negotiated pursuant to section 405(a) constitute the statutory minimum level of protection. These conditions are set forth in appendix III of the New York Dock II decision and afford a higher level of protection than that required under section 405(b). These conditions have been approved by the United States Court of Appeals for the Second Circuit as affording the minimum employee protective conditions required by the 4R Act amendment to former section 5(2)(f) (now 49 U.S.C. 11347). New York Dock Ry. v. United States, U.S.C.A. 2d Cir. No. 79-4086 (decided November 7, 1979). Our earlier decision in this proceeding, imposing conditions which meet the requirements of section 405(b), but are less protective than the "Amtrak" conditions developed pursuant to section 405(a), failed to comply with section 5(2)(f). Therefore, we are reopening this proceeding for the limited purpose of correcting our earlier decision by imposing those employee protective conditions set forth in appendix III to New York Dock II. We find: (1) This decision will not significantly affect the quality of the human environment. (2) This is not a major regulatory action under the Energy Policy and Conservation Act of 1975 (42 U.S.C. 6201 et seq.). It is ordered: (1) RED's petition to reopen the Commission's decision in Missouri Pac. R. Co.-Merger-T&P and C&EI, 348 1.C.C. 414 (1976) is granted. (2) Upon reconsideration it is decided that all employees affected in this transaction shall be afforded the relief set forth in appendix III of New York Dock Ry.-Control-Brooklyn Eastern Dist., 360 I.C.C. 60 (1979). (3) This decision shall be effective on the date of service. By the Commission, Chairman O'Neal, Vice Chairman Stafford, Commissioners Gresham, Clapp, Christian, Trantum, Gaskins, and Alexis. Chairman O'Neal not participating. 360 I.C.C. EX PARTE No. 274 (SUB-NO. 3) ABANDONMENT OF RAILROAD LINES-USE OF OPPORTUNITY COSTS Decided December 26, 1979 AGENCY: Interstate Commerce Commission. SUMMARY: By notice published in the Federal Register (44 F. R. 10807) the Commission instituted a proceeding to determine the appropriate use of opportunity costs as a factor in approving abandonments. Ex Parte No. 274 (Sub-No. 3), Abandonment of Railroad Lines-Use of Opportunity Costs. After considering the comments that were filed the Commission has decided to allow carriers to introduce evidence as to the opportunity costs they incur. FOR FURTHER INFORMATION CONTACT: Michael Erenberg (202) 275-7245 SUPPLEMENTARY INFORMATION: BACKGROUND On February 23, 1979, notice was published in the Federal Register (44 F. R. 10807) instituting this proceeding to determine the appropriate use of opportunity costs as a factor in approving rail abandonments. We defined the term "opportunity cost" as "the real economic loss an entity experiences when it must forego some other, more profitable use of its resources." This proceeding grew out of our decision in Texas and Pacific Railway Company Abandonment, 360 I.C.C. 206 (1979). The central issue was whether the opportunity costs incurred in keeping rail assets tied up in less profitable operations, as opposed to more profitable uses elsewhere, was a proper criterion to be considered in approving abandonments. A brief discussion of that case would be helpful. On July 12, 1976, the Texas and Pacific Railway Company filed an application to abandon its Rock House line. That line consists of 27.2 miles of spur trackage on which is located one shipper. Traffic over the lines totaled 94 carloads (3.5 cars per mile) in 1975, 106 carloads (4.0 cars per mile) in 1976, and no traffic during the first 5 months of 1977. The single shipper's facility was not in production when the record was closed, and only two employees were being kept on the site. Because the track was of recent vintage, however, cost figures for the rail operation were quite low and the line was showing a marginal profit overall. On the basis of these facts, Review Board Number 5 denied the application on September 30, 1977. On appeal, division 1 reversed the board on April 5, 1978. The division found that substantial opportunity costs were incurred by applicant in keeping valuable line tied up in a marginal operation. It concluded that applicant's inability to use the rail on other lines was a substantial burden on interstate commerce, sacrificing more efficient movement of other traffic to accommodate the needs of one shipper. On July 20, 1978, the Commission reopened the proceeding, finding that the case involved a matter of general transportation importance. On February 9, 1979, the Commission by a vote of 3 to 2 reinstated the initial decision denying the abandonment. In the view of the majority neither Commission precedent nor our regulations offered guidance as to how to use opportunity costs as a factor in the public convenience and necessity test. The majority, therefore, concluded that we should forego any consideration of opportunity costs. Thus, in determining that the public convenience and necessity did not permit the proposed abandonment, reliance was placed on the traditional balancing test, without employing opportunity costs. COMMENTS Written comments in this proceeding were recieved from government, rail, and shipper interests. From the Federal Government, comments were filed by the United States Department of Transportation (DOT) and the Office of Rail Public Counsel (RPC). The State bodies which commented were: State of Illinois, joined by Illinois Commerce Commission and John W. McGinness, Illinois Legislative Director for United Transportation Union (Illinois); Illinois Department of Transportation (IDOT); Minnesota Department of Transportation (Minnesota); State of New Hampshire (New Hampshire); New York State Department of Transportation (New York); Ohio Rail Transportation Authority (ORTA); South Dakota Public Utilities Commission (South Dakota); State of Texas (Texas); and the Commonwealth of Virginia, Department of Highways & Transportation (Virginia). The rail interests filing comments were the Association of American Railroads (AAR), Missouri Pacific Railroad Company (MOPAC), Southern Pacific Transportation Company (SP), and St. Louis-San Francisco Railway Company (Frisco). Shippers which submitted comments were Elcor Corporation (Elcor), Farmland Industries, Inc. (Farmland), The Fertilizer Institute (TFI), FirstMiss Inc. (FirstMiss), National Counsel of Farmer Cooperatives (NCFC), National Grain and Feed Association (NGFA), and Vistron Corporation (Vistron). The comments of IDOT, New York, Vistron, DOT, and NGFA were late-filed. However, since consideration of those comments would be helpful in our determination, and the delay would not prejudice or delay the disposition of the case, those comments have been accepted. Thus, DOT's motion for leave to file comments is granted. Opposition.-Illinois, IDOT, Minnesota, ORTA, South Dakota, First Miss, Farmland, and NGFA express total opposition to the use of opportunity costs as a factor in abandonment proceedings. These parties are concerned that if opportunity costs are made a factor the result will be wholesale abandonment of profitable lines. They stress the fact that railroads, as common carriers, occupy a unique place in the corporate world. They believe that common carriers are not free to make decisions regarding how and where to commit their resources based solely on the principle of profit maximization. Assuming an unfettered use of opportunity costs as a factor, it is argued that carriers would be able to abandon operations if they could get a higher return by investing assets elsewhere. Thus, a carrier receiving a 7-percent return on investment on a branch line could argue that it should be able to abandon that line since it could get a 10-percent return by investing in municipal bonds. The statutory test in abandonment proceedings is whether the public convenience and necessity permit abandonment. By focusing on maximizing carrier profits, these parties argue, the Commission would be disregarding the needs of the public. Many of the parties also object to evidentiary aspects of using opportunity costs as a factor. IDOT is concerned with what it sees as an increased burden of proof on protestants. It believes that we will become involved in questions of carrier investment priorities. It also argues that the use of an opportunity costs concept cannot be applied consistently to carriers of significantly varying financial health. It feels that we will need to require information regarding the carrier's investment and marketing policies and the financial health of the entire corporate entity. It fears that protestants will have to prove that the carrier was financially healthy and that its management had incorrect corporate priorities. Although the overall tone of these comments is total opposition to any use of opportunity costs as a factor, the parties suggest several limitations on its use if we find it to be an appropriate factor. Many state that it should be limited to evidence of alternative rail use. The shipper interests are most concerned with the effect that rural abandonments would have on them and their customers. Farmland suggests that opportunity costs not be applied in the context of rural branch lines. Furthermore, it believes that we should consider opportunity costs only when a line cannot realize a profit after determining net carrier revenue, including the potential revenue if all cars requested were supplied, less the minimum amount required for necessary upgrading of the line. Limited use.-Other parties advocating a limited use of opportunity costs as a factor are RPC, New Hampshire, Texas, Elcor, NCFC, TFI, and Vistron. They offer numerous comments on how opportunity costs could be factored into the traditional balancing test in a useful but limited manner. Many of these parties. argue that opportunity costs should be afforded relatively little weight in the balancing test. They also express the need to enforce a decision granting abandonment based on an alternative rail use of the assets by monitoring the subsequent use of those assets. These parties generally agree that opportunity costs should be limited to evidence regarding alternative rail uses. The major area of controversy is whether evidence of scrap value of these assets should be allowed. New Hampshire contends that carriers should not be allowed to sell their rail assets and use the cash proceeds on their rail system. Rather we should limit carriers to actually relocating the salvageable, tangible rail assets. Furthermore, New Hampshire would restrict carriers to relocating their assets within the same State in which they are presently used. |