# Final Offer Rate Review; Expanding Access to Rate Relief

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2021-25168

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** November 26, 2021
- **Citation:** 86 FR 67622

## Text

SURFACE TRANSPORTATION BOARD
49 CFR Parts 1002, 1111, 1114 and 1115
[Docket No. EP 755; Docket No. EP 665 (Sub-No. 2)]
Final Offer Rate Review; Expanding Access to Rate Relief

AGENCY:

Surface Transportation Board.

ACTION:

Supplemental notice of proposed rulemaking.

SUMMARY:

In response to comments received on the notice of proposed rulemaking (
NPRM
) published on September 17, 2019, and to ensure parallel consideration with the proposal in
Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for Small Rate Disputes
(
Arb. NPRM
), Docket No. EP 765, published elsewhere in this issue of the
Federal Register
, the Surface Transportation Board (STB or Board) invites parties, through this supplemental notice of proposed rulemaking (SNPRM), to comment on certain modifications to the rate reasonableness procedure, as well as other issues contained in the discussion below.

DATES:

Comments are due by January 14, 2022. Reply comments are due by March 15, 2022.

ADDRESSES:

Comments and replies may be filed with the Board via e-filing on the Board's website at
www.stb.gov
and will be posted to the Board's website.

FOR FURTHER INFORMATION CONTACT:

Amy Ziehm at (202) 245-0391. Assistance for the hearing impaired is available through the Federal Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

In January 2018, the Board established its Rate Reform Task Force (RRTF), with the objectives of developing recommendations to reform and streamline the Board's rate review processes for large cases, and determining how to best provide a rate review process for smaller cases. After holding informal meetings throughout 2018, the RRTF issued a report on April 25, 2019 (
RRTF Report
).
1

Among other recommendations, the RRTF included a proposal for a final offer procedure, which it described as “an administrative approach that would take advantage of procedural limitations, rather than substantive limitations, to constrain the cost and complexity of a rate reasonableness case.”
RRTF Rep.
12. Versions of a final offer process for rate review have also been recommended by the U.S. Department of Agriculture (USDA) and a committee of the Transportation Research Board (TRB).

1
The
RRTF Report
was posted on the Board's website on April 29, 2019, and can be accessed at
https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf.

In a notice of proposed rulemaking issued on September 12, 2019, the Board proposed to build on the RRTF recommendation and establish a new rate case procedure for smaller cases, the Final Offer Rate Review (FORR) procedure.
Final Offer Rate Rev.
(
NPRM
), EP 755 et al. (STB served Sept. 12, 2019).
2

2
The proposed rule was published in the
Federal Register
, 84 FR 48872 (Sept. 17, 2019).

The Board received numerous comments on the
NPRM.
By decision served on May 15, 2020, to permit informal discussions with stakeholders, the Board waived the general prohibition on ex parte communications between June 1, 2020, and July 15, 2020. Meetings took place during the specified period; parties filed memoranda pursuant to 49 CFR 1102.2(g)(4); the memoranda were posted on the Board's website; and parties were permitted to submit written comments in response to the memoranda.
3

3
The following parties submitted comments, participated in meetings, or submitted comments in response to memoranda: The American Chemistry Council (ACC), The Fertilizer Institute, the National Industrial Transportation League, the Chlorine Institute, and the Corn Refiners Association (collectively, the Coalition Associations); the American Fuel & Petrochemical Manufacturers (AFPM); the Association of American Railroads (AAR); BNSF Railway Company (BNSF); Canadian National Railway Company (CN); Canadian Pacific (CP); CSX Transportation, Inc. (CSXT); Farmers Union of Minnesota, Farmers Union of Montana, Farmers Union of North Dakota, Farmers Union of South Dakota, and Farmers Union of Wisconsin (collectively, Farmers Union); Growth Energy; Indorama Ventures (Indorama); Industrial Minerals Association—North America (IMA-NA); The Kansas City Southern Railway Company (KCSR); MillerCoors; National Grain and Feed Association (NGFA); National Taxpayers Union (NTU); Norfolk Southern Railway Company (NSR); Olin Corporation (Olin); Private Railcar Food and Beverage Association (PRFBA); Samuel J. Nasca; Solvay America, Inc.; Steel Manufacturers Association (SMA); Union Pacific Railroad Company (UP); USDA; U.S. Wheat Transportation Working Group (USW); and Western Coal Traffic League (WCTL). The Board also received a joint comment from several members of the Committee for a Study of Freight Rail Transportation and Regulation of the Transportation Research Board (referred to collectively as the TRB Professors), as well an individual comment and reply from one member of that committee, the late Dr. Jerry Ellig (Dr. Ellig). That committee issued a report titled
Modernizing Freight Rail Regulation
(
TRB Report
) in 2015.
See
Nat'l Acads. of Sciences, Eng'g, & Med.,
Modernizing Freight Rail Regul.
(2015),
http://nap.edu/21759.

In light of the filed comments and information received in meetings with stakeholders, the Board is issuing this
SNPRM
to invite comment on certain modifications to the rate reasonableness procedure proposed in the
NPRM,
as well as other issues contained in the discussion below. This
SNPRM
also will ensure parallel consideration of the modified FORR proposal with the proposal published elsewhere in this issue of the
Federal Register
,
Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for Small Rate Disputes
(
Arb. NPRM
), EP 765 (STB served Nov. 15, 2021).

In addition to seeking comments, the Board will again waive the general prohibition on ex parte communications regarding matters related to this proceeding,
4

to allow discussions of FORR issues in conjunction with ex parte discussions of the arbitration proposal.
See
49 CFR 1102.2(g);
Final Offer Rate Rev.,
84 FR 48872 (Sept. 17, 2019), EP 755 (STB served May 15, 2020). The duration of the ex parte waiver will match the ex parte meeting period in Docket No. EP 765,
i.e.,
between November 15, 2021, and February 23, 2022.

4
The Board previously waived the prohibition on ex parte communications in Docket No. EP 665 (Sub-No. 2).
See Expanding Access to Rate Relief,
EP 665 (Sub-No. 2) (STB served Mar. 28, 2018) (stating that “[t]he waiver will remain in effect until further order of the Board.”).

Background

In the ICC Termination Act of 1995 (ICCTA), 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 [(SAC)] presentation is too costly, given the value of the case.” (Pub. L. 104-88, 109 Stat. 803, 810). In the Surface Transportation Board Reauthorization Act of 2015 (STB Reauthorization Act), Public Law 114-110, 129 Stat. 2228, Congress revised the text of this requirement so that it currently reads: “[t]he Board shall maintain
1 or more
simplified and expedited methods for determining the reasonableness of challenged rates in those cases in which a full [SAC] presentation is too costly, given the value of the case.” 49 U.S.C. 10701(d)(3) (emphasis added). In addition, section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d) to require that the Board “maintain procedures to ensure the expeditious handling of challenges to the reasonableness of railroad rates.”
5

More generally, the rail transportation policy (RTP) at 49 U.S.C. 10101 states that, in regulating the

railroad industry, it is the policy of the United States Government to, among other things, “provide for the expeditious handling and resolution of all proceedings required or permitted to be brought under this part.” 49 U.S.C. 10101(15).

5
Prior to the enactment of the STB Reauthorization Act, section 10704(d) began with a sentence stating that, “[w]ithin 9 months after January 1, 1996, the Board shall establish procedures to ensure expeditious handling of challenges to the reasonableness of railroad rates.”
See, e.g.,
49 U.S.C. 10704(d) (2014).

In 1996, the Board adopted a simplified methodology, known as Three-Benchmark, which determines the reasonableness of a challenged rate using three benchmark figures.
Rate Guidelines—Non-Coal Proc.,
1 S.T.B. 1004 (1996),
pet. to reopen denied,
2 S.T.B. 619 (1997),
appeal dismissed sub nom. Ass'n of Am. R.Rs.
v.
STB,
146 F.3d 942 (D.C. Cir. 1998). A decade passed without any complainant bringing a case under that methodology. In 2007, the Board modified the Three-Benchmark methodology and also created another simplified methodology, known as Simplified-SAC, which determines whether a captive shipper is being forced to cross-subsidize other parts of the railroad's network.
See Simplified Standards for Rail Rate Cases,
EP 646 (Sub-No. 1) (STB served Sept. 5, 2007),
aff'd sub nom. CSX Transp., Inc.
v.
STB,
568 F.3d 236 (D.C. Cir. 2009),
vacated in part on reh'g,
584 F.3d 1076 (D.C. Cir. 2009). In 2013, the Board increased the relief available under the Three-Benchmark methodology and removed the relief limit on the Simplified-SAC methodology, among other things.
See Rate Regul. Reforms,
EP 715 (STB served July 18, 2013) (78 FR 44459, July 24, 2013),
remanded in part sub nom. CSX Transp., Inc.
v.
STB,
754 F.3d 1056 (D.C. Cir. 2014). Notwithstanding the Board's efforts to improve its rate review methodologies and make them more accessible, only a few Three-Benchmark cases have ever been brought to the Board, and no complaint has been litigated to completion under the Simplified-SAC methodology.

The Board has recognized that, for smaller disputes, the litigation costs required to bring a case under the Board's existing rate reasonableness methodologies can quickly exceed the value of the case.
Expanding Access to Rate Relief,
EP 665 (Sub-No. 2), slip op. at 10 (STB served Aug. 31, 2016). As the Board stated in
Simplified Standards,
“[f]or some shippers who have smaller disputes with a carrier, even [Simplified-SAC] would be too expensive, given the smaller value of their cases. These shippers must also have an avenue to pursue relief.”
Simplified Standards,
EP 646 (Sub-No. 1), slip op. at 16. Along similar lines, as the Board has previously stated, simplified procedures “enable the affected shippers to avail themselves of their statutory right to challenge rates charged on captive rail traffic regardless of the size of the complaint.”
Non-Coal Proc.,
1 S.T.B. at 1057.
6

6

See also Calculation of Variable Costs in Rate Compl. Proc. Involving Non-Class I R.Rs.,
6 S.T.B. 798, 803 & n.19 (2003) (“[W]e have adopted simplified evidentiary procedures for adjudicating rate reasonableness in those cases where more sophisticated procedures are too costly or burdensome, `to ensure that no shipper is foreclosed from exercising its statutory right to challenge the reasonableness of rates charged on its captive traffic.' ”) (quoting
Non-Coal Proc.,
1 S.T.B. at 1008);
Mkt. Dominance Determinations—Prod. & Geographic Competition,
3 S.T.B. 937, 949 (1998) (excluding product and geographic competition from consideration in market dominance determinations so as to “remove a substantial obstacle to the shippers' ability to exercise their statutory rights.”).

In public comments, shippers and other interested parties have repeatedly stated that the Board's current options for challenging the reasonableness of rates do not meet their need for expeditious resolution at a reasonable cost.
7

Moreover, because a contract rate may not be challenged before the Board, 49 U.S.C. 10709(c)(1), some complainants
8

shift from contract rates to tariff rates before bringing a rate case, and tariff rates may be higher than prior contract rates.
9

That factor gives complainants a strong interest in having a rate case decided quickly, from start to finish.

7

See, e.g.,
Alliance for Rail Competition Opening Comment 22, June 26, 2014,
Rail Transp. of Grain, Rate Regul. Rev.,
EP 665 (Sub-No. 1) (stating that the Three-Benchmark methodology is too costly and complex for grain shippers and producers in its current form); WCTL Opening Comment 74-76, Oct. 23, 2012,
Rate Regulation Reforms,
EP 715 (the cost and complexity of the Simplified-SAC methodology discourage its use);
Oversight of the STB Reauthorization Act of 2015 Before the Subcomm. on R.Rs., Pipelines, & Hazardous Materials of the H. Comm. on Transp. & Infrastructure,
115th Cong. (2018) (letter from Chris Jahn, then-President of The Fertilizer Institute, submitted for the record) (due to the time and expense needed to pursue a rate case, it “does not work” for most complainants).

8
Paying a transportation rate is not the only way to establish standing to bring a rate case, and the Board has previously provided guidance in a policy statement for “complainants that allege indirect harm in rate complaints.”
See Rail Transp. of Grain, Rate Regul. Rev.,
EP 665 (Sub-No. 1) et al., slip op. at 7-8 (STB served Dec. 29, 2016).

9
As an example, the most recent rate proceeding involved a complainant that had been served pursuant to contracts for many years and then filed its complaint as soon as its contract expired.
See
Consumers Energy Co. Compl. 4-5, Jan. 13, 2015,
Consumers Energy Co.
v.
CSX Transp., Inc.,
NOR 42142;
see also
Occidental Chem. Corp. Comments 2-4, Oct. 23, 2012,
Rate Regul. Reforms,
EP 715 (paying the tariff rate for extended periods of time while a rate case is litigated—which can add millions of dollars in costs beyond the direct costs of litigation—undermines the utility of a rate challenge, especially if the carrier requires that all rates bundled with the challenged rate also shift to tariff during the pendency of the case); PPG Indus., Inc. Comments 3-4, Oct. 23, 2012,
Rate Regul. Reforms,
EP 715 (noting the effect of bundling and stating that tariff premium could reach $20 million per year of rate litigation). The latter two filings are cited here simply to illustrate the need for expedited rate reasonableness procedures, not to indicate that the Board takes any position in this proceeding—one way or another—on the appropriateness of rate bundling.

Accordingly, the Board has continued to explore ideas to improve the accessibility of rate relief. For example, in
Expanding Access to Rate Relief,
Docket No. EP 665 (Sub-No. 2), the Board sought comment on procedures relying on comparison groups that could comprise a new rate reasonableness methodology for use in very small disputes. The initial comments on that proposal were universally negative. But among the comments submitted in Docket No. EP 665 (Sub-No. 2), the Board received a suggestion from USDA that the Board consider procedural limitations to streamline and expedite its rate reasonableness review as an alternative to substantive limitations.
See
USDA Reply Comment 5-6, Dec. 19, 2016,
Expanding Access to Rate Relief,
EP 665 (Sub-No. 2). USDA specifically recommended a short procedural timeline as a means to make rate reasonableness review accessible for smaller disputes.
See id.
To implement this recommendation, USDA suggested that the Board adopt a final offer procedure whereby parties would submit market dominance and rate reasonableness evidence in a single package offer.
See id.
at 6-7.

The Board already uses a final offer procedure as part of the Three-Benchmark methodology, although it is only one part of the rate reasonableness approach as opposed to providing the overall framework, as the Board is proposing here.
10

One of the benchmarks compares the markup paid by the challenged traffic to the average markup assessed on similar traffic.
See, e.g.,

Rate Regul. Reforms,
EP 715, slip op. at 11. To improve the efficiency of this part of the Three-Benchmark methodology and “enable a prompt, expedited resolution of the comparison group selection,” the Board requires each party to submit its final offer comparison group simultaneously, and the Board chooses one of those groups without modification.
See Simplified Standards,
72 FR 51375 (Sept. 7, 2007), EP 646 (Sub-No. 1), slip op. at 18.

10
The Three-Benchmark methodology also includes more procedural steps and a longer timeline than the FORR procedure proposed here.
See
49 CFR 1111.10(a)(2).

Although the Board may not require arbitration of rate disputes under current law,
11

and is not doing so here,

the benefits of
final offer
procedures used in other settings offer support and background for the Board's rule proposed here. For example, final offer procedures are used in commercial settings, including the resolution of wage disputes in Major League Baseball, and final offer arbitration is therefore sometimes referred to as “baseball arbitration.”
See, e.g.,
Josh Chetwynd,
Play Ball? An Analysis of Final-Offer Arb., Its Use in Major League Baseball, & Its Potential Applicability to Eur. Football Wage & Transfer Disps.,
20 Marq. Sports L. Rev. 109 (2009) (noting the final offer procedure “can lead to a win-win situation as it spurs negotiated settlement at a very high rate”);
see also
Michael Carrell & Richard Bales,
Considering Final Offer Arb. to Resolve Pub. Sector Impasses in Times of Concession Bargaining,
28 Ohio St. J. on Disp. Resol. 1, 3, 16, 23-24 (2012) (noting that 14 states had codified some form of final offer arbitration for certain labor disputes involving public sector employees and noting that the procedure “encourages the parties to negotiate toward middle ground rather than staking out polar positions” and “encourages the parties to settle before arbitration”).

11

See Arb.—Various Matters,
EP 586, slip op. at 3 n.7 (STB served Sept. 20, 2001);
see also
49 U.S.C. 10704(a)(1); 49 U.S.C. 11704(c)(2). The Board has

had a
voluntary
arbitration process in place for more than 20 years, and section 13 of the STB Reauthorization Act required adjustments to this process (including the addition of rate disputes to the types of matters eligible for arbitration), but to date parties have not agreed to arbitration of any dispute brought before the Board.
See Arb. of Certain Disps.,
2 S.T.B. 564 (1997) (adopting voluntary arbitration procedures at 49 CFR part 1108);
Revisions to Arb. Proc.,
EP 730 (STB served Sept. 30, 2016) (making adjustments required by STB Reauthorization Act). In addition to its recommendation for a final offer procedure that would culminate in a decision by the Board, the RRTF recommended legislation that would permit mandatory arbitration of smaller rate cases.
See RRTF Rep.
14-15.

Similarly, AAR's Circular No. OT-10, “Code of Car Service Rules/Code of Car Hire Rules,” sets forth a final offer procedure for car hire arbitration, which is included in Rule 25 (the Arbitration Rule).
See
Circular No. OT-10, Rule 25,
https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf.
The Board has described the Arbitration Rule as an “integral part” of its deregulation of car hire rates.
See Joint Pet. for Rulemaking on R.R. Car Hire Comp.,
EP 334 (Sub-No. 8) et al., slip op. at 1 (STB served Apr. 22, 1997). And as noted by the Board's predecessor agency, the Interstate Commerce Commission (ICC), the Arbitration Rule “provides for negotiation and, when that is not successful, `baseball style' arbitration, by which the arbitrator will select between the best final offers of the parties.”
Joint Pet. for Rulemaking on R.R. Car Hire Comp.,
9 I.C.C.2d 80, 88 (1992).

Finally in this regard, in the
TRB Report
released in 2015, the Committee for a Study of Freight Rail Transportation and Regulation of the TRB (TRB Committee)
12

described the benefits of adopting “an independent arbitration process similar to the one long used for resolving rate disputes in Canada.”
13

In particular, the TRB Committee recommended “a final-offer rule,” set on a “strict time limit,” whereby “each side offers its evidence, arguments, and possibly a changed rate or other remedy in a complete and unmodifiable form after a brief hearing.”
TRB Rep.
211-12. According to the
TRB Report,
adoption of such a procedure could enhance complainants' access to rate reasonableness protections, while expediting dispute resolution and encouraging settlements.
Id.
at 212.

12
In 2005, legislation was enacted directing the Secretary of Transportation to enter into an agreement with TRB “to conduct a comprehensive study of the Nation's railroad transportation system.”
See
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Public Law. 109-59, section 9007, 119 Stat. 1144, 1925 (2005). The study was funded in 2011, H.R. Rep. No. 112-284, at 287 (2011), and the TRB Committee was formed,
see TRB Rep.
12-13.

13
In a well-known process used by Canadian regulators, final offer procedures are administered by an outside arbitrator or panel of arbitrators. In Canada, a complainant may submit its rate dispute to the Canadian Transportation Agency, which refers the matter to an arbitrator or a panel of arbitrators. Canada Transp. Act, S.C. 1996, c. 10, as amended, sections 161(1), 162(1) (Can.). The Canadian statute establishes a two-tiered structure: If the matter involves freight charges of more than $2 million CAD (subject to an inflation adjustment), a 60-day procedure applies, and if the matter involves freight charges of $2 million CAD or less (subject to an inflation adjustment), a 30-day procedure applies.
Id.
sections 164.1, 165(2)(b). Among other things, the 60-day procedure allows the parties to direct interrogatories to one another, and the arbitrator may request written filings beyond the final offers and information initially submitted in support of final offers.
See id.
§§ 163(4), 164(1). In the 30-day procedure, there is no discovery, and the arbitrator may request oral presentations from the parties but may not request written submissions beyond the final offers and replies.
See id.
section 164.1. The arbitrator's decision is issued within 60 days after the matter was submitted for arbitration, or 30 days if the further expedited procedure applies.
Id.
section 165(2)(b). Any resulting rate prescription is limited to two years, unless the parties agree to a different period.
See id.
section 165(2)(c).

The RRTF agreed that a final offer process—with the decision being made by the Board rather than an arbitrator—could be an effective way to implement procedural limitations, which would improve access to rate relief.
RRTF Rep.
16. Taking into account these recommendations, the Board's
NPRM
proposed to adopt a FORR process with the following primary features. As proposed, FORR would allow limited discovery, with no litigation over discovery disputes; FORR could only be used if the complainant elected to use the streamlined market dominance approach proposed (and since adopted) in Docket No. EP 756,
Market Dominance Streamlined Approach;

14

and the procedural schedule would be brief, with a Board decision issued 135 days after the complaint is filed.
See NPRM,
EP 755 et al., slip op. at 8-10, 13-14.

14

Mkt. Dominance Streamlined Approach,
EP 756 (STB served Aug. 3, 2020) (adopting final rule), 84 FR 48882 (Sept. 17, 2019).

Parties would simultaneously submit their market dominance presentations, final offers, analyses addressing the reasonableness of the challenged rate and support for the rate in the party's offer, and explanations of the methodology used and how it complies with the decisional criteria set forth in the
NPRM. NPRM,
EP 755 et al., slip op. at 12. Parties would next submit simultaneous replies.
Id.

The complainant would bear the burden of proof to demonstrate that (i) the defendant carrier has market dominance over the transportation to which the rate applies, and (ii) the challenged rate is unreasonable.
NPRM,
EP 755 et al., slip op. at 12-13;
see also
49 U.S.C. 10701(d)(1), 10704(a)(1), 11704(b);
Union Pac. R.R.—Pet. for Declaratory Ord.,
FD 35504, slip op. at 2 (STB served Oct. 10, 2014). If the Board were to find that the complainant's market dominance presentation and rate reasonableness analysis demonstrate that the defendant carrier has market dominance over the transportation to which the rate applies and that the challenged rate is unreasonable, the Board would then choose between the parties' final offers. In making the rate reasonableness finding and choosing between the offers, the Board would take into account the criteria specified in the
NPRM:
The RTP, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and appropriate economic principles.
See NPRM,
EP 755 et al., slip op. at 10-13, 84 FR 48872 (Sept. 17, 2019).

The Board proposed a relief cap of $4 million, indexed annually using the Producer Price Index, consistent with the potential relief afforded under the Three-Benchmark methodology.
See NPRM,
EP 755 et al., slip op. at 16.

The Board also sought additional comments on Docket No. EP 665 (Sub-No. 2), including whether to close that docket.
NPRM,
EP 755 et al., slip op. at 17.

Also, on November 25, 2020, the Board instituted a rulemaking proceeding to consider a proposal by

CN, CSXT, KCSR, NSR, and UP to establish a new, voluntary arbitration program for small rate disputes.
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for Small Rate Disps.,
EP 765 (STB served Nov. 25, 2020).
15

In a decision served concurrently with this
SNPRM,
the Board is proposing to adopt a form of such an arbitration program.
Arb. NPRM,
EP 765.

15
CP subsequently submitted a letter stating that it “supports the effort to find a workable, reasonable, accessible arbitration program for small rate cases, and would participate in such a pilot program.” CP Letter, Jan. 25, 2021,
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for Small Rate Disps.,
EP 765.

As discussed in more detail in the
Arbitration NPRM,
the Board is deferring final action on FORR and issuing this
SNPRM
concurrently with the
Arbitration NPRM
so that both proposals may be considered simultaneously, including the pros and cons of adopting—either with or without modification—the voluntary arbitration rule, FORR, both proposals, or taking other action.

Discussion and Request for Comments

Based on the filed comments and information received in meetings with stakeholders, the Board invites comment on certain modifications to the rule proposed in the
NPRM
and other issues contained in the discussion below. In Part I, the Board addresses comments on the purpose of the rule. In Part II, the Board addresses comments regarding its statutory authority to adopt FORR. In Part III, the Board addresses comments regarding the appropriateness of a final offer procedure. In Part IV, the Board addresses the review criteria for FORR cases. In Part V, the Board addresses discovery and procedural schedule issues, including the Board's proposal to remove the use of adverse inferences and instead adopt a process for motions to compel discovery. The Board also proposes to include mandatory mediation in FORR cases and to extend the proposed procedural schedule to accommodate motions to compel and mandatory mediation. In Part VI, the Board addresses market dominance issues, including the Board's proposal to require only the complainant to submit market dominance evidence on opening. The Board also proposes to allow complainants to choose between streamlined and non-streamlined market dominance approaches and extends the proposed procedural schedule in cases where the complainant selects non-streamlined market dominance. In Part VII, the Board addresses the relief cap. Finally, in Part VIII, the Board addresses other miscellaneous issues. The text of the proposed rule as modified is below.

Although the modifications to the proposed rule described in this decision are not the type that would necessitate additional notice and comment under the Administrative Procedure Act,
16

the Board seeks further comment in this instance in order to determine if the outlined refinements would improve its proposed rule, and so that the modified FORR proposal may be considered in parallel with the proposal in Docket No. EP 765 to establish an arbitration program that could include an exemption from FORR for carriers that participate in the program.
See Arb. NPRM,
EP 765, slip op. at 14. In seeking additional comment, the Board does not limit its authority to adopt modifications that are a logical outgrowth of the NPRM or this SNPRM in any final rule without further comment.

16
5 U.S.C. 551.
See, e.g.,

Covad Commc'ns Co.
v.
FCC,
450 F.3d 528, 548 (D.C. Cir. 2006) (recognizing that “[a]n agency's final rule need only be a `logical outgrowth' of its notice”).

