Vermont Rail System (VRS), a short line operator of six railroads controlled by Trans Rail Holding Co., has qualms with CSX’s plans to acquire Pan Am because of how CSX and Norfolk Southern (NYSE: NSC) will manage joint ownership of Pan Am Southern.
The operations of Pan Am Southern (PAS), a Pam Am subsidiary that is partly owned by Norfolk Southern (NS) would be handled by the Berkshire & Eastern (B&E) Railway, a subsidiary of short line operator Genesee & Wyoming (G&W). CSX and NS decided that B&E would operate the railway as a way to maintain market competition in the region.
However, VRS contends that making B&E the operator would eliminate short line competition for a portion of New England.
“The filings in these proceedings, however, conceal a troubling consequence of the B&E-PAS Transaction — it would, among other things, create a roughly 70-mile two-to-one corridor, eliminating competition in portions of northern Massachusetts and Vermont and New Hampshire,” attorneys representing VRS said in a Tuesday filing to the Surface Transportation Board. The board must approve the acquisition.
Of the six lines that VRS operates in New York, Vermont and New Hampshire, it contends that three would be affected by CSX’s acquisition and the related changes with PAS: Vermont Railway Inc. (VTR), which operates approximately 128 miles of railroad from Burlington to Hoosick Junction; Washington County Railroad Co. (WACR), which operates about 102 miles of railroad and serves customers in New Hampshire and Vermont as an extension of the “Conn River Line”; and Green Mountain Railroad Corp. (GMRR), which operates over roughly 52 miles of railroad between Bellows Falls and Rutland, Vermont. Each of these three railroads operates on rail lines owned by the state of Vermont, according to the filing.
“As the petition indicates, [G&W] controls several carriers in New England already, including, as pertinent here, New England Central Railroad, Inc. (‘NECR’), which owns and operates as a portion of a larger route a line extending between East Northfield, MA, and White River Junction, VT (the ‘Conn River Line’). PAS, through corporate predecessors that once owned a portion of the Conn River Line, possesses local trackage rights over the line, enabling it, like NECR, to serve customers along the route and to interchange traffic with railroads within the VRS family at Bellows Falls, VT, and White River Junction. (VRS also interchanges with PAS at Hoosick Junction, NY.) PAS and NECR are vigorous competitors along the Conn River Line,” the filing continued.
VRS railroads moved approximately 5.5 million tons of freight in 2018, principally including commodities such as limestone, feed grains, rock salt, biodiesel, heating oil, gasoline, propane, forest products, stone and other mineral products, according to the filing.
Although CSX and G&W may approach VRS to resolve its concerns, the short line said it feels compelled to submit its objections to STB and ask that the B&E-PAS transaction be treated as a joint application alongside CSX’s original application to acquire Pan Am Railways. VRS is also asking the board to extend the deliberation period.
“The transactions that are the subject of the Application and the Petition are far too interrelated to treat as distinct transactions for purposes of Board authorization. They must be evaluated for their collective merit, and conditioned, as necessary, as part of a comprehensive reshaping of New England railroad service,” the petition said.
“The B&E-PAS Transaction, as proposed, threatens VRS and its customers with substantial competitive harm flowing from the involvement of [G&W], which despite nominal safeguards and vague assurances, will have the motive and the wherewithal to operate PAS (through B&E) to the detriment of VRS, its customers, and competitive rail flows in northern New England,” the petition said.
Because the three VRS railroads operate on lines owned by Vermont, any adverse impacts related to the transactions could also affect the state, VRS argued.
Indeed, the state of Vermont filed its own comments, saying Wednesday, “Applicants’ proposed transaction has significant regional transportation impacts. These impacts are insufficiently explored in the current ‘minor’ transaction application, thus preventing the Board from undertaking a meaningful review of its potential anticompetitive impacts.”
“Even if these issues were further developed, the transaction itself raises serious questions about anticompetitive effects that far outweigh its ability to meet public interest in significant transportation needs,” said the filing from Vermont Assistant Attorneys General Jenny E. Ronis and Gordon P. Landrigan.
Meanwhile, Massachusetts state representatives said CSX’s petition should be filed as a “significant” transaction because it involves one of the largest Class I operations acquiring the largest Class II railroad.
“There are several factors that lead us to take pause before proceeding further with any transaction and ask that a higher level of scrutiny be involved in reviewing this acquisition,” said the comment filed on Wednesday on behalf of 12 Massachusetts state senators and representatives.
“Not only would this acquisition lead to a consolidation of railroads controlled by CSX within the Commonwealth, but it could also affect the future of passenger rail in the region and will also impact upwards of 500 employees with no guarantee of employment after the acquisition is completed. The future of these employees’ livelihoods would be at the sole discretion of CSX,” the Massachusetts filing said.
CSX responded in a Thursday filing that while it would be open to a “modest” extension of the proceeding by 30 days, it disagreed with filing its petition as a “significant” transaction. The proposed acquisition has the support of multiple shippers and government officials in the region, and the concerns expressed by the Massachusetts legislators don’t have legal weight.
“Nothing would be gained by further extensions of the regulatory review attendant with
the schedule for a ‘significant’ proceeding. But there would be real costs to regulatory delay,” CSX said. “This transaction has strong support from shippers and communities in New England. An unnecessary extension of the regulatory proceeding will delay the public benefits that will result from the transaction and could jeopardize the Transaction itself.”
CSX also said competition for rail service would remain in New England: “But even if it were impossible to conclude there will clearly be no anticompetitive effects, it is abundantly clear that any competitive harm would be outweighed by the public benefits here. The competitive issues raised by VRS and VTrans [state of Vermont, Agency of Transportation] are important to those parties and have been addressed by Applicants.”
CSX continued, “But the core objectives of the Transaction focus on connecting the New England rail network more efficiently to the national rail network and strengthening PAS as a provider of competitive access to New England rail customers. The public benefits from enhanced competition in New England and improved rail service far outweigh any potential competitive concerns at the margin of the Transaction — all of which have been fully addressed. And the 58 strong support letters from shippers submitted with the Application show that the transactions are widely viewed as a positive development in the evolution of the rail network in New England.”