Proposed Rule2021-25168
Final Offer Rate Review; Expanding Access to Rate Relief
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 26, 2021
Issuing agencies
Surface Transportation Board
Abstract
In response to comments received on the notice of proposed rulemaking (NPRM) published on September 17, 2019, and to ensure parallel consideration with the proposal in Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for Small Rate Disputes (Arb. NPRM), Docket No. EP 765, published elsewhere in this issue of the Federal Register, the Surface Transportation Board (STB or Board) invites parties, through this supplemental notice of proposed rulemaking (SNPRM), to comment on certain modifications to the rate reasonableness procedure, as well as other issues contained in the discussion below.
Full Text
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<title>Federal Register, Volume 86 Issue 225 (Friday, November 26, 2021)</title>
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[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Proposed Rules]
[Pages 67622-67647]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25168]
[[Page 67621]]
Vol. 86
Friday,
No. 225
November 26, 2021
Part III
Surface Transportation Board
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49 CFR Parts 1002, 1111, 1114, et al.
Final Offer Rate Review; Expanding Access to Rate Relief; Proposed Rule
Federal Register / Vol. 86 , No. 225 / Friday, November 26, 2021 /
Proposed Rules
[[Page 67622]]
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SURFACE TRANSPORTATION BOARD
49 CFR Parts 1002, 1111, 1114 and 1115
[Docket No. EP 755; Docket No. EP 665 (Sub-No. 2)]
Final Offer Rate Review; Expanding Access to Rate Relief
AGENCY: Surface Transportation Board.
ACTION: Supplemental notice of proposed rulemaking.
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SUMMARY: In response to comments received on the notice of proposed
rulemaking (NPRM) published on September 17, 2019, and to ensure
parallel consideration with the proposal in Joint Petition for
Rulemaking to Establish a Voluntary Arbitration Program for Small Rate
Disputes (Arb. NPRM), Docket No. EP 765, published elsewhere in this
issue of the Federal Register, the Surface Transportation Board (STB or
Board) invites parties, through this supplemental notice of proposed
rulemaking (SNPRM), to comment on certain modifications to the rate
reasonableness procedure, as well as other issues contained in the
discussion below.
DATES: Comments are due by January 14, 2022. Reply comments are due by
March 15, 2022.
ADDRESSES: Comments and replies may be filed with the Board via e-
filing on the Board's website at <a href="http://www.stb.gov">www.stb.gov</a> and will be posted to the
Board's website.
FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391.
Assistance for the hearing impaired is available through the Federal
Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION: In January 2018, the Board established its
Rate Reform Task Force (RRTF), with the objectives of developing
recommendations to reform and streamline the Board's rate review
processes for large cases, and determining how to best provide a rate
review process for smaller cases. After holding informal meetings
throughout 2018, the RRTF issued a report on April 25, 2019 (RRTF
Report).\1\ Among other recommendations, the RRTF included a proposal
for a final offer procedure, which it described as ``an administrative
approach that would take advantage of procedural limitations, rather
than substantive limitations, to constrain the cost and complexity of a
rate reasonableness case.'' RRTF Rep. 12. Versions of a final offer
process for rate review have also been recommended by the U.S.
Department of Agriculture (USDA) and a committee of the Transportation
Research Board (TRB).
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\1\ The RRTF Report was posted on the Board's website on April
29, 2019, and can be accessed at <a href="https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf">https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf</a>.
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In a notice of proposed rulemaking issued on September 12, 2019,
the Board proposed to build on the RRTF recommendation and establish a
new rate case procedure for smaller cases, the Final Offer Rate Review
(FORR) procedure. Final Offer Rate Rev. (NPRM), EP 755 et al. (STB
served Sept. 12, 2019).\2\
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\2\ The proposed rule was published in the Federal Register, 84
FR 48872 (Sept. 17, 2019).
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The Board received numerous comments on the NPRM. By decision
served on May 15, 2020, to permit informal discussions with
stakeholders, the Board waived the general prohibition on ex parte
communications between June 1, 2020, and July 15, 2020. Meetings took
place during the specified period; parties filed memoranda pursuant to
49 CFR 1102.2(g)(4); the memoranda were posted on the Board's website;
and parties were permitted to submit written comments in response to
the memoranda.\3\
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\3\ The following parties submitted comments, participated in
meetings, or submitted comments in response to memoranda: The
American Chemistry Council (ACC), The Fertilizer Institute, the
National Industrial Transportation League, the Chlorine Institute,
and the Corn Refiners Association (collectively, the Coalition
Associations); the American Fuel & Petrochemical Manufacturers
(AFPM); the Association of American Railroads (AAR); BNSF Railway
Company (BNSF); Canadian National Railway Company (CN); Canadian
Pacific (CP); CSX Transportation, Inc. (CSXT); Farmers Union of
Minnesota, Farmers Union of Montana, Farmers Union of North Dakota,
Farmers Union of South Dakota, and Farmers Union of Wisconsin
(collectively, Farmers Union); Growth Energy; Indorama Ventures
(Indorama); Industrial Minerals Association--North America (IMA-NA);
The Kansas City Southern Railway Company (KCSR); MillerCoors;
National Grain and Feed Association (NGFA); National Taxpayers Union
(NTU); Norfolk Southern Railway Company (NSR); Olin Corporation
(Olin); Private Railcar Food and Beverage Association (PRFBA);
Samuel J. Nasca; Solvay America, Inc.; Steel Manufacturers
Association (SMA); Union Pacific Railroad Company (UP); USDA; U.S.
Wheat Transportation Working Group (USW); and Western Coal Traffic
League (WCTL). The Board also received a joint comment from several
members of the Committee for a Study of Freight Rail Transportation
and Regulation of the Transportation Research Board (referred to
collectively as the TRB Professors), as well an individual comment
and reply from one member of that committee, the late Dr. Jerry
Ellig (Dr. Ellig). That committee issued a report titled Modernizing
Freight Rail Regulation (TRB Report) in 2015. See Nat'l Acads. of
Sciences, Eng'g, & Med., Modernizing Freight Rail Regul. (2015),
<a href="http://nap.edu/21759">http://nap.edu/21759</a>.
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In light of the filed comments and information received in meetings
with stakeholders, the Board is issuing this SNPRM to invite comment on
certain modifications to the rate reasonableness procedure proposed in
the NPRM, as well as other issues contained in the discussion below.
This SNPRM also will ensure parallel consideration of the modified FORR
proposal with the proposal published elsewhere in this issue of the
Federal Register, Joint Petition for Rulemaking to Establish a
Voluntary Arbitration Program for Small Rate Disputes (Arb. NPRM), EP
765 (STB served Nov. 15, 2021).
In addition to seeking comments, the Board will again waive the
general prohibition on ex parte communications regarding matters
related to this proceeding,\4\ to allow discussions of FORR issues in
conjunction with ex parte discussions of the arbitration proposal. See
49 CFR 1102.2(g); Final Offer Rate Rev., 84 FR 48872 (Sept. 17, 2019),
EP 755 (STB served May 15, 2020). The duration of the ex parte waiver
will match the ex parte meeting period in Docket No. EP 765, i.e.,
between November 15, 2021, and February 23, 2022.
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\4\ The Board previously waived the prohibition on ex parte
communications in Docket No. EP 665 (Sub-No. 2). See Expanding
Access to Rate Relief, EP 665 (Sub-No. 2) (STB served Mar. 28, 2018)
(stating that ``[t]he waiver will remain in effect until further
order of the Board.'').
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Background
In the ICC Termination Act of 1995 (ICCTA), Congress directed the
Board to ``establish a simplified and expedited method for determining
the reasonableness of challenged rail rates in those cases in which a
full stand-alone cost [(SAC)] presentation is too costly, given the
value of the case.'' (Pub. L. 104-88, 109 Stat. 803, 810). In the
Surface Transportation Board Reauthorization Act of 2015 (STB
Reauthorization Act), Public Law 114-110, 129 Stat. 2228, Congress
revised the text of this requirement so that it currently reads:
``[t]he Board shall maintain 1 or more simplified and expedited methods
for determining the reasonableness of challenged rates in those cases
in which a full [SAC] presentation is too costly, given the value of
the case.'' 49 U.S.C. 10701(d)(3) (emphasis added). In addition,
section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d)
to require that the Board ``maintain procedures to ensure the
expeditious handling of challenges to the reasonableness of railroad
rates.'' \5\ More generally, the rail transportation policy (RTP) at 49
U.S.C. 10101 states that, in regulating the
[[Page 67623]]
railroad industry, it is the policy of the United States Government to,
among other things, ``provide for the expeditious handling and
resolution of all proceedings required or permitted to be brought under
this part.'' 49 U.S.C. 10101(15).
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\5\ Prior to the enactment of the STB Reauthorization Act,
section 10704(d) began with a sentence stating that, ``[w]ithin 9
months after January 1, 1996, the Board shall establish procedures
to ensure expeditious handling of challenges to the reasonableness
of railroad rates.'' See, e.g., 49 U.S.C. 10704(d) (2014).
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In 1996, the Board adopted a simplified methodology, known as
Three-Benchmark, which determines the reasonableness of a challenged
rate using three benchmark figures. Rate Guidelines--Non-Coal Proc., 1
S.T.B. 1004 (1996), pet. to reopen denied, 2 S.T.B. 619 (1997), appeal
dismissed sub nom. Ass'n of Am. R.Rs. v. STB, 146 F.3d 942 (D.C. Cir.
1998). A decade passed without any complainant bringing a case under
that methodology. In 2007, the Board modified the Three-Benchmark
methodology and also created another simplified methodology, known as
Simplified-SAC, which determines whether a captive shipper is being
forced to cross-subsidize other parts of the railroad's network. See
Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (STB
served Sept. 5, 2007), aff'd sub nom. CSX Transp., Inc. v. STB, 568
F.3d 236 (D.C. Cir. 2009), vacated in part on reh'g, 584 F.3d 1076
(D.C. Cir. 2009). In 2013, the Board increased the relief available
under the Three-Benchmark methodology and removed the relief limit on
the Simplified-SAC methodology, among other things. See Rate Regul.
Reforms, EP 715 (STB served July 18, 2013) (78 FR 44459, July 24,
2013), remanded in part sub nom. CSX Transp., Inc. v. STB, 754 F.3d
1056 (D.C. Cir. 2014). Notwithstanding the Board's efforts to improve
its rate review methodologies and make them more accessible, only a few
Three-Benchmark cases have ever been brought to the Board, and no
complaint has been litigated to completion under the Simplified-SAC
methodology.
The Board has recognized that, for smaller disputes, the litigation
costs required to bring a case under the Board's existing rate
reasonableness methodologies can quickly exceed the value of the case.
Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 10
(STB served Aug. 31, 2016). As the Board stated in Simplified
Standards, ``[f]or some shippers who have smaller disputes with a
carrier, even [Simplified-SAC] would be too expensive, given the
smaller value of their cases. These shippers must also have an avenue
to pursue relief.'' Simplified Standards, EP 646 (Sub-No. 1), slip op.
at 16. Along similar lines, as the Board has previously stated,
simplified procedures ``enable the affected shippers to avail
themselves of their statutory right to challenge rates charged on
captive rail traffic regardless of the size of the complaint.'' Non-
Coal Proc., 1 S.T.B. at 1057.\6\
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\6\ See also Calculation of Variable Costs in Rate Compl. Proc.
Involving Non-Class I R.Rs., 6 S.T.B. 798, 803 & n.19 (2003) (``[W]e
have adopted simplified evidentiary procedures for adjudicating rate
reasonableness in those cases where more sophisticated procedures
are too costly or burdensome, `to ensure that no shipper is
foreclosed from exercising its statutory right to challenge the
reasonableness of rates charged on its captive traffic.' '')
(quoting Non-Coal Proc., 1 S.T.B. at 1008); Mkt. Dominance
Determinations--Prod. & Geographic Competition, 3 S.T.B. 937, 949
(1998) (excluding product and geographic competition from
consideration in market dominance determinations so as to ``remove a
substantial obstacle to the shippers' ability to exercise their
statutory rights.'').
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In public comments, shippers and other interested parties have
repeatedly stated that the Board's current options for challenging the
reasonableness of rates do not meet their need for expeditious
resolution at a reasonable cost.\7\ Moreover, because a contract rate
may not be challenged before the Board, 49 U.S.C. 10709(c)(1), some
complainants \8\ shift from contract rates to tariff rates before
bringing a rate case, and tariff rates may be higher than prior
contract rates.\9\ That factor gives complainants a strong interest in
having a rate case decided quickly, from start to finish.
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\7\ See, e.g., Alliance for Rail Competition Opening Comment 22,
June 26, 2014, Rail Transp. of Grain, Rate Regul. Rev., EP 665 (Sub-
No. 1) (stating that the Three-Benchmark methodology is too costly
and complex for grain shippers and producers in its current form);
WCTL Opening Comment 74-76, Oct. 23, 2012, Rate Regulation Reforms,
EP 715 (the cost and complexity of the Simplified-SAC methodology
discourage its use); Oversight of the STB Reauthorization Act of
2015 Before the Subcomm. on R.Rs., Pipelines, & Hazardous Materials
of the H. Comm. on Transp. & Infrastructure, 115th Cong. (2018)
(letter from Chris Jahn, then-President of The Fertilizer Institute,
submitted for the record) (due to the time and expense needed to
pursue a rate case, it ``does not work'' for most complainants).
\8\ Paying a transportation rate is not the only way to
establish standing to bring a rate case, and the Board has
previously provided guidance in a policy statement for
``complainants that allege indirect harm in rate complaints.'' See
Rail Transp. of Grain, Rate Regul. Rev., EP 665 (Sub-No. 1) et al.,
slip op. at 7-8 (STB served Dec. 29, 2016).
\9\ As an example, the most recent rate proceeding involved a
complainant that had been served pursuant to contracts for many
years and then filed its complaint as soon as its contract expired.
See Consumers Energy Co. Compl. 4-5, Jan. 13, 2015, Consumers Energy
Co. v. CSX Transp., Inc., NOR 42142; see also Occidental Chem. Corp.
Comments 2-4, Oct. 23, 2012, Rate Regul. Reforms, EP 715 (paying the
tariff rate for extended periods of time while a rate case is
litigated--which can add millions of dollars in costs beyond the
direct costs of litigation--undermines the utility of a rate
challenge, especially if the carrier requires that all rates bundled
with the challenged rate also shift to tariff during the pendency of
the case); PPG Indus., Inc. Comments 3-4, Oct. 23, 2012, Rate Regul.
Reforms, EP 715 (noting the effect of bundling and stating that
tariff premium could reach $20 million per year of rate litigation).
The latter two filings are cited here simply to illustrate the need
for expedited rate reasonableness procedures, not to indicate that
the Board takes any position in this proceeding--one way or
another--on the appropriateness of rate bundling.
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Accordingly, the Board has continued to explore ideas to improve
the accessibility of rate relief. For example, in Expanding Access to
Rate Relief, Docket No. EP 665 (Sub-No. 2), the Board sought comment on
procedures relying on comparison groups that could comprise a new rate
reasonableness methodology for use in very small disputes. The initial
comments on that proposal were universally negative. But among the
comments submitted in Docket No. EP 665 (Sub-No. 2), the Board received
a suggestion from USDA that the Board consider procedural limitations
to streamline and expedite its rate reasonableness review as an
alternative to substantive limitations. See USDA Reply Comment 5-6,
Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).
USDA specifically recommended a short procedural timeline as a means to
make rate reasonableness review accessible for smaller disputes. See
id. To implement this recommendation, USDA suggested that the Board
adopt a final offer procedure whereby parties would submit market
dominance and rate reasonableness evidence in a single package offer.
See id. at 6-7.
The Board already uses a final offer procedure as part of the
Three-Benchmark methodology, although it is only one part of the rate
reasonableness approach as opposed to providing the overall framework,
as the Board is proposing here.\10\ One of the benchmarks compares the
markup paid by the challenged traffic to the average markup assessed on
similar traffic. See, e.g., Rate Regul. Reforms, EP 715, slip op. at
11. To improve the efficiency of this part of the Three-Benchmark
methodology and ``enable a prompt, expedited resolution of the
comparison group selection,'' the Board requires each party to submit
its final offer comparison group simultaneously, and the Board chooses
one of those groups without modification. See Simplified Standards, 72
FR 51375 (Sept. 7, 2007), EP 646 (Sub-No. 1), slip op. at 18.
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\10\ The Three-Benchmark methodology also includes more
procedural steps and a longer timeline than the FORR procedure
proposed here. See 49 CFR 1111.10(a)(2).
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Although the Board may not require arbitration of rate disputes
under current law,\11\ and is not doing so here,
[[Page 67624]]
the benefits of final offer procedures used in other settings offer
support and background for the Board's rule proposed here. For example,
final offer procedures are used in commercial settings, including the
resolution of wage disputes in Major League Baseball, and final offer
arbitration is therefore sometimes referred to as ``baseball
arbitration.'' See, e.g., Josh Chetwynd, Play Ball? An Analysis of
Final-Offer Arb., Its Use in Major League Baseball, & Its Potential
Applicability to Eur. Football Wage & Transfer Disps., 20 Marq. Sports
L. Rev. 109 (2009) (noting the final offer procedure ``can lead to a
win-win situation as it spurs negotiated settlement at a very high
rate''); see also Michael Carrell & Richard Bales, Considering Final
Offer Arb. to Resolve Pub. Sector Impasses in Times of Concession
Bargaining, 28 Ohio St. J. on Disp. Resol. 1, 3, 16, 23-24 (2012)
(noting that 14 states had codified some form of final offer
arbitration for certain labor disputes involving public sector
employees and noting that the procedure ``encourages the parties to
negotiate toward middle ground rather than staking out polar
positions'' and ``encourages the parties to settle before
arbitration'').
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\11\ See Arb.--Various Matters, EP 586, slip op. at 3 n.7 (STB
served Sept. 20, 2001); see also 49 U.S.C. 10704(a)(1); 49 U.S.C.
11704(c)(2). The Board has had a voluntary arbitration process in
place for more than 20 years, and section 13 of the STB
Reauthorization Act required adjustments to this process (including
the addition of rate disputes to the types of matters eligible for
arbitration), but to date parties have not agreed to arbitration of
any dispute brought before the Board. See Arb. of Certain Disps., 2
S.T.B. 564 (1997) (adopting voluntary arbitration procedures at 49
CFR part 1108); Revisions to Arb. Proc., EP 730 (STB served Sept.
30, 2016) (making adjustments required by STB Reauthorization Act).
In addition to its recommendation for a final offer procedure that
would culminate in a decision by the Board, the RRTF recommended
legislation that would permit mandatory arbitration of smaller rate
cases. See RRTF Rep. 14-15.
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Similarly, AAR's Circular No. OT-10, ``Code of Car Service Rules/
Code of Car Hire Rules,'' sets forth a final offer procedure for car
hire arbitration, which is included in Rule 25 (the Arbitration Rule).
See Circular No. OT-10, Rule 25, <a href="https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf">https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf</a>. The Board has described the Arbitration
Rule as an ``integral part'' of its deregulation of car hire rates. See
Joint Pet. for Rulemaking on R.R. Car Hire Comp., EP 334 (Sub-No. 8) et
al., slip op. at 1 (STB served Apr. 22, 1997). And as noted by the
Board's predecessor agency, the Interstate Commerce Commission (ICC),
the Arbitration Rule ``provides for negotiation and, when that is not
successful, `baseball style' arbitration, by which the arbitrator will
select between the best final offers of the parties.'' Joint Pet. for
Rulemaking on R.R. Car Hire Comp., 9 I.C.C.2d 80, 88 (1992).
Finally in this regard, in the TRB Report released in 2015, the
Committee for a Study of Freight Rail Transportation and Regulation of
the TRB (TRB Committee) \12\ described the benefits of adopting ``an
independent arbitration process similar to the one long used for
resolving rate disputes in Canada.'' \13\ In particular, the TRB
Committee recommended ``a final-offer rule,'' set on a ``strict time
limit,'' whereby ``each side offers its evidence, arguments, and
possibly a changed rate or other remedy in a complete and unmodifiable
form after a brief hearing.'' TRB Rep. 211-12. According to the TRB
Report, adoption of such a procedure could enhance complainants' access
to rate reasonableness protections, while expediting dispute resolution
and encouraging settlements. Id. at 212.
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\12\ In 2005, legislation was enacted directing the Secretary of
Transportation to enter into an agreement with TRB ``to conduct a
comprehensive study of the Nation's railroad transportation
system.'' See Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users, Public Law. 109-59, section 9007,
119 Stat. 1144, 1925 (2005). The study was funded in 2011, H.R. Rep.
No. 112-284, at 287 (2011), and the TRB Committee was formed, see
TRB Rep. 12-13.
