40702                        SERVICE DATE – LATE RELEASE MARCH 31, 2010

EB

 

SURFACE TRANSPORTATION BOARD

 

DECISION

 

STB Ex Parte No. 290 (Sub-No. 5) (2010-2)

 

QUARTERLY RAIL COST ADJUSTMENT FACTOR

 

Decided:  March 31, 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, 5 I.C.C.2d 434 (1989), aff’d sub nom. Edison Elec. Inst. 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 second quarter 2010 are shown in Table A of the Appendix to this decision.  Table B shows the fourth quarter 2009 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 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.  The 2008 productivity adjustment is 1.012 (1.2% per year).  AAR timely filed the index of railroad input prices on March 5, 2010.  Because the 2008 productivity adjustment was not yet in effect when AAR’s filing was due,^[1] AAR used the Board’s previously published 2007 productivity adjustment in its March 5, 2010 calculation of the RCAF (Adjusted).  Subsequently, on March 30, 2010, AAR submitted updated calculations based upon the 2008 productivity adjustment in the Board’s March 26, 2010 decision.  We have examined AAR’s most recent calculations for compliance with our procedures and find that the second quarter 2010 RCAF (Unadjusted) is 1.060.  Consistent with our March 26, 2010 decision, AAR modified certain of the RCAF (Adjusted) productivity adjustment factors and we concur with this approach. ^[2]  We find the RCAF (Adjusted) is 0.477, an increase of 2.1% from the previously reported first quarter 2010 RCAF (Adjusted) of 0.467.

 

            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.  We have examined AAR’s most recent calculation for compliance with our procedures.  Consistent with our March 26, 2010 decision, AAR adjusted certain of the RCAF-5 productivity adjustment factors, and we concur with this approach.^[3]  We find the RCAF-5 for the second quarter of 2010 is 0.452, an increase of 2.0% from the previously reported first quarter 2010 RCAF-5 of 0.443.

 

            As part of its March 30, 2010 submission, AAR also asks the Board to “correct the productivity calculation for the period 2003-2007,” and requests that the Board recalculate earlier RCAF (Adjusted) and RCAF-5 values that were determined with the 2003-2007 productivity adjustment factor.  AAR’s additional request will be considered in a separate proceeding.

 

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 second quarter 2010 Rail Cost Adjustment Factor (Unadjusted) is 1.060, RCAF (Adjusted) is 0.477, and RCAF-5 is 0.452.

 

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

 

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

 

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

 

 

 

 

APPENDIX

 

TABLE A

 

Ex Parte No. 290 (Sub-No. 5) (2010-2)

All Inclusive Index of Railroad Input Costs

(Refer to Endnotes Page 5)

 

LINE NO.	INDEX COMPONENT	2008 WEIGHTS	FIRST QUARTER 2010 FORECAST	SECOND QUARTER 2010 FORECAST
1	LABOR	30.2%	356.9	357.3
2	FUEL	25.2%	262.6	255.2
3	MATERIALS AND SUPPLIES	5.1%	242.7	240.2
4	EQUIPMENT RENTS	6.3%	198.7	201.6
5	DEPRECIATION	10.4%	203.3	204.3
6	INTEREST	2.3%	83.9	83.9
7	OTHER ITEMS [1]	20.5%	199.8	207.3
8	WEIGHTED AVERAGE	100.0%	262.9	262.8
9	LINKED INDEX [2]		256.9	256.8
10	PRELIMINARY RAIL COST ADJUSTMENT FACTOR [3]		104.5	104.4
11	FORECAST ERROR ADJUSTMENT [4]		-0.007	0.016
12	RCAF (UNADJUSTED) (LINE 10 +LINE 11)		1.038	1.060
13	RCAF (ADJUSTED)		0.467	0.477
14	RCAF-5		0.443	0.452

 

TABLE B

 

Ex Parte No. 290 (Sub-No. 5) (2010-2)

Comparison of Fourth Quarter 2009 Index

Calculated on Both a Forecasted and an Actual Basis

 

Line No.	Index Component	2008 Weights	FOURTH  quarter  2009 Forecast	FOURTH  quarter  2009 Actual
1	Labor	30.2%	344.8	344.8
2	Fuel	25.2%	234.4	244.0
3	Materials and Supplies	5.1%	238.8	238.8
4	Equipment Rents	6.3%	197.9	198.8
5	Depreciation	10.4%	198.9	203.5
6	Interest	2.3%	83.9	83.9
7	Other Items	20.5%	198.7	199.9
8	Weighted Average	100.0%	251.2	254.4
9	Linked Index		245.5	249.4
10	Rail Cost Adjustment Factor		99.8	101.4

 

Endnotes: