Jurisdictional Statement — Aberdeen & Rockfish R. Co. v. Students Challenging Regulatory Agency Procedures (SCRAP)

Supreme Court brief1975

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Text

Opinions below :

Jurisdiction .

Questions presented

Statutes involved

Statement .

The questions are substantial ===. ss ss ss

Conclusion 0

Appendix A

Appendix Bw

Appendix C 0

Appendix Do

Appendix BE

, CITATIONS

Cases:

Alabama Power Co. v. United States, 316

F. Supp. 337 affirmed, 400 U.S. 73__.

Algoma Coke & Coal Co. v. United States,

11 F. Supp. 487.00

American Lines v. L&N R. Co., 392 USS.

I Saeristswitecstennerieocsest osse-deceataaraiascepediscssnca se:

Arrow Transportation Co. v. Southern R.

Co., 372 U.S. 658

Atchison, Topeka & Santa Fe R. Co. v.

Wichita Board of Trade, 412 U.S. 800. 10, 18,

Calvert Cliffs Coordinating Committee v.

United States Atomic Energy Commis-

sion, 449 F.2d 1109.

Cases—Continued

Committee for Nuclear Safety v. Sea-

borg, 463 F.2d 783 ye

Ecology Action v. United States Atomic

Energy Commission, 492 F.2d 998.

Greene County Planning Board v. Fed-

eral Power Commission, 455 F.2d 412,

certiorari denied, 409 U.S. 849

Harlem Valley Transportation Associa-

3 tion and Natural Resources ‘Defense

Council, Inc. v. Stafford, C.A. 2, No.

73-2496, decided June 18, 1974 ___. 19,

Increased Freight Rates and Charges,

1972, 341 I.C.C. 290 ~

Jicarilla Apache Tribe v. . Morton, 411 F.

ge ., Fee es eS

Life of the Land v. Brinegar, 485 F.2d

Pe ae ee A

Natural Resources Defense Council, Ine.

v. Morton, 458 F.2d 827 -

S.C.R.A.P. v. United States, 346 F. “Supp.

SEA KORO OCR «EC

Union of Concerned Scientists v. Atomic

Energy Commission, et al., C.A.D.C.

No. 73-1099, decided June 10, 1974.

Upper Pecos Ass’n v. Stans, 452 F.2d

ee OU ee eT

United States v. Allegheny-Ludlum Steel

Corp., 406 U.S. 742...

United States v. Florida East Coast Rail-

way Company, 410 U.S. 224 -

United States v. S.C.R.AP., 412 US.

669 . os _.6, 7, 8, 14,

United “States \ v. . SC.R.A-P., 414 US.

1035

17, 19

6, 10

til

Statutes: Page

Interstate Commerce Act, Section 15(7),

24 Stat. 384, as amended, 49 U.S.C.

15(7) _ - _ 8-4, 6, 7, 14,17

National Environmental Policy Act of

1969, Section 102(a)(C), 83 Stat. 853,

42 U.S.C. 4332(a)(C) 4-6, 7, 12, 19, 20

Regional Rail Reorganization Act of 1973,

87 Stat. 985 - as. ere 13

-_-

In the Supreme Court of the United States

OCTOBER TERM, 1973

No.

UNITED STATES OF AMERICA AND INTERSTATE

COMMERCE COMMISSION, APPELLANTS

STUDENTS CHALLENGING REGULATORY AGENCY

PROCEDURES (S.C.R.A.P.), ET AL.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

JURISDICTIONAL STATEMENT

OPINIONS BELOW

The opinion of the district court (App. A, infra)

is reported at 371 F. Supp. 1291. The Interstate

Commerce Commission’s opinion and order of October

4, 1972, Ex Parte 281, Increased Freight Rates and

Charges, 1972 (App. D, infra), is reported at 341

*In reprinting this order in Appendix D, we have omitted

the lengthy, detailed discussion of commodity groups not

(1)

—

LC.C, 290. Its order of May 2, 1973 (App. E, infra)

is not reported.

JURISDICTION

The judgment of the three-judge district court was ;

entered on February 19, 1974. Notices of Appeal to

this Court were filed by the Interstate Commerce Com-

mission and the United States on April 19, 1974

(App. C, infra). On June 13, 1974, Mr. Chief Jus-

tice Burger extended the time for docketing the ap-

peal to and including July 2, 1974. The jurisdiction

of this Court rests on 28 U.S.C. 1253 and 2101(b).

United States v. Allegheny-Ludlum Steel Corp., 406

U.S. 742.

QUESTIONS PRESENTED

1. Whether the court below, in prohibiting the In-

terstate Commerce Commission from approving a gen-

eral railroad rate increase without first conducting a

thorough analysis of the underlying rate structure in

an environmental impact statement, improperly inter-

fered with the Commission’s discretion to determine

the appropriate type of proceeding in which to ad-

dress complex questions relating to rate-making.

2. Whether NEPA requires that a new hearing be

conducted to consider an environmental impact state-

involved in this proceeding, and Appendices containing

financial data and future evidentiary requirements. We are

lodging ten copies of the entire order with the Clerk for dis-

tribution to the Court.

ment, where the sole agency decision makers conduct-

ed a hearing and considered environmental issues be-

fore reaching their decision.

STATUTES INVOLVED

Section 15(7) of the Interstate Commerce Act, 24

Stat. 384, as amended, 49 U.S.C. 15(7), provides:

Whenever there shall be filed with the Com-

mission any schedule stating a new individual or

joint rate, fare, or charge, or any new individual

or joint classification, or any new individual or

joint regulation or practice affecting any rate,

fare, or charge, the Commission shall have, and

it is hereby given, authority, either upon com-

plaint or upon its own initiative without com-

plaint, at once, and if it so orders without answer

or other formal pleading by the interested car-

rier or carriers, but upon reasonable notice, to

enter upon a hearing concerning the lawfulness

of such rate, fare, charge, classification, regula-

tion, or practice; and pending such hearing and

the decision thereon the Commission, upon filing

with such schedule and delivering to the carrier

or carriers affected thereby a statement in writ-

ing of its reasons for such suspension, may from

time to time-suspend the operation of such sched-

ule.and defer the use of such rate, fare, charge, -

classification, regulation, or practice, but not for

a longer period than seven months beyond the

time when it would otherwise go into effect; and

after full hearing, whether completed before or

after the rate, fare, charge, classification, regu-

lation, or practice goes into effect, the Commis-

C.-C “ee,

sion may make such order with reference there-

to as would be proper in a proceeding initiated

after it had become effective. If the proceeding

has not been concluded and an order made within

the period of suspension, the proposed change of .

rate, fare, charge, classification, regulation, or

practice shall go into effect at the end of such

period; but in case of a proposed increased rate

or charge for or in respect to the transportation

of property, the Commission may by order re-

quire the interested carrier or carriers to keep

accurate account in detail of all amounts received

by reason of such increase, specifying by whom

and in whose behalf such amounts are paid, and

upon completion of the hearing and decision may

by further order require the interested carrier or

carriers to refund, with interest, to the persons

in whose behalf such amounts were paid, such

portion of such increased rates or charges as by

its decision shall be found not justified. At any

hearing involving a change in a rate, fare,

charge, or classification, or in a rule, regula-

tion, or practice, after September 18, 1940, the

burden of proof shall be upon the carrier to

show that the proposed changed rate, fare,

charge, classification, rule, regulation, or prac-

tice is just and reasonable, and the Commission

shall give to the hearing and decision of such

questions preference over all other questions

pending before it and decide the same as speedily

as possible.

Section 102 of the National Environmental Policy

Act of 1969, 83 Stat. 858, 42 U.S.C. 4332, provides

in relevant part:

The Congress authorizes and directs that, to

the fullest extent'possible: (1) the policies, regu-

lations, and public laws of the United States

shall be interpreted and administered in accord-

ance with the policies set forth in this chapter, —

and (2) all agencies of the Federal Government

shall— 3

* a ao * : *

port on proposals for legislation and other major

Federal actions significantly affecting the quality

of the human environment, a detailed statement

by the ‘responsible official on— :

(i) the environmental impact of the pro-

posed action,

(ii) any adverse environmental effects

which cannot be avoided should the proposal

be implemented,

(iii) alternatives to the proposed action,

(iv) the relationship between local short-

term uses of man’s environment and the main-

tenance and enhancement of long-term produc-

tivity, and ;

(v) any irreversible and irretrievable com-'

mitments of resources which would be in-

volved in the proposed, action should it be_

implemented.

Prior to making any detailed statement, the re-

sponsible Federal official shall consult with and

obtain the comments of any Federal agency which

has jurisdiction by law or special expertise with

respect to any environmental impact involved.

Copies of such statement and the comments and

views of the appropriate Federal, State, and local

agencies, which are authorized to develop and

enforce environmental standards, shall be made -

available to the President, the Council on En-

vironmental Quality and to the public as pro-

vided by section 552 of. Title 5, and shall ac-

company the proposal through the existing agen-

"ey review processes ;

* . * *

STATEMENT

This appeal is a further chapter in a long and com-

plex litigation involving the impact of the National

Environmental Policy Act of 1969, 42 U.S.C. 4332

(NEPA), on a general revenue proceeding of the

Interstate Commerce Commission conducted pursuant

to Section 15(7) of the Interstate Commerce Act, as

amended, 49 U.S.C. 15(7).’

Faced with sharply escalating costs and an increas-

ingly precarious financial condition, the Nation’s rail-

roads in December 1971 collectively petitioned the

Commission for authorization to file a temporary 2.5

percent surcharge on nearly all freight rates. This

‘emergency interim measure was intended to redress

the railroads’ financial condition pending the rail-

roads’, filing of proposed permanent selective rate

increases.

- The Commission, finding the railroads to have a

_ eritical need for additional revenues, concluded that

the surcharge should be permitted to take immediate

effect. The railroads then filed proposed selective

TSee United States v. S.C.R.A.P., 412 U.S. 669; United

States V. S.C.R.A.P., 414 U.S. 1085.

permanent increases averaging 4.1 percent. On April

24, 1972, the Commission issued an order pursuant

to Section 15(7) of the Interstate Commerce Act, in-

stituting an investigation into the lawfulness of the

permanent rate increases and suspending the per-

manent increases for seven months, the maximum

period permitted by 49 U.S.C. 15(7).

Thereafter, a group of law students—Students

Challenging Regulatory Agency Procedures . (S.C.R.-

A.P.)—and other environmental groups filed suit al-

leging that a detailed statement on the environmental

impact of the proposed action was required by Sec-

tion 102(2)(C) of the National Environmental Policy

Act, 42 U.S.C. 4332(2)(C). Plaintiffs sought an in-

junction both to prevent the railroads from collecting

the 2.5 percent surcharge, and to compel the Com-

mission to suspend its order authori ig the surcharge

to become effective without suspension.

The district court granted the relief sought.

S.C.R.A.P. v. United States, 346 F. Supp. 189,’ 201

(D. D.C.). On appeal, however, this Court reversed,

holding that under Section 15(7) of the Interstate

Commerce Act the Commission has exclusive power to

suspend rates pending final decision on their lawful-

ness, and that “NEPA was not intended to repeal

by implication any other statute.” United States v.

S.C.R.A.P., 412 U.S. 669, 694.

* Since the suspended permanent tariffs were intended to

supplant the temporary surcharge, the Commission authorized

the railroads to continue to collect the 2.5 percent surcharge

until November 30, 1972—the end of the suspension period on

the selective increases.

Before this Court rendered its opinion, the Com-

mission, on September 27, 1972, issued a final report

and order authorizing some of the selective permanent

increases sought by the railroads. Ex parte 281,

Increased Freight Rates and Charges, 1972, 341

L.C.C. 290 (App. D, infra).

In its opinion, the Commission considered the en-

vironmental impact of its authorization of the rate

increases, both in general (App. D, infra, pp. 20d-

35d), and as applied to specific commodities moving

in the recycling process (App. D, infra, at pp. 49d-

85d).° After this “extensive consideration” (United

States v. S.C.R.A.P., supra, 412 U.S. at 683, n. 11),

the Commission made the threshold assessment that

“increases at the levels authorized herein will have

no significant adverse impact on the quality of our

human environment” (App. D, infra, at p. 34d).

Therefore, it found that a formal environmental im-

pact statement was unnecessary. Nevertheless, the

Commission delayed the effectiveness of the increases

authorized for commodities moving in the recycling

process for 25 days, to permit the filing of comments

concerning the environmental impact of the increased

rates on these commodities (App. D, infra, p. 35d).

+The authorized rates for several of the recyclable ma-

terials were less than those sought by the railroads. (See App.

D, infra, pp. 85d-86d) .

5 This consideration was based on independent study by the

Commission, as well as the draft impact statement previously

filed by the railroads requesting the increases and comments

of shippers and environmental groups (App. D, infra, pp. 21d-

23d).

Several such comments were filed, and, on November

7, 1972, the Commission reopened the proceeding to

reconsider the environmental effects of the rates on

commodities being transported for recycling, and sus-

pended the tariffs on such commodities for another

seven months. See United States v. S.C.R.A.P., supra,

412 U.S. at 683, n. 11.

Although not conceding that an impact statement

was necessary, the Commission issued its draft impact

statement on March 5, 1973, for public comment.

After consideration of comments, the Commission

adopted the final impact statement, again concluding

that the selective tariff increases on commodities

moving in the recycling process would not adversely

affect the environment (346 I.C.C. 88).* It therefore

found it unnecessary to reconsider the general reve-

nue order of October 4, 1972, and terminated the

proceeding (App. E, infra, p. le).

S.C.R.A.P., the other environmental groups, and

certain scrap dealer associations thereupon filed this

suit, seeking to vacate the Commission’s orders per-

mitting increased rates on recyclable materials on

* We are lodging ten copies of this statement with the Clerk

for distribution to the Court. It contains a thorough discus-

sion of general environmental considerations (95-136, 235-

286); a detailed discussion of the possible diversion from rail

to truck caused by increased rates (id. at 136-143); and an

extensive commodity-by-commodity analysis of the effect that

the proposed increases will have on the shipping and use of

recyclable materials (id. at 143-216). The Commission also

discussed the various possible alternatives to rate increases

on recyclable-commodities. (id. at 218-235).

the ground that the Commission had failed to comply

with NEPA.’ The three-judge district court con-

cluded, with Judge Flannery dissenting, that “not only

the Commission’s preparation and utilization of its

impact statement but also the contents of that state-

ment fail to comport with the obligations imposed on

the Commission by Section 102(2)(C) [of NEPA”

(App. A, infra, p. 39a). It vacated the Commis-

sion’s orders of October 4, 1972 and May 2, 1973,

insofar as they related to commodities being shipped

for recycling, and remanded for reconsideration of the

rate increases applicable to such commodities.*

The district court’s decision was purportedly based,

not on substantive review of the Commission’s orders,

but on the court’s conclusion that the Commission had

failed to comply with the procedural requirements

of NEPA. There were, in the court’s view, two major

procedural defects. The court held the statement’s

™ They also sought an injunction restraining the railroads

from collecting the increased rates on such materials. The

district court originally granted this injunction; it was stayed

by the Chief.Justice, and then vacated by this Court, which

remanded the case for reconsideration in light of Atchison,

Topeka, & Santa Fe R. Co. V. Wichita Board of Trade, 412

US. 800. United States v. S.C.R.A.P., 414 U.S. 1035.

8 The court refused to enjoin the collection of the higher

rates by the railroads, noting that “The only consequence of

our vacating the Commission’s orders pending reconsideration

of the rate increases ‘is that the railroads may not rely, in some

subsequent proceeding, on a Commission finding that the pro-

posed rates were just and reasonable. * * *’ Atchison, Topeka

& Santa Fe R. Co. v. Wichita Board of Trade, supra” (App.

A, infra, p. 44a, n. 50).

fundamental defect to be that it limited its “analysis

to the marginal impact of the most recent rate in-

crease with no discussion of whether the underlying

rate structure itself significantly affects the environ-

ment” (App. A, infra, at p. 34a). In addition, it held

that the Commission was required to hold a hearing

after the development of the impact statement, to

provide a basis for a “thorough reconsideration” by

the Commission “of the proposed recyclable rate in-

crease in light of that hearing and the impact state-

ment” (id. at p. 28a).

The court remanded the case to the Commission,

directing it to prepare a new draft impact statement

containing a thorough-going rate structure study on

the relationship of recyclables to virgin materials

(App. A, infra, pp. 39a-40a). The court also directed

the Commission to conduct an analysis of the effects

of the rate structure on investment in manufacturing

facilities which make intensive use of scrap (id. at

p. 40a). Furthermore, the district court found a

“strong presumption” that “full consideration of the

revised impact statement through ‘existing agency

review processes’ must entail oral hearings before the

Commission” (id. at pp. 42a-43a).

THE QUESTIONS ARE SUBSTANTIAL

This case presents important questions concerning

the effect of NEPA on agencies with rate-making

responsibilities and, more generally, on the discretion

of agencies to determine the manner in which to

make decisions. In determining that the Commis-

sion’s environmental consideration was inadequate

because it did not analyze in detail the underlying

rate structure, but focused instead on the rate in-

creases which were involved in the revenue proceeding,

the court intruded into the area traditionally re-

served to agency discretion. NEPA was not intended

to limit a rate-making agency’s ‘authority to deter-

mine the appropriate type of proceeding in which

to make its decisions. Nor was the provision in Sec-

tion 102(2)(C) that the impact statement “shall ac-

company the proposal through the existing agency

review processes” designed to require an agency to

conduct a new hearing in the circumstances of this

case.

1. The Commission’s Consideration of Environ-

mental Factors Was Adequate.

The Commission orders involved here grew out of

a general revenue proceeding, initiated by the rail-

roads’ proposal to increase all their rates and charges

by about 4 percent. In general revenue proceedings,

the Commission determines whether the carriers’

total revenues are sufficient to provide the Nation

with adequate transportation. If the carriers demon-

strate that the general revenue increase is needed

and the Commission determines that it is consistent

with the public interest, the Commission will au-

thorize a permissive revenue increase. In such pro-

ceedings, the Commission does not determine the rea-

sonableness of individual rates, nor does it consider

the relationship of rates for different classes of com-

modities. Instead, the Commission makes broad find-

ings balancing the railroads’ need for revenue and the

public interest. On the basis of these findings, it may

allow the carriers to file tariffs embodying percent-

age increases.° .

The Commission’s decision however, does not auto-

matically increase any individual rate. If the rail-

road does decide to amend its tariffs, the Commis-

sion’s determination means, instead, that a shipper

challenging any individual rate increase which is

within the percentage increase authorized in the

general revenue proceeding must establish that the

rate is unreasonable. The effect of the general reve-

nue order is thus simply to shift the burden of proof

concerning the reasonableness of individual rates

that comply with the order from the carrier to the

shipper.

General revenue orders are in the nature of emer-

gency relief to enable the railroads to keep up, to

some extent, with inflationary pressures, and thus to

protect the public interest in adequate rail service.”

Therefore, the Commission may suspend the effec-

® Commission orders in general revenue proceedings have

traditionally not been subject to judicial review. See, e.g.,

Algoma Coal & Coke Co. v. United States, 11 F. Supp. 487

(E.D. Va.); Alabama Power Co. v. United States, 316 F.

Supp. 337 (D. D.C.), affirmed per curiam\by an equally di-

vided court sub nom. Atlantic City Electric Co. v. United

States, 400 U.S. 73. Cf. Atchison, Topeka, & Santa Fe R. Co. v.

Wichita Board of Trade, supra, 412 U.S. at 814, n. 10.

2° The precarious financial state of the nation’s railroads,

particularly in the northeast, is documented in the Commis-

sion’s October order (App. D, infra, pp. 3d-20d). The Regional

Rail Reorganization Act of 1973, 87 Stat. 985, reflects similar

concerns.

14 | :

tiveness of the increases proposed by the railroads

for only seven months. If the Commission study is

not completed within that time, the rates go into

effect without Commission authorization. 49 U.S.C.

15(7); see Arrow Transportation Co. v. Southern

R. Co., 372 U.S. 658." NEPA has not altered this

statutory scheme. United States v. S.C.R.A.P., 412

U.S. 669. -

The decision of the court below would, as a prac-

tical matter, deny the railroads the benefit of timely

general revenue orders. If such an order cannot is-

sue without an environmental impact statement

which analyzes not only the effects of the general

revenue increases under consideration, but also the

basic rate structure upon which they are predicated,

no such order could be issued by the Commission

within the statutory seven months. Indeed, the Com-

mission is well aware of the need for a thorough

study of the basic railroad freight rate structure,

and is in fact now conducting such a study in a

different proceeding, Ex Parte No. 270, Investigation —

of the Rail Freight Structure. That study includes,

as a separate proceeding (Sub. No. 5), a study of

the rate structure on iron and steel scrap, the prin-

cipal commodity at issue here. But such studies can-

not be made within the statutory time frame re-

1 If the Commission has not acted within the suspension

period, the Commission may require the carriers to keep

detai?ed accounts and to repay any increases the Commission

ultimately disallows. 49 U.S.C. 15(7); United States Vv.

S.C.R.A.P., supra, 412 U.S. at 697.

quired for general revenue orders. Environmental

Impact Statement, p. 227.”

In sum, the district court’s insistence that the

Commission must, in effect, undertake comprehensive

rate structure analyses and adjustments before it

can authorize general revenue relief both miscon-

ceives the nature of general revenue proceedings and

casts grave doubt on the Commission’s ability effec-

tively to respond to the carriers’ revenue needs and

public interest considerations within the statutorily

limited suspension period. As this court noted in

reviewing another district court’s attempt to require

the Commission to resolve complex rate-related ques-

tions in an inappropriate proceeding (American

Lines v. L. & N. R. Co., 392 U.S. 571, 592):

Given the fact that * * * the Commission was

to exercise its informed judgment in ultimately

determining what method of costing was prefer-

able, it is clear that the District Court also erred

in refusing to permit the Commission to exercise

that judgment in a proceeding it reasonably be-

lieved would provide the most adequate record

122The district court’s opinion clearly contemplates that

extensive studies of this nature will be conducted in order

to prepare the impact statement. It suggests that the Com-

mission may wish to “place a moratorium on rate increases on

recyclable commodities until] Ex Parte No. 270 is completed”

(App. A, infra, pp. 37a-38a) —an alternative expressly rejected

by the Commission (Impact Statement, p. 230). Moreover,

the rather substantial discussion of the rate structure now

contained in the impact statement was considered insufficient.

See Impact Statement at pp. 102-133, 146-160, 222-228, and

passim.

for the resolution of the problems involved. We

can see no justification for denying the Commis-

sion reasonable latitude to decide where it will

resolve these complex issues, in addition to how

it will resolve them. The action by the District

Court here not only deprives the Commission of

the opportunity to make the initial resolution of

the issues but also prevents it from doing so in ~

a more suitable context.

This Court has just recently held that the Fed-

eral Power Commission had the authority to fix

rates on an area-wide basis rather than on an in-

dividual producer basis and that, in order to

make such a procedure feasible, it had statutory

authority to impose a moratorium upon rate in-

creases by producers for a period of 214 years |

after the setting of the area rate. Permian

Basin Area Rate Cases, 390 U.S. 747 (1968).

The basis for this holding was the principle that

‘the “legislative discretion implied in the rate

making power necessarily extends to the entire

legislative process, embracing the method used

in reaching the legislative determination as well

as that determination itself.” Id., at 776. That

principle is equally applicable to rate regulation

carried out by the ICC, especially where, as here,

the determination made on an interim basis is

in general accord with both the legislative his-

tory of the stattite involved and the results in

‘prior cases decided by the agency.

Cf. Wichita Board of Trade, supra, 412 U.S. at 819-

821.

The fact that this case, unlike American Lines,

involves the application of NEPA does not justify

the district court’s action. The purpose of NEPA is

to ensure that the administrative decision maker

gives full consideration to the environmental aspects

of its decision. So long as the decision maker has

taken the “hard look” at environmental consequences

mandated by Congress, courts should not interject

themselves into “the area of discretion of the [agen-

cy] as to the choice of the action to be taken.” Natu-

ral Resources Defense Council, Inc. v. Morton, 458

F. 2d 827, 838 (C.A.D.C.). As this Court held in

United States v. S.C.R.A.P., supra, 412 U.S. at 697,

NEPA does not give reviewing courts license to up-

set the “careful accommodation of the various inter-

ests involved” in Section 15(7) of the Interstate

Commerce Act.”

~ The district court specifically disavowed any in-

tent to review the merits of the Commission’s envi-

ronmental decision, and based its action instead on

a holding that the Commission had failed to comply

with the procedural requirements of NEPA (App.

*In a somewhat similar situation, two courts of appeals

have recently concluded that the Atomic Energy Commission

did not violate NEPA when it issued reactor licenses after

considering environmental impact statements which were

based on interim safety criteria. ‘The courts held that the

agency could develop definitive criteria in a separate rule-

making proceeding without suspending all licensing in the

interim. Ecology Action v. United States Atomic Energy Com-

mission, 492 F.2d 998, 1002 (C.A. 2); Union of Concerned

Scientists v. Atomic Energy Commission, C.A.D.C. No. 73-

1099, decided June 10, 1974, slip op. 24-30.

A, infra, p. 22a). It thus did not explicitly reach

the question of the proper scope of judicial review of

the merits of agency determinations under NEPA.

Nevertheless, in concluding that the detailed impact

statement here involved was inadequate, the court

substituted its judgment for that of the agency con-

cerning the matters discussed in the impact state-

ment, and found that the arguments of the environ-

mental interests, principally concerning the underly-

ing rate structure, were not adequately rebutted for

purposes of the issuance of a general revenue order

(App. A, infra, pp. 30a-34a). Regardless of the par-

ticular formulations of the proper scope of judicial

review of the merits of agency NEPA decisions, it

is clear that such substitution of judicial for agency

judgment is improper. See, ¢.9., Jicarilla Apache

' Tribe of Indians v. Morton, 471 F.2d 1275 (C.A. 9);

Committee for Nuclear Responsibility, Inc. v. Sea-

borg, 463 F.2d 788 (C.A.D.C.); Upper Pecos Ass'n

vy. Stans, 452 F.2d 783 (1233 (C.A. 10). And it is

especially unwarranted where, as here, it would force

the agency to use a particular type of proceeding for

purposes for which it is not suited under the agency’s

regulatory scheme. .

2. NEPA Does Not Require the Commission to

Conduct a New Hearing to Consider the Impact

Statement.

The district court concluded that, since Section 102

(2)(C) of NEPA provides that the agency environ-

%* The court thus implicitly rejected the Commission’s ex-

press determination that an impact statement was not

necessary.

19 eee

mental impact statement “shall accompany the ss 7

posal through the existing agency review processes,”

it was improper for the Commission to consider the

formal impact statement without conducting a new

hearing, and that there is “at least * * * a strong

presumption * * * that full consideration of the re-

vised impact statement through ‘existing agency re-

view processes’ must entail oral hearings before the,

Commission” (App. A, infra, at pp. 42a-43a). But

‘ oral hearings before the Commission are not required

in rulemaking proceedings of the kind involved here.

See United States v. Allegheny-Ludlum Steel Corp., ,

406 U.S. 742, 756-758; United States v. Florida East

Coast Railway Co., 410 U.S. 224, 236-238. And

NEPA does not change that aspect of the Commis-

sion’s procedures. United States v. S.C.R.A.P., supra,

412 U.S. at 694. There is, therefore, no legal basis

for the court’s “presumption.”

The court relied for its conclusion upon Calvert

Cliffs’ Coordinating Committee v. United States

Atomic Energy Commission, 449 F.2d 1109 (C.A.

D.C.), and Greene County Planning Board v. Federal

Power Commission, 455 F.2d 412 (C.A. 2), certio-

rari denied, 409 U.S. 849. Those cases dealt with

fundamentally different types of agency proceedings,

_in which initial agency decisions were subject to re-

view within the agency. They hold only that in those

circumstances Section 102(2) (C) requires the impact

statement to be considered at each level of agency

review. 6 In contrast, here the initial agency decision

16 In pa ee Valley Transportation Association and Natural

Resources Defense Council, Inc. V. Stafford, C.A. 2, No. 73-

2496, decided ans 18, 1974, the court held that Greene County,

Se Co ae ne eee

on general revenue matters is by the Commission it-

self; no intermediate agency decision makers are in-

volved, nor are there here any agency review proce-

dures. Instead, the Commission simply reconsidered

its order of October 4, 1972, in light of the environ-

mental impact statement, and concluded that the

further study of the environmental effects of the rate

increases showed no reason to revise the conclusions

it there reached. Cf. Life of the Land v. Brinegar,

485 F.2d 460 (C.A. 9). :

In the absence of any “existing agency review

processes”, therefore, there was no violation of Sec-

tion 102(2)(C),, which does not in terms require a

hearing to be conducted. Nor was there any incon-

sistency here with the policy of NEPA, since the

agency decision makers have taken the necessary

“hard look” at environmental factors in reaching

their decision,” both by extensive consideration of

supra, applies to Commission rail abandonment proceedings

conducted pursuant to 49 U.S.C. 1(18). The court apparently

assumed that such proceedings, like those in Greene County

_ and Calvert Cliffs’, must be heard initially by a hearing ex-

aminer and reviewed by the Commission. The government

has not yet decided whether to seek further review of Harlem

Valley. ;

6 In Life of the Land, the draft'impact statement was cir-

culated after the hearirlg required by the agency’s statute had

been held. The final statement was then approved by respon-

sible agency, officials., The court concluded that the publication

and dissemination of the statement complied with Section

102(2) (C). It emphasized that there had been substantial |

consideration of environmental issues at all stages of the pro-

‘11 Natural Resources Defense Council, Inc. v. Morton, 458

F.2d 827, 888 (C.A. D.C.); cf. Upper Pecos Asa’n, Inc. V.

_—

environmental matters at the hearing before the Oc- —

tober 4 decision, and in reviewing the environmental

impact statement and the comments thereon before

reaching their May 2 decision.” There was also ade-

quate opportunity for public participation, both in the

October hearing and in the request for comments on

the draft impact statement. Cf. Hanly v. Kleindienst,

471 F.2d 823, 836 (C.A. 2), certiorari denied, 412

U.S. 908.

Stans, 452 F.2d 1233, 1236 (C.A. 10); Committee for Nuclear

Responsibility, Inc. v. Seaborg, 463 F.2d 783 (C.A. D.C.).

148 The Commission’s action here was thus not inconsistent

with what the court in Harlem Valley, supra, slip op. at 4287-

4288, identified as “the policies behind the decision in Greene

County I, the dangers that an agency will rely on self-serving

statements by an applicant and will place the burden of

analyzing environmental issues upon intervenors * * *.” The

environmental questions were addressed independently by the

Commission both before and after the October 4 order. See

n. 5 supra; Impact Statement, pp. 92, 102.

CONCLUSION

Probable jurisdiction should. be noted.

Respectfully submitted.

Rosert H. BorK,

Solicitor General.

WALLACE H. JOHNSON,

Assistant Attorney General.

HARRIET S. SHAPIRO,

Assistant to the Solicitor General.

Fritz R. KAHN,

General Counsel,

Betty JO CHRISTIAN,

Associate General Counsel,

CHARLES H. WHITE, JR.,

Attorney,

Interstate Commerce Commission.

JULY 1974.

APPENDIX A

UNITED STATES DISTRICT COURT

DISTRICT OF COLUMBIA

Civ. A. No. 971-72.

STUDENTS CHALLENGING REGULATORY AGENCY

PROCEDURES .(S.C.R.A.P.), PLAINTIFF,

and

COUNCIL ON ENVIRONMENTAL QUALITY,

INVOLUNTARY PLAINTIFF,

and

ENVIRONMENTAL DEFENSE FUND, ET AL.,

PLAINTIFF-INTERVENORS, -

and

NATIONAL ASSOCIATION OF SECONDARY MATERIALS

INDUSTRIES, INC., ET AL., PLAINTIFF-INTERVENORS,

and

INSTITUTE OF SCRAP IRON AND STEEL, INC. and

JULIAN C. COHEN SALVAGE CORPORATION,

PLAINTIFF-INTERVENORS

UNITED STATES OF AMERICA and INTERSTATE

COMMERCE COMMISSION, DEFENDANTS,

and ‘

THE ABERDEEN AND ROCKFISH RAILROAD COMPANY,

ET AL., DEFENDANT-INTERVENORS

Feb. 19, 1974

Proceeding in which environmental groups and

others sought a declaration that ICC had failed to

comply with National Environmental Policy Act in

authorizing railroad rate increases on shipment of re-

cyclables and that orders approving increases were

void, an order enjoining the ICC to reconsider gen-

eral rate increases in accordance with strict demands

of the Act, and an injunction forbidding railroads

from collecting rate increases on recyclables until

ICC complied with the act. On plaintiffs’ and de-

fendants’ cross motions for summary judgment, a

three-judge United States District Court for the Dis-

trict of Columbia, J. Skelly Wright, Circuit Judge,

determined that the ICC’s efforts to meet the com-

mands of the Act were substantially deficient, that

order authorizing rate increases should be vacated,

and that proceeding should be remanded to the Com-

mission for fulfillment of the Act’s obligations, but,

because of uncertainty concerning meaning of a Su-

preme Court decision, refrained from issuing an in-

junction restraining railroad’s collecting the increased

rates pending the ICC’s reconsideration.

, Order accordingly. .

Flannery, District Judge, dissented and filed opin-

ion.

1. Commerce § 152

Three-judge federal district court had jurisdiction

to review Interstate Commerce Commission’s compli-

ance, in authorizing railroad rate increases on ship-

ment of recyclable commodities, with commands of

the National Environmental Policy Act. 28 U.S.C.A.

§§ 1336, 2321-2325; Interstate Commerce Act, §§ 18

(1), 15(1, 7), 16(1), 49 U.S.C.A. §§ 13(1), 15(1,

7), 16(1); National Environmental Policy Act of

1969, §§ 101, 102, 102(2)(C), 42 U.S.C.A. §§ 4331,

4332, 4332(2)(C).

2. Health and Environment § 25.10

Purpose of procedural requirements of National

Environmental Policy Act, which prescribes not only

what considerations must be addressed in an envir-

onmental impact statement but also how the state-

ment is to be developed and utilized, is to insure that

federal agencies integrate consideration of potential

environmental impacts of their contemplated actions

with the policy considerations traditionally attending

such actions. National Environmental Policy Act of

1969, § 102(2)(C), 42 U.S.C.A. § 4832(2) (C).

8. Health and Environment § 25.10

In light of facts, inter alia, that ICC’s order ex-

plaining why national transportation policy warranl

ed general rate increase on recyclables was made

without benefit of an impact statement, that ICC

prepared environmental statement only after an ava-

lanche of criticism from environmental groups, that

ICC did not decide to start over again to reconsider

fully question of such rate increases and instead

merely opened case for limited purpose of further

evaluating environmental effects of increased rates on

movement of recyclables; and that ICC = not even

take its after-the-fact environmental considérations

through existing agency review processes, ICC’s prep-

aration and utilization of its impact statement failed

te comport with obligations imposed on it by Na-

tional Environmental Policy Act. National Environ-

mental Policy Act of 1969, § 102(2)(C), 42 U.S.C.A.

§ 4332 (2) (C).

4. Health and Environment § 25.10

A reviewing court must demand more than pro

forma compliance with section of National Environ-

mental Policy Act prescribing what considerations

must be addressed in an environmental impact state-

ment and how statement is to be developed and util-

ized; it must be assured that the agency engaged in

a full and good faith individualized consideration

and balancing of environmental factors. National

Environmental Policy Act of 1969, § 102(2) (C), 42

U.S.C.A. § 4332 (2) (C).

5. Health and Environment § 25.10

ICC statement on environmental impact of railroad

rate increases on shipment of recyclables, which

failed to include, inter alia, an analysis of underlying

rate structure’s impact on movement of recyclables,

failed to comport with obligations imposed on the

ICC by the Environmental National Policy Act. Na-

tional Environmental Policy Act of 1969, § 102(2)

(C), 42.U.S.C.A. § 4882(2) (C).

6. Health and Environment § 25.10

Phrase “existing agency review processes,” in sec-

tion of National Environmental Policy Act which re-

quires that environmental impact statement be trans-

mitted through existing agency review processes, en-

compasses not only procedures required by explicit

agency regulations but also those procedures which

an agency customarily employs in consideration of a

proposal of the type being analyzed for its environ-

mental impact. National Environmental Policy Act —

of 1969, § 102(2)(C), 42 U.S.C.A. § 4332(2) (C).

See publications Words and Phrases for other judicial

constructions and definitions.

John F. Banzhaf, III, and Peter H. Meyers, Wash-

ington, D.C., for plaintiff SCRAP.

John F. Dienelt and Scott H. Lang, Washington,

D.C., for plaintiff-intervenors Environmental Defense

Fund and others.

Edward L. Merrigan, Washington, D.C., for plain-.

tiff-intervenors National Association of Secondary

Materials Industries, Inc. and others.

Thomas H. Boggs, Jr., George Blow, and E: Bruce

Butler, Washington, D.C., for plaintiff-intervenors

Institute of Scrap Iron and Steel, Inc., and others.

Asst. Atty. Gen. Shiro Kashiwa, Harold H. Titus,

Jr., U. S. Atty., and William M. Cohen, Atty., Dept.

of Justice, for defendant United States of America.

Fritz R. Kahn, Gen. Counsel, Betty Jo Christian,

Associate Gen. Counsel, and Theodore C. Knappen,

Hanford O’Hara; Charles H. White, Jr., and James

_ F. Tao, Attys., Interstate Commerce Commission, for

defendant Interstate Commerce Commission.

T. A. Miller, San Francisco, Cal., Albert B. Russ,

Jr., Richmond, Va., Edward A. Kaier, Philadelphia,

Pa., and Charles A. Horsky, Michael Boudin, Michael

J. Henke, Walter Hellerstein and James L. Tapley,

_ Washington, D.C., for defendant-intervenors Aber-

‘deen and Rockfish Railroad Company and others.

Before WRIGHT, Circuit Judge, and RICHEY

and FLANNERY, District Judges.

J. SKELLY WRIGHT, Circuit Judge:

Plaintiff and plaintiff-intervenors challenge an or-

der of the Interstate Commerce Commission (ICC)

authorizing railroad rate increases on shipment of

recyclable commodities on the ground that the Com-

mission has failed to comply with the prescriptions

of the National Environmental Policy Act (NEPA),

42 U.S.C. § 4821 et seg. (1970). Both plaintiffs and

defendants have moved for summary judgment. We

find that the Commission’s efforts to meet the com-

mands of NEPA were substantially deficient. We

thus vacate the Commission’s order authorizing the

rate increases on recyclable commodities and remand

the proceeding to the Commission for fulfillment of

its NEPA obligations. However, because of our un-

certainty concerning the meaning of the Supreme

Court’s decision last term in Atchison, Topeka &

Santa Fe R. Co. v. Wichita Board of Trade, 412 U.S.

800, 93 S.Ct. 2367, 37 L.Ed.2d 350 (1978), we re-

frain from issuing an injunction restraining the rail-

roads from collecting the increased rates pending the

Commission’s reconsideration.

~ I

~ This case has had a long and complicated history.

Inasmuch as it has produced two previous opinions’ |

by this court* and one by the Supreme Court,* how-

ever, we shall attempt to set forth only those facts

relevant to the motions now before us. Having se-

cured Commission approval of a two and a half per

cent temporary emergency surcharge in February

1971 on nearly all freight rates, the nation’s rail-

roads on March 17, 1972 filed tariffs with the Com-

mission for permanent selective increases averaging

four per cent on most commodities. Under the Inter-

state Commerce Act tariff changes filed by carriers

go into effect automatically unless the Commission

deems that an investigation of the lawfulness of these

tariffs is advisable and that the rates should be sus-

pended pending such an investigation. 49 U.S.C.

§ 15(7) (1970). On April 24, 1972 the Commission

announced its intention to investigate the permanent

increases and suspended these increases for the full

seven-month period permitted by Section 15(7).

Students Challenging Regulatory Agency Proce-

dures (SCRAP) then commenced this action, contend-

ing that NEPA compelled the Commission to prepare

and consider an environmental impact statement be-

1353 F.Supp. 317 (1973); 346 F.Supp 189 (1972).

2 This is a three-judge court convened pursuant to 28 U.S.C.

§§ 2325 & 2284 (1970).

* United States v. SCRAP, 412 U.S. 669, 93 S.Ct. 2405, 37

L.Ed.2d 254 (1978).

a ™

fore permitting any rate increases—including the

temporary two and a half’ per cent surcharge.

SCRAP, which was later to be joined by other envi-

ronmental groups and scrap dealer associations,* ar-

gued that the rate increases discouraged the envi-

ronmentally desirable use of recyclable commodities

not only by raising the costs of shipping recyclables,

but also by aggravating “the preexisting disparity in

shipping costs between these materials and the pri-

mary goods with which they compete.” * In response

to this theory, we held that even the temporary sur-

charge was a major action “significantly affecting the

quality of the human environment,” 42 U.S.C. § 4332

(2) (C), and that the Commission therefore had vio-

lated NEPA by not preparing and considering a

NEPA impact statement before issuing its order per-

mitting the temporary surcharge. We held that any

challenge to the permanent increase was not ripe for

review inasmuch as the Commission had not then yet

issued an order approving this increase. We did,

however, retain jurisdiction to ensure that the Com-

‘SCRAP, an unincorporated association of law students,

was formed to enhance environmental quality. The Environ-

mental Defense Fund,, the National Parks & Conservation

Association, and the Izaak Walton League of America entered

the action in its initial stages as plaintiff-intervenors. The

National Association of Secondary Materials Industries and

the Institute of Scrap Iron & Steel have more recently inter-

vened. All of these parties will be referred to hereinafter

as plaintiffs.

5 346 F.Supp. at 191.

—

mission would comply with NEPA.‘ We further is-

sued a preliminary injunction restraining the tempo-

rary surcharge insofar as it applied to recyclable

commodities. The Supreme Court reversed the in-

junction on June 18, 1973. United States v. SCRAP,

412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973).

Relying on Arrow ‘Transportation Co. v. Southern R.

Co., 372 U.S. 658; 83° S.Ct. 984, 10 L.Ed.2d 52

(1963), the Court held that Section 15(7) vested

exclusive jurisdiction in the Commission to suspend

rates pending its final decision on their lawfulness.’

Meanwhile the Commission’s investigation of, the

proposed permanent increases culminated in a hear-

ing consisting of submission of briefs and oral argu-

ment by concerned parties. Though the Commission

had told the Chief Justice, in connection with its

application for a stay of our order against the tem-

porary surcharge, as well as this court, that it was

developing an impact statement, no statement was

prepared for consideration at this hearing or even

for consideration by the Commission before issuing

its decision on the permanent increases. That deci-

sion, which was issued October 4, 1972, approved

most of the selective increases. Ex Parte No. 281,

Increased Freight Rates and Charges, 1972, 341 ICC

288 (1972). The decision included some discussion

of environmental considerations and limited the rate

increases on nonferrous scrap to three per cent, but

* Id. at 198-201.

7412 U.S. at 690-699, 93 S.Ct. 2405.

it generally concluded that the new tariffs would not

significantly affect the quality of the human environ-

ment and that there was thus no necessity for a for-

mal impact statement. The Commission’s failure to

prepare a formal statement provoked vehement pro-

testations from the President’s Council on Environ-

mental Quality (CEQ), from the Environmental Pro-

tection Agency (EPA), and from plaintiffs. Plain-

tiff SCRAP filed with this court on November 7,

1972 a motion to enjoin the approved increases. On

the same day as this filing, the Commission suddenly

shifted its position by suspending, until June 1973,

rate increases on all goods being shipped for pur-

poses of recycling and by reopening its investigation

in Ex Parte No. 281.° The Commission stated that |

the proceeding was reopened for “the limited purpose

of further evaluating, in accordance with [NEPA],

s«“* * * The Environmental Protection Agency (EPA)

stated its regret that the Commission chose not to submit

a formal impact statement, arguing that ‘the historical

data presented by the Commission does not support the

conclusion that * * * there will be no adverse environ-

mental impact.’ CEQ, in its letter to the Commission,

felt that the conclusion that the October 4 order would

have no significant environmental impact ‘seems un-

responsive to the language of our NEPA guide

lines * * *.’” «

853 F.Supp. at 321.

® Following the Commission’s Oct. 4 order and opinion, the

railroads refiled their increases, including the increases on

recyclables, in accordance with the order and the exceptions

they made to the Commission’s general approval. It was these

refiled tariffs as they related to recyclables which the Commis-

sion suspended. j

10a

—

lla

the environmental effects of increased railroad freight

“rates and charges on the movements of commodi-

ties. being transported for the purpose of recycling

* * #20 Tn light of the Commission’s action, we

denied SCRAP’s request for a preliminary injunc-

tion. We found that no relief was necessary for the

suspended increases on recyclables and that there

was not sufficicnt likelihood that the plaintiffs would

be successful in showing that an impact statement

was required before increasing rates on nonrecycla-

bles. ‘We reserved decision on the merits. ©

The Commission proceeded to prepare its statement

on the environmental impact of the recyclable rate

increases. The Commission’s draft statement was is-

sued March 5, 1973. It was circulated to several con-

cerned Executive agencies, and departments and to

all of the parties in this action. Not only the plain-

tiffs but. also the Executive agencies and depart-

ments, including EPA, CEQ, General Services Admin-

istration, Department of the Interior, and Depart-

ment of Commerce, responded with extensive com-

ments critical of this draft statement and its con-

clusions. These comments, although acknowledged by’

the Commission in its final statement, did not move

the Commission to ¢hange in any substantial way its

conclusions or even its analysis. The Commission de-

nied the request of plaintiffs to schedule a new set

of hearings in the reopened proceedings. The Com-

mission served its final environmental impact state-

———— 1

1 353 F.Supp. at 321.

—

ment on May 7, 1973. The statement’s analysis was

limited to the marginal impact of the most recent

rate increases; it stated that a general rate increase —

proceeding did, not provide an appropriate occasion

to examine whether the, underlying rate structure

discriminated against recyclable commodities with

significant adverse environmental consequences.”

Though it contained no rigorous economic analysis of

the responsiveness of the demand for recyclables to

changes in transportation costs, the statement’s con-

clusion echoed the Commission’s original position in

its October 1972 order that the increases would not

have a significant adverse effect on the environment.

The statement further proriounced that even if some

adverse environmental impact could be anticipated *

the increases would be justified by the need to ensure

a viable and efficient railroad system. The Commis-

sion did not use this staff-prepared statement and the

critical comments on the draft statement to develop

a new opinion to supplant or even supplement its Oc-

tober opinion. Instead the Commission merely ap-

pended a one-sentence order to the statement’s back

_ page which adopted the entire statement as part of

its prior opinion on the rate increases and discon-

tinued Ex Parte No, 281.

“ICC, Ex Parte No, 281, Increased Freight Rates and

Charges, 1972 (Environmental Matters) 22 (May 7, 1973)

(hereinafter “Environmental Impact Statement”).

122 The statement actually did concede at one point that the

rate increase would probably cause a decline in utilization of

glass scrap. Id. at 155. ;

—

13a

On May 30, 1973 SCRAP and plaintiff-intervenor

Environmental Defense Fund (EDF) filed a motion

in this court for a preliminary injunction against

the rate increases on recyclable commodities which

the railroads intended to place in effect when the

suspension period ended on June 10. On June 7 this

court, finding a sufficient likelihood that plaintiffs

would be successful in their present challenge to the

rate increases, issued a temporary injunction restrain-

ing the Commission and the railroads from collect-

ing the increases “until further order of this court.”

This injunction was stayed by Chief Justice Burger.

On November 19, 1973 the Supreme Court~vacated

the injunction and’ remanded the case to this court

for further consideration in light of Atchison, Topeka

& Santa Fe R. Co. v. Wichita Board of Trade,

supra.”

Plaintiffs now ask this court for: a declaration

that the ICC has failed to comply with NEPA and

that the orders approving the increases are thus

void; an order enjoining the Commission to recon- —

sider the general rate increases in accordance with

the strict demands of NEPA; and an injunction for-

bidding the railroads from collecting the rate in-

creases on recyclables until the Commission does so

comply with NEPA. Plaintiffs and defendants have

filed cross motions for summary judgment, and on

these motions we now consider whether it is appropri-

% United States v. SCRAP, —— U.S. ——, 94 S.Ct. 533,

38 L.Ed.2d 326 (1978).

14a

ate for this court to grant plaintiffs’ requests for

relief. .

[1] We must first address the contention of the

railroads, who have intervened as defendants, that

we lack jurisdiction to review the Commission’s com-

pliance with the commands of NEPA. The railroads’

position is based on cases dating back almost 40 years

which refused to review challenges of shippers to

general revenue orders like those of October 4, 1972

and May 2, 1973.* These decisions were not com- —

pelled by any statutory limitation on the courts’ pow-

er; three-judge District Courts have jurisdiction “to

enforce, suspend, enjoin, annul or set aside in whole

or in part any order of the Interstate Commerce

Commission * * *.” 28 U.S.C. § 2321 (1970); 28

U.S.C. § 1836 (1970). See 28 U.S.C. §§ 2322-2825

(1970). The decisions were instead predicated upon

the judicially developed doctrines of ripeness and ex-

haustion of administrative remedies. The courts

stressed that the Commission’s approbation of a gen-

eral rate increase under Section 15(7) was merely

“4 See, e.g., Algoma Coal & Coke Co. v. United States,

E.D.Va., 11 F.Supp. 487 (1935); Koppers Co. v. United States,

W.D.Pa., 182 F.Supp. 169 (1955); Atlantic City Electric Co.

v. United States, S.D.N.Y., 306 F.Supp. 338 (1969), and

Alabama Power Co. v. United States, D.D.C., 316 F.Supp. 387

(1969), both affirmed by equally divided Court, 400 U.S. 78,

91 S.Ct. 259, 27 L.Ed.2d 212 (1970); Electronic Industries

Assn v. United States, D.D.C., 310 F.Supp. 1286 (1970),

affirmed. per curiam, 401 U.S. 967, 91 S.Ct. 1188, 28 L.Ed.2d .

$18 (1971).

loa

an acceptance of the railroads’ need for more reve-

nue, that the shippers could challenge the reason-

ableness of particular rates affecting them under Sec-

tions 13(1),.15(1) and 16(1) of the Interstate Com-

merce Act, 49 U.S.C. §§18(1), 15(1), 16(1)

(1970), and that only in a decision pursuant to such

a challenge did the Commission render a judgment

on the reasonableness of particular rates as applied

to particular shippers. The courts thus reasoned that

to review carriers’ challenges to a Section 15(7)

order would be to interfere at an intermediate stage

in the rate-making process before the carriers had

exhausted their remedies before the Commission.

However, as we indicated in our first opinion in

this case,* we do not feel restrained by these cases

from reviewing plaintiffs’ challenges to the Commis-

sion’s orders. First, the precedential force of the

cases is now in substantial doubt. Two of the most

recent, Alabama Power Co. v. United States, D.D.C.,

316 F.Supp. 337 (1969), and Atlantic City Electric

Co. v. United States, S.D.N.Y., 306 F. Supp. 338

(1969), were affirmed without opinion by only an

equally divided Court, 400 U.S. 78, 91 S.Ct. 259, 27

L.Ed.2d 212 (1970). Only last term the Court indi-

cated that the jurisdictional question presented by

these cases, while a serious one, was not settled.”

% 346 F.Supp. at 198.

*In Atchison, Topeka & Santa Fe R. Co. v. Wichita Board

of Trade, 412 U.S. 800, 93 S.Ct. 2367, 87 L.Ed.2d 350 (1978);

the Court reviewed a Commission order that particular rates

were just and reasonable. The plurality opinion stated that

16a

In Alabama Power and Atlantic City the shippers’

challenges were directed to the Commission’s deci-

sion that the general increases were warranted by

the railroads’ revenue needs rather than to the rea-

sonableness of any particular rates. We adhere to the

view expressed in the dissent in Alabama Power

that challenges such as these can best be considered in

direct review of the Commission’s Section 15(7) de-

cision rather than “in countless rate-making proceed-

ings involving individual commodities.” * The instant

case does not present challenges to the reasonable-

ness of particular rates on particular railroads be-

tween particular points; it presents challenges to the

Commission’s determination that the railroads’ gen-

eral revenue needs justify the costs to shippers and

to the environment of a general rate increase on re-

cyclables.* The Commission has made what it be-

lieves to be its final decision on this general balanc-

ing; it surely does not intend to reconsider this deci-

sion after a Section 13 challenge to a particular rate.

if the grain charges “were just like a general rate incrase,

serious questions would arise about the jurisdiction of the

District Court to review the Commission’s order.” Id. at 814

n. 10, 93 S.Ct. at 2378.

11 Alabama Power Go. Vv. United States, supra note 14, 316

F.Supp. at 339.

18 We thus find misplaced the railroads’ reliance on Elec-

tronic Industries Assn V. United States, supra note 14, which

was affirmed unanimously by the Supreme Court without

opinion. In that case the shippers attacked as unreasonable

and arbitrary only that portion of a Commission § 15(7)

order permitting increased rates on two particular items.

$10 F.Supp. at 1287.

17a

We do not, however, rest on an application of the

analysis advanced in the dissent in Alabama Power.

For as stated in our first SCRAP opinion ® the cases

cited by the railroads are all distinguishable from a

case challenging the Commission’s compliance with

NEPA in approving a general rate increase. We

first note that however adequate a Section 13 proceed-

ing might be to a shipper who questions the railroads’

need for a general rate increase, it is at least ques-

tionable that environmental groups such as SCRAP

have standing to initiate Section 13 proceedings dur-

ing which they could attempt to contest the Commis-

sion’s compliance with NEPA. Sections 13(1), 15(1)

and 16(1) permit any person or association to com-

plain of carrier action in contravention of the Inter-

state Commerce Act and empower the Commission to

investigate such complaints and remedy any violation

of the Act, including granting reparations for unrea-

sonable or prejudicial charges on particular items

shipped. It is suggested that an environmental group,

while it could not obtain reparations, should be able

to complain that a particular charge on a particular

item is unreasonable because of its environmental ef-

fects. Thus if SCRAP could initiate an investigation

on this theory, it could argue further that before re-

jecting the complaint the Commission would have to

_ prepare and consider an environmental impact state-

ment. But we know of no Commission order or ju-

dicial opinion accepting this theory and it is thus

too speculative and too unrealistic to support a denial

” 346 F.Supp. at 198.

of jurisdiction. It is true that two scrap dealers

associations have intervened in this action to help

champion the environmental cause and that these as-

| sociations or their members may bring Section 13

challenges to particular rates which they could argue

the Commission could not reject without compliance

with NEPA. But we cannot rest a holding on the

fortuity that here shippers as well as envi ental

groups challenge the Commission’s sorkiptishrce with

NEPA. Moreover, to refuse to consider the challenges

of environmental groups to agency compliance with

NEPA because economically interested parties might

make similar challenges in later proceedings would

significantly dilute the Supreme Court’s holding, on

review of our first opinion in this case, that SCRAP

has full standing, equal to and not derived from the

standing of economically interested parties, to seek

review of Commission action which allegedly harms

SCRAP’s members in their use of the environment.”

Even if environmental groups could initiate pro-

ceedings pursuant to Section 13(1), an appeal from

a Commission order on the reasonablenes of a par-

ticular rate would riot be an appropriate time for

a court to review the Commission’s challenged com-

pliance with NEPA. Plaintiffs have persuasively ar-

gued that NEPA compels the Commission, before ap-

proving a general rate increase, to consider whether

the rate increases on recyclables collectively have a

significant environmental impact and, if so, whether

18a

2% United States v. SCRAP, supra note 3, 412 U.S. at 683-

690, 98 S.Ct. 2405.

19a

this impact is justified by the railroads’ need for in-

creased revenues. These are far different questions

from whether a particular rate, in light of environ-

mental considerations, is unreasonable or discrimina-

tory. Even if a court in reviewing a Commission

order on the reasonableness of a particular rate were

able on the record before it to review the Commis-

sion’s compliance with NEPA, the court’s decision

would affect only the particular rate challenged. Thus

burdensome relitigation of each particular rate would

be required to challenge all the rates which collec-

tively impact the environment. Finally, we note that

delay is of greater import here than in previous

cases where review of general rate orders was re-

fused. While the Act provides for reparations to ship-

pers who successfully challenge particular rates after

they have become effective, the environmental degra-

dation which continues while challenges to particu-

lar rates are being considered may not be reparable

at all.

Our reliance on NEPA in finding jurisdiction is

not inconsistent with the Supreme Court’s admonition

in its SCRAP opinion that “NEPA was not intended

to repeal by implication any other statute.”“ The

Court did not suggest that NEPA was to be ignored

by the courts in considering threshold jurisdictional

issues.”

2 Id. at 694, 93 S.Ct. at 2419.

22 The Court’s implicit approval of the assertion of jurisdic-

tion in Committee for Nuclear Responsibility, Inc. v. Seaborg,

149 U.S.App.D.C. 880, 463 F.2d 783 (1971), suggests much

20a

The Court in SCRAP held only that NEPA did not

revive judicial power that had been previously\ ex-

plicitly eliminated by Congress. 412 U.S. at 692-695,

93 S.Ct. 2405. This time we do not wield NEPA in

the face of any statutory limitations on our jurisdic-

tion; there is nothing in the Interstate Commerce Act

which precludes our jurisdiction to review Section

15(7) orders, whatever the limits it imposes on our

injunctive power over carriers. We, like the previous

courts which, in a non-NEPA context, declined to re-

view general rate orders, are applying broad juris-

dictional provisions, 28 U.S.C. §§ 1336, 2321, giving

us power to review “any order” of the ICC. These

provisions demand supplementation by other stat-

utes and by judicially developed doctrines which limit

court review of agency action. As stated above,

previous courts found two of these doctrines to pre-

clude court review of general rate orders. We find

that the existence of NEPA requires us to reconsider

the application of these doctrines and in NEPA cases

to accept more of the broad jurisdictional authority

granted us.

Ill

We thus turn to an examination of the Commis-

sion’s fulfillment of the NEPA mandate. We do not

feel it necessary to rehearse at the outset the full

the reverse. 412 U.S. at 695-696, 98 S.Ct. 2405. The Seaborg

court reviewed whether a decision to conduct a nuclear test

was made in compliance with NEPA though, as we noted in

our first SCRAP opinion, 346 F.Supp. at 197, absent NEPA

no court would have authority to review such a decision.

™

. Sls

structure and the particularized requirements of

NEPA. Previous courts have done so adequately.”

We do, however, think it important to emphasize be-

fore commencing our analysis that the courts have

required strict compliance with the procedural com-

mands of NEPA. Section 102(2)(C) of the Act, 42

U.S.C. § 4832(2)(C), prescribes in some detail not

only what considerations must be addressed in an

environmental_impact statement, but also how the

statement is to be developed and utilized. The Act

states that “all agencies of the Federal Government”

are to comply with these prescriptions “to the fullest

extent possible.” 42 U.S.C. § 4332. Far from pro-

viding “‘an escape hatch for footdragging agencies,”

this language “sets a high standard for the agencies,

a standard which must be rigorously enforced by the

reviewing courts.” Calvert Cliffs’ Coordinating Com-

_mittee v. USAEC, 146 U.S.App.D.C. 33, 38, 449 F.2d

1109, 1114 (1971). Because of the extent of plain-

tiffs’ attack on the impact statement, we further note

that the courts’ substantive review of agency action

pursuant to NEPA is much more limited. Once a

court is satisfied that the agency has “fully and in

good faith” met all of NEPA’s procedural require-

ments, it should not reverse an agency decision on

the merits unless it can determine that the decision ©

was “arbitrary or clearly gave insufficient weight to

23 See, e.g., Environmental Defense Fund, Inc. v. Corps of

Engineers, United States Army, 8 Cir., 470 F.2d 289 (1972);

Calvert Cliffs’ Coordinating Committee v. USAEC, 146 U.S.

App.D.C. 33, 449 F.2d 1109 (1971). :

22a

environmental values.” Id., 146 U.S.App.D.C. at 39,

449 F.2d at 1115.* Any substantive review would be

predicated on Section 101 of the Act, 42 U.S.C.

§ 4331, which propounds certain substantive envir-

onmental goals which it is the “continuing responsi-

bility of the Federal Government to use all practica-

ble means” to achieve. One of these goals is to “en-

‘hance the quality of renewable resources and ap-

proach the maximum attainable recycling of deplet-

able resources.” However, because we view the Com-

mission’s efforts to comply with NEPA’s procedural

commands to be sorely deficient, we do not reach the

question whether the Commission clearly gave insuf-

ficient weight to this environmental value.

[2, 3] The purpose of .all the requirements im-

posed by Section 102(2)(C) is to ensure that fed-

eral agencies integrate consideration of the potential

environmental impacts of their contemplated actions

with the policy considerations traditionally attending

such actions. It is for this reason that Section 102

(2) (C) specifically commands that an environment-

al impact statement and the comments of other con-

cerned agencies on this statement “shall accompany

the proposal through the existing agency review proc-

esses.” The Commission’s mode of preparation and

utilization of the challenged impact statement here

violated both Seetion 102(2) (C)’s fundamental pur-

* Accord, Conservation Council of North Carolina v.

Froehlke, 4 Cir., 473 F.2d 664, 665 (1973); Environmental

Defense Fund, Inc. v. Froehlke, 8 Cir., 473 F.2d 346, 353

(1972).

. 28a

pose and this specific command. The Commision’s

October 4 order explaining why the national trans-

portation policy warranted the general rate increase

was made without the benefit of an impact state-

ment. It was only after its October order was greet-

ed with an avalanche of criticism from environment-

al groups, EPA, and CEQ that the Commission de-

cided to prepare an environmental statement on the

impact of the rate increases for recyclable commodi-

ties. The Commission did not, however, decide to

start over again to reconsider fully the question of

rate increases on recyclables. It instead merely re-

opened Ex Parte No. 281 “for the limited purpose

of further evaluating * * * the environmental ef-

fects of increased railroad freight rates and charges”

on the movement of recyclable commodities. ICC or-

der of November 7, 1972. The Commission thus indi-

cated that it had already made its decision and all

that remained was to determine if the environmental

effects of that decision could be justified. The Com-

mission’s May 2, 1973 order discontinuing Ex Parte

No. 281 is further evidence that the Commission

neither intended to give nor actually gave full re-

consideration to the question of the recyclable rate

increase. That one-sentence order merely adopts the

entire staff-prepared impact statement. It makes no

attempt to integrate the considerations of national

transportation policy justifying the rate increase with

the environmental considerations analyzed in the im-

pact statement. Nor does it confront or even acknowl-

edge the critical comments of other concerned agen-

cies and environmental groups appended to the state-—

ment. This utilization of an impact statement simp-

ly does not comport with Section 102(2)(C). Only if

the statement is prepared before an agency decision

is made can it serve its purpose of informing the de-.

cision-making process at every stage. “Compliance

to the ‘fullest’ possible extent would seem to demand

that environmental issues be considered at every im-

portant stage in the decision making process * * ss

Calvert Cliffs’ Coordinating Committee v. USAEC, |

supra, 146 U.S.App.D.C. at 42, 449 F.2d at 1118

(emphasis in original).* If fhe agency fails to pre-

cesiahiaamiigponis Se tae

25 See also Environmental Defense Fund, Inc. v. Armstrong,

N.D.Cal., 352 F.Supp. 50, 55 (1972) (an impact statement

“igs not to be merely an exercise in project justification but

rather a working paper of sorts, one essential input into

agency decisions concerning the contours of Federal action’’).

In his dissent to the Court’s reversal of our first SCRAP

opinion, Mr. Justice Douglas quotes Congressman Dingell, a,

main sponsor of NEPA. That quotation unfortunately is

even more appropriate at this stage of the SCRAP litigation.

“* * * Some agencies aré complying poorly. They

decide what they are going to do and then write an en-

vironmental impact statement to support the decision.

That is not what Congress had in mind. I am fearful

that we are breeding a race of impact statement writers

who put all the right words down but don’t really get

environmental concerns involved in the decision-making

process. * * *”

United States v. SCRAP, supra note 8, 412 U.S. at 713 n. 10,

98 S.Ct. at 2429. CEQ must have been aware of this problem

in drafting its advisory guidelines on agency compliance with

NEPA. These guidelines state: ’

«“* * * It is important that draft environmental state-

ments be prepared and circulated for comment and

25a

_ pare an impact statement before making a decision

significantly affecting the environment, it must start

its procedures over again, including the procedure

required by Section 102 of NEPA, so that the de-

cision-making process can be fully informed through-

out.

In this case, not only did the Commission fail to

start over in considering whether to approve the rate

increases, it did not even take its after-the-fact, envi-

ronmental consideration through the entire “existing

agency review processes.” The “processes” for Com-

mission review of proposed general rate increases are

set forth in Section’ 15(7) of the Interstate Com-

merce Act. The Commission is ernpowered by the sec-

tion to make orders concerning these proposed rates |

“after full hearing.” The Commission held a hearing

before its October 4 order before it had even com-

menced preparing an impact statement. It refused,

however, to hold another hearing to reconsider the

‘increase on ‘recyclables it had already: decided “ge

in light of the impact statement it had prepared.

‘should be clear to all agencies by now that ins 7

are key aspects of nr review processes during

furnished to the Council as early as possible in the agency

' review process in order to permit agency decisionmakers

and outside reviewers to give meaningful consideration

to the environmental issues involved.’ In particular,

. agencies should keep in mind that such statements are to

serve as the means of assessing the environmental im-

pact of proposed agency actions, rather than as a justi-

fication for decisions already made. -<Siednep mE

38 “Fed Reg 10858 (1973).

26a

which environmental impact statements must be con-

sidered. The words of the Court of Appeals for the

: Second Circuit are clear:

“* * * [Wie conclude that the Commission

was in violation of NEPA by conducting hear-

ings prior to the preparation by its staff of its

own impact statement * * *. * * *

«“* ¢ * [The statement may well go to waste

unless it is subject to the full scrutiny of the

hearing process * * *.”

_ Greene County Planning Board v. FPC, 2 Cir., 455

F.2d 412, 422 (1972) (emphasis, in original). And

the words of the Court of Appeals for the District

of Columbia Circuit are equally clear:

“The question here is whether the Commission

is correct in thinking that its NEPA responsi-

bilities may ‘be ‘carried out in toto outside the

hearing process’—whether it is enough that envi-

_ronmental data and evaluations merely ‘accom-

’ pany’ an application through the review process,

but receive no consideration whatever from the

hearing board.” | )

Calvert Cliffs’ Coordinating Committee v. USAEC,

supra, 146 U.S.App.D.C. at 41, 449 F.2d at 1117.

The railroads attempt to distinguish Greene County

and Calvert Cliffe’ Wy stressing that in those cases

the agency hearings produced an examiner or hear-

ing board report as an initial stage in the decision-

_ making process, while in a general revenue proceed-

ing the first and only decision is that of the Commis-

sion itself. But there is nothing in either of the cases,

27a

or more importantly in Section 102(2)(C), to indi-

cate that, because a stage in the review process dur-

ing which the proposed action is considered does not

culminate in an intermediate agency opinion, that

stage may be circumvented for purposes of NEPA.

Indeed where, as here, the hearing is before the Com-

mission itself, and’ is the only one provided, it may

well be the most important stage in the decision-

making process.

The Commission attempts to defend its refusal to

hold hearings during which the impact statement

could have been considered by arguing that those

with environmental concerns had adequate opportu-

nity to comment on the approval of the rate increase.

The. Commision primarily refers to the oral hearing

held prior to the October order during which envi-

ronmental comments were in order and to the Com-

mission’s solicitation of comments on the draft envi-

ronmental statement. Neither can substitute for

strict compliance with the commands of Section 102

(2)(C). During the oral hearing held prior to the

October order there was no impact statement, draft

or otherwise, upon which environmentally concerned

parties could focus their comments; nor was there

any statement to inform the Commission as to the

worth of any environmental comments which were

madé. The comments on the draft statement, pre-

pared subsequent to the October order, were directed

to and considered by the agency staff members who

prepared the statement. Section 15(7) hearings are

to be held by the Commission itself and are a stage

28a

’ at which the Commissioners can be informed of envi-

ronmental considerations. They thus constitute an

independent and important stage in be agency re-

view process.

[4] If what we have discussed above was all that

was wrong with the Commission’s compliance with

Section 102(2) (C)’s requirements, it might be suffi-

cient for the Commission to hold another hearing in

which all parties could participate fully in canvassing

the NEPA and national transportation policy con-

siderations concerned with rate increases. The Com-

mission could then make a thorough reconsideration

of the proposed recyclable rate increase in light of

‘that hearing and the impact statement which it has

already prepared. However, we find the | statement

itself to be deficient and to require repreparation.

The statement seems to meet the prescriptions of

NEPA as to form; it has sections, for instance, on

the five considerations which NEPA requires agen-

cies to address in their statements. However, as we

“stated above, a reviewing court must demand more

than pro forma compliance with Section 102(2) (C) ;

it must be assured that the agency engaged in a full

and good faith “individualized consideration and bal-

ancing of environmental factors.” Calvert Cliffs’ Co-

ordinating Committee v. USAEC, supra, 146 US.

App.D.C. at 39, 449 F.2d at 1115.*.We perused the

2 “Compliance with NEPA is not established merely by the

filing of an impact statement in the form and by the pro-

29a

statement carefully and cannot find that it presents

such a full and good faith consideration and balanc-

ing. This conclusion is not surprising given the

above-recounted history of the statement’s post-deci-

sion preparation.

We note first that a reader of the statement must

be struck by the combative, defensive and advocatory

language and style in which it is written. The state-

ment continually attacks the views of those opposing

the increase, denominating these “one-dimensional” *

and impaired by “syndromes.” * One report is slight-

ed merely because it was prepared by urban groups *

and EPA is chided for needing a course in the funda-

mentals of rate regulation.*° Nowhere does the stat&

ment set forth an environmental argument against

the rate increase as its own or as worthy of even

partial acceptance; environmental arguments are

ascribed to others and then rebutted.“ The state-

cedure outlined by the statute.” Brooks v. Volpe, W.D.Wash.,

350 F.Supp. 269, 275 (1972). See also City of New York v.

United States, E.D.N.Y., 344 F.Supp. 929, 940 (1972); En-

vironmental Defense Fund, Inc. v. Corps of Engineers, United

States Army, E.D.Ark., 342 F.Supp. 1211, 1214 (1972); cases

cited at note 23 supra (all requiring “good faith” compliance) .

21 Environmental Impact Statement, supra note 11, at 11-12.

Id. at 14.

2 Id. at 10.

3° Jd. at 194.

31 To this extent at least, the statement is not in accord with

CEQ’s advisory guidelines that a statement is not to “be used

as a promotional document in favor of the proposal, at the

expense of a thorough and rigorous analysis of environmental

30a

ment’s defensiveness, and the Commission’s insensi-

tivity to its NEPA responsibilities, are even mani-

fested at one point by an assertion that NEPA does

not require any balancing of environmental costs:

“TWle find in [NEPA] no Congressional expression

that we should invalidate railroad rate proposals

otherwise shown by the proponents to be just and rea-

sonable under the Interstate Commerce Act.” To

be sure, a court probably would not declare a state-

ment to give less than full and good faith considera-

tion on the basis of its language and style alone. But

we deem this language and style to be at least evi-

dentiary of the fullness and the fairness of the

. agency’s consideration.

More important to our judgment on the adequacy

of the impact statement is its handling of the com-

ments made on the draft statement. Section 102(2)

“Prior to making any detailed statement, the re-

sponsible Federal official shall consult with and

obtain the comments of any Federal agency

which has jurisdiction by law or special exper-

tise with respect to any environmental impact

involved. * * *”

42 U.S.C. § 4332(2) (C). The Commission circulated

a draft statement not only to several concerned Ex-

_ ecutive agencies and departments, but also to the par-

risks.” CEQ Memorandum to Federal Agencies on Procedures

for Improving Environmental Impact Statements, 3 Env.Rep.

—Cur.Dev. 82, 84 (May 19, 1972).

2 Environmental Impact Statement, supra note 11, at 185.

81a

ties in this action. Most of the recipients of the

statement responded with extensive critical comments.

The Commission appended these comments to the

back of its final statement and in some instances

made arguments against the criticisms within the

body of this final statement. None of these com-

ments, however, caused the Commission to alter even

partially its conclusions or to change the statement’s

analysis in any noticeable way. We find the Com-

mission’s failure to alter its draft impact statement

in response to three of the critical comments of other

federal agencies particularly troublesome.

First, it was suggested by the Department of Com-

merce and EPA that a quantitative and thorough eco-:

nomic study be made on the responsiveness of the

demand for secondary materials to changes in trans-

portation costs. The final statement criticizes the

methodology of a privately commissioned study which

concludes that the development of scrap iron markets

is being retarded by the transportation rate struc-

ture.” But the statement does not offer any rigorous

price sensitivity studies of its own.” Instead it relies

** Battelle Columbus Laboratories, Summary Report on the

Impact of Railroad Freight Rates on the Recycling of Ferrous

Scrap 2 (Jan. 14, 1972) (hereinafter “Summary Report’).

* It is not, of course, sufficient under NEPA for an agency

to dismisis the environmental impact studies of opponents of

the proposed action. It is the agency’s responsibility to en-

gage itself in the study necessary to gauge environmental

effects. “‘The requirement that the statement be detailed

places a heavy burden on government agencies to gather for

and include in the impact statement enough information to

“=

32a

on general discussions of past scrap demand trends.

For instance, it bases its conclusion that the chal-

lenged increases will have no significant impact on

demand for iron scrap primarily on the concurrence —

of past scrap demand and rate increases.” We find

the statement’s reliance on this concurrence trouble-

some because it ignores the fact that the demand for

primary goods was also increasing during the period

of past rate increases and the possibility that scrap

demand would have increased even more if rates on

iron scrap had been held down. It is difficult for us

to understand how the statement can conclude that

there is no significant environmental impact without

a quantitative study of the responsiveness of the de-

mand for each type of scrap to changes in recyclable

transportation costs.

Second, EPA, which placed the statement in its

“inadequate” category, suggested that a Department

of Transportation Burden Study establishes that at

least some secondary materials are contributing more

revenue over costs than do the virgin materials with

which they compete.” The statement, however, does

show that compliance has been genuine, not perfunctory. * * *

NEPA requires each agency to undertake the research needed

to adequately expose epvironmental harms.” Brooks v. Volpe,

supra note 26, 860°F Supp. at 276, 279.

35 The statement asserts at one point that a price-sensitivity

study is not required because of the concrete evidence of this

concurrence. Environmental Impact Statement, supra note 11,

at 72 n. 14a.

% Dept. of Transportation, An Estimation of the Distribu-

tion of the Rail Revenue Construbtion by Commodity Groups

and Type of Rail Car—1969 (Jan. 1978).

33a

not provide any comprehensive alternative analysis

of the relative cost contribution of secondary and

primary materials; it shows only that one type of

scrap is not disadvantaged within one area relative

to its competing virgin material.’ The statement

also speculates as to why the rate disparities might

be cost-justified and ‘stresses that railroad pricing is

not in any case totally cost-based; it does not, how-

ever, present a rigorous analysis of what justifies the

specific disparities between primary and secondary

rates.’ We think that if the transportation costs do

affect the demand for recyclable commodities, the im-

pact statement must establish the particular justifi-

cations for the rate disparities.

Third, both EPA and CEQ criticized the draft

statement for failing to consider the impact of the

rate increase on long-term investment in facilities

which can make fuller productive use of recyclables.

The final statement was not modified in response to

this criticism. Though in explaining why transpor-

- tation rates have little impact on scrap demand the

statement repeatedly makes reference to the tech-

nological and capital constraints on the use of scrap,

the statement does not make any economic analysis of

whether a hold down on recyclable rate increases

_ might encourage the investment necessary to over-

come these constraints. The statement does not, for

instance, respond to one study’s conclusion that the

rate differential between iron ore and scrap iron

plays a “crucial and negative” role in the decision of

st Environmental Impact Statement, supra note 11, at 51.

84a

steel manufacturers to invest in facilities such as

electric arc furnaces which can produce steel using

all scrap and no virgin iron ore.”

The final statement’s failure to address adequately

the above three criticisms of the draft statement can

be derived from what we view as its most funda-

mental and important deficiency—the limitation of

its analysis to the marginal impact of the most recent

rate increase with no discussion of whether the under-

lying rate structure itself significantly affects the en-

vironment. The statement makes this limitation of

its analysis explicit:

“Jt is contended that our approval of in-

creased rail rates and charges on commodities

moving for recycling purposes will serve to ag-

gravate discrimination already allegedly in the

railroad freight rate structure, to the detriment

of recyclable commodities and the national re-

cycling effort. * * *

«* * * (S]uch a case does not provide an ap-

propriate vehicle for examining these issues.

* & *99

Environmental Impact Statement at 22. We fail to

understand how any consideration of the environ-

mental impact of approving the recyclable rate in- |

creases could be full without an analysis of how the

underlying rate structure itself affects the environ-

ment. It is the underlying rate structure which the

percentage increases aggravate; if this structure

contributes to the degradation of our environment,

38 Summary Report, supra note 33, at 24.

35a

then the increases would at least presumptively ag-

gravate that contribution. It is not enough to re-

spond that whether a substantial rate disparity ‘sig-

nificantly affects the environment is not determina-

tive of whether a marginal increase of that disparity

itself has any significant impact. Any impact onthe

underlying structure could be eliminated by holding

down recyclable rate increases each time the rail-

roads requested a general rate increase.” The Com-

mission’s failure to hold down the rate increases on,

recyclables would thus have a cumulative impact on ‘

the environment. Such cumulative impacts must be

considered in NEPA statements. The Senate report \

on the passage of NEPA makes this clear:

«* * * Environmental problems are only dealt \

with when they reach crisis proportions. Public

desires and aspirations are seldom consulted. Im- .

portant decisions concerning the use and the

shape of man’s future environment continue to

be made in small but steady increments which

perpetuate rather than avoid the recognized mis-

takes of previous decades.”

S.Rep. No. 91-296, 91st Cong., Ist Sess., 5 (1969).

The advisory guidelines for implementation of NEPA

issued by CEQ are responsive to this congressional

intent: :

% As stated by EPA in criticism of the final impact state-

ment. “There is evidence that the current rate structure is in-

equitable in its treatment of some secondary materials and

general rate increases tend to perpetuate these. inequities.”

Letter from Acting Deputy EPA Administrator John Quaries

~ to ICC Secretary Robert L. Oswald dated June 6, 1973.

a ee eee

« 36a

“* * * The statutory clause ‘major Federal

actions significantly affecting the quality of the

human environment’ is to be construed by agen- ~

cies with a view to the overall, cumulative im-

pact of the action proposed (and of further ac-

tions contemplated). * * * In considering what

constitutes major action significantly affecting

the environment, agencies should bear in mind

that the effect of many Federal decisions’ about

a project or complex of projects can be individ-

ually limited but cumulatively considerable.

38 Fed. Reg. 10857 (1973).° We suspect that if the

Commission had recognized that it was obligated to. +

consider the environmental impact of the underlying

‘rate structure it would have had much greater dif-

ficulty justifying even to itself the deficiencies in

analysis upon which we focused above. For example,

absent an elasticity study the statement would not }

have been able by citing past tends in scrap usage(/

to dismiss the possibility that the underlying rate

structure affected the amount of recyclables trans-

ported.”

4 Courts have thus made it clear that agencies may not

seize upon the concept of “distinctive and comprehensive”

stages of decision-making to escape impact statement prepara-

tion on the ground that early action such as laying the first

section of roadbed of a new highway will entail little en-

vironmental impact in itself. See, e.g., Citizens for Clean

Air, Inc. v. Corps of Engineers, United States Army, S.D.N.Y.,

349 F.Supp. 696, 708 (1972).

a "The Commission argues that if we agree with the

ment’s conclusion that the recyclable rate increases will not

have a significant impact on the environment, no impact state-

(A ee Noni ea Ga aN ae ae

87a

The Commission argues that an ongoing compre-

hensive investigation into the railroads’ freight rate

structure, Ex Parte No. 270, justifies its failure to

consider the environmental impact of the underlying

_ rate structure. That investigation, having been de-

layed for several years, finally seems to be commenc-

ing,*® though there apparently is some question wheth-

er this investigation will reconsider rate levels for re-

cyclable commodities other than ferrous scrap.“ How-

ever, regardless of how near to completion and com-

prehensive this study may be, it cannot substitute

for the detailed impact statement which NEPA re-

___quires to be prepared before federal action significant-

ly affecting the environment is taken, not in recon-

sideration of that action. The investigation in Ex

Parte No. 270 did not and could not inform the

Commission’s decision-making process with respect

to the rate increase on recyclables.“ If the Commis-

mert was required in the first place and we can uphold the

Commission’s orders regardless of any findings we might

make of failures to comply with the prescription of § 102 (2)

(C). We find this line of reasoning questionable. An accept-.

ance of the Commission’s argument would encourage agencies

to avoid any explicit environmental balancing by concluding

in impact statements that proposed actions have no significant

environmental effects. However, because the statement’s

limited definition of the environmental impact it considers

prevents us from accepting its conclusion of no ee 2 im-

pact, we do not need to reach this argument.

2 See 38 Fed.Reg. 28596 (1973).

48 See id. at 28600.

“The Commission has effectively admitted both in the im-

: pact statement and in a later order that it needs to be more

ee ee

sion desires to utilize analyses developed 4n the Ex

Parte No. 270 investigation in preparing an ade-

quate impact statement, it should, as suggested by

CEQ and Commissioner Brown,“ place a moratorium

on rate increases on recyclable commodities until Ex.

Parte No. 270 is completed.

The necessity for the Commission to consider the

environmental impact of the underlying rate struc-

ture before approving rate increases on recyclable

commodities is further underscored by the recent en- |

ome of Public Law 93-236, 93rd Congress, the

fully informed on the environmental impact of the underly-

ing rate \ tructure. The final impact cihemaa’ asserts that

neither the costs nor the benefits of utilizing the freight rate

structure “as a mechanism to allocate the\costs of a recycling

program *\* * have been established.” Environmental Impact

Statement, supra note 11, at 192. In its notice on the recom-

mencement of Ex Parte No. 270, the Commission stated

through Commissioner Hardin:

“It further appearing, that while the 1969 burden

study discloses that iron and steel scrap \is one of the top

twenty positive revenue contributors for movements with-

in official territory, iron ores are similar [sic] disclosed

for movements within official territory to, be one of the

top twenty deficit contributors to railroad \net revenues;

\ * * * *

“And it furt appearing, that there, are presently

available ins ent facts and data to enable the Co-

ordinator properly to assess and quantify the environ-

mental . quences of the numerous alternatives that

may be p ed in the investigation pr envisioned

in this p ng as required by the NEP fates te

88 Fed.Reg. (1978) (italics in original). |

*s Environmenta Impact Statement, supra note 11, at 213.

ie Lo

39a

Regional Rail Reorganization Act of 1973. Section

603 of this Act requires the Commission to “adopt

appropriate rules” to “eliminate discrimination

against the shipment of recyclable materials in rate

structures * * * where such discrimination exists.”

This provision is a legislative recognition of discrim-

ination against recyclables in the existing railroad

‘yate structure and a legislative direction to the Com-

mission to eliminate it., The responsibility imposed by ©

NEPA upon the, Commission to “approach the maxi-

mum attainable recycling of depletable resources,”

42 U.S.C. § 4331(b) (6), surely cannot be fulfilled

unles this provision is complied with before rate in-

creases on recyclable commodities are approved.

| V

[5] We thus conclude that not’ only the Commis-

sion’s preparation and utilization of its impact state-

ment but also the ¢ontents of that statement fail to

comport with the obligations imposed on the Com-

mission by Section 102(2)(C). We vacate the Com- |

mission’s October 4, 1972 and May 2, 1973 orders ©

and direct the Commission to reopen the Ex Parte

No. 281 proceedings for full consideration of the

proposed rate increases on recyclable commodities. .

The Commission should first prepare another draft

statement to be circulated as specified by Section 102

(2)(C). This new statement must include an analy-

sis of the underlying rate structure’s impact on the

movement of recyclable commodities. The analysis

would presumably entail a determination of the elas-

40a

ticity of demand ‘with respect to the price for each

of several categories of recyclable commodities. The

statement, should also include an analysis of the ef-

.fects of the rate structure on investment in manu-

. facturing facilities which can make intensive use of

scrap. Whatever impact of the rate structure on the

short- and long-term demand for scrap is found

- ghould be translated into terms which meaningfully

relate the environmental effects of the rates and rate

increases. These effects are not necessarily limited

to conservation of natural resources and elimination

of solid wastes. For example, a recent EPA report

' states that 74 per cent less energy and 51 per cent

less water are expended and 86 per cent less air pol-

lution and 97 per cent less mining wastes are en-

gendered when scrap iron is used in lieu of virgin ore

in the production of steel.“ All the environmental

effects must be balanced against the costs, if any, to

the national transportation policy of attemping to

alleviate the effects by not increasing the rates.”

_ hough we are aware that railroad rates are not

“totally cost-based, an analysis of the costs. of not

raising the rates would presumably include a con-

sideration of whether the scrap shippers are now

“U. 8. Environmental Protection Agency, Report to Con-

gress on Resource Recovery 8 (Feb. 22, 1978).

*“In some instances environmental costs may outweigh

economic and ‘technical benefits and in other instances they

may not. But NEPA mandates a rather finely tuned and

‘systematic’ balancing analysis in each instance.” Calvert.

Cliffs’ Cocrdinating Committee v. USAEC, supra note 23, 146

U.S.App.D.C. at 37, 449 F.2d at 1113. |

f | o_o

4la

bearing more than their “fair share” of the rail-

‘roads’ freight expenses. A comprehensive study of

the contribution to costs made by each category of

recyclable commodities and the primary goods with

which they compete will thus probably be necessary.

[6] After comments are received on the draft

statement, a final statement should be prepared. This

detailed statement shall then “accompany the [con-

sideration of the proposed rate increase] through the

existing agency review processes.” As we have

stressed above, in this case that review process in-

cludes a hearing before the Commission. Plaintiffs

have argued that this hearing must be governed by

Sections 556 and 557 of the Administrative Proce-

dure Act (APA), 5 U.S.C. §§ 556, 557 (1970), and

that they thus must be given the opportunity to cross-

examine those staff members responsible for prepara-

tion of the statement. We cannot agree. Rate-mak-

ing, involving basically legislative-type judgments, is

a form of rule-making which is governed by Section

558, rather than Sections 556 and 557, of the APA.

See United States v. Florida East Coast R. Co., 410

U.S. 224, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973). Sec-

tion 53(c) states: ‘When rules are required by

statute to be made on the record after opportunity

for an agency hearing, sections 556 and 557 of this

title apply * * *.” 5 U.S.C. §553(c) (1970). But

the Supreme Court, in United States v. Allegheny-

Ludlum Steel Corp., 406 U.S. 742, 756-758, 92 S.

Ct. 1941, 32 L.Ed.2d 453 (1972), held that the

words “after hearing” in another similar provi-

42a

sion of the Interstate Commerce Act do not invoke

Section 553(¢) and thus Sections 556 and 557. “Sec-

tions 556 and 557 need be applied ‘only where the

agency statute, in addition to providing a hearing,

prescribes explicitly that it be “on the record.” ’” Jd.

at 757, 92 S.Ct. at 1950. See also United States v.

Florida East Coast R. Co., supra, 410 U.S. at 234-

238, 93 S.Ct. 810. We also find nothing in the exist-

ing regulations of the Commission requiring a full

adjudicatory hearing. And inasmuch as NEPA re-

quires only that the impact statement be transmitted

through the ewisting agency review processes, we

follow previous courts in refraining from holding

that the Act requires an adjudicatory hearing where

agency procedures do not provide for one.“ We think,

however, that “existing agency review processes”

should be interpreted to encompass not only proce-

dures required by explicit agency regulations but

also those procedures which an agency customarily

employs in consideration of a proposal of the type

being analyzed for its environmental impact. In this

case, when the general rate increase was first being

considered_without an impact statement, oral hear-

ings were held before the Commission. This fact at

least establishes a strong presumption for us that full

consideration of the revised impact statement through

“>

. See, e.g., Jicarilla Apache Tribe, of Indians v. Morton, 9

Cir., 471 F.2d 1275, 1285-1286 (1973); National Helium

Corp. v. Morton, 10 Cir., 455 F.2d 650, 656-657 (1971); City

of New York v. United States, supra note 26, 344 F.Supp.

at 939-940.

43a

“existing agency review processes” must entail oral

hearings before the Commission.“

After hearings are held, a final revised order

should be issued manifesting a full reconsideration

by the Commission of the rate increase on recyclables. .

This order should not be limited to adoption of the

impact statement; it should include a reassessment of

the national transportation policy supporting the orig-

inal October order as well as a discussion of the

final impact statement prepared by the Commission’s

staff and of the'comments on the draft statement so-

licited from other concerned agencies.

that oral public hearings should be held based on the CEQ

advisory guidelines which state:

“(e) Agency p developed pursuant to sec-

tion 8(a) of these guidetines shall include provision for

public hearings on actions with environmental impact

whenever appropriate, and for providing the public with

relevant information, including information on alterna-

tive courses of action. In deciding whether a public hear-

ing is appropriate, an agency should consider: (i) The

magnitude of the proposal in terms of economic costs, the

geographic area involved, and the uniqueness or size

of commitment of the resources involved; (ii) the degree

of interest in the proposal, as evidenced by requests from

the public and from Federal, State and local authorities

that a hearing be held; (iii) the complexity of the issue

and the likelihood that information will be presented: at

~ the hearing which will be of assistance to the agency-in

fulfilling its responsibilities under the Act; (iv) the

extent to which public involvement already has been

achieved through other means, such as earlier public -

hearings, meetings with citizen representatives, and/or ©

written comments on the proposed action. * * *”

88 Fed.Reg. 10858 (1973).

44a

This does not, however, end the case. Plaintiffs do

not merely ask for a declatation that the Commission

violated the prescriptions of NEPA and an order

directing it to reopen Ex Parte N 281 for recon-

sideration of the recyclable rate in in accord-

ance with these prescriptions. They also request that

we enjoin the railroads from collecting the rate in-

crements on recyclable materials until the Commis-

sion completes its full reconsideration. Such an in-

junction would be necessary to hold down the rates

on recyclables; under the scheme established by the

Interstate Commerce Aci new tariffs filed by car-

riers are effective absent a Commission order finding

the tariffs unreasonable. See 49 U.S.C. §§ 6(3), 15

(1) (1970)."

As stated above, on June 7, 1973 we entered a

temporary injunction against the railroads restrain-

ing them from qollecting the rate increases pending

our review of the Commission’s October 4 and May

2 orders. The /Supreme Court vacated this injunc-

tion and remanded the case to this.court for recon-

sideration in light of its decision last term in Atchi-

8° The only consequence of our vacating the Commission’s

orders pending reconsideration of the rate increases “is that

the railroads may not rely, in some subsequent proceeding, on

a Commission finding that the proposed rates were just and

reasonable. In ah action for reparations, for example, the

railroads could not gain any benefit from the purported

_Commission approval of the increases.” Atchison, Topeka &

Santa Fe R. Co. v. Wichita Board of Trade, supra note 16, ©

412 US. at 818, 93 S.Ct. at 2380.

45a

son, Topeka & Santa Fe R. Co. v. Wichita Board of

Trade, supra. Though it is far from clear that that

decision prevents us from granting plaintiffs further

injunctive relief, it raises substantial enough doubts

concerning the propriety of such relief to stay our

hand. |

We first note that our entering an injunction

against the railroads is not precluded by the Court’s

reversal of our first injunction in this case—the in-

junction entered against the 2.5 per cent surcharge

pending Commission consideration of the lawfulness , .

of rate increases. In that reversal the Court held

that Section 15(7) gave exclusive jurisdiction to the

ICC to suspend rates pending its final decision on

their lawfulness. United States v. SCRAP, supra,

412 U.S. at 690-691, 93 S.Ct. 2405. Now, however,

unlike the time at which we issued our injunction

against the surcharge, the Commission has issued

what it at least thought was its final-order-on the

rate increases. And in Wichita Board of Trade, de-

cided the same day as SCRAP, a majority of the

Court: stated that the terms of Section 15(7) do not

govern a case in which the Commission has issued

what it intends to be its final order. 412 U.S. at

820, 826-828, 93 S.Ct. 2367. Moreover, this Wichita

majority affirmed that District Courts reviewing Com-

mission orders must have at least some power ancil-

lary to their general powers of review and protective

of their jurisdiction to enjoin railroads from collect-

ing new charges pending final determination of the

suit; Mr. Justice Marshall, writing for four mem-

‘

46a

bers of the majority, noted that while three-judge

District Courts are only explicitly given power to

enter orders against the Commission by 28 U.S.C.

§ 2324 (1970)," “ ‘judicial review would be an idle

ceremony if the situation were irreparably changed

[by private parties] before the correction could be

made’” 412 U.S. at 819, 93 S.Ct. at 2381, quoting

Scripps-Howard Radio, Inc. v. FCC, 316 U.S. 4, 62

S.Ct. 875,/86 L.Ed. 1229 (1942). Here collection of

the recyclable rate increases during the Commission’s

reconsideration may well cause further irreparable

environmental degradation.”

The relief we grant today against the Commission is

clearly not called into question by the Court’s SCRAP or

Wichita decisions. “Nor does anything in the Court’s opinion

today deny to the district courts power to enjoin the Commis-

sion to comply with NEPA * * * #o long as no injunction

is issued barring implementation of the rates themselves, cf.

Atchison, T. & S. F. R. Co. v. Wichita Bd. of Trade, post, p.

800 [98 S.Ct. 2367].” United States v. SCRAP, supra note 8,

412 U.S. at 724-725 n. 1, 93 S.Ct. at 2486 (opinion of Mr.

Justice Marshall). %

s°'The railroads argue that this is an inappropriate case

to exercise the ancillary. power posited by Justice Marshall

‘because the Commission can correct any violations of NEPA

without the railroads being enjoined from collecting the in-

we must be concerned if our review is to be more than an

“Gdle ceremony.”

47a

However, Justice Marshall proceeded to state for

the Wichita plurality that the considerations which

underlay the Court’s interpretation of Section 15(7)

demand that the courts’ ancillary power be limited.

Justice Marshall’s definition of the ancillary power

is critical, for Mr. Justice Douglas, the fifth member

of the Wichita majority, would detract not at all

from the general power of this court to enjoin the

‘railroad," while three other members of the Court

argued that District Courts lack any jurisdiction

whatever to enjoin rates even after a final Commis-

sion order.“ Justice Marshall stressed that the most

important of the considerations underlying the

Court’s interpretation of Section 15(7) in Arrow

Transportation Co. v. Southern R. Co., supra, the

case primarily relied upon by the SCRAP Court, re-

late to the-concept of agency “primary jurisdiction.”

This concept directs that until the agency has pro-

vided its own views a court should demur from ex-

pressing a view on matters which have been at least

in part entrusted by Congress to an agency’s discre-

tion and concerning which the agency has developed

some degree of expertise. Before a court issues an

injunction pending final determination of a suit, it

normally either implicitly or explicitly makes an esti-

mation of the likelihood of ultimate success on the

merits of the party challenging the agency action.

88 412 U.S. at 826-828, 98 S.Ct. 2367.

412 U.S. at 888, 93 S.Ct. 2367 (opinion of Mr. Justice

White, in which Mr. Justice Brennan and Mr. Justice Rehn-

quist join, concurring in part and dissenting in part).

48a

See Virginia Petroleum Jobbers Assn v. FPC, 104

U.S.App.D.C. 106, 110, 959 F.2d 921, 925 (1958).

The expression of such an estimation may well pro-

nounce the views of the court on matters such as

national transportation policy which are within the |

agency’s primary jurisdiction. A court contemplat-

ing an injunction pending final determination will

further make some weighing of the magnitude and ir-

reparability of the harms which would be suffered by

the parties depending on whether an injunction is

issued. Ibid. This weighing may also require the

court to evince its beliefs on matters concerning

which the agency being reviewed has primary exper-

tise. The danger that a reviewing court issuing an

injunction would thus intrude on the primary juris-

diction of the ICC moved the Wichita plurality to

state that District Courts should not enjoin rates in

order to protect their jurisdiction to review Commis-

sion orders unless they entertain “substantial doubt

ahout the consistency of the Commission’s action [on

the substantive merits] with its mandate from Con-

gress.” 412 U.S. at 822, 93 S.Ct. at 2382.

Our uncertainty as to the meaning for this case of

Justice Marshall’s opinion has a dual origin. First,

we question whether issuance of an injunction here

would intrude upon the primary jurisdiction of the

Commission. The injunction overturned by the Wich-

ita Court was issued against the railroads’ imposi-

tion of separate charges for inspection of grain in

transit because the Commission’s order approving

such charges did not justify departure ‘from a long-

49a

standing rule proscribing them. In issuing the in-

junction the District Court thus at least implicitly

had to express its view that this departure was not

justified. Matters of national transportation policy

are, of course, within the especial expertise of the

Commission; however, we are concerned here with

matters of environmental policy and there is no rea-

son to consider the Commission especially expert on

the environment. Our issuance of an injunction pend-

ing final determination would need only be a state-

ment of our belief that a full consideration of the

rate increases’ environmental impact will probably

lead to a conclusion that those increases must be

avoided. Further, Justice Marshall stressed that the

injunction in the Wichita case was perforce based on

a weighing of the injunction’s harm to carriers

against its benefit to shippers. Not only does this

weighing of the interests of carriers and shippers

exclusively involve considerations of national trans-

portation policy; it also must be done against the

background of Section 15(7) which, by providing for

repayment of charges ultimately found to be unrea-

sonable, makes reparable any harms which might

accrue to shippers should an injunction not issue.

Our issuance of an injunction here would require

consideration of environmental degradation for which

the Interstate Commerce Act does not and unhappily

probably could not provide reparation. We thus ques-

tion the applicability of Justice Marshall’s Wichita

analysis to this case. Our doubts are augmented ap-

preciably by the fact that Justice Marshall dissented

ee ee

50a

from the reversal of our first SCRAP opinion, ad-

vancing the same distinctions of our case from Wich-

ita as we have set forth above. See 412 US. at 724,

728-732, 98 S.Ct. 2405.

But even if the analysis of the Wichita plurality

is applicable to this case, we do not think it obvious

that an injunction against the railroads would be

inappropriate. Justice Marshall’s Wichita opinion

recognized that a court need not refrain from grant-

ing an injunction and thus stating its views on the

merits if the court believes it would have to reverse

the agency if it does not change its decision after

reconsideration. We indeed do entertain “substan-

tial doubt” about the consistency of the Commission’s

allowance of the rate increases with the congressional

mandate that the Federal Government “use all prac-

ticable means” to “approach the maximum attain-

able recycling of depletable resources.” 42 U.S.C.

-§ 4331(b) (6). We indeed might well question wheth-

er the Commission can allow the recyclable rate in-

creases without clearly giving “insufficient weight to

environmental values.” See Calvert Cliffs’ Coordi-

nating Committee v. USAEC, supra, 146 U.S.App.

D.C. at 39, 449 F.2d at 1115. Nonetheless, out of

an abundance of caution, we decline to consider fur-

ther granting.to plaintiffs additional injunctive re-

lief.

The October 4, 1972 and May 2, 1973 orders are

vacated and Ex Parte No. 281 is to be reopened for

further proceedings consistent herewith.

So ordered.

Le |

5la

FLANNERY, District Judge (dissenting) :

The history of this protracted litigation is clearly

set forth in the Court’s majority opinion: That his-

tory reveals that the Supreme Court has on two occa-

sions overruled findings of this Court on —

tional grounds.

Jurisdiction

On June 18, 1973, the Supreme Court held that

this Court was without jurisdiction to issue a pre-

liminary injunction restraining a temporary sur-

charge on shipping rates for recyclable commodities.

The Court reasoned that section 15(7) of the Inter-

state Commerce Act* vested exclusive jurisdiction in’

the Interstate Commerce Commission to suspend

rates, pending a final decision of their lawfulness.”

On November 19, 1973, the Supreme Court vacated

another injunction issued by this Court restraining

the Commission and railroads from collecting certain

rate increases on recyclable commodities, which the

railroads intended to place in effect at the expiration

of the statutory suspension period.’ The case was

remanded to this Court for further consideration in

149 U.S.C. §15(7) (1970).

2 United States v. Students Challenging Reg. Agcy. Pro.

(SCRAP), 412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254

(1978).

* United States—v. Students re ae Reg. Agcy. Pro.

(SCRAP), — U.S. ——, 94 S.Ct. , 88 L.Ed.2d 326

(1978).

pews.

B2a

the light of Atchison, Topeka and Santa Fe Railway

Co. v. Wichita Board of Trade.‘ These decisions by

the Supreme Court clearly require this Court to re-

consider its prior holdings and to determine whether

it has jurisdiction in this matter.

In Wichita, the Supreme\Court held that judicial

review of Interstate Comme Commission decisions

in rate cases is limited in that such deci-

sions afe not to be disturbed\u they are unsup-

ported by evidence, are _made\without a hearing, ex-

ceed constitutional limits;.or for some other reason

amount to an abuse of power. \Since the Commission

in the present case has not yet determined that the

rates in question are reasonable, this Court is. clearly

without jurisdiction to suspend them. Arrow Trans-

portation Co. v. Southern Railway Co.’ The Supreme

Court in Wichita also pointed out that Congress, in

establishing the Interstate Commerce Commission,

had created an administrative agency whose func-

tion was to develop an understanding of national

transportation problems and to use that expertise

to determine what our national transportation policy

should permit. Consequently, a court should ordi- -

narily refrain from expressing any view on such poli-

cy before the Interstate Commerce Commission ex-

presses its view. For this Court to issue an injunc-

tion during an ongoing administrative proceeding

would be to undercut the policies served by the doc-

+412 U.S. 800, 98 S.Ct. 2367, 37 L.Ed.2d 350 (1973).

5372 U.S. 658, 83 S.Ct. 984, 10 L.Ed.2d 52 (1963).

58a

trine of primary jurisdiction, and would slide the

Court “unconsciously from the narrow confines of

law into the more spacious domain of policy.” °

It is the established rule that general revenue or-

ders of the Interstate Commerce Commission, such

as the suspension orders directed to individual rates

in this case, are not reviewable by the courts.’ The

Supreme Court has ruled in this case that N.E.P.A.

was not intended to repeal. by implication any other

statute. There is no indication that Congress in-

tended N.E.P.A. to overrule the long line of jugi- ‘

cial decisions holding that general -revenue orders,

such as those presented in this case, are not review-

able by the courts.

This Court, therefore, clearly does not have juris-

diction to enjoin the collection of the increased rates

on recyclable materials. It follows that since the

ommission’s orders are non-reviewable at this stage,

* Atchison, Topeka and Santa Fe Railway Co. v. Wichita

rd of Trade, 412 U.S. at 807, 93 S.Ct. at 2375; Phelps

Corp. v. NLRB, 313 U.S. 177, 194, 61 S.Ct. 845, 85

d. 1271 (1941).

Alabama Power Co. v. United States, 316 vies. 337

(D.\D.C.), aff’d by an equally divided court, 400 U.S. 73, 91

S.Ct. 259, 27 L.Ed.2d 212 (1970); Electronic Industries Ass’n

ited States, 310 F.Supp. 1286 (D.D.C. 1970), aff’d per

, 401 U.S. 967, 91. S.Ct. 1188, 28 L.Ed.2d 318 (1971);

ic a Elec. Co. v. United States, 306 oe ae «f

7 | Sha

this Court is without jurisdiction to grant the relief

requested.

N.E.P.A.

Assuming arguendo that the Court has jurisdic-

tion to review the adequacy: of the N.E.P.A. state-

ment submitted by the Interstate Commerce Commis-

sion, I find the statement to be sufficient and in sub-

stantial compliance with the requirements of N.E.

P.A. , '

The mandates of N.E.P.A, pertain to procedure.

- Although N.E.P.A. itself creates no substantive rights

in citizens to safe, healthful, productive, and cultur-

ally pleasing surroundings, the responsible federal

agency is required to take these factors into account:

before commencement of a project. Upper Pecos

Ass’n v. Stans.’ The record in this case reveals that

the Commission gave extensive consideration to the

possible environmental impact of increased rates for

certain recyclable commodities. The function of this

court is not to decide whether it agrees with the

Commission’s substantive fmdings but only to decide

whether the record reveals that the procedure set

forth in N.E.P.A. was followed and whether the Com-

mission has fully and in good faith considered all fac-

tors mandated by N.E.P.A. The Commission in my

view has substantially complied with the require-

‘ments of N.E.P.A. Based on the substantial record

* 452 F.2d 1288 (10th Cir. 1971).

55a

already compiled, to remand for further hearings un-

der N.E.P.A. would require the Commission to con-

duct a largely ritualistic act.

On November 7, 1973, the Commission reopened

its investigation in this case for the purpose of fur-

ther evaluating, in accordance with N.E.P.A., the

environmental effects of increased railroad freight

rates and charges on the movements of commodities

being transported for the purpose of recycling. The

Commission then spent several months preparing a

draft statement which was issued on March 13, 1973.

After soliciting and receiving the comments of inter-

ested persons and agencies the final Impact State-

ment was released on May 7, 1973. The comprehen-

sive statement anticipates a potential adverse environ-

mental effect stemming from the proposed rate in-

creases but concludes that the increases are justified

* by the need to insure a viable and efficient railroad

system. This Court has already recognized the finan-

cial plight of the nation’s railroads.’ The logic of the

Commission’s conclusion therefore seems unassailable.

Moreover, it is buttressed by extensive findings which

cover in detail the five categories set out in § 102

(a)-(c) of N.E.P.A. The Commission has clearly

taken the “hard_look” at possible environmental con-

sequences mandated by Congress. National Resources

Defense Council v. Morton.”

»” Students Challenging Reg. Agcy. Pro. (SCRAP) v. United

ee States, 353 F.Supp. 317, 323-324 (D.D.C. 1973).

4 148 U.S.App.D.C. 5, 16, 458 F.2d 827, 838 (1972).

ae se

56a

Finally, the fact that the Commission’s final im-

pact statement was filed after the rates had been

initially approved does not establish per se that the

statement was biased and not issued in good faith.

All that is required is that the agency make a rea-

sonable good faith effort to comply with the proce-

dural requirements of N.E.P.A. That the statement

may have been prepared after the decision to proceed

had already been made is not a fatal procedural er-

ror requiring the process to begin all over again.

Jicarilla Apache Tribe v. Morton, 471 F.2d 1275,

1280 (9th Cir. 1973); Upper Pecos Ass’n v. Stans,

452 F.2d 1233, 1237 (10th Cir. 1971); City of New

York v. United States, 344 F. Supp. 929 (E.D.N.Y.

1972).

Even assuming technical non-compliance with

N.E.P.A., if the Commission has considered all rele-

vant environmental factors and has reached a fair

and informed decision under N.E.P.A. its finding

should not be set aside. First National Bank of Home-

stead v. Watson, 363 F.Supp. 466 (D.D.C. 1973).

For the foregoing reasons, I respectfully dissent

and would hold that the motions of the plaintiffs and

intervening plaintiffs for summary judgment and for

injunctive relief be denied, the case be dismissed, and

judgment be rendered for the defendants with normal

costs.

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 971-72

[Filed Feb. 19, 1974, James F. Davey, Clerk]

STUDENTS.CHALLENGING REGULATORY AGENCY

PROCEDURES (S.C.R.A.P.), PLAINTIFF

and

COUNCIL ON ENVIRONMENTAL QUALITY,

INVOLUNTARY PLAINTIFF

and

ENVIRONMENTAL DEFENSE FUND, NATIONAL PARKS

AND CONSERVATION ASSOCIATION and IZAAK WALTON

LEAGUE OF AMERICA, PLAINTIFF-INTERVENORS

and .

NATIONAL “ASSOCIATION OF SECONDARY MATERIALS

INDUSTRIES, INC., COMMERCIAL METALS Co., I. V.

SUTPHIN Co. and FRANKEL BROTHERS & Co., INC.,

PLAINTIFF-INTERVENORS

and

INSTITUTE OF SCRAP IRON AND STEEL, INC. and

JULIAN C. COHEN SALVAGE CORPORATION,

PLAINTIFF-INTERVENORS

UNITED STATES OF AMERICA and INTERSTATE

COMMERCE COMMISSION, DEFENDANTS

and

THE ABERDEEN AND ROCKFISH RAILROAD COMPANY,

ET AL., DEFENDANT-INTERVENORS

This case came on for hearing on plaintiffs’ and

defendants’ cross-motions for summary judgment.

Briefs were filed herein by the parties. The court

has this day filed its opinion. On consideration there-

of,

It is ORDERED that the Interstate Commerce

Commission’s orders of Octéber 4, 1972 and May 2,

1973 in Ex Parte 281 are vacated and this case is

remanded to the Commission for further proceedings

consistent with the opinion in this case.

é JUDGMENT

/s/ J. Skelly Wright | y

J. SKELLY WRIGHT

- United States Circuit Judge

/s/ Charles R. Richey

CHARLES R. RICHEY

United States District Judge

District Judge Flannery dissents from the forego-

ing judgment.

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 971-72

STUDENTS CHALLENGING REGULATORY AGENCY

PROCEDURES (S.C.R.A.P.), PLAINTIFF

and

COUNCIL ON ENVIRONMENTAL QUALITY,

INVOLUNTARY PLAINTIFF

’ and

ENVIRONMENTAL DEFENSE FUND, NATIONAL PARKS

AND CONSERVATION ASSOCIATION and IZAAK WALTON

LEAGUE OF AMERICA, PLAINTIFF-INTERVENORS

and

NATIONAL ASSOCIATION OF SECONDARY MATERIALS

INDUSTRIFS,..INC., COMMERCIAL METALS Co., I. V.

SUTPHIN Co. and FRANKEL BROTHERS & Co., INC.,

PLAINTIFF-INTERVENORS

and

INSTITUTE OF ScRAP IRON AND STEEL, INC. and

JULIAN C. COHEN SALVAGE CORPORATION,

PLAINTIFF-INTERVENORS

UNITED STATES OF AMERICA and INTERSTATE

COMMERCE COMMISSION, DEFENDANTS

and

THE ABERDEEN AND ROCKFISH RAILROAD COMPANY,

ET AL., DEFENDANT-INTERVENORS

NOTICE OF APPEAL

1. Notice is hereby given that the Interstate Com-

merce Commission, one of the defendants in the

above-entitled action, hereby appeals to the Supreme

Court of the United States from the opinion and

judgment of this Court dated Febrvary 19, 1974.

This appeal is taken pursuant to 28 U.S.C. § 1253.

2. The entire record in this action is hereby desig- |

nated for certification by the Clerk of the District

Court to the Clerk of the Supreme Court. The Clerk

of the District Court is requested to prepare and to

transmit the entire record to the Clerk of the Su-

preme Court. :

This 19th day of April, 1974.

/s/ Charles H. White, Jr.

CHARLES H. WHITE, JR.

Attorney

Interstate Commerce

Commission

Washington, D. C. 20423

FRITZ R. KAHN

General Counsel

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 971-72

STUDENTS CHALLENGING REGULATORY AGENCY

PROCEDURES (S.C.R.A.P.), PLAINTIFF

and

COUNCIL ON ENVIRONMENTAL QUALITY,

INVOLUNTARY PLAINTIFF

Uv.

THE UNITED STATES OF AMERICA and

THE INTERSTATE COMMERCE COMMISSION,

DEFENDANTS

NOTICE OF APPEAL

Notice is hereby given on this 19th day of April

1974, that the United States of America hereby ap-

peals under 28 U.S.C. 1253 and 2101, to the United

States Supreme Court from the judgment and opin-

ion of this Court filed on February 19, 1974, in favor

of plaintiffs against the defendants, vacating Inter-

state Commerce Commission’s orders of October 4,

1972, and May 2, 1973, in Ex Parte 281 and re-

manding the matter to the Commission.

/s/ William M. Cohen

WILLIAM M. COHEN

Attorney for the United

States of America

Land and Natural Resources

Division

Department of Justice

Washington, D. C. 20530

739-2730

DirK D. SNEL

Attorney for the United

States of America

Land and Natural Resources

Division

Department of Justice

Washington, D. C. 20530

739-2769

‘APPENDIX D

Ex Parte No. 281

INCREASED FREIGHT RATES AND CHARGES, 1972

Decided September 27, 1972

REPORT OF THE COMMISSION

By THE COMMISSION:

BACKGROUND

By our prior report and order in this proceeding, Increased

Freight Rates and Charges, 1972, 340 I.C.C. 358, entered December

21, 1971, we instituted a nationwide investigation into the adequacy

of railroad freight rates and charges, and all railroads in the United

States were made respondents. The investigation specifically in-

cluded (a) a general increase by surcharge of 2.5 percent on bills for

freight services (more particularly described in the above re-

ferenced report and order and in appendixes A and B thereto)

which, by order served February |, 1972, we permitted to become

effective without suspension on February 5, 1972, subject to certain

conditions including a requirement that the surcharge schedules ex-

pire on June 5, 1972, and (b) a general increase in rates and charges

to be applied on a selective basis and which respondents indicated

would be filed to supplant the surcharge. For the 4-month period

prior to its then effective expiration date of June 5, 1972, the latter

increase was expected to yield additional revenue in the amount of

$82 million allocated as follows: $31 million—eastern district, $14

million—southern district, and $37 million—western district.

On February 28, 1972, respondents sought permission to file and

make effective on April 1, 1972, a tariff containing their selective

increase proposal. By order served March 6, 1972, the requested

permission was granted subject, however, to a requirement that it be

filed to become effective not earlier than May |, 1972, upon not less

than 45 days’ notice to the public. In accordance with that per-

mission, respondents filed, on March 17, 1972, a selective increase

tariff (designated as X-281-A) to supplant the surcharge (X-281).

The level of increases therein varies between different commodities

and services and between and within different territories from 0 to

10 percent; and, if fully applied, respondents anticipate a 4-percent

increase in total freight revenues (or $489 million) over the presur-

charge (X-267-B) level, allocated as follows: $185 million—eastern

district, $72 million—southern district, and $232 million—western

district.

Both the surcharge and the selective increase proposals were

made subject to a provision for refunds in the event the Commission

ultimately finds that no increase or a lesser increase is warranted,

and, pursuant to our order of August 13, 1970 (Procedures

Governing Rail Carrier General Increase Proceedings, 49 CFR

1102), respondents’ initial petitions were accompanied by verified

statements containing “the full and entire evidential case” relied on

in support of each increase proposal.

In accordance with procedural schedules established in our orders

of December 21, 1971, and March 6, 1972, numerous protests and

verified statements in opposition were filed by various interested

parties. Respondents filed reply verified statements, and oral

hearings for cross-examination were held at Washington, D.C.,

beginning on March 23 and extending to April 20, 1972.

Based upon preliminary consideration of the evidence and argu-

ments of the Sila. we entered an order on April 24, 1972, sus-

pending the selective in¢réase proposal (tariff X-281-A and supple-

ments thereto) in its entirety for the full 7-month period allowed by

statute, or to and including November 30, 1972; and the investi-

gation was continued. At the same time, we extended the expiration

date of the surcharge tariff from June 5 to November 30, 1972.

Pursuant to our order of May 23, 1972 (served on May 24, 1972):

all interested parties were invited to participate in oral argument be-

—_

fore the entire Commission and to file briefs either supplemental to

or in lieu of oral argument. In response to that order numerous

briefs were filed on or before June 12, 1972, and oral argument was

held on June 15 and 16, 1972. .

The record before us, including written submissions and trans-

cripts of oral hearings and oral argument. is of massive Proportions

and reflects the views of virtually every interest ‘affected by the in-

volved nationwide general freight rate increase proposals. Careful

and individual attention has been given to each of those views' and.

to the extent feasible. will be reflected in subsequent sections of this

report. Due and timely execution of our functions, however, impera-

tively and unavoidably requires omission of the administrative law

judge’s report and recommended order.

REVENUE NEED

-s General.—The financial condition of the Nation's railroads has

been a matter of continuous and grave concern to this Commission

charged as we are with administering the Interstate Commerce Act

so as to develop, coordinate, and preserve, under private ownership,

a national transportation system adequate to mee} the needs of the

commerce of the United States. Most recently, we exhaustively

reviewed and analyzed the overall revenue situation of the railroad

industry in the context of general increase tariffs X-265 through X-

267-B. See report served on March 23, 1971, in Increased Freight

Rates, 1970 and 1971, 339 L.C.C. 125, hereinafter sometimes

referred to as the prior case. We there concluded:

that the financial condition of the railroad industry as a whole. and the financial status

of many individual carriers by rail. must be found to be at a dangerously low level. The

precipitous decline in working capital and serious loss of liquidity has reduced many

carriers to a truly marginal operation. This has been most clearly demonstrated by the

recent bankruptcy application of the Penn Central. We think it undeniable that a

number of other roads are approaching a similar financial crisis. (Prior report. page

173.)

We further found that revenues which the railroads could reasonably

expect to receive from rates established at the Ex Parte No. 265

level would enable them to do little more than meet added costs of

‘Including late-filed verified statements: (1) of the Western Wood Mouldings and Millwork

Producers. and (2) of Grande Anse Peat Moss Co.. Ltd.. Conrad Fatard. Inc., and Annapolis

Valley Peat Moss Co.. Ltd.

operation in 1970 and 1971 at present levels of service; and that

revenues realized from authorized Ex Parte No.‘267 increases were

necessary to enable the carriers‘ to improve severely depressed

earning ratios, and thereby to enhance their ability to attract

investment capital for use in upgrading their equipment and

facilities.

INCREASED COSTS:

Justification for the increases here proposed is based on operating

‘\ cost increases not anticipated in the prior case. In: effect,

‘respondents claim that additional revenues obtained from the

sought selective increases will not improve their capital base but,

rather, will enable them to offset, in part, currently prevailing

annualized cost levels’ for wages and other employee benefits

(including increases effective April 1, 1972), materials, supplies,

State and local taxes, and additional specified items. Evidence

relating to those increased costs is set forth below.

Wages.—Wage cost increases in 1971 resulted from agreements

executed with nearly all rail unions providing for periodic increases

in wage rates during the period January 1, 1970, to June 30, 1973."

The general pattern of these wage increases was established in

November 1970 by Emergency Board No. 178 following its

investigation of wage disputes involving four unions, viz, the

Brotherhood of Railway, Airline and Steamship Clerks, Freight

Handlers, Express and Station Employees (BRAC), the Brotherhood

of Maintenance of Way Employees (BMWE), the Hotel and

Restaurant Employees and Bartenders International Union (H&RE)

and the United Transportation Union (UTU). The ‘board

recommended increases in wage rates as follows:

January |, 1970 --------- Poccenee S percent

November |, 1970 -------------- 32 cents per hour

April 1, 1971 ------------------ s- 4 percent

October |, 1971---------------2-- 5 percent

April 1. 1972-----------------r---- 5 percent

October 1, 1972 -------y- serecee: S percent

Following the methodology accepted mn the prior case. estimates of increased costs (except

where otherwise indicated) are for a full 12-month period for all class I railroads and are based on

an employment level 3.14 percent below the 1970 level and traffic at the same level as.in 1970. So

stated. these increases are not necessarily the same as the increases in calendar year 1971 over

calendar year 1970. as the latter comparison would involve different levels of employment and

would be affected by the timing of the various increases. Also, a Showing of cost increases limited

to only a portion of the calendar year during which they became effective would fail to, indicate

fully their continuing impact.

Wage increases scheduled under these agreements to become effective after April |. 1972. are

not reflected in respondents’ cost computations and they will not be considered herein.

5d \

This pattern was followed in subsequent ‘legislation and

agreements. Public Law 91-541, enacted December 10, 1970, to

terminate a strike, made the recommended 1970 increases effective

for employees represented by the BRAC, BMWE, H&RE, and UTU.

The recommended increases for 1970, 1971, and 1972 were

‘ subsequently incorporated into agreements reached with the follow-

ing unions:

BMWE—February 10, 1971

H&RE—February 10, 1971

BRAC—February 25. 1971 |

UTSE (United Transport Service Employees)—March 24, 1971

ATDA (American Train Dispatchers Ass'n.)}—April 20, 1971

RYA (Railroad Yardmasters of America)—April 23, 1971

BLE (Brotherhood of Locomotive Engineers)—May 13, 1971

The same pattern of wage increases in 1970 and 1971. was

embodied in final agreements reached with the UTU on January 27,

1972, and with the International Brotherhood of Firemen and Oilers

(BFO) on February 11, 1972.

Agreements reached with four shopcraft unions and ratified

November 13, 1971, differ only slightly from the established pattern

insofar as 1971 wage increases are concerned. Thesé agreements

(with the International Association of Machinists and Aerospace

Workers; International Brotherhood of Electrical Workers;

International Brotherhood of Boilermakers, Iron Shipbuilders,

Blacksmiths; Forgers and Helpers; and Brotherhood of Railroad

Carmen of the U.S.A. and Canada) provide increases of 10 cents per

hour effective January 1, 1971, 15 cents per hour for mechanics and

higher rated employees and 8 cents per hour for others effective

April 1, 1971, and the S-percent pattern increase October 1, 1971.

Agreement reached November 16, 1971, ratified November 24,

1971, with the Brotherhood of Railroad Signalmen of America

provides for wage increases in 1971 in rastoiis. with the pattern

of the shopcrafts’ agreement.

Respondents’ cost calculations for wages assume application of

the shopcrafts’ settlement to two shopcraft disputes not yet settled

(representing about | percent of all employees) and application of -

the general increases of 4 percent April 1, 1971, 5 percent October

1, 1971, and 5 percent April 1, 1972, to all other employees. |

Thus calculated, based on an employment level 3.14 percent

below that of the year 1970, wage increases effective January | and

April 1, 1971, represent payroll costs of $253 million a year, and the

ee.

October 1, 1971, and April 1, 1972, increases involve annual costs

‘of $305 and $320 millions, respectively. Also, actual wage increases

in 1970 are shown to have exceeded estimates relied upon in the

prior case by $271 million. '

Additional cost increases in wage-related items include $63

million annually in payroll taxes resulting from a statutory increase

(from $650 to $750) in the maximum amount of monthly pay subject

to tax for retirement and medicare, and a $99-million increase

annually in health and welfare expense, became effective March I,

1972. The latter represents the increased cost of renewal of the

existing group policy contract, plus $1.22 monthly per covered

employee for added benefits, as agreed to in a Memorandum of

Understanding between representatives of the carriers and their

employees signed on December 10, 1971.

OTHER Cost INCREASES

Based on a relationship of the consumption of fuel, materials, and

supplies in 1970 adjusted to the first half of 1971 freight traffic

- volume at the 1971 price index, respondents estimate that as of July

1,1971, prices for those items increased over average price levels for

1970 at a rate equivalent to $134 million annually. By applying the

January 1972 price index in a similar manner, increases occurring

during the last half of 1971 were estimated to be $47 million, an

amount which, when compared to. the first half, represents a

substantial decrease in the rate of inflation resulting in large

measure from the price freeze in effect after August 14, 1971.

~ Also included in respondents’ computations of increased 1971

expenses are the’ following amounts: $35 million for freight loss and

damage, payments for personal injuries, insurahce, and pensions; $7

million for depreciation and retirement charges, $1 million

representing State and local taxes; $74 million for equipment rents,

and $10 million for fixed and contingent charges. These amounts

were computed on a calendar year.basis with adjustments being

made for the leveling-off effect of the Avgust 14 freeze.

The increased costs ngted about are summarized and subdivided

by major districts in the following table.

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Our review and analysis of respondents’ underlying worksheets

indicates the above data to be accurate and reliable with the

exception noted immediately below.

In developing the cost of wage increases, respondents based such

increases on the level of employment for the year 1970 reduced by

3.14 percent to reflect the first half of 1971 employment level. They

should also have recognized that the 3.14-percent change in

employment levels would result in a corresponding reduction in

total labor costs as compared to the actual 1970 expenses. Those

expenses totaled $4,620 million. Therefore, the ore percent

reduction would amount to $145 million.

In addition respondents should have reduced the $320- saiilion

wage increase effective in April of this year to $310 million to

reflect a similar decrease in employment for the current year. The

development of annualized cost increases of $63 million for payroll

taxes and $99 million for health benefits have also been overstated

by $2 million and $3 million, respectively, because of respondents’

failure to recognize a decrease in employment for the current year.

. These adjustments, in sum $160 million, reduce the total amount

of cost increases in the table above to $1,457 million nationwide and

to $594 million in eastern district, $244 million in southern district,

and $619 million in western district; and, so adjusted, we find that

they correctly depict the total annualized increases in costs faced by

the Nation's railroads since closing of the record in the prior case.

REVENUE YIELD

Estimates of additional revenues to be obtained from the

surcharge and the supplanting selective increases were computed in

the same manner as in the prior case. Accordingly, they are based

upon revenue ton-miles experienced by the carriers during the first

6 months of 1971 projected to reflect the entire year and multiplied

by the average revenue received’ during the second and third

quarters of 1971 at the X-267-B level. The resulting total revenue

estimate for 1971 is then multiplied separately by factors of 2.5 and

4 percent representing, respectively, the surcharge increase and the

average increase under the selective increase tariff to show amounts

of revenue yield assuming both proposals were fully applied.* This

“theoretical” return is reduced by the 82-percent effectiveness

factor utilized in the prior report to reflect probable actual yield in

‘The surcharge increase on lumber and lumber articles is subject to a 2 cents per hundredweight

maximum which reduces its revenue yield by an estimated $8 million. or by SI million in eastern.

less than SO.2 million in southern. and 87 million in western district

Te ROME eS

light of experience in application of previously authorized general

increases. Respondents’ calculations, nationwide and by major

districts, are set forth in the following table:

TABLE 2

Railroads development of estimated revenue vield

Item United Eastern Southern Western

f States district district district

1. Revenue ton-miles, Jan.-June 1971

(millions) + --- 382,871 124.856 71.611 186.404

2. Percent first half of annual ton-miles (based

on experience in most recent 4 years ----------- $0.0 50.6 $0.6 49.4

3. Estimated annual ton-miles (millions) (line | +

Vine 2) -----------------------0--22eeeeeeeee ee eeee cence eens 765.000 247,000 141,000 = 377,000

4. Average revenue per ton-mile. 2d and 3d

quarters (X-267-B level)---(cents) ------------------ 1.897 1.825 1.466 1.503

5. Annual freight revenues (millions) (line 3

X VIM 4)------------+-- 2-22 --ee nnn e eee e eee eee ee eee $12,241 $4,508 $2,067 SS.666

6. Yield of full surcharge (2.5 percent x line 5,

* less lumber adjustment)-------------------------------- $299 S112 $52 $135

7. Average percent of selective increases------------ 4.0 41 3.5 4.1

8. Yield full selective increases (line 7 x line $) - $489 S185 $72 $232

9. Adjusted yield surcharge (line 6 x 0.82) --------- $246 $92 $43 Sti

10. Adjusted yield of selected ubcreases (line 8 x

0.82)---------- MO! _ SMS2 $59 $190

These forecasts, in our opinion, are adequately supported and

reasonably reliable, having in mind that estimates of the type

involved, at best, are pragmatic and subject to many unforeseen

contingencies.

While the past experience upon which use of the 82-percent

reduction factor was predicated in the prior case may not recur as to

the surcharge because of tis relatively low level and generally

uniform application, we believe use of that factor results in a

reasonable approximation of the revenue actually derived from the

surcharge for another reason. In this respect, we note that the

surcharge will have been in effect much less than a full 12-month

period and was made inapplicable to recyclable materials after July

16, 1972, by virtue of a court order.°

Also, we have accepted the 82-percent adjustment applied to the

selective increase proposal since any presumption that, due to its

“selectiveness,” experience thereunder will differ materially from

‘See discussion under the caption “Environmental considerations.” intra.

ee ee ae a ee ee ee ee 2 weg ee

10d

prior single-level general increases is dissipated by virtue of the fact

that wholesale exceptions and flagouts by individual lines have

already occurred and are continuing, a circumstance which will be

commented on in a subsequent section of this report.

Accordingly, we find that the surcharge will yield appreciably less

than $246 million during the limited period of its applicability and

that the selective increases, assuming complete approval, would

return $401 million as a maximum amount. The latter amount

represents approximately 28 percent of the $1,457 million in

increased cost levels-found to have occurred since the record was

closed in the prior case. The following table depicts this summary

and contains a similar breakdown by major districts:

TABLE 3

Annualized United Eastern Southern Western

States district district district

(millions)

Yield of surcharge ---------------------------+---002n ttt $246 $92 $43 $l

Yield of selective increases ------------------+----------->- 401 152 59 190

Total cost escalations -------------------------eereser ero 1,457 $94 244 619

We emphasize, however, that the actual revenue obtained from

the selective increase tariff will be significantly less than the maxima

indicated above due to anticipated further voluntary flagouts by

individual lines, to delay in implementing corresponding intrastate

increases, and to an overall limitation and specific exceptions and

holddowns which we have found necessary to impose in order

adequately to protect the public interest and preserve a lawful rate

structure.

FINANCIAL CONDITION

Are the railroads in a position to absorb an even greater portion of

their increased costs? In our judgment, based on the following

analysis, a requirement that they do so would impair their already

weakened financial structure and jeopardize their ability to provide

essential services.

Composite financial data for all class I railroads and by major

districts: is contained in appendix A. In assessing their overall

1ld

condition, we shall focus upon six areas: working capital and

maturing debt; equipment obligations; interest charges and

equipment rents; capital expenditures and cash flow; net earnings

and rate of return; and margin of earnings.

1. Working capital and maturing debt.—Net working capital of

class I railroads, excluding the effect of long-term debt due within |

year, amounted to $15 million on December 31, 1971, as compared

with $109 million at year’s end 1970, and $636 million on December

31, 1965. As reflected in the following territorial statistics, the’

eastern roads had a working capital deficit of $104.5 million.

Net working Long-term debt

capital due within

1 year

Eastern district --------------------------------- te ($104.5) $219.1

Southern district ----------------+----------------- 90.7 162.3

Western district -------------+-----------+---+----- 28.9 249.4

If long-term debt due within | year were included in the railroads’

current liabilities, as-is the case outside the surface transportation

industry, all three districts would show large working capital

deficits. In our opinion, the foregoing statistics reflect a situation

which cannot be lightly regarded in terms of the railroads’ overall

liquidity position and capacity to maintain orderly operations. See

table 1, appendix A. It should be recognized, however, that we are

dealing with totals and to infer from these statistics that all orevena

majority of railroads have working capital deficits or lack sufficient

working capital would be highly improper and unfounded. For

example, the eastern district deficit was produced primarily by four

roads, Erie Lackawanna, Pennsylvania-Reading-Seashore, Reading

and Penn Central who had working capital deficits of $23.7 million,

$8.5 million, $7.6 million and $53.7 million, respectively, as of

December 31, 1971. Those amounts account for approximately 89

percent of the $104-million working capital deficit in the eastern

district.

2. Equipment obligations.—The data contained in table 2,

appendix A shows an almost two-fold increase in equipment

obligations outstanding over a 10-year period 1960 through 1970

and marks a substantial effort of class I railroads in all districts to

acquire badly needed rolling stock under difficult financial

Conditions. At years end 1960, total equipment obligations

12d

outstanding were $2.69 billion. At year's end 1970, by comparison,

obligations outstanding aggregated about $4.4 billion. During that

period, interest rates on these obligations nearly doubled,evidencing

unfavorable market conditions. In 1960, interest rates on equipment

obligations issued that year were about 4.6 percent while, in 1970,

the comparable average interest rate approached 8.8 percent.

3. Interest charges and equipment rents.—The combination of

greater debt and high interest rates has caused.interest charges of

class I railroads to increase from $398 million in 1966 to $561

million in 1971. In addition, net rents paid by the railroads for use of

equipment owned by others increased even more. Combined, these

charges increased from $891 million in 1966 to $1,377 million in

1971. Table 3, appendix A. Considered together with other indicia

of respondents’ financial condition, these increases have placed

great strain on the railroad industry. .

4. Capital expenditures and cash flow.—For many years, the

railroads’ capital needs for replacement and modernization of

facilities have been far greater than their ability to acquire new

capital either from internal or external sources. This has been a

principal, but not the sole® factor behind the decline in capital

expenditures shown in table 4, appendix A, with respect to eastern

and western districts. In 1966, for example, industrywide

expenditures totaled almost $2.0 billion, a decrease of about $800

million. In every year since 1962, the capital expenditures of class |

roads have exceeded cash flow from operations by considerable

amounts. Unable to finance their expenditures through internally

generated funds, the railroads have had to rely principally upon

borrowing to meét their capital needs. Under these circumstances,

however, the railroads’ ability to incur additional debt is severely

limited without a substantial improvement in earnings. Without

adequate capital to purchase new equipment deficiencies in service

to shippers will be unavoidable.

5. Net earnings and rate of return.—Data contained in table 5,

appendix A shows that net railway operating income of class |

railroads increased from a critically low level of $486 million in

1970 to $698 million in 1971, an improvement attributable

principally to the rate increases authorized in the prior case.

Notwithstanding this marked improvement, 1971 earnings remained

far below the $1,046 million in net railway operating income earned

in 1966.

"Other influential factors have been increased reliance upon leasing equipment and the

takeover of passenger service by Amtrak.

PPI SO SRT Nat ASF A SS CAS SEEN oT Ee AID

13d

Despite the beneficial effects of the 1971 rate increases, the class

I railroads’ return on net worth remains very low in comparison with

rates earned by other industries. For example, in 1970, the class I

railroads’ rate of return on net worth of 1.3 percent ranked 69th, or

next to last, among all industries listed in annual rate of return

statistics published by the First National City Bank of New York.

In light of these statistics, respondents contend that without the

increases sought in this proceeding, their net earnings and rate of

return would again plummet as a result of a continuing escalation of

costs. Whether that result would necessarily follow is at best

uncertain at this point in time but, it is clear that the income derived

from the surcharge hardly scratches the surface in terms of

developing a level of railroad profitability that will permit the kind

of return on capital enjoyed in other sectors of the economy.

The exact effect of the selective increases in the present

environment is difficult to ascertain. In this connection, we are

referring to the general economic climate that will prevail during

1972; the labor demands during the year; the Government's

decisions regarding fiscal and monetary policy; price-wage control

policies; and last, but certainly not least, what the railroads will do

to improve their overall situation.

3 However, based on our.restated expense increases, it can be

reasonably assumed that increases averaging 4 percent would have a

very nominal effect. In this respect, we note that $401 million is the

maximum additional revenue which respondents could expect if the

selective increases were approved in full. This represents 3.8

percent of their annual revenue based on January through June 1971

revenue adjusted to the Ex Parte No. 267-B level. The estimated

impact of this increase on their rate of return, considering increases

in wage and fringe benefit costs up to April 1, 1972, and all other

costs through the end of 1971, would be as follows:

United District

States Eastern Southern Western

Percent Percent Percent Percent

Without increase

Return on net investment -------------------- ) (2.8) _ 1.6 2.0

Return on equity -------------------------------- | (5.4) 2.7 3.1

With increase

Return on net INVEStMENL --------------2--5-- 11 (1.8) 2.4 3.1

Return on equity ------------------------------- 1.9 (3.4) 4.0 49

‘Less than 0.1 percent.

7 =:

14d |

It should be noted that even with the sought additional revenue

respondents’ rate of return on net investment, both nationwide and

by major districts, will be less than in 1971. See table 5 of appendix

By comparison, revenue needs based on 6- and 8-percent rates of

return on net investment’ would be as follows:

Return Percentage Additional

rate increase revenue

Percent Percent Millions

6 -----------------------+--- 15.8 $1,556.0

8 24.1 2,366.1

Although a 15.8-percent increase would be required to produce

an overall return in the United States of 6 percent, this would not

provide sufficient revenue for the eastern district and would provide

a return in excess of 6 percent for the southern and western

districts. To provide a 6-percent return on net investment by

districts, the following freight rate percentage increases would be

needed.

Percent

United States - 15.8

Eastern district 25.1

Southern district 10.8

Western district 10.0

The revenue needs based on 8-,10-, and12-percent rates of return

on shareholders’ equity are as follows:

Return Percentage Additional

rate increase revenue

Percent Percent Millions

8 18.6 $1,833.4

10 : 23.5 2,313.2

12 28.4 2,793.0

‘Equally applicable here is our statement in the prior case: “* * * Our use of these rates of

return in this

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