Grand Elk Railroad, Inc.-Acquisition Exemption-Lines of Wisconsin Central Ltd. in the State of Michigan; Fox Valley & Lake Superior Rail System, L.L.C.-Acquisition and Operation Exemption-Lines of Wisconsin Central Ltd. in the State of Wisconsin; Watco Holdings, Inc.-Exemption for Intra-Corporate Family Transaction-Fox Valley & Lake Superior Rail System, L.L.C. and Wisconsin & Southern Railroad, L.L.C.; Watco Holdings, Inc.-Continuance in Control Exemption-Fox Valley & Lake Superior Rail System, L.L.C., 73080-73085 [2021-27903]
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SURFACE TRANSPORTATION BOARD
[Docket Nos. FD 36503; FD 36504; FD
36505; and FD 36506]
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Grand Elk Railroad, Inc.—Acquisition
Exemption—Lines of Wisconsin
Central Ltd. in the State of Michigan;
Fox Valley & Lake Superior Rail
System, L.L.C.—Acquisition and
Operation Exemption—Lines of
Wisconsin Central Ltd. in the State of
Wisconsin; Watco Holdings, Inc.—
Exemption for Intra-Corporate Family
Transaction—Fox Valley & Lake
Superior Rail System, L.L.C. and
Wisconsin & Southern Railroad, L.L.C.;
Watco Holdings, Inc.—Continuance in
Control Exemption—Fox Valley & Lake
Superior Rail System, L.L.C.
Watco Holdings, Inc. (Watco
Holdings), a noncarrier holding
company, Grand Elk Railroad, Inc.
(Grand Elk), a Class III carrier and
Watco Holdings subsidiary, and Watco
Holdings’ newly created noncarrier
subsidiary Fox Valley & Lake Superior
Rail System, L.L.C. (Fox System)
(collectively, Applicants), filed for a
series of exemptions in furtherance of
the acquisition of rail lines in Wisconsin
and Michigan from Wisconsin Central
Ltd. (WCL). In particular, Grand Elk
filed a verified notice of exemption to
acquire lines in Michigan, Fox System
filed a verified notice of exemption to
acquire and operate lines in Wisconsin,
Watco Holdings filed both a verified
notice of exemption for an intracorporate family transaction to transfer
some of the acquired assets between its
subsidiaries and a petition for
exemption to continue in control of Fox
System once Fox System becomes a
carrier.
The Board received numerous
comments supporting the overall
transaction and numerous comments
opposing it, including requests for
revocation or stay of the acquisition
exemptions. To permit the Board time to
consider the issues raised, the
effectiveness of the notices of exemption
was postponed pending further order of
the of the Board. See Grand Elk R.R.—
Acquis. Exemption—Lines of Wis. Cent.
in the State of Mich. (April Order), FD
36503 et al. (STB served Apr. 27, 2021).
That decision noted that the proposed
acquisitions by Grand Elk and Fox
System involve the transfer of some
lines as to which the Board previously
had authorized discontinuance of
service and that Grand Elk and Fox
System intended to keep those lines in
their ‘‘discontinued state.’’ See id. at 3.
The decision directed Applicants to file
a supplement explaining how transfer of
those lines would be an appropriate use
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of the acquisition exemption and
responding to the requests for
revocation or stay. See id. at 3–4. The
Board received a joint reply from
Applicants responding to the April
Order and further comments from
stakeholders.
As discussed below, the Board finds
that the issues raised do not
demonstrate regulation is necessary to
carry out the rail transportation policy
(RTP) and that it is appropriate to allow
Applicants to proceed with the
exemption process. The Board therefore
will allow the exemptions sought by the
verified notices to become effective and
publish notice of these exemptions in
the Federal Register. The Board will
also grant the petition for exemption
sought by Watco Holdings and publish
notice of that exemption in the Federal
Register.
Background
On April 5, 2021, Applicants
separately filed for their various
exemptions in furtherance of the overall
transaction to acquire lines from WCL,
which is controlled by Canadian
National Railway Company (CN).
Specifically, in Docket No. FD 36503,
Grand Elk filed a verified notice of
exemption under 49 CFR 1150.41 to
acquire approximately 142.64 miles of
rail line owned by WCL in Michigan,
consisting of 95.38 miles of active line
and 47.26 miles of line over which
discontinuance of service previously
had been authorized. (Grand Elk
Verified Notice 1.) In Docket No. FD
36504, Fox System filed a verified
notice of exemption under 49 CFR
1150.31 to acquire and operate
approximately 509.27 miles of rail line
in Wisconsin, including 328.52 miles of
active rail line and 180.75 miles of line
over which discontinuance of service
previously had been authorized. (Fox
System Verified Notice 1, 3–5.) 1 Under
the proposed transaction, Fox System
would become a Class III carrier. (Id. at
1.) Accordingly, Watco Holdings filed in
Docket No. FD 36506 a petition for
exemption under 49 U.S.C. 10502 from
the prior approval requirements of 49
U.S.C. 11323–24 to continue in control
of Fox System upon Fox System’s
becoming a Class III carrier. (Watco
Holdings Pet. 1.) Finally, in Docket No.
FD 36505, Watco Holdings filed a
verified notice of exemption pursuant to
49 CFR 1180.2(d)(3) for an intracorporate transfer of the Eden Spur, the
West Bend Subdivision, and the
1 Detailed descriptions of the lines that Grand Elk
and Fox System seek to acquire are provided in the
verified notices of exemption filed in Docket Nos.
FD 36503 and FD 36504, respectively.
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Saukville Subdivision (collectively, the
Southern Cluster), totaling
approximately 42 miles, of the
Wisconsin lines at issue in Docket No.
FD 36504 from Fox System to
Wisconsin & Southern Railroad, L.L.C.
(WSOR), a Class II subsidiary of Watco
Holdings. (Watco Holdings Verified
Notice 2–3; id. at Ex. 1.)
Several submissions were filed raising
various issues concerning the proposed
exemptions and the resulting
acquisitions. On April 8 and April 9,
2021, U.S. Representative Tom Tiffany,
Western Upper Peninsula Planning &
Development Regional Commission
(Upper Peninsula Commission), the
Northwoods Rail Transit Commission
(Northwoods Commission), and the
Timber Professionals Cooperative
separately filed comments seeking
revocation or stay of the exemptions
sought in Docket Nos. FD 36503 and FD
36504. These comments each point out
that Watco Holdings already controls
some 600 miles of rail lines in
Wisconsin through WSOR and that,
after consummation of the proposed
transaction, Watco Holdings would
control more than 1,250 miles of rail
line in Wisconsin and Michigan. The
comments also express concern
regarding whether shippers on the
acquired lines would continue to have
the benefit of the conditions the Board
imposed when approving CN’s
acquisition of control of WCL. See
Canadian Nat’l Ry.—Control—Wis.
Cent. Transp. Corp. (CN/WCL), 5 S.T.B.
890 (2001). The commenters assert that
the proposed transaction should be
designated as ‘‘significant’’ under 49
CFR part 1180 and question whether
Applicants should be permitted to
acquire the lines through the Board’s
exemption procedures, including the
class exemptions at 49 CFR 1150.31 and
1150.41.
The Wisconsin Department of
Transportation (WisDOT) commented
on April 12, 2021, noting that it has
been concerned about rates and
reliability of service for shippers on the
affected lines and that it supports the
sale because of its understanding that
this transaction would address these
issues. (WisDOT Comment 1, FD
36504.) WisDOT also asks the Board to
consider the shippers’ concerns,
including whether the shippers would
continue to benefit from the conditions
imposed in CN/WCL. (Id.)
On April 14, 2021, Branch Line
Railroad, LLC (Branch Line), filed a
comment stating that Northwoods
Distribution Services, Inc. (Northwoods
Distribution), and Branch Line
(collectively, N&B) object to the transfer
of trackage in northern Wisconsin
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absent public hearings. (Branch Line
Comment 1, Apr. 14, 2021, FD 36503.)
N&B later filed a comment on April 21,
2021, requesting that the Board revoke
or stay the exemptions sought in Docket
Nos. FD 36503 and FD 36504. (N&B
Comment 4, Apr. 21, 2021, FD 36503 &
FD 36504.) On April 22, 2021,
Northwoods Distribution and Dahlquist
Trucking, Inc. (collectively, N&D),
jointly filed a submission urging the
Board to revoke or stay the exemptions.
Applicants jointly filed on April 15
and 21, 2021, various letters supporting
Docket Nos. FD 36503, FD 36504, and
FD 36506 and praising Watco-provided
rail service. In Docket No. FD 36504, the
Wisconsin Paper Council and the
Wisconsin Office of the Commissioner
of Railroads filed letters of support on
April 16, 2021, and April 22, 2021,
respectively. Wisconsin Central Group
and Lake States Shippers Association
have also indicated their support for the
acquisitions. (Wis. Cent. Group & Lake
States Shippers 1, Apr. 23, 2021, FD
36503 & FD 36504.) And, on April 22,
2021, WCL submitted a letter it
previously sent to WisDOT claiming
that nothing in the proposed sale to Fox
System would affect the conditions
imposed in CN/WCL or change whether
or how those conditions apply for
shippers on the lines. (WCL Reply,
Letter 1, Apr. 22, 2021, FD 36504.)
As noted above, the April Order
postponed the effectiveness of the
exemptions in Docket Nos. FD 36503,
FD 36504, and FD 36505 and directed
Applicants to submit a supplemental
filing explaining how the transfer of
lines as to which a discontinuance of
service had been authorized would be
an appropriate use of the acquisition
exemption and responding to the
commenters seeking revocation or stay.
Applicants filed their joint response
to the April Order on May 7, 2021. At
the outset, Applicants note that
numerous shippers and other
stakeholders, including WisDOT,
support the overall transaction.
(Applicants Reply 2, May 7, 2021, FD
36503, FD 36504, FD 36505, & FD
36506.) 2 Applicants also note that
among the supporters are several
entities that had initially sought greater
regulatory scrutiny. (Id. at 3.)
Applicants assert that the remaining
parties with objections have expressed
only general concerns about the
2 On May 3, 2021, Applicants submitted letters
from two shippers supporting the acquisitions and
the use of the class exemption for the transfers. The
National Industrial Transportation League and
Packaging Corporation of America submitted
similar letters on May 6, 2021. Wisconsin Central
Group and Lake States Shippers Association jointly
filed supporting comments on May 10, 2021.
