41700                        SERVICE DATE – LATE RELEASE JUNE 20, 2011

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2011-3)

 

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 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 third quarter of 2011.

 

Decided:  June 20, 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 (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 does reflect national average productivity changes as originally developed and applied by the ICC; the calculation of those productivity changes is currently based on a 5-year moving average.  And the RCAF-5 is an index that also reflects national average productivity changes; those productivity changes are calculated 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 third quarter of 2011 are shown in Table A of the Appendix to this decision.  Table B shows the first quarter 2011 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 third quarter 2011 RCAF (Unadjusted) is 1.206, an increase of 2.6% from the second quarter 2011 RCAF of 1.176.  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 0.534, an increase of 2.1% from the previously reported second quarter 2011 RCAF (Adjusted) of 0.523.^[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 third quarter of 2011 is 0.506, an increase of 2.2% from the previously reported second quarter 2011 RCAF-5 of 0.495.^[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 third quarter 2011 RCAF (Unadjusted) of 1.206, RCAF (Adjusted) of 0.534, and RCAF-5 of 0.506.

 

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

 

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

 

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

 

 

APPENDIX

 

TABLE A

 

EP 290 (Sub-No. 5) (2011-3)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

 

LINE NO.	INDEX COMPONENT	2009 WEIGHT	SECOND QUARTER 2011 FORECAST	THIRD QUARTER 2011 FORECAST
1	LABOR	34.7%	379.6	382.1
2	FUEL	14.9%	368.4	392.3
3	MATERIALS AND SUPPLIES	5.1%	249.0	257.8
4	EQUIPMENT RENTS	7.1%	203.1	208.8
5	DEPRECIATION	13.9%	204.6	206.1
6	INTEREST	3.0%	84.5	84.5
7	OTHER ITEMS[1]	21.3%	212.9	222.3
8	WEIGHTED AVERAGE	100.0%	290.1	297.5
9	LINKED INDEX[2]		284.4	291.7
10	PRELIMINARY RAIL COST ADJUSTMENT FACTOR[3]		115.7	118.6
11	FORECAST ERROR ADJUSTMENT[4]		0.019	0.020
12	RCAF (UNADJUSTED) (LINE 10 +LINE 11)		1.176	1.206
13	RCAF (ADJUSTED)		0.523	0.534
14	RCAF-5		0.495	0.506

 

TABLE B

 

EP 290 (Sub-No. 5) (2011-3)

Comparison of First Quarter 2011 Index

Calculated on Both a Forecasted and an Actual Basis

 

Line No.	Index Component	2009 Weight	FIRST quarter  2011 Forecast	FIRST  quarter  2011 Actual
1	Labor	34.7%	378.3	378.3
2	Fuel	14.9%	296.5	324.6
3	Materials and Supplies	5.1%	248.1	248.1
4	Equipment Rents	7.1%	203.9	206.2
5	Depreciation	13.9%	204.2	204.6
6	Interest	3.0%	84.5	84.5
7	Other Items	21.3%	208.6	212.6
8	Weighted Average	100.0%	277.9	283.2
9	Linked Index		272.4	277.4
10	Rail Cost Adjustment Factor		110.8	112.8

 

Endnotes: