Alan -
Read condition 4 again:
"An operation will not be considered insular if one or more of the following exists on its line:
(i) A public highway-rail crossing that is in use;
(ii) An at-grade rail crossing that is in use;
(iii) A bridge over a public road or waters used for commercial navigation; or
(iv) A common corridor with another railroad, i.e., its operations are conducted within 30 feet of those of any other railroad. "
In other words, if you cross a public road - either above, under, or at grade - you are NOT considered insular.
That the crossings are dealt with by the state is true, and immaterial. Get that close to a public right of way and a railroad can present a potential danger to the public, so FRA extends jurisdiction.
The C&TS Mechanical department and Maintenance of Way department would be very surprised to find out that FRA doesn't regulate them, as some guys claiming to be from FRA show up on a regular basis
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JAC