[Federal Register Volume 66, Number 116 (Friday, June 15, 2001)]
[Rules and Regulations]
[Pages 32582-32590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14984]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1180

[STB Ex Parte No. 582 (Sub-No. 1)]


Major Rail Consolidation Procedures

AGENCY: Surface Transportation Board, DOT.

ACTION: Final rules.

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SUMMARY: The Surface Transportation Board (STB or Board) adopts final 
regulations governing proposals for major rail consolidations. These 
new rules substantially increase the burden on applicants to 
demonstrate that a proposed transaction would be in the public 
interest, by requiring them, among other things, to demonstrate that 
the transaction would enhance competition where necessary to offset 
negative effects of the merger, such as competitive harm or service 
disruptions.

EFFECTIVE DATE: These rules are effective July 11, 2001.

FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 565-1613. [TDD 
for the hearing impaired: 1-800-877-8339.]

SUPPLEMENTARY INFORMATION: Additional information is contained in the 
Board's decision. A printed copy of the Board's decision is available 
for a fee by contacting: Da-To-Da Office Solutions, Room 405, 1925 K 
Street, NW., Washington, DC 20006, telephone (202) 293-7776. The 
Board's decision is also available for viewing and downloading on the 
Board's website at ``www.stb.dot.gov.''

[[Page 32583]]

    Small entities. The Board certifies that the revisions to our 
regulations will not have a significant economic impact on a 
substantial number of small entities within the meaning of the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). These rules have 
created additional filing requirements only for Class I applicants, 
which are very large rail carriers. At the same time we have given 
increased weight to issues and concerns of smaller railroads and 
shippers, a change that should benefit these small entities.
    Environment. This action will not significantly affect either the 
quality of the human environment or the conservation of energy 
resources.
    Board releases available via the Internet. Decisions and notices of 
the Board, including this decision, are available on the Board's 
website at ``www.stb.dot.gov.''

    Authority: 49 U.S.C. 721, 11323-11325.

List of Subjects in 49 CFR Part 1180

    Administrative practice and procedure, Bankruptcy, Railroads, 
Reporting and recordkeeping requirements.

    Decided: June 7, 2001.

    By the Board, Chairman Morgan, Vice Chairman Clyburn, and 
Commissioner Burkes. Chairman Morgan commented and dissented in part 
with a separate expression. Vice Chairman Clyburn and Commissioner 
Burkes commented with separate expressions.
Vernon A. Williams,
Secretary.

    For the reasons set forth in the preamble, Title 49, Subtitle B, 
Chapter X, Part 1180 of the Code of Federal Regulations is amended as 
follows:

PART 1180--RAILROAD ACQUISITION, CONTROL, MERGER, CONSOLIDATION 
PROJECT, TRACKAGE RIGHTS, AND LEASE PROCEDURES

    1. The authority citation for part 1180 continues to read as 
follows:

    Authority: 5 U.S.C. 553 and 559; 11 U.S.C. 1172; 49 U.S.C. 721, 
10502, 11323-11325.


    2. Section 1180.0 is revised to read as follows:


Sec. 1180.0  Scope and purpose.

    (a) General. The regulations in this subpart set out the 
information to be filed and the procedures to be followed in control, 
merger, acquisition, lease, trackage rights, and any other 
consolidation transaction involving more than one railroad that is 
initiated under 49 U.S.C. 11323. Section 1180.2 separates these 
transactions into four types: Major, significant, minor, and exempt. 
The informational requirements for these types of transactions differ. 
Before an application is filed, the designation of type of transaction 
may be clarified or certain of the information required may be waived 
upon petition to the Board. This procedure is explained in Sec. 1180.4. 
The required contents of an application are set out in Secs. 1180.6 
(general information supporting the transaction), 1180.7 (competitive 
and market information), 1180.8 (operational information), 1180.9 
(financial data), 1180.10 (service assurance plans), and 1180.11 
(transnational and other informational requirements). A major 
application must contain the information required in Secs. 1180.6(a), 
1180.6(b), 1180.7(a), 1180.7(b), 1180.8(a), 1180.8(b), 1180.9, 1180.10, 
and 1180.11. A significant application must contain the information 
required in Secs. 1180.6(a), 1180.6(c), 1180.7(a), 1180.7(c), and 
1180.8(b). A minor application must contain the information required in 
Secs. 1180.6(a) and 1180.8(c). Procedures (including time limits, 
filing requirements, participation requirements, and other matters) are 
contained in Sec. 1180.4. All applications must comply with the Board's 
Rules of General Applicability, 49 CFR parts 1100 through 1129, unless 
otherwise specified. These regulations may be cited as the Railroad 
Consolidation Procedures.
    (b) Waiver. We will waive application of the regulations contained 
in this subpart for a consolidation involving The Kansas City Southern 
Railway Company and another Class I railroad and instead will apply the 
regulations in this subpart A in effect before July 11, 2001 and 
contained in the 49 CFR, Parts 1000 to 1199, edition revised as of 
October 1, 2000, unless we are shown why such a waiver should not be 
allowed. Interested parties must file any objections to this waiver 
within 10 days after the applicants' prefiling notification (see 49 CFR 
Sec. 1180.4(b)(1)).

    3. Section 1180.1 is revised to read as follows:


Sec. 1180.1  General policy statement for merger or control of at least 
two Class I railroads.

