CPRR001.docx

1 CRAIGMONT, IDAHO, MONDAY, JUNE 19, 2000, 3:30 P.M.
2
3
4 COMMISSIONER KJELLANDER: Good
5 afternoon, ladies and gentlemen. Can you hear me
6 okay through the system tonight?
7 I guess not.
8 Thank you. Little help.
9 Is this better? Okay, I'll try to get
10 as close as I can here.
11 Well, good afternoon, ladies and
12 gentlemen. This hearing will now be in order. This
13 is the time and place set by the Idaho Public
14 Utilities Commission for a public -- rather, a
15 technical hearing on Case No. CPR-R-00-1, also known
16 as In the matter of Camas Prairie RailNet's
17 Application to abandon the Spalding-Grangeville
18 Branch in Lewis, Idaho, and Nez Perce counties.
19 As I mentioned, this is the technical
20 hearing. This will be an opportunity for the
21 witnesses to be put on the stand, they'll be allowed
22 to provide their testimony, and then there will be
23 cross-examination. The public hearing, which will
24 give all of you an opportunity if you'd like to
25 testify before the Commission, will begin promptly
1
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 at six o'clock.
2 My name is Paul Kjellander and I'm a
3 member of the Commission. I'll be chairing today's
4 hearing. At my right is Commissioner Marsha Smith,
5 and at my left is Commissioner Dennis Hansen. And
6 the three of us make up the entire Commission.
7 As we begin this afternoon, let's
8 first take the appearances of the parties, and we
9 will begin with Mr. Howell from the Public Utilities
10 Commission Staff.
11 MR. HOWELL: Thank you, Mr. Chairman.
12 Don Howell, Deputy Attorney General, on behalf of
13 the Commission Staff.
14 COMMISSIONER KJELLANDER: Mr. Howell,
15 I also think we have some preliminary matters with
16 regards to interventions. Is that correct?
17 MR. HOWELL: That is correct,
18 Mr. Chairman. There have been a number of parties
19 that have intervened. There have also been a number
20 of parties which have requested to withdraw their
21 Petition for Intervention. I believe that leaves us
22 with two Petitions to intervene: One filed by the
23 United Transportation Union -- and I see that they
24 are here -- and the other is filed by the Idaho
25 Barley Commission.
2
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 COMMISISONER KJELLANDER: And is
2 anyone from the Idaho Barley Commission present this
3 afternoon?
4 Okay, we'll take that as a "no." If
5 they do show up, we'll introduce them for
6 appearances for purposes of testimony, but I suppose
7 first what we need to do is officially grant that
8 intervention. And without objection, we will go
9 ahead and grant that intervention, and it has been
10 granted.
11 Let's move now to appearances of the
12 parties, and I believe we have with us legal counsel
13 for Camas Prairie RailNet.
14 MR. HEFFNER: Good afternoon, members
15 of the Commission. My name is John Heffner, and I'm
16 an attorney with the firm of Rea, Cross &
17 Auchincloss in Washington, D. C. I've circulated to
18 the Commission a Motion by our -- my client's Idaho
19 Counsel Michael McNichols requesting that I, as a
20 member of the District of Columbia Bar, be admitted
21 for the purpose of this proceeding only, and request
22 that it be granted.
23 COMMISSIONER KJELLANDER: We'll take
24 that under advisement if you'll give us just a
25 moment to confer.
3
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 (Discussion off the record.)
2 COMMISSIONER KJELLANDER: We'll grant
3 that for purposes of this hearing.
4 MR. HEFFNER: Thank you.
5 COMMISSIONER KJELLANDER: And we
6 welcome you to Idaho.
7 MR. HEFFNER: Thank you very much.
8 COMMISSIONER KJELLANDER: And we need
9 to take the appearances then from -- let's see who's
10 left. That would be the United Transportation Union
11 of Idaho, and your legal counsel is?
12 MR. MILLWARD: Mr. Chairman, I'm
13 George Millward. I'm past director of Idaho State
14 Legislative Board, here representing as spokesman
15 for the Board with the Director and Chairman
16 Greg N. Farris, Pocatello, Idaho, and Dale Wheeler
17 from Nampa, Idaho. We're here as Intervenors
18 representing rail laborers and to ask questions and
19 to give remarks as to the adverse effects that we
20 see relative in this abandonment Application.
21 COMMISSIONER KJELLANDER: And for the
22 purposes of this technical hearing then, you're
23 aware that your opportunity will be for
24 cross-examination. Any kind of testimony, unless
25 you have Staff witnesses, would be more appropriate
4
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 then later tonight at the public hearing.
2 MR. MILLWARD: That's correct. That's
3 what I understand.
4 COMMISSIONER KJELLANDER: Thank you.
5 And you'll be doing the cross-examination?
6 MR. MILLWARD: Yes, I will.
7 COMMISSIONER KJELLANDER: Thank you.
8 With that then, we'll move forward
9 with the technical hearing, and we'll move first to
10 Mr. Howell.
11 MR. HOWELL: Mr. Chairman, the Staff
12 is certainly prepared to put on our two witnesses.
13 I was wondering if you want to allow the Railroad an
14 opportunity to see if it had any witnesses that it
15 wanted to put on as the Applicant.
16 COMMISSIONER KJELLANDER: We could do
17 that officially for the record. I believe there are
18 no witnesses for the Railroad, but we'll go ahead
19 and afford you that opportunity.
20 MR. HEFFNER: Thank you very much,
21 Chairman. We do not have -- we are not offering any
22 witnesses. We will, of course, participate in the
23 STB proceedings, but we're not prepared to offer a
24 witness today.
25 COMMISSIONER KJELLANDER: So
5
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 Mr. Howell.
2 MR. HOWELL: Then, Mr. Chairman, the
3 Staff is ready to present the testimony of two
4 witnesses. The first witness is our real estate
5 appraisal witness. His name is Ed Morse. And at
6 this point then, the Staff would call Ed Morse to
7 the stand.
8 COMMISSIONER KJELLANDER: Mr. Morse,
9 if you would come forward and be sworn in by
10 Commissioner Hansen.
11
12 ED MORSE,
13 produced as a witness at the instance of the Staff,
14 being first duly sworn, was examined and testified
15 as follows:
16
17 MR. HEFFNER: Members of the
18 Commission, if you could indulge me a second, has
19 Mr. Morse submitted any written evidence?
20 COMMISSIONER KJELLANDER: Mr. Howell.
21 MR. HOWELL: The only evidence that --
22 or, the only exhibit that would be accompanied by
23 Mr. Morse's testimony is a copy of the quitclaim
24 deed that was furnished the Commission Staff by the
25 Railroad.
6
HEDRICK COURT REPORTING MORSE
P.O. BOX 578, BOISE, ID 83701 Staff
1 MR. HEFFNER: Very well. Thank you.
2 COMMISSIONER KJELLANDER: Please
3 proceed.
4
5 DIRECT EXAMINATION
6
7 BY MR. HOWELL:
8 Q. Mr. Morse, would you state your name
9 and spell your last for the record, please?
10 A. My name is Ed Morse, M-O-R-S-E.
11 Q. And, Mr. Morse, whom are you retained
12 by in this proceeding?
13 A. I was retained by the PUC Staff.
14 Q. And where do you reside?
15 A. Coeur d'Alene, Idaho.
16 Q. And, sir, what is your occupation?
17 A. Real estate appraiser and consultant.
18 Q. Are you a licensed practitioner?
19 A. I have a certified general appraisal
20 license in the state of Idaho, and I'm also a member
21 of the Appraisal Institute and hold the MAI
22 designation.
23 Q. Do you have any other specialized
24 training?