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exemption process. (Id.) They further
argue that those expressing concern
provide no legitimate basis for departing
from the established Board class
exemption procedures applicable to
these proposed rail line acquisitions and
identify no lessening of competition or
other competitive harm from the
proposed transaction. (Id. at 4.)
Applicants add that, although styled as
petitions for stay and to revoke the
exemptions, the objecting commenters
make no effort to satisfy the Board’s
standards for stay or revocation. (Id.) As
to the acquisition of lines over which
discontinuance had been granted,
Applicants assert that their intent and
goal is to restore rail service on these
lines in due course and that acquisition
of the lines is consistent with Board
precedent and sound policy. (Id.)
WCL also responded to the April
Order on May 7, 2021. Among other
things, it reiterates that nothing in the
proposed sale of WCL rail lines to
Applicants would affect the conditions
imposed in CN/WCL or change whether
or how those conditions apply for
customers on the lines. (WCL Reply 4,
May 7, 2021, FD 36503 & FD 36504.) It
adds that, upon closing of the proposed
line sales, Grand Elk and Fox System
would serve as ‘‘handling carriers’’ for
WCL, and WCL would continue to quote
and invoice linehaul freight rates to
customers on those lines, which rates
would include the Grand Elk/Fox
System transportation charge. (Id.) WCL
states that customers would retain a
direct commercial relationship with it
and would have the same routing access
to WCL gateways and rate-making
interface with WCL that they do today.
(Id.) WCL adds that its representation
also applies to the lines in Michigan.
(Id.) Finally, WCL asserts that
permitting the sale of the lines where
discontinuance would continue is
appropriate. (Id. at 6–7.)
Also on May 7, 2021, Upper
Peninsula Commission filed a comment
withdrawing its April 9, 2021 request
for revocation or stay of the exemption
sought in Docket No. FD 36503. (Upper
Peninsula Comm’n Comment 1, May 7,
2021, FD 36503.) It states that it has met
with numerous stakeholders, including
‘‘Watco management and staff,’’ to
address its concerns and that, based on
those meetings, it is optimistic about the
future of the rail lines at issue. Upper
Peninsula Commission also, however,
notes WCL’s representation to WisDOT
that nothing in the proposed sale of the
WCL lines to Fox System would affect
the CN/WCL conditions or change
whether or how those conditions apply
for shippers on the line and asks the
Board to hold WCL to a similar
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representation with respect to the Grand
Elk lines in upper Michigan and any
inactive rail lines that are brought back
into service. (Id. at 2.)
Northwoods Commission similarly
filed on May 7, 2021, withdrawing its
request for revocation and stay filed on
April 9, 2021, for similar reasons.
(Northwoods Comm’n Amended Pet. 1,
May 7, 2021, FD 36503 & FD 36504.)
Northwoods Commission, however,
encourages the Board to review the
outcome of this transaction at its oneand two-year anniversaries. (Id.) Like
Upper Peninsula Commission,
Northwoods Commission also asks the
Board to hold WCL to its representation
to WisDOT and confirm that it applies
to the Grand Elk lines in upper
Michigan as well as any rail lines
brought back into service. (Id.)
On May 11, 2021, the Great Lakes
Timber Professionals Association
(Timber Association) filed a comment
also asking for review of the transaction
at the one- and two-year anniversaries of
the acquisitions by Grand Elk and Fox
System. (Timber Ass’n Comment 1, FD
36503 & FD 36504.) The Lake States
Lumber Association also filed on May
11, requesting that the Board delay the
sales pending an agreement that the
purchases include the right to connect
to a Class I railroad. (Lake States
Lumber Ass’n 1, FD 36503 & FD 36504.)
N&B also provided further comment
on May 11, 2021. Primarily, N&B assert
that, although the sales would benefit
shippers in southern and central
Wisconsin, the sales would not benefit
shippers located further north in
Wisconsin and Michigan in an area N&B
term the Northwoods. (N&B Comment 2,
3–4, May 11, 2021, FD 36503 & FD
36504.) N&B claim that Northwoods
shippers currently must use CN to
access markets and the proposed sales
provide no access to other Class I
railroad connections. (Id. at 4.) They
contend that CN does not reach as many
U.S. markets as other carriers and
complain of CN’s alleged predatory
practices, monopoly position, and
continual disinvestment in the
Northwoods region. (Id.) N&B ask the
Board to bifurcate the sale and not
approve the acquisition of track located
along the ‘‘Route 8 Corridor’’ and
associated feeder lines. (Id. at 5–6.) N&B
instead ask the Board to order CN to sell
track in the corridor on a stand-alone
basis, preferably to a locally owned
company with local management and
local employees, whose sole interest,
purpose, and commitment is to serve
the Northwoods shippers. (Id. at 6–7.)
Per N&B’s proposal, CN would be
required to sell branch lines and two
segments that are not part of Fox
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System’s proposed acquisition, which
N&B claim would provide Northwood
shippers with access to other carriers.
(Id. at 4–5, 6–7.)
By decision served on July 1, 2021, a
proceeding under 49 U.S.C. 10502(b)
was instituted in Docket No. FD 36506.
N&B submitted a filing on August 3,
2021, essentially reiterating their earlier
requests for relief for the Northwoods
shippers. They also suggest that CN had
‘‘broken promises’’ concerning CN/WCL
and ask that the Board appoint a hearing
officer to conduct discovery. (N&B
Comment 1–2, 4, Aug. 3, 2021, FD
36506.) Additionally, N&B request the
Board consider WCL’s proposed sale
under the current major merger rules
adopted in Major Rail Consolidation
Procedures, 5 S.T.B. 1 (2001). (N&B
Comment 5, Aug. 3, 2021, FD 36506.)
On September 7, 2021, U.S.
Representative Tom Tiffany submitted
an additional filing that, among other
things, raises concerns that the current
sale would not provide price
competition and dependable service for
shippers in the Northwoods. (U.S.
Representative Tiffany Comment 1,
Sept. 7, 2021, FD 36503 & FD 36504.)
On September 17, 2021, Northwoods
Distribution filed a comment expressing
frustration with CN’s service.
(Northwoods Distrib. Comment 1, Sept.
17, 2021, FD 36503 & FD 36504.) WCL
filed a response to Representative
Tiffany’s September 7, 2021 filing on
September 27, 2021, and a response to
Northwoods Distribution on October 7,
2021.
Representative Tiffany filed an
additional comment on October 29,
2021, expressing his hope that the
transaction would accomplish the goals
outlined for it and offering additional
suggestions, including ensuring access
over two additional rail segments and
providing a ‘‘look back provision’’ to
ensure rate and service promises are
kept. (U.S. Representative Tiffany
Comment 1, Oct. 29, 2021, FD 36503 &
FD 36504.) On November 2, 2021,
Northwoods Distribution filed a further
comment, claiming that the Northwoods
would be disadvantaged by the
transaction because Watco Holdings and
its subsidiaries would not have the
ability to lower rates that WCL currently
has on the lines in the area.
(Northwoods Distrib. Comment 3, Nov.
2, 2021, FD 36503, FD 36504, FD 36505,
& FD 36506.) 3
3 Although a reply to a reply is not permitted
under 49 CFR 1104.13(c), the Board will accept it
and other filings in the interest of a complete
record. See City of Alexandria, Va.—Pet. for
Declaratory Ord., FD 35157, slip op. at 2 (STB
served Nov. 6, 2008) (allowing a reply to a reply
‘‘[i]n the interest of compiling a full record’’).
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Discussion and Conclusions
As discussed below, the Board finds
that those challenging the exemptions
sought in Docket Nos. FD 36503, FD
36504, and FD 36505 have failed to
meet their burden of demonstrating that
regulation is necessary to carry out the
RTP. The Board therefore will allow
those exemptions to become effective
and publish notice of them in the
Federal Register. The Board also finds
that the transfer of the lines over which
discontinuance authority had been
granted is an appropriate use of the
acquisition exemption here. And, in
Docket No. FD 36506, the Board will
grant Watco Holdings’ petition for
exemption and publish notice of that
exemption in the Federal Register.
Revocation Requests. A party seeking
revocation or rejection of a notice of
exemption has the burden of
demonstrating that the notice contains
false or misleading information, or that
regulation is necessary to carry out the
RTP of 49 U.S.C. 10101. See Oakland
Glob. Rail Enters.—Acquis.
Exemption—Line in Alameda Cnty.,
Cal., FD 36301 et al., slip op. at 3 (STB
served Oct. 28, 2019). Here, those
seeking revocation in Docket Nos. FD
36503, FD 36504, and FD 36505 have
failed to meet their burden.
The Board’s predecessor, the
Interstate Commerce Commission (ICC),
adopted the class exemption at section
1150.31 for the acquisition and
operation of rail lines by noncarriers
because the consideration of individual
petitions for exemption from 49 U.S.C.
10901 had become a ‘‘burdensome and
unnecessary expenditure of resources’’
on the agency and the individual
petitioners. See SF&L Ry.—Acquis. &
Operation Exemption—Toledo, Peoria &
W. Ry. Between La Harpe & Peoria, Ill.,
6 S.T.B. 408, 418 (2002) (citing Class
Exemption for the Acquis. & Operation
of Rail Lines Under 49 U.S.C. 10901
(Section 10901 Class Exemption), 1
I.C.C.2d 810, 811 (1985)). The ICC noted
that the transfer of a line to a new
carrier that can operate the line more
economically or more effectively than
the existing carrier serves shipper and
community interests by continuing rail
service and allows the selling railroad to
eliminate lines it cannot operate
economically. Section 10901 Class
Exemption, 1 I.C.C.2d at 813.
The ICC Termination Act of 1995,
Public Law 104–88, 109 Stat. 803,
created the Board and enacted a new
provision, at 49 U.S.C. 10902, for
acquisition or operation of rail lines by
Class II and Class III rail carriers. The
Board adopted a new class exemption at
49 CFR 1150.41, similar to that for
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noncarriers at 49 CFR 1150.31, to apply
to transactions in which Class III rail
carriers seek to acquire additional rail
properties. Class Exemption for Acquis.
or Operation of Rail Lines by Class III
Rail Carriers—Under 49 U.S.C. 10902
(Section 10902 Class Exemption), 1
S.T.B. 95 (1996). The Board noted that
a class exemption from the requirements
of section 10902 would facilitate the
acquisition of rail lines by Class III rail
carriers and ensure the continuation of
rail service on lines that may otherwise
be abandoned if not for the sale. See
Section 10902 Class Exemption, 1 S.T.B.
at 103.
Here, the acquisitions proposed by
Grand Elk and Fox System qualify for
the class exemption under 49 CFR
1150.41 and 49 CFR 1150.31,
respectively.4 Both sales involve the
transfer of rail property for continued
use. (Applicants Reply 7, May 7, 2021,
FD 36503, FD 36504, FD 36505, & FD
36506.) The amount of track being
transferred in the acquisitions does not
preclude use of the class exemption
process or warrant greater scrutiny in
this case. As an initial matter, the class
exemption regulations at 49 CFR
1150.41 and 49 CFR 1150.31 do not
include a mileage limit for rail line
acquisitions. As Applicants note,
acquisitions involving similar or greater
track mileage have proceeded through
the class exemption process. See e.g.,
Rapid City, Pierre, & E. R.R.—Acquis. &
Operation Exemption—Dakota, Minn.,
& E. R.R., FD 35799 et al. (STB served
May 14, 2015) (utilizing class exemption
for acquisition of approximately 670
miles of rail lines and approximately
219 miles of incidental trackage rights);
Iowa, Chi. & E. R.R.—Acquis. &
Operation Exemption—Lines of I&M
Rail Link, LLC, FD 34177 (STB served
July 22, 2002) (allowing class exemption
for acquisition of 1,125 miles of rail line
and 275 miles of incidental trackage
rights). In fact, WCL previously acquired
approximately 1,800 route miles,
including lines involved here, through a
class exemption. See Wis. Cent. Ltd.—
Exemption Acquis. & Operation—
Certain Lines of Soo Line R.R., FD 31102
(ICC served Sept. 16, 1987).
As noted above, some commenters
argue that greater scrutiny is necessary
based on competition concerns because,
after the transaction, Watco Holdings
will control more than 1,250 miles of
rail line in Wisconsin and Michigan.
The commenters assert that the
4 And, as discussed below, the acquisition of the
lines where the Board had granted discontinuance
of service is appropriate here. Both Grand Elk and
Fox System represent that they intend to try to
restore service on those lines and have detailed
plans supporting their goals.
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proposed transaction should be
designated as ‘‘significant’’ under 49
CFR part 1180 due to that fact. (N&D
Pet. 1, FD 36503 & FD 36504; Timber
Pros. Coop. Comment 1, FD 36503 & FD
36504; U.S. Representative Tom Tiffany
Comment 1, Apr. 8, 2021, FD 36503 &
FD 36504.) N&B add that the transaction
would make Watco Holdings and its
investors the largest owner of track in
Wisconsin by a significant margin. (N&B
Comment 3, Apr. 21, 2021, FD 36503 &
FD 36504.) Even though Watco Holdings
would own substantial rail holdings in
Wisconsin and Michigan, nothing on
the record demonstrates any clear,
anticompetitive effects. As WCL notes,
the shippers on the lines at issue would
have the same competitive options as
they do now—customers would retain a
direct commercial relationship with
WCL and would have the same routing
access to WCL gateways and ratemaking interface with WCL as before the
transaction. Moreover, numerous
shippers, as well as WisDOT, have
indicated their support for the proposed
transaction and Watco-provided rail
service. Both the Upper Peninsula
Commission and the Northwoods
Commission have withdrawn their
requests for revocation and stay and
have expressed optimism about future
rail service.
Furthermore, requests that the sale of
assets by WCL be classified as a
‘‘significant’’ transaction under 49 CFR
part 1180 or that the Board consider the
sale under the current major merger
rules are misplaced. Those requests are
proper in certain merger proceedings
filed under 49 U.S.C. 11323. As
discussed above, the acquisition of lines
by Grand Elk and Fox System are
properly filed as exemptions from 49
U.S.C. 10902 and 10901, respectively,
different sections of the Board’s
governing statute.
And although Docket Nos. FD 36505
and FD 36506 deal with the intracorporate component and the control
component of the overall transaction
and are governed by 49 U.S.C. 11323,
each component satisfies the criteria
applicable for exemption and thus
neither need be analyzed under the
more stringent classifications found at
49 CFR 1180.2(a)–(c). The intracorporate family transaction in Docket
No. FD 36505, where the rail assets are
being transferred from one Watco
Holdings’ subsidiary, Fox System, to
another, WSOR, qualifies for a class
exemption because that transaction does
not ‘‘result in adverse changes in service
levels, significant operational changes,
or a change in the competitive balance
with carriers outside the corporate
family.’’ 49 CFR 1180.2(d)(3); see, e.g.,
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Fortress Inv. Grp. LLC—Exemption for
Intra-Corp. Fam. Transaction—Ohio
River Partners S’holder LLC, FD 36402,
(STB served May 15, 2020). And, as
discussed in detail below, the Board is
granting the petition for exemption in
Docket No. FD 36506 after considering
the exemption criteria in section
10502.5
Requests for Ordered Sale and
Conditioning. N&B argue that CN’s
acquisition of WCL in 2001 made CN
the only Class I carrier to serve the
Northwoods and that it put CN in the
position to exercise monopoly power.
(N&B Comment 2, May 11, 2021, FD
36503 & FD 36504.) N&B claim that,
because the current sales do not include
a segment between Pembine, Wis., and
Goodman, Wis., which they allege
would permit access to the Escanaba &
Lake Superior Railroad (E&LS), and a
segment between Tony, Wis., and
Ladysmith, Wis., which they allege
would permit access to Union Pacific
Railroad Company (UP), Northwoods
shippers would continue not to have
access to other carriers. (Id. at 4–5.) To
rectify the situation, N&B ask that the
Board order the sale of those segments
as well as the rest of what it terms the
Route 8 Corridor (Wausau north from
milepost 91) and branch lines from the
corridor. (Id. at 5–6.) 6 N&B argue that
their proposal would create an
economic unit that would serve
Northwoods shippers and provide
interchange. (Id. at 6; see also U.S.
Representative Tiffany Comment 1, Oct.
29, 2021, FD 36503 & FD 36504.)
In addition, both Timber Association
and Northwoods Commission ask that
the Board review the transaction
proposed by Watco Holdings and its
subsidiaries at its one- and two-year
anniversaries. (Timber Ass’n Comment
1, FD 36503 & FD 36504; Northwoods
Comm’n Amended Pet. 1, May 7, 2021,
FD 36503 & FD 36504.) If conditions on
these lines in the Northwoods have not
improved, Northwoods Commission
asks the Board to consider reopening
CN/WCL and take action to ease pricing
5 Some commenters, in their revocation requests,
ask the Board to stay the transaction, but these
commenters do not address or meet the stay criteria.
See, e.g., Wash. Metro. Area Transit Comm’n v.
Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir.
1977).
6 Specifically, the segments include: (1) 148.6
miles of rail line extending between (a) Pembine
and Goodman, (b) Prentice, Wis., and Rhinelander,
Wis., (c) Prentice and Park Falls, Wis., (d) Bradley,
Wis., and Wausau, Wis., (e) and Tony and
Ladysmith; (2) and 224 miles of line over which the
Board had permitted discontinuance of service,
between (a) Ashland, Wis., and Park Falls, (b)
Goodman and Rhinelander, (c) Prentice and Tony,
and (d) Marengo Junction, Wis., and White Pine,
Mich. (N&B Comment 6, May 11, 2021, FD 36503
& FD 36504.)
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impacts, and Timber Association asks
the Board to reopen the terms of the
current sales. (Northwoods Comm’n
Amended Pet. 1, May 7, 2021, FD 36503
& FD 36504; Timber Ass’n Comment 1,
FD 36503 & FD 36504.) Northwoods
Commission, as well as Upper
Peninsula Commission, also ask that the
Board hold WCL to its representation to
WisDOT that nothing would change
concerning the CN/WCL conditions due
to the sales to Grand Elk and Fox
System. (Northwoods Comm’n
Amended Pet. 1, May 7, 2021, FD 36503
& FD 36504; Upper Peninsula Comm’n
Comment 1–2, May 7, 2021, FD 36503.)
The Board will not impose the
conditions related to the Northwoods
area. As discussed above, the record
does not demonstrate that the proposed
transaction would result in any clear,
anticompetitive effects. Indeed, these
concerns seem to stem from CN’s
acquiring control over WCL in 2001,
and not from the presently proposed
acquisitions by Grand Elk and Fox
System. Board approval of the
transaction at issue would have no
effect on the conditions imposed in CN/
WCL, including the conditions requiring
WCL to adhere to its ‘‘open gateways
pledge’’ and its ‘‘bottleneck-waiver
pledge,’’ which remain in effect. Thus,
there is no need for the Board to again
hold WCL to its representation to
WisDOT regarding the CN/WCL
conditions.
N&B’s request to order a sale of the
corridor and related track to a local
entity is also misplaced. There is no
basis here to condition approval of the
transaction on a requirement that assets
be divested given the absence, discussed
above, of transaction-related
competitive concerns. Regardless, the
requested relief would not provide
shippers in the Northwoods area with
increased access to a Class I carrier
other than CN. In response to N&B’s
concerns about how the sale was
structured, WCL notes that, while the
segment between Pembine and
Goodman does lead to E&LS, E&LS only
has connections with WCL. (WCL Reply
2, Sept. 27, 2021, FD 36503 & FD
36504.) Similarly, as to the segment
between Tony and Ladysmith, WCL
notes that UP cannot access customers
or interchange traffic at Ladysmith. (Id.)
UP only conducts train operations
through Ladysmith on WCL’s northsouth mainline pursuant to overhead
trackage rights obtained by a
predecessor in a series of related
transactions from the early 1990s. See
Chi. & N. W. Transp. Co.—Joint
Relocation Project Exemption, FD 32043
(ICC served May 27, 1992); Chi. & N. W.
Transp. Co.—Trackage Rts.
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Exemption—over Wis. Cent. Ltd., FD
31882 (ICC served June 6, 1991).
Although the Board will not grant the
relief described above, it takes seriously
concerns raised about service in the
Northwoods and emphasizes WCL’s,
Grand Elk’s, and Fox System’s
responsibility to provide rail service
consistent with their common carrier
obligations.
Transfer of Lines Over Which
Discontinuance of Service Had Been
Granted. As discussed above, Grand Elk
and Fox System seek to acquire certain
lines over which the Board had granted
authority for discontinuance of service,
and the intended purchasers did not
indicate an intent to operate those lines.
See Apr. Ord., FD 36503 et al., slip op.
at 3–4. Applicants and WCL filed
replies addressing the issue. Upon
review, the Board will allow the transfer
of those lines through the exemptions
sought in Docket Nos. FD 36503 and FD
36504.
