ON PETITION FOR REVIEW OF AN ORDER OF THE INTERSTATE COMMERCE COMMISSION.
Gibbons, Circuit Judge, Clarkson S. Fisher, Chief Judge*fn* and H. Curtis Meanor, District Judge.
Various shipper interests petition pursuant to 28 U.S.C. §§ 2321, 2342(5) to review an order of the Interstate Commerce Commission (ICC) adopting a standard of revenue adequacy for market dominant carriers.*fn1 Ex Parte No. 393, Standards for Railroad Revenue Adequacy, 364 I.C.C. 803 (1981).Several carrier interests petition to review the same order.*fn2 The shipper interests contend that in several respects the order is more generous to the carriers than the law permits. The carrier interests, while generally defending the order, contend that the ICC erred in its treatment of rail properties currently unused or unuseful. We hold that the carrier petition presents issues not ripe for judicial review. As to the petitions of the shipper interests, we affirm the ICC order.
In 1976, confronting the total collapse of the railroad industry in the Northeast, Congress enacted the Railroad Revitalization and Regulatory Reform Act. Pub. L. No. 94-210, 90 Stat. 31 (hereinafter 4R Act). Two salient features of that legislation are relevant to the disposition of the instant petitions.
The first is the provision that
"notwithstanding any other provision of this part, no rate shall be found to be just and reasonable, on the ground that such rate exceeds a just or reasonable maximum for the service rendered or to be rendered, unless the Commission has first found that the proponent carrier has market dominance over such service. "
Pub. L. 94-210, § 202(b), equivalent codified at 49 U.S.C. § 10701a(b)(1) (1982). The effect of this provision was to end for most rail service decades of ICC control over maximum rates and to permit carriers not having market dominance to set rates in response to their perception of market conditions. Market dominance was defined as "an absence of effective competition from other carriers or modes of transportation, for the traffic or movement to which the rate applies." Pub. L. 94-210, § 202(c)(i). See 49 U.S.C. § 10709(a)(1982). The ICC has determined that there is effective competition for the traffic or movement to which a rate applies from (1) carriers or modes of transportation, serving the same origin and destination; (2) carriers or modes of transportation delivering the same product from the same origin to alternative destinations; (3) carriers or modes of transportation delivering the same product to the same destination from alternative origins; and (4) carriers or modes of transportation delivering substitute products to the same destination, irrespective of origin. 49 C.F.R. Part 1109; Ex Parte No. 320 (Sub-No. 2), Market Dominance Determinations and Considerations of Product Competition, 365 I.C.C. 118, 129 (1981). Thus the category of market dominant carriers is a narrow one, involving services to shippers who by virtue of location and inability to use substitute products are captive customers of a rail carrier.
The second salient feature of the 4R Act is the enactment of a section dealing with the standard for ratemaking for those market dominant carriers still subject to ICC ratemaking jurisdiction. Section 205 of that Act directed the ICC
"within 24 months after the date of enactment of this paragraph, after notice and an opportunity for a hearing, [to] develop and promulgate (and thereafter revise and maintain) reasonable standards and procedures for the establishment of revenue levels adequate under honest, economical, and efficient management to cover total operating expenses, including depreciation and obsolescence, plus a fair, reasonable, and economic profit or return (or both) on capital employed in the business. "
Congress directed, further, that "such revenue levels should (a) provide a flow of net income plus depreciation adequate to support prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, and cover the effects of inflation and (b) insure retention and attraction of capital in amounts adequate to provide a sound transportation system in the United States. "
Acting under the mandate of Section 205 the Commission conducted two revenue adequacy proceedings, to which more particular reference will be made hereafter.*fn3 Meanwhile two major midwestern railroads went bankrupt, necessitating emergency federal legislation.*fn4 Congress, apparently dissatisfied with the pace of the ICC's revenue adequacy proceedings, passed the Staggers Rail Act of 1980, Pub. L. 96-448, 94 Stat. 1895 (hereinafter the Staggers Act). That Act amended the 4R Act in several respects. In an effort to increase railroad revenues, it created zones of rail carrier rate flexibility in which even market dominant carriers, if found to be revenue inadequate, could increase rates without ICC approval.*fn5 The Staggers Act also amended section 205 of the 4R Act to provide that "the commission shall maintain and revise as necessary standards and procedures for establishing revenue levels." Pub. L. 96-448, § 205(b)(1). Moreover the ICC was directed to conclude a section 205 proceeding within 180 days after the effective date of the Staggers Act. Pub. L. 96-448 § 205(b)(3). The effect of an ICC determination that a carrier is revenue inadequate, therefore, is to permit rail carriers to raise rates on services as to which they have market dominance, without ICC approval, within the zones of flexibility specified in the statute.
Ex Parte No. 393 which we review is the ICC's response to the Staggers Act direction that it conclude a section 205 proceeding within 180 days. On December 3, 1980 the ICC issued a notice proposing to repeal its governing revenue adequate regulations and to adopt a new standard measure. 45 Fed. Reg. 80150 (1980). Departing from the approach it took in two prior revenue adequacy proceedings, it determined that a railroad would be considered revenue adequate when it received a rate of return on net investment equal to the current cost of capital. It determined to measure current cost of capital by examining current cost of debt, rather than embedded or historical cost of debt, together with current cost of equity. In determining the rate base the ICC included reserves for deferred taxes, authorized use of betterment accounting for valuation of track assets, valued other assets at depreciated book value, and included in the investment base unused and unusable rail assets. In calculating the cost of capital and rate base the ICC used the most recent data available; the operating results and cost of capital for 1979.
The adoption of current cost of capital as the sole rate of return standard is a modification of the approach taken by the ICC in Ex Parte No. 338, the first of its section 205 proceedings. In that case the commission indicated that "adequate revenue determination for railroads, . . . should not be based simply on a rate of return at the cost of capital rate." 358 I.C.C. at 872. It also proposed to consider certain financial ratios as indicative of a railroad's ability to raise capital. These included fixed charge coverage, proportion of debt in the capital structure, return on shareholders' equity, and ratio of market value of common stock to book value. 358 I.C.C. at 859. Moreover the ICC proposed to use flow of funds analysis, which projects needed capital outlays and other fund requirements, determines funds available from operations and capital sources, and ascertains the extent to which such funds will fall short of projected fund requirements. This group of standards was also utilized in Ex Parte 353. 361 I.C.C. 79 (1978), 362 I.C.C. 199 (1979). In Ex Parte 393 the ICC justifies its elimination of the consideration of ratios, and of flow of funds analyses, as inappropriate indicators of long term revenue adequacy. 364 I.C.C. at 817.
The ICC's revenue adequacy standard is a product of notice and comment rulemaking. 5 U.S.C. § 553(c). The rulemaking proceeding was unquestionably within the ICC statutory jurisdiction. We may set aside its action, therefore, only if it is arbitrary, capricious, an abuse of discretion, or otherwise not according to law, or if it was adopted without observance of procedure required by law. 5 U.S.C. § 706(2)(A),(D). We may not weigh the evidence before the ICC, or inquire into the wisdom of the promulgated regulations, and we may inquire into the soundness of the ICC's reasoning only to the extent of ascertaining that its conclusions are rationally supported. United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 749, 32 L. Ed. 2d 453, 92 S. Ct. 1941 (1972); Baltimore and O.C.T.R. Co. v. United States, 583 F.2d 678, 685 (3d Cir. 1978). Moreover, even when ICC rulemaking represents a departure from that agency's prior position, so long as the policies it is pursuing can be discerned from its opinion, and those policies are consistent with congressional directives, we must defer to the ICC's agency judgment. Atchison T. & S.F. R. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 809, 37 L. Ed. 2d 350, 93 S. Ct. 2367 (1973). The choice by an agency among alternative means for satisfying a statutory mandate is exclusively for that agency. Within the limits of this highly deferential scope of review, we turn to the petitioners several objections.