August 06, 2014

06/08/2014: Rail fuel charges questioned by NGFA

The National Grain and Feed Association (NGFA) has urged the federal Surface Transportation Board (STB) to either eliminate or significantly modify a provision of its rules that currently immunises railroads from being required to refund rail fuel surcharges that exceed their incremental internal fuel cost increases so long as they base their surcharges on a specific fuel-cost index.
In 2007, the agency prohibited rate-based rail fuel surcharges as an "unreasonable practice" by railroads.  

But when doing so, it established a so-called "safe-harbor" provision that carriers could "rely on" to measure changes in fuel costs that could be reflected in fuel surcharges, as long as such costs were not imbedded already in the underlying freight rate. Known as the highway diesel fuel (HDF) index, it is based on the Energy Information Agency's calculation of "US No. 2 diesel retail sales by all sellers."  

When issuing its decision, the STB noted that alternative indices could be used by rail carriers to calculate fuel surcharges, but that doing so could expose them to unreasonable-practice rulings on a case-by-case basis.

Subsequently a major shipper of agricultural products challenged rail fuel surcharges imposed by the BNSF Railway, contending BNSF's mileage-based fuel surcharge program constituted an unreasonable practice because it extracted "substantial profits" on the affected traffic that far exceeded the actual increased cost of fuel.  

But in a decision issued on August 12, 2013, the STB ruled that since BNSF had used the HDF index to measure changes in its internal fuel costs for purposes of calculating fuel surcharges, the agency also needed to rely on the same index given the existence of the safe-harbor provision.  Thus, even though the STB found that BNSF's incremental fuel costs, as calculated under the HDF, exceeded its actual internal incremental fuel costs by US$181 million, the agency ruled against the shipper.

In its 2013 decision, the STB said the result in the BNSF case "concerned" the agency, and that it had not "rejected ... lightly" the shipper's allegation that BNSF had used its fuel surcharge program as a "profit center."  

At the time, the agency said it and others had not "foreseen a situation where the spread between a rail carrier's internal fuel costs and the HDF index would diverge" as much as it had in the BNSF case.  

The STB also said it was "unclear" whether the fuel-cost recovery by BNSF was a "unique situation" during a period of high fuel-price volatility, or "a more widespread phenomenon" that could give railroads an 'unintended advantage" by allowing them to recover "substantially more than (their) incremental internal fuel costs yet still be permissible under the safe harbor."

In a statement submitted August 4, the NGFA urged the STB to either eliminate the "safe-harbor" provision or modify it so it no longer immunises rail carriers when they cannot demonstrate adequately that a "reasonable nexus" exists between their fuel surcharge formulas and their actual internal incremental fuel costs.

"The NGFA's policy position ... is that it is reasonable for a railroad to recover unanticipated increased fuel expenses through a separate 'fuel surcharge,' provided the surcharge is reasonably related to the increases in market fuel costs they have incurred, and are over-and-above the fuel costs recovered in the base rate," the NGFA told the STB.  

Pointing to the need for additional fuel-cost data from railroads to make such a determination, the NGFA said that if railroads "expect their customers to compensate them for increased fuel costs, they should be willing to provide appropriate documentation to demonstrate they are assessing only those charges that recover actual net fuel costs, and nothing more."

In its statement, the NGFA did not urge the Board to eliminate use of the HDF Index as a benchmark for measuring fuel costs.  nstead, the NGFA strongly recommended that reliance on the HDF Index by granting it "safe-harbor status" should not immunise rail carriers from being challenged for setting fuel surcharges at levels that exceed the net incremental fuel costs actually incurred. 

Read more HERE.

The Global Miller
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