Montana Rail Link, Inc.-Petition for Rulemaking-Classification of Carriers, 62271-62273 [2020-21859]
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Federal Register / Vol. 85, No. 192 / Friday, October 2, 2020 / Proposed Rules
SURFACE TRANSPORTATION BOARD
49 CFR Part 1201
[Docket No. EP 763]
Montana Rail Link, Inc.—Petition for
Rulemaking—Classification of Carriers
Surface Transportation Board.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Surface Transportation
Board (STB or Board) proposes to
modify the thresholds for classifying rail
carriers.
DATES: Comments are due by November
2, 2020. Reply comments are due by
December 1, 2020.
ADDRESSES: Comments and replies may
be filed with the Board via e-filing on
the Board’s website at www.stb.gov and
will be posted to the Board’s website.
FOR FURTHER INFORMATION CONTACT:
Amy Ziehm at (202) 245–0391.
Assistance for the hearing impaired is
available through the Federal Relay
Service at (800) 877–8339.
SUPPLEMENTARY INFORMATION: Under 49
CFR part 1201, General Instructions
section 1–1(a), rail carriers are grouped
into one of three classes for purposes of
accounting and reporting. The
classification of rail carriers is also used
in a variety of other contexts, including
differentiating the legal standards and
procedures that apply to certain
transactions subject to Board licensing,
see, e.g., 49 U.S.C. 10902, 11324, 11325,
and prescribing labor protection
conditions, see, e.g., 49 U.S.C.
10903(b)(2), 11326, among others.
The class to which any rail carrier
belongs is determined by its annual
operating revenues after application of a
revenue deflator adjustment. Section 1–
1(b)(1). Currently, Class I carriers have
annual operating revenues of
$504,803,294 or more, Class II carriers
have annual operating revenues of less
than $504,803,294 and more than
$40,384,263, and Class III carriers have
annual operating revenues of
$40,384,263 or less, all when adjusted
for inflation. Section 1–1(a) (setting
thresholds unadjusted for inflation);
Indexing the Annual Operating
Revenues of R.Rs., EP 748 (STB served
June 10, 2020) (calculating revenue
deflator factor and publishing
thresholds adjusted for inflation based
on 2019 data).1 The revenue
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SUMMARY:
1 The railroad revenue deflator formula is based
on the Railroad Freight Price Index developed by
the Bureau of Labor Statistics. The formula is as
follows: Current Year’s Revenues × (1991 Average
Index/Current Year’s Average Index). 49 CFR part
1201, Note A. Each year, the Board calculates the
annual revenue deflator factor and publishes the
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classification levels for railroads set
forth at 49 CFR part 1201, General
Instructions section 1–1(a) were adopted
in 1992 by the Board’s predecessor, the
Interstate Commerce Commission. Mont.
Rail Link, Inc. & Wis. Cent. Ltd., Joint
Pet. for Rulemaking with respect to 49
CFR part 1201 (1992 Rulemaking), 57
FR 27184 (June 18, 1992), 8 I.C.C.2d 625
(1992).
Background
On February 14, 2020, Montana Rail
Link, Inc. (MRL), filed a petition for
rulemaking to amend the Board’s rail
carrier classification regulations. In its
petition, MRL requests that the Board
increase the revenue threshold for Class
I carriers to $900 million. (Pet. 1.) MRL
contends that it continues to be a
regional railroad operationally and
economically but may exceed the Class
I revenue threshold within two years.
(Id.) Citing principles drawn from the
1992 Rulemaking, in which the revenue
thresholds were last raised, MRL asks
that the Board address ‘‘whether a
regional carrier such as MRL should be
treated as a Class I carrier, taking into
account (1) the financial and operational
differences between MRL and existing
Class I carriers, and (2) the cost-benefit
analysis of imposing Class I
requirements on MRL.’’ (Id. at 12.)
MRL argues that, from an operational
standpoint, it is clearly different from a
typical Class I carrier because of its
heavy dependence on a single Class I
interchange partner and because of the
regional nature of its operations, with
approximately 95% of its mainline track
located in Montana. (Id. at 5–6.) From
a financial standpoint, MRL also notes,
among other things, that the average
operating revenue for Class I railroads in
2018 was more than 27 times MRL’s
total revenue for that year and that the
operating revenue for even the smallest
Class I railroad was about 3.5 times the
total revenue of MRL. (Id. at 8.) MRL
contends that treating a regional railroad
like MRL, with its operational and
financial characteristics, as a Class I
carrier would impose significant
burdens on MRL with no offsetting
public benefit. (Id. at 12.)
MRL submitted eight letters in
support of its petition.2 No replies to
MRL’s petition were received.
updated railroad revenue thresholds for each class
of carrier in a decision and on its website.
2 Letters of support were from the Montana
Contractors’ Association, Montana Agricultural
Business Association, Montana Grain Elevator
Association, Montana Petroleum Association, Inc.,
Montana Taxpayers Association, Montana Chamber
of Commerce, Treasure State Resources Association,
and Montana Wood Products Association.
