Opinion ID: 444114
Heading Depth: 1
Heading Rank: 4

Heading: substantive issues in dispute

Text: 62 Central to our inquiry are the determinations of the Utah Commission with regard to the revenue adequacy of the Rio Grande and the Salt Lake. The ICC had already found the Rio Grande to be revenue inadequate and the revenue adequacy of the Salt Lake to be irrelevant. The Utah Commission disagreed and ruled that the Rio Grande was revenue adequate. Utah Commission Report and Order at 9, 20 (JA 94, 105). With respect to Utah Power's contention that its evidence proved the Rio Grande to be revenue adequate, it is a complete reply to rely on the finding of the ICC that the Rio Grande was revenue inadequate. In Ex Parte No. 439, Railroad Revenue Adequacy--1981 Determination, Appendix (I.C.C. Nov. 18, 1982), the ICC determined under the Staggers Act that railroads with 16.5 percent or higher return on investment had an adequate return in 1981; that the Rio Grande during that year had a return on investment of 8.09 percent and was therefore considered revenue inadequate. Id.; cf. Ex Parte No. 416, Railroad Revenue Adequacy--1980 Determination, 365 I.C.C. 285, 287, 288 (1981) (inadequate); Ex Parte No. 393, Standards for Railroad Revenue Adequacy, 364 I.C.C. 803, 826 (1981), aff'd Bessemer & Lake Erie Railroad v. ICC, 691 F.2d 1104 (3d Cir.1982), cert. denied sub nom. Western Coal Traffic League v. United States, 462 U.S. 1110, 103 S.Ct. 2463, 77 L.Ed.2d 1340 (1983) (determinations for 1979) (same). In refusing to accept the determination of the ICC that the Rio Grande was revenue inadequate, the Utah Commission violated its obligation to comply with federal standards and procedures, in the form of federally announced general standards and a decision rendered by the ICC in conformance with the Staggers Act. 20 The determination and revision of revenue adequacy standards is expressly made a federal responsibility. See 49 U.S.C. Sec. 10704(a)(2); 21 49 U.S.C. Sec. 10101a(3). 22 To carry out its statutory mandate, the Commission annually determines the revenue adequacy of railroads. These determinations of revenue adequacy are not mere suggestions to the state agencies: they constitute federal standards, which must be accepted by the states. The determination by the ICC of the revenue adequacy of Class I railroads in general, and the Rio Grande in particular for the relevant year, constitutes a federal standard which is binding on state agencies. 49 U.S.C. Sec. 11501(c); see Wheeling-Pittsburgh Steel, supra, 723 F.2d at 554-55. It is difficult to imagine a regulatory regime more nightmarish than one in which a railroad, for ratemaking purposes, would be judged revenue adequate in State A, but revenue inadequate in State B. Solely on the determination by the Utah Commission that the Rio Grande was revenue adequate, which was contrary to the determination of the ICC--and therefore to the Staggers Act--the reversal of the decision of the Utah agency by the ICC is fully justified. 63
64 Once the ICC decided to reverse the Utah Commission, the last sentence of section 11501(c) (emphasis added) came into play: 65 If the Commission determines that the standards and procedures were not in accordance with the provisions of this subtitle, its order shall determine and authorize the carrier to establish the appropriate rate, classification, rule or practice. 66 Congress' use of the word shall imposes a duty on the ICC. This mandate to first determine and then to authorize the appropriate rate was followed by the ICC in its order: Determination of Appropriate Rate 67 Under 49 U.S.C. 11501(c), when we determine, as here, that the standards and procedures applied by the State authority are not in accordance with Federal law, we must determine and authorize the carrier to establish the appropriate rate. By statute we must take final action within 30 days after receipt of the underlying petition for review. The [Utah Commission] held a full hearing to establish the appropriate rate and we have reviewed portions of the record as considered pertinent and submitted by the parties, and the decision in its entirety. Based upon our revised figures for variable costs, after correcting errors in the cost computation used by the [Utah Commission], we conclude that the assailed rate level of $5.97 per ton, which was in effect October 1, 1980, is 208.7 percent of variable costs, as explained in detail in the attached appendix. We have held rates to be reasonable where they resulted in a similar range of ratios, especially where considerations of revenue adequacy are significant. See, among other cases, No. 37014, E.I. DuPont de Nemours & Co. v. St. Louis Southwestern R. Co., et al. (not printed), served March 30, 1979 (209 to 235 percent of variable costs); and Trainload Rates on Radioactive Materials, Eastern Railroads, 362 I.C.C. 756, 775 (1980), aff'd mem., 646 F.2d 642 (D.C.Cir.1981) (213.8 to 225.7 [sic 255.7] percent of variable costs). 