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 THAT THE RAIL COST ADJUSTMENT FACTOR FIGURES FOR THE THIRD QUARTER OF 2019 HAVE BEEN ADOPTED.

    Decision Attachments

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    Full Text of Decision

40473

47070 SERVICE DATE – JUNE 20, 2019

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

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

 

(2019-3)

 

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 third quarter of 2019.

 

Decided: June 19, 2019

 

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 third quarter of 2019 are shown in Table A of the Appendix to this decision. Table B shows the first quarter 2019 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[2] have been examined by the Board’s Office of Economics, and the Board finds that AAR has complied with agency procedures. The Board finds that the third quarter 2019 RCAF (Unadjusted) is 1.057, a decrease of 0.8% from the second quarter 2019 RCAF (Unadjusted) of 1.065. 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 2013-2017, which is 1.005 (0.5% per year). The RCAF (Adjusted) is 0.447, a decrease of 0.9% from the second quarter 2019 RCAF (Adjusted) of 0.451.[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 2012-2016, which is 0.996 (‑0.4% per year). The RCAF-5 for the third quarter of 2019 is 0.420, a decrease of 0.5% from the second quarter 2019 RCAF-5 of 0.422.[4]

 

Authority: 49 U.S.C. 10708.

 

It is ordered:

 

1. The Board finds that the third quarter 2019 RCAF (Unadjusted) is 1.057, RCAF (Adjusted) is 0.447, and RCAF-5 is 0.420.

 

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

 

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

 

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

 


 

 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2019-3)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2017 WEIGHTS

SECOND QUARTER 2019 FORECAST

THIRD QUARTER 2019 FORECAST

1

LABOR

34.8%

439.7

444.7

2

FUEL

12.9%

259.2

269.0

3

MATERIALS AND SUPPLIES

4.9%

267.6

273.1

4

EQUIPMENT RENTS

5.7%

237.1

238.0

5

DEPRECIATION

15.7%

223.1

229.5

6

INTEREST

2.1%

62.4

62.4

7

OTHER ITEMS[1]

23.9%

231.8

232.2

8

WEIGHTED AVERAGE

100.0%

304.8

309.2

9

LINKED INDEX[2]

 

282.1

286.2

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

106.7

108.2

11

FORECAST ERROR ADJUSTMENT[4]

 

-0.002

-0.025

12

RCAF (UNADJUSTED)

(LINE 10 + LINE 11)

 

1.065

1.057

 

13

RCAF (ADJUSTED)

 

0.451

0.447

14

RCAF-5

 

0.422

0.420


TABLE B

 

EP 290 (Sub-No. 5) (2019-3)

Comparison of First Quarter 2019 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

LINE NO.

Index

Component

2017

WeightS

FIRST

quarter

2019

Forecast

FIRST

quarter

2019

Actual

1

Labor

34.8%

440.3

440.3

2

Fuel

12.9%

256.8

222.0

3

Materials and Supplies

4.9%

268.3

268.3

4

Equipment Rents

5.7%

236.3

235.4

5

Depreciation

15.7%

226.1

225.2

6

Interest

2.1%

62.4

62.4

7

Other Items

23.9%

235.8

233.2

8

Weighted Average

100.0%

306.1

300.8

9

Linked Index

 

283.3

276.6

10

Rail Cost Adjustment Factor

 

107.1

104.6

 

 

 

 


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 second quarter 2019 RCAF decision, Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (2019-2) (STB served Mar. 29, 2019), included AAR’s resubmitted RCAF calculations, updated to reflect the current productivity figure and recalculated figures based on the 2017 R-1 revisions submitted in response to the Board’s decision in Railroad Revenue Adequacy—2017 Determination, EP 552 (Sub-No. 22) et al. (STB served Dec. 6, 2018). The Board has confirmed that AAR’s third quarter 2019 calculations incorporate the updated calculations from the Board’s second quarter 2019 RCAF decision.

[3] The third quarter 2019 RCAF Adjusted (0.447) is calculated by dividing the third quarter 2019 RCAF Unadjusted (1.057) by the third quarter productivity adjustment factor (PAF) of 2.3649. The third quarter 2019 PAF is calculated by multiplying the second quarter 2019 productivity adjustment of 2.3621 by the fourth root (1.0012) of the 2013‑2017 annual average productivity growth rate of 0.5%.

[4] The third quarter 2019 RCAF-5 (0.420) is calculated by dividing the third quarter 2019 RCAF Unadjusted (1.057) by the third quarter PAF-5 of 2.5185. The third quarter 2019 PAF-5 is calculated by multiplying the second quarter 2019 PAF-5 of 2.5210 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:

 

3rd Qr. 2019 Index

(2017 Weights) Times 2nd Quarter Linked Index Equals Linked Index

2nd Qr. 2019 Index (1980 = 100 Linked) (Current Quarter)

(2017 Weights)

Or

309.2 X 282.1 = 286.2

304.8

 

[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).

[4] The third quarter 2019 forecast error adjustment was calculated as follows: (a) first quarter 2019 RCAF using forecasted data equals 107.1; (b) first quarter 2019 RCAF using actual data equals 104.6; and (c) the difference equals the forecast error (b-a) of -2.5. Because the actual third quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.