[Federal Register: July 14, 2006 (Volume 71, Number 135)]
[Notices]
[Page 40187-40190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jy06-157]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
[STB Finance Docket No. 34844; STB Finance Docket No. 34890]
Pyco Industries, Inc.--Feeder Line Acquisition--South Plains
Switching, Ltd. Co.; Pyco Industries, Inc.--Feeder Line Application--
Lines Of South Plains Switching, Ltd. Co.\1\
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\1\ These proceedings are not consolidated. A single decision is
being issued for administrative convenience. For the same reason,
the Board, rather than the Director of the Office of Proceedings, is
deciding whether to accept or reject the new feeder line application
submitted in STB Finance Docket No. 34890.
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In a decision in STB Finance Docket No. 34844 served on June 2,
2006, the Director of the Office of Proceedings (the Director) rejected
as incomplete the application of PYCO Industries, Inc. (PYCO), under
the feeder line provisions of 49 U.S.C. 10907 and 49 CFR part 1151, to
acquire all of the rail lines of South Plains Switching, Ltd. Co.
(SAW), in Lubbock, TX (the ``All-SAW option''). The Director also
rejected as incomplete PYCO's alternative request to acquire a portion
of SAW's rail lines to allow PYCO to provide rail service to itself and
to two other shippers located in close proximity to one of PYCO's two
plants in Lubbock, TX (``Alternative Two'').\2\ The rejections were
without prejudice to PYCO's filing a new application.
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\2\ PYCO describes the rail lines it seeks to acquire under
Alternative Two as follows: (See reference above.)
Track 5, SAW yard,........................ 2,400 feet;
(continued * * *)......................... ............................
(* * * continued)......................... ............................
Track 1, SAW yard,........................ 2,100 feet;
Track 9200,.............................. 3,900 feet;
Track 9298, east of BNSF main,............ 4,320 feet;
Track lead to PYCO plant 2 to 50th St.,... 6,280 feet;
Track 231 lead to 9200/9298,.............. 960 feet;
Track 310 through Farmers 1,.............. 5,600 feet
-----------------------------
Total:.................................. 25,560 feet
In addition, PYCO seeks to acquire all of Track No. 6 from the
western end of SAW yard to the western clearpoint of the easternmost
switch of the ``wye'' track connecting to Track No. 6 from the south,
and also the western branch of said ``wye'' from its southern
clearpoint north to and including its connection with Track No. 6,
estimated to be 1,100 feet. Also, PYCO would acquire a crossing right
as follows: Crossing right Track 9298 to and through SAW yard, 5,000
feet.
On June 12, 2006, PYCO appealed the Director's decision and
petitioned to
[[Page 40188]]
amend its original application with newly tendered evidence. SAW
opposed both the appeal and the petition to amend in pleadings filed on
June 22 and June 28, 2006, respectively.
In STB Finance Docket No. 34890, filed on June 14, 2006, PYCO has
submitted a new feeder line application for Alternative Two, renewed
its earlier request for issuance of a protective order, and indicated
that it wishes to propound discovery requests tendered with its
original application.\3\ SAW moved to reject the new feeder line
application in a pleading filed on July 3, 2006.
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\3\ The Director found that the rejection of PYCO's feeder line
application rendered moot PYCO's requests for a protective order and
a procedural schedule.
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We will deny the appeal of the Director's rejection of the original
feeder line application in STB Finance Docket No. 34844; accept the new
feeder line application for Alternative Two in STB Finance Docket
No.34890, authorize discovery, and set a procedural schedule; and deny
SAW's motion to reject the new feeder line application.
Background
In 1999, SAW acquired approximately 14.1 miles of rail lines in
Lubbock, TX, from The Burlington Northern and Santa Fe Railway Company
(BNSF).\4\ PYCO, whose rail service was provided only by SAW,
experienced a substantial, measurable deterioration in SAW's service in
2005. This led us to issue, under 49 U.S.C. 11123 and 49 CFR part 1146,
an alternative service order authorizing West Texas & Lubbock Railway
Company, Inc. (WTL), to provide service to PYCO, over SAW's lines, for
an initial period of 30 days. PYCO Industries, Inc.--Alernative Rail
Service--South Plains Switching, Ltd. Co., STB Finance Docket No. 34802
(STB served Jan. 26, 2006). In two subsequent decisions, we extended
the authorization for alternative service to the full 270 days
permitted by the statute, through October 23, 2006.\5\ During the
period of alternative service, SAW has continued to provide rail
service to the other shippers on its lines.
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\4\ BNSF has since changed its name to BNSF Railway Company. We
will refer to both entities as BNSF.
\5\ See decisions in STB Finance Docket No. 34802 served
February 24, and June 21, 2006.
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Seeking a permanent solution to the inadequate rail service it
experienced from SAW, PYCO filed a feeder line application in May 2006.
The Director found that the application was incomplete for both the
All-SAW option and Alternative Two because PYCO had not made a
sufficient showing as to all of the required elements of a feeder line
application (set forth at 49 CFR 1151.3(a)), and some of these
deficiencies would not have been cured by obtaining discovery of
information in SAW's possession.
Discussion and Conclusions
[STB Finance Docket No. 34844]
I. Appeal of Rejection of PYCO's Original Application.
PYCO appeals the Director's decision rejecting its application as
deficient.
A. Inadequacy of SAW's Rail Service (49 CFR 1151.3(a)(11)). The
Director found that PYCO did not provide evidence required under 49
U.S.C. 10907(c)(1)(B) showing that the majority of shippers using SAW's
lines experienced inadequate service from SAW. PYCO argues that its
application met that requirement by showing that service was inadequate
for a majority of the shipments on the line. PYCO also claims that
other shippers were too intimidated to state that their rail service
was inadequate for fear that SAW would retaliate by degrading or
cutting off their rail service.
We do not find any error in the Director's interpretation of the
statutory language of 49 U.S.C. 10907(c)(1)(B) as requiring evidence to
support a finding that there is inadequate service for a majority of
the line's shippers. We agree with the Director that the statutory
language is clear and that to grant a feeder line application, the
Board must make a finding that the owning carrier's service is
inadequate for a majority of the line's shippers, not a majority of the
shipments by volume. See discussion in the Director's order, slip op.
at 6.
There is a fundamental problem with PYCO's argument that silence of
a majority of the shippers should be excused because shippers may be
reluctant to speak out for fear of retribution by SAW. The other
shippers' silence can just as well be read to indicate that they are
satisfied with the service that SAW is providing to them.
We contrast this application with another feeder line proceeding
cited by SAW in its appeal, Keokuk Junction Railway Company--Feeder
Line Acquisition--Line of Toledo Peoria and Western Railway, STB
Finance Docket No. 34335 (STB served Oct. 28, 2004) (Keokuk Junction).
In that case, the initial application included statements from five of
the six shippers located on the line and five of ten ``overhead''
shippers (those not located on the line, but transporting shipments
over the line) that the incumbent's rail service was inadequate. See
Keokuk Junction, slip op. at 7 (describing the shipper statements
included in the initial feeder line application). In contrast, here,
the majority of the shippers on SAW's lines provided no statements at
all.
In light of the silence from a majority of the lines' shippers, the
Director correctly found that the original application did not provide
evidence to permit the Board to find that the transportation over the
line is adequate for the majority of shippers who transport traffic
over the line, as required by statute and our own regulations at 49 CFR
1151.3(a)(11)(i)(B).
B. Financial Responsibility (49 CFR 1151.3(a)(3)). Citing an early
decision in Keokuk Junction (STB served May 9, 2003), PYCO contends
that the Director should have conditionally accepted its showing and
afforded the opportunity to submit additional financial evidence under
a protective order preserving confidentiality.
But the application in Keokuk Junction did not have the ``fatal''
deficiency in the evidence concerning adequacy of service to a majority
of shippers, as discussed above. Given that deficiency, the Director
correctly found that PYCO's request for issuance of a protective order
was moot and that there was no basis for issuance of a procedural
schedule.
Accordingly, PYCO has not met the standard for granting an appeal.
II. Petition To Allow Amendment of Feeder Line Application
Together with its appeal, PYCO petitioned to amend the original
application, tendering additional evidence that could have been
included in the original application. We will not permit PYCO to amend
the original application with this evidence, but we will permit PYCO to
submit the additional evidence in a new application and will
incorporate by reference the information in its original application,
as discussed below.
[STB Finance Docket No. 34890]
In its new feeder line application, PYCO seeks to acquire the rail
lines described as Alternative Two in the original application and
provides information to make the required showing. The new application
also includes newly tendered evidence. This evidence and related issues
will be discussed below.
I. Newly Tendered Evidence
A. Financial Responsibility. The newly tendered evidence \6\
clearly
[[Page 40189]]
demonstrates that PYCO has sufficient financial resources, through its
own strong financial position and an operating line of credit, to
purchase the rail lines at issue at the higher of net liquidation value
or going concern value and to cover expenses associated with providing
services over those lines for at least 3 years. 49 U.S.C. 10907(a); 49
CFR 1151.3(a)(3).
