CSX Corporation and CSX Transportation, Inc., Norfolk Southern Corporation and Norfolk Southern Railway CompanyControl and Operating Leases/Agreements Conrail Inc. and Consolidated Rail Corporation

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 33388]

CSX Corporation and CSX Transportation, Inc., Norfolk Southern

Corporation and Norfolk Southern Railway Company--Control and Operating

Leases/Agreements-- Conrail Inc. and Consolidated Rail Corporation

AGENCY: Surface Transportation Board, DOT.

ACTION: Decision No. 2; Notice of prefiling notification and request

for comments.

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SUMMARY: Pursuant to 49 CFR 1180.4(b), CSX Corporation (CSXC), CSX

Transportation, Inc. (CSXT), Norfolk Southern Corporation (NSC),

Norfolk Southern Railway Company (NSR), Conrail Inc. (CRI), and

Consolidated Rail Corporation (CRC) 1 have notified the Surface

Transportation Board (Board) of their intent to file a joint

application seeking authority under 49 U.S.C. 11323-25 for: (1) The

acquisition of control, by CSX and NS, of CRI, which is to be jointly

owned by CSXC and NSC, by and through a special purpose limited

liability company (LLC) and LLC's wholly owned subsidiary, Green

Acquisition Corporation (Acquisition); and (2) as soon as practicable

after the authorization and exercise of such control, the division of

Conrail's assets into (a) certain assets which will continue to be held

by CRI and CRC or their subsidiaries and operated for Conrail's account

and that

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of its stockholders; (b) certain assets which will be the subject of

separate long-term operating agreements, operating leases or other

operating arrangements with CSX and NS, respectively; and (c) certain

assets which will be separately owned by CSX and NS. In addition, as

part of the overall transaction, NSR will sell to CSXT a line of

railroad formerly owned by Conrail and now owned by NSR.

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\1\ CSXC and CSXT are referred to collectively as CSX. NSC and

NSR are referred to collectively as NS. CRI and CRC are referred to

collectively as Conrail. CSX, NS, and Conrail are referred to

collectively as applicants.

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The Board finds this to be a major transaction as defined in 49 CFR

part 1180. As requested by applicants, the Board also waives the

minimum 3-month prefiling notification requirement of 49 CFR

1180.4(b)(1), and invites comments from interested persons on

applicants' proposed procedural schedule.

DATES: Written comments on applicants' proposed schedule must be filed

with the Board no later than May 1, 1997. Applicants' reply is due by

May 8, 1997.

ADDRESSES: An original and 25 copies of all documents must refer to STB

Finance Docket No. 33388 and must be sent to the Office of the

Secretary, Case Control Unit, ATTN: STB Finance Docket No. 33388,

Surface Transportation Board, 1925 K Street, N.W., Washington, DC

20423-0001.2 In addition, one copy of all documents in this

proceeding must be sent to Administrative Law Judge Jacob Leventhal,

Federal Energy Regulatory Commission, 888 First Street, N.E., Suite

11F, Washington, DC 20426 [(202) 219-2538; FAX: (202) 219-3289] and to

each of applicants' representatives: (1) Dennis G. Lyons, Esq., Arnold

& Porter, 555 12th Street, N.W., Washington, DC 20004-1202; (2) Richard

A. Allen, Esq., Zuckert, Scoutt & Rasenberger, L.L.P., 888 Seventeenth

Street, N.W., Washington, DC 20006-3939; and (3) Paul A. Cunningham,

Esq., Harkins Cunningham, Suite 600, 1300 Nineteenth Street, N.W.,

Washington, DC 20036.

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\2\ In addition to submitting an original and 25 copies of all

documents filed with the Board, the parties are encouraged to submit

all pleadings and attachments as computer data contained on a 3.5-

inch floppy diskette which is formatted for WordPerfect 7.0 (or

formatted so that it can be converted into WordPerfect 7.0) and is

clearly labeled with the identification acronym and number of the

pleading contained on the diskette (49 CFR 1180.4(2)). The computer

data contained on the computer diskettes submitted will be subject

to the protective order granted in Decision No. 1, served on April

16, 1997, and is for the exclusive use of Board employees reviewing

substantive matters in this proceeding. The flexibility provided by

such computer file data will facilitate expedited review by the

Board and its staff.

FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 565-1613. [TDD

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for the hearing impaired: (202) 565-1695.]

SUPPLEMENTARY INFORMATION: In the notice of intent (CSX/NS-1) filed

April 10, 1997, applicants state that CSX and NS will participate

jointly in the acquisition of CRI consistent with CSX's and CRI's

October 14, 1996 Merger Agreement, as amended through and including a

Fourth Amendment dated April 8, 1997, and under agreements made between

CSX and NS. CSX and NS jointly, through LLC and Acquisition, will

acquire all CRI shares not already held by voting trusts of which CSX

and NS are beneficiaries, through a tender offer to be followed by the

merger of CRI with a subsidiary of Acquisition. The shares of CRI as

acquired will be placed in a voting trust subject to the Board's

regulations at 49 CFR part 1013.

Once the CRI stock has been acquired, and contingent on and

following the Board's authorization and approval of control and the

other contemplated transactions, CSX and NS will assume control of

Conrail and, as soon as practicable thereafter, will cause Conrail to

be restructured into (a) certain assets and functions that will

continue to be operated and performed by Conrail for its own account

but for the benefit of NS and CSX, (b) certain fixed assets, to be

owned by Conrail or subsidiaries, which will be the subject of separate

long-term operating agreements, operating leases, or other arrangements

with CSX and NS, respectively, and (c) certain other assets of Conrail

which will be divided between CSX and NS and acquired and operated by

them. The surviving company will own and operate, directly or through

subsidiaries, among other things, certain track and other fixed rail

assets in the New York/New Jersey area, the Philadelphia, PA/South New

Jersey area and the Detroit, MI, area. Both CSX and NS will serve

shippers on the former Monongahela Railroad.

The subjects of the operating agreement or operating lease with CSX

will include, among other things, a north-south route between the New

York area and Philadelphia and a route from the New York area through

Albany, NY, Buffalo, NY, and Cleveland, OH, to St. Louis, MO. The

subjects of the operating agreement or operating lease with NS will

include, among other things, north-south routes from the New York area

to Washington, DC, and to Hagerstown, MD, a route westward from

Philadelphia, and a route westward from the New York area to Buffalo.

As part of the contemplated transaction, NSR will transfer to CSXT

its line of railroad (formerly a Conrail line) between Ft. Wayne, IN,

and the Chicago, IL, metropolitan area.

Applicants state that they will use the year 1995 as the base year

for purposes of their impact analysis to be filed in the application,

and that they anticipate filing their application on or before July 10,

1997.3

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\3\ Applicants propose to submit their primary application

approximately 2 months from the date of filing of their Notice of

Intent if the prefiling requirement is waived. As discussed below,

we will grant applicants' petition for waiver of the prefiling

requirement of 49 CFR 1180.4(b) and permit filing of the application

sooner than 3 months after the filing of the Notice of Intent.

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The Board finds that this is a major transaction, as defined at 49

CFR 1180.2(a), as it is a control transaction involving two or more

Class I railroads. The application must conform to the regulations set

forth at 49 CFR part 1180 and must contain all information required

therein for major transactions, except as modified by any advance

waiver.4 The carriers are also required to submit maps with

overlays that show their existing routes and those of their

competitors.

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\4\ The ICC Termination Act of 1995, Pub. L. No. 104-88, 109

Stat. 803, requires that we consider the effect of the proposed

transaction ``on competition among rail carriers in the affected

region or in the national rail system.'' 49 U.S.C. 11324(b)(5).

Applicants are reminded to include analysis on both elements of this

criterion in their competitive analyses.

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Petition for Waiver

By petition filed April 10, 1997 (CSX/NS-2), applicants request

that the Board waive the requirements of 49 CFR 1180.4(b)(1) so that

they need not wait 3 months before filing their proposed primary

application. Applicants propose to submit their primary application

approximately 2 months from the date of filing of their Notice of

Intent. Applicants contend that the public has been afforded sufficient

notice of the proposed control proceeding. According to applicants, the

Notice of Intent that CSX filed on October 18, 1996, regarding a

proposed merger with Conrail, the Notice of Intent that NS filed on

November 6, 1996, regarding a competing proposed merger with Conrail,

and the substantial and continuous media coverage of the proposed

acquisition of Conrail and the negotiations leading to the current

agreement assure that the Board and all interested parties and members

of the public have had notice that an application will be filed, as

well as of the nature of the proposed transaction.

On April 16, 1997, Canadian National Railway Company (CN) filed

(CN-4) a response in opposition to applicants' CSX/NS-2 petition for

waiver.5 First,

[[Page 19392]]

CN argues that ``any waiver of the 3-month notice requirement would cut

into time needed by the Board and all parties to deal with a

transaction of the size and scope proposed in this proceeding.''

Second, CN argues that, ``if there is to be any expedition, it is

better that it come during the period when the application is being

prepared rather than during the period when the application is being

analyzed, responded to and acted upon by the agency with responsibility

to decide this matter.'' Accordingly, CN argues that any waiver of the

prefiling notification should not set a precedent for truncating the

365-day procedural schedule adopted earlier by the Board for

considering a proposed Conrail merger, and that the final procedural

schedule should take into account any shortening of the 3-month notice

requirement that may have been granted. Finally, CN argues that a

complete and open-ended waiver is inappropriate and prejudicial to all

other parties because it would create uncertainty for the Board and for

other parties, who could be faced with a ``surprise'' filing in 5 or 6

weeks.

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\5\ Our merger rules specifically do not allow replies to

petitions for waiver. See 49 CFR 1180.4(f)(3). Under the

circumstances, however, we will accept the CN-4 pleading.

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We believe that the public has been afforded sufficient notice of

the proposed control proceeding, and we disagree that a waiver of the

prefiling notice requirement would create uncertainty or be prejudicial

to any party. Parties will be given an opportunity to comment on

applicants' proposed expedited procedural schedule, and these comments

will be considered by the Board in determining a fair and reasonable

final procedural schedule. We find that waiver of the prefiling

requirement set forth at 49 CFR 1180.4(b)(1) is appropriate, and

therefore grant applicants' CSX/NS-2 petition.

Petition for Protective Order

By petition also filed April 10, 1997 (CSX/NS-3), applicants

requested a protective order to protect confidential, highly

confidential, and proprietary information, including contract terms,

shipper-specific traffic data, and other traffic data to be submitted

in connection with the control application. In Decision No. 1, served

April 16, 1997, applicants' petition for a protective order was granted

and Administrative Law Judge Jacob Leventhal was assigned to handle all

discovery matters and the initial resolution of all discovery disputes

in this proceeding.6

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\6\ CN filed a reply that was received by the Board after

issuance of Decision No. 1.

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Petition to Establish a Procedural Schedule

Also on April 10, 1997, applicants filed a petition to establish a

proposed procedural schedule (CSX/NS-4). Applicants' proposed

procedural schedule is as follows:

Proposed Procedural Schedule

F-30 Preliminary Environmental Report provided to Section of

Environmental Analysis.

F Primary application (including the Environmental Report) and

related applications filed.

F+30 Board notice of acceptance of primary application and related

applications, [petitions, and notices] published in the Federal

Register, including notice of any transaction-related abandonment

proposals.

F+45 Notification of intent to participate in proceeding due,

including notice of intent to participate in abandonment proceedings.

F+60 Description of anticipated inconsistent and responsive

applications due; petitions for waiver or clarification due with

respect to such applications.

F+120 Inconsistent and responsive applications due. All comments,

protests, requests for conditions, and any other opposition evidence

and arguments due. Comments by U.S. Department of Justice (DOJ) and

U.S. Department of Transportation (DOT) due. Opposition submissions,

requests for public use conditions, and Trails Act requests due for all

transaction-related abandonment proposals.

