Surface Transportation Board Rejects Rail Cost Method

The US Dept. of Transportation's Surface Transportation Board (STB) said it would deny a proposed rulemaking petition from the Assocation of American Railroads (AAR) to shift to a replacement cost methodology for calculating returns on capital.

The shift to replacement cost methodology would have allowed the railroads “significant regulatory leeway to raise prices for years,” commented a report by Morgan Stanley Research North America. That said, the Morgan Stanley analysts conclude the current regulatory framework has served the industry well. Not all railroads earn adequate returns, so the potential for returns ot impede rate increases is still a few years off, the analysts continued.

“It is in shipper, railroad and regulator interest to have a healthy, profitable, self-funding rail industry that can improve efficiency and infrastructure to handle future volume growth,” said Morgan Stanley. STB has commented in the past about the need for further investment in rail infrastructure, the analysts point out. If rate challenges begin to inhibit future investment in rail networks, Morgan Stanley suggests the STB could become more circumspect in assessing the implciations of rate challenges.

The National Industrial Transportation League (NITL) and other shipper organizations have asked the US Court of Appeals for the District of Columbia Circuit Court to review the decision of the STB for simplified and expedited methods to contest the reasonableness of rail rates. They contend the relief caps in the Simplified Stand Alone Cost (SAC) and “Three Benchmark” cases are too low to satisfy the statutory requirements that rail rates to captive shippers must be reasonable.

Separately, the STB has scheduled a public meeting to discuss the Christensen Associates' study of rail competitiveness. The meeting is November 6th at the STB's headquarters in Washington, DC. The study will be released prior to the meeting at

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