We recently reported on Amtrak’s request to the Surface Transportation Board (STB) to set terms and conditions for a new operating agreement (OA) between Amtrak and CN, as one of the host railroads whose lines Amtrak uses for its trains.
Our report examined Amtrak’s 78-page brief submitted as part of a 497-page filing on Friday, May 27, in STB Docket No. FD-35748. CN submitted its own 355-page filing with a 101-page brief the same day, giving its side of the story and also calling for a new OA, but not on the terms that Amtrak requested. The document is captioned “Post-Interim Decision Opening Submission of Illinois Central Railroad Company and Grand Trunk Western Railroad” (both are CN U.S. subsidiaries). This report will focus on the CN filing.
CN Summarizes Arguments
In its brief, CN started with an Introduction and the Procedural Background (at 1-18). The arguments that followed were divided into Part I: Performance Measures and Incentives/Penalties (at 18-72), Part II: Incremental Cost Issues of Delays Amtrak Causes to CN Freight Trains (at 73-95), and Part III: Other Provisions (at 95-101). While CN stated its contentions often in the document (as did Amtrak in its own Brief), the railroad restated them in the Conclusion (at 101): “the Board should order the parties to execute a new Operating Agreement in accordance with CN’s proposed changes to the current Operating Agreement (as shown in the CN Proposed Operating Agreement in Tab B). Changes to the provisions of the Operating Agreement regarding Performance Payments and Performance Penalties (as defined in the Operating Agreement) should be made prospective, given their purpose of incentivizing future conduct, and that CN should be entitled to compensation for incremental costs of past freight train delays from September 1, 2019.” We don’t know about CN’s proposals as outlined in the document behind Tab B, because all of it was redacted from the version of the filing that was released on the STB website (at file:///C:/Users/train/Downloads/304652.pdf).
CN began by referring to Board Orders of March 3 and May 18, 2022, and set forth terms and conditions that CN wants the STB to implement as a new OA with Amtrak. As we reported in our coverage of the Amtrak brief, the agreement that was executed in 2011 and expired in 2013, but is still substantially in effect under Board authority.
Where the Controversy is Playing Out
CN then detailed where Amtrak trains use its tracks. The longest line is the historic Illinois Central (IC) main between Chicago and New Orleans (not the part of the historic IC main between Memphis and Jackson, but the Yazoo, although that’s a different matter). It typically hosts one daily train in each direction between those two cities (running five days a week at this time) and two daily round trips between Chicago and Carbondale (one is currently suspended). The railroad also owns the line between Chicago and Joliet, used by Lincoln Service trains to St. Louis and the Texas Eagle to San Antonio.
CN’s longtime subsidiary, the Grand Trunk Western (GTW) hosts some Amtrak trains in Michigan. The three daily round trips on the Wolverine service between Chicago and Pontiac through Detroit use it for 1.2 miles between Gord and Baron, two interlockings in Battle Creek, and between West Detroit and Pontiac. The Blue Water train to Port Huron uses CN/GTW track between Gord and Port Huron.
Then CN noted the apparently-universal difficulty of accommodating both passenger and freight trains on the same track in the nation today: “Because passenger trains typically operate at much higher speeds than freight trains, when an Amtrak train is operating in the same direction as a CN freight train on a CN line, the Amtrak train may overtake the freight train and have to follow the freight train at reduced speed until a siding enables the Amtrak train to pass the freight train. And if a freight train being followed by an Amtrak train in single-track territory meets a second Amtrak train coming in the opposite direction, CN’s dispatchers may have to direct a complex “three-way meet” maneuver, in which a siding is used as a passing track for the Amtrak trains, one of which must execute a reverse movement on the main line track in order to enter the siding” (at 4, footnote omitted).
CN also complained about the lack of station tracks on the line to New Orleans, but also said that Amtrak’s on-time performance (OTP) on its lines is good. In the most recent report, “CN had the second-lowest rate of host-responsible delay minutes per 10,000 train-miles during the past 12 months. Furthermore, the City of New Orleans has had the highest All-Stations On-Time Performance (“OTP”) (65.0%) and Customer OTP (79.7%) of any Amtrak long-distance service during the same 12-month period. Further, CN’s performance as measured under the existing Operating Agreement has been good, and CN has regularly earned incentive payments based on OTP under the Agreement” (at 5, footnotes omitted).
