Surface Transportation Board Gets An Earful

The freight railroads and their customers are gearing up for what will likely be some intense discussion over how and whether the Surface Transportation Board (STB) will modify rules related to rail rate reasonableness and rail fees associated with demurrage a

Benzinga · 11/13/2019 20:27

The freight railroads and their customers are gearing up for what will likely be some intense discussion over how and whether the Surface Transportation Board (STB) will modify rules related to rail rate reasonableness and rail fees associated with demurrage and accessorial charges.

Dozens of comments from railroads and shippers alike have been submitted to the Board in recent weeks for five proceedings: Ex Parte (EP) 755 on final offer rate review; EP 756 on the streamlined market dominance approach; EP 757 on the policy statement on demurrage and accessorial rules and charges; EP 759 on demurrage billing requirements; and EP 760 on exclusion on demurrage requirements for certain class exemptions. 

These comments come as the Board is expected to take some form of action on these items and follow through on the momentum that started at the beginning of this year when the Board added two new members to make a total of three. 

The public comment period for these proceedings ended recently, although responses on the comments are due in December.

Ex Parte 755 and Ex Parte 756

These two proceedings deal with the reasonableness of rail rates and build upon recommendations made from an April 2019 report by the STB's Rate Reform Task Force.

The STB was seeking comments on a proposed rule to establish rate review options for smaller customers, which would be known as the Final Offer Rate Review (FORR). The Board was also seeking comments on a proposed rule that would reduce the burden on rate case parties.

STB said when it announced these proposed rulemakings in September that these two proposed rules would build upon the work of the agency's Rate Reform Task Force, which had conducted informal meetings throughout the country in 2018 to see if there were ways to reduce the cost and complexity of rate cases.

The viewpoints vary on these two proceedings. The Association of American Railroads (AAR) came out against the FORR proposed rule. AAR said that the Board should withdraw the proposed rule because it claims the proposed rule is unlawful. The association reasons that this rate review procedure denies shippers and railroads alike their right to a full hearing as required by law, AAR said.

"The STB's Final Offer Rate Review proposed rule is fatally flawed and exceeds the agency's authority in determining rate reasonableness," said Ian Jefferies, AAR President and CEO. "The STB's standard-less Final Offer proposal abdicates the agency's statutory responsibility to judge the reasonableness of rail rates and abandons careful deliberation vital to a balanced regulatory structure. Freight railroads oppose FORR because it is unlawful and undermines the fundamental legal and economic principles established by Congress."

AAR also said it will argue its case for determining revenue adequacy at the STB public hearing on the subject on Dec. 12.

Meanwhile, Jerry Ellig, a research professor affiliated with The George Washington Regulatory Studies Center, said the STB should consider conducting a regulatory impact analysis (RIA) on these proposed rules to help clarify the Board's role in these matters.

"The STB should conduct an RIA-style analysis that assesses the extent and cause of the problem the regulation seeks to address, identifies alternative solutions tailored to address whatever problem exists, and assesses the benefits, costs and transfers associated with each alternative compared to the "no action" baseline," Ellig said. "Even if constraints of time, data or analytical capabilities do not permit every question to be investigated to the extent suggested in this comment, use of the RIA analytical framework would help ensure that the STB's decisions are informed by evidence about the need for the regulation and the major consequences of alternatives." 

A coalition of shippers' groups also suggested that the STB continue to develop methodologies that best address rate reasonableness.

The "FORR establishes a process for rate reasonableness cases but does not prescribe a methodology to determine reasonableness. Instead, [the] FORR allows the parties to propose any methodology that satisfies the three sets of criteria outlined in the NPRM [notice of proposed rulemaking]… While the Coalition Associations support that approach, it nevertheless requires shippers to take a ‘leap-of-faith' that they will be able to develop methods that the Board ultimately will deem acceptable. It is absolutely critical, therefore, that the Board provides a reasonable opportunity for shippers to obtain crucial information to develop methodologies that are workable and supportable," said the Nov. 12 comments of a shippers' coalition that consists of the American Chemistry Council, the Fertilizer Institute, the National Industrial Transportation League, the Chlorine Institute and the Corn Refiners Association.

Ex Parte 757, Ex Parte 759 and Ex Parte 760

These three proceedings grapple with the freight railroads' handling of demurrage and accessorial charges. The railroads have argued that the charges encourage shippers to return railcars and equipment in a timely fashion so that the railroads can more effectively implement precision scheduled railroading. 

But many shippers, including those who testified before the STB in May at a two-day hearing on the issue, argue that sometimes they are penalized for the railroads' actions, such as when the railroads "bunch" railcars, or deliver too many at once.

The STB responded to feedback from both shippers and the railroads with three proposed decisions issued in October.

Reactions to the Board's decisions were also mixed, but the STB could move towards a direction that might benefit shippers based on the tone of its interactions with the various parties, sources said. But what the Board will actually issue as its final rules remains to be seen.

In the meantime, some shippers are asking the Board to take a more aggressive stance in support of shippers in EP 757, which consists of a proposed policy statement addressing how the railroads should modify the methods used to assess demurrage and accessorial charges.

The National Grain and Feed Association (NGFA) is "disappointed by the Board's proposal not to establish bright-line rules to govern the commercial fairness, commercial achievability and reciprocity of rail carriers' demurrage and accessorial tariffs," NGFA said in Nov. 6 testimony to the proceeding EP 757. 

The group has suggested that the STB use its statutory authority and direct the railroads to amend their tariffs because of "unlawful" existing practices. Doing so would allow rail customers to submit "show-case" filings or petitions to the Board so that the STB can declare that a railroad has not complied and it can order the company to take corrective action, NGFA said.

But the railroads say that the policy statement, even if it's non-binding, would "create confusion and uncertainty, which would likely trigger an increase, rather than decrease, in carrier-shipper demurrage disputes."

"Simply put, a policy statement cannot be used to change the law," AAR said in Nov. 6 comments to the STB on EP 757.

Image by Aleksejs Ivanovs from Pixabay