|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|QUARTERLY RAIL COST ADJUSTMENT FACTOR|
|DECISION APPROVED THE FOURTH QUARTER 2012 RAIL COST ADJUSTMENT FACTOR (RCAF) INDICES SUBMITTED BY THE ASSOCIATION OF AMERICAN RAILROADS.|
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|Full Text of Decision|
42691 SERVICE DATE – SEPTEMBER 20, 2012
SURFACE TRANSPORTATION BOARD
Docket No. EP 290 (Sub-No. 5) (2012-4)
QUARTERLY RAIL COST ADJUSTMENT FACTOR
Digest: The rail cost adjustment factor is an index formulated to represent changes in railroad costs incurred by the nation’s largest railroads over a specified period of time. The statute requires the Surface Transportation Board 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 2012.
Decided: September 19, 2012
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 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 5-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 5-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 2012 are shown in Table A of the Appendix to this decision. Table B shows the second quarter 2012 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 in order 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 2011. Similarly, AAR has used wage and supplemental rates for the year 2011 to calculate hourly labor rates that reflect the changing mix of employees. We have reviewed the reweighting and rebenchmarking calculations performed by AAR, and we find that they comply with the prescribed method.
We have examined AAR’s calculations and we find that AAR has complied with our procedures. We find that the fourth quarter 2012 RCAF (Unadjusted) is 1.209, an increase of 3.2% from the third quarter 2012 RCAF of 1.171. The RCAF (Adjusted) is calculated, in part, using the RCAF (Unadjusted) and a 5-year moving geometric average of productivity change for U.S. Class I railroads from 2006-2010, which is 1.008 (0.8% per year). We find the RCAF (Adjusted) is 0.529, an increase of 3.1% from the previously reported third quarter 2012 RCAF (Adjusted) of 0.513.
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 2005-2009, which is 1.014 (1.4% per year). We find the RCAF-5 for the fourth quarter of 2012 is 0.499, an increase of 2.9% from the previously reported third quarter 2012 RCAF-5 of 0.485.
This decision will not significantly affect the quality of the human environment or the conservation of energy resources.
Authority: 49 U.S.C. § 10708.
It is ordered:
1. The Board has approved the fourth quarter 2012 RCAF (Unadjusted) of 1.209, RCAF (Adjusted) of 0.529, and RCAF-5 of 0.499.
2. Notice of this decision will be published in the Federal Register.
3. The effective date of this decision is October 1, 2012.
By the Board, Chairman Elliott, Vice Chairman Mulvey, and Commissioner Begeman.
EP 290 (Sub-No. 5) (2012-4)
All Inclusive Index of Railroad Input Costs
(Endnotes Following Table B)
EP 290 (Sub-No. 5) (2012-4)
Comparison of Second Quarter 2012 Index
Calculated on Both a Forecasted and an Actual Basis
 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).
 The fourth quarter 2012 RCAF Adjusted (0.529) is calculated by dividing the fourth quarter 2012 RCAF Unadjusted (1.209) by the fourth quarter productivity adjustment factor of 2.2861. The fourth quarter 2012 productivity adjustment factor is calculated by multiplying the third quarter 2012 productivity adjustment of 2.2815 by the fourth root (1.0020) of the 2006-2010 annual average productivity growth rate of 0.8%.
 The fourth quarter 2012 RCAF-5 (0.499) is calculated by dividing the fourth quarter 2012 RCAF Unadjusted (1.209) by the fourth quarter productivity adjustment factor-5 (PAF-5) of 2.4231. The fourth quarter 2012 PAF-5 is calculated by multiplying the third quarter 2012 PAF-5 of 2.4146 by the fourth root (1.0035) of the 2005-2009 annual average productivity growth rate of 1.4%.
 “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.
 Linking is necessitated by a change to the 2011 weights beginning in the fourth quarter 2012. The following formula was used for the current quarter’s index:
4th Qr. 2012 Index
___(2011 Weights) Times 3rd Quarter Linked Index Equals Linked Index
3rd Qr. 2012 Index (1980 = 100 Linked) (Current Quarter)
311.8 X 289.4 = 299.0
 The first quarter 2008 RCAF was rebased using the October 1, 2007 level of 245.9 in accordance with the requirements of the Staggers Rail Act of 1980 (10/1/2007 = 100).
 The fourth quarter 2012 forecast error adjustment was calculated as follows: (a) second quarter 2012 RCAF using forecasted data equals 120.7; (b) second quarter 2012 RCAF using actual data equals 120.0; and (c) the difference equals the forecast error (b-a) of -0.7. Because the actual second quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.