[Federal Register Volume 86, Number 63 (Monday, April 5, 2021)]
[Rules and Regulations]
[Pages 17548-17551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06963]
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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: Final rule.
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SUMMARY: The Surface Transportation Board (STB or Board) is adopting a
final rule amending the thresholds for classifying rail carriers.
DATES: The rule is effective June 4, 2021.
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.\1\ The Board's classification of
rail carriers affects the degree to which they must file annual,
quarterly, and other operational reports, see, e.g., 49 CFR pt. 1243
and also is 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.
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\1\ 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.'' Mont.
Rail Link, Inc. & Wis. Cent. Ltd., Joint Pet. for Rulemaking with
Respect to 49 CFR part 1201 (1992 Rulemaking), 8 I.C.C.2d 625, 631
(1992); see also 49 U.S.C. 11144, 11145, 11161-64.
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The class to which any rail carrier belongs is determined by its
annual operating revenues after application of a revenue deflator
adjustment. 49 CFR pt. 1201, 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).\2\ 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, in the 1992
Rulemaking.
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\2\ Instruction section 1-1(a) currently defines Class I
carriers as those with annual operating revenues (in Year 1991
dollars) of $250 million or more. To prevent this threshold from
being influenced by the effects of inflation, each year the STB
calculates a ``deflator'' factor that converts the value of today's
dollar into its equivalent 1991 value. This deflator factor is then
applied to a carrier's current revenues and the result is compared
to the $250 million threshold. The railroad revenue deflator
formula, which is based on the Railroad Freight Price Index
developed by the Bureau of Labor Statistics, is as follows: Current
Year's Revenues x (1991 Average Index/Current Year's Average Index).
49 CFR pt. 1201, section 1-1 Note A. The Board publishes annually an
updated deflator factor. In addition, the Board applies the
reciprocal of the deflator factor to identify where the $250 million
threshold lies expressed in current dollars. The current Class I
revenue threshold, as noted above, corresponds to $504,803,294 in
2019 dollars. The Class II/Class III threshold, which is listed in
Instruction section 1-1(a) as $20 million, corresponds to
$40,384,263 in 2019 dollars.
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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 requested that the
Board increase the revenue threshold for Class I carriers to $900
million. (Pet. 1.) MRL contended that it continues to be a regional
carrier 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 asked 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 submitted eight letters in support of its petition.\3\ No
replies to MRL's petition were received.
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\3\ 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, 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 in support of MRL's petition,
arguing, among other things, that Class II carriers such as MRL are
distinctly different from Class I carriers and should continue to be
classified in their current category. (ASLRRA Comment 2-4, June 15,
2020.) ASLRRA stated that there is a ``massive'' revenue gap between
the largest Class II and the smallest Class I carrier, (id. at 3), and
that 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 2-4). Also on June 15, 2020, the Transportation
Trades Department, AFL-CIO (TTD), a coalition of 33
[[Page 17549]]
affiliate unions, filed in opposition to MRL's petition. Among other
things, TTD raised concerns about the impact on MRL employees with
respect to labor protective conditions if the Class I threshold were
raised and argued that MRL had not shown that raising the threshold is
appropriate or necessary. (TTD Comment 1-2, June 15, 2020.) MRL filed a
reply on July 2, 2020, reiterating 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, July 2,
2020.)
On September 30, 2020, the Board issued a Notice of Proposed
Rulemaking to amend 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. Mont. Rail Link, Inc.--Pet. for Rulemaking--Classification
of Carriers (NPRM), EP 763 (STB served Sept. 30, 2020). The Board
sought comment on the proposed amendments.
Comments on the NPRM
In response to the NPRM, the Board received comments from ASLRRA on
October 29, 2020, and from TTD and the National Grain and Feed
Association (NGFA) on November 2, 2020. On December 1, 2020, MRL
submitted its reply.
ASLRRA fully supports the Board's proposed amendments and
references and reiterates the arguments it made in support of MRL's
proposal in its June 15, 2020 comment. (ASLRRA Comment 2, Oct. 29,
2020.) According to ASLRRA, the Board's proposal recognizes that Class
II carriers, such as MRL, are operationally and financially different
from Class I carriers and would enable regional railroads to continue
to serve their customers efficiently. (Id.) ASLRRA further notes that
the Board's proposal would not deprive regional carriers 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 short lines to work together to increase rail traffic.
