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CN urges STB approval of EJ&E acquisition, cites overall benefit to Chicago region CN urges STB approval of EJ&E acquisition, cites overall benefit to Chicago region
Scope of CN's voluntary environmental mitigation plan unprecedented in an STB rail control proceeding
WASHINGTON, Oct. 1, 2008 — CN (TSX: CNR)(NYSE: CNI) today urged the Surface Transportation Board (STB) to promptly approve its proposed acquisition of the principal lines of the Elgin, Joliet & Eastern Railway Company (EJ&E), pointing to planned mitigation efforts and the significant economic and environmental benefits to the overall Chicago region.
CN's supporting facts and conclusions are contained in comments filed yesterday regarding the Draft Environmental Impact Statement (DEIS) on the transaction issued on July 25, 2008, by the Section of Environmental Analysis (SEA) of the Surface Transportation Board (STB).
“Our filing underscores three important facts,” said CN President and Chief Executive Officer E. Hunter Harrison. “First, none of the environmental impacts identified in the DEIS are novel, and all can be effectively mitigated.
“Second, the environmental benefits of the transaction to the overall Chicago region are positive. For every community along the EJ&E line, roughly double that number in more densely populated areas along CN lines in Chicago would see decreased rail operations, meaning less pollution, fewer idling trains, and fewer blocked crossings, resulting in a better quality of life for residents of these 60 communities.
“And third, CN's comprehensive voluntary mitigation plan addresses all significant adverse environmental effects the transaction would create, based on the sound standards that the STB has employed in previous rail control proceedings.”
CN is committed to addressing significant environmental impacts of the transaction on communities along the EJ&E. It has also participated actively in the SEA's review process and continues to work toward mutually acceptable mitigation programs with affected communities.
“Our expanded mitigation plan contains 101 specific measures to address the transaction's environmental issues,” Harrison said. “The cost of this program would now be roughly $60 million, representing a full 20 percent of the EJ&E acquisition purchase price – an unprecedented proportion for any railroad control transaction. Clearly, CN is stepping up to the plate to mitigate significant environmental issues in this case.”
In the DEIS, the SEA recommended that the STB, should it approve the transaction, require that CN comply with all of the voluntary measures listed in the initial version of CN's plan. CN invites a similar SEA recommendation for the company's expanded plan.
CN's voluntary mitigation plan is largely aligned with the DEIS findings, except for the subject of grade crossing delays. CN research shows that, on balance, the EJ&E transaction would generate a net reduction in overall crossings delays in the Chicago region of more than 83,000 hours per year.
CN takes issue with the SEA's analysis and findings on grade crossing impacts along the EJ&E. Using criteria it has never before applied in a rail merger, the SEA said grade crossing mitigation could be necessary at 15 crossings along the EJ&E. But following standards used by the STB in all previous cases, the SEA would have found that grade separations or other mitigation would be required at only two of the crossings. CN's agreement with the City of Joliet already addresses these two crossings with appropriate mitigation measures.
Harrison said: “We respectfully urge the STB to focus squarely on the environmental facts in this case, acknowledge the environmental benefits the transaction would bring to the Chicago region, and balance the impact of increased train traffic along the EJ&E line with the benefits to many more communities that will experience fewer trains.
“We hope the STB will recognize the substantial merits of CN's voluntary mitigation plan for affected communities, adopt the plan quickly and allow this transaction to close before year-end 2008 so that the wide-ranging economic and transportation benefits of the transaction can be realized.”
Backgrounder on CN's comprehensive voluntary environmental mitigation plan for EJ&E transaction
As part of its Sept. 30, 2008, filing on the Draft Environmental Impact Statement (DEIS), CN augmented the voluntary mitigation measures it provided to the Section of Environmental Analysis (SEA) on June 26, 2008, to include additional measures, as well as most measures recommended by SEA in the DEIS. CN plans to implement the proposed mitigation within three years after approval of the application or the completion of the capital improvements described in the operating plan, whichever is later.
CN's comprehensive voluntary mitigation plan includes elements in the following categories.
The DEIS found that the number of main-track train accidents on CN lines inside the EJ&E arc would decline by 77 percent as a result of the transaction, while the number of train accidents on the EJ&E line would increase by 28 per cent. The DEIS found that highway/rail at-grade crossing accidents would decrease by nine per cent and that there are no highway/rail at-grade crossings on the EJ&E line that would experience a substantial increase in accident frequency. Decreased rail traffic inside the EJ&E arc would reduce risk to pedestrians and bicyclists at 19 at-grade trail/rail crossings, while increased traffic on the EJ&E would increase the risk to pedestrians and bicyclists at 16 at-grade trail/rail crossings. The DEIS also found that passenger rail safety would not be adversely affected, and could be improved, as a result of the transaction.
If the transaction is approved, the STB would impose a condition requiring CN to comply with the terms of the Safety Integration Plan (SIP) prepared for this transaction. The Federal Railroad Administration approved CN's SIP on Sept. 12, 2008.
In addition, CN's voluntary mitigation plan includes 13 elements addressing various aspects of safety, including grade crossing protection or rehabilitation on the EJ&E line, Quiet Zone implementation, visibility at highway/rail at-grade crossings, and fencing.
The DEIS concluded that hazardous materials releases should continue to be extremely rare because of existing regulatory requirements and best-management practices. The DEIS also noted that there would be a substantial reduction in the risk of a release on the CN line because the CN lines tend to be in more densely populated areas than the areas along the EJ&E line, where hazardous materials transportation would increase.
To promote hazardous materials transportation safety, CN's plan includes 13 voluntary mitigation elements, focusing largely on training for local emergency response organizations, development of emergency response plans, and development of a spill prevention plan for hazardous materials during construction activities.
