United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 14, 2014 Decided June 20, 2014

No. 13-1230

CSX TRANSPORTATION, INC. AND NORFOLK SOUTHERN 

RAILWAY COMPANY,

PETITIONERS

v.

SURFACE TRANSPORTATION BOARD AND UNITED STATES OF 

AMERICA,

RESPONDENTS

On Petition for Review of an Order 

of the Surface Transportation Board

G. Paul Moates argued the cause for petitioners. With 

him on the briefs were Paul A. Hemmersbaugh, Matthew J.

Warren, Peter J. Shudtz, Paul R. Hitchcock, and John M. 

Scheib.

Michael L. Rosenthal, Carolyn F. Corwin, and Louis P. 

Warchot were on the brief for amicus curiae Association of 

American Railroads in support of petitioners.
2

Erik G. Light, Attorney, Surface Transportation Board, 

argued the cause for respondents. With him on the brief were 

William J. Baer, Assistant Attorney General, U.S. Department 

of Justice, Kristen C. Limarzi, Chief, Appellate Section, 

Shana M. Wallace, Attorney, and Craig M. Keats, General 

Counsel, Surface Transportation Board. Robert B. Nicholson, 

Attorney, U.S. Department of Justice, entered an appearance.

Before: TATEL, Circuit Judge, and SILBERMAN and 

SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

SENTELLE.

SENTELLE, Senior Circuit Judge: In July 2013, the 

Surface Transportation Board issued a decision modifying its 

procedures for rate reasonableness cases. See Rate 

Regulation Reforms (“Decision”), STB Ex Parte No. 715 

(served July 18, 2013). CSX challenges the decision on four 

grounds, three of which we reject. We reject CSX’s argument 

that the Board violated its statutory mandate when it made 

simplified procedures available for all cases. We also 

conclude that the Board adequately explained its adoption of a 

new revenue-allocation methodology as well as its rationale 

for adopting a new interest rate for reparations. As to the 

fourth challenge, we find merit in CSX’s argument that the

Board acted arbitrarily and capriciously in raising the relief 

cap for its most simplified rate reasonableness procedure. 

Specifically, it appears that the Board double-counted costs in 

producing its estimate without explanation. Accordingly, we 

remand so that the Board can address this objection.
3

BACKGROUND

The Surface Transportation Board regulates the rates of 

interstate railroads. See BNSF Ry. Co. v. Surface Transp. Bd., 

526 F.3d 770, 773 (D.C. Cir. 2008). By statute, a party may 

bring a complaint before the Board challenging a railroad’s 

rate. See 49 U.S.C. § 10704(b). Upon receiving a complaint, 

the Board must determine whether the railroad in question 

possesses “market dominance.” See §§ 10701(d)(1), 

10707(b)-(c). To have market dominance, a railroad’s 

revenue must meet or exceed 180 percent of its variable costs 

for the “transportation to which the rate applies.” See

§ 10707(d)(1)(A). “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

§ 10701(d)(1).

In determining whether a rate is reasonable, the Board 

applies principles known as Constrained Market Pricing. 

Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985). 

Constrained Market Pricing provides three essential criteria to 

guide the Board’s analysis. First, a shipper “should not be 

required to pay more than is necessary for the rail carrier(s) 

involved to earn adequate revenues.” Id. at 520. Second, it 

should not “pay more than is necessary for efficient service.” 

Id. Third, it “should not bear the costs of any facilities or 

services from which it derives no benefit.” Id. Instead, 

“[r]esponsibility for payment for [shared] facilities or services 

. . . should be apportioned according to the demand elasticities 

of the various shippers.” Id. If the Board finds a railroad’s 

rate unreasonable, it may prescribe a maximum lawful rate 

and order the railroad to pay reparations. See 49 U.S.C. 

§ 11704.
4

Though Constrained Market Pricing provides 

complainants with a number of possible approaches to 

challenge a rate, almost all rate cases have proceeded under 

the Stand-Alone Cost test, sometimes referred to as the “SAC 

test.” In a SAC test, complainants design a hypothetical 

stand-alone railroad, sometimes referred to as an “SARR,”

which is “a fully efficient hypothetical competitor railroad 

that serves the complaining shipper and other traffic sharing 

common facilities.” CSX Transp., Inc. v. Surface Transp. Bd., 

568 F.3d 236, 238 opinion vacated in part on reh’g, 584 F.3d 

1076 (D.C. Cir. 2009). The Board will find a challenged rate 

unreasonable if the stand-alone railroad would generate 

revenues that “exceed[] the costs (including a reasonable 

profit) of running the stand-alone railroad.” Id. at 238–39. In 

effect, SAC tests restrain railroads from exploiting market 

power, and prevent railroads from forcing captive shippers to 

pay for inefficiencies in the railroads’ investment operations. 

