Paul R. Hitchcock is Senior Policy Advisor based in Holland & Knight's Jacksonville office

The unintended consequences of regulatory action may sometimes come as a surprise, but often there are clues that could inform decision makers—if they know where to look.

Two colossuses of the rail industry, Union Pacific Railroad (UP) and BNSF Railway Company, are butting heads over UP's right (or lack of a right) to perform switching operations on a BNSF main line in Washington state. As readers of this blog are certainly aware, each privately-owned railroad operates over its own proprietary rail lines, and only in limited cases does the owner share rights to use its tracks with another railroad. Such an arrangement—called trackage rights—was entered into by predecessors of UP and BNSF in 1909. The purpose of the arrangement was to allow each railroad to reach and serve a jointly-owned switching railroad which picks up and delivers traffic to customers on behalf of both UP and BNSF.

By prior practice, UP exercised its trackage rights to reach the switching railroad by stopping its train on BNSF's main line, leaving some cars on the main, and then delivering and picking up cars from the switching railroad. In 2014, BNSF began constructing a new third main line through this portion of its network. During the construction, UP changed its operations to add more, shorter trains that would not require it to leave cars on the main.

After the construction was completed, UP resumed its former operation, but in April of 2018, BNSF advised UP that it must no longer block any of the main line tracks in order to perform the switching movement. Because the owner of a rail line controls operations on its tracks, UP must comply with BNSF's directions. Unable to resolve their differences, the two railroads moved to private arbitration under the trackage rights agreement.

Arbitration is generally quicker than the courts, but it is not instantaneous. Dissatisfied with the new status quo, UP went to the Surface Transportation Board (STB) asking it to issue a declaratory order and a preliminary injunction permitting UP to conduct operations pursuant to its interpretation of the trackage rights agreement until the arbitration could be concluded.

The issues before the STB had little to do with how the two railroads should operate. The questions the agency had to decide went to whether UP had presented a sufficient basis to entitle it to a preliminary injunction. Fundamentally, the agency concluded that UP hadn't made a sufficient showing that the operations directed by BNSF would cause UP irreparable harm. Hence, UP won no interim relief.

So, what does this case have to do with the metaphorical regulatory crystal ball? Well, for some time the STB has been considering adopting a new rule that would force railroads to perform operations and use each other's tracks in the name of creating competition. Under the STB proposed rule in Reciprocal Switching, EP 711 (Sub-No. 1) a non-owner of track could seek to force the owner to perform switching operations for its benefit. Further, a customer wanting to gain access to the non-owner could also seek an order to require the owner to perform the switching operation.

The UP-BNSF dispute is characteristic of the kind of disagreements that will inevitably arise if two railroads are forced into arrangements that one, or both, don't welcome. UP has operational inefficiencies if it has to run more, smaller trains to serve the customers on the switching railroad. BNSF has invested in adding capacity to its network with a third main line and doesn't want its arch competitor blocking that line, or either of the other two, to save UP money. If UP prevails, service to BNSF customers may degrade. If BNSF prevails, service to UP customers may degrade. It's a classic example of "everybody's right and everybody's wrong."

Without a doubt, the STB was happy not to have to decide on the operational merits whether UP would get its preliminary injunction or not. Some set of customers is going to be unhappy in the short run; they may or may not be the same set of customers who are unhappy in the long run after the arbitration concludes.

These kinds of railroad-railroad operating disputes will occasionally arise, but today they flow from private agreements entered into voluntarily by knowledgeable experts who are qualified to make the trade-offs that need to be made, and who fully understand how those agreements will affect their operations. If you think this dispute is a mess, just think of what will happen if the STB adopts government-compelled switching.

The case is docketed as Finance Docket No. 36197, Union Pacific Railroad – Petition for Declaratory Order and Preliminary Injunction.

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