Appendix — Atchison, Topeka & Santa Fe Railway Co. v. National Ass'n of Recycling Industries, Inc.
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Supreme Court, U.
“ FILED |
78-872 NOV $0 1978
No. [cyan RODAK, JR., CLERK ,
IN THE
Supreme Court of the United States
OcTOBER TERM, 1978
™
ATCHISON, TUPEKA & SAnTA Fe Rariway Co., et al.,
Petitioners,
ve
NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC.,
et a.,
Respondents.
On Petition for Writ of Certiorari to the United States
Court of Appeals for the District of Columbia Circuit
APPENDIX
Harry N. Bascock MICHAEL BouUDIN
2700 Terminal Tower Timotoy A. Harr
P.O. Box 6419 888 Sixteenth Street, N.W.
Cleveland, Ohio 44101 Washington, D.C, 20006
RicHarp W. KIreNLE JaMES L. TAPLEY
8 North Jefferson Street James L. Hows, III
Roanoke, Va. 24042 P.O. Box 1808
i C, 2001:
WituiaM (. LEIrPER Washington. D 13
P.O. Box 536 James E. SYKES
600 Grant Street 222 S. Riverside Plaza
Pittsburgh, Pa. 15230 Chicago, Tl. 60606
Joun A. Datiy
1138 Six Penn Center Plaza
Philadelphia, Pa. 19104
Attorneys for the Railroads
Ps ‘
Press or Byron S. ApAms PrintINnaG, Inc., WASHINGTON, D. C.
TABLE OF CONTENTS
Aprenpix A—List of Railroad Petitioners ...........
Apprenpix B—Opinion of the United States Court of
Appeals for the District of Columbia Circuit in
Nos. 77-1187, 77-1193, and 77-1292, August 2, 1978,
and Orders of August 7, August 25, and Septem-
ber 6, 1978, correcting the opinion ..............
Appenpix C—Order of the Court of Appeals, October
16, 1978, modifying the August 2, 1978, opinion ..
Appenprx D—Decision of the Interstate Commerce
Commission in Ex Parte No. 319, Investigation of
Freight Rates for the Transportation of Recyclable
or Recycled Commodities, 356 L.C.C. 113, Febru-
ef IER Re ee re eee eee
Appenpix EK—Judgment of the Court of Appeals for
the District of Columbia Circuit in Nos. 77-1187,
77-1193, and 77-1292, August 2, 1978 ............
Appenpix F—Statute Involved: Section 204 of the Rail-
road Revitalization and Regulatory Reform Act of
he Oe Coe oak tU exe cbeOk heh eikeue’s
Appenpix G—Interstate Commerce Commission’s E'zec-
utive Summary of the Final Environmental Impact
Statement in Ex Parte No. 319, January 4, 1977 ..
1b
le
1d
le
1f
lg
APPENDIX A
la
APPENDIX A
Wesrern RarLroaps
The Atchison, Topeka and Santa Fe Railway Company
Burlington Northern Ine.
Chicago and North Western Transportation Company
Chicago, Milwaukee, St. Paul and Patific Railroad Com-
pany
Chicago, Rock Island and Pacific Railroad Company (Wil-
liam M, Gibbons, Trustee)
The Denver and Rio Grande Western Railroad Company
Elgin, Joliet and Eastern Railway Company
Green Bay and Western Railroad Company
Illinois Central Gulf Railroad Company
Illinois Terminal Railroad Company
The Kansas City Southern Railway Company
Missouri-Kansas-Texas Railroad Company
Missouri Pacific Railroad Company
St. Louis-San Francisco Railway Company
St. Louis Southwestern Railway Company
Soo Line Railroad Company
Southern Pacific Transportation Company
Toledo, Peoria & Western Railroad Company
Union Pacific Railroad Company
The Western Pacific Railroad Company
Eastern RarLroaps
The Akron, Canton & Youngstown Railroad Company
The Baltimore and Ohio Railroad Company
Bangor and Aroostook Railroad Company
Boston and Maine Corporation
Canadian National Railway Company d/b/a Grand Trunk
Railway System (Lines in New England)
Canadian Pacific Railway Company
Central Vermont Railway, Inc.
The Chesapeake And Ohio Railway Company
Chicago & Eastern Illinois Railroad Company
Chicago South Shore and South Bend Railroad
Consolidated Rail Corporation
Delaware and Hudson Railway Company
The Detroit and Toledo Shore Line Railroad Company
Detroit, Toledo and Ironton Railroad Company
2a
Elgin, Joliet and FRastern Railway Company
Grand Trunk Western Railroad Company
lilinois Terminal Railroad Company
Long Island Railroad Company
Maine Central Railroad Company
Norfolk and Western Railway Company
The Pittsburgh and Lake Erie Railroad Company
Richmond, Fredericksburg and Potomac Railroad Company
Si. Johnsbury & Lamoille County Railroad
Toledo, Peoria & Western Railroad Company
Western Maryland Railway Company
SouTHERN RatLRoaps
Carolina, Clinchfield and Ohio Railway
Central of Georgia Railroad Compan
The Cincinnati, New Orleans and rene Pacific Railway
Company
Florida Kast Coast Railway Company
The Georgia Railroad
Louisiana & Arkansas Railway Company
Louisville and Nashville Railroad Company
Norfolk Southern Railway Company
Seaboard Coast Line Railroad Company
Southern Railway Company
APPENDIX B
APPENDIX B
Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S. App. D.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
' No. 77-1187
NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC.,
PETITIONER
V.
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
et al, AMERICAN PAPER INSTITUTE, INC., ALUMINUM
ASSOCIATION, INC., FoRT HOWARD PAPER COMPANY,
EASTERN RAILROADS, AND BERGSTROM PAPER COMPANY,
et al., INTERVENORS
No. 77-1193 “
) NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC.,
| PETITIONER
} Vv.
/
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
; ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
et al., AND EASTERN RAILROADS, INTERVENORS
—_
i ahs
Bills of costs must be filed within 14 days after entry of judgment. The
court looks with disfavor upon motions to file bills of costs out of time.
2b
No. 77-1292
INSTITUTE OF SCRAP IRON AND STEEL, INC., PETITIONER
v.
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
NORTHWESTERN STEEL & WIRE COMPANY, EASTERN RAIL-
ROADS, ATCHISON, TOPEKA & SANTA FE RAILWAY
CoMPANY, et al., AND ARMCO STEEL CORPORATION,
INTERVENORS
Petitions for Review of Orders of the
Interstate Commerce Commission
SYLLABUS
The Interstate Commerce Commission instituted an
investigation into the lawfulness of the rate structures
on recyclable and virgin resource materials pursuant to
Section 204 of the Railroad Revitalization and Regulatory
Reform Act of 1976. After an investigation, the Com-
mission, with three Commissioners dissenting, concluded
that the majority of the rates were lawful and declined
to order their removal. Petitioners filed petitions to
»view the Commission’s order, claiming that the Com-
mwsion did not comply with the mandate of Section
204 Nyy, among other things, relieving the railroads of
their statutory burden of proof and declining to order
removal unlawful rates on competing recyclable ma- |
terials. The United States, as statutory respondent,
joined in petiNpners’ challenge to the Commission’s order.
3b
mission’s investigation on the ground that the Com-
mission did not comply with the requirements of the
National Environmental Policy Act of 1969. Held: The
order of the Commission in its investigation is vacated,
and the case remanded for further proceedings consis-
tent with this opinion; the consolidated petition to re-
view is dismissed as untimely filed. Pp. 4-41.
1. In view of the provisions of Section 204, its legisla-
tive history, and the background of congressional concern
surrounding its enactment, the Commission’s mandate was
to investigate rates for recyclable or recycled materials
and competing virgin natural resource materials, and to
require removal from rate structures of unreasonable-
ness or unjust discrimination; and the Commission was
not permitted to assume or defer to asserted revenue
needs or to give them greater weight than environmental
and energy goals, but was to uphold disparate rate struc-
tures only where actually warranted after consideration
of all of the transportation characteristics, including the
competitive relationships and costs, of the materials in-
volved. Pp. 17-25.
2. On this record, the Commission’s order does not
represent a reasoned compliance with the mandate of
Section 204. Pp, 25-41.
(a) The Commission did not address or require
proof on the focal question whether the substantial
rate disparities between recyclable and virgin prod-
ucts are justified by differences in transportation
characteristics. Pp. 25-26.
(b) Several of the Commission’s underlying find-
ings and conclusions with respect to the reasonable-
ness and unjust discrimination issues were incon-
sistent with its mandate and inadequately supported.
Pp. 26-40.
In a consolidated petition, petitioner also challenged a 3. The consolidated petition to review, filed in ad-
Commission order\terminating two general revenue pro- vance of the jurisdictional time limit, must be dismissed
ceedings conducted\during the pendency of the Com- as premature. P. 41.
5b
Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S. App. D.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 77-1187
NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC.,
PETITIONER
V.
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
et al., AMERICAN PAPER INSTITUTE, INC., ALUMINUM
ASSOCIATION, INC., FORT HOWARD PAPER COMPANY,
EASTERN RAILROADS, AND BERGSTROM PAPER COMPANY,
et al., INTERVENORS
No. 77-1193
NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC.,
PETITIONER
V.
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY,
et al., AND EASTERN RAILROADS, INTERVENORS
Bills of costs must be filed within 14 days after entry of judgment. The
court looks with disfavor upon motions to file bills of costs out of time.
6b
No. 77-1292
INSTITUTE OF SCRAP IRON AND STEEL, INC., PETITIONER
Vv.
INTERSTATE COMMERCE COMMISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
NORTHWESTERN STEEL & WIRE COMPANY, EASTERN RAIL-
ROADS, ATCHISON, TOPEKA & SANTA FE RAILWAY
ComPANY, et al., AND ARMCO STEEL CORPORATION,
INTERVENORS
Petitions for Review of Orders of the
Interstate Commerce Commission
Argued March 16, 1978
Decided August 2, 1978
Edward L. Merrigan for petitioner in Nos. 77-1187
and 77-1193 and on the reply brief for intervenor Berg-
strom Paper Company et al. in No. 77-1187.
David Reichert, with whom Howard Gould and Stephen
D. Strauss were on the brief, for petitioner in No. 77-
1292.
Kenneth G. Caplan, Attorney, Interstate Commerce
Commission, with whom Robert S. Burk, Deputy General
Counsel, and Charles H. White, Jr. and Frederick W.
Read, III, Associate General Counsel, Interstate Com-
merce Commission, were on the brief, for respondent
Interstate Commerce Commission. Mark L. Evans, Gen-
eral Counsel, and Peter A. Fitzpatrick, Attorney, Inter-
7b
state Commerce Commission, also entered appearances
for respondent Interstate Commerce Commission.
James F, Ponsoldt, Attorney, Department of Justice,
with whom Barry Grossman, Attorney, Department of
Justice, was on the brief, for respondent United States
of America. Lloyd John Osborn and Carl D. Lawson,
Attorneys, Department of Justice, also entered appear-
ances for respondent United States of America.
Michael Boudin, with whom Charles N. Marshall and
Stuart C. Stack were on the brief, for intervenor South-
ern and Western Railroads.
John F. Donelan, with whom John K. Maser, III and
Renee D. Rysdahl were on the brief, for intervenors
American Paper Institute, Armco Steel Corporation, In-
land Steel Corporation, Republic Steel Corporation, and
Youngstown Sheet & Tube Company.
John A. Daily, with whom Richard W. Kienle was on
the brief, for intervenor Eastern Railroads.
Dickson R. Loos was on the brief for intervenor
Aluminum Association Ine.
William L. Strauss was on the brief for intervenor
Fort Howard Paper Company.
Warren Price, Jr. was on the brief for intervenor
Northwestern Steel & Wire Company.
Before WRIGHT, Chief Judge, and SwyGcerT* and
LEVENTHAL, Circuit Judges.
Opinion for the court filed by Chief Judge WriGHT.
* Of the Seventh Circuit, sitting by designation pursuant to
28 U.S.C. § 291(a) (1970).
Sb
WricHut, Chief Judge: In these consolidated cases *
we are called upon to review a final report and order
of the Interstate Commerce Commission declining to re-
move alleged unlawful rates from the freight rate struc-
tures for recyclable and virgin resource materials trans-
ported by the nation’s railroads. The order under re-
‘ We originally consolidated four separate cases, National
Ass'n of Recycling Industries, Inc. v. ICC, No. 77-1187; Insti-
tute for Scrap Iron & Steel v. ICC, No. 77-1292; National
Ass'n of Recycling Industries, Inc. v. ICC, No. 77-1193; and
Durbin Paper Stock Co. v. ICC, No. 77-1828, the first two of
which are consolidated petitions challenging the report and
order here under review. In No. 77-1193 the petition seeks
review of a final order of the Commission terminating two
general revenue proceedings, Ez Parte No. 318, Increased
Freight Rates and Charges, 1976, and Ex Parte No. 336, In-
creased Freight Rates and Charges, 1977, in which the Com-
mission approved rate increases applicable to recyclable ma-
terials, in one instance without preparing a threshold assess-
ment survey, as required by the National Environmental
Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321-4335 (1970),
until six months after its approval of the increase, and in the
other instance without preparing any environmental statement
whatever. Although it raises serious legal questions under
NEPA, see Asphalt Roofing Manufacturers Ass’n v. ICC, 567
F.2d 994, 1004-1006 (D.C. Cir. 1977), we have concluded that
the petition, filed in advance of the 60-day jurisdictional time
limit provided by the Hobbs Act, 28 U.S.C. § 2344 (1970),
must be dismissed as premature. See Industrial Union Depart-
ment, AFL-CIO v. Bingham, 570 F.2d 965, 968-969 (D.C. Cir.
1977). We add, however, that the Commission will be required
to reconsider the lawfulness and cumulative environmental
impact of the rate increases challenged by this petition because
of our disposition herein, in Nos. 77-1187 and 77-1292, vacat-
ing and remanding the Commission’s order. Similarly, the
Commission will be required upon remand to reconsider issues
presented by the remaining petition in No. 77-1328, which
we have decided by separate opinion filed this day. See Durbin
Paper Stock Co. v. ICC, —— F.2d —— (D.C. Cir. No. 77-
1328, decided 1978).
Oh
view,’ dissented from by three commissioners* and chal-
lenged here by both representatives of recycling indus-
tries‘ and the United States,’ reflects the agency’s ef-
forts to comply with Section 204 of the Railroad Reyvital-
ization and Regulatory Reform Act of 1976.° This pro-
vision directed the Commission to conduct an expedited
investigation into the lawfulness of the rate structures
and to order removal of all rates not shown by the rail-
roads to be just, reasonable, and nondiscriminatory.’ We
find that the challenged order does not represent a rea-
soned compliance with the mandate expressed by Congress
in Section 204. We therefore vacate the order and re-
mand for further proceedings.
*The order was entered in the Commission’s proceedin
entitled Ex Parte No. 319, Investigation of Freight Rates ie
the Transportation of Recyclable or Recycled Materials. In-
corporated in this order is the published report and order of
the Coordinator in Ex Parte No. 270 (Sub No. 6), Investiga-
tion of Railroad Freight Rate Structure—Scrap Iron and
Steel, 345 ICC 867 (1976). |
‘See pp. 16 & 17 & note 44 infra.
‘ Petitioners here, the National Association of Recvcli
Industries (NARI) and the Institute for Scrap Iron sal Beek
(ISIS), are national trade association representatives of the
recycling industries. NARI challenges that part of the Com-
mission’s order related to the rate structures on recyclable
nonferrous metal, wastepaper, textiles, and rubber. ISIS chal-
langes the Commission’s determinations with respect to the
rate structures on scrap iron and steel.
As a statutory respondent, 28 U.S.C. §§ 2322, 2342 (1970
the United States, on behalf of the Environmental nabbed
Agency and the Federal Energy Administration, challenges
the Commission’s order in its entirety.
My: Pub. L. No. 94-210, § 204, 90 Star. 40 (1976). The statute
is hereinafter referred to as the Regulatory Reform Act.
* Section 204 is set forth in Appendix A of this opinion.
10b
I
The significance and purpose of the investigation re-
quired by Section 204 cannot be understood apart from
the Commission’s past experience with ratemaking on
recyclable materials. That experience occurred largely
in the context of general revenue proceedings, in which
the Commission’s main task involved determination of
the appropriate revenue levels and needs of the railroads,
rather than the lawfulness of the rates on these ma-
terials. It is to the controversial history * of those pro-
ceedings that we turn first in placing the investigation
under review, and the Commission’s approach and find-
ings therein, in proper perspective.
Under the Interstate Commerce Act” the initiative for
ratemaking is vested in the railroads, subject to approval
by the Commission in an appropriate proceeding. One
method by which the railroads may initiate a rate in-
crease is by filing a group tariff in which all or sub-
stantially all of the nation’s railroads propose an across-
the-board percentage increase in rates. In these so-called
general revenue proceedings the Commission may either
find the proposed increase just and reasonable after tak-
ing evidence relating to the general need for increased
revenues,” or “approve” the increase by declining to
declare it unlawful following an investigation. The
* See note 19 infra.
°49 U.S.C. § 1 et seq.
'" See New England Divisions Case, 261 U.S. 184, 196-199,
201-203 (1923).
