Com. of Mass. v. I.C.C.

• Decision Date: 16 January 1990
• Docket Number: 88-1884,Nos. 88-1880,s. 88-1880
• Citation: 893 F.2d 1368
• Parties: The COMMONWEALTH OF MASSACHUSETTS, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Association of Amerian Railroads, Intervenor. Patrick W. SIMMONS, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Association of American Railroads, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1368

893 F.2d 1368

282 U.S.App.D.C. 219

The COMMONWEALTH OF MASSACHUSETTS, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents,

Association of Amerian Railroads, Intervenor.

Patrick W. SIMMONS, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents,

Association of American Railroads, Intervenor.

Nos. 88-1880, 88-1884.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 6, 1989.

Decided Jan. 16, 1990.

Petitions for Review of an Order of the Interstate Commerce commission.

Michael F. McBride, Sp. Asst. Atty. Gen. of the Com. of Mass., Washington, D.C., with whom Paul H. Falon, Washington, D.C., and Judith L. Traux were on the brief for petitioner, the Com. of Mass. in No. 88-1880.

Gordon MacDougall, Washington, D.C., for petitioner, Patrick W. Simmons in No. 88-1884.

Charles Alan Stark, Atty., I.C.C., with whom James F. Rill, Asst. Atty. Gen., Catherine G. O'Sullivan and John P. Fonte, Attys., Dept. of Justice, Washington, D.C., Robert S. Burk, Gen. Counsel, and Ellen D. Hanson, Associate Gen. Counsel, I.C.C., were on the brief for respondents in both cases. Marion L. Jetton, Atty., Dept. of Justice, Washington, D.C., also entered an appearance for U.S. of America.

Kenneth P. Kolson, Vienna, Va., entered an appearance for intervenor, Ass'n of American Railroads in both cases.

Before WILLIAMS and SENTELLE, Circuit Judges; and ROBINSON, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

The Commonwealth of Massachusetts and Patrick W. Simmons petition for review of an order of the Interstate Commerce Commission (the "ICC" or the "Commission") in this consolidated case. Massachusetts challenges the Commission's order in Ex Parte No. 274 (Sub-No. 11A), Abandonment Regulations--Costing (Implementation of the Railroad Accounting Principles Board Findings), 5 I.C.C.2d 123 (1988), as irrational because the method adopted for calculating opportunity cost in abandonment proceedings, which continues to be based on the net liquidation value ("NLV") of the line, allows results Massachusetts claims are inconsistent with the Commission's standards for revenue adequacy and because, Massachusetts asserts, the use of the nominal rather than the real cost of capital double counts for inflation. Because we find that Massachusetts' challenge to the use of NLV is untimely, we need not address the merits of its complaints. On the asserted double count, Massachusetts' comments to the Commission demonstrate that the Commission's action was within its discretion.

Petitioner Simmons, Illinois Legislative Director for United Transportation Union, asserts that the ICC unlawfully relied on the authority of the Railroad Accounting Principles Board (the "RAPB") in its rulemaking. We find that the Commission relied on its own authority to promulgate the rule under review and that Simmons' objection to the role of the RAPB is meritless.

We affirm the decision of the ICC.

I. BACKGROUND

The RAPB was created by the Staggers Rail Act of 1980, Pub.L. No. 96-448, Title III, Sec. 302(a), 94 Stat.1935 (1980) (codified at 49 U.S.C. Secs. 11,161 & 11,162), to develop "principles governing the determination of economically accurate railroad costs...." 49 U.S.C. Sec. 11,162(a). "Upon the establishment of cost accounting principles" the ICC is to "promulgate rules to implement and enforce such principles." Id. Sec. 11,163. The RAPB set forth its findings in its report Railroad Accounting Principles (1987). The ICC initiated the rulemaking under review to promulgate rules adopting the RAPB-developed modifications to abandonment practices, Abandonment Regulations, supra, 5 I.C.C.2d 123, slip op. at 1 (1988).

In May of 1988 the ICC issued a Notice of Proposed Rulemaking (the "Notice") on the use of opportunity cost in railroad line abandonment cases. 53 Fed.Reg. 17,234 (1988). In response to the recommendation of the RAPB, the Commission proposed, inter alia, changes to its accounting rules, 49 C.F.R. Part 1152, that would:

(1) use the nominal rather than the real cost of capital; and

(2) offset the effects of expected future inflation imbedded in the nominal cost of capital with a reduction in one-year projected holding gains.

Id. Both petitioners filed comments. The ICC adopted the revisions substantially as proposed. 53 Fed.Reg. 49,666 (1988).

II. ANALYSIS

A. Opportunity Cost Calculation

A rail carrier may not abandon a rail line unless the ICC finds that the public convenience and necessity require or permit the abandonment. 49 U.S.C. Sec. 10,903(a). In making abandonment decisions, the ICC considers the opportunity cost to the railroad associated with continuing to operate the line. 49 C.F.R. Sec. 1152.32(p) (1988). "Opportunity cost" refers to the economic loss suffered by the carrier by continuing its investment in the line rather than in a more profitable alternative investment. Ex Parte No. 274 (Sub-No. 3), Abandonment of Railroad Lines, 360 I.C.C. 571, 577 (1979), aff'd Farmland Indus. v. United States, 642 F.2d 208 (7th Cir.1981). Opportunity cost is calculated by multiplying its two components, the value of the line and the railroad's cost of capital. 49 C.F.R. Secs. 1152.32(p) & 1152.34 (1988); Illinois C.G.R.R., 363 I.C.C. 729, 732 (1980), aff'd sub nom. Ballard County Rail Users v. ICC, 665 F.2d 1043 (6th Cir.1981).

In its Notice of Proposed Rulemaking at issue here, the Commission proposed to implement changes in the calculation of the cost of capital component of the opportunity cost. Specifically, the Commission proposed to use the nominal rather than the real cost of capital. The nominal cost of capital is the cost of financing for the railroad expressed in market rates, not adjusted for inflation. The real cost of capital adjusts the nominal cost of capital to exclude that portion of the cost of funds attributable to expected future inflation. See Association of Amn. R.R. v. ICC, 846 F.2d 1465, 1473-74 (D.C.Cir.1988).

The Notice discussed only proposed changes to the cost of capital calculation. It did not mention, much less raise as an issue, the measure of the capital invested or the value of the rail line. Nevertheless, the comments of petitioner Commonwealth of Massachusetts were directed toward the valuation component of opportunity cost. Massachusetts urged the Commission to require the use of original cost less depreciation (book value or historical value) rather than net liquidation value as the measure of the value of the investment in the line. Likewise, Massachusetts' assertions before this Court that the Commission's decision is arbitrary and capricious because it allows results at variance with the Commission's revenue adequacy standards, Ex Parte No. 393 (Sub-No. 1), Standards for Railroad Revenue Adequacy, 3 I.C.C.2d 261 (1986), derive exclusively from the Commission's use of net liquidation value.

The Commission argues that Massachusetts' comments and its assertions here are beyond the scope of the Notice and that they constitute an impermissible collateral attack on long-settled ICC policy. We agree.

Massachusetts argues that the Commission by its Notice opened for review the entire calculation of opportunity cost. Despite Massachusetts' best efforts to cull references to the valuation method from the Notice, it gives absolutely no indication that the Commission contemplated or solicited comments on changing the valuation method. With respect to opportunity cost, the Notice addressed itself specifically and solely to the computation of the cost of capital and solicited comments only on the Commission's proposal to use instead of the real cost of capital, the nominal cost of capital with an offsetting reduction in projected one-year holding gains. Likewise, Massachusetts' request to interpret the Commission's call for comments on "any possible problems or issues associated with its [the proposed change in cost of capital] implementation," Abandonment Regulations, supra, 5 I.C.C.2d 123, slip op. at 5, as an invitation to also consider the asset valuation methodology is without merit. The Notice did not invite comment upon the valuation calculation.

The decision under review here did no more than what the Notice proposed. The Commission adopted new accounting rules for cost of capital determinations. The Commission's decision did not adopt any new valuation measure nor did it re-evaluate or repromulgate its existing valuation method.

The time for Massachusetts to attack the use of NLV or of opportunity cost generally has long passed. 28 U.S.C. Secs. 2321, 2342 and 2344 require that a party aggrieved by a final order of the Interstate Commerce Commission bring its petition within sixty days after entry of the order. Because the procedures challenged by Massachusetts were adopted far more than sixty days prior to the filing of its petition, this Court is without jurisdiction to hear the challenge. Natural Resources Defense Council v. NRC, 666 F.2d 595, 602 (D.C.Cir.1981); Asphalt Roofing Mfrs. Ass'n v. ICC, 567 F.2d 994, 1005 (D.C.Cir.1977); Microwave Communications v. FCC, 515 F.2d 385, 389 & n. 24 (D.C.Cir.1974).

The Commission adopted the use of opportunity cost in railroad abandonments in Abandonment of Railroad Lines, supra, 360 I.C.C. 571. In Texas & P. Ry., 363 I.C.C. 666 (1980), the Commission computed opportunity cost using the net liquidation value of the line. This methodology was applied to abandonment decisions generally in Illinois C.G.R.R., supra, 363 I.C.C. 729, 732 ("an appropriate method of calculating opportunity costs is to multiply an 'adequate' rate of return against the line's net liquidation value").

By Notice published in 47 Fed.Reg. 43,747 (1982) (the "1982 Notice"), the Commission proposed regulations to codify both the use of opportunity cost and the methodology for calculating opportunity cost. The 1982 Notice referred...