S. Bryan, CN/IC-7 (Vol. 2) at 66-100.
113. V.S. Littzen, CN/IC-6 (Vol. 1) at 206-211 (Appendix A).
114. Alternatively, applicants ask that we override any consent requirements in the underlying trackage rights agreements between GWWR and UP.
115. The unrestricted Springfield connection with KCS sought here would, within the context of the primarily north-south orientation of this merger, result in a relatively small increase in CN-IC/KCS east-west traffic. Applicants have explained that their new Springfield interchange will be used for traffic moving between CN and northern IC territory, on the one hand, and Midwestern United States KCS territory. And applicants' post-transaction traffic density charts, premised on a grant of this trackage rights application, show that only around 15% of new traffic moving into and out of Chicago on IC routings will use the Springfield interchange with KCS.
116. Section 11102(a) also requires us to find that any trackage rights so granted are practicable and in the public interest without substantially impairing the ability of the owning carrier to handle its own business.
117. See 49 CFR 1144; Intramodal Rail Competition, 1 I.C.C.2d 822 (1985), aff'd, Baltimore Gas & Elec. Co. v. United States, 817 F.2d 108 (D.C. Cir. 1987); Midtec Paper Corp. v. Chicago & N. Western Transp. Co., 3 I.C.C.2d 171 (1986), aff'd sub nom. Midtec Paper Corp. v. United States, 857 F.2d 1487 (D.C. Cir. 1988) (terminal trackage rights application requires at least the showing necessary to justify reciprocal switching under 49 CFR 1144).
118. With respect to new or rerouted Alliance Agreement train movements between the Southwest and the Chicago Switching District, applicants project that a total of 12 train movements will be created. Although all of these trains could move via Springfield, applicants indicate that only two will do so. The remaining ten will move primarily via Jackson.
119. IC also has trackage rights over the segment. As UP noted at oral argument, IC's rights are unrestricted, and nothing in the Ridgely Agreement restrains IC's use.
120. SEA noted that this is an end-to-end consolidation, which involves only relatively minor changes in rail operations, no rail line abandonments, and only five minor construction projects.
121. On November 24, 1998, SEA issued to the public an Errata to the Draft EA containing updated and clarifying information.
122. To facilitate public review and comment on this important issue, the Draft EA included the complete SIP, FRA's comments on the SIP, and the MOU. SEA also reviewed the SIP.
123. The seminal ICC decision regarding modification of CBAs -- the so-called "DRGW" decision -- was made in 1983 and adopted by the Supreme Court, in the so-called "Dispatchers" case, in 1991. The case establishing the duration of the change period--the CSX Sub-23 decision--was decided by the ICC in 1992, and affirmed by the D.C. Circuit Court of Appeals in 1994.
124. In my letter to Senators McCain and Hutchison dated December 21, 1998, reporting on the Board's rail access and competition proceeding, I suggested that Congress may wish to change the law governing the override of CBAs.
125. Indeed, in resolving the last outstanding labor implementation dispute in the Conrail acquisition proceeding, the International Association of Machinists and Aerospace Workers credited a Chairman's stay as enabling the parties to reach an agreement.
126. Applicants have stated that a limited number of employees in particular crafts and geographic areas may be adversely affected by the transaction. While applicants expect that the transaction will create 384 new positions over the 3-year implementation period, they also anticipate the abolishment of 311 positions and the transfer of 138 positions. Applicants state, however, that most of these job losses should be achieved through attrition.
127. The record contains three maps that depict past and present rail lines in Springfield. See CN/IC-6 at 423 (map submitted by applicants and KCS); UP-8, Tab C, Ex. 1 (map submitted by UP); NS-8, Tab D, Figure 1-10 (map submitted by NS prior to the withdrawal of its NS-8 comments).
128. IC Connection, which is also known as Old KC Jct. and which, in the mid-1980's, was apparently known as KC Jct., is located at or near MP 187.8.
129. IC's Avenue Yard is located approximately 3.5 miles north of IC Connection, on a north-south IC line that passes through Springfield and that was not acquired by CMW. The IC Connection-Brickyard Junction tracks run west-east between IC Connection (at or near MP 187.8) and Brickyard Junction (at or near MP 186.1); the Brickyard Junction-Avenue Yard tracks are part of the north-south line itself.
130. CMW was, by this time, in bankruptcy. For ease of reference, however, we will refer to agreements entered into by CMW's Trustee as if they had been entered into by CMW itself.
131. Norfolk & Western Railway Company was known as N&W.
132. IC was a party to the August 1989 agreement even though that agreement does not appear to have involved the relocation of any tracks owned by IC. IC's participation in the August 1989 agreement apparently reflected the fact that it had trackage rights over the eastern end of the Kansas City-Springfield line.
133. The CMW tracks were at the eastern end of the Kansas City-Springfield line, between approximately MP 191.1 and IC Connection. The N&W tracks ran roughly parallel to, and a few city blocks north of, the CMW tracks.
134. Iles (sometimes spelled "Isles") lies a short distance (perhaps four or five city blocks) north of IC Connection. There appears to be, in the vicinity of Iles, a short gap (perhaps no more than a city block in length) in the Chicago-Springfield-East St. Louis line that is bridged by trackage rights over the N&W (now the NS) line. This gap and these trackage rights apparently existed prior to 1989.
135. See Rio Grande Industries, et al. -- Pur. & Track. -- CMW Ry. Co., 5 I.C.C.2d 952 (1989) (RGI/CMW).
136. See CN/IC-6 at 424-38.
137. See CMW Acquisition Corp. -- Acquisition and Operation Exemption -- Lines of Chicago, Missouri and Western Railway Company Between Kansas City, MO, and Cockrell and East St. Louis, IL, Finance Docket No. 31567 (ICC served Dec. 15, 1989). See also KCS-17 at 104.
138. The vacated N&W tracks were subsequently removed, as were the vacated SPCSL (formerly CMW) tracks, in each case with the understanding that the rights of way would eventually be transferred to the local authorities.
139. See SPCSL Corp. -- Trackage Rights Exemption -- Norfolk and Western Railway Company, STB Finance Docket No. 33351 (STB served Feb. 12, 1997).
140. See Union Pacific Corporation, Union Pacific Railroad Company, and Missouri Pacific Railroad Company -- Control and Merger -- Southern Pacific Rail Corporation, Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company, Finance Docket No. 32760, Decision No. 44 (STB served Aug. 12, 1996) (UP/SP).
141. The 100th meridian is the arc of longitude that lies 100 west of the prime meridian, which is itself the arc of longitude that passes through Greenwich, England. The 100th meridian appears on a map of the United States as a north-south line running through North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, and Texas.
142. See CN/IC-6 at 439-41. The November 1996 amendments reflect amendments initially made in an agreement between GWWR and SPCSL in December 1993. See CN/IC-6 at 408 n.5; UP-8, Tab D at 9.
143. See Kansas City Southern Industries, Inc., KCS Transportation Company, and The Kansas City Southern Railway Company -- Control -- Gateway Western Railway Company and Gateway Eastern Railway Company, STB Finance Docket No. 33311 (STB served May 1, 1997) (KCS/GWWR).
144. See Union Pacific Corporation, Union Pacific Railroad Company, and Missouri Pacific Railroad Company -- Control and Merger -- Southern Pacific Rail Corporation, Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company, Finance Docket No. 32760, Decision No. 74, slip op. at 1 n.3 (STB served Aug. 29, 1997).
145. See Norfolk Southern Railway Company -- Merger Exemption -- Norfolk and Western Railway Company, STB Finance Docket No. 33648 (STB served Aug. 31, 1998).
146. The segment between MP 192.4 and New KC Jct. is known as the Airline Block and is approximately 1.8 miles in length.
147. The segment between New KC Jct. and Hazel Dell is approximately 1.7 miles in length.
148. The segment between Hazel Dell and IC Connection is approximately 1.1 miles in length.
149. The record is not entirely clear as to the source of GWWR's trackage rights over IC's tracks between IC Connection and Brickyard Junction, and between Brickyard Junction and Avenue Yard. The context suggests, however, that these trackage rights were acquired by GWWR (then known as CMW Acquisition Corp.) from CMW in January 1990.
150. GWWR can access IC's Avenue Yard via two partially overlapping routes: the Brickyard Junction route; and an apparently rarely used backup route (not heretofore referenced) which runs via Ridgely Yard. The Brickyard Junction route entails operation by GWWR over UP tracks between MP 192.4 and New KC Jct., over NS tracks between New KC Jct. and Hazel Dell, over UP tracks between Hazel Dell and IC Connection, and over IC tracks between IC Connection and Avenue Yard (via Brickyard Junction). The Ridgely Yard route entails operation by GWWR over UP tracks between MP 192.4 and New KC Jct., over NS tracks between New KC Jct. and Hazel Dell, over either NS or UP tracks between Hazel Dell and Iles, over UP tracks between Iles and Ridgely Yard, and over I&M (Illinois & Midland Railroad, Inc., formerly the Chicago & Illinois Midland Railroad Company) tracks between Ridgely Yard and Avenue Yard (although the record is not entirely clear as to the source of GWWR's trackage rights over the I&M line between the two yards). The Brickyard Junction route is preferred because it is a head-on move, whereas the Ridgely Yard route requires GWWR either to run the locomotive around the train at Ridgely Yard or to shove the train on the I&M tracks from Ridgely Yard to Avenue Yard.
151. Section 1, as amended in 1996, provides that the rights granted CMW (now GWWR) under the Ridgely Agreement are solely for the purpose of interchanging cars with SPCSL and facilitating interchanges with IC, I&M, and NS, "of traffic not moving to, from, or via the Chicago Switching District, provided, however, that User [i.e., GWWR] and its affiliates shall have the right to interchange or to connect with IC, and IC's successors or assigns, at Springfield, Illinois for all traffic moving to, from or via the Chicago Switching District, provided that such traffic is originated or terminated (a) on User or its corporate affiliates as they existed on December 20, 1993, (b) at stations west of the 100th meridian which were not served by Owner [i.e., SPCSL] or its corporate affiliates as they existed on December 20, 1993, (c) at stations in Missouri, Arkansas or Oklahoma which were not served by Owner or its corporate affiliates as they existed on December 20, 1993, or (d) in the Kansas City, Missouri or Kansas City, Kansas switching districts. The rights granted hereby may not be used to carry any traffic which originates, terminates, or is forwarded or is received within or moves via the Chicago Switching District (other than, as referenced above, on a joint-line basis with SPCSL interchanging at Ridgely Yard or under haulage arrangements with SPCSL whereby SPCSL physically transports the traffic to or from the Chicago Switching District, as contemplated by a separate agreement of even date herewith [i.e., November 1989] between the parties hereto)." See CN/IC-6 at 425 (the 1989 agreement) and at 440 (the 1996 amendment). See also UP-8 at 71 (the "separate agreement" gave GWWR commercial access via SPCSL to Chicago and Chicago connecting railroads).
152. Section 12, as amended in 1996, provides: "Except as provided in Section 1, if User [i.e., GWWR] (or any successor to User's interest in the Roodhouse-Kansas City Line) [Roodhouse, IL, is a point on the Kansas City-Springfield line] or any affiliate thereof at any time obtains any access (other than through interchange with Owner [i.e., SPCSL] or haulage by the Owner) to serve or move through the Chicago Switching District to, from or via Springfield or its environs (which for this purpose will mean any place within 25 miles of Springfield), whether by trackage, haulage, voluntary coordination or any other means, or enters into any other agreement or takes any other action which is inconsistent with using Owner as User's sole connecting carrier for traffic moving to, from or via the Chicago Switching District to, from or via Springfield or its environs, this Agreement and the trackage rights and other rights provided herein shall terminate forthwith. If there is any material noncompliance with the limitations on traffic for which the trackage rights provided herein may be used or with the other limitations on use specified herein, this Agreement and the trackage and other rights provided herein shall terminate forthwith." See CN/IC-6 at 431-32 (the 1989 agreement) and at 440 (the 1996 amendment).
