Class Exemption for Expedited Abandonment Procedure for Class II and Class III Railroads, 3030-3033 [06-392]

Agencies

• Surface Transportation Board
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 71, Number 12 (Thursday, January 19, 2006)]
[Proposed Rules]
[Pages 3030-3033]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-392]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1105

[STB Ex Parte No. 647]


Class Exemption for Expedited Abandonment Procedure for Class II 
and Class III Railroads

AGENCY: Surface Transportation Board, DOT.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Surface Transportation Board (Board) has received a 
proposal to create a class exemption under 49 U.S.C. 10502 for Class II 
and Class III railroads \1\ from the prior approval requirements for 
abandonments under 49 U.S.C. 10903. A public hearing was held on August 
31, 2004, to discuss the proposal. Before deciding whether to issue a 
Notice of Proposed Rulemaking (NPR), the Board seeks comments from 
interested persons on this proposal and possible alternatives to it, as 
detailed below.
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    \1\ The Board's regulations divide railroads into three classes 
based on annual carrier operating revenues. Class I railroads are 
those with annual carrier operating revenues of $250 million or more 
(in 1991 dollars); Class II railroads are those with annual carrier 
operating revenues of more than $20 million but less than $250 
million (in 1991 dollars); and Class III railroads are those with 
annual carrier operating revenues of $20 million or less (in 1991 
dollars). See 49 CFR part 1201, General Instruction 1-1(a).

DATES: Notices of intent to participate in this rulemaking process are 
due on February 2, 2006. Comments are due on March 6, 2006. Replies to 
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comments are due on April 4, 2006.

ADDRESSES: All notices of intent to participate and comments may be 
submitted either via the Board's e-filing format or in the traditional 
paper format. Any person using e-filing should comply with the 
instructions found on the Board's https://www.stb.dot.gov Web site, at 
the ``E-FILING'' link. Any person submitting a filing in the 
traditional paper format should send an original and 10 paper copies of 
the filing (referring to STB Ex Parte No. 647) to: Surface 
Transportation Board, 1925 K Street, NW., Washington, DC 20423-0001.

FOR FURTHER INFORMATION CONTACT: Joseph Dettmar, (202) 565-1609. 
[Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.]

SUPPLEMENTARY INFORMATION: On May 15, 2003, sixty-five short-line and 
regional carriers (petitioners) \2\ filed a petition to institute a 
proceeding under 49 U.S.C. 10502 to exempt a class of small carriers 
from the prior approval requirements for abandonments under 49 U.S.C. 
10903. Petitioners included a detailed proposal, including revised 
rules for 49 CFR 1152.50 (exempt abandonments) and 1152.27 (offers of 
financial assistance). The Board issued a decision on August 13, 2003, 
to institute a proceeding and held a public hearing on August 31, 2004, 
to discuss the issues raised in petitioners' filing.
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    \2\ The sixty-five carriers are: Allegheny & Eastern Railroad, 
Inc.; Bradford Industrial Rail, Inc.; Buffalo & Pittsburgh Railroad, 
Inc.; Carolina Coastal Railway, Inc.; Commonwealth Railway, Inc.; 
Chicago SouthShore & South Bend Railroad; Chattahoochee & Gulf 
Railroad Co., Inc.; Connecuh Valley Railroad Co., Inc.; Corpus 
Christi Terminal Railroad, Inc.; The Dansville & Mount Morris 
Railroad Company; Eastern Idaho Railroad, Inc.; Genesee & Wyoming 
Railroad Company; Golden Isles Terminal Railroad, Inc.; H&S Railroad 
Co., Inc.; Illinois Indiana Development Company, LLC; Illinois & 
Midland Railroad Company, Inc.; Kansas & Oklahoma Railroad, Inc.; 
Knoxville & Holston River Railroad Co., Inc.; Lancaster and Chester 
Railway Company; Laurinburg & Southern Railroad Co., Inc.; Louisiana 
& Delta Railroad, Inc.; Louisville & Indiana Railroad Company; 
Minnesota Prairie Line, Inc.; Montana Rail Link, Inc.; New York & 
Atlantic Railway Company; Pacific Harbor Line, Inc.; Palouse River & 
Coulee City Railroad, Inc.; Pennsylvania Southwestern Railroad, 
Inc.; Piedmont & Atlantic Railroad Inc.; Pittsburg & Shawmut 
Railroad, Inc.; Portland &Western Railroad, Inc.; Rochester & 
Southern Railroad, Inc.; Rocky Mount & Western Railroad Co., Inc.; 
St. Lawrence & Atlantic Railroad Company; Salt Lake City Southern 
Railroad Company; Savannah Port Terminal Railroad, Inc.; South 
Buffalo Railway Company; South Kansas & Oklahoma Railroad Company; 
Stillwater Central Railroad; Talleyrand Terminal Railroad, Inc.; 
Three Notch Railroad Co., Inc.; Timber Rock Railroad, Inc.; Twin 
Cities & Western Railroad Company; Utah Railway Company; Willamette 
& Pacific Railroad, Inc.; Wiregrass Central Railroad Company, Inc.; 
York Railway Company; AN Railway, LLC; Atlantic and Western Railway, 
Limited Partnership; Bay Line Railroad, LLC; Central Midland 
Railway; Copper Basin Railway, Inc.; East Tennessee Railway, L.P.; 
Galveston Railroad, L.P.; Georgia Central Railway, L.P.; The Indiana 
Rail Road Company; KWT Railway, Inc.; Little Rock & Western Railway, 
L.P.; M & B Railroad, L.L.C.; Tomahawk Railway, Limited Partnership; 
Valdosta Railway, L.P.; Western Kentucky Railway, LLC; Wheeling & 
Lake Erie Railway Company; Wilmington Terminal Railroad, L.P.; and 
Yolo Shortline Railroad Company.
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    The Board has exclusive and plenary jurisdiction over the 
abandonment of rail lines. Chicago & N.W. Transp. Co. v. Kalo Brick & 
Tile Co., 450 U.S. 311, 319-21 (1981) (Kalo Brick); Phillips Co. v. 
Denver & Rio Grande Western R. Co., 97 F.3d 1375, 1376-78 (10th Cir. 
1996), cert. denied, 521 U.S. 1104 (1997). Under 49 U.S.C. 10903, the 
Board may authorize abandonment if it finds that the present or future 
public convenience and necessity (PC&N) require or permit the 
abandonment. In making this public interest determination, the Board