In describing the OA from 2011-13 that is still in effect, CN said that the compensation agreement with Amtrak was different on the IC and GTW lines. On the IC line, “CN is paid a base compensation prescribed in the Operating Agreement that is intended to return the incremental costs CN incurs in providing a base level of service. On top of that base payment, CN may earn Performance Payments for high quality of service, which is measured by the OTP of Amtrak’s trains in light of delays attributable to CN while on CN’s network. CN may also incur Performance Penalties for untimely performance. CN understands this system to be the general industry standard, and it is consistent with compensation systems prescribed by the Board and its predecessor agency under 49 U.S.C. §24308(a) and section 402(a) of the Rail Passenger Service Act of 1970” (at 7). CN redacted the provisions regarding the GTW, so we don’t know that arrangement is, but CN also wants to discontinue it and apply the same rules on both the IC and GTW lines. Neither do we know what specific changes CN wants, because that proposal was also redacted.
The Dispute So Far
CN then described in its Procedural History how the case dragged on for six years before the Board issued its Decision of August 9, 2019 (the “Interim Decision” with interim findings and guidance). As we reported with respect to Amtrak and also noted by CN, the Board called for a customer-centric OTP metric, Amtrak schedules set to “give CN a meaningful opportunity to meet its performance obligations,” an incentive and penalty system that would incorporate a “degree of lateness” calculation and eliminate the “neutral zone” between 70% and 80% OTP where there would be no incentive payment or penalty, “lookback” and “reopener” provisions concerning set-offs between incentives and penalties, how “incremental costs” would be determined, how delay minutes would be allocated between Amtrak and each host railroad on a route, and calculation of a Recovery Time Base (RTB).
The Board also ordered mediation, but that effort was not successful in resolving any of the contested issues. Therefore, Amtrak and CN are coming before the Board again. The Order of March 3, 2022 set a schedule for submissions, which brought this one from CN and the one Amtrak filed the same day.
Longer Summary of CN’s Arguments
CN concluded the introductory portion of its Brief with a preview of the rest of the content (at 15-17, footnotes omitted here): “In Part I of this submission, we present CN’s proposals for calculating on-time performance (“OTP”) of Amtrak trains hosted on CN lines, and for use of OTP as basis for calculating incentive payments for quality of service to Amtrak and penalties for unsatisfactory performance (as provided in both cases by 49 U.S.C.§24308(a)) consistent with the guidance given in the Interim Decision. These proposals include a ‘lookback’ provision to ensure that CN receives at least its incremental costs of hosting Amtrak service, as well as an effective ‘reopener’ provision to address persistently poor performance, and for adjustments (including provisions for future adjustments) to Amtrak train schedules so that, as the Board stated in its Interim Decision, CN has ‘a meaningful opportunity to meet its performance obligations’ (Interim Decision at 11). In addition, this Part discusses specific provisions for use in determining whether a train is counted as ‘on time’ at a station, so that CN is not penalized for delays it cannot reasonably avoid or control, including proposals regarding attribution of delays and for ‘relief items,’ consistent with the Board’s encouragement of the parties to ‘review Amtrak’s existing delay codes and consider incorporating an analysis of which party is in the position to avoid or control the delay’ (Interim Decision at 24). In connection with those provisions, Part I also discusses the determination of the ‘recovery time base’ or “RTB” which would limit the effect of certain relief items, and CN’s proposals for revisions to the parties’ ‘dispute resolution process regarding delay coding [in order] to streamline that process’ and make it more effective (id.), and regarding resolution of other issues relating to billing for compensation due to CN” (at 15-17).
CN’s preview continued: “Part II presents CN’s proposals for quantifying delays to its freight trains that would not occur but for its hosting Amtrak trains, and for calculating specific, verifiable incremental costs of labor, fuel, and equipment costs that CN incurs as a result of those delays, and for compensating CN for those incremental costs, as CN is entitled under 49 U.S.C. §24308(a)(2)(B), as interpreted by the Board and its predecessor agency, the Interstate Commerce Commission (‘ICC’). In Part III, we discuss CN’s proposals for miscellaneous contract provisions, including the renewal term of the new Operating Agreement, confidentiality obligations regarding the new Agreement, and provisions…” (at 17). Much of the specific content that was originally in Part 3 was redacted.
As exhibits, CN annexed maps of its lines where Amtrak trains operate, its proposed new OA with Amtrak (which was redacted, so that information is not available), and seven statements from CN managers and consultants detailing CN’s claims, methodology, and its side of the story generally.
In our recent story about Amtrak’s filing and Brief in the present case, we noted that the documents contain significant detail; far too much for an article of this sort. For anyone who wishes to delve into the weeds, the 355-page filing in its entirety (except for the redacted parts) can be found on the STB website, www.stb.gov, at file:///C:/Users/train/Downloads/304652.pdf. As with the Amtrak brief, we will concentrate on the highlights and leave it to you to dig into the weeds, if you wish to do so.
CN’s Argument, Part I: Performance Measurements and Incentives
More than half of CN’s entire Brief concerned that line of argument, from page 18 to page 72. CN introduced that section of the brief by saying: “As discussed in more detail below, CN is proposing revisions to the existing incentive/penalty system that incorporate all aspects of the Board’s Interim Decision, and provides a uniform, reasonable and easily administered system for measuring CN’s contribution to Amtrak performance. CN’s proposal is based on the essential system that has been used by the parties for many years, making it familiar and easy to administer, but it adopts key features advocated by Amtrak and prescribed by the Board in its interim decision” (at 18, footnote omitted).
The brief went on to summarize CN’s key requests, proposing that OTP be measured at all stations, weighted by ridership, that the system aligns the calculation of incentives and penalties be designed for moving trains expeditiously, that the lookback provision be retained, and that focuses attribution of delay and relief items on the party that is in the best position to avoid or control delays (at 18-19).
First, in measuring OTP, checkpoints would be established at all stations, and at the end of each host railroad’s segment (when that railroad hands the train over to another railroad), which could include Amtrak. In addition, CN proposed a weighted average would factor in the percentage of all passengers on the train who are disembarking at a specific station checkpoint (or the next stop, if a measurement is taken when one railroad’s operating segment ends between station stops). OTP numbers would be reviewed on a yearly basis for each calendar year.
Second, CN would continue to earn incentive payments if its OPT exceeded 80% in two consecutive quarters; the standard in effect now. There is currently a “neutral zone” between 70% and 80% OTP, because penalties now accrue when OTP falls below 70%. CN would eliminate the neutral zone and would also factor in a “lateness multiplier” to help keep delays from getting worse, and a “timeliness multiplier” to add an extra incentive to keep its OTP at a high level. CN commented in the Brief: “Notably, CN would have to work hard to achieve a timeliness multiplier, as the average train over the course of a month would have to arrive significantly under tolerance in order for the bonus to apply. One or two significantly late trains could cause CN to lose out…” (at 23).
Third, CN called for a “lookback” provision to ensure that penalties never exceeded incentive payments, so the railroad could never receive less money from Amtrak than its incremental costs of allowing the Amtrak trains on its lines. In essence, penalties for poor OTP would act as a setoff against incentive payments for good OTP (80% or better), but CN would apparently not be required to pay any penalties that result in the railroad receiving less than its incremental costs, which it defines as any cost that it would not incur, “but for” hosting the Amtrak trains on its railroads. As part of that request, CN also called for a “reopener” provision to serve a similar purpose, a means for investigating delays and a bargaining protocol for deciding what steps must be taken to remedy the delays, and a provision requiring Amtrak to pay for all enhancements that are deemed necessary.
Finally, CN called for a 15-minute “tolerance” period after the scheduled time for a stop before a train would be considered “delayed” at that stop. CN indirectly blamed Amtrak for some of the delays at issue (at 30-31) and argued that CN could be blamed for some delays that were not its fault, while alleging that some of Amtrak’s delay codes could be wrong (at 31-33). In addition, CN suggested other causes of delays, including “commuter train interference” (at 54) and high winds (at 63), and called for schedules to be adjusted before a new OA goes into effect, and then reviewed regularly after that.