153. Applicants and KCS note that we are being asked to impose the rights GWWR already has "free of [the] contractual limitations" to which they are presently subject. See CN/IC-6 at 410. Applicants and KCS add: that, except as indicated, no changes in existing agreements for control of the tracks at issue are anticipated; that UP and NS will continue to maintain and dispatch their own tracks; that GWWR will continue to operate on those tracks as a tenant; that through train service is all that is contemplated by the KCS trackage rights application; that GWWR does not seek the right to serve any industries it does not already have access to serve; and that GWWR does not seek to perform switching or blocking operations over the rail lines of either UP or NS.
154. Applicants and KCS claim that, within the railroad industry, Springfield is generally considered a terminal area.
155. KCS argues that GWWR will be CN/IC's only neutral connection at Springfield for traffic originating/terminating in Kansas City and moving in the Kansas City-Chicago corridor to/from CN points beyond Chicago. KCS concedes that UP and NS will also be able to provide Kansas City-Springfield connections for CN/IC, but claims that these connections will not be "neutral" (because UP and NS operate their own Kansas City-Chicago routes, and will therefore prefer to interchange traffic in Chicago, and not in Springfield). See KCS-17 at 114-16.
156. Applicants and KCS claim that additional trains could be accommodated on the existing trackage, without disrupting operations or necessitating the construction of additional facilities.
157. Applicants and KCS indicate: that GWWR's nearest yard of any size is located at Roodhouse, nearly 40 miles southwest of Springfield; and that IC does not currently use the NS and UP tracks between New KC Jct. and IC Connection for through freight trains, although it does use such tracks for local trains and for unit grain trains from Cockrell.
158. KCS notes that the Ridgely Yard route allows for an alternative GWWR/IC interchange routing in case of emergency, track maintenance projects, etc.
159. Applicants and KCS concede, however, that, at present, virtually no traffic moves via a GWWR/NS interchange at Springfield.
160. This is apparently a reference to the 1989 CMW/SPCSL Ridgely Agreement, as amended by the 1996 GWWR/SPCSL agreement.
161. The CN/IC control transaction as contemplated by applicants includes the Kansas City-Chicago operations made possible by the CN/IC control transaction as augmented by the CN/IC/KCS Alliance.
162. Pro tanto means "for so much; for as much as may be; as far as it goes."
163. Neither applicants nor KCS has argued that any such consent requirements should be overridden pursuant to 49 U.S.C. 11321(a) as necessary to carry out the Alliance Agreement, standing alone. See CN/IC-56A at 211 n.142. Applicants and KCS have argued, however, that, under 49 U.S.C. 11321(a), the Board "may override any impediment to the implementation of a merger or [a] settlement agreement related to a merger." See KCS-17 at 132 (emphasis added). See also CN/IC-56A at 211 (similar argument).
164. UP generally refers to the CN/IC control transaction as the CN/IC "merger."
165. UP insists that, because the Alliance is in its infancy, it is too early for a substantial documentary record to have been created reflecting actual day-to-day Alliance activity bespeaking a control relationship.
166. UP further contends that, if the CN/IC control application is resubmitted as a CN/IC/KCS control application, that application should also address common control of KCS and Tex Mex. UP claims that there are, at present, extensive ownership, management, marketing, operating, and other ties between KCS and Tex Mex, and that, in view of these ties, there is reason to believe that KCS and Tex Mex are presently under common control. See UP-8 at 50 n.77.
167. UP also operates in the Baton Rouge-New Orleans corridor, but its tracks lie on the west bank of the Mississippi River.
168. The argument that the Alliance will eliminate IC vs. KCS competition has been endorsed by BASF and Borden, two of the three Geismar shippers to which KCS will gain access under the Access Agreement. See the BASF letter dated Oct. 27, 1998 (submitted by UP on Jan. 11, 1999): "We had been engaged in discussions with another railroad recently with the prospects of a build-in from their line to our site. We co-developed construction plans to proceed with the build-in, however, this railroad opted not to pursue our proposal and has aligned itself with the current servicing railroad, thus eliminating our competitive proposition. We believe this prevents the competition we originally agreed to pursue with an alternative to the ICRR and we are deeply disappointed with the end result." See also the Borden statement dated Dec. 3, 1998 (also submitted by UP on Jan. 11, 1999): "We understand that KCS now plans to secure access to our Geismar plant via haulage rights on IC/CN line. But we do not believe that KCS and IC/CN will in fact continue to compete aggressively against each other for our business."
169. UP claims that, for Geismar shippers other than the three to which KCS will receive access under the Access Agreement, the likelihood of a build-in will be diminished because KCS's Geismar build-in will never be constructed, and KCS will never have a line directly adjacent to these other shippers.
170. The reference is to the provision that makes the Alliance inapplicable to certain 2-to-1 and 3-to-2 movements. See UP-8 at 58-59.
171. See UP-8, Tab E at 3-11 (UP has identified the facilities it seeks to access, although its list may not be exhaustive).
172. A "2-to-1" facility is, in this context, any facility now served by IC and KCS (either directly or via reciprocal switch) and by no other railroad.
173. UP concedes that there is a line-drawing problem as to when a switch charge becomes too high, but concludes that, in the present context, the line should be drawn in the area of $400 per car. See UP-8, Tab E at 8-9.
174. See UP-8, V.S. Peterson at 11-12.
175. See Union Pacific Corporation, Union Pacific Railroad Company, and Missouri Pacific Railroad Company -- Control and Merger -- Southern Pacific Rail Corporation, Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company, Finance Docket No. 32760, Decision No. 44 (STB served Aug. 12, 1996) (UP/SP).
176. See UP-8 at 63 n.98; UP-8, Tab E at 13. UP apparently has in mind that, in the case of a build-in/build-out to/from the KCS line, the UP haulage rights would run over the IC line. See also UP-8, Tab A at 48-49 (UP suggests: that, at some future date, its haulage rights might need to be converted to trackage rights; and that a reasonable oversight period will be needed to enable the Board to assess the effectiveness of UP's haulage rights and to address any other competitive problems created by the Alliance).
177. UP regards the KCS trackage rights application as seeking trackage rights over, or a 49 U.S.C. 11321(a) override with respect to, two UP track segments: the 1.8-mile UP segment between MP 192.4 and New KC Jct.; and the 1.1-mile UP segment between Hazel Dell and IC Connection.
178. The rail carriers formerly controlled by Southern Pacific Rail Corporation (i.e., Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver and Rio Grande Western Railroad Company) were referred to collectively as SP.
179. UP claims that the elimination of this restriction is a long-held commercial objective of GWWR.
180. UP indicates that a CN/IC-KCS interchange at Chicago would involve a routing via I & M Rail Link, LLC (IMRL), over which (UP claims) KCS has haulage rights. See UP-22 at 21 n.19.
181. UP adds that there has also been no showing of competitive abuse on the part of NS, the owner of some (though not all) of the tracks that run between New KC Jct. and IC Connection.
182. UP claims that MidStates Warehouse at Hazel Dell is the only rail-served industry located between MP 192.4 and IC Connection. See UP-8, Tab C at 4.
183. The broad override contemplated by UP is directed at two agreements in particular: the Springfield-Chicago Divisions and Haulage Agreement (the Springfield-Chicago Agreement), which gave GWWR commercial access via SPCSL to Chicago and Chicago connecting railroads; and the Godfrey-Springfield Trackage Rights, Haulage and Interchange Agreement (the Godfrey-Springfield Agreement), which provided for the preservation of GWWR's Springfield interchange and Chicago access in the event that GWWR abandoned its Roodhouse-Springfield line. See UP-8 at 71. The broad override contemplated by UP is further directed at certain supplementary agreements that have been negotiated in recent years. See UP-8, Tab D at 9-10.
184. Although CP's lines also serve British Columbia, Alberta, Saskatchewan, and Manitoba, the focus of its interests in this proceeding is on traffic moving from/to points in Ontario and Quebec.
185. The "NAFTA Corridor" contemplated by CP is the north-south corridor linking points in Canada (particularly points in Ontario and Quebec), on the one hand, and, on the other, points in the United States and Mexico.
186. Consolidated Rail Corporation is known as Conrail.
187. The Detroit River Tunnel has two tubes. (1) CP indicates that the north tube, which was recently enlarged (see CPR-14 at 32-33), can handle double-stacked 8'6" containers, as well as conventional tri-level automobile cars. CP concedes that it would be physically possible to move containers in a 9'6"/8'6" double-stack configuration through the north tube, but contends: that a train moving at normal speed with containers in such a configuration would rock, risking collision with the sides of the tunnel; that, therefore, a train handling containers in such a configuration would have to move at an extremely low speed; that, however, even such low speed movements would raise serious safety issues, and would require additional locomotive power; and that, accordingly, the movement of containers in a 9'6"/8'6" double-stack configuration through the north tube would not be operationally feasible. (2) CP indicates that the south tube is even more severely restricted. CP claims that the south tube: can be used only for conventional car types, such as boxcars, tank cars, hoppers, and gondolas; and cannot accommodate multilevel finished automobile cars, many types of automotive parts cars, piggy-backs, or double-stacked containers of any size. CP insists, in fact, that the south tube cannot be used for most tunnel traffic, and that, in consequence, the tunnel cannot, as a practical matter, be used for directional running. See CPR-14 at 126-27.
188. CP claims that DRTC is a Michigan corporation, organized under and subject to Michigan law. See CPR-26 at 006 n.4. Applicants claim that DRTC "is organized dually under the laws of the Dominion of Canada and the State of Michigan." See CN/IC-62 at 31 n.49. For present purposes, the discrepancy is not material.
189. See Canadian National Railway Company and Canadian Pacific Limited -- Acquisition -- Interests of Consolidated Rail Corporation in Canada Southern Railway Company and Detroit River Tunnel Company, Finance Docket No. 30387 (ICC served Sept. 4, 1984) (approving the joint acquisition, by CN and CP, of all interests of Consolidated Rail Corporation in the properties of Detroit River Tunnel Company, Canada Southern Railway Company, and the Niagara River Bridge Company; and noting that CN and CP had created the CNCP Partnership to take title to these interests). See also Canadian National Railway Company and Canadian Pacific Limited -- Acquisition -- Interests of Consolidated Rail Corporation in Canada Southern Railway Company and Detroit River Tunnel Company, Finance Docket No. 30387 (ICC served Jan. 16, 1985) (denying petitions to reopen the prior decision).
190. CP indicates that, on average, 16 of the 22 trains that pass through the Detroit River Tunnel each day are operated by CP. See CPR-14 at 132. CP claims that CN's use of the Detroit River Tunnel declined sharply following the opening of the St. Clair Tunnel in 1995, and that CN now operates only one local train (on a round-trip movement) through the Detroit River Tunnel 3 days a week.
191. St.L&H, a wholly owned CPR subsidiary, holds CP's 50% interest in the CNCP Partnership.
192. In their responsive application, docketed as STB Finance Docket No. 33556 (Sub-No. 3), CPR and St.L&H seek authorization for the acquisition of control of DRTC by St.L&H (and, indirectly, by CPR) through ownership of 100% of the outstanding shares of DRTC. CP accepts that approval of the Sub-No. 3 responsive application would be subject to the labor protective conditions prescribed in New York Dock Ry. -- Control -- Brooklyn Eastern Dist., 360 I.C.C. 60 (1979), although CP insists: that, in view of the fact that DRTC has no operating employees, the Sub-No. 3 transaction will have no adverse impact on any DRTC employees; and that, in view of the fact that the relevant labor forces of CN and CP are comprised solely of Canadian workers, see CPR-14 at 136, the Sub-No. 3 transaction will not affect any U.S. railroad jobs.
193. See CN/IC-56A at 512-15.
194. See also CN/IC-62 at 33 & n.50 (applicants have indicated: that CN's interest in the Detroit River Tunnel is for sale at fair market value; that, if the parties cannot agree on the fair market value, CN will sell its interest at the fair market value determined by a neutral third party; that, should CP or OMR later allege that CN has violated either of these commitments, CN will not object to a petition by either party to re-open this proceeding to address any anticompetitive harm found to result from such violation; but that CN reserves whatever jurisdictional and substantive objections it might otherwise make in a control proceeding to this Board's exercise of its conditioning power to secure any end then sought by CP or OMR).
195. CP contends, in particular, that the Alliance appears to involve common control of at least a substantial part of the day-to-day operations of CN, IC, and KCS.
196. See also CPR-28 at 25 (CP urges that applicants be required to further "declassify" the details of their arrangements with KCS; the "declassification" that CP has in mind would apparently involve something more than the submission, which we required in Decision No. 31, of redacted copies of the Alliance and Access Agreements).
197. CP has replied to the KCS-13 motion to strike. See CPR-21 (filed December 4, 1998).
198. OMR concedes that neither CSX nor NS has complained of its elimination as a connecting carrier at Detroit on traffic moving to/from U.S. points. OMR insists, however, that CSX and NS are in no position to complain of such matters in view of their own recent participation in the Conrail control proceeding, which (OMR claims) was itself largely premised on the closing of gateways and the cancellation of through-route, joint-rate arrangements. See CSX Corporation and CSX Transportation, Inc., Norfolk Southern Corporation and Norfolk Southern Railway Company -- Control and Operating Leases/Agreements -- Conrail Inc. and Consolidated Rail Corporation, STB Finance Docket No. 33388, Decision No. 89 (STB served July 23, 1998) (CSX/NS/CR).
199. OMR notes that, although the vertical foreclosure effects that it anticipates entail the closing (by CN) of the Detroit gateway and the cancellation (by CN) of existing through-route, joint-rate CN-CSX and CN-NS arrangements, OMR is not seeking a Board order requiring that the Detroit gateway be kept open and that any existing through-route, joint-rate CN-CSX and CN-NS arrangements be continued.
200. OMR concedes that the terms of the CNCP Partnership Agreement appear to preclude the transfer of CN's 50% interest to OMR without CP's express consent. OMR insists, however: that, because CP has not objected to the relief OMR seeks, it is reasonable to infer that CP would consent to the transfer of CN's 50% interest to OMR; and that, in any event, our authority to grant the relief OMR seeks cannot be circumscribed by the terms of a private agreement between CN and CP.
201. OMR claims that, until now, CN has not had much to lose from forfeiting cross-border traffic to its competitors at the Detroit gateway, because, until now, CN's U.S. operations extended only to Chicago. OMR further claims: that the CN/IC control transaction will extend CN's U.S. operations all the way to New Orleans; that the CN/IC/KCS Alliance will extend CN's reach deep into Mexico; that, given the control transaction and the Alliance, CN will henceforth have much more to lose from forfeiting cross-border traffic to its competitors at the Detroit gateway; and that CN will therefore have, post-transaction, a much greater incentive than it has previously had to use its 50% interest in the Detroit River Tunnel to block construction of a high-clearance replacement tunnel.
202. OMR contemplates that most of the traffic that would move through the new tunnel would be handled by CP, CSX, and NS.
203. North Dakota contends: that trucks simply cannot handle the long-distance movement of significant volumes of agricultural commodities to the Gulf or to barge terminals in Minneapolis or St. Louis; that North Dakota does not have any navigable waterways capable of moving agricultural commodities by barge or ship; that, although small quantities of North Dakota agricultural commodities move to Minneapolis by rail for loading onto barges, it is not economical to move vast quantities of North Dakota agricultural commodities to Minneapolis for loading onto barges; and that, due to the nature and configuration of certain elevators in Louisiana and Mississippi, some of North Dakota's agricultural commodities exports must be moved exclusively by rail.
204. North Dakota insists that a three-railroad joint-line routing involving IMRL would not provide an effective alternative to the pre-merger Soo-IC joint-line routing. A Soo-IMRL-KCS routing, North Dakota claims, would be far too circuitous as compared to the Soo-IC routing. And, North Dakota adds, joint-line routings involving either BNSF or UP would not be effective either: because BNSF and UP can be expected to favor markets where they provide single-line service; and because BNSF, in particular, has an interest in expediting Soo's departure from North Dakota.
205. North Dakota indicates that traffic originated by Soo is currently interchanged with KCS at Kansas City en route to southwestern domestic markets and Mexico.
206. Applicants have indicated that a unified CN/IC "will have no incentive to ignore North Dakota's grain traffic by closing gateways." See CN/IC-56A at 132.
207. North Dakota cites Union Pacific -- Control -- Missouri Pacific; Western Pacific, 366 I.C.C. 462 (1982) (UP/MP/WP), and Santa Fe Southern Pacific Corp. -- Control -- SPT Co., 2 I.C.C.2d 709 (1986), 3 I.C.C.2d 926 (1987) (SF/SP), in support of the proposition that relief should be imposed to protect the essential services provided by Soo, the neutral gateway provided by IC, and the CN-IC routing now available to North Dakota shippers.
208. Exxon also contends that the Alliance Agreement is a pooling agreement. See ECA-14 at 8-10.
209. Exxon contends: that truck, barge, and pipeline are not feasible substitutes for the traffic originated at its Baton Rouge facilities; and that, although UP operates within 5 miles of these facilities, UP does not currently have direct physical access to these facilities and UP build-ins to these facilities would not be economically feasible.
210. Exxon indicates that the $777 access-via-KCS switch charge consists of a $715 charge by KCS and, because KCS will not deliver the car directly to UP, a $62 charge by IC.
211. Exxon concedes that UP does in fact handle traffic originating at loading facilities in the BRRF/BRCP complex, but suggests that, for the most part, UP can handle this traffic either because UP has exclusive access to the destinations or because the switching carrier (IC or KCS) does not have direct control of the entire route. Exxon apparently acknowledges that, even accepting Exxon's view of the effects of the Alliance, the portion of the BRRF/BRCP traffic that UP actually handles should perhaps be regarded, for the most part, as 3-to-2 traffic. See ECA-7 at 6 n.18 (lines 6-8). See also ECA-7, V.S. Coulter at 2 (Exxon indicates that the portion of the traffic that is handled by UP to destinations served directly by the switching carrier moves under contracts that were established at a time when switching fees were significantly lower than they are now).
212. The reference is to the provision that makes the Alliance inapplicable to certain 2-to-1 and 3-to-2 movements.
213. Exxon claims, by way of example, that, given the Alliance, Exxon's IC build-in to the BRPO facility, which IC had intended to complete by mid-2001, is now in jeopardy, because neither a commonly controlled CN/IC nor a nominally independent IC will have an incentive to support a project that would serve only to cannibalize the monopoly profits of KCS.
