Notice: This opinion is subject to formal revision before publication in the
Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the
Clerk of any formal errors in order that corrections may be made before the
bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 18, 2010 Decided May 11, 2010
No. 09-1092
BNSF RAILWAY COMPANY,
PETITIONER
v.
SURFACE TRANSPORTATION BOARD
AND UNITED STATES OF AMERICA,
RESPONDENTS
BASIN ELECTRIC POWER COOPERATIVE, INC.
AND WESTERN FUELS ASSOCIATION, INC.,
INTERVENORS
Consolidated with Nos. 09-1190, 09-1234
On Petitions for Review of Orders
of the Surface Transportation Board
2
Richard P. Bress argued the cause for petitioner. With him
on the briefs were Maureen E. Mahoney, Lori Alvino McGill,
Richard E. Weicher, Samuel Sipe Jr., and Anthony J. LaRocca.
Erik G. Light, Attorney, Surface Transportation Board,
argued the cause for respondents. With him on the brief were
Robert B. Nicholson and John P. Fonte, Attorneys, U.S.
Department of Justice, Ellen D. Hanson, General Counsel,
Surface Transportation Board, and Thomas J. Stilling, Attorney.
Raymond A. Atkins, Attorney, entered an appearance.
John H. LeSeur argued the cause for intervenors Basin
Electric Power Cooperative, Inc., et al. in support of
respondents. With him on the brief were Christopher A. Mills
and Peter A. Pfohl.
Marty J. Jackley, Attorney General, Attorney General’s
Office of the State of South Dakota, Roxanne Giedd, Assistant
Attorney General, Wayne K. Stenehjem, Attorney General,
Attorney General's Office of State of North Dakota, Charles M.
Carvell, Assistant Attorney General, and Bruce A. Salzburg,
Attorney General, Attorney General's Office of State of
Wyoming, were on the brief for amici curiae in support of
intervenors and affirmance.
Before: HENDERSON, ROGERS and GARLAND, Circuit
Judges.
Opinion for the Court by Circuit Judge ROGERS.
ROGERS, Circuit Judge: BNSF Railway Company
(“BNSF”) petitions for review of the decision of the Surface
Transportation Board (“Board”) that rates challenged in 2004 by
Western Fuels Association, Inc., and Basin Electric Power
Cooperative, Inc. (hereinafter, collectively, “WFA”) are
3
unreasonably high maximum reasonable rates, prescribing future
maximum rates, and ordering BNSF to pay reparations.1 BNSF
contends that the Board’s decision was contrary to law because
the three-year limit in 49 U.S.C. § 11701(c) had expired before
its February 17, 2009 Decision, and so the Board’s orders
prescribing maximum reasonable rates and ordering the payment
of reparations must be vacated and the proceeding dismissed.
Alternatively, BNSF contends there was a reopening after the
Board’s September 7, 2007 Decision,2 and hence any reparations
would be limited from that time forward. On the merits, BNSF
contends the Board was arbitrary and capricious by allowing
WFA to revise its traffic route in response to the Board’s
adoption of new retroactive methodologies for calculating rates,
and by modifying the average total cost methodology for
allocating revenue from cross-over traffic.
We hold BNSF forfeited the statutory argument by failing
to raise it in a timely manner before the Board. On the merits,
we conclude that BNSF’s challenge to traffic rerouting is
unpersuasive and a matter within the Board’s expertise, and that
a remand is required for the Board to address BNSF’s objection
to the modified average total cost methodology as biased
1
BNSF petitions for review of three Board decisions: The
February 17, 2009 Decision, as modified by the June 3, 2009
Decision, and the July 23, 2009 Decision on BNSF’s compliance. See
W. Fuels Ass’n, Inc. and Basin Elec. Power Coop. v. BNSF Ry. Co.,
STB Docket No. 42088, 2009 WL 415499 (Feb. 17, 2009); W. Fuels
Ass’n, Inc. and Basin Elec. Power Coop. v. BNSF Ry. Co., STB
Docket No. 42088, 2009 WL 1567606 (Jun. 3, 2009); W. Fuels Ass’n,
Inc. and Basin Elec. Power Coop. v. BNSF Ry. Co., STB Docket No.
42088, 2009 WL 2221011 (July 23, 2009).
2
W. Fuels Ass’n, Inc. and Basin Elec. Power Coop. v. BNSF
Ry. Co., STB Docket No. 42088, 2007 WL 2590251 (Sept. 7, 2007)
(“September 2007 Decision”).
