Opinion ID: 383816
Heading Depth: 2
Heading Rank: 3

Heading: Commission's Finding of Geographic Competition After the Colowyo Contract.

Text: 147 Because we have not precluded the Commission on remand from adopting, subject of course to judicial review on subsequent appeal, an interpretation of market dominance including considerations of geographic competition, we must address the Commission's specific finding that the railroads had produced evidence of geographic competition sufficient to rebut the presumption. A threshold deficiency in the Commission's approach is its failure to cite or distinguish its past cases involving attempts to utilize geographic competition when a shipper had entered into a long-term contract. In every case where parties have asked the Commission to find geographic competition because of alternative sources available to a shipper before entering a contract, the Commission has ruled that such alternative sources are irrelevant once a shipper is committed to one source. Kings Mill, 359 I.C.C. at 761; Smithers Lake, 358 I.C.C. at 543 and 555; cf. Flint Creek, at p. 9 (Before the shipper has signed a contract with a mine, it may still have bargaining power.); cf. Council Bluffs, 359 I.C.C. at 206 (Once all these commitments were made and all effective competition was eliminated ....). Smithers Lake makes clear that alternatives available before entering a contract are not relevant in determining effective competition after a contract has been entered when it states: 148 We reject respondents' contention that the past competitive circumstances surrounding other possible sources of coal should be considered. While the decision to ship from the Jacob's Ranch Mine may well have been arrived at in a competitive atmosphere, once protestant made that commitment and agreed to a supply contract it could not change origins. This being the case, 'market competition' provides little protection to the shipper if the railroads were to attempt to exact an unreasonably high rate. 149 358 I.C.C. at 555. These cases establish as a general principle the Commission's recognition that a long-term contract can effectively lock in a shipper and render competitive alternatives ineffective. On remand, the Commission shall consider the foregoing cases, either follow them, demonstrate why they are not apposite, or explain why it is changing the rule announced therein. 150 It is possible that the Commission was attempting to distinguish sub silentio the above line of cases by finding that the railroads had made and supported several allegations of flexibility in the Colowyo contract. 75 Because the Commission did not indicate which one or more of the railroads' several allegations of flexibility were found by the Commission to have support in the record, we discuss the several allegations seriatim. 76 151 First, the railroads asserted below, and the Commission apparently found, that geographic competition was available because the Colowyo contract is assignable. (J.A. II, pp. 896-897). We find no evidence in the record to support a finding that CP&L could readily find an assignee for the contract or that assignment is a realistic possibility. The Commission apparently looked only to the fact that the contract had an assignment clause. We believe that it is arbitrary to find geographic competition solely on the basis of the assignability of the contract, without any evidence that assignment is a realistic alternative. Moreover, to do so flies in the face of the Commission's previous decision in BN-Iowa. There, the shipper, a public utility which was adding a fourth generating unit, entered into a long-term contract for coal. Although the contract had several option clauses and termination clauses affecting its length, the Commission assumed at the time of its decision that the projected length of the contract was 5 years. The assignment clause was much the same as in the contract before us. The Commission concluded in BN-Iowa that geographic competition did not exist despite the assignment clause. Accordingly, we vacate this aspect of the Commission's decision. 152 Second, the railroads below asserted that the contract was flexible because only 77% of CP&L's needs for coal, representing a delivery of approximately 1.35 million tons per year, would be supplied pursuant to the Colowyo contract, and because of a clause in the contract allowing a variation of delivery of 10% each year. The railroad witness also noted that in 1990-1994, delivery would drop to 900,000 tons per year. (J.A. II, pp. 892-894). We do not believe these facts provide any evidence of flexibility. CP&L is obligated under the contract to take delivery of substantial quantities of coal each year. That coal must be moved from Axial, Colorado, to Coleto Creek, Texas. Accordingly, the Commission need not consider on remand the issue of flexibility of the contract because only 77% of CP&L's needs are to be supplied. 153 Third, the railroads below asserted that the Colowyo contract can be terminated if the coal fails to meet certain specifications. (J.A. II, p. 898). There is no evidence in the record to suggest the likelihood that the coal will not in fact meet the contract specifications. Accordingly, we vacate the Commission's finding in this regard. 154 Fourth, the railroads below asserted that the contract was flexible because CP&L could resell the coal. The argument is that, if CP&L could easily resell the coal, it would then be free to contract for coal from other sources, thus introducing geographic competition. The evidence does include the testimony of a railroad witness to the effect that the Colowyo coal is desirable coal and by western coal standards is of high quality. (J.A. II, pp. 897-8). The witness testified that the high quality of this coal, combined with CP&L's access to South African coal, made resale a reasonable possibility. Ibid. We have considerable doubt that the witness' testimony alone could support a finding of flexibility; but we do not have to determine this question at this time. As noted, CP&L did present a witness who rebutted the railroads' testimony. This witness testified as to the implausibility of resale, noting that the only resale which would do CP&L any good would be of all the coal, a possibility the witness stated was unlikely. (J.A. II, pp. 1925-1926). On remand, if the Commission reaches the rebuttal stage of consideration of geographic competition, it should explain why the evidence concerning resale supports a finding of flexibility, and should do so in light of the evidence presented by CP&L. 155