The class exemption allowing
noncarriers (such as Fox System) to
acquire or operate a rail line was
adopted to serve shippers and
community interests by facilitating
continued rail service, and the Board
has stated that an acquisition exemption
is meant to support the continued
operation of rail lines. See Apr. Ord., FD
36503 et al., slip op. at 3 (citations
omitted).
Here, Grand Elk and Fox System
explain in their reply to the April Order
that they are each acquiring the rail
lines where discontinuance authority
had been granted with the goal and
intent of restoring rail service on those
lines. (Applicants Reply 16, May 7,
2021, FD 36503, FD 36504, FD 36505, &
FD 36506.) They note, however, that the
lines have been out of service for several
years and that Watco Holdings has not
yet fully assessed the condition of the
tracks, bridges, and other facilities and
the costs of restoring the lines to safe
operating condition. (Id.) In addition,
potential rail shippers located on the
lines would need to be persuaded to use
rail and new business would need to be
developed. (Id.) Accordingly, restoring
rail service would require both an
investment in the physical
infrastructure and rail customers to
warrant the investment. (Id.) Grand Elk
and Fox System assert that they are
already engaged in efforts to develop
rail customers and hope to work with
state economic development officials
and other interested stakeholders to
develop rail business and to identify
funding opportunities, as Watco
Holdings companies previously have
done in Wisconsin, Michigan, and
elsewhere. (Id.) Watco Holdings adds
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that it intends to pursue re-investment
in these lines using the various options
available to short line railroads, such as
federal and state grant programs
coupled with private capital to restore
service, if market conditions allow, and
notes these efforts would take time. (Id.)
Other stakeholders have filed in support
of reactivating service. (See, e.g.,
Northwoods Comm’n Amended Pet. 2,
May 7, 2021, FD 36503 & FD 36504.)
Based on this record, the Board
concludes that the transfer of the lines
in question would be consistent with
the rationale underpinning the Board’s
class exemption procedures and that it
is appropriate to allow the transfers to
proceed. See also Ventura Cnty. Transp.
Comm’n—Acquis. Exemption—S. Pac.
Transp. Co., FD 32794 (ICC served Dec.
29, 1995); Golden Gate Bridge, Highway
& Transp. Dist.—Acquis. Exemption—
NW Pac. R.R., FD 31689 (July 3, 1990).7
Petition for Exemption. In Docket No.
FD 36506, Watco Holdings filed a
petition for exemption under 49 U.S.C.
10502 from the prior approval
requirements of 49 U.S.C. 11323–24 to
continue in control of Fox System once
Fox System becomes a rail carrier. (Pet.
for Exemption 1.) Watco Holdings notes
that granting its petition would also
permit the consummation in Docket No.
FD 36505, in which Fox System would
transfer the Southern Cluster to WSOR
for WSOR to operate as part of its
system. (Id. at 5.)
Watco Holdings asserts it is unlikely
that its continued control of Fox System
would result in any anticompetitive
effects. (Id. at 8.) With the exceptions of
the West Bend and Saukville
Subdivisions, none of Fox System’s rail
lines connect to those of any other rail
carrier owned or controlled by Watco
Holdings or its affiliates. (Id.)
With respect to the West Bend
Subdivision and the Saukville
Subdivision, Watco Holdings asserts
that no loss of competition is likely. (Id.)
Although those lines are branch lines
currently solely served by WCL, they are
‘‘islands’’ disconnected from the rest of
the WCL system. (Id. at 8–9.) To serve
those lines, WSOR currently handles
WCL traffic to and from each line in
haulage service for WCL over WSOR’s
own lines. (Id. at 9.) After
consummation of the overall
transaction, traffic on the West Bend
Subdivision and the Saukville
7 The Board notes that none of the line sales at
issue in Docket Nos. FD 36503 and FD 36504 are
subject to interchange commitments limiting future
interchange with a third-party connecting carrier.
(Grand Elk Verified Notice 4; Fox Sys. Verified
Notice 5.) If interchange commitments are imposed
at a later date, however, the Board expects to be
notified about such a development.
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Sfmt 4703
Subdivision would continue to be
handled by WSOR in WCL’s account to
and from interchange with WCL
pursuant to a contractual handling
carrier agreement between the parties.
(Id.) In addition, shippers on the two
segments would also be able to ship via
WSOR and its interline connections.
(Id.) Watco Holdings adds that there are
no dually served shippers at the points
where the West Bend and Saukville
Subdivisions connect with WSOR’s rail
lines, and no shipper would go from
two-railroad access to one. (Id.)
The acquisition of control of a rail
carrier by a person that is not a rail
carrier but that controls any number of
rail carriers requires prior approval by
the Board under 49 U.S.C. 11323(a)(5).
Under 49 U.S.C. 10502(a), however, the
Board must exempt a transaction from
regulation if it finds that: (1) Regulation
is not necessary to carry out the RTP of
49 U.S.C. 10101; and (2) either (a) the
transaction is limited in scope, or (b)
regulation is not needed to protect
shippers from the abuse of market
power.
Detailed scrutiny of a full application
concerning the proposed continuance in
control is not required here to carry out
the transportation policy of section
10101. The grant of an exemption will
minimize the need for federal regulatory
control over the rail transportation
system. 49 U.S.C. 10101(2). An
exemption also will enable Watco
Holdings, a company experienced in the
development of short line railroads, to
bring its experience, knowledge, and
resources to bear in helping Fox System
maintain, operate, and develop the lines
it is acquiring from WCL. Thus, the
grant of an exemption will promote a
safe and efficient rail transportation
system (49 U.S.C. 10101(3)), ensure the
development of a sound rail
transportation system (49 U.S.C.
10101(4)), foster sound economic
conditions in transportation (49 U.S.C.
10101(5)), and encourage efficient
management of railroads (49 U.S.C.
10101(9)). Granting an exemption will
reduce the regulatory barriers to entry
into and exit from the industry (49
U.S.C. 10101(7)) and provide for
expeditious handling and resolution of
all proceedings (49 U.S.C. 10101(15)).
Moreover, the grant of the exemption
would not adversely affect any of the
other aspects of the RTP.
Additionally, regulation is not needed
to protect shippers from the abuse of
market power. As noted above, it is
unlikely that Watco Holdings’
continued control of Fox System would
result in any anticompetitive effects.
(Pet. for Exemption 8.) After the
transaction, with the exception of two
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short branch lines, none of the Fox
System lines will connect to any other
railroad owned or controlled by Watco
Holdings. (Id. at 10.) Most of Fox
System’s lines are branch lines that
connect to the WCL system and, with
the exception of certain lines located in
northern Wisconsin, do not connect to
each other. (Id.)
Under 49 U.S.C. 10502(g), the Board
may not use its exemption authority to
relieve a rail carrier of its statutory
obligation to protect the interests of its
employees. Because the transaction
involves one Class II and one or more
Class III rail carriers, the exemption will
be made subject to the labor protection
requirements of 49 U.S.C. 11326(b) and
Wisconsin Central Ltd.—Acquisition
Exemption—Lines of Union Pacific
Railroad, 2 S.T.B. 218 (1997).
The continuance in control portion of
the transaction is exempt from
environmental reporting requirements
under 49 CFR 1105.6(c)(1)(i) because it
would not result in any significant
change in carrier operations. Similarly,
the continuance in control component
of the transaction is exempt from the
historic reporting requirements under
49 CFR 1105.8(b)(3) because it would
not substantially change the level of
maintenance of railroad properties.
The continuance in control exemption
in Docket No. FD 36506 will be effective
on December 31, 2021, and petitions to
stay will be due by December 27, 2021.
Petitions to reopen also will be due by
December 27, 2021.
Conclusions. For the reasons
discussed above, the Board will allow
the exemptions to become effective and
the sales to Grand Elk and Fox System
to proceed.
It is ordered:
1. All filings to date are accepted into
the record.
2. The requests for revocation or stay
in Docket Nos. FD 36503 and FD 36504
are denied.
3. Under 49 U.S.C. 10502, the Board
exempts from the prior approval
requirements of 49 U.S.C. 11323–25 the
continued control of Fox System by
Watco Holdings once Fox System
becomes a rail carrier. The exemption is
subject to the employee protective
conditions in Wisconsin Central Ltd.—
Acquisition Exemption—Lines of Union
Pacific Railroad, 2 S.T.B. 218 (1997).
4. Notice of the exemptions in Docket
Nos. FD 36503, FD 36504, FD 36505,
and FD 36506 will be published in the
Federal Register.
5. The exemptions in Docket Nos. FD
36503, FD 36504, FD 36505, and FD
36506 will become effective on
December 31, 2021. Petitions for stay
must be filed by December 27, 2021.
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Jkt 256001
Petitions to reopen also must be filed by
December 27, 2021.
6. This decision is effective on its
service date.
Decided: December 17, 2021.
By the Board, Board Members Fuchs,
Oberman, Primus, and Schultz.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2021–27903 Filed 12–22–21; 8:45 am]
BILLING CODE 4915–01–P
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36503]
Grand Elk Railroad, Inc.—Acquisition
Exemption—Lines of Wisconsin
Central Ltd. in the State of Michigan
Grand Elk Railroad, Inc. (Grand Elk),1
a Class III carrier, has filed a verified
notice of exemption under 49 CFR
1150.41 to acquire 142.64 miles of rail
lines owned by Wisconsin Central Ltd.
(WCL) in Michigan, consisting of 95.38
miles of active line and 47.26 miles of
line over which WCL previously
discontinued service (the Lines).
Specifically, the Lines consist of (1) the
Newberry Subdivision between Trout
Lake, Mich., at milepost 27.5 and
Munising Jct., Mich., at milepost 117.0,
and between Munising Jct. at milepost
5.88 and Munising, Mich., at milepost
0.0, a total of 95.38 active route miles,
and (2) the portion of the White Pine
Subdivision located in Michigan
between White Pine, Mich., at milepost
254.6 and the Michigan/Wisconsin
border at milepost 302.36, a total of
47.26 miles that have been inactive
since 2015.2
Grand Elk’s acquisition is part of a
larger transaction pursuant to which, in
addition to Grand Elk’s acquisition, (1)
Fox Valley & Lake Superior Rail System,
L.L.C. (Fox System), a newly created
noncarrier subsidiary of Watco
Holdings, would acquire from WCL
approximately 328.52 miles of active
rail lines and 180.75 miles of rail line
over which WCL had discontinued
service, all in the State of Wisconsin; 3
1 Grand Elk is an indirectly controlled subsidiary
of Watco Holdings, Inc. (Watco Holdings), a
noncarrier Delaware limited liability holding
company.
2 In 2015, WCL discontinued service over the
White Pine Subdivision, including the portion
extending into Wisconsin. See Wis. Cent. Ltd.—
Discontinuance of Serv. Exemption—in Ashland &
Iron Cntys., Wis., & Gogebic & Ontonagon Cntys.,
Mich., AB 303 (Sub-No. 45X) (STB served Dec. 3,
2014) and notice of consummation filed on January
9, 2015.
3 See Fox Valley & Lake Superior Rail Sys.,
L.L.C.—Acquis. & Operation Exemption—Lines of
Wis. Cent. Ltd. in the State of Wis., Docket No. FD
36504. Additionally, to continue in control of Fox
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73085
and (2) Fox System would transfer three
segments of those lines, totaling
approximately 42 miles, to Wisconsin &
Southern Railroad, L.L.C. (WSOR), a
Class II subsidiary of Watco Holdings.4
The effective date of the exemptions
sought in Docket Nos. FD 36503, FD
36504, and FD 36505 was tolled to
consider questions raised and solicit
additional information. See Grand Elk
R.R.—Acquis. Exemption—Lines of Wis.
Cent. Ltd. in the State of Mich., FD
36503 et al. (STB served Apr. 27, 2021).
In a decision served on December 20,
2021, the Board held that the
exemptions in Docket Nos. FD 36503,
FD 36504, and FD 36505 could proceed
and granted the petition for exemption
sought in Docket No. FD 36506. See
Grand Elk R.R.—Acquis. Exemption—
Lines of Wis. Cent. Ltd. in the State of
Mich., FD 36503 et al. (STB served Dec.
20, 2021).
Grand Elk certifies that its projected
annual revenues as a result of this
transaction will not exceed those that
would qualify it as a Class III rail
carrier. Pursuant to 49 CFR 1150.42(e),
which applies ‘‘[i]f the projected annual
revenue of the rail lines to be acquired
or operated, together with the acquiring
carrier’s projected annual revenue,
exceeds $5 million,’’ Grand Elk certified
on April 1, 2021, that notice of the
transaction was posted at the
workplaces of current WCL employees
on the Lines and was being served on
the national offices of the labor unions
for those employees.
Grand Elk further certifies that the
proposed transaction does not involve,
and the purchase agreement does not
include, any provision or agreement that
would limit future interchange with a
third-party connecting carrier.
The transaction may be consummated
on or after December 31, 2021, the
effective date of the exemption.
If the verified notice contains false or
misleading information, the exemption
is void ab initio. Petitions to revoke the
exemption under 49 U.S.C. 10502(d)
may be filed at any time. The filing of
a petition to revoke will not
automatically stay the effectiveness of
the exemption. Petitions to stay must be
filed no later than December 27, 2021.
All pleadings, referring to Docket No.
FD 36503, should be filed with the
Surface Transportation Board via efiling on the Board’s website. In
System once it becomes a carrier, Watco Holdings
filed a petition for exemption in Watco Holdings,
Inc.—Continuance in Control Exemption—Fox
Valley & Lake Superior Rail System, L.L.C., Docket
No. FD 36506.
4 See Watco Holdings, Inc.—Exemption for IntraCorp. Family Transaction—Fox Valley & Lake
Superior Rail Sys., L.L.C., Docket No. FD 36505.
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[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73080-73085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27903]
[[Page 73080]]
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SURFACE TRANSPORTATION BOARD
[Docket Nos. FD 36503; FD 36504; FD 36505; and FD 36506]
Grand Elk Railroad, Inc.--Acquisition Exemption--Lines of
Wisconsin Central Ltd. in the State of Michigan; Fox Valley & Lake
Superior Rail System, L.L.C.--Acquisition and Operation Exemption--
Lines of Wisconsin Central Ltd. in the State of Wisconsin; Watco
Holdings, Inc.--Exemption for Intra-Corporate Family Transaction--Fox
Valley & Lake Superior Rail System, L.L.C. and Wisconsin & Southern
Railroad, L.L.C.; Watco Holdings, Inc.--Continuance in Control
Exemption--Fox Valley & Lake Superior Rail System, L.L.C.
Watco Holdings, Inc. (Watco Holdings), a noncarrier holding
company, Grand Elk Railroad, Inc. (Grand Elk), a Class III carrier and
Watco Holdings subsidiary, and Watco Holdings' newly created noncarrier
subsidiary Fox Valley & Lake Superior Rail System, L.L.C. (Fox System)
(collectively, Applicants), filed for a series of exemptions in
furtherance of the acquisition of rail lines in Wisconsin and Michigan
from Wisconsin Central Ltd. (WCL). In particular, Grand Elk filed a
verified notice of exemption to acquire lines in Michigan, Fox System
filed a verified notice of exemption to acquire and operate lines in
Wisconsin, Watco Holdings filed both a verified notice of exemption for
an intra-corporate family transaction to transfer some of the acquired
assets between its subsidiaries and a petition for exemption to
continue in control of Fox System once Fox System becomes a carrier.
The Board received numerous comments supporting the overall
transaction and numerous comments opposing it, including requests for
revocation or stay of the acquisition exemptions. To permit the Board
time to consider the issues raised, the effectiveness of the notices of
exemption was postponed pending further order of the of the Board. See
Grand Elk R.R.--Acquis. Exemption--Lines of Wis. Cent. in the State of
Mich. (April Order), FD 36503 et al. (STB served Apr. 27, 2021). That
decision noted that the proposed acquisitions by Grand Elk and Fox
System involve the transfer of some lines as to which the Board
previously had authorized discontinuance of service and that Grand Elk
and Fox System intended to keep those lines in their ``discontinued
state.'' See id. at 3. The decision directed Applicants to file a
supplement explaining how transfer of those lines would be an
appropriate use of the acquisition exemption and responding to the
requests for revocation or stay. See id. at 3-4. The Board received a
joint reply from Applicants responding to the April Order and further
comments from stakeholders.
As discussed below, the Board finds that the issues raised do not
demonstrate regulation is necessary to carry out the rail
transportation policy (RTP) and that it is appropriate to allow
Applicants to proceed with the exemption process. The Board therefore
will allow the exemptions sought by the verified notices to become
effective and publish notice of these exemptions in the Federal
Register. The Board will also grant the petition for exemption sought
by Watco Holdings and publish notice of that exemption in the Federal
Register.
Background
On April 5, 2021, Applicants separately filed for their various
exemptions in furtherance of the overall transaction to acquire lines
from WCL, which is controlled by Canadian National Railway Company
(CN). Specifically, in Docket No. FD 36503, Grand Elk filed a verified
notice of exemption under 49 CFR 1150.41 to acquire approximately
142.64 miles of rail line owned by WCL in Michigan, consisting of 95.38
miles of active line and 47.26 miles of line over which discontinuance
of service previously had been authorized. (Grand Elk Verified Notice
1.) In Docket No. FD 36504, Fox System filed a verified notice of
exemption under 49 CFR 1150.31 to acquire and operate approximately
509.27 miles of rail line in Wisconsin, including 328.52 miles of
active rail line and 180.75 miles of line over which discontinuance of
service previously had been authorized. (Fox System Verified Notice 1,
3-5.) \1\ Under the proposed transaction, Fox System would become a
Class III carrier. (Id. at 1.) Accordingly, Watco Holdings filed in
Docket No. FD 36506 a petition for exemption under 49 U.S.C. 10502 from
the prior approval requirements of 49 U.S.C. 11323-24 to continue in
control of Fox System upon Fox System's becoming a Class III carrier.
(Watco Holdings Pet. 1.) Finally, in Docket No. FD 36505, Watco
Holdings filed a verified notice of exemption pursuant to 49 CFR
1180.2(d)(3) for an intra-corporate transfer of the Eden Spur, the West
Bend Subdivision, and the Saukville Subdivision (collectively, the
Southern Cluster), totaling approximately 42 miles, of the Wisconsin
lines at issue in Docket No. FD 36504 from Fox System to Wisconsin &
Southern Railroad, L.L.C. (WSOR), a Class II subsidiary of Watco
Holdings. (Watco Holdings Verified Notice 2-3; id. at Ex. 1.)
---------------------------------------------------------------------------
\1\ Detailed descriptions of the lines that Grand Elk and Fox
System seek to acquire are provided in the verified notices of
exemption filed in Docket Nos. FD 36503 and FD 36504, respectively.
---------------------------------------------------------------------------
Several submissions were filed raising various issues concerning
the proposed exemptions and the resulting acquisitions. On April 8 and
April 9, 2021, U.S. Representative Tom Tiffany, Western Upper Peninsula
Planning & Development Regional Commission (Upper Peninsula
Commission), the Northwoods Rail Transit Commission (Northwoods
Commission), and the Timber Professionals Cooperative separately filed
comments seeking revocation or stay of the exemptions sought in Docket
Nos. FD 36503 and FD 36504. These comments each point out that Watco
Holdings already controls some 600 miles of rail lines in Wisconsin
through WSOR and that, after consummation of the proposed transaction,
Watco Holdings would control more than 1,250 miles of rail line in
Wisconsin and Michigan. The comments also express concern regarding
whether shippers on the acquired lines would continue to have the
benefit of the conditions the Board imposed when approving CN's
acquisition of control of WCL. See Canadian Nat'l Ry.--Control--Wis.
Cent. Transp. Corp. (CN/WCL), 5 S.T.B. 890 (2001). The commenters
assert that the proposed transaction should be designated as
``significant'' under 49 CFR part 1180 and question whether Applicants
should be permitted to acquire the lines through the Board's exemption
procedures, including the class exemptions at 49 CFR 1150.31 and
1150.41.
The Wisconsin Department of Transportation (WisDOT) commented on
April 12, 2021, noting that it has been concerned about rates and
reliability of service for shippers on the affected lines and that it
supports the sale because of its understanding that this transaction
would address these issues. (WisDOT Comment 1, FD 36504.) WisDOT also
asks the Board to consider the shippers' concerns, including whether
the shippers would continue to benefit from the conditions imposed in
CN/WCL. (Id.)
On April 14, 2021, Branch Line Railroad, LLC (Branch Line), filed a
comment stating that Northwoods Distribution Services, Inc. (Northwoods
Distribution), and Branch Line (collectively, N&B) object to the
transfer of trackage in northern Wisconsin
[[Page 73081]]
absent public hearings. (Branch Line Comment 1, Apr. 14, 2021, FD
36503.) N&B later filed a comment on April 21, 2021, requesting that
the Board revoke or stay the exemptions sought in Docket Nos. FD 36503
and FD 36504. (N&B Comment 4, Apr. 21, 2021, FD 36503 & FD 36504.) On
April 22, 2021, Northwoods Distribution and Dahlquist Trucking, Inc.
