STB RCAF 2021Q4 Decision 9 16 2021

50950	SERVICE DATE - SEPTEMBER 16, 2021
EB
	SURFACE TRANSPORTATION BOARD
	DECISION
	Docket No. EP 290 (Sub-No. 5)
	(2021-4)
	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 Surface Transportation Board (Board) is required by law to publish the RCAF on at least a quarterly basis. Each quarter, the Association of American Railroads computes three types of RCAF figures and submits those figures to the Board for approval. The Board has reviewed the submission and adopts the RCAF figures for the fourth quarter of 2021.

Decided: September 15, 2021

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-ProductivityAdjustment, 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

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. See Pol'y Statement on Plain Language Digs. in Decisions, EP 696 (STB served Sept. 2, 2010).

Docket No. EP 290 (Sub-No. 5) (2021-4)

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.

The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the fourth quarter of 2021 are shown in Table A of the Appendix to this decision. Table B shows the second quarter 2021 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.

The weights for each major cost component of the all-inclusive cost index, on which the RCAF is based, are updated annually to reflect the changing mix of index components. See

49 U.S.C. § 10708. This includes re-benchmarking the wages and supplemental rates used in the labor index in the fourth quarter of each year. The weights used by AAR are based on the distribution of railway expenses for the year 2020. Similarly, AAR has used wage and supplemental rates for the year 2020 to calculate hourly labor rates that reflect the changing mix of employees.

AAR's calculations, including its re-weighting and re-benchmarking calculations, have been examined by the Board's Office of Economics, and the Board finds that AAR has complied with agency procedures with respect to the available data for 2020. The Board finds that the fourth quarter 2021 RCAF (Unadjusted) is 1.139, an increase of 0.4% from the third quarter

2021 RCAF (Unadjusted) of 1.134. 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 2015-2019, which is 1.008 (0.8% per year). The fourth quarter 2021 RCAF (Adjusted) is 0.473, an increase of 0.2% from the third quarter 2021 RCAF (Adjusted) of 0.472.2

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 2014-2018, which is 1.010 (1.0% per year). The RCAF-5 for the fourth quarter of 2021 is 0. 0.446, an increase of 0.2% from the third quarter 2021 RCAF-5 of 0.445.3

1. The fourth quarter 2021 RCAF Adjusted (0.473) is calculated by dividing the fourth quarter 2021 RCAF Unadjusted (1.139) by the fourth quarter productivity adjustment factor (PAF) of 2.4087. The fourth quarter 2021 PAF is calculated by multiplying the third quarter 2021 productivity adjustment of 2.4039 by the fourth root (1.0020) of the 2015-2019 annual average productivity growth rate of 0.8%.
2. The fourth quarter 2021 RCAF-5 (0.446) is calculated by dividing the fourth quarter 2021 RCAF Unadjusted (1.139) by the fourth quarter productivity adjustment factor-5(PAF-5) of 2.5534. The fourth quarter 2021 PAF-5 is calculated by multiplying the third quarter 2021 PAF-5 of 2.5470 by the fourth root (1.0025) of the 2014-2018 annual average productivity growth rate of 1.0%.

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Docket No. EP 290 (Sub-No. 5) (2021-4)

This action is categorically excluded from environmental review under 49 C.F.R. § 1105.6(c).

Authority: 49 U.S.C. § 10708.

It is ordered:

1. The Board finds that the fourth quarter 2021 RCAF (Unadjusted) is 1.139, RCAF (Adjusted) is 0.473, and RCAF-5 is 0.446.
2. Notice of this decision will be published in the Federal Register.
3. The effective date of this decision is October 1, 2021.

By the Board, Board Members Begeman, Fuchs, Oberman, Primus, and Schultz.

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Docket No. EP 290 (Sub-No. 5) (2021-4)

APPENDIX

TABLE A

EP 290 (Sub-No. 5) (2021-4)

All Inclusive Index of Railroad Input Costs

(Endnotes Following Table B)

LINE	INDEX COMPONENT	2020	THIRD	FOURTH
NO.		WEIGHTS	QUARTER 2021	QUARTER 2021
			FORECAST	FORECAST
1	LABOR	32.4%	447.9	454.9
2	FUEL	9.7%	254.5	268.8
3	MATERIALS AND SUPPLIES	4.5%	277.8	288.8
4	EQUIPMENT RENTS	5.2%	250.0	248.4
5	DEPRECIATION	18.5%	228.0	227.9
6	INTEREST	2.7%	55.7	51.1
7	OTHER ITEMS1	27.0%	278.7	278.1
8	WEIGHTED AVERAGE	100.0%	314.2	318.0
9	LINKED INDEX2		294.4	298.0
10	PRELIMINARY RAIL COST		111.3	112.7
	ADJUSTMENT FACTOR3
11	FORECAST ERROR ADJUSTMENT4		0.021	0.012
12	RCAF (UNADJUSTED)		1.134	1.139
	(LINE 10 + LINE 11)
13	RCAF (ADJUSTED)		0.472	0.473
14	RCAF-5		0.445	0.446

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Docket No. EP 290 (Sub-No. 5) (2021-4)

TABLE B

EP 290 (Sub-No. 5) (2021-4)

Comparison of Second Quarter 2021 Index

Calculated on Both a Forecasted and an Actual Basis

	INDEX	2019	SECOND	SECOND
LINE	COMPONENT	WEIGHTS	QUARTER	QUARTER
NO.			2021	2021
			FORECAST	ACTUAL
1	LABOR	32.6%	446.6	446.6
2	FUEL	14.2%	221.1	236.9
3	MATERIALS AND SUPPLIES	4.9%	275.0	275.0
4	EQUIPMENT RENTS	5.2%	238.4	241.9
5	DEPRECIATION	15.9%	226.5	227.9
6	INTEREST	2.5%	55.7	55.7
7	OTHER ITEMS	24.7%	251.0	257.5
8	WEIGHTED AVERAGE	100.0%	302.3	306.5
9	LINKED INDEX		282.3	285.4
10	RAIL COST ADJUSTMENT		106.7	107.9
	FACTOR

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