Monday, February 01, 2010

“Simplified Standards” results in confusing rate case

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After winning a rate case against Union Pacific, chlorine shipper U.S. Magnesium LLC could recoup $1 million over the next five years, according to the Surface Transportation Board.

The proceeding was handled under the Board’s rules for cases filed under its Simplified Standards for Rail Rate Cases. As it happened, the case was not all that simple. As the STB described it:

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"At issue in the U.S. Magnesium case were two movements of chlorine by tank car from Rowley, Utah, to Eloy, Ariz., and from Rowley to Sahuarita, Ariz. Under the Board's Simplified Standards rules—which offer a streamlined and cheaper way for shippers to challenge rates but come with a monetary cap on damages—each side provides the Board with a list of what they believe are comparable rates.

up_logo.jpg"However, the Board found that each party's comparison groups were flawed. Union Pacific's comparison group included a majority of examples that were re-billed movements, meaning a second railroad was involved. U.S. Magnesium's comparison group for the Eloy and Sahuarita movements included only 4 percent and 1 percent chlorine movements, respectively.

"After its own analysis, the Board found that U.S. Magnesium's comparison groups were more similar to the traffic at issue. However, the Board also agreed with Union Pacific that the new rates should reflect the differences between contract versus tariff rates and increased the new maximum rates by 14.8 percent. The resulting maximum lawful revenue-to-variable cost ratios are 356 percent for the Eloy movement and 346 percent for the Sahuarita movement.

"Commissioner Nottingham dissented from the decision.

"The Board also concluded that neither side was able to present good examples of comparable rates because of the small number of movements of TIH commodities. As a result, the Board today [Jan. 28] issued a separate ruling that would expand reporting of rail rates for TIH movements such as chlorine. The revised reporting would commence with the January 2011 Waybill Sample collection."

 

Union Pacific’s response to STB said the railroad “is disappointed by [the] decision invalidating certain chlorinerates covering a few dozen shipments per year. Under STB rules, its task was tochoose between two groups of shipments to determine which group is most like UPchlorine shipments involved in the case. The Board concluded that a group ofshipments consisting entirely of chlorine shipments was less comparable to thechlorine shipments in the case than a group consisting almost entirely of othercommodities that are less hazardous to the public and priced under differentmarket conditions than chlorine.

“Furthermore, the Board chose US Magnesium’s group of mostly non-chlorine shipments on the basis of astatistical analysis that the Board candidly admitted might not bestatistically valid and that resulted in a virtual dead heat between thecompeting groups. This statistical analysis was never discussed by anyone inthe record of the case, had never been proposed by the Board in any othercontext, and does not appear in the Board’s rules. UP believes that astatistically insignificant exercise that produces a toss-up, has no precedentin case law or rules, and contradicts the Board’s own findings that chlorinecarries greater risks and moves in markets distinct from ammonia and otherhazardous products, constitutes the essence of arbitrary and capriciousdecision-making. Accordingly, we plan to appeal.

“The Board sharply criticized UP forusing so-called ‘re-billed movements,’ which are shipments that move over two or more railroads. We respectfully disagree. This is like saying that if you are comparing airline rates from Kansas City to Los Angeles, you would exclude rates to L.A. for passengers who will catch another airline from L.A. to Hawaii—and instead you would select rates for a bus from Kansas City to Phoenix for a ‘comparison.’

"Union Pacific’s top priority is providing safe transport of all goods to the benefit of the communities weserve. Union Pacific is obligated by federal law to carry Toxic InhalationHazard (TIH) materials, which require significantly enhanced and costly safetyand security measures. We believe that the rates we charge to chlorine andother TIH shippers, such as US Magnesium, should reflect the costs and risksassociated with transporting their products.”

The full text of the Board's decision in U.S. Magnesium, L.L.C. v. Union Pacific Railroad Company, STB Docket 42114, and Waybill Data Reporting for Toxic Inhalation Hazards, STB Ex Parte No. 385 (Sub-No. 7), can be found on the Board's Web site, www.stb.dot.gov, in the left-hand column marked "Information Center," under "STB News."