On November 15, 2021, the Board issued a supplemental notice of proposed rulemaking, which made minor changes to the proposal in the FORR NPRM. The Board stated that it was seeking further comments “so that the modified FORR proposal may be considered in parallel with the proposal in Docket No. EP 765 to establish an arbitration program that could include an exemption from FORR for carriers that participate in the program.” The Board received several comments and reply comments on the FORR SNPRM.
In its December 19, 2022 decision, the Board stated that, “[a]fter considering the comments filed in response to the NPRM and SNPRM and information received in meetings with stakeholders, the Board will adopt its proposal in Docket No. EP 755 as modified in the SNPRM.” In summary, under the new rate review procedure, “the Board will decide a case by selecting either the complainant’s or the defendant’s final offer, subject to an expedited procedural schedule that adheres to firm deadlines.”
The Board also issued a related final rule in Docket No. EP 765, establishing a voluntary arbitration program for small rate disputes, discussed below. Under the new arbitration program, participating carriers will be exempted from challenges under the FORR process under certain circumstances.
In the December 19, 2022 decision in Docket No. EP 755, Board Members Fuchs and Schultz dissented with separate expressions. Board Member Fuchs stated that, although he voted to propose FORR and twice solicited public comment, after careful consideration of those comments, he has concluded that “FORR is not the answer.” Board Member Fuchs stated that “FORR is an evasion of the Board’s fundamental responsibility because it makes the Board entirely dependent on litigants’ self-determined rate review methodologies, gives little meaningful guidance for those methodologies, and prohibits the Board from devising its own remedy where necessary.” He noted that, rather than issuing the FORR final rule, “the Board should have recognized the irreparable problems with FORR and instead pursued other reforms while it facilitates an additional process to resolve rate disputes via the agency’s new arbitration program.”
Board Member Schultz also dissented, stating that, while she voted in favor of the FORR SNPRM, she did so because she “thought it was important to meet with stakeholders about both FORR and the Board’s proposed small case rate arbitration program . . . in Docket No. EP 765, as well as for stakeholders to be able to review and comment on both proposals at the same time.” She stated that she “was not in favor of the Board adopting both rules, and the Board’s action today—simultaneously issuing final rules in this docket and in Docket No. EP 765 while tying them together—is unprecedented and unnecessary.” Board Member Schultz further stated that “the Board has injected a level of uncertainty and unpredictability into a process that should be predictable and consistent.” She believes that the new arbitration program in Docket No. EP 765 “is a much better option for both shippers and carriers.”
The final rule in Docket No. EP 755 became effective 60 days after notice of the Board’s decision was published in the Federal Register. The termination of Docket No. EP 665 (Sub- No. 2) became effective on January 3, 2023.
On January 4, 2023, the Board announced that a court action was instituted by Union Pacific Railroad Company (UP) in the United States Court of Appeals for the Eighth Circuit, seeking judicial review of the Board’s December 19, 2022 decision.
On January 24, 2023, a petition for reconsideration of the final rule was filed by The American Chemistry Council, The Fertilizer Institute, The National Industrial Transportation League, the Chlorine Institute, and the Corn Refiners’ Association.
On January 30, 2023, the Board announced that a court action was instituted by the Association of American Railroads (AAR) in the United States Court of Appeals for the District of Columbia Circuit, also seeking judicial review of the Board’s December 19, 2022 decision. The AAR proceeding was later transferred to the United States Court of Appeals for the Eighth Circuit.
2. The Board Adopted Final Rule Modifying its Regulations to Establish a Voluntary Arbitration Program for Small Rate Disputes
On December 19, 2022, the Board adopted a final rule in Docket No. EP 765, modifying its regulations to establish a voluntary arbitration program for small rate disputes. As discussed above, on the same day, the Board adopted a final rule in a related proceeding, Docket No. EP 755, to establish a new procedure for challenging the reasonableness of railroad rates in smaller cases.
On September 12, 2019, the Board had proposed FORR as a new procedure for challenging the reasonableness of railroad rates in smaller cases.