4
because it double counts variable costs; otherwise we affirm.
Accordingly, we grant the petitions in part and deny the
petitions in part.
I.
A.
In the Interstate Commerce Commission Termination Act
of 1995, Pub.L. 104-88, 109 Stat. 803 (1995) (“ICCTA”),
Congress carried forward the shipper protections in the Staggers
Rail Act of 1980, Pub. L. 96-448, 94 Stat. 1895 (1980), while
continuing the deregulation of the railroad industry it had
previously endorsed in the Staggers Act and the Railroad
Revitalization and Regulatory Reform Act, Pub. L. 94-210, 90
Stat. 31 (1976). See H.R. Conf. Rep. 104-422 (1995), at 194,
reprinted in 1995 U.S.C.C.A.N. 850; S. Rep. No. 104-176
(1995), at 2-3, 5-6; H.R. Rep. No. 104-311 (1995), at 82-83,
reprinted in 1995 U.S.C.C.A.N. 793. Thus, a party may file a
complaint with the Board, which succeeded the Interstate
Commerce Commission (“I.C.C.”) as the regulator of the rail
industry, challenging the reasonableness of a rate. 49 U.S.C.
§§ 11701(b), 10704(b). The Board, upon determining that it has
jurisdiction, id. §§ 10701(d)(1), 10707(b)-(c), which covers only
those railroads that possess “market dominance,”3 must consider
the system-wide pricing policies, id. § 10701(d)(2)(A)-(C), and
ensure the rail carrier has the opportunity to earn “adequate
revenues,” id. § 10704(a)(2). If the Board finds the challenged
rate unreasonable, it “may prescribe” the maximum rate the
railroad can charge going forward, id. § 10704(a)(1), and the
railroad “is liable” for reparations to the complainant, id.
§ 11704(b).
3
A railroad has “market dominance” if its revenues meet or
exceed 180 percent of its variable costs for the traffic to which the rate
applies. 49 U.S.C. § 10707(d)(1)(A).
5
The complexity of railroad rate regulation stems in part
from determining the proper attribution of costs to those using
the railroad’s services and facilities. In 1985, the Board
promulgated guidelines to calculate rates for shipping coal. See
Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985)
(“Guidelines”), aff’d sub nom. Consol. Rail Corp. v. United
States, 812 F.2d 1444 (3d Cir. 1987). The Guidelines approach,
which was extended to non-coal rates, adopted Constrained
Market Pricing (“CMP”), in which rates are set in inverse
proportion to shippers’ respective demand elasticities, so called
“Ramsey pricing.” Guidelines at 547-48. Under CMP, rates are
limited to what is necessary for the carrier to earn adequate
revenues based on efficient management and pricing practices.
Guidelines at 534-42. This determination is made in part based
on the stand-alone-cost (“SAC”) of a hypothetical carrier or
“stand-alone railroad” (“SARR”) designed by the complainant
to be optimally efficient in providing those lines and facilities
needed to serve the complaining shipper. The SAC test
determines the maximum rate that the railroad may charge the
traffic group by accounting for all the costs of running the
SARR, including the cost of building and operation and a
reasonable return on investment. Under this test the Board had,
over the years, applied Modified Straight-Mileage Prorate
(“MSP”), a mileage-based revenue allocation procedure. See
BNSF Ry. Co. v. STB, 453 F.3d 473, 483-84 (D.C. Cir. 2006)
(hereinafter “Xcel”).
In October 2006, the Board revised the Guidelines
approach upon concluding the regulatory proceedings had
become too complex and too costly. See Major Issues in Rail
Rate Cases, STB Ex Parte No. 657 (Sub-No.1) (Oct. 30, 2006)
at 3 (“Major Issues Rulemaking”). Previously, the Board had
used the “percent reduction” method, by which it reduced the
challenged rate by the same percentage by which the total
revenues exceeded the SAC costs. In the final rule, the Board
6
changed how it would evaluate rate reasonableness by adopting
the Maximum Markup Methodology (“MMM”)4 and the
Average Total Cost (“ATC”) methodology.5 This court upheld
the final rule, including its retroactive application. See BNSF
4
Under MMM, the parties calculate the revenue-to-variable
cost (“R/VC”) needed to cover the SARR’s total costs in one year to
determine the Benchmark R/VC Ratio. The Board then compares the
Benchmark R/VC Ratio to the actual R/VC ratio for each shipper in
the traffic group on the SARR to determine if the SAC costs assigned
to that shipper’s traffic would exceed what the SARR could charge the
shipper for the traffic. “Where the actual charge is less than the share
of SAC costs that would otherwise be allocated” to a particular shipper
under the Benchmark R/VC ratio, “the difference should be
reapportioned to the remaining traffic group” and this should be
repeated “until no movement in the traffic group is assigned a higher
share of the SAC costs than its actual charge.” Major Issues
Rulemaking at 14.
5
To allocate revenues for cross-over traffic between the
defendant railroad and the SARR, the Board abandoned MSP, which
it had used for over a decade, see Xcel, 453 F.3d at 484. According to
this court, the “critical flaw” in this procedure was that it failed to
account for “‘economies of density’ — the principle that the more
traffic on a given stretch of rail, the lower the average cost (and hence
the lower the cross-over-traffic revenue that should be attributed to
it).” Major Issues Appeal, 526 F.3d at 782-83 (citing Xcel, 453 F.3d
at 473). To address the economies of density and “the fact that at
some point, higher density no longer results in lower average costs,”
id. at 783, the Board adopted ATC “to derive a system-average fixed
cost per route mile,” Major Issues Rulemaking at 34. Average fixed
cost is added to average variable cost to set the average total cost per
ton. Id. To determine the proper allocation of revenues for the
segment, the Board divides the average total cost of the segment by
the average total cost of the railroad system. Id.
7
Ry. Co. v STB, 526 F.3d 770 (D.C. Cir. 2008) (“Major Issues
Appeal”).
B.
From 1984 to 2004, BNSF transported WFA’s coal under
a long-term contract in which the rate gradually decreased from
$4 per ton in 1984 to $3 per ton in 2004. When the contract
expired, BNSF and WFA were unable to reach a new agreement
and BNSF set a common carrier rate of $6 per ton. Although
this rate was, due to the proximity to the Powder River Basin,
“one of the lowest transportation rates any utility pays to
acquire PRB coal,” September 2007 Decision at 2, the revenue
to variable cost ratio for these movements was very high,
beginning at 481 percent and adjusting upward over time to 843
percent according to WFA.
On October 19, 2004, WFA filed a verified complaint with
the Board, seeking to demonstrate the unreasonableness of
BNSF’s rates under the SAC test. WFA designed a SARR
called the Laramie River Railroad (“LRR”), which contained
some cross-over traffic and allocated revenues from the cross-
over traffic using MSP. BNSF filed an answer and the Board
granted a motion allowing mediation to continue through
January 31, 2005. Once mediation efforts ended, the parties
filed evidentiary presentations and in December 2005 they filed
final briefs in accordance with a briefing schedule that had been
extended a number of times.
Then, in February 2006 the Board held in abeyance the
pending WFA and AEP Texas North Company (“AEP”)
proceedings while it conducted the Major Issues Rulemaking.
At the time, the Board announced its intent to apply to the
pending cases whatever new methodology it adopted in three
areas, including cross-over traffic. It also stated that at the end
of the rulemaking parties in the pending cases would be
8
afforded an opportunity to submit supplemental evidence
comporting with changes adopted in the rulemaking, and that
“the time frames for issuing a Board decision in those two cases
are tolled.” Notice of Proposed Rulemaking, STB Ex Parte, No.
657 (Sub-No.1) (Feb. 26, 2006) (“NPRM”) at 3; see 49 U.S.C.
§10704(c) (requiring the Board to issue a decision within 90
days of the close of the record). In October 2006, the Board
promulgated the final rule replacing the percentage reduction
methodology with MMM and the mileage-based revenue
allocation methodology (“MSP”) with ATC. See Major Issues
Rulemaking at 14, 31. On November 8, 2006, the Board
ordered the parties to submit supplemental evidentiary
presentations, based on the existing SARR proposal, so the
Board could apply the new methodologies; the parties
completed their supplemental filings by April 2007.
In the September 2007 Decision, supra note 2, the Board
found that BNSF has market dominance over the transportation
at issue. It also found that WFA had failed to establish “on this
record” that the challenged rates are unreasonably high, id. at 3,
but offered WFA an opportunity to submit supplemental
evidence bearing on the new retroactive methodologies. Noting
the warning of this court, see supra note 5, the Board rejected
the idea of continuing to apply “flawed or discredited
procedures” while concluding that “fairness dictates that WFA
have an opportunity to modify its SAC presentation in light of
the new revenue allocation methodology.” September 2007
Decision at 20. The Board stated: “Generally, it is not the
Board’s practice to permit complainants to redesign their case
in light of subsequent Board decisions”; however, “[i]n this
case, . . . the change from MSP to ATC would affect the basic
design of a SAC case” because WFA might not have included
all of the traffic offering limited revenue contribution or might
have changed the configuration of the LRR under ATC. Id.
The Board gave WFA thirty days to decide, allowing WFA to
9
increase or decrease the traffic group and change the
configuration of the LRR and to submit evidence on all related
issues. The Board stated it “will discontinue this proceeding”
if WFA does not seek to present new SAC evidence. Id.
Upon denying the parties’ petitions for reconsideration, the
Board explained further that “WFA could have been unfairly
prejudiced by not knowing when it designed the LRR that the
ATC revenue allocation procedure would be applied to its
case.” February 2008 Denial of Reconsideration at 2.6 In
response to BNSF’s argument that there was nothing unfair
about applying ATC to WFA’s case, the Board emphasized that
“[u]sing ATC rather than MSP changes the incentives for a
shipper in the selection of the traffic group to be used.” Id. at
3. Acknowledging that allowing the supplemental evidentiary
presentation “is an unusual measure,” the Board cited cases to
show “it is not unprecedented,” id., and noted that the parties
had agreed to a procedural schedule through July 2008 that
would include time for additional discovery.
In a supplemental evidentiary presentation filed on May 13,
2008, WFA redesigned its SARR to change LRR’s traffic route
to exclude some marginally profitable traffic and to include
high revenue traffic destined for the WestStar Jeffrey Energy
Center (“Jeffrey traffic”). BNSF, in reply of July 14, 2008,
argued that the complaint should be dismissed because WFA’s
use of rerouted traffic was “inconsistent with the limited
reopening right afforded by the Board”and a “blatant attempt to
game the Board’s new Maximum Mark-Up Methodology
(‘MMM’).” BNSF July 2008 Reply at 5, 6. BNSF also
renewed a double-counting objection to the modification of
6
W. Fuels Ass’n, Inc. and Basin Elec. Power Coop. v. BNSF
Ry. Co., STB Docket No. 42088, 2008 WL 542600 (Feb. 28 , 2008)
(“February 2008 Denial of Rehearing”).
10
ATC adopted in the September 2007 Decision that it had raised
in petitioning for reconsideration. And, for the first time, BNSF
argued that the WFA proceeding would have to be dismissed in
view of the three-year limit in section 11701(c), which, BNSF
asserted, commenced with the filing of WFA’s verified
complaint of October 19, 2004 and the Board’s initiation of a
formal investigation on that date. See id. at 47-49.
Alternatively, BNSF argued that the September 2007 Decision
was a final decision, such that the extended WFA proceeding
was a reopening and no reparations could be awarded for rates
charged prior to that time, citing Arizona Grocery Co. v.
Atchison, Topeka & Santa Fe Ry. Co., 284 U.S. 370, 389-90
(1932).
In rebuttal of August 15, 2008, WFA noted that “[l]ong
after the record initially closed in this case, the Board adopted
several new SAC standards in [the] Major Issues [Rulemaking]
and retroactively applied them,” and that WFA had “repeatedly
objected to the Board’s actions, [arguing] that WFA[] would
have modeled a different SARR had the new . . . rule the Board
adopted in [the] Major Issues [Rulemaking] to set SARR cross-
over traffic revenue divisions been in effect when it modeled the
LRR.” WFA August 2008 Rebuttal at 2-3. WFA also called
the Board’s attention to the due process requirements identified
in Logan v. Zimmerman Brush Co., 455 U.S. 422, 433 (1982),
that a complainant has the right to an “opportunity to present his
case and have its merits fairly judged,” and in Hatch v. FERC,
654 F.2d 825, 835 (D.C. Cir. 1981), that where rules have
changed in the middle of the case “litigants must have a
meaningful opportunity to submit conforming proof.” See
WFA August 2008 Rebuttal at 65. WFA emphasized that
BNSF had not objected to the procedural schedules advancing
the proceeding to July 2008 and had stated in filings during the
Major Issues Rulemaking that delay caused by the rulemaking
would not prejudice WFA’s case. See id. at 66.
11
In the Decision of February 17, 2009, supra note 1, the
Board found that the challenged rates were unreasonable,
prescribed maximum lawful rates, and ordered BNSF to pay
reparations to WFA. In response to the parties’ joint petition,
the Board, by Decision of June 3, 2009, incorporated technical
corrections to the February 2009 Decision. In the Decision of
July 23, 2009, the Board found that although BNSF had
generally used the correct method to calculate the maximum
lawful rates, it erred in its indexing approach, and ordered
BNSF to establish rates, within thirty days, in accordance with
the approach in Oklahoma Gas & Elec. v. Union Pacific R.R.,
STB Docket No. 42111, 2009 WL 2205337 (July 23, 2009).
BNSF petitions for review.7 See 28 U.S.C. §§ 2321, 2342,
2344.
II.
BNSF contends that section 11701(c) required the Board to
dismiss the WFA proceeding three years after WFA filed its
verified complaint on October 19, 2004. The Board responds
that this ignores statutory text in section 11701(a) that
introduces ambiguity as to whether the three-year limit applies
only to investigations initiated by the Board rather than by
complaint, and would raise serious constitutional concerns
because dismissal without a final decision on the merits would
likely deprive complainants of due process. WFA concurs with
the Board’s interpretation of section 11701(c) and agrees
application of the three-year limit to its complaint would violate
its basic due process right to receive a final decision on its claim
after a full and fair hearing.
7
On October 21, 2009, the Board ordered BNSF within thirty
days to pay reparations (with interest) to WFA. W. Fuels Ass’n, Inc.
and Basin Elec. Power Coop. v. BNSF Ry. Co., STB Docket No.
42088, 2009 WL 3398892 (Oct. 21, 2009).
12
Section 11701 provides:
(a) Except as otherwise provided in this part, the
Board may begin an investigation under this part only
on complaint. If the Board finds that a rail carrier is
violating this part, the Board shall take appropriate
action to compel compliance with this part.
(b) A person . . . may file with the Board a complaint
about a violation of this part by a rail carrier providing
transportation or service subject to the jurisdiction of
the Board under this part. * * * The Board may
dismiss a complaint it determines does not state
reasonable grounds for investigation and action.
However, the Board may not dismiss a complaint . .
.because of the absence of direct damage to the
complainant.
(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.
49 U.S.C. § 11701 (emphasis added).
BNSF contends the plain text of section 11701(c) provides
that the three-year limit applies only to “formal investigative
proceeding[s] begun by the Board under subsection (a).” Pet’r’s
Br. 28. Subsection (a) authorizes the Board to initiate, BNSF
maintains, only one type of proceeding: those brought on
complaint. WFA filed a complaint and so, BNSF concludes, the
three-year limit in subsection (c) applies to the WFA
proceeding, commencing to run on the date WFA filed its
complaint. BNSF notes that, in amending subsection (a) to
13
strike text authorizing the Board’s predecessor to begin an
investigation under this subtitle “on its own initiative,” 49
U.S.C. § 11701(a) (as recodified in 1978), Congress in the
ICCTA cut back on the Board’s authority to initiate formal
investigations. See H.R. Conf. Rep. 104-422, at 194. BNSF
rejects the notion that due process is implicated, suggesting
WFA’s complaint is not a protected property interest and
recasting WFA’s “real objection” to be that the rules of the
game changed after it filed its complaint in a way that prevented
“fair” adjudication within the three-year limit, a claim under
Hatch that BNSF maintains was rejected in the Major Issues
Appeal, 526 F.3d at 784. See Pet’r’s Br. 36-40. BNSF thus
concludes, the WFA proceeding should have been terminated
automatically pursuant to section 11701(c) on October 19, 2007
and the Board’s subsequent orders should be vacated as
contrary to law.
The Board does not suggest the deregulatory context is not
a relevant indicator of Congress’ intent, only that Congress’
failure in the ICCTA to amend section (c) (other than making
technical revisions) indicates that Congress intended the
Board’s interpretation — that the three-year limit applies only
to Board-initiated investigations — to continue in force. It
notes Congress’ contemporaneous addition to subsection (a) of
the phrase “except as otherwise provided in this part,” such that
the ICCTA did not disturb the Board’s authority to initiate
certain formal investigations under other provisions of Title 49,
as, for example, to exercise temporary authority to direct rail
operations in rail service emergencies pursuant to 49 U.S.C.
§ 11123. See also id. §§ 10745, 10706(d), 10502(b).
Essentially, the Board maintains, as it did in Xcel, 456 F.3d at
478-79, that because Congress cannot have intended to punish
a complainant for agency inaction, the three-year limit must be
read to apply only to investigations begun by the Board on its
own initiative. It thus reads “formal investigative proceeding”
14
to refer to such proceedings pursuant to the “otherwise
provided” clause of subsection (a). The Board notes its
interpretation is consistent with the I.C.C.’s reading of 49
U.S.C. §11701 (as recodified in 1978). Because the term
“formal investigative proceeding” had an established meaning
before the ICCTA was enacted, the Board suggests Congress is
presumed to have been aware of that interpretation when it
retained the phrase in section 11701(c) in 1995. Any other
reading, it maintains, would produce an absurd, unfair, and
perhaps even unconstitutional result by depriving a complainant
of a decision on the merits of its rate complaint where the delay
was not the complainant’s fault, perversely rewarding the
railroad that managed to prolong a rate proceeding beyond the
three-year limit. WFA’s right to due process, the Board
maintains, would be violated in two ways: lack of a fair
opportunity to present its case after the Board changed the rule
on revenue allocation for cross-over traffic and failure to
receive a final agency decision on the merits.
The conflicting statutory interpretations reprise the
arguments made by BNSF and the Board in Xcel, 453 F.3d at
479 (D.C. Cir. 2006). This court observed then that:
The Board’s concern with due process may be well-
founded. See Logan v. Zimmerman Brush Co., 455
U.S. 422, 428, 102 S. Ct. 1148, 71 L. Ed.2d 265
(1982) (holding “a cause of action is a species of
property protected by the Fourteenth Amendment’s
Due Process Clause” and therefore could not
constitutionally be extinguished by expiration of the
120-day period for state agency to convene a fact-
finding conference). We need not resolve the issue of
the three-year limit, however, because BNSF failed to
raise the argument in a timely manner.
15
Id. So too here.
In Xcel, the court explained that “[a] reviewing court
generally will not consider an argument that was not raised
before the agency ‘at the time appropriate under its practice.’”
453 F.3d at 479 (quoting United States v. L.A. Tucker Truck
Lines, Inc. 344 U.S. 33, 37 (1952)). In that case, BNSF raised
the three-year limit argument after three and one half years of
proceedings, when the Board had ruled against it on the merits
and BNSF was petitioning for reconsideration. Without
identifying “the exact moment the argument was forfeited,” the
court concluded “it could not have been later than when the
Board decided the case because the criteria for granting
reconsideration are limited by statute.” Id. (citing 49 U.S.C.
§ 722(c) (requiring “material error, new evidence, or
substantially changed circumstances”)). The court further
rejected BNSF’s objection that the “automatic” dismissal
provision in section 11701(c) was a “‘mandatory directive’ . . .
leav[ing] no discretion in the [Board] to treat its claim as having
been forfeited,” stating that “[e]ven a defect in the jurisdiction
of an agency . . . when not timely raised before that agency is
forfeit. . . unless it ‘concerns the very composition or
constitution of that agency,’. . . which BNSF’s objection does
not.” Id. (internal citations omitted).
In the instant case, BNSF first argued before the Board that
the three-year limit required the WFA proceeding be dismissed
in July 2008, after three and three-quarters years of proceedings
and nine months after, according to BNSF, the three years had
run from the filing of WFA’s verified complaint. This also was
ten months after the September 2007 Decision and five months
after the Board denied BNSF’s petition for reconsideration of
the September 2007 Decision. BNSF mentioned the three-year
limit in its petition for reconsideration but, as it conceded during
oral argument, it did not argue the proceeding had to be
16
dismissed, only that it was “unfair to BNSF to allow this
proceeding to continue beyond the three-year cut off . . . when
the complainants, who have the burden of proof, failed to
demonstrate in their original SAC evidence that they are entitled
to any relief.” BNSF October 2007 Pet. for Reconsideration at
2. In denying reconsideration the Board noted the parties had
agreed to a procedural schedule (through July 2008) that would
include time for additional discovery. February 2008 Denial of
Reconsideration at 8. These are circumstances of forfeiture
similar to those identified in Xcel, 453 F.3d at 479.
