SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_290_4

Case Title:  
RAILROAD COST RECOVERY PROCEDURES-PRODUCTIVITY ADJUSTMENT

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
DECISION PROPOSED TO ADOPT 1.009 (0.9% PER YEAR) AS THE MEASURE FOR AVERAGE CHANGE IN RAILROAD PRODUCTIVITY FOR THE 2007-2011 PERIOD. THE BOARD CALCULATED THIS FIGURE BY COMPARING YEAR-TO-YEAR THE AVERAGE COST OF PRODUCING A UNIT OF RAILROAD OUTPUT.

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    Full Text of Decision

42907 SERVICE DATE – FEBRUARY 11, 2013

EB

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 4)

 

RAILROAD COST RECOVERY PROCEDURES—PRODUCTIVITY ADJUSTMENT

 

Digest:[1] Each year the Board calculates the change, if any, in the rail industry’s productivity, i.e., how efficiently railroads move freight. The Board calculates this figure by comparing year-to-year the average cost of producing a unit of railroad output. Here, the Board presents its calculation for the change in railroad productivity for the 2007-2011 averaging period.

 

Decided: February 7, 2013

 

We propose to adopt 1.009 (0.9% per year) as the measure of average (geometric mean) change in railroad productivity for the 2007-2011 (5-year) period. This represents a 0.1% increase over the average for the 2006-2010 period.

 

Since 1989, the cost recovery procedures have required that the quarterly rail cost adjustment factor (RCAF)[2] be adjusted for long-run changes in railroad productivity. R.R. Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C. 2d 434 (1989); see also 49 U.S.C.  10708. This long-run measure of productivity is computed using a 5-year moving geometric average. Productivity Adjustment—Implementation, 9 I.C.C. 2d 1072 (1993).

 

The productivity change for the year 2011 is 1.000, based on changes in input and output levels from 2010 and represents a decrease of 3.6% from the rate of productivity growth in 2010 relative to 2009 (1.036). Incorporating the 2011 value with the values for the 2007-2010 period produces a geometric average productivity growth of 1.009 for the 5-year period 2007-2011, or 0.9% per year. As the new geometric mean was computed by replacing the 2006 figure of 0.994 with the higher figure of 1.000 for 2011, there was a 0.1% increase in the geometric mean from last year’s value. A detailed discussion of our calculations is contained in the Appendix to this decision.

 

Comments may be filed addressing any perceived data and computational errors in our calculation. Any party proposing a different estimate of productivity growth must, at the time it files comments, furnish the Board with one set of detailed workpapers and documentation underlying its calculations. The same information must be made available to other parties upon request.

 

This decision will not significantly affect the quality of the human environment or the conservation of energy resources.

 

It is ordered:

 

1.      Comments are due by February 26, 2013.

 

2. An original and 10 copies must be filed with:

 

United States Surface Transportation Board

395 E Street, S.W.

Washington, DC 20423-0001

 

3. Comments must be served on all parties appearing on the current service list.

4. Unless further order is issued postponing the effective date, this decision is effective on March 1, 2013.

 

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


APPENDIX

 

The following is a description of the methodology currently used to calculate the RCAF productivity adjustment.[3] The annual rate of productivity change is calculated by dividing an output index by an input index.

 

The input index uses constant dollar-adjusted expenses. The inputs in this index—freight expenses, fixed charges and contingent interest—are stated on a constant dollar basis using the most recent year available as the base, and updating the base by the Series Rail Cost Recovery (RCR) Index published by the Association of American Railroads. Freight expenses, fixed charges, and contingent interest were obtained from railroad Annual Report (Form R-1) data. The 2011 constant dollar adjustment factor for each of the 6 years was calculated by dividing the 2011 RCR index value (513.7) by the RCR index values for 2006 and each subsequent year through 2010, inclusive. The calculation of the input indices and values used are shown in Table A.

 

The 2011 output index was developed from the costed waybill sample, a commonly used data source. The costed waybill sample excludes movements lacking sufficient information for the application of unit costs.

 

Using the costed waybill sample as a base, each movement is assigned to one of the 189 segments or categories used to develop the output index. Segmentation is based on three mileage blocks, seven car types, three weight brackets, and three shipment sizes. The output index is a composite of the year-to-year change in ton-miles for each of the 189 segments weighted by each segment’s base-year share of total revenues.

 

The change in productivity is calculated by dividing the output index by the input index. The multi-year average for the period 2007-2011 is calculated by taking a geometric mean, which was found to be 1.009 (0.9% per year). The input index, the output index, the annual productivity change, and the calculation of the 2007-2011 average are shown in Table B.

 


Table A

Calculation of Input Indices

2006-2011

 

Year

Total Expense Unadjusted (000s)

RCR Indices 2006-2011

Total Expense Constant Dollars

Input Index Column (3) 2007/2006 etc.

 

(1)

(2)

(3)

(4)

2006

41,989,707

397.0

54,332,777

 

2007

43,778,699

415.5

54,125,434

0.996

2008

48,294,159

472.7

52,482,990

0.970

2009

38,221,745

434.5

45,188,747

0.861

2010

43,796,157

465.1

48,372,578

1.070

2011

50,350,808

513.7

50,350,808

1.041

 

 

Table B

Comparison of Output, Input, and Productivity

2007-2011

 

Year

Output Index

Input Index

Productivity Change[4] Col (1)/Col (2)

 

(1)

(2)

(3)

2007

1.000

0.996

1.004

2008

0.990

0.970

1.021

2009

0.847

0.861

0.984

2010

1.109

1.070

1.036

2011

1.041

1.041

1.000

 

The 5-year (2007-2011) productivity trend calculated using a geometric average is 1.009, or 0.9%

 



[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 RCAF is an index of railroad input prices that is published by the Board on a quarterly basis. See, e.g., Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (STB served Dec. 20, 2012).

[3] The development and application of the productivity adjustment is explained in the decision in this proceeding found at 5 I.C.C. 2d 434 (1989).

[4] The values shown in Column 3 are taken from the spreadsheet used to calculate productivity and, due to rounding, may not equal numbers calculated using the rounded numbers shown in Columns 1 and 2.