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\6\ The new evidence of financial responsibility consists of a
letter from PYCO's Chief Financial Officer, a new letter from CoBank
of Denver, CO, and PYCO's 2005 Annual Report.
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B. Inadequacy of Rail Service for a Majority of the Shippers. There
are currently three shippers on the portions of the lines comprising
Alternative Two: PYCO, Farmers Cooperative Compress, and Attebury
Grain, LLC. The revised application includes letters from the latter
two shippers indicating that, in light of incidents in which SAW
threatened retaliation against, and degraded service to, shippers that
questioned the quality of SAW's service, both Farmers Compress and
Attebury Grain consider SAW's service to them to be unreliable and
inadequate.
SAW contends that service can be considered inadequate to a shipper
only if the rail carrier either is unduly late, or fails altogether, in
picking up or delivering a specific shipment as requested by that
shipper. We disagree. A shipper's affirmative statement that it fears
that it could suffer retaliation in the form of poor service for
criticizing its rail service provider is sufficient in our view to
constitute a showing of inadequate service to the shipper that makes
the statement.\7\
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\7\ A shipper's affirmative statement is different from shipper
silence, from which no inference can be made.
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When combined with PYCO's convincing statements of the inadequacy
of the service it received from SAW (in the original application), the
statements of Farmers Compress and Attebury Grain constitute credible
evidence of the inadequacy of SAW's rail service for all of the
shippers in Alternative Two. Thus, PYCO's new application is complete
as to that alternative.
II. SAW's Renewed Motion to Reject Application for Alternative Two and
Motion to Reject New Application \8\
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\8\ SAW treated PYCO's new feeder line application as
encompassing both the All-SAW option and Alternative Two. PYCO
contends that the new application is complete only as to Alternative
Two. See Cover Letter submitted with new application on June 14,
2006. Therefore, we will not further discuss SAW's arguments
directed at rejection of the All-SAW option, which stands rejected.
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In its opposition to PYCO's appeal, SAW renewed its earlier motion
to reject the application for Alternative Two.\9\ SAW argues that
Alternative Two constitutes less than the entirety of a rail line that
is operated as a unit, contrary to the language in the feeder line
provision authorizing the sale of ``a particular line of railroad,'' 49
U.S.C. 10907(b)(1)(A)(i). Citing Caddo Antoine and Little Mo. R.R. v.
United States, 95 F.3d 740, 747 (8th Cir. 1996) (Caddo Antoine), SAW
contends that a feeder line applicant may not ``cherry pick'' by
seeking to acquire only the most attractive part of a rail line, while
leaving the incumbent rail line owner with a remaining portion that
allegedly cannot be operated successfully.
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\9\ The motion was filed on May 16, 2006; PYCO submitted a reply
on May 18, 2006.
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The Caddo Antoine decision is inapposite, however, because in that
case it was the incumbent rail carrier that arguably sought to ``cherry
pick'' the line's heaviest user. Initially in Caddo Antoine, the
incumbent listed the entire rail line as subject to future
abandonment--a listing that automatically subjects a line to potential
acquisition under the feeder line provision at 49 U.S.C.
10907(b)(1)(A)(ii). See Caddo Antoine, 95 F.3d at 742. Preferring to
retain the revenue from the line's heaviest shipper, however, the
incumbent subsequently removed from that listing the very small portion
of the line that was needed to serve that one shipper.
In contrast, PYCO, the heaviest user of SAW's rail services in the
past, would like to purchase the entirety of SAW's lines and serve all
of SAW's shippers, both large and small. It is only PYCO's inability to
make the requisite showing that SAW's rail service is inadequate for a
majority of the shippers on the entirety of SAW's rail lines that
prevents the All-SAW application from going forward. SAW's claim that
PYCO is ``cherry picking'' therefore falls flat. Rather, in Alternative
Two, PYCO seeks to purchase the amount of rail lines necessary to
assure adequate rail service to itself and to two other shippers
located in close proximity to one of PYCO's two plants in Lubbock.
Because we have no doubt that PYCO has demonstrated that SAW's rail
service to PYCO was inadequate and has now shown the inadequacy of
service to the other two shippers on the lines at issue in Alternative
Two as well, its application for Alternative Two lawfully may go
forward. For these reasons, we deny SAW's renewed motion to reject the
application for Alternative Two.
In its motion to reject the new application for Alternative Two,
SAW argues that PYCO's application does not have sufficient evidence to
show that sale of the tracks comprising Alternative Two will not have a
significant adverse financial effect on SAW. See 49 U.S.C.