CN’s Argument, Part II: Incremental Cost Issues of Delays Amtrak Causes to CN’s Freight Trains
In this point of argument (at 73-93), Amtrak claims that some of the delays that affect its freight trains are Amtrak’s fault, and proposes a methodology to demonstrate that. CN begins by saying: “Under 49 U.S.C. §24308(a)(2)(B), CN is entitled to be reimbursed for the ‘incremental costs of using the facilities and providing the services,’ i.e., ‘those costs that CN has actually incurred, and that CN would not have incurred ‘but for’ the presence of Amtrak.’ Longstanding Board and judicial precedent recognizes that absent such reimbursement, the host railroad would be unfairly compelled to subsidize Amtrak at a loss to itself, and therefore sets full reimbursement of such incremental costs as a minimum floor for compensation in an Amtrak-host operating agreement” (at 73; citation and footnotes omitted).
CN also filed a statement by an economics expert to back up its contention, and paraphrased his statement this way: “As economic expert witness Steven Peterson explains in his verified statement, full incremental cost compensation is less than the economically efficient compensation that would be agreed to in a truly arm’s-length commercial contract, but it is nonetheless important to avoid burdening CN and, indirectly, its freight customers, with cross-subsidizing Amtrak, and to ensure that Amtrak internalizes the social costs created by its service demands and any inefficiencies results from its operations, so that Amtrak’s incentives will be better aligned with reliable rail service for both passenger and freight customers” (at 73-74; Peterson’s statement can be found at 338-354 of the filing).
Much of CN’s argument consisted of an effort to defend its contention that the Board was wrong concerning certain costs that were not easily quantifiable: “The Board found that CN had not make a sufficient case for compensation for incremental cost categories (2) and (3) [comprising costs that were not easily-quantifiable], on the basis that CN could not “specifically and verifiably quantify” those costs” (at 74). Then CN argued that having Amtrak trains on its railroads “nonetheless incurring 600 or more hours of direct delays to freight trains due to meets with Amtrak trains every month, with knock-on effects on system fluidity, has real and substantial adverse effects on CN, reducing its freight capacity, impairing its freight service, and complicating its railroad scheduling efforts” and added “If these could be quantified in the future, CN reserves the right to seek recovery from Amtrak” (at 75).
Then CN signaled its intention to recover those heretofore-unquantifiable costs: “the Board indicated that CN should recover its incremental freight delay costs if and to the extent that CN satisfied ‘the burden . . . to show that those specific costs could be included in a reasonable manner, consistent with the ‘but for’ standard and the need for specificity, verifiability, and quantifiability’” (Id). CN then claimed that new advances in coding, delay tracking, data collection (by Wi-Tronix) and other factors enable the railroad to quantify certain delays more precisely than it could in 2015, and attribute at least some of those delays to Amtrak (at 77-8). For instance, CN claimed 600 hours of delays during 1000 delay hours attributable to Amtrak in the “sample month” of December 2019 (at 80).
CN then claimed that, if the Board approves its proposed methodology, it could apply that method in the future, as well as to past months when the railroad claimed to have such data (at 81). CN uses the SRS system of reading tags on equipment as it passes delay reporting stations to note the time it takes to go between those stations. Most of Part II of CN’s argument involved a technical defense of its methodology, including claims that it could accurately calculate delays caused by Amtrak and the incremental costs of those claimed delays. There were several pages of material redacted and, because we don’t know what they said, we also don’t know how the redacted material would have affected the interpretation of the material available for us to view. Although the unredacted material is available for inspection on the STB website, the redactions could affect the validity of further reporting on the related material that can be viewed.
CN summarized Part II of its argument this way: “Using specific and reliable data, CN has developed and implemented a methodology that reliably, verifiably, and very conservatively identifies and quantifies incremental freight train delay costs CN incurs due to Amtrak’s presence on its rail lines. CN has demonstrated the application of that methodology across almost 1000 delays in the sample month of December 2019, resulting in a conservative assessment of incremental freight delay costs in that month of $219,691.” Then came CN’s request for claimed relief: “The Board should approve CN’s incremental freight delay costing methodology, and award CN its incremental freight delay costs consistent with that methodology for the period since September 1, 2019 and as compensation to be included in the operative agreement going forward” (at 95).
