[Federal Register Volume 62, Number 153 (Friday, August 8, 1997)]
[Proposed Rules]
[Pages 42734-42737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20993]


-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1155

[STB Ex Parte No. 566]


Rail Service Continuation Subsidy Standards

AGENCY: Surface Transportation Board, DOT.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Surface Transportation Board (Board) is proposing to 
remove regulations from the Code of Federal Regulations that concern 
standards for determining subsidies for the continuation of rail 
service to govern rail properties not transferred to Consolidated Rail 
Corporation (Conrail) under the Final System Plan pursuant to the 
Regional Rail Reorganization Act of 1973.

DATES: Comments are due on September 8, 1997.

FOR FURTHER INFORMATION CONTACT: Beryl Gordon, (202) 565-1600. (TDD for 
the hearing impaired: (202) 565-1695.)

SUPPLEMENTARY INFORMATION: Effective January 1, 1996, the ICC 
Termination Act of 1995, Pub. L. 104-88, 109 Stat. 803 (ICCTA), 
abolished the Interstate Commerce Commission (ICC or Commission) and 
established the Board. Section 204(a) of the ICCTA provides that 
``[t]he Board shall promptly rescind all regulations established by the 
(ICC) that are based on provisions of law repealed and not 
substantively reenacted by this Act.''
    The regulations at 49 CFR part 1155 concern subsidy standards for 
certain rail lines in the region encompassed by the Final System Plan, 
described infra, that otherwise are subject to abandonment or 
discontinuance. They are the forerunner to our current offer of 
financial assistance (OFA) procedures that are national in scope. These 
regulations are based, at least partially, on statutes that are still 
in effect. 45 U.S.C. 744 (c) and (d). Under the ICCTA, however, the 
Rail Services Planning Office (RSPO), the statutory body that developed 
the regulations, has been abolished. See repealed 49 U.S.C. 10361-64. 
Moreover, the Board has in place analogous OFA regulations providing 
national subsidy standards. 49 CFR 1152.27 and 1152 subpart D. Finally, 
the regional subsidy regime at 45 U.S.C. 744, which applies to ``rail 
service on rail properties of a railroad in reorganization,'' may be 
outdated and may apply only to a limited number of situations. 
Accordingly, we are instituting this proceeding to determine whether 
these regulations may be eliminated, or whether they have a continuing 
vitality and should be retained.

The 3R Act and Part 1155

    The Regional Rail Reorganization Act of 1973, Pub. L. No. 93-236, 
87 Stat. 985, 45 U.S.C. 701 et seq. (3R Act) created Conrail as a for-
profit corporation to reorganize the bankrupt rail services in the 
Northeast and Midwest region.<SUP>1</SUP> The 3R Act provided

[[Page 42735]]

for the development and ultimate approval by Congress of a Final System 
Plan (Plan) for the redesign of rail services in the region. Lines that 
could not be operated profitably and were not considered essential to 
the rail transportation system would not be included in the Plan. 
Section 304 of the 3R Act permitted the summary discontinuance of 
service over those lines without ICC approval if 60 days' notice is 
given and certain parties are notified. However, section 304(c)(2) of 
the 3R Act (codified at 45 U.S.C. 744(c)(2)(A)) stated that an 
abandonment or discontinuance could not be carried out if a shipper, or 
public authority, or any responsible person offers:

    \1\ ``Region'' is defined as ``the States of Maine, New 
Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New 
York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West 
Virginia, Ohio, Indiana, Michigan, and Illinois; the District of 
Columbia; and those portions of contiguous States in which are 
located rail properties owned or operated by railroads doing 
business in the aforementioned jurisdictions (as determined by [ICC] 
order. * * *'' 45 U.S.C. 702(17). In Northeastern Railroad 
Investigation [-] Definition of the Midwest and Northeast Region, Ex 
Parte No. 293, published in the Federal Register on January 28, 1974 
(39 FR 3605), the ICC included in the region points in the St. 
Louis, MO and Louisville, KY Standard Metropolitan Statistical Areas 
and Manitowoc and Kewaunee, WI. See Regional Rail Reorganization Act 
Cases, 419 U.S. 102, 108 n.2 (1974).

