Market Dominance Streamlined Approach
| Published date | 06 August 2020 |
| Citation | 85 FR 47675 |
| Record Number | 2020-17115 |
| Section | Rules and Regulations |
| Court | Surface Transportation Board |
Federal Register, Volume 85 Issue 152 (Thursday, August 6, 2020)
[Federal Register Volume 85, Number 152 (Thursday, August 6, 2020)]
[Rules and Regulations]
[Pages 47675-47697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17115]
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SURFACE TRANSPORTATION BOARD
49 CFR Parts 1011 and 1111
[Docket No. EP 756]
Market Dominance Streamlined Approach
AGENCY: Surface Transportation Board.
ACTION: Final rule.
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SUMMARY: The Surface Transportation Board (STB or Board) is adopting a
final rule to establish a streamlined approach for pleading market
dominance in rate reasonableness proceedings.
DATES: The rule is effective on September 5, 2020.
FOR FURTHER INFORMATION CONTACT: Sarah Fancher at (202) 245-0355.
Assistance for the hearing impaired is available through the Federal
Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION: Rail shippers may challenge the
reasonableness of a rail carrier's common carrier rate by filing a
formal complaint with the Board. See 49 U.S.C. 10701(d); 49 U.S.C.
10702; 49 U.S.C. 10704(b); 49 CFR pt. 1111. However, before the Board
is permitted to determine if the rate is reasonable, it must first find
that the rail carrier has market dominance over the transportation to
which the rate applies. 49 U.S.C. 10707(b), (c). Market dominance is
defined as ``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). It is established Board precedent
that the burden is on the complainant to demonstrate market dominance.
See, e.g., Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., NOR
42121, slip op. at 28 (STB served May 31, 2013) (with Board Member
Begeman dissenting on other matters) updated (STB served Aug. 19,
2013.)
The agency has previously recognized the Congressional intent
expressed in the market dominance statute and its legislative history,
which ``envision[s] the market dominance determination simply as a
practical threshold jurisdictional determination to be made without
lengthy litigation or administrative delay.'' Westmoreland Coal Sales
Co. v. Denver & Rio Grande W. R.R., 5 I.C.C.2d 751, 754 (1989)
(discussing 49 U.S.C. 10709, the predecessor of the current section
10707). In practice, however, the market dominance inquiry has often
become a costly and time-consuming undertaking, resulting in a
significant burden on rate case litigants. In smaller rate cases, in
particular, the expense associated with the market dominance inquiry
may be disproportionate to the remedy sought.
Accordingly, in a notice of proposed rulemaking issued on September
12, 2019, the Board proposed a streamlined market dominance inquiry.
Market Dominance Streamlined Approach (NPRM), EP 756 (STB served Sept.
12, 2019).\1\ Specifically, the Board proposed a set of factors that,
if they could be demonstrated by the complainant, would establish a
prima facie showing of market dominance.
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\1\ The proposed rule was published in the Federal Register, 84
FR 48,882 (Sept. 17, 2019).
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The Board received numerous comments on the NPRM.\2\ After
[[Page 47676]]
considering the comments, the Board will adopt its proposal with the
modifications discussed below.
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\2\ The Board received comments and/or reply comments from the
following entities: The American Chemistry Council, 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);
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); Freight Rail Customer Alliance (FRCA); Indorama Ventures
(Indorama); Industrial Minerals Association--North America (IMA-NA);
Institute of Scrap Recycling Industries, Inc. (ISRI); MillerCoors;
National Coal Transportation Association (NCTA); National Grain and
Feed Association (NGFA); National Taxpayers Union (NTU); Norfolk
Southern Railway Company (NSR); Olin Corporation (Olin); Portland
Cement Association (PCA); Private Railcar Food and Beverage
Association (PRFBA); Steel Manufacturers Association (SMA); Union
Pacific Railroad Company (UP); U.S. Department of Agriculture; 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, 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
Regulation (2015), http://nap.edu/21759.
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Background
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), which recommended, among
other things, that the Board develop ``a standard for pleading market
dominance that will reduce the cost and time of bringing a rate case.''
RRTF Report 53. The RRTF concluded that an effort to streamline the
market dominance inquiry was a necessary part of making rate relief
available for smaller rate disputes. Id. at 52. After considering the
RRTF Report and broader market dominance issues, see NPRM, EP 756, slip
op. at 3-6, the Board issued the NPRM proposing a streamlined approach
for pleading market dominance in rate reasonableness proceedings.
The Board's market dominance inquiry comprises two components: A
quantitative threshold and a qualitative analysis. The statute
establishes a conclusive presumption that a railroad does not have
market dominance if the rate charged produces revenues that are less
than 180% of its variable costs \3\ of providing the service. See 49
U.S.C. 10707(d)(1)(A). However, a finding by the Board that a
movement's R/VC ratio is 180% or greater does not establish a
presumption that the rail carrier providing the transportation has
market dominance over the movement. See 49 U.S.C. 10707(d)(2)(A).
Accordingly, if the quantitative 180% R/VC threshold is met, the Board
moves to the second component, a qualitative analysis of market
dominance. In this analysis, the Board determines whether there are any
feasible transportation alternatives sufficient to constrain the
railroad's rates for the traffic to which the challenged rates apply
(the issue traffic). See, e.g., M&G Polymers 2012, NOR 42123, slip op.
at 2, 11-18; Consumers Energy Co. v. CSX Transp., Inc., NOR 42142, slip
op. at 287-98 (STB served Jan. 11, 2018).
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\3\ Variable costs are those railroad costs of providing service
that vary with the level of output. See M&G Polymers USA, LLC v. CSX
Transp., Inc., NOR 42123, slip op. at 2 n.4 (STB served Sept. 27,
2012) corrected and updated, (STB served Dec. 7, 2012) (M&G Polymers
2012). The comparison of revenues to variable costs, reflected as a
percentage figure, is known as a revenue-to-variable cost (R/VC)
ratio. Id.
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As explained in the NPRM, EP 756, slip op. at 5-6, it is well
established that the Board has the authority to review and modify its
rate reasonableness methodologies and processes--including its market
dominance inquiry--to ensure that they remain accessible to the
complainants that are entitled to use them.\4\ The NPRM described the
Board's underlying reasons for its proposal: The time and cost
associated with an evidentiary process that ``requires the complainant
to prove a negative proposition on opening--that intermodal and
intramodal competition are not effective constraints on rail rates'';
the fact that such expense may be particularly out of balance with the
remedy being sought in smaller rate cases; and that the time and cost
of the market dominance inquiry could itself be a barrier to rate
relief. NPRM, EP 756, slip op. at 3-4. The NPRM also described how its
proposed streamlined market dominance approach would further the rail
transportation policy (RTP) at 49 U.S.C. 10101 and would be consistent
with clear Congressional directives in both that statutory provision
and also the Surface Transportation Board Reauthorization Act of 2015,
Public Law 114-110, 129 Stat. 2228. NPRM, EP 756, slip op. at 4-5.
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\4\ See, e.g., Rate Reg. Reforms, EP 715, slip op. at 1-2 (STB
served Mar. 13, 2015); 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).
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With respect to the proposed streamlined market dominance approach,
the NPRM proposed factors that, if demonstrated by the complainant,
would constitute a prima facie showing of market dominance. The Board
reasoned that the presence of these factors would constitute
``significant evidence about the status of effective competition,''
both intramodal and intermodal. NPRM, EP 756, slip op. at 7. However,
the Board also explained that, under the proposed streamlined approach,
rail carriers would still be ``permitted to refute any of the prima
facie factors of the complainant's case, or otherwise show that
effective competition exists for the traffic at issue.'' Id. at 12. The
Board concluded that the proposed approach would ``have the benefit of
reducing the complexity of market dominance presentations for many
complainants without limiting railroads' ability to mount a thorough
defense.'' Id.
The prima facie factors proposed in the NPRM are as follows:
The movement has an R/VC ratio of 180% or greater;
The movement would exceed 500 highway miles between origin
and destination;
There is no intramodal competition from other railroads;
There is no barge competition;
The complainant has used truck for 10% or fewer of its
movements subject to the rate at issue over a five-year period; and
The complainant has no practical build-out alternative due
to physical, regulatory, financial, or other issues (or combination of
issues).
Id. at 6-7. For the factors pertaining to intramodal competition,
barge competition, and build-out alternatives, the NPRM proposed that
complainants could submit a verified statement from an appropriate
official attesting that the complainant does not have such competitive
options, or could otherwise demonstrate that those factors are met. Id.
at 8, 10-11.
To further streamline the market dominance inquiry, the NPRM
proposed that complainants would be allowed to request an on-the-
record, telephonic hearing with an Administrative Law Judge (ALJ) at
the rebuttal phase of the rate proceeding. Id. at 12. The purpose of
the hearing would be to allow the parties to clarify their market
dominance positions under oath, and to build upon issues presented by
the parties through critical and exacting questioning. Id. The NPRM
also proposed a 50-page limit (inclusive of exhibits and verified
statements) on the parties' replies and rebuttals. Id.
The Board did not propose to limit the types of rate proceedings in
which
[[Page 47677]]
complainants could utilize the streamlined market dominance
approach.\5\ Under the proposal, complainants would have the option to
utilize the proposed streamlined market dominance approach or the non-
streamlined market dominance approach. The Board stated that ``[i]f a
complainant determines that it is not able to demonstrate one of the
required factors, it would not choose this streamlined approach at the
beginning of the case, but would instead need to choose a non-
streamlined market dominance presentation with additional detailed
information about its transportation options.'' NPRM, EP 756, slip op.
at 11.
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\5\ The Board's general standards for judging the reasonableness
of rail freight rates, including the stand-alone cost test (referred
to as Full-SAC), are set forth in Coal Rate Guidelines, Nationwide,
1 I.C.C.2d 520 (1985), aff'd sub nom. Consol. Rail Corp v. United
States, 812 F.2d 1444 (3d Cir. 1987), as modified in Major Issues in
Rail Rate Cases, EP 657 (Sub-No. 1) (STB served Oct. 30, 2006),
aff'd sub nom. BNSF Railway v. STB, 526 F.3d 770 (D.C. Cir. 2008),
and Rate Regulation Reforms, EP 715 (STB served July 18, 2013),
petition granted in part sub nom. CSX Transp., Inc. v. STB, 754 F.3d
1056 (D.C. Cir. 2014). Complainants also have the option of
challenging the rate under one of the Board's simplified processes--
the Simplified SAC test or Three Benchmark methodology--as set forth
in Simplified Standards, 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), and vacated in part on reh'g, CSX Transp., Inc. v. STB,
584 F.3d 1076 (D.C. Cir. 2009), as modified in Rate Regulation
Reforms, EP 715 (STB served July 18, 2013), remanded in part sub
nom. CSX Transp., Inc. v. STB, 754 F.3d 1056 (D.C. Cir. 2014). The
NPRM was issued concurrently with a separate notice of proposed
rulemaking in Final Offer Rate Review, EP 755 et al. (STB served
Sept. 12, 2019), in which the Board proposed an alternative
procedure (Final Offer Rate Review or FORR) for challenging the
reasonableness of rates in smaller cases, which would require
complainants to utilize the proposed streamlined market dominance
approach. Id. at 9. That proposal remains under review.
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Final Rule
After considering the comments, the Board will adopt the rule
proposed in the NPRM, with minor modifications. Below, the Board
addresses the comments and discusses the modifications being adopted in
the final rule. In Part I, the Board addresses general comments on the
purpose of the rule. In Part II, the Board addresses comments regarding
the prima facie factors proposed in the NPRM, proposals from commenters
for other factors, and other suggested approaches to streamline the
market dominance inquiry. In Part III, the Board addresses procedural
issues. Lastly, in Part IV, the Board addresses other miscellaneous
arguments. The text of the final rule is below.
Part I--Purpose of the Rule
None of the commenters challenge the Board's authority to adopt a
streamlined market dominance approach based on a set of prima facie
factors, though some question whether certain aspects of the proposal
are consistent with particular statutory provisions and the RTP.
Some rail interests generally support streamlining the market
dominance inquiry, but suggest revisions to the proposal. (AAR Comment
1; CSXT Comment 2; NSR Comment 1 (adopting AAR's comment); CN Comment 1
(stating support for AAR's comment).) Other rail commenters do not
oppose a streamlined market dominance approach but argue that its use
should be limited to only smaller cases and also suggest revisions. (UP
Comment 1-2; BNSF Comment 2.)
In addition, UP and BNSF question whether such an approach is
beneficial or necessary. UP expresses doubt that the streamlined
approach would prove worthwhile or attractive to shippers, as the Board
anticipated in the NPRM that only one additional complaint would be
filed annually based on adoption of the streamlined approach. (UP
Comment 3.) UP states that a streamlined approach would not be useful
because, when market dominance is clear, railroads do not contest
market dominance, and when market dominance is a close case, shippers
would not be able to use the streamlined approach because there would
be some evidence of effective competition. (Id. at 3-4.) Nonetheless,
UP recognizes that the Board's proposal could provide shippers in small
cases with inexpensive guidance on the likely outcome of a market
dominance inquiry. (Id. at 4.)
BNSF comments that competition is already pervasive in rail markets
and discusses how it competes with multi-modal movements. (BNSF Comment
2-8; BNSF Reply, V.S. Miller 2-12.) BNSF also argues that product and
geographic competition, even if not considered by the Board, are
pervasive in rail markets and that ``[g]eographic competition is
particularly strong in agricultural markets,'' because farmers must
truck their product to elevators, which gives farmers a range of
transportation options, and because shippers can choose to ship product
to different export markets. (BNSF Comment 6-7; BNSF Reply, V.S. Miller
6-9.) BNSF states that the Board should avoid interfering with these
market-based rates, as it could distort the markets of BNSF's shippers
and affect BNSF's capital investments which, it argues, would adversely
impact ``all shippers that rely on efficient rail transportation
service.'' (BNSF Reply, V.S. Miller 12-14.)
Shippers and shipper groups agree with the NPRM's conclusion that
the streamlined market dominance approach would reduce burdens on
parties, expedite proceedings, and make the Board's rate relief
procedures more accessible. (See, e.g., AFPM Comment 1, 3; Coalition
Associations Comment 4-5; SMA Comment 10; MillerCoors Comment 12;
Indorama Comment 10; IMA-NA Comment 10; Olin Comment 4-5.) The
Coalition Associations dispute UP's and BNSF's assertions that
streamlining would be generally unnecessary. (Coalition Associations
Reply 4.) They claim that, even in cases where market dominance is
clear, railroads' concessions of market dominance are the exception,
not the rule. (Id. at 8.) They point to Sunbelt Chlor Alkali
Partnership v. Norfolk Southern Railway, Docket No. NOR 42130, as an
example, noting that there the railroad conceded market dominance only
after the complainant filed extensive evidence, despite the shipper
having submitted a request for admission on market dominance before
evidentiary filings were due. (Coalition Associations Reply 8-9; see
also Olin Comment 4-5 (explaining that the complainant in the Sunbelt
proceeding included dozens of pages and statements from three witnesses
addressing why theoretical alternatives would not work on opening, only
for the railroad to concede market dominance in a single sentence on
reply).) The Coalition Associations also assert that BNSF's argument
that competition is pervasive in the transportation market, even if
true, does not diminish the need for a streamlined approach in those
instances where effective competition is absent. (Coalition
Associations Reply 14.)
None of the criticisms described above warrant abandonment of the
proposal. Although BNSF and UP contend that the streamlined market
dominance approach will not have much benefit and is not necessary,
they also state that they do not oppose a streamlined market dominance
approach (at least in smaller cases). Further, as explained in the
NPRM, EP 756, slip op. at 3-4, the market dominance inquiry for rate
reasonableness cases is a costly and time-consuming undertaking and can
limit access to the Board's processes, particularly affecting access in
smaller cases. Numerous shippers agree that streamlining the market
dominance inquiry would make the rate reasonableness review processes
more accessible to shippers by reducing the
[[Page 47678]]
litigation burden in some cases. (See AFPM Comment 1-2; Coalition
Associations Comment 2-3; IMA-NA Comment 1; Indorama Comment 1; NGFA
Comment 2; MillerCoors Comment 1; Olin Comment 1-2; PCA Comment 1; SMA
Comment 1.)
UP claims that railroads do not contest market dominance when
market dominance is clear, but, as the Coalition Associations and Olin
note, and as the experience in Sunbelt shows, a complainant may
nevertheless bear significant cost and time burdens preparing and
submitting extensive evidence before a railroad concedes market
dominance. A streamlined market dominance approach would prove
beneficial, including in cases where a railroad ultimately concedes
market dominance, by easing the cost and time burdens complainants must
bear for the preparation and submission of evidentiary pleadings. As
for BNSF's assertion that competition is already pervasive in the
marketplace due, in part, to product and geographic competition,\6\
there is no dispute that some shippers lack effective competition. The
streamlined approach adopted here should make the Board's rate
reasonableness review processes more accessible to shippers when market
dominance is more readily apparent.\7\
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\6\ Railroad arguments for inclusion of a prima facie factor
that addresses product and geographic competition are discussed
below in Part II (subpart G, section 5, ``Product and Geographic
Competition'').
\7\ UP notes that the agency previously tried to use
presumptions in the market dominance analysis but eventually
abandoned the approach. (UP Comment 3.) Here, presumptions are not
being utilized as the streamlined market dominance approach requires
a shipper to put forth an evidentiary showing to make its prima
facie case for market dominance. Moreover, those presumptions were
markedly different from the factors finalized here and were
ultimately abandoned because of flaws with the presumptions
themselves. See Mkt. Dominance Determinations & Consideration of
Prod. Competition, 365 I.C.C. 118, 120-26 (1981).
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The Board also finds unpersuasive BNSF's argument that the
streamlined approach could interfere with market-based rates. The final
rule does not create a new right or remedy that did not previously
exist but simply offers a streamlined way to demonstrate market
dominance. The final rule does not impose a new limit on the type of
relevant evidence a rail carrier can submit on reply to attempt to
rebut a complainant's market dominance case. Further, the rule does not
modify the Board's rate reasonableness methodologies. Accordingly, the
Board does not expect the final rule to change the outcome that would
have been reached under the non-streamlined market dominance approach.
Rather, it expects the rule to decrease the burden in potentially
meritorious cases, including the burden concerning a demonstration of
market dominance that may otherwise unnecessarily limit the
accessibility of the Board's rate review processes and therefore
dissuade shippers from filing cases. As such, there is no basis for the
suggestion that the streamlined approach would result in shippers
obtaining rate relief that would inappropriately interfere with market-
based rates.
For these reasons, the Board finds that a streamlined approach
would further the RTP goal of maintaining reasonable rates where there
is an absence of effective competition, see section 10101(6), by
reducing the burden on complainants in certain rate cases. This in turn
will make the agency's rate reasonableness review processes more
accessible, particularly in smaller cases. Moreover, the streamlined
approach would continue to ensure that the Board determines the
reasonableness of rates only where there is actual market dominance,
consistent with section 10101(1) (allowing, to the maximum extent
possible, competition and the demand for services to establish
reasonable transportation rates) and section 10101(5) (fostering sound
economic conditions in transportation and ensuring effective
competition and coordination between rail carriers and other modes).
Part II--Prima Facie Factors
As discussed below, the Board will adopt the prima facie factors
largely as proposed in the NPRM. The Board will add language to the
regulations to clarify the term ``appropriate official,'' to clarify
the method of measuring the level of truck movements over a five-year
period, and to include a factor to account for intermodal competition
from pipelines.
A. R/VC of 180% or Greater
The Board proposed a prima facie factor that the movement has an R/
VC ratio of 180% or greater. NPRM, EP 756, slip op. at 7. The Board
proposed this factor because it is a statutory requirement, 49 U.S.C.
10707(d), and therefore must be established in any market dominance
inquiry.
The Board received few comments pertaining to this proposed factor.
The TRB Professors argue, as they did in the TRB Report, that the
Board's Uniform Railroad Costing System (URCS)--which is used to
calculate the variable costs for the R/VC ratio \8\--is flawed and, as
a result, the R/VC ratios are unreliable. However, they acknowledge
that, because the R/VC calculation is a statutory requirement that can
only be eliminated through legislative change, the Board is required to
use an R/VC ratio in the market dominance inquiry. (TRB Professors
Comment 2-3.) NGFA states that it shares the criticisms of URCS and
accordingly urges the Board to continue its efforts to improve URCS
and/or develop a new and improved means to calculate the statutorily
required R/VC ratio. (NGFA Comment 3.)
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\8\ Variable costs are calculated using the URCS Phase III
movement costing program, which requires the user to input certain
information about the particular movement. Although disputes
sometimes arise over these inputs that are used to calculate URCS,
these disputes are generally less complicated than disputes
regarding the qualitative component of the market dominance inquiry.
This is because the inputs relate to objective data whereas the
qualitative portion usually involves the presentation of more
subjective arguments.
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Use of the R/VC of 180% or greater is a statutory requirement, and
the Board will adopt this aspect of the proposal.\9\
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\9\ To the extent that the parties raise general concerns
regarding URCS, such issues are beyond the scope of this proceeding.
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B. Movement Length Greater Than 500 Highway Miles
The Board also proposed a prima facie factor that the movement
exceed 500 highway miles between origin and destination. NPRM, EP 756,
slip op. at 7. The Board reasoned that movements greater than 500 miles
are not likely to have competitive trucking options, as this is
approximately the length of haul that a trucking carrier could complete
in one day. Id. (citing Review of Commodity, Boxcar, & TOFC/COFC
Exemptions, EP 704 (Sub-No. 1), slip op. at 7 n.12 (STB served Mar. 23,
2016)). Therefore, the Board proposed the 500-mile threshold as
indicative of a movement that is more likely to be served by a market
dominant rail carrier. The Board also invited comment on whether the
mileage threshold could be varied by commodity groups and asked parties
to provide detailed quantitative and qualitative information in support
of any alternative mileage threshold. Id. at 8. The Board received
comments relating to the appropriate mileage threshold, varying the
threshold by commodity, and application to multi-rail carrier and
transload shipments, which are addressed in turn below.
1. 500-Mile Threshold
Several shipper interests contend that the mileage threshold should
be lowered to 250 miles, arguing that this
[[Page 47679]]
is the maximum distance that a truck driver could travel in a single
day, given the need for a return trip and hours-of-service regulations
mandated by the Federal Motor Carrier Safety Administration (FMCSA).
(Coalition Associations Comment 12; ISRI Comment 7-8; Indorama Comment
11-12; see also Olin Comment 7; NGFA Reply 6; AFPM Comment 5.) Indorama
states that, based on its experience, truck is unable to compete with
rail at distances over 250 miles, in part because a railcar can carry
four times the amount that a truck can carry and because per-mile
trucking costs are increasing. (Indorama Comment 11-12.) The Coalition
Associations and ISRI both note that they tried to collect data on an
appropriate mileage threshold but that it proved too difficult and
time-consuming for most of their members. (Coalition Associations
Comment 9 n.9; ISRI Comment 9-10.) The Coalition Associations argue
that in past cases the Board has found that trucks are competitive with
rail at a range of 150 to 500 miles. (Coalition Associations Comment
12-13 & n.15.)
Rail interests take varying positions regarding the 500-mile
threshold. AAR asserts that the threshold is conservative and that AAR
``generally supports the Board's determination that requiring a
distance greater than 500 highway-miles strikes the right balance in
today's competitive environment.'' (AAR Comment 8-9.) AAR also notes
that the distances traveled by trucks in a single day are increasing,
due to companies experimenting with platooning, remote operation, and
autonomous trucks, as well as the trucking industry's efforts to
increase truck size and weight limits. Accordingly, AAR suggests that
the mileage threshold may need to be increased in the future to
accommodate the increased truck competition at greater distances. (Id.
at 9.)
BNSF argues that the Board should not consider any threshold less
than 500 miles for any commodity, but also states that it sees ``strong
truck competition for movements that significantly exceed 500 miles,
which is consistent with reported statistics.'' (BNSF Comment 13.)
Accordingly, BNSF suggests 750 miles as a more appropriate threshold,
citing to United States Department of Transportation (USDOT) statistics
that it states show that trucks carry the largest share of goods
shipped in the U.S. and remain the primary mode for shipments moved
less than 750 miles. (Id.)
UP and CN also argue that the threshold should be higher, and that
the Board's proposed 500-mile figure lacks data to support its use as a
threshold for a prima facie determination. (UP Comment 12; CN Comment
2.) UP suggests that ``the Board seek empirical evidence and set higher
hurdles, so the presumptions better assist shippers in identifying
situations in which market dominance is not likely to be contested.''
(UP Comment 12 (also noting that the Board has found that trucks
provide effective competition for movements longer than 500 miles.)) CN
submitted a verified statement from Dr. Michael Tretheway, Chief
Economist and Executive Vice President of InterVISTAS, relying on data
from the U.S. Census Bureau's Commodity Flow Survey (CFS), which it
states ``shows that using 500 miles as a cutoff is too conservative''
and that ``rail and truck compete on equal terms'' in the 500-749
mileage band. (CN Comment 4, V.S. Tretheway 1, 3.) In its reply
comment, CN submitted an updated verified statement from Dr. Tretheway,
analyzing the same data but organized by commodity groups and distance
bands. Based on this data, CN proposes either switching to an across-
the-board 750-mile threshold, or using commodity-group-specific
thresholds, with the thresholds being set at the distance at which the
tonnage shipped by truck exceeds or is comparable to the tonnage
shipped by rail. (CN Reply 4.) \10\
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\10\ CN notes that there is a lag with the data but states that
it is unavoidable. It argues that if the Board decides to rely on
this data, it could update the mileage thresholds as new data is
released. (CN Reply 3 & n.7.)
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The Coalition Associations respond that ``[s]etting the highway-
distance threshold high enough to exclude nearly every conceivable
movement where a railroad may not have market dominance is neither
desirable nor necessary,'' given that railroads would still have an
opportunity to present evidence showing that there is effective
competition. (Coalition Associations Reply 31.) In response to AAR's
argument that daily truck distances are increasing due to technological
advances, the Coalition Associations and ISRI state that these
technologies do not impact driving speed or time, which are the two
factors that affect driving distance, and commenters state, in any
event, these changes are not expected to be implemented anytime soon.
(Coalition Associations Reply 30-31; ISRI Reply 2-3.) In addition, the
Coalition Associations and ISRI argue that both CN's analysis of the
CFS data and BNSF's analysis of the USDOT data are flawed. The
Coalition Associations and ISRI note that the CFS data is based on
market share, but the Interstate Commerce Commission (ICC) long ago
recognized that market share is a poor measure of market dominance
because of the difficulty in calculating the appropriate market and
because the competitive implications of market share vary from case to
case. (Coalition Associations Reply 29 (citing Mkt. Dominance
Determinations, 365 I.C.C. 118, 123 (1981)); ISRI Reply 2 (same).) The
Coalition Associations and ISRI also argue that the USDOT data shows
that the average distance for truck shipments is 227 miles, compared to
805 miles for rail shipments, thus undermining BNSF's assertion that
500 miles is too low a threshold. (Coalition Associations Reply 29; see
also ISRI Reply 2.)
The comments have not presented sufficient evidence for either
modifying or eliminating the 500-mile threshold at this time. Any
threshold used for this purpose should strike a proper balance. On the
one the hand, the threshold should not be too low, thereby allowing
shippers that are not reasonably likely to lack effective competition
to use the streamlined approach. On the other hand, the threshold
should not be too high, thereby preventing shippers that are reasonably
likely to lack effective competition from using the approach. Moreover,
it bears noting that the mileage threshold is just one of two prima
facie factors that would be used to evaluate trucking competition. The
Board considered this factor in tandem with the trucking volume
threshold factor (discussed in more detail in subpart E, ``10% or Fewer
of Recent Movements by Truck,'' below) and intends that the mileage and
volume thresholds together will identify shippers that are reasonably
likely to lack trucking options that provide effective competition.
The Board concludes that using an estimate of the maximum distance
that a truck can typically travel in a single day is a reasonable
measure for a single mileage threshold, applicable to a wide range of
shippers, and that 500 miles continues to be a reasonable calculation
of this distance. Several shippers and shipper groups argue that the
distance should be cut in half to 250 miles to account for FMCSA
regulations and a return trip. However, in basing the threshold on
trucking distance per day, it is more appropriate to use the maximum
distance that a truck could travel. While 250 miles may be the
practical limit for some shippers because of the need for return trips,
not all shippers move traffic back-and-forth between a single origin
and destination and would not be so constrained. Because the
streamlined approach is intended to be used in situations in which the
lack of alternative
[[Page 47680]]
transportation options is clear on its face, the Board finds it is
better to set the threshold around the outermost point of a one-day
trucking shipment to ensure that only those shippers that are more
likely to be found to lack effective competition can utilize it. In
addition, although AAR has noted that the distance a truck can travel
in a single day may increase due to certain technological advancements,
these advancements have not been widely implemented. The Board
acknowledges that such technological advancements may well have
competitive implications, and the Board can revisit the mileage
threshold once those advancements have been more widely implemented.
The Board also finds unconvincing the Coalition Association's
argument that a lower threshold that errs on the side of being too low
should not lead to inappropriate market dominance findings, as
railroads would still have an opportunity to refute the prima facie
showing on reply. (Coalition Associations Reply 31.) The streamlined
market dominance approach is intended to reduce the litigation burdens
on all parties in a rate case, and the Coalition Association's approach
could result in railroad defendants needing to make reply arguments in
cases where market dominance is not reasonably likely.
In addition, no party provided the Board with sufficient data to
demonstrate that a higher mileage threshold would be more appropriate.
The CFS data that CN relies on shows the share of U.S. freight traffic
by transportation mode (by tonnage), broken out into distance bands.
The data shows that for the 500-749 mileage band, rail has a 43% share
of the traffic, while truck has a 39% share. CN argues that this
indicates that rail and truck compete for traffic at these distances.
According to CN, the Board should set the threshold based on the 750-
999 mileage band, where rail's share increases to 57% and truck's share
decreases to 28%. As a general matter, the Board has some concerns with
relying on the CFS data for purposes of calculating the mileage
threshold.
One concern is that the CFS data appears to combine full truckload
and less-than-truckload (LTL) shipments into the same trucking
category.\11\ Unlike rail shipments, LTL involves transportation of
small products that do not fill an entire trailer and that are often
combined with other such products (or shipments) during transport. Rail
shipments and LTL shipments, which typically have different service and
product characteristics, are generally not comparable. In addition, the
Board has identified some significant differences in the mileage trends
between the CFS data and the Carload Waybill Sample, which the Board
relies on for many regulatory purposes. In particular, the 2012 CFS
data shows that 24% of rail tons moved under 100 miles, but the 2012
Waybill data shows that only 11.1% of rail tons move under 100 miles.
In another example, the 2012 CFS data shows that 53% of rail tons moved
under 500 miles, but the 2012 Waybill data shows 36% of rail tons moved
under 500 miles. While these differences do not necessarily indicate
that the CFS data is inaccurate, and may be due to the different survey
populations and programs used to calculate rail mileages, they raise
questions about relying on the CFS data here, at least for rail volumes
and distances.\12\
---------------------------------------------------------------------------
\11\ According to the Bureau of Transportation Statistics'
explanation of the 2012 CFS data, ``[f]ull or partial truckloads
were counted as a single shipment only if all commodities on the
truck were destined for the same location. For multiple deliveries
on a route, the goods delivered at each stop were counted as one
shipment. . . . For a shipment that included more than one
commodity, the respondent was instructed to report the commodity
that made up the greatest percentage of the shipment's weight.'' See
Bureau of Transp. Statistics, 2012 Commodity Flow Surv., https://www.bts.gov/archive/publications/commodity_flow_survey/2012/united_states/survey (last visited July 23, 2020) (see section
titled ``Data Collection Method''). This appears to indicate that
full truckload and LTL shipments are counted the same way under the
truck category.
\12\ In particular, the CFS is based on a survey of business
establishments with paid employees that are located in the United
States, whereas the Carload Waybill Sample gathers its data from the
transportation providers. In addition, the CFS uses a program called
GeoMiler to calculate rail mileages, see Bureau of Transportation
Statistics, 2012 Commodity Flow Survey, https://www.bts.gov/archive/publications/commodity_flow_survey/2012/united_states/survey (last
visited July 23, 2020) (see section titled ``Mileage
Calculations''), while the Board's 2012 Waybill Sample used software
called PC RailMiler, which is a routing, mileage, and mapping
software for the transportation and logistics industry. See DuPont
2014, NOR 42125, slip op. at 266 n.1446.
---------------------------------------------------------------------------
In any event, the CFS data itself does not conclusively show that
the 500-mile threshold is too low. Based on 2012 CFS data, in the 250-
499 mileage band, truck has a traffic share (by tonnage) of 55%,
compared to 29% for rail. In the 500-749 mileage band, the traffic
share for rail rises to 43% and surpasses the traffic share for truck,
which falls to 39%. While the 2012 CFS data shows that rail does not
comprise a majority share of tonnage until the 750-999 mileage band,
the data also shows that at 500 miles, rail holds certain efficiencies
and advantages over truck, when considering commodities in aggregate.
For example, notwithstanding the CFS data issues noted above, the data
shows that rail transports more tonnage than truck in the 500-749
mileage band, and rail's share of tonnage substantially increases from
the 250-499 mileage band to the 500-749 mileage band. As such, the CFS
data does not undermine the Board's conclusion that 500 miles is a
reasonable threshold for purposes of determining competitiveness of
rail transportation versus truck.
The Board seeks to strike an appropriate balance. Given its
determination that rail likely has efficiencies and advantages over
truck in certain circumstances once a shipment exceeds the distance a
truck can reasonably travel in a single day (i.e., 500 miles), the
Board concludes that a 750-mile threshold would exclude shippers that
are reasonably likely to lack competition.\13\ In addition, the mileage
band is just one of two prima facie factors that would be used to
evaluate trucking competition; the 10% or less trucking volume
threshold serves as another constraint that effectively limits use of
the streamlined approach to cases where shippers that are reasonably
likely to lack effective truck competition. Thus, the 500-mile
threshold, combined with the 10% or less trucking volume threshold,\14\
will serve as a sufficient screen to identify movements that likely
lack effective trucking competition.\15\
---------------------------------------------------------------------------
\13\ BNSF's reliance on the statement from the USDOT report that
says that trucking ``remain[s] the primary mode for shipments moved
less than 750 miles'' is also unavailing. (See BNSF Comment 13.) The
report includes a table that shows that rail has a smaller share of
ton-miles in the 500-749 mileage band compared to truck, but as with
the CFS data, the Board has some concern about whether this
information is appropriate for setting the mileage threshold. In
particular, it appears that the graph may incorporate data from a
broad range of shipments, including those that normally do not move
by rail, and as such, it is difficult to draw a meaningful
conclusion about either increasing or decreasing the mileage
threshold.
\14\ As explained below, the Board clarifies that the 10%
threshold is based on volume rather than number of movements.
\15\ For this reason, the Board rejects ISRI's proposal to
combine the trucking volume threshold and 500-mile threshold into
one factor, which a shipper could satisfy by showing that either of
these thresholds is met (rather than both). (See ISRI Comment 11.)
---------------------------------------------------------------------------
2. Commodity-Specific Thresholds
As noted above, the NPRM invited comment on whether the mileage
threshold could be varied by commodity groups, and also asked
commenters to provide detailed quantitative and qualitative information
in support of any alternative mileage threshold. BNSF
[[Page 47681]]
generally opposes commodity-specific thresholds, arguing that it would
run counter to the goal of simplification. (BNSF Reply, V.S. Miller
15.) Several commenters argued for commodity-specific thresholds.
The Board appreciates the comments submitted. Based on the input
received, the Board agrees that the concept of creating commodity-
specific thresholds has merit and is preferable to a blanket threshold.
Several commenters presented credible arguments that, for some
commodities, including, but not limited to, chlorine and agricultural
commodities, trucking becomes less competitive at a distance shorter
than 500 miles. Therefore, even though, as discussed in more detail
below, the information submitted in this docket did not contain
sufficient quantitative data to support the adoption of commodity-
specific mileage thresholds at this time, the Board finds that this
issue warrants additional consideration. Accordingly, while the final
rule adopted here establishes a single mileage threshold of 500 miles,
the Board plans to soon initiate a proceeding to further explore the
adoption of various commodity-specific mileage thresholds.
ISRI argues for lowering the threshold to 200 miles for scrap metal
shipments. (ISRI Comment 5.) Although ISRI cites a survey it conducted
of its members in support, ISRI did not include the survey or
accompanying data but rather summarizes its results. ISRI also provides
some information regarding truck shipments, but only from four of its
members. (Id. at 5-7; ISRI Reply 2 n.5.) ISRI also states that there
are factors unique to the scrap metal industry that compel ISRI members
to rely on rail for movements significantly less than 500 miles, such
as the need for specialized trucking equipment. (ISRI Comment 7-8; ISRI
Reply 2.) However, the Board would need more comprehensive and fully
supported data before lowering the threshold for scrap metal shipments.
AFPM opposes the 500-mile threshold for fuel and petrochemicals,
arguing that those materials are frequently shipped via unit train and
that trucking substitutions for an entire train are likely to become
non-competitive at a lower threshold. (AFPM Comment 5.) AFPM proposes a
250-mile threshold but provides no data to support that figure. (See
id.) Accordingly, the Board will not adopt a lower threshold for fuel
and petrochemicals at this time.
PCA states none of its members would ever be able to satisfy a 500-
mile threshold for cement because shipping cement by truck becomes
impracticable at distances far below 500 miles. PCA, however, does not
propose an alternate threshold nor does it provide data to support its
arguments. Rather, PCA claims that the Board itself acknowledged that
cement cannot satisfy a 500-mile threshold in Review of Commodity,
Boxcar, and TOFC/COFC Exemptions, EP 704 (Sub-No. 1) (STB served Mar.
23, 2016) (with Board Member Begeman dissenting). (PCA Comment 2-3.)
PCA overstates that decision. There, the Board merely cited PCA's own
assertion that shipments of cement move at a range of 250 to 300 miles
while seeking comment on the possible revocation of the exempt
commodity status of hydraulic cement. In citing this assertion from
PCA, however, the Board did not make any definitive findings regarding
the distances of such shipments.
Olin argues that the 500-mile threshold is unreasonable for its
chlor alkali products and that this factor should be removed entirely
for chlorine and other hazardous materials that cannot readily or
feasibly move by truck. (Olin Comment 6-7.) Although chlorine, in
particular, may rarely move by truck, Olin provides no data to support
an alternative chlorine-specific threshold.\16\ However, for chlorine,
in particular, there is a sufficiently strong basis to consider
modifying the threshold or eliminating it. The record here though does
not contain enough information to determine if the mileage threshold
should be lowered (and, if so, to what mileage) or eliminated. As
discussed above, the Board will institute a proceeding in the near
future to gather more information on commodity-specific thresholds for
various commodities, including chlorine.
---------------------------------------------------------------------------
\16\ In addition, for all other non-toxic-by-inhalation
hazardous commodities, Olin proposes a ``sliding-scale'' approach
for shipments up to 250 miles, which it states would take into
account ``the nature of the product and the involved packaging and
availability of equipment required for trucking.'' Olin further
states that ``[i]n cases where the use of truck would require
possible terminal storage and transloading, the measured distance
for meeting the established prima facie should be lengthened on the
sliding scale, to accommodate the expense and difficulties of
transloading.'' (Olin Comment 7; see also FRCA Comment 2.) These
approaches are not fully explained or supported.
---------------------------------------------------------------------------
NGFA proposes that the mileage threshold be set at 200 miles for
agricultural commodities, asserting that trucking generally is
effectively competitive with rail for agricultural movements of only
200 miles or less. (NGFA Comment 3.) In its reply comment, NGFA cites
to a chart from the 2010 National Rail Plan produced by the Federal
Railroad Administration (FRA), which NGFA claims shows that rail's
share for all freight starts to increase above 200 miles. The 2010
chart is for all commodities and is not specific to agricultural
shipments. Moreover, it shows that for the 250-499-mileage band, truck
has a majority share of traffic (based on tonnage). NGFA also cites to
an academic study from 2010 conducted in coordination with AAR that
found that ``rail clearly has the advantage for the bulk movements,
even for the 50- and 200-mile moves.'' (NGFA Reply 4-5 (quoting from
the study's report \17\).) However, the report's findings were more
nuanced than the selected quote suggests. In the same paragraph, the
report concludes that ``[t]he detailed results indicate that the rail
market share increased for lower value and longer distance movements.''
Estimating the Competitive Effects of Larger Trucks on Rail Freight
Traffic, at 12 (emphasis added). Again, despite not adopting a lower
mileage threshold for agricultural commodities or any other commodities
at this time, the Board intends to further explore in a separate
proceeding whether various commodity-specific thresholds should be
created, including for agricultural commodities, given the Board's
long-standing concern that the Board's rate reasonableness review
process is not readily accessible to many agricultural shippers.
---------------------------------------------------------------------------
\17\ Carl D. Martland, Estimating the Competitive Effects of
Larger Trucks on Rail Freight Traffic (2010), https://www.aar.org/wp-content/uploads/2017/12/AAR-Estimating-Competitive-Effects-Larger-Trucks-2010-Report-TSW.pdf.
---------------------------------------------------------------------------
As noted above, CN suggests, as an alternative to its proposed 750-
mile threshold, using commodity-group-specific thresholds based on CFS
data, with the thresholds being set at the distance at which the
tonnage shipped by truck exceeds or is comparable to the tonnage
shipped by rail. (CN Reply 4.) However, the CFS data relied on by CN
for its commodity-group threshold is based on data at the two-digit
Standard Transportation Commodity Code (STCC) level and is not granular
enough to create commodity-specific thresholds (CN itself refers to its
categories as commodity-group-specific thresholds).\18\ (CN Reply 4.)
In addition, as explained above, the Board has identified issues with
relying on the CFS data for purposes of calculating mileage thresholds.
---------------------------------------------------------------------------
\18\ See, e.g., Expanding Access to Rate Relief, EP 665, slip
op. at 13 (Sub-No. 2) (STB served Aug. 31, 2016) (stating that
commodities at the five-digit STCC level ``would be similar enough''
for inclusion in a comparison group and that certain commodities,
such as chemicals, may best be compared at the seven-digit STCC
level).
---------------------------------------------------------------------------
Finally, several commenters oppose the 500-mile threshold for coal.
NCTA proposes that the Board use a lower
[[Page 47682]]
mileage, such as 200 miles, for ``high volume, heavy commodities'' such
as coal. (NCTA Comment 3.) WCTL proposes that the Board eliminate any
mileage threshold for unit train transportation of coal entirely,
arguing that it is not subject to competition from truck. (WCTL Comment
9-10.) It states that it is not aware of any case where the Board or
ICC found that unit trains of coal were subject to competition from
truck, even in cases where the origin-destination was far less than 500
miles. (Id.) \19\ FRCA states that coal is seldom, if ever, trucked
more than 100 miles and cites to a 2007 research paper from the
National Research Council of the National Academies, which states that
coal is hauled by truck on average only 32 miles. FRCA argues that 50
miles would be a generous threshold. (FRCA Comment 2.) It is generally
well-understood that when coal is shipped in significant quantities it
is unlikely to be shipped by truck. However, even if the Board
determined that a coal-specific threshold was warranted, there is not
enough information in the record to determine what threshold should be
set. Again, this is an issue that the Board may examine further in the
proceeding that it plans to initiate soon.
---------------------------------------------------------------------------
\19\ WCTL cites Metro Edison Co. v. Conrail, 5 I.C.C.2d 385, 413
(1989), in which the agency stated that ``[i]t is simply impractical
to move [large] volume[s] of coal by truck.'' (WCTL Reply 2.)
---------------------------------------------------------------------------
As described above, much of the evidence submitted was either
anecdotal or limited to only a few shippers and did not include
sufficient data for the Board to draw a conclusion with regard to any
particular commodity as whole. In its future consideration of the issue
of commodity-specific thresholds, the Board will expect proponents to
support their arguments with more extensive data, beyond just a few
examples, on shipping distances for rail versus truck for that
commodity. As for the CFS data relied on by CN, while it was not
granular enough to draw conclusions about the appropriate mileage
threshold for specific commodities, parties that seek to rely on it in
the future proceeding should address that granularity issue and whether
adjustments could make its use more suitable for this purpose.
3. Multi-Rail Carrier and Transload Shipments
AFPM argues that the mileage threshold should be from origin to
destination for multi-rail carrier moves. AFPM argues that a single
carrier's portion of the move (i.e., from origin/destination to
interchange) should not be viewed in isolation, because when a rail
carrier only has a short portion of the overall move, its ``behavior
related to rate establishment becomes more aggressive and pushes the
line of what would be considered reasonable.'' (AFPM Comment 5-6.) AFPM
also indicates that if only an individual carrier's portion of the move
is examined, it often would not meet the 500-mile threshold. (Id. at
6.) Similarly, FRCA argues that for short-haul rate cases involving
transload shipments (i.e., shipments that move on rail for only a
portion of a move and are transferred to another mode of transportation
for the remaining portion of the move), the distance threshold should
apply from origin to destination, rather than from origin to
interchange. (FRCA Comment 2.)
For purposes of the 500-mile threshold, the Board will treat multi-
carrier movements the same as it does for rate reasonableness
challenges. See Cent. Power & Light Co. v. S. Pac. Transp. Co., 1
S.T.B. 1059 (1996), clarified, 2 S.T.B. 235 (1997), aff'd sub nom.
MidAm. Energy Co. v. STB, 169 F.3d 1099 (8th Cir. 1999) (addressing
when multi-carrier rates are subject to challenge). In particular,
whether a rate (or rates) on a multi-carrier move are subject to
challenge would depend on the type of rate being offered (joint through
rate or proportional rate) and whether the rate (or rates) are subject
to tariff or contract.\20\ In addition, with regard to FRCA's comment,
the Board will not make an exception to the way it assesses the 500-
mile threshold for short-haul cases involving transload shipments where
the rail portion of the move is 500 miles or less. As discussed further
below, looking at market dominance from origin-to-destination on
transload moves (i.e., both the rail and non-rail portions together)
would be contrary to statute and established Board precedent. See infra
Part IV (subpart B, ``DMIR Precedent''). Moreover, if the rail shipment
is less than 500 miles and can be transloaded, that may cast doubt on
whether the shipper lacks transportation options. In such instances,
based on the record here, the question of market dominance would be
better determined through the non-streamlined approach.
---------------------------------------------------------------------------
\20\ Accordingly, if the rate (or rates) for the entire origin-
destination route are subject to challenge, the mileage threshold
would be judged against the mileage of the whole origin-destination
route. Conversely, if only a part of the rate (or rates) for the
origin-destination route are subject to challenge, the mileage
threshold would be judged against only that portion of the route.
---------------------------------------------------------------------------
C. Absence of Intramodal Competition
The Board proposed a prima facie factor that complainants
demonstrate that there is no effective intramodal competition (i.e.,
whether the complainant can use another railroad or other railroads to
transport the same commodity between the same points). NPRM, EP 756,
slip op. at 8. The Board explained that the complainant could satisfy
this factor by submitting a verified statement from an appropriate
official of the complainant attesting that it does not have practical
physical access to another railroad. The Board defined ``practical
physical access'' as encompassing feasible shipping alternatives on
another railroad, including switching arrangements, where ``an
alternative is possible from a practical standpoint given real-world
constraints.'' Id. (citing Total Petrochems., NOR 42121, slip op. at 4
n.9.)
Only a few commenters addressed this factor. The Coalition
Associations argue that the Board should abandon the ``practical
physical access'' standard and simply require complainants to
demonstrate that they do not have ``direct'' physical access.
(Coalition Associations Comment 19-20.) In other words, the Coalition
Associations argue that the factor should not encompass reciprocal
switching because, as demonstrated by testimony provided in Reciprocal
Switching, Docket No. EP 711 (Sub-No. 1), the effectiveness of
reciprocal switching depends on multiple factors under the railroad's
control, as well as the alternative carrier's willingness to compete.
(Coalition Associations Comment 19-20.) Along these lines, AFPM argues
that even in some situations where a shipper has access to two
carriers, some carriers choose not to provide competitive offers. (AFPM
Comment 6.) Therefore, AFPM seeks clarification of the phrases
``complete absence of railroad competition'' and ``feasible shipping
alternatives.'' (Id.) AFPM also seeks clarity and more detail on what
is meant by ``an alternative is possible from a practical standpoint
given real-world constraints,'' as shippers and railroads view the
terms ``possible'' and ``practical'' differently. (Id.) AFPM also asks
the Board to clarify what type of documentation in support of this
factor would be acceptable and define or list who it deems to be
``appropriate officials'' that can submit the supporting verified
statement. (Id.) \21\
---------------------------------------------------------------------------
\21\ AFPM and other parties seek similar clarifications
(regarding the contents of verified statements and the identify of
``appropriate officials'') with respect to other prima facie factors
proposed by the Board. All such comments are discussed below in Part
III (subpart C, ``Disclosures and Verified Statements'').
---------------------------------------------------------------------------
[[Page 47683]]
The Board will adopt this factor as proposed in the NPRM. The
Coalition Associations essentially argue that complainants should be
able to satisfy this factor even if they have access to another carrier
through a reciprocal switching arrangement. While the existence of
reciprocal switching may not necessarily mean that a shipper has
effective competitive options, it strongly suggests a lack of market
dominance. Accordingly, in such situations, a determination of market
dominance would be better explored through the non-streamlined
approach, in which the shipper can present a full explanation as to why
it believes there is market dominance despite an existing reciprocal
switching agreement. The same rationale holds for AFPM's assertion
regarding a lack of competition when there is direct physical access to
two carriers.
In response to the comments, the Board provides the following
clarification regarding the application of this factor. The most
obvious scenarios where there would be practical physical access are
where multiple carriers can directly serve the complainant's facility
or where the shipper's facility is open to reciprocal switching.
However, there could be other arrangements (such as haulage, terminal
trackage rights, or interchange agreements) that would allow for multi-
carrier access and therefore would constitute practical physical
access. In some situations, practical physical access could also be
found despite the absence of any such arrangement. For example, if a
shipper has refused a rail carrier's bona fide offer to open a facility
to reciprocal switching but the offer still stands, that would likely
be considered to fall within the definition of practical physical
access. As such, the Board would consider this evidence as part of its
analysis as to whether this prima facie factor has been met. Leaving
the definition as proposed in the NPRM will help to ensure that a
complainant has accounted for all types of intramodal arrangements
before deciding whether to use the streamlined market dominance
approach.
D. Absence of Barge Competition
The Board proposed a demonstration of the absence of barge
competition as another prima facie factor. NPRM, EP 756, slip op. at 8
(whether barge competition constrains market power). As with the
intramodal competition factor, the Board stated that, in most cases, a
complainant would satisfy this factor by submitting a verified
statement from an appropriate official attesting that the complainant
does not have practical physical access to barge competition.
Some shippers and shipper groups argue that the factor as proposed
omits clear evidentiary standards and that requiring the complainant to
file only a verified statement leaves complainants to guess how much
evidence is enough to satisfy this factor. (Coalition Associations
Comment 14-15; Olin Comment 8; AFPM Comment 7.) The Coalition
Associations argue that the factor is indistinguishable from what must
be shown in a non-streamlined market dominance inquiry. (Coalition
Associations Comment 14.) Accordingly, these commenters propose that
the Board adopt more specific criteria regarding barge competition. For
example, the Coalition Associations propose that if the origin,
destination, or both, are landlocked,\22\ this would constitute an
``objective measure[ ]'' demonstrating that there is a lack of barge
competition. (Coalition Associations Comment 15.) The Coalition
Associations further propose that the factor would be satisfied if the
complainant could show that the origin, destination, or both do not
have barge facilities, or that they lack facilities capable of handling
the issue commodity. (Id. at 15-16; see also Olin Comment 8 (proposing
that barge competition requires an existing barge facility); AFPM
Comment 7 (same).) The Coalition Associations also propose that this
factor would be met if the complainant could show that the origin and
destination are not located on interconnected navigable waterways.
(Coalition Associations Comment 16.)
---------------------------------------------------------------------------
\22\ The Coalition Associations indicate that they define
``landlocked'' as ``not located on a navigable waterway.''
(Coalition Associations Comment 15 (``Barges would not be able to
service traffic moving to or from a landlocked facility, which would
encompass any facility that is not located on a navigable
waterway.'').)
---------------------------------------------------------------------------
The Board will not adopt the modifications sought by the Coalition
Associations and others but instead will issue the following guidance.
The most obvious scenarios where there would be practical physical
barge access are where the origin and destination have barge facilities
that are capable of handling the issue commodity and are located on
interconnected navigable waterways. Conversely, if the origin and
destination are not located on interconnected navigable waterways, or
if they lack barge facilities capable of handling the issue commodity,
the Board would consider these facts in its determination of whether
the prima facie factor regarding barge competition has been met.\23\
Requiring, as proposed in the NPRM, an attestation that the complainant
does not have practical physical access to barge competition (rather
than adopting the specific criteria proposed by the Coalition
Associations) will ensure that a complainant has accounted for all
types of barge arrangements before proceeding under the streamlined
market dominance approach. Therefore, the Board will adopt the proposal
in the NPRM, under which complainants will be free to explain in their
verified statements when the situations discussed by the Coalition
Associations exist and how those facts demonstrate that this prima
facie factor is met.\24\
---------------------------------------------------------------------------
\23\ In the latter scenario, to the extent that a practical
build-out could create effective barge competition, the Board would
consider that option under the build-out factor, which, as discussed
below, continues to be included as prima facie factors under this
final rule.
\24\ For this reason, and because, as discussed below, the Board
will not allow partial use of the streamlined process, the Board
will not adopt Olin's proposal to allow a partial non-streamlined
market dominance presentation for the barge factor. (See Olin
Comment 8-9.)
---------------------------------------------------------------------------
E. 10% or Fewer of Recent Movements by Truck
The Board proposed a prima facie factor that the complainant must
have shipped 10% or fewer of the movements at issue by truck over the
last five years. NPRM, EP 756, slip op. at 8-10. The Board found that
if a complainant meets this factor, it would be ``reasonably likely to
have persuasive arguments for why trucking does not provide effective
competition, including customer contracts, product characteristics, and
price of the trucking alternative,'' and that the factor would
therefore assist the Board in making a market dominance determination
more expeditiously. Id. at 9. However, the Board noted that there were
past cases in which it had found a lack of market dominance, even when
trucking volumes were less than 10%. Accordingly, as with the 500-mile
threshold, the Board invited parties to comment on whether an
alternative truck movement percentage should be used and to include
detailed quantitative and qualitative information in support. Id. at 9-
10. The Board received comments addressing the necessity of the
threshold, how the volume of traffic would be measured, whether the
percentage should be changed, the appropriate lookback period, and
routing issues. As discussed below, the Board will adopt this factor
with a clarification to the measurement of the threshold.
[[Page 47684]]
1. Whether To Remove the 10% Threshold
AFPM and MillerCoors argue that this factor undermines the goal of
the streamlined approach and should be discarded. (AFPM Comment 8;
MillerCoors 13.) AFPM claims that the factor is ``redundant and
excessive'' because the mileage-threshold factor alone serves as a
sufficient basis for assessing the competitiveness of truck. (AFPM
Comment 8; see also MillerCoors 13.) MillerCoors claims that analysis
of this factor could be extremely complex, and inclusion of the factor
would negatively affect RTP goals. (MillerCoors Comment 13, 14-16.)
The Board disagrees. The purpose of the market dominance analysis
is to assess whether there is effective competition for the
transportation to which the rate applies, 49 U.S.C. 10707(a), and,
therefore, the volume that a shipper moves by another mode of
transportation is one of the key indicators. The 500-mile threshold,
although also intended to help determine whether a movement has
competitive trucking options, is insufficient in and of itself. If a
shipper with movements over 500 miles shipped a significant portion of
its traffic by truck, it would not be reasonably likely to lack
effective competition. Finally, although MillerCoors argues that the
factor should be eliminated because it would require complex analysis,
shippers that cannot satisfy the prima facie factors continue to have
the option of using the non-streamlined market dominance approach.
2. Volume of Traffic
A few commenters interpreted the NPRM as proposing that the
trucking volume threshold would be measured based on the number of
movements. (NGFA Comment 5; Olin Comment 9; Coalition Associations
Comment 9, ISRI Comment 9.) Those commenters correctly point out that
volume would be the more appropriate measure. (Id.) Although the Board
used the term ``movements'' in the NPRM, it intended that this factor
would be measured based on volume, specifically, overall tonnage.
Volume is indeed the better measure, as rail and truck shipments are
not comparable for purposes of measuring quantity of traffic, given
that one rail shipment is generally equal to multiple truck shipments.
The Board will clarify the final rule in Sec. 1111.12(a) by replacing
``10% or fewer of its movements'' with ``10% or less of its volume (by
tonnage).'' See Final Rule below.
3. Percentage
Shippers and shipper interests argue that the Board should raise
the percentage for this factor from 10% to up to 25%. (Coalition
Associations Comment 10 (proposing 20%); ISRI Comment 9 (same); Olin
Comment 9 (same); FRCA Comment 2 (same); NCTA Comment 3 (same and
proposing that the Board use a higher percentage for ``high volume,
heavy commodities'' such as coal); NGFA Comment 5 (proposing 20-25%);
PCA Comment 2 (proposing 25% for all shippers or determined on an
industry-by-industry basis using the unique characteristics for that
industry).) These commenters, as well as USDA, generally argue that a
10% threshold is too low because issues such as the need for expedited
shipments, rail service delays, and force majeure events may force
shippers to use truck, pushing their trucking volume higher despite the
existence of market dominance. (Coalition Associations Comment 10; PCA
Comment 2; USDA Comment 9; NCTA Comment 3; FRCA Comment 2; PCA Comment
2.) NCTA also suggests that a higher percentage is warranted to account
for situations where shippers resort to truck due to high rail rates.
(NCTA Comment 3; see also FRCA Comment 2 (arguing that that a shipper
should not be required to meet this factor if it can show a diversion
occurred because of rail service inadequacies or high rates).) AAR
disputes that higher trucking percentages may indicate market
dominance, calling it ``flawed logic.'' (AAR Reply 5-6.)
UP suggests that the NPRM proposed too high a threshold and argues
that the Board did not provide any empirical support for the 10%
threshold, and that the Board also acknowledged that it has found
effective competition where complainants shipped a smaller share of
traffic by truck. (UP Comments 12.) UP argues that the Board should
seek empirical evidence and set higher hurdles to a showing of
streamlined market dominance. (Id.)
The Board will adopt the 10% threshold. The Board acknowledges that
in certain situations, certain events, such as service issues, may
cause truck volumes to increase. However, because volumes would be
measured over a five-year period, any short-term spike in truck volumes
would likely even out over the course of the five-year lookback period,
a point that the Coalition Associations acknowledge. (Coalition
Associations Comment 11 (``This time frame is essential to smooth out
spikes in truck volume that occur due to factors other than
competition.'').) In addition, the shippers' arguments seem to be
premised on the notion that service issues are inevitable and will
undoubtedly cause an increase in truck volumes. But that may not always
be the case. Raising the threshold to 25% could lead to successful
prima facie showings of market dominance by shippers who have moved a
significant portion of their traffic by truck simply in the ordinary
course of business. Commenters have not established why a threshold
greater than 10% is necessary to account for service problems or other
issues that may cause a complainant to use truck in some instances,
even though truck does not provide effective competition.
The streamlined approach is intended for situations where market
dominance can be demonstrated without the need for extensive evidence
or explanation.\25\ If a shipper cannot meet the 10% threshold due to
service problems, high rail rates, or other issues, but believes it is
subject to market dominance, it may still seek to prove its case
through a non-streamlined market dominance analysis, which may explore
these sorts of fact-specific issues. The impact of service issues, in
particular, may not be clear-cut, as there could be genuine disputes
between a shipper and rail carrier as to whether such issues in fact
existed or, if they did exist, whether they caused a conversion of
traffic from rail to truck. These types of disputes are not appropriate
for the streamlined approach.
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\25\ Some commenters propose alternatives to meeting this
threshold under certain circumstances. (See Coalition Associations
Comment 11 (proposing a two-tiered threshold in which this factor
would also be satisfied if trucks are used for 10-20% of volume at
truck rates that exceed rail rates by more than 10%); FRCA Comment 2
(proposing that the factor would be satisfied if complainant can
show a diversion to truck occurred because of rail service
inadequacies or high rates); NGFA Comment 6 (proposing that the
factor would be satisfied if complainant demonstrates that trucks do
not provide effective competition for a specific movement).)
However, these proposals would be contrary to the Board's goal of
simplification and would be better explored through a non-
streamlined market dominance analysis. See NPRM, EP 756, slip op. at
7.
---------------------------------------------------------------------------
UP argues that the 10% threshold is not supported by empirical
evidence. It suggests that ``the Board seek empirical evidence and set
higher hurdles, so the presumptions better assist shippers in
identifying situations in which market dominance is not likely to be
contested.'' (UP Comment 12.) As part of the NPRM, the Board
specifically sought evidence to support alternative thresholds. See
NPRM, EP 756, slip op. at 9-10 (``The Board invites public commenters
to include detailed
[[Page 47685]]
quantitative and qualitative information in support of any alternative
truck movement percentage threshold.''). However, commenters provided
insufficient evidence to support an alternate threshold,\26\ and the
Board finds that 10% is an appropriate level at which to set the truck
volume threshold. The Board explained in the NPRM that complainants
that meet this factor ``despite rates with high R/VC ratios and the
absence of intramodal and barge competition, are reasonably likely to
have persuasive arguments for why trucking does not provide effective
competition, including customer contracts, product characteristics, and
price of the trucking alternative.'' NPRM, EP 756, slip op. at 9.
Moreover, even shippers in a highly uncompetitive situation may, at
times, need to rely on truck moves, so the threshold must allow some
truck movement. UP does not call either of these premises into
question. Setting the truck volume threshold lower than 10% would
likely render the streamlined market dominance approach unavailable to
shippers that are reasonably likely to lack effective competitive
options but must resort to truck on rare occasions. On the other hand,
setting the threshold higher than 10% could permit a shipper that
chooses to ship a significant portion of its freight by truck in the
ordinary course of business, and is therefore much less likely to lack
effective competitive options, to nevertheless make a prima facie
showing of market dominance. In addition, the Board reiterates that the
truck volume threshold is just one of two prima facie factors, along
with the 500-mile threshold, that would be used to evaluate trucking
competition. The two prima facie factors in tandem will serve as a
sufficient screen to identify movements that are reasonably likely to
lack effective trucking competition.
---------------------------------------------------------------------------
\26\ ISRI was able to obtain some data from three of its members
for a three-year period. For their top volume lanes, these shippers
state that they used trucks for 15%, 22%, and 29% of their shipping
volume, respectively. ISRI acknowledges that this is a small sample.
(ISRI Comment 9-10.)
---------------------------------------------------------------------------
4. Lookback Period
As noted, the Board proposed in the NPRM that volumes would be
considered over the previous five years.\27\ Only a few commenters
address whether this is a sufficient period. PRFBA argues that five
years is too long and instead proposes two years. (PRFBA Comment 1.)
NGFA argues that the Board should use a five-year ``Olympic average,''
in which the highest and lowest years are dropped from the average. It
claims that this would eliminate one-year anomalies that may skew the
average. (NGFA Comment 5-6.) As noted, the Coalition Associations
support using a five-year period. (Coalition Associations Comment 11.)
---------------------------------------------------------------------------
\27\ The Board notes that volume for purposes of this factor
would be based on the cumulative tonnage over the five-year period.
Although not specifically addressed in the NPRM, no party raised any
concern in the comments over how the measure over the five-year
period would be calculated. The Board will therefore adopt this
clarification as part of the final rules.
---------------------------------------------------------------------------
The Board will adopt the five-year period. The two-year period
proposed by PRFBA is too short to capture a long-term trend in truck
volumes or allow temporary fluctuations in volumes to even out.
Although NGFA's proposal would exclude periods where service issues may
have caused a complainant to rely more heavily on truck, as noted, use
of a five-year period based on a simple average of tonnage would be
sufficient to reduce the impact that any such periods could have on
trucking volume percentage.
5. Routing Issues
The Coalition Associations also propose that transload shipments
count toward truck volume only if the defendant railroad does not
participate in the route. They argue that if the defendant railroad
participates in the route, then that transload shipment is not serving
as a potential constraint on the defendant railroad. (Coalition
Associations Comment 11.) The Board finds that transload shipments
should be included as part of the trucking volume calculation, as long
as the transload shipment is serving the same origin-destination pair
as the rate that is being challenged and involves a railroad other than
the defendant. For example, if the rate at issue is for origin A to
destination B, but there is a transload option where another railroad
moves traffic from A to interchange X and the traffic is then trucked
from X to B, that trucking volume should be included,\28\ because the
transload option would be directly competing with the railroad-only
option, even if the defendant railroad itself is part of the transload
routing. Conversely, the trucking volume from a transload routing
should not be included if the origin-destination pair does not match
the route of the rate at issue.\29\
---------------------------------------------------------------------------
\28\ The same would be true if the routing were reversed, in
that the traffic is trucked from origin A to interchange X, and then
railed from X to destination B.
\29\ This would include instances in which the rate at issue is
part of a broader transload routing and there is an alternate whole-
route option. For example, suppose the rate at issue is part of a
broader transload routing in which the traffic moves by rail from
origin A to interchange B, and then by truck from interchange B to
destination C. Suppose also that there is an alternate routing in
which the traffic could move by rail from origin A to interchange X,
and then by truck from interchange X to destination C. In that
scenario, the alternate transload routing (A-X-C) would not match
the rate at issue (A-B) and therefore should not be included in the
truck volume. Although the alternate transload option (A-X-C) might
be serving as a competitive alternative to the whole-route (A-B-C),
for reasons explained in Part IV (subpart B, ``DMIR Precedent''),
the Board's current precedent is to not consider such whole-route
options in the market dominance analysis and whether to overturn
such precedent is outside the scope of this proceeding.
---------------------------------------------------------------------------
NGFA also argues that the Board should amend this factor to clarify
that the threshold applies to the origin-destination pair of the rate
being challenged. (NGFA Comment 5.) For reasons discussed in Part IV
(subpart B, ``DMIR Precedent''), under existing Board precedent, the
Board only considers the portion of the shipment moving by rail
pursuant to a tariff. As such, the Board would apply this factor to the
entire origin-destination route only if the rate (or rates) subject to
challenge are also for the entire origin-destination route. The Board
therefore declines to adopt NGFA's proposed change.
F. No Practical Build-Out Option
The Board proposed that a complainant would have to satisfy a prima
facie factor that there is no practical build-out option. As explained
in the NPRM, the term ``build-out'' has been used by the agency to
refer to possible competitive alternatives that could be accessed if
the complainant makes certain infrastructure investments. NPRM, EP 756,
slip op. at 10. This would again be demonstrated by a short plain
statement in a verified statement from an appropriate official, or
other means, that the complainant has no practical build-out option due
to physical, regulatory, financial, or other issues (or combination of
issues).
Some shippers and shipper groups argue that the build-out factor is
too complicated and should be eliminated entirely. Citing several
cases,\30\ SMA, MillerCoors, Indorama, and IMA-NA all argue that, in
the past, these hypothetical build-out options have become overly
burdensome to shippers and have been extremely difficult to resolve.
(SMA Comment 11; MillerCoors Comment 12-13; Indorama Comment 11; IMA-NA
Comment 11.) They argue
[[Page 47686]]
that a rate that is competitive due to a potential build-out is
unlikely to be challenged and, even if challenged, is unlikely to be
disturbed. (SMA Comment 13; MillerCoors Comment 14; Indorama Comment
13; IMA-NA Comment 13.) They further argue that eliminating the build-
out factor would be consistent with provisions of the RTP, as well as
the Congressional directive in the Railroad Revitalization & Regulatory
Reform Act of 1976, Public Law 94-210, section 202(d), 90 Stat. 31, 36,
that the market dominance procedures be easily administrable. (SMA
Comment 12-14; MillerCoors Comment 14-16; Indorama Comment 12-14; IMA-
NA Comment 12-14.) AFPM states shippers and railroads will have very
different ideas of what constitutes ``physical, regulatory, financial,
or other issues'' that could serve as obstacles to resolving whether a
build-out option exists.\31\ (AFPM Comment 8; see also PRFBA Comment
2.) Although they do not advocate eliminating this factor, the
Coalition Associations note that the Board has never found that a
potential build-out constitutes effective competition. They further
claim that any feasible build-out opportunity in a given case likely
will have been the subject of a feasibility study or communicated to
the railroad in rate negotiations in any event. (Coalition Associations
Comment 17.)
---------------------------------------------------------------------------
\30\ Consumers Energy, NOR 42142, slip op. at 295-96; Seminole
Elec. Coop. v. CSX Transp., Inc., NOR 42110 (STB served May 19,
2010); Tex. Mun. Power Agency v. Burlington N. & Santa Fe Ry., 6
S.T.B. 573, 584 (2003); W. Tex. Utils. Co. v. Burlington N. R.R., 1
S.T.B. 638, 651 (1996), aff'd sub nom. Burlington N. R.R. v. STB,
114 F.3d 206 (D.C. Cir. 1997).
\31\ In addition, NTU offers a general suggestion that the Board
work with other governmental agencies to reduce regulatory barriers
to build-outs. (NTU Comment 4-5.) NTU does not, however, propose any
modification to the proposed regulations.
---------------------------------------------------------------------------
Some shipper groups also take issue with aspects of the build-out
factor. The Coalition Associations argue that it is ``confusing and
appears to do little to reduce a complainant's burden'' and that the
``scope of evidence necessary to demonstrate the factor is unclear.''
(Id. at 16.) In particular, they assert that it is not clear if the
complainant can satisfy the factor simply by making an assertion in the
verified statement, or whether the complainant must also submit some
explanation and supporting evidence. (Coalition Associations Comment
16-17; see also AFPM Comment 9.) The Coalition Associations point out
that if a complainant does have to submit evidence, then this factor is
really no different than what must be shown in a non-streamlined market
dominance presentation. (Coalition Associations Comment 17.)
Accordingly, the Coalition Associations again propose ``objective
standards'' that could be used to satisfy the build-out factor. The
standards proposed by the Coalition Associations are that a build-out
would be physically or economically infeasible if it: (a) Would be
longer than two miles; \32\ (b) would require the acquisition or
condemnation of developed property in residential, industrial, or
commercial areas; \33\ or (c) would traverse waters of the U.S. that
are under the jurisdiction of the United States Army Corps of
Engineers.\34\
---------------------------------------------------------------------------
\32\ The Coalition Associations argue that build-outs exceeding
two miles are generally cost-prohibitive. They base this claim on an
analysis of Road Property Investment (RPI) costs from some of the
Board's Full-SAC rate cases. According to the Coalition
Associations, their analysis shows that a two-mile build-out would
cost over $4 million, which would be greater than the relief in
small rate cases or the litigation costs of large rate cases.
(Coalition Associations Comment 17-18.) Similarly, FRCA supports the
idea of a dollar limit on the cost of the build-out. (FRCA Comment
2.) In addition, USDA states that the Board could be more explicit
about delineating at what distance a build-out is a practical,
effective constraint. (USDA Comment 10.)
\33\ The Coalition Associations claim the high cost for land
acquisition in such areas is supported by data provided by the RRTF
Report. (Coalition Associations Comment 18-19.) AFPM agrees that a
shipper's ability to access land and obtain required permits for a
build-out introduces too much uncertainty, though it supports simply
eliminating this factor entirely rather than creating a more
specific criterion. (AFPM Comment 9.)
\34\ The Coalition Associations argue that such build-outs would
go through wetlands and thus require expensive infrastructure and be
subject to costly environmental review and mitigation. (Coalition
Associations Comment 19.)
---------------------------------------------------------------------------
In response, UP contends that the Coalition Associations are
seeking more than clarifications, and instead asking the Board to
``adopt presumptions for resolving factual disputes about the existence
of effective competitive alternatives.'' (UP Reply 3.) It states that
``the mere satisfaction of a prima facie factor should not itself be
sufficient where a railroad offers actual evidence that a competitive
alternative provides effective competition.'' (Id. at 3-4.) BNSF notes
that in some instances its rates have been constrained by the potential
for a build-out. (BNSF Reply, V.S. Miller 17.)
In rate cases, railroad arguments that potential build-outs are
available can significantly complicate market dominance presentations.
NPRM, EP 756, slip op. at 10. However, here the Board seeks to increase
simplicity, expediency, and efficiency in rate cases (see 49 U.S.C.
10101(2) and (15)) while at the same time allowing competition and the
demand for services to establish reasonable rates for rail
transportation (see 49 U.S.C. 10101(1)). Build-out options can serve,
and sometimes have served, as a constraint on railroad pricing. For
example, in Seminole Electric Cooperative v. CSX Transportation, Inc.,
Docket No. NOR 42110, the defendant argued that there was effective
competition through a barge/build-out combination, where the
complainant would have needed to construct an unloading dock and a
conveyor belt build-out to transport coal from the dock to its
facility. (CSXT Reply, II-24 to II-33, Seminole Elec., Jan. 19, 2010,
NOR 42110.) Although the parties in that proceeding settled before the
Board could issue a decision, the Board held an oral argument
specifically on the issue of market dominance in the rate proceeding,
suggesting that the build-out issue required close examination. Oral
Argument, EP 693, slip op. at 1-2 (STB served May 19, 2010).
Additionally, in merger cases, shippers often ask for conditions to
preserve the competition that they claim exists due to their potential
to build out to a competing carrier. See, e.g., Norfolk S. Ry.--Acquis.
& Operation--Certain Rail Lines of Del. & Hudson Ry., FD 35873 et al.,
slip op. at 33-35 (STB served May 15, 2015); Genesee & Wyo. Inc.--
Control--RailAmerica, Inc., FD 35654, slip op. at 5-6 (STB served Dec.
20, 2012); Canadian Nat'l Ry.--Control--EJ&E W. Co., FD 35087 et al.,
slip op. at 13-14 (STB served Dec. 24, 2008).
Shippers also argue that if the railroad's rate is effectively
competitive due to a build-out, a shipper is unlikely to challenge the
rate. But a shipper and railroad may have different views of the
practicality of a build-out option and therefore whether the rate is
effectively competitive. See Oral Argument Tr. 10:12-15, June 30, 2010,
Seminole Elec., NOR 42110 (complainant asserting that threat of build-
out option did not affect defendant carrier's pricing); id. at 57:15-20
(defendant carrier asserting that potential build-out option had caused
it to offer a lower rate); see also Tex. Mun. Power Agency v.
Burlington N. & Santa Fe Ry., 6 S.T.B. 573, 583-84 (2003), recon.
granted in part, 7 S.T.B. 803 (making minor adjustments to rate
prescription). Because the Board already considers whether build-outs
are an effective form of competition, they should remain part of the
market dominance analysis in the streamlined approach.
The streamlined approach should help eliminate overly costly and
complex litigation in cases where build-out options are clearly
impractical. In cases where a railroad argues that there are practical
build-out options, the procedural constraints that are part of the
streamlined approach--including page limits on filings and the
complainant's option to utilize a hearing
[[Page 47687]]
before an ALJ \35\--should help ensure that the complexity and cost of
litigating the practicality of those options remains reasonable. The
ALJ hearing option could be particularly useful in cases where a
railroad challenges whether there are physical, regulatory, financial,
or other issues (or a combination of issues) preventing a build-out, as
the ALJ could directly question those assertions and challenge any
potentially frivolous claims. In this way, the Board intends to achieve
an appropriate balance between the competing RTP factors of allowing,
to the maximum extent possible, competition and the demand for services
to establish reasonable transportation rates, see 49 U.S.C. 10101(1),
while still maintaining reasonable rates where there is an absence of
effective competition, see 49 U.S.C. 10101(6).
---------------------------------------------------------------------------
\35\ Page limits and the ALJ hearing are discussed below, in
Part III.
---------------------------------------------------------------------------
As an initial matter, the Board clarifies that the practical build-
out factor is not limited only to potential rail expansions, as the
Coalition Associations seem to imply. (See Coalition Associations
Comment 17-18 (proposing a presumption that build-outs longer than two
miles are infeasible based on costs per track mile).) In the NPRM, the
Board stated that build-outs ``refer to possible competitive
alternatives that could be accessed if the complainant makes certain
infrastructure investments.'' NPRM, EP 756, slip op. at 10. As such,
any alternative option that would require an infrastructure investment
should be considered as part of this factor, regardless of the
transportation mode, as it is in a non-streamlined market dominance
analysis. For example, any potential barge alternative that requires
infrastructure investment should be addressed by the complainant under
the build-out factor, not the barge competition factor.
The Board finds that it would be inappropriate to presume that a
build-out option is not practical in the specific scenarios suggested
by the Coalition Associations; instead, those scenarios must be
evaluated on a case-by-case basis. While the Coalition Associations
argue that a build-out option that exceeds two miles in length would
cost at least $4 million and therefore be cost-prohibitive, there may
be situations where the cost of a two-mile build-out would be viable
given the amount in dispute. For example, if the shipper is seeking
rate relief of $200 million over a 10-year period, then a $4 million
build-out may not be a cost-prohibitive alternative. Accordingly,
having the shipper submit a verified statement explaining why build-
outs are not practical is the better course.
Commenters have raised concerns over the level of detail about
potential build-outs that must be included in the verified statement.
In the NPRM, the Board stated that the verified statement should
explain in a ``short plain statement'' that it has no build-out options
due to ``physical, regulatory, financial, or other issues (or
combination of issues).'' NPRM, EP 756, slip op. at 11. As noted,
because this factor is intended to ``limit the evidentiary burden and
simplify the requirement for complainants,'' id., complainants need not
provide supporting evidence, such as any studies undertaken or other
documentation, as part of their submission to the Board. However, the
complainant must provide more than a conclusory statement that a build-
out is not practical by simply citing to one of the barriers listed by
the Board without further explanation. In requiring a short plain
statement, the Board anticipates that the complainant's official would
describe, in a page or two, what the physical, regulatory, financial,
or other issues are that make a build out impractical. For example, in
an especially obvious scenario, if a shipper satisfies the other
factors and is located 50 miles from the nearest waterway, rail line,
or pipeline,\36\ an official might explain that, because of the
physical location of the complainant's facility and the
disproportionately high costs to construct infrastructure to cover this
distance, build-out options are not practical.
---------------------------------------------------------------------------
\36\ As discussed below, the Board is adding the absence of
pipeline competition as an additional prima facie factor.
---------------------------------------------------------------------------
Under the streamlined approach, a more detailed explanation should
not be necessary, as the impracticality of the build-out options should
be clear from the verified statement. However, complainants must
remember that if the practicality of a build-out option is not clear
and it elects to use the streamlined approach, it runs the risk that
the railroad may challenge whether the build-out factor has been
satisfied on reply. In that instance, the complainant would have to
defend why that build-out option is not practical on rebuttal.\37\
---------------------------------------------------------------------------
\37\ AAR asks the Board to clarify what information must be
contained in the proposed verified statement from shippers and
specifically requests that complainants be required to disclose what
steps it has taken to evaluate build-out options and submit all
studies it has undertaken. (AAR Comment 11.) This request is
addressed in Part III (subpart C, ``Disclosures and Verified
Statements'').
---------------------------------------------------------------------------
G. Other Proposed Factors and Approaches
In addition to the prima facie factors proposed by the Board, some
commenters proposed additional factors. Some commenters also offered
variations of the streamlined market dominance approach.
1. Absence of Pipeline Competition
AAR, UP, and BNSF state that the Board should include lack of
pipeline competition as a prima facie factor. (AAR Comment 10; UP
Comment 12 n.4; BNSF Comment 14-15). BNSF argues that pipelines can be
a constraint on its rates and states that products such as crude oil,
propane, and other refined petroleum products often move by rail or
pipeline. (BNSF Comment 14.) The Coalition Associations state that they
do not object to adding a pipeline factor. (Coalition Associations
Reply 28.) No other party addressed this issue.
The Board agrees that there may be circumstances where pipelines
could serve as a competitive transportation alternative to rail. Adding
a factor to account for pipeline competition should not be burdensome:
Only certain commodities can move by pipeline and, in most cases, it
should not be difficult to determine whether a facility has practical
physical access to pipeline competition. Moreover, no commenter has
objected to inclusion of pipeline competition as a consideration in the
streamlined approach.
Accordingly, the Board will adopt an additional prima facie factor
stating that the complainant must demonstrate that there is no pipeline
competition as part of its prima facie showing under Sec.
1111.12(a).\38\ See Final Rule below. As with intramodal, barge, and
build-out options, a complainant can demonstrate that this factor is
met through a verified statement from an appropriate official that the
complainant does not have practical physical access to pipeline
competition. When addressing why there is no practical physical access
to pipeline competition in the verified statement, the complainant must
ensure it has accounted for all types of pipeline access. In addition,
because pipelines will be considered part of the market dominance
analysis, a shipper must address whether it has practical pipeline
build-out options as part of the build-out factor.
---------------------------------------------------------------------------
\38\ As the Board has stated with respect to the intramodal and
barge competition factors, consistent with 49 U.S.C. 10707(a), the
pipeline competition factor also relates to the absence of effective
competition.
---------------------------------------------------------------------------
[[Page 47688]]
2. Rate Benchmarking
As discussed above, the TRB Professors contend that R/VC ratios are
unreliable due to flaws in URCS but acknowledge that the Board cannot
replace that requirement because it is mandated by statute. As a
result, they recommend that the Board supplement the R/VC ratio
requirement by adding a prima facie factor that uses rate benchmarking,
similar to a concept that they recommended in the TRB Report.\39\ They
claim that using rate benchmarking would provide an indicator of
railroad market power superior to R/VC ratios derived from URCS. (TRB
Professors Comment 4.)
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\39\ The TRB Professors state that ``[m]any rail rates are now
competitively determined, and those rates can be used as benchmarks
in rate review proceedings.'' (TRB Professors Comment 2.) A more
detailed discussion of rate benchmarking as proposed by the TRB
Professors is available in Chapter 3 of the TRB Report.
---------------------------------------------------------------------------
USDA also advocates use of a competitive benchmarking factor,
though it goes further by proposing that the Board replace all the
prima facie factors with benchmarking (except for the R/VC of 180%-or-
greater factor, which is statutorily required).\40\ (USDA Comment 10-
11; see also Farmers Union Reply 4-5 (supporting USDA proposal).) Dr.
Ellig opposes USDA's proposal to replace the prima facie factors with
benchmarking, arguing that it could lead to findings of market
dominance where shippers do in fact have competitive options. (Ellig
Reply 4.) Dr. Ellig instead proposes that the Board first determine if
rates are above a benchmark threshold (which would need to be
determined by the Board). If the rate is above that benchmark
threshold, the Board could then conduct a streamlined or non-
streamlined market dominance inquiry. (Id. at 4.)
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\40\ USDA further argues that the prima facie factors are flawed
because the ``fact that a shipper has alternative options at a given
rail price does not mean that the railroad has no market power in
setting that price. A market dominant railroad will set its price
just below the price of the alternative option, say trucking, but
the price of trucking may still be significantly above the
railroad's cost of the move. Thus, even though trucking is a
substitute for rail at the railroad's set price, the railroad could
still be market dominant.'' (USDA Comment 10.) The prima facie
factors are intended to identify those cases where market dominance
is clear on its face. In the cases identified by USDA, where rail is
priced just below the non-competitive trucking rate, the shipper
still has the option of utilizing the non-streamlined market
dominance approach, in which it can explain why trucking may not be
competitive with rail.
---------------------------------------------------------------------------
The Board declines to adopt a benchmarking approach similar to that
proposed by the TRB for purposes of the streamlined market dominance
approach. The Board finds that the prima facie factors that it is
adopting account for various alternative modes of transportation and
would be strong indicators where market dominance is reasonably likely.
Adopting a benchmarking factor, which would require significant
resources to develop, would therefore not add sufficient value in this
instance. The Board will therefore not incorporate benchmarking into
the streamlined market dominance approach.
3. R/VC Ratio Approach
A few commenters propose that, rather than rely on the proposed
factors, the Board adopt a streamlined market dominance approach in
which a complainant may make a prima facie showing by establishing that
a movement has an R/VC ratio over a certain level. (PRFBA Comment 1
(proposing an R/VC ratio greater than the Board's annual Revenue
Shortfall Allocation Methodology (RSAM) calculation as floor to show
market dominance); AFPM Comment 5 (proposing either 280% or RSAM as
floor); USDA Comment 11 (proposing 200% as floor); see also Farmers
Union Reply 4, 5.) AFPM argues that this process would quickly and
clearly show whether a rail carrier is market dominant. (AFPM Comment
5; see also USDA Comment 11 (arguing the process would be accessible
and straightforward).) \41\
---------------------------------------------------------------------------
\41\ USDA notes while this process might be overly inclusive, it
is better for the Board to err on the side of ``false positives,''
which it describes as an instance in which a railroad is found to be
market dominant when it is not, while a ``false negative'' is when a
railroad is found not be market dominant when it is. (USDA Comment
11.) USDA states that, in cases of false positives, the merits case
on rate reasonableness still serves as a safeguard against the
railroad having to pay rate relief. (USDA Comment 8, 11.) But the
availability of the non-streamlined market dominance approach for a
shipper that has the potential of getting a false negative (i.e., a
shipper who is ineligible to use the streamlined market dominance
approach) eliminates the concern associated with quantitative false
positives and false negatives.
---------------------------------------------------------------------------
The Board will reject proposals to use an R/VC ratio in lieu of
specific factors. These commenters do not provide support for the R/VC
ratios that they have selected as threshold R/VC levels. Moreover, an
R/VC ratio above 180%, by itself does not indicate clearly whether the
complainant lacks effective competition from other modes of
transportation. The Board also finds that it would not be reasonable to
base a market dominance finding on a single factor. See McCarty Farms
v. Burlington N. Inc., 3 I.C.C.2d 822, 832 (1987) (``[E]vidence that
rail revenues substantially exceed costs by itself does not indicate
market dominance. . . .'').
4. ``[Agrave] la Carte'' Approach
The Coalition Associations propose a variation on the streamlined
approach, which they refer to as an ``[agrave] la carte'' approach.
(Coalition Associations Comment 7-8.) According to the Coalition
Associations, each of the proposed prima facie factors ``falls neatly
within one of the three modal elements of qualitative market dominance:
The 500-mile and 10% trucking factors address only the truck
competition element; the intramodal and build-out factors address only
the intramodal competition element; the barge factor addresses only the
barge competition element.'' (Id. at 8.) Therefore, the Coalition
Associations argue that a complainant should not be prevented from
using a prima facie factor related to one modal element due to its
inability to satisfy a prima facie factor related to a different modal
element. (Id.) Instead, the Coalition Associations propose that
complainants be permitted to demonstrate the prima facie factors for as
many modal elements as possible and submit more extensive evidence to
demonstrate market dominance for any remaining modal elements. (Id.) UP
contends that the ``[agrave] la carte'' streamlined approach is not a
logical outgrowth of the NPRM. It also argues that the approach is no
different than what happens in practice today, in that parties
generally focus their evidence on realistic competitive alternatives.