68 Here, as stated earlier, the class I 23 defendant [Rio Grande], realizes a return on investment below what is necessary for revenue adequacy. Balancing the goals reflected in Title 49 of the United States Code, especially in section 11501 and its history, the evidence before us, and practical considerations, we determine that the appropriate rate, authorized at the October 1, 1980 level, subject to intervening increases, is the rate of $5.97 per ton. 69 ICC Decision at 10 (JA 593) (emphasis added). 24 70 At oral argument, ICC counsel contended that the Commission could remand to the state agency. While this interpretation of the Act has not been briefed or fully argued, relying solely on the wording of the Act, we cannot agree. Indeed the ICC's own decision in Petition of Louisville and Nashville Railroad Company for Review of a Decision of the Public Service Commission of Indiana Pursuant to 49 U.S.C. 11501, No. 38946 (I.C.C. June 17, 1983), speaking to the same contention, stated: We cannot remand the case to the state authority but must establish an appropriate rate in the same decision within the 30-day time period. Id. at 20 (emphasis added). 71 Beyond the statutory terms of section 11501(c), and the ICC's concession in Louisville & Nashville, supra, there is an additional reason to reject the suggested approach of a remand to the state commission: the principal object of the Act is to protect the public. Both the Utah Commission and the ICC agree that these railroads exercise market dominance over this particular traffic. Utah Power, a public utility, is thus a captive customer. We cannot imply from the statute a procedure that would leave the public and Utah Power as hostages to the successful resolution of methodological debates between the federal and state agencies. The disagreements in approach between the ICC and the Utah Commission--or any other state commission for that matter--may continue for years. The wrangle may in fact be endless. To allow the ICC to simply reverse the state agency and remand the rate proceeding to the state agency is to invite a repeat performance with an only slightly altered script. In many, if not most, instances, railroads might be placed at the risk of having their intrastate rates fixed at the low threshold figure. Thus one of the evils the Staggers Act seeks to remedy would still continue. It is not the intent of the Staggers Act that threshold rates should constitute the maximum reasonable rates for intrastate traffic and require interstate rates to take up the slack in producing revenue that is adequate for sound operations; rather it seems the Act contemplates that intrastate and interstate rates should, in general, approximate parity. Furthermore, while the Utah Commission and the ICC pirouette around the technical niceties of rate-making, Utah Power must run a power plant and the public must pay the cost plus a reasonable profit. One overriding purpose of the Staggers Act is to provide reasonable rates for everybody in very short order. That purpose is frustrated if the ICC is allowed to assume only the duty of dispensing of regulatory imprimatur. If it finds fault with a state decision, the Commission must correct that fault, and it must do so within the 30 day period within which the statute commands that final action on the petition must be taken. 49 U.S.C. Sec. 11501(c). 72 However, we cannot affirm the decision by the ICC to allow the original rate to stand unless the Commission's underlying cost calculations are substantiated in the record. San Antonio, Texas, supra, 631 F.2d at 837. Because we have some doubt that certain of the ICC's cost calculations have fully adequate evidentiary support in the record, we remand the case to the ICC so that it may reexamine the data and then determine and authorize the appropriate rate that it finds to be justified under applicable federal standards and procedures. 73 Utah Power poses a number of distinct cost-based challenges to the ICC's handling of rate inquiry. The Utility argues that the ICC's cost appendix is fundamental to its decision, because the variable costs associated with the traffic are critical to a determination of the revenue/variable cost ratio of the movement, which is in turn central to an inquiry into the determination of the appropriate rate. Utah Power asserts that the appendix contains at least three crucial errors regarding cost calculations--errors which allegedly undermine the ICC's declaration that the rate in issue was appropriate. Specifically, the Utility asserts that ICC's reversal of three of the Utah Commission's cost findings were clearly erroneous: (1) the cost of interchange switching (per car); (2) the cost of UP's switching expense (per car); and (3) the cost of origin switching at the mine. Utah Power further argues (4) that the ICC completely failed to review an alternate holding of the Utah Commission--that the rates at issue are excessive even if the railroads are not revenue adequate. Utah Power Reply Brief at 33. Finally, the Utility asserts (5) that the ICC misunderstood the scope of the Salt Lake's role in this movement, deciding erroneously that the Rio Grande's role as predominant carrier rendered the analysis of the revenue position of the Salt Lake irrelevant. We consider these contentions in order.
74 One issue is the cost of Rio Grande yard crews at Salt Lake City, who receive the consist from the road crews after the trip from the mine and move the loaded coal cars to the Union Pacific. Railroad crews are prohibited by law from operating for more than 12 hours in a single day, and the round trip from Salt Lake City to the mine and return generally takes about 12 hours. Thus a relief Rio Grande crew is frequently needed to deliver the consist to the UP (JA 531-32). 75 Utah Power contends that 10 other coal cars destined for other consignees are frequently added to the 35 that are normally destined for Utah Power's Gadsby Plant, and that the added cost of switching these extra cars should not be allocated to the movement of the coal cars consigned to Utah Power. Out of 13 movements in the record that were checked, it appears that only four consisted solely of 35 cars in the Rio Grande train destined for Utah Power; the other nine trains initially included 10 additional cars destined for another consignee. On this evidence, the Utah Commission refused to include any of the cost of the relief crew in the rate it ordered because of the allegation that the relief crew was only required because of the additional 10 cars of another shipper. There is testimony, however, that the relief crew did not do anything with the ten added cars (JA 271). In any event, a relief crew was required after 12 hours and the movement from the mine was always operating close to the maximum time limit. Under such circumstances, recognizing the frequency with which train delays occur, even where operating conditions are closer to ideal, it was reasonable for the Rio Grande to provide a relief crew. It was also not necessary for the regular train crew to work a full 12 hours. Twelve continuous hours was the absolute statutory time limit for operating train crews; there is good reason, though, for safety reasons, that operating train crews should not always be pushed to the maximum time limit. Therefore, we find that the reasonable cost of the relief crews was validly included in computing the rate. 76 The costs associated with the number of locomotives used in switching coal cargoes between railroads are also at issue. The railroads argued before the ICC that the determination by the Utah Commission of these switching costs was inappropriate because it should have considered the actual number of locomotives used in the switching, not the average number of units used, as had been the case at the Utah Commission (JA 124). Utah Power did not challenge this point, but argued further that the railroads' figures were still fatally flawed in that the carriers would assign the entire cost of those locomotives to [Utah Power's] coal traffic when the cause of the additional cost is the additional cars for other shippers that are sometimes part of the [Rio Grande] train (JA 190). Utah Power contended that [t]he additional costs should be assigned to the additional cars that cause the delay (JA 190-91). If, as stated above, the relief crew did nothing with the 10 cars, the Utility's point is flawed. The exact proportional amount may not be easily discernible, but doubtlessly the major portion of the cost of the coal movement must be attributed to Utah Power. The ICC's response professed an inability to resolve this particular question: 77 In view of the partial evidence from the Utah proceeding available, we are not able to affirmatively comment on this issue. Based upon our customary procedures whereby use of locomotive units differing in number from the Rail Form A average may be reflected, we accept petitioners' adjusted cost as the best available evidence. 78 ICC Decision, Appendix at 3 (JA 598). On this factual record we are unable to declare with certainty that either party is correct on this issue, but we are certain that the locomotive costs that are properly allocable to the movements in issue have not been precisely determined. The difference in the amounts in dispute may be de minimis but it seems appropriate, when the case is being remanded, to obtain accurate evidence. On remand the ICC should further investigate the facts relevant to this issue.
79 Utah Power challenges the inclusion of the Union Pacific's charge, rather than its cost, for switching loaded coal cars from the Rio Grande to the Salt Lake and the empty cars from the Salt Lake to the Rio Grande for the next trip. The Utility contends that the switching arrangement between the railroads is reciprocal, and that the switching charge will not be imposed in the near future. Therefore, Utah Power concludes, only the actual variable cost of the movement may properly be included. Utah Power contends that the actual cost to the Rio Grande of the reciprocal switching arrangement with the Utah Power was not established. 80 In our view, it was proper to include the charge. If we understand the arrangement, it is the charge imposed that must be satisfied by supplying services of equivalent value. That being the basis of the arrangement between the railroads, we see no reason to depart from it because of the payment in reciprocal services. The cost to the Rio Grande is real even if the method of payment is by the provision of equivalent service rather than by check. Whether the charge will be imposed in the near future is irrelevant to the decision which this case requires. As to whetherthe Rio Grande's reciprocal switching services offset those of the UP, the Rio Grande and Utah Power each contends that the other did not produce evidence to substantiate its position. On remand the ICC may, in its discretion, further investigate the facts relevant to these claims.
81 Utah Power contends that none of the origin switching cost (roadway maintenance cost at Clear Creek) was substantiated, and therefore that none should be allowed. The ICC assigned only 30 percent of these total costs to the Rio Grande's operation. The ICC decision states that it is impossible to determine the parties' differences because adequate evidence had not been introduced in the record. ICC Decision, Appendix at 2 (JA 597). However, based upon what was termed a reasonable interpretation of the testimony of the mine officer that origin switching occurred on tracks predominantly owned by the mining company, the ICC concluded that 30 percent was a fair approximation of the costs that could reasonably be allocated to the Rio Grande. Id. We are uneasy with the ICC's indication that the record does not contain adequate evidence on this issue. In determining a rate, the ICC cannot simply throw up its hands on what may be a crucial inquiry. Consequently, on remand this issue may be opened for Utah Power to submit evidence and for the Rio Grande to respond. If no additional evidence is introduced, Utah Power may be found to waive any objection to this item and the ICC may determine that 30 percent of the costs was properly allocated to the rate. 82 Utah Power also questions this cost, contending that the mine operators made a massive loan to the railroad for rehabilitation of the tracks to the mine, upon which loan the Utah Commission could justifiably have relied in [totally] excluding this item of costs from the costs of the movement. Utah Power Reply Brief at 31. The terms of the loan are not set forth. The fact that costs may have been paid by the proceeds from a loan, however, does not in any way alter the fact that costs were incurred. Ordinarily loans must be repaid. Thus, such costs should not be eliminated in computing the rate merely because they may have been paid from the proceeds of a loan. On remand, the ICC may reopen the record to any evidence that may indicate the circumstances, or the terms of the loan, that might justify the exclusion of the costs to which the proceeds from the loan were applied.
83 Utah Power also rests on the Utah Commission's alternative holding that the Rio Grande rates at issue were excessive even if the railroads were not revenue adequate. The Utah Commission concluded on the law: 84 17. ... Even if [the Rio Grande and the Salt Lake] did not have adequate revenues, however, they would not be free to charge higher rates for traffic than we have ordered. The rate level we are permitting (181.2% of variable costs) is generous to the railroads, and provides for a considerable subsidy for other traffic. Congress did not intend that a railroad's revenue inadequacy would justify any rate. Staggers Rail Act of 1980, Report of the Committee on Conference on S.1946, H.R.Rep. No. 1430, 96th Cong., 2d Sess. 92 (1980). 85 Utah Commission Report and Order at 20-21 (JA 105-06). This conclusion rests completely on the reasonableness of a rate level permitting a return of 181.2 percent of variable costs of the transportation in question, as those costs were computed by the Utah Commission. On this point the decision of the ICC states: 86 Constant costs do not appear in the [Utah Commission] decision. To reiterate from our earlier observations, we do not endorse [the] approval of the double-rate-of-return device (181.2 percent factor) as applied to the variable cost to determine the maximum rate. 87 ICC Decision, Appendix at 5 (JA 600). While the double-rate-of-return standard might develop a rate that was reasonable under some circumstances, there is no justification for applying it rigidly as the maximum reasonable rate. Clearly, rates in excess thereof can still be found to be reasonable. The Utah Commission thus acted unlawfully when it applied a rigid double-rate-of-return standard --particularly when that standard was used as a device to rule unreasonable a rate that the Utility and the railroads had agreed upon and which the Utah Commission had ordered filed two years earlier. This was not a proposed rate, but was an existing rate that the parties agreed to and without objection the Utah Commission had ordered published. In the Matter of the Application of the Denver and Rio Grande Western Railway Company to Publish Freight Tariff 4166, No. 79-398-07 (Public Service Commission of Utah, 1979); see ICC Decision at 5 (JA 588). 