[Federal Register Volume 81, Number 154 (Wednesday, August 10, 2016)]
[Proposed Rules]
[Pages 52784-52796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18806]


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SURFACE TRANSPORTATION BOARD

49 CFR Parts 1247 and 1248

[Docket No. EP 431 (Sub-No. 4)]


Review of the General Purpose Costing System; Supplement

AGENCY: Surface Transportation Board.

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: Through this supplemental notice of proposed rulemaking 
(Supplemental NPR), the Surface Transportation Board (Board) is 
revising its proposal to eliminate the ``make-whole adjustment'' that 
is currently applied as part of our general purpose costing system, the 
Uniform Railroad Costing System (URCS). The notice of proposed 
rulemaking (NPR) in this proceeding, issued on February 4, 2013, 
explained that when disaggregating data and calculating system-average 
unit costs in Phase II, URCS does not fully take into account the 
economies of scale realized from larger shipment sizes, necessitating 
an adjustment in Phase III. This subsequent adjustment in Phase III, 
referred to as the make-whole adjustment, produces a step function and 
does not appropriately reflect operating costs and economies of scale. 
To better address this problem and related issues, the Board is now 
proposing to modify certain inputs into Phase II of URCS and to modify 
certain cost calculations in Phase III of URCS in order to eliminate 
the make-whole adjustment. The Board is also proposing certain other 
related changes to URCS, including proposals for locomotive unit-miles 
(LUM) and train miles allocations, which would result in more 
appropriate rail movement costs.

DATES: Comments are due by October 11, 2016; replies are due by 
November 7, 2016.

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: Docket No. EP 431 (Sub-No. 4), 395 E Street 
SW., Washington, DC 20423-0001.

FOR FURTHER INFORMATION CONTACT: Allison Davis at (202) 245-0378. 
Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at (800) 877-8339.

SUPPLEMENTARY INFORMATION: In 1989, the Board's predecessor, the 
Interstate Commerce Commission (ICC), adopted URCS as its general 
purpose costing system. Adoption of the Unif. R.R. Costing Sys. as a 
Gen. Purpose Costing Sys. for All Regulatory Costing Purposes, 5 
I.C.C.2d 894 (1989). The Board uses URCS for a variety of regulatory 
functions. URCS is used in rate reasonableness proceedings as part of 
the initial market dominance determination. At later stages of rate 
reasonableness proceedings, URCS is used in parts of the Board's 
determination as to whether the challenged rate is reasonable, and, 
when warranted, the maximum rate prescription. URCS is also used to 
develop variable costs for making cost determinations in abandonment 
proceedings; to provide the railroad industry and shippers with a 
standardized costing model; to cost the Board's Carload Waybill Sample 
to develop industry cost information; and to provide interested parties 
with basic

[[Page 52785]]

cost information regarding railroad industry operations.
    URCS develops a regulatory cost estimate that can be applied to a 
service that occurs anywhere on a rail carrier's system. These cost 
estimates are developed through three distinct phases of URCS.
     Phase I occurred only when URCS was originally developed 
using the annual reports submitted by Class I rail carriers (R-1 
reports). Regression analyses were performed to develop equations 
linking expense account groupings with particular measures of railroad 
activities.
     Annually, in Phase II, URCS takes the aggregated cost data 
and traffic statistics provided by Class I carriers in their most 
recent R-1 reports and other reports and disaggregates them by 
calculating system-average unit costs associated with specific rail 
activities.
     In Phase III, URCS takes the unit costs from Phase II and 
applies them to the characteristics of a particular movement in order 
to calculate the variable cost of that movement.\1\
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    \1\ Although Phase III is referred to generically here, Phase 
III actually consists of two programs: The waybill costing program, 
used to calculate the variable costs of movements from the Waybill 
Sample, and the interactive Phase III movement costing program, 
which calculates variable costs of movements based on user-supplied 
information. The waybill costing program calculates the make-whole 
factors, whereas the interactive Phase III movement costing program 
applies the make-whole factors and estimates a movement-specific 
cost. The interactive Phase III movement costing program is 
available for download on the Board's Web site. See also infra note 
79 and accompanying text.
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    The agency has periodically reviewed URCS since its inception.\2\ 
In August 2009, the Senate Committee on Appropriations directed the 
Board to submit a report providing options for additional updates to 
URCS. In the report submitted in May 2010, the Board identified the 
make-whole adjustment as one area that warranted further review.\3\
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    \2\ See, e.g., Review of the Surface Transp. Bd.'s Gen. Costing 
Sys., EP 431 (Sub-No. 3) (STB served Apr. 6, 2009); Review of Gen. 
Purpose Costing Sys., 2 S.T.B. 754 (1997); Review of Gen. Purpose 
Costing Sys., EP 431 (Sub-No. 2) (ICC served July 21, 1993).
    \3\ Surface Transp. Bd., Surface Transportation Board Report to 
Congress Regarding the Uniform Rail Costing System, 14, 18-19 (May 
27, 2010).
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    By decision served on February 4, 2013, the Board issued the NPR, 
mentioned above, to address concerns with the make-whole adjustment in 
URCS. As explained in the NPR, the make-whole adjustment is applied by 
URCS to correct the fact that, when disaggregating data and calculating 
system-average unit costs in Phase II, URCS does not fully take into 
account the economies of scale realized from larger shipment sizes. The 
purpose of the make-whole adjustment, which is calculated and applied 
in Phase III, is to recognize the efficiency savings that a carrier 
obtains in its higher-volume shipments and thus render more appropriate 
unit costs.
    URCS applies the make-whole adjustment through a three-step 
process. First, URCS assumes that a movement's costs are equal to that 
of a system-average movement. Next, URCS applies efficiency adjustments 
depending on shipment size--single-car (1 to 5 cars), multi-car (6 to 
49 cars), and trainload/unit train (50 or more cars).\4\ URCS applies 
the efficiency adjustments to higher-volume movements, thereby reducing 
the system-average unit costs of such movements.\5\ Last, URCS 
redistributes the total savings obtained in all of the higher-volume 
shipments (the shortfall) across all of the lower-volume shipments, 
such that the sum of variable costs across all of the carrier's 
movements remains the same.
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    \4\ Single-car, multi-car, and trainload/unit train are the 
three basic shipment size categories for purposes of the make-whole 
adjustment. URCS currently treats all trainload movements as unit 
train movements; because of its handling of the Empty/Loaded Ratio, 
URCS assumes that every trainload movement travels from origination 
to destination and back to origination. Trainload movements are also 
assumed to be unit train because URCS uses certain unit train 
statistics reported by the railroads when costing trainload 
movements (e.g., train miles, locomotive unit-miles, car-miles, and 
gross ton-miles). Although the NPR used the term ``trainload'' to 
describe these movements, because URCS treats these movements as 
unit train, this Supplemental NPR will use the term ``unit train,'' 
which better reflects how those shipments are costed.
    Additionally, URCS treats intermodal traffic as a type of 
``hybrid'' category. Prior to 1997, URCS treated intermodal traffic 
as single-car movements. In 1997, the Board concluded that more 
accurate costs would be obtained by applying to intermodal traffic 
many, though not all, of the efficiency adjustments applicable to 
unit train movements. Review of Gen. Purpose Costing Sys., 2 S.T.B. 
659, 663-665 (1997).
    \5\ There are 14 efficiency adjustments, any number of which may 
apply to a particular movement.
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    The NPR identified two primary concerns with how the make-whole 
adjustment is currently applied by URCS. First, the efficiency 
adjustments cause a step function because the adjustments generally 
reduce the system-average unit costs by various set percentages 
depending on whether the movement is classified as unit train, multi-
car, or single-car. As a result, the current URCS methodology generally 
reflects economies of scale only between single-car and multi-car 
shipments and between multi-car and unit train shipments, but it does 
not reflect any economies of scale within those shipment sizes. For 
example, the system-average unit cost for a multi-car movement is the 
same whether it is a 6-car or 49-car shipment. Likewise, the unit cost 
for a unit train movement is the same, whether it is a 50-car or 135-
car shipment (or anywhere in between). At the same time, however, the 
system-average unit cost for a 49-car multi-car shipment is 
significantly higher than the unit cost for a 50-car unit train 
shipment. In other words, hard break points exist that may not reflect 
true efficiency differences between single-car and multi-car shipments, 
and between multi-car and unit train shipments.
    Second, the make-whole adjustment redistributes the shortfall 
across single-car and multi-car movements on a per-car basis, which not 
only fails to account for economies of scale but also increases the 
size of the step function. For example, under the per-car method for 
switching-related costs, costs are increased in proportion to the 
number of cars switched (i.e., a two-car movement is costed as twice as 
expensive to switch as a one-car movement, a three-car movement is 
three times as expensive to switch as a one-car movement, etc.). By not 
decreasing the per-car costs as the number of cars in the shipment 
increases, the redistribution of savings does not adequately account 
for economies of scale. Additionally, the redistribution of savings 
increases the size of the step function because the add-ons increase 
costs per car across single-car and multi-car shipments, but do not 
apply to unit train shipments.\6\
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    \6\ For example, under the current system, the costs are 
increased in proportion to the number of cars. If the shortfall 
redistribution for a one-car shipment is $1,000, then the shortfall 
redistribution for a 49-car shipment is $49,000. But because the 
add-ons do not apply to unit train shipments, there is no 
redistribution of costs to a 50-car shipment.
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    These break points, or steps, create the opportunity for parties to 
use URCS to manipulate regulatory outcomes. The same problem occurs 
with locomotive unit-mile (LUM) allocation, which also produces a step 
function between multi-car and unit train shipments. The NPR proposed 
to address these concerns regarding the make-whole adjustment and LUM 
allocation. Rather than refining the make-whole adjustment in Phase 
III, the NPR proposed to reflect the impact of economies of scale in 
calculating the system-average unit costs in Phase II, thereby 
eliminating the need for a modification of those costs in Phase III. To 
that end, the NPR proposed changes to switching costs related to switch 
engine minutes, equipment costs for the use of railroad-owned equipment 
during switching, station clerical costs, and car-mile costs, as well 
as other related changes to URCS. The NPR also

