Opinion ID: 383816
Heading Depth: 2
Heading Rank: 4

Heading: Substantial Investment Presumption

Text: 115 Under the substantial investment test, presumption of market dominance arises when a shipper makes a substantial investment in rail-related equipment or facilities which prevents or makes impractical the use of another carrier or mode. 49 C.F.R. § 1109.1(g)(3). The Commission here found that CP&L has made an investment of $15,500,000 in rail-related equipment. 57 The Commission nevertheless found this presumption inapplicable. 58 The Commission found that: (1) the investment did not preclude, economically or otherwise, the use of competing rail carriers, (2) CP&L was not precluded from using its investment to transport coal from other domestic sources, and (3) CP&L was not precluded from using rail links to Texas seaports, where CP&L was obtaining coal from South Africa for its shakedown operations. The Commission supported these findings with only the general remark that the record demonstrates the existence of considerable competition to supply both the coal and the transportation of coal without specifying where in the record such support occurs. Because we fail to find support in the record for several of the Commission's findings, we vacate these portions of its decision. With respect to other findings, we vacate and remand in order that the Commission may more adequately explain its findings. In paragraph (i) below, we discuss the significance of the fact that Coleto Creek is served by only one terminating rail carrier, SP. Then, in paragraph (ii), we discuss the finding of competing rail lines for the Axial-Coleto Creek movement. In paragraph (iii), the Commission's finding of alternative domestic sources is considered. Finally, in paragraph (iv), we look at the finding of the existence of alternative transportation modes in the form of a sea-rail link to the Coleto Creek facility. 116 (i) Significance of one terminating carrier. 117 Our first reason for vacating these findings of the Commission is a general one relating to the interpretation of the presumption and applies across the board to all three findings of the Commission. It is conceded that SP is the only rail line which can serve the Coleto Creek facility for any movement of coal by rail, and that CP&L would have to deal with SP if it is to use the equipment in which it has invested. The fact that SP has a monopoly position in the termination of any coal movement raises a question in our mind as to whether CP&L can practically look to other carriers in the initial transportation of coal. The language of the presumption states that market dominance is presumed if the investment makes impractical the use of another carrier, using the singular form. We do not perceive in the Commission's analysis an articulated reason as to why the language of the presumption permits a finding that another carrier may be used when the shipper is locked into a terminating carrier. If SP uses its monopoly position to charge monopoly prices for its portion of any movement, then it very well may be that any other movement using rail would be economically unfeasible. This, of course, may depend partly upon the length of the movement by SP which would be necessitated in using other originating carriers and the bargaining power of SP in setting the rate for the movement. On remand the Commission should explain why the monopoly position of SP does not establish this presumption, given CP& L's investments. 118 (ii) Finding of competing carriers for the Axial to Coleto Creek movement. 119 In finding that CP&L was not precluded by its investment from using competing rail carriers, the Commission made a finding not supported by the evidence. 59 As noted above, SP is the only rail line capable of serving the Coleto Creek facility. Similarly, D&RGW is the only line capable of serving the mine at Axial. Accordingly, any competition of competing rail carriers would be found in the segment served by Santa Fe, the bridge portion. We are not sure there is record evidence to support a conclusion that there existed competing rail lines for this segment. 60 Most of the evidence 61 concerning competition consists of cursory descriptions of alleged requests for quotation of rail rates and some quotations, all occurring before CP&L entered its Colowyo contract. (J.A. II, pp. 798, 805, 823-5, 840-1, 857-862, 882-885). This evidence relates to transportation by the railroads here involved, and therefore cannot support a finding that other rail carriers were available competition for the bridge portion of this movement. However, because there is some suggestion of the availability of competition for the bridge portion, 61a we decline at this time to hold flatly that the railroads have failed to carry their burden of showing competing rail service. On remand, the Commission, if it again finds that competing rail carriers are available with respect to the bridge portion of the movement, shall make specific findings which will enable this court to review the sufficiency thereof. Finally, if the Commission on remand does find competition with respect to the bridge portion, it shall demonstrate why such competition is sufficient to rebut the presumption in light of the undisputed fact that there is competition neither on the originating leg, which is served only by D&RGW, nor on the terminating leg, which is served only by SP. 120 (iii) Finding of alternative domestic sources. 62 121 The Commission also found that the investment by CP&L did not bar it from turning to alternative domestic sources. This is an allusion to the availability of geographic competition, an issue we discuss more fully below. 