Appendix — Public Utilities Commission v. Federal Express Corp.

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In the Supreme Court

OF THE

United States

OcTOBER TERM, 199]

THE PuBLic UTILITIES COMMISSION OF THE STATE OF

CALIFORNIA, PATRICIA M. ECKERT, G. MITCHELL WILK,

JOHN B. OHANIAN, DANIEL WM. FESSLER, NORMAN D.

SHUMWAY, NEAL J. SHULMAN, and WILLIAM R. SCHULTE,

Petitioners,

VS.

FEDERAL EXPRESS CORPORATION,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PETER ARTH, JR.

EDWARD W. O'NEILL

JAMES T. QUINN

MARK FOGELMAN

COUNSEL OF RECORD

Public Utilities Commission

of the State of California

505 Van Ness Avenue

San Francisco, CA 94102

Telephone: (415) 703-1992

Counsel for Petitioners

September 23, 1991

BOWNE OF SAN FRANCISCO. INC + 190 NINTH ST + SF... CA 94103 * (415) 8664-2300

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Appendix F

a-i

TABLE OF CONTENTS

Federal Express Corp. v. Pub. Util.

Comm’n of California, 936 F.2d 1075 (9th

RE Re re ee re ere

Federal Express Corp. v. Pub. Util.

Comm'n of California, 716 F.Supp. 1299

Se PE eo ooo l cs Vacuvereweres

Federal Express Corp. v. Pub. Util.

Comm'n of California, 723 F.Supp. 1379

OS Te Bier ety eee ant an earns

Constitutional and Statutory Provisions ...

Re Regulation of General Freight Transpor-

tation by Truck, 33 Cal.P.U.C.2d 333

(1989), modified, 35 Cal.P.U.C.2d 307

SOU Garuacceas : Fock e re eect renne,

Selected Record References ............

Page

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C-]

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APPENDIX A

FEDERAL EXPRESS CORPORATION,

Plaintiff-Appellant,

Ve

CALIFORNIA PUBLIC UTILITIES COMMISSION;

Stanley W. Hulett; Donald Vial; Frederick R. Duda;

John B. Ohanian; G. Michael Wilk; Victor Weiser;

Norman Kelley,

Defendants-Appellees.

No. 89-16444.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted March 14, 1991.

Decided June 25, 1991.

Dissenting Opinion June 27, 1991.

Before BEEZER and NOONAN, Circuit Judges, and

SINGLETON, District Judge.

NOONAN, Circuit Judge:

Federal Express Corporation (Federal Express) brought suit

against the California Public Utilities Commission and individual

named defendants (the PUC), seeking a declaration that regula-

tions of the PUC, as applied to Federal Express, impose an

unconstitutional burden on interstate commerce and are pre-

empted by the Airline Deregulation Act, 49 US.C. App. § 1305,

and an injunction against the PUC enforcing them against Fed-

eral Express. On cross-motions for summary judgment, the dis-

trict court found no preemption and no unconstitutional burden

and entered judgment for the PUC 723 F.Supp. 1379. We now

reverse the district court and direct that judgment be entered for

Federal Express.

* The Honorable James K. Singleton, United States District Judge

for the District of Alaska, sitting by designation.

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FACTS

The following facts are undisputed:

Federal Express is an air carrier operating under the authority

of the Civil Aeronautics Board as provided in subchapter IV of

the Federal Aviation Act of 1958, 49 U.S.C. App. § 1371. The

Carrier operates sixty Boeing 727 aircraft, twenty-one DC10

aircraft, and more than one hundred specifically designed Cessna-

208 aircraft. In planes operated, Federal Express is one of the

largest airlines in the United States.

Federal Express is an “all-cargo” carrier, that is, it carnes no

passengers. It carries packages. The packages are picked up by

van in the communities serviced, trucked to an airport, flown to a

“hub” where they are sorted, put on other aircraft to their

destinations, and trucked by van to their recipients. Federal

Express’ main hub is Memphis. Between midnight and two

o'clock each morning over 700,000 packages are delivered, sorted,

and re-routed at the Memphis facility.

Oakland, California is a regional hub in this system. Packages

destined for ten western states are transported here, sorted, and

sent on to their destinations. Over 200,000 packages each week

are transported that have both their origin and destination in

California. Packages collected at Oakland and bound for Los

Angeles may be shipped there in three different ways: (1) to

Memphis, back to Los Angeles; (2) directly to Los Angeles by

air, (3) by truck from Oakland to Los Angeles. The trucks carry

the packages in specially designed “aircraft containers.” In the

evening a sing!e truck runs from Oakland to Los Angeles, and two

trucks go from Los Angeles to Oakland carrying packages that do

not fit on board the Oakland-bound night flight. In the morning

one truck goes from Oakland to Los Angeles and one from Los

Angeles to Oakland carrying second day delivery packages that do

not make the evening flight. Most of the packages in any truck are

packages in interstate commerce; some carry exclusively inter-

State packages.

Federal Express guarantees delivery by 10:30 a.m. the day after

a package has been picked up. There is a ful! refund if a package

is even one minute late. To keep this schedule, even the most

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minor delays must be avoided, and Federal Express must be

prepared to meet changing weather, mechanical breakdowns, and

varying conditions at airports. As the system operates as an

integrated whole, a delay of even one half-hour at an airport may

affect thousands of packages at the Memphis sorting point. The

system would not achieve its goal of certain, speedy service

without backup equipment and alternative modes of transporta-

tion. In particular, as far as Federal Express’s California opera-

tions are concerned, the choice of one of the three modes of

transportation from Oakland to Los Angeles depends on air

traffic, control delays, weather, aircraft availability, and the vol-

ume of packages in the entire system.

As trucks are an essential component of the system, Federal

Express operates over 2,600 trucks in California. The trucks are

licensed to use the highways by the PUC. Up until early 1987

Federal Express also paid a quarterly fee assessed by the PUC on

its estimated gross operating revenue under Cal.Pub.Util.Code

§ 5003.1.

The PUC is an agency of the state of California with authority

to regulate common carriers on the highways of California.

California Constitution, Art. XII, § 4; Cal.Pub.Util.Code §§ 1063

and 3501 et seq. (West 1975 & Supp.1991). Under the statutory

authority conferred by Public Utility Code §§ 486-496 the PUC

has issued orders governing the tariffs of common carriers, Gen-

eral Order 80-C, February 7, 1990; for the suspension of the

tariffs, General Order 113-B, July 2, 1980; and for their public

inspection, General Order 139, September 1, 1976. The PUC

regulates the terms of the bills of lading the freight bills and

‘“accessorial services” documents issued by the carriers, General

Order 155, March 1, 1987. The PUC provides a procedure by

which carriers may obtain variances from its orders. The PUC has

represented to the court that its regulatory program is “flexible”

and “adaptive.”

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PROCEEDINGS

On September 23, 1987 Federal Express brought this action in

the district court with the results stated above. Federal Express

appeals.

ANALYSIS

Federal Express appeals both on the ground that the state

regulation excessively burdens interstate commerce and on the

ground that state regulation is preempted by act of Congress. We

need not and do not consider the first ground as we find statutory

preemption exists. As this legal conclusion is dispositive, there is

no need for further proceedings in the case other than entry of

judgment.

In the section on federal preemption, the Airline Deregulation

Act of 1978 provides as follows:

Except as provided in paragraph (2) of this subsection, no

State or political subdivision thereof... shall enact or enforce

any law, rule, regulation, standard, or other provision having the

force and effect of law relating to rates, routes or services of any

air carrier having authority under subchapter IV of this chapter

to provide air transportation.

49 U.S.C.App. § 1305(a)(1) (1988). The exception provided in

subsection (2) is air transportation wholly within the state of

Alaska. It has no application here.

Federal Express is an air carrier having authority under sub-

chapter IV, 49 U.S.C. App. § 1371, to provide air transportation.

The PUC is seeking to impose regulations with the effect of law

on its services. Q.E.D.—federal preemption is required by a

federal statute that expressly preempts state regulation.

Our cases, however, have not read the statute quite so literally

or without attention to the context of other law into which the

statute fits. Thus we have taken into account the presumption

against preemption when Congress legislates in the fields of

common law tort and contract. See California v. ARC America

Corp., 490 U.S. 93, 101, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86

(1989); West v. Northwest Airlines, 923 F.2d 657, 659 (9th

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Cir.1991). While preemption has been enforced against a claim

based on a state statute regulating access to transportation, an

accompanying tort claim for the intentional infliction of emotional

harm was held to be unpreempted. Hingson v. Pacific Southwest

Airlines,743 F.2d 1408, 1415-16 (9th Cir.1984).

In a closer case we have also recognized that a California

regulation against the recording of telephone conversations with-

Out warning could "xe applied to an airlines, reservation system

and was not preempted. Air Transport Ass'n v. Public Util.

Comm'n, 833 F.2d 200, 207 (9th Cir.1987), cert. denied, 487

U.S. 1236, 108 S.Ct. 2904, 101 L.Ed.2d 936 (1988). Indeed, the

district court relied on this decision in making its decision in the

instant case. But we did inject the caution in Air Transport: “This

is not, however, an appropriate case for the definitive resolution of

the scope of federal preemption under the Deregulation Act.” /d.

The regulation in question was construed to relate to neither rates

nor routes nor services of an air carrier. /d.

Air Transport should be understood as allowing the state to act

in an area of non-economic regulation—to impose a general rate

for the protection of telephone users without carving out an

exception for air carriers. In the same way it is uncontested in this

case that the general traffic laws of California and its safety

requirements for trucks on its highways apply to Federal Express;

only economic regulation is challenged. In short, despite the very

broad and apparently all-inclusive language of the statute, com-

mon sense and common practice have forbidden that the statute

be taken literally and have restricted its range. Interpreted in

terms of its purpose and in the context of other laws, the Airline

Deregulation Act as it applies in this case preempts action by the

State that regulates the rates and terms of service offered by an air

carrier.

The trucking operations of Federal Express are integral to its

operation as an air carrier. The trucking operations are not some

separate business venture; they are part and parcel of the air

delivery system. Every truck carries packages that are in interstate

commerce by air. The use of the trucks depends on the conditions

of air delivery. The timing of the trucks is meshed with the

Se

A-6

schedules of the planes. Federal Express owes some of its success

to its effective use of trucking as part of its air carner service.

The PUC’s regulation of rates. of discounts and promotional

pricing, of claims, of overcharges, of bills of lading and freight

bills, and its imposition of fees enters the zone that Congress has

forbidden the states to enter. Its regulatory scheme does not

restate common law principles of tort and contract. Its regulatory

scheme goes far beyond safety on highways. Most of the regula-

tions challenged here are obviously economic—they bear on

price. Those regulations which are not patently economic—the

rules on claims and bills of lading, for example—relate to the

terms on which the air carrier offers its services. Terms of service

determine cost. To regulate them is to affect the price. The terms

of service are as much protected from state intrusion as are the air

carrier’s rates.

Our reading of the plain words of the statute is confirmed by

consideration of the purposes of the Airline Deregulation Act and

the Federal Aviation Act of 1958. The aim of federal preemption

is to prohibit a state “from enacting any law, establishing any

standard determining routes, schedules, or rates, fares, or charges

in tariffs of, or otherwise promulgating economic regulations, for

any air carner certified by the Board.” H.Conf.Rep. No. 1779,

95th Cong., 2d Sess. 94, reprinted in 1978 U.S. Code Cong. &

Admin.News 3737, 3773, 3804. The Federal Aviation Act of 1958

confided to federal authority the “promotion of adequate, eco-

nomica!, and efficient service by air carriers at reasonable

charges,” 49 U.S.C. § 1302(c). Amending the 1958 act in 1977,

Congress specifically required “‘a sound regulatory environment”

where decisions, “reached promptly,” “facilitate adaptation of the

air transportation system to the present and future needs of the

domestic and foreign commerce of the United States,” 49

U.S.C.App. § 1302(a)(5). In particular, in 1977, Congress

sought the “encouragement and development of an expedited all-

cargo air service system,” 49 U.S.C.App. § 1302(b)(1), and

Congress sought under the same heading, “Factors for all-cargo

air service,” the “encouragement and development of an inte-

grated transportation system,” 49 U.S.C.App. § 1302(b) (2).

A-7

Federal Express is exactly the kind of an expedited all-cargo

service that Congress specified and the kind of integrated trans-

portation system that was federally desired. Because it is an

integrated system, it is a hybrid, an air carrier employing trucks.

Those trucks do not destroy its status as an air carrier. They are

an essential part of the all-cargo air service that Federal Express

innovatively developed to meet the demands of an increasingly

interlinked nation. Congress has freed it from the constrictive

grasp of economic regulation by the states.

REVERSED and REMANDED with instructions to enter

judgment for the plaintiffs granting the injunctive relief requested.

SINGLETON, Jr., District Judge, dissenting.

Congress has preempted state regulation of certain activities of

air carners. The statute provides in part:

[ N jo state or political subdivision thereof [except Alaska]...

shall enact or enforce any law, rule, regulation, standard, or

other provision having the force and effect of law relating to

rates, routes, or services of any air carrier having authority

under subchapter IV of this chapter

49 U.S.C.App. § 1305(a)(1) (1988). In this case we are asked to

apply this statute to the operations of Federal Express Corpora-

tion (Federal Express), a conceded air carrier. We must deter-

mine whether Congress intended to preempt state economic

regulation of Federal Express’s transportation of cargo exclusively

by truck and exclusively within the borders of California. | am of

the view that Congress did not intend to preempt state regulation

of Federal Express’s purely intrastate trucking business and there-

fore dissent from this court’s decision.

This case turns on the meaning of certain phrases in the

applicable statute. In order to determine the scope of the statute

we must determine whether California’s threatened economic

regulations “relat[e] to rates, routes, or services of any air carrier

[ authorized by federal law] to provide air transportation.” Clearly

Congress intended to exempt activities pertaining to setting rates,

determining routes, and providing services of an air carrier neces-

eee ee

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sary to provide air transportation.’ It would appear equally clear

that Congress did not intend to exempt activities of an air carrier

that were not related to the provision of air transportation.’

In determining which activities are exempt and which are not,

it is useful to consider an analogy to the insect kingdom. All

caterpiliars have the potential of becoming butterflies and flying

above the earth. However, many caterpillars succumb before

metamorphosis and live their entire lives earthbound. If we

analogize packages to insects, this case is about caterpillars and

not butterflies.’

California’s concessions make this an easy case. The state

recognizes that in order to transport goods by air it is necessary to

get them from a collection point to an airplane and that state

economic regulation of incidental truck traffic is preernpted. The

' Congress defines an “air carrier” as a citizen of the United States

engaging in “air transportation.” 49 U.S.C.App. § 1301(3) (1988).

Congress defines “air transportation” in part as “interstate” transporta-

tion by aircraft. 49 U.S.C.App. § 1301(10). “Interstate air commerce”

means “the carriage by aircraft of... property for compensation...

whether such commerce moves wholly by aircraft or partly by aircraft

and partly by other forms of transportation.” 49 U.S.C.App. § 1301 (23).

California apparently does not contend that these definitions restrict

the exemption in section 1305 to state regulation of interstate transporta-

tion of goods by aircraft, nor does it contend that the statute permits

state regulation of intrastate carriage of goods by air. It does argue,

however, that by defining “air transportation” to include goods carried in

part by aircraft and in part by trucks. Congress did intend to permit state

regulation of goods carried exclusively by truck.

> For purposes of analysis it is useful to refer to those activities which

Congress chose not to regulate and which it preempted the states from

regulating as exempt activities. Those activities which the states are free

to regulate wil! be called nonexempt activities.

* Parcels which are carried at some point in an airplane for brevity will

be called air packages. Those parcels that never see the inside of an

airplane will be called land packages. By analogy air packages would be

butterflies and land packages caterpillars. It might be more apt to call

them dead caterpillars because if they reach their destination without

ever entering an airplane they never wil] become butterflies.

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state also implicitly concedes that if Federal Express picks up a

package in Memphis, flies it to Oakland, and transports it by

truck to Los Angeles, the entire trip, including the ground leg, is

preempted from state regulation. Thus California makes no claim

to regulate commerce carried wholly or partly by airplane. See 49

U.S.C.App. §§ 1301(10) and (24) (1988).

California seeks to regulate the carriage of only those packages

that never see the interior of an airplane. I see nothing in the cited

Statute that preempts California from doing so. It seems clear to

me that transporting packages solely by truck within California is

not a service of an air carrier authorized to provide air

transportation.

The majority never explains how the carriage of goods by land

is somehow transformed into the carriage of goods by air.’ Federal

*The majority never expressly discloses it reasoning. The majority

opinion describes Federal Express’s air transportation activities. It ar-

gues a point that California concedes, that Congress would frown on

attempts to regulate air transporation. It finesses the question presented

here whether transportation of land packages is exempt from regulation.

It distinguishes certain cases. It pursues another point conceded by

California, that transportation of air packages in Federal Express trucks

is exempt and it concludes with a paean to deregulation of air carriers.

Implicit in the opinion is the assumption that Federal Express has so

integrated its business by including both air packages and land packages

in each truck, that California’s attempts to regulate the latter necessarily

regulates the former. If this is the rationale, then the holding would be

that anytime an industry intermixes exempt and nonexempt activities

neither can be regulated by the state. If the United States Supreme

Court or this court had ever previously so held, those decisions should be

cited rendering the majority’s opinion unassailable. The majority cites no

cases for this proposition, however. Rather, it seeks to distinguish prior

decisions of this court which held that state regulation of activities which

were Clearly “scrvices of an air carrier” were not preempted. Even if we

accept the distinction the majority draws between “economic” and

“non-economic” regulation, a troublesome distinction in context, the

distinction does not advance the majority’s decision. The fact that

regulation of some “air services” is not preempted does not support a

holding that services that have no connection with “air transportation”

are preempted.

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Express has a number of arguments. It contends the statute

exempts any service performed by an air carrier, and concludes

that it is primarily an air carrier and so any transportation activity

it conducts automatically becomes exempt.’ Thus, if Federal

Express diversifies into the florist or pizza business in San

Francisco and uses its fleet of trucks to deliver flowers or pizza in

the Bay Area presumably the selling of flowers or pizza become

activities preempted from state regulation whether airplanes play

any part in the delivery or not. I cannot accept this argument and

I do not believe the majority intends its decision to extend this

far.°

Federal Express’s primary argument is that its business is so

integrated that it would be inconvenient to segregate land pack-

ages from air packages. In fact Federal Express maintains that no

one ever knows until the last minute whether a given package will

be flown or driven to its intrastate destination. To accept this

argument is to confuse Federal Express’s other commerce clause

arguments with its preemption arguments. Federal Express’s

unilateral decision to mix its intrastate carriage of goods by truck

* Federal Express errs in my view by focusing on the term “services”

in the statute and ignoring the context “of an air carrier authorized to

provide air transportation.” In context, it is clear that only “air services,”

by which I mean services constituting air transportation, are exempt.

°The majority might respond to the “pizza” example by echoing

Justice Holmes famous riposte, “not... while this court sits.” Panhan-

dle Oil Co. v. Mississippi ex rel. Knox, 277 U.S. 218, 223, 48 S.Ct. 451,

453, 72 L.Ed. 857 (1928) (Holmes, J., dissenting). While unwilling to

formulate a principle that would distinguish “air services” from other

potential services of an air carrier, the majority might recognize a point

at which ground services were so divorced from air services that

economic regulation of the former would not impede performance of the

latter. Compare Justice Stewart's test for obscenity, “I know it when I

see it.” Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S.Ct. 1676, 1683, 12

L.Ed.2d 793 (1964) (Stewart, J., concurring).

This approach is flawed in my view because it does not guide the trial

bench and the bar in deciding other cases. My proposed resolution has

the advantage of providing a bright line rule.

A-l1

with the carriage of other packages taken from airplanes cannot

transform purely ground transportation into air transportation.

The majority may be influenced by the fact that only a small

percentage of the packages currently carried by Federal Express

trucks really qualify as caterpillars. On this record, the over-

whelming majority appear to be butterflies. We must recognize,

however, that nothing is static in the highly competitive transpor-

tation industry. The majority’s decision will free the trucking

business of Federal Express from any state economic regulation.

This will open the door for substantial increases in Federal

Express’s trucking business and give it a substantial competitive

advantage over trucking companies that must comply with state

regulation. The majority really does not set out a rationale for

determining when an air carrier’s ground transportation loses its

quality as air transportation. The majority decision could be read

as exempting any transportation services Federal Express wishes

to provide. The majority does not tell us how many airplanes

Federal Express must fly to Sacramento each month, in order to

insulate daily truck traffic between Oakland and Sacramento from

state regulation. Will one Cessna 208 carrying three packages

between Oakland and Sacramento authorize Federal Express to

send a dozen trucks packed with goods between the two cities free

of state regulation? The majority does not address packages

deposited on the San Francisco peninsula for delivery in the East

Bay that never see an airplane. In my view, we should apply the

plain language of the statute.’ Federal Express’s air transportation

services, including land transportation incidental thereto, are

exempt from state regulation while its exclusively intrastate land

transportation services are not exempt from state regulation. If

’ Miners search for gold in creek beds and frequently are misled by

pyrites. Judges search for plain meaning in statutes and are frequently

misled by a mirage. A claim that any statute has a “plain meaning” is at

the very best an overstatement. More often it begs the question to be

answered. My view of the statute at least finds support in its context and

if we look beyond immediate context my reading of the statute finds

support in Congress's purpose as disclosed in the language used in the

Statutes governing air carriers as a whole.

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the two overlap, we are presented with general commerce clause

concerns, not preemption concerns.

The majority finds preemption and therefore has no need to

address Federal Express’s other commerce clause arguments. The

trial court essentially found that the commerce clause challenges

were not ripe for resolution until Federal Express sought and was

denied state exemptions. In the trial court’s view until we know

how California actually applies its regulatory system to Federal

Express’ business, it is premature to decide the commerce clause

issues. This view seems plausible to me but the state only

reluctantly endorsed it after much prodding at oral argument.”

If we were to conclude that all the commerce clause issues

were ripe for adjudication and elect to decide those issues now, I

would be reluctant to do so on a summary judgment record. I do

not believe that all material facts are undisputed. I would much

prefer to give the parties their day in court and then have the trial

court address each of Federal Express’s contentions in carefully

fashioned findings of fact. See Fed.R.Civ.P. 52. I therefore re-

spectfully dissent and favor affirming the trial court’s decision on

the preemption issue but remanding on other commerce clause

issues for findings of fact and conclusions of law after a full

hearing on the merits.

* The state prefers to argue that even if all of Federal Express’s factual

assertions are accepted as true, Federal Express has not sustained its

burden under the standards articulated in Pike v. Bruce Church, Inc.,

397 U.S. 137, 90 S.Ct.844, 25 L.Ed.2d 174 (1970). I am unpersuaded

that Federal Express’s other commerce clause arguments can be re-

solved as a matter of law.

APPENDIX B

FEDERAL EXPRESS CORP.,

Plaintiff,

We

CALIFORNIA PUBLIC UTILITIES COMMISSION, et al.,

Defendants.

No. C-87-4891 MHP.

United States District Court,

N.D. California.

March 30, 1989.

MEMORANDUM AND ORDER

PATEL, District Judge.

Plaintiff, which provides a nationwide small package express

delivery service, brought this action seeking a declaration that

California Public Utilities Code §§ 486-496 are unconstitutional

as an impermissible burden on interstate commerce under the

Commerce Clause and as preempted by the Airline Deregulation

Act (“the Act”), 49 U.S.C.App. § 1305. Plaintiff also seeks an

injunction preventing defendants from enforcing regulations

promulgated pursuant to state statutory authority. The case is now

before the court on cross-motions for summary judgment. Having

considered the submissions of the parties, for the following

reasons, the court grants defendants’ motion for summary judg-

ment on the preemption issue only. The court denies both

motions for summary judgment on the burden on interstate

commerce issue and orders the parties to submit supplemental

pleadings on that issue.

BACKGROUND

Federal Express operates an interstate package air delivery

system rationwide under a grant of authority pursuant to the

Federal Aviation Act, 49 U.S.C.App. § 1371. Plaintiff charges all

customers throughout the country the same rates for service.

Plaintiff claims that it does not offer an intrastate delivery service

in California that is separate from its nationwide service. Plaintiff

B-2

concedes, however, that 3.5% of its total volume represents

business that both onginates in and is destined for locations

within California. According to plaintiff packages originating and

destined for California may be transported through three different

sorting routes: 1) by air to Memphis; 2) by air to Los Angeles or

Oakland; or 3) by truck to Los Angeles or Oakland when air

transportation is not available due to lack of capacity or adverse

weather conditions. If the packages are sent to Memphis, they are

then flown back to California. With each method, the packages

are transporied to their final destinations in California by small

trucks.

Defendants California Public Utilities Commission (hereinaf-

ter “CPUC”) and its various officials regulate the portion of

plaintiff's business which is conducted purely intrastate and solely

by truck. Since 1984, Federal Express has sought and received

two types of authority from the CPUC: a California Highway

Common Carrier Certificate, which is registered to a subsidiary,

and a California Highway Contract Carrier Permit. Plaintiff also

conducts intrastate business pursuant to a rate tariff filed with the

CPUC which became effective February 1, 1985. According to

the CPUC, Federal Express’ subsidiary paid quarterly transporta-

tion rate fund fees to the CPUC from 1984, after obtaining

intrastate motor carrier authority, until some point in 1987.

In 1986, the CPUC learned of a Tennessee lawsuit in which

plaintiff's vice president H. Doyle Cloud testified that Federal

Express was operating in California without paying authorization

ground transportation rates because it believed that the regula-

tions did not apply to it as an interstate carrier. By letter of

November 20, 1986, addressed to plaintiffs chief executive of-

ficer, the CPUC staff initiated an informal investigation of plain-

uff's failure to comply with state licensing regulations. This

informal investigation culminated in June 1987 with a formal staff

letter identifying two areas of noncompliance and requiring com-

plete correction by November |, 1987, to avoid formal enforce-

ment action. Although plaintiff failed to comply with this

demand, the CPUC never initiated formal enforcement

proceedings.

B-3

Plaintiff also failed to comply with certain regulatory reporting

requirements. The CPUC responded by imposing fines and

threatening other penalties.

Plaintiff filed this action for declaratory and injunctive relief on

December 9, 1987. On May 17, 1988, the court denied defen-

dants’ motion to dismiss the complaint. Defendants have submit-

ted papers showing that the CPUC has agreed not to pursue any

related action against Federal Express regarding the payment of

fees or the filing of reports during the pendency of this lawsuit.

EVIDENTIARY MOTIONS

Plaintiff has made five motions to strike various portions of

defendants’ submissions. The court rules as follows:

1) The motion to strike pages 26 through 35 of defendants’

memorandum of points and authorities is DENIED, since that

submission was within the limits previously set by this court.

2) The motion to strike the portion of the Quinn declaration

and article regarding Federal Express’ advocacy of a nationwide

campaign to preempt state motor carrier jurisdiction is

GRANTED, since such evidence is irrelevant to this action.

3) The motion to strike references to United Parce! Service

and Purolator Courier is GRANTED, since those references are

inadmissible hearsay.

4) The motion to strike the opinion offered by CPUC official

Donald H. Smith about tracking intrastate ground movements is

GRANTED, since that opinion lacks foundation and Mr. Smith

has not been qualified as an expert witness.

5) The motion to strike a legal memorandum which was cited

in and attached to a letter sent by the CPUC to Federal Express

in February 1987 is DENIED, insofar as that memorandum is

admitted only for the purpose of showing how the CPUC in-

formed plaintiff of its enforcement operations and not for the

content of the legal opinion.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment

shall be granted “‘against a party who fails to make a showing

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sufficient to establish the existence of an element essential to that

party’s case, and on which that party will bear the burden of proof

at trial... since a complete failure of proof concerning an essen-

tial element of the nonmoving party’s case necessarily renders all

other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317,

322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). See also T.W.

Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630

(9th Cir.1987) (the nonmoving party may not rely on the

pleadings but must present specific facts creating a genuine issue

of material fact); Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (a dispute

about a material fact is genuine “if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.’’).

The court’s function however, is not to make credibility deter-

minations. Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. The

inferences to be drawn from the facts must be viewed in a light

most favorable to the party opposing the motion. 7. W. Elec.

Serv., 809 F.2d at 631.

DISCUSSION

Federal Express contends that the application of CPUC regula-

tions to its intrastate ground operations is unconstitutional on two

grounds: |) such regulations are preempted by the Airline De-

regulation Act, 49 U.S.C.App. § 1305, under the Supremacy

Clause (Art. VI, cl. 2) of the U.S. Constitution; and 2) such

regulations place an unconstitutional burden on interstate com-

merce, under the Commerce Clause (Art. I, Sec. 8, cl. 3).

Defendants seek summary judgment on both grounds.

I. PREEMPTION

Plaintiff Federal Express argues that the CPUC regulations are

barred by |) express preemption, 2) implied preemption where

Congress intended to occupy the field, and 3) conflict preemption

where state law clashes with Congress’ objectives, even if Con-

gress did not intend to occupy the field. See, e.g. Hillsborough

County v. Automated Medical Laboratories, Inc., 471 U.S. 707,

714-715, 105 S.Ct. 2371, 2375-2376, 85 L.Ed.2d 714 (1985)

(summarizing preemption case law). Where state regulatory

powers are challenged, courts must presume that state laws are

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not preempted unless preemption is shown to be the clear purpose

of the Congress. See, e.g., Pacific Legal Foundation v. Staff

Energy Resources Conservation and Dev. Comm'n, 659 F.2d 903,

919 (9th Cir.1981), affd, 461 U.S. 190, 206, 103 S.Ct. 1713,

1723, 75 L.Ed.2d 752 (1983) (courts assume that states’ police

powers take precedence unless Congress clearly demonstrated

contrary intent). The burden of proof therefore falls on those

arguing that state laws are preempted, so plaintiff must bear that

burden.

A. Express Preemption

Plaintiff contends that 49 U.S.C.App. § 1305(a) expressly

prohibits the CPUC regulation of Federal Express. This section

States:

Except as provided in paragraph (2) of this subsection, no

State or political subdivision thereof... shall enact or en-

force any law, rule, regulation, standard, or other provision

having the force and effect of law relating to rates, routes, or

services of any air carrier having authority under subchapter

IV of this chapter to provide air transportation.

Whether this section preempts CPUC regulation of intrastate

ground transport turns on the meaning of two phrases: “relating

to” and “rates, routes, and services.’ Federal Express asserts that

its groundbased routes are services within its integrated air-

ground transportation system. Invoking the plain meaning rule of

Statutory construction, defendants counter that the intrastate

trucking operation of Federal Express is not covered by the

language of section 1305(a).

In a similar case, the Ninth Circuit rejected an expansive

reading of the term “services.” Air Transport Ass'n v. Public

Utilities Comm'n of California, 833 F.2d 200, 207 (9th

Cir.1987), cert. denied, __. US. , 108 S.Ct. 2904, 101

L.Ed.2d 936 (1988) (section 1305(a) does not preempt CPUC

regulation prohibiting recording of telephone conversations with-

out warning). The Ninth Circuit reasoned that:

The type of telephone operations utilized by the airlines is

not peculiar to airlines and is similar to those operations used

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by other national service industries where reservations are

required, such as hotels and motels, and car rental companies

Id. Thus, telephone reservation operations are not services within

the meaning of section 1305(a). Jd. Compare, e.g., Hingson v.

Pacific Southwest Airlines, 743 F.2d 1408, 1415 (9th Cir.1984)

(air carrier seating policies for handicapped passengers held to be

“services” and therefore preempted by section 1305(a) ).

Plaintiff has failed to satisfy the Air Transport Association test

since it has not shown that Federal Express intrastate trucking

operations are singularly airline services. Although Federal Ex-

press’ ground operations are commercially linked to its air trans-

portation system, its hauling operations are not substantially

different from services provided by other motor carriers.

Plaintiff also argues that the ground transportation services

“relate to” the air transportation provided by Federal Express,

analogizing to the Supreme Court’s broad interpretation of

ERISA preemption of any state laws which “relate to” any

employee benefit plan. 29 U.S.C. § 1144(a). See, e.g., Pilot Life

Insurance Co. v. Dedeaux, 481 U.S. 41, 47-48, 107 S.Ct. 1549,

1552-1553, 95 L.Ed.2d 39 (1987). However, this reading of

ERISA preemption should not be taken as a canon of general

statutory interpretation. The legislative history of ERISA indi-

cates that Congress specifically intended a broad reading of

preemption in that context. Pilot Life, 481 U.S. at 45-46, 107

S.Ct. at 1551-1552 (citations omitted). Plaintiff cites no compa-

rable legislative history concerning section 1305(a). It is true,

however, that the legislative framework of section 1305(a), the

Airline Deregulation Act of 1978, was aimed at creating ““com-

prehensive legislation” to supply “a gradual and phased transition

to a deregulated system.” Hughes Air Corp. v. Public Utilities

Comm'n, 644 F.2d 1334, 1337 (9th Cir. 1981) (citation

omitted).

Even assuming arguendo that the phrase “relating to” should

be read expansively, plaintiff's position is problematic. The court

has found no cases in which the phrase “relating to” in this

section has been applied to regularly conducted ground transpor-

B-7

tation.' Compare, e.g., Anderson v. USAir, Inc., 818 F.2d 49, 57

(D.C.Cir. 1987) (state law requirement of courteous service on

airplane preempted by section 1305(a) ). Under the interpretation

urged by Federal Express, virtually any air carrier-owned or

operated service would escape state regulation if it established the

slightest nexus between its various activities.? The court declines

to strain such a reading from section 1305(a).

B. Implied Preemption

In order to show that the Airline Deregulation Act of 1978

impliedly preempts CPUC regulations, plaintiff must offer “evi-

dence of a congressional intent to pre-empt the specific field

covered by the of state law.” Wardair Canada, Inc. v. Florida

Dept. of Revenue, 477 U.S. 1, 6, 106 S.Ct. 2369, 2372, 91 L.Ed.2d

1 (1986) (state sales taxation of airline fuel not preempted by

Federal Aviation Act). The Act expressed the legislative intent

that the aviation industry be permitted to develop and grow

competitively in response to market forces. 49 U.S.C.App.

§ 1302(b). Plaintiff cites the following language from the policy

declaration preceding the Act:

(1) The encouragement and development of an expedited all-

Cargo air service system, provided by private enterprise, re-

' Federal Express also relies on regulations issued by the Civil

Aeronautics Board (now enforced by the Department of Transporta-

tion) to support its argument that section 1305(a) preempts a broad

range of air carrier activities. Nothing in those regulations suggests that

ground transportation is covered. In particular, to read the exemption for

“mode of operations” in 14 C.F.R § 399.110(d) as including Federal

Express trucks distorts the regulatory language.

> At the hearing plaintiff's counsel admitted that he could not draw

the line at which a business with both air and ground transportation

services would qualify within the interpretation of “all-cargo system”

urged by Federal Express. In response to the court’s questioning,

plaintiffs counsel sought to distinguish Federal Express from a hypo-

thetical business certified as an air carrier where over 50% of its revenues

derived from ground transportation. Yet plaintiffs counsel declined to

specify the point at which such business would become an “integrated

transportation system” in the parlance of Federal Express.

ES a ER ee

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sponse to (A) the present and future needs of shippers, (B) the

commerce of the United States, and (C) the national defense.

(2) The encouragement and development of an integrated

transportation system relying upon competitive market forces

to determine the extent, variety, quality and price of such

Services.

49 U.S.C.App. § 1302(b). Plaintiff urges the court to find that by

using phrases such as “all-cargo air service system” and “‘inte-

grated transportation system,” Congress intended to include Fed-

eral Express’ ground transportation activities.

Neither the definitional framework of the Act nor its legislative

history supports such an argument. An “all-cargo air service

system” is defined in the statute simply as “the carriage by

aircraft in interstate or overseas air transportation of only property

or mail, or both.” 49 U.S.C.App. § 1301(11). As to the notion of

an integrated transportation system, the only language that might

pertain to ground transportation is found in the definitions of

“interstate air transportation” and “interstate air commerce”

which include the movement of commerce in part by aircraft and

in part by “other forms of transportation.” Jd, § 1301(23) & (24).

Here, however, the CPUC is not attempting to regulate ship

ments of Federal Express in which intrastate ground transporta-

tion is combined with air transport. Rather, it is attempting to

regulate shipments which involve only the intrastate ground

transportation. Hence, these statutory definitions are not

implicated.

In the many pages of Congressional reports accompanying the

Airline Deregulation Act no mention is made of ground transpor-

tation activities, while repeated references are made to air trans-

portation and flights. See, e.g., H.Rep. No. 95-1211, 95th Cong.,

2nd Sess. 15-16, reprinted in 1978 U.S.Code Cong. & Ad-

min.News 3737, 3751-3752 (discussing preemption);

H.Conf.Rep. No. 95-1779, 95th Cong., 2nd Sess. 94-95, reprinted

in 1978 U.S.Code Cong. & Admin.News 3773, 3804-3805 (dis-

cussing preemption).

Proponents of the Airline Deregulation Act of 1978 declared

that Congress intended to prevent the states from regulating air

B-9

transportation. See Hughes Air Corp., 644 F.2d at 1336-1337

(discussing legislative history of Airline Deregulation Act). In

1984, Congress expanded the reach of the Act by amending the

preemption clause to replace the words “interstate air transporta-

tion” with “air transportation.” See 49 U.S.C.App. § 1305(a) (1)

(Supp. III 1985) (amending 49 U.S.C.App. § 1305(a)(1)).

Furthermore, other post-1978 legislation indicates that Con-

gress did not intend the federal government to occupy the field of

intrastate ground transportation. Numerous amendments to the

interstate Commerce Act, 49 U.S.C. § 10101 et seq., including

the Motor Carrer Act of 1980, Pub.L. 96-296, 94 Stat. 793, and

the Bus Regulatory Reform Act of 1982, Pub.L. 97-261, 96 Stat.

1102, have allowed regulation of intrastate motor travel to remain

in the hands of the states. The Airline Deregulation Act explicitly

provides that, with narrow exceptions, the “power of a State to

regulate intrastate transportation provided by a motor carrier” is

not diminished by the grant of jurisdiction to the Interstate

Commerce Commission (“ICC”) ito regulate interstate motor

transportation. 49 U.S.C. § 10521(b) (1).°

Plaintiff has presented no evidence to demonstrate that Con-

gress viewed Federal Express as an “integrated air-ground sys-

tem” whose operations should be considered under the single

rubric of air carrier. While such legislative understanding may be

* Interstate Commerce Comm'n v. Texas, 479 U.S. 450, 107 S.Ct.

787, 93 L.Ed.2d 809 (1987) cited by plaintiffs, is easily distinguishable

from the case at bar. There the Supreme Court held that the [nterstate

Commerce Commission (hereinafter “ICC”’) had authority to exempt

from state regulation the motor freight portion of an intrastate “in-

termodal’”” movement of goods (an intermodal movement allows a

carmier to transport a trailer and its goods over rail on a flatcar and then

to haul the trailer on the highway). 479 U.S. at 460-61, 107 S.Ct. at 793

(interpreting 49 U.S.C. § 10505(f)). The parties had not disputed that

the same provision gave the ICC authority to exempt the rail freight part

of the journey from state regulation. Jd. at 452, 107 S.Ct. at 789.

Here the CPUC is not seeking to regulate “intermodal” transporta-

tion. Additionally, plaintiff does not rely on an exemption order autho-

rized by the regulatory authonty of a federal agency.

——————V—

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short-sighted, correction must be sought from Congress, not the

courts.

C. Conflict Preemption

Finally, plaintiff argues that the CPUC’s regulation of Federal

Express’ intrastate activities conflicts with the objectives and

goals of the Act. The court must construe the Airline Deregula-

tion Act to avoid conflict with other legislation in the transporta-

tion field. Cf. Louisiana Public Service Comm'n v. Federal

Communications Comm'n, 476 U.S. 355, 370, 106 S.Ct. 1890,

1899, 90 L.Ed.2d 369 (1986) (reconciling different jurisdictional

provisions and finding that Congress created dual regulatory

system for telephone service). One key to Congressional thinking

on this matter is the Interstate Commerce Act which deprives the

Interstate Commerce Commission of jurisdiction over certain

motor carriers when air transport is also involved. For example,

where transportation of property by motor carrier is part of a

continuous movement involving air transportation, the ICC does

not have jurisdiction. 49 U.S.C. § 10526(a) (8) (B). However, the

exemption does not extend to motor carrier service of an air

carrier. It is limited to those goods actually transported by joint

air and ground carriage. Another example found in the same

section is the exemption of motor carrier transportation when

used as a substitute for air transportation in emergency situations.

Id. § 10526(a)(8)(C).

These exemptions suggest that Congress viewed ground and air

transportation as belonging to two different regulatory regimes

under normal circumstances. The Interstate Commerce Act fur-

ther demonstrates that Congress intended to specify when motor

Carrier transportation was to be seen as an adjunct to air transpor-

tation and therefore exempt from the ICC’s jurisdiction. See, e.g.,

49 U.S.C. § 10526(a)(8)(A) (removing from ICC jurisdiction

“transportation of passengers by motor vehicle incidental to

transportation by aircraft’).

For the reasons articulated above, the court finds that under the

Interstate Commerce Act, Congress contemplated a multi-layer

system of transportation regulation. The court therefore finds that

B-11

CPUC regulations do not conflict with federal legislation in the

transportation field.

Il. BURDEN ON INTERSTATE COMMERCE

Plaintiff also contends that the CPUC regulations are an

unconstitutional burden on interstate commerce, prohibited by

the Commerce Clause (Art. I, § 8, cl. 3). The legal tesi for

determining the validity of state statutes that affect interstate

commerce is set forth in Pike v. Bruce Church Inc., 397 U.S. 137,

90 S.Ct. 844, 25 L.Ed.2d 174 (1970):

Where the statute regulates evenhandedly to effectuate a legiti-

mate local public interest, and its effects on interstate com-

merce are only incidental, it will be upheld unless the burden

imposed on such commerce is clearly excessive in relation to

the putative local benefits. If a legitimate local purpose is

found, the question becomes one of degree. And the extent of

the burden that will be tolerated will of course depend on the

nature of the local interest involved, and on whether it could be

promoted as well with a lesser impact on interstate activities.

Id. at 142, 90 8.Ct. at 847; see also Burlington Northern R.R. Co.

v. Dep't of Public Service Regulation, 763 F.2d 1106, 1114 (9th

Cir.1985) (challenger to state regulation must show that it

“impedes substantially the free flow of commerce from sjate to

state”’). pr

Federal Express contends that enforcement of the CPUC

regulations will place an unreasonable burden on interstate com-

merce because the regulations will increase operating costs, result

in delays in delivery times and reduce operating, pricing and

discount flexibility. The CPUC counters that Federal Express’

scenario of burdens is unfounded and that CPUC regulation of

Federal Express would be reasonable and tailored to Federal

Express’ existing method of operation.

Much of Federal Express’ Commerce Clause analysis is prem-

ised on its contention that it cannot determine at the time of

package pick-up whether a package from a location in California

will move solely by ground transportation or partially by air.

Federal Express contends that this inability to separate packages

B-12

before shipment will require Federal Express to comply with the

CPUC regulations for all California shipments, even those which

will not be delivered solely by intrastate ground carrier.

As the parties have not fully explored the burden on interstate

commerce which would result from a post-shipment estimate of

the packages which have traveled solely by truck in California,

the court declines to grant summary judgment. The court directs

the parties to conduct additional discovery, if warranted, and file

supplemental! pleadings addressing the factual issues raised by the

court.

Specifically, the parties are directed to address whether or not

Federal Express can identify, after packages have been shipped,

those packages that have traveled solely by truck in California.

Federal Express concedes that such post-shipment scanning is

conceivable. See Lawrence Decl. at para. 8. Counsel for the

CPUC, in oral argument on September 26, 1988, stated that the

CPUC will accept estimates of the number of packages shipped

by Federal Express solely by ground transportation in California

in order to assess quarterly transportation rate fund fees. See also

Smith Dec. at para. 8.

Whether the CPUC regulations would pose an unreasonable

burden on interstate commerce under such an estimate system

has been not been addressed by the parties. Consequently, the

parties are hereby directed to address whether the CPUC regula-

tions would pose an unreasonable burden on interstate commerce

if Federal Express were required to estimate the number of

packages which have traveled solely in intrastate commerce. In

addition, the CPUC is directed to address in greater detail the

public benefits to be realized from the CPUC regulations chal-

lenged herein.

Plaintiff and defendant are hereby ordered to file declarations

or other evidentiary submissions addressing the issues discussed

above. In relation to those issues the parties may file supplemen-

tal memoranda of no more than ten (10) pages in length. These

papers shall be filed within sixty (60) days of the date of this

order. No replies shall be filed.

CONCLUSION

Plaintiffs have failed to carry their burden of proof with regard

to the preemption argument. On the other hand, defendants have

shown that the CPUC regulations were not barred by the

Supremacy Clause. Defendants are hereby granted partial sum-

mary judgment on the issue of preemption. The parties’ motions

for summary judgment on the burden on interstate commerce

issue are denied, and the parties are directed to file supplementary

pleadings in accordance with this order.

IT IS SO ORDERED.

APPENDIX C

FEDERAL EXPRESS CORP.,

Plaintiff,

Vv.

CALIFORNIA PUBLIC UTILITIES COMMISSION, et al.,

Defendants.

No. C-87-4891 MHP.

United States District Court,

N.D. California.

Oct. 11, 1989.

SUPPLEMENTAL OPINION

PATEL, District Judge.

Plaintiff, a nationwide smal! package express delivery service,

brought this action seeking a declaration that California Public

Utilities Code §§ 486-496 are unconstitutional as an impermissi-

ble burden on interstate commerce under the Commerce Clause

and as preempted by the Airline Deregulation Act (“the Act”),

49 U.S.C. App. § 1305. Plaintiff also seeks an injunction prevent-

ing defendants from enforcing regulations promulgated pursuant

to state statutory authority. By order of March 30, 1989, the court

granted defendants’ motion for summary judgment with respect

to the preemption issue and ordered additional briefing on the

burden on interstate commerce issue. 716 F.Supp. 1299

(N.D.Cal.1989).

The case is now before the court on cross-motions for summary

judgment. Having considered the submissions of the parties, for

the following reasons, the court grants defendants’ motion for

summary judgment on the interstate commerce issue.

BACKGROUND

The factual background of this case was discussed extensively

in the court’s order of March 30, 1989, and is not repeated here.

Briefly stated, the remaining issue is whether or not California

Public Utilities Code (“CPUC”) regulations governing the por-

tion of Federal Express business which is conducted intrastate

C-2

and solely by truck unconstitutionally burden interstate com-

merce. The challenged regulations apply to areas including finan-

cial reporting, capitalization, insurance and safety.

In its order of March 30, the court asked the parties to address

three questions: 1) whether Federal Express can identify, after

packages have been shipped, those packages that have traveled

solely by truck in California; 2) whether the CPUC regulations

would pose an unreasonable burden if Federal! Express were

required to estimate the number of packages which have traveled

solely in interstate commerce; and 3) which public benefits derive

from the CPUC regulations at issue.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment

shall be granted “against a party who fails to make a showing

sufficient to establish the existence of an element essential to that

party’s case and on which that party will bear the burden of proof

at trial... since a complete failure of proof concerning an essen-

tial element of the nonmoving party’s case necessarily renders all

other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317,

322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). See also

T.W. Elec. Serv. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626,

630 (9th Cir.1987) (if the moving party meets its initial burden

of demonstratingthe absence of any genuine issue of material fact,

the nonmoving party may not rely on the pleadings but must

“present specific facts creating a genuine issue of material fact);

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.

2505, 2510, 91 L.Ed.2d 202 (1986) (a dispute about a material

fact is genuine “if the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.”’).

The court’s function, however, is not to make credibility deter-

minations. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14. The

inferences to be drawn from the facts must be viewed in a light

most favorable to the party opposing the motion. 7.W. Elec. Serv.,

809 F.2d at 631.

C-3

DISCUSSION

When state regulations arguably affect commerce among

states, the Commerce Clause of the United States Constitution

(Art. I, § 8, cl. 3) is implicated. Federal Express argues that the

application of CPUC regulations to its intrastate ground opera-

tions places an unconstitutional burden on interstate commerce in

violation of the Commerce Clause. If a regulation operates even-

handedly and creates only incidental effects upon interstate com-

merce, it passes constitutional muster unless “the burden imposed

on such commerce is clearly excessive in relation to the putative

local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90

S. Ct. 844, 847, 25 L.Ed.2d 174 (1970); see also Burlington

N.R.R. Co. v. Dep't of Pub. Serv. Regulation, 763 F.2d 1106, 1114

(9th Cir.1985) (challenger to state regulation must show that it

“impedes substantially the free flow of commerce from state to

state”’).

A. Burdens Imposed by the CPUC Regulations

Federal Express contends that enforcement of the CPUC

regulations will place an unreasonable burden on interstate com-

merce because the regulations will increase operating costs, result

in delays in delivery times and reduce operating, pricing and

discount flexibility. The CPUC counters that Federal Express’

scenario of burdens is unfounded and that CPUC regulation of

Federal Express is reasonable and tailored to Federal Express’

existing method of operation.

First, Federal Express asserts that it cannot determine at the

time of package pick-up whether a package from a location in

California will move solely by ground transportation or partially

by air. According to plaintiff, this inability to segregate packages

before shipment will require it to comply with the CPUC finan-

cial and other requirements for all California shipments, even

those which do not travel only by intrastate ground transportation.

It further contends that its “state of the art” tracking system does

not enable it to collect information regarding the mode(s) of

transportation taken after packages are delivered. Lawrence

Supp.Dec. paras. 3, 5-6; Nehls Dec. paras. 3-4. However, an

earlier declaration submitted by plaintiffs indicated that “it is

|

C-4

conceivable to scan trucks which are unloading to record which

packages were in a truck.” Lawrence Dec. para. 5. This declara-

tion also stated that Federal Express was planning to change its

system to allow tracking of truck routes. /d. para. 6.

Plaintiff now asserts that the development of post-delivery

scanning which would identify transportation modes will require

several years of research and the expenditure of an estimated $10-

20 million. Lawrence Supp. Dec. para. 6; Nehls Dec. para. 4

(stating that under current system post-transportation scanning

would not provide accurate data). Federal Express also states that

post-delivery scanning would slow down services. Lawrence Supp.

Dec. para. 6; Nehls Dec. para. 3. Although defendants doubt the

accuracy of Federal Express’ representations on this issue, they

offer no evidence that the declarations are false or inaccurate.

Since the record is uncontradicted, the court accepts as true

plaintiffs assertions concerning the difficulty of post-delivery

scanning under the current system.

Second, the parties addressed the feasibility of Federal Express

providing the CPUC with estimates of packages and the mode of

transportation, and paying fees in accordance with this arrange-

ment. Plaintiff argues: 1) that estimating the number of packages

that are carried by ground transportation within California would

not relieve Federal Express of the burden of other CPUC general

orders and regulations and 2) that Federal Express cannot be

assured that CPUC will not refuse to accept estimates in the

future.

As to the second contention, the court notes that counsel for

the CPUC, at the hearing on September 26, 1988, stated that the

CPUC will accept estimates of the number of packages shipped

by Federal Express solely by ground transportation in California

in order to assess quarterly transportation rate fund fees. Indeed,

during the calendar years 1985 and 19S6 and through the first

quarter of 1987, Federal Express paid quarterly operating fees to

the CPUC under a formula arrived at by the CPUC and appar-

ently agreed to by the plaintiff. Diani Aff. paras. 7, 14 and Exs.

B-E appended thereto. These fees were paid by Federal Express

and accepted by the CPUC on the basis of estimates. Further-

more, the payment of these estimated fees apparently did not

C-5

jeopardize plaintiffs profits. Dumng the period when Federal

Express paid estimated quarterly fees to the CPUC, its revenues

increased steadily in California and throughout the United States

(with the exception of a small decline in California revenues in

the first quarter of 1987). /d. para. 15 and Ex. D attached. The

method of allowing Federal Express to pay estimates thus appears

to have worked reasonably well in the past. Since there is no

dispute that the CPUC will now allow Federal Express to pay

estimated fees, the court need not speculate whether such ar-

rangements will be permitted in the future.’

Plaintiff also argues that paying estimated taxes would not

relieve it of the unreasonable burden imposed by other PUC

orders governing its operations such as rates, rate changes, re-

funds, and claims procedures. See Tucker, Bledsoe, Lawrence,

Chnstensen, Allen, Sherman, Germano and McNeal Decs.;

Plaintiffs Supp. Memo, Ex. 4H. According to plaintiff, Federal

Express cannot segregate packages flown by air from those carried

by Luck. Plaintiff declares that, even if Federal Express could

separate packages according to the type of transportation used, it

would not be feasible to distinguish between packages carried

across state lines and those transported only within California.

Federal Express depicts a scenario in which CPUC regulations

would force the corporation to assume that all packages, whether

carried by air or by ground, or across state lines or within

California, qualify for CPUC regulation. Such action allegedly

would impinge upon interstate commerce by forcing uniformity

across the states.

Federal Express’ picture must be moderated by a touch of

realism. Plaintiff contends that five different general orders issued

by the CPUC affect its intrastate truck operations. With regard to

' Plaintiffs protest that the CPUC policies have not been consistent,

but the court finds that an prediction of future harm is entirely

speculative at this point. Thus, any claim advanced by plaintiffs prem-

ised on the possibility that CPUC may reject estimates in the future

does not meet the case or controversy requirement of Article III of the

United States Constitution. See, e.g., O'Shea v. Littleton, 414 U.S. 488,

94 S.Ct.669, 38 L.Ed.2d 674 (1974) (discussing mpeness).

C-6

at least one order, the rate justification provision, the CPUC has

allowed Federal Express to charge rates for intrastate carnage

within California that are identical to its other rates. Defendants’

Supp. Memo, Attachment 2 at 2, 9-10. The CPUC asserts that it

will grant variances for the cost justification requirements as well

as the other general orders to which Federal Express objects. /d.

at 2-10.

Federal Express relies on Brown-Forman Distillers v. Nev. York

State Liquor Auth., 476 U.S. 573, 582 n. 5, 106 S.Ct. 2080, 2086

n. 5, 90 L.Ed.2d 552 (1986) and Jn re Beer Institute, 849 F.2d

753, 760 (2d Cir.1988), affd sub nom. Healy v. Beer Institute,

U.S. —__, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989) for the

proposition that constitutional nghts cannot be made dependent

on the discretion of a state agency. However, Brown-Forman and

Healy involved entirely different facts than are presented here. In

Brown-Forman the Court struck down a New York liquor statute

which required that every producer affirm that the prices charged

for every bottle of liquor sold in New York did not exceed that

charged in any other state during the same month. 476 US. at

582-583, 106 S.Ct. at 2086. Healy invalidated the Connecticut

statute which contemporaneously controlled liquor prices relative

to other states, and which restricted a brewer’s ability to offer

volume discounts. 109 S.Ct. at 2502-2503. In both Brown-For-

man and Healy, the Court invalidated liquor statutes because

their regulation of liquor prices had an extraterritorial effect and

produced a pricing gridlock on a regional and even national level.

See Healy, 109 S Ct. at 2501-2503 (discussing unconstitutional

effects).

Healy articulates a three part test for evaluating the extraterri-

torial effect of state regulation: 1) whether the state statute

applies to commerce wholly outside the state’s borders;

2) whether a statute has the “practical effect” of controlling

conduct outside a state’s borders; and 3) how the statute affects

legitimate regulations imposed by other staffs, and what impact

would be created if other states enacted similar legislation. 109

S.Ct. at 2499. Applying this test to the instant case, the court

finds that the C”UC regulations do not apply to commerce

outside California, nor has there been any evidence that CPUC

C-7

regulations will have the practical effect of controlling commerce

outside California. Plaintiff has made no showing that CPUC

regulations will conflict with other states’ regulations, nor is there

any suggestion that the CPUC regulations will create an eco-

nomic gridlock in the transportation industry.’

One further distinction merits discussion. In Healy, the Court

also found the Connecticut statute unconstitutional because the

liquor statute applied only to brewers engaged in interstate com-

merce. 109 S.Ct. at 2501. Here the opposite situation is true: the

CPUC is attempting to regulate the intrastate ground operations

of Federal Express in the same manner that it currently regulates

other intrastate ground transportation. Rather than seeking equal

treatment with intrastate companies, Federal Express is actually

seeking more favorable treatment than is received by those

Carriers operating solely in California.

As to the contention that variances (which plaintiffs prefer to

call exemptions) will not necessarily be forthcoming from the

CPUC, it is not clear whether such variances were previously

granted when Federal Express was paying estimated quarterly

fees. Moreover, plaintiffs have presented no concrete evidence of

harm that would result if such variances were not given.

B. Benefits of CPUC Regulations

Against this meager showing of burdens resulting from the

CPUC regulations, the court balances the benefits allegedly

derived from the regulation. Federal Express contends that the

regulations provide no public benefits. To support this position, it

cites testimony before the CPUC and a CPUC staff report

expressing the need to reform the California regulatory system to

benefit the ratepayers.

* With respect to other state statutes and regulations, including those

administered by the CPUC, the supplemental summaries submitted by

the parties show these requirements do not unreasonably burden inter-

state commerce. Many of the regulations are similar to or less onerous

than comparable federal regulations. Others impose burdens only to the

extent that the activities are intrastate. In the latter case, the regulations

go to matters ordinarily left to state regulation, such as driver safety,

vehicle safety, and protection of state citizens’ interests.

C-8

On the other hand, the CPUC asserts that its regulations help

protect consumers, promote highway safety, and benefit the state

economy. Smith Aff. They also stress that in 1988 the California

legislature gave the CPUC greater responsibility for monitoring

vehicle maintenance and driver qualifications. Cal.Pub.Util.Code

§§ 1063.5, 3553, 3557 (West Supp. 1989). Moreover, the CPUC

points out that the payment of quarterly fees finances its highway

safety and maintenance programs.

Plaintiff's evidence does not tend to show that the CPUC

regulations provide no public benefit, nor that its functions are

merely superfluous.’ As demonstrated by the above legislation,

the California state legislature clearly views CPUC enforcement

of safety regulations as a significant public benefit. Furthermore,

* For instance, plaintiff attempts to rely upon excerpts from the

proposed Decision of the Administrative Law Judge in the Regulation of

General Freight Transportation by Truck. No. 1.88-08-046. See Plain-

tiffs Letter Brief, dated July 3, 1989 (containing excerpts from Pro-

posed Decision). The proposed decision recommends flexibility in rate

regulation, Proposed Decision at 80, and states that “the most effective

way to improve safety is through direct safety regulation and enforce-

ment.” /d. at 58-59. On the other hand, the proposed decision also states

that, while other state agencies bear direct responsibility for safety

regulation, the CPUC “has an indirect, but equally important, role of

cooperating with these agencies when Commission regulated carriers are

involved” /d. at 63. The functions CPUC shares with other state

agencies include: 1) suspending or revoking unsafe carriers’ operating

authority; 2) listing carner equipment; and 3) listing owner-operators

and drivers, licenses. /d.

Furthermore, the organizational charts submitted by both parties

indicate that there is considerable coordination between the CPUC and

State agencies such as the California Highway Patrol (CHP) and the

Department of Motor Vehicles, as well as between CPUC and the

Interstate Commerce Commission. However, the summaries show in

many instances that the CPUC does not duplicate, but complements

activities of these other agencies. See, e.g., Cal. Pub.Util.Code § 3631.5

(requiring liability insurance for motor carriers hauling hazardous

materials, who have been licensed by the CHP); Cal.Pub.Util.Code

§ 3553 (requiring new holders to show that they can meet CHP safety

standards ).

C-9

the United States Supreme Court has noted that “the question of

safety .. . is essentially a matter of public policy, and public policy

can, under our constitutional system, be fixed only by the people

acting through their elected representatives.” Bhd. of Locomotive

Firemen and Eng'rs v. Chicago, Rock Island and Pacific R.R. Co.,

393 U.S. 129, 138 89 S.Ct. 323, 328, 21 L.Ed.2d 289 (1968)

(upholding numerical requirements for train crew members

against Commerce Clause and equal protection challenge).

Additionally, in Raymond Motor Transp., Inc. v. Rice, 434

U.S. 429, 98 S.Ct. 787, 54 L.Ed.2d 664 (1978), the Supreme

Court declared:

[T]he Court has been most reluctant to invalidate under the

Commerce Clause “state legislation in the field of safety

where the propriety of local regulation has long been recog-

nized.” ...In no field has this deference to state regulation

been greater than that of highway safety regulation. ...

Thus, those who would challenge state regulations said to

promote highway safety must overcome a “strong presump-

tion of [their] validity.”

Id. at 143-44, 98 S.Ct. at 795 (citations omitted) .*

In the instant case, the court finds that plaintiffs have not

overcome the strong presumption of the validity of the CPUC

regulations.

* State highway regulations merit special deference because the bur-

den of nondiscriminatory regulations generally falls on local economic

interests, and because the states bear primary responsibility For policing

highway conditions. Raymond Motor Transp., 434 U.S. at 444 n. 18, 98

S.Ct. at 795 n. 18. Nevertheless, in Raymond Motor Transp., the Court

invalidated Wisconsin's regulations governing the length and shape of

trucks. The Court found uncontradicted evidence that the regulations

did not contnbute to highway safety and concluded that the regulations

significantly raised costs, slowed transportation, and prevented transfers

from any of the thirty-three states where the prohibited trucks were

legal. Jd. at 444-445, 98 S.Ct. at 795-96. The record here is completely

lacking in such evidence, regarding both the burdens and benefits of the

regulations.

CONCLUSION

Plaintiffs have failed to carry their burden of proof with regard

to their interstate commerce argument. On the other hand,

defendants have shown that the CPUC regulations do not consti-

tute an unreasonable burden. Defendants are therefore

GRANTED summary judgment on the interstate commerce

clause issue. Plaintiffs motion for summary judgment is

DENIED.

There being no remaining issues, this case is hereby

DISMISSED.

IT IS SO ORDERED.

APPENDIX D

U.S. Const., Art. VI, cl. 2

The Supremacy Clause

This Constitution, and the Laws of the United States which

shall be made in Pursuance thereof; and all Treaties made, or

which shall be made, under the Authority of the United States,

shall be the supreme Law of the Land; and the Judges in every

State shall be bound thereby, any Thing in the Constitution or

Laws of any State to the Contrary notwithstanding.

U.S. Const., Art. 1, § 8, cl. 3

The Commerce Clause

To regulate Commerce with foreign Nations, and among the

several States, and with the Indian Tribes;

49 U.S.C. App. § 1301(3)

(3) “Air carrier” means any citizen of the United States who

undertakes, whether directly or indirectly or by a lease or any

other arrangement, to engage in air transportation: Provided, That

the Board may by order relieve air carriers who are not directly

engaged in the operation of aircraft in air transportation from the

provisions of this chapter to the extent and for such periods as

may be in the public interest.

49 U.S.C. App. § 1301(10)

(10) “Air transportation” means interstate, overseas, or for-

eign air transportation or the transportation of mail by aircraft.

49 U.S.C. App. § 1301(11)

(11) “All-cargo air service” means the carriage by aircraft in

interstate Or Overseas air transportation of only property or mail or

both.

49 U.S.C. App. § 1301 (23)

(23) “Interstate air commerce” “overseas air commerce’, and

“foreign air commerce”, respectively mean the carnage by air-

craft of persons or property for compensation or hire, or the

carriage of mail by aircraft or the operation or navigation of

D-2

aircraft in the conduct or furtherance of a business or vocation, in

commerce between, respectively—

(a) a place in any Staff of the United States, or the

District of Columbia, and a place in any other Staff of the

United States, or the District of Columbia; or between places

in the same State of the United States through the airspace

over any place outside thereof; or between places in the same

Territory or possession of the United States, or the District of

Columbia;

(b) a place in any State of the United States, or the

District of Columbia, and any place in a Territory or posses-

sion of the United States; or between a place in a Territory or

possession of the United States, and a place in any other

Territory or possession of the United States; and

(c) a place in the United States and any place outside

thereof;

whether such commerce moves wholly by aircraft or partly by

aircraft and partly by other forms of transportation.

49 U.S.C. App. § 1301(24)

” “

(24) “Interstate air transportation”, “overseas air transporta-

tion”, and “foreign air transportation”, respectively, mean the

carriage by aircraft of persons or property as a common carrier for

compensation or hire or the carriage of mail by aircraft, in

commerce between, respectively—

(a) a place in any Staff of the United States, or the

District of Columbia, and a place in any other State of the

United States, or the Districtof Columbia; or between places

in the same Staff of the United States through the airspace

over any place outside thereof; or between places in the same

Territory or possession of the United States, or the District of

Columbia;

(b) a place in any State of the United States, or the

District of Columbia, and any plane in a Termitory or posses-

sion of the United States; or between a place in a Territory or

D-3

possession of the United States, and a place in any other

Territory or possession of the United States; and

(c) a place in the United States and any place outside

thereof;

whether such commerce moves wholly by aircraft or party by

aircraft and partly by other forms of transportation.

49 U.S.C. App. § 1302(b)

In addition to the declaration of policy set forth in subsection

(a) of the section, the Board, in the exercise and performance of

its powers and duties under this chapter with respect to all-cargo

air service shall consider the following, among other things, as

being in the public interest:

(1) The encouragement and development of an expedited

all-cargo air service system, provided by private enterprise,

responsive to (A) the present and future needs of shippers,

(B) the commerce of the United States, and (C) the

national defense.

(2) The encouragement and development of an inte-

grated transportation system relying upon competitive mar-

ket forces to determine the extent variety, quality, and price

of such services.

(3) The provision of services without unjust discrimina-

tions, undue preferences of advantages, unfair or deceptive

practices, or predatory pricing.

49 U.S.C. App. § 1305(a)

(1) Except as provided in paragraph (2) of this subsection, no

State or political subdivision thereof and no interstate agency or

other political agency of two or more States shall enact or enforce

any law, rule, regulation, standard, or other provision having the

force and effect of law relating to rates, routes, or services of any

air carner having authority under subchapter IV of this chapter to

provide air transportation.

(2) Except with respect to air transportation (other than

charter air transportation) provided pursuant to a certificate

issued by the Board under section 1371 of this title, the provisions

D-4

of paragraph (1) of this subsection shall not apply to any

transportation by air of persons, property, or mail conducted

wholly within the State of Alaska.

49 U.S.C. App. § 1371 (a)

No air carrier shall engage in any air transportation unless there

is in force a certificate issued by the Board authorizing such an

Carrier to engage in such transportation.

49 U.S.C. § 10521 (b)

(b) This subtitle does not

(1) except as provided in sections 10922(c)(2), 10935,

and 11501(e) of this title, affect the power of a State to

regulate intrastate transportation provided by a motor carrier,

(2) except as provided in sections 10922(c)(2) and

11501 (e), authorize the Commission to Prescribe or regulate

a rate for intrastate transportation. provided by a motor

carrier,

(3) except as provided in section 10922(c)(2) of this

title, allow a motor carrier to provide intrastate transportation

on the highways of a State; or

(4) except as provided in section 11503a and section

11504(b) of this title, affect the taxation power of a State

over a motor Carrier.

49 U.S.C. § 10526(a) (8)

(a) The Interstate Commerce Commission does not have

jurisdiction under is subchapter over

(8)(A) transportation of passengers by motor vehicle

incidental to transportation by aircraft;

(B) transportation of property (including baggage) by

motor vehicle as part of a continuous movement which, prior

or subsequent to such part of the continuous movement, has

been or will be transported by an air carrier or (to the extent

so agreed by the United States andyapproved by the Civil

Aeronautics Board or its successor agency) by a foreign air

carmier, or

D-5

(C) transportation of property by motor vehicle in lieu of

transportation by aircraft because of adverse weather condi-

tion or mechanical failure of the aircraft or other causes due

to circumstances beyond the control of the carrier or shipper,

49 U.S.C. § 10528

A motor carrier of property providing transportation exempt

from the jurisdiction of the Commission under paragraph (6),

(8), (11), (12), or (13) of section 10526(a) of this subchapter |

may transport property under such paragraph in the same vehicle

and at the same time as property which the carrier is authorized

to transport under a certificate issued under section 10922(b) of

this subtitle or under a permit issued under section 10923 of this

subtitle. Such transportation shall not affect the unregulated

Status of such exempt property or the regulated status of the

property which the carrier is authorized to transport under such

certificate or permit.

Cal. Const., Art. XII, § 4

The common may fix rates and establish rules for the transpor-

tation of passengers and property by transportation companies,

prohibit discrimination, and award reparation for the exaction of

unreasonable, excessive, or discriminatory charges. A transporta-

tion company may not raise a rate or incidental charge except

after a showing to and a decision by the commission that the

increase is justified, and this decision shall not be subject to

judicial review except as to whether confiscation of property will

result.

Cal. Pub. Util. Code § 701

The commission may supervise and regulate every public utility

in the State and may do all things, whether specifically designated

in this part or in addition thereto, which are necessary and

convenient in the exercise of such power and jurisdiction.

Cal. Pub. Util. Code § 1061

No common carmier shall operate or cause to be operated any

auto, truck, or other self-propelled vehicle not operated on rails,

for the transportation of property as a common carrier for com-

D-6

pensation on any public highway in this state except in accor-

dance with the provisions of this part.

Cal. Pub. Util. Code § 1062

The commission may do all of the following:

(a) Supervise and regulate every highway common carrier and

cement carrier in this state.

(b) Fix the rates, fares, charges, classifications, and rules of

each of these carriers.

(c) Regulate the accounts, and service of each of these carri-

ers, and require the filing of annual and other reports and of other

data by these carriers.

(d) Supervise and regulate these carriers in all other matters

affecting the relationship between them and the shipping public.

(e) Directly or through its employees, representatives, or in-

spectors photocopy or electrostatically or photostatically

reproduce at the commission’s expense the accounts, books,

papers, and documents of any of these carriers at either the

premises of the carrier or the offices of the commission. A carrier

may determine whether the copying or reproduction is done at its

premises or at the offices of the commission, and where copying

or reproduction expenses are incurred by the carrier, the commis-

sion shall, upon request, reimburse the carrier for the expenses.

The commission, by general order or otherwise, may prescribe

rules applicable to any and all highway common carriers and

cement carriers. The commission, in the exercise of the jurisdic-

tion conferred upon it by the California Constitution and by this

part, may make orders and prescribe rules affecting highway

common carriers and cement carriers, notwithstanding the provi-

sions of any ordinance or permit of any city, city and county, or

county, and in case of conflict between its order or rule and any

ordinance or permit of a city, city and county, or county, the order

or rule of the commission shall prevail.

D-7

Cal. Pub. Util. Code § 1063(a)

(a) No common carrier shall begin to operate any motor

vehicle, for the transportation of property for compensation on

any public highway in this state without first having obtained from

the commission a certificate declaring that public convenience

and necessity require that operation. No certificate shail be

required of any highway common carrier for the performance of

pickup, delivery, or transfer services by the carrier within the

carrier’s lawfully published pickup and delivery zones insofar as

the pickup and delivery limits do not include territory in excess of

three miles from the corporate limits of any city or three miles

from the post office of any unincorporated point.

Cal. Pub. Util. Code § 1070

(a) The commission may, at any time, for a good cause,

suspend, and upon notice to the holder of a certificate, and upon

opportunity to be heard, revoke, alter, or amend, that certificate.

(b) As an alternative to the suspension, revocation, alteration,

or amendment of a certificate pursuant to subdivision (a), the

commission may impose upon the holder of the certificate a fine

of not exceeding five thousand dollars ($5,000) for a first offense

and not exceeding twenty thousand dollars ($20,000) for any

second or succeeding offense. The common may assess interest

upon any fine imposed, the interest to commence upon the day

the payment of the fine is delinquent. All fines and interest

collected shall be deposited at least once each month in the State

Treasury to the credit of the General Fund.

(c) For purposes of this section, “good cause” includes, but is

not limited to, a consistent failure of the holder of the certificate

to maintain vehicles in a safe operating condition and in compli-

ance with tue Vehicle Code and with regulations contained in

Title 13 of the California Administrative Code relative to motor

vehicle safety, as shown by the records of the commission, the

Department of the California Highway Patrol, or the common

carrier.

D-8

Cal. Pub. Util. Code § 3502

The use of the public highways for the transportation of

property for compensation is a business affected with a public

interest. It is the purpose of this chapter to preserve for the public

the full benefit and use of public highways consistent with the

needs of commerce without necessary congestion or wear and tear

upon such highways; to secure to the people just and reasonable

rates for transportation by carriers operating upon such highways;

and to secure full and unrestricted flow of traffic by motor carriers

over such highways which will adequately meet reasonable public

demands by providing for the regulation of rates of all transporta-

tion agencies so that adequate and dependable service by all

necessary transportation agencies shall be maintained and the full

use of the highways preserved to the public. It is the further

purpose of this chapter to eliminate, so far as reasonably possible,

the excessive use of highways that has resulted from excessive

crosshauling of portland and similar cements which has hereto-

fore pertained, when they are hauled in a motor vehicle or motor

vehicles loaded substantially to capacity with such commodity or

commodities, since these commodities move in great volume in

vehicles that are loaded substantially to the permissible gross

weight limited provided by the Vehicle Code.

Cal. Pub. Util. Code § 3502.1

The Legislature finds and declares that it is the policy of this

State to achieve increasingly efficient utilization of energy in the

performance of transportation services by highway carriers.

Cal. Pub. Util. Code § 3541

No highway permit carrier shall engage in the business of the

transportation of property for compensation by motor vehicle over

any public highway in this state, except in accordance with the

provisions of this chapter which is enacted under the power of the

State to regulate the use of public highways.

Cal. Pub. Util. Code § 5003.1

Every railroad corporation, express corporation and freight

forwarder, as these terms are defined in Part 1 (commencing with

Section 201) of Division 1, and every motor transportation broker,

D-9

as defined in Section 4803, and every person or corporation

owning or operating motor vehicles in the transportation of

property for hire upon the public highways under the jurisdiction

of the commission shall, between the first and 15th days of

January, April, July, and October of each year, file with the

commission a statement showing the gross operating revenue

derived by that person or corporation from the transportation of

property for the preceding three calendar months, and shall, at the

time of filing the report, pay to the commission a fee of ten dollars

($10) for each quarter. Every express corporation, freight for-

warder, motor transportation broker, and every person or corpora-

tion Owning or operating motor vehicles in the transportation of

property for hire upon the public highways under the jurisdiction

of the commission shall, at the time of filing the report, pay to the

commission a fee equal to one-third of | percent of the amount of

the gross operating revenue, except as follows:

(a) For any particular fiscal year, the commission, with the

approval of the Department of Finance, may fix the fee at less

than one-third of | percent of that amount.

(b) The commission may increase the fee pursuant to subdivi-

sion (b) of Section 5003.2.

Appendix E

Decision 90-02-021

February 7, 1990

BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA

In the Matter of the Regulation

of General Freight Transportation by Truck.

1.88-08-046

(Filed August 24, 1988)

ORDER MODIFYING DECISION 89-10-039,

GRANTING LIMITED HEARING,

DENYING REHEARING IN ALL OTHER R{ISPECTS,

LIFTING STAY,

AND DENYING PETITION FOR MODIFICATION OF

D.89-10-039

On October 12, 1989, we approved Decision (D.) 89-10-039

(the Decision), our Decision on Rate, Safety, and Subhaul

Regulation for General Freight Transportation. The Decision was

° to become effective in 30 days. However, the California Team-

sters Public Affairs Council and the California Trucking Associa-

tion (CTA) filed applications for rehearing sufficiently in advance

of the Decision’s effective date to secure an automatic stay of the

Decision pursuant to Public Utilities Code § 1733(a). Three

additional applications for rehearing were also timely filed: one by

Willig Freight Lines, one by the Ad Hoc Carriers Committee,

and one by the California Coalition for Trucking Deregulation

and Viking Freight System, Inc. (Coalition/ Viking). CTA filed a

response to the Coalition/ Viking application. National Small

Shipments Traffic Conference, Inc. and the Health and Personal

Care Distribution Conference, Inc. (NSSTC) also filed a reply to

the applications for rehearing.’ On December 18, 1989, Lou

' Pursuant to Commission policy and Rule of Practice and Procedure

87, the Assistant General Counsel in charge of reviewing applications for

rehearing, for good cause shown, granted NSSTC permission to file its

reply after the period provided for in Rule 86.2 had expired.

,

E-2

Filipovich (Filipovich) filed a petition for modification of the

Decision. On that same date, in D.89-12-054, we extended the

stay of the Decision pending further order of the Commission, in

order to provide sufficient time to carefully consider the numerous

allegations raised in the lengthy applications for rehearing.

We have now completed our review of the applications for

rehearing, the replies, and the petition for modification and are

prepared to respond to them. But first, we wish to comment on

the applications, particularly the application of CTA. CTA’s

application for rehearing was 180 pages long. In light of its

repetitious and often pointless arguments, this length was exces-

sive. Moreover, despite the length of its application, CTA made

many vague references to the record, claiming that there was

unrebutted evidence in the record concerning various points

without citing to any particular exhibit or transcript page. (See,

e.g., CTA’s application at 56, 119.) Our Rule of Practice and

Procedure 86.1 provides that:

Applications for rehearing shall set forth specifically the

grounds on which applicant considers the order or decision of

the Commission to be unlawful or erroneous. Applicants are

cautioned that vague assertions as to the record or the law,

without citation, may be accorded little attention.

We have dealt with the applications for rehearing of the Decision

in accordance with Rule 86.1. (See also Public Utilities Code

§ 1732). "

Having carefully considered each of the issues and arguments

raised in the applications for rehearing, we are of the opinion that

the ‘cision should be modified in several respects. In response

to criticisms of the Decision’s variable cost floor, we have recon-

sidered the need for, and the appropriate method of calculating,

this floor. Based on our review of the evidence, our legal analysis,

and due consideration of the arguments of the various applicants

for rehearing and those filing responses, we have decided: (1) that

this floor should apply only to common carriers, and (2) that we

will use, at least on an interim basis, the minimum wage, rather

than carrier-specific calculations, to determine the driver labor

component of the variable cost floor. We explain the reasons for

E-3

adopting these aspects of our general freight program in a Modi-

fied Decision attached hereto.’

We remain committed to the concept of a variable-cost floor

price for common carriers as a part of our new general freight

program. And we do not wish to delay implementation of this

program. Accordingly, the Modified Decision adopts a variable

cost floor that we will implement at the earliest possible date, at

least on an interim basis.’ However, in light of the considerable

concern expressed about how the variable cost floor ought to be

calculated, we will grant a limited rehearing to consider: (1) com-

ments on our adopted, interim variable-cost floor price, and (2)

any alternative proposals for determining a variable-cost floor for

common carriers. At this limited rehearing we will also consider

how the figures used in calculating the variable cost floor can be

updated from time to time. This rehearing wiil not reconsider

whether a variable-cost floor ought to be the rate floor for

common carriers. In the meantime, we will proceed to imple-

ment the variable cost floor as adopted in the attached Modified

Decision.

We have carefully considered each of the issues and arguments

raised in the applications for rehearing and are of the opinion that

sufficient grounds for granting rehearing have not been shown,

other than to the extent outlined above. Accordingly, we will lift

our prior stay of the Decision. We are, however, of the opinion

that the Decision should be modified in several additional re-

spects. Many of these changes are intended to better explain our

new general freight program and why we are adopting it. Other

changes just involve fine-tuning in the details of General Order

147-B. We will not here recapitulate all of the changes we are

* Rather than including in this decision line-by-line modifications to

the onginal Decision, we are attaching to this decision a complete

version of D. 89-10-039 as modified today (the Modified Decision).

This consolidated document will make it easier for all those affected to

understand our new general freight program.

We are making the General Orders that implement our new program

effective March 15, 1990, to allow sufficient time for printing and

distnbution of the Modified Decision and the General Orders

E-4

making in the Decision and its accompanying General Orders.

They appear in the attached Modified Decision.

In its application for rehearing, CTA alleges that the Commis-

sion must prepare an Environmental Impact Report (EIR)

before implementing our new general freight program. We have

previously concluded that while the poticy provisions of the

California Environmental Quality Act (CEQA) (Public Re-

sources Code § 21000 et seq.) apply to ratemaking proceedings,

the EIR provisions of CEQA do not. Re: Rules of Practice and

Procedure, 75 Cal. P.U.C. 133, 142 (1973); Peninsula Commute

and Transit Committee, 75 Cal. P.U.C. 243 (1973). The Deci-

sion implements a new system for regulating the rates of general

freight carriers. Thus, this is a ratemaking proceeding and the

EIR provisions of CEQA do not apply. The Modified Decision

does consider the environmental impacts CTA alleges.

To the extent that we have neither granted limited rehearing

nor modified the Decision, we are of the opinion that the argu-

ments raised in the applications for rehearing lack sufficient merit

to require any further response. To a large degree the applications

for rehearing merely reargue points raised earlier and rejected in

the original Decision.

We have also considered the arguments raised in the Petition

for Modification filed by Filipovich. Filipovich asks us to hold the

Decision in abeyance pending resolution of unresolved issues

concerning subhaulers, including Filipovich’s request for imple-

mentation of a mandatory rate system for subhaulers. We are

unwilling to delay the needed reforms contained in the Decision

until we are able to resolve the subhauler issues. On the other

hand, we note that the Decision ordered additional hearings on

several subhauler issues, including possible rules on the division of

revenues between prime carriers and subhaulers. Accordingly, we

will dismiss Filipovich’s petition for modification without

prejudice to his participation in those additional hearings. We will

consider the proper resolution of the several subhauler issues after

the conclusion of those hearings.

E-5

Conclusion of Law

The EIR provisions of the California Environmental Quality

Act do not apply to a ratemaking proceeding such as this one.

Therefore, good cause appearing,

IT IS ORDERED that D.89-10-039 is modified as follows:

1. D.89-10-039 is replaced by Modified D.89-10-039, At.ach-

ment | hereto. More specifically Pages 1 through 139 are replaced

by Revised pages | through 153 and Appendices C, D, and E are

replaced by revised Appendices C, D, and E. Appendices A, B,

and F remain unchanged. Attachment | hereto is a complete

version of the Modified D.89-10-039 (and includes the revised

General Orders and all other appendices as well).

IT IS FURTHER ORDERED that:

2. A limited rehearing is hereby granted to consider com-

ments on the adopted variable-cost floor for common carriers, any

alternative proposals for determining a variable-cost floor for

common carriers, and how the figures used in calculating the

variable-cost floor can be updated from time to time. Any

alternative proposals concerning just what costs should be in-

cluded within the variable-cost floor and how the variable-cost

floor should be calculated will fall within the scope of this limited

rehearing. However, alternatives proposing that something other

than variable cost should be the basis of our common carrier floor

price are outside the scope of this limited rehearing. Proposals to

subject special contracts to the floor price are also outside the

scope of this limited rehearing.

3. This limited rehearing shall be held at such time and place

and before such Commissioner or Administrative Law Judge as

shall hereafter be determined.

4. The Executive Director shall provide notice of such rehear-

ing to the parties hereto in the manner prescribed by Rule 52 of

the Commission’s Rules of Practice and Procedure. Persons who

have not made a formal appearance in this case and who wish to

be notified of the date of the rehearing should contact the

Commission’s Process Office.

E-6

5. Except as granted herein, rehearing of D.89-10-039, as

modified hereby, is denied.

6. The stay of D.89-10-039, ordered by D.89-12-054, is

hereby lifted.

7. Filipovich’s petition for modification of D.89-10-039 is

denied, without prejudice to his raising at our additional hearings

on subhauler issues any matters discussed in his petition for

modification that are relevant to those proceedings.

8. The Executive Director shall serve a copy of this decision,

including Attachment 1, on all highway common carriers and

highway contract carriers.

This order is effective today.

Dated February 7, 1990, at San Francisco, California.

G. MITCHELL WILK

President

FREDERICK R. DUDA

STANLEY W. HULETT

JOHN B. OHANIAN

PATRICIA M. ECKERT

Commissioners

E-7

INDEX

Subject

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California Trucking Association (CTA) ........ cay

Ad Hoc Carriers Committee (Ad Hoc) ............

California Teamsters Public Affairs Council

Ne ee eeseess

Highway Carriers Association/Willig Freight Lines

Ee

Parties Represented by Edward J. Hegarty (Hegarty)

West Coast Freight Tariff Bureau (WCFTB) .......

Pacific Motor Taniff Bureau (PMTB).......... ae

Cal-West Tariff Bureau (CWTB) .................

National Motor Freight Tariff Association (NMFTA)

rouper Athearn, 3r. (Athearn) .........-0cceeveeee

ee SIs ogg uly dix u 6 np_s.00 «40 4s

Parties Represented by Gary Haas (Haas)..........

Division of Ratepayer Advocates (DRA) ...........

California Coalition for Trucking Deregulation and

ee

Silver, Rosen, Fischer & Stecher, P.C. (Fischer) ....

California Manufacturers Association (CMA).......

Center for Public Interest Law (CPIL) ............

National Small Shipments Traffic Conference, Inc. and

Health and Personal Care Distribution Conference,

est oe wae be 69 We rus, «

Amenicans for Safe and Competitive Trucking (ASCT)

United States Federal Trade Commission (FTC) ....

United States Department of Transportation (DOT)

California League of Food Processors (CLFP) ......

Analysis of Current Regulatory Program ......

Policy Considerations............. Ber

Goals of Truck Regulation |

“Destructive Competition” .........

Revised

_Page

E-10

E-10

E-1]

E-12

E-13

E-13

E-17

E-8

Revised

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TE REET De Foe py a E-5]

EE a ars rer ee E-52

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Legal Authority for a Flexible Rate System ......... E-56

Contract vs. Common Carriage.................... E-6]

Zome OF ReasOMaABbemess... wc ccc cence E-63

Safety and Entry Requirements ................... E-66

Parties Supporting Rate Regulation.............. E-67

Parties Supporting Direct Enforcement........... E-69

se yay does bee sees en ee

Py TRGUPOMIIOUINGS «. «2 5 5 nce e cee: E-73

ee ee a i week e eke wd E-75

Adopted Regulatory Program ....................... E-77

Common Carmer Tariff Rates................... E-77

Common Carner Contracts Rates ................ E-78

Pere E-78

I oe owas ude cree cweevc.ee¥s E-79

Ne eg oe ao a-ase br E-79

URC REe SOO Cate ed yn anne eed E-79

Safety, Service and Price Discrimination............ E-82

Limits to Zone of Reasonableness ................. E-84

A eae celedece ca ness cs E-87

Incentives for Common Carnage .................. E-9]

Common Carner Contract Regulations ............. E-93

special Contract Regulations ...............:.+.+:- E-94

TS gi ge a a greg only yg! oly wil tnd os E-96

Environmental Considerations..................... E-98

Legal Authority for Adopted Program.............. E-99

ee eae OR ie 5 wie, 9. ewe oS E-99

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E-9

Revised

Subject Page

SE asi eh aha ener eae oh ee teen eee E-108

PU a dc ovat eas eae eee hoe ek cso N es E-108

Mike Conrotto Trucking (Conrotto) ............. E-110

Southern California Motor Delivery, Inc. (SCMD) E-110

RA aes cera ous cn aa eC ers nee on E-110

DRA, Coalition and Dedicated Contract Carriage,

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GE ig oy as Sek plank eee vA ii ae atiwe ments E-118

Epectvomas Dein TMIGTCROMNE . coi bac chee cece E-119

nr ae E-119

PUR ere wa gn On oe ck Oe «ere ee E-123

Sa sell ies pret Ree te ree eR Fiend E-143

AR aie ei BE, Eeeread pet aay Ten keg ae LA ea ILA F-145

TABLE | Current Regulatory Program ............. E-39

TABLE 2 Motor Carrier Safety Programs ........... E-74

TABLE 3 Calculation of Other Costs............... E-89

TABLE 4 Adopted Regulatory Program............. E-122

APPENDIX A. List of Appearances ............... E-148

APPENDIX B. Applicable Sections of the Constitution,

Pumme Utlees Code ............-.: E-150

APPENDIX C. General Order 80-C ............... E-163

APPENDIX D. General Order 147-B .............. E-176

APPENDIX E. General Order 155-A .............. E-194

APPENDIX F. List of Acronyms................ . E-200

E-10

ATTACHMENT |

Decision 89-10-039

as modified by Decision 90-02-021 on February 7, 1990

BEFORE THE PUBLIC UTILITIES COMMISSION OF

THE STATE OF CALIFORNIA

In the Matter of the Regulation

of General Freight Transportation

by Truck.

1.88-08-046

(Filed August 24, 1988)

(Appearances are listed in Appendix A.)

Decision on Rate, Safety, and Subhau! Regulation

for General Freight Transportation

OPINION

Summary

This decision finds that a workably competitive market exists in

the general freight trucking industry and adopts a flexible regula-

tory program which allows the efficiencies of the market place to

determine transportation rates. In addition to the flexible rate

program a number of safeguards are adopted to ensure the public

is provided safe, reliable service at reasonable, nondiscmminatory

rates. These safeguards include some limitations on common

Carner rates, a monitoring program, a minimum level of service

requirement for common carmiers, a requirement that all rates and

associated discounts be filed and available for public inspection,

and a toll-free telephone number for verifying carner operating

authonity

We believe this approach provides the benefits of competition

with the control of regulation only where needed. Carners will be

able to openly compete for customers, but common carriers will

not be allowed to discnminate without justification. Shippers will

be free to have service tailored to their needs, and the trucking

E-1]

industry will be able to respond to market pressures rather than

regulatory mechanisms. We fully expect the dynamics of Califor-

nia’s economy to be matched by the dynamics of general freight

trucking, with the public the main benefactor of a more respon-

sive and efficient industry. Safety will not be compromised in this

achievement. Commission initiated and legislatively mandated

programs will be in place to provide the public with direct

regulation and enforcement of safety standards.

Under our flexible program, common carners wi!! be allowed

rate freedom within a zone of reasonableness. The upper end of

the zone is a 10% annual cap on rate increases; the lower bound is

a minimum level of vanable costs. Common carrier rate changes

outside the adopted zone and collectively set rates require a

formal application with appropnate justification. Contract carriers

are not restricted by the adopted zone ir establishing rates. To

minimize direct competition between common and contract carmi-

ers, contract carners are only authonzed to enter into special

contracts which provide for a special relationship between the

carner and the shipper or for service not normally provided under

common carner tanffs. All rates and contracts must be filed with

the Commission. However, common carrier rate changes not

requiring an application are effective on 10 days’ notice. Special

contracts are effective after 20 days’ notice.

Subhauling will be subject to a division of revenues (between

prime carner and subhauler) to be determined after additional

hearings.

Background

The issues raised in this proceeding were first addressed in Case

(C.) 5436, et al., and later in Decision (D.) 90663, dated August

14, 1979. That decision set up a transition period leading to

decreased rate regulation. (At about the same time, D.89575

(October 31, 1978) resulted in the initial opening of entry into the

general commodities common carnage field for thousands of

California permitted carners.) With the passage of five years,

1.84-05-048 was opened. That investigation included 26 hearing

days, testimony from many segments of the transportation com-

munity, and an en banc oral argument. Finally, D.86-04-045,

E-12

dated April 16, 1986, adopted the present regulatory program as

represented in General Order (G.O.) 147-A. Before its adoption

in D.86-12-102, G.O. 147-A was the subject of extensive work-

shops conducted by the Commission’s Transportation Division

staff.

G.O. 147-A implemented a system of carrier-made rates, a rate

window, rate exempt dedicated equipment contracts, and the

imposition of a Truck Freight Cost Index (TFC!) that impacts

rates for common and contract carners in California. Addition-

ally, the decision set up a new procedure for future justification of

reduced rates and the review of rate reductions that were granted

during the transition period.

It should be clear to the trucking industry that the progression

of our attempts to meet the changing situation in California

intrastate transportation has been developing over an extensive

period. Our movement toward relaxed rate regulation has not

been easy, but the issues have been repeatedly addressed and the

parties have had ample opportunity to assemble their evidence

and develop the record.

Aside from the fact that this proceeding is only part of a

continuing progression of investigations, this is not a proceeding

that contemplates total deregulation. The proposals which have

been presented are premised on the Commission retaining juns-

diction over the carriers operating in the State. This would be

consistent with our treatment of various aspects of specialized

transportation such as fresh fruits and vegetables and tank truck

operations, which were released from rate regulation only.

Procedural History

On December 16, 1987 an order was issued setting en banc

hearings to consider the State’s regulation of the for-hire trucking

industry. This included consideration of all sectors in the trucking

industry, not just general freight. En banc hearings were held in

San Francisco on March 10 and 11, 1988 and in Los Angeles on

March 18, 1988. At those hearings panels of experts and a parade

of witnesses, including the Commission’s Division of Ratepayer

Advocates (DRA), expressed concerns about the regulation of

the for-hire trucking industry.

E-13

On August 24, 1988, Order Instituting Investigation (1.) 88-

08-046 an investigation into the regulation of general freight

transportation by truck was issued. 1.88-08-046 identified the

Commission’s regulatory objectives and invited a thorough re-

examination of the current scheme of regulation. Prehearing

conferences which established procedural rules were held on

September 14, 1988 and October 17, 1988.

Fifty-four days of evidentiary hearings commenced on Novem-

ber 7, 1988 and concluded on February 24, 1989. Additionally,

two public comment hearings were held, one in Los Angeles on

December 5, 1988 and the other in San Francisco on December

12, 1988. The 56 volumes of transcripts totaled 7,286 pages.

The appearance list includes 59 individuals and organizations,

18 of which submitted briefs. One hundred six witnesses offered

testimony including !9 rebuttal witnesses. A total of 186 exhibits

and 13 reference items were received.

In accordance with § 311, the proposed decision of ALJ Fer-

raro was mailed on June 6, 1989. Comments were received from

16 parties. These have been reviewed and carefully considered by

the Commission. Many changes induced by the comments and

during our own deliberations have been incorporated into the final

decision.

Positions of the Parties

Below is a description of each party’s position with respect to

rate regulation. The parties strongly disagreed on the proper

amount of rate regulation for the general freight trucking indusiry.

Their positions spanned the continuum from total deregulation to

rigid rate regulation. In addition to the main issue of rate

regulation, parties also addressed the closely related issues of:

collective ratemaking, subhauling, safety, and credit rules. Each

issue is discussed in a separate section.

California Trucking Association (CTA)

CTA is one of the largest and most active trucking organiza-

tions in the State, with about 2,500 members. CTA conducts

programs on management and truck safety, has local and state-

E-14

wide committees which address important trucking issues, and

engages in lobbying activities on behalf of its members.

CTA recommends increased economic regulation for a stable

industry capable of meeting the state’s needs. Additionally, CTA

fears rate deregulation will cause rate discrimination, a reduction

in service to small shippers and rural communities, increased

highway accidents, and an increase in highway congestion and air

pollution. If the market is allowed to set transportation rates,

CTA argues that the Commission would give advantage to large

volume shippers and high-volume traffic lanes.

According to CTA, during relaxed rate regulation (1980-1986)

shippers, using market power, forced carriers to lower rates. This

resulted in reduced carrier revenues and discouraged capital

investment. General freight carriers suffered major losses of

capital which manifested themselves in bankruptcies, exit from

the industry, older equipment, and lower wages. The large num-

ber of bankruptcies and firms exiting the industry during this

transition period resulted in poor quality service to some shippers

and general instability in the industry. CTA states that lower

trucking rates in the transition period: (1) increased shipper

profits by nearly $1 billion, (2) were not passed through to

consumers, and (3) continued until the current regulatory pro-

gram was instituted.

CTA points out that in 1986 California carriers received a 10%

rate increase. the first general rate increase in the Commission

tariffs since 1980. This led to reinvestment in trucking equipment

and employee drivers. To plunge these carriers back into cutthroat

rate competition would cause disastrously low profit margins,

impossible debt-to-asset ratios, and increase the difficulty of

attracting new capital. Furthermore, market-set raies lead to

overcapacity; carriers expand fleets and duplicate services in an

attempt to increase market share. This results in an extra cost that

society eventually pays for in pollution, congestion, and higher

rates to shippers without market power.

CTA also asserts that the less-than-truckload (LTL) industry

has large economies of scale which support predatory behavior.

CTA points to the significant concentration in the interstate LTL

E-15

industry since rate deregulation in 1980 as evidence of this

behavior. Additionally, CTA cites examples of rate discrimination

in rate deregulated markets by Interstate Commerce Commission

(ICC) carriers and lost service and increased rates to rural

shippers. CTA believes that: (1) secret rates and discounts

prevalent under deregulation prevent shippers from making in-

formed decisions and effectively bargaining for rates, and (2)

service to rural areas does not always support multiple carriers,

which without rate regulation will result in shippers paying

monopoly prices.

