UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 29, 1997
NORTH CAROLINA RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation)
0-15768 56-6003280
(Commission File Number) (IRS Employer Identification No.)
3200 Atlantic Avenue
Suite 110
Raleigh, North Carolina 27604
(Address of principal executive offices) (Zip Code)
(919) 954-7601
(Registrant's telephone number, including area code)
This document contains 16 pages.
Table of Contents
Item 5. Other Events . . . . . . . . . . . . . . . . . . 3
Item 7. Financial Statements and Exhibits . . . . . . . . 5
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 5
2
Item 5. Other Events
The U. S. Surface Transportation Board ("STB") issued a
decision and order dated May 29, 1997 with respect to the
Registrant's petition for interim relief to the STB, STB Finance
Docket No. 33134 (the "STB decision"). The Registrant's petition
for interim relief sought an order requiring Norfolk Southern to
pay rental on a temporary basis in the amount of $680,700 per
month.
The STB decision, incorporated herein as an Exhibit, denied
the rental amount requested by the Registrant and provides (i)
that the Registrant's petition for interim compensation is
granted at the level of out-of-pocket expenses incurred by the
Registrant due to Norfolk Southern's continued operation of the
line, (ii) that the petition of the State of North Carolina
("State") to hold the proceeding in abeyance pending a negotiated
buy out of minority shareholders and subsequent reopening of
lease negotiations is granted subject to the requirement that the
State and the Registrant report monthly to the STB on the
progress of negotiations, and (iii) other procedural and related
findings.
The STB decision does not provide for compensation in excess
of out-of-pocket expenses incurred by the Registrant due to
Norfolk Southern's continued operation of the line, which
expenses are not defined. The STB decision is expected to have
material adverse effect on the near term liquidity of the
Registrant, because it leaves the Registrant without a source of
substantial revenue from the Registrant's principal asset.
Because the Registrant may need to reserve its liquid assets to
fund its litigation against Norfolk Southern and for other
operating expenses, this decision may adversely affect the
Registrant's ability to pay dividends. The Registrant has
approximately $4 million of liquid assets. If the Registrant
does not make a shareholder distribution of approximately $3.2
million on or before September 15, 1997, the Registrant will not
be able to continue REIT status for 1996; which would have a
material adverse effect on the Registrant and its shareholders
for 1996, 1997, and future years. The Registrant intends to seek
to reopen the STB decision in order to clarify the compensation
and other provisions of the ruling, however, there can be no
assurance that the STB will reopen the proceeding and, if
reopened, that the result will be more favorable to the
Registrant.
Cautionary Statement Identifying Important Factors That Could
Cause the Registrant's Actual Results to Differ From Those
Projected in Forward Looking Statements
3
In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, readers of this
document, and any document incorporated by reference herein, are
advised that this document and documents incorporated by
reference into this document contain both statements of
historical facts and forward looking statements. Forward looking
statements, which include statements about Norfolk Southern
litigation, REIT status, and liquidity are subject to certain
risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward looking
statements. Examples of forward looking statements include, but
are not limited to (i) projections of revenues, income or loss,
earnings or loss per share, capital expenditures, dividends,
capital structure, income taxes, and other financial items, (ii)
statements of the plans and objectives of the Registrant or its
management or Board of Directors, including estimates or
predictions of actions by other parties or regulatory
authorities, (iii) statements of future economic performance, and
(iv) statements of assumptions underlying other statements and
statements about the Registrant or its business.
This document and other documents filed by the Registrant
with the Securities and Exchange Commission also identify
important factors which could cause actual results to differ
materially from those indicated by the forward looking
statements. These risks and uncertainties include the
Registrant's litigation against Norfolk Southern, the
Registrant's ability to continue to qualify for tax treatment as
a REIT or the timing of any failure to qualify, the Registrant's
ability to reach any future agreement with Norfolk Southern for
rental or other terms for the continued operation of the
Registrant's railroad lines, the willingness of the State to make
an acceptable buy-out offer and its ability to finance any offer,
and other matters which are described herein and/or in documents
incorporated by reference herein.
The cautionary statements made pursuant to the Private
Litigation Securities Reform Act of 1995 above and elsewhere by
the Registrant should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the
Registrant prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Registrant to
control and in many cases the Registrant cannot predict what
factors would cause actual results to differ materially from
those indicated by the forward looking statements.
