Alabama Power Co. v. I.C.C.
| Decision Date | 02 August 1988 |
| Docket Number | 86-1574,86-1562,86-1091,86-1616,86-1625 and 86-1630,Nos. 86-1052,86-1563,s. 86-1052 |
| Parties | , 12 Fed.R.Serv.3d 102 ALABAMA POWER COMPANY, et al., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Association of American Railroads, Rubber Manufacturers Association, the Society of the Plastics Industry, Inc., Baltimore Gas & Electric Company, Public Service Electric & Gas Company, Central Illinois Public Service Company, Carolina Power & Light Company, Duke Power Company, Board of Trade of the City of Chicago, et al., National Association of Regulatory Utility Commissioners, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Michael F. McBride, Washington, D.C., with whom John R. Molm and Charles V. Gerkin, Jr., Atlanta, Ga., for Alabama Power Co., et al.; John M. Cutler, Jr., Washington, D.C., for Atlantic City Elec. Co., et al.; William L. Slover, C. Michael Loftus and Donald G. Avery, Washington, D.C., for Western Coal Traffic League; James R. Lacey, Newark, N.J., for Public Service Elec. & Gas Co.; Martin W. Bercovici and Susan J. Blum, Washington, D.C., for The Soc. of the Plastics Industry, Inc., et al.; James M. Casey, for Central Illinois Public Service Co.; and John F. Donelan and Frederic L. Wood, Washington, D.C., for Carolina Power and Light Co., et al.; were on the joint brief for petitioners. Pauline E. Waschek, Washington, D.C., also entered an appearance, for Western Coal Traffic League.
David A. Sutherland, with whom Gerald L. Richman, Washington, D.C., was on the brief, for petitioner Fertilizer Institute.
John P. Fonte, Atty., Dept. of Justice, and Craig M. Keats, Deputy Associate General Counsel, I.C.C., with whom Robert S. Burk, General Counsel, Henri F. Rush, Deputy General Counsel, I.C.C., and Catherine G. O'Sullivan, Atty., Dept. of Justice, Washington, D.C., were on the brief, for respondents.
John Will Ongman, with whom Paul A. Cunningham, JoAnn Abramson, Washington, D.C., and Constance L. Abrams, Philadelphia, Pa., were on the motion, for movant Conrail.
Frederic L. Wood, with whom John F. Donelan, Washington, D.C., for National Indus. Transp. League, et al.; Paul Rodgers and Charles D. Gray, Washington, D.C., for National Association of Regulatory Utility Com'rs; William L. Slover, C. Michael Loftus and Donald G. Avery, Washington, D.C., for Western Coal Traffic League, were on the joint brief, for intervenors National Indus. Transp. League, et al.
R. Eden Martin, with whom Joseph B. Tompkins, Jr., David M. Levy, J. Thomas Tidd and Kenneth P. Kolson, Washington, D.C., were on the brief, for Ass'n of American Railroads.
Leonard M. Trosten and Michael F. McBride, Washington, D.C., entered an appearance for petitioner/intervenor, Baltimore Gas & Elec. Co. Thomas C. Dorsey, Washington, D.C., entered an appearance for American Short Line R.R. Ass'n.
Thomas F. McFarland, Jr., Chicago, Ill., entered an appearance for intervenor, Bd. of Trade of the City of Chicago, et al.
Before ROBINSON, STARR and BUCKLEY, Circuit Judges.
Opinion for the Court filed by Circuit Judge STARR.
These consolidated cases challenge an order of the Interstate Commerce Commission altering the rules governing cost recovery rate increases for railroads. Responding to certain perceived inequities under its original rules, the ICC rolled back cost recovery rail rates and conditioned protection of future cost-based rate increases on an agreement by the railroads to roll back rates when costs decline. Consolidated Rail Corporation (Conrail) contends that, in taking these steps, the Commission exceeded its statutory authority. Various shippers, in contrast, fully support the ICC's authority to implement the new rules, but argue that the Commission's actions fail fully to redress the problems under the previous regulations and are thus arbitrary and capricious.
As a preliminary matter, we must decide whether Conrail is properly in this case. Conrail did not file a petition for review of the Commission's order; instead, Conrail seeks to substitute itself for the original petitioner, Association of American Railroads (Association), in No. 86-1574. Alternatively, Conrail seeks to intervene and continue to litigate that review proceeding. Conrail's Motion to Substitute was occasioned by the decision of the Association and the American Short Line Railroad Association (ASLRA) to withdraw their joint petition for review. For the reasons to be set forth in Part II of this opinion, we deny Conrail's Motion to Substitute or Intervene. In addition, our review of the shippers' challenges persuades us that the Commission acted lawfully within its discretion; we therefore deny the shippers' petitions for review.
Under the scheme of railroad rate regulation in effect since 1976, railroads may file rate tariffs as they see fit. 49 U.S.C. Sec. 10701a(a) (1982). Shippers may, however, challenge as unreasonably high rates charged by railroads that have "market dominance." Sec. 1071a(b), Sec. 10707(a). 1 During the late 1970s, such market-dominance challenges, coupled with the time-consuming "general rate increase" procedures relied upon by railroads, often delayed implementation of new tariffs, creating a "regulatory lag" between cost increases and recovery of those costs. See Western Coal Traffic League v. United States, 677 F.2d 915, 924-25 (D.C.Cir.), cert. denied 459 U.S. 1086, 103 S.Ct. 568, 74 L.Ed.2d 931 (1982).
In passing the Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 Stat. 1895 (1980), Congress attempted to solve the problem of rate regulatory lag by establishing a mechanism that permits rail rates to be changed expeditiously without being subject to challenge, to reflect changes in rail costs. These cost recovery provisions require the Commission to develop, maintain, and publish the rail cost adjustment factor (RCAF), a quarterly index of railroad costs. Sec. 10707a(a)(2)(B). Once determined, the quarterly RCAF is multiplied by a base rate 2 to determine the adjusted base rate. Sec. 10707a(a)(2)(A). The adjusted base rate is then used as a benchmark; railroad rates are conclusively presumed lawful--and thus insulated from challenge--"so long as the increased rate is not greater than the adjusted base rate." Sec. 10707a(b)(1). Those railroad rates that exceed the inflation adjustment may be challenged, but the Commission's authority to suspend and investigate such rate increases is limited according to the size of the rate increase as a percent of the adjusted base rate. 3
Responding to the Staggers Act, the ICC established an index of railroad costs, based on forecast data prepared by the Association, and began publishing the quarterly RCAF as required by section 10707a(a)(2)(B). Railroad Cost Recovery Procedures, 364 I.C.C. 841 (1981), aff'd, Western Coal, 677 F.2d 915. The implementing regulations permit railroads to file rate increases reflecting changes in the RCAF upon providing ten days' notice. Ex Parte No. 290 (Sub-No. 2) Railroad Cost Recovery Procedures, decided Nov. 21, 1984, Joint Appendix (J.A.) at 172. Railroads can file increases in a special form of tariff, known as a "master tariff," 4 or set the increased rates in individual tariffs without reference to the master tariff. Rates falling within the zone of rate flexibility are protected regardless of the manner in which they are implemented.
It was but a short time before it became apparent that the Staggers Act's cost recovery scheme suffered from two significant shortcomings. The first stemmed from the nature of the RCAF. That mechanism is simply a forecast of future costs predicated upon data provided by the railroads. It has proved to be inaccurate. But the RCAF is also self-correcting, in that once actual data become available they are pressed into service in crafting the next quarterly RCAF. Initially, the Commission relied on this self-correction feature (along with the happy assumption that over the long haul any forecast errors would offset each other) to reject requests to establish procedures for correction of forecast errors. Brief for ICC at 4; see also Railroad Cost Recovery Procedures, 364 I.C.C. 841, 850 (1981) ().
The second difficulty, which occasioned the challenges here, arose when the unanticipated phenomenon of declining costs entered the regulatory picture. In the inflationary times to which Congress had responded in fashioning the Staggers Act, each adjusted base rate (and, correspondingly, the levels to which rates can be increased without being subject to challenge) rises when the RCAF goes up. When costs (and thus the RCAF) go down, each adjusted base rate likewise declines. However, in the latter situation, nothing in the ICC's original regulations required railroads to reduce their RCAF-predicated rate accordingly. Thus, on those happy occasions in the early 1980s when the RCAF declined, the Commission permitted the railroads to keep their cost-recovery rates in effect, even though those rates at times exceeded the relevant adjusted base rates. Ex Parte No. 290 (Sub-No. 2) Railroad Cost Recovery Procedures, decided Nov. 21, 1984 (refusal to order rate reduction in response to decline in RCAF), J.A. at 173-74; Ex Parte No. 290 (Sub-No. 2) Railroad Cost Recovery Procedures, (not printed) decided Apr. 19, 1982 (refusal to order holddowns to adjust for decline in RCAF), J.A. at 122, 123 n. 1. Confronted with Congress' failure to make specific provision for declining costs and a corresponding decline in the RCAF, the Commission elected not to order the reduction of cost-recovery rates.
Things changed in 1986, however. Events surrounding the 1986 first and second quarter RCAFs persuaded the...
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