    (a) General. To meet the needs of the public and the national 
defense, the Surface Transportation Board (Board) seeks to ensure 
balanced and sustainable competition in the railroad industry. The 
Board recognizes that the railroad industry (including Class II and III 
carriers) is a network of competing and complementary components, which 
in turn is part of a broader transportation infrastructure that also 
embraces the nation's highways, waterways, ports, and airports. The 
Board welcomes private-sector initiatives that enhance the capabilities 
and the competitiveness of this transportation infrastructure. Although 
mergers of Class I railroads may advance our nation's economic growth 
and competitiveness through the provision of more efficient and 
responsive transportation, the Board does not favor consolidations that 
reduce the transportation alternatives available to shippers unless 
there are substantial and demonstrable public benefits to the 
transaction that cannot otherwise be achieved. Such public benefits 
include improved service, enhanced competition, and greater economic 
efficiency. The Board also will look with disfavor on consolidations 
under which the controlling entity does not assume full responsibility 
for carrying out the controlled carrier's common carrier obligation to 
provide adequate service upon reasonable demand.
    (b) Consolidation criteria. The Board's consideration of the merger 
or control of at least two Class I railroads is governed by the public 
interest criteria prescribed in 49 U.S.C. 11324 and the rail 
transportation policy set forth in 49 U.S.C. 10101. In determining the 
public interest, the Board must consider the various goals of effective 
competition, carrier safety and efficiency, adequate service for 
shippers, environmental safeguards, and fair working conditions for 
employees. The Board must ensure that any approved transaction would 
promote a competitive, efficient, and reliable national rail system.
    (c) Public interest considerations. The Board believes that mergers 
serve the public interest only when substantial and demonstrable gains 
in important public benefits--such as improved service and safety, 
enhanced competition, and greater economic efficiency--outweigh any 
anticompetitive effects, potential service disruptions, or other 
merger-related harms. Although further consolidation of the few 
remaining Class I carriers could result in efficiency gains and 
improved service, the Board believes additional consolidation in the 
industry is also likely to result in a number of anticompetitive 
effects, such as loss of geographic competition, that are increasingly 
difficult to remedy directly or proportionately. Additional 
consolidations could also result in service disruptions during the 
system integration period. Accordingly, to assure a balance in favor of 
the public interest, merger applications should include provisions for 
enhanced

[[Page 32584]]

competition, and, where both carriers are financially sound, the Board 
is prepared to use its conditioning authority as necessary under 49 
U.S.C. 11324(c) to preserve and/or enhance competition. In addition, 
when evaluating the public interest, the Board will consider whether 
the benefits claimed by applicants could be realized by means other 
than the proposed consolidation. The Board believes that other private-
sector initiatives, such as joint marketing agreements and interline 
partnerships, can produce many of the efficiencies of a merger while 
risking less potential harm to the public.
    (1) Potential benefits. By eliminating transaction cost barriers 
between firms, increasing the productivity of investment, and enabling 
carriers to lower costs through economies of scale, scope, and density, 
mergers can generate important public benefits such as improved 
service, more competition, and greater economic efficiency. A merger 
can strengthen a carrier's finances and operations. To the extent that 
a merged carrier continues to operate in a competitive environment, its 
new efficiencies would be shared with shippers and consumers. Both the 
public and the consolidated carrier can benefit if the carrier is able 
to increase its marketing opportunities and provide better service. A 
merger transaction can also improve existing competition or provide new 
competitive opportunities, and such enhanced competition will be given 
substantial weight in our analysis. Applicants shall make a good faith 
effort to calculate the net public benefits their proposed merger would 
generate, and the Board will carefully evaluate such evidence. To 
ensure that applicants have no incentive to exaggerate these projected 
benefits to the public, the Board expects applicants to propose 
additional measures that the Board might take if the anticipated public 
benefits fail to materialize in a timely manner. In this regard, the 
Board recognizes, however, that applicants require the flexibility to 
adapt to changing marketplace or other circumstances and that it is 
inevitable that an approved merger may not necessarily be implemented 
in precisely the manner anticipated in the application. Applicants will 
be held accountable, however, if they do not act reasonably in light of 
changing circumstances to achieve promised merger benefits.
    (2) Potential harm. The Board recognizes that consolidation can 
impose costs as well as benefits. It can reduce competition both 
directly and indirectly in particular markets, including product 
markets and geographic markets. Consolidation can also threaten 
essential services and the reliability of the rail network. In 
analyzing these impacts we must consider, but are not limited by, the 
policies embodied in the antitrust laws.
    (i) Reduction of competition. Although in specific markets 
railroads operate in a highly competitive environment with vigorous 
intermodal competition from motor and water carriers, mergers can 
deprive shippers of effective options. Intramodal competition can be 
reduced when two carriers serving the same origins or destinations 
merge. Competition arising from shippers' build-out, transloading, 
plant siting, and production shifting choices can be eliminated or 
reduced when two railroads serving overlapping areas merge. Competition 
in product and geographic markets can also be eliminated or reduced by 
mergers, including end-to-end mergers. Any railroad combination entails 
a risk that the merged carrier would acquire and exploit increased 
market power. Applicants shall propose remedies to mitigate and offset 
competitive harms. Applicants shall also explain how they would at a 
minimum preserve competitive and market options such as those involving 
the use of major existing gateways, build-outs or build-ins, and the 
opportunity to enter into contracts for one segment of a movement as a 
means of gaining the right separately to pursue rate relief for the 
remainder of the movement.
    (ii) Harm to essential services. The Board must ensure that 
essential freight, passenger, and commuter rail services are preserved 
wherever feasible. An existing service is essential if there is 
sufficient public need for the service and adequate alternative 
transportation is not available. The Board's focus is on the ability of 
the nation's transportation infrastructure to continue to provide and 
support essential services. Mergers should strengthen, not undermine, 
the ability of the rail network to advance the nation's economic growth 
and competitiveness, both domestically and internationally. The Board 
will consider whether projected shifts in traffic patterns could 
undermine the ability of the various network links (including Class II 
and Class III rail carriers and ports) to sustain essential services.
    (iii) Transitional service problems. Experience shows that 
significant service problems can arise during the transitional period 
when merging firms integrate their operations, even after applicants 
take extraordinary steps to avoid those disruptions. Because service 
disruptions harm the public, the Board, in its determination of the 
public interest, will weigh the likelihood of transitional service 
problems. In addition, under paragraph (h) of this section, the Board 
will require applicants to provide a detailed service assurance plan. 
Applicants also should explain how they would cooperate with other 
carriers in overcoming serious service disruptions on their lines 
during the transitional period and afterwards.
    (iv) Enhanced competition. To offset harms that would not otherwise 
be mitigated, applicants should explain how the transaction and 
conditions they propose would enhance competition.
    (d) Conditions. The Board has broad authority under 49 U.S.C. 
11324(c) to impose conditions on consolidations, including requiring 
divestiture of parallel tracks or the granting of trackage rights and 
access to other facilities. The Board will condition the approval of 
Class I combinations to mitigate or offset harm to the public interest, 
and will carefully consider conditions proposed by applicants in this 
regard. The Board may impose conditions that are operationally feasible 
and produce net public benefits, but will not impose conditions that 
undermine or defeat beneficial transactions by creating unreasonable 
operating, financial, or other problems for the combined carrier. 
Conditions are generally not appropriate to compensate parties who may 
be disadvantaged by increased competition. The Board anticipates that 
mergers of Class I carriers would likely create some anticompetitive 
effects that would be difficult to mitigate through appropriate 
conditions, and that transitional service disruptions might temporarily 
negate any shipper benefits. To offset such potential harms and improve 
the prospect that their proposal would be found to be in the public 
interest, applicants should propose conditions that would not simply 
preserve but also enhance competition. The Board seeks to enhance 
competition in ways that strengthen and sustain the rail network as a 
whole (including that portion of the network operated by Class II and 
III carriers).
    (e) Employee protection. The Board is required to provide a fair 
arrangement for the protection of the rail employees of applicants who 
are affected by a consolidation. The Board supports early notice and 
consultation between management and the various unions, leading to 
negotiated implementing agreements, which the Board strongly favors. 
Otherwise, the Board respects the sanctity of collective bargaining 
agreements and will look with extreme disfavor on overrides of 
collective bargaining agreements except to the

