SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_290_5

Case Title:  
QUARTERLY RAIL COST ADJUSTMENT FACTOR

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
DECISION ADOPTED THE RAIL COST ADJUSTMENT FIGURES FOR THE FOURTH QUARTER OF 2017.

    Decision Attachments

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    Full Text of Decision

40473

46034 SERVICE DATE – SEPTEMBER 19, 2017

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2017-4)

 

QUARTERLY RAIL COST ADJUSTMENT FACTOR

 

Digest:[1] The rail cost adjustment factor (RCAF) is an index formulated to represent changes in railroad costs incurred by the nation’s largest railroads over a specified period of time. The Surface Transportation Board (Board) is required by law to publish the RCAF on at least a quarterly basis. Each quarter, the Association of American Railroads computes three types of RCAF figures and submits those figures to the Board for approval. The Board has reviewed the submission and adopts the RCAF figures for the fourth quarter of 2017.

 

Decided: September 18, 2017

 

In Railroad Cost Recovery Procedures, 1 I.C.C.2d 207 (1984), the Interstate Commerce Commission (ICC) outlined the procedures for calculating the all-inclusive index of railroad input prices and the method for computing the rail cost adjustment factor (RCAF). Under the procedures, the Association of American Railroads (AAR) is required to calculate the index on a quarterly basis and submit it to the agency on the fifth day of the last month of each calendar quarter. In Railroad Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C.2d 434 (1989), aff’d sub nom. Edison Electric Institute v. ICC, 969 F.2d 1221 (D.C. Cir. 1992), the ICC adopted procedures that require the adjustment of the quarterly index for a measure of productivity.

 

The provisions of 49 U.S.C.  10708 direct the Surface Transportation Board (Board) to continue to publish both an unadjusted RCAF and a productivity-adjusted RCAF. In Productivity Adjustment—Implementation, 1 S.T.B. 739 (1996), the Board decided to publish a second productivity-adjusted RCAF called the RCAF-5. Consequently, three indices are now filed with the Board: the RCAF (Unadjusted); the RCAF (Adjusted); and the RCAF-5. The RCAF (Unadjusted) is an index reflecting cost changes experienced by the railroad industry, without reference to changes in rail productivity. The RCAF (Adjusted) is an index that reflects national average productivity changes as originally developed and applied by the ICC, the calculation of which is currently based on a five-year moving average. The RCAF-5 is an index that also reflects national average productivity changes; however, those productivity changes are calculated as if a five-year moving average had been applied consistently from the productivity adjustment’s inception in 1989.

 

The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the fourth quarter of 2017 are shown in Table A of the Appendix to this decision. Table B shows the second quarter 2017 index and the RCAF calculated on both an actual and a forecasted basis. The difference between the actual calculation and the forecasted calculation is the forecast error adjustment.

 

The weights for each major cost component of the all-inclusive cost index, on which the RCAF is based, are updated annually to reflect the changing mix of index components. See 49 U.S.C.  10708. This includes rebenchmarking the wages and supplemental rates used in the labor index in the fourth quarter of each year. The weights used by AAR are based on the distribution of railway expenses for the year 2016. Similarly, AAR has used wage and supplemental rates for the year 2016 to calculate hourly labor rates that reflect the changing mix of employees.

 

AAR’s calculations have been examined, including its reweighting and rebenchmarking calculations, and the Board finds that AAR has complied with agency procedures with respect to the available data for 2016. The Board finds that the fourth quarter 2017 RCAF (Unadjusted) is 0.889, a decrease of 1.6% from the third quarter 2017 RCAF (Unadjusted) of 0.903. The RCAF (Adjusted) is calculated, in part, using the RCAF (Unadjusted) and a five-year moving geometric average of productivity change for U.S. Class I railroads from 2011-2015, which is tentatively 1.020 (2.0% per year).[2] The RCAF (Adjusted) is 0.367, a decrease of 2.1% from the third quarter 2017 RCAF (Adjusted) of 0.375.[3]

 

In accordance with Productivity Adjustment—Implementation, 1 S.T.B. at 748-49, the RCAF-5 for this quarter will use a productivity trend for the years 2010-2014, which is 1.014 (1.4% per year). The RCAF-5 for the fourth quarter of 2017 is 0.350, a decrease of 2.0% from the third quarter 2017 RCAF-5 of 0.357.[4]

 

This action is categorically excluded from environmental review under 49 C.F.R.  1105.6(c).

 

Authority: 49 U.S.C. 10708.

 

It is ordered:

 

1. The Board finds that the fourth quarter 2017 RCAF (Unadjusted) is 0.889, RCAF (Adjusted) is 0.367, and RCAF-5 is 0.350.

 

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

 

3. The effective date of this decision is October 1, 2017.

 

By the Board, Board Members Begeman, Elliott, and Miller.

 


 

 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2017-4)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2016 WEIGHTS

THIRD QUARTER 2017 FORECAST

FOURTH QUARTER 2017 FORECAST

1

LABOR

35.6%

422.8

415.1

2

FUEL

10.7%

202.3

215.5

3

MATERIALS AND SUPPLIES

5.0%

252.6

254.8

4

EQUIPMENT RENTS

5.9%

223.8

223.9

5

DEPRECIATION

15.6%

225.1

226.3

6

INTEREST

2.2%

60.6

60.5

7

OTHER ITEMS[1]

25.0%

224.3

221.4

8

WEIGHTED AVERAGE

100.0%

290.5

288.8

9

LINKED INDEX[2]

 

268.7

267.1

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

90.3

89.8

11

FORECAST ERROR ADJUSTMENT[4]

 

0.000

-0.009

12

RCAF (UNADJUSTED)

(LINE 10 + LINE 11)

 

0.903

0.889

13

RCAF (ADJUSTED)

 

0.375

0.367

14

RCAF-5

 

0.357

0.350

 


TABLE B

 

EP 290 (Sub-No. 5) (2017-4)

Comparison of Second Quarter 2017 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

LINE NO.

Index

Component

2015

Weight

second

quarter

2017

Forecast

second

quarter

2017

Actual

1

Labor

35.0%

421.4

421.4

2

Fuel

13.4%

218.2

205.7

3

Materials and Supplies

5.4%

264.8

264.8

4

Equipment Rents

5.8%

222.6

223.8

5

Depreciation

13.9%

223.2

225.1

6

Interest

1.9%

60.6

60.6

7

Other Items

24.6%

222.3

223.5

8

Weighted Average

100.0%

290.8

289.8

9

Linked Index

 

270.1

267.4

10

Rail Cost Adjustment Factor

 

90.8

89.9

 


Endnotes:



[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 Board’s adoption of 1.020 (2.0% per year) as the productivity adjustment for the 2011-2015 period is tentative because this year’s productivity adjustment calculation (for the 2011-2015 five-year period) was affected by a change in the way distances are measured in the Board’s 2015 Waybill Sample. To ensure that the change did not skew the results of the 2011‑2015 productivity adjustment, the Board proposed a linking factor to account for the change. The proposed linking factor was multiplied by the aggregate number of revenue ton‑miles and used as an input to the productivity adjustment. See R.R. Cost Recovery Procedures—Productivity Adjustment, EP 290 (Sub-No. 4), slip op. at 2-3 (STB served Feb. 14, 2017), corrected (STB served Feb. 24, 2017). On March 16, 2017, the Board suspended the comment deadline for the proposed linking factor to allow for a review of the Waybill Sample and the changes in mileages discussed in the Board’s prior decisions. See R.R. Cost Recovery Procedures—Productivity Adjustment, EP 290 (Sub-No. 4) (STB served Mar. 16, 2017). The comment period remains suspended as work continues on this important issue. See R.R. Cost Recovery Procedures—Productivity Adjustment, EP 290 (Sub-No. 4) (STB served Apr. 11, 2017). Accordingly, the productivity adjustment is not yet final.

[3] The fourth quarter 2017 RCAF Adjusted (0.367) is calculated by dividing the fourth quarter 2017 RCAF Unadjusted (0.889) by the fourth quarter productivity adjustment factor of 2.4192. The fourth quarter 2017 productivity adjustment factor is calculated by multiplying the third quarter 2017 productivity adjustment of 2.4072 by the fourth root (1.0050) of the 2011-2015 annual average productivity growth rate of 2.0%.

[4] The fourth quarter 2017 RCAF-5 (0.350) is calculated by dividing the fourth quarter 2017 RCAF Unadjusted (0.889) by the fourth quarter productivity adjustment factor-5 (PAF-5) of 2.5412. The fourth quarter 2017 PAF-5 is calculated by multiplying the third quarter 2017 PAF-5 of 2.5323 by the fourth root (1.0035) of the 2010-2014 annual average productivity growth rate of 1.4%.



[1] “Other Items” is a combination of Purchased Services, Casualties and Insurance, General and Administrative, Other Taxes, Loss and Damage, and Special Charges, price changes for all of which are measured by the Producer Price Index for Industrial Commodities Less Fuel and Related Products and Power.

[2] Linking is necessitated by a change to the 2016 weights beginning in the fourth quarter of 2017. The following formula was used for the current quarter’s index:

 

4th Qr. 2017 Index

(2016 Weights) Times 3rd Quarter Linked Index Equals Linked Index

3rd Qr. 2017 Index (1980 = 100 Linked) (Current Quarter)

(2016 Weights)

Or

288.8 X 268.7 = 267.1

290.5

 

[3] The first quarter 2013 RCAF was rebased using the October 1, 2012 level of 297.5 in accordance with the requirements of the Staggers Rail Act of 1980 (10/1/2012 = 100). In compliance with our November 27, 2013 decision, AAR has restated the October 1, 2012 level of 297.5 to 297.6.

[4] The fourth quarter 2017 forecast error adjustment was calculated as follows: (a) second quarter 2017 RCAF using forecasted data equals 90.8; (b) second quarter 2017 RCAF using actual data equals 89.9; and (c) the difference equals the forecast error (b-a) of -0.9. Because the actual second quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.