(collectively, N&D), jointly filed a submission urging the Board to
revoke or stay the exemptions.
Applicants jointly filed on April 15 and 21, 2021, various letters
supporting Docket Nos. FD 36503, FD 36504, and FD 36506 and praising
Watco-provided rail service. In Docket No. FD 36504, the Wisconsin
Paper Council and the Wisconsin Office of the Commissioner of Railroads
filed letters of support on April 16, 2021, and April 22, 2021,
respectively. Wisconsin Central Group and Lake States Shippers
Association have also indicated their support for the acquisitions.
(Wis. Cent. Group & Lake States Shippers 1, Apr. 23, 2021, FD 36503 &
FD 36504.) And, on April 22, 2021, WCL submitted a letter it previously
sent to WisDOT claiming that nothing in the proposed sale to Fox System
would affect the conditions imposed in CN/WCL or change whether or how
those conditions apply for shippers on the lines. (WCL Reply, Letter 1,
Apr. 22, 2021, FD 36504.)
As noted above, the April Order postponed the effectiveness of the
exemptions in Docket Nos. FD 36503, FD 36504, and FD 36505 and directed
Applicants to submit a supplemental filing explaining how the transfer
of lines as to which a discontinuance of service had been authorized
would be an appropriate use of the acquisition exemption and responding
to the commenters seeking revocation or stay.
Applicants filed their joint response to the April Order on May 7,
2021. At the outset, Applicants note that numerous shippers and other
stakeholders, including WisDOT, support the overall transaction.
(Applicants Reply 2, May 7, 2021, FD 36503, FD 36504, FD 36505, & FD
36506.) \2\ Applicants also note that among the supporters are several
entities that had initially sought greater regulatory scrutiny. (Id. at
3.) Applicants assert that the remaining parties with objections have
expressed only general concerns about the exemption process. (Id.) They
further argue that those expressing concern provide no legitimate basis
for departing from the established Board class exemption procedures
applicable to these proposed rail line acquisitions and identify no
lessening of competition or other competitive harm from the proposed
transaction. (Id. at 4.) Applicants add that, although styled as
petitions for stay and to revoke the exemptions, the objecting
commenters make no effort to satisfy the Board's standards for stay or
revocation. (Id.) As to the acquisition of lines over which
discontinuance had been granted, Applicants assert that their intent
and goal is to restore rail service on these lines in due course and
that acquisition of the lines is consistent with Board precedent and
sound policy. (Id.)
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\2\ On May 3, 2021, Applicants submitted letters from two
shippers supporting the acquisitions and the use of the class
exemption for the transfers. The National Industrial Transportation
League and Packaging Corporation of America submitted similar
letters on May 6, 2021. Wisconsin Central Group and Lake States
Shippers Association jointly filed supporting comments on May 10,
2021.
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WCL also responded to the April Order on May 7, 2021. Among other
things, it reiterates that nothing in the proposed sale of WCL rail
lines to Applicants would affect the conditions imposed in CN/WCL or
change whether or how those conditions apply for customers on the
lines. (WCL Reply 4, May 7, 2021, FD 36503 & FD 36504.) It adds that,
upon closing of the proposed line sales, Grand Elk and Fox System would
serve as ``handling carriers'' for WCL, and WCL would continue to quote
and invoice linehaul freight rates to customers on those lines, which
rates would include the Grand Elk/Fox System transportation charge.
(Id.) WCL states that customers would retain a direct commercial
relationship with it and would have the same routing access to WCL
gateways and rate-making interface with WCL that they do today. (Id.)
WCL adds that its representation also applies to the lines in Michigan.
(Id.) Finally, WCL asserts that permitting the sale of the lines where
discontinuance would continue is appropriate. (Id. at 6-7.)
Also on May 7, 2021, Upper Peninsula Commission filed a comment
withdrawing its April 9, 2021 request for revocation or stay of the
exemption sought in Docket No. FD 36503. (Upper Peninsula Comm'n
Comment 1, May 7, 2021, FD 36503.) It states that it has met with
numerous stakeholders, including ``Watco management and staff,'' to
address its concerns and that, based on those meetings, it is
optimistic about the future of the rail lines at issue. Upper Peninsula
Commission also, however, notes WCL's representation to WisDOT that
nothing in the proposed sale of the WCL lines to Fox System would
affect the CN/WCL conditions or change whether or how those conditions
apply for shippers on the line and asks the Board to hold WCL to a
similar representation with respect to the Grand Elk lines in upper
Michigan and any inactive rail lines that are brought back into
service. (Id. at 2.)
Northwoods Commission similarly filed on May 7, 2021, withdrawing
its request for revocation and stay filed on April 9, 2021, for similar
reasons. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD 36503 & FD
36504.) Northwoods Commission, however, encourages the Board to review
the outcome of this transaction at its one- and two-year anniversaries.
(Id.) Like Upper Peninsula Commission, Northwoods Commission also asks
the Board to hold WCL to its representation to WisDOT and confirm that
it applies to the Grand Elk lines in upper Michigan as well as any rail
lines brought back into service. (Id.)
On May 11, 2021, the Great Lakes Timber Professionals Association
(Timber Association) filed a comment also asking for review of the
transaction at the one- and two-year anniversaries of the acquisitions
by Grand Elk and Fox System. (Timber Ass'n Comment 1, FD 36503 & FD
36504.) The Lake States Lumber Association also filed on May 11,
requesting that the Board delay the sales pending an agreement that the
purchases include the right to connect to a Class I railroad. (Lake
States Lumber Ass'n 1, FD 36503 & FD 36504.)
N&B also provided further comment on May 11, 2021. Primarily, N&B
assert that, although the sales would benefit shippers in southern and
central Wisconsin, the sales would not benefit shippers located further
north in Wisconsin and Michigan in an area N&B term the Northwoods.
(N&B Comment 2, 3-4, May 11, 2021, FD 36503 & FD 36504.) N&B claim that
Northwoods shippers currently must use CN to access markets and the
proposed sales provide no access to other Class I railroad connections.
(Id. at 4.) They contend that CN does not reach as many U.S. markets as
other carriers and complain of CN's alleged predatory practices,
monopoly position, and continual disinvestment in the Northwoods
region. (Id.) N&B ask the Board to bifurcate the sale and not approve
the acquisition of track located along the ``Route 8 Corridor'' and
associated feeder lines. (Id. at 5-6.) N&B instead ask the Board to
order CN to sell track in the corridor on a stand-alone basis,
preferably to a locally owned company with local management and local
employees, whose sole interest, purpose, and commitment is to serve the
Northwoods shippers. (Id. at 6-7.) Per N&B's proposal, CN would be
required to sell branch lines and two segments that are not part of Fox
[[Page 73082]]
System's proposed acquisition, which N&B claim would provide Northwood
shippers with access to other carriers. (Id. at 4-5, 6-7.)
By decision served on July 1, 2021, a proceeding under 49 U.S.C.
10502(b) was instituted in Docket No. FD 36506. N&B submitted a filing
on August 3, 2021, essentially reiterating their earlier requests for
relief for the Northwoods shippers. They also suggest that CN had
``broken promises'' concerning CN/WCL and ask that the Board appoint a
hearing officer to conduct discovery. (N&B Comment 1-2, 4, Aug. 3,
2021, FD 36506.) Additionally, N&B request the Board consider WCL's
proposed sale under the current major merger rules adopted in Major
Rail Consolidation Procedures, 5 S.T.B. 1 (2001). (N&B Comment 5, Aug.
3, 2021, FD 36506.)
On September 7, 2021, U.S. Representative Tom Tiffany submitted an
additional filing that, among other things, raises concerns that the
current sale would not provide price competition and dependable service
for shippers in the Northwoods. (U.S. Representative Tiffany Comment 1,
Sept. 7, 2021, FD 36503 & FD 36504.) On September 17, 2021, Northwoods
Distribution filed a comment expressing frustration with CN's service.
(Northwoods Distrib. Comment 1, Sept. 17, 2021, FD 36503 & FD 36504.)
WCL filed a response to Representative Tiffany's September 7, 2021
filing on September 27, 2021, and a response to Northwoods Distribution
on October 7, 2021.
Representative Tiffany filed an additional comment on October 29,
2021, expressing his hope that the transaction would accomplish the
goals outlined for it and offering additional suggestions, including
ensuring access over two additional rail segments and providing a
``look back provision'' to ensure rate and service promises are kept.
(U.S. Representative Tiffany Comment 1, Oct. 29, 2021, FD 36503 & FD
36504.) On November 2, 2021, Northwoods Distribution filed a further
comment, claiming that the Northwoods would be disadvantaged by the
transaction because Watco Holdings and its subsidiaries would not have
the ability to lower rates that WCL currently has on the lines in the
area. (Northwoods Distrib. Comment 3, Nov. 2, 2021, FD 36503, FD 36504,
FD 36505, & FD 36506.) \3\
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\3\ Although a reply to a reply is not permitted under 49 CFR
1104.13(c), the Board will accept it and other filings in the
interest of a complete record. See City of Alexandria, Va.--Pet. for
Declaratory Ord., FD 35157, slip op. at 2 (STB served Nov. 6, 2008)
(allowing a reply to a reply ``[i]n the interest of compiling a full
record'').
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Discussion and Conclusions
As discussed below, the Board finds that those challenging the
exemptions sought in Docket Nos. FD 36503, FD 36504, and FD 36505 have
failed to meet their burden of demonstrating that regulation is
necessary to carry out the RTP. The Board therefore will allow those
exemptions to become effective and publish notice of them in the
Federal Register. The Board also finds that the transfer of the lines
over which discontinuance authority had been granted is an appropriate
use of the acquisition exemption here. And, in Docket No. FD 36506, the
Board will grant Watco Holdings' petition for exemption and publish
notice of that exemption in the Federal Register.
Revocation Requests. A party seeking revocation or rejection of a
notice of exemption has the burden of demonstrating that the notice
contains false or misleading information, or that regulation is
necessary to carry out the RTP of 49 U.S.C. 10101. See Oakland Glob.
Rail Enters.--Acquis. Exemption--Line in Alameda Cnty., Cal., FD 36301
et al., slip op. at 3 (STB served Oct. 28, 2019). Here, those seeking
revocation in Docket Nos. FD 36503, FD 36504, and FD 36505 have failed
to meet their burden.
