Opinion ID: 383816
Heading Depth: 1
Heading Rank: 8

Heading: geographic competition67

Text: 132 The Commission found that even if CP&L and Texas had established the revenue/cost presumption of market dominance, the railroads had rebutted the presumption by specific evidence of competitive alternatives. 68 It concluded that both before and after CP&L had entered its contract with Colowyo, geographic competitive alternatives existed. The Commission found that with respect to the period before the Colowyo contract, CP&L had its choice of numerous sources of coal, carriers and varying modes of carriers, without specifying any of these alternative sources or carriers. In an apparent attempt to blunt the effect of CP&L's long-term contract with Colowyo, the Commission reasoned that CP&L had retained considerable flexibility under the terms of the contract, especially flexibility resulting from the assignment clause of the contract. 69 The Commission did not specify what flexibility, other than possible assignment, there was in the contract. It made no findings as to the practicality or likelihood of CP&L finding an assignee, nor did it discuss the significance of the provision within the assignment clause that CP& L would remain liable after any assignment. Nowhere in the opinion did the Commission indicate what alternative sources of coal would now be available should CP&L assign its contract. 133 Three objections are raised to the Commission's consideration of geographic competition to rebut any showing of market dominance through the presumptions. First, CP&L and Texas argue that the language of § 10709(a) precludes the Commission from considering geographic competition and limits it to consideration of competition in the form of other rail carriers from Axial, Colorado, to Coleto Creek, Texas, or other modes of transportation between those two points. 70 We discuss this argument in Subpart A below. Second, CP&L, but not Texas, maintains that even if the Commission could, under the language of § 10709 consider geographic competition, it is precluded from doing so under its decision in Ex parte No. 320, Interim Report and other prior cases, defining the criteria for establishing market dominance. We discuss this argument in Subpart B. Finally, CP&L, Texas and Justice all contend that even if the Commission could consider geographic competition under § 10709 and Ex parte No. 320, Interim Report, its finding in this case that geographic competition exists was not based on a reasoned analysis of all the relevant factors and was contrary to its prior approach in factually similar cases. We discuss this argument in Subparts C and D. 134
135 We decline at this time to address the question of whether a reasonable interpretation of market dominance as used in § 10709 permits the consideration of geographic competition. 71 As we note immediately below, the Commission at one time clearly construed the statute as barring consideration of geographic competition, but has attempted to abandon this interpretation. Our reasons for making no decision at this time are set out more fully in the immediately following subpart, but essentially involve the fact that we do not have the benefit of Commission thinking as to why the language and history of § 10709 do not preclude consideration of competition other than that between the point of origin and destination. 72 136
137 CP&L argues that even if the language of § 10709 permits the Commission to consider geographic competition, the Commission's holding in Ex parte No. 320, Interim Report precludes such evidence. 138 In proposing the market share presumption, the Commission engaged in a lengthy discussion of the relevant market. The Justice Department, the Department of Transportation, and the railroads proposed a broad market definition, including competition of substitute products and geographic competition. Ex parte No. 320, Interim Report, 353 I.C.C. at 900. The Department of Transportation in particular urged that geographic competition be used to rebut any presumption arising under the market share test. 353 I.C.C. at 901. 139 Although its discussion occurred in its consideration of the market share presumption, the Commission clearly rejected the proposals of the Justice Department, the Department of Transportation, and the railroads on the broad basis of the language of § 202(b) of the Reform Act, as well as the policy behind the statute. The Commission held that § 202(b) of the Reform Act precluded the Commission from looking to geographic competition. 73 The Commission was clearly interpreting the broad, statutory concept of market dominance as defined in § 202(b), and not just the definition of market as used in the market share presumption. In issuing Ex parte No. 320, Final Report, adopting the present regulations, the Commission in no way modified its interpretation of market dominance as used in the statute. This is the statutory interpretation which CP&L urges us to adopt as the only reasonable interpretation of § 202(b); this is the interpretation which the District of Columbia Circuit upheld in Atchison, Topeka & Santa Fe Railway Co. v. ICC, 580 F.2d at 634. 