[Federal Register Volume 74, Number 3 (Tuesday, January 6, 2009)]
[Proposed Rules]
[Pages 416-419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-31398]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1301

[STB Ex Parte No. 676]


Rail Transportation Contracts Under 49 U.S.C. 10709

AGENCY: Surface Transportation Board.

ACTION: Notice of proposed rule.

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SUMMARY: The Surface Transportation Board (Board or STB) proposes to 
amend its rules to provide that where an agreement for rail carriage 
contains the disclosure statement to be set forth in this new rule, the 
Board will not find jurisdiction over a dispute involving the rate or 
service under the agreement and will treat that agreement as a rail 
transportation contract governed by 49 U.S.C. 10709; and conversely 
where an agreement for rail carriage fails to contain the disclosure 
statement, the Board will find jurisdiction over a dispute involving 
the rate or service under the agreement, absent clear and convincing 
evidence that the parties intended to enter into a rail transportation 
contract governed by 49 U.S.C. 10709; and the shipper was made aware 
that it could request service under a common carrier tariff rate that 
would be subject to STB jurisdiction.

DATES: Comments on this proposal are due by February 5, 2009. Reply 
comments are due by March 9, 2009.

ADDRESSES: Comments may be submitted either via the Board's e-filing 
format or in the traditional paper format. Any person using e-filing 
should attach a document and otherwise comply with the instructions at 
the E-FILING link on the Board's Web site, at http://www.stb.dot.gov. 
Any person submitting a filing in the traditional paper format should 
send an original and 10 copies to: Surface Transportation Board, Attn.: 
STB Ex Parte No. 676, 395 E Street, SW., Washington, DC 20423-0001.
    Copies of written comments will be available for viewing and self-
copying at the Board's Public Docket Room, Room 131, and will be posted 
to the Board's Web site.

FOR FURTHER INFORMATION CONTACT: Timothy Strafford at (202) 245-0356. 
(Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.)

SUPPLEMENTARY INFORMATION: In a Notice of Proposed Rulemaking in STB Ex 
Parte No. 669 served on March 29, 2007 (2007 NPRM) and published in the 
Federal Register on April 4, 2007 (72 FR 16316-18), the Board sought to 
address two concerns arising from hybrid rail pricing mechanisms such 
as the one involved in Kansas City Power & Light Company v. Union 
Pacific Railroad Company, STB Docket No. 42095 (STB served Mar. 27, 
2007) (KCPL), which, despite having characteristics of a rail 
transportation contract beyond the Board's jurisdiction under 49 U.S.C. 
10709, are designated by the carrier as common carriage rates subject 
to the Board's jurisdiction.
    The first concern was uncertainty. Although Congress expressly 
removed all matters and disputes arising from rail transportation 
contracts from the Board's jurisdiction, 49 U.S.C. 10709(c), the 
statute provides no clear demarcation between a contract rate and 
common carriage rate. The issue of whether a rate is a contract rate or 
common carriage rate has been examined on a case-by-case basis in light 
of the parties' intent. See Aggregate Volume Rate on Coal, Acco, UT to 
Moapa, NV, 364 I.C.C. 678, 689 (1981). With the enactment of the ICC 
Termination Act of 1995 (ICCTA), it became more difficult to 
distinguish between the two types of rates, as railroads are no longer 
required to file with the agency either tariffs containing their common 
carriage rates or summaries of their non-agricultural contracts.
    The second concern was that increased use of hybrid pricing 
arrangements could create an environment where collusive activities in 
the form of anticompetitive price signaling could occur. Although the 
terms of a rail transportation contract generally are kept 
confidential, the terms and conditions of common carriage rates must be 
publicly disclosed upon request, 49 U.S.C. 11101, thereby increasing 
the possibility of collusive behavior in a highly concentrated 
industry.
    In the 2007 NPRM, the Board proposed to address these two concerns 
by interpreting the term ``contract'' in 49 U.S.C. 10709 as embracing 
``any bilateral agreement between a carrier and a shipper for rail 
transportation in which the railroad agrees to a specific rate for a 
specific period of time in exchange for consideration from the shipper, 
such as a commitment to tender a specific amount of freight during a 
specific period or to make specific investments in rail facilities.''
    Both shippers and carriers opposed that proposal. After reviewing 
their comments, the Board concluded that its original proposal might 
have unintended and undesirable

[[Page 417]]

consequences, and it decided to discontinue that proceeding.\1\
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    \1\ A complete review of the comments submitted in STB Ex Parte 
No. 669 and the Board's reasons for rejecting that approach and 
pursuing a different approach by instituting STB Ex Parte No. 676 is 
provided in Rail Transportation Contracts Under 49 U.S.C. 10709, STB 
Ex Parte No. 676, et al. (STB served Mar. 12, 2008) (ANPR).
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    Nevertheless, we remained concerned with the lack of any clear 
demarcation between common carriage rates and contract pricing 
arrangements and the resulting ambiguity regarding the Board's 
jurisdiction. This ambiguity was exhibited in two recent Board 
proceedings regarding Option 2 of the Union Pacific Railway Company's 
(UP's) Circular 111.\2\ In the first proceeding, the shipper, Kansas 
City Power & Light Company, agreed with UP that Circular 111 is a 
tariff. See KCPL. In the second proceeding, the shipper, Ameren Energy 
and Fuels Services Company, argued that Circular 111 is a contract. See 
Union Pacific Railroad Company--Petition for Declaratory Order, STB 
Finance Docket No. 35021 (STB served May 15, 2007). The fact that two 
sophisticated shippers regarded the same document, with the same 
language, in completely opposite ways underscores the need for greater 
clarity.
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    \2\ UP's Circular 111, ``Unit Train Coal Common Carrier Circular 
Applying On: Unit Coal Trains from the Powder River Basin of 
Wyoming,'' contains two classes of rates for customers. One class, 
referred to as Option 1, contains a higher rate with no volume 
requirement. The second class, referred to as Option 2, contains a 
lower rate with commitments from both parties for term, volume, 
rates, and service.
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    Thus, we sought an alternative, less-intrusive way to distinguish 
contracts from common carriage agreements.\3\ Specifically, we sought 
public comment on whether the Board should require that each carrier 
provide a formal written disclosure statement when it seeks to enter 
into a rail transportation contract under 49 U.S.C. 10709. That 
statement would explicitly advise the shipper that the carrier intends 
the document to be a rail transportation contract and that any 
transportation under the document would not be subject to regulation by 
the Board. The statement would further advise the shipper that it has a 
statutory right to request a common carriage rate that the carrier 
would then have to supply promptly, and that such a rate might be open 
to challenge before the Board. We also sought comment on whether to 
include a requirement for a written informed consent statement in which 
the shipper acknowledges, and states its willingness to forgo, its 
regulatory options.
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    \3\ See ANPR supra.
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    The Board received comments from Arkansas Electric Cooperative 
Corp. (AECC); the Association of American Railroads (AAR); BNSF Railway 
Company (BNSF); CSX Transportation, Inc. (CSXT); Edison Electric 
Institute (EEI); National Grain and Feed Association (NGFA); the 
National Industrial Transportation League (NITL); Norfolk Southern 
Railway Company (NS); Occidental Chemical Corp. (OxyChem); Olin Corp. 
(Olin); PPG Industries, Inc. (PPG); Progressive Rail, Inc. (PGR); Union 
Pacific Railroad Company (UP); United Transportation Union-General 
Committee of Adjustment, GO-386 (UTU); the U.S. Clay Producers Traffic 
Association, Inc. (Clay Producers); and the Western Coal Traffic League 
(WCTL). We have reviewed the record and taken each of these comments 
into account in the development of the proposed rule.

Proposed Rule

    The somewhat different rule we now propose, which is set forth in 
the regulatory text of this document, seeks to provide a more objective 
means of determining whether the parties' intent was to use a common 
carriage tariff subject to the Board's jurisdiction or to agree to a 
rail transportation contract outside the Board's jurisdiction under 49 
U.S.C. 10709.\4\ A need for a clear demarcation between tariffs and 
contracts has become evident in recent Board proceedings and is 
recognized by many within the industry.\5\ By proposing a rule that 
would encourage full disclosure to shippers of their regulatory options 
at the time of contract formation, the proposed rule should further 
Congress' dual intent to offer regulatory protection to shippers that 
desire such protection, while encouraging private rail transportation 
contracts for those shippers that prefer such arrangements. The rule 
proposed here would not require the inclusion of a disclosure 
statement; rather, it would simply set forth the criteria that the 
Board would apply to determine its jurisdiction based on the presence 
or absence of such a statement.
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    \4\ This proposed rule would apply only to agreements between 
shippers and carriers for rail service. As PGR has pointed out, a 
disclosure statement is not needed for contracts between carriers, 
such as freight handling, haulage, and switching agreements. Nor 
would the proposed rule be intended to apply to separate contracts 
for accessorial services such as demurrage and storage, transloading 
to and from other modes, incidental warehousing during transloading, 
and local drayage.
    \5\ See AECC at 2; CSXT at 4; Clay Producers at 1; WCTL at 4.
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    The significant change between this proposal and our prior proposal 
is the removal of the informed consent requirement. The anticipated 
benefits of the informed consent proposal are outweighed by the 
potential for unintended consequences that could hamper contracting for 
rail carriage. Carriers made a strong case that the informed consent 
requirement would unnecessarily complicate the contract process and 
delay the timely implementation of contracts, especially when contracts 
are negotiated electronically or in the case of signatureless 
contracts.\6\ And shippers made a strong case that, by signing an 
informed consent statement, they would be unable to argue in court that 
a unilateral agreement is a contract of adhesion.\7\ We believe that a 
prominently displayed disclosure statement that provides explicit 
notice to the shipper of the nature of the agreement would further 
Congress' concern that shippers not opt out of our regulatory 
protections unknowingly. Nevertheless, the incremental benefit of 
imposing an additional informed consent requirement does not appear to 
merit the hindrance and delay to modern contract formation that it 
might cause.
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    \6\ See AAR note 5 at 12; CSXT at 3; NS at 5; UP at 7.
    \7\ See Olin at 2.
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    Given the Board's lack of jurisdiction over contracts under 49 
U.S.C. 10709, some comments suggest that any rule should focus only on 
common carriage,\8\ an area clearly within our jurisdiction.\9\ But to 
exercise jurisdiction over matters properly before us, we must be able 
to distinguish between common carriage and contract pricing 
arrangements in situations where the terms and conditions can appear to 
be identical.\10\
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    \8\ See AAR at 5; BNSF at 4; CSXT at 7; NS at 3; WCTL at 5.
    \9\ Although the Board has authority to define how it will 
determine what constitutes a tariff, doing so could overlap with the 
jurisdiction of the courts. For instance, NITL and others have 
argued that we should define common carriage to include unilateral 
rate offerings. See NITL at 5. However, there are unilateral 
agreements that are recognized by courts as contracts and we have no 
authority to question a court's judgment on these matters.
    \10\ It is well-settled that the Board has jurisdiction to 
determine its jurisdiction. See Burlington N., Inc. v. Chicago & 
N.W. Transp. Co., 649 F.2d 556, 558 (8th Cir. 1981); cf. Wms. Gas 
Processing-Gulf Coast Co. v. FERC, 475 F.3d 319, 323 (D.C. Cir. 
2006) (FERC must draw the line between non-jurisdictional gathering 
and jurisdictional transportation of natural gas, a line that is 
``not always clear'').
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    This proposal should establish a practical way to allow a clear 
demarcation between contract and

[[Page 418]]

common carrier rates. With respect to the proposed disclosure statement 
provision, set forth in the proposed new Sec.  1301.1 \11\ the 
disclosure statement should be placed prominently at the top of the 
first page of the agreement, in type size at least as large as the type 
used for the body of the agreement.\12\ We are not proposing that 
carriers be required to use the disclosure statement but rather that 
the inclusion of this statement in an agreement would establish clear 
and objective evidence that the parties intended to enter into a 
contract under 49 U.S.C. 10709 and that their dispute thus lies outside 
the Board's jurisdiction. Absent the inclusion of such a disclosure 
statement, we would find that an agreement for rail transportation is a 
common carriage tariff and would take jurisdiction over a rate or 
service complaint absent clear and convincing evidence both that the 
parties intended to enter into a rail transportation contract and that 
the shipper was made aware that it could request a common carriage 
tariff that would be subject to STB jurisdiction.
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    \11\ The disclosure language is based on language suggested by 
WCTL. See WCTL at 12.
    \12\ Some shipper groups expressed concern that a contract 
disclosure provision would be useless, and possibly harmful to 
shippers, if the language is not easily discernable on the front of 
the document. See Clay Producers at 2-3. We are proposing to specify 
the expected location and minimum type size in order to address this 
concern.
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    This disclosure statement provision should be a workable mechanism 
to solve the demarcation problem between contracts and tariffs without 
hindering contracting or inappropriately encouraging the use of 
tariffs. Use of the disclosure statement by carriers should adequately 
allay shipper and carrier concerns in this regard.\13\ Nevertheless, we 
remain open to comments not only on the proposed rule itself but also 
regarding the language of the disclosure statement to ensure that it 
would not inadvertently encourage a common carriage agreement over a 
rail transportation contract.
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    \13\ See AAR at 10; BNSF at 3; UP at 7; WCTL at 11.
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    The disclosure statement provision should promote regulatory 
efficiency by establishing a transparent mechanism to determine our 
jurisdiction over a rate or service complaint instead of having to 
glean the parties' intent based on the unique facts of each case before 
us. The parties should benefit by the associated reduction in legal 
fees in actions before the Board and in court.
    Railroads have suggested using a safe harbor approach, instead of a 
disclosure statement, to allow various ways to demonstrate the parties' 
intentions.\14\ Shippers suggest alternatively that any ambiguity on 
the face of a document should be construed against the carrier as the 
drafter of the document.\15\ Neither of these approaches would promote 
efficiency, however, as they would require the Board to examine 
extraneous evidence beyond the document to determine the parties' 
intent in every instance.
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    \14\ See AAR at 13; BNSF at 5; NS at 4; WCTL at 7.
    \15\ See WCTL at 6.
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    Finally, Olin expressed concern that the Board not preempt by rule 
state law as to what constitutes a contract, or on whether one can have 
an enforceable contract on rates without other agreed-upon terms and 
conditions.\16\ We do not intend for inclusion of the disclosure 
statement in an agreement to be dispositive in court that a contract 
exists, or to preclude shippers from making an argument that the 
document is a contract of adhesion or raising any other defense in 
state court. The proposed rule is simply intended to be a mechanism for 
assisting the Board in determining the Board's jurisdiction to 
adjudicate a rate or service complaint involving rail transportation 
arrangements.
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    \16\ See Olin at 2.
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Ancillary Matters

    Two additional concerns have been raised in the shippers' comments 
regarding how carriers negotiate contracts for rail service. They 
relate to unilateral contracts and bundling.
    Unilateral contracts, or signatureless contracts, are contract 
offers made by a carrier that a shipper accepts by tendering shipment. 
Shippers suggest that this practice should be considered a tariff 
subject to Board jurisdiction, as there is no bilateral 
negotiation.\17\ But this practice is generally beyond the jurisdiction 
of the Board; carriers may offer and shippers may accept these 
contracts, as long as state courts recognize them as such. Instead, we 
propose to regard unilateral or signatureless agreements that lack the 
disclosure language as common carrier tariffs subject to our 
jurisdiction, unless there is clear and convincing evidence both that 
the parties intended to enter into a rail transportation contract and 
that the shipper was made aware that it could request a common carriage 
tariff that would be subject to STB jurisdiction.
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    \17\ See NITL at 5.
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    Bundling occurs when a shipper and carrier negotiate multiple 
movements at one time. Shippers claim that carriers often refuse to 
provide common carriage rates until contract negotiations are 
exhausted, or they withdraw contract offers on all movements if a 
tariff rate is requested on any movement.\18\ The purpose of the 
proposed rule is to provide clarity regarding when an arrangement is 
one for common carriage and thus within the Board's jurisdiction. We 
will not complicate this proceeding by addressing negotiating 
practices. Carriers have a common carrier obligation to provide service 
upon reasonable request. Allegations of violations of that obligation 
are best considered by individual complaint.
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    \18\ See EEI at 4; Oxychem at 2; Olin at 3.
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Conclusion

