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BNSF Ry. Co. v. Surface Transp. Bd.

United States Court of Appeals, District of Columbia Circuit

January 31, 2014

SURFACE TRANSPORTATION BOARD and United States of America, Respondents. Basin Electric Power Cooperative, Inc. and Western Fuels Association, Inc., Intervenors.

Argued Oct. 11, 2013.

On Petition for Review of an Order of the Surface Transportation Board.

Richard P. Bress argued the cause for petitioner. With him on the briefs were Michael J. Gergen, Lori Alvino McGill, Paul T. Crane, Richard E. Weicher, Samuel M. Sipe, Jr., and Anthony J. LaRocca.

Erik G. Light, Attorney, Surface Transportation Board, argued the cause for respondents. With him on the brief were William J. Baer, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Nickolai G. Levin, Attorneys, Raymond A. Atkins, General Counsel, Surface Transportation Board at the time the brief was filed, and Craig M. Keats, Deputy General Counsel.

John H. LeSeur argued the cause for intervenors. With him on the brief were Christopher A. Mills and Peter A. Pfohl.

Before: KAVANAUGH, Circuit Judge, and SENTELLE and RANDOLPH, Senior Circuit Judges.

Page 164

Dissenting opinion filed by Senior Circuit Judge RANDOLPH.


SENTELLE, Senior Circuit Judge:

BNSF Railway Company (" BNSF" ) petitions for review of the decision of the Surface Transportation Board (" Board" ) to adhere to a revenue-allocation methodology known as Modified ATC in determining that the rates BNSF charged Western Fuels Association, Inc. and Basin Electric Power Cooperative, Inc. (collectively " WFA" ) were unreasonably high. BNSF first challenged this Modified ATC methodology in this Court in 2009. In 2010 we remanded the case to the Board so that it could address one of BNSF's objections to Modified ATC in the first instance. On remand, the Board concluded that portions of BNSF's arbitrary and capricious challenge fell outside the scope of the case given the specificity of our 2010 remand. This conclusion was in error. Because we never actually resolved BNSF's arbitrary and capricious challenge to Modified ATC, we grant the petition, vacate the Board's decision, and again remand the case to the Board.


Until 2004, BNSF transported coal for WFA under a long-term contract. When the parties could not successfully negotiate a replacement contract, BNSF established a common carrier rate for WFA. Unsatisfied with this rate, WFA complained to the Board, alleging that the new rate was unreasonable.

The Board employs a " Stand-Alone-Cost" (" SAC" ) test to determine whether a railroad's rates are unreasonable. BNSF Ry. Co. v. STB, 526 F.3d 770, 776-77 (D.C.Cir.2008). Under the SAC test, complainants design a hypothetical optimally efficient stand-alone railroad (" SARR" ) that serves a subset of movement in the railroad's network, including the traffic to which the challenged rate applies. Id. at 777. The SAC test then calculates what a railroad would charge if operating the SARR. Id. The SARR's projected revenues are determined based on the real-world rates charged by the railroad servicing the traffic group included in the SAC presentation. This calculation is straightforward when complainants model the entire traffic group, but becomes more complex when SAC presentations include movements that travel a portion of their journey on the hypothetical SARR and a portion on actual railroads. Id. at 782. Such " cross-over" traffic requires the Board to allocate revenue between the SARR and the real-world railroad. Id.

When WFA first complained, the Board apportioned cross-over traffic revenues based on the percentage of miles a shipper used the SARR, a method known as Modified Straight-Mileage Prorate (" MSP" ). Though simple, MSP " did not take into account ‘ 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)." Id. In February of 2006— after WFA had submitted its SAC presentation— the Board held this matter in abeyance while it considered and ultimately adopted a new revenue allocation method called Average Total Cost (" ATC" ). Under ATC, revenues are allocated to the hypothetical railroad based on the average total cost ...

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