Opinion ID: 186699
Heading Depth: 3
Heading Rank: 2

Heading: Cross-over Traffic

Text: 27 BNSF next objects to the heavy reliance of Xcel's SARR upon cross-over traffic. According to the railroad, the allocation of revenues between the SARR and the off-SARR portions of a through movement is distorted because a railroad does not charge rates for discrete portions of a through movement, as a result of which there must be an arbitrary allocation of through revenue between the two portions of the through movement. Likewise, the cost side of the comparison is distorted because the costs of the off-SARR portions of the movements are ignored altogether. Therefore, contends BNSF, a properly performed SAC test must use only end-to-end movements and must examine[] the full costs of all facilities used to provide service to the shipper group and the total revenues generated by that traffic.  28 In response the Board acknowledges that the use of cross-over traffic introduces... imprecision into the SAC analysis but argues that excluding such traffic would risk being intractable. Decision I, at 16. The SAC analysis must reflect the cost sharing and production economies derived from sharing facilities on the SARR. See Decision I, at 14 (quoting Coal Rate Guidelines, 1 I.C.C.2d at 544: Without grouping, SAC would not be a very useful test, since the captive shipper would be deprived of the benefits of any inherent production economies); Nevada Power, 10 I.C.C.2d at 265 n. 12. Therefore, to exclude cross-over traffic from a SAC analysis would dramatically enlarge the geographic scope of a SARR needed to serve the group of shippers selected for the SARR by the complainant. Decision I, at 14. In this case, the Board estimated that in order to serve the same 37 shippers without any cross-over traffic, the SARR would need to be at least 10 times larger than the [SARR that Xcel proposed]. Id. The complexity of the consequent proceeding, the Board concluded, would expand exponentially beyond what is already a dauntingly large and detailed task. Id. at 16. 29 The pursuit of precision in rate proceedings, as in most things in life, must at some point give way to the constraints of time and expense, and it is the agency's responsibility to mark that point. Our role is limited to determining whether the balance it struck is arbitrary. See Burlington N. R.R., 985 F.2d at 597 (the Commission is free to make reasonable trade-offs between the quality and cost of possible regulatory approaches. . . . and of course we owe the Commission's judgment on the point great deference so long as it intelligibly explained why the trade-off chosen was reasonable). 30 Here, the Board's explanation for its decision to allow cross-over traffic as a simplifying mechanism, which the Board has described as now a standard feature of SAC cases, Decision I, at 17, was both reasonable and intelligibly explained. The Board must balance, among other concerns, the need for a reasonably accurate methodology and the need to avoid unduly protracting already complex and expensive SAC proceedings. See 49 U.S.C. § 10101(15) (Board must provide for expeditious handling and resolution of all proceedings); Ass'n of Am. R.Rs. v. Surface Transp. Bd., 306 F.3d 1108, 1111 (D.C.Cir.2002) ([I]t is up to the Board to arrive at a reasonable accommodation of the conflicting policies set out in the Staggers Act). In view of the Board's estimate that presentation and analysis of the SARR, which already involved dozens of volumes of evidence, would have burgeoned tenfold without the simplifying mechanism of cross-over traffic, Decision I, at 16, it was not unreasonable for the Board to conclude that barring cross-over traffic from the SARR would be not only inefficient but infeasible. See Decision II, at 7 (We remain concerned that, without cross-over traffic, captive shippers could lack a practicable means by which to prosecute rate complaints). 31 Our view of this matter might be different if BNSF had presented evidence to establish that the imprecision implicit in the use of cross-over traffic tends to overestimate the revenues generated by a SARR to a degree that outweighs any efficiency gains. Instead, lacking such evidence, we are struck by the irony of BNSF calling for a dramatic increase in the complexity of the SAC proceeding even as it argues the case should be dismissed because the Board failed to resolve it more speedily. 32 In sum, we do not think the Board unreasonably concluded that the value of this evidentiary tool outweighs its limitations. Decision II, at 7. 