Commission analysis of abandonment problems. As stated by the Court (271 U.S. at 168-69): The sole test prescribed is that abandonment be consistent with public necessity and convenience ***. The benefit to one of the abandonment must be weighed against the inconvenience and loss to which the other will be subjected. Conversely, the benefits to particular communities and commerce of continued operation must be weighed against the burden thereby imposed upon other commerce ***. Whatever the precise nature of these conflicting needs, the determination is made upon a balancing of the respective interests-the effort being to decide what fairness to all concerned demands. In that balancing, the fact of demonstrated prejudice to interstate commerce and the absence of earnings adequate to afford reasonable compensation are, of course, relevant and may often be controlling. But the act does not make issuance of the certificate dependent upon a specific finding to that effect. Lower courts have followed the principles laid down in Colorado. For instance, in Village of Candor v. United States, 151 F. Supp. 889, 893 (N.D. N.Y. 1957) it was stated: The informed judgment of the Commission is expressed in the thought that the continued operations over the Owego-Candor portion of the branch would involve expenses out of all proportion to the revenues received by the applicant or the benefits realized therefrom by the public. All of the above is pertinent to costs as related to revenues. This is only one element to be considered and not even the predominant one. "The sole test prescribed is that the abandonment be consistent with public necessity and convenience." [Citing Colorado.] The broadness of the Commission's analysis is highlighted by the court's statement in Woodruff v. United States, 40 F. Supp. 949, 952 (D. Ct. 1941): In reaching its determination on [the issue of public convenience and necessity] it is not necessary that the Commission "determine with mathematical exactness the burden imposed upon interstate commerce by the operation of a branch line." Transit Commission v. United States, 284 U.S. 360 ***. Rather the act contemplates that the Commission shall make a considered balance of the respective conflicting interests The opinions of other courts indicate their general understanding that determination of the burden on interstate commerce involves many factors. See Moeller v. Interstate Commerce Commission, 201 F. Supp. 583 (S.D. Iowa 1962). Prior Commission decisions also clearly express a general appreciation of the many factors which must be balanced in an abandonment case. In Confluence and O. R. Co. Abandonment, 247 I.C.C. 399, 402 (1941), the entire Commission articulated the parameters of its inquiry in these terms: Our duty, however, lies not in determining the property rights of shippers who happen to be discommoded or forced out of business, but *** to weigh the present and prospective need for the line, and the benefits accruing to the public therefrom, against the burdens, present or prospective, that might be imposed upon interstate commerce. See also New York, N. H. & H. R. Co. Abandonment, 324 I.C.C. 396, 403-04 (1965); and the dissenting expression of Commissioner Mahaffie in Erie R. Co. Abandonment, 252 I.C.C. 697 (1942). I believe the cases cited above make it clear that in determining public convenience and necessity, we are not limited to considering only profitability, quality of track, and needed rehabilitation, as the majority asserts. These broad criteria would enable us to consider opportunity cost even if it had arisen for the first time in this proceeding. However, it is unnecessary to strike out onto new ground because, contrary to the majority's assertion, past Commission decisions have recognized that foregone opportunities can impose a burden on interstate commerce. Although some "opportunity costs" have been excluded from consideration of the narrower, subsidiary issue of whether a line is losing money, the Commission has not excluded these costs from consideration of the ultimate issue of public convenience and necessity. This is an important distinction, and perhaps can be best illustrated with some individual cases. For example, in New York Central R. Co. Abandonment, 254 I.C.C. 745 (1944), a question arose as to whether the railroad could consider as "costs" the interest on the salvage value of the involved rail, and the additional revenues which would accrue because passengers could use an alternative line. The Commission found that these items could not be considered as losses incurred in the operation of the line in question. The Commission also concluded, however, that the interest and additional revenue "show the additional burden upon applicant and upon interstate commerce if the operation of the branch is continued ***,* 254 I.C.C. at 755. Another example is New York, N. H. & H. R. Co. Abandonment, 324 I.C.C. 396 (1965). In that case, the abandonment of a marginally profitable line was authorized, after both the losses to the railroad from continued operation and the savings it would enjoy from abandonment were weighed against the needs of the public for continued service. The A connected case was affirmed in Purcell v. United States, 315 U.S. 381 (1942). agency considered the railroad's poor overall financial condition and concluded (324 I.C.C. at 403-04): the benefits to be gained by it through savings and salvage upon its abandonment [of the line will be of considerable importance in preserving more essential rail transportation in southern New England. In determining the issue of public convenience and necessity, we must give consideration to the needs of the public using the entire facilities of the New Haven as distinguished from the relatively few actual users of the line to be abandoned. Similar reasoning was employed in Okmulgee Northern Ry. Co. Abandonment, 320 I.C.C. 637 (1964). In that case, applicant sought to abandon the entire 12 miles of its profitable line, the Frisco wished to acquire and operate a fraction of that mileage. The Commission approved the abandonment and acquisition, reasoning that (320 I.C.C. at 644): Under these circumstances, the continued operation of the line at a small and declining profit and eventual loss by the Northern, thereby preventing a more efficient and profitable operation by the Frisco, would constitute an undue and unnecessary burden upon interstate commerce. In St. Louis S. W. Ry. Co. of Texas Abandonment, 290 I.C.C. 53 (1953), the Commission explicitly acknowledged the fact that foregone alternatives could impose burdens on a railroad. In that case, applicant sought to abandon a profitable branch line and to acquire trackage rights over the line of another railroad so that its operation could be conducted more efficiently. Protestants asserted that there could be no burden on interstate commerce if a line was profitable. The opponents to the abandonment further argued that the railroad's desire to earn a greater return, by not serving certain communities, could not justify abandonment. But protestants' arguments did not persuade the Commission. The abandonment was permitted after the Commission explicitly recognized the burdens which could be imposed by foregone opportunities (290 I.C.C. at 73): While the portion of the Sherman branch proposed to be abandoned is part of an existing profitable operation, its continued operation, in effect, will result in losses because the applicant thereby will be precluded from realizing substantial economies. In all of the cases I have cited, the Commission was essentially determining whether the needs of the immediate users of a line justified a Commission veto of a railroad's management decision to abandon the line. This is the decision which must be made in every case. Profit and loss are important elements in the balancing. But, as noted by the Supreme Court in Colorado, they are not the only elements. The cases involving lines to be inundated are examples of cases where the profitability of a line plays a very minor role. I see these inundation cases not as exceptions to the "traditional test" advocated by the majority, but rather as the examples which prove the rule that we must analyze all the circumstances surrounding each case. Although railroads seek most often to abandon losing lines, this fact should not lead us to the conclusion that profitable lines can never be abandoned. The foregoing discussion sets out my view of the scope of our analysis of public convenience and necessity. As noted above, I am convinced that the concept of opportunity cost has always been available. The question now becomes how this concept should be applied to this case. Reduced to its simplest terms, I simply do not believe the low level of traffic on the Rock House line justifies vetoing the MoPac's decision to abandon the line. It is obvious that economic conditions changed drastically between the time the idea for the line was conceived and the time the abandonment application was filed. What had once seemed to Elcor Corporation and MoPac to be a good prospect had turned sour. There is little hope for increased traffic, and the line is only marginally profitable. Had there been a small loss instead of the existing small profit, there would be little argument for forcing MoPac to continue operations. As it is, it is only a matter of time before the line will begin to lose money. Given the volume of traffic, it is unlikely that MoPac will make a strong effort to keep the line in good condition. This kind of balancing cannot be quantified. It is the result of considered judgment of what is best for the transportation system as a whole, and it affirmatively turns away from focusing only on the narrow circumstances of the particular line. The Commission has always performed this task. The type of balancing embodied in division 1's decision is more consistent with our statutory mandate and precedent than a simple accounting exercise to determine profitability. Although the term "opportunity cost" has not appeared before, the concept it represents is certainly nothing new. Since we have always used the concept, I am unpersuaded that the parties needed any special notice before we could apply it in this case. Because I believe that consideration of opportunity cost is permissible under the statute and court precedent, and because I consider the division's decision consistent with Commission 'Purcell v. United States, 315 U.S. 381 (1942), is an example of this kind of case. precedent, I cannot agree that the division's decision should be reversed. I would uphold the decision of division 1 and would authorize the abandonment. It is ordered: The application by Texas and Pacific Railway Company to abandon a portion of its line between San Martine and Rock House, in Culberson County, TX is denied. The decision of division 1 served April 13, 1978, granting the abandonment is reversed. The decision of Review Board No. 5 served November 4, 1977 is reinstated. This decision shall be effective on the date it is served. By the Commission, Chairman O'Neal, Vice Chairman Brown, Commissioners Stafford, Gresham, Clapp and Christian. Vice Chairman Brown absent and not participating. Commissioner Gresham dissenting. Commissioner Christian dissenting. APPENDIX EX PARTE No. 274 (SUB-NO. 3) ABANDONMENT OF RAILROAD LINES-USE OF OPPORTUNITY COSTS AGENCY: Interstate Commerce Commission. ACTION: Proposed policy change. SUMMARY: The purpose of this document is to institute a proceeding to determine the use of opportunity costs' as a factor in approving abandonments. DATES: Comments must be received on or before: 45 days after publication in the Federal Register. ADDRESSES: Send comments to: Interstate Commerce Commission, 12th St. and Constitution Ave., NW, Washington, DC 20423. All written submissions will be available for public inspection during regular business hours at the same address. FOR FURTHER INFORMATION CONTACT: Michael Erenberg SUPPLEMENTARY INFORMATION: In AB-20 (Sub-No. 3), Texas and Pacific Railway Company Abandonment, the Commission in denying the abandonment noted that the use of opportunity costs as a 'The term opportunity cost is used to describe the real economic loss an entity experiences when it must forego some other, more profitable use of its resources. |