    * * * a rail service continuation subsidy which covers the 
difference between the revenue attributable to such rail properties 
and the avoidable costs of providing service on such properties plus 
a reasonable return on the value of such rail properties * * 
---------------------------------------------------------------------------
*.<SUP>2</SUP>

    \2\ The current language in 45 U.S.C. 744(c)(2)(A) differs 
slightly, but it is substantively the same as the section 304(c)(2) 
language.

    The use of the subsidy is limited to rail service and rail 
properties of a railroad in reorganization in the region. 45 U.S.C. 
744(a).<SUP>3</SUP> Moreover, the subsidy must be made within 2 years 
of the effective date of the Plan <SUP>4</SUP> or within ``2 years 
after the date on which the final rail service continuation payment is 
received, whichever is later. * * *'' 45 U.S.C. 744(c)(1).
---------------------------------------------------------------------------

    \3\ A ``railroad in reorganization'' is defined at 45 U.S.C. 
702(16) as a railroad which is subject to a bankruptcy proceeding 
and which has not been determined by a court to be reorganizable or 
not subject to reorganization pursuant to this chapter as prescribed 
in section 717(b) of this title. A ``bankruptcy proceeding'' 
includes a proceeding pursuant to section 77 of the Bankruptcy Act 
and an equity receivership or equivalent proceeding * * * .
    \4\ The Plan was submitted to Congress on July 26, 1975. It was 
approved when neither the House of Representatives nor the Senate 
objected to it. The Plan was formally approved in section 601(e) of 
the 4R Act, discussed infra.
---------------------------------------------------------------------------

    The 3R Act also created RSPO, <SUP>5</SUP> which was authorized to 
issue standards for defining the terms ``revenue attributable to rail 
properties,'' ``avoidable costs of providing service,'' and ``a 
reasonable return on the value'' found in section 304. Section 
205(d)(3).<SUP>6</SUP> In response to this directive, regulations were 
issued at 49 CFR part 1125 on July 1, 1974 (39 FR 7182) and were 
revised on January 8, 1975 (40 FR 1624) in Part 1125--Standards for 
Determining Rail Service Continuation Subsidies, Ex Parte No. 293 (Sub-
No. 2). The regulations, now codified in part 1155,<SUP>7</SUP> define 
the terms noted above (revenue attributable, avoidable costs, return on 
value) for determining the subsidy payment for the continuation of 
train service over lines not included in the Plan.
---------------------------------------------------------------------------

    \5\ RSPO was established as ``an office in the Interstate 
Commerce Commission.'' Former 49 U.S.C. 10361. In resolving the 
issue of whether final orders or regulations of RSPO were to be 
considered orders or regulations of the ICC, the court held that 
``[a]lthough Congress gave to the RSPO final administrative 
responsibility for certain determinations, we conclude that the RSPO 
is sufficiently part of the ICC so that its orders are to be 
considered orders of the ICC for purposes of the Hobbs Act.'' 
Southeastern Pennsylvania Transp. Auth. v. I.C.C., 644 F.2d 238, 
240, n.3 (3rd Cir. 1981).
    \6\ Section 205 was originally codified at 45 U.S.C. 715. In 
1978, the Interstate Commerce Act was recodified without substantive 
change pursuant to Pub. L. No. 95-473, Oct. 17, 1978. While 45 
U.S.C. 715 was repealed, the language of section 715 concerning RSPO 
was codified at 49 U.S.C. 10361-10364.
    \7\ The regulations were redesignated as part 1155 on November 
1, 1982 (47 FR 49582).
---------------------------------------------------------------------------

    The regulations at part 1155 are quite detailed and are more than 
30 pages long. They are largely self-executing with little role 
provided for the ICC. However, under 49 CFR 1155.3(a), a carrier giving 
notice of intent to discontinue service shall submit an ``Estimate of 
Subsidy Payment'' to, inter alia, RSPO. Under 49 CFR 1155.4(c), a party 
desiring an interpretation of the standards can file a petition with 
RSPO. Under Sec. 1155.9, if the parties cannot agree on issues of net 
liquidation value or whether properties are used and useful, they can 
select a mutually acceptable arbitrator to arbitrate the dispute. If 
they cannot agree on an arbitrator, either party may submit the matter 
to the American Arbitration Association. The ICC was not directly 
involved in reviewing disputes.

