Simplified Standards for Rail Rate Cases-Taxes in Revenue Shortfall Allocation Method, 38025-38026 [E8-15024]

Download as PDF Federal Register / Vol. 73, No. 128 / Wednesday, July 2, 2008 / Notices FOR FURTHER INFORMATION CONTACT: Elizabeth Komiskey at 202–366–3169, or by e-mail to Elizabeth.Komiskey@dot.gov. SUPPLEMENTARY INFORMATION: 1. Background A recent natural gas leak from a steel catenary export riser in the Gulf of Mexico created significant and unexpected risk, as well as major supply disruption. Though a root cause analysis of this incident is not yet complete, visual inspection by divers has determined that the source of the leak was a flexible joint on the riser. PHMSA regularly monitors pipeline incidents and operator performance nationwide and responds as incident trends necessitate, through an array of regulatory measures including advisory bulletins. In 2004, another offshore riser flexible joint failure resulted in a small oil spill. Subsequent preemptive visual inspections performed on other steel catenary riser flexible joints in the Gulf of Mexico discovered damage to the elastomeric seal area near the rotating ball and drove the replacement of four flexible joints. The flexible joint riser failures described above have created potential safety risks on floating production facilities, and have impacted delivery of energy supplies from the Gulf of Mexico. The national consensus standard for dynamic risers, American Petroleum Institute Recommended Practice 2RD, is currently under revision. The revised version will directly address concerns raised in this Advisory Bulletin by including guidance for integrity management of dynamic risers. PHMSA will consider adopting the revised standard into its regulations for both natural gas and hazardous liquid pipelines. jlentini on PROD1PC65 with NOTICES Advisory Bulletin (ABD–08–06) To: Owners and operators of hazardous liquid and natural gas pipelines located on offshore floating facilities. Subject: Dynamic Riser Inspection, Maintenance, and Monitoring Records on Offshore Floating Facilities. Purpose: To remind owners and operators of the importance of retaining inspection, maintenance, and monitoring records for dynamic risers located on offshore floating facilities. PHMSA advises operators of hazardous liquid and natural gas pipelines with dynamic risers, such as steel catenary risers on offshore floating production facilities, to perform regular inspection and maintenance of these VerDate Aug<31>2005 18:51 Jul 01, 2008 Jkt 214001 risers, monitor nearby environmental conditions, and maintain records of these activities. Failure of a dynamic riser could significantly impact safety, the environment, and delivery of an important source of natural gas and petroleum products used in the United States. PHMSA strongly urges operators to perform the above-listed actions and any other actions needed to ensure the safe and reliable operation of these systems. Issued in Washington, DC on June 25, 2008. Jeffrey D. Wiese, Associate Administrator for Pipeline Safety. [FR Doc. E8–14953 Filed 7–1–08; 8:45 am] BILLING CODE 4910–60–P DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Ex Parte No. 646 (Sub-No. 2)] Simplified Standards for Rail Rate Cases—Taxes in Revenue Shortfall Allocation Method Surface Transportation Board. Notice. AGENCY: ACTION: SUMMARY: The Surface Transportation Board seeks public comments on a proposal to adjust its Revenue Shortfall Allocation Method (RSAM), which is a component of its simplified standards for reviewing the reasonableness of a challenged rail rate, in order to account for taxes. DATES: Comments are due by August 1, 2008. Reply comments are due by September 2, 2008. Rebuttal comments are due by September 22, 2008. ADDRESSES: Comments may be submitted either via the Board’s e-filing format or in the traditional paper format. Any person using e-filing should file a document and otherwise comply with the instructions at the E-FILING link on the Board’s Web site, at https:// www.stb.dot.gov. Any person submitting a filing in the traditional paper format should send an original and 10 copies to: Surface Transportation Board, Attn: STB Ex Parte No. 646 (Sub-No.2), 395 E Street, SW., Washington, DC 20423– 0001. Copies of written comments will be available for viewing and self-copying in the Board’s Public Docket Room, Room 131, and will be posted to the Board’s Web site. FOR FURTHER INFORMATION CONTACT: Timothy Strafford at 202–245–0356. [Assistance for the hearing impaired is available through the Federal PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 38025 Information Relay Service (FIRS) at 1– 800–877–8339.] SUPPLEMENTARY INFORMATION: The RSAM figure is one of three benchmarks that together are used to determine the reasonableness of a challenged rail rate. Each benchmark is expressed as a ratio of revenues to variable costs (R/VC ratio). RSAM is intended to measure the average markup that the railroad would need to collect from all of its ‘‘potentially captive traffic’’ (traffic with an R/VC ratio above 180%) to earn adequate revenues as measured by the Board under 49 U.S.C. 10704(a)(2) (i.e., earn a return on investment equal to the railroad industry cost of capital). The second benchmark, the R/VC>180 benchmark, measures the average markup over variable cost currently earned by the defendant railroad on its potentially captive traffic. The third benchmark, the R/VCcomp benchmark, is used to compare the markup being paid by the challenged traffic to the average markup assessed on other comparable potentially captive traffic. In Simplified Standards for