Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-01019/USCOURTS-caDC-10-01019-0/pdf.json

Parties Involved:
Surface Transportation Board
Respondent
US Magnesium, LLC
Intervenor for Respondent
Union Pacific Railroad Company
Petitioner
United States of America
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 21, 2010 Decided December 28, 2010

No. 10-1019

UNION PACIFIC RAILROAD COMPANY,

PETITIONER

v.

SURFACE TRANSPORTATION BOARD AND UNITED STATES OF

AMERICA,

RESPONDENTS

US MAGNESIUM, LLC,

INTERVENOR

On Petition for Review of an Order 

of the Surface Transportation Board

Jonathan Marcus argued the cause for petitioner. With him

on the briefs were J. Michael Hemmer, Louise A. Rinn, and

Michael L. Rosenthal.

James A. Read, Attorney, Surface Transportation Board,

argued the cause for respondent. With him on the brief were

Robert B. Nicholson and John P. Fonte, Attorneys, U.S.

Department of Justice, Craig M. Keats, Deputy General

Counsel, Surface Transportation Board, and J. Frederick Miller,

USCA Case #10-1019 Document #1285099 Filed: 12/28/2010 Page 1 of 18
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Jr., Attorney. Ellen D. Hanson, General Counsel, entered an

appearance.

Thomas W. Wilcox and David K. Monroe were on the brief

for intervenor US Magnesium, L.L.C. in support of respondent.

Before: GRIFFITH and KAVANAUGH, Circuit Judges, and

EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: US Magnesium, L.L.C.

(“USM”) operates a magnesium production facility in Rowley,

Utah, and relies on the Union Pacific Railroad Company (“UP”)

to ship its chlorine co-product from Rowley to two receiving

facilities in Arizona. In May 2009, USM filed a complaint

before the Surface Transportation Board (“STB” or the

“Board”), arguing that UP’s rates for the two chlorine

shipments, also called “movements,” were unreasonably high.

USM opted to bring its challenge under the Three Benchmark

framework set forth in Simplified Standards for Rail Rate Cases,

STB Ex Parte No. 646 (Sub-No. 1), 2007 WL 2493509 (STB

served Sept. 5, 2007), aff’d sub nom. CSX Transp., Inc. v. STB,

568 F.3d 236 (D.C. Cir. 2009), vacated in part on other grounds

on reh’g, 584 F.3d 1076 (D.C. Cir. 2009). Under this

framework, both the shipper and the rail carrier submit groups

of comparison rates (or “offers”) for the movements in question,

from which the Board makes an “either/or” choice, with no

modifications allowed once the final submissions have been

made. In January 2010, after oral arguments and the submission

of opening evidence, reply evidence, and rebuttal evidence from

both parties, the Board selected USM’s comparison rate groups.

Using the USM groups, the Board found UP’s rates for the two

chlorine movements to be unreasonable. US Magnesium, L.L.C.

v. Union Pac. R.R., STB Docket No. 42114, 2010 WL 319727

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(STB served Jan. 28, 2010) (“STB Decision”), reprinted in Joint

Appendix (“J.A.”) 823-47. UP now petitions for review of the

Board’s decision, arguing that the Board’s selection of USM’s

comparison rate groups was arbitrary and capricious and seeking

vacatur of the judgment and remand for a re-application of the

Three Benchmark framework using UP’s proffered comparison

rate group.

We find no grounds to reverse the Board’s decision,

particularly given the deference owed to the Board in ratemaking disputes. Under the Three Benchmark framework, the

Board was obliged to choose between two positions, neither of

which was ideal. USM’s comparison rate groups were

problematic, because they were primarily comprised of

anhydrous ammonia shipments. UP’s comparison rate group

was flawed, because it included an unduly heavy sample of

rebilled traffic. However, based on the quantitative data and the

residual differences between the comparison rate groups, the

Board determined that USM’s submission was more

representative of the ideal comparison group – namely, singleline chlorine traffic. Because the Board’s decision “articulated

a rational connection between the facts found and the decision

made,” N. Am. Freight Car Ass’n v. STB, 529 F.3d 1166, 1170-

71 (D.C. Cir. 2008) (quoting PPL Mont., LLC v. STB, 437 F.3d

1240, 1245 (D.C. Cir. 2006) (internal quotation marks omitted)),

we deny the petition for review.

I. BACKGROUND

A. The Three Benchmark Framework for Rate

Reasonableness

By statute, rail carriers are authorized to engage in a certain

amount of demand-based differential pricing in order to earn

“adequate revenues,” 49 U.S.C. § 10701(d)(2), whereby

“captive” shippers who are more dependent on rail service due

to the lack of transportation alternatives may be charged a higher

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markup as compared to “competitive” shippers who are free to

pursue lower-cost transportation options. See BNSF Ry. v. STB,

526 F.3d 770, 776 (D.C. Cir. 2008) (noting that rail carriers

would lose revenue if they imposed a strict pro rata share of the

joint and common costs to each shipper regardless of the

shipper’s degree of captivity). However, in order to protect

captive shippers from shouldering an unconscionable share of

carriers’ general operations costs, Congress has provided that,

in situations when “a rail carrier has market dominance over the

transportation to which a particular rate applies, the rate

established by such carrier for such transportation must be

reasonable.” 49 U.S.C. § 10701(d)(1). In reviewing rate

challenges, the Board must therefore consider whether carriers

are maximizing revenue from competitive shippers, id.

§ 10701(d)(2)(B), and whether “one commodity is paying an

unreasonable share of the carrier’s overall revenues,” id.

§ 10701(d)(2)(C).

Mindful of the high litigation costs associated with full

stand-alone cost (“SAC”) presentations in cases involving rate

challenges, Congress instructed the Board to “establish a

simplified and expedited method for determining the

reasonableness of challenged rail rates in those cases in which

a full stand-alone cost presentation is too costly, given the value

of the case.” Id. § 10701(d)(3); see also Simplified Standards at

5 (commenting that recent full-SAC presentations had incurred

nearly $5 million in litigation expenses and that even simplifiedSAC presentations could run to a cost of $1 million). Pursuant

to this congressional mandate, the Board adopted the Three

Benchmark framework, a relatively straightforward, “final

offer” methodology that measures the reasonableness of a rate

by comparing the revenue-over-variable cost (“R/VC”) ratio of

the challenged rate to the R/VC ratios of a comparison group of

similar movements. The challenged rate is held presumptively

unreasonable if it has a higher R/VC ratio than the calculated

upper boundary of the comparison group. See Simplified

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Standards at 21-22 & n.30 (explaining that the upper boundary

is the 90 percent confidence interval from a one-sided

hypothesis test constructed around the mean of the comparison

group). 

The Three Benchmark framework allows both the rail

carrier and the challenging shipper to submit a comparison rate

group, with the only requirement being that all movements

included must be “captive movements.” Id. at 17 (explaining

that a captive movement is defined as a movement with a R/VC

ratio greater than 180 percent, meaning that the revenue

produced from shipping the movement was enough to cover 100

percent of the variable costs and still left a surplus in the amount

of 80 percent of the variable costs to be applied towards the rail

carrier’s joint and common costs). The movements are drawn

from an unmasked sample of a carrier’s Waybill data – a

comprehensive database that includes detailed information on all

of the movements shipped by a rail carrier, including origin and

destination points, type of commodity shipped, tonnage shipped,

and revenue. There are multiple rounds of revisions, during

which each party is given an opportunity to adjust its proposed

comparison rate group. After the parties submit their final

offers, the Board then selects the comparison rate group that is

“most similar in the aggregate to the [challenged] movement[].”

Id. at 18. 

In making its selection, the Board considers “a variety of

factors, such as length of movement, commodity type, traffic

densities of the likely routes involved, and demand elasticity.”

Id. at 17. While “movements with different cost characteristics

may be included in the comparison group,” the Board “will

favor a comparison group that consists of movements of like

commodities.” Id. To encourage both parties to offer

competitive and reasonable comparison groups, the Board’s

selection is an “either/or” choice between the parties’ final

offers, with no modifications allowed. Id. at 18. 

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After a comparison rate group is selected, the R/VC ratio of

each movement in that chosen group is then multiplied by the

carrier’s “revenue need adjustment factor,” a figure that serves

to “reflect demand-based differential pricing principles.” STB

Decision at 12-13, J.A. 834-35. If the challenged rate’s R/VC

ratio is greater than the upper boundary of the adjusted

comparison group, the rate will be presumed unreasonable.