'' See United States v. Lowisiana, 290 U.S. 70, 73-79 (1933).
See also Aberdeen & Rockfish R. Co. v. SCRAP (SCRAP II),
422 U.S. 289, 311-316 (1975). In an investigation the railroads
have the burden of proving that an increase is just and reason-
able, 49 U.S.C. § 15(7) (1970); 49 U.S.C.A. § 15(8) (f) (1977
Pocket Part). ,
llb
characteristic feature of these proceedings is that the
Commission focuses only on the need of the carriers for
increased revenues, not on whether any particular ap-
plication of the increase is just, reasonable, or nondis-
criminatory. Nevertheless, the effect of Commission ap-
proval of a general increase is to shift the burden of
proof from the carriers favoring the increase to com-
plainants later challenging it.* Once the general in-
crease has been approved, particular applications of the
increase may then be challenged in subsequent proceed-
ings under the Act.”
+
Pursuant to this scheme the Commission approved,
over the past decade, a series of annual upward adjust-
ments in rates applicable to recyclable materials.* Ap-
** Commenting on this burden-shifting procedure, we have
observed that it is “justified by the need for quick action and
the assumption that once a general need has been demon-
strated most individual increases will be found just and rea-
sonable.” Council of Forest Industries of British Columbia v.
ICC, 570 F.2d 1056, 1060 (D.C. Cir. 1978).
‘’ Complainants who wish to challenge an application of the
rate increase may file a complaint with the Commission under
§ 13(1), 49 U.S.C. $13(1) (1970), but in any Commission in-
vestigation of the complaint under § 15(1), 49 U.S.C. § 15(1)
(1970), complainants bear the burden of proving that the
rate is unlawful. See Atchison, Topeka & Santa Fe R. Co. v.
Wichita Board of Trade, 412 U.S. 800, 812-813 (1973). Pro-
cedures following a similar outline govern rate filings by
individual carriers, the other method by which railroads may
initiate increases in rates.
''The Commission approved rate increases on recyclables
by declining to declare them unlawful in the following pro-
ceedings: Ex Parte No. 256, Increased Freight Rates and
Charges, 1967, 329 ICC 854 (1968); Ex Parte No. 259, In-
creased Freight Rates and Charges, 1969, 3837 ICC 4386
(1970); Ex Parte No. 262, Increased Freight Rates and
Charges, 1969, unpublished; Ex Parte No. 265, Increased
Freight Rates and Charges, 1970, 889 ICC 125 (1971); Ex
[continued]
12b
pearing in proceedings to oppose the proposed increases,
shippers and representatives of recycling industries con-
tended that the proposed rates and underlying rate struc-
tures on recyclable products were unreasonably high and
discriminatory when compared with the lower rates and
rate structures traditionally prevailing on virgin re-
source materials. They also maintained that application
of the proposed increases to recyclables would adversely
affect the environment by discouraging industrial use of
recycled products, thereby contributing to depletion of
the nation’s virgin resources. In the limited context af-
forded by general revenue proceedings, and subject to
the aforementioned rules governing complainants’ bur-
den of proof, the Commission invariably concluded that
complainants had neither met their burden of refuting
the railroads’ submission of needed revenues, nor other-
wise demonstrated that demand for recyclables would
be unlawfully reduced as a result of the proposed in-
Parte No. 267, Increased Freight Rates and Charges, 1971,
939 ICC 125 (1971); Ex Parte No. 281, Increased F'reight
Rates and Charges, 1972, 341 ICC 290 (1973); Ex Parte No.
295 (Sub-No. 1), Increased Freight Rates and Charges, 1978,
344 ICC 589 (1973); Ex Parte No. 308, Increased Freight
Rates and Charges, 1974, unpublished; Ex Parte No. 305, RE,
Nationwide Increase of Ten Percent in Fy ght Rates and
Charaes, 1974, unpublished; Ex Parte N 313; Increased
Freight Rates and Charges—Labor Gosts, 1975, unpublished;
Ex Parte No. 318, Increased Freight Rates and Charges, 1976,
unpublished; Ex Parte No. 336, Increased Freight Rates and
Charges, 1977, unpublished. Together these proceedings
yielded rate increases applicable to recyclable materials
totalling approximately 70%. In addition to any economic
and environmental impacts associated with the rate structures,
it may be observed that percentage rate increases themselves,
although facially neutral, may have independent impacts,
since a rate increases a high rate by a larger absolute amount
than it does a low rate.
ee 2 ee
13b
F se :
tg Numerous environmental impact statements
an . reshold assessment surveys were also prepared,”
concluding that increases in freight rates would have
"Id. A review of these proceedings reveals findi
, » é ‘ n
Commission that rate increases on recyclables are td
in part because recyclable products are subject to relative
ety inelasticities to freight rate increases. In economic
ee price and product demand elasticities serve to measure
yer response to increased product prices and shipper re-
sponse to percentage changes in price. The Commission found
in these proceedings that increases in transportation prices
= not cause significant shifts in demand for recyclable prod-
ucts. For a discussion of the significance of demand elasticity
findings, and the elasticity studies relied upon by the Com-
mission in this pr i
ae his proceeding, see pp. 28, 30-31, & notes 80-83
'" See, e.g., Ex Parte No. 281, Increased Frei
Charges, 1972, 346 ICC 88 (1978). The nahn po
sponse to its responsibilities under NEPA has aptly been
characterized as “slow,” City of New York v. United States
383 F.Supp. 150, 158-160 (E.D. N.Y. 1972),.or “tardy,”
SCRAP II, supra note 11, 422 U.S, at 824. Although it is estab-
lished that a general revenue proceeding is itself “a ‘major
federal action’ * * * requiring its own final environmental
impact statement so long as the proceeding has a substantial
effect on the environment,” SCRAP II, supra note 11, 422 U.S
at 318-319, there are indications that the Commission may be
continuing to neglect its NEPA responsibilities, both by de-
clining to prepare any environmental statements in support
of rate increases applicable to recyclables, see Ex Parte No
“> Increased Freight Rates and Charges, 1977, supra note
= and by preparing plainly inadequate ones, Asphalt Roofing
fanufacturers Ass’n v. ICC, supra note 1. The Commission
we note, has on occasion indicated views contrary to those s {
forth in its environmental impact statements. In Ex pte
No. 310, Increased Freight Rates and Charges, 1975, 349 ICC
99, 578 (1975), for example, the Commission stated:
[I]t remains a basic economic f.
| act that not granti
proposed rate increase for recyclables will pee Ze " yee
gree of positive environmental benefit. This course of
[continued]
14b
either no effect or a negligible one on industrial use of
recycled products.
Throughout this period the Commission AT
refused to conduct a broad investigation into . : a nc
ness of the a — = — ane
ucts. Apparently of the view that su: ony
was unnecessary in light of the findings reac ar
al revenue proceedings, the Commission repea y
ar requests i. representatives of the age mere
try to undertake such an investigation, and, in ' Pond
orously opposed legislation under consideration ~ Barat
gress that would have required nothing less.
action would in the first instance preclude any cr
in the movement of recyclables which rg —
have been evidenced as a direct response to the 1 art
Secondly, as [rates on] virgin — pe ye
to increase incrementally, recyclables gy omni deste
more favorable economic posture. ; — ee
Se Ne LS cecatak suntieaios ek Saae
wide-ranging, multiface : ieee oe
optimal levels of resource conserva — pd? veo
allow concomitant adverse environmenta ae are sero
» extent that recyclable rate increases are s
pear Fc or eliminated entirely, the action Regent
consistent with established national policies sate
provide for a measure of environmental improv "
1t See, e.g., Ex Parte No. 281, 346 ICC 88 (1973). See 7
Ex Parte "No. 306, Implementation of Public ge cag 86,
Freight Rates for Recyclables, 346 ICC 408, 411 ( ,
's Commissioner Stafford, former Chairman — coer
sion, testified before congressional ag one 7. — 4
to oppose legislation similar to § 204. Bas on apenage si
petitioner NARI sought the Chairman’s oe be gea Pou
roceeding. We do not decide whether the C airma eager
. recuse himself was erroneous under the ee an ion
this case, see Pillsbury Co. v. FTC, 354 F.2d so 5 Bb :
1966), although we note that the views expresse Sing scaling
have foreshadowed the Commission’s approach to this
gation.
15b
by increasing litigation,” however, the Commission, on
December 12, 1978, finally instituted an investigation *"
into the lawfulness of the rate structures for movements
of scrap iron and steel, one of the recyclable materials
herein involved. The Commission’s final report, issued on
February 4, 1976, confirmed generally its previous find-
ings with respect to scrap iron and steel.** Citing the
This protracted litigation, challenging the Commission’s
approval of a general rate increase in Ex Parte No. 281, pro-
duced three opinions by a three-judge District Court, SCRAP
v. United States, 371 F.Supp. 1291 (D. D.C. 1974) ; 353 F.Supp.
317 (D. D.C. 1973); 346 F.Supp. 189 (D. D.C. 1972); and
two by the Supreme Court, United States v. SCRAP, 412 U.S.
669 (1973); SCRAP IJ, supra note 11. In SCRAP II the Court
finally upheld the environmental impact statement prepared
by the Commission for that proceeding. In recognition of the
nonfinal and limited nature of the issues decided by the Com-
mission in a general revenue proceeding, the Court determined
that the EIS was adequate despite its failure to consider the
environmental impact of the underlying rate structures, 422
U.S. at 329.
*” Ex Parte No. 270 (Sub-No. 5), Investigation of Railroad
Freight Rate Structure—Iron Ores, 345 ICC 8 (1976); Ex
Parte No. 270 (Sub-No. 6), Investigation of Railroad Freight
Rate Structure—-Scrap Iron and Steel, 345 ICC 867 (1976).
** The controversy surrounding the Commission’s approval
of freight rates on scrap iron and steel dates as far back as
1960. The initial proceeding involved a complaint alleging
that the rate structures violated § 3(1) of the Interstate Com-
merce Act, 49 U.S.C. §3(1) (1970), quoted at note 79 infra.
The Commission dismissed the complaint, ruling that scrap
iron and iron ore do not compete. Institute of Seran Iron and
Steel, Inc. v. Akron, C. & Y. R. Co., 316 ICC 55 (1962). In
subsequent proceedings the Commission adhered to its finding
that these materials do not compete, see, e.g., Ex Parte No.
259, Increased Freight Rates, 1969, 337 ICC 436, 474 (1970);
Ex Parte Nos. 265 and 267, Increased Freight Rates and
Charges, 1970 and 1971, 388 ICC 125, 207 (1971); Ex Parte
No. 281, /nereased Freight Rates and Charges, 1972, 341 ICC
290, 413 (1972); Ex Parte No. 295, Increased Freight Rates
[continued]
16b
relative demand inelasticity of scrap iron and steel to
freight rates, and finding that the relationship between
scrap iron and iron ore in the steelmaking process is
complementary and not competitive,* the report con-
eluded that the rate structures were reasonable and non-
discriminatory. The environmental impact statement pre-
pared for this proceeding also concluded that these rate
structures did not have a significant impact on the en-
vironment.”
On February 5, 1976 Congress enacted the Regulatory
Reform Act, including within it Section 204. This sec-
tion, in addition to directing the Commission to investi-
gate the rail rate structures for “recyclable materials”
and for “competing virgin natural resource materials,”
as defined therein,** expressly reversed, for the purpose
of the investigation, the rules normally governing com-
plainants’ burden of proof. It directed the Commission
to determine, after a “public hearing during which the
burden of proof shall be on” the railroads, whether the
“rate structures as affected by rate increases applicable
to the transportation of such competing materials is just,
reasonable, and nondiscriminatory.” ** Section 204 fur-
ther instructed the Commission to order removal of all
unreasonableness or unjust discrimination from such rate
structures.” The remaining provisions of the statute re-
and Charges, 1973, 849 ICC 250, 279 (1974). On one occasion
the Commission did find that competition was shown on the
record, and it therefore limited increases in scrap iron rates
to those imposed on iron ore. Ex Parte No. 256, Increased
Freight Rates, 1967, 882 ICC 280, 331 (1968).
* 345 ICC 867, 1199-1200 (1976).
°3'The environmental impact statement concluded that
changes in transportation rates would have negligible short-
and long-term impacts on demand for recycled scrap.
“4 Section 204(e) of the Act, quoted in Appendix A.
*° Section 204 (a) (2) of the Act, quoted in Appendix A.
2 Section 204 (a) (8) of the Act, quoted in Appendix A.
ee a el
17b
quire the Commission to comply fully wi i
y with the require-
ments of NEPA,” and directed the Environmental Pro-
tection Agency ** and the Department of Transportation *”
to participate and assist the Commission i
“ipate ssion in carryin
the required investigation. ov.
Responding to this mandate, the Commission instituted
the proceeding under review on February 25, 1976. By
order it designated recyclable and virgin resource ma-
terials for inclusion within its investigation and in-
structed the railroads, in accordance with the burden of
proof imposed upon them by Section 204, to submit evi-
dence with respect to the costs and revenues derived from
their movemeits of the listed materials.’ It also, by
order, Incorporated into the record the findings and con-
clusions of its previous investigation in Ex Parte No
270." After public hearings and submission of verified
** Section 204(d) of the Act, quoted in Appendix A.
** Section 204(b) of the Act, quoted in Appendix A,
** Section 204(c) of the Act, quoted in Appendix A.
“ IT Joint Appendix (JA 841). The Commissi i
the parties to submit evidence on seven ee he
evidence of costs and movement of recyclable and virgin ma-
terials; (2) historical evidence on utilization of recyclable
materials; (3) sensitivity of recyclable materials to changes
in transportation rates; (4) effect of rate changes on indi-
vidual railroads; (5) effect of rate changes on service to
shippers of recyclable commodities; (6) alternative rate
structures; and (7) other perti .
elsowheen. il. pertinent evidence not considered
"IT JA 366. Petitioners and the United Sta i
Commission’s decision to incorporate the oe te seen
in Ex Parte No. 270 as an indication that the Commission
relieved the railroads of their burden of proving the lawful-
ness of the rate structures. On the circumstances disclosed b
the record, we agree, Ex Parte No. 270 was a cticared
proceeding which, as the Commission acknowledged, was si 4
nificantly different from the proceeding under review isaars
[continued]
18b
statements from interested parties, the Commission issued
its final report and order, accompanied by draft and final
environmental impact statements, on February 1, 1977.
The evidence submitted by the railroads was repeatedly
criticized by the federal agencies participating in the
investigation, and by the Commission itself in its final
report." It did indicate, however, that the rates for
of the requirement of § 204 that the railroads maintain the
burden of proof. Order at 76. Having acknowledged the dif-
ferences between these proceedings, however, the Commission
proceeded to treat the Coordinator’s conclusions as creating
a presumption that the rate structures were lawful. See id.
at 75-80. While we believe it was appropriate for the Com-
mission to consider the evidence developed in Ex Parte No.
270, it was clearly inappropriate for the Commission to accord
presumptive weight to the findings of the Coordinator’s re-
port. That report was issued prior to the enactment of § 204.
and was therefore superseded by it. Moreover, any approach
which treated rate structures as presumptively lawful was in-
consistent with the mandate of § 204.
“In its reply to the railroads’ submissions EPA criticized
the railroads’ evidence and contended that the railroads had
not met their burden of proof. III JA 1299-1318. Among the
deficiencies noted EPA found that the railroads “submitted
only traffic and revenue data, ignoring the requirement that
costs be shown for each of the representative moves”; “failed
to respond” with any evidence on five of thesseven categories
to which the Commission directed their attention; and pre-
sented aggregate cost studies which “failfed] to reflect the
peculiar transportation characteristics of the study commodi-
ties.” III] JA 13038-1306.
8 See, e.g., Order at 31, 33. In particular, the Commission
found that there was no evidence on the effect of the rate
structures on intermodal competition, id. at 49, 100, and that
“all respondents failed to show comparisons of results for
recyclable commodities with their competing or potentially
competitive virgin commodities,” id. at 31. In some instances,
where evidence was submitted, the Commission declined to
evaluate it, For example, the Commission declined to make
a detailed analysis of the cost evidence presented. Jd. at 36.
[continued]
aoe ee
(en ec a tt Kl
ll a
19b
movements of the listed recyclable materials were sig-
nificantly higher than those for their virgin resource ma-
terial counterparts.** In many instances the railroads’
evidence revealed that the rates on recyclables were in
excess of the national average,** while corresponding
rates on virgin materials were below compensatory
levels.*’ Nevertheless, the Commission refused to con-
clude that the rate structures were unlawful based solely
on the evidence of wide rate disparities. Instead, it de-
termined that it would apply traditional ratemaking
poms confronted with deficiencies in the railroads’ evi-
ence, the Commission repeatedly admonished the shippers
for their failure to adduce evide
tions. Id. at 18, 19, 131, 188, nt conten-
** The Commission computed ratios of revenues i
costs and revenues to fully allocated costs for on carr
ments. Comparison of those ratios demonstrated that the
rates for recycled products were uniformly higher than the
rates on virgin products. See, e.g., Order at 81, 181, 239, 288
335y, 362, 403. For example, the Commission’s comparison
of the average rail transportation charge of iron ore with
that of ‘Scrap revealed that the average rail rate of scrap was
approximately twice that of iron ore, in dollars per ton Id
at 136. Similarly, its comparison of the relative rates. for
scrap versus commodities for paper, aluminum, copper, zinc
and lead indicated that the rates for paper and aluminum
scrap were more than one and a half times the rates for com-
parable virgin products, and that the rates for lead scrap were
three times the rates for virgin lead. Jd. at 45. See also id. at
196 (alumium rates), 295 (zine rates), 296 (lead rates).
