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The Surface Transportation Board's (STB) recent denial of regulatory approval for the Norfolk Southern Corp./Watco Cos. Inc. proposed short line venture in Michigan and Indiana represents a "lost opportunity for the region's shippers, passengers and communities," NS officials said in a statement released yesterday.

NS and Watco had planned to jointly form Michigan Central Railway L.L.C (MCR)., which would have operated lines totaling 384 track miles in Michigan and Indiana. The short line would have acquired NS' line segments and its trackage rights for an Amtrak-owned line between Kalamazoo and the Michigan/Indiana state line. Watco would have been MCR's parent company and operator, and NS would have been a minority investor. However, the STB on Monday denied NS' and Watco's application for an exemption to transfer ownership of the lines and jointly form MCR.

Amtrak would have benefited from an extended agreement ensuring continued maintenance and investment on lines between Ypsilanti and Kalamazoo, Mich., NS said. In addition, Watco had planned to spend more than $6 million during MCR's first year of operation — and more than $20 million within three years — to improve the short line's infrastructure and equipment.

"The proposal was a creative, far-sighted response to the long-term trend of shrinking rail volumes in the region," said NS Chairman, President and Chief Executive Officer Wick Moorman. "It was designed to spur infrastructure investment and leverage the talents of an experienced short-line operator — all to the benefit of the state, its freight-rail customers and passenger-rail service."

The STB decision ends Watco's investment plans and terminates the proposed Amtrak agreement, which would have guaranteed $23 million in maintenance and infrastructure improvements on main passenger routes, according to NS. The Class I will continue to seek options for the lines, but current traffic levels on certain segments don't justify additional investment and some areas might "see curtailment of service," NS said.