4
Item 7. Financial Statements and Exhibits
c. Exhibits
Index to Exhibits
Exhibit Item
------- ---------------------------------------
99.1 Decision of the Surface Transportation
Board, served May 29, 1997, Finance
Docket No. 33134, North Carolina
Railroad Company -- Petition To Set
Trackage Compensation And Other Terms
And Conditions -- Norfolk Southern
Railway Company, Norfolk & Western
Railway Company, And Atlantic And East
Carolina Railway Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: June 3, 1997 By: /s/ R. Samuel Hunt, III
------------ -----------------------
R. Samuel Hunt, III
President
5
Exhibit 99.1
SERVICE DATE - MAY 29, 1997 - LATE RELEASE
SURFACE TRANSPORTATION BOARD
DECISION
STB Finance Docket No. 33134
NORTH CAROLINA RAILROAD COMPANY -- PETITION TO SET TRACKAGE
COMPENSATION AND OTHER TERMS AND CONDITIONS -- NORFOLK SOUTHERN
RAILWAY COMPANY, NORFOLK & WESTERN RAILWAY COMPANY, AND ATLANTIC
AND EAST CAROLINA RAILWAY COMPANY
Decided: May 28, 1997
On September 23, 1996, North Carolina Railroad Company
(NCRR) filed petitions seeking the prescription of interim and
permanent compensation for the exclusive use of its 317-mile rail
line between Charlotte and Morehead City, NC (the line), by
operating subsidiaries 1 of Norfolk Southern Corporation
(collectively, NS). NS replied to the petitions on October 15,
1996. On October 23 and November 4, 1996, respectively,
petitions for leave to intervene, accompanied by replies, were
filed by two NCRR shareholders: Jefferson-Pilot Life Insurance
Company (Jefferson-Pilot); and Walter F. Rucker, representing
himself and others (Rucker group).2 On December 5, 1996, the
State of North Carolina (North Carolina) filed a petition for
leave to intervene and a request to hold the proceeding in
abeyance pending the negotiation of a settlement. Responsive
pleadings and procedural motions, including a motion to compel
discovery, followed each of these submissions.3 We are
instituting a proceeding and granting the intervention requests
of Jefferson-Pilot, the Rucker group, and North Carolina. We are
also granting in part the requests for interim compensation but
otherwise holding the proceeding in abeyance.
BACKGROUND
In 1895, Southern Railway Company (Southern), an NSR
predecessor, leased the 223-mile segment of the line, from
Charlotte to Goldsboro, for a 99-year term, beginning January 1,
1896, and ending January 1, 1995. In 1939, AECR leased the 94-mile
segment of the line, from Goldsboro to Morehead City, from
NCRR's predecessor, Atlantic and North Carolina Railroad Company,
for a 25-year term. See Atlantic & N.C.R. Co. Lease, 233 I.C.C.
644 (1939). The lease was amended several times and finally
expired by its terms on December 31, 1994. NS operated the line
under two lease agreements until their expiration.4
1
In August 1995, a lease extension agreement (LEA),
retroactive to January 1, 1995, was approved by the boards of
directors of NS and NCRR, subject to ratification by NCRR's
shareholders.5 NS commenced rental payments based on the LEA,
and operations continued uninterrupted.6 Ratification of the LEA
was on the agenda of the annual shareholder meeting, scheduled
for December 15, 1995, but the meeting was boycotted by a group
of minority shareholders, who objected to the negotiated level of
compensation. Ratification of the LEA thus failed for lack of a
quorum.7 See Rucker v. McNair, No. 5:95-CV-1054-B0(2). 1996
U.S. Dist. Lexis 12877 (E.D.N.C. July 29, 1996) (enjoining NCRR
from implementing the LEA). NS discontinued making rental
payments after July 31, 1996,8 but continued to operate the line.
DISCUSSION AND CONCLUSIONS
1. Intervention. NS opposes all three intervention
requests. Generally, it argues that the NCRR shareholders lack
standing.9 According to NS, only NCRR, through its elected
officers and directors, has lawful authority to represent NCRR's
interests.10 NS acknowledges that intervention by the minority
shareholders is at least plausible, in contrast to intervention
by North Carolina, because the shareholders have little control
over the positions NCRR takes here. On the other hand, noting
that North Carolina effectively controls NCRR, NS submits that
their interest should be co-extensive, and they should speak with
the same voice.11
The minority shareholders and North Carolina each have a
substantial stake in the outcome of NCRR's prescription request,
and their interests are in conflict. The minority shareholders
seek to maximize their return on investment whereas North
Carolina also appears to be concerned with promoting industrial
development along the line and, to that end, may be willing to
forgo some return on its investment. NCRR does not have an
equity position at stake and has supported both positions at
various times. Originally, it favored the failed LEA, but it now
appears to have adopted the minority shareholders' position.