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62271
On May 14, 2020, the Board initiated
a rulemaking proceeding to consider
MRL’s petition and consider issues
related to the Class I carrier revenue
threshold determination. The Board
invited ‘‘comment about whether it
should amend 49 CFR part 1201,
General Instructions section 1–1(a), to
increase the revenue threshold for Class
I carriers, and, if so, whether $900
million or another amount would be
appropriate.’’ Mont. Rail Link, Inc.—Pet.
for Rulemaking—Classification of
Carriers, 85 FR 30680 (May 20, 2020),
EP 763, slip op. at 2 (STB served May
14, 2020).
The Board received two comments in
response to its May 14, 2020 decision.
On June 15, 2020, the American Short
Line and Regional Railroad Association
(ASLRRA) filed a comment in support
of MRL’s petition, and Transportation
Trades Department, AFL–CIO (TTD)
filed a comment opposing MRL’s
petition. MRL filed a reply on July 2,
2020.
ASLRRA supports MRL’s petition,
arguing that Class II railroads such as
MRL are distinctly different from Class
I railroads and that, in addition to many
operational differences, there is a
massive revenue gap between the largest
Class II and the smallest Class I railroad.
(ASLRRA Comment 2–3.) ASLRRA
argues that MRL and similarly situated
Class II railroads should continue to be
classified in their current category, as
the accounting, financial, and other
burdens imposed on a Class II carrier by
becoming a Class I carrier would
outweigh any resulting benefits. (Id. at
3–4.) In addition to the cost of preparing
the reports,3 ASLRRA notes that
reclassifying MRL and other similarly
situated railroads as Class I carriers
would unnecessarily deprive them of
the benefit of the Short Line
Rehabilitation Tax Credit, which has
provided MRL almost $3 million per
year in additional funds to invest in
infrastructure, and the Railroad Industry
Agreement, which provides a
mechanism for the railroads to work
together to increase rail traffic. (Id. at 4.)
TTD, a coalition of 33 affiliate unions,
opposes MRL’s petition and requests
that the Board not increase the Class I
threshold. (TTD Comment 1.) TTD
contends that increasing the Class I
threshold could prevent MRL
employees from benefiting from labor
protective conditions that would apply
if MRL were to become a Class I and
3 In its petition, MRL estimates it would have to
expend at least $150,000 annually to prepare the
required reports, in addition to the costs associated
with converting its accounting system, training
employees, and maintaining and recording the
reports. (Pet. 9.)
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engage in a transaction with a Class III
railroad. (See id. at 1–2.) Additionally,
TTD contends that MRL has not shown
that raising the threshold is appropriate
or necessary or that classification as a
Class I would be overly burdensome.
(Id. at 1.) TTD also disagrees with MRL’s
assertion that the ICC intended the 1992
Rulemaking to prevent large regional
railroads from becoming Class I
railroads. (Id. at 2.) TTD asks that, if the
Board grants MRL’s petition, it adopt
‘‘unique conditions’’ for MRL;
specifically, TTD requests that, if the
Board finds it necessary to relieve MRL
of financial reporting requirements, it
nevertheless should apply the labor
protective arrangements that would
otherwise apply if MRL were to become
a Class I railroad under the current
threshold. (Id.)
In its reply, MRL reiterates that its
operating and financial profiles are
distinct from those of the current Class
I carriers (noting, for example, that in
2018 it operated only about 720 miles of
mainline track, nearly all of which is in
one state, whereas the smallest current
Class I carrier operated 3,397 miles of
track across 10 states and two countries)
and that significant burdens would be
imposed on MRL if the threshold is not
increased, while limited, if any, benefits
would accrue to the public. (MRL Reply
2, 5.) Further, MRL notes that the
petition has received no opposition
from any shipper, shipper organization,
or governmental entity. (Id. at 5.) MRL
also argues that the petition has not
received ‘‘broad-based opposition’’ from
labor organizations. (Id.) 4 Regarding
TTD’s concern that MRL’s proposal
would keep its employees from
benefiting from labor protective
conditions, (see TTD Comment 1–2),
MRL argues that the rail carrier
classification system was established for
the purpose of implementing accounting
and reporting requirements and that
TTD offers no rationale to support
treating MRL as a Class I carrier for
purposes of labor protections. (MRL
Reply 3, 4.)
Proposed Amendments
The agency ‘‘has broad discretion to
require rail carriers to report financial
and operating data, and to prescribe an
underlying accounting system to
produce that information.’’ 1992
Rulemaking, 8 I.C.C.2d at 631; see also
49 U.S.C. 11144, 11145, 11161–64. As
noted above, the Board’s classification
of rail carriers affects the degree to
which they must file annual, quarterly,
4 MRL states that TTD only represents
approximately 11.5% of MRL’s employees. (MRL
Reply 1.)
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and other operational reports and is
relevant in other regulatory contexts as
well. See 1992 Rulemaking, 8 I.C.C.2d at
631–32: 49 CFR parts 1201, 1241–1250.
After reviewing the petition and
comments, the Board will propose
amendments to its rail carrier
classification regulations. The proposed
amendments would raise the Class I
revenue threshold from $504,803,294
(as adjusted for inflation) to $900
million and have the effect of excluding
MRL (and other similarly situated
carriers) from Class I status unless they
have met the proposed revenue
threshold for three years.