See Simplified Standards for Rail Rate Cases, EP 646 (SubNo. 1), slip op. at 13 (STB served Sept. 5, 2007) (2007 

Simplified Standards), aff’d CSX Transp., 568 F.3d at 236.

A. SIMPLIFIED PROCEDURES

Because SAC tests are complicated and costly, 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 

presentation is too costly, given the value of the case.” 49 

U.S.C. § 10701(d)(3). Over the years, the Board discharged

this duty by developing a two-tiered system. For cases worth 

less than $5 million—the Board’s estimate for presenting a 

SAC case—the Board created a procedure it called the 

Simplified-SAC test. 2007 Simplified Standards, at 13–16, 

30–31. Unlike Full-SAC, Simplified-SAC does not require 

the complainant to create a stand-alone railroad and does not
5

concern itself with uncovering inefficiencies in defendants’ 

railroads. See CSX Transp., 568 F.3d at 245. Instead, it 

focuses solely on whether the defendant railroad is abusing its 

monopoly power. Id. Simplified-SAC is limited to the 

predominant route of the issue traffic, it assumes that all 

infrastructure along the route is needed to serve the traffic, 

and it includes all traffic that traversed the route in the prior 

twelve-month period. 2007 Simplified Standards at 15–16. 

Simplified-SAC also uses the Board’s Uniform Rail Costing 

System to estimate total operating and equipment expenses. 

Id. at 16. Finally, under Simplified-SAC—as originally 

formulated—the Board used its prior Full-SAC cases to 

simplify the calculation of Road Property Investment costs—

unlike in Full-SAC which includes a complete analysis of 

these costs. Id. at 15.

For cases worth less than $1 million—the Board’s cost 

estimate for Simplified-SAC cases—the Board created the 

“Three Benchmark” approach. This method is simpler still; it

assesses rates by comparing “the challenged rate to three 

benchmark figures, each expressed as a relationship between 

revenues and variable costs, i.e., those costs that increase as 

traffic over the railroad increases . . . .” See CSX Transp., 568 

F.3d at 240 (internal quotations and citations omitted).

B. THE RULEMAKING UNDER REVIEW

In 2012, the Board instituted a rulemaking to revise its

procedures for rate reasonableness cases. Four of the Board’s 

proposals are pertinent to this challenge. First, in the notice 

of proposed rulemaking (“NPRM”), the Board proposed to 

remove the relief cap on Simplified-SAC cases. See Rate 

Regulation Reforms, Ex Parte No. 715 (July 25, 2012) at 13. 

The Board observed that the “Full-SAC and Simplified-SAC 

approaches both appear to be . . . appropriate method[s] to 
6

judge the reasonableness of the challenged rates, and there is 

no apparent reason to force the shipper to use the more 

expensive Full-SAC . . . in cases where the shipper seeks 

more than $5 million in relief.” Id. at 14. The Board also 

noted, on the other hand, that if a “complainant believes that 

there are enough inefficiencies . . . to justify the added 

expense and complexity of a Full-SAC presentation, it may 

pursue relief using [the] hypothetical [stand-alone railroad]

analysis.” Id. The Board further proposed to adjust the 

procedures for Simplified-SAC cases by requiring 

complainants to develop full Road Property Investment costs, 

just as they do in Full-SAC cases. See id. at 14. This change 

would render the methodology both more expensive and more 

robust. See id.

Commenters argued that Simplified-SAC was too 

imprecise for high-value cases, and that statutorily the Board 

could apply Simplified-SAC only to cases for “which a full 

stand-alone cost presentation is too costly, given the value of 

the case.” 49 U.S.C. § 10701(d)(3). The Board rejected both 

arguments. It found nothing in the governing statute that 

precluded its proposal. Decision, at 16. And noting that “all 

regulatory procedures to regulate rates necessarily entail some 

degree of imprecision,” the Board found nothing in 

commenters’ arguments that showed that the imprecisions in 

Simplified-SAC rendered it inappropriate for all cases. 

