Final Offer Rate Review; Expanding Access to Rate Relief, 299-320 [2022-27926]
Download as PDF
<![CDATA[
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
to waive the notice and comment and
effective date requirements.
khammond on DSKJM1Z7X2PROD with RULES
IV. Correction of Errors
In FR Doc. 2022–23918 of November
23, 2022 (87 FR 71748), make the
following corrections:
A. Correction of Errors in the Preamble
1. On page 72147, third column,
footnote 274 is corrected to read: ‘‘In
Brief, Rural Behavioral Health,
Telehealth Challenges and
Opportunities, SUBSTANCE ABUSE
AND MENTAL HEALTH SERVICES
ADMINISTRATION, (Nov 2016).
https://store.samhsa.gov/product/InBrief-Rural-Behavioral-HealthTelehealth-Challenges-andOpportunities/SMA16-4989.’’.
2. On page 72148, first column,
footnote 277 is corrected to read:
‘‘Centers for Medicare and Medicaid
Services Measures Inventory Tool:
Emergency Department Utilization
(EDU). https://cmit.cms.gov/cmit/#/
MeasureView?variantId=4866&
sectionNumber=1.’’.
3. On page 72148, first column,
footnote 279 is corrected to read: ‘‘AllCause Emergency Department (ED)
Utilization for Medicaid Beneficiaries
Public Comment Framing Document.
https://www.cms.gov/files/document/
all-cause-ed-utilization-medicaidbeneficiaries-measure-framingdocument.pdf.’’
4. On page 72148, third column,
footnote 283 is corrected to read:
‘‘Gabayan, G, et al. (January 17, 2013)
Factors Associated With Short-Term
Bounce-Back Admissions After
Emergency Department Discharge.
Annals of Emergency Medicine, 62(2):
136–144. https://doi.org/10.1016/
j.annemergmed.2013.01.017.’’.
5. On page 72206, under the section
titled ‘‘b. Changes for Critical Access
Hospital Conditions of Participation
(Part 485, Subpart F)’’—
a. First column, the title ‘‘(1)
Conditions of Participation: Status and
Location (§ 485.610(c)’’ is corrected to
read: ‘‘(1) Condition of Participation:
Status and Location (§ 485.610(c) and
485.610(e)(2))’’.
b. Second column, first partial
paragraph, lines 7 through 13, the
sentence ‘‘The current regulatory
requirement at § 485.610(c) sets forth
the distance requirements for CAHs
relative to other CAHs and hospitals,
and specific definitions as related to the
distance requirements are found in the
SOM, Chapter 2, Section 2256A,’’ is
corrected to read, ‘‘The current
regulatory requirement at § 485.610(c)
sets forth the distance requirements for
CAHs relative to other CAHs and
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
hospitals. Additionally, the regulatory
requirement at § 485.610(e)(2) sets forth
the distance requirements for offcampus provider-based locations of the
CAH. Specific definitions as related to
the distance requirements are found in
the SOM, Chapter 2, Section 2256A.’’
6. On page 72224, third column, in
the section titled ‘‘Request for
Information on Use of CMS Data to
Drive Competition in Healthcare
Marketplaces’’, line 6, correct the
number ‘‘21’’ to read ‘‘22’’.
B. Correction of Errors in the
Regulations Text
§ 485.542
[Corrected]
7. On page 72306, first column—
a. Fourth paragraph, ‘‘(e) Emergency
standby and power systems,’’ line 2,
‘‘CAH’’ is corrected to read ‘‘REH’’.
■ b. Sixth paragraph, ‘‘(2) Emergency
generator inspection and testing’’, line
2, ‘‘CAH’’ is corrected to read ‘‘REH’’.
■ c. Seventh paragraph, ‘‘(3) Emergency
generator fuel’’, line 1, ‘‘CAHs’’ is
corrected to read ‘‘REHs’’.
■
■
§ 485.610
[Corrected]
8. On page 72307,
a. Second column, bottom half of the
page, the amendatory instruction ‘‘3.
Section 485.610 is amended by revising
paragraph (c) to read as follows:’’ is
corrected to read:
‘‘45. Section 485.610 is amended by:
■ a. Revising paragraph (c); and
■ b. Amending paragraph (e)(2) by
adding the phrase ‘‘on primary roads, as
defined in paragraph (c)(2) of this
section’’after the phrase ‘‘a 35-mile
drive’’.
The revision reads as follows:’’
■ 9. On pages 72307 through 72309,
Amendatory instructions ‘‘45’’ through
‘‘52’’, appearing in numerical order, are
corrected to read ‘‘46’’ through ‘‘53’’
respectively.
■
■
Elizabeth J. Gramling,
Executive Secretary to the Department,
Department of Health and Human Services.
[FR Doc. 2022–28517 Filed 12–30–22; 11:15 am]
BILLING CODE 4120–01–P
SURFACE TRANSPORTATION BOARD
49 CFR Parts 1002, 1111, 1114 and
1115
[Docket No. EP 755; Docket No. EP 665
(Sub-No. 2)]
Final Offer Rate Review; Expanding
Access to Rate Relief
Surface Transportation Board.
Final rule; termination of
proceeding.
AGENCY:
ACTION:
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
299
The Surface Transportation
Board (STB or Board) is adopting a final
rule in Docket No. EP 755 to establish
a new procedure for challenging the
reasonableness of railroad rates in
smaller cases. Under this rate review
procedure, the Board will decide a case
by selecting either the complainant’s or
the defendant’s final offer, subject to an
expedited procedural schedule that
adheres to firm deadlines. The Board is
also terminating its proceeding in
Docket No. EP 665 (Sub-No. 2).
DATES: The final rule is effective March
6, 2023. The termination of proceeding
is effective on January 3, 2023.
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: In January
2018, the Board established its Rate
Reform Task Force (RRTF), with the
objectives of developing
recommendations to reform and
streamline the Board’s rate review
processes for large cases and
determining how to best provide a rate
review process for smaller cases. After
holding informal meetings throughout
2018, the RRTF issued a report on April
25, 2019 (RRTF Report).1 Among other
recommendations, the RRTF included a
proposal for a final offer procedure,
which it described as ‘‘an administrative
approach that would take advantage of
procedural limitations, rather than
substantive limitations, to constrain the
cost and complexity of a rate
reasonableness case.’’ RRTF Rep. 12.
Versions of a final offer process for rate
review have also been recommended by
the U.S. Department of Agriculture
(USDA) and a committee of the
Transportation Research Board (TRB).
In a notice of proposed rulemaking
issued on September 12, 2019, the
Board proposed to build on the RRTF
recommendation and establish a new
rate case procedure for smaller cases,
the Final Offer Rate Review (FORR)
procedure. Final Offer Rate Rev.
(NPRM), EP 755 et al. (STB served Sept.
12, 2019).2
The Board received numerous
comments on the NPRM. By decision
served on May 15, 2020, to permit
informal discussions with stakeholders,
the Board waived the general
prohibition on ex parte communications
between June 1, 2020, and July 15, 2020.
SUMMARY:
1 The RRTF Report was posted on the Board’s
website on April 29, 2019, and can be accessed at
https://www.stb.gov/stb/rail/Rate_Reform_Task_
Force_Report.pdf.
2 The NPRM was published in the Federal
Register, 84 FR 48872 (Sept. 17, 2019).
E:\FR\FM\04JAR1.SGM
04JAR1
300
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
Meetings took place during the specified
period; parties filed memoranda
pursuant to 49 CFR 1102.2(g)(4); the
memoranda were posted on the Board’s
website; and parties were permitted to
submit written comments in response to
the memoranda.
On November 15, 2021, the Board
issued a supplemental notice of
proposed rulemaking, which made
minor changes to the proposal in the
NPRM. Final Offer Rate Rev. (SNPRM),
EP 755 et al. (STB served Nov. 15,
2021).3 The Board issued the SNPRM
‘‘so that the modified FORR proposal
may be considered in parallel with the
proposal in Docket No. EP 765 to
establish an arbitration program that
could include an exemption from FORR
for carriers that participate in the
program.’’ SNPRM, EP 755 et al., slip
op. at 9. The Board received several
comments and reply comments on the
SNPRM.4
After considering the comments filed
in response to the NPRM and SNPRM
and information received in meetings
with stakeholders, the Board will adopt
its proposal in Docket No. EP 755 as
modified in the SNPRM. The Board will
also terminate the proceeding in Docket
No. EP 665 (Sub-No. 2).5
To the extent the discussion below
does not revisit issues raised in
comments on the NPRM, the SNPRM
contains the Board’s analysis of those
issues.
khammond on DSKJM1Z7X2PROD with RULES
Background
In the ICC Termination Act of 1995
(ICCTA), Congress directed the Board to
‘‘establish a simplified and expedited
method for determining the
reasonableness of challenged rail rates
in those cases in which a full standalone cost [(SAC)] presentation is too
costly, given the value of the case.’’
Public Law 104–88, 109 Stat. 803, 810.
In the Surface Transportation Board
Reauthorization Act of 2015 (STB
Reauthorization Act), Public Law 114–
110, 129 Stat. 2228, Congress revised
the text of this requirement so that it
3 The SNPRM was published in the Federal
Register, 86 FR. 67622 (Nov. 26, 2021).
4 The following parties submitted comments on
the SNPRM: the American Chemistry Council, The
Fertilizer Institute, the National Industrial
Transportation League, the Chlorine Institute, and
the Corn Refiners Association (collectively, the
Coalition Associations); the American Fuel &
Petrochemical Manufacturers (AFPM); the
Association of American Railroads (AAR); BNSF
Railway Company (BNSF); Indorama Ventures
(Indorama); Industrial Minerals Association—North
America (IMA–NA); National Grain and Feed
Association (NGFA); Olin Corporation (Olin);
Union Pacific Railroad Company (UP); and USDA.
5 These proceedings are not consolidated. A
single decision is being issued for administrative
convenience.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
currently reads: ‘‘[t]he Board shall
maintain 1 or more simplified and
expedited methods for determining the
reasonableness of challenged rates in
those cases in which a full [SAC]
presentation is too costly, given the
value of the case.’’ 49 U.S.C. 10701(d)(3)
(emphasis added). In addition, section
11 of the STB Reauthorization Act
modified 49 U.S.C. 10704(d) to require
that the Board ‘‘maintain procedures to
ensure the expeditious handling of
challenges to the reasonableness of
railroad rates.’’ 6 More generally, the rail
transportation policy (RTP) at 49 U.S.C.
10101 states that, in regulating the
railroad industry, it is the policy of the
United States Government to, among
other things, ‘‘provide for the
expeditious handling and resolution of
all proceedings required or permitted to
be brought under this part.’’ 49 U.S.C.
10101(15).
In 1996, the Board adopted a
simplified methodology, known as
Three-Benchmark, which determines
the reasonableness of a challenged rate
using three benchmark figures. Rate
Guidelines—Non-Coal Proc., 1 S.T.B.
1004 (1996), pet. to reopen denied, 2
S.T.B. 619 (1997), appeal dismissed sub
nom. Ass’n of Am. R.Rs. v. STB, 146
F.3d 942 (D.C. Cir. 1998). A decade
passed without any complainant
bringing a case under that methodology.
In 2007, the Board modified the ThreeBenchmark methodology and also
created another simplified methodology,
known as Simplified-SAC, which
determines whether a captive shipper is
being forced to cross-subsidize other
parts of the railroad’s network. See
Simplified Standards for Rail Rate
Cases, EP 646 (Sub-No. 1) (STB served
Sept. 5, 2007), aff’d sub nom. CSX
Transp., Inc. v. STB, 568 F.3d 236 (D.C.
Cir. 2009), vacated in part on reh’g, 584
F.3d 1076 (D.C. Cir. 2009). In 2013, the
Board increased the relief available
under the Three-Benchmark
methodology and removed the relief
limit on the Simplified-SAC
methodology, among other things. See
Rate Regul. Reforms, EP 715 (STB
served July 18, 2013), remanded in part
sub nom. CSX Transp., Inc. v. STB, 754
F.3d 1056 (D.C. Cir. 2014).
Notwithstanding the Board’s efforts to
improve its rate review methodologies
and make them more accessible, only a
few Three-Benchmark cases have ever
been brought to the Board, and no
6 Prior to the enactment of the STB
Reauthorization Act, § 10704(d) began with a
sentence stating that, ‘‘[w]ithin 9 months after
January 1, 1996, the Board shall establish
procedures to ensure expeditious handling of
challenges to the reasonableness of railroad rates.’’
See, e.g., 49 U.S.C. 10704(d) (2014).
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
complaint has been litigated to
completion under the Simplified-SAC
methodology.
The Board has recognized that, for
smaller disputes, the litigation costs
required to bring a case under the
Board’s existing rate reasonableness
methodologies can quickly exceed the
value of the case. Expanding Access to
Rate Relief, EP 665 (Sub-No. 2), slip op.
at 10 (STB served Aug. 31, 2016). As the
Board stated in Simplified Standards,
‘‘[f]or some shippers who have smaller
disputes with a carrier, even
[Simplified-SAC] would be too
expensive, given the smaller value of
their cases. These shippers must also
have an avenue to pursue relief.’’
Simplified Standards, EP 646 (Sub-No.
1), slip op. at 16. Along similar lines, as
the Board has previously stated,
simplified procedures ‘‘enable the
affected shippers to avail themselves of
their statutory right to challenge rates
charged on captive rail traffic regardless
of the size of the complaint.’’ Non-Coal
Proc., 1 S.T.B. at 1057.7
In public comments, shippers and
other interested parties have repeatedly
stated that the Board’s current options
for challenging the reasonableness of
rates do not meet their need for
expeditious resolution of disputes at a
reasonable cost.8 Moreover, because a
contract rate may not be challenged
before the Board, 49 U.S.C. 10709(c)(1),
a party to a contract that is seeking a
lower rate may shift from contract rates
to tariff rates before bringing a rate case,
and tariff rates may be higher than prior
7 See also Calculation of Variable Costs in Rate
Compl. Proc. Involving Non-Class I R.Rs., 6 S.T.B.
798, 803 & n.19 (2003) (‘‘[W]e have adopted
simplified evidentiary procedures for adjudicating
rate reasonableness in those cases where more
sophisticated procedures are too costly or
burdensome, ‘to ensure that no shipper is
foreclosed from exercising its statutory right to
challenge the reasonableness of rates charged on its
captive traffic.’’’ (quoting Non-Coal Proc., 1 S.T.B.
at 1008)); Mkt. Dominance Determinations—Prod. &
Geographic Competition, 3 S.T.B. 937, 949 (1998)
(excluding product and geographic competition
from consideration in market dominance
determinations so as to ‘‘remove a substantial
obstacle to the shippers’ ability to exercise their
statutory rights’’).
8 See, e.g., Alliance for Rail Competition Opening
Comment 22, June 26, 2014, Rail Transp. of Grain,
Rate Regul. Rev., EP 665 (Sub-No. 1) (stating that
the Three-Benchmark methodology is too costly and
complex for grain shippers and producers in its
current form); WCTL Opening Comment 74–76,
Oct. 23, 2012, Rate Regulation Reforms, EP 715 (the
cost and complexity of the Simplified-SAC
methodology discourage its use); Oversight of the
STB Reauthorization Act of 2015 Before the
Subcomm. on R.Rs., Pipelines, & Hazardous
Materials of the H. Comm. on Transp. &
Infrastructure, 115th Cong. (2018) (letter from Chris
Jahn, then-President of The Fertilizer Institute,
submitted for the record) (due to the time and
expense needed to pursue a rate case, it ‘‘does not
work’’ for most complainants).
E:\FR\FM\04JAR1.SGM
04JAR1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
contract rates.9 That factor gives
complainants a strong interest in having
a rate case decided quickly, from start
to finish.
Accordingly, the Board has continued
to explore ideas to improve the
accessibility of rate relief. For example,
in Expanding Access to Rate Relief,
Docket No. EP 665 (Sub-No. 2), the
Board sought comment on procedures
relying on comparison groups that could
comprise a new rate reasonableness
methodology for use in very small
disputes. The initial comments on that
proposal were universally negative. But
among the comments submitted in
Docket No. EP 665 (Sub-No. 2), the
Board received a suggestion from USDA
that the Board consider procedural
limitations to streamline and expedite
its rate reasonableness review as an
alternative to substantive limitations.
See USDA Reply Comment 5–6, Dec. 19,
2016, Expanding Access to Rate Relief,
EP 665 (Sub-No. 2). USDA specifically
recommended a short procedural
timeline as a means to make rate
reasonableness review accessible for
smaller disputes. See id. To implement
this recommendation, USDA suggested
that the Board adopt a final offer
procedure whereby parties would
submit market dominance and rate
reasonableness evidence in a single
package offer. See id. at 6–7.
The Board already uses a final offer
procedure as part of the ThreeBenchmark methodology, although it is
only one part of the rate reasonableness
approach as opposed to providing the
overall framework, as the Board is
adopting here.10 One of the benchmarks
compares the markup paid by the
challenged traffic to the average markup
assessed on similar traffic. See, e.g.,
khammond on DSKJM1Z7X2PROD with RULES
9 As
an example, a recent rate proceeding
involved a complainant that had been served
pursuant to contracts for many years and then filed
its complaint as soon as its contract expired. See
Consumers Energy Co. Compl. 4–5, Jan. 13, 2015,
Consumers Energy Co. v. CSX Transp., Inc., NOR
42142; see also Occidental Chem. Corp. Comments
2–4, Oct. 23, 2012, Rate Regul. Reforms, EP 715
(paying the tariff rate for extended periods of time
while a rate case is litigated—which can add
millions of dollars in costs beyond the direct costs
of litigation—undermines the utility of a rate
challenge, especially if the carrier requires that all
rates bundled with the challenged rate also shift to
tariff during the pendency of the case); PPG Indus.,
Inc. Comments 3–4, Oct. 23, 2012, Rate Regul.
Reforms, EP 715 (noting the effect of bundling and
stating that tariff premium could reach $20 million
per year of rate litigation). The latter two filings are
cited here simply to illustrate the need for
expedited rate reasonableness procedures, not to
indicate that the Board takes any position in this
proceeding—one way or another—on the
appropriateness of rate bundling.
10 The Three-Benchmark methodology also
includes more procedural steps and a longer
timeline than the FORR procedure adopted here.
See 49 CFR 1111.10(a)(2).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
Rate Regul. Reforms, EP 715, slip op. at
11. To improve the efficiency of this
part of the Three-Benchmark
methodology and ‘‘enable a prompt,
expedited resolution of the comparison
group selection,’’ the Board requires
each party to submit its final offer
comparison group simultaneously, and
the Board chooses one of those groups
without modification. See Simplified
Standards, EP 646 (Sub-No. 1), slip op.
at 18.
Although the Board may not require
arbitration of rate disputes under
current law,11 and is not doing so here,
the benefits of final offer procedures
used in other settings offer support and
background for the Board’s rule adopted
here. For example, final offer
procedures are used in commercial
settings, including the resolution of
wage disputes in Major League Baseball,
and final offer arbitration is therefore
sometimes referred to as ‘‘baseball
arbitration.’’ See, e.g., Josh Chetwynd,
Play Ball? An Analysis of Final-Offer
Arb., Its Use in Major League Baseball,
& Its Potential Applicability to Eur.
Football Wage & Transfer Disps., 20
Marq. Sports L. Rev. 109 (2009) (noting
the final offer procedure ‘‘can lead to a
win-win situation as it spurs negotiated
settlement at a very high rate’’); see also
Michael Carrell & Richard Bales,
Considering Final Offer Arb. to Resolve
Pub. Sector Impasses in Times of
Concession Bargaining, 28 Ohio St. J. on
Disp. Resol. 1, 3, 16, 23–24 (2012)
(noting that 14 states had codified some
form of final offer arbitration for certain
labor disputes involving public sector
employees and noting that the
procedure ‘‘encourages the parties to
negotiate toward middle ground rather
than staking out polar positions’’ and
‘‘encourages the parties to settle before
arbitration’’).
Similarly, AAR itself provides its
members a final offer procedure for car
11 See Arb.—Various Matters, EP 586, slip op. at
3 n.7 (STB served Sept. 20, 2001); see also 49 U.S.C.
10704(a)(1); 49 U.S.C. 11704(c)(2). The Board has
had a voluntary arbitration process in place for
more than 20 years, and section 13 of the STB
Reauthorization Act required adjustments to this
process (including the addition of rate disputes to
the types of matters eligible for arbitration), but to
date parties have not agreed to arbitration of any
dispute brought before the Board. See Arb. of
Certain Disps., 2 S.T.B. 564 (1997) (adopting
voluntary arbitration procedures at 49 CFR part
1108); Revisions to Arb. Proc., EP 730 (STB served
Sept. 30, 2016) (making adjustments required by
STB Reauthorization Act); Joint Pet. for Rulemaking
to Establish a Voluntary Arb. Program for Small
Rate Disps. (Arbitration NPRM), EP 765, slip op. at
2–3 (STB served Nov. 15, 2021) (describing the
Board’s voluntary arbitration programs). In addition
to its recommendation for a final offer procedure
that would culminate in a decision by the Board,
the RRTF recommended legislation that would
permit mandatory arbitration of small rate cases.
See RRTF Rep. 14–15.
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
301
hire arbitration. See Circular No. OT–10,
Code of Car Hire Rule 25, https://
www.railinc.com/rportal/documents/18/
260773/OT-10.pdf. The Board described
that final offer procedure as ‘‘integral’’
to its decision to deregulate car hire
rates. See Joint Pet. for Rulemaking on
R.R. Car Hire Comp., EP 334 (Sub-No. 8)
et al., slip op. at 1 (STB served Apr. 22,
1997).
Finally in this regard, the Committee
for a Study of Freight Rail
Transportation and Regulation of the
Transportation Research Board (TRB
Committee) described the benefits of
adopting ‘‘an independent arbitration
process similar to the one long used for
resolving rate disputes in Canada.’’ Nat’l
Acads. of Sciences, Eng’g, & Med.,
Modernizing Freight Rail Regul. (TRB
Report) (2015), at 7, 136–40, https://
nap.edu/21759.12 In particular, the TRB
Committee recommended ‘‘a final-offer
rule,’’ set on a ‘‘strict time limit,’’
whereby ‘‘each side offers its evidence,
arguments, and possibly a changed rate
or other remedy in a complete and
unmodifiable form after a brief hearing.’’
TRB Rep. 211–12. According to the TRB
Report, adoption of such a procedure
could enhance complainants’ access to
rate reasonableness protections, while
expediting dispute resolution and
encouraging settlements. Id. at 212.
The RRTF agreed that a final offer
process—with the decision being made
by the Board rather than an arbitrator—
could be an effective way to implement
procedural limitations, which would
improve access to rate relief. RRTF Rep.
16.
Taking into account these
recommendations, the Board’s NPRM
proposed to adopt a FORR process with
12 In the process used by Canadian regulators,
final offer procedures are administered by an
outside arbitrator or panel of arbitrators. In Canada,
a complainant may submit its rate dispute to the
Canadian Transportation Agency, which refers the
matter to an arbitrator or a panel of arbitrators.
Canada Transp. Act, S.C. 1996, c. 10, as amended,
§§ 161(1), 162(1) (Can.). The Canadian statute
establishes a two-tiered structure: if the matter
involves freight charges of more than $2 million
CAD (subject to an inflation adjustment), a 60-day
procedure applies, and if the matter involves freight
charges of $2 million CAD or less (subject to an
inflation adjustment), a 30-day procedure applies.
Id. §§ 164.1, 165(2)(b). Among other things, the 60day procedure allows the parties to direct
interrogatories to one another, and the arbitrator
may request written filings beyond the final offers
and information initially submitted in support of
final offers. See id. §§ 163(4), 164(1). In the 30-day
procedure, there is no discovery, and the arbitrator
may request oral presentations from the parties but
may not request written submissions beyond the
final offers and replies. See id. § 164.1. The
arbitrator’s decision is issued within 60 days after
the matter was submitted for arbitration, or 30 days
if the further expedited procedure applies. Id.
§ 165(2)(b). Any resulting rate prescription is
limited to two years, unless the parties agree to a
different period. See id. § 165(2)(c).
E:\FR\FM\04JAR1.SGM
04JAR1
khammond on DSKJM1Z7X2PROD with RULES
302
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
the following primary features. As
proposed, FORR would allow limited
discovery, with no litigation over
discovery disputes; FORR could be used
only if the complainant elected to use
the streamlined market dominance
approach proposed (and since adopted)
in Docket No. EP 756, Market
Dominance Streamlined Approach; 13
and the procedural schedule would be
brief, with a Board decision issued
within 135 days after filing of the
complaint. See NPRM, EP 755 et al., slip
op. at 8–10, 13–14.
Parties would simultaneously submit
their market dominance presentations,
final offers, analyses addressing the
reasonableness of the challenged rate
and support for the rate in the party’s
offer, and explanations of the
methodologies used and how they
comply with the decisional criteria set
forth in the NPRM. NPRM, EP 755 et al.,
slip op. at 12. Parties would next submit
simultaneous replies. Id.
The complainant would bear the
burden of proof to demonstrate that (i)
the defendant carrier has market
dominance over the transportation to
which the rate applies, and (ii) the
challenged rate is unreasonable. NPRM,
EP 755 et al., slip op. at 12–13; see also
49 U.S.C. 10701(d)(1), 10704(a)(1),
11704(b); Union Pac. R.R.—Pet. for
Declaratory Ord., FD 35504, slip op. at
2 (STB served Oct. 10, 2014). If the
Board were to find that the
complainant’s market dominance
presentation and rate reasonableness
analysis demonstrate that the defendant
carrier has market dominance over the
transportation to which the rate applies
and that the challenged rate is
unreasonable, the Board would then
choose between the parties’ final offers.
In making the rate reasonableness
finding and choosing between the offers,
the Board would take into account the
criteria specified in the NPRM: the RTP,
the Long-Cannon factors in 49 U.S.C.
10701(d)(2), and appropriate economic
principles. See NPRM, EP 755 et al., slip
op. at 10–13.
The Board proposed a relief cap of $4
million, indexed annually using the
Producer Price Index, consistent with
the potential relief afforded under the
Three-Benchmark methodology. See
NPRM, EP 755 et al., slip op. at 16.
The Board also sought additional
comments on Docket No. EP 665 (SubNo. 2), including whether to close that
docket. NPRM, EP 755 et al., slip op. at
17.
In the SNPRM, the Board made the
following changes to its FORR proposal:
13 Mkt. Dominance Streamlined Approach, EP
756 (STB served Aug. 3, 2020) (adopting final rule).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
removing the use of adverse inferences
and instead adopting a process for
motions to compel discovery; including
mandatory mediation in FORR cases;
requiring only the complainant to
submit market dominance evidence on
opening; allowing complainants to
choose between streamlined and nonstreamlined market dominance
approaches; and extending the proposed
procedural schedule to accommodate
motions to compel, mandatory
mediation, and (in cases where it is
selected) non-streamlined market
dominance. SNPRM, EP 755 et al., slip
op. at 35–36, 38–42. The SNPRM also
provided further information regarding
FORR’s decisional criteria. Id. at 26–27.
Also, on November 25, 2020, the
Board instituted a rulemaking
proceeding to consider a proposal by
Canadian National Railway Company,
CSX Transportation, Inc., The Kansas
City Southern Railway Company,
Norfolk Southern Railway Company,
and UP to establish a new, voluntary
arbitration program for small rate
disputes. Joint Pet. for Rulemaking to
Establish a Voluntary Arb. Program for
Small Rate Disps., EP 765 (STB served
Nov. 25, 2020).14 In a decision served
concurrently with the SNPRM, the
Board proposed to adopt a form of such
an arbitration program. See Arbitration
NPRM. Concurrently with this decision,
the Board is issuing a decision in that
proceeding that adopts final rules
implementing a new small rate case
arbitration program. See Joint Pet. for
Rulemaking to Establish a Voluntary
Arb. Program for Small Rate Disps.
(Arbitration Final Rule), EP 765 (STB
served Dec. 19, 2022). As part of that
program, the Board will allow carriers to
be exempt from rates challenges under
the FORR process if all Class I carriers
join the arbitration program within the
specified time period and the carriers
otherwise satisfy all requirements for
exemption established in the Arbitration
Final Rule.
Docket No. EP 755: Final Rule
After considering the filed comments
and information received in meetings
with stakeholders, the Board will adopt
the rule proposed in the SNPRM, with
one change addressed below in Part
III.B. In Part I, the Board addresses
comments on the purpose of the rule. In
Part II, the Board addresses comments
regarding its authority to adopt a final
14 Canadian Pacific subsequently submitted a
letter stating that it ‘‘supports the effort to find a
workable, reasonable, accessible arbitration
program for small rate cases, and would participate
in such a pilot program.’’ CP Letter, Jan. 25, 2021,
Joint Pet. for Rulemaking to Establish a Voluntary
Arb. Program for Small Rate Disps., EP 765.
PO 00000
Frm 00014
Fmt 4700
Sfmt 4700
offer procedure. In Part III, the Board
addresses other arguments against the
FORR procedure. In Part IV, the Board
addresses the review criteria for FORR
cases. In Part V, the Board addresses
discovery and procedural schedule
issues. In Part VI, the Board addresses
market dominance issues. In Part VII,
the Board addresses the relief cap.
Finally, in Part VIII, the Board addresses
other miscellaneous issues. The text of
the final rule is below.
Part I—Purpose of the Rule
The purpose of this rule is to satisfy
the statutory requirement that, if the
Board determines that a rail carrier has
market dominance over the
transportation to which a particular rate
applies, the rate established by such
carrier for such transportation must be
reasonable. See 49 U.S.C. 10701(d)(1).15
A shipper’s ability to challenge a rate
subject to market dominance is
frustrated where the litigation costs of
the Board’s available processes
outweigh the benefits of pursuing a
case. See Non-Coal Proc., 1 S.T.B. at
1049. Furthermore, in addition to
litigation costs, a shipper must also take
into account the risk associated with the
uncertainty of receiving relief and the
time it may take to obtain a decision.
Because even the Board’s smaller rate
processes raise complexity, cost and
duration challenges, shippers facing
small rate disputes continue to lack
meaningful access to the Board’s
existing rate reasonableness procedures.
NPRM, EP 755 et al., slip op. at 3. Along
with the Board’s arbitration procedures
newly adopted in Docket No. EP 765,
FORR represents one possible solution
for providing cost-effective rate relief in
small cases. The Board expects that
FORR’s procedural limitations should
lower the cost of litigating rate disputes,
providing complainants who otherwise
might be deterred from bringing smaller
rate cases under one of the Board’s
existing processes an additional and
more accessible avenue for rate
reasonableness review by the Board.
NPRM, EP 755 et al., slip op. at 7.
Reduced litigation costs should also
make it more feasible for complainants
to prove meritorious cases, while a final
offer selection process would discourage
15 See also 49 U.S.C. 10701(d)(3) (requiring the
Board to ‘‘maintain 1 or more simplified and
expedited methods for determining the
reasonableness of challenged rates in those cases in
which a full stand-alone cost presentation is too
costly, given the value of the case’’); 49 U.S.C.
10704(d)(1) (requiring the Board to ‘‘maintain
procedures to ensure the expeditious handling of
challenges to the reasonableness of railroad rates,’’
including ‘‘appropriate measures for avoiding delay
in the discovery and evidentiary phases of such
proceedings’’).
E:\FR\FM\04JAR1.SGM
04JAR1
khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
extreme positions and may facilitate
settlement. Id. In addition, although the
Board has provided in the arbitration
rulemaking that Class I carriers may be
exempt from FORR procedures under
certain conditions, that exemption is not
guaranteed to enter into effect. See
Arbitration Final Rule, EP 765, slip. op.
at 7. And even if the arbitration program
and FORR exemption take effect, FORR
will serve as the alternative regulatory
process in the event that a carrier
withdraws from the arbitration program
(which carriers will have the right to do
if there is a change in law). Therefore,
FORR remains an important long-term
measure even with the potential
temporary exemption established in the
arbitration rulemaking.
AAR continues to question the need
for a new procedure to resolve small
rate disputes. (See AAR SNPRM
Comment 17–18.) 16 Shipper interests
uniformly indicate that there is a need
for such a procedure. (AFPM SNPRM
Comment 2–3; Coalition Ass’ns SNPRM
Comment 1–2; IMA–NA SNPRM
Comment 2–3; Indorama SNPRM
Comment 2–3; NGFA SNPRM Comment
2; Olin SNPRM Comment 4–6.)
AAR argues that the Board should not
‘‘accept at face value unsupported
claims from shippers that they have
meritorious rate claims they have
chosen not to bring.’’ (AAR SNPRM
Comment 17–18.) Therefore, according
to AAR, the only relevant evidence is
the absence of small rate cases, which
‘‘could be evidence that tariff-based
rates are generally reasonable.’’ (See id.
at 17.)
As it did in its comments on the
NPRM, AAR is again suggesting that, in
order to adopt a process for determining
whether or not specific rates are
unreasonable, the Board must already
have evidence that rates as a general
matter are unreasonable. (See AAR
NPRM Comment 24.) But as the SNPRM
pointed out, AAR’s reasoning is circular
and would prevent the Board from
carrying out the statutory mandate to
determine the reasonableness of rates.
See SNPRM, EP 755 et al., slip op. at
10–11. AAR argues that the Board
should disregard shippers’ expressions
of concern about the existing rate
reasonableness processes unless an
individually identified shipper presents
a supported claim that it has a
meritorious rate case it has chosen not
to bring. (See AAR SNPRM Comment
17–18.) AAR does not attempt to
explain how such a shipper would
prove its rate case meritorious.
16 Unless otherwise specified, citations to the
record are to the record in Docket No. EP 755.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
Contrary to AAR’s argument, the
problem addressed by this rule is
illustrated by the lack of small rate cases
combined with repeated shipper
statements that they need rate relief but
find the Board’s existing processes too
complex and expensive. NPRM, EP 755
et al., slip op. at 2–3; see also id. at 3
n.5; SNPRM, EP 755 et al., slip op. at 10.
Comments from shipper interests in this
proceeding bear out that problem. (See,
e.g., Farmers Union NPRM Comment 5–
9 (explaining the challenges faced by
customers with small rate disputes, as
well as citations to evidence of steadily
rising rail transportation rates for
agricultural commodities in recent
decades); 17 NGFA NPRM Comment 5–
6; USDA NPRM Comment 2–3.)
Accordingly, the Board finds that
FORR will further the RTP goal of
maintaining reasonable rates where
there is an absence of effective
competition, see § 10101(6), by
providing increased access to rate
reasonableness determinations in small
disputes. By facilitating the
determination of rate reasonableness in
situations where it may not, in practice,
have been feasible previously, FORR
will also foster sound economic
conditions in transportation. See
§ 10101(5). And FORR’s short timelines
will promote expeditious regulatory
decisions and provide for the
expeditious handling and resolution of
proceedings. See § 10101(2), (15).
Part II—Authority To Adopt a Final
Offer Procedure
AAR renews certain of its arguments
that the Board lacks statutory authority
to adopt a final offer procedure under
which, having found the challenged rate
unreasonable, the Board must select one
of the parties’ offers to be the maximum
rate going forward. The Board disagrees
with AAR for the reasons stated in the
NPRM, the SNPRM, and below.
The offer stage of FORR represents an
exercise of the Board’s remedial rate
prescription authority: ‘‘When the
Board, after a full hearing, decides that
a rate’’ violates the statute, ‘‘the Board
may prescribe the maximum rate . . . to
be followed.’’ § 10704(a)(1).
AAR asserts that a final offer
procedure exceeds the scope of this
clause, but that argument lacks merit.
(See AAR SNPRM Comment 4–9, 11–
12.) The statute authorizes the Board to
‘‘prescribe the maximum rate . . . to be
17 Notwithstanding these widespread rate
increases, no rate case addressing rail transportation
of agricultural commodities has been filed with the
Board or the ICC since McCarty Farms, which
commenced in 1981. See McCarty Farms, Inc. v.
Burlington N., Inc., 2 S.T.B. 460, 462–63 (1997)
(denying rate relief after reopening and remand).
PO 00000
Frm 00015
Fmt 4700
Sfmt 4700
303
followed.’’ That is precisely what the
Board would do under FORR.
‘‘Prescribe’’ means ‘‘[t]o dictate, ordain,
or direct; to establish authoritatively (as
a rule or guideline).’’ Black’s Law
Dictionary (11th ed. 2019). As long as
the Board satisfies the criteria for
assessing the reasonableness of rates,
choosing among the parties’ offers as to
the maximum rate going forward is, by
definition, ‘‘establishing authoritatively
(as a rule or guideline)’’ the maximum
rate to be followed. This aspect of FORR
falls within § 10704(a)(1)’s grant of
remedial authority.18
Implicit in AAR’s argument is the
incorrect premise that ‘‘prescribing’’ a
rate under § 10704(a)(1) cannot occur
unless the Board allows itself discretion
in each case to prescribe a rate other
than one a party has proposed. That
requirement is absent from
§ 10704(a)(1), which says nothing about
the extent of discretion the Board can or
must permit itself in prescribing a
maximum rate. Nor has AAR identified
such a requirement in any other
provision, as discussed in more detail
below. And such a requirement would
contradict established Board practice.
The Board’s SAC test has long included
a procedure for prescribing the
maximum rate to be followed. This
procedure, the Maximum Markup
Methodology (MMM), applies
mechanically, with the Board exercising
no discretion as to its application in an
individual SAC case. See Major Issues
in Rail Rate Cases, EP 657 (Sub-No. 1),
slip op. at 14–15 (STB served Oct. 30,
2006), aff’d sub nom. BNSF Ry. v. STB,
526 F.3d 770, 777–81 (D.C. Cir. 2008).
At the offer selection phase of a FORR
case, by contrast, the Board would
exercise discretion in selecting between
the offers. The Board’s well-established
use the of MMM, therefore, contradicts
AAR’s contentions that FORR is
unlawful due to the supposedly
insufficient discretion it affords the
Board. (See, e.g., AAR SNPRM
Comment 4–6, 7–9; see also UP SNPRM
Comment 2–3.) 19
18 Because the Board’s authority to prescribe rates
under FORR is located in § 10704(a)(1), AAR’s
contention that § 10701(d)(3) does not expand the
scope of that authority is irrelevant. (AAR SNPRM
Comment 5.).
19 AAR repeats its argument that ‘‘there is no
basis for using [final offer procedures] with regard
to the Board’s ‘legislative function’ of setting rates
prospectively.’’ (AAR SNPRM Comment 9.) AAR
states that ‘‘[t]he Board has identified no authority
suggesting that final-offer procedures can be used
by agencies as a way of legislating or rulemaking.’’
(Id. at 10.) In making this argument, AAR cites a
footnote in the SNPRM expressly identifying the
authority that AAR now claims has not been
identified. See SNPRM, EP 755 et al., slip op. at 16
n.30. AAR refers to legislating or rulemaking
E:\FR\FM\04JAR1.SGM
Continued
04JAR1
304
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
AAR reiterates its reliance on the
magistrate judge’s opinion in Stone v.
U.S. Forest Serv., No. Civ. 03–586–JE,
2004 WL 1631321 (D. Or. July 16, 2004).
That decision invalidated an agency’s
use of final offer procedures to
determine the fair market value of a
parcel of property because, among other
reasons, the governing statute ‘‘d[id] not
command the agency to select the
‘better’ of the two appraisals,’’ and the
fair market value might have been
‘‘somewhere in between.’’ Id. at *7.
The nonbinding opinion in Stone,
which cites no authority and devotes
just a single paragraph to the relevant
issue, is distinguishable for several
reasons. Most importantly, the operative
statute specified a particular, highly
detailed method for assessing fair
market value—one that was arguably
incompatible with a final offer
approach. See 16 U.S.C. 544g(e)(2)
(requiring ‘‘apprais[al] in conformity
with the Uniform Appraisal Standards
for Federal Land Acquisitions’’).20 The
Board’s statutes, by contrast, authorize
the agency in general terms to devise
methods for calculating the
reasonableness of a rate and prescribing
the future rate to be followed. The
governing provisions do not specify a
particular method of calculation.
SNPRM, EP 755 et al., slip op. at 16
n.28; see 49 U.S.C. 10701(d)(3),
10704(a)(1). Second, the object of the
Stone agency’s calculations—the fair
market value of an item of real estate—
was a relatively objective fact that could
be determined independently of the
agency’s analysis. In the present
context, however, there is no
‘‘maximum rate to be followed’’ that
exists independently of a Board
determination in a rate reasonableness
case; although the Board must act
rationally and obey its statutes and
regulations in determining the
maximum rate to be followed, that
determination is not the kind that can
be assessed for accuracy with reference
to the external world. Finally, as
explained in the SNPRM, Stone also
involved a second rationale: the obvious
inequities that resulted from the fact
that the agency was both the adjudicator
and the purchasing party. See SNPRM,
EP 755 et al., slip op. at 13–14. That
significant factor is wholly absent here.
As in its previous comments, AAR
assumes that a maximum reasonable
generally, but the agency function at issue here is
a specific form of quasi-legislative authority: the
prospective setting of rates. AAR does not deny that
§§ 10701(d)(3) and 10704 authorize the Board to
develop methods for performing this quasilegislative function.
20 Available at https://www.usdoj.gov/enrd/landack/.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
rate exists in the abstract, outside of any
Board process used to determine the
maximum reasonable rate. (See AAR
SNPRM Comment 8.) Proceeding from
this assumption, AAR posits a
‘‘common situation’’ in which this
abstract ideal of a maximum reasonable
rate falls between the litigants’
positions. (See id.) Finally, based on the
problem it has contrived, AAR
concludes that FORR would not involve
the exercise of independent judgment.
(See id. at 7–9; see also UP SNPRM
Comment 2 (making similar
arguments).) As the SNPRM pointed out,
however, the idea that the Board must
determine the reasonableness of rail
rates ‘‘in the abstract’’ was rejected in
CSX Transportation, Inc. v. STB, 568
F.3d at 242, vacated in part on reh’g,
584 F.3d 1076 (D.C. Cir. 2009). SNPRM,
EP 755 et al., slip op. at 16. AAR’s
theory seems to be that the
‘‘considerations’’ referenced in the
statute—including revenue adequacy,
the Long-Cannon factors, and the RTP—
themselves dictate a particular
methodology for how the prescribed
maximum rate should be calculated,
and in individual cases, the Board
measures the challenged rate against the
‘‘maximum reasonable rate’’ resulting
from the statute. (See AAR SNPRM
Comment 4, 8–9.) But as noted above,
the statute supplies only general goals,
not methodologies (unlike, for example,
the statute in Stone that required
specific ways of calculating a real estate
appraisal). Instead, the ICC and the
Board have developed processes that are
applied in individual cases to determine
a maximum rate in a manner designed
to achieve those goals—as in FORR.21
Again, AAR identifies no statutory
provision that would prevent the Board
from committing in advance not to
prescribe a maximum rate other than
one identified by the parties. Nor does
AAR substantiate any view that such
discretion is inherently necessary for an
agency adjudication to be valid.
AAR argues that because the statute
does not mention the parties’ pleadings
among these considerations, the Board
cannot adopt one party’s position. (See
AAR SNPRM Comment 8.) But AAR’s
argument leads to the absurd
consequence that, in any type of
adjudication where one party’s position
is clearly superior, the adjudicator
21 UP argues that FORR is distinguishable from
the Board’s existing rate reasonableness processes
because those processes ‘‘were designed to
implement statutory standards.’’ (UP SNPRM
Comment 3.) But as explained in the NPRM, the
SNPRM, and this final rule, FORR is also ‘‘designed
to implement statutory standards.’’ See, e.g., NPRM,
EP 755 et al., slip op. at 10–11; SNPRM, EP 755 et
al., slip op. at 12–15, 26–29.
PO 00000
Frm 00016
Fmt 4700
Sfmt 4700
cannot adopt that position in its entirety
unless Congress has expressly identified
the parties’ pleadings as a source on
which the adjudicator may rely.
The SNPRM pointed out similarities
between FORR and the ThreeBenchmark test with respect to
decision-making structures and the
agency’s exercise of discretion. See
SNPRM, EP 755 et al., slip op. at 15–16.
AAR dismisses this comparison, stating
that a final offer procedure is only one
part of the Three-Benchmark test,
whereas it provides the overall
framework of FORR. (See AAR SNPRM
Comment 8); SNPRM, EP 755 et al., slip
op. at 5. AAR ignores the fact that, apart
from evidence regarding ‘‘other relevant
factors,’’ which is optional, the Board’s
Three-Benchmark test comprises a final
offer process and a formula—an
approach in which the Board exercises
its discretion in deciding between the
parties’ comparison groups under a final
offer structure. See Union Pac. R.R. v.
STB, 628 F.3d 597, 601 (D.C. Cir. 2010)
(‘‘Since the revenue need adjustment
factor is derived from static figures
published annually by the Board, the
Three Benchmark framework’s
reasonableness determination generally
turns on the Board’s selection of a
comparison group.’’); SNPRM, EP 755 et
al., slip op. at 15.
UP similarly contends that ThreeBenchmark is distinguishable from
FORR in terms of the Board’s exercise
of discretion because parties to a ThreeBenchmark case can choose to submit
evidence regarding ‘‘other relevant
factors.’’ (See UP SNPRM Comment 3.)
Regarding the point that ‘‘other relevant
factors’’ evidence is optional, UP argues
that that is ‘‘consistent with the function
of a safety valve.’’ (See id.) UP
erroneously conflates a decision made
by parties—whether to submit evidence
regarding ‘‘other relevant factors’’ in a
Three-Benchmark case—with its
argument about the scope of the Board’s
decision-making. UP does not deny that,
in any given Three-Benchmark
proceeding, parties might present the
Board with no ‘‘other relevant factors’’
evidence. In that situation, the Board’s
exercise of discretion in the context of
that individual case is no greater than it
would be in a FORR case. See Union
Pac. R.R., 628 F.3d at 601.
AAR continues to argue that the
Board cannot exercise its rateprescribing power unless it performs a
rate analysis distinct from any party’s
pleadings within each case—as opposed
to exercising judgment in establishing
the process itself. (See AAR SNPRM
Comment 8); cf. SNPRM, EP 755 et al.,
slip op. at 15. But again, no such
limitation is apparent in the statute or
E:\FR\FM\04JAR1.SGM
04JAR1
khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
anywhere else, and AAR’s arguments
would also foreclose any ThreeBenchmark case in which no ‘‘other
relevant factors’’ are proposed. In such
a case, the judgment in its entirety
would consist of selecting a comparison
group via final offer and applying the
revenue need adjustment formula. The
Three-Benchmark test has been affirmed
on judicial review, notwithstanding the
restrictive definition of agency
adjudication that AAR erroneously
proposes here. See CSX Transp., Inc. v.
STB, 568 F.3d at 242.
Indeed, AAR’s theory of adjudication,
taken to its logical endpoint, would
preclude the Board from having any predefined processes. In an individual SAC
case, for example, the result produced
by the SAC process and Board
precedent may be above or below the
abstract ideal of a maximum rate—
which AAR described in its NPRM
comments as the rate that ‘‘best’’
achieves the statutory objectives. (AAR
NPRM Comment 12; see also UP
SNPRM Comment 2 (making a similar
assumption that there must be an
abstract ‘‘actual maximum lawful rate’’
that exists outside of any process used
by the Board to determine the maximum
reasonable rate).) But Congress
expressly required the Board to create
multiple rate reasonableness
processes—which, by definition, could
produce rates above or below AAR’s
hypothesized single ‘‘best’’ maximum
rate. See §§ 10701(d)(3), 10704(a)(1).
According to AAR, § 10707(c)
‘‘charge(s)’’ the Board with determining
whether a challenged rate exceeds ‘‘a
reasonable maximum for that
transportation.’’ (AAR SNPRM
Comment 12.) AAR argues that FORR
does not permit the Board to bring its
own independent judgment to bear in
determining what ‘‘a reasonable
maximum’’ rate would be and therefore
conflicts with this provision. (See id.)
This argument merely echoes AAR’s
other faulty arguments regarding
‘‘independent judgment’’ and is
incorrect for the reasons stated above
and in the SNPRM. Moreover, it is far
from clear that § 10707(c) ‘‘charge(s)’’
the Board with anything. The statutory
language partially quoted by AAR
appears to delineate between the
Board’s determinations of market
dominance and rate reasonableness,
rather than establishing any directive
related to rate reasonableness
determinations.22 Statutory structure
22 See § 10707(c) (‘‘When the Board finds in any
proceeding that a rail carrier proposing or
defending a rate for transportation has market
dominance over the transportation to which the rate
applies, it may then determine that rate to be
unreasonable if it exceeds a reasonable maximum
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
supports this interpretation, as § 10707
is the provision in which Congress
addressed market dominance rather
than rate reasonableness. See, e.g., Act
of Oct. 17, 1978, Public Law 95–473, 92
Stat. 1337, 1382–83 (1978) (splitting
§ 10709—later renumbered as § 10707—
from the statute’s rate reasonableness
provision and giving it the heading
‘‘Determination of market dominance in
rail carrier rate proceedings’’). In any
event, even if § 10707(c) could be read
to govern processes beyond the marketdominance determination, the statute
can at most be read to bear on the
Board’s determination of whether a
challenged rate is reasonable; the
statute’s text in no way limits the
Board’s separate authority under
§ 10704(a)(1) to prescribe a maximum
rate to be followed.
In the SNPRM, the Board rejected
UP’s claim that FORR would limit the
Board’s exercise of its statutory
authority. Instead, as the SNPRM
pointed out, FORR facilitates the
Board’s exercise of that authority by
establishing a new process for doing so,
thereby providing an additional avenue
for shippers with smaller rate disputes
to seek relief from rates that would
otherwise go unchallenged. See SNPRM,
EP 755 et al., slip op. at 15. The SNPRM
further pointed out that, even if the
Board could be said to be using
something less than its congressionally
delegated authority through FORR
(which it is not), the agency may choose
to act within a narrower range than
Congress authorized. Id. (citing Midtec
Paper Corp. v. Chi. & N.W. Transp. Co.,
3 I.C.C.2d 171, 181 (1986), aff’d sub
nom. Midtec Paper Corp. v. United
States, 857 F.2d 1487, 1500 (D.C. Cir.
1988)).
UP now tries to distinguish Midtec,
arguing that it involved a statute ‘‘cast
in discretionary terms,’’ Midtec, 857
F.2d at 1499, and did not ‘‘allow the
agency to disregard a mandatory duty
delegated by Congress, as the Board
would be doing under FORR.’’ (UP
SNPRM Comment 2.) But on the issue
of how to determine whether a rate is
reasonable, it would be difficult to find
a plainer example of a statute ‘‘cast in
discretionary terms’’ than § 10701(d)(3)
(‘‘The Board shall maintain 1 or more
simplified and expedited methods for
determining the reasonableness of
challenged rates in those cases in which
a full stand-alone cost presentation is
too costly, given the value of the case.’’);
see also § 10704(a)(1) (providing in
for that transportation. However, a finding of
market dominance does not establish a presumption
that the proposed rate exceeds a reasonable
maximum.’’).
PO 00000
Frm 00017
Fmt 4700
Sfmt 4700
305
equally discretionary terms that,
‘‘[w]hen the Board, after a full hearing,
decides that a rate charged or collected
by a rail carrier for transportation
subject to the jurisdiction of the Board
under this part . . . does or will violate
this part, the Board may prescribe the
maximum rate . . . to be followed’’).
And UP does not even attempt to engage
with the language of §§ 10701(d)(3) or
10704(a)(1) in support of its claim that,
under FORR, the Board would
‘‘disregard a mandatory duty.’’ As
explained above in response to AAR,
the Board would carry out its duties
under § 10701(d)(3) and under the
authority of § 10704(a)(1) in a FORR
case.
Finally, AAR again cites Morgan v.
United States, 304 U.S. 1, 12 (1938) for
the proposition that ‘‘Congress, in
requiring a ‘full hearing,’ had regard to
judicial standards—not in any technical
sense but with respect to those
fundamental requirements of fairness
which are of the essence of due process
in a proceeding of a judicial nature.’’
(AAR SNPRM Comment 10); see also
§ 10704(a)(1) (requiring a ‘‘full hearing’’
in a rate reasonableness case).
According to AAR, a judge could not
adopt a final offer procedure, so this
quote from Morgan means the Board
cannot either. (See AAR SNPRM
Comment 10–11.)
Even accepting, for argument’s sake,
the premise that Congress lacks power
to authorize federal district courts to
employ a final offer process, AAR fails
to acknowledge the reality that
administrative agencies enjoy far greater
procedural flexibility than do federal
district courts. SNPRM, EP 755 et al.,
slip op. at 20; see also Sea-Land Serv.,
Inc. v. United States, 683 F.2d 491, 495
(D.C. Cir. 1982); Pension Benefit
Guaranty Corp. v. LTV Corp., 496 U.S.
633, 644 (1990); R.R. Comm’n of Tex. v.
United States, 765 F.2d 221, 227 (D.C.
Cir. 1985). AAR cannot simply assume
that procedural devices unavailable in
federal litigation are impermissible
before agencies.
That is especially true here, where
Congress expressly authorized and
required the agency to develop rate
reasonableness methods in open-ended
terms and without any indication that
these methods must be limited to those
available to courts. See §§ 10701(d)(3),
10704(a)(1); SNPRM, EP 755 et al., slip
op. at 20 (noting that AAR has not
identified any language in these or other
provisions that restricts the Board’s
discretion to set a rate by selecting the
best of two offers after it finds the
challenged rate unreasonable and
considers appropriate statutory
E:\FR\FM\04JAR1.SGM
04JAR1
306
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
principles).23 And in any event, as
noted in the SNPRM, Morgan predates
the enactment of the Administrative
Procedure Act (APA). SNPRM, EP 755 et
al., slip op. at 20. AAR fails to explain
how its proposal to limit agency
adjudicatory procedures to a far
narrower band survives the APA and
the cases construing it.
Part III—Other Arguments Against the
Forr Procedure
khammond on DSKJM1Z7X2PROD with RULES
A. Burden of Proof
AAR argues that, even if a FORR
complainant bears the burden of proof
as to market dominance and the
reasonableness of the challenged rate, it
is improperly relieved of the burden as
to FORR’s third stage, the selection of
offers. (See AAR SNPRM Comment 12–
13; AAR SNPRM Reply Comment 5.)
AAR relies on 5 U.S.C. 556(d), which
establishes that, ‘‘[e]xcept as otherwise
provided by statute, the proponent of a
rule or order has the burden of proof.’’
(See AAR SNPRM Comment 12–13.)
Like AAR, prior Board decisions have
relied on section 556(d) as the source of
burden allocation in Board
adjudications. See, e.g., NPRM, EP 755
et al., slip op. at 12–13. Those Board
decisions correctly assigned the burden
of proof to parties seeking relief, based
on Board precedent establishing such a
burden allocation; that precedent will
continue to apply as a general matter in
Board proceedings. See, e.g., Union Pac.
R.R., FD 35504, slip op. at 2; Duke
Energy Corp. v. Norfolk S. Ry., 7 S.T.B.
89, 100 (2003). On further reflection,
however, the Board concludes that some
of its previous decisions incorrectly
identified section 556(d)—rather than
Board precedent—as the source of that
burden allocation. As explained in the
SNPRM, sections 556 and 557 of the
APA apply to formal ‘‘trial-type’’
hearings, which do not include the
Board’s rate reasonableness
proceedings. See SNPRM, EP 755 et al.,
slip op. at 19–20; see also, e.g., R.R.
Comm’n of Tex., 765 F.2d at 227 (formal
adjudication procedures will ‘‘obtain
only on the requirement of a ‘hearing on
the record’ ’’). And precedent clearly
establishes that the burden allocation
language of section 556(d), in particular,
does not apply outside formal ‘‘trial23 Congress, of course, knows how to invoke the
procedures used in courts where it chooses to do
so. See, e.g., STB Reauthorization Act § 11(c)
(directing the Board to ‘‘initiate a proceeding to
assess procedures that are available to parties in
litigation before courts to expedite such litigation
and the potential application of any such
procedures to rate cases’’); Expediting Rate Cases,
EP 733 (STB served Nov. 30, 2017) (carrying out
this direction). It did not do so in either
§§ 10701(d)(3) or 10704(a)(1).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
type’’ hearings. E.g., Am. Trucking
Ass’ns v. United States, 344 U.S. 298,
318–20 (1953).
As discussed above and in the
SNPRM, Congress has afforded agencies
greater procedural leeway in cases that
are not formal ‘‘trial-type’’ hearings. See
SNPRM, EP 755 et al., slip op. at 19–20;
Sea-Land Serv., Inc., 683 F.2d at 495;
Pension Benefit Guaranty Corp., 496
U.S. at 644. Here, it is within the
Board’s procedural discretion to place
the burden on complainants as to the
portions of FORR addressing
jurisdiction and culpability—that is,
market dominance and the
reasonableness of the challenged rate—
but not as to the remedial stage of offer
selection, which is equitable in nature.
This allocation of burden aligns with
the allocation in SAC cases, where
complainants bear the burden as to
market dominance and the SAC
analysis, but not as to the application of
the MMM (described above) to
determine the maximum reasonable rate
that the Board will prescribe. See BNSF
Ry., 526 F.3d at 777–81 (discussing the
MMM); (Coalition Ass’ns Reply
Comment 12 (analogizing similarly to
the Board’s other rate reasonableness
procedures)). Again, AAR identifies no
statutory provision that would foreclose
the Board’s choice to structure FORR
proceedings in this way.
Adopting the burden allocation
proposed in the NPRM and SNPRM will
allow the Board to use a final offer
procedure at the third stage of a FORR
case, the benefits of which are described
above. See also NPRM, EP 755 et al., slip
op. at 4–7 (discussing the benefits of a
final offer procedure). If complainants
also bore the burden at the offer
selection stage, no stage of the
proceeding would contain a final offer
procedure. Cf. SNPRM, EP 755 et al.,
slip op. at 22–23 (recognizing that a
FORR defendant could make a strategic
decision to offer a rate that is lower than
the challenged rate but higher than the
complainant’s offer; if the Board
selected such an offer, the complainant
would obtain rate relief despite the
Board’s selection of the defendant’s
offer). Therefore, the benefits of a final
offer procedure—particularly in light of
the agency’s decades-long efforts to
create accessible small rate case
processes, see id., slip op. at 3–5, 11—
supports the burden allocation adopted
here.
B. Specific Scenarios Under FORR
AAR again describes a hypothetical
scenario in which a shipper submits an
offer below the jurisdictional threshold,
see 49 U.S.C. 10707(d)(1)(A), and yet the
complainant otherwise proves that the
PO 00000
Frm 00018
Fmt 4700
Sfmt 4700
defendant’s offer—be it the challenged
rate or otherwise—is unreasonably high.
(See AAR SNPRM Comment 11–12.) But
a FORR case would never reach that
point. If the shipper submits an offer
below the jurisdictional threshold, its
complaint would be dismissed due to
that failure of proof.
As noted above, the SNPRM observed
that a FORR defendant could make a
strategic decision to offer a rate that is
lower than the challenged rate but
higher than the complainant’s offer.
SNPRM, EP 755 et al., slip op. at 22–23;
(see also UP SNPRM Comment 5 (‘‘it is
easier to defend a lower rate than a
higher rate against a charge that the rate
is too high’’)). The SNPRM drew an
analogy to a SAC case, in which a party
can deliberately take a less aggressive
position on an element of the analysis
if it is concerned about its likelihood of
success—a decision that changes what
the party ultimately submits as the SAC
rate. Id., slip op. at 23 n.37.
UP asserts in response that
deliberately taking a less aggressive
position regarding one element of a SAC
analysis is not analogous to conceding
the unlawfulness of the challenged rate
under FORR. (See UP SNPRM Comment
4.) Immediately following this assertion,
however, UP makes an argument that
confirms the analogy to SAC. According
to UP, because each party’s final offer
must reflect what it considers to be a
maximum reasonable rate, ‘‘a railroad
would violate FORR if it were to
‘strategically’ make a final offer below
what it considers the lawful maximum
rate.’’ (Id.) But UP again fails to
recognize that the maximum reasonable
rate is the rate produced through the
Board’s rate reasonableness process, not
an abstraction that exists outside such a
process. In a SAC case, a party might
believe the correct SAC rate is higher or
lower than what it chooses to submit to
the Board, but it can submit a different
rate nonetheless to improve its
likelihood of success. Believing in one
rate and submitting another does not
‘‘violate SAC.’’
UP’s argument appears to contemplate
an intent element in rate reasonableness
determinations—the idea that a railroad
would ‘‘violate FORR’’ if it argues for
one rate but has a different rate in mind.
This notion also explains UP’s
suggestion, (see UP SNPRM Comment
4–5), that a railroad would be required
to advocate for prescription of a rate
higher than the challenged rate,
whenever it happens to believe that the
rate should be higher than the
challenged rate. But the Board’s rate
reasonableness processes do not include
an intent element. Although the SNPRM
stated that ‘‘each party’s final offer must
E:\FR\FM\04JAR1.SGM
04JAR1
khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
reflect what it considers to be a
maximum reasonable rate,’’ SNPRM, EP
755 et al., slip op. at 19, the Board did
not intend this statement to impose an
intent requirement. Indeed, the SNPRM
elsewhere recognized that a carrier
might choose to make a strategic
decision to offer a rate lower than the
challenged rate that the carrier defended
in its reasonableness evidence. Id. at 23
n.37. To avoid confusion, the Board
now withdraws the quoted statement of
the SNPRM. The Board at the offer stage
will, of course, endeavor to select the
offer that best accomplishes the Board’s
economic and statutory goals (see Part
IV below), so parties would be wise to
develop and explain their offers with
those considerations in mind. But
parties are not prohibited from
formulating their offers based on
additional considerations, as well.
In a similar vein, the Board also
clarifies that a carrier does not concede
unreasonableness by submitting an offer
that is lower than the challenged rate
(contra AAR SNPRM Comment 15); the
parties’ offers become relevant only
after the challenged rate has been
judged unreasonable. This means that
carriers are free to argue ‘‘in the
alternative’’ and submit separate
analyses at the rate-reasonableness and
offer-selection stages. In other words, a
carrier’s justification supporting its
choice of offer can proceed on the
assumption that the challenged rate has
already been found unreasonable.
Carriers are not required to submit an
offer that is the same as the challenged
rate and, contrary to the SNPRM, the
Board recognizes that the two analyses
may not be the same in many cases. Cf.
SNPRM, EP 755 et al., slip op. at 21.
UP also repeats its argument posing a
hypothetical situation in which a
complainant submits very compelling
evidence that the challenged rate is
unreasonable and no evidence
whatsoever in support of its offer. (See
UP SNPRM Comment 5–6.) In that
situation, UP argues, the Board would
have to accept that unsupported (and
unreasonably low) offer, because the
Board cannot prescribe the challenged
rate after finding it unreasonable. (See
id.) The SNPRM pointed out in response
that it is implausible that a
complainant’s analysis producing an
unsupported and unreasonably low rate
could satisfy FORR’s decisional criteria
to show that the challenged rate is
unreasonable. SNPRM, EP 755 et al.,
slip op. at 23. UP now contends that
‘‘FORR does not require the shipper’s
evidence of unreasonableness to show
the shipper’s final offer rate would be
reasonable. In fact, FORR requires
separate analyses of the issues, see
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
NPRM at 12 (‘each party would be
required to submit an analysis
addressing the reasonableness of the
challenged rate and support for the rate
in the party’s offer’ (emphasis added)),
while recognizing the evidence would
‘likely’ (but not necessarily) overlap, id.
at 12 n.24.’’ (UP SNPRM Comment 5–6.)
UP misconstrues the language it cites
from the NPRM. Contrary to UP’s claim,
the NPRM does not say that FORR
would require ‘‘separate analyses’’ of
the reasonableness of the challenged
rate and support for the party’s offer.
However, UP is correct that FORR does
not require a party to use the same
analysis for both of these purposes. The
Board therefore clarifies that it retains
the ability to prevent abuse of its
processes. If a complainant ‘‘focus[es]
all its efforts’’ on showing that the
challenged rate is unreasonable and
submits no support for its offer (see UP
NPRM Comment 15), for example, the
Board could decide to dismiss the
complaint without reaching the
reasonableness of the challenged rate.
The Board will also confirm its ability
to exercise this discretion by adding the
following language to the regulations
adopted today: ‘‘If a complainant fails to
submit explanation and support for its
offer, the Board may dismiss the
complaint without determining the
reasonableness of the challenged rate.’’
C. FORR’s Encouragement of
Settlements
The SNPRM acknowledged that the
risks faced by shippers and railroads are
not reciprocal, because the Board would
never prescribe a rate higher than the
challenged rate. It explained, however,
that this lack of reciprocity is a result of
the Board’s statutory mandate to
regulate railroad conduct rather than
shipper conduct. SNPRM, EP 755 et al.,
slip op. at 23–24. AAR now argues that
the Board’s statutory mandate does not
distinguish FORR from the Board’s
other rate reasonableness processes,
including Three-Benchmark, because
they ‘‘do not suffer from the same lack
of reciprocal risks and do not exert the
same coercive pressure on the
railroads.’’ (See AAR SNPRM Comment
15–16.) The fact that potential carrier
risk is greater than potential shipper risk
in a FORR case, however, does not mean
that it would be improper or unfair for
the Board to adopt FORR. The statutory
provisions that require railroad rates to
be reasonable and authorize the Board
to regulate rate reasonableness apply to
all of the Board’s processes. See, e.g., 49
U.S.C. 10704(a)(1) (authorizing the
Board to prescribe a rate or practice for
a carrier). As the SNPRM stated, in
adopting FORR, the Board has weighed
PO 00000
Frm 00019
Fmt 4700
Sfmt 4700
307
the competing considerations and
determined that FORR would provide
sufficient benefits (see, e.g., NPRM, EP
755 et al., slip op. at 4–7) even if it were
found not to afford the full settlement
incentives present in certain other
contexts. SNPRM, EP 755 et al., slip op.
at 24.
The SNPRM stated that, while the
Board would not prescribe a rate higher
than the challenged rate in a FORR case,
there is still considerable risk to a
complainant that brings an unsuccessful
FORR case that the carrier may
conclude based on the Board’s
evaluation of the economic analyses that
it has more latitude to set a higher rate.
Id. The SNRPM also noted that, should
the Board find the challenged rate has
not been shown to be unreasonable in
a given case, the Board’s findings could
have a preclusive effect on that
complainant in subsequent litigation. Id.
AAR asserts in response that ‘‘none of
these risks remotely approach the
severity of the risks the railroads face
from an adverse outcome.’’ (AAR
SNPRM Comment 16.) But the SNPRM
did not suggest that complainants’
litigation risks are identical to
defendants’ risks, nor do they need to
be. As AAR itself points out,
complainants under the Board’s other
rate reasonableness processes do not run
the risk that the Board will prescribe a
rate higher than the challenged rate,
because the Board is not authorized to
do so. (See AAR SNPRM Comment 16.)
Rather, as the SNPRM explained,
bringing a FORR case is not without
risks for complainants—and depending
on the circumstances of the case, those
risks could be significant, such as a
railroad substantially raising the rate
based on the analysis adopted in the
Board’s decision. See SNPRM, EP 755 et
al., slip op. at 24.
The SNPRM also stated that any lack
of reciprocity is balanced by the
defendant carrier’s possession of market
dominance—a prerequisite in any rate
case before the Board, including FORR.
SNPRM, EP 755 et al., slip op. at 24; see
also 49 U.S.C. 10707 (market dominance
prerequisite).24 In response, UP argues
that the idea of leveling the playing field
does not make sense because (a) a
market dominance finding does not
mean the railroad is charging
24 The SNPRM noted that a complainant
challenging a rate that is subject to market
dominance (i.e., any complainant whose case under
FORR reaches the rate reasonableness phase) would
not have the options that UP assumes would be
available to complainants. (See UP NPRM Comment
14–16 (assuming, for example, that if a complainant
loses, it could simply choose not to move traffic
under the rate that was at issue in the case, or that,
‘‘in many situations,’’ the challenged rate is
constrained by market forces).)’’
E:\FR\FM\04JAR1.SGM
04JAR1
308
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
unreasonable rates, as demonstrated by
the fact that railroads found to have
market dominance often prevail in rate
cases; and (b) the Board’s market
dominance test does not account for
product and geographic competition,
meaning that even railroads found to
have market dominance ‘‘cannot charge
more than market rates.’’ (See UP
SNPRM Comment 6.) But the SNPRM
did not say the playing field was
unlevel due to railroads’ charging
unreasonable rates. It referred instead to
the ‘‘imbalance in bargaining power’’
inherent in a market dominance finding,
which Congress sought to level by
authorizing rate reasonableness
determinations and requiring the Board
maintain simplified procedures for
smaller cases. SNPRM, EP 755 et al., slip
op. at 24; see also 49 U.S.C. 10701(d)(1),
(3). As for product and geographic
competition, the Board found that they
effectively limit railroad pricing only
‘‘in certain circumstances,’’ and ‘‘if
there are product and geographic
competitive alternatives that are
obviously effective, a shipper would be
unlikely to pursue a regulatory rate
challenge.’’ 25
AAR argued in its NPRM comments—
similar to its prior claims in opposing
other efforts at reforming the Board’s
rate review processes 26—that rates
adopted through FORR settlements
would become the basis for comparison
groups in Three-Benchmark cases,
‘‘further driving railroad pricing down.’’
(See AAR NPRM Comment 22–23.) The
SNPRM pointed out in response that
AAR’s argument would apply whenever
any shipper obtained a lower rate, either
through a Board decision (using any rate
reasonableness process) or a settlement.
SNPRM, EP 755 et al., slip op. at 25.
AAR now states that it disagrees
because FORR ‘‘will create a far more
25 See Mkt. Dominance Determinations—Prod. &
Geographic Competition, 3 S.T.B. at 946 n.49, 948
(emphasis added), reconsideration denied Mkt.
Dominance Determinations—Prod. & Geographic
Competition, EP 627 (STB served July 2, 1999),
remanded sub nom. Ass’n of Am. R.Rs. v. STB, 237
F.3d 676 (D.C. Cir. 2001), decision on remand Mkt.
Dominance Determinations—Prod. & Geographic
Competition, EP 627 (STB served Apr. 6, 2001), pet.
for review denied sub nom. Ass’n of Am. R.Rs. v.
STB, 306 F.3d 1108, 1111 & n.2 (D.C. Cir. 2002); see
also Pet. of the Ass’n of Am. R.R.s, EP 717, slip op.
at 7 (STB served Mar. 19, 2013) (‘‘Indirect
competition may, in certain circumstances,
effectively constrain rail rates for transportation of
coal for electric power generation.’’) (emphasis
added).
26 See AAR Suppl. Comment 10–11, Feb. 26,
2007, Simplified Standards for Rail Rate Cases, EP
646 (Sub-No. 1) (predicting incorrectly that the
Three-Benchmark approach would ‘‘inevitably
result in an overall ratcheting down of rates towards
an average’’).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
severe downward force on rates.’’ (AAR
SNPRM Comment 18.)
The SNPRM’s explanation to which
AAR is responding dealt with a specific
type of ‘‘downward force on rates’’—
inclusion of a rate in Three-Benchmark
comparison groups. AAR’s response
provides no support whatsoever for the
idea that FORR would lead to
‘‘ratcheting’’ in this way any more than
lower rates obtained by any other
mechanism. To the extent AAR is now
abandoning its argument about FORR
settlements in Three-Benchmark
comparison groups and arguing more
generally that FORR will drive down
rates, it merely repeats arguments that
were addressed in the SNPRM. See
SNPRM, EP 755 et al., slip op. at 23–25;
(see also AAR SNPRM Comment 18
(making another, very similar
contention that FORR ‘‘is unfair to
railroads, creates massive uncertainty,
imposes risks that are not reciprocal,
and will result in prescribed rates that
benefit shippers and bear no relation to
market outcomes’’).)
Finally, BNSF repeats its assertion
that uncertainty in FORR cases would
deter negotiated outcomes. (See BNSF
SNPRM Comment 3.) But as the SNPRM
pointed out, SNPRM, EP 755 et al., slip
op. at 23 n.38, railroad commenters
offered no support for this claim, and
the NPRM cited multiple sources
supporting the opposite proposition.
NPRM, EP 755 et al., slip op. at 5–7.
Part IV—Review Criteria
As noted above, the Board stated that,
in reviewing offers, it would take into
account the RTP,27 the Long-Cannon
27 The SNPRM explained that the Board would
rely primarily on the RTP factors that have
previously been relied on in the rate reasonableness
context: the policy to allow, to the maximum extent
possible, competition and the demand for services
to establish reasonable rates for transportation by
rail, 49 U.S.C. 10101(1); to promote a safe and
efficient rail transportation system by allowing rail
carriers to earn adequate revenues, as determined
by the Board, § 10101(3); and to maintain
reasonable rates where there is an absence of
effective competition and where rail rates provide
revenues which exceed the amount necessary to
maintain the rail system and to attract capital,
§ 10101(6). SNPRM, EP 755 et al., slip op. at 27. The
Board emphasized that, to the extent parties seek
to rely on RTP factors that have not been relied on
in the rate reasonableness context, they must
demonstrate how those factors relate to the
economic analysis of the reasonableness of the rate.
For example, if a party wanted to argue that
§ 10101(4), which establishes adequacy of rail
service as an RTP goal, is relevant, the party must
explain the relevance of that RTP factor to the
proposed methodology. See, e.g., TRB Rep. 148
(‘‘As common carrier rates were deregulated, so too
was service quality, since a product’s price and
quality will be interlinked’’), 201 (attention to
service quality is necessary to carry out the
common carrier obligation, which in turn must
persist ‘‘to give effect to the law’s protections for
shippers from unreasonable rates’’).
PO 00000
Frm 00020
Fmt 4700
Sfmt 4700
factors in 49 U.S.C. 10701(d)(2), and
appropriate economic principles. See
NPRM, EP 755 et al., slip op. at 10–13;
SNPRM, EP 755 et al., slip op. at 26–29
(further explaining the criteria).
Railroad interests continue to argue that
such a multi-factor test is arbitrary and
capricious and unconstitutionally
vague. The Board rejects these
arguments for the reasons stated in the
SNPRM and below.
In the SNPRM, the Board
distinguished FCC v. Fox Television
Stations, Inc., 567 U.S. 239 (2012), by
pointing out, among other things, that
under FORR the Board would ‘‘us[e] the
same statutory criteria and economic
principles applied in past rate cases
using other processes.’’ SNPRM, EP 755
et al., slip op. at 29. AAR now argues
that this is not a distinguishing factor
because shippers will be able to choose
an economic methodology within a
FORR case. (See AAR SNPRM Comment
13–14.)
AAR selectively quotes a phrase from
the paragraph distinguishing Fox
Television and ignores the analysis in
the SNPRM that refutes AAR’s position.
As the SNPRM explained, adjudication
of claims under 49 U.S.C. 10702 and
11101, addressing the reasonableness of
practices and the common carrier
obligation, respectively, bears a close
resemblance to the approach adopted
here. SNPRM, EP 755 et al., slip op. at
30. Each involves a non-prescriptive,
multi-factor analysis. The ICC and the
Board have followed this approach for
more than a century, with judicial
approval, despite parties’ inability to
‘‘know in advance what the Board might
deem unreasonable’’ with the specificity
that AAR would apparently require,
(AAR NPRM Comment 17–18). SNPRM,
EP 755 et al., slip op. at 30 (citations
omitted).
In its NPRM comments, AAR
characterized FORR as distinct from
these other agency processes in terms of
predictability, implying that the Board
has given no hint as to how it would
reach a decision. (See AAR NPRM
Comment 17–19; AAR Comment in
Response to Mem. 5, Aug. 12, 2020.)
That is not so; the NPRM articulated the
criteria that apply in determining rate
reasonableness,28 and if necessary,
28 AAR disagreed with similar reasoning
proffered by Olin; AAR stated that Olin ‘‘misses the
point’’ because, ‘‘[i]n the rate context, the elastic
term ‘reasonable’ has specific meaning.’’ (AAR
Comment in Response to Mem. 5, Aug. 12, 2020.)
In this attempt to distinguish rate reasonableness
from unreasonable practice cases and rulings on the
common carrier obligation, AAR did not cite any
statutes or case law. See id. AAR relied instead on
an article, which does not even support the point
for which AAR cited it, much less provide statutory
or precedential support. See id. AAR further noted
E:\FR\FM\04JAR1.SGM
04JAR1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
choosing an offer. These criteria would
signal to parties what rates might be
found unreasonable. For instance, if a
defendant railroad is charging vastly
more for the challenged traffic than it
does for comparable traffic, if it is aware
of costly inefficiencies that a new
railroad would not adopt, or if its
revenue from the challenged rate is out
of proportion to its properly attributable
capital requirements and other costs of
service, (see BNSF Mem. 2 (Mtg. with
Board Member Begeman)), then it could
reasonably predict a lower likelihood of
success in a FORR case. FORR’s level of
predictability, which is in line with
unreasonable practice cases and other
adjudications requiring the tribunal to
weigh multiple factors, does not render
the FORR procedure arbitrary and
capricious or unconstitutionally vague.
SNPRM, EP 755 et al., slip op. at 31.
In response to the SNPRM’s
comparison of FORR to other rate
reasonableness processes in terms of
predictability, AAR claims that ‘‘[i]t is
no answer to say that many rate cases
‘raise[ ] novel issues.’ ’’ (AAR SNPRM
Comment 14.) But in fact, the SNPRM’s
analysis did answer a position of AAR’s
that it repeats in its comments on the
SNPRM. According to AAR, ‘‘[u]nder
FORR, it would be impossible for
railroads to know in advance how to
conform their conduct to the law by
charging a reasonable rate.’’ (AAR
SNPRM Comment 13–14.) But, as the
SNPRM pointed out, AAR’s argument
assumes that the Board cannot have a
rate reasonableness process unless
railroads can predict the outcome of that
process in advance of the Board’s
decision in an individual case. SNPRM,
EP 755 et al., slip op. at 29–30. That
argument overstates the predictability of
other types of litigation before the Board
and understates the predictability of a
FORR case. Notwithstanding parties’
posturing in negotiations before a rate
case, (see BNSF NPRM Comment 8),
they cannot predict in advance the
resolution of the novel, potentially casedispositive issues that have arisen in
almost every recent SAC case—nor can
the Board, before the development of an
administrative record. SAC, however, is
not unconstitutionally vague and has
been upheld on judicial review.
SNPRM, EP 755 et al., slip op. at 30
(citations omitted).29
that, with respect to rate reasonableness, Congress
has required the Board to account for railroad
revenue adequacy and the Long-Cannon factors. See
id. But the FORR process does account for these
considerations. See NPRM, EP 755 et al., slip op.
at 10–12.
29 AAR again does not address whether the
discussion it cites from Paralyzed Veterans of
America v. D.C. Arena, L.P., 117 F.3d 579, 584 (D.C.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
BNSF also disputes the comparison to
SAC, asserting that ‘‘parties raise novel
issues in SAC cases that may affect the
predictability of the outcome, [but]
those cases were litigated under
traditional SAC procedures where the
parties had the ability to fully develop
the administrative record and the Board
had its traditional discretion to weigh
the evidence and determine what the
maximum reasonable rate should be.
Neither of those procedural protections
will be present in [a] FORR
proceeding.’’ (BNSF SNPRM Comment
2.) But BNSF does not explain how it
believes the massive record
development and vast range of
individual issues that parties present in
modern SAC cases—a process that has
ballooned far beyond what SAC was
meant to entail, see RRTF Rep. 22—
increases parties’ ability to predict the
resolution of novel issues. See SNPRM,
EP 755 et al., slip op. at 29–30.
According to AAR, the Board has not
provided sufficient clarity on the legal
standard because it will not announce
the ‘‘winning’’ standard until the end of
a FORR case. (See AAR SNPRM
Comment 14; see also BNSF SNPRM
Comment 2 (parties to a FORR case will
have to litigate ‘‘without knowing what
the test is until reading it in the
opposing party’s opening brief’’).)
However, AAR misstates the nature of
the standard in FORR cases. As the
SNPRM explained, the legal standard in
FORR cases is a non-prescriptive, multifactor analysis, which the Board set
forth in the NPRM and SNPRM. NPRM,
EP 755 et al., slip op. at 10–12; SNPRM,
EP 755 et al., slip op. at 26–29. To the
extent AAR contends an agency’s
process is unconstitutionally vague
unless the agency spells out in advance
the analysis that such a test would
produce in an individual case, its
position runs afoul of the judicially
approved legal standards applied in the
Board’s long-established processes for
adjudicating the reasonableness of
practices and railroads’ adherence to the
common carrier obligation. See SNPRM,
EP 755 et al., slip op. at 30.30
Cir. 1997), survives Perez v. Mortgage Bankers
Association, 575 U.S. 92 (2015). (See AAR SNPRM
Comment 14.) It does not matter here, however, for
the reasons stated above. Far from ‘‘promulgat[ing]
mush,’’ see Paralyzed Veterans, 117 F.3d at 584, the
Board is adopting a test that requires the balancing
of multiple factors stated in advance, as in other
types of adjudication.
30 UP argues that it is unlawful to allow a party
to prevail if its submission does not reflect the
statutory rate reasonableness criteria. (See UP
SNPRM Comment 3–4.) UP is correct to the extent
that a party should not be able to disregard the
statutory criteria and still potentially succeed in its
case. The Board therefore clarifies that, if a party’s
evidence and argument addressing the
reasonableness of the challenged rate do not satisfy
PO 00000
Frm 00021
Fmt 4700
Sfmt 4700
309
BNSF argues that ‘‘[p]arties will face
the choice of seeking to exhaustively
address any potential feasible
methodology that could be used to
analyze the challenged rate to devise
arguments in the alternative or engaging
in a crash effort to adequately analyze
novel methodologies in the ten days
parties have to file their replies—either
option leading to substantial
unnecessary litigation expense.’’ (BNSF
SNPRM Comment 2.) As framed by
BNSF, a party to an unreasonable
practice case under § 10702 would feel
the need to ‘‘address any potential
feasible methodology that could be used
to analyze the challenged [practice] to
devise arguments in the alternative,’’
but no one has suggested that parties
litigate this way in such cases. And
having to analyze the opposing party’s
submission quickly is a necessary part
of litigating under a short timeline,
which is an important aspect of
improving the accessibility of the
Board’s rate reasonableness processes.
See NPRM, EP 755 et al., slip op. at
3–4.
Similarly, AAR claims that parties to
FORR cases ‘‘will not even know the
materials they must produce in
discovery.’’ (AAR SNPRM Comment
14.) AAR contends that, ‘‘if a party’s
methodology is ultimately rejected by
the Board, there is no basis for
compelling their opponent to produce
discovery in service of it.’’ (Id. at 14–
15.) As the Coalition Associations point
out in their reply comment, however, to
support the relevance of a discovery
request, a party would have to be able
to show how the request is relevant to
the FORR criteria. (See Coalition Ass’ns
SNPRM Reply Comment 14.) Also,
parties are able to conduct discovery in
cases addressing the reasonableness of
practices and railroads’ adherence to the
common carrier obligation. The fact that
the legal standards in these cases are
non-prescriptive, multi-factor analyses
has not prevented parties from ‘‘even
know[ing] the materials they must
produce in discovery.’’ See, e.g., R.R.
Salvage & Restoration, Inc.—Pet. for
Declaratory Order, NOR 42102 (STB
served July 20, 2010) (resolving a case
under § 10702 following substantial
discovery); Reasonableness of BNSF Ry.
Coal Dust Mitigation Tariff Provisions,
FD 35557 (STB served Dec. 17, 2013)
(same); Bar Ale, Inc. v. Cal. N. R.R., FD
32821 (STB served July 20, 2001)
(resolving a case under § 11101
the statutory criteria, it will not prevail on rate
reasonableness. And as noted above, the Board will
endeavor at the offer selection stage to select the
offer that best accomplishes the Board’s economic
and statutory goals.
E:\FR\FM\04JAR1.SGM
04JAR1
310
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
following substantial discovery). A
motion to compel in a case using a nonprescriptive, multi-factor analysis is not
automatically defeated by the fact that
the Board may ‘‘ultimately reject[]’’ the
argument for which the discovery is
sought. See, e.g., Grain Land Coop v.
Canadian Pac. R.R., NOR 41687, slip
op. at 2–3 (STB served Dec. 1, 1997)
(compelling discovery); Sierra R.R. v.
Sacramento Valley R.R., NOR 42133,
slip op. at 4–5 (STB served Apr. 23,
2012) (denying a motion to compel
based on the merits of that motion,
without reliance on the fact that the
legal standard to be applied was a nonprescriptive, multi-factor analysis).
Finally, AAR argues that ‘‘[i]f the
railroad’s offer is deemed
‘unreasonable,’ it is hard to understand
how revenue adequacy would even be
relevant if the Board is compelled to
accept the shipper’s offer.’’ (AAR
SNPRM Comment 18.) In making this
argument, AAR assumes a scenario in
which the Board has rejected the
railroad’s offer and is ‘‘compelled’’ to
accept the shipper’s offer, without any
consideration of revenue adequacy. As
the SNPRM explained, however, the
Board would not be ‘‘compelled’’ to find
the challenged rate unreasonable, much
less reject the railroad’s offer or accept
the shipper’s offer, in a case where the
evidence does not demonstrate
sufficient protection of revenue
adequacy. SNPRM, EP 755 et al., slip op.
at 27–28.
khammond on DSKJM1Z7X2PROD with RULES
Part V—Discovery and Procedural
Schedule
AAR repeats arguments from its
NPRM comments about the brief
procedural schedule having an unfairly
greater impact on railroads than on
shippers. (See AAR SNPRM Comment
16–17.) However, AAR fails to address
key aspects of the SNPRM’s reasoning in
response to these arguments. As the
SNPRM pointed out, unlike defendants,
complainants must make their cases
largely based on information in the
possession of the opposing party. See
SNPRM, EP 755 et al., slip op. at 37. In
this regard, shorter discovery deadlines
favor the defendants and further balance
out the burden that railroad interests
describe. Id.; see also Coalition Ass’ns
NPRM Comment 9. And in any event,
even assuming that the procedural
schedule in FORR might, in some cases,
place a proportionately greater burden
upon defendants than would other rate
review processes, such a burden must
be weighed against the likelihood that
rate relief may be functionally
unavailable in a small dispute. SNPRM,
EP 755 et al., slip op. at 37.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
In the SNPRM, the Board revised its
initial FORR proposal to add mandatory
mediation. Id., slip op. at 38. AFPM
opposes this change. (AFPM SNPRM
Comment 16.) But AFPM merely repeats
NGFA’s earlier argument against
mandatory mediation, without
addressing the Board’s response to that
argument. (See id.) As the SNPRM
noted, the Board’s mediation program
has led to post-complaint settlements, to
the benefit of the parties and the Board.
SNPRM, EP 755 et al., slip op. at 38; see
also, e.g., Twin City Metals, Inc. v. KET,
LLC, NOR 42168 (STB served Sept. 23,
2020). The Board concluded that
mediation can produce substantial
benefits and that the possibility of
achieving settlement through mediation
would outweigh a modest lengthening
of FORR’s procedural timeline. SNPRM,
EP 755 et al., slip op. at 38; see also, e.g.,
Assessment of Mediation & Arb. Proc.,
EP 699, slip op. at 2, 4 (STB served May
13, 2013) (‘‘The Board favors the
resolution of disputes through the use of
mediation and arbitration procedures, in
lieu of formal Board proceedings,
wherever possible. . . . If a dispute is
amicably resolved, it is likely that the
parties would incur considerably less
time and expense than if they used the
Board’s formal adjudicatory process.’’)
The SNPRM proposed to keep the
time period for the Board’s decision at
90 days rather than reducing it to 60
days. SNPRM, EP 755 et al., slip op. at
37–38. AFPM disagrees with this
determination, arguing that a 60-day
comment period is the ‘‘default
timeframe’’ to submit comments in
rulemaking actions. (AFPM SNPRM
Comment 16.) AFPM also asserts that,
because the Board has 90 days to issue
a decision in major merger cases, it
should be able to issue a decision in an
expedited process more quickly than
that. (Id.) The Board again declines to
make this change. AFPM does not
explain why it believes the timeline for
parties to comment in a rulemaking is
analogous to the timeline for the Board
to issue a decision in a rate case. The
merger deadline it cites is statutory, 49
U.S.C. 11325(b)(3), and AFPM does not
explain why Congress’s reasoning with
respect to a different type of proceeding
must constrain the Board’s reasoning
with respect to the timing of FORR.
Part VI—Market Dominance
In the SNPRM, the Board proposed to
give FORR complainants a choice
between the streamlined and nonstreamlined market dominance
approaches. SNPRM, EP 755 et al., slip
op. at 41; Market Dominance
Streamlined Approach, EP 756 (STB
served Aug. 3, 2020) (adopting
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
streamlined market dominance as an
option in rate cases); 49 CFR 1111.12
(streamlined market dominance
regulations).
BNSF argues that allowing nonstreamlined market dominance will
increase the time required in FORR
cases, contrary to the Board’s goals,
because the Board will grant extensions
of time. (See BNSF SNPRM Comment
3.) Although BNSF is correct that
extensions of time are not prohibited in
FORR, the Board intends to disfavor
such requests strongly. Granting
extensions of time in FORR cases would
directly undermine one of the
fundamental attributes of this process—
using short time limits to constrain the
volume and complexity of the record,
which in turn would allow the Board to
issue a decision expeditiously. See
NPRM, EP 755 et al., slip op. at 6–7. For
this reason, even extension requests to
which both parties consent will be
disfavored, and parties are encouraged
not to spend the scarce time available
under this procedure on preparing
extension requests. Id., slip op. at 14;
SNPRM, EP 755 et al., slip op. at 41
(specifically discouraging extension
requests with respect to nonstreamlined market dominance). Joint
requests to allow time to negotiate a
settlement, including joint requests for
mediation, are an exception and will be
considered by the Board.
BNSF also asserts that responding to
a non-streamlined market dominance
presentation will be more burdensome
to a FORR defendant than a ThreeBenchmark defendant because in FORR,
the complainant ‘‘may pursue a novel
rate reasonableness theory that will
consume a disproportionate share of the
railroad defendant’s time and energy in
preparing its responsive pleading.’’
(BNSF SNPRM Comment 3–4.) But the
SNPRM acknowledged the possible
burden on defendants and accordingly
tripled defendants’ time for replies,
from 10 days to 30 days, in cases where
complainants choose non-streamlined
market dominance. SNPRM, EP 755 et
al., slip op. at 41. BNSF does not
respond to the Board’s reasoning for
allowing complainants this choice:
‘‘[l]imiting FORR [to streamlined market
dominance] could effectively deny
access to FORR for many potential
complainants—those who are unable to
satisfy one or more of the streamlined
factors—which is contrary to FORR’s
goal of improving access to rate
reasonableness determinations.’’ Id.
BNSF further contends that, ‘‘[i]f the
Board chooses to permit shippers to use
non-streamlined approaches to market
dominance on the basis that the short
time frame is a sufficient protection
E:\FR\FM\04JAR1.SGM
04JAR1
khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
against the potential for evidentiary
sprawl, then it is logical and
proportionate to permit evidence of
product and geographic competition
when a shipper elects to use a nonstreamlined market dominance
presentation.’’ (BNSF SNPRM Comment
4.) BNSF accurately observes that FORR
has a significant ‘‘laboratory’’ element,
(see id.), and relying on FORR’s tight
time frames to limit evidentiary volume
in reference to product and geographic
competition could merit consideration.
See TRB Rep. 122 (observing that
antitrust enforcement agencies are able
to assess product and geographic
competition in a short period of time
because they strictly limit the time that
parties have to compile evidence).
However, consideration of whether to
incorporate product and geographic
competition in market dominance
determinations has constituted entire
rulemaking proceedings on its own,31
and addressing it here would unduly
expand the scope of this proceeding.
Therefore, like the possibility of twotiered relief, see SNPRM, EP 755 et al.,
slip op. at 47, and below, the Board will
reserve this issue for possible future
proceedings.
The Coalition Associations note that,
in a FORR case where the complainant
chooses streamlined market dominance,
it would have the option of an
evidentiary hearing before an
administrative law judge to discuss
market dominance, but if the
complainant chooses non-streamlined
market dominance, it would not have
the option of a hearing. (Coalition
Associations SNPRM Comment 4–5);
SNPRM, EP 755 et al., slip op. at 39, 42.
According to the Coalition Associations,
‘‘it is irrational and incongruous for the
Board to permit rebuttal evidence in
streamlined market-dominance cases
but to prohibit it in non-streamlined
cases.’’ (Coalition Associations SNPRM
Comment 5.) The Board acknowledges
the apparent incongruity in these
procedures. However, closer
examination reveals that the procedure
as proposed in the SNPRM is neither
irrational nor incongruous. As an initial
matter, the optional hearing in a FORR
case using streamlined market
dominance is not solely an opportunity
for the complainant to present rebuttal;
as the NPRM explained, if the
complainant chooses a hearing, both
sides would be permitted to present
their market dominance positions.
NPRM, EP 755 et al., slip op. at 10. But
31 See, e.g., Mkt. Dominance Determinations—
Prod. & Geographic Competition, Docket No. EP
627; Pet. of the Ass’n of Am. R.R.s, Docket No. EP
717.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
even to the extent the hearing allows for
rebuttal, the Board disagrees with the
Coalition Associations’ claim that ‘‘the
need for rebuttal is even greater in nonstreamlined market-dominance cases.’’
(Coalition Associations SNPRM
Comment 5.) The opening submission of
a complainant using streamlined market
dominance is truly minimal, addressing
only a specified list of factors and
without the full evidentiary
presentation that a complainant would
typically submit in a case using nonstreamlined market dominance. See
Mkt. Dominance Streamlined Approach,
EP 756, slip op. at 4, 27–28, 37 (STB
served Aug. 3, 2020). Allowing such a
minimal opening submission is by
design, with the goal of overcoming the
significant burdens in terms of cost and
time that complainants can otherwise
face in addressing market dominance.
See id., slip op. at 1–3, 6–7. A
complainant will have a greater need for
rebuttal after submitting so little in its
streamlined market dominance opening,
as opposed to a non-streamlined market
dominance case where the complainant
has an opportunity on opening to
present its complete position regarding
market dominance.
Moreover, the Coalition Associations’
proposed solution—bifurcating market
dominance and rate reasonableness
pleadings in FORR cases using nonstreamlined market dominance, (see
Coalition Associations NPRM Comment
14–15)—would substantially undercut
FORR’s use of short timelines to limit
the volume and complexity of the
evidentiary record. Contrary to Coalition
Associations’ claim, (Coalition
Associations SNPRM Comment 7), their
proposed addition of three rounds of
market dominance pleadings would be
disproportionate to FORR. The SNPRM
observed that the various procedural
additions proposed by parties, some of
which the SNPRM adopted, would
‘‘detract[ ] from the Board’s goal of a
highly expedited procedural schedule.’’
SNPRM, EP 755 et al., slip op. at 36.
Compared to the longest version of the
procedural schedule contemplated in
the SNPRM, with a maximum of 96 days
for record development, see id., slip op.
at 36, 42, the Coalition Associations’
maximum record development time of
129 days would constitute an expansion
by greater than 30 percent. (See
Coalition Associations NPRM Comment
10 (21 days for motions to compel);
Coalition Associations SNPRM
Comment 12 (108 days of record
development excluding motions to
compel).)
Notwithstanding their concerns about
a lack of rebuttal with respect to market
dominance in non-streamlined cases
PO 00000
Frm 00023
Fmt 4700
Sfmt 4700
311
(Coalition Associations SNPRM
Comment 6), the Coalition Associations
have expressed strong support for
FORR’s rate reasonableness procedure,
which does not include rebuttal. (See
Coalition Associations NPRM Comment
2; Coalition Associations SNPRM
Comment 1.) The Board has heard rail
customers’ concerns about the duration
of rate cases, see NPRM, EP 755 et al.,
slip op. at 3–4 & n.7, and FORR’s
simplified procedure is what permits its
expedited timeline.
The SNPRM also proposed to require
defendants to file market dominance
presentations only on reply, rather than
on opening. SNPRM, EP 755 et al., slip
op. at 39–40. AFPM states that it has
concerns with this approach and
recommends, instead, that the Board
return to its initial proposal of
prohibiting complainants from using
non-streamlined market dominance in
FORR cases. (See AFPM SNPRM
Comment 16.) AFPM, however, does not
identify its specific concerns, nor does
it respond to the Board’s reasoning for
eliminating FORR defendants’ market
dominance opening, see SNPRM, EP 755
et al., slip op. at 40, or its reasoning for
allowing complainants to choose nonstreamlined market dominance, see
SNPRM, EP 755 et al., slip op. at 41. In
fact, AFPM states that it does not
oppose giving FORR complainants the
choice between streamlined and nonstreamlined market dominance. (See
AFPM SNPRM Comment 17.)
Part VII—Relief Cap
In the NPRM and SNPRM, the Board
proposed to establish a relief cap of $4
million, indexed annually using the
Producer Price Index, which would
apply to an award of reparations,32 a
rate prescription or any combination of
the two. NPRM, EP 755 et al., slip op.
at 16; SNPRM, EP 755 et al., slip op. at
47. This is consistent with the potential
relief afforded under the ThreeBenchmark methodology.33 SNPRM, EP
755 et al., slip op. at 42. The Board
further proposed that any rate
prescription be limited to no more than
two years unless the parties agree to a
different limit on relief. Id., slip op. at
42–43. Such a limit is one-fifth of the
32 The standard reparations period reaches back
two years prior to the date of the complaint. 49
U.S.C. 11705(c) (requiring that complaint to recover
damages under 49 U.S.C. 11704(b) be filed with the
Board within two years after the claim accrues).
33 The relief cap will incorporate indexing that
has previously been applied to the ThreeBenchmark cap, so that the cap for FORR is the
same as the cap for Three-Benchmark. The Board
confirms, pursuant to the Coalition Associations’
request, that the FORR relief cap matches the ThreeBenchmark cap, including indexing from 2007. (See
Coalition Associations SNPRM Comment 9.)
E:\FR\FM\04JAR1.SGM
04JAR1
312
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
10-year limit applied in SAC cases and
less than half of the five-year limit
applied in Simplified-SAC and ThreeBenchmark cases, see Expanding Access
to Rate Relief, EP 665 (Sub-No. 2), slip
op. at 6, thereby accounting for the
expedited deadlines of the FORR
procedure.
AAR continues to argue that a $4
million dispute is not a small case, that
the $4 million cap is arbitrary, and that
the Board has not addressed
disaggregation of claims. (See AAR
SNPRM Comment 17.) AAR offers no
support for its opinion that a $4 million
case is not ‘‘small’’—which is, of course,
a relative term. See, e.g., Consumers
Energy Co. v. CSX Transp., Inc., NOR
42142, slip op. at 44 (STB served Aug.
2, 2018) ($94.9 million in relief in a SAC
case). AAR asserts that the $4 million
cap is arbitrary and suggests that the
Board has not provided a rationale to
support it. But the Board did in fact
provide that rationale, which AAR does
not mention despite its appearance in
both the NPRM and SNPRM. NPRM, EP
755 et al., slip op. at 16 (‘‘[a]pplying a
relief cap based on the estimated cost to
bring a Simplified-SAC case would
further the Board’s intention that ThreeBenchmark and FORR be used in the
smallest cases, and applying the same
$4 million relief cap, as indexed, would
provide consistency in terms of defining
that category of case.’’); SNPRM, EP 755
et al., slip op. at 43 (same).34
With respect to disaggregation of
claims, AAR fails to acknowledge that
the SNPRM proposed the same casespecific approach that the Board has
had in place since 2007 for all small rate
cases. SNPRM, EP 755 et al., slip op. at
44–45. As the Board explained in
Simplified Standards, ‘‘[i]t is not clear
that such a mechanism is necessary at
this time. The Board has ample
discretion to protect the integrity of its
processes from abuse, and we should be
able to readily detect and remedy
improper attempts by a shipper to
disaggregate a large claim into a number
of smaller claims, as the shipper must
34 See also Coalition Associations SNPRM Reply
Comment 16–17 (‘‘AAR assumes that Three
Benchmark is the next-more-complicated method
when, in fact, FORR is on par with Three
Benchmark; it is an alternative to Three Benchmark
for small cases, not a less complicated method.
Indeed, FORR conceivably could be more
complicated than Three Benchmark, depending
upon the methodologies that the parties present.’’);
SNPRM, EP 755 et al., slip op. at 43–44 (‘‘By
applying fast timelines and a simplified procedure,
the Board intends that FORR would be less costly
to litigate, but that does not inevitably mean the
analysis is less accurate. Parties’ ability to choose
their methodology would allow the use of analyses
that are equally accurate or more accurate, if the
party presenting it can prepare the analysis quickly
enough to present it in the time available.’’).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
bring these numerous smaller cases to
the Board.’’ Simplified Standards, EP
646 (Sub-No. 1), slip op. at 32–33.
The Coalition Associations state that
they ‘‘seek clarification as to when the
two-year window for applying the relief
cap begins. The statute clearly allows
for two years of reparations, which
could result in the entire relief period
occurring prior to the date of the
complaint. It also is clear that a
complainant could elect to forego precomplaint reparations and apply the
relief period from the date of the
complaint.’’ (Coalition Associations
SNPRM Comment 10.) As the SNPRM
stated, the combined cap is identical to
the one adopted for Three-Benchmark
cases. SNPRM, EP 755 et al., slip op. at
45. In a Three-Benchmark case, as in
any other rate reasonableness case, a
complainant can choose to seek
reparations, a rate prescription, or both.
See, e.g., Grain Land Coop, NOR 41687,
slip op. at 5 (‘‘In its amended complaint,
Grain Land must indicate what rates it
is challenging (by tariff reference, tariff
item number(s), and specific points
from and to which the rates apply) and
what relief it seeks (i.e., rate
prescription and/or reparations).’’)
(emphasis added); Sunbelt Chlor Alkali
P’ship v. Norfolk S. Ry., NOR 42130,
slip op. at 29 (STB served June 20, 2014)
(describing statutory contrasts between
reparations and rate prescription). FORR
complainants, accordingly, will have
the same options.
Contrary to the Coalition
Associations’ suggestion, however, if a
complainant decides to forgo
reparations and seek only a
prescription, the transition from
reparations to prescription occurs on the
effective date of the prescription order—
i.e., the date by which the defendant
must reduce its rate in compliance with
the order. See, e.g., Ariz. Pub. Serv. Co.
v. Atchison, Topeka & Santa Fe Ry.,
NOR 41185, slip op. at 20 (STB served
July 29, 1997) (ordering defendant to
reduce its rates within 60 days of
decision). Therefore, when a
complainant chooses to forgo
reparations, that includes reparations
between the complaint date and the
effective date of the prescription order.
The alternative proposed by the
Coalition Associations—in which the
relief period begins ‘‘on a date to be
determined solely by the complainant,’’
(Coalition Associations SNPRM
Comment 10)—would unreasonably
allow complainants to choose a relief
period that is entirely disconnected
from the conduct found unlawful by the
Board. (See AAR SNPRM Reply
Comment 7–8.) The Coalition
Associations express concern that a
PO 00000
Frm 00024
Fmt 4700
Sfmt 4700
FORR complainant could receive only
reparations, without any prospective
relief. (See Coalition Associations
SNPRM Comment 10.) But that
possibility exists in Three-Benchmark
cases as well, if the complainant
receives pre-complaint reparations that
exhaust the $4 million cap.
In the SNPRM, the Board proposed
not to adopt a two-tiered relief
structure—in which the top tier has a
longer procedural schedule and no limit
on the size of the relief—at this time,
noting that, ‘‘[i]n the future, the Board
could assess whether FORR may be
appropriate for larger disputes.’’
SNPRM, EP 755 et al., slip op. at 47.
IMA–NA, Indorama, and AFPM take
issue with this proposal, asking that the
Board instead adopt two-tiered relief
immediately. (See IMA–NA SNPRM
Comment 16–17; Indorama SNPRM
Comment 16–17; AFPM Comment 18.35)
This request will be declined, as it was
at the SNPRM stage. The Board
proposed FORR to resolve small rate
disputes. NPRM, EP 755 et al., slip op.
at 7. Expanding the scope of this
rulemaking to address large rate cases as
well would delay that important and
time-sensitive goal. IMA–NA and
Indorama argue that ‘‘[t]he Board has
ample evidence that this model is
effective and will not cause an
onslaught of rate cases based on the
history of this process in Canada . . . .’’
(IMA–NA SNPRM Comment 16;
Indorama SNPRM Comment 16.) But as
IMA–NA and Indorama acknowledge,
FORR is not the same as the Canadian
process. (See id.) Canadian final offer
arbitration is informal, confidential, and
non-precedential, and is conducted by
an arbitrator—it is alternative dispute
resolution rather than adjudication.
FORR, by contrast, is an innovative
attempt to incorporate a final offer
procedure into an agency adjudication,
leading to public, precedential decisions
subject to the APA’s requirements for
reasoned decision-making. A new
approach is necessary in light of the
Board’s protracted search for a small
rate dispute process that is accessible to
shippers, see NPRM, EP 755 et al., slip
op. at 2–5, and FORR offers a promising
opportunity. But it would be premature
to conclude, as IMA–NA and Indorama
35 AFPM expresses concern that railroads could
‘‘game’’ the relief cap ‘‘by setting high initial rates
such that any relief cap will be quickly exhausted’’
and argues that a two-tier cap would alleviate that
concern. (AFPM Comment 18.) As the SNPRM
stated in response to similar arguments, the Board
anticipates addressing such conduct in individual
cases should it happen, and the Board will retain
the ability to revise its processes to counteract any
abuses that may arise. See SNPRM, EP 755 et al.,
slip op. at 46.
E:\FR\FM\04JAR1.SGM
04JAR1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
do, that there is ‘‘ample evidence that
this model is effective.’’
Accordingly, the Board will adopt the
relief cap proposed in the NPRM and
SNPRM.
Part VIII—Miscellaneous Issues
AAR contends that the Board has not
explained why it is not applying the
conclusions of InterVISTAS Consulting
Inc. (InterVISTAS), a consultant that
prepared a report for the Board in
2016.36 (See AAR SNPRM Comment
15.) However, AAR cites the page of the
SNPRM that provides that explanation.
See SNPRM, EP 755 et al., slip op. at 47
(noting, among other things, that the
Board was not bound by the study).
AAR claims that InterVISTAS
‘‘reject[ed] final-offer decisionmaking as
an alternative way for the Board to
decide rate disputes.’’ (AAR SNPRM
Comment 15.) But in fact, InterVISTAS
did not reject final offer procedures for
any substantive reason, or even address
final offer procedures substantively in
the first place. See InterVISTAS Rep. 76.
Instead, InterVISTAS merely declined to
draw any conclusions from the
Canadian final offer process due to its
confidentiality. See id. (‘‘[T]he nontransparent final offer arbitration
process used in Canada to constrain
undue exercise of any market power by
railways provides no guidance for
alternatives to SAC. It may be that the
methodologies put forward by one party
or the other in the arbitrations could
provide insight, but as the process is
confidential, no guidance can be
provided.’’) (emphasis added). And in
any event, AAR fails to identify any
particular substance of the InterVISTAS
report that it contends the Board has not
addressed.
Finally, AAR repeats its arguments
that the Board must conduct a costbenefit analysis. (See AAR SNPRM
Comment 19.) The Board’s responses in
the SNPRM continue to apply, including
the fact that Executive Order 12866 does
not apply to ‘‘independent regulatory
agencies’’ such as the Board, see 49
U.S.C. 1301(a), and that the Board has
carefully considered the need for
regulatory reform, FORR’s anticipated
benefits and burdens, and alternative
approaches, including the comparison
group approach proposed in Docket No.
EP 665 (Sub-No. 2). See SNPRM, EP 755
et al., slip op. at 49 n.75. It is true that
the SNPRM did not address AAR’s
reliance on the Policies and Procedures
36 An
Examination of the STB’s Approach to
Freight Rail Rate Regul. & Options for
Simplification (InterVISTAS Report), InterVISTAS
Consulting Inc., Sept. 14, 2016, available at https://
www.stb.gov/wp-content/uploads/STB-RateRegulation-Final-Report.pdf.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
for Rulemakings of the U.S. Department
of Transportation (DOT). But as AAR
acknowledged (AAR NPRM Comment
26), DOT’s requirements do not apply to
the Board. See also Vt. Yankee Nuclear
Power Corp. v. Nat’l Res. Def. Council,
435 U.S. 519, 524–25, 543–48 (1978)
(‘‘Agencies are free to grant additional
procedural rights in the exercise of their
discretion, but reviewing courts are
generally not free to impose them if the
agencies have not chosen to grant
them.’’).
Docket No. EP 665 (Sub–No. 2)
The Board received no further
comment on its proposal to close Docket
No. EP 665 (Sub-No. 2), and therefore
will proceed to terminate that
proceeding. As noted in the SNPRM, the
Board may revisit some of the ideas
presented in Docket No. EP 665 (SubNo. 2) depending on future
developments and whether additional
steps in the small rate dispute context
appear necessary.
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 on 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). 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).
In the SNPRM, the Board certified
under 5 U.S.C. 605(b) that the proposed
rule would not have a significant
economic impact on a substantial
number of small entities within the
meaning of the RFA.37 The Board
explained that its proposed changes to
its regulations would not mandate or
circumscribe the conduct of small
37 For the purpose of RFA analysis for rail carriers
subject to Board 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 § 1–1. See
Small Entity Size Standards Under the Regul.
Flexibility Act, EP 719 (STB served June 30, 2016).
PO 00000
Frm 00025
Fmt 4700
Sfmt 4700
313
entities. The rule requires no additional
recordkeeping by small railroads or any
reporting of additional information. Nor
do these rules circumscribe or mandate
any conduct by small railroads that is
not already required by statute: the
establishment of reasonable
transportation rates when a carrier is
found to be market dominant. As the
Board noted, small railroads have
always been subject to rate
reasonableness complaints and their
associated litigation costs, the latter of
which the Board expects will be
reduced through the use of this
procedure.
Additionally, the Board concluded (as
it has in past proceedings) that the
majority of railroads involved in these
rate proceedings are not small entities
within the meaning of the Regulatory
Flexibility Act. SNPRM, EP 755 et al.,
slip op. at 50–51 (citing Simplified
Standards, EP 646 (Sub-No. 1), slip op.
at 33–34). Since the inception of the
Board in 1996, only three of the 51 cases
filed challenging the reasonableness of
freight rail rates have involved a Class
III rail carrier as a defendant. Those
three cases involved a total of 13 Class
III rail carriers. The Board estimated that
there are approximately 656 Class III rail
carriers. Therefore, the Board certified
under 5 U.S.C. 605(b) that the proposed
rule, if promulgated, would not have a
significant economic impact on a
substantial number of small entities
within the meaning of the RFA.
This final rule adopts the approach
proposed in the SNPRM, and the same
basis for the Board’s certification in the
SNPRM applies to the final rule.
Therefore, the Board certifies under 5
U.S.C. 605(b) that the final rule will not
have a significant economic impact on
a substantial number of small entities
within the meaning of the RFA. A copy
of this decision will be served upon the
Chief Counsel for Advocacy, Office of
Advocacy, U.S. Small Business
Administration, Washington, DC 20416.
Paperwork Reduction Act
In this proceeding, the Board modifies
an existing collection of information
that was approved by the Office of
Management and Budget (OMB) under
the collection of Complaints (OMB
Control No. 2140–0029). In the NPRM,
the Board sought comments pursuant to
the Paperwork Reduction Act (PRA), 44
U.S.C. 3501–3549, and OMB regulations
at 5 CFR 1320.8(d)(3) regarding: (1)
whether the collection of information,
as modified in the proposed rule in the
Appendix, is necessary for the proper
performance of the functions of the
Board, including whether the collection
has practical utility; (2) the accuracy of
E:\FR\FM\04JAR1.SGM
04JAR1
314
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
the Board’s burden estimates; (3) ways
to enhance the quality, utility, and
clarity of the information collected; and
(4) ways to minimize the burden of the
collection of information on the
respondents, including the use of
automated collection techniques or
other forms of information technology,
when appropriate. No further comments
were received following the SNPRM.
This modification and extension
request of an existing, approved
collection will be submitted to OMB for
review as required under the PRA, 44
U.S.C. 3507(d), and 5 CFR 1320.11. The
request will address the comment
discussed in the SNPRM as part of the
PRA approval process. See SNPRM, EP
755 et al., slip op. at 51–52.
Congressional Review Act
Pursuant to the Congressional Review
Act, 5 U.S.C. 801–808, the Office of
Information and Regulatory Affairs has
designated this rule as non-major, as
defined by 5 U.S.C. 804(2).
It is ordered:
1. The Board adopts the final rule as
set forth in this decision. Notice of the
adopted rule will be published in the
Federal Register.
2. A copy of this decision will be
served upon the Chief Counsel for
Advocacy, Office of Advocacy, U.S.
Small Business Administration.
3. The final rule in Docket No. EP 755
is effective March 6, 2023.
4. The termination of Docket No. EP
665 (Sub-No. 2) is effective on January
3, 2023.
Decided: December 19, 2022.
By the Board, Board Members Fuchs,
Hedlund, Oberman, Primus, and Schultz.
Board Members Fuchs and Schultz dissented
with separate expressions.
BOARD MEMBER FUCHS, dissenting:
Congress has entrusted the Board with
the responsibility to regulate rail
carriers’ rates, and it has set broad
criteria under which the Board is to
apply its expertise and judgment.1 This
final rule (FORR Final Rule) is the
culmination of diligent work and
tireless leadership to reform the Board’s
approach to rate review. Recognizing
the potential benefits of reform, as well
as the importance of further stimulating
new ideas, I voted to propose FORR and
twice solicit public comment.2 After
careful consideration of those
comments, however, I have concluded
that FORR is not the answer. FORR is
an evasion of the Board’s fundamental
responsibility because it makes the
Board entirely dependent on litigants’
self-determined rate review
methodologies, gives little meaningful
guidance for those methodologies, and
prohibits the Board from devising its
own remedy where necessary. Making
matters worse, FORR subjects those
litigants to a process with intensified
and unequal pressure, thereby
incentivizing them to prioritize
litigation strategy over their best
interpretation of facts and statutory
criteria. This deeply flawed, all-ornothing process immediately generates
uncertainty for industry participants,
and it presents unique risks that its
pressures and precedent will cause
significant negative effects on our
nation’s rail network. Rather than
issuing FORR Final Rule, the Board
should have recognized the irreparable
problems with FORR and instead
pursued other reforms while it
facilitates an additional process to
resolve rate disputes via the agency’s
new arbitration program.
Though the Board has stated its role
in regulating rates is to serve as
‘‘guardian of the public interest,’’ 3
FORR reduces the agency to mere
passive, all-or-nothing selections based
only on litigants’ methodologies and
proposed remedies. In FORR, the Board
does not set its own methodology that
gives clear, specific meaning to the
statutory criteria, and FORR Final Rule
argues that the Board similarly does not
have a defined methodology in
reasonable practice and common carrier
obligation disputes. However, in those
types of cases, unlike in FORR, the
Board retains discretion to best
implement the relevant statutory criteria
because it may reject parts or all of
parties’ arguments and devise its own
remedy based on its expertise and
judgment. FORR Final Rule further
argues that the Board currently gives up
discretion in the Three-Benchmark rate
review methodology because it uses a
2 See
khammond on DSKJM1Z7X2PROD with RULES
1 See
49 U.S.C. 10101 (rail transportation policy);
49 U.S.C. 10701(d)(2) (listing the Long-Cannon
factors); 49 U.S.C. 10701(d)(3) (directing the Board
to establish ‘‘one or more simplified and expedited
methods for determining the reasonableness of
challenged rail rates in those cases in which a full
stand-alone cost presentation is too costly, given the
value of the case’’); 49 U.S.C. 10702 (jurisdiction to
establish reasonable rates); 49 U.S.C. 10704(a)(2)
(requiring the Board to make an ‘‘adequate and
continuing effort’’ to assist carriers in attaining
adequate revenue levels).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
NPRM, EP 755 et al.; SNPRM, EP 755 et al.
Pub. Serv Co. of Colo. v. Burlington N. &
Santa Fe Ry., NOR 42057, slip op. at 3–4 (STB
served Jan. 19, 2005) (in the rate reasonableness
context, the Board’s ‘‘role as the guardian of the
public interest in unchanged,’’ in that, like its
predecessor, it is ‘‘expected to be directly and
immediately concerned with the outcome of
virtually all proceedings conducted before it. . . .
not . . . a passive arbiter but the guardian of the
general public interest, with a duty to see that this
interest is at all times effectively protected’’
(internal citations omitted)).
3 See
PO 00000
Frm 00026
Fmt 4700
Sfmt 4700
final offer process for picking
comparison groups. However, when it
established Three-Benchmark, the Board
exercised considerable discretion to
guard the public interest and give
specific meaning to statutory criteria—
based on its own expertise and
judgement—by, among other things,
defining a formula that accounts for the
level of revenue adequacy to be
achieved through a rail carrier’s ratesetting.4 By contrast, FORR offers little
useful guidance, let alone a
methodology, on fundamental concepts
like revenue adequacy and differential
pricing.5 FORR is unique among the
agency’s processes in that the Board
evades responsibility on both the front
and back ends—neither defining
methodologies in advance nor
permitting the Board’s own remedies in
individual cases.
Not only does FORR turn over the
Board’s responsibility to litigants, it
diminishes the Board’s ability to pick
the best outcome based on the litigants’
presentations. In a FORR case, suppose
the Board, relying on a litigant’s rate
reasonableness methodology, finds a
rate unreasonable. The Board would
then turn to the litigants’ final offers to
prescribe the maximum rate. However,
in FORR, the maximum rate need not
4 See Rate Guidelines—Non-Coal Proceedings, EP
347 (Sub-No. 2), 1 STB 1004, 1027–34 (1996)
(describing RSAM, the revenue shortfall allocation
method); id. at 1042 (describing the revenue need
adjustment factor, which is the ratio of RSAM ÷ R/
VC>180); id. at 1020 (listing how the proposed
factors implement the criteria including the LongCannon factors, differential pricing, and revenue
adequacy); see also Simplified Standards for Rail
Rate Cases, EP 646 (Sub-No. 1), slip op at 4–5 (STB
served July 28, 2006) (discussing the rail
transportation policy, Long-Cannon factors, revenue
adequacy, and the need to establish a simplified
and expedited method for determining rate
reasonableness in cases where a stand-alone cost
presentation is too costly, given the value of the
case).
5 FORR Final Rule’s comparison between FORR
and ‘‘Maximum Markup Methodology,’’ or MMM,
is misplaced. See FORR Final Rule, EP 755 et al,
slip op. at 11 (citing Major Issues in Rail Rate Cases,
EP 657 (Sub-No. 1), slip op. at 14–15, (STB served
Oct. 30, 2006), aff’d sub nom. BNSF Ry. v. STB, 526
F.3d 770 (D.C. Cir. 2008)); see also Major Issues, EP
657 (Sub-No. 1), slip op at 9–11, 14–15, 23 n.44)
(establishing, as one part of the Board’s effort to
address six recurring issues in stand-alone cost
(SAC) cases, MMM, which is used to prescribe rates
as part of the SAC methodology). First, unlike
FORR, SAC is a methodology in which the agency—
using its expertise and judgment—gives clear,
specific meaning to the statutory criteria by
defining a railroad’s revenue needs and permissible
differential pricing through the prism of
contestability theory and so-called constrained
market pricing (i.e., based on a stand-alone
railroad’s revenue needs). Second, again unlike
FORR, the Board in a SAC case arrives at the
amount of excess revenue, subject to MMM, only
after using its expertise and judgment to resolve
many individual disputes, often involving
hundreds of small details. It is not forced to simply
take a litigant’s entire presentation.
E:\FR\FM\04JAR1.SGM
04JAR1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
arise out of litigants’ rate reasonableness
methodologies. Instead, litigants’ final
offers can use different reasoning, or
even altogether different methodologies.
They must simply submit ‘‘explanation
and support for’’ their final offers. See
FORR Final Rule, EP 755 et al., slip op.
at 19, 38. This may lead to suboptimal
outcomes. For example, in one scenario,
FORR requires the Board to prescribe a
maximum rate using a litigant’s final
offer even when a litigant’s rate
reasonableness methodology readily
shows a different maximum rate that the
Board would view better implements
the statutory criteria. In another
scenario, FORR prevents the Board from
remedying an unreasonable rate 6 if the
Board finds the complainant’s final offer
does not have support, even though the
statute requires a rail carrier to establish
reasonable rates. Thus, working within
the binary selection process that FORR
imposes, in some cases the Board
cannot even select obvious, superior
solutions or correct unreasonableness.
Today’s decision might accept these
severe, unprecedented limitations in
hopes that a final offer framework—by
virtue of its design—will produce good
outcomes, but FORR Final Rule offers
inadequate support for this proposition.
The theory behind a final offer
framework is that the prospect of an allor-nothing decision imposes acute
uncertainty and raises the costs of
losing, such that parties are more likely
to settle and make presentations that
converge toward the middle
ground.7 FORR Final Rule offers no
evidence that a final offer framework is
welfare-improving in contexts similar to
rate regulation. If convergence were the
sole desired effect, even FORR Final
Rule’s supporting literature—largely
based on public sector bargaining and
baseball arbitration—acknowledges the
6 Here, the term ‘‘unreasonable rate’’ means that
the Board would find that rate unreasonable based
on the methodologies presented, not that the Board
necessarily would issue a formal ruling just on that
matter.
7 ‘‘Early proponents of final offer arbitration
[(FOA)] argued that FOA would lead to convergence
in the offers of the two parties. The theory
originating with Stevens (1966) was that
conventional arbitration had a ‘chilling’ effect on
negotiations and offers because the parties were
motivated to make extreme offers when facing an
arbitrator who was thought to ‘split the
difference.’ ’’ Comm’n on Health & Safety &
Workers’ Comp., Cal. Dep’t Indus. Rels., Literature
Review: Final Offer Arbitration, https://www.dir.
ca.gov/chswc/basebalarbffinal.htm (last visited Dec.
16, 2022) (internal citations omitted); but see id.
(‘‘[C]onvergence of the offers under FOA compared
to conventional arbitration is not a sufficient
condition for ‘better’ decisions by the arbitrator
given that the arbitrator can choose only one or the
other.’’); see also Steven Brams & Samuel Merrill,
Equilibrium Strategies for Final-Offer Arbitration:
There is No Median Convergence, Mgmt. Sci. 927
(1983).
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
unresolved debate over whether final
offers converge.8 When cases are
decided in the absence of convergence,
FORR may have unintended
distributional consequences across
individual shippers because all-ornothing final offer frameworks have
more variance than other processes—
that is, similarly-situated litigants have
very different results because the
decision-maker is unable to split the
difference where necessary.9 This
dynamic has the potential to distort
competition, particularly among
shippers.
More alarmingly, FORR has a
fundamental flaw in its framework—as
FORR Final Rule acknowledges, this
process, unlike some other final offer
frameworks in different contexts, does
not impose ‘‘reciprocal risks.’’ See
FORR Final Rule, EP 755 et al., slip op.
at 19. If participants in a final offer
process do not have equivalent risks, the
more risk adverse party will likely give
up more—not because its case is
worse—simply because an all-ornothing process increases the expected
costs of losing.10 Here, the rail carrier
appears to be the more risk averse party
because the range of outcomes in FORR
are limited to either the status quo or a
rate reduction.11 As a result, FORR may
have an especially coercive, unequal
effect on settlements and final offers. In
practice, to reduce the probability of
losing to a complainant’s offer in its
entirety, a rail carrier may be more
likely to pursue a middle ground that is
not best for the network and other
shippers. Thus, in FORR, litigants—on
whom the Board entirely relies—are
8 See Chetwynd, Baseball? An Analysis of FinalOffer Arbitration, its Use in Major League Baseball
& its Potential Applicability to European Football
Wage & Transfer Disputes, 20 Marquette Sports L.
Rev. 109, 117, 134 (2009); Carrell & Bales,
Considering Final Offer Arbitration to Resolve
Public Sector Impasses in Times of Concession
Bargaining, 28 Ohio State J. of Disp. Resol. 1, 30–
32 (2013).
9 Comm’n on Health & Safety & Workers’ Comp.,
supra.
10 See Henry S. Farber, An Analysis of Final Offer
Arbitration, J. of Conflict Resol. 683 (1980); see also
Comm’n on Health & Safety & Workers’ Comp.,
supra (stating ‘‘economic theory as reviewed earlier
suggests that the more risk averse party will have
poorer outcomes on average under this type of
arbitration’’ and finding on a preliminary basis
‘‘there would appear to be enough non anecdotal
evidence to conclude that baseball arbitration is
neither working satisfactorily nor producing fair’’
outcomes); id. (citing Amy Farmer Curry & Paul
Pecornio, The Use of Final Offer Arbitration as a
Screening Device, J. of Conflict Resol. 655 (1993)).
11 That is not to say that, as FORR Final Rule
outlines, shippers do not experience any costs from
the process or that litigants do not have relationship
reasons to reduce the potency of this absence of
reciprocity. However, as FORR Final Rule
acknowledges, there is no escaping that the
potential effects on rates are unequal. See FORR
Final Rule, EP 755 et al., slip op. at 19–21.
PO 00000
Frm 00027
Fmt 4700
Sfmt 4700
315
incentivized to pursue arguments and
outcomes not based on their best
interpretation of market or network facts
and the relevant criteria but instead on
litigation strategies.
Given these deep and irreparable
flaws, FORR could have significant
negative consequences for the rail
network. FORR’s decisions are
precedential, so one litigant’s rate
reasonableness methodology—for which
the Board would not find best
implements the statutory criteria, let
alone seek broader public comment or
analyze effects across carriers—could
affect rail rates nationwide, potentially
impacting infrastructure and operations.
Moreover, as noted above, the
intensified and unequal pressures in
FORR could affect the network even in
the absence of a Board decision.
Because FORR Final Rule does little to
define FORR’s broad criteria or give
guidance to litigants, effects will be felt
immediately in the form of particularly
acute uncertainty. Notably, final offer
arbitration in Canada, as well as the
Board’s arbitration program released
today, largely avoid these problems.
Though both share some characteristics
of the FORR process, both are
confidential, and—in the case of the
Board’s arbitration program—the
arbitration panel may devise a welfareimproving remedy distinct from the
parties’ presentations.12 That is not to
say that confidentiality, and nonprecedential decisions generally, ought
to be norm for the Board. However,
where, as in FORR, the Board evades its
responsibility and sets forth a flawed
process, the broader public faces high
risks of negative outcomes.
The Board’s drastic shift to FORR is
not justified by FORR Final Rule’s
analysis. FORR Final Rule states that
shippers need a more accessible rate
review option, but it does not fully
analyze the extent to which this need is
the result of high litigation costs rather
than economic methodologies that have
high standards for relief. The SNPRM
claims that the cost of Three-Benchmark
appears to be one-eighth (and possibly
less) of the potential relief, and it is
unclear whether FORR Final Rule finds
that this ratio makes the methodology
cost-prohibitive.13 If FORR Final Rule’s
12 See Joint Pet. for Rulemaking to Establish a
Voluntary Arb. Program for Small Rate Disps., EP
765, slip op. at 57–60, 75 (STB served December 19,
2022); Canada Transp. Act, S.C. 1996, c. 10, as
amended, § 167 (Can.). Cf. FORR Final Rule, EP 755
et al., slip op. at 1.
13 See SNPRM, EP 755 et al., slip op. at 43 n.67
(‘‘But the most recently reported estimate of the cost
to litigate a Three-Benchmark case is actually
$500,000 based on a case completed in 2010.’’)
(citing US Magnesium, L.L.C. Comment, V.S.
E:\FR\FM\04JAR1.SGM
Continued
04JAR1
316
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
accessibility statement is only about
litigation costs, FORR Final Rule does
not establish that FORR would be less
costly than Three-Benchmark. Both
have final offer components, but ThreeBenchmark sets the basic economic
methodology in advance, whereas FORR
requires litigants to create their own
methodology and reasoning. Further,
many of FORR’s procedural changes
that purport to reduce litigation costs,
and other changes suggested by the Rate
Reform Task Force (RRTF), such as page
limits, are easily applied to ThreeBenchmark.14 That the Board does not
simply streamline Three-Benchmark
suggests that FORR Final Rule’s problem
statement is perhaps less about costs
and more about the standards—even the
economic foundations—of the Board’s
existing rate review methodologies.15
However, despite robust ideas from both
the RRTF and the public, the Board does
not explain why it is impractical to
improve the standards in the Board’s
existing methodologies, or—if those
methodologies are unsound—to create a
new methodology. Without fully
analyzing the underlying the problem
and available solutions, the Board has
insufficient basis for turning away from
its traditional reliance on
methodologies, foregoing its discretion
to devise its own remedies, and relying
on litigants to do the work of the
agency.
Though I disagree with FORR Final
Rule, I am not proposing to do nothing.
I support facilitating an additional
process to resolve rate disputes via the
agency’s new arbitration program. Given
today’s decisions, I find the best way
forward is to continue to pursue a new
or revised rate review methodology, as
well as other actions that can improve
the Board’s regulations. The Board has
before it several ideas from the RRTF,
contracted experts, and the broader
public. I favor streamlined processes for
rate review and clear rules—specified,
practical methodologies and standards
that both protect the broader public and
Howard Kaplan 4, Oct. 23, 2012, Rate Regul.
Reforms, EP 715).
14 See RRTF Report 51–52 (discussing possible
benefits of page limits). The Board also does not
engage with the possibility of using statistical
methods, extant data, and automation to improve its
rate review processes, as suggested by the RRTF and
others. See, e.g., RRTF Report 10, 24–30.
15 This is not meant imply that there is not room
for potential improvements to the Three-Benchmark
methodology. Indeed, shippers, railroads, and
Board staff have all suggested new approaches to a
comparison group methodology. (See NGFA Reply
6–7; AAR Comment, Oct. 22, 2019); see also AAR
Comment 79–80, Nov. 26, 2019, Hearing on
Revenue Adequacy, EP 761; Rail Transportation of
Grain, Rate Regulation Review, EP 665 (Sub-No. 1),
slip op. at 12–15 (STB served Aug. 31, 2016); RRTF
Report 20–21.
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
allow industry participants to operate
their businesses and resolve disputes
absent further government intervention.
Rate review reform efforts, and the
broader consideration of the Board’s
role in regulating the rail industry, must
not stop because of a deeply flawed,
highly risky final rule. I respectfully
dissent.
BOARD MEMBER SCHULTZ,
dissenting:
For several years, shippers and other
interested parties have repeatedly
informed the Board that the Board’s
current options for challenging the
reasonableness of rates do not meet their
need for an expeditious resolution at a
reasonable cost. While I am aware of the
need for additional methodologies, I
respectfully dissent from today’s
decision to finalize Final Offer Rate
Review (FORR).
The Board issued its Supplemental
Notice of Proposed Rulemaking
(SNPRM) in this proceeding
concurrently with the Notice of
Proposed Rulemaking in Joint Petition
for Rulemaking to Establish a Voluntary
Arbitration Program for Small Rate
Disputes, Docket No. EP 765, ‘‘so that
both proposals may be considered
simultaneously, including the pros and
cons of adopting—either with or
without modification—the voluntary
arbitration rule, FORR, both proposals,
or taking other action.’’ Final Offer Rate
Review (SNPRM), EP 755 et al., slip op.
at 8 (STB served Nov. 15, 2021). While
I voted in favor of the FORR SNPRM, I
did so because I thought it was
important to be able to meet with
stakeholders about both FORR and the
Board’s proposed small case rate
arbitration program (Arbitration) in
Docket No. EP 765, as well as for
stakeholders to be able to review and
comment on both proposals at the same
time. Id. at 54 (Board Member Schultz,
concurring). I was not in favor of the
Board adopting both rules, and the
Board’s action today—simultaneously
issuing final rules in this docket and in
Docket No. EP 765 while tying them
together—is unprecedented and
unnecessary. In so doing, the Board has
injected a level of uncertainty and
unpredictability into a process that
should be predictable and consistent.
Moreover, I believe Arbitration is a
much better option for both shippers
and carriers primarily because it affords
the parties their due process and
statutory rights to be heard on the
merits.1 The majority’s decision to
1 Unlike FORR, Arbitration will allow neutral
arbitrators to determine a reasonable rate as the
PO 00000
Frm 00028
Fmt 4700
Sfmt 4700
adopt FORR simultaneously with
Arbitration creates the possibility that
while both programs will be enacted,
FORR could remain in law but go
unused if all seven Class I carriers sign
up for Arbitration.2 It is for these
reasons that I believe Arbitration should
have been advanced without the
‘‘backstop’’ of FORR. Beyond my
concerns about the rulemaking process,
I also have deep legal and practical
concerns about FORR, which I believe
prevents the Board from engaging in
reasoned decision-making, fails to
properly align risk between
complainants and defendants, and
could depress rail rates below what is
reasonable.
Reasoned Decision-Making
The need for new rate review
methodologies is well documented. In
September 2014, the Board
commissioned an independent
assessment of the stand-alone rate
reasonableness methodology as well as
possible alternatives that could reduce
the time, complexity, and expense
involved in rate cases. In January 2018,
Chairman Ann Begeman created the
Rate Reform Task Force to recommend
improvements to existing processes and
to propose new rate review
methodologies. And while the need for
alternatives to the existing
methodologies is clear, that need cannot
supersede the Board’s congressionally
delegated authority to either establish
rates based upon its own best judgment
or to promulgate regulations allowing
parties to seek similar relief through a
voluntary arbitration program, see 49
U.S.C. 11708. Unlike the process in
Arbitration, FORR would require the
Board to choose between two rates—
even if the Board finds the correct
outcome falls above, below, or
somewhere in between the two
submissions. It is this limitation on the
Board’s ability to exercise its own
judgment by weighing each side’s
arguments, evaluating the evidence, and
considering both the public interest and
rail transportation policy that I find to
be so troubling. Agencies must engage
in reasoned decision-making. See Motor
Vehicle Mfrs. Ass’n of U.S. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 52
(1983). While the Board, after finding a
challenged rate to be unlawful, has the
discretion to determine the ‘‘maximum
rate . . . to be followed,’’ 49 U.S.C.
10704(a)(1), the Board must ‘‘exercise its
Board does under the Board’s current options for
challenging the reasonableness of rates.
2 Of course, if even one carrier declines to sign
up for Arbitration, that program instead will go
unused.
E:\FR\FM\04JAR1.SGM
04JAR1
317
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
discretion in a reasoned manner.’’
Judulang v. Holder, 565 U.S. 42, 53
(2011). The Board’s ability to discern
the best outcome and remain
evenhanded will depend upon the
reasonableness of the submissions made
by the parties themselves. And while
the majority continues to presume that
‘‘FORR would not reward extreme
positions’’ and that ‘‘parties likely
would have greater success by
presenting more moderate proposals,’’
SNPRM, EP 755 et al., slip op. at 17, I
am not convinced this will be the case
in all instances. See also FORR Final
Rule, EP 755 et al., slip op. at 9 (‘‘[A]
final offer selection process would
discourage extreme positions . . . .’’).
Perhaps more importantly, I believe the
Board’s congressionally authorized
responsibility to provide regulatory
oversight of rates requires more than a
reliance upon two submitted proposals.
It requires the Board to actually exercise
its discretion and decision-making
authority.
Alignment of Risk
The majority believes that FORR—like
the final-offer arbitration (or ‘‘baseball
arbitration’’) process on which FORR is
based—will not reward extreme
positions, thereby incentivizing both
parties to submit their most reasonable
rate to the Board. See, e.g., id. at 6, 9.
However, unlike baseball arbitration, in
which each side has something to lose
because the arbitrator can select an offer
that puts either side in a worse position
than it occupied pre-arbitration, in a
FORR case, the Board is not authorized
to prescribe a rate higher than the
challenged rate. Therefore, a FORR
complainant has no risk of a decision
that places it in a worse position.
Without that risk, a FORR complainant
literally has nothing to lose and,
therefore, no reason to moderate their
position, especially when the Board will
only consider the final offers after it has
already found the challenged rate to be
unreasonable. By the same token, the
defendant carrier will know that the
complainant has no incentive to
moderate its position. This could result
in a Class I carrier submitting a lower
offer than it otherwise would to reduce
the risk that the Board will select the
complainant’s extreme position. If
FORR systematically pushes carriers to
submit lower offers without encouraging
shippers to submit higher offers, the
effect over time would be to depress
railroad rates—not due to rates being
unreasonable, but merely because of the
structure of FORR itself. Moreover,
because these decisions will not be
confidential, they will most likely
impact rates throughout the freight rail
network for years if not decades to
come, resulting in inconsistent and
unpredictable rate setting.3
Conclusion
The need for a streamlined, costeffective dispute resolution process that
provides both consistent deliberation of
evidence and reliable outcomes is clear.
But that need should not be met by a
process that restricts the Board’s ability
to exercise its own independent
judgment and requires it to render a
decision proposed by only one of the
parties. The majority’s decision today
means that the Board could be faced
with two extreme and undesirable
outcomes with no choice but to select
one. Without the discretion to ensure
that rates prescribed in FORR cases are
reasonable, FORR could operate to
depress rail rates below what is needed
for carriers to invest in, maintain, or
even improve the rail network.
Kenyatta Clay,
Clearance Clerk.
List of Subjects
49 CFR Part 1002
Administrative practice and
procedure, Common Carriers, Freedom
of information.
49 CFR Part 1111
Administrative practice and
procedure, Investigations.
49 CFR Part 1114
Administrative practice and
procedure.
49 CFR Part 1115
Administrative practice and
procedure.
For the reasons set forth in the
preamble, the Surface Transportation
Board amends parts 1002, 1111, 1114,
and 1115 of title 49, chapter X, of the
Code of Federal Regulations as follows:
PART 1002—FEES
1. The authority citation for part 1002
continues to read as follows:
■
Authority: 5 U.S.C. 552(a)(4)(A), (a)(6)(B),
and 553; 31 U.S.C. 9701; and 49 U.S.C. 1321.
Section 1002.1(f)(11) is also issued under 5
U.S.C. 5514 and 31 U.S.C. 3717.
2. Amend § 1002.2 by revising
paragraph (f)(56) to read as follows:
■
§ 1002.2
*
Filing fees.
*
*
(f) * * *
*
*
Type of proceeding
Fee
khammond on DSKJM1Z7X2PROD with RULES
*
*
*
*
*
*
PART V: Formal Proceedings:
(56) A formal complaint alleging unlawful rates or practices of carriers:
(i) A formal complaint filed under the coal rate guidelines (Stand-Alone Cost Methodology) alleging unlawful rates and/or
practices of rail carriers under 49 U.S.C. 10704(c)(1) .............................................................................................................
(ii) A formal complaint involving rail maximum rates filed under the Simplified-SAC methodology ............................................
(iii) A formal complaint involving rail maximum rates filed under the Three Benchmark methodology ......................................
(iv) A formal complaint involving rail maximum rates filed under the Final Offer Rate Review procedure .................................
(v) All other formal complaints (except competitive access complaints) .....................................................................................
(vi) Competitive access complaints ..............................................................................................................................................
(vii) A request for an order compelling a rail carrier to establish a common carrier rate ............................................................
3 I also believe that the Board and stakeholders
are underestimating the demand that multiple
FORR cases will place on the Board’s docket. The
FORR Final Rule sets out that the Board will issue
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
decisions 90 days after the receipt of replies—I
question whether that goal will be achievable if the
Board faces even a few FORR cases at the same
time, and I am concerned that FORR cases may
PO 00000
Frm 00029
Fmt 4700
Sfmt 4700
*
$350
350
150
150
350
150
350
easily overwhelm the Board’s ability to deliberate
on other matters in a timely manner.
E:\FR\FM\04JAR1.SGM
04JAR1
318
*
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
*
*
*
*
PART 1111—COMPLAINT AND
INVESTIGATION PROCEDURES
3. The authority citation for part 1111
is revised to read as follows:
■
Authority: 49 U.S.C. 10701, 10704, 11701
and 1321.
4. Amend § 1111.3 by revising
paragraph (c) to read as follows:
■
§ 1111.3 Amended and supplemental
complaints.
*
*
*
*
*
(c) Simplified standards. A complaint
filed under Simplified-SAC or ThreeBenchmark may be amended once
before the filing of opening evidence to
opt for a different rate reasonableness
methodology, among Three-Benchmark,
Simplified-SAC, or stand-alone cost. If
so amended, the procedural schedule
begins again under the new
methodology as set forth at §§ 1111.9
and 1111.10. However, only one
mediation period per complaint shall be
required. A complaint filed under Final
Offer Rate Review may not be amended
to opt for Three-Benchmark, SimplifiedSAC, or stand-alone cost, and a
complaint filed under ThreeBenchmark, Simplified-SAC, or standalone cost may not be amended to opt
for Final Offer Rate Review.
■ 5. Amend § 1111.5 by revising
paragraphs (a), (b), (c), and (e) to read as
follows:
khammond on DSKJM1Z7X2PROD with RULES
§ 1111.5
Answers and cross complaints.
(a) Generally. Other than in cases
under Final Offer Rate Review, which
does not require the filing of an answer,
an answer shall be filed within the time
provided in paragraph (c) of this
section. An answer should be
responsive to the complaint and should
fully advise the Board and the parties of
the nature of the defense. In answering
a complaint challenging the
reasonableness of a rail rate, the
defendant should indicate whether it
will contend that the Board is deprived
of jurisdiction to hear the complaint
because the revenue-variable cost
percentage generated by the traffic is
less than 180 percent, or the traffic is
subject to effective product or
geographic competition. In response to
a complaint filed under Simplified-SAC
or Three-Benchmark, the answer must
include the defendant’s preliminary
estimate of the variable cost of each
challenged movement calculated using
the unadjusted figures produced by the
URCS Phase III program.
(b) Disclosure with Simplified-SAC or
Three-Benchmark answer. The
defendant must provide to the
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
complainant all documents that it relied
upon to determine the inputs used in
the URCS Phase III program.
(c) Time for filing; copies; service.
Other than in cases under Final Offer
Rate Review, which does not require the
filing of an answer, an answer must be
filed with the Board within 20 days after
the service of the complaint or within
such additional time as the Board may
provide. The defendant must serve
copies of the answer upon the
complainant and any other defendants.
*
*
*
*
*
(e) Failure to answer complaint. Other
than in cases under Final Offer Rate
Review, which does not require the
filing of an answer, averments in a
complaint are admitted when not
denied in an answer to the complaint.
*
*
*
*
*
■ 6. Amend § 1111.10 by adding
paragraph (a)(3) to read as follows:
§ 1111.10 Procedural schedule in cases
using simplified standards.
(a) * * *
(3)(i) In cases relying upon the Final
Offer Rate Review procedure where the
complainant elects streamlined market
dominance:
(A) Day ¥25—Complainant files
notice of intent to initiate case and
serves notice on defendant.
(B) Day 0—Complaint filed; discovery
begins.
(C) Day 35—Discovery closes.
(D) Day 49—Complainant’s opening
(rate reasonableness analysis, final offer,
and opening evidence on market
dominance). Defendant’s opening (rate
reasonableness analysis and final offer).
(E) Day 59—Parties’ replies.
Defendant’s reply evidence on market
dominance.
(F) Day 66—Complainant’s letter
informing the Board whether it elects an
evidentiary hearing on market
dominance.
(G) Day 73—Telephonic evidentiary
hearing before an administrative law
judge, as described in § 1111.12(d) of
this chapter, at the discretion of the
complainant (market dominance).
(H) Day 149—Board decision.
(ii) In cases relying upon the Final
Offer Rate Review procedure where the
complainant elects non-streamlined
market dominance:
(A) Day –25—Complainant files
notice of intent to initiate case and
serves notice on defendant.
(B) Day 0—Complaint filed; discovery
begins.
(C) Day 35—Discovery closes.
(D) Day 49—Complainant’s opening
(rate reasonableness analysis, final offer,
and opening evidence on market
PO 00000
Frm 00030
Fmt 4700
Sfmt 4700
dominance). Defendant’s opening (rate
reasonableness analysis and final offer).
(E) Day 79—Parties’ replies.
Defendant’s reply evidence on market
dominance.
(F) Day 169—Board decision.
(iii) In addition, the Board will
appoint a liaison within five business
days after the Board receives the prefiling notification.
(iv) The mediation period in Final
Offer Rate Review cases is 20 days
beginning on the date of appointment of
the mediator(s). The Board will appoint
a mediator or mediators as soon as
possible after the filing of the notice of
intent to initiate a case.
(v) With its final offer, each party
must submit an explanation of the
methodology it used. If a complainant
fails to submit explanation and support
for its offer, the Board may dismiss the
complaint without determining the
reasonableness of the challenged rate.
*
*
*
*
*
■ 7. Amend § 1111.11 by revising
paragraph (b) to read as follows:
§ 1111.11
matters.
Meeting to discuss procedural
*
*
*
*
*
(b) Stand-alone cost or simplified
standards complaints. In complaints
challenging the reasonableness of a rail
rate based on stand-alone cost or the
simplified standards, the parties shall
meet or otherwise discuss discovery and
procedural matters within 7 days after
the complaint is filed in stand-alone
cost cases, 3 days after the complaint is
filed in Final Offer Rate Review cases,
and 7 days after the mediation period
ends in Simplified-SAC or ThreeBenchmark cases. The parties should
inform the Board as soon as possible
thereafter whether there are unresolved
disputes that require Board intervention
and, if so, the nature of such disputes.
■ 8. Amend § 1111.12 by revising
paragraphs (c), (d)(1), and (d)(2) read as
follows:
§ 1111.12
Streamlined market dominance.
*
*
*
*
*
(c) A defendant’s reply evidence
under the streamlined market
dominance approach may address the
factors in paragraph (a) of this section
and any other issues relevant to market
dominance. A complainant may elect to
submit rebuttal evidence on market
dominance issues except in cases under
Final Offer Rate Review, which does not
provide for rebuttal. Reply and rebuttal
filings under the streamlined market
dominance approach are each limited to
50 pages, inclusive of exhibits and
verified statements.
E:\FR\FM\04JAR1.SGM
04JAR1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
(d)(1) Pursuant to the authority under
§ 1011.6 of this chapter, an
administrative law judge will hold a
telephonic evidentiary hearing on the
market dominance issues at the
discretion of the complainant in lieu of
the submission of a written rebuttal on
market dominance issues. In cases
under Final Offer Rate Review, which
does not provide for rebuttal, the
telephonic evidentiary hearing is at the
discretion of the complainant.
(2) The hearing will be held on or
about the date that the complainant’s
rebuttal evidence on rate reasonableness
is due, except in cases under Final Offer
Rate Review, where the hearing will be
held 14 days after replies are due unless
the parties agree on an earlier date. The
complainant shall inform the Board by
letter submitted in the docket, no later
than 10 days after defendant’s reply is
due, whether it elects an evidentiary
hearing in lieu of the submission of a
written rebuttal on market dominance
issues. In cases under Final Offer Rate
Review, the complainant shall inform
the Board by letter submitted in the
docket, no later than 7 days after
defendant’s reply is due, whether it
elects an evidentiary hearing on market
dominance issues.
*
*
*
*
*
PART 1114—EVIDENCE; DISCOVERY
9. The authority citation for part 1114
continues to read as follows:
■
Authority: 5 U.S.C. 559; 49 U.S.C. 1321.
10. Amend § 1114.21 by adding
paragraph (a)(4) to read as follows:
■
§ 1114.21 Applicability; general
provisions.
khammond on DSKJM1Z7X2PROD with RULES
(a) * * *
(4) Except as stated in
§ 1114.31(a)(2)(iii), time periods
specified in this subpart do not apply in
cases under Final Offer Rate Review.
Instead, parties in cases under Final
Offer Rate Review should serve
requests, answers to requests,
objections, and other discovery-related
communications within a reasonable
time given the length of the discovery
period.
*
*
*
*
*
■ 11. Amend § 1114.24 by revising
paragraph (h) to read as follows:
§ 1114.24
Depositions; procedures.
