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 THIRD QUARTER 2010 RAIL COST ADJUSTMENT FACTOR (UNADJUSTED) OF 1.068, RCAF (ADJUSTED) OF 0.479, AND RCAF-5 OF 0.454.

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    Full Text of Decision

SERVICE DATE - MARCH 18, 2005

40869                                        SERVICE DATE – JUNE 18, 2010

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

Docket No. EP 290 (Sub-No. 5) (2010-3)

 

QUARTERLY RAIL COST ADJUSTMENT FACTOR

 

Decided:  June 17, 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 established procedures, the Association of American Railroads (AAR) is required to calculate the index on a quarterly basis and submit it to the Board 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 Board to publish both an unadjusted RCAF and a productivity-adjusted RCAF.  The RCAF (Adjusted) reflects national average productivity changes as originally developed and applied by the ICC.  In Productivity Adjustment—Implementation, 1 S.T.B. 739 (1996), the Board decided to publish a second productivity-adjusted RCAF called the RCAF-5.  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.  Consequently, three indices are now published by the Board:  the RCAF (Unadjusted), the RCAF (Adjusted), and the RCAF-5. 

 

The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the third quarter 2010 are shown in Table A of the Appendix to this decision.  Table B shows the first 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 the AAR’s calculations for compliance with our procedures and find that the third quarter 2010 RCAF (Unadjusted) is 1.068, an increase of 0.8% from the second quarter 2010 RCAF of 1.060.  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 0.479, an increase of 0.4% from the previously reported second quarter 2010 RCAF (Adjusted) of 0.477.[1]

 

            In accordance with Productivity Adjustment—Implementation, 1 S.T.B. at 748-49, the RCAF-5 for the second, third, and fourth quarters of 2010 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 third quarter of 2010 is 0.454, an increase of 0.4% from the previously reported second quarter 2010 RCAF-5 of 0.452.[2]

 

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 third quarter 2010 Rail Cost Adjustment Factor (Unadjusted) is 1.068, RCAF (Adjusted) is 0.479, and RCAF-5 is 0.454.

 

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

 

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

 

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

APPENDIX

 

TABLE A

 

Ex Parte No. 290 (Sub-No. 5) (2010-3)

All Inclusive Index of Railroad Input Costs

(Refer to Endnotes Page 5)

 

LINE NO.

INDEX COMPONENT

2008 WEIGHTS

SECOND QUARTER 2010 FORECAST

THIRD QUARTER 2010 FORECAST

1

LABOR

30.2%

357.3

356.3

2

FUEL

25.2%

255.2

270.9

3

MATERIALS AND SUPPLIES

5.1%

240.0

241.0

4

EQUIPMENT RENTS

6.3%

201.6

204.9

5

DEPRECIATION

10.4%

204.3

205.9

6

INTEREST

2.3%

83.9

83.9

7

OTHER ITEMS [1]

20.5%

207.3

212.9

8

WEIGHTED AVERAGE

100.0%

262.8

268.1

9

LINKED INDEX [2]

 

256.8

262.0

10

PRELIMINARY RAIL COST ADJUSTMENT FACTOR [3]

 

104.4

106.5

11

FORECAST ERROR ADJUSTMENT [4]

 

0.016

0.003

12

RCAF (UNADJUSTED) (LINE 10 +LINE 11)

 

1.060

1.068

13

RCAF (ADJUSTED)

 

0.477

0.479

14

RCAF-5

 

0.452

0.454

 

TABLE B

 

Ex Parte No. 290 (Sub-No. 5) (2010-3)

Comparison of First Quarter 2010 Index

Calculated on Both a Forecasted and an Actual Basis

 

 

Line

No.

 

Index

Component

 

2008

Weights

 

First

 quarter

 2010 Forecast

 

First

 quarter

 2010 Actual

 

1

 

Labor

30.2%

356.9

356.9

 

2

 

Fuel

25.2%

262.6

258.6

 

3

 

Materials and Supplies

5.1%

242.7

243.8

 

4

 

Equipment Rents

6.3%

198.7

199.6

 

5

 

Depreciation

10.4%

203.3

204.8

 

6

 

Interest

2.3%

83.9

83.9

 

7

 

Other Items

20.5%

199.8

203.1

 

8

 

Weighted Average

100.0%

262.9

262.8

 

9

 

Linked Index

 

256.9

257.6

 

10

 

Rail Cost Adjustment Factor

 

104.5

104.8

 

Endnotes:


            [1]  The third quarter 2010 RCAF adjusted (0.479) is calculated by dividing the third quarter RCAF Unadjusted (1.068) by the third quarter productivity adjustment factor of 2.2275.  The third quarter 2010 productivity adjustment factor is calculated by multiplying the second quarter 2010 productivity adjustment of 2.2208 by the fourth root (1.0030) of the 2004-2008 annual average productivity growth rate of 1.2%. 

            [2]  The third quarter 2010 RCAF-5 (0.454) is calculated by dividing the third quarter 2010 RCAF Unadjusted (1.068) by the third quarter productivity adjustment factor-5 (PAF-5) of 2.3539.  The third quarter 2010 productivity adjustment factor -5 (PAF-5) is calculated by multiplying the second quarter 2010 PAF-5 of 2.3469 by the fourth root (1.0030) of the 2003-2007 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 2008 weights beginning in the fourth quarter 2009.  The following formula was used for the current quarter’s index:

 

            3rd Qr. 2010 Index

            ___(2008 Weights)      Times   2nd  Quarter Linked Index         Equals  Linked Index

            2nd Qr. 2010 Index                        (1980 = 100 Linked)           (Current Quarter)

                  (2008 Weights)

                                                            Or

            268.1   X  256.8  =  262.0

            262.8

 

 

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 = 1.00).

 

4  The third quarter 2010 forecast error adjustment was calculated as follows:  a. first quarter 2010 RCAF using forecasted data equals 104.5; b. first quarter 2010 RCAF using actual data equals 104.8; c. the difference equals the forecast error (b-a) of 0.3.  Since the actual first quarter value is greater than the forecast value, the difference is added to the Preliminary RCAF.