The U.S. Surface Transportation Board on May 15 approved a Norfolk Southern Railway takeover of nearly 283 miles of rail line, in the process partially rejecting a complaint from a unit of PPL Corp. (NYSE: PPL) that this would restrict possible future competitive rail access for its coal-fired Montour power plant in Pennsylvania.
In this decision, the board authorized, subject to conditions, the acquisition by Norfolk Southern Railway (NSR) of 282.55 miles of rail line in New York and Pennsylvania, owned by the Delaware & Hudson Railway. In November 2014, Norfolk Southern Railway, a Class I railroad, filed an application seeking board approval for this deal. The Delaware and Hudson Railway is a wholly owned, indirect subsidiary of Canadian Pacific Railway Co. (CP).
The rail lines subject to NSR’s application, known as the D&H South Lines, consist of approximately 267.15 route miles of the D&H Freight Main Line between Sunbury/Kase, Pa., (milepost 752) and Schenectady, N.Y. (milepost 484.85), and 15.40 miles of the Voorheesville Running Track between Voorheesville Junction (milepost A 10.9) and Delanson, N.Y. (milepost 499/milepost A 26.320), for a total of 282.55 miles of line. NSR’s application described three primary benefits of the acquisition transaction: it would benefit shippers by aligning ownership of the D&H South Lines with the majority user of the lines (NSR), thereby improving service and increasing operating efficiencies; it would preserve and enhance competition in the Northeast surface transportation market; and it would preserve, and potentially increase, jobs on the D&H South Lines by integrating D&H employees with NSR operations and organically growing traffic on the lines.
The PPL EnergyPlus LLC unit of PPL told the board that its suggested remedy would ensure continued access for new alternative coal supplies, including “Western” coal, for the Montour power plant, which now mostly takes Pittsburgh-seam coal out of Northern Appalachia.
PPL right now controls the Montour station, located 20 miles north of Sunbury, Pa. Notable is that PPL is about to spin off this plant to the newly-created Talen Energy. Montour is currently served exclusively by NSR. PPL does not connect to the D&H South Lines, though it is in geographical proximity to them. In its comments, PPL described a long-term expansion strategy, including a potential build-out connecting the Montour Station to the D&H South Lines via rail.
PPL requested that the board impose conditions in this proceeding to facilitate PPL’s use of its potential build-out to the D&H South Lines, in the event PPL constructs such a build-out. PPL argued that NSR’s acquisition of the D&H South Lines would adversely affect PPL’s potential transportation options and that PPL would become a 2-to-1 shipper because it would lose the competitive leverage provided by its ability to build a line to connect with the D&H South Lines (and thus to D&H) in order to compete with NSR.
Contingent upon PPL building rail line to a point of connection with the D&H South Lines, PPL requested two conditions: that the board require NSR to negotiate trackage or haulage agreements with CSX Transportation (the other major eastern U.S. railroad) and PPL for the movement of loaded and empty trains over the D&H South Lines to and from the Montour Station; and that the board require NSR to negotiate a new haulage agreement with CP for PPL traffic routed over the Southern Tier via Buffalo and Binghamton, N.Y.
The first condition would allow PPL to ship on CSXT via Albany, Schenectady, and Selkirk, N.Y.; the second condition would allow PPL to ship on NSR via the Southern Tier. PPL requestd that the board adopt both of these conditions and allow PPL to choose one of them once PPL’s build out track is in place.
The NSR claimed that PPL’s build-out option does not actually constrain NSR’s rates, because, in its view, NSR’s rates are primarily constrained by the price of natural gas and other macroeconomic factors, as well as potential intermodal competition from a truck interchange. NSR also questioned whether the proposed build-out is actually feasible. Moreover, NSR stated that providing PPL with access to CP and CSXT, in addition to its current service from NSR, would not preserve competition, but enhance it, contrary to the purpose of board-imposed conditions.
“Contrary to NSR’s claims with regard to PPL’s proposed build-out, the Board finds that PPL’s potential loss of D&H as a competitor to NSR is real,” said the May 15 board decision. “Though other factors, including natural gas rates and intermodal competition, may also serve to constrain NSR’s rates with PPL, the proposed acquisition transaction would still deprive PPL of a potential alternative to NSR. While NSR contends that PPL’s proposed build-out may not be operationally feasible, PPL is not required to demonstrate the feasibility of its build-out for us to grant a condition that would facilitate PPL’s use of a potential build-out, if constructed.
“However, although we agree that PPL’s pre-transaction competitive options should be protected, the two conditions that PPL requests clearly seek to improve PPL’s competitive position with regard to its future expansion plans to service the Midwest and other areas of the country. They are not appropriate conditions to impose in the context of this transaction, given that the Board’s conditioning power is limited to preserving competitive options that may be foreclosed by a transaction, not increasing the competitive options for a specific carrier.
“Therefore we will deny PPL’s requested conditions, but we will grant PPL a narrowly tailored condition consistent with NSR’s suggestion. In particular, the Board’s condition will provide that, contingent upon PPL actually constructing a connection to the D&H South Lines, the Board will grant D&H trackage rights over the D&H South Lines from that point of PPL’s connection with the D&H South Lines to Schenectady, N.Y. This condition is appropriate to preserve PPL’s pre-transaction competitive options by providing continued potential access to D&H, without expanding PPL’s competitive options beyond the pre-transaction status quo.”