Subsequent Legislation

    Congress amended portions of the 3R Act and also added new sections 
when it enacted the Railroad Revitalization and Regulatory Reform Act 
of 1976 (4R Act), Pub. L. 94-210, 90 Stat. 127. As relevant to this 
proceeding, the 4R Act made two significant changes: it enacted 
designated operator provisions and it enacted OFA provisions.
    First, the 4R Act amended the 3R Act by adding a new section 45 
U.S.C. 744(d), which specified that a ``designated operator'' would be 
the rail carrier conducting operations when a subsidizer guaranteed 
payment. The subsidy payment was now defined as:

    The difference between the revenue attributable to such 
properties and the avoidable costs of providing service on such rail 
properties, together with a reasonable management fee as determined 
by the Office. (Emphasis supplied.)

Consequently, section 205(d)(6) of the 4R Act also directed RSPO to 
determine the term ``reasonable management fee.'' <SUP>8</SUP> RSPO 
revised the regulations now found at 49 CFR 1155 on January 11, 1978, 
to define reasonable management fee. 43 FR 1692.
---------------------------------------------------------------------------

    \8\ This requirement was subsequently codified at 49 U.S.C. 
10362(b)(6). Section 744(d), however, still refers to section 
205(d)(6).
---------------------------------------------------------------------------

    The second change under the 4R Act allowed an abandonment to be 
postponed for up to 6 months if a financially responsible person 
offered to purchase or subsidize the line. Section 802. In essence, the 
regional subsidy provision of 45 U.S.C. 744 was expanded to apply to 
all carriers. This provision was originally codified at 49 U.S.C. 
1a(6)(a) and subsequently recodified without substantive change at 49 
U.S.C. 10905.<SUP>9</SUP> See Hayfield Northern R. Co., Inc v. Chicago 
and North Western Transp. Co., 467 U.S. 622, 628-29 (1984) (Hayfield 
Northern).
---------------------------------------------------------------------------

    \9\ As described, infra, the OFA statute is now found at 49 
U.S.C. 10904.
---------------------------------------------------------------------------

    To implement these 4R Act provisions, the ICC and RSPO instituted a 
proceeding on a joint basis. In November 1976, the ICC promulgated 
regulations and issued an explanatory decision. Abandonment of R. Lines 
& Discontinuance of Serv., 354 I.C.C. 253 (1976) and 354 I.C.C. 129 
(1976). These regulations were predicated on the part 1155 regulations, 
although, due to factual and statutory differences, there were certain 
variations.<SUP>10</SUP> The financial assistance procedures were 
originally issued at 49 CFR 1121.38 and 1121,

[[Page 42736]]

subpart D, and are now found at 49 CFR 1152.27 and 1152, subpart 
D.<SUP>11</SUP>
---------------------------------------------------------------------------

    \10\  In the notice of proposed rulemaking in Abandonment of 
Railroad Lines and Discontinuance of Rail Service, Ex Parte No. 274 
(Sub-No.2), 41 FR 31878, 31882 (July 30, 1976), the ICC noted that 
it had already defined ``revenue attributable,'' ``avoidable 
costs,'' and ``reasonable return on the value,'' as those terms are 
used in the 3R Act. It stated that
    [b]ecause the same basic terminology is used in the (3R Act) and 
in the new abandonment and discontinuance provisions, the Commission 
believes that the Congressional intent is that the national 
standards should follow the conceptual approach of the regional 
standard promulgated by (RSPO) under the (3R Act). Consequently, the 
regional standards are being used to provide the foundation upon 
which the national standards will be based. However, there are 
several areas . . . in which the proposed rules differ from the 
regional standards.
    \11\  The 4R Act made other changes that, although not related 
to this proceeding, do concern a current Board proceeding with 
similar issues. Section 309 of the 4R Act amended section 205(d) of 
the 3R Act to require RSPO to develop standards for the computation 
of subsidies for the continuation of rail commuter services. RSPO 
issued the regulations on August 3, 1976, 41 FR 32546. These 
standards are now found at 49 CFR part 1157, subpart A (subsidy 
standards). By notice of proposed rulemaking served and published in 
the Federal Register on June 12, 1997 (62 FR 32068) in Commuter Rail 
Service Continuation Subsidies and Discontinuance Notices, STB Ex 
Parte No. 563, the Board proposed to remove from the Code of Federal 
Regulations the regulations at 49 CFR part 1157 concerning subsidy 
standards and also notices of the discontinuance of commuter rail 
service (subpart B).
---------------------------------------------------------------------------