[[Page 32585]]

very limited extent necessary to carry out an approved transaction. The 
Board will review negotiated agreements to ensure fair and equitable 
treatment of all affected employees. Absent a negotiated agreement, the 
Board will provide for protection at the level mandated by law (49 
U.S.C. 11326(a)), and if unusual circumstances are shown, more 
stringent protection will be provided to ensure that employees have a 
fair and equitable arrangement.
    (f) Environment and safety. (1) The National Environmental Policy 
Act, 42 U.S.C. 4321 et seq. (NEPA), requires the Board to take 
environmental considerations into account in railroad consolidation 
cases. To meet its responsibilities under NEPA and related 
environmental laws, the Board must consider significant potential 
beneficial and adverse environmental impacts in deciding whether to 
approve a transaction as proposed, deny the proposal, or approve it 
with conditions, including appropriate environmental mitigation 
conditions addressing concerns raised by the parties, including 
federal, state, and local government entities. The Board's Section of 
Environmental Analysis (SEA) ensures that the agency meets its 
responsibilities under NEPA and the implementing regulations at 49 CFR 
part 1105 by providing the Board with an independent environmental 
review of merger proposals. In preparing the necessary environmental 
documentation, SEA focuses on the potential environmental impacts 
resulting from merger-related changes in activity levels on existing 
rail lines and rail facilities. The Board generally will mitigate only 
those impacts that would result directly from an approved transaction, 
and will not require mitigation for existing conditions and existing 
railroad operations.
    (2) During the environmental review process, railroad applicants 
have negotiated agreements with affected communities, including groups 
of communities and other entities such as state and local agencies. The 
Board encourages voluntary agreements of this nature because they can 
be extremely helpful and effective in addressing specific local and 
regional environmental and safety concerns, including the sharing of 
costs associated with mitigating merger-related environmental impacts. 
Generally, these privately negotiated solutions between an applicant 
railroad and some or all of the communities along particular rail 
corridors or other appropriate entities are more effective, and in some 
cases more far-reaching, than any environmental mitigation options the 
Board could impose unilaterally. Therefore, when such agreements are 
submitted to it, the Board generally will impose these negotiated 
agreements as conditions to approved mergers, and these agreements 
generally will substitute for specific local and site-specific 
environmental mitigation for a community that otherwise would be 
imposed. Moreover, to encourage and give effect to negotiated solutions 
whenever possible, the opportunity to negotiate agreements will remain 
available throughout the oversight process to replace local and site-
specific environmental mitigation imposed by the agency. The Board will 
require compliance with the terms of all negotiated agreements 
submitted to it during oversight by imposing appropriate environmental 
conditions to replace the local and site-specific mitigation previously 
imposed.
    (3) Applicants will be required to work with the Federal Railroad 
Administration, on a case-by-case basis, to formulate Safety 
Integration Plans (SIPs) to ensure that safe operations are maintained 
throughout the merger implementation process. As part of the 
environmental review process, applicants will be required to submit:
    (i) A SIP and
    (ii) Evidence about potentially blocked grade crossings as a result 
of merger-related traffic increases or operational changes.
    (g) Oversight. As a condition to its approval of any major 
transaction, the Board will establish a formal oversight process. For 
at least the first 5 years following approval, applicants will be 
required to present evidence to the Board, on no less than an annual 
basis, to show that the merger conditions imposed by the Board are 
working as intended, that the applicants are adhering to the various 
representations they made on the record during the course of their 
merger proceeding, that no unforeseen harms have arisen that would 
require the Board to alter existing merger conditions or impose new 
ones, and that the merger benefit projections accepted by the Board are 
being realized in a timely fashion. Parties will be given the 
opportunity to comment on applicants' submissions, and applicants will 
be given the opportunity to reply to the parties' comments. During the 
oversight period, the Board will retain jurisdiction to impose any 
additional conditions it determines are necessary to remedy or offset 
adverse consequences of the underlying transaction.
    (h) Service assurance and operational monitoring. (1) The quality 
of service is of vital importance. Accordingly, applicants must file, 
with their initial application and operating plan, a Service Assurance 
Plan identifying the precise steps they would take to ensure adequate 
service and to provide for improved service. This plan must include the 
specific information set forth at Sec. 1180.10 on how shippers, 
connecting railroads (including Class II and III carriers), and ports 
across the new system would be affected and benefitted by the proposed 
consolidation. As part of this plan, applicants will be required to 
provide service benchmarks, describe the extent to which they have 
entered into any arrangements with shippers and shipper groups to 
compensate for service failures, and establish contingency plans that 
would be available to mitigate any unanticipated service disruption.
    (2) The Board will conduct significant post-approval operational 
monitoring to help ensure that service levels after a merger are 
reasonable and adequate.
    (3) The Board also will require applicants to establish problem 
resolution teams and specific procedures for problem resolution to 
ensure that any unanticipated post-merger problems related to service 
or any other transportation matters, including claims, are promptly 
addressed. These teams should include representatives of all 
appropriate employee categories. Also, the Board envisions the 
establishment of a Service Council made up of shippers, railroads, 
passenger service representatives, ports, rail labor, and other 
interested parties to provide an ongoing forum for the discussion of 
implementation issues.
    (4) Loss and damage claims handling. Shippers or shortlines who 
have freight claims under 49 CFR part 1005 during merger implementation 
shall file such claims, in writing or electronically, with the merged 
carrier. The claimant shall provide supporting documentation regarding 
the effect on the claimant, and the specific damages (in a determinable 
amount) incurred. Pursuant to 49 CFR part 1005, the merged carrier 
shall acknowledge each claim within 30 days and successively number 
each claim. Within 120 days of carrier receipt of the claim, the merged 
carrier shall respond to each claim by paying, declining, or offering a 
compromise settlement. The Board will take notice of these claims and 
their disposition as a matter of oversight. During each annual 
oversight period, the merged carrier shall report on claims received, 
their type, and their disposition for each quarterly period covered by 
oversight. While shippers and shortlines may also contract with the 
applicants for specific remedies with respect to claims, final