25 A. I have a Master's degree in business
7
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 administration; juris doctorate of law degree; I
2 have 27 years of experience in the valuation of all
3 types of real property; I have previous experience
4 in appraising rights-of-way in Railroad property;
5 and have served various state and national offices
6 in the appraisal profession; and some experience in
7 appraisal education.
8 Q. You may have mentioned it, but what
9 professional organizations do you belong to and do
10 you hold any offices in those organizations?
11 A. I was previously a member of the State
12 Board of Real Estate Appraisers and past Board
13 Chair. I resigned that position to accept an
14 appointment to the Appraisal Qualifications Board of
15 the Appraisal Foundation. I am a member of the
16 Appraisal Institute, and hold State licensure.
17 Q. Can you explain to the Commission what
18 the Appraisal Board is?
19 A. State board or the --
20 Q. National.
21 A. -- AQB?
22 A. There are two -- Congress has
23 authorized the regulation of the appraisal
24 profession and empowered the Appraisal Foundation to
25 govern both standards and education for appraisers.
8
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 There are two national boards that regulate the
2 appraisal professional: The AQB -- Appraisal
3 Qualification Board -- and the ASB -- the Appraisal
4 Standards Board.
5 And I am a member of the Appraisal
6 Qualifications Board.
7 Q. Have you taught any courses or
8 seminars in appraisal?
9 A. Yes, I have. I formerly was an
10 instructor for the Idaho Real Estate Commission and
11 North Idaho College for their fundamentals of real
12 estate appraisal class.
13 I've taught numerous seminars on such
14 issues as regulatory takings and damages, and am in
15 the process of researching a course outline for the
16 University of Idaho law school.
17 Q. Have you had an occasion in
18 performance of your duties to review the Railroad's
19 Application in this case?
20 A. Yes, I have.
21 Q. Have you also had an opportunity to
22 review the Railroad's net liquidation value
23 appraisal prepared by Kenneth Young?
24 A. I -- I have had the opportunity to
25 read and analyze that report to some degree, yes.
9
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. Are you generally familiar with the
2 location of the line in question?
3 A. Yes, I am.
4 Q. Would you -- how would you generally
5 describe the right-of-way as far as acreages and
6 widths?
7 A. The -- the general right-of-way width
8 is 50 feet on each side of the center line, for an
9 average right-of-way width of 100 feet. There are a
10 number of stations or depots that are wider in the
11 small towns, but average minimum right-of-way width
12 would be 100 feet. There are also areas on cuts and
13 fills or topographically-adverse areas that would
14 have wider right-of-ways also.
15 Q. Have you had an opportunity to
16 personally inspect or high-rail the right-of-way?
17 A. No, I have not.
18 Q. Do you have plans to do that?
19 A. I think the appointment is set up for
20 this Thursday.
21 Q. Could you explain to the Commission
22 the difference between reversionary and
23 nonreversionary right-of-way?
24 A. I'll do my best, and this is going to
25 get into a little bit of deed and law of
10
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 conveyancing; but in right-of-way valuation and
2 conveyancing, many of the rail rights-of-way were
3 established by Congressional grants and they were
4 qualified that those grants or conveyances be for
5 right-of-way purposes. When a Railroad owns a
6 right-of-way, their ability, consequently the value
7 of what they have to sell, depends upon the nature
8 and the quality of the title. So in many of these
9 instances where Congressional grants authorized the
10 acquisition of -- not only the acquisition, but it
11 was federal lands that they took title to -- they
12 have a possessory right for purposes of railroading,
13 but when that is vacated, that use is vacated and
14 the line is abandoned, they -- under a limited
15 grant, they would have no remaining title to sell or
16 convey to a third party. And that's what we would
17 refer to as the reversionary interest, when at such
18 time as the line is abandoned, Railroad may not have
19 any title, consequently nothing to sell or nothing
20 of value.
21 Q. So the value that the or the issue at
22 hand or one of the issues at hand is how much
23 acreage of the right-of-way is nonreversionary. Is
24 that correct?
25 A. One of the important issues is the
11
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 size and the area of the nonreversionary interest.
2 Q. In the appraisal of the right-of-way
3 performed by Mr. Young, he has a net liquidation
4 value for the property owned by the Railroad or
5 nonreversionary property of approximately 758,000.
6 Do you believe that figure is too high or too low?
7 A. I believe that figure is substantially
8 too high.
9 Q. And why is that?
10 A. Because there are a number of issues
11 that are never mentioned or dealt with in the
12 appraisal.
13 Q. And what would be the first issue that
14 has not been mentioned in the appraisal or
15 Application?
16 A. Well, probably the first one I would
17 say is there's no -- absolutely no mention or
18 apparent understanding that the vast majority of the
19 land lies within the Nez Perce Indian Reservation.
20 In fact, I don't believe there is one word of
21 mention of that anywhere in the appraisal or the
22 significance of that.
23 Q. Do you know how many miles of the line
24 in question are included or encompassed within the
25 boundaries of the tribal reservation?
12
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. I believe it's to about milepost 47,
2 off the top of my head. Somewhere in the range of
3 two-thirds or maybe as much as three-quarters of
4 this line would lie within the Nez Perce Indian
5 Reservation.
6 Q. And why is it -- why is it important
7 to know whether or to mention whether a major
8 portion of the right-of-way is within the tribal
9 lands?
10 A. Well, it's a separate, sovereign
11 jurisdiction, and unlike the complexity of normal
12 title issues that we run into with Railroad
13 rights-of-way, this issue of reversionary interest,
14 it's even more complex in this case because many of
15 these acquisitions were done around the turn of the
16 century and the ownership is a hodgepodge or a
17 pattern of acquisitions from -- on both tribal land,
18 individual tribal members, fee ownerships from
19 settlers, and then acquisitions from other entities.
20 So we have a much more complex land ownership
21 pattern, as well as the issue of what title was
22 acquired from those tribal members and tribal
23 interests.
24 Q. Have you, in the course of your
25 analysis of components of the Railroad's
13
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Application, had an opportunity to seek deeds and
2 parcel maps showing the reversionary and
3 nonreversionary property?
4 A. Yes.
5 Q. And when did you receive that?
6 A. I received the Railroad's what they
7 call valuation maps -- which are the maps which show
8 the acquisitions, the deeds, and the right-of-way
9 alignment -- somewhere around ten, 12 days ago, so
10 quite recently.
11 Q. And have you completed your analysis
12 of those documents?
13 A. No, I have not yet.
14 Q. Do you anticipate having to make
15 additional requests for more detail?
16 A. I believe that I will probably have
17 to, yes.
18 Q. Does -- does the presence of the
19 tribal reservation call into question the title of
20 the property?
21 A. It does to me, yes.
22 Q. And do you know what value was
23 subscribed to those parcels that are located on the
24 reservation by the appraisal?
25 A. Yes. Just a quick summation of the
14
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 underlying parcels indicates values around $770,000
2 for lands which appear to be within reservation
3 boundaries.
4 Q. So is it your opinion that the
5 question of title involving these parcels that are
6 on the reservation may call into question whether
7 the Railroad owns those properties in fee?
8 A. It -- it may not only call into
9 question whether they own it in fee, whether there's
10 any reversionary rights, what -- what sovereign and
11 in what jurisdiction is going to make those calls,
12 and over what time period it's going to take, and
13 the costs to resolve those kinds of issues. So it's
14 a very substantial risk factor.
15 Q. And is it fair to say that if the
16 Railroad does not have nonreversionary interest in
17 those parcels, that that $770,000 value would not be
18 an appropriate element to be included in the net
19 liquidation value of the land?
20 A. That's correct.
21 Q. In your examination of the Application
22 and the appraisal, were there other deficiencies
23 that you noted?
