PUCOrder.dh.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF CAMAS PRAIRIE RAILNET’S APPLICATION TO ABANDON
THE SPALDING-GRANGEVILLE BRANCH IN LEWIS, IDAHO, AND NEZ PERCE COUNTIES. )
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) CASE NO. CPR-R-00-1

ORDER NO. 28441

On May 26, 2000, Camas Prairie RailNet (Camas Prairie or Railroad) filed an Application with the Surface Transportation Board (STB) to abandon the Spalding-Grangeville rail line (also known as the Second Subdivision). The STB is an agency of the U.S. Department of Transportation and is authorized to grant or deny rail line abandonments. 49 U.S.C. ( 10903. According to the Railroad’s Application, the rail line proposed for abandonment extends 66.8 miles from Spalding in Nez Perce County to Grangeville in Idaho County. The rail line generally serves shippers located in or near the communities of Grangeville, Cottonwood, Ferdinand, Craigmont, Reubens, Culdesac, Lapwai and Spalding.
On June 5, 2000, the Commission issued a Notice of Application and a Notice of Hearing. In Order No. 28408 issued June 12, 2000, the Commission also scheduled a technical hearing to precede the public hearing. The combined technical and public hearing was held on June 19, 2000 in Craigmont. The purpose of the hearing was to determine whether abandonment of the Grangeville line would be adverse to Idaho’s public interest. Based upon the evidence received at our Craigmont hearing, the Commission concludes that abandonment of the Grangeville line is contrary to Idaho’s public interests.
BACKGROUND
A. The Abandonment Application
In its Application, Camas Prairie cites two primary reasons for submitting its abandonment application. First, the Railroad asserts that the line does not generate sufficient rail shipments (i.e., revenue) to warrant its retention. Application at 1, 3. Second, the Railroad asserts that prospects for any future growth and development of traffic on the line are poor. Id. at 1-2. Consequently, the Railroad maintains that the Grangeville line does not generate sufficient revenue to meet its expenses and provide a reasonable profit.
In its Application, the Railroad reports that its car traffic for the 1999 calendar year (commonly referred to as the base year) was 2,101. Including new rail traffic attributable to U.S. Timber Company’s mill in Craigmont, the Railroad estimates that there will be 2,621 car shipments in the forecast year (June 1, 2000 through May 31, 2001). Application Exh. 1, n. 2. The Railroad estimated that it will receive approximately $1.43 million in revenue in the forecast year. This compares to its projected expenses and costs of approximately $1.985 million. In particular, Camas Prairie alleges that its projected expenses for maintaining the track and structures on the Grangeville line will be $890,000. Exh. 1, p. 1.
Camas Prairie calculates that the right-of-way (ROW) for the Grangeville line contains approximately 1,324 acres. The Railroad maintains that it “owns in fee” about 78.5% of the ROW or approximately 1,039 acres. The Railroad asserts that 21.5% of the ROW is subject to various reversionary interests. According to the Railroad’s appraiser, the value of the 1,039 acres is approximately $1.3 million. The appraiser calculated that the net liquidation value (NLV) of the Railroad’s non-reversionary property (allegedly property it owns) is $758,000. Application at Exh. Q. He also estimated that the salvage NLV of the track, ties and other track structures minus the cost of salvage is $1.8 million. Id.
B. The Purpose of the Hearing
As the Commission has stated many times, the abandonment of rail lines and the discontinuance of rail services are governed by federal law. The authority to grant or deny the abandonment of rail lines rests with the Surface Transportation Board and not with this Commission. However, Idaho Code § 62-424 requires that the Commission schedule a public hearing to examine the proposed abandonment. The purpose of the public hearing is for the Commission to determine whether the abandonment would: (1) adversely affect the area being served; (2) impair the access of Idaho shippers to vital goods and markets; and (3) whether the rail line has the potential for profitability. If the Commission finds that the abandonment would adversely affect the area being served and that the line has the potential for profitability, then the Commission may represent the State in the STB abandonment proceeding.
THE HEARING
A. The Parties
Prior to the hearing, the Commission received two petitions to intervene: one filed by the United Transportation Union (UTU) and the other filed by the Idaho Barley Commission. Without objection, the Commission granted intervention to the UTU and the Barley Commission. Tr. at 3. At the hearing, the Railroad and the Commission Staff were represented by counsel. The UTU was represented by its chairman and past director of its State Legislative Board. Although the Barley Commission was granted intervention, it did not participate as a party. However, the chairman of the Barley Commission did testify during the public hearing.
B. The Technical Hearing
At the Commission’s technical hearing, Camas Prairie did not present any witnesses or offer any evidence. Tr. at 5. The UTU offered a written statement. The Commission Staff offered two witnesses: Ed Morse (a real estate appraiser) and Joseph Plaistow (who testified in the area of railroad accounting and financials).
1. Land Value. Mr. Morse explained that he is a certified general appraiser licensed in the State of Idaho with 27 years of experience in the valuation of all types of real property. Tr. at 8. He testified that he has previous experience in appraising railroad right-of-way (ROW) property and has reviewed the Railroad’s net liquidation value (NLV) real estate appraisal included as part of the Application. Tr. at 9. He noted that the Railroad’s appraisal calculated the NLV for the ROW property owned by the Railroad to be $758,000. Mr. Morse asserted that that figure is “substantially too high” for several reasons.
First, the Railroad’s appraisal does not mention or acknowledge that approximately 47 miles of the ROW lies within the boundaries of the Nez Perce Indian Reservation. Tr. at 13. The presence of the Indian Reservation as a “separate, sovereign jurisdiction” clouds the ownership of the ROW and calls into question the Railroad’s claim that it owns 78% of the ROW property. The unsettled question of title and jurisdiction, seriously undermines the Railroad’s gross valuation for land ($770,000) that it claims it owns within the boundaries of the Reservation. Tr. at 15.
Second, Mr. Morse introduced Staff Exhibit 12 which was the April 1998 quit claim deed in which the former owner of the Camas Prairie Railroad conveyed the ROW to Camas Prairie RailNet. He explained that the quit claim deed, as compared to warranty deed, raises certain questions about the nature and quality of title that was actually transferred. Tr. at 17. For example, he explained that the deed reserves to the former owner the rights to extract minerals (including sand and gravel) and water rights on the ROW property. Tr. at 17, Exh. 12. He also noted that the quit claim deed reserved to the former owner(s) the non-exclusive ability to convey easements for pipelines and fiber optic communications. Tr. at 17-18. Given these reservations in the quit claim deed, he concluded that these reservations would further reduce the NLV value of the ROW. Tr. at 18.
He next testified that the quit claim deed only purports to convey 66.5 miles of ROW not the 66.8 miles as stated in Camas Prairie’s Application. In other words, the three tenths of a mile may affect the Railroad’s title to property in and near Grangeville. Tr. at 19. This ROW parcel was classified by the Railroad’s appraiser as best suited for industrial use and had the highest per-acre appraisal price of $2,500/acre. App. Exh. R (parcel No. 26).
Fourth, he noted that the appraisal makes no mention of a number of other significant issues which would depress land values and make the property more difficult to sell. More specifically, he noted that about 15 miles of the ROW and track is immediately adjacent to and crosses Lapwai Creek. Tr. at 21. Lapwai Creek is a critical spawning stream for the steelhead trout—a federally protected and threatened species. Tr. at 20. He estimated that removal and salvage of track and other materials will incur “extra time and extra costs” necessary to protect the endangered species. Tr. at 20. In addition, he noted that maintenance of the railroad bed and track had altered the hydraulics of the stream and that the track is located in the Creek’s flood plain. Consequently, merchantability of ROW claimed by the Railroad for this portion of the ROW is “a highly tenuous, questionable conclusion.” Tr. at 21.