*
*
*
*
*
(h) Return. The officer shall either
submit the deposition and all exhibits
by e-filing (provided the filing complies
with § 1104.1(e) of this chapter) or
securely seal the deposition and all
exhibits in an envelope endorsed with
VerDate Sep<11>2014
16:08 Jan 03, 2023
Jkt 259001
sufficient information to identify the
proceeding and marked ‘‘Deposition of
(here insert name of witness)’’ and
personally deliver or promptly send it
by registered mail to the Office of
Proceedings. A deposition to be offered
in evidence must reach the Board not
later than 5 days before the date it is to
be so offered.
*
*
*
*
*
■ 12. Amend § 1114.31 by revising
paragraphs (a) and (d) to read as follows:
§ 1114.31
Failure to respond to discovery.
(a) Failure to answer. If a deponent
fails to answer or gives an evasive
answer or incomplete answer to a
question propounded under
§ 1114.24(a), or a party fails to answer
or gives evasive or incomplete answers
to written interrogatories served
pursuant to § 1114.26(a), the party
seeking discovery may apply for an
order compelling an answer by motion
filed with the Board and served on all
parties and deponents. Such motion to
compel an answer must be filed with
the Board and served on all parties and
deponents. Except as set forth in
paragraph (a)(2)(iii) of this section, such
motion to compel an answer must be
filed with the Board within 10 days after
the failure to obtain a responsive answer
upon deposition, or within 10 days after
expiration of the period allowed for
submission of answers to
interrogatories. On matters relating to a
deposition on oral examination, the
proponent of the question may complete
or adjourn the examination before he
applies for an order.
(1) Reply to motion to compel
generally. Except in rate cases to be
considered under the stand-alone cost
methodology or simplified standards,
the time for filing a reply to a motion
to compel is governed by 49 CFR
1104.13.
(2) Motions to compel in stand-alone
cost and simplified standards rate
cases. (i) Motions to compel in standalone cost and simplified standards rate
cases must include a certification that
the movant has in good faith conferred
or attempted to confer with the person
or party failing to answer discovery to
obtain it without Board intervention.
(ii) In a rate case to be considered
under the stand-alone cost, SimplifiedSAC, or Three-Benchmark
methodologies, a reply to a motion to
compel must be filed with the Board
within 10 days of when the motion to
compel is filed.
(iii) In a rate case under Final Offer
Rate Review, each party may file one
motion to compel that aggregates all
discovery disputes with the other party.
PO 00000
Frm 00031
Fmt 4700
Sfmt 4700
319
Each party’s motion to compel, if any,
shall be filed on the 10th day before the
close of discovery (or, if not a business
day, the last business day immediately
before the 10th day). The procedural
schedule will be tolled while motions to
compel are pending. Replies to motions
to compel in Final Offer Rate Review
cases must be filed with the Board
within 7 days of when the motion to
compel is filed. Upon issuance of a
decision on motions to compel, the
procedural schedule resumes, and any
party ordered to respond to discovery
must do so within the remaining 10
days in the discovery period.
(3) Conference with parties on motion
to compel. Within 5 business days after
the filing of a reply to a motion to
compel in a rate case to be considered
under the stand-alone cost
methodology, Simplified-SAC, or ThreeBenchmark, Board staff may convene a
conference with the parties to discuss
the dispute, attempt to narrow the
issues, and gather any further
information needed to render a ruling.
(4) Ruling on motion to compel in
stand-alone cost, Simplified-SAC, and
Three-Benchmark rate cases. Within 5
business days after a conference with
the parties convened pursuant to
paragraph (a)(3) of this section, the
Director of the Office of Proceedings
will issue a summary ruling on the
motion to compel discovery. If no
conference is convened, the Director of
the Office of Proceedings will issue this
summary ruling within 10 days after the
filing of the reply to the motion to
compel. Appeals of a Director’s ruling
will proceed under 49 CFR 1115.9, and
the Board will attempt to rule on such
appeals within 20 days after the filing
of the reply to the appeal.
*
*
*
*
*
(d) Failure of party to attend or serve
answers. If a party or a person or an
officer, director, managing agent, or
employee of a party or person willfully
fails to appear before the officer who is
to take his deposition, after being served
with a proper notice, or fails to serve
answers to interrogatories submitted
under § 1114.26, after proper service of
such interrogatories, the Board on
motion and notice may strike out all or
any part of any pleading of that party or
person, or dismiss the proceeding or any
part thereof. Such a motion may not be
filed in a case under Final Offer Rate
Review. In lieu of any such order or in
addition thereto, the Board shall require
the party failing to act or the attorney
advising that party or both to pay the
reasonable expenses, including
attorney’s fees, caused by the failure,
unless the Board finds that the failure
E:\FR\FM\04JAR1.SGM
04JAR1
320
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Rules and Regulations
was substantially justified or that other
circumstances make an award of
expenses unjust.
*
*
*
*
*
*
13. The authority citation for part
1115 continues to read as follows:
khammond on DSKJM1Z7X2PROD with RULES
■
16:08 Jan 03, 2023
14. Amend § 1115.3 by revising
paragraph (e) to read as follows:
■
§ 1115.3 Board actions other than initial
decisions.
PART 1115—APPELLATE
PROCEDURES
VerDate Sep<11>2014
Authority: 5 U.S.C. 559; 49 U.S.C. 1321;
49 U.S.C. 11708.
Jkt 259001
*
*
*
*
(e) Petitions must be filed within 20
days after the service of the action or
within any further period (not to exceed
PO 00000
Frm 00032
Fmt 4700
Sfmt 9990
20 days) as the Board may authorize.
However, in cases under Final Offer
Rate Review, petitions must be filed
within 5 days after the service of the
action, and replies to petitions must be
filed within 10 days after the service of
the action.
*
*
*
*
*
[FR Doc. 2022–27926 Filed 1–3–23; 8:45 am]
BILLING CODE 4915–01–P
E:\FR\FM\04JAR1.SGM
04JAR1
]]>Agencies
[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Rules and Regulations]
[Pages 299-320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27926]
=======================================================================
-----------------------------------------------------------------------
SURFACE TRANSPORTATION BOARD
49 CFR Parts 1002, 1111, 1114 and 1115
[Docket No. EP 755; Docket No. EP 665 (Sub-No. 2)]
Final Offer Rate Review; Expanding Access to Rate Relief
AGENCY: Surface Transportation Board.
ACTION: Final rule; termination of proceeding.
-----------------------------------------------------------------------
SUMMARY: The Surface Transportation Board (STB or Board) is adopting a
final rule in Docket No. EP 755 to establish a new procedure for
challenging the reasonableness of railroad rates in smaller cases.
Under this rate review procedure, the Board will decide a case by
selecting either the complainant's or the defendant's final offer,
subject to an expedited procedural schedule that adheres to firm
deadlines. The Board is also terminating its proceeding in Docket No.
EP 665 (Sub-No. 2).
DATES: The final rule is effective March 6, 2023. The termination of
proceeding is effective on January 3, 2023.
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: In January 2018, the Board established its
Rate Reform Task Force (RRTF), with the objectives of developing
recommendations to reform and streamline the Board's rate review
processes for large cases and determining how to best provide a rate
review process for smaller cases. After holding informal meetings
throughout 2018, the RRTF issued a report on April 25, 2019 (RRTF
Report).\1\ Among other recommendations, the RRTF included a proposal
for a final offer procedure, which it described as ``an administrative
approach that would take advantage of procedural limitations, rather
than substantive limitations, to constrain the cost and complexity of a
rate reasonableness case.'' RRTF Rep. 12. Versions of a final offer
process for rate review have also been recommended by the U.S.
Department of Agriculture (USDA) and a committee of the Transportation
Research Board (TRB).
---------------------------------------------------------------------------
\1\ The RRTF Report was posted on the Board's website on April
29, 2019, and can be accessed at https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf.
---------------------------------------------------------------------------
In a notice of proposed rulemaking issued on September 12, 2019,
the Board proposed to build on the RRTF recommendation and establish a
new rate case procedure for smaller cases, the Final Offer Rate Review
(FORR) procedure. Final Offer Rate Rev. (NPRM), EP 755 et al. (STB
served Sept. 12, 2019).\2\
---------------------------------------------------------------------------
\2\ The NPRM was published in the Federal Register, 84 FR 48872
(Sept. 17, 2019).
---------------------------------------------------------------------------
The Board received numerous comments on the NPRM. By decision
served on May 15, 2020, to permit informal discussions with
stakeholders, the Board waived the general prohibition on ex parte
communications between June 1, 2020, and July 15, 2020.
[[Page 300]]
Meetings took place during the specified period; parties filed
memoranda pursuant to 49 CFR 1102.2(g)(4); the memoranda were posted on
the Board's website; and parties were permitted to submit written
comments in response to the memoranda.
On November 15, 2021, the Board issued a supplemental notice of
proposed rulemaking, which made minor changes to the proposal in the
NPRM. Final Offer Rate Rev. (SNPRM), EP 755 et al. (STB served Nov. 15,
2021).\3\ The Board issued the SNPRM ``so that the modified FORR
proposal may be considered in parallel with the proposal in Docket No.
EP 765 to establish an arbitration program that could include an
exemption from FORR for carriers that participate in the program.''
SNPRM, EP 755 et al., slip op. at 9. The Board received several
comments and reply comments on the SNPRM.\4\
---------------------------------------------------------------------------
\3\ The SNPRM was published in the Federal Register, 86 FR.
67622 (Nov. 26, 2021).
\4\ The following parties submitted comments on the SNPRM: the
American Chemistry Council, The Fertilizer Institute, the National
Industrial Transportation League, the Chlorine Institute, and the
Corn Refiners Association (collectively, the Coalition
Associations); the American Fuel & Petrochemical Manufacturers
(AFPM); the Association of American Railroads (AAR); BNSF Railway
Company (BNSF); Indorama Ventures (Indorama); Industrial Minerals
Association--North America (IMA-NA); National Grain and Feed
Association (NGFA); Olin Corporation (Olin); Union Pacific Railroad
Company (UP); and USDA.
---------------------------------------------------------------------------
After considering the comments filed in response to the NPRM and
SNPRM and information received in meetings with stakeholders, the Board
will adopt its proposal in Docket No. EP 755 as modified in the SNPRM.
The Board will also terminate the proceeding in Docket No. EP 665 (Sub-
No. 2).\5\
---------------------------------------------------------------------------
\5\ These proceedings are not consolidated. A single decision is
being issued for administrative convenience.
---------------------------------------------------------------------------
To the extent the discussion below does not revisit issues raised
in comments on the NPRM, the SNPRM contains the Board's analysis of
those issues.
Background
In the ICC Termination Act of 1995 (ICCTA), Congress directed the
Board to ``establish a simplified and expedited method for determining
the reasonableness of challenged rail rates in those cases in which a
full stand-alone cost [(SAC)] presentation is too costly, given the
value of the case.'' Public Law 104-88, 109 Stat. 803, 810. In the
Surface Transportation Board Reauthorization Act of 2015 (STB
Reauthorization Act), Public Law 114-110, 129 Stat. 2228, Congress
revised the text of this requirement so that it currently reads:
``[t]he Board shall maintain 1 or more simplified and expedited methods
for determining the reasonableness of challenged rates in those cases
in which a full [SAC] presentation is too costly, given the value of
the case.'' 49 U.S.C. 10701(d)(3) (emphasis added). In addition,
section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d)
to require that the Board ``maintain procedures to ensure the
expeditious handling of challenges to the reasonableness of railroad
rates.'' \6\ More generally, the rail transportation policy (RTP) at 49
U.S.C. 10101 states that, in regulating the railroad industry, it is
the policy of the United States Government to, among other things,
``provide for the expeditious handling and resolution of all
proceedings required or permitted to be brought under this part.'' 49
U.S.C. 10101(15).
---------------------------------------------------------------------------
\6\ Prior to the enactment of the STB Reauthorization Act, Sec.
10704(d) began with a sentence stating that, ``[w]ithin 9 months
after January 1, 1996, the Board shall establish procedures to
ensure expeditious handling of challenges to the reasonableness of
railroad rates.'' See, e.g., 49 U.S.C. 10704(d) (2014).
---------------------------------------------------------------------------
In 1996, the Board adopted a simplified methodology, known as
Three-Benchmark, which determines the reasonableness of a challenged
rate using three benchmark figures. Rate Guidelines--Non-Coal Proc., 1
S.T.B. 1004 (1996), pet. to reopen denied, 2 S.T.B. 619 (1997), appeal
dismissed sub nom. Ass'n of Am. R.Rs. v. STB, 146 F.3d 942 (D.C. Cir.
1998). A decade passed without any complainant bringing a case under
that methodology. In 2007, the Board modified the Three-Benchmark
methodology and also created another simplified methodology, known as
Simplified-SAC, which determines whether a captive shipper is being
forced to cross-subsidize other parts of the railroad's network. See
Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (STB
served Sept. 5, 2007), aff'd sub nom. CSX Transp., Inc. v. STB, 568
F.3d 236 (D.C. Cir. 2009), vacated in part on reh'g, 584 F.3d 1076
(D.C. Cir. 2009). In 2013, the Board increased the relief available
under the Three-Benchmark methodology and removed the relief limit on
the Simplified-SAC methodology, among other things. See Rate Regul.
Reforms, EP 715 (STB served July 18, 2013), remanded in part sub nom.
CSX Transp., Inc. v. STB, 754 F.3d 1056 (D.C. Cir. 2014).
Notwithstanding the Board's efforts to improve its rate review
methodologies and make them more accessible, only a few Three-Benchmark
cases have ever been brought to the Board, and no complaint has been
litigated to completion under the Simplified-SAC methodology.
The Board has recognized that, for smaller disputes, the litigation
costs required to bring a case under the Board's existing rate
reasonableness methodologies can quickly exceed the value of the case.
Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 10
(STB served Aug. 31, 2016). As the Board stated in Simplified
Standards, ``[f]or some shippers who have smaller disputes with a
carrier, even [Simplified-SAC] would be too expensive, given the
smaller value of their cases. These shippers must also have an avenue
to pursue relief.'' Simplified Standards, EP 646 (Sub-No. 1), slip op.
at 16. Along similar lines, as the Board has previously stated,
simplified procedures ``enable the affected shippers to avail
themselves of their statutory right to challenge rates charged on
captive rail traffic regardless of the size of the complaint.'' Non-
Coal Proc., 1 S.T.B. at 1057.\7\
---------------------------------------------------------------------------
\7\ See also Calculation of Variable Costs in Rate Compl. Proc.
Involving Non-Class I R.Rs., 6 S.T.B. 798, 803 & n.19 (2003) (``[W]e
have adopted simplified evidentiary procedures for adjudicating rate
reasonableness in those cases where more sophisticated procedures
are too costly or burdensome, `to ensure that no shipper is
foreclosed from exercising its statutory right to challenge the
reasonableness of rates charged on its captive traffic.''' (quoting
Non-Coal Proc., 1 S.T.B. at 1008)); Mkt. Dominance Determinations--
Prod. & Geographic Competition, 3 S.T.B. 937, 949 (1998) (excluding
product and geographic competition from consideration in market
dominance determinations so as to ``remove a substantial obstacle to
the shippers' ability to exercise their statutory rights'').
---------------------------------------------------------------------------
In public comments, shippers and other interested parties have
repeatedly stated that the Board's current options for challenging the
reasonableness of rates do not meet their need for expeditious
resolution of disputes at a reasonable cost.\8\ Moreover, because a
contract rate may not be challenged before the Board, 49 U.S.C.
10709(c)(1), a party to a contract that is seeking a lower rate may
shift from contract rates to tariff rates before bringing a rate case,
and tariff rates may be higher than prior
[[Page 301]]
contract rates.\9\ That factor gives complainants a strong interest in
having a rate case decided quickly, from start to finish.
---------------------------------------------------------------------------
\8\ See, e.g., Alliance for Rail Competition Opening Comment 22,
June 26, 2014, Rail Transp. of Grain, Rate Regul. Rev., EP 665 (Sub-
No. 1) (stating that the Three-Benchmark methodology is too costly
and complex for grain shippers and producers in its current form);
WCTL Opening Comment 74-76, Oct. 23, 2012, Rate Regulation Reforms,
EP 715 (the cost and complexity of the Simplified-SAC methodology
discourage its use); Oversight of the STB Reauthorization Act of
2015 Before the Subcomm. on R.Rs., Pipelines, & Hazardous Materials
of the H. Comm. on Transp. & Infrastructure, 115th Cong. (2018)
(letter from Chris Jahn, then-President of The Fertilizer Institute,
submitted for the record) (due to the time and expense needed to
pursue a rate case, it ``does not work'' for most complainants).
\9\ As an example, a recent rate proceeding involved a
complainant that had been served pursuant to contracts for many
years and then filed its complaint as soon as its contract expired.
See Consumers Energy Co. Compl. 4-5, Jan. 13, 2015, Consumers Energy
Co. v. CSX Transp., Inc., NOR 42142; see also Occidental Chem. Corp.
Comments 2-4, Oct. 23, 2012, Rate Regul. Reforms, EP 715 (paying the
tariff rate for extended periods of time while a rate case is
litigated--which can add millions of dollars in costs beyond the
direct costs of litigation--undermines the utility of a rate
challenge, especially if the carrier requires that all rates bundled
with the challenged rate also shift to tariff during the pendency of
the case); PPG Indus., Inc. Comments 3-4, Oct. 23, 2012, Rate Regul.
Reforms, EP 715 (noting the effect of bundling and stating that
tariff premium could reach $20 million per year of rate litigation).
The latter two filings are cited here simply to illustrate the need
for expedited rate reasonableness procedures, not to indicate that
the Board takes any position in this proceeding--one way or
another--on the appropriateness of rate bundling.
---------------------------------------------------------------------------
Accordingly, the Board has continued to explore ideas to improve
the accessibility of rate relief. For example, in Expanding Access to
Rate Relief, Docket No. EP 665 (Sub-No. 2), the Board sought comment on
procedures relying on comparison groups that could comprise a new rate
reasonableness methodology for use in very small disputes. The initial
comments on that proposal were universally negative. But among the
comments submitted in Docket No. EP 665 (Sub-No. 2), the Board received
a suggestion from USDA that the Board consider procedural limitations
to streamline and expedite its rate reasonableness review as an
alternative to substantive limitations. See USDA Reply Comment 5-6,
Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).
USDA specifically recommended a short procedural timeline as a means to
make rate reasonableness review accessible for smaller disputes. See
id. To implement this recommendation, USDA suggested that the Board
adopt a final offer procedure whereby parties would submit market
dominance and rate reasonableness evidence in a single package offer.
See id. at 6-7.
The Board already uses a final offer procedure as part of the
Three-Benchmark methodology, although it is only one part of the rate
reasonableness approach as opposed to providing the overall framework,
as the Board is adopting here.\10\ One of the benchmarks compares the
markup paid by the challenged traffic to the average markup assessed on
similar traffic. See, e.g., Rate Regul. Reforms, EP 715, slip op. at
11. To improve the efficiency of this part of the Three-Benchmark
methodology and ``enable a prompt, expedited resolution of the
comparison group selection,'' the Board requires each party to submit
its final offer comparison group simultaneously, and the Board chooses
one of those groups without modification. See Simplified Standards, EP
646 (Sub-No. 1), slip op. at 18.
---------------------------------------------------------------------------
\10\ The Three-Benchmark methodology also includes more
procedural steps and a longer timeline than the FORR procedure
adopted here. See 49 CFR 1111.10(a)(2).
---------------------------------------------------------------------------
Although the Board may not require arbitration of rate disputes
under current law,\11\ and is not doing so here, the benefits of final
offer procedures used in other settings offer support and background
for the Board's rule adopted here. For example, final offer procedures
are used in commercial settings, including the resolution of wage
disputes in Major League Baseball, and final offer arbitration is
therefore sometimes referred to as ``baseball arbitration.'' See, e.g.,
Josh Chetwynd, Play Ball? An Analysis of Final-Offer Arb., Its Use in
Major League Baseball, & Its Potential Applicability to Eur. Football
Wage & Transfer Disps., 20 Marq. Sports L. Rev. 109 (2009) (noting the
final offer procedure ``can lead to a win-win situation as it spurs
negotiated settlement at a very high rate''); see also Michael Carrell
& Richard Bales, Considering Final Offer Arb. to Resolve Pub. Sector
Impasses in Times of Concession Bargaining, 28 Ohio St. J. on Disp.
Resol. 1, 3, 16, 23-24 (2012) (noting that 14 states had codified some
form of final offer arbitration for certain labor disputes involving
public sector employees and noting that the procedure ``encourages the
parties to negotiate toward middle ground rather than staking out polar
positions'' and ``encourages the parties to settle before
arbitration'').
---------------------------------------------------------------------------
\11\ See Arb.--Various Matters, EP 586, slip op. at 3 n.7 (STB
served Sept. 20, 2001); see also 49 U.S.C. 10704(a)(1); 49 U.S.C.
11704(c)(2). The Board has had a voluntary arbitration process in
place for more than 20 years, and section 13 of the STB
Reauthorization Act required adjustments to this process (including
the addition of rate disputes to the types of matters eligible for
arbitration), but to date parties have not agreed to arbitration of
any dispute brought before the Board. See Arb. of Certain Disps., 2
S.T.B. 564 (1997) (adopting voluntary arbitration procedures at 49
CFR part 1108); Revisions to Arb. Proc., EP 730 (STB served Sept.
30, 2016) (making adjustments required by STB Reauthorization Act);
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for
Small Rate Disps. (Arbitration NPRM), EP 765, slip op. at 2-3 (STB
served Nov. 15, 2021) (describing the Board's voluntary arbitration
programs). In addition to its recommendation for a final offer
procedure that would culminate in a decision by the Board, the RRTF
recommended legislation that would permit mandatory arbitration of
small rate cases. See RRTF Rep. 14-15.
---------------------------------------------------------------------------
Similarly, AAR itself provides its members a final offer procedure
for car hire arbitration. See Circular No. OT-10, Code of Car Hire Rule
25, https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf. The
Board described that final offer procedure as ``integral'' to its
decision to deregulate car hire rates. See Joint Pet. for Rulemaking on
R.R. Car Hire Comp., EP 334 (Sub-No. 8) et al., slip op. at 1 (STB
served Apr. 22, 1997).
Finally in this regard, the Committee for a Study of Freight Rail
Transportation and Regulation of the Transportation Research Board (TRB
Committee) described the benefits of adopting ``an independent
arbitration process similar to the one long used for resolving rate
disputes in Canada.'' Nat'l Acads. of Sciences, Eng'g, & Med.,
Modernizing Freight Rail Regul. (TRB Report) (2015), at 7, 136-40,
https://nap.edu/21759.\12\ In particular, the TRB Committee recommended
``a final-offer rule,'' set on a ``strict time limit,'' whereby ``each
side offers its evidence, arguments, and possibly a changed rate or
other remedy in a complete and unmodifiable form after a brief
hearing.'' TRB Rep. 211-12. According to the TRB Report, adoption of
such a procedure could enhance complainants' access to rate
reasonableness protections, while expediting dispute resolution and
encouraging settlements. Id. at 212.
---------------------------------------------------------------------------
\12\ In the process used by Canadian regulators, final offer
procedures are administered by an outside arbitrator or panel of
arbitrators. In Canada, a complainant may submit its rate dispute to
the Canadian Transportation Agency, which refers the matter to an
arbitrator or a panel of arbitrators. Canada Transp. Act, S.C. 1996,
c. 10, as amended, Sec. Sec. 161(1), 162(1) (Can.). The Canadian
statute establishes a two-tiered structure: if the matter involves
freight charges of more than $2 million CAD (subject to an inflation
adjustment), a 60-day procedure applies, and if the matter involves
freight charges of $2 million CAD or less (subject to an inflation
adjustment), a 30-day procedure applies. Id. Sec. Sec. 164.1,
165(2)(b). Among other things, the 60-day procedure allows the
parties to direct interrogatories to one another, and the arbitrator
may request written filings beyond the final offers and information
initially submitted in support of final offers. See id. Sec. Sec.
163(4), 164(1). In the 30-day procedure, there is no discovery, and
the arbitrator may request oral presentations from the parties but
may not request written submissions beyond the final offers and
replies. See id. Sec. 164.1. The arbitrator's decision is issued
within 60 days after the matter was submitted for arbitration, or 30
days if the further expedited procedure applies. Id. Sec.
165(2)(b). Any resulting rate prescription is limited to two years,
unless the parties agree to a different period. See id. Sec.
165(2)(c).
---------------------------------------------------------------------------
The RRTF agreed that a final offer process--with the decision being
made by the Board rather than an arbitrator--could be an effective way
to implement procedural limitations, which would improve access to rate
relief. RRTF Rep. 16.
Taking into account these recommendations, the Board's NPRM
proposed to adopt a FORR process with
[[Page 302]]
the following primary features. As proposed, FORR would allow limited
discovery, with no litigation over discovery disputes; FORR could be
used only if the complainant elected to use the streamlined market
dominance approach proposed (and since adopted) in Docket No. EP 756,
Market Dominance Streamlined Approach; \13\ and the procedural schedule
would be brief, with a Board decision issued within 135 days after
filing of the complaint. See NPRM, EP 755 et al., slip op. at 8-10, 13-
14.
---------------------------------------------------------------------------
\13\ Mkt. Dominance Streamlined Approach, EP 756 (STB served
Aug. 3, 2020) (adopting final rule).
---------------------------------------------------------------------------
Parties would simultaneously submit their market dominance
presentations, final offers, analyses addressing the reasonableness of
the challenged rate and support for the rate in the party's offer, and
explanations of the methodologies used and how they comply with the
decisional criteria set forth in the NPRM. NPRM, EP 755 et al., slip
op. at 12. Parties would next submit simultaneous replies. Id.
The complainant would bear the burden of proof to demonstrate that
(i) the defendant carrier has market dominance over the transportation
to which the rate applies, and (ii) the challenged rate is
unreasonable. NPRM, EP 755 et al., slip op. at 12-13; see also 49
U.S.C. 10701(d)(1), 10704(a)(1), 11704(b); Union Pac. R.R.--Pet. for
Declaratory Ord., FD 35504, slip op. at 2 (STB served Oct. 10, 2014).
If the Board were to find that the complainant's market dominance
presentation and rate reasonableness analysis demonstrate that the
defendant carrier has market dominance over the transportation to which
the rate applies and that the challenged rate is unreasonable, the
Board would then choose between the parties' final offers. In making
the rate reasonableness finding and choosing between the offers, the
Board would take into account the criteria specified in the NPRM: the
RTP, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and appropriate
economic principles. See NPRM, EP 755 et al., slip op. at 10-13.
The Board proposed a relief cap of $4 million, indexed annually
using the Producer Price Index, consistent with the potential relief
afforded under the Three-Benchmark methodology. See NPRM, EP 755 et
al., slip op. at 16.
The Board also sought additional comments on Docket No. EP 665
(Sub-No. 2), including whether to close that docket. NPRM, EP 755 et
al., slip op. at 17.
In the SNPRM, the Board made the following changes to its FORR
proposal: removing the use of adverse inferences and instead adopting a
process for motions to compel discovery; including mandatory mediation
in FORR cases; requiring only the complainant to submit market
dominance evidence on opening; allowing complainants to choose between
streamlined and non-streamlined market dominance approaches; and
extending the proposed procedural schedule to accommodate motions to
compel, mandatory mediation, and (in cases where it is selected) non-
streamlined market dominance. SNPRM, EP 755 et al., slip op. at 35-36,
38-42. The SNPRM also provided further information regarding FORR's
decisional criteria. Id. at 26-27.
Also, on November 25, 2020, the Board instituted a rulemaking
proceeding to consider a proposal by Canadian National Railway Company,
CSX Transportation, Inc., The Kansas City Southern Railway Company,
Norfolk Southern Railway Company, and UP to establish a new, voluntary
arbitration program for small rate disputes. Joint Pet. for Rulemaking
to Establish a Voluntary Arb. Program for Small Rate Disps., EP 765
(STB served Nov. 25, 2020).\14\ In a decision served concurrently with
the SNPRM, the Board proposed to adopt a form of such an arbitration
program. See Arbitration NPRM. Concurrently with this decision, the
Board is issuing a decision in that proceeding that adopts final rules
implementing a new small rate case arbitration program. See Joint Pet.
for Rulemaking to Establish a Voluntary Arb. Program for Small Rate
Disps. (Arbitration Final Rule), EP 765 (STB served Dec. 19, 2022). As
part of that program, the Board will allow carriers to be exempt from
rates challenges under the FORR process if all Class I carriers join
the arbitration program within the specified time period and the
carriers otherwise satisfy all requirements for exemption established
in the Arbitration Final Rule.
---------------------------------------------------------------------------
\14\ Canadian Pacific subsequently submitted a letter stating
that it ``supports the effort to find a workable, reasonable,
accessible arbitration program for small rate cases, and would
participate in such a pilot program.'' CP Letter, Jan. 25, 2021,
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for
Small Rate Disps., EP 765.
---------------------------------------------------------------------------
Docket No. EP 755: Final Rule
After considering the filed comments and information received in
meetings with stakeholders, the Board will adopt the rule proposed in
the SNPRM, with one change addressed below in Part III.B. In Part I,
the Board addresses comments on the purpose of the rule. In Part II,
the Board addresses comments regarding its authority to adopt a final
offer procedure. In Part III, the Board addresses other arguments
against the FORR procedure. In Part IV, the Board addresses the review
criteria for FORR cases. In Part V, the Board addresses discovery and
procedural schedule issues. In Part VI, the Board addresses market
dominance issues. In Part VII, the Board addresses the relief cap.
Finally, in Part VIII, the Board addresses other miscellaneous issues.
The text of the final rule is below.
Part I--Purpose of the Rule
The purpose of this rule is to satisfy the statutory requirement
that, if the Board determines that a rail carrier has market dominance
over the transportation to which a particular rate applies, the rate
established by such carrier for such transportation must be reasonable.
See 49 U.S.C. 10701(d)(1).\15\ A shipper's ability to challenge a rate
subject to market dominance is frustrated where the litigation costs of
the Board's available processes outweigh the benefits of pursuing a
case. See Non-Coal Proc., 1 S.T.B. at 1049. Furthermore, in addition to
litigation costs, a shipper must also take into account the risk
associated with the uncertainty of receiving relief and the time it may
take to obtain a decision. Because even the Board's smaller rate
processes raise complexity, cost and duration challenges, shippers
facing small rate disputes continue to lack meaningful access to the
Board's existing rate reasonableness procedures. NPRM, EP 755 et al.,
slip op. at 3. Along with the Board's arbitration procedures newly
adopted in Docket No. EP 765, FORR represents one possible solution for
providing cost-effective rate relief in small cases. The Board expects
that FORR's procedural limitations should lower the cost of litigating
rate disputes, providing complainants who otherwise might be deterred
from bringing smaller rate cases under one of the Board's existing
processes an additional and more accessible avenue for rate
reasonableness review by the Board. NPRM, EP 755 et al., slip op. at 7.
Reduced litigation costs should also make it more feasible for
complainants to prove meritorious cases, while a final offer selection
process would discourage
[[Page 303]]
extreme positions and may facilitate settlement. Id. In addition,
although the Board has provided in the arbitration rulemaking that
Class I carriers may be exempt from FORR procedures under certain
conditions, that exemption is not guaranteed to enter into effect. See
Arbitration Final Rule, EP 765, slip. op. at 7. And even if the
arbitration program and FORR exemption take effect, FORR will serve as
the alternative regulatory process in the event that a carrier
withdraws from the arbitration program (which carriers will have the
right to do if there is a change in law). Therefore, FORR remains an
important long-term measure even with the potential temporary exemption
established in the arbitration rulemaking.
---------------------------------------------------------------------------
\15\ See also 49 U.S.C. 10701(d)(3) (requiring the Board to
``maintain 1 or more simplified and expedited methods for
determining the reasonableness of challenged rates in those cases in
which a full stand-alone cost presentation is too costly, given the
value of the case''); 49 U.S.C. 10704(d)(1) (requiring the Board to
``maintain procedures to ensure the expeditious handling of
challenges to the reasonableness of railroad rates,'' including
``appropriate measures for avoiding delay in the discovery and
evidentiary phases of such proceedings'').
---------------------------------------------------------------------------
AAR continues to question the need for a new procedure to resolve
small rate disputes. (See AAR SNPRM Comment 17-18.) \16\ Shipper
interests uniformly indicate that there is a need for such a procedure.
(AFPM SNPRM Comment 2-3; Coalition Ass'ns SNPRM Comment 1-2; IMA-NA
SNPRM Comment 2-3; Indorama SNPRM Comment 2-3; NGFA SNPRM Comment 2;
Olin SNPRM Comment 4-6.)
---------------------------------------------------------------------------
\16\ Unless otherwise specified, citations to the record are to
the record in Docket No. EP 755.
---------------------------------------------------------------------------
AAR argues that the Board should not ``accept at face value
unsupported claims from shippers that they have meritorious rate claims
they have chosen not to bring.'' (AAR SNPRM Comment 17-18.) Therefore,
according to AAR, the only relevant evidence is the absence of small
rate cases, which ``could be evidence that tariff-based rates are
generally reasonable.'' (See id. at 17.)
As it did in its comments on the NPRM, AAR is again suggesting
that, in order to adopt a process for determining whether or not
specific rates are unreasonable, the Board must already have evidence
that rates as a general matter are unreasonable. (See AAR NPRM Comment
24.) But as the SNPRM pointed out, AAR's reasoning is circular and
would prevent the Board from carrying out the statutory mandate to
determine the reasonableness of rates. See SNPRM, EP 755 et al., slip
op. at 10-11. AAR argues that the Board should disregard shippers'
expressions of concern about the existing rate reasonableness processes
unless an individually identified shipper presents a supported claim
that it has a meritorious rate case it has chosen not to bring. (See
AAR SNPRM Comment 17-18.) AAR does not attempt to explain how such a
shipper would prove its rate case meritorious.
Contrary to AAR's argument, the problem addressed by this rule is
illustrated by the lack of small rate cases combined with repeated
shipper statements that they need rate relief but find the Board's
existing processes too complex and expensive. NPRM, EP 755 et al., slip
op. at 2-3; see also id. at 3 n.5; SNPRM, EP 755 et al., slip op. at
10. Comments from shipper interests in this proceeding bear out that
problem. (See, e.g., Farmers Union NPRM Comment 5-9 (explaining the
challenges faced by customers with small rate disputes, as well as
citations to evidence of steadily rising rail transportation rates for
agricultural commodities in recent decades); \17\ NGFA NPRM Comment 5-
6; USDA NPRM Comment 2-3.)
---------------------------------------------------------------------------
\17\ Notwithstanding these widespread rate increases, no rate
case addressing rail transportation of agricultural commodities has
been filed with the Board or the ICC since McCarty Farms, which
commenced in 1981. See McCarty Farms, Inc. v. Burlington N., Inc., 2
S.T.B. 460, 462-63 (1997) (denying rate relief after reopening and
remand).
---------------------------------------------------------------------------
Accordingly, the Board finds that FORR will further the RTP goal of
maintaining reasonable rates where there is an absence of effective
competition, see Sec. 10101(6), by providing increased access to rate
reasonableness determinations in small disputes. By facilitating the
determination of rate reasonableness in situations where it may not, in
practice, have been feasible previously, FORR will also foster sound
economic conditions in transportation. See Sec. 10101(5). And FORR's
short timelines will promote expeditious regulatory decisions and
provide for the expeditious handling and resolution of proceedings. See
Sec. 10101(2), (15).
Part II--Authority To Adopt a Final Offer Procedure
AAR renews certain of its arguments that the Board lacks statutory
authority to adopt a final offer procedure under which, having found
the challenged rate unreasonable, the Board must select one of the
parties' offers to be the maximum rate going forward. The Board
disagrees with AAR for the reasons stated in the NPRM, the SNPRM, and
below.
The offer stage of FORR represents an exercise of the Board's
remedial rate prescription authority: ``When the Board, after a full
hearing, decides that a rate'' violates the statute, ``the Board may
prescribe the maximum rate . . . to be followed.'' Sec. 10704(a)(1).
AAR asserts that a final offer procedure exceeds the scope of this
clause, but that argument lacks merit. (See AAR SNPRM Comment 4-9, 11-
12.) The statute authorizes the Board to ``prescribe the maximum rate .
. . to be followed.'' That is precisely what the Board would do under
FORR. ``Prescribe'' means ``[t]o dictate, ordain, or direct; to
establish authoritatively (as a rule or guideline).'' Black's Law
Dictionary (11th ed. 2019). As long as the Board satisfies the criteria
for assessing the reasonableness of rates, choosing among the parties'
offers as to the maximum rate going forward is, by definition,
``establishing authoritatively (as a rule or guideline)'' the maximum
rate to be followed. This aspect of FORR falls within Sec.
10704(a)(1)'s grant of remedial authority.\18\
---------------------------------------------------------------------------
\18\ Because the Board's authority to prescribe rates under FORR
is located in Sec. 10704(a)(1), AAR's contention that Sec.
10701(d)(3) does not expand the scope of that authority is
irrelevant. (AAR SNPRM Comment 5.).
