Opinion ID: 390017
Heading Depth: 2
Heading Rank: 4

Heading: Statutory Ratemaking Standards (Revenue Adequacy)

Text: 62 Burlington Northern next contends that Section 205 of the 4-R Act of 1976 created a new Rule of Ratemaking which is violated by the agreed rate. 23 Under Section 205, the Commission is statutorily obliged to establish such rates as will allow a railroad to earn a reasonable profit or return, attract and retain capital, and support capital outlays. 49 U.S.C. § 10704(a) (2). 24 Burlington Northern challenges the Commission's cost of service calculations, arguing that its own calculations show the railroad will fail to recover fully allocated costs for the Council Bluffs movement. Moreover, even if the Commission's lower cost of service calculations are accepted, BN argues that the Commission-approved rate does not satisfy the statutory requirement of revenue adequacy set forth in 49 U.S.C. § 10704(a)(2). 63 We turn first to the allegation that the Commission miscalculated BN's cost of service. BN specifically objects to two adjustments in the Commission's statement of costs: the removal of the return on road property included in Rail Form A, and the deduction of deferred taxes from the net investment base prior to calculating the overall cost of capital. 64 This court has recently considered and approved these same cost adjustments as comporting with established Commission policy and appellate court precedent. Iowa Public Service Company v. ICC, 643 F. 2d 542, at 546-48 (8th Cir. 1981), citing San Antonio, Texas v. United States, 631 F.2d 831, 841-44, 846-47; Ex Parte No. 338, Standards and Procedures for the Establishment of Adequate Railroad Revenue Levels, 358 ICC 844, aff'd as modified, 359 ICC 270 (1978). Accordingly, and for the reasons set forth in the above-cited authority, we conclude that the ICC's cost restatement was not arbitrary, capricious or otherwise violative of the law. 65 We turn next to the argument that the agreed rate will not satisfy the revenue adequacy requirements of 49 U.S.C. § 10704(a)(2). The $5.62 agreed rate exceeds both total variable costs plus additives at the embedded debt level ($4.56) and total variable costs plus additives at the revenue need level ($4.58). The agreed rate also slightly exceeds restated fully allocated costs plus additives at the revenue need level ($5.53). I & S 9199, supra, 364 ICC at 209-10. In view of the fact that the agreed rate covers fully allocated costs at the revenue need level, it is difficult to perceive that the rate fails to meet the revenue adequacy requirement of the statute. 25 66 Burlington Northern does not allege a violation of Section 202(b) of the 4-R Act, Pub.L.No.94-210, 90 Stat. 35 (1976), as recodified in substance by the Revised Interstate Commerce Act, Pub.L.No.95-473, 92 Stat. 1371 (1978), 49 U.S.C. § 10701(b)(1), which provides that a rate is not below the reasonable minimum rate if it contributes to a railroad's going concern value. See also Ex Parte No. 355, Cost Standards for Railroad Rates, 362 ICC 799, 800 (1980). Here, the Commission found that the agreed rate contributes to BN's going concern value. I & S 9199, supra, 364 ICC at 193. 67 The Commission has also soundly reasoned that enforcement of the agreed rate will in the long run be of value in helping BN attain adequate revenue levels. I & S 9199, supra, 364 ICC at 194. Enforcement of the agreed rate will encourage shippers to enter long-term contracts for shipments of significant volume. Negotiated ratemaking is a pricing innovation expressly recognized by the Commission as a possible key to revenue adequacy. Ex Parte No. 353, Adequacy of Railroad Revenue (1978 Determination), 362 ICC 198, 278, aff'd, 362 ICC 794 (1980). 68