Number range CHAPTER36342 SERVICE DATE -- LATE RELEASE NOVEMBER 18, 2005

EB

SURFACE TRANSPORTATION BOARD

STB Finance Docket No. 34738[^1]

PADUCAH & LOUISVILLE RAILWAY, INC.

-- ACQUISITION --

CSX TRANSPORTATION, INC.

Decision No. 5

Decided: November 17, 2005

> The Board: (a) approves, subject to labor protective conditions, the
> acquisition, by Paducah & Louisville Railway, Inc. (P&L), of a rail
> line owned by CSX Transportation, Inc. (CSXT); (b) authorizes through
> exemption the transfer of that line from P&L to Evansville Western
> Railway, Inc. (EVWR), a noncarrier subsidiary of P&L; and
> (c) authorizes through exemption, subject to labor protective
> conditions, the continuance in control of EVWR by P&L, and the
> continuance in control of P&L and EVWR by Four Rivers Transportation,
> Inc. (FRTI, a noncarrier holding company).

**INTRODUCTION**

*The P&L Transaction.* By application (referred to as the
P&L Application) filed in the lead docket on August 3, 2005, P&L and
CSXT seek Board approval and authorization under 49 U.S.C. 11321-26 for
P&L's acquisition of an approximately 124.5-mile CSXT line (the
Evansville-Okawville Line or the Line) running between Evansville, IN
(milepost OOH-324.0), and Okawville, IL (milepost OOH-445.7), including
the 2.8-mile Mt. Vernon Branch (at Mt. Vernon, IN, between milepost
OZJ-300 and milepost OZJ-302.8). The proposal is for P&L to purchase the
track, ties, switches, and other track material (the improvements) and
to lease for 20 years (with a 5-year extension available) the real
property. This proposal is referred to as the P&L Transaction, and
FRTI/P&L/EVWR[^2] and CSXT are referred to collectively as applicants.
The P&L Transaction is classified as a minor transaction.
[See]{.underline} 49 CFR 1180.2(c) (classification of transactions under
49 U.S.C. 11323).

*Two Related Filings.* Two related filings, which were also filed on
August 3, 2005, seek authority for P&L to immediately transfer the
improvements and assign its lease of the real property to its newly
created wholly owned subsidiary, EVWR. The Sub-No. 1 related filing
seeks an exemption under 49 U.S.C. 10502 and 49 CFR 1150.31 to permit
EVWR to purchase the improvements, take assignment of the lease of the
real property, and operate the Line. The Sub-No. 2 related filing seeks
an exemption under 49 U.S.C. 10502 and 49 CFR 1180.2(d)(2) to permit P&L
to continue in control of EVWR, and to permit FRTI to continue in
control of P&L and EVWR, when EVWR becomes a rail carrier upon
acquisition of the Line.

*Decision No. 2.* In Decision No. 2 (served August 29, 2005, and
published in the [Federal]{.underline} [Register]{.underline} on
September 2, 2005, at 70 FR 52477), we accepted for consideration the
P&L Application and the two related filings, and we established a
procedural schedule that set October 12, 2005, as the due date for the
filing of comments, protests, requests for conditions, and any other
evidence and argument in opposition to the P&L Application or either of
the related filings. No such pleadings have been filed in this
proceeding.

**BACKGROUND**

*CSXT.* CSXT, a Class I railroad,[^3] owns and operates about 23,000
miles of railroad in the United States (in Alabama, Connecticut, the
District of Columbia, Delaware, Florida, Georgia, Illinois, Indiana,
Kentucky, Louisiana, Massachusetts, Maryland, Michigan, Mississippi,
Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania,
South Carolina, Tennessee, Virginia, and West Virginia) and in Canada
(in Ontario and Quebec).

*P&L.* P&L, a Class II railroad, operates entirely in Kentucky over an
approximately 262-mile line that extends between Louisville and
Clayburn. P&L has been operating since 1986 and has built its traffic
base from about 77,000 carloads in its first full year of operation
(1987) to a high of 216,000 carloads in its best year. In addition to
originating and terminating local traffic on its line, P&L interchanges:
with CSXT, Norfolk Southern Railway Company (NS), Louisville and Indiana
Railroad Company, and Canadian Pacific Railway Company at Louisville;
with CSXT at Central City and Madisonville; and with Canadian National
Railway Company and BNSF Railway Company (BNSF) at Paducah.

*EVWR.* Upon its acquisition of the Evansville-Okawville Line, EVWR,
which is now a noncarrier, will become a Class III railroad. P&L advises
that its reasons for proposing to have the Line transferred to and
operated by EVWR are [both]{.underline} to permit P&L to retain certain
substantial tax advantages available to it as a Kentucky railroad that
P&L would lose if it were to operate a railroad outside of Kentucky
[and]{.underline} to protect P&L from potential liabilities and risks
associated with operating a railroad outside of Kentucky. P&L states
that EVWR will have its own employees, its own management, and its own
financial arrangements, and that EVWR will publish tariffs, interline,
and otherwise operate as a railroad independent of P&L. P&L notes,
however, that EVWR and P&L will share a common management until such
time as EVWR can hire its own management team and EVWR and P&L will also
enter into a contract whereby P&L will provide management oversight and
certain administrative services to EVWR.

*The Evansville-Okawville Line.* The 124.5-mile east-west
Evansville-Okawville Line has been operated by CSXT as its St. Louis
Subdivision. Points located on the Line (going from east to west)
include Evansville, Mt. Vernon, and Upton (in Indiana) and Epworth,
Carmi, Trumbull, Enfield, Inland, McLeansboro, Delafield, Opdyke,
Mt. Vernon, Woodlawn, Ashley, Nashville, Addieville, and Okawville (in
Illinois).[^4] The Line runs parallel to rail lines of CSXT and NS to
the north, and the various points located on the Line are within the
regions served by the Ohio, Wabash, and/or Mississippi Rivers. The
various points located on the Line are also served by an extensive
highway network, which includes Interstate Highway 64 (which runs
parallel to the Line in an east-west direction) and Interstate
Highway 57 (which crosses the Line in a north-south direction).
Interchange on the Line currently occurs at Woodlawn, IL, with BNSF, and
at Mt. Vernon, IL, with Union Pacific Railroad Company (UP). CSXT and
EVWR will conduct interchange at the east end of the Line and in CSXT's
Howell Yard, both in Evansville, IN. P&L states that CSXT, BNSF, and UP
will provide interchange with EVWR and will maintain competitive routes
and rates over connections with EVWR.

*Operation Of The Line By EVWR.* P&L states: that EVWR will assume the
common carrier obligation respecting the Line, and will operate the Line
as an independent rail carrier affiliated with P&L; that EVWR will
commence operations with locomotives leased from P&L and will lease
additional locomotives from P&L or third parties as business dictates;
that EVWR will acquire or lease from P&L and third parties the
maintenance-of-way equipment necessary to operate and maintain the Line;
and that, for its car supply, EVWR will use the existing (largely
privately owned) cars on the Line, will use CSXT-supplied equipment as
necessary, and will lease additional car supply from third parties as
business dictates. P&L states that EVWR will provide service to all
customers on the Line 7 days per week with (1) one 2-person crew
departing Mt. Vernon, IN, on Sunday, Tuesday, and Thursday, and
returning from Okawville on Monday, Wednesday, and Friday, setting out
and picking up cars at industries and interchange points en route;
(2) another 2-person crew performing station and industry switching at
Mt. Vernon, IN; (3) another 2-person crew performing station switching
and interchange to/from CSXT at Evansville; and (4) two 2-person crews
performing loading of unit coal trains at Epworth, IL, transiting to
Mt. Vernon, IN, for unloading, and returning.

**DISCUSSION AND CONCLUSIONS**

[The P&L Transaction: Statutory Criteria]{.underline}. Under 49 U.S.C.
11323(a)(2), a purchase, lease, or contract to operate property of one
rail carrier (here, CSXT) by another rail carrier (here, P&L) requires
prior Board approval under criteria set forth in 49 U.S.C. 11324.
Because the P&L Transaction does not involve the merger or control of
two or more Class I railroads, this transaction is governed by
§ 11324(d), under which we must approve the P&L Application unless we
find that: (1) as a result of the P&L Transaction, there is likely to be
substantial lessening of competition, creation of a monopoly, or
restraint of trade in freight surface transportation in any region of
the United States; and (2) the anticompetitive effects of the
P&L Transaction outweigh the public interest in meeting significant
transportation needs.