---------------------------------------------------------------------------
Implicit in AAR's argument is the incorrect premise that
``prescribing'' a rate under Sec. 10704(a)(1) cannot occur unless the
Board allows itself discretion in each case to prescribe a rate other
than one a party has proposed. That requirement is absent from Sec.
10704(a)(1), which says nothing about the extent of discretion the
Board can or must permit itself in prescribing a maximum rate. Nor has
AAR identified such a requirement in any other provision, as discussed
in more detail below. And such a requirement would contradict
established Board practice. The Board's SAC test has long included a
procedure for prescribing the maximum rate to be followed. This
procedure, the Maximum Markup Methodology (MMM), applies mechanically,
with the Board exercising no discretion as to its application in an
individual SAC case. See Major Issues in Rail Rate Cases, EP 657 (Sub-
No. 1), slip op. at 14-15 (STB served Oct. 30, 2006), aff'd sub nom.
BNSF Ry. v. STB, 526 F.3d 770, 777-81 (D.C. Cir. 2008). At the offer
selection phase of a FORR case, by contrast, the Board would exercise
discretion in selecting between the offers. The Board's well-
established use the of MMM, therefore, contradicts AAR's contentions
that FORR is unlawful due to the supposedly insufficient discretion it
affords the Board. (See, e.g., AAR SNPRM Comment 4-6, 7-9; see also UP
SNPRM Comment 2-3.) \19\
---------------------------------------------------------------------------
\19\ AAR repeats its argument that ``there is no basis for using
[final offer procedures] with regard to the Board's `legislative
function' of setting rates prospectively.'' (AAR SNPRM Comment 9.)
AAR states that ``[t]he Board has identified no authority suggesting
that final-offer procedures can be used by agencies as a way of
legislating or rulemaking.'' (Id. at 10.) In making this argument,
AAR cites a footnote in the SNPRM expressly identifying the
authority that AAR now claims has not been identified. See SNPRM, EP
755 et al., slip op. at 16 n.30. AAR refers to legislating or
rulemaking generally, but the agency function at issue here is a
specific form of quasi-legislative authority: the prospective
setting of rates. AAR does not deny that Sec. Sec. 10701(d)(3) and
10704 authorize the Board to develop methods for performing this
quasi-legislative function.
---------------------------------------------------------------------------
[[Page 304]]
AAR reiterates its reliance on the magistrate judge's opinion in
Stone v. U.S. Forest Serv., No. Civ. 03-586-JE, 2004 WL 1631321 (D. Or.
July 16, 2004). That decision invalidated an agency's use of final
offer procedures to determine the fair market value of a parcel of
property because, among other reasons, the governing statute ``d[id]
not command the agency to select the `better' of the two appraisals,''
and the fair market value might have been ``somewhere in between.'' Id.
at *7.
The nonbinding opinion in Stone, which cites no authority and
devotes just a single paragraph to the relevant issue, is
distinguishable for several reasons. Most importantly, the operative
statute specified a particular, highly detailed method for assessing
fair market value--one that was arguably incompatible with a final
offer approach. See 16 U.S.C. 544g(e)(2) (requiring ``apprais[al] in
conformity with the Uniform Appraisal Standards for Federal Land
Acquisitions'').\20\ The Board's statutes, by contrast, authorize the
agency in general terms to devise methods for calculating the
reasonableness of a rate and prescribing the future rate to be
followed. The governing provisions do not specify a particular method
of calculation. SNPRM, EP 755 et al., slip op. at 16 n.28; see 49
U.S.C. 10701(d)(3), 10704(a)(1). Second, the object of the Stone
agency's calculations--the fair market value of an item of real
estate--was a relatively objective fact that could be determined
independently of the agency's analysis. In the present context,
however, there is no ``maximum rate to be followed'' that exists
independently of a Board determination in a rate reasonableness case;
although the Board must act rationally and obey its statutes and
regulations in determining the maximum rate to be followed, that
determination is not the kind that can be assessed for accuracy with
reference to the external world. Finally, as explained in the SNPRM,
Stone also involved a second rationale: the obvious inequities that
resulted from the fact that the agency was both the adjudicator and the
purchasing party. See SNPRM, EP 755 et al., slip op. at 13-14. That
significant factor is wholly absent here.
---------------------------------------------------------------------------
\20\ Available at https://www.usdoj.gov/enrd/land-ack/.
---------------------------------------------------------------------------
As in its previous comments, AAR assumes that a maximum reasonable
rate exists in the abstract, outside of any Board process used to
determine the maximum reasonable rate. (See AAR SNPRM Comment 8.)
Proceeding from this assumption, AAR posits a ``common situation'' in
which this abstract ideal of a maximum reasonable rate falls between
the litigants' positions. (See id.) Finally, based on the problem it
has contrived, AAR concludes that FORR would not involve the exercise
of independent judgment. (See id. at 7-9; see also UP SNPRM Comment 2
(making similar arguments).) As the SNPRM pointed out, however, the
idea that the Board must determine the reasonableness of rail rates
``in the abstract'' was rejected in CSX Transportation, Inc. v. STB,
568 F.3d at 242, vacated in part on reh'g, 584 F.3d 1076 (D.C. Cir.
2009). SNPRM, EP 755 et al., slip op. at 16. AAR's theory seems to be
that the ``considerations'' referenced in the statute--including
revenue adequacy, the Long-Cannon factors, and the RTP--themselves
dictate a particular methodology for how the prescribed maximum rate
should be calculated, and in individual cases, the Board measures the
challenged rate against the ``maximum reasonable rate'' resulting from
the statute. (See AAR SNPRM Comment 4, 8-9.) But as noted above, the
statute supplies only general goals, not methodologies (unlike, for
example, the statute in Stone that required specific ways of
calculating a real estate appraisal). Instead, the ICC and the Board
have developed processes that are applied in individual cases to
determine a maximum rate in a manner designed to achieve those goals--
as in FORR.\21\ Again, AAR identifies no statutory provision that would
prevent the Board from committing in advance not to prescribe a maximum
rate other than one identified by the parties. Nor does AAR
substantiate any view that such discretion is inherently necessary for
an agency adjudication to be valid.
---------------------------------------------------------------------------
\21\ UP argues that FORR is distinguishable from the Board's
existing rate reasonableness processes because those processes
``were designed to implement statutory standards.'' (UP SNPRM
Comment 3.) But as explained in the NPRM, the SNPRM, and this final
rule, FORR is also ``designed to implement statutory standards.''
See, e.g., NPRM, EP 755 et al., slip op. at 10-11; SNPRM, EP 755 et
al., slip op. at 12-15, 26-29.
---------------------------------------------------------------------------
AAR argues that because the statute does not mention the parties'
pleadings among these considerations, the Board cannot adopt one
party's position. (See AAR SNPRM Comment 8.) But AAR's argument leads
to the absurd consequence that, in any type of adjudication where one
party's position is clearly superior, the adjudicator cannot adopt that
position in its entirety unless Congress has expressly identified the
parties' pleadings as a source on which the adjudicator may rely.
The SNPRM pointed out similarities between FORR and the Three-
Benchmark test with respect to decision-making structures and the
agency's exercise of discretion. See SNPRM, EP 755 et al., slip op. at
15-16. AAR dismisses this comparison, stating that a final offer
procedure is only one part of the Three-Benchmark test, whereas it
provides the overall framework of FORR. (See AAR SNPRM Comment 8);
SNPRM, EP 755 et al., slip op. at 5. AAR ignores the fact that, apart
from evidence regarding ``other relevant factors,'' which is optional,
the Board's Three-Benchmark test comprises a final offer process and a
formula--an approach in which the Board exercises its discretion in
deciding between the parties' comparison groups under a final offer
structure. See Union Pac. R.R. v. STB, 628 F.3d 597, 601 (D.C. Cir.
2010) (``Since the revenue need adjustment factor is derived from
static figures published annually by the Board, the Three Benchmark
framework's reasonableness determination generally turns on the Board's
selection of a comparison group.''); SNPRM, EP 755 et al., slip op. at
15.
UP similarly contends that Three-Benchmark is distinguishable from
FORR in terms of the Board's exercise of discretion because parties to
a Three-Benchmark case can choose to submit evidence regarding ``other
relevant factors.'' (See UP SNPRM Comment 3.) Regarding the point that
``other relevant factors'' evidence is optional, UP argues that that is
``consistent with the function of a safety valve.'' (See id.) UP
erroneously conflates a decision made by parties--whether to submit
evidence regarding ``other relevant factors'' in a Three-Benchmark
case--with its argument about the scope of the Board's decision-making.
UP does not deny that, in any given Three-Benchmark proceeding, parties
might present the Board with no ``other relevant factors'' evidence. In
that situation, the Board's exercise of discretion in the context of
that individual case is no greater than it would be in a FORR case. See
Union Pac. R.R., 628 F.3d at 601.
AAR continues to argue that the Board cannot exercise its rate-
prescribing power unless it performs a rate analysis distinct from any
party's pleadings within each case--as opposed to exercising judgment
in establishing the process itself. (See AAR SNPRM Comment 8); cf.
SNPRM, EP 755 et al., slip op. at 15. But again, no such limitation is
apparent in the statute or
[[Page 305]]
anywhere else, and AAR's arguments would also foreclose any Three-
Benchmark case in which no ``other relevant factors'' are proposed. In
such a case, the judgment in its entirety would consist of selecting a
comparison group via final offer and applying the revenue need
adjustment formula. The Three-Benchmark test has been affirmed on
judicial review, notwithstanding the restrictive definition of agency
adjudication that AAR erroneously proposes here. See CSX Transp., Inc.
v. STB, 568 F.3d at 242.
Indeed, AAR's theory of adjudication, taken to its logical
endpoint, would preclude the Board from having any pre-defined
processes. In an individual SAC case, for example, the result produced
by the SAC process and Board precedent may be above or below the
abstract ideal of a maximum rate--which AAR described in its NPRM
comments as the rate that ``best'' achieves the statutory objectives.
(AAR NPRM Comment 12; see also UP SNPRM Comment 2 (making a similar
assumption that there must be an abstract ``actual maximum lawful
rate'' that exists outside of any process used by the Board to
determine the maximum reasonable rate).) But Congress expressly
required the Board to create multiple rate reasonableness processes--
which, by definition, could produce rates above or below AAR's
hypothesized single ``best'' maximum rate. See Sec. Sec. 10701(d)(3),
10704(a)(1).
According to AAR, Sec. 10707(c) ``charge(s)'' the Board with
determining whether a challenged rate exceeds ``a reasonable maximum
for that transportation.'' (AAR SNPRM Comment 12.) AAR argues that FORR
does not permit the Board to bring its own independent judgment to bear
in determining what ``a reasonable maximum'' rate would be and
therefore conflicts with this provision. (See id.) This argument merely
echoes AAR's other faulty arguments regarding ``independent judgment''
and is incorrect for the reasons stated above and in the SNPRM.
Moreover, it is far from clear that Sec. 10707(c) ``charge(s)'' the
Board with anything. The statutory language partially quoted by AAR
appears to delineate between the Board's determinations of market
dominance and rate reasonableness, rather than establishing any
directive related to rate reasonableness determinations.\22\ Statutory
structure supports this interpretation, as Sec. 10707 is the provision
in which Congress addressed market dominance rather than rate
reasonableness. See, e.g., Act of Oct. 17, 1978, Public Law 95-473, 92
Stat. 1337, 1382-83 (1978) (splitting Sec. 10709--later renumbered as
Sec. 10707--from the statute's rate reasonableness provision and
giving it the heading ``Determination of market dominance in rail
carrier rate proceedings''). In any event, even if Sec. 10707(c) could
be read to govern processes beyond the market-dominance determination,
the statute can at most be read to bear on the Board's determination of
whether a challenged rate is reasonable; the statute's text in no way
limits the Board's separate authority under Sec. 10704(a)(1) to
prescribe a maximum rate to be followed.
---------------------------------------------------------------------------
\22\ See Sec. 10707(c) (``When the Board finds in any
proceeding that a rail carrier proposing or defending a rate for
transportation has market dominance over the transportation to which
the rate applies, it may then determine that rate to be unreasonable
if it exceeds a reasonable maximum for that transportation. However,
a finding of market dominance does not establish a presumption that
the proposed rate exceeds a reasonable maximum.'').
---------------------------------------------------------------------------
In the SNPRM, the Board rejected UP's claim that FORR would limit
the Board's exercise of its statutory authority. Instead, as the SNPRM
pointed out, FORR facilitates the Board's exercise of that authority by
establishing a new process for doing so, thereby providing an
additional avenue for shippers with smaller rate disputes to seek
relief from rates that would otherwise go unchallenged. See SNPRM, EP
755 et al., slip op. at 15. The SNPRM further pointed out that, even if
the Board could be said to be using something less than its
congressionally delegated authority through FORR (which it is not), the
agency may choose to act within a narrower range than Congress
authorized. Id. (citing Midtec Paper Corp. v. Chi. & N.W. Transp. Co.,
3 I.C.C.2d 171, 181 (1986), aff'd sub nom. Midtec Paper Corp. v. United
States, 857 F.2d 1487, 1500 (D.C. Cir. 1988)).
UP now tries to distinguish Midtec, arguing that it involved a
statute ``cast in discretionary terms,'' Midtec, 857 F.2d at 1499, and
did not ``allow the agency to disregard a mandatory duty delegated by
Congress, as the Board would be doing under FORR.'' (UP SNPRM Comment
2.) But on the issue of how to determine whether a rate is reasonable,
it would be difficult to find a plainer example of a statute ``cast in
discretionary terms'' than Sec. 10701(d)(3) (``The Board shall
maintain 1 or more simplified and expedited methods for determining the
reasonableness of challenged rates in those cases in which a full
stand-alone cost presentation is too costly, given the value of the
case.''); see also Sec. 10704(a)(1) (providing in equally
discretionary terms that, ``[w]hen the Board, after a full hearing,
decides that a rate charged or collected by a rail carrier for
transportation subject to the jurisdiction of the Board under this part
. . . does or will violate this part, the Board may prescribe the
maximum rate . . . to be followed''). And UP does not even attempt to
engage with the language of Sec. Sec. 10701(d)(3) or 10704(a)(1) in
support of its claim that, under FORR, the Board would ``disregard a
mandatory duty.'' As explained above in response to AAR, the Board
would carry out its duties under Sec. 10701(d)(3) and under the
authority of Sec. 10704(a)(1) in a FORR case.
Finally, AAR again cites Morgan v. United States, 304 U.S. 1, 12
(1938) for the proposition that ``Congress, in requiring a `full
hearing,' had regard to judicial standards--not in any technical sense
but with respect to those fundamental requirements of fairness which
are of the essence of due process in a proceeding of a judicial
nature.'' (AAR SNPRM Comment 10); see also Sec. 10704(a)(1) (requiring
a ``full hearing'' in a rate reasonableness case). According to AAR, a
judge could not adopt a final offer procedure, so this quote from
Morgan means the Board cannot either. (See AAR SNPRM Comment 10-11.)
Even accepting, for argument's sake, the premise that Congress
lacks power to authorize federal district courts to employ a final
offer process, AAR fails to acknowledge the reality that administrative
agencies enjoy far greater procedural flexibility than do federal
district courts. SNPRM, EP 755 et al., slip op. at 20; see also Sea-
Land Serv., Inc. v. United States, 683 F.2d 491, 495 (D.C. Cir. 1982);
Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 644 (1990);
R.R. Comm'n of Tex. v. United States, 765 F.2d 221, 227 (D.C. Cir.
1985). AAR cannot simply assume that procedural devices unavailable in
federal litigation are impermissible before agencies.
That is especially true here, where Congress expressly authorized
and required the agency to develop rate reasonableness methods in open-
ended terms and without any indication that these methods must be
limited to those available to courts. See Sec. Sec. 10701(d)(3),
10704(a)(1); SNPRM, EP 755 et al., slip op. at 20 (noting that AAR has
not identified any language in these or other provisions that restricts
the Board's discretion to set a rate by selecting the best of two
offers after it finds the challenged rate unreasonable and considers
appropriate statutory
[[Page 306]]
principles).\23\ And in any event, as noted in the SNPRM, Morgan
predates the enactment of the Administrative Procedure Act (APA).
SNPRM, EP 755 et al., slip op. at 20. AAR fails to explain how its
proposal to limit agency adjudicatory procedures to a far narrower band
survives the APA and the cases construing it.
---------------------------------------------------------------------------
\23\ Congress, of course, knows how to invoke the procedures
used in courts where it chooses to do so. See, e.g., STB
Reauthorization Act Sec. 11(c) (directing the Board to ``initiate a
proceeding to assess procedures that are available to parties in
litigation before courts to expedite such litigation and the
potential application of any such procedures to rate cases'');
Expediting Rate Cases, EP 733 (STB served Nov. 30, 2017) (carrying
out this direction). It did not do so in either Sec. Sec.
10701(d)(3) or 10704(a)(1).
---------------------------------------------------------------------------
Part III--Other Arguments Against the Forr Procedure
A. Burden of Proof
AAR argues that, even if a FORR complainant bears the burden of
proof as to market dominance and the reasonableness of the challenged
rate, it is improperly relieved of the burden as to FORR's third stage,
the selection of offers. (See AAR SNPRM Comment 12-13; AAR SNPRM Reply
Comment 5.) AAR relies on 5 U.S.C. 556(d), which establishes that,
``[e]xcept as otherwise provided by statute, the proponent of a rule or
order has the burden of proof.'' (See AAR SNPRM Comment 12-13.) Like
AAR, prior Board decisions have relied on section 556(d) as the source
of burden allocation in Board adjudications. See, e.g., NPRM, EP 755 et
al., slip op. at 12-13. Those Board decisions correctly assigned the
burden of proof to parties seeking relief, based on Board precedent
establishing such a burden allocation; that precedent will continue to
apply as a general matter in Board proceedings. See, e.g., Union Pac.
R.R., FD 35504, slip op. at 2; Duke Energy Corp. v. Norfolk S. Ry., 7
S.T.B. 89, 100 (2003). On further reflection, however, the Board
concludes that some of its previous decisions incorrectly identified
section 556(d)--rather than Board precedent--as the source of that
burden allocation. As explained in the SNPRM, sections 556 and 557 of
the APA apply to formal ``trial-type'' hearings, which do not include
the Board's rate reasonableness proceedings. See SNPRM, EP 755 et al.,
slip op. at 19-20; see also, e.g., R.R. Comm'n of Tex., 765 F.2d at 227
(formal adjudication procedures will ``obtain only on the requirement
of a `hearing on the record' ''). And precedent clearly establishes
that the burden allocation language of section 556(d), in particular,
does not apply outside formal ``trial-type'' hearings. E.g., Am.
Trucking Ass'ns v. United States, 344 U.S. 298, 318-20 (1953).
As discussed above and in the SNPRM, Congress has afforded agencies
greater procedural leeway in cases that are not formal ``trial-type''
hearings. See SNPRM, EP 755 et al., slip op. at 19-20; Sea-Land Serv.,
Inc., 683 F.2d at 495; Pension Benefit Guaranty Corp., 496 U.S. at 644.
Here, it is within the Board's procedural discretion to place the
burden on complainants as to the portions of FORR addressing
jurisdiction and culpability--that is, market dominance and the
reasonableness of the challenged rate--but not as to the remedial stage
of offer selection, which is equitable in nature. This allocation of
burden aligns with the allocation in SAC cases, where complainants bear
the burden as to market dominance and the SAC analysis, but not as to
the application of the MMM (described above) to determine the maximum
reasonable rate that the Board will prescribe. See BNSF Ry., 526 F.3d
at 777-81 (discussing the MMM); (Coalition Ass'ns Reply Comment 12
(analogizing similarly to the Board's other rate reasonableness
procedures)). Again, AAR identifies no statutory provision that would
foreclose the Board's choice to structure FORR proceedings in this way.
Adopting the burden allocation proposed in the NPRM and SNPRM will
allow the Board to use a final offer procedure at the third stage of a
FORR case, the benefits of which are described above. See also NPRM, EP
755 et al., slip op. at 4-7 (discussing the benefits of a final offer
procedure). If complainants also bore the burden at the offer selection
stage, no stage of the proceeding would contain a final offer
procedure. Cf. SNPRM, EP 755 et al., slip op. at 22-23 (recognizing
that a FORR defendant could make a strategic decision to offer a rate
that is lower than the challenged rate but higher than the
complainant's offer; if the Board selected such an offer, the
complainant would obtain rate relief despite the Board's selection of
the defendant's offer). Therefore, the benefits of a final offer
procedure--particularly in light of the agency's decades-long efforts
to create accessible small rate case processes, see id., slip op. at 3-
5, 11--supports the burden allocation adopted here.
B. Specific Scenarios Under FORR
AAR again describes a hypothetical scenario in which a shipper
submits an offer below the jurisdictional threshold, see 49 U.S.C.
10707(d)(1)(A), and yet the complainant otherwise proves that the
defendant's offer--be it the challenged rate or otherwise--is
unreasonably high. (See AAR SNPRM Comment 11-12.) But a FORR case would
never reach that point. If the shipper submits an offer below the
jurisdictional threshold, its complaint would be dismissed due to that
failure of proof.
As noted above, the SNPRM observed that a FORR defendant could make
a strategic decision to offer a rate that is lower than the challenged
rate but higher than the complainant's offer. SNPRM, EP 755 et al.,
slip op. at 22-23; (see also UP SNPRM Comment 5 (``it is easier to
defend a lower rate than a higher rate against a charge that the rate
is too high'')). The SNPRM drew an analogy to a SAC case, in which a
party can deliberately take a less aggressive position on an element of
the analysis if it is concerned about its likelihood of success--a
decision that changes what the party ultimately submits as the SAC
rate. Id., slip op. at 23 n.37.
UP asserts in response that deliberately taking a less aggressive
position regarding one element of a SAC analysis is not analogous to
conceding the unlawfulness of the challenged rate under FORR. (See UP
SNPRM Comment 4.) Immediately following this assertion, however, UP
makes an argument that confirms the analogy to SAC. According to UP,
because each party's final offer must reflect what it considers to be a
maximum reasonable rate, ``a railroad would violate FORR if it were to
`strategically' make a final offer below what it considers the lawful
maximum rate.'' (Id.) But UP again fails to recognize that the maximum
reasonable rate is the rate produced through the Board's rate
reasonableness process, not an abstraction that exists outside such a
process. In a SAC case, a party might believe the correct SAC rate is
higher or lower than what it chooses to submit to the Board, but it can
submit a different rate nonetheless to improve its likelihood of
success. Believing in one rate and submitting another does not
``violate SAC.''
UP's argument appears to contemplate an intent element in rate
reasonableness determinations--the idea that a railroad would ``violate
FORR'' if it argues for one rate but has a different rate in mind. This
notion also explains UP's suggestion, (see UP SNPRM Comment 4-5), that
a railroad would be required to advocate for prescription of a rate
higher than the challenged rate, whenever it happens to believe that
the rate should be higher than the challenged rate. But the Board's
rate reasonableness processes do not include an intent element.
Although the SNPRM stated that ``each party's final offer must
[[Page 307]]
reflect what it considers to be a maximum reasonable rate,'' SNPRM, EP
755 et al., slip op. at 19, the Board did not intend this statement to
impose an intent requirement. Indeed, the SNPRM elsewhere recognized
that a carrier might choose to make a strategic decision to offer a
rate lower than the challenged rate that the carrier defended in its
reasonableness evidence. Id. at 23 n.37. To avoid confusion, the Board
now withdraws the quoted statement of the SNPRM. The Board at the offer
stage will, of course, endeavor to select the offer that best
accomplishes the Board's economic and statutory goals (see Part IV
below), so parties would be wise to develop and explain their offers
with those considerations in mind. But parties are not prohibited from
formulating their offers based on additional considerations, as well.
In a similar vein, the Board also clarifies that a carrier does not
concede unreasonableness by submitting an offer that is lower than the
challenged rate (contra AAR SNPRM Comment 15); the parties' offers
become relevant only after the challenged rate has been judged
unreasonable. This means that carriers are free to argue ``in the
alternative'' and submit separate analyses at the rate-reasonableness
and offer-selection stages. In other words, a carrier's justification
supporting its choice of offer can proceed on the assumption that the
challenged rate has already been found unreasonable. Carriers are not
required to submit an offer that is the same as the challenged rate
and, contrary to the SNPRM, the Board recognizes that the two analyses
may not be the same in many cases. Cf. SNPRM, EP 755 et al., slip op.
at 21.
UP also repeats its argument posing a hypothetical situation in
which a complainant submits very compelling evidence that the
challenged rate is unreasonable and no evidence whatsoever in support
of its offer. (See UP SNPRM Comment 5-6.) In that situation, UP argues,
the Board would have to accept that unsupported (and unreasonably low)
offer, because the Board cannot prescribe the challenged rate after
finding it unreasonable. (See id.) The SNPRM pointed out in response
that it is implausible that a complainant's analysis producing an
unsupported and unreasonably low rate could satisfy FORR's decisional
criteria to show that the challenged rate is unreasonable. SNPRM, EP
755 et al., slip op. at 23. UP now contends that ``FORR does not
require the shipper's evidence of unreasonableness to show the
shipper's final offer rate would be reasonable. In fact, FORR requires
separate analyses of the issues, see NPRM at 12 (`each party would be
required to submit an analysis addressing the reasonableness of the
challenged rate and support for the rate in the party's offer'
(emphasis added)), while recognizing the evidence would `likely' (but
not necessarily) overlap, id. at 12 n.24.'' (UP SNPRM Comment 5-6.)
UP misconstrues the language it cites from the NPRM. Contrary to
UP's claim, the NPRM does not say that FORR would require ``separate
analyses'' of the reasonableness of the challenged rate and support for
the party's offer. However, UP is correct that FORR does not require a
party to use the same analysis for both of these purposes. The Board
therefore clarifies that it retains the ability to prevent abuse of its
processes. If a complainant ``focus[es] all its efforts'' on showing
that the challenged rate is unreasonable and submits no support for its
offer (see UP NPRM Comment 15), for example, the Board could decide to
dismiss the complaint without reaching the reasonableness of the
challenged rate. The Board will also confirm its ability to exercise
this discretion by adding the following language to the regulations
adopted today: ``If a complainant fails to submit explanation and
support for its offer, the Board may dismiss the complaint without
determining the reasonableness of the challenged rate.''
C. FORR's Encouragement of Settlements
The SNPRM acknowledged that the risks faced by shippers and
railroads are not reciprocal, because the Board would never prescribe a
rate higher than the challenged rate. It explained, however, that this
lack of reciprocity is a result of the Board's statutory mandate to
regulate railroad conduct rather than shipper conduct. SNPRM, EP 755 et
al., slip op. at 23-24. AAR now argues that the Board's statutory
mandate does not distinguish FORR from the Board's other rate
reasonableness processes, including Three-Benchmark, because they ``do
not suffer from the same lack of reciprocal risks and do not exert the
same coercive pressure on the railroads.'' (See AAR SNPRM Comment 15-
16.) The fact that potential carrier risk is greater than potential
shipper risk in a FORR case, however, does not mean that it would be
improper or unfair for the Board to adopt FORR. The statutory
provisions that require railroad rates to be reasonable and authorize
the Board to regulate rate reasonableness apply to all of the Board's
processes. See, e.g., 49 U.S.C. 10704(a)(1) (authorizing the Board to
prescribe a rate or practice for a carrier). As the SNPRM stated, in
adopting FORR, the Board has weighed the competing considerations and
determined that FORR would provide sufficient benefits (see, e.g.,
NPRM, EP 755 et al., slip op. at 4-7) even if it were found not to
afford the full settlement incentives present in certain other
contexts. SNPRM, EP 755 et al., slip op. at 24.
The SNPRM stated that, while the Board would not prescribe a rate
higher than the challenged rate in a FORR case, there is still
considerable risk to a complainant that brings an unsuccessful FORR
case that the carrier may conclude based on the Board's evaluation of
the economic analyses that it has more latitude to set a higher rate.
Id. The SNRPM also noted that, should the Board find the challenged
rate has not been shown to be unreasonable in a given case, the Board's
findings could have a preclusive effect on that complainant in
subsequent litigation. Id. AAR asserts in response that ``none of these
risks remotely approach the severity of the risks the railroads face
from an adverse outcome.'' (AAR SNPRM Comment 16.) But the SNPRM did
not suggest that complainants' litigation risks are identical to
defendants' risks, nor do they need to be. As AAR itself points out,
complainants under the Board's other rate reasonableness processes do
not run the risk that the Board will prescribe a rate higher than the
challenged rate, because the Board is not authorized to do so. (See AAR
SNPRM Comment 16.) Rather, as the SNPRM explained, bringing a FORR case
is not without risks for complainants--and depending on the
circumstances of the case, those risks could be significant, such as a
railroad substantially raising the rate based on the analysis adopted
in the Board's decision. See SNPRM, EP 755 et al., slip op. at 24.
The SNPRM also stated that any lack of reciprocity is balanced by
the defendant carrier's possession of market dominance--a prerequisite
in any rate case before the Board, including FORR. SNPRM, EP 755 et
al., slip op. at 24; see also 49 U.S.C. 10707 (market dominance
prerequisite).\24\ In response, UP argues that the idea of leveling the
playing field does not make sense because (a) a market dominance
finding does not mean the railroad is charging
[[Page 308]]
unreasonable rates, as demonstrated by the fact that railroads found to
have market dominance often prevail in rate cases; and (b) the Board's
market dominance test does not account for product and geographic
competition, meaning that even railroads found to have market dominance
``cannot charge more than market rates.'' (See UP SNPRM Comment 6.) But
the SNPRM did not say the playing field was unlevel due to railroads'
charging unreasonable rates. It referred instead to the ``imbalance in
bargaining power'' inherent in a market dominance finding, which
Congress sought to level by authorizing rate reasonableness
determinations and requiring the Board maintain simplified procedures
for smaller cases. SNPRM, EP 755 et al., slip op. at 24; see also 49
U.S.C. 10701(d)(1), (3). As for product and geographic competition, the
Board found that they effectively limit railroad pricing only ``in
certain circumstances,'' and ``if there are product and geographic
competitive alternatives that are obviously effective, a shipper would
be unlikely to pursue a regulatory rate challenge.'' \25\
---------------------------------------------------------------------------
\24\ The SNPRM noted that a complainant challenging a rate that
is subject to market dominance (i.e., any complainant whose case
under FORR reaches the rate reasonableness phase) would not have the
options that UP assumes would be available to complainants. (See UP
NPRM Comment 14-16 (assuming, for example, that if a complainant
loses, it could simply choose not to move traffic under the rate
that was at issue in the case, or that, ``in many situations,'' the
challenged rate is constrained by market forces).)''
\25\ See Mkt. Dominance Determinations--Prod. & Geographic
Competition, 3 S.T.B. at 946 n.49, 948 (emphasis added),
reconsideration denied Mkt. Dominance Determinations--Prod. &
Geographic Competition, EP 627 (STB served July 2, 1999), remanded
sub nom. Ass'n of Am. R.Rs. v. STB, 237 F.3d 676 (D.C. Cir. 2001),
decision on remand Mkt. Dominance Determinations--Prod. & Geographic
Competition, EP 627 (STB served Apr. 6, 2001), pet. for review
denied sub nom. Ass'n of Am. R.Rs. v. STB, 306 F.3d 1108, 1111 & n.2
(D.C. Cir. 2002); see also Pet. of the Ass'n of Am. R.R.s, EP 717,
slip op. at 7 (STB served Mar. 19, 2013) (``Indirect competition
may, in certain circumstances, effectively constrain rail rates for
transportation of coal for electric power generation.'') (emphasis
added).
---------------------------------------------------------------------------
AAR argued in its NPRM comments--similar to its prior claims in
opposing other efforts at reforming the Board's rate review processes
\26\--that rates adopted through FORR settlements would become the
basis for comparison groups in Three-Benchmark cases, ``further driving
railroad pricing down.'' (See AAR NPRM Comment 22-23.) The SNPRM
pointed out in response that AAR's argument would apply whenever any
shipper obtained a lower rate, either through a Board decision (using
any rate reasonableness process) or a settlement. SNPRM, EP 755 et al.,
slip op. at 25. AAR now states that it disagrees because FORR ``will
create a far more severe downward force on rates.'' (AAR SNPRM Comment
18.)
---------------------------------------------------------------------------
\26\ See AAR Suppl. Comment 10-11, Feb. 26, 2007, Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (predicting
incorrectly that the Three-Benchmark approach would ``inevitably
result in an overall ratcheting down of rates towards an average'').
---------------------------------------------------------------------------
The SNPRM's explanation to which AAR is responding dealt with a
specific type of ``downward force on rates''--inclusion of a rate in
Three-Benchmark comparison groups. AAR's response provides no support
whatsoever for the idea that FORR would lead to ``ratcheting'' in this
way any more than lower rates obtained by any other mechanism. To the
extent AAR is now abandoning its argument about FORR settlements in
Three-Benchmark comparison groups and arguing more generally that FORR
will drive down rates, it merely repeats arguments that were addressed
in the SNPRM. See SNPRM, EP 755 et al., slip op. at 23-25; (see also
AAR SNPRM Comment 18 (making another, very similar contention that FORR
``is unfair to railroads, creates massive uncertainty, imposes risks
that are not reciprocal, and will result in prescribed rates that
benefit shippers and bear no relation to market outcomes'').)
Finally, BNSF repeats its assertion that uncertainty in FORR cases
would deter negotiated outcomes. (See BNSF SNPRM Comment 3.) But as the
SNPRM pointed out, SNPRM, EP 755 et al., slip op. at 23 n.38, railroad
commenters offered no support for this claim, and the NPRM cited
multiple sources supporting the opposite proposition. NPRM, EP 755 et
al., slip op. at 5-7.
Part IV--Review Criteria
As noted above, the Board stated that, in reviewing offers, it
would take into account the RTP,\27\ the Long-Cannon factors in 49
U.S.C. 10701(d)(2), and appropriate economic principles. See NPRM, EP
755 et al., slip op. at 10-13; SNPRM, EP 755 et al., slip op. at 26-29
(further explaining the criteria). Railroad interests continue to argue
that such a multi-factor test is arbitrary and capricious and
unconstitutionally vague. The Board rejects these arguments for the
reasons stated in the SNPRM and below.
---------------------------------------------------------------------------
\27\ The SNPRM explained that the Board would rely primarily on
the RTP factors that have previously been relied on in the rate
reasonableness context: the policy to allow, to the maximum extent
possible, competition and the demand for services to establish
reasonable rates for transportation by rail, 49 U.S.C. 10101(1); to
promote a safe and efficient rail transportation system by allowing
rail carriers to earn adequate revenues, as determined by the Board,
Sec. 10101(3); and to maintain reasonable rates where there is an
absence of effective competition and where rail rates provide
revenues which exceed the amount necessary to maintain the rail
system and to attract capital, Sec. 10101(6). SNPRM, EP 755 et al.,
slip op. at 27. The Board emphasized that, to the extent parties
seek to rely on RTP factors that have not been relied on in the rate
reasonableness context, they must demonstrate how those factors
relate to the economic analysis of the reasonableness of the rate.
For example, if a party wanted to argue that Sec. 10101(4), which
establishes adequacy of rail service as an RTP goal, is relevant,
the party must explain the relevance of that RTP factor to the
proposed methodology. See, e.g., TRB Rep. 148 (``As common carrier
rates were deregulated, so too was service quality, since a
product's price and quality will be interlinked''), 201 (attention
to service quality is necessary to carry out the common carrier
obligation, which in turn must persist ``to give effect to the law's
protections for shippers from unreasonable rates'').
---------------------------------------------------------------------------
In the SNPRM, the Board distinguished FCC v. Fox Television
Stations, Inc., 567 U.S. 239 (2012), by pointing out, among other
things, that under FORR the Board would ``us[e] the same statutory
criteria and economic principles applied in past rate cases using other
processes.'' SNPRM, EP 755 et al., slip op. at 29. AAR now argues that
this is not a distinguishing factor because shippers will be able to
choose an economic methodology within a FORR case. (See AAR SNPRM
Comment 13-14.)
AAR selectively quotes a phrase from the paragraph distinguishing
Fox Television and ignores the analysis in the SNPRM that refutes AAR's
position. As the SNPRM explained, adjudication of claims under 49
U.S.C. 10702 and 11101, addressing the reasonableness of practices and
the common carrier obligation, respectively, bears a close resemblance
to the approach adopted here. SNPRM, EP 755 et al., slip op. at 30.
Each involves a non-prescriptive, multi-factor analysis. The ICC and
the Board have followed this approach for more than a century, with
judicial approval, despite parties' inability to ``know in advance what
the Board might deem unreasonable'' with the specificity that AAR would
apparently require, (AAR NPRM Comment 17-18). SNPRM, EP 755 et al.,
slip op. at 30 (citations omitted).
In its NPRM comments, AAR characterized FORR as distinct from these
other agency processes in terms of predictability, implying that the
Board has given no hint as to how it would reach a decision. (See AAR
NPRM Comment 17-19; AAR Comment in Response to Mem. 5, Aug. 12, 2020.)