Decision, at 17–18. Accordingly, the Board adopted its 

proposal in full.

Second, the Board proposed to raise the relief cap on its 

most simplified reasonableness procedure, the Three 

Benchmark approach, from $1 million to $2 million. As 

noted earlier, this procedure assesses reasonableness through 

a simple comparison between the challenged rate and “three 

benchmark figures, each expressed as a relationship between 
7

revenues and variable costs, i.e., those costs that increase as 

traffic over the railroad increases . . . .” See CSX Transp., 568 

F.3d at 240 (internal quotations and citations omitted). The 

Board proposed this increase because developing Road 

Property Investment costs under Simplified-SAC increased 

the litigation cost of that type of complaint. See NPRM, at 15.

Commenters argued that the Three Benchmark method was 

too imprecise to be broadened to so much traffic, and they 

warned that expanding its applicability threatened to

artificially “ratchet” down rates. Shippers, on the other hand,

presented evidence that the estimate was still too low. The 

Board agreed with the shippers. It decided to raise the relief 

cap to $4 million dollars. It arrived at this figure by 

estimating the cost of a Simplified-SAC case under the old 

procedures at $2 million, and adding to that a $2 million 

estimate of the new costs of producing Road Property 

Investment evidence. See Decision, at 22–25. 

In its third proposal, the Board addressed the problem of 

allocating revenue in Full-SAC cases to so-called “crossover” traffic. As we recently explained:

The [stand-alone railroad’s] projected revenues are 

determined based on the real-world rates charged by 

the railroad servicing the traffic group included in the 

SAC presentation. This calculation is straightforward 

when complainants model the entire traffic group, but 

becomes more complex when SAC presentations 

include movements that travel a portion of their 

journey on the hypothetical SARR and a portion on 

actual railroads. Such “cross-over” traffic requires the 

Board to allocate revenue between the SARR and the 

real-world railroad.
8

BNSF Ry. Co. v. Surface Transp. Bd., 741 F.3d 163, 164 

(D.C. Cir. 2014) (WFA II) (citations omitted). The Board has

struggled for some time to produce a satisfactory solution to 

this problem. 

In 2006, the Board adopted the revenue allocation 

method known as Average Total Cost, or “ATC.” Id. 

Average Total Cost allocated revenues to the stand-alone 

railroad based on the average total cost of a traffic patterns’

movement on the stand-alone railroad. Id. In September 

2007—in the midst of a dispute between BNSF Railway 

Company and Western Fuels Association, Inc.—the Board 

discarded ATC and applied a new methodology: Modified 

Average Total Cost, or “Modified ATC.” Id. at 165. The 

Board did so to address an “illogical and unintended result” of 

ATC. Id. Under ATC, the shipper’s “traffic patterns had 

produced scenarios in which revenue generated by some 

movements would not cover the variable costs of those 

movements on-SARR . . . .” Id. Under Modified Average 

Total Cost, revenue is first allocated to the portions of a crossover movement to cover its respective variable costs. Id. 

Then, any remaining revenue is allocated in proportion to the 

relative average total costs of serving the on- and off-SARR 

segments. Id.

The Board applied Modified Average Total Cost to the 

case and granted the shipper relief in 2009. BNSF petitioned 

this Court for review, arguing that the Board acted arbitrarily 

and capriciously by departing from ATC. Specifically, BNSF 

claimed that Modified Average Total Cost improperly double 

counted variable costs. See BNSF Ry. Co. v. STB, 604 F.3d 

602, 604 (D.C. Cir. 2010) (WFA I). We granted BNSF’s 

petitions in part to allow the Board to address this objection

on remand.
9

On remand, BNSF still advocated for reversion to 

Average Total Cost. It also argued, however, that “even if 

the below-cost allocations under ATC were problematic, 

Modified ATC represented a disproportionate response to this 

problem.” WFA II, at 165. BNSF “suggested a different 

approach that would proportionately adjust ATC to address 

the problem it created.” Id. “Under BNSF’s suggestion . . . , 

the Board would first apply ATC to all movements with 

revenues exceeding variable costs. Then, for below-cost 

traffic, the Board would allocate additional revenues to 

eliminate the shortfall.” Id. The Board upheld its use of 

Modified Average Total Cost and refused to apply BNSF’s 

suggestion to the case before it, concluding that BNSF’s

proportionality critique fell outside the scope of our remand. 

Id. The Board did, however, recognize the merits of BNSF’s 

suggestion, and initiated this rulemaking to consider whether 

such a method might be a better allocation method than 

Modified ATC. Id.

In the notice of proposed rulemaking, the Board 

explained that its proposed methodology, which it called 

Alternative ATC, had been brought to its attention in the 

Western Fuels Association remand. NPRM, at 18. It

described the proposed methodology as having two steps. 

The first step would “follow . . . original ATC . . . .” Id. at 17. 

Then, “[a] second step would . . . be performed to ensure that 

the revenue allocated to both the facilities replicated by the 

SARR and those of the residual defendant carriers would not 

be driven below the defendant’s [Uniform Rail Costing

System] variable costs for the movement over those 

segments.” Id. at 17–18. The method, the Board suggested, 

“might better address two competing principles in the 

selection of a cross-over traffic methodology”; namely, the 

need to reflect “economies of density” and the need to avoid
10

“the implausible result of driving the revenue allocation on 

any segment below variable costs.” Id. at 18. 

In their comments below, Petitioners argued, among 

other things, that “an on-SARR revenue allocation that 

generates a[] [revenue-variable-cost ratio] of less than 100 

percent is [neither] implausible [n]or irrational.” Opening 

Comments of CSXT & NS, at 17 (filed Oct. 23, 2012). The 

Board was unpersuaded, and adopted Alternative ATC as 

proposed. Decision, at 30. 

Finally, the Board changed the interest rate it applies to 

reparations from the 90-day U.S. Treasury Bills (“T-Bill”) 

rate to the U.S. Prime Rate. See Decision, at 35–36. It 

concluded that the Prime Rate better reflected the opportunity 

costs a shipper loses through unreasonable rates. Id. 

ANALYSIS

We review Board decisions under the Administrative 

Procedure Act, and will set aside a Board decision if it is 

“arbitrary, capricious, an abuse of discretion, or otherwise not 

in accordance with law.” 5 U.S.C. § 706(2)(A). We evaluate 

the Board’s statutory interpretation under the framework of 

Chevron U.S.A. Inc. v. Natural Resources Defense Council, 

Inc., 467 U.S. 837 (1984). “If the intent of Congress is clear, 

that is the end of the matter; for the court, as well as the 

agency, must give effect to the unambiguously expressed 

intent of Congress.” Id. at 842–43. If, on the other hand, the 

statute is ambiguous, “the question for the court is whether 

the agency’s answer is based on a permissible construction of 

the statute.” Id. at 843.

CSX challenges the Decision on four grounds. It argues 

(A) that the Board unreasonably construed § 10701(d)(3) 
11

when it made the Simplified-Stand-Alone Cost test available 

for all cases; (B) that the Board acted arbitrarily and 

capriciously in raising the relief cap for Three Benchmark 

cases to $4 million; (C) that the Board failed to adequately 

explain its departure from ATC; and (D) that the Board acted 

unreasonably in replacing the T-Bill rate with the U.S. Prime 

Rate. We treat each in turn.

A. REMOVAL OF THE RELIEF CAP FOR

SIMPLIFIED-SAC CASES

CSX argues that the Board’s decision to remove the relief 

cap on Simplified-SAC cases violates Congress’s clear intent 

to the contrary. 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 presentation is too costly, given the 

value of the case.” 49 U.S.C. § 10701(d)(3). CSX reads this

language as a clear directive from Congress: the Board is to 

use simplified methods only when a full SAC test is too costly 

for the case at hand. Otherwise, CSX argues, Congress’s 

qualifying language—“given the value of the case”—would 

be mere surplusage. Why would Congress circumscribe the 

Board’s task if it did not intend for that circumscription to 

actually limit the Board’s discretion? CSX bolsters its 

argument by reference to the interpretive canon of expressio 

unius. According to CSX, the fact that Congress made clear 

the Board was to use a simplified approach for low-relief 

cases implies that it is not to use such an approach for highrelief cases. The Board violated this directive, CSX argues,

when it allowed Simplified-SAC in any case. 