Since the revenue need adjustment factor is derived from static

figures published annually by the Board, the Three Benchmark

framework’s reasonableness determination generally turns on

the Board’s selection of a comparison group. The shipper

bringing the rate challenge will naturally have an economic

incentive to pick movements with low R/VC ratios while the rail

carrier defending the reasonableness of the rate will have an

equal incentive to pick comparison movements with high R/VC

ratios. Although the Board recognizes that the Three

Benchmark framework has some inherent limitations, neither

party challenges the validity of the framework itself in this case.

B. Factual History and Proceedings Before the Board

USM operates the nation’s only primary magnesium

production facility in Rowley, Utah, and generates chlorine as

a co-product of the magnesium production process. Due to

chlorine’s status as a toxic inhalation hazard (“TIH”), USM

relies on UP to transport the chlorine as liquefied compressed

gas by rail service to two receiving facilities in Eloy and

Sahuarita, Arizona. In March 2009, USM began shipping its

chlorine under UP’s common carrier tariff rates, having been

unable to secure an extension of the previous contract rates. UP

charged USM $13,396 per carload for shipments from Rowley

to Eloy, and $10,410 per carload for shipments from Rowley to

Sahuarita, a marked increase from the previous years’

contractually negotiated rates. Based on variable costs of

$2,549 and $2,485, respectively, the resulting R/VC ratios were

526 percent for Eloy and 419 percent for Sahuarita. STB

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Decision at 3, J.A. 825. USM filed a rate challenge with the

Board in May 2009, opting to use the Three Benchmark

framework established in Simplified Standards. Since UP

acknowledged its market dominance over the chlorine

movements at issue, the Board immediately moved to the

comparison group selection process.

The Eloy and Sahuarita movements at issue are chlorine

shipments traveling in privately owned tanker cars with

capacities of less than 22,000 gallons for 1,290 and 1,250 load

miles, respectively, on single-line car service. USM’s opening

evidence proposed two separate comparison groups, one for the

Eloy movement and one for the Sahuarita movement, including

movements of all TIH commodities but limiting the groups to

movements on single-line service within a range of plus or

minus 200 miles of the actual rail distances. STB Decision at 6,

J.A. 828. UP submitted a single 24-movement comparison

group for both the Eloy and Sahuarita movements, including

both single-line and rebilled traffic and increasing the mileage

band to 400 miles but limiting the movements to those of

chlorine-only traffic and those traveling in cars that are smaller

than 22,000 gallons in capacity. Id. at 6-7, J.A. 828-29. 

Both USM and UP challenged the other’s proposed groups.

Among other things, UP argued that USM did not select “like

commodities” because its groups were comprised, in large part,

of anhydrous ammonia movements and wrongly included

movements traveling in cars larger than 22,000 gallons. USM

countered that UP’s group had too few movements, wrongly

included rebilled traffic, and was over-inclusive due to the larger

400-mile range. The Board agreed that the comparison rate

groups submitted by both parties were flawed.

All else being equal, local single-line chlorine movements

would be the preferable comparison group for the issue

movements. However, neither party presented that

comparison group. Rather, both parties chose relatively

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extreme comparison groups in their initial tenders. And

while the deficiencies in each of the comparison groups

were evident at opening, and either party could have

strengthened its selection by adopting movements from the

other’s group(s), both parties stood rigidly behind their

initial, deficient comparison group selections. 

Id. at 9, J.A. 831. 

The Board’s analysis focused on the two most “pivotal”

differences: USM’s inclusion of non-chlorine movements and

UP’s inclusion of rebilled traffic. Id. at 7-9, J.A. 829-31. It

acknowledged UP’s argument that anhydrous ammonia had

significantly different demand characteristics and lower

transportation risks as compared to chlorine, thus distorting the

comparability of USM’s proposed groups. Id. at 7 & nn.9-10.

