WASHINGTON, D.C. -- Surface Transportation Board (Board) Chairman
Linda J. Morgan announced on March 21 that the Board has issued two
decisions (Decision Nos. 95 and 96) addressing disputes concerning
the trackage rights received by The Burlington Northern and Santa Fe
Railway Company (BNSF) in connection with the 1996 "Union Pacific
(UP)-Southern Pacific (SP)" railroad merger in the case entitled
Union Pacific Corporation, Union Pacific Railroad Company, and
Missouri Pacific Railroad Company--Control and Merger--Southern
Pacific Rail Corporation, Southern Pacific Transportation Company,
St. Louis Southwestern Railway Company, SPCSL Corp., and The Denver
and Rio Grande Western Railroad Company, Finance Docket No. 32760.
BACKGROUND
As noted in Surface Transportation Board
"News" release No. 01-70 issued December 20, 2001, the Board issued
a decision on that date ending, as scheduled, the agency's formal
oversight process for the UP-SP merger, and stated that the Board
would remain available to consider and promptly resolve any disputes
of general applicability relating to BNSF's access to shippers under
the BNSF Agreement (containing a complete description of the rights
granted to BNSF in connection with the merger), or any other issues
relating to parties' compliance with conditions imposed on the
merger by the Board, subject to any applicable arbitration
requirement. Decision Nos. 95 and 96, as summarized below,
demonstrate the Board's continuing availability to address such
disputes.
DECISION NO. 95
In Decision No. 95, the Board
addressed a dispute concerning the Board-imposed,
"build-in/build-out" condition (involving lines built from an
existing line to a facility or lines built from a facility to an
existing line) to preserve the pre-merger status quo as to potential
"build-in/build-out" lines. This condition intended that, if, prior
to the merger, a shipper served exclusively either by UP or by SP
could have "built out" to a nearby line of the other railroad (or,
if the other railroad could have "built in" to the shipper), then
BNSF should be given sufficient trackage rights to access any such
future build-in/build-out line.
UP and BNSF have taken
different positions relative to the circumstances under which BNSF
should be required to construct or fund, on UP lines, new
connections, facilities, or other improvements to provide service to
a build-in/build-out line. BNSF contended that it should be
responsible for such construction or funding only if (1) UP
demonstrates that, absent such construction, BNSF's proposed service
would unreasonably and materially interfere with UP's service to its
customers, and (2) requiring BNSF to undertake such construction
would not impair BNSF's ability to provide competitive service. UP
contended that BNSF must bear the responsibility of avoiding or
remedying all unreasonable interference during construction and,
upon completion, all material interference between BNSF's
build-in/build-out operations and existing rail service.
In
Decision No. 95, the Board declined to adopt a generic standard for
all build-in/build-out situations. The Board noted that the
standards proposed by BNSF and UP appeared to provide undue leverage
to the party proposing the standard, and would create disincentives
on the part of one party or the other to actively seek creative
dispatching, scheduling, or other operational solutions that would
minimize the need for additional capital expenditures. The Board
further noted that the BNSF standard could affect UP's ability to
conduct its own operations on the trackage rights lines, and, in
certain instances, could compel UP to subsidize BNSF's
build-in/build-out operations, and that the UP standard could limit
the underlying competition-preserving purpose of the
build-in/build-out condition and, in certain instances, could
prevent BNSF from replicating the competitive posture of the
pre-merger SP.
The Board therefore directed BNSF and UP to
resume negotiations relative to the various issues arising from
implementation of the build-in/build-out condition. The Board
further directed that BNSF and UP, in efforts to craft solutions to
operational problems resulting from the application of the
build-in/build-out condition, should seek to minimize the operating
inconvenience to UP, consistent with ensuring that BNSF can provide
competitive service. The Board added that any controversies that
cannot be resolved by negotiation may be submitted for resolution
either to the Board (on a case-by-case basis) or to arbitration (as
provided in the BNSF Agreement).
DECISION NO. 96
In
Decision No. 96, the Board addressed a dispute concerning the
mechanism for adjusting fees applicable to the trackage rights that
BNSF received in connection with the UP-SP merger.