The Board's predecessor, the Interstate Commerce Commission (ICC),
adopted the class exemption at section 1150.31 for the acquisition and
operation of rail lines by noncarriers because the consideration of
individual petitions for exemption from 49 U.S.C. 10901 had become a
``burdensome and unnecessary expenditure of resources'' on the agency
and the individual petitioners. See SF&L Ry.--Acquis. & Operation
Exemption--Toledo, Peoria & W. Ry. Between La Harpe & Peoria, Ill., 6
S.T.B. 408, 418 (2002) (citing Class Exemption for the Acquis. &
Operation of Rail Lines Under 49 U.S.C. 10901 (Section 10901 Class
Exemption), 1 I.C.C.2d 810, 811 (1985)). The ICC noted that the
transfer of a line to a new carrier that can operate the line more
economically or more effectively than the existing carrier serves
shipper and community interests by continuing rail service and allows
the selling railroad to eliminate lines it cannot operate economically.
Section 10901 Class Exemption, 1 I.C.C.2d at 813.
The ICC Termination Act of 1995, Public Law 104-88, 109 Stat. 803,
created the Board and enacted a new provision, at 49 U.S.C. 10902, for
acquisition or operation of rail lines by Class II and Class III rail
carriers. The Board adopted a new class exemption at 49 CFR 1150.41,
similar to that for noncarriers at 49 CFR 1150.31, to apply to
transactions in which Class III rail carriers seek to acquire
additional rail properties. Class Exemption for Acquis. or Operation of
Rail Lines by Class III Rail Carriers--Under 49 U.S.C. 10902 (Section
10902 Class Exemption), 1 S.T.B. 95 (1996). The Board noted that a
class exemption from the requirements of section 10902 would facilitate
the acquisition of rail lines by Class III rail carriers and ensure the
continuation of rail service on lines that may otherwise be abandoned
if not for the sale. See Section 10902 Class Exemption, 1 S.T.B. at
103.
Here, the acquisitions proposed by Grand Elk and Fox System qualify
for the class exemption under 49 CFR 1150.41 and 49 CFR 1150.31,
respectively.\4\ Both sales involve the transfer of rail property for
continued use. (Applicants Reply 7, May 7, 2021, FD 36503, FD 36504, FD
36505, & FD 36506.) The amount of track being transferred in the
acquisitions does not preclude use of the class exemption process or
warrant greater scrutiny in this case. As an initial matter, the class
exemption regulations at 49 CFR 1150.41 and 49 CFR 1150.31 do not
include a mileage limit for rail line acquisitions. As Applicants note,
acquisitions involving similar or greater track mileage have proceeded
through the class exemption process. See e.g., Rapid City, Pierre, & E.
R.R.--Acquis. & Operation Exemption--Dakota, Minn., & E. R.R., FD 35799
et al. (STB served May 14, 2015) (utilizing class exemption for
acquisition of approximately 670 miles of rail lines and approximately
219 miles of incidental trackage rights); Iowa, Chi. & E. R.R.--Acquis.
& Operation Exemption--Lines of I&M Rail Link, LLC, FD 34177 (STB
served July 22, 2002) (allowing class exemption for acquisition of
1,125 miles of rail line and 275 miles of incidental trackage rights).
In fact, WCL previously acquired approximately 1,800 route miles,
including lines involved here, through a class exemption. See Wis.
Cent. Ltd.--Exemption Acquis. & Operation--Certain Lines of Soo Line
R.R., FD 31102 (ICC served Sept. 16, 1987).
---------------------------------------------------------------------------
\4\ And, as discussed below, the acquisition of the lines where
the Board had granted discontinuance of service is appropriate here.
Both Grand Elk and Fox System represent that they intend to try to
restore service on those lines and have detailed plans supporting
their goals.
---------------------------------------------------------------------------
As noted above, some commenters argue that greater scrutiny is
necessary based on competition concerns because, after the transaction,
Watco Holdings will control more than 1,250 miles of rail line in
Wisconsin and Michigan. The commenters assert that the
[[Page 73083]]
proposed transaction should be designated as ``significant'' under 49
CFR part 1180 due to that fact. (N&D Pet. 1, FD 36503 & FD 36504;
Timber Pros. Coop. Comment 1, FD 36503 & FD 36504; U.S. Representative
Tom Tiffany Comment 1, Apr. 8, 2021, FD 36503 & FD 36504.) N&B add that
the transaction would make Watco Holdings and its investors the largest
owner of track in Wisconsin by a significant margin. (N&B Comment 3,
Apr. 21, 2021, FD 36503 & FD 36504.) Even though Watco Holdings would
own substantial rail holdings in Wisconsin and Michigan, nothing on the
record demonstrates any clear, anticompetitive effects. As WCL notes,
the shippers on the lines at issue would have the same competitive
options as they do now--customers would retain a direct commercial
relationship with WCL and would have the same routing access to WCL
gateways and rate-making interface with WCL as before the transaction.
Moreover, numerous shippers, as well as WisDOT, have indicated their
support for the proposed transaction and Watco-provided rail service.
Both the Upper Peninsula Commission and the Northwoods Commission have
withdrawn their requests for revocation and stay and have expressed
optimism about future rail service.
Furthermore, requests that the sale of assets by WCL be classified
as a ``significant'' transaction under 49 CFR part 1180 or that the
Board consider the sale under the current major merger rules are
misplaced. Those requests are proper in certain merger proceedings
filed under 49 U.S.C. 11323. As discussed above, the acquisition of
lines by Grand Elk and Fox System are properly filed as exemptions from
49 U.S.C. 10902 and 10901, respectively, different sections of the
Board's governing statute.
And although Docket Nos. FD 36505 and FD 36506 deal with the intra-
corporate component and the control component of the overall
transaction and are governed by 49 U.S.C. 11323, each component
satisfies the criteria applicable for exemption and thus neither need
be analyzed under the more stringent classifications found at 49 CFR
1180.2(a)-(c). The intra-corporate family transaction in Docket No. FD
36505, where the rail assets are being transferred from one Watco
Holdings' subsidiary, Fox System, to another, WSOR, qualifies for a
class exemption because that transaction does not ``result in adverse
changes in service levels, significant operational changes, or a change
in the competitive balance with carriers outside the corporate
family.'' 49 CFR 1180.2(d)(3); see, e.g., Fortress Inv. Grp. LLC--
Exemption for Intra-Corp. Fam. Transaction--Ohio River Partners
S'holder LLC, FD 36402, (STB served May 15, 2020). And, as discussed in
detail below, the Board is granting the petition for exemption in
Docket No. FD 36506 after considering the exemption criteria in section
10502.\5\
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\5\ Some commenters, in their revocation requests, ask the Board
to stay the transaction, but these commenters do not address or meet
the stay criteria. See, e.g., Wash. Metro. Area Transit Comm'n v.
Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977).
---------------------------------------------------------------------------
Requests for Ordered Sale and Conditioning. N&B argue that CN's
acquisition of WCL in 2001 made CN the only Class I carrier to serve
the Northwoods and that it put CN in the position to exercise monopoly
power. (N&B Comment 2, May 11, 2021, FD 36503 & FD 36504.) N&B claim
that, because the current sales do not include a segment between
Pembine, Wis., and Goodman, Wis., which they allege would permit access
to the Escanaba & Lake Superior Railroad (E&LS), and a segment between
Tony, Wis., and Ladysmith, Wis., which they allege would permit access
to Union Pacific Railroad Company (UP), Northwoods shippers would
continue not to have access to other carriers. (Id. at 4-5.) To rectify
the situation, N&B ask that the Board order the sale of those segments
as well as the rest of what it terms the Route 8 Corridor (Wausau north
from milepost 91) and branch lines from the corridor. (Id. at 5-6.) \6\
N&B argue that their proposal would create an economic unit that would
serve Northwoods shippers and provide interchange. (Id. at 6; see also
U.S. Representative Tiffany Comment 1, Oct. 29, 2021, FD 36503 & FD
36504.)
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\6\ Specifically, the segments include: (1) 148.6 miles of rail
line extending between (a) Pembine and Goodman, (b) Prentice, Wis.,
and Rhinelander, Wis., (c) Prentice and Park Falls, Wis., (d)
Bradley, Wis., and Wausau, Wis., (e) and Tony and Ladysmith; (2) and
224 miles of line over which the Board had permitted discontinuance
of service, between (a) Ashland, Wis., and Park Falls, (b) Goodman
and Rhinelander, (c) Prentice and Tony, and (d) Marengo Junction,
Wis., and White Pine, Mich. (N&B Comment 6, May 11, 2021, FD 36503 &
FD 36504.)
---------------------------------------------------------------------------
In addition, both Timber Association and Northwoods Commission ask
that the Board review the transaction proposed by Watco Holdings and
its subsidiaries at its one- and two-year anniversaries. (Timber Ass'n
Comment 1, FD 36503 & FD 36504; Northwoods Comm'n Amended Pet. 1, May
7, 2021, FD 36503 & FD 36504.) If conditions on these lines in the
Northwoods have not improved, Northwoods Commission asks the Board to
consider reopening CN/WCL and take action to ease pricing impacts, and
Timber Association asks the Board to reopen the terms of the current
sales. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD 36503 & FD
36504; Timber Ass'n Comment 1, FD 36503 & FD 36504.) Northwoods
Commission, as well as Upper Peninsula Commission, also ask that the
Board hold WCL to its representation to WisDOT that nothing would
change concerning the CN/WCL conditions due to the sales to Grand Elk
and Fox System. (Northwoods Comm'n Amended Pet. 1, May 7, 2021, FD
36503 & FD 36504; Upper Peninsula Comm'n Comment 1-2, May 7, 2021, FD
36503.)
The Board will not impose the conditions related to the Northwoods
area. As discussed above, the record does not demonstrate that the
proposed transaction would result in any clear, anticompetitive
effects. Indeed, these concerns seem to stem from CN's acquiring
control over WCL in 2001, and not from the presently proposed
acquisitions by Grand Elk and Fox System. Board approval of the
transaction at issue would have no effect on the conditions imposed in
CN/WCL, including the conditions requiring WCL to adhere to its ``open
gateways pledge'' and its ``bottleneck-waiver pledge,'' which remain in
effect. Thus, there is no need for the Board to again hold WCL to its
representation to WisDOT regarding the CN/WCL conditions.
