So far as I know, USRA's rationale for refusing to sell EL's Avon-Caledonia line to LAL was never published, but LAL management were advised that the line would be abandoned, and the Avon-Rochester line retained, because Conrail needed the revenue generated by LAL's traffic and the still-significant traffic at Avon.
In other words, the interest of LAL and its local industries was to be subordinated by government planners to Conrail's interests.
This situation, and the way in which it was handled by USRA, was not at all uncommon, by the way. The smaller railroads in the region such as D&H, P&LE, DT&I, which usually were going to lose some of their existing connections and find themselves at Conrail's mercy unless they fought their way out of a corner, all reported similar experiences with USRA.
Regrettably, LAL's position was undercut by a lack of support by NYSDOT, whose rail freight director at the time was well known for pushing a theory that the Class I railroads could make branch lines work with traditional manning and work rules if only they would reconsider how they allocated costs between main line and branch line operations. Many branch lines that remained with the estates of the bankrupt railroads were operated by Conrail under federal subsidy arrangements for a couple of years, giving his theory a test of sorts. When the subsidy ran out, NYS picked up some of these lines and subsequently transferred them to the counties for short line operation. Ontario Central and B&H's Kanona-Wayland line are two examples.
WDB