However, it found UP’s inclusion of rebilled traffic similarly

problematic, noting that the R/VC ratios for the rebilled

movements in the UP comparison group were much higher than

those of the single-line movements. Id. at 8, J.A. 830. Faced

with two imperfect offers, the Board attempted to compare the

distortions. The Board found that single-line anhydrous

ammonia had an average R/VC ratio 19 percent less than singleline chlorine and that rebilled chlorine had an average R/VC

ratio 31 percent greater than single-line chlorine. Id. at 9-10,

J.A. 831-32. When these distortions were weighted based on

their proportional representation in the parties’ comparison

groups, USM’s Eloy and Sahuarita comparison groups had a

distortion effect of 16 percent and 17 percent, respectively,

while UP’s comparison group had a distortion effect of 18

percent. Id. The Board conceded that this difference in

weighted impacts “may not be ‘statistically significant,’” but

concluded that the analysis “confirms what USM has advocated,

which is [that] significant bias [was] introduced when [UP]

included rebilled traffic in its comparison group.” Id. at 10, J.A.

832. 

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Having decided that single-line, chlorine traffic would be

the “preferable comparison group,” id. at 9, J.A. 831, the Board

noted that the R/VC ratios of USM’s comparison groups were

“nearly identical to the markups of the single-line, chlorine

traffic in UP’s group.” Id. at 11, J.A. 833 (finding adjusted

R/VC ratio for USM’s groups to be 304 percent and 298 percent

as compared to 301 percent for UP’s single-line chlorine

movements while UP’s rebilled movements had an R/VC ratio

of 475 percent). The Board referenced the residual differences

between the groups, finding that USM’s groups were

strengthened by a “larger sample size and narrower mileage

bands, which are more reasonable with respect to the length of

haul than UP’s mileage bands because they are closer to the two

issue movements’ actual miles.” Id. at 10, J.A. 832. 

The Board then offered this telling explanation:

In sum, based on our quantitative analysis and the

residual differences between the groups, we find that USM’s

comparison groups provide the best evidence of a reasonable

level of contribution to joint and common costs for the issue

movements. . . .

[B]ased on this record, USM’s comparison groups

provide a better gauge of the proper comparison group. The

traffic at issue constitutes single-line, chlorine movements.

Yet UP submitted a comparison group containing 42%

single-line traffic and 58% rebilled (i.e., interchanged)

traffic. Single-line movements are different from rebilled

movements. Single-line movements travel over a single

carrier, and in this case an average distance of just over

1,000 miles. Rebilled traffic, on the other hand, is carried by

multiple carriers with multiple interchanges and handoffs,

and the total distance traveled by the commodity typically

will be much longer. As such, the costs of transporting the

commodity are different. Further, the markup over variable

cost UP will charge for its portion of the total trip will not

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only be a function of the shipper’s elasticity of demand for

transportation, but also a function of UP’s relative

bargaining power compared with other carriers involved in

the movement.

When we scrutinize UP’s comparison group, the

difference in the average adjusted R/VC ratios between

single-line and rebilled movements is significant: 301% for

single-line chlorine traffic in UP’s comparison group

compared to 475% for rebilled traffic in UP’s comparison

group. UP was unable to justify allowing rebilled traffic to

skew its comparison group. Moreover, as USM stressed at

our oral argument, its comparison groups actually provide

R/VC levels nearly identical to the markups of the singleline, chlorine traffic in UP’s group. The adjusted R/VC

ratios submitted by USM for the Eloy and Sahuarita

movements were 304% and 298%, compared to 301% for

single-line, chlorine movements in UP’s group. . . . 

To address differences in both demand elasticities and

transportation risks, nothing prevented UP from providing

a comparison group containing just single-line, chlorine

movements, and excluding rebilled movements. We

appreciate why it chose not to: it would have won the battle

(the selection of the comparison group) and lost the war (the

result would be the same as in this case). If UP had

provided a comparison group of single-line, chlorine

movements, the issue of how our costing model treats

movements of chlorine would be largely irrelevant, because

this is a comparison approach, and the issue movements and

comparison movements would be treated similarly by our

costing model. See Simplified Standards, at 17, 84.

Id. at 11, J.A. 833 (emphases in original). The Board ultimately

chose USM’s comparison rate groups, stating that “USM’s

submission (notwithstanding the relative lack of chlorine traffic)

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provides more reasonable comparison groups than one so

sharply skewed by rebilled traffic.” Id. at 12, J.A. 834.