Finally, Mr. Morse also opined that the presence of bridges and tunnels presents issues of substantial liability which in turn affect the value and marketability of property owned by the Railroad. Tr. at 22. Based upon his preliminary review of the Railroad’s NLV appraisal and the concerns noted above, he concluded that the NLV for the Railroad’s ROW is more appropriately valued between $250,000 and $500,000. Tr. at 23. For purposes of calculating profitability, the Staff used a figure of $400,000. Exh. 8.
On cross-examination by the Railroad’s counsel, he acknowledged that he has not thoroughly resolved the issue of land values or ownership for that portion of the ROW which traverses the Nez Perce Indian Reservation. Tr. at 34. Mr. Morse could not specifically say what percentage of the ROW property he thought was reversionary. Tr. at 36.
Commission Findings: We find it perplexing that the Railroad’s real estate appraisal fails to mention the fact that much of this rail line passes through the Nez Perce Indian Reservation. This fact alone raises serious questions about the Railroad appraisal. In addition, we find that the marketability and value of the lower portion of the line (MP 0.0 to 15) is reasonably depressed by the presence of a threatened species. We also find that the reservations contained in the quit claim deed and the conveyance of only 66.5 miles further reduces the value and marketability of the ROW. Finally, we also find the flooding of Lapwai Creek and the presence of tunnels and large timber structures further depress the value of the ROW.
2. Profitability. The Staff next presented the testimony of its economic consultant, Joseph Plaistow. Mr. Plaistow is Vice President of L.E. Peabody & Associates and has approximately 31 years of experience working with the railroad industry as a financial and accounting analyst. Tr. at 44-45. After reviewing the Railroad’s Application, it was his preliminary conclusion that the rail line in question has a potential for profitability. Using Camas Prairie’s traffic data, he calculated the Railroad would receive a profit in the forecast year of $232,428, or $277,630 using the shippers’ traffic estimates. Tr. at 48; Staff Exh. 1, p. 2.
He explained that his review of the Railroad’s financial materials was hampered by the fact that the Railroad’s Application did not provide the actual amount of expenditures for several important expense categories in the base year. Staff Exh. 2; Tr. at 48. He testified STB’s regulations (49 C.F.R. ( 1152.32) specifically require that the Railroad provide its actual expenses. See Exh. 2. For example, the Railroad alleged that it will expend $890,013 to maintain the track, structures and bridges on the line. However, the entire Camas Prairie in 1999 actually spent $628,480 for maintenance of way. Tr. at 55; Exh. 3, Sec. A, Line 1A. In other words, the Railroad will allegedly spend approximately $260,000 more on just the Grangeville line’s maintenance of way than it actually spent on its entire system in 1999. Id.
Mr. Plaistow stated that using actual costs from the base year is “a good indicator of what [expenses] you expect in the future ….” Tr. at 55. He indicated that it was unrealistic to assume that the Railroad would spend more on a single subdivision than it spent on its entire 4-line system. Consequently, his calculation for maintenance of way was calculated by allocating the actual base year maintenance expenses over the entire railroad, divided by total track miles to arrive at his actual maintenance of way costs of $171,575. Tr. at 56; Exh. 1.
He also asserted that Camas Prairie over-stated its off-branch costs. In essence, he asserted that the Railroad “double counted” the costs. Tr. at 216. He explained that in calculating the expense of maintaining locomotive equipment, the Railroad projected that it would eliminate two locomotives. However, the two locomotives did not operate exclusively on the Grangeville line. Because “they have already subtracted those [total] expenses on-branch[,] they are not permitted to additionally subtract them off-branch.” Tr. at 217.
His Exhibits 6 and 7 compared the revenue from car rail shipments using the Railroad’s traffic estimate in the forecast year and traffic data he acquired from the shippers. Whether using the Railroad’s traffic in the forecast year or the Staff’s traffic forecast, he concluded that the Railroad will be profitable in the forecast year. Exh. 1, p. 2; Exh. 7, p. 2 of 5.