In proposing the amendments, the
Board has considered ASLRRA’s and
MRL’s arguments that the operational
characteristics of regional railroads, like
MRL, significantly differentiate it from
the Class Is. For example, ASLRRA
argues that small railroads are largely
dependent on their Class I interchange
partners for revenue, power, and car
supply. (ASLRRA Comment 2.) This is
true for MRL, which states that its only
interchange partner is BNSF Railway
Company (BNSF) and that
approximately 84% of MRL’s total
revenue is generated from traffic
interchanged with BNSF and ancillary
services MRL performs for BNSF and
96% of MRL’s non-switching traffic is
subject to rates set by BNSF. (MRL
Reply 2.) ASLRRA also contends that
smaller railroads are often dependent
upon a limited market and a traffic base
that may be non-diversified. (ASLRRA
Comment 3.) This characteristic also
appears to apply to MRL, as a majority
of its traffic consists of only three
commodities. (MRL Reply 2.) Based on
the record to date, it does appear that
regional railroads, such as MRL, even
with revenues approaching the current
threshold, function more like significant
Class II carriers and do not possess the
comparative attributes of Class I
carriers.
Moreover, MRL provides a persuasive
argument that the benefits of certain
Class II carriers becoming Class I
carriers under the Board’s existing
revenue thresholds would not outweigh
the burdens that would be imposed on
the newly classified carriers. (Pet. 8–9
(arguing that the same reasons that led
the ICC in the 1992 Rulemaking to
increase the Class I threshold to prevent
regional railroads from becoming Class
I carriers still apply today).) Should a
regional carrier, such as MRL, become a
Class I carrier pursuant to the current
threshold, several significant accounting
and financial reporting requirements
would begin to apply even though the
carrier’s revenues would still be many
hundreds of millions of dollars less, and
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its operations far more limited, than
those of the smallest Class I carrier. (See
id. (arguing that the key burden on MRL,
if it were to become a Class I carrier, is
the financial reporting); see also MRL
Reply 2–3.) While the accounting and
financial reporting required of Class I
carriers is critical to the Board’s
regulatory framework, it is not apparent
that additional reporting by carriers
with MRL’s characteristics is
warranted,5 particularly when the
regulatory impact to such carriers
extends beyond the Board’s regulations.
(See, e.g., ASLRRA Comment 4.)
Therefore, the Board proposes to
increase the Class I revenue threshold at
this time in order to preserve an
appropriate distinction between Class I
and II railroads.6
MRL has requested that the Board set
an amended Class I threshold of $900
million, and no commenter has raised
specific concerns with the $900 million
figure. The Board proposes $900 million
as a reasonable demarcation between
Class I railroads and Class II railroads as
it is sufficiently above the current Class
II annual revenue level and below the
revenue level of the smallest Class I
carrier to maintain an appropriate
division between the two classes of
carriers for the foreseeable future.
TTD is concerned that MRL
employees would lose the potential
benefit of eligibility for the labor
protective conditions available to
employees of Class I carriers if the Class
5 Traditionally, the agency has not found the need
to collect accounting and reporting information
from regional and smaller railroads to the same
extent as the Class I rail carriers, all of which have
much larger networks and different operational and
financial characteristics. See, e.g., Calculation of
Variable Costs in Rate Complaint Proceedings
involving Non-Class I R.Rs., 6 S.T.B. 798, 799
(2003); Elimination of Accounting & Reporting
Requirements of Class II R.Rs., No. 37614, slip op.
at 2 (ICC served Feb. 25, 1982); Reduction of
Accounting & Reporting Requirements, No. 37523,
slip op. at 2 (ICC served Dec. 15, 1980). Consistent
with these findings, the burden of additional
reporting by carriers with MRL’s characteristics is
not justified by any potential use of that
information from analysis, monitoring, and other
purposes.
6 In 2001, the Board declined to increase the Class
I revenue threshold in response to a request by
Wisconsin Central Ltd.’s parent company. Proposal
to Require Consol. Reporting by Commonly
Controlled R.Rs., 5 S.T.B. 1050 (2001). As MRL
observed, (see Pet. 5 n.1), the key reason the Board
rejected Wisconsin Central’s request was Wisconsin
Central’s subsequent acquisition by Canadian
National, which was already a Class I carrier.
Although in that decision the Board also noted
briefly that financial reporting for larger carriers,
like Wisconsin Central, would be reasonable and
not unduly burdensome, see Proposal to Require
Consolidated Reporting, 5 S.T.B. at 1054–55, in this
proceeding MRL has provided its own arguments—
described above—regarding the relative burdens of
accounting and financial reporting between Class I
and Class II carriers and has identified burdens
beyond such reporting.
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Federal Register / Vol. 85, No. 192 / Friday, October 2, 2020 / Proposed Rules
I threshold is raised. (TTD Comment 1–
2.) However, if the threshold is raised,
MRL employees would suffer no loss of
eligibility for labor protection compared
to the status quo; they would continue
to qualify for the same level of
protection—that available to employees
of Class II carriers—as they have for
decades. TTD’s comments to date have
not persuaded the Board that this
continued level of labor protection
would be insufficient if MRL’s annual
revenues were between the current
threshold and the proposed threshold of
$900 million. In addition, TTD’s
suggestion that the Board adopt ‘‘unique
conditions’’ for MRL would not
establish a more appropriate
demarcation between Class I and Class
II carriers generally.
