CF Industries v. Surface Transportation Board
| Decision Date | 27 July 2001 |
| Docket Number | No. 00-1209,00-1213 and 00-1248,00-1209 |
| Citation | 255 F.3d 816 |
| Parties | (D.C. Cir. 2001) CF Industries, Inc., Petitioner v. Surface Transportation Board and United States of America, Respondents Farmland Industries, Inc. and Koch Pipeline Company, L.P., Intervenors |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petitions for Review of an Order of the Surface Transportation Board
Mitchell F. Hertz argued the cause for petitioners CF Industries, Inc. and Farmland Industries. With him on the briefs were Frederic L. Wood, Jeffrey O. Moreno, Scott A. Harvey, Jeffrey A. Rosen, Daryl Joseffer and Daniel T. Donovan. James D. Senger entered an appearance.
John G. Roberts, Jr. argued the cause for petitioner Koch Pipeline Company, L.P. With him on the briefs were Samuel M. Sipe, Jr., F. Michael Kail and Jonathan S. Franklin.
Theodore K. Kalick, Attorney, Surface Transportation Board, argued the cause for respondents. With him on the brief were Ellen D. Hanson, General Counsel, and John M. Nannes, Acting Assistant Attorney General, Robert P. Nicholson, Attorney, and John P. Fonte, Attorney, U.S. Department of Justice.
Frederic L .Wood, Jeffrey O. Moreno, Scott A. Harvey, Jeffrey A. Rosen, Mitchell F. Hertz, Daryl Joseffer and Daniel T. Donovan were on the brief for intervenors CF Industries, Inc. and Farmland Industries, Inc. James D. Senger entered an appearance.
Samuel M. Sipe, Jr., F. Michael Kail, John G. Roberts, Jr. and Jonathan S. Franklin were on the brief for intervenor Koch Pipeline Company L.P.
Before: Edwards, Randolph, and Garland, Circuit Judges.
Opinion for the Court filed by Circuit Judge Garland.
In 1996, Koch Pipeline Company, L.P. raised shipping rates on its anhydrous ammonia pipeline. Pipeline customers CF Industries, Inc. and Farmland Industries, Inc. challenged the rate increase before the Surface Transportation Board (STB). The Board found the new rates unreasonable. In these consolidated petitions for review, Koch disputes the STB's decision to lower the rates, while CF and Farmland attack the Board's decision not to lower them still further. We affirm both decisions and deny the petitions for review.
Anhydrous ammonia is a hazardous compound of nitrogen and hydrogen that is used both to manufacture fertilizers and as a direct fertilizer application. A significant amount of the compound is produced in Louisiana, Oklahoma, and Texas, and shipped to users in the Midwest. Demand is seasonal, increasing sharply during the spring planting season and to a lesser extent in the fall. During the year, shippers fill large storage terminals throughout the Midwest to ensure availability when needed. When the spring comes, the terminals are rapidly emptied through deliveries to local retailers, who in turn distribute the anhydrous ammonia to farmers for immediate application. CF Indus., Inc., No. 41685 at 2-3 (Final Order).
The STB inherited the Interstate Commerce Commission's (ICC's) jurisdiction over interstate "transportation by pipeline ... when transporting a commodity other than water, gas, or oil." 49 U.S.C. 15301; ICC Termination Act of 1995, Pub. L. No. 104-88, 106(a), 109 Stat. 803, 922. This jurisdiction includes anhydrous ammonia pipelines. See CF Indus., Inc. v. FERC, 925 F.2d 476, 478 (D.C. Cir. 1991) (). A pipeline carrier's rates must be "reasonable" and non-discriminatory, 49 U.S.C. 15501, and if the Board determines that they are not, it "may prescribe the rate ... to be followed," id. 15503(a), and direct the repayment of overcharges, id. 15904(b)(1), (c)(2). The Board must consider, "among other factors[,] ... the need for revenues that are sufficient, under honest, economical, and efficient management, to let the carrier provide that transportation," as well as "the availability of other economic transportation alternatives." Id. 15503(b)(2), (3).
Koch owns one of two pipelines that transport anhydrous ammonia to the Midwest in pressurized, liquid form. Koch's pipeline originates in Louisiana and connects that state's producers to numerous Midwestern terminals. The other pipeline, owned by the Mid-American Pipeline Company (MAPCO), originates in Texas and Oklahoma. Koch purchased its pipeline from Gulf Central Pipeline Company in 1988 as part of a $200 million package that also included the Gulf Central Storage and Terminal Company and a natural gas company. Koch continued to charge Gulf Central's shipping rates until 1996, when Koch raised its rates. For the locations relevant here, the increases averaged almost 20%.
CF Industries and Farmland Industries are farmer-owned cooperatives that produce anhydrous ammonia in Louisiana and ship it to the Midwest via Koch's pipeline. Both producers also occasionally ship by rail, and CF ships a significant amount of ammonia by barge. Farmland's production facilities are not located near a river and thus have no barge access. On March 27, 1996, CF Industries filed a complaint with the Board, alleging that Koch's rate increases were unreasonable.1 Four months later, the STB granted Farmland's petition to intervene as a complainant.
In May 1997, the STB issued an initial order to govern the proceedings. See CF Indus., Inc., No. 41685 (Initial Order). Two parts of that order are important here. First, the Board decided that it would only prescribe rates at locations where it determined Koch to be "market dominant," finding no justification for the agency "to inject itself into the pricing of services" where competitive alternatives act "as an effective constraint on a pipeline's rates." Id. at 5. In assessing the existence of effective competitive alternatives, the Board said it would be guided by the railroad market dominance guidelines issued by its predecessor agency, the ICC, and by the precedent developed under those guidelines. Id. at 5 ().2
Second, the Board stated that for locations where it found Koch to be market dominant, it would evaluate Koch's rates using the Constrained Market Pricing (CMP) principles articulated in the ICC's Coal Rate Guidelines. Id. at 6 (citing Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985), aff'd sub nom. Consolidated Rail Corp. v. United States, 812 F.2d 1444 (3d Cir. 1987)).3 Under CMP, the Board said, a complainant may choose among several rate constraints, including the "stand-alone cost" and "revenue adequacy" constraints. Id. at 6.
In January 1998, CF moved to amend its complaint to add a challenge to the rates Koch had charged prior to its 1996 increase. CF argued that its amendment merely clarified the relief requested in its initial complaint, where it had asked for refunds of the rate increases as well as "such other relief as the Board deems just and proper." Compl. p 53. Koch opposed the amendment.
On May 9, 2000, the STB issued its final decision. At the outset, the STB denied CF's motion to amend its complaint as untimely--"having been filed almost 2 years after the initial complaint and 4 months after the close of discovery." Final Order at 2 n.4. It also held that CF was estopped from challenging pre-increase rates based on a settlement agreement CF had signed with Koch's predecessor, Gulf Central. Id.
The Board then turned to Koch's 1996 rate increases, addressing first the question of Koch's market dominance. In analyzing this issue, the STB considered several possible competitive alternatives to Koch's pipeline, only one of which is at issue here: "intermodal" competition from river barges.4 The STB concluded--and Koch does not dispute in this proceeding--that barge shipping does not compete with the pipeline for Farmland's business because Farmland lacks access to barge transportation. Id. at 11. However, the Board also concluded--and this Koch does dispute--that barges do not effectively compete with the pipeline for CF's transportation to numerous pipeline destination points. Id. at 13-17.5
Having found Koch to be market dominant at a number of terminals, the Board went on to ask whether Koch's rate increases for service to those terminals were reasonable. To make that determination, the Board applied the revenue adequacy test of CMP, which asks whether rates generate revenues sufficient to "cover all costs and provide a rate of return on investment equal to the current cost of capital." Id. at 21 (citing Coal Rate Guidelines, 1 I.C.C.2d at 535). It found that, even without the rate increases, Koch would more than recover its total investment in the pipeline by the end of 2000, and that, with the exception of its first year of owner ship, Koch's return-on-investment (ROI) "has exceeded its cost of capital in all years and by increasingly larger margins so that by 1996 its ROI (21.52%) was almost twice the cost of capital (11.80%)." Id. at 26. The Board concluded that, "based on all reliable measures, it is clear that the pipeline is earning adequate revenues and that Koch's 1996 rate increases are not warranted." Id.
Koch challenges the STB's determinations regarding both market dominance and rate reasonableness. We consider those challenges in Parts II and III below. In a separate petition for review, which we briefly address in Part IV, CF and Farmland challenge the Board's denial of CF's motion to amend its complaint to include an attack on Koch's preincrease rates.
The STB's market dominance guidelines define "market dominance" as "an absence of effective competition, from other carriers or modes of transportation, for the traffic or movement to which a rate applies." See Market Dominance, 365 I.C.C. at 128 ...
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