Rail Service Continuation Subsidy Standards

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1155

[STB Ex Parte No. 566]

Rail Service Continuation Subsidy Standards

AGENCY: Surface Transportation Board, DOT.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Surface Transportation Board (Board) is proposing to

remove regulations from the Code of Federal Regulations that concern

standards for determining subsidies for the continuation of rail

service to govern rail properties not transferred to Consolidated Rail

Corporation (Conrail) under the Final System Plan pursuant to the

Regional Rail Reorganization Act of 1973.

DATES: Comments are due on September 8, 1997.

FOR FURTHER INFORMATION CONTACT: Beryl Gordon, (202) 565-1600. (TDD for

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

SUPPLEMENTARY INFORMATION: Effective January 1, 1996, the ICC

Termination Act of 1995, Pub. L. 104-88, 109 Stat. 803 (ICCTA),

abolished the Interstate Commerce Commission (ICC or Commission) and

established the Board. Section 204(a) of the ICCTA provides that

``[t]he Board shall promptly rescind all regulations established by the

(ICC) that are based on provisions of law repealed and not

substantively reenacted by this Act.''

The regulations at 49 CFR part 1155 concern subsidy standards for

certain rail lines in the region encompassed by the Final System Plan,

described infra, that otherwise are subject to abandonment or

discontinuance. They are the forerunner to our current offer of

financial assistance (OFA) procedures that are national in scope. These

regulations are based, at least partially, on statutes that are still

in effect. 45 U.S.C. 744 (c) and (d). Under the ICCTA, however, the

Rail Services Planning Office (RSPO), the statutory body that developed

the regulations, has been abolished. See repealed 49 U.S.C. 10361-64.

Moreover, the Board has in place analogous OFA regulations providing

national subsidy standards. 49 CFR 1152.27 and 1152 subpart D. Finally,

the regional subsidy regime at 45 U.S.C. 744, which applies to ``rail

service on rail properties of a railroad in reorganization,'' may be

outdated and may apply only to a limited number of situations.

Accordingly, we are instituting this proceeding to determine whether

these regulations may be eliminated, or whether they have a continuing

vitality and should be retained.

The 3R Act and Part 1155

The Regional Rail Reorganization Act of 1973, Pub. L. No. 93-236,

87 Stat. 985, 45 U.S.C. 701 et seq. (3R Act) created Conrail as a for-

profit corporation to reorganize the bankrupt rail services in the

Northeast and Midwest region.1 The 3R Act provided

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for the development and ultimate approval by Congress of a Final System

Plan (Plan) for the redesign of rail services in the region. Lines that

could not be operated profitably and were not considered essential to

the rail transportation system would not be included in the Plan.

Section 304 of the 3R Act permitted the summary discontinuance of

service over those lines without ICC approval if 60 days' notice is

given and certain parties are notified. However, section 304(c)(2) of

the 3R Act (codified at 45 U.S.C. 744(c)(2)(A)) stated that an

abandonment or discontinuance could not be carried out if a shipper, or

public authority, or any responsible person offers:

\1\ ``Region'' is defined as ``the States of Maine, New

Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New

York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West

Virginia, Ohio, Indiana, Michigan, and Illinois; the District of

Columbia; and those portions of contiguous States in which are

located rail properties owned or operated by railroads doing

business in the aforementioned jurisdictions (as determined by [ICC]

order. * * *'' 45 U.S.C. 702(17). In Northeastern Railroad

Investigation [-] Definition of the Midwest and Northeast Region, Ex

Parte No. 293, published in the Federal Register on January 28, 1974

(39 FR 3605), the ICC included in the region points in the St.

Louis, MO and Louisville, KY Standard Metropolitan Statistical Areas

and Manitowoc and Kewaunee, WI. See Regional Rail Reorganization Act

Cases, 419 U.S. 102, 108 n.2 (1974).

* * * a rail service continuation subsidy which covers the

difference between the revenue attributable to such rail properties

and the avoidable costs of providing service on such properties plus

a reasonable return on the value of such rail properties * *

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*.2

\2\ The current language in 45 U.S.C. 744(c)(2)(A) differs

slightly, but it is substantively the same as the section 304(c)(2)

language.

The use of the subsidy is limited to rail service and rail

properties of a railroad in reorganization in the region. 45 U.S.C.

744(a).3 Moreover, the subsidy must be made within 2 years

of the effective date of the Plan 4 or within ``2 years

after the date on which the final rail service continuation payment is

received, whichever is later. * * *'' 45 U.S.C. 744(c)(1).

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\3\ A ``railroad in reorganization'' is defined at 45 U.S.C.

702(16) as a railroad which is subject to a bankruptcy proceeding

and which has not been determined by a court to be reorganizable or

not subject to reorganization pursuant to this chapter as prescribed

in section 717(b) of this title. A ``bankruptcy proceeding''

includes a proceeding pursuant to section 77 of the Bankruptcy Act

and an equity receivership or equivalent proceeding * * * .

\4\ The Plan was submitted to Congress on July 26, 1975. It was

approved when neither the House of Representatives nor the Senate

objected to it. The Plan was formally approved in section 601(e) of

the 4R Act, discussed infra.

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The 3R Act also created RSPO, 5 which was authorized to

issue standards for defining the terms ``revenue attributable to rail

properties,'' ``avoidable costs of providing service,'' and ``a

reasonable return on the value'' found in section 304. Section

205(d)(3).6 In response to this directive, regulations were

issued at 49 CFR part 1125 on July 1, 1974 (39 FR 7182) and were

revised on January 8, 1975 (40 FR 1624) in Part 1125--Standards for

Determining Rail Service Continuation Subsidies, Ex Parte No. 293 (Sub-

No. 2). The regulations, now codified in part 1155,7 define

the terms noted above (revenue attributable, avoidable costs, return on

value) for determining the subsidy payment for the continuation of

train service over lines not included in the Plan.

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\5\ RSPO was established as ``an office in the Interstate

Commerce Commission.'' Former 49 U.S.C. 10361. In resolving the

issue of whether final orders or regulations of RSPO were to be

considered orders or regulations of the ICC, the court held that

``[a]lthough Congress gave to the RSPO final administrative

responsibility for certain determinations, we conclude that the RSPO

is sufficiently part of the ICC so that its orders are to be

considered orders of the ICC for purposes of the Hobbs Act.''

Southeastern Pennsylvania Transp. Auth. v. I.C.C., 644 F.2d 238,

240, n.3 (3rd Cir. 1981).

\6\ Section 205 was originally codified at 45 U.S.C. 715. In

1978, the Interstate Commerce Act was recodified without substantive

change pursuant to Pub. L. No. 95-473, Oct. 17, 1978. While 45

U.S.C. 715 was repealed, the language of section 715 concerning RSPO

was codified at 49 U.S.C. 10361-10364.

\7\ The regulations were redesignated as part 1155 on November

1, 1982 (47 FR 49582).

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The regulations at part 1155 are quite detailed and are more than

30 pages long. They are largely self-executing with little role

provided for the ICC. However, under 49 CFR 1155.3(a), a carrier giving

notice of intent to discontinue service shall submit an ``Estimate of

Subsidy Payment'' to, inter alia, RSPO. Under 49 CFR 1155.4(c), a party

desiring an interpretation of the standards can file a petition with

RSPO. Under Sec. 1155.9, if the parties cannot agree on issues of net

liquidation value or whether properties are used and useful, they can

select a mutually acceptable arbitrator to arbitrate the dispute. If

they cannot agree on an arbitrator, either party may submit the matter

to the American Arbitration Association. The ICC was not directly

involved in reviewing disputes.

Subsequent Legislation

Congress amended portions of the 3R Act and also added new sections

when it enacted the Railroad Revitalization and Regulatory Reform Act

of 1976 (4R Act), Pub. L. 94-210, 90 Stat. 127. As relevant to this

proceeding, the 4R Act made two significant changes: it enacted

designated operator provisions and it enacted OFA provisions.

First, the 4R Act amended the 3R Act by adding a new section 45

U.S.C. 744(d), which specified that a ``designated operator'' would be

the rail carrier conducting operations when a subsidizer guaranteed

payment. The subsidy payment was now defined as:

The difference between the revenue attributable to such

properties and the avoidable costs of providing service on such rail

properties, together with a reasonable management fee as determined

by the Office. (Emphasis supplied.)

Consequently, section 205(d)(6) of the 4R Act also directed RSPO to

determine the term ``reasonable management fee.'' 8 RSPO

revised the regulations now found at 49 CFR 1155 on January 11, 1978,

to define reasonable management fee. 43 FR 1692.

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\8\ This requirement was subsequently codified at 49 U.S.C.

10362(b)(6). Section 744(d), however, still refers to section

205(d)(6).

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The second change under the 4R Act allowed an abandonment to be

postponed for up to 6 months if a financially responsible person

offered to purchase or subsidize the line. Section 802. In essence, the

regional subsidy provision of 45 U.S.C. 744 was expanded to apply to

all carriers. This provision was originally codified at 49 U.S.C.

1a(6)(a) and subsequently recodified without substantive change at 49

U.S.C. 10905.9 See Hayfield Northern R. Co., Inc v. Chicago

and North Western Transp. Co., 467 U.S. 622, 628-29 (1984) (Hayfield

Northern).