24 A. Well, there are -- I don't know if
25 "deficiencies" is the correct word, but there are
15
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 other concerns that I think certainly affect value,
2 and that runs the gamut everything from the deed to
3 conflicts in the length and amount of title that we
4 have at the end of the line, as well as costs --
5 time costs and risk in the event of abandonment and
6 the underlying value of the property that is
7 merchantable, that in terms of title that could be
8 sold.
9 MR. HOWELL: Mr. Chairman, can I
10 approach the witness?
11 COMMISSIONER KJELLANDER: Without
12 objection.
13 Q. BY MR. HOWELL: Mr. Morse, I'm handing
14 you what's been marked for identification purposes
15 as Staff Exhibit No. 12. Do you recognize that
16 document?
17 A. Yes, I do.
18 Q. And can you tell us what that document
19 is?
20 A. This is a quitclaim deed by which
21 Burlington Northern and Sante Fe conveyed the
22 right-of-way in question to Camas Prairie RailNet.
23 Q. And can you explain to the Commission
24 what the difference is between a quitclaim deed and
25 other deeds?
16
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. A -- the essential difference is a
2 quitclaim deed simply says that you are quitting any
3 claim of right or interest into the identified or
4 specified property. You are not warranting that you
5 have any title. You -- you make no representations
6 and have no obligations about the nature of the
7 quality of the title of what it is you're conveying.
8 So the fact that it was a conveyance
9 by quitclaim deed would raise certain questions
10 about the nature and quality of the title to begin
11 with.
12 Q. Can you tell us a little bit more
13 about what those questions would be?
14 A. Well, within the deed itself, the deed
15 is -- reserves minerals, including such things as
16 sand and gravel. So, the nature of the quitclaim
17 deed is that Camas Prairie only got whatever
18 interest that Burlington Northern and Santa Fe had,
19 excluding all minerals under Paragraph No. 1 on
20 page 2;
21 Further, reserving all water rights,
22 including a right of entry into the property to
23 develop and transport those water rights;
24 And, further, reserving, on page 3 of
25 the document, the ability to convey easements or
17
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 interest for pipelines and fiber optic communication
2 lines.
3 So they essentially got a right to
4 operate a Railroad so long as that Railroad exists,
5 but the -- they reserved certain substantial rights
6 in the conveyance of title to Camas Prairie
7 initially.
8 Q. Is it your opinion that these
9 reservations that you just outlined would reduce the
10 NLV value of the right-of-way?
11 A. In my opinion, they would, yes.
12 Q. Turning your attention to the first
13 page of the quitclaim deed, how many miles of the
14 Grangeville line was quitclaim deeded to Camas
15 Prairie RailNet?
16 A. Well, the conveyance recites that it
17 starts at -- it's about rail corridor between
18 milepost 0.00 at Spalding and milepost 66.50 at or
19 near Grangeville, Idaho. So it runs to milepost
20 66.50; however, that's not the end of the rail line.
21 Q. So what is the end of the rail line,
22 to the best of your knowledge?
23 A. I think it's 66.80.
24 Q. And is that an insertion that's
25 contained in the Application and in the appraisal?
18
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. Yes.
2 Q. Now, that difference of three-tenths
3 of a mile, does that -- what is your opinion about
4 that unexplained difference between the deed and the
5 Application?
6 A. Well, their evaluation includes land
7 that by this quitclaim deed they never obtained
8 title to to begin with.
9 Q. And to the best of your knowledge, is
10 the point -- or, three-tenths of a mile that we're
11 talking about actually located in Grangeville?
12 A. To the best of my knowledge, it would
13 be in and on the edges of Grangeville.
14 Q. Are there further concerns that you
15 have about the validity of the valuation of the
16 property?
17 A. The appraisal submitted and the net
18 liquidation value for the real estate simply makes
19 no mention of a number of significant issues that
20 will be encountered in selling this off in the event
21 of abandonment, and those issues are such things as
22 back when the line was established around the turn
23 of the century, the line went over and realigned the
24 creek bed, something that could not be done in this
25 day and age.
19
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. And by "creek bed," you're talking
2 about Lapwai Creek?
3 A. I'm talking about Lapwai Creek.
4 Now, the importance of that is that
5 Lapwai Creek is a critical spawning stream for an
6 endangered species -- steelhead -- mainland and
7 chinook salmon in it too. So the creek channel is
8 altered and in many places you can see on the
9 right-of-way and evaluation maps where the rail line
10 went straight and the creek was moved, and the
11 streambed alterations significantly changed the
12 hydraulics and the nature of the stream.
13 In conversations with the engineers
14 and hydrologists for the Idaho Department of Water
15 Resources, while they will let the Railroad maintain
16 the existing line, it is, quote, A whole new ball
17 game, end of quote, at such time as there's any
18 change of use or abandonment of that.
19 And because of its proximity to a
20 critical spawning stream, there's going to have to
21 be extra precautions taken and extra time and extra
22 costs and a number of jurisdictions involved in both
23 the abandonment and the -- and withdrawal of the
24 improvements on the track and other considerations
25 to protect those kinds of endangered species. So
20
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 that does not appear to be understood by the
2 individual that valued this rail line, either that
3 nature of the floodway and hydraulics of the stream,
4 as well as the critical habitat issues involved in
5 that, so that consequently, the appraisal takes the
6 position that all the land is merchantable, where I
7 think that's a highly tenuous, questionable
8 conclusion.
9 Q. And just for clarity of the record,
10 the land that we're talking about would be the
11 right-of-way adjacent or approximately between
12 milepost one and milepost 15 near Culdesac?
13 A. Yes, the lower end, correct.
14 Q. And isn't another characteristic of
15 that particular stretch of the rail line is that it
16 too is encompassed by the boundaries of the
17 Nez Perce Tribal Reservation?
18 A. Yes, it is.
19 Q. Are there other issues other than
20 stream flow hydrologies that you have concerns
21 about?
22 A. Well, there were some assumptions in
23 the appraisal that I think are unrealistic, such
24 things as though they didn't add anything for the
25 salvage of bridges, there were no allowances for
21
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 cost or deductions. There's not one word in the
2 appraisal about such things as tunnels; they're a
3 substantial liability, in my opinion, when you pull
4 out a rail line and you leave a tunnel. There's no
5 mention in there about any cost to seal or fill or
6 impacts from settlement. There is no mention about
7 the cuts and fills and topography in these canyons
8 where the appraisal takes the -- makes the
9 assumption that a farmer would pay across-the-fence
10 productive land value, farmland value, for a
11 Railroad right-of-way that would be adjacent to his
12 property that is covered with rock and fills and
13 cuts or only has subsoils exposed.
14 So there are some errors, in my
15 opinion, of the fundamental analyses of the unique
16 topographical features and potential liabilities due
17 to the unique characteristics topographically of the
18 bridges and the tunnels and proximity to the
19 streambed on this line.
20 Q. Have you asked the Railroad for copies
21 of salvage bids or estimates used in the preparation
22 of their value of track materials?
23 A. Yes, I have.
24 Q. And have you received those estimates
25 or bids?
22
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. I -- no, I have not.
2 Q. And do you know why you haven't
3 received those?
4 A. I -- to paraphrase the response that I
5 got from the Railroad, it was something along the
6 lines that the bid has or will soon expire, and they
7 simply did not respond to my request to provide that
8 information.
9 Q. Based on your analysis to date, do you
10 have a preliminary range of NLV for the right-of-way
11 in question?
12 A. Only preliminary, but I would say it
13 looks to me like it would be somewhere between
14 250,000 and 500,000.
15 Q. And for comparison purposes, what was
16 the figure used by the Railroad or calculated by the
17 Railroad?
18 A. Slightly above 700,000, between 7- and
19 800,000, as I recall.
