41086                 SERVICE DATE – LATE RELEASE SEPTEMBER 20, 2010

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2010-4)

 

QUARTERLY RAIL COST ADJUSTMENT FACTOR

 

Decided:  September 20, 2010

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 fourth quarter of 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 fourth quarter 2010 are shown in Table A of the Appendix to this decision.  Table B shows the second 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.

     The weights for each major cost component of the all-inclusive cost index, on which the RCAF is based, are updated annually in order to reflect the changing mix of index components.  See 49 U.S.C. § 10708.  This includes rebenchmarking the wages and supplemental rates used in the labor index in the fourth quarter of each year.  The weights used by AAR are based on the distribution of railway expenses for the year 2009.  Similarly, AAR has used wage and supplemental rates for the year 2009 to calculate hourly labor rates that reflect the changing mix of employees.  We have reviewed the reweighting and rebenchmarking calculations performed by AAR, and we find that they comply with the prescribed method.

            We have examined AAR’s calculations for compliance with our procedures and find that the fourth quarter 2010 RCAF (Unadjusted) is 1.104, an increase of 3.4% from the third quarter 2010 RCAF of 1.068.  The RCAF (Adjusted) is calculated, in part, using the RCAF (Unadjusted) and the 2008 productivity adjustment, 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 0.494, an increase of 3.1% from the previously reported third quarter 2010 RCAF (Adjusted) of 0.479.^[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 2003-2007, which is 1.012 (1.2% per year).  We find the RCAF-5 for the fourth quarter of 2010 is 0.468, an increase of 3.1% from the previously reported third quarter 2010 RCAF-5 of 0.454.^[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 fourth quarter 2010 Rail Cost Adjustment Factor (Unadjusted) of 1.104, RCAF (Adjusted) of 0.494, and RCAF-5 of 0.468.

 

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

 

3.  The effective date of this decision is October 1, 2010.

 

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

 

 

 

 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2010-4)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.	INDEX COMPONENT	2009 WEIGHTS	THIRD QUARTER 2010 FORECAST	FOURTH QUARTER 2010 FORECAST
1	LABOR	34.7%	356.3	367.4
2	FUEL	14.9%	270.9	264.5
3	MATERIALS AND SUPPLIES	5.1%	241.0	251.7
4	EQUIPMENT RENTS	7.1%	204.9	199.8
5	DEPRECIATION	13.9%	205.9	205.5
6	INTEREST	3.0%	83.9	84.5
7	OTHER ITEMS[1]	21.3%	212.9	202.6
8	WEIGHTED AVERAGE	100.0%	267.3	268.2
9	LINKED INDEX[2]		262.0	262.9
10	PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]		106.5	106.9
11	FORECAST ERROR ADJUSTMENT[4]		0.003	0.035
12	RCAF (UNADJUSTED) (LINE 10 + LINE 11)		1.068	1.104
13	RCAF (ADJUSTED)		0.479	0.494
14	RCAF-5		0.454	0.468

 

 

 

 

 

 

 

TABLE B

 

EP 290 (Sub-No. 5) (2010-4)

Comparison of Second Quarter 2010 Index

Calculated on Both a Forecasted and an Actual Basis

 

Line No.	Index Component	2008 Weight	SECOND quarter  2010 Forecast	SECOND quarter  2010 Actual
1	Labor	30.2%	357.3	357.3
2	Fuel	25.2%	255.2	287.8
3	Materials and Supplies	5.1%	240.2	240.0
4	Equipment Rents	6.3%	201.6	201.0
5	Depreciation	10.4%	204.3	204.2
6	Interest	2.3%	83.9	83.9
7	Other Items	20.5%	207.3	205.9
8	Weighted Average	100.0%	262.8	270.7
9	Linked Index		256.8	265.3
10	Rail Cost Adjustment Factor		104.4	107.9

 

 

Endnotes: