WASHINGTON, DC, US — The US Surface Transportation Board’s (STB) recently proposed changes on increasing freight rail revenue threshold for Class II carrier.

The National Grain and Feed Association (NGFA) supports the proposal to increase to $900 million the revenue threshold used to determine whether a freight railroad continues to be classified as a Class II carrier but also urged caution.

NGFA implored the STB to be aware of the increasing size, revenues and regional dominance of Class II railroads when determining whether and when to subject such carriers to prudent regulation to protect the interests of rail customers.

The new proposal was created in response to a petition submitted to the STB by Montana Rail Link Inc. (MRL), a regional Class II railroad, which sought the increase from the $504,803,294 revenue threshold at which a carrier currently is deemed to be a Class I railroad.

MRL said it anticipated reaching the current Class I threshold by 2022, at which time it would be required to submit accounting, financial and other regulatory reports to the STB. In its petition, the railroad estimated these additional regulatory requirements would cost “at least an additional $150,000 annually,” plus the costs associated with converting its accounting system, training employees, and maintaining and recording the reports.

MRL also said a Class I classification would make it unqualified for shortline rehabilitation tax credits – the carrier said it currently receives $3 million annually from this tax credit to invest in its infrastructure.

According to the NGFA, MRL would also no longer be eligible for the Federal Railroad Transportation Administration’s Railroad Rehabilitation and Infrastructure Express Program that provides funds to Class II and III carriers to repair tracks, many located in rural areas.

NGFA said it generally agrees with the STB’s statement, that after reviewing MRL’s petition, “it does appear that regional railroads, such as MRL, even with revenues approaching the current threshold, function more like significant Class II carriers and do not possess the comparative attributes (e.g., operational characteristics) of Class I carriers.” NGFA is also concurred with the STB’s statement that, “[m]oreover, MRL provides a persuasive argument that the benefits of certain Class II carriers becoming Class I carriers under the Board’s existing revenue thresholds would not outweigh the burdens that would be imposed on the newly classified carriers.”

The NGFA did note that some protections needed to be implemented to protect rail customers due to Class II railroads becoming larger and market dominant.

The NGFA suggested the STB allow rail customers to challenge Class II rail rates and direct that Class II railroads provide competitive switching to alternative carriers to enhance rail competition if the STB reexamines such rules in the future.

“…[A]s with many Class II railroads, MRL is a significant regional carrier that has a virtual monopoly on all rail traffic in Montana, and it often exercises that market power with its customers in a manner not dissimilar from Class I carriers,” NGFA said. “As Class II carriers continue to increase their size, geographic reach and revenues, the latter of which would be permitted under the (rulemaking), NGFA believes the STB should be vigilant to also adjust its regulatory oversight and standards that apply to the practices and rates established by such railroads.”