On July 31, 2020, five Class I carriers— Canadian National Railway Company (CN), CSX Transportation, Inc. (CSXT), The Kansas City Southern Railway Company, Norfolk Southern Corp. (NS), and UP—filed a petition for rulemaking, requesting that the Board add a new arbitration program focused specifically on resolving small rate disputes. The carriers’ proposed arbitration program would function alongside the existing arbitration program at 49 C.F.R. part 1108, but included changes that the carriers argued would create a more streamlined and flexible arbitration process which, in turn, would better incentivize both railroad and shipper participation. The carriers argued that the proposed arbitration program served as an approach superior to FORR in fairness, legality, and economic integrity. Several parties representing shipper interests opposed the petitioners’ request and urged the Board to adopt FORR.
The Board instituted a rulemaking proceeding to consider the petition for rulemaking on November 25, 2020, and issued a notice of proposed rulemaking setting forth the Board’s arbitration proposal on November 15, 2021. The Board’s proposal in the Arbitration NPRM was modeled on some, but not all, aspects of the proposal set forth in the petitioners’ petition for rulemaking. The Board also proposed that carriers that participate in the new small rate case arbitration program would be exempt from rate challenges under the process being proposed in FORR.
In the December 19, 2022 final rule in Docket No. EP 765, the Board made certain modifications to its proposal in the Arbitration NPRM. The Board stated that it finds it is important that shippers across the rail network have access to the same means of rate relief. Thus, the Board required that all Class I carriers agree to participate in the arbitration program before the program becomes effective. Id. Class I carriers had 20 days from the effective date of the regulations to decide whether to participate in the program. The decision stated that if all Class I carriers agreed to participate, the Board would issue a notice that commenced the new program, allowing it to be used and initiating the FORR exemption. If not all Class I carriers indicated their intent to participate, the Board would not issue a notice commencing the new arbitration program, which would result in the program being inoperable, and all Class I carriers would be subject to rate challenges under the FORR process. Additionally, by agreeing to participate, carriers would commit to participate in any arbitrations brought against them under this program for a five-year term.
Board Member Fuchs concurred, stating that he agrees with the Board’s decision because it creates an efficient, beneficial voluntary program to resolve rate disputes. However, he expressed concern that the decision includes “an unnecessary and potentially counterproductive condition” since the new program cannot be used by any shipper or carrier if just one Class I carrier chooses not to participate.
Board Member Schultz separately commented, stating that the goals of both FORR in Docket No. EP 755 and the new arbitration program in Docket No. EP 765 are “to reduce the cost and complexity of small rate disputes.” In her opinion, the Board’s intended goals are only met through the issuance of the arbitration program. Board Member Schultz also expressed concerns regarding the requirement that all Class I carriers must participate for the arbitration program to become effective.
On December 29, 2022, four Class I carriers—CSXT, Norfolk Southern Railway Company (NSR), UP, and the U.S. operating subsidiaries of CN—filed a petition for stay, requesting that the Board stay the requirement that all Class I carriers decide whether to commit to the program within 20 days of the rule becoming effective (i.e., by February 23, 2023).
On January 4, 2023, the Board announced that a court action was instituted by Grand Trunk Corporation and additional parties in the United States Court of Appeals for the Seventh Circuit, seeking judicial review of the Board’s December 19, 2022 decision. Additionally, the Board announced that a court action was instituted by CSXT in the United States Court of Appeals for the Eleventh Circuit, also seeking judicial review of the Board’s December 19, 2022 decision. The CSXT proceeding was later transferred to the United States Court of Appeals for the Seventh Circuit and was dismissed without prejudice.
On January 24, 2023, the Board issued a decision denying the Class I carriers’ request for stay. On the same day, petitions for reconsideration of the final rule were filed by CSXT and jointly by UP and NSR.
The final rule became effective on February 3, 2023. On February 14, 2023, the Board issued a decision denying a second petition by the four Class I carriers to stay the “opt-in” requirement.
On February 23, 2023, each Class I carrier filed a notice or comment in Docket No. 765, addressing the “opt-in” requirement. Several Class I carriers expressed concerns about the new arbitration program and did not expressly “opt-in” to the program.
On the same day, the United States Court of Appeals for the Seventh Circuit granted the Board’s unopposed motion to hold the court case in abeyance, pending the Board’s resolution of the petitions for reconsideration filed in the STB docket.
3. The Board Held Public Hearing Pertaining to UP’s Use of Embargoes
On December 13 and 14, 2022, the Board held a public hearing pertaining to UP’s “significant increase in its use of embargoes.”
