Problems in Implementing Regulatory Accounting and Costing Systems for Railroads

FGMSD-80-61: Published: Jul 17, 1980. Publicly Released: Jul 17, 1980.

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Railroads have faced major difficulties for many years; difficulties which have caused great concern among shippers and the Government as well as among the railroads themselves. Because the Interstate Commerce Commission (ICC) prescribes regulatory accounting requirements for railroads and uses the accounting data that railroads submit to judge the appropriateness of their rates, its actions and decisions can bear heavily on whether the railroad's financial viability improves. Until recently, the Uniform System of Accounts for railroads had remained essentially unchanged since 1907. Effective January 1, 1978, ICC prescribed a revised and expanded system which resulted from several years of developmental efforts and was required by the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act). The 4-R Act also required ICC to develop a revised costing system for estimating the cost of service by using data that railroads report under the revised system of accounts. The revised costing system is intended for use not only by ICC, but also by railroads and shippers in rate proceedings. Legislation was introduced in Congress and passed in the Senate, which would place added importance on cost of service as a basis for setting rates in the railroad industry.

Although railroads have begun reporting under the new uniform system of accounts, ICC has not assured itself that the information being reported is reliable and consistent. Futhermore, the revised costing system needed to develop estimates of railroad costs for regulatory and other purposes is not yet operational. Until the revised costing system is operational, the only practical alternative for ICC and others is to continue using a prior costing system, even though that system has disadvantages. Although the new costing system is to replace a system which has been widely used before ICC by railroads, shippers, and others in rate cases, ICC has not assured itself that such entities will be able to use or understand the revised costing system. The revised costing system was designed to produce better cost estimates, but it is not possible at this time to predict whether users will view the results as better than the prior costing system or even consider them as acceptable. ICC is considering additional changes to its regulatory accounting and costing systems for railroads. However, if new major accounting and costing requirements are introduced too soon, the railroad industry could be burdened with complex and difficult reporting requirements which do not necessarily serve Federal regulatory needs.

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