“ The majority of the revenue-cost ratios
1e 1 computed b
encom ORS a pes esa exceeded the saiinel Aca
‘ io oO .8 for products moving b il.
at 70, 81, 239, 288, 335y, 362, 403. le a lc
“* The record indicated, for example, that eastern
ern railroads carry virgin pulpwood and wood cobra
substantially below their variable costs, III JA at 995-1000
1007, 1008, 1009-1020, at the same time that recycled waste.
paper and textile wastes were transported at rates signifi
cantly in excess of such costs. I JA at 326, 337. asia
20b
criteria to determine the lawfulness of the rate structures
on a product-by-product basis.” Applying such criteria, »
it concluded that the rate structures on practically all
of the recyclable materials were reasonable and that none ~
of the rate structures were discriminatory. The articu-
lated bases for these determinations varied slightly ac-
cording to the product involved. Referring to the rela-
tive demand inelasticities of recyclable materials to
freight rates, as shown by freight commodity statistics
submitted by the railroads** and demand elasticity
studies *® employed in the environmental impact state-
ment, the Commission found that the recent rate increases
did not result in a decreased volume in the amount of re-
cyclable traffic moved by the railroads. The Commission
further found that several of the recyclable materials did
not in fact compete with their virgin material counter-
parts for transportation purposes, and that shippers of
recyclables were not competitively injured by current
rate disparities. Based on these findings, supported by
the conclusions of the accompanying environmental im-
pact statement,"” the Commission issued the final order
%* Order at 70.
* The freight commodity statistics measured the volume of
recyclable traffic carried by the railroads over several years
and showed in most instances that the volume of recyclable
traffic did not decrease during years of rate increases.
*” The Commission relied to a great extent on the so-called
Yellman elasticity study, submitted by the railroads, as well as
on the results of elasticity studies analyzed in the environ-
mental impact statement. Those studies revealed that demand
for recyclable products had been inelastic to rate increases
in recent years. See text and note at note 75 infra.
‘The environmental impact statement, analyzing the eco-
nomic and environmental impacts of freight rates on each
recycled product, concluded that freight rates have not had a
significant effect on the use of recycled products, and there-
fore that the Commission’s action has no significant impact
on the quality of the environment. Order at 66-67.
2lb
here under review, declining, with few exceptions,“ to
order any reductions in the applicable rates. ;
Three Commissioners dissented from the majority’s
report, arguing that the Commission did not comply
with its mandate under Section 204.7 According to the
dissenting Commissioners, the majority unlawfully re-
lieved the railroads of their burden of proof under Sec-
tion 204 by failing to require the railroads to justify
the rate structures based on the transportation char-
acteristics of the products involved. Advancing similar
as well as other related challenges to the Commission’s
ce Lapeer thereupon filed these petitions for
, In which the i joi j i
that the order be set ooo igay ee ee oe
II
Much of the controversy throughout this proceedi
has centered on the appropriate ea ys
given to the Commission’s mandate under Section 204
We do not believe the interpretative issue is nearly as
difficult as the array of conflicting and exceedingly elabo-
rate positions presented by the parties would suggest.**
"In a few instances the Commissi
on found that
for recyclable products were unreasonably high pod pds
ingly ordered those rates reduced. Order at 425.
“ Order at 425b-d (Commissioners Christi
: : ristia ’
dissenting), 425e (Commissioner Clapp, dvesting). sictiy
*® Petitioner NARI also a
ppears to challenge th
5 the environmental impact statement cea “2 che poond
ission. We do not address this issue, since we find that the
challenged order i : }
pen of § 4. “j er is not reasonably consistent with the man-
** Petitioners construe § 204, among othe i
gressional declaration that Seaselahine ek «Aarne ahs echo
compete for transportation purposes. The United States di -
grees with this interpretation, arguing instead that § 204 <8
a mandate to the Commission to weigh environmental fcc
(continued]
MAD)
Rather, we believe the language, and particularly the
legislative history and background, of Section 204 make
easily discernible the Commission’s mandate in this in-
vestigation.
Section 204 was the result of several years of con-
gressional study *’ and consideration of the problems of
more heavily than traditional transportation policy criteria.
For the reasons discussed herein, we adopt neither of these
views.
“Congress did not announce its general environmental
goals and its particular emphasis on promotion of the re-
cycling industry solely by its enactment of § 204. NEPA, in
requiring all federal agencies to determine and justify the
effect of any major federal action upon the nation’s environ-
ment, originally directed such agencies to promote the “maxi-
mum attainable recycling of depletable resources.” 42 U.S.C.
§ 4331 (1970). In 1970 Congress next enacted the National
Materials Policy Act, Pub. L. No. 91-512, §§ 201-206, re-
affirming the national policy to conserve virgin resources
and enhance recycling of those materials. This Act created the
National Materials Policy Commission which, after three
years of investigation, submitted a final renort to Congress
in June 1973 recommending that the “Federal Government
take the necessary steps to correct the existing freight rate
differentials between secondary and primary materials.” NA-
TIONAL COM’N ON MATERIALS POLICY, FINAL REPORT TO CON-
GRESS 4D-18 (1973). This report followed a similar report
prepared by the Environmental Protection Agency, pursuant
to the Solid Waste Disposal Act, 42 U.S.C. § 3251 et seq.
(1965), which identified inequitable freight rates as a federal
disincentive to maximum recycling. ENVIRONMENTAL PROTEC-
TION AGENCY, REPORT TO CONGRESS ON RESOURCE RECOVERY
(1973). Subsequently Congress enacted the Energy Supply
and Environmental Coordination Act of 1974, Pub. L. No. 93-
319, requiring the Federal Energy Administration to con-
duct and submit to Congress a study of “alternative require-
ments, incentives or disincentives for increasing industrial
recycling and resource recovery.” Pub. L. No. 93-319, § 8(a)
(2). The study ultimately prepared by the FEA concluded
that the Commission’s shipping rates and regulations were
a regulatory restraint to industrial energy conservation. Spe-
{continued ]
A Ste i
23b
the recycling industry as a whole and the frei
applied to recyclable products in neering ore
of the limited amount of recycling occurring throughout
the nation, and concerned with what it regarded as a
regulatory barrier to attainment of national environ-
mental and agency goals associated with promotion of
industrial recycling,“ Congress responded initially by
including Section 603 within the Regional Rail Reorgani-
zation Act.” This section directed the Commission to
adopt appropriate rules” to “eliminate discrimination
against the shipment of recyclable materials in rate struc-
—s
cifically, the report found that “shipping rates iscrimi
nate against transport of recycled aalededs in Pwd enor
vnc are a significant barrier to increased recycling.”
EDERAL ENERGY ADMINISTRATION, OFFICE OF CONSERVATION
oa ae ae Geen ee CONGRESS: ENERGY CONSERVA-
5 . Finally, in 197 ‘
the Resource Conservation and - sd Ach, 2 ORC 4 oe
et seq.; creating the National Resource Conservation Com-
mittee to ensure that barriers to recycling and energy con-
servation are eliminated. 42 U.S.C. § 6982(j). Such legisla-
tion, based on years of study of the problems of the recycling
industry, evinces an evolving congressional plan to conserve
resources and to promote recycling of depletable materials.
Section 204 must therefore be viewed as an integral part of
this con i
pov gressional design. See also text and notes at notes 60-61
** Among the environmental and ener 0
served by promotion of industrial eee Pca at
energy savings, see FEDERAL ENERGY ADMINISTRATION OFFICE
OF CONSERVATION AND ENVIRONMENT, supra note 45: conserva-
tion of depletable natural resources, see NATIONAL COM’N
ON MATERIALS POLICY, supra note 45; reduction of industrial
air and water pollution and increasing water utilization, see
ENVIRON MENTAL PROTECTION AGENCY, supra note 45; and dis-
etn — see NATIONAL LEAGUE OF Crrtes—U Ss
(8) AYORS, A AL
tigen oi CITIES AND THE NATION’s DISPOSAL
*’ Pub. L. No. 93-236, § 603 (1973).
24b
tures and in other Commission practices where “ so
crimination exists.” ** As interpreted elsewhere, ee
603 was a clear “legislative recognition of ng iaewren .
in existing rate structures and a legislative directl
the Commission to eliminate it.” “
mission virtually ignored the statutory mes-
aa piberwa in Section 603. Rather than apc aggate
a broad investigation into the lawfulness of t : rs
structures, the Commission responded by promulga ns
redundant rules governing procedures for filing _—_
plaint with the agency.” Moreover, the aon”
thereafter approved another series of general ra Jer
creases applicable to recyclables,” thereby possibly
“Id.
1293, 1305-1306
40 § AP v. United States, 371 F.Supp. ’
(D. Do. 1974) (three-judge court), rev’d on other grounds,
422 U.S. 289 (1974).
} 93-236, Freight Rates
See Ex Parte No. 306, Public Law » Pre ,
for Ravpolables, 346 ICC 408 ea de = Seger dae
{ rules for filing complain alle
es cae materials. Dissenting on the ground —
these rules did not meet the intent of § 603, Commissi
O’Neal observed: : | ;
ific requirements in the statute is rea
b reigecon bi * * to indicate that the Commission
ml not undertake a broad investigation. But the vines
gress has indicated that this is an area of sufficient a
gressional concern to warrant a statutory message to
Commission. * * * Congress wanted the , operant
do something more than merely reaffirm that upon s .
filing of a formal complaint a remedy for discriminatio
exists at the ICC.
346 ICC at 414 (Commissioner O’Neal, dissenting).
issi i te increases
6 mmission approved seven successive ra
ea eetlete recyclable materials totalling approximately hg
a . two-year span. Ex Parte No. 295, 344 ICC 589 (1974);
and subsequent proceedings cited at note 14 supra.
2b
exacerbating the discrimination Congress believed was
firmly imbedded in the rate structures.
The Commission’s persistent refusal to investigate the
rate structure, combined with its continued approval of
rate increases applicable to recyclables, led representa-
tives of the recycling industries to support a number
of bills subsequently introduced in Congress.” Like Sec-
tion 603, these bills all revealed Congress’ dissatisfaction
with the approach displayed by the Commission in its
general revenue proceedings, and were aimed at eliminat-
ing rate structures which in Congress’ view impeded de-
velopment of increased recycling. In addition to ex-
plicitly requiring the Commission to investigate the rate
structures, they would have compelled the Commission
to adopt a presumption of competition between recyclable
and virgin materials for the purpose of its investigation,”
and to establish recyclable rates at the lowest lawful
levels compatible with maintenance of adequate trans-
portation service.* Although some of these bills were
vigorously opposed by the Commission and eventually died
in committee, Section 204 was finally enacted by Con-
gress as that section emerged from the bills comprising
the Regulatory Reform Act.”
Section 204, we believe, did not differ materially by
either its terms or its underlying purpose from the bills
considered and rejected by Congress. Just as those bills
did not purport to change or modify substantive stand-
“S. 1744, 94th Cong., Ist Sess. (1974); H.R. 12536, 98d
Cong., 2d Sess. (1974). See also S. 2753, 938d Cong., 1st Sess.
(1973).
"Id.
“ S. 2753, supra note 52.
“The bills which evolved into the Regulatory Reform Act
originated as H.R. 10979, 94th Cong., Ist Sess. (1975), and S.
2718, 94th Cong., 1st Sess. (1975).
26b
ards relating to the lawfulness of rates,” neither did
Section 204. Congress used familiar language, having
a long-settled meaning in transportation law, in proscrib-
ing “unreasonableness” and “unjust discrimination” in
rate structures. It is apparent from the use of such
established terms that Congress deemed traditional trans-
portation policy criteria adequate protection against rate
structures which discouraged industrial use of recycled
products.
At the same time, however, Section 204, like previous
bills, was intended to ensure proper application by the
Commission of established statutory standards. Thus,
by reversing the rules governing complainants’ burden
of proof, Section 204 both precluded the Commission from
adopting the approach taken in its general revenue pro-
ceedings, whereby it approved disparate rate structures
based on the railroads’ revenue needs, and required the
railroads to justify fully the rate structures involved
under established ratemaking standards.
In the order under review and before this court ™
the Commission has urged that in applying traditional
“ See Ann Arbor R. Co. v. United States, 281 U.S. 658, 668-
669 (1930) (statute directing the Commission to investigate
rate structures to determine whether rates were unreasonable
or unjustly discriminatory, and to achieve the lowest possible
lawful rates, did not effectuate substantive changes in existing
law).
** While formally acknowledging the need to consider “all
factors related to the transportation of commodities,” Order
at 70, the Commission proceeded to focus exclusively on one or
two of those factors, see pp. 27-28 infra, and to criticize the re-
cycling industry for failure to adduce any other evidence, see
note 33 supra.
** Respondent’s brief at 46 (“the burden of going forward
with the evidence [shifted to the shippers] after the railroads
carried their burden”).
27b
standards in this investigation it was unnecessary to
require the railroads to adduce proof on all factors re-
lated to transportation of commodities, and that instead
it was incumbent on the recycling industry to demon-
strate by way of rebuttal those factors militating against
the lawfulness of the rate structures. We believe the
Commission’s position reveals a serious misapprehension
of the significance of the statutory reversal of the bur-
den of proof in Section 204. As previously noted," the
burden-shifting procedure employed by the Commission
in its general revenue proceedings is premised on the
notion that once the railroads have demonstrated a need
for additional revenues, most individual increases within
the approved limit will be found just and lawful. The
Commission approved the rate increases on recyclables
subject to this procedure and its concomitant assumption
in its general revenue proceedings. By reversing the bur-
den of proof in this proceeding, however, Congress ac-
complished more than a mere change in the procedural
format for presentation of evidence, suggested by the
Commission. Specifically, it erected an evidentiary pre-
sumption against the lawfulness of the rate structures,
thereby preventing the Commission from assuming, or
otherwise deferring to, asserted revenue needs of the
railroads in determining the lawfulness of the rates. Un-
like general revenue proceedings, this investigation was
to proceed from the premise that disparate rate struc-
tures were not justified by the revenue needs of the
railroads, and were therefore only to be upheld where
actually warranted after consideration of all of the
transportation characteristics, including the competitive
relationships and costs, of the materials involved.
This theme—that Congress firmly opposed disparate
rates maintained by the Commission to protect the rail-
™ See note 12 supra.
28b
roads’ general revenue needs without complete considera-
tion of the transportation characteristics of these prod-
ucts—is clearly revealed by both of the relevant portions
of the legislative history of Section 204, the Senate
Commerce Committee Report” and the remarks madg
on the floor of the Senate.” Thus in view of the
provisions of Section 204, its legislative history, and the
background of congressional concern surrounding its en-
actment, we have no doubt that the Commission’s man-
date in this investigation was to identify and remove dis-
parities in the rate structures based on an in-depth ex-
amination of the transportation characteristics involved.
The Commission, in the view of the proponents of Sec-
tion 204, had erected barriers to industrial recycling by
approving rate increases under the limited criteria ap-
plied in its general revenue proceedings. Under Section
204 it was up to the Commission to eliminate these bar-
riers, after a complete investigation of the rate struc-
tures in this proceeding.
Moreover, we reject the view that Congress in some
manner defeated the purpose of this investigation by
its inclusion of Section 204 within the framework of the
Regulatory Reform Act. As we have recently observed,
this Act was not only a legislative enactment designed
“\ §. Rep. No. 94-499, 94th Cong., Ist Sess. 51 (1975).
"! 121 Cong. Rec. 38450-38451.
“* The Commission stated that it was required to consider
the railroads’ needs for revenues before ordering removal of
the unlawful rates. Order at 74. We believe the Commission
was authorized to consider financial impacts of particular rate
structures on the railroads in determining the lawfulness
of the rates, but was not entitled to give this factor the pre-
dominant weight that has been suggested in order to approve
otherwise unlawful rate structures. Section 204, in our view,
directed the Commission to order removal of unlawful rate
structures, regardless of their effect on the railroads’ revenue
levels.
29b
“to restore the financial stability of our railway system
and promote its revitalization,” but was also an expres-
sion of congressional concern “that the interests of the
railroads be balanced with the needs of shippers and the
public.” ** Section 204, dealing with an area of im-
portance to the nation’s environment, struck the balance
Congress deemed appropriate after its consideration of
the interests involved. In so doing Congress tilted the
scales against existing rate structures fostered by the
Commission in its general revenue proceedings. It was
not for the Commission to disagree with this legislative
judgment by giving greater weight to concerns for rail-
road profitability than to the environmental and energy
goals underlying the investigation.
Il
We agree with the dissenting Commissioners that on
this record the Commission’s approval of the rate struc-
tures was not consistent with its mandate. The chal-
lenged order does not meaningfully address the focal
question presented by its investigation, namely whether
the substantial rate disparities between recyclable and
virgin products are justified, in whole or in part, by the
transportation characteristics of the products involved.
The Commission, by finessing this and other questions,”
"’ Atchison, Topeka & Santa Fe R. Co. v. ICC [Market
Dominance}, F.2d ——, —— (D.C. Cir. No. 76-2048, de-
cided May 2, 1978) (slip op. at 5, 6).
“We note that the Commission made no formal findings
with respect to the existence of rate disparities, made no at-
tempt to analyze cost evidence with respect to movements
of the materials investigated, and did not require the railroads
to adduce proof on the subject of potential competitive injury
to shippers resulting from the rate structures. In effect, there-
fore, the Commission performed a circuitry: it substituted its
environmental analysis of the impact of past rate increases
for an economic analysis of the alleged unreasonableness and
[continued]
30b
effectively relieved the railroads of their burden of proof
under Section 204.
Even reviewing the Commission’s order on its own
terms, we also find that several of its underlying find-
ings and conclusions are inadequately supported and
arbitrary. Applying a standard of competition which
was both unduly narrow and inconsistent with its Sec-
tion 204 mandate, the Commission again found that re-
eyclable and virgin products do not compete for trans-
portation purposes. These findings, based more on the
Commission’s perceptions of industry structures than on
articulated determinations with respect to rate struc-
tures, neither comport with the Commission’s mandate
nor rationally flow from the record before us. Since the
Commission was required in this proceeding to supply
a reasoned decision with respect to two issues—whether
the rate structures were shown to be reasonable and
whether they were shown to be not unjustly discrimina-
tory—we shall discuss the Commissions on each of these
aspects separately.
A. Reasonableness Issues
The Commission determined that in ascertaining the
reasonableness of the rate structures it would not con-
sider the rates on recyclables to be unreasonable unless
they had resulted in a diminished volume of traffic dur-
ing past years, or unless it appeared that recyclable
materials could not absorb current rates.” It applied no
unjust discrimination in rate structures, and concluded that
the rate structures were lawful because rate increases had not,
in its view, resulted in actual harm to shippers of recyclables.
Section 204 directed the Commission to address, and require
proof from the railroads on. the issues—whether the rate
structures were unreasonable or unjustly discriminatory—not
to conduct a shell game.
* Order at 67.
sib
other standard of reasonableness’ and offered no ex-
planation for its decision to focus exclusively on these
criteria. Moreover, despite evidence of unusually high
rate structures, the Commission refused to articulate
a standard of maximum reasonableness for recycled
products, stressing instead the need to consider in all
instances the “public interest in a viable and efficient
railroad industry” and “the maintenance of adequate
revenue levels for the railroads’ in determining the
reasonableness of the rate structures.
As we have stated, the Commission was clearly au-
thorized by Section 204 to apply traditional ratemaking
criteria in this investigation. And we recognize that
among such criteria the Commission normally is entitled
to consider as one factor the effect of rates in terms
of the volume of traffic moved. In view of the Com-
mission’s mandate in this proceeding and the evidence
before it, however, we do not believe its decision to
fueus exclusively on this factor constituted an ap-
plication of “satisfactory”®’ or “proper and _ legal
“© Among the many variables the Commission has considered
in the process of assessing the reasonableness of rates are:
cost of service, value of service, the existence vel non of com-
petition, the transportation characteristics of the commodity
(weight, size, density), the anticipated volume of shipments,
the distance of the haul, the availability of return loads, the
economic status of the industry, the rate level required to move
the traffic, the threat of intermodal competition, and com-
parisons with established rates for comparable shipments in
the territory involved. See, e.g., Burlington Northern, Inc. v.
United States, 555 F.2d 637, 640 (8th Cir. 1977).
“? Order at 70.
“* Id. at 74.
“° Chicago Board of Trade v. Illinois Central R. Co., 329 U.S.
529, 5383 (1967) (reasonableness of rates may be determined
“in relation to any satisfactory standard which permits [the
Commission] to measure and determine the factual question
presented”).
32b
standards.” ”
The most salient theme that stands out in the legisia-
tive history of Section 204 is that Congress did not regard
the existing rates on recyclables to be lawful solely be-
cause these materials could withstand rate increases and
continue to move by rail. Congress, as we have seen,
was concerned with rate barriers to increased levels of
recycling, as well as with the maintenance of existing
ones. It believed, based on the data and information
before it, that removal of unreasonableness (and dis-
crimination) in rate structures would serve to promote
an increase in the amount of industrial recycling, con-
sistent with its environmental and energy goals. By
applying, as an exclusive legal standard in this investi-
gation, one which was designed to insure only main-
tenance of the status quo in the volume of recyclable
traffic, and not one capable of measuring the effect of
rate structures in terms of promotion of industrial re-
cycling, the Commission thwarted the purpose of this
investigation.
It is true that the freight commodity statistics sub-
mitted by the railroads and the elasticity studies relied
upon by the Commission indicated that the volume of
traffic for most recyclables did not decrease in response
to previous rate increases. Such evidence, while proba-
tive, was hardly conclusive on the question whether the
rate structures were impeding development of increased
recycling. The probative value of both types of evidence,
Citizens to Preserve Overton Park, Inc. v. Volpe, 401
U.S. 402, 415 (1970).
"! Data showing a constant or even a growth in consumption
of recycled materials despite rate increases do not necessarily
show that freight rates are inconsequential. As indicated by
the Commission in previous proceedings, see note 16 supra,
consumption might have been materially higher or lower had
rates been different in the years of rate increases. Even in this
[continued ]
33b
moreover, rests entirely on their shared assumption that
the rate structures themselves are not unreasonable or
unjustly discriminatory.*’ The clear purpose of this in-
vestigation, however, was to test the validity of this un-
derlying assumption, one upon which the Commission
has been operating for years, not summarily to adopt
it. Neither the standard applied by the Commission nor
the evidence before it, therefore, was adequate to enable
it to conclude, consistent with its mandate, that these
rate structures were reasonable.
Other deficiencies in the evidence relied upon by the
Commission also lead us to conclude that its determina-
tions on these issues are inadequately supported and
arbitrary. As the Commission itself acknowledged,"’ a
great void exists in this record due to the absence of any
evidence concerning the effect of the rate structures on
intermodal competition. Given the substantial disparities
in the rates applicable to these products, such evidence
may well have been material in determining the reason-
ableness of the rate structures. It may be, for example,
that greater equality in the rates would result in di-
proceeding the Commission has effectively admitted that only a
multi-variate analysis would adequately enable it to isolate
the effect of transportation costs on consumption of recycled
products. Given these shortcomings, we doubt whether such
data alone would warrant the dispositive findings made by the
Commission under any circumstances. See text and notes at
notes 75-77 infra.
‘* Order at 76 (“Conclusions on elasticity are limited to the
range of prices experienced in the data base.”). Since the
range of prices used in the Commission’s data base included
only those associated with the rate increases, the validity of
its conclusions with respect to the effects of rate etructures
necessarily depends on an assumption that the price ranges
are identical with, or significantly representative of, those
experienced throughout the rate structures.
™ Order at 100.
34b
version of traffic for some or all of these products to
competing modes. We need not consider the question
whether evidence showing that lower rates on recycl-
ables or higher rates on virgin products would endanger
the railroads’ ability to carry the traffic might have been
sufficient to permit the Commission to approve these rate
structures, for we believe the question is one that re-
quired an initial determination by the Commission. On
the present record, however, there is no basis to enable
either this court or the Commission to make an informed
determination on the matter.
Beyond this inadequacy in the record, we note that the
heavy, and often impressionistic, weight ‘' given by the
Commission to the elasticity studies in this proceeding
was plainly unwarranted. The Commission itself ad-
mitted the inherent limitation of such studies when used
to determine the lawfulness of rate structures."* More-
over, its findings in a recent report prepared pursuant
ee
™ See, e.g., Order at 151 (fly ash); 219, 220 (aluminum
scrap); 221 (aluminum ash); 222, 225 (aluminum residue) ;
261 (copper scrap); 262, 264 (copper matte); 305, 807 (lead
scrap); 309-810 (zine scrap); 318 (tin scran); 325, 333-334
(waste paper); 351-352 (textile wastes); 371 (cullet); 398-
399 (reclaimed rubber); 402-406 (bakery refuse); 414-415
(steel containers).
“ The Commission observed: “few products * * * have the
same demand elasticity for the entire range of prices. Demand
may be inelastic for a limited range of prices and become
elastic above that range.” Order at 54. The Commission also
stated that “aggregate studies only describe the collective im-
pact of rate changes for a broad category of commodities.
They give no indication of how individual shippers are
affected.” /d. at 56. In other words, the Commission acknowl-
edged that these studies are relevant only as a general propo-
sition, and only for the specific period of time investigated.
The conclusions thus have limited relevance to the effects of
high rate structures on particular products,
—_—_—- >.
35b
to Section 202 of the Regulatory Reform Act to the
effect that practically all commodities are demand in-
elastic to freight rate structures indicate that such
studies may have no special significance with respect to
the rate structures on recyclable products. We need
not, and thus do not, question the validity of the Com-
mission’s elasticity studies “ in order to observe that its
approval of the rate structures, based in several instances
solely on the results of these studies, was arbitrary in
light of their admitted limitations and the findings of
this report.
Finally, we stress that the Commission was not per-
mitted in this investigation to maintain high rates on
recyclables based on general assertions by the railroads
concerning the profitability of recyclable traffic and their
needs for additional revenues. While we agree with the
Section 202(g) of the Regulatory Reform Act, 49 U.S.C.
$1(5)(g). The Commission found that, particularly with
respect to most manufactured commodities, “the freight rate
represents such a small percentage of the total delivered price
of the product * * * that major increases in transport prices
will not cause significant product demand shifts but may
affect modal choice.” INTERSTATE COMMERCE COMMISSION, THE
IMPACT OF THE IMPACT OF THE 4-R Act RAILROAD RATEMAK-
ING PROVISIONS 102 (1977).
' Petitioner NARI, challenging both the accuracy and the
relevance of the Commission’s elasticity studies, appears to
contend that under no circumstances may the Commission con-
sider such evidence in determining the lawfulness of the rate
structures, Petitioner NARI’s supplemental brief at 5-6. We
disagree. Where the Commission erred here is that it accorded
virtually dispositive weight to evidence, having by its own ad-
mission limited significance to a determination of the issues
presented, without fully considering other evidence directly
relevant to those issues. The Commission is not prohibited
from taking such evidence into account, provided it otherwise
adheres to its mandate by examining traditional factors re-
lated to the transportation of commodities, and it articulates
a rational basis for attributing significance to it.
36b
Commission that it was not required by Section 204
to establish a maximum reasonableness standard ap-
plicable to all recycle! products, we have no doubt that
it was prohibited from approving rate structures unless
they were shown to be justified by the transportation
characteristics of the particular products. To us, this
means that the Commission was compelled by Section
204 to scrutinize the railroads’ cost justifications for
current rate levels, and that it was insufficient to con-
clude that the rates were reasonable merely because
these levels were profitable for the railroads or because
recyclable traffie would continue to move by rail at the
railroads’ current revenue levels. It may be that, hav-
ing examined fully the transportation characteristics of
the products involved, the Commission might have de-
termined to fix a maximum reasonableness standard for
recycled products. And in measuring the appropriate
standard the Commission might even have allowed for
a reasonable margin of profitability under the rate struc-
tures. It is not for us to determine at this stage whether
this course, if pursued, would have been proper, or pre-
cisely how a maximum reasonableness standard should
be measured," since, owing to the Commission’s failure
** Petitioner NARI devoted a substantial portion of its argu-
ments to the contention that existing rate structures, when
measured against guides applied in other rate situations, are
unreasonable. In support of its position it relied on: (1) the
Commission’s 1972 Burden Study, INTERSTATE COMMERCE
COMMISSION, RAIL REVENUE CONTRIBUTION BY COMMODITY
AND TERRITORY FOR THE YEAR 1972, Statement No. 153-72;
(2) the Commission’s recently promulgated market dominance
regulations, 49 C.F.R. § 1109.1, 41 Fed. Reg. 44183 (1976) ;
and (8) the Commission’s recent decision in San Antonio,
Texas, Acting By and Through Its City Public Service Board
», Burlington Northern, Inc., Docket No. 36180.
The essence of NARI’s argument appears to be that the
existing rate structures are unreasonable per se because they
exceed standards announced in these proceedings by a wide
[continued]
ee ee
37b
to require proof on the transportation characteristics
of these products, there is no basis in the record for these
determinations. We leave these and the other questions
alluded to for resolution by the Commission upon re-
mand.
margin. In its Burden Study, for example, the Commission
found that the average cost-revenue ratio on national traffic
was 131.8%. A large number of the ratios developed by the
Commission in this proceeding exceeded this figure. See note
35 supra. Similarly, many of the ratios were higher than the
160° ratio announced in the Commission’s market dominance
regulations as creating a rebuttable presumption that a carrier
possesses market dominance over the service rendered under a
proposed rate. 49 C.F.R. § 1109.1(g) (2). Finally, although
the Commission did not analyze cost evidence in this proceed-
ing, it appears that the rate structures on many of the re-
cyclable products would be invalid under the Commission’s
San Antonio decision, in which it prescribed rates approximat-
ing the cost levels of the service therein involved.
The Commission contends that none of the standards sug-
gested by NARI compel a finding of unreasonableness, or
should be used to set a standard of maximum reasonableness,
because they were not intended to establish the reasonableness
of particular rates. Respondent’s brief at 58-64. Moreover,
the Commission asserts that the question of the reasonableness
of the rate structures should not be dependent upon a cost
standard, at whatever level such standard might be set. Jd. at
58-59. Since costs alone have never been held to determine
maximum reasonable rates, see, e.g., General Motors Corp. v.
New York Central R. Co., 311 ICC 622, 625, aff’d, 207 F.Supp.
641, 648 (12.D. Mich. 1962), aff'd per curiam, 324 F.2d 604
(6th Cir. 1973); United States v. Great Northern R. Co., 293
ICC 341, 345 (1954); Morrison-Knudson Co. v. Missouri Pa-
cific R. Co., 308 ICC 205, 209 (1959), we agree that the Com-
mission was neither required to limit its consideration to this
criterion solely, nor compelled to establish a maximum stand-
ard of reasonableness based exclusively on cost-derived stand-
ards. Granting this much, however, does not lead us to con-
clude that the Commission was entitled, as it has, to ignore any
consideration of costs. Section 204, as we have stated, required
it to determine the lawfulness of the rate structures based on a
[continued ]
38b
B. Discrimination Issues
The Commission stated that in determining whether
the rate structures were unjustly discriminatory it would
be guided by its “traditional standards” under Section
3(1) of the Interstate Commerce Act,"* and would there-
fore conduct a four-step analysis. The four steps listed
by the Commission were: (1) whether disparities exist
between the ratios for recyclable and virgin materials;
(2) whether there is “in fact” competition between these
materials; (3) whether shippers of recyclables are being
complete investigation of the transportation characteristics
involved.
Nor does our rejection of NARI’s argument inevitably sup-
port the view that the Commission was not authorized in this
investigation to establish a maximum standard of reasonable-
ness. In this regard, we note that the market dominance regu-
lations promulgated by the Commission under the Regulatory
Reform Act were designed to assist it in focusing on areas
where maximum rate regulation is needed in the public inter-
est. It may be that during the course of an investigation con-
ducted consistent with its mandate under § 204 the Commis-
sion would decide that some equivalent standard would serve
a similar purpose concerning rates on recyclables.
™ It shall be unlawful for any common carrier subject to
the provisions of this chapter to make, give, or cause any
undue or unreasonable preference or advantage to any
particular person, company, firm, corporation, association,
locality, port, port district, gateway, transit point, re-
gion, district, territory, or any particular description of
traffic, in any respect whatsoever; or to subject any par-
ticular person, company, firm, corporation, association,
locality, port, port district, gateway, transit point, region,
district, territory, or any particular description of traffic
to any undue or unreasonable prejudice or disadvantage
in any respect whatsoever: Provided, however, That this
paragraph shall not be construed to apply to discrimina-
tion, prejudice, or disadvantage to the traffic of any other
carrier of whatever description.
49 U.S.C. §3(1) (1970).
39b
injured by the rate disparities; and (4) whether rate
disparities are justified by differences in the transporta-
tion characteristics of the materials involved.” Applying
these standards, it concluded that most of the recyclable
materials did not in fact compete with their virgin ma-
terial counterparts, and that shippers of all of the re-
cyclable materials were not competitively injured by ex-
isting rate structures. As it had in addressing the issue
of the reasonableness of the rate structures, the Com-
mission again avoided an examination of the transporta-
tion charactristics of the various products, in this in-
stance by concluding its analysis at the third of these
criteria.
We agree with the Commission’s initial determination
to consider the discrimination issues within the frame-
work of the broad prohibitions provided by Section 3
(1).“' Moreover, we concur in the Commission’s view
that resolution of the discrimination issues in this pro-
“° Order at 72. The Commission thus introduced a novel ele-
ment, competition in fact, into its traditional §3(1) inquiry.
In typical § 3(1) cases the Commission has required a showing
that a party is “competitively injured, actually or potentially.”
Id. at 72 n.20. See also Chicago Board of Trade v. Illinois
Central R. Co., 344 ICC 818, 831 (1973).
‘' The Commission’s initial position was that it “should not
restrict” itself to viewing its investigation under § 2 of the
Act, 49 U.S.C. § 2 (1970), which prohibits unjust discrimina-
tion between like kinds of traffic under substantially similar
circumstances and conditions, but also should consider the
prohibitions under § 3(1). Jd. at 71. To the extent that the
Commission’s subsequent application of § 3(1) standards may
have reflected a view that it was not required to examine the
transportation characteristics of these products, see id. n.19a,
this determination was inconsistent with its mandate. We
note, however, that according to its statement of the criteria
applied under § 3(1), the Commission was required to consider
whether differences in the transportation characteristics justi-
fied disparities in ratios. Jd. at 72.
‘
i
V
40b
ceeding required it to consider carefully the competitive
relationships between the materials involved. We hold,
however, that on this record the Commission’s findings
of no competition in fact, and no actual competitive
injury, were inconsistent with its mandate.
Turning first to the Commission’s findings of no com-
petition, we note that an obvious concern of Congress
in enacting Section 204 was to ensure that the Com-
mission take into account the full competitive relation-
ships between recyclable and virgin commodities, In its
general revenue proceedings the Commission had re-
jected challenges to rate increases, concluding consistently
that recyclable and virgin products did not compete for
transportation purposes because their competitive re-
lationships were complementary. As in this proceeding,
therefore, the Commission applied a standard of com-
petition requiring a showing that recyclable products
were substitutable for, rather than functionally equivalent
with, virgin products in the manufacture of industrial
products. In the view of some members of Congress
this standard was unduly narrow and its application by
the Commission had resulted in approval of freight rates
which retarded rather than promoted industrial use of
recycled products. The pertinent passages of the legis-
lative history of Section 204 suggest further that these
** Senator Tunney, the sponsor of the amendment to § 204
placing the burden of proof upon the railroads, stated that
“the investigation must proceed with an articulation of a
presumptive standard of competition. For the purpose of this
investigation, the Commission should consider recyclable and
virgin materials to be competing if they are functionally
equivalent in the manufacturing stage.” 121 Cong. Rec. 38451
(1975). In a similar vein, the Senate Commerce Committee
teport stated: “[T]he record * * * indicates that the Commis-
sion may not be taking into account the full competitive rela-
tionship * * *. A reexamination of that relationship will be
necessary if this investigation is to achieve its goal.” S. Rep.
No. 94-499, 94th Cong., Ist Sess. 47 (1975).
41b
proponents believed application of this standard would
frustrate the purpose of the investigation required by
the statute.
Although the competition standard employed by the
Commission was thus an important area of congressional
concern, it is evident from both the language of the
statute and its remaining legislative history that it was
not the main concern leading Congress to require this
investigation. As we have previously stated, Congress’
major concern was with removal of rate structures which
impeded or discouraged development of industrial re-
cycling. In light of this dominant purpose, and especially
due to the absence of any statutory reference to the
standard of competition to be applied, we are unable to
conclude that Section 204 was a legislative directive to
the Commission to make positive findings that these
products compete for transportation purposes. Nor may
we conclude that Congress meant to prescribe any par-
ticular standard of competition for application in this
investigation. While, as indicated previously, some of
the proponents of Section 204 believed that the Com-
mission’s investigation should proceed with a presump-
tive standard of competition based on the functional
equivalency of the products in manufacturing processes,
Section 204, by its terms, did not enact such a standard.”
** To hold, as petitioners suggest, that the Commission was
required by § 204 to find or assume that recyclable and virgin
commodities compete would require us to give controlling
weight to the remarks of Senator Tunney. We decline to do
so not only because they are not supported by the language of
§ 204, but also because they were not adopted in the Senate
Commerce Committee Report, which indicated instead that
the Commission should “reexamine” competitive relationships
consistent with the investigation’s purpose of removing unlaw-
ful impediments to the movement of recycled materials. See
note 82 supra. See also Zuber v. Allen, 396 U.S. 168, 186
(1970); American Airlines, Inc. v. CAB, 365 F.2d 989, 948
(D.C. Cir. 1966).
42b
At the same time, giving effect to the specific mandate
of Section 204—that the Commission order removal of
unlawful rate structures found to discourage industrial
recycling after a broad investigation—we believe that
the Commission was not entitled to apply a competition
standard so narrow in scope as to obviate the statutory
purpose of its investigation. The lawfulness of the rate
structures was not to be governed by the fact that re-
cyclable products had been unable to attain actual com-
petitive status with virgin products under existing rates.
Instead, we believe that to warrant dispositive findings
of no competition the Commission was required to find
that the various products were neither actually nor po-
tentially competitive for transportation purposes. The
Commission was therefore required to consider the po-
tential under the rate structures for competitive relation-
ships between recyclable and virgin products, and for
competitive injury to shippers. This standard, we might
add, not only comports with the Commission’s mandate,
but is fully consistent with competition standards tra-
ditionally applied by the Commission in other discrimina-
tion cases,"*
When measured against this standard, the Commis-
sion’s findings of no competition cannot be sustained. The
Commission uniformly required a showing of competition
“in fact” to establish discrimination, and concluded in
each instance that the recyclable and virgin material
counterparts were noncompetitive because they were not
“* Baltimore & Ohio R. Co. v. United States, 391 F.Supp.
249, 259 (E.D. Pa. 1975) (“It was the potential for discrimi-
natory treatment inherent in the practice which the Commis-
sion found to be violative of Sections 2 and 3(1).”) See
Chicago Board of Trade v. Illinois Central R. Co., supra note
80. See also Chicago & Eastern Illinois R. Co. v. United States,
384 F.Supp. 298, 300-801 (N.D. Ill. 1974) (three-judge court),
aff'd, 421 U.S. 956 (1975).
43b
actually substitutable in manufacturing processes.” It
made no findings, and was offered no evidence by the
railroads, to the effect that the recyclable materials
were not potentially competitive in manufacturing
processes, in terms of either their substantiality or their
functional equivalency. As we have indicated, it was
patently insufficient for the Commission to approve rate
structures on recyclables without consideration of such
evidence, for to do so was to contravene its mandate
in this proceeding.
It follows from our discussion that the Commission’s
alternative findings of no competitive injury also may
not be sustained. Based on the same evidence relied
upon in determining the reasonableness of the rate struc-
tures,** the Commission invariably concluded that shippers
of recyclables had not suffered actual injury as a result
of disparate rate treatment. That evidence, as we have
seen, does not support a finding that the rate structures
do not present a potential for competitive harm to ship-
pers of recyclables. Instead, it only reflects the respon-
siveness of the relatively small amount of recyclables
shipped to the recent rate increases approved by the
Commission. It does not measure the effects of the rate
structures on recyclable traffic. Nor does it account for
increases in recyclable traffic that may have occurred
absent the effects of the rate structures.
Unable to discern from this record any support for the
Commission’s findings on the discrimination issues, we
set them aside, leaving for the Commisison’s determina-
tion such questions as may be involved in the assess-
ment of the potential competition and competitive injury
* See, e.g., Order at 106, 220-221, 398.
’ See text and notes at notes 71, 74-76 supra.
44b
presented by these rate structures.’ Recognizing the
breadth of the competition standard the Commission will
be required to apply, however, we note that only extra-
ordinary circumstances, not disclosed by this record, will
warrant another effort by the Commission which omits
consideration, under a Section 3(1) analysis, of the issue
whether disparities in the rate structures are justified
by differences in the transportation characteristics of
these products.
IV
Before concluding, we stress that we are unimpressed
with the Commission’s attempt to excuse its failure to
comply with its mandate by repeated reference to the
expedited nature of this investigation. The Commission
has for a long time promised, and was finally compelled
by Section 204, to resolve the longstanding controversy
related to these rate structures. In light of the Com-
mission’s general familiarity with the issues involved,
and the fact that a significant portion of the extensive
record compiled consists of incorporated matter pre-
dating its investigation, the proffered excuse is untenable.
This is not a case where an agency’s determinations are
or should be accorded an unusual degree of deference
by a reviewing court because of the novelty of the issues
and the time constraints within which the agency must
operate.””
*t There are indications on this record that some, if not all,
of the rate structures present potential for competitive harm
to shippers. See, e.g., Order at 1382 (“price and availability of
raw materials” found to be one factor affecting a manufac-
turer’s determination to build a scrap-consuming electric fur-
nace). In order to meet their burden of proof on this issue,
the railroads should at a minimum be required to survey
existing and potential users of recyclables to determine
whether reductions in rates would encourage them to purchase
more or make additional use of recyclable materials.
88 See Market Dominance, supra note 63, —— F.2d at ——,
slip op. at 12-13; Amerigan Public Gas Ass’n v. FERC, ——
[continued]
45b
On the other hand, although we disagree with the
Commission’s actions on this record, we also emphasize
that our discussion of the standards employed by the
Commission to determine the lawfulness of these rate
structures, and of the evidence submitted by the rail-
roads, is not intended to set forth our view of the law-
fulness of any of the rate structures involved. They
may be lawful, or they may not. In either event, it
was not for the Commission to decide initially based on
an adequately supported consideration of the transporta-
tion characteristics of the products consistent with its
mandate. We have concluded only that the Commission
has not done so in this case.
Nor, by our disposition, do we mean to intimate any
view on the several contentions advanced relating to the
measures the Commission should adopt in proscribing
either maximum rates or recyclables or maximum rate
disparities between recyclable and virgin products. All
of these questions we leave to the informed judgment of
the Commission, after full consideration of the railroads’
justifications for disparities in the rate structures and
the effect of the rate structures in terms of their actual
and potential impact on the use of recycled products.
With these closing admonitions, we conclude that the
Commission has not reasonably adhered to its mandate
in this proceeding. Accordingly, we vacate the order un-
der review in Nos. 77-1187 and 77-1292 in its entirety,
and remand the case for further proceedings consistent
with this opinion. We also dismiss the petition for re-
view in No. 77-1193.”
So ordered.
ae —— (D.C. Cir. 1978) (per curiam) (slip op. at
7-18).
8° See note 1 supra.
46b 47b
APPENDIX A such rate structure of such unreasonableness or
just discrimination; and
Section 204 of the Railroad Revitalization and Regula- unjust discrimination; an
tory Reform Act of 1976, P.L. 94-210, 45 U.S.C. § 793, (4) report to the President and the _Con-
provides: gress, in the annual report of the Commission
INVESTIGATION OF DISCRIMINATORY FREIGHT RATES
FOR THE TRANSPORTATION OF RECYCLABLE OR
RECYCLED MATERIALS
Sec. 204. (a) INVESTIGATION.—The Commission,
within 12 months after the date of enactment of this
Act, and thereafter as appropriate, shall—
(1) conduct an investigation of (A) the rate
structure for the transportation, by common
carriers by railroad subject to part I of the
Interstate Commerce Act, of recyclable or re-
cycled materials and competing virgin natural
resource materials, and (B) the manner in which
such rate structure has been affected by succes-
sive general rate increases approved by the
Commission for such common carriers by rail-
road;
(2) determine, after a public hearing during
which the burden of proof shall be upon such
common carriers by railroad to show that such
rate structure, as effected by rate increases ap-
plicable to the transportation of such competing
materials, is just, reasonable, and nondiscrimi-
natory, whether such rate structure is, in whole
or in part, unjustly discriminatory or unreason-
able;
(3) issue, in all cases in which such trans-
portation, rate structure is determined to be, in
whole or in part, unjustly discriminatory or
unreasonable, orders requiring the removal from
for each of the 8 years following the date of
enactment of this Act, and in such other re-
ports as may be appropriate, all actions com-
menced or completed under this section to elimi-
nate unreasonable and unjustly discriminatory
rates for the transportation of recyclable or re-
cycled materials.
(b) PARTICIPATION.—The Administrator of the
Environmental Protection Agency shall take such
steps as are necessary to assure that the Commis-
sion carries out the requirements set forth in sub-
section (a) of this section as expeditiously as pos-
sible. Such Administrator is authorized to participate
as a party in the investigation to be commenced by
the Commission under such subsection (a).
(c) RESEARCH, DEVELOPMENT, AND DEMONSTRA-
TION.—The Secretary, in cooperation with the Com-
mission, shall establish a research, development, and
demonstration program to develop and improve trans-
port terminal operations, transport service char-
acteristics, transport equipment, and collection and
processing methods for the purpose of facilitating
the competitive and efficient transportation of re-
eyclable or recycled materials by common carriers
by railroad subject to part I of the Interstate Com-
merce Act.
8
(d) Review.—Orders issued by the Commission
pursuant to this section shall be subject to judicial
review or enforcement in the same manner as other
orders issued by the Commission under the Inter-
state Commerce Act. In all proceedings under this
48b
section, the Commission shall comply fully with the
requirements of the National Environmental Policy
Act of 1969 (42 U.S.C. § 4821 et seq.).
(e) DEFINITIONS —As used in this section, the
term—
(1) “recyclable material” means any ma-
terial which has been collected or recovered from
waste for a commercial or industrial use,
whether or not such collection or recovery fol-
lows end usage as a product; and
(2) “virgin natural resource material” and
“virgin material” mean any raw material, in-
cluding previously unused metal or metal ore,
woodpulp or pulpwood, textile fiber or material,
or other resource which is, or which will become
(through the application of technology), a
source of raw material for commercial or in-
dustrial use.
49b
(Title Omitted in Printing)
a Filed August 7, 1978
Before: Wricnt, Chief Judge.
ORDER
It is Orperep, sua sponte, that the opinion of the Court
filed August 2, 1978, is hereby amended as follows:
Page 4, note 1, Delete phrase ‘‘and remanding’’ in
sixth line from the bottom of the page.
Page 4, note 1, Add date ‘‘ August 2”’ in last line,
Page 5, note 3. Revise to read: See p. 17 & note 42
infra.
Page 9 note 15, Revise page citation to read: see pp.
28, 30-31, & notes 71-72 infra,
Page 13, line 1. Change ‘‘require’’ to ‘‘required’’.
Page 16, note 39. Delete ‘‘See text and note at note
75 supra.”’
Page 20, line 2, Revise ‘‘As interpreted elsewhere’’
to read ‘‘As has been interpreted elsewhere’’.
Page 21, line 4. Change ‘‘structure’’ to ‘‘structures’’.
Page 26, line 19. Revise to read: ‘‘—we shall discuss
the Commission’s determinations on each of these’’.
Page 39, line 5, Substitute ‘‘substitutability’’ for
‘*substantiality’’.
Page 40, note 88, Change ‘‘See’’ to ‘‘Cf.’’,
Page 41, line 9. Delete ‘‘not’’; sentence should read
‘was for the Commission to decide initially based on’’.
Page 41, line 17, Change first ‘‘or’’ to ‘‘on’’; sen-
tence should read ‘‘either maximum rates on recycla-
bles or maximum rate’’.
50b
(Title Omitted in Printing)
Filed August 25, 1978
Before: Wricut, Chief Judge.
OrverR
It is Orperep by the court, sua sponte that the opinion of
the court filed August 2, 1978 be, and it is hereby, amended
as follows:
Page 13, note 30. Change ‘‘(JA 341).’’ to read ‘‘(JA)
341.”? in line 1,
Page 14, note 31, Delete period at the end of the 4th
line from the end.
Page 31, note 76, Delete the 4th, 5th, and 6th words,
‘‘Impact or THE’’, in the next to last line.
Page 35, note 81. Change ‘‘/d.’’ in line 6 to ‘‘Order’’.
Page 35, text. Change “charactristies” in line 11 to
‘‘characteristics’’,
Page 41, note 88, Change “(D.C. Cir. 1978)” to read
(D.C, Cir, No, 75-2105, decided May 10, 1978)’’.
Page 42, text. Delete first comma in the third line from
the bottom.
Per Curiam
For the Court
/s/ Rosert A. BonNER
Robert A. Bonner
Chief Deputy Clerk
5lb
(Title Omitted in Printing)
Filed September 6, 1978
Before: Wricut, Chief Judge
ORDER
It is Orperep by the court, sua sponte, that the opinion
of the court filed August 2, 1978 in the above cases be, and
it is hereby, amended as follows:
Page 27 Delete quotation mark preceding the word
“proper” in the last line of text.
Footnote 69 is amended to read:
Chicago Board of Trade v. Illinois Central R. Co.,
329 ICC 529, 533 (1967) (reasonableness of rates
may be determined ‘‘in relation to any other satis-
factory standard which permits [the Commission]
to measure and determine the factual question
presented”).
Page 28 Delete quotation mark following the word
‘*standards.’’ in the first line of text.
Footnote 70 is amended to read:
Burlington Northern, Inc. v. United States, 549
F.2d 83, 88 (8th Cir. 1977).
Per Curiam
For the Court
/s/ Georce A. FIsHEer
George A. Fisher
Clerk
APPENDIX C
le
APPENDIX C
UNITED. STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
SEPTEMBER TERM, 1978
No. 77-1187
NaTionaL AssociaTION oF Recyciine Inpustries, Inc.,
Petitioner
Ve
INTERSTATE COMMERCE ComMMISsION and UnitTep StaTEs oF
America, Respondents
Atcuison, Topeka & Santa Fr Rattway Company, ET AL,
Intervenors
And Consolidated Cases Nos. 77-1193 & 77-1292
Filed October 16, 1978
Before: Wricut, Chief Judge, and Swycert* and Leven-
THAL, Circuit Judges.
