San Antonio, Texas By and Through City Public Service Bd. v. U.S.
| Decision Date | 16 July 1980 |
| Docket Number | Nos. 78-2051,78-2216 and 78-2307,s. 78-2051 |
| Citation | 631 F.2d 831 |
| Parties | SAN ANTONIO, TEXAS Acting By and Through Its CITY PUBLIC SERVICE BOARD, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Burlington Northern, Inc., et al., Intervenors. STATE OF TEXAS, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Burlington Northern, Inc., et al., Intervenors. BURLINGTON NORTHERN, INC., et al., Petitioners, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, City of San Antonio, Texas, et al., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petitions for Review of Orders of the Interstate Commerce commission.
William L. Slover, Washington, D.C., with whom C. Michael Loftus, Washington, D.C., and Donald G. Avery were on the brief for petitioner San Antonio, Texas in No. 78-2051.
J. David Hughes, Asst. Atty. Gen., Austin, Tex., with whom Stuart Fryer, Asst. Atty. Gen., Austin, Tex., were on the brief for petitioner State of Texas in No. 78-2216.
R. Eden Martin, Chicago, Ill., with whom John Will Ongman and Howard J. Trienens, Chicago, Ill., were on the brief for petitioners Burlington Northern, Inc., et al., in No. 78-2307.
Carl E. Glaze, Dallas, Tex., also entered an appearance for the petitioner State of Texas in No. 78-2216.
Robert Lewis Thompson, Atty., Dept. of Justice, Washington, D.C., with whom John J. Powers, III, Atty., Dept. of Justice, Washington, D.C., were on the brief for respondent United States.
Kathleen M. Dollar, Atty., I. C. C., Washington, D.C., with whom Robert S. Burk, Deputy Gen. Counsel and Henri F. Rush, Associate Gen. Counsel, Washington, D.C., were on the brief for respondent I. C. C.
Mark L. Evans and Kenneth G. Caplan, Washington, D.C., also entered appearances for respondent I. C. C.
Lee A. Monroe, Washington, D.C., and Joseph B. Tompkins, Jr., also entered appearances for intervenor Burlington Northern, Inc.
Before ROBB, WILKEY and WALD, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILKEY.
This action arises on petitions to review orders of the Interstate Commerce Commission (ICC or Commission) served 25 October 1978 and 1 June 1979, which prescribed maximum reasonable rates for unit-train shipments of coal from Cordero Junction, Wyoming to Elmendorf, Texas, a suburb of San Antonio, Texas. 1 This case marks the second time that a court has been called upon to review a final order of the ICC setting a maximum reasonable rate for the above described traffic. In a decision served 14 October 1976 (San Antonio I ) 2 the Commission set a rate of $10.93 per ton, and this decision and order was affirmed by the United States Court of Appeals for the Eighth Circuit. 3
At the request of the railroads, the Commission reopened the San Antonio proceeding with a view to modifying this rate. On 25 October 1978 the Commission issued a decision (San Antonio II ) which prescribed a higher rate of $16.12 per ton. 4 San Antonio and the carriers petitioned the Commission for administrative review of its decision, and at the same time San Antonio, the State of Texas, the United States Department of Energy, and the railroads all petitioned this court as well for review of the Commission's decision.
In response to the petitions for reconsideration, the Commission on 1 June 1979 issued a further decision (San Antonio III ) which established a rate of.$17.23 per ton. 5 Subsequently, this court granted the parties' motions to amend their petitions for review of the San Antonio II decision to include the Commission's decision in San Antonio III. 6 For reasons that appear below, we vacate the Commission's orders and remand for further proceedings.
In the interest of convenience and clarity, we include an outline of the opinion to follow:
I. FACTUAL AND PROCEDURAL BACKGROUND
II. ANALYSIS
1. Locomotive Costs Capital Costs
2. Locomotive Costs Fuel and Maintenance Expenses
3. Allocation of Fixed Costs
4. Fixed Plant Investment Additive
5. Roadway Maintenance Expenses
6. Federal Taxes
1. Reliance on Cost of Capital Figure
2. Seven Percent Additive Above Fully Allocated Costs
III. CONCLUSION
This matter initially was brought before the Commission by complaint of San Antonio, requesting the Commission to prescribe a maximum just and reasonable rate for the movement of coal from Cordero Junction, Wyoming to San Antonio, Texas. The factual background is set forth in detail in the opinion affirming the Commission's order in the original proceeding, 7 and we may briefly recall those facts here.
