Opinion ID: 187401
Heading Depth: 1
Heading Rank: 8

Heading: Evidence of Movement-Specific Adjustments

Text: The three benchmarks evaluate ratios of revenues to variable costs. Although revenues generated by a specific rail movement are easy to measure, variable costs directly associated with that movement are not. See Adoption of the Uniform Railroad Costing System as a General Purpose Costing System for All Regulatory Costing Purposes, 5 I.C.C.2d 894, 904 (1989) (Given the degree of aggregation in the accounting data reported to the Commission, it is impossible for either Rail Form A or URCS [i.e., two alternative costing systems] to produce true marginal costs for particular movements....). To estimate these costs, the Board uses the Uniform Rail Costing System (URCS), a procedure that generates a statistical estimate of each railroad's variable costs based on its system-wide average variable costs. BNSF II, 526 F.3d at 774. For years, the Board has used URCS to answer the threshold question whether a railroad has enough market dominance to allow the Board to regulate the rate in the first place. In that context, the Board originally allowed the parties to argue for movement-specific adjustments to the cost estimates, but recently decided to bar them, finding that the cost savings and increase in predictability ... outweigh any gains in accuracy from the railroads' or shippers' adjustment proposals. Id. at 776. We upheld the Board's decision as a permissible exercise of its judgment. Id. Here the railroads argue that although the Board could permissibly exclude movement-specific adjustments from cost estimates used in the threshold market dominance determination, it acted arbitrarily in barring them from estimates used in the three benchmark procedure. None of the railroads' three arguments for this point has merit. First, they claim that the Board failed to address commenters' proposals to use only certain such adjustments. But the Board specifically considered and rejected these intermediate proposals, explaining that it would be unfair to allow only certain adjustments without granting the opposing party an opportunity to submit counter-adjustments, as well as access to broad discovery for that purpose. Decision at 97. Second, they claim that the need for accurate cost estimates is particularly acute in three benchmark cases given the methodology's inherent crudeness. The Board, however, relied on its experience with such adjustments to conclude they are too costly in light of their limited effect on accuracy. Id. at 84. And although crude, the three benchmark method is used for small disputes where efficiency is paramount. Further, using movement-specific adjustments in a three benchmark presentation would be even more cumbersome than in the threshold market dominance determination, as it would require calculating movement-specific adjustments for every movement in the comparison group, not just the challenged movement. Given this, the Board's conclusion that, as in the case of the threshold market dominance determination, movement-specific adjustments are too costly for three benchmark presentations, represents the kind of judgment call that balances inherently incommensurable costs and benefits and falls within the expertise of the agency, BNSF II, 526 F.3d at 776. Third, the railroads argue that comparing movement-specific revenues with system-average costs is inherently arbitrary. But if that were true, then doing so in determining market dominance would have been equally impermissible. And in any event, there are sound reasons for the mismatch: getting movement-specific revenues is easy, whereas calculating movement-specific variable costs is difficult, and in the Board's expert judgment not much more accurate.