[[Page 3031]]

weighs the burden on shippers and communities from the loss of rail 
service against the burden on the carrier and interstate commerce from 
continued operation of the line at issue. Colorado v. United States, 
271 U.S. 153 (1926). The Board considers all relevant factors, 
including profits or losses incurred from operating the line, costs 
avoidable by abandonment (such as maintenance and rehabilitation costs) 
and the opportunity costs incurred by forgoing more profitable use of 
the carrier's assets elsewhere. Kalo Brick, 450 U.S.C. 311, 321 (1981). 
See also 49 CFR part 1152. The statute directs the Board also to 
consider whether the abandonment will have a serious, adverse impact on 
rural and community development. 49 U.S.C. 10903(d).
    Over the years, Congress has taken steps to minimize needless 
burdens and delay in the regulatory process. See Railroad Ventures, 
Inc. v. STB, 299 F.3d 523, 529 n.1, 530-31 (6th Cir. 2002). Since 1980 
it has encouraged the agency to streamline the regulatory process where 
appropriate. Under 49 U.S.C. 10502, the Board must exempt a 
transaction, person, or service, in whole or in part, from otherwise 
applicable statutory provisions when the Board finds that: (1) 
Continued regulation is not necessary to carry out the rail 
transportation policy of 49 U.S.C. 10101; and (2) either (a) the 
transaction is of limited scope, or (b) regulation is not necessary to 
protect shippers from the abuse of market power.
    The Board has used this exemption power to simplify and expedite 
abandonment cases where it believes that closer regulatory scrutiny is 
unnecessary, and most requests for abandonment authority are now 
handled through the exemption process. A carrier seeking abandonment 
authority may petition the Board for an exemption for a particular line 
on a case-by-case basis. See 49 CFR 1152.60. Or, if no local traffic 
has moved over the line in at least 2 years, any overhead traffic can 
be rerouted, and no formal complaint filed by a user regarding 
cessation of service over the line is pending or has been decided 
against the railroad during the 2-year period, a carrier may utilize a 
class exemption for ``out-of-service lines.'' See 49 CFR 1152.50(b); 
Exemption of Out of Service Rail Lines, 2 I.C.C.2d 146, 157-58 (1986), 
aff'd sub nom. Illinois Commerce Comm'n v. ICC, 848 F.2d 1246 (D.C. 
Cir. 1988), cert. denied, 488 U.S. 1004 (1989) (Out-of-Service 
Exemption).
    Petitioners claim that the existing procedures do not work well for 
small carriers. Petitioners argue that the data needed to support a 
full application under 49 U.S.C. 10903, i.e., base and forecast year 
statistics, come from the Board's Uniform System of Accounts, which 
only Class I carriers are required to use and report to the Board. 
Petitioners assert that small carriers typically lack the necessary 
data. They can try to compile the necessary information or ask the 
Board for a waiver, but neither option is attractive to small carriers. 
Petitioners maintain that the first option is too expensive. The second 
also involves expense, coupled with delay and uncertainty as to whether 
the waiver will be granted.
    Petitioners also claim that filing a petition for exemption for an 
individual line under 49 U.S.C. 10502(a) poses challenges for small 
carriers. Although less data are required and filing expenses are 
lower, petitioners claim that the individual exemption process is too 
uncertain. Petitioners cite a Board decision that states that petitions 
for exemption are appropriate only where there is no opposition or 
operation of the line is clearly unprofitable. Central Railroad Company 
of Indiana--Abandonment Exemption)--In Dearborn, Decatur, Franklin, 
Ripley, and Shelby Counties, IN, STB Docket No. AB-459 (Sub-No. 2X) 