Part I—Purpose of the Rule

The purpose of this proposed rule is to satisfy the statutory requirement that, 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
49 U.S.C. 10701(d)(1).
17

A shipper's ability to challenge a rate subject to market dominance, and vindicate its statutory right to a Board decision on rate reasonableness, is frustrated where the litigation costs of the Board's available processes exceed the value of potential relief.
Non-Coal Proc.,
1 S.T.B. at 1049. Furthermore, in addition to litigation costs, a shipper must also take into account the risk associated with the uncertainty of receiving relief and the time it may take to obtain a decision. As described in the
NPRM
and as noted above, the Board has sufficient grounds to conclude that shippers lack meaningful access to the Board's existing rate reasonableness processes with respect to small disputes, due to the complexity, cost, and duration of those processes.
NPRM,
EP 755 et al., slip op. at 3. The Board expects that FORR's procedural limitations should lower the cost of litigating rate disputes, providing complainants who otherwise might be deterred from bringing smaller rate cases under one of the Board's existing processes a more accessible avenue for rate reasonableness review by the Board.
Id.
at 7. Reduced litigation costs should also make it more feasible for complainants to prove meritorious cases, while a final offer selection process would discourage extreme positions and may facilitate settlement.
Id.

17

See also
49 U.S.C. 10701(d)(3) (requiring the Board to “maintain 1 or more simplified and expedited methods for determining the reasonableness of challenged 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. 10704(d)(1) (requiring the Board to “maintain procedures to ensure the expeditious handling of challenges to the reasonableness of railroad rates,” including “appropriate measures for avoiding delay in the discovery and evidentiary phases of such proceedings.”).

Some rail interests question the need for a new procedure to resolve small rate disputes. (
See, e.g.,
AAR Comment 24; BNSF Comment 3.)
18

Shipper interests uniformly indicate that there is a need for such a procedure. (AFPM Comment 3; Coalition Ass'ns Comment 4; Farmers Union Comment 5-6; Growth Energy Comment 2; IMA-NA Comment 11-12; Indorama Comment 11-12; MillerCoors Comment 13-14; NGFA Comment 6; Olin Comment 1-9; PRFBA Comment 2; SMA Comment 11-12; WCTL Comment 1-2.) The Board will now address those comments.

18
Unless otherwise specified, citations to the record are to the record in Docket No. EP 755.

AAR claims that the Board's only evidence of the problem to be solved—the lack of a meaningful avenue to address rate reasonableness in small disputes—is the “purported scarcity of rate complaints.” (AAR Comment 24.) According to AAR, the absence of complaints could be subject to other explanations, for example, that “many rates are governed by contract, and those that are based on tariffs are generally reasonable.” (
Id.
)

As indicated in the
NPRM,
however, that is not the only evidence of the problem. As the Board explained, the problem is illustrated by the lack of small rate cases
combined
with repeated shipper statements that they need rate relief but find the Board's existing processes too complex and expensive.
NPRM,
EP 755 et al., slip op. at 2-3;
see also id.
at 3 n.5. Comments from shipper interests in this proceeding bear out that problem. (
See, e.g.,
Farmers Union Comment 5-9 (explaining the challenges faced by customers with small rate disputes, as well as citations to evidence of steadily rising rail transportation rates for agricultural commodities in recent decades);

19

NGFA Comment 5-6; USDA Comment 2-3.)

19
Notwithstanding these widespread rate increases, no rate case addressing rail transportation of agricultural commodities has been filed with the Board or the ICC since
McCarty Farms,
which

commenced in 1981.
See McCarty Farms, Inc.
v.
Burlington N., Inc.,
2 S.T.B. 460, 462-63 (1997) (denying rate relief after reopening and remand).

AAR's reasoning is circular: It suggests that, in order to justify adoption of a new process to determine
whether
specific rates are reasonable, the Board must already have evidence that rates in general
are
unreasonable. Committing to inaction based on such flawed logic would risk leaving shippers without a meaningful avenue to challenge unreasonable rates, in spite of substantial evidence of the need for such relief.

BNSF contends that the Board should not “sidestep the innate complexity and sophistication of the core task before the agency.” (BNSF Comment 3.) BNSF's implication seems to be that the subject matter is so complex that it may not be feasible to simplify it sufficiently for use in small disputes (
i.e.,
to address these difficult issues expeditiously and inexpensively enough that a case can be worth pursuing even with a relatively small amount of money at stake). The Board recognizes the concern raised by BNSF—the agency's decades-long efforts to create accessible small rate case processes attests to the difficulty of reconciling the economic complexity of railroad rate review with cost-effective dispute resolution.
20

But the statute's requirement that rates subject to market dominance be reasonable applies to large and small cases alike, and BNSF's concern cannot preclude further reform given Congress's mandate that simplified and expedited methods exist to challenge rate reasonableness in smaller cases.
See
49 U.S.C. 10701(d)(3), 10704(d)(1).

20
To this end, in the
NPRM,
the Board stated that parties may file comments as to whether and how the Board might provide assistance to parties—particularly smaller entities—regarding how best to utilize the proposed FORR procedure.
NPRM,
EP 755 et al., slip op. at 17. In response, AFPM states that “support and assistance should be limited to guidance documents and similar materials. AFPM believes STB should focus efforts on implementing the program effectively before pursuing major efforts to supply hands-on assistance.” (AFPM Comment 10.) The Board remains open to ways in which it might provide assistance to participants.

BNSF also argues that the Board should limit any reforms to “the discrete population of small sized shippers moving modest sized shipments that are inordinately impacted by the cost and complexity of the STB's current methodologies.” (BNSF Comment 3-4.) BNSF does not explain how it would be fair or reasonable to limit a remedy to small
shippers
rather than small
disputes
(as the Board has done with other processes with relief caps), or why a potential complainant with a dispute smaller than the cost of using the Board's existing processes should be denied access to a new process merely because of the size of the entity. BNSF suggests that eligibility to participate in a new process should turn on whether the complainant has the “ability to undertake the expense and burden” present in a more expensive proceeding. (
Id.
at 3.) But even a large shipper with the means to proceed under one of the Board's existing rate reasonableness processes could not rationally be expected to do so where the time, risk, and cost of using that process would exceed the value of the case. Limiting FORR to small shippers would leave large shippers without recourse to challenge unreasonable rates in smaller cases, and therefore frustrate the statute's reasonableness requirement for rates subject to market dominance.
See
49 U.S.C. 10701(d)(1).

UP argues that, instead of adopting FORR, the Board could accelerate Three-Benchmark cases by eliminating rebuttal, starting discovery when the complaint is filed, and committing to issue a decision in 60 days. (UP Comment 20-21.) It is far from clear that the length of Three-Benchmark cases presents the only deterrent for potential complainants. For example, the complexity due to defendants' expansive use of “other relevant factors” is also likely an issue.
See RRTF Rep.
51-52. Eliminating the complainant's rebuttal and starting discovery upon the filing of the complaint, even in the name of faster record development, therefore seems unlikely to increase the utility of Three-Benchmark for complainants with small disputes.

For these reasons, based on the record to date, the Board finds that FORR would further the RTP goal of maintaining reasonable rates where there is an absence of effective competition,
see
section 10101(6), by providing increased access to rate reasonableness determinations in small disputes. By facilitating the determination of rate reasonableness in situations where it may not, in practice, have been feasible previously, FORR would also foster sound economic conditions in transportation.
See
section 10101(5). And FORR's short timelines would promote expeditious regulatory decisions and provide for the expeditious handling and resolution of proceedings.
See
section 10101(2), (15).

Part II—Statutory Authority To Adopt FORR

Railroad interests argue that the Board lacks statutory authority to adopt FORR. The Board disagrees for the reasons stated in the
NPRM
and below.

AAR asserts that Congress has not authorized the Board “to determine the maximum reasonable rate through a baseball-style final offer process.” (AAR Comment 8.) According to AAR, “[n]othing in the governing statutes, or in the Administrative Procedure Act, authorizes the Board to adopt an adjudicatory method that so drastically departs from the way agency adjudications and rate-setting proceedings have historically been conducted.” (
Id.
at 9.) AAR is incorrect. Section 10701(d)(3) authorizes (and in fact, requires) the Board to maintain one or more “simplified and expedited methods for determining the reasonableness of challenged rates in those cases in which a full [SAC] presentation is too costly, given the value of the case.”
21

This provision does not expressly identify the specific methods that the Board can use for simplified and expedited rate cases, and courts have affirmed the Board's significant discretion to pursue various “possible regulatory approaches” in this area.
See Burlington N. R.R.
v.
ICC
(
McCarty Farms Appeal
), 985 F.2d 589, 597 (D.C. Cir. 1993). AAR does not identify anything in section 10701(d)(3) to support its contention that the Board is limited in rate review proceedings to “the way agency adjudications and rate-setting proceedings have historically been conducted.” (AAR Comment 9.)
See also
49 U.S.C. 10704(d)(1) (requiring the Board to “maintain procedures to ensure the expeditious handling of challenges to the reasonableness of railroad rates,” including “appropriate measures for avoiding delay in the discovery and evidentiary phases of such proceedings.”).
22

21
AAR argues that section 11(c) of the STB Reauthorization Act does not authorize FORR because it refers to “procedures that are available to parties in litigation before courts.” (AAR Comment 10-11.) The plain language of section 11(c), on which the
NPRM
did not rely, does not limit the Board to such procedures, but merely requires the Board to “assess” those procedures for their “potential” use in rate cases, which the Board did in a different proceeding.
See Expediting Rate Cases,
EP 733 (STB served Nov. 30, 2017); STB Reauthorization Act section 11(c) (directing the Board to “initiate a proceeding to assess procedures that are available to parties in litigation before courts to expedite such litigation and the potential application of any such procedures to rate cases.”).

22
AAR also argues that “the Board fails to identify any other agency that uses Final Offer Rate Review outside the arbitral context.” (AAR Comment 9.) But under the statute, whether another agency might use a final offer process has no bearing on whether the Board may adopt such a procedure. And, as noted in the
NPRM,
the final offer structure is already a central part of adjudications under the Board's Three-Benchmark test.
NPRM,
EP 755 et al., slip op. at 4.

Certain railroad interests also emphasize that “[f]inal-offer decisionmaking is an
arbitration
technique,” and contend that because the Board lacks authority from Congress to impose mandatory arbitration, it lacks authority to adopt FORR. (AAR Comment 8-9;
see also
CN Comment 6; CSXT Comment 2.) But the fact that this decision-making structure is often used in arbitration does not mean that FORR
is
arbitration.
See NPRM,
EP 755 et al., slip op. at 4-6 (noting that, in addition to arbitration, the final offer structure is a key part of adjudications by the Board under its existing Three-Benchmark test). Indeed, the
NPRM
made clear that FORR was not an arbitration proposal and that “
the Board
would make the determination of rate reasonableness as it does under the Board's current options for challenging the reasonableness of rates.”
See id.
at 4 (footnote omitted).
23

And while it is true that Congress did not authorize mandatory arbitration, it did authorize the development of new methods and procedures for use by
the Board
in evaluating rate reasonableness. 49 U.S.C. 10701(d)(3), 10704(d)(1). The absence of statutory authority for third-party arbitrators to conduct mandatory arbitration does not prohibit the Board from adopting decisional procedures also used by arbitrators.
24

That is particularly true here, where the statutory authorization is open-ended regarding the decisional procedures that the Board may adopt.

23
As courts have recognized, an arbitration is the resolution of a dispute by a private arbitrator.
See, e.g.,

Stolt-Nielsen S.A.
v.
AnimalFeeds Int'l Corp.,
559 U.S. 662, 682 (2010) (“[A]n arbitrator derives his or her powers from the parties' agreement to forgo the legal process and submit their disputes to private dispute resolution.”);
IDS Life Ins. Co.
v.
SunAmerica, Inc.,
103 F.3d 524, 528 (7th Cir. 1996) (arbitration is “private ordering”).

24

See, e.g.,

Bernhardt
v.
Polygraphic Co. of Am.,
350 U.S. 198, 203 (1956) (“The nature of the tribunal where suits are tried is an important part of the parcel of rights behind a cause of action. The change from a court of law to an arbitration panel may make a radical difference in ultimate result. . . . Arbitrators do not have the benefit of judicial instruction on the law; they need not give their reasons for their results; the record of their proceedings is not as complete as it is in a court trial; and judicial review of an award is more limited than judicial review of a trial. . . .”).

AAR cites a decision of a federal district court, in which, according to AAR, “[t]he court rejected an agency's attempt to use final-offer decisionmaking . . . concluding that the agency lacked statutory authorization to adopt the procedure.” (AAR Comment 13 (citing
Stone
v.
U.S. Forest Serv.,
No. Civ. 03-586-JE, 2004 WL 1631321 (D. Or. July 16, 2004)).)
Stone
is readily distinguishable. At issue there was a statute allowing owners of private property in a national scenic area an opportunity to avoid certain land use restrictions by selling their land to USDA for fair market value.
See Stone,
2004 WL 1631321 at *1-2. USDA, acting through the Forest Service, established a procedure for establishing fair market value whereby it compared its own fair market appraisal with the landowner's appraisal and selected the one with the strongest support for value.
Id.
at *3. There was no provision for price negotiation, and no additional appraisals would be considered after an appraisal was selected.
Id.

