Questions Regarding ORDC’sProposed Panhandle Net

Lease AgreementDaniel L. Van EppsExecutive Director

Stillwater Valley CICConotton-Sandy-Tuscarawas Valley CIC

12-14-2011

2

Passenger and FreightTrain Commingling Liability

• The Akron Metro Regional TransitAuthority owns the Akron-Canton railline

• Until it provides commuter service onthe line, AMRTA authorizes the W&LE toprovide freight service to linesidecustomers during weekdays.

• On weekends, W&LE conveys control ofthe line to the Cuyahoga Valley ScenicRR.

• CVSRR then conveys the line back tothe W&LE.

3

Passenger and FreightTrain Commingling Liability• Apparently to date, no freight-passenger train

incidents have occurred.• C&OR and ORDC restrict the Dennison Depot (and

other excursion operators) to a limited numberdays of service annually supposedly due tocapacity issues.

• ORDC mandates excursion providers carry acertain amount of coverage.

• The Depot reportedly said they are required tobuy $30M of insurance for $85K annually.

• The Depot is not authorized to run as manytrains as CVSRR does, which would betterspread the coverage costs and reduce ticketprices.

4

Passenger and FreightTrain Commingling Liability

• C&OR said they shut down the wholePanhandle during Depot excursion trainoperations.

• Norfolk Southern (and possibly W&LE)likely must hold their trains atterminals and off the Panhandle duringthe trips too.

– Why isn’t the AMRTA model further exploredfor the Panhandle?

– Will C&OR shut down the whole Panhandle forother passenger train types too?

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“VW official says TN rail siteready for future expansion”

• 9-29-2011, http://timesfreepress.comPointing to possible expansion of Volkswagen's

Chattanooga plant, the automaker's U.S.transportation manager said its key rail loadingfacility at the site is ready to grow with thefactory.

"We expect to have large volumes of growth inChattanooga," Scott Mabry, Volkswagen Group ofAmerica's manager of transportation.

VW has said the plant was built to initially produce150,000 vehicles a year [and] that the new plantultimately could make about 250,000 vehiclesannually and even more if the factory footprint isdoubled.

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“VW official says TN rail siteready for future expansion”

VW will ship about 85% of the new Passats made at theplant to dealers by rail, has the room at the plantsite currently to hold about 60 rail cars, Mabrysaid. That number could be increased to 90, hesaid.

Mabry cited the two rail lines that service theVolkswagen plant -- CSX and Norfolk Southern.

Andreas Linke, director of quality assurance for VW inChattanooga, said earlier that having two lines tothe assembly plant is "a big advantage" for thecompany. "It's a tremendous benefit," he said.

Mabry said VW doesn't have a favorite railroad, addingthat the company chooses which one to use on aparticular day based on pricing and timing. Havingtwo competing companies "gives us a menu to selectfrom," he said.

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“VW official says TN rail siteready for future expansion”

• The model is two Class I carriers owning andoperating their own adjacent lines, althoughwith likely limited or no intra-modalcompetition upon their own lines.

• Some competition is created by VW locating ata site accessible to both carriers.

– How will Panhandle shippers have equivalentcompetition and be able to compete effectivelyvs. dual+ rail served sites under the proposedlease agreement?

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“VW official says TN rail siteready for future expansion”

• ORDC and G&W said shippers want long termcontracts.

• ORDC said the short line-Class I feeder modelis preferred vs. dual+ rail competition.

– How can existing and new Panhandle shippersunder the proposed lease agreement competevs. dual+ rail served sites?

– Can ORDC cite examples of shippers thathave located away from dual+ rail-servedlocations to the short line-Class I feedermodel, and the cost savings to shippers indoing so?

9

Columbus-PittsburghCorridor Committee

• “A 160-mile Corridor Connecting Columbus and PittsburghMarkets”

• http://columbuspittsburghcorridor.com/• Columbus and Pittsburgh are the #1 and #2 cities

respectively located to the most U.S. population(http://www.threescale.org)

• CPCC is requesting $2B+ to complete a seamless intercitymulti-lane highway corridor.

• SR 161, etc. have already been improved.• ORDC said it will be 25 (or more) years before the same

corridor’s rail line will be similarly improved.

– Why?– Why isn’t ORDC (and its PA and WV govt rail agency equivalents)

making similar requests and improvements as their highwaycounterparts have done?

10

Draft Lease Article XL:C&OR Right of First Refusal

• The ORDC Panhandle Long Term LeaseSubcommittee is apparently asubcommittee of the ORDC Contract andProperty Advisory Committee.

• The Subcommittee said ORDC will notsell the Panhandle.