According to CTA, highway safety has also suffered because of

relaxed rate regulation. CTA claims reductions in rates have lead

to the use of older and inadequately maintained equipment, lower

driver wages, and inadequately trained and emotionally unsuited

drivers. CTA states that truck drivers are identified as the primary

cause of over 90% of truck-at-fault accidents and argues that a

direct connection exists between rate regulation and highway

safety. Additionally, CTA believes that carriers in poor financial

condition will delay needed maintenance, hire poor quality driv-

ers, and operate in an unsafe manner.

In another area related to motor carrier infrastructure, CTA

cites the recent enactment of SB 151 (Stats. 1987, Ch. 1301)

which gave the South Coast Air Quality Management District

(District) authority to restrict traffic within its jurisdiction. The

law also provides for the formation of other jurisdictions through-

out the state. Among the proposals being considered by the

District are peak period fee assessment, traffic diversion, requiring

Carriers to retrofit equipment with engines which burn clean fuel,

and outright bans. Additionally, the City of Los Angeles has

proposed ordinances and the California Air Resources Board has

adopted guidelines for restricting truck traffic to minimize air

pollution. CTA claims this threatens free access to California's

freight transportation infrastructure and recommends Commis-

sion action to reduce the involvement of local jurisdictions.

CTA’s proposed regulatory program will require all common

carriers to file rates through tariff bureaus granted Public Utilities

(PU) § 496 antitrust immunity. Within the bureaus, individual

carriers will have the right of independent action. Proponents of

E-16

any change in a common carrier rate must either be a tanff

bureau member carrier whose traffic is directly affected, or an

affected freight bill payer. All bureau rate changes must receive

Commission approval before publication. All common carriers

must publish rates to all points and places in their service area.

Cost justifications for rate changes shall include the costs of

Operating in compliance with all State and Federal laws including:

the speed limit, hours of service limitations (including waiting or

delay times), and compliance with weight regulations.

Contract carriers will be required to file contracts with the

Commission. Rate increases may be filed on one day’s notice and

rate reductions must be filed on 30 days’ notice, measured from

the date of publication in the Commission’s Transportation Cal-

endar. Rate reductions must be cost-justified under the same

rules aS common carmer cost justifications. All contracts must

include a provision which makes the shipper co-liable for all

accidents arising from the carner’s performance for the contract

shipper. A carrier would have no limit on the number of non-

dedicated contracts it may enter.

Contract carriers will be limited to three dedicated contracts.

To be eligible to use dedicated contracts a contract carrier must

meet the following conditions: (1) only carrier employees or

subhaulers paid in accordance with a cost-justified settlement

schedule may be used, (2) balance sheet assets must be at least

1.4 times greater than current liabilities, (3) labor cost on the

_Carrier’s income statement must meet the labor ratio test, (4) at

least 50% of the carrier’s revenue must be earned from intrastate

California transportation, and (5) a driver selection and training

program, and an equipment maintenance, repair and replacement

program must be in place.

Additionally, carriers wishing to use cost justifications and

dedicated contracts must place, at an acceptable level, in a

measurement device called a safety score. The safety score

examines financial and operating data that CTA studies claim are

correlated to highway safety. An acceptable safety score is one in

the top two-thirds of all motor carriers. Common or contract

carners who are ranked in the bottom third must provide a cost

justification which demonstrates the reduced rate will measurably

E-17

improve at least one of the four elements of the safety score. This

improvement must be sufficient to move the carrier out of the

bottom third. Contract carriers wishing to use dedicated contracts

must have a safety score in the upper half of all carriers. More

details on the safety score will be provided in the safety section.

The current programs for the TFCI, prevailing wage, rate

window, and rules for meeting a competitor’s rate remain un-

changed. Subhauler rates would be regulated and subhaulers paid

in accordance with a cost-justified rate schedule. More detail on

CTA’s proposals for subhauler regulation is contained in the

subhauling section.

Ad Hoc Carriers Committee (Ad Hoc)

Ad Hoc, a coalition of motor carriers and others in the

transportation industry, was formed for the purpose of participat-

ing in the investigation of general freight motor carrier regulation.

Ad Hoc presented numerous witnesses including an accounting

professional, equipment sales representatives, a subhauler, a

prime hauler and several transportation consultants. The testi-

mony offered covered a broad spectrum of economic and policy

issues, but only two witnesses submitted specific

recommendations.

Ad Hoc believes the issues addressed in this OIl were ade-

quately examined in prior proceedings, and general freight motor

carriers have achieved a limited degree of stability and financial

benefits under the current regulatory program. To seek major

changes at this time is premature and the industry should be given

a full opportunity to make the current program work.

Ad Hoc does recommend some fine tuning to the existing

regulatory program in areas that have been identified as problems.

In two instances, Ad Hoc witnesses differ on the modifications

that should be made: rate window filings and competitive rate

filings under G.O. 147-A. One recommendation for rate window

filings would discontinue the filings because they are more of a

burden than a benefit. The other recommendation would continue

rate window filings without change because they are working

satisfactorily for both carners and shippers. There is also a

conflict with Ad Hoc’s recommendations for competitive rate

E-18

filings. One continues the filings with no changes since the

provisions contain several protections against abuse of the privi-

lege, and the other continues the filings, but allows existing

Carriers tO meet competitive rates without having previously

handled the traffic.

Ad Hoc proposes that existing common carriers be allowed to

lower rates to meet a competitor’s generally applicable common

carner (GACC) rates without cost justification. This recommen-

dation addresses the competitive advantage of new common

carniers and existing contract carriers. These carriers can file any

existing GACC rate without cost justification, while existing

common carriers must cost-justify the same rate. Ad Hoc’s

proposal would eliminate this competitive advantage.

Ad Hoc also recommends that the TFCI, dedicated contracts,

and cost justifications be retained with a sincere effort on the part

of Commission staff and the industry to educate carriers and

shippers on the requirements. Additionally, Ad Hoc requests an

investigation into discounts because discriminatory and preferen-

tial discounts are illegal, improper, and contrary to the interests of

consumers.

In support of its recommendations Ad Hoc concludes that

deregulation will result in the following:

1. Lower rates to larger shippers and higher rates to

smaller shippers.

2. An increase in total intrastate transportation costs.

3. Increased profits for major shippers.

4. A decrease in the ability of intrastate carriers to

attract capital.

5. Drivers and subhaulers working excessive hours at

illegal speeds.

6. Reduced expenditures for vehicle maintenance and

safety.

7. An increase in the average age of equipment utilized

by intrastate for-hire motor carriers licensed by this

Commission.

E-19

8. Diminished availability and frequency of motor carrier

services to small towns and rural areas.

Although Ad Hoc makes recommendations for changes or

modifications to the current program, it does not specifically

outline the steps that should be taken to effect the changes. Ad

Hoc believes it is in the best interest of the State’s economy to

give the existing program a chance to work, and urges the

Commission to address regulatory issues within the scope of the

current program rather than adopting a new regulatory program.

California Teamsters Public Affairs Council (Teamsters)

Teamsters supports the continuation of the current program,

with some modifications, and specifically opposes less restrictive

rate regulation. Teamsters believe large shippers have benefited

from deregulation through lower shipping rates and greater mar-

ket clout, but that those benefits do not balance the negative

social and economic consequences. In its view both interstate

deregulation and the period of relaxed rate regulation in Califor-

nia (1980 and 1986), caused enormous economic disruption in

previously stable markets. This had particularly disastrous conse-

quences for small shippers, highway safety, and industry

employees.

Teamsters addresses the allegedly negative effects of lessened

rate regulation, and argues that no evidence has been advanced to

show the cost-justified rate system now in effect produces non-

competitive rates, “monopoly rents” for workers, or any of the

other problems allegedly suffered by shippers prior to 1980.

Teamsters states that iabor (particularly union labor) shouldered

much of the economic burden of deregulation. Many employees

were forced to accept pay cuts, increased work hours, and a

decline in working conditions. Workers who had been steadily

employed for decades found themselves unemployed or underem-

ployed while others lost health care or pension benefits for

themselves and their families. This loss of benefits places addi-

tional burdens on taxpayer supported services, rather than carrier

supported plans.

Teamsters also focused its attention on the relationship be-

tween economics, highway safety, and the impact of interstate

ee Se : ———

E-20

deregulation. While freely admitting there is no simple correlation

to be made between highway safety and deregulation, Teamsters

argues the economic pressures brought on by deregulation have a

definite impact on certain factors related to truck accidents.

These impacts include: (1) delays in new equipment purchases,

(2) deferred vehicle maintenance, (3) poor management and

personnel practices, and (4) unsafe operating practices.

Teamsters proposes the current rate regulation program be

modified in three areas. First, the TFCI should be updated more

than once a year for labor and other fixed costs. Second, th=

Prevailing Wage Report should be revised to exclude carners who

pay drivers minimum wage and to include nondriver employees as

a secondary labor cost. Finally, Teamsters advocates a fixed

division of revenues between subhaulers and prime carriers, with

prime carriers compensated only for their costs. Prime carriers

would be required to pay subhaulers rates which are cost-justified

using subhauler costs. Teamsters’ recommendations for subhaul-

ing are discussed in more detail in the subhauling section.

Highway Carriers Association/ Willig Freight Lines (HCA)

Highway Carriers Association is an organization of approxi-

mately 600 small carriers, and Willig Freight Lines is a large LTL

carrier with both interstate and intrastate operating authority.

HCA says this proceeding is unnecessary and should not have

been undertaken because the current regulatory program is the

result of a recent and extensive inquiry into the regulation of

general freight. HCA believes the existing program contains

defects, but maintains that the remedies are relatively simple and

straightforward and do not warrant a complete overhaul. HCA

advocates instituting the modifications to G.O. 147-A recom-

mended by the Commission staff in November 1987. These

recommendations would:

1. Allow generally applicable common carrier rates to be

published by existing common carners, not merely new

common carriers and contract carrier competitors.

2. Remove the requirement that a carrier already be

handling the traffic in order to meet the rates of a competitor.

E-2]

3. Create a provision whereby carriers could make minor

changes to tariffs without having to file a cost justification or

a formal application.

An additional problem with the existing program occurred

when carriers were required to transfer rates from transition tariffs

(pre-1986) to individual publications or bureau tariffs. Many

smaller carriers could not afford to file all former rates simultane-

ously and chose to file simplified tariffs. However, once an initial

filing was made, subsequent changes required Commission au-

thority. Unfortunately, many carriers did not become aware of

this until after their actions limited their options.

HCA also recommends clarification of the TFCI. A literal

interpretation has resulted in application of the LTL index to

thousands of TL rates published on a “per unit” or “per mile”

basis. HCA has also identified a number of technical refinements

to the TFCI which should be addressed.

In response to the proponents of flexible rate regulation HCA

argues that:

1. Shippers do not pay more in California than

elsewhere.

2. Shippers are not moving out of California, they are

moving into the State.

3. Consumers will not pay less when trucking rates

decline.

4. Just-in-time production concepts have been in Cali-

fornia for many years.

5. Flexible rate regulation would create inequities be-

tween competing classes and undermine the common carrier

system.

6. Less rate regulation will have a significant detrimental

effect on safety.

Finally, HCA urges a fine tuning of the existing program to

allow the industry to continue on the course of establishing

competitive, carrier-set, cost-based rates.

E-22

Parties Represented by Edward J. Hegarty (Hegarty)

Hegarty represents the California Carriers Association and the

California Dump Truck Owners Association. Hegarty raises nu-

merous legal arguments in support of the existing regulatory

program. These are addressed in the legal section below.

Additionally, Hegarty points out that the classification of

freight as either general or dump truck is an issue in C.5437,

OSH 323 and should not be litigated in this proceeding. We agree

with Hegarty on this matter and will leave the classification of

freight to be resolved in C.5437, OSH 323.

West Coast Freight Tariff Bureau (WCFTB)

WCFTB supports the current regulatory program because it

preserves rate stability and ensures a stable trucking industry.

WCFTB says the trucking industry was financially hurt by the

transition period and that small companies will be forced out of

business by destructive and predatory pricing if rate regulation is

significantly reduced or eliminated.

According to WCFTB, DRA’s proposal is discriminatory and

unfair to common carriers. Common carriers are required to file

rates while contract carriers are not. This presents an unfair

competitive environment between common and contract carriers.

Finally, WCFTB supports continuing the current regulatory

program with the following modifications: (1) allow existing

carriers to file new GACC rates, and (2) allow all carriers to meet

the rates of competitors with a cost justification within 60 days.

WCFTB also supports carriers having the choice of individual

tariffs, agency tariffs, or subscribing to a tariff bureau which has

antitrust immunity in accordance with PU § 496.

Pacific Motor Tariff Bureau (PMTB)

PMTB represents approximately 300 carriers, the majority of

which are small and file only intrastate rates. PMTB argues that

the current program has been in effect only two years and should

not be overhauled.

Furthermore, PMTB believes that large shippers and carriers

which propose flexible or no rate regulation are motivated by self-

E-23

interest. Under their proposals, large shippers will be in a superior

bargaining position for preferential rates and large carriers will

enter new markets intent on domination or destruction. In con-

trast, small family-owned carriers are interested in safeguarding

their livelihood through rate regulation and small shippers without

bargaining power seek Commission protection.

According to PMTB, the Commission has the responsibility to

make a decision in the best interests of the public by ensuring a

transportation system that is safe, efficient, and offers adequate

service levels. With some minor adjustments, PMTB believes the

current regulatory program meets these objectives. Since PMTB

modifications to the current program parallel those of HCA, they

will not be repeated.

Cal-West Tariff Bureau (CWTB)

CWTB represents approximately 500 members which have

operating authority from the Commission. CWTB: (1) advocates

retention of the current system with some modifications, (2)

believes the present system creates a competitive environment, is

reasonable, and allows rate flexibility, and (3) asserts that regula-

tory change would adversely affect the industry and the public.

The testimony of CWTB describes the problems experienced

by carriers during the period of rate flexibility, 1980 through 1986.

Its witnesses recounted situations in which they were compelled

to offer excessive rate reductions to retain business. One witness,

who provides repair services to many carriers, testified that

equipment is not being maintained properly because deregulation

reduced revenues.

Furthermore, CWTB states that contract and common carriers

currently compete for the same traffic, but economic deregulation

of contract carners would result in predatory pricing practices and

prejudicial pricing in favor of large volume shippers. This would

prevent common carmiers from competing for favorable traffic and

force the common carmer industry into bankruptcy.

CWTB supports a regulatory policy that will be uniform in its

application and enforcement and will ensure adequate service

without discriminatory rates. To accomplish this, CWTB believes

aaa ,

E-24

the current rate regulation program must be continued for both

common and contract carriers. However, CWTB recommends the

following steps to fine-tune the existing program:

1. Cost justifications applicable for only one year.

2. Common carriers allowed to reduce rates to meet

other carrier GACC rates.

3. Elimination of the requirement that a carrier already

handle traffic to meet the cost-justified rate of a competitor.

4. Published guidelines for cost-justifying rates.

5. Strict enforcement of the Commission rules and

regulations.

6. Review of the regulatory program five months after

this decision.

National Motor Freight Tariff Association { NMFTA)

NMFTA is a Virginia based tariff association with approxi-

mately 7,000 participating carriers, 188 of which have intrastate

operations in California. NMFTA publishes the National Motor

Freight Classification, which it files with the Interstate Com-

merce Commission (ICC) and 42 state regulatory agencies,

including this Commission.

The primary issues addressed by NMFTA are: (1) whether

there is a link between economic regulation and motor carrier

safety, and (2) the effect elimination of motor carrier rate

regulation would have on the California trucking industry infra-

structure. NMFTA states there is definite linkage between eco-

nomic regulation and safety, with partial or complete elimination

of motor carrier regulation resulting in a deterioration in highway

safety. The elimination of interstate motor carrier regulation has

also adversely affected the financial stability of the trucking

industry, resulting in poor service and/or high rates to small

shippers and communities. Shippers of difficult to handle com-

modities have been left with no public service. Undesirable freight

has been shunned and/or used to subsidize the reduced rates

obtained by the favorite few. Excessive competition has driven

E-25

established carriers out of business and causes many carriers to

operate at rates which do not meet their costs.

NMFTA argues that the interstate experience has taught that

economic pressures, created by rate discounting and excessive

competition, give rise to safety problems due to reduced mainte-

nance expenditures, the inability to purchase new equipment, and

reduced driver wages. Under the interstate system, published

discounts are often below ccst and do not indicate to whom they

apply. Some shippers have pressured carriers to establish arrange-

ments whereby the shippers are paid the published discount even

though they do not pay the freight bill.

NMFTA submits that the interstate system has produced

preferential and discriminatory rate practices and if California

abandons ngid rate regulation it would experience similar effects.

Regulatory control, economic and otherwise, over motor common

and contract carriage is absolutely essential to the success of

California’s intrastate transportation system. NMFTA believes

that while the current program may require additional fine-tuning,

its regulatory objectives are sound. Further implementation and

experience with this program should occur before the industry

and the public are subjected to disruptive policy changes.

Folger Athearn, Jr. (Athearn)

Athearn is a transportation consultant who appeared on behalf

of himself and testified for Ad Hoc. Athearn argues that the

federal experiment in transportation deregulation has resulted in a

decrease in the availability of full service motor common carriers,

which are essential to small businesses and small rural communi-

ties. This conclusion was drawn from Athearn’s analysis which

determined the number of common carmiers having authority to

serve California’s county seats declined by 48% from 1982 to

1988.

Athearn also states that full service motor carners have been

unable to resist the economic pressure to charge their major

corporate customers iower rates or grant higher discounts while

charging small business more for the same service. This discnimi-

nation has placed small businesses and small rural communities at

E-26

a disadvantage that cannot be explained by differences in the cost

of transportation service.

Finally, Athearn is opposed to common carriers publishing

rates for specifically named customers or predicating rates on

meaningless bill of lading certificates. Secret rates in confidential

contracts are not in the public interest. Athearn believes that

carriers should not be allowed to hold both common and contract

authority and the only way to prevent discrimination is to require

carriers to publish their rates.

AcTran

AcTran is a consulting firm primarily involved with interstate

and intrastate transportation rate analysis. AcTran supports the

current regulatory program and identified a number of problems

that exist in the interstate deregulated market. Among the spe-

cifit ills are unsafe driving practices due to reduced rates and the

use of rebates and kickbacks. Another serious problem is the filing

of rates. Contract carriers are not required to file rates and

comme. carrier filing requirements are not enforced. Finally,

AcTran submitted a comparison of interstate and intrastate rates

and expressed concern over a trend toward monopolization of the

trucking industry.

Parties Represented by Gary Haas (Haas)

Haas represents three carriers: Cooper Fine Line Transport,

Dolo-Chem Transport, Inc., and Great American Transport.

These carriers testified in support of rate regulation, but criticized

the implementation of the current program. They also object to

inadequate enforcement and oppose rules which favor large carn-

ers over small carriers.

Division of Ratepayer Advocates (DRA)

DRA is a separate division within the Commission assigned to

investigate, develop, and promote policy positions for the public in

general, and ratepayers specifically. As its name suggests, DRA

represents the interests of those who pay the rates, including

shippers, consignees, and ultimate consumers of the goods

shipped. DRA is also interested in the welfare of the trucking

E-27

industry, but wants the greatest value at the lowest price, consis-

tent with safe, reliable service.

DRA states that general freight transportation is an essential

service to commerce, industry, and the public at large. However,

its tendency is not toward a natural monopoly and does not

require unique access such as transmission lines. Historically,

trucking regulation has differed from regulation of classic monop-

olies (gas, electric, telephone, and water utilities). The rates set

by the Commission have been minimum rates rather than fixed

rates, and this protected the industry rather than the consumer.

Although the current system for general freight is not traditional

minimum rate regulation, it still protects the industry.

Additionally, DRA claims the rationale for this protective

regulation has been to avoid the negative effects of excessive

competition, rather than the negative effects of insufficient com-

petition. Those advancing rigid rate regulation assert two types of

harm may result from less regulation: predatory pricing and

destructive competition. The arguments for retaining this protec-

tive regulation come mainly from trucking companies. They seek

four different kinds of protection:

1. Protection from themselves: truckers are incapable of

calculating their own costs and/or unable to be restrained by

market forces.

2. Protection from each other: truckers are so rapacious

they will consume each other or drive each other out of

business.

3. Protection from shippers: large shippers will be able to

drive transportation prices below cost.

4. Protection for the public: consumers will ultimately

pay higher prices, service will deteriorate, and the highways

will be unsafe.

According to DRA, these protections are founded on unreason-

able assumptions. The arguments espoused by those favoring ngid

rate regulation are inconsistent with economic theory, practical

experience, and common sense. Furthermore, rate regulation has

eee

E-28

never directly controlled, or adequately addressed safety and

service.

DRA is convinced that economic regulation interferes with the

efficient operation of market forces and imposes unwarranted

regulatory costs on carriers which are passed on to shippers and

ultimate consumers. The regulatory process also prevents prices

and service from rapidly responding to changes in the market.

Pricing based on average or representative carrier costs contrib-

utes to inefficiencies and prevents new entrants from exerting

competitive pressure on existing carriers.

By contrast, DRA believes California consumers will enjoy

substantial benefits if general freight rate regulation is relaxed.

Relaxed regulation will encourage competition in the market-

place, creating strong incentives to minimize carrier costs and

increase service options. Increased competition will reduce trans-

portation prices through lower carrier profits, lower labor costs

(more efficient deployment; not necessarily lower wages), and

more efficient operations.

Other than pricing flexibility and service availability, safety on

the highways is the primary concern of DRA. Proponents of rigid

rate regulation argue that relaxed rate regulation will result in

unsafe practices and greater risks on the highways for carners,

shippers, and the public at large. However, DRA states that rate

regulation has never required direct expenditures on safety. More-

over, a review of the safety literature and the best available

information does not support the claimed link between rate

regulation and highway safety. This body of information indicates

that direct enforcement of safety regulations has the greatest

impact on highway safety.

DRA argues that motor carrier safety pays and responsible

carriers seeking to operate profitably will operate consistent with

this principle. The benefits of safety (greater profits) far outweigh

the consequences of unsafe operations (financial losses and in-

creased insurance rates). DRA concludes that direct safety en-

forcement is the most cost-effective method of protecting the

public from irresponsible carniers.

E-29

DRA also asserts its proposed regulatory program will enhance

competition in the trucking industry, reduce transportation rates

and the cost of goods sold in California, and improve transporta-

tion service. The proposed program 1s a two-phase approach. The

first or interim phase relaxes current rate regulations, and the final

phase removes: (1) most controls over contract carriers, and (2)

controls over common carmiers, consistent with constitutional and

statutory requirements.

The interim phase would return the carrier industry to the

direction of the 1980 through 1986 transition period with addi-

tional rate freedom. Rates of common and contract carriers would

be filed with the Commission. Rates lawfully on file with the

Commission when the program is implemented would continue in

effect. New carriers could establish rates to meet any other

carrier’s rates immediately upon filing, with the exception that

common carriers could not meet contract rates. Common carrier

rates on file could be increased and/or decreased once in a

calendar quarter up to 5%, effective on the date filed. Increases of

more than 5% would require a formal application. Contract carrier

rates could be decreased in the same manner as common carrier

rates. There would be no limit on contract carrier increases.

Common and contract carrier rates could be decreased by more

than 5% by filing the rates on 30 days’ notice. These filings would

be listed on the Commission’s Transportation Calendar. All rates

are subject to complaint by affected parties who bear the burden

of proof. Rates in formal applications are subject to protest. The

burden of proof for rates subject to protest rests with the propo-

nent of the rates.

Collective ratemaking would continue pursuant to current stat-

ute and G.O. 154.

In the final phase, common carrier rates would be filed with the

Commission. Contract carriers would be required to execute and

maintain contracts, but would not be required to file them with

the Commission. Contracts are subject to review by Commission

staff as to their existence and to determine that carriers rates are

valid. All carriers would be required to adhere to the rates and

charges specified in their tariffs and/or contracts.

E-30

Common carrier rates could be established (new rates, or new

Carriers) at any level or reduced to ary level on the date filed.

Common carriers could increase rates on file up to 10% per

calendar quarter, effective on the date filed. Common carrier rate

increases greater than 10% would require a formal application.

Complaint and protest mechanisms remain the same as in the

interim phase.

Collective ratemaking would continue pursuant to current stat-

ute and G.O. 154.

California Coalition for Trucking Deregulation and Viking

Freight Systems, Inc.

California Coalition for Trucking Deregulation (Coalition) is a

nonprofit organization with a membership of approximately 150.

While most members are shippers, the membership also consists

of shipper organizations and several carriers. The primary purpose

of the Coalition as stated by its policy witness is to seek:

‘“..an end to economic regulation of carriage of general

freight in California. And the objective—the genesis of that

was an attempt to bring efficiency to the motor carrier

industry as seen by the members of the Coalition.

“Efficiency doesn’t mean lower prices. Efficiency means,

among other things, flexibility, the ability of carriers and

shippers to engage in innovative and creative ways to solve

joint problems, managerial certainty with regard to contracts

entered into between two parties without the intervention of

the government as a third-party, among other things.” (TR

6086-6087.)

Viking Freight System, Inc. (Viking) operates as a LTL and

truck-load (TL) general freight common carrier providing van

and flatbed transportation services. Viking is the largest motor

Carrier Operating within the State. As a member of both the

Coalition and CTA, Viking supports the Coalition’s position.

The Coalition claims that current rate regulation fails to permit

the types of pricing and service flexibility achieved in competitive

jurisdictions, thereby stifling innovation and decreasing the effi-

E-3]

ciency of intrastate transportation operations. Lack of rate and

tariff flexibility prevents shippers from utilizing modern procure-

ment practices. Lack of contract rate flexibility limits the ability

of shippers to properly define their relationships with carriers.

According to the Coalition, there is substantial evidence that

California’s regulatory program has increased many motor carrier

rates beyond normal competitive levels and has skewed rates away

from appropriate levels. This is supported by rate comparisons

which indicate that rates paid for California intrastate transporta-

tion services are higher than in other jurisdictions. Furthermore, it

can be inferred by the difficulty of the cost justification process

that appropriate rate reductions have been discouraged. Finally,

Viking’s experience with wnite-in tariffs demonstrates the efficacy

of intrastate economic deregulation.

The Coalition does not believe the arguments that price dis-

crimination will occur in the absence of economic regulation.

There are no valid empirical studies supporting claims of price

discrimination or inadequate service in rate deregulated markets.

Additionally, the current program provides little, if any, cross

subsidies that lower rates to small and rural shippers. If it did,

questions of equity would be raised.

Economic regulation, argues the Coalition, is not required to

preserve the trucking industry. Strict economic regulation only

benefits the inefficient, mismanaged carrier. Moreover, the in-

crease in concentration of interstate LTL carriers does not neces-

sarily mean less competition. It is not the number of carriers

operating nationally, but the number of carriers operating within a

particular market that is important. Since deregulation, carriers

which had previously been prohibited from entering other carn-

ers’ markets became free to do so. As a result, there has been

large-scale market entry by existing LTL firms invading each

other’s markets. Finally, to the extent interstate deregulation has

decreased motor carrier profitability and the number of carmiers, it

accomplished a weeding out of unduly high rates of return and

inefficient operations.

With respect to safety and rate regulation, the Coalition takes

the position that the most effective means to promote truck safety

E-32

is through rigorous enforcement of safety laws and regulations.

First, the Coalition points out that CTA’s testimony indicates that

the citation rates of Commission regulated carriers was 20 times

higher than all other commercial vehicles from mid-1987 to mid-

1988. CTA’s testimony also shows Commission regulated carriers

involved in 36 times as many truck-at-fault accidents during the

same period. From this and other safety data and the safety

studies presented in the proceeding, the Coalition concurs with

the testimony of the United States Department of Transportation

(DOT) witness, which states:

“IT have been unable to find any link between economic

deregulation and motor carrier safety. A far more plausible

linkage exists between vigorous enforcement of safety laws

and regulations and the enhancement of motor carrier

safety.” (Exh. 26 at 12.)

The Coalition also points to evidence that carriers have numer-

Ous incentives to operate safely. Viking’s President explained his

company’s philosophy of how safety pays as follows:

“...an awful lot of people feel like companies don’t throw

dollars at safety because it’s a direct cost. But we look at

safety as being a cost containment program. Since we are

selfinsured with a high dollar level that we retain ourselves,

every dollar we throw in improving our safety means less

dollars that we pay out for accidents and injuries. So we've

had a very active safety program. And, if anything, our safety

program is growing during the years since 1980.” (TR 1932.)

This testimony was also mirrored by a number of smal! carriers.

-

As described below, the Coalition proposes a regulatory

programwhere carriers are free to charge rates driven by market

forces, without regulatory intervention. This program would be

effective within 90 days from the date of this decision. The salient

features of the program are as follows:

1. Contracts between contract carriers and their shippers

must be in writing, and a copy must be maintained at the

carrier's premises, but a copy need not be filed with the

we em

E-33

Commission. All existing Commission regulations governing

contract carrier rates and practices would be repealed.

2. G.O. 147-A would be repealed in its entirety.

3. Common carriers would be able to independently file

all rate increases, decreases, and changes in rules and regula-

tions in tariffs. These would be effective on the date of filing

with the Commission and remain in effect until withdrawn

by the carrier or determined to be unlawful.

4. Ali independently filed common carrier tariffs would be

presumed to be marketdriven and, therefore, reasonable.

5. An expedited procedure, providing for final Commis-

sion action within 60 days, would apply to complaints against

independentlyfiled common carrier tariffs. The grounds for

finding any tariff unlawful would be limited to cases where

the complainant establishes, by a preponderance of the

evidence, that the rate complained of constitutes either

predatory pricing or an abuse of market power within the

meaning of antitrust laws.

6. Rate increases, decreases and changes in rules and

regulations of common carriers filed by rate bureaus as a

result of collective action pursuant to PU § 496 would not be

allowed to take effect until the bureau has presented sworn

evidence sufficient to enable the Commission to find that the

proposed rate is market-driven, does not constitute predatory

pricing, and does not constitute an abuse of market power.

7. Safety objectives would bé accomplished through direct

enforcement by the California Highway Patrol (CHP), with

supportive action by the Commission through the exercise of

its entry and revocation powers.

Finally, the Coalition presented a witness from Viking that

addressed the use of electronic data interchange to exchange

freight documentation, such as bills of lading, freight fills, rate

quotes, delivery receipts, and trailer manifests with its shippers.

i

E-34

Silver, Rosen, Fischer & Stecher, P.C. (Fischer)

Fischer represents three carriers: American National Can

Company, Leaseway Transportation Corp., and Dirksen Trans-

portation, Inc. Fischer stresses that this proceeding represents the

latest step in a process which began 14 years ago when the

Commission began to question the efficacy of the Minimum Rate

System. During that time the Legislature and the Commission

have considered the extent to which intrastate transportation

should be regulated. Various aspects of speciaiized transportation

such as fresh fruits and vegetables and tank truck operations were

released from rate regulation, while the transportation of cement

was placed under more rigid rate regulation.

Two issues are addressed by Fischer: economic deregulation of

contract carrier rates and intrastate subhauler regulation. No

position is taken with respect to intrastate common carrier rate

regulation or bureau-made rates. Fisher supports relaxed rate

regulation for contract carners and cites the testimony of an

Arizona Carrier as an example that relaxed rate regulation works.

The witness for the Arizona carrier testified that his company has

experienced substantial growth since Arizona’s deregulation, and

that the expansion would have taken substantial amounts of time

and money in a regulated environment. This witness did state that

a number of large carriers had ceased to serve in Arizona since

deregulation, but that their failure was probably due to their

unresponsiveness to the market.

Finally, Fischer asserts that no convincing argument was of-

fered to support continued rate regulation of contract carriers.

Most parties opposed to relaxed rate regulation represented large

established common carriers, which felt they could not operate

without government protection. A number of carners that do

engage in contract carriage, such as Dirksen Transportation, Inc.,

support relaxed rate regulation. Fischer argues that the current

regulatory program inhibits innovative rates, deters new service

options, and makes coordination of intrastate and interstate rates

all but impossible.

Specifically, Fischer recommends no rate regulation for con-

tract carriers transporting general freight commodities and that

E-35

contract carrier contracts be filed with the Commission and

available for public review. Fischer’s subhauling recommenda-

tions are a

This text is long and has been trimmed here. Open the source document for the complete record.