San Antonio, acting through its City Public Service Board, owns and operates an electric utility, which before 1972 used natural gas as a primary fuel. In that year, with the sudden, dramatic increase in the cost of natural gas, San Antonio began exploring the possibility of using coal to generate electricity. On 22 May 1974 San Antonio entered into long-term contracts to purchase coal from two suppliers in Campbell County, Wyoming, and at about the same time began construction of two coal-fired generating units. Previously, on 11 March 1974 Burlington Northern, Inc. (BN or Burlington Northern) and Southern Pacific Transportation Company (SP or Southern Pacific) had provided San Antonio with a copy of a proposed tariff setting forth a rate of $7.90 per ton for the transportation of coal by unit-train from the mines in Campbell County, Wyoming to San Antonio, but on 2 May 1974 the carriers revised their quotation to $11.90 per ton as a result of unprecedented cost increases. Approximately one year later, San Antonio, being dissatisfied with the rate proposed by the railroads, filed a complaint with the Commission seeking prescription of a just and reasonable rate.
The Commission, in a decision served 14 October 1976 (San Antonio I ), 8 established a rate of $10.93 per ton for the San Antonio movement, basing its determination primarily on evidence of rate levels for unit-train movements similar to the San Antonio service and on estimates of the fully allocated costs of the service. 9 The Commission stated that its decision was a temporary response to permit the coal movement to begin, and it invited petitions for modification of the rate when actual experience in operating the trains was gained. On petition to review the Commission's decision and order prescribing the San Antonio rate, the United States Court of Appeals for the Eighth Circuit, affirmed. 10
After six months of operation, the railroads petitioned the Commission in June 1977 for a modification of the rate, and in October 1977 the ICC reopened the San Antonio proceeding. 11 One year later, on 25 October 1978 the Commission issued a decision (San Antonio II ) that prescribed a rate of $16.12 per ton for the San Antonio movement. 12 The rate was based on a computation of the full costs of the San Antonio service calculated at $12.65 per ton, and adjusted to include a 10.2% rate of return on the carriers' investment as a "revenue need" factor. 13 Consideration of the latter criterion was intended to reflect adherence to the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), which directs the Commission to aid the railroads in obtaining revenue levels adequate to cover total operating expenses plus a fair return on capital for the purpose of restoring the financial stability of the railway system. 14
Both San Antonio and the carriers petitioned the Commission for reconsideration of its decision in San Antonio II, and on 1 June 1979 the Commission issued a further decision (San Antonio III ) which established a rate of.$17.23 per ton for the San Antonio movement. 15 The increased rate reflected certain modifications in the Commission's calculation of the costs of the service as well as the use of a 10.6% rate of return on capital instead of the 10.2% figure employed in San Antonio II. 16 In addition, the Commission determined that for the railroads to achieve adequate revenue levels in accord with the 4-R Act, the carriers must be permitted to set rates exceeding full costs on some services to compensate for the fact that competition forces the carriers to set rates on other services below full costs. The Commission stated that no "simple formula" existed for ascertaining "the extent to which some shippers should subsidize others in the interest of producing a financially viable rail system." 17 Nevertheless that agency concluded that a rate set at 7% above full costs for the San Antonio movement (including the cost of capital figure) was reasonable as an interim solution, pending the development of more specific guidelines in another proceeding involving Western coal rates. 18
The several parties to this case raise two main challenges to the Commission's orders in San Antonio II and III : The carriers and San Antonio dispute several of the Commission's determinations concerning the costs of providing service for the San Antonio movement. All of the parties attack, on various grounds, the Commission's imposition in San Antonio III of a 7% additive above fully allocated costs. 19 We find that certain of the Commission's cost calculations have no basis in the record and that the selection of the figure seven as a percentage additive above full costs is wholly without supporting rationale or justification. We accordingly set the Commission's orders aside and remand on these and other issues to be discussed.
Courts traditionally have applied a deferential standard in reviewing rate determinations by an agency. As the Supreme Court has observed:
The process of rate making is...
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