STB's Market Dominance and Final Offer Rate Review

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By: Jerry Ellig

November 06, 2019

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Introduction

The Staggers Rail Act of 1980 deregulated most freight rail rates but left the Interstate Commerce Commission (and now the STB) with responsibility for ensuring that rail rates are “just and reasonable” for shippers who lack good transportation alternatives to a single railroad. The STB can regulate a rate if the shipper complains to the STB, the STB finds that the railroad is “market dominant” for the shipment(s) at issue, and the STB finds that the rate is not just and reasonable. The legislation that created the STB in 1995 instructed it to develop a method for simplified and expedited resolution of rate complaints that would be useful for small shipments.

The two rulemakings this comment addresses are the STB’s latest efforts to develop simpler and less costly rate complaint processes. The Market Dominance Streamlined Approach seeks to simplify and expedite market dominance determinations by establishing a list of six factors that would make a prima facie case that a railroad is market dominant in regard to a particular shipper. The proposal includes a 50-page limit on reply and rebuttal submissions, but no time limit on the proceedings.[1] The Final Offer Rate Review proposal would establish a series of procedural deadlines intended to allow the STB to issue a decision 135 days after a rate complaint is filed for cases in which the shipper seeks rate relief of $4 million or less. The railroad and the shipper would each be required to submit a final offer (as in baseball-style arbitration), and if the STB determines that the railroad has market dominance over the shipment(s) in question, it would select one of the offers without modification.[2]

Both of these proposals have significant merit, and I fully agree with the supportive comments and the suggested additions submitted by members of the Transportation Research Board’s Committee for a Study of Freight Rail Transportation and Regulation (TRB Study Committee), on which I served.[3] I am submitting this separate comment to address an issue that goes beyond the topics addressed in that study committee’s report: namely, the appropriate analytical framework for assessing the STB’s proposals.

On July 8, 2019, the STB decided to delay consideration of a petition asking the board to adopt a procedural rule that would require benefit-cost analysis of certain board rulemakings.[4] On November 4, 2019, the STB solicited further information from the public about specific methods that could be used for cost-benefit analysis of rules related to economic regulation of freight railroads.[5] The board asked commenters to address a specific hypothetical rule, and I intend to do so in a comment to be submitted in Docket EP 752 at a later date.[6] At the time the board released its request for information, I had already drafted this comment outlining how a cost-benefit framework could be applied in the Market Dominance Streamlined Approach and Final Offer Rate Review proceedings.

These two proceedings provide an excellent opportunity for the STB to “test drive” the framework for benefit-cost analysis that is most commonly employed by federal agencies: the analytical principles and requirements articulated in President Clinton’s Executive Order 12866[7] (which has been reaffirmed by every president since) and OMB Circular A-4.[8] The most common and accurate term for this type of analysis is “Regulatory Impact Analysis” (RIA), because a full RIA involves more than just estimation of benefits and costs.[9]

This comment briefly explains the RIA framework and demonstrates how it could be used to answer key factual questions the STB must answer in order to accomplish its statutory goals. In some cases, the Notices of Proposed Rulemaking (NPRMs) or the Rate Reform Task Force Report already include some of the relevant information and analysis. Where information or analysis are missing, I hope that other parties in this proceeding will be able to supply the data and other information required to fill the gaps, thus enabling the board to conduct a more complete assessment of the need for, and consequences of, these proposed rules.

     Based on the analysis presented in this comment, I recommend the following in the Market Dominance Streamlined Approach and Final Offer Rate Review proceedings:

1. The STB should conduct an RIA-style analysis that assesses the extent and cause of the problem the regulation seeks to address, identifies alternative solutions tailored to address whatever problem exists, and assesses the benefits, costs, and transfers associated with each alternative compared to the “no action” baseline. Even if constraints of time, data, or analytical capabilities do not permit every question to be investigated to the extent suggested in this comment, use of the RIA analytical framework would help ensure that the STB’s decisions are informed by evidence about the need for the regulation and the major consequences of alternatives.

2. The analysis should include consideration of the alternatives suggested by the former members of the TRB Study Committee in their comments, as these alternatives more carefully tailor the rate complaint procedure to address potential problems.

3. The STB should encourage interested parties to supply data, studies, and other information necessary to conduct this analysis in their reply comments. The STB should also consider extending the reply comment period for this purpose.

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[1]    Surface Transportation Board, “Market Dominance Streamlined Approach: Notice of Proposed Rulemaking,” Docket No. EP 756 (September 11, 2019). [Hereinafter referred to as “Market Dominance NPRM.”]

[2]    Surface Transportation Board, “Final Offer Rate Review: Notice of Proposed Rulemaking,” Docket Nos. EP 755 and EP 665 (Sub-No. 2) (September 11, 2019). [Hereinafter referred to as “Final Offer NPRM.”]

[3]    See Kenneth D. Boyer, Jerry Ellig, José A. Gómez-Ibáñez, Anne V. Goodchild, Richard L. Schmalensee, Wesley L. Wilson, and Frank A. Wolak, “Public Interest Comment The Surface Transportation Board’s Notices of Proposed Rulemaking: Docket No. EP 755, Final Offer Rate Review, and Docket No. EP 756, Market Dominance Streamlined Approach,” October 17, 2019. [Hereinafter referred to as “Members of the TRB Study Committee Comment.”] These individuals’ comments are based on the report they produced for the Transportation Research Board, Modernizing Freight Rail Regulation, Transportation Research Board Special Report No. 318 (2015),  https://www.nap.edu/download/21759 [Hereinafter referred to as “Modernizing Freight Rail Regulation.”]

[4]    Surface Transportation Board, “Association of American Railroads—Petition for Rulemaking: Decision,” Docket No. EP 752 (July 8, 2019) at 2.

[5]    Surface Transportation Board, “Association of American Railroads – Petition for a Rulemaking: Soliciation of Information,” Docket No. EP 752 (November 4, 2019) at 2.

[6]    Id. at 3.

[7]    Exec. Order No. 12866, 58 Fed. Reg. 51,735 (Oct. 4, 1993).

[8]    U.S. Office of Mgmt. & Budget, Circular A-4, Regulatory Analysis (2003), available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.

[9]    This term of art appears nowhere in Executive Order 12866. It originated in President Reagan’s Exec. Order 12291, 46 Fed. Reg. 13,193 (Feb. 17, 1981), § 3. The name stuck.