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 SECOND QUARTER 2011 RAIL COST ADJUSTMENT FACTOR (RCAF) (UNADJUSTED) OF 1.176, RCAF (ADJUSTED) OF 0.523, AND RCAF-5 OF 0.495.

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    Full Text of Decision

40473

41487 SERVICE DATE – MARCH 18, 2011

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2011-2)

 

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 three 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 second quarter of 2011.

 

Decided: March 16, 2011

 

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, three 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 second quarter 2011 are shown in Table A of the Appendix to this decision. Table B shows the fourth 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 second quarter 2011 RCAF (Unadjusted) is 1.176, an increase of 7.6% from the first quarter 2011 RCAF of 1.093. 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 2005-2009, which is 1.014 (1.4% per year). We find the RCAF (Adjusted) is 0.523, an increase of 7.2% from the previously reported first quarter 2011 RCAF (Adjusted) of 0.488.[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 second quarter of 2011 is 0.495, an increase of 7.1% from the previously reported first quarter 2011 RCAF-5 of 0.462.[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 2011 Rail Cost Adjustment Factor (Unadjusted) of 1.176, RCAF (Adjusted) of 0.523, and RCAF-5 of 0.495.

 

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

 

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

 

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

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2011-2)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.

INDEX COMPONENT

2009 WEIGHT

FIRST QUARTER 2011 FORECAST

SECOND QUARTER 2011 FORECAST

1

LABOR

34.7%

378.3

379.6

2

FUEL

14.9%

296.5

368.4

3

MATERIALS AND SUPPLIES

5.1%

248.1

249.0

4

EQUIPMENT RENTS

7.1%

203.9

203.1

5

DEPRECIATION

13.9%

204.2

204.6

6

INTEREST

3.0%

84.5

84.5

7

OTHER ITEMS[1]

21.3%

208.6

212.9

8

WEIGHTED AVERAGE

100.0%

277.9

290.1

9

LINKED INDEX[2]

 

272.4

284.4

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]

 

110.8

115.7

11

FORECAST ERROR ADJUSTMENT[4]

 

-0.015

0.019

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

1.093

1.176

13

RCAF (ADJUSTED)

 

0.488

0.523

14

RCAF-5

 

0.462

0.495

 


TABLE B

 

EP 290 (Sub-No. 5) (2011-2)

Comparison of Fourth Quarter 2010 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

Line

No.

 

Index

Component

 

2009

Weight

 

FOURTH

quarter

2010 Forecast

 

FOURTH

quarter

2010

Actual

 

1

 

Labor

34.7%

367.4

367.4

 

2

 

Fuel

14.9%

264.5

290.2

 

3

 

Materials and Supplies

5.1%

251.7

251.8

 

4

 

Equipment Rents

7.1%

199.8

203.3

 

5

 

Depreciation

13.9%

205.5

203.8

 

6

 

Interest

3.0%

84.5

84.5

 

7

 

Other Items

21.3%

202.6

207.8

 

8

 

Weighted Average

100.0%

268.2

273.1

 

9

 

Linked Index

 

262.9

267.5

 

10

 

Rail Cost Adjustment Factor

 

106.9

108.8

 


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 2011 RCAF Adjusted (0.523) is calculated by dividing the second quarter 2011 RCAF Unadjusted (1.176) by the second quarter productivity adjustment factor of 2.2487. The second quarter 2011 productivity adjustment factor is calculated by multiplying the first quarter 2011 productivity adjustment of 2.2409 by the fourth root (1.0035) of the 2005-2009 annual average productivity growth rate of 1.4%.

[3] The second quarter 2011 RCAF-5 (0.495) is calculated by dividing the second quarter 2011 RCAF Unadjusted (1.176) by the second quarter productivity adjustment factor-5 (PAF-5) of 2.3752. The second quarter 2011 PAF-5 is calculated by multiplying the first quarter 2011 PAF-5 of 2.3681 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:

 

2nd Qr. 2011 Index

(2009 Weights) Times 1st Quarter Linked Index Equals Linked Index

1st Qr. 2011 Index (1980 = 100 Linked) (Current Quarter)

(2009 Weights)

Or

290.1 X 272.4 = 284.4

277.9

 

[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 second quarter 2011 forecast error adjustment was calculated as follows: (a) fourth quarter 2010 RCAF using forecasted data equals 106.9; (b) fourth quarter 2010 RCAF using actual data equals 108.8; (c) the difference equals the forecast error (b-a) of 1.9. Because the actual fourth quarter value is greater than the forecast value, the difference is added to the Preliminary RCAF.