[Federal Register Volume 85, Number 192 (Friday, October 2, 2020)]
[Proposed Rules]
[Pages 62271-62273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21859]



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SURFACE TRANSPORTATION BOARD

49 CFR Part 1201

[Docket No. EP 763]


Montana Rail Link, Inc.--Petition for Rulemaking--Classification 
of Carriers

AGENCY: Surface Transportation Board.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Surface Transportation Board (STB or Board) proposes to 
modify the thresholds for classifying rail carriers.

DATES: Comments are due by November 2, 2020. Reply comments are due by 
December 1, 2020.

ADDRESSES: Comments and replies may be filed with the Board via e-
filing on the Board's website at www.stb.gov and will be posted to the 
Board's website.

FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391. 
Assistance for the hearing impaired is available through the Federal 
Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: Under 49 CFR part 1201, General Instructions 
section 1-1(a), rail carriers are grouped into one of three classes for 
purposes of accounting and reporting. The classification of rail 
carriers is also used in a variety of other contexts, including 
differentiating the legal standards and procedures that apply to 
certain transactions subject to Board licensing, see, e.g., 49 U.S.C. 
10902, 11324, 11325, and prescribing labor protection conditions, see, 
e.g., 49 U.S.C. 10903(b)(2), 11326, among others.
    The class to which any rail carrier belongs is determined by its 
annual operating revenues after application of a revenue deflator 
adjustment. Section 1-1(b)(1). Currently, Class I carriers have annual 
operating revenues of $504,803,294 or more, Class II carriers have 
annual operating revenues of less than $504,803,294 and more than 
$40,384,263, and Class III carriers have annual operating revenues of 
$40,384,263 or less, all when adjusted for inflation. Section 1-1(a) 
(setting thresholds unadjusted for inflation); Indexing the Annual 
Operating Revenues of R.Rs., EP 748 (STB served June 10, 2020) 
(calculating revenue deflator factor and publishing thresholds adjusted 
for inflation based on 2019 data).\1\ The revenue classification levels 
for railroads set forth at 49 CFR part 1201, General Instructions 
section 1-1(a) were adopted in 1992 by the Board's predecessor, the 
Interstate Commerce Commission. Mont. Rail Link, Inc. & Wis. Cent. 
Ltd., Joint Pet. for Rulemaking with respect to 49 CFR part 1201 (1992 
Rulemaking), 57 FR 27184 (June 18, 1992), 8 I.C.C.2d 625 (1992).
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    \1\ The railroad revenue deflator formula is based on the 
Railroad Freight Price Index developed by the Bureau of Labor 
Statistics. The formula is as follows: Current Year's Revenues x 
(1991 Average Index/Current Year's Average Index). 49 CFR part 1201, 
Note A. Each year, the Board calculates the annual revenue deflator 
factor and publishes the updated railroad revenue thresholds for 
each class of carrier in a decision and on its website.
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Background

    On February 14, 2020, Montana Rail Link, Inc. (MRL), filed a 
petition for rulemaking to amend the Board's rail carrier 
classification regulations. In its petition, MRL requests that the 
Board increase the revenue threshold for Class I carriers to $900 
million. (Pet. 1.) MRL contends that it continues to be a regional 
railroad operationally and economically but may exceed the Class I 
revenue threshold within two years. (Id.) Citing principles drawn from 
the 1992 Rulemaking, in which the revenue thresholds were last raised, 
MRL asks that the Board address ``whether a regional carrier such as 
MRL should be treated as a Class I carrier, taking into account (1) the 
financial and operational differences between MRL and existing Class I 
carriers, and (2) the cost-benefit analysis of imposing Class I 
requirements on MRL.'' (Id. at 12.)
    MRL argues that, from an operational standpoint, it is clearly 
different from a typical Class I carrier because of its heavy 
dependence on a single Class I interchange partner and because of the 
regional nature of its operations, with approximately 95% of its 
mainline track located in Montana. (Id. at 5-6.) From a financial 
standpoint, MRL also notes, among other things, that the average 
operating revenue for Class I railroads in 2018 was more than 27 times 
MRL's total revenue for that year and that the operating revenue for 
even the smallest Class I railroad was about 3.5 times the total 
revenue of MRL. (Id. at 8.) MRL contends that treating a regional 
railroad like MRL, with its operational and financial characteristics, 
as a Class I carrier would impose significant burdens on MRL with no 
offsetting public benefit. (Id. at 12.)
    MRL submitted eight letters in support of its petition.\2\ No 
replies to MRL's petition were received.
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    \2\ Letters of support were from the Montana Contractors' 
Association, Montana Agricultural Business Association, Montana 
Grain Elevator Association, Montana Petroleum Association, Inc., 
Montana Taxpayers Association, Montana Chamber of Commerce, Treasure 
State Resources Association, and Montana Wood Products Association.
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    On May 14, 2020, the Board initiated a rulemaking proceeding to 
consider MRL's petition and consider issues related to the Class I 
carrier revenue threshold determination. The Board invited ``comment 
about whether it should amend 49 CFR part 1201, General Instructions 
section 1-1(a), to increase the revenue threshold for Class I carriers, 
and, if so, whether $900 million or another amount would be 
appropriate.'' Mont. Rail Link, Inc.--Pet. for Rulemaking--
Classification of Carriers, 85 FR 30680 (May 20, 2020), EP 763, slip 
op. at 2 (STB served May 14, 2020).
    The Board received two comments in response to its May 14, 2020 
decision. On June 15, 2020, the American Short Line and Regional 
Railroad Association (ASLRRA) filed a comment in support of MRL's 
petition, and Transportation Trades Department, AFL-CIO (TTD) filed a 
comment opposing MRL's petition. MRL filed a reply on July 2, 2020.
    ASLRRA supports MRL's petition, arguing that Class II railroads 
such as MRL are distinctly different from Class I railroads and that, 
in addition to many operational differences, there is a massive revenue 
gap between the largest Class II and the smallest Class I railroad. 
(ASLRRA Comment 2-3.) ASLRRA argues that MRL and similarly situated 
Class II railroads should continue to be classified in their current 
category, as the accounting, financial, and other burdens imposed on a 
Class II carrier by becoming a Class I carrier would outweigh any 
resulting benefits. (Id. at 3-4.) In addition to the cost of preparing 
the reports,\3\ ASLRRA notes that reclassifying MRL and other similarly 
situated railroads as Class I carriers would unnecessarily deprive them 
of the benefit of the Short Line Rehabilitation Tax Credit, which has 
provided MRL almost $3 million per year in additional funds to invest 
in infrastructure, and the Railroad Industry Agreement, which provides 
a mechanism for the railroads to work together to increase rail 
traffic. (Id. at 4.)
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    \3\ In its petition, MRL estimates it would have to expend at 
least $150,000 annually to prepare the required reports, in addition 
to the costs associated with converting its accounting system, 
training employees, and maintaining and recording the reports. (Pet. 
9.)
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    TTD, a coalition of 33 affiliate unions, opposes MRL's petition and 
requests that the Board not increase the Class I threshold. (TTD 
Comment 1.) TTD contends that increasing the Class I threshold could 
prevent MRL employees from benefiting from labor protective conditions 
that would apply if MRL were to become a Class I and

[[Page 62272]]