The proposed amendment to 49 CFR
part 1201, General Instructions § 1–l(a)
would increase the revenue threshold
for Class I carriers to $900 million.7 The
proposal would not materially change
the current threshold between Class II
and Class III carriers but would merely
restate it in 2019 dollars.8 As a result,
Class I carriers would be those with
annual operating revenues of $900
million or more; Class II carriers would
be those with annual operating revenues
of less than $900 million but in excess
of $40.4 million; and Class III carriers
would be those with annual operating
revenues of $40.4 million or less. The
proposal also would amend Note A to
replace the 1991 Average Index with the
2019 Average Index, as the new
threshold levels would be calculated in
2019 dollars.
The Board seeks comment on the
proposed amendments discussed above.
Interested persons may comment on the
proposed amendments by November 2,
2020; replies to comments may be filed
by December 1, 2020.
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Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980
(RFA), 5 U.S.C. 601–612, generally
requires a description and analysis of
new rules that would have a significant
economic impact of a substantial
number of small entities. In drafting a
7 Instruction section 1–1(a) currently defines
Class I carriers as those with annual operating
revenues of $250 million or more after applying the
railroad revenue deflator formula shown in Note A,
which, as noted above, is $504,803,294 or more in
2019 dollars.
8 Instruction section 1–1(a) currently defines
Class II carriers as those with annual operating
revenues of less than $250 million but in excess of
$20 million and Class III carriers as those with
annual operating revenues of $20 million or less, in
both cases after applying the railroad revenue
deflator formula shown in Note A. The current
Class II/Class III threshold, in 2019 dollars, is
$40,384,263, which the proposed rule would round
to $40.4 million.
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rule, an agency is required to: (1) Assess
the effect that its regulation will have on
small entities; (2) analyze effective
alternatives that may minimize a
regulation’s impact; and (3) make the
analysis available for public comment.
Sections 601–604. In its notice of
proposed rulemaking, the agency must
either include an initial regulatory
flexibility analysis, section 603(a), or
certify that the proposed rule would not
have a ‘‘significant impact on a
substantial number of small entities.’’
Section 605(b).
Because the goal of the RFA is to
reduce the cost to small entities of
complying with federal regulations, the
RFA requires an agency to perform a
regulatory flexibility analysis of small
entity impacts only when a rule directly
regulates those entities. In other words,
the impact must be a direct impact on
small entities ‘‘whose conduct is
circumscribed or mandated’’ by the
proposed rule. White Eagle Coop. v.
Conner, 553 F.3d 467, 480 (7th Cir.
2009).
The Board’s proposed changes to its
regulations here are intended to update
the Board’s class classifications and do
not mandate or circumscribe the
conduct of small entities. For the
purpose of RFA analysis for rail carriers
subject to the Board’s jurisdiction, the
Board defines a ‘‘small business’’ as
only including those rail carriers
classified as Class III rail carriers under
49 CFR part 1201, General Instructions
section 1–1. See Small Entity Size
Standards Under the Regulatory
Flexibility Act, 81 FR 42566 (June 30,
2016), EP 719 (STB served June 30,
2016) (with the Board Member Begeman
dissenting). With respect to the Class III
thresholds, no substantive changes are
being made, as the Board is only
updating the regulations to reflect the
Class III threshold in 2019 dollars
(rounded) as opposed to 1991 dollars.
Therefore, the Board certifies under 5
U.S.C. 605(b) that these proposed rules,
if promulgated, would not have a
significant economic impact on a
substantial number of small entities
within the meaning of RFA.
Paperwork Reduction Act
The Board’s proposal does not contain
a new or amended information
collection requirement subject to the
Paperwork Reduction Act of 1995, 44
U.S.C. 3501–3521.
List of Subjects in 49 CFR Part 1201
Railroads, Uniform System of
Accounts.
It is ordered:
1. The Board proposes to amend its
rules as set forth in this decision. Notice
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of the proposed rules will be published
in the Federal Register.
2. Comments are due by November 2,
2020. Reply comments are due by
December 1, 2020.
3. A copy of this decision will be
served upon the Chief Counsel for
Advocacy, Office of Advocacy, U.S.
Small Business Administration.
4. This decision is effective on its
service date.
Decided: September 28, 2020.
By the Board, Board Members Begeman,
Fuchs, and Oberman.
Jeffrey Herzig,
Clearance Clerk.
For the reasons set forth in the
preamble, the Surface Transportation
Board proposes to amend title 49,
chapter X, part 1201 of the Code of
Federal Regulations as follows:
PART 1201—RAILROAD COMPANIES
1. The authority citation for part 1201
continues to read as follows:
■
Authority: 49 U.S.C. 11142 and 11164.
Subpart A—Uniform System of
Accounts
2. In the General Instructions in
subpart A, section 1–1(a) and Note A to
section 1–1 are revised to read as
follows:
■
General Instructions
1–1 Classification of carriers. (a) For
purposes of accounting and reporting,
carriers are grouped into the following
three classes:
Class I: Carriers having annual carrier
operating revenues of $900 million or
more after applying the railroad revenue
deflator formula shown in Note A.
Class II: Carriers having annual carrier
operating revenues of less than $900
million but in excess of $40.4 million
after applying the railroad revenue
deflator formula shown in Note A.
Class III: Carriers having annual
carrier operating revenues of $40.4
million or less after applying the
railroad revenue deflator formula shown
in Note A.
*
*
*
*
*
Note A: The railroad revenue deflator
formula is based on the Railroad Freight
Price Index developed by the Bureau of Labor
Statistics. The formula is as follows:
Current Year’s Revenues × (2019 Average
Index/Current Year’s Average Index)
*
*
*
*
*
[FR Doc. 2020–21859 Filed 10–1–20; 8:45 am]
BILLING CODE 4915–01–P
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Agencies
[Federal Register Volume 85, Number 192 (Friday, October 2, 2020)]
[Proposed Rules]
[Pages 62271-62273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21859]
[[Page 62271]]
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SURFACE TRANSPORTATION BOARD
49 CFR Part 1201
[Docket No. EP 763]
Montana Rail Link, Inc.--Petition for Rulemaking--Classification
of Carriers
AGENCY: Surface Transportation Board.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Surface Transportation Board (STB or Board) proposes to
modify the thresholds for classifying rail carriers.
DATES: Comments are due by November 2, 2020. Reply comments are due by
December 1, 2020.
ADDRESSES: Comments and replies may be filed with the Board via e-
filing on the Board's website at www.stb.gov and will be posted to the
Board's website.
FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391.
Assistance for the hearing impaired is available through the Federal
Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION: Under 49 CFR part 1201, General Instructions
section 1-1(a), rail carriers are grouped into one of three classes for
purposes of accounting and reporting. The classification of rail
carriers is also used in a variety of other contexts, including
differentiating the legal standards and procedures that apply to
certain transactions subject to Board licensing, see, e.g., 49 U.S.C.
10902, 11324, 11325, and prescribing labor protection conditions, see,
e.g., 49 U.S.C. 10903(b)(2), 11326, among others.
The class to which any rail carrier belongs is determined by its
annual operating revenues after application of a revenue deflator
adjustment. Section 1-1(b)(1). Currently, Class I carriers have annual
operating revenues of $504,803,294 or more, Class II carriers have
annual operating revenues of less than $504,803,294 and more than
$40,384,263, and Class III carriers have annual operating revenues of
$40,384,263 or less, all when adjusted for inflation. Section 1-1(a)
(setting thresholds unadjusted for inflation); Indexing the Annual
Operating Revenues of R.Rs., EP 748 (STB served June 10, 2020)
(calculating revenue deflator factor and publishing thresholds adjusted
for inflation based on 2019 data).\1\ The revenue classification levels
for railroads set forth at 49 CFR part 1201, General Instructions
section 1-1(a) were adopted in 1992 by the Board's predecessor, the
Interstate Commerce Commission. Mont. Rail Link, Inc. & Wis. Cent.
Ltd., Joint Pet. for Rulemaking with respect to 49 CFR part 1201 (1992
Rulemaking), 57 FR 27184 (June 18, 1992), 8 I.C.C.2d 625 (1992).
---------------------------------------------------------------------------
\1\ The railroad revenue deflator formula is based on the
Railroad Freight Price Index developed by the Bureau of Labor
Statistics. The formula is as follows: Current Year's Revenues x
(1991 Average Index/Current Year's Average Index). 49 CFR part 1201,
Note A. Each year, the Board calculates the annual revenue deflator
factor and publishes the updated railroad revenue thresholds for
each class of carrier in a decision and on its website.
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Background
On February 14, 2020, Montana Rail Link, Inc. (MRL), filed a
petition for rulemaking to amend the Board's rail carrier
classification regulations. In its petition, MRL requests that the
Board increase the revenue threshold for Class I carriers to $900
million. (Pet. 1.) MRL contends that it continues to be a regional
railroad operationally and economically but may exceed the Class I
revenue threshold within two years. (Id.) Citing principles drawn from
the 1992 Rulemaking, in which the revenue thresholds were last raised,
MRL asks that the Board address ``whether a regional carrier such as
MRL should be treated as a Class I carrier, taking into account (1) the
financial and operational differences between MRL and existing Class I
carriers, and (2) the cost-benefit analysis of imposing Class I
requirements on MRL.'' (Id. at 12.)
MRL argues that, from an operational standpoint, it is clearly
different from a typical Class I carrier because of its heavy
dependence on a single Class I interchange partner and because of the
regional nature of its operations, with approximately 95% of its
mainline track located in Montana. (Id. at 5-6.) From a financial
standpoint, MRL also notes, among other things, that the average
operating revenue for Class I railroads in 2018 was more than 27 times
MRL's total revenue for that year and that the operating revenue for
even the smallest Class I railroad was about 3.5 times the total
revenue of MRL. (Id. at 8.) MRL contends that treating a regional
railroad like MRL, with its operational and financial characteristics,
as a Class I carrier would impose significant burdens on MRL with no
offsetting public benefit. (Id. at 12.)
MRL submitted eight letters in support of its petition.\2\ No
replies to MRL's petition were received.
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\2\ Letters of support were from the Montana Contractors'
Association, Montana Agricultural Business Association, Montana
Grain Elevator Association, Montana Petroleum Association, Inc.,
Montana Taxpayers Association, Montana Chamber of Commerce, Treasure
State Resources Association, and Montana Wood Products Association.
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On May 14, 2020, the Board initiated a rulemaking proceeding to
consider MRL's petition and consider issues related to the Class I
carrier revenue threshold determination. The Board invited ``comment
about whether it should amend 49 CFR part 1201, General Instructions
section 1-1(a), to increase the revenue threshold for Class I carriers,
and, if so, whether $900 million or another amount would be
appropriate.'' Mont. Rail Link, Inc.--Pet. for Rulemaking--
Classification of Carriers, 85 FR 30680 (May 20, 2020), EP 763, slip
op. at 2 (STB served May 14, 2020).
The Board received two comments in response to its May 14, 2020
decision. On June 15, 2020, the American Short Line and Regional
Railroad Association (ASLRRA) filed a comment in support of MRL's
petition, and Transportation Trades Department, AFL-CIO (TTD) filed a
comment opposing MRL's petition. MRL filed a reply on July 2, 2020.
ASLRRA supports MRL's petition, arguing that Class II railroads
such as MRL are distinctly different from Class I railroads and that,
in addition to many operational differences, there is a massive revenue
gap between the largest Class II and the smallest Class I railroad.
(ASLRRA Comment 2-3.) ASLRRA argues that MRL and similarly situated
Class II railroads should continue to be classified in their current
category, as the accounting, financial, and other burdens imposed on a
Class II carrier by becoming a Class I carrier would outweigh any
resulting benefits. (Id. at 3-4.) In addition to the cost of preparing
the reports,\3\ ASLRRA notes that reclassifying MRL and other similarly
situated railroads as Class I carriers would unnecessarily deprive them
of the benefit of the Short Line Rehabilitation Tax Credit, which has
provided MRL almost $3 million per year in additional funds to invest
in infrastructure, and the Railroad Industry Agreement, which provides
a mechanism for the railroads to work together to increase rail
traffic. (Id. at 4.)
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\3\ In its petition, MRL estimates it would have to expend at
least $150,000 annually to prepare the required reports, in addition
to the costs associated with converting its accounting system,
training employees, and maintaining and recording the reports. (Pet.
9.)
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TTD, a coalition of 33 affiliate unions, opposes MRL's petition and
requests that the Board not increase the Class I threshold. (TTD
Comment 1.) TTD contends that increasing the Class I threshold could
prevent MRL employees from benefiting from labor protective conditions
that would apply if MRL were to become a Class I and
[[Page 62272]]
engage in a transaction with a Class III railroad. (See id. at 1-2.)
Additionally, TTD contends that MRL has not shown that raising the
threshold is appropriate or necessary or that classification as a Class
I would be overly burdensome. (Id. at 1.) TTD also disagrees with MRL's
assertion that the ICC intended the 1992 Rulemaking to prevent large
regional railroads from becoming Class I railroads. (Id. at 2.) TTD
asks that, if the Board grants MRL's petition, it adopt ``unique
conditions'' for MRL; specifically, TTD requests that, if the Board
finds it necessary to relieve MRL of financial reporting requirements,
it nevertheless should apply the labor protective arrangements that
would otherwise apply if MRL were to become a Class I railroad under
the current threshold. (Id.)
In its reply, MRL reiterates that its operating and financial
profiles are distinct from those of the current Class I carriers
(noting, for example, that in 2018 it operated only about 720 miles of
mainline track, nearly all of which is in one state, whereas the
smallest current Class I carrier operated 3,397 miles of track across
10 states and two countries) and that significant burdens would be
imposed on MRL if the threshold is not increased, while limited, if
any, benefits would accrue to the public. (MRL Reply 2, 5.) Further,
MRL notes that the petition has received no opposition from any
shipper, shipper organization, or governmental entity. (Id. at 5.) MRL
also argues that the petition has not received ``broad-based
opposition'' from labor organizations. (Id.) \4\ Regarding TTD's
concern that MRL's proposal would keep its employees from benefiting
from labor protective conditions, (see TTD Comment 1-2), MRL argues
that the rail carrier classification system was established for the
purpose of implementing accounting and reporting requirements and that
TTD offers no rationale to support treating MRL as a Class I carrier
for purposes of labor protections. (MRL Reply 3, 4.)
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\4\ MRL states that TTD only represents approximately 11.5% of
MRL's employees. (MRL Reply 1.)
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Proposed Amendments
The agency ``has broad discretion to require rail carriers to
report financial and operating data, and to prescribe an underlying
accounting system to produce that information.'' 1992 Rulemaking, 8
I.C.C.2d at 631; see also 49 U.S.C. 11144, 11145, 11161-64. As noted
above, the Board's classification of rail carriers affects the degree
to which they must file annual, quarterly, and other operational
reports and is relevant in other regulatory contexts as well. See 1992
Rulemaking, 8 I.C.C.2d at 631-32: 49 CFR parts 1201, 1241-1250.
After reviewing the petition and comments, the Board will propose
amendments to its rail carrier classification regulations. The proposed
amendments would raise the Class I revenue threshold from $504,803,294
(as adjusted for inflation) to $900 million and have the effect of
excluding MRL (and other similarly situated carriers) from Class I
status unless they have met the proposed revenue threshold for three
years.
In proposing the amendments, the Board has considered ASLRRA's and
MRL's arguments that the operational characteristics of regional
railroads, like MRL, significantly differentiate it from the Class Is.
