By Randy Gordon, President and CEO
The federal Surface Transportation Board (STB) on Sept. 12 launched two separate proceedings and announced a public hearing that, in tandem, are intended to simplify, make timelier and reduce the costs for rail customers to challenge unreasonable freight rates.
The proposals reflect several of the recommendations made by an STB Rate Reform Task Force, established by STB Chairman Ann Begeman, that issued a far-reaching report in May. The NGFA in 2014 had submitted a comprehensive proposed approach to the STB to create a new, simplified approach for use by agricultural shippers to challenge unreasonable freight rates, and commended the STB task force for incorporating several components of those recommendations in its report.
The specific actions now being proposed by the STB involve creating the following:
- Final Offer Rate Review Procedure: Create a so-called “Final Offer Rate Review” procedure that would apply to challenges of freight rates in smaller cases, with rate relief capped at $4 million over a two-year period (unless the parties agree otherwise). This is the same rate relief prescription that applies to the STB’s current most simplified rate-challenge methodology – known as the Three-Benchmark methodology. Under the Final Offer Rate Review concept, the STB would decide a case by selecting either the rail customer plaintiff or defendant railroad’s rate that they respectively believe represents a fair award. The rail customer challenging the rate and the defendant railroad would be required to submit an explanation of the methodology they used to determine their “final offer” when filing their final offer rates.
Such cases would be resolved under an expedited procedural schedule that adheres to firm deadlines, under which a decision would be rendered by the STB within 135 days. The process would begin with a rail customer serving notice on a defendant railroad of its intent to initiate a case at least five days before actually filing the complaint with the STB. The filing of the complaint would trigger a 21-day period for discovery of evidence by the involved parties. Because of the procedural time limits, the STB states that the parties would be expected to submit “narrowly tailored, targeted discovery requests based on the information that the other side could reasonably be expected to provide in a short period of time, focusing on the key information needed to prove or defend a rate case.” As required by law, the rail customer would be required to demonstrate that the rail carrier had “market dominance” – the existence of a lack of effective modal competition – over the transportation movement to which the rate applies. However, the STB in a separate action is proposing to apply a “streamlined” market dominance approach to each of its rate-challenge processes (see next item). The proposed fee for filing a formal complaint to challenge a rate under this “Final Offer” procedure would be $150.
- Market Dominance Streamlined Approach: In a second action, the STB proposes to establish a streamlined approach for demonstrating whether a railroad has market dominance under each of its rate-challenge methodologies. The agency said the streamlined approach is designed to reduce the burden on rate case parties by establishing that a complainant can make a prima facie showing of market dominance when the complainant can demonstrate that:
- The transportation movement has a revenue-to-variable cost ratio of 180 percent or greater, the statutory threshold that must be met before a rate can be challenged;
- The movement would exceed 500 highway miles between origin and destination;
- There is no intramodal competition from other railroads;
- There is no barge competition;
- The complainant has used trucks for 10 percent or less of its movements subject to the rate at issue over a five-year period; and
- The complainant has no practical build-out alternative because of physical, regulatory, financial or other issues (or combination of issues).
proposed streamlined market dominance approach would be available to
complainants under any of the agency’s rate-review methodologies. Complainants who
could not make the showing of market dominance under the aforementioned six
factors would need to establish market dominance in a non-streamlined
presentation. Under either approach, defendant railroads would continue to have
the opportunity to rebut a complainant’s evidence.
Comments on both the Final Offer Rate Review and the market dominance streamlined approach are due by Nov. 12, and replies are due by Jan. 10, 2020. NGFA’s Rail Shipper/Receiver Committee will be analyzing and responding to each of the STB proposals.
Finally, in a third action, the STB on Sept. 12 also scheduled a Dec. 12 public hearing on revenue adequacy issues raised in its Rate Reform Task Force’s report, which included the concept of establishing a definition for “long-term revenue adequacy” under which a railroad no longer would be allowed to differentially price its traffic movements. The STB’s announcement also said the agency would request comments at the hearing on the task force’s recommendations to: 1) establish a rate increase constraint for long-term revenue-adequate carriers; 2) suspending the STB’s current “bottleneck” rate restrictions for long-term revenue-adequate carriers; and 3) reforming the simplified stand-alone cost methodology for long-term revenue-adequate carriers’ rates.
More to Come! During the annual meeting of the National Grain Car Council on Sept. 12 in St. Louis, Mo., which was attended by NGFA, STB Chairman Ann Begeman said there was “more to come” from the agency. One of those anticipated actions is a proposal, expected to be issued in a matter of weeks, to reign in some of the most egregious rail practices involving demurrage and accessorial charges that are neither commercially fair nor reciprocal.