Using USM’s groups for the remainder of the Three

Benchmark analysis, the Board found the maximum reasonable

R/VC ratio to be 356 percent for the Eloy movement and 346

percent for the Sahuarita movement. Id. at 13-19, J.A. 835-41.

As both challenged rates had R/VC ratios that exceeded these

upper boundaries, the Board ordered UP to establish and

maintain new rates within the allowable range and to reimburse

USM for amounts previously collected above the prescribed

levels. Id. at 19, J.A. 841. 

Commissioner Nottingham dissented from the decision,

focusing on the lack of chlorine movements in USM’s

comparison groups and questioning the majority’s reliance on

rebilled traffic’s distortive effect without a clear “understanding

of the reasons for the apparent difference between the R/VC

ratios of single-line vs. rebilled chlorine movements,”

particularly when USM had the burden as the challenging party

of showing unreasonableness. Id. at 24-25, J.A. 846-47. The

dissent criticized the majority’s use of a narrow and self-created

quantitative analysis to “break the tie.” Id. at 24, J.A. 846. UP

timely petitioned for review of the Board’s decision, and USM

intervened. 

II. ANALYSIS

A. Standard of Review

This court reviews decisions of the Board with deference.

A Board decision will not be reversed unless it is “unsupported

by substantial evidence,” 5 U.S.C. § 706(2)(E), “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law,” AEP Tex. N. Co. v. STB, 609 F.3d 432,

438 (D.C. Cir. 2010); 5 U.S.C. § 706(2)(A). Deference is

particularly high in rate disputes, where “the Board acts at the

zenith of its powers.” Id. (quoting Burlington N. R.R. v. STB,

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114 F.3d 206, 210 (D.C. Cir. 1997) (internal quotation marks

omitted). “Where the Board’s findings rest on such relevant

evidence as a reasonable mind might accept as adequate to

support a conclusion, and where the Board has articulated a

rational connection between the facts found and the decision

made, [this court] will not disturb its judgment.” N. Am. Freight

Car Ass’n, 529 F.3d at 1170-71 (quoting PPL Mont., 437 F.3d

at 1245 (internal quotation marks omitted)). 

B. UP’s Challenge Fails

UP’s challenge to the Board’s decision is premised on its

belief that its proposed comparison rate group, even with its

heavy inclusion of rebilled traffic, was not skewed. UP

maintains that the Board’s decision is arbitrary and capricious,

because it considers rebilled traffic on par with non-chlorine

traffic without explaining why rebilled traffic would have a

distortive effect. UP’s argument is unpersuasive, for it is

grounded on a serious misunderstanding of the Three

Benchmark framework. 

The Three Benchmark, final-offer process does not

facilitate a “search for the truth.” The Board’s final judgment in

any case involving this final-offer process necessarily will be

constrained by what the parties present as their final offers. The

Board merely selects between two final offers, neither of which

may be ideal. There is no room for compromise, and no

procedure to adjust two flawed final offers. 

It is true that USM, as the party bringing the rate challenge,

had the ultimate burden of persuasion to show that UP’s rates

were unreasonable. See BNSF Ry. v. STB, 453 F.3d 473, 485

(D.C. Cir. 2006). However, in the comparison group selection

stage of the Three Benchmark analysis, USM and UP each had

an obligation to defend its own proposal against the opposing

side’s attacks. See id. (citing “Complex” Consol. Edison Co. v.

FERC, 165 F.3d 992, 1008 (D.C. Cir. 1999)) (explaining that the

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shipper bringing the challenge who holds the ultimate burden of

persuasion does not necessarily have the burden of production

“[s]o long as the record supports [the Board’s ultimate]

conclusion”). There is nothing in this record to indicate that

UP’s proposed comparison group, and the resulting maximum

rate level, would have been judged objectively reasonable under

a full-SAC rate challenge. Indeed, even UP does not make this

claim. Thus, the question before the Board was which of the

proposed comparison rate groups was least undesirable. This is

the nature of the beast in the “final offer” process upon which

the Three Benchmark framework is founded. UP’s protests

ignore this reality. 