[[Page 32586]]

adjudication of contract issues as well as unresolved claims will 
remain a matter for the courts.
    (5) Service failure claims. Applicants must suggest a protocol for 
handling claims related to failure to provide reasonable service due to 
merger implementation problems. Commitments to submit all such claims 
to arbitration will be favored.
    (6) Alternative rail service. Where shippers and connecting 
railroads require relief from extended periods of inadequate service, 
the procedures at 49 CFR parts 1146 and 1147 are available for the 
Board to review the documented service levels and to consider shipper 
proposals for alternative service relief when other avenues of relief 
have already been explored with the merged carrier in an effort to 
restore adequate service.
    (i) Cumulative impacts and crossover effects. Because there are so 
few remaining Class I carriers and the railroad industry constitutes a 
network of competing and complementary components, the Board cannot 
evaluate the merits of a major transaction in isolation. The Board must 
also consider the cumulative impacts and crossover effects likely to 
occur as rival carriers react to the proposed combination. The Board 
expects applicants to explain how additional Class I mergers would 
affect the eventual structure of the industry and the public interest. 
Applicants should generally discuss the likely impact of such future 
mergers on the anticipated public benefits of their own merger 
proposal. Applicants will be expected to discuss whether and how the 
type or extent of any conditions imposed on their proposed merger would 
have to be altered, or any new conditions imposed, should we approve 
any future consolidation(s).
    (j) Inclusion of other carriers. The Board will consider requiring 
inclusion of another carrier as a condition to approval only where 
there is no other reasonable alternative for providing essential 
services, the facilities fit operationally into the new system, and 
inclusion can be accomplished without endangering the operational or 
financial success of the new company.
    (k) Transnational and other informational issues. (1) All 
applicants must submit ``full system'' competitive analyses and 
operating plans--incorporating any operations in Canada or Mexico--from 
which we can determine the competitive, service, employee, safety, and 
environmental impacts of the prospective operations within the United 
States, and explain how cooperation with the Federal Railroad 
Administration would be maintained to address potential impacts on 
operations within the United States of operations or events elsewhere 
on their systems. All applicants must further provide information 
concerning any restrictions or preferences under foreign or domestic 
law and policies that could affect their commercial decisions. 
Applicants must also address how any ownership restrictions might 
affect our public interest assessment.
    (2) The Board will consult with relevant officials, as appropriate, 
to ensure that any conditions it imposes on an approved transaction are 
consistent with the North American Free Trade Agreement and other 
pertinent international agreements to which the United States is a 
party. In addition, the Board will cooperate with those Canadian and 
Mexican agencies charged with approval and oversight of a proposed 
transnational railroad combination.
    (l) National defense. Rail mergers must not detract from the 
ability of the United States military to rely on rail transportation to 
meet the nation's defense needs. Applicants must discuss and assess the 
national defense ramifications of their proposed merger.
    (m) Public participation. To ensure a fully developed record on the 
effects of a proposed railroad consolidation, the Board encourages 
public participation from federal, state, and local government 
departments and agencies; affected shippers, carriers, and rail labor; 
and other interested parties.

