CSX/PAR: Back to the Drawing Board or Full Steam Ahead?

On April 7, 2014, a Pan Am Southern qualifying run is seen passing the NECR Hartland station point on the Connecticut River Line. This service was relaunched after STB review determined that 2-carrier competitive access was necessary to be maintained between White River Junction, VT and East Northfield, MA.

25.March, Washington DC – The Surface Transportation Board’s decision that CSX acquisition of Pan-Am is a “Significant Transaction” is based on both anti-competitive concerns regarding Genesee & Wyoming as operator of Pan Am Southern, and also on concerns raised by the state of Massachusetts regarding the PAR-proper portion of the transaction (non-PAS lines).

As part of the Related Transactions, the Application stated that PAS would replace Springfield Terminal with Berkshire & Eastern (owned by G&W) as the contract operator of PAS, and that B&E would operate and set rates for PAS in a non-discriminatory fashion as to all rail carriers that have the ability to interchange traffic with PAS or otherwise connect to PAS.

Board Doesn’t See So Clearly

The Decision stated that the record currently before the Board does not clearly establish that the transaction would not have any anticompetitive effects.  Also noted was that, Applicants have attempted to address competitive concerns, by engaging NS and G&W, as well as making various price, interchange, and other commitments.

49 U.S.C. 11323. Section 1180.2 separates acquisition 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.

The purpose of the using section 1180.2 to determine the transaction status is to allow the Board to reduce the regulatory burden when “a determination can clearly be made, at the time the application is filed, that the transaction passes muster under” the statute.

Vermont Railway’s customer base has enjoyed the competitive environment of a 2-carrier system. LPG is one of the largest interchange commodities, along with limestone slurry, that is currently handled largely by PAS as competition to G&W’s NECR. An interchange move is seen working with the VTR at Bellows Falls, VT.

Designating a transaction under the regulations at section 1180.2 permits the Board to select the most appropriate procedures to apply to a proposed transaction. It is not the purpose of section 1180.2(b) to force the Board to make an advance determination on the extent of the likely competitive effects or to weigh those effects against the public benefits in cases where more information would be helpful.  Any broader reading of the regulation could effectively require a preliminary determination on the ultimate issue in the case even where the Board regards such a determination as premature.

As such, classifying this transaction as “significant” would provide the Board with the additional information and time needed to develop a more comprehensive record so that the Board may analyze the competitive concerns identified and any others not yet apparent from the initial notice and consider whether Applicants’ proposed remedies, including the conditions that Applicants have requested the Board impose, adequately address these concerns.

Based on the information the Board has received regarding the possible competitive impacts, the Board is unable to conclude at this stage that any anticompetitive impacts would clearly be outweighed by the potential contribution to the public interest in meeting significant transportation needs. However, the classification of this transaction as “significant” should not be read as any indication of how the Board might ultimately assess and weigh the benefits and any impacts on competition after development of a more complete record.

The Board has weighed heavily on concerns raised by Vermont Rail System (VRS); the Commonwealth of Massachusetts Department of Transportation, on behalf of itself and its concurrently supervised agency, the Massachusetts Bay Transportation Authority; Republic Services, Inc., ECDC Environmental, L.C., and Devens Recycling Center, LLC (collectively, Republic); the State of Vermont, acting through its Agency of Transportation (VTrans); Massachusetts Water Resources Authority; and several state and commonwealth officials filed comments, asserting, among other things, that the Proposed Transaction should be processed under the Board’s procedures for a “significant” transaction.

All components of the Proposed Transaction and the Related Transactions, including B&E’s proposed operations on PAS, are to be reviewed as a “significant” transaction when considering the merits of the application.

Back to the Drawing Board or Full Steam Ahead?

Where does that put the transaction?  As written in {CSX: STB Rules PAR Acquisition Significant Transaction} the next step is a redefined procedural schedule based on the upgraded Significant Transaction, which the STB expects on or by 1.April.  What is not known at this time is how the Applicants will respond to the concerns, however as the Board points out, the 25.February filing is being treated as the pre-filing and expects a new Application no earlier than 25.April and no later than 25.June.

Potential solutions to the competitive concerns raised specifically on the 70-mile Connecticut River Line corridor, may be addressed by: 1) designating an operator other than G&W for that

specific corridor; 2) designating an operator other than G&W for all of PAS; and/or 3) awarding VRS trackage rights between White River Jct., VT and Springfield, MA to provide direct access to its Washington County RR in White River Jct. and to directly interchange with CSXT at Springfield, MA.  Those trackage rights would also have to include the freight rights to serve the customers currently served by PAS on the Conn River Line to appease the current competition levels.  VRS has also indicated that it currently has NS haulage rights via Hoosick Jct. and seemed to be asking for clarification on the continuation of that interchange on top of any other party interchange (in the current setting, the B&E) at Hoosick Jct.

Beyond the trackage rights, a large volume of LPG tanks are stored on the PAS at East Deerfield for customers in various locations on the VRS. This is a lifeline of winter heating for Vermont and in important, yet seemingly overlooked component to the larger deal.  It is not clear how the G&W would handle this potentially competing service between its own NECR and what would be the new B&E, should the deal forge ahead under the currently marketed application.

At hand is the larger question in which, CSXT and PAR must decide how to proceed.  Do they move forward trying to convince the STB that promises will be made and a single entity, G&W, will compete with itself in certain markets, or is there a Plan B in the wings?