BNSF’s explanation during oral argument for its delay in
raising the three-year limit argument, that it viewed the
September 2007 Decision as a final decision and the later
proceeding as a reopening, does not negate the forfeiture. The
September 2007 Decision indicated on its face it was not a final
decision, affording WFA thirty days to decide whether it wanted
to submit supplemental evidence on a new or revised SARR and
stating that unless WFA decided to supplement its evidence the
proceeding “will be discontinued.” September 2007 Decision
at 20 (emphasis added). Even though BNSF could have filed a
motion to dismiss at any point in the WFA proceeding, see 49
C.F.R. § 1111.5, it stood silent before the Board after the denial
of its petition for reconsideration in February 2008 and while
WFA prepared and presented a revised SARR to the Board in
May 2008. BNSF also stood silent before the Board after the
Board filed a motion on May 19, 2008 to dismiss the appeal of
the September 2007 Decision as premature,8 waiting two
months after the Board’s motion to argue the three-year limit
before the Board, see BNSF July 14, 2008 Reply at 47-49, even
though BNSF had argued before this court in response to the
8
This court dismissed the appeal. See W. Fuels Ass’n, Inc.
and Basin Elec. Power Coop. v. BNSF Ry. Co., Docket No. 08-1167
(D.C. Cir. Jun. 3, 2009).
17
Board’s motion to dismiss that the pending proceedings were
otherwise improper because they extended beyond the three-
year limit, citing Xcel’s holding on “waiver,” 453 F.3d at 480.
See June 3, 2008 BNSF Resp. to Board’s Mot. to Dismiss at 14-
15, W. Fuels Ass’n, Inc. and Basin Elec. Power Coop. v. BNSF
Ry. Co., Docket No. 08-1167 (D.C. Cir. Jun. 3, 2009). Under
the circumstances BNSF did not timely present the three-year
limit argument to the Board. See Xcel, 453 F.3d at 479.
Although this court has held that a forfeiture can be
forfeited by failing on appeal to argue an argument was
forfeited, see Empagran S.A. v. F. Hoffman-Laroche, Ltd., 388
F.3d 337, 344 (D.C. Cir. 2004); Bowden v. United States, 106
F.3d 433, 438-39 (D.C. Cir. 1997), that precedent is
inapplicable. The Board never acquiesced in BNSF’s view that
section 11701(c)’s three-year limit applied to complaint-
initiated investigations and rejected BNSF’s argument on the
merits when it was first raised in July 2008.
III.
On the merits, BNSF contends the Board’s Decision is
arbitrary and capricious for allowing WFA to reroute traffic in
its May 2008 evidentiary presentations and in modifying ATC.
Our review is deferential, looking to see whether the decision is
“‘arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law,’” 5 U.S.C. § 706(2)(A), (E), bearing in
mind that ‘[w]here an agency has rationally set forth the
grounds on which it acted, . . . this court may not substitute its
judgment for that of the agency.’” Xcel, 453 F.3d at 480
(internal citation omitted).
BNSF maintains that the Board did not hold WFA to its
burden to justify its traffic selection and failed to explain why
WFA’s re-routing of traffic was consistent with SAC principles.
18
BNSF objected in July 2008 to WFA’s revised traffic selection
that included high rated “Jeffrey traffic” on the ground that it
was beyond what the Board had authorized in the September
2007 Decision. On appeal, BNSF suggests that the “Jeffrey
traffic” “shares virtually no facilities with WFA’s traffic,”
Pet’r’s Br. 46, and that together with the dropped profitable but
lower-rated traffic it did nothing to advance the objectives of the
SAC test.
The Board determined that WFA’s replacement of the
lower-rated 19 million tons of traffic with higher-rated “Jeffrey
traffic” was within the “broad flexibility” allowed by the
Guidelines at 543-44. Explaining that “every choice made by
a complainant in designing a SARR will be done with an eye to
reducing the maximum lawful rate produced under the SAC
test” and that the traffic choice is valid “[s]o long as the
complaint does not violate any SAC rule or principle in the
process,” February 2009 Decision at 7, the Board concluded the
“Jeffrey traffic” met the criteria for inclusion by demonstrating
that “the route is reasonable and would meet the shipper’s
transportation needs,” id. at 11 (citing Tex. Mun. Power Agency
v. BNSF, 6 STB 573, 589 (2003)).
