The Surface Transportation Board (STB) has posted an independent study by InterVISTAS Consulting LLC that assesses the STB's stand-alone cost (SAC) rate reasonableness methodology.
The study, commissioned by the STB, looks for alternative methodologies to SAC that could be used to reduce the time, complexity, and expense involved in rate cases. It also determines if SAC is sufficient for large rate cases and whether the Board’s simplified methodologies were appropriate alternatives to SAC. The InterVISTAS study can be downloaded here.
The STB plans to hold an economic roundtable next month with economic experts to engage in a public discussion of the issues and conclusions contained in the report. STB Chairman Daniel R. Elliott III also hopes to schedule a public hearing after the roundtable for all stakeholders and interested parties to participate in the discussion. After consideration of expert and stakeholder views, the STB will then deliberate on a regulatory path forward concerning large rate cases.
“I am pleased that the InterVISTAS report is complete, and that the Board and industry stakeholders will have an opportunity to review and discuss its findings on rate reasonableness methodologies,” stated Elliott. “I take very seriously the impact that our rate case proceedings and methodologies have on industry and commerce. I look forward to thoughtful input from the transportation industry and a fruitful exchange of ideas as we forge a way ahead on this complex topic.”
After the release of the study, Association of American Railroads (AAR) President and CEO Edward R. Hamberger noted, "The findings are clear: shippers have cost-effective alternatives to bring rate complaints to the STB, and changes to the existing regulatory structure – including different rate review approaches or new access regulations – would not benefit the larger transportation system.”
In his statement, Hamberger noted the following five findings in the report which validate the industry's views that many of the currently proposed policy changes are misguided:
- Shippers have several avenues to challenge the reasonableness of rail rates, including the full-SAC method (which the report confirms is the correct, economically sound approach) and two lower-cost and simpler alternatives that will produce similar outcomes.
- Artificially limiting the ability of railroads to earn adequate revenues, including through economically unsound methodologies such as rate caps, would be detrimental to the freight rail network and the majority of shippers it serves.
- Replacement cost, which recognizes the economic expense to build and maintain a railroad, is the economically correct measure to use.
- The STB's rate regulation regime correctly reflects the economies of scale, scope and density of the railroad industry.
- Forced access would not provide an appropriate or cost-effective method of rate regulation, and would only inject further government intervention and rate reviews.
“The InterVISTAS Consulting report rightly credits partial deregulation as the driver of today's healthier freight rail industry,” added Hamberger. “Upending the positive effects that exist today from that landmark change through a series of policy 'fixes' is bad policy, particularly at a time when railroads face a permanently changed customer base and uncertain headwinds in the market. These market changes only increase the longstanding demand for intensive capital investment in the freight rail network. We look forward to continued dialogue with the STB and hope the Board will incorporate these findings into its ongoing work.”