Court Opinion

ID: 9339399
Source: CourtListenerOpinion
Date Created: 2022-12-16 17:47:08.738461+00
Date Added: 2024-06-11T17:15:19.523525
License: Public Domain

SPRECHER, Circuit Judge,
concurring in part and dissenting in part:
I concur with all portions of the majority opinion except IB.l. concerning the definition of “current cost.”
It is clear that a railroad is entitled to be subsidized for the avoidable cost it incurs in operating a branch line, which cost is to include the depreciation which occurs to cars and other equipment used on the branch line. The Commission and the railroads disagree concerning what basis should be used to calculate this depreciation, the Commission arguing that the original cost of the branch line equipment is the proper standard, while the railroads contend that the value of new equipment (replacement cost) should provide the standard. I, contrary to the majority, think that the position of the Commission is sound both legally and logically, and would thus deny that portion of the petition for review.
Legally, the Commission’s position is that it is merely continuing to employ the depreciation standard (original cost) which it has previously used under the Regional Rail Reorganization Act of 1973. There is no legislative history which would support the view that Congress meant to repudiate the Commission’s regulation to that effect. Indeed, the only legislative support cited by the majority for its position is the testimony and proposal of one of numerous witnesses before the Senate Subcommittee on Commerce. Without any explicit, direction from Congress and without any indication in the legislative history of Congress’s dissatisfaction with the original cost standard being used by the Commission, I would conclude that the Commission acted reasonably by interpreting “current cost” to mean the current value of equipment being used on the branch line.
Beyond the dispute regarding legislative history, the Commission’s position is even more compelling on the basis of logic and economic analysis. We must ask ourselves what is the nature of the present economic saving that would result from discontinuance or abandonment. The majority assumes that the answer is that new equip*1065ment would not have to be purchased and thus the cost of this new equipment should set the standard for current costs. While initially appealing, this solution I believe miscomprehends the economic significance of abandonment to a railroad.
In basic terms, the present saving that results from discontinuance of a branch line is that the equipment from the branch line can be used on the main line. The use of this equipment does not replace the purchase of new cars as the railroads contends and as the majority agrees, but rather merely postpones the purchase of new ears for a period of time determined by the remaining useful life of the transferred equipment. This remaining value of the transferred equipment is approximated by depreciating the original cost of that equipment, as the Commission has mandated in its regulations.
The majority would award the railroad the cost of new cars and new equipment no matter what the true condition or usefulness to the railroad of the branch line equipment. I would agree with the Commission’s more flexible position' that the saving to the railroad is, in reality, merely the remaining value of the transferred cars. In the majority’s example, this value would be the original cost of the equipment as depreciated after 29-years, or $3,000. This “use value” of the transferred cars is clearly the only “avoidable cost” the railroads can properly claim. Anything more overvalues the transferred equipment and provides more than mere compensation.
Not only do the railroads get an economic windfall under the majority approach, but the result reached there also provides an economic incentive to the railroads to provide poor quality equipment on the branch line. The railroads can always properly claim depreciation for tax purposes at the full rate for any new equipment purchased, which, in the example, is $20,000, whether or not this car is used on the branch line or on the main line. However, since the majority’s approach also places a replacement cost value on the 29-year old car being used on the branch line, the- railroads get a “subsidy bonus” of the difference between the majority’s mandated replacement cost depreciation standard and the true depreciation applicable to the branch equipment, which equals $20,000 minus $3,000 or $17,-000. Thus, the railroad receives an effective depreciation value of $37,000 under these standards.
This “subsidy bonus” of $17,000 results purely from the use of a replacement cost standard to value branch line equipment, and increases in direct proportion to the decrease in the quality of equipment provided on the branch line. The Commission, on the other hand, would give the railroads a subsidy that reflects the quality of the equipment which Is provided, which is $3,000 in the example.
If a railroad puts a new car on the branch, then the full depreciation value of that car should be subsidized. If, however, a railroad provides old cars on the branch line, then the subsidy should reflect the true value of those cars, as the Commission’s regulations provide. The majority approach results in the anomaly of effectively saying to the railroads, “we will give you a replacement cost depreciation subsidy no matter how poor the condition of the equipment that you provide for the branch line. Indeed, you have the most to gain by using the worst equipment on the branch line.”
The incentive to provide poor branch line equipment which flows from the majority’s conclusion that “current cost” means “replacement cost” is clearly detrimental to continued and improved safety in the provision of rail service on branch lines, which result I would hesitate to reach in light of Congress’s silence on this question. Therefore, the petition for review of the regulation concerning “current cost” should be denied.