Petition — Atchison, Topeka & Santa Fe Railway Co. v. United States
Supreme Court brief1981
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FILED
RO-2072 JUN 5 1988
omeaunes =. STEVA
IN THE CLERK
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1980
No. 80-
The Atchison, Topeka and Santa Fe Railway Company,
The Denver and Rio Grande Western Railroad Company
and Southern Pacific Transportation Company,
Petitioners,
V.
The Interstate Commerce Commission, The United States of
America, Central Power and Light Company and The
State of Texas,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
MILTON E. NELSON, JR. R. EDEN MARTIN
RICHARD E. WEICHER LAWRENCE A. MILLER
80 E. Jackson Blvd. JOHN WILL ONGMAN
Chicago, Illinois 60604 MICHAEL G. LEDERMAN
Washington, D.C. 20006
Attorneys for The Atchison,
Topeka and Senta Fe
Railway Company
SAMUEL R. FREEMAN HOWARD J. TRIENENS
KENDALL T. SANFORD RICHARD J. METZGER
1515 Arapahoe Street One First National Plaza
Denver, Colorado 80217 Chicago, Illinois 60603
Attorneys for The Denver and _ Attorneys for Petitioners
Rio Grande Western Railroad
Company
STEWART E. VAUGHN
One Market Plaza
San Francisco, California 94105
Attorney for Southern Pacific
Transportation Company
June 5, 1981
1730 Pennsylvania Ave., N.W.
i
QUESTIONS PRESENTED
Section 10729 of the Interstate Commerce Act, which was
added to the Act by the Railroad Revitalization and Regulatory
Reform Act of 1976, provides that a rate proposed for services
requiring capital investment in railroad facilities of $1 million or
more is to become effective within 180 days of its filing unless the
Interstate Commerce Commission decides during that period that
the proposed “capital incentive rate” would violate the Act. Once
effective, “the Commission may not for 5 years, suspend or set
[such a rate] aside” as violating the Act.
In this case, a proposed capital incentive rate applicable to a
unit train coal movement was not disapproved by the Commission
within 180 days, and thus became effective. Indeed, far from
holding the rate to be unlawful, the Commission decided that the
Railroads lacked market dominance over the movement, and
that, accordingly, the Commission lacked jurisdiction as to its
reasonableness.
The first question presented is whether the Court of Appeals
had jurisdiction to order the Interstate Commerce Commission
upon remand to re-examine the reasonableness and lawfulness of
a qualified capita! incentive rate which had become effective pur-
suant to the provisions of Section 10729.
The second question presented is whether, if the Court of Ap-
peals had jurisdiction to order the Commission to re-examine a
qualified capital incentive rate, the Court of Appeals applied an
improper standard of review with respect to the Commission’s de-
termination that the Railroads lacked market dominance as to
the involved coal movement, and in addition, committed serious
error in holding that the Commission’s market dominance deter-
mination and analysis were flawed.
PARTIES TO THE REVIEW PROCEEDINGS
IN THE COURT OF APPEALS
The following were parties to the review proceedings in the
Court of Appeals below:
Central Power and Light Company and The State of Tex-
as, Petitioners;
The Interstate Commerce Commission and The United
States of America, Respondents; and
The Denver and Rio Grande Western Railroad Company,
The Atchison, Topeka and Santa Fe Railway Company,
Southern Pacific Transportation Company and Colowyo
Coal Company, Intervenors-Respondents.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED......0eeeeeeceeeeeenes a
PARTIES TO THE REVIEW PROCEEDING IN THE
COURT OF APPEALS ....cccccccccccccccsvvces ii
TABLE OF AUTHORITIES .......-eeeeeeeeeeeees iv
OPINION BELOW ..ccccccccccccccccccsccccvcces l
JURIBDICTION cccccccccccccccovvccseccceseoece 2
STATUTE INVOLVED .....ccccccccccccvecevees 2
STATEMENT OF THE CASE ......eeeeeeeeeeeees 4
REASONS FOR GRANTING THE WRIT ........-- 14
I. The Court of Appeals Lacked Jurisdiction to
Order the Commission to Re-examine a Qualified
Capital Incentive Rate That Had Become Effec-
tive Pursuant to the Provisions of Section 10729. 15
II. Even If the Court of Appeals had Jurisdiction to
Order the Commission to Re-examine a Qualified
Capital Incentive Rate Which Had Become Effec-
tive, the Court of Appeals Erred in Applying an
Inappropriate Standard of Review As to the Com-
mission’s Market Dominance Findings......... 23
CONCLUSION ...ccccccccccccccccccccescevecees 27
STATUTORY APPENDIX
APPENDIX A
APPENDIX B
APPENDIX C
iv
TABLE OF AUTHORITIES
CASES
Abbott Laboratories v. Gardner, 387 U.S. 136
CPPOT De dtcvccusvtesssvccccvteeneadeen’s
Arrow Transportation Co. v. Southern Railway
Co,, 308 F.2d 181 (1962). .ccccccccccccces
Arrow Transportation Co. v. Southern Railway
Co., 372 U.S. 658 (1963). ccccccccccccces
Barlow v. Collins, 397 U.S. 159 (1970) .......
Celanese Chemical Co, v. United States, 362 F.2d
$68 (Sth Cir. 1981) .ccccccccccvccceccene
Dunlop v. Bachowski, 421 U.S. 560 (1975)....
Grain In Multiple-Car Shipments — River Cross-
ings to the South, 318 1.C.C. 641, reversed, 321
1.C.C, 582 (1963), reversed sub nom. Cincin-
nati, N.O. & T.P.Ry. Co. v. United States, 229
F.Supp. 572 (S.D. Ohio 1961), vacated per
curiam sub nom. Arrow Transport Co. v, Cin-
cinnati N.O. & T.P.Ry. Co. 379 U.S. 642
(1965), on remand, Grain in Multiple Car
Shipments— River Crossings to the South, 325
BAL. T52 CISES a cctv cvcctescvevceseuess
Houston Lighting & Power Co. v. United States,
606 F.2d 1131 (D.C. Cir. 1979), cert. denied,
444 U.S. 1073 (1980) ..ccccccccccccccees
Morris v. Gressette, 432 U.S. 491 (1977) .....
Trailer Marine Transport Corp. v. FMC, 602
F.2d 379 (D.C. Cie. 1979) .cccccccsvcccees
STATUTES
Interstate Commerce Act:
£10701, 49 U.S.C. GIOTO! . on ccccccccacvess
§$10709, 49 U.S.C. §$10709......ccccccvees
Page
6, 21-22
3, Dy aay a4
19, 20
§10729, 49 U.S.C. §10729 (formerly §15(19),
49 U.S.C. B15C19)) wcccccccccccecvcvcers
Railroad Revitalization and Regulatory Reform
Act of 1976, Pub. L. 94-210, 90 Stat. 31:
SIONS) .cccccccccccdecccescccsscovcces
$206, 49 U.S.C. §15(19) ... cc eeeeeeeeeees
Staggers Rail Act of 1980, Pub. L. 96-448, 94
Stat. 1895:
SRIGIR) 6 vc ccdecccccsecvcovedecvosecene
S2IGER) wcccccccccccsccscscvcccevcceces
Pub. L. 95-473:
OD cavcaneddedendanescosesasanepeseces
28 U.S.C. §§1254(1), 2350(a)... cece cece eens
28 U.S.C. $§2321, 2342... ceccccccccccccece
REGULATIONS
49 C.F.R. $1109.1(f) 0. ccvcvccvcccccccscees
LEGISLATIVE MATERIAL
120 CONG. REC. 38736, daily ed., December
SO TOPS Scot edecceceptoccoeseseveetess
126 CONG. REC. S.2993, daily ed., March 25,
19BO ..cccccccccvccccccccccvcvcvcvcoes
19BO .cccccccccccccccvccccccvccccccces
19GD cccccveccccsccccocescesecedeseees
S. Rep. No. 94-499, 94th Cong., Ist Sess. (1979) .
Hearings on Railroad Revitalization Before the
Subcommittee on Transportation and Com-
merce of the House Committee on Interstate
and Foreign Commerce, 94th Cong., Ist Sess.
CEPTS) occ cde cccccccacecsvesdedroetene
Page
passim
2
passim
13
IN THE
SUPREME COURT OF THE UNITED STATES
OcTOBER TERM, 1980
No. 80-
The Atchison, Topeka and Santa Fe Railway Company,
The Denver and Rio Grande Western Railroad Company
and Southern Pacific Transportation Company,
Petitioners,
v.
The Interstate Commerce Commission, The United States of
America, Central Power and Light Company and The
State of Texas,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Railroad Petitioners, The Atchison, Topeka and Santa Fe Rail-
way Company (“Santa Fe”), The Denver and Rio Grande West-
ern Railroad Company (“D&RGW”), and Southern Pacific
Transportation Company (“Southern Pacific”), ask this Court to
issue a writ of certiorari to review the judgment and opinion of the
United States Court of Appeals for the Fifth Circuit in Central
Power and Light Co. v. United States, reversing and vacating in
part an order and decision of the Interstate Commerce Commis-
sion (“Commission”) approving a capital incentive rate for rail
shipment of coal in unit trains and remanding that decision and
order to the Commission for reconsideration.
OPINION BELOW
The decision of the Court of Appeals as to which a writ of cer-
tiorari is sought is entitled Central Power and Light Co. v. United
States and is reported at 634 F.2d 137 (App. A). The Court of
Appeals’ subsequent order granting a petition for rehearing and
reinstating its previous opinion as supplemented is reported at
2
639 F.2d 1104 (App. B). The decision and order of the Com
sion, dated January 15, 1980, that was reviewed by the Fifth
cuit is entitled Incentive Rates on Coal-—-Axial CO, to Cc
Creek, TX, (Docket No. 37226), and is unreported (App. C
JURISDICTION
The judgment and opinion of the Court of Appeals wer
tered December 15, 1980 (App. A). A timely Petition for Ret
ing was granted and the Court of Appeals’ previous opinion
reinstated on February 26, 1981 (App. B). This Court has j
diction under 28 U.S.C. §§1254(1) and 2350(a).
By application filed with this Court on May 7, 1981, Petitic
herein sought an extension of time for the filing of petition
writs of certiorari in this case and in a related case involvin;
decision of the Court of Appeals for the Fifth Circuit in Cel«
Chemicai Co. v. United States, 632 F.2d 568 (Sth Cir. 1‘
Such relief was sought on the ground that the two cases pri
related issues involving capital incentive rates under Se
10729 of the Interstate Commerce Act and that an extensi
time would permit the Petitioners in both cases to coordinate
submissions. This application was granted by order dated M
1981, extending the time for filing petitions in these related
ters to June 4, 1981.’
STATUTE INVOLVED
Section 10729 of the Interstate Commerce Act’ (forr
codified at 49 U.S.C. §10729), as added by Section 206 o
‘In conformity with that order, the present petition and the petiti
volving the Court of Appeals’ decision in Celanese Chemical Co. v.
ed States, are filed simultaneously.
*Prior to the recodification of the Interstate Commerce Act in 19
Pub. L. 95-473, the provisions added to the Act by Section 206 of th
Act were codified at 49 U.S.C. §15(19). Although the wording |
(Footnote continued on following page)
3
Railroad Revitalization and Regulatory Reform Act of 1976
(Pub. L. 94-210, February 5, 1976, 90 Stat. 31) (“4-R Act”),
provided as follows:
“(a) A proposed rate, classification, rule or practice for
transportation by a rail carrier subject to the jurisdiction of
the Interstate Commerce Commission under subchapter I of
chapter 105 of this title requiring a total capital investment
of at least $1,000,000 to implement shall be established and
become effective under this section. This section applies
whether the investment is made individually or collectively
by the carrier or by a shipper, receiver, or agent of any of
them, or by a third party.
“(b) A rail carrier may file a notice of intent to establish a
rate, classification, rule, or practice under subsection (a) of
this section with the Commission. The notice must include a
sworn affidavit detailing the anticipated capital investment.
Unless the Commission after holding a proceeding under
subsection (c) of this section, decides by the 180th day after
the notice is filed that the proposed rate, classification, rule,
or practice would violate this subtitle, the carrier may estab-
lish that rate, classification, rule, or practice at any time dur-
ing the next 180 days, and it may become effective 30 days
after it is established. Once a rate, classification, rule, or
practice becomes effective under this section, the Commis-
sion may not, for 5 years, suspend or set it aside as violating
section 10701, 10726, 10741-10744, or 11103 of this title.
However, the Commission may order the rate, classification,
rule or practice to be revised to a level equal to the variable
costs of providing the transportation when the Commission
(Footnote continued from previous page)
statute was modified by the 1978 recodification, Section 3 of Pub. Law
No. 95-473 states that the recodification sets out “without substantive
change, laws enacted before May 16, 1978, that were replaced by those
sections. Those sections may not be construed as making a substantive
change in the laws replaced.” See Houston Lighting & Power Co. v.
United States, 606 F.2d 1131, 1135 n.2, 1150 n.57 (D.C. Cir. 1979),
cert. denied, 404 U.S. 1073 (1980); Trailer Marine Transport Corp. v.
FMC, 602 F.2d 379, 383 n.18 (D.C, Cir. 1979).
For convenience, all references herein are to Section 10729. The texts
of both Sections 15(19) and recodified Section 10729, as recodified ir
1978, are set forth in the Statutory Appendix attached hereto.
4
finds the level then in effect reduces the going concern
of the carrier.
“(c) On request of an interested person, the Comm
shall hold a proceeding to investigate and determine wh
the rate, classification, rule, or practice proposed to be «
lished under this section complies with this subtitle
Commission must give reasonable notice to interested p
before beginning a proceeding under this subsection bu
act without allowing an interested party to file an ansv
other formal pleading.” (Emphasis supplied. )
Section 10729 of the Act was repealed prospectively by Si
210(a) of the Staggers Rail Act of 1980 (“Staggers Act’)
L. 96-448, October 14, 1980, §210(a), 94 Stat. 1910. Hov
the savings provisions of Section 210(b) of the Stagger
provided that “[n]otwithstanding any other provision of lay
rate established by a rail carrier under Section 10729 of Til
United States Code, prior to the effective date of the Act
remain in effect in accordance with its laws, but for no longe
5 years after the date it became effective. . ..
STATEMENT OF THE CASE
The Statutory Framework and Its Legislative History
This controversy arises under Section 10729 of the Inte
Commerce Act, which was added in 1976 by Section 206
4-R Act to encourage capital investment in railroad facili
‘Section 210 of the Staggers Act is also set forth in the Statuto
pendix attached hereto.
An amendment was proposed to the new legislation (No. |
$1946) which would have eliminated capital incentive protect
existing as well as any future capital incentive rates (see 126 Con
$2993, daily ed. March 25, 1980). This proposed amendment v
posed by Senator Cannon, the Chairman of the Senate Commerce:
mittee because of the unfairness which would result to the railros
the constitutional questions which the amendment would rais
Cong. Rec. $3306, daily ed., April 1, 1980). That amendment w
sequently defeated in the Senate (Cong. Rec, $3307, daily ed., /
1980).
5
imposing a time limit of 180 days on the period during whict
new rate filed by a railroad based upon an investment of $1 m
lion or more could be reviewed by the Commission, Section 107
provided that unless the Commission found such a propos
“capital incentive” rate to be unlawful within the prescribed It
day time limit, such a rate would become effective and thereaf
could not be suspended or set aside as unlawful for a period of f
years from its effective date.
As stated in the “Declaration of Policy” which precedes |
substantive provisions of the 4-R Act (Section 10I(a)), the pi
pose of Congress in enacting that legislation was:
“..., to provide the means to rehabilitate and maintain |
physical facilities, improve the operations and structure, a
restore the financial stability of the railway system of |
United States, and to promote the revitalization of such ri
way system, so that this mode of transportation will rem:
viable in the private sector of the economy and will be able
provide energy-efficient, ecologically compatible transpor
tion services with greater efficiency, effectiveness, and ec
i
Congress recognized that this objective could be achieved o
if substantial capital investments were made in needed railr<
facilities. However, as the legislative history of Section 10)
makes clear, Congress also recognized that disincentives to m
ing such investments were created by the risk of prolon;
litigation over the reasonableness of railroad rates and the att
dant uncertainty, sometimes lasting years, as to the rate level t
could be charged. See Houston Lighting & Power Co. v. Uni
States, supra, 606 F.2d at 1139.
The specific example of the kind of investment disincen!
with which Congress was concerned was described by Congr
man (later Secretary of Transportation) Brock Adams as “
6
horror story of the Big John case” (Hearings on
Revitalization Before the Subcommittee on Transport:
Commerce of the House Committee on Interstate anc
Commerce, 94th Cong., Ist Sess. 184 (1975)). In t
Southern Railway had published new rates to become ef
August, 1961 on grain carried in 90-ton “Big John” a
hopper cars. The rates were finally approved by the Cor
but only after four years of litigation before the Commi
before the oourts on judicial review. Grain in Mul
Shipments— River Crossings to the South, 318 1.C
reversed, 321 1.C.C. 582 (1963), reversed sub nom. C
N.O. & T.P. Ry. Co. v. United States, 229 F. Supp. ‘
Ohio 1964), vacated per curiam sub nom. Arrow Tran.
v. Cincinnati, N.O. & T.P. Ry. Co., 379 U.S. 642 (1
remand, Grain in Multiple-Car Shipments— River Cro
the South, 325 L.C.C. 752 (1965).