In its decision announcing the public hearing, the Board stated that it “has been closely monitoring UP’s recent use of embargoes and has observed a disturbing upward trend in their usage.” The Board further stated that, “[g]iven UP’s sizeable role in freight rail, its increased use of embargoes in recent years, and the considerable increase just this month, it is imperative that the Board hear from UP directly about this matter and how UP plans to reduce, if not eliminate, the use of embargoes to control congestion.”
The Board directed certain executive-level officials of UP to appear in person and instructed UP to be prepared to discuss in detail specific topics, including the following:
- UP’s decision-making process in determining to issue an embargo, including underlying causes (e.g., network issues and crew shortages), whether UP’s market power plays a role in the decision making, and UP’s consideration of alternatives to embargoes;
- How UP measures congestion and total excess cars throughout its system; and
- The explanations for the dramatic increase in embargoes since 2017, including whether UP has maintained sufficient resources during that time period.
The Board directed UP to file information and documents in support of the specified topics by December 6, 2022. Further, the Board instructed UP to file “information and documents so that the Board may understand how UP is using and intends to use the [Customer Inventory Management System (CIMS)] as a tool to reset inventory levels in the short-term and for continual maintenance in the long-term.” The Board also instructed UP to preserve its records related to its embargoes and the CIMS.
The Board invited testimony from “shippers and other stakeholders who can contribute to the Board’s understanding of the cause and/or impact of UP’s embargoes and the CIMS.” The public hearing commenced on December 13, 2022 and continued on December 14, 2022. Six panels consisting of UP, shippers, and other interested parties spoke at the hearing. On December 22, 2022, UP filed a motion for a protective order, which stated that during the public hearing, members of the Board asked UP to submit certain documents and that these documents contain information that qualifies as “confidential commercial information” under the Board’s regulations. On January 20, 2023, the Board issued a decision denying UP’s motion for a protective order and ordering UP to submit a draft protective order consistent with the Board’s decision.
Following the hearing, Chairman Oberman stated in a response letter to certain members of Congress that he “will continue to hold UP accountable with respect to its plans to lift not only [a recent] embargo, but to address its general use of embargoes to manage its operations.”
B. Mergers
1. The Board Approves the CP/KCS Merger
On March 15, 2023, the Board issued a decision approving, with conditions, the combination of the Canadian Pacific Railway system with the Kansas City Southern Railway system. Chairman Oberman held a press conference on March 15, 2023 regarding the Board’s decision.
Applicants Canadian Pacific Railway Limited, Canadian Pacific Railway Company, and their U.S. rail carrier subsidiaries (collectively, CP) and Kansas City Southern and its U.S. rail carrier subsidiaries (collectively, KCS), filed an application on October 29, 2021, seeking Board approval for the proposed combination of CP and KCS (collectively, CPKC). In a decision served on November 23, 2021, the Board accepted the application for consideration. The Board had found the transaction to be a major transaction under 49 C.F.R. § 1180.2(a), and to be subject to the regulations set forth at 49 C.F.R. part 1180, subpart A, in effect before
July 11, 2001. Additionally, the Board had determined that the proposed voting trust arrangement was acceptable with certain modifications.
On February 28, 2022, a number of third parties submitted comments either supporting the merger, commenting on certain aspects of the merger, or requesting conditions to any Board approval of the merger. On March 16, 2022, the Board suspended the procedural schedule and directed Applicants to address an apparent inconsistency in certain data they had submitted. On April 27, 2022, the Board directed Applicants to amend their application to further explain and support the analysis underlying their Operating Plan, as well as address technical issues with the workpapers associated with the Operating Plan.
On July 22, 2022, the Board announced that it would hold a public hearing. The public hearing commenced on September 28, 2022 and concluded on October 7, 2022. Over 20 panels consisting of railroads, shippers, government officials, and other interested parties spoke at the hearing. On January 27, 2023, the Final Environmental Impact Statement was issued.
In the approval decision served on March 15, 2023, the Board stated that, given the current realities and the limited opportunities to provide meaningful competition for the largest Class I railroads, the Board concludes that the transaction should improve rather than degrade the performance of the industry, and for these reasons, the Board approves the merger.
The Board stated that it expects that the new single-line service will foster the growth of rail traffic; support investment in infrastructure, service quality, and safety; drive employment growth across the CPKC system; and foster new National Railroad Passenger Corporation (Amtrak) passenger rail opportunities.