140 Since the issuance of Ex parte No. 320, Final Report, the Commission has apparently reversed itself, indicating in very brief language that evidence of geographic competition is relevant in determining market dominance. In its clarification of the revenue/cost presumption required by the remand in Atchison, Topeka & Santa Fe Railway Co. v. ICC, supra, the Commission in a footnote stated that there had been a misunderstanding of the Commission's willingness to consider all evidence relevant in determining market dominance, noting: 141 While certain evidence is not germane to computing market share, proponents of a rate may introduce evidence of potential competition, competition from private carriage, alternative product competition or geographic competition to show that effective competition exists. 142 359 I.C.C. at 736, n.7. In a case decided at approximately the time this case was filed, the Commission again noted without explanation that geographic competition is relevant in rebutting any presumption. BN-Iowa at 28. In a case decided after the record was closed in this case, the Commission noted that it had requested the parties to supply information concerning substitute coal origins. Increased Rates on Coal, Midwest Railroads August, 1979, Docket No. 37246, Served Nov. 15, 1979 (unprinted). Finally, in this case the Commission stated that its prior remarks prohibiting the consideration of geographic competition were limited to the definition of market as used in the market share presumption. 143 These statements by the Commission indicate its desire to alter its prior statutory interpretation of market dominance found in Ex parte No. 320, Interim Report. However, the Commission has not given reasons why it believes its initial interpretation of § 202(b) of the Reform Act is incorrect. When an agency desires to depart from its prior norms or from a prior statutory interpretation, it must clearly set forth its reasons. Atchison, Topeka & Santa Fe Railway Co. v. Wichita Board of Trade, 412 U.S. 800, 808, 93 S.Ct. 2367, 2375, 37 L.Ed.2d 350 (1978); NLRB v. Sunnyland Packing Co., 557 F.2d 1157 (5th Cir. 1977). The Commission at one time set forth extensive reasons for its interpretation that § 202 of the Reform Act precluded consideration of geographic competition, and cannot now reject that well-developed reasoning without explanation. 144 Two additional problems immediately come to mind as a result of this unexplained change. First, were we to uphold the Commission's consideration of geographic competition in this case, we would in effect be approving a new interpretation of market dominance as having a reasonable basis in law without the benefit of the Commission's thoughts on this matter. In the normal course of events, an administrative agency pronounces its understanding of a statute, which in turn is afforded deference by the reviewing court. 74 On this appeal we decline to consider whether the language or history of § 10709 permits consideration of geographic competition. We prefer to have the benefit of the Commission's considered analysis of its prior reasoning in Ex parte No. 320, Interim Report and the reasons, if any, for revising that interpretation. Since we are remanding this case for reconsideration of other issues, obtaining the Commission's reasoning on this matter will not delay this proceeding. 145 Second, this court is ill-equipped to address in the first instance one aspect involved in the determination of whether § 202(b) of the Reform Act permits consideration of geographic competition. One of the requirements imposed by § 202 of the Reform Act was that the Commission establish rules designed to provide for a practical determination (of market dominance) without administrative delay. Thus, in determining the scope of market dominance, as used in the statute, a relevant factor is the rapidity with which the Commission can determine the existence of market dominance. The Commission in Ex parte No. 320, Interim Report noted that consideration of geographic competition and other forms of competition would require lengthy antitrust-type litigation and would perhaps frustrate its ability to make market dominance determinations promptly. 353 I.C.C. at 905. We perceive nothing in the Commission's later holdings-that geographic competition is relevant in determining market dominance-explaining why it now believes such evidence would not frustrate the statutory mandate for quick determination. Not being involved in the agency stages of rate litigation, this court is an inappropriate forum to determine in the first instance and without the benefit of the Commission's thinking, whether the quick determination requirement can be met if geographic competition is considered. 146
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
156 The Commission also found that competitive alternatives were available to CP&L before it entered into the Colowyo contract. The only evidence in the record concerning the existence of alternative sources before the Colowyo contract is the brief summaries by railroad witnesses implying possible contacts CP&L may have had with other domestic coal mines as it began its search for a reliable and suitable source, as well as railroad witnesses' assertions that CP&L acknowledged contacts with other mines. (J.A. II, pp. 798 and 859-60). As we noted above in our discussion of the substantial investment presumption, there is no indication that these other mines had coal in the quantities or quality necessary for CP&L's Coleto Creek plant. There is no indication as to how serious negotiations were with these other mines or how far they progressed. As such, we believe this evidence is insufficient to support the Commission's findings of the existence of geographic competition before the Colowyo contract, and those findings are accordingly vacated. 157