The railroads in the “Big John” case had made very st
investments in equipment in order to perform comme
service in hauling grain. One of the principal purposes ¢
206 of the 4-R Act was to assure that the history of
John” rates would not be repeated. Hence, Congress
eliminate the uncertainty, and the attendant disincentiv
needed investments, caused by the possibility that years
investments were made, the Commission might inval
rates upon which those investments had been premised
on the Commission's own initiative or on remand from ¢
Appeals. As Congressman Adams explained, the st
intended to “give some assurance to a carrier or shipper
invests a million dollars in a new service, he will receive
decision one way or another on that rate...” (120 C
38736 daily ed., December 10, 1974), and to preclude ¢
in which “the rate which would be called for by that servi
7
lost for years in a thicket of litigation” (id
In keeping with these objectives, Congress provided in Sec
206 that (1) “{nJotwithstanding any other provision of law
rail carrier might propose a rate based on a capital investmer
$1,000,000 or more, (2) that “[u]nless the Commission .
decides by the 180th day after the notice is filed that the prop
rate ... would violate this subtitle, the carrier may establish
rate... and it may become effective 30 days after it is establis
and (3) that “[o]nce a rate... becomes effective under this sect
the Commission may not, for 5 years, suspend or set it aside .
Proceedings Before the Commission
In reliance upon these provisions of the statute, Railroad |
tioners planned to commit over $50 million to the purchas
locomotive units and to various improvements in track and r
ed fixed plant to move coal in unit trains’ between a mine |
Axial, Colorado, and a coal-fired electric generating station b
completed at Coleto Creek, Texas, owned and operated by ¢
tral Power and Light Company (“CP&L”). This unit train
vice was designed to move over 1.3 million tons of coal per ye
one-way distance of 1,396 miles (App. C at C-4 - C-7).
On July 19, 1979, pursuant to Section 10729, Petitioners fil
proposed “capital incentive rate” of $20.85 per ton applicab
this unit train movement. CP &L protested the proposed rate,
the Commission proceeded to conduct a hearing.
‘Similarly, as the Report of the Senate Committee on Commer
§.2718 noted (S. Rep. No. 94-499, 94th Cong., Ist Sess. 52 (197!
“It is the Committee's view that under existing law, the pos:
ty exists that such large-scale initiatives may be thwarted by d
in the exercise of the Commission's ratemaking powers. Th
would encourage investment in all instances where the car
plans can be properly verified, and thus would contribute to th
provement of rail facilities and services.”
‘A unit train consists of an entire train carrying only one comm
between origin and destination in continuously cycling service.
)
In support of their proposed rate, D&RGW, Santa Fe, and
Southern Pacific submitted evidence showing that the proposed
unit train movement would require a total capital investment of
more than $54.7 million,’ far in excess of the $1,000,000 jurisdic-
tional minimum for capital incentive rate treatment, The invest-
ment required of the Railroads to implement the proposed service
in locomotives alone exceeded $28.3 million (37 locomotives cost-
ing approximately $764,865 each) (App. C at C-4).’ Additions
and improvements to fixed plant to accommodate the CP&L unit
train were estimated to amount to more than $26.4 million.’
CP&L contended that the proposed rate did not qualify as a capi-
tal incentive rate, that the rate exceeded a just and reasonable
maximum, and that it discriminated against CP&L.
On January 15, 1980, the Commission issued a decision hold-
ing that the Railroads’ proposed capital incentive rate of $20.85
qualified for capital incentive treatment and had not been shown
to be unlawful (App. C at C-15), The Commission ordered that
the Railroads could file the appropriate tariff without further
delay, to become effective on 30 days’ notice. Additionally, the
Commission held that a filing by the Railroads in compliance
with the order could not, “for a period of 5 years after its effective
‘The Railroads initially estimated that more than $34 million would
have to be invested to handle this new traffic. This figure was revised by
the Railroads in their Reply to almost $55 million (App. C at C-8),
‘These unit coal trains require 7 or more locomotives per train set,
Only 2 locomotives, at over $750,000 each, would thus require an invest-
ment of more than $1 million. The principal dispute between CP&L and
the Railroads before the Commission was whether the CP&L service
would require 37 or only 20 locomotives, (App. C at C-7), The Commis-
sion agreed with CP&L that only 20 locomotives would be required
(id.).
"Fixed plant investments included a new interchange track connecting
the lines of Santa Fe and Southern Pacific at Caldwell, Texas, the con-
struction of side tracks where necessary to allow passage of oncoming
trains, and the upgrading of both Santa Fe and Southei# Pacific tracks.
(App. C at C-19 - C-20),
9
date, be suspended or set aside as unlawful under former sections
1, 2, 3, or 4 of the [Interstate Commerce] Act” (/d.).
The Commission, although it concluded that “not all” of the
locomotive costs and fixed plant investment costs could be used in
meeting the minimum investment necessary to invoke the capital
incentive rate protection of the Act, held that the threshold
requirement had been “exceeded by a substantial margin” (App.
C at C-9), The Commission concluded (id.):
“Respondents have demonstrated the need for the claimed
improvements. Major capital investments are required in the
roadway. Such investments are directly related to the safe
operation of the unit trains’ movements and to the continued
ability of the rail carriers to handle the demand for ser-
vice...
“It should be understood that Central Power and Light is
participating through this rate procedure in establishing a
dependable method of transportation of domestic energy
sources, that the present rail network is not now able to han-
dle such heavy movements or to handle such movements over
a long period of time, and that the voluntary rail participa-
tion in these rates allows this Commission to monitor the im-
provement projects to ensure the necessary work is done.
This incentive rate proposal, if executed, will help ensure the
customers of CP&L of dependable and safely delivered fu-
ture energy supplies.”
The Commission next turned to the question of market domi-
nance.’ Under the Act, the Commission has no jurisdiction over the
*Market dominance” is defined by Section 10709 of the Act (49
U.S.C. §10709) as “an absence of effective competition from other car-
riers or modes of transportation for the transportation to which a rate
applies.” As the Commission stated in its Report, unless it is shown by a
shipper or other protestant that such competition does not exist with re-
spect to a movement covered by a proposed capital incentive rate, the
proposed rate cannot be found to be unreasonably high (App. C at C-
10), See 49 U.S.C, §10701a(b)(1),
10
maximum reasonableness of ruil rates except where the railroads
possess market dominance over the traffic at issue. Noting that
CP &L had the burden of showing market dominance and yet had
“presented very little evidence on the market dominance issue,”
the Commission held that CP&L had “not met this burden of
persuasion, and we have no choice but to find that we have no
jurisdiction over the question of maximum rate reasonableness”
(App. C at C-10),
The Commission found, first, that CP&L had failed to estab-
lish any of the rebuttable presumptions of market dominance set
forth in the Commission's regulations. The market share pre-
sumption (70% or more of the involved traffic “during the
preceeding year") was inapplicable because no domestic coal
traffic to CP&L's Coleto Creek plant had existed in the past, The
cost presumption (160% of variable costs) was not satisfied since
the Commission computed the variable costs of the Coleto Creek
movement to be $13.90 per ton, representing a rate-variable cost
ratio of only 150 percent. And, the substantial investment pre-
sumption (“substantial investment in rail-related facilities” by
shippers) had not been established because CP&L had not shown
that the investments it had made could not be used by other rail
carriers or alternative transportation modes, (App, C at C-10 -
C-14),
In the alternative, the Commission held that even if CP&L had
established one of the presumptions, each of the presumptions had
been rebutted by the Railroads’ evidence of effective competition
(id. at C-12), The Commission pointed out that CP&L “has had
its choice of numerous sources, carriers and varying modes of
carriers’ (App. C at C-13). Moreover, the carriers had in-
troduced CP&L's coul contract into evidence, and, as the Com-
mission found, had supported their allegations concerning the
flexibility of the contract, and “including the possibility CP&L
may assign its interests thereunder” (/d, at C-12), The Commis-
sion concluded that the Railroads had “made prima facie in-
ferences of effective competition requiring an answer,” but that
CP&L had completely failed “to produce evidence required to
show any fallacy in the railroads’ position” (id.).
In summarizing its findings on market dominance, the Com-
mission stated (App. C at C-14):
“We are charged with protecting shippers from abusive
monopoly practices. The evidence does not demonstrate that
respondent rail carriers have experienced market dominance
in their negotiations with Central Power and Light. Protes-
tant has failed to meet its initial burden of showing market
dominance. Therefore, no further consideration of the pro-
posal is warranted.”
Following the decision of the Commission approving the
proposed rate, Railroad Petitioners implemented that rate and
proceeded to make their capital investments. The unit train ser-
vice thereupon commenced. Thereafter, the Railroads filed peri-
odie status reports in conformity with the Commission’s order
showing that the investments were in fact being made.
Proceedings Before the Court of Appeals
On January 18, 1980, CP&L filed a Petition for Review of the
Commission's decision with the United States Court of Appeals
for the Fifth Circuit invoking the Court’s jurisdiction under 28
U.S.C. §§2321 and 2342. CP&L argued that the Commission
erred in (1) its finding that CP&L had failed to establish any of
the rebuttable presumptions of market dominance; (2) its reliance
upon evidence of product and geographic competition in reaching
its market dominance determination; (3) its failure to make
findings on the issue of unlawful discrimination; (4) its failure to
require the carriers to produce confidential cost and operating
data; and (5) its finding that the carriers’ proposed tariff schedule
qualified for capital incentive rate treatment.
Santa Fe, D&RGW and Southern Pacific intervened in the
review proceeding. In response to CP &L’s contentions, the Rail-
roads showed that the rate approved by the Commission met all of
12
the qualifications for capital incentive treatment under the Inter-
state Commerce Act, and thus could not be set aside for five
years. The carriers also supported the Commission’s finding that
CP&L had failed completely to establish that the Railroads pos-
sessed market dominance over the Coleto Creek movement, and
argued that CP&L had access to all of the data it needed to make
its case.
The Court of Appeals for the Fifth Circuit issued its decision
on December 15, 1980, remanding the case to the Commission.
The decision below was affirmed in part, reversed in part, and
vacated in part (App. A).
The Court first affirmed that the Railroads’ proposed rate
qualified for treatment as a capital incentive rate (App. Act A-5,
A-13 - A-17). However, it then held that on remand the Commis-
sion was empowered to alter the effective capital incentive rate if
such action was required in light of the Court’s remand instruc-
tions (id. at A-24 - A-25). While recognizing Congress’ intent
that once in effect, capital incentive rates would remain undis-
turbed for five years, it found no evidence that Congress “wished
to protect erroneous Commission action” (id. at A-25). The Court
of Appeals then undertook an extensive analysis of the Commis-
sion’s findings on the market dominance presumptions and on the
role of geographic competition.
Notwithstanding CP &L’s presentation of “very little evidence
on the market dominance issue” (App. C at C-10), the Railroads’
presentation of “a number of points which CP&L has chosen to
ignore” (id.), and the Commission’s explanation that CP&L “has
failed to meet its initial burden of showing market dominance”
(id. at C-14), the Court of Appeals directed the Commission to
reconsider the market dominance issue in its entirety.
The Court noted that the Commission did not address CP & L’s
allegation that the carriers’ rate was the subject of rate bureau
13
activity. According to the Court, the rate bureau presumption
arises only when “the evidence addressed establishes that the rate
in issue has been discussed, considered, or approved upon a rate
bureau agreement” (49 C.F.R. §1109.1(f)). Despite CP&L’s
failure to submit evidence on this point, the Court directed the
Commission to consider whether any rate bureau activity re-
strained competition between rail carriers for the Coleto Creek
traffic (App. A at A-29).
With regard to the revenue/cost presumption, the Court of Ap-
peals found that the Commission erred by incorporating into the
fixed plant investment cost additive a return-on-equity factor
greater than the cost of debt capital, and remanded certain cal-
culation issues for reconsideration (App. A at A-40, A-42).
Turning to the substantial investment presumption, the Court
of Appeals ignored CP &L’s evidentiary deficiencies and vacated
the Commission’s findings on this issue. The Court first questioned
whether Southern Pacific’s role as the sole terminating carrier
should be sufficient to establish this presumption (App. A. at A-
50 - A-51). It then held that (1) the evidence of record was in-
sufficient to support the Commission’s finding that alternative
domestic sources of coal were available to CP&L (id. at A-53),
(2) the Commission must reconsider its apparent finding that
there were competing rail carriers for the Coleto Creek movement
(id. at A-52), and (3) the Commission must reconsider its finding
that another mode of transportation was available in the form of
the seaport-rail alternative (id. at A-55 - A-56).
The Commission had found that even if CP&L had estab-
lished any of the presumptions of market dominance, the Rail-
roads’ evidence pertaining to geographic competition was suf-
ficient to rebut any such presumption and to demonstrate the
existence of competitive alternatives. The Court, however, ques-
tioned all of the Commission’s findings on this issue, and its
remand order directs the Commission to reconsider (1) whether
14
the statutory definition of market dominance precludes conside!
ation of geographic competition (id. at A-58 - A-59), (2) its cor
clusions regarding geographic competition in light of its pric
decisions (id. at A-59 - A-64), (3) the flexibility afforded CP &
in its coal supply contract (id. at A-64 - A-67), and (4) wheth«
alternative competitive sources of coal were available to CP&
(id. at A-68).
The Court of Appeals also remanded the case to the Commi:
sion for further consideration of whether the carriers’ rate unlav
fully discriminated against CP&L, and for consideration of th
utility’s request that the railroads provide certain cost inform:
tion (App. A at A-68 - A-70).
REASONS FOR GRANTING THE WRIT
This Court should grant certiorari to review the ruling of th
Court of Appeals below that it was empowered to remand f¢
further Commission consideration issues as to the lawfulness of
qualified capital incentive rate filed pursuant to Section 1072
and approved by the Commission under the provision of that Se
tion within the prescribed 180-day time period. That ruling
manifestly contrary to the plain terms of Section 10729, whic
expressly precludes the setting aside of a capital incentive ra!
once it is permitted to become effective by the Commission, and
contrary to the intent of Congress in enacting that Section. Tt
Court’s ruling is also grossly unfair to Petitioners, which ha\
made tens of millions of dollars of capital investments in locom:
tives and plant facilities in reliance upon the statutory assuran
that if a proposed capital incentive rate is not found unlawful t
the Commission within 180 days, it may not thereafter be su
pended or set aside for a period of five years.
This Court should also grant certiorari to review the proprie
of the standard of review applied by the Court of Appeals in i
analysis of the Commission's determination that Railroad Pet
tioners lacked “market dominance” over the involved traffic. T|
15
Court of Appeals in effect substituted its judgment as to the
market dominance issues for that of the Commission—an ap-
proach which would be improper even in an ordinary rate case.
Moreover, the Court of Appeals erred in failing to recognize that
a Commission decision rendered under the capital incentive rate
provisions of Section 10729 is at least entitled to a greater mea-
sure of deference than a Commission decision rendered in an or-
dinary rate case because of the intent of Congress in enacting the
statute that regulatory uncertainty be minimized, and because of
the time constraints imposed on Commission actions by Section
10729. In part because of its improper approach to review of
market dominance issues, the Court committed serious errors in
holding that many of the Commission’s findings were in error and
must be reconsidered.
I. The Court of Appeals Lacked Jurisdiction to Order
the Commission to Re-examine a Qualified Capital
Incentive Rate That Had Become Effective Pur-
suant to the Provisions of Section 10729
As Railroad Petitioners acknowledged before the Court of Ap-
peals below, that Court plainly had jurisdiction to review the
Commission’s determination that the investment underlying the
proposed unit train rate qualified for capital incentive treatment
under Section 10729 of the Act, and it had jurisdiction to set that
determination aside if it were found to be arbitrary and capricious
or otherwise in violation of the provisions of the Administrative
Procedure Act (Brief of Railroad Respondents dated September
28, 1979, at 46 n.59). The Court of Appeals exercised such juris-
diction in the review proceedings below and affirmed the Commis-
sion’s ruling that the proposed rate qualified for capital incentive
treatment under the statute.
The Court having thus held that the rate filed by Railroad Peti-
tioners qualified for capital incentive treatment, under the express
terms of Section 10729 that rate became effective and could not
16
thereafter be suspended or set aside by the Commission for a p
riod of five years. The failure of the Court of Appeals to recogni:
this constraint upon its jurisdiction to authorize or direct tl
Commission to “correct errors” (App. A at A-25), and tl
Court’s action in setting aside and remanding the Commission
decision approving the capital incentive rate filed by Petitione:
are therefore manifestly erroneous.
Section 206 of the 4-R Act, which added the capital incenti
provisions to the Interstate Commerce Act, provided as follow
“Unless, prior to the 180-day period following the filing
such notice of intention, the Commission determines, after
hearing, that the proposed schedule, or any part therec
would be unlawful, such carrier may file the schedule at a)
time, within 180 days thereafter to become effective after |
days notice. Such a schedule may not, for a period of 5 yea
after its effective date, be suspended or set aside as unlaw
under section 2, 3 or 4 of this part... .”” (Emphasis supplied.
The Act was recodified in 1978 without substantive chang¢
Section 15(19) was recodified as Section 10729, which provides
pertinent part as follows:
“Unless the Commission after holding a proceeding unc
subsection (c) of this section, decides by the 180th day af
the notice is filed that the proposed rate, classification, ru
or practice would violate this subtitle, the carrier may est:
lish that rate, classification, rule, or practice at any time di
ing the next 180 days, and it may become effective 30 di
after it is established. Once a rate, classification, rule,
practice becomes effective under this section, the Comm
sion may not, for 5 years, suspend or set it aside as violat
sections 10701, 10726, 10741-10744, or 11103 of this titl
(Emphasis supplied. )
As the Court of Appeals recognized, “(t]he language of §10°
sweeps broadly, placing no limitation on the preclusion impo
"See p. 3, supra.
17
upon the Commission not to suspend an incentive rate for five
years” (App. A. at A-20). Hence, the Court rejected the request
made by the Commission in the course of the review proceedings
below for “voluntary remand” to permit the Commission to
reconsider whether the Railroads had market dominance over the
involved traffic and, if so, whether the rate was reasonable under
the criteria of Section 10701 of the Act. The Court of Appeals
rejected this request on the ground that “[bJoth provisions are
included in §10729’s five year prohibition against Commission
action” (id.).
Moreover, the Court of Appeals recognized that any acquies-
cence in the Commission’s request for remand of issues as to the
lawfulness of a qualified capital incentive rate would be directly
contrary to the intent of Congress in enacting the capital incen-
tive provision of the Act. The Court of Appeals noted that the
origin of Section 10729 was the so-called “Big John” provision of
a bill which had first passed the House of Representatives in 1974,
and expressly found that the “Big John” provision which ulti-
mately became Section 206 of the 4-R Act “was aimed at
ameliorating problems such as that encountered by the Southern
Railway in its efforts to publish new rates for shipment in innova-
tive ‘Big John’ cars it had developed” (App. A at A-22). The
Court concluded that the legislative history of Section 10729
confirmed that the purpose of this provision was “to remedy the
serious regulatory lag hampering rail rate cases” (id. at A-23).
For these reasons, the Court of Appeals held that any accession in
the Commission’s request for remand “would be an obvious
threat to the procedural integrity of §10729 and the concerns of
Congress” (id.), and, indeed, that the requested remand was
“barred by §10729” (id.).
Notwithstanding its determination that “voluntary remand” to
the Commission and reconsideration by the Commission of its
decision would be contrary to the express terms of Section 10729
18
and the intent of Congress in enacting that section, the Cou
Appeals held that on court-ordered remand “the Commis
shall have authority to take whatever action our opi
requires” —including, possibly, setting aside the carriers’ ca|
incentive rate (App. A at A-25). The Court of Appeals reas:
as follows (id.):
“To have judicial review of an agency action with no
thority in that agency to correct errors is a futile exer
We do not perceive in the legislative history of §10729
‘clear and convincing evidence’ necessary to conclude
Congress intended to restrict normal judicial review, Du
v. Bachowski, 421 U.S. 560, 567... (1975), Abbott Lab
tories, Inc. v. Gardner, 387 U.S. 136, 141... (1967), W
Congress wished to give railroads assurances that if
made substantial investments, rates associated with thes
vestments would remain undisturbed for 5 years, there
hint it wished to protect erroneous Commission action,
As shown below, the Court of Appeals’ treatment of
reviewability issue is fundamentally incorrect.
The precise issue is not whether the Court of Appeals ¢
review the Commission's decision; it is whether, if it does re
and set aside the Commission's decision and remands the ca
the Commission for further consideration, the Commission «
then suspend or set aside the carriers’ rate within the prot
5-year period. The Court of Appeals treated the Railroad’
gument that the Commission could not on remand suspend ¢
aside their rate as tantamount to an argument that judicial re
was unavailable at all, reasoning that if the Commission coul
correct errors on remand (including suspending or setting
carrier rates if a corrected decision required such a result),
judicial review and remand would be pointless. Although it i:
that construction of Section 10729 as precluding the Commi
on remand from setting aside carriers’ rate for 5 years would
the range of consequences flowing from judicial review, si
19
construction would not preclude or negate judicial review. Ind
an important function of a reviewing court in considering a C
mission decision involving capital incentive rates is to give pre
effect to the express terms of Section 10729.
More fundamentally, however, even if such a limitation u
the consequences of judicial review is regarded as identical to |
cluding judicial review altogether, as the Court of App
regarded it, the Court of Appeals’ decision is incorrect, anc
reliance upon this Court's decisions as to non-reviewabilit
wholly misplaced.
In Dunlop v. Bachowski, 421 U.S, 560 (1975), and reli
cases, this Court held that “a final agency action” is review:
“unless there is a persuasive reason to believe that such was
the purpose of Congress.” /d. at 567. See Morris v. Gressette,
U.S. 491, 501 (1977); Abbott Laboratories v. Gardner, 387 \
136, 140 (1967). The reviewing court therefore must detern
whether “Congress has in express or implied terms preclu
judicial review. .. .”” Barlow v. Collins, 397 U.S. 159, 165 (1S
(emphasis supplied), and “whether nonreviewability can fairl
inferred,” (id. at 166) within “the context of the entire legisla
scheme.” Abbott Laboratories v. Gardner, supra, 387 U.S. at
For example, in Morris v. Gressette, supra, this Court inqu
into the reviewability of the Attorney General's failure to ir
pose a timely objection under §5 of the Voting Rights Act of |
to a change in the voting laws of South Carolina. This C
found that the language of §5 of the Voting Rights Act did no
plicitly preclude judicial review of the Attorney General's ¢
sion either to object or not object to any changes in the voting
of a jurisdiction subject to the Act. This Court also found
there was no “legislative history bearing directly on the issi
reviewability of the Attorney General's actions under $5.”
U.S. at 503. Nevertheless, the Court found that the Atto
General's initial decision to refrain from objecting to S
20
Carolina's voting plan was not subject to judicial review
a later, non-timely objection made by the Attorney Gen
invalid,
The Court premised its decision on “legislative m
which indicated a desire to provide the States with a °‘
method of complying with §5 (éd.). Recognizing that
decision did not bar subsequent constitutional challer
Court found that “there also was to be ‘no dragging out’ «
traordinary federal remedy beyond the period specifie
statute” (id, at 504; emphasis supplied). Thus, the Court
ed that “[s]ince judicial review of the Attorney General’
would unavoidably extend this period, it is necessarily
ed.” Jd. at 504-05,
The structure of the statutory scheme involved in th
case, as well as its objectives and legislative history," cle
stitute “persuasive reason to believe” that Congress inter
actions of the Commission permitting qualifying capital
rates to become effective would not be subject to further |
as to the reasonableness of the rate before reviewing ¢
upon remand, before the Commission.
First, the very legislative history which the Court of
relied upon in denying the motion of the Commission fo
tary” remand, demonstrates that Congress was just as ©
with the prospect of prolonged rate litigation before the |
"Analyzing these same factors in Dunlop v. Bachowski, .
“the structure of the statutory scheme, its objectives, [and] its
history .. ."~-this Court was unable to find “any congression
to prohibit judicial review.” /d. at 567. Indeed, this Court
that (/d.):
“there is not even the slightest intimation that Con
thought to the matter of the preclusion of judicial review
reasonable inference is that the possibility did not oc
Congress.’ Wirtz v. Bottle Blowers Assn., 389 US.
(1968).”
As shown below, the circumstances before this Court in
Bachowski are in stark contrast to the circumstances prese!
instant case,
21
sion on remand from the Courts of Appeals as with the prosp
such litigation before the Commission in the first instanc
shown above, the Court of Appeals recognized that the capit
centive provision of the Interstate Commerce Act grew out «
“Big John” litigation discussed in the legislative history of
tion 206 of the 4-R Act. And as the Court of Appeals also r
nized, the history of that litigation and the “difficulties” it e:
dered for Southern Railway—some four years of uncertair
to the rates it would be permitted to charge for its “Big J
hopper car services—was a history of litigation at the Con
sion, in the appellate courts, and later at the Commission |
(App. A at A-22 n.26). Indeed, it readily may be seen fro1
history of that litigation that the delay and uncertainty
rienced by Southern Railway was largely attributable to
phase of the litigation before the courts on review and befo!
Commission on court-imposed remand (id.)."
"This history may be summarized as follows:
The Commission first approved the rates filed by the Southern
jumbo hopper car services in Grain In Multiple-Car Shipments—
Crossings to the South, 318 1.C.C. 641 (1963). Parties protesti)
proposed rates failed to obtain a preliminary injunction from th
trict Court for the Northern District of Alabama (August 3, 196:
a single judge of the Fifth Circuit granted a temporary restraining
on the same day. After a full Fifth Circuit panel denied a restr
order pending the decision of the appeal on August 8, Mr. Justice
granted a stay pending the presentation and disposition of a petit
certiorari (Arrow Transportation Co. v. Southern Railway C<
U.S. 658, 662 fn. 4 (1963)). Thereafter, the Fifth Circuit affirm
District Court's ruling that it lacked jurisdiction (Arrow Transpo:
v. Southern Railway Co., 308 F.2d 181 (1962)), and stayed the is
of its mandate pending consideration by this Court. The Court
peals decision was affirmed by this Court in Arrow, supra.
The full Commission reopened the proceeding prior to this ¢
decision, and reversed its initial decision. Grain In Multiple-Car
ments— River Crossings to the South, 321 1.C.C, 582 (1963). The
sion was set aside and permanently enjoined by the District Co
the Southern District of Ohio in Cincinnati, N.O. & T.P. Ry. Co.
ed States, 229 F.Supp. 572 (1964). This Court vacated the judgm«
(footnote continued on following page)
22
Second, the Court of Appeals’ conclusion that there is no “clear
and convincing evidence” that Congress intended to limit the
scope of judicial review of Commission decisions in capital incen-
tive rate cases to preclude further litigation as to the reasonable-
ness of an effective qualified capital incentive rate, cannot be
reconciled with the plain terms of Section 10729; nor can it be
reconciled with the Court of Appeals’ own holding that in enact-
ing that section “Congress wished to give railroads assurances
that if they made substantial investments, rates associated with
those investments would remain undisturbed for five years, . . .”
(App. A at A-25.) The disincentives to capital investment which
Congress sought to eliminate by providing that a capital inventive
rate could not be suspended or set aside for a period of five years
after it had become effective, manifestly would not be eliminated
if the Court of Appeals were permitted to remand to the Commis-
sion for further consideration and action issues as to the lawful-
ness of a qualifying capital incentive rate,
The evil which Congress sought to eliminate by enacting the
capital incentive provision of the Act was the uncertainty which
prolonged litigation over the reasonableness of rates—at the
Commission and appellate levels-—had engendered in the past
(e.g., in the “Big John” case), and might engender in the future,
The Court of Appeals’ conclusion that it was nonetheless em-
powered to order the Commission to reexamine a qualified capital
incentive rate after it had become effective, to “correct errors,”
and possibly to set aside such a rate, not only is contrary to the
terms of the statute, but also would frustrate the intent of
Congress in enacting the capital incentive provisions of the Act,
(footnote continued from previous page)
remanded the case to the District Court in a one-page per curiam opin-
ion, Arrow Transportation Co, v. Cincinnati, N.O. & T.P. Ry. Co., 379
U.S. 642 (1965). The District Court then remanded the case to the
Commission on February 12, 1965, in accordance with this Court's in-
structions, and a third decision approving the proposed rates was issued
by the Commission on August 30, 1965 (325 LC.C, 752 (1965)).
23
il. Even If the Court of Appeals had Jurisdiction to Order
the Commission to Re-examine a Qualified Capital In-
centive Rate Which Had Become Effective, the Court of
Appeals Erred in Applying an Inappropriate Standard of
Review As to the Commission’s Market Dominance
Findings
For the reasons set forth above, Petitioners believe that the
Court of Appeals lacked jurisdiction to remand for further Com-
mission consideration issues as to the Commission's jurisdiction
over the maximum reasonableness of a capital incentive rate which
qualified as such under Section 10729, However, even if the Court
of Appeals had jurisdiction to remand such issues to the Commis-
sion for reconsideration, the Court manifestly erred in applying a
standard of review which was inappropriate to the Commission's
findings made under Section 10729 and which conflicts with the
standard held to be appropriate to the review of such a determina-
tion by the Court of Appeals for the District of Columbia Circuit
in Houston Lighting & Power Co. v. United States, supra.
In Houston Lighting and Power, the first judicial review
proceeding involving a Commission determination as to a capital
incentive rate filed under Section 10729 of the Act, the Court of
Appeals for the District of Columbia Circuit, although disagree-
ing with petitioners therein that it did not have jurisdiction to
review a Commission determination approving a qualifying capital
incentive rate once that rate had become effective, held that the
appropriate standard of review required that extra deference be
paid to the Commission's determination, The District of Columbia
Circuit began its analysis of the standard of review appropriate to
a capital incentive rate determination by the Commission by not-
ing that as to any Commission rate determination, the courts are
required to “apply a deferential standard” (606 F.2d at 1145):
“Such decisions ‘are not to be disturbed by the courts ex-
cept upon a showing that they are unsupported by evidence,
24
were made without a hearing, exceed constitutional limits, or
for some other reason amount to an abuse of power,’ Man-
ufacturers R. Co, v, United States, 246 U.S, 457, 481, 38S.
Ct, 383, 389, 62 L.Ed, 831 (1918), As this Court has ob-
served, ‘The process of rate making is essentially empiric,
The stuff of the process is fluid and changing—the resultant
of factors that must be valued as well as weighed, Congress
has therefore delegated the enforcement of transportation
policy to a permanent expert body and has charged it with
the duty of being responsive to the dynamic character of
transportation problems,’ Board of Trade of Kansas City v,
United States, 314 U.S, 534, 546, 62 S.Ct. 366, 86 L.Ed, 432
(1942). Atchison, T. & S. F. Ry. v. Wichita Board of Trade,
412 U.S. 800, 806, 93 S.Ct, 2367, 2374, 37 L.Ed,2d 350
(1973) (plurality opinion),”
However, the District of Columbia Circuit went on to hold that
at least two factors unique to capital incentive rate determina-
tions required an extra measure of deference in reviewing such
determinations (/d.):
“The congressional interest in encouraging large-scale in-
vestments by minimizing regulatory uncertainty, coupled
with sensitivity to the time pressure under which the Com-
mission must operate in capital incentive proceedings, sug-
gest that this standard be applied with an extra dollop of
deference, While modification of the formulation of the stan-
dard is not necessarily called for, our review will be directed
primarily at ascertaining that the Commission's decision
reflects meaningful consideration of the salient factors and
comports with applicable law.” (Emphasis supplied. )
The Court of Appeals below, although its opinion recites the
principle that the standard of review in any rate proceeding is “a
narrow one” (App. A at A-12), failed to recognize the importance
of exercising deference, let alone an extra measure of deference,
with respect to the Commission's findings as to market domi-
nance. Indeed, far from recognizing the propriety of restricting its
review to “ascertaining that the Commission's decision reflects
meaningful consideration of the salient factors and comports with
25
applicable law,” the Court of Appeals intensively scrutinized the
Commission’s market dominance findings in an analysis extend-
ing to 43 pages of printed text (App. A, at A-25 - A-68)—far
more pages than CP&L, the party with the burden of proof as to
this issue, had devoted in its own evidentiary presentation before
the Commission. Indeed, CP &L in its initial evidentiary presen-
tation to the Commission had confined its treatment of market
dominance to a single footnote. When Petitioners replied by sub-
mitting detailed evidence that they lacked market dominance,
CP &L responded by accusing Petitioners of “unmitigated gall,”
but provided no supporting evidence or analysis." The Commis-
sion found that CP&L had “presented very /ittle evidence on the
market dominance issue” (App. C at C-10), but proceeded in its
decision to examine carefully the evidence submitted by both
parties—including rate/cost relationships (id., at C-10), the mar-
ket dominance presumptions (id.at C-11 - C-12), CP&L’s “con-
siderable flexibility” under its coal supply contract, and the exis-
tence of geographic or source competition (id., at C-12 - C-13),
and the utility’s investment in rail-related equipment (id.at
C-13). Based on its analysis of these factors, the Commission
found (id.at C-14):
“The evidence does not demonstrate that respondent rail
carriers have experienced market dominance in their nego-
tiations with Central Power and Light. Protestant has failed
to meet its initial burden of showing market dominance.”
The Court of Appeals—instead of “ascertaining that the Com-
mission's decision reflects meaningful consideration of the salient
factors” —placed the Commission's decision under the judicial
"An important factual issue was the extent to which CP&L was
“locked into” use of particular railroads by its coal supply contract.
Petitioners submitted the contract into evidence, together with an exten-
sive analysis of its terms. CP&L did not take the matter serious-
ly—devoting to this issue only 4% pages of argument and one page of
testimony out of its 829-page submission. As to geographic competition,
CP&L presented no facts, contending that such competition was
irrelevant.
26
microscope, re-examined the evidence, made its own factual de-
terminations as to each of the market dominance issues, conclud-
ed that the Commission’s findings differed from its own, and
remanded the case to the Commission for reconsideration with
extraordinarily-detailed and highly improper instructions as to
how to proceed." In so doing, it committed serious errors as to
particular factual issues—errors which it would not have made if
it had left the detailed assessment of the evidence to the agency to
whose expertise and judgment such matters are entrusted.