20 Q. Have you performed any other estimates
21 on track value assets?
22 A. No, I have not.
23 Q. Does that conclude your testimony?
24 A. Yes, it does.
25 MR. HOWELL: Mr. Chairman, I have no
23
HEDRICK COURT REPORTING MORSE (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 further questions. I make the witness available for
2 cross-examination.
3 COMMISSIONER KJELLANDER: Thank you,
4 Mr. Howell. And let's begin with Counsel for Camas
5 Prairie RailNet.
6 MR. HEFFNER: Thank you, Mr. Chairman.
7
8 CROSS-EXAMINATION
9
10 BY MR. HEFFNER:
11 Q. Mr. Morse, delighted to have you here,
12 and you don't have to call me "Heffner" anymore.
13 I just have a handful of questions.
14 First of all, starting with track
15 value, do you have any professional qualifications
16 in the area of Railroad track and track materials
17 and that sort of thing? Have you ever analyzed or
18 done a valuation on Railroad track and track
19 materials?
20 A. I do not hold myself out as a -- an
21 appraiser of track materials; however, I've dealt
22 with some of those issues on some of the prior
23 abandonment proceedings that I've been involved
24 with.
25 Q. Have you prepared any sort of
24
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 appraisal of the track material in this case?
2 A. No.
3 Q. Okay. And have you ever prepared any
4 sort of an appraisal of track material in any rail
5 line abandonment?
6 A. No.
7 Q. Okay.
8 MR. HEFFNER: Mr. Howell, I'd like to
9 stipulate that while Mr. Morse may be qualified as
10 an expert in the real estate area, that he's not
11 qualified as an expert on track value. Will you
12 agree with me?
13 MR. HOWELL: Mr. Chairman, the Staff
14 is not prepared to testify -- or, to stipulate at
15 this point in time. I think the record stands for
16 itself.
17 COMMISSIONER KJELLANDER: Okay.
18 Please proceed.
19 MR. HEFFNER: I'm sorry.
20 COMMISSIONER KJELLANDER: Please
21 proceed.
22 MR. HEFFNER: Oh, okay. I'm sorry, I
23 didn't hear you.
24 Q. BY MR. HEFFNER: Regarding quitclaim
25 deeds, how many Railroad rights-of-way have you
25
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 appraised during your career?
2 A. Off the top of my head, I -- I
3 couldn't tell you.
4 Q. When did you -- what year did you
5 begin appraising Railroad rights-of-way, roughly?
6 A. I began appraising in 1973. I have --
7 without doing a substantial amount of research, I
8 don't know how many pieces or parcels of Railroad
9 ground that I've done during that period of time.
10 Q. Do you know how many abandonment
11 Applications have been filed in Idaho from 1973 to
12 date?
13 A. The prior abandonment proceeding that
14 I participated in was in Northern Idaho, and there
15 was one case of that.
16 Q. Which was that?
17 A. That was the Worley to Mullan line.
18 Q. Who was the owner?
19 A. I believe the abandoning entity would
20 be UP.
21 Q. Okay. Is that the Wallace branch?
22 A. Ran through Wallace, yes.
23 Q. So the Wallace branch was your only
24 prior Railroad abandonment that you appraised the
25 property?
26
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. Before the -- in proceedings before
2 the Surface Transportation Board. That's not the
3 only Railroad ground that I've appraised.
4 Q. Okay. So the only STB proceeding that
5 you acted as a witness on the real estate valuation
6 is that involving the Wallace branch?
7 A. Correct.
8 Q. And how many proceedings have you been
9 involved in before the Idaho PUC?
10 A. Just that one.
11 Q. Okay, so the Wallace branch was your
12 first rail line appraisal in an abandonment
13 proceeding?
14 A. In an abandonment proceeding.
15 Q. Okay. What other types of proceedings
16 have you appraised Railroad rights-of-way?
17 A. I have an eminent domain case right
18 now. I have appraised numerous parcels of Railroad
19 ground for different purposes, but not part of court
20 proceedings.
21 Q. So basically Wallace branch was the
22 only litigation-type case where you acted -- where
23 you appraised Railroad rights-of-way?
24 A. Excluding the matter that I'm involved
25 with right now.
27
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. Yes.
2 A. Excluding this matter, excluding
3 another matter that would be proceeding in
4 Washington State --
5 Q. Oh, okay.
6 A. -- I believe that is correct.
7 Q. Okay. Have you ever seen Railroad
8 land that was conveyed by any means other than
9 quitclaim deed?
10 A. It is certainly the predominant method
11 of conveyance. I believe -- I believe there are
12 several instances though that I'm aware of that --
13 of conveyances in other than quitclaim deeds, yes.
14 Q. Have you ever seen a situation where
15 Railroad property was conveyed by warranty deed, put
16 it that way?
17 A. Operating property, no.
18 Q. Operating property. Right, not a
19 building but operating property.
20 A. That's right. I said, "Operating
21 property, no."
22 Q. With respect to the reservations of
23 property, was the fiber optics reservation in this
24 transaction -- that is, the Camas Prairie
25 transaction -- exclusive or nonexclusive?
28
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. Don't know that I can answer that
2 without looking at the deed.
3 Q. Go ahead, please.
4 A. Nonexclusive.
5 Q. In the other Railroad real estate
6 transactions that you've looked at, have you ever
7 seen one where the fiber optics reservation was
8 nonexclusive?
9 A. Have not -- simply have not looked at
10 and examined that issue I think with sufficient
11 detail to be able to answer that question.
12 Q. In the other Railroad acquisitions
13 that you've examined, have you ever seen a deed
14 where the Railroad transferred to the purchaser
15 either mineral rights or water rights?
16 A. I have seen that, yes.
17 Q. How common?
18 A. Depends on the sophistication and the
19 knowledge of the purchaser. I've had to go back and
20 negotiate with Railroads myself over those kinds of
21 issues, so I know it can be done. I also know that
22 as a matter of course, they try to use and convey a
23 deed like this where they reserve many interests and
24 convey relatively few.
25 Q. Who were your clients in the -- not
29
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 necessarily by name, but what types of clients have
2 you typically represented in doing appraisals of
3 Railroad property?
4 A. All kinds of various property owners
5 from government entities to private individuals.
6 Q. Have you ever represented a
7 Railroad -- purchaser, that is?
8 A. No.
9 Q. On your right-of-way valuation, you
10 said 250- to 500,000. Do you have any sort of notes
11 or written documents that explain how you got to
12 that figure?
13 A. I do have some -- some general
14 parameters, a lot of sales that I've analyzed and
15 accumulated, and data along that line, yes.
16 I've also taken both the analyses in
17 the -- in the Young appraisal, as well as my own
18 data, and looked at it essentially from two
19 different perspectives: His, with adjustments; and
20 mine, developing it from the ground up.
21 Q. Do you have any material that shows
22 your computation of the 250- to 500,000 in this case
23 that you could present to us right now?
24 A. I do not have it with me, but that can
25 be provided.
30
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. Okay. I would appreciate it if it is
2 provided.
3 Question about the -- going back to
4 real estate valuation:
5 Are you familiar with the standard
6 used by the Surface Transportation Board in valuing
7 Railroad property, both real estate and track
8 material?
9 A. I believe so.
10 Q. And can you just tell us briefly, what
11 is that standard?
12 A. Well, they use a liquidation value
13 standard, which is based on market value of the
14 individual segments for nonRailroad purposes, minus
15 the costs -- what they call liquidation removal
16 costs -- in sales, marketing, and time, in order to
17 get down to net-realizable proceeds from the sales
18 of the individual segments of the property.
19 Q. And would it be correct to say that
20 usually what the -- what is valued is the right to
21 operate a Railroad?
