776 F.2d 355 (D.C. Cir. 1985), 84-1034, Illinois Commerce Com'n v. I.C.C.

Docket Nº:84-1034.
Citation:776 F.2d 355
Party Name:ILLINOIS COMMERCE COMMISSION and Patrick W. Simmons, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, International Minerals and Chemical Corporation, Association of American Railroads, Intervenors.
Case Date:November 12, 1985
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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776 F.2d 355 (D.C. Cir. 1985)

ILLINOIS COMMERCE COMMISSION and Patrick W. Simmons, Petitioners,




International Minerals and Chemical Corporation, Association

of American Railroads, Intervenors.

No. 84-1034.

United States Court of Appeals, District of Columbia Circuit

November 12, 1985

Argued Dec. 19, 1984.

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[Copyrighted Material Omitted]

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Petition for Review of an Order of the Interstate Commerce commission.

Thomas F. McFarland, Jr., Chicago, Ill., for petitioners and for intervenor Internl. Minerals & Chemical Corp. James E. Weging and Gordon P. MacDougall, Washington, D.C., were on brief for petitioners.

Edward J. O'Meara, Atty., I.C.C., Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., John Broadley, Gen. Counsel, I.C.C., Henri F. Rush, Associate Gen. Counsel, I.C.C., John J. Powers, III, and John P. Fonte, Attys., Dept. of Justice, Washington, D.C., were on brief, for respondents.

James I. Collier, Jr., Washington, D.C., with whom Kenneth P. Kolson, Washington, D.C., was on brief, for intervenor Ass'n of American Railroads.

Before WRIGHT, TAMM [*] and SCALIA, Circuit Judges.

Opinion for the Court filed by Circuit Judge SCALIA.

SCALIA, Circuit Judge.

This is a challenge to Interstate Commerce Commission regulations specifying how the agency will calculate the costs, revenues and return on value associated with the provision of rail service, for purposes of determining whether requested abandonment of that service is in the public interest and whether the amount of subsidy offered by persons seeking to prevent abandonment is adequate. The case presents several procedural points that are relatively fact-bound and, of more general importance, requires us to consider the substantive validity of the following provisions: that all labor costs on the line sought to be abandoned are avoidable costs (i.e., costs which abandonment would eliminate); that state property taxes are avoidable costs to the extent they would eventually cease after abandonment; that track rehabilitation costs are avoidable costs to the extent they are needed not merely to comply with federal safety standards but to permit "efficient operations"; and that equipment may be valued on the basis of depreciated replacement cost rather than used market value. Involved in our consideration of some of these provisions is the question whether the same manner of calculating avoidable costs must be used for both abandonment and subsidy determinations.


The rules in question, amendments to the Commission's earlier rules on the subject, originated with a Notice of Proposed Rulemaking in October 1982, 47 Fed.Reg. 43,747 (1982), and were finally promulgated in December 1983, 48 Fed.Reg. 54,235 (1983) (regulations codified at scattered sections of 49 C.F.R. Secs. 1152.1-.37 (1984); Commission opinion, Revision of Abandonment Regulations, printed at 367 I.C.C. 831 (1983)). Petitioners, the Illinois Commerce Commission and Patrick W. Simmons (Illinois Legislative Director of the United Transportation Union), and intervening petitioner International Minerals & Chemical Corporation, seek review under 28 U.S.C. Secs. 2321(a), 2342(5), 2344 (1982).

Under the Interstate Commerce Act, Subtitle IV, Pub.L. No. 95-473, 92 Stat. 1337 (1978) (codified as amended at 49 U.S.C. Secs. 10101-11917 (1982)), the ICC has authority to permit a railroad subject to its jurisdiction to abandon part of its lines. 49 U.S.C. Sec. 10903. However, any party interested in ensuring continued transportation over the line may prevent abandonment by offering the railroad an annual subsidy. 49 U.S.C. Sec. 10905. The subsidy criteria are quite specific: If the ICC finds that the offered annual subsidy is likely to equal the "difference between the revenues attributable to that part of the railroad line and the avoidable cost of providing rail freight transportation on the line, plus a reasonable return on the value of the line," the ICC must postpone authorization of the abandonment to permit the offeror and the railroad to enter into an agreement providing

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for continued transportation. 49 U.S.C. Sec. 10905(d). If the parties cannot reach agreement, either may ask the ICC to determine the subsidy amount; the ICC must determine the amount "based on the avoidable cost of providing continued rail transportation, plus a reasonable return on the value of the line...." 49 U.S.C. Sec. 10905(f)(1)(B), (e). For purposes of the foregoing provisions, "avoidable cost" is defined to mean:

all expenses that would be incurred by a rail carrier in providing transportation that would not be incurred if the railroad line over which the transportation was provided were abandoned or if the transportation were discontinued. Expenses include cash inflows foregone and cash outflows incurred by the rail carrier as a result of not abandoning or discontinuing the transportation. Cash inflows foregone and cash outflows incurred include--

(A) working capital and required capital expenditure;

(B) expenditures to eliminate deferred maintenance;

(C) the current cost of freight cars, locomotives, and other equipment; and

(D) the foregone tax benefits from not retiring properties from rail service and other effects of applicable Federal and State income taxes.

49 U.S.C. Sec. 10905(a)(1). "Reasonable return" is defined to mean, "if a rail carrier is not in reorganization, the cost of capital to the rail carrier, as determined by the Interstate Commerce Commission...." 49 U.S.C. Sec. 10905(a)(2)(A).

In contrast to these detailed statutory provisions regarding the subsidy that can prevent an otherwise permissible abandonment, the provisions applicable to the abandonment determination itself are skeletal. Abandonment must be allowed (absent subsidy) "if the Commission finds that the present or future public convenience and necessity require or permit the abandonment...." 49 U.S.C. Sec. 10903(a). This generalized standard has been interpreted to require the ICC "to exercise its discretion in balancing the burden to the railroad of providing the service against the benefits accruing to the public from the service." Black v. ICC, 737 F.2d 643, 650 (7th Cir.1984). "Once the Commission has struck that balance, its conclusion is entitled to considerable deference." Chicago & North Western Transportation Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 321, 101 S.Ct. 1124, 1132, 67 L.Ed.2d 258 (1981). The amended regulations under challenge here add some detail to the sparse statutory standard, specifying the manner in which the Commission will calculate the factors it considers in determining whether continued operations will burden a railroad, including the revenues, see 49 C.F.R. Sec. 1152.31, and the "avoidable costs," see 49 C.F.R. Secs. 1152.32-.33, attributable to continued operation.


Petitioners challenge six aspects of the amended regulations. We assess each in turn.

Labor Costs

The regulations provide that, in both subsidy and abandonment determinations, labor costs shall be treated as avoidable costs "notwithstanding any obligation of applicant [the railroad] to provide employee protection for employees after the abandonment." 49 C.F.R. Sec. 1152.32(q)(2). We agree with petitioners that this is simply inconsistent with the statutory language of Sec. 10905(a)(1), which defines "avoidable cost" as including "cash outflows incurred by the rail carrier as a result of not abandoning or discontinuing the transportation." For purposes of the statutorily required "annual subsidy," Sec. 10905(b)(1), those outflows, which may change from year to year, must be calculated on an annual basis--as the Commission's regulations themselves acknowledge, see 49 C.F.R. Sec. 1152.37. When cash payments to the employees working on the relevant line would have to continue in the year after the hypothetical abandonment, the abandonment would...

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