[Federal Register Volume 84, Number 112 (Tuesday, June 11, 2019)]
[Notices]
[Pages 27181-27182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12241]


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SURFACE TRANSPORTATION BOARD

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


Review of the General Purpose Costing System

    In a Notice of Proposed Rulemaking (NPR) served in this docket on 
February 4, 2013, the Board sought public comment on proposals to 
modify the Board's general purpose costing system, the Uniform Railroad 
Costing System (URCS), to eliminate a feature known as the ``make-whole 
adjustment'' and to adjust the locomotive unit-mile (LUM) cost 
allocation. After evaluating comments received in response to the NPR, 
the Board served a Supplemental Notice of Proposed Rulemaking (SNPR) on 
August 4, 2016, with modified proposals for eliminating the make-whole 
adjustment and changing the LUM cost allocation, and a new proposal to 
modify train-mile (TM) cost allocations. For the reasons stated below, 
the Board will discontinue this proceeding.
    As discussed in prior decisions in this proceeding, 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. URCS also plays a role in the Board's determination of 
whether a rate exceeds a reasonable maximum, and, when warranted, 
setting the maximum rate prescription. In addition, URCS is used to 
develop variable costs for making cost determinations in abandonment, 
certain trackage rights, and other proceedings; to provide the railroad 
industry and shippers with a standardized costing model; to cost the 
Board's Carload Waybill Sample; and to provide interested parties with 
basic 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 once when URCS was originally 
developed using the annual reports submitted by Class I rail carriers 
(R-1 reports). Regression

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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, when movements are costed, 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.
    The Board initiated this proceeding to address concerns with the 
make-whole adjustment, which is calculated and applied in Phase III. 
The make-whole adjustment is intended to recognize the efficiency 
savings that a carrier obtains in its higher-volume shipments and thus 
render more appropriate unit costs. The Board questioned whether the 
current make-whole adjustment best reflects economies of scale as 
shipment size increases. Review of the General Purpose Costing System 
(NPR), EP 431 (Sub-No. 4), slip op. at 4 (STB served Feb. 4, 2013); 
Review of the General Purpose Costing System (SNPR), EP 431 (Sub-No. 
4), slip op. at 3-4 (STB served Aug. 4, 2016). The Board noted that, as 
applied, the make-whole adjustment creates particular types of step 
functions between shipment sizes by reducing system-average unit costs 
by various set percentages depending on whether the movement is 
classified as unit train, multi-car, or single-car. NPR, EP 431 (Sub-
No. 4), slip op. at 3-4; SNPR, EP 431 (Sub-No. 4), slip op. at 4-5. 
While the current URCS methodology generally reflects economies of 
scale across those movement classifications, the Board proposed ways to 
attempt to reflect economies of scale within those movement 
classifications to better address economies of scale overall.
    To address the concerns with the make-whole adjustment, 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. NPR, EP 431 (Sub-No. 4), slip op. at 5-9. The 
NPR also proposed changes to the LUM cost allocation. Id. at 9-10. With 
respect to switching costs, the NPR proposed to allocate costs on a 
shipment basis. Id. at 5-6.
    After reviewing comments in response to the NPR, the Board modified 
its proposal in the SNPR by changing how the current efficiency 
adjustments would be applied to switching costs, railroad-owned 
equipment costs, station clerical costs, and car-mile costs. SNPR, EP 
431 (Sub-No. 4), slip op. at 7-20. The SNPR also proposed to address 
step functions arising from LUM and TM cost allocations. Id. at 25-28. 
With respect to switching costs, the SNPR proposed to implement a new 
concept called the Carload Weighted Block (CWB) Adjustment, which would 
incorporate parties' NPR comments that switching costs should be 
allocated based not just on an event component (the shipment), but on a 
time component (influenced by the number of cars in a shipment) as 
well. Id. at 9-11.
    The Board held a technical workshop regarding the SNPR proposals on 
September 7, 2016, and then received public comments on October 11, 
2016, and reply comments on November 7, 2016.\1\ While these comments 
were not uniformly critical, many stakeholders expressed concerns about 
various aspects of the SNPR proposals. No commenter supported the CWB 
Adjustment and several commenters generally opposed other aspects of 
the SNPR, including proposals to modify the calculation of railroad-
owned equipment costs, and car-mile costs.
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    \1\ The following parties filed comments and reply comments on 
the SNPR in this proceeding: Association of American Railroads 
(AAR); Highroad Consulting, Ltd. (Highroad); SMART-Transportation 
Division-New York State Legislative Board (SMART-TD) (reply comments 
only); Union Pacific Railroad Company (UP); and Western Coal Traffic 
League (WCTL). Additionally, joint comments and reply comments were 
filed by the American Chemistry Council and others (referred to 
collectively as ACC).
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    The Board recognizes and appreciates the substantial effort 
undertaken by stakeholders in this proceeding to assist the Board in 
grappling with the complexities of URCS. The Board continues to believe 
that URCS can be updated to better reflect economies of scale and 
improve cost allocations. However, the Board has determined that 
potential refinements of URCS would benefit from additional study and 
analysis, as most commenters argued. Given the need for further study 
and analysis to arrive at a more optimal revision of the URCS system, 
and to also ensure efficient docket management, the Board will not take 
further action in this proceeding and will discontinue this docket. Any 
future proposals by the Board to update URCS would be made in a new 
proceeding.
    It is ordered:
    1. This proceeding is discontinued.
    2. Notice of the Board's action will be published in the Federal 
Register.
    3. This decision is effective on its date of service.
    By the Board, Board Members Begeman, Fuchs, and Oberman.

Aretha Laws-Byrum,
Clearance Clerk.
[FR Doc. 2019-12241 Filed 6-10-19; 8:45 am]
 BILLING CODE 4915-01-P