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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 16, 2005 Decided April 8, 2005
No. 04-1162
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY,
PETITIONER
v.
SURFACE TRANSPORTATION BOARD AND
UNITED STATES OF AMERICA,
RESPONDENTS
AEP TEXAS NORTH COMPANY,
INTERVENOR
On Petition for Review of an Order of the
Surface Transportation Board
Samuel M. Sipe, Jr. argued the cause for petitioner. With
him on the briefs were Alice E. Loughran, Richard E. Weicher,
and Michael E. Roper.
Rachel Danish Campbell, Attorney, Surface Transportation
2
Board, argued the cause for respondents. With her on the brief
were Robert H. Pate, III, Assistant Attorney General, Robert B.
Nicholson and John P. Fonte, Attorneys, Ellen D. Hanson,
Deputy General Counsel, Surface Transportation Board, and
Thomas J. Stilling, Attorney.
Kelvin J. Dowd argued the cause for intervenor. With him
on the brief were Karen H. Herren, William L. Slover, and
Kendra A. Ericson.
Before: ROGERS, TATEL and GARLAND, Circuit Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Burlington Northern and Santa Fe
Railway Company (“BNSF”) petitions for review of the decision
of the Surface Transportation Board vacating the rate
prescription governing its transportation of coal from the
Rawhide coal mine in the Powder River Basin of Wyoming to
a coal-fired electric generating station owned and operated by
intervenor AEP Texas North Company (“AEP Texas”). W. Tex.
Utils. Co. v. Burlington N. & Santa Fe Ry. Co., 2004 WL
542864 (Mar. 19, 2004) (“Decision”). BNSF contends that the
Board contravened Congress’ policy of minimizing federal
regulation of the railroad industry in two ways: first, by granting
AEP Texas’s motion to vacate the rate prescription without
requiring the shipper to satisfy the evidentiary requirements for
reopening under the Interstate Commerce Commission
Termination Act of 1995 (“the Act”), 49 U.S.C. § 722(c) (2000),
and second, by endorsing disparate treatment of shippers and
carriers seeking to vacate a rate prescription. We reject AEP
Texas’s challenge to BNSF’s standing, and hold that the Board’s
explanation for disparate treatment of shippers and carriers
bound by the same rate prescription is arbitrary and capricious.
Accordingly, we grant the petition, vacate the Decision, and
3
remand the case to the Board.
I.
Under the Act, a railroad ordinarily may establish any rate
it chooses for the transportation it provides, provided it does not
discriminate against connecting lines. See 49 U.S.C. § 10701(c).
However, where a railroad has “market dominance over the
transportation to which a particular rate applies,” its rate must be
reasonable. Id. §10701(d)(1); see id. § 10709(a). A carrier is
conclusively presumed not to have market dominance where it
shows that the revenues produced by the rate are less than the
statutory floor for regulatory intervention: 180 percent of the
carrier’s variable cost of providing the transportation. Id. §
10707(d)(1)(A). Even where a carrier has market dominance,
the Board may not examine the reasonableness of the carrier’s
rate except upon complaint filed by an affected shipper. See id.
§ 10704(b).
Where, after filing a complaint, a shipper demonstrates that
a carrier’s rate is unlawful, the Board may prescribe the
maximum rate that the carrier may charge for transportation. Id.
§ 10704(a)(1). The Board determines the reasonableness of the
challenged rate based on “constrained market pricing” (“CMP”)
principles set forth in the Coal Rate Guidelines, Nationwide, 1
I.C.C.2d 520 (1985), aff’d sub nom. Consol. Rail Corp. v.
United States, 812 F.2d 1444 (3d Cir. 1987) (“Coal Rate
Guidelines”), which the Board concluded would “meet [its] dual
objectives of providing railroads the real prospect of attaining
revenue adequacy while protecting captive coal shippers from
‘monopolistic’ pricing practices,” id. at 524-25. CMP
establishes three main constraints on rates that may be charged
to captive traffic: revenue adequacy, management efficiency,
and stand-alone cost (“SAC”). Under the SAC analysis, carriers
are to use observed market demand as the basis for pricing,
while ensuring that a shipper not bear the cost of facilities and
4
services from which it derives no benefit. Coal Rate Guidelines,
1 I.C.C.2d. at 528. The Board utilizes the SAC test to set the
variable rate over the period covered by the SAC analysis, based
on the rate an optimally efficient stand-alone railroad would
hypothetically need to charge to serve the traffic of the
complaining shipper to fully recover its costs, including a
reasonable return on investment. Id.
The underlying dispute involves AEP Texas’s challenge to
BNSF’s tariff for transporting coal from the Rawhide mine to
the Oklaunion Generating Station after the expiration of the
parties’ rail transportation contract in 1994. The background to
the current appeal appears in Burlington N. R.R. v. Surface
Transp. Bd., 114 F.3d 206 (D.C. Cir. 1997). See also Burlington
N. R.R. v. Surface Transp. Bd., 75 F.3d 685 (D.C. Cir. 1996). In
1996, responding to AEP Texas’s predecessor’s challenge, the
Board found that BNSF’s rate was excessively high, and based
on a twenty-year SAC analysis (covering 1995 to 2014)
prescribed the maximum reasonable rate level at 180 percent of
BNSF’s variable cost of providing service. W. Tex. Utils. Co. v.
Burlington N. R.R. Co., 1 S.T.B. 638, 661 (Apr. 25, 1996)
(“West Texas I”). The Rawhide Mine closed in 1997. For
several years thereafter, BNSF voluntarily charged AEP’s
predecessor the Rawhide rate for traffic from its other mines.
Then, in June 2000, BNSF announced its intention to increase
the rate from non-Rawhide mines. W. Tex. Utils. Co. v.
Burlington N. R.R. Co., 2000 WL 1665124 (Nov. 3, 2000). AEP
Texas’s predecessor objected, arguing the Rawhide prescription
applied more broadly to other mines in the Powder River basin.
Id. at 2. The Board disagreed but stated it would consider
supplemental evidence and reopen the proceeding to receive
evidence concerning other mines. Id. at 5.
When the Rawhide Mine reopened in 2002, BNSF sought
clarification of the West Texas I rate prescription, requesting the
5
Board rule, in light of the fact that the SAC rate no longer fell
below the regulatory floor, that BNSF was entitled to charge the
higher of the SAC rate or the regulatory floor. The Board
obliged, observing that while the analysis in West Texas I
showed that the SAC rate initially fell below the jurisdictional
threshold, it should have been clear that the rate might exceed
that threshold in future years, and therefore the Board should
have prescribed a maximum reasonable rate at the higher of the
SAC rate or the statutory jurisdictional rate threshold, as the
Board had done in subsequent proceedings. W. Tex. Util. Co. v.
Burlington N. & Santa Fe Ry. Co., 2003 WL 21359571, 3-4
(May 28, 2003 ) (“West Texas II”). The Board rejected the
argument by the shipper that it first should have the opportunity
to re-litigate the SAC rate, explaining that to reopen the
proceedings based on new evidence or substantially changed
circumstances, the shipper would need to file an appropriate
petition for reopening. Id. Two months after denying
reconsideration, W. Tex. Utils. Co. v. Burlington N. R.R. Co.,
2000 WL 1665124 (Nov. 7, 2000), the Board clarified that the
invitation to submit evidence of substantially changed
circumstances should not be construed as “allowing a change in
the fundamental assumptions upon which the original SAC
analysis was based,” W. Tex. Utils. Co. v. Burlington N. & Santa
Fe Ry. Co., 2003 WL 21704153, 3 (July 22, 2003) (“West Texas
III”). The Board instructed that:
If a shipper wishes to establish a current maximum
reasonable rate using a SAC analysis that is based on
different assumptions than originally used, its recourse is to
have the rate prescription vacated, allow the railroad to
establish a new common carrier rate, and then file a
complaint challenging the railroad’s new rate.
Id. at 3. The Board added: “This limitation is necessary to
achieve a proper balance between the interests of fairness to all
6
parties and of administrative finality and repose. Id. (citing Ariz.
Pub. Serv. Co. v. Atchison, T.& S.F. Ry., 3 S.T.B. 70, 75
(1998)).
Thereafter, on August 11 and September 3, 2003,
respectively, AEP Texas filed a new rate complaint and a
petition to vacate the rate prescription to enable BNSF to
establish a new common carrier rate which, if necessary, AEP
Texas could then challenge and seek reparations, which it
subsequently did. On March 19, 2004, the Board granted AEP
Texas’s petition and vacated the rate prescription. Decision,
2004 WL 542864 at 1. The Board stated:
As the proponent and beneficiary of the rate prescription,
the complaining shipper should be entitled to have that
prescription vacated upon request, without having to show
that the prescription is now defective. [1] This policy is
appropriate to ensure that a captive shipper who prevails on
its rate complaint in the first instance does not later end up
in a worse position–by having to bear a higher rate than
would be justified under a new SAC analysis–than if it had
not earlier challenged the rate or had been unsuccessful in
its earlier challenge. This is a particular concern given the
long period of time covered by a SAC analysis (usually
looking forward 20 years) and any resulting rate
prescription. [2] The economic and regulatory conditions
reflected in the SAC analysis can change significantly over
that time period. The rate prescription, which was imposed
to protect the captive shipper from unreasonably high rates,
should not become the source of a rate that would now be
considered unreasonable under a SAC analysis.
Id. at 3. The Board rejected BNSF’s concern that it would be
subject to repetitive rate litigation over the same traffic, stating
that “nothing prevents an unsuccessful complainant from
7
pursuing a new complaint immediately, and nothing binds that
shipper to its prior evidentiary presentation.” Id. The Board
also observed that while the carrier is restored to rate setting
freedom, the shipper has relinquished the benefits of a prior rate
prescription, must take service under the new rate established by
the carrier, and bears the risk that a new rate complaint may be
unsuccessful. Id. BNSF petitions for review.
II.
As a threshold matter, we address AEP Texas’s challenge
to BNSF’s standing to petition for review of the Board’s
Decision. AEP contends that BNSF is not aggrieved by the
Decision because the vacated rate prescription “was entered
solely for the benefit of AEP Texas, and the only effect of the
[Decision] on BNSF was to restore the carrier’s discretion to set
any rate it chose on AEP Texas’[s] coal traffic–which discretion
BNSF exercised.” Br. of Intervenor-Resp’t at 2. Although
acknowledging its present challenge to BNSF’s discretionary
rate, AEP Texas points out that BNSF’s “rate-setting freedom
cannot be constrained unless and until the [Board] issues a final
decision finding the rate unreasonably high and ordering it
reduced.” Id. Hence, AEP Texas contends, BNSF cannot show
any “injury in fact” arising from the Decision.
Under the Hobbs Act, a party seeking review of a decision
by the Board must demonstrate that it has been aggrieved by the
agency action. 28 U.S.C. § 2344 (2000). Proof of such
aggrievement requires a showing of both Constitutional and
prudential standing. See Shell Oil Co. v. FERC, 47 F.3d 1186,
1200-01 (D.C. Cir. 1995). For the Court to find Constitutional
standing, BNSF must establish that: (1) it has suffered an injury-
in-fact, that (2) was caused by the decision of the Board, and
that the injury (3) would be redressed by the relief sought from
the court. Raytheon Co. v. Ashborn Agencies, Ltd., 372 F.3d
451, 453 (D.C. Cir. 2004).
8
As a consequence of the Decision vacating the rate
prescription, BNSF’s rate-making freedom was restored. But,
contrary to AEP Texas’s contention, it does not follow that
BNSF cannot show injury-in-fact. AEP Texas is seeking to have
it both ways: On the one hand, AEP Texas contends that BNSF
cannot show injury-in-fact as a result of the Decision setting
aside the rate prescription, while on the other hand it has filed a
complaint alleging that the identical discretionary rate BNSF is
imposing is unreasonably high and that reparations are due. As
BNSF responds, “its injury is obvious” because prior to the
Decision, the rate prescription would have remained in effect
until 2014. Instead, although BNSF in the exercise of its
discretion set the rate for Rawhide coal traffic at the same rate
as the previously prescribed rate, BNSF is presently a defendant
in an action by AEP Texas seeking reparations for charges made
at that rate.
Had the revised rate prescription remained in effect, BNSF
would be shielded from liability for reparations to AEP Texas if
the Board determined the prescribed rate was unlawful. BNSF
no longer enjoys this protection. This is a cognizable injury
sufficient to confer standing. See Rio Grande Pipeline Co. v.
FERC, 178 F.3d 533, 536, 540 (D.C. Cir. 1999); Int’l Bhd. of
Elec. Workers v. ICC, 862 F.2d 330, 334 (D.C. Cir. 1988). “The
possibility that AEP Texas will be unsuccessful in that action
does not eliminate the injury caused by the risk of an adverse
action or the burdens of the litigation itself.” Reply Br. of Pet’r
at 3. AEP Texas’s reliance on Shell Oil Co., 47 F.3d at 1186, is
misplaced; in that case, the challenged agency order did not
deprive the company of a previously-held protection. Moreover,
the measure of certainty for the arrangement of BNSF’s business
affairs as a result of the rate prescription ceased with the
Decision, for the longevity of any future rate prescription would
be subject to a shipper’s mere request to vacate and expose
BNSF to increased litigation over the reasonableness of its rates.
9
See Raytheon Co., 372 F.3d at 454; Idaho Power Co. v. FERC,
312 F.3d 454, 460 (D.C. Cir. 2002). There also can be no doubt
that BNSF satisfies the remaining Article III standing
requirements, because its injury flows from the Decision and
may be redressed if the court grants its petition for review.
There is no merit to Intervenors’ contention that BNSF
cannot satisfy the requirements of prudential standing because
“[r]ailroads . . . are not within the zone of interests intended to
benefit from prescription orders.” Br. of Intervenor-Resp’t at
10. “In deciding whether a litigant has prudential standing . . .
[t]he court ‘should not inquire’ whether Congress intended to
benefit or regulate the litigant. It is enough that the litigant’s
interest is ‘arguably’ one regulated or protected by ‘the statutory
provision at issue.’” PDK Labs. v. U.S. D.E.A., 362 F.3d 786,
791 (D.C. Cir. 2004) (quoting Nat’l Credit Union Admin. v.
First Nat’l Bank, 522 U.S. 479, 488-89, 92 (1998)). Because
BNSF is subject to the rate prescription, its interest in preventing
dissimilar treatment of carriers and shippers seeking to vacate a
rate prescription is within the zone of interests regulated by the
Act. We turn, then, to the merits of BNSF’s petition.
III.
An agency must provide an adequate explanation to justify
treating similarly situated parties differently. Petroleum
Communications Inc. v. FCC, 22 F.3d 1164, 1172 (D.C. Cir.
1994) (and cases cited therein); Willis Shaw Frozen Express,
Inc. v. ICC, 587 F.2d 1333, 1336 (D.C. Cir. 1978); Ace Motor
Freight, Inc. v. ICC, 557 F.2d 859, 862 (D.C. Cir. 1977). Where
an agency applies different standards to similarly situated
entities and fails to support this disparate treatment with a
reasoned explanation and substantial evidence in the record, its
action is arbitrary and capricious and cannot be upheld. Willis
Shaw Frozen Express, Inc., 587 F.2d at 1336; Ace Motor
Freight, Inc., 557 F.2d at 862.
10
Prior to the challenged Decision, the Board and its
predecessor, the Interstate Commerce Commission, have
required that the party seeking to vacate a rate prescription
demonstrate a change in legal or factual circumstances which
would render the prior rate analysis invalid. See, e.g., CF Indus.
Inc. v. Kaneb Pipe Line Partners, 2004 WL 1802304 (2004);
San Antonio v. Burlington N., 364 I.C.C. 887 (1981); Ark. Rice
Traffic Bureau v. Aberdeen & Rockfish R.R. Co., 219 I.C.C. 5,
46-47 (1936); Cherry-Burrell Corp. v. Atchison, Topeka &
Santa Fe Ry. Co., 210 I.C.C. 148 (1935); Cady Lumber Corp. v.
Apache Ry. Co., 155 I.C.C. 56, 57 (1929). Under the new policy
announced in the Decision, shippers and carriers are subject to
different standards when seeking to vacate a rate prescription:
A shipper will be granted vacatur upon request, while a carrier
must show a change in circumstances which would call into
question the prior rate analysis.
The Board gave three reasons for granting a shipper’s
petition to vacate a rate prescription without an evidentiary
showing of material error, new evidence, or changed
circumstances. First, the Board wanted to ensure that a captive
shipper who prevails on its rate complaint does not subsequently
find itself in a worse position as a result of having to pay a
higher rate than would have been justified under a new SAC
analysis. Decision, 2004 WL 542864 at 3. Second, the Board
took account of the fact that vacation of the rate prescription
affords the carrier rate-making freedom while the shipper bears
a substantial burden to show a new rate is unreasonable. Id.
Third, the Board was satisfied that BNSF’s concerns about
repetitive rate litigation failed to account for the fact that
“nothing prevents an unsuccessful complainant from pursuing
a new complaint immediately, and nothing binds that shipper to
its prior evidentiary presentation.” Id. For the following
reasons, we conclude that the Board’s justification in the
Decision for disparate treatment is flawed.
11
Reference to the relative procedural postures of the parties
before the Board cannot alone substantiate the Board’s disparate
treatment of the parties. See Ace Motor Freight, Inc., 557 F.2d
at 865. Allowing differential treatment on the basis that the
shipper is the proponent and beneficiary of a rate prescription
fails to account for the fact that both shipper and carrier are
bound by a prescribed rate: A carrier may not charge more than
the rate ceiling while the shipper cannot avoid paying that rate
should it choose to take service from the carrier. See Ariz.
Grocery Co. v. Atchison, T. & S.F. Ry. Co., 284 U.S. 370, 387-
89 (1932). This remains true even though the rate prescribed
may be higher than the rate sought by the shipper in a rate
challenge proceeding. While a rate prescription exists only after
the Board finds that a carrier’s established rate was unlawful, the
rate prescribed must satisfy the dual purpose of protecting the
shipper from monopolistic practices while ensuring a carrier
adequate revenues. Consol. Rail Corp., 812 F.2d at 1450. And
while a carrier may have charged an unlawful rate prior to the
rate prescription, so long as its rate thereafter is made pursuant
to the rate prescription, its conduct is lawful and shielded from
liability for reparations.
Additionally, the Board does not explain how a change in
circumstances would impact carriers or shippers differently for
purposes of seeking vacation of a rate prescription. In its
Decision, the Board states that “the economic and regulatory
conditions reflected in the SAC analysis can change
significantly” over the long period of time covered by the
analysis, and that a shipper should not be held captive to a rate
prescription it initially sought. Decision, 2004 WL 542864 at 3.
This may be so, but it does not indicate why a carrier, who also
may be adversely impacted by changes in economic and
regulatory conditions, should not be afforded similar
consideration. Regardless, the Board cannot justify eliminating
the evidentiary burden requiring that a shipper show a change in
12
circumstances based on the likelihood that a shipper will suffer
from a change in circumstances. The circularity of this
reasoning is evident, and Board counsel was unable during oral
argument to articulate any reason other than changed
circumstances that would render the rate prescription at issue
unreasonable.
Finally, the Board overlooked binding precedent in stating
that nothing constrained a shipper from filing repeated petitions.
Decision, 2004 WL 542864 at 3. In Traugott Schmidt & Sons v.
Michigan Central Railroad Co., 23 I.C.C. 684 (1912), the ICC
dismissed “as a matter of course,” a complaint because it
contained identical claims by the same party whose complaint
had been dismissed one year and three months earlier. Id. at
685. “[W]hen a matter has been once fully considered and
decided it must be regarded as settled unless it appears from new
facts presented that the Commission was wrong.” Id. Counsel
for the Board conceded during oral argument that Traugott
Schmidt & Sons is binding on the Board. Yet the Board stated
that “nothing binds [a] shipper to its prior evidentiary
presentation.” Decision, 2004 WL 542864 at 3. The Board
cannot rely on an erroneous description of its precedent to
justify a new policy treating carriers and shippers dissimilarly.
See generally Petroleum Communications, Inc., 22 F.3d at 1172;
Pub. Media Ctr. v. FCC, 587 F.2d 1322, 1331 (D.C. Cir. 1978).
Undoubtedly, the Board’s effort to protect captive shippers
is not easily accomplished in the complex task of rate making.
See Coal Rate Guidelines, 1 I.C.C.2d at 524, 549-52 (Statements
of Comm’rs Simmons and Strenio); see also W. Va. Pub. Servs.
Comm’n v. U.S. Dep’t of Energy, 681 F.2d 847, 853 (D.C. Cir.
1982). While the Board has suggested additional considerations
on appeal to support the Decision, e.g., Br. of Resp’t at 22, the
court is confined to review of the reasons set forth by the Board
in the challenged Decision. El Rio Santa Cruz Neighborhood
13
Health Ctr., Inc. v. U.S. Dep’t of Health & Human Servs., 396
F.3d 1265, 1276 (D.C. Cir. 2005); SEC v. Chenery Corp., 318
U.S. 80, 95 (1943). Absent inclusion of a reasoned basis for
determining that rate prescriptions should be more readily
subject to vacation upon the petition of a shipper than a carrier,
the Board’s Decision is arbitrary and capricious. See Willis
Shaw Frozen Express, 587 F.2d at 1336; Ace Motor Freight, 557
F.2d at 862.
Accordingly, we grant the petition, vacate the Decision, and
remand the case to the Board. See San Antonio v. United States,
631 F.2d 831 (D.C. Cir. 1980), clarified by 655 F.2d 1341 (D.C.
Cir. 1981), rev’d on other grounds, Burlington N., Inc. v. United
States, 459 U.S. 131 (1982). In light of our disposition we need
not reach BNSF’s other contentions, including whether vacatur
is governed by the substantive standards in 49 U.S.C. § 722(c)
rather than the notice provisions of 49 U.S.C. § 722(b).