RAILROADS - STB Update

On January 2, 2020, the Board provided its fourth quarter 2019 report on Pending STB Regulatory Proceedings, as required by Section 15 of the STB Reauthorization Act of 2015. 

The report describes actions taken in the following pending regulatory proceedings: 

  • Limiting Extensions of Trail Use Negotiating Periods, Ex Parte 749 (Sub-No. 1): The Board completed the rulemaking by serving a final rule in December 2019.
  • Railroad Revenue Adequacy, Ex Parte 722: Hearings were held on December 12 and 13, 2019, and the hearing record will remain open until February 13, 2020 to allow parties to submit supplemental testimony. 
  • Revisions to the Board’s Methodology for Determining the Railroad Industry’s Cost of Capital, Ex Parte 664 (Sub-No. 4): The Board extended the deadlines to January 15, 2020 for comments and February 18, 2020 for replies. 
  • Expanding Access to Rate Relief, Ex Parte 665 (Sub-No. 2): The Board requested additional comment in September and set a deadline of November 12, 2019 for comments and January 10, 2020, for replies.
  • Petition for Rulemaking to Amend 49 C.F.R. Part 1250, Ex Parte 724 (Sub-No. 5): The Board served a notice of proposed rulemaking (NPRM) in September 2019.  Comments were due on December 6, 2019, and replies were due on January 6, 2020.

The report notes that the following rulemaking proceedings remain pending with no recent Board action:

  • Ex Parte 704 (Sub-No. 1), Review of Commodity, Boxcar, and TOFC/COFC Exemptions: The Board is still in the process of determining its next action.  In the meantime, the Board has proposed related action in Ex Parte 760, Exclusion of Demurrage Regulation from Certain Class Exemptions.
  • Ex Parte 711 (Sub-No. 1), Reciprocal Switching: Ex Parte meetings have continued during 2019.

In addition, the report lists the rulemaking proceedings the Board initiated in fourth quarter of 2019:

  • Waybill Sample Reporting, Ex Parte 385 (Sub-No. 8): Comments were due January 28, 2020, and replies are due February 27, 2020. 
  • Final Offer Rate Review, Ex Parte 755: Comments were due November 12, 2019, and replies were due January 10, 2020. 
  • Market Dominance Streamlined Approach, Ex Parte 756: Comments were due November 12, 2019, and replies were due January 10, 2020.
  • Policy Statement on Demurrage and Accessorial Rules and Changes, Ex Parte 757: The Board’s scheduled service date for its next action is April 30, 2020.
  • Demurrage Billing Requirements, Ex Parte 759: The Board’s scheduled service date for its next action is April 30, 2020.
  • Exclusion of Demurrage Regulation from Certain Class Exemptions, Ex Parte 760: , The Board’s scheduled service date for its next action is February 28, 2020.

 

Rate Reasonableness Rulemakings

In September 2019, the Board took three actions related to rate reasonableness that arose out of recommendations made by the Rate Reform Task Force (RRTF) in its April 2019 report.  The Board announced that it would hold a hearing on revenue adequacy.  The Board also served two proposed rulemakings on aspects of rate reasonableness.  Comments on these two proposed rules were due on November 12, 2019, and reply comments were due on January 10, 2020.

 

1.         The Board Holds Public Hearing on Revenue Adequacy Issues

The Board announced that it would hold a public hearing on railroad revenue adequacy.  Hearing on Revenue Adequacy, Ex Parte 761, Railroad Revenue Adequacy, Ex Parte 722 (STB served Sept. 12, 2019).  The Board asked all participants and interested persons to address the following four RRTF recommendations in written testimony or submissions and at the hearing: 

  1. To determine “long-term revenue adequacy by looking at the annual determinations over ‘the shortest period of time, not less than five years, that includes both a year in which a recession began and a year that follows a year in which a recession began.’”  Id., slip op. at 2. 
  2. To consider “a rate increase constraint for long-term revenue-adequate carriers, which would identify a point beyond which further application of differential pricing would be unwarranted.”  Id., slip op. at 3. 
  3. To consider suspending “the Board’s Bottleneck protections as applied to long-term revenue-adequate carriers.”  Id. 
  4. To reinstate “the simplification of the Road Property Investment analysis” for purposes of “considering whether a long-term revenue-adequate carrier’s rate is reasonable” under Simplified Stand-Alone Cost (Simplified-SAC).  Id. 

Written testimony and written submissions were due by November 26, 2019.

The Board held the hearing on December 12, 2019 and December 13, 2019.  The Board issued a decision in these proceedings, served December 16, 2019, ordering that the hearing record will be open until February 13 to allow parties to supplement their testimony.

 

2.         The Board Proposes a New Procedure for Rate Reasonableness Challenges in Smaller Cases

The Board issued a notice of proposed rulemaking that would adopt a new procedure for challenging the reasonableness of rail rates in smaller cases.  Final Offer Rate Review, Ex Parte 755, Expanding Access to Rate Relief, Ex Parte 665 (Sub-No. 2) (STB served Sept. 12, 2019).  According to the Board, the proposed new procedure, the Final Offer Rate Review (FORR) procedure, would “provid[e] faster, less costly review of claims of unreasonable railroad rates.”  Id., slip op. at 7.

In very general terms, the FORR procedure would consist of a final offer procedure.  Id., slip op. at 7.  Following discovery, the parties would simultaneously submit their market dominance presentation and final offers.  Id., slip op. at 10.  The final offer would “reflect what [the party] considers to be the maximum reasonable rate.”  Id.

If the Board finds that the complainant shipper’s market dominance presentation and rate reasonableness analysis “demonstrate that the defendant carrier has market dominance over the transportation to which the rate applies and that the challenged rate is unreasonable, the Board would then choose between the parties’ final offers.”  Id., slip op. at 13.  In analyzing rate reasonableness and selecting one of the final offers, the Board would base its decision on the following principles: (1) the rail transportation policy, 49 U.S.C. § 10101; (2) the Long-Cannon factors, 49 U.S.C. § 10701(d)(2); and (3) “appropriate economic principles.”  Id., slip op. at 10. 

The Board’s proposed timeline for the FORR procedure is 135 days from the date the complainant files the complaint to the date the Board issues a decision.  Id., slip op. at 13-14.  Relief would be limited to a two-year rate prescription (unless the parties agreed to a different limit), and the amount of relief that could be awarded would be capped at $4 million, as indexed annually using the Producer Price Index.  Id., slip op. at 14, 16.  The FORR procedure “would not be available to challenge purely local movements of a Class II or Class III rail carrier.”  Id., slip op. at 16.

 

3.         The Board Proposes a Streamlined Market Dominance Approach

The Board issued a notice of proposed rulemaking that would implement a streamlined approach for pleading market dominance in rate reasonableness proceedings.  Market Dominance Streamlined Approach, Ex Parte 756 (STB served Sept. 12, 2019).  The Board explained that this proposal would “expedite the handling of rate cases and make rate relief procedures more accessible to those complainants that find the current processes cost prohibitive.”  Id., slip op. at 4.

Under the proposed regulation, a complainant would make a “prima facie showing of market dominance when it can demonstrate the following:

  • The movement has an R/VC ratio of 180% or greater;
  • The movement would exceed 500 highway miles between origin and destination;
  • There is no intramodal competition from other railroads;
  • There is no barge competition;
  • The complainant has used truck for 10% or fewer of its movements subject to the rate at issue over a five-year period; and
  • The complainant has no practical build-out alternative due to physical, regulatory, financial, or other issues (or combination of issues).”

Id., slip op. at 6-7.  Complainants that cannot demonstrate the above six factors, “and therefore choose not to attempt a streamlined market dominance showing in the first place[,] would be required at the outset to establish market dominance in a non-streamlined market dominance presentation by introducing additional detailed evidence regarding effective competition.”  Id., slip op. at 7.  Railroads in either scenario “would continue to have the opportunity to rebut the complainant’s evidence or argue against a finding of market dominance based on other factors.”  Id.  The Board also proposes to impose a 50-page limit (including exhibits and verified statements) on the parties’ reply and rebuttal submissions on market dominance when the streamlined approach is used.  Id., slip op. at 12.

Under the proposed streamlined market dominance approach, the Board would delegate authority to an Administrative Law Judge (ALJ) “to hold an on-the-record telephonic market dominance evidentiary hearing, at the complainant’s option, within seven days after the due date of complainant’s rebuttal (or in the case of a matter brought under the Final Offer Rate Review procedure within seven days after the due date of the parties’ reply).”  Id.  The Board would then consider the entire record, including the transcript from the ALJ hearing, when reaching a decision on market dominance.  Id.

 

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