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\9\ As described, infra, the OFA statute is now found at 49

U.S.C. 10904.

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To implement these 4R Act provisions, the ICC and RSPO instituted a

proceeding on a joint basis. In November 1976, the ICC promulgated

regulations and issued an explanatory decision. Abandonment of R. Lines

& Discontinuance of Serv., 354 I.C.C. 253 (1976) and 354 I.C.C. 129

(1976). These regulations were predicated on the part 1155 regulations,

although, due to factual and statutory differences, there were certain

variations.10 The financial assistance procedures were

originally issued at 49 CFR 1121.38 and 1121,

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subpart D, and are now found at 49 CFR 1152.27 and 1152, subpart

D.11

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\10\ In the notice of proposed rulemaking in Abandonment of

Railroad Lines and Discontinuance of Rail Service, Ex Parte No. 274

(Sub-No.2), 41 FR 31878, 31882 (July 30, 1976), the ICC noted that

it had already defined ``revenue attributable,'' ``avoidable

costs,'' and ``reasonable return on the value,'' as those terms are

used in the 3R Act. It stated that

[b]ecause the same basic terminology is used in the (3R Act) and

in the new abandonment and discontinuance provisions, the Commission

believes that the Congressional intent is that the national

standards should follow the conceptual approach of the regional

standard promulgated by (RSPO) under the (3R Act). Consequently, the

regional standards are being used to provide the foundation upon

which the national standards will be based. However, there are

several areas . . . in which the proposed rules differ from the

regional standards.

\11\ The 4R Act made other changes that, although not related

to this proceeding, do concern a current Board proceeding with

similar issues. Section 309 of the 4R Act amended section 205(d) of

the 3R Act to require RSPO to develop standards for the computation

of subsidies for the continuation of rail commuter services. RSPO

issued the regulations on August 3, 1976, 41 FR 32546. These

standards are now found at 49 CFR part 1157, subpart A (subsidy

standards). By notice of proposed rulemaking served and published in

the Federal Register on June 12, 1997 (62 FR 32068) in Commuter Rail

Service Continuation Subsidies and Discontinuance Notices, STB Ex

Parte No. 563, the Board proposed to remove from the Code of Federal

Regulations the regulations at 49 CFR part 1157 concerning subsidy

standards and also notices of the discontinuance of commuter rail

service (subpart B).

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The Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895,

further revised section 10905. Section 402. The 6-month negotiating

period was shortened and when a carrier and shipper could not agree to

terms, the ICC would set, and the carrier was bound by, the purchase or

subsidy price. Hayfield Northern at 630-31.12

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\12\ The Staggers Act modifications to section 10905 were

designed to ``assist shippers who are sincerely interested in

improving rail service, while . . . protecting carriers from

protracted legal proceedings which are calculated merely to

tediously extend the abandonment process.'' H.R. Conf. Rep. No. 96-

1430, p. 125, (1980), U.S. Code Cong. & Admin. News. 1980, pp. 3978,

4157. See Hayfield Northern at 630, n. 8.

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The ICCTA was the final legislative action applicable to these

regulations. There was no change to 45 U.S.C. 744(c). The changes to

section 744(d) do not affect part 1155. The RSPO statutes--49 U.S.C.

10361-64--were repealed. Former 49 U.S.C. 10905 was changed and is now

found at 49 U.S.C. 10904, but the changes there do not affect our

analysis.13

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\13\ Under section 10904, there are changes in time limits and

the way OFAs are handled. However, when the Board is requested to

establish the amount of a subsidy, the amount of compensation is

``the difference between the revenues attributable to that part of

the railroad line and the avoidable cost of providing rail freight

transportation on the line, plus a reasonable return on the value of

the line.'' 49 U.S.C. 10904(f)(1)(C).

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Discussion and Conclusions

We are reexamining part 1155 because of the changes made by the

ICCTA, the availability of our national subsidy standards, and the

likelihood that few situations fall within the regional subsidy

framework. We propose to remove these regulations.

As indicated, 45 U.S.C. 744 (c) and (d), which pertain to the

subsidies for the continuation of rail freight service, have not been

repealed. Nevertheless, the regulations at part 1155 implementing the

statute were issued by an office (RSPO) that has been abolished by the

ICCTA.14 Further complicating matters is the fact that under

45 U.S.C. 744(d)(1), the defunct RSPO is to determine the terms a

subsidizer is to pay a designated operator.15 Moreover,

under 45 U.S.C. 744(d)(2), the term reasonable return on value is to be

developed according to the standards of 205(d)(6) of the 3R Act, which,

as noted, was codified at the now repealed RSPO statute, 49 U.S.C.

10362.