    The Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895, 
further revised section 10905. Section 402. The 6-month negotiating 
period was shortened and when a carrier and shipper could not agree to 
terms, the ICC would set, and the carrier was bound by, the purchase or 
subsidy price. Hayfield Northern at 630-31.<SUP>12</SUP>
---------------------------------------------------------------------------

    \12\  The Staggers Act modifications to section 10905 were 
designed to ``assist shippers who are sincerely interested in 
improving rail service, while . . . protecting carriers from 
protracted legal proceedings which are calculated merely to 
tediously extend the abandonment process.'' H.R. Conf. Rep. No. 96-
1430, p. 125, (1980), U.S. Code Cong. & Admin. News. 1980, pp. 3978, 
4157. See Hayfield Northern at 630, n. 8.
---------------------------------------------------------------------------

    The ICCTA was the final legislative action applicable to these 
regulations. There was no change to 45 U.S.C. 744(c). The changes to 
section 744(d) do not affect part 1155. The RSPO statutes--49 U.S.C. 
10361-64--were repealed. Former 49 U.S.C. 10905 was changed and is now 
found at 49 U.S.C. 10904, but the changes there do not affect our 
analysis.<SUP>13</SUP>
---------------------------------------------------------------------------

    \13\  Under section 10904, there are changes in time limits and 
the way OFAs are handled. However, when the Board is requested to 
establish the amount of a subsidy, the amount of compensation is 
``the difference between the revenues attributable to that part of 
the railroad line and the avoidable cost of providing rail freight 
transportation on the line, plus a reasonable return on the value of 
the line.'' 49 U.S.C. 10904(f)(1)(C).
---------------------------------------------------------------------------

Discussion and Conclusions

    We are reexamining part 1155 because of the changes made by the 
ICCTA, the availability of our national subsidy standards, and the 
likelihood that few situations fall within the regional subsidy 
framework. We propose to remove these regulations.
    As indicated, 45 U.S.C. 744 (c) and (d), which pertain to the 
subsidies for the continuation of rail freight service, have not been 
repealed. Nevertheless, the regulations at part 1155 implementing the 
statute were issued by an office (RSPO) that has been abolished by the 
ICCTA.<SUP>14</SUP> Further complicating matters is the fact that under 
45 U.S.C. 744(d)(1), the defunct RSPO is to determine the terms a 
subsidizer is to pay a designated operator.<SUP>15</SUP> Moreover, 
under 45 U.S.C. 744(d)(2), the term reasonable return on value is to be 
developed according to the standards of 205(d)(6) of the 3R Act, which, 
as noted, was codified at the now repealed RSPO statute, 49 U.S.C. 
10362.
---------------------------------------------------------------------------

    \14\  Under the regulations, that now-abolished office has 
continuing responsibilities (issuing interpretations, receiving 
estimates of subsidy payments).
    \15\  Section 744(d)(1) states that the terms ``revenue 
attributable,'' ``avoidable costs,'' and ``reasonable management 
fee'' are to be determined by ``the Office,'' defined at 45 U.S.C. 
702(12) as RSPO.
---------------------------------------------------------------------------

    We also question the need for two sets of subsidy regulations given 
the similarities between the regional and national 
standards.<SUP>16</SUP> Given that the role of the ICC in part 1155 was 
passive (RSPO was to issue interpretations of its standards and the 
parties were to arbitrate certain disputes), using the OFA standards 
for guidance in any regional subsidy situations that might arise may be 
sufficient. We seek comments as to whether this is in fact the case and 
the regional subsidy standards can be eliminated in light of the 
national standards, whether parts of the regional subsidy standards 
should be transferred to the national standards to the extent that they 
are still pertinent, or whether the regional subsidy standards should 
be maintained as currently codified.
---------------------------------------------------------------------------