Mr. Plaistow next explained his calculations of the net liquidation value (NLV) for the line (land, track, freight cars). His Exhibit 8 shows the preliminary NLV information of the land and track materials. Based upon Mr. Morse’s land valuation and Staff’s preliminary estimate of the NLV value for track and freight cars, he reported that the Staff’s total NLV was $1.739 million. This figure compared to the Railroad’s total NLV figure of $2.66 million. Exh. 8, Sec. C. Even using the Railroad’s estimate of the NLV for track material, it only decreases profitability in the forecast year by $47,641. Tr. at 220, 225; cf. Exh. 1.
On cross-examination he was asked whether it was reasonable to utilize a per mile allocation given the number bridges and tunnels on the Grangeville line. Tr. at 231-32. He replied that actual, historical expenditures are the best indicator of future costs. He did concede that some of the shipper surveys reflected traffic from points that are not on the Grangeville line. Tr. at 236-37. However, he concluded that even using the Railroad’s higher NLV estimate for track ($1.8 million) and using the Railroad’s car count, the line was still profitable. Tr. at 238.
Commission Findings: We find that the Commission Staff presented sufficient testimony to demonstrate that the Railroad has a potential for profitability. Whether using the Railroad’s car forecast or the shippers preliminary car forecast, the Staff’s financial expert demonstrated that the line has a potential for profitability. As Mr. Plaistow pointed out, the Staff’s examination of this issue was made more difficult by the fact that the Railroad did not record its actual operating expenses as required by the STB regulation (49 C.F.R. § 1152.32). Nevertheless, we find his allocations based upon actual costs to be more realistic and appropriate. We further find that the Railroad did “double count” in its calculation of on-branch and off-branch costs.
C. The Public Hearing
Twenty-seven (27) witnesses testified at the Commission’s public hearing. The Commission received statements from members of Idaho’s Congressional delegation, members of the Legislature, local government officials, economic development associations, chambers of commerce, historical and farm organizations, and other interested persons.
Senator Larry Craig’s representative indicated that this rail line is important not only for the ability to provide low-cost transportation but it also affords shippers the ability to compete and market their products internationally. Tr. at 136. Matt Miller submitted a statement on behalf of Congresswoman Chenoweth-Hage. Tr. at 96. The Congresswoman indicated that abandonment would discourage companies from investing in the area, require grain shippers to absorb higher transportation costs, and increase traffic congestion on the area highways. Abandonment would “constitute a major step backwards for Idaho’s local economy. The negative impacts of the abandonment would be especially apparent in Idaho, Lewis and Nez Perce Counties whose livelihood depend upon agriculture and resource industries.” Tr. at 95-96.
State Representatives Charles Cuddy and Twila Hornbeck both expressed concerns that the abandonment would adversely impact an area already economically depressed. Tr. at 71, 110-101. Vern Driver read a statement on behalf of State Senator McLaughlin. She testified that the abandonment of the Railroad “just adds one more nail in the coffin for the resource-based businesses that depend on the line to deliver their product.” Tr. at 79-80. Not only would rail shippers have to pay more for truck transportation, the impact of additional trucks would have an adverse affect on “already inadequate highways we have in this area.” Tr. at 80.
The President of the Grangeville City Council testified that the loss of rail service will increase costs for shippers and that the City’s tax base may suffer. Tr. at 82-83. He further testified that Grangeville is struggling economically because of recent plant/facility closures. For example, he indicated that 250 timber mill jobs were recently lost. He indicated that it would be extremely difficult to attract new businesses if the rail line was abandoned. Tr. at 84. He also indicated that additional traffic from the transportation of grain would adversely affect the City’s streets (Tr. at 84) and that the increased truck traffic on U.S. 95 will increase the risk of near fatal and fatal accidents on this highway. Tr. at 85. Unemployment in Idaho County is nearly 10.8%, the fifth highest in the state.
