Surface Transportation Board Orders Rate Relief to U.S. Magnesium

2010-02-09

The Surface Transportation Board today directed Union Pacific Railroad Company to establish new rates for shipments of chlorine from U.S. Magnesium, finding that the railroad's rates were unreasonably high. Under the Board's rules for cases filed under its Simplified Standards for Rail Rate Cases, U.S. Magnesium could recoup up to $1 million over five years.

At issue in the U.S. Magnesium case were two movements of chlorine by tank car from Rowley, Utah, to Eloy, Ariz., and from Rowley to Sahuarita, Ariz. Under the Board's Simplified Standards rules—which offer a streamlined and cheaper way for shippers to challenge rates but come with a monetary cap on damages—each side provides the Board with a list of what they believe are comparable rates.

However, the Board found that each party's comparison groups were flawed. Union Pacific's comparison group included a majority of examples that were re-billed movements, meaning a second railroad was involved. U.S. Magnesium's comparison group for the Eloy and Sahuarita movements included only 4% and 1% chlorine movements respectively.

After its own analysis, the Board found that U.S. Magnesium's comparison groups were more similar to the traffic at issue. However, the Board also agreed with Union Pacific that the new rates should reflect the differences between contract versus tariff rates and increased the new maximum rates by 14.8%. The resulting maximum lawful revenue-to-variable cost ratios are 356% for the Eloy movement and 346% for the Sahuarita movement. Commissioner Nottingham dissented from the decision.

The Board also concluded that neither side was able to present good examples of comparable rates because of the small number of movements of TIH commodities. As a result, the Board today issued a separate ruling that would expand reporting of rail rates for TIH movements such as chlorine. The revised reporting would commence with the January 2011 Waybill Sample collection. 

The board rejected UP’s effort to build into rates the costs it anticipates to install an automated “positive train control” system on tracks and equipment hauling chlorine, which is one of a group of toxic inhalation hazard chemicals. Congress ordered railroads to install PTC before 2016 on tracks shared with passenger trains, and lanes hauling toxic inhalation hazard materials that can form a poisonous cloud if accidentally released.

However, “we do not generally require shippers to provide carriers a return on investments not yet made,” the board majority said. And UP “has not demonstrated here that PTC investments are sufficiently defined,” the board said.

Charles D. Nottingham, the Republican member of the three-person board, lodged a lengthy dissent, much of it focused on problems the STB has in assessing costs railroads face in transporting the deadly toxic inhalation hazard loads and accurately comparing freight rates.
He said the board has known of the data problems for at least a year and is undertaking a review of its intricate Uniform Rail Costing System to make a fix. In the meantime, however, UP faces “a significant procedural disadvantage,” he said.

Meanwhile, the data problem still hangs over STB actions. “The specific weakness in URCS ... may be shaping the outcome of pending and anticipated cases involving TIH,” Nottingham wrote.