In a decision filed June 18, 2010, the D.C. Circuit vacated and remanded a decision of the United States Surface Transportation Board (“STB”) denying AEP Texas North Company (“AEP Texas”) rate relief from BNSF Railway Company (“BNSF”).

In the underlying case, AEP Texas North Co. v. BNSF Ry., STB Docket No. 41191 (Sub-No. 1) (STB served May 15, 2009) AEP Texas complained that BNSF’s tariff rates on coal moving from the Powder River Basin in Wyoming to AEP Texas’ electric generating station in Texas were unreasonably high. In an earlier decision, the STB found that BNSF’s rates did not exceed the maximum permitted. However, during the course of AEP Texas’ case, the STB altered its methodology for calculating the railroad cost of capital. AEP Texas petitioned the STB to reconsider its earlier decision based on the change in methodology. After reviewing additional evidence on the subject, the STB declined to make any changes to its May 2009 Decision.

AEP Texas appealed the STB’s May 2009 Decision to the D.C. Circuit, seeking review on the grounds that the STB’s refusal to recalculate the cost of capital using the new methodology was arbitrary and capricious. BNSF intervened in the appeal in support of the Board’s decision.

In its decision in AEP Texas North Co. v. STB, No. 09-1202 (D.C. Cir. June 18, 2010), the Court found that the STB’s action in response to AEP Texas’ concerns regarding the 2005 cost of capital constituted “a failure ‘to consider an important aspect of the problem.’” As such, the Court vacated the STB’s May 2009 Decision and remanded the 2005 cost of capital issue to the STB for re-evaluation in light of the Court’s conclusions.

Slover & Loftus LLP represented AEP Texas at the STB and on appeal.

Questions on this decision, railroad maximum rate reasonableness generally, or railroad cost of capital may be directed to Kelvin J. Dowd, Robert D. Rosenberg, or any other rail transportation attorney at Slover & Loftus LLP.