engage in a transaction with a Class III railroad. (See id. at 1-2.) 
Additionally, TTD contends that MRL has not shown that raising the 
threshold is appropriate or necessary or that classification as a Class 
I would be overly burdensome. (Id. at 1.) TTD also disagrees with MRL's 
assertion that the ICC intended the 1992 Rulemaking to prevent large 
regional railroads from becoming Class I railroads. (Id. at 2.) TTD 
asks that, if the Board grants MRL's petition, it adopt ``unique 
conditions'' for MRL; specifically, TTD requests that, if the Board 
finds it necessary to relieve MRL of financial reporting requirements, 
it nevertheless should apply the labor protective arrangements that 
would otherwise apply if MRL were to become a Class I railroad under 
the current threshold. (Id.)
    In its reply, MRL reiterates that its operating and financial 
profiles are distinct from those of the current Class I carriers 
(noting, for example, that in 2018 it operated only about 720 miles of 
mainline track, nearly all of which is in one state, whereas the 
smallest current Class I carrier operated 3,397 miles of track across 
10 states and two countries) and that significant burdens would be 
imposed on MRL if the threshold is not increased, while limited, if 
any, benefits would accrue to the public. (MRL Reply 2, 5.) Further, 
MRL notes that the petition has received no opposition from any 
shipper, shipper organization, or governmental entity. (Id. at 5.) MRL 
also argues that the petition has not received ``broad-based 
opposition'' from labor organizations. (Id.) \4\ Regarding TTD's 
concern that MRL's proposal would keep its employees from benefiting 
from labor protective conditions, (see TTD Comment 1-2), MRL argues 
that the rail carrier classification system was established for the 
purpose of implementing accounting and reporting requirements and that 
TTD offers no rationale to support treating MRL as a Class I carrier 
for purposes of labor protections. (MRL Reply 3, 4.)
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    \4\ MRL states that TTD only represents approximately 11.5% of 
MRL's employees. (MRL Reply 1.)
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Proposed Amendments

    The agency ``has broad discretion to require rail carriers to 
report financial and operating data, and to prescribe an underlying 
accounting system to produce that information.'' 1992 Rulemaking, 8 
I.C.C.2d at 631; see also 49 U.S.C. 11144, 11145, 11161-64. As noted 
above, the Board's classification of rail carriers affects the degree 
to which they must file annual, quarterly, and other operational 
reports and is relevant in other regulatory contexts as well. See 1992 
Rulemaking, 8 I.C.C.2d at 631-32: 49 CFR parts 1201, 1241-1250.
    After reviewing the petition and comments, the Board will propose 
amendments to its rail carrier classification regulations. The proposed 
amendments would raise the Class I revenue threshold from $504,803,294 
(as adjusted for inflation) to $900 million and have the effect of 
excluding MRL (and other similarly situated carriers) from Class I 
status unless they have met the proposed revenue threshold for three 
years.
    In proposing the amendments, the Board has considered ASLRRA's and 
MRL's arguments that the operational characteristics of regional 
railroads, like MRL, significantly differentiate it from the Class Is. 
For example, ASLRRA argues that small railroads are largely dependent 
on their Class I interchange partners for revenue, power, and car 
supply. (ASLRRA Comment 2.) This is true for MRL, which states that its 
only interchange partner is BNSF Railway Company (BNSF) and that 
approximately 84% of MRL's total revenue is generated from traffic 
interchanged with BNSF and ancillary services MRL performs for BNSF and 
96% of MRL's non-switching traffic is subject to rates set by BNSF. 
(MRL Reply 2.) ASLRRA also contends that smaller railroads are often 
dependent upon a limited market and a traffic base that may be non-
diversified. (ASLRRA Comment 3.) This characteristic also appears to 
apply to MRL, as a majority of its traffic consists of only three 
commodities. (MRL Reply 2.) Based on the record to date, it does appear 
that regional railroads, such as MRL, even with revenues approaching 
the current threshold, function more like significant Class II carriers 
and do not possess the comparative attributes of Class I carriers.
    Moreover, MRL provides a persuasive argument that the benefits of 
certain Class II carriers becoming Class I carriers under the Board's 
existing revenue thresholds would not outweigh the burdens that would 
be imposed on the newly classified carriers. (Pet. 8-9 (arguing that 
the same reasons that led the ICC in the 1992 Rulemaking to increase 
the Class I threshold to prevent regional railroads from becoming Class 
I carriers still apply today).) Should a regional carrier, such as MRL, 
become a Class I carrier pursuant to the current threshold, several 
significant accounting and financial reporting requirements would begin 
to apply even though the carrier's revenues would still be many 
hundreds of millions of dollars less, and its operations far more 
limited, than those of the smallest Class I carrier. (See id. (arguing 
that the key burden on MRL, if it were to become a Class I carrier, is 
the financial reporting); see also MRL Reply 2-3.) While the accounting 
and financial reporting required of Class I carriers is critical to the 
Board's regulatory framework, it is not apparent that additional 
reporting by carriers with MRL's characteristics is warranted,\5\ 
particularly when the regulatory impact to such carriers extends beyond 
the Board's regulations. (See, e.g., ASLRRA Comment 4.) Therefore, the 
Board proposes to increase the Class I revenue threshold at this time 
in order to preserve an appropriate distinction between Class I and II 
railroads.\6\
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    \5\ Traditionally, the agency has not found the need to collect 
accounting and reporting information from regional and smaller 
railroads to the same extent as the Class I rail carriers, all of 
which have much larger networks and different operational and 
financial characteristics. See, e.g., Calculation of Variable Costs 
in Rate Complaint Proceedings involving Non-Class I R.Rs., 6 S.T.B. 
798, 799 (2003); Elimination of Accounting & Reporting Requirements 
of Class II R.Rs., No. 37614, slip op. at 2 (ICC served Feb. 25, 
1982); Reduction of Accounting & Reporting Requirements, No. 37523, 
slip op. at 2 (ICC served Dec. 15, 1980). Consistent with these 
findings, the burden of additional reporting by carriers with MRL's 
characteristics is not justified by any potential use of that 
information from analysis, monitoring, and other purposes.
    \6\ In 2001, the Board declined to increase the Class I revenue 
threshold in response to a request by Wisconsin Central Ltd.'s 
parent company. Proposal to Require Consol. Reporting by Commonly 
Controlled R.Rs., 5 S.T.B. 1050 (2001). As MRL observed, (see Pet. 5 
n.1), the key reason the Board rejected Wisconsin Central's request 
was Wisconsin Central's subsequent acquisition by Canadian National, 
which was already a Class I carrier. Although in that decision the 
Board also noted briefly that financial reporting for larger 
carriers, like Wisconsin Central, would be reasonable and not unduly 
burdensome, see Proposal to Require Consolidated Reporting, 5 S.T.B. 
at 1054-55, in this proceeding MRL has provided its own arguments--
described above--regarding the relative burdens of accounting and 
financial reporting between Class I and Class II carriers and has 
identified burdens beyond such reporting.
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    MRL has requested that the Board set an amended Class I threshold 
of $900 million, and no commenter has raised specific concerns with the 
$900 million figure. The Board proposes $900 million as a reasonable 
demarcation between Class I railroads and Class II railroads as it is 
sufficiently above the current Class II annual revenue level and below 
the revenue level of the smallest Class I carrier to maintain an 
appropriate division between the two classes of carriers for the 
foreseeable future.
    TTD is concerned that MRL employees would lose the potential 
benefit of eligibility for the labor protective conditions available to 
employees of Class I carriers if the Class

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I threshold is raised. (TTD Comment 1-2.) However, if the threshold is 
raised, MRL employees would suffer no loss of eligibility for labor 
protection compared to the status quo; they would continue to qualify 
for the same level of protection--that available to employees of Class 
II carriers--as they have for decades. TTD's comments to date have not 
persuaded the Board that this continued level of labor protection would 
be insufficient if MRL's annual revenues were between the current 
threshold and the proposed threshold of $900 million. In addition, 
TTD's suggestion that the Board adopt ``unique conditions'' for MRL 
would not establish a more appropriate demarcation between Class I and 
Class II carriers generally.
    The proposed amendment to 49 CFR part 1201, General Instructions 
Sec.  1-l(a) would increase the revenue threshold for Class I carriers 
to $900 million.\7\ The proposal would not materially change the 
current threshold between Class II and Class III carriers but would 
merely restate it in 2019 dollars.\8\ As a result, Class I carriers 
would be those with annual operating revenues of $900 million or more; 
Class II carriers would be those with annual operating revenues of less 
than $900 million but in excess of $40.4 million; and Class III 
carriers would be those with annual operating revenues of $40.4 million 
or less. The proposal also would amend Note A to replace the 1991 
Average Index with the 2019 Average Index, as the new threshold levels 
would be calculated in 2019 dollars.
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    \7\ Instruction section 1-1(a) currently defines Class I 
carriers as those with annual operating revenues of $250 million or 
more after applying the railroad revenue deflator formula shown in 
Note A, which, as noted above, is $504,803,294 or more in 2019 
dollars.
    \8\ Instruction section 1-1(a) currently defines Class II 
carriers as those with annual operating revenues of less than $250 
million but in excess of $20 million and Class III carriers as those 
with annual operating revenues of $20 million or less, in both cases 
after applying the railroad revenue deflator formula shown in Note 
A. The current Class II/Class III threshold, in 2019 dollars, is 
$40,384,263, which the proposed rule would round to $40.4 million.
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    The Board seeks comment on the proposed amendments discussed above. 
Interested persons may comment on the proposed amendments by November 
2, 2020; replies to comments may be filed by December 1, 2020.

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 of 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. Sections 601-604. In 
its notice of proposed rulemaking, the agency must either include an 
initial regulatory flexibility analysis, section 603(a), or certify 
that the proposed rule would not have a ``significant impact on a 
substantial number of small entities.'' Section 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. v. 
Conner, 553 F.3d 467, 480 (7th Cir. 2009).
    The Board's proposed changes to its regulations here are intended 
to update the Board's class classifications and do not mandate or 
circumscribe the conduct of small entities. For the purpose of RFA 
analysis for rail carriers subject to the Board's jurisdiction, the 
Board defines a ``small business'' as only including those rail 
carriers classified as Class III rail carriers under 49 CFR part 1201, 
General Instructions section 1-1. See Small Entity Size Standards Under 
the Regulatory Flexibility Act, 81 FR 42566 (June 30, 2016), EP 719 
(STB served June 30, 2016) (with the Board Member Begeman dissenting). 
With respect to the Class III thresholds, no substantive changes are 
being made, as the Board is only updating the regulations to reflect 
the Class III threshold in 2019 dollars (rounded) as opposed to 1991 
dollars. Therefore, the Board certifies under 5 U.S.C. 605(b) that 
these proposed rules, if promulgated, would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of RFA.

Paperwork Reduction Act

    The Board's proposal does not contain a new or amended information 
collection requirement subject to the Paperwork Reduction Act of 1995, 
44 U.S.C. 3501-3521.

List of Subjects in 49 CFR Part 1201

    Railroads, Uniform System of Accounts.
    It is ordered:
    1. The Board proposes to amend its rules as set forth in this 
decision. Notice of the proposed rules will be published in the Federal 
Register.
    2. Comments are due by November 2, 2020. Reply comments are due by 
December 1, 2020.
    3. A copy of this decision will be served upon the Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
    4. This decision is effective on its service date.

    Decided: September 28, 2020.
    By the Board, Board Members Begeman, Fuchs, and Oberman.
Jeffrey Herzig,
Clearance Clerk.
    For the reasons set forth in the preamble, the Surface 
Transportation Board proposes to amend title 49, chapter X, part 1201 
of the Code of Federal Regulations as follows:

PART 1201--RAILROAD COMPANIES

0
1. The authority citation for part 1201 continues to read as follows:

    Authority:  49 U.S.C. 11142 and 11164.

Subpart A--Uniform System of Accounts

0
2. In the General Instructions in subpart A, section 1-1(a) and Note A 
to section 1-1 are revised to read as follows:

General Instructions

    1-1 Classification of carriers. (a) For purposes of accounting and 
reporting, carriers are grouped into the following three classes:
    Class I: Carriers having annual carrier operating revenues of $900 
million or more after applying the railroad revenue deflator formula 
shown in Note A.
    Class II: Carriers having annual carrier operating revenues of less 
than $900 million but in excess of $40.4 million after applying the 
railroad revenue deflator formula shown in Note A.
    Class III: Carriers having annual carrier operating revenues of 
$40.4 million or less after applying the railroad revenue deflator 
formula shown in Note A.
* * * * *

    Note A:  The railroad revenue deflator formula is based on the 
Railroad Freight Price Index developed by the Bureau of Labor 
Statistics. The formula is as follows:
    Current Year's Revenues x (2019 Average Index/Current Year's 
Average Index)

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[FR Doc. 2020-21859 Filed 10-1-20; 8:45 am]
BILLING CODE 4915-01-P