Southern Pacific Transportation Company v. Interstate Commerce Commission United States of America, County of El Dorado, Respondent-Intervenor

JAMES R. BROWNING, Circuit Judge:

The Interstate Commerce Commission rejected Southern Pacific’s application to abandon its 38.573-mile Placerville Branch serving El Dorado County, California, near Lake Tahoe, essentially on the ground that abandonment would be premature. Southern Pacific petitions for review pursuant to 28 U.S.C. §§ 2321(a) and 2342(5). We deny the petition.

I.

Southern Pacific claimed that present and estimated future traffic levels did not justify continued operation of the Placer-ville Branch. The railroad reported that a steady decline in the lumber industry and the loss of traffic from two major business concerns had resulted in a decline in traffic from 2,500 carloads in 1975 to 548 a decade later and to only 64 in the first six months of 1987.

Southern Pacific acknowledged that despite the traffic decline the Placerville Branch continuously earned a net profit, totaling $165,616 in 1984, $231,240 in 1985 and $184,019 in the base year of July 1986 through June 1987.1 However, the carrier projected a continuation of the traffic decline and an increase in the cost of necessary repair and maintenance, and predicted a one-year operating loss of $121,735, which abandonment would avoid. Southern Pacific also claimed abandonment would save the railroad an annual opportunity cost of more than $1.442 million.2

El Dorado County vigorously disputed Southern Pacific’s estimated operating loss and opportunity costs. The County projected increases in traffic more than sufficient to generate a profit even after accounting for future repair and maintenance costs. These estimates were supported by affidavits from executives of two new companies, which had supplanted the two shippers lost to Southern Pacific, pledging future shipments exceeding those of the businesses they replaced; and by forecasts from lumber company officials that use of the Branch would increase substantially because of the anticipated economic recovery of that industry. The County offered evi-*840deuce that Southern Pacific’s opportunity costs were premised upon greatly inflated land appraisals, and that the true costs were closer to $144,000 annually, or one-tenth Southern Pacific’s figure. Most importantly, the County offered evidence that abandonment would devastate the local economy and frustrate future planned development because alternative means of transporting freight into and out of El Do-rado were not economically feasible.

The ICC denied Southern Pacific’s application. The Commission noted it was required to balance the interests of those served by the line against the interests of Southern Pacific and the transportation system, and could grant the application only if Southern Pacific proved that present or future convenience or necessity permitted abandonment. Southern Pacific Transp. Co. — Abandonment—in El Dorado and Sacramento Counties, No. AB-12, served Aug. 10, 1987, at 7 (SP I) (citing 49 U.S.C. § 10903); see Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 321, 101 S.Ct. 1124, 1132, 67 L.Ed.2d 258 (1981); Railway Labor Executives’ Ass ’n v. ICC, 825 F.2d 238, 239 (9th Cir.1987). The ICC concluded Southern Pacific had failed to carry its burden of proving abandonment of the Placerville Branch at this time would serve the public convenience or necessity. SP I, supra, at 7; see 49 U.S.C. § 10904(d)(1); Simmons v. United States, 698 F.2d 888, 893 (7th Cir.1983).

The ICC emphasized that Southern Pacific’s own “revenue and cost data indicate operation of the line has produced substantial profits and would remain profitable even if [the railroad] performed the short-term maintenance it says is necessary to keep the line at its present condition.” SP I, supra, at 7. The Commission accorded less weight to Southern Pacific’s projected long-term repair costs because they were “speculative.” Id. The Commission also gave limited effect to the loss of the two major shippers on the ground the railroad’s evidence was not sufficient to discount the County’s showing that these operations had been acquired recently by new owners who anticipated substantial use of the railroad.

The Commission noted that the abandonment would have a significant impact on El Dorado County shippers and the community generally; that the County had raised legitimate concerns about the effects of loss of rail service to the area; and that the railroad had failed to substantiate its assertions that alternative means of transportation were economically feasible.

The Commission did not resolve the dispute over the level of opportunity costs, because it concluded that “[e]ven accepting the [railroad’s] figures, those costs would not constitute a reason to grant the abandonment.” Id. at 8. In reaching this conclusion, the ICC pointed out that opportunity costs were not dispositive, and that in this case “the documented profitability of the line, the lack of any showing that alternative transportation services are economically feasible, and the adverse impact of the abandonment on shipper and community interests weigh against a grant of the abandonment application.” Considering all relevant factors, the ICC concluded that, “[o]n balance, the public convenience and necessity do not support abandonment.” Id.

