Surface Transportation Board Issues Decision Regarding Quarterly Rail Cost Adjustment Factor
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SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
Decision Information
Docket Number: EP_290_5
Decision Type: Decision
Deciding Body: Entire Board
Decision Summary
Decision Notes: DECISION APPROVED THE THIRD QUARTER 2014 RAIL COST ADJUSTMENT FACTOR AND COST INDEX FILED BY THE
Decision Attachments
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Full Text of Decision
43841 SERVICE DATE -
EB
DECISION
Docket No. EP 290 (Sub-No. 5) (2014-3)
QUARTERLY RAIL COST ADJUSTMENT FACTOR
Digest:[1] The rail cost adjustment factor (RCAF) is an index formulated to represent changes in railroad costs incurred by the nation's largest railroads over a specified period of time. The statute requires the
Decided:
In Railroad Cost Recovery Procedures, 1
The provisions of 49 U.S.C. section 10708 direct the
The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the third quarter of 2014 are shown in Table A of the Appendix to this decision. Table B shows the first quarter 2014 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.
In its submission, AAR states that on
In the past, the Board used the forecast error adjustment procedure to remedy similar errors, and we continue to believe it is the best available method to correct the Labor Index.[3] Therefore, we will not restate the first or second quarter 2014 RCAF figures, but rather will allow the corrections to be made using the forecast error calculations. The revision had no impact on the Labor Index for the first quarter of 2014, and therefore, the third quarter 2014 forecast error calculation will include the original 386.2 figure as the "forecast" version of the first quarter 2014 Labor component, and the same 386.2 figure as the "actual" version of the first quarter 2014 Labor component. In the fourth quarter 2014 index calculation, the fourth quarter 2014 forecast error calculation will include the original 388.1 figure as the "forecast" version of the second quarter 2014 Labor component, and the corrected 388.1 figure as the "actual" version of the second quarter 2014 Labor component.[4] In the current third quarter 2014 RCAF calculations, the Labor component has been calculated as if the second quarter 2014 version had used the corrected figure.
We have examined AAR's calculations and we find that AAR has complied with our procedures. We find that the third quarter 2014 RCAF (Unadjusted) is 0.985, an increase of 1.0% from the second quarter 2014 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 2008-2012, which is 1.010 (1.0% per year). We find the RCAF (Adjusted) is 0.424, an increase of 0.7% from the second quarter 2014 RCAF (Adjusted) of 0.421.[5]
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 third quarter of 2014 is 0.401, an increase of 1.0% from the second quarter 2014 RCAF-5 of 0.397.[6]
This decision will not significantly affect the quality of the human environment or the conservation of energy resources.
Authority: 49 U.S.C. section 10708.
It is ordered:
1. The Board approves the third quarter 2014 RCAF (Unadjusted) of 0.985, RCAF (Adjusted) of 0.424, and RCAF-5 of 0.401.
2. Notice of this decision will be published in the
3. The effective date of this decision is
By the Board, Chairman Elliott, Vice Chairman Miller, and Commissioner Begeman.
APPENDIX
TABLE A
Click here (http://www.stb.dot.gov/decisions/readingroom.nsf/cac42df635267da4852572b80041558c/55bcd41e1f8bd0a185257cfd004efdfa?OpenDocument) to view table.
Endnotes:
[1] The digest constitutes no part of the decision of the Board but has been prepared for the convenience of the reader. It may not be cited to or relied upon as precedent. Policy Statement on Plain Language Digests in Decisions, EP 696 (STB served
[2] AAR's filing (dated
[3] See Quarterly Rail Cost Adjustment Factor, EP 290 (Sub-No. 5) (2012-3), slip op. at 2 (STB served
[4] The 388.1 figure does not change due to rounding.
[5] The third quarter 2014 RCAF Adjusted (0.424) is calculated by dividing the third quarter 2014 RCAF Unadjusted (0.985) by the third quarter productivity adjustment factor of 2.3226. The third quarter 2014 productivity adjustment factor is calculated by multiplying the second quarter 2014 productivity adjustment of 2.3168 by the fourth root (1.0025) of the 2008-2012 annual average productivity growth rate of 1.0%.
[6] The third quarter 2014 RCAF-5 (0.401) is calculated by dividing the third quarter 2014 RCAF Unadjusted (0.985) by the third quarter productivity adjustment factor-5 (PAF-5) of 2.4588. The third quarter 2014 PAF-5 is calculated by multiplying the second quarter 2014 PAF-5 of 2.4534 by the fourth root (1.0022) of the 2007-2011 annual average productivity growth rate of 0.9%.
[1] "Other Items" is a combination of Purchased Services, Casualties and Insurance, General and Administrative, Other Taxes, Loss and Damage, and Special Charges, price changes for all of which are measured by the Producer Price Index for Industrial Commodities Less Fuel and Related Products and Power.
[2] Linking is necessitated by a change to the 2012 weights beginning in the fourth quarter of 2013. The following formula was used for the current quarter's index:
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[3] The first quarter 2013 RCAF was rebased using the
[4] The third quarter 2014 forecast error adjustment was calculated as follows: (a) first quarter 2014 RCAF using forecasted data equals 98.5; (b) first quarter 2014 RCAF using actual data equals 97.5; (c) the difference equals the forecast error (b-a) of -1.0. Because the actual first quarter value is less than the forecast value, the difference is subtracted from the Preliminary RCAF.
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