SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_290_4

Case Title:  
RAILROAD COST RECOVERY PROCEDURES-PRODUCTIVITY ADJUSTMENT

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
DECISION PRESENTED THE BOARD'S CALCULATION FOR THE CHANGE IN RAILROAD PRODUCTIVITY FOR THE 2013-2017 AVERAGING PERIOD.

    Decision Attachments

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    Full Text of Decision

46851 SERVICE DATE – LATE RELEASE MARCH 11, 2019

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 4)

 

RAILROAD COST RECOVERY PROCEDURES—PRODUCTIVITY ADJUSTMENT

 

Digest:[1] Each year the Board calculates the change, if any, in the rail industry’s productivity, i.e., how efficiently railroads move freight. The Board calculates this figure by comparing year-to-year the average cost of producing a unit of railroad output. Here, the Board presents its calculation for the change in railroad productivity for the 2013-2017 averaging period.

 

Decided: March 11, 2019

 

The Board proposes to adopt 1.005 (0.5% per year) as the measure of average (geometric mean) change in railroad productivity for the 2013-2017 (five-year) period. This represents an increase of 0.9% from the average for the 2012-2016 period.

 

Since 1989, the cost recovery procedures have required that the quarterly rail cost adjustment factor (RCAF)[2] be adjusted for long-run changes in railroad productivity. R.R. Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C.2d 434 (1989); see also 49 U.S.C.  10708. This long-run measure of productivity is computed using a five-year moving geometric average. Productivity Adjustment—Implementation, 9 I.C.C.2d 1072 (1993).

 

The productivity change for the year 2017 is 1.053, based on changes in input and output levels from 2016 and represents an increase of 3.8% from the rate of productivity growth in 2016 relative to 2015 (1.015). Incorporating the 2017 value with the values for the 2013-2016 period produces a geometric average productivity growth of 1.005 for the five-year period 2013-2017, or 0.5% per year. As the new geometric mean was computed by replacing the 2012 figure of 1.008 with the larger figure of 1.053 for 2017, there was an increase of 0.9% in the geometric mean from last year’s value. A detailed discussion of the Board’s calculations is contained in the Appendix to this decision.

 

 

Comments may be filed addressing any perceived data and computational errors in the Board’s calculation. Any party proposing a different estimate of productivity growth must, at the time it files comments, furnish the Board with one set of detailed workpapers and documentation underlying its calculations. The same information must be made available to other parties upon request.

 

It is ordered:

 

1.      Comments are due by March 26, 2019.

 

2. An original and 10 copies must be filed with:

 

United States Surface Transportation Board

395 E Street, S.W.

Washington, DC 20423-0001

 

3. Comments must be served on all parties appearing on the current service list.

 

4. Notice of this decision will be published in the Federal Register.

 

5. Unless a further order is issued postponing the effective date, this decision is effective on March 29, 2019.

 

By the Board, Board Members Begeman, Fuchs, and Oberman.


APPENDIX

 

The following is a description of the methodology currently used to calculate the RCAF productivity adjustment.[3] The annual rate of productivity change is calculated by dividing an output index by an input index.

 

The input index uses constant dollar-adjusted expenses. The inputs in this index—freight expenses, fixed charges and contingent interest—are stated on a constant dollar basis using the most recent year available as the base, and updating the base by the Series Rail Cost Recovery (RCR) Index published by the Association of American Railroads. Freight expenses, fixed charges, and contingent interest were obtained from railroad Annual Report (Form R-1) data. The 2017 Total Expense Constant Dollars for each of the six years was calculated by dividing a given year’s RCR index value into the RCR index values for 2017 (515.9) and then multiplying that ratio by the Total Expense Unadjusted. The calculation of the input indices and values used are shown in Table A.

 

The 2017 output index was developed from the costed waybill sample, a commonly used data source. The costed waybill sample excludes movements lacking sufficient information for the application of unit costs.

 

Using the costed waybill sample as a base, each movement is assigned to one of the 189 segments or categories used to develop the output index. Segmentation is based on three mileage blocks, seven car types, three weight brackets, and three shipment sizes. The output index is a composite of the year-to-year change in ton-miles for each of the 189 segments weighted by each segment’s base-year share of total revenues.

 

The change in productivity is calculated by dividing the output index by the input index. The multi-year average for the period 2013-2017 is calculated by taking a geometric mean, which was found to be 1.005 (0.5% per year). The input index, the output index, the annual productivity change, and the calculation of the 2013-2017 average are shown in Table B.

 

In Railroad Revenue Adequacy—2017 Determination, EP 552 (Sub-No. 22) et al. (STB served Dec. 6, 2018), the Board, after seeking public comment, adopted its proposal to make one-time adjustments to its 2017 annual cost-of-capital determination, revenue adequacy determination, and Uniform Railroad Costing System calculations to remove the accounting impacts of the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (2017), on rail carriers’ deferred tax liability to more accurately reflect the rail carriers’ financial state for 2017. In that decision, the Board ordered the Class I carriers to file recalculated figures with the accounting impacts removed for any R-1 reporting schedule, including Schedule 410 (Railway Operating Expenses), affected by the Board’s proposal. Railroad Revenue Adequacy, EP 552 (Sub-No. 22) et al., slip op. at 10. The carriers submitted their revised schedules, and, as relevant here, two carriers submitted revisions to their Schedule 410 filings. The productivity adjustment presented here reflects the recalculated figures submitted in those carriers’ Schedule 410 filings.

 

Table A
Calculation of Input Indices

2012-2017

Year

Total Expense Unadjusted (000s)
(1)

RCR Indices 2012-2017
(2)

Total Expense Constant Dollars
(3)

Input Index Column (3) 2013/2012 etc
(4)

2012

51,464,512

526.8

50,399,662

 

2013

52,366,102

526.3

51,331,317

1.018

2014

54,753,917

531.0

53,196,885

1.036

2015

49,465,744

493.3

51,731,963

0.972

2016

45,711,184

484.3

48,693,785

0.941

2017

48,307,054

515.9

48,307,054

0.992

 

Table B
Comparison of Output, Input, and Productivity

2013-2017

Year

Output Index
(1)

Input Index
(2)

Productivity Change [4]
Col (1)/Col (2)
(3)

2013

1.022

1.018

1.003

2014

1.055

1.036

1.018

2015

0.913[5]

0.972

0.939

2016

0.955

0.941

1.015

2017

1.045

0.992

1.053

Productivity Change Five-Year Moving Avg.

1.005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The five-year (2013-2017) productivity trend calculated using a geometric average is 1.005 or 0.5%. Note that there are changes in some of the individual numbers in Table A compared with corresponding years prior to the Board’s 2013 Productivity Adjustment decision. See Railroad Cost Recovery Procedures—Productivity Adjustment, EP 290 (Sub-No. 4) (STB served Mar. 4, 2014). These changes represent the revisions to the R-1 submitted by the railroads which were first incorporated into the Board’s 2008-2012 productivity study. None of the changes are large enough to affect the five-year moving geometric average calculated in previous decisions.



[1] The digest constitutes no part of the decision of the Board but has been prepared for the convenience of the reader. It may not be cited to or relied upon as precedent. Policy Statement on Plain Language Digests in Decisions, EP 696 (STB served Sept. 2, 2010).

[2] The RCAF is an index of railroad input prices that is published by the Board on a quarterly basis. See, e.g., Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (2019-1) (STB served Dec. 19, 2018).

[3] The development and application of the productivity adjustment is explained in R.R. Cost Recovery Procedures, 5 I.C.C.2d at 434.

[4] The values shown in Column 3 are taken from the spreadsheet used to calculate productivity and, due to rounding, may not equal numbers calculated using the rounded numbers shown in Columns 1 and 2.

[5] The 2015 output index was developed from the costed Waybill Sample and then adjusted by a linking factor due to a change in the miling methodology associated with the Waybill Sample. See R.R. Cost Recovery Procedures—Productivity Adjustment, EP 290 (Sub-No. 4), slip op. at 2, 5 (STB served Jan. 29, 2018).