BNSF and CN last month told the Surface Transportation Board (STB) they may request limited overhead trackage rights and a line divestiture, respectively, due to the proposed merger of Canadian Pacific (CP) and Kansas City Southern (KCS).
In accordance with STB’s merger proceeding schedule (see below), BNSF and CN on Jan. 12 separately filed descriptions of their anticipated responsive applications that would make the requests. Responsive applications are due Feb. 28.
STB on Feb. 18 issued a decision postponing any determination of whether the anticipated responsive applications that may be filed by BNSF and CN would be deemed “minor” or “significant” transactions under its regulations until after any such applications are submitted. (Download the decision below.)
What Does BNSF Seek?
BNSF explained that “it may file responsive applications requesting some or all of the following rights: (i) ‘springing’ or contingent overhead trackage rights on a line owned by KCS between Robstown, Tex., and Laredo, Tex.; (ii) overhead trackage rights on a KCS line between Metro, Tex., and Bossier City, La.; and (iii) overhead trackage rights on a line owned by [CP U.S. subsidiary] Soo Line Railroad Company between Savanna, Ill., and Clinton, Iowa,” STB wrote in its decision. “BNSF states that it may seek these overhead trackage rights ‘to ensure the preservation of effective competition in areas affecting BNSF shippers, the shippers’ customers, and BNSF.’”
BNSF on Jan. 12 also filed a petition for waiver and/or clarification, according to STB. The railroad requested “that the Board classify the responsive applications that it may file as minor transactions under 49 C.F.R. § 1180.2. … Should the Board determine that any such applications are not minor transactions, BNSF requests that the Board waive certain specific filing requirements that are otherwise applicable to significant transactions. … BNSF also requests four specific clarifications or waivers with respect to any responsive applications that it may file, regardless of their classifications.”
CN filed a description of an anticipated responsive application that would ask STB to order CP and KCS “to divest KCS’s Springfield Line, between Kansas City, Mo., and Springfield, Ill., to CN as a condition of any approval of the [CP-KCS merger] Transaction,” according to STB. “CN asserts that the divestiture would ‘both mitigate the competitive harm that would occur by allowing CP as a result of its merger with KCS to downgrade a parallel line, and promote the public interest by driving investment in an underutilized route.’” (CN on Jan. 13 announced to the media its desire for the Springfield Line; CP responded, negatively.)
According to STB, CN said its “responsive application would constitute a minor transaction, as it ‘clearly will not have any anticompetitive effects.’” The railroad also said its “responsive application ‘will include all of the information required for a significant application in the event that the Board prefers to evaluate the proposed divestiture condition as a significant transaction.’”
‘Minor’ vs. ‘Significant’ Transaction
What constitutes a “minor” transaction? According to STB, “[u]nder 49 C.F.R. § 1180.2, a transaction that does not involve two or more Class I railroads is to be classified as ‘minor’―and thus not having regional or national transportation significance―if a determination can be made that either: (1) the transaction clearly will not have any anticompetitive effects; or (2) any anticompetitive effects will clearly be outweighed by the transaction’s anticipated contribution to the public interest in meeting significant transportation needs. A transaction not involving the control or merger of two or more Class I railroads is to be classified as ‘significant’ if neither of these determinations can clearly be made.”
The STB said in its decision that BNSF and CN did not provide enough information to determine if their requests through responsive applications would be “minor” or “significant.”
“Not only does BNSF provide little information about the operations on the subject rail lines or about the relevant markets, it includes almost no specific discussion about any trade-offs, or potential negative effects of trackage rights, in this context, and how such effects might impact competition,” STB reported. “Without additional information, the Board cannot make the requisite findings under 49 C.F.R. § 1180.2 that the anticipated transactions clearly would not have any anticompetitive effects.”
Because of this, BNSF’s “petition, to the extent it seeks to designate in advance its anticipated responsive applications as minor transactions, will be denied,” STB wrote. “Should BNSF decide to seek trackage rights through responsive applications, after reviewing those applications, the Board will determine whether the relief sought is minor or significant based on the information provided by BNSF at that time and may require the filing of additional information depending on that determination.
“Similarly, further information is necessary for the Board to assess the competitive impacts of the divestiture condition in the anticipated responsive application CN describes. The Board appreciates that CN indicates a willingness to provide the information required for a significant transaction. While the Board will determine whether the proposed transaction is minor or significant based on the information contained in CN’s responsive application, the Board commends CN for recognizing the value of the information required in a significant transaction, such as market analyses and operational data, as the Board assesses its claims of competitive harm.”
STB noted that it would “not impose conditions on a railroad consolidation unless it finds that the merger produces effects harmful to the public interest (such as a significant loss of competition) that a condition will ameliorate or eliminate.”
For more details, including BNSF’s requests for clarifications or waivers, download the STB decision, below.
STB Procedural Schedule for CP-KCS Merger Proposal Review:
October 29, 2021: Application filed.
November 26, 2021: Board notice of acceptance of Application to be published in the Federal Register.
December 13, 2021: Notices of intent to participate in this proceeding due.
January 12, 2022: Descriptions of anticipated responsive, including inconsistent, applications due. Petitions for waiver or clarification with respect to such applications due.
February 22, 2022: Responsive environmental information and environmental verified statements for responsive, including inconsistent, applicants due.
February 28, 2022: Comments, protests, requests for conditions, and any other evidence and argument in opposition to the Application due. This includes any comments from the U.S. Department of Justice (DOJ) and U.S. Department of Transportation (USDOT). Responsive, including inconsistent, applications due.
March 30, 2022: Notice of acceptance of responsive, including inconsistent, applications, if any, published in the Federal Register.
April 22, 2022: Responses to comments, protests, requests for conditions, and other opposition due, including to DOJ and USDOT filings. Rebuttal in support of the Application due. Responses to responsive, including inconsistent, applications due.
May 23, 2022: Rebuttals in support of responsive, including inconsistent, applications due.
July 1, 2022: Final briefs due. (Note: “The Board will also determine the page limits for final briefs in a later decision after the record has been more fully developed.”)
TBD: Public hearing (if necessary). (Note: “The Board will decide whether to conduct a public hearing in a later decision after the record has been more fully developed.”)
TBD: Service date of final decision. (Note: “49 U.S.C. § 11325(b)(3) provides that the Board must issue its final decision within 90 days of the close of the evidentiary record and that evidentiary proceedings be completed within one year of the date of publication of this notice in the Federal Register [Nov. 26, 2021]. However, under NEPA, the Board may not issue a final decision until after the required environmental review is complete. In the event the EIS process is not able to be concluded in sufficient time for the Board to meet the 90-day provision set forth in § 11325(b)(3), the Board will issue a final decision as soon as possible after that process is complete.”)