(UP Reply 3.)
The Board declines to adopt the ``[agrave] la carte'' approach at
this time. The Coalition Associations' proposal does not explain the
procedural rules that it believes would apply to the ``[agrave] la
carte'' approach and regardless, the Board has concerns about how this
proposal would work in practice. Moreover, this approach could add
complexity to the market dominance analysis, with some factors being
presented under the streamlined approach and others being presented
under the non-streamlined approach. For these reasons, the ``[agrave]
la carte'' approach will not be adopted here.
5. Product and Geographic Competition
AAR, UP, and BNSF all argue that the streamlined approach should
include a factor that would take into account product and geographic
competition. (AAR Comment 10; UP Comment 13; BNSF Comment 12-13.) AAR
argues that the Board should add a factor to limit the streamlined
approach to instances where the shipper has shipped more than a
significant percentage (e.g., 75%) of the commodity at issue to the
destination in the case.
[[Page 47689]]
(AAR Comment 10.) BNSF proposes that shippers would submit a
certification that there is no product or geographic competition by a
knowledgeable shipper business representative and that railroads would
submit evidence of product or geographic competition on reply. (BNSF
Comment 13.) The TRB Professors also recommend, as they did in the TRB
Report, that the Board allow evidence on product and geographic
competition. They state that excluding potentially relevant evidence
puts fairness and accuracy at risk. (TRB Professors Comment 3-4.)
The Coalition Associations, ISRI, and WCTL oppose including product
and geographic competition as part of the streamlined approach and
argue that the proposals to do so do not address the difficulties that
led the Board to eliminate these factors, as noted below. (Coalition
Associations Reply 31-34; ISRI Reply 3-4; WCTL Reply 2-3.) The
Coalition Associations also argue that there is no need to add product
and geographic competition because a ``shipper is unlikely to challenge
a rate that is effectively constrained by product and geographic
competition because the cost of challenging the rate is high compared
to the potential relief.'' (Coalition Associations Reply 34.)
The Board will reject the proposals to add a product and geographic
competition component to the streamlined approach. The Board has found
that ``the time and resources required for the parties to develop, and
for [the Board] to analyze, whether it would be feasible for a shipper
to change its business operations (by changing its suppliers,
customers, or industrial processes) so as to avoid paying the
challenged rail rate can be inordinate.'' Mkt. Dominance
Determinations--Prod. & Geographic Competition (Mkt. Dominance 1998), 3
S.T.B. 937, 948 (1998) remanded sub nom. Ass'n of Am. R.Rs. v. STB, 237
F.3d 676 (D.C. Cir. 2001), pet. for review denied sub nom. Ass'n of Am.
R.Rs. v. STB, 306 F.3d 1108 (D.C. Cir. 2002). The goal of the
streamlined market dominance approach is to reduce the burden on
parties and expedite proceedings, a goal that would not be met by
reintroducing a requirement that the agency has repeatedly found to be
too burdensome as part of the non-streamlined approach. See, e.g., Pet.
of the Ass'n of Am. R.Rs. to Inst. a Rulemaking Proceeding to
Reintroduce Indirect Competition as a Factor Considered in Mkt.
Dominance Determinations for Coal Transported to Util. Generation
Facilities, EP 717, slip op. at 9 (STB served Mar. 19, 2013)
(``[A]nalyzing and adjudicating a contested allegation of indirect
competition is rarely straightforward and would require a substantial
amount of the Board's resources to examine matters far removed from its
transportation expertise and to determine if indirect competition
effectively constrains rates to reasonable levels. . . .'').\42\
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\42\ UP also proposes that the Board ``develop[ ] factors a
shipper must overcome with evidence before railroads are even
required to respond to complaints.'' (UP Comment 12-13.) However,
the streamlined approach adopted here is intended to adequately
ensure that only proceedings in which market dominance has been
shown proceed to a determination of rate reasonableness.
---------------------------------------------------------------------------
Part III--Procedural Issues
A. Applicability to Different Rate Reasonableness Methodologies
AAR, BNSF, and UP argue that the streamlined approach should be
limited to only smaller rate cases. AAR would limit the streamlined
approach to smaller-value cases challenged under the simplified
procedures and cases with fewer than 10 origin/destination pairs,
arguing that, consistent with the Board's stated goals, the Board
should implement the streamlined market dominance procedures only in
cases where the cost of a full presentation is not warranted due to the
value or complexity of the case. (AAR Comment 7.) BNSF expresses
concern that the streamlined approach would oversimplify the market
dominance analysis of a complex case involving a large shipper, and
therefore proposes a 1,000 carloads-per-year cap for shippers to be
able to use the streamlined approach, though it notes that other caps
based on revenue or market share could work as well. (BNSF Comment 10-
11, BNSF Reply, V.S. Miller 16-17.) BNSF claims that, in its
experience, ``[o]nce a shipper's volume exceeds 1,000 carloads, the
shipper's leverage with a rail carrier changes'' and that such shippers
have ``multiple ways to exercise market power,'' such as through
commercial discussions and negotiations. (BNSF Reply, V.S. Miller 16-
17.) UP states that it does not object to use of the streamlined
approach for Simplified-SAC or Three-Benchmark cases, but it does
object to its use in Full-SAC cases.\43\ (UP Comment 1-2.) UP argues
that the streamlined approach would not save time in Full-SAC cases, as
market dominance and rate reasonableness would still be litigated
simultaneously, not sequentially. (UP Comment 13.) UP also claims that
the Board cites no evidence that any shipper who might file a Full-SAC
case has been dissuaded by the cost of addressing market dominance. (UP
Comment 14.) UP also disagrees with the Board's conclusion that
shippers are at a disadvantage in addressing market dominance on
opening, noting that the shipper knows more about its transportation
alternatives than the railroad. UP claims the streamlined approach
would also encourage wasteful litigation by allowing shippers to file
cases with low up-front costs and impose the costs of developing market
dominance evidence on railroads. (UP Comment 14.)
---------------------------------------------------------------------------
\43\ UP also objects to using the streamlined approach in FORR
cases. Because FORR remains pending before the Board in Docket No.
EP 755, the Board will not address those comments here.
---------------------------------------------------------------------------
Shipper interests disagree with requests to limit the applicability
of the streamlined approach. NGFA argues there is no basis for the
limitation on the streamlined approach proposed by AAR. NGFA asserts
that the streamlined market dominance approach should be available for
use by any complainant filing a rate case. (NGFA Reply 9.) The
Coalition Associations dispute BNSF's claim that large shippers can
leverage competitive movements to protect against unreasonable rates
and argue that the streamlined approach should be available to large
shippers. (Coalition Associations Reply 12-14 (arguing that railroads
are usually willing to lose competitive traffic rather than lower the
rate on their non-competitive traffic).) The Coalition Associations
also challenge UP's assertion that shippers are not dissuaded from
bringing Full-SAC cases because of the costs associated with the market
dominance inquiry. (Coalition Associations Reply 10-12.) They argue
that unnecessary litigation burdens are a problem in Full-SAC cases
because the high cost of a non-streamlined analysis reduces any relief
the complainant might win. Conversely, ``[w]hen complainants lose, it
is a multimillion-dollar penalty for making a good-faith claim.'' (Id.
at 11 (footnote omitted).) The Coalition Associations also dispute UP's
claim that the cost to shippers of preparing initial market-dominance
evidence will be lower than the cost to railroads. (Coalition
Associations Reply 10-11.)
The Board is not persuaded that it should limit the streamlined
market dominance approach to smaller rate disputes. BNSF argues that
the streamlined approach should be limited to small cases to ``avoid
inappropriate interference in rail markets.'' (BNSF Comment 2.)
However, as discussed in Part I, the streamlined approach is not less
accurate than the non-streamlined approach, and therefore does not risk
the negative market impacts raised by
[[Page 47690]]
BNSF. Rather, the Board is simply reducing the litigation burden on
complainants when they can show that market dominance is more readily
apparent and therefore does not require as extensive an evidentiary
showing. The railroad still has a full opportunity to refute the
complainant's showing under the streamlined market dominance approach.
Accordingly, a finding of market dominance under the streamlined
approach is no less valid than a finding of market dominance under the
non-streamlined approach.
BNSF also asserts that larger shippers generally have greater
leverage in rate negotiations. (BNSF Reply, V.S. Miller 16-17.)
However, even if true, that in and of itself does not justify limiting
large shippers from using the streamlined approach if they can satisfy
the prima facie factors. The same holds true for AAR's argument that
the streamlined approach should be limited to cases where the amount at
stake is too low to justify the cost of a non-streamlined presentation,
(AAR Comment 7), and UP's argument that shippers are not dissuaded from
bringing Full-SAC cases because of the costs of addressing market
dominance (UP Comment 14). The litigation costs associated with a non-
streamlined market dominance presentation could act as a barrier to
bringing a rate proceeding for any shipper; while the streamlined
approach may be particularly useful for shippers with fewer resources,
the streamlined approach would enhance the accessibility of the Board's
rate review procedures more broadly. Even for shippers with greater
resources, if the costs of pursuing a complaint would consume most or
all of the expected recovery, then the remedy would be a hollow one for
the complainant. A Full-SAC presentation would not be cost-effective
unless the value of the expected remedy, at a minimum, exceeds the
expected cost of obtaining the remedy. If the streamlined approach can
reduce litigation costs in Full-SAC cases just as effectively and
appropriately as in smaller cases, there is no reason not to allow use
of the approach just because the shipper may be able to bear the cost
of the non-streamlined approach.
UP's additional arguments that the streamlined approach should not
be used in Full-SAC cases lack merit for the same reasons. Even if the
streamlined approach does not reduce the length of the procedural
schedule, the approach should have the benefit of reducing litigation
costs for both parties. Finally, the Board disagrees with UP's claim
that the streamlined approach will encourage ``wasteful'' litigation
that may be intended to force settlements from railroads. If a case
brought under the streamlined approach is not valid, railroads should
easily be able to defend themselves against such claims. If the
railroad does refute any of the factors or otherwise shows that
effective competition exists, the shipper would be precluded from
challenging the same rate again for several years, as discussed in more
detail in Part IV (subpart C, ``Preclusive Effect of Dismissal''). A
rate case is a significant undertaking, not just in terms of costs and
resources, but in the way that it can negatively affect the business
relationship between a shipper and rail carrier. Accordingly, the Board
is not convinced that shippers are likely to file cases that they do
not believe have merit, even when the costs of doing so are
reduced.\44\
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\44\ When the filing fee for a Full-SAC case was reduced from
$178,200 to $350 and for a Simplified SAC case from $10,600 to $350
in 2008, there was no noticeable increase in the number of rate
cases filed at the Board. See Regulations Governing Fees for Servs.
Performed in Connection with Licensing & Related Servs.--2007
Update, EP 542 (Sub-No. 14) (STB served Jan. 25, 2008).
---------------------------------------------------------------------------
B. Schedule
NGFA requests that the Board clarify at what point the Board will
``make the determination that a complainant has met the requirements
for a prima facie showing of market dominance and may proceed under the
streamlined approach, as opposed to the final determination that the
complainant has met its burden of demonstrating market dominance[.]''
(NGFA Comment 7.) The Board does not anticipate issuing an intermediate
decision addressing the sufficiency of a complainant's prima facie
market dominance case as a matter of course in each proceeding. After
the close of the record, the Board would issue a decision on market
dominance as part of its final decision. The Board may issue a decision
earlier if its finds that the case should be dismissed for lack of
market dominance.
The Coalition Associations propose that complainants have the
option of litigating market dominance on an expedited, bifurcated
procedural schedule, rather than simultaneously with the rate
reasonableness portion of the case (though under the Coalition
Associations' proposal, market dominance and rate reasonableness would
still be decided in a single final decision). (Coalition Associations
Comment 20-23.) Parties may already request bifurcation in individual
rate case proceedings, and they may continue to do so if using the
streamlined approach. See, e.g., M&G Polymers USA, LLC v. CSX Transp.,
Inc., NOR 42123 (STB served May 6, 2011).\45\
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\45\ If requesting bifurcation, parties need to address how the
bifurcated schedule would impact the procedural timelines set out by
statute, see 49 U.S.C. 10704, and the applicable Board regulations
for the rate review process involved, see, e.g., 49 CFR 1111.9,
1111.10.
---------------------------------------------------------------------------
Finally, some commenters suggest that the Board adopt procedural
time limits for pleading the streamlined market dominance approach.
(TRB Professors Comment 3; PRFBA Comment 2.) The NPRM proposed to
incorporate the streamlined market dominance proposal into the standard
procedural schedules governing rate cases. The Board finds that it is
not necessary to establish separate procedural time limits for pleading
the streamlined approach. Parties are free to request alternate
procedural schedules, just as they may do under the non-streamlined
approach currently. Moreover, the page limits the Board is adopting for
streamlined market dominance filings is intended to encourage
efficiency by the parties. See NPRM, EP 756, slip op. at 12 (stating
that page limits will encourage parties to focus their arguments on the
most important issues.)
C. Disclosures and Verified Statements
Under the Board's existing regulations, complainants in Simplified-
SAC and Three-Benchmark cases must provide to the defendant, with their
complaints, the URCS Phase III inputs used in preparing the complaint,
``[a] narrative addressing whether there is any feasible transportation
alternative for the challenged movements,'' and ``all documents relied
upon in formulating its assessment of a feasible transportation
alternative and all documents relied upon to determine the inputs to
the URCS Phase III program.'' 49 CFR 1111.2(a), (b). In the NPRM, the
Board proposed expanding the applicability of these disclosure
requirements to include any case in which a complainant utilizes the
streamlined market dominance approach. See NPRM, EP 756, slip op. at
11.
WCTL objects to the Board's proposal to require complainants to
make these disclosures in large rate cases where the streamlined
approach is used. WCTL argues that, in such cases, issues regarding the
URCS inputs are best addressed and resolved through technical
conferences. (WCTL Comment 11.) WCTL also objects to requiring
disclosure in large rate cases of all the market dominance evidence
that the complainant relied upon, as this will
[[Page 47691]]
add a substantial new burden on complainants that may discourage them
from using the streamlined approach. WCTL claims that the disclosures
are also unnecessary, as defendants can still obtain relevant evidence
through discovery. (Id. at 12.) Lastly, WCTL asserts that a shipper in
a large rate case may not decide whether to use the streamlined
approach until it completes its market dominance discovery from the
defendant carrier. (Id. at 13.)
UP argues that these disclosure requirements should be modified for
cases in which the complainant elects to use the streamlined market
dominance approach. (UP Comment 7-9.) UP argues that shippers using the
streamlined approach will produce a narrower selection of documents
than under the non-streamlined approach, because, according to UP, the
proposed regulation reduces the transportation alternatives the shipper
must initially consider. (Id. at 8.) UP claims that this could prevent
railroads from obtaining relevant documents, to which UP states they
are entitled, concerning effective competition. Accordingly, UP
proposes different disclosure requirements.\46\ It claims that its
proposed disclosure requirements would be easy for a shipper to comply
with, as they involve producing evidence that the complainant has
likely already reviewed in deciding whether to bring a rate case. UP
also claims that these requirements would expedite proceedings and
reduce litigation. (Id. at 8.)
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\46\ Specifically, UP proposes that a complainant disclose the
following: (1) Information regarding any use by the shipper of
transportation alternatives during the previous five years; (2)
information regarding any studies or consideration of transportation
alternatives during the previous five years; and (3) any
transportation contracts that could have been used for the issue
traffic during the previous five years. (UP Comment 7-8.)
---------------------------------------------------------------------------
AAR also suggests that the shipper disclose all supporting
information for its assertions of market dominance along with the
filing of its complaint. In particular, AAR argues that complainants
should be required to disclose what steps they have taken to evaluate
the intramodal, barge, build-out, and pipeline options, including any
studies they have undertaken, as part of the verified statement that
they may rely on to demonstrate that these factors have been met. (AAR
Comment 11; see also UP Comment 9 (arguing for broader disclosure
requirements, including shipper studies of transportation alternatives,
in streamlined approach cases).) AFPM asks the Board to clarify what
type of documentation would be acceptable and define or list who it
deems to be ``appropriate officials'' for purposes of submitting the
verified statement. (AFPM Comment 6.)
The Coalition Associations state that they do not object to the
concept of different disclosure requirements for the streamlined
approach, but they believe that the proposals made by UP and AAR are
too broad. (Coalition Associations Reply 23-24.) Accordingly, the
Coalition Associations offer modified versions of the disclosure
requirements suggested by UP. (Id. at 24.) \47\
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\47\ Specifically, the Coalition Associations propose that a
complainant be required to disclose: (1) All shipments of the issue
commodity by any mode made with any transportation provider other
than the defendant railroad during the previous five years; (2) any
transportation contracts that the complainant or its affiliates
could have used to transport the issue traffic between the issue
origin and issue destination and intermediate transloading points
during the previous five years; and (3) all available studies or
email correspondence in complainant's possession concerning
transportation alternatives for movements of the issue commodity or
commodities from each issue origin to the corresponding issue
destination during the previous five years. (Coalition Associations
Reply 24.)
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After reviewing the comments and upon further consideration, the
Board will not amend its regulations to extend the existing disclosure
requirements of 49 CFR 1111.2(a) and (b) to all cases in which the
streamlined approach is used, as it proposed to do in the NPRM.\48\ The
Board recently considered adding a disclosure requirement in Full-SAC
cases but, after receiving input from stakeholders, concluded that
allowing parties to engage in discovery would be more beneficial. See
Expediting Rate Cases, EP 733, slip op. at 6 (STB served Mar. 30,
2017). The Board similarly finds that allowing for discovery in other
non-simplified cases would be more effective. Moreover, 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. Accordingly, the Board will maintain the separate
evidentiary processes for simplified and non-simplified cases.\49\
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\48\ Accordingly, the NPRM's proposed regulation at 49 CFR
1111.12(c) will not be adopted.
\49\ In Expediting Rate Cases, EP 733 (STB served Nov. 30,
2017), the Board adopted regulations that require complainants and
defendants in non-simplified standards cases to certify in their
complaints and answers, respectively, that they have served their
initial discovery requests on the opposing party. 49 CFR 1111.2(f)
and 1111.5(f).
---------------------------------------------------------------------------
The Board also declines to modify the disclosure requirements as
they pertain to simplified standards cases (i.e., Simplified-SAC and
Three-Benchmark) in which the streamlined market dominance approach is
used, as suggested by UP and the Coalition Associations. The Board has
not proposed to change the language of 49 CFR 1111.2(a) or (b) that set
forth the disclosure requirements in such cases. Accordingly, the
language of Sec. 1111.2--even when read in conjunction with Sec.
1111.12 establishing the prima facie factors--would still require
complainants to disclose documents pertaining to any feasible
transportation alternative, even ones that are not specific to the
prima facie factors. As a result, the information that must be
disclosed in simplified standards cases will remain the same,
regardless of which market dominance approach is used.
The Board also will not adopt AAR's suggestion to require
complainants to disclose the steps they have taken to evaluate
potential intramodal, barge, or build out options and submit all
studies they have undertaken. As noted, complainants in Simplified-SAC
and Three-Benchmark cases are already required to make certain
disclosures regarding feasible transportation alternatives. Contrary to
UP's assertion, the Board finds that, in Simplified-SAC and Three-
Benchmark cases, these requirements are sufficient. For cases not
brought under those simplified standards, a defendant can obtain access
to any relevant evidence through discovery. In addition, the Board
finds it is not necessary for a complainant to provide documentation
with the verified statement. As explained in the Board's discussion of
the build-out factor (supra, Part II, subpart F ``No Practical Build-
Out Option''), the statement itself should be sufficient to demonstrate
that the factors it supports have been met. While the Board will not
preclude a complainant from submitting documentation if it wishes, the
purpose of the streamlined approach is to reduce the litigation burden
on complainants where a lack of effective competition is reasonably
likely.
Lastly, in response to the AFPM's comment, the Board will add
language to the regulation to clarify who constitutes an ``appropriate
official'' to submit the verified statement. The official submitting
the verified statement should be an individual who has either direct or
supervisory responsibility for, or otherwise has knowledge or
understanding of, the complainant's transportation needs and options.
In the verified statement, the official should provide his or her title
and a short description of his or her duties. These revisions will be
made to Sec. 1111.12(b), as set forth in the text of the final rule
below.
[[Page 47692]]
D. Rebuttal Evidence and Burden of Proof
Several commenters raise concerns regarding what evidence would be
permissible on rebuttal under the streamlined approach. The Coalition
Associations request that the Board clarify that, under the streamlined
approach, a complainant may submit ``any evidence on rebuttal that is
responsive to a defendant's reply evidence on the same factors
regardless of whether such evidence was available to the complainant on
opening.'' (Coalition Associations Comment 23-24.)
AAR argues that the Board should not allow shippers to produce new
evidence on rebuttal or at the ALJ hearing when the shipper has elected
to use the streamlined approach. (AAR Comment 14-15.) It states,
however, that ``[o]f course, if a defendant railroad introduces
evidence unrelated to the prima facie factors in its market dominance
submission, complainants should be allowed to provide appropriate
rebuttal evidence.'' (Id. at 15.)
UP asserts that the Board should clarify its statement in the NPRM
that the ``burden for establishing market dominance remains on the
complainant.'' (Id. at 4 (quoting NPRM, EP 756, slip op. at 11.) UP
argues that the prima facie factors should not be evidentiary
presumptions and that if the railroad offers other evidence of
effective competition on reply, and the shipper does not convincingly
rebut that evidence with its own evidence beyond the prima facie
factors, the railroad should prevail on market dominance. (UP Comment
6; UP Reply 4.) UP also requests that the Board clarify that, if a
railroad offers evidence of effective competition (e.g., the issue
commodity can be trucked more than 500 miles or a transload option
exists), the shipper can only submit evidence regarding the existence
of this factor (e.g., the shipper could submit evidence showing that
500 miles or transloading is not practical, but the shipper could not
submit evidence that truck or transload pricing is not practical). (UP
Comment 6; see also UP Reply 4.)
The Coalition Associations object to UP's argument that
complainants should be precluded from offering rebuttal evidence in
response to a railroad's reply arguments on effective competition. They
argue that ``[i]f a complainant who uses the factors would lose its
ability to submit evidence on rebuttal in response to a railroad
argument that effective competition exists, the factors would have no
benefit.'' (Coalition Associations Reply 21.)
As an initial matter, the Board reiterates that the ``streamlined
market dominance approach would not result in a shifting of the burden
for market dominance'' and that the ``burden for establishing market
dominance remains on the complainant.'' NPRM, EP 756, slip op. at 11.
In addition, there is no limitation on what relevant evidence the
railroad may submit on reply to make its market dominance case. Id. at
12 (``Carriers would be permitted to refute any of the prima facie
factors of the complainant's case, or otherwise show that effective
competition exists for the traffic at issue.'').
In a non-streamlined market dominance inquiry, a complainant is
free to rebut the railroad's reply argument and evidence with its own
counterevidence, so long as it meets the Board's standard for proper
rebuttal evidence in rate cases. See Consumers Energy Co. v. CSX
Transp., Inc., NOR 42142, slip op. at 4-5 (STB served Dec. 9, 2016)
(holding that the complainant was entitled to offer corrective evidence
to demonstrate that the defendant carrier's reply evidence on market
dominance issues was unsupported, infeasible, or unrealistic). This
standard would likewise apply to complainants using the streamlined
approach. If the railroad submits evidence to show that one of the
prima facie factors has not been satisfied or that there is otherwise
effective competition, the complainant may provide evidence on rebuttal
refuting the railroad's reply evidence, including evidence that was
available to the complainant on opening. As in a non-streamlined market
dominance case, the Board may strike argument or evidence as improper
either upon its own motion or upon motion by the parties.
As explained in the NPRM, EP 756, slip op. at 11, a complainant
that meets each of the required factors will have made a prima facie
showing of market dominance. On reply, a defendant railroad can refute
the prima facie showing by presenting evidence of, for example,
effective competition from other transportation providers and, in doing
so, might rely on evidence that the complainant itself would have
provided in a non-streamlined market dominance inquiry. But contrary to
UP's assertion, the fact the railroad might rely on such evidence in
support of its own argument does not amount to a shifting of the burden
of proof.\50\
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\50\ Additionally, the Board will not limit the complainant on
rebuttal from relying only on evidence that it produced in
discovery. There may be instances where the complainant has evidence
available to it that is properly responsive to the defendant's reply
argument but that was not sought in discovery (though the Board does
not anticipate that there will likely be many instances where this
occurs, particularly if the defendant has made sufficient discovery
requests). Of course, if the complainant relies on evidence on
rebuttal that was not produced in discovery, but which should have
been, the defendant can file a motion to strike that evidence. See
Total Petrochems., NOR 42121, slip op. at 14 (granting defendant's
motion to strike evidence on inventory carrying costs that
complainant should have produced in discovery).
---------------------------------------------------------------------------
E. Rebuttal Hearing
The Board proposed in the NPRM that, as part of the streamlined
market dominance process, a complainant would have the option to
request an evidentiary hearing conducted by an ALJ. NPRM, EP 756, slip
op. at 12. The hearing would be on-the-record and could be conducted
telephonically.\51\ The purpose would be to ``allow the parties to
clarify their market dominance positions under oath, and to build upon
issues presented by the parties through critical and exacting
questioning.'' Id. The Board received several comments relating to the
ALJ hearing process.
---------------------------------------------------------------------------
\51\ As part of the NPRM, the Board proposed modifying its
regulation that sets forth delegations of Board authority, 49 CFR
1011.6, to allow an ALJ to conduct such hearings.
---------------------------------------------------------------------------
1. Clarification
UP asks the Board to clarify certain language in the NPRM
describing the ALJ hearing and written rebuttal. (UP Comment 11.) The
NPRM at one point stated that, if the complainant requested the
hearing, it would be conducted ``within seven days after the due date
of complainant's rebuttal,'' \52\ NPRM, EP 756, slip op. at 12, which
perhaps could be read to suggest that complainants would be required to
submit a written rebuttal and then would also have the option to
request the ALJ hearing. However, later, the NPRM stated that,
``[g]iven this hearing, the complainant may elect whether to file
rebuttal evidence on market dominance issues . . . or to rely on the
ALJ hearing to rebut the defendant's reply evidence.'' Id. (emphasis
added). UP asks the Board to clarify and states that ``if complainants
must choose one or the other, we have no objection to giving them that
choice.'' (UP Comment 11.)
---------------------------------------------------------------------------
\52\ This language was similarly restated in the proposed rule
of the NPRM, which included the proposed changes to the text of the
regulations.
---------------------------------------------------------------------------
The Board clarifies that a complainant must choose whether to file
a written rebuttal or request the ALJ hearing. An evidentiary hearing
following written rebuttal is not required even under the non-
streamlined approach and would increase the litigation costs for both
the
[[Page 47693]]
complainant and defendant. In contrast, allowing the complainant to
utilize an ALJ hearing in lieu of a written rebuttal would give the
complainant an additional means to potentially limit litigation costs
while still allowing full development of the record. To the extent some
parties expressed concern that the Board's proposal unfairly excludes
defendants from requesting an ALJ hearing,\53\ such concerns may have
been attributed to the ambiguity in the NPRM as to whether the ALJ
hearing was in addition to rebuttal or taking the place of
complainant's written rebuttal. The Board further finds that the
complainant, as the party with the burden of proof, should have the
final evidentiary presentation (as it does in other aspects of the rate
case process) and therefore it is not inappropriate for the complainant
to be the party that can request an ALJ hearing in lieu of filing
written rebuttal.
---------------------------------------------------------------------------
\53\ AAR and BNSF argue that defendants should also be afforded
an opportunity to request an ALJ hearing. (AAR Comment 14; BNSF
Comment 15.).
---------------------------------------------------------------------------
Given the clarification above that the ALJ hearing may be sought in
lieu of submitting a written rebuttal, the Board will adopt as part of
the final rule a requirement that the hearing be held on or about the
same day that the written rebuttal on the merits of rate reasonableness
is due. The complainant will be required to inform the Board in writing
within 10 days after the reply is filed if it intends to utilize the
ALJ hearing. This will give the complainant sufficient time to review
the railroad's reply arguments on market dominance and assess whether
it believes the written rebuttal or hearing is preferable, while still
leaving the complainant sufficient time to draft its rebuttal filing if
that is the option it chooses. This will also give the Board enough
time to schedule the ALJ hearing, if necessary. The full text of the
revised Sec. 1111.12(d),\54\ discussing the evidentiary hearing
process, is set forth below.
---------------------------------------------------------------------------
\54\ Section 1111.12(d) was proposed in the NPRM as paragraph
(e) but is designated as paragraph (d) in the final rule.
---------------------------------------------------------------------------
2. Hearing Logistics
UP argues that the hearing proposal is too underdeveloped.
Specifically, UP states that the NPRM does not identify who must
participate in the hearing to provide testimony and does not address
important issues of procedural fairness (e.g., whether parties will
conduct direct and cross-examination of witnesses, or whether only the
ALJ will question witnesses). UP also questions if the ALJ hearing
transcript can be produced within four days, as proposed by the Board.
(UP Comment 11.) AAR expresses concern about which ALJs the Board would
use and whether they have any substantive expertise in market dominance
issues. Finally, AAR requests that the Board clarify that the ALJ will
not rule on any market dominance issues and that the ALJ's role would
be limited to presiding over examination of witnesses. (AAR Comment
14.) Shipper interests did not comment on these issues.
Based on the comments, the Board will make minor modifications to
what was proposed in the NPRM concerning the ALJ hearing. It has been
the Board's recent practice to participate in the federal ALJ Loan
program to employ the services of ALJs from other federal agencies
(currently the Federal Mine Safety and Health Review Commission) on a
case-by-case basis to perform discrete, Board-assigned functions. In
response to the comments received, the Board notes that it may, at its
discretion, assign a member (or members) of Board staff to assist the
ALJ.
With respect to the structure or format of the hearing, such
matters will be left to the ALJ's discretion. However, the Board
clarifies that the ALJ's role in the streamlined approach will be to
preside over the evidentiary hearing (helping to gather information and
evidence), while the ultimate market dominance determination will be
made by the Board. The ALJ may, however, express his or her views of
certain arguments or evidence.
Lastly, in response to UP's concern about the production of the
hearing transcript, the Board will make a slight revision to the final
rules. Specifically, the Board will increase the period of time by
which it must provide the hearing transcript (either in draft or final
form) from four days to five days.\55\
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\55\ The Board typically receives a draft version of the hearing
transcript and then reviews it for errors. The Board will endeavor
to complete its review and provide the final transcript within the
five-day period, but there may be occasions when it must provide the
draft version pending its review.
---------------------------------------------------------------------------
The full text of the revised Sec. 1111.12(d), discussing the
evidentiary hearing process, is set forth in below.
F. Page Limits
The Board proposed in the NPRM that if a complainant opted to use
the streamlined market dominance approach, reply and rebuttal
submissions would be limited to 50 pages, inclusive of exhibits and
verified statements. NPRM, EP 756, slip op. at 12.
AAR suggests that the Board ``more carefully tailor the limitations
on evidence to the complexity of the case'' and proposes ``a 50-page
limit of narrative, excluding exhibits, for a one-lane case, with the
limit increasing by 10 pages for each additional lane, up to a maximum
of 100 pages.'' (AAR Comment 15.) UP argues that the Board should not
impose any page limits on the railroad's reply. UP contends that the
railroad replies will still need to contain all the same arguments and
evidence as under the current market dominance approach or more given
the need to address all of the prima facie factors. (UP Comment 10.) UP
suggests that the Board's reference in the NPRM, EP 756, slip op. at 12
n.15, to limitations the Board has previously placed on petitions for
reconsideration and briefs is misplaced because those filings are made
only after parties have filed evidentiary submissions. (UP Comment 10;
see also AAR Comment 15.)
The Coalition Associations oppose AAR's and UP's requests to expand
the page limits. The Coalition Associations dispute UP's argument that
a railroad would need to present the same arguments and evidence on
reply as it does in a non-streamlined case. (Coalition Associations
Reply 27.) FRCA expresses concern that 50 pages will not be sufficient
for rebuttal filings, stating that a defendant may raise a multitude of
issues and posit hypothetical and theoretical questions in its 50 pages
that will require more than 50 pages for the complainant to rebut.
(FRCA Comment 2; see also NCTA Comment 3.) In contrast, some shipper
interests propose that the Board lower the page limit for replies and
rebuttals to 25 pages. Their view is that a 50-page limit would leave
too much room for overly burdensome arguments, whereas 25 pages would
eliminate that abuse but still provide adequate opportunity to raise
straightforward arguments. (SMA Comment 12-14; Indorama Comment 12-14;
IMA-NA Comment 12-14.) AFPM states that it supports the 50-page limit.
(AFPM Comment 10.)
A 50-page limit (including exhibits and verified statements)
strikes the proper balance between narrowing the focus of the parties'
arguments and providing sufficient opportunity for parties to address
the substantive issues. Despite AAR's and UP's arguments, 50 pages
should be sufficient to allow the railroad to address whether the prima
facie factors are met and whether there is effective competition. Under
the streamlined approach, the complainant is essentially making an
opening presentation that market dominance is readily apparent. If that
is not the case, then it should not require extensive argument and
evidence for the railroad to refute this assertion. In response to
[[Page 47694]]
AAR's concern that including exhibits in the 50-page would be
problematic because such exhibits often include studies that approach
or exceed 50 pages, the Board notes that parties can include excerpts
from a study or request a waiver of the 50-page limit.\56\
---------------------------------------------------------------------------
\56\ See E.I. DuPont de Nemours & Co. v. Norfolk S. Ry., NOR
42125, slip op. at 2 (STB served June 11, 2014) (granting waiver of
page limits on petitions for reconsiderations due to complexity of
the case).
---------------------------------------------------------------------------
The Board will also not adopt AAR's suggestion of expanding the
page limit for cases with multiple lanes. The Board will respond to
requests for a page limit extension in individual matters on a case-by-
case basis.
As for FRCA's argument that more pages would be needed for the
complainant's rebuttal, the purpose of the streamlined approach is to
reduce the litigation costs for shippers. In deciding whether to use
the streamlined approach, a shipper will have to weigh the risks and
benefits of using the streamlined approach (including the 50-page limit
on rebuttals).\57\
---------------------------------------------------------------------------
\57\ NCTA argues that a defendant could require a complainant to
provide more evidence than the complainant can provide within the
limited scope of a 50-page rebuttal and therefore requests that
``restrictions also be placed on the amount of information that a
defendant can request in its response to a complainant.'' (NCTA
Comment 3.) To the extent that NCTA is proposing that restrictions
be placed on the evidence that a defendant can obtain through
discovery, the Board will deny this request and finds that the
standards for discovery that would apply under the non-streamlined
approach should continue to apply here, and that discovery disputes
can be addressed on a case-by-case basis.