In assessing this procedure, the district court noted that “in all probability the Forest Service would simply ignore” the landowner's appraisal and “rely exclusively upon the report of its own appraiser.”
Id.
at *3. From there, it questioned whether “Congress ever has or could give a federal agency the power to unilaterally determine the ultimate price it must pay to acquire private property for public purposes, over the objections of an unwilling seller.”
Id.
at *5. The court concluded that by “arbitrarily clos[ing] its eyes to additional appraisals submitted by the owner, or categorically prohibit[ing] negotiation regarding the purchase price,” the Forest Service's procedure would frustrate, rather than further, the statute's goal of affording landowners an opportunity to dispose of burdened property.
Id.
at *7.

Here, the Board would not be using a final offer process to set the price of a transaction to which the government itself is a party, a fact that weighed heavily on the outcome in
Stone.
Accordingly, FORR does not raise the same concerns raised in
Stone:
There is no suggestion that the Board would not fairly consider both parties' final offers, and their respective replies, or the question of whether the shipper has demonstrated both market dominance and that the challenged rate is unreasonable under governing statutory principles, both prerequisites to rate relief. And by expanding accessibility to rate relief, FORR would further implement the statute's directive to create methods and procedures to determine what is reasonable. 49 U.S.C. 10701(d)(3), 10704(d)(1). In this proposed rule, the Board has done so, while specifically accounting for the overarching principles that Congress provided.
See NPRM,
EP 755 et al., slip op. at 10-12. Accordingly,
Stone
is inapposite.

CN argues that because section 10701(d)(3) authorizes development of a simplified “method,” and FORR does not provide for an economic methodology that the Board will use to determine the reasonableness of the challenged rate, the statute does not authorize FORR. (
See
CN Comment 6-8.) CN mischaracterizes the statutory language. The definition of “method” encompasses “a procedure or process for attaining an object.”
25

CN acknowledges that FORR is a procedure, (
see
CN Comment 7), and FORR plainly satisfies the express terms of section 10701(d)(3).
26

25

See Method,
Merriam-Webster,
http://merriam-webster.com/dictionary/method
(last visited Oct. 13, 2021). Similarly, Black's Law Dictionary defines “method” as “a mode of organizing, operating, or performing something, esp. to achieve a goal.”
Method, Black's Law Dictionary
(11th ed. 2019).

26
Even if Congress had used the word “methodology” rather than “method,” the dictionary definition is very similar and would also include FORR: “a body of methods, rules, and postulates employed by a discipline: a particular procedure or set of procedures.”
See Methodology,
Merriam-Webster,
http://merriam-webster.com/dictionary/methodology
(last visited Oct. 13, 2021).

UP claims, without support, that “[b]y adopting FORR . . . the Board would be unlawfully constraining the exercise of its congressionally delegated authority” by “mak[ing] itself a prisoner of the parties' submissions.” (UP Comment 3.) The simple fact is that the Board's exercise of discretion to offer FORR would not constrain its authority to prescribe a maximum rate under section 10704(a)(1). FORR would instead facilitate the exercise of that authority, and in doing so further Congress's intent that rate review be available at the Board, through the enhancement of shippers' opportunities to challenge rates subject to market dominance under the relevant criteria by providing an additional option available to potential complainants. And even if the Board could be said to be using something less than its congressionally delegated authority (which it is not), the agency may choose to act within a narrower range than Congress authorized.
See, e.g.,

Midtec Paper Corp.
v.
Chi. & N.W. Transp. Co.,
3 I.C.C.2d 171, 181 (1986),
aff'd sub nom.

Midtec Paper Corp.
v.
United States,
857 F.2d 1487, 1500 (D.C. Cir. 1988).

Accordingly, the Board would act within its statutory authority in adopting FORR.

Part III—Appropriateness of a Final Offer Procedure

Railroad interests advance a variety of arguments assailing the appropriateness of a final offer procedure for rate reasonableness determinations by the Board. The Board addresses these arguments below.

A. Use of a Final Offer Procedure in Adjudication

In addition to its statutory authority arguments discussed above, AAR also argues that, in using FORR, the Board would be “abandon[ing] its statutory duty to apply the law in determining, based on its own best judgment, the maximum reasonable rate.” (AAR Comment 10.) Final offer decisionmaking, according to AAR, amounts to the adjudicator deciding which party's proposal “comes closest to the correct outcome” rather than determining the correct outcome.

AAR's argument ignores the fact that adjudicators routinely rely on or adopt the parties' submissions or decisional framework. AAR implies that, to reach a “legally correct outcome,” the Board must perform a rate analysis distinct from any party's pleadings within each case; otherwise, it somehow violates that provision within § 10704 authorizing it to establish the “maximum rate.” But here the Board has established a process and a set of analytical criteria in which to exercise its judgment in individual cases. That approach is not novel. For example, apart from evidence regarding “other relevant factors,” which is optional, the Board's Three-Benchmark test comprises a final offer process and a formula—an approach in which the Board exercises its discretion in deciding between the parties' comparison groups under a final offer structure.
See Union Pac. R.R.
v.
STB,
628 F.3d 597, 601 (D.C. Cir. 2010) (“Since the revenue need adjustment factor is derived from static figures published annually by the Board, the Three Benchmark framework's reasonableness determination generally turns on the Board's selection of a comparison group.”) Likewise, in FORR, the Board would exercise its best judgment at multiple stages, including its determination of whether the challenged rate has been shown to be unreasonable under the governing criteria and, if necessary, its selection of an offer.
See NPRM,
EP 755 et al., slip op. at 10-11.

AAR similarly asserts that in some cases the maximum reasonable rate may be above or below the parties' final offers, whereas in others it may fall between the final offers. (AAR Comment 12.) It claims that, through FORR, the Board would abdicate its independent judgment to determine a maximum reasonable rate, and quotes
McCarty Farms Appeal
for the proposition that “[o]f course no adjudicator would expect to be able to rely entirely on one side's analysis.” (
Id.
(citing
McCarty Farms Appeal,
985 F.2d at 599).)

This argument incorporates the same mistaken assumptions as the argument previously addressed. In particular, AAR assumes that “what in the Board's view is the actual maximum” depends solely on the Board's analysis within an individual case. But the Board also “exercise[s] its independent judgment” in creating a decisionmaking process with less discretion within the individual case, as in Three-Benchmark. The fact that the Board is applying a process or even a formula created outside of an individual adjudication does not mean it is not an exercise of judgment. AAR's definition of the maximum reasonable rate is telling: “the rate that
best
achieves the many objectives the Board is statutorily required to consider.” (AAR Comment 12 (emphasis added).) This argument—which boils down to an appeal that the Board determine the reasonableness of rail rates “in the abstract”—was rejected in
CSX Transportation,
568 F.3d at 242. There, the court indicated that in order to give shippers a “meaningfully effective way to seek some degree of redress for unreasonable rail rates,” section 10701(d)(3) authorized the Board to adopt procedures even if they do not yield the level of precision seemingly demanded by AAR here.
Id.
Regardless, and as explained at length in the NPRM and in this decision, FORR is a process that achieves the Board's various statutory objectives.
See, e.g.,
49 U.S.C. 10101(1)-(3), (6), (15), 10701(d)(2), (3), 10704(d)(1).
27

Indeed, in establishing the maximum lawful rate using a FORR process, the Board would continue to balance economic considerations together with administrative feasibility in defining a process ahead of time.
See BNSF Ry.
v.
STB,
453 F.3d 473, 482 (D.C. Cir. 2006) (“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.”).
28

27
UP argues in the same vein that “the Board might choose the shipper's final offer, even though the rate is below the `maximum rate' that would otherwise be objectively reasonable,
id.
section 10704(a)(1), or it might decide the challenged rate is better than the alternative, even though it believes the rate exceeds an objectively `reasonable' rate, 49 U.S.C. 10701(d)(1).” (UP Comment 5.) According to UP, “under FORR, the Board would not determine whether a challenged rate is reasonable by measuring it against the maximum reasonable rate calculated using the statutory criteria.” (UP Comment 9-10.) Like AAR, UP insists that there must be an “objectively reasonable” rate outside of any process used to determine the maximum reasonable rate. UP's theory seems to be that the “statutory criteria” themselves provide a calculation, and in individual cases, the Board measures the challenged rate against the “maximum reasonable rate” resulting from the statute. But in fact, the statute supplies no calculations. Instead, the ICC and the Board have developed processes that are applied in individual cases to produce a maximum reasonable rate—as in FORR. If a party's FORR submission fails to adhere to the statutory criteria, it would be unlikely to prevail on rate reasonableness, and if necessary, selection of an offer.

28
In its comment in response to the ex parte meeting memoranda, AAR restates these objections, arguing that the Board must engage in a three-step process to rule on rate reasonableness: (1) Determine market dominance; (2) determine whether the challenged rate is unreasonable; and (3) determine the reasonable rate, taking into account the Long-Cannon factors and railroad revenue adequacy. (AAR Comment in Response to Mem. 2-3, Aug. 12, 2020.) Contrary to AAR's argument, the FORR process accounts for each of these three steps.
See NPRM,
EP 755 et al., slip op. at 10-14. As discussed below, the Board confirms in this
SNPRM
that the determination in the third step would be the determination of the maximum reasonable rate.

Contrary to AAR's suggestion, nothing in
McCarty Farms
stands for the proposition that the Board may not accept one party's proffered rate where it finds it superior to the rate offered by the other party. In noting that “no adjudicator would be expected to rely entirely on one side's analysis,” the court appears to have been merely emphasizing that all submissions in litigation tend to be self-serving to some extent.
See McCarty Farms Appeal,
985 F.2d at 598-99. In any event, under FORR, each party would have an opportunity to submit analysis with its reply pointing out deficiencies in the other side's analysis, which the Board would consider in assessing the reasonableness of the challenged rate and the merits of the parties' respective offers.
See NPRM,
EP 755
et al.,
slip op. at 12. Moreover, a final offer process would give parties an incentive to moderate their positions, which is demonstrably absent from SAC (where parties may expect the Board to seek the middle ground).
29

In that regard, parties are reminded that FORR would not reward extreme positions; parties likely would have greater success by presenting more moderate proposals.

29
According to AAR, “even if final-offer procedures were an acceptable method of retrospective dispute resolution, there is no basis for using them with regard to the Board's `legislative function' of setting rates prospectively.
See Ariz. Grocery Co.
v.
Atchison, Topeka & Santa Fe Ry.,
284 U.S. 370 (1932) (unlike backward-looking awards of reparations, prescribing a maximum rate is legislative and forward-looking).” (AAR Comment 13.) But AAR fails to explain this position, and seems to overlook the fact that the provisions authorizing the Board to develop methods for the resolution of disputes apply specifically to prospective rate-setting.
See
sections 10701(d)(3), 10704(d)(1).

UP makes a similar argument, claiming that, unless the Board engages in an issue-by-issue weighing of

alternatives within each individual case (as opposed to exercising some of its discretion in advance), it fails to protect the public interest. (
See
UP Comment 3-4.) UP is incorrect for the same reasons stated above. UP cites a Board decision that observes that “the ICC was not the prisoner of the parties' submissions, but rather had the duty to `weigh alternatives and make its choice according to its judgment of how best to achieve and advance the goals of the [RTP].' ”
Pub. Serv. Co. of Colo.
v.
Burlington N. & Santa Fe Ry.,
NOR 42057, slip op. at 4 (STB served Jan. 19, 2005) (quoting
Balt. & Ohio R.R.
v.
United States,
386 U.S. 372, 430 (1967) (Brennan, J., concurring)). Again, that is exactly what the Board proposes to do in this rulemaking: Exercise its judgment to develop a procedure for smaller rate cases that will best “achieve and advance the goals of the [RTP].” That the Board has affirmed its authority in other cases to exercise its judgment notwithstanding the parties' submissions does not mean it cannot also adopt a final offer procedure where the Board chooses to exercise less discretion. Indeed, UP's issue-by-issue weighing approach would preclude not only FORR, but also the Three-Benchmark test, which has been judicially affirmed.
See supra
at 3;
see also Union Pac. R.R.,
628 F.3d at 601 (explaining that the Three-Benchmark test generally turns on the Board's selection of a comparison group—a final offer process in which “the Board's selection is an `either/or' choice between the parties' final offers, with no modifications allowed”).

UP contends that Three-Benchmark is distinguishable from FORR because parties can claim “other relevant factors,” which acts as a “safety valve.” (UP Comment 6.) However, “other relevant factors” are optional, and in three of the four proceedings decided under Three-Benchmark, the Board rejected all proposed “other relevant factors.”
30

Moreover, because litigation over proposed “other relevant factors” has substantially expanded the scope of Three-Benchmark cases, it appears that “other relevant factors” are a reason—perhaps a primary reason—why complainants have not pursued many Three-Benchmark cases.
See RRTF Rep.
51-52.
31

30

See E.I. DuPont de Nemours & Co.
v.
CSX Transp., Inc.,
NOR 42099, slip op. at 14-15, 17-19 (STB served June 30, 2008);
E.I. DuPont de Nemours & Co.
v.
CSX Transp., Inc.,
NOR 42100, slip op. at 11-13, 15-18 (STB served June 30, 2008);
E.I. DuPont de Nemours & Co.
v.
CSX Transp., Inc.,
NOR 42101, slip op. at 10-12, 14-16 (STB served June 30, 2008).