• The Committee created a “Guidelinesfor Divestiture of State RailroadProperty”, and discussed a “fire sale”of ORDC’s rail lines, as advocated byG&W officials due in part to theliabilities involved in line ownership.

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Draft Lease Article XL:C&OR Right of First Refusal

– Do the Committee’s decisionssupercede the Subcommittee’sdecisions?

– Which policy does ORDC advocate?– If ORDC says it will not sell thePanhandle, why is Article XL stillincluded in the latest draftagreement?

12

Interim ContingencyOperating Agreement

• Since the proposed net lease agreementis no-bid to only the G&W’s C&OR,there is a possibility of legal actionby other parties interested inleasing, equally accessing, etc. thePanhandle.

– To maintain rail service to shippers duringany legal actions, would ORDC considercreating an interim contingency operatingagreement with C&OR?

13

Gov. Kasich andPrivatization

• Gov. John Kasich is an advocate ofstate asset privatization, and couldsell the Panhandle.

– If the Governor decides to privatize thePanhandle, what if any rights can or willORDC retain?

– What rights might Gov. Kasich allow ORDC toretain?

– Will the Depot (and other excursionproviders) still be able to operate theirtrains on privatized lines, i.e., OSRR?

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ORDC PanhandleAdministration

• ORC 4981.07(B): The commission may operate any railproperty acquired by it over track owned or leasedby the commission, or over track owned by anotherperson pursuant to an agreement with that person aslong as such action is necessary for the efficientoperation of rail service provided by thecommission pursuant to this chapter.

– Why doesn’t ORDC administer the Panhandle (own andadminister the right of way and infrastructure but notprovide carriage services) like its sister OhioTurnpike Commission administers the public highway?

– If ORDC is not interested in administering thePanhandle, could ORDC convey the Panhandle to othergovernment agencies or non-profit corporations thatwould vs. PPPing or privatizing it?

15

Alameda Corridor

• Dual rail connecting Ports of L.A. andLong Beach

• Government provided• Railroads control• Was investment grade until the recentintermodal import slowdown

• ORDC said the model was not applicableto the Panhandle.

– How not?

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Illinois State TollHighway Authority

• Now authorized to providerail on its and other ROWs

– If similarly authorized by theOhio General Assembly, wouldORDC consider conveying thePanhandle to the Ohio TurnpikeCommission?

17

Caprail I. Ownership

• Civic Finance Associates, LLC (parent ofCaprail I., http://www.cfainc.net/) wasfounded in order to assist state and localgovernments and not-for-profit organizationswith their financing needs.

• CFA has acquired, developed, and financed over$1.25B of property throughout the U.S.

– Since Caprail I. apparently has the wherewithalto finance necessary capex projects (i.e.restore and improve the whole Pittsburgh-Columbus Panhandle corridor), shouldn’t they beconsidered as a potential viable owner?

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The Michigan Line

• NS is selling its 135-mile Dearborn-Kalamazoomain line to MDOT for about $1M/mile.

• MDOT and Amtrak were complaining NS was notmaintaining the line to minimum Amtrakstandards, and was not going to help increaseit to high speed rail speeds.

• MDOT will now improve the lines speeds andcapacities for Detroit-Chicago Amtrak service,Detroit-Ann Arbor commuter service, and as apart of an overall semi-continental corridor.

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The Michigan Line

• “This isn't about a piece ofrail in Michigan. This is aboutbeing the centerpiece of abroader logistical connectionthat goes all the way from St.Louis to Chicago to Detroit andI would like to see it continueon to Toronto and to Montreal.”MI Gov. Rick Snyder, 11-6-2011

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The Michigan Line

• “[Gov. Snyder] envisions Michiganbeing part of this business corridorthat runs from the western edge of theMidwest in St. Louis all the way up toToronto, Montreal, the new port thatis being built in Halifax. AndMichigan is sort of a central point inthat corridor, and that could makeMichigan a key player in a Midwestern-Canadian economy.” Michigan PublicRadio State Capitol Bureau Chief RickPluta, 11-6-2011

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The Michigan Line

• “What we've got right now is a system of freight vs.passengers. And because almost all the track is owned byfreight companies, part of the agreement is that when afreight train is coming and an Amtrak train is en route,the passenger train has to stop. What state officials arehoping is they can come up with something … bettercoordination of routes and scheduling of freight trainsand passenger trains … more turnouts, where when there aretwo trains that are sharing the same piece of track, thatthere's someplace else for them to go … basically you'renot going to have the same level of competition for thesame track between freight and passenger service, and ifthere is competition, then it's not always going to be thepassenger train that's going to have to stop and wait.”Michigan Public Radio State Capitol Bureau Chief RickPluta, 11-6-2011

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Panhandle Capacity Issues

• ORDC and C&OR recommend the Depot add a newsiding for its passenger trains to helpincrease capacity and smooth operations on thePanhandle.