Rail Rate Cases, STB Ex. Parte 646 (Sub-No. 1) (STB served Sept. 5, 2007) (Simplified Standards), the Board changed the way the RSAM benchmark is calculated to address a flaw in that calculation.1 Under the current RSAM formula, the Board uses the confidential Carload Waybill Sample 2 to estimate the total revenues earned by the carrier on potentially captive traffic (REV>180) and the total variable costs of the railroad to handle that traffic (VC>180). The Board also uses the carrier’s revenue shortfall (or overage) shown in the Board’s annual revenue adequacy determination (REVshort/overage). RSAM is then calculated as follows: RSAM = (REV>180 + REVshort/overage) ÷ VC>180 In E.I. DuPont de Nemours and Co. v. CSX Transportation, Inc., STB Docket 1 Previously, RSAM had been calculated by computing the uniform markup above variable cost that would be needed from all potentially captive traffic ‘‘for the carrier to recover all of its URCS fixed costs.’’ Rate Guidelines—Non-Coal Proceedings, 1 S.T.B. 1004, 1027 (1996). When a carrier is not ‘‘revenue adequate’’ under the Board’s annual calculations, its RSAM figure (what it needs to collect) should be greater than its R/VC >180 figure (what it is actually collecting) and, conversely, when a carrier is ‘‘revenue adequate’’ its RSAM figure should be less than or equal its R/VC>180 figure. The problem was that this relationship between RSAM and R/VC>180 did not hold true under the Board’s prior method. See, e.g., Simplified Standards at 19–20. 2 The Carload Waybill Sample is a statistical sampling of railroad waybills that is collected and maintained for use by the Board and by the public (with appropriate restrictions to protect the confidentiality of individual traffic data). See 49 CFR 1244. E:\FR\FM\02JYN1.SGM 02JYN1 38026 Federal Register / Vol. 73, No. 128 / Wednesday, July 2, 2008 / Notices jlentini on PROD1PC65 with NOTICES Nos. 42099, 42100, and 42101 (the DuPont cases), CSX Transportation, Inc. (CSXT) raised an issue with this RSAM formula. It observed that the revenue shortfall (REVshort/overage)—which is calculated as the difference between the return on net investment that a carrier needs to earn in order to achieve revenue adequacy and the amount that the carrier actually earns—is calculated after all taxes have been paid, and are thus stated on an ‘‘after-tax’’ basis. However, the revenues to which the revenue adequacy shortfall is added (REV>180), are calculated before any allowance for taxes, and are thus stated on a ‘‘pre-tax’’ basis. Therefore, CSXT asserted that the inclusion of an ‘‘aftertax’’ revenue shortfall would not provide sufficient revenues to achieve adequate revenues once the additional revenues are subject to taxes. In the DuPont cases, CSXT proposed that, to correct this deficiency, the Board change the RSAM formula adopted in Simplified Standards by applying the Federal statutory tax rate of 35% in conjunction with CSXT’s railroad-specific state tax rate of 4.9% to convert the after-tax shortfall to a pretax level. But DuPont argued that no adjustment to the RSAM formula was necessary because the revenue adequacy adjustment factor is overstated. It argued VerDate Aug<31>2005 18:51 Jul 01, 2008 Jkt 214001 that this overstatement occurs because the variable costs used to calculate the RSAM and R/VC>180 benchmarks include an over-recovery of income taxes as measured by the Uniform Rail Costing System. This over-recovery of income taxes raises the variable costs, thereby understating the total revenue from potentially captive traffic with R/ VC greater than 180% (REV>180). Less revenue from traffic moving at R/VC greater than 180%, in turn, increases the revenue adequacy adjustment factor. Alternatively, DuPont argued that, if the Board were to adjust the RSAM formula to account for taxes, it should use an ‘‘effective’’ or ‘‘marginal’’ tax rate, rather than the statutory tax rate advocated by CSXT. In this rulemaking, the Board seeks broader public input on whether to modify the RSAM formula adopted in Simplified Standards and, if so, what tax rate should be used to adjust the revenue adequacy shortfall. Commenters are asked to address the following issues. First, does the treatment of taxes in URCS make the adjustment to RSAM unnecessary, as DuPont suggested? Second, if an adjustment is appropriate, should the statutory, effective or marginal tax rate be used? Third, should the Board use the railroad’s individual tax rate or an PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 industry average tax rate? Finally, how should the appropriate tax rate be applied to calculate a pre-tax revenue shortfall? 3 The Board seeks comments on these questions and on any other methodologies that could be used in accounting for taxes under the RSAM benchmark. Pursuant to 5 U.S.C. 605(b), the Board certifies that the proposed action will not have a significant economic effect on a substantial number of small entities within the meaning of the Regulatory Flexibility Act. No new reporting requirements will be instituted. This action will not significantly affect either the quality of the human environment or the conservation of energy resources. Decided: June 25, 2008. By the Board, Chairman Nottingham, Vice Chairman Mulvey, and Commissioner Buttrey. Anne K. Quinlan, Acting Secretary. [FR Doc. E8–15024 Filed 7–1–08; 8:45 am] BILLING CODE 4915–01–P 3 In abandonment cases, the Board applies Federal and state taxes to convert the cost of capital to a pre-tax cost of capital by dividing the cost of equity by one minus the sum of the Federal and state tax rates. E:\FR\FM\02JYN1.SGM 02JYN1