22 A. Under a net liquidation value
23 scenario?
24 Q. Yes, sir.
25 A. No.
31
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. What do they get?
2 A. The -- under a net liquidation value,
3 you're looking at it for alternate purposes.
4 Q. Yes, sir. With respect to the
5 differential in the mileage at Grangeville, what
6 does the extra three-tenths of a mile consist of?
7 A. I have not identified that yet.
8 Q. Have you been to Grangeville to look
9 at it?
10 A. I have been, but not recently. I've
11 not identified that segment.
12 Q. With respect to the selloff period,
13 how long have you assumed, taking into account the
14 problems you have identified -- how do you think it
15 would be -- how long do you think it would take for
16 Camas Prairie RailNet to sell off their
17 right-of-way?
18 A. Well, I'm still looking at that, and
19 that's -- I think there's issues of risk in time and
20 cost here that -- and I've not completed my research
21 on those, so I do not have and have not concluded an
22 absorption time, but I believe it's longer than that
23 five years. It may be closer to seven or eight
24 years. But that will depend upon how much we really
25 have merchantable title to, and we may not have
32
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 merchantable title to as much land as the Young
2 appraisal assumed, so those kinds of issues are
3 somewhat interrelated.
4 We also get into issues about the
5 demand for land in some of the rural markets, and
6 some of the rural markets up here are not -- do not
7 have a particularly robust real estate market.
8 Q. How long does a Railroad normally
9 assume for a selloff period?
10 A. I would say that five years would be
11 typical in many cases for a Railroad to assume. In
12 actuality, anything between five and ten years is
13 probably more common. In urban areas, you'll find
14 individuals that are interested in acquiring the
15 lines and trying to keep them intact. So it varies
16 greatly.
17 Q. Is there any Idaho ordinance or
18 regulation, or for that matter any Federal law, that
19 requires the removal of bridges on the rail line, or
20 for that matter, the closing up of the tunnels?
21 A. I don't know.
22 Q. You haven't checked?
23 A. I don't have a final or a definitive
24 answer on that.
25 Q. Have you researched it?
33
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. I'm in the process of doing that.
2 Q. Okay. Do you know of any STB Decision
3 that puts zero value on Railroad rights-of-way
4 within Indian reservations?
5 A. I do not know.
6 Q. Was that an issue in the Wallace
7 branch?
8 A. No.
9 Q. On what --
10 A. Well, I take that back. I don't think
11 that was a pivotal issue in that case.
12 Q. On what do you base your conclusion
13 that the portion of right-of-way that goes through
14 the Indian reservation has zero value?
15 A. I've not said that it has zero value.
16 I've said that the value of the lands approximately
17 in the reservation are about $770,000. There may be
18 acquisitions by white settlers in holdings where
19 merchantable title was obtained. There may be
20 merchantable title that was obtained through the
21 other proceedings. I simply have not resolved those
22 issues at this time.
23 Q. Are you aware that on the subject of
24 either private reversionary easements or other types
25 of reversions, that there is STB or at least ICC
34
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 case law, there is Railroad industry case law
2 valuing those at a zero value, but you're not aware
3 of any on Indian lands then?
4 A. I have not researched that at this
5 point in time.
6 Q. Okay. So then you really have no
7 basis for your assertion that the portion of the
8 right-of-way within the Indian reservation has zero
9 value?
10 A. I don't believe that I asserted that
11 it had zero value. I believe that a substantial
12 amount of it will be determined to be
13 nonmerchantable.
14 Q. For what reason?
15 A. Because of tribal claims.
16 Q. Could you take us briefly through your
17 computation of the $400,000 real estate figure that
18 I see in the papers that I was provided today by
19 Mr. Plaistow?
20 A. I believe that is a number within the
21 range that I have provided to him.
22 Q. Okay. Could you just briefly explain
23 how you got to the 400,000 from some higher number
24 to begin with?
25 A. I'm not prepared to do that at this
35
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 time, although I can. That would be part of my
2 final notes in developing the parameters of the
3 range that I previously mentioned, 250- to 500,000.
4 Q. Well, if you're presenting testimony
5 that suggests that the real estate is worth between
6 a quarter and a half million dollars, can you just
7 tell us your thought process as to how you got to
8 that range?
9 A. The thought process on how I got to
10 the range was to start with across-the-fence values;
11 look at a probable amount of merchantable fee title
12 land; look at certain allowances for costs in a time
13 period over which those sales would take place; look
14 at net proceeds after certain cost allowances; and
15 then develop value parameters based on the net
16 proceeds as a result of that.
17 Q. What percentage of the right-of-way
18 did you conclude was subject to reversion and what
19 percentage did you conclude was held in fee?
20 A. I can't tell you those percentages off
21 the top of my head.
22 Q. I mean, just rough?
23 A. I can't tell you those percentages off
24 the top of my head.
25 Q. Thank you.
36
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 MR. HEFFNER: That concludes my
2 questions for Mr. Morse.
3 COMMISSIONER KJELLANDER: Thank you,
4 Mr. Heffner.
5 Let's move to the United
6 Transportation Union-Idaho, Mr. Millward.
7 MR. MILLWARD: Thank you,
8 Mr. Chairman.
9
10 CROSS-EXAMINATION
11
12 BY MR. MILLWARD:
13 Q. Mr. Morse, I just have a few questions
14 for you:
15 You stated that you were involved in
16 the Wallace branch abandonment hearings, is that
17 correct, with the STB?
18 A. Correct. That is correct.
19 Q. And to your knowledge, has that branch
20 been sold to this date?
21 A. Not in the ordinary sense of the word.
22 Q. Was there some conditions on that
23 branch that caused some problems, such as
24 contamination with heavy metals and things?
25 A. There were a number of issues
37
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 involving both wetlands and contamination,
2 substantial amount of liabilities that came along
3 with the line, and it was -- it was apparent that
4 the line would probably not have a zero value, but
5 quite possibly would have a negative value. And I
6 believe that the latest calculations are, after
7 paving, that the Railroad is going to pay something
8 like $5 million in order to get rid of it.
9 Q. Thank you. I know this is kind of
10 unfair because I think you've stated that you are --
11 you're going to high-rail the -- this portion of
12 Railroad from Spalding to Grangeville I think you
13 said Thursday. Is that correct?
14 A. Correct.
15 Q. This is what I think is unfair: In
16 your estimation or your observation, do you know of
17 any contamination that may exist that could lower
18 the valuation of the land right now?
19 A. I have asked for that kind of
20 information and have not been provided what I
21 consider to be particularly responsive answers to
22 those questions.
23 Q. So there could be some other issues
24 out there that could lower the valuation. Is that
25 correct?
38
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. That's possible, yes.
2 Q. You stated that approximately
3 two-thirds of the proposed abandonment is in tribal
4 lands. Is that correct?
5 A. It's within reservation boundaries I
6 think would be a better way to categorize it.
7 Q. And in prior -- well, this might be
8 kind of hard, but in prior hearings, the tribes have
9 made, just as Burlington Northern made quit deed
10 claim (sic) to Camas Prairie RailNet, the tribes
11 claimed quit deed (sic) on other Railroads, if I'm
12 correct -- if I'm correct on that. Is there a
13 possibility that the tribes may take a revisionary
14 (sic) claim to these lands?
15 A. Yes.
16 Q. So that would mean that the valuation
17 of seven hundred and I think that fifty-eight
18 thousand dollars of Camas Prairie RailNet they're
19 claiming, that 1,039 acres, would be probably lower
20 that down to, I think, if my figures are correct,
21 around -- around 300 -- about 327 acres, I believe.
22 So, there wouldn't be much valuation at all left in
23 right-of-way with that?
24 A. It would be substantially or it could
25 be substantially diminished.
