STB releases Rate Reform Task Force report

The Surface Transportation Board Rate Reform Task Force has completed a staff report providing its recommendations for “possible changes to the rate review methodologies and processes used by the Board,” STB said.

The Rate Reform Task Force, established in January 2018 to recommend improvements to STB’s existing rate review processes and propose new rate review methodologies “more attuned to the realities of the current transportation world,” reached out to the transportation community through informal meetings with shipper and carrier representatives, as well as academics, practitioners, and other interested parties throughout the U.S. “Through frank conversations with diverse stakeholders, the Task Force developed a greater understanding about the challenges involved with the Board’s existing rate review methodologies, along with changes that could improve them and ideas for new methodologies,” STB noted.

The report makes several key recommendations:

• Offering proposals that the Board could adopt to reduce the cost and complexity of small rate disputes.

• Calling for legislation that would permit the Board to require arbitration of small rate disputes.

• Suggesting significant simplification of the existing Stand-Alone Cost (SAC) test.

• Proposing an entirely new rate methodology called Incumbent Network Cost Analysis (INCA) that would look at the cost structure of the defendant carrier itself instead of a hypothetical stand-alone carrier.

• Suggesting a definition for long-term revenue adequacy and three structural remedies that could be tied to this finding: (1) a rate-increase constraint (limiting carriers from raising rates on certain traffic once long-term revenue adequacy has been achieved); (2) a reversal of the Board’s long-standing “Bottleneck” decisions so that shippers can direct long-term revenue adequate carriers to deliver movements to a feasible interchange of the shipper’s choosing; and (3) a restoration of certain simplifications in the existing Simplified SAC process.

• Increasing the accessibility of the Three-Benchmark comparison approach by, among other things, removing limitations on the aggregation of claims, improving sampling procedures, and instituting page limits on arguments surrounding “other relevant factors.”

• Seeking simplification of the market dominance determination.

“Rate reform is my top priority and the only option not on the table is one where we do nothing,” said STB Chairman Ann Begeman.

The STB did not identify by name the staff members who authored the report, or the academic disciplines involved. All STB staff reports to Chairman Begeman.

“The task force report is merely that, a report, and not a rulemaking, and the STB has indicated only that it will solicit public input in the near future,” commented Railway Age Capitol Hill Contributing Editor Frank N. Wilner. “There is no indication whether or when it may move forward on this and other pending rulemakings—some pending for years, and others lying in dust bins. In large part, these issues have been percolating at the STB and its predecessor Interstate Commerce Commission since the mid-1980s. Moreover, even if a rulemaking is initiated and completed, court challenges by stakeholders are likely, further delaying finality. Nonetheless, the report represents an effort by at least senior staff to grapple with challenging problems and may result in some forward movement at an STB that seemingly has been comatose on issues of public policy.

“The public comment period likely will be a new experience for veterans of ICC and STB hearings owing to the credentials and proclivities of the STB’s newest members—Republican Patrick J. Fuchs and Democrat Martin J. Oberman.

“Oberman has indicated displeasure with the decades-long regulatory practice known as modified procedure, where stakeholder and expert witness testimony is submitted in writing. A career trial attorney, he wants the opportunity to cross-examine witnesses verbally, in the same room and at the same time. Begeman, as Chairman and in control of proceedings, is expected to be in agreement. Fuchs, fresh from senior staff duties with the Senate Commerce Committee—where, during oversight hearings, difficult questions routinely are asked of witnesses by senators prepped by staff experts—will find the process familiar.

“In fact, the process likely will begin with STB staff that prepared the report, with many of the members individually making a presentation before the three Board members. They will then submit to grilling on their recitation and interpretation of relevant history; the degree of staff collegiality in preparing the report and interplay of the various disciplines (i.e., economics, finance and the law); reasons for reaching their conclusions and recommendations; and perceptions of results, should various recommendations be endorsed by the voting members.

“Railroad and shipper stakeholders subsequently will be invited to make presentations, with—again—Oberman and Fuchs indicating they want to hear from the experts able to answer direct questions, as opposed to CEOs or attorneys reciting prepared text.”

AAR President and CEO Ian Jefferies recently issued the following statement regarding the report:

“AAR and its member railroads are pleased that the STB’s Rate Reform Task Force has completed its report and has affirmed the economic soundness of the Board’s Stand Alone Cost (SAC) test. We continue to be committed to participation in a constructive conversation among freight railroads, shippers and the Board regarding possible improvements to the Board’s rate reasonableness procedures.

“We are concerned, however, that the report lacks balance and objective support for many of its conclusions, mischaracterizes the law and that many of the proposals in the report would move the Board backward towards discredited methods of heavy-handed rate regulation. As recently as 2015, Congress made clear that the STB’s role is to assist freight railroads in earning revenues adequate for the infrastructure and investment needed for present and future freight demand. The Task Force’s proposals recommending profit regulation through rate caps and forced access as a result of achieving revenue adequacy goes in the opposite direction, and would hobble the railroads’ ability to serve current and future demand for transportation. The AAR and its member railroads will carefully consider the proposals in the report and will offer constructive suggestions for how the Board can address its legitimate goals for improving its rate case processes and procedures, including procedures for the smallest rate disputes and improving the Stand Alone Cost test, while also complying with the law and preserving the core economic principles on which those analyses are based.”

The Rate Reform Task Force report may be viewed and downloaded here.