    \16\  Prior to the promulgation of its OFA regulations, the ICC 
issued a notice of interim procedures for handling abandonment and 
discontinuance cases. It stated that it would ``adopt the same 
conceptual approach developed by (RSPO) in connection with the 
regional subsidy program authorized by the (3R Act) for the purposes 
of issuing the subsidy payment.'' Chicago and North Western Transp. 
Co.-Abandonment, 348 I.C.C. 445, 454 (1976). The ICC noted that 
there were statutory differences in two programs pertaining ``to the 
exclusion of a management fee in the national program, the inclusion 
of certain additional costs. . ., and the basis upon which a 
reasonable return is to be calculated.'' Id.
---------------------------------------------------------------------------

    Finally, there may be little, if any, need for the regulations. 
Under 45 U.S.C. 744(a)(1) and (c)(1), the regional subsidy program 
applies to a ``rail service on rail properties of a railroad in 
reorganization'' and is not available ``after 2 years from the 
effective date of the [Plan] or more than 2 years after the last rail 
service continuation payment is received, whichever is later. * * *'' 
We question whether there are any railroads in reorganization as 
defined by the statute. In Consolidated Rail Corp. v. Reading Co., 654 
F. Supp. 1318, 1323 (Sp. Ct. RRRA 1987), a case involving personal 
injury suits under the Federal Employer's Liability Act, the court 
stated that certain predecessor railroads of Conrail were not railroads 
in reorganization because they were no longer ``subject to a bankruptcy 
proceeding.'' These carriers had undergone reorganization, final 
consummation orders had been entered, and the carriers had been 
discharged in bankruptcy.<SUP>17</SUP>
---------------------------------------------------------------------------

    \17\  The court noted (Id. at 1323, n.2) the following 
consummation dates: Erie Lackawanna, Inc. (November 30, 1982); 
Reading Co. (December 31, 1980); Penn Central Transportation Co. 
(October 24, 1978); Lehigh Valley Railroad Co. (September 1, 1982); 
and the Central of New Jersey (September 14, 1979).
---------------------------------------------------------------------------

    If, on the other hand, there are still railroads in reorganization, 
or if the focus of section 744 is rail service and rail property, and 
not the status of the entity owning the property, we must still 
determine whether a regional subsidy qualifies under section 744(c). 
Because more than 20 years have passed since the effective date of the 
Plan, the issue also becomes whether any rail service continuation 
payments are still in effect or have expired within the last 2 years. 
As there might be some carriers in this situation, we seek comment on 
this issue.<SUP>18</SUP>
---------------------------------------------------------------------------

    \18\  There is currently pending before the Board a proceeding 
in which relief is sought under 49 CFR Part 1155. RailAmerica, Inc., 
and the Delaware Valley Railway Company, Petition to Set Subsidy 
Terms Under 45 U.S.C. 744(c) and 49 CFR part 1155, STB Finance 
Docket No. 33285. In response to the petition, the Reading Company 
claims that the Board has no authority to set a subsidy because the 
Reading Company is not a ``railroad in reorganization.''
---------------------------------------------------------------------------

    The Board preliminarily concludes that the proposed removal of the 
rules, if adopted, would not have a significant effect on a substantial 
number of small entities. The rules removal may be necessary in light 
of the ICCTA. Moreover, it appears that these rules do not apply to 
many (if any) situations and that there are other regulations which may 
be useful to potential parties interested in subsidizing the 
continuation of rail service. The Board, however, seeks comments on 
whether there would be effects on small entities that should be 
considered.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.

List of Subjects in 49 CFR Part 1155

    Railroads, Uniform System of Accounts.

    Decided: July 29, 1997.


[[Page 42737]]


    By the Board, Chairman Morgan and Vice Chairman Owen.
Vernon A. Williams,
Secretary.

PART 1155 [REMOVED]

    For the reasons set forth in the preamble and under the authority 
of 49 U.S.C. 721(a), title 49, chapter X of the Code of Federal 
Regulations is proposed to be amended by removing part 1155.

[FR Doc. 97-20993 Filed 8-7-97; 8:45 am]
BILLING CODE 4915-00-P