    4. Section 1180.3 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 1180.3  Definitions.

    (a) Applicant. The term applicant means the parties initiating a 
transaction, but does not include a wholly owned direct or indirect 
subsidiary of an applicant if that subsidiary is not a rail carrier. 
Parties who are considered applicants, but for whom the information 
normally required of an applicant need not be submitted, are:
    (1) In minor trackage rights applications, the transferor and
    (2) In responsive applications, a primary applicant.
    (b) Applicant carriers. The term applicant carriers means: any 
applicant that is a rail carrier; any rail carrier operating in the 
United States, Canada, and/or Mexico in which an applicant holds a 
controlling interest; and all other rail carriers involved in the 
transaction. Because the service provided by these commonly controlled 
carriers can be an important competitive aspect of the transactions 
that we approve, applicant carriers are subject to the full range of 
our conditioning power. Carriers that are involved in an application 
only by virtue of an existing trackage rights agreement with applicants 
are not applicant carriers.
* * * * *

    5. Section 1180.4 is amended by revising paragraph (a)(1) to read 
as follows, by removing paragraph (a)(4), by adding new paragraphs 
(b)(4) and (c)(6)(vi) to read as follows, and by revising paragraphs 
(d), (e)(2), (e)(3), and (f)(2) to read as follows:


Sec. 1180.4  Procedures.

    (a) * * * (1) The original and 25 copies of all documents shall be 
filed in major proceedings. The original and 10 copies shall be filed 
in significant and minor proceedings.
* * * * *
    (b) * * *
    (4) Prefiling notification. When filing the notice of intent 
required by paragraph (b)(1) of this section, applicants also must 
file:
    (i) A proposed procedural schedule. In any proceeding involving 
either a major transaction or a significant transaction, the Board will 
publish a Federal Register notice soliciting comments on the proposed 
procedural schedule, and will, after review of any comments filed in 
response, issue a procedural schedule governing the course of the 
proceeding.
    (ii) A proposed draft protective order. The Board will issue, in 
each proceeding in which such an order is requested, an appropriate 
protective order.
    (iii) A statement of waybill availability for major transactions. 
Applicants must indicate, as soon as practicable after the issuance of 
a protective order, that they will make their 100% traffic tapes 
available (subject to the terms of the protective order) to any 
interested party on written request. The applicants may require that, 
if the requesting party is itself a railroad, applicants will make 
their 100% traffic tapes available to that party only if it agrees, in 
its written request, to make its own 100% traffic tapes available to 
applicants (subject to the terms of the protective order) when it 
receives access to applicants' tapes.
    (iv) Applicants may also propose the use of a voting trust at this 
stage, or at a later stage, if that becomes necessary. In each 
proceeding involving a major transaction, applicants contemplating the 
use of a voting trust must explain how the trust would insulate them 
from an unlawful control violation and why their proposed use of the 
trust, in the

[[Page 32587]]

context of their impending control application, would be consistent 
with the public interest. Following a brief period of public comment 
and replies by applicants, the Board will issue a decision determining 
whether applicants may establish and use the trust.
    (c) * * *
    (6) * * *
    (vi) The information and data required of any applicant may be 
consolidated with the information and data required of the affiliated 
applicant carriers.
    (d) Responsive applications. (1) No responsive applications shall 
be permitted to minor transactions.
    (2) An inconsistent application will be classified as a major, 
significant, or minor transaction as provided in Sec. 1180.2(a) through 
(c). The fee for an inconsistent application will be the fee for the 
type of transaction involved. See 49 CFR 1002.2(f)(38) through (41). 
The fee for any other type of responsive application is the fee for the 
particular type of proceeding set forth in 49 CFR 1002.2(f).
    (3) Each responsive application filed and accepted for 
consideration will automatically be consolidated with the primary 
application for consideration.
    (e) * * *
    (2) The evidentiary proceeding will be completed:
    (i) Within 1 year after the primary application is accepted for a 
major transaction;
    (ii) Within 180 days for a significant transaction; and
    (iii) Within 105 days for a minor transaction.
    (3) A final decision on the primary application and on all 
consolidated cases will be issued:
    (i) Within 90 days after the conclusion of the evidentiary 
proceeding for a major transaction;
    (ii) Within 90 days for a significant transaction; and
    (iii) Within 45 days for a minor transaction.
* * * * *
    (f) * * *
    (2) Except as otherwise provided in the procedural schedule adopted 
by the Board in any particular proceeding, petitions for waiver or 
clarification must be filed at least 45 days before the application is 
filed.
* * * * *

    6. Section 1180.6 is amended by revising paragraphs (b)(1), (b)(2), 
(b)(3), (b)(4), (b)(6), and (b)(8) to read as follows, and by adding 
new paragraphs (b)(9), (b)(10), (b)(11), (b)(12), and (b)(13) to read 
as follows:


Sec. 1180.6  Supporting information.

