SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_290_4

Case Title:  
RAILROAD COST RECOVERY PROCEDURES-PRODUCTIVITY ADJUSTMENT

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
DECISION PROPOSED TO ADOPT 1.008 AS THE MEASURE OF AVERAGE CHANGE IN RAILROAD PRODUCTIVITY FOR THE 2006-2010 PERIOD. THIS REPRESENTS A 0.6% DECREASE OVER THE AVERAGE FOR THE 2005-2009 PERIOD.

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    Full Text of Decision

42181 SERVICE DATE – LATE RELEASE FEBRUARY 6, 2012

EB

SURFACE TRANSPORTATION BOARD

 

DECISION

 

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

 

RAILROAD COST RECOVERY PROCEDURES—PRODUCTIVITY ADJUSTMENT

 

Digest:[1] Each year the Board calculates the change, if any, in the rail industry’s productivity, i.e., how efficiently railroads move freight. The Board calculates this figure by comparing year-to-year the average cost of producing a unit of railroad output. Here, the Board presents its calculation for the change in railroad productivity for the 2006-2010 averaging period.

 

Decided: February 6, 2012

 

We propose to adopt 1.008 (0.8% per year) as the measure of average (geometric mean) change in railroad productivity for the 2006-2010 (5-year) period. This represents a 0.6% decrease over the average for the 2005-2009 period.

 

Since 1989, the cost recovery procedures have required that the quarterly rail cost adjustment factor (RCAF)[2] be adjusted for long-run changes in railroad productivity. R.R. Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C. 2d 434 (1989); see also 49 U.S.C.  10708. This long-run measure of productivity is computed using a 5-year moving geometric average. Productivity Adjustment—Implementation, 9 I.C.C. 2d 1072 (1993).

 

The productivity change for the year 2010 is 1.036, based on changes in input and output levels from 2009 and represents an increase of 5.2% from the rate of productivity growth in 2009 relative to 2008 (0.984). Incorporating the 2010 value with the values for the 2006-2009 period produces a geometric average productivity growth of 1.008 for the 5-year period 2006-2010, or 0.8% per year. As the new geometric mean was computed by replacing the 2005 figure of 1.068 with the lower figure of 1.036 for 2010, there was a 0.6% decrease in the geometric mean from last year’s value. A detailed discussion of our calculations is contained in the Appendix to this decision.

Comments may be filed addressing any perceived data and computational errors in our calculation. Any party proposing a different estimate of productivity growth must, at the time it files comments, furnish the Board with one set of detailed workpapers and documentation underlying its calculations. The same information must be made available to other parties upon request.

 

This decision will not significantly affect the quality of the human environment or the conservation of energy resources.

 

It is ordered:

 

1.      Comments are due by February 21, 2012.

 

2. An original and 10 copies must be filed with:

 

United States Surface Transportation Board

395 E Street, S.W.

Washington, DC 20423-0001

 

3. Comments must be served on all parties appearing on the current service list.

4. Unless further order is issued postponing the effective date, this order becomes effective on March 1, 2012.

 

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


APPENDIX

 

The following is a description of the methodology currently used to calculate the RCAF productivity adjustment.[3] The annual rate of productivity change is calculated by dividing an output index by an input index.

 

The input index uses constant dollar-adjusted expenses. The inputs in this index—freight expenses, fixed charges and contingent interest—are stated on a constant dollar basis using the most recent year available as the base, and updating the base by the Series Rail Cost Recovery (RCR) Index published by the Association of American Railroads. Freight expenses, fixed charges, and contingent interest were obtained from railroad Annual Report (Form R-1) data. The 2010 constant dollar adjustment factor for each of the 6 years was calculated by dividing the 2010 RCR index value (465.1) by the RCR index values for 2005 and each subsequent year through 2009, inclusive. The calculation of the input indices and values used are shown in Table A.

 

The 2010 output index was developed from the costed waybill sample, a commonly used data source. The costed waybill sample excludes movements originating in Canada and Mexico and movements lacking sufficient information for the application of unit costs.

 

Using the costed waybill sample as a base, each movement is assigned to one of the 189 segments or categories used to develop the output index. Segmentation is based on three mileage blocks, seven car types, three weight brackets, and three shipment sizes. The output index is a composite of the year-to-year change in ton-miles for each of the 189 segments weighted by each segment’s base-year share of total revenues.

 

The change in productivity is calculated by dividing the output index by the input index. The multi-year average for the period 2006-2010 is calculated by taking a geometric mean, which was found to be 1.008 (0.8% per year). The input index, the output index, the annual productivity change, and the calculation of the 2006-2010 average are shown in Table B.

 


Table A

Calculation of Input Indices

2005-2010

 

Year

Total Expense Unadjusted (000s)

RCR Indices 2005-2010

Total Expense Constant Dollars

Input Index Column (3) 2006/2005 etc.

 

(1)

(2)

(3)

(4)

2005

38,927,852

376.8

48,050,276

 

2006

41,989,707

397.0

49,192,475

1.024

2007

43,778,699

415.5

49,004,748

0.996

2008

48,294,159

472.7

47,517,693

0.970

2009

38,221,745

434.5

40,913,541

0.861

2010

43,796,157

465.1

43,796,157

1.070

 

 

 

Table B

Comparison of Output, Input, and Productivity

2006-2010

 

Year

Output Index

Input Index

Productivity Change[4] Col (1)/Col (2)

 

(1)

(2)

(3)

2006

1.018

1.024

0.994

2007

1.000

0.996

1.004

2008

0.990

0.970

1.021

2009

0.847

0.861

0.984

2010

1.109

1.070

1.036

 

 

 

The 5-year (2006-2010) productivity trend calculated using a geometric average is 1.008, or 0.8%



[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 RCAF is an index of railroad input prices that is published by the Board on a quarterly basis. See, e.g., Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (STB served Dec. 20, 2011).

[3] The development and application of the productivity adjustment is explained in the decision in this proceeding found at 5 I.C.C. 2d 434 (1989).

[4] The values shown in Column 3 are taken from the spreadsheet used to calculate productivity and, due to rounding, may not equal numbers calculated using the rounded numbers shown in Columns 1 and 2.

42181 SERVICE DATE – LATE RELEASE FEBRUARY 6, 2012

EB

SURFACE TRANSPORTATION BOARD

 

DECISION

 

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

 

RAILROAD COST RECOVERY PROCEDURES—PRODUCTIVITY ADJUSTMENT

 

Digest:[1] Each year the Board calculates the change, if any, in the rail industry’s productivity, i.e., how efficiently railroads move freight. The Board calculates this figure by comparing year-to-year the average cost of producing a unit of railroad output. Here, the Board presents its calculation for the change in railroad productivity for the 2006-2010 averaging period.

 

Decided: February 6, 2012

 

We propose to adopt 1.008 (0.8% per year) as the measure of average (geometric mean) change in railroad productivity for the 2006-2010 (5-year) period. This represents a 0.6% decrease over the average for the 2005-2009 period.

 

Since 1989, the cost recovery procedures have required that the quarterly rail cost adjustment factor (RCAF)[2] be adjusted for long-run changes in railroad productivity. R.R. Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C. 2d 434 (1989); see also 49 U.S.C.  10708. This long-run measure of productivity is computed using a 5-year moving geometric average. Productivity Adjustment—Implementation, 9 I.C.C. 2d 1072 (1993).

 

The productivity change for the year 2010 is 1.036, based on changes in input and output levels from 2009 and represents an increase of 5.2% from the rate of productivity growth in 2009 relative to 2008 (0.984). Incorporating the 2010 value with the values for the 2006-2009 period produces a geometric average productivity growth of 1.008 for the 5-year period 2006-2010, or 0.8% per year. As the new geometric mean was computed by replacing the 2005 figure of 1.068 with the lower figure of 1.036 for 2010, there was a 0.6% decrease in the geometric mean from last year’s value. A detailed discussion of our calculations is contained in the Appendix to this decision.

Comments may be filed addressing any perceived data and computational errors in our calculation. Any party proposing a different estimate of productivity growth must, at the time it files comments, furnish the Board with one set of detailed workpapers and documentation underlying its calculations. The same information must be made available to other parties upon request.

 

This decision will not significantly affect the quality of the human environment or the conservation of energy resources.

 

It is ordered:

 

1.      Comments are due by February 21, 2012.

 

2. An original and 10 copies must be filed with:

 

United States Surface Transportation Board

395 E Street, S.W.

Washington, DC 20423-0001

 

3. Comments must be served on all parties appearing on the current service list.

4. Unless further order is issued postponing the effective date, this order becomes effective on March 1, 2012.

 

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


APPENDIX

 

The following is a description of the methodology currently used to calculate the RCAF productivity adjustment.[3] The annual rate of productivity change is calculated by dividing an output index by an input index.

 

The input index uses constant dollar-adjusted expenses. The inputs in this index—freight expenses, fixed charges and contingent interest—are stated on a constant dollar basis using the most recent year available as the base, and updating the base by the Series Rail Cost Recovery (RCR) Index published by the Association of American Railroads. Freight expenses, fixed charges, and contingent interest were obtained from railroad Annual Report (Form R-1) data. The 2010 constant dollar adjustment factor for each of the 6 years was calculated by dividing the 2010 RCR index value (465.1) by the RCR index values for 2005 and each subsequent year through 2009, inclusive. The calculation of the input indices and values used are shown in Table A.

 

The 2010 output index was developed from the costed waybill sample, a commonly used data source. The costed waybill sample excludes movements originating in Canada and Mexico and movements lacking sufficient information for the application of unit costs.

 

Using the costed waybill sample as a base, each movement is assigned to one of the 189 segments or categories used to develop the output index. Segmentation is based on three mileage blocks, seven car types, three weight brackets, and three shipment sizes. The output index is a composite of the year-to-year change in ton-miles for each of the 189 segments weighted by each segment’s base-year share of total revenues.

 

The change in productivity is calculated by dividing the output index by the input index. The multi-year average for the period 2006-2010 is calculated by taking a geometric mean, which was found to be 1.008 (0.8% per year). The input index, the output index, the annual productivity change, and the calculation of the 2006-2010 average are shown in Table B.

 


Table A

Calculation of Input Indices

2005-2010

 

Year

Total Expense Unadjusted (000s)

RCR Indices 2005-2010

Total Expense Constant Dollars

Input Index Column (3) 2006/2005 etc.

 

(1)

(2)

(3)

(4)

2005

38,927,852

376.8

48,050,276

 

2006

41,989,707

397.0

49,192,475

1.024

2007

43,778,699

415.5

49,004,748

0.996

2008

48,294,159

472.7

47,517,693

0.970

2009

38,221,745

434.5

40,913,541

0.861

2010

43,796,157

465.1

43,796,157

1.070

 

 

 

Table B

Comparison of Output, Input, and Productivity

2006-2010

 

Year

Output Index

Input Index

Productivity Change[4] Col (1)/Col (2)

 

(1)

(2)

(3)

2006

1.018

1.024

0.994

2007

1.000

0.996

1.004

2008

0.990

0.970

1.021

2009

0.847

0.861

0.984

2010

1.109

1.070

1.036

 

 

 

The 5-year (2006-2010) productivity trend calculated using a geometric average is 1.008, or 0.8%



[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 RCAF is an index of railroad input prices that is published by the Board on a quarterly basis. See, e.g., Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (STB served Dec. 20, 2011).

[3] The development and application of the productivity adjustment is explained in the decision in this proceeding found at 5 I.C.C. 2d 434 (1989).

[4] The values shown in Column 3 are taken from the spreadsheet used to calculate productivity and, due to rounding, may not equal numbers calculated using the rounded numbers shown in Columns 1 and 2.