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Surface Transportation Board plans hearing over railroad revenue adequacy procedures

Houston — The Surface Transportation Board said late Thursday it will hold a hearing on its railroad revenue adequacy procedures after a report released by its Rate Reform Task Force.

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The hearing will be held December 12 in Washington, D.C.

The RRTF recommended in the report released April 25 that STB "establish a definition of long-term revenue adequacy and that the board consider providing different remedies for rate cases involving carriers that are long-term revenue adequate."

The STB has the authority to order changes to a shipper's rail rate if the railroad is found to be overcharging the shipper.

RRTF suggested long-term revenue adequacy be determined by looking at the annual determinations over '"the shortest period of time, not less than five years, that includes both a year in which a recession began and a year that follows a year in which a recession began.'"

In addition, RRTF recommended the STB consider a rate increase constraint for long-term revenue-adequate carriers which would identify a point beyond which further application of differential pricing would be unwarranted, a suspension of the STB's Bottleneck protections, and reinstating the simplification of the Road Property Investment analysis in order to consider whether a long-term revenue-adequate carrier's rate is reasonable under the Simplified Stand-Alone Cost.

REVENUE ADEQUACY

The board is required to determine whether a Class I railroad is "revenue adequate" each year. The finding determines whether a railroad has sufficient revenue to cover its costs as well as attract investment capital with a reasonable rate of return.

The annual finding has come under scrutiny from some shippers, who argue that railroad profits have grown substantially in the last several years. Four of the seven Class I railroads in the US were deemed revenue adequate in 2017. The 2018 findings will be released later this year.

The board has previously noted that its predecessor -- the Interstate Commerce Commission -- "declared that once a railroad has become revenue adequate over a period of time, shippers should be able to challenge the railroad's rates on the ground that the railroad is financially healthy and thus does not need to charge such high rates."

PROCESS UNDEFINED

While the board often hears rate challenges from shippers, neither the ICC nor the board have ever fully defined the process for challenging a rail rate on the basis of revenue adequacy.

The STB's RRTF was established in January 2018 to recommend improvements. The report is available online at the STB's website.

Anyone interested in speaking at the hearing must file a notice of intent to participate with the Surface Transportation Board by October 31 and written testimony by November 26.

-- Olivia Kalb, olivia.kalb@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com