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STB presses on with small rate dispute proceeding

Shippers wanted Class I railroads to clarify stance on revenue adequacy

The Surface Transportation Board is moving forward on a proceeding regarding a voluntary arbitration program. (Photo: Jim Allen/FreightWaves)

The Surface Transportation Board has denied a request by rail shipper groups to temporarily suspend a rulemaking proceeding on whether a voluntary arbitration program for small rate disputes should be established.

But the board has asked the Class I railroads to indicate whether they plan to consent to rate case arbitration if revenue adequacy is taken into account, STB announced Wednesday.

STB’s decision, available here, also modifies the deadline for how long comments can be received on this proceeding and another proceeding on final offer rate review (FORR) that also seeks to address small rate disputes. 

STB initiated a rulemaking proceeding in November in response to Class I railroads’ joint petition asking the board to modify existing arbitration rules so that a voluntary arbitration program for small rate cases could be established. Small rate disputes involve relief caps of $4 million or less. 

The Class I railroads have previously said the proposed arbitration program would provide meaningful access to rate review for small rate disputes because it would be low cost and consistent with statutory and economic principles. 

But five rail shipper groups — the American Chemistry Council, Corn Refiners Association, National Industrial Transportation League, The Chlorine Institute and The Fertilizer Institute — wanted STB to temporarily suspend the proceeding until the board could get a commitment from the Class I railroads on whether they would still take part in the program if an arbitrator takes revenue adequacy into account when judging a rate dispute. The National Grain and Feed Association also lent its support to the shippers groups.

Revenue adequacy is when a railroad “achieves a rate of return on net investment that is equal to at least the current cost of capital for the railroad industry” in the prior year, according to STB. The railroads and shippers have been grappling over revenue adequacy for years, with shippers saying that offering alternative economic models that calculate revenue adequacy could make rail rate challenges more accessible for captive shippers that don’t have an alternative viable rail option.

But in Tuesday’s decision, the board said it could not request that commitment from the Class I railroads because public discourse and feedback still need to occur on the issue. But STB also said that it emphasized its expectation that the rail carriers will convey their position on revenue adequacy in their comments. 

“[The] joint shippers’ motion essentially seeks to truncate the rulemaking process by requiring rail carriers to pledge whether they would participate in the proposed arbitration program based solely on the single issue of revenue adequacy before the record has been fully developed,” STB said in its Tuesday decision. But “asking petitioners [rail carriers] to make the commitment sought by joint shippers at this stage would be premature, as petitioners are likely still developing their position on this and other issues. … In addition, even if a carrier were to take a position now on its willingness to participate in an arbitration program, the carrier’s ultimate decision could change depending on subsequent developments in the arbitration docket and the FORR docket.

“To be sure, the board made clear that a prohibition on methodologies and evidence pertaining to revenue adequacy was not an acceptable limitation on the arbitration program. It fully expects the rail carriers to convey in their comments their position on this important feature” of the rulemaking, STB said.

While public comments on the arbitration rulemaking and the rulemaking on FORR are still due on Jan. 14, the deadline for reply comments has been extended to April 15. 

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.