|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|QUARTERLY RAIL COST ADJUSTMENT FACTOR|
|DECISION GRANTS RAIL COST ADJUSTMENT FACTOR (RCAF) INDICES SUBMITTED BY THE ASSOCIATION OF AMERICAN RAILROADS TO THE BOARD FOR THE FIRST QUARTER OF 2012.|
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|Full Text of Decision|
42080 SERVICE DATE – DECEMBER 20, 2011
SURFACE TRANSPORTATION BOARD
Docket No. EP 290 (Sub-No. 5) (2012-1)
QUARTERLY RAIL COST ADJUSTMENT FACTOR
Digest: 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 statute requires the Surface Transportation Board (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 first quarter of 2012.
Decided: December 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 first quarter 2012 are shown in Table A of the Appendix to this decision. Table B shows the third quarter 2011 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 Board has used the forecast error adjustment procedure to remedy similar errors, and we believe it is the best available method to correct the Labor index. Therefore, we will not restate the fourth quarter 2011 RCAF figures, but will allow the correction to be made using the second quarter 2012 forecast error calculation. As a result, the second quarter 2012 forecast error calculation will include the forecast version of the fourth quarter 2011 Labor index of the original 375.3, and the actual version of the Labor index of the corrected 373.9 index. In the current first quarter 2012 RCAF calculations, the Labor index has been calculated as if the fourth quarter 2011 version had used the corrected price.
have examined AAR’s calculations and we find that
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 first quarter of 2012 is 0.488, a decrease of 3.6% from the previously reported fourth quarter 2011 RCAF-5 of 0.506.
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 first quarter 2012 RCAF (Unadjusted) of 1.169, RCAF (Adjusted) of 0.514, and RCAF-5 of 0.488.
2. Notice of this decision will be published in the Federal Register.
3. The effective date of this decision is January 1, 2012.
By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Mulvey.
EP 290 (Sub-No. 5) (2012-1)
All Inclusive Index of Railroad Input Costs
(Endnotes Following Table B)
EP 290 (Sub-No. 5) (2012-1)
Comparison of Third Quarter 2011 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).
 See Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (2011-4), slip op. at 2 (correcting, but not restating, the third quarter 2011 Materials and Supplies index using the first quarter 2012 forecast error calculation); see also Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (2001-1), slip op. at 2 (STB served Dec. 20, 2000) (noting that the forecast error adjustment was the best available method to correct an earlier overstated RCAF calculation and not restating that earlier overstated RCAF).
 The percent changes for the first quarter 2012 RCAF (Unadjusted), RCAF (Adjusted), and the RCAF-5 are all based on the original fourth quarter 2011 decision.
 The first quarter 2012 RCAF Adjusted (0.514) is calculated by dividing the first quarter 2012 RCAF Unadjusted (1.169) by the first quarter productivity adjustment factor of 2.2724. The first quarter 2012 productivity adjustment factor is calculated by multiplying the fourth quarter 2011 productivity adjustment of 2.2645 by the fourth root (1.0035) of the 2005-2009 annual average productivity growth rate of 1.4%.
 The first quarter 2012 RCAF-5 (0.488) is calculated by dividing the first quarter 2012 RCAF Unadjusted (1.169) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.3978. The first quarter 2012 PAF-5 is calculated by multiplying the fourth quarter 2011 PAF-5 of 2.3894 by the fourth root (1.0035) of the 2005-2009 annual average productivity growth rate of 1.4%.
 For calculation purposes, the fourth quarter 2011 forecast includes a revision made to the Labor index.
2 “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.
1st Qr. 2012 Index
(2010 Weights) Times 4th Quarter Linked Index Equals Linked Index
4th Qr. 2011 Index (1980 = 100 Linked) (Current Quarter)
298.3 X 290.2 = 289.2
5 The first quarter 2012 forecast error adjustment was calculated as follows: (a) third quarter 2011 RCAF using forecasted data equals 118.6; (b) third quarter 2011 RCAF using actual data equals 117.9; and (c) the difference equals the forecast error (b-a) of -0.7. Because the actual third quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.