The Board further stated that, “[t]o ensure that the expected public benefits from this merger are realized to the fullest extent possible, the Board is establishing an unprecedented seven-year oversight period along with extensive data-reporting requirements.”
In summary, the Board approved the merger subject to the following conditions:
- a condition imposing Applicants’ commitments to keep gateways open on commercially reasonable terms and create no new bottlenecks, with certain clarifications and enhancements;
- a condition requiring CPKC to shift its train crew change location near Ottumwa, Iowa, to a point farther west and south on the CP Laredo Subdivision;
- a condition modifying and improving Applicants’ commitment to provide a dispute resolution process to address certain possible commuter rail disruptions in Chicago;
- a condition requiring Applicants to adhere to all of the representations made on the record during the course of this proceeding;
- an oversight condition of seven years to monitor and address as necessary various issues raised by commenters;
- in connection with the oversight condition, a condition requiring Applicants to report numerous service, operational, competition-related, and other metrics at prescribed frequencies;
- a condition requiring Applicants to adhere to the terms of the CPKC Service Promise to address any post-Transaction service disruptions;
- the labor protection conditions provided in New York Dock Railway—Control Brooklyn Eastern District, 360 I.C.C. 60 (1979), aff’d sub nom. N.Y. Dock Ry. v. ICC, 609 F.2d 83 (2d Cir. 1979), as well as holding Applicants to their representation to honor the obligations established in the “Revised Standards for Preemption of Collective Bargaining Agreements for Transactions Initiated Pursuant to Section 11323 of the Interstate Commerce Act”;
- a condition requiring Applicants to abide by the terms of the settlement agreement that CP entered into with Iowa Interstate Railroad, LLC; and
- the environmental conditions listed in Appendix C to the decision.
The Board denied the responsive applications filed by CN and NSR and denied all other conditions sought by the various parties to the proceeding.
Furthermore, the Board stated that it is formally modifying the agency’s position on the “one-lump” theory, an economic doctrine used in past proceedings to inform the agency’s assessment of the competitive impacts of vertical combinations.
The approval decision will be effective on April 14, 2023. Petitions for reconsideration are due by April 4, 2023. Requests for stay are due by March 27, 2023.
C. Passenger Service
1. The Board Announced Settlement in Gulf Coast Proceeding
On November 22, 2022, the Board announced that the parties to the pending application of Amtrak to commence passenger service on the Gulf Coast have reached a settlement.
On February 1, 2022, the Board had issued a decision announcing that it would hold a public hearing in this proceeding, consisting of a first phase, which would involve comments from the public, and a second phase, which would be an evidentiary hearing. The Board held the first phase of the hearing on February 15 and 16, 2022. The Board commenced the evidentiary hearing on April 4, 2022, which continued on April 5, 6, 8, 12, 14, 18, and 19, and on May 9, 11, and 12.
On October 28, 2022, the Board announced that the evidentiary hearing would continue on November 17 and 18, 2022 and that it would hold a voting conference on December 7, 2022.
On November 10, 2022, Amtrak, CSXT, NSR, and the Alabama State Port Authority and its rail carrier division (collectively, the Parties) filed a joint motion to amend the procedural schedule, requesting that the Board postpone the evidentiary hearing dates. In support of their request, the Parties submitted “a joint statement signed by the CEO of each Party attesting to the substantial progress that has been made toward a settlement agreement and to the substantial probability that a settlement will be reached before the voting conference scheduled for December 7.”
By a decision served on November 10, 2022, the Board granted the Parties’ joint motion and postponed the evidentiary hearing until November 30, 2022. The Board noted that the voting conference would remain scheduled for December 7, “unless the Parties inform the Board that they have reached a settlement before that date.”
On November 21, 2022, the Parties filed a joint motion to hold the proceeding in abeyance, “informing the Board that, with the assistance of Board-sponsored mediators, they have agreed upon a settlement that will resolve this dispute once several conditions are met in the coming weeks and months.” The Parties noted that some of the conditions are not entirely within their control, and, thus, the Parties reserved the right to reinstate this proceeding if certain conditions are not met. The Board granted the joint motion and directed the Parties to “notify the Board as soon as the terms of the settlement have been fulfilled, and if no such notice is filed, to file a joint status report no later than June 30, 2023, updating the Board on the implementation of their settlement agreement.”