In assessing transactions subject to § 11324(d), our primary focus is on
the anticipated competitive effects. We must grant the application
unless there will be adverse competitive impacts that are both "likely"
and "substantial." And, even if there will be likely and substantial
anticompetitive impacts, we may not disapprove the transaction unless
the anticompetitive impacts outweigh the benefits and cannot be
mitigated through conditions. [See]{.underline} [Canadian National
Railway Company, Grand Trunk Corporation, and WC Merger Sub, Inc. --
Control -- Wisconsin Central Transportation Corporation, Wisconsin
Central Ltd., Fox Valley & Western Ltd., Sault Ste. Marie Bridge
Company, and Wisconsin Chicago Link Ltd.]{.underline}, STB Finance
Docket No. 34000, Dec. No. 10, slip op. at 10 (STB served Sept. 7,
2001); [Kansas City Southern Industries, Inc., KCS Transportation
Company, and The Kansas City Southern Railway Company -- Control --
Gateway Western Railway Company and Gateway Eastern Railway
Company]{.underline}, STB Finance Docket No. 33311, slip op. at 4
(STB served May 1, 1997); [CSX Corporation and CSX Transportation, Inc.
-- Control -- The Indiana Rail Road Company]{.underline}, STB Finance
Docket No. 32892, slip op. at 3-4 (STB served Nov. 7, 1996).

[The P&L Transaction: Competitive Analysis]{.underline}. The evidence
demonstrates that the acquisition of the Evansville-Okawville Line by
P&L (and, immediately thereafter, by P&L's EVWR subsidiary) will not
result in either a substantial lessening of competition, the creation of
a monopoly, or a restraint of trade in freight surface transportation in
any region of the United States. Indeed, the transactions contemplated
by P&L will not have any anticompetitive effects, because they will
simply allow EVWR to replace CSXT as the railroad providing service on
the Evansville-Okawville Line. Therefore, we will approve the
P&L Transaction.

[The P&L Transaction: Labor Protection]{.underline}. Under 49 U.S.C.
11326(a), we must impose labor protective conditions on our approval of
the P&L Transaction. The appropriate conditions are those set out in
[New York Dock Ry. -- Control -- Brooklyn Eastern Dist.]{.underline},
360 I.C.C. 60, 84-90 (1979), as clarified in [Wilmington Term. RR, Inc.
-- Pur. & Lease -- CSX Transp., Inc.]{.underline}, 6 I.C.C.2d 799,
814-826 (1990), [aff'd sub nom.]{.underline} [Railway Labor Executives'
Ass'n v. I.C.C.]{.underline}, 930 F.2d 511 (6th Cir. 1991).

[The Related Filings]{.underline}. The Board will allow the notices of
exemption in STB Finance Docket No. 34738 (Sub-Nos. 1 and 2) to take
effect on the effective date of this decision. Because the Sub-No. 1
exemption involves a transaction under 49 U.S.C. 10901, this exemption
will not be subject to labor protective conditions. The Sub-No. 2
exemption involves the control of one Class II carrier (P&L) and one
Class III carrier (EVWR), and will be subject to the labor protection
requirements of 49 U.S.C. 11326(b).

[Environmental Issues]{.underline}. As noted in Decision No. 2, the
Board's Section of Environmental Analysis (SEA) has concluded, based on
the information presented in the P&L Application and the related
filings, that this proceeding is "categorically excluded" from the
environmental review required by the National Environmental Policy Act
of 1969, [see]{.underline} 49 CFR 1105.6(c)(2)(i), and that formal
environmental review is not warranted in this case. SEA also agrees with
applicants that the proposed action does not require historic review
under the National Historic Preservation Act of 1966, because further
approval would be required to abandon any service, and because
applicants have advised the Board that there are no plans to dispose of
or alter properties subject to the Board's jurisdiction that are
50 years old or older. [See]{.underline} 49 CFR 1105.8(b)(1). Moreover,
we have not received any comments disputing SEA's conclusions or
expressing environmental concerns. Accordingly, we adopt SEA's
conclusions.

[Effective Date]{.underline}. There would ordinarily be a 30-day period
between the service date and the effective date of this decision but
applicants have asked that this decision be made effective on
November 28, 2005. Given the absence of any opposition to the
transactions, we agree that this decision should be made effective on
the requested date.

[We find]{.underline}:

1.  The acquisition by P&L of the Evansville-Okawville Line will not
substantially lessen competition, create a monopoly, or restrain trade
in freight surface transportation in any region of the United States.

2.  This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.

[It is ordered]{.underline}:

1.  In STB Finance Docket No. 34738, the acquisition by P&L of the
Evansville-Okawville Line is approved.

2.  In STB Finance Docket No. 34738 (Sub-No. 1), the acquisition and
operation of the Evansville-Okawville Line by EVWR is authorized
pursuant to the class exemption at 49 CFR 1150.31.

3.  In STB Finance Docket No. 34738 (Sub-No. 2), P&L's continuance in
control of EVWR, and also FRTI's continuance in control of P&L and EVWR,
are authorized pursuant to the class exemption at 49 CFR 1180.2(d)(2).

4.  Approval of the P&L Application in STB Finance Docket No. 34738 is
subject to the conditions for the protection of railroad employees set
out in [New York Dock Ry. -- Control -- Brooklyn Eastern
Dist.]{.underline}, 360 I.C.C. 60, 84-90 (1979), as clarified in
[Wilmington Term. RR, Inc. -- Pur. & Lease -- CSX Transp.,
Inc.]{.underline}, 6 I.C.C.2d 799, 814-826 (1990), [aff'd sub
nom.]{.underline} [Railway Labor Executives' Ass'n v.
I.C.C.]{.underline}, 930 F.2d 511 (6th Cir. 1991).

5.  The control authorized in STB Finance Docket No. 34738 (Sub-No. 2)
is subject to the labor protection requirements of 49 U.S.C. 11326(b).

6.  This decision shall be effective on November 28, 2005.

By the Board, Chairman Nober, Vice Chairman Buttrey, and Commissioner
Mulvey. Commissioner Mulvey dissented with a separate expression.

Vernon A. Williams

Secretary

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

COMMISSIONER MULVEY, dissenting:

I dissent from the Board's decision in this case. I find that the
agreement between Paducah & Louisville Railway, Inc. (P&L) and CSX
Transportation (CSXT) includes a fundamentally anti-competitive
provision---the erection of what is essentially a "paper barrier"---that
would operate as a restraint of trade in rail transportation in the
region.

Generally, I am pleased with the record of P&L as a carrier with a
strong commitment to its employees and a proven dedication to its
shippers. In this proceeding, P&L was able to work with labor to reach
an agreement that resolved all outstanding employee protective and
collective bargaining issues with one of their unions, the Brotherhood
of Maintenance of Way Employes Division of the International Brotherhood
of Teamsters. Unfortunately, P&L's negotiations with CSXT were not as
fruitful.

In the agreement at issue, CSXT raises the cost to P&L of entering the
market if it chooses to interline with carriers other than CSXT for
certain traffic. As a result, P&L is effectively tied to CSXT in
perpetuity, thereby restricting the flow of interstate commerce and
reducing the potential public benefits of the transaction. But as
clearly as CSXT is receiving the benefit of having a short line partner
with which it will not be forced to compete, P&L is also the recipient
of an economic benefit reflected in the reduction in the sale/lease
price of the infrastructure and right-of-way. That this benefit---the
price to the short line being lower because of the interchange
restriction---is without merit is not my contention. Certainly many of
today's leases and sales between short lines and Class I railroads would
not take place but for the inclusion of paper barriers. However, over
time the benefits received by CSXT should ultimately compensate it for
the lower sale/lease price so that there is no need for the restriction
to continue in perpetuity. Because paper barriers are not infinitely
valuable, they should not have infinite lives, and I do not believe that
the Board should continue to condone their inclusion as long as they are
not time limited.

[^1]: 1 ^1^ This decision embraces: STB Finance Docket No. 34738
    (Sub-No. 1), [Evansville Western Railway, Inc. -- Acquisition and
    Operation Exemption -- Paducah & Louisville Railway,
    Inc]{.underline}.; and STB Finance Docket No. 34738 (Sub-No. 2),
    [Four Rivers Transportation, Inc. and Paducah & Louisville Railway,
    Inc. -- Continuance in Control Exemption -- Evansville Western
    Railway, Inc]{.underline}.

[^2]: 2 ^2^ EVWR is a wholly owned subsidiary of P&L, which is itself a
    wholly owned subsidiary of FRTI.

[^3]: 3 ^3^ The Board's regulations divide railroads into three classes
    based on annual carrier operating revenues. Class I railroads are
    those with annual carrier operating revenues of \$250 million or
    more (in 1991 dollars); Class II railroads are those with annual
    carrier operating revenues of more than \$20 million but less than
    \$250 million (in 1991 dollars); and Class III railroads are those
    with annual carrier operating revenues of \$20 million or less (in
    1991 dollars). [See]{.underline} 49 CFR Part 1201, General
    Instruction 1-1(a).

[^4]: 4 ^4^ Two points located on the Line are called "Mt. Vernon," one
    in Indiana and the other in Illinois. The 2.8-mile Mt. Vernon Branch
    is located at Mt. Vernon, IN.