UP challenged the comparability of anhydrous ammonia to

chlorine traffic, arguing that USM’s heavy inclusion of

anhydrous ammonia skewed the demand characteristics of its

comparison rate group. USM tried to defend its selections by

referencing the Board’s stated preference for comparison groups

with a mix of TIH commodities in E.I. DuPont de Nemours and

Co. v. CSX Transportation, Inc., STB Docket No. 42100, 2008

WL 2588609 (STB served June 30, 2008), the only previous

application of the Three Benchmark framework. STB Decision

at 7-8, J.A. 829-30. However, the Board pointed out that

DuPont is easily distinguishable. Id. (explaining that DuPont’s

carrier had confessed to overt chlorine pricing manipulation).

USM, in turn, challenged the comparability of rebilled traffic to

single-line traffic, arguing that UP’s heavy inclusion of rebilled

traffic skewed the R/VC ratios of its own comparison group.

Like USM, UP then had the opportunity to explain or refute the

alleged distortion. Like USM, UP failed to make a convincing

defense.

UP acknowledged that rebilled traffic has lower variable

costs as compared to single-line traffic. While a difference in

variable costs, by itself, does not affect the comparability of two

movements, the presumption that comparability is not affected

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depends on the existence of similar R/VC ratios. See Simplified

Standards at 17 (noting that movements with different costs are

acceptable because “there is no reason, a priori, to presume that

the R/VC ratios (or their share of joint and common costs)

should be different”). Here, there was undisputed evidence that

the rebilled traffic in UP’s sample had much higher R/VC ratios

as compared to single-line traffic. The difference in variable

costs was, therefore, not matched by similarly lowered prices,

but rather by a greater profit margin, suggesting differences in

demand elasticity under a differential pricing system. 

Building upon USM’s allegation that rebilled movements

had much higher R/VC ratios, the Board compared the relative

distortive impact of anhydrous ammonia and rebilled

movements, and found that rebilled chlorine movements had an

average R/VC ratio 31 percent higher than single-line chlorine

movements, but that anhydrous ammonia movements had an

average R/VC ratio only 19 percent lower than chlorine

movements. STB Decision at 9-10, J.A. 831-32. Though it

acknowledged that the weighted impact between the two

distortions might “not be ‘statistically significant,’” the analysis

“confirm[ed] what USM ha[d] advocated, which is [that]

significant bias [was] introduced when [UP] included rebilled

traffic in its comparison group.” Id. at 10, J.A. 832. 

At oral argument before the Board, counsel for UP was

specifically asked to explain the difference caused by the

inclusion of rebilled traffic, see Oral Arg. Tr. 28, Nov. 23, 2009,

J.A. 743 (“How do you respond to [USM’s] argument regarding

the re-bill issue in his exhibit?”). UP offered no explanation,

either in its rebuttal evidence or in its response to the Board’s

questioning. UP’s only response was to maintain that even if the

use of rebilled traffic was distortive, USM’s inclusion of nonchlorine traffic was even more damaging:

[If] it’s a choice between re-billed movements with some

cost characteristics that might be slightly different and a

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comparison group that’s comprised 99 percent or 96 percent

of non-chlorine traffic, where should you be more concerned

that you’re not reflecting the demand characteristics? I

submit it’s the comparison group that has hardly any

chlorine, not the fact that you’ve got some re-billed

movements in there. 

Id. at 35, J.A. 750. Since “UP was unable to justify allowing

rebilled traffic to skew its comparison group,” STB Decision at

11, J.A. 833, the Board reasonably concluded based on the

evidence presented that rebilled traffic, like anhydrous

ammonia, had a comparably improper distortive effect.

Since both UP and USM’s groups were flawed, the Board

proceeded to compare both groups to the ideal comparison

group – namely, single-line chlorine movements. The Board

explained why USM came out ahead in the final-offer process:

In the end, it is our responsibility to select the better

comparison group between those submitted by the parties in

order to judge the reasonableness of the challenged

rates. . . . Here, we agree with UP and our dissenting

colleague that there are important differences between

movements of chlorine and anhydrous ammonia, as

illustrated by UP’s evidence of the differences between the

two groups. While that difference, as measured by the R/VC

ratios in the broader Waybill sample data, is significant

(19%), a more pronounced difference is present between

single-line and rebilled, chlorine traffic (31%). These

simplified proceedings do not offer us a proper platform to

explore why either discrepancy exists. But all of the

quantitative evidence points toward accepting USM’s groups

over that proffered by UP. Given that: (1) UP’s own

comparison group shows average R/VC levels for singleline, chlorine movements that are practically identical to

those from USM’s groups; (2) the supplemental quantitative

analysis we undertook of the relevant data confirms that the

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distortion from rebilled movements appears more

significant; and (3) the residual differences between the

parties’ groups – such as the number of observations and the

mileage bands – also favor USM’s groups, it is our judgment

that USM’s submission (notwithstanding the relative lack of

chlorine traffic) provides more reasonable comparison

groups than one so sharply skewed by rebilled traffic.

Id. at 12, J.A. 834. 

It is important to say again that the Board’s judgment need

not reflect mathematical certainty in order to survive judicial

scrutiny. Indeed, there is good reason to believe that judgments

rendered pursuant to the Three Benchmark framework more

often than not will be the antithesis of mathematical certainty.

The final-offer process does not offer or promise certainty or

precision in ratemaking. It would be absurd for anyone to think

otherwise. Therefore, because, as we have already noted, “the

Board acts at the zenith of its powers when it sets rail rates, we

recognize that the Board is entitled to particular deference. As

long as the Board has rationally set forth the grounds on which

it acted, this court may not substitute its judgment for that of the

agency.” AEP Tex. N. Co., 609 F.3d at 438 (citations, ellipsis,

and internal quotation marks omitted). The Board’s decision

easily meets this standard. 

UP disregards the reality of the situation here and criticizes

the Board’s emphasis on single-line chlorine traffic as the ideal

comparison group. UP argues that the Board should have

considered whether rebilled movements may actually be more

comparable. This argument is illogical: why would the Board

have found rebilled traffic more comparable than single-line

traffic when the two movements in question were single-line

movements? UP also criticizes the Board’s emphasis on its

“supplemental quantitative analysis,” arguing that a test

resulting in statistically insignificant weighted differences

cannot be dispositive. However, the Board did not say that the

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quantitative analysis was dispositive. The Board’s comparison

of R/VC distortion was merely one portion of its overall

analysis. Finally, UP criticizes the Board’s reliance on the

residual differences, but it cannot dispute the fact that USM’s

mileage bands were more representative of the two movements

at issue. Where, as here, the Board’s selection was based on a

rational application of evidence presented, this court has no

power to “substitute its [own] judgment for that of the agency.”

Id. (quoting BNSF Ry., 453 F.3d at 480). 

The Three Benchmark framework was created to give

shippers a less costly vehicle through which to bring their rate

disputes. The process was designed to give parties an incentive

to advance proposals that would minimize their differences, in

search of reasonable accommodations. Unfortunately, both

USM and UP chose to take extreme positions in their

comparison rate group offers. The final-offer process thus failed

to work as intended in this case.

The Board has explained how the process should work:

Any final tender that is skewed too far in one direction

might well result in the selection of a more reasonable final

tender presented by the opposing party. By having two

rounds of simultaneous tenders and a technical conference,

both sides will participate in the winnowing

process. . . . This approach will work as intended only if the

parties know that the agency will not attempt to find a

compromise position somewhere in the middle. To create

the proper incentives for the litigants not to take extreme

positions, we commit to selecting the more reasonable of the

two groups as tendered.

Simplified Standards at 18. Here, the anticipated “winnowing

process” did not occur. Both sides stood firmly behind their

initial, clearly skewed offers, apparently hoping that the other

side’s proposal would be rejected as even more extreme. 

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Indeed, “[t]he parties seem[ed] to be intent on testing the outer

boundaries of what might qualify as an acceptable comparison

group, rather than adhering to the spirit of the Three-Benchmark

process and seeking middle ground in an effort at reaching a

reasonable and expedited outcome.” STB Decision at 22

(Commissioner Nottingham, dissenting), J.A. 844. UP lost this

high-stakes gamble and now protests that the result is unjust.

But UP cannot blame the Board for this result. The Board’s

decision, being rationally based on the facts presented, was not

in error.

III. CONCLUSION

For the foregoing reasons, we deny the petition for review.

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