By Randy Gordon, President and CEO
The federal Surface Transportation Board (STB) on Aug. 28 issued a decision discontinuing its long-running proceeding on rail fuel surcharges and its so-called “safe-harbor” provision.
The proceeding was triggered by a complaint submitted to the agency by Cargill Inc., in which it challenged the fuel surcharges imposed by the BNSF Railway Co. over a five-year period. In a decision issued in 2013, the STB dismissed Cargill’s complaint even though it found that BNSF had charged $181 million more than what it actually paid in terms of higher fuel costs. The STB’s rationale was that in 2007 it had granted a “safe harbor” – based on the Energy Information Administration’s former “U.S. No. 2 Diesel Retail Sales by All Sellers” calculation (now known as the “Highway Diesel Fuel Index,” or “HDF Index”) – on which it stated that rail carriers were “entitled to rely…as a proxy to measure changes in their internal fuel costs.” Based upon this “safe-harbor” provision, the STB had concluded that BNSF had not “over-recovered” its incremental fuel cost increases.
However, when issuing its 2013 decision in the Cargill-BNSF case, the STB issued a rulemaking seeking comment on the safe-harbor provision, including asking for input on whether it should be modified or removed. The next year – in 2014 – the STB issued another rulemaking seeking information on whether there was a growing spread between the HDF-based costs versus the actual fuel cost increases being incurred by individual railroads to determine whether to modify or remove the safe-harbor provision.
In its decision issued this week, the STB said that during the ensuing period following the close of the comment period in 2014, the agency “has been unable to reach a majority decision on what additional…action should be taken…Because of the lack of a majority opinion and in the interest of administrative finality, the (STB) members agree that this docket should be discontinued.”
Each of the three STB members issued separate statements accompanying the decision. Chairman Ann Begeman, who said she cast a “reluctant” vote in the Cargill-BNSF case, wrote that she believes the safe-harbor provision should be eliminated. The Cargill-BNSF case “led me to question why the (STB) adopted rules…that would permit a carrier to recover substantially more than its incremental fuel costs, simply because the carrier uses a particular index,” she wrote in the decision issued Aug. 30. “I believe it is especially misguided that (since the Cargill-BNSF case), the safe-harbor provision has been retained despite the (STB’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 (using the safe-harbor calculation)…The comments received in response to the (rulemaking) have not allayed my concerns about the impacts of the safe-harbor provision.” Yet, Begeman concluded that she “again reluctantly” was voting to close the proceeding “rather than wait for a full complement of (STB) members in hopes that a majority view would be reached to repeal the safe-harbor provision.” [Note: The STB currently has three members, with two vacancies awaiting to be filled.]
Meanwhile, the two newest STB members – Vice Chairman Patrick Fuchs and Martin Oberman – also voted to discontinue the proceeding. Fuchs argued that considering the fuel surcharge apart from the base freight rate would be “inconsistent” and “essentially ignor(e) demand-based differential pricing.” He wrote that the STB “…might award relief on part of the rate (the fuel surcharge) even if it could not award relief on the overall rate….Whether or not the two approaches could be reconciled, I would not risk exacerbating this tension by modifying or removing the safe-harbor provision.” The Class I railroads long have argued that fuel surcharges can be challenged by shippers only by filing a case at the STB against the underlying freight rate. Nor, Fuchs wrote, would he vote to reverse the agency’s previous decision granting the safe-harbor provision. “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,” he wrote. “If the (STB) were to propose reversing (its previous rail fuel surcharge decision), it could disrupt that reliance.” Instead, Fuchs wrote, the STB should “address these concerns, as appropriate, by advancing reforms to its rate-review processes, which apply to the overall rate.”
STB member Martin Oberman wrote that he found the Cargill-BNSF decision “jarring because the carrier was permitted to collect sums far in excess of its true incremental fuel costs. Nevertheless, in my view that outcome was consistent with, if not mandated by, the safe-harbor provision incorporated into the (agency’s) fuel surcharge rules. He, too, wrote that he believes fuel surcharges are “clearly components” of the overall freight rate, and “cannot be evade(d) by treating a rate matter as an unreasonable practice” case. However, Oberman concluded that he believes the STB should not have issued its 2007 rail fuel surcharge decision in the first place, which created the rules and their safe-harbor provision. “Today, I would take steps to reverse that decision in its entirety,” he wrote. “However, no majority (at the STB) exists for such action.”
In ironic timing, rail customers currently are involved in filing antitrust legal cases alleging that four Class I railroads – BNSF, CSX Transportation Inc., Norfolk Southern Railway Co. and Union Pacific Railroad Co. – conspired to fix fuel surcharge levels between July 1, 2003 and Dec. 31, 2008. For more information on the antitrust case, see the Aug. 26 edition of the NGFA Newsletter.