Opinion ID: 403665
Heading Depth: 2
Heading Rank: 1

Heading: Consistency With the Staggers Act

Text: 15 The first question before us is whether the Commission properly interpreted its statutory mandate. The Commission stated: 16 (T)he Rail Act does not specify whether an input cost index or an output cost index is to be used as the rail cost adjustment factor. Instead, the Rail Act leaves this matter up to the Commission, as a matter of policy, to be determined in a manner consistent with the purpose of the Rail Act as a whole. 17 364 I.C.C. at 846; J.A. 931. Turning to the considerations that should guide its policy determination, the Commission explained that (in) broad terms, ... the purpose of section 203 is to permit rail carriers to neutralize the effects of inflation through rate increases with minimum regulatory intervention. Id. After discussing why an input index properly serves this objective under current conditions, the Commission carefully preserved its authority to require productivity adjustments in the future, stating that (it) will not adjust the rail cost index to reflect productivity gains as long as the railroad industry continues to earn inadequate revenues. Id. at 847 (emphasis added); J.A. 931. 18 In their petitions for review, the Western Coal Traffic League (WCTL) 13 and the Chemical Manufacturer's Association (CMA), joined by several intervenors, 14 argue that the Act does not leave the Commission with discretion to choose between output and input cost indices. 15 They contend that the plain meaning of section 203, its legislative history, and the overall structure of the Act require that the Commission develop an index that reflects productivity changes. A third view of section 203 is presented by the Association of American Railroads (AAR) as intervenor-respondent. AAR argues that the Commission was required to adopt an input index. AAR Brief 32. Indeed, at some points in their brief, the Commission's attorneys appear to be sliding into this third position, see Government's Brief 20, even though we read the Commission's decision as clearly finding room under the Act to allow for productivity adjustments to the inflationary cost index at some future time.
19 All sides of this controversy lay claim to the plain meaning of section 203. As we have often observed, the meaning of some statutory provisions is sufficiently clear to resolve disputes over their interpretation. See, e.g., McCord v. Bailey, 636 F.2d 606, 614-15 (D.C.Cir.1980), cert. denied, 451 U.S. 983, 101 S.Ct. 2314, 68 L.Ed.2d 839 (1981). The language of section 203, however, does not fit into that category. In particular, it does not point us towards a specific statistical methodology for calculating inflationary cost increases. Section 203 requires that: 20 Commencing with the fourth quarter of 1980, the Commission shall, as often as practicable but in no event less often than quarterly, publish a rail cost adjustment factor which shall be a fraction, the numerator of which is the latest published Index of Railroad Costs (which index shall be compiled or verified by the Commission, with appropriate adjustments to reflect the changing composition of railroad costs, including the quality and mix of material and labor), and the denominator of which is the same index for the fourth quarter of 1980, or for the fourth quarter of 1982 or for the fourth quarter of every fifth year thereafter, as appropriate. 21 49 U.S.C.A. § 10707a(a)(2)(B) (West Supp.1981) (emphasis added). CMA suggests that this language clearly indicates Congress' concern with railroad costs. Thus, the index must be adjusted to reflect cost changes due to changes in the mix of expenses incurred by railroads, including the use of less labor or fuel due to more efficient technology and operating methods. CMA Brief 14. In short, an adequate measure of changing costs must account for more efficient uses of input items through productivity gains. The Commission's attorneys, in an argument we find somewhat at odds with the Commission's articulated position, contend that the common sense meaning of section 203 requires adoption of an input index. They state that the natural, common sense meaning of the statutory phrase 'composition of railroad costs' is the formation of a total cost by putting together the different prices paid by railroads for the goods and services they purchase. Government's Brief 19. After noting that the prices of labor and materials mentioned in the statute are indisputably inputs, they state that: Because none of the words in the statute embody concepts related to output, the statute cannot be read to embody productivity, which is a concept inextricably linked to output. Government's Brief 19. 22 We find neither interpretation of the plain meaning of section 203 very persuasive. 16 Turning first to the Commission counsel's argument, it is hardly self-evident that the required adjustments for quality and mix are not output-related. For example, gains in labor productivity could be considered an improvement in the quality of labor. Similarly, the mix of labor and materials could refer to total quantities of inputs, and not simply the proportionate share of different types of inputs. If either of these interpretations is correct, a productivity adjustment would fall within the adjustments authorized by the Act. But a more basic problem with the Commission's argument is that it sets up an artificially neat dichotomy between input and output indices. 17 Although the two types of indices are theoretically different-with input indices measuring the cost of a market basket of inputs and outputs indices measuring cost per unit of output-an output index is still critically concerned with the cost of inputs. The main difference between the two approaches is that an output index looks at additional factors that affect a firm's cost per unit of output. The fact that an output index would take additional steps to determine cost per unit of output-steps that, arguably, are not specifically mentioned in section 203-does not mean that Congress meant to preclude such adjustments. Congress drafted section 203's mandate for appropriate adjustments with inclusive, not exclusive, language. To read it as plainly rejecting an index reflecting all factors bearing on cost per unit of output is unwarranted. 23 CMA's plain reading is equally faulty. CMA asserts that a true cost index must include all factors bearing on cost per unit of output, even though the AAR index stands as a stark reminder that not all such indices make the fine adjustments it recommends. Furthermore, CMA overlooks the full statutory language of section 203, which only requires appropriate adjustments. Since one critical issue in this case is whether estimates of productivity gains on a quarterly basis are feasible, CMA's contention that productivity is a cost factor, even if accepted, is insufficient to prove that a productivity adjustment is appropriate and, therefore, statutorily mandated. 18
24
25 As further support for their respective interpretations of section 203, the parties turn to the history of its revision in committee. The original version of S. 1946, the bill that became the Staggers Act, described the inflationary cost index as an Index of Railroad Material Prices and Wages. See S. 1946, 96th Cong., 2d Sess. § 103 (1980). This description clearly pointed towards an input index, if not the AAR index itself. 19 Following hearings on S. 1946, during which shippers advocated adoption of an output index, the bill was redrafted to refer to the inflationary cost index as an Index of Railroad Costs (with) appropriate adjustments to reflect the quality and mix of material and labor. 20 In arguments paralleling their analysis of the plain meaning of section 203, petitioners, the Commission, and the railroads, seek to draw from this redrafting of section 203 (section 103 of S. 1946) unequivocal support for their conceptions of the proper index. Petitioners argue that the committee redrafted section 203 in response to the concerns of shippers, and therefore intended to reject input indices. The Commission and the railroads argue that the committee redrafted section 203 only to provide a more general description of an input index; they reason that since the committee failed to draft in any specifically output-related concepts, its actions should be read as a rejection of output indices. Frankly, we find it difficult to agree with either of these rigid theories of what the Senate Committee revisions meant. What little can be discerned from the redrafting of section 203 indicates to us only that the committee sought to replace specific language pointing towards an input index with a more general mandate to the Commission to select an index with appropriate adjustments. Whether adjustments serving to convert an input index into an output index are authorized or required must therefore depend largely on whether they serve the underlying purposes of the statutorily mandated index. 26 Section 203 attracted considerable attention during hearings on S. 1946. Numerous witnesses appearing before the Senate Committee on Commerce, Science, and Transportation argued that language describing an input index was inappropriate if the purpose of indexing base rates was simply to neutralize the effect of cost increases on railroad profits. These witnesses explained that the bill's formula was not flexible enough to recognize that certain carriers may come up with innovation, that change in volume, that change in traffic mix should be considered in the automatic adjustment. See 1 Railroad Transportation Policy Act of 1979: Hearings on S. 1946 Before the Committee on Commerce, Science and Transportation of the United States Senate, 96th Cong., 1st Sess. 395 (Senate Hearings) (statement of Edwin Wheeler). 27 These criticisms were repeated throughout the Senate hearings, 21 with one witness proposing that section 203 be redrafted to specifically require that (the) rail cost adjustment factor ... be adjusted to reflect changes in the productivity of labor, and changes in the volume and mix of traffic. See id. at 399 (statement of Edwin Wheeler). Finally, on the last day of the hearings, Senator Cannon discussed changes in the language of section 203 with Edmund B. Frost, vice-president and general counsel of CMA: 28 Senator Cannon: With regard to section (203), you note that the formula set forth in S.1946 doesn't specifically require consideration of such factors as changes in traffic volume and labor productivity, although it does call for commission compilation or verification of any index. 29 Several witnesses have suggested that in compiling the index, specific consideration be given to changes in volume, productivity, and traffic mix. 30 I assume language along those lines, if adopted, would satisfy your concerns on that point. 31 Mr. Frost. I think it might very well satisfy my concerns. 32 As redrafted by the committee, however, section 203 did not specifically require consideration of such factors as changes in traffic volume and labor productivity. Instead, it provided the Commission with a general mandate to make appropriate adjustments to reflect the quality and mix of material and labor. This language was modified once more in conference to require appropriate adjustments to reflect the composition of costs, including the quality and mix of material and labor. 22 Neither change in the language of section 203 was explained in the accompanying committee reports. 23 33 Courts must exercise caution before drawing inferences regarding legislative intent from changes made in committee without explanation. See Trailmobile Co. v. Whirls, 331 U.S. 40, 61, 67 S.Ct. 982, 992, 91 L.Ed. 1328 (1947). Although a succession of draft bills may point toward a clear legislative purpose, see J. Hurst, Dealing With Statutes 42-43 (1982), amendments to a bill's language are frequently latent with ambiguity: they may either evidence a substantive change in legislative design or simply a better means for expressing a provision in the original bill. See C. Sands, Sutherland Statutory Construction § 48.18 (1973). 