The
initial rates applicable to the BNSF trackage rights were
established in Section 9(a) of the BNSF Agreement. Section 12 of the
BNSF Agreement provides for the "adjustment" of the Section 9(a)
rates as follows: "All trackage rights charges under this Agreement
shall be subject to adjustment upward or downward July 1 of each
year by the difference in the two preceding years in UP/SP's system
average URCS costs for the categories of maintenance and operating
costs covered by the trackage rights fee. 'URCS costs' shall mean
costs developed using the Uniform Rail Costing System."
The
dispute addressed by the Board in Decision No. 96 concerns two items
that are components of the "maintenance and operating costs covered
by the trackage rights fee" when using standard accounting
procedures--that is, procedures consistent with the Uniform System
of Accounts--in developing Uniform Rail Costing System (URCS) costs
but that BNSF argues were not to be included in the calculation
here. The first disputed item is the so-called "acquisition
premium"--the excess of the price paid to acquire the SP rail
railroads over the pre-acquisition book value of such carriers. The
second disputed item concerns the costs of certain capacity
improvements undertaken by UP on trackage rights lines
allocated--under Sections 9(c)(i) and 9(c)(iii) of the BNSF
Agreement--entirely to UP, even though such lines are used both by
UP and by BNSF and even though the BNSF Agreement generally requires
that both railroads share costs based upon their respective usage of
the line in question. The capacity improvements governed by Section
9(c)(i) are those necessary to achieve the benefits of the UP-SP
merger as outlined in the UP-SP merger application. The capacity
improvements governed by Section 9(c)(iii) are those undertaken
within the first 18 months following the UP-SP merger.
The
Board stated, however, that, if the URCS calculations underlying the
Section 12 adjustment factor are performed as required, the disputed
items will be included in that factor. The Board further noted that
there was no indication anywhere in the public record compiled in
the UP-SP merger proceeding that any party ever contemplated that
URCS calculations required to create the Section 12 adjustment
factor would not be performed as required. The Board observed that
BNSF's assertion that it had contemplated that the URCS adjustment
mechanism would reflect "actual costs" did not advance BNSF's case,
because URCS costs, when calculated in the required manner, reflect
actual costs. The Board added that, although BNSF may have
contemplated that the Section 12 adjustment factor would exclude
costs related to the acquisition premium and to Section 9(c)(i) and
(iii) capacity improvements, it has not yet provided evidence of any
agreement in UP-SP to exclude such items. Rather, the Board pointed
out that BNSF had agreed to a formulation that references, without
any mention of any such exclusion, "UP/SP's system average URCS
costs for the categories of maintenance and operating costs covered
by the trackage rights fee."
The Board also noted that BNSF
has been successful in establishing a competitive presence over the
trackage rights lines during a period in which the disputed items
have been incorporated in its trackage rights fees, and that, while
BNSF argues that it will be unable to maintain that success if the
disputed items continue to be incorporated in the trackage rights
fees, the disputed items are a very small fraction of the total
costs of BNSF's movements involving the trackage rights lines.
The Board concluded that, although BNSF has not shown that
the disputed items should be excluded (in the years in which they
would otherwise be included)
from the URCS calculations required
to create the Section 12 adjustment factor, BNSF should be given a
further opportunity--in accordance with a procedural schedule set
out in Decision No. 96--to demonstrate that the disputed items
should be omitted from the URCS calculations required to create the
Section 12 adjustment factor.
The Board indicated that it is
giving BNSF this additional opportunity because it is important that
the trackage rights fee adjustment mechanism work as intended, so
that any increases or decreases in UP's costs are properly reflected
in the agreed-upon adjustments to the trackage rights fee.
The Board issued Decision No. 95 in Finance Docket No. 32760
on March 4, 2002. Decision No. 96 was issued today. Vice Chairman
Burkes commented by separate expression in Decision No. 96. A
printed copy of each decision is available for a fee by contacting
D~ 2 D~ Legal Copy Service, Suite 405, 1925 K Street, N.W.,
Washington, DC 20006, telephone (202) 293-7776, or via
da2dalegal@earthlink.net. The decisions also are available for
viewing and downloading via the Board's website at
http://www.stb.dot.gov.