That is not so; the NPRM articulated the criteria that apply in
determining rate reasonableness,\28\ and if necessary,
[[Page 309]]
choosing an offer. These criteria would signal to parties what rates
might be found unreasonable. For instance, if a defendant railroad is
charging vastly more for the challenged traffic than it does for
comparable traffic, if it is aware of costly inefficiencies that a new
railroad would not adopt, or if its revenue from the challenged rate is
out of proportion to its properly attributable capital requirements and
other costs of service, (see BNSF Mem. 2 (Mtg. with Board Member
Begeman)), then it could reasonably predict a lower likelihood of
success in a FORR case. FORR's level of predictability, which is in
line with unreasonable practice cases and other adjudications requiring
the tribunal to weigh multiple factors, does not render the FORR
procedure arbitrary and capricious or unconstitutionally vague. SNPRM,
EP 755 et al., slip op. at 31.
---------------------------------------------------------------------------
\28\ AAR disagreed with similar reasoning proffered by Olin; AAR
stated that Olin ``misses the point'' because, ``[i]n the rate
context, the elastic term `reasonable' has specific meaning.'' (AAR
Comment in Response to Mem. 5, Aug. 12, 2020.) In this attempt to
distinguish rate reasonableness from unreasonable practice cases and
rulings on the common carrier obligation, AAR did not cite any
statutes or case law. See id. AAR relied instead on an article,
which does not even support the point for which AAR cited it, much
less provide statutory or precedential support. See id. AAR further
noted that, with respect to rate reasonableness, Congress has
required the Board to account for railroad revenue adequacy and the
Long-Cannon factors. See id. But the FORR process does account for
these considerations. See NPRM, EP 755 et al., slip op. at 10-12.
---------------------------------------------------------------------------
In response to the SNPRM's comparison of FORR to other rate
reasonableness processes in terms of predictability, AAR claims that
``[i]t is no answer to say that many rate cases `raise[ ] novel
issues.' '' (AAR SNPRM Comment 14.) But in fact, the SNPRM's analysis
did answer a position of AAR's that it repeats in its comments on the
SNPRM. According to AAR, ``[u]nder FORR, it would be impossible for
railroads to know in advance how to conform their conduct to the law by
charging a reasonable rate.'' (AAR SNPRM Comment 13-14.) But, as the
SNPRM pointed out, AAR's argument assumes that the Board cannot have a
rate reasonableness process unless railroads can predict the outcome of
that process in advance of the Board's decision in an individual case.
SNPRM, EP 755 et al., slip op. at 29-30. That argument overstates the
predictability of other types of litigation before the Board and
understates the predictability of a FORR case. Notwithstanding parties'
posturing in negotiations before a rate case, (see BNSF NPRM Comment
8), they cannot predict in advance the resolution of the novel,
potentially case-dispositive issues that have arisen in almost every
recent SAC case--nor can the Board, before the development of an
administrative record. SAC, however, is not unconstitutionally vague
and has been upheld on judicial review. SNPRM, EP 755 et al., slip op.
at 30 (citations omitted).\29\
---------------------------------------------------------------------------
\29\ AAR again does not address whether the discussion it cites
from Paralyzed Veterans of America v. D.C. Arena, L.P., 117 F.3d
579, 584 (D.C. Cir. 1997), survives Perez v. Mortgage Bankers
Association, 575 U.S. 92 (2015). (See AAR SNPRM Comment 14.) It does
not matter here, however, for the reasons stated above. Far from
``promulgat[ing] mush,'' see Paralyzed Veterans, 117 F.3d at 584,
the Board is adopting a test that requires the balancing of multiple
factors stated in advance, as in other types of adjudication.
---------------------------------------------------------------------------
BNSF also disputes the comparison to SAC, asserting that ``parties
raise novel issues in SAC cases that may affect the predictability of
the outcome, [but] those cases were litigated under traditional SAC
procedures where the parties had the ability to fully develop the
administrative record and the Board had its traditional discretion to
weigh the evidence and determine what the maximum reasonable rate
should be. Neither of those procedural protections will be present in
[a] FORR proceeding.'' (BNSF SNPRM Comment 2.) But BNSF does not
explain how it believes the massive record development and vast range
of individual issues that parties present in modern SAC cases--a
process that has ballooned far beyond what SAC was meant to entail, see
RRTF Rep. 22--increases parties' ability to predict the resolution of
novel issues. See SNPRM, EP 755 et al., slip op. at 29-30.
According to AAR, the Board has not provided sufficient clarity on
the legal standard because it will not announce the ``winning''
standard until the end of a FORR case. (See AAR SNPRM Comment 14; see
also BNSF SNPRM Comment 2 (parties to a FORR case will have to litigate
``without knowing what the test is until reading it in the opposing
party's opening brief'').) However, AAR misstates the nature of the
standard in FORR cases. As the SNPRM explained, the legal standard in
FORR cases is a non-prescriptive, multi-factor analysis, which the
Board set forth in the NPRM and SNPRM. NPRM, EP 755 et al., slip op. at
10-12; SNPRM, EP 755 et al., slip op. at 26-29. To the extent AAR
contends an agency's process is unconstitutionally vague unless the
agency spells out in advance the analysis that such a test would
produce in an individual case, its position runs afoul of the
judicially approved legal standards applied in the Board's long-
established processes for adjudicating the reasonableness of practices
and railroads' adherence to the common carrier obligation. See SNPRM,
EP 755 et al., slip op. at 30.\30\
---------------------------------------------------------------------------
\30\ UP argues that it is unlawful to allow a party to prevail
if its submission does not reflect the statutory rate reasonableness
criteria. (See UP SNPRM Comment 3-4.) UP is correct to the extent
that a party should not be able to disregard the statutory criteria
and still potentially succeed in its case. The Board therefore
clarifies that, if a party's evidence and argument addressing the
reasonableness of the challenged rate do not satisfy the statutory
criteria, it will not prevail on rate reasonableness. And as noted
above, the Board will endeavor at the offer selection stage to
select the offer that best accomplishes the Board's economic and
statutory goals.
---------------------------------------------------------------------------
BNSF argues that ``[p]arties will face the choice of seeking to
exhaustively address any potential feasible methodology that could be
used to analyze the challenged rate to devise arguments in the
alternative or engaging in a crash effort to adequately analyze novel
methodologies in the ten days parties have to file their replies--
either option leading to substantial unnecessary litigation expense.''
(BNSF SNPRM Comment 2.) As framed by BNSF, a party to an unreasonable
practice case under Sec. 10702 would feel the need to ``address any
potential feasible methodology that could be used to analyze the
challenged [practice] to devise arguments in the alternative,'' but no
one has suggested that parties litigate this way in such cases. And
having to analyze the opposing party's submission quickly is a
necessary part of litigating under a short timeline, which is an
important aspect of improving the accessibility of the Board's rate
reasonableness processes. See NPRM, EP 755 et al., slip op. at 3-4.
Similarly, AAR claims that parties to FORR cases ``will not even
know the materials they must produce in discovery.'' (AAR SNPRM Comment
14.) AAR contends that, ``if a party's methodology is ultimately
rejected by the Board, there is no basis for compelling their opponent
to produce discovery in service of it.'' (Id. at 14-15.) As the
Coalition Associations point out in their reply comment, however, to
support the relevance of a discovery request, a party would have to be
able to show how the request is relevant to the FORR criteria. (See
Coalition Ass'ns SNPRM Reply Comment 14.) Also, parties are able to
conduct discovery in cases addressing the reasonableness of practices
and railroads' adherence to the common carrier obligation. The fact
that the legal standards in these cases are non-prescriptive, multi-
factor analyses has not prevented parties from ``even know[ing] the
materials they must produce in discovery.'' See, e.g., R.R. Salvage &
Restoration, Inc.--Pet. for Declaratory Order, NOR 42102 (STB served
July 20, 2010) (resolving a case under Sec. 10702 following
substantial discovery); Reasonableness of BNSF Ry. Coal Dust Mitigation
Tariff Provisions, FD 35557 (STB served Dec. 17, 2013) (same); Bar Ale,
Inc. v. Cal. N. R.R., FD 32821 (STB served July 20, 2001) (resolving a
case under Sec. 11101
[[Page 310]]
following substantial discovery). A motion to compel in a case using a
non-prescriptive, multi-factor analysis is not automatically defeated
by the fact that the Board may ``ultimately reject[]'' the argument for
which the discovery is sought. See, e.g., Grain Land Coop v. Canadian
Pac. R.R., NOR 41687, slip op. at 2-3 (STB served Dec. 1, 1997)
(compelling discovery); Sierra R.R. v. Sacramento Valley R.R., NOR
42133, slip op. at 4-5 (STB served Apr. 23, 2012) (denying a motion to
compel based on the merits of that motion, without reliance on the fact
that the legal standard to be applied was a non-prescriptive, multi-
factor analysis).
Finally, AAR argues that ``[i]f the railroad's offer is deemed
`unreasonable,' it is hard to understand how revenue adequacy would
even be relevant if the Board is compelled to accept the shipper's
offer.'' (AAR SNPRM Comment 18.) In making this argument, AAR assumes a
scenario in which the Board has rejected the railroad's offer and is
``compelled'' to accept the shipper's offer, without any consideration
of revenue adequacy. As the SNPRM explained, however, the Board would
not be ``compelled'' to find the challenged rate unreasonable, much
less reject the railroad's offer or accept the shipper's offer, in a
case where the evidence does not demonstrate sufficient protection of
revenue adequacy. SNPRM, EP 755 et al., slip op. at 27-28.
Part V--Discovery and Procedural Schedule
AAR repeats arguments from its NPRM comments about the brief
procedural schedule having an unfairly greater impact on railroads than
on shippers. (See AAR SNPRM Comment 16-17.) However, AAR fails to
address key aspects of the SNPRM's reasoning in response to these
arguments. As the SNPRM pointed out, unlike defendants, complainants
must make their cases largely based on information in the possession of
the opposing party. See SNPRM, EP 755 et al., slip op. at 37. In this
regard, shorter discovery deadlines favor the defendants and further
balance out the burden that railroad interests describe. Id.; see also
Coalition Ass'ns NPRM Comment 9. And in any event, even assuming that
the procedural schedule in FORR might, in some cases, place a
proportionately greater burden upon defendants than would other rate
review processes, such a burden must be weighed against the likelihood
that rate relief may be functionally unavailable in a small dispute.
SNPRM, EP 755 et al., slip op. at 37.
In the SNPRM, the Board revised its initial FORR proposal to add
mandatory mediation. Id., slip op. at 38. AFPM opposes this change.
(AFPM SNPRM Comment 16.) But AFPM merely repeats NGFA's earlier
argument against mandatory mediation, without addressing the Board's
response to that argument. (See id.) As the SNPRM noted, the Board's
mediation program has led to post-complaint settlements, to the benefit
of the parties and the Board. SNPRM, EP 755 et al., slip op. at 38; see
also, e.g., Twin City Metals, Inc. v. KET, LLC, NOR 42168 (STB served
Sept. 23, 2020). The Board concluded that mediation can produce
substantial benefits and that the possibility of achieving settlement
through mediation would outweigh a modest lengthening of FORR's
procedural timeline. SNPRM, EP 755 et al., slip op. at 38; see also,
e.g., Assessment of Mediation & Arb. Proc., EP 699, slip op. at 2, 4
(STB served May 13, 2013) (``The Board favors the resolution of
disputes through the use of mediation and arbitration procedures, in
lieu of formal Board proceedings, wherever possible. . . . If a dispute
is amicably resolved, it is likely that the parties would incur
considerably less time and expense than if they used the Board's formal
adjudicatory process.'')
The SNPRM proposed to keep the time period for the Board's decision
at 90 days rather than reducing it to 60 days. SNPRM, EP 755 et al.,
slip op. at 37-38. AFPM disagrees with this determination, arguing that
a 60-day comment period is the ``default timeframe'' to submit comments
in rulemaking actions. (AFPM SNPRM Comment 16.) AFPM also asserts that,
because the Board has 90 days to issue a decision in major merger
cases, it should be able to issue a decision in an expedited process
more quickly than that. (Id.) The Board again declines to make this
change. AFPM does not explain why it believes the timeline for parties
to comment in a rulemaking is analogous to the timeline for the Board
to issue a decision in a rate case. The merger deadline it cites is
statutory, 49 U.S.C. 11325(b)(3), and AFPM does not explain why
Congress's reasoning with respect to a different type of proceeding
must constrain the Board's reasoning with respect to the timing of
FORR.
Part VI--Market Dominance
In the SNPRM, the Board proposed to give FORR complainants a choice
between the streamlined and non-streamlined market dominance
approaches. SNPRM, EP 755 et al., slip op. at 41; Market Dominance
Streamlined Approach, EP 756 (STB served Aug. 3, 2020) (adopting
streamlined market dominance as an option in rate cases); 49 CFR
1111.12 (streamlined market dominance regulations).
BNSF argues that allowing non-streamlined market dominance will
increase the time required in FORR cases, contrary to the Board's
goals, because the Board will grant extensions of time. (See BNSF SNPRM
Comment 3.) Although BNSF is correct that extensions of time are not
prohibited in FORR, the Board intends to disfavor such requests
strongly. Granting extensions of time in FORR cases would directly
undermine one of the fundamental attributes of this process--using
short time limits to constrain the volume and complexity of the record,
which in turn would allow the Board to issue a decision expeditiously.
See NPRM, EP 755 et al., slip op. at 6-7. For this reason, even
extension requests to which both parties consent will be disfavored,
and parties are encouraged not to spend the scarce time available under
this procedure on preparing extension requests. Id., slip op. at 14;
SNPRM, EP 755 et al., slip op. at 41 (specifically discouraging
extension requests with respect to non-streamlined market dominance).
Joint requests to allow time to negotiate a settlement, including joint
requests for mediation, are an exception and will be considered by the
Board.
BNSF also asserts that responding to a non-streamlined market
dominance presentation will be more burdensome to a FORR defendant than
a Three-Benchmark defendant because in FORR, the complainant ``may
pursue a novel rate reasonableness theory that will consume a
disproportionate share of the railroad defendant's time and energy in
preparing its responsive pleading.'' (BNSF SNPRM Comment 3-4.) But the
SNPRM acknowledged the possible burden on defendants and accordingly
tripled defendants' time for replies, from 10 days to 30 days, in cases
where complainants choose non-streamlined market dominance. SNPRM, EP
755 et al., slip op. at 41. BNSF does not respond to the Board's
reasoning for allowing complainants this choice: ``[l]imiting FORR [to
streamlined market dominance] could effectively deny access to FORR for
many potential complainants--those who are unable to satisfy one or
more of the streamlined factors--which is contrary to FORR's goal of
improving access to rate reasonableness determinations.'' Id.
BNSF further contends that, ``[i]f the Board chooses to permit
shippers to use non-streamlined approaches to market dominance on the
basis that the short time frame is a sufficient protection
[[Page 311]]
against the potential for evidentiary sprawl, then it is logical and
proportionate to permit evidence of product and geographic competition
when a shipper elects to use a non-streamlined market dominance
presentation.'' (BNSF SNPRM Comment 4.) BNSF accurately observes that
FORR has a significant ``laboratory'' element, (see id.), and relying
on FORR's tight time frames to limit evidentiary volume in reference to
product and geographic competition could merit consideration. See TRB
Rep. 122 (observing that antitrust enforcement agencies are able to
assess product and geographic competition in a short period of time
because they strictly limit the time that parties have to compile
evidence). However, consideration of whether to incorporate product and
geographic competition in market dominance determinations has
constituted entire rulemaking proceedings on its own,\31\ and
addressing it here would unduly expand the scope of this proceeding.
Therefore, like the possibility of two-tiered relief, see SNPRM, EP 755
et al., slip op. at 47, and below, the Board will reserve this issue
for possible future proceedings.
---------------------------------------------------------------------------
\31\ See, e.g., Mkt. Dominance Determinations--Prod. &
Geographic Competition, Docket No. EP 627; Pet. of the Ass'n of Am.
R.R.s, Docket No. EP 717.
---------------------------------------------------------------------------
The Coalition Associations note that, in a FORR case where the
complainant chooses streamlined market dominance, it would have the
option of an evidentiary hearing before an administrative law judge to
discuss market dominance, but if the complainant chooses non-
streamlined market dominance, it would not have the option of a
hearing. (Coalition Associations SNPRM Comment 4-5); SNPRM, EP 755 et
al., slip op. at 39, 42. According to the Coalition Associations, ``it
is irrational and incongruous for the Board to permit rebuttal evidence
in streamlined market-dominance cases but to prohibit it in non-
streamlined cases.'' (Coalition Associations SNPRM Comment 5.) The
Board acknowledges the apparent incongruity in these procedures.
However, closer examination reveals that the procedure as proposed in
the SNPRM is neither irrational nor incongruous. As an initial matter,
the optional hearing in a FORR case using streamlined market dominance
is not solely an opportunity for the complainant to present rebuttal;
as the NPRM explained, if the complainant chooses a hearing, both sides
would be permitted to present their market dominance positions. NPRM,
EP 755 et al., slip op. at 10. But even to the extent the hearing
allows for rebuttal, the Board disagrees with the Coalition
Associations' claim that ``the need for rebuttal is even greater in
non-streamlined market-dominance cases.'' (Coalition Associations SNPRM
Comment 5.) The opening submission of a complainant using streamlined
market dominance is truly minimal, addressing only a specified list of
factors and without the full evidentiary presentation that a
complainant would typically submit in a case using non-streamlined
market dominance. See Mkt. Dominance Streamlined Approach, EP 756, slip
op. at 4, 27-28, 37 (STB served Aug. 3, 2020). Allowing such a minimal
opening submission is by design, with the goal of overcoming the
significant burdens in terms of cost and time that complainants can
otherwise face in addressing market dominance. See id., slip op. at 1-
3, 6-7. A complainant will have a greater need for rebuttal after
submitting so little in its streamlined market dominance opening, as
opposed to a non-streamlined market dominance case where the
complainant has an opportunity on opening to present its complete
position regarding market dominance.
Moreover, the Coalition Associations' proposed solution--
bifurcating market dominance and rate reasonableness pleadings in FORR
cases using non-streamlined market dominance, (see Coalition
Associations NPRM Comment 14-15)--would substantially undercut FORR's
use of short timelines to limit the volume and complexity of the
evidentiary record. Contrary to Coalition Associations' claim,
(Coalition Associations SNPRM Comment 7), their proposed addition of
three rounds of market dominance pleadings would be disproportionate to
FORR. The SNPRM observed that the various procedural additions proposed
by parties, some of which the SNPRM adopted, would ``detract[ ] from
the Board's goal of a highly expedited procedural schedule.'' SNPRM, EP
755 et al., slip op. at 36. Compared to the longest version of the
procedural schedule contemplated in the SNPRM, with a maximum of 96
days for record development, see id., slip op. at 36, 42, the Coalition
Associations' maximum record development time of 129 days would
constitute an expansion by greater than 30 percent. (See Coalition
Associations NPRM Comment 10 (21 days for motions to compel); Coalition
Associations SNPRM Comment 12 (108 days of record development excluding
motions to compel).)
Notwithstanding their concerns about a lack of rebuttal with
respect to market dominance in non-streamlined cases (Coalition
Associations SNPRM Comment 6), the Coalition Associations have
expressed strong support for FORR's rate reasonableness procedure,
which does not include rebuttal. (See Coalition Associations NPRM
Comment 2; Coalition Associations SNPRM Comment 1.) The Board has heard
rail customers' concerns about the duration of rate cases, see NPRM, EP
755 et al., slip op. at 3-4 & n.7, and FORR's simplified procedure is
what permits its expedited timeline.
The SNPRM also proposed to require defendants to file market
dominance presentations only on reply, rather than on opening. SNPRM,
EP 755 et al., slip op. at 39-40. AFPM states that it has concerns with
this approach and recommends, instead, that the Board return to its
initial proposal of prohibiting complainants from using non-streamlined
market dominance in FORR cases. (See AFPM SNPRM Comment 16.) AFPM,
however, does not identify its specific concerns, nor does it respond
to the Board's reasoning for eliminating FORR defendants' market
dominance opening, see SNPRM, EP 755 et al., slip op. at 40, or its
reasoning for allowing complainants to choose non-streamlined market
dominance, see SNPRM, EP 755 et al., slip op. at 41. In fact, AFPM
states that it does not oppose giving FORR complainants the choice
between streamlined and non-streamlined market dominance. (See AFPM
SNPRM Comment 17.)
Part VII--Relief Cap
In the NPRM and SNPRM, the Board proposed to establish a relief cap
of $4 million, indexed annually using the Producer Price Index, which
would apply to an award of reparations,\32\ a rate prescription or any
combination of the two. NPRM, EP 755 et al., slip op. at 16; SNPRM, EP
755 et al., slip op. at 47. This is consistent with the potential
relief afforded under the Three-Benchmark methodology.\33\ SNPRM, EP
755 et al., slip op. at 42. The Board further proposed that any rate
prescription be limited to no more than two years unless the parties
agree to a different limit on relief. Id., slip op. at 42-43. Such a
limit is one-fifth of the
[[Page 312]]
10-year limit applied in SAC cases and less than half of the five-year
limit applied in Simplified-SAC and Three-Benchmark cases, see
Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 6,
thereby accounting for the expedited deadlines of the FORR procedure.
---------------------------------------------------------------------------
\32\ The standard reparations period reaches back two years
prior to the date of the complaint. 49 U.S.C. 11705(c) (requiring
that complaint to recover damages under 49 U.S.C. 11704(b) be filed
with the Board within two years after the claim accrues).
\33\ The relief cap will incorporate indexing that has
previously been applied to the Three-Benchmark cap, so that the cap
for FORR is the same as the cap for Three-Benchmark. The Board
confirms, pursuant to the Coalition Associations' request, that the
FORR relief cap matches the Three-Benchmark cap, including indexing
from 2007. (See Coalition Associations SNPRM Comment 9.)
---------------------------------------------------------------------------
AAR continues to argue that a $4 million dispute is not a small
case, that the $4 million cap is arbitrary, and that the Board has not
addressed disaggregation of claims. (See AAR SNPRM Comment 17.) AAR
offers no support for its opinion that a $4 million case is not
``small''--which is, of course, a relative term. See, e.g., Consumers
Energy Co. v. CSX Transp., Inc., NOR 42142, slip op. at 44 (STB served
Aug. 2, 2018) ($94.9 million in relief in a SAC case). AAR asserts that
the $4 million cap is arbitrary and suggests that the Board has not
provided a rationale to support it. But the Board did in fact provide
that rationale, which AAR does not mention despite its appearance in
both the NPRM and SNPRM. NPRM, EP 755 et al., slip op. at 16
(``[a]pplying a relief cap based on the estimated cost to bring a
Simplified-SAC case would further the Board's intention that Three-
Benchmark and FORR be used in the smallest cases, and applying the same
$4 million relief cap, as indexed, would provide consistency in terms
of defining that category of case.''); SNPRM, EP 755 et al., slip op.
at 43 (same).\34\
---------------------------------------------------------------------------
\34\ See also Coalition Associations SNPRM Reply Comment 16-17
(``AAR assumes that Three Benchmark is the next-more-complicated
method when, in fact, FORR is on par with Three Benchmark; it is an
alternative to Three Benchmark for small cases, not a less
complicated method. Indeed, FORR conceivably could be more
complicated than Three Benchmark, depending upon the methodologies
that the parties present.''); SNPRM, EP 755 et al., slip op. at 43-
44 (``By applying fast timelines and a simplified procedure, the
Board intends that FORR would be less costly to litigate, but that
does not inevitably mean the analysis is less accurate. Parties'
ability to choose their methodology would allow the use of analyses
that are equally accurate or more accurate, if the party presenting
it can prepare the analysis quickly enough to present it in the time
available.'').
---------------------------------------------------------------------------
With respect to disaggregation of claims, AAR fails to acknowledge
that the SNPRM proposed the same case-specific approach that the Board
has had in place since 2007 for all small rate cases. SNPRM, EP 755 et
al., slip op. at 44-45. As the Board explained in Simplified Standards,
``[i]t is not clear that such a mechanism is necessary at this time.
The Board has ample discretion to protect the integrity of its
processes from abuse, and we should be able to readily detect and
remedy improper attempts by a shipper to disaggregate a large claim
into a number of smaller claims, as the shipper must bring these
numerous smaller cases to the Board.'' Simplified Standards, EP 646
(Sub-No. 1), slip op. at 32-33.
The Coalition Associations state that they ``seek clarification as
to when the two-year window for applying the relief cap begins. The
statute clearly allows for two years of reparations, which could result
in the entire relief period occurring prior to the date of the
complaint. It also is clear that a complainant could elect to forego
pre-complaint reparations and apply the relief period from the date of
the complaint.'' (Coalition Associations SNPRM Comment 10.) As the
SNPRM stated, the combined cap is identical to the one adopted for
Three-Benchmark cases. SNPRM, EP 755 et al., slip op. at 45. In a
Three-Benchmark case, as in any other rate reasonableness case, a
complainant can choose to seek reparations, a rate prescription, or
both. See, e.g., Grain Land Coop, NOR 41687, slip op. at 5 (``In its
amended complaint, Grain Land must indicate what rates it is
challenging (by tariff reference, tariff item number(s), and specific
points from and to which the rates apply) and what relief it seeks
(i.e., rate prescription and/or reparations).'') (emphasis added);
Sunbelt Chlor Alkali P'ship v. Norfolk S. Ry., NOR 42130, slip op. at
29 (STB served June 20, 2014) (describing statutory contrasts between
reparations and rate prescription). FORR complainants, accordingly,
will have the same options.
Contrary to the Coalition Associations' suggestion, however, if a
complainant decides to forgo reparations and seek only a prescription,
the transition from reparations to prescription occurs on the effective
date of the prescription order--i.e., the date by which the defendant
must reduce its rate in compliance with the order. See, e.g., Ariz.
Pub. Serv. Co. v. Atchison, Topeka & Santa Fe Ry., NOR 41185, slip op.
at 20 (STB served July 29, 1997) (ordering defendant to reduce its
rates within 60 days of decision). Therefore, when a complainant
chooses to forgo reparations, that includes reparations between the
complaint date and the effective date of the prescription order. The
alternative proposed by the Coalition Associations--in which the relief
period begins ``on a date to be determined solely by the complainant,''
(Coalition Associations SNPRM Comment 10)--would unreasonably allow
complainants to choose a relief period that is entirely disconnected
from the conduct found unlawful by the Board. (See AAR SNPRM Reply
Comment 7-8.) The Coalition Associations express concern that a FORR
complainant could receive only reparations, without any prospective
relief. (See Coalition Associations SNPRM Comment 10.) But that
possibility exists in Three-Benchmark cases as well, if the complainant
receives pre-complaint reparations that exhaust the $4 million cap.
In the SNPRM, the Board proposed not to adopt a two-tiered relief
structure--in which the top tier has a longer procedural schedule and
no limit on the size of the relief--at this time, noting that, ``[i]n
the future, the Board could assess whether FORR may be appropriate for
larger disputes.'' SNPRM, EP 755 et al., slip op. at 47. IMA-NA,
Indorama, and AFPM take issue with this proposal, asking that the Board
instead adopt two-tiered relief immediately. (See IMA-NA SNPRM Comment
16-17; Indorama SNPRM Comment 16-17; AFPM Comment 18.\35\) This request
will be declined, as it was at the SNPRM stage. The Board proposed FORR
to resolve small rate disputes. NPRM, EP 755 et al., slip op. at 7.
Expanding the scope of this rulemaking to address large rate cases as
well would delay that important and time-sensitive goal. IMA-NA and
Indorama argue that ``[t]he Board has ample evidence that this model is
effective and will not cause an onslaught of rate cases based on the
history of this process in Canada . . . .'' (IMA-NA SNPRM Comment 16;
Indorama SNPRM Comment 16.) But as IMA-NA and Indorama acknowledge,
FORR is not the same as the Canadian process. (See id.) Canadian final
offer arbitration is informal, confidential, and non-precedential, and
is conducted by an arbitrator--it is alternative dispute resolution
rather than adjudication. FORR, by contrast, is an innovative attempt
to incorporate a final offer procedure into an agency adjudication,
leading to public, precedential decisions subject to the APA's
requirements for reasoned decision-making. A new approach is necessary
in light of the Board's protracted search for a small rate dispute
process that is accessible to shippers, see NPRM, EP 755 et al., slip
op. at 2-5, and FORR offers a promising opportunity. But it would be
premature to conclude, as IMA-NA and Indorama
[[Page 313]]
do, that there is ``ample evidence that this model is effective.''
---------------------------------------------------------------------------
\35\ AFPM expresses concern that railroads could ``game'' the
relief cap ``by setting high initial rates such that any relief cap
will be quickly exhausted'' and argues that a two-tier cap would
alleviate that concern. (AFPM Comment 18.) As the SNPRM stated in
response to similar arguments, the Board anticipates addressing such
conduct in individual cases should it happen, and the Board will
retain the ability to revise its processes to counteract any abuses
that may arise. See SNPRM, EP 755 et al., slip op. at 46.
---------------------------------------------------------------------------
Accordingly, the Board will adopt the relief cap proposed in the
NPRM and SNPRM.
Part VIII--Miscellaneous Issues
AAR contends that the Board has not explained why it is not
applying the conclusions of InterVISTAS Consulting Inc. (InterVISTAS),
a consultant that prepared a report for the Board in 2016.\36\ (See AAR
SNPRM Comment 15.) However, AAR cites the page of the SNPRM that
provides that explanation. See SNPRM, EP 755 et al., slip op. at 47
(noting, among other things, that the Board was not bound by the
study). AAR claims that InterVISTAS ``reject[ed] final-offer
decisionmaking as an alternative way for the Board to decide rate
disputes.'' (AAR SNPRM Comment 15.) But in fact, InterVISTAS did not
reject final offer procedures for any substantive reason, or even
address final offer procedures substantively in the first place. See
InterVISTAS Rep. 76. Instead, InterVISTAS merely declined to draw any
conclusions from the Canadian final offer process due to its
confidentiality. See id. (``[T]he non-transparent final offer
arbitration process used in Canada to constrain undue exercise of any
market power by railways provides no guidance for alternatives to SAC.
It may be that the methodologies put forward by one party or the other
in the arbitrations could provide insight, but as the process is
confidential, no guidance can be provided.'') (emphasis added). And in
any event, AAR fails to identify any particular substance of the
InterVISTAS report that it contends the Board has not addressed.
---------------------------------------------------------------------------
\36\ An Examination of the STB's Approach to Freight Rail Rate
Regul. & Options for Simplification (InterVISTAS Report),
InterVISTAS Consulting Inc., Sept. 14, 2016, available at https://www.stb.gov/wp-content/uploads/STB-Rate-Regulation-Final-Report.pdf.
---------------------------------------------------------------------------
Finally, AAR repeats its arguments that the Board must conduct a
cost-benefit analysis. (See AAR SNPRM Comment 19.) The Board's
responses in the SNPRM continue to apply, including the fact that
Executive Order 12866 does not apply to ``independent regulatory
agencies'' such as the Board, see 49 U.S.C. 1301(a), and that the Board
has carefully considered the need for regulatory reform, FORR's
anticipated benefits and burdens, and alternative approaches, including
the comparison group approach proposed in Docket No. EP 665 (Sub-No.
2). See SNPRM, EP 755 et al., slip op. at 49 n.75. It is true that the
SNPRM did not address AAR's reliance on the Policies and Procedures for
Rulemakings of the U.S. Department of Transportation (DOT). But as AAR
acknowledged (AAR NPRM Comment 26), DOT's requirements do not apply to
the Board. See also Vt. Yankee Nuclear Power Corp. v. Nat'l Res. Def.
Council, 435 U.S. 519, 524-25, 543-48 (1978) (``Agencies are free to
grant additional procedural rights in the exercise of their discretion,
but reviewing courts are generally not free to impose them if the
agencies have not chosen to grant them.'').
Docket No. EP 665 (Sub-No. 2)
The Board received no further comment on its proposal to close
Docket No. EP 665 (Sub-No. 2), and therefore will proceed to terminate
that proceeding. As noted in the SNPRM, the Board may revisit some of
the ideas presented in Docket No. EP 665 (Sub-No. 2) depending on
future developments and whether additional steps in the small rate
dispute context appear necessary.
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 on 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). 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).
In the SNPRM, the Board certified under 5 U.S.C. 605(b) that the
proposed rule would not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA.\37\
The Board explained that its proposed changes to its regulations would
not mandate or circumscribe the conduct of small entities. The rule
requires no additional recordkeeping by small railroads or any
reporting of additional information. Nor do these rules circumscribe or
mandate any conduct by small railroads that is not already required by
statute: the establishment of reasonable transportation rates when a
carrier is found to be market dominant. As the Board noted, small
railroads have always been subject to rate reasonableness complaints
and their associated litigation costs, the latter of which the Board
expects will be reduced through the use of this procedure.
---------------------------------------------------------------------------
\37\ For the purpose of RFA analysis for rail carriers subject
to Board 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 Sec. 1-1. See
Small Entity Size Standards Under the Regul. Flexibility Act, EP 719
(STB served June 30, 2016).
---------------------------------------------------------------------------
Additionally, the Board concluded (as it has in past proceedings)
that the majority of railroads involved in these rate proceedings are
not small entities within the meaning of the Regulatory Flexibility
Act. SNPRM, EP 755 et al., slip op. at 50-51 (citing Simplified
Standards, EP 646 (Sub-No. 1), slip op. at 33-34). Since the inception
of the Board in 1996, only three of the 51 cases filed challenging the
reasonableness of freight rail rates have involved a Class III rail
carrier as a defendant. Those three cases involved a total of 13 Class
III rail carriers. The Board estimated that there are approximately 656
Class III rail carriers. Therefore, the Board certified under 5 U.S.C.
605(b) that the proposed rule, if promulgated, would not have a
significant economic impact on a substantial number of small entities
within the meaning of the RFA.
This final rule adopts the approach proposed in the SNPRM, and the
same basis for the Board's certification in the SNPRM applies to the
final rule. Therefore, the Board certifies under 5 U.S.C. 605(b) that
the final rule will not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA. A
copy of this decision will be served upon the Chief Counsel for
Advocacy, Office of Advocacy, U.S. Small Business Administration,
Washington, DC 20416.
Paperwork Reduction Act
In this proceeding, the Board modifies an existing collection of
information that was approved by the Office of Management and Budget
(OMB) under the collection of Complaints (OMB Control No. 2140-0029).
In the NPRM, the Board sought comments pursuant to the Paperwork
Reduction Act (PRA), 44 U.S.C. 3501-3549, and OMB regulations at 5 CFR
1320.8(d)(3) regarding: (1) whether the collection of information, as
modified in the proposed rule in the Appendix, is necessary for the
proper performance of the functions of the Board, including whether the
collection has practical utility; (2) the accuracy of
[[Page 314]]
the Board's burden estimates; (3) ways to enhance the quality, utility,
and clarity of the information collected; and (4) ways to minimize the
burden of the collection of information on the respondents, including
the use of automated collection techniques or other forms of
information technology, when appropriate. No further comments were
received following the SNPRM.
This modification and extension request of an existing, approved
collection will be submitted to OMB for review as required under the
PRA, 44 U.S.C. 3507(d), and 5 CFR 1320.11. The request will address the
comment discussed in the SNPRM as part of the PRA approval process. See
SNPRM, EP 755 et al., slip op. at 51-52.
Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801-808, the
Office of Information and Regulatory Affairs has designated this rule
as non-major, as defined by 5 U.S.C. 804(2).
It is ordered:
1. The Board adopts the final rule as set forth in this decision.
Notice of the adopted rule will be published in the Federal Register.
2. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. The final rule in Docket No. EP 755 is effective March 6, 2023.
4. The termination of Docket No. EP 665 (Sub-No. 2) is effective on
January 3, 2023.
Decided: December 19, 2022.
By the Board, Board Members Fuchs, Hedlund, Oberman, Primus, and
Schultz. Board Members Fuchs and Schultz dissented with separate
expressions.
BOARD MEMBER FUCHS, dissenting:
Congress has entrusted the Board with the responsibility to
regulate rail carriers' rates, and it has set broad criteria under
which the Board is to apply its expertise and judgment.\1\ This final
rule (FORR Final Rule) is the culmination of diligent work and tireless
leadership to reform the Board's approach to rate review. Recognizing
the potential benefits of reform, as well as the importance of further
stimulating new ideas, I voted to propose FORR and twice solicit public
comment.\2\ After careful consideration of those comments, however, I
have concluded that FORR is not the answer. FORR is an evasion of the
Board's fundamental responsibility because it makes the Board entirely
dependent on litigants' self-determined rate review methodologies,
gives little meaningful guidance for those methodologies, and prohibits
the Board from devising its own remedy where necessary. Making matters
worse, FORR subjects those litigants to a process with intensified and
unequal pressure, thereby incentivizing them to prioritize litigation
strategy over their best interpretation of facts and statutory
criteria. This deeply flawed, all-or-nothing process immediately
generates uncertainty for industry participants, and it presents unique
risks that its pressures and precedent will cause significant negative
effects on our nation's rail network. Rather than issuing FORR Final
Rule, the Board should have recognized the irreparable problems with
FORR and instead pursued other reforms while it facilitates an
additional process to resolve rate disputes via the agency's new
arbitration program.
---------------------------------------------------------------------------
\1\ See 49 U.S.C. 10101 (rail transportation policy); 49 U.S.C.
