[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Proposed Rules]
[Pages 30790-30791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12434]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Chapter X

[Docket No. EP 661 (Sub-No. 2)]


Rail Fuel Surcharges (Safe Harbor)

AGENCY: Surface Transportation Board (Board or STB), DOT.

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: The Board is instituting this advance notice of proposed 
rulemaking proceeding to give shippers, rail carriers, and other 
interested persons the opportunity to comment on whether the safe 
harbor provision of the Board's current fuel surcharge rules should be 
modified or removed.

DATES: Comments are due by July 14, 2014. Reply comments are due by 
August 12, 2014.

ADDRESSES: Comments and replies 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: EP 661 (Sub-No. 2), 395 E Street SW., 
Washington, DC 20423-0001. Copies of written comments and replies 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: Marc Lerner at 202-245-0390. 
Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: In Rail Fuel Surcharges (Fuel Surcharges), 
EP

[[Page 30791]]

661 (STB served Jan. 26, 2007), the Board inquired into and made 
findings regarding rail carrier practices related to fuel surcharges, 
i.e., a separately identified component of the total rate that is 
charged for the transportation involved and is designed to recoup 
increases in the carrier's fuel costs. The Board prohibited rate-based 
fuel surcharges as an unreasonable practice and, as to the matter at 
issue here, established as a ``safe harbor'' an index upon which 
carriers could rely to measure changes in fuel costs for purposes of a 
fuel surcharge program. Id., slip op. at 11. That index was the Energy 
Information Administration's (EIA) \1\ U.S. No. 2 Diesel Retail Sales 
by All Sellers (Cents per Gallon), which was and continues to be 
referred to as the Highway Diesel Fuel Index (HDF Index).\2\ Id. 
Although the HDF Index tracks retail fuel prices, which include taxes 
not paid by wholesale buyers like the Class I railroads, the Board was 
persuaded that the HDF Index ``accurately reflects changes in fuel 
costs in the rail industry.'' Id. (emphasis added). The Board noted 
that alternative indexes could be used but that they could be 
challenged as unreasonable on a case-by-case basis.\3\
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    \1\ The EIA is an independent arm of the U.S. Department of 
Energy.
    \2\ In the notice of proposed rulemaking issued in Fuel 
Surcharges, the Board had proposed to mandate use of the HDF Index 
to measure incremental fuel costs.
    \3\ In a separate proceeding, the Board amended its regulations 
at 49 CFR 1243.3 to require Class I rail carriers to report on a 
quarterly basis certain data concerning fuel costs and fuel 
surcharges billed. See Rail Fuel Surcharges, EP 661 (Sub-No. 1) (STB 
served Aug. 14, 2007).
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    The changes in a rail carrier's fuel costs are reflected in its 
``incremental fuel costs'' by which we mean those fuel costs, not 
embedded in the base rate, that the rail carrier seeks to recover 
through a fuel surcharge mechanism. A critical issue that arose in a 
complaint brought against BNSF Railway Company (BNSF) by Cargill, 
Incorporated (Cargill), a major shipper of agricultural products, was 
``how to measure BNSF's incremental fuel costs.'' Cargill, Inc. v. BNSF 
Ry. (Cargill), NOR 42120, slip op. at 7 (STB served Aug. 12, 2013.) 
Cargill argued that BNSF's mileage-based fuel surcharge program 
constituted an unreasonable practice, asserting that it extracted 
substantial profits on the traffic to which it applied. Cargill sought 
to show that BNSF's fuel surcharge revenues exceeded BNSF's incremental 
fuel costs by comparing BNSF's fuel surcharge revenue to its internal 
fuel costs.
    To address Cargill's ``Profit Center'' claim, the Board had to 
decide how to calculate BNSF's incremental fuel costs. The Board 
determined that the ``safe harbor'' language in Fuel Surcharges 
dictated the answer. Specifically, the Board found, in part, that if 
rail carriers use the HDF Index to measure changes in their fuel costs 
for purposes of a fuel surcharge program then, under the safe harbor 
provision adopted in Fuel Surcharges, they ``are entitled to rely on 
the HDF Index as a proxy to measure changes in their internal fuel 
costs.'' Id. at 14. Having created the safe harbor ``to encourage use 
of the HDF Index'' to measure changes in rail carrier fuel costs, id. 
at 9, the Board concluded that because BNSF had used the HDF Index in 
the fuel surcharge program at issue, the Board had to use that index as 
well to calculate BNSF's incremental fuel costs Id. (``what the safe 
harbor means is that if a rail carrier uses the HDF Index [in its fuel 
surcharge program] to measure changes in its fuel costs, then that is 
how the Board will measure these changes as well, rather than by 
looking at evidence of changes in the rail carrier's internal fuel 
costs'').\4\
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    \4\ The Board also rejected Cargill's claim that the general 
formula used to calculate the fuel surcharges bore no reasonable 
nexus to, and overstated, fuel consumption for the BNSF system 
traffic to which the surcharge was applied.
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    Performing its own examination of BNSF's month-to-month incremental 
fuel costs over a five-year period, the Board determined that, as 
measured by the HDF Index, BNSF's total incremental fuel costs for the 
traffic subject to the challenged fuel surcharge program only narrowly 
exceeded the fuel surcharge revenues BNSF collected on that traffic. 
The Board observed, however, that if BNSF's incremental fuel costs were 
instead measured by the rail carrier's internal fuel costs, BNSF's fuel 
surcharge revenues would have exceeded its incremental fuel costs by 
$181 million. Id. at 14. This occurred because changes in the HDF Index 
did not precisely reflect changes in BNSF's internal fuel costs. In 
particular, the ``spread''--i.e., the difference between the average 
retail price per gallon as reflected in the HDF Index and the lower 
wholesale price per gallon actually paid by BNSF--increased overall 
significantly more than it decreased over the five-year analysis 
period.
    This result concerned the Board. Pointing out that it had not 
rejected Cargill's Profit Center claim lightly, the Board noted that in 
Fuel Surcharges neither it nor any commenting party had foreseen a 
situation where the spread between a rail carrier's internal fuel costs 
and the HDF Index would diverge as it had in Cargill and that it was 
unclear if this recovery was a unique situation affecting BNSF during a 
period of high fuel price volatility or if it was, or was likely to 
have been, a more widespread phenomenon that could undermine the 
usefulness of the safe harbor provision. The Board expressed concern 
that the safe harbor provision could give rail carriers an unintended 
advantage: if a rail carrier's internal fuel costs rise relative to HDF 
Index prices, the rail carrier could revise its fuel surcharge level 
upward to ensure that it fully recovers its incremental fuel costs; on 
the other hand, if a rail carrier's internal fuel costs declined 
relative to HDF Index prices (as happened to BNSF), the rail carrier 
could leave its fuel surcharge level in place, creating a spread and 
excessive revenues. Id. at 17. This could allow a rail carrier to 
recover substantially more than its incremental internal fuel costs yet 
still be permissible under the safe harbor.
    The Board found no evidence to suggest that BNSF had intentionally 
taken advantage of this aspect of the safe harbor. Nevertheless, 
because of the possibility of future abuse, the Board stated that it 
would give shippers, rail carriers, and other interested persons the 
opportunity to file comments on the issue.
    We are seeking comments from the public on whether the safe harbor 
provision of Fuel Surcharges should be modified or removed. In 
particular, we seek comments on: whether or not the phenomenon that we 
observed in Cargill (a growing spread between a rail carrier's internal 
fuel costs and the HDF Index) was likely an aberration; whether there 
are problems associated with the Board's use of the HDF Index as a safe 
harbor in judging the reasonableness of fuel surcharge programs; 
whether any problems with the safe harbor could be addressed through a 
modification of it; and whether any problems with the safe harbor are 
outweighed by its benefits. Parties are also encouraged to comment on 
any other matter that they believe bears on whether the safe harbor 
should be modified or removed.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.

    Authority:  49 U.S.C. 721(a) and 10702.

    Decided: May 22, 2014.

    By the Board, Chairman Elliott, Vice Chairman Begeman, and 
Commissioner Miller.
Jeffrey Herzig,
Clearance Clerk.
[FR Doc. 2014-12434 Filed 5-28-14; 8:45 am]
BILLING CODE 4915-01-P