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 ADOPTED THE RAIL COST ADJUSTMENT FACTOR FIGURES SUBMITTED BY THE ASSOCIATION OF AMERICAN RAILROADS FOR THE FIRST QUARTER OF 2014.

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    Full Text of Decision

40473

43524 SERVICE DATE – LATE RELEASE DECEMBER 20, 2013

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2014-1)

 

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 (AAR) 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 2014. In addition, the Board is including the restated RCAFs for the fourth quarter of 2011 through the fourth quarter of 2013, which AAR filed in compliance with the Board’s November 27, 2013 decision directing AAR to restate the 2011, 2012, and 2013 RCAFs using BNSF Railway Company’s and Union Pacific Railroad Company’s revised R-1 reports. The Board has also included the restated fourth quarter 2012 basing factor.

 

Decided: December 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 five-year moving average had been applied consistently from the productivity adjustment’s inception in 1989.

 

In EP 290 (Sub No. 5) (2013-1), served December 20, 2012, the Board noted that AAR’s proposed rebasing calculations were verified, and complied with the statute. Because the revisions calculated by AAR affected the fourth quarter 2012 basing factor, this decision contains the revised 2012 fourth quarter basing factor, from 297.5 to 297.6. The revised rebasing calculations are shown in Table C of the Appendix.

 

 

The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the first quarter of 2014 are shown in Table A of the Appendix to this decision. Table B shows the restated third quarter 2013 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, as well as the Board’s November 27, 2013 decision directing AAR to restate the 2011, 2012, and 2013 RCAFs using BNSF Railway Company’s (BNSF) and Union Pacific Railroad Company’s (UP) revised R-1 reports. The restated RCAFs for the fourth quarter of 2011 through the fourth quarter of 2013 were recalculated as if AAR had made the revisions in 2013 for the original filings.[2] We find that the first quarter 2014 RCAF (Unadjusted) is 0.980, an increase of 0.5% from the restated fourth quarter 2013 RCAF of 0.975. 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 2007-2011, which is 1.009 (0.9% per year). We find that the RCAF (Adjusted) is 0.424, an increase of 0.2% from the restated fourth quarter 2013 RCAF (Adjusted) of 0.423.[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 2007-2011, which is 1.009 (0.9% per year). We find that the RCAF-5 for the first quarter of 2014 is 0.400, an increase of 0.3% from the restated fourth quarter 2013 RCAF-5 of 0.399.[4]

 

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 approves the first quarter 2014 RCAF (Unadjusted) of 0.980, RCAF (Adjusted) of 0.424, and RCAF-5 of 0.400.

 

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

 

3. The effective date of this decision is January 1, 2014.

 

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


 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2014-1)

All Inclusive Index of Railroad Input Costs[1]

(Endnotes Following Table D)

 

LINE NO.

INDEX COMPONENT

2012 WEIGHTS

FOURTH QUARTER 2013 FORECAST

FIRST QUARTER 2014 FORECAST

1

LABOR

31.3%

387.1

386.2

2

FUEL

22.4%

399.6

377.9

3

MATERIALS AND SUPPLIES

4.9%

261.4

265.9

4

EQUIPMENT RENTS

5.6%

207.7

208.7

5

DEPRECIATION

11.9%

221.0

217.8

6

INTEREST

2.0%

76.6

76.6

7

OTHER ITEMS[2]

21.9%

220.0

220.5

8

WEIGHTED AVERAGE

100.0%

311.1

306.0

9

LINKED INDEX[3]

 

297.8

292.9

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[4]

 

100.1

98.4

11

FORECAST ERROR ADJUSTMENT[5]

 

-0.026

-0.004

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

0.975

0.980

13

RCAF (ADJUSTED)

 

0.423

0.424

14

RCAF-5

 

0.399

0.400

 


TABLE B

 

EP 290 (Sub-No. 5) (2014-1)

Comparison of Third Quarter 2013 Index

Calculated on Both a Forecasted and an Actual Basis[6]

 

 

Line

No.

 

Index

Component

 

2011

Weight

 

THIRD

quarter

2013 Forecast

 

THIRD

quarter

2013

Actual

 

1

 

Labor

31.4%

391.3

391.3

 

2

 

Fuel

22.6%

375.6

376.0

 

3

 

Materials and Supplies

5.1%

264.2

264.2

 

4

 

Equipment Rents

5.6%

208.0

207.6

 

5

 

Depreciation

11.5%

218.9

217.8

 

6

 

Interest

2.3%

87.3

87.3

 

7

 

Other Items

21.5%

221.4

218.8

 

8

 

Weighted Average

100.0%

307.7

307.0

 

9

 

Linked Index

 

294.4

293.1

 

10

 

Rail Cost Adjustment Factor

 

98.9

98.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE C

 

Rebasing the Denominator of the RCAF

to the Fourth Quarter 2012 Level ( Restated)[7]

 

 

 

 

1.