33 More persuasive, but also ultimately unconvincing, is BNSF's argument that the specific method by which the Board allocates revenue to cross-over traffic is flawed. The appropriate allocation of revenue from cross-over traffic is a perennial issue in SAC proceedings and one the Board even now has not resolved definitively. See, e.g., PPL Mont., LLC v. Burlington N. & Santa Fe Ry., STB Docket No. 42054, 2002 WL 1905118, 7 n. 14 (STB served Aug. 20, 2002) (We have not adopted a single preferred procedure for developing revenue divisions on cross-over traffic). The Modified Straight-Mileage Prorate (MSP) procedure, which was applied in this and several other recent proceedings, is a refinement of a mileage-based formula long used in SAC cases to allocate cross-over traffic revenues. Decision II, at 8; see, e.g., Duke Energy Corp. v. CSX Transp., Inc., STB Docket No. 42070, 2004 WL 250254 (STB served Feb. 4, 2004); Duke Energy Corp. v. Norfolk S. Ry., STB Docket No. 42069, 2003 WL 22673026 (STB served Nov. 6, 2003); Carolina Power & Light Co. v. Norfolk S. Ry., STB Docket No. 42072, 2003 WL 23109610 (STB served Dec. 23, 2003). Under MSP, revenues from a movement are allocated to the SARR based upon the movement's proportionate share of the combined mileage and upon the assumption that average costs are a continuous function of distance (holding other factors constant). Decision II, at 8. In recognition of the proportionally higher costs associated with originating and terminating traffic, for each movement that originates or terminates on the SARR, a 100-mile additive is included in the calculation as a surrogate in the absence of any better evidence as to the costs of those functions. Id. 34 BNSF criticized the MSP approach for its failure to take into account economies of density, that is, the principle that as the density of traffic increases over a stretch of rail, average costs diminish, see Coal Rate Guidelines, 1 I.C.C.2d at 526, at least initially. BNSF therefore proposed an alternative method it called the Density Adjusted Revenue Allocation (DARA). Under this approach, revenues are allocated between the SARR and off-SARR segments of a cross-over movement in proportion to each segment's relative variable cost, distance, and density. Decision I, at 17. The Board rejected DARA because, although it does allocate a higher proportion of revenues to lower density lines, it ignor[es] the well-accepted principle that economies of density will vary with different levels of output. Decision II, at 8-9. Thus, even where economies of density have been, for practical purposes, exhausted, DARA would continue to allocate greater revenue to the part of the movement using the lighter-density line. Id. at 11. The Board therefore concluded that DARA had not been shown to be superior to the MSP approach ordinarily used in SAC cases. Decision II, at 11. 35 Although we take BNSF's point that the MSP method of allocating revenue to cross-over traffic does not take into account economies of density, we believe the Board gave an adequate reason for rejecting the DARA method, namely, its failure to take into account the diminishing nature of those economies. Each method has a limitation and, faced with a choice between them, the Board reasonably stayed on the course it had long ago adopted. See Atchison, Topeka & Santa Fe Ry. v. Wichita Bd. of Trade, 412 U.S. 800, 807-08, 93 S.Ct. 2367, 37 L.Ed.2d 350 (1973) (A settled course of behavior embodies the agency's informed judgment that, by pursuing that course, it will carry out the policies committed to it by Congress. There is, then, at least a presumption that those policies will be carried out best if the settled rule is adhered to). 36 BNSF correctly points out that the Board has not adopted a single preferred procedure, PPL Mont., at 7 n. 14, but we see that it has for more than a decade used a mileage-based allocation of revenue. In its order denying rehearing in this case, the Board recognized there may well be a better revenue allocation procedure that could be practical for SAC cases and invited proposals, whether submitted in future rate proceedings or as requests for rulemaking. See Decision II, at 11. Were the Board presented with a model that took account both of the economies of density and of the diminishing returns thereto, a decision to adhere to its MSP model would be on shaky ground indeed. But that day is yet to come.