63 The Commission's thinking in looking to alternative domestic sources is that if such sources are available, then a shipper may utilize his rail related equipment in purchasing from these alternative sources, and thus not be locked into one carrier. We vacate this portion of the Commission's decision because, as with its finding of competing rail carriers, its finding is unsupported by evidence in the record. The Commission failed to specify in its decision what alternative sources are available. The only evidence in the record of alternative domestic sources is a brief survey of requests for quotation of rail rates, and some actual quotes, from places other than Axial, all before CP&L entered the Colowyo contract. (J.A. II, pp. 798, 823-5, 840-1, 857-62, 882-5). Such evidence may provide some inference, albeit weak, that CP&L was considering coal from such other places. This inference is bolstered somewhat by other evidence, primarily railroad witnesses' assertions that CP&L acknowledged contacting other mines, suggesting that CP&L was considering other sources of coal. (J.A. II, pp. 798, 859-60, 882-5). However, there is no indication of the extent of negotiation for other coal. There is no indication that these sources offered coal suitable to CP&L's needs, in the quantities required, or otherwise competitive with the Colowyo contract. Nor is there an indication that these alternative sources remained available after CP&L had made its investment in rail-related equipment. There was also an assertion by a railroad witness that CP&L had a 30% interest in a lignite field and that the Coleto Creek unit was capable of utilizing lignite. (J.A. II, pp. 882-5). There is nothing in the record, though, to indicate that this lignite field had reserves, committed or uncommitted, sufficient to serve CP&L's needs or any other information concerning the availability or suitability of the lignite. Given the large amounts of coal required and the unique specifications required, we do not believe it is rational for the Commission to assume on the basis of such thin evidence that alternative sources are available. We conclude that the evidence is insufficient to support a finding of the availability of alternative domestic sources, and therefore the railroads have failed to carry their burden with respect to this particular attempted rebuttal of the presumption. 122 (iv) Finding of alternative modes. 64 123 Finally, the Commission found that CP&L's investment did not preclude it from utilizing a rail link to Texas seaports, thus allowing alternative modes of transportation. The Commission did not specify what in the record supported this finding although it did note that in its shakedown operation, CP&L was using South African coal being imported through the Corpus Christi port. Insofar as the Commission grounded its finding of the availability of a water-mode alternative on CP&L's shakedown operation, this was not an adequate basis on which to find the sea-rail mode feasible. The record clearly indicates that CP&L was using trucks, and not rail, to transport the coal from the harbor to its plant. Use of a truck-sea mode would require abandonment of CP&L's large investment in rail cars. Thus the shakedown operation, i. e., the use of a water-truck mode, does not provide an alternative use for CP&L's rail car investment, and therefore does not rebut the substantial investment presumption. 124 The railroads argue that CP&L has the burden of proving that a shift to a different mode of transportation would result in a substantial economic loss. They argue that CP&L has the burden of proving that it could not lease or resell its rail cars to avoid economic loss. We reject the railroads' argument. Ex parte No. 320, Interim Report indicates that proof that a substantial investment will not result in economic loss is part of the railroads' burden of rebutting the presumption. In the rule making proceedings before the Commission, the railroads argued that a substantial investment presumption was not appropriate because specialized rail equipment was readily marketable. The Commission rejected that argument, and adopted the substantial investment presumption. In Ex parte No. 320, Interim Report, the Commission stated: 125 Shippers must be able to make the choice to use an alternative service without absorbing substantial economic loss. The greater the cost of making a shift in carriers, the greater the chance that the carrier will be in a position to extract substantial premiums without fear of diverting traffic to other carriers. 126 353 I.C.C. at 916. The Commission further stated: 127 It is true that at some point the shipper may attempt to minimize his losses by selling his equipment, but such a change in operations usually cannot be accomplished without a substantial loss to the shipper. 128 Ibid. Finally, the Commission, in noting what rebuttal evidence a carrier may produce, remarked: 129 The carrier could also show that the shipper has not made such a substantial investment that it is effectively dependent on rail transport. 130 353 I.C.C. at 917. 131 There is other evidence in the record, however, upon which the Commission may have been relying in finding the water-mode alternative to exist. A witness for SP indicated that it had quoted a price to CP&L on moving coal from the Corpus Christi port to the generating plant, and was prepared to provide a rail-link if a suitable price could be negotiated. (J.A. II, pp. 865-866) Insofar as the Commission was relying upon this evidence, we must vacate and remand because the Commission failed to address an obvious problem with using a rail link with Texas ports in light of CP&L's purchase of 347 cars. This purchase was for a movement from Axial, Colorado, covering an approximately 2,600-mile round trip, while the round trip distance to and from the Corpus Christi port is approximately 176 miles. 65 Clearly, a rail connection with the Corpus Christi port would require far fewer cars. Yet, the Commission did not determine how many cars would be needed with the rail-seaport mode or how the use of such a mode could avoid substantial economic loss resulting from a surplus of unused rail cars. On remand, the Commission shall explain why it believes reliance by CP&L on a sea-rail mode would not require the mothballing or resale of substantial numbers of the cars purchased by CP&L, and whether a sufficient number of rail cars would have to be abandoned to constitute the abandonment of a substantial investment, sufficient to trigger the presumption. 66