The Idaho Farm Bureau indicated that loss of the Railroad would mean that barley and lentil producers would lose access to their markets. Tr. at 107. It also expressed concern about traffic safety, the increased highway traffic, and uncontrollednoxious weeds. Tr. at 107. Todd Marek testified on behalf of the Grangeville Economic Management Team. He indicated that discontinuance of service would seriously affect rural communities such as those in Grangeville and Idaho County. Tr. at 119-21. Donald Johnston testified that the Railroad derived revenues from movie producers and motor car associations that used the line. It was his understanding that the Railroad charges $100 per car per day to be on the railroad and that one such group is currently spending three days on the Grangeville line. In addition, when they stopped in Craigmont for lunch, they spent nearly $600 in a single day in 1998. Tr. at 124-25.
Delores Davisson testified that abandonment would injure future growth and development. For example, the potential of offering speeder car tours would be an additional economic boost for the area and provide money for the Railroad. Each of the 30-40 speeder car riders spend about $200 a day in the local economy. Tr. at 127. There is also the dinner car train and developing educational programs using grants from the Albertsons Foundation. Tr. at 128. Just as other shortlines or railroads have developed scenic railroads so could the Camas Prairie. Tr. at 128-29. She said the trestles and tunnels “have been noted by a nationally-recognized railroad historian as being extremely rare surviving properties, and the line in its entirety is a historical engineering achievement that can be found nowhere else in the entire United States.” Tr. at 129-30. Given the upcoming bicentennial of the Lewis & Clark Expedition, the area is ripe for additional historic travel. Jamie Edmonson testified that between 2003-2006, an estimated 4-9 million people will visit Idaho as they trace the path of the Lewis & Clark Expedition. This will provide a wonderful opportunity to increase eco-tourism and possibly rail revenues. Tr. at 133.
Dodd Snodgrass from the Clearwater Economic Development Association testified that abandonment of the rail line would be detrimental to rural and community development. He said that cooperative solutions are needed to maintain rail service and achieve economic diversity. Tr. at 155. He also mentioned another economic threat to the region if the Snake River dams were breached. Loss of the Railroad combined with the potential loss of barge transportation, “creates a real precarious and destabilizing transportation system which equates to lost economic potential.” Tr. at 156. Thomas Eier testified that 40 speeder cars had paid $60 each to run their cars on the entire line the week of the hearing, or $24,000 for 40 cars in four days. Tr. at 196. He noted there are three cruise ships that dock in Lewiston each week unloading 600 tourists. Their passengers may be interested in taking a tourist train. Id.
Lori Cox testified representing the Grangeville Chamber of Commerce, the Grangeville Gem Team, and Save the Railroad Committee. She testified that there were 300 speeder car clubs in the United States and they operate over rail lines for an average of four to five days each trip. She helped arrange two speeder car tours over the Camas Prairie in 1999: one in May and the other in September. Tr. at 175. There are two speeder car trips scheduled this year involving 40 cars for five days in June and in July. Based on her experience in 1999, each person involved in the speeder car trips spends on average $247 per day. Tr. at 176. This translates into an average revenue of $96,600 for the local area each time there is a speeder car tour. Id. Three speeder car tours per year means $285,000 for the local economy, not to mention revenues for the Railroad. Tr. at 176. “It would be harmful to rural and community development if the abandonment of the Grangeville line was to cut off this important new source of revenue.” Tr. at 176.
She also stated that the producers of the motion picture “Wild Wild West” paid Camas Prairie $185,000 for use of the Grangeville line. Tr. at 177. During the filming, it was estimated that the film crew spent $1 million in the local area. Tr. at 178. She also mentioned the possibility of locating a straw board plant in Grangeville. The plant would provide jobs for approximately 35-50 people and approximately 35% of the particle board produced at the plant would be shipped by rail. Tr. at 179. In addition, 20-30 cars per year would be needed to carry glue or binding agent. This would all be additional traffic to the Railroad. Id.
George Patton, an area farmer, testified that loss of railroad service would hurt agricultural production. He particularly noted that all the malt barley grown on the Camas Prairie goes by rail. The reason for this is that the malting barley houses are only set up to receive rail shipments. In order for farmers to continue to ship malting barley, they would have to truck the grain to a railroad facility and reload. Tr. at 88-89. Chairman of the Barley Commission, Douglas Scoville, testified there were 670 local grain growers that would be harmed by the abandonment. He indicated that approximately 74,000 tons of barley are produced in the area and most of it moves by rail. He estimated that the loss of rail service would result in barley producers incurring a 5% increase in transportation costs plus additional handling fees. Abandonment would further stress the local economy and adversely affect highway safety and road maintenance. Tr. at 140-42.