39
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. One other thing:
2 In Mr. Young's statement, he states
3 21 percent of the land that now consists in this
4 abandonment Application is revisionary (sic). I
5 think it was 11 to the federal government --
6 11 percent -- and like nine percent to the states,
7 if I recall. Something like that.
8 Where are those lands? Do you have
9 any idea what they're talking about?
10 A. Well, you would have to go through the
11 valuation maps and identify the parcels. I have --
12 I've checked those numbers in a general manner, and
13 though I do not disagree to a large extent with
14 those, there are other issues like the acquisitions
15 from both the tribe and tribal members that are
16 neither mentioned nor considered.
17 Q. Okay. Thank you.
18 MR. MILLWARD: Mr. Chairman, the
19 reason why I'm asking that question, in the
20 Application we received from the PUC at our request,
21 we never received the valuation. They said that was
22 in another volume, and that's why I'm asking. We
23 have no idea what the revisionary (sic) land would
24 be because we never did receive a copy of that. I'm
25 not trying to be redundant with that, but I'll have
40
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 to get a copy of that other volume from the Staff to
2 go over that, if I can make that remark.
3 COMMISSIONER KJELLANDER: Noted.
4 MR. MILLWARD: Thank you.
5 Q. BY MR. MILLWARD: With that,
6 Mr. Morse, you said that with the removal of the
7 bridges and trestles and such like that, that there
8 could be some change in the rough waterway, and even
9 in the waterway cleanup; there could be very
10 substantial additional cost in end salvage. Isn't
11 that correct?
12 A. Yes.
13 Q. Okay. And my last question to you:
14 In everything that you have stated
15 today that I have heard, you have given no value of
16 salvage, have you, of track and bridge trestles and
17 crossties and things like that? Have you made a
18 statement of a value of that?
19 A. No.
20 Q. Thank you.
21 MR. MILLWARD: Mr. Chairman, I have no
22 more -- no other questions at this time.
23 COMMISSIONER KJELLANDER: Thank you.
24 Are there questions from the
25 Commission?
41
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Being no questions from the
2 Commission, then we move now to redirect with
3 Mr. Howell.
4 MR. HOWELL: No redirect.
5 COMMISSIONER KJELLANDER: The witness
6 is excused.
7 THE WITNESS: Thank you.
8 (The witness left the stand.)
9 COMMISSIONER KJELLANDER: Mr. Howell,
10 your next witness?
11 MR. HOWELL: The Staff would call
12 Joe Plaistow to the stand.
13 COMMISSIONER KJELLANDER: If you could
14 please come forward and be sworn in.
15
16 JOSEPH J. PLAISTOW,
17 produced as a witness at the instance of the Staff,
18 being first duly sworn, was examined and testified
19 as follows:
20
21 DIRECT EXAMINATION
22
23 BY MR. HOWELL:
24 Q. Sir, could you state your full name
25 and spell your last for the record, please?
42
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. My name is Joseph J. Plaistow. My
2 last name is spelled P-, as in Paul, L-A-I-S-T-O-W.
3 Q. And whom are you employed by and in
4 what capacity?
5 A. I'm vice president and principal of
6 L.E. Peabody & Associates from Alexandria,
7 Virginia. We're an economic consulting firm.
8 Q. And have you been retained by the
9 Staff in this proceeding?
10 A. Yes, I have.
11 MR. HOWELL: May I approach the
12 witness?
13 COMMISSIONER KJELLANDER: Without
14 objection.
15 Q. BY MR. HOWELL: I've handed you what's
16 been marked Staff Exhibit No. 11. Is this a brief
17 outline of your background, experience, and
18 qualifications?
19 A. Yes, it is.
20 MR. HEFFNER: May it please the
21 Commission, Mr. Howell, I trust this is the same
22 document that Mr. Plaistow brought by earlier today?
23 MR. HOWELL: I've marked it for
24 identification Staff Exhibit No. 11.
25 MR. HEFFNER: Thank you.
43
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 MR. HOWELL: And I guess, for the
2 record, that the Staff has provided the Applicant --
3 the Railroad -- in this matter advanced copies of
4 all the exhibits on or around noon today, so that is
5 why I've not handed a copy of the exhibit that I
6 just handed to the other parties to Mr. Heffner.
7 MR. HEFFNER: Members of the
8 Commission, the documents that I was given today I
9 assume around noon include the qualifications of
10 Mr. Plaistow -- I hope I'm pronouncing it correctly,
11 or close to it -- and a -- some material that
12 appears to run -- it's identified as Exhibit No. --
13 looks like Exhibits 1 through 7, I'll take a guess
14 and say it's about ten pages long, which
15 Mr. Plaistow personally delivered. I don't know if
16 there are any other exhibits other than this
17 material.
18 COMMISSIONER KJELLANDER: Mr. Howell.
19 MR. HOWELL: This witness has no other
20 exhibits other than the ones that have already been
21 provided to the Applicant at his request.
22 COMMISSIONER KJELLANDER: Okay. Thank
23 you for that clarification. Please proceed.
24 Q. BY MR. HOWELL: How many years have
25 you been working as a financial analyst in the
44
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 transportation field?
2 A. If you consider all my jobs, about 31;
3 for Railroads, about 28.
4 Q. And what is your educational
5 background?
6 A. I have a Bachelor's in metallurgical
7 engineering, I practiced as a metallurgical engineer
8 for several years, and then I got a Master's of
9 Business Administration from the University of
10 Minnesota.
11 Q. Have you previously testified as an
12 expert before the ICC or STB?
13 A. Yes.
14 Q. Have you reviewed the Railroad's
15 Application and supporting exhibits in this
16 particular proceeding?
17 A. Yes, I have.
18 Q. Are you generally familiar with the
19 location of the Grangeville line, or the Second
20 Subdivision?
21 A. Yes, I am.
22 Q. Have you personally high-railed the
23 line?
24 A. Yes, on March 15th, I high-railed the
25 line for that day.
45
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. In preparation for today's proceeding,
2 have you had occasion to prepare a number of
3 exhibits?
4 A. Yes, I did.
5 MR. HOWELL: May I approach the
6 witness?
7 COMMISSIONER KJELLANDER: Please.
8 Q. BY MR. HOWELL: I've handed you and
9 the other parties and previously distributed to the
10 Railroad what's been marked as Staff Exhibit 1,
11 Staff Exhibit 3, and Staff Exhibit 2, so it's Staff
12 Exhibit 1, 2, and 3. Do you have those in front of
13 you?
14 A. Yes, I do.
15 Q. Could you generally explain what
16 Exhibit No. 1 is?
17 A. Okay. The way I looked at my job of
18 reviewing the financial part of the Application was
19 to say I start with a known set of finances that
20 correspond to the Railroad as a whole, and then the
21 job of both the Application and my job was to
22 determine which part of that overall Railroad
23 numbers are applicable to the Second Subdivision.
24 And the single question that I tried to answer is
25 Does the line have a potential for profitability?
46
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 The problem I have and the problem
2 that the Railroad does not have is that they are the
3 only source of the information. I am totally
4 dependent on them to find out the facts that help me
5 determine what portion of the Railroad overall
6 finances are applicable to the Second Subdivision.
7 As part of their Application, they
8 filed something they called Exhibit N, which is
9 basically the income account for the Railroad in
10 substantial detail; and my job is to take a part of
11 Exhibit N and attribute it to the Second
12 Subdivision. And the end point of that process for
13 both CSPR -- Camas Prairie -- in their Application
14 and for me in my Exhibit 1 was Exhibit 1.
