Freight Rail Costing and Regulation: The Uniform Rail Costing System

Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry

“…This "irrational" behavior by railroads implied by the URCS costing methodology and its inconsistency with the economic theory of multiproduct costing argues against the use of the URCS "variable cost" in determining excessive rates. Wilson and Wolak (2016) conclude that URCS costs do not meet the law's requirement for economically accurate shipments costs, and are therefore have little relevance to the price charged for a given unit of traffic, contrary to their use in the law's R/VC formula. STB's own Railroad-Shipper Transportation Advisory Council has referred to URCS as "an outdated and inadequate costing system."…”

“…13 To comply, the ICC developed the Uniform Railroad Costing System (URCS), which was adopted in 1989 and shares a methodological approach with earlier cost accounting schemes and remains in use today. Wilson and Wolak (2016) examined theoretical and empirical validity of URCS methodology for computing the "variable cost" of a shipment. They argue that it is an ad hoc cost allocation methodology that is inconsistent with the economic theory of multiproduct costing.…”

“…The competitive benchmark price approach could replace the R/VC ¡ 180 test for an "excessive" price as the first step in the rate relief process. Alternatively, the benchmark price could supplement the R/VC ¡ 180 test to ensure that failure of this test is in fact due to a non-competitive price, rather than the methodological issues with the UCRS "variable cost" (VC) measure discussed in Wilson and Wolak (2016).…”

“…The large number of products sold by railroads and the large share of common costs in the railroad's total cost of production imply that even if the railroad's multiproduct cost function was known with certainty, this would not make the job of setting the threshold for an excessive price any easier. As Wilson and Wolak (2016) note, it would only change the regulator's problem from one of determining the value of an excessive price a shipment to determining the value of an excessive markup over the average incremental cost or marginal cost of a shipment.…”

Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, and Price Discrimination

“…Railroads post public common carriage tariffs for shipments of different goods between origins and destinations or by shipment distance categories. The industry regulator, the Surface Transportation Board, has a limited oversight role meant to protect shippers from unfairly high prices in the case of railroad “market dominance” (Wilson and Wolak ) . Railroads and shippers may also negotiate private contracts.…”