STB: CP-KCS Merger Proceeding Will Proceed (Updated)

Written by Marybeth Luczak, Executive Editor
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The Surface Transportation Board (STB) has accepted for consideration the Canadian Pacific (CP)-Kansas City Southern (KCS) merger application submitted on Oct. 29; CP and KCS respond.

The STB reported on Nov. 23 that the application is “complete as it contains all information required by the Board’s regulations.” (Download decision below.)

This counters Union Pacific’s (UP) Nov. 19 petition to reject the application as incomplete. UP asserted that the application “does not include all the information needed to satisfy the market analyses and operational data requirements under 49 C.F.R. §§ 1180.7 & 1180.8,” STB explained in its decision. “Specifically, UP argues that the rail-to-rail diversion analysis excludes 32% of potentially divertible traffic, which UP claims critically undermines the market analyses and operating plan, as well as environmental analysis under NEPA. … UP further contends that Applicants fail to support impacts on competition, passenger services and freight service on tracks used jointly with other railroads. … Lastly, UP asserts that Applicants should be required to submit a Service Assurance Plan, as required for cases filed under the Board’s current rules in light of representations made in filings to the Securities and Exchange Commission regarding possible service disruptions during the integration process. …”

CP and KCS on Nov. 22 filed a reply, “arguing that UP’s petition was late-filed and that none of UP’s arguments warrant rejection of the Application,” according to the STB. Also on Nov. 22, CN filed a comment in support of UP’s petition.

The STB explained its decision this way: “The Board’s regulations provide the ‘greatest leeway to develop the best evidence on the impacts of each individual transaction.’ 49 C.F.R. § 1180.7. Here, Applicants chose a particular traffic dataset to be used in their diversion analysis model and explained those choices in the Application. UP’s arguments, submitted near the end of the Board’s 30-day period to review the completeness of the Application, effectively express disagreement with Applicants’ modeling choices and question the adequacy of certain supporting evidence underlying Applicants’ analysis. But, given that Applicants have provided explanations and supporting data and workpapers regarding those choices, such concerns are more appropriately raised as a response to the merits of the Transaction. The Board finds that UP’s arguments regarding the diversion analysis model do not provide a basis for rejecting the Application as incomplete. Applicants have presented a prima facie case, disclosing facts that, if construed in their most favorable light, are sufficient to support a finding that the proposed transaction is consistent with the public interest. 49 C.F.R. § 1180.4(c)(8). UP’s arguments regarding a Service Assurance Plan also do not warrant rejection of the Application because such a plan is not required under the regulations governing this transaction. The Board notes that, while it finds the Application to be complete, it reserves the right it has exercised in the past to require the filing of supplemental information, as necessary.”

The STB’s decision, which becomes effective Nov. 26, also adopts a revised procedural schedule that sets deadlines for comments, responsive applications, final briefs and other filings (see below).

This follows STB’s Nov. 3 release of a proposed schedule, for which it sought comments by Nov. 12; CN, BNSF, CSX, UP, and the American Chemistry Council and The Fertilizer Institute requested “that the Board extend the time for filing written comments (and, in some instances, subsequent deadlines) by various periods,” according to the STB. 

The “procedural schedule, which is longer than what was proposed by Applicants, will allow adequate time for comments regarding this important transaction,” STB wrote in its Nov. 23 decision. “Additionally, in response to concerns raised by commenters, including Applicants, the Board will synchronize the deadlines for written comments and responsive applications. The Board will extend the deadline for submitting written comments to 120 days after the application filing date to coincide with the deadline for filing responsive applications, and set the deadline for responses to written comments at 175 days after the application filing date. The Board’s schedule also provides that any necessary oral argument or public hearing would be held on a date to be determined by the Board.”

Procedural Schedule:

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.

December 28, 2021: Proposed Safety Integration Plan (SIP) to be filed with STB’s Office of Environmental Analysis (OEA) and the Federal Railroad Administration (FRA).

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. 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.”)

CP, KCS Respond

CP President and CEO Keith Creel (left) and KCS President and CEO Patrick J. Ottensmeyer

CP and KCS released a joint press release on the STB decision later on Nov. 23. “We are pleased that the Board has accepted our comprehensive joint application and declared it complete,” CP President and CEO Keith Creel said. “We look forward to moving forward with a robust regulatory review of this historic combination that will add capacity to the U.S. rail network, create new competitive transportation options, support North American economic growth, and deliver other important benefits to customers, employees, and the environment.”

KCS President and CEO Patrick J. Ottensmeyer said: “We have reached another important milestone and look forward to playing our part as the STB begins its formal review of the joint application for our historic combination with CP. I would like to thank all those involved in submitting our successful application as part of our continuing work to bring our two companies together.”

The two Class I railroads said they expect the STB to complete its review of their proposed merger in fourth-quarter 2022.

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