“For example, see the Court’s detailed instructions as to the necessary
analysis and findings with respect to rate bureau activity (App. A at
A-26 - A-29); its instructions to reconcile the decision here with prior
decisions dealing with market dominance issues (id. at A-30 - A-31); its
enormously complicated and detailed instructions as to cost accounting
issues (id. at A-31 - A-48), and its instructions to the Commission to cal-
culate costs in certain specified ways (id. at A-37, A-40), or to answer
particular highly-technical costing questions (id. at A-42, A-46,
A-47); its extended analysis of the evidence bearing on the existence of
competitive alterfatives (id. at A-49 - A-56), and its instructions to the
Commission for dealing with these matters on remand (id. at A-52,
A-56); and its similarly extended analysis of the evidence of record bear-
ing on the existence of geographic competition (id. at A-64 - A-68).
CONCLUSION
Petitioners in this case have made huge investments—in the
tens of millions of dollars—in reliance on a statutory guarantee
that if their proposed capital incentive rate was not found unlaw-
ful by the Commission within the specified 180-day period, then
that rate could not subsequently be suspended or set aside for 5
years. The Commission has determined that their rate qualifies
for that special statutory protection, and the Court of Appeals
sustained that determination. Petitioners kept their part of the
bargain by making the proposed investments. Now the statutory
guarantee is about to be abrogated. To prevent that from happen-
ing, this Court should grant the petition for a writ of certiorari,
and review and reverse the decision of the Court of Appeals.
MILTON E. NELSON, JR.
RICHARD E, WEICHER
80 E. Jackson Blvd.
Chicago, Illinois 60604
Attorneys for The Atchison,
Topeka and Santa Fe
Railway Company
SAMUEL R. FREEMAN
KENDALL T. SANFORD
1515 Arapahoe Street
Denver, Colorado 80217
Attorneys for The Denver and
Rio Grande Western Railroad
Company
STEWART E,. VAUGHN
One Market Plaza
San Francisco, California 94105
Attorney for Southern Pacific
Transportation Company
June 5, 1981
Respectfully submitted,
R. EDEN MARTIN
LAWRENCE A. MILLER
JOHN WILL ONGMAN
MICHAEL G. LEDERMAN
1730 Pennsylvania Ave., N.W.
Washington, D.C. 20006
HOWARD J. TRIENENS
RICHARD J. METZGER
One First National Plaza
Chicago, Illinois 60603
Attorneys for Petitioners
S-1
STATUTORY APPENDIX
Section 206 of the 4-R Act as it was initially codified at 49
U.S.C. §15(19) provided as follows:
“Notwithstanding any other provision of law, a common
carrier by railroad subject to this part may file with the Com-
mission a notice of intention to file a schedule stating a new
rate, fare, charge, classification, regulation, or practice
whenever the implementation of the proposed schedule
would require a total capital investment of $1,000,000 or
more, individually or collectively, by such carrier, or by a
shipper, receiver, or agent thereof, or an interested third par-
ty. The filing shall be accompanied by a sworn affidavit set-
ting forth in detail the anticipated capital investment upon
which such filing is based. Any interested person may request
the Commission to investigate the schedule proposed to be
filed, and upon such request the Commission shall hold a
hearing with respect to such schedule. Such hearing may be
conducted without answer or other formal pleading, but rea-
sonable notice shall be provided to interested parties. Unless,
prior to the 180-day period following the filing of such notice
of intention, the Commission determines, after a hearing,
that the proposed schedule, or any part thereof, would be un-
lawful, such carrier may file the schedule at any time within
180 days thereafter to become effective after 30 days’ notice.
Such a schedule may not, for a period of 5 years after its
effective date, be suspended or set aside as unlawful under
section 2, 3, or 4 of this part, except that the Commission
may at any time order such schedule to be revised to a level
equaling the variable costs of providing the service, if the
rate stated therein is found to reduce the going concern value
of the carrier.”
Upon the recodification of the Interstate Commerce Act in
1978, 49 U.S.C. §15(19) was recodified at 49 U.S.C. §10729 and
provides as follows:
“(a) A proposed rate, classification, rule, or practice for
transportation by a rail carrier subject to the jurisdiction of
the Interstate Commerce Commission under subchapter I of
S-2
chapter 105 of this title requiring a total capital investme
of at least $1,000,000 to implement shall be established a)
become effective under this section. This section appli
whether the investment is made individually or collective
by the carrier or by a shipper, receiver, or agent of any
them, or by a third party.
“(b) A rail carrier may file a notice of intent to establist
rate, classification, rule, or practice under subsection (a)
this section with the Commission. The notice must includ«
sworn affidavit detailing the anticipated capital investme!
Unless the Commission after holding a proceeding und
subsection (c) of this section, decides by the 180th day af
the notice is filed that the proposed rate, classification, ru
or practice would violate this subtitle, the carrier may esta
lish that rate, classification, rule, or practice at any time di
ing the next 180 days, and it may become effective 30 da
after it is established. Once a rate, classification, rule,
practice becomes effective under this section, the Comm
sion may not, for 5 years, suspend or set it aside as violati
section 10701, 10726, 10741-10744, or 11103 of this tit
However, the Commission may order the rate, classificatic
rule or practice to be revised to a level equal to the varial
costs of providing the transportation when the Commissi
finds the level then in effect reduces the going concern val
of the carrier.
“(c) On request of an interested person, the Commiss|
shall hold a proceeding to investigate and determine whet
the rate, classification, rule, or practice proposed to be esti
lished under this section complies with this subtitle. 1
Commission must give reasonable notice to interested part
before beginning a proceeding under this subsection but m
act without allowing an interested party to file an answer
other formal pleading.”
Section 210 of the Staggers Rail Act of 1980 provides as |
lows:
“(a) Section 10729 of title 49, United States Code, :
the item relating to such section in the section analysis
chapter 107 of such title, are repealed.
S-3
“(b) Notwithstanding any other provision of law, any rate
established by a rail carrier under section 10729 of title 49,
United States Code, prior to the effective date of this Act
shall remain in effect in accordance with its terms, but for no
longer than 5 years after the date it became effective, unless
the parties otherwise agree. However, the Interstate Com-
merce Commission may, during the period such a rate is in
effect, order such rate revised to a level equal to the in-
cremental cost of providing the transportation if the Com-
mission finds that the level then in effect reduces the going
cor » value of the rail carrier.”
APPENDIX A
CENTRAL POWER AND LIGHT CO., Petitioner,
v
UNITED STATES of America and Interstate Commerce
Commission, Respondents.
STATE OF TEXAS, Petitioner,
v.
UNITED STATES of America and Interstate Commerce
Commission, Respondents.
Nos. 80-1068, 80-1172.
United States Court of Appeals,
Fifth Circuit.
Dec. 15, 1980.
William L. Slover, Washington, D.C., Cicero C, Sessions, New
Orleans, La., for Central Power and Light Co.
Robert Lewis Thompson, Dept. of Justice, James Laskey, John
J. Powers, III, Joseph H. Dettmar, I.C.C., Washington, D.C., for
the U.S. and I.C.C.
Paul M. Haygood, New Orleans, La., Howard J. Trienens and
Richard J. Metzger, Chicago, IIl., R. Eden Martin and John Will
Ongman, Washington, D.C., for Denver and Rio Grande West-
ern R.R. Co., The Atchison, Topeka and Santa Fe R.R. Co. and
Southern Pacific Transp. Co.
Robert N. Kharasch, Gallans, Kharasch, Calkins & Short,
Olga Boikess, Washington, D.C., for Colowyo Coal Co.
David Hughes, Stuart Fryer, Carl E. Glaze, Asst. Attys. Gen.,
Austin, Tex., for the State of Tex.
Petitions for Review of an Order of the Interstate Commerce
Commission.
Before HILL, RUBIN and ANDERSON, Circuit Judges.
A-2
R. LANIER ANDERSON, III, Circuit Judge:
These two consolidated petitions for review of an order
Interstate Commerce Commission (“ICC” or “Commissio1
volve a single set of facts and require that this circuit for tt
time address a provision added to the Interstate Commer
by the Railroad Revitalization and Regulatory Reform ;
1976 (“Reform Act’’),' and regulations promulgated by the
mission interpreting a second provision added by the Refor1
The new statutory provision requiring interpretation, Sectic
of the Reform Act, now revised and codified at 49 U.S
§ 10729,’ provides for expedited review by the ICC of capi
centive rates filed by rail carriers subject to the ICC’s jurisd
This section further provides that if a capital incentiv
becomes effective either through Commission inaction «
proval, “the Commission may not, for 5 years, suspend o1
aside as violating” specified provisions of the Interstate
merce Act. § 10729(b). The regulations requiring interpre
are found at 49 C.F.R. 1109.1 and establish rebuttable pre
'Pub.L. No 94 210, 90 Stat. 41 (1976) revised the Interstate
merce Act, then codified at 49 U.S.C.A. §§ 1 et seq. Pub.L. No. §
92 Stat. 1337 (1978) subsequently revised and recodified, witho
stantive change, the Interstate Commerce Act at 49 U.S.C.A. §§
et seq. Reference hereinafter shall be either to sections of the Int
Commerce Act as recodified, or to specified sections of the Reform
Since the drafting of this opinion, the Staggers Rail Act o!
Pub.L. No. 96 448, 94 Stat. 1895, has been enacted, further am
the Interstate Commerce Act as it applies to the rail industry. Re!
to sections of the Interstate Commerce Act shall be to the provis
they read before the Staggers Rail Act of 1980.
49 U.S.C.A. § 10729 (West Supp. 1980) reads in full:
§ 10729. Rail carriers; incentive for capital investment
(a) A proposed rate, classification, rule, or practice for tri
tation by a rail carrier subject to the jurisdiction of the Int
Commerce Commission under subchapter I of chapter 105
title requiring a total capital investment of at least $1,000
implement shall be established and become effective under t
tion. This section applies whether the investment is mi
{footnote continued on next page.)
A-3
tions of “market dominance” as defined by § 10709(a).’ A pre
requisite to the Commission’s having jurisdiction to approve ¢
disapprove a capital incentive rate is that the carrier have marke
dominance over the transportation to which the rate applie:
§ 10709(c).*
(footnote continued from previous page.)
dividually or collectively by the carrier or by a shipper, receiver, ¢
agent for any of them, or by a third party.
(b) A rail carrier may file a notice of intent to establish a rat
classification, rule, or practice under subsection (a) of this sectio
with the Commission. The notice must include a sworn affidavit di
tailing the anticipated capital investment. Unless the Commissio
after holding a proceeding under subsection (c) of this sectio1
decides by the 180th day after the notice is filed that the propose
rate, classification, rule, or practice would violate this subtitle, th
carrier may establish that rate, classification, rule, or practice ¢
. any time during the next 180 days, and it may become effective 3
. days after it is established. Once a rate, classification, rule, or prac
tice becomes effective under this section, the Commission may no
for 5 years, suspend or set it aside as violating section 10701, 10721
10741 10744, or 11103 of this title. However, the Commission ma
order the rate, classification, rule, or practice to be revised to a lev:
equal to the variable costs of providing the transportation when th
Commission finds the level then in effect reduces the going concer
value of the carrier.
(c) On request of an interested person, the Commission sha
hold a proceeding to investigate and determine whether the rat
classification, rule, or practice proposed to be established under th
section complies with this subtitle. The Commission must give rei
sonable notice to interested parties before beginning a proceedin
under this subsection but may act without allowing an intereste
party to file an answer or other forma! pleading.
‘49 U.S.C.A. § 10709(a) (West Supp.1980) reads in full:
(a) In this section, ‘market dominance’ means an absence of effe:
tive competition from other carriers or modes of transportation fi
the transportation to which a rate applies.
*49 U.S.C.A. § 10709(c) (West Supp.1980) reads in pertinent part
(c) When the Commission finds in any proceeding that a rail ca
rier proposing or defending a rate for transportation has mark
dominajice over the transportation to which the rate applies, it ma
then determine that rate to be unreasonable if it exceeds a reaso!
able maximum for that transportation.
A-4
The petitioners challenge the ICC’s decision dated Jz
1980, in which the Commission refused to review a cap
tive rate proposed by the railroad intervenors for the ti
tion of coal because the Commission found no market d
over that transportation. They claim that the ICC er
finding the railroads’ proposed rate qualified for conside
capital incentive rate under § 10729, (2) finding that thi
did not possess market dominance with respect to the
transportation of coal, (3) finding that even if the presu:
market dominance had been triggered, such presump'
rebutted by the existence of geographic competition, (4
adequately state the rationale of its decision, (5) failin
any findings with respect to discriminatory pricing, an
ing to require the railroads to produce evidence wi
possession.
These petitions, through no fault of petitioners, |
before this court in a most unusual and unsatisfactor
The Commission has declined to file a brief in support
sion. Instead, after deciding on April 30, 1980, thai
merited further thought, the Commission moved this c
cline to address the merits and to remand these petition
might institute a reconsideration on the record as it 1
(Hereinafter, the phrase “voluntary remand” shall re
ICC requested remand without consideration of the m:
the phase “court generated remand” shall refer to a re!
consideration of the merits.) The petitioners and the rai
forces against their former mediator in opposing this m
voluntary remand, but for different reasons. The railr
that a voluntary remand is neither necessary nor pert
moreover, that any court-generated remand is limited
to what the Commission may do to correct any legal
petitioners argue that a voluntary remand is not perm
§ 10729, but that a court-generated remand is necess:
propriate in this case.
A-5
We conclude that we cannot grant the Commission’s
for a voluntary remand, but must address the merits of the
tions. We find that the railroad’s proposed rate does qua
consideration as a capital incentive rate. However, we vac
Commission’s findings on market dominance and geo,
competition and remand.
Our discussion of the issues will proceed according to
lowing outline:
I. Facts
II. Statutory Framework
III. Standard of Review
IV. Qualification for Treatment Under § 10729
V. Voluntary Remand
VI. Scope of Commission’s Authority Upon Ren
VII. Presumptions
A. Rate Bureau Presumption
B. Market Share Presumption
C. Revenue/Cost Presumption
(i) Use of Additives
(ii) Rate of Return in Incremental
Plant Investment Additive
(iii) Double Count
D. Substantial Investment Presumption
(i) Significance of One Terminating |
(ii) Finding of Competing Carriers
Axial to Coleto Creek Movement
(iii) Finding of Alternative Domestic §
(iv) Finding of Alternative Modes
eographic Competition
Statutory Restriction on Consideration
graphic Competition
Restriction on Consideration of Geo
Competition Within Regulations
Commission's Finding of Geographic C
tion After the Colowyo Contract
Availability of Geographic Competition
the Colowyo Contract
IX. Section 10741 Attack on Rate as Discrim
and Railroads’ Duty to Produce Evidence
VIII.
59 9 B >O
A-6
I. FACTS
Central Power & Light Company (“CP&L”) is an electric
utility engaging in the generation, transmission, and sale of elec-
tric power to 200 communities in south Texas including the City
of Corpus Christi. Since its inception in 1916, CP&L has relied
upon oil and gas to fuel its boilers. Following the OPEC oil
embargo in 1973 and the passage of legislation regulating the use
of oil and gas as a boiler fuel, CP&L decided to build a coal fired
generating plant at a site near Coleto, Texas. This plant will
eventually consist of two generating units. Each unit has a gener-
ating capacity of 550,000 kilowatts and will require 30,000 tons
of coal per week, or approximately 1,500,000 tons annually. The
first unit has been completed and has undergone preliminary start
up operations. It was scheduled to go on line the first quarter of
1980.° The second unit is scheduled for completion in 1988.
In 1974, CP&L began investigating possible sources of coal to
supply the first unit at Coleto Creek. The railroads have placed in
the record certain evidence concerning alleged contacts CP&L
had with various domestic mines as it began looking for a source
of coal. Among the sources allegedly contacted were mines in
Wyoming, Colorado, Texas and Kentucky as well as in foreign
locales. Although CP &L was concerned at what it considered un-
reasonably high prices quoted by carriers and despite not having
reached agreement with any carrier on a price for transporting
coal, CP&L entered in December, 1976, a 25-year contract with
Colowyo Coal Company (“Colowyo”) for a total of 30 million
tons of low sulfur coal mined in Axial, Colorado.*
*The Justice Department in its brief states that the first unit has begun
fulltime operation.
‘CP&L explains that it felt compelled in 1976 to enter into the
Colowyo contract in order to insure a reliable source of suitable coal for
its new plant. It stated that after the Commission's initial decision in
San Antonio, Texas v. Burlington Northern, Inc., 355 1.C.C. 405
(1976), aff'd 555 F.2d 637 (8th Cir. 1977), reopened 359 1.C.C. (1978),
(footnote continued on next page).
A-7
The transportation of the coal from Axial necessitates a rail
movement in unit coal trains’ beginning with the Denver & Rio
Grande Western Railroad Company (“D&RGW”), the only rail
carrier serving the Axial mine. D&RGW carries the coal 375
miles, where the Atchison, Topeka and Santa Fe Railway Com-
pany (“Santa Fe”) continues the movement for the next 865
miles. The Southern Pacific Transportation Company (“SP”’) is
the only carrier serving the plant at Coleto Creek and completes
the final 156 miles of the movement. (D&RGW, Santa Fe and SP
are hereinafter sometimes collectively referred to as “railroads”
or “carriers”’).
After entering its contract with Colowyo, CP&L was still un-
able to negotiate a mutually acceptable price with the railroads.
In 1979, CP&L began operating the first unit at Coleto Creek on
a preliminary stari up basis, using South African coal shipped to
the port at Corpus Christi, Texas, and then trucked from the port
to the Coleto Creek plant, a distance of 88 miles. CP & L used this
South African coal for its start up operations because its delivered
price is substantially less than the delivered price of the Colowyo
coal at the rates requested by the railroads.