We disagree. The Board’s interpretation is perfectly 

consistent with Congress’s direction in the statute. “[T]he 

Board is the expert body Congress has designated to weigh 
12

the many factors at issue when assessing whether a rate is just 

and reasonable.” CSX Transp., 568 F.3d at 240. And as a 

general matter, it enjoys broad discretion to design rate 

reasonableness tests. See 49 U.S.C. § 10701(d). It is true, as 

CSX points out, that Congress removed the Board’s discretion 

with respect to low-relief cases. But Congress made no 

direction whatsoever for other cases, and no direction can be

implied from Congress’s silence. 

Ultimately, CSX’s position rests on a logical fallacy. “If 

P then Q” does not imply “If not P then not Q”—yet this is 

CSX’s entire argument. It infers from the fact that the Board 

must provide a simplified approach for low-relief cases, that it 

must not do so for any other case. On the contrary, the statute 

represents a floor, not a ceiling for the Board’s discretion. 

Congress required the Board, at a minimum, to develop a 

simplified approach for low-recovery cases; nothing in that 

requirement circumscribed the Board’s discretion concerning 

high-recovery cases. And reading the statute thus—that is 

according to its own terms—renders no part of it surplusage.

We also find the Board’s interpretation reasonable. Since 

the Board retained discretion to adjudicate high relief cases as 

it saw fit, we defer to the agency so long as it provided a

“reasoned explanation for why it chose” to make those cases 

eligible for Simplified-SAC. See Vill. of Barrington v. STB, 

636 F.3d 650, 660 (D.C. Cir. 2011). The Board satisfied this 

burden. As it explained in its decision, the Board saw “no 

reason that Congress would order the agency to prevent 

captive shippers from using [an] alternative approach” that is 

“simplified” and “expedited,” so long as it is also “a robust 

method for determining the reasonableness of challenged rail 

rates.” Decision, at 17. This is not an unreasoned 

explanation, and we therefore defer to it.
13

In cursory fashion, CSX also argues that the SimplifiedStand-Alone Cost methodology introduces imprecisions that 

render its application to high-relief cases arbitrary and

capricious. In a Full-SAC case, the parties develop operating 

costs for the traffic group specific to the stand-alone railroad. 

Simplified-SAC, on the other hand, uses Uniform-RailCosting-System numbers which do not account for highercost movements—for instance, those transporting highly toxic 

materials—and could result in significant distortions in highvalue cases. We are not persuaded.

The Board responded to CSX’s concerns in its decision. 

It noted that the Uniform Rail Costing System is its “general 

purpose costing model” and that “using [Uniform Rail 

Costing System] system-average costs should provide a

reasonable approximation of the total operating expenses of 

the traffic group.” Id. at 17 (quotations omitted). The Board 

also concluded that commenters “never explain[ed] what 

feature of [Uniform Rail Costing System] introduce[d] so 

much imprecision in Simplified-SAC—as compared to FullSAC . . . —to warrant a limitation on relief.” Id. at 17. 

“Indeed,” the Board noted, “although a Full-SAC presentation 

is more ‘precise’ than a Simplified-SAC presentation, it is so 

only in the sense that, through a highly complex and detailed 

presentation involving a hypothetical railroad, it ferrets out 

operating inefficiencies.” Id. at 17. Accordingly, the Board 

concluded, “[t]here is no basis to permit the railroads to earn 

excessive profits simply because, unlike the Full-SAC 

method, the Simplified-SAC method does not detect the 

inefficiencies in rail operations that may further raise rates.” 

Id. at 16. Given its thorough treatment of these comments, we 

find the Board’s decision neither arbitrary nor capricious.

Finally, we note that amicus for Petitioner, Association of 

American Railroads, adds several non-statutory arguments of 
14

its own, but because “we ordinarily do not entertain 

arguments not raised by parties” we decline to address them 

here. Narragansett Indian Tribe v. Nat’l Indian Gaming 

Comm’n, 158 F.3d 1335, 1338 (D.C. Cir. 1998).

B. INCREASE OF THE RELIEF CAP FOR THREE 

BENCHMARK CASES

CSX’s second challenge goes to the Board’s decision to 

raise the relief cap on its most simplified reasonableness 

procedure, the Three Benchmark approach, from $1 million to 

$4 million. CSX challenges the Board’s decision on two 

fronts. First, it argues that the Board’s rationale for the 

increase was predicated on an incomplete record and 

mathematical errors. Second, it argues that the Board’s 

decision—which dramatically broadened the availability of 

the Three Benchmark approach—threatens to artificially 

depress rates.

The Board decided to raise the relief cap in light of its 

revised estimate that a Simplified-SAC case would cost $4

million to present. It reached this number in two steps. First 

it estimated the cost of presenting a case under the old 

Simplified-SAC procedures, relying principally on the 

testimony of U.S. Magnesium, LLC, the only party to have

brought a case under the old procedures. See Decision, at 22–

23. The Board then added to this the estimated costs of the 

new procedures to reach its result. CSX challenges both 

steps.

CSX claims that U.S. Magnesium’s estimate was 

inherently implausible, and that the Board thus erred in 

accepting it. U.S. Magnesium testified that its litigation costs 

could have reached $2 million in a Simplified-SAC case 

under the old methodology. See id. But U.S. Magnesium
15

settled its case, and in light of its actual expenses, its math 

does not add up, according to CSX. U.S. Magnesium actually 

spent only $750,000 in preparing its opening evidence. CSX 

argues that there is simply no way it would have had to spend 

$1.25 million more after it had constructed its entire case. We 

need not linger on the details of CSX’s claims here, however,

because its argument misses the larger picture.

U.S. Magnesium was the only party ever to have pursued 

relief under Simplified-SAC. Thus its estimate represents the 

only actual data the Board had to work with in making its 

estimate of possible costs under the old procedures. And as 

the Board explained, U.S. Magnesium had brought a 

“relatively straightforward Simplified-[Stand-Alone Cost]

case of single commodity from a single origin to 12 

destinations.” Id. at 23. Moreover, U.S. Magnesium had 

incurred “no expense in establishing market dominance 

because the defendant had conceded that issue.” Id. The 

Board did not act arbitrarily or capriciously in estimating the 

cost of Simplified-SAC cases at $2 million, given the limited 

data at its disposal and the simplified nature of U.S. 

Magnesium’s case.

CSX further argues that the Board also erred in the 

second step of its analysis. Once it had estimated the cost of a 

case under the old procedures, the Board added the new costs 

of producing a full Road Property Investment presentation. 

Id. Accepting expert testimony that developing Road 

Property Investment costs usually accounted for about a third 

of the total costs in presenting Full-SAC cases—or $1.9

million—the Board added that to its baseline estimate to reach 

its final relief cap of $4 million. Id. at 23–25. CSX argues 

that the Board erred by adding this estimate in its entirety 

without subtracting the cost of developing Road Property 

Investment evidence under the prior regime. Though Road 
16

Property Investment calculations were streamlined under the 

former procedures, Simplified-SAC complainants were still 

required to prepare some of the Road Property Investment 

analysis required in Full Stand-Alone Cost cases. See 

Simplified Standards, at 38–48.

The Board does not offer much in response to this 

objection. It merely claims that, even if it did double count

these costs, CSX has not shown that “the Board would have 

had to choose a lower limit.” Resp. Brief, at 52. But this 

argument answers the wrong question. The APA places the 

burden on the Board to render a decision that “examine[s] the 

relevant data and articulate[s] a satisfactory explanation for its 

action including a ‘rational connection between the facts 

found and the choice made.’” Motor Vehicle Mfrs. Ass’n of

U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 

(1983) (quoting Burlington Truck Lines v. United States, 371 

U.S. 156, 168 (1962)). Because the Board did not explain the 

apparent double counting of Road Property Investment 

costs—first in the baseline and then in the new cost 

addition—it did not rationally connect its choice of action to 

the facts. See id. Accordingly, we will remand for the Board 

to address CSX’s double-counting objection. We will not, 

however, vacate the Board’s decision. This is an instance in 

which the Board “may be able readily to cure a defect in its 

explanation of [its] decision” and the “disruptive effect of 

vacatur” would be high. Heartland Regional Medical Center 

v. Sebelius, 566 F.3d 193, 198 (D.C. Cir. 2009).

