Bnsf Ry. Co. v. Surface Transp. Bd.
| Decision Date | 16 June 2006 |
| Docket Number | No. 05-1030.,05-1030. |
| Citation | 453 F.3d 473 |
| Parties | BNSF RAILWAY COMPANY, Petitioner v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents. Public Service Company of Colorado, d/b/a Xcel Energy, Inc., Intervenor. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Samuel M. Sipe, Jr. argued the cause for petitioner. With him on the brief were Anthony J. LaRocca, Alice E. Loughran, Richard E. Weicher and Michael E. Roper.
Raymond A. Atkins, Attorney, Surface Transportation Board, argued the cause for respondent. With him on the brief were Thomas O. Barnett, Acting Assistant Attorney General, U.S. Department of Justice, John J. Powers, III and John P. Fonte, Attorneys, Ellen D. Hanson, General Counsel, Surface Transportation Board, and Thomas J. Stilling, Attorney. Rachel D. Campbell, Attorney, entered an appearance.
Peter S. Glaser argued the cause for intervenor Public Service Company of Colorado. With him on the brief were Thomas W. Wilcox and David E. Benz.
Before: GINSBURG, Chief Judge, and RANDOLPH, Circuit Judge, and EDWARDS, Senior Circuit Judge.
BNSF Railway Co. petitions for review of an order of the Surface Transportation Board rejecting as unreasonable certain rates the railroad charged the Public Service Company of Colorado, d/b/a Xcel Energy, to ship coal from the Powder River Basin in Wyoming to Xcel's electric generating plant in Colorado. BNSF argues first the Board should have dismissed the rate proceeding three years after the complaint was filed, pursuant to the limitation in 49 U.S.C. § 11701(c). In the alternative BNSF argues we should, for a number of reasons, set aside the Board's order as arbitrary and capricious. We hold BNSF's first argument is forfeit and its other arguments are unpersuasive, wherefore we deny its petition for review.
With the passage of the Staggers Rail Act of 1980, the Congress limited regulation of railroad rates to markets in which a single carrier exercises "market dominance," defined as "an absence of effective competition from other rail carriers or modes of transportation." 49 U.S.C. §§ 10701(c)-(d), 10707(a). Furthermore, it provided in the ICC Termination Act of 1995 that the Surface Transportation Board may begin an investigation into the reasonableness of a carrier's rates "only on [the] complaint" of an affected shipper. Id. § 11701(a). If the Board finds the carrier dominates the relevant market, then it must determine whether the rate charged the shipper is "reasonable." Id. § 10701(d)(1). If the rate is "unreasonable," id. § 10707(c), then the Board may prescribe the maximum lawful rate, id. § 10704(a)(1), and order the railroad to pay reparations to the complainant, id. § 11704(b). The Board is precluded, however, from finding market dominance and in turn regulating the rate if the revenue generated thereby does not exceed 180% of the carrier's variable cost of service. Id. § 10707(d)(1)(A).
The Board evaluates the "reasonableness" of rail rates in light of the standards promulgated by its predecessor, the Interstate Commerce Commission, see Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985), aff'd sub nom. Consol. Rail Corp. v. United States, 812 F.2d 1444 (3d Cir.1987). In the Coal Rate Guidelines the Commission adopted the principles of Constrained Market Pricing (CMP) to set upper limits on the rates a railroad may charge its "captive shippers" — those customers who do not have practical access to an alternative carrier and who, because of their inelastic demand, the railroads may charge rates that significantly exceed the variable cost of service. Id. at 521. The Commission concluded that these principles would "meet [its] dual objectives of providing railroads the real prospect of attaining revenue adequacy while protecting coal shippers from `monopolistic' pricing practices." Id. at 524-25. Under CMP, rail carriers set their own rates for rail service, subject to three main constraints: revenue adequacy, management efficiency, and stand-alone cost. See id. at 534-46.
A shipper may challenge a rate either on a system-wide basis, by arguing that the rate charged exceeds the amount necessary for the railroad to achieve "revenue adequacy [as] adjusted for demonstrated management inefficiencies," id. at 534 & n. 35, or as in this case, under the stand-alone cost (SAC) test, which is designed to prevent "cross-subsidization." Id. at 541. Regardless of a railroad's overall revenue adequacy, therefore, the rate charged a captive shipper is further constrained by the principle that a "captive shipper should not bear the costs of any facilities or services from which it derives no benefit," that is, should not be required to cross-subsidize other shippers. Id. at 523.
A shipper challenging a rate under the SAC test must hypothesize an efficient "stand-alone railroad" (SARR) that would serve the "captive shipper or a group of shippers who benefit from sharing joint and common costs." Id. at 528. The test assumes a "contestable market," that is, a market without any barriers to entry or exit. Id. If the rate being challenged is more than would be required by the hypothetical new entrant to cover its costs (including a reasonable return on investment), then that rate is unreasonable. See id. at 528-29.
A SAC proposal must be comprehensive, taking into account a host of variables from capital expenses for trains and track to the operating plan and routing of traffic on the SARR. The complaining shipper has "broad flexibility" to design the route of the SARR in order "to lower costs by taking advantage of economies of density." Id. at 543. Although there are no "restrictions on the traffic that may potentially be included in a stand-alone group," the proponent "must identify, and be prepared to defend, the assumptions and selections it has made." Id. at 544. There is a rebuttable presumption that "non-issue" traffic, that is, the traffic of non-complaining shippers, will contribute revenue "at the level of their current rates." Id. When such traffic is routed over a SARR for only a part of its through movement, the method for allocating the revenue from this "cross-over traffic" may be hotly disputed, as it is in this case — of which more later.
Xcel filed its complaint with the Board in December 2000 challenging rates BNSF charged for the transportation of coal from the Powder River Basin to Xcel's Pawnee electric generating station near Brush, Colorado. In January 2003 Xcel submitted its opening evidence, including its proposed SARR, which replicated a section of the traffic handled by BNSF's rail lines between the Eagle Butte mine in Northern Wyoming and the Pawnee plant. Cross-over traffic, which would move on the SARR for only a part of its overall movement before reaching an interchange point where it would be transferred to BNSF for carriage to its destination, accounted for more than 90% of all traffic on the SARR. See Appendix (map showing route of SARR and residual BNSF lines that handle cross-over traffic).
BNSF moved in February 2003 to dismiss the complaint on the ground that Xcel's operating plan was infeasible and it had therefore failed to make out a prima facie case. The Board denied the request, holding BNSF had "not demonstrated that the alleged errors in Xcel's evidence are so large in magnitude or so egregious as to warrant dismissing the complaint at this early stage in the proceeding." BNSF then submitted its own evidence, which focused upon four points: (1) BNSF must be allowed to charge shippers with highly inelastic demand, such as Xcel, high rates in order to achieve revenue adequacy; (2) the use of cross-over traffic, upon which Xcel's SARR so heavily relied, distorted the results of the SAC analysis by allocating excessive revenues to the SARR's portion of the overall movement; (3) the single largest movement on the SARR, coal destined for Western Resources' Jeffrey Energy Center (the "Jeffrey traffic"), was unreasonably diverted from its present route to a longer route on the SARR; and (4) Xcel's operating plan was infeasible.
In June 2004 the Board ruled in favor of Xcel, rejecting BNSF's challenges to Xcel's SAC presentation and holding BNSF's rates unreasonable. See Pub. Serv. Co. of Colo. d/b/a Xcel Energy v Burlington N. & Santa Fe Ry., STB Docket No. 42057, 2004 WL 1428724 (STB served June 7, 2004) (Decision I). BNSF petitioned for reconsideration, which the Board denied in relevant part, see Pub. Serv. Co. of Colo. d/b/a Xcel Energy v. Burlington N. & Santa Fe Ry., STB Docket No. 42057, 2005 WL 126476 (STB served Jan. 19, 2005) (Decision II), and then petitioned this court for review.
As a threshold matter, BNSF argues Xcel's complaint should have been dismissed pursuant to 49 U.S.C. § 11701(c) in December 2003, three years after it was filed. In the alternative the carrier claims the Board's decision is, in a number of respects, arbitrary and capricious.
Subsections 11701(a) and (c) of Title 49 provide in pertinent part:
(a) Except as otherwise provided in this part, the Board may begin an investigation under this part only on complaint.
. . .
(c) A formal investigative proceeding begun by the Board under subsection (a) of this section is dismissed automatically unless it is concluded by the Board with administrative finality by the end of the third year after the date on which it was begun.
BNSF contends this rate proceeding was "begun by the Board under subsection (a)," 49 U.S.C. § 11701(c), when Xcel filed its complaint on December 20, 2000. Therefore, BNSF urges, the case was dismissed "automatically" on December 20, 2003, nearly six months before the Board issued its decision.
The Board counters that BNSF forfeited this argument because, even if...
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