The court will defer because the Board’s determination
invokes its expertise, see Major Issues Appeal, 526 F.3d at 774,
and we find no fault with the Board’s reasoning. The Board’s
approval of the rerouted traffic is consistent with the Board’s
precedent that the complainant designing the system from
scratch has “broad flexibility to develop the least costly, most
efficient plan” and to select the traffic group, including cross-
over traffic, for its SARR. Guidelines at 543-44; see Duke
Energy Corp. v. CSX Transp., Inc., 7 STB 402, 417 (June 2003-
Dec.2004), 2004 WL 250254, at *10-*11. BNSF presents no
persuasive argument to question the Board’s reasonable
distinction between requiring a compelling justification for
19
changing a traffic route only where the selected traffic shares no
facilities in the real world, and requiring only that the
complainant account for any off-SARR changes where the
selected traffic shares at least some facilities in the real world,
as does the “Jeffrey traffic.” See February 2009 Decision at 11
n.16; see also Duke Energy, 7 STB at 418, 2004 WL 250254, at
*11; Pub. Serv. Co. of Colo. d/b/a Xcel v. Burlington N. and
Santa Fe Ry. Co., 7 STB 589, 607-08 (June 2003-Dec.2004),
2004 WL 1428724, at * 12.
BNSF also contends the Board’s modification of ATC in
the September 2007 Decision was arbitrary and capricious
because modified ATC fails appropriately to consider
economies of density and artificially inflates the revenues
attributable to the SARR. It suggests that in the Major Issues
Rulemaking “[t]he Board recognized that it must consider the
relative average total costs of each segment, rather than their
average variable costs, in order to take adequate account of
economies of density.” Pet’r’s Br. 50 (citing the Major Issues
Rulemaking at 34-35 and the NPRM at 20). BNSF maintains
that under the Board’s two-step approach — by assigning
revenues to cover the variable costs in step one without
reflecting economies of density, and by then allocating any
remaining revenues to cover the fixed costs plus the variable
cost in step two taking economies of density into account —
variable costs are counted twice. In BNSF’s view, this “all but
ignores the fundamental purpose of ATC (accounting for the
economies of density).” Pet’r’s Br. 51. The effect, BNSF
claims, is that the high-density SARR segments tend to receive
a disproportionately large share of revenues leaving the
incumbent carrier with insufficient revenues to cover the
proportionally higher cost of lower-density off-SARR lines.
The Board determined upon applying ATC, as adopted in
the Major Issues Rulemaking, that it had not accounted for a
20
situation in which low-rated cross-over traffic did not cover its
own variable costs for portions of the rail movement. See
September 2007 Decision at 14. The Board explained that
“[b]ecause the traffic group includes considerable traffic with
total revenue either below or barely above variable cost, and
because the off-SARR segments of the movements have lower
densities, the practical effect of the parties’ approach would be
to drive the R/VC percentages of the movements below 100%,”
meaning “the on-SARR revenue allocation for those movements
would be insufficient to cover the variable cost . . . of handling
traffic for the highest-density portion of a movement.” Id. at 14.
“To avoid such an illogical and unintended result,” id., the
Board modified ATC. “Instead of applying ATC allocation
procedure to total revenue, we will apply the same allocation
procedure to total revenue contribution” so that “the revenue
assigned to the on-SARR part of a cross-over movement will
equal the variable cost to haul the traffic over the facilities
replicated by the SARR plus the portion of available revenue
contribution allocated in accordance with ATC.” Id. (emphasis
in original).
On appeal the Board acknowledges that it “did not
specifically mention ‘double-counting’” in denying BNSF’s
petition for reconsideration of the September 2007 Decision.
Resp’t Br. 63. Rather, the Board stated that modified ATC
would not reintroduce bias because it is “even-handed.”
February 2008 Denial of Reconsideration at 4-5. The Board
noted that BNSF had previously suggested adoption of a similar
methodology, the Density Adjusted Revenue Allocation
(“DARA”). Id. at 5. However, the Board had rejected DARA
as being “insensitive to the actual economies of density
associated with particular movements” and observed that ATC,
as adopted in the Major Issues Rulemaking, “does not suffer
from the deficiency that led to the Board’s rejection of DARA.”
Major Issues Rulemaking at 26. WFA has offered a response in
21
its brief at 35-36, explaining that BNSF’s concern with double-
counting is not problematic because step one recognizes that
average variable costs do not vary with density, while step two
recognizes that average total cost declines as density increases
because the fixed costs are “spread over a larger number of
traffic units,” WFA Br. at 36. However, the Board never relied
on this rationale and so cannot do so on appeal. See SEC v.
Chenery Corp., 332 U.S. 194, 196 (1947).
Accordingly, we grant the petitions in part, so that the
Board on remand can address BNSF’s double-counting
objection to modified ATC, and we otherwise deny the
petitions.