• C&OR removed certain Dennison Yard tracksprior to the Dennison steam train show, citingthe need for attendees to park there.

– Why weren’t the rails reserved and reused on thewestbound main line ROW for the Depot’s siding?

– What happened to the rails and OTM?

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Panhandle Capacity Issues

• The proposed lease and ORDCdiscussions question the number,value, and added congestion ofoverhead through trains.

– If it is true that overhead trainsconstitute a large part of the Panhandle’srevenues, why are they (and more of them)being discouraged?

– Why do other major railroads usuallyprioritize through, unit, intermodal, andpassenger trains vs. local trains?

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Panhandle Capacity Issues

• Conrail removed most of one track ofthe two track main line, although leftsome sidings available for trains topass on the single track line.

• C&OR said it is increasing passingsidings to help accommodate increasedtraffic.

• Black Run Siding was 12411’ long -enough to hold 233 53’ coal cars or139 89’ cars - before it was recentlyshortened by about 50%.

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MP 145.1 East EndBlack Run West Siding

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MP 147.45 West EndBlack Run West Siding

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Panhandle Capacity Issues

– If passing sidings are at a premium, why doesC&OR now park a string of tank cars on the BlackRun siding?

– Why did C&OR reduce Black Run siding to abouthalf of its prior capacity?

– Are these techniques artificial creation ofcongestion and constraint of capacity torestrict more overhead and excursion trains?

– Are the other passing sidings being shortenedand/or used for storage too?

– Does the proposed lease address parking cars onpassing sidings?

– Does the proposed lease address storage feesC&OR is realizing by parking cars on the passingsidings?

28

ORDC and G&W

• The Value of the Panhandle– $8.68M when purchased from Conrail– $8M Summit View offer– $30M W&LE Offer– $24.2M ORDC appraisal 12-31-2004.– $62.6M ORDC appraisals 3-20-2008 & 8-8-2008.– Caprail says its valuation is essentiallypriceless if the corridor were to beassembled from scratch today.

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ORDC and G&W

• Cincinnati Southern Rwy– Cincinnati-Chattanooga 336-mile line ownedby Cincinnati; leased to a NS subsidiary.

– ~$20M annual escalating net lease rate(2010).

– Proposed 2009 sale sought between $500M -$800M.

– Should the proposed Panhandle lease rate be moreproportional to the Cincinnati Southern rate?

30

ORDC and G&W

• The Value of the Panhandle– G&W’s buyout of Summit View, Inc. was $250M+– The Panhandle represented 35.8% of the SVI Ohio Central

System’s route miles, greater than any of its othersubsidiaries and greater than C&OR’s CSX leased lines.

– Of the Ohio Central System, the Panhandle representedthe majority, if not the vast majority, of the systemtonnages and system ton-miles, and by inference systemrevenues.

– The buyout was for the immediate right to operate thePanhandle, the possible future right to net long termlease the Panhandle, and the possible future right tobuy the Panhandle.• These rights could also be flipped.

– Thus the right(s) was worth at least 50% ($125M) if notmore of the $250M+ buyout amount.

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ORDC and G&W

• If ORDC does not approve a lease to G&W, G&W riskslosing its $125M+ investment, analyst and debtrating downgrades, calls on debts by its banks andinvestors, if not worse.

– Why didn’t ORDC add the $125M+ to its appraisal amountsto base its proposed lease rate upon?

– Why did ORDC allow itself to become beholden to G&Welse risk its potential downgrading and possiblefailure?

– Why must Panhandle shippers and other users be forcedto use G&W to ensure its gamble pays off?

– If the Panhandle rights are flipped again at highervalues, are subsequent rate increases going to bepassed along to the shippers?

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Definition of Success

• Conrail was hauling ~50M tons on the Panhandleannually c.early 1980s.

• The Panhandle once had intercity passenger,commuter, Amtrak, and intermodal trains.

• Conrail then rerouted most of its trainsreducing the Panhandle to about 100K tonsannually in an attempt to abandon its east end.

• C&OR was hauling reportedly 3M tons on thePanhandle annually.– NS may now contribute 3M-6M annually.

• There are no intermodal, intercity passenger,or commuter trains now.

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Definition of Success

– This is “success”?– For who? For other corridors that do host those

services and enjoy economic developmentadvantages?

– Although ORDC was mandated by its ORC to pursuethe 3-C, now that Gov. Kasich and the privaterailroads stopped the effort on that route,wouldn’t it be easier for ORDC to pursuecommuter and regular intercity Amtrak service onits own Panhandle instead?