(Id.; ASLRRA Comment 4, June 15, 2020.)
TTD opposes the Board's proposed amendments. (TTD Comment 1, Nov.
2, 2020.) TTD also reiterates its concern that the proposed amendments
would deny employees certain protective conditions that would have
otherwise applied. (Id. at 2.) TTD argues that its position in its June
15, 2020 comment was not that status quo conditions would worsen for
employees, but rather that maintaining MRL's Class II status would deny
employees coverage that they would otherwise be entitled to if MRL
became a Class I carrier. (Id. at 2.) TTD states that the Board should
give greater consideration to how the proposed amendments may impact
the application of employee protective conditions. (Id.) TTD also
states that it believes that MRL and the Board have failed to document
the undue burden that Class I status would place on MRL, or a similar
carrier. (Id.) TTD argues that MRL has provided no information that
suggests that the costs of becoming a Class I carrier would be overly
burdensome. (Id.) TTD requests that the Board either withdraw its NPRM
or, in the alternative, alleviate only reporting/accounting burdens on
MRL, instead of ``permitting the evasion of protective conditions.''
(Id. at 3.)
NGFA does not oppose the proposed amendments but argues that the
Board needs to guard against exempting Class II carriers from
regulatory oversight and standards as it increases the revenue
thresholds. (NGFA Comment 2-5.) NGFA states that it does not oppose
increasing the Class I revenue threshold to $900 million for freight
carriers and acknowledges that MRL's petition is supported by its
Montana affiliate, the Montana Grain Elevator Association. (Id. at 2.)
NGFA also states that denoting MRL as a Class I carrier would make it
ineligible for assistance such as the short line rehabilitation tax
credits; the Federal Railroad Administration's Railroad Rehabilitation
and Infrastructure Express Program, which provides funds to Class II
and III carriers to repair tracks; and the Railroad Industry Agreement,
which outlines ways Class I and short line carriers are allowed to
collaborate to resolve issues concerning car supply, service quality,
routing, and interchange requirements. (Id. at 2-3.)
Nonetheless, NGFA argues that MRL is a significant regional carrier
that has a virtual monopoly on all rail traffic in the state of Montana
and that MRL often exercises that market power with its customers in a
manner not dissimilar from Class I carriers. (Id. at 3-4.) NGFA
contends that regulatory oversight should apply to Class II carriers.
(Id. at 3-5.) For example, NGFA argues that (1) simplified standards
being considered by the Board for rail customers to challenge
unreasonable rail rates, such as Final Offer Rate Review,\4\ should
apply to Class II carriers; (2) the Board should examine whether to
require larger Class II carriers like MRL to submit data sufficient to
enable rail customers to analyze whether to bring a rate challenge
under the STB's Three-Benchmark methodology; and (3) the Board should
consider applying to at least Class II carriers any new rules related
to reciprocal switching.\5\ (Id. at 4-5.)
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\4\ The Board, in September 2019, proposed a new rate
reasonableness review process that features certain attributes of a
final offer selection process. See Final Offer Rate Review, EP 755
(STB served Sept. 12, 2019).
\5\ The Board, in July 2016, proposed to modify its regulations
governing competitive rail access, including reciprocal switching.
See Pet. for Rulemaking to Adopt Revised Competitive Switching Rules
(Reciprocal Switching), EP 711 (Sub-No. 1) (STB served July 27,
2016).
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In reply, MRL reasserts that it continues to function as a Class II
carrier, not a Class I carrier, and requests that the Board adopt the
amendments put forth in the NPRM. (MRL Reply 4, Dec. 1, 2020.) In
response to TTD's argument that increasing the Class I threshold will
deprive MRL employees of enhanced labor protections, MRL argues that
the current level of labor protection is fair and appropriate because
its operating and financial characteristics continue to be that of a
Class II carrier, even with rising revenues. (Id. at 1-2 (citing Pet. 7
n.4).) MRL also argues that TTD gives no rationale to support why MRL
should be excused only from the Class I accounting and reporting
requirements and not the Class I labor protection requirements. (MRL
Reply 2, Dec. 1, 2020.) MRL reiterates that the Class I accounting and
reporting requirements would impose a significant burden on MRL,
without any significant offsetting public benefit. (Id.) As to NGFA's
comments about MRL having a monopoly on traffic in Montana, MRL argues
it does not generally have ratemaking authority for its freight
movements because BNSF Railway Company, its sole interchange partner,
sets the freight transportation rates for approximately 96% of MRL's
traffic, excluding switching. (Id. at 3.) MRL asserts that NGFA's
argument that the Board's regulatory oversight should apply to Class II
carriers is beyond the scope of this rulemaking. (Id.)
[[Page 17550]]
Final Rule
After considering the record, the Board agrees that MRL and any
other Class II carriers that may be approaching the current revenue
threshold are properly classified as regional carriers rather than as
Class I carriers. The operational characteristics of regional carriers,
like MRL, significantly differentiate them from Class I carriers. See
NPRM, EP 763, slip op. at 4. The record establishes that even the
largest Class II carriers, such as MRL, have much smaller rail networks
and service territories than Class I carriers, have local or regional
service territories, and lower traffic densities, (MRL Reply 3, Dec. 1,
2020; MRL Reply 2, July 2, 2020; ASLRRA Comment 2, June 15, 2020); are
heavily dependent in many critical ways on their Class I interchange
partners, (ASLRRA Comment 2, June 15, 2020); and have more limited and
less diverse traffic bases than Class I carriers, (MRL Reply 2, July 2,
2020; ASLRRA Comment 3, June 15, 2020). Similarly, even the largest
Class II carriers generate far less revenue than the smallest Class I.
(MRL Reply 1, July 2, 2020; ASLRRA Comment 3, June 15, 2020.)
Based on this record, including the comments and reply received in
response to the NPRM, regional carriers, such as MRL, do not possess
the comparative attributes of Class I carriers. Considering the
operating and financial characteristics of these carriers, it is
appropriate to continue to classify these railroads as Class II
carriers, rather than classifying them as Class I carriers and imposing
on them the burdens associated with a Class I classification. Doing so
maintains an appropriate balance between ensuring the availability of
accurate cost information and avoiding imposing additional regulatory
requirements on railroads when expanded regulation is not necessary;
this also furthers the rail transportation policy. See 49 U.S.C.
10101(2), (13). Additionally, the Board determines that $900 million is
a reasonable demarcation between Class I railroads and Class II
railroads because it is sufficiently above the current Class II annual
revenue level and below the revenue level of the smallest Class I
carrier, maintaining an appropriate division between the two classes of
carriers for the foreseeable future. See NPRM, EP 763, slip op. at 5-6.
No commenter raised specific concerns with the Board's proposed $900
million figure.
TTD's argument that the Board should not change the revenue
threshold due to the impact on labor protections remains unpersuasive.
(See TTD Comment 2, Nov. 2, 2020.) MRL's employees have long been
subject to the labor protections applicable to Class II carriers, and
that will not change as a result of this rulemaking. With respect to
TTD's argument that MRL employees will be denied the additional labor
protections that would be available to them if MRL were classified as a
Class I carrier, the Board finds that because MRL is more appropriately
classified as a Class II carrier based on its operational and financial
characteristics, it is also appropriate for MRL to continue to provide
the labor protections of a Class II carrier. Nothing in the record,
including TTD's comments, indicates that MRL's employees are being
inadequately protected today. Moreover, there is nothing that indicates
that MRL's operational or financial characteristics have changed
significantly as it approached the current revenue threshold.
The Board also disagrees with TTD's assertion that there is no
record evidence of the undue burden that Class I status would place on
MRL or similarly situated carriers. There is no question that Class I
railroads face much more substantial financial reporting and accounting
requirements under the Board's regulations than Class II or III
railroads do. NPRM, EP 763, slip op. at 5. Among other requirements,
Class I carriers must submit annual R-1 reports, see 49 CFR 1241.11,
quarterly operating reports, see 49 CFR pt. 1243, and service
performance data, see 49 CFR pt. 1250. Each of these reports, while
important to the Board's regulation with regard to larger carriers, has
an associated compliance burden. MRL's petition discussed the increased
burden it would face complying with just a subset of the Class I
reports.\6\ (Pet. 8-9; see also ASLRRA Comment 2-4, June 15, 2020.) The
NPRM also recognized that the regulatory compliance burden of a Class I
designation by the Board extends beyond the Board's regulations, see
NPRM, EP 763, slip op. at 5, and MRL's reply provided several examples
of these regulatory impacts, including in programs administered by the
Federal Railroad Administration, (MRL Reply 2-3). Moreover, as the NPRM
indicated, the Board is concerned not just with the absolute burden,
but also with the relative lack of benefits associated with such
reporting by carriers with MRL's characteristics. NPRM, EP 763, slip
op. at 5.\7\
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\6\ In its petition, MRL estimated 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.)
\7\ TTD does not argue that there would be potential benefits to
classifying carriers like MRL as Class Is (other than TTD's labor-
related arguments addressed above). Nor has TTD made the case for
its hybrid approach that would treat MRL and similar carriers as
Class II railroads for accounting purposes but as Class I railroads
for other purposes. As the decision indicates, there are material
differences between larger Class II railroads and Class I railroads.
TTD has not demonstrated that particular regulatory issues exist
that would warrant ignoring these material differences.
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While NGFA does not oppose the proposed amendments, NGFA does
express concern that MRL operates as a monopoly, and NGFA maintains
that regulatory oversight should apply to Class II carriers. (NGFA
Comment 3-5.) As a Class II carrier, MRL will continue to be subject to
Board regulation and the applicable provisions of the Interstate
Commerce Act, including those governing rate reasonableness and
reasonable practices. NGFA's argument that specific proposed
regulations, such as those related to particular rate case processes
and reciprocal switching procedures, should apply to Class II carriers
is beyond the scope of this proceeding.\8\
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\8\ The Board notes that NGFA has raised similar concerns in
other dockets, which are currently under consideration. See, e.g.,
NGFA Comment 10, Nov. 12, 2019, Final Offer Rate Review, EP 755;
NGFA Comment 4-5, Oct. 26, 2016, Reciprocal Switching, EP 711 (Sub-
No. 1); NGFA Reply 20, Jan. 13, 2017, Reciprocal Switching, EP 711
(Sub-No. 1).
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For the foregoing reasons, the Board will adopt as a final rule the
amendments to its rail carrier classification regulations as proposed
in the NPRM, without modification. The final rule set forth below will
raise the Class I revenue threshold to $900 million and round the
current Class II/Class III threshold to $40.4 million. The final rule
also will amend Note A to replace the 1991 Average Index with the 2019
Average Index, as the new threshold levels will be calculated in 2019
dollars.
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. Sections 601-604. In
its final rule, the agency must either include a final regulatory
flexibility analysis, section 604(a), or certify that the proposed rule
[[Page 17551]]
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 impacts on small entities
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 amendments to the Board's regulations adopted 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, EP 719 (STB served June 30, 2016) (with
the Board Member Begeman dissenting). Here, no substantive changes are
being made to the Class III threshold, as the Board is only updating
the regulations to reflect the current 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.
Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801-808, the
Office of Information and Regulatory Affairs has designated this rule
as a non-major rule, as defined by 5 U.S.C. 804(2).
List of Subjects in 49 CFR Part 1201
Railroads, Uniform System of Accounts.
It is ordered:
1. The Board adopts the final rule set forth in this decision.
Notice of the final rule will be published in the Federal Register.
2. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. This decision is effective on June 4, 2021.
Decided: March 30, 2021.
By the Board, Board Members Begeman, Fuchs, Oberman, Primus, and
Schultz.
Brendetta Jones,
Clearance Clerk.
For the reasons set forth in the preamble, the Surface
Transportation Board amends 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.
0
2. In subpart A, amend the General Instructions, by revising Sec. 1-
1(a) and Note A to Sec. 1-1 to read as follows:
Subpart A--Uniform System of Accounts
* * * * *
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).
* * * * *
[FR Doc. 2021-06963 Filed 4-2-21; 8:45 am]
BILLING CODE 4915-01-P