15 Exhibit 1 puts their calculations of
16 how much is attributable to the Second Subdivision
17 side by side with my calculation. It's the
18 summation of all my answers. And I purposely put
19 Exhibit 1 first, because I wanted to talk about the
20 final answer, and then subsequent exhibits talk
21 about how each one of the steps was calculated, and
22 then I'll talk about how each one of those
23 succeeding exhibits are taken forward into Exhibit 1
24 and come up with a bottom-line answer.
25 Q. And have you formed a preliminary
47
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 analysis of whether this rail line is profitable or
2 not?
3 A. Yes, I have. I have concluded that it
4 is profitable.
5 The real question that I have to
6 address is What are the appropriate methods to
7 select from the overall Railroad's finances, the
8 portion that goes to the Second Subdivision. The
9 regulations of the Surface Transportation Board
10 speak to that very plainly and very explicitly.
11 They say that the Camas Prairie, in order to meet
12 their burden of proof, is supposed to provide actual
13 data permitting that split. The Camas Prairie again
14 is the only party that has the data necessary to
15 make that split.
16 Camas Prairie did not provide any
17 actual information. While the regulations of the
18 Surface Transportation Board permit the Camas
19 Prairie to talk about normalized values for the
20 forecast year, they do not permit normalized values
21 for the base year.
22 They were supposed to establish
23 that -- in order to be granted an abandonment, they
24 were supposed to establish that they are suffering a
25 loss due to the Second Sub. I plan to show that the
48
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Camas Prairie is not suffering a loss. I will show
2 this by discussing each revenue source and each
3 expense that Camas Prairie may properly charge
4 against the Second Subdivision.
5 Another way of viewing the question is
6 what revenues will Camas Prairie lose by abandoning
7 the Second Subdivision and what expenses will they
8 save. I conclude that the lost revenues exceed the
9 reduced expenses, and that both Camas Prairie and
10 the shippers would be better off if the Camas
11 Prairie is required to continue operating in the
12 Second Subdivision.
13 Q. Can you point to a page and a line on
14 your Exhibit 1 which shows your calculations of
15 profitability?
16 A. Yes.
17 Q. On Exhibit 1, page 2 of two, they
18 concluded in Column 5 that the Camas Prairie
19 currently loses $1,013,213.
20 Q. And that's on line 18?
21 A. That's on line 18.
22 And alongside that, I conclude that
23 the Camas Prairie profits $232,428, so I conclude
24 that the Camas Prairie Second Subdivision is
25 profitable.
49
HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. And that profitability is based on
2 using the Camas Prairie carload count?
3 A. Yes.
4 Q. And what is Column 6?
5 A. Column 6. Okay, you mentioned Camas
6 Prairie carload count. I show later what that is,
7 but my Column 4 uses that carload count. And in
8 Column 6, I used the carload count from an assembled
9 group of forecasts that were provided to us by the
10 shippers. And if you include those additional
11 carloads that we got from our shipper survey, the
12 profit goes from 232,428 with the Camas Prairie's
13 carload count to 277,630 with our survey, and the
14 carload's consistent with that survey.
15 Q. A moment ago, you were talking about
16 the difficulty obtaining actual costing expense data
17 from the Railroad. Can you give the Commission some
18 examples of what you mean?
19 A. Okay. The most important example is
20 maintenance of way.
21 Q. And that's shown on page 1, line 5.a.,
22 in your Exhibit 1?
23 A. Right. I conclude that the
24 maintenance of way in the base year should be
25 $171,575, and they concluded that maintenance of way
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 for the Second Subdivision in the base year should
2 be $890,013.
3 The regulations specified in
4 Section 1152.33 specifies that maintenance of way is
5 supposed to be actual information. And now I'm
6 referring to some of the information I have in
7 Exhibit 2. Right now I'm talking about Line No. 3,
8 where in the base year, what Camas Prairie has done
9 is they have not provided the actual maintenance of
10 way that the Camas Prairie Railroad spent on the
11 Second Subdivision in 1999. What they did was they
12 estimated what the normalized maintenance should be,
13 and to that, they added rehabilitation costs.
14 Again, the base year is supposed to be what was
15 actually spent, not what they should have spent, and
16 it's very questionable and I'll point out why even
17 when they say they should have spent 890,000 that
18 doesn't square with reality.
19 One of the main points there is that
20 they have added normalized maintenance to
21 rehabilitation cost, but the only cost that can be
22 included, according to the STB regulations, is the
23 cost necessary to bring the track and structures to
24 Class 1, and I'll show later that several witnesses
25 from the Camas Prairie Railroad already say that the
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 track and structures already exceed Class 1
2 standards.
3 The classes that I'm referring to are
4 the Federal Railroad Administration classes, and
5 those classes aren't graduated one, two, three,
6 four, with the higher numbers being better. They
7 basically go from one to nine. But one important
8 factor is that if your -- if your track is FRA
9 Class 1, you're permitted to operate at ten miles
10 per hour over it; if your track is FRA Class 2,
11 you're permitted to operate at up to 25 miles per
12 hour. And at a number of points, all the parties
13 agree that the Camas Prairie Railroad is basically a
14 FRA Class 2 Railroad.
15 Q. And when you say, "All the parties,"
16 are you referring to page 7 of the Application?
17 A. Yes.
18 Q. Okay.
19 A. Then I wanted to be a little bit
20 specific about what the word "actual" means in the
21 STB regulations. In determining the calculation of
22 avoidable costs, Section 1152.32 states When the
23 term "actual" is specified as the basis for
24 assigning an expense, it shall mean that the only
25 costs which can be assigned to the account are those
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 costs which are incurred solely as a result of
2 continuation of rail freight service on the branch.
3 Where the Regs permit allocations in
4 certain cost categories, it has to be on the basis
5 of actual operations, and the Camas Prairie's
6 Application has not done this. For instance, for
7 allocating maintenance of equipment, the Regulations
8 state that to determine actual costs, the correct
9 procedure is to measure the number of locomotive
10 gross ton miles that were actually operated over the
11 Second Subdivision and compare that to the total
12 locomotive gross ton miles over the total Camas
13 Prairie, and a ratio of those two is used to
14 multiply by the total expenses related to the
15 maintenance of the locomotives, and that is what is
16 determined to be the actual maintenance of way
17 attributable to the Second Subdivision.
18 What Camas Prairie did is not that at
19 all. What they did was they estimated that they
20 will be able to remove two locomotives if they're
21 allowed to abandon the Second Subdivision. And then
22 they said that, We're going to remove two, we have
23 seven total, so we'll take two-sevenths of all
24 expenses and multiply it by the total expenses for
25 the Railroad, and that's what we'll call the
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 avoidable cost in the Second Subdivision. It
2 doesn't meet with the requirements of the Surface
3 Transportation Board.
4 Q. And the difference that you're talking
5 about is indicated on Line No. 1 in your Exhibit
6 No. 2?
7 A. Yes.
8 Q. Have you prepared an exhibit that
9 shows the actuals versus the normalized or estimates
10 used by the Railroad?
11 A. Again, that's -- that's where the
12 problem is. The Regulations require the Railroad to
13 provide the actual information. The Railroad is the
14 only one that can possibly provide the actual
15 information. So, it was not possible for me to
16 provide the actual information.
17 What I have done is gone through each
18 one of the expense items and done my analysis on
19 what I think would really happen, and I've had to do
20 something akin to what they did, which is make an
21 estimate of what it would be.
22 But, again, it's their burden to
23 provide the actual information. They're the only
24 ones who have that information.
25 Q. So, for instance, referring to your
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Exhibit No. 3, Item A on page 1 which says
2 Maintenance of Way, it's your analysis that the
3 expenses attributable to maintenance of way and
4 structures was 171,000, versus the Railroad used a
5 normalized number of 890,000, or a difference of
6 718,000.