\13\ In a well-known process used by Canadian regulators, final
offer procedures are administered by an outside arbitrator or panel
of arbitrators. In Canada, a complainant may submit its rate dispute
to the Canadian Transportation Agency, which refers the matter to an
arbitrator or a panel of arbitrators. Canada Transp. Act, S.C. 1996,
c. 10, as amended, sections 161(1), 162(1) (Can.). The Canadian
statute establishes a two-tiered structure: If the matter involves
freight charges of more than $2 million CAD (subject to an inflation
adjustment), a 60-day procedure applies, and if the matter involves
freight charges of $2 million CAD or less (subject to an inflation
adjustment), a 30-day procedure applies. Id. sections 164.1,
165(2)(b). Among other things, the 60-day procedure allows the
parties to direct interrogatories to one another, and the arbitrator
may request written filings beyond the final offers and information
initially submitted in support of final offers. See id. Sec. Sec.
163(4), 164(1). In the 30-day procedure, there is no discovery, and
the arbitrator may request oral presentations from the parties but
may not request written submissions beyond the final offers and
replies. See id. section 164.1. The arbitrator's decision is issued
within 60 days after the matter was submitted for arbitration, or 30
days if the further expedited procedure applies. Id. section
165(2)(b). Any resulting rate prescription is limited to two years,
unless the parties agree to a different period. See id. section
165(2)(c).
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The RRTF agreed that a final offer process--with the decision being
made by the Board rather than an arbitrator--could be an effective way
to implement procedural limitations, which would improve access to rate
relief. RRTF Rep. 16. Taking into account these recommendations, the
Board's NPRM proposed to adopt a FORR process with the following
primary features. As proposed, FORR would allow limited discovery, with
no litigation over discovery disputes; FORR could only be used if the
complainant elected to use the streamlined market dominance approach
proposed (and since adopted) in Docket No. EP 756, Market Dominance
Streamlined Approach; \14\ and the procedural schedule would be brief,
with a Board decision issued 135 days after the complaint is filed. See
NPRM, EP 755 et al., slip op. at 8-10, 13-14.
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\14\ Mkt. Dominance Streamlined Approach, EP 756 (STB served
Aug. 3, 2020) (adopting final rule), 84 FR 48882 (Sept. 17, 2019).
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Parties would simultaneously submit their market dominance
presentations, final offers, analyses addressing the reasonableness of
the challenged rate and support for the rate in the party's offer, and
explanations of the methodology used and how it complies with the
decisional criteria set forth in the NPRM. NPRM, EP 755 et al., slip
op. at 12. Parties would next submit simultaneous replies. Id.
The complainant would bear the burden of proof to demonstrate that
(i) the defendant carrier has market dominance over the transportation
to which the rate applies, and (ii) the challenged rate is
unreasonable. NPRM, EP 755 et al., slip op. at 12-13; see also 49
U.S.C. 10701(d)(1), 10704(a)(1), 11704(b); Union Pac. R.R.--Pet. for
Declaratory Ord., FD 35504, slip op. at 2 (STB served Oct. 10, 2014).
If the Board were to find that the complainant's market dominance
presentation and rate reasonableness analysis demonstrate that the
defendant carrier has market dominance over the transportation to which
the rate applies and that the challenged rate is unreasonable, the
Board would then choose between the parties' final offers. In making
the rate reasonableness finding and choosing between the offers, the
Board would take into account the criteria specified in the NPRM: The
RTP, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and appropriate
economic principles. See NPRM, EP 755 et al., slip op. at 10-13, 84 FR
48872 (Sept. 17, 2019).
The Board proposed a relief cap of $4 million, indexed annually
using the Producer Price Index, consistent with the potential relief
afforded under the Three-Benchmark methodology. See NPRM, EP 755 et
al., slip op. at 16.
The Board also sought additional comments on Docket No. EP 665
(Sub-No. 2), including whether to close that docket. NPRM, EP 755 et
al., slip op. at 17.
Also, on November 25, 2020, the Board instituted a rulemaking
proceeding to consider a proposal by
[[Page 67625]]
CN, CSXT, KCSR, NSR, and UP to establish a new, voluntary arbitration
program for small rate disputes. Joint Pet. for Rulemaking to Establish
a Voluntary Arb. Program for Small Rate Disps., EP 765 (STB served Nov.
25, 2020).\15\ In a decision served concurrently with this SNPRM, the
Board is proposing to adopt a form of such an arbitration program. Arb.
NPRM, EP 765.
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\15\ CP subsequently submitted a letter stating that it
``supports the effort to find a workable, reasonable, accessible
arbitration program for small rate cases, and would participate in
such a pilot program.'' CP Letter, Jan. 25, 2021, Joint Pet. for
Rulemaking to Establish a Voluntary Arb. Program for Small Rate
Disps., EP 765.
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As discussed in more detail in the Arbitration NPRM, the Board is
deferring final action on FORR and issuing this SNPRM concurrently with
the Arbitration NPRM so that both proposals may be considered
simultaneously, including the pros and cons of adopting--either with or
without modification--the voluntary arbitration rule, FORR, both
proposals, or taking other action.
Discussion and Request for Comments
Based on the filed comments and information received in meetings
with stakeholders, the Board invites comment on certain modifications
to the rule proposed in the NPRM and other issues contained in the
discussion below. In Part I, the Board addresses comments on the
purpose of the rule. In Part II, the Board addresses comments regarding
its statutory authority to adopt FORR. In Part III, the Board addresses
comments regarding the appropriateness of a final offer procedure. In
Part IV, the Board addresses the review criteria for FORR cases. In
Part V, the Board addresses discovery and procedural schedule issues,
including the Board's proposal to remove the use of adverse inferences
and instead adopt a process for motions to compel discovery. The Board
also proposes to include mandatory mediation in FORR cases and to
extend the proposed procedural schedule to accommodate motions to
compel and mandatory mediation. In Part VI, the Board addresses market
dominance issues, including the Board's proposal to require only the
complainant to submit market dominance evidence on opening. The Board
also proposes to allow complainants to choose between streamlined and
non-streamlined market dominance approaches and extends the proposed
procedural schedule in cases where the complainant selects non-
streamlined market dominance. In Part VII, the Board addresses the
relief cap. Finally, in Part VIII, the Board addresses other
miscellaneous issues. The text of the proposed rule as modified is
below.
Although the modifications to the proposed rule described in this
decision are not the type that would necessitate additional notice and
comment under the Administrative Procedure Act,\16\ the Board seeks
further comment in this instance in order to determine if the outlined
refinements would improve its proposed rule, and so that the modified
FORR proposal may be considered in parallel with the proposal in Docket
No. EP 765 to establish an arbitration program that could include an
exemption from FORR for carriers that participate in the program. See
Arb. NPRM, EP 765, slip op. at 14. In seeking additional comment, the
Board does not limit its authority to adopt modifications that are a
logical outgrowth of the NPRM or this SNPRM in any final rule without
further comment.
---------------------------------------------------------------------------
\16\ 5 U.S.C. 551. See, e.g., Covad Commc'ns Co. v. FCC, 450
F.3d 528, 548 (D.C. Cir. 2006) (recognizing that ``[a]n agency's
final rule need only be a `logical outgrowth' of its notice'').
---------------------------------------------------------------------------
Part I--Purpose of the Rule
The purpose of this proposed rule is to satisfy the statutory
requirement that, if the Board determines that a rail carrier has
market dominance over the transportation to which a particular rate
applies, the rate established by such carrier for such transportation
must be reasonable. See 49 U.S.C. 10701(d)(1).\17\ A shipper's ability
to challenge a rate subject to market dominance, and vindicate its
statutory right to a Board decision on rate reasonableness, is
frustrated where the litigation costs of the Board's available
processes exceed the value of potential relief. Non-Coal Proc., 1
S.T.B. at 1049. Furthermore, in addition to litigation costs, a shipper
must also take into account the risk associated with the uncertainty of
receiving relief and the time it may take to obtain a decision. As
described in the NPRM and as noted above, the Board has sufficient
grounds to conclude that shippers lack meaningful access to the Board's
existing rate reasonableness processes with respect to small disputes,
due to the complexity, cost, and duration of those processes. NPRM, EP
755 et al., slip op. at 3. The Board expects that FORR's procedural
limitations should lower the cost of litigating rate disputes,
providing complainants who otherwise might be deterred from bringing
smaller rate cases under one of the Board's existing processes a more
accessible avenue for rate reasonableness review by the Board. Id. at
7. Reduced litigation costs should also make it more feasible for
complainants to prove meritorious cases, while a final offer selection
process would discourage extreme positions and may facilitate
settlement. Id.
---------------------------------------------------------------------------
\17\ See also 49 U.S.C. 10701(d)(3) (requiring the Board to
``maintain 1 or more simplified and expedited methods for
determining the reasonableness of challenged rates in those cases in
which a full stand-alone cost presentation is too costly, given the
value of the case''); 49 U.S.C. 10704(d)(1) (requiring the Board to
``maintain procedures to ensure the expeditious handling of
challenges to the reasonableness of railroad rates,'' including
``appropriate measures for avoiding delay in the discovery and
evidentiary phases of such proceedings.'').
---------------------------------------------------------------------------
Some rail interests question the need for a new procedure to
resolve small rate disputes. (See, e.g., AAR Comment 24; BNSF Comment
3.) \18\ Shipper interests uniformly indicate that there is a need for
such a procedure. (AFPM Comment 3; Coalition Ass'ns Comment 4; Farmers
Union Comment 5-6; Growth Energy Comment 2; IMA-NA Comment 11-12;
Indorama Comment 11-12; MillerCoors Comment 13-14; NGFA Comment 6; Olin
Comment 1-9; PRFBA Comment 2; SMA Comment 11-12; WCTL Comment 1-2.) The
Board will now address those comments.
---------------------------------------------------------------------------
\18\ Unless otherwise specified, citations to the record are to
the record in Docket No. EP 755.
---------------------------------------------------------------------------
AAR claims that the Board's only evidence of the problem to be
solved--the lack of a meaningful avenue to address rate reasonableness
in small disputes--is the ``purported scarcity of rate complaints.''
(AAR Comment 24.) According to AAR, the absence of complaints could be
subject to other explanations, for example, that ``many rates are
governed by contract, and those that are based on tariffs are generally
reasonable.'' (Id.)
As indicated in the NPRM, however, that is not the only evidence of
the problem. As the Board explained, the problem is illustrated by the
lack of small rate cases combined with repeated shipper statements that
they need rate relief but find the Board's existing processes too
complex and expensive. NPRM, EP 755 et al., slip op. at 2-3; see also
id. at 3 n.5. Comments from shipper interests in this proceeding bear
out that problem. (See, e.g., Farmers Union Comment 5-9 (explaining the
challenges faced by customers with small rate disputes, as well as
citations to evidence of steadily rising rail transportation rates for
agricultural commodities in recent decades); \19\
[[Page 67626]]
NGFA Comment 5-6; USDA Comment 2-3.)
---------------------------------------------------------------------------
\19\ Notwithstanding these widespread rate increases, no rate
case addressing rail transportation of agricultural commodities has
been filed with the Board or the ICC since McCarty Farms, which
commenced in 1981. See McCarty Farms, Inc. v. Burlington N., Inc., 2
S.T.B. 460, 462-63 (1997) (denying rate relief after reopening and
remand).
---------------------------------------------------------------------------
AAR's reasoning is circular: It suggests that, in order to justify
adoption of a new process to determine whether specific rates are
reasonable, the Board must already have evidence that rates in general
are unreasonable. Committing to inaction based on such flawed logic
would risk leaving shippers without a meaningful avenue to challenge
unreasonable rates, in spite of substantial evidence of the need for
such relief.
BNSF contends that the Board should not ``sidestep the innate
complexity and sophistication of the core task before the agency.''
(BNSF Comment 3.) BNSF's implication seems to be that the subject
matter is so complex that it may not be feasible to simplify it
sufficiently for use in small disputes (i.e., to address these
difficult issues expeditiously and inexpensively enough that a case can
be worth pursuing even with a relatively small amount of money at
stake). The Board recognizes the concern raised by BNSF--the agency's
decades-long efforts to create accessible small rate case processes
attests to the difficulty of reconciling the economic complexity of
railroad rate review with cost-effective dispute resolution.\20\ But
the statute's requirement that rates subject to market dominance be
reasonable applies to large and small cases alike, and BNSF's concern
cannot preclude further reform given Congress's mandate that simplified
and expedited methods exist to challenge rate reasonableness in smaller
cases. See 49 U.S.C. 10701(d)(3), 10704(d)(1).
---------------------------------------------------------------------------
\20\ To this end, in the NPRM, the Board stated that parties may
file comments as to whether and how the Board might provide
assistance to parties--particularly smaller entities--regarding how
best to utilize the proposed FORR procedure. NPRM, EP 755 et al.,
slip op. at 17. In response, AFPM states that ``support and
assistance should be limited to guidance documents and similar
materials. AFPM believes STB should focus efforts on implementing
the program effectively before pursuing major efforts to supply
hands-on assistance.'' (AFPM Comment 10.) The Board remains open to
ways in which it might provide assistance to participants.
---------------------------------------------------------------------------
BNSF also argues that the Board should limit any reforms to ``the
discrete population of small sized shippers moving modest sized
shipments that are inordinately impacted by the cost and complexity of
the STB's current methodologies.'' (BNSF Comment 3-4.) BNSF does not
explain how it would be fair or reasonable to limit a remedy to small
shippers rather than small disputes (as the Board has done with other
processes with relief caps), or why a potential complainant with a
dispute smaller than the cost of using the Board's existing processes
should be denied access to a new process merely because of the size of
the entity. BNSF suggests that eligibility to participate in a new
process should turn on whether the complainant has the ``ability to
undertake the expense and burden'' present in a more expensive
proceeding. (Id. at 3.) But even a large shipper with the means to
proceed under one of the Board's existing rate reasonableness processes
could not rationally be expected to do so where the time, risk, and
cost of using that process would exceed the value of the case. Limiting
FORR to small shippers would leave large shippers without recourse to
challenge unreasonable rates in smaller cases, and therefore frustrate
the statute's reasonableness requirement for rates subject to market
dominance. See 49 U.S.C. 10701(d)(1).
UP argues that, instead of adopting FORR, the Board could
accelerate Three-Benchmark cases by eliminating rebuttal, starting
discovery when the complaint is filed, and committing to issue a
decision in 60 days. (UP Comment 20-21.) It is far from clear that the
length of Three-Benchmark cases presents the only deterrent for
potential complainants. For example, the complexity due to defendants'
expansive use of ``other relevant factors'' is also likely an issue.
See RRTF Rep. 51-52. Eliminating the complainant's rebuttal and
starting discovery upon the filing of the complaint, even in the name
of faster record development, therefore seems unlikely to increase the
utility of Three-Benchmark for complainants with small disputes.
For these reasons, based on the record to date, the Board finds
that FORR would further the RTP goal of maintaining reasonable rates
where there is an absence of effective competition, see section
10101(6), by providing increased access to rate reasonableness
determinations in small disputes. By facilitating the determination of
rate reasonableness in situations where it may not, in practice, have
been feasible previously, FORR would also foster sound economic
conditions in transportation. See section 10101(5). And FORR's short
timelines would promote expeditious regulatory decisions and provide
for the expeditious handling and resolution of proceedings. See section
10101(2), (15).
Part II--Statutory Authority To Adopt FORR
Railroad interests argue that the Board lacks statutory authority
to adopt FORR. The Board disagrees for the reasons stated in the NPRM
and below.
AAR asserts that Congress has not authorized the Board ``to
determine the maximum reasonable rate through a baseball-style final
offer process.'' (AAR Comment 8.) According to AAR, ``[n]othing in the
governing statutes, or in the Administrative Procedure Act, authorizes
the Board to adopt an adjudicatory method that so drastically departs
from the way agency adjudications and rate-setting proceedings have
historically been conducted.'' (Id. at 9.) AAR is incorrect. Section
10701(d)(3) authorizes (and in fact, requires) the Board to maintain
one or more ``simplified and expedited methods for determining the
reasonableness of challenged rates in those cases in which a full [SAC]
presentation is too costly, given the value of the case.'' \21\ This
provision does not expressly identify the specific methods that the
Board can use for simplified and expedited rate cases, and courts have
affirmed the Board's significant discretion to pursue various
``possible regulatory approaches'' in this area. See Burlington N. R.R.
v. ICC (McCarty Farms Appeal), 985 F.2d 589, 597 (D.C. Cir. 1993). AAR
does not identify anything in section 10701(d)(3) to support its
contention that the Board is limited in rate review proceedings to
``the way agency adjudications and rate-setting proceedings have
historically been conducted.'' (AAR Comment 9.) See also 49 U.S.C.
10704(d)(1) (requiring the Board to ``maintain procedures to ensure the
expeditious handling of challenges to the reasonableness of railroad
rates,'' including ``appropriate measures for avoiding delay in the
discovery and evidentiary phases of such proceedings.'').\22\
---------------------------------------------------------------------------
\21\ AAR argues that section 11(c) of the STB Reauthorization
Act does not authorize FORR because it refers to ``procedures that
are available to parties in litigation before courts.'' (AAR Comment
10-11.) The plain language of section 11(c), on which the NPRM did
not rely, does not limit the Board to such procedures, but merely
requires the Board to ``assess'' those procedures for their
``potential'' use in rate cases, which the Board did in a different
proceeding. See Expediting Rate Cases, EP 733 (STB served Nov. 30,
2017); STB Reauthorization Act section 11(c) (directing the Board to
``initiate a proceeding to assess procedures that are available to
parties in litigation before courts to expedite such litigation and
the potential application of any such procedures to rate cases.'').
\22\ AAR also argues that ``the Board fails to identify any
other agency that uses Final Offer Rate Review outside the arbitral
context.'' (AAR Comment 9.) But under the statute, whether another
agency might use a final offer process has no bearing on whether the
Board may adopt such a procedure. And, as noted in the NPRM, the
final offer structure is already a central part of adjudications
under the Board's Three-Benchmark test. NPRM, EP 755 et al., slip
op. at 4.
---------------------------------------------------------------------------
[[Page 67627]]
Certain railroad interests also emphasize that ``[f]inal-offer
decisionmaking is an arbitration technique,'' and contend that because
the Board lacks authority from Congress to impose mandatory
arbitration, it lacks authority to adopt FORR. (AAR Comment 8-9; see
also CN Comment 6; CSXT Comment 2.) But the fact that this decision-
making structure is often used in arbitration does not mean that FORR
is arbitration. See NPRM, EP 755 et al., slip op. at 4-6 (noting that,
in addition to arbitration, the final offer structure is a key part of
adjudications by the Board under its existing Three-Benchmark test).
Indeed, the NPRM made clear that FORR was not an arbitration proposal
and that ``the Board would make the determination of rate
reasonableness as it does under the Board's current options for
challenging the reasonableness of rates.'' See id. at 4 (footnote
omitted).\23\ And while it is true that Congress did not authorize
mandatory arbitration, it did authorize the development of new methods
and procedures for use by the Board in evaluating rate reasonableness.
49 U.S.C. 10701(d)(3), 10704(d)(1). The absence of statutory authority
for third-party arbitrators to conduct mandatory arbitration does not
prohibit the Board from adopting decisional procedures also used by
arbitrators.\24\ That is particularly true here, where the statutory
authorization is open-ended regarding the decisional procedures that
the Board may adopt.
---------------------------------------------------------------------------
\23\ As courts have recognized, an arbitration is the resolution
of a dispute by a private arbitrator. See, e.g., Stolt-Nielsen S.A.
v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (``[A]n
arbitrator derives his or her powers from the parties' agreement to
forgo the legal process and submit their disputes to private dispute
resolution.''); IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524,
528 (7th Cir. 1996) (arbitration is ``private ordering'').
\24\ See, e.g., Bernhardt v. Polygraphic Co. of Am., 350 U.S.
198, 203 (1956) (``The nature of the tribunal where suits are tried
is an important part of the parcel of rights behind a cause of
action. The change from a court of law to an arbitration panel may
make a radical difference in ultimate result. . . . Arbitrators do
not have the benefit of judicial instruction on the law; they need
not give their reasons for their results; the record of their
proceedings is not as complete as it is in a court trial; and
judicial review of an award is more limited than judicial review of
a trial. . . .'').
---------------------------------------------------------------------------
AAR cites a decision of a federal district court, in which,
according to AAR, ``[t]he court rejected an agency's attempt to use
final-offer decisionmaking . . . concluding that the agency lacked
statutory authorization to adopt the procedure.'' (AAR Comment 13
(citing Stone v. U.S. Forest Serv., No. Civ. 03-586-JE, 2004 WL 1631321
(D. Or. July 16, 2004)).) Stone is readily distinguishable. At issue
there was a statute allowing owners of private property in a national
scenic area an opportunity to avoid certain land use restrictions by
selling their land to USDA for fair market value. See Stone, 2004 WL
1631321 at *1-2. USDA, acting through the Forest Service, established a
procedure for establishing fair market value whereby it compared its
own fair market appraisal with the landowner's appraisal and selected
the one with the strongest support for value. Id. at *3. There was no
provision for price negotiation, and no additional appraisals would be
considered after an appraisal was selected. Id.
In assessing this procedure, the district court noted that ``in all
probability the Forest Service would simply ignore'' the landowner's
appraisal and ``rely exclusively upon the report of its own
appraiser.'' Id. at *3. From there, it questioned whether ``Congress
ever has or could give a federal agency the power to unilaterally
determine the ultimate price it must pay to acquire private property
for public purposes, over the objections of an unwilling seller.'' Id.
at *5. The court concluded that by ``arbitrarily clos[ing] its eyes to
additional appraisals submitted by the owner, or categorically
prohibit[ing] negotiation regarding the purchase price,'' the Forest
Service's procedure would frustrate, rather than further, the statute's
goal of affording landowners an opportunity to dispose of burdened
property. Id. at *7.
Here, the Board would not be using a final offer process to set the
price of a transaction to which the government itself is a party, a
fact that weighed heavily on the outcome in Stone. Accordingly, FORR
does not raise the same concerns raised in Stone: There is no
suggestion that the Board would not fairly consider both parties' final
offers, and their respective replies, or the question of whether the
shipper has demonstrated both market dominance and that the challenged
rate is unreasonable under governing statutory principles, both
prerequisites to rate relief. And by expanding accessibility to rate
relief, FORR would further implement the statute's directive to create
methods and procedures to determine what is reasonable. 49 U.S.C.
10701(d)(3), 10704(d)(1). In this proposed rule, the Board has done so,
while specifically accounting for the overarching principles that
Congress provided. See NPRM, EP 755 et al., slip op. at 10-12.
Accordingly, Stone is inapposite.
CN argues that because section 10701(d)(3) authorizes development
of a simplified ``method,'' and FORR does not provide for an economic
methodology that the Board will use to determine the reasonableness of
the challenged rate, the statute does not authorize FORR. (See CN
Comment 6-8.) CN mischaracterizes the statutory language. The
definition of ``method'' encompasses ``a procedure or process for
attaining an object.'' \25\ CN acknowledges that FORR is a procedure,
(see CN Comment 7), and FORR plainly satisfies the express terms of
section 10701(d)(3).\26\
---------------------------------------------------------------------------
\25\ See Method, Merriam-Webster, <a href="http://merriam-webster.com/dictionary/method">http://merriam-webster.com/dictionary/method</a> (last visited Oct. 13, 2021). Similarly, Black's
Law Dictionary defines ``method'' as ``a mode of organizing,
operating, or performing something, esp. to achieve a goal.''
Method, Black's Law Dictionary (11th ed. 2019).
\26\ Even if Congress had used the word ``methodology'' rather
than ``method,'' the dictionary definition is very similar and would
also include FORR: ``a body of methods, rules, and postulates
employed by a discipline: a particular procedure or set of
procedures.'' See Methodology, Merriam-Webster, <a href="http://merriam-webster.com/dictionary/methodology">http://merriam-webster.com/dictionary/methodology</a> (last visited Oct. 13, 2021).
---------------------------------------------------------------------------
UP claims, without support, that ``[b]y adopting FORR . . . the
Board would be unlawfully constraining the exercise of its
congressionally delegated authority'' by ``mak[ing] itself a prisoner
of the parties' submissions.'' (UP Comment 3.) The simple fact is that
the Board's exercise of discretion to offer FORR would not constrain
its authority to prescribe a maximum rate under section 10704(a)(1).
FORR would instead facilitate the exercise of that authority, and in
doing so further Congress's intent that rate review be available at the
Board, through the enhancement of shippers' opportunities to challenge
rates subject to market dominance under the relevant criteria by
providing an additional option available to potential complainants. And
even if the Board could be said to be using something less than its
congressionally delegated authority (which it is not), the agency may
choose to act within a narrower range than Congress authorized. See,
e.g., Midtec Paper Corp. v. Chi. & N.W. Transp. Co., 3 I.C.C.2d 171,
181 (1986), aff'd sub nom. Midtec Paper Corp. v. United States, 857
F.2d 1487, 1500 (D.C. Cir. 1988).
Accordingly, the Board would act within its statutory authority in
adopting FORR.
Part III--Appropriateness of a Final Offer Procedure
Railroad interests advance a variety of arguments assailing the
appropriateness of a final offer procedure for rate reasonableness
determinations by the Board. The Board addresses these arguments below.
[[Page 67628]]
A. Use of a Final Offer Procedure in Adjudication
In addition to its statutory authority arguments discussed above,
AAR also argues that, in using FORR, the Board would be ``abandon[ing]
its statutory duty to apply the law in determining, based on its own
best judgment, the maximum reasonable rate.'' (AAR Comment 10.) Final
offer decisionmaking, according to AAR, amounts to the adjudicator
deciding which party's proposal ``comes closest to the correct
outcome'' rather than determining the correct outcome.
AAR's argument ignores the fact that adjudicators routinely rely on
or adopt the parties' submissions or decisional framework. AAR implies
that, to reach a ``legally correct outcome,'' the Board must perform a
rate analysis distinct from any party's pleadings within each case;
otherwise, it somehow violates that provision within Sec. 10704
authorizing it to establish the ``maximum rate.'' But here the Board
has established a process and a set of analytical criteria in which to
exercise its judgment in individual cases. That approach is not novel.
For example, apart from evidence regarding ``other relevant factors,''
which is optional, the Board's Three-Benchmark test comprises a final
offer process and a formula--an approach in which the Board exercises
its discretion in deciding between the parties' comparison groups under
a final offer structure. See Union Pac. R.R. v. STB, 628 F.3d 597, 601
(D.C. Cir. 2010) (``Since the revenue need adjustment factor is derived
from static figures published annually by the Board, the Three
Benchmark framework's reasonableness determination generally turns on
the Board's selection of a comparison group.'') Likewise, in FORR, the
Board would exercise its best judgment at multiple stages, including
its determination of whether the challenged rate has been shown to be
unreasonable under the governing criteria and, if necessary, its
selection of an offer. See NPRM, EP 755 et al., slip op. at 10-11.
AAR similarly asserts that in some cases the maximum reasonable
rate may be above or below the parties' final offers, whereas in others
it may fall between the final offers. (AAR Comment 12.) It claims that,
through FORR, the Board would abdicate its independent judgment to
determine a maximum reasonable rate, and quotes McCarty Farms Appeal
for the proposition that ``[o]f course no adjudicator would expect to
be able to rely entirely on one side's analysis.'' (Id. (citing McCarty
Farms Appeal, 985 F.2d at 599).)
This argument incorporates the same mistaken assumptions as the
argument previously addressed. In particular, AAR assumes that ``what
in the Board's view is the actual maximum'' depends solely on the
Board's analysis within an individual case. But the Board also
``exercise[s] its independent judgment'' in creating a decisionmaking
process with less discretion within the individual case, as in Three-
Benchmark. The fact that the Board is applying a process or even a
formula created outside of an individual adjudication does not mean it
is not an exercise of judgment. AAR's definition of the maximum
reasonable rate is telling: ``the rate that best achieves the many
objectives the Board is statutorily required to consider.'' (AAR
Comment 12 (emphasis added).) This argument--which boils down to an
appeal that the Board determine the reasonableness of rail rates ``in
the abstract''--was rejected in CSX Transportation, 568 F.3d at 242.
There, the court indicated that in order to give shippers a
``meaningfully effective way to seek some degree of redress for
unreasonable rail rates,'' section 10701(d)(3) authorized the Board to
adopt procedures even if they do not yield the level of precision
seemingly demanded by AAR here. Id. Regardless, and as explained at
length in the NPRM and in this decision, FORR is a process that
achieves the Board's various statutory objectives. See, e.g., 49 U.S.C.
10101(1)-(3), (6), (15), 10701(d)(2), (3), 10704(d)(1).\27\ Indeed, in
establishing the maximum lawful rate using a FORR process, the Board
would continue to balance economic considerations together with
administrative feasibility in defining a process ahead of time. See
BNSF Ry. v. STB, 453 F.3d 473, 482 (D.C. Cir. 2006) (``The pursuit of
precision in rate proceedings, as in most things in life, must at some
point give way to the constraints of time and expense, and it is the
agency's responsibility to mark that point.'').\28\
---------------------------------------------------------------------------
\27\ UP argues in the same vein that ``the Board might choose
the shipper's final offer, even though the rate is below the
`maximum rate' that would otherwise be objectively reasonable, id.
section 10704(a)(1), or it might decide the challenged rate is
better than the alternative, even though it believes the rate
exceeds an objectively `reasonable' rate, 49 U.S.C. 10701(d)(1).''
(UP Comment 5.) According to UP, ``under FORR, the Board would not
determine whether a challenged rate is reasonable by measuring it
against the maximum reasonable rate calculated using the statutory
criteria.'' (UP Comment 9-10.) Like AAR, UP insists that there must
be an ``objectively reasonable'' rate outside of any process used to
determine the maximum reasonable rate. UP's theory seems to be that
the ``statutory criteria'' themselves provide a calculation, and in
individual cases, the Board measures the challenged rate against the
``maximum reasonable rate'' resulting from the statute. But in fact,
the statute supplies no calculations. Instead, the ICC and the Board
have developed processes that are applied in individual cases to
produce a maximum reasonable rate--as in FORR. If a party's FORR
submission fails to adhere to the statutory criteria, it would be
unlikely to prevail on rate reasonableness, and if necessary,
selection of an offer.
\28\ In its comment in response to the ex parte meeting
memoranda, AAR restates these objections, arguing that the Board
must engage in a three-step process to rule on rate reasonableness:
(1) Determine market dominance; (2) determine whether the challenged
rate is unreasonable; and (3) determine the reasonable rate, taking
into account the Long-Cannon factors and railroad revenue adequacy.
(AAR Comment in Response to Mem. 2-3, Aug. 12, 2020.) Contrary to
AAR's argument, the FORR process accounts for each of these three
steps. See NPRM, EP 755 et al., slip op. at 10-14. As discussed
below, the Board confirms in this SNPRM that the determination in
the third step would be the determination of the maximum reasonable
rate.
---------------------------------------------------------------------------
Contrary to AAR's suggestion, nothing in McCarty Farms stands for
the proposition that the Board may not accept one party's proffered
rate where it finds it superior to the rate offered by the other party.
In noting that ``no adjudicator would be expected to rely entirely on
one side's analysis,'' the court appears to have been merely
emphasizing that all submissions in litigation tend to be self-serving
to some extent. See McCarty Farms Appeal, 985 F.2d at 598-99. In any
event, under FORR, each party would have an opportunity to submit
analysis with its reply pointing out deficiencies in the other side's
analysis, which the Board would consider in assessing the
reasonableness of the challenged rate and the merits of the parties'
respective offers. See NPRM, EP 755 et al., slip op. at 12. Moreover, a
final offer process would give parties an incentive to moderate their
positions, which is demonstrably absent from SAC (where parties may
expect the Board to seek the middle ground).\29\ In that regard,
parties are reminded that FORR would not reward extreme positions;
parties likely would have greater success by presenting more moderate
proposals.
---------------------------------------------------------------------------
\29\ According to AAR, ``even if final-offer procedures were an
acceptable method of retrospective dispute resolution, there is no
basis for using them with regard to the Board's `legislative
function' of setting rates prospectively. See Ariz. Grocery Co. v.
Atchison, Topeka & Santa Fe Ry., 284 U.S. 370 (1932) (unlike
backward-looking awards of reparations, prescribing a maximum rate
is legislative and forward-looking).'' (AAR Comment 13.) But AAR
fails to explain this position, and seems to overlook the fact that
the provisions authorizing the Board to develop methods for the
resolution of disputes apply specifically to prospective rate-
setting. See sections 10701(d)(3), 10704(d)(1).
---------------------------------------------------------------------------
UP makes a similar argument, claiming that, unless the Board
engages in an issue-by-issue weighing of
[[Page 67629]]
alternatives within each individual case (as opposed to exercising some
of its discretion in advance), it fails to protect the public interest.
(See UP Comment 3-4.) UP is incorrect for the same reasons stated
above. UP cites a Board decision that observes that ``the ICC was not
the prisoner of the parties' submissions, but rather had the duty to
`weigh alternatives and make its choice according to its judgment of
how best to achieve and advance the goals of the [RTP].' '' Pub. Serv.
Co. of Colo. v. Burlington N. & Santa Fe Ry., NOR 42057, slip op. at 4
(STB served Jan. 19, 2005) (quoting Balt. & Ohio R.R. v. United States,
386 U.S. 372, 430 (1967) (Brennan, J., concurring)). Again, that is
exactly what the Board proposes to do in this rulemaking: Exercise its
judgment to develop a procedure for smaller rate cases that will best
``achieve and advance the goals of the [RTP].'' That the Board has
affirmed its authority in other cases to exercise its judgment
notwithstanding the parties' submissions does not mean it cannot also
adopt a final offer procedure where the Board chooses to exercise less
discretion. Indeed, UP's issue-by-issue weighing approach would
preclude not only FORR, but also the Three-Benchmark test, which has
been judicially affirmed. See supra at 3; see also Union Pac. R.R., 628
F.3d at 601 (explaining that the Three-Benchmark test generally turns
on the Board's selection of a comparison group--a final offer process
in which ``the Board's selection is an `either/or' choice between the
parties' final offers, with no modifications allowed'').
UP contends that Three-Benchmark is distinguishable from FORR
because parties can claim ``other relevant factors,'' which acts as a
``safety valve.'' (UP Comment 6.) However, ``other relevant factors''
are optional, and in three of the four proceedings decided under Three-
Benchmark, the Board rejected all proposed ``other relevant factors.''
\30\ Moreover, because litigation over proposed ``other relevant
factors'' has substantially expanded the scope of Three-Benchmark
cases, it appears that ``other relevant factors'' are a reason--perhaps
a primary reason--why complainants have not pursued many Three-
Benchmark cases. See RRTF Rep. 51-52.\31\
---------------------------------------------------------------------------
\30\ See E.I. DuPont de Nemours & Co. v. CSX Transp., Inc., NOR
42099, slip op. at 14-15, 17-19 (STB served June 30, 2008); E.I.
DuPont de Nemours & Co. v. CSX Transp., Inc., NOR 42100, slip op. at
11-13, 15-18 (STB served June 30, 2008); E.I. DuPont de Nemours &
Co. v. CSX Transp., Inc., NOR 42101, slip op. at 10-12, 14-16 (STB
served June 30, 2008).
\31\ With respect to UP's focus on the public interest, as the
Coalition Associations point out, UP loses sight of the fact that
the Board is proposing to act here because shippers with small rate
cases lack reasonable access to the Board's existing rate remedies--
a situation which itself impinges on the public interest. (See
Coalition Associations Reply Comment 11-12.)
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In an analogous argument, UP describes the Federal Communications
Commission's (FCC) adoption of final offer arbitration for
interconnection rates, which are required to be just and reasonable.
(UP Comment 7.) The FCC's procedure requires the arbitrator to ensure
that the offers comply with the statutory standards, and if they do
not, the arbitrator can take steps designed to result in an outcome
that satisfies those standards, including requiring the parties to
submit new final offers or adopting a result not submitted by any
party. (See id.) Such an approach, while certainly permissible, would
eliminate the ``either/or'' nature of a final offer selection that the
NPRM cited as a benefit. NPRM, EP 755, slip op. at 13; see also
Simplified Standards, EP 646 (Sub-No. 1), slip op. at 18 & n.25 (``This
[``either/or'' final offer] approach will work as intended only if the
parties know that the agency will not attempt to find a compromise
position somewhere in the middle. . . . [W]e cannot preserve the
incentives created by a final-offer selection process and retain the
discretion to formulate our own comparison group. Accordingly, we will
not adopt [a proposal for the Board to retain the discretion to modify
the parties' final offers], which would defeat the purpose of a final-
offer selection process.''). Moreover, as explained in the NRPM, the
Board's criteria for determining rate reasonableness and choosing
between offers would be based, in part, upon consideration of the RTP
and the Long-Cannon factors, ensuring that the Board would consider the
relevant statutory standards. NPRM, EP 755 et al., slip op. at 10-
11.\32\
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\32\ According to AAR, a procedure is not actually a final offer
procedure unless there is a series of offers back and forth,
narrowing the dispute before final offers are submitted to the
decision-maker. (See AAR Comment 22.) AAR provides no support for
this statement. Canadian final offer arbitration, for example, does
not require the model suggested by AAR. See Canada Transp. Act, S.C.
1996, c. 10, as amended, sections 161(2), 161.1(1) (Can.).
Accordingly, this feature is not universal and is not a defining
feature of a final offer process.
---------------------------------------------------------------------------
CN argues that, under FORR, the Board would not make a finding that
the winning offer is the maximum reasonable rate. (CN Comment 9-10.)
While CN is correct that the NPRM did not state expressly that the
selected offer would be found to be the maximum reasonable rate, it is
apparent from other language in the NPRM that it would be. See NPRM, EP
755 et al., slip op. at 10 (``Each party's final offer should reflect
what it considers to be the maximum reasonable rate.''). The Board now
clarifies that if a FORR case reaches the final offer selection stage
(i.e., the Board has found market dominance and that the challenged
rate is unreasonable), the offer selected would be found to be the
maximum reasonable rate.\33\ Also, the Board clarifies that each
party's final offer must reflect what it considers to be a maximum
reasonable rate. (See UP Comment 16 n.8 (questioning the NPRM's use of
``should'' with respect to this issue).\34\)
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\33\ CN also implies that, under FORR, the Board would choose
between final offers without first making a finding that the
challenged rate is unreasonable. (CN Comment 9-10.) But the NPRM
states exactly the opposite. NPRM, EP 755 et al., slip op. at 13.
\34\ UP further argues that requiring a defendant's final offer
to reflect what it considers to be the maximum reasonable rate
``would in many cases require railroads to defend higher rates than
they actually want to charge.'' (UP Comment 16 n.9.) The basis for
UP's concern is unclear, given that defendant railroads routinely
submit rate case analyses that produce R/VC ratios higher than the
challenged rate, sometimes much higher. See, e.g., UP Opening Evid.
31, 61 & n.62 (citing workpaper with calculations), US Magnesium,
L.L.C. v. Union Pac. R.R., NOR 42114. Railroads have not hesitated
to defend those rates.
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B. ``Full Hearing'' Requirement
AAR argues that FORR would not satisfy the ``full hearing''
requirement of 49 U.S.C. 10704(a)(1), because, according to AAR, the
Board ``has tied [its] hands by artificially limiting [its] decisional
range to two possibilities'' and has not ``retained [its] full
decisionmaking powers.'' (AAR Comment 15-16.) AAR cites Morgan v.
United States, 304 U.S. 1, 12 (1938), for the proposition that
``Congress, in requiring a `full hearing,' had regard to judicial
standards--not in any technical sense but with respect to those
fundamental requirements of fairness which are of the essence of due
process in a proceeding of a judicial nature.'' (AAR Comment 15.) AAR
contends that, just as a judge cannot reject ``fundamental elements of
a trial,'' the Board cannot ``announce in advance that it will confine
its decisional outcome to the parties' two proposals.'' (Id. at 15-16;
see also CN Comment 10; AAR Comment in Response to Mem. 4, Aug. 12,
2020.)
In a 1984 decision, the ICC rejected an argument that a ``full
hearing'' means a formal ``trial-type'' hearing under sections 556 and
557 of the Administrative Procedure Act (APA),
[[Page 67630]]
noting that the phrase ``full hearing'' is not the same as the ``on the
record'' language that is a significant factor in deciding whether
formal hearing procedures are required. State Intrastate Rail Rate
Auth.--Tex., 1 I.C.C.2d 26, 34-35 (1984). As the ICC observed, where a
hearing on the record is not required, an agency has ``considerable
discretion to establish appropriate procedures.'' Id. (citing Vt.
Yankee Nuclear Power Corp. v. Nat'l Res. Def. Council, 435 U.S. 519,
524 (1978) (``generally speaking,'' the APA ``established the maximum
procedural requirements which Congress was willing to have the courts
impose upon agencies in conducting rulemaking procedures.'')).
In denying a petition for review of the ICC's decision, the court
of appeals rejected the appellant's contention that by requiring a
``full hearing,'' the relevant statutory provision requires a formal
hearing, affirming that such formality will ``obtain only on the
requirement of a `hearing on the record.''' R.R. Comm'n of Tex. v.
United States, 765 F.2d 221, 227 (D.C. Cir. 1985). Notably, the court
held that where the formal hearing requirements of the APA are not
triggered, the agency has ``substantial flexibility to structure the
hearings it must provide.'' Id. at 228 (quoting Sea-Land Serv., Inc. v.
United States, 683 F.2d 491, 495 (D.C. Cir. 1982)). This required the
ICC to ``conduct whatever proceedings are necessary to ensure that it
has sufficient information so that its final decision reflects a
consideration of the relevant factors.'' Id. (quoting Sea-Land Serv.,
683 F.2d at 496).
The Supreme Court has confirmed that agencies have such discretion.
In Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (1990),
the Court upheld a Pension Benefit Guaranty Corporation (PBGC) decision
after a lower court had, among other things, found the decision
arbitrary and capricious because the ``PBGC's decisionmaking process of
informal adjudication lacked adequate procedural safeguards.'' Id. at
644. The Supreme Court reversed, explaining that, per Vermont Yankee,
``courts are not free to impose upon agencies specific procedural
requirements that have no basis in the APA'' and that the court of
appeals ``did not point to any provision in [PBGC's governing statute]
or the APA which gives [respondent] the procedural rights the court
identified.'' Id. at 654-55. It concluded that PBGC's determination
``was lawfully made by informal adjudication, the minimal requirements
for which are set forth in the APA, 5 U.S.C. 555, and do not include
such [further] elements.'' Id. Here, AAR and other railroad commenters
do not point to any language in sections 10701(d)(3), 10704(a)(1), or
otherwise, that restricts the Board's discretion to set a rate by
selecting the best of two offers after it finds the challenged rate
unreasonable and considers appropriate statutory principles.
AAR's reliance on Morgan, a decision that predates enactment of the
APA, is also misplaced. Contrary to AAR's suggestion, the ``full
hearing'' requirement, as interpreted in Morgan, speaks not to how an
agency renders its decision, but rather to the parties' rights in
agency adjudications to be ``heard.'' FORR provides sufficient
opportunity for parties to be heard and to critique opposing arguments,
similar to parties' opportunities under other rate reasonableness
procedures such as Three-Benchmark.
Morgan involved an order by the Secretary of Agriculture setting
maximum rates to be charged at Kansas City stockyards. Morgan, 304 U.S.
at 13. There, USDA opened an inquiry into the rates charged at the
stockyards and collected a voluminous amount of evidence. Id. at 15-16.
The Secretary of Agriculture held an oral argument to consider the
evidence, but USDA's Bureau of Animal Industry (which was seeking to
set the rates) submitted no briefing, and other than what it said at
argument, ``formulated no issues and furnished [the stockyard entities]
no statement or summary of its contentions and no proposed findings.''
Id. at 16. The Secretary denied a request by the stockyard entities for
a tentative report, ``to be submitted as a basis for exceptions and
argument,'' and instead adopted findings prepared by the Bureau of
Animal Industry, leaving the stockyard entities no ``opportunity . . .
for the examination of'' those findings until after the Secretary had
served his order. Id. at 17. In reversing a lower court that had
affirmed the Secretary's order, the Supreme Court held that a ``full
hearing'' includes ``a reasonable opportunity to know the claims of the
opposing party and to meet them.'' Id. at 18. It further held that
``[t]hose who are brought into contest with the Government in a quasi-
judicial proceeding aimed at the control of their activities are
entitled to be fairly advised of what the Government proposes and to be
heard upon its proposals before it issues its final command.'' Id. at
18-19.
The concerns underlying the Supreme Court's decision in Morgan are
not present with respect to FORR, under which both parties would have
ample opportunity to be heard, with two rounds of briefing. Moreover,
because the Board would confine its choice to one of two proposals
(only after finding the challenged rate unreasonable), the defendant
would know the complainant's claim and the rate that it might face
should the Board select the complainant's offer, and would have an
opportunity to respond to that offer. Even assuming Morgan survived
enactment of the APA, which is not clear, FORR clearly satisfies its
interpretation of a ``full hearing.''
C. Burden of Proof
AAR suggests that FORR would relieve the complainant of its burden
of proof, because the Board would simply consider the burden carried if
it selected the complainant's offer. (See AAR Comment 16.) However,
this is not what the NPRM proposed. As described in the following
section, the complainant must still meet its burden by establishing
that the challenged rate is unreasonable. NPRM, EP 755 et al., slip op.
at 13. And as made clear above, each party's final offer must reflect
what it considers to be a maximum reasonable rate. The fact that a
party's analysis of the reasonableness of the challenged rate would
almost certainly be the same analysis supporting its offer does not
mean the Board would simply pass by the rate reasonableness step. On
the contrary, even if the complainant's offer is superior to the
defendant's offer, the complainant would not prevail if it failed to
prove that the challenged rate is unreasonable. See NPRM, EP 755 et
al., slip op. at 12-13.
AFPM states that it does not ``share STB's assertion that the
burden of proof must always be on the complainant (e.g., rail shipper)
and encourage[s] STB to consider scenarios where the burden of proof is
on the rail carrier.'' (AFPM Comment 8.) However, the Board has long
held that complainants bear the burden of proof in rate reasonableness
proceedings. See, e.g., Union Pac. R.R., FD 35504, slip op. at 2; Duke
Energy Corp. v. Norfolk S. Ry. (Duke/NS), 7 S.T.B. 89, 100 (2003).
WCTL states that the parties' presentations ``may be akin to ships
passing in the night, and the Board might find each method has merit.''
(WCTL Comment 10.) To address this issue, WCTL proposes that the Board
follow the approach used in larger rate cases, in which shippers may
select one of several ``constraints'' to prove entitlement to rate
relief. (See id. at 10-11 (citing Coal Rate Guidelines, Nationwide, 1
I.C.C.2d 520, 534 n.35 (1985).) It asks that the Board in FORR cases
similarly allow the complainant
[[Page 67631]]
shipper to select the governing methodology, so long as the Board finds
the methodology, and final offer developed using that methodology, to
be reasonable. (Id.) WCTL also notes that because complainants bear the
burden of proof in rate reasonableness cases, ``[i]t is only fair that
the party with the burden of proof can select the maximum rate standard
it chooses to utilize to prove its case, and that the Board accept this
choice if it is reasonable and supported.'' (Id. at 11.)
WCTL apparently intends its proposal to apply in both the
evaluation of the reasonableness of the challenged rate, and, if the
challenged rate is found unreasonable, the selection of offers. But
applying it in the selection of offers would eliminate the final offer
element of FORR--rather than selecting between two offers, the Board
would simply stop at the complainant's offer if it were ``reasonable
and supported.'' (See id. at 11.) The beneficial incentives and
dynamics produced by a final offer process, discussed above and in the
NPRM, would be unavailable. See NPRM, EP 755 et al., slip op. at 4-7.
Nor would it be appropriate to apply WCTL's proposal to the evaluation
of the challenged rate. Simply because a shipper may select one of
several of the Board's established constraints to challenge a rate in a
larger case, it does not follow that a shipper should be entitled to
dictate the methodology used in an expedited FORR proceeding
(potentially including a methodology of the shipper's own creation
introduced for the first time in a particular case). A fundamental
aspect of FORR is that the Board would provide more flexibility in
methodologies and would consider both sides' proposed methodologies for
evaluating the reasonableness of the challenged rate. WCTL's argument
to the contrary, it would not be fair to the defendant to establish a
principle dictating in advance the selection of the complainant's
methodology in a FORR case even where there is persuasive evidence that
the defendant's methodology yields a result that better satisfies the
statutory standards.
D. Specific Scenarios Under FORR
Some railroad interests posit scenarios intended to show that FORR
suffers from conceptual flaws that would prevent it from functioning
properly.
In a purely hypothetical argument, AAR poses a scenario in which
the complainant's offer is below the jurisdictional threshold, see 49
U.S.C. 10707(d)(1)(A), and hence ``impermissibly low,'' and yet the
complainant otherwise proves that the defendant's offer--be it the
challenged rate or otherwise--is unreasonable and hence ``impermissibly
high.'' (See AAR Comment 16-17.) As the NPRM pointed out, however, the
Board may not set the maximum reasonable rate below the level at which
the carrier would recover 180% of its variable costs of providing the
service. NPRM, EP 755 et al., slip op. at 10 n.21. Given the either/or
nature of a final offer process, a complainant would have to submit a
final offer at or above the jurisdictional threshold to be entitled to
relief, regardless of whether its methodology supports a lower rate.
UP claims that, in a FORR case, the Board could never select a
railroad's final offer. (See UP Comment 11-14.) This claim starts from
the incorrect premise that, in every case, ``the railroad's final offer
will be equal to or exceed the challenged rate.'' (See id. at 11-12,
21-22 (mistakenly assuming that discovery would be unfair to defendants
because the railroad's final offer and the challenged rate ``will
inevitably be the same'').) \35\ In the abstract, UP may not want to
``conced[e] that the challenged rate is unreasonable,'' but in specific
cases it could be an effective strategic decision for the railroad to
offer a rate that is lower than the challenged rate but higher than the
complainant's offer.\36\
---------------------------------------------------------------------------
\35\ UP also argues that a railroad concerned about its ability
to defend the challenged rate would settle instead. (Id. at 13.)
Settlement is possible, of course, but UP provides no support for
the idea that it would necessarily happen--for example, the parties'
positions could still diverge too much to allow for a negotiated
resolution.
\36\ This strategic decisionmaking is analogous to what happens
in other types of litigation. In a SAC case, for example, a party
can deliberately take a less aggressive position on an element of
the analysis if it is concerned about its likelihood of success--a
decision that changes what the party ultimately submits as the SAC
rate.
---------------------------------------------------------------------------
UP also describes a hypothetical situation in which a complainant
submits very compelling evidence that the challenged rate is
unreasonable and no evidence whatsoever in support of its offer. (See
UP Comment 15-16.) In that situation, UP argues, the Board would have
to accept that unsupported (and unreasonably low) offer, because it
cannot prescribe the challenged rate after finding it unreasonable.
(See id.) UP again assumes, incorrectly, that a railroad's final offer
must be identical to the challenged rate. Such a scenario is also
extremely unlikely because it is implausible that a complainant's
analysis producing an unsupported and unreasonably low rate could
satisfy FORR's proposed decisional criteria to show that the challenged
rate is unreasonable.
E. FORR's Encouragement of Settlements
The NPRM observed that a final offer procedure may help to
encourage the private settlement of disputes. NPRM, EP 755 et al., slip
op. at 7. AAR contends that, if FORR does encourage settlements, it
will not create precedent that will guide parties in future disputes.
(AAR Comment 20.) While AAR's observation may be true, at least in
part, it fails to demonstrate a problem with FORR. Increasing the
frequency of settlements, and therefore avoiding the cost and time of
litigation, would be a better outcome for parties and the Board. See,
e.g., U.S. Dep't of Energy v. Balt. & Ohio R.R., NOR 38302S et al.,
slip op. at 5 (STB served June 28, 2017) (``Wherever possible, the
Board's longstanding policy is to encourage the private resolution of
disputes through voluntary negotiations among all interested
parties.''). By contrast, if most disputes are litigated, that would be
a less favorable development, even though precedent would develop more
quickly.\37\
---------------------------------------------------------------------------
\37\ Without citing support, AAR claims that uncertainty would
deter negotiated outcomes. (See AAR Comment 18; see also CN Comment
19; BNSF Comment 4-5, 8.) But the NPRM cited multiple sources
supporting the opposite proposition. NPRM, EP 755 et al., slip op.
at 5-7.
---------------------------------------------------------------------------
AAR also argues that it is unreasonable for a railroad to face the
``coercive pressure'' inherent in a final offer procedure, which is
what encourages settlements. (See AAR Comment 21-22.) AAR asserts that
the risks faced by shippers and railroads are not reciprocal, because
the Board would never prescribe a rate higher than the challenged rate.
(See id.; see also UP Comment 14-16, 18.)
This lack of reciprocity is a result of the Board's statutory
mandate to regulate railroad conduct, rather than shipper conduct. See,
e.g., 49 U.S.C. 10704(a)(1) (authorizing the Board to prescribe a rate
or practice for a carrier). It may be true that that statutory
limitation could produce different incentives than parties have in
other final offer procedures. But in proposing FORR, the Board has
weighed the competing considerations and determined that FORR would
provide sufficient benefits (see, e.g., NPRM, EP 755 et al., slip op.
at 4-7) even if it were found not to afford the full settlement
incentives present in certain other contexts.\38\ Additionally, while
the
[[Page 67632]]
Board would not prescribe a rate higher than the challenged rate in a
FORR case, as indicated in the NPRM,\39\ there is still considerable
risk to a complainant that brings an unsuccessful FORR case that the
carrier may conclude based on the Board's evaluation of the economic
analyses that it has more latitude to set a higher rate. And should the
Board find the challenged rate has not been shown to be unreasonable in
a given case, the Board's findings could have a preclusive effect on
that complainant in subsequent litigation. See, e.g., Martin v. Garman
Const. Co., 945 F.2d 1000, 1004 (7th Cir. 1991) (``Agency adjudications
are afforded collateral estoppel effect, provided appropriate
safeguards are met.'') (citing United States v. Utah Constr. & Mining
Co., 384 U.S. 394, 421-22 & n.18 (1966)). Finally, any lack of
reciprocity is balanced by the defendant carrier's possession of market
dominance--a prerequisite in any rate case before the Board, including
FORR. See 49 U.S.C. 10707.\40\ The very existence of a rate case that
satisfies the market dominance threshold indicates an inherent
imbalance in bargaining power that favors carriers, while the statutory
requirements that rates subject to market dominance be reasonable, and
that the Board maintain simplified procedures for smaller cases,
reflect Congressional intent to level this playing field. See 49 U.S.C.
10701(d)(1), (3).
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\38\ In a related argument, AAR contends that FORR would have a
detrimental effect on railroad revenue adequacy, outside the context
of an individual dispute, because it would ``creat[e] a coercive
downward force on rates.'' (AAR Comment 25.) AAR provides no support
for this claim. Although FORR is intended to encourage settlements,
it would not require them, and any railroad may choose to defend its
rate as reasonable. If a market dominant railroad does not believe
its rate is reasonable, as required by 49 U.S.C. 10701(d), then it
should be incentivized to negotiate a lower rate. In other words, to
the extent FORR would put downward pressure on high rates, it would
function as a legitimate mechanism for indirectly enforcing the
statutory requirement that rates subject to market dominance be
reasonable.
\39\ See NPRM, EP 755 et al., slip op. at 14.
\40\ A complainant challenging a rate that is subject to market
dominance (i.e., any complainant whose case under FORR reaches the
rate reasonableness phase) would not have the options that UP
assumes would be available to complainants. (See UP Comment 14-16
(assuming, for example, that if a complainant loses, it could simply
choose not to move traffic under the rate that was at issue in the
case, or that, ``in many situations,'' the challenged rate is
constrained by market forces).)
---------------------------------------------------------------------------
AAR also asserts--similar to its prior claims in opposing other
efforts at reforming the Board's rate review processes \41\--that rates
adopted through FORR settlements would become the basis for comparison
groups in Three-Benchmark cases, ``further driving railroad pricing
down.'' (See AAR Comment 22-23.) That could be true, but the argument
would apply whenever any shipper obtained a lower rate, either through
a Board decision (using any rate reasonableness process) or a
settlement. Indeed, any decision favorable to a shipper in a Three-
Benchmark case, a process that AAR supports, would set the stage for
similar decisions in other cases and similar arguments about so-called
ratcheting. So, in essence, AAR is asserting that any rate
reasonableness process--whether FORR or some other approach--that
results in meaningful opportunities for shippers to show that rates are
unreasonably high must be rejected because it could result in reduced
revenues for the railroads. The Board will, of course, remain vigilant
about the adequacy of railroad revenues,\42\ but accepting an argument
that it should not adopt any process that could provide meaningful rate
relief would undermine the very law that the Board is bound to
administer and enforce.
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\41\ See AAR Suppl. Comment 10-11, Feb. 26, 2007, Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (predicting
incorrectly that the Three-Benchmark approach would ``inevitably
result in an overall ratcheting down of rates towards an average'').
\42\ The Board is cognizant of the concern raised by the court
in McCarty Farms Appeal that frequent and regular use of a
comparison group approach could reduce rates to the lowest revenue
to variable cost ratio used in the comparison group. See McCarty
Farms Appeal, 985 F.2d at 597.
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F. Comparisons to Canadian Final Offer Arbitration
CN argues that concerns regarding final offer arbitration are
mitigated in Canada because the process and results are confidential
and decisions are non-precedential, but that FORR lacks these features.
(CN Comment 24; see also CSXT Comment 2.) While a certain degree of
confidentiality and lack of precedent could enhance the benefits of a
final offer process,\43\ rate reasonableness decisions by the Board are
precedential and made available to the public (with exceptions for
certain confidential material). See 5 U.S.C. 552(a)(2) (requiring that
agencies make ``available for public inspection'' final opinions and
orders made in the adjudication of cases); Pac. Gas & Elec. Co. v. Fed.
Power Comm'n, 506 F.2d 33, 38 (D.C. Cir. 1974) (noting that agency
adjudications ``constitute binding precedents''). In proposing FORR,
the Board has weighed these considerations and, based on the record to
date, concludes that FORR would provide sufficient benefit even without
being confidential and non-precedential.
---------------------------------------------------------------------------
\43\ (See TRB Professors Comment 5 & n.17.)
---------------------------------------------------------------------------
CN also states that Canadian final offer arbitration does not
provide for reparations. (CN Comment 25.) In fact, Canadian final offer
arbitration does provide monetary relief covering the pendency of the
litigation, although, unlike reparations awarded by the Board, it
cannot reach back two years prior to the complaint. See Canada Transp.
Act, S.C. 1996, c. 10, as amended, section 165(6) (Can.). This
difference is less significant than it might appear, because
complainants in rate cases before the Board often wait to switch from a
contract to a tariff rate until shortly before they file their
complaints, to minimize the time they pay the tariff rate. See, e.g.,
Consumers Energy Co. v. CSX Transp., Inc., NOR 42142, slip op. at 1,
284 (STB served Jan. 11, 2018) (complaint filed in 2015; reparations
calculation started from 2015). The reasonableness of those contract
rates is not subject to challenge before the Board (see 49 U.S.C.
10709(c)), meaning that, in practice, the reparations period often
begins around the time the complaint is filed, rather than two years
earlier.
CP states that Canadian final offer arbitration proceedings are
complex and expensive for both parties, and that, because CP does not
know what arguments shippers will make, it ``must be overly expansive
in its briefing, addressing all possible arguments that the complainant
might raise.'' (CP Comment 5-8 (predicting that briefing in FORR cases
will be overbroad, with parties submitting ``a vast amount of
materials'').) Canadian final offer arbitration may be complex, but the
more relevant issue here is how FORR compares to the Board's existing
rate reasonableness processes. If it is sufficiently less costly than
Three-Benchmark, for example, then it could still help to expand access
to rate relief. Moreover, several shipper interests with member
companies that have participated in Canadian final offer arbitration
tout its success. (See, e.g., NGFA Comment 7 (``Some of NGFA's member
companies have had successful experiences with the Canadian final offer
arbitration procedures . . . .''); Farmers Union Reply Comment 2 (``In
your practitioner's experience in working with Canadian researchers, we
found that [final offer] procedures between shippers and carriers
rarely went to fruition but were settled many times . . . .'').) And
none of the shipper interests have expressed concerns similar to those
raised by CP, despite the fact that it is the shipper interests that
support FORR based on its expected reduced cost and complexity.
Part IV--Review Criteria
As noted above, the Board stated that, in reviewing offers, it
would take into account the RTP, the Long-Cannon factors in 49 U.S.C.
10701(d)(2), and
[[Page 67633]]
appropriate economic principles. See NPRM, EP 755 et al., slip op. at
10-13.
Some shipper interests request additional information regarding the
review criteria proposed in the NPRM, while railroad interests strongly
oppose the proposal to rely on criteria as opposed to a defined
economic methodology. The Board continues to propose a non-
prescriptive, multi-factor test, which would apply in the rate
reasonableness determination regarding the challenged rate and, if
necessary, in selecting between the offers. See NPRM, EP 755 et al.,
slip op. at 10-12. But, to aid commenters on this SNPRM, the Board will
provide some additional information about what it would expect to
consider.
A. Additional Information Regarding Review Criteria
USDA asks the Board to be more explicit about the types of actions
that would not satisfy the criteria. (USDA Comment 4.) Similarly, AFPM
asks the Board to define ``appropriate economic principles,'' and NGFA
suggests that the Board provide a ``more detailed discussion of the
potential criteria and statutory standards.'' (AFPM Comment 7; NGFA
Comment 10.) And while the Coalition Associations support the Board's
proposal, they state that the absence of a specific economic
methodology requires complainants to take a ``leap of faith.''
(Coalition Ass'ns Comment 2.)
To mitigate this uncertainty, the Board will provide additional
information here. First, parties seeking to satisfy the criteria might
submit, for example, robust comparison group approaches, cross-subsidy
analyses, analyses that incorporate market-based factors (see, e.g.,
BNSF Mem. 1-2 (Mtg. with Board Member Begeman); NGFA Reply 12, Aug. 20,
2020, Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program
for Small Rate Disps., EP 765), or new analyses relying on constrained
market pricing (CMP) principles, which are discussed further below. The
Board declines to propose to determine in advance whether specific
methodologies (including those identified above) would satisfy the
review criteria; rather, that determination would take place in
individual cases, and submitting a methodology in one of these
categories would not guarantee a party's success.\44\ And this list is
certainly not exhaustive; parties could also seek to satisfy the review
criteria with methodologies that are not listed here. But parties who
are uncertain about how to choose a methodology might consider one of
these examples as a starting point.
---------------------------------------------------------------------------
\44\ The Coalition Associations describe a rate benchmarking
methodology and argue that it would be appropriate to use in a FORR
case. (See Coalition Ass'ns Comment 19-25.) The Board agrees with
AAR, however, that this issue is beyond the scope of the proceeding,
where the Board did not seek comment on particular methodologies.
(See AAR Reply Comment 5-6.) The appropriateness of methodologies
would be decided on a case-by-case basis under the proposed
approach.
---------------------------------------------------------------------------
Second, the Board clarifies that parties would not be expected to
address every RTP factor, all of the Long-Cannon factors (see further
discussion below), or every type of appropriate economic principle. In
other proceedings, the Board and parties rely on the RTP factors that
are relevant to the individual case, and the same would be true in FORR
cases.
In particular, the Board would rely primarily on the RTP factors
that have previously been relied on in the rate reasonableness context:
The policy to allow, to the maximum extent possible, competition and
the demand for services to establish reasonable rates for
transportation by rail, 49 U.S.C. 10101(1); to promote a safe and
efficient rail transportation system by allowing rail carriers to earn
adequate revenues, as determined by the Board, section 10101(3); and to
maintain reasonable rates where there is an absence of effective
competition and where rail rates provide revenues which exceed the
amount necessary to maintain the rail system and to attract capital,
section 10101(6). See, e.g., Simplified Standards, EP 646 (Sub-No. 1),
slip op. at 34 (relying on RTP factors (3) and (6)); W. Coal Traffic
League--Pet. for Declaratory Ord., FD 35506, slip op. at 16-17 (STB
served July 25, 2013) (relying on RTP factor (1) in distinguishing the
Board's rate regulation from public utility regulation). To the extent
parties seek to rely on RTP factors that have not been relied on in the
rate reasonableness context, they must take care to demonstrate how
those factors relate to the economic analysis of the reasonableness of
the rate.
AAR argues that the Board does not provide enough detail on how it
would protect revenue adequacy in a FORR case. (AAR Comment 24-25; see
also CN Comment 13-14.) In a FORR case, if a party submits an analysis
that fails to explain how it accounts for revenue adequacy--with regard
to the reasonableness of the challenged rate as well as support for the
offer--the party would be less likely to prevail. And if a party's
analysis does not adequately account for revenue adequacy, the opposing
party could draw attention to this problem in its reply.
With respect to the Long-Cannon factors, the NPRM indicated that,
in deciding between offers, the Board would give due consideration to
(i) the carrier's efforts to minimize traffic transported at revenues
that do not contribute to going concern value, (ii) the carrier's
efforts to maximize revenues from traffic that contributes only
marginally to fixed costs, and (iii) whether one commodity is paying an
unreasonable share of the carrier's overall revenues, while recognizing
the policy that rail carriers earn adequate revenues. NPRM, EP 755 et
al., slip op. at 11. CN points to the Board's statement in a prior
decision that there is ``no feasible way to incorporate such an
analysis into a method for resolving small rate disputes without
raising litigation expenses and rendering the `simplified' method too
expensive,'' and implies that this discussion applied to the Long-
Cannon factors in general. (See CN Comment 19-20 (citing Simplified
Standards for Rail Rate Cases (Simplified Standards NPRM), EP 646 (Sub-
No. 1), slip op. at 22 (STB served July 28, 2006)).) But in fact, in
that decision the Board was referring specifically to the first factor,
observing that rail capacity had become tight (as opposed to the excess
capacity that existed when Staggers was enacted) and so ``a railroad is
not likely to carry any traffic that does not contribute to going
concern value.'' See Simplified Standards NPRM, EP 646 (Sub-No. 1),
slip op. at 22. Parties could choose to rely upon this conclusion in
FORR cases, making the first Long-Cannon factor unlikely to be a
significant aspect of the analysis, though parties could still address
how it is accounted for in their proposed methodology.
Because the Board must give due consideration to the Long-Cannon
factors when assessing the reasonableness of rates, parties should
generally address how their methodologies would allow the Board to take
the issues raised by these factors into account. As discussed above,
parties may use Board precedent to make arguments about the degree and
manner in which a particular factor should be considered by the Board
in relation to a proposed methodology.\45\
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\45\ For example, the ICC described the Long-Cannon factors as
``certain checks on obviously inefficient management.'' Coal Rate
Guidelines, Nationwide, EP 347 (Sub-No. 1), slip op. at 10, 13-14
(ICC served Feb. 24, 1983); see also Coal Rate Guidelines,
Nationwide (Coal Rate Guidelines), 1 I.C.C.2d 520, 540-41 (1985)
(discussing the Long-Cannon factors in establishing the management
efficiency constraint). Not every case would be likely to involve
``obviously inefficient management,'' and parties may seek to
explain why that is the case.
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[[Page 67634]]
Finally, appropriate economic principles would encompass Board and
ICC precedent (also discussed further below), court precedent reviewing
Board and ICC decisions, generally accepted economic theory (e.g.,
presented in experts' verified statements or citations to academic
literature), and analogous economic regulatory materials from other
tribunals, such as federal courts and agencies. Reliance on these
sources would hardly be an innovation; parties and the Board already
can and do cite Board precedent, for example, as well as academic
literature and analogous materials from other tribunals. See, e.g.,
Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., NOR 42121,
slip op. at 220 (STB served Sept. 14, 2016) (relying on Board
precedent); Consumers Energy Co., NOR 42142, slip op. at 19 n.20
(citing academic literature); AEP Tex. N. Co. v. BNSF Ry., NOR 41191
(Sub-No. 1), slip op. at 7-8 (STB served May 15, 2009) (citing
analogous federal court precedent). Expressly referencing these sources
among the review criteria ensures that parties and the Board can
continue to cite them in the same ways and with the same frequency that
they do in other types of proceedings.
B. Vagueness Arguments
Citing FCC v. Fox Television Stations, Inc., 567 U.S. 239 (2012),
AAR contends that FORR is unconstitutionally vague because railroads do
not know in advance what the Board might find unreasonable, inasmuch as
the methodology is chosen within the case--railroads will not know in
advance how to conform their conduct to the demands of the law. (See
AAR Comment 17-19; see also CN Comment 18-19; BNSF Comment 4-5, 7-8.)
AAR also states that predictable application is necessary to prevent
the adjudicator from acting in an arbitrary or discriminatory way. (AAR
Comment 19.)
Although any agency standard must be sufficiently clear to pass
constitutional muster,\46\ Fox Television has little resemblance to the
circumstances here. Unlike the FCC in that case, the Board here is not
changing course mid-proceeding and purporting to regulate railroad
conduct without providing notice of what that regulation requires. See
567 U.S. at 254. To the contrary, the Board is proposing procedural
rules for the adjudication of railroad rates under the precise criteria
established by statute. Following the Board's adoption of FORR,
railroads would continue to be entitled under section 10701 to
``establish any rate for transportation'' over which they do not have
market dominance. Where there is market dominance, railroads would also
continue to be entitled to charge a rate so long as it is reasonable.
The Board would also consider the reasonableness of rates challenged
under FORR using the same statutory criteria and economic principles
applied in past rate cases using other processes. The NPRM made clear
that a railroad in a FORR proceeding may use ``existing rate review
methodologies'' to defend the challenged rate or its final offer, as
well as other methodologies that follow the applicable criteria. NPRM,
EP 755 et al., slip op. at 12.
---------------------------------------------------------------------------
\46\ In Freeman United Coal Mining Co. v. Federal Mine Safety &
Health Review Commission, 108 F.3d 358, 362 (D.C. Cir. 1997), a case
cited by CN, the court noted that regulations need not achieve
``mathematical certainty'' or ``meticulous specificity,'' and may
instead embody ``flexibility and reasonable breadth.'' Id. (quoting
Grayned v. City of Rockford, 408 U.S. 104, 110 (1972).) Applying
these principles, the court found that the regulation at issue,
which broadly required that mine structures ``be maintained in good
repair to prevent accidents and injuries to employees'' was
``sufficiently specific to provide notice . . . of the conduct that
it required or prohibited.'' Id.
---------------------------------------------------------------------------
AAR's argument overstates the predictability of other types of
litigation before the Board and understates the predictability of a
FORR case. In almost every recent SAC case litigated to a merits
decision, both shippers and railroads have raised novel issues, some of
which reach the core of the SAC concept. See, e.g., Ariz. Elec. Power
Coop. v. BNSF Ry., NOR 42113, slip op. at 140-42 (STB served Nov. 22,
2011) (accepting a new calculation proposed by the defendant railroad
for use in the discounted cash flow analysis); Consumers Energy Co.,
NOR 42142, slip op. at 25-27 (addressing a new proposed method for
traffic group selection); E.I. DuPont de Nemours & Co. v. Norfolk S.
Ry., NOR 42125, slip op. at 282-84 (STB served Mar. 24, 2014)
(accepting a new adjustment proposed by the complainant shipper to the
terminal value calculation). Not all of these issues are purely matters
of economic policy; many also require adjudication as to how a
hypothetical railroad might operate differently than the defendant, an
inherently non-quantitative weighing of evidence and argument. See,
e.g., E.I. DuPont de Nemours & Co., NOR 42125, slip op. at 39-40
(requiring, for the first time, that a SARR carrying predominantly
carload traffic account for car classification and blocking).
Notwithstanding parties' posturing in negotiations before a rate case,
(see BNSF Comment 8), they cannot predict the resolution of these
novel, potentially case-dispositive issues in advance--nor can the
Board, before the development of an administrative record. SAC,
however, is not unconstitutionally vague and has been upheld on
judicial review. See, e.g., Consol. Rail Corp v. United States, 812
F.2d 1444, 1456-57 (3d Cir. 1987); Potomac Elec. Power Co. v. ICC, 744
F.2d 185, 192-95 (D.C. Cir. 1984).
Adjudication of claims under 49 U.S.C. 10702 and 11101, addressing
the reasonableness of practices and the common carrier obligation,
respectively, bears even greater resemblance to the approach proposed
here. Each involves a case-specific, multi-factor analysis. See, e.g.,
CF Indus., Inc.--Pet. for Declaratory Ord., FD 35517, slip op. at 4-5
(STB served Nov. 28, 2012) (describing legal standard in unreasonable
practice cases); Union Pac. R.R.--Pet. for Declaratory Ord., FD 35219,
slip op. at 3-4 (STB served June 11, 2009) (describing legal standard
in common carrier obligation cases).\47\ The ICC and the Board have
followed this approach for more than a century, with judicial approval,
despite parties' inability to ``know in advance what the Board might
deem unreasonable'' with the specificity that AAR would apparently
require, (AAR Comment 17-18). See, e.g., Lake-and-Rail Butter & Egg
Rates, 29 I.C.C. 45, 46-47, 49-51 (1914) (enforcing the common carrier
obligation); Bodine & Clark Livestock Comm'n v. Great N. Ry., 63 F.2d
472, 477-78 (9th Cir. 1933) (affirming the ICC's determination
regarding the reasonableness of a practice); Granite State Concrete Co.
v. STB, 417 F.3d 85, 92-93 (1st Cir. 2005) (specifically
[[Page 67635]]
affirming the STB's application of the legal standard).\48\
---------------------------------------------------------------------------
\47\ The factors in such cases can be quintessential examples of
the ``incommensurate interests'' that CN found so problematic in its
comment: for example, weighing safety considerations against the
economic interests of a railroad or its customer. See CN Comment 20;
see also, e.g., N. Am. Freight Car Ass'n v. Union Pac. R.R., NOR
42119 (STB served Mar. 12, 2015); Bar Ale, Inc. v. Cal. N. R.R., FD
32821 (STB served July 20, 2001). The ICC and the Board have
performed these analyses lawfully and with judicial approval, see,
e.g., Granite State Concrete, 417 F.3d at 95-96, and without an
advance explanation as to how they would balance potentially
competing interests. Therefore, contrary to CN's argument regarding
the Long-Cannon factors, (see CN Comment 20-21), regulating railroad
practices or rates using a non-prescriptive, multi-factor test is
not ``void for vagueness'' even if some of the factors are
incommensurate interests. Cf. Gentile v. State Bar of Nev., 501 U.S.
1030, 1048-51 (1991). CN also does not support its attempt to
analogize FORR to the situation in Gentile, a First Amendment
decision that specifically addresses ``[t]he prohibition against
vague regulations of speech.'' See id.
\48\ Even in a cost-of-service rate case before another agency,
which bears greater resemblance to traditional utility ratemaking--a
mode of regulation that has been established far longer and with
greater continuity than any of the Board's rate processes--the
regulator or a reviewing court may change a significant component of
the analysis within an individual litigation. See, e.g., United
Airlines, Inc. v. FERC, 827 F.3d 122, 134-36 (D.C. Cir. 2016)
(overturning agency's allowance of income taxes in cost of service
for carriers structured as partnerships).
---------------------------------------------------------------------------
AAR characterizes FORR as distinct from these other agency
processes in terms of predictability, implying that the Board has given
no hint as to how it would reach a decision. (See AAR Comment 17-19;
AAR Comment in Response to Mem. 5, Aug. 12, 2020.) That is not so; the
NPRM stated the criteria that would apply in determining rate
reasonableness,\49\ and if necessary, choosing an offer.\50\ These
criteria would signal to parties what rates might be found
unreasonable. For instance, if a defendant railroad is charging vastly
more for the challenged traffic than it does for comparable traffic, if
it is aware of costly inefficiencies that a new railroad would not
adopt, or if its revenue from the challenged rate is out of proportion
to its properly attributable capital requirements and other costs of
service, (see BNSF Mem. 2 (Mtg. with Board Member Begeman)), then it
could reasonably predict a lower likelihood of success in a FORR
case.\51\ In other words, there is a continuum of predictability with
respect to litigation--rather than the binary distinction AAR
proposes--and FORR is closer on the continuum to other types of
litigation than AAR acknowledges. (See Olin Comment 11 (citing Board of
Trade v. United States, 314 U.S. 534, 546 (1942) (ratemaking ``is fluid
and changing--the resultant of factors that must be valued as well as
weighed'')).) FORR's level of predictability, which is in line with
unreasonable practice cases and other adjudications requiring the
tribunal to weigh multiple factors, does not render it
unconstitutionally vague.
---------------------------------------------------------------------------
\49\ AAR disagrees with similar reasoning proffered by Olin; AAR
states that Olin ``misses the point'' because, ``[i]n the rate
context, the elastic term `reasonable' has specific meaning.'' (AAR
Comment in Response to Mem. 5, Aug. 12, 2020.) In this attempt to
distinguish rate reasonableness from unreasonable practice cases and
rulings on the common carrier obligation, AAR does not cite any
statutes or case law. See id. AAR relies instead on an article,
which does not even support the point for which AAR cites it, much
less provide statutory or precedential support. See id. AAR further
notes that, with respect to rate reasonableness, Congress has
required the Board to account for railroad revenue adequacy and the
Long-Cannon factors. See id. But the FORR process does account for
these considerations. See NPRM, EP 755 et al., slip op. at 10-12.
\50\ CSXT asserts that the NPRM ``fails to set forth any
substantive standard that it would use to choose between the `final
offers.''' (CSXT Comment 1.) No other commenter makes such a claim,
for good reason: The NPRM directly stated the non-prescriptive
criteria that would provide the substantive standard in FORR cases.
NPRM, EP 755 et al., slip op. at 10-12.
\51\ AAR does not address whether the discussion it cites from
Paralyzed Veterans of America v. D.C. Arena, L.P., 117 F.3d 579, 584
(D.C. Cir. 1997) survives Perez v. Mortgage Bankers Association, 575
U.S. 92 (2015). (See AAR Comment 19). It does not matter here,
however, for the reasons stated above. Far from ``promulgat[ing]
mush,'' see Paralyzed Veterans. 117 F.3d at 584, the Board has
proposed a test that requires the balancing of multiple factors
stated in advance, as in other types of adjundicaton.
---------------------------------------------------------------------------
AAR states that, ``it remains unclear whether the Board will even
disclose when deciding the case the methodology it used to choose the
winner.'' (AAR Comment 19.) To clarify, when deciding a case under
FORR, the Board would explain the basis for its decision, as it does in
every case. AAR's concern apparently stems from a comment made by the
TRB Professors, who suggest that the Board can ``fully . . . discharge
its obligations without going into detail on the reasons it chose one
offer rather than the other.'' (TRB Professors Comment 5.) However, in
a FORR case, as in all other cases, the Board would have to provide
enough detail to supply a reasoned basis for its decision. See, e.g.,
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S.
29, 43 (1983). Consequently, AAR's concern that the Board would issue
FORR decisions without explaining its reasons for selecting one offer
rather than the other, or on the reasonableness determination as to the
challenged rate, is unfounded.\52\
---------------------------------------------------------------------------
\52\ AAR claims that FORR would not require the parties' offers
or supporting methodologies to incorporate the stated review
criteria. (AAR Comment in Response to Mem. 3, Aug. 12, 2020.)
However, as the NPRM explained, a party that disregards these
criteria would likely lose, because the criteria will guide the
Board's determinations. See NPRM, EP 755 et al., slip op. at 11. AAR
fails to distinguish this situation from any other litigation, where
a party can choose to submit pleadings that disregard the
substantive principles governing the proceeding, but in doing so
scuttle its own case.
---------------------------------------------------------------------------
AAR argues that, because FORR would rely on general criteria rather
than a pre-determined methodology, FORR decisions would not provide
useful guidance in future cases even if the Board did explain its
reasoning. (AAR Comment 20.) It is a significant overstatement to
claim, as AAR does, that FORR decisions would provide ``little if any
guidance'' to future litigants. As parties observe which methodologies
can be successfully employed within the constraints of FORR, they could
adopt--and perhaps even improve upon--those methodologies in future
cases. AAR appears to assume that each FORR case would involve a
completely different methodology than any prior case. Such a
development is possible, but parties have strong incentives to be
guided by precedent, because it is more efficient to build on economic
and legal work that has already been performed in prior cases. Also,
parties to other proceedings involving case-specific, multi-factor
tests can and do cite precedent on a regular basis. See, e.g., Ark.
Elec. Coop. Opening Evid. & Arg. 4-5, Mar. 16, 2010, Ark. Elec. Coop.--
Pet. for Declaratory Ord., FD 35305 (unreasonable practice case); UP
Reply 31-38, May 5, 2015, Sherwin Alumina Co. v. Union Pac. R.R., NOR
42143 (common carrier obligation case).
C. Board Precedent
AAR asserts that any rate reasonableness process adopted by the
Board must be ``tethered to'' CMP,\53\ arguing that FORR deviates from
``historic agency practice.'' (See AAR Comment 14; see also CN Comment
11-14.) However, AAR overstates the degree to which the Board has
adhered to CMP in developing previous rate reasonableness processes. In
adopting the Three-Benchmark test, the Board stated:
---------------------------------------------------------------------------
\53\ CMP, which the ICC adopted in Coal Rate Guidelines,
contains three main constraints on the extent to which a railroad
may charge differentially higher rates on captive traffic. The
revenue adequacy constraint is intended to ensure that a captive
shipper will ``not be required to continue to pay differentially
higher rates than other shippers when some or all of that
differential is no longer necessary to ensure a financially sound
carrier capable of meeting its current and future service needs.''
Coal Rate Guidelines, 1 I.C.C.2d at 535-36. The management
efficiency constraint is intended to protect captive shippers from
paying for avoidable inefficiencies (whether short-run or long-run)
that are shown to increase a railroad's revenue need to a point
where the shipper's rate is affected. Id. at 537-42. The SAC
constraint is intended to protect a captive shipper from bearing
costs of inefficiencies or from cross-subsidizing other traffic by
paying more than the revenue needed to replicate rail service to a
select subset of the carrier's traffic base. Id. at 542-46.
whether using an SAC analysis or CMP's alternative top-down approach
(both of which are highly data-intensive), a CMP presentation can be
quite expensive and thus not feasible where the amount of money at
issue is not great enough to justify the expense. Accordingly, the
ICC instituted this rulemaking in 1986 to search for simpler, less
expensive procedures for assessing rate reasonableness in small
---------------------------------------------------------------------------
cases.
Non-Coal Proc., 1 S.T.B. at 1008 (footnote omitted). The Board also
explained the development of Three-Benchmark as follows: ``the ICC
decided that it must find some means other than CMP to meet the dual
objectives of
[[Page 67636]]
enabling a railroad to differentially price its traffic and protecting
a complaining captive shipper from bearing an undue share of a
carrier's revenue requirements.'' Id. at 1012-13. The Board concluded
that ``other procedures can, and indeed must, be made available for
those cases in which CMP simply cannot be used--because the traffic is
so infrequent or widely dispersed that it is not susceptible to a SAC
presentation or because the case is so small in value that the
substantial expense of a CMP presentation (whether through the top-down
approach or SAC's bottom-up approach) cannot be justified.'' Id. at
1021 (footnote omitted).
Similarly, when the ICC began the inquiry that led to the Three-
Benchmark test, it explained that its Coal Rate Guidelines decision,
the source of CMP, might not be a good fit outside the circumstances
for which it was developed: ``[Coal Rate Guidelines] arose out of a
request to set rate standards for high-volume shipments from newly-
developed reserves in the Western United States. We acknowledge that
the specifics of the guidelines finally adopted are particularly well
suited to high-volume, long-term movements, where the cost and
complexity of rate regulation are not disproportionate to the public
and private interest in developing economically efficient rates.'' Rate
Guidelines--Non-Coal Proc., EP 347 (Sub-No. 2), slip op. at 1-2 (ICC
served May 21, 1986).\54\
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\54\ In the Simplified Standards NPRM, the Board stated that,
``while this Three-Benchmark approach would not replicate directly
the results of a SAC analysis, it would import that constraint
indirectly by comparing the challenged rate against rates for other
potentially captive movements that are constrained by some form of
the SAC test.'' Simplified Standards NPRM, EP 646 (Sub-No. 1), slip
op. at 28. That characterization, however, relied directly on the
eligibility criteria that the Board had initially proposed (because
the criteria would ensure that most rates were not eligible for
Three-Benchmark, meaning that most rates in a comparison group would
be constrained by SAC, see id.)--and the Board chose not to adopt
those criteria in the final rule. See Simplified Standards, EP 646
(Sub-No. 1), slip op. at 89-94.
---------------------------------------------------------------------------
To be sure, Three-Benchmark's revenue-to-variable cost (R/VC)
benchmark tests are meant to account for ``all of the relevant
statutory and economic principles,'' while meeting the Board's ``dual
objective'' of both permitting differential pricing and protecting
captive shippers from bearing an undue share of a railroad's revenue
requirements. Non-Coal Proc., 1 S.T.B. at 1012-13, 1041.\55\ These are
the same objectives that support CMP. Id. at 1012-13. AAR argues that,
unlike SAC or Three-Benchmark, FORR does not account for ``market-
driven outcomes and principles.'' (AAR Comment 14; see also BNSF
Comment 7.) The FORR review criteria, however, expressly account for
these factors. See NPRM, EP 755 et al., slip op. at 10-11. If a
complainant's FORR presentation does not adequately account for the
necessity of demand-based differential pricing, for example, it likely
would be unable to prove that the challenged rate is unreasonable.
---------------------------------------------------------------------------
\55\ BNSF argues that approaches relying on R/VC ratios,
including the 180 R/VC threshold, are inaccurate. (See BNSF Comment
4.) This resembles a position adopted by the TRB Professors in their
report, but as the TRB Report acknowledges, reliance on R/VC ratios
(at least for market dominance) is built into the statute and would
require the enactment of legislation to remove. See TRB Rep. 134-35.
Also, even if BNSF were correct, its argument would support the
Board's adoption of FORR: the Board's existing rate processes all
rely on R/VC ratios, and although some FORR cases might also use R/
VCs (depending on the methodology selected), it is likely that not
all FORR cases would do so.
---------------------------------------------------------------------------
According to AAR, the Board's existing processes have been fine-
tuned through notice and comment and judicial review, and the Board has
not provided a reasoned explanation for its departure from those
established methods. (AAR Comment 14-15; see also BNSF Comment 5-6; CN
Comment 14.) \56\ However, the FORR proposal arose in the context of
the agency's long and difficult search for a solution for smaller rate
disputes, and the NPRM explained in detail the reason for its proposal.
See NPRM, EP 755 et al., slip op. at 3-4, 6-7, 17. Again, the Board and
the ICC have already recognized the need for non-CMP methods, and FORR
expressly accounts for ``the basic economic principles that have long
guided the Board in judging the reasonableness of rates,'' (AAR Comment
15). BNSF argues in addition that, under FORR, a party could ``select
only the favorable elements of an existing methodology while discarding
less favorable elements (including essential procedural protections).''
(BNSF Comment 5-6.) However, if a party relies on a modified version of
an existing methodology that deviates from the principles identified in
the NPRM as review criteria, the party is less likely to succeed on
rate reasonableness, and if necessary, selection of an offer. And if a
party's submission is deficient, as BNSF appears to contemplate, the
opposing party can explain this deficiency in its reply.
---------------------------------------------------------------------------
\56\ CN cites McCarty Farms Appeal to argue that ``the
unexplained jettisoning of CMP cannot pass for reasoned decision-
making.'' (CN Comment 14.) But in McCarty Farms Appeal, the court
concluded that the ICC had not sufficiently explained its adoption
of a particular comparison-group methodology only after finding that
the methodology had ``no evident connection'' to the statutory goals
undergirding CMP, including railroad revenue adequacy. Id. at 595-
99. By contrast, in resolving a dispute under FORR the Board would
account for the relevant statutory criteria, including (as explained
further below) revenue adequacy.
---------------------------------------------------------------------------
Finally, AFPM argues that ``appropriate economic principles''
should not include agency precedent because the industry has changed
dramatically due to consolidations. (AFPM Comment 7.) The Board
disagrees. Board and ICC precedent would have value in the FORR small
dispute context--it constitutes a significant part of the agency's
implementation of Staggers and ICCTA, establishes important concepts,
and has been tested on judicial review \57\--and that is true even if
the specific methodologies developed and implemented in prior cases do
not turn out to be the ones used in a given FORR case.\58\
---------------------------------------------------------------------------
\57\ See, e.g., Consol. Rail Corp v. United States, 812 F.2d
1444 (3d Cir. 1987); BNSF Ry. v. STB, 526 F.3d 770 (D.C. Cir. 2008);
BNSF Ry. v. STB, 748 F.3d 1295 (D.C. Cir. 2014).
\58\ Also, contrary to AFPM's suggestion, much of the cited
precedent was developed after industry consolidation. See, e.g.,
Union Pac. Corp.--Control & Merger--S. Pac. Rail Corp., 1 S.T.B. 233
(1996) (merger); CSX Corp.--Control & Operating Leases/Agreements--
Conrail Inc., 3 S.T.B. 196 (1998) (acquisition and division of
assets); Rep. on Rate Case Rev. Metrics, 3d Quarter 2021, available
at <a href="https://www.stb.gov/wp-content/uploads/Report-on-Rate-Case-Review-Metrics-Third-Quarter-October-1-2021.pdf">https://www.stb.gov/wp-content/uploads/Report-on-Rate-Case-Review-Metrics-Third-Quarter-October-1-2021.pdf</a> (listing 19 rate
case dockets that reached merits decisions after 1998); Simplified
Standards, EP 646 (Sub-No. 1) (one of several rate reasonableness
rulemakings completed after 1998).
---------------------------------------------------------------------------
Part V--Discovery and Procedural Schedule
Railroad interests raised concerns with the NPRM's proposed
approaches to discovery and the FORR procedural schedule. Shipper
interests proposed several changes to these approaches. Below, the
Board addresses the comments and changes proposed in this SNPRM in
response to comments.
A. Discovery
In the NPRM, the Board proposed to disallow litigation over
discovery disputes in FORR cases. NPRM, EP 755 et al., slip op. at 8.
Instead, the Board proposed to take any unreasonable withholding of
relevant information into account in choosing between the offers--for
example, by giving less weight to an argument that could be undercut by
the information that was withheld or by making other adverse
inferences. Id. Railroad interests strongly oppose the proposal to rely
on adverse inferences rather than motions to compel. (See AAR Comment
3, 18-19; BNSF Comment 6-7; UP Comment 23.) The Coalition Associations
also
[[Page 67637]]
oppose this proposal and recommend instead that the Board adopt an
expedited process for motions to compel. (Coalition Ass'ns Comment 10-
11; see also UP Comment 23 (``if the Board were to move forward with
FORR, it would have to develop actual procedures for resolving
discovery disputes.'').) Other shipper interests, while not directly
opposing the proposal, question how it would apply. (See AFPM Comment
5-6; NGFA Comment 7-8, 10.)
The Board acknowledges the concerns raised over the use of adverse
inferences and recognizes that a motion to compel procedure would
present a more exacting means of resolving discovery disputes.
Therefore, although it detracts from the Board's goal of a highly
expedited procedural schedule, the Board proposes to remove the use of
adverse inferences and instead adopt a process for motions to compel
similar to the Coalition Associations' proposal.
Under the proposed process, each party would be permitted to file a
single motion to compel that aggregates all of the discovery disputes
with the other party. (Coalition Ass'ns Comment 10.) A motion to compel
would need to explain how the requested material is relevant either to
a methodology that the party may present in its opening submission or
to market dominance. Each party's motion to compel, if any, would have
to be filed on the 10th day before the close of discovery (or, if not a
business day, the last business day immediately before the 10th day).
The procedural schedule would be tolled while motions to compel are
pending. (Id.) Each party would be permitted seven days to reply to the
other party's motion to compel, but in the interest of expediting the
schedule (and contrary to the Coalition Associations' proposal),
replies to replies would not be permitted. (See id.) The Board would
issue a decision in 10 business days. Upon issuance of a decision on
motions to compel, the procedural clock would resume, and any party
ordered to respond to discovery would have to do so within the
remaining 10 days in the discovery period. (See id.) The Board also
proposes to grant the Coalition Associations' request to extend the
discovery period from 21 days to 35 days; otherwise, with motions to
compel now permitted, parties would have to file such motions after
only 11 days of discovery. (See Coalition Ass'ns Comment 9-10; AAR
Comment 23 (expressing concern that FORR would provide too little time
for record development).) Because parties would be able to use motions
to compel for discovery enforcement, the Board would not adopt the
NPRM's alternative procedure involving adverse inferences.\59\ Despite
this addition, parties should seek to resolve discovery disputes among
themselves rather than filing motions to compel. See 49 CFR
1114.31(a)(2)(i) (motions to compel in stand-alone cost and simplified
standards rate cases--which would now include FORR--must include a
certification that the movant has in good faith conferred or attempted
to confer with the person or party failing to answer discovery to
obtain it without Board intervention).
---------------------------------------------------------------------------
\59\ Though the Board no longer proposes to adopt the adverse
inferences discussed in the NPRM, the Board notes that, in the event
a party does not comply with a Board order on a motion to compel,
the provisions of 49 CFR 1114.31(b) would apply in a FORR
proceeding.
---------------------------------------------------------------------------
Both NGFA and AFPM ask the Board to provide more guidance as to
what parties should produce in discovery in FORR cases. (See NGFA
Comment 7-8, 10; AFPM Comment 5-6.) The Board understands NGFA's and
AFPM's interest in reducing uncertainty with respect to discovery. But
the material a party seeks in discovery depends to a significant extent
on the methodology it plans to present. Above, the Board describes
examples of methodologies that a party might present in a FORR case;
information in support of one of these methodologies would be a type of
material that parties could seek in discovery, provided that it is
appropriately limited in scope and production burden given the brief
discovery period. See NPRM, EP 755 et al., slip op. at 8 (``narrowly
tailored, targeted discovery requests based on the information that the
other side could reasonably be expected to provide in a short period of
time, focusing on the key information needed to prove or defend a rate
case''). The Board confirms, as suggested by NGFA, that a complainant
may notify the defendant of the data and information it intends to seek
in discovery at the same time it provides notice of its intent to file
a complaint. (NGFA Comment 9-10.)
The Coalition Associations argue that, because rate reasonableness
methodologies could involve revenue adequacy, the Board should make
more years of waybill data available--enough to cover a business cycle.
(See Coalition Ass'ns Comment 11-13.) The Coalition Associations are
correct that, depending on the methodology a party chooses, more than
four years of waybill data could be relevant. That would not be the
case in every FORR proceeding, however, and the Board is mindful of the
need to disclose no more confidential waybill data than necessary. See
Proc. on Release of Data from the ICC Waybill Sample, 4 I.C.C.2d 194,
197-212 (1987). Therefore, four years of waybill data would be the
default in FORR cases, but a party could request more years if special
circumstances support such a request in an individual case. Also, as
requested by the Coalition Associations, the Board confirms that, as in
Three-Benchmark cases, waybill access (subject to appropriate
protective orders) would include the full sample, including unmasked
revenue. (See Coalition Ass'ns Comment 13.)
B. Procedural Schedule
AAR argues that the burden of FORR's short timelines falls
disproportionately on the defendant, because the complainant can take
as much time as it wants to prepare its case before initiating
litigation. (See AAR Comment 23; see also BNSF Comment 7 (contending
without explanation or citation of authority that the impact of these
deadlines is contrary to complainants' burden of proof).) To a certain
degree, AAR's arguments simply reflect the nature of litigation. A
plaintiff in a civil action in court controls the timing of case
initiation and therefore has essentially unlimited time to prepare its
case (subject to the statute of limitations), because it decides when
to file a complaint. The defendant in such a case has to prepare its
response with limited time. And the Board notes that this situation
exists in the Board's other rate reasonableness processes as well.
It is true that this imbalance may be more pronounced under FORR
because the deadlines are shorter and the methodology more flexible.
But this imbalance would be mitigated by the Board's proposal to extend
the discovery deadlines and adopt a motion to compel process, as
discussed above, and to require a mandatory mediation period, as
discussed below. Moreover, the Coalition Associations point out that,
unlike defendants, complainants must make their cases largely based on
information in the possession of the opposing party. (See Coalition
Ass'ns Comment 9.) In this regard, shorter discovery deadlines favor
the defendants and further balance out the burden that railroad
interests describe. In any event, even assuming that the procedural
schedule in FORR might, in some cases, place a proportionately greater
burden upon defendants than in other rate review processes, such a
burden must be weighed against the likelihood that rate relief may be
functionally unavailable in a small dispute.
[[Page 67638]]
In addition to proposing to lengthen several deadlines in the
record development portion of a FORR proceeding, the Coalition
Associations propose to reduce the Board's decision time from 90 days
to 60 days. (Coalition Ass'ns Comment 8.) The Coalition Associations
state as support the fact that Canadian final offer arbitration
provides for decisions in as little as 30 days and no more than 60
days. (Id.) The Board declines to adopt this proposal. Canadian final
offer arbitration decisions are informal, confidential, non-
precedential, and may be formulated by a single individual. See Canada
Transp. Act, S.C. 1996, c. 10, as amended, section 161(1) (Can.)
(arbitration is conducted by a single arbitrator unless the parties
agree to have a panel of three arbitrators). FORR decisions, by
contrast, would be public precedential decisions that must be supported
by a majority of the Board, which can have as many as five decision-
makers. Moreover, FORR decisions are subject to the requirements of the
APA, including the requirement that the agency ``articulate a
satisfactory explanation for its action including a rational connection
between the facts found and the choice made.'' See Motor Vehicle Mfrs.
Ass'n, 463 U.S. at 43 (internal quotation marks omitted).
In the NPRM, the Board proposed to omit mandatory mediation because
it would add time and possibly expense but stated that the Board would
be prepared to facilitate mediation if requested by the parties. NPRM,
EP 755 et al., slip op. at 14. CN argues that this explanation does not
account for an interest in mediation ``to promote positive and mutually
agreeable outcomes for the parties.'' (CN Comment 17-18.) NGFA, by
contrast, argues that mandatory mediation is unnecessary in FORR cases.
(NGFA Reply Comment 16.) NGFA asserts that, if a shipper reaches the
point of filing a complaint, it has already reached an impasse in
commercial negotiations with the railroad. (Id.) But the Board's
mediation program has led to post-complaint settlements, to the benefit
of the parties and the Board. See, e.g., Twin City Metals, Inc. v. KET,
LLC, NOR 42168 (STB served Sept. 23, 2020). After reviewing the
comments, the Board agrees with CN that mediation can produce
substantial benefits, and is persuaded, based on the current record,
that the possibility of achieving settlement through mediation would
outweigh a modest lengthening of FORR's procedural timeline. See, e.g.,
Assessment of Mediation & Arb. Proc., EP 699, slip op. at 2, 4 (STB
served May 13, 2013) (``The Board favors the resolution of disputes
through the use of mediation and arbitration procedures, in lieu of
formal Board proceedings, wherever possible . . . . If a dispute is
amicably resolved, it is likely that the parties would incur
considerably less time and expense than if they used the Board's formal
adjudicatory process.'') Therefore, the Board now proposes to include
mandatory mediation in FORR cases, ensuring that FORR's mediation
approach remains consistent with other rate reasonableness procedures.
To accommodate a 20-day mediation period, the Board will extend the
pre-complaint notification period by 20 days beyond the time period
proposed in the NPRM, to a total of 25 days. This timing is analogous
to SAC, where mediation takes place between the pre-complaint
notification and the filing of the complaint. See 49 CFR 1109.4. Also
analogous to SAC, the mediation period in FORR cases would begin on the
date of appointment of the mediator(s).\60\ See section 1109.4(f). Both
of these features--beginning mediation before the filing of the
complaint, and having the mediation period run from the date of
appointment of the mediator(s)--are intended to preserve as much as
possible the expedited nature of the FORR procedures themselves.
---------------------------------------------------------------------------
\60\ The Board would appoint a mediator or mediators as soon as
possible after the filing of the notice of intent to initiate a
case. Also, as in the Board's other rate case processes, parties
would be required to meet or otherwise discuss discovery and
procedural matters. In FORR cases, this discussion would be required
to take place within three days after the complaint is filed.
---------------------------------------------------------------------------
The following procedural schedule is the result of the changes
described:
Day -25............................. Complainant files and serves
notice of intent to initiate
case; mediation begins on date of
appointment of mediator(s).
Day 0............................... Complainant files complaint;
discovery begins.
Day 35.............................. Discovery ends.
Day 49.............................. Simultaneous filing of rate
reasonableness analyses, final
offers, and complainant's market
dominance presentation.
Day 59.............................. Simultaneous filing of replies;
defendant's market dominance
reply.
Day 66.............................. Complainant's letter informing the
Board whether it elects an
evidentiary hearing on market
dominance.
Day 73.............................. Optional telephonic evidentiary
hearing before administrative law
judge (market dominance).
Day 149............................. Board decision.
The filing of a motion to compel by either party would toll this
schedule as discussed above.
As stated in the NPRM, this timeline balances the need for due
process--for example, allowing parties to reply to each other's
submissions--and the Board's underlying goal of constraining the cost
and complexity of rate litigation by limiting the overall duration of
the proceeding. NPRM, EP 755, slip op. at 14.
To preserve the effects of the procedural limitations described
above, requests for extensions of time would be strongly disfavored,
even if both parties consent to the request. Therefore, parties are
encouraged not to spend the scarce time available under this procedure
on preparing extension requests. Joint requests to allow time to
negotiate a settlement, including joint requests for additional
mediation, are an exception and would be considered by the Board. A
party would be permitted to accept the other party's final offer at any
time.
Additional procedural schedule issues regarding market dominance
are addressed below.
Part VI--Market Dominance
A. Procedural Issues
The Board indicated in the NPRM that both complainant and defendant
would be required to submit market dominance analyses as part of their
simultaneous opening submissions. See NPRM, EP 755, slip op. at 12
(``On reply parties would not be able to modify their market dominance
presentations. . . .''), 14 (``Simultaneous filing of market dominance
presentations'') (emphasis added). The Board is concerned, however,
that doing so would require the defendant to anticipate in this opening
submission what the complainant might present regarding market
dominance, without even knowing (as discussed below) whether the
complainant has selected streamlined or non-streamlined market
dominance. Accordingly, the Board proposes to revise the procedure so
that only the complainant--as the party with the burden--is required to
submit market dominance evidence on opening. Only the defendant would
be required to address market dominance on reply. This approach is
aligned with the pleadings in Three-Benchmark. See 49 CFR
1110.10(a)(2)(i)(F), (H).
The procedural schedule proposed above reflects two differences
from the market dominance timeline established in Market Dominance
Streamlined Approach, Docket No. EP 756. See 49
[[Page 67639]]
CFR 1111.12. The complainant's letter informing the Board whether it
elects an evidentiary hearing would be due seven days after the filing
of replies, rather than 10 days, in recognition of FORR's expedited
schedule. Cf. section 1111.12(d)(2). And the hearing itself would be
held 14 days after replies, unless the parties agree on an earlier
date, rather than the date when the complainant's rebuttal evidence
would be due, because FORR does not include written rebuttal evidence.
Cf. id.
B. Option To Use Non-Streamlined Market Dominance
In the NPRM, the Board proposed that FORR could only be used if the
complainant also elected to use the streamlined market dominance
approach, which at that time was proposed in Market Dominance
Streamlined Approach, Docket No. EP 756. NPRM, EP 755 et al., slip op.
at 9. The streamlined market dominance approach has since been adopted.
The Board stated that the streamlined market dominance approach ``would
complement and enhance the streamlined rate reasonableness procedure
proposed here'' and that ``the expedited timelines proposed here may
make it too difficult for parties to litigate a non-streamlined market
dominance presentation.'' NPRM, EP 755 et al., slip op. at 9. However,
the Board also recognized that ``there may be merit to giving
complainants the option of choosing between streamlined and non-
streamlined market dominance in FORR cases,'' and expressly sought
comment on whether complainants should have this choice. Id. at 9-10.
Some shipper interests advocate giving complainants such a choice,
while others support the restriction of FORR to streamlined market
dominance.\61\ (See AFPM Comment 6 (supporting restriction); NGFA
Comment 9 (same); Olin Comment 18 (FORR should not be restricted to
streamlined market dominance; if non-streamlined market dominance
proves to be an issue, the Board can address it later, e.g., by
imposing page limits); Coalition Ass'ns Comment 13-15 (opposing
restriction and proposing bifurcated pleadings when complainant chooses
non-streamlined market dominance); NGFA Reply Comment 4 (NGFA does not
object to the Coalition Associations' proposal); see also TRB
Professors Comment 4 (``We see no rationale for this restriction. If
complainants can make a showing of dominance in other ways without
violating the FORR time limits, they should be permitted to do so.'').)
---------------------------------------------------------------------------
\61\ Railroad interests did not address this issue.
---------------------------------------------------------------------------
The Board is persuaded by Olin, the Coalition Associations, and the
TRB Professors that complainants should have the option of choosing
between streamlined and non-streamlined market dominance in FORR cases.
Accordingly, the Board now proposes not to limit FORR complainants to
streamlined market dominance. Limiting FORR in this way could
effectively deny access to FORR for many potential complainants--those
who are unable to satisfy one or more of the streamlined factors--which
is contrary to FORR's goal of improving access to rate reasonableness
determinations. Instead, complainants in this situation would be
permitted to try to carry their market dominance burden using a non-
streamlined presentation if they believe they can do so in the time
available. See Mkt. Dominance Streamlined Approach, EP 756, slip op. at
1 (``It is established Board precedent that the burden is on the
complainant to demonstrate market dominance.''). The fact that
complainants would have less time to do so in a FORR case does not
diminish this burden; complainants choosing non-streamlined market
dominance would still have to demonstrate ``an absence of effective
competition from other rail carriers or modes of transportation for the
transportation to which a rate applies,'' 49 U.S.C. 10707(a).
Providing this choice is intended to ensure that FORR can proceed
where market dominance can be established with relatively
straightforward evidence (commensurate with the small disputes that
FORR addresses with respect to rate reasonableness), even if the
complainant is unable to use the streamlined approach. Whether market
dominance is actually straightforward enough to allow a complainant to
meet its burden in a very short time must be evaluated by the
complainant; by choosing non-streamlined market dominance in a FORR
case, the complainant would assume the risks presented by the short
FORR timeline. Requests for extension of time would be strongly
disfavored, as discussed above, even if the complainant chooses non-
streamlined market dominance. Therefore, complainants should not choose
non-streamlined market dominance with the expectation that the Board
will grant extensions sufficient to allow them to assemble a market
dominance presentation as voluminous as the ones in other rate
reasonableness procedures.
The Board recognizes that defendants are likely to face a more
difficult analysis in a case using non-streamlined market dominance,
and unlike complainants, they may not have time to prepare in advance
of litigation. Therefore, in cases where the complainant chooses non-
streamlined market dominance, the deadline for replies would be
extended by 20 days. The resulting 30-day interval between opening and
reply aligns with Three-Benchmark cases, where complainants may also
elect to use non-streamlined market dominance. See 49 CFR
1111.10(a)(2)(i)(H).\62\
---------------------------------------------------------------------------
\62\ The Board rejects the Coalition Associations' proposal to
add a separate round of pleadings for market dominance. (See
Coalition Ass'ns Comment 14.) The Coalition Associations make this
proposal in response to the Board's concern that that ``the
expedited timelines proposed here may make it too difficult for
parties to litigate a non-streamlined market dominance
presentation.'' NPRM, EP 755, slip op. at 9. But for reasons
explained above, the Board has proposed a different approach to
address this concern. Moreover, the Coalition Associations'
proposal, which would add three more rounds of pleadings (market
dominance opening, market dominance reply, and market dominance
rebuttal), (see Coalition Ass'ns Comment 14), is disproportionate to
FORR, which is intended to be simplified and expedited.
---------------------------------------------------------------------------
Complainants must state their choice of streamlined or non-
streamlined market dominance in their opening market dominance
submission. See Mkt. Dominance Streamlined Approach, EP 756, slip op.
at 37 (``the Board agrees with WCTL that shippers may not be able to
decide whether to pursue a streamlined market dominance approach until
discovery has been completed.'').\63\
---------------------------------------------------------------------------
\63\ Because complainants would not state their choice between
streamlined and non-streamlined market dominance until their opening
submissions, see Mkt. Dominance Streamlined Approach, EP 756, slip
op. at 37, it would be impractical to extend the deadline for
opening submissions in cases using non-streamlined market dominance
as the Board has done for replies. Such an increase would be
inappropriate in any event, because expedited timelines are part of
the core concept of FORR, and because it is the complainant's choice
to use non-streamlined market dominance.
---------------------------------------------------------------------------
The following procedural schedule would apply in cases where the
complainant elects non-streamlined market dominance:
Day -25............................. Complainant files and serves
notice of intent to initiate
case; mediation begins on date of
appointment of mediator(s).
Day 0............................... Complainant files complaint;
discovery begins.
Day 35.............................. Discovery ends.
Day 49.............................. Simultaneous filing of rate
reasonableness analyses, final
offers, and complainant's market
dominance presentation.
Day 79.............................. Simultaneous filing of replies;
defendant's market dominance
reply.
[[Page 67640]]
Day 169............................. Board decision.
The filing of a motion to compel by either party would toll this
schedule as discussed above.
Part VII--Relief Cap
In the NPRM, the Board proposed to establish a relief cap of $4
million, indexed annually using the Producer Price Index, which would
apply to an award of reparations,\64\ a rate prescription or any
combination of the two. NPRM, EP 755 et al., slip op. at 16. This is
consistent with the potential relief afforded under the Three-Benchmark
methodology.\65\ Id. The Board further proposed that any rate
prescription be limited to no more than two years unless the parties
agree to a different limit on relief. NPRM, EP 755, slip op. at 14.
Such a limit would be one-fifth of the 10-year limit applied in SAC
cases and less than half of the five-year limit applied in Simplified-
SAC and Three-Benchmark cases, see Expanding Access to Rate Relief, EP
665 (Sub-No. 2), slip op. at 6, thereby accounting for the expedited
deadlines of the FORR procedure. The Board also requested comment on
the advisability of a two-tiered relief procedure in which the top tier
has a longer procedural schedule and no limit on the size of the
relief. NPRM, EP 755 et al., slip op. at 16.
---------------------------------------------------------------------------
\64\ The standard reparations period reaches back two years
prior to the date of the complaint. 49 U.S.C. 11705(c) (requiring
that complaint to recover damages under 49 U.S.C. 11704(b) be filed
with the Board within two years after the claim accrues).
\65\ As proposed, the relief cap would incorporate indexing that
has previously been applied to the Three-Benchmark cap, so that the
cap for FORR is the same as the cap for Three-Benchmark.
---------------------------------------------------------------------------
Railroad interests object to the proposed relief cap, arguing that
it is too high. AAR argues that the $4 million relief cap is arbitrary
because, in this context, it is not based on the cost of litigating the
next-more-complicated method, on which the Board relied in setting
relief caps for other rate reasonableness procedures. (AAR Comment 23;
see also CN Comment 14-16; UP Comment 23-24.) The NPRM, however,
explained why it would not make sense to rely on the next-more-
complicated method here: ``because FORR does not prescribe a particular
methodology--nor a methodology necessarily less precise than any pre-
existing procedure--the Board's prior rationale for capping relief
based on the cost of the next more complicated procedure does not
necessarily or neatly apply here.'' NPRM, EP 755 et al., slip op. at
15. And the NPRM also explained the Board's rationale for applying a $4
million relief cap: ``[a]pplying a relief cap based on the estimated
cost to bring a Simplified-SAC case would further the Board's intention
that Three-Benchmark and FORR be used in the smallest cases, and
applying the same $4 million relief cap, as indexed, would provide
consistency in terms of defining that category of case.'' Id. at 16.
According to UP, putting FORR and Three-Benchmark into the same
``small case'' category does not make sense because the Board
``justifies the adoption of the FORR procedure on the basis that it
would be more affordable to litigate than the Three Benchmark test.''
(UP Comment 24.) Instead, UP argues, the FORR relief cap ``should be
designed to funnel into the Three Benchmark test,'' which UP suggests
is the next-more-complicated procedure. (See UP Comment 24; see also CN
Comment 15-16.) \66\ UP assumes without support that the cost of a
procedure is a perfect proxy for its accuracy, so that if FORR is less
costly to litigate than Three-Benchmark, it must be less accurate. (See
UP Comment 24 (``If the FORR procedure were just as expensive and
accurate as the Three Benchmark test, there would be no need for the
Board to adopt the proposed rule. . . . [T]he proposal's significant
discovery limitations and abbreviated timeline . . . would inevitably
sacrifice precision.'').) \67\ The Board disagrees. By applying fast
timelines and a simplified procedure, the Board intends that FORR would
be less costly to litigate, but that does not inevitably mean the
analysis is less accurate. Parties' ability to choose their methodology
would allow the use of analyses that are equally accurate or more
accurate, if the party presenting it can prepare the analysis quickly
enough to present it in the time available.\68\ This is to say that
UP's argument unnecessarily forecloses the possibility that FORR will
strike a better ``balance'' than Three-Benchmark between providing a
``reasonably accurate methodology'' while avoiding the expense
associated with SAC. See BNSF Ry., 453 F.3d at 482.
---------------------------------------------------------------------------
\66\ CN states that the estimated cost of bringing a Three-
Benchmark case is $250,000. (CN Comment 16 (citing Simplified
Standards, EP 646, Sub-No. 1, slip op. at 32).) But the most
recently reported estimate of the cost to litigate a Three-Benchmark
case is actually $500,000, based on a case completed in 2010. See US
Magnesium, L.L.C. Comment, V.S. Howard Kaplan 4, Oct. 23, 2012, Rate
Regul. Reforms, EP 715.
\67\ As part of an argument that a final offer procedure will
increase the cost and complexity of rate cases, UP claims that ``the
90 days the Board now proposes to grant itself to decide each case,
see NPRM, EP 755 et al., slip op. at 14--the same amount of time as
for a Three Benchmark case, see Simplified Standards, [EP 646 (Sub-
No. 1),] slip op. at 23--appears to be a recognition that deciding
cases under the FORR proposal would require the evaluation of
complex, competing evidentiary submissions.'' (UP Comment 19-20.)
UP's expectation that FORR cases would present ``complex
analyses''--analogizing to Three-Benchmark, (id.)--undermines its
argument in the context of the relief cap that FORR's procedural
streamlining renders it less accurate than Three-Benchmark, (id. at
24).
\68\ UP claims that ``the Board also relies on the fact that
Canada caps the relief available under its final offer framework,''
and yet the Board does not explain why FORR would have a higher
relief cap than Canadian final offer arbitration. (UP Comment 24.)
UP mischaracterizes the NPRM. The NPRM clearly referenced the
Canadian relief cap in seeking comment on the two-tier idea; it did
not ``rel[y] on the fact that Canada caps relief'' as support for
the $4 million relief cap. NPRM, EP 755 et al., slip op. at 16. In
any event, as discussed above, Canadian final offer arbitration is
an informal, non-precedential process.
---------------------------------------------------------------------------
CN argues that the $4 million relief cap is actually higher than
the $4 million cap on Three-Benchmark because a complainant can use
FORR every two years rather than every five years. (CN Comment 15-16.)
CN is correct that FORR, as proposed, could be used more frequently
than Three-Benchmark, but that difference is offset by the fact that a
FORR complainant could only receive a rate prescription for two years
rather than five years under Three-Benchmark. A FORR complainant may
not be able to receive the full $4 million because its rate
prescription expires at the two-year mark; a Three-Benchmark
complainant, by contrast, would have three more years to receive the
benefits of a prescription.
AAR also contends that the $4 million relief cap would not limit
FORR to small cases because there is no limit on disaggregation of
cases. (See AAR Comment 23-24 (``a large chemical company could file
100 simultaneous FORR complaints for the same rate for the
transportation of the same commodity for 100 different origin and
destination pairs and potentially win $4 million for each
complaint.'').) If disaggregation actually proved to be a problem, the
Board could address it as it has committed to do in Three-Benchmark
cases.\69\ But as discussed below, the Board has not held that the mere
filing of simultaneous Three-Benchmark cases by the same complainant
automatically constitutes ``abuse'' or ``improper'' disaggregation.
[[Page 67641]]
See E.I. DuPont de Nemours & Co. v. CSX Transp., Inc., NOR 42099 et
al., slip op. at 3-4 (STB served Jan. 22, 2008).
---------------------------------------------------------------------------
\69\ See Simplified Standards, EP 646 (Sub-No. 1), slip op. at
32-33 (``The limits on relief that we establish here do not include
a mechanical mechanism to police against attempts to divide a large
dispute into multiple smaller disputes. It is not clear that such a
mechanism is necessary at this time. The Board has ample discretion
to protect the integrity of its processes from abuse, and we should
be able to readily detect and remedy improper attempts by a shipper
to disaggregate a large claim into a number of smaller claims, as
the shipper must bring these numerous smaller cases to the
Board.'').
---------------------------------------------------------------------------
Shipper interests, by contrast, object to the proposed relief cap
because they believe it is too low or that there should be no cap at
all. (See Coalition Ass'ns Comment 15-17; AFPM Comment 9; Farmers Union
Reply Comment 5; Olin Comment 15-16; USDA Comment 5-7; USW Comment in
Response to Mem. 5; WCTL Comment 8-9; see also TRB Professors Comment 5
(arguing against a cap).)
The Coalition Associations argue that reparations should not apply
towards the $4 million relief cap, suggesting that the Board could
adopt a separate cap for reparations, or, if the cap applies to both
reparations and rate prescriptions, it should be $8 million. (See
Coalition Ass'ns Comment 15.) The combined cap that the Coalition
Associations find confusing, (id.), is identical to the one adopted for
Three-Benchmark in 2007:
The limit on relief will apply to the difference between the
challenged rate and the maximum lawful rate, whether in the form of
reparations, a rate prescription, or a combination of the two. Any
rate prescription will automatically terminate once the complainant
has exhausted the relief available. Thus, the actual length of the
prescription may be less than 5 years if the shipper ships a large
enough volume of traffic so that the relief is used up in a shorter
time.
Simplified Standards, EP 646 (Sub-No. 1), slip op. at 28. The Coalition
Associations ``agree that the FORR relief caps should be no less than
the caps previously adopted for Three-Benchmark cases,'' although they
argue that the cap in Three-Benchmark cases should be higher.
(Coalition Ass'ns Comment 16 (citing the effects of rate bundling).)
However, both changes to the relief cap for Three-Benchmark and
determinations regarding rate bundling are outside the scope of this
rulemaking. See NPRM, EP 755 et al., slip op. at 4 n.7.
The Coalition Associations assume that FORR cases would be lane-
specific, with the relief cap applying to a single origin-destination
pair. (Coalition Ass'ns Comment 16.) They argue that it would be
unreasonable to require complainants to aggregate multiple origin-
destination pairs into a single case under a single relief cap. (Id. at
16-17.) The Board intends to address this issue in a manner similar to
its treatment in Three-Benchmark cases. There, the Board established
that a complainant is not categorically precluded from filing multiple
complaints at the same time, with the relief cap applying separately to
each complaint. See E.I. DuPont de Nemours & Co., NOR 42099 et al.,
slip op. at 3 (``If DuPont wished to seek relief of up to $1 million on
each individual rate for each origin/destination pair, it needed to
file separate complaints for each.''). However, the Board retained its
discretion to prevent the use of Three-Benchmark as ``a vehicle for
adjudicating multiple parts of a larger dispute.'' Id. at 3-4;
Simplified Standards, EP 646 (Sub-No. 1), slip op. at 32-33. The Board
would anticipate doing the same with respect to FORR upon adoption.
The Coalition Associations further propose that, if a party
presents a sufficiently rigorous rate methodology, it should be able to
ask the Board to waive any FORR relief cap on a case-by-case basis.
(Coalition Ass'ns Comment 17; see also USDA Comment 6 (relief should be
uncapped if the complainant can ``demonstrate very convincingly the
rate is exceptionally unreasonable.'').) But the Board's purpose in
proposing FORR is to fill a gap in the availability of rate
reasonableness determinations for small disputes. As discussed below in
reference to the two-tier idea, experiences litigating FORR cases may
provide further insight into whether FORR could also work in the
resolution of larger disputes. Therefore, although the Board will not
propose the Coalition Associations' approach here, this concept or
similar ones may be considered at a later time.
Several commenters express concern that defendants could ``game''
the relief cap by setting high initial rates such that any relief cap
will be quickly exhausted, which would in turn free the railroad to
charge the inflated rate for any remainder of the prescription period.
(See Olin Comment 17; WCTL Comment 8-9; AFPM Comment 9.) The Board
would anticipate addressing this conduct in individual cases should it
happen, and the Board would retain the ability to revise its processes
to counteract any abuses that may arise. WCTL cites Major Issues, in
which the Board adopted a relief calculation--the Maximum Markup
Methodology (MMM)--to foreclose the potential for abuse. (WCTL Comment
9 (citing Major Issues in Rail Rate Cases, EP 657 (Sub-No. 1), slip op.
at 9-15 (STB served Oct. 30, 2006)).) But WCTL does not propose the
adoption of MMM here, and its proposed solution--removing the relief
cap--would disconnect FORR from its purpose as a small dispute
resolution mechanism before there is case experience to support such a
change. As WCTL notes, moreover, the Board adopted a case-by-case
approach to this issue for its current small rate case procedures in
Simplified Standards, which was decided almost a year after Major
Issues. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 33.
Olin proposes a different solution: Using the expired contract or
previously used tariff rates as the starting point for applying the cap
on reparations and rate prescription. (Olin Comment 17.) Olin offers no
explanation as to how this solution would work in practice. In any
event, this may be an appropriate remedy in cases where abuses are
shown to have occurred, but, consistent with Simplified Standards, the
Board will not adopt Olin's proposal for all cases in advance.
USDA states that the Board's practice of using relief caps to
``channel'' disputes to the appropriate procedure, based on the cost of
the next-more-complicated procedure, fails to account for potential
complainants' uncertainty as to their likelihood of success in a rate
case. (USDA Comment 5-6.) According to USDA, ``it is not clear FORR
logically fits into the same channeling structure as'' the Board's
existing rate reasonableness procedures. (USDA Comment 6.) USDA's
second point directly supports the NPRM, which concluded that,
``because FORR does not prescribe a particular methodology--nor a
methodology necessarily less precise than any pre-existing procedure--
the Board's prior rationale for capping relief based on the cost of the
next more complicated procedure does not necessarily or neatly apply
here.'' NPRM, EP 755 et al., slip op. at 15. For that reason, the Board
has not based its proposed approach on its prior ``channeling''
practice here, instead relying on the rationale discussed above. Id. at
16 (rather than setting a cap based on the next-more-complicated
procedure, the NPRM proposed a cap based on a general analogy to Three-
Benchmark, given that Three-Benchmark and FORR are both intended for
use in small rate disputes).
Finally, some commenters expressed support for the idea of a two-
tiered relief procedure in which the top tier has a longer procedural
schedule and no limit on the size of the relief. (See, e.g., AFPM
Comment 10-11; Olin Comment 16; SMA Comment 11-12; TRB Professors
Comment 5.) However, it would be premature to propose expanding FORR
beyond its initial purpose, which is permitting access to rate
reasonableness determinations for small disputes. In the future, the
Board could assess whether FORR may be appropriate for larger disputes.
Should that be the case, the Board could consider adopting a two-tiered
process like the one referenced in
[[Page 67642]]
the NPRM--or other ways of expanding FORR's application.\70\
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\70\ This approach bears some resemblance to USDA's suggestion
of a FORR ``pilot phase.'' (See USDA Comment 5.)
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Accordingly, the Board continues to propose the relief cap proposed
in the NPRM.