F+135 Notice of acceptance (if required) of inconsistent and

responsive applications published in the Federal Register.

F+150 Response to inconsistent and responsive applications due.

Response to comments, protests, requested conditions, and other

opposition due. Rebuttal in support of primary application and related

applications due. Rebuttal [and] responses to requests for public use

and Trails Act conditions for transaction-related abandonments due.

F+165 Rebuttal in support of inconsistent and responsive

applications due.

F+185 Briefs due, all parties (not to exceed 50 pages), except

that CSX and NS may file separate briefs, each not to exceed 50 pages.

F+200 Oral argument (at Board's discretion).

F+205 Voting conference.

F+255 Date of service of final decision.

Under applicants' proposal, immediately upon each evidentiary

filing, the filing party will place all documents relevant to the

filing (other than documents that are privileged or otherwise protected

from discovery) in a depository open to all parties (except that CSX

and NS may maintain separate depositories), and will make its witnesses

available for discovery depositions. Access to documents subject to

protective order will be appropriately restricted. Parties seeking

discovery depositions may proceed by agreement. Relevant excerpts of

transcripts will be received in lieu of cross-examination, unless

cross-examination is needed to resolve material issues of disputed

fact. Discovery on responsive and inconsistent applications will begin

immediately upon their filing. The Administrative Law Judge assigned to

this proceeding will have the authority initially to resolve any

discovery disputes.

Applicants also request that, as in recent merger proceedings, the

Board indicate that it will require appeals of ALJ decisions to be

filed within 3 working days and responses to appeals or to any

procedural motion filed with the Board also to be filed within 3

working days.

Applicants' proposed schedule is substantially similar to that

adopted in 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 Railway Company (UP/SP), Finance Docket No. 32760 (see

Decision No. 6, ICC served Oct. 19, 1995; and Decision No. 9, ICC

served Dec. 27, 1995).

Applicants are proposing that any applications, petitions, or

notices for authority for, or for exemption of, merger-related

abandonments, and any supporting verified statements, be filed with the

primary application, and be treated as related applications, with any

opposition evidence, comments, rebuttal and briefing on those

applications to be submitted in accordance with the same schedule as

the primary application. We agree that we should process any merger-

related abandonment proceedings in accordance with the overall merger

procedural schedule, rather than applying the procedures found at 49

U.S.C. 10903-04, which is similar to the process we used in the UP/SP

proceeding. See UP/SP, Decision No. 9 (ICC served Dec. 27, 1995), slip

op. at 9-10. Therefore, we will grant

[[Page 19393]]

applicants' request for waiver under 49 CFR 1152.24(e)(5) to permit

modifications of the procedures and timetables for handling abandonment

applications prescribed in 49 CFR 1152.26 7 to be consistent with

the procedural schedule subsequently adopted in this proposed merger

proceeding.8

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\7\ Applicants' CSX/NS-4 petition sought waiver of the Board's

rules to permit ``departures from the procedures and timetables

prescribed in 49 [CFR] 1152.25(d) (6) and (7).'' Those references

are to rules no longer in effect.

8 Applicants indicate that they intend to file shortly a

petition for waiver or clarification of Railroad Consolidation

Procedures, and related relief. As in UP/SP, applicants should also

seek an exemption under 49 U.S.C. 10502 from any statutory

procedural requirements at 49 U.S.C. 10903-04 necessary to allow the

Board to process the merger-related abandonment applications under

the procedural schedule ultimately adopted. See UP/SP, Decision No.

3 (ICC served Sept. 5, 1995), slip op. at 7-10.

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We invite all interested persons to submit written comments on

applicants' proposed procedural schedule. Comments must be filed by May

1, 1997. Applicants' reply is due by May 8, 1997.

This action will not significantly affect either the quality of the

human environment or the conservation of energy resources.

Decided: April 16, 1997.

By the Board, Chairman Morgan and Vice Chairman Owen.

Vernon A. Williams,

Secretary.

[FR Doc. 97-10337 Filed 4-18-97; 8:45 am]

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