* * * * *
    (b) * * *
    (1) Form 10-K (exhibit 6). Submit: The most recent filing with the 
Securities and Exchange Commission (SEC) under 17 CFR 249.310 made 
within the year prior to the filing of the application by each 
applicant or by any entity that is in control of an applicant. These 
shall not be incorporated by reference, and shall be updated with any 
Form 10-K subsequently filed with the SEC during the pendency of the 
proceeding.
    (2) Form S-4 (exhibit 7). Submit: The most recent filing with the 
SEC under 17 CFR 239.25 made within the year prior to the filing of the 
application by each applicant or by any entity that is in control of an 
applicant. These shall not be incorporated by reference, and shall be 
updated with any Form S-4 subsequently filed with the SEC during the 
pendency of the proceeding.
    (3) Change in control (exhibit 8). If an applicant carrier submits 
an annual report Form R-1, indicate any change in ownership or control 
of that applicant carrier not indicated in its most recent Form R-1, 
and provide a list of the principal six officers of that applicant 
carrier and of any related applicant, and also of their majority-owned 
rail carrier subsidiaries. If any applicant carrier does not submit an 
annual report Form R-1, list all officers of that applicant carrier, 
and identify the person(s) or entity/entities in control of that 
applicant carrier and all owners of 10% or more of the equity of that 
applicant carrier.
    (4) Annual reports (exhibit 9). Submit: The two most recent annual 
reports to stockholders by each applicant, or by any entity that is in 
control of an applicant, made within 2 years of the date of filing of 
the application. These shall not be incorporated by reference, and 
shall be updated with any annual or quarterly report to stockholders 
issued during the pendency of the proceeding.
* * * * *
    (6) Corporate chart (exhibit 11). Submit a corporate chart 
indicating all relationships between applicant carriers and all 
affiliates and subsidiaries and also companies controlling applicant 
carriers directly, indirectly or through another entity (with each 
chart indicating the percentage ownership of every company on the chart 
by any other company on the chart). For each company: include a 
statement indicating whether that company is a noncarrier or a carrier; 
and identify every officer and/or director of that company who is also 
an officer and/or director of any other company that is part of a 
different corporate family that includes a rail carrier. Such 
information may be referenced through notes to the chart.
* * * * *
    (8) Intercorporate or financial relationships. Indicate whether 
there are any direct or indirect intercorporate or financial 
relationships at the time the application is filed, not disclosed 
elsewhere in the application, through holding companies, ownership of 
securities, or otherwise, in which applicants or their affiliates own 
or control more than 5% of the stock of a non-affiliated carrier, 
including those relationships in which a group affiliated with 
applicants owns more than 5% of the stock of such a carrier. Indicate 
the nature and extent of any such relationships, and, if an applicant 
owns securities of a carrier subject to 49 U.S.C. Subtitle IV, provide 
the carrier's name, a description of securities, the par value of each 
class of securities held, and the applicant's percentage of total 
ownership. For purposes of this paragraph, ``affiliates'' has the same 
meaning as ``affiliated companies'' in Definition 5 of the Uniform 
System of Accounts (49 CFR part 1201, subpart A).
    (9) Employee impact exhibit. The effect of the proposed transaction 
upon applicant carriers' employees (by class or craft), the geographic 
points where the impacts would occur, the time frame of the impacts 
(for at least 3 years after consolidation), and whether any employee 
protection agreements have been reached. This information (except with 
respect to employee protection agreements) may be set forth in the 
following format:

                Effects on Applicant Carriers' Employees
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Current Location................................................  ......
Jobs Classification.............................................  ......
Jobs Transferred to.............................................  ......
Jobs Abolished..................................................  ......
Jobs Created....................................................  ......
Year............................................................  ......
------------------------------------------------------------------------

    (10) Conditions to mitigate and offset merger-related harms. 
Applicants are expected to propose measures to mitigate and offset 
merger-related harms. These conditions should not simply preserve, but 
also enhance, competition.
    (i) Applicants must explain how they would preserve competitive 
options for shippers and for Class II and III rail carriers. At a 
minimum, applicants must explain how they would preserve the use of 
major existing gateways, the potential for build-outs or build-ins, and

[[Page 32588]]

the opportunity to enter into contracts for one segment of a movement 
as a means of gaining the right separately to pursue rate relief for 
the remainder of the movement.
    (ii) Applicants should explain how the transaction and conditions 
they propose would enhance competition and improve service.
    (11) Calculating public benefits. Applicants must enumerate and, 
where possible, quantify the net public benefits their merger would 
generate (if approved). In making this estimate, applicants should 
identify the benefits that would arise from service improvements, 
enhanced competition, cost savings, and other merger-related public 
interest benefits, and should discuss whether the particular benefits 
they are relying upon could be achieved short of merger. Applicants 
must also identify, discuss, and, where possible, quantify the likely 
negative effects approval would entail, such as losses of competition, 
potential for service disruption, and other merger-related harms. In 
addition, applicants must suggest additional measures that the Board 
might take if it approves the application and the anticipated public 
benefits identified by applicants fail to materialize in a timely 
manner.
    (12) Downstream merger applications. (i) Applicants should 
anticipate whether additional Class I mergers are likely to be proposed 
in response to their own proposal and explain how, taken together, 
these mergers, if approved, could affect the eventual structure of the 
industry and the public interest.
    (ii) Applicants are expected to discuss whether any conditions 
imposed on an approval of their proposed merger would have to be 
altered, or any new conditions imposed, if the Board should approve 
additional future rail mergers.
    (13) Purpose of the proposed transaction. The purpose sought to be 
accomplished by the proposed transaction, such as improving service, 
enhancing competition, strengthening the nation's transportation 
infrastructure, creating operating economies, and ensuring financial 
viability.
* * * * *

    7. Section 1180.7 is revised to read as follows:


Sec. 1180.7  Market analyses.

