Ex Parte No. 715, Rate Regulation Reforms

Transportation Update

Date: July 19, 2013

On July 18, 2013, the Surface Transportation Board (STB) issued a final decision, in Ex Parte No. 715, on new rules for rail rate cases. Current rail rate challenges can occur under one of three methodologies: Stand-Alone Cost (SAC), Simplified SAC or Three-Benchmark. In a notice served on July 26, 2012, the STB proposed six modifications to these methodologies, which attracted widely divergent comments from shippers and railroads. Ultimately, the STB adopted five of the following six proposals.

  1. Removed the Simplified SAC $5 million relief cap. The STB adopted this proposal, which will permit a shipper to pursue a less complex and expensive medium rate case without having any of its rate relief capped. The STB concluded that the relief cap was a major reason why so few shippers have pursued a Simplified SAC case. The STB also had linked its removal of the relief cap to the next proposed change.
  2. Modified the manner in which road property investment (RPI) expenses are calculated in Simplified SAC cases. Currently, RPI calculations in Simplified SAC cases are based upon an average from recent full SAC cases. The STB has removed this simplification to increase its accuracy, but in so doing has increased the cost of Simplified SAC cases.
  3. Increased the Three-Benchmark Method relief cap to $4 million from the current $1.2 million. Because this relief cap is tied to the cost of litigating Simplified SAC, the estimated increase in Simplified SAC litigation costs the STB has attributed to the preceding modification warranted an increase in the Three-Benchmark cap.
  4. Declined to adopt restrictions upon shippers’ ability to include so-called “cross-over” traffic in full SAC cases. This is the one proposal not adopted by the STB. Shippers had strongly objected to this proposal, while railroads supported it. Cross-over traffic in SAC cases is traffic a hypothetical railroad created by the shipper handles for a shorter distance than that actually handled by the defendant railroad. This is a long-accepted simplification of the SAC methodology without which it would be even more costly and difficult for a shipper to pursue a full SAC case. Although the STB continues to express concern over the increased use of cross-over traffic, it has declined to impose restrictions at this time, but will initiate a future proceeding to explore options and will continue to consider proposals made in individual rate cases.
  5. Modified the way in which revenue from cross-over traffic is allocated in SAC and Simplified SAC cases. The STB adopted proposed revisions to its methodology for allocating cross-over traffic revenue in SAC cases. This proposal was generally supported by railroads and opposed by shippers. The impact will vary with each individual case.
  6. Increased the reparations interest rate. The STB increased the interest rate applicable to reparations for overpayments made by shippers to railroads from the T-Bill rate (currently 0.10 percent) to the U.S. Prime Rate (currently 3.25 percent).


For more information, please contact:

Karyn A. Booth

Sandra L. Brown

Jeffrey O. Moreno

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