---------------------------------------------------------------------------
Finally, the Board rejects the argument from some shippers to lower
the page limit to 25 pages. That limit would likely restrict a
railroad's ability to present its arguments in sufficient detail and
include the necessary supporting evidence, as well as the complainant's
ability to rebut those arguments.
Part IV--Miscellaneous Issues
A. Limit Price Test
AAR and CSXT argue that the Board should affirmatively state that
it will not apply the ``limit price test'' in any future rate case.
(AAR Comment 16-17 (stating concern that the NPRM, by citing to a prior
proceeding, implicitly endorsed the limit price methodology); CSXT
Comment 3.) AAR and CSXT reiterate various arguments that railroads
have raised in the past as to why the limit price methodology should be
eliminated. (AAR Comment 16-17; CSXT Comment 3-4.) In response, the
Coalition Associations state that the Board should not use this
proceeding to either abandon or endorse the use of the limit price test
and point out that interested parties have not had a full opportunity
to comment on the issue. (Coalition Reply 35.)
The NPRM did not discuss the limit price test but merely cited to a
prior proceeding for the general proposition that a qualitative market
dominance analysis involves the determination of ``any feasible
transportation alternatives sufficient to constrain the railroad's
rates for the traffic to which the challenged rates apply.'' NPRM, EP
756, slip op. at 2. The limit price test's applicability to market
dominance analyses in future cases is not under consideration as part
of this proceeding, and as such the Board will not address this issue.
B. DMIR Precedent
AAR argues that, for the streamlined market dominance approach, the
Board should not apply its DMIR precedent \58\ in the same manner that
the agency did in DuPont 2014, NOR 42125, slip op. at 25-29. (AAR
Comment 12-14.) The DMIR precedent addressed how the agency should
consider market dominance when the rate at issue is for a segment of a
larger movement (a bottleneck segment). In DuPont 2014, the Board held
that, under the DMIR precedent, the agency cannot consider, as part of
the market dominance inquiry, transportation alternatives that cover
the whole route when only the bottleneck segment rate is being
challenged. DuPont 2014, NOR 42125, slip op. at 26-29 (also stating
that this conclusion is consistent with a legislative directive to
process rate complaints more expeditiously and the long-standing
Congressional intent that market dominance be a practical determination
made without delay; and stating the conclusion is consistent with the
Board's statutory directives.) The Coalition Associations argue that
the Board's decision in DuPont 2014 was correct and that AAR is simply
repeating many of the same arguments that were raised and rejected by
the Board in DuPont 2014. (Coalition Associations Reply 17-20.)
---------------------------------------------------------------------------
\58\ AAR refers to ``the DMIR case.'' (See, e.g., AAR Comment
12.) What the Board refers to here as ``the DMIR precedent'' is
actually two decisions: Minnesota Power, Inc. v. Duluth, Missabe &
Iron Range Railway, 4 S.T.B. 64 (1999) and Minnesota Power, Inc. v.
Duluth, Missabe & Iron Range Railway, 4 S.T.B. 288 (1999).
---------------------------------------------------------------------------
The Board did not seek comment on the DMIR and DuPont 2014
precedent as part of the NPRM. Moreover, AAR's objections to the DMIR
and DuPont 2014 precedent are not specifically tied to the streamlined
approach, but to that precedent in general. As such, AAR's arguments go
beyond the scope of this proceeding and the Board will not address the
issue here.
C. Preclusive Effect of Dismissal
Olin and FRCA state that they ``disagree'' with the statement in
the NPRM, EP 756, slip op. at 11, that if the Board finds that market
dominance has not been shown by a complainant that has used the
streamlined approach, the complainant may not submit a new rate case
involving the same traffic using the non-streamlined market dominance
presentation unless there are changed circumstances (or other factors
under 49 U.S.C. 1322(c)). (Olin Comment 9-10, FRCA Comment 3.) Railroad
interests did not comment on this issue. Board and court precedent hold
that a complainant seeking to challenge the same rates at issue in a
prior proceeding can do so only upon a showing of changed circumstance,
new evidence, or material error. See Burlington N. & Santa Fe Ry. v.
STB, 403 F.3d 771, 778 (D.C. Cir. 2005); Intermountain Power Agency v.
Union Pac. R.R., NOR 42127, slip op. 4 (STB served Nov. 2, 2012).
Therefore, it is appropriate that a complainant cannot file a new
complaint to challenge the same traffic where the Board has previously
found no market dominance, absent a showing that one of these criteria
are met.
D. Regulatory Impact Analysis
In his comment, Dr. Ellig proposes that the Board conduct a
``regulatory impact analysis'' (RIA), which is a form of a cost-benefit
analysis, in this proceeding and in Final Offer Rate Review, Docket No.
EP 755.\59\ (Ellig Comment 3-4.) Dr. Ellig explains how the Board could
apply the RIA framework to the rules proposed in these two proceedings.
Other parties did not comment on the proposal. The Board is considering
whether and how particular cost-benefit analysis approaches might be
more formally integrated into its rulemaking processes.\60\ While the
Board need not conduct a formal RIA, the Board has, as described
throughout this decision, carefully weighed the benefits and burdens
associated with particular
[[Page 47695]]
aspects of the streamlined market dominance approach, which as noted
below, has been designated as non-major. See, e.g., supra, at 3-4, 7-8,
10-11, 13, 22, 26-27. Further, in this proceeding, the Board is not
creating a new right or remedy but is merely streamlining an existing
process. As noted above, the Board does not expect the streamlined
approach to change the outcome that would have been reached under the
non-streamlined market dominance approach. Rather, it expects the rule
to decrease the burden in potentially meritorious cases, including the
burden that may have unnecessarily limited the accessibility of the
Board's rate review processes and therefore dissuaded shippers from
filing a case.
---------------------------------------------------------------------------
\59\ Dr. Ellig submitted his comment in this docket, Final Offer
Rate Review, Docket No. EP 755, and Expanding Access to Rate Relief,
Docket No. EP 665 (Sub-No. 2), as well as in Association of American
Railroads--Petition for Rulemaking, Docket No. EP 752.
\60\ See Assoc. of Am. R.Rs.--Pet. for Rulemaking, EP 752, slip
op. at 1 (STB served Nov. 4, 2019); see also Village 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 Administrative
Procedure Act requires the Board to conduct formal cost-benefit
analysis.'').
---------------------------------------------------------------------------
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 final rule, the agency must either include a final regulatory
flexibility analysis, section 604(a), or certify that the proposed rule
would not have a ``significant impact on a substantial number of small
entities,'' section 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.\61\
The Board explained that its proposed changes to its regulations would
not mandate or circumscribe the conduct of small entities. Indeed, the
proposal requires no additional recordkeeping by small railroads or any
reporting of additional information. Nor do these proposed 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,
including addressing whether they have market dominance over traffic.
---------------------------------------------------------------------------
\61\ 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 1201.1-1. See Small Entity Size Standards
Under the Regulatory Flexibility Act, EP 719 (STB served June 30,
2016) (with Board Member Begeman dissenting). Class III carriers
have annual operating revenues of $20 million or less in 1991
dollars, or $40,384,263 or less when adjusted for inflation using
2019 data. Class II rail carriers have annual operating revenues of
less than $250 million but in excess of $20 million in 1991 dollars,
or $504,803,294 and $40,384,263, respectively, when adjusted for
inflation using 2019 data. 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 June 10, 2020).
---------------------------------------------------------------------------
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 756, slip op. at 13 (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.
The final rule adopted here revises the rules proposed in the NPRM;
however, the same basis for the Board's certification in the proposed
rule applies to the final rule. Thus, the Board certifies under 5
U.S.C. 605(b) that the final rule 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 is modifying 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, 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
questions the factual basis for the Board's estimate that there would
be one additional complaint per year due to the new streamlined market
dominance procedures. (Ellig Comment 12.) The Board appreciates Dr.
Ellig's comment on this point. 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 streamlined market dominance procedures are new, market dominance
has long been a litigated issue in rate reasonableness cases. Based on
its substantial experience with the complexities of prior market
dominance litigation, and how such complexities had impacted the number
of rate reasonableness complaints filed each year, the Board estimated
that it would receive approximately one additional complaint due to the
streamlined market dominance approach. As no party submitted any
specific information that would lead to a more precise estimate, the
Board continues to find that the streamlined approach to market
dominance will likely lead to approximately one additional case per
year.
Dr. Ellig also comments 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 one additional complaint expected to be filed due to
the new streamlined market dominance procedures. (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. See
STB,
[[Page 47696]]
Supporting Statement for Modification & OMB Approval Under the
Paperwork Reduction Act & 5 CFR pt. 1320, OMB Control No. 2140-0029
(Mar. 2017), https://www.reginfo.gov/public/do/DownloadDocument?objectID=72159101. 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.
This modification and extension request of an existing, approved
collection will be submitted to OMB for review as required under the
PRA, 44 U.S.C. 3507(d), and 5 CFR 1320.11. The request will address the
comments discussed above as part of the PRA approval process.
Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801-808, the
Office of Information and Regulatory Affairs has designated this rule
as non-major, as defined by 5 U.S.C. 804(2).
It is ordered:
1. The Board adopts the final rule as set forth in this decision.
Notice of the adopted rule will be published in the Federal Register.
2. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. This decision is effective September 5, 2020.
List of Subjects
49 CFR Part 1011
Administrative practice and procedure; Authority delegations
(government agencies); Organization and functions (government
agencies).
49 CFR Part 1111
Administrative practice and procedure; Investigations.
Decided: July 31, 2020.
By the Board, Board Members Begeman, Fuchs, and Oberman.
Jeffrey Herzig,
Clearance Clerk.
For the reasons set forth in the preamble, the Surface
Transportation Board amends parts 1011 and 1111 of title 49, chapter X,
of the Code of Federal Regulations as follows:
PART 1011--BOARD ORGANIZATION; DELEGATIONS OF AUTHORITY
0
1. The authority citation for part 1011 continues to read as follows:
Authority: 5 U.S.C. 553; 31 U.S.C. 9701; 49 U.S.C. 1301, 1321,
11123, 11124, 11144, 14122, and 15722.
0
2. Amend Sec. 1011.6 by adding paragraph (i) to read as follows:
Sec. 1011.6 Delegations of authority by the Chairman.
* * * * *
(i) In matters involving the streamlined market dominance approach,
authority to hold a telephonic evidentiary hearing on market dominance
issues is delegated to administrative law judges, as described in Sec.
1111.12(d) of this chapter.
PART 1111--COMPLAINT AND INVESTIGATION PROCEDURES
0
3. The authority citation for part 1111 is revised to read as follows:
Authority: 49 U.S.C. 10701, 10702, 10704, 10707, 11701, and
1321.
0
4. Amend Sec. 1111.9 by revising paragraph (a) to read as follows:
Sec. 1111.9 Procedural schedule in stand-alone cost cases.
(a) Procedural schedule. Absent a specific order by the Board, the
following general procedural schedule will apply in stand-alone cost
cases after the pre-complaint period initiated by the pre-filing
notice:
(1) Day 0--Complaint filed, discovery period begins.
(2) Day 7 or before--Conference of the parties convened pursuant to
Sec. 1111.11(b).
(3) Day 20--Defendant's answer to complaint due.
(4) Day 150--Discovery completed.
(5) Day 210--Complainant files opening evidence on absence of
intermodal and intramodal competition, variable cost, and stand-alone
cost issues.
(6) Day 270--Defendant files reply evidence to complainant's
opening evidence.
(7) Day 305--Complainant files rebuttal evidence to defendant's
reply evidence. In cases using the streamlined market dominance
approach, a telephonic evidentiary hearing before an administrative law
judge, as described in Sec. 1111.12(d) of this chapter, will be held
at the discretion of the complainant in lieu of the submission of a
written rebuttal on market dominance issues. The hearing will be held
on or about the date that the complainant's rebuttal evidence on rate
reasonableness is due.
(8) Day 335--Complainant and defendant file final briefs.
(9) Day 485 or before--The Board issues its decision.
* * * * *
0
5. Amend Sec. 1111.10 by revising paragraph (a) to read as follows:
Sec. 1111.10 Procedural schedule in cases using simplified standards.
(a) Procedural schedule. Absent a specific order by the Board, the
following general procedural schedules will apply in cases using the
simplified standards:
(1)(i) In cases relying upon the Simplified-SAC methodology:
(A) Day 0--Complaint filed (including complainant's disclosure).
(B) Day 10--Mediation begins.
(C) Day 20--Defendant's answer to complaint (including defendant's
initial disclosure).
(D) Day 30--Mediation ends; discovery begins.
(E) Day 140--Defendant's second disclosure.
(F) Day 150--Discovery closes.
(G) Day 220--Opening evidence.
(H) Day 280--Reply evidence.
(I) Day 310--Rebuttal evidence. In cases using the streamlined
market dominance approach, a telephonic evidentiary hearing before an
administrative law judge, as described in Sec. 1111.12(d) of this
chapter, will be held at the discretion of the complainant in lieu of
the submission of a written rebuttal on market dominance issues. The
hearing will be held on or about the date that the complainant's
rebuttal evidence on rate reasonableness is due.
(J) Day 320--Technical conference (market dominance and merits,
except for cases using the streamlined market dominance approach, in
which the technical conference will be limited to merits issues).
(K) Day 330--Final briefs.
(ii) In addition, the Board will appoint a liaison within 10
business days of the filing of the complaint.
(2)(i) In cases relying upon the Three-Benchmark methodology:
(A) Day 0--Complaint filed (including complainant's disclosure).
(B) Day 10--Mediation begins. (STB production of unmasked Waybill
Sample.)
(C) Day 20--Defendant's answer to complaint (including defendant's
initial disclosure).
(D) Day 30--Mediation ends; discovery begins.
(E) Day 60--Discovery closes.
(F) Day 90--Complainant's opening (initial tender of comparison
group and opening evidence on market dominance). Defendant's opening
(initial tender of comparison group).
(G) Day 95--Technical conference on comparison group.
[[Page 47697]]
(H) Day 120--Parties' final tenders on comparison group.
Defendant's reply on market dominance.
(I) Day 150--Parties' replies to final tenders. Complainant's
rebuttal on market dominance. In cases using the streamlined market
dominance approach, a telephonic evidentiary hearing before an
administrative law judge, as described in Sec. 1111.12(d) of this
chapter, will be held at the discretion of the complainant in lieu of
the submission of a written rebuttal on market dominance issues. The
hearing will be held on or about the date that the complainant's
rebuttal evidence on rate reasonableness is due.
(ii) In addition, the Board will appoint a liaison within 10
business days of the filing of the complaint.
* * * * *
0
6. Add Sec. 1111.12 to read as follows:
Sec. 1111.12 Streamlined market dominance.
(a) A complainant may elect to pursue the streamlined market
dominance approach to market dominance if the challenged movement
satisfies the factors listed in paragraphs (a)(1) through (7) of this
section. The Board will find a complainant has made a prima facie
showing on market dominance when it can demonstrate the following with
regard to the traffic subject to the challenged rate:
(1) The movement has an R/VC ratio of 180% or greater;
(2) The movement would exceed 500 highway miles between origin and
destination;
(3) There is no intramodal competition from other railroads;
(4) There is no barge competition;
(5) There is no pipeline competition;
(6) The complainant has used truck for 10% or less of its volume
(by tonnage) subject to the rate at issue over a five-year period; and
(7) The complainant has no practical build-out alternative due to
physical, regulatory, financial, or other issues (or combination of
issues).
(b) A complainant may rely on any competent evidence, including a
verified statement from an appropriate official(s) with knowledge of
the facts, in demonstrating the factors set out in paragraph (a) of
this section. An appropriate official is any individual who has either
direct or supervisory responsibility for, or otherwise has knowledge or
understanding of, the complainant's transportation needs and options.
The official(s) should provide his or her title and a short description
of his or her duties in the verified statement. In demonstrating the
revenue to variable cost ratio, a complainant must show its
quantitative calculations.
(c) A defendant's reply evidence under the streamlined market
dominance approach may address the factors in paragraph (a) of this
section and any other issues relevant to market dominance. A
complainant may elect to submit rebuttal evidence on market dominance
issues. Reply and rebuttal filings under the streamlined market
dominance approach are each limited to 50 pages, inclusive of exhibits
and verified statements.
(d)(1) Pursuant to the authority under Sec. 1011.6 of this
chapter, an administrative law judge will hold a telephonic evidentiary
hearing on the market dominance issues at the discretion of the
complainant in lieu of the submission of a written rebuttal on market
dominance issues.
(2) The hearing will be held on or about the date that the
complainant's rebuttal evidence on rate reasonableness is due. The
complainant shall inform the Board by letter submitted in the docket,
no later than 10 days after defendant's reply is due, whether it elects
an evidentiary hearing of lieu of the submission of a written rebuttal
on market dominance issues.
(3) The Board will provide an unofficial copy of the hearing
transcript no later than 5 days after the conclusion of the hearing.
The Board will provide the official hearing transcript shortly
thereafter. The hearing transcript will be part of the docket in the
proceeding.
[FR Doc. 2020-17115 Filed 8-5-20; 8:45 am]
BILLING CODE 4915-01-P