88 Under such circumstances, the issue presented to the Utah Commission was whether the existing rate was unreasonable, not whether the state agency could fashion a lower rate that would in its view be borderline reasonable. In this respect, it seems that the Utah Commission has refused to recognize one lesson that the enactment of the Staggers Act sought to impress upon state agencies with respect to their regulation of intrastate rates: that the old home-town preferential rates that operated to deny railroads adequate revenue, and shift a substantial part of the burden of adequately supporting railroad operations to interstate traffic, were to be abolished. If state agencies in prescribing rates could hold all intrastate rates to mere bare-bones reasonableness--which they might, given the local demands on state agencies--railroads would still face revenue problems as costs and rates became outmoded and rates forced by competition were insufficient. Also, the delay factor in implementing new rates, which will always exist to some degree, could tend to keep intrastate traffic from paying an equal share of the cost of the necessary service it receives. This could lead to acute problems of revenue adequacy for railroads such as the Rio Grande, which apparently derives such a large portion of its revenue from intrastate operations. The Staggers Act mandates that the ICC prevent these abuses. 89 ICC precedents support its decision in this case. The Utah Commission found the rate excessive and ordered its reduction to one embodying 181.2 percent of variable costs. Utah Commission Report and Order at 20 (JA 105). The existing Rio Grande rate, according to the ICC, represented 208.7 percent of variable costs.... ICC Decision at 10 (JA 593). In contrast to the decision of the Utah Commission holding such percentage to provide an excessive return, the ICC has determined that where considerations of revenue adequacy were significant, rates within the area of the Rio Grande's 208.7 percent were reasonable. For instance, a rate of 209-235 [sic 255] percent of variable costs was held reasonable in E.I. DuPont de Nemours & Co. v. St. Louis Southwestern Railway, No. 37014 (1979). 25 While such determinations do not constitute fixed federal standards that must be followed by state agencies in setting every intrastate rate, they do establish a general range of rate reasonableness that must be respected by state agencies. The rates set by the Utah Commission here were substantially below the range of rates found to be reasonable by the ICC and under current ICC decisions were not the maximum reasonable rates as asserted by the Utah Commission. We cannot find unreasonable a rate that is within the range established by applicable federal precedents. Thus, we disagree with the Utah Commission that the rate at issue exceeded a reasonable maximum. Between the approaches of the two Commissions, we find that of the ICC to be more in keeping with the Staggers Act.
90 The ICC did not consider the revenue adequacy of the Salt Lake, allegedly because Utah Power did not question the Commission's decision that the Rio Grande was the predominant carrier and that the Salt Lake's revenue adequacy could not be a determinative factor. ICC Brief at 37-38. We cannot fully agree with the substance of this conclusion. 91 The complete trip from the Gadsby Plant to the mine at Clear Creek and return takes approximately 12 hours for the Rio Grande train crew. Before and after such trips, the Salt Lake breaks the consist into two parts and moves it a line-haul distance of 0.37 miles (round trip 0.75 miles). These complete operations by the Salt Lake, while they cover only a short distance, take almost eight hours. Furthermore, the coal movement for Utah Power represents approximately 75 percent of Salt Lake's total car traffic, and approximately 50 percent of its ton miles. Utah Power Reply Brief at 36. In this movement the Salt Lake operates as a line-haul carrier rather than a switching operation. In view of the amount of time involved in this operation, we have some difficulty with the ICC not reaching the possible effect of the revenue adequacy of the Salt Lake because it found [Salt Lake's] role in the rail movement here to be a minor one. ICC Brief at 37. We require the ICC on remand to consider the revenue adequacy and costs of the Salt Lake, and to give those factors such weight in determining the final rate as may be justified. We recognize that the ICC did accept Utah Power's development of Salt Lake's costs for purposes of its decision. ICC Decision, Appendix at 4 (JA 599). We cannot be sure, however, of the extent that the rate might be modified if the ICC considers the revenue adequacy of the Salt Lake. 92