Agencies

[Federal Register Volume 73, Number 128 (Wednesday, July 2, 2008)]
[Notices]
[Pages 38025-38026]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15024]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Ex Parte No. 646 (Sub-No. 2)]


Simplified Standards for Rail Rate Cases--Taxes in Revenue 
Shortfall Allocation Method

AGENCY: Surface Transportation Board.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: The Surface Transportation Board seeks public comments on a 
proposal to adjust its Revenue Shortfall Allocation Method (RSAM), 
which is a component of its simplified standards for reviewing the 
reasonableness of a challenged rail rate, in order to account for 
taxes.

DATES: Comments are due by August 1, 2008. Reply comments are due by 
September 2, 2008. Rebuttal comments are due by September 22, 2008.

ADDRESSES: Comments may be submitted either via the Board's e-filing 
format or in the traditional paper format. Any person using e-filing 
should file a document and otherwise comply with the instructions at 
the E-FILING link on the Board's Web site, at https://www.stb.dot.gov. 
Any person submitting a filing in the traditional paper format should 
send an original and 10 copies to: Surface Transportation Board, Attn: 
STB Ex Parte No. 646 (Sub-No.2), 395 E Street, SW., Washington, DC 
20423-0001.
    Copies of written comments will be available for viewing and self-
copying in the Board's Public Docket Room, Room 131, and will be posted 
to the Board's Web site.

FOR FURTHER INFORMATION CONTACT: Timothy Strafford at 202-245-0356. 
[Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.]

SUPPLEMENTARY INFORMATION: The RSAM figure is one of three benchmarks 
that together are used to determine the reasonableness of a challenged 
rail rate. Each benchmark is expressed as a ratio of revenues to 
variable costs (R/VC ratio). RSAM is intended to measure the average 
markup that the railroad would need to collect from all of its 
``potentially captive traffic'' (traffic with an R/VC ratio above 180%) 
to earn adequate revenues as measured by the Board under 49 U.S.C. 
10704(a)(2) (i.e., earn a return on investment equal to the railroad 
industry cost of capital). The second benchmark, the R/
VC>180 benchmark, measures the average markup 
over variable cost currently earned by the defendant railroad on its 
potentially captive traffic. The third benchmark, the R/
VCcomp benchmark, is used to compare the markup being paid 
by the challenged traffic to the average markup assessed on other 
comparable potentially captive traffic.
    In Simplified Standards for Rail Rate Cases, STB Ex. Parte 646 
(Sub-No. 1) (STB served Sept. 5, 2007) (Simplified Standards), the 
Board changed the way the RSAM benchmark is calculated to address a 
flaw in that calculation.\1\ Under the current RSAM formula, the Board 
uses the confidential Carload Waybill Sample \2\ to estimate the total 
revenues earned by the carrier on potentially captive traffic 
(REV>180) and the total variable costs of the 
railroad to handle that traffic (VC>180). The 
Board also uses the carrier's revenue shortfall (or overage) shown in 
the Board's annual revenue adequacy determination 
(REVshort/overage). RSAM is then calculated as follows:
---------------------------------------------------------------------------