31
With respect to UP's focus on the public interest, as the Coalition Associations point out, UP loses sight of the fact that the Board is proposing to act here because shippers with small rate cases lack reasonable access to the Board's existing rate remedies—a situation which itself impinges on the public interest. (
See
Coalition Associations Reply Comment 11-12.)

In an analogous argument, UP describes the Federal Communications Commission's (FCC) adoption of final offer arbitration for interconnection rates, which are required to be just and reasonable. (UP Comment 7.) The FCC's procedure requires the arbitrator to ensure that the offers comply with the statutory standards, and if they do not, the arbitrator can take steps designed to result in an outcome that satisfies those standards, including requiring the parties to submit new final offers or adopting a result not submitted by any party. (
See id.
) Such an approach, while certainly permissible, would eliminate the “either/or” nature of a final offer selection that the
NPRM
cited as a benefit.
NPRM,
EP 755, slip op. at 13;
see also Simplified Standards,
EP 646 (Sub-No. 1), slip op. at 18 & n.25 (“This [“either/or” final offer] approach will work as intended only if the parties know that the agency will not attempt to find a compromise position somewhere in the middle. . . . [W]e cannot preserve the incentives created by a final-offer selection process and retain the discretion to formulate our own comparison group. Accordingly, we will not adopt [a proposal for the Board to retain the discretion to modify the parties' final offers], which would defeat the purpose of a final-offer selection process.”). Moreover, as explained in the
NRPM,
the Board's criteria for determining rate reasonableness and choosing between offers would be based, in part, upon consideration of the RTP and the Long-Cannon factors, ensuring that the Board would consider the relevant statutory standards.
NPRM,
EP 755
et al.,
slip op. at 10-11.
32

32
According to AAR, a procedure is not actually a final offer procedure unless there is a series of offers back and forth, narrowing the dispute before final offers are submitted to the decision-maker. (
See
AAR Comment 22.) AAR provides no support for this statement. Canadian final offer arbitration, for example, does not require the model suggested by AAR.
See
Canada Transp. Act, S.C. 1996, c. 10, as amended, sections 161(2), 161.1(1) (Can.). Accordingly, this feature is not universal and is not a defining feature of a final offer process.

CN argues that, under FORR, the Board would not make a finding that the winning offer is the maximum reasonable rate. (CN Comment 9-10.) While CN is correct that the
NPRM
did not state expressly that the selected offer would be found to be the maximum reasonable rate, it is apparent from other language in the
NPRM
that it would be.
See NPRM,
EP 755
et al.,
slip op. at 10 (“Each party's final offer should reflect what it considers to be the maximum reasonable rate.”). The Board now clarifies that if a FORR case reaches the final offer selection stage (
i.e.,
the Board has found market dominance and that the challenged rate is unreasonable), the offer selected would be found to be the maximum reasonable rate.
33

Also, the Board clarifies that each party's final offer
must
reflect what it considers to be a maximum reasonable rate. (
See
UP Comment 16 n.8 (questioning the
NPRM'
s use of “should” with respect to this issue).
34

)

33
CN also implies that, under FORR, the Board would choose between final offers without first making a finding that the challenged rate is unreasonable. (CN Comment 9-10.) But the
NPRM
states exactly the opposite.
NPRM,
EP 755
et al.,
slip op. at 13.

34
UP further argues that requiring a defendant's final offer to reflect what it considers to be the maximum reasonable rate “would in many cases require railroads to defend higher rates than they actually want to charge.” (UP Comment 16 n.9.) The basis for UP's concern is unclear, given that defendant railroads routinely submit rate case analyses that produce R/VC ratios higher than the challenged rate, sometimes much higher.
See, e.g.,
UP Opening Evid. 31, 61 & n.62 (citing workpaper with calculations),
US Magnesium, L.L.C.
v.
Union Pac. R.R.,
NOR 42114. Railroads have not hesitated to defend those rates.

B. “Full Hearing” Requirement

AAR argues that FORR would not satisfy the “full hearing” requirement of 49 U.S.C. 10704(a)(1), because, according to AAR, the Board “has tied [its] hands by artificially limiting [its] decisional range to two possibilities” and has not “retained [its] full decisionmaking powers.” (AAR Comment 15-16.) AAR cites
Morgan
v.
United States,
304 U.S. 1, 12 (1938), for the proposition that “Congress, in requiring a `full hearing,' had regard to judicial standards—not in any technical sense but with respect to those fundamental requirements of fairness which are of the essence of due process in a proceeding of a judicial nature.” (AAR Comment 15.) AAR contends that, just as a judge cannot reject “fundamental elements of a trial,” the Board cannot “announce in advance that it will confine its decisional outcome to the parties' two proposals.” (
Id.
at 15-16;
see also
CN Comment 10; AAR Comment in Response to Mem. 4, Aug. 12, 2020.)

In a 1984 decision, the ICC rejected an argument that a “full hearing” means a formal “trial-type” hearing under sections 556 and 557 of the Administrative Procedure Act (APA),

noting that the phrase “full hearing” is not the same as the “on the record” language that is a significant factor in deciding whether formal hearing procedures are required.
State Intrastate Rail Rate Auth.—Tex.,
1 I.C.C.2d 26, 34-35 (1984). As the ICC observed, where a hearing on the record is not required, an agency has “considerable discretion to establish appropriate procedures.”
Id.
(citing
Vt. Yankee Nuclear Power Corp.
v.
Nat'l Res. Def. Council,
435 U.S. 519, 524 (1978) (“generally speaking,” the APA “established the maximum procedural requirements which Congress was willing to have the courts impose upon agencies in conducting rulemaking procedures.”)).

In denying a petition for review of the ICC's decision, the court of appeals rejected the appellant's contention that by requiring a “full hearing,” the relevant statutory provision requires a formal hearing, affirming that such formality will “obtain only on the requirement of a `hearing on the record.'”
R.R. Comm'n of Tex.
v.
United States,
765 F.2d 221, 227 (D.C. Cir. 1985). Notably, the court held that where the formal hearing requirements of the APA are not triggered, the agency has “substantial flexibility to structure the hearings it must provide.”
Id.
at 228 (quoting
Sea-Land Serv., Inc.
v.
United States,
683 F.2d 491, 495 (D.C. Cir. 1982)). This required the ICC to “conduct whatever proceedings are necessary to ensure that it has sufficient information so that its final decision reflects a consideration of the relevant factors.”
Id.
(quoting
Sea-Land Serv.,
683 F.2d at 496).

The Supreme Court has confirmed that agencies have such discretion. In
Pension Benefit Guaranty Corp.
v.
LTV Corp.,
496 U.S. 633 (1990), the Court upheld a Pension Benefit Guaranty Corporation (PBGC) decision after a lower court had, among other things, found the decision arbitrary and capricious because the “PBGC's decisionmaking process of informal adjudication lacked adequate procedural safeguards.”
Id.
at 644. The Supreme Court reversed, explaining that, per
Vermont Yankee,
“courts are not free to impose upon agencies specific procedural requirements that have no basis in the APA” and that the court of appeals “did not point to any provision in [PBGC's governing statute] or the APA which gives [respondent] the procedural rights the court identified.”
Id.
at 654-55. It concluded that PBGC's determination “was lawfully made by informal adjudication, the minimal requirements for which are set forth in the APA, 5 U.S.C. 555, and do not include such [further] elements.”
Id.
Here, AAR and other railroad commenters do not point to any language in sections 10701(d)(3), 10704(a)(1), or otherwise, that restricts the Board's discretion to set a rate by selecting the best of two offers after it finds the challenged rate unreasonable and considers appropriate statutory principles.

AAR's reliance on
Morgan,
a decision that predates enactment of the APA, is also misplaced. Contrary to AAR's suggestion, the “full hearing” requirement, as interpreted in
Morgan,
speaks not to how an agency renders its decision, but rather to the parties' rights in agency adjudications to be “heard.” FORR provides sufficient opportunity for parties to be heard and to critique opposing arguments, similar to parties' opportunities under other rate reasonableness procedures such as Three-Benchmark.

Morgan
involved an order by the Secretary of Agriculture setting maximum rates to be charged at Kansas City stockyards.
Morgan,
304 U.S. at 13. There, USDA opened an inquiry into the rates charged at the stockyards and collected a voluminous amount of evidence.
Id.
at 15-16. The Secretary of Agriculture held an oral argument to consider the evidence, but USDA's Bureau of Animal Industry (which was seeking to set the rates) submitted no briefing, and other than what it said at argument, “formulated no issues and furnished [the stockyard entities] no statement or summary of its contentions and no proposed findings.”
Id.
at 16. The Secretary denied a request by the stockyard entities for a tentative report, “to be submitted as a basis for exceptions and argument,” and instead adopted findings prepared by the Bureau of Animal Industry, leaving the stockyard entities no “opportunity . . . for the examination of” those findings until after the Secretary had served his order.
Id.
at 17. In reversing a lower court that had affirmed the Secretary's order, the Supreme Court held that a “full hearing” includes “a reasonable opportunity to know the claims of the opposing party and to meet them.”
Id.
at 18. It further held that “[t]hose who are brought into contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard upon its proposals before it issues its final command.”
Id.
at 18-19.

The concerns underlying the Supreme Court's decision in
Morgan
are not present with respect to FORR, under which both parties would have ample opportunity to be heard, with two rounds of briefing. Moreover, because the Board would confine its choice to one of two proposals (only after finding the challenged rate unreasonable), the defendant would know the complainant's claim and the rate that it might face should the Board select the complainant's offer, and would have an opportunity to respond to that offer. Even assuming
Morgan
survived enactment of the APA, which is not clear, FORR clearly satisfies its interpretation of a “full hearing.”

C. Burden of Proof

AAR suggests that FORR would relieve the complainant of its burden of proof, because the Board would simply consider the burden carried if it selected the complainant's offer. (
See
AAR Comment 16.) However, this is not what the
NPRM
proposed. As described in the following section, the complainant must still meet its burden by establishing that the challenged rate is unreasonable.
NPRM,
EP 755
et al.,
slip op. at 13. And as made clear above, each party's final offer
must
reflect what it considers to be a maximum reasonable rate. The fact that a party's analysis of the reasonableness of the challenged rate would almost certainly be the same analysis supporting its offer does not mean the Board would simply pass by the rate reasonableness step. On the contrary, even if the complainant's offer is superior to the defendant's offer, the complainant would not prevail if it failed to prove that the challenged rate is unreasonable.
See NPRM,
EP 755
et al.,
slip op. at 12-13.

AFPM states that it does not “share STB's assertion that the burden of proof must always be on the complainant (
e.g.,
rail shipper) and encourage[s] STB to consider scenarios where the burden of proof is on the rail carrier.” (AFPM Comment 8.) However, the Board has long held that complainants bear the burden of proof in rate reasonableness proceedings.
See, e.g.,

Union Pac. R.R.,
FD 35504, slip op. at 2;
Duke Energy Corp.
v.
Norfolk S. Ry.
(
Duke/NS
), 7 S.T.B. 89, 100 (2003).

WCTL states that the parties' presentations “may be akin to ships passing in the night, and the Board might find each method has merit.” (WCTL Comment 10.) To address this issue, WCTL proposes that the Board follow the approach used in larger rate cases, in which shippers may select one of several “constraints” to prove entitlement to rate relief. (
See id.
at 10-11 (citing
Coal Rate Guidelines, Nationwide,
1 I.C.C.2d 520, 534 n.35 (1985).) It asks that the Board in FORR cases similarly allow the complainant

shipper to select the governing methodology, so long as the Board finds the methodology, and final offer developed using that methodology, to be reasonable. (
Id.
) WCTL also notes that because complainants bear the burden of proof in rate reasonableness cases, “[i]t is only fair that the party with the burden of proof can select the maximum rate standard it chooses to utilize to prove its case, and that the Board accept this choice if it is reasonable and supported.” (
Id.
at 11.)

WCTL apparently intends its proposal to apply in both the evaluation of the reasonableness of the challenged rate, and, if the challenged rate is found unreasonable, the selection of offers. But applying it in the selection of offers would eliminate the final offer element of FORR—rather than selecting between two offers, the Board would simply stop at the complainant's offer if it were “reasonable and supported.” (
See id.
at 11.) The beneficial incentives and dynamics produced by a final offer process, discussed above and in the
NPRM,
would be unavailable.
See NPRM,
EP 755 et al., slip op. at 4-7. Nor would it be appropriate to apply WCTL's proposal to the evaluation of the challenged rate. Simply because a shipper may select one of several of the Board's established constraints to challenge a rate in a larger case, it does not follow that a shipper should be entitled to dictate the methodology used in an expedited FORR proceeding (potentially including a methodology of the shipper's own creation introduced for the first time in a particular case). A fundamental aspect of FORR is that the Board would provide more flexibility in methodologies and would consider both sides' proposed methodologies for evaluating the reasonableness of the challenged rate. WCTL's argument to the contrary, it would not be fair to the defendant to establish a principle dictating in advance the selection of the complainant's methodology in a FORR case even where there is persuasive evidence that the defendant's methodology yields a result that better satisfies the statutory standards.

D. Specific Scenarios Under FORR

Some railroad interests posit scenarios intended to show that FORR suffers from conceptual flaws that would prevent it from functioning properly.

In a purely hypothetical argument, AAR poses a scenario in which the complainant's offer is below the jurisdictional threshold,
see
49 U.S.C. 10707(d)(1)(A), and hence “impermissibly low,” and yet the complainant otherwise proves that the defendant's offer—be it the challenged rate or otherwise—is unreasonable and hence “impermissibly high.” (
See
AAR Comment 16-17.) As the
NPRM
pointed out, however, the Board may not set the maximum reasonable rate below the level at which the carrier would recover 180% of its variable costs of providing the service.
NPRM,
EP 755 et al., slip op. at 10 n.21. Given the either/or nature of a final offer process, a complainant would have to submit a final offer at or above the jurisdictional threshold to be entitled to relief, regardless of whether its methodology supports a lower rate.

UP claims that, in a FORR case, the Board could never select a railroad's final offer. (
See
UP Comment 11-14.) This claim starts from the incorrect premise that, in every case, “the railroad's final offer will be equal to or exceed the challenged rate.” (
See id.
at 11-12, 21-22 (mistakenly assuming that discovery would be unfair to defendants because the railroad's final offer and the challenged rate “will inevitably be the same”).)
35

In the abstract, UP may not want to “conced[e] that the challenged rate is unreasonable,” but in specific cases it could be an effective strategic decision for the railroad to offer a rate that is lower than the challenged rate but higher than the complainant's offer.
36

35
UP also argues that a railroad concerned about its ability to defend the challenged rate would settle instead. (
Id.
at 13.) Settlement is possible, of course, but UP provides no support for the idea that it would
necessarily
happen—for example, the parties' positions could still diverge too much to allow for a negotiated resolution.

36
This strategic decisionmaking is analogous to what happens in other types of litigation. In a SAC case, for example, a party can deliberately take a less aggressive position on an element of the analysis if it is concerned about its likelihood of success—a decision that changes what the party ultimately submits as the SAC rate.

UP also describes a hypothetical situation in which a complainant submits very compelling evidence that the challenged rate is unreasonable and no evidence whatsoever in support of its offer. (
See
UP Comment 15-16.) In that situation, UP argues, the Board would have to accept that unsupported (and unreasonably low) offer, because it cannot prescribe the challenged rate after finding it unreasonable. (
See id.
) UP again assumes, incorrectly, that a railroad's final offer must be identical to the challenged rate. Such a scenario is also extremely unlikely because it is implausible that a complainant's analysis producing an unsupported and unreasonably low rate could satisfy FORR's proposed decisional criteria to show that the challenged rate is unreasonable.

E. FORR's Encouragement of Settlements

The
NPRM
observed that a final offer procedure may help to encourage the private settlement of disputes.
NPRM,
EP 755
et al.,
slip op. at 7. AAR contends that, if FORR does encourage settlements, it will not create precedent that will guide parties in future disputes. (AAR Comment 20.) While AAR's observation may be true, at least in part, it fails to demonstrate a problem with FORR. Increasing the frequency of settlements, and therefore avoiding the cost and time of litigation, would be a better outcome for parties and the Board.
See, e.g., U.S. Dep't of Energy
v.
Balt. & Ohio R.R.,
NOR 38302S
et al.,
slip op. at 5 (STB served June 28, 2017) (“Wherever possible, the Board's longstanding policy is to encourage the private resolution of disputes through voluntary negotiations among all interested parties.”). By contrast, if most disputes are litigated, that would be a less favorable development, even though precedent would develop more quickly.
37

37
Without citing support, AAR claims that uncertainty would deter negotiated outcomes. (
See
AAR Comment 18;
see also
CN Comment 19; BNSF Comment 4-5, 8.) But the
NPRM
cited multiple sources supporting the opposite proposition.
NPRM,
EP 755
et al.,
slip op. at 5-7.

AAR also argues that it is unreasonable for a railroad to face the “coercive pressure” inherent in a final offer procedure, which is what encourages settlements. (
See
AAR Comment 21-22.) AAR asserts that the risks faced by shippers and railroads are not reciprocal, because the Board would never prescribe a rate higher than the challenged rate. (
See id.; see also
UP Comment 14-16, 18.)

This lack of reciprocity is a result of the Board's statutory mandate to regulate railroad conduct, rather than shipper conduct.
See, e.g.,
49 U.S.C. 10704(a)(1) (authorizing the Board to prescribe a rate or practice for a carrier). It may be true that that statutory limitation could produce different incentives than parties have in other final offer procedures. But in proposing FORR, the Board has weighed the competing considerations and determined that FORR would provide sufficient benefits (
see, e.g.,

NPRM,
EP 755
et al.,
slip op. at 4-7) even if it were found not to afford the full settlement incentives present in certain other contexts.
38

Additionally, while the

Board would not prescribe a rate higher than the challenged rate in a FORR case, as indicated in the
NPRM,
39

there is still considerable risk to a complainant that brings an unsuccessful FORR case that the carrier may conclude based on the Board's evaluation of the economic analyses that it has more latitude to set a higher rate. And should the Board find the challenged rate has not been shown to be unreasonable in a given case, the Board's findings could have a preclusive effect on that complainant in subsequent litigation.
See, e.g., Martin
v.
Garman Const. Co.,
945 F.2d 1000, 1004 (7th Cir. 1991) (“Agency adjudications are afforded collateral estoppel effect, provided appropriate safeguards are met.”) (citing
United States
v.
Utah Constr. & Mining Co.,
384 U.S. 394, 421-22 & n.18 (1966)). Finally, any lack of reciprocity is balanced by the defendant carrier's possession of market dominance—a prerequisite in any rate case before the Board, including FORR.
See
49 U.S.C. 10707.
40

The very existence of a rate case that satisfies the market dominance threshold indicates an inherent imbalance in bargaining power that favors carriers, while the statutory requirements that rates subject to market dominance be reasonable, and that the Board maintain simplified procedures for smaller cases, reflect Congressional intent to level this playing field.
See
49 U.S.C. 10701(d)(1), (3).

38
In a related argument, AAR contends that FORR would have a detrimental effect on railroad revenue adequacy, outside the context of an individual dispute, because it would “creat[e] a coercive downward force on rates.” (AAR Comment

25.) AAR provides no support for this claim. Although FORR is intended to encourage settlements, it would not require them, and any railroad may choose to defend its rate as reasonable. If a market dominant railroad does not believe its rate is reasonable, as required by 49 U.S.C. 10701(d), then it should be incentivized to negotiate a lower rate. In other words, to the extent FORR would put downward pressure on high rates, it would function as a legitimate mechanism for indirectly enforcing the statutory requirement that rates subject to market dominance be reasonable.

39

See NPRM,
EP 755
et al.,
slip op. at 14.

40
A complainant challenging a rate that is subject to market dominance (
i.e.,
any complainant whose case under FORR reaches the rate reasonableness phase) would not have the options that UP assumes would be available to complainants. (
See
UP Comment 14-16 (assuming, for example, that if a complainant loses, it could simply choose not to move traffic under the rate that was at issue in the case, or that, “in many situations,” the challenged rate is constrained by market forces).)

AAR also asserts—similar to its prior claims in opposing other efforts at reforming the Board's rate review processes
41

—that rates adopted through FORR settlements would become the basis for comparison groups in Three-Benchmark cases, “further driving railroad pricing down.” (
See
AAR Comment 22-23.) That could be true, but the argument would apply whenever
any
shipper obtained a lower rate, either through a Board decision (using any rate reasonableness process) or a settlement. Indeed, any decision favorable to a shipper in a Three-Benchmark case, a process that AAR supports, would set the stage for similar decisions in other cases and similar arguments about so-called ratcheting. So, in essence, AAR is asserting that any rate reasonableness process—whether FORR or some other approach—that results in meaningful opportunities for shippers to show that rates are unreasonably high must be rejected because it could result in reduced revenues for the railroads. The Board will, of course, remain vigilant about the adequacy of railroad revenues,
42

but accepting an argument that it should not adopt any process that could provide meaningful rate relief would undermine the very law that the Board is bound to administer and enforce.

41

See
AAR Suppl. Comment 10-11, Feb. 26, 2007,
Simplified Standards for Rail Rate Cases,
EP 646 (Sub-No. 1) (predicting incorrectly that the Three-Benchmark approach would “inevitably result in an overall ratcheting down of rates towards an average”).

42
The Board is cognizant of the concern raised by the court in
McCarty Farms Appeal
that frequent and regular use of a comparison group approach could reduce rates to the lowest revenue to variable cost ratio used in the comparison group.
See McCarty Farms Appeal,
985 F.2d at 597.

F. Comparisons to Canadian Final Offer Arbitration

CN argues that concerns regarding final offer arbitration are mitigated in Canada because the process and results are confidential and decisions are non-precedential, but that FORR lacks these features. (CN Comment 24;
see also
CSXT Comment 2.) While a certain degree of confidentiality and lack of precedent could enhance the benefits of a final offer process,
43

rate reasonableness decisions by the Board are precedential and made available to the public (with exceptions for certain confidential material).
See
5 U.S.C. 552(a)(2) (requiring that agencies make “available for public inspection” final opinions and orders made in the adjudication of cases);
Pac. Gas & Elec. Co.
v.
Fed. Power Comm'n,
506 F.2d 33, 38 (D.C. Cir. 1974) (noting that agency adjudications “constitute binding precedents”). In proposing FORR, the Board has weighed these considerations and, based on the record to date, concludes that FORR would provide sufficient benefit even without being confidential and non-precedential.

43
(
See
TRB Professors Comment 5 & n.17.)

CN also states that Canadian final offer arbitration does not provide for reparations. (CN Comment 25.) In fact, Canadian final offer arbitration does provide monetary relief covering the pendency of the litigation, although, unlike reparations awarded by the Board, it cannot reach back two years prior to the complaint.
See
Canada Transp. Act, S.C. 1996, c. 10, as amended, section 165(6) (Can.). This difference is less significant than it might appear, because complainants in rate cases before the Board often wait to switch from a contract to a tariff rate until shortly before they file their complaints, to minimize the time they pay the tariff rate.
See, e.g.,

Consumers Energy Co.
v.
CSX Transp., Inc.,
NOR 42142, slip op. at 1, 284 (STB served Jan. 11, 2018) (complaint filed in 2015; reparations calculation started from 2015). The reasonableness of those contract rates is not subject to challenge before the Board (
see
49 U.S.C. 10709(c)), meaning that, in practice, the reparations period often begins around the time the complaint is filed, rather than two years earlier.

CP states that Canadian final offer arbitration proceedings are complex and expensive for both parties, and that, because CP does not know what arguments shippers will make, it “must be overly expansive in its briefing, addressing all possible arguments that the complainant might raise.” (CP Comment 5-8 (predicting that briefing in FORR cases will be overbroad, with parties submitting “a vast amount of materials”).) Canadian final offer arbitration may be complex, but the more relevant issue here is how FORR compares to the Board's existing rate reasonableness processes. If it is sufficiently less costly than Three-Benchmark, for example, then it could still help to expand access to rate relief. Moreover, several shipper interests with member companies that have participated in Canadian final offer arbitration tout its success. (
See, e.g.,
NGFA Comment 7 (“Some of NGFA's member companies have had successful experiences with the Canadian final offer arbitration procedures . . . .”); Farmers Union Reply Comment 2 (“In your practitioner's experience in working with Canadian researchers, we found that [final offer] procedures between shippers and carriers rarely went to fruition but were settled many times . . . .”).) And none of the shipper interests have expressed concerns similar to those raised by CP, despite the fact that it is the shipper interests that support FORR based on its expected reduced cost and complexity.

Part IV—Review Criteria

As noted above, the Board stated that, in reviewing offers, it would take into account the RTP, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and

appropriate economic principles.
See NPRM,
EP 755
et al.,
slip op. at 10-13.

Some shipper interests request additional information regarding the review criteria proposed in the
NPRM,
while railroad interests strongly oppose the proposal to rely on criteria as opposed to a defined economic methodology. The Board continues to propose a non-prescriptive, multi-factor test, which would apply in the rate reasonableness determination regarding the challenged rate and, if necessary, in selecting between the offers.
See NPRM,
EP 755
et al.,
slip op. at 10-12. But, to aid commenters on this
SNPRM,
the Board will provide some additional information about what it would expect to consider.

A. Additional Information Regarding Review Criteria

USDA asks the Board to be more explicit about the types of actions that would not satisfy the criteria. (USDA Comment 4.) Similarly, AFPM asks the Board to define “appropriate economic principles,” and NGFA suggests that the Board provide a “more detailed discussion of the potential criteria and statutory standards.” (AFPM Comment 7; NGFA Comment 10.) And while the Coalition Associations support the Board's proposal, they state that the absence of a specific economic methodology requires complainants to take a “leap of faith.” (Coalition Ass'ns Comment 2.)

To mitigate this uncertainty, the Board will provide additional information here. First, parties seeking to satisfy the criteria might submit, for example, robust comparison group approaches, cross-subsidy analyses, analyses that incorporate market-based factors (
see, e.g.,
BNSF Mem. 1-2 (Mtg. with Board Member Begeman); NGFA Reply 12, Aug. 20, 2020,
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for Small Rate Disps.,
EP 765), or new analyses relying on constrained market pricing (CMP) principles, which are discussed further below. The Board declines to propose to determine in advance whether specific methodologies (including those identified above) would satisfy the review criteria; rather, that determination would take place in individual cases, and submitting a methodology in one of these categories would not guarantee a party's success.
44

And this list is certainly not exhaustive; parties could also seek to satisfy the review criteria with methodologies that are not listed here. But parties who are uncertain about how to choose a methodology might consider one of these examples as a starting point.

44
The Coalition Associations describe a rate benchmarking methodology and argue that it would be appropriate to use in a FORR case. (
See
Coalition Ass'ns Comment 19-25.) The Board agrees with AAR, however, that this issue is beyond the scope of the proceeding, where the Board did not seek comment on particular methodologies. (
See
AAR Reply Comment 5-6.) The appropriateness of methodologies would be decided on a case-by-case basis under the proposed approach.

Second, the Board clarifies that parties would not be expected to address every RTP factor, all of the Long-Cannon factors (see further discussion below), or every type of appropriate economic principle. In other proceedings, the Board and parties rely on the RTP factors that are relevant to the individual case, and the same would be true in FORR cases.

In particular, the Board would rely primarily on the RTP factors that have previously been relied on in the rate reasonableness context: The policy to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail, 49 U.S.C. 10101(1); to promote a safe and efficient rail transportation system by allowing rail carriers to earn adequate revenues, as determined by the Board, section 10101(3); and to maintain reasonable rates where there is an absence of effective competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system and to attract capital, section 10101(6).
See, e.g.,

Simplified Standards,
EP 646 (Sub-No. 1), slip op. at 34 (relying on RTP factors (3) and (6));
W. Coal Traffic League—Pet. for Declaratory Ord.,
FD 35506, slip op. at 16-17 (STB served July 25, 2013) (relying on RTP factor (1) in distinguishing the Board's rate regulation from public utility regulation). To the extent parties seek to rely on RTP factors that have not been relied on in the rate reasonableness context, they must take care to demonstrate how those factors relate to the economic analysis of the reasonableness of the rate.

AAR argues that the Board does not provide enough detail on how it would protect revenue adequacy in a FORR case. (AAR Comment 24-25;
see also
CN Comment 13-14.) In a FORR case, if a party submits an analysis that fails to explain how it accounts for revenue adequacy—with regard to the reasonableness of the challenged rate as well as support for the offer—the party would be less likely to prevail. And if a party's analysis does not adequately account for revenue adequacy, the opposing party could draw attention to this problem in its reply.

With respect to the Long-Cannon factors, the
NPRM
indicated that, in deciding between offers, the Board would give due consideration to (i) the carrier's efforts to minimize traffic transported at revenues that do not contribute to going concern value, (ii) the carrier's efforts to maximize revenues from traffic that contributes only marginally to fixed costs, and (iii) whether one commodity is paying an unreasonable share of the carrier's overall revenues, while recognizing the policy that rail carriers earn adequate revenues.
NPRM,
EP 755 et al., slip op. at 11. CN points to the Board's statement in a prior decision that there is “no feasible way to incorporate such an analysis into a method for resolving small rate disputes without raising litigation expenses and rendering the `simplified' method too expensive,” and implies that this discussion applied to the Long-Cannon factors in general. (
See
CN Comment 19-20 (citing
Simplified Standards for Rail Rate Cases
(
Simplified Standards NPRM
), EP 646 (Sub-No. 1), slip op. at 22 (STB served July 28, 2006)).) But in fact, in that decision the Board was referring specifically to the first factor, observing that rail capacity had become tight (as opposed to the excess capacity that existed when Staggers was enacted) and so “a railroad is not likely to carry any traffic that does not contribute to going concern value.”
See Simplified Standards NPRM,
EP 646 (Sub-No. 1), slip op. at 22. Parties could choose to rely upon this conclusion in FORR cases, making the first Long-Cannon factor unlikely to be a significant aspect of the analysis, though parties could still address how it is accounted for in their proposed methodology.

Because the Board must give due consideration to the Long-Cannon factors when assessing the reasonableness of rates, parties should generally address how their methodologies would allow the Board to take the issues raised by these factors into account. As discussed above, parties may use Board precedent to make arguments about the degree and manner in which a particular factor should be considered by the Board in relation to a proposed methodology.
45

45
For example, the ICC described the Long-Cannon factors as “certain checks on obviously inefficient management.”
Coal Rate Guidelines, Nationwide,
EP 347 (Sub-No. 1), slip op. at 10, 13-14 (ICC served Feb. 24, 1983);
see also Coal Rate Guidelines, Nationwide
(
Coal Rate Guidelines
), 1 I.C.C.2d 520, 540-41 (1985) (discussing the Long-Cannon factors in establishing the management

efficiency constraint). Not every case would be likely to involve “obviously inefficient management,” and parties may seek to explain why that is the case.

Finally, appropriate economic principles would encompass Board and ICC precedent (also discussed further below), court precedent reviewing Board and ICC decisions, generally accepted economic theory (
e.g.,
presented in experts' verified statements or citations to academic literature), and analogous economic regulatory materials from other tribunals, such as federal courts and agencies. Reliance on these sources would hardly be an innovation; parties and the Board already can and do cite Board precedent, for example, as well as academic literature and analogous materials from other tribunals.
See, e.g.,

Total Petrochems. & Ref. USA, Inc.
v.
CSX Transp., Inc.,
NOR 42121, slip op. at 220 (STB served Sept. 14, 2016) (relying on Board precedent);
Consumers Energy Co.,
NOR 42142, slip op. at 19 n.20 (citing academic literature);
AEP Tex. N. Co.
v.
BNSF Ry.,
NOR 41191 (Sub-No. 1), slip op. at 7-8 (STB served May 15, 2009) (citing analogous federal court precedent). Expressly referencing these sources among the review criteria ensures that parties and the Board can continue to cite them in the same ways and with the same frequency that they do in other types of proceedings.

B. Vagueness Arguments

Citing
FCC
v.
Fox Television Stations, Inc.,
567 U.S. 239 (2012), AAR contends that FORR is unconstitutionally vague because railroads do not know in advance what the Board might find unreasonable, inasmuch as the methodology is chosen within the case—railroads will not know in advance how to conform their conduct to the demands of the law. (
See
AAR Comment 17-19;
see also
CN Comment 18-19; BNSF Comment 4-5, 7-8.) AAR also states that predictable application is necessary to prevent the adjudicator from acting in an arbitrary or discriminatory way. (AAR Comment 19.)

Although any agency standard must be sufficiently clear to pass constitutional muster,

46

Fox Television
has little resemblance to the circumstances here. Unlike the FCC in that case, the Board here is not changing course mid-proceeding and purporting to regulate railroad conduct without providing notice of what that regulation requires.
See
567 U.S. at 254. To the contrary, the Board is proposing procedural rules for the adjudication of railroad rates under the precise criteria established by statute. Following the Board's adoption of FORR, railroads would continue to be entitled under section 10701 to “establish any rate for transportation” over which they do not have market dominance. Where there is market dominance, railroads would also continue to be entitled to charge a rate so long as it is reasonable. The Board would also consider the reasonableness of rates challenged under FORR using the same statutory criteria and economic principles applied in past rate cases using other processes. The
NPRM
made clear that a railroad in a FORR proceeding may use “existing rate review methodologies” to defend the challenged rate or its final offer, as well as other methodologies that follow the applicable criteria.
NPRM,
EP 755 et al., slip op. at 12.

46
In
Freeman United Coal Mining Co.
v.
Federal Mine Safety & Health Review Commission,
108 F.3d 358, 362 (D.C. Cir. 1997), a case cited by CN, the court noted that regulations need not achieve “mathematical certainty” or “meticulous specificity,” and may instead embody “flexibility and reasonable breadth.”
Id.
(quoting
Grayned
v.
City of Rockford,
408 U.S. 104, 110 (1972).) Applying these principles, the court found that the regulation at issue, which broadly required that mine structures “be maintained in good repair to prevent accidents and injuries to employees” was “sufficiently specific to provide notice . . . of the conduct that it required or prohibited.”
Id.

AAR's argument overstates the predictability of other types of litigation before the Board and understates the predictability of a FORR case. In almost every recent SAC case litigated to a merits decision, both shippers and railroads have raised novel issues, some of which reach the core of the SAC concept.
See, e.g.,

Ariz. Elec. Power Coop.
v.
BNSF Ry.,
NOR 42113, slip op. at 140-42 (STB served Nov. 22, 2011) (accepting a new calculation proposed by the defendant railroad for use in the discounted cash flow analysis);
Consumers Energy Co.,
NOR 42142, slip op. at 25-27 (addressing a new proposed method for traffic group selection);
E.I. DuPont de Nemours & Co.
v.
Norfolk S. Ry.,
NOR 42125, slip op. at 282-84 (STB served Mar. 24, 2014) (accepting a new adjustment proposed by the complainant shipper to the terminal value calculation). Not all of these issues are purely matters of economic policy; many also require adjudication as to how a hypothetical railroad might operate differently than the defendant, an inherently non-quantitative weighing of evidence and argument.
See, e.g.,

E.I. DuPont de Nemours & Co.,
NOR 42125, slip op. at 39-40 (requiring, for the first time, that a SARR carrying predominantly carload traffic account for car classification and blocking). Notwithstanding parties' posturing in negotiations before a rate case, (
see
BNSF Comment 8), they cannot predict the resolution of these novel, potentially case-dispositive issues in advance—nor can the Board, before the development of an administrative record. SAC, however, is not unconstitutionally vague and has been upheld on judicial review.
See, e.g.,

Consol. Rail Corp
v.
United States,
812 F.2d 1444, 1456-57 (3d Cir. 1987);
Potomac Elec. Power Co.
v.
ICC,
744 F.2d 185, 192-95 (D.C. Cir. 1984).

Adjudication of claims under 49 U.S.C. 10702 and 11101, addressing the reasonableness of practices and the common carrier obligation, respectively, bears even greater resemblance to the approach proposed here. Each involves a case-specific, multi-factor analysis.
See, e.g.,

CF Indus., Inc.—Pet. for Declaratory Ord.,
FD 35517, slip op. at 4-5 (STB served Nov. 28, 2012) (describing legal standard in unreasonable practice cases);
Union Pac. R.R.—Pet. for Declaratory Ord.,
FD 35219, slip op. at 3-4 (STB served June 11, 2009) (describing legal standard in common carrier obligation cases).
47

The ICC and the Board have followed this approach for more than a century, with judicial approval, despite parties' inability to “know in advance what the Board might deem unreasonable” with the specificity that AAR would apparently require, (AAR Comment 17-18).
See, e.g.,

Lake-and-Rail Butter & Egg Rates,
29 I.C.C. 45, 46-47, 49-51 (1914) (enforcing the common carrier obligation);
Bodine & Clark Livestock Comm'n
v.
Great N. Ry.,
63 F.2d 472, 477-78 (9th Cir. 1933) (affirming the ICC's determination regarding the reasonableness of a practice);
Granite State Concrete Co.
v.
STB,
417 F.3d 85, 92-93 (1st Cir. 2005) (specifically

affirming the STB's application of the legal standard).
48

47
The factors in such cases can be quintessential examples of the “incommensurate interests” that CN found so problematic in its comment: for example, weighing safety considerations against the economic interests of a railroad or its customer.
See
CN Comment 20;
see also, e.g.,

N. Am. Freight Car Ass'n
v.
Union Pac. R.R.,
NOR 42119 (STB served Mar. 12, 2015);
Bar Ale, Inc.
v.
Cal. N. R.R.,
FD 32821 (STB served July 20, 2001). The ICC and the Board have performed these analyses lawfully and with judicial approval,
see, e.g.,

Granite State Concrete,
417 F.3d at 95-96, and without an advance explanation as to how they would balance potentially competing interests. Therefore, contrary to CN's argument regarding the Long-Cannon factors, (
see
CN Comment 20-21), regulating railroad practices or rates using a non-prescriptive, multi-factor test is not “void for vagueness” even if some of the factors are incommensurate interests.
Cf. Gentile
v.
State Bar of Nev.,
501 U.S. 1030, 1048-51 (1991). CN also does not support its attempt to analogize FORR to the situation in
Gentile,
a First Amendment decision that specifically addresses “[t]he prohibition against vague regulations of speech.”
See id.

48
Even in a cost-of-service rate case before another agency, which bears greater resemblance to traditional utility ratemaking—a mode of regulation that has been established far longer and with greater continuity than any of the Board's rate processes—the regulator or a reviewing court may change a significant component of the analysis within an individual litigation.
See, e.g.,

United Airlines, Inc.
v.
FERC,
827 F.3d 122, 134-36 (D.C. Cir. 2016) (overturning agency's allowance of income taxes in cost of service for carriers structured as partnerships).

AAR characterizes FORR as distinct from these other agency processes in terms of predictability, implying that the Board has given no hint as to how it would reach a decision. (
See
AAR Comment 17-19; AAR Comment in Response to Mem. 5, Aug. 12, 2020.) That is not so; the
NPRM
stated the criteria that would apply in determining rate reasonableness,
49

and if necessary, choosing an offer.
50

These criteria would signal to parties what rates might be found unreasonable. For instance, if a defendant railroad is charging vastly more for the challenged traffic than it does for comparable traffic, if it is aware of costly inefficiencies that a new railroad would not adopt, or if its revenue from the challenged rate is out of proportion to its properly attributable capital requirements and other costs of service, (
see
BNSF Mem. 2 (Mtg. with Board Member Begeman)), then it could reasonably predict a lower likelihood of success in a FORR case.
51

In other words, there is a continuum of predictability with respect to litigation—rather than the binary distinction AAR proposes—and FORR is closer on the continuum to other types of litigation than AAR acknowledges. (
See
Olin Comment 11 (citing
Board of Trade
v.
United States,
314 U.S. 534, 546 (1942) (ratemaking “is fluid and changing—the resultant of factors that must be valued as well as weighed”)).) FORR's level of predictability, which is in line with unreasonable practice cases and other adjudications requiring the tribunal to weigh multiple factors, does not render it unconstitutionally vague.

49
AAR disagrees with similar reasoning proffered by Olin; AAR states that Olin “misses the point” because, “[i]n the rate context, the elastic term `reasonable' has specific meaning.” (AAR Comment in Response to Mem. 5, Aug. 12, 2020.) In this attempt to distinguish rate reasonableness from unreasonable practice cases and rulings on the common carrier obligation, AAR does not cite any statutes or case law.
See id.
AAR relies instead on an article, which does not even support the point for which AAR cites it, much less provide statutory or precedential support.
See id.
AAR further notes that, with respect to rate reasonableness, Congress has required the Board to account for railroad revenue adequacy and the Long-Cannon factors.
See id.
But the FORR process does account for these considerations.
See NPRM,
EP 755 et al., slip op. at 10-12.

50
CSXT asserts that the
NPRM
“fails to set forth any substantive standard that it would use to choose between the `final offers.'” (CSXT Comment 1.) No other commenter makes such a claim, for good reason: The
NPRM
directly stated the non-prescriptive criteria that would provide the substantive standard in FORR cases.
NPRM,
EP 755 et al., slip op. at 10-12.

51
AAR does not address whether the discussion it cites from
Paralyzed Veterans of America
v.
D.C. Arena, L.P.
, 117 F.3d 579, 584 (D.C. Cir. 1997) survives
Perez
v.
Mortgage Bankers Association
, 575 U.S. 92 (2015). (
See
AAR Comment 19). It does not matter here, however, for the reasons stated above. Far from “promulgat[ing] mush,”
see Paralyzed Veterans
. 117 F.3d at 584, the Board has proposed a test that requires the balancing of multiple factors stated in advance, as in other types of adjundicaton.

AAR states that, “it remains unclear whether the Board will even disclose
when deciding the case
the methodology it used to choose the winner.” (AAR Comment 19.) To clarify, when deciding a case under FORR, the Board would explain the basis for its decision, as it does in every case. AAR's concern apparently stems from a comment made by the TRB Professors, who suggest that the Board can “fully . . . discharge its obligations without going into detail on the reasons it chose one offer rather than the other.” (TRB Professors Comment 5.) However, in a FORR case, as in all other cases, the Board would have to provide enough detail to supply a reasoned basis for its decision.
See, e.g.,

Motor Vehicle Mfrs. Ass'n
v.
State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983). Consequently, AAR's concern that the Board would issue FORR decisions without explaining its reasons for selecting one offer rather than the other, or on the reasonableness determination as to the challenged rate, is unfounded.
52

52
AAR claims that FORR would not require the parties' offers or supporting methodologies to incorporate the stated review criteria. (AAR Comment in Response to Mem. 3, Aug. 12, 2020.) However, as the
NPRM
explained, a party that disregards these criteria would likely lose, because the criteria will guide the Board's determinations.
See NPRM,
EP 755 et al., slip op. at 11. AAR fails to distinguish this situation from any other litigation, where a party can choose to submit pleadings that disregard the substantive principles governing the proceeding, but in doing so scuttle its own case.

AAR argues that, because FORR would rely on general criteria rather than a pre-determined methodology, FORR decisions would not provide useful guidance in future cases even if the Board did explain its reasoning. (AAR Comment 20.) It is a significant overstatement to claim, as AAR does, that FORR decisions would provide “little if any guidance” to future litigants. As parties observe which methodologies can be successfully employed within the constraints of FORR, they could adopt—and perhaps even improve upon—those methodologies in future cases. AAR appears to assume that each FORR case would involve a completely different methodology than any prior case. Such a development is possible, but parties have strong incentives to be guided by precedent, because it is more efficient to build on economic and legal work that has already been performed in prior cases. Also, parties to other proceedings involving case-specific, multi-factor tests can and do cite precedent on a regular basis.
See, e.g.,
Ark. Elec. Coop. Opening Evid. & Arg. 4-5, Mar. 16, 2010,
Ark. Elec. Coop.—Pet. for Declaratory Ord.,
FD 35305 (unreasonable practice case); UP Reply 31-38, May 5, 2015,
Sherwin Alumina Co.
v.
Union Pac. R.R.,
NOR 42143 (common carrier obligation case).

C. Board Precedent

AAR asserts that any rate reasonableness process adopted by the Board must be “tethered to” CMP,
53

arguing that FORR deviates from “historic agency practice.” (
See
AAR Comment 14;
see also
CN Comment 11-14.) However, AAR overstates the degree to which the Board has adhered to CMP in developing previous rate reasonableness processes. In adopting the Three-Benchmark test, the Board stated:

53
CMP, which the ICC adopted in
Coal Rate Guidelines,
contains three main constraints on the extent to which a railroad may charge differentially higher rates on captive traffic. The revenue adequacy constraint is intended to ensure that a captive shipper will “not be required to continue to pay differentially higher rates than other shippers when some or all of that differential is no longer necessary to ensure a financially sound carrier capable of meeting its current and future service needs.”
Coal Rate Guidelines,
1 I.C.C.2d at 535-36. The management efficiency constraint is intended to protect captive shippers from paying for avoidable inefficiencies (whether short-run or long-run) that are shown to increase a railroad's revenue need to a point where the shipper's rate is affected.
Id.
at 537-42. The SAC constraint is intended to protect a captive shipper from bearing costs of inefficiencies or from cross-subsidizing other traffic by paying more than the revenue needed to replicate rail service to a select subset of the carrier's traffic base.
Id.
at 542-46.

whether using an SAC analysis or CMP's alternative top-down approach (both of which are highly data-intensive), a CMP presentation can be quite expensive and thus not feasible where the amount of money at issue is not great enough to justify the expense. Accordingly, the ICC instituted this rulemaking in 1986 to search for simpler, less expensive procedures for assessing rate reasonableness in small cases.

Non-Coal Proc.,
1 S.T.B. at 1008 (footnote omitted). The Board also explained the development of Three-Benchmark as follows: “the ICC decided that it must find some means other than CMP to meet the dual objectives of

enabling a railroad to differentially price its traffic and protecting a complaining captive shipper from bearing an undue share of a carrier's revenue requirements.”
Id.
at 1012-13. The Board concluded that “other procedures can, and indeed must, be made available for those cases in which CMP simply cannot be used—because the traffic is so infrequent or widely dispersed that it is not susceptible to a SAC presentation or because the case is so small in value that the substantial expense of a CMP presentation (whether through the top-down approach or SAC's bottom-up approach) cannot be justified.”
Id.
at 1021 (footnote omitted).

Similarly, when the ICC began the inquiry that led to the Three-Benchmark test, it explained that its
Coal Rate Guidelines
decision, the source of CMP, might not be a good fit outside the circumstances for which it was developed: “[
Coal Rate Guidelines
] arose out of a request to set rate standards for high-volume shipments from newly-developed reserves in the Western United States. We acknowledge that the specifics of the guidelines finally adopted are particularly well suited to high-volume, long-term movements, where the cost and complexity of rate regulation are not disproportionate to the public and private interest in developing economically efficient rates.”
Rate Guidelines—Non-Coal Proc.,
EP 347 (Sub-No. 2), slip op. at 1-2 (ICC served May 21, 1986).
54

54
In the
Simplified Standards NPRM,
the Board stated that, “while this Three-Benchmark approach would not replicate directly the results of a SAC analysis, it would import that constraint indirectly by comparing the challenged rate against rates for other potentially captive movements that are constrained by some form of the SAC test.”
Simplified Standards NPRM,
EP 646 (Sub-No. 1), slip op. at 28. That characterization, however, relied directly on the eligibility criteria that the Board had initially proposed (because the criteria would ensure that most rates were not eligible for Three-Benchmark, meaning that most rates in a comparison group would be constrained by SAC,
see id.
)—and the Board chose not to adopt those criteria in the final rule.
See Simplified Standards,
EP 646 (Sub-No. 1), slip op. at 89-94.

To be sure, Three-Benchmark's revenue-to-variable cost (R/VC) benchmark tests are meant to account for “all of the relevant statutory and economic principles,” while meeting the Board's “dual objective” of both permitting differential pricing and protecting captive shippers from bearing an undue share of a railroad's revenue requirements.
Non-Coal Proc.,
1 S.T.B. at 1012-13, 1041.
55

These are the same objectives that support CMP.
Id.
at 1012-13. AAR argues that, unlike SAC or Three-Benchmark, FORR does not account for “market-driven outcomes and principles.” (AAR Comment 14;
see also
BNSF Comment 7.) The FORR review criteria, however, expressly account for these factors.
See NPRM,
EP 755 et al., slip op. at 10-11. If a complainant's FORR presentation does not adequately account for the necessity of demand-based differential pricing, for example, it likely would be unable to prove that the challenged rate is unreasonable.

55
BNSF argues that approaches relying on R/VC ratios, including the 180 R/VC threshold, are inaccurate. (
See
BNSF Comment 4.) This resembles a position adopted by the TRB Professors in their report, but as the
TRB Report
acknowledges, reliance on R/VC ratios (at least for market dominance) is built into the statute and would require the enactment of legislation to remove.
See TRB Rep.
134-35. Also, even if BNSF were correct, its argument would support the Board's adoption of FORR: the Board's existing rate processes all rely on R/VC ratios, and although some FORR cases might also use R/VCs (depending on the methodology selected), it is likely that not all FORR cases would do so.

According to AAR, the Board's existing processes have been fine-tuned through notice and comment and judicial review, and the Board has not provided a reasoned explanation for its departure from those established methods. (AAR Comment 14-15;
see also
BNSF Comment 5-6; CN Comment 14.)
56

However, the FORR proposal arose in the context of the agency's long and difficult search for a solution for smaller rate disputes, and the
NPRM
explained in detail the reason for its proposal.
See NPRM,
EP 755 et al., slip op. at 3-4, 6-7, 17. Again, the Board and the ICC have already recognized the need for non-CMP methods, and FORR expressly accounts for “the basic economic principles that have long guided the Board in judging the reasonableness of rates,” (AAR Comment 15). BNSF argues in addition that, under FORR, a party could “select only the favorable elements of an existing methodology while discarding less favorable elements (including essential procedural protections).” (BNSF Comment 5-6.) However, if a party relies on a modified version of an existing methodology that deviates from the principles identified in the
NPRM
as review criteria, the party is less likely to succeed on rate reasonableness, and if necessary, selection of an offer. And if a party's submission is deficient, as BNSF appears to contemplate, the opposing party can explain this deficiency in its reply.

56
CN cites
McCarty Farms Appeal
to argue that “the unexplained jettisoning of CMP cannot pass for reasoned decision-making.” (CN Comment 14.) But in
McCarty Farms Appeal,
the court concluded that the ICC had not sufficiently explained its adoption of a particular comparison-group methodology only after finding that the methodology had “no evident connection” to the statutory goals undergirding CMP, including railroad revenue adequacy.
Id.
at 595-99. By contrast, in resolving a dispute under FORR the Board would account for the relevant statutory criteria, including (as explained further below) revenue adequacy.

Finally, AFPM argues that “appropriate economic principles” should not include agency precedent because the industry has changed dramatically due to consolidations. (AFPM Comment 7.) The Board disagrees. Board and ICC precedent would have value in the FORR small dispute context—it constitutes a significant part of the agency's implementation of Staggers and ICCTA, establishes important concepts, a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2021-25168. Public record. Not legal advice.