214. The reference is to the provision that makes the Alliance inapplicable to certain 2-to-1 and 3-to-2 movements.
215. See Kansas City Southern Railway Company -- Construction and Operation Exemption -- Geismar Industrial Area Near Gonzales and Sorrento, LA, Finance Docket No. 32530 (ICC served June 30, 1995) (but noting, with respect to the Shell facility, that KCS, to reach that facility, would either have to enter into a crossing agreement with IC or receive crossing authority under 49 U.S.C. 10901(d)(1)).
216. See The Kansas City Southern Railway Company -- Construction Exemption -- Ascension Parish, LA [Draft Environmental Impact Statement], Finance Docket No. 32530 (STB served July 16, 1997). See, in particular, the Draft Environmental Impact Statement's Appendix A, Figure A-2 (a map depicting the existing IC line, the existing KCS line, proposed KCS Route A, and proposed KCS Route B, and also the Geismar industrial complex facilities operated by BASF, Borden, Shell, Rubicon, and Uniroyal). See also RUB-14, Tab II, Exhibit A (this paper, which was filed in this proceeding, is a replication, in part, of the Figure A-2 map).
217. See Kansas City Southern Railway Company -- Construction and Operation Exemption -- Geismar Industrial Area Near Gonzales and Sorrento, LA, Finance Docket No. 32530 (STB served Aug. 27, 1998).
218. Rubicon concedes that an extension to the Rubicon facility might have to cross the property of one of the parties named in the Geismar build-in petition (this is apparently a reference either to Borden or to BASF). Rubicon contends, however, that this would not create an obstacle to an extension. See RUB-14 at 24-25.
219. Rubicon and Uniroyal concede that, in the merger context, the typical remedy for the loss of a build-in option is a grant to a third railroad of trackage rights with stop-off privileges at the point of build-in. Rubicon and Uniroyal contend, however, that, in the present context, the typical remedy would not suffice, considering that "the build-in opportunity being eliminated is new construction which will be eliminated due to an agreement between the railroad parties, and further considering that the service extension to Rubicon and Uniroyal would be through a spur of nominal length." See RUB-14 at 29 n.18. See also RUB-14 at 28 (Rubicon and Uniroyal contend that, although the typical build-in issue in the rail merger context involves the loss of a build-in opportunity, the build-in issue raised by Rubicon and Uniroyal involves the loss of the build-in itself). Rubicon and Uniroyal further contend that, in the present context, the only available and appropriate remedy is an extension of the Access Agreement to cover the Rubicon and Uniroyal facilities.
220. See VUL-6, V.S. Phillips, Appendix A (a copy of the Finance Docket No. 32530 Figure A-2 map to which has been added a notation indicating the location of the Vulcan facility).
221. Vulcan concedes that, in order to complete its build-out, it would have had to purchase some land. Vulcan claims, however, that neither Vulcan nor KCS saw this as an impediment to the construction of a Vulcan build-out.
222. Vulcan claims, in particular, that without KCS there would be none of the "NAFTA Railroad" benefits touted by applicants, and substantially fewer, if any, merger benefits of any kind.
223. NITL is an organization of shippers and groups and associations of shippers conducting industrial and/or commercial enterprises.
224. NITL has effectively withdrawn the requests for relief set out in its comments and its brief.
225. The reference is to the provision that makes the Alliance inapplicable to certain 2-to-1 and 3-to-2 movements.
226. AF&PA indicates that the "interswitching" provisions of the Canadian Transportation Act provide that, if a line of one railway company connects with a line of another railway company, an application for an interswitching order may be made to the governing agency by either company, by municipal government, or by any other interested person, including shippers and receivers. AF&PA further indicates: that the interswitching provisions generally cover situations where the point of origin or destination of a continuous movement of traffic is within a radius of 30 kilometers, or a prescribed greater distance, of an interchange; and that, upon application, the governing agency may order the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.
227. AF&PA expresses its belief that we should endeavor, in merger proceedings involving Class I carriers, to expand competitive alternatives available to shortline carriers and their customers to the maximum extent possible.
228. DOT's analysis is largely directed to the Alliance Agreement and pays little attention to the Access Agreement. And, when it does mention the Access Agreement, DOT tends to focus on only one element thereof: the access that KCS will gain at Geismar.
229. In support of the proposition that we have the authority to review, and to approve or disapprove, the terms of the Alliance and Access Agreements, DOT cites Union Pacific Corp. et al. -- Cont. -- MO-KS-TX Co. et al., 4 I.C.C.2d 409, 480 (1988) (UP/MKT) (emphasis added): "We will review and specifically approve or disapprove settlement terms (rather than simply allow them to become effective as contractual matters without action on our part) in two circumstances. First, we will act on settlement terms providing for actions or operations, such as trackage rights or pooling, requiring our approval under the statute. Second, we may act on settlement terms which affect the public's interest in a sound and efficient national transportation system, and will approve them if they are consistent with the public interest and if the terms require immunity from the antitrust laws or other laws in order to be implemented effectively." See also UP/MKT, 4 I.C.C.2d at 480 n.71, noting that certain settlement agreements reached in connection with the UP/MKT control transaction "do not require our approval because: (1) the settlement terms do not provide for actions or operations requiring our approval under the statute; and (2) the settlement terms do not affect the public's interest in a sound and efficient national transportation system."
230. DOT claims that the incentives for IC vs. KCS competition already appear to have been dulled in the Baton Rouge-New Orleans corridor. See DOT-3 at 24.
231. See CN/IC-56A at 128-29 (applicants have indicated: that a unified CN/IC will not turn its back on North Dakota shippers and their revenue-producing commodities; and that a unified CN/IC will maintain the efficient interchanges IC has with other connecting carriers).
232. See CSX/NS/CR, slip op. at 125-27: "In approving a rail merger or consolidation such as this, we have never made specific findings in the first instance regarding any CBA changes that might be necessary to carry out a transaction, and we will not do so here. Those details are best left to the process of negotiation and, if necessary, arbitration under the New York Dock procedures." See also CSX Corporation -- Control -- Chessie System, Inc. and Seaboard Coast Line Industries, Inc. (Arbitration Review), Finance Docket No. 28905 (Sub-No. 22) (STB served Sept. 25, 1998), slip op. at 19 (footnote omitted): "New York Dock prescribes a procedure (negotiation, if possible; arbitration, if necessary) for arriving at an implementing agreement respecting any particular transaction."
