Arizona Public Service Co. v. U.S.
| Citation | 742 F.2d 644 |
| Decision Date | 17 September 1984 |
| Docket Number | No. 83-1956,83-1956 |
| Parties | ARIZONA PUBLIC SERVICE COMPANY, Petitioner, v. UNITED STATES of America And Interstate Commerce Commission, Respondents, Atchison, Topeka and Santa Fe Railway Company et al., Intervenors. |
| Court | United States Courts of Appeals. United States Court of Appeals (District of Columbia) |
Petition for Review of an Order of the Interstate Commerce commission.
Richard S. M. Emrich, Chicago, Ill., with whom Herbert I. Zinn, New York City, was on the brief, for petitioner.
Cecelia E. Higgins, Atty., I.C.C., Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., John Broadley, Gen. Counsel, and Henri F. Rush, Associate Gen. Counsel, I.C.C., Washington, D.C., and John J. Powers, III, and Frederic Freilicher, Attys., Dept. of Justice, Washington, D.C., were on the brief, for respondents. Edward T. Hand, Atty., Dept. of Justice, Washington, D.C., also entered an appearance for respondents.
Louis P. Warchot, San Francisco, Cal., with whom Thormund A. Miller, Stuart E. Vaughn and Leland E. Butler, San Francisco, Cal., were on the brief, for intervenors.
Before WRIGHT, WALD and GINSBURG, Circuit Judges.
Opinion for the court filed by Circuit Judge J. SKELLY WRIGHT.
Petitioner Arizona Public Service Company, believing that rates charged by a number of railroads for delivery of oil to its generating facilities were unreasonable, petitioned the Interstate Commerce Commission to order the railroads to institute new, lower rates on the named routes. Under deregulatory legislation enacted by Congress in 1976 and 1980, the ICC can only investigate the reasonableness of a challenged rate if the railroads have "market dominance over the transportation to which the rate applies." 49 U.S.C. Sec. 10709(b) (Supp. V 1981.) (All references to Title 49 of the United States Code are to Supplement V 1981). The Administrative Law Judge in this case found requisite market dominance, see Arizona Public Service Co. v. Atchison, Topeka & Santa Fe R. Co., et al., February 15, 1983 (ICC Docket No. 38088S), Joint Appendix (JA) 373 (hereinafter cited as "ALJ Op."), but the ICC's Review Board reversed the ALJ's findings, see Arizona Public Service Co. v. Atchison, Topeka & Santa Fe Railway Co., et al., July 19, 1983 (ICC Decision No. 38088S), JA 482 (hereinafter cited as "Review Board Op."). Petitioner then brought the instant petition to this court pursuant to Section 10 of the Administrative Procedure Act, 5 U.S.C. Sec. 706 (1982), seeking to have the Review Board's decision overturned.
Petitioner claims that it made the strongest possible showing of market dominance and that the Review Board's reversal of the ALJ was arbitrary and capricious and was not supported by substantial evidence in the record. We agree that the Review Board largely ignored the evidence fully supporting a finding that the railroads did indeed have market dominance over the transportation to which the rate applies. We therefore vacate the Review Board's decision and remand for further proceedings consistent with this opinion.
Petitioner is a major utility that provides electricity for about 70 percent of the population of the State of Arizona. The ALJ's decision in this case supplies useful and uncontroverted details concerning petitioner's generating capacity. Because electricity cannot be stored, petitioner "must at all times maintain more than sufficient generating capacity on line and in reserve to produce enough power at any given moment to match the highest reasonably predictable peak load." ALJ Op. at 10, JA 381. A three-level generating system accomplishes this task. Coal-burning plants handle the base load demand for electricity. These plants require some distillate fuel oil to ignite the coal and to stabilize the temperatures at which it is burned. In a usual year the demand for distillate oil for such purposes is approximately 80,000 barrels. Id. When the demand for electricity approaches the capacity of the coal-burning plants, steam units capable of burning either residual fuel oil (which has markedly different characteristics from distillate oil) or natural gas come on line. Finally, special combustion turbines are used for periods of peak demand.
Five of petitioner's 40 electrical generating units use oil as their only fuel, and 17 more are equipped to burn either oil or natural gas. As a percentage of total generating capacity, petitioner uses a relatively small amount of oil. In 1981, 89.5% of petitioner's electricity was generated by coal, 9.9% by natural gas, and 0.6% by oil. These figures do not tell the entire story, however. Petitioner operates under three constraints when it purchases fuel. First, it naturally seeks to generate electricity using the least expensive fuels available. Coal has for some time been vastly preferable to natural gas and oil on this count. For this reason petitioner makes maximum use of coal to meet base load demands. Second, petitioner must consider state environmental regulations that limit the maximum sulphur dioxide emissions of petitioner's plants. Natural gas is a relatively clean fuel and thus is preferable to oil from this perspective; in addition, natural gas has been cheaper than oil at least since 1979. Petitioner accordingly now makes maximum use of natural gas to meet peak load demands. Third, petitioner must consider the availability of the various fuels. From 1972 until May of 1981 the federal government curtailed the supplies of natural gas to petitioner. The extent of curtailment varied during this period, but the general result of the curtailment was that petitioner had to increase purchases of oil to make up for the shortage of natural gas.
The oil that petitioner does use comes from a variety of sources. In part, this is because petitioner purchases from the least expensive supplier at any given time. Petitioner must also purchase only varieties of distillate and residual oils that, when burned, will remain within pollution limits set by state environmental regulations. Refineries produce varying grades and varieties of oil depending upon the characteristics of the crude oil supply at any given time, the demands of the overall market for particular product mixes, and the technical problems involved in refining oil. Much refined oil available at any given time will not meet environmental standards when burned in petitioner's plants. When petitioner needs oil, it needs oil immediately and, in light of the limited supply of acceptable grade oil, often has relatively little choice about where to purchase; it simply must purchase the appropriate grades of oil from whichever refinery has sufficient quantities available.
Petitioner transports oil via pipeline, rail, and truck to its oil-burning plants. Its preferred mode of transportation is a pipeline running between pumping stations near Los Angeles and Phoenix. Residual oil may not be shipped by pipeline. For distillate oil the pipeline charges 79.7 cents per barrel, as opposed to the rail rate of $2.72 per barrel for the same transportation. ALJ Op. at 8, JA 380. But because pipeline capacity is quite limited and because most of petitioner's generating units are not located along the pipeline, petitioner uses rail to supply most of its distillate oil. A small amount of residual and distillate oil moves by truck. Truck rates, however, are considerably higher than rail rates. A sample of prices in the record indicates that truck rates for residual oil are approximately 30% to 50% higher than rail rates, while truck rates for distillate oil are approximately 20% to 60% higher than rail rates. Id.
On March 27, 1981 petitioner filed with ICC a complaint against several railroads that transport distillate and residual fuel oil from various suppliers to Petitioner's generating plants. The timing of the complaint is largely explained by Section 229 of the Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 STAT. 1895 (), which required a shipper or receiver to challenge the reasonableness of existing rail rates within 180 days of the effective date of the Act. See 49 U.S.C. Sec. 10701a note. Petitioner's timely complaint challenged the reasonableness of rail rates charged for transportation of oil between 52 origin/destination pairs, the origins being oil suppliers in neighboring states and the destinations being petitioner's power plants. Under the regulatory scheme ICC can exercise jurisdiction to declare rates unreasonable only if the railroad has "market dominance" over the routes to which the challenged rates apply. 49 U.S.C. Sec. 10709(b). The ALJ who initially adjudicated petitioner's complaint found such market dominance and evaluated the reasonableness of the rates. The ICC Review Board reversed the ALJ on the question of market dominance. Essentially the Review Board found that effective direct and indirect competition constrained the challenged railroads' ability to charge excessive rates, and the Board therefore concluded that petitioner had not shown market dominance. Petitioner challenges this decision of the Review Board.
Until 1976 the ICC exercised general supervisory jurisdiction over rates for rail transportation. "A 'just and reasonable' standard controlled all rates, rail users could challenge the reasonableness of rates, at any time, and the Commission had authority to determine what constituted a just and reasonable rate in each case." Ford Motor Co. v. ICC, 714 F.2d 1157, 1158 (D.C.Cir.1983). Congress altered the statutory scheme to limit significantly ICC's jurisdiction over rail rates in 1976 in the Railroad Revitalization and Regulatory Reform Act, Pub.L. No. 94-210, 90 STAT. 31 (4-R Act). In the 4-R Act Congress provided that ICC must find that the railroad has "market dominance over the transportation...
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