    \1\ Previously, RSAM had been calculated by computing the 
uniform markup above variable cost that would be needed from all 
potentially captive traffic ``for the carrier to recover all of its 
URCS fixed costs.'' Rate Guidelines--Non-Coal Proceedings, 1 S.T.B. 
1004, 1027 (1996). When a carrier is not ``revenue adequate'' under 
the Board's annual calculations, its RSAM figure (what it needs to 
collect) should be greater than its R/VC >180 
figure (what it is actually collecting) and, conversely, when a 
carrier is ``revenue adequate'' its RSAM figure should be less than 
or equal its R/VC>180 figure. The problem was 
that this relationship between RSAM and R/
VC>180 did not hold true under the Board's 
prior method. See, e.g., Simplified Standards at 19-20.
    \2\ The Carload Waybill Sample is a statistical sampling of 
railroad waybills that is collected and maintained for use by the 
Board and by the public (with appropriate restrictions to protect 
the confidentiality of individual traffic data). See 49 CFR 1244.

RSAM = (REV>180 + REVshort/overage) / 
---------------------------------------------------------------------------
VC>180

    In E.I. DuPont de Nemours and Co. v. CSX Transportation, Inc., STB 
Docket

[[Page 38026]]

Nos. 42099, 42100, and 42101 (the DuPont cases), CSX Transportation, 
Inc. (CSXT) raised an issue with this RSAM formula. It observed that 
the revenue shortfall (REVshort/overage)--which is 
calculated as the difference between the return on net investment that 
a carrier needs to earn in order to achieve revenue adequacy and the 
amount that the carrier actually earns--is calculated after all taxes 
have been paid, and are thus stated on an ``after-tax'' basis. However, 
the revenues to which the revenue adequacy shortfall is added 
(REV>180), are calculated before any allowance 
for taxes, and are thus stated on a ``pre-tax'' basis. Therefore, CSXT 
asserted that the inclusion of an ``after-tax'' revenue shortfall would 
not provide sufficient revenues to achieve adequate revenues once the 
additional revenues are subject to taxes.
    In the DuPont cases, CSXT proposed that, to correct this 
deficiency, the Board change the RSAM formula adopted in Simplified 
Standards by applying the Federal statutory tax rate of 35% in 
conjunction with CSXT's railroad-specific state tax rate of 4.9% to 
convert the after-tax shortfall to a pre-tax level. But DuPont argued 
that no adjustment to the RSAM formula was necessary because the 
revenue adequacy adjustment factor is overstated. It argued that this 
overstatement occurs because the variable costs used to calculate the 
RSAM and R/VC>180 benchmarks include an over-
recovery of income taxes as measured by the Uniform Rail Costing 
System. This over-recovery of income taxes raises the variable costs, 
thereby understating the total revenue from potentially captive traffic 
with R/VC greater than 180% (REV>180). Less 
revenue from traffic moving at R/VC greater than 180%, in turn, 
increases the revenue adequacy adjustment factor. Alternatively, DuPont 
argued that, if the Board were to adjust the RSAM formula to account 
for taxes, it should use an ``effective'' or ``marginal'' tax rate, 
rather than the statutory tax rate advocated by CSXT.
    In this rulemaking, the Board seeks broader public input on whether 
to modify the RSAM formula adopted in Simplified Standards and, if so, 
what tax rate should be used to adjust the revenue adequacy shortfall. 
Commenters are asked to address the following issues. First, does the 
treatment of taxes in URCS make the adjustment to RSAM unnecessary, as 
DuPont suggested? Second, if an adjustment is appropriate, should the 
statutory, effective or marginal tax rate be used? Third, should the 
Board use the railroad's individual tax rate or an industry average tax 
rate? Finally, how should the appropriate tax rate be applied to 
calculate a pre-tax revenue shortfall? \3\
---------------------------------------------------------------------------

    \3\ In abandonment cases, the Board applies Federal and state 
taxes to convert the cost of capital to a pre-tax cost of capital by 
dividing the cost of equity by one minus the sum of the Federal and 
state tax rates.
---------------------------------------------------------------------------

    The Board seeks comments on these questions and on any other 
methodologies that could be used in accounting for taxes under the RSAM 
benchmark.
    Pursuant to 5 U.S.C. 605(b), the Board certifies that the proposed 
action will not have a significant economic effect on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act. No new reporting requirements will be instituted.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.

    Decided: June 25, 2008.

    By the Board, Chairman Nottingham, Vice Chairman Mulvey, and 
Commissioner Buttrey.
Anne K. Quinlan,
Acting Secretary.
 [FR Doc. E8-15024 Filed 7-1-08; 8:45 am]
BILLING CODE 4915-01-P
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