N&B's request to order a sale of the corridor and related track to
a local entity is also misplaced. There is no basis here to condition
approval of the transaction on a requirement that assets be divested
given the absence, discussed above, of transaction-related competitive
concerns. Regardless, the requested relief would not provide shippers
in the Northwoods area with increased access to a Class I carrier other
than CN. In response to N&B's concerns about how the sale was
structured, WCL notes that, while the segment between Pembine and
Goodman does lead to E&LS, E&LS only has connections with WCL. (WCL
Reply 2, Sept. 27, 2021, FD 36503 & FD 36504.) Similarly, as to the
segment between Tony and Ladysmith, WCL notes that UP cannot access
customers or interchange traffic at Ladysmith. (Id.) UP only conducts
train operations through Ladysmith on WCL's north-south mainline
pursuant to overhead trackage rights obtained by a predecessor in a
series of related transactions from the early 1990s. See Chi. & N. W.
Transp. Co.--Joint Relocation Project Exemption, FD 32043 (ICC served
May 27, 1992); Chi. & N. W. Transp. Co.--Trackage Rts.
[[Page 73084]]
Exemption--over Wis. Cent. Ltd., FD 31882 (ICC served June 6, 1991).
Although the Board will not grant the relief described above, it
takes seriously concerns raised about service in the Northwoods and
emphasizes WCL's, Grand Elk's, and Fox System's responsibility to
provide rail service consistent with their common carrier obligations.
Transfer of Lines Over Which Discontinuance of Service Had Been
Granted. As discussed above, Grand Elk and Fox System seek to acquire
certain lines over which the Board had granted authority for
discontinuance of service, and the intended purchasers did not indicate
an intent to operate those lines. See Apr. Ord., FD 36503 et al., slip
op. at 3-4. Applicants and WCL filed replies addressing the issue. Upon
review, the Board will allow the transfer of those lines through the
exemptions sought in Docket Nos. FD 36503 and FD 36504.
The class exemption allowing noncarriers (such as Fox System) to
acquire or operate a rail line was adopted to serve shippers and
community interests by facilitating continued rail service, and the
Board has stated that an acquisition exemption is meant to support the
continued operation of rail lines. See Apr. Ord., FD 36503 et al., slip
op. at 3 (citations omitted).
Here, Grand Elk and Fox System explain in their reply to the April
Order that they are each acquiring the rail lines where discontinuance
authority had been granted with the goal and intent of restoring rail
service on those lines. (Applicants Reply 16, May 7, 2021, FD 36503, FD
36504, FD 36505, & FD 36506.) They note, however, that the lines have
been out of service for several years and that Watco Holdings has not
yet fully assessed the condition of the tracks, bridges, and other
facilities and the costs of restoring the lines to safe operating
condition. (Id.) In addition, potential rail shippers located on the
lines would need to be persuaded to use rail and new business would
need to be developed. (Id.) Accordingly, restoring rail service would
require both an investment in the physical infrastructure and rail
customers to warrant the investment. (Id.) Grand Elk and Fox System
assert that they are already engaged in efforts to develop rail
customers and hope to work with state economic development officials
and other interested stakeholders to develop rail business and to
identify funding opportunities, as Watco Holdings companies previously
have done in Wisconsin, Michigan, and elsewhere. (Id.) Watco Holdings
adds that it intends to pursue re-investment in these lines using the
various options available to short line railroads, such as federal and
state grant programs coupled with private capital to restore service,
if market conditions allow, and notes these efforts would take time.
(Id.) Other stakeholders have filed in support of reactivating service.
(See, e.g., Northwoods Comm'n Amended Pet. 2, May 7, 2021, FD 36503 &
FD 36504.)
Based on this record, the Board concludes that the transfer of the
lines in question would be consistent with the rationale underpinning
the Board's class exemption procedures and that it is appropriate to
allow the transfers to proceed. See also Ventura Cnty. Transp. Comm'n--
Acquis. Exemption--S. Pac. Transp. Co., FD 32794 (ICC served Dec. 29,
1995); Golden Gate Bridge, Highway & Transp. Dist.--Acquis. Exemption--
NW Pac. R.R., FD 31689 (July 3, 1990).\7\
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\7\ The Board notes that none of the line sales at issue in
Docket Nos. FD 36503 and FD 36504 are subject to interchange
commitments limiting future interchange with a third-party
connecting carrier. (Grand Elk Verified Notice 4; Fox Sys. Verified
Notice 5.) If interchange commitments are imposed at a later date,
however, the Board expects to be notified about such a development.
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Petition for Exemption. In Docket No. FD 36506, Watco Holdings
filed a petition for exemption under 49 U.S.C. 10502 from the prior
approval requirements of 49 U.S.C. 11323-24 to continue in control of
Fox System once Fox System becomes a rail carrier. (Pet. for Exemption
1.) Watco Holdings notes that granting its petition would also permit
the consummation in Docket No. FD 36505, in which Fox System would
transfer the Southern Cluster to WSOR for WSOR to operate as part of
its system. (Id. at 5.)
Watco Holdings asserts it is unlikely that its continued control of
Fox System would result in any anticompetitive effects. (Id. at 8.)
With the exceptions of the West Bend and Saukville Subdivisions, none
of Fox System's rail lines connect to those of any other rail carrier
owned or controlled by Watco Holdings or its affiliates. (Id.)
With respect to the West Bend Subdivision and the Saukville
Subdivision, Watco Holdings asserts that no loss of competition is
likely. (Id.) Although those lines are branch lines currently solely
served by WCL, they are ``islands'' disconnected from the rest of the
WCL system. (Id. at 8-9.) To serve those lines, WSOR currently handles
WCL traffic to and from each line in haulage service for WCL over
WSOR's own lines. (Id. at 9.) After consummation of the overall
transaction, traffic on the West Bend Subdivision and the Saukville
Subdivision would continue to be handled by WSOR in WCL's account to
and from interchange with WCL pursuant to a contractual handling
carrier agreement between the parties. (Id.) In addition, shippers on
the two segments would also be able to ship via WSOR and its interline
connections. (Id.) Watco Holdings adds that there are no dually served
shippers at the points where the West Bend and Saukville Subdivisions
connect with WSOR's rail lines, and no shipper would go from two-
railroad access to one. (Id.)
The acquisition of control of a rail carrier by a person that is
not a rail carrier but that controls any number of rail carriers
requires prior approval by the Board under 49 U.S.C. 11323(a)(5). Under
49 U.S.C. 10502(a), however, the Board must exempt a transaction from
regulation if it finds that: (1) Regulation is not necessary to carry
out the RTP of 49 U.S.C. 10101; and (2) either (a) the transaction is
limited in scope, or (b) regulation is not needed to protect shippers
from the abuse of market power.
Detailed scrutiny of a full application concerning the proposed
continuance in control is not required here to carry out the
transportation policy of section 10101. The grant of an exemption will
minimize the need for federal regulatory control over the rail
transportation system. 49 U.S.C. 10101(2). An exemption also will
enable Watco Holdings, a company experienced in the development of
short line railroads, to bring its experience, knowledge, and resources
to bear in helping Fox System maintain, operate, and develop the lines
it is acquiring from WCL. Thus, the grant of an exemption will promote
a safe and efficient rail transportation system (49 U.S.C. 10101(3)),
ensure the development of a sound rail transportation system (49 U.S.C.
10101(4)), foster sound economic conditions in transportation (49
U.S.C. 10101(5)), and encourage efficient management of railroads (49
U.S.C. 10101(9)). Granting an exemption will reduce the regulatory
barriers to entry into and exit from the industry (49 U.S.C. 10101(7))
and provide for expeditious handling and resolution of all proceedings
(49 U.S.C. 10101(15)). Moreover, the grant of the exemption would not
adversely affect any of the other aspects of the RTP.
Additionally, regulation is not needed to protect shippers from the
abuse of market power. As noted above, it is unlikely that Watco
Holdings' continued control of Fox System would result in any
anticompetitive effects. (Pet. for Exemption 8.) After the transaction,
with the exception of two
[[Page 73085]]
short branch lines, none of the Fox System lines will connect to any
other railroad owned or controlled by Watco Holdings. (Id. at 10.) Most
of Fox System's lines are branch lines that connect to the WCL system
and, with the exception of certain lines located in northern Wisconsin,
do not connect to each other. (Id.)
Under 49 U.S.C. 10502(g), the Board may not use its exemption
authority to relieve a rail carrier of its statutory obligation to
protect the interests of its employees. Because the transaction
involves one Class II and one or more Class III rail carriers, the
exemption will be made subject to the labor protection requirements of
49 U.S.C. 11326(b) and Wisconsin Central Ltd.--Acquisition Exemption--
Lines of Union Pacific Railroad, 2 S.T.B. 218 (1997).
The continuance in control portion of the transaction is exempt
from environmental reporting requirements under 49 CFR 1105.6(c)(1)(i)
because it would not result in any significant change in carrier
operations. Similarly, the continuance in control component of the
transaction is exempt from the historic reporting requirements under 49
CFR 1105.8(b)(3) because it would not substantially change the level of
maintenance of railroad properties.
The continuance in control exemption in Docket No. FD 36506 will be
effective on December 31, 2021, and petitions to stay will be due by
December 27, 2021. Petitions to reopen also will be due by December 27,
2021.
Conclusions. For the reasons discussed above, the Board will allow
the exemptions to become effective and the sales to Grand Elk and Fox
System to proceed.
It is ordered:
1. All filings to date are accepted into the record.
2. The requests for revocation or stay in Docket Nos. FD 36503 and
FD 36504 are denied.
3. Under 49 U.S.C. 10502, the Board exempts from the prior approval
requirements of 49 U.S.C. 11323-25 the continued control of Fox System
by Watco Holdings once Fox System becomes a rail carrier. The exemption
is subject to the employee protective conditions in Wisconsin Central
Ltd.--Acquisition Exemption--Lines of Union Pacific Railroad, 2 S.T.B.
218 (1997).
4. Notice of the exemptions in Docket Nos. FD 36503, FD 36504, FD
36505, and FD 36506 will be published in the Federal Register.
5. The exemptions in Docket Nos. FD 36503, FD 36504, FD 36505, and
FD 36506 will become effective on December 31, 2021. Petitions for stay
must be filed by December 27, 2021. Petitions to reopen also must be
filed by December 27, 2021.
6. This decision is effective on its service date.
Decided: December 17, 2021.
By the Board, Board Members Fuchs, Oberman, Primus, and Schultz.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2021-27903 Filed 12-22-21; 8:45 am]
BILLING CODE 4915-01-P