10701(d)(2) (listing the Long-Cannon factors); 49 U.S.C. 10701(d)(3)
(directing the Board to establish ``one or more simplified and
expedited methods for determining the reasonableness of challenged
rail rates in those cases in which a full stand-alone cost
presentation is too costly, given the value of the case''); 49
U.S.C. 10702 (jurisdiction to establish reasonable rates); 49 U.S.C.
10704(a)(2) (requiring the Board to make an ``adequate and
continuing effort'' to assist carriers in attaining adequate revenue
levels).
\2\ See NPRM, EP 755 et al.; SNPRM, EP 755 et al.
---------------------------------------------------------------------------
Though the Board has stated its role in regulating rates is to
serve as ``guardian of the public interest,'' \3\ FORR reduces the
agency to mere passive, all-or-nothing selections based only on
litigants' methodologies and proposed remedies. In FORR, the Board does
not set its own methodology that gives clear, specific meaning to the
statutory criteria, and FORR Final Rule argues that the Board similarly
does not have a defined methodology in reasonable practice and common
carrier obligation disputes. However, in those types of cases, unlike
in FORR, the Board retains discretion to best implement the relevant
statutory criteria because it may reject parts or all of parties'
arguments and devise its own remedy based on its expertise and
judgment. FORR Final Rule further argues that the Board currently gives
up discretion in the Three-Benchmark rate review methodology because it
uses a final offer process for picking comparison groups. However, when
it established Three-Benchmark, the Board exercised considerable
discretion to guard the public interest and give specific meaning to
statutory criteria--based on its own expertise and judgement--by, among
other things, defining a formula that accounts for the level of revenue
adequacy to be achieved through a rail carrier's rate-setting.\4\ By
contrast, FORR offers little useful guidance, let alone a methodology,
on fundamental concepts like revenue adequacy and differential
pricing.\5\ FORR is unique among the agency's processes in that the
Board evades responsibility on both the front and back ends--neither
defining methodologies in advance nor permitting the Board's own
remedies in individual cases.
---------------------------------------------------------------------------
\3\ See Pub. Serv Co. of Colo. v. Burlington N. & Santa Fe Ry.,
NOR 42057, slip op. at 3-4 (STB served Jan. 19, 2005) (in the rate
reasonableness context, the Board's ``role as the guardian of the
public interest in unchanged,'' in that, like its predecessor, it is
``expected to be directly and immediately concerned with the outcome
of virtually all proceedings conducted before it. . . . not . . . a
passive arbiter but the guardian of the general public interest,
with a duty to see that this interest is at all times effectively
protected'' (internal citations omitted)).
\4\ See Rate Guidelines--Non-Coal Proceedings, EP 347 (Sub-No.
2), 1 STB 1004, 1027-34 (1996) (describing RSAM, the revenue
shortfall allocation method); id. at 1042 (describing the revenue
need adjustment factor, which is the ratio of RSAM / R/
VC>180); id. at 1020 (listing how the proposed
factors implement the criteria including the Long-Cannon factors,
differential pricing, and revenue adequacy); see also Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1), slip op at 4-5
(STB served July 28, 2006) (discussing the rail transportation
policy, Long-Cannon factors, revenue adequacy, and the need to
establish a simplified and expedited method for determining rate
reasonableness in cases where a stand-alone cost presentation is too
costly, given the value of the case).
\5\ FORR Final Rule's comparison between FORR and ``Maximum
Markup Methodology,'' or MMM, is misplaced. See FORR Final Rule, EP
755 et al, slip op. at 11 (citing Major Issues in Rail Rate Cases,
EP 657 (Sub-No. 1), slip op. at 14-15, (STB served Oct. 30, 2006),
aff'd sub nom. BNSF Ry. v. STB, 526 F.3d 770 (D.C. Cir. 2008)); see
also Major Issues, EP 657 (Sub-No. 1), slip op at 9-11, 14-15, 23
n.44) (establishing, as one part of the Board's effort to address
six recurring issues in stand-alone cost (SAC) cases, MMM, which is
used to prescribe rates as part of the SAC methodology). First,
unlike FORR, SAC is a methodology in which the agency--using its
expertise and judgment--gives clear, specific meaning to the
statutory criteria by defining a railroad's revenue needs and
permissible differential pricing through the prism of contestability
theory and so-called constrained market pricing (i.e., based on a
stand-alone railroad's revenue needs). Second, again unlike FORR,
the Board in a SAC case arrives at the amount of excess revenue,
subject to MMM, only after using its expertise and judgment to
resolve many individual disputes, often involving hundreds of small
details. It is not forced to simply take a litigant's entire
presentation.
---------------------------------------------------------------------------
Not only does FORR turn over the Board's responsibility to
litigants, it diminishes the Board's ability to pick the best outcome
based on the litigants' presentations. In a FORR case, suppose the
Board, relying on a litigant's rate reasonableness methodology, finds a
rate unreasonable. The Board would then turn to the litigants' final
offers to prescribe the maximum rate. However, in FORR, the maximum
rate need not
[[Page 315]]
arise out of litigants' rate reasonableness methodologies. Instead,
litigants' final offers can use different reasoning, or even altogether
different methodologies. They must simply submit ``explanation and
support for'' their final offers. See FORR Final Rule, EP 755 et al.,
slip op. at 19, 38. This may lead to suboptimal outcomes. For example,
in one scenario, FORR requires the Board to prescribe a maximum rate
using a litigant's final offer even when a litigant's rate
reasonableness methodology readily shows a different maximum rate that
the Board would view better implements the statutory criteria. In
another scenario, FORR prevents the Board from remedying an
unreasonable rate \6\ if the Board finds the complainant's final offer
does not have support, even though the statute requires a rail carrier
to establish reasonable rates. Thus, working within the binary
selection process that FORR imposes, in some cases the Board cannot
even select obvious, superior solutions or correct unreasonableness.
---------------------------------------------------------------------------
\6\ Here, the term ``unreasonable rate'' means that the Board
would find that rate unreasonable based on the methodologies
presented, not that the Board necessarily would issue a formal
ruling just on that matter.
---------------------------------------------------------------------------
Today's decision might accept these severe, unprecedented
limitations in hopes that a final offer framework--by virtue of its
design--will produce good outcomes, but FORR Final Rule offers
inadequate support for this proposition. The theory behind a final
offer framework is that the prospect of an all-or-nothing decision
imposes acute uncertainty and raises the costs of losing, such that
parties are more likely to settle and make presentations that converge
toward the middle ground.\7\ FORR Final Rule offers no evidence that a
final offer framework is welfare-improving in contexts similar to rate
regulation. If convergence were the sole desired effect, even FORR
Final Rule's supporting literature--largely based on public sector
bargaining and baseball arbitration--acknowledges the unresolved debate
over whether final offers converge.\8\ When cases are decided in the
absence of convergence, FORR may have unintended distributional
consequences across individual shippers because all-or-nothing final
offer frameworks have more variance than other processes--that is,
similarly-situated litigants have very different results because the
decision-maker is unable to split the difference where necessary.\9\
This dynamic has the potential to distort competition, particularly
among shippers.
---------------------------------------------------------------------------
\7\ ``Early proponents of final offer arbitration [(FOA)] argued
that FOA would lead to convergence in the offers of the two parties.
The theory originating with Stevens (1966) was that conventional
arbitration had a `chilling' effect on negotiations and offers
because the parties were motivated to make extreme offers when
facing an arbitrator who was thought to `split the difference.' ''
Comm'n on Health & Safety & Workers' Comp., Cal. Dep't Indus. Rels.,
Literature Review: Final Offer Arbitration, https://www.dir.ca.gov/chswc/basebalarbffinal.htm (last visited Dec. 16, 2022) (internal
citations omitted); but see id. (``[C]onvergence of the offers under
FOA compared to conventional arbitration is not a sufficient
condition for `better' decisions by the arbitrator given that the
arbitrator can choose only one or the other.''); see also Steven
Brams & Samuel Merrill, Equilibrium Strategies for Final-Offer
Arbitration: There is No Median Convergence, Mgmt. Sci. 927 (1983).
\8\ See Chetwynd, Baseball? An Analysis of Final-Offer
Arbitration, its Use in Major League Baseball & its Potential
Applicability to European Football Wage & Transfer Disputes, 20
Marquette Sports L. Rev. 109, 117, 134 (2009); Carrell & Bales,
Considering Final Offer Arbitration to Resolve Public Sector
Impasses in Times of Concession Bargaining, 28 Ohio State J. of
Disp. Resol. 1, 30-32 (2013).
\9\ Comm'n on Health & Safety & Workers' Comp., supra.
---------------------------------------------------------------------------
More alarmingly, FORR has a fundamental flaw in its framework--as
FORR Final Rule acknowledges, this process, unlike some other final
offer frameworks in different contexts, does not impose ``reciprocal
risks.'' See FORR Final Rule, EP 755 et al., slip op. at 19. If
participants in a final offer process do not have equivalent risks, the
more risk adverse party will likely give up more--not because its case
is worse--simply because an all-or-nothing process increases the
expected costs of losing.\10\ Here, the rail carrier appears to be the
more risk averse party because the range of outcomes in FORR are
limited to either the status quo or a rate reduction.\11\ As a result,
FORR may have an especially coercive, unequal effect on settlements and
final offers. In practice, to reduce the probability of losing to a
complainant's offer in its entirety, a rail carrier may be more likely
to pursue a middle ground that is not best for the network and other
shippers. Thus, in FORR, litigants--on whom the Board entirely relies--
are incentivized to pursue arguments and outcomes not based on their
best interpretation of market or network facts and the relevant
criteria but instead on litigation strategies.
---------------------------------------------------------------------------
\10\ See Henry S. Farber, An Analysis of Final Offer
Arbitration, J. of Conflict Resol. 683 (1980); see also Comm'n on
Health & Safety & Workers' Comp., supra (stating ``economic theory
as reviewed earlier suggests that the more risk averse party will
have poorer outcomes on average under this type of arbitration'' and
finding on a preliminary basis ``there would appear to be enough non
anecdotal evidence to conclude that baseball arbitration is neither
working satisfactorily nor producing fair'' outcomes); id. (citing
Amy Farmer Curry & Paul Pecornio, The Use of Final Offer Arbitration
as a Screening Device, J. of Conflict Resol. 655 (1993)).
\11\ That is not to say that, as FORR Final Rule outlines,
shippers do not experience any costs from the process or that
litigants do not have relationship reasons to reduce the potency of
this absence of reciprocity. However, as FORR Final Rule
acknowledges, there is no escaping that the potential effects on
rates are unequal. See FORR Final Rule, EP 755 et al., slip op. at
19-21.
---------------------------------------------------------------------------
Given these deep and irreparable flaws, FORR could have significant
negative consequences for the rail network. FORR's decisions are
precedential, so one litigant's rate reasonableness methodology--for
which the Board would not find best implements the statutory criteria,
let alone seek broader public comment or analyze effects across
carriers--could affect rail rates nationwide, potentially impacting
infrastructure and operations. Moreover, as noted above, the
intensified and unequal pressures in FORR could affect the network even
in the absence of a Board decision. Because FORR Final Rule does little
to define FORR's broad criteria or give guidance to litigants, effects
will be felt immediately in the form of particularly acute uncertainty.
Notably, final offer arbitration in Canada, as well as the Board's
arbitration program released today, largely avoid these problems.
Though both share some characteristics of the FORR process, both are
confidential, and--in the case of the Board's arbitration program--the
arbitration panel may devise a welfare-improving remedy distinct from
the parties' presentations.\12\ That is not to say that
confidentiality, and non-precedential decisions generally, ought to be
norm for the Board. However, where, as in FORR, the Board evades its
responsibility and sets forth a flawed process, the broader public
faces high risks of negative outcomes.
---------------------------------------------------------------------------
\12\ See Joint Pet. for Rulemaking to Establish a Voluntary Arb.
Program for Small Rate Disps., EP 765, slip op. at 57-60, 75 (STB
served December 19, 2022); Canada Transp. Act, S.C. 1996, c. 10, as
amended, Sec. 167 (Can.). Cf. FORR Final Rule, EP 755 et al., slip
op. at 1.
---------------------------------------------------------------------------
The Board's drastic shift to FORR is not justified by FORR Final
Rule's analysis. FORR Final Rule states that shippers need a more
accessible rate review option, but it does not fully analyze the extent
to which this need is the result of high litigation costs rather than
economic methodologies that have high standards for relief. The SNPRM
claims that the cost of Three-Benchmark appears to be one-eighth (and
possibly less) of the potential relief, and it is unclear whether FORR
Final Rule finds that this ratio makes the methodology cost-
prohibitive.\13\ If FORR Final Rule's
[[Page 316]]
accessibility statement is only about litigation costs, FORR Final Rule
does not establish that FORR would be less costly than Three-Benchmark.
Both have final offer components, but Three-Benchmark sets the basic
economic methodology in advance, whereas FORR requires litigants to
create their own methodology and reasoning. Further, many of FORR's
procedural changes that purport to reduce litigation costs, and other
changes suggested by the Rate Reform Task Force (RRTF), such as page
limits, are easily applied to Three-Benchmark.\14\ That the Board does
not simply streamline Three-Benchmark suggests that FORR Final Rule's
problem statement is perhaps less about costs and more about the
standards--even the economic foundations--of the Board's existing rate
review methodologies.\15\ However, despite robust ideas from both the
RRTF and the public, the Board does not explain why it is impractical
to improve the standards in the Board's existing methodologies, or--if
those methodologies are unsound--to create a new methodology. Without
fully analyzing the underlying the problem and available solutions, the
Board has insufficient basis for turning away from its traditional
reliance on methodologies, foregoing its discretion to devise its own
remedies, and relying on litigants to do the work of the agency.
---------------------------------------------------------------------------
\13\ See SNPRM, EP 755 et al., slip op. at 43 n.67 (``But the
most recently reported estimate of the cost to litigate a Three-
Benchmark case is actually $500,000 based on a case completed in
2010.'') (citing US Magnesium, L.L.C. Comment, V.S. Howard Kaplan 4,
Oct. 23, 2012, Rate Regul. Reforms, EP 715).
\14\ See RRTF Report 51-52 (discussing possible benefits of page
limits). The Board also does not engage with the possibility of
using statistical methods, extant data, and automation to improve
its rate review processes, as suggested by the RRTF and others. See,
e.g., RRTF Report 10, 24-30.
\15\ This is not meant imply that there is not room for
potential improvements to the Three-Benchmark methodology. Indeed,
shippers, railroads, and Board staff have all suggested new
approaches to a comparison group methodology. (See NGFA Reply 6-7;
AAR Comment, Oct. 22, 2019); see also AAR Comment 79-80, Nov. 26,
2019, Hearing on Revenue Adequacy, EP 761; Rail Transportation of
Grain, Rate Regulation Review, EP 665 (Sub-No. 1), slip op. at 12-15
(STB served Aug. 31, 2016); RRTF Report 20-21.
---------------------------------------------------------------------------
Though I disagree with FORR Final Rule, I am not proposing to do
nothing. I support facilitating an additional process to resolve rate
disputes via the agency's new arbitration program. Given today's
decisions, I find the best way forward is to continue to pursue a new
or revised rate review methodology, as well as other actions that can
improve the Board's regulations. The Board has before it several ideas
from the RRTF, contracted experts, and the broader public. I favor
streamlined processes for rate review and clear rules--specified,
practical methodologies and standards that both protect the broader
public and allow industry participants to operate their businesses and
resolve disputes absent further government intervention. Rate review
reform efforts, and the broader consideration of the Board's role in
regulating the rail industry, must not stop because of a deeply flawed,
highly risky final rule. I respectfully dissent.
BOARD MEMBER SCHULTZ, dissenting:
For several years, shippers and other interested parties have
repeatedly informed the Board that the Board's current options for
challenging the reasonableness of rates do not meet their need for an
expeditious resolution at a reasonable cost. While I am aware of the
need for additional methodologies, I respectfully dissent from today's
decision to finalize Final Offer Rate Review (FORR).
The Board issued its Supplemental Notice of Proposed Rulemaking
(SNPRM) in this proceeding concurrently with the Notice of Proposed
Rulemaking in Joint Petition for Rulemaking to Establish a Voluntary
Arbitration Program for Small Rate Disputes, Docket No. EP 765, ``so
that both proposals may be considered simultaneously, including the
pros and cons of adopting--either with or without modification--the
voluntary arbitration rule, FORR, both proposals, or taking other
action.'' Final Offer Rate Review (SNPRM), EP 755 et al., slip op. at 8
(STB served Nov. 15, 2021). While I voted in favor of the FORR SNPRM, I
did so because I thought it was important to be able to meet with
stakeholders about both FORR and the Board's proposed small case rate
arbitration program (Arbitration) in Docket No. EP 765, as well as for
stakeholders to be able to review and comment on both proposals at the
same time. Id. at 54 (Board Member Schultz, concurring). I was not in
favor of the Board adopting both rules, and the Board's action today--
simultaneously issuing final rules in this docket and in Docket No. EP
765 while tying them together--is unprecedented and unnecessary. In so
doing, the Board has injected a level of uncertainty and
unpredictability into a process that should be predictable and
consistent. Moreover, I believe Arbitration is a much better option for
both shippers and carriers primarily because it affords the parties
their due process and statutory rights to be heard on the merits.\1\
The majority's decision to adopt FORR simultaneously with Arbitration
creates the possibility that while both programs will be enacted, FORR
could remain in law but go unused if all seven Class I carriers sign up
for Arbitration.\2\ It is for these reasons that I believe Arbitration
should have been advanced without the ``backstop'' of FORR. Beyond my
concerns about the rulemaking process, I also have deep legal and
practical concerns about FORR, which I believe prevents the Board from
engaging in reasoned decision-making, fails to properly align risk
between complainants and defendants, and could depress rail rates below
what is reasonable.
---------------------------------------------------------------------------
\1\ Unlike FORR, Arbitration will allow neutral arbitrators to
determine a reasonable rate as the Board does under the Board's
current options for challenging the reasonableness of rates.
\2\ Of course, if even one carrier declines to sign up for
Arbitration, that program instead will go unused.
---------------------------------------------------------------------------
Reasoned Decision-Making
The need for new rate review methodologies is well documented. In
September 2014, the Board commissioned an independent assessment of the
stand-alone rate reasonableness methodology as well as possible
alternatives that could reduce the time, complexity, and expense
involved in rate cases. In January 2018, Chairman Ann Begeman created
the Rate Reform Task Force to recommend improvements to existing
processes and to propose new rate review methodologies. And while the
need for alternatives to the existing methodologies is clear, that need
cannot supersede the Board's congressionally delegated authority to
either establish rates based upon its own best judgment or to
promulgate regulations allowing parties to seek similar relief through
a voluntary arbitration program, see 49 U.S.C. 11708. Unlike the
process in Arbitration, FORR would require the Board to choose between
two rates--even if the Board finds the correct outcome falls above,
below, or somewhere in between the two submissions. It is this
limitation on the Board's ability to exercise its own judgment by
weighing each side's arguments, evaluating the evidence, and
considering both the public interest and rail transportation policy
that I find to be so troubling. Agencies must engage in reasoned
decision-making. See Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983). While the Board, after
finding a challenged rate to be unlawful, has the discretion to
determine the ``maximum rate . . . to be followed,'' 49 U.S.C.
10704(a)(1), the Board must ``exercise its
[[Page 317]]
discretion in a reasoned manner.'' Judulang v. Holder, 565 U.S. 42, 53
(2011). The Board's ability to discern the best outcome and remain
evenhanded will depend upon the reasonableness of the submissions made
by the parties themselves. And while the majority continues to presume
that ``FORR would not reward extreme positions'' and that ``parties
likely would have greater success by presenting more moderate
proposals,'' SNPRM, EP 755 et al., slip op. at 17, I am not convinced
this will be the case in all instances. See also FORR Final Rule, EP
755 et al., slip op. at 9 (``[A] final offer selection process would
discourage extreme positions . . . .''). Perhaps more importantly, I
believe the Board's congressionally authorized responsibility to
provide regulatory oversight of rates requires more than a reliance
upon two submitted proposals. It requires the Board to actually
exercise its discretion and decision-making authority.
Alignment of Risk
The majority believes that FORR--like the final-offer arbitration
(or ``baseball arbitration'') process on which FORR is based--will not
reward extreme positions, thereby incentivizing both parties to submit
their most reasonable rate to the Board. See, e.g., id. at 6, 9.
However, unlike baseball arbitration, in which each side has something
to lose because the arbitrator can select an offer that puts either
side in a worse position than it occupied pre-arbitration, in a FORR
case, the Board is not authorized to prescribe a rate higher than the
challenged rate. Therefore, a FORR complainant has no risk of a
decision that places it in a worse position. Without that risk, a FORR
complainant literally has nothing to lose and, therefore, no reason to
moderate their position, especially when the Board will only consider
the final offers after it has already found the challenged rate to be
unreasonable. By the same token, the defendant carrier will know that
the complainant has no incentive to moderate its position. This could
result in a Class I carrier submitting a lower offer than it otherwise
would to reduce the risk that the Board will select the complainant's
extreme position. If FORR systematically pushes carriers to submit
lower offers without encouraging shippers to submit higher offers, the
effect over time would be to depress railroad rates--not due to rates
being unreasonable, but merely because of the structure of FORR itself.
Moreover, because these decisions will not be confidential, they will
most likely impact rates throughout the freight rail network for years
if not decades to come, resulting in inconsistent and unpredictable
rate setting.\3\
---------------------------------------------------------------------------
\3\ I also believe that the Board and stakeholders are
underestimating the demand that multiple FORR cases will place on
the Board's docket. The FORR Final Rule sets out that the Board will
issue decisions 90 days after the receipt of replies--I question
whether that goal will be achievable if the Board faces even a few
FORR cases at the same time, and I am concerned that FORR cases may
easily overwhelm the Board's ability to deliberate on other matters
in a timely manner.
---------------------------------------------------------------------------
Conclusion
The need for a streamlined, cost-effective dispute resolution
process that provides both consistent deliberation of evidence and
reliable outcomes is clear. But that need should not be met by a
process that restricts the Board's ability to exercise its own
independent judgment and requires it to render a decision proposed by
only one of the parties. The majority's decision today means that the
Board could be faced with two extreme and undesirable outcomes with no
choice but to select one. Without the discretion to ensure that rates
prescribed in FORR cases are reasonable, FORR could operate to depress
rail rates below what is needed for carriers to invest in, maintain, or
even improve the rail network.
Kenyatta Clay,
Clearance Clerk.
List of Subjects
49 CFR Part 1002
Administrative practice and procedure, Common Carriers, Freedom of
information.
49 CFR Part 1111
Administrative practice and procedure, Investigations.
49 CFR Part 1114
Administrative practice and procedure.
49 CFR Part 1115
Administrative practice and procedure.
For the reasons set forth in the preamble, the Surface
Transportation Board amends parts 1002, 1111, 1114, and 1115 of title
49, chapter X, of the Code of Federal Regulations as follows:
PART 1002--FEES
0
1. The authority citation for part 1002 continues to read as follows:
Authority: 5 U.S.C. 552(a)(4)(A), (a)(6)(B), and 553; 31 U.S.C.
9701; and 49 U.S.C. 1321. Section 1002.1(f)(11) is also issued under
5 U.S.C. 5514 and 31 U.S.C. 3717.
0
2. Amend Sec. 1002.2 by revising paragraph (f)(56) to read as follows:
Sec. 1002.2 Filing fees.
* * * * *
(f) * * *
------------------------------------------------------------------------
Type of proceeding Fee
------------------------------------------------------------------------
* * * * * * *
PART V: Formal Proceedings:
(56) A formal complaint alleging unlawful rates or
practices of carriers:
(i) A formal complaint filed under the coal rate $350
guidelines (Stand-Alone Cost Methodology) alleging
unlawful rates and/or practices of rail carriers
under 49 U.S.C. 10704(c)(1)........................
(ii) A formal complaint involving rail maximum rates 350
filed under the Simplified-SAC methodology.........
(iii) A formal complaint involving rail maximum 150
rates filed under the Three Benchmark methodology..
(iv) A formal complaint involving rail maximum rates 150
filed under the Final Offer Rate Review procedure..
(v) All other formal complaints (except competitive 350
access complaints).................................
(vi) Competitive access complaints.................. 150
(vii) A request for an order compelling a rail 350
carrier to establish a common carrier rate.........
------------------------------------------------------------------------
[[Page 318]]
* * * * *
PART 1111--COMPLAINT AND INVESTIGATION PROCEDURES
0
3. The authority citation for part 1111 is revised to read as follows:
Authority: 49 U.S.C. 10701, 10704, 11701 and 1321.
0
4. Amend Sec. 1111.3 by revising paragraph (c) to read as follows:
Sec. 1111.3 Amended and supplemental complaints.
* * * * *
(c) Simplified standards. A complaint filed under Simplified-SAC or
Three-Benchmark may be amended once before the filing of opening
evidence to opt for a different rate reasonableness methodology, among
Three-Benchmark, Simplified-SAC, or stand-alone cost. If so amended,
the procedural schedule begins again under the new methodology as set
forth at Sec. Sec. 1111.9 and 1111.10. However, only one mediation
period per complaint shall be required. A complaint filed under Final
Offer Rate Review may not be amended to opt for Three-Benchmark,
Simplified-SAC, or stand-alone cost, and a complaint filed under Three-
Benchmark, Simplified-SAC, or stand-alone cost may not be amended to
opt for Final Offer Rate Review.
0
5. Amend Sec. 1111.5 by revising paragraphs (a), (b), (c), and (e) to
read as follows:
Sec. 1111.5 Answers and cross complaints.
(a) Generally. Other than in cases under Final Offer Rate Review,
which does not require the filing of an answer, an answer shall be
filed within the time provided in paragraph (c) of this section. An
answer should be responsive to the complaint and should fully advise
the Board and the parties of the nature of the defense. In answering a
complaint challenging the reasonableness of a rail rate, the defendant
should indicate whether it will contend that the Board is deprived of
jurisdiction to hear the complaint because the revenue-variable cost
percentage generated by the traffic is less than 180 percent, or the
traffic is subject to effective product or geographic competition. In
response to a complaint filed under Simplified-SAC or Three-Benchmark,
the answer must include the defendant's preliminary estimate of the
variable cost of each challenged movement calculated using the
unadjusted figures produced by the URCS Phase III program.
(b) Disclosure with Simplified-SAC or Three-Benchmark answer. The
defendant must provide to the complainant all documents that it relied
upon to determine the inputs used in the URCS Phase III program.
(c) Time for filing; copies; service. Other than in cases under
Final Offer Rate Review, which does not require the filing of an
answer, an answer must be filed with the Board within 20 days after the
service of the complaint or within such additional time as the Board
may provide. The defendant must serve copies of the answer upon the
complainant and any other defendants.
* * * * *
(e) Failure to answer complaint. Other than in cases under Final
Offer Rate Review, which does not require the filing of an answer,
averments in a complaint are admitted when not denied in an answer to
the complaint.
* * * * *
0
6. Amend Sec. 1111.10 by adding paragraph (a)(3) to read as follows:
Sec. 1111.10 Procedural schedule in cases using simplified
standards.
(a) * * *
(3)(i) In cases relying upon the Final Offer Rate Review procedure
where the complainant elects streamlined market dominance:
(A) Day -25--Complainant files notice of intent to initiate case
and serves notice on defendant.
(B) Day 0--Complaint filed; discovery begins.
(C) Day 35--Discovery closes.
(D) Day 49--Complainant's opening (rate reasonableness analysis,
final offer, and opening evidence on market dominance). Defendant's
opening (rate reasonableness analysis and final offer).
(E) Day 59--Parties' replies. Defendant's reply evidence on market
dominance.
(F) Day 66--Complainant's letter informing the Board whether it
elects an evidentiary hearing on market dominance.
(G) Day 73--Telephonic evidentiary hearing before an administrative
law judge, as described in Sec. 1111.12(d) of this chapter, at the
discretion of the complainant (market dominance).
(H) Day 149--Board decision.
(ii) In cases relying upon the Final Offer Rate Review procedure
where the complainant elects non-streamlined market dominance:
(A) Day -25--Complainant files notice of intent to initiate case
and serves notice on defendant.
(B) Day 0--Complaint filed; discovery begins.
(C) Day 35--Discovery closes.
(D) Day 49--Complainant's opening (rate reasonableness analysis,
final offer, and opening evidence on market dominance). Defendant's
opening (rate reasonableness analysis and final offer).
(E) Day 79--Parties' replies. Defendant's reply evidence on market
dominance.
(F) Day 169--Board decision.
(iii) In addition, the Board will appoint a liaison within five
business days after the Board receives the pre-filing notification.
(iv) The mediation period in Final Offer Rate Review cases is 20
days beginning on the date of appointment of the mediator(s). The Board
will appoint a mediator or mediators as soon as possible after the
filing of the notice of intent to initiate a case.
(v) With its final offer, each party must submit an explanation of
the methodology it used. If a complainant fails to submit explanation
and support for its offer, the Board may dismiss the complaint without
determining the reasonableness of the challenged rate.
* * * * *
0
7. Amend Sec. 1111.11 by revising paragraph (b) to read as follows:
Sec. 1111.11 Meeting to discuss procedural matters.
* * * * *
(b) Stand-alone cost or simplified standards complaints. In
complaints challenging the reasonableness of a rail rate based on
stand-alone cost or the simplified standards, the parties shall meet or
otherwise discuss discovery and procedural matters within 7 days after
the complaint is filed in stand-alone cost cases, 3 days after the
complaint is filed in Final Offer Rate Review cases, and 7 days after
the mediation period ends in Simplified-SAC or Three-Benchmark cases.
The parties should inform the Board as soon as possible thereafter
whether there are unresolved disputes that require Board intervention
and, if so, the nature of such disputes.
0
8. Amend Sec. 1111.12 by revising paragraphs (c), (d)(1), and (d)(2)
read as follows:
Sec. 1111.12 Streamlined market dominance.
* * * * *
(c) A defendant's reply evidence under the streamlined market
dominance approach may address the factors in paragraph (a) of this
section and any other issues relevant to market dominance. A
complainant may elect to submit rebuttal evidence on market dominance
issues except in cases under Final Offer Rate Review, which does not
provide for rebuttal. Reply and rebuttal filings under the streamlined
market dominance approach are each limited to 50 pages, inclusive of
exhibits and verified statements.
[[Page 319]]
(d)(1) Pursuant to the authority under Sec. 1011.6 of this
chapter, an administrative law judge will hold a telephonic evidentiary
hearing on the market dominance issues at the discretion of the
complainant in lieu of the submission of a written rebuttal on market
dominance issues. In cases under Final Offer Rate Review, which does
not provide for rebuttal, the telephonic evidentiary hearing is at the
discretion of the complainant.
(2) The hearing will be held on or about the date that the
complainant's rebuttal evidence on rate reasonableness is due, except
in cases under Final Offer Rate Review, where the hearing will be held
14 days after replies are due unless the parties agree on an earlier
date. The complainant shall inform the Board by letter submitted in the
docket, no later than 10 days after defendant's reply is due, whether
it elects an evidentiary hearing in lieu of the submission of a written
rebuttal on market dominance issues. In cases under Final Offer Rate
Review, the complainant shall inform the Board by letter submitted in
the docket, no later than 7 days after defendant's reply is due,
whether it elects an evidentiary hearing on market dominance issues.
* * * * *
PART 1114--EVIDENCE; DISCOVERY
0
9. The authority citation for part 1114 continues to read as follows:
Authority: 5 U.S.C. 559; 49 U.S.C. 1321.
0
10. Amend Sec. 1114.21 by adding paragraph (a)(4) to read as follows:
Sec. 1114.21 Applicability; general provisions.
(a) * * *
(4) Except as stated in Sec. 1114.31(a)(2)(iii), time periods
specified in this subpart do not apply in cases under Final Offer Rate
Review. Instead, parties in cases under Final Offer Rate Review should
serve requests, answers to requests, objections, and other discovery-
related communications within a reasonable time given the length of the
discovery period.
* * * * *
0
11. Amend Sec. 1114.24 by revising paragraph (h) to read as follows:
Sec. 1114.24 Depositions; procedures.
* * * * *
(h) Return. The officer shall either submit the deposition and all
exhibits by e-filing (provided the filing complies with Sec. 1104.1(e)
of this chapter) or securely seal the deposition and all exhibits in an
envelope endorsed with sufficient information to identify the
proceeding and marked ``Deposition of (here insert name of witness)''
and personally deliver or promptly send it by registered mail to the
Office of Proceedings. A deposition to be offered in evidence must
reach the Board not later than 5 days before the date it is to be so
offered.
* * * * *
0
12. Amend Sec. 1114.31 by revising paragraphs (a) and (d) to read as
follows:
Sec. 1114.31 Failure to respond to discovery.
(a) Failure to answer. If a deponent fails to answer or gives an
evasive answer or incomplete answer to a question propounded under
Sec. 1114.24(a), or a party fails to answer or gives evasive or
incomplete answers to written interrogatories served pursuant to Sec.
1114.26(a), the party seeking discovery may apply for an order
compelling an answer by motion filed with the Board and served on all
parties and deponents. Such motion to compel an answer must be filed
with the Board and served on all parties and deponents. Except as set
forth in paragraph (a)(2)(iii) of this section, such motion to compel
an answer must be filed with the Board within 10 days after the failure
to obtain a responsive answer upon deposition, or within 10 days after
expiration of the period allowed for submission of answers to
interrogatories. On matters relating to a deposition on oral
examination, the proponent of the question may complete or adjourn the
examination before he applies for an order.
(1) Reply to motion to compel generally. Except in rate cases to be
considered under the stand-alone cost methodology or simplified
standards, the time for filing a reply to a motion to compel is
governed by 49 CFR 1104.13.
(2) Motions to compel in stand-alone cost and simplified standards
rate cases. (i) Motions to compel in stand-alone cost and simplified
standards rate cases must include a certification that the movant has
in good faith conferred or attempted to confer with the person or party
failing to answer discovery to obtain it without Board intervention.
(ii) In a rate case to be considered under the stand-alone cost,
Simplified-SAC, or Three-Benchmark methodologies, a reply to a motion
to compel must be filed with the Board within 10 days of when the
motion to compel is filed.
(iii) In a rate case under Final Offer Rate Review, each party may
file one motion to compel that aggregates all discovery disputes with
the other party. Each party's motion to compel, if any, shall be filed
on the 10th day before the close of discovery (or, if not a business
day, the last business day immediately before the 10th day). The
procedural schedule will be tolled while motions to compel are pending.
Replies to motions to compel in Final Offer Rate Review cases must be
filed with the Board within 7 days of when the motion to compel is
filed. Upon issuance of a decision on motions to compel, the procedural
schedule resumes, and any party ordered to respond to discovery must do
so within the remaining 10 days in the discovery period.
(3) Conference with parties on motion to compel. Within 5 business
days after the filing of a reply to a motion to compel in a rate case
to be considered under the stand-alone cost methodology, Simplified-
SAC, or Three-Benchmark, Board staff may convene a conference with the
parties to discuss the dispute, attempt to narrow the issues, and
gather any further information needed to render a ruling.
(4) Ruling on motion to compel in stand-alone cost, Simplified-SAC,
and Three-Benchmark rate cases. Within 5 business days after a
conference with the parties convened pursuant to paragraph (a)(3) of
this section, the Director of the Office of Proceedings will issue a
summary ruling on the motion to compel discovery. If no conference is
convened, the Director of the Office of Proceedings will issue this
summary ruling within 10 days after the filing of the reply to the
motion to compel. Appeals of a Director's ruling will proceed under 49
CFR 1115.9, and the Board will attempt to rule on such appeals within
20 days after the filing of the reply to the appeal.
* * * * *
(d) Failure of party to attend or serve answers. If a party or a
person or an officer, director, managing agent, or employee of a party
or person willfully fails to appear before the officer who is to take
his deposition, after being served with a proper notice, or fails to
serve answers to interrogatories submitted under Sec. 1114.26, after
proper service of such interrogatories, the Board on motion and notice
may strike out all or any part of any pleading of that party or person,
or dismiss the proceeding or any part thereof. Such a motion may not be
filed in a case under Final Offer Rate Review. In lieu of any such
order or in addition thereto, the Board shall require the party failing
to act or the attorney advising that party or both to pay the
reasonable expenses, including attorney's fees, caused by the failure,
unless the Board finds that the failure
[[Page 320]]
was substantially justified or that other circumstances make an award
of expenses unjust.
* * * * *
PART 1115--APPELLATE PROCEDURES
0
13. The authority citation for part 1115 continues to read as follows:
Authority: 5 U.S.C. 559; 49 U.S.C. 1321; 49 U.S.C. 11708.
0
14. Amend Sec. 1115.3 by revising paragraph (e) to read as follows:
Sec. 1115.3 Board actions other than initial decisions.
* * * * *
(e) Petitions must be filed within 20 days after the service of the
action or within any further period (not to exceed 20 days) as the
Board may authorize. However, in cases under Final Offer Rate Review,
petitions must be filed within 5 days after the service of the action,
and replies to petitions must be filed within 10 days after the service
of the action.
* * * * *
[FR Doc. 2022-27926 Filed 1-3-23; 8:45 am]
BILLING CODE 4915-01-P