(STB served May 4, 1998). Petitioners argue that this standard 
discourages use of the petition for exemption process in all but the 
most routine cases. They also point out that a carrier must make its 
entire presentation in its initial filing, with no right to respond to 
comments and protests.
    Petitioners claim that these deficiencies force carriers to forgo 
seeking abandonment authority until a line is eligible for the Out-of-
Service Exemption. Petitioners assert that the result is that when a 
prudent small carrier makes the subjective business decision that a 
particular line is no longer viable, it will increase rates on the line 
and divert resources away from the line to other more productive parts 
of its system. This, in turn, forces any remaining traffic to find more 
economical alternatives. When the line becomes eligible, the carrier 
would then invoke the class exemption for out-of-service lines. 
Petitioners argue that this process wastes resources and deters 
potential offers of financial assistance (OFAs) to continue rail 
service under 49 U.S.C. 10904, because shippers will already have found 
alternative transportation and the physical assets will have 
deteriorated for at least 2 years.
    To alleviate these perceived shortcomings in the Board's current 
procedures, petitioners have proposed a new class exemption for Class 
II and Class III carriers seeking abandonment authority. Under 
petitioners' proposal, Class II and Class III carriers would be 
eligible to abandon their lines by invoking a notice procedure. The 
carrier would publish relevant commercial and engineering information 
about the line in local newspapers and national railroad industry 
publications, in addition to filing with the Board a notice to be 
published in the Federal Register. Such a notice would contain: 3 years 
of aggregate carload and revenue data; a statement of physical 
condition of the line; an estimate of the rehabilitation, if any, that 
would be needed to bring the line up to Federal Railroad Administration 
class 1 standards; the net liquidation value (NLV) of the line; and 
information concerning connecting carriers, interchange locations, and 
any operating rights of third parties over the line. Other data would 
be made available upon request to an OFA offeror. Petitioners' proposed 
changes to the Board's abandonment rules are contained in the Appendix 
to the Board's decision served on January 19, 2006. A copy of the 
Board's decision is available on the Board's Web page at https://
www.stb.dot.gov or by contacting ASAP Document Solutions at (202) 306-
4004.
    Under Petitioners' proposal, carriers that availed themselves of 
this class exemption procedure would waive any claim for the value of 
the line in excess of NLV. Also, if an OFA sale were consummated and 
the subject line connected only to the abandoning carrier, the 
abandoning carrier would be required to provide the purchaser with 
either haulage or trackage rights (at the abandoning carrier's choice), 
at commercially reasonable rates, to move any traffic to and from any 
connecting carrier with which traffic has moved during the 24 preceding 
months. The proposal would create a longer OFA filing period of 90 days 
and would, at the abandoning carrier's option, delay the need to file 
the historic and environmental reports required under the Board's 
environmental rules at 49 CFR 1105.7 and 1105.8 until after the OFA 
process. Under the proposal, carriers that elected to defer such 
reports would obtain only discontinuance authority and would not be 
able to remove track structure until such reports were completed.
    In order to adopt a class exemption for small carrier abandonments, 
we would first have to find that, as a class, regulation of these 
transactions is not necessary to carry out the rail transportation 
policy of 49 U.S.C.

[[Page 3032]]

10101. See 49 U.S.C. 10502. This analysis would require that we 
determine whether, on balance, those sometimes conflicting policies 
would be promoted or hindered by exemption from regulatory requirements 
that otherwise would apply. See Out-of-Service Exemption, citing 
Baggett Transportation Co. v. U.S., 666 F.2d 524, 530-31 (11th Cir. 
1982). If regulation is not necessary, we would also have to find that 
either (a) the transactions are of limited scope, or (b) regulation is 
not necessary to protect shippers from the abuse of market power.
    Petitioners argue that their proposal would meet this statutory 
test and should be issued for public review and comment and adopted. At 
the same time, petitioners acknowledged at the public hearing that some 
technical difficulties could exist with their rules as proposed and 
expressed a willingness to work with the Board in perfecting and 
improving them. Therefore, the Board is now issuing this Advance Notice 
of Proposed Rulemaking to request public comment on whether the 
proposed class exemption could meet the statutory criteria and allow 
the Board to meet its environmental responsibilities. Also, the Board 
seeks comment as to whether and how to improve the proposed rules. 
Finally, the Board is also seeking comment as to whether other changes 
to the Board's processes could alleviate the alleged deficiencies with 
the current abandonment process that petitioners have identified for 
Class II and Class III carriers. After reviewing the comments, the 
Board will decide whether to issue an NPR in this proceeding.
    While we welcome comments on all aspects of petitioners' proposal, 
and any alternatives, we will briefly outline below initial concerns we 
have with the class exemption, as proposed by petitioners. First, 
section 10903 requires the Board to balance competing interests in 
determining whether the PC&N require or permit abandonment. 
Petitioners' proposed class exemption would require a finding that the 
balancing analysis under section 10903 is unnecessary for some classes 
of carriers based only on their annual revenue. Petitioners' proposal 
does not appear to contain sufficient data to support such a finding. 
To decide whether to issue an NPR proposing specific changes for Class 
II and Class III carriers, it would be useful to know the average 
length of lines abandoned by such carriers and the average number of 
shippers affected by such abandonments. In addition, some measure of 
the typical effect on local communities by such abandonments and the 
effects of deferred maintenance and increased rates on continued 
service on low volume lines would be helpful.
    Second, Congress considered eliminating the PC&N test for all 
carrier abandonments during the consideration of the ICC Termination 
Act of 1995 (ICCTA), but ultimately did not do so. The House bill 
contained a proposed section 10703 that would have replaced section 
10903 and 10904 and converted all applications for abandonment or 
discontinuance authority from the current PC&N standard into a 
notification process to ``maximize the opportunity for the line to be 
acquired for continued operation by a smaller railroad, even though the 
line is revenue deficient for a large trunk carrier.'' H.R. Rep. No. 
104-422, at 180-81(1995) (Conf. Rep.), as reprinted in 1995 
U.S.C.C.A.N. 865-66. The Senate amendment instead removed outdated 
provisions from the abandonment statute. The conference substitute 
passed by Congress retained the PC&N standard as formulated in the 
Senate amendment. The Board requests comments on how the Board could 
justify going beyond the action Congress took in ICCTA.
    Third, under the National Environmental Policy Act of 1969 (NEPA), 
42 U.S.C. 4331-4335, the Board is required to examine the potential 
environmental impacts of proposed licensing actions subject to the 
Board's jurisdiction, including abandonments. The Section of 
Environmental Analysis (SEA) is the office responsible for ensuring 
compliance with NEPA and the National Historic Preservation Act, 16 
U.S.C. 470 (NHPA). Under 49 CFR 1105.6(b)(2), SEA prepares 
Environmental Assessments (EAs) in most rail abandonment cases, 
analyzing the potential environmental and historic issues, and 
recommending appropriate mitigation. SEA bases its analysis on 
information submitted by the carrier in the form of an environmental 
and historic report that sets forth the details of the proposed action, 
potential environmental impacts, and summarizes consultations conducted 
with relevant Federal, State, and local entities. Petitioners' proposal 
would allow carriers the option of delaying the environmental and 
historic reports until after the OFA period has expired. This, they 
argue, would eliminate waste and expense by preventing the preparation 
of unnecessary reports in cases where an OFA results in the continued 
operation of the line. If a carrier elects to delay its reporting, 
under petitioners' proposed rules the carrier would have discontinuance 
authority until the environmental and historic reporting requirements 
are completed.
    Discontinuance authority, however, also generally triggers the need 
for completion of an EA prior to the time the discontinuance of service 
is authorized. See 49 CFR 1105.6(b)(3). Petitioners acknowledge this by 
providing in their proposal that a carrier that utilizes this process 
would certify that the discontinuance would not result in operational 
changes exceeding the thresholds set forth at 49 CFR 1105.7(e)(4) and 
(5), and that the carrier had no plans to alter or remove any historic 
properties. Petitioners also compare their suggested discontinuance 
authority process to what takes place under a lawful embargo, i.e., a 
temporary cessation of rail service. The Board requests comments 
regarding whether the proposal put forth by petitioners would allow the 
Board to meet its responsibilities under NEPA and NHPA.
    At the hearing, the Association of American Railroads (AAR) urged 
the Board to seek to expedite and improve its current historic review 
process, which, it believes, can significantly delay railroad 
abandonments. AAR stated that it was eager to work with the Board 
outside this proceeding to explore options to streamline the Board's 
historic reviews. AAR also indicated its support of the former 
Chairman's suggestion of meetings with representatives of the rail 
industry, the historic preservation community, and SEA. Since the 
hearing, SEA has consulted with representatives from AAR and the 
American Short Line and Regional Railroad Association (ASLRA) to 
determine the scope of the carriers' concerns. SEA has also provided 
extensive background information on the nature of these concerns to the 
Advisory Council on Historic Preservation (ACHP) and has apprised ACHP 
that the Board would like its assistance in developing appropriate 
streamlining options. In addition, SEA has met with the Executive 
Director of the National Conference of State Historic Preservation 
Officers (NCSHPO). With the assistance of an ASLRA representative, SEA 
is currently completing work on a White Paper, as requested by the 
NCSHPO. Furthermore, SEA has developed, at the carriers' suggestion, a 
guidance document (available on the Board's Web site under the 
``Environmental'' button) to assist carriers in complying with NHPA in 
Board proceedings and thereby avoid unnecessary delay. SEA will 
continue working with the carriers and the