CN’s Argument, Part III: Other Contract Issues
CN raised a few other issues (at 96-100), although about 40% of the material in that part of the Brief was redacted. The railroad asked for an “evergreen” renewal clause on the new OA. That means the agreement would renew automatically at the end of its term, unless and the parties give proper notice of termination. The clause places the burden on the parties to demand that a new agreement be negotiated, rather than the typical contract situation, where the parties negotiate changes before the term is up.
CN also asked for stronger confidentiality protections in the future, incorporation of certain letters about which the descriptive information in the Brief was redacted, and a provision about snow removal.
A Highly Adversarial Situation
We could not report much about the latter portion of CN’s Part I argument. The brief mentioned a large number of contingencies and CN also submitted proposals concerning what to do in the event of those contingencies, but much of that material was redacted, so we don’t know what those proposals were. It is highly-technical and some of the contingencies CN raised appeared very remote. While it is often considered “good lawyering” to consider every possibility, no matter how remote, a strategy of that sort also raises the question of how well the parties will be able to work together to solve problems in the future. That question especially concerns situations that crop up in the long-term course of railroad operations, but neither side expected when they were negotiating a deal.
One illustration of how far apart the parties are is the comparison between CN’s proposal to charge Amtrak for alleged delays to its own freight trains, while Amtrak proposed measures as severe as dispatching one or more of CN’s lines in the event of poor OTP over a long term. It seems unlikely that the STB would adopt either of those positions, but the fact that the parties suggested them demonstrates how far apart they are. So does the fact that there has not been an OA in effect since 2013 that was actually negotiated between the parties.
Indeed, given the numerous points of disagreement, could CN and Amtrak actually negotiate a deal? They had one in 2011, but they could not come to terms to renew it when it expired in 2013. It is still in effect, after a fashion, but under the STB’s supervision. Now both sides are at impasses, it will be up to the STB to fashion a remedy, and CN seems as adversarial to Amtrak as CSX and NS are in the matter of establishing new passenger service between New Orleans and Mobile.
The same can be said concerning Part II of CN’s argument, with its call for compensation for certain delays for which it blames Amtrak. CN’s methodology is new, and it was apparently developed by the persons whose statements were included in the filing as exhibits. This appears to be a new methodology, and maybe even a new concept. It seems doubtful that it has been disclosed before.
We were not able to learn much form the information available in Part III, but the very last issue demonstrated the adversarial nature of the case, as much as the others did. It is a dispute over snow removal; normally an unimportant detail that can generally be resolved as easily as picking up a phone.
Now It’s Up to the STB
Given the adversarial nature of the briefs filed thus far, the STB will not have an easy task sorting the issues out and arbitrating a new agreement for Amtrak and CN. To make matters more difficult, the provisions that the Board recommends will probably apply, at least sometime in the foreseeable future, to other railroads that host Amtrak trains. Needless to say, that category includes all the other Class Is.
While the dispute between Amtrak and CN has been going on for several years, this particular skirmish in the long-term conflict is just beginning. It could be significant, or merely ironic, that Amtrak and CN filed their opening Briefs and sets of exhibits on the same day. They total 852 pages of technical and legal reading that can be hard going, even for persons trained in both disciplines.
There will be lots of filings to come, starting with each party’s response to the other’s opening submission, about which we have now reported. It would not be surprising if the conflict leads to a long and technical trial, much like the one now ongoing about Amtrak’s plan to run trains between Mobile and New Orleans.
The STB has new jurisdiction, over new starts like the proposed Gulf Coast service, and over the sort of issues raised in the present case. We have noted in our coverage of the Gulf Coast matter that the Board members appear competent, and they are taking their responsibilities seriously; especially protecting the public interest. They certainly have their work cut out for them.
We will have more coverage of this matter as time goes on, but soon it will be time to return to our continuing coverage of the Gulf Coast matter of Amtrak vs. CSX, Norfolk Southern and the Port of Mobile.