34 In this case, the legislative record supports an inference that the committee redrafted section 203 in response to the shippers' testimony, but it collapses as a foundation for understanding how the committee chose to resolve the conceptual and methodological problems of cost indexing. It is possible that the committee sought to accommodate the shippers' concerns, viewing language on the quality and mix of labor and materials as a general formulation of the kind of adjustments needed to make an input index accurately reflect costs per unit of output. Alternatively, the committee may have sought to reaffirm the approach of the original bill, requiring only those refining adjustments that fit easily within an input methodology. Neither the committee's rejection of the bill's original language, nor its rejection of the shippers' proposed amendment provides a reliable basis for choosing between these two readings. We must therefore search for such guidance in an examination of the purposes and placement of section 203 in the overall statutory scheme. 35
36 The shippers ground their argument that section 203 mandates an output index on the purpose of the inflationary cost index. They contend that the underlying purpose of the inflationary cost index is to enable railroads to recover costs; no more and no less. Thus, they conclude, section 203 requires an output index, or at least an input index modified to approximate an output index. Otherwise, the index will authorize market dominant railroads to overrecover costs during periods of productivity growth at the expense of captive shippers. 37 We agree with the shippers that the principal function of the section 203 inflationary cost index is to provide a mechanism for recovering inflation-based costs, not to enhance revenues. But the legislative history of section 203 also demonstrates that Congress sought a cost-recovery mechanism that would avoid regulatory lag by operating with dispatch to assure that rates actually reflect current costs. Insofar as any particular methodology would interfere with achievement of this practical objective, its adoption cannot be characterized as mandated by the Act. 38 In introducing S.1946, Senator Cannon explained that the bill's overall approach was to provide the railroads with more pricing flexibility while protecting captive shippers and to streamlin(e) the administrative process so as to simplify rather than further complicate railroad regulation. 125 Cong.Rec.S 15309 (daily ed. Oct. 29, 1979). To accomplish these purposes, S.1946 set up a simple test for determining whether a rate is subject to Commission review, and specified percentages by which railroads could increase rates without facing any threat of rate suspension. The bill, like the Act itself, set forth a two-part test for judging rate increases. 24 Rate increases to recover costs would be free from attack while additional rate increases up to a specified percentage could not be suspended and could only be challenged by shippers who would bear the burden of proving unreasonableness. Discussing the first threshold-the percentage increase authorized by the inflationary cost index-Senator Cannon explained: 39 The railroad's financial difficulties may be attributed in part to the timelag involved in recovering cost increases. This section will assure that rail rates reflect a carrier's current costs. 40 125 Cong.Rec.S 15315 (daily ed. Oct. 29, 1979) (emphasis added). In contrast, he stated that the bill's rate flexibility zone above cost increases within which shippers bear the burden of proving unreasonableness would assist the railroads in achieving adequate revenue levels and (would) provide additional flexibility for rate changes without regulatory interference. Id. 41 Throughout hearings on S.1946, witnesses adhered to the view that the function of the inflationary cost index was to allow railroads to receive rate increases warranted by cost increases without the expense and delay of rate review proceedings. See, e.g., Senate Hearings 122-23 (Statement of A. Daniel O'Neal); 444 (Statement of Richard E. Miller); id. at 541 (Statement of Bruce A. Melaas). Indeed, the bill's limitation of its free zone to cost-based increases stood in stark contrast to the administration's proposed bill-which would have allowed for annual seven percentage point rate increases above cost increases. See Senate Hearings 136-37 (Statement of William H. Dempsey). 42 Although witnesses at the Senate hearings proposed changes in the bill's language to assure that the index would accurately reflect incurred costs or to explicitly allow free rate increases above costs, 25 no one suggested that the function of the inflationary cost index was anything other than to provide a rapid mechanism for translating cost increases into rate increases. This view of the underlying purpose of the inflation index was reaffirmed when S.1946 was reported out of committee. See S.Rep.No.96-470, 96th Cong., 1st Sess. 19-20 (1979); 126 Cong.Rec.S 3278, S 3280 (daily ed. Apr. 1, 1980) (Statement of Senator Cannon). 26 43 This consistent view of the function of the inflationary cost index, however, falls short of proving that section 203 envisions an output index. As the Commission noted, the theoretical validity of increasing rates in accordance with costs per unit of output is a different matter from the soundness of insisting that whatever output methodology is currently available be immediately incorporated into the cost index regardless of its reliability. If that methodology is unreliable, or involves undue delays, the resulting index could hamper rather than help the statutory goal of timely rate increases to cover current rail costs. Congress may well have had in mind the difficulties of translating statistical theory into practice when it required the Commission to make only appropriate adjustments to its cost index. Thus, while we agree with petitioners that the purpose of section 203 was to allow railroads to keep up with cost increases, we cannot conclude that this purpose mandates adoption of an output index regardless of the accuracy of such an index or the feasibility of designing it so as to allow railroads to obtain rate increases in a timely manner.