Part VIII--Miscellaneous Issues
A. InterVISTAS Report
AAR states that InterVISTAS Consulting Inc. (InterVISTAS), a
consultant that prepared a report for the Board in 2016,\71\ rejected
Canadian final offer arbitration as providing no guidance for rate case
alternatives, due to the confidentiality of that process. (AAR Comment
19-20.) AAR implies that InterVISTAS's conclusion supports AAR's
position regarding FORR. (See id.) While the NPRM mentioned the
Canadian system as an example of final offer procedures, it relied
primarily on recommendations from USDA and the TRB Report. NPRM, EP 755
et al., slip op. at 2, 4, 6-7. Both USDA and the TRB Professors
discussed the benefits of using a short procedural timeline, combined
with a final offer process, in general terms, and did not limit
themselves to describing the Canadian system. See USDA Reply Comment 5-
7, Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2);
TRB Rep. 138, 211-12; Tr. 24-25, Pub. Roundtable, Oct. 25, 2016.\72\
The Board found both of these analyses persuasive, NPRM, EP 755 et al.,
slip op. at 4, 6-7, and InterVISTAS's reluctance to draw conclusions
specifically from the Canadian process, because of its confidentiality,
does not provide a reason to disregard them.
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\71\ An Examination of the STB's Approach to Freight Rail Rate
Regul. & Options for Simplification (InterVISTAS Report),
InterVISTAS Consulting Inc., Sept. 14, 2016, available at <a href="https://www.stb.gov/wp-content/uploads/STB-Rate-Regulation-Final-Report.pdf">https://www.stb.gov/wp-content/uploads/STB-Rate-Regulation-Final-Report.pdf</a>.
\72\ A transcript of this public roundtable is available on the
Board's website at <a href="https://www.stb.gov/wp-content/uploads/TRANSC-Intervistas-Roundtable-Oct.-25-2016.pdf">https://www.stb.gov/wp-content/uploads/TRANSC-Intervistas-Roundtable-Oct.-25-2016.pdf</a>.
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BNSF argues that InterVISTAS warned against simplification of
Three-Benchmark or Simplified-SAC because it ``risks moving the
approaches further away from the bedrock CMP principles, undermine[s]
the reliability of the tests, and would not necessarily incentivize
shippers to use those tests.'' (InterVISTAS Rep. xvii; BNSF Comment 3
n.1; see also NSR Comment 1-4.) In the body of its comment, however,
BNSF itself supports ``further simplifications of existing STB
mechanisms'' notwithstanding this conclusion from InterVISTAS. (BNSF
Comment 3, 9 (``Among the concepts that BNSF has supported is a
streamlined comparison group approach built on existing Three Benchmark
methodology but using prescribed factors to minimize complexity of
presentation and disputes.'') In any event, the Board is not bound to
follow the recommendations of particular studies.
B. Application to Class II and III Railroads
In the NPRM, the Board proposed that FORR would not be available to
challenge purely local movements of a Class II or Class III rail
carrier.\73\ NPRM, EP 755 et al., slip op. at 16-17. However, FORR
would be available in challenges where the movement involves the
participation of a Class I railroad as well as a Class II or Class III
railroad. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at
101-02 (stating that excluding combined movements would shut out a
significant portion of domestic rail traffic and could create perverse
routing incentives).
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\73\ Currently, Class III carriers have annual operating
revenues of $40.4 million or less in 2019 dollars. Class II rail
carriers have annual operating revenues of less than $900 million
but in excess of $40.4 million in 2019 dollars. The Board calculates
the revenue deflator factor annually and publishes the railroad
revenue thresholds in decisions and on its website. 49 CFR 1201.1-1;
Indexing the Annual Operating Revenues of R.Rs., EP 748 (STB served
July 12, 2021) (the annual deflator factor for 2020 is 1.0000,
meaning that the 2020 thresholds are the same as the thresholds
stated in 2019 dollars). The Board recently modified the thresholds
for classifying rail carriers by raising the Class I revenue
threshold. See Mont. Rail Link, Inc.--Pet. for Rulemaking--
Classification of Carriers, EP 763 (STB served Apr. 5, 2021).
---------------------------------------------------------------------------
Some shipper interests argue that, contrary to the Board's
proposal, FORR should be available to challenge purely local movements
of a Class II or Class III rail carrier. (See Coalition Ass'ns Comment
18; NGFA Comment 10; Farmers Union Comment 10.) AFPM states that it
does not oppose expanding FORR to smaller carriers, but if that would
delay implementation, the rule should be implemented in phases. (AFPM
Comment 10.)
As the Board gains experience with the FORR procedure, the
arguments made by these commenters could provide a reason to expand
FORR to purely local movements of a Class II or Class III rail carrier.
Based on the record to date, however, the Board is reluctant to allow
the potential for smaller railroads to be the defendants in any initial
cases under FORR. See, e.g., Am. Short Line & Reg'l R.R. Ass'n Comment
4-5, Feb. 26, 2007, Simplified Standards for Rail Rate Cases, EP 646
(Sub-No. 1) (describing the impacts new rate reasonableness procedures
would have on small railroads in particular). Accordingly, the Board
proposes to retain the exclusion from FORR of purely local movements of
a Class II or Class III rail carrier at this time.
C. Regulatory Impact Analysis
In his comment, the late Dr. Ellig proposed that the Board conduct
a ``regulatory impact analysis'' (RIA), which is a form of a cost-
benefit analysis, in these proceedings and in Market Dominance
Streamlined Approach, Docket No. EP 756. (Ellig Comment 3-4; see also
AAR Comment 25.) \74\ Other parties did not comment on this proposal.
While the Board need not conduct a formal RIA,\75\ the Board is, as
described throughout this decision, carefully weighing the benefits and
burdens associated with particular aspects of the proposed FORR
approach. See, e.g., supra at 8-11, 21-25, 34-38, 40, 42-43, 47.
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\74\ AAR similarly argues that the Board failed to conduct a
cost/benefit analysis of this rule, citing Executive Order 12866's
requirement that executive agencies make a ``reasoned determination
that the benefits of the intended regulation justify its costs'' and
the Policies and Procedures for Rulemakings of the U.S. Department
of Transportation (DOT). (AAR Comment 25.) The cited provision of
Executive Order 12866 does not apply to ``independent regulatory
agencies,'' including the Board. See 49 U.S.C. 1301(a); see also Vt.
Yankee, 435 U.S. at 524-25, 543-48 (``Agencies are free to grant
additional procedural rights in the exercise of their discretion,
but reviewing courts are generally not free to impose them if the
agencies have not chosen to grant them.''). In any event, and as
noted above, the Board has carefully considered the need for
regulatory reform, FORR's anticipated benefits and burdens, and
alternative approaches, including the comparison group approach
proposed in Docket No. EP 665 (Sub-No. 2).
\75\ See Vill. of Barrington, Ill. v. STB, 636 F.3d 650, 670-71
(D.C. Cir. 2011) (stating that ``neither the Board's authorizing
legislation nor the [APA] requires the Board to conduct formal cost-
benefit analysis'').
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D. Issues Outside the Scope of These Proceedings
Commenters raise several issues that are outside the scope of these
proceedings. (See Coalition Ass'ns Comment 25-27 (asking the Board to
move forward with reciprocal switching and bottleneck changes); AFPM
Comment 10 (following the TRB Professors' recommendation, stating that
the Board could order reciprocal switching as a rate case remedy); Olin
Comment 13-15 (asking the Board to prohibit rate bundling); USDA
Comment 4 (requesting a definition of revenue adequacy for purposes of
rate reasonableness determinations).) Also, Farmers Union states that,
``[i]n its August 31, 2016 decision in this proceeding [Expanding
Access to Rate Relief, EP 665 (Sub-No. 2)], the Board
[[Page 67643]]
said (at n.3) that it would address issues like standing and
agricultural rate transparency in a subsequent decision.'' (Farmers
Union Comment 9-10.) The Board notes that it has already issued a
decision addressing standing and publication of rates for agricultural
products. See Rail Transp. of Grain, Rate Regul. Rev., EP 665 (Sub-No.
1) et al., slip op. at 7-8 (STB served Dec. 29, 2016), recons. denied
(STB served June 30, 2017).
Docket No. EP 665 (Sub-No. 2)
Unlike the universally negative reactions to the Board's comparison
group proposal in the initial comments in Docket No. EP 665 (Sub-No.
2),\76\ commenters more recently expressed some interest in that
approach. (See, e.g., NGFA Comment 11; AAR Reply Comment 2, Jan. 10,
2020, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).) However,
the EP 665 (Sub-No. 2) comparison group proposal, FORR, and the
arbitration program proposed in Docket No. EP 765 all seek to address
the same issue: Access to rate reasonableness determinations in small
disputes. As long as the Board is moving forward with the arbitration
program and/or FORR, it would not be an efficient use of administrative
resources to pursue the comparison group proposal simultaneously--
particularly in light of the possibility that some or all of its
objectives might be better accomplished through modifications to the
Three-Benchmark test rather than creating an additional comparison
group approach. See ACC Comment 7-9, Nov. 14, 2016, Expanding Access to
Rate Relief, EP 665 (Sub-No. 2). The Board therefore proposes to close
Docket No. EP 665 (Sub-No. 2) but may revisit some of the ideas
presented there depending on future developments and whether additional
steps in the small rate dispute context appear necessary.
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\76\ See, e.g., AAR Comment 2, Nov. 14, 2016, Expanding Access
to Rate Relief, EP 665 (Sub-No. 2) (``the Board should not proceed
to propose new rules and should discontinue this proceeding.'');
NGFA Comment 7, Nov. 14, 2016, Expanding Access to Rate Relief, EP
665 (Sub-No. 2); ACC Comment 7-9, Nov. 14, 2016, Expanding Access to
Rate Relief, EP 665 (Sub-No. 2).
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Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612,
generally requires a description and analysis of new rules that would
have a significant economic impact on a substantial number of small
entities. In drafting a rule, an agency is required to: (1) Assess the
effect that its regulation will have on small entities; (2) analyze
effective alternatives that may minimize a regulation's impact; and (3)
make the analysis available for public comment. sections 601-604. In
its notice of proposed rulemaking, the agency must either include an
initial regulatory flexibility analysis, Sec. 603(a), or certify that
the proposed rule would not have a ``significant impact on a
substantial number of small entities,'' Sec. 605(b). The impact must
be a direct impact on small entities ``whose conduct is circumscribed
or mandated'' by the proposed rule. White Eagle Coop. v. Conner, 553
F.3d 467, 480 (7th Cir. 2009).
In the NPRM, the Board certified under 5 U.S.C. 605(b) that the
proposed rule would not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA.\77\
The Board explained that its proposed changes to its regulations would
not mandate or circumscribe the conduct of small entities. The rule
requires no additional recordkeeping by small railroads or any
reporting of additional information. Nor do these rules circumscribe or
mandate any conduct by small railroads that is not already required by
statute: The establishment of reasonable transportation rates when a
carrier is found to be market dominant. As the Board noted, small
railroads have always been subject to rate reasonableness complaints
and their associated litigation costs, the latter of which the Board
expects will be reduced through the use of this procedure.
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\77\ For the purpose of RFA analysis for rail carriers subject
to Board jurisdiction, the Board defines a ``small business'' as
only including those rail carriers classified as Class III rail
carriers under 49 CFR part 1201, General Instructions section 1-1.
See Small Entity Size Standards Under the Regul. Flexibility Act, EP
719 (STB served June 30, 2016) (with Board Member Begeman
dissenting).
---------------------------------------------------------------------------
Additionally, the Board concluded (as it has in past proceedings)
that the majority of railroads involved in these rate proceedings are
not small entities within the meaning of the Regulatory Flexibility
Act. NPRM, EP 755 et al., slip op. at 18 (citing Simplified Standards,
EP 646 (Sub-No. 1), slip op. at 33-34). Since the inception of the
Board in 1996, only three of the 51 cases filed challenging the
reasonableness of freight rail rates have involved a Class III rail
carrier as a defendant. Those three cases involved a total of 13 Class
III rail carriers. The Board estimated that there are approximately 656
Class III rail carriers. Therefore, the Board certified under 5 U.S.C.
605(b) that the proposed rule, if promulgated, would not have a
significant economic impact on a substantial number of small entities
within the meaning of the RFA.
This SNPRM revises the rules proposed in the NPRM; however, the
same basis for the Board's certification in the NPRM applies to the
SNPRM. Therefore, the Board certifies under 5 U.S.C. 605(b) that the
SNPRM will not have a significant economic impact on a substantial
number of small entities within the meaning of the RFA. A copy of this
decision will be served upon the Chief Counsel for Advocacy, Office of
Advocacy, U.S. Small Business Administration, Washington, DC 20416.
Paperwork Reduction Act
In this proceeding, the Board proposes to modify an existing
collection of information that was approved by the Office of Management
and Budget (OMB) under the collection of Complaints (OMB Control No.
2140-0029). In the NPRM, the Board sought comments pursuant to the
Paperwork Reduction Act (PRA), 44 U.S.C. 3501-3549, and OMB regulations
at 5 CFR 1320.8(d)(3) regarding: (1) Whether the collection of
information, as modified in the proposed rule in the Appendix, is
necessary for the proper performance of the functions of the Board,
including whether the collection has practical utility; (2) the
accuracy of the Board's burden estimates; (3) ways to enhance the
quality, utility, and clarity of the information collected; and (4)
ways to minimize the burden of the collection of information on the
respondents, including the use of automated collection techniques or
other forms of information technology, when appropriate. One comment
was received, as discussed below.
In the only comment relating to the PRA burden analysis, Dr. Ellig
questioned the factual basis for the Board's estimate that the adoption
of FORR would result in four additional complaints per year. (Ellig
Comment 12.) For most collection renewals, the Board uses the actual
number of filings with the Board over the previous three years and
averages them to get an estimated annual number of those filings to use
in its PRA burden analysis. For new rules, however, the Board may not
have historical data that allows for such averages, so it must estimate
based on its experience, often considering analogous regulatory changes
made in the past. Here, while the FORR procedure would be new, the
Board previously has adopted other rate reasonableness procedures.
Based on its substantial experience with the complexities of prior rate
reasonableness litigation, and how such complexities impacted the
number of
[[Page 67644]]
complaints filed each year, the Board estimated that it would receive
approximately four additional complaints each year due to the FORR
procedure. As no party submitted any specific information that would
lead to a more precise estimate, the Board continues to find that the
FORR procedure would likely lead to approximately four additional cases
per year.
Dr. Ellig also commented that the Board did not provide a source
for its estimated PRA burden hours or non-burden costs (i.e., printing,
copying, mailing and messenger costs) for the existing types of
complaints and the four additional complaints expected to be filed due
to the FORR procedure. (Id.) These burden hours and non-burden costs
were derived from the burden hours and non-burden costs the Board
estimated for existing complaints in its 2017 request to OMB for an
extension of its collection of complaints--and, with respect to FORR,
downward adjustments based on FORR's procedural streamlining. See STB,
Supporting Statement for Modification & OMB Approval Under the
Paperwork Reduction Act & 5 CFR pt. 1320, OMB Control No. 2140-0029
(Mar. 2017), <a href="https://www.reginfo.gov/public/do/DownloadDocument?objectID=72159101">https://www.reginfo.gov/public/do/DownloadDocument?objectID=72159101</a>. In its supporting statement for
that request, which OMB approved, the Board explained that its burden
estimates were ``based on informal feedback previously provided by a
small sampling (less than five) of respondents.'' (Id. at 2-3.) The
Board has been provided no other data upon which it could adjust its
estimate.
If FORR is adopted, this modification and extension request of an
existing, approved collection would be submitted to OMB for review as
required under the PRA, 44 U.S.C. 3507(d), and 5 CFR 1320.11.
List of Subjects
49 CFR Part 1002
Administrative practice and procedure, Common Carriers, Freedom of
information.
49 CFR Part 1111
Administrative practice and procedure, Investigations.
49 CFR Part 1114
Administrative practice and procedure.
49 CFR Part 1115
Administrative practice and procedure.
It is ordered:
1. The Board requests comments on revisions to its proposed rule as
set forth in this decision. Notice of this request for comment will be
published in the Federal Register.
2. The procedural schedule is established as follows: Comments on
this decision are due by January 14, 2022; replies are due by March 15,
2022.
3. The general prohibition on ex parte communications is waived
regarding matters related to this proceeding, between November 15,
2021, and February 23, 2022.
4. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
5. This decision is effective on its service date.
Decided: November 12, 2021.
By the Board, Board Members Begeman, Fuchs, Oberman, Primus, and
Schultz. Board Member Begeman dissented in part with a separate
expression. Board Members Primus and Schultz concurred with separate
expressions.
BOARD MEMBER BEGEMAN, Dissenting in part:
During my tenure, I became convinced that not all shippers have a
viable rate review process available to them at the Board, which was a
driving factor in why I established the Rate Reform Task Force in 2018
while serving as the Acting Chairman. I know many stakeholders share in
my frustration that, here we are, nearly four years since the Task
Force went to work, and the Board has still not adopted a rate review
process to enable shippers with smaller disputes to bring a rate case
here. To continue, indefinitely, with the status quo is not acceptable.
That is why I strongly dissent on today's decision to the extent it
further delays adoption of a final rule to reform the Board's rate
review regulations.
As interested parties may have gleaned through the Board's
quarterly reports on Pending Regulatory Proceedings, the Board has had
ample opportunity to adopt a final rule to provide a viable rate review
process for smaller rate disputes, after proposing and receiving public
comment on the FORR proposal in 2019 and 2020 and then developing a
final rule for action in October 2020. But it takes the support of a
Board majority for that much-needed final action. Until then, shippers,
and particularly smaller shippers, are the ones who may be literally
paying the price for the Board's inaction on a final rule. I am not
okay with that.
Today's decision recognizes that, prior to the Task Force's
creation, years of work had already been expended in trying to
determine how the Board could best improve the accessibility of rate
relief. Yet it was not until the Board proposed FORR that many
stakeholders coalesced around a new rate review option. And while I
support exploring the feasibility of a new voluntary arbitration
program specific to small rate disputes and the effort to provide
another alternative to litigation, that effort should not come at the
expense of shippers' ability to pursue formal rate relief while
consideration of an arbitration proposal plays out.
But rather than amending the Board's regulations today and finally
ensuring that all shippers have access to Board rate review, the Board
is instead issuing a supplemental notice of proposed rulemaking, even
though a well-reasoned final rule was prepared by staff and ready for
final Board action over a year ago. The only substantive change in
today's decision from last year's draft final rule is permitting
additional ex parte communications. It is my hope those meetings will
finally convince a Board majority to vote in support of a final rule.
My time at the Board has almost run out, and I know some shippers
may be thinking that theirs has too. I thank the Task Force, the great
team of staff who prepared the FORR notice of proposed rulemaking and
draft final rule, and the many stakeholders for their contributions to
helping bring needed reform to the agency's rate review processes.
Please don't give up.
BOARD MEMBER PRIMUS, concurring:
As I wrote in the EP 765 decision, the Board should implement FORR
along with small rate case arbitration and should do so expeditiously.
While I do not believe FORR to be the magic bullet that will solve all
the network's rate challenges, it does represent a new and unique
attempt to address an old and festering issue. For those who will
nitpick or outright oppose this effort, I respond by saying no
methodology is perfect and the Board should be given the flexibility
and latitude to bring forth thoughtful solutions that may ultimately
enhance the viability of our national rail network.
I would also like to acknowledge and applaud the work of our fellow
Board member and past Chairman, Ann Begeman. In 2018, under her
leadership, the Board established the Rate Reform Task Force, which
ultimately laid the groundwork that resulted in the creation of FORR
the following year. Ann's efforts then, and the efforts of the current
Board under the leadership of Marty Oberman, are a testament to the
[[Page 67645]]
Board's continued desire to work collaboratively to address some of the
network's most pressing issues. As one of the Board's newest members, I
am honored to be a part of this vitally important endeavor.
BOARD MEMBER SCHULTZ, concurring:
The Board is issuing two rulemaking proposals to provide a new
option to resolve small rate disputes between railroads and shippers.
Although I have concurred with issuing the supplemental notice of
proposed rulemaking (NPRM) in this docket and voted for the arbitration
program proposal in Docket No. EP 765, I am not in favor of the Board
adopting both rules. I concurred with issuing this supplemental NPRM
for two reasons. First, this proceeding began in 2019, well before I
joined the Board in January of this year, and I have not had the
opportunity to meet with stakeholders about the proposed rule. Issuing
the supplemental NPRM and waiving the prohibition on ex parte
communications will allow me to discuss the rule with stakeholders.
Second, the Board is concurrently seeking public comment on a proposed
rule in Docket No. EP 765, Joint Petition for Rulemaking to Establish a
Voluntary Arbitration Program for Small Rate Disputes, and I believe it
is important for stakeholders to be able to review, and comment on, the
text of both proposed rules at the same time.
I am of the
[…truncated; see source link]Indexed from Federal Register on November 26, 2021.
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