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 FIRST QUARTER 2011 RAIL COST ADJUSTMENT FACTOR (UNADJUSTED) OF 1.093, RACF (ADJUSTED) OF 0.488, AND RACF-5 OF 0.462.

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    Full Text of Decision

40473

41303                  SERVICE DATE – LATE RELEASE DECEMBER 20, 2010

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2011-1)

 

QUARTERLY RAIL COST ADJUSTMENT FACTOR

 

Digest:[1]  The Rail Cost Adjustment Factor (RCAF) is formulated to represent changes in railroad costs incurred by the nation’s largest railroads over a specified period of time.  Congress requires the Surface Transportation Board to publish the RCAF on at least a quarterly basis.  Each quarter, the Association of American Railroads computes 3 types of RCAF figures and submits those figures to the Board for approval.  After review, the Board is adopting the RCAF figures submitted for the first quarter of 2011.

 

Decided:  December 20, 2010

 

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, 3 indices are now filed with the Board:  the RCAF (Unadjusted), the RCAF (Adjusted), and the RCAF-5.  The RCAF (Adjusted), which reflects national average productivity changes as originally developed and applied by the ICC, is currently based on a 5-year moving average.  The RCAF-5 reflects national average productivity changes 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 2011 are shown in Table A of the Appendix to this decision.  Table B shows the third quarter 2010 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 for compliance with our procedures and find that the first quarter 2011 RCAF (Unadjusted) is 1.093, a decrease of 1.0% from the fourth quarter 2010 RCAF of 1.104.  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 2004-2008, which is 1.012 (1.2% per year).  We find the RCAF (Adjusted) is 0.488, a decrease of 1.2% from the previously reported fourth quarter 2010 RCAF (Adjusted) of 0.494.[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 2004-2008, which is 1.012 (1.2% per year).  We find the RCAF-5 for the first quarter of 2011 is 0.462, a decrease of 1.3% from the previously reported fourth quarter 2010 RCAF-5 of 0.468.[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 first quarter 2011 Rail Cost Adjustment Factor (Unadjusted) of 1.093, RCAF (Adjusted) of 0.488, and RCAF-5 of 0.462.

 

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

 

3.  The effective date of this decision is January 1, 2011.

 

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

 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2011-1)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2009 WEIGHTS

FOURTH QUARTER 2010 FORECAST

FIRST QUARTER 2011 FORECAST

1

LABOR

34.7%

367.4

378.3

2

FUEL

14.9%

264.5

296.5

3

MATERIALS AND SUPPLIES

5.1%

251.7

248.1

4

EQUIPMENT RENTS

7.1%

199.8

203.9

5

DEPRECIATION

13.9%

205.5

204.2

6

INTEREST

3.0%

84.5

84.5

7

OTHER ITEMS[1]

21.3%

202.6

208.6

8

WEIGHTED AVERAGE

100.0%

268.2

277.9

9

LINKED INDEX[2]

 

262.9

272.4

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

106.9

110.8

11

FORECAST ERROR ADJUSTMENT[4]

 

0.035

-0.015

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

1.104

1.093

13

RCAF (ADJUSTED)

 

0.494

0.488

14

RCAF-5

 

0.468

0.462

 

TABLE B

 

EP 290 (Sub-No. 5) (2011-1)

Comparison of Third Quarter 2010 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

Line

No.

 

Index

Component

 

2008

Weight

 

THIRD

quarter

 2010 Forecast

 

THIRD

 quarter

 2010 Actual

 

1

 

Labor

30.2%

356.3

356.3

 

2

 

Fuel

25.2%

270.9

261.3

 

3

 

Materials and Supplies

5.1%

241.0

241.0

 

4

 

Equipment Rents

6.3%

204.9

200.8

 

5

 

Depreciation

10.4%

205.9

204.1

 

6

 

Interest

2.3%

83.9

83.9

 

7

 

Other Items

20.5%

212.9

205.3

 

8

 

Weighted Average

100.0%

268.1

263.6

 

9

 

Linked Index

 

262.0

258.3

 

10

 

Rail Cost Adjustment Factor

 

106.5

105.0

 

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 first quarter 2011 RCAF Adjusted (0.488) is calculated by dividing the first quarter 2011 RCAF Unadjusted (1.093) by the first quarter productivity adjustment factor of 2.2409.  The first quarter 2011 productivity adjustment factor is calculated by multiplying the fourth quarter 2010 productivity adjustment of 2.2342 by the fourth root (1.0030) of the 2004-2008 annual average productivity growth rate of 1.2%.

            [3]  The first quarter 2011 RCAF-5 (0.462) is calculated by dividing the first quarter 2011 RCAF Unadjusted (1.093) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.3681.  The first quarter 2011 PAF-5 is calculated by multiplying the fourth quarter 2010 PAF-5 of 2.3610 by the fourth root (1.0030) of the 2004-2008 annual average productivity growth rate of 1.2%.


[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 2009 weights beginning in the fourth quarter 2010.  The following formula was used for the current quarter’s index:

 

            1st Qr. 2011 Index

                  (2009 Weights)     Times   4th Quarter Linked Index       Equals Linked Index

            4th Qr. 2010 Index                      (1980 = 100 Linked)          (Current Quarter)

                  (2009 Weights)

                                                            Or

            277.9   X  262.9  =  272.4

268.2

 

[3]  The first quarter 2008 RCAF was rebased using the October 1, 2007, level of 245.9 in accordance with the requirements of the Staggers Rail Act of 1980 (10/1/2007 = 100).

 

[4]  The first quarter 2011 forecast error adjustment was calculated as follows:  (a) third quarter 2010 RCAF using forecasted data equals 106.5; (b) third quarter 2010 RCAF using actual data equals 105.0; (c) the difference equals the forecast error (b-a) of -1.5.  Because the actual third quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.