The Board Issues a Final Rule in the Market Dominance Streamlined Approach Proceeding

The Board adopted a final rule establishing a streamlined approach for pleading market dominance in rate reasonableness proceedings.  Market Dominance Streamlined Approach, Ex Parte 756 (STB served Aug. 3, 2020).  This decision finalized a notice of proposed rulemaking (NPRM) served in this proceeding on September 12, 2019.  The Board received comments from over 20 entities on the NPRM.  As explained below, the Board in the final rule adopted the NPRM proposals with minor modifications.

The Board’s August 3 decision discusses each of the six factors proposed in the NPRM that, if demonstrated by the complainant, would establish a prima facie showing of market dominance.  As the Board explained, the defendant would still be able to “refute any of the prima facie factors of the complainant’s case, or otherwise show that effective competition exists for the traffic at issue.”  Id., slip op. at 4.  The purpose of establishing a factor-based prima facie showing of market dominance was to reduce “the complexity of market dominance presentations for many complainants without limiting railroads’ ability to mount a thorough defense.”  Id.

The first such factor is whether the movement has a revenue-to-variable cost (R/VC) ratio of 180% or greater.  Id., slip op. at 8.  The Board adopted this factor in the final rule, explaining that it is a statutory requirement.  Id. 

The second prima facie factor proposed in the NPRM is that the movement exceeds 500 highway miles between origin and destination.  Id., slip op. at 9.  In the final rule, the Board adopted this 500-mile threshold, declining to apply either a shorter or longer threshold as requested by some commenters.  Id., slip op. at 10-13.  The Board reasoned that “the 500-mile threshold, combined with the 10% or less trucking volume threshold [(a prima facie factor discussed below)], will serve as a sufficient screen to identify movements that likely lack effective trucking competition.”  Id., slip op. at 13.  With respect to this second factor, the NPRM had also “invited comment on whether the mileage threshold could be varied by commodity groups.”  Id.  The Board in the final rule explained that, “[b]ased on the input received, the Board agrees that the concept of creating commodity-specific thresholds has merit and is preferable to a blanket threshold.”  Id.  However, the Board found that it needs additional “quantitative data to support the adoption of commodity-specific mileage thresholds.”  Id.  Therefore, in this final rule, the Board established “a single mileage threshold of 500 miles” but stated that it “plans to soon initiate a proceeding to further explore the adoption of various commodity-specific mileage thresholds.”  Id., slip op. at 14. Finally, regarding this second prima facie factor, the Board addressed the issue of multi-carrier movements and explained that it will treat those movements “the same as it does for rate reasonableness challenges.”  Id., slip op. at 16.  More specifically, “whether a rate (or rates) on a multi-carrier move are subject to challenge would depend on the type of rate being offered (joint through rate or proportional rate) and whether the rate (or rates) are subject to tariff or contract.”  Id., slip op. at 17.   

The third prima facie factor proposed in the NPRM is that there is no intramodal competition from other railroads.  The NPRM proposed that a complainant could satisfy this factor by submitting a verified statement attesting that the complainant “does not have practical physical access to another railroad,” with “practical physical access” being defined as “encompassing feasible shipping alternatives on another railroad, including switching arrangements, where an alternative is possible from a practical standpoint given real-world constraints.”  Id. (internal quotation marks omitted).  The Board adopted this factor as proposed.  Id., slip op. at 18.  The Board in the final rule clarified that arrangements such as haulage, terminal trackage rights, or interchange agreements could “allow for multi-carrier access and therefore would constitute practical physical access.”  Id.  In addition, the Board explained that in certain situations, practical physical access could be found in the absence of any such arrangement, such as “if a shipper has refused a rail carrier’s bona fide offer to open a facility to reciprocal switching but the offer still stands.”  Id.

The fourth proposed prima facie factor is that there is no barge competition.  Like with the intramodal competition factor, the Board proposed that this factor could be demonstrated by submitting a verified statement “attesting that the complainant does not have practical physical access to barge competition.”  Id.  In the final rule, the Board adopted this factor as proposed but also issued guidance.  The Board explained, “[t]he most obvious scenarios where there would be practical physical barge access are where the origin and destination have barge facilities that are capable of handling the issue commodity and are located on interconnected navigable waterways.”  Id., slip op. at 19.  If, however, “the origin and destination are not located on interconnected navigable waterways, or if they lack barge facilities capable of handling the issue commodity,” the Board would consider this information in determining whether this prima facie factor has been met.  Id.

The fifth prima facie factor proposed by the NPRM is that the complainant has used trucks for 10% or fewer of its movements subject to the rate at issue over a five year period.  The Board adopted this factor as proposed with a clarification regarding the measurement of the threshold.  Id., slip op. at 20.  The Board clarified that it intended the measure to be volume (by tonnage) rather than number of movements.  Id.  The Board further discussed circumstances under which transload shipments would be included as part of the trucking volume calculation.  Id., slip op. at 23.

The sixth and final prima facie factor proposed by the NPRM is that the complainant has no practical build-out alternative due to physical, regulatory, financial, or other issues (or combination of issues).  The Board adopted this proposal.  The Board stated that this factor “is not limited only to potential rail expansions,” but instead, encompasses “any alternative option that would require an infrastructure investment.”  Id., slip op. at 27.  The Board also explained that this factor could be demonstrated in a “short plain statement,” describing, “in a page or two, what the physical, regulatory, financial, or other issues are that make a build out impractical.”  Id.

In the final rule, the Board also considered additional prima facie factors suggested by commenters.  Id., slip op. at 28-32.  The Board adopted one additional prima facie factor, that the “complainant must demonstrate that there is no pipeline competition.”  Id., slip op. at 28. 

The final rule also discusses procedural issues addressed by the NPRM and/or raised by commenters.  Id., slip op. at 32-43.  Among other items, the Board in the final rule clarified that “a complainant must choose whether to file a written rebuttal or request [an] ALJ hearing.”  Id., slip op. at 40. 

This decision is effective September 5, 2020.

 

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