Chairman Oberman issued a statement regarding the settlement, stating that “[t]he Board appreciates the successful efforts of [the Parties] to settle this important case,” and he particularly acknowledged the significant progress that has been made in achieving a settlement under the new leadership of CSXT and NSR. Chairman Oberman noted that “[t]he Board has stated many times our strong preference for private parties to operate in good faith and to amicably resolve disputes on their own whenever possible to obviate the need for Board action.”
D. Interchange Issues
1. The Board Accepted Post-Remand Filings in CN/CP Interchange Dispute and Sought Public Comments on the Legal Issues in the Proceeding
On October 19, 2022, the Board issued a decision accepting the post-remand briefs and comments filed in a declaratory order proceeding involving Soo Line Railroad Company (CP) and Wisconsin Central, Ltd. (CN) and soliciting public comments regarding the broad legal issues presented by the proceeding.
This proceeding stems from a petition for declaratory order filed by CN on April 14, 2020, regarding a disagreement with CP involving interchange operations in the Chicago area between the two carriers. CN asked the Board to decide whether CN has the right to designate Clearing Yard, owned by the Belt Railway of Chicago (BRC), as the point at which CN will receive interchange traffic from CP, and whether each railroad must bear its own costs for the interchange of that traffic, including BRC’s fees for switching services.
On October 30, 2020, the Board issued a declaratory order finding that CN cannot unilaterally designate BRC’s Clearing Yard as the interchange point for inbound CP traffic. The Board concluded that, in the absence of a physical interchange, there was nothing for the Board to decide regarding how cars should be exchanged between CN and CP under 49 U.S.C. § 10742. The Board stated that, since a receiving carrier does not have an obligation under § 10742 to provide interchange facilities in the absence of a physical intersection, “it follows that there is no corresponding right to unilaterally designate any interchange location with non- intersecting carriers.” The Board also concluded that it did not need to decide whether each railroad must bear its own costs for interchanging traffic at Clearing Yard.
On January 7, 2021, the Board issued a decision providing notice that a court action was instituted by CN on December 23, 2020 in the United States Court of Appeals for the Seventh Circuit. The Seventh Circuit vacated the Board’s October 30, 2020 decision and remanded the matter to the Board.
On February 2, 2022, CN filed a post-remand brief, “arguing that the sole remaining issue in the case is whether CP should be required to pay BRC’s switching fees for interchange traffic that CP will deliver to Clearing Yard.” CP moved to strike on February 14, 2022, arguing that “the Board has not directed the parties to file post-remand briefs, and it is for the Board, not CN, to decide what procedures to follow on remand.” CP filed a reply to CN’s post-remand brief on March 21, 2022. On April 20, 2022, CN filed a reply to CP’s reply, and CP subsequently asked the Board to reject CN’s reply. Additionally, the Commuter Rail Division of the Regional Transportation Authority d/b/a Metra filed comments on April 25, 2022.
On October 19, 2022, the Board issued a decision denying CP’s request to strike CN’s post-remand brief and accepting all post-remand briefs and comments filed to date. The Board noted that it “does not have specific regulations or procedures for cases following a judicial remand.” The Board also stated that, “[g]iven the Seventh Circuit’s discussion of the Board’s reliance on agency precedent and industry practice[,] . . . a post-remand decision resolving the dispute between CN and CP has the potential to significantly alter such precedent and practices regarding the interchange of rail traffic.” Thus, the Board stated that since its resulting interpretation of § 10702 “could have wide-reaching consequences for the rail industry, the Board is soliciting input from stakeholders and other interested persons.” Specifically, the Board invited interested persons to comment on the broader legal issues presented by this proceeding and to address eight issues, including the following:
- How a carrier’s obligations under 49 U.S.C. § 10742 to “provide reasonable, proper, and equal facilities that are within its power to provide” should be understood in light of the decision by the United States Court of Appeals for the Seventh Circuit, as well as the impact of that decision on existing ICC and Board precedent and current carrier practices.
- How the statutory term “reasonable” should be interpreted.
- How a carrier’s “power to provide” facilities relates to the other carrier’s ability or rights to reach those facilities.
The Board noted that, as always, it “encourages the parties to settle their dispute privately without further Board action if possible.”
Comments were due by December 19, 2022. Comments and reply comments were filed by carriers and other interested parties.
