[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Notices]
[Pages 46602-46604]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19053]
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SURFACE TRANSPORTATION BOARD
[Docket No. EP 661 (Sub-No. 2)]
Rail Fuel Surcharges (Safe Harbor)
In 2006 and 2007, the Board inquired into and made findings
regarding rail carrier practices related to fuel surcharges in Rail
Fuel Surcharges, Docket No. EP 661. A fuel surcharge is a separately
identified component of the total rate that is charged for the involved
transportation and that is designed to recoup increases in the
carrier's fuel costs. Rail shippers had voiced concerns to the Board
that these fuel surcharges, because they were typically calculated as a
percentage of the base rate \1\ for the transportation, recovered
amounts over and above the carriers' actual increased fuel costs. See
Hr'g Tr. at 38-40, 44-45, 47-49, 52, 61-62, May 11, 2006, Rail Fuel
Surcharges, EP 661. In response, the Board stated that the term ``most
naturally suggests a charge to recover increased fuel costs associated
with the movement to which it is applied,'' and if a fuel surcharge is
used as ``a broader revenue enhancement measure, it is mislabeled.''
Rail Fuel Surcharges, EP 661, slip op. at 7. The Board concluded that a
rate increase resulting from a rate-based fuel surcharge, where ``there
is no real correlation between the rate increase and the increase in
fuel costs for that particular movement to which the surcharge is
applied, is a misleading and ultimately unreasonable practice.'' Id. As
such, the Board prohibited fuel surcharges expressed as a percentage of
the base rate. Id. at 1, 6-8. The Board directed that any fuel
surcharge program applied to regulated traffic must be based on
attributes of a movement (such as mileage) that directly affect the
amount of fuel consumed. Id. at 9.
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\1\ The Board has referred to fuel surcharges that are
calculated as a percentage of base rate as ``rate-based fuel
surcharges.'' See, e.g., Rail Fuel Surcharges, EP 661, slip op. at
6-7 (STB served Jan. 26, 2007).
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The Board also, however, established as a ``safe harbor'' an index
\2\ upon which carriers could rely to measure changes in fuel costs for
purposes of a fuel surcharge program. The Board stated that a carrier's
use of that index would not be subject to a reasonableness challenge
because the index had already been subject to notice and comment
scrutiny. Id. at 11.
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\2\ That index was the Energy Information Administration's
former ``U.S. No. 2 Diesel Retail Sales by All Sellers (Cents per
Gallon),'' now known as the Highway Diesel Fuel Index (HDF Index).
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In 2013, the Board dismissed a complaint by Cargill, Incorporated,
challenging fuel surcharges imposed by BNSF Railway Company (BNSF) over
a five-year period under a fuel surcharge program applicable to
agricultural and industrial products. Cargill, Inc. v. BNSF Ry., NOR
42120, slip op. at 1, 7 (STB served Aug. 12, 2013). In its decision,
the Board observed that, if measured by its ``internal'' fuel costs
(the amounts BNSF actually paid for fuel) instead of the safe harbor
HDF Index, BNSF's fuel surcharge revenues exceeded its incremental fuel
costs (i.e., those additional fuel costs caused by a rise in fuel
prices above a certain level) by $181 million. Id. at 14. Nevertheless,
the Board noted that, under the safe harbor provision adopted in Rail
Fuel Surcharges, Docket No. EP 661, carriers are ``entitled to rely on
the HDF Index as a proxy to measure changes in their internal fuel
costs'' \3\ and concluded that, using the HDF Index as the measure,
BNSF had not over-recovered its incremental fuel costs over the five-
year period covered by the complaint. Id. at 14. At the same time,
however, the Board also gave notice that it would be issuing an Advance
Notice of Proposed Rulemaking (ANPRM) to give shippers, rail carriers,
and other interested parties the opportunity to comment on the safe
harbor provision, including whether it should be modified or removed.
Id. at 17-18.
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\3\ As the Board put it, ``what the safe harbor means is that if
a rail carrier uses the HDF Index [in its fuel surcharge program] to
measure changes in its fuel costs, then that is how the Board will
measure these changes as well, rather than by looking at evidence of
changes in the rail carrier's internal fuel costs.'' Cargill, NOR
42120, slip op. at 9.
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In May 2014, the Board issued an ANPRM to gain a better
understanding of whether the sort of growing spread between HDF-based
costs and actual costs seen in Cargill was unique to BNSF during a
period of particularly high price volatility (or instead a widespread
phenomenon in the rail industry) and to determine whether to modify or
remove the safe harbor provision. Rail Fuel Surcharges (Safe Harbor),
EP 661 (Sub-No. 2), slip op. at 2-3 (STB served May 29, 2014). In the
ANPRM, the Board asked whether the growing-spread phenomenon observed
in Cargill was aberrational; whether there are problems associated with
the Board's use of the HDF Index as a safe harbor in judging the
reasonableness of fuel surcharge programs; whether any problems with
the safe harbor could be addressed through a modification of it; and
whether any problems with the safe harbor are outweighed by its
benefits. Id. at 3.
The 15 comments and 10 replies received in response to the ANPRM
were varied, and many did not directly address the Board's question
about whether the ``growing-spread'' phenomenon seen in Cargill was an
aberration.\4\ A few commenters supported the repeal of the safe harbor
provision,\5\ while others supported retaining the safe harbor
provision either outright or in some modified
[[Page 46603]]
form.\6\ Some commenters claimed the Cargill outcome was an
aberration,\7\ while another said there was insufficient evidence to
answer the question of whether the phenomenon seen in Cargill was an
aberration.\8\ Finally, some commenters urged more study of that
particular question or of fuel surcharge programs generally.\9\
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\4\ The following parties submitted comments and/or replies in
response to the ANPRM: The U.S. Department of Agriculture; Arkansas
Electric Cooperative Corporation (AECC); Colorado Springs Utilities;
Consumer United for Rail Equity (CURE); DOW Chemical Company (DOW
Chemical), Highroad Consulting, Ltd (Highroad Consulting); Mercury
Group; National Coal Transportation Association; National Industrial
Transportation League (NITL); National Grain and Feed Association;
Allied Shippers (Western Coal Traffic League, American Public Power
Association, Edison Electric Institute, National Rural Electric
Cooperative Association, South Mississippi Electric Power
Association and Consumers Energy Company); BNSF; Canadian National
Railway Company; CSX Transportation, Inc.; and Union Pacific
Railroad Company (UP).
\5\ (E.g., Allied Shippers Comments 3, Aug. 4, 2014.)
\6\ (E.g., BNSF Comments 1, Aug. 4, 2014; AECC Comments 2-3,
Aug. 4, 2014; UP Comments 7-11, Aug. 4, 2014; NITL Comments 8-9,
Aug. 4, 2014; Highroad Consulting Reply 8, 10, Oct. 15, 2014.)
\7\ (E.g., BNSF Comments 9-11, Aug. 4, 2014; CURE Comments 2, 9-
10, Aug. 4, 2014; UP Comments 8, Aug. 4, 2014.)
\8\ (Dow Chemical Comments 7-8, Aug. 4, 2014.)
\9\ (E.g., NITL Comments 8-11, Aug. 4, 2014; Dow Chemical Reply
6-8, Aug. 15, 2014.)
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The Board recognizes and appreciates that commenters devoted
substantial time and effort to responding to the ANPRM. Since the
comment period closed in 2014, the Board has been unable to reach a
majority decision on what additional Board action should be taken in
response to the comments received. Because of the lack of a majority
opinion and in the interest of administrative finality, the Board
Members agree that this docket should be discontinued.
It is ordered:
1. This docket is discontinued.
2. Notice of the Board's action will be published in the Federal
Register.
3. This decision is effective on the date of service.
Decided: August 28, 2019.
By the Board, Board Members Begeman, Fuchs, and Oberman. Board
Members Begeman, Fuchs, and Oberman commented with separate
expressions.
BOARD MEMBER BEGEMAN, commenting:
Since casting--reluctantly--my vote in Cargill, Inc. v. BNSF
Railway, it has been my position that the ``safe harbor'' provision
should be eliminated. In Cargill, BNSF recovered through fuel
surcharges far more than its actual incremental fuel costs. See
Cargill, Inc. v. BNSF Ry., NOR 42120, slip op. at 14. Yet the Board
found that Cargill had failed to prove that the carrier had engaged in
an unreasonable practice, ``in large measure'' because, since 2007,
rail carriers have been entitled to rely on a Board-endorsed fuel
index--the HDF Index--as a proxy to measure changes in their fuel costs
for purposes of their fuel surcharge programs. Id. at 1, 9.
Cargill led me to question why the Board adopted rules in 2007 that
would permit a carrier to recover substantially more than its
incremental fuel costs, simply because the carrier uses a particular
index in its fuel surcharge formula.\1\ I believe it is especially
misguided that, since Cargill, the safe harbor provision has been
retained despite the Board's recognition that the safe harbor gives
carriers an ``unintended advantage''--the ability to over-recover
incremental fuel costs for as long as conditions permit but then to
revise their fuel surcharge programs when new conditions would lead to
an under-recovery. See id. at 17.
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\1\ ``[W]hat the safe harbor means is that if a rail carrier
uses the HDF Index [in its fuel surcharge program] to measure
changes in its fuel costs, then that is how the Board will measure
these changes as well, rather than by looking at evidence of changes
in the rail carrier's internal fuel costs.'' Cargill, Inc. v. BNSF
Ry., NOR 42120, slip op. at 9.
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The overarching principle of the 2007 decision is not currently
before the Board. Rather, the question before the Board is how we can
best implement the principle that a rail fuel surcharge program should
accurately reflect the cost of fuel. The Board's 2014 ANPRM sought
comments ``on whether the safe harbor provision . . . should be
modified or removed.'' Rail Fuel Surcharges (Safe Harbor), EP 661 (Sub-
No. 2), slip op. at 3. The comments received in response to the ANPRM
have not allayed my concerns about the impacts of the safe harbor
provision.
Since the ANPRM comments were filed five years ago, there hasn't
been a majority to coalesce around any approach (mine or any other one)
for a next action in this proceeding. Therefore, I will again
reluctantly vote--this time, to close the proceeding rather than wait
for a full complement of Board members in hopes that a majority view
would be reached to repeal the safe harbor provision.
BOARD MEMBER FUCHS, commenting:
The Board has recognized that a fuel surcharge is part of the
overall rate for rail transportation. When the Board determines market
dominance and rate reasonableness, the challenged rate has included
both the base rate and any fuel surcharge.\1\ In Rail Fuel Surcharges,
the Board set a framework for a complainant to pursue relief on its
fuel surcharge separate from the processes available for relief on its
overall rate.
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\1\ See, e.g., Consumers Opening II-8, Nov. 2, 2015, Consumers
Energy Co. v. CSX Transp., Inc., NOR 42142 (chart showing base rate
plus fuel surcharge equals rate).
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Some public comments on the ANPRM ask the Board now to remove or
modify the safe harbor provision in Rail Fuel Surcharges to make it
easier, in effect, for a complainant to receive relief on its fuel
surcharge. Such a change could exacerbate a tension that exists under
the Rail Fuel Surcharges framework: The standard by which the Board is
to review part of the rate (the fuel surcharge) is completely different
from the standard by which it is to review the overall rate. In
reviewing the reasonableness of the overall rate under 49 U.S.C.