In the area of grade crossing delay, projections in the DEIS indicate that the average motorist along the EJ&E would see an increase in delay of only a few seconds per crossing by 2015 as a result of increased train traffic along the line. When looking at crossing delays in the region overall, independent analysis conducted for CN indicates a net reduction of over 200 hours per day in crossing delays or more than 83,000 hours per year.
CN's voluntary mitigation plan includes 10 elements to address crossing delay. Of particular note, only two public crossings in Joliet meet the mitigation standards used by the Board in previous cases to address traffic delays; the voluntary mitigation agreement reached in August between CN and the City of Joliet includes mitigation for these crossings and is incorporated into CN's voluntary mitigation plan. The plan also includes elements intended to reduce crossing blockages, including a commitment that CN would adhere to operating rules that provide that a public crossing must not be blocked longer than 10 minutes unless it cannot be avoided and that, if the blockage is likely to exceed this time frame, then the train shall be promptly cut to clear the blocked crossing or crossings. CN would also submit to SEA a report on the frequency and duration of train delay at crossings for a period covering the first three years of operational changes.
In the area of commuter and rail passenger service, CN's comprehensive voluntary mitigation plan includes five measures to ensure efficient operations. Of particular note:
- CN would abide by the commitment made to Amtrak concerning Amtrak's use of the St.Charles Air Line route, which would allow Amtrak to remain indifferently on this route after CN's trains are re-routed onto the EJ&E. CN would cap the cost to Amtrak for maintaining the Air Line at the current level, indexed for inflation. This would preserve Amtrak's access to Chicago's Union Station and its ability to continue to provide service to and from points such as Carbondale and Champaign, Ill.
- CN would work with Metra to explore all options for service on the proposed STAR Line, including use of the EJ&E line. CN is committed to continuing discussions with Metra, and this transaction will not jeopardize Metra's proposed STAR Line service.
With respect to emergency vehicle delay, CN's comprehensive voluntary mitigation plan includes three measures to minimize delays. These include providing upon request dispatching monitors that allow Emergency Response Center dispatching personnel to see real-time train locations and maintaining facilities for emergency communication with local Emergency Response Centers through a dedicated toll-free telephone number.
Regarding construction activities, the plan contains four elements intended to minimize disruption to nearby communities.
The DEIS did not find major adverse impacts from the transaction on land use. CN's voluntary mitigation plan includes 15 measures addressing general land use issues, including taking action to protect threatened or endangered plant or animal species and minimizing the disturbance to surrounding areas related to construction activities. The plan also includes two community outreach provisions and seven other measures, to ensure proper consultation with affected communities, businesses, utilities, and agencies during the construction process.
The DEIS found that increases in air emissions in 2015 would not exceed the Environmental Protection Agency's (EPA) de minimis threshold under General Conformity Rules analysis. The DEIS did find that emissions would increase because of an increase in fuel use due to longer routes taken on the EJ&E, but that the gross ton-mile efficiency of the system would be noticeably improved because of more free-flowing operations, longer trains, and less idling time.
CN's voluntary mitigation plan includes four elements to enhance air quality, including accelerated implementation of EPA locomotive emissions reduction efforts, adoption of efficient fuel saving practices, and implementation of dust suppression controls.
The DEIS found a net increase in the number of noise-sensitive receptors at certain levels as a result of the transaction. The DEIS unfortunately did not measure noise reduction inside the EJ&E arc, but it is safe to say that the overall noise impact of this transaction is positive. The DEIS notes some increased vibration along the EJ&E line, but not at significant levels. CN is committed to address noise and vibration impacts in the communities along the EJ&E line, through voluntary mitigation agreements with communities and under CN's voluntary mitigation plan, which includes seven measures to reduce noise of construction activities and noise and vibration from train operations.
CN's plan includes five measures to protect the Hines Emerald Dragonfly and to restore and re-vegetate disturbed areas.
CN's comprehensive voluntary mitigation plan includes 12 provisions to minimize impacts on wetlands and water supply, to provide storm water retention and treatment, and to control erosion.
CN's comprehensive voluntary mitigation plan provides that CN would submit quarterly reports to SEA for a period covering the first three years of operational changes on the progress of, implementation of, and compliance with the mitigation measures.
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CN and U. S. Steel, the indirect owner of the EJ&E, announced on Sept. 26, 2007, an agreement under which CN would acquire most of the EJ&E for $300 million, subject to regulatory approval by the STB. CN has committed an additional $100 million for integration, new connections and infrastructure improvements to add capacity on the EJ&E line and allow network synergies to be realized over time. CN has also committed roughly $60 million to mitigate the impacts of increased train traffic along the EJ&E. More information on the transaction, including a map of the areas served by the EJ&E and CN, is available by clicking on the EJ&E Acquisition icon on the About CN section of its website www.cn.ca/About_CN.
Forward-Looking Statements
This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk, uncertainties and assumptions. In addition to the other assumptions contained in this release, the Company believes the U.S. economy is currently experiencing recessionary conditions, but assumes that it will recover within the next six to nine months, and that the global economy will grow at a moderate pace throughout this period. The Company cautions that these assumptions may not materialize. The Company's results could differ materially from those expressed or implied in such forward-looking statements. Important factors that could cause such differences include, but are not limited to, industry competition, legislative and/or regulatory developments, compliance with environmental laws and regulations, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, the effects of adverse general economic and business conditions, inflation, currency fluctuations, changes in fuel prices, labor disruptions, environmental claims, investigations or proceedings, other types of claims and litigation, and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, its Annual Information Form filed with the Canadian securities regulators, and its 2007 Annual Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis (MD&A), as well as its 2008 quarterly consolidated financial statements and MD&A, for a summary of major risks.
CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.