Because the minority shareholders have a significant private
investment in NCRR, they should be granted leave to intervene so
as to ensure that their interests are fully protected. North
Carolina has a far greater investment in NCRR, and its position,
at this time, does not appear to be represented by NCRR. Under
the circumstances, North Carolina should also be granted leave to
intervene. It does not appear that intervention will unduly
broaden the issues that have been raised or disrupt the schedule
for filing verified statements.12 Accordingly, under 49 CFR
1112.4(a), good cause having been shown, intervention by all
three petitioners is warranted and will be granted.
2. Jurisdiction and Standard of Review. The parties agree
2
that our jurisdiction under 49 U.S.C. 11323(a)(2) to approve and
authorize leases between rail carriers extends to prescribing
reasonable terms and conditions for NS's continued use of the
line and that a prescription at this time is necessary and
appropriate. It has long been held that our jurisdiction over
trackage rights is exclusive and plenary, based on our powers
under 49 U.S.C. 11323(a)(6) to approve and authorize them, and
that it extends to all terms and conditions, including rents.
Moreover, trackage rights agreements remain in effect and cannot
be discontinued until we authorize their discontinuance or
approve a new agreement. See Thompson v. Texas Mexican R. Co.,
328 U.S. 134, 147-50 (1946) (Thompson). While leases generally
result, as here, in exclusive use arrangements, they are
otherwise basically analogous to trackage rights in terms of our
jurisdiction, and we have similar statutory authority to approve
and authorize them under 49 U.S. C. 11323(a)(2). Thus, our
authority to prescribe the compensation and other terms and
conditions of a lease, like our authority over trackage rights,
must be viewed as exclusive and plenary. Accordingly, we are
instituting a proceeding to establish compensation.
As a practical matter, however, trackage rights compensation
cases have certain public interest implications, Thompson at 148,
that are distinguishable from lease compensation cases and these
differences stem from the fact that in lease compensation cases,
as is the case here, the tenant-lessee is usually the line's
exclusive operator. Thus, lease compensation cases are not
concerned with ensuring that there is either an equitable sharing
of facilities or an equal competitive footing, and the associated
costing and cost allocation issues do not arise. For these
reason, this proceeding will not necessarily be governed by the
costing methodologies developed in St. Louis Southwestern Ry. Co.
Compensation -- Trackage Rights, 4I.C.C.2d 668 (1987)
(Compensation-II),13 and applied in such cases as Arkansas &
Missouri R. Co. v. Missouri Pacific R. Co., 6I.C.C.2d 619,
clarified, 7I.C.C.2d 164 (1990) (A&M);14 Atchison, T. & S.F, Ry.
Co. -- Operating Agreement, 8.I.C.C.2d 297 (1992); and Toledo,
Peoria & Western Railway Corp. -- Trackage Rights Compensation --
Peoria and Pekin Union Railway Company, Finance Docket No. 26476
(Sub-No. 1) (ICC served Sept. 20, 1994). When and if we consider
the merits in this proceeding, the parties will be required to
support their respective valuation methodologies and the final
compensation that they yield. If the parties also seek to have
other terms and conditions prescribed, they should specify what
they are seeking, justify why these terms and conditions should
be prescribed, and explain how they relate to, and affect, the
level of compensation proposed. At a minimum, we will expect the
parties to address whether, and to what extent, the public
interest considerations of the ICC Termination Act of 1995, Pub.
L. 104-88, 109 Stat. 803, apply in prescribing fair compensation
for a lease agreement, whether and how they have factored these
considerations into their own analyses, and whether and how we
3
may factor them into our analysis.
NS requests, in lieu of an evidentiary proceeding, that the
terms and conditions of the LEA be prescribed in their entirety
because they: (1) were developed after nearly 3 years of arm's
length negotiation between NS and NCRR and, allegedly, represent
the best and most reliable evidence of what is reasonable; and
(2) have already been endorsed by NCRR's management and financial
advisors, as well as by an overwhelming majority of NCRR's
shareholders. Alternatively, NS requests that if any evidentiary
proceedings are to be held, the terms of the LEA be considered
presumptively reasonable and NCRR be assigned the burden to prove
otherwise.15 We will, in due time and if necessary, consider the
LEA along with any other compensation proposals advanced by the
parties.