7 Can you outline for the Commission or
8 explain to the Commission how you made your
9 calculation to arrive at 171,575?
10 A. Right. I'm going to stress to the
11 point of being boring that the numbers in the base
12 year are supposed to be actual.
13 For the entire Camas Prairie Railroad
14 in 1999, Camas Prairie spent $628,480 in 1999.
15 Q. And is that shown on page 2 of
16 Exhibit 3, Section A, line 1a?
17 A. Yes.
18 And so what kind of proration can you
19 do on 628,000 to make it be 890,000? The answer is,
20 you cannot, which basically all by itself proves
21 that the 890,000 is not actual expenditures in 1999.
22 The importance of providing actual
23 numbers in the base year is that a good indicator of
24 what you would expect in the future is what was done
25 in the past. The Second Subdivision of the Camas
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Prairie has been the same for quite a while: It's
2 had 43 bridges for a long time, it's been the same
3 length for a long time. In 1999 they spent 628,000,
4 in 1998 they spent 601,000 on the entire line, so it
5 makes sense that what they actually spent on the
6 Second Subdivision was something substantially less
7 than the 628,000.
8 So what I did, since they didn't
9 provide me the actual information, I said that the
10 best information I have is shown on page 2 of two of
11 Exhibit 3, and that's saying that the Second
12 Subdivision has 66.8 miles and the total Camas
13 Prairie has 245 miles, so I've taken that ratio and
14 multiplied it by the amount that they spent on the
15 entire system of 628,000, and the result of that is
16 171,575.
17 And I would like to suggest that if
18 the Camas Prairie disagrees with that number, then
19 it's their requirement to show me what the actual
20 number is. Without having been provided with the
21 actual number, the only thing I can do is estimate
22 it.
23 Q. Do you anticipate asking the Railroad
24 to provide you with the actual data?
25 A. Yes, I do.
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 And I also would like to make a couple
2 other points about their $890,000 number:
3 I'd like to stress again that in --
4 even in the forecast year where the Railroad is
5 allowed to say that we don't necessarily have to be
6 guided by the past, they're allowed to include in
7 their maintenance-of-way figures rehabilitation
8 costs. And that's saying that in certain cases,
9 some branch lines are abandoned and they go through
10 this same stage and they're in very poor shape, and
11 it would take quite a bit of money to bring it up to
12 Class 1 standards. In this case, the entire Second
13 Subdivision already equals or exceeds that, so
14 obviously there is no rehabilitation cost required
15 to bring it up to that.
16 The STB publishes an overview of how
17 abandonments ought to be addressed, and there -- I
18 quote -- Usually only those rehabilitation costs
19 necessary to meet Federal Railroad Administration
20 minimum Class 1 standards are allowed.
21 In Camas Prairie's Application at
22 page 12 in describing the calculation of the
23 estimated subsidy payment, this is what they say:
24 The Applicant is to state the
25 calculation basis, including necessary maintenance
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 to comply with minimum FRA Class 1 safety standards,
2 shall be stated with particularity.
3 Also at page 9 of their Application,
4 they state:
5 The track does not require
6 rehabilitation to meet FRA Class 1 standards.
7 Again, I'm quoting from the Camas
8 Prairie's Application.
9 At page 7 of the Application, they
10 state:
11 The line to be abandoned is classified
12 as FRA Class 2, authorizing a maximum train speed of
13 25 miles per hour.
14 So even on the basis of their own
15 Application, all the Second Sub exceeds Class 1, so
16 there is no rehabilitation cost required to bring it
17 up to Class 1.
18 There is no deferred maintenance of
19 way, and historical maintenance of way is a good
20 guide in that case to determine what the normalized
21 maintenance of way. And that's what I've tried to
22 calculate by doing the mileage prorate of what Camas
23 Prairie actually spent in 1999.
24 MR. HEFFNER: Members of the
25 Commission, can I interject something for a second?
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 I'm perfectly willing to stipulate that we've said
2 that we have no track rehabilitation cost because
3 the line is in excess of Class 1 standard, and I
4 don't know that we need to belabor this point.
5 The point that we're making is that
6 the bridge structure, rather than the trackage,
7 maybe some trackage on the structure, but the --
8 we're not including any rehabilitation figure for
9 trackage, just ordinary trackage, and so in all
10 deference to Mr. Plaistow's testimony, I don't know
11 that we need to belabor that point because we'll
12 concede that rather our rehabilitation figure is
13 based upon the bridge report by Parsons Brinckerhoff.
14 MR. HOWELL: And, Mr. Chairman, rather
15 than stipulate, maybe we can move ahead given the
16 interest of time and go on to have Mr. Plaistow
17 discuss if you have any more to discuss about the
18 maintenance of way and the Parsons report versus the
19 requirement for actuals.
20 COMMISSIONER KJELLANDER: Mr. Howell,
21 before you go on, I'd like to inform you of what the
22 Commission's intent is, and that is to take a dinner
23 break before the six o'clock public hearing, because
24 we don't want to keep the public waiting this
25 evening. And the intent would be then when we
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 recess this technical hearing to come back at six
2 for the public hearing, and then immediately
3 following the public hearing continue with this
4 particular proceeding.
5 So with that, what I'd like to ask is
6 if you have any estimate of time with regards to how
7 much more testimony you intend to put on the record
8 with this witness.
9 MR. HOWELL: I would think about
10 15 minutes, Joe?
11 THE WITNESS: And I would think the
12 biggest question is how much more time that
13 Mr. Heffner will take.
14 COMMISSIONER KJELLANDER: Well, in all
15 due respect, he's entitled to cross-examination as
16 much as is necessary.
17 Did you say, Mr. Howell, 50 minutes or
18 15?
19 MR. HOWELL: Fifteen.
20 COMMISSIONER KJELLANDER: Fifteen.
21 MR. HOWELL: I mean, again, in the
22 interest of time, I think the witness's Exhibits 2
23 and 3 point out the major differences between the
24 Staff and the Railroad's calculation of expenses and
25 avoidable cost.
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 COMMISSIONER KJELLANDER: Mr. Howell,
2 let's proceed then if you think it will be 15
3 minutes.
4 THE WITNESS: Okay. I can continue on
5 with --
6 MR. HEFFNER: Members of the
7 Commission, for a second? I'm not quite sure how
8 long my presentation would run. I'm just guessing
9 offhand 30 minutes.
10 I don't have a problem if what you
11 want to do is have Mr. Plaistow finish up in 15
12 minutes, and then I will have my -- my bite of the
13 apple, shall we say, maybe along about eight o'clock
14 tonight. That's acceptable to me, but I certainly
15 will want to ask him some questions.
16 COMMISSIONER KJELLANDER: Certainly.
17 MR. HEFFNER: And I do have one other
18 question to ask, and that is, does the Idaho PUC
19 have any witness, either now or at six p.m., who
20 will document the additional traffic levels arising
21 out of the shipper -- shipper request form or the
22 shipper survey form? In other words, is there
23 someone I can cross-examine about the shipper survey
24 form?
25 MR. HOWELL: This witness has used the
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 higher Staff number. In a later exhibit, it will
2 indicate that number. So this is that witness.
3 COMMISSIONER KJELLANDER: Mr. Howell,
4 Mr. Heffner, and other Intervenors, I think at this
5 point what the Commission will do is go ahead and
6 recess for a dinner break. We will then return at
7 six o'clock promptly for the beginning of the public
8 hearing, and immediately following resume with the
9 technical hearing.
10 MR. HEFFNER: That's fine.
11 COMMISSIONER KJELLANDER: With that,
12 we're off the record.
13 (The hearing was adjourned at
14 5:10 p.m.)
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HEDRICK COURT REPORTING MORSE (X)
P.O. BOX 578, BOISE, ID 83701 Staff