CSX also challenges the broadening of the Three 

Benchmark approach as arbitrary on a separate rationale. It

argues that the Board irrationally expanded the applicability 

of the Three Benchmark approach to over two-thirds of all 

regulated traffic without sufficient explanation. When the 

Board lowers a rate by using the averages of other rates, it 
17

thereby lowers the average for future cases—which threatens 

to ratchet down rates artificially. This Court has rejected ratecomparison formulas due to their ratcheting potential in the 

past. See, e.g., Burlington N. R.R. Co. v. I.C.C., 985 F.2d 589, 

597 (D.C. Cir. 1993). Previously the Board defended against 

this threat by claiming that few cases were eligible for this 

approach. It was irrational, CSX claims, for the Board to 

ignore this problem now that so many cases are eligible for 

the Three Benchmark approach.

We find that the Board adequately answered this 

challenge in its decision. There it explained that (1) relief 

continued to be limited, (2) ratcheting would require an 

avalanche of successful cases, (3) the Board could reassess its 

approach in such an implausible scenario, and (4) the chosen 

limit represented a reasonable balance of “concerns about

possible ratcheting with Congress’s clear intent that shippers 

with smaller disputes have a means of challenging their 

rates.” Decision, at 24. As we noted earlier, almost no parties 

had proceeded under a Simplified-SAC approach before this 

rulemaking. It was reasonable for the Board to conclude from 

this evidence that Simplified-SAC is too costly where the 

value of the case is less than the cost of producing such a 

presentation, and that, for such cases, the Three Benchmark 

approach would be the only viable option. See id. 

C. ADOPTION OF ALTERNATIVE ATC

CSX’s third challenge goes to the Board’s modification 

of its cross-over-revenue allocation method. CSX argues that 

the Board failed to respond to important comments regarding 

the Board’s reasoning in adopting the Alternative Average 

Total Cost formula for revenue allocation. The Board

justified its proposal, in part, on the rationale that Average 

Total Cost had produced the “illogical” and “implausible” 
18

result of allocating revenues insufficient to cover segments’

variable costs on the stand-alone railroad. But according to 

CSX, commenters demonstrated that below-variable-cost 

allocations were consistent with the logic and application of 

the Alternative Total Cost formula. The Board erred in 

ignoring these comments in this rulemaking. To see why 

CSX’s argument fails, we must tour the convoluted 

procedural history from which this rulemaking sprang.

As we noted earlier, the Board originally discarded 

Average Total Cost in the midst of the Western Fuels 

Association proceeding, and adopted in its place Modified 

Average Total Cost. WFA II, 741 F.3d at 164. It was in this

original proceeding that the Board explained that ATC had

the “illogical and unintended result” of producing “scenarios 

in which revenue generated by some movements would not 

cover the variable costs of those movements” on the standalone railroad. Id. at 165. When we remanded to the Board 

to address BNSF’s double-counting objection, BNSF 

maintained that Modified ATC was an irrational response to 

the problem created by ATC, but it also suggested a different 

approach: Alternative ATC. The Board, recognizing the 

merits of BNSF’s suggestion, initiated a rulemaking to 

consider whether Alternative ATC might in fact be a better 

allocation method than Modified ATC.

It is this—the Board’s subsequent decision to adopt 

Alternative ATC—that CSX now challenges. But the 

character of this decision is not whether the Board should 

discard ATC or, relatedly, whether there was a problem with 

it. The Board based its proposal in the NPRM on its 

consideration of cross-over revenue allocation in the Western 

Fuels Association proceedings. See NPRM, at 8. There the 

Board had already rejected ATC, and by framing its proposal 

as an offshoot of these proceedings, the Board put 
19

commenters on notice that it was not considering whether to 

revert to Average Total Cost, or whether below-variable-cost 

allocations were problematic. On the contrary, the

rulemaking we now review assumed that below-variable-cost 

allocations were illogical, and operated on that assumption.

More to the point, the Board addressed the same 

arguments in the Western Fuels Association proceedings that 

CSX accuses it of ignoring now:

 First, CSX claims the Board ignored comments to the 

effect that below-variable-cost allocations under ATC 

are not illogical. But as the Board noted in the 

Western Fuels Association proceedings, allowing such 

allocations “creates the illusion that . . . more revenue 

is available to help pay for [fixed] costs . . . than is 

available in reality.” Western Fuels Association

Remand, at 7.

