Opinion ID: 403665
Heading Depth: 4
Heading Rank: 2

Heading: Underlying Purpose of Section 203

Text: 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.