10907(c)(1)(C). In the decision rejecting PYCO's original application,
the Director found that, with regard to PYCO purchasing the tracks
comprising Alternative Two, PYCO's showing was sufficient that the
remainder of SAW's system would be viable both financially and
operationally. We agree that PYCO has made a sufficient showing in this
regard, which of course SAW is free to contest as the new application
in STB Finance Docket No. 34890 goes forward. See PYCO's original
application in STB Finance Docket No. 34844, at 38-39. For this reason,
we will deny PYCO's motion to reject the new application.
III. Discovery
PYCO requests discovery against SAW and BNSF (Exhibits P and Q of
its original application) and reserves the right to amend its tendered
valuations of the rail lines involved in Alternative Two after
discovery. PYCO may propound discovery requests under our regulations
\10\ and may amend its valuations to reflect the responses it receives
from SAW and/or BNSF. A protective order issued separately should
facilitate discovery responses by ensuring confidentiality. Because
PYCO served its original application on the entities from which it
seeks discovery, SAW and BNSF, we deem those discovery requests to be
propounded as of the date this decision takes effect for the purpose of
calculating the time for responses.
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\10\ 49 CFR part 1114.
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IV. Environmental Issues
Under the regulations of the President's Council on Environmental
Quality and the Board's own environmental rules, actions are separated
into three classes that prescribe the level of documentation required
in the process under the National Environmental Protection Act (NEPA).
As pertinent here, actions whose environmental effects are ordinarily
insignificant may normally be excluded from the need to prepare
environmental documentation under 40 CFR 1500.4(p), 1501.4(a)(2),
1508.4 and 49 CFR 1105.6(c). Included in this category are rail line
acquisitions that will not result in operating changes that exceed
certain thresholds: Generally, an increase in rail traffic of at least
eight trains per day or 100% in traffic volume (measured in gross ton
miles annually).
Here, because the acquisition would simply replace the rail carrier
serving three shippers (PYCO, Farmers
[[Page 40190]]
Compress, and Attebury Grain) with either PYCO itself or a rail carrier
of PYCO's choosing, it would not result in more than eight additional
trains per day or an increase of 100% in rail traffic volume on these
lines. Accordingly, we find that PYCO's proposed operations do not
exceed the Board's thresholds for environmental review, and that no
environmental documentation is required.
V. Schedule
Our regulations set forth time periods that apply for submitting
competing applications, verified statements and comments addressing
feeder line applications and any competing applications, and replies,
unless otherwise provided. In light of the expiration date for
alternative rail service to PYCO, October 23, 2006, we shall provide a
shortened schedule for the submission of these pleadings in this case,
as set forth below. Although our regulations provide that extensions of
filing dates may be granted for good cause, 49 CFR 1151.2(k), the
parties should be aware that, to facilitate prompt resolution of this
application, we will disfavor requests for extensions of filing dates
in this proceeding except in the most extraordinary circumstances.
In summary, PYCO has submitted sufficient information in its new
application for Alternative Two to meet the requirements of 49 CFR
1151.3. The Board will rule on the merits of the application when the
record is complete.
It is ordered:
1. PYCO's appeal of the order rejecting its original application is
denied.
2. SAW's renewed petition to reject the application for Alternative
Two and motion to reject the new application are denied.
3. PYCO's new application for Alternative Two is accepted. Notice
will be published in the Federal Register on July 14, 2006.
4. Competing applications by any person seeking to acquire the rail
lines comprising Alternative Two must be filed by July 18, 2006.
5. Verified statements and comments addressing the initial and/or
any competing application(s) must be filed by August 2, 2006.
6. Any amendment by PYCO to its valuation of the rail lines, based
upon discovery responses, must be filed by 7 days after it receives the
discovery responses. If the resulting filing date falls after the
submission of the verified statements and comments in paragraph 5, the
parties that filed such statements and comments shall have 7 days after
the filing of the amended valuations to file any verified statements
and comments concerning the amended valuations.
7. Verified replies by applicants and other interested parties must
be filed by August 14, 2006, unless parties have filed any verified
statements and comments concerning the amendment to valuations referred
to in paragraph 6. In the event of such filings, applicants and other
interested parties shall have 15 days after the filing of such verified
statements and comments to file replies.
8. This decision is effective on July 14, 2006.
9. A copy of this decision will be served on BNSF.
Decided: July 3, 2006.
By the Board, Chairman Buttrey and Vice Chairman Mulvey.
Vernon A. Williams,
Secretary.
[FR Doc. E6-10831 Filed 7-13-06; 8:45 am]
BILLING CODE 4915-01-P