 

Fourth Quarter 2012 Linked Index

 

299.1

 

2.

 

Second Quarter 2012 Linked Index

Calculated Using Actual Data

295.5

 

3.

 

Second Quarter 2012 Linked Index

Calculated Using forecasted Data

297.0

 

4.

 

Difference

-1.5

 

5.

 

Rounding adjustment to force 1.000

 

0.0

 

6.

 

Fourth Quarter 2012 Linked Index Adjusted for Second

Quarter 2012 Forecast Error (Line 1 plus Line 4 plus Line 5)

 

297.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE D

 

Restated RCAFs 2011Q4 through 2013Q4

 

Original

Restated[8]

 

PAF

PAF-5

RCAF

(Unadjusted)

RCAF (Adjusted)

RCAF-5

RCAF (Unadjusted)

RCAF (Adjusted)

RCAF-5

2007Q4=100

 

 

 

 

 

 

 

 

2011Q4

2.2645

2.3894

1.208

0.533

0.506

1.209

0.534

0.506

2012Q1

2.2724

2.3978

1.169

0.514

0.488

1.170

0.515

0.488

2012Q2

2.2769

2.4062

1.185

0.520

0.492

1.187

0.521

0.493

2012Q3

2.2815

2.4146

1.171

0.513

0.485

1.172

0.514

0.485

2012Q4

2.2861

2.4231

1.209

0.529

0.499

1.210

0.529

0.499

 

 

 

 

 

 

 

 

 

2012Q4=100

 

 

 

 

 

 

 

 

2013Q1

2.2907

2.4279

0.997

0.435

0.411

0.997

0.435

0.411

2013Q2

2.2957

2.4328

1.006

0.438

0.414

1.006

0.438

0.414

2013Q3

2.3008

2.4377

0.977

0.425

0.401

0.977

0.425

0.401

2013Q4

2.3059

2.4426

0.975

0.423

0.399

0.975

0.423

0.399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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] See Table D.

[3] The first quarter 2014 RCAF Adjusted (0.424) is calculated by dividing the first quarter 2014 RCAF Unadjusted (0.980) by the first quarter productivity adjustment factor of 2.3110. The first quarter 2014 productivity adjustment factor is calculated by multiplying the fourth quarter 2013 productivity adjustment of 2.3059 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.

[4] The first quarter 2014 RCAF-5 (0.400) is calculated by dividing the first quarter 2014 RCAF Unadjusted (0.980) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.4480. The first quarter 2014 PAF-5 is calculated by multiplying the fourth quarter 2013 PAF-5 of 2.4426 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.



[1] AAR has restated the 2012 weights in compliance to our November 27, 2013 decision. The 2013 fourth quarter forecast is the restated version, not the September 5, 2013 filing. The 2012 basing factor has also been restated from 297.5 to 297.6.

 

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.

 

3 Linking is necessitated by a change to the 2012 weights beginning in the fourth quarter 2013. The following formula was used for the current quarter’s index:

 

1st Qr. 2014 Index

(2012 Weights) Times 4th Quarter Linked Index Equals Linked Index

4th Qr. 2013 Index (1980 = 100 Linked) (Current Quarter)

(2012 Weights)

Or

306.0 X 297.8 = 292.9

311.1

 

4 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). In compliance to our November 27, 2013 decision, AAR has restated the October 1, 2012 level of 297.5 to 297.6.

 

5 The first quarter 2014 forecast error adjustment was calculated as follows: (a) restated third quarter 2013 RCAF using forecasted data equals 98.9; (b) restated third quarter 2013 RCAF using actual data equals 98.5; and (c) the difference equals the forecast error (b-a) of -0.4. Because the actual third quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF. Both the fourth quarter 2013 and the first quarter 2014 forecast error adjustments are recalculated using the restated October 1, 2012 level of 297.6.

 

[6] AAR has restated the 2011 weights in compliance to our November 27, 2013 decision. The 2013 third quarter forecast and actual are also restated versions. The 2012 fourth quarter basing factor has been restated from 297.5 to 297.6.

 

[7] The fourth quarter 2012 basing factor was restated using revised data from UP and BNSF.

 

[8] The shaded cells contain RCAF numbers that did not change as a result of the restatement.