Because the movement from Axial would begin with the start-
up of full scale operation in 1980, the railroads broke the impasse
with CP&L by filing on July 19, 1979, their Notice of Intention to
file a proposed capital incentive rate under § 10729 for the
movement at $20.85 per ton in shipper supplied cars. On August
9, 1979, CP&L filed a protest, contending that the proposed rate
did not qualify the capital incentive rate treatment, that the rate
(footnote continued from previous page).
reconsidered 361 1.C.C. 482 (1979), vacated and remanded sub nom
San Antonio v. United States, 631 F.2d 831 (D.C. Cir. 1980), it believed
it could look to the ICC to establish a reasonable rate if the railroads
persisted in their demands.
’A unit coal train typically consists solely of hopper cars carrying only
coal.
A-8
was unlawfully high under § 10709, and that the rate was unlaw-
fully discriminatory under § 10741. The State of Texas was
granted leave to intervene in the proceedings before the Commis-
sion in support of CP&L. After an investigation of the proposed
rate, the Commission concluded that it had no jurisdiction over
the question of the rate reasonableness because CP & L had failed
in its burden of proving that the carriers have market dominance.
Both Texas and CP&L have petitioned this court for review of
this decision, which petititions have been consolidated and ex-
pedited. The Department of Justice (“Justice”) represents the
government in this petition as statutory respondent.’
Il. STATUTORY FRAMEWORK
The 94th Congress in 1976 passed the Reform Act in order to
restore the financial stability of the railway system, to enable rail-
roads to rehabilitate and maintain their physical facilities, to
improve their operation and structure, and to promote their re-
vitalization.’ The Reform Act contains two major reforms in the
regulatory process to implement this goal of revitalization. First,
it mandates the deregulation of rates which were not the product
of market dominance. Second, it imposes time limits on the Com-
mission in considering rail rate proposals.
[1] The railroads in this case chose to proceed under the capital
incentive rate provision added to the Interstate Commerce Act by
‘the Reform Act and now codified at § 10729. This provision is an
"See 28 U.S.C.A. § 2323 (West Supp.1980).
*Section 101(a) of the Reform Act reads in pertinent part:
Sec. 101(a) Purpose. It is the purpose of the Congress in this Act to
provide the means to rehabilitate and maintain the physical facili-
ties, improve the operations and structure, and restore the financial
stability of the railway system of the United States, and to promote
the revitalization of such railway system, so that this mode of trans-
portation will remain viable in the private sector of the economy
and will be able to provide energy-efficient, ecologically compatible
transportation services with greater efficiency, effectiveness, and
economy, ...
A-9
important part of Congress’ attempt to expedite rail rates
proposed to the Commission. Section 10729 provides that a rail
carrier may file a notice of intention to file a schedule establishing
a new rate “requiring a total capital investment of at least
$1,000,000 to implement.” The procedural advantage to carriers
in filing under this section is that strictly compressed time limits
are imposed upon the parties for the presentation of their opposi-
tion to the proposed rate. Under § 10729, unless the Commission
determines within 180 days after filing the notice that the pro-
posed rate would be unlawful for any reason under the Interstate
Commerce Act, the rail carrier may publish the rate, which may
not then be suspended or set aside as unlawful for a period of five
years from its effective date (except for situations not pertinent
here). Section 10729 gives an additional advantage to the carriers
in that in any hearing pertaining to a capital incentive rate the
burden of proof is upon the protestant. Ex parte No. 327, Rate In-
centive for Investment Capital, 353 1.C.C. 754, 767 (1977)."
CP&L and Texas chose to attack the proposed rate under two
sections. First, they attacked the rate under § 10709(c) as exceed-
ing “‘a reasonable maximum.” As part of the attempt to de-
regulate rail rates, Congress established as a prerequisite for a
finding that a rate exceeds a reasonable maximum a requirement
that the protestant must establish the carrier has “market domi-
nance over the transportation to which the rate applies.”
“The alternative section under which the railroads could have filed
their proposed rate is § 10707. This section also was added to the Inter-
state Commerce Act by the Reform Act. See Reform Act, Pub.L. 94
210, § 202(e), 90 Stat. 31 (1976). Section 10707 is the section under
which investigation of a proposed rail rate would normally be conducted,
and is the only section authorizing investigation of a rail rate that has al-
ready become effective. It does not have a capital investment prerequi-
site. It does impose time limits on the Commission in conducting a
proceeding, though not as stringent as the time limits of § 10729. See
§ 10707(b)(1). A significant difference from § 10729 is that in a § 10707
proceeding, the burden is on a carrier proposing a changed rate, clas-
sification, rule or practice to prove the change is reasonable. § 10707(e).
A-10
§ 10709(c). “Market dominance” is defined as “an absence of
effective competition from other carriers or modes of transporta-
tion for the transportation to which a rate applies.” § 10709(a).
Section 202(b) of the Reform Act" requires the Commission to
establish rules, standards and procedures to determine when a
carrier possesses market dominance over a service rendered. This
section requires the Commission to design such rules to “provide
for a practical determination without administrative delay.” In
response to this requirement, the Commission in a continuing
proceeding, entitled Ex parte No. 320, Special Procedures for
Findings of Market Dominance,” promulgated the regulations
now found at 49 C.F.R. § 1109.1 (1979). These regulations estab-
lish four rebuttable presumptions to aid the Commission in ascer-
taining whether market dominance exists. 49 C.F.R. § 1109.1(f)
and (g).” The rebuttable presumptions are (1) that “the rate is
"This section was omitted from the recodification as it had been
executed by 1978.
"Ex parte No. 320, Special Procedures for Findings of Morket
Dominance, consists of a series of proceedings of the Commission con-
struing and modifying its regulations concerning market dominance
promulgated at 49 C.F.R. 1109.1. The initial decision was an Interim
Report inviting comments on proposed regulations to determine market
dominance. Ex parte No. 320, 353 1.C.C. 874 (1976) (hereinafter “Ex
parte No. 320, Interim Report’’). After receiving comment, the present
regulations were promulgated in a Final Report. Ex parte No. 320, 355
1.C.C. 12 (1976) (hereinafter “Ex parte No. 320, Final Report’’). in
Atchison, Topeka & Santa Fe Railway Co. v. ICC, 580 F.2d 623 (D.C.
Cir. 1978), the District of Columbia Circuit upheld the regulations, but
remanded for clarification of one of the regulations. Ex parte No. 320,
359 L.C.C. 735 (1979) (hereinafter “Ex Parte No. 320, Clarification’’)
contains that clarification. The ICC has only recently proposed new
regulations on market dominance and has requested comments on
proposed amendments. Ex parte No. 320, 45 F.R. 3353 (January 17,
1980.
"49 C.F.R. § 1109.1(f) and (g) (1979) read in full:
(f) In a proceeding involving a determination as to market domi-
nance wherein the evidence adduced establishes that the rate in is-
sue has been discussed, considered or approved upon a rate bureau
(footnote continued on next page).
A-11
issue has been discussed, considered or approved upon a rate
bureau agreement,” (2) that “the proponent carrier has handled
70 percent or more of the involved traffic or movement during the
preceding year,” (3) that “the rate in issue exceeds the variable
cost of providing the service by 60 percent or more,” and (4) that
the “affected shippers or consignees have made a substantial in-
vestment in rail related equipment or facilities which prevents or
make impractical the use of another carrier or mode.” The Com-
mission in the case at hand found none of these rebuttable pre-
sumptions to have been met, and concluded that no market domi-
nance existed. Accordingly, it found that it had no jurisdiction to
determine whether the rate was unreasonably high. CP &L attacks
this finding, contending that each of the presumptions applies."
(footnote continued from previous page).
agreement filed with the Commission pursuant to section Sa or 5b
of the Interstate Commerce Act, a rebuttable presumption will
arise that a carrier participating in the rate or in such discussion or
consideration does not provide effective competition to the propo-
nent rail carrier for the involved traffic or movement.
(g) In a proceeding involving a determination as to market domin-
ance wherein the evidence adduced establishes one of the following
situations, a rebuttable presumption that the carrier whose rate is
in issue has market dominance over the involved traffic or
movement will arise;
(1) Where the proponent carrier has handled 70 percent or more of
the involved traffic or movement during the preceding year; the
market share of the proponent will be deemed to include the share
of any affiliates, and of any carrier participating in the rate or with
whom the proponent carrier has discussed, considered, or approved
the rate in issue;
(2) Where the rate in issue exceeds the variable cost of providing
the service by 60 percent or more; and
(3) Where affected shippers or consignees have made a substantial
investment in rail-related equipment or facilities which prevent or
make impractical the use of another carrier or mode.
“On this petition, Texas contests the Commission's findings with re-
spect to the Cost/Revenue Presumption and the Substantial Investment
test. (Nos. (3) and (4)). Justice petitions for review of the Commission’s
findings with respect to these presumptions, and with respect to the
Market Share Presumption (No. (2)) as well.
A-12
CP&L made a second attack on the proposed rate under
§ 10741, alleging that the rate was discriminatory. Section
10741(a) states that a carrier “may not charge or receive from a
person a different compensation (by using a special rate, rebate,
drawback or other means) for a service rendered, or to be ren-
dered, in transportation the carrier may perform under this sub-
title than it charges or receives from another person for perform-
ing a like and contemporaneous service in the transportation of a
like kind of traffic under substantially similar circumstances.”
Although there is no prerequisite that a protestant show market
dominance before a rate may be found discriminatory under this
section, the Commission failed to address CP & L’s allegations ol
discriminatory pricing.
Ill. STANDARD OF REVIEW
[2] In reviewing the Commission’s decisions, we are guided by
familiar standards. Basic is the rule that the reviewing court mus!
consider whether the decision was based on relevant factors anc
whether there has been clear error of judgment. Citizens to Pre.
serve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814
823, 28 L.Ed.2d 136 (1971). While our “inquiry into the facts i:
to be searching and careful, the ultimate standard of review is ¢
narrow one. The court is not empowered to substitute its judg:
ment for that of the agency.” /bid; see Bowman Transportation v
Arkansas Best Freight System, 419 U.S. 281, 285, 95 S.Ct. 438
441, 42 L.Ed.2d 447 (1974). In the context of rate making, par
ticularly appropriate to one aspect of this opinion,” the Suprem¢
Court has noted:
Such decisions ‘are not to be disturbed by the courts except
upon a showing that they are unsupported by evidence, were
made without a hearing, exceed constitutional limits, or for
some other reason amount to an abuse of power.’ Manufac-
turers R. Co. v. United States, 246 U.S. 457, 481 [38 S.Ct.
"See our discussion in Part VII. C (iii), infra, concerning an allege
double count in the Revenue/Cost Presumption.
A-13
383, 389, 62 L.Ed. 831] (1918). As this Court has observed,
‘The process of rate making is essentially empiric. The stuff
of the process is fluid and changing the resultant of factors
that must be valued as well as weighed. Congress has there-
fore delegated the enforcement of transportation policy to a
permanent expert body and has charged it with the duty of
being responsive to the dynamic character of transportation
problems.’ Board of Trade of Kansas City v. United States,
314.U.S. 534, 546 [62 S.Ct. 366, 372, 86 L.Ed. 432] (1942).
Atchison, Topeka & Santa Fe Ry. Co. v. Wichita Board of
Trade, 412 U.S. 800, 806, 93 S.Ct. 2367, 2374, 37 L.Ed.2d 350
(1973). (footnote omitted).
[3-5] Tempering this deference afforded agency action is the
requirement that a reviewing court set aside agency action found
to be arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law. 5 U.S.C.A. § 706(2)(A) (West
1977). Variations on this theme inform us that we must be able to
discern from a decision the reasons for the Commission’s conclu-
sions and the policies it is pursuing. Potomac Electric Power Co.
v. United States, 584 F.2d 1058 (D.C.Cir. 1978). “We must know
what a decision means before the duty becomes ours to say
whether it is right or wrong.” United States v. Chicago, Mil-
waukee, St. Paul & Pacific Railroad, 294 U.S. 499, 511, 55 S.Ct.
462, 467, 79 L.Ed. 1023 (1935). Also, an agency must either con-
form itself to its prior norms and decisions or explain the reason
for its departure. Secretary of Agriculture v. United States, 347
U.S. 645, 74 S.Ct. 826, 98 L.Ed. 1015 (1954); Mitchell Energy
Corp. v. Federal Energy Regulatory Commission, 580 F.2d 763
(5th Cir. 1978); NLRB v. Sunnyland Packing Co., 557 F.2d 1157,
1160 (Sth Cir. 1977); see Frozen Food Express, Inc. v. United
States, 535 F.2d 877 (Sth Cir. 1976). With these standards in
mind, we turn to the issues.
IV. QUALIFICATION FOR TREATMENT UNDER § 10729
Only CP &L argues on appeal that the Commission erred in de-
termining that the rate is a capital incentive rate under § 10729
A-14
with its five year protection against attack. We treat this ques
first not only because of its procedural priority but also becau
determination of this question bears upon whether a volun
remand is proper.
The pertinent part of § 10729(a) establishing the criteria 1
met before the special rate incentive procedure applies, read
A proposed rate, classification, rule, or practice for trans
tation by a rail carrier... requiring a total capital in'
ment of at least $1,000,000 to implement shall be establi
and become effective under this section. This section ap
whether the investment is made individually or collect
by the carrier or by a shipper, receiver, or agent for ar
them, or by a third party.
In previous western coal unit train cases initiated under § 10
railroads have typically relied upon investments in additi
locomotives and in construction and improvements on track
roadbed required by a movement to establish the $1,000,00
vestment threshold. /ncentive Rate on Coal Cordero, Wyomii
Smithers Lake, Texas, 358 1.C.C. 537 (1977) (“Smithers Lai
Incentive Rate on Coal Gallup, New Mexico to Cochise, Ariz
357 LC.C. 683 (1977) (“Cochise”); Incentive Rate on
Hayden, Colorado to Kings Mill, Texas, 359 1.C.C. 749 (1
(‘Kings Mill’), petition for review pending; cf. Incentive Ra
Coal Belle Ayr. Wyoming to Council Bluffs, Iowa, 359 1.
201, 207 (1978) (“Council Bluffs”). The railroads here foll
form, alleging that the Coleto Creek movement would requir
purchase of 37 locomotives, the construction of a new conne
between the Santa Fe and SP lines at Caldwell, Texas, exte)
of sidings and passing tracks along the Santa Fe line, and sub
tial upgrading of track of both the Santa Fe and SP. The req
upgrading alleged by SP was on 92 miles of branch line, on!
of which rail would have to be replaced, as well as ties und«
rails and ballast under the ties, with stabilization of the sub;
under the ballast, in order safely to accommodate the heav)
trains.
A-15
CP&L argues that these investments do not qualify the rail-
roads’ proposed schedule for capital incentive treatment because
(1) the service for which the schedule is proposed is neither in-
novative nor of a new type, (2) the proposed expenditures are not
required for the CP&L traffic, but at most amount to conve-
niences, (3) the expenditures claimed by SP for upgrading its
track are actually operating expenditures rather than capital in-
vestments, and (4) the railroads refused to produce evidence
requested by CP &L in order to accurately determine the amount
of claimed investments which could be properly attributed to
CP &L’s traffic as opposed to the railroads’ normal traffic."
The Commission did not, as it did in prior coal cases, include
the alleged purchascs of locomotives in its computation of
required capital investments (Joint Appendix (“J.A.”) III, p.
1939), but nevertheless found the $1,000,000 threshold require-
ment to have been exceeded by a “substantial margin.” (J.A. III,
p. 1940). The Commission specifically found that the combined
investment by the Santa Fe and SP in constructing the inter-
change at Caldwell, Texas, and the expenditures by SP to up-
grade its branch line track would each exceed $1,000,000. /bid.
[6] With respect to CP&L’s argument that the capital incen-
tive rate provision applies only to innovative types of service, we
note that there is no such requirement in the language of § 10729.”
CP&L, though, perceives in the legislative history of § 10729
such a requirement. Although the District of Columbia Circuit in
Houston Lighting & Power Co. v. United States, 606 F.2d 1131
“The requested information would be relevant in determining alloca-
tion between CP&L’s movement and other traffic of costs of additional!
locomotives purchased and sidings constructed along the Sante Fe line.
"The Commission has interpreted the language of § 10729 thus: “Or.
dinarily, eligible capital investment will be for the purpose of promoting
innovative or improved service or attracting new traffic.’ Ex parte No
327, Rate Incentives for Capital Investment, 353 1.C.C. 754, 758 (1977)
(emphasis added).
A-16
(D.C.Cir.1979), cert. denied, 444 U.S. 1073, 100 S.Ct. 10
L.Ed.2d 755, extensively reviewed the legislative histc
§ 10729 and found no requirement that the service be inno\
CP &L offers no reason to us why the District of Columbi
cuit was mistaken in its conclusion." After reading the legi:
history, we agree with the District of Columbia Circuit th
service need not be innovative or of a new type for the r
they enunciated. 607 F.2d at 1137-1139. In so holding, we
our recent decision in Celanese Chemical Co., Inc. v. |
States, 632 F.2d 568 (Sth Cir. 1980).
