Copyright 2008, Traffic World, Inc.
The Surface Transportation Board dealt a blow to Canadian National Railway''s plan to wrap up its proposed Chicago-area short line purchase by yearend, jeopardizing the entire deal and setting up a potential court challenge to the regulator''s power.
The board rejected a CN request to rule by Oct. 14 on whether to permit its $300 million acquisition of the regional Elgin, Joliet and Eastern Railway, citing its intention to first complete a full-scale environmental review before making a decision.
CN had pledged if the STB granted approval just on the transaction, CN would delay making any changes in EJ&E''s operations until agency staff completes an ongoing environmental review and the board set its own impact mitigation terms.
Instead, the STB stuck with a schedule it unveiled July 25 when it released a draft impact study. It projects that staff will complete the review in December or January, and the board could then soon rule on the acquisition along with any conditions the agency might attach.
That could mean final regulatory approval won''t come until well into 2009 - for a deal first announced in September 2007.
But CN says it needs to know soon if it can go ahead and buy the railroad, in order to wrap up all the purchase details ahead of a hard Dec. 31 deadline set by EJ&E parent United States Steel last year in their stock purchase agreement. Otherwise, the agreement would expire and the entire deal could fall apart.
That means CN''s next stop could be court.
The company earlier warned if the STB did not respond to its two-track review plan by Sept. 15, "CN will be prepared to petition the U.S. Court of Appeals for the District of Columbia Circuit immediately thereafter to compel the STB to issue a final decision that would permit CN to close the transaction by Dec. 31."
But the three STB commissioners unanimously denied the petition from CN, and gave a number of reasons why it wouldn''t fast-track their decision.
The board restated its intention to first complete its full-scale review under the National Environmental Policy Act before deciding the merits of the purchase, in line with how the STB has handled other rail merger cases.
"We do not believe that it would be consistent with NEPA or agency precedent to consider the proposed stock purchase separately from our environmental review," the board said in a decision released Sept. 8.
As to CN''s promise that it would make no changes at EJ&E until the board set its mitigation rules, the STB said that pledge "would be difficult to monitor or enforce."
CN did not respond immediately. Spokesman Mark Hallman said CN was "still reviewing the decision and considering its options."
CN wants the EJ&E line, which runs in a westward semi-circle around Chicago, so it can take its heavy traffic out of a congested downtown track network and onto a faster route through that prime rail gateway.
It plans to spend $100 million on top of the purchase price to beef up EJ&E''s lightly used tracks, but area suburbs have mounted a stiff resistance to having long, frequent trains run through their neighborhoods and add to the traffic jams already clogging local roads.
The carrier has already said it will spend up to $40 million more on grade separations and other projects to mitigate the local impact. But some local officials, and even one STB member, have questioned whether CN can do enough to offset the impact.