Key Notes:

  • STB announces a January 13, 2011 hearing on CSX/Pan Am merger.
  • STB revives reciprocal switching rulemaking by scheduling a public hearing for March 15-16, 2022.
  • STB seeks supplemental comments on proposed modifications to its proposed rules for Final Offer Rate Review of rail rates.
  • STB proposes new rules for arbitrating rail rate disputes.

STB Announces Public Hearings on CSX/Pan Am Merger and Reciprocal Switching; Proposes Rules for Small Rate Disputes Using Voluntary Arbitration and Final Offer Rate Reviews

The Surface Transportation Board (the “Board” or “STB”) made important announcements on Friday, November 12, 2021 and Monday, November 15, 2021 regarding various proceedings currently pending before the Board.

Specifically, on November 12, 2021, the Board announced that it will hold two public hearings in the first quarter of 2022 for: (1) CSX Merger Application to Acquire Pan Am Systems, Inc., Docket No. FD 36472 on January 13-14, 2022 and (2) for Reciprocal Switching, Docket No. EP 711 on March 15-16, 2022. On November 15, 2021, the Board also announced that it has issued two rulemaking notices regarding rate reasonableness processes for small rate disputes: (1) a Notice of Proposed Rulemaking (“NPRM”) to establish voluntary arbitration program for small rate disputes and (2) a Supplemental NPRM (“SNPRM”) for the Final Offer Rate Review (“FORR”) procedure.

The Board stated that it will provide more information about the public hearings on the CSX Merger and Reciprocal Switching in future decisions. Comments and reply comments regarding both the NPRM and SNPRM are due on January 14, 2022 and March 15, 2022, respectively. Ex parte communications regarding matters related to both rulemakings are permitted between November 15, 2021 and February 23, 2022.

Brief summaries concerning these proceedings are provided below:

CSX – Pan Am Merger (FD 36472)

In its November 12, 2021 announcement, the Board stated that it will hold a public hearing on January 13, 2022 (and January 14, 2022, if necessary) on the revised application of CSX Corporation and CSX Transportation, Inc., et al. to acquire control of Pan Am Systems, Inc. and its short line subsidiaries. The proposed transaction will, if accepted, result in CSX’s control of, among others, approximately 808 route miles of rail lines controlled by Pan Am Railways, Inc. (“PAR”) through four rail carriers in New England, and approximately 425 route miles of rail line controlled by Pan Am Southern LLC (“PAS”), which is a 50/50 joint venture between Boston & Maine Corporation, one of PAR’s subsidiary carriers, and Norfolk Southern Railway Company (“NSR”). Most recently on July 26, 2021, the Board accepted the applicants’ revised application filed on July 1, 2021, finding that the revised application is complete within the meaning of the STB’s regulations. This followed the Board’s rejection of the applicants’ two previous applications made on February 25, 2021 and April 26, 2021, respectively. The Board’s final decision on this matter is currently due on April 1, 2022.

Reciprocal Switching (EP 711)

The Board also announced on November 12, 2021 that it will hold a public hearing on March 15-16, 2022 concerning reciprocal switching regulations it proposed in its July 25, 2016 NPRM in Docket No. EP 711 (Sub No. 1). The Board reasoned that, since the issuance of the NPRM, commenters may have additional or modified views on the effects and/or need for the proposed regulations, given that there have been significant changes affecting the freight rail industry. Reciprocal switching fosters competition in the rail industry by requiring railroads with a short distance monopoly at the origin or destination to interchange rail cars at a nearby interchange with a railroad that can compete over most of the route.

EP 711 has been pending at the Board since the National Industrial Transportation League (“NITL”) filed a petition for rulemaking on July 7, 2011. Following NITL’s petition, the Board, among other things, received public comments regarding the proposal, held a hearing, and ultimately issued a Notice of Proposed Rulemaking on July 25, 2016. After receiving two rounds of comments, all Board activity in this docket ceased during the Trump Administration, except for ex parte meetings that occurred from October 2016 to as recently as September 2021. The Board’s hearing announcement revives this proceeding following a reference to reciprocal switching in President Biden’s recent Executive Order on competition.

Final Offer Rate Review (EP 755)

The Board issued an SNPRM on November 12, 2021 seeking comments on modifications it is proposing to its FORR proposal, originally released on September 12, 2019. The Board’s modifications to the original FORR proposal include, among other things, adopting a process for motions to compel discovery, incorporation of a mandatory mediation procedure, and extending the proposed schedule to accommodate motions to compel and mandatory mediation, and certain issues related to market dominance pleadings. Importantly, the Board explained that, while the modifications to the proposed rule “are not the type that would necessitate additional notice and comment,” the Board is seeking comments on the modifications both to improve its proposed rule and to consider the modified FORR proposal in parallel with the Board’s proposal regarding a voluntary arbitration program for small rate disputes.

Comments on the SNPRM are due by January 14, 2022, and reply comments are due by March 15, 2022. The Board also waived the general prohibition on ex parte communications in this matter for a period from November 15, 2021 through February 23, 2022, in conjunction with ex parte discussions of the arbitration proposal.

Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for Small Rate Disputes (EP 765)

On November 12, 2021, the Board issued an NPRM proposing to modify its regulations to establish a voluntary arbitration program for small rate disputes. The Board’s NPRM responds to a joint petition for rulemaking filed by five Class I railroads on July 31, 2020. The petitioners asked the Board to establish a new arbitration program for small rate cases. The core features of their proposed arbitration program included confidentiality, exemption from the FORR, and a prohibition on revenue adequacy considerations.

The Board’s NPRM is largely based on the model provided in the Petition and would establish an arbitration program that would function alongside the Board’s existing arbitration program for non-rate disputes. The proposal adopts the most controversial feature of the petitioners’ proposal by exempting railroads which participate in the arbitration program from FORR under consideration in EP 755. The proposal, however, differs from the Petition in certain significant respects, including a requirement for a 5-year commitment from the carriers to arbitrate and by rejecting the petitioners’ insistence upon prohibiting consideration of revenue adequacy for determining reasonable rates. The latter modification is especially significant because the petitioners had identified it as a sine qua non for their participation. If they adhere to that position, they will not benefit from the FORR exemption and the proposed arbitration process will be unavailable for use.

Comments on the proposed rule are due by January 14, 2022, and reply comments are due by March 15, 2022. Further, the Board explained that ex parte communications with Board members regarding the proposed voluntary arbitration program are permitted until 20 days before the deadline for reply comments, or by February 23, 2022.