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Consolidated Rail Corp. v. United States and Interstate Commerce Commission

filed: February 23, 1987.

CONSOLIDATED RAIL CORPORATION, PETITIONER
v.
THE UNITED STATES OF AMERICA AND THE INTERSTATE COMMERCE COMMISSION, RESPONDENTS, CAROLINA POWER & LIGHT COMPANY, ET AL., INTERVENORS, THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., INTERVENORS; THE WESTERN COAL TRAFFIC LEAGUE, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, CAROLINA POWER & LIGHT COMPANY, ET AL., INTERVENORS, VIRGINIA ELECTRIC AND POWER COMPANY, ET AL., INTERVENORS; ELECTRIC FUELS CORPORATION, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., INTERVENORS; CHESSIE SYSTEM RAILROADS, ET AL., PETITIONERS V. INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., INTERVENORS; EDISON ELECTRIC INSTITUTE, PETITIONER V. INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., INTERVENORS; ALABAMA POWER COMPANY, ET AL., PETITIONERS V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, CENTRAL ILLINOIS LIGHT COMPANY, ET AL., INTERVENORS; WESTERN COAL TRAFFIC LEAGUE, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, EASTERN AND SOUTHERN COAL HAULING RAILROADS (CHESSIE SYSTEM RAILROADS, ET AL.), ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY (WESTERN RAILROADS), INTERVENORS; CAROLINA POWER & LIGHT COMPANY, DUKE POWER CO., IOWA POWER & LIGHT CO., IOWA PUBLIC SERVICE CO., THE KANSAS POWER AND LIGHT CO., KERR-MCGEE CORP., OKLAHOMA GAS & ELECTRIC CO., OMAHA PUBLIC POWER DIST., S. CAROLINA ELECTRIC & GAS CO., SOUTHWESTERN ELECTRIC POWER CO., AND TAMPA ELECTRIC CO., PETITIONERS V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, TOPEKA AND SANTA FE RAILWAY CO., ET AL., INTERVENORS; CONSUMER OWNED POWER COALITION, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, TOPEKA AND SANTA FE RAILWAY, ET AL., INTERVENORS; WESTERN COAL TRAFFIC LEAGUE, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, TOPEKA AND SANTA FE RAILWAY CO., ET AL., INTERVENORS; NEVADA POWER COMPANY, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., INTERVENORS; VIRGINIA ELECTRIC AND POWER COMPANY, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), INTERVENORS; EASTERN COAL TRANSPORTATION CONFERENCE, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), INTERVENORS; ELECTRIC FUELS CORPORATION, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), INTERVENORS; NERCO., INC., POTOMAC ELECTRIC POWER COMPANY, PUBLIC SERVICE COMPANY OF INDIANA, INC., SOUTH CAROLINA PUBLIC SERVICE AUTHORITY AND SYSTEM FUELS, INC., PETITIONERS V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), INTERVENORS; CONSUMERS POWER COMPANY, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE, INTERVENORS; ATLANTIC CITY ELECTRIC COMPANY, COMMONWEALTH EDISON CO., MADISON GAS & ELECTRIC CO., MONONGAHELA POWER CO., PENNSYLVANIA POWER & LIGHT CO., THE CLEVELAND ELECTRIC ILLUMINATING CO., UNION ELECTRIC CO., WISCONSIN ELECTRIC POWER CO., WISCONSIN PUBLIC SERVICE CORPORATION, PETITIONERS V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, ATCHISON, ET AL. (WESTERN RAILROADS), ALABAMA POWER COMPANY, ET AL., INTERVENORS; EDISON ELECTRIC INSTITUTE, PETITIONER V. INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF MERICA, RESPONDENTS, ATCHISON, ET AL (WESTERN RAILROADS), INTERVENORS; THE DAYTON POWER AND LIGHT COMPANY, PETITIONER V. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, BURLINGTON NORTHERN RAILROAD COMPANY; THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY; ELGIN, JOLIET AND EASTERN RAILWAY COMPANY; GREEN BAY AND WESTERN RAILROAD COMPANY; ILLINOIS TERMINAL RAILROAD COMPANY; KANSAS CITY SOUTHERN RAILROAD COMPANY; THE MILWAUKEE ROAD, INC.; MISSOURI-KANSAS-TEXAS RAILROAD COMPANY; MISSOURI PACIFIC RAILROAD COMPANY; SOO LINE RAILROAD COMPANY; SOUTHERN PACIFIC TRANSPORTATION COMPANY; UNION PACIFIC RAILWAY SYSTEM; CHESSIE SYSTEM RAILROADS; CONSOLIDATED RAIL CORPORATION: NORFOLK & WESTERN RAILWAY COMPANY; SEABOARD SYSTEM RAILROAD, INC. AND SOUTHERN RAILWAY SYSTEM; MONTANA DEPARTMENT OF COMMERCE; ARIZONA PUBLIC SERVICE COMPANY AND SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, INTERVENORS



ON APPEAL FROM THE INTERSTATE COMMERCE COMMISSION ICC EX PART NO. 347 (Sub-No. 1)

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Chief Judge:

This case is before us on petitions, pursuant to 28 U.S.C. §§ 2321(a) and 2342(5) (1982 & Supp. III 1985), to enjoin or suspend an order of the Interstate Commerce Commission (ICC) issued n September 3, 1985 in Ex Parte No. 347 (Sub-No. 1), Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985). The proceeding in which the order was entered is part of the ICC's continuing effort to comply with the deregulation mandates of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (hereinafter 4 R Act) and the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 State. 1895 (hereinafter the Staggers Act). In Bessemer & Lake Erie R.R. v. I.C.C., 691 F.2d 1104 (3d Cir. 1982), cert. denied, 462 U.S. 1110, 103 S. Ct. 2463, 77 L. Ed. 2d 1340 (1983) this court upheld the ICC's rule adopting as the standard of revenue adequacy for market dominant carriers a rate of return on a net investment equal to the current cost of capital. The instant case involves an issue concerning the ICC's maximum rate guidelines for coal not presented in Bessemer -- the extent to which the ICC may permit differential pricing for market dominant carriers who have not achieved revenue adequacy. The Final Guidelines embodied in Ex Parte No. 347 impose four constraints on market dominant carrier rates for captive coal shippers. We told that the four constraints in the Final Guidelines are consistent with the 4 R Act and the Staggers Act. Thus we will affirm the ICC order insofar as it is challenged by various shipper interests.*fn1 Several carriers raise the questions about the manner in which some of the constraints may be applied in individual rate cases.*fn2 We hold that their petitions present issues nor ripe for judicial review.

I.

The Regulatory Scheme

In Bessemer this court described the regulatory scheme enacted by the 4 R Act and the Staggers Act. See 691 F.2d at 1107-09. For railroads subject to effective competition from other rail carriers or modes of transportation Congress opted to deregulate rates. While Congress preserved ICC ratemaking authority for market dominant carriers -- those providing services to shippers who, by virtue of location and inability to use substitute products, are captive customers of a railcarrier -- it mandated that the ICC develop standards for revenue adequacy of such carriers. In Bessemer we upheld the standard that the ICC adopted, but we were not proffered the standards that would be adopted in fixing the maximum rates chargeable by market dominant carriers. The 4 R Act authorizes adequate revenue "under honest, economical, and efficient management." 49 U.S.C.A. § 10704(a)(2) (West Supp. 1986). It would probably be inconsistent with that standard, and with traditional notions about fair ratemaking as well, to permit rates to captive shippers which subsidized inefficiency or dishonesty in carrier operations in the competitive sector. this point is explicitly made in the Long-Cannon Amendment to the Staggers Act, which provides:

In determining whether a rate is reasonable, the Commission shall consider, among other factors, evidence of the following:

(i) the amount of traffic which is transported at revenues which do not contribute to going concern value and efforts made to minimize such traffic;

(ii) the amount of traffic which contributes only marginally to fixed costs and the extent to which, if any, rates on such traffic can be changed to maximize the revenues from such traffic; and

(iii) the carrier's mix of rail traffic to determine whether one commodity is paying an unreasonable share of the carrier's overall revenues.

Pub. L. No. 96-448, § 203(a), 94 Stat. 1895, 1904 (1980)(codified at 49 U.S.C.A. § 10707a(e)(2)(C)(West Supp. 1986)).

Thus the ICC was directed to ensure reasonable rates charged to captive shippers and so, had to develop constraints on those rates which were nevertheless consistent with the basic requirement of revenue adequacy.

II.

The ICC Decision

Ex Parte 347 (Sub-No. 1) which we review is the ICC's response to these competing regulatory goals for transportation of coal by captive shippers. That response is the culmination of an effort to establish reasonable rates for coal movement by rail which commenced in May, 1978. See Ex Parte No. 347, Western Coal Investigations, 43 Fed. Reg. 22,151 (1978). After receiving comments from interested parties the ICC terminated the Western coal Investigations and instituted a new subproceeding, which broadened the inquiry to cover all regions of the United States, See Ex Parte No. 347 (Sub-No. 1), Coal Rate Guidelines Nationwide, 45 Fed. Reg. 80,370 (1980) (1980 Notice).

After reviewing comments received in response to the 1980 Notice, the ICC filed a decision on December 21, 1981, See 46 Fed. Reg. 62,958 (1981 Notice). That decision finalized some issues, but invited further comment on others. Several petitions for review of the 1981 Notice were filed and consolidated in this court. (No. 81-3080). Because the ICC observed a material error in its 1981 Notice, it moved for a remand. This court granted the ICC's motion, but expressly retained jurisdiction over the proceedings.