ORDER
The court has before it petitioner’s petition for rehear-
ing and modification of this court’s order of August 2, 1978,
the response thereto of the Interstate Commerce Commis-
sion, and the opposition thereto of the intervenors herein.
On consideration thereof, and for the reasons stated in the
following per curiam,
It is OrpErEp by the court that the Interstate Commerce
Commission complete its action on remand within six (6)
months of the date of this order.
For the Court
/s/ Greorce A. FIsHEeR
George A. Fisher
Clerk
* Of the Seventh Circuit, sitting by designaticn pursuant to 28
U.S.C. § 291(a) (1976).
2¢e
Circuit Judge Levenruat dissents.
Per Curiam: As the court indicated in its opinion in this
ease filed August 2, 1978, Section 204 of the Regulatory
Reform Act of 1976 directed the Interstate Commerce Com-
mission to conduct an expedited investigation into the law-
fulness of certain rate structures and to order removal of
all rates not shown by the railroads to be just, reasonable,
and nondiscriminatory. The date of the legislation is Feb-
ruary 5, 1976, and Section 204 provides that the investiga-
tion be concluded within one year of that date. The investi-
gation culminating in the orders under review here met
this timetable, but on August 2, 1978 we vacated the orders
of the Commission and remanded the case to the Commis-
_ sion. Thus two and a half years after passage of this ‘‘ex-
pedited’’ legislation the Commission is back at Square One.
Petitioner in its motion suggests that at the least the
(ommission should be required to complete proceedings on
remand within six months, whereas the Commission and the
railroads suggest that the Commission should have an
indefinite time to comply with the congressional mandate of
expedition.
It is this court’s view that the congressional mandate of
expedition should be respected to the extent possible, given -
the current delay. Not only should Commission action on
remand be expedited, but judicial review thereof, if any,
should be as well.
LeventuaL, Circuit Judge, divsenting: I do not believe
we should enter an order now specifying a six-month period
for completing the investigation required by our opinion.
I would agree to an order requiring the ICC to make a re-
port within six months if the investigation has not been
completed, indicating the state of affairs and explaining
why more rapid progress has not been made. The difference
is not cataclysmic—for even under the present order, the
ICC can return and ask for an extension of time. But the
3¢
difference is not merely one of form. The court’s order pre-
supposes a capacity to judge how long this investigation
should take, and I have no basis for a reasoned judgment
on that score.
Se oe rere eee eee =
APPENDIX D
APPENDIX D
30994
INTERSTATE COMMERCE COMMISSION
Ex PARTE No. 319
INVESTIGATION OF FREIGHT RATES FOR THE
TRANSPORTATION OF RECYCLABLE OR RECYCLED
COMMODITIES
3d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 1i3
TABLE OF CONTENTS
Page
Introduction and History of the Proceeding ----------------++-re+eeeeenee ee eneeneee 115
Evidence Requested and Presen (ed --------++-+----+0seeeeeenennennrnnnnnnnennennnennnnn 117
Method of Analysis and Decisionmak ing--------------++---+errs errr renee ee ee rere nenee 156
Table | Commodities
Scrap iron and Steel -------------------0--+eeeneerereceesennsnnesecaseceessenscscenscsoncs 160
Blast furnace, open hearth, rolling mill or coke oven products and fly
PY) | Coenen ee 218
ALUMINUM ------- 0-2-2 - ene eee ee eee eee e en eeeneneeeeneeenncnnneeccnecaenanrsarcatanerannananes 22)
Copper --------eeeenennnencecenenernececnccerecscceccrensenensesnncnsescncncescacsasacssnsones 274
Lead and ZiMe -----------------+-eeennnerereenceennsenensreensenennnececsennnecseananenanns 301
Tit ------nn nn nnnnen nnn en enn ee cn eeceneeenneeeeee nea enneeanseaanncaseeecsneaasensscaaanaaasansees 334
Pulpwood, woodchips, wood pulp and waste paper-----------++++--+-+ee+-+e= 339
Textile waste ------ te eeeeenen eee eeeeeneeaeeeeseaseaeeeneaseneeeaneaseceeascssasasesancaseees 371
Cullet----------+--+-0-0neeenereeeeeeeneeennnenaneneneneasceasaeasacaacencascccsescssesacsnanass 384
RUDDEr --------+- +002 ne neneenn eee neeneennneceenenaennnasnannannaranncaseetarcnssenassanacrcses 396
Table Il Commodities
General ------------+++00+--nsennenneencnnensesaneceeacnannasasncsnancacannasccesacananacacens 417
Bakery Waste ----------------+--0-0eeeeeneneececencnnennncnnennnnnseceenecncaccsnnaacaenns 419
Shavings Of SAWdUSt------------------------eeeen owen nen ewnneenenncnnnenensnsnnsesensnsanes 420
Beverage COMmtainers -----------------------0e2e-neee ee neeeennnnnennnnneceneneneneaennnenns 422
Steel CONAINETS -------------- +20 +e nn eneenenenenennnennanaesnscneenenecancnseseacennecees 424
Wo0d SCrap OF WASlE ---------------2e er een een en nee ennnnnnnnnnnnencenncanenencaseneanacen 42
Municipal garbage waste----------------------++++++-sereneenenennennnnnnnnnnnnaennnanee 426
Bags --------+---00e+eeenneneneneeenneencnnennececascnserecasaanasaeanacenaenenscasscacansascaees 427
General Discussion and Conclusions -----------+-++-+++++eeeeenneree nnn nnne renee nee neee 427
Ultimate Find ings--------------------+-------e2e- cere eeeerenecennecsenenen anne arananeencseanes 431
APPENines --------+-----2---eeennnnnnennnenacenenecnnscscenacsnsenennncscsascnsnasascscacansees 434
(Old: (1 Meee eee ee 449
356 LCC
4d
114 INTERSTATE COMMERCE COMMISSION REPORTS
Ex Parte No 319!
INVESTIGATION OF FREIGHT RATES FOR THE
TRANSPORTATION OF RECYCLABLE OR RECYCLED
COMMODITIES
Decided February |, 1977
1. Upon investigation of the railroad freight rate structures for the transportation of
recyclable or recycled materials and competing virgin, natural resource materials,
and the manner in which such rate structure has been affected by general
increases approved by the Commission.
2. Upon consideration of the record, found that the rate structures of the following
commodities in the following territories are not unjustly discriminatory but are
unjust and unreasonable (a) aluminum residues in official, southern, and western
territories, (b) miscellaneous nonferrous metal residues in official territory, (c)
copper matte, speiss or flue dust in western territory, (d) cullet in official,
southern and western territories, (e) reclaimed rubber in official and southern
territories, (f) ashes in official and western territories, and (g) zine dross in
southern territory
3 Upon consideration of the record, found that additional investigation into the
reasonableness of the rate structures of the following commodities in the
following territories is required: (a) miscellaneous nonferrous metal residues in
southern territory; (b) copper matte in southern territory, (c) lead matte in
southern territory, (d) wood scrap in western territory, (e) municipal garbage in
otticial, southern and western territories, (1) bags, old in southern and western
territories, (g) bags, old having value for conversion in official, southern and
western territories, and (h) bakery waste in official, southern, and western
territories
4 Upon consideration of the record, found that the decisions made herein do not
significantly affect the quality of the human environment within the meaning of
the National Environmental Policy Act of 1969.
5S Upon consideration of the record, found that the railroads should alter their tariff
detinition of recyclable to conform with that found in section 204(eMi) of the
Railroad Revitalization and Regulatory Reform Act of 1976.
6 Proceeding discontinued except as otherwise ordered
A. C. Armstrong, Harry N. Babcock, Donald W. Boe, John A.
Daily, William C. Farris, George M. Gallamore, R. W. Kienle, W. C.
Includes Fx Parte No 270 (Sub-No. 8), Investigation of Railroad Freight Rate Structure—dron
Ores, and Ex Parte No 270 (Sub-No. 6), Investigation of Railroad Freight Rate Structure —Scrap
Tron and Steel
356 1.C.C.
5d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 115
Leiper, Charles N. Marshall, R. J. Murphy, Sr., S. P. Petraities, C. C.
Rettberg, Jr., James E. Sykes, D. M. Tohmie, and Donald L. Turkal
for respondent railroads.
J. Raymond Clark, John F. Donelan, Maurice A. Frater, and John
K. Maser III, tor supporting shippers.
Eston H. Alt, William C. Anderson, Ralph H. Bell, C. J. Berretta,
William Betcher, Michael M. Briley, Dennis Burg, J. Raymond
Clark, Richard D. Cooper, Donald R. D’Argento, Elliot L. Davis, N.
L. Gershon, Arthur Goldman, John W. Gosselin, Howard Gould,
John §. Grahm, Morris Hershorn, H. J. Hussman, Dickson R. Loos,
L. D. Mangan, Edward L. Merrigan, Paul V. Miller, Maynard L.
Moore, Jr., Theodore A. Newman, Kenneth R. Pepperney, Ross H.
Prater, Warren Price, Jr., Robert B. Reedy, David Reichert, Russell
R. Sage, Dan E. Sauve, William L. Slover, David H. Smith, D. A.
Sommer, Stephen D. Strauss, Al Super, James H. Thrash, Robert F.
Toia, and Paul P. Watkins for opposing shippers.
G. William Frick tor the Environmental Protection Agency.
Joseph C. Lynch and Hydee C. Thompson for the Special Projects
Staff, Bureau of Enforcement.
REPORT AND ORDER OF THE COMMISSION
By THE COMMISSION
INTRODUCTION AND HISTORY OF THE PROCEEDING
The institution of this investigation was mandated by Congress in
section 204 of the Railroad Revitalization and Regulatory Reform
Act of 1976 (the 4R Act) which became law February 5, 1976.
Section 204, as is here pertinent,’ directs the Commission to
investigate, (a) the rate structure of the railroads for the
transportation of recyclable or recycled materials (recyclables) and
competing virgin natural resource materials (virgin materials or
Virgin commodities)’ and, (b) the manner in which such rate
‘The full text of section 204 is set forth in appendix A
‘Section 204(e) defines “recyclable materials” as “any material which has been collected or
recovered trom waste for a commercial of industrial use. whether or not such collection or
recovery follows end usage as a product.” “Virgin natural resource material” and “virgin material”
mean any raw material, including previously unused metal or metal ore, woodpulp or pulpwood,
textile fiber of material, of other resource which is, of which wil! become (through the
application of technology), a source of raw material for commercial or industrial use. Prior to the
enactment of this provision the Commission has sought to encourage the movement of
recyclables, see for example, Transportation of “Waste” Products for Reuse. 124 MCC. $83
(1976)
356 LCC.
6d
116 INTERSTATE COMMERCE COMMISSION REPORTS
structure has been affected by successive general freight rate
increases. The burden of proot is on respondents. The Commission
must determine whether such rate structure is, in whole or in part,
just, reasonable and not unjustly discriminatory. If we find the rate
structure, in whole or in part, to be unreasonable or unjustly
discriminatory, we are to issue orders requiring the removal of such
unlawfulness. Section 204 requires the Commission to complete its
investigation and make its findings by February 5, 1977.
Pursuant to this mandate the Commission, in an order’ served
February 25, 1976, instituted this proceeding stating that
determinations of discrimination were to be primarily based on
comparison of cost-revenue relationships and the competitive
relationship of the involved materials. The order included (a) a list
of recyclable or recycled materials and their corresponding standard
transportation commodity code (STCC) numbers, (b) a format for
the presentation of evidence,’ and (c) a bibliography of studies
concerned with the relationships between recyclable and virgin
materials.
Through subsequent orders two tables evolved which contain the
specific commodities under investigation. Table I contains a list of
recyclable and recycled materials, and opposite it a list of their
competing or potentially competing virgin natural resource
materials. Table Il contains a list of recyclable and recycled
materials only. The Commission has no knowledge of nor have any
of the parties in this proceeding made us aware, of a competing
virgin natural resource material." The rate structures’ for the
recyclables in table I have been investigated to determine whether
they are reasonable and nondiscriminatory. The rate structures for
the recyclables in table Il have been investigated to determine
whether they are reasonable since they apparently do not compete
with virgin natural resource materials.
Ex Parte No. 270 (Sub-No. 5) Investigation of Railroad Frt. Rate
Structure, 345 1.C.C. 548 (1976) and Ex Parte No. 270 (Sub-No. 6),
Investigation of Railroad Frt. Rate Structure, 345 1.C.C. 867 (1976),
‘See appendia
This tormat will be discussed in detail later in this report
“Tables Pand Uh as they have been finally constituted, are set out later in the report as well asin
uppendia ¢
Although section 204 uses the term “rate structure” this term refers to a single-entity
composed of separately established, interrelated cates, Western Traffic Assn.—Agreement, 276
1C © I84 (1949) This proceeding, on the other hand, examines numerous rate structures for
recycled materials and competing virgin natural resource materials and will be used in that sense
356 1.C.C.
7d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 117
which are pending on exceptions and replies thereto have been
incorporated in this proceeding, infra.
Special procedures were followed. After submission of 95 verified
Statements oral hearings were held at Washington, D.C., from
October 5 to October 19, and from November 10 to November 12,
1976, on the 12 rebuttal statements filed by respondents. Briefs
were filed on December 13, 1976, by the respondent railroads and
participating shippers and shipper organizations. Reply briefs were
filed on December 31, 1976.
Due and timely execution of our functions under section 204 of
the 4R Act imperatively requires the omission of an initial decision
by an Administrative Law Judge.
All evidence and arguments not mentioned have been considered
and given due weight. Discussion of many of the various contentions
have been omitted since their inclusion would unduly lengthen this
Opinion without advancing its disposition. Repetitions of arguments
without elaboration or underlying support are omitted to the extent
possible.
EVIDENCE REQUESTED AND PRESENTED
Format of investigation.—-The Commission required the parties to
divide their statements into seven parts. The first part was to be
restricted to the historical evidence of costs and movement of
recyclable .and virgin materials. The carriers were to submit
evidence on the movement of the commodities based on
representative or repetitive rates as of October 11, 1975. The
evidence was to be based on sample studies with the carrier
justifying the relevance and validity of the procedures used, or based
on rates under which large volumes of commodities moved in 1975,
The carriers were required “to demonstrate the validity of any
evidence submitted with respect to the representative or repetitive
movements selected.” An outline of the 17 categories of information
desired was delineated.”
Respondents were required to determine the costs of these
movements and whether the current rates reflect the differences in
costs based on several factors.” The following topics were requested
“The intormation required includes the (1) commodity and STCC number. (2) origin and
destination pormts, CV) ormin rate territories, (4) type of rate. (8) rates in cents per ton at the
October 11. 1973 level. (6) whether on muluiple-car of trainload shipments rates were reduced
rom single-car rates, (7) tacit authority, (4) minimum weight per shipment in tons, (9) average
weight in net tons, (10) average number of cars per shipment, (11) average weight per car, (12) car
ownership. (14) car type, (14) route of movement, (1S) carrier and miles. (16) average revenue per
cur, and (17) estimate of annual tonnage for period 1970-75
‘These factors. included distance traveled. weight of shipment. special equipment. special
handling. equipment utilization, and equipment maintenance
356 1.C.C
8d
118 INTERSTATE COMMERCE COMMISSION REPORTS
to be discussed in the remaining parts: (2) evidence relating to the
trend in utilization of recyclable and virgin material since 1966 and
the effect thereon of general rate increases; (3) effect of increases or
decreases in the rates on the substitutability between virgin and
recyclable materials, (4) the likely effect of rate changes on
individual railroads, revenues and profits; (5) the effect that rate
changes have had and will have on service; (6) alternative rate
structures were to be suggested; and (7) other pertinent evidence
not considered elsewhere. Under this last part we have discussed
environmental considerations.
The evidence submitted in Ex Parte No. 270 (Sub-Nos. 5 and 6)
has been incorporated into this record. The movements presented in
these earlier proceedings have been updated to the Ex Parte No. 313
level and additional movements were provided. A further discussion
of the evidence presented, the conclusions of the Coordinator, and
the exceptions thereto are contained in our discussion of “Scrap
Iron and Steel and Iron Ore.”
A bibliography of studies concerned with the relationship
between recyclables and virgin materials was also attached to that
order. Parties were encouraged to submit additions to comments on
the bibliography. Additional material was requested to be listed in
the bibliography by the National Barrel Association, Inc., and the
Aluminum Association, Incorporated. Since no objection to the
addition of this material has been made, the additional materials will
be incorporated into the bibliography. (See appendix D.)
Investigated commodities.—in the February 25, 1976, order a list
of 13 recyclable or recycled materials to be investigated by the
Commission was presented. Participants in the proceeding were
intormed that suggestions for additions to or deletions from this list
as well as a list of Competitive or potentially competitive virgin
natural resource materials could be made. Suggestions for the
inclusion of additional competing and recyclable commodities were
made by the parties and appropriate revisions were incorporated by
the Commission. In the orders served on May 13 and June 11, 1976,
respectively, the final list of recyclable and competing virgin
materials was set torth The commodities are listed in two tables.
Table | which is shown below, contains a list of recyclable or
recycled materials and their corresponding competitive or
potentially Competitive virgin natural resource materials.
356 L.C.C.
9d
INVESTIGATION OF FRT RATES RECYCLABLE COMMODITIES 119
TABLE I
1 8 & Recyclable or re- STCC Virgin natural re-
___No cycled materials No. source materials
22 941 ------- Textile waste garnetted or proc- 24 114 10- Pulpwood or pulpwood logs
essed
26 Nhe Pulp
22 973 1S--. Nols, ramie -----+0-.eeeseeeeeee seeeeee 22 999 26- Cotton linters, bleached or dyed
22 973 25--. Nols (Combing of comber 22 971 ------ Wool or mohair, carbonized or
waste), cotton scoured
thru 22 992-.----- Jute goods, exc. bags
22 973 68--- Rovings, jute and istle 22 995 .-..- Vegetable fibers, exc. cotton
(ixtile)
28 213------ Synthetic fibers, exc. glass
22 994 =... Packing of wiping cloths or rags 22 119 74- Cotton piece goods
(processed textile waste)
26 Wide Pulp
32 299 24--. Cullet (broken glass)---------+-++-+- 14 413 10- Glass sand, unground
Woy Blast turnace, open hearth, roll 10 1 --------- Iron ores
ing mill, of coke oven product,
nec
33 312 Copper matte, speiss of flue 10 2--------- Copper ores
dust, aao, dross slag, skim-
mings, et cetera
33 322 Lead matte, speiss of flue 10 3--------- Lead or zine ores
dust, avo, dross, slag. skim-
mings, ct cetera
33 332 - Zine dross, residues, ashes, 10) 3 -n--+-+- Lead or zine ores
et cetera
33 342-.- Aluminum residues, et cetera---- LO SI] ------ Crude bauxite ores
V4 39K... Mise. Nonferrous metal residues 10 513------ Calcinated or activated bauxite ores
and
8 Trice: PBTIEE otonsssacencisexecetssncaecssvegscene, Sacavhahesnenes | sibecessdsghohussbesesunsccsnccseoasenshsabans
40 211 Tron Of Steel SCrap -----+ --+---2000 10 | -e-eseeee Iron ores
40 212 - Brass, bronze, copper or alloy 10 3--------- Copper ores
scrap, ado, tailings of wastes
40 213 ----- Lead, zine or alloy scrap, wav. 10 3... Lead or zine ores
tailings of wastes
40 214 -----. Aluminum or alloy serap, aao. 10 SII ------ Crude bauxite ores
tailings of wastes
10 513------ Calcinated of activated bauxite
ores
40 219 60--- Tin scrap, value for resmelting 10 929 85~ Tin ore (tin stone or cassiterite).
Purposes, consisting of scrap crude
or preces of metallic, clip-
pings, drippings, shavings,
turnings of worn-out block
lin pipe.
40 24 -- eee Paper waste oF scrap ---------+--+-- 24414 10- Pulpwood of pulpwood logs’
40 26----+--- Rubber or plastic scrap or OK 423------ Latex gums (crude natural rub
waste ber), aao. allied gums.
w4 Reclaimed rubbere---------se5. 2K D2 Synthetic rubbers (vulcanizable elas-
tomers), exc. tabricated rubber
products.
407 22.-.--.- Textile waste, scrap ofr sweep. 26 111 40- Cotton linters pulp
ings
26 III ------ Pulp
See footnote on following page
356 L.C.C.
10d
120 INTERSTATE COMMERCE COMMISSION REPORTS
‘Woodchips were not mentioned in any of our orders, however, they been contended to be a
Potentially Competitive virgin natural resource material and, therefore, have been included in this
investigation
Table Il contains a list of recyclable or recycled materials as to
which no corresponding list of competing virgin materials is
provided. This phase of the investigation is limited to the rate
structure on these commodities alone and whether it is in whole or
in part, unjust and unreasonable.
TABLE II
STCC No Recyclable or recycled material
20 SIL IK Bukery refuse of sweepings, feed
24 292 Shavings of sawdust
4912 Steel shipping containers, viz. steel drums
4023 Wood serap of waste
40 291 14 Municipal garbage waste, solid, digested, ground, other than fertil
7ef, EXC. Sewage waste
4) 114 44 Bays, old, burlap. gunny, jute or sisal, nec., inc. istle (ixtle)
41 015 40 Bags, old having no value for further use of reconditioning as
bags. but having value for conversion into bale covering.
42 111 42 Beverage containers returned empty
Ihe STCC numbers referred to in both tables also embrace all articles assigned additional digits
listed thereunder in SECC Tariff 1-D
In the following discussion of “Evidence Presented,” we will
discuss the contentions and arguments of the parties which are
applicable to all the investigated commodities. This general
discussion and our conclusions to the points thereby raised, are for
the purpose of climinating repetitious arguments and for
simplification in the presentation of the report. Specific issues
related to individual commodities will be considered in the section
for that commodity.
ParT |
MoviMENTS OF RECYCLABLE AND VIRGIN MATERIALS AND THEIR
TRANSPORTATION CHARACTERISTICS
Respondents were required to submit evidence as to
transportation of, and the rate structure on recyclable and virgin
materials. They chose to submit evidence as to shipments which
moved in volume; repetitive movements. A movement represents
traffic moving between one origin and one destination point. The
356 1.C.C.
Sat
ee eee
lld
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 121
number of carloads between the two points may vary depending on
the volume of traffic. (Originating traffic only was submitted to
avoid duplication.)
Respondents submitted information as to some 3,000 rail
movements. A standard form for reporting the requested
information was developed by the carrier or carrier organization. An
example of these forms is contained in appendix E. The movements
were then analyzed and costed by the Traffic Executive
Association—Eastern Railroads (TEA), the Southern Freight
Association (SFA), or the Western Railroad Association (WRA),.
In the East, approximately 800 repetitive movements were
submitted. The choice of picking a _ particular “repetitive”
movement was left to knowledgeable traffic personnel.
Consolidated Rail Corporation (ConRail),'" the Chessie System
(Chessie), the Norfolk and Western Railway Company (N&W), and
the Bessemer and Lake Erie Railroad Company (B&LE) used the
following criteria in selecting examples of repetitive movements for
ferrous and nonferrous metals:
(a) Only repetitive movements were selected, although, in certain instances, it
developed that the movements were few in number,
(b) Originated traffic only was considered by reporting carriers for the purpose of
reporting simplicity,
(c) Switching movements were excluded, the reason being that those movements are
not susceptible of immediate identification by computer program,
(d) A wide variety of movements was sought, ie.. representative of
(1) interterritorial and intraterritorial,
(2) interstate and intrastate;
(3) long-haul, medium-haul and short-haul;
(4) heavy-loading per car and light-loading per car.
(S) interplant and commercial,
(6) single line and joint tine,
(7) multiple car and single car, and
(8) high volume and low volume
They indicate that no attempt was made to select movements
which reflected extremes in the range of rates and revenues.
For movements of recyclable and textile commodities and
woodpulp and pulpwood, ConRail selected movements based on the
following criteria:
(1) Trattic originated on Penn Centrai
(2) Trattic volume greater than one car per year. implying “repetitiveness.”
“ConRail submitted movements only tor the Penn Central line because this was the most
available information due to the recent formation of several eastern roads into ConRail
356 LCC.
12d
122 INTERSTATE COMMERCE COMMISSION REPORTS
(3) Moves generally picked on the basis of largest volume of cars per year
Exceptions:
(a) Hf all of the highest volume moves were originating from one origin, then one
move would be selected from the set originating from that origin, and che following
moves would be selected from other origins, even though their annual tonnage may
have been lower, thus providing greater geographic coverage
(b) In some instances, the traffic level for a particular STCC group was so small that
all traffic moving from PC origins ts covered by the repetitive moves, {thus
climinating the clement of choice]
The Maine Central Railroad (MCR) and the Boston and Maine
Corporation (B&M) generally selected repetitive movements based
on 15 carloads. The MCR also showed its total tonnage and gross
freight revenue and percentage relationship on which selected
commodity movements bore to the total.
In the South, the method of selection was also decided by the
individual carrier. The Southern Railway chose large volume
movements with no rigid basis for selection. A minimum of 30
carloads between a pair of origin and destinations was generally
used, except for pulpwood which has higher volume movements.
However, where the commodity moved in smaller amounts, this also
was submitted. It also showed the tonnage originated for a particular
commodity and the tonnage included in the selected repetitive
movements. In total, 42 percent of its recyclable traffic and 69
percent of its virgin material traffic was included by the
representative movements.
The IMlinois Central Gulf Railroad Company (ICG) selected
repetititve movements based on 50 carload shipments, with a
minimum of 30 carloads if 50 carloads did not move. It also
indicated that the tonnage selected represented 22.9 percent of its
system recyclable tratfic, 35.9 percent of carloads originating in the
South and approximately 34 percent of virgin traffic. It therefore
concludes that the sample size was large enough to make the study
results representative,
The St. Louis-San Francisco Railway Company (Frisco)'' in
selecting representative movements originating in the South,
considered the repetitive nature of the movement, the total number
of cars handled, and the mileage of the movements. It also showed
The St. Louis-San Francisco submitted originating movements in the South and West. To avoid
contusion ay to what evidence was presented by this carrier for each territory, it will be referred
to as the Frisco in the South and the SLSF in the West
356 1.C.C.
Orestes sense en kee ee
Be
er
te a
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INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 123
the percentage of tonnage included in its repetitive movements as
compared to the total tonnage originated for that commodity.
The Louisville and Nashville Railroad Company (L&N) selected
as repetitive those movements which showed at least 20 percent of
its traffic for that commodity starting with the heaviest movements
until that goal was reached. Overall the shipments selected
represent 38 percent of all its recyclable traffic and 58 percent of all
virgin traffic originated in 1975. The number of shipments
originated by the L&N, the number of different point-to-point
movements involved and the number of these included within its
unit slips are also given,
The Seaboard Coast Line Railroad Company (SCL) selected
repetitive originating movements based on movements consisting of
SO cars or more between one origin and one destination or, if there
were no movements totaling 50 cars, then the movements having the
greatest number of cars was used.
The 1,338 unit slips presented by the Southern carriers were then
analyzed and costed by the SFA.
The WRA devised a standard form to be used by reporting
Western roads. A subcommittee chairman was named to coordinate
the submission of movements (unit slips are referred to as WRR-1I
forms) and other information relating to the particular assigned
commodities (information on special equipment, backhauls, and
maintenance are contained in the WRR-2 form). If a WRR-2 form
was not attached, then it was presumed that there were no special
transportation characteristics. Individual roads, generally those
thought to have the largest volume movements of the commodities
were made members of the committee. The number of carriers
submitting movements varied from commodity to commodity.
The western railroads were asked to submit repetitive movements
generally based on the following criteria:
(a) The six largest movements of virgin materials, and
(b) The two largest movements of recyclable materials in the mileage blocks of 0 to
200 miles, 200 to 400 miles, and over 400 miles
The reason given for the breakdown into mileage blocks for
recyclable commodities is based on the facts that the origins and
destinations for recyclables are more diverse and this breakdown
would give a more accurate picture of the rates for varying
distances,
This criteria was changed for movements on commodities added
by the May 12, 1976 order (textile fibers and waste materials,
356 LCC
14d
124 INTERSTATE COMMERCE COMMISSION REPORTS
miscellaneous nonferrous metals, and calcinated bauxite) to four
representative or repetitive movements. Two repetitive movements
for the commodities contained in the September |, 1976 order
(bags, steel drums, beverage containers, and reclaimed rubber) were
also requested,
These unit slips were then consolidated by the subcommittee
chairman. If unit slips contained incomplete data, they were
supplemented if time permitted; otherwise, they were eliminated.
The remaining unit slips were then forwarded to the WRA for
costing and analysis. At this stage, duplicate movements were
eliminated and faulty unit slips were either rejected or corrected as
time permitted. Out of the 963 unit slips presented, 792 were costed
by the WRA.
Opposing shippers and governmental participants.—The manner
in which the railroads selected so-called “representative or
repetitive movements” has been attacked by various shippers,
shipper organizations, and the Environmental Protection Agency
(EPA). It is argued that respondents have failed to demonstrate the
validity and relevance of the movements presented, and have
therefore failed to meet their burden of proof.
NARI contends that, except for the southern territory (which did
not analyze woodchips), the other territories have failed to
demonstrate the validity of their sampling procedures. It is noted
that different standards are used in determining “representative”
movements for virgin versus recyclable commodities within the
same territory, and that the selection of movements between the
territories is also varied, ranging from 400 carloads to | carload. A
different) percentage of tonnage moved under the selected
movements in comparison to the total tonnage originated for that
particular commodity is also criticized.
NARI contends that the invalidity of their sampling is best
demonstrated by comparing their samples with the norm presented
by the Commission's |-percent waybill sample. For the carriers’
sample to be valid, it is argued that the ratio of carloads of virgin
materials should correspond to carloads of recyclable materials as
found in the |-percent waybill sample. This, it is alleged, is not the
case as shown from the figure below. Therefore, NARI concludes
that the carriers could have in fact, used movements which reflect
the most favorable ratio of revenue to variable costs.
* 356 LCC.
15d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 125
TABLE |
NARI's comparison of ratios of carloads of recyclables virgin products in the
1974 I-percent waybill sample to railroads submissions
West South East
Copper a
| percent sample --- Wtteseeeneeesseeeenceesseeasseeseneees 43
Railrowds’ sample -----------+--00--00- eee eeceeceeeeceeeeeeees 152.0
Lead of sine
| percent sample -- 26.1 16.7 62.5
Railroads sample . 2161 99 9 7
Aluminum
| percent sample -- 10.0 11.5 108%
Railrouds sample 120.5 10.0 27)
Paper es
| percent sample - 31 7.1 tid.2
Railrouds’ sample ------ . . 117.6 VK 22.7
Conclusion.—The respondents were required, by the initial order
in this proceeding to “demonstrate the validity of any evidence
submitted with respect to the representative or repetitive
movements selected.”'‘ This requirement applies to either
representative or repetitive movements and therefore it applies to
all submissions of movements offered in this proceeding.
The railroads used varying techniques for determining whether or
not a movement was repetitive.'’ This in and of itself, does not
invalidate their selection process. It is common knowledge that
certain virgin materials and recyclables move in greater volume than
others. A movement of 5 carloads of tin scrap which moves in
relatively insignificant amounts, between the same points may be
Just as representative as the movement of 500 carloads of scrap iron
and steel which moves in great volume between the same two points.
However each movement is reflective of the rate structure of that
particular commodity. Because of the varying amounts of the
different commodities transported, it was necessary to allow
flexibility in determining a repetitive movement. It is therefore
incorrect to argue that the standards of selection should be totally
uniform.'* Where there are different methods of selections used, the
Ss
‘This language appears on page two of the initial order.
‘AI railroads were named respondents to this proceeding. There was nv requirement that they
hntly subniit evidence and hence there was no requirement that each submit evidence based on
an Wentical selection basis
See footnote 13.
356 LCC.
16d
126 INTERSTATE COMMERCE COMMISSION REPORTS
carriers have justified the variance, based on such transportation cir-
cumstances as the volume of the commodity, the experience of a
particular carrier or the desire to present the Commission with rates
more reflective of the total rate structure. In some cases, as few as
two movement slips are presented yet these movements equalled 25
percent of the carrier's tonnage of that commodity.
We also disagree with NARI’s position that the percentage
relationship of recyclables to virgin materials in the 1l-percent
waybill sample should be used to determine the validity of the
selected movements. Respondents were not required to make a
sample study but had the alternative of presenting information as to
repetitive traffic if they could demonstrate its relevance or fairness.
Merely because the movements chosen represent differing
percentages of traffic than the |-percent waybill sample, it does not
by itself prove any unreasonableness in the movements selected or
the manner in which it was done. First, this comparison only
indicates whether the percentage relationship between virgin and
recyclable commodities is proportionate. Secondly, the respondents
should not be penalized for submitting greater carload movements
than the |-percent waybill sample since the additional tonnage
increases the likelihood of repetitiveness and representativeness.
Thirdly, NARI's presentation fails to recognize that the movements
in the sample have not been selected on the basis of being a
repetitive movement. And fourthly, the Il-percent waybill is a
sample study and the movements presented herein are based on
volume movements so that a comparison between the two is of little
value,
Although certain opposing parties contend that the respondents
have methodically gleaned and selected movements providing the
‘most favorable ratios of revenue to variable cost, there is no
probative evidence of record to support this allegation. In fact, as
will be shown in later sections on the movements presented for
particular commodities, the ratios are varied and often a movement
with an extremely high revenue/cost ratio is included despite the
fact that it will seriously affect the weighted average of the
commodity. This does not indicate that the respondents
systematically submitted movements favorable to their position.
In conclusion, we find that the movements submitted by the
railroads have been shown to be repetitive movements, the
standards for their selection having been adequately justified. The
requirement that representative or repetitive movements be
submitted, however, was for the purpose of enabling us to determine
sae BL.
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INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 127
the rate structure of a commodity and whether it is just, reasonable
or discriminatory.
The railroads have submitted over 3,000 movements, which after
the elimination of duplicate movements, intrastate movements, and
paper rate movements, still leaves us with 2,125 movements on
which to base a decision. In some cases, there may be over 30
movements for a particular commodity originating in a single
territory accounting for 30,000 tons annually, which is more than
sufficient to portray the rate structure of that commodity. These
repetitive movements are therefore an accurate reflection of the
traffic which is moving the bulk of the traffic and of the rate
structure under investigation.
Where respondents have presented very few movements for a
particular commodity, they cannot be heard to complain that the
cost ratio evidenced thereby does not reflect the rate siructure. Nor
can opposing shippers object to the ratios derived from a few
movements presented on some commodities since they offered no
evidence of additional movements on which we could base a
decision.
Paper rates.—In analyzing the unit slips to arrive at the ratio of
revenue to variable cost, it was observed that in some instances (1)
the estimate of annual tonnage was missing; (2) the minimum weight
and actual weight were the same, or (3) there were two or more
movements listed between the same points, yet only one movement
indicated the estimate of annual tonnage. This shows that no actual
movements occurred and the rates in question do not actually move
traffic but are so-called “paper” rates. Respondents were asked to
submit evidence of representative or repetitive movements. If no
traffic moved under these rates, then they are not representative or
repetitive and they are of little value in determining the reasonable
level of rates on the rate structure. See, Motor Vehicles from Kansas
City to Ark., La., & Tex., 318 LC.C. 301, 315 (1962) and Ferro
Enamel Corp. v. Pennsylvania R. Co., 280 1.C.C. 439, 441 (1951).
Unit slips showing paper rates have been given no_ further
consideration in this proceeding.
Intrastate rates.—The railroads have in some instances submitted
evidence as to intrastate movements. It is contended that the
inclusion of these movements will give the Commission a clearer
picture of the rate structure of the involved commodities and that
the Commission's orders did not exclude information as to intrastate
356 1.C.C
18d
128 INTERSTATE COMMERCE COMMISSION REPORTS
traffic. The intrastate rates have been updated to include increases
authorized in Ex Parte No. 313, although some States had not
approved this increase on intrastate rates as of October 11, 1975.
Respondents contend that the intrastate rates should be considered
at this level however, because generally the States eventually
approve the same increase for intrastate traffic as applied on
interstate traffic; and it provides for a comparable analysis.
NARI on the other hand argues, (1) that intrastate rates should
not be considered in looking at the interstate rate structures over
which the Commission has jurisdiction in this proceeding; and (2)
that the updating of the rates to the Ex Parte No. 313 level was
erroneous for it distorts the analysis of the rate structure. NARI
submits that increasing the rates to the Ex Parte No. 313 level will
allow the railroads to show a more favorable ratio of revenue to
variable costs than actually exists, especially in movements of
pulpwood where a number of intrastate rates are submitted.
Conclusion.—Out of the 3,000 movements submitted, nearly
1,000 were intrastate movements. Intrastate rates are not directly
regulated by the Interstate Commerce Commission although they
may be the subject of §13(4) proceedings, and therefore, the
movements in and of themselves, are not necessarily reflective of
the interstate rate structure. They will, therefore, not be included in
determining the revenue to variable cost ratio, and will not be used
in our analysis of the interstate rate structure. If the carriers believe
that intrastate rates are unduly low, appropriate relief can be sought
under §13(4) of the act.
A. Respondents’ cost evidence.
|. Eastern railroads.—The eastern railroads developed costs for
movements submitted by the member carriers in accordance with
the following principles:
a The cost should reflect, as specifically as possible the data available from the
traffic intormation
b The most current territorial cost data be used.
c. Cost apphcations be as compatible as possible in order to facilitate analysis.
The eastern railroads utilized 1973 regional costs indexed to
October 1, 1975 level by a factor of 1.263. The 1973 costs are found
in Rail Carload Cost Scales 1973, 1.C.C. Statement No. 1C1-73,
while the update ratio of 1.263 was deveioped using the procedure
set forth in LC.C. Statement No. 2-58, Rail Carload Cost Scales by
Territories as of January 1, 1958.
356 LC.C.
ae ee ee RETA ee els ree ee RL ee le dee LE SP kee We kt
19d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 129
Southern region cost data, introduced by the eastern railroads for
interterritorial movements between the East and South are based on
1974 Rail Form A costs developed by the Southern Freight
Association. These 1974 costs were indexed to October 1, 1975 bya
factor of 1.131.
Western district cost data, introduced by the eastern railroads for
interterritorial movements between the East and West, are based on
1974 costs provided by the WRA. These 1974 costs were indexed to
October 1, 1975 by a factor of 1.128.
The update factor for each of these regions was developed in
accordance with procedures contained in I.C.C. Statement No. 2-58,
supra.
Sources of information and an explanation of adjustments to the
cost follow:
1. Data on type of car, ownership of car, average weight per car, route of movement,
and type of rate are from the movement data submitted by the respondent railroads.
2. Tare weights are from table 8 of Statement No. 1C1-73, supra, p. 134.
3. Empty-return ratios for the official territory and southern regions were taken
from table 14 of Statement No. 1C1-73, supra. Empty-return ratios for the western
district were taken from a special study in 1974 by the Western Railroad Association.
4, Way-train miles reflect the totals shown on page 4 of Statement No. 1C1-73,
supra. Where the origin and destination region are different, total way-train miles
consist of one-half of the origin region way-train miles and one-half of the destination
region way-train miles.
5. Interchange costs have been subtracted from car-mile cost and computed on an
actual basis.
6. For multiple-car and trainload shipments, adjustments were made to reflect the
appropriate economies. The adjustments employed are the same as suggested by the
Coordinator of the February. 4, 1976 decision of Ex Parte 270 (Sub-No. 5),
Investigation of Railroad Frt. Rate Structure, 345 1.C.C. 548, pages 700-701 and (Sub-
No. 6) page 1027. These adjustments are shown in the Commission's comments
detailing computation of costs.'* Eastern railroads stated that these adjustments were
made in lieu of special studies due to the time limitation.
7. The distinction as to the type of shipment (single-car, multiple-car, or trainload)
is based on the number of cars per shipment, which is included on the movement
sheets submitted by the individual railroads. Those movements with 73 cars or greater
were treated as trainload shipments, while those movements averaging from 5 to 72
cars per shipment were treated as multiple-car shipments. The use of 73 cars as a
cutoff point between multiple-car and trainload movements is based on the average
length of a through train of open-hopper cars. It is the opinion of the eastern railroads
that any movement of less than five cars should not be considered a muitiple-car
movement for cost purposes.
8. Because of the nature of iron ore shipments, multiple-car adjustments were made
regardless of the type of rate indicated, while for all other commodities, the
adjustment was made only if a multiple-car or trainload rate was indicated and the
"See page 135.
356 1.C.C.
20d
130 INTERSTATE COMMERCE COMMISSION REPORTS
average aumber of cars ‘cll within the ranges indicated above. The lack of adjustment
tor commodities other than iron ore is due to the fact that cars per shipment represent
average cars per day moving between two cities, without any assurance of multiple
switch handling at a single location within that city,
The verifigd statement of witnesses Curran, Adell, Becker, Weber
and Nappi contains the results, i.e., revenue-to-variable-cost
comparisons, for the selected repetitive movements submitted by
the various eastern carriers. The results for each movement are
shown and the weighted average ratio for each commodity (STCC)
is Shown. However, a comparison of the results for recyclables with
its Competing or potentially competitive virgin commodity has not
been pertormed.
Southern Freight Association (SFA).—The cost evidence for the
SFA, consists of costs and revenue-cost comparisons for individual
“unit slips” which were prepared by the major southern railroad
systems and one western road which has substantial operations inthe
southern region (St. Louis-San Francisco Railway). Such unit slips
contain the basic information necessary for costing rail movements,
i.e., STCC, origin, destination, average weight per car, car type, and
route of movement.
For all movements, except those in shipper-owned tank cars, a
computer program was used to develop costs, using the information
contained on the unit slips plus supplemental information supplied
by SFA. This included way-train miles, thru-train miles, origin and
destination terminal handlings, and number of interchanges by
region.
Southern unit costs employed in the cost program were the same
as those used in the submissions of the Western and Eastern roads
for the Southern portion of the interterritorial movements, @.g.,
South to East, South to West. Eastern and western costs were
provided to SFA by the eastern railroads and WRA respectively.
Southern unit costs are based on an application of Rail Form A to
the expenses and statistics of Southern carriers. This application
was performed by SFA. SFA states that the updating index factors
for the Southern region costs were developed in accordance with
procedures set forth in 1.C.C. Statement No. 2-58, supra. SFA does
not indicate how the update factors for the official and western
costs were developed. The update procedures used for the East and
West are discussed in their respective section with each stating that
procedures contained in I.C.C. Statement No. 2-58 were utilized.
SFA's costing procedure.—SFA states that they followed the
generally accepted costing techniques in developing both variable
and tutly allocated costs on a carload basis.
356 1.C.C.
—_s
21d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 131
While movements in tank cars, which approximated only |
percent of the total movements, were not costed using SFA’s
computer program, they were costed out manually.
Revenue.—The revenues shown for each movement reflect rates
effective on interstate traffic as of October 11, 1975, which is the
Ex Parte No. 313 level.
Western Railroad Association (WRA).—WRA tollows the same
general costing approach tor all the study movements. These
procedures follow the format adopted by the Commission in Ex
Parte 270 (Sub-Nos. 5 and 6), including the suggested adjustments
for multiple-car and trainload movements. WRA’s cost
computations are based on the following characteristics.
|. No consideration is given to loss and damage
2. The adjustments tor multiple-car and trainload movements previously noted,
were made to variable costs only
%. Fully allocated costs were distributed on a ton and ton-mile basis.
4. Although specific operating conditions and characteristics were submitted by
member ratlroads tor some of the commodities under study, such adjustments were
not made due to time contraints
Unit costs were developed for the western railroads by applying
Rail Form A to 1974 operations of western district carriers. This
application was performed by WRA. Unit costs for the official
territory were taken from I.C.C. Statement No. 1C1-73, supra. The
unit costs for all three regions were updated using the procedure
outlined in 1.C.C. Statement No. 2-58, supra. For the southern and
eastern portions of interterritorial movements, WRA utilized unit
costs provided by SFA and the eastern railroads respectively.
Terminal costs were applied equally to the origin and destination
carriers. Line-haul costs were applied according to the miles of
movement in each region, based on actual miles. Way-train miles
were applied, where applicable, to the origin and destination
carriers. Way miles, tare weight, and empty return ratios were taken
trom LC.C. Statement No. 1C1-73 supra.
Although 963 specific movements were submitted by the member
carriers, insutticient information, commodities not subject to this
investigation, and duplications reduced to 792, the number of
movements which were actually costed out by WRA.
No weighted average ratio for each commodity is shown by WRA
for the western territory's movements. WRA staies that it intended
to present weighted averages but due to the lack of time and data,
356 1.C.C.
22d
132 INTERSTATE COMMERCE COMMISSION REPORTS
weighted average results were not shown. Thus, WRA provides
results only on an individual movement basis.
In a subsequent statement, WRA_ submitted revenue-cost
comparisons tor 61 additional movements. Of these movements, 8
were eliminated due to insufficient information, resulting in 53
additional movements or a total of 845 (792 plus 53).
Shipper comments.
1. American Paper Institute (API) assails the weaknesses found in
using Rail Form A costs and territorial averages in anaylzing
specific movements. Among the deficiencies noted by API are:
a. The use of territorial averages does not reflect the cost characteristics particular
to an individual movement,
b. Rail Form A ignores the differences in the many and varied types of facilities in
deriving its terminal costs, such as reduced congestion, at facilities located in rural
areas.
¢. Main-line and branch-line costs are combined to arrive at aggregate costs. Such
aggregate costs represent neither type of operation.
d. Operating factors should be based on special studies. Lacking such studies,
tuctors are often based on arbitrary judgment or on studies performed many Years ago
which do not reflect the technological changes in the industry over time.
e Lack of explicit unit costs can result in either overstatement or understatement of
costs, as the many specific operating characteristics are not reflected.
t. The tact that maintenance is deferred and such maintenance is not included in
Rail Form A costs, means that maintenance expenses, as reported, are understated,
especially in the official territory. Also, expenses such as labor and locomotive costs
ure overstated, due to the incidence of restricted speed operations as well as increased
terminal congestion.
g. Territorial applications of Rail Form A do not reflect economies realized from
handling cars in groups or in through movement.
h. Territorial applications of Rail Form A reflect average intermediate switching
and average movement in way-trains, The probability that such averages will reflect
those characteristics of a particular traffic is small.
1. Rail Form A does not reflect variations in the utilization of capacity. For example,
tram crew and other train-related expenses, taken as 97 percent variable with train-
miles, are allocated to traffic in proportion to gross ton-miles, based on the average
weights of way and through trains. Such trains could handle added traffic with little or
no imerease in cost, and would likewise experience little reduction in cost for a
decrease in traffic
In developing variability percentages for use in Rail Form A,
correlation coefficients as low as 24 percent were found after an
inspection of the working papers. This would indicate that only 24
percent of the variation in cost is explained by the independent
variable.
356 1.C.C.
23d
INVESTIGATION OF FRT. RATES RECYCLABLE COMMODITIES 133
There is no logical reason to compute fully allocated costs, as the
railroads have done, and as the Commission has done in its Burden
Study. Any traffic which generates revenue in excess of variable
cost is making a contribution to covering constant cost plus profit.
Thus, a railroad is better off with this traffic than without it.
While Rail Form A costs require substantial adjustments to
reflect the characteristics of any specific traffic, even after all
feasible adjustments are made, such costs are still open to question.
2. EPA asserts that the respondert railroads have not met the
burden of proof in this proceeding.
Specifically:
a. The cost applications of the railroad submissions are not comparable.
b. The cost studies presented by the railroads do not reflect the peculiar
transportation characteristics of the study commodities. Such characteristics would
include special equipment or handling.
Commission's discussions and conclusions.
1. Discussion relative to respondents’ cost evidence.—With
regard to respondents’ cost evidence, the following comments
apply:
a. The general methodology for computation of costs and tor updating costs to the
October 1975 level are the same employed in the Ex Parte No. 270 investigations and
acceptable for investigations that are this large and this general.
b. Eastern railroad’s use of 73 cars as the minimum number of cars for consideration
of the movement as a trainload movement is acceptable in this proceeding as this ts
bused on actual operating experience. In the absence of such known data in Ex Parte
No. 270, the Commission utilized a figure of 50 cars.
c. Eastern railroads’ consideration of all movements of iron ore as trainload
movements is justifiable only to the extent that the evidence of record indicates that
such movements have the minimum number of cars to be considered trainload
movements
d. Eastern railroads’ determination of the type of movement (single-car, multiple-
car, or trainload) based solely on the type of rate is improper for cost purposes, Basing
the type of movement on the rate ignores the operating characteristics of the traffic.
For example, if 10 cars make up a shipment, but the shipment moves under a single-
car rate, this movement would, nevertheless, produce the economies and cost savings
tor the railroad inherent in multi-car movements. Costs should reflect, to the extent
possible, the actual operation.
¢. SFA fails to recognize the economies and cost savings associated with multiple-
cur and trainload movements. SFA’s tailure to make adjustments for such movements
results in a cost overstatement and subsequent understatement of the ratio of revenue-
to-vartable cost.
t. Western railroads show only the results for individual movements. The failure to
show results on a commodity basis ts a serious shortcoming of western railroads’ cost
presentation.
356 1.C.C.
24d
134 INTERSTATE COMMERCE COMMISSION REPORTS
g. All respondents tailed to show comparisons of results for recyclable commodities
with there competing or potentially competitive virgin commodities.
h. Western railroads’ failure to include loss and damage in its costs results in an
understatement of costs.
Discussion relative to shipper comments.—
A. API's comments.—API cites weaknesses found in Rail Form A
costs and in the use of territorial average costs. With regard to API’s
specific comments as previously stated, the following comments
apply:
1. While the use of unadjusted territorial average costs does not relfect costs
peculiar to an individual movement or include costs to reflect specific operating
factors, Rail Form A does retain the flexibility to make adjustments where significant
deviations trom the average occur,
Thus, in the absence of more specific informatton, the use of territorial average
costs is acceptable. If operating factors, such as those cited by API movement in way-
trains, multiple-car groupings, and switching differ from the territorial average,
adjustments to the territorial average costs can be made. This minimizes any under or
overestimation of costs.
2 API cites the fact that deferred maintenance ts not included in Rail Form A costs
and understates maintenance expense as reported by the carriers. While recognizing
that maintenance may be deterred, it has nonetheless not been incurred and is not
properly includible in the cost of service at this time.
This, however, is not a shortcoming of Rail Form A, but rather a problem resulting
from the tact that deterred maintenance is difficult to quantify with any degree of
precision, and lends itself to subjective determination based on arbitrary judgments.
Even it deterred maintenance could be properly determined there is still the question
of whether it ts properly includible as costs or perhaps as an independent rate
consideration,
3. While Rail Form A does not distinguish explicitly between main-line and branch-
line costs, us API asserts, these costs are embodied in the costs for the two types of
line-haul service, way-train and through train service.
4. API asserts that operating factors should be based on special studies. Special
studies are preterable. However in the absence of them, and in investigations as broad
as this, determinations may be made on evidence lacking su
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