Association of American Railroads v. I.C.C., 87-1124
| Decision Date | 17 May 1988 |
| Docket Number | No. 87-1124,87-1124 |
| Citation | 846 F.2d 1465 |
| Parties | ASSOCIATION OF AMERICAN RAILROADS, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Patrick W. Simmons, Board of Trade of the City of Chicago, et al., Illinois Commerce Commission, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
John T. Sullivan, with whom Hollis G. Duensing and J. Thomas Tidd, Washington, D.C., were on the brief, for petitioner.
Charles A. Stark, Atty., I.C.C., with whom Robert S. Burk, Gen. Counsel, I.C.C., Ellen D. Hanson, Associate Gen. Counsel, I.C.C., John J. Powers, III and Andrea Limmer, Attys., Dept. of Justice, Washington, D.C., were on the brief, for respondents. Catherine G. O'Sullivan, Atty., Dept. of Justice, Washington, D.C., also entered an appearance for respondents.
James E. Weging, Sp. Asst. Atty. Gen., State of Ill., Chicago, Ill., and Gordon P. MacDougall, Washington, D.C., were on the brief for intervenors Ill. Commerce Com'n and Patrick W. Simmons.
Thomas F. McFarland, Jr., Chicago, Ill., was on the joint brief for intervenor Board of Trade of the City of Chicago, et al.
Before RUTH BADER GINSBURG, BORK * and WILLIAMS, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILLIAMS.
The Association of American Railroads here challenges several aspects of the Interstate Commerce Commission's amendments of its regulations on the computation of costs in rail abandonment and subsidy proceedings--the most recent in an apparently endless series of rules on the subject. 1 Abandonment Regulations--Costing 3 I.C.C.2d 340 (1987), codified at 49 C.F.R. Sec. 1152 (1987). The Association specifically objects to three aspects of the new regulations: (1) the reclassification of return on investment in equipment from an "avoidable" cost to "rate of return" or "opportunity" cost; (2) the use of a real (inflation-adjusted) rate of return in computing opportunity costs and return on investment; and (3) the incorporation of the Regional Subsidy Standards, 49 C.F.R. Sec. 1155 (1987), into the abandonment regulations to calculate costs for train supplies and expenses, fuel, and off-branch expenses. 2 On the first claim we believe that the ICC has failed to reconcile its decision with Chicago & North Western Transportation Co. v. United States, 582 F.2d 1043 (7th Cir.), cert. denied, 439 U.S. 1039, 99 S.Ct. 641, 58 L.Ed.2d 698 (1978), and we remand the case for it to address that issue. We find no merit in the remaining claims.
Under the Interstate Commerce Act, 49 U.S.C. Secs. 10101-11917 (1982), a carrier may abandon a line (or discontinue service) only if the ICC determines that "the present or future public convenience and necessity require or permit the abandonment or discontinuance." 49 U.S.C. Sec. 10903(a). The vague "public convenience or necessity" standard gives the ICC great leeway. See, e.g., 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); Colorado v. United States, 271 U.S. 153, 168-69, 46 S.Ct. 452, 455-56, 70 L.Ed.2d 878 (1926); Illinois Commerce Commission v. ICC, 776 F.2d 355, 358 (D.C.Cir.1985); Black v. ICC, 737 F.2d 643, 650 (7th Cir.1984). The Commission has, however, promulgated regulations that somewhat guide its discretion. See 49 C.F.R. Sec. 1152 (1987). In the sort of multi-factor analysis with which students of administrative law are painfully familiar, the Commission weighs such items as costs which might be avoided if abandonment is allowed ("avoidable costs"), the costs of tying up investment ("opportunity costs"), profitability, the condition of the line, and future impact on shippers and adjacent communities. See Abandonment Regulations--Costing, 3 I.C.C.2d at 342. The Commission explicitly began considering opportunity costs as a separate factor only in 1980. Abandonment of Railroad Lines--Use of Opportunity Costs, 360 I.C.C. 571 (1979), aff'd sub nom., Farmland Industries, Inc. v. United States, 642 F.2d 208 (7th Cir.1981).
