STB should implement a revenue adequacy standard in rate cases, ACC says

The American Chemistry Council (ACC) on Tuesday filed a second set of comments with the Surface Transportation Board (STB), urging the board to implement a more efficient, workable method to review and determine the reasonableness of rail rates.

The comments were filed in response to the STB's decision to explore its methodology for determining railroad revenue adequacy and the revenue adequacy component used in judging the reasonableness of freight-rail rates.

The STB's current rate review standards were implemented more than three decades ago to ensure that railroads generate sufficient revenue to cover costs, make long-term investments and earn a reasonable profit. Yet, the standards also were meant to ensure that rail shippers are not required to pay higher rates beyond what's necessary for a railroad to be revenue adequate, ACC officials said in a press release.

Despite recent determinations that railroads are now highly profitable, the STB has not applied a revenue adequacy standard when reviewing rate cases and instead assumes that all railroads still are not earning sufficient revenues, they said.

The STB also applies an "onerous" stand-alone cost method to judge a rate's reasonableness, ACC officials said. The STB considers a rate to be reasonable unless a shipper proves that it could build and operate its own railroad for less than what a railroad currently charges.

"Many shippers are left with no competition and no viable remedy to challenge unreasonable rates," said Thomas Schick, ACC’s senior director of distribution, regulatory and technical affairs.

Council officials urge the STB to recognize that railroads are financially sound and to implement a revenue adequacy standard in rate cases.

"Adopting this approach will continue to ensure the economic health of the rail industry while at the same time preventing the railroads from abusing their pricing power over captive shippers,” said Schick.

The STB declines to issue any comments on the ACC's proposals since they pertain to a pending case, said STB spokesperson Dennis Watson in an email.