Past Lewiston Grain Growers’ (LLG) Board Chairman and Grain Producers’ representative Bill Floury, disclosed that in 1993 LGG invested $523,000 in the Craigmont LGG elevator to load grain onto rail cars. Tr. at 189. He also mentioned that the upgrade to the Fenn elevator was now held pending the Railroad Application. Tr. at 190. He said the barley growers and shippers have a particular interest in seeing the railroad maintained. More specifically, shippers were willing to make concessions and that further negotiations and discussions might be fruitful. Tr. at 190-92.
Dennis Tanikuni from the Idaho Farm Bureau was “intrigued that after only two years of ownership in an environment of increasing real and potential shipments, Camas RailNet has declared the line unprofitable and applied for abandonment.” Tr. at 199. He said that the Grangeville line was a vital element of the North Central Idaho economy. Tr. at 198.
Commission Findings: The testimony received at our public hearing from shippers, interested organizations and state/county/federal officials compels us to conclude that abandonment would be adverse to Idaho’s public interest. In particular, the loss of this rail service would injure the regions’ ability to promote economic development projects and would adversely impact an area already suffering higher unemployment than the State as a whole. It is clear to us that the Railroad has not either actively investigated nor fully developed the potential for eco-tourism, e.g., scooter cars, dinner trains, and the Lewis & Clark bicentennial.
Several witnesses stated that abandonment may seriously jeopardize malt barley production in the area. They explained that malting houses receive shipments only by rail and the added transportation of costs of trucking and then reloading on a rail car at some other location would eliminate Camas Prairie growers from the malting Barley market. Based upon this testimony, the Commission finds that abandonment would restrict access of Idaho shippers to the barley markets.

SUMMARY OF COMMISSION FINDINGS
In summary, we find that abandonment of the Grangeville line would adversely impact rural and economic development on the Camas Prairie. In addition, we find that abandonment would seriously impair access to vital goods and markets, particularly, malt barley and lentils. Finally, based upon the record, we find that the rail line has a potential for profitability. Consequently, we conclude that it is appropriate for the Commission to represent the State of Idaho in the STB proceeding and oppose the abandonment.
As voiced by several witnesses at our public hearing, we are disappointed that the Railroad did not make greater efforts to improve the profitability of this line. It appears that not only is this rail line profitable but there is considerable potential for even greater returns with some additional efforts. Given the importance of the line to grain and timber shippers, further discussions with the shippers, local officials and others might have or may still be productive in maintaining rail service. Given the deficiencies in the Railroad’s reporting of its revenues as well as the opportunities to increase its non-freight revenues, we urge the Railroad to withdraw its abandonment Application.
We will urge the STB to deny this abandonment application. We will also request that the STB require Camas Prairie comply with the STB regulations regarding the submission of data. Given the expedited nature of abandonment proceedings, it is imperative for applicants to comply with the STB requirements to provide actual base year expenses. Failing to provide actual costing data unfairly disadvantages those parties attempting to participate in the abandonment proceeding. Shippers and other public participants have precious little time to review and evaluate applications. The applicant possesses the data and has the advantage of preparing the application.
O R D E R
IT IS HEREBY ORDERED that the Petitions to Intervene filed by the United Transportation Union and the Idaho Barley Commission are granted.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626

STB regulations provides that the 12 months of the “forecast year” begins with “the first day of the month in which the application is filed with the Board.” 49 C.F.R. § 1152.2(h). As previously mentioned, Camas Prairie filed its abandonment application with the Board on May 26, 2000. Accordingly, the forecast year should be between May 1, 2000 and April 30, 2001. The Railroad offered no explanation regarding the discrepancy in the forecast year.