[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]


-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.)
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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