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 PROVIDED NOTICE OF THE RAIL COST ADJUSTMENT FACTOR FOR THE FIRST QUARTER OF 2019.

    Decision Attachments

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    Full Text of Decision

40473

46745 SERVICE DATE – DECEMBER 19, 2018

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2019-1)

 

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 first quarter of 2019.

 

Decided: December 17, 2018

 

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 first quarter of 2019 are shown in Table A of the Appendix to this decision. Table B shows the third quarter 2018 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.

 

AAR’s calculations have been examined, and the Board finds that AAR has complied with agency procedures. The Board finds that the first quarter 2019 RCAF (Unadjusted) is 1.058, a decrease of 1.9% from the fourth quarter 2018 RCAF (Unadjusted) of 1.079. 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 2012-2016, which is 0.996 (-0.4% per year). The RCAF (Adjusted) is 0.448, a decrease of 2.0% from the fourth quarter 2018 RCAF (Adjusted) of 0.457.[2]

 

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 2012-2016, which is 0.996 (‑0.4% per year). The RCAF-5 for the first quarter of 2019 is 0.419, a decrease of 1.9% from the fourth quarter 2018 RCAF-5 of 0.427.[3]

 

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 first quarter 2019 RCAF (Unadjusted) is 1.058, RCAF (Adjusted) is 0.448, and RCAF-5 is 0.419.

 

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

 

3. The effective date of this decision is January 1, 2019.

 

By the Board, Board Members Begeman and Miller.

 


 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2019-1)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2017 WEIGHTS

FOURTH QUARTER 2018 FORECAST

FIRST QUARTER 2019 FORECAST

1

LABOR

35.0%

439.2

440.3

2

FUEL

13.0%

283.9

256.8

3

MATERIALS AND SUPPLIES

4.9%

269.8

268.3

4

EQUIPMENT RENTS

5.2%

236.4

236.7

5

DEPRECIATION

15.8%

223.8

226.1

6

INTEREST

2.1%

62.4

62.4

7

OTHER ITEMS[1]

24.0%

235.5

235.8

8

WEIGHTED AVERAGE

100.0%

309.3

306.6

9

LINKED INDEX[2]

 

285.8

283.3

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

108.1

107.1

11

FORECAST ERROR ADJUSTMENT[4]

 

-0.002

-0.013

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

1.079

1.058

13

RCAF (ADJUSTED)

 

0.457

0.448

14

RCAF-5

 

0.427

0.419

 


TABLE B

 

EP 290 (Sub-No. 5) (2019-1)

Comparison of Third Quarter 2018 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

LINE NO.

Index

Component

2016

Weight

THIRD

quarter

2018

Forecast

THIRD

quarter

2018

Actual

1

Labor

35.6%

434.3

434.3

2

Fuel

10.7%

291.0

274.0

3

Materials and Supplies

5.0%

263.7

263.7

4

Equipment Rents

5.9%

230.5

231.8

5

Depreciation

15.6%

223.5

224.6

6

Interest

2.2%

60.5

60.5

7

Other Items

25.0%

231.5

232.5

8

Weighted Average

100.0%

306.6

305.3

9

Linked Index

 

283.6

280.2

10

RCAF

 

107.2

105.9

 


 

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. See Policy Statement on Plain Language Digests in Decisions, EP 696 (STB served Sept. 2, 2010).

[2] The first quarter 2019 RCAF Adjusted (0.448) is calculated by dividing the first quarter 2019 RCAF Unadjusted (1.058) by the first quarter productivity adjustment factor of 2.3593. The first quarter 2019 productivity adjustment factor is calculated by multiplying the fourth quarter 2018 productivity adjustment of 2.3617 by the fourth root (0.9990) of the 2012-2016 annual average productivity growth rate of -0.4%.

[3] The first quarter 2019 RCAF-5 (0.419) is calculated by dividing the first quarter 2019 RCAF Unadjusted (1.058) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.5235. The first quarter 2019 PAF-5 is calculated by multiplying the fourth quarter 2018 PAF-5 of 2.5260 by the fourth root (0.9990) of the 2012-2016 annual average productivity growth rate of -0.4%.



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 2017 weights beginning in the fourth quarter of 2018. The following formula was used for the current quarter’s index:

 

1st Qr. 2019 Index

(2017 Weights) Times 4th Quarter Linked Index Equals Linked Index

4th Qr. 2018 Index (1980 = 100 Linked) (Current Quarter)

(2017 Weights)

Or

306.6 X 285.8 = 283.3

309.3

 

3 The first quarter 2018 RCAF was re-based using the October 1, 2017 level of 264.5 in accordance with the requirements of the Staggers Rail Act of 1980 (10/1/2017 = 100).