 Second, CSX highlights comments arguing that it is 

meaningless to compare stand-alone railroad revenues 

to actual variable costs, because “the Stand-Alone 

Railroad is optimally efficient and would have 

different variable costs on the on-Stand-AloneRailroad segment tha[n] [the] defendant carrier would 

have in the real world.” Pets. Br., at 52–53. The

Board addressed this concern in the Western Fuels 

Association proceedings. There it considered the 

stand-alone railroad’s efficiency irrelevant “because 

the fairness of a revenue-allocation procedure should 

not depend on . . . the complainant having to design a 

[[s]tand-[a]lone [r]ailroad] that is more efficient than 

the incumbent railroad.” Western Fuels Association

Remand, at 4.
20

 The Board also rejected a third argument CSX now 

highlights. Commenters argued that the Board’s use 

of Uniform Rail Costing System costs is 

“inappropriate both because that segment may have 

significantly different costs than the carrier’s overall 

average costs, and because some Uniform Rail 

Costing System costs are unattributable [fixed] costs

. . . , not variable costs.” Pets. Br., at 53. As the 

Board noted in the Western Fuels Association

proceedings, use of Uniform Rail Costing System in a 

SAC analysis is appropriate because the Uniform Rail 

Costing System is “a measure of intermediate-variable 

costs,” which includes costs that are “fixed in the short 

term . . . but variable over the longer term.” Western 

Fuels Association Remand, at 8.

 Fourth, in the Western Fuels Association proceedings, 

the Board rejected the contention that the burden 

should be on the complainant to avoid below-variablecost allocations, an argument revived in this 

proceeding. See Western Fuels Association Remand,

at 8.

 Finally, commenters argued that the Board need not be 

concerned with below-variable-cost allocations for 

artificially segmented portions of a rail that would in 

the real world be priced in its entirety. In the Western 

Fuels Association proceedings, however, the Board 

noted that carriers will “in general, estimate revenues 

attributable to the segment in an amount at least equal 

to the long-run variable costs of providing service over 

that segment.” Western Fuels Association Remand, at 

7.
21

In short, the Board addressed the arguments CSX now 

accuses it of ignoring in the original proceeding in which it 

discarded the Average Total Cost formula. The Board had no 

reason to repeat its responses in this proceeding, which 

addressed only whether to replace Modified ATC with 

Alternative ATC.

D. MODIFICATION OF THE INTEREST RATE

CSX’s final challenge goes to the Board’s adoption of a 

new interest rate for reparations. Prior to this rulemaking, the 

Board used the T-Bill rate for reparations. In the NPRM, the 

Board noted its concern that the T-Bill rate was insufficiently 

compensatory (0.1% at the time) and proposed to replace it 

with the U.S. Prime Rate (then 3.25%). NPRM, at 18.

According to the Board, the interest rate should “correlate[] to 

market interest rates over a comparable time frame,” and the 

Board asserted that the U.S. Prime Rate satisfied this test 

because it was “the interest rate that the banks charge to their 

most creditworthy customers.” Id. 

CSX argues that it presented evidence that the Board’s 

stated premises for changing the interest rate were incorrect, 

yet the Board failed to address this evidence in its decision. 

CSX challenged the Board’s statement that the Prime Rate 

measures actual market interest rates; as CSX pointed out, the 

Prime Rate is merely a base rate or pricing index. Second, 

CSX pointed out that the Prime Rate is based on the Federal 

index, and is not a rate actually given to creditworthy 

customers. Yet, according to CSX, the Board ignored these 

comments and simply repeated its belief that the Prime Rate 

“correlates to market interest rates” and that it is the “rate that 

the banks charge to their most creditworthy customers.”

Decision, at 35–36.
22

We find CSX’s arguments unpersuasive. CSX does not

dispute that shippers’ opportunity cost is the appropriate 

measure for interest on reparations, that the T-Bill rate does 

not accurately reflect that cost, or that the U.S. Prime Rate 

represents a rate more attuned to that cost. In short, CSX does

not dispute the essential reasoning on which the Board rested 

its decision to replace the T-Bill rate with the Prime Rate. 

Accordingly, we find that the Board adequately explained its 

decision to adopt a new interest rate.

CONCLUSION

We grant the petition in part, so that the Board on remand 

can address CSX’s claim that the Board double-counted costs 

in producing its estimate for the Three Benchmark relief cap, 

and we otherwise deny the petition.