STB's Rate Review and Market Dominance -- Reply Comment

January 13, 2020

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In two related proceedings, the STB has proposed a streamlined approach to assessing whether a railroad has market dominance and a final offer process for small rate disputes. This reply comment addresses three issues raised by other commenters in these proceedings: (1) Analytical shortcomings postulated by the Association of American Railroads (AAR) in its comments on the final offer rate review proposal, (2) A proposal by the United States Department of Agriculture (USDA) that the STB use rate benchmarking instead of qualitative assessment to establish a presumption that the railroad is market dominant, and (3) Proposals by USDA and the American Fuel and Petrochemical Manufacturers that the STB adopt a revenue/variable cost (R/VC) threshold as an indicator of market dominance.

The analytical shortcomings postulated by AAR need not be fatal flaws in the final offer rate review proceeding; the STB can address them by conducting a regulatory impact analysis (RIA) along the lines I suggested in my initial comment. Substitution of rate benchmarking for qualitative assessment of competitive alternatives would likely create erroneous presumptions of market dominance where railroads are not market dominant, but rate benchmarking could be fruitfully used as a screen to determine whether a rate can be challenged, without creating a legal presumption of market dominance. Because R/VC ratios are based on unreliable Uniform Rail Costing System (URCS) calculations of variable cost, they are not reliable indicators of market power and should not be used to determine market dominance.