STB Proposes Streamlined Approach for Pleading Market Dominance in Rate Reasonableness Proceedings
Client Alert
On September 12, 2019, the Surface Transportation Board (“Board’) issued a Notice of Proposed Rulemaking that would streamline the process by which a rail shipper demonstrates the Board has jurisdiction to review whether the shipper’s rates are reasonable because the railroad has “market dominance” over the transportation, i.e., no effective competition exists to discipline the railroad’s rate levels.
By statute (49 U.S.C. §10707) the Board’s market dominance inquiry consists of two components: a quantitative threshold and a qualitative analysis. Market dominance may only be present if the rate charged produces revenues that are greater than 180% of the variable costs of providing the service as calculated by the STB’s Uniform Rail Costing System formulas. If the quantitative 180% R/VC threshold is met, the Board then performs a qualitative analysis, specifically whether there are any feasible transportation alternatives sufficient to constrain the defendant railroad’s rates through competition instead of STB intervention.
The qualitative component of market dominance phases of rate rates has proven over time to be extremely time consuming, complicated, and expensive in rate cases where transportation alternatives are theoretically possible. These issues are magnified in cases where the potential rate overcharges are not significant. On recommendation from its Rate Reform Task Force the Board has proposed to streamline the qualitative market dominance component by introducing several criteria that, if shown (in addition to the 180% quantitative threshold being exceeded), would result in the complainant making a prima facie showing of market dominance. These proposed criteria are as follows:
- The movement at issue in the case exceeds 500 highway miles between origin and destination;
- There is no intramodal competition from other railroads;
- There is no barge competition;
- The complainant has used truck for 10% or fewer of its movements subject to the rate at issue over a five-year period; and
- The complainant has no practical build-out alternative due to physical, regulatory, financial, or other issues (or combination of issues).
The defendant railroad may try and refute the complainant’s prima facie showing in its reply evidence, and the Board has proposed that a 50-page limit would apply to the railroad’s reply and complainant’s rebuttal submissions under this streamlined process. Complainants unable to demonstrate all of the above factors could still elect to establish market dominance using the traditional approach. The Board has also proposed that the streamlined approach would be made available to complainants for rate cases under all the Board’s rate review methodologies.
The Board is seeking public comments on the proposed rulemaking. Written comments are due by November 12, 2019 and replies are due by January 10, 2020. Additionally, in 2018 the Board changed its rules to increase the extent to which industry stakeholders may confer with Board members and staff about pending informal rulemaking proceedings such as this one. Industry stakeholders may now meet directly with individual Board members and staff to discuss proposed rules, subject to a requirement that a summary of the meeting – drafted by the visiting shipper – is included in the public record of the proceeding.
If you have any questions about this issue or desire additional information, please do not hesitate to contact any member of our Rail Transportation Practice: