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 APPROVED THE RAIL COST ADJUSTMENT FACTOR INDICES SUBMITTED BY THE ASSOCIATION OF AMERICAN RAILROADS TO THE BOARD FOR THE SECOND QUARTER OF 2013. THE APPROVED RCAF FIGURES ARE AS FOLLOWS: RCAF (UNADJUSTED) IS 1.006, RCAF (ADJUSTED) IS 0.438, AND RCAF-5 IS 0.414.

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    Full Text of Decision

40473

42997 SERVICE DATE – MARCH 20, 2013

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2013-2)

 

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 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 second quarter of 2013.

 

Decided: March 19, 2013

 

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 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 second quarter 2013 are shown in Table A of the Appendix to this decision. Table B shows the fourth 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.

 

We have examined AAR’s calculations, and we find that AAR has complied with our procedures. We find that the second quarter 2013 RCAF (Unadjusted) is 1.006, an increase of 0.9% from the first quarter 2013 RCAF of 0.997. 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 2007-2011, which is 1.009 (0.9% per year). We find the RCAF (Adjusted) is 0.438, an increase of 0.7% from the first quarter 2013 RCAF (Adjusted) of 0.435.[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 2006-2010, which is 1.008 (0.8% per year). We find the RCAF-5 for the second quarter of 2013 is 0.414, an increase of 0.7% from the first quarter 2013 RCAF-5 of 0.411.[3]

 

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 second quarter 2013 RCAF (Unadjusted) of 1.006, RCAF (Adjusted) of 0.438, and RCAF-5 of 0.414.

 

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

 

3. The effective date of this decision is April 1, 2013.

 

By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Mulvey.


 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2013-2)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2011 WEIGHT

FIRST QUARTER 2013 FORECAST

SECOND QUARTER 2013 FORECAST

1

LABOR

31.3%

389.7

384.9

2

FUEL

22.5%

396.5

404.3

3

MATERIALS AND SUPPLIES

5.1%

263.4

261.0

4

EQUIPMENT RENTS

5.6%

206.7

206.9

5

DEPRECIATION

11.6%

212.2

219.6

6

INTEREST

2.5%

92.9

92.9

7

OTHER ITEMS[1]

21.4%

218.8

220.2

8

WEIGHTED AVERAGE

100.0%

310.0

311.3

9

LINKED INDEX[2]

 

297.3

298.5

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

99.9

100.3

11

FORECAST ERROR ADJUSTMENT[4]

 

-0.002

0.003

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

0.997

1.006

13

RCAF (ADJUSTED)

 

0.435

0.438

14

RCAF-5

 

0.411

0.414

 


TABLE B

 

EP 290 (Sub-No. 5) (2013-2)

Comparison of Fourth Quarter 2012 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

Line

No.

 

Index

Component

 

2011

Weight

 

FOURTH

quarter

2012 Forecast

 

FOURTH

quarter

2012

Actual

1

Labor

31.3%

390.5

390.5

2

Fuel

22.5%

403.3

410.6

3

Materials and Supplies

5.1%

266.1

266.1

4

Equipment Rents

5.6%

205.7

206.0

5

Depreciation

11.6%

213.2

214.2

6

Interest

2.5%

92.9

92.9

7

Other Items

21.4%

218.0

217.6

8

Weighted Average

100.0%

311.8

313.5

9

Linked Index

 

299.0

300.0

10

Rail Cost Adjustment Factor

 

100.5

100.8

 


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 second quarter 2013 RCAF Adjusted (0.438) is calculated by dividing the second quarter 2013 RCAF Unadjusted (1.006) by the second quarter productivity adjustment factor of 2.2957. The second quarter 2013 productivity adjustment factor is calculated by multiplying the first quarter 2013 productivity adjustment of 2.2907 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.

[3] The second quarter 2013 RCAF-5 (0.414) is calculated by dividing the second quarter 2013 RCAF Unadjusted (1.006) by the second quarter productivity adjustment factor-5 (PAF-5) of 2.4328. The second quarter 2013 PAF-5 is calculated by multiplying the first quarter 2013 PAF-5 of 2.4279 by the fourth root (1.0020) of the 2006-2010 annual average productivity growth rate of 0.8%.



[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 2011 weights beginning in the fourth quarter 2012. The following formula was used for the current quarter’s index:

 

2nd Qr. 2013 Index

(2011 Weights) Times 1st Quarter Linked Index Equals Linked Index

1st Qr. 2013 Index (1980 = 100 Linked) (Current Quarter)

(2011 Weights)

Or

311.3 X 297.3 = 298.5

310.0

 

[3] The first quarter 2013 RCAF was rebased using the October 1, 2012, level of 297.5 in accordance with the requirements of the Staggers Rail Act of 1980 (10/1/2012 = 100).

 

[4] The second quarter 2013 forecast error adjustment was calculated as follows: (a) fourth quarter 2012 RCAF using forecasted data equals 100.5; (b) fourth quarter 2012 RCAF using actual data equals 100.8; and (c) the difference equals the forecast error (b-a) of 0.3. Because the actual fourth quarter value is greater than the forecast value, the difference is added to the Preliminary RCAF.