    (a) For major and significant transactions, applicants shall submit 
impact analyses (exhibit 12) describing the impacts of the proposed 
transaction--both adverse and beneficial--on inter-and intramodal 
competition with respect to freight surface transportation in the 
regions affected and on the provision of essential services by 
applicants and other carriers. An impact analysis should include 
underlying data, a study of the implications of those data, and a 
description of the resulting likely effects of the proposed transaction 
on the transportation alternatives that would be available to the 
shipping public. Each aspect of the analysis should specifically 
address significant impacts as they relate to the applicable statutory 
criteria (49 U.S.C. 11324(b) or (d)), essential services, and 
competition. Applicants must identify and address relevant markets and 
issues, and provide additional information as requested by the Board on 
markets and issues that warrant further study. Applicants (and any 
other party submitting analyses) must demonstrate both the relevance of 
the markets and issues analyzed and the validity of their methodology. 
All underlying assumptions must be clearly stated. Analyses should 
reflect the consolidated company's marketing plan and existing and 
potential competitive alternatives (inter- as well as intramodal). They 
can address: city pairs, interregional movements, movements through a 
point, or other factors; a particular commodity, group of commodities, 
or other commodity factor that would be significantly affected by the 
transaction; or other effects of the transaction (such as on a 
particular type of service offered).
    (b) For major transactions, applicants shall submit ``full system'' 
impact analyses (incorporating any operations in Canada or Mexico) from 
which they must demonstrate the impacts of the transaction--both 
adverse and beneficial--on competition within regions of the United 
States and this nation as a whole (including inter- and intramodal 
competition, product competition, and geographic competition) and the 
provision of essential services (including freight, passenger, and 
commuter) by applicants and other network links (including Class II and 
Class III rail carriers and ports). Applicants' impact analyses must at 
least provide the following types of information:
    (1) The anticipated effects of the transaction on traffic patterns, 
market concentrations, and/or transportation alternatives available to 
the shipping public. Consistent with Sec. 1180.6(b)(10), these would 
incorporate a detailed examination of any competition-enhancing aspects 
of the transaction and of the specific measures proposed by applicants 
to preserve existing levels of competition and essential services;
    (2) Actual and projected market shares of originated and terminated 
traffic by railroad for each major point on the combined system. 
Applicants may define points as individual stations or as larger areas 
(such as Bureau of Economic Analysis statistical areas or U.S. 
Department of Agriculture Crop Reporting Districts) as relevant and 
indicate the extent of switching access and availability of terminal 
belt railroads. Applicants should list points where the number of 
serving railroads would drop from two to one and from three to two, 
respectively, as a result of the proposed transaction (both before and 
after applying proposed remedies for competitive harm);
    (3) Actual and projected market shares of revenues and traffic 
volumes for major interregional or corridor flows by major commodity 
group. Origin/destination areas should be defined at relevant levels of 
aggregation for the commodity group in question. The data should be 
broken down by mode and (for the railroad portion) by single-line and 
interline routings (showing gateways used);
    (4) For each major commodity group, an analysis of traffic flows 
indicating patterns of geographic competition or product competition 
across different railroad systems, showing actual and projected 
revenues and traffic volumes;
    (5) Maps and other graphic displays where helpful in illustrating 
the analyses in this section;
    (6) An explicit delineation of the projected impacts of the 
transaction on the ability of various network links (including Class II 
and Class III rail carriers and ports) to participate in the 
competitive process and to sustain essential services; and
    (7) Supporting data for the analyses in this section, such as the 
basis for projections of changes in traffic patterns, including shipper 
surveys and econometric or other statistical analyses. If not made part 
of the application, applicants shall make these data available in a 
repository for inspection by other parties or otherwise supply these 
data on request, for example, electronically. Access to confidential 
information will be subject to protective order. For information drawn 
from publicly available published sources, detailed citations will 
suffice.
    (8) If necessary, an explanation as to how the lack of reliable and 
consistent data has limited applicants' ability to satisfy any of the 
requirements in this paragraph (b).
    (c) For significant transactions, specific regulations on impact 
analyses are not provided so that the parties will have the greatest 
leeway to develop the

[[Page 32589]]

best evidence on the impacts of each individual transaction. As a 
general guideline, applicants shall provide supporting data that may 
(but need not) include: current and projected traffic flows; data 
underlying sales forecasts or marketing goals; interchange data; market 
share analysis; and/or shipper surveys. It is important to note that 
these types of studies are neither limiting nor all-inclusive. The 
parties must provide supporting data, but are free to choose the 
type(s) and format. If not made part of the application, applicants 
shall make these data available in a repository for inspection by other 
parties or otherwise supply these data on request, for example, 
electronically. Access to confidential information will be subject to 
protective order. For information drawn from publicly available 
published sources, detailed citations will suffice.

    8. Section 1180.8 is amended by redesignating paragraphs (a) and 
(b) as paragraphs (b) and (c), respectively, and by adding a new 
paragraph (a) to read as follows:


Sec. 1180.8  Operational data.

    (a) Applications for major transactions must include a full-system 
operating plan--incorporating any prospective operations in Canada and 
Mexico--from which they must demonstrate how the proposed transaction 
would affect operations within regions of the United States and on a 
nationwide basis. As part of the environmental review process, 
applicants shall submit:
    (1) A Safety Integration Plan, prepared in consultation with the 
Federal Railroad Administration, to ensure that safe operations would 
be maintained throughout the merger implementation process.
    (2) Information on what measures they plan to take to address 
potentially blocked crossings as a result of merger-related changes in 
operations or increases in rail traffic.
* * * * *

    9. A new Sec. 1180.10 is added to subpart A to read as follows:


Sec. 1180.10  Service assurance plans.