On February 28, 1983 the ICC issued a proposal for a maximum rail rate policy for market dominant coal carriers and invited comment. See 48 Fed. Reg. 8,362 (1983) (1983 Notice). Several coal shippers filed petitions for review of the 1983 Notice in the United States Court of Appeals for the District of Columbia Circuit, which transferred those petitions to this court on July 18, 1983. On May 16, 1984 this court granted the ICC's motion to consolidate the petitions to review the 1981 and 1983 Notices, and to hold them in abeyance pending its final decision. This court also denied without prejudice several motions to dismiss all pending petitions for review.

Meanwhile the ICC undertook consideration of comments filed in response to the 1983 Notice. On September 3, 1985 the ICC issued its final decision in Ex parte No. 347 (Sub-No. 1) (Final Guidelines). The Final Guidelines adopt a pricing system called Constrained market Pricing that is intended to assure that captive shippers will not be required to pay more than is necessary for the carrier to earn adequate revenues, or to pay more than is necessary for efficient service. While the Final Guidelines provide a framework for evaluating rate reasonableness, they do not purport to offer a ready rate formula for every coal movement. Four constraints are imposed on rail ratemaking for market dominant carriers.

The first constraint is railroad revenue adequacy. In Bessemer this court upheld the ICC standard for revenue adequacy -- rate of return on net investment equal to the current cost of debt and equity capital. by imposing revenue adequacy as a ceiling, the ICC intends to insure that a captive shipper will "not be required to continue to pay differentially higher rates than other shippers when some or all of that differential is no longer necessary to ensure a financially sound carrier capable of meeting the current and future service needs." 1 I.C.C.2d 520, 535-36, slip op. at 18 (Aug. 8, 1985) (footnote omitted). In other words, when a carrier has achieved revenue adequacy, the rate charged to a captive shipper will be the same as that determined by competition for non-captive shippers.

The second constraint, management inefficiency, is designed to comply with the Long-Cannon requirements. See 49 U.S.C.A. § 10707a(e)(2)(C) (West Supp. 1986). Three types of inefficiencies are considered: (1) operating inefficiencies; (2) plant inefficiencies, i.e., whether all the assets in the railroad's investment base are necessary and fully productive; and (3) pricing inefficiencies, i.e., whether the carrier has terminated unprofitable traffic and is charging non-captive shippers as much as competition will allow.

The third constraint, stand-alone cost, calculates, hypothetically, the cost of serving a captive shipper or group of shippers alone. In order to insure that the captive shipper is not paying more than it would cost that shipper or a competitor of the railroad to provide service tailored to that shipper's need, a simulated competitive price standard is determined and compared with the actual rate charged. If a complaining shipper pays no more than the cost of providing service tailored to its need, it is benefiting from the economics resulting from shared facilities, whereas if it is paying more than that cost the shipper may be subsidizing service from which it derives no benefit.

The fourth and final restraint is phasing; that is, postponing in individual cases the immediate imposition of an otherwise justified rate increase if such an immediate increase would create economic disruption for the shipper. Instead the increase would be phased in over a period of time.

The Final Guidelines provided that the four constraints "may be used individually or in combination to analyze whether the rate [increase] is unreasonably high." 1 I.C.C.2d 520, 548, slip op. at 33 (Aug. 8, 1985). the ICC "will take whatever action is appropriate, based n the nature and extent of the violation shown, to afford relief to the complaining shipper and to promote proper pricing by the carrier." Id.

III.

Ripeness

Various petitioners and intervenors disagree on whether some or all of the questions posed by the Final Guidelines are ripe for judicial review. Some coal shipper petitioners urge that the entire ICC decision is unripe for review. Other petitioners and intervenors, focusing on specific issues dispute the ripeness of some issues, while urging that other issues should be reviewed at this time. In assessing which issues are now ripe for judicial consideration we must consider (1) the fitness of the issue for judicial resolution, and (2) the hardship to the parties if judicial review is withheld. An issue is fit for judicial review if it is essentially legal and if the agency's resolution of it is final. Abbott Laboratories v. Gardner, 387 U.S. 136, 149, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967); Toilet Goods Ass'n. v. Gardner, 387 U.S. 158, 162, 87 S. Ct. 1520, 18 L. Ed. 2d 697 (1967).

Consumer Power Co. and Dayton Power & Light Co. urge that the Final Guidelines are in three respects inconsistent with the 4 R and Staggers Acts. That position raises essentially legal issues. Other coal shippers*fn3 urge, however, that these legal objections should not be considered at this time because the decision incorporating the Final Guidelines is merely a non-binding, general statement of policy, intended for further amplification in future rate proceedings. Thus it is argued that we should not review Ex Parte No. 347 (Sub-No. 1) at all at this time. In response the ICC contends that the Consumer Power and Dayton Power & Light challenges to the Final Guidelines should be reviewed ...


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