Southern Pacific filed an administrative appeal, which the ICC rejected. Southern Pacific Transp. Co. — Abandonment—in El Dorado and Sacramento Counties, No. AB-12 (Sub-No. 113), served Nov. 12, 1987, at 4 (SP II). The Commission adhered to its conclusion that Southern Pacific had not provided adequate data reflecting current operations. It gave no weight to Southern Pacific’s projected losses on the Placerville Branch because the railroad’s claim that operating costs would increase was based on a steady or accelerated flow of traffic while its assertions that revenues would decrease was premised on a significant decline in use. Id. at 2. The ICC also rejected the railroad’s contention that the Commission erred by not calculating the exact level of opportunity costs:

We found that, under either the [Southern Pacific] or County methodology, [Southern Pacific] would incur a substantial opportunity cost.... [But] other *841factors, including the profitability of the line, lack of feasible alternative transportation service, and adverse impact on the community outweighed the opportunity cost to [the railroad]. Weighing the burdens of continued rail service on the carrier against the burden of the abandonment on the affected shippers and community is the means used to determine whether to permit abandonment. Colorado v. United States, 271 U.S. 153 [, 46 S.Ct. 452, 70 L.Ed. 878] (1925). [The railroad] has not convinced us that we erred in balancing those burdens in this case.

Id. at 3.3

The ICC concluded, in essence, that Southern Pacific’s application was premature because it was clear abandonment would adversely affect El Dorado County, but it was unclear that continued operation would burden Southern Pacific or the railroad system. “[T]he shippers are serious in their efforts to increase traffic,” the ICC noted, and “since [the railroad] has not established that current operations are unprofitable, the shippers have the opportunity to increase traffic to anticipated levels. On the other hand, if projections [of future use] do not materialize, [Southern Pacific] may again seek abandonment.” Id. at 4.

The railroad petitioned for review.

II.

Congress has endowed the Interstate Commerce Commission “with broad power to regulate a carrier’s permanent or temporary cessation of service”; the Commission’s jurisdiction over abandonments is “exclusive” and “plenary.” Chicago & N.W. Tramp. Co., 450 U.S. at 319, 320, 101 S.Ct. at 1131. Our function in reviewing the Commission’s determination whether to permit abandonment is accordingly narrow:

In deciding whether to permit an abandonment, the Commission must balance “the interests of those now served by the present line on the one hand, and the interests of the carrier and the transportation system on the other.” Purcell v. United States, 315 U.S. 381, 384, 62 S.Ct. 709, 710, 86 L.Ed. 910 (1942). Once the Commission has struck that balance, its conclusion is entitled to considerable deference. “The weight to be given to cost of a relocated line as against the adverse effects upon those served by the abandoned line is a matter which the experience of the Commission qualifies it to decide. And, under the statute, it is not a matter for judicial redecision.” Id. at 385, 62 S.Ct. at 711.
The breadth of the Commission’s statutory discretion suggests a congressional intent to limit judicial interference with the agency’s work.

Id. 450 U.S. at 321, 101 S.Ct. at 1132.

We have no authority to reweigh the evidence underlying the Commission’s decision. Ralston Purina Co. v. Louisville & Nashville R.R. Co., 426 U.S. 476, 477-78, 96 S.Ct. 2160, 2161, 48 L.Ed.2d 781 (1976) (per curiam). We review its conclusions only to ensure they are not arbitrary or capricious, an abuse of discretion, contrary to law or unsupported by substantial evidence. Gray Lines Tour Co. v. ICC. 824 F.2d 811, 813 (9th Cir.1987). An ICC decision is neither arbitrary nor capricious if the Commission weighed the relevant factors and stated a rational basis for the balance it struck. Bowman Transp. Inc. v. Arkansas Best Freight Sus., 419 U.S. 281, 285, 95 S.Ct. 438, 441, 42 L.Ed.2d 447 (1974); Railway Labor Executives, 825 F.2d at 239-41.

III.

Southern Pacific claims the ICC “ignored” Southern Pacific’s evidence of a decline in traffic and increase in operating costs that together would create future losses. As our summary of the Commission’s decision demonstrates,4 the ICC considered these factors in detail and stated clearly why the Commission concluded they did not justify abandonment at this time.

*842The ICC predicted that shipments from two new companies, combined with increased traffic from the local lumber industry as it emerged from a cyclical decline, would more than offset the loss of traffic from the two major shippers the new companies replaced.5 Such predictive judgments, when based upon credible evidence, are best left to the expertise of the administrative agency familiar with the industry. FCC v. National Citizens Comm’n for Broadcasting, 436 U.S. 775, 814, 98 S.Ct. 2096, 2121, 56 L.Ed.2d 697 (1978).

The Commission acted within its discretion in concluding this evidence was not undercut by the failure of the predicted traffic to materialize during the course of the abandonment proceedings, in view of the County’s showing that Southern Pacific downgraded service on the Placerville Branch after filing the application to abandon. SP II, supra, at 3; see Illinois v. United States, 666 F.2d 1066, 1078-80 (7th Cir.1981). According to the County’s evidence, Southern Pacific adopted an “adversarial attitude toward the line” by severely delaying pick ups, cutting service in half and imposing a $750-per carload surcharge.6 The president of one company labelled Southern Pacific’s actions “tantamount to a de facto embargo, suspension, and abandonment of service on this line without the approval or authorization of the Interstate Commerce Commission.... Shippers are literally being driven off this Branch by the railroad.”

The Commission found Southern Pacific’s evidence insufficient to establish future operating costs would render the line unprofitable. The railroad’s own “revenue and cost data indicate operation of the line has produced substantial profits and would remain profitable even if applicant performed the short-term maintenance it says is necessary to keep the line at its present condition.” SP I, supra, at 7.7 Moreover, the Commission noted, Southern Pacific’s short term cost-revenue projections, forecasting future losses, were flawed by discrepancies.8 The Commission also declined to base its decision on Southern Pacific’s projection of long term losses — the railroad conceded that most of the $3,237 million in projected long term track repair need not be undertaken in the next two-to-three years, and the ICC refused to speculate as to whether the level of traffic at that time would produce revenues sufficient to cover the added expense.

The Commission concluded it was too soon to tell with sufficient certainty whether the line would become a burden on Southern Pacific or would remain profitable, and invited Southern Pacific to reapply for abandonment if the promised increase in traffic did not materialize. SP II, supra, at 4. We do not believe the ICC’s pragmatic approach was arbitrary or capricious. A cautious approach was justified under the circumstances. A grant of abandonment under section 10903 is normally irrevocable. If abandonment were approved, the Commission would be powerless, absent extraordinary circumstances, to order rail service reinstated even if the need forecast by the County and its shippers proved *843to be accurate. See Hayfield N. R.R. Co. v. Chicago & N.W. Transp. Co., 467 U.S. 622, 633-34, 104 S.Ct. 2610, 2617, 81 L.Ed.2d 527 (1984).

IV.

Southern Pacific contends the ICC’s decision is fatally flawed by the Commission’s failure to calculate the value of Southern Pacific’s opportunity costs. The Commission declined to resolve the discrepancy between the railroad’s estimate and that of the County because it concluded that even if Southern Pacific’s estimate was accurate, “those costs would not constitute a reason to grant the abandonment.” P I, supra, at 8. “[Ojther factors, including the profitability of the line, lack of feasible alternative transportation service, and adverse impact on the community,” the Commission concluded, “outweighed the opportunity cost....” SP II, supra, at 3.

The ICC was not required to resolve a subsidiary issue irrelevant to the ultimate outcome.9 Moreover, by treating Southern Pacific’s estimate of opportunity costs as if it were correct, the Commission accorded it as much weight as the Commission could without treating it as dispositive, which the Commission could not do. “[Opportunity cost is just one of the factors that must be taken into consideration in determining whether abandonment is justified. Merely because a railroad could earn greater revenue by investing its assets elsewhere does not mean that public convenience and necessity requires abandonment.” Cartersville Elevator, Inc. v. ICC, 724 F.2d 668, 675 (8th Cir.1984) (quoting Burlington N. R.R. Abandonment, No. AB-6 (Sub. No. 104F) (ICC Jan. 29, 1982)).

V.

Southern Pacific challenges the ICC’s findings regarding adverse community impact and lack of alternative means of transportation. The ICC, which is required by statute to consider whether abandonment will create “serious adverse impact on rural and community development,” 49 U.S.C. § 10903(a), had before it evidence that abandonment would threaten current industry and jobs and would derail plans for future development because alternative means of transportation were not economically feasible.

Southern Pacific pointed out that trucking and off-branch service10 are available to El Dorado County businesses. “If the phrase ‘alternative’ is to have any meaning,” however, “it must be interpreted to include transportation both logistieally and economically feasible.” Georgia Public Serv. Comm’n v. United States, 704 F.2d 538, 545 (11th Cir.1983). As the Commission concluded, “[a] mere statement that alternatives are available is insufficient to establish in this case that these alternatives were feasible.” SP II, supra at 4. The Commission’s conclusion is particularly well taken in light of affidavits offered by the County that the “alternatives” suggested by Southern Pacific would increase shippers’ costs by as much as 30 percent and decrease revenues by as much as 10 percent — enough to force some of them out of business. See Georgia Public Serv., 704 F.2d at 545-57; Indiana Sugars, Inc. v. ICC, 694 F.2d 1098, 1100-02 (7th Cir.1982).

VI.

Where the question facing the ICC in an abandonment case is whether the injury to the affected communities outweighs the burden on the carrier, the Supreme Court has instructed the Commission to answer this question by balancing the competing interests “to decide what fairness to all concerned demands.” Colorado v. United States, 271 U.S. at 168-69, 46 S.Ct. at 455-56. The Commission decided that fairness in this case demanded denying abandonment until the County and *844its shippers had an opportunity to fulfill their pledge to increase shipments to a level sufficient to justify continued operation. On the record before the Commission, we cannot say this was error.

Accordingly, Southern Pacific’s petition for review is denied.

. A "base year" is the latest 12-month period, ending no earlier than six months prior to the filing of the abandonment application, for which the railroad has pertinent data. 49 C.F. R. § 1152.2(c).

. "Opportunity cost” represents the economic loss sustained by the railroad from foregoing a more profitable alternative use of its assets. See Busboom Grain Co. v. ICC, 830 F.2d 74, 74-75 (7th Cir.1987); Baltimore & Ohio R.R. Co. v. ICC, 826 F.2d 1125, 1126 n. 1 (D.C.Cir.1987). Southern Pacific calculated it could realize 16,787,275 by selling the land under the tracks and $968,837 by salvaging portions of the line. This net liquidation value of $7,756,112, multiplied by an 18.6% rate of return, resulted in an annual opportunity cost of $1,442,637.

. Other arguments rejected by ICC in its second decision will be discussed below.

. See supra al 840.

. Two new companies, P.W. Pipe and Cornett, together promised shipments exceeding those of the businesses they replaced. P.W. Pipe's president anticipated shipping in at least 250 carloads annually of raw materials. Cornett’s president predicted annual shipments of up to 1,000 cars. In contrast, during the 2 years prior to Southern Pacific's application, the two defunct shippers, Certainteed Corp. and Placerville Lumber, accounted for a total of only 585 carloads. Longtime shippers also pledged increased traffic as a consequence of recovery in the lumber industry.

. The surcharge is the subject of a protest now pending before the ICC. See SPII, supra, at 1-2.

. Even if traffic did not increase at all over base year levels, the line would still earn a $49,000 profit after short term repair costs — $93,182 for crossing repairs and $42,000 for bridge replacement — are subtracted from net revenues.

.Southern Pacific projected a loss by predicting a need for “[cjonsiderably higher" maintenance costs — reflecting an increase from $47,486 in the base year to $160,631 — while simultaneously predicting a drastic decline in revenues — from $1,021 million to $336,000. As the ICC recognized, these two projections are inconsistent, since Southern Pacific conceded the higher maintenance costs were only required if traffic remained steady or increased, but the railroad’s dramatic drop in revenues was based on a 67% decline in traffic. See SP II, supra, at 2.

. This is an exercise in economy in which we frequently engage. Recent examples include United States v. Posey, 864 F.2d 1487, 1491 & 1494 (9th Cir.1989); United States v. Spawr Optical Research, Inc., 864 F.2d 1467, 1471 (9th Cir.1988); Walnut Properties, Inc. v. City of Whittier, 861 F.2d 1102, 1107-08 (9th Cir.1988).

. Off-branch service is distant rail service which shippers reach via trucks or other means.