Baltimore Gas and Elec. Co. v. U.S.
| Decision Date | 21 April 1987 |
| Docket Number | Nos. 85-1761,85-1845,s. 85-1761 |
| Citation | 817 F.2d 108 |
| Parties | BALTIMORE GAS AND ELECTRIC COMPANY, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Association of American Railroads, Consolidated Rail Corporation, Chemical Manufacturers Association, National Industrial Transportation League, Patrick W. Simmons, the Southern Transportation League, Inc., Eastern Industrial Traffic League, Inc., Amherst Industries, Inc., Cheney Lime & Cement Company, Altra Railroad Company, Rail Enterprises, Inc., Pittsburgh and Lake Erie Railroad Company, Intervenors. CONSOLIDATED RAIL CORPORATION, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Chemical Manufacturers Association, Patrick W. Simmons, PPG Industries, Inc., Association of American Railroads, National Industrial Transportation League, Pittsburgh and Lake Erie Railroad Company, International Minerals and Chemicals Corp., Committee on Transportation & Distribution of the Society of the Plastics Industry, Inc., Transportation Committee of the Rubber Manufacturers Assoc., Baltimore Gas and Electric Co., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Harvey J. Reed, with whom David M. Perlman and David A. Brune, Baltimore, Md., for Baltimore Gas and Elec. Co. petitioner in No. 85-1761 and intervenor in No. 85-1845; Richard R. Wilson for Pittsburgh and Lake Erie RR., intervenor in No. 85-1761; John A. Vuono, Pittsburgh, Pa., for PPG Industries, Inc., intervenor in No. 85-1845; Susan J. Blum and Martin W. Bercovici, Washington, D.C., for Transp. Committee of the Rubber Manufacturers Ass'n, et al., intervenors in No. 85-1845; and William P. Jackson, Jr., Arlington, Va., for The Southern Transp. League, Inc., et al., intervenors in No. 85-1761 were on the joint brief.
Paul A. Cunningham, with whom Robert M. Jenkins, III, Marc D. Machlin, David A. Hirsh, Richard B. Herzog, Washington, D.C., and Constance L. Abrams, Philadelphia, Pa., were on the brief for Consolidated Rail Corp., petitioner in No. 85-1845 and intervenor in No. 85-1761.
Timm L. Abendroth, Atty., I.C.C., with whom Robert S. Burk, Gen. Counsel, Ellen D. Hanson, Associate Gen. Counsel, Louis Mackall, Atty., I.C.C., Catherine G. O'Sullivan and Donald S. Clark, Attys., Dept. of Justice, Washington, D.C., were on the brief for respondents in Nos. 85-1761 and 85-1845. John P. Fonte and John J. Powers, III, Attys., Dept. of Justice, Washington, D.C., entered appearances for respondents.
Gordon P. MacDougall, Washington, D.C., for intervenor, Patrick W. Simmons in Nos. 85-1761 and 85-1845.
R. Eden Martin, with whom David M. Levy, Richard E. Young and J. Thomas Tidd, Washington, D.C., were on the brief for intervenor, Ass'n of American Railroads in Nos. 85-1761 and 85-1845.
John L. Oberdorfer and Claudia L. Deering for Chemical Mfrs. Ass'n, and John F. Donelan, Washington, D.C., for The Nat. Industrial Transp. League were on the joint brief for intervenors in Nos. 85-1761 and 85-1845. John M. Cleary, Washington, D.C., entered an appearance for intervenor, Nat. Industrial Transp. Scott N. Stone and David Zoll, Washington, D.C., entered appearances for intervenor, Chemical Mfrs. Ass'n.
Before MIKVA, RUTH BADER GINSBURG and SILBERMAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge SILBERMAN.
Petitioners Baltimore Gas and Electric Company ("BG & E") and Consolidated Rail Corporation ("Conrail") challenge Interstate Commerce Commission regulations governing the ICC's disposition of railroad "competitive access" proceedings, which were promulgated in response to recent legislation. See 49 C.F.R. Secs. 1144.1-1144.6 (1986). BG & E mounts a two pronged attack: substantively, it argues the regulations are "inconsistent" with the agency's congressional mandate; procedurally, it contends the ICC's rulemaking was defective in various aspects. Conrail, on the other hand, supports the overall direction of the regulations and disputes only the validity of a single provision relating to the suspension of through routes and joint rates. We hold the ICC followed proper procedures in its rulemaking and that the challenged portions of the regulations do not contravene congressional authority.
"Competitive access" refers to inter-railroad cooperative arrangements under which railroads participate in "through routes" with other railroads, offer shippers "joint rates" on such routes, use other railroads' terminal trackage facilities, and "switch" cars in the service of other railroads to and from track sidings where shippers are located. A through route is an arrangement under which a shipment is transported to its ultimate destination by two or more railroads in succession. The rate charged for such a service is a joint rate if it is published as a single tariff, collected by the delivering railroad, and divided among all participants according to a "divisions" formula prescribed by the ICC or arrived at through negotiations between railroads. 1
By the mid-1970's, the railroad industry had evolved into a system characterized by "open routing" and "rate equalization." Open routing refers to the practice whereby through routes were created on practically all possible combinations of railroad tracks between two points, while rate equalization means that all routes between the same two points--including single-line routes--were offered to shippers at the exact same rates, without regard to the actual cost of providing the service. Although railroads themselves contributed to this structure--by establishing joint rates in ICC-authorized rate-making cartels ("rate bureaus") immune from antitrust regulation--the crucial support for this regimen came from the ICC itself. The ICC presumably sought to preserve the widest possible network of through routes in order to protect disadvantageously located shippers, and apparently viewed price competition on routes between the same two points as a form of improper "discrimination."
The Commission used three main regulatory devices to maintain open routing and rate equalization. First, the ICC has legal authority to require a railroad to participate in through routes and joint rates whenever "desirable in the public interest," 49 U.S.C. Sec. 10705(a)(1) (1982) (previous version at 49 U.S.C. Sec. 15(3) (1970)), and the corollary power to set aside proposed cancellations of through routes and joint rates that are not "consistent with the public interest." 49 U.S.C. Sec. 10705(e) (1982) (previous version at 49 U.S.C. Sec. 15(3) (1970)). These authorities were used to prescribe and maintain through routes and joint rates. Second, the ICC for many years imposed conditions on its approval of railroad mergers ("DT & I Conditions") that required a surviving railroad to maintain all existing routes, including through routes--even if the railroad could, as a result of the merger, provide the same service over a single line. Finally, the ICC enforced the "commercial closing doctrine"--whereby any attempt by a railroad to lower the rate on one route "closed" (i.e., put out of business) all higher-priced through routes between the same points. 2 Such a closing was held to be unlawful if it violated DT & I Conditions requiring the "closed" route to be kept open. Even if no DT & I Conditions were applicable, absent the consent of all affected railroads, the closing triggered the requirement set out in 49 U.S.C. Sec. 10705(e) that a railroad show cancellation of a "closed" route is consistent with the public interest--which the ICC seldom found. See Fibreboard or Pulpboard, Montana to California, 357 I.C.C. 211, 219 (1977); Western Railroads--Agreement, 364 I.C.C. 635, 645 (1981).
Much of the railroad industry and many shippers became greatly dissatisfied with open routing and rate equalization. Rate equalization necessarily forced certain shippers to pay rates that were higher than might have prevailed in a competitive environment, in order to "cross subsidize" artificially low rates charged other shippers. See S.Rep. No. 499, 94th Cong., 1st Sess. 10-11 (1975). By the same token, railroads found it very difficult to adjust prices in accordance with costs. Railroads with more efficient routing were typically prevented from offering lower rates, which retarded the industry's ability to compete with other modes of transportation such as trucks, barges and pipelines. See S.Rep. No. 499 at 10-11. The same regulatory barrier often prevented railroads from raising rates even when their share of joint rates did not cover variable costs and provide a fair rate of return. This of course reduced their ability to attract capital needed to maintain and revitalize existing facilities. See H.R. Conf.Rep. No. 1430, 96th Cong., 2d Sess. 79 (1980); S.Rep. No. 470, 96th Cong., 1st Sess. 3-6 (1979), U.S. Code Cong. & Admin.News 1980, p. 3978.
Of course, not everyone was unhappy with open routing and rate equalization. Some shippers evidently perceived an advantage in the simplicity of unified rates, the wide choice of routes available, and the low rates on some of those routes. And certain railroads, generally the smaller ones, may have benefitted (to the extent they received sufficient revenue from through routes to cover their costs of participation) since the proliferation of through routes gave them access to a wider market of shipping customers.
Still, facing what amounted to an overall financial crisis in the railroad industry, see H.R.Rep. No. 1035, 96th Cong., 2d Sess. 34-37 (1980); S.Rep. No. 499 at 2-11, Congress enacted two major pieces of legislation of a generally deregulatory thrust. In 1976, Congress passed the Railroad Revitalization and Regulatory Reform Act ("4R Act"), which stated that congressional policy was to, inter alia,
(1) balance the needs of carriers, shippers, and...
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