    For major transactions: Applicants must submit a Service Assurance 
Plan, which, in concert with the operating plan requirements, 
identifies the precise steps to be taken by applicants to ensure that 
projected service levels would be attainable and that key elements of 
the operating plan would improve service. The plan shall describe with 
reasonable precision how operating plan efficiencies would translate 
into present and future benefits for the shipping public. The plan must 
also describe any potential area of service degradation that might 
result due to operational changes and how instances of degraded service 
might be mitigated. Like the Operating Plan on which it is based, the 
Service Assurance Plan must be a full-system plan encompassing:
    (a) Integration of operations. Based on the operating plan, and 
using appropriate benchmarks, applicants must develop a Service 
Assurance Plan describing how the proposed transaction would result in 
improved service levels and how and where service might be degraded. 
This description should be a precise route level review, but not a 
shipper-by-shipper review. Nonetheless, the plan should be sufficient 
for individual shippers to evaluate the projected improvements and 
changes, and respond to the potential areas of service degradation for 
their customary traffic routings. The plan should inform Class II and 
III railroads and other connecting railroads of the operational changes 
or changes in service terms that might affect their operations, 
including operations involving major gateways.
    (b) Coordination of freight and passenger operations. If Amtrak or 
commuter services are operated over the lines of applicant carriers, 
applicants must describe definitively how they would continue to 
facilitate these operations so as to fulfill existing performance 
agreements for those services. Whether or not the passenger services 
are operated over lines of applicants or applicants' operations are on 
the lines of passenger agencies, applicants must establish operating 
protocols ensuring effective communications with Amtrak and/or regional 
rail passenger operators to minimize any potential transaction-related 
negative impacts.
    (c) Yard and terminal operations. The operational fluidity of yards 
and terminals is key to the successful implementation of a transaction 
and effective service to shippers. Applicants must describe how the 
operations of principal classification yards and major terminals would 
be changed or revised and how these revisions would affect service to 
customers. As part of this analysis, applicants must furnish dwell time 
benchmarks for each facility described in this paragraph, and estimate 
what the expected dwell time would be after the revised operations are 
implemented. Also required will be a discussion of on-time performance 
for the principal yards and terminals in the same terms as required for 
dwell time.
    (d) Infrastructure improvements. Applicants must identify potential 
infrastructure impediments (using volume/capacity line and terminal 
forecasts), formulate solutions to those impediments, and develop time 
frames for resolution. Applicants must also develop a capital 
improvement plan (to support the operating plan) for timely funding and 
completion of the improvements critical to transition of operations. 
They should also describe improvements related to future growth, and 
indicate the relationship of the improvements to service delivery.
    (e) Information technology systems. Because the accurate and timely 
integration of applicants' information systems is vitally important to 
service, applicants must identify the process to be used for systems 
integration and training of involved personnel. This must include 
identification of the principal operations-related systems, operating 
areas affected, implementation schedules, the realtime operations data 
used to test the systems, and pre-implementation training requirements 
needed to achieve completion dates. If such systems will not be 
integrated and on line prior to implementation of the transaction, 
applicants must describe the interim systems to be used and the 
adequacy of those systems to ensure service delivery.
    (f) Customer service. To achieve and maintain customer confidence 
in the transaction and to ensure the successful integration and 
consolidation of existing customer service functions, applicants must 
identify their plans for the staffing and training of personnel within 
or supporting the customer service centers. This discussion must 
include specific information on the planned steps to familiarize 
customers with any new processes and procedures that they may encounter 
in using the consolidated systems and/or changes in contact locations, 
telephone numbers, or communication mode.
    (g) Labor. Applicants must furnish a plan for reaching necessary 
labor implementing agreements. Applicants must also provide evidence 
that sufficient qualified employees would be available at the proper 
locations to effect implementation.
    (h) Training. Applicants must establish a plan for providing 
necessary training to employees involved with operations, train and 
engine service, operating rules, dispatching, payroll and timekeeping, 
field data entry, safety and hazardous material compliance, and 
contractor support functions (e.g., crew van service), as well as 
training for other employees in functions that would be affected by the 
acquisition.

[[Page 32590]]

    (i) Contingency plans for merger-related service disruptions. To 
address potential disruptions of service that could occur, applicants 
must establish contingency plans. Those plans, based upon available 
resources and traffic flows and density, must identify potential areas 
of disruption and the risk of occurrence. Applicants must provide 
evidence that contingency plans would be in place to promptly restore 
adequate service levels. Applicants must also provide for the 
establishment of problem resolution teams and describe the specific 
procedures to be utilized for problem resolution.
    (j) Timetable. Applicants must identify all major functional or 
system changes/consolidations that would occur and the time line for 
successful completion.
    (k) Benchmarking. Specific benchmarking requirements may vary with 
the transaction. The minimum for benchmarking will be the 12 monthly 
periods immediately preceding the filing date of the notice of intent 
to file the application. Benchmarking is intended to provide an 
historic monthly baseline against which actual post-transaction levels 
of performance can be measured. Benchmarking data should be 
sufficiently detailed and encompassing to give a meaningful picture of 
operational performance for the newly merged system. Applicants will 
report in a matrix structure giving the historic monthly (benchmark) 
data and provide for the reporting of actual monthly data during the 
monitoring period. It is important that data reflect uniformly 
constructed measures of historic and post-transaction operations. 
Minimum benchmark data include:
    (1) Corridor performance benchmarking. Benchmarks will consist of 
route level performance information including flow data for traffic 
moving on the applicants' systems. These data will encompass flows to 
and from major points. A major point could be a Bureau of Economic 
Analysis (BEA) statistical area, or it can be a railroad-created point 
based on an operational grouping of stations or interchanges, or it 
could be another similar construction. It will be necessary for 
applicants to define traffic points used to establish benchmarks for 
purposes of monitoring. A sufficient number of corridor flows must be 
reported so as to fully represent system flows, including interchanges 
with short lines and other Class I's, and internal traffic of the 
respective applicants before the transaction. In addition to 
identifying traffic flows by areas, they also must be identified by 
commodity sector (for example, merchandise, intermodal, automotive, 
unit coal, unit grain etc.). Data for each flow must include: traffic 
volume in carloads (units), miles (area to area), and elapsed time in 
hours. Only loaded traffic need be included.
    (2) Yard and terminal benchmarking.
    (i) Terminal dwell. Terminal dwell for major yards will be 
calculated in hours for cars handled, not including run-through and 
bypass trains or maintenance of way and bad order cars.
    (ii) On time originations by major yard. On time originations are 
based on the departure of scheduled trains originating at a particular 
yard.
    (3) System benchmarking.
    (i) Cars on line.
    (ii) Average train velocity, by train type.
    (iii) Locomotive fleet size and applicable bad order ratios.
    (iv) Passenger train performance for commuter and intercity 
passenger services.

    10. A new Sec. 1180.11 is added to subpart A to read as follows:


Sec. 1180.11  Transnational and other informational requirements.

    (a) For applicants whose systems include operations in Canada or 
Mexico, applicants must explain how cooperation with the Federal 
Railroad Administration would be maintained to address potential 
impacts on operations within the United States of operations or events 
elsewhere on their systems.
    (b) All applicants must assess whether any restrictions or 
preferences under foreign or domestic law or policies could affect 
their commercial decisions, and discuss any ownership restrictions 
applicable to them.

[FR Doc. 01-14984 Filed 6-14-01; 8:45 am]
BILLING CODE 4915-00-P