BEFORE THE 

STB EX PARTE NO. 646 (Sub-No.1) 

SIMPLIFIED STANDARDS FOR RAIL RATE CASES 

PUBLIC HEARING COMMENTS OF THE 

U.S. DEPARTMENT OF AGRICULTURE 

Bruce I. Knight 

Under Secretary 

Marketing and Regulatory Programs 

U. S. Department of Agriculture 

Washington, D.C. 20250 

Date: January 3 1,2007 
AUTHORITY AND INTEREST 

The Secretary of Agriculture is charged with the responsibility under the 

Agricultural Adiustment Act of 1938 and the Amicultural Marketing Act of 1946 to 

represent the interests of agricultural producers and shippers in improving transportation 

services and facilities by, among other things, initiating and participating in Surface 

Transportation Board (Board) proceedings involving rates, charges, tariffs, practices, and 

services. 

USDA COMMENTS 

The Department of Agriculture (USDA) thanks the Board for holding this public 

hearing which provides participating parties another opportunity to express their views 

regarding the Board's proposed Simplified Standards for rail rate cases. In the prior three 

rounds of filings for this proceeding, parties have raised numerous issues that merit 

judicious consideration. 

USDA applauds the Board's efforts to develop cost-effective, transparent, and fair 

rate appeal procedures for smaller shippers. The need for effective small-case rate appeal 

procedures is expected to become more important as rail prices increase in response to 

rail capacity constraints and as railroads attain revenue adequacy. Although railroads are 

nearing revenue adequacy, the U.S. Government Accountability Office (GAO) reported 

that the percentage of industry rail traffic traveling at rates over 300 percent of the 

railroad's variable cost increased from 4 percent in 1985 to 6 percent in 2004, indicating 
a possible abuse of market power.' As a result, the Board's efforts to ensure effective, 

transparent, and fair appeal procedures are appreciated. 

USDAYs analysis demonstrates that the eligibility standards set forth in the 

proposed Simplified Standards for Rail Rate Cases could limit shipper access to costeffective rail rate appeal procedures as envisioned by Congress, the Staggers Act of 1980, 

and the Interstate Commerce Commission Termination Act of 1995 (USDA comments, 

pg. 5-8). Under the proposed standards, USDA believes that the eligibility criteria are set 

too low. Based upon its analysis, USDA recommended and still recommends that the 

eligibility threshold be raised to $1.6 million for small cases and $15 million for medium 

size cases. If the eligibility standards are set too low, shippers having meritorious cases 

could be prevented from appealing rail rates. 

In agreement with comments expressed by the Department of Transportation and 

other parties, USDA supports the recommendation that the Board test the proposed SSAC 

procedure to verify its precision and to ensure a lack of bias (DOT rebuttal comments, pg. 

5-6; Joint Shippers, Rebuttal Comments at pg. 5,29-33). The true costs of pursuing rate 

cases under the proposed procedures have not been determined, and the Board has not 

tested the SSAC and Three Benchmark procedures to determine how closely the results 

of the procedures approximate those of the full SAC tests. Until the Board develops 

better information from testing the proposed procedures, USDA is hesitant to support 

lower thresholds for fear of harming shippers that have a meritorious case. 

' Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should 

Be Addressed, United States Government Accountability Office, GAO-07-94, October 2006, pg. 3. 
The railroad industry may be concerned that if eligibility thresholds are set too 

high, frivolous rate appeals will result. However, USDA believes that the actual cost of 

making an appeal, as well as the risk of not prevailing, would be enough to discourage 

hvolous appeals. A rail rate appeal does not guarantee a favorable outcome to a shipper 

appealing rail rates. It only ensures that a shipper has the opportunity to exercise the 

right to present a case to the Board. The case would be decided based upon its meritsrates would still have to be shown to be excessive, according to the existing laws. 

Successful rail rate appeals are not likely to have a large effect on railroad 

revenue adequacy. Although some rail rates may exceed the statutory limits, USDA 

believes that these are not as prevalent as many would believe. GAO, in its 

aforementioned study on Freight Railroads (p. 3 I), indicates that only 29 percent of 

railroad revenue is generated from traffic traveling at rates exceeding a revenue-tovariable cost ratio (FWC) of 180. Furthermore, GAO reported that only 6 percent of 

railroad traffic, based on tons, moves at rates exceeding an FWC of 300 percent. 

The Association of American Railroads has criticized USDA's proposals for 

higher eligibility standards because they were calculated using a risk factor and shield 

complainants from risks (AAR, reply comments, pg. 9- 11). The use of a risk factor is 

part of a cost-benefit analysis. If the Board were to accept USDA's proposed eligibility 

ceilings, it would not imply that the Board was subjectively judging the merits of the 

case. Conversely, setting the eligibility criteria by using a cost-benefit analysis helps to 

balance the possible benefits of a rate case with the expected costs. As such, it ensures 

that complainants have a reasonable opportunity to appeal rail rates. In addition, raising 
the eligibility ceilings does not shield complainants from risks. Complainants still incur 

attorney fees, consultant costs and internal costs by appealing rail rates, as the appeal may . 

not be successful or may result in much less relief than expected. 

USDA RECOMMENDA TZONS 

In light of the comments presented above, USDA reaffirms its recommendation 

that the eligibility ceiling for small cases should be increased to an MVC of $1.6 million. 

For medium-size cases, the MVC should range from $1.6 million to $15 million. Large 

cases should have an MVC greater than $15M. 

In determining eligibility thresholds, a point of balance must be reached whereby 

meritorious cases can be brought forth and, at the same time, frivolous cases are 

discouraged or minimized. Given the fact that so few small rate cases have been brought 

forth, an appropriate balance clearly has not yet been reached. Among many shippers 

and other interested parties, it is perceived that the cost of bringing a case far outweighs 

any possible benefits in terms of rate relief. Given the available data and information, 

USDA's use of a cost-benefit analysis represents a step toward finding a balance that 

makes the appeals process more cost-effective for shippers and does not adversely affect 

railroad revenue adequacy. 

USDA would also like to reemphasize its recommendations for changes to the 

procedural schedule. At a minimum, the small case procedural schedule should be 

reduced by 40 days. These days could possibly be taken out of the time allotted for the 

Board Decision on Eligibility, Discovery, Railroad's Final Tender, and Complainant 
Rebuttal. In addition, the Board should consider similar reductions in the medium-size 

case procedural schedule if the case does not involve complex changes to the railroad 

parameters. 

CONCL USZON 

USDA thanks the Board for its efforts and thoughtful analysis in the development 

of the proposed Simplified Standards. USDA hopes that its additional comments prove 

useful to the Board as it continues to assess the effectiveness of the proposed standards. 

USDA appreciates the opportunity to participate in this important process and offers its 

assistance to the Board if additional information is needed regarding our submitted 

comments. 

Respectively submitted, 

& BEe I. Knight 

Under Secretary 

Marketing and Regulatory Programs 

U.S. Department of Agriculture 

Washington, D.C. 20250 
CERTIFICATE OF SERVICE 

I, Arthur L. Neal, Jr., certify that on this 30th day of January, 2007, I caused a copy of the 

foregoing document to be served by first-class mail, postage prepaid, on all parties of 

record in STB Ex Parte No. 646, Sub No. 1. 

Arthur L. Neal, Jr. 

Acting Associate Deputy Administrator 

Transportation and Marketing Programs 

U.S. Department of Agriculture 

Washington, D.C. 20250