Montana Rail Link, Inc.-Petition for Rulemaking-Classification of Carriers

Published date02 October 2020
Citation85 FR 62271
Record Number2020-21859
SectionProposed rules
CourtSurface Transportation Board
Federal Register, Volume 85 Issue 192 (Friday, October 2, 2020)
[Federal Register Volume 85, Number 192 (Friday, October 2, 2020)]
                [Proposed Rules]
                [Pages 62271-62273]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-21859]
                [[Page 62271]]
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                SURFACE TRANSPORTATION BOARD
                49 CFR Part 1201
                [Docket No. EP 763]
                Montana Rail Link, Inc.--Petition for Rulemaking--Classification
                of Carriers
                AGENCY: Surface Transportation Board.
                ACTION: Notice of proposed rulemaking.
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                SUMMARY: The Surface Transportation Board (STB or Board) proposes to
                modify the thresholds for classifying rail carriers.
                DATES: Comments are due by November 2, 2020. Reply comments are due by
                December 1, 2020.
                ADDRESSES: Comments and replies may be filed with the Board via e-
                filing on the Board's website at www.stb.gov and will be posted to the
                Board's website.
                FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391.
                Assistance for the hearing impaired is available through the Federal
                Relay Service at (800) 877-8339.
                SUPPLEMENTARY INFORMATION: Under 49 CFR part 1201, General Instructions
                section 1-1(a), rail carriers are grouped into one of three classes for
                purposes of accounting and reporting. The classification of rail
                carriers is also used in a variety of other contexts, including
                differentiating the legal standards and procedures that apply to
                certain transactions subject to Board licensing, see, e.g., 49 U.S.C.
                10902, 11324, 11325, and prescribing labor protection conditions, see,
                e.g., 49 U.S.C. 10903(b)(2), 11326, among others.
                 The class to which any rail carrier belongs is determined by its
                annual operating revenues after application of a revenue deflator
                adjustment. Section 1-1(b)(1). Currently, Class I carriers have annual
                operating revenues of $504,803,294 or more, Class II carriers have
                annual operating revenues of less than $504,803,294 and more than
                $40,384,263, and Class III carriers have annual operating revenues of
                $40,384,263 or less, all when adjusted for inflation. Section 1-1(a)
                (setting thresholds unadjusted for inflation); Indexing the Annual
                Operating Revenues of R.Rs., EP 748 (STB served June 10, 2020)
                (calculating revenue deflator factor and publishing thresholds adjusted
                for inflation based on 2019 data).\1\ The revenue classification levels
                for railroads set forth at 49 CFR part 1201, General Instructions
                section 1-1(a) were adopted in 1992 by the Board's predecessor, the
                Interstate Commerce Commission. Mont. Rail Link, Inc. & Wis. Cent.
                Ltd., Joint Pet. for Rulemaking with respect to 49 CFR part 1201 (1992
                Rulemaking), 57 FR 27184 (June 18, 1992), 8 I.C.C.2d 625 (1992).
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                 \1\ The railroad revenue deflator formula is based on the
                Railroad Freight Price Index developed by the Bureau of Labor
                Statistics. The formula is as follows: Current Year's Revenues x
                (1991 Average Index/Current Year's Average Index). 49 CFR part 1201,
                Note A. Each year, the Board calculates the annual revenue deflator
                factor and publishes the updated railroad revenue thresholds for
                each class of carrier in a decision and on its website.
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                Background
                 On February 14, 2020, Montana Rail Link, Inc. (MRL), filed a
                petition for rulemaking to amend the Board's rail carrier
                classification regulations. In its petition, MRL requests that the
                Board increase the revenue threshold for Class I carriers to $900
                million. (Pet. 1.) MRL contends that it continues to be a regional
                railroad operationally and economically but may exceed the Class I
                revenue threshold within two years. (Id.) Citing principles drawn from
                the 1992 Rulemaking, in which the revenue thresholds were last raised,
                MRL asks that the Board address ``whether a regional carrier such as
                MRL should be treated as a Class I carrier, taking into account (1) the
                financial and operational differences between MRL and existing Class I
                carriers, and (2) the cost-benefit analysis of imposing Class I
                requirements on MRL.'' (Id. at 12.)
                 MRL argues that, from an operational standpoint, it is clearly
                different from a typical Class I carrier because of its heavy
                dependence on a single Class I interchange partner and because of the
                regional nature of its operations, with approximately 95% of its
                mainline track located in Montana. (Id. at 5-6.) From a financial
                standpoint, MRL also notes, among other things, that the average
                operating revenue for Class I railroads in 2018 was more than 27 times
                MRL's total revenue for that year and that the operating revenue for
                even the smallest Class I railroad was about 3.5 times the total
                revenue of MRL. (Id. at 8.) MRL contends that treating a regional
                railroad like MRL, with its operational and financial characteristics,
                as a Class I carrier would impose significant burdens on MRL with no
                offsetting public benefit. (Id. at 12.)
                 MRL submitted eight letters in support of its petition.\2\ No
                replies to MRL's petition were received.
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                 \2\ Letters of support were from the Montana Contractors'
                Association, Montana Agricultural Business Association, Montana
                Grain Elevator Association, Montana Petroleum Association, Inc.,
                Montana Taxpayers Association, Montana Chamber of Commerce, Treasure
                State Resources Association, and Montana Wood Products Association.
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                 On May 14, 2020, the Board initiated a rulemaking proceeding to
                consider MRL's petition and consider issues related to the Class I
                carrier revenue threshold determination. The Board invited ``comment
                about whether it should amend 49 CFR part 1201, General Instructions
                section 1-1(a), to increase the revenue threshold for Class I carriers,
                and, if so, whether $900 million or another amount would be
                appropriate.'' Mont. Rail Link, Inc.--Pet. for Rulemaking--
                Classification of Carriers, 85 FR 30680 (May 20, 2020), EP 763, slip
                op. at 2 (STB served May 14, 2020).
                 The Board received two comments in response to its May 14, 2020
                decision. On June 15, 2020, the American Short Line and Regional
                Railroad Association (ASLRRA) filed a comment in support of MRL's
                petition, and Transportation Trades Department, AFL-CIO (TTD) filed a
                comment opposing MRL's petition. MRL filed a reply on July 2, 2020.
                 ASLRRA supports MRL's petition, arguing that Class II railroads
                such as MRL are distinctly different from Class I railroads and that,
                in addition to many operational differences, there is a massive revenue
                gap between the largest Class II and the smallest Class I railroad.
                (ASLRRA Comment 2-3.) ASLRRA argues that MRL and similarly situated
                Class II railroads should continue to be classified in their current
                category, as the accounting, financial, and other burdens imposed on a
                Class II carrier by becoming a Class I carrier would outweigh any
                resulting benefits. (Id. at 3-4.) In addition to the cost of preparing
                the reports,\3\ ASLRRA notes that reclassifying MRL and other similarly
                situated railroads as Class I carriers would unnecessarily deprive them
                of the benefit of the Short Line Rehabilitation Tax Credit, which has
                provided MRL almost $3 million per year in additional funds to invest
                in infrastructure, and the Railroad Industry Agreement, which provides
                a mechanism for the railroads to work together to increase rail
                traffic. (Id. at 4.)
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                 \3\ In its petition, MRL estimates it would have to expend at
                least $150,000 annually to prepare the required reports, in addition
                to the costs associated with converting its accounting system,
                training employees, and maintaining and recording the reports. (Pet.
                9.)
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                 TTD, a coalition of 33 affiliate unions, opposes MRL's petition and
                requests that the Board not increase the Class I threshold. (TTD
                Comment 1.) TTD contends that increasing the Class I threshold could
                prevent MRL employees from benefiting from labor protective conditions
                that would apply if MRL were to become a Class I and
                [[Page 62272]]
                engage in a transaction with a Class III railroad. (See id. at 1-2.)
                Additionally, TTD contends that MRL has not shown that raising the
                threshold is appropriate or necessary or that classification as a Class
                I would be overly burdensome. (Id. at 1.) TTD also disagrees with MRL's
                assertion that the ICC intended the 1992 Rulemaking to prevent large
                regional railroads from becoming Class I railroads. (Id. at 2.) TTD
                asks that, if the Board grants MRL's petition, it adopt ``unique
                conditions'' for MRL; specifically, TTD requests that, if the Board
                finds it necessary to relieve MRL of financial reporting requirements,
                it nevertheless should apply the labor protective arrangements that
                would otherwise apply if MRL were to become a Class I railroad under
                the current threshold. (Id.)
                 In its reply, MRL reiterates that its operating and financial
                profiles are distinct from those of the current Class I carriers
                (noting, for example, that in 2018 it operated only about 720 miles of
                mainline track, nearly all of which is in one state, whereas the
                smallest current Class I carrier operated 3,397 miles of track across
                10 states and two countries) and that significant burdens would be
                imposed on MRL if the threshold is not increased, while limited, if
                any, benefits would accrue to the public. (MRL Reply 2, 5.) Further,
                MRL notes that the petition has received no opposition from any
                shipper, shipper organization, or governmental entity. (Id. at 5.) MRL
                also argues that the petition has not received ``broad-based
                opposition'' from labor organizations. (Id.) \4\ Regarding TTD's
                concern that MRL's proposal would keep its employees from benefiting
                from labor protective conditions, (see TTD Comment 1-2), MRL argues
                that the rail carrier classification system was established for the
                purpose of implementing accounting and reporting requirements and that
                TTD offers no rationale to support treating MRL as a Class I carrier
                for purposes of labor protections. (MRL Reply 3, 4.)
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                 \4\ MRL states that TTD only represents approximately 11.5% of
                MRL's employees. (MRL Reply 1.)
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                Proposed Amendments
                 The agency ``has broad discretion to require rail carriers to
                report financial and operating data, and to prescribe an underlying
                accounting system to produce that information.'' 1992 Rulemaking, 8
                I.C.C.2d at 631; see also 49 U.S.C. 11144, 11145, 11161-64. As noted
                above, the Board's classification of rail carriers affects the degree
                to which they must file annual, quarterly, and other operational
                reports and is relevant in other regulatory contexts as well. See 1992
                Rulemaking, 8 I.C.C.2d at 631-32: 49 CFR parts 1201, 1241-1250.
                 After reviewing the petition and comments, the Board will propose
                amendments to its rail carrier classification regulations. The proposed
                amendments would raise the Class I revenue threshold from $504,803,294
                (as adjusted for inflation) to $900 million and have the effect of
                excluding MRL (and other similarly situated carriers) from Class I
                status unless they have met the proposed revenue threshold for three
                years.
                 In proposing the amendments, the Board has considered ASLRRA's and
                MRL's arguments that the operational characteristics of regional
                railroads, like MRL, significantly differentiate it from the Class Is.
                For example, ASLRRA argues that small railroads are largely dependent
                on their Class I interchange partners for revenue, power, and car
                supply. (ASLRRA Comment 2.) This is true for MRL, which states that its
                only interchange partner is BNSF Railway Company (BNSF) and that
                approximately 84% of MRL's total revenue is generated from traffic
                interchanged with BNSF and ancillary services MRL performs for BNSF and
                96% of MRL's non-switching traffic is subject to rates set by BNSF.
                (MRL Reply 2.) ASLRRA also contends that smaller railroads are often
                dependent upon a limited market and a traffic base that may be non-
                diversified. (ASLRRA Comment 3.) This characteristic also appears to
                apply to MRL, as a majority of its traffic consists of only three
                commodities. (MRL Reply 2.) Based on the record to date, it does appear
                that regional railroads, such as MRL, even with revenues approaching
                the current threshold, function more like significant Class II carriers
                and do not possess the comparative attributes of Class I carriers.
                 Moreover, MRL provides a persuasive argument that the benefits of
                certain Class II carriers becoming Class I carriers under the Board's
                existing revenue thresholds would not outweigh the burdens that would
                be imposed on the newly classified carriers. (Pet. 8-9 (arguing that
                the same reasons that led the ICC in the 1992 Rulemaking to increase
                the Class I threshold to prevent regional railroads from becoming Class
                I carriers still apply today).) Should a regional carrier, such as MRL,
                become a Class I carrier pursuant to the current threshold, several
                significant accounting and financial reporting requirements would begin
                to apply even though the carrier's revenues would still be many
                hundreds of millions of dollars less, and its operations far more
                limited, than those of the smallest Class I carrier. (See id. (arguing
                that the key burden on MRL, if it were to become a Class I carrier, is
                the financial reporting); see also MRL Reply 2-3.) While the accounting
                and financial reporting required of Class I carriers is critical to the
                Board's regulatory framework, it is not apparent that additional
                reporting by carriers with MRL's characteristics is warranted,\5\
                particularly when the regulatory impact to such carriers extends beyond
                the Board's regulations. (See, e.g., ASLRRA Comment 4.) Therefore, the
                Board proposes to increase the Class I revenue threshold at this time
                in order to preserve an appropriate distinction between Class I and II
                railroads.\6\
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                 \5\ Traditionally, the agency has not found the need to collect
                accounting and reporting information from regional and smaller
                railroads to the same extent as the Class I rail carriers, all of
                which have much larger networks and different operational and
                financial characteristics. See, e.g., Calculation of Variable Costs
                in Rate Complaint Proceedings involving Non-Class I R.Rs., 6 S.T.B.
                798, 799 (2003); Elimination of Accounting & Reporting Requirements
                of Class II R.Rs., No. 37614, slip op. at 2 (ICC served Feb. 25,
                1982); Reduction of Accounting & Reporting Requirements, No. 37523,
                slip op. at 2 (ICC served Dec. 15, 1980). Consistent with these
                findings, the burden of additional reporting by carriers with MRL's
                characteristics is not justified by any potential use of that
                information from analysis, monitoring, and other purposes.
                 \6\ In 2001, the Board declined to increase the Class I revenue
                threshold in response to a request by Wisconsin Central Ltd.'s
                parent company. Proposal to Require Consol. Reporting by Commonly
                Controlled R.Rs., 5 S.T.B. 1050 (2001). As MRL observed, (see Pet. 5
                n.1), the key reason the Board rejected Wisconsin Central's request
                was Wisconsin Central's subsequent acquisition by Canadian National,
                which was already a Class I carrier. Although in that decision the
                Board also noted briefly that financial reporting for larger
                carriers, like Wisconsin Central, would be reasonable and not unduly
                burdensome, see Proposal to Require Consolidated Reporting, 5 S.T.B.
                at 1054-55, in this proceeding MRL has provided its own arguments--
                described above--regarding the relative burdens of accounting and
                financial reporting between Class I and Class II carriers and has
                identified burdens beyond such reporting.
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                 MRL has requested that the Board set an amended Class I threshold
                of $900 million, and no commenter has raised specific concerns with the
                $900 million figure. The Board proposes $900 million as a reasonable
                demarcation between Class I railroads and Class II railroads as it is
                sufficiently above the current Class II annual revenue level and below
                the revenue level of the smallest Class I carrier to maintain an
                appropriate division between the two classes of carriers for the
                foreseeable future.
                 TTD is concerned that MRL employees would lose the potential
                benefit of eligibility for the labor protective conditions available to
                employees of Class I carriers if the Class
                [[Page 62273]]
                I threshold is raised. (TTD Comment 1-2.) However, if the threshold is
                raised, MRL employees would suffer no loss of eligibility for labor
                protection compared to the status quo; they would continue to qualify
                for the same level of protection--that available to employees of Class
                II carriers--as they have for decades. TTD's comments to date have not
                persuaded the Board that this continued level of labor protection would
                be insufficient if MRL's annual revenues were between the current
                threshold and the proposed threshold of $900 million. In addition,
                TTD's suggestion that the Board adopt ``unique conditions'' for MRL
                would not establish a more appropriate demarcation between Class I and
                Class II carriers generally.
                 The proposed amendment to 49 CFR part 1201, General Instructions
                Sec. 1-l(a) would increase the revenue threshold for Class I carriers
                to $900 million.\7\ The proposal would not materially change the
                current threshold between Class II and Class III carriers but would
                merely restate it in 2019 dollars.\8\ As a result, Class I carriers
                would be those with annual operating revenues of $900 million or more;
                Class II carriers would be those with annual operating revenues of less
                than $900 million but in excess of $40.4 million; and Class III
                carriers would be those with annual operating revenues of $40.4 million
                or less. The proposal also would amend Note A to replace the 1991
                Average Index with the 2019 Average Index, as the new threshold levels
                would be calculated in 2019 dollars.
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                 \7\ Instruction section 1-1(a) currently defines Class I
                carriers as those with annual operating revenues of $250 million or
                more after applying the railroad revenue deflator formula shown in
                Note A, which, as noted above, is $504,803,294 or more in 2019
                dollars.