[7] The remainder of CP &L’s objections that the railroads
to qualify for treatment under § 10729 are disposed of by fo
upon the interchange to be constructed between the Santa I
SP lines at Caldwell, Texas. CP&L attacked this proposed
change as unnecessary, constituting a convenience only
movement of coal trains from the Santa Fe line to SP’s line.
ently, the Santa Fe line passes over SP’s line on an overp
Caldwell, Texas. (J.A. II, p. 1098) There exists an intercha
this junction, but it is a little used connection neither constr
nor maintained, for the engineering standards necessitat
coal train operation. (/bid.) Moreover, it is placed in such
that the unit coal train proceeding off the Santa Fe track to!
track would be headed in the wrong direction. To put the t)
the right direction would necessitate blocking traffic on S|
tercontinental main track for two hours or more while th
tions of lead locomotives, helper locomotives (located aft
first % of the train), and the caboose are switched. A witn
"“CP&L cites only H.R. Rep. No. 93-1381, 93rd Cong.2d S
(1974) and Surface Transportation Legislation Hearings or
12891, H.R. 5385, H.R. 13487, H.R. 10694 and S. 1149 befi
House Committee on Interstate and Foreign Commerce and th
committee on Transportation and Aeronautics, 93rd Cong.2d. Se
(1974). This legislative history dealt with bills introduced in th
Congress, which failed to pass any legislation. In our review of th
lative history, we looked to the many bills and reports of both tl
Congress and the 94th Congress, which passed the Reform Act.
A-17
CP&L stated that a new connection at Caldwell, while a conv
nience, was not necessary. An SP engineer countered with te
timony that it would be hazardous, impractical and inefficient
operate over the existing connection. (J.A. III, p. 1112). In tl
light of such testimony, the Commission’s conclusion that tl
Caldwell interchange is required by CP&L’s coal traffic is re:
sonable. Morgover, there is clearly sufficient evidence in tl
record that the total cost of this interchange would excec
$1,000,000. (J.A. II, pp. 1080 and 1114). Since the Caldwell ii
terchange alone suffices to qualify the proposed rate for capital il
centive treatment, we do not address CP&L’s remaining a
guments.
V. VOLUNTARY REMAND”
The Commission, as noted above, has not filed a brief on th
merits. On April 30, 1980, it voted to reopen this proceeding sut
ject to approval by this court. On May 6, 1980, before the conch
sion of the briefing schedule and before oral argument, the Con
mission moved this court to remand without consideration of th
merits to enable the Commission to reconsider the present recor
The Commission wishes to reconsider primarily the issue of ma)
ket dominance, and especially its findings on each of the thre
presumptions set out in 49 C.F.R. 1109.1(g). It also wishes |
reconsider whether the railroads submitted sufficient evidence «
competitive alternatives to rebut any presumption of mark
dominance. If the Commission on reconsideration finds mark:
dominance, it will need then to examine the reasonableness of tt
rate. The Commission also wishes to reconsider CP &L’s alleg:
tion of rate discrimination. Finally, the Commission requests thi
the remand not be limited to reconsideration of the above issue
but that we give the Commission authority to consider related i
sues which it may deem necessary to resolve in order to render a
adequate decision in this proceeding.
"We define “voluntary remand” at p. 145, supra.
A-18
[8] As we read the Commission’s motion, it approach
practical concerns, a request for remand of this entire pr
for reconsideration. CP&L, Justice, Texas and the rail
join in opposing the Commission’s motion. They mainta
voluntary remand is impractical now when the decision i:
appellate review. The railroads further argue that § 107:
Reform Act precludes such a voluntary remand, After a1
the Reform Act, we agree that the modifications added
legislation to Commission procedure in rail cases pri
voluntary remand in this case.
The Commission argues that it has authority wu)
U.S.C.A. § 10323(a) and under American Farm Lines
Ball Freight Service, 397 U.S. 532, 90 S.Ct. 1288, 25
547 (1970) and United States v. Benmar Transport &
Corp., 444 U.S. 4, 100 S.Ct. 16, 62 L.Ed.2d 5 (1979), t
sider a decision even after the petitions for judicial revi
been filed. We do not consider American Farm Lines or
Transport authoritative in this situation since neither ca
with a rail carrier, and the Reform Act has establishec
provisions governing Commission procedure in rail cases
[9] We further conclude that the Commission is mista
§ 10323(a) is the appropriate section governing reconsi
In American Farm Lines, the Supreme Court noted the pov
Commission to grant rehearings after a petition was filed wit
was not limited or qualified by 49 U.S.C. § 17(6) and (7), (the
provisions of the Interstate Commerce Act before the 1978 r
tion), governing Commission reconsideration. 397 U.S. at 540,
at 1293.
We also note there are other factors in American Farm Lines
mar Transportation distinguishing these cases from the instan
American Farm Lines, several protesting carriers petition
reopening of the proceeding. In Benmar Transportation, no
parties protested the Commission's reconsideration. Here,
Commission desires reconsideration before review by this cou
tion opposed by all other parties.
A-19
in rail cases.”" Instead, the appropriate section govern
procedure in rail cases is § 10327, which was added to the In
state Commerce Act by the Reform Act.” Section 10327
clearly establishes § 10327’s procedure in rail cases, readin,
pertinent part:
(a) Notwithstanding sections 10322, 10323, and 1032é
of this title, this section applies to a matter before the In
state Commerce Commission involving a rail carrier pro
ing transportation subject to the jurisdiction of the Comr
sion under subchapter 1 of chapter 105 of this title.
Section 10327(g)(1), which deals specifically with reconsid
tion, states:
(g)(1) The Commission may, at any time on its own in|
tive because of material error, new evidence, or substanti
changed circumstances
(A) reopen a proceeding;
(B) grant rehearing, reargument, or reconsideration 0
action of the Commission; and
(C) change an action of the Commission.
An interested party may petition to reopen and reconside
action of the Commission under this paragraph ui
regulations of the Commission.
We note that this section limits Commission reconsideration ©
its own initiative to those cases where there is “material e1
new evidence, or substantially changed circumstances,
requirement lacking in § 10323(a) governing reconsideratio
other cases. The Commission is requesting a remand for re
sideration has cited neither material error, new evidence, nor
“Section 10323(a) is captioned, “Rehearing, reargument, and re
sideration nonrail proceedings.” While this caption indicates § 1!
pertains to nonrail cases, we are conscious that § 3(a) of Pub. L. 95
92 Stat. 1466, recodifying the Interstate Commerce Act, specifies w
not to draw inferences concerning statutory construction from captic
*Section 10327 finds its genesis in § 207(a) of the Reform Act.
A-20
stantially changed circumstances in this case. Because it relies
upon none of these circumstances, the Commission has no author-
ity in this case to reconsider its decision on its own motion. More-
over, this limitation on Commission instigated reconsideration in
rail cases is consistent with Congress’ concern that regulatory
delays were a major cause of our nation’s railroads’ difficulties.
To allow the Commission to reconsider without citing any of these
specified reasons would delay the determination of whether a rate
may be published. ,
(10, 11] Our second reason for refusing a voluntary remand
arises out of the fact that this is a capital incentive rate case
brought under § 10729. We believe that the language and policy
of § 10729, as well as the structure of the Reform Act, precludes
the Commission from reopening a case on its own initiative after
the 180 day time limit to rule on a capital incentive rate. The part
of § 10729 pertinent to the problem of voluntary remand reads:
Once a rate, classification, rule, or practice becomes effective
under this section, the Commission may not, for 5 years, sus-
pend or set it aside as violating section 10701, 10726,
10741, 10744, or 11103 of this title. However, the Commis-
sion may order the rate, classification, rule or practice to be
revised to a level equal to the variable costs of providing the
transportation when the Commission finds the level then in
effect reduces the going concern value of the carrier.
(emphasis added). In this case, the Commission wishes to recon-
sider, among other things, whether the rate for CP&L’s traffic
violates § 10741, prohibiting discriminatory rates; and if the
Commission finds market dominance to exist on voluntary
remand, it would have to determine whether the rate is reasonable
under § 10701. Both provisions are included in § 10729’s five year
prohibition against Commission action.
[12] The language of §10729 sweeps broadly, placing no limita-
tions on the preclusion imposed upon the Commission not to sus-
pend an incentive rate for five years. It might be argued that
A-21
§ 10729 prohibits the Commission from reconsidering a rate only
at the instigation of a shipper under § 10707, but does not pre-
clude the Commission itself from reconsidering a rate. We do not
perceive such a qualification in the language of § 10729. If any-
thing, the sentence in § 10729 giving the Commission authority to
reconsider a rate which reduces the going concern value of the
carrier implies that in other situations the Commission lacks such
authority to set a rate aside. We agree with the District of Colum-
bia Circuit, when in a slightly different context, it stated:
In our view, what the statute means is that the Commission
has no authority to provide agency generated reconsidera-
tion of its approval of a rate whether the approval is ex-
pressed positively, in an order, or passively, by failure to in-
tercede.
Houston Lighting & Power Co. v. United States, 606 F.2d at
1144.” The Commission attempts to distinguish this language by
arguing that a voluntary remand still requires an order by this
court, and thus is not “agency generated.” We think this distinc-
tion is without merit and ignores the reality of the Commission’s
motion. A court would have no reason to remand without con-
sideration of the merits absent a request by the Commission. In
effect, the Commission, in making its motion, is asking that the
court authorize it to do what it otherwise could not do.
[13] There is nothing in the legislative history addressed to the
particular question of whether the Commission could, on its own
initiative, seek a voluntary remand in a rate incentive case. How-
*Although the parties have cited extensively to this language as it
relates to the possibility of a voluntary remand, it is actually dictum.
The question in Houston Lighting & Power was whether the court had
authority to review the merits of a rate incentive decision and whether
the Commission could act after remand following a review on the merits.
In this part of our opinion, the question is whether the Commission has
the authority to request a voluntary remand. We discuss Houston Light-
ing & Power more fully below in Part V1, Scope of Commission’s Au-
thority on Remand.
A-22
ever, we do perceive in the legislative history a policy which would
be violated by a voluntary remand. The Reform Act traces its
roots back to the 93rd Congress. The House Committee on Inter-
state and Foreign Commerce in that Congress, after considering a
bill sponsored by the Department of Transportation, “ reported to
the House a bill, H.R. 5386, with a rate incentive provision essen-
tially the same-as that found in § 10729, the primary difference
being that the House bill offered 3 years, instead of 5 years, pro-
tection to an incentive rate.” In the debate on the floor of the
House, Rep. Adams explained that the rate incentive provision
was known as the “Big John” provision because it was aimed at
ameliorating problems such as that encountered by the Southern
Railway in its efforts to publish new rates for shipment of grain in
innovative “Big John” cars it had developed.” Rep. Adams stated
this provision would:
give some assurance to a carrier or a shipper that if he invests
a million dollars in a new service, he will receive a prompt
decision one way or another on that rate from the ICC and
that if a rate is permitted it will remain in effect for 3 years.
93rd Cong., 2d Sess., 120 Cong. Rec. 38,736 (1974). This bill
passed only the House and was never enacted. In the 94th
Congress, bills were again introduced in both the House and
Senate to revitalize the nation’s railroads.” These bills, which
“H.R. 12891, 93rd Cong., 2d Sess., (1974), reprinted in Staff of 93rd
Cong., 2d Sess., “Surface Transportation Act of 1974: Background In-
formation” (Comm. Print No. 20).
*H.R. 5386, 93rd Cong., 2d Sess. (1974), reprinted in H.R. Rep. No.
93 1381, 93rd Cong., 2d Sess. (1974).
“Southern Railway's difficulties can be traced in Grain in Multiple
Car Shipments River Crossings to the South, 318 1.C.C. 641 (Division
2), reversed, 321 1.C.C. 582 (1963) (Full Commission), reversed sub
nom. Cincinnati, N. O. & T. P. Ry. Co. v. United States, 229 F.Supp.
572 (S.D. Ohio 1964), vacated per curiam sub nom. Arrow Transport
Co. v. Cincinnati, N. O. & T. P. Ry. Co., 379 U.S. 642, 85 S. Ct. 610, 13
L.Ed.2d 550, on remand, 325 1.C.C. 752 (1965).
”H.R. 10979, 94th Cong., Ist Sess. (1975), reprinted in H.R. Rep 94
725, 94th Cong., Ist Sess. (1975).
S. 2718, 94th Cong., Ist Sess. (1975), reprinted in S.Rep. 94-499, 94th
Cong., Ist Sess. (1975), U.S. Code Cong. & Admin. News 1976, p. 14.
A-23
were eventually combined and enacted as the Reform Act, again
contained essentially the same rate incentive provisions.” The
committee reports to both bills emphasized that they were meant
to remedy the serious regulatory lag hampering rail rate cases.”
In pursuit of this goal, special incentive rate cases brought under
§ 10729, as well as regular rail rate cases brought under § 10707,
are subject to time limits for consideration, both types of cases
requiring prompt Commission action. Were we to permit this
requested voluntary remand, the goal of prompt Commission res-
olution in rail cases would be frustrated. In effect, we would be
giving the Commission additional time beyond the 180 day
requirement of § 10729 in which to determine a capital incentive
rate. Although we do not believe that the Commission in this case
is using a voluntary remand as a ploy to circumvent § 10729’s
time limitations,” it would be an obvious threat to the procedural
integrity of § 10729 and the concerns of Congress if voluntary
remands were allowed. Accordingly, we believe they are barred
by § 10729.
*H.R. 10979, § 303, reprinted in H.R. Rep. 94-725, 94th Cong., Ist
Sess., 14 (1975).
S. 2718, § 107, reprinted in S. Rep. 94-499, 94th Cong., Ist Sess.
(1975).
“H.R. Rep. 94-725, 94th Cong., Ist Sess., 60 62 (1975). S. Rep. 94-
499, 94th Cong., Ist Sess., 15 (1975).
“We are concerned, though, that the Commission, as its own motion
to remand indicates, failed to address two major allegations argued
strenuously by CP&L, namely, that the railroads’ rates were discrimi-
natory and that the railroads had failed to provide evidence in their
possession necessary to establish costs. (We discuss these allegations
more fully below in Part IX, Section 10741 Attack on Rate as Dis-
criminatory and Railroads’ Duty to Produce Evidence.) We are also
concerned about the Commission's apparent departure from prior deci-
sions on several issues without adequate explanation. While the 180 day
limit on consideration of an incentive rate case may be onerous, it does
not excuse the failure to address all the issues raised, nor does it excuse
the failure to adequately explain holdings.
A-24
VI. SCOPE OF COMMISSION’S
AUTHORITY UPON REMAND
[14] The railroads do not contest the jurisdiction of this court to
review the Commission’s decision in this case.” However, the rail-
roads argue that, after a court generated remand,” the Com-
mission has no authority, because of the five year prohibition of
§ 10729, to reconsider, or revise its findings. The railroads admit
that this limitation on the Commission’s authority would as a
practical matter make judicial review largely a pointless exercise.”
But they steadfastly argue that the Commission’s power, even on
court generated remand, is limited under the language of § 10729
to changing the rate only after 5 years have passed.
The same argument was made to the Houston Lighting &
Power court:
In intervenors’ [railroads’] view, this language [in § 10729
limiting Commission’s authority to suspend a rate] deprives
the Commission of authority to find a capital incentive rate
unlawful and to set it aside even when a reviewing court has
remanded the Commission’s initial decision approving the
rate because of defects under the Administrative Procedure
Act.
606 F.2d at 1143. The court there rejected the argument and we
agree. To have judicial review of an agency action with no author-
"Cf. Southern Railway Co. v. Seaboard Allied Milling Corp., 442
U.S. 444, 99 S.Ct. 2388, 60 L.Ed.2d 1017 (1979) and Georgia Power
Co. v. United States, 617 F.2d 107 (Sth Cir. 1980), both holding appel-
late courts have no jurisdiction to review a Commission’s decision not to
investigate a rate under § 10707. In this case, there has been an inves-
tigation of market dominance and jurisdiction is clearly established
under § 10709(b) establishing judicial review over determinations of
market dominance.
“We define “court generated remand” and contrast it with “voluntary
remand”, supra, p. 145.
The railroads suggest that judicial review without Commission cor-
rection of legal error would at least have precedential value in future
cases.
A-25
ity in that agency to correct errors is a futile exercise. We do not
perceive in the legislative history of § 10729, the “clear and con-
vincing evidence” necessary to conclude that Congress intended
to restrict normal judicial review. Dunlop v. Bachowski, 421 U.S.
560, 567, 95 S. Ct. 1851, 1857, 44 L.Ed.2d 377 (1975), Abbott
Laboratories, Inc. v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507,
1511, 18 L.Ed.2d 681 (1967). While Congress wished to give rail-
roads assurances that if they made substantial investments, rates
associated with these investments would remain undisturbed for 5
years, there is no hint it wished to protect erroneous Commission
action. On remand, accordingly, the Commission shall have au-
thority to take whatever action our opinion requires.
VII. PRESUMPTIONS
As noted above, the Commission has promulgated four rebut-
table presumptions found at 49 C.F.R. 1101.1(f) and (g) to aid it
in speedily determining whether market dominance exists. The
Commission found that none of these presumptions applied to
CP&L’s movement; we must review the Commission’s action
with respect to each.”
“Our review of Commission decisions reveals this to be the first case
involving unit coal train traffic in which, after an investigation, the Com-
mission did not find one of the presumptions to apply and market domi-
nance to exist. In only one case brought to our attention has the
Commission said there was no market dominance in a coal movement.
In Increased Rate on Coal Arco, Tennessee to Harllee, Georgia, SOU
and CGA, Docket No. I & S 9217, Decision Served August 23, 1979 (by
Division 1) (unprinted), reconsideration denied, Decision served Oc-
tober 19, 1979 (by Commission) (unprinted), petition denied sub nom.
Georgia Power Co. v. United States, 617 F.2d 107 (Sth Cir. 1980), the
Commission refused to investigate a coal traffic rate under § 10707
because of the protestants’ failure to demonstrate a likelihood of success
and because intramodal competition indicated no market dominance.
This was a one page decision cursorily finding no market dominance
without an investigation or elaboration and as such lends no support to
the Commission’s conclusion in this case.
A-26
A. Rate Bureau Presumption
[15] CP &L claimed before the Commission that one factor i
dicating market dominance was that the carriers considered tl
schedule within their rate bureau, the Southwestern Freight Bu
eau. Establishing that a rate has been discussed, considered, «
approved upon a rate bureau agreement does not establish
rebuttable presumption of market dominance per se. Instead,
establishes a rebuttable presumption that a carrier participatir
in the rate or in such discussion or consideration does not provic
effective competition to the proponent rail carrier for the involve
traffic. 49 C.F.R. 1109.1(f). The evidence CP&L placed in tl
record on this point is admittedly sparse, consisting only of a n
tice published on July 12, 1977, that the proposed rate had bec
docketed, inviting interested parties to comment and to request
public hearing, and a subsequent withdrawal of the rate from tl
public docket on September 26, 1979. (J.A. III, pp. 1622-3).
The Commission did not address CP&L’s allegation of ra
bureau activity. The railroads defend the Commission’s failure
address this issue by pointing to the language of the rate bures
presumption which provides that the presumption arises when tl
“evidence addressed establishes that the rate in issue has been di
cussed, considered, or approved upon a rate bureau agreement
49 C.F.R. 1109.1(f). The railroads argue that docketing tl
proposed rate for independent action is not the same as discu
sion, consideration or approval.”
“We are not convinced that the record has evidence of only docketi
the rate for CP&L’s traffic. In evidence concerning the railroads’ neg
tiation with CP&L, one railroad witness testified that the railroa
received a wire from the Missouri Pacific of its intention not to make
quote on CP&L’s movement. (J.A. II, p. 805). The evidence does not i
dicate that the Missouri Pacific learned of CP&L’s movement throu,
the rate bureau or that the Missouri Pacific declined so openly to maki
quote on CP&L’s movement through the procedure of the rate burea
However, the fact that the Missouri Pacific wired the railroads wi
whom and through whom negotiations were being conducted may |
dicate that rate bureau procedures were being relied upon.
A-27
[16] We are not convinced that the rate bureau presumption
should be read as narrowly as the railroads request. In Ex parte
No. 320, Interim Report, the Commission stated:
Ordinarily, no presumption will attach when a proposal is
docketed for independent action pursuant to the rate bureau
procedures. We do note, however, that the presumption will
apply when two or more carriers which have previously dis-
cussed or considered a conference rate later publish the same
or similar rates at or about the same time, pursuant to their
right of independent action. The circumstances underlying
independent action are too varied to permit any uniform in-
ference, and the circumstances surrounding such publication
will be considered on a case by case basis.
353 L.C.C. at 891. The use of the adverb “ordinarily” implies that
in certain circumstances docketing a proposal for independent ac-
tion pursuant to rate bureau procedures will establish the rate
bureau presumption.” Also the Commission makes clear that the
circumstances underlying independent action within a rate bu-
reau are too varied to permit uniform inference. Significantly, in
Ex parte No. 320, Final Report, in which the Commission
promulgated the market dominance presumptions, the Commis-
sion added to § 1109.1(a) a requirement that a carrier furnish in-
formation concerning whether a rate has been docketed, as well as
“Elsewhere, the Commission distinguishes between the publication of
a rate by a rate bureau and docketing, discussing, considering, and ap-
proving the rate. In Ex parte No. 320, Final Report, the Commission
noted:
However, we cannot agree with the contention that the rate bureau
presumption should be triggered by mere publication of a rate by a
rate bureau without evidence of docketing, discussion, considera-
tion, or approval of the rate at issue.
355 L.C.C. at 14, n.5. Here, the evidence submitted by CP&L clearly in-
dicates that the rate for CP&L’s traffic was docketed with the South-
western Freight Rate Bureau.
A-28
whether it has been discussed, considered or approved.” Ac
tedly, in explaining the reason for this addition, the Commi:
stated that evidence of docketing procedure would enable
better determine the existence of tacit collusion where tw
more rates are published at or about the same time. Ex part
320, Final Report, 355 1.C.C. at 14, But the Commission dic
limit the relevance of a docketed rate to this situation.
49 C.F.R. § 1109.1(a) reads in pertinent part:
(a) In order that the Commission may determine whether |
carrier proposing a rate increase possesses market dominance
the service to be rendered under a proposed rate, there shall |
cluded in the carrier’s statement notifying the Commission t
wishes to have the proposed rate considered pursuant to s¢
15(8)(c) of the Interstate Commerce Act, evidence upon whic
Commission may base a determination with regard to m
dominance, to the extent available, and including but not limi!
the following information:
(4) Whether and to what extent the rate in issue has been dc
ed, discussed, considered, or approved before a rate bureau a
under an agreement filed with and approved by the Comm
pursuant to section Sa or 5b of the Interstate Commerce Ac
plication number(s), date proposal docketed with rate bureat
final disposition of proposal and date thereof; and the share:
market, or an estimate thereof, presently held by such particit
carriers.
(emphasis added). While this requirement to bring forth evidence
ally applies to rates considered under § 15(8)(c) and while 15(8)(«
recodified in 1978 as § 10707, and not § 10729, we can perceive n
son why this should make a difference in the understanding «
relevance of rate bureau activity in determining “market dominz
We also note that this regulation requires the carrier, and not the
per, to provide evidence concerning the docketing, discussion, cons
tion or approval of a rate. We are conscious that in § 10729 cas
party best able to come forward with the evidence has the burc
producing the evidence. Ex parte No. 327, Rate Incentive for 1
ment Capital, supra. We are unable to determine whether CP&L
shippers were best able to produce evidence of rate bureau activil
whether either party has failed to satisfy its burden of coming fo
with evidence. Our opinion is founded on the simple observatio
there is minimal evidence of rate bureau activity which merited
mission consideration.
A-29
[17] We read the Commission’s regulation together with it:
comments on the regulation as evidence of its concern that dock
eting a rate may have some relevance in determining whether th
rate bureau presumption has been satisfied. We cannot ascertair
the possible implications of docketing a rate with the particula:
rate bureau involved in this case as there is nothing in the recor¢
as to the procedure followed by the Southwestern Freight Rati
Bureau.” Although § 10706(a)(3)(A) provides that there be ¢
final disposition of a rate docketed with a rail rate bureau by thi
120th day after it is docketed, there is no indication as to whethe
such approval was obtained in this case or whether such approva
is automatic in the rate bureau involved. While we defer to the ex
pertise of the Commission to make the initial determination o
what relevance docketing a rate may have in this case on marke
dominance, we conclude that in light of the Commission’s ow:
requirement for information concerning docketing of rates, anc
its statement that circumstances underlying independent actio1
are too varied to permit uniform inference, the Commissio!
should have addressed CP&L’s allegation. Cf Pitre Brother.
Transfer, Inc. v. United States, 580 F.2d 140 (Sth Cir. 1978). O1
remand, the Commission shall do so.
B. Market Share Presumption
[18] Under the Commission’s market share presumption o
market dominance, carriers are presumed to enjoy market domi
nance where they have handled at least 70% of the involved traffi
during the preceding year. 49 C.F.R. § 1109.1(g)(1). Here n
“49 U.S.C.A. § 10706(a)(2) provides that the Commission must ap
prove a rate bureau agreement before actions carried out under it ar
exempt from the antitrust laws. The Commission has noted that it ha
not prescribed any particular form of agreement and that eac
agreement may be tailored to meet the needs of the particular carrie
group and its shippers. Ex parte No. 297, Rate Bureau Investigation
349 L.C.C. 811, 815 (1975), affirmed and clarified, 351 1.C.C. 43
(1976), affirmed sub nom. Motor Carriers Traffic Association, Inc. \
United States, 559 F.2d 1251 (4th Cir. 1977).
A-30
traffic has moved in the past from Axial to Coleto Cre
when it commences, the railroads will have 100% of the n
The Commission found that the market share presumpt
irrelevant in this case, noting:
In the movement under consideration here, no tra
existed in the past. Although the utility company h
coal from sources in South Africa, it has not done t!
regular basis. Accordingly, the first presumption te:
relevant to the situtation presented here.
(J.A. III, p. 1942).
While the Commission is correct in literally reading the
share presumption to be inapplicable to a new movement
the movement to Coleto Creek, the Commission has in |
weighed the application of the market share presumptior
movements of coal and has found that the “market share
tion does merit serious consideration.” Kings Mill, 359 I
761. Kings Mill is very similar to this case, involving ui
movements of coal in shipper supplied equipment from
with which the shipper had contracted for large quantitie
long period of time. It is especially significant for the case
because the only stated reason the Commission gave for
market dominance in Kings Mill was that the shipper’s
share allegation had been demonstrated in light of the fa:
long term commitment to a particular source had been mai
“For the purposes of the market share presumption, the Cor
has defined the relevant market as “the market for transportat
ices which directly compete with the services outlined in the tai
consideration.” Ex parte No. 320, Interim Report, 353 1.C.C
Under the market share presumption, the Commission look:
transportation services from a point of origin to the destinati
While the railroads and petitioners disagree about whether the!
sion can consider a broader market to rebut any of the four |
tions of market dominance, see Part VII, Geographic Con
below, the Commission has never altered its definition of “mi
used in the market share presumption.
A-31
This same reasoning was used in an even earlier case, Smithe
Lake, again involving unit train shipments of coal in shipper su
plied cars from a contract source. In Smithers Lake, the railroa
expressly argued that the market share presumption could not a
ply since there had been no prior traffic between the origin ai
destination. 358 I.C.C. at 542. The Commission rejected this re
soning, stating:
[A]lthough the market share presumption is literally ina
plicable to new movements, the fact that all of the subje
traffic will be handled by the respondents is clearly an impc
tant factor. No evidence has been presented which would i
dicate that respondents will control less than 70 percent
the market from Cordero [the mine] to Smithers Lake [t
generating plant] once actual movements commence.
358 L.C.C. at 555. This reasoning was a significant factor
Smithers Lake as to why the Commission found market don
nance. Accordingly, on remand, the Commission shall either a
here to its prior decisions such as Kings Mill and Smithers La
or explain its deviation.
C. Revenue/Cost l’resumption
Under the revenue/cost presumption, market dominance
presumed to exist where the rate in issue exceeds the variable o
of providing the service by 60 percent or more. 49 C.F,
§ 1109.1(g)(3). The crucial concept is that of variable costs. ,
the petitioners allege one or more mistakes by the Commission
calculating the railroads’ variable costs for CP&L’s traf
Because this is such a technical subject, a review of the Comn
sion’s rules and practices for determining costs will be benefic
before discussion of the substance of the petitioners’ objectio:
In proposing the revenue/cost presumption in Ex parte |
320, Interim Report, the Commission stated that variable cx
are expenses which over a long term period, fluctuate with
>
A-32
volume of traffic handled. 353 I.C.C, at 911. The Cc
noted that such costs include operating expenses, rents,
an allowance for the cost (apparently to be calculated
puted interest level)® of equity capital invested in tran
property, plus interest on borrowed capital investe
property. 353 I.C.C., at 911, n. 44, The Commission has
that in establishing variable costs for the revenue/cost
tion, shippers with the responsibility of providing e¢1
costs may rely upon a formula known as Rail Form A.*
No. 320, Interim Report,.353 1.C.C, at 913. In justifyin
figure used in the presumption, the Commission itself r
Rail Form A variable costs. Ex parte No, 320, Clarific
LC.C, at 738.
Rail Form A is a formula by which various levels
costs for a movement may be determined. It can be uti
to determine the variable cost associated with a
“An issue discussed below involves the distinction betwe
will call the “traditional” notion of the return on equity, whi
a profit element or incentiv« for risk of ownership, and what
the imputed interest cost of equity capital, /. e., the cost calc
rate similar to the cost of debt capital. While variable costs, |
pose of the revenue/cost presumption, are said to include ar
for the cost of equity capital, Rules to Govern Assembling &
Cost Evidence, 337 1.C.C. 298, 393 (1970) has indicated th
on equity connected with the risk or incentive of ownersh
proper element in determining variable costs. Instead, equit
said to be entitled to receive imputed interest similar to that |
borrowed money. 337 I.C.C. at 393. See below, Part VII C (
Return in Incremental Fixed Plant Investment Additive, for
cussion of return on equity capital in determining variable «
We note that the Staggers Rail Act of 1980 does not cha!
derstanding on the limitation on the return allowable on equ
§ 202 of the Staggers Rail Act adds a provision that in calc
for the purposes of determining market dominance, the retur
capital is to be limited to a rate equal to the embedded cost o
tal.
“ICC Bureau of Accounts, Rail Form A (Statement IFI 7
for Use in Determining Rail Freight Service Costs (1973).
A-33
movement and to allocate a portion of constant costs
movement.” The variable cost incurred by a movement is
culated by Rail Form A on the basis of historical system
averages and the volume of the movement in question. It pro
an increase in operating expense as well as an increase in
plant investment and equipment investment incurred |
movement. Fifty percent of this incremental fixed plant in
ment and one hundred percent of this incremental equipmer
vestment is deemed variable by Rail Form A. Accordingly, th
turn on the capital (at the imputed interest level) justified by
percent of the incremental fixed plant investment and
hundred percent of the incremental equipment investme
deemed a variable cost and is included in the total variable
derived by Rail Form A.
With respect to unit coal train cases, the Commission has
sistently modified Rail Form A in calculating costs for the
poses of rate-making.” I & S, No. 9199, Unit Train Rates on
“The Commission has defined constant costs as follows:
By definition constant or fixed costs are not allocable or assig
upon a cost of service basis, nor traceable to particular units o
put, for otherwise they would have been, in fact, variable an
constant. In this respect, they are somewhat similar to joint or
mon costs which are not readily traceable to any specific port:
an indivisible operation, but are incurred in connection wit
performance of the entire service involved. Rules to Govern A.
bling and Presenting Cost Evidence, 337 1.C.C. at 395.
“Rate-making involves determining the reasonableness of a ra
opposed to determining only the variable cost and market domi)
with respect to a movement.
Because the Commission has typically found market domina:
exist in unit coal train cases on grounds other than revenue/cos
sumption, it has only once before relied, in an alternative holding, «
revenue/cost presumption to find market dominance. Annual Vi
Rates on Coal Wyoming to Flint Creek, Arkansas, Docket No. :
and Southwestern Electric Power Company v. Burlington Nor.
Inc., Docket No. 36980, combined, Decision Served May 25, 197!
printed) at 6 (“Flint Creek”). There, the Commission followe
(footnote continued on next page.)
A-34
Burlington Northern, Inc., Decided July 13, 1979 (unprinted)
(“BN-Iowa”); Arkansas Power & Light Co. v. Burlington
Northern, Inc., 361 1.C.C. 504 (1979) (“Arkansas Power’), peti-
tion for review pending; San Antonio, Texas v. Burlington North-
ern, Inc., 361 L.C.C. 482 (1979) (“San Antonio I’), vacated and
remanded sub nom. San Antonio v. United States, 631 F.2d 831
(D.C.Cir. 1980) (“San Antonio II”), Annual Volume Rates on
Coal Wyoming to Flint Creek, Arkansas, Docket No. 36970 and
Southwestern Electric Power Company v. Burlington Northern,
Inc., Docket No. 36980, combined, Decision Served May 25,
1979 (unprinted) (“Flint Creek”), Kings Mill, supra; Smithers
Lake, supra. This modification has taken the form of the use of
additives, one for additional equipment and the other for in-
crefnental fixed plant investment necessitated by unit coal train
movements. These additives are added to the figure derived by
Rail Form A to give what the Commission considers to be a more
accurate projection of costs. These additives are not based upon
systemwide historical averages, but are based upon actual in-
cremental investments necessitated by a movement. These addi-
tives calculate both an operating expense portion associated with
a movement and an allowance for the cost of the capital invest-
ment necessitated by a movement. These costs are directly
allocated to a given movement by means of the additive. (J.A. III,
pp. 2050-1). Thus, for example, instead of relying on Rail Form
A’s averages, the additive takes the actual capital investment in
fixed plant necessitated by a movement, calculates the cost of that
capital investment and directly allocates this cost to the
movement. (J.A. III, pp. 2050-1). In order to eliminate a double
count on the elements included within the additives, the Commis-
sion purportedly removes from the Rail Form A cacluation the in-
(footnote continued from previous page.)
modifications to Rail Form A it had established in rate-making cases.
Flint Creek, at App.C, pp. 24-32. Despite the overstatement in variable
costs which shippers claim to result from the Commission's modifica-
tions to Rail Form A, the revenue/cost threshold was exceeded in Flint
Creek and market dominance found to exist.
A-35
cremental fixed plant and equipment investments associated with
the movement under consideration.
The petitioners make several objections to the Commission’s
modification to Rail Form A, but primarily complain that the
Commission’s method of removing incremental fixed plant invest-
ment from Rail Form A is defective and that a double count of
this element remains. Although CP &L objected to the use of the
additives, it calculated a cost figure adding the additives to its Rail
Form A calculation to arrive at a variable cost figure of $12.12
per ton.” (J.A. III, p. 1724). This gives a revenue/cost ratio of
172%, well above the threshold level of the presumption. The
Commission, though, rejected CP&L’s estimates of some of the
inputs into the Rail Form A formula and also rejected CP&L’s
calculation of the incremental fixed plant investment additive to
arrive at an estimate of variable costs of $13.90 per ton. This
amount yields a revenue/cost ratio of 150%, a ratio insufficient to
establish the presumption.
(i) Use of Additives
[19] CP &L and Justice argue that any use of additives violates
the Commission’s rules for determining variable costs in applying
the revenue/cost presumption. They contend that both Rules to
Govern Assembling & Presenting Cost Evidence, 337 1.C.C. 298
(1970) (“Rules for Costs”) and Ex parte No. 320, Interim
Report, mandate strict adherence to Rail Form A methodology
without modification. We believe neither of these proceedings
requires such rigid methodology in deriving costs.
Rules for Costs was a proceeding in which the Commission dis-
cussed methods for determining variable costs in various trans-
“Because CP&L objected to the use of additives, partly on the
grounds that the Commission has not made the proper modifications to
the Rail Form A calculations, it apparently made no modifications to its
Rail Form A calculation in arriving at this figure.
CP&L’s calculation without the additives yielded a variable cost of
$1,032.59 per carload, an amount equivalent to $9.83 per ton. (J.A. III,
p. 1724).
A-36
portation modes. It explained and noted that parties could rely on
the use of Rail Form A to determine variable costs for rail car-
riers. 337 I.C.C. at 324. The Commission in Rules for Costs, how-
ever, was careful to preserve flexibility in the formula to derive
variable costs, indicating that circumstances can exist in which
the usual methodology for determining costs might be inade-
quate. The Commission left open the possibility of adapting the
usual procedure to a special situation. The Commission empha-
sized:
[T]his proceeding [Rules for Costs] would not determine
whether any particular costs are more valid in certain cases
than others, and that the parties would still be free to employ
other methods of estimating costs.
337 L.C.C. at 300.”
In Ex parte No. 320, Interim Report, the Commission noted
that while shippers could rely on Rail Form A, this formula
“could be adjusted to fit the traffic or movement to which the rate
in issue applies.” 353 1.C.C. at 913. Thus, Ex parte No. 320, In-
terim Report, as does Rules for Costs, indicates that flexibility is
the watchword in determining the costs of a movement.
We conclude that in Rules for Costs and Ex parte No. 320, In-
terim Report the Commission clearly indicated that Rail Form A
could be modified when necessary to determine variable costs.
Accordingly, CP&L’s and Justice’s argument must fail. How-
ever, we do not endorse the use of the particular modifications
used by the Commission in this case for the reasons stated below.
“The Commission also noted:
Cost findings may be characterized as being more of an art than a
science .. . Accordingly, neither an inflexible cost formula nor any
rigid set of instructions can possibly cover every situation which
may arise in connection with the operations of carriers and provide
the one and only answer for the guidance of management or of
regulatory purposes.
337 LC.C. at 380.
A-37
(ii) Rate of Return on Incremental Fixed Plant Investment Ad-
ditive
[20] The incremental fixed plant investment additive is cal-
culated as an annuity spread over a series of equal future
payments during the service life of the new investment. (J.A. III,
p. 2090). The Commission here, as in prior unit coal train cases,
calculated the incremental fixed plant investment additive at
what is called the “revenue need level,” utilizing a weighted aver-
age of the cost of equity capital as well as debt capital to deter-
mine the cost of capital associated with this additive.” (J.A. III,
pp. 1968, n.8, and 2090-99). Thus the Commission figured the
cost of equity capital at a level somewhere between the traditional
return on equity, which includes a profit or incentive for risk of
ownership element, and a level we have referred to as the imputed
interest level, i. ¢., the level similar to the cost of debt capital.
CP&L and Texas object to the Commission’s treatment of the re-
turn-on-equity factor in calculating this additive, but for differ-
ent reasons. We think both objections are valid; we conclude that
the Commission erred to the extent it used a return on equity fac-
tor in excess of the cost of debt capital.
CP &L objects that the Commission’s calculation of the return
on equity factor in the additive at the “revenue need level”
violates the Rules for Costs. While we have noted above that the
Rules for Costs provides for flexibility in cost methodology, it
clearly states that, in determining variable costs, the risk of own-
“The “revenue need level” is contrasted with a calculation of costs at
what is called the “strict cost level,”” which incorporates no return on
equity capital, but utilizes only the embedded debt rate. (J.A. III, p.
1966). In this opinion we have referred to the “strict cost level” as the
“imputed interest” level. The Commission, in arriving at its variable
cost figure, calculated the Rail Form A figure at the “strict cost level”
but calculated the additives at the “revenue need level.” (J.A. III, pp.
1968-1973). The Commission did not attempt to explain the propriety
of using the “revenue need level” which reflects a return on equity capi-
tal in excess of the cost of borrowed capital.
A-38
ership element in the return on equity is not appropriate, and that
a return on equity is an appropriate element of variable costs only
to the extent of imputed interest similar to that charged for bor-
rowed capital:
Allowances for return on investment ... to the extent that
they are admittedly intended to serve as an encouragement
and incentive for continued or risk-bearing ownership, are in
the nature of so-called pure economic profits and should not
be taken into account as an element falling within the restric-
tive construction given here to costs. This is not to say, how-
ever, that such an allowance for profit it is not to be considered
as a factor in ratemaking—it should if transportation is to
remain under private ownership and control ... However,
this so-called pure profit should be clearly distinguished from
opportunity costs. The latter does include a return on invest-
meiit, simple, in the sense of, and as the equivalent to, cost of
capital, but in no way connected with the risk or incentive of
ownership. It is with respect to this limited effect to be given
to return on investment as an element of cost that the
examiner generally agrees ... as to why equity capital in-
vested in carrier facilities should be treated in the same
manner as similar debt capital. Such equity capital is then
entitled to receive imputed interest, similar to that charged
for borrowed money...
337 I.C.C. at 393. The Commission has repeatedly stated that an
allowance for the traditional return on equity investment is not
appropriate in determining the variable costs of a service. Flint
Creek at pp. 20-21; BN Iowa at p. 46. When it has utilized a
traditional return on equity, it has been careful to emphasize that
such an inclusion has been to calculate revenue need costs in the
context of rate-making, and not in determination of variable costs.
Flint Creek at pp. 20-21; BN-Iowa at p. 46.” Because we believe
this principle to be well founded in Commission cases, we con-
“We note that Congress now mandates that in calculating cost for
purposes of market dominance, the return on equity capital be limited to
a rate equal to the embedded cost of debt. § 202, Staggers Rail Act of
1980.
A-39
clude that the Commission has acted unreasonably in deviating
from this principle of determining variable cost, at least in the ab-
sence of full explanation of the reasons for deviating. In light of
the Commission’s prior norms, we hold that the Commission
erred in calculating the cost of equity capital at the “revenue need
level,” rather than at the proper cost of debt capital level.
Texas complains that inclusion of a return-on-equity” factor
was improper in light of the reasoning the Commission used in es-
tablishing the 160% ratio in the revenue/cost presumption. Texas
rightly notes that the traditional notion of return on equity capital
constitutes profit. It notes that in justifying the 160% ratio, the
Commission included a factor for profit in estimating the level
that would trigger the revenue/cost presumption.
We assumed that any percentage test would have to account
for both a railroad’s constant costs and its variable costs. We
first determined from the best available evidence that nation-
wide railroad fully allocated costs approximated 129 percent
of variable costs. Subsequent publications show this as 127
percent at variable costs.
We then increased this figure to take into account all rail-
road expenses and a reasonable profit, as well as to provide a
wide margin for error.
359 I.C.C. at 737. (footnote omitted). Since a profit factor was in-
corporated in determining the maximum appropriate spread
between the variable costs and revenue, we believe it imperative
that the Commission adhere to the methodology presupposed by
the revenue/cost presumption. That methodology requires the
Commission to determine variable costs without incorporating a
traditional return on equity in applying the revenue/cost pre-
sumption. We do not imply by this holding, however, that the
“Although Texas does not address the distinction between the tradi-
tional notion of return on equity, which would include a profit or risk of
ownership element, and what we have called the imputed interest level
or cost of debt capital, we assume Texas is referring to the traditional
notion.
A-40
Commission may not impute a return on equity capital similar t
the return on debt capital in calculating variable costs for th
presumption. We have noted above that Rules for Costs indicate
that equity capital is entitled to receive imputed interest similar t
that charged for borrowed money. 337 I.C.C. at 393. See als
§ 202, Staggers, Rail Act of 1980.
We conclude, both for the reason asserted by CP&L and th
reason asserted by Texas, that the Commission, in calculatin,
variable costs for purposes of the revenue/cost presumption, ha
acted unreasonably to the extent that it utilized a return on equit
factor in excess of the cost of debt capital. Should the Commis
sion on remand wish to continue utilizing a return on equity facto
in excess of the cost of debt capital, it must explain why it i
deviating from its well established norm announced in Rules fo
Costs. According, we vacate and remand.
(iii) Double Count
Because with any new movement Rail Form A normall
projects an increment in fixed plant investment based on syster
averages, the inclusion of the incremental fixed plant investmer
additive would result in a double count unless appropriate adjust!
ments are made to Rail Form A. A recurring argument before th
Commission has been the proper methodology for eliminatin
this double count. See BN Iowa, Arkansas Power, San Antonio ,
Flint Creek, Kings Mill, Smithers Lake. Shippers have cor
sistently maintained unsuccessfully before the Commission thé
its modifications to Rail Form A calculations are not adequate t
alleviate this problem.
The Commission in this case admitted that the use of the add
tives resulted in a slight overstatement of costs to an unknown di
gree, but added that it believed the overstatemeni not to be sij
nificant because, adopting the methodology of the railroads,
had excluded the incremental fixed plant investment related e)
A-4l
clusively to coal traffic from its Rail Form A calculations. It noted
that while some “remaining system investment” is left in Rail
Form A, such investment allocated to CP&L is small and CP&L
would, in any event, utilize a portion of existing fixed plant. (J.A.
III, pp. 1942 and 2050-51). This is essentially the same justifica-
tion the Commission has given to its methodology in the rate
making context. BN-lowa, Arkansas Power, San Antonio I, Flint
Creek, Kings Mill, Smithers Lake.
[21] We are unable to ascertain from the Commission’s opinion
whether the overstatement it admits results from a double count
of incremental fixed plant investment or whether it results for
some other reason.” Whatever the case, we vacate and remand
because we are unable to discern the reasoning of the Commis-
sion.
“The terseness of the Commission's explanation creates an ambiguity
we cannot resolve. To understand the ambiguity, one must distinguish
among:
(1) the incremental fixed plant investment calculated by the ad-
ditive, (“additive incremental fixed plant investment”),
(2) the incremental fixed plant investment calculated by Rail
Form A (“Rail Form A incremental fixed plant investment”), and
(3) the existing fixed plant investment which does not increase
with a movement (“existing fixed plant investment’).
The ambiguity arises because the Commission does not indicate
whether it considers all “Rail Form A incremental fixed plant in-
vestment” to have been eliminated by its modifications. When the
Commission states that th cost overstatement results because
there is “some remaining system investment” in Rail Form A, it
does not specify whether this is a portion of “Rail Form A in-
cremental fixed plant investment” or “existing fixed plant invest-
ment.” Its statement that CP&L uses a portion of the existing fixed
plant suggests that it means “existing fixed plant investment.” If
the Commission means that the overstatement results from an al-
location of “existing fixed plant investment” to CP&L’s movement,
then the Commission has apparently allocated a portion of constant
costs to CP&L’s traffic. Under the Commission's definition of vari-
able cost for the revenue/cost presumption, see 353 I.C.C. at 911,
such an allocation of constant costs is improper. On remand, the
(footnote continued on next page.)
A-42
A reason sufficient unto itself for our decision is that the Con
mission admits that its method results in a slight overstatement «
variable costs, meaning that the actual revenue/cost ratio
slightly higher than the 150% the Commission calculated. A
though we appreciate the fact that it may be difficult or even in
possible to precisely calculate the overstatement,” we believe thi
it is possible to provide a better explanation than that now befor
us. We also hope that the balance of our discussion in this par:
graph (iii) will provide guidance as to some of the specifics thi
can be clarified. Accordingly, the Commission on remand shou!
explain the duplication (including a discussion of the items «
categories that are duplicated, and a discussion of how appr:
priate costs are eliminated from Rail Form A to eliminate tl
duplication), why it believes the duplication to be insignifican
and why it believes the 160% ratio not to have been exceeded.
Our second reason for vacating and remanding on this point
that the Commission has failed to adequately address the serio
arguments raised by CP&L that the Commission’s methodoloj
results in a double count. To better understand these objection
we need to explain more fully how Rail Form A predicts i
cremental fixed plant investment, and how the Commissic
modified Rail Form A in this case.
(footnote continued from previous page.)
Commission should set forth whether all “Rail Form A increment
fixed plant investment” has been eliminated, and if not, why the1
sulting double count is insignificant. It also should explain the ¢
tent of duplication between the “additive incremental fixed pla
investment” and the “existing fixed plant investment,” if any, w
any such double count is insignificant, and why an allocation
“existing fixed plant investment,” which is a constant cost, is nec
sary or proper in calculating variable costs.
“In San Antonio I, 361 L.C.C. at 487, the Commission indicated tt
it was unable to precisely calculate the overstatement. The Commissi
has used the same reasoning in rate making cases to justify its met
odology in that context despite the overstatement. BN-Jowa, at +
Kings Mill at 34. We express no opinion as to the reasonableness of 1
Commission's approach in rate making cases.
A-43
We understand Rail Form A to predict incremental fixed plan
investment in essentially the following manner. An average of in
cremental fixed plant investment per increase in volume of traffi
is first established on the basis of historical system-wide data
Then, for a movement in question, a prediction of incrementa
fixed plant investment is derived by multiplying the projected in
crease in volume for that movement by the historical average in
cremental fixed plant investment per volume. Fifty percent of th
total predicted incremental fixed plant investment is then deeme
to be a variable cost.
(22, 23] Because of the Commission’s brevity in its explanatior
of why it rejects CP & L’s double count objection,” we are not cer
tain that the following accurately describes the modifications t
Rail Form A which the Commission adopted.” As we understant
it, the Commission made a distinction between (i) the incre
mental fixed plant investment that is occasioned solely by uni
coal trains, such as heavier than normal rail, or the addition of tie
and ballast necessitated to upgrade a line solely because a
CP&L’s movement, and (ii) the incremental fixed plant invest
ment necessitated by system traffic, including unit coal train:
‘'We can only agree with the District of Columbia Circuit's commen
that the Commission’s “reasoning and methodology respecting the add
tive are murky at best.” San Antonio II, 631 F.2d 831 p. 842 (D.C. Ci
1980).
“The Commission indicates without elaboration it has adopted th
railroads’ method of modifying Rail Form A to remove the doub!
count. (J.A. III, p. 2050). The railroads most fully describe their metho
for eliminating the double count of incremental fixed plant investmer
from Rail Form A in the testimony of John Darling. (J.A. III, p
1378-1382).
Regardless of whether our portrayal of the modification to Rail For:
A is accurate, we believe that CP&L’s objections were not frivolous ar
merited a fuller discussion than that afforded by the Commissio
CP&L strenuously objected that the justification of its methodolo;
given by the Commission in prior cases indicated that the Commissi«
misunderstood fundamental mechanics behind the Rail Form A calcul
tion.
A-44
(J.A. I, p. 1380), In other words, an attempt is made to:
incremental fixed plant into that which would not occu
the special characteristics of coal trains and that which \
cur merely because of the increase in volume resulting
coal train traffic considered as normal traffic.” The |
cremental fixed plant investment is that which can be cx
to be appropriate for normal traffic. This distinction is
necessary by the railroads because unit coal trains requii
outlays heavier than the average capital outlay normally
from volume increase. By segregating the incremental fi
investment necessitated solely by CP&L’s movement,
roads attempt to segregate this heavier than average i
and to attribute it directly to CP&L’s movement. Withi
ditive is included the incremental fixed plant investm:
sioned solely by the unit coal train movement, directly c
without use of Rail Form A, while the Rail Form A ca
would include that incremental investment attributab
volume increase occasioned by normal traffic, including
traffic. Because the additive includes incremental fixed
vestment which is greater than average, an adjustment i:
the factor normally used in Rail Form A determining th
of incremental fixed plant investment which is deemed
In this case, the railroads reduced the percentage fron
47.4%. (J.A. IL, p. 1382). This reduction in the percent:
As an example, the railroads maintain that a distinction
made in the incremental investment in ties and ballast betwei
curred solely as a result of CP&L’s unit coal train movemen
incurred as a result of increased traffic volumes, including
movement. Although not stated explicitly, the railroads ¢
mean by an investment being incurred “solely as the result o
train traffic” an investment which would not occur but for the
of the coal train or is attributable to special characteristics of |
not found in other trains, such as the need for heavier than av
That portion of incremental investment in ties and ballast inci
ly by CP&L’s unit coal train movement has allegedly been i)
the additive while that portion resulting merely from increas
allegedly is reflected in the Rail Form A calculation. (J.A. II, p
A-45
cremental
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