An ICC finding that abandonment is warranted is not necessarily the end of the process. 49 U.S.C. Sec. 10905(c) provides that any interested "financially responsible" person can prevent abandonment either by offering to pay the railroad an annual subsidy to keep the line in service or by offering to purchase the line. Here the statutory formula is quite specific: the Commission is to postpone abandonment if it finds that the offered 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." 49 U.S.C. Sec. 10905(d)(2)(A). If after postponement the parties fail to reach agreement on a subsidy amount, either may ask the Commission to calculate the subsidy. 49 U.S.C. Sec. 10905(e). The Commission's final determination of the subsidy also focuses 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).
Although ICC's handling of both the abandonment and subsidy issues involves calculation of "avoidable costs," the statute defines the term only for the subsidy stage. 49 U.S.C. Sec. 10905(a)(1) identifies them as "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." In turn it defines "expenses" to include "cash inflows foregone and cash outflows incurred" as a result of not abandoning a line, id.; and, finally, defines the latter concept as including
(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 services....
Id. (emphasis added).
Although the statute does not so require, see Illinois Commerce Commission v. ICC, 776 F.2d 355, 359 (D.C.Cir.1985), the Commission uses the same definition of avoidable costs for both abandonment and subsidy purposes, see 49 C.F.R. Secs. 1152.1, 1152.32 (1987). Similarly, it tries at least to a degree to use the same methodology to arrive at "opportunity costs" for abandonment purposes and "rate of return on the value of the line" for subsidy purposes. See Abandonment Regulations--Costing, 3 I.C.C.2d at 345-46. Because the subsidy procedures have evidently been employed only rarely, see Abandonment Regulations--Costing, 3 I.C.C.2d at 343, the practical effect of the regulations here at issue will likely be felt primarily in abandonment proceedings.
In Chicago & North Western Transportation Co. v. ICC, 582 F.2d 1043 (7th Cir.), cert. denied, 439 U.S. 1039, 99 S.Ct. 641, 58 L.Ed.2d 698 (1978), the court held that for purposes of calculating the depreciation of freight cars and locomotives for subsidy purposes, 49 U.S.C. Sec. 10905(a)(1)(C)'s reference to "current costs" required the Commission to use replacement cost, rather than original or historic cost. In the current regulations the Commission addressed another aspect of freight car and locomotive costs, namely return on investment, known as "ROI-Equipment" (return on capital rather than return of capital). Its action did not speak directly to the replacement/original cost issue, but was clearly driven by that problem. What it did was simply to reclassify ROI-Equipment from avoidable costs to "rate of return" for subsidy purposes and to "opportunity cost" for abandonment. It explained that it made the change not "simply as an exercise in accounting symmetry," 3 I.C.C.2d at 343, but because of changes in the calculation of return on investment in the avoidable cost regulations, see Revision of Abandonment Regulations, 367 I.C.C. 831 (1983), codified at 49 C.F.R. Secs. 1152.32(g)(3)(ii), 1152.32(h)(1). One of the changes had been made to conform to Chicago & North Western 's requirement that the Commission use replacement rather than original cost. The Commission candidly explained in the present order that as a result of the 1983 changes Abandonment Regulations--Costing, 3 I.C.C.2d at 343 (emphasis added). Thus, so far as we can determine, the purpose of the shift was to insulate its calculation of return on rolling stock capital from the effect of Chicago & North Western 's decision on return of such capital.
The Association argues that the reclassification violates Chicago & North Western. This argument can only be directed to the classification of ROI-Equipment for subsidy purposes for Sec. 10905 does not govern abandonment proceedings or constrain the Commission's definition of "avoidable cost" for those proceedings. Illinois Commerce Commission, 776 F.2d at 359. So far as abandonment is concerned, then, one may read the Association's attack as a claim that the reclassification makes no sense as a policy choice under the "public convenience and necessity" standard, or that it is inadequately explained.
The Commission contends that these claims are unripe; we reject its argument, finding its unripeness argument quite inconsistent with the theory it advanced in adopting the regulations. On the merits, we remand to the Commission so that it may attempt a better explanation of how the decision may fit the requirements of Chicago & North Western (for subsidy purposes) and what its premises are more generally (for abandonment purposes).
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