For example, ASLRRA argues that small railroads are largely dependent
on their Class I interchange partners for revenue, power, and car
supply. (ASLRRA Comment 2.) This is true for MRL, which states that its
only interchange partner is BNSF Railway Company (BNSF) and that
approximately 84% of MRL's total revenue is generated from traffic
interchanged with BNSF and ancillary services MRL performs for BNSF and
96% of MRL's non-switching traffic is subject to rates set by BNSF.
(MRL Reply 2.) ASLRRA also contends that smaller railroads are often
dependent upon a limited market and a traffic base that may be non-
diversified. (ASLRRA Comment 3.) This characteristic also appears to
apply to MRL, as a majority of its traffic consists of only three
commodities. (MRL Reply 2.) Based on the record to date, it does appear
that regional railroads, such as MRL, even with revenues approaching
the current threshold, function more like significant Class II carriers
and do not possess the comparative attributes of Class I carriers.
Moreover, MRL provides a persuasive argument that the benefits of
certain Class II carriers becoming Class I carriers under the Board's
existing revenue thresholds would not outweigh the burdens that would
be imposed on the newly classified carriers. (Pet. 8-9 (arguing that
the same reasons that led the ICC in the 1992 Rulemaking to increase
the Class I threshold to prevent regional railroads from becoming Class
I carriers still apply today).) Should a regional carrier, such as MRL,
become a Class I carrier pursuant to the current threshold, several
significant accounting and financial reporting requirements would begin
to apply even though the carrier's revenues would still be many
hundreds of millions of dollars less, and its operations far more
limited, than those of the smallest Class I carrier. (See id. (arguing
that the key burden on MRL, if it were to become a Class I carrier, is
the financial reporting); see also MRL Reply 2-3.) While the accounting
and financial reporting required of Class I carriers is critical to the
Board's regulatory framework, it is not apparent that additional
reporting by carriers with MRL's characteristics is warranted,\5\
particularly when the regulatory impact to such carriers extends beyond
the Board's regulations. (See, e.g., ASLRRA Comment 4.) Therefore, the
Board proposes to increase the Class I revenue threshold at this time
in order to preserve an appropriate distinction between Class I and II
railroads.\6\
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\5\ Traditionally, the agency has not found the need to collect
accounting and reporting information from regional and smaller
railroads to the same extent as the Class I rail carriers, all of
which have much larger networks and different operational and
financial characteristics. See, e.g., Calculation of Variable Costs
in Rate Complaint Proceedings involving Non-Class I R.Rs., 6 S.T.B.
798, 799 (2003); Elimination of Accounting & Reporting Requirements
of Class II R.Rs., No. 37614, slip op. at 2 (ICC served Feb. 25,
1982); Reduction of Accounting & Reporting Requirements, No. 37523,
slip op. at 2 (ICC served Dec. 15, 1980). Consistent with these
findings, the burden of additional reporting by carriers with MRL's
characteristics is not justified by any potential use of that
information from analysis, monitoring, and other purposes.
\6\ In 2001, the Board declined to increase the Class I revenue
threshold in response to a request by Wisconsin Central Ltd.'s
parent company. Proposal to Require Consol. Reporting by Commonly
Controlled R.Rs., 5 S.T.B. 1050 (2001). As MRL observed, (see Pet. 5
n.1), the key reason the Board rejected Wisconsin Central's request
was Wisconsin Central's subsequent acquisition by Canadian National,
which was already a Class I carrier. Although in that decision the
Board also noted briefly that financial reporting for larger
carriers, like Wisconsin Central, would be reasonable and not unduly
burdensome, see Proposal to Require Consolidated Reporting, 5 S.T.B.
at 1054-55, in this proceeding MRL has provided its own arguments--
described above--regarding the relative burdens of accounting and
financial reporting between Class I and Class II carriers and has
identified burdens beyond such reporting.
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MRL has requested that the Board set an amended Class I threshold
of $900 million, and no commenter has raised specific concerns with the
$900 million figure. The Board proposes $900 million as a reasonable
demarcation between Class I railroads and Class II railroads as it is
sufficiently above the current Class II annual revenue level and below
the revenue level of the smallest Class I carrier to maintain an
appropriate division between the two classes of carriers for the
foreseeable future.
TTD is concerned that MRL employees would lose the potential
benefit of eligibility for the labor protective conditions available to
employees of Class I carriers if the Class
[[Page 62273]]
I threshold is raised. (TTD Comment 1-2.) However, if the threshold is
raised, MRL employees would suffer no loss of eligibility for labor
protection compared to the status quo; they would continue to qualify
for the same level of protection--that available to employees of Class
II carriers--as they have for decades. TTD's comments to date have not
persuaded the Board that this continued level of labor protection would
be insufficient if MRL's annual revenues were between the current
threshold and the proposed threshold of $900 million. In addition,
TTD's suggestion that the Board adopt ``unique conditions'' for MRL
would not establish a more appropriate demarcation between Class I and
Class II carriers generally.
