STB issues proposed rules for rate review procedures

Following the release of a report last spring by the Surface Transportation Board’s (STB) Rate Reform Task Force comprised of recommendations for potential changes to the STB’s rate review processes and methodologies, the STB said this week that it has proposed new rules as part of its ongoing effort to make its rate review procedures more accessible, efficient, and transparent, including for small customers.

Established in January 2018, the STB’s Rate Reform Task Force was tasked with recommending improvements to the STB’s existing rate review processes, as well as to propose new rate review methodologies “that are more attuned to the realities of the current transportation world.”

STB officials said the Rate Reform Task Force met with various industry stakeholders, including: shippers and carriers, academics, practitioners, and other U.S.-based parties, in which it said it developed a greater understanding about the challenges involved with the STB’s existing rate review methodologies, coupled with challenges that could augment them, as well as new ideas for methodologies. STB said that the RRTF recommended, among other things, that the Board establish a definition of long-term revenue adequacy and that the Board consider providing different remedies for rate cases involving carriers that are long-term revenue adequate.

When this report was first issued, freight railroad observers told LM that this STB report, in some ways is viewed as “consensus,” with the caveat that some of the report’s recommendations, should they come to fruition, being potentially being big deals in the future and things for freight railroads to carefully consider.

STB officials said this week that the organization is proposing rules to establish a new rate review option for smaller cases and provide a streamlined market dominance process that could be used in any rate review proceeding.

Included in this are a new rate review option for smaller cases, entitled the Final Offer Rate Review (FORR), which STB said utilizes procedural limitations to constrain the cost and complexity of a rate case, which would include principle-based, non-prescriptive criteria to allow for innovation with respect to rate review methodologies.

“The FORR procedure is designed to bring economy to the rate review process and provide complainants with smaller cases, who otherwise have been deterred from challenging a rate due to the cost of bringing a case under the Board’s existing rate reasonableness methodologies, with a more accessible option,” STB officials said. “The proposed relief for cases brought under FORR would be subject to a two-year limit on rate prescriptions (unless the parties agree otherwise) with a proposed cap of $4 million. The cap is consistent with the potential relief afforded under the Board’s existing methodology for smaller cases (known as Three-Benchmark).”

STB also proposed what it called a Market Dominance Streamlined Approach, which is designed to reduce the burden on rate cases by establishing that a complainant can make a prima facie (accepted as correct until proven otherwise) showing of market dominance, when the complainant has demonstrate:

• The movement has a revenue-to-variable cost ratio of 180% or greater;
• The movement would exceed 500 highway miles between origin and destination;
• There is no intramodal competition from other railroads;
• There is no barge competition;
• The complainant has used trucks for 10% or fewer of its movements subject to the rate at issue over a five-year period; and
• The complainant has no practical build-out alternative due to physical, regulatory, financial, or other issues (or combination of issues)

STB officials said that comments on the FORR and the Market Dominance Streamlined Approach are due by November 12, 2019, with replies due by January 10, 2020. And they added that it will hold a public hearing on Thursday, December 12, 2019, on revenue adequacy issues raised by the RRTF in its report. The RRTF recommended, among other things, that the Board establish a definition of long-term revenue adequacy and that the Board consider providing different remedies for rate cases involving carriers that are long-term revenue adequate.

The STB’s announcement was given a sound endorsement by American Chemistry Council President & CEO Cal Dooley.  

“We applaud the members of the STB for their thoughtful leadership and commitment to getting our nation’s freight rail policies back on track,” he said in a statement. “Chemical manufacturers across the country have been negatively impacted by excessive freight rail charges and lack of competitive rail service for too long. The Board’s proposed reforms are a positive step toward improving how the STB addresses freight rail problems, and we look forward to working with the commissioners and their staff on modernizing and streamlining outdated regulations.”

And Association of American Railroads President and CEO Ian Jefferies said that AAR is still reviewing the proposed rules, adding that AAR and its members will remain fully engaged with the Board and rail customers about how best to create more efficient processes.

“We continue to urge caution with respect to changes that violate the fundamental legal and economic principles that must bind the Board and warn against unintended consequences,” he said in a statement. “The current regulatory balance has allowed railroads to invest in their networks in order to improve safety and meet the current and future needs of customers. During the December hearing, railroads will reiterate that revenue adequacy reflects the industry’s financial soundness and stability under the current regulatory scheme and must not be a trigger for new government intervention and rate regulation.”