                 \8\ Instruction section 1-1(a) currently defines Class II
                carriers as those with annual operating revenues of less than $250
                million but in excess of $20 million and Class III carriers as those
                with annual operating revenues of $20 million or less, in both cases
                after applying the railroad revenue deflator formula shown in Note
                A. The current Class II/Class III threshold, in 2019 dollars, is
                $40,384,263, which the proposed rule would round to $40.4 million.
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                 The Board seeks comment on the proposed amendments discussed above.
                Interested persons may comment on the proposed amendments by November
                2, 2020; replies to comments may be filed by December 1, 2020.
                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 of a substantial number of small
                entities. In drafting a rule, an agency is required to: (1) Assess the
                effect that its regulation will have on small entities; (2) analyze
                effective alternatives that may minimize a regulation's impact; and (3)
                make the analysis available for public comment. Sections 601-604. In
                its notice of proposed rulemaking, the agency must either include an
                initial regulatory flexibility analysis, section 603(a), or certify
                that the proposed rule would not have a ``significant impact on a
                substantial number of small entities.'' Section 605(b).
                 Because the goal of the RFA is to reduce the cost to small entities
                of complying with federal regulations, the RFA requires an agency to
                perform a regulatory flexibility analysis of small entity impacts only
                when a rule directly regulates those entities. In other words, 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).
                 The Board's proposed changes to its regulations here are intended
                to update the Board's class classifications and do not mandate or
                circumscribe the conduct of small entities. For the purpose of RFA
                analysis for rail carriers subject to the Board's jurisdiction, the
                Board defines a ``small business'' as only including those rail
                carriers classified as Class III rail carriers under 49 CFR part 1201,
                General Instructions section 1-1. See Small Entity Size Standards Under
                the Regulatory Flexibility Act, 81 FR 42566 (June 30, 2016), EP 719
                (STB served June 30, 2016) (with the Board Member Begeman dissenting).
                With respect to the Class III thresholds, no substantive changes are
                being made, as the Board is only updating the regulations to reflect
                the Class III threshold in 2019 dollars (rounded) as opposed to 1991
                dollars. Therefore, the Board certifies under 5 U.S.C. 605(b) that
                these proposed rules, if promulgated, would not have a significant
                economic impact on a substantial number of small entities within the
                meaning of RFA.
                Paperwork Reduction Act
                 The Board's proposal does not contain a new or amended information
                collection requirement subject to the Paperwork Reduction Act of 1995,
                44 U.S.C. 3501-3521.
                List of Subjects in 49 CFR Part 1201
                 Railroads, Uniform System of Accounts.
                 It is ordered:
                 1. The Board proposes to amend its rules as set forth in this
                decision. Notice of the proposed rules will be published in the Federal
                Register.
                 2. Comments are due by November 2, 2020. Reply comments are due by
                December 1, 2020.
                 3. A copy of this decision will be served upon the Chief Counsel
                for Advocacy, Office of Advocacy, U.S. Small Business Administration.
                 4. This decision is effective on its service date.
                 Decided: September 28, 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 proposes to amend title 49, chapter X, part 1201
                of the Code of Federal Regulations as follows:
                PART 1201--RAILROAD COMPANIES
                0
                1. The authority citation for part 1201 continues to read as follows:
                 Authority: 49 U.S.C. 11142 and 11164.
                Subpart A--Uniform System of Accounts
                0
                2. In the General Instructions in subpart A, section 1-1(a) and Note A
                to section 1-1 are revised to read as follows:
                General Instructions
                 1-1 Classification of carriers. (a) For purposes of accounting and
                reporting, carriers are grouped into the following three classes:
                 Class I: Carriers having annual carrier operating revenues of $900
                million or more after applying the railroad revenue deflator formula
                shown in Note A.
                 Class II: Carriers having annual carrier operating revenues of less
                than $900 million but in excess of $40.4 million after applying the
                railroad revenue deflator formula shown in Note A.
                 Class III: Carriers having annual carrier operating revenues of
                $40.4 million or less after applying the railroad revenue deflator
                formula shown in Note A.
                * * * * *
                 Note A: The railroad revenue deflator formula is based on the
                Railroad Freight Price Index developed by the Bureau of Labor
                Statistics. The formula is as follows:
                 Current Year's Revenues x (2019 Average Index/Current Year's
                Average Index)
                * * * * *
                [FR Doc. 2020-21859 Filed 10-1-20; 8:45 am]
                BILLING CODE 4915-01-P
                

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