The proposed amendment to 49 CFR part 1201, General Instructions
Sec. 1-l(a) would increase the revenue threshold for Class I carriers
to $900 million.\7\ The proposal would not materially change the
current threshold between Class II and Class III carriers but would
merely restate it in 2019 dollars.\8\ As a result, Class I carriers
would be those with annual operating revenues of $900 million or more;
Class II carriers would be those with annual operating revenues of less
than $900 million but in excess of $40.4 million; and Class III
carriers would be those with annual operating revenues of $40.4 million
or less. The proposal also would amend Note A to replace the 1991
Average Index with the 2019 Average Index, as the new threshold levels
would be calculated in 2019 dollars.
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\7\ Instruction section 1-1(a) currently defines Class I
carriers as those with annual operating revenues of $250 million or
more after applying the railroad revenue deflator formula shown in
Note A, which, as noted above, is $504,803,294 or more in 2019
dollars.
\8\ Instruction section 1-1(a) currently defines Class II
carriers as those with annual operating revenues of less than $250
million but in excess of $20 million and Class III carriers as those
with annual operating revenues of $20 million or less, in both cases
after applying the railroad revenue deflator formula shown in Note
A. The current Class II/Class III threshold, in 2019 dollars, is
$40,384,263, which the proposed rule would round to $40.4 million.
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The Board seeks comment on the proposed amendments discussed above.
Interested persons may comment on the proposed amendments by November
2, 2020; replies to comments may be filed by December 1, 2020.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612,
generally requires a description and analysis of new rules that would
have a significant economic impact of a substantial number of small
entities. In drafting a rule, an agency is required to: (1) Assess the
effect that its regulation will have on small entities; (2) analyze
effective alternatives that may minimize a regulation's impact; and (3)
make the analysis available for public comment. Sections 601-604. In
its notice of proposed rulemaking, the agency must either include an
initial regulatory flexibility analysis, section 603(a), or certify
that the proposed rule would not have a ``significant impact on a
substantial number of small entities.'' Section 605(b).
Because the goal of the RFA is to reduce the cost to small entities
of complying with federal regulations, the RFA requires an agency to
perform a regulatory flexibility analysis of small entity impacts only
when a rule directly regulates those entities. In other words, the
impact must be a direct impact on small entities ``whose conduct is
circumscribed or mandated'' by the proposed rule. White Eagle Coop. v.
Conner, 553 F.3d 467, 480 (7th Cir. 2009).
The Board's proposed changes to its regulations here are intended
to update the Board's class classifications and do not mandate or
circumscribe the conduct of small entities. For the purpose of RFA
analysis for rail carriers subject to the Board's jurisdiction, the
Board defines a ``small business'' as only including those rail
carriers classified as Class III rail carriers under 49 CFR part 1201,
General Instructions section 1-1. See Small Entity Size Standards Under
the Regulatory Flexibility Act, 81 FR 42566 (June 30, 2016), EP 719
(STB served June 30, 2016) (with the Board Member Begeman dissenting).
With respect to the Class III thresholds, no substantive changes are
being made, as the Board is only updating the regulations to reflect
the Class III threshold in 2019 dollars (rounded) as opposed to 1991
dollars. Therefore, the Board certifies under 5 U.S.C. 605(b) that
these proposed rules, if promulgated, would not have a significant
economic impact on a substantial number of small entities within the
meaning of RFA.
Paperwork Reduction Act
The Board's proposal does not contain a new or amended information
collection requirement subject to the Paperwork Reduction Act of 1995,
44 U.S.C. 3501-3521.
List of Subjects in 49 CFR Part 1201
Railroads, Uniform System of Accounts.
It is ordered:
1. The Board proposes to amend its rules as set forth in this
decision. Notice of the proposed rules will be published in the Federal
Register.
2. Comments are due by November 2, 2020. Reply comments are due by
December 1, 2020.
3. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
4. This decision is effective on its service date.
Decided: September 28, 2020.
By the Board, Board Members Begeman, Fuchs, and Oberman.
Jeffrey Herzig,
Clearance Clerk.
For the reasons set forth in the preamble, the Surface
Transportation Board proposes to amend title 49, chapter X, part 1201
of the Code of Federal Regulations as follows:
PART 1201--RAILROAD COMPANIES
0
1. The authority citation for part 1201 continues to read as follows:
Authority: 49 U.S.C. 11142 and 11164.
Subpart A--Uniform System of Accounts
0
2. In the General Instructions in subpart A, section 1-1(a) and Note A
to section 1-1 are revised to read as follows:
General Instructions
1-1 Classification of carriers. (a) For purposes of accounting and
reporting, carriers are grouped into the following three classes:
Class I: Carriers having annual carrier operating revenues of $900
million or more after applying the railroad revenue deflator formula
shown in Note A.
Class II: Carriers having annual carrier operating revenues of less
than $900 million but in excess of $40.4 million after applying the
railroad revenue deflator formula shown in Note A.
Class III: Carriers having annual carrier operating revenues of
$40.4 million or less after applying the railroad revenue deflator
formula shown in Note A.
* * * * *
Note A: The railroad revenue deflator formula is based on the
Railroad Freight Price Index developed by the Bureau of Labor
Statistics. The formula is as follows:
Current Year's Revenues x (2019 Average Index/Current Year's
Average Index)
* * * * *
[FR Doc. 2020-21859 Filed 10-1-20; 8:45 am]
BILLING CODE 4915-01-P