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5/2/2002



Rail News: Rail Industry Trends

STB seeks better way to compute small-road variable costs during rate cases


Surface Transportation Board May 2 announced that it recently started a proceeding to address small railroads' rate-case costing issues.
STB under current law can't review the reasonableness of a challenged rail rate unless it first finds that a railroad has "market dominance" — or an absence of effective competition from other railroads or modes for the transportation to which a rate applies — over involved traffic.
A statute also contains a "quantitative" provision precluding STB from determining market dominance where revenue produced by a move is less than 180 percent of a railroad's variable cost of providing the service.
To compute a railroad's variable costs, the board uses Uniform Rail Costing System (URCS), which relies on data compiled under Uniform System of Accounts (USOA), an STB-prescribed accounting system.
Because of substantial data requirements, STB has required only Class Is to file data and maintain records in accordance with USOA — precluding STB from obtaining detailed and uniform cost and operational data from small roads.
The board faced this issue a few years ago, when a shipper filed a rate complaint against Duluth, Missabe and Iron Range Railway Co. Although the parties ultimately settled, STB officials believed the board must be better prepared to deal with similar future rate cases.
In its recent decision, the board proposes to use URCS regional average variable costs — which routinely are calculated by STB based on aggregate data filed by Class Is — to act as a surrogate for small road's variable costs.
Although URCS regional average costs might not be as accurate as URCS data for a particular road, STB officials said such costs previously have been used in a variety of regulatory proceedings.
The board is seeking suggestions on how such regional average variable costs can practically be adjusted to better reflect non-Class I operations. Interested parties may file comments on a proposed approach and/or alternative proposal by July 1, with replies due July 31.


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