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historic preservation community on the streamlining initiative.
    Finally, at the public hearing and in written testimony, the 
representatives of organized labor raised an additional concern 
regarding the class exemption as originally proposed. The unions 
expressed concern that it would be possible to create small carriers 
with few or no employees to act as a way to avoid labor protection. For 
example, they stated, a Class I railroad could spin off a failing line 
to a small-carrier shell with no or few employees under the class 
exemption for sales to Class III carriers, see 49 CFR 1150 subpart E, 
thus avoiding labor protection. The ``small carrier'' could then use 
petitioners' proposed class exemption to abandon the line. Petitioners 
have acknowledged that such a practice would be a concern and expressed 
a willingness to explore ways to protect against such possibilities, 
such as including a holding period before the abandonment class 
exemption could be utilized. The Board requests public comment on 
whether to propose such a holding period, and if so, what the holding 
period should be and how it would work.
    Given our initial concerns about some aspects of petitioners' class 
exemption, as proposed, and the perceived shortcomings petitioners see 
in the current abandonment regulations for smaller carriers, the Board 
also requests public comments on other possible ways to improve the 
abandonment process, and address the kinds of concerns petitioners have 
raised. For example, the 2-year out-of-service exemption has reportedly 
worked well since it has been adopted. Would a 1-year out-of-service 
exemption alleviate some of the frustrations with the current process 
evidently experienced by small carriers? Also, prior to ICCTA, 49 
U.S.C. 10904(b) directed the agency to grant an abandonment application 
if no protest had been received within 30 days of filing. Would a 
similar, ``no-protest'' abandonment process for a petition for 
exemption improve upon the current process for small carriers? The 
Board seeks comments on these and any other proposals interested 
persons might submit.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.

    Decided: January 9, 2006.

    By the Board, Chairman Buttrey and Vice Chairman Mulvey.
Vernon A. Williams,
Secretary.
[FR Doc. 06-392 Filed 1-18-06; 8:45 am]
BILLING CODE 4915-01-P