10701(d)(1) and 10702, the Board allows for the differentiation of
prices based on demand.\2\ In reviewing the fuel surcharge, however,
the Board is to consider part of the rate (the fuel surcharge) by
essentially ignoring such demand-based differential pricing.\3\ Because
of the inconsistency in review standards, the Board might award relief
on part of the rate (the fuel surcharge) even if it could not award
relief on the overall rate. In effect, Rail Fuel Surcharges could be
read as permitting the Board to award a form of rate relief to a
complainant whose rate may be reasonable.\4\ Whether or not the two
approaches could be reconciled, I would not risk exacerbating this
tension by modifying or removing the safe harbor provision.
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\2\ See Rail Fuel Surcharges, slip op. at 6, 8. See, e.g.,
Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1), slip
op. at 7-11 (STB served Sept. 5, 2007).
\3\ This statement takes no position on the extent to which the
labeling of a rate-based fee as a fuel surcharge affects rail
customers' understanding of their rates and therefore affects their
transportation decisions. I do note, however, that a tariff explains
the calculation of a fuel surcharge and that a rate-based
calculation is relatively simple.
\4\ The view expressed here is not inconsistent with the way the
Board addresses demurrage charges, which are distinct from rates
under the statute and as a practical matter. See, e.g., 49 U.S.C.
10746, 11708(b)(1)(A).
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At the same time, I also would not propose reversing Rail Fuel
Surcharges here. Carriers have changed their fuel surcharge programs as
a result of the decision, and the record suggests that those carriers
and many customers have come to rely upon it. If the Board were to
propose reversing Rail Fuel Surcharges, it could disrupt that reliance.
I do not favor embarking on such a potentially disruptive course when
no public commenter has made compelling case to reverse the decision
and when the record suggests rail customers have continued concerns
with their overall rates--both base rates and the fuel surcharges.
Rather than focusing on Rail Fuel Surcharges at this time, the Board
should address these concerns, as appropriate, by advancing reforms to
its rate review processes, which apply to the overall rate.
BOARD MEMBER OBERMAN, commenting:
I agree that this docket should be discontinued. To be clear, I
find the outcome in Cargill jarring because the carrier was permitted
to collect sums far in excess of its true incremental fuel costs.
Nevertheless, in my view that
[[Page 46604]]
outcome was consistent with, if not mandated by, the safe harbor
provision incorporated into the Board's fuel surcharge rules.
Railroads have the initiative to set rates under 49 U.S.C.
10701(c), and a regulated railroad rate can be set aside as
unreasonable only if the Board finds market dominance. 49 U.S.C.
10701(d), 10707(c). Railroad practices can be found unlawful under 49
U.S.C. 10702 without a finding of market dominance, but it is well
settled that the Board may not evade the limits on its rate review
process by treating a rate matter as an unreasonable practice case.
Union Pacific R.R. v. ICC, 867 F.2d 646 (D.C. Cir. 1989). Although
there can be a ``conceptual overlap between railroads' `practices' and
their `rates,''' id. at 649, when a practice is ``manifested
exclusively in the level of rates that customers are charged,'' id., a
challenge to such a practice is in reality a challenge to the rate and
may only be brought under the Board's rate reasonableness procedures.
See id.
To me, the fuel surcharges that the Board is addressing are clearly
components of the overall rates charged for the underlying
transportation. To be sure, the ``truth-in-advertising'' aspect of the
Rail Fuel Surcharges decision comes a bit closer to the ``practices''
arena, but the relief sought in Cargill, and that the Allied Shippers
urge here, is still, at base, rate relief.
For all of these reasons, in my view, the Board should not have
issued the Rail Fuel Surcharges decision in 2007, which created the
fuel surcharges rules and their safe harbor provision. Today, I would
take steps to reverse that decision in its entirety. However, no
majority exists for such action.
Jeffrey Herzig,
Clearance Clerk.
[FR Doc. 2019-19053 Filed 9-3-19; 8:45 am]
BILLING CODE 4915-01-P