[[Page 52786]]

proposed changes to the LUM allocation.
    To assist commenters in evaluating those proposals, the Board 
issued a decision on April 25, 2013, in which it made available certain 
information, including the uncosted and costed 2011 Waybill Sample, the 
source code used to cost the Waybill Sample and the intermediate 
outputs that result from using the source code, a small record set, and 
descriptions to changes in the calculations of certain Phase III line 
items. The Board received comments and reply comments on June 20, 2013, 
and September 5, 2013, respectively.\7\ After considering the comments, 
the Board is modifying its earlier proposal.
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    \7\ The following parties filed comments in this proceeding: 
Arkansas Electric Cooperative Corporation (AECC); Association of 
American Railroads (AAR); BNSF Railway Company (BNSF); Montana Grain 
Growers Association (Montana Grain); Samuel J. Nasca, on behalf of 
United Transportation Union-New York State Legislative Board; Tom 
O'Connor Group; Union Pacific Railroad Company (UP); Western Coal 
Traffic League (WCTL). Additionally, joint comments were filed by 
the American Chemistry Council and others (referred to collectively 
as ACC) as well as by the Alliance for Rail Competition and others 
(referred to collectively as ARC).
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General Comments

    Commenters expressed two general concerns about the NPR, which the 
Board has considered in creating the revised proposal set forth in this 
Supplemental NPR. First, some commenters cautioned against pursuing 
``piece-meal'' changes to URCS, arguing that piece-meal changes run the 
risk of skewing results and that the Board should consider a more 
comprehensive review of URCS.\8\ Second, a number of commenters 
expressed the concern that the proposals in the NPR lack empirical 
support and would change long-standing cost allocation factors that 
were derived from industry studies. To that end, many of the commenters 
propose that the Board conduct special studies that will provide the 
empirical support necessary for the proposed changes.
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    \8\ AAR Comment 9, 21; V.S. O'Connor & Legieza 10-11; UP Comment 
2, 18.
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    We understand the arguments about piece-meal changes to URCS, but 
we do not believe that improvements to our costing system should be 
ignored when incremental changes can be implemented to address specific 
problems or concerns that have been identified with a portion of that 
system. Nor do we believe that it is necessary for the Board to have 
the types of empirical data suggested by commenters in order to move 
forward with the specific changes to URCS proposed in this rulemaking. 
The changes proposed here can be properly supported by reasonable 
economic judgments based on sound principles of cost causation and cost 
allocation. Moreover, both the need for improvement and the extent to 
which changes can be implemented without undue burden must be 
considered. The special studies that would reexamine all of the 
underlying empirical studies would primarily place a burden on both the 
rail industry's and the agency's resources. Because the modest changes 
proposed here can be made to correct or mitigate specific problems with 
the make-whole adjustment and the related LUM and train mile 
allocations without such studies,\9\ the Board believes this is the 
prudent course of action. In taking this approach, the Board is guided 
by the ``practicality principle'' set forth in the Final Report of the 
Railroad Accounting Principles Board (RAPB), which states that ``cost 
and related information . . . must generate benefits that exceed the 
costs of providing it.'' \10\ As the Board has previously stated,
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    \9\ Although the NPR did not include a proposal on train miles, 
the Board is addressing train mile allocation in this Supplemental 
NPR because, as explained below, it has the possibility of producing 
a step function.
    \10\ RAPB Final Report 17. See also Adoption of the Uniform R.R. 
Costing Sys. As A General Purpose Costing Sys. For All Regulatory 
Costing Purposes, 5 I.C.C.2d 894, 909 (1989); 49 U.S.C. 11162(b)(3), 
(4).

[i]n considering costing modifications, [the Board] cannot demand 
perfection. Rather, [the Board bases its] decision on whether a 
proposed change represents an improvement over current costing 
procedures, and whether such a change can be implemented at a 
reasonable cost and without undue burden on the railroad industry, 
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the shipping public or the agency.

Review of Gen. Purpose Costing Sys., 2 S.T.B. 659, 660-61 (1997).
    The NPR in this proceeding focused on an identified problem in 
URCS: The occurrence of break points, between shipment sizes, that do 
not appropriately reflect operating costs and economies of scale, and 
the problematic allocation of LUMs that also creates break points. 
Several commenters acknowledge these current flaws in URCS.\11\ Our 
goal here, as in the past, is to make ``an improvement over current 
costing procedures.'' As discussed above, it is possible to modify URCS 
to address these issues without conducting special studies, which, 
under the circumstances, could place an undue burden on ``the railroad 
industry, the shipping public, or the agency.'' However, the comments 
received argued that our proposed methodologies for calculating certain 
Phase II costs did not properly reflect the causation factors for those 
costs.
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    \11\ AAR Comment 13; BNSF Comment 5; Montana Grain Comment 1; UP 
Comment 3; WCTL Comment 7.
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    As discussed more fully later in this decision, the Board has 
determined that certain of the NPR's proposals for changing the method 
of calculating the costs of various types of operations in Phase II, 
such as switching costs, raised legitimate concerns about cost 
causation and inadvertently affected other outputs of Phase III. After 
considering the comments and engaging in further analysis, we now 
believe that, with modifications to the NPR's proposals, the existing 
efficiency adjustments and cost relationships in Phase III can form the 
basis for changes that remedy the problems in the current make-whole 
adjustment and related Phase III outputs. Therefore, the Board proposes 
in this Supplemental NPR certain modifications to inputs in Phase II 
and calculations in Phase III that would more appropriately adjust 
system-average unit costs.
    To assist commenters in reviewing this revised proposal, the Board 
will make its workpapers (which contain confidential information from 
the Waybill Sample) available subject to our customary Confidentiality 
Agreement. 49 CFR 1244.9.\12\ The workpapers contain sample 
calculations and supporting data related to: (1) Switch Engine Minutes, 
(2) Railroad-Owned Equipment, (3) Station Clerical, (4) Car-Miles, and 
(5) Other Related Changes.
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    \12\ To obtain the workpapers, parties should submit a written 
request to the Board's Office of Economics and reference this 
proceeding. Parties may seek a protective order for subsequent 
pleadings using this information. If participants are permitted to 
file their pleadings under seal, they also will be required to file 
a public version with confidential information redacted.
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Revised Proposal

    The revised proposal would eliminate the need for the make-whole 
adjustment and address additional step functions in URCS relating to 
LUMs and train miles. Below, proposed changes to the current efficiency 
adjustments--switching costs, railroad-owned equipment costs, station 
clerical costs, and car-mile costs--are first discussed. Other related 
proposals are then discussed.

1. Switching Costs Related to Switch Engine Minutes

    The NPR proposed to adjust how URCS calculates the operating costs 
for switching cars, regardless of car ownership. These costs are 
referred to as ``switch engine minute'' (SEM) costs. Currently, in 
Phase II, URCS calculates SEM costs on a per-carload basis, which does 
not reflect economies of scale as shipment size increases. In the NPR, 
the

[[Page 52787]]

Board stated that, operationally, a shipment of rail cars is generally 
connected into a contiguous block of cars, and is handled as a 
contiguous block from origin to destination. The Board therefore 
proposed to calculate SEM unit costs in Phase II on a per-shipment 
basis for all five types of switching accounted for by URCS.\13\
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    \13\ Those five types of switching are: (1) Industry switching; 
(2) interchange switching; (3) intraterminal switching; (4) 
interterminal switching; and (5) inter-train & intra-train (I&I) 
switching. Industry switching is switching that occurs at origin or 
destination points. Interchange switching is switching that occurs 
at intermediate yards between different carriers, as opposed to I&I 
switching, which occurs on a rail carrier's own lines. Intraterminal 
switching is the switching of cars by one carrier within a rail 
terminal, and interterminal switching is the switching of cars 
between carriers within a rail terminal. For purposes of costing the 
Waybill Sample, only movements that travel a total distance of less 
than 8.5 miles are considered intraterminal or interterminal 
switching.
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    Although certain commenters acknowledge that allocating SEMs on a 
purely per-carload basis may not be appropriate, they also object to 
the NPR's proposed allocation of SEMs on a purely per-shipment basis 
because switching costs are, to some extent, dependent upon the number 
of cars in the block.\14\ Specifically, commenters argue that there is 
both a time component and an event component to switching, and that the 
time required to switch cars is influenced by the number of cars in the 
shipment.\15\ Several commenters therefore recommend that the Board 
allocate a portion of switching costs on a per-shipment basis and a 
portion on a per-carload basis. Such an approach would require a 
determination of the appropriate percentage split between carloads and 
shipments and likely involve statistical studies that would be time-
consuming and costly. While such studies might be justifiable if there 
were no less costly alternative to address the problem, the Board has 
concluded that the cost relationships used to develop the Phase III 
efficiency adjustments can be used to recognize and quantify the time- 
and event-related components of switching costs in Phase III in a way 
that eliminates the problems with the existing make-whole adjustment.
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    \14\ See, e.g., AAR Comment 12, 13, 16; ACC Comment 8; BNSF 
Comment 7-8; UP Comment 4-5.
    \15\ For example, if the switching movement requires moving cars 
from one track to another, or if it requires the cars to be 
inspected and the air brakes to charge, then the amount of time it 
takes to switch will be dependent on the number of cars.
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    Thus, rather than changing the calculation of SEM unit costs in 
Phase II as proposed in the NPR, the Supplemental NPR would adjust how 
Phase III allocates SEMs to account for economies of scale and 
recognize the fact that switching costs include both a time component 
and an event component. Under the revised proposal, Phase III would 
adjust the system-average unit costs by incorporating both the time 
component of switching (carload basis) and the event component of 
switching (shipment basis). In this way, the efficiency adjustments 
that are reflected in Phase III would no longer result in a step 
function and would reflect economies of scale for every different 
shipment size.
    Several commenters argued that the efficiency adjustments in Phase 
III were developed using empirical data,\16\ and that these existing 
cost relationships in URCS should be maintained. This proposal 
maintains the existing cost relationships in URCS to the extent 
practicable. This Supplemental NPR proposes to incorporate the current 
efficiency adjustments, which were developed using empirical data, by 
maintaining the percentage reduction for unit train traffic currently 
embodied in the Phase III efficiency adjustments.\17\ For example, for 
industry switching, URCS currently applies a 75% reduction in assigned 
SEMs for unit train traffic, and a 50% reduction in assigned SEMs for 
multi-car traffic, by way of a step function. The proposal would 
continue applying the 75% reduction for unit train traffic, but would 
now achieve this reduction by way of an asymptotic curve. The 
efficiency reductions for single-car and multi-car traffic would no 
longer apply; rather, the efficiencies associated with such movements 
would be allocated through the asymptotic curve.
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    \16\ See AAR Comment 16; ACC Comment 2; BNSF Comment 11-12.
    \17\ Although the current make-whole adjustment for unit train 
traffic is applied starting at 50 cars, the Supplemental NPR 
proposes to apply these revised adjustments starting at 75 cars. See 
infra p. 25.
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    In order to create this asymptotic curve, the Board would employ a 
new concept called the Carload Weighted Block (CWB) Adjustment. The CWB 
Adjustment applies a weighting to a block of cars based on a percentage 
of the number of cars in that block.\18\ The CWB value is calculated as 
the number of cars in a block multiplied by the percentage by which 
switching varies by carload, plus the number of blocks multiplied by 
the percentage by which switching varies by block--thus reflecting the 
fact that switching costs are dependent in part on the number of cars 
in a block, due to the time and event components of switching.
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    \18\ A ``block'' is defined as the number of cars on the waybill 
moved as a contiguous unit from origin to destination. For carload 
traffic, the number of blocks is always one.
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    To determine the appropriate percentages by carload and block in 
the CWB value, while also maintaining the existing cost relationships 
in URCS, the Supplemental NPR proposes to solve for the values that 
cause SEMs to be reduced at the minimum unit train level by the same 
amount as is currently done by URCS.\19\ This determination would be 
done annually, by railroad, using data in the Waybill Sample for each 
type of switching. Then, to convert system-average SEMs from Phase II 
to SEMs in Phase III that reflect economies of scale, the Supplemental 
NPR proposes the following calculation, where the CWB Ratio represents 
SEMs per CWB divided by SEMs per carload:
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    \19\ To illustrate, for carload industry switching, the 
appropriate carload and block percentages would be calculated by 
solving for a 75% reduction at 75 cars (the proposed definition of 
unit train). See infra p. 25 (proposing to define unit train 
starting at 75 cars).

Phase III Adjusted SEMs = (Phase II System Average SEMs) * (CWB Ratio) 
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* (CWB)

    These calculations represent the proposed relationship between 
current Phase II calculations, which are done on a per-carload basis, 
and the proposed Phase III calculations, which are done on a per-CWB 
basis. As explained, these calculations eliminate the current step 
function and incorporate current URCS efficiency adjustments at the 
unit train level. This adjustment is referred to as the CWB Adjustment.
    The CWB Adjustment is more appropriate than the current make-whole 
adjustment for several reasons. Although the current methodology 
generally reflects economies of scale between single-car and multi-car 
shipments and between multi-car and unit train shipments, it does not 
reflect any economies of scale within those shipment sizes. The CWB 
Adjustment does reflect increasing economies of scale as shipment size 
increases. It also has the advantage over the current methodology of 
not producing a step function and not requiring an add-back of the 
shortfall. Finally, with the possible exception of I&I switching, 
discussed below, the CWB Adjustment better reflects the cost causality 
principle from the RAPB's Final Report \20\ because of the changing 
economies of scale for every different shipment size.
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    \20\ ``Causality is the primary criterion for cost assignment. 
Cost is the amount (usually expressed in monetary terms) of input 
resources used to achieve a specified quantity of activity or 
service. Causality links cost with an activity or service.'' (RAPB 
Final Report 9.)

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[[Page 52788]]

    This revised proposal, which makes changes to Phase III through the 
CWB Adjustment rather than Phase II, obviates the need for changes to 
the Board's reporting requirements by the railroads. Thus, the NPR's 
proposed changes to the Annual Report of Cars Loaded and Cars 
Terminated (Form STB-54) and the Quarterly Report of Freight Commodity 
Statistics (Form QCS) are no longer necessary under the revised 
proposal.
    Below, two specific issues related to the CWB Adjustment are 
discussed: I&I switching and the definition of ``shipment.''

I&I Switching

    The CWB Adjustment for I&I switching would be applied as described 
above. However, unlike the other types of switching, application of the 
CWB Adjustment as described above to I&I switching results in 
decreasing total I&I switching costs as shipment size increases.\21\ In 
other words, the total I&I costs for a two-car shipment would be 
slightly less than for a one-car shipment, a three-car shipment would 
be slightly less than a two-car shipment, a four-car shipment would be 
slightly less than a three-car shipment, and so on until the total I&I 
cost for a unit train shipment is zero.
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    \21\ This negative slope would not be reflected in URCS Phase 
III switching costs when I&I switching is combined with industry 
switching. See workpaper ``EP431S4_SEMs_IndustryAndI&I.xlsx.'' Since 
not all movements receive the other types of switching, see supra 
note 14, a graph of I&I switching and industry switching depicts 
whether total switching costs for a movement will have a negatively 
or positively sloped curve.
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    The CWB Adjustment solution produces a negative slope in total I&I 
switching costs because URCS currently assumes a 100% efficiency 
reduction (i.e., zero I&I switching) for unit train shipments, 
reflecting the assumption in URCS that there is no I&I switching 
associated with unit trains. The CWB Adjustment proposes to maintain 
the existing efficiency reductions for unit trains by solving for the 
values that cause SEMs to be reduced at the unit train level by the 
same amount as is currently done by URCS. Because the I&I cost curve 
goes from a positive value for a one-car shipment to a value of zero 
for a unit train shipment, it results in a negative total I&I cost 
curve. This is in contrast to the other types of switching, which have 
an efficiency reduction of less than 100% at the unit train level, thus 
resulting in a positive value and total cost curve.
    Although this negative slope for I&I switching may not be perfectly 
reflective of costs for actual railroad operations, the Board has 
considered alternative solutions and found this proposal to be the most 
appropriate solution under the circumstances. For instance, one 
alternative solution could be to reconsider the current URCS assumption 
that unit train shipments receive no I&I switching.\22\ However, for 
the reasons stated earlier, the Board seeks to avoid the unwarranted 
administrative and public burden associated with a special study to 
establish a new efficiency adjustment for I&I switching where 
modifications that account for these impacts can be made without such 
studies. Parties may, however, submit evidence on I&I switching for 
unit train traffic for the Board's consideration, if they so choose. 
Another solution would be to have a methodology that produces a 
positively sloped I&I switching cost curve for single- and multi-car 
shipments; however, any such solution would, by definition, require a 
negative step function in order for the cost to drop to zero for unit 
trains. Because a major goal of this Supplemental NPR is to eliminate 
step functions, the Board believes the use of the CWB Adjustment for 
I&I switching is superior.
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    \22\ Evidence submitted by parties in rate cases has suggested 
anecdotally that certain unit trains may receive I&I switching for 
bad-order cars. See, e.g., Tex. Mun. Power Agency v. BNSF Ry., NOR 
42056, slip op. at 45 (STB served Mar. 24, 2003); Pub. Serv. Co. of 
Colo. v. BNSF Ry., NOR 42057, slip op. at 128 (STB served June 7, 
2004). However, such evidence is not broad enough to be used to 
develop a new efficiency adjustment for I&I switching in this 
proceeding.
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a. Definition of ``Shipment''
    As noted in the NPR, any proposal to calculate SEM costs on a per-
shipment basis (whether entirely or in part) requires the Board to 
define ``shipment.'' The NPR proposed to define ``shipment'' as a block 
of one or more cars moving under the same waybill from origin to 
destination. Some commenters suggested that this definition was 
inappropriate because how traffic moves operationally and how it is 
waybilled are not necessarily synonymous.\23\ In particular, commenters 
argued that, while the Board's definition may be sufficient for carload 
traffic, it was inappropriate for intermodal traffic.\24\
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    \23\ AAR Comment 13-15; ACC Comment 7-8; ACC Reply, V.S. 
Mulholland 4.
    \24\ AAR Comment 14-15; ACC Comment 7-8; BNSF Comment 9-10.
---------------------------------------------------------------------------

    BNSF and AAR contend that the Board should undertake a special 
study to determine how to define intermodal shipments for costing 
purposes.\25\ In the alternative, BNSF suggests that the Board could 
require each Class I to report annually the average number of 
intermodal flatcars moving together as a block and use that reported 
number (annualized over three years) as that carrier's number of 
flatcars in a ``shipment.'' \26\ In their joint verified statement, 
AAR's witnesses, Baranowski and Fisher, estimated the average size of 
an intermodal shipment to be 10 intermodal flat cars, though they did 
not provide their methodology for how this figure was developed.\27\
---------------------------------------------------------------------------

    \25\ AAR Comment 14-15; BNSF Comment 9-10.
    \26\ BNSF further states that, in 2012, it had an average of 
5.29 containers per flatcar. BNSF Comment 9 (citing 2012 BNSF R-1 
report, Schedule 755).
    \27\ See AAR Comment, V.S. Baranowski & Fisher 13.
---------------------------------------------------------------------------

    The Board does not believe that a special study is required in 
order to define a shipment. In the NPR, the Board stated that, 
operationally, a shipment of rail cars is generally connected into a 
contiguous block of cars. Although the terms ``shipment'' and ``block'' 
are sometimes used interchangeably, the former is generally a billing 
concept, while the latter is generally an operational concept. For the 
purposes of discussing intermodal shipments, the distinction is 
important, as an intermodal shipment may, for costing purposes, use 
only a partial block, as further described below.
    As noted, switching is performed on a block of cars. For carload 
shipments, the number of blocks for a shipment is always one. For 
intermodal shipments, however, the number of trailer container units 
(TCUs) in a shipment may not fill an entire car, such that the time, 
and thus costs, to switch the number of TCUs in an intermodal shipment 
should be prorated. For example, if the average number of TCUs per 
flatcar is four, the time required to switch a shipment of one TCU 
should be prorated to 25% of the time required to switch the entire 
flatcar. As another example, a shipment of six TCUs will require two 
flatcars in a block, though the time to switch the block should be 
prorated to 75% for that shipment, as the number of TCUs in the 
shipment only accounts for six of the eight available TCU spaces in the 
block of two flatcars.
    Thus, the Supplemental NPR proposes to adjust the NPR's definition 
slightly by defining a shipment as a block of one or more cars or TCUs 
moving under the same waybill from origin to destination. The Board 
believes that such a definition is appropriate for both carload traffic 
and intermodal traffic, and that the difference between the two is that 
the time, and thus costs, to switch an intermodal shipment may need to 
be prorated based on the

[[Page 52789]]

number of TCUs in the block being switched. To perform this 
calculation, the Supplemental NPR proposes to use the average number of 
TCUs per flatcar that is reported by the railroads on line 134 of R-1 
Schedule 755.
    Some commenters pointed out that intermodal trailers or containers 
typically move under a separate waybill even if the TCUs are placed on 
flatcars that move in multiple flatcar blocks. We take this to mean 
that, even if multiple TCUs are traveling together from origin to 
destination, each TCU may be billed individually on a separate waybill. 
AAR further pointed out that ``this distinction ha[d] not been relevant 
to URCS costs . . . calculated on a per car basis,'' but that the 
Board's proposal in the NPR ``to rely on a per shipment costs'' 
highlighted ``the disconnect'' between how traffic moves operationally 
and how it is waybilled.\28\ The Board's Supplemental NPR eliminates 
this concern because the CWB Adjustment for intermodal switching now 
finds that intermodal switching is based on 100% of the number of cars. 
As such, there is no difference between the proposal in this 
Supplemental NPR and how URCS currently treats intermodal switching 
(i.e., on a per car basis).
---------------------------------------------------------------------------

    \28\ AAR Comment 14.
---------------------------------------------------------------------------

    It is worth noting that, under the proposal and proposed definition 
of a shipment, billing multiple TCUs individually rather than as a 
shipment may increase the allocation of station clerical costs to those 
TCUs. However, we perceive no misallocation of costs in this outcome 
because such a practice would require more clerical resources to 
process multiple waybills rather than a single waybill.

2. Equipment Costs for the Use of Railroad-Owned Cars During Switching

    Another category of system-average unit costs associated with 
switching pertains to the equipment costs for the use of railroad-owned 
cars. These costs are distance- and time-related.\29\ In the NPR, the 
Board concluded that these costs are properly accounted for on a per-
car basis and therefore proposed to continue calculating these costs on 
a per-car basis. However, the NPR would have affected the calculation 
of these costs by eliminating the Phase III efficiency adjustment.
---------------------------------------------------------------------------

    \29\ In other words, the costs for using a railroad-owned car 
are based both on the distance it travels and the time it is being 
used during the switching process. For example, if a railroad-owned 
car travels two miles during an interchange switch, and is held at 
the interchange for three days, the costs for the use of that car 
will be based both on the two-miles it traveled and the three-days 
it was held.
---------------------------------------------------------------------------

    Commenters disagree with the Board's proposal to eliminate the 
Phase III efficiency adjustments for these costs.\30\ They argue that 
URCS currently recognizes certain efficiencies that were derived from 
special studies conducted by the ICC, and that there is no evidence 
that these efficiencies have been reduced or eliminated. As such, 
commenters argue that the Board's proposal should account for these 
efficiencies. UP and BNSF, for example, recommend that the Board divide 
costs into an event-related component and a shipment size-related 
component, similar to SEM costs.\31\ WCTL asks the Board to retain the 
efficiency adjustment, and acknowledges that this would necessitate the 
retention of a make-whole factor.\32\
---------------------------------------------------------------------------

    \30\ See AAR Comment 17; BNSF Comment 11-12; UP Comment 11-12; 
WCTL Comment 8-9.
    \31\ See BNSF Comment 11-12; UP Comment 11-12.
    \32\ See WCTL Comment 9; WCTL Reply 9.
---------------------------------------------------------------------------

    Additionally, AAR and BNSF ask that, regardless of whether the 
Board proceeds with its proposals in the NPR, it fix what they describe 
as a ``flaw'' or ``misallocation problem'' in how URCS calculates the 
costs for railroad-owned equipment when applying the make-whole 
adjustment.\33\ They argue that URCS improperly distributes cost 
savings associated with the efficiency of one car type to other car 
types. AAR's witnesses, for example, argue that because the costs for 
railroad-owned cars are composed primarily of ownership and lease costs 
that are specific to individual car types, URCS is distributing 
ownership costs for one car type to shipments using a different car 
type.\34\
---------------------------------------------------------------------------

    \33\ See AAR Reply 7; BNSF Reply 4-5.
    \34\ AAR Reply, V.S. Baranowski & Fisher 11.
---------------------------------------------------------------------------

    Because commenters urge retention of the existing cost 
relationships to the extent that the efficiency adjustments in URCS 
were developed using empirical data, we have incorporated those 
adjustments into the revised proposal to the extent practicable. 
However, we also agree that the current efficiency adjustments are 
distributing savings from a few equipment types that have a high 
percentage of unit train service onto the costs of other types of 
equipment that have a high percentage of single-car service. By doing 
so, URCS overstates the equipment costs of equipment moving in single-
car service and understates the equipment costs of equipment moving in 
unit train service.
    Accordingly, the Board now proposes to modify the Phase II inputs 
for car-days and car-miles to reflect the current efficiency adjusted 
values for the predominant shipment size of each particular car type. 
Specifically, the Supplemental NPR proposes the following: (1) If a 
majority of shipments for one car type (greater than 50%) move by unit 
train, then the Supplemental NPR proposes to use the efficiency 
adjusted inputs for car-days and car-miles; (2) if the predominant 
shipment size for that car type is single-car, then the Supplemental 
NPR proposes to use the unadjusted inputs for car-days and car-miles; 
and (3) if there is no majority of shipments moving by a particular 
shipment size, the Supplemental NPR proposes to apply the efficiency 
adjustments depending on whether the particular adjustment reduces 
costs for multi-car shipments or not.
    Under this proposal, not only would the step function that results 
from application of the make-whole adjustment be eliminated, but the 
misallocation identified by AAR and BNSF also would be corrected and 
the efficiency adjustments currently reflected in URCS would be 
maintained.
    Because this proposal incorporates the current efficiency 
adjustments into the Phase II inputs, the Phase II unit costs for some 
equipment will increase depending on the equipment's assigned 
efficiency adjustment. Specifically, for any equipment that receives an 
efficiency adjustment, this proposal would reduce the Phase II inputs 
for that equipment (e.g., from two car-days to one car-day for car-days 
loading and unloading). This, in turn, would increase the unit costs 
for that equipment because the same equipment expenses would be divided 
by a smaller number of units. There would be no change to the unit 
costs in Phase II for equipment whose inputs do not change.
    These changes in unit costs in Phase II would flow through to the 
variable costs calculated in Phase III. Although the change in Phase II 
unit costs may be offset by the concurrent reduction in car-days or 
car-miles, equipment whose unit costs have increased in Phase II may 
still see an increase in variable costs because this proposal corrects 
the misallocation described above. In other words, the efficiency 
savings currently applied to that equipment will no longer be 
transferred to other equipment. For equipment whose Phase II unit costs 
would not change, the Phase III variable costs for that equipment would 
nonetheless also be impacted by this proposal for the same reason. That 
is, the variable costs for that equipment would decrease in Phase III 
because this proposal corrects the aforementioned misallocation 
associated with railroad-owned equipment.

[[Page 52790]]

Station Clerical Costs
    The NPR proposed to adjust how URCS calculates station clerical 
costs, which are the administrative costs associated with a shipment. 
Currently, in Phase II, URCS calculates station clerical costs on a 
per-car basis, which does not reflect economies of scale. As a result, 
in Phase III, URCS applies an efficiency adjustment for multi-car and 
unit train shipments and adds those efficiency savings onto single-car 
shipments.
    In the NPR, the Board proposed to calculate station clerical costs 
in Phase II on a per-shipment basis. Although commenters agreed that 
there are economies of scale associated with station clerical costs, 
they objected to the Board's proposal. Some commenters agreed with the 
Board's proposal on theoretical grounds, but objected because the 
proposal was not supported by empirical evidence.\35\ Others argued 
that allocating station clerical costs on a purely per-shipment basis 
would be inappropriate because there are in fact some costs that vary 
with the number of carloads.\36\ As with SEM switching costs, AAR, 
BNSF, and UP recommend that the Board adopt an approach that splits 
station clerical costs into a time-related component and an event-
related component.\37\
---------------------------------------------------------------------------

    \35\ See ARC Comment, V.S. Fauth 12; WCTL Comment 10-11.
    \36\ See ARC Comment, V.S. Fauth 12; UP Comment 10-11; WCTL 
Comment 10-11.
    \37\ See AAR Comment 16; BNSF Comment 12-13; UP Comment 10-11.
---------------------------------------------------------------------------

    After considering the comments, we propose here to continue 
calculating station clerical costs on a per-car basis in Phase II and, 
for multi-car and unit train shipments, continue applying the same 
efficiency adjustments that URCS applies now in Phase III. Unlike SEM 
costs or railroad-owned equipment costs, the adjustment currently 
applied by URCS for station clerical costs does not include a break 
point between multi-car and unit train shipments because the reduction 
is based on a function where 75% of costs are based on the carloads and 
25% of costs are based on the shipment, resulting in an asymptotic 
curve.
    However, there is a large break point between single-car and multi-
car shipments because URCS applies an efficiency adjustment to multi-
car shipments, but not to single-car shipments. Additionally, URCS adds 
the efficiency savings of larger shipment sizes onto single-car 
shipments, thus increasing the size of the step function. To eliminate 
this break point, Phase III would be adjusted to allocate station 
clerical costs in single-car shipments to account for economies of 
scale by applying the concept of the CWB Adjustment discussed earlier. 
To determine the appropriate percentage split between carload and block 
in the CWB value for single-car shipments only, the Supplemental NPR 
proposes to solve for the values that cause station clerical costs to 
be reduced at the six-car level by the same amount as is currently done 
by URCS. As with SEMs, this determination would be done annually, by 
railroad, using data in the Waybill Sample. Thus, by applying the CWB 
Adjustment, the Supplemental NPR proposes to eliminate the current step 
between single-car and multi-car shipments while also maintaining the 
current URCS efficiency adjustments for multi-car and unit train 
shipments.
    For intermodal shipments, URCS currently applies a station clerical 
efficiency adjustment starting at six flatcars. As with carload 
traffic, the Supplemental NPR proposes to continue to use the current 
efficiency adjustments for multi-car and unit train shipments. However, 
for intermodal shipments with fewer than six flatcars, the Supplemental 
NPR proposes to apply the CWB Adjustment and solve for the smallest 
multi-car shipment in order to match the current efficiency adjustment 
at six cars.\38\
---------------------------------------------------------------------------

    \38\ The Board also declines to make the further refinement to 
URCS proposed by AAR's witnesses with regard to station clerical 
costs for intermodal shipments. AAR's witnesses argued that URCS may 
currently over-allocate station clerical costs, and asked the Board 
to confirm that URCS allocations are aligned with the reporting of 
expenses in Schedules 410 and 417 of the R-1 reports. (AAR Reply, 
V.S. Baranowski & Fisher 13-14.) The costs associated with station 
clerical are found in R-1 Schedule 410 (lines 518 to 526). The costs 
associated with loading and unloading of TCUs onto or off of 
intermodal cars are found in R-1 Subschedule 417, which is a 
refinement of the costs found in R-1 Schedule 410 (lines 507-517). 
Although the URCS worktable cited by the witnesses (Worktable D7 
Part 7A) does refer to Subschedule 417, that particular worktable 
does not involve station clerical costs at issue here. URCS develops 
station clerical expenses in a separate worktable (Worktable D5 Part 
1). As such, the expenses from these two schedules are properly 
aligned with the separate calculations of URCS station clerical 
expenses and intermodal loading/unloading expenses.
---------------------------------------------------------------------------

    As with SEM costs, this revised proposal, which makes changes to 
Phase III rather than Phase II, obviates the need for adjustments to 
the Board's reporting requirements of the railroads. Thus, the NPR's 
proposed changes to the Annual Report of Cars Loaded and Cars 
Terminated (Form STB-54) and the Quarterly Report of Freight Commodity 
Statistics (Form QCS) are no longer necessary under the revised 
proposal.

3. Car-Mile Costs

    In order to calculate car-mile costs, URCS uses what is referred to 
as the Empty/Loaded Ratio (E/L Ratio) to adjust the number of miles in 
a particular movement. The E/L Ratio is used when costing all movements 
because, although there are costs associated with both empty miles and 
loaded miles, URCS only requires a user to input loaded miles to cost a 
movement. Thus, to account for the costs of a carrier's total miles, 
URCS multiplies loaded miles by the E/L Ratio. The E/L Ratio, which can 
be described as total miles divided by loaded miles, is a figure 
computed by URCS based on data supplied by the Class I carriers.
    Currently, in Phase III, URCS uses the E/L Ratio for single-car and 
multi-car movements based on actual data supplied by the railroads. For 
unit train movements, however, URCS applies an E/L Ratio of 2.0 to 
reflect the assumption that, for unit train movements, a loaded car 
will return to its origination location, such that empty miles are 
equal to loaded miles.\39\ Thus, even if a rail carrier's actual E/L 
Ratio is less than 2.0 (i.e., there are fewer empty miles than loaded 
miles and thus more efficiencies), URCS currently disregards that more 
efficient E/L Ratio as to unit train movements and applies the less 
efficient value of 2.0.\40\
---------------------------------------------------------------------------

    \39\ As explained earlier, supra note 5 and accompanying text, 
URCS currently assumes movements of 50 cars or more are unit train 
movements due to its handling of the E/L Ratio. URCS also assumes 
such movements to be unit train movements because it uses certain 
unit train statistics reported in the R-1 reports when costing those 
movements (e.g., train miles, locomotive unit-miles, car-miles, and 
gross ton-miles). The R-1 reports ask railroads to report unit 
train, way train, and through train data, and defines unit train 
service as ``a specialized scheduled shuttle type service in 
equipment (railroad- or privately-owned) dedicated to such service, 
moving between origin and destination.'' (R-1 Schedule 755 
Instructions at 92.)
    \40\ A unit train movement's E/L Ratio might be greater or less 
than 2.0 for a variety of reasons, including whether the shipment at 
issue is moved in railroad-owned cars or privately-owned cars. In 
the case of railroad-owned cars, where the rail carrier typically 
controls the movement of its cars across its network, a shipment may 
travel from point A (loading origin) to point B (unloading 
destination) to point C (next loading origin). If point C is closer 
to point B than point A, then the E/L Ratio would be less than 2.0. 
If, however, point C is farther from point B than point A, then the 
E/L Ratio would be greater than 2.0. This is in contrast, for 
example, to the situation involving a unit train of privately-owned 
cars that continually cycles between point A and point B, such that 
the movement's E/L Ratio would be equal to 2.0.
---------------------------------------------------------------------------

    In the NPR, the Board stated that the actual E/L Ratio computed 
from data supplied by the carriers is the best reflection of a 
railroad's actual operations and that it should not be

[[Page 52791]]

replaced by an assumed E/L Ratio of 2.0 in the case of a unit train 
movement. It therefore proposed to adjust URCS so that the actual E/L 
Ratio would apply to all types of movements, such that URCS would no 
longer treat all unit train movements as having equal empty and loaded 
car-miles.
    While some commenters supported or did not object to the 
proposal,\41\ others disagreed. Several commenters argue that the Board 
should continue to use the 2.0 figure for dedicated shuttle trains.\42\ 
ARC recommends that the Board consider requiring railroads to identify 
dedicated shuttle trains in the Waybill Sample so that the Board could 
properly apply the 2.0 figure to those movements.\43\ WCTL argues that 
the NPR's proposal was flawed because reported car type data does not 
distinguish between the type of service that a car is used to provide, 
and that car data supplied by carriers can include data for single-car, 
multi-car, and unit train shipments, without distinguishing between the 
type of service. As such, WCTL recommends that the Board create a new 
shipment entry in Phase III for dedicated shuttle trains and retain the 
use of the 2.0 figure for those moves.\44\ ACC argued that the Board's 
proposal cannot be adequately assessed until it determines the ratio of 
the equipment type used in unit train service versus non-unit train 
service.\45\
---------------------------------------------------------------------------

    \41\ See, e.g., AAR Comment 7 n.12 (does not object to Board's 
proposal); UP Comment 12-13 (supports use of E/L Ratio). See 
generally AECC Comment; BNSF Comment.
    \42\ ACC Reply, V.S. Mulholland 13-14; ARC Comment, V.S. Fauth 
12-14; WCTL Comment 2, 11-13.
    \43\ ARC Comment, V.S. Fauth 12-14.
    \44\ WCTL Comment 2, 11-13.
    \45\ ACC Comment 9.
---------------------------------------------------------------------------

    The Board continues to believe that URCS should apply the actual E/
L Ratio as computed from the carriers' data to all shipment sizes, 
including unit train movements. URCS's current use of the 2.0 figure 
for unit train movements is meant to reflect efficiencies of that 
service. However, as noted, even if the reported, actual E/L Ratio for 
a car type used in unit train service is less than 2.0 (such that 
efficient service is reflected), URCS will nonetheless apply the less 
efficient value of 2.0, which increases the cost of that supposedly 
more efficient movement. The E/L Ratios as reported by the Class I 
railroads in 2012 and 2013 for car types that are often used in unit 
train service were reviewed.\46\ That review indicates that, of the E/L 
Ratios reported in 2013 for car types primarily used in unit train 
service, the reported percentage of unit train car-miles with E/L 
Ratios less than 2.0 was 65% and 48% for the eastern and western Class 
I carriers, respectively. Of the E/L Ratios reported in 2012, the 
percentage of unit train car-miles with E/L Ratios less than 2.0 was 
66% and 10% for the eastern and western Class I carriers, 
respectively.\47\ This demonstrates that such shipments in those 
equipment types are indeed having their costs increased by the current 
efficiency adjustment. Moreover, that negative efficiency adjustment is 
then being added back onto single- and multi-car movements, which 
decreases costs for those smaller movements. The current application of 
2.0 instead of the system-average E/L Ratio thus undermines the purpose 
of the efficiency adjustment.
---------------------------------------------------------------------------

    \46\ Privately-owned and railroad-owned plain gondola, general 
service open-top hopper, and special service open-top hopper were 
reviewed.
    \47\ The percentage of E/L Ratios less than 2.0 weighted by unit 
train car-miles is calculated by dividing unit train car-miles for 
E/L Ratios less than 2.0 by the total unit train car-miles for all 
reported E/L Ratios.
---------------------------------------------------------------------------

    Additionally, making changes to the Waybill Sample that would 
distinguish dedicated unit train service is beyond the scope of this 
rulemaking (which is principally focused on eliminating the make-whole 
adjustment in URCS and improving related allocations), and is not 
necessary in order to apply the E/L Ratio to unit train service for 
purposes of this proceeding. The E/L Ratio is reported by equipment 
type, and certain types of equipment are used predominantly in unit 
train service, such that the E/L Ratio for those equipment types will 
reflect unit train service. For example, the 2012 and 2013 Waybill 
Samples were analyzed using the proposed definition of unit train 
(i.e., 75 cars or more, as discussed infra) to determine the percentage 
of car-miles by car type moving in single-car, multi-car, and unit 
train service. That analysis showed that certain car types are often 
used in the same type of service, particularly for those car types 
often used in unit train service (plain gondolas, general service open-
top hoppers, and special service open-top hoppers). Therefore, the 
Board continues to believe that URCS should apply the E/L Ratio as 
computed from the carriers' data to all types of service.

4. Other Related Changes

    In addition to the above changes, this Supplemental NPR also 
proposes the following changes related to the make-whole adjustment 
and/or step functions: I&I switching mileage, definition of unit train, 
LUMs, and train miles.
    I&I Switching Mileage. Currently, URCS assumes that single-car and 
multi-car shipments of carload traffic (i.e., non-intermodal traffic) 
receive I&I switching every 200 miles. Some years ago, the Board noted 
that this figure appeared to be outdated but that, without conducting a 
special study, it was unable to propose another figure to use in its 
place. Review of Gen. Purpose Costing Sys., 2 S.T.B. 659, 665 n.18 
(1997).
    In the NPR, the Board proposed to update this figure to reflect the 
fact that, since the mergers of the 1990s, the average length of haul 
on individual railroads has increased. The Board noted that, based on a 
comparison of the average length of haul for the Class I railroads in 
1990 (pre-mergers) and 2011 (post-mergers), it observed a 60% increase 
in the overall length of haul. The Board therefore proposed to increase 
the distance between I&I switches for carload traffic by 60%, from 200 
miles to 320 miles. The Board also encouraged interested parties to 
submit data and comments on whether a 60% increase is appropriate, or 
whether the Board should consider a larger increase.
    The few comments on this proposal generally argued that the Board 
should change the I&I switching mileage for carload traffic based on 
empirical data from the railroads.\48\ In particular, ACC argued that 
the Board's proposal was based on a flawed assumption. ACC points out 
that the average length of haul is based on both unit train and non-
unit train traffic, of which only the latter receives I&I switching. 
ACC argues that the Board assumed without basis that the ratio of unit 
train to non-unit train traffic has remained constant since 1990 and 
that the number of I&I switches on non-unit train traffic has remained 
constant since 1990.
---------------------------------------------------------------------------

    \48\ ACC Comment 9-10; ARC Comment, V.S. Fauth 14; ARC Reply, 
V.S. Fauth 8-9.
---------------------------------------------------------------------------

    UP supports the Board's attempt to update the carload I&I switching 
mileage, but also argues that an increase in length of haul does not 
necessarily equate to an increase in the carload I&I switching mileage. 
UP argues that the Board should base any changes to this figure on 
actual railroad data. To that end, UP states that it studied single-car 
and multi-car shipments (excluding intermodal) on its system over two 
years and determined that, on average, I&I switching for those 
shipments happens every 250 miles.\49\ UP asks the Board to adopt this 
250-mile figure rather than the 320-mile figure proposed in the

[[Page 52792]]

NPR.\50\ No party specifically commented on UP's study or proposed 
figure.
---------------------------------------------------------------------------

    \49\ Based on tables attached to its comment, it appears UP 
calculated this figure by dividing the average haul miles by the 
average number of switches for commodity categories at the two-digit 
Standard Transportation Commodity Code level in 2011 and 2012. (See 
UP Comment, App. C.)
    \50\ UP Comment 13; UP Reply 4.
---------------------------------------------------------------------------

    We disagree with the implication that there is no link between an 
increase in length of haul and an increase in I&I switching mileage. 
More than 70 years ago, when the ICC published the 200-mile value 
currently applied to carload I&I switching, the agency recognized that 
a longer distance in I&I switching could be explained by a greater 
length of haul. See S. Doc. No. 78-63, at 119 (1943). Since then, the 
railroad industry has developed significant technological improvements, 
has consolidated through mergers, and has optimized and reconfigured 
networks and yards. These, as well as other changes, allow for longer 
distances between I&I switches. Taken together, there is a reasonable 
basis to conclude that an increase in length of haul correlates to an 
increase in the distance between I&I switches.
    In response to the comments, the Board has updated its analysis of 
the length of haul change between 1990 and 2011 to exclude unit train 
shipments, which currently do not receive I&I switching in URCS, and 
intermodal shipments, for which I&I occurs at a much greater distance 
(as explained below). Based on this revised analysis, the Board has 
calculated a revised average length of haul between I&I switches for 
carload traffic of 268 miles rather than 320 miles. See workpaper 
``EP431S4_Length of Haul_I&I Switching.xlsx'' (calculating length of 
haul between 1990 and 2011). This number is close to the result of UP's 
study and is greater than the 200 mile value for I&I switching 
currently used by URCS, which may be outdated. See 2 S.T.B. at 665 
n.18. The fact that the results from UP's study (i.e., 250 miles) and 
the Board's revised methodology (i.e., 268 miles) produced similar 
results suggests that these numbers provide reasonable estimates of the 
appropriate I&I switching mileage.\51\ We encourage parties to submit 
additional data and comment on this topic, and specifically request 
comment on whether the 250-mile figure proposed by UP or the Board's 
268-mile figure appropriately reflects I&I switching in railroad 
operations.
---------------------------------------------------------------------------

    \51\ Although UP's study provides empirical evidence on this 
issue, questions remain regarding the study. For example, UP did not 
explain its specific methodology and underlying assumptions, nor did 
it explain why its study excluded certain two-digit STCC groups. 
Therefore, the Board is requesting comments on UP's study.
---------------------------------------------------------------------------

    Next, AAR and BNSF state that there is a technical error in URCS 
Phase II related to I&I switching. Currently, URCS assumes an I&I 
switch every 4,162 miles in Phase III for intermodal shipments. 
However, in calculating the system-wide I&I switches for allocation in 
Phase II, URCS uses the 200-mile figure for intermodal that should be 
used only for carload shipments. AAR and BNSF ask the Board to correct 
this inconsistency.\52\ ACC, however, objects to this request, arguing 
that this change is outside the scope of the present proceeding.\53\
---------------------------------------------------------------------------

    \52\ AAR Comment 20-21; BNSF Comment 11 n.8.
    \53\ ACC Reply 12; ACC Reply, V.S. Mulholland 18.
---------------------------------------------------------------------------

    AAR and BNSF have identified what appears to be an administrative 
error in fully implementing a 1997 Board decision regarding URCS. The 
Board believes it is appropriate to correct that error in this 
proceeding. As pointed out by AAR and BNSF, although URCS should apply 
a distance between I&I switches of 4,163 miles in Phase II, as adopted 
by the Board in 1997, it does not.\54\ Instead, it applies the 200-mile 
I&I switching distance (which is used for single-car and multi-car 
shipments) for intermodal cars. In addition, for some time now, URCS 
Phase III (both the Board's waybill costing program and the interactive 
Phase III movement costing program) has applied a 4,162-mile I&I 
switching distance for intermodal movements, which is off by one mile.
---------------------------------------------------------------------------

    \54\ In 1997, the Board determined that intermodal shipments 
receive less switching than general single-car traffic, for which 
the distance between I&I switches was assumed to be every 200 miles. 
Based on data submitted by AAR, the Board adopted a 4,163-mile I&I 
switching distance for intermodal movements. Review of Gen. Purpose 
Costing Sys., 2 S.T.B. 754, 755 (1997).
---------------------------------------------------------------------------

    In order to correct the treatment of I&I switching, an issue 
addressed earlier in the Supplemental NPR and therefore within the 
scope of this proceeding, the Supplemental NPR proposes to apply the 
4,163 switching factor previously adopted by the Board for intermodal 
shipments in Phase II as well as Phase III. As discussed later in this 
decision, the Board will be issuing a revised Phase III movement 
costing program that conforms that program to the Board's 1997 
decisions in Review of the General Purpose Costing System, 2 S.T.B. 659 
(1997) and 2 S.T.B. 754 (1997). We will also conform the figure applied 
in the Board's waybill costing program to what was adopted by the Board 
in 1997.
    Definition of Unit Train.\55\ In the NPR, the Board proposed to 
increase the number of cars in a unit train movement from the current 
50 or more cars to 80 or more cars. In this Supplemental NPR, the Board 
is proposing to reduce the number of cars in unit train movements to 75 
or more.
---------------------------------------------------------------------------

    \55\ Although the NPR used the term ``trainload,'' because URCS 
treats these movements as unit train, this Supplemental NPR uses the 
term ``unit train'' to reflect how those shipments are costed.
---------------------------------------------------------------------------

    In justifying the originally proposed increase to 80 or more cars, 
the Board noted that train lengths have increased over the years due to 
a variety of factors, including higher horsepower locomotives and 
advances in distributive power. The Board then reviewed the 2010 
Waybill Sample and determined that, for shipment sizes between 50 and 
90, there was a higher occurrence of 80-car movements than any other 
shipment size. The Board thus found that the empirical evidence 
supported the 80-car figure, but also sought comment on whether the 
Board should consider an alternate figure in defining unit train.
    Although many parties either support or do not object to the 
Board's proposal,\56\ ACC, ARC, and AECC either oppose or raise 
concerns regarding the proposed change. First, ACC asserts that the 
Board should perform a study to more appropriately determine the point 
at which shipments are transported as unit train shipments and the 
variation of this definition across commodities and regions.\57\ 
However, as stated earlier, the Board does not believe it is necessary 
to commit its limited resources to conduct the type of study that ACC 
appears to advocate, particularly when there are other means of 
accounting for these impacts.
---------------------------------------------------------------------------

    \56\ AAR Comment 7 n.12; Montana Grain Comment 1; UP Comment 14; 
WCTL Comment 13. See generally BNSF Comment (no specific comment).
    \57\ ACC Comment 10; ACC Reply, V.S. Mulholland 15.
---------------------------------------------------------------------------

    Second, ARC's witness, Fauth, argues that changing the definition 
of unit train to 80 cars, as was proposed in the NPR, could impact a 
significant amount of traffic and would likely result in increases in 
variable costs for shipments ranging from 50 to 79 cars and perhaps 
would ``deregulate'' this traffic from the Board's rate reasonableness 
jurisdiction.\58\ It is worth noting, however, that setting the 
definition of unit train too low would incorrectly assign greater 
efficiencies to shipments in the 50 to 79 car range which would 
understate the costs of those shipments and inappropriately distribute 
those efficiencies onto single-car shipments. Both of these concerns 
are addressed by the Supplemental NPR's proposed definition of unit 
train. Specifically, the Supplemental NPR proposes to change the 
definition to better reflect current railroad operations so that 
efficiencies in URCS better reflect the principle of

[[Page 52793]]

cost causation as articulated in the RAPB,\59\ regardless of which 
traffic group may or may not be affected.\60\ The Board, therefore, 
believes that the proposed unit train definition is a neutral solution 
that would more appropriately distribute efficiencies than current URCS 
does.
---------------------------------------------------------------------------

    \58\ ARC Comment, V.S. Fauth 15-17.
    \59\ In other words, costs would be assigned based on the 
operations of a service. For further discussion of cost causation, 
see supra note 21 and the accompanying text.
    \60\ Fauth also notes that NSR initiated a 75-car shuttle train 
program, which would not be considered unit train under the NPR's 
proposal. ARC Comment, V.S. Fauth 16. ARC and Fauth do not provide 
any further detail on this program; however, as discussed in this 
section, the Board's revised proposal would treat these 75-car 
shipments as unit train traffic.
---------------------------------------------------------------------------

    Finally, AECC argues that shipments of fewer than 80 cars are not 
combined with other shipments, such that the 80-car standard does not 
reflect current operations.\61\ AECC cites to the Board's data showing 
that, aside from UP, none of the other major Class I railroads have an 
average through train length of over 58.8 cars. In its comments, AECC 
analyzes the through train data for three Class I carriers, which shows 
an average through train length of 54.4 cars.
---------------------------------------------------------------------------

    \61\ AECC Comment 8-10.
---------------------------------------------------------------------------

    AECC's analysis, however, accounts only for R-1 data for through 
trains, ignoring unit train data. The R-1 Schedule 755 Instructions 
define ``through train'' as ``those trains operated between two or more 
major concentration or distribution point,'' and ``unit trains'' as ``a 
specialized scheduled shuttle type service in equipment (railroad- or 
privately-owned) dedicated to such service, moving between origin and 
destination.'' The instructions also state that ``unit trains'' data is 
not to be included in ``through'' or ``way'' train statistics.\62\ As a 
result, AECC's analysis of through train data (showing an average 
through train length of 54.4 cars) is not an appropriate basis for 
determining the definition of unit train service.\63\
---------------------------------------------------------------------------

    \62\ The R-1 Schedule 755 Instructions define ``way train'' as 
``trains operated primarily to gather and distribute cars in road 
service and move them between way stations or way points.''
    \63\ Using the methodology applied and the data source cited by 
AECC, but instead using unit train data, an average unit train 
length is calculated to be 104.7 cars, which also suggests that the 
current unit train definition of 50 cars is too low.
---------------------------------------------------------------------------

    The Board continues to believe that the existing definition of a 
unit train at 50 or more cars should be increased.\64\ However, in 
light of parties' comments and further evaluation of the available 
data, we propose to define unit train as consisting of 75 or more cars 
rather than 80 or more cars. The Board believes that defining the 
minimum size for unit train shipments as starting at 75 cars is 
appropriate for two reasons. First, the Board looks to the data 
reported in the R-1 reports for through trains and unit trains. In the 
R-1 reports, unit train data is aggregated, which prohibits the minimum 
size of unit train from being determined. As a result, the Board is 
using the weighted average train size of through train and unit train 
data to determine the break point between these two train lengths and, 
accordingly, determine the lower-end size of unit train service.\65\ As 
evidenced in workpaper ``EP431S4_Unit Train Definition.xlsx,'' the 
weighted average of through train and unit train R-1 data for the Class 
I carriers based on 2012 data is 77.5 cars and the weighted average 
based on 2013 data is 73.9 cars. Both figures support the Board's 
proposed definition of 75 cars.
---------------------------------------------------------------------------

    \64\ The NPR explained that, despite the fact that the E/L Ratio 
would no longer be adjusted exclusively for unit train movements, 
the definition of unit train would continue to play a role because 
URCS assumes that unit train movements receive no I&I switching. 
Slip op. at 8. Additionally, the unit train definition determines 
which movements use the unit train statistics reported by the 
railroads and, under this revised proposal, is used in the CWB 
Adjustment to cause SEMs to be reduced by the same amount as is 
currently done by the make-whole adjustment.
    \65\ Through trains are assumed to be shorter than unit trains. 
Therefore, the weighted average train size of through and unit train 
data should determine the lower-end size of unit train service.
---------------------------------------------------------------------------

    Second, the Board found that, using the NPR's initial methodology 
of reviewing the Waybill Sample, there is a high occurrence of 75-car 
movements compared to other shipment sizes between 50 cars and 90 cars 
according to 2012 and 2013 data.\66\ Thus, based on the comments and 
review of available data, the Board finds that it is more appropriate 
to define unit train service as 75 cars or more and revises its 
proposal accordingly.
---------------------------------------------------------------------------

    \66\ The Waybill Sample reports the number of carloads in the 
shipment for all rail traffic.
---------------------------------------------------------------------------

    Locomotive Unit-Miles (LUMs). The NPR expressed concern that the 
current allocation for LUMs produced a step function between multi-car 
and unit train shipments, and therefore proposed two modifications--one 
for unit train shipments and one for non-unit train shipments. In this 
Supplemental NPR, the Board proposes a different modification that 
would cap the LUMs associated with multi-car shipments to be less than 
or equal to the LUMs allocated to the definition of a unit train 
shipment.
    Currently, URCS calculates total LUMs by multiplying the distance 
of a particular movement by the average number of locomotives for that 
type of train. URCS then allocates these LUMs to the movement by 
multiplying total LUMs by a ratio of gross tons of the shipment to 
average gross tons of the train, such that the allocation of LUMs is 
based on the weight of the shipment.\67\
---------------------------------------------------------------------------

    \67\ The average gross tons for different types of trains are 
calculated by dividing gross ton-miles by train miles, both of which 
are reported by Class I carriers in Schedule 755 of the R-1 reports.
---------------------------------------------------------------------------

    Although the calculation of total LUMs is the same for all shipment 
size categories, two values in the calculation are derived from the R-1 
reports and are specific to train type (i.e., way train, through train, 
or unit train)--the average number of locomotives and the average gross 
tons per train. For single-car or multi-car shipments, URCS derives 
these two values from a combination of the reported way and through 
train data. For unit train shipments, URCS derives these two values 
from the reported unit train data. However, URCS applies the same unit 
cost per LUM (which is based on an average value of way, through, and 
unit trains also derived from the R-1 reports) to both unit train and 
non-unit train shipments. The result is that URCS shifts from one cost 
curve to another when moving from a multi-car shipment to a unit train 
shipment. Thus, as explained in the NPR, a step function occurs between 
multi-car and unit train shipments, such that the LUM costs assigned to 
large multi-car shipments are higher than the LUM costs assigned to 
unit train shipments.\68\
---------------------------------------------------------------------------

    \68\ The step function does not occur on intermodal shipments, 
as URCS applies only through train data to intermodal shipments. 
Therefore, all intermodal shipments are treated alike, regardless of 
the number of TCUs in the shipment.
---------------------------------------------------------------------------

    To eliminate this step function, as noted, the NPR proposed two 
modifications to how URCS allocates LUM costs. With regard to unit 
train shipments, the NPR proposed to allocate the entire train's LUM 
costs to the trainload shipment, regardless of the gross tons of the 
unit train shipment relative to the average gross tons of a particular 
train. With regard to non-unit train shipments, the NPR proposed to 
base the allocation of LUM costs for single- and multi-car shipments on 
the number of cars in the shipment relative to the minimum number of 
cars of a unit train shipment.
    Most commenters objected to the Board's LUMs proposals. With regard 
to unit train shipments, commenters argued that ignoring the 
relationship between a shipment's gross tons and the average gross tons 
of the train was problematic because it means that the weight of the 
train would not be factored into URCS. In particular, URCS currently 
assigns more LUM costs to

[[Page 52794]]

heavier trains because heavier trains require more locomotives and 
consume more fuel. Commenters argued that ignoring differences in train 
weight would produce less appropriate costing results, and that the 
step function observed by the Board is not a function of the trailing 
weight adjustment at all. Commenters also noted that the Board's 
proposal was not based on empirical studies that disprove the 
longstanding assumption that heavier trains incur higher locomotive 
costs.\69\
---------------------------------------------------------------------------

    \69\ AAR Comment 17-19; BNSF Comment 13-15; UP Comment 14-15.
---------------------------------------------------------------------------

    With regard to the modification for non-unit train movements, many 
commenters argued that the Board's proposal would produce less 
appropriate results because a car-based method is less appropriate than 
a shipment-weight based method. Commenters also argued that the Board's 
proposal had no empirical basis and that the Board's proposed 
adjustment did not actually solve the concern stated by the Board in 
the NPR.\70\
---------------------------------------------------------------------------

    \70\ AAR Comment 17-19; BNSF Comment 13-15; UP Comment 15-16.
---------------------------------------------------------------------------

    Having reviewed the comments, the Board concludes that the NPR's 
proposed change to LUM costs did not adequately account for shipments 
with heavier than system-average weights and, therefore, we are 
withdrawing the NPR's proposals related to LUM costs. However, 
considering the step function created by the current allocation, the 
Board finds that it is still appropriate to revise how URCS allocates 
LUMs.
    To eliminate the step function created by the current LUM 
allocation, the Board proposes in Phase III to cap the LUMs allocated 
to multi-car shipments to be less than or equal to those allocated to a 
75-car shipment (the minimum number of cars under our proposed 
definition of unit train).\71\ Doing this allows for a continuous slope 
with no break points between the single-multi-car slope and the unit 
train slope. This proposal otherwise leaves the allocation of LUM costs 
the same: Unlike the NPR's proposal, the LUMs allocation would 
generally continue to be based on the gross tons of the shipment 
relative to the average gross tons of the train for both non-unit and 
unit train shipments. This is responsive to commenters' concerns that 
the LUM allocations should continue to account for shipment weight. We 
believe capping the LUMs is an appropriate method to eliminate the 
negative step function produced by the current cost allocation for 
LUMs. It ensures that LUM costs for large multi-car shipments are not 
higher than for unit train shipments, requires minimal changes to 
current URCS, and would impact a small percentage of traffic.\72\
---------------------------------------------------------------------------

    \71\ Unlike with SEMs and station clerical, where the 
Supplemental NPR proposes to apply the CWB Adjustment in Phase III 
to redistribute efficiencies derived from economies of scale, with 
respect to LUMs there is no redistribution of efficiencies derived 
from economies of scale. In Phase II, non-unit train LUMs reflect 
efficiencies of ``way'' and ``through'' trains, and unit-train LUMs 
reflect the efficiencies inherent in unit train service, but the 
efficiencies of unit trains are not redistributed or added onto 
``way'' and ``through'' trains in Phase III. As a result, the Board 
finds that the CWB Adjustment proposed in this Supplemental NPR is 
not applicable to LUMs. Instead, the Supplemental NPR seeks only to 
smooth out the step function for LUMs.
    \72\ This proposal for LUMs would affect only a small portion of 
total traffic. Although the exact shipment sizes that would be 
affected vary depending on, for example, the type of equipment and 
carrier, the impact would fall on carload shipments generally at the 
higher end of the multi-car range. Using 2013 Waybill Sample data, 
the range of shipments that would be affected is 47 to 74. Using 
this example, the total traffic impacted by the proposal would be 
less than 0.08%. See workpapers ``LUMs Allocation_ClassIs.xlsx'' and 
``LUMs Allocation_Impact.xlsx.''
---------------------------------------------------------------------------

    Train Miles. Train mile costs have two components: Crew and other 
than crew. Although the NPR did not include a proposal on train miles, 
the Board is addressing train mile allocation in this Supplemental NPR 
because it also has the possibility of producing a negative or positive 
step function.
    Currently, for single-car and multi-car shipments, URCS allocates 
train miles in a similar manner to LUMs by multiplying the total train 
miles by the ratio of the gross tons of a shipment to the average gross 
tons of the train. That causes train miles to increase as shipment 
weight increases. Unit train shipments, however, receive all train 
miles, regardless of the weight of the shipment relative to the average 
gross tons of unit trains.
    The train mile allocation currently in URCS can produce a negative 
or positive step function between multi-car and unit train shipments 
(under the current definition of unit train), such that the train miles 
assigned to a 49-car shipment are lower or higher than the costs 
assigned to a 50-car shipment. Whether the step is negative or positive 
(or whether it exists at all) depends on the characteristics of the 
particular shipment.\73\
---------------------------------------------------------------------------

    \73\ This step function does not occur on intermodal shipments 
in URCS's waybill costing program, as all intermodal shipments are 
treated alike, regardless of the number of TCUs in the shipment.
---------------------------------------------------------------------------

    To eliminate all instances where a negative step function occurs, 
the Supplemental NPR proposes in Phase III to cap the train miles 
allocated to multi-car shipments to be less than or equal to those 
allocated to a 75-car shipment (the minimum number of cars under our 
proposed definition of unit train).\74\ A positive step function is 
more likely to occur when the gross tons per car of the unit train 
shipment are very low. As such, a positive step function should rarely 
happen. Therefore, at this time, it is not necessary to propose a 
change to train miles that would eliminate the potential for positive 
step functions.
---------------------------------------------------------------------------

    \74\ The CWB Adjustment also is not applicable to the train 
miles allocation for the same reasons it is not applicable to the 
LUMs allocation. See supra note 72.
---------------------------------------------------------------------------

    Other than capping the train miles allocated to multi-car 
shipments, this proposal would leave the allocation of train miles 
unchanged: Unit train shipments would continue to be allocated all the 
train miles, and the allocation for single-car and multi-car shipments 
would generally continue to be based on the gross tons of the shipment 
relative to the average gross tons of the train. We believe that 
capping the train miles as described above is an appropriate method to 
eliminate in most instances the potential step function for train 
miles. It ensures that train mile costs for large multi-car shipments 
are not higher than unit train shipments and requires minimal changes 
to current URCS.

5. Requested Modifications

    Some parties made additional requests for modifications to URCS. 
For example, AAR and BNSF asked the Board to eliminate interterminal 
and intraterminal switching, but retracted that request on reply and 
instead requested that the Board correct an underassignment of these 
costs.\75\ AAR and UP asked the Board to address regulatory reporting 
issues as they relate to positive train control and toxic-by-inhalation 
hazardous materials.\76\ AECC proposed a number of changes relating to 
train and engine crew costs, private cars, fuel costs, tare weights, 
road property investment and depreciation, and locomotives, among 
others.\77\ These requested modifications would greatly expand the 
scope of this proceeding, which the Board declines to do. The primary 
goal of this proceeding is to address concerns related to the make-
whole adjustment and concerns that URCS created step functions, which 
could create the opportunity for parties to use URCS to manipulate 
regulatory outcomes. Because the parties have either not shown that 
these requested modifications are related to the make-

[[Page 52795]]

whole adjustment or step functions, or that the requested modifications 
are necessary to appropriately calculate costs in URCS, the Board will 
not address such additional modifications in this proceeding.
---------------------------------------------------------------------------

    \75\ AAR Comment 20; AAR Reply 8-9; BNSF Comment 10-11.
    \76\ AAR Comment 21; UP Reply 6.
    \77\ AECC Comment 11-22.
---------------------------------------------------------------------------

6. Phase III Movement Costing Program

    URCS calculates the variable costs of a movement in Phase III. 
There are two versions of Phase III: The waybill costing program, which 
calculates the variable costs of movements in the Waybill Sample, and 
the interactive Phase III movement costing program,\78\ which 
calculates variable costs based on user-supplied information. The 
waybill costing program calculates the make-whole factors, whereas the 
interactive Phase III movement costing program applies the make-whole 
factors and uses them to estimate movement specific costs. The Board is 
aware of certain technical inconsistencies between the waybill costing 
program and the movement costing program (e.g., efficiency adjustments 
for intermodal shipments), and between both costing programs and the 
Board's 1997 decisions in Review of General Purpose Costing System, 2 
S.T.B. 659 (1997) and 2 S.T.B. 754 (1997) (e.g., the distance between 
I&I switches for intermodal movements). Because this proceeding 
addresses issues relating to intermodal movements, and these technical 
issues pertain to intermodal movements, we note here that the Board 
will be releasing a revised Phase III movement costing program to 
reconcile these inconsistencies. Because the technical corrections that 
will be made would merely implement procedures previously adopted after 
notice and opportunity for comment, the revised Phase III movement 
costing program will be effective upon release.
---------------------------------------------------------------------------

    \78\ The current version of the Phase III movement costing 
program (titled ``URCS Phase III Railroad Cost Program'') is 
available at http://www.stb.dot.gov/stb/industry/urcs.html. See also 
supra note 2.
---------------------------------------------------------------------------

    The revised Phase III movement costing program will not include the 
proposals in this Supplemental NPR. The Board will release a further 
revised Phase III movement costing program to implement any 
modifications adopted by final rule in this proceeding.

7. Implementation

    Several commenters noted that the NPR did not address how its 
proposal, if adopted, would be implemented.\79\ The proposal here would 
impact calculations that use multiple years of URCS data. For example, 
the Board's Office of Economics annually calculates the Class I 
carriers' revenue shortfall allocation methodology (RSAM) figure and 
revenue-to-variable cost greater than 180% (R/VC>180) ratios, as well 
as their four-year averages. See, e.g., Simplified Standards for Rail 
Rate Cases--2013 RSAM & R/VC180 Calculations, EP 689 (Sub-
No. 6) (STB served Sept. 3, 2015). For these types of annual 
calculations, the Board proposes to apply the proposed changes 
prospectively. This means that, for calculations that require multiple 
years of data--such as RSAM or R/VC>180--there would be a brief period 
where the averages include data calculated under URCS' current 
methodology and under the proposed methodology described herein. The 
Board does not believe that the changes proposed here need to be 
applied retroactively to these types of calculations. Although the 
Board believes these proposals will improve our current costing 
procedures, the proposed changes are simply refinements to URCS, which 
has been in effect for over 20 years and has been relied on by industry 
participants and the public. Therefore, the prior URCS calculations 
using the current costing procedures will remain in effect. As the 
Board strives to improve various aspects of URCS, we see no reason to 
revisit otherwise final calculations that have been and are relied upon 
by the public. See, e.g., AEP Tex. N. Co. v. BNSF Ry., NOR 41191 (Sub-
No. 1), slip op. at 7-10 (STB served May 15, 2009).
---------------------------------------------------------------------------

    \79\ AAR Comment 19-20; ACC Comment 4, V.S. Mulholland 6-7; BNSF 
Comment 15; UP Comment 18.
---------------------------------------------------------------------------

Conclusion
    We believe that the revised proposals described above would remedy 
most concerns about step functions currently in URCS, generally produce 
costs that better reflect the current state of rail industry 
operations, and are responsive to parties' criticisms of the NPR. We 
therefore invite public comment on each of the proposals described 
herein.
    Additional information supporting the Board's revised proposal is 
contained in the Board's decision (including appendices) served on 
August 4, 2016. To obtain a copy of this decision, visit the Board's 
Web site at http://www.stb.dot.gov or contact the Board's Office of 
Public Assistance, Governmental Affairs, and Compliance at (202) 245-
0238.
Regulatory Flexibility Act
    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, 
generally requires a description and analysis of new rules that would 
have a significant economic impact on a substantial number of small 
entities. In drafting a rule, an agency is required to: (1) Assess the 
effect that its regulation will have on small entities; (2) analyze 
effective alternatives that may minimize a regulation's impact; and (3) 
make the analysis available for public comment. 5 U.S.C. 601-604. In 
its notice of proposed rulemaking, the agency must either include an 
initial regulatory flexibility analysis, 603(a), or certify that the 
proposed rule would not have a ``significant impact on a substantial 
number of small entities,'' 605(b).
    Because the goal of the RFA is to reduce the cost to small entities 
of complying with federal regulations, the RFA requires an agency to 
perform a regulatory flexibility analysis of small entity impacts only 
when a rule directly regulates those entities. In other words, the 
impact must be a direct impact on small entities ``whose conduct is 
circumscribed or mandated'' by the proposed rule. White Eagle Coop. 
Ass'n v. Conner, 553 F.3d 467, 478, 480 (7th Cir. 2009). An agency has 
no obligation to conduct a small entity impact analysis of effects on 
entities that it does not regulate. United Dist. Cos. v. FERC, 88 F.3d 
1105, 1170 (D.C. Cir. 1996).
    This proposal will not have a significant economic impact upon a 
substantial number of small entities, within the meaning of the RFA. 
The purpose of our changes to URCS is to improve the Board's general 
purpose costing system, which is used to develop regulatory cost 
estimates for the Class I rail carriers. These changes will result in 
more appropriate estimates of Class I carrier variable costs. 
Therefore, the Board certifies under 49 U.S.C. 605(b) that this 
proposed rule, if promulgated, will not have a significant economic 
impact on a substantial number of small entities within the meaning of 
the RFA.
Paperwork Reduction Act
    In the NPR, the Board proposed changes to two of its reporting 
requirements, and therefore sought comment on two collections of 
information pursuant to the Paperwork Reduction Act, 44 U.S.C. 3501-
3549. Those modified collections were submitted to the Office of 
Management and Budget (OMB) for review. Because we are no longer 
proposing changes to the Board's reporting requirements, we are 
withdrawing the Board's requests to OMB for approval of those 
modifications.
    It is ordered:
    1. The Board proposes to adjust URCS as detailed in this decision. 
Notice of this decision will be published in the Federal Register.

[[Page 52796]]

    2. To assist commenters in reviewing this revised proposal, the 
Board will make its workpapers available to commenters subject to the 
customary Confidentiality Agreement.
    3. Comments are due by October 11, 2016; replies are due by 
November 7, 2016.
    4. A copy of this decision will be served upon the Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
    5. This decision is effective on its service date.

    Decided: August 2, 2016.

    By the Board, Chairman Elliott, Vice Chairman Miller, and 
Commissioner Begeman.
Tia Delano,
Clearance Clerk.
[FR Doc. 2016-18806 Filed 8-9-16; 8:45 am]
BILLING CODE 4915-01-P