233. BLE contends that, in anticipation of the merger: E. Hunter Harrison, formerly chief executive officer of IC, has moved to CN; and Randy Harris, an IC claim agent, has recently been working for both IC and GTW.
234. BLE indicates that the anticipated adverse consequences at Chicago and Jackson reflect applicants' plans to operate run-through trains through these cities.
235. See CN/IC-7 at 202: "The Transaction can be fully achieved only if the employees operating trains through, to, or from the Chicago area are covered by a single collective bargaining agreement with an expanded and consolidated seniority district and common seniority roster."
236. In the Finance Docket No. 32640 proceeding: CNR, GTW, and DWP filed an application seeking approval and authorization under what was then 49 U.S.C. 11343-45 for CNR to contract to operate the properties of GTW and DWP; the ICC held that applicants had failed to establish that the proposed transaction was a contract to operate subject to ICC jurisdiction under what was then 49 U.S.C. 11343(a)(2); and the application was therefore dismissed.
237. BLE claims that, until recently, CN was operated by the Canadian Government, and that CN's Chief Executive Officer was formerly a high official of the Canadian Parliament.
238. BLE insists that these variations have never previously been considered in the fashioning of employee protective conditions.
239. BLE claims, in essence, that U.S. laws respecting railroad safety are more safety-oriented than Canadian laws respecting railroad safety.
240. BLE claims that we have failed to seek out the views of the FRA, even though the situation here is (BLE contends) similar to the situation in Canadian Pacific Limited, et al. -- Purchase and Trackage Rights -- Delaware & Hudson Railway Company [Arbitration Review], STB Finance Docket No. 31700 (Sub-No. 13) (STB served Dec. 4, 1998) (an arbitrator imposed an implementing agreement to effectuate the transfer of five dispatcher positions from Milwaukee, WI, to Montreal, PQ; but, in view of an indication by FRA that the transfer of these positions could adversely affect rail safety, the Board ordered the carriers to refrain from consummating the transaction until the Board has been advised by FRA that FRA's safety concerns have been satisfied).
241. BLE argues that safety is adversely impacted when engineers are required to work too many hours on abnormally long shifts with erratic work/rest cycles.
242. BLE contends that implementation of large consolidated seniority districts would allow CN/IC to require engineers to go anywhere within this expanded territory for lengthy periods of time. And, BLE adds, since the New York Dock conditions have been read to make an employee ineligible for benefits if the employee declines a position for which the employee has seniority, a refusal to take an assignment many miles from home could diminish or eliminate the employee's benefits.
243. BLE warns that many Chicago-area jobs on other railroads will be eliminated if CN/IC is allowed to implement run-through train operations that will allow its trains to "bypass" Chicago.
244. BLE indicates that this condition would promote economy and efficiency in the application of relocation allowances. BLE adds that no employee would be entitled to more than one "in lieu of" cash relocation allowance.
245. BLE claims that GTW has refused to negotiate fairly and equitably with BLE in various collective bargaining matters, and, in particular, has refused to institute negotiations on the requisite implementing agreements.
246. Applicants concede that GTW contracted with IC for the services of Randy Harris, an IC claims agent. Applicants insist, however: that it is common practice in the industry to contract out claims agent work; that the Harris arrangement was entered into on an arm's length basis pursuant to a written contract; that, under this contract, GTW, which had need of experienced claims personnel, obtained the services of an experienced employee of IC, which had additional personnel available; and that the Harris contract requires GTW to reimburse IC for this employee's services.
247. In the interest of development of a complete record, the CN/IC-64 motion to strike will be denied and the CN/IC-64 response will be included in the record.
248. UTU is the collective bargaining representative for the crafts or classes of conductors, trainmen, and yardmasters on each of the applicant railroads.
249. These agreements include: (1) a 1979 GTW-RLEA agreement (the Railway Labor Executives' Association was known as RLEA) that provided for attrition protection, see Norfolk & W. Ry. Co. -- Control -- Detroit, T. & I. R. Co., 360 I.C.C. 498, 531-32 (1979); (2) a 1979 GTW-ATDA agreement (prior to October 1995, ATDD was known as the American Train Dispatchers Association and was commonly referred to as ATDA), see ATDD-5, Ex. A (comments filed Oct. 27, 1998); (3) a 1986 GTW-ATDA agreement, see ATDD-5, Ex. B (the 1986 agreement consists of a main agreement and various attached sub-agreements); and (4) a 1996 GTW-ATDD agreement, see ATDD-5, Ex. C.
250. The acquisition by GTW of control of the Detroit, Toledo and Ironton Railroad Company (DTI) and the Detroit and Toledo Shore Line Railroad Company (DTSL), a transaction that is herein referred to as the GTW/DTI&DTSL control transaction, was approved in Grand Trunk Western Railroad -- Control -- Detroit, Toledo and Ironton Railroad Company and Detroit and Toledo Shore Line Railroad Company, Finance Docket No. 28676 (Sub-No. 1) (ICC decided Nov. 30, 1979). This decision, which is variously referred to as the Finance Docket No. 28676 (Sub-No. 1) decision, the Finance Docket No. 28676 (Sub-No. 1F) decision (the "F" designation was used at the time in connection with files reproduced on microfiche), and the Finance Docket No. 28676 decision (with no reference to a sub-number), is reported in the bound volumes as Norfolk & W. Ry. Co. -- Control -- Detroit, T. & I. R. Co., 360 I.C.C. 498 (1979).
251. Article I, §5(c) provides that a New York Dock displacement allowance shall cease prior to the expiration of the protective period in the event of the employee's resignation, death, retirement, or dismissal for justifiable cause. Article I, §6(d) provides that a New York Dock dismissal allowance shall cease prior to the expiration of the protective period in the event of the employee's resignation, death, retirement, dismissal for justifiable cause under existing agreements, failure to return to service after being notified in accordance with the working agreement, and failure without good cause to accept a comparable position which does not require a change in his place of residence for which he is qualified and eligible after appropriate notification, if his return does not infringe upon the employment rights of other employees under a working agreement.
252. ATDD notes that this protection is commonly referred to as "lifetime" protection.
253. A dispatcher who elects voluntary furlough status subject to recall: will be subject to recall when the active workforce falls below 21 train dispatchers; and will receive a monthly furlough allowance equivalent to 75% of the employee's average monthly earnings computed in accordance with a certain formula. A dispatcher who elects voluntary furlough status not subject to recall will receive a monthly furlough allowance equivalent to 60% of the employee's average monthly earnings computed in accordance with a certain formula. Both allowances last until the employee is recalled to service, has filed for a disability annuity under the Railroad Retirement Act, first becomes eligible for an unreduced annuity under the Railroad Retirement Act, or dies, subject, however, to this proviso: protection for an employee who elects voluntary furlough status subject to recall will continue for the rest of his/her railroad career, whereas protection for an employee who elects voluntary furlough status not subject to recall will expire in 2003. Employees on voluntary furlough status suffer no diminution in health, welfare, dental, and 401(k) plan benefits. ATDD indicates that, at the present time, there are 15 GTW train dispatchers on voluntary furlough status, all of whom are subject to recall.
254. See CN/IC-56A at 191 (internal quotation marks omitted).
255. ATDD adds that, if the ICC had not allowed those transactions to occur, CN's U.S. operations on the GTW, DTI, and DTSL might not have developed to their current operating levels.
256. See CN/IC-56A at 192 ("[S]ome provisions contained in protective agreements may themselves represent impediments to a Transaction, and can and should be overridden.").
257. TCU notes that the Alliance covers traffic moving from/to all points open to CN, IC, or KCS, excepting only the relatively few points open both to IC and to KCS.
258. TCU notes that the Alliance will exist for at least 15 years.
259. TCU argues that, although the overall financial impact of the Alliance on CN and KCS may be relatively small, the control that CN and KCS will exercise over IC's interline operations will be far more substantial. TCU also argues that, although prior rulings have indicated that neither a voluntary coordination agreement (VCA) nor an operational coordination is per se jurisdictional, the Alliance contains elements of both a VCA and an operational coordination, in addition to a common management structure for implementation of a common interline policy.
260. TCU concedes that, although KCS is not a party to the CN/IC control application, we accepted that application "because it is in substantial compliance with the applicable regulations, waivers, and requirements." See Decision No. 6, slip op. at 7 (footnote omitted). TCU notes, however, that, although we accepted the CN/IC control application, we specifically "reserve[d] the right to require the filing of supplemental information from applicants or any other party or individual, if necessary to complete the record in this matter." See Decision No. 6, slip op at 7 n.14.
261. TCU suggests that, in monitoring the Alliance, we should utilize the criteria set forth in Gilbertville Trucking Co. v. United States, 371 U.S. 115 (1962).
262. See, e.g., D&H Ry. -- Lease & Trackage Rights Exempt. Springfield Term., 4 I.C.C.2d 322, 330 (1988) (emphasis added): "In the typical case of a consolidation or acquisition, two or more railroads may combine their operations, with either a surviving entity conducting all of the combined operations or each carrier operating some portion of the consolidated operations. Where operations will be combined, the previously separate workforces need to be coordinated. Offers of comparable employment normally are made by the surviving operating entity to former employees of both railroads before any offers are made to outside parties. These offers must be accepted (if employees have exercised their seniority and have been dismissed), or the employees lose their protective benefits."
263. See, e.g., CSX Corporation -- Control -- Chessie System, Inc. and Seaboard Coast Line Industries, Inc. (Arbitration Review), STB Finance Docket No. 28905 (Sub-No. 28) (STB served Sept. 3, 1997), slip op. at 7 n.10: "The ICC has in the past referred to the fundamental bargain underlying the Washington Job Protection Agreement of May 1936 (WJPA), upon which the New York Dock conditions are based, as being that an employee must accept any comparable position for which he or she is qualified regardless of location in order to be entitled to a displacement allowance." See also CSX/NS/CR, slip op. at 127: "[T]he basic requirement under New York Dock [is] that employees must accept assignment at a new location that requires them to move their residence, or else forfeit their entitlement to protection allowances."
264. TCU contends that, under Canadian law, a non-Canadian who seeks to move to Canada for the purpose of seeking employment must obtain, prior to moving, authorization to enter Canada for employment purposes. TCU further contends, however, that, under Canadian law, Canadian immigration officers are not allowed to issue such authorizations to a person whose employment "in Canada will adversely affect employment opportunities for Canadian citizens or permanent residents in Canada." See TCU-5 at 3-4 (citing Canadian immigration regulations).
265. See CSX/NS/CR, slip op. at 125: "We may tailor employee protective conditions to the special circumstances of a particular case. This is done, however, only if it has been shown that unusual circumstances require more stringent protection than the level mandated in our usual conditions."
266. See Illinois Cent. Gulf R. -- Acquisition -- G., M. & O., et al., 338 I.C.C. 805, 864-73 (1971) (discussing allegations that UP had, at the time, a controlling interest in IC).
267. Mr. Fitzgerald adds, though without explanation, that the KCS trackage rights application should also be denied.
268. In Decision No. 30 (served Jan. 28, 1999), we directed parties wishing to participate in the oral argument to submit a statement to that effect no later than February 9, 1999. In Decision No. 31 (served Feb. 12, 1999), we directed CN to submit redacted copies of the Alliance and Access Agreements by February 22, 1999.
269. The Brotherhood of Railroad Signalmen has concluded an implementing agreement with applicants. See CN/IC-64 at 5 (filed Mar. 10, 1999). The record appears to contain no indication as to the status of the three other ARU unions.
270. See BMWE-5, Ex. 1 (filed Feb. 19, 1999). See also BMWE-6, Attachment (filed Mar. 8, 1999).
271. Applicants and BMWE have asked that we incorporate the CN/IC-BMWE implementing agreement as a condition of our order approving the CN/IC control application. See BMWE-5, Ex. 1, p. 11. See also BMWE-6 (filed Mar. 8, 1999; a joint motion for adoption of the CN/IC-BMWE implementing agreement as a condition of approval of the CN/IC control application).