2013-30821. Quarterly Rail Cost Adjustment Factor

AGENCY:

Surface Transportation Board, DOT.

ACTION:

Approval of rail cost adjustment factor.

SUMMARY:

The Board has approved the first quarter 2014 rail cost adjustment factor (RCAF) and cost index filed by the Association of American Railroads. The first quarter 2014 RCAF (Unadjusted) is 0.980. The first quarter 2014 RCAF (Adjusted) is 0.424. The first quarter 2014 RCAF-5 is 0.400.

DATES:

Effective Date: January 1, 2014.

FOR FURTHER INFORMATION CONTACT:

Pedro Ramirez, [phone]. Federal Information Relay Service (FIRS) for the hearing impaired: [phone].

SUPPLEMENTARY INFORMATION:

In Railroad Cost Recovery Procedures, 1 I.C.C. 2d 207 (1984), the Interstate Commerce Commission (ICC) outlined the procedures for calculating the all-inclusive index of railroad input prices and the method for computing the rail cost adjustment factor (RCAF). Under the procedures, the Association of American Railroads (AAR) is required to calculate the index on a quarterly basis and submit it to the agency on the fifth day of the last month of each calendar quarter. In Railroad Cost Recovery Procedures—Productivity Adjustment, 5 I.C.C.2d 434 (1989), aff'd sub nom. Edison Electric Institute v. ICC, 969 F.2d 1221 (D.C. Cir. 1992), the ICC adopted procedures that require the adjustment of the quarterly index for a measure of productivity.

The provisions of 49 U.S.C. 10708 direct the Surface Transportation Board (Board) to continue to publish both an unadjusted RCAF and a productivity-adjusted RCAF. In Productivity Adjustment—Implementation, 1 S.T.B. 739 (1996), the Board decided to publish a second productivity-adjusted RCAF called the RCAF-5. Consequently, three indices are now filed with the Board: The RCAF (Unadjusted), the RCAF (Adjusted), and the RCAF-5. The RCAF (Unadjusted) is an index reflecting cost changes experienced by the railroad industry, without reference to changes in rail productivity. The RCAF (Adjusted) is an index that reflects national average productivity changes as originally developed and applied by the ICC, the calculation of which is currently based on a 5-year moving average. The RCAF-5 is an index that also reflects national average productivity changes; however, those productivity changes are calculated as if a five-year moving average had been applied consistently from the productivity adjustment's inception in 1989.

In EP 290 (Sub No. 5) (2013-1), served December 20, 2012, the Board noted that AAR's proposed rebasing calculations were verified, and complied with the statute. Because the revisions calculated by AAR affected the fourth quarter 2012 basing factor, this decision contains the revised 2012 fourth quarter basing factor, from 297.5 to 297.6. The revised rebasing calculations are shown in Table C of the Appendix.

The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the first quarter of 2014 are shown in Table A of the Appendix to this decision. Table B shows the restated third quarter 2013 index and the RCAF calculated on both an actual and a forecasted basis. The difference between the actual calculation and the forecasted calculation is the forecast error adjustment.

We have examined AAR's calculations and we find that AAR has complied with our procedures, as well as the Board's November 27, 2013 decision directing AAR to restate the 2011, 2012, and 2013 RCAFs using BNSF Railway Company's (BNSF) and Union Pacific Railroad Company's (UP) revised R-1 reports. The restated RCAFs for the fourth quarter of 2011 through the fourth quarter of 2013 were recalculated as if AAR had made the revisions in 2013 for the original filings.^[1] We find that the first quarter 2014 RCAF (Unadjusted) is 0.980, an increase of 0.5% from the restated fourth quarter 2013 RCAF of 0.975. The RCAF (Adjusted) is calculated, in part, using the RCAF (Unadjusted) and a five-year moving geometric average of productivity change for U.S. Class I railroads from 2007-2011, which is 1.009 (0.9% per year). We find that the RCAF (Adjusted) is 0.424, an increase of 0.2% from the restated fourth quarter 2013 RCAF (Adjusted) of 0.423.^[2]

In accordance with Productivity Adjustment—Implementation, 1 S.T.B. at 748-49, the RCAF-5 for this quarter will use a productivity trend for the years 2007-2011, which is 1.009 (0.9% per year). We find that the RCAF-5 for the first quarter of 2014 is 0.400, an increase of 0.3% from the restated fourth quarter 2013 RCAF-5 of 0.399.^[3]

This decision will not significantly affect the quality of the human environment or the conservation of energy resources.

Authority: 49 U.S.C. 10708.

Decided: December 19, 2013.

By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Mulvey.

Jeffrey Herzig,

Clearance Clerk.

Appendix

Table A—EP 290 (Sub-No. 5) (2014-1) All Inclusive Index of Railroad Input Costs ¹

[Endnotes following Table D]

Line No.	Index component	2012 Weights (in percent)	Fourth quarter 2013 forecast	First quarter 2014 forecast
1	LABOR	31.3	387.1	386.2
2	FUEL	22.4	399.6	377.9
3	MATERIALS AND SUPPLIES	4.9	261.4	265.9
4	EQUIPMENT RENTS	5.6	207.7	208.7
5	DEPRECIATION	11.9	221.0	217.8
6	INTEREST	2.0	76.6	76.6
7	OTHER ITEMS 2	21.9	220.0	220.5
8	WEIGHTED AVERAGE	100.0	311.1	306.0
9	LINKED INDEX 3		297.8	292.9
10	PRELIMINARY RAIL COST ADJUSTMENT FACTOR 4		100.1	98.4
11	FORECAST ERROR ADJUSTMENT 5		−0.026	−0.004
12	RCAF (UNADJUSTED) (LINE 10 +LINE 11)		0.975	0.980
13	RCAF (ADJUSTED)		0.423	0.424
14	RCAF-5		0.399	0.400

Table B—EP 290 (Sub-No. 5) (2014-1) Comparison of Third Quarter 2013 Index Calculated on Both a Forecasted and an Actual Basis⁶

Line No.	Index component	2011 weight (in percent)	Third quarter 2013 forecast	Third quarter 2013 actual
1	LABOR	31.4	391.3	391.3
2	FUEL	22.6	375.6	376.0
3	MATERIALS AND SUPPLIES	5.1	264.2	264.2
4	EQUIPMENT RENTS	5.6	208.0	207.6
5	DEPRECIATION	11.5	218.9	217.8
6	INTEREST	2.3	87.3	87.3
7	OTHER ITEMS	21.5	221.4	218.8
8	WEIGHTED AVERAGE	100.0	307.7	307.0
9	LINKED INDEX		294.4	293.1
10	RAIL COST ADJUSTMENT FACTOR		98.9	98.5

Table C—Rebasing the Denominator of the RCAF to the Fourth Quarter 2012 Level (Restated)⁷

1.	Fourth Quarter 2012 Linked Index	299.1
2.	Second Quarter 2012 Linked Index Calculated Using Actual Data	295.5
3.	Second Quarter 2012 Linked Index Calculated Using forecasted Data	297.0
4.	Difference	−1.5
5.	Rounding adjustment to force 1.000	0.0
6.	Fourth Quarter 2012 Linked Index Adjusted for Second Quarter 2012 Forecast Error (Line 1 plus Line 4 plus Line 5)	297.6

Footnotes

1.  See Table D.

2.  The first quarter 2014 RCAF Adjusted (0.424) is calculated by dividing the first quarter 2014 RCAF Unadjusted (0.980) by the first quarter productivity adjustment factor of 2.3110. The first quarter 2014 productivity adjustment factor is calculated by multiplying the fourth quarter 2013 productivity adjustment of 2.3059 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.

3.  The first quarter 2014 RCAF-5 (0.400) is calculated by dividing the first quarter 2014 RCAF Unadjusted (0.980) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.4480. The first quarter 2014 PAF-5 is calculated by multiplying the fourth quarter 2013 PAF-5 of 2.4426 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.