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\14\ Under the regulations, that now-abolished office has

continuing responsibilities (issuing interpretations, receiving

estimates of subsidy payments).

\15\ Section 744(d)(1) states that the terms ``revenue

attributable,'' ``avoidable costs,'' and ``reasonable management

fee'' are to be determined by ``the Office,'' defined at 45 U.S.C.

702(12) as RSPO.

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We also question the need for two sets of subsidy regulations given

the similarities between the regional and national

standards.16 Given that the role of the ICC in part 1155 was

passive (RSPO was to issue interpretations of its standards and the

parties were to arbitrate certain disputes), using the OFA standards

for guidance in any regional subsidy situations that might arise may be

sufficient. We seek comments as to whether this is in fact the case and

the regional subsidy standards can be eliminated in light of the

national standards, whether parts of the regional subsidy standards

should be transferred to the national standards to the extent that they

are still pertinent, or whether the regional subsidy standards should

be maintained as currently codified.

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\16\ Prior to the promulgation of its OFA regulations, the ICC

issued a notice of interim procedures for handling abandonment and

discontinuance cases. It stated that it would ``adopt the same

conceptual approach developed by (RSPO) in connection with the

regional subsidy program authorized by the (3R Act) for the purposes

of issuing the subsidy payment.'' Chicago and North Western Transp.

Co.-Abandonment, 348 I.C.C. 445, 454 (1976). The ICC noted that

there were statutory differences in two programs pertaining ``to the

exclusion of a management fee in the national program, the inclusion

of certain additional costs. . ., and the basis upon which a

reasonable return is to be calculated.'' Id.

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Finally, there may be little, if any, need for the regulations.

Under 45 U.S.C. 744(a)(1) and (c)(1), the regional subsidy program

applies to a ``rail service on rail properties of a railroad in

reorganization'' and is not available ``after 2 years from the

effective date of the [Plan] or more than 2 years after the last rail

service continuation payment is received, whichever is later. * * *''

We question whether there are any railroads in reorganization as

defined by the statute. In Consolidated Rail Corp. v. Reading Co., 654

F. Supp. 1318, 1323 (Sp. Ct. RRRA 1987), a case involving personal

injury suits under the Federal Employer's Liability Act, the court

stated that certain predecessor railroads of Conrail were not railroads

in reorganization because they were no longer ``subject to a bankruptcy

proceeding.'' These carriers had undergone reorganization, final

consummation orders had been entered, and the carriers had been

discharged in bankruptcy.17

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\17\ The court noted (Id. at 1323, n.2) the following

consummation dates: Erie Lackawanna, Inc. (November 30, 1982);

Reading Co. (December 31, 1980); Penn Central Transportation Co.

(October 24, 1978); Lehigh Valley Railroad Co. (September 1, 1982);

and the Central of New Jersey (September 14, 1979).

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If, on the other hand, there are still railroads in reorganization,

or if the focus of section 744 is rail service and rail property, and

not the status of the entity owning the property, we must still

determine whether a regional subsidy qualifies under section 744(c).

Because more than 20 years have passed since the effective date of the

Plan, the issue also becomes whether any rail service continuation

payments are still in effect or have expired within the last 2 years.

As there might be some carriers in this situation, we seek comment on

this issue.18

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\18\ There is currently pending before the Board a proceeding

in which relief is sought under 49 CFR Part 1155. RailAmerica, Inc.,

and the Delaware Valley Railway Company, Petition to Set Subsidy

Terms Under 45 U.S.C. 744(c) and 49 CFR part 1155, STB Finance

Docket No. 33285. In response to the petition, the Reading Company

claims that the Board has no authority to set a subsidy because the

Reading Company is not a ``railroad in reorganization.''

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The Board preliminarily concludes that the proposed removal of the

rules, if adopted, would not have a significant effect on a substantial

number of small entities. The rules removal may be necessary in light

of the ICCTA. Moreover, it appears that these rules do not apply to

many (if any) situations and that there are other regulations which may

be useful to potential parties interested in subsidizing the

continuation of rail service. The Board, however, seeks comments on

whether there would be effects on small entities that should be

considered.

This action will not significantly affect either the quality of the

human environment or the conservation of energy resources.

List of Subjects in 49 CFR Part 1155

Railroads, Uniform System of Accounts.

Decided: July 29, 1997.

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By the Board, Chairman Morgan and Vice Chairman Owen.

Vernon A. Williams,

Secretary.

PART 1155 [REMOVED]

For the reasons set forth in the preamble and under the authority

of 49 U.S.C. 721(a), title 49, chapter X of the Code of Federal

Regulations is proposed to be amended by removing part 1155.

[FR Doc. 97-20993 Filed 8-7-97; 8:45 am]

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