3. Abeyance. In its reply to NCRR's petitions, North
Carolina requests that the petition to prescribe permanent
compensation be held in abeyance to give it an opportunity to
acquire the stock now held by NCRR's minority shareholders and to
reopen lease negotiations with NS as NCRR's sole owner. NS
responds that it will be prejudiced if the proceeding is held in
abeyance for lengthy period of time and it ultimately must pay
retroactive compensation. NS points out that it remains
obligated to operate the leased line even though the terms and
conditions of its use are unknown and may not be fixed for some
time. NS states that it is prepared to cooperate with North
Carolina, NCRR, and the minority shareholders, either in
negotiating a buyout or renegotiating a lese extension, but
insists that the proceeding be resolved expeditiously as long as
retroactive prescriptive relief is being sought.16
Contrary to North Carolina's assurances, NS states that it
is not convinced that North Carolinas will succeed in acquiring
the interest of the minority shareholders and submits that there
are likely to be significant delays. It notes that prior buyout
proposals have failed over the past two decades and attributes
these failures to a number of reasons including: the indecision
of North Carolina; the unavailability of, or unwillingness to
commit, State funds; and the intransigence of, or insistence on
an unreasonably high price by, private shareholders. NS notes
that, under the current buyout initiative, the investment bankers
retained by NCRR have yet to develop a purchase price, North
Carolina has yet to commit any funds, and minority shareholders
may resist any buyout efforts as evidenced by a lawsuit
apparently filed in this regard.
In a letter filed April 9, 1997, North Carolina reports that
its negotiations with a special committee appointed by the NCRR
board of directors have resulted in a letter of intent, approved
by the NCRR board, outlining the general terms under which it
would acquire the minority-held shares. North Carolina
4
acknowledges that the buyout is not imminent, and that it still
must obtain financing and the approval of the minority
shareholders. Nevertheless, it contends that the proposed buy
out and subsequent negotiations with NS are the most efficient
and appropriate means of resolving this dispute. In a response
filed April 17, 1997, NS states that it has no intention of
reopening negotiations, but will insist on the terms contained in
the LEA.17
We will grant the request to hold the proceeding in abeyance
because we believe the benefits outweigh the burdens. North
Carolina has shown progress in acquiring the minority-owned NCRR
stock. If it succeeds, the permanent compensation issue might be
resolved more readily and possibly without further regulatory
intervention. Furthermore, it is not clear from the record that
North Carolina is inexorably opposed to reinstating the LEA.
Likewise, NS's insistence that it will not reopen negotiations
must, in the absence of a concrete proposal from a State-owned
NCRR, be viewed as premature.
We will not, however, accede to an indefinite delay of the
proceeding. NS cannot reasonably be expected to provide rail
service indefinitely at current freight rates while NCRR seeks a
lease compensation prescription at a significantly higher level
and requests that it be made retroactive to the expiration of the
lease agreements.18 Accordingly, we will require that North
Carolina and NCRR submit monthly reports, demonstrating their
progress in reaching a buyout agreement and the means of
implementing it.19
4. Interim Compensation. NCRR and interveners request that
interim compensation be set at the level negotiated in the LEA.
NCRR submits, in its petitions for interim relief, that our
authority to set permanent compensation implies the authority to
set interim compensation and that an interim prescription is of
utmost importance because NS ceased making rental payments.
Specifically, NCRR states that the line is its principal
asset, that the rent previously received from NS constitutes the
bulk of its income, and that interim funds are needed to finance
this proceeding. Contending that is cannot afford to wait for a
permanent prescription. NCRR requests that interim compensation
be prescribed; that it be set at no less than the level
negotiated in the LEA ($680,700 per month), net of all
maintenance, capital improvements, taxes, and assessments; and
that it be made retroactive to August 1996.
In reply, NS disputes the need to prescribe interim
compensation. It notes that it has already paid approximately
$18 million to NCRR in reliance on the apparent approval of the
LEA and that ample funds should still be available
notwithstanding that NCRR has already paid a $13 million special
5
cash dividend to its shareholders.20 Additionally, NS notes
that it continues to pay all maintenance expenses, capital
improvements, property taxes, and assessments.
NS offers to maintain the status quo pending the resolution
of this proceeding by paying interim compensation at the rate
specified in the expired leases.21 It contends that this is
consistent with past practice and notes that, at this level of
compensation, it has already prepaid rental for the foreseeable
future. Otherwise, NS asserts that the compensation provision of
the LEA cannot be severed from the rest of the integrated
agreement and, by itself, does not represent an appropriate
minimum level of interim compensation.
In light of our decision to hold this proceeding in
abeyance, the need for interim compensation is readily apparent,
but neither side has presented an acceptable proposal for setting
the level. NS views the compensation level contained in the
expired leases as a ceiling for interim compensation, whereas
NCRR and the interveners view the level in the LEA as a floor.
On this record, however, neither party has justified its
position. We also recognize the obligation of NCRR to pass
through to its shareholders any rents received in excess of it
expenses. We conclude that the interim compensation should be
set at the level of out-of-pocket expenses incurred by NCRR due
to NS's continued operation of the line. Anything less would
require NCRR to operate at a loss; anything more would go to the
benefit of shareholders, not NCRR.22
This decision will not significantly affect either the
quality of human environment or the conservation of energy
resources.
It is ordered:
1. A proceeding is instituted. The State of North
Carolina, Jefferson-Pilot Life Insurance Company, and Walter F.
Rucker (representing himself and others) are granted leave to
intervene.
2. All statements and pleadings heretofore tendered are
accepted into the record.
3. The petition of the State of North Carolina to hold this
proceeding in abeyance pending a negotiated buyout of minority
shareholders and subsequent reopening of lease negotiations is
granted subject to the requirement that North Carolina and NCRR
report monthly to the Board on the progress of negotiations. The
parties are free to engage in consensual discovery while the
proceeding is in abeyance. NCRR's outstanding motion to compel
is dismissed as moot.
6
4. The petition of NCRR for interim compensation is granted
at the level of out-of-pocket expenses incurred by NCRR due to
NS's continued operation of the line.
5. This decision is effective on the date of service.
By the Board, Chairman Morgan and Vice Chairman Owen.
Vernon A. Williams
Secretary
FOOTNOTES
______________________________________________________________
1. Norfolk Southern Railway Company (NSR), Norfolk &
Western Railway Company (N&W), and Atlantic and East Carolina
Railway Company (AECR).
2. North Carolina owns approximately 75% of NCRR's
outstanding stock. The remaining 25% of NCRR's outstanding stock
is privately held with Jefferson Pilot and the Rucker group
together owning approximately one-third and NS owning
approximately one-tenth of the privately held stock.
3. A number of the pleadings and motions were filed out of
time or constitute replies to replies, in violation of 49 CFR
1104.13(a) and (c), respectively. We will waive these rules and
accept the filings in the interest of a complete record.
4. The 1895 lease called for an annual rent of $286,000,
paid semi-annually. It did not contain an escalation clause or
contemplate inflation-based adjustments. Additional terms
required, among other things, that Southern maintain the line and
pay all taxes and assessments. The 1939 lease initially called
for an annual rent of $60,500, which was to be augmented by
incremental adjustments based on NS's annual revenues from
operating the line. The annual rent was revised twice before the
lease expired, at which time it had increased to approximately
$300,000.
5. The lease and operation was authorized by exemption from
regulation in Norfolk Southern Railway Company and Atlantic and
East Carolina Railway Company -- Lease and Operation Exemption --
North Carolina Railroad Company, Finance Docket No. 3280 (ICC
served Dec. 22, 1995).
6. NS states that it made rental payments of $8 million in
1995 (base rent plus interest) and $4.7 million in 1996 (based on
7
rent of $680,700 monthly through July 1996) in reliance on the
LEA. NS also states that it made a one-time $5 million payment
(plus interest) to compensate NCRR for the release of certain
potential personal property claims against NS.
7. Under NCRR's by-laws and the LEA, to constitute a quorum
at the shareholder meeting the holders of a majority of the
shares held by shareholders other than North Carolina (the
private shareholders) must be represented, either in person or by
proxy.
8. NCRR alleges that part of the line, between milepost K-27.4 at
North Winston (near Winston-Salem) and milepost K-0.0 at
Pomona and between milepost 286.8 at Pomona and milepost 284.4 at
Elm (Greensboro), in now operated by N&W pursuant to overhead
trackage rights granted by NSR in Norfolk and Western Railway
Company -- Trackage Rights Exemption -- Norfolk Southern Railway
Company, STB Finance Docket No. 32961 (STB served June 6, 1996).
Petitions to revoke the notice of exemption were filed by NCRR
and United Transportation Union and are pending.
9. Administrative agencies are not bound by the strict
requirements of standing that otherwise govern judicial
proceedings. See Missouri Pacific Railroad Company --
Abandonment -- In Douglas, Champaign and Vermilion Counties, IL
(Wersville and Jamaica Branches), Docket No. AB-3 (Sub No. 103)
(ICC served Nov. 3, 1994) slip op. at 3 n.4.
10. NS states that NCRR's officers and directors have a
fiduciary duty to promote the interests of all of the
corporation's shareholders and to maximize corporate value. To
the extent the minority shareholders disagree with or believe
that they are not being fairly represented by NCRR's officers and
directors. NS contends that state law affords the proper
procedure and remedy for resolving such disputes through
shareholder derivative action for breach of fiduciary duty.
11. According to NS, North Carolina, as the majority
shareholder, is entitled to elect 10 of NCRR's 15 directors and
to appoint its president and senior officers. Further, NS notes
that NCRR's current president was appointed recently and that he
and the senior officers all serve at the will of the Governor of
North Carolina. Thus, NS argues that the actions of the
president and senior officers in charge of this proceeding must
be presumed to reflect the will of the Governor and the interest
of North Carolina.
12. Granting North Carolina's request to hold the
proceeding in abeyance will result in a delay in the procedural
schedule. However this is not a consequence of the intervention.
13. See also St. Louis Southwestern Ry. Co. -- Trackage
8
Rights Compensation, 11.C.C.2d 776 (1984) and St. Louis
Southwestern Ry. Co. Compensation -- Trackage Rights, 5.I.C.C.2d
525 (1989). Under the methodology developed in these decisions
(SSW Compensation methodology), total compensation for trackage
rights is the sum of three elements; (1) the variable cost that
is incurred by the owning carrier but attributable to the tenant
carrier's operations over the owning carrier's track; (2) the
tenant carrier's usage-proportionate share of track maintenance
and operating expenses; and (3) an interest or rental component
to compensate the owning carrier for the tenant carrier's use of
the capital dedicated to the track by the owning carrier. Of
these elements, only the interest rental component appears to be
appropriate here. For trackage rights compensation, that
component is normally derived by first multiplying the value of
the assets by a rate of return equal to the railroads' current
pre-tax nominal cost of capital. The resulting product would
then be apportioned to the tenant carrier based on its percentage
of total cars traversing the line. However, in this proceeding
there are no shared facilities whose costs require apportioning
between the landlord and tenant railroads. Even under the SSW
Compensation methodology, the tenant is not required to pay the
landlord return on betterments of the proper cost of capital that
would be relevant for the owners of the line, whose businesses
lie predominately outside of railroading.
14. The SSW Compensation methodology was developed and used
by the Interstate Commerce Commission to set compensation for
trackage rights imposed to redress the anti-competitive efforts
of a railroad merger. A&M extended the SSW Compensation
methodology beyond the merger context to establish the terms of
compensation to be paid for the renewal of a trackage rights
agreement where the parties wanted the arrangement to continue
but could not agree on compensation.
15. NS does not contend that the LEA has binding status; it
only argues that it is the best evidence of what is fair and
reasonable under the circumstances.
16. NCRR requests that the petition to hold the proceeding
in abeyance be denied unless its request for interim compensation
is granted at the level originally requested in its September 23
petition. Interim compensation is discussed separately, infra.
17. In a letter filed April 29, 1997, the Rucker group
replied to both letters. The Rucker group supports holding the
abeyance (with interim compensation) noting that a buyout would
obviate the group's further participation and simplify remaining
proceedings.
18. NS does not clearly articulate the nature of the harm
that would arise from a retroactive prescription. We find it
unlikely, however, that it would suffer an operating loss as a
9
result of having underpriced its traffic. A number of factors
typically enter into rate making decisions, but as long as
attributable costs are met, the cost of providing service is
subordinate to market forces and regulatory constraints.
19. The parties are free to engage in consensual discovery.
NCRR's motion to compel responses to its first set of
interrogatories, document requests, and requests for admission,
filed December 22, 1996, is dismissed as moot.
20. As a real estate investment trust, NCRR is required by
law to distribute substantially all of its rent payments to it
shareholders.
21. Alternatively, if we were to impose interim
compensation at the $8 million base rental level specified in the
LEA, NS argues that the amounts paid in excess to the rent
otherwise owed under the expired lease should be paid into, and
held in, escrow pending a final decision. Otherwise, the
requirement that NCRR distribute rental payments to its
shareholders would leave it with no source of funds to repay NS
at the end of the proceeding.
22. Moneys passed through to shareholders may not be
recoverable if, ultimately, NS has overpaid and the lease is not
renewed.
10