2022-28110. Quarterly Rail Cost Adjustment Factor; Decision

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 five-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.

As required by statute, the denominator of the RCAF is to be rebased every five years. See49 U.S.C 10708(a). The Board has verified AAR's proposed rebasing calculations, and they comply with the statute. The 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 2023 are shown in Table A of the Appendix to this decision. Table B shows the third quarter 2022 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.

AAR's calculations have been examined by the Board's Office of Economics, and the Board finds that AAR has complied with agency procedures. The Board finds that the first quarter 2023 RCAF (Unadjusted) is 1.010, an increase of 1.0% from the fourth quarter 2022 RCAF (Unadjusted) of 1.000. 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 2016-2020, which is 1.025 (2.5% per year). The first quarter 2023 RCAF (Adjusted) is 0.408, an increase of 0.2% from the fourth quarter 2022 RCAF (Adjusted) of 0.407.^[1]

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 2016-2020, which is 1.025 (2.5% per year). The RCAF-5 for the first quarter of 2023 is 0.390, an increase of 0.3% from the fourth quarter 2022 RCAF-5 of 0.389.^[2]

This action is categorically excluded from environmental review under 49 CFR 1105.6(c).

Authority:49 U.S.C. 10708.

It is ordered:

1. The Board finds that the first quarter 2023 RCAF (Unadjusted) is 1.010, RCAF (Adjusted) is 0.408, and RCAF-5 is 0.390.

2. Notice of this decision will be published in the Federal Register .

3. The effective date of this decision is January 1, 2023.

Decided: December 20, 2022.

By the Board, Fuchs, Hedlund, Oberman, Primus, and Schultz.

Kenyatta Clay,

Clearance Clerk.

Table A—EP 290 (Sub-No. 5) (2023-1) All Inclusive Index of Railroad Input Costs

[Endnotes following Table C]

Line No.	Index component	2021 Weights (percent)	Fourth quarter 2022 forecast	First quarter 2023 forecast
1	LABOR	31.4	479.6	546.0
2	FUEL	14.2	475.2	467.1
3	MATERIALS AND SUPPLIES	4.5	335.3	328.9
4	EQUIPMENT RENTS	4.9	253.8	250.1
5	DEPRECIATION	17.5	233.3	234.8
6	INTEREST	2.4	50.1	50.1
7	OTHER ITEMS 1	25.1	290.6	280.0
8	WEIGHTED AVERAGE	100.0	360.6	377.4
9	LINKED INDEX 2		331.3	346.7
10	PRELIMINARY RAIL COST ADJUSTMENT FACTOR 3		96.8	101.3
11	FORECAST ERROR ADJUSTMENT 4		0.032	−0.003
12	RCAF (UNADJUSTED) (LINE 10 + LINE 11)		1.000	1.010
13	RCAF (ADJUSTED)		0.407	0.408
14	RCAF-5		0.389	0.390

Table B—EP 290 (Sub-No. 5) (2023-1) Comparison of Third Quarter 2022 Index

[Calculated on both a forecasted and an actual basis]

Line No.	Index component	2020 Weights (%)	Third quarter 2022 forecast	Third quarter 2022 actual
1	LABOR	32.4	472.4	472.4
2	FUEL	9.7	459.6	484.4
3	MATERIALS AND SUPPLIES	4.5	305.0	305.0
4	EQUIPMENT RENTS	5.2	256.0	251.4
5	DEPRECIATION	18.5	233.2	233.7
6	INTEREST	2.7	51.1	51.1
7	OTHER ITEMS	27.0	302.4	289.7
8	WEIGHTED AVERAGE	100.0	350.8	349.7
9	LINKED INDEX		328.7	327.7
10	RAIL COST ADJUSTMENT FACTOR		96.0	95.7

Table C—Rebasing the Denominator of the RCAF to the Fourth Quarter 2022 Level

1.	Fourth Quarter 2022 Linked Index	331.3
2.	Second Quarter 2022 Linked Index Calculated Using Actual Data	324.8
3.	Second Quarter 2022 Linked Index Calculated Using Forecasted Data	313.8
4.	Difference	11.0
5.	Rounding Adjustment to Force 1.000	0.0
6.	Fourth Quarter 2022 Linked Index Adjusted for Second Quarter 2022 Forecast Error (Line 1 plus Line 4 plus Line 5)	342.3

Endnotes:

Footnotes

1.  The first quarter 2023 RCAF Adjusted (0.408) is calculated by dividing the first quarter 2023 RCAF Unadjusted (1.010) by the first quarter productivity adjustment factor (PAF) of 2.4740. The first quarter 2023 PAF is calculated by multiplying the fourth quarter 2022 productivity adjustment of 2.4588 by the fourth root (1.0062) of the 2016-2020 annual average productivity growth rate of 2.5%.

2.  The first quarter 2023 RCAF-5 (0.390) is calculated by dividing the first quarter 2023 RCAF Unadjusted (1.010) by the first quarter productivity adjustment factor-5 (PAF-5) of 2.5898. The first quarter 2023 PAF-5 is calculated by multiplying the fourth quarter 2022 PAF-5 of 2.5738 by the fourth root (1.0062) of the 2016-2020 annual average productivity growth rate of 2.5%.