    This proposal is consistent with the Board's jurisdiction and 
regulatory responsibilities. The proposed rule would have no 
substantive effect on contracting; the Board is not proposing to 
dictate how parties negotiate. Nor would the proposal seek to dictate 
to a court of competent jurisdiction how to interpret, apply, or 
determine what constitutes a contract. However, as rail transportation 
contracts and tariffs can be indistinguishable, all parties should know 
what they are agreeing to and what rights may be available to them, 
including any right to seek regulatory relief.
    The proposed rule, if adopted, would apply prospectively only, and 
would not be applicable to existing contracts, existing amendments, or 
existing supplements to contracts.\19\ But if the proposed rule is 
adopted, all subsequent contracts, amendments and supplements, even 
those that attach to contracts signed before the effective date of the 
new rule, would need to contain the disclosure statement in order to be 
conclusively presumed to be a contract under 49 U.S.C. 10907 and thus 
outside of the Board's jurisdiction.
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    \19\ We agree with public comments to the ANPR suggesting that 
any rule should only apply prospectively. See AAR at 14.
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    Pursuant to 5 U.S.C. 605(b), the Board certifies that the proposed 
action would not have a significant economic effect on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.

List of Subjects

49 CFR Part 1301

    Administrative practice and procedure, and Railroads.

    Authority: 49 U.S.C. 721(a) and 10709.


[[Page 419]]


    Decided: December 30, 2008.

    By the Board, Chairman Nottingham, Vice Chairman Mulvey, and 
Commissioner Buttrey.
Jeffrey Herzig,
Clearance Clerk.

    For the reasons set forth in the preamble, the Surface 
Transportation Board proposes to add part 1301 of title 49, chapter X, 
of the Code of Federal Regulations as follows:

PART 1301--RAIL TRANSPORTATION CONTRACTS

    Authority: 49 U.S.C. 721(a) and 10709.


Sec.  1301.1  Contract Disclosure Statement.

    (a) The Board will not find jurisdiction over a dispute involving 
the rate or service under a rail transportation agreement where that 
agreement contains a disclosure statement that conforms with paragraphs 
(b) and (c) of this section. Conversely, where a rail transportation 
agreement fails to contain such a disclosure statement, the Board will 
find jurisdiction over a dispute involving the rate or service provided 
under that agreement, absent clear and convincing evidence both that 
the parties intended to enter into a rail transportation contract 
governed by 49 U.S.C. 10709 and that the shipper was made aware that it 
could request service under a common carrier tariff rate that would be 
subject to STB jurisdiction.
    (b) The disclosure statement should appear at the top of the first 
page of the rail transportation agreement in type size at least as 
large as the type size used for the body of the agreement.
    (c) The disclosure statement should read as follows:
    Disclosure Statement--This agreement constitutes a rail 
transportation contract under 49 U.S.C. 10709. Contract arrangements 
are generally not subject to challenge before the Surface 
Transportation Board (``STB''), but can be enforced in a court of 
competent jurisdiction. Under federal rules found at 49 CFR 1300, 
railroads are required, upon request, to quote to shippers a rate for 
common carriage transportation (i.e., a non-contract rate). Pursuant to 
49 U.S.C. 10701, the STB has jurisdiction (subject to some exceptions) 
over disputes arising out of common carriage (non-contract) rates.

[FR Doc. E8-31398 Filed 1-5-09; 8:45 am]
BILLING CODE 4915-01-P