UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


UN PAC RR CO

v.

STB


98-1058a

D.C. Cir. 2000


*	*	*


Silberman, Circuit Judge: Union Pacific Railroad Compa- ny petitions
for review of a Surface Transportation Board  decision compelling the
carrier to establish for shipper FMC  Wyoming common carriage rates
that can be used in combi- nation with contract rates FMC secured with
another rail- road. We deny the petition.


I.


FMC Wyoming, Inc., transports soda ash by rail from its  production
facilities in Westvaco, Wyoming, to customers in  the eastern and
southern United States. No single rail  carrier can provide
origin-to-destination service for the en-


tirety of this route. That is because Union Pacific Railroad  Company
is a so-called "bottleneck" carrier for the initial  segment: it is
the only railroad providing service directly to  and from Westvaco.
Depending on the particular destination  to which it wishes to ship,
however, FMC has a choice of  carriers it may use to complete a route.
FMC had entered  into contracts with Union Pacific to carry soda ash
to Mid- west "gateways" in East St. Louis and Chicago. Then the  soda
ash was transported under separate contracts on a  second railroad,
CSX Transportation, Inc., to FMC's custom- ers. These contracts were
to expire at the end of 1997.


During the last year that these contracts were in effect, the  Surface
Transportation Board issued its so-called Bottleneck  decisions, which
addressed the prerogatives of shippers who  transport goods over
bottleneck rail segments. See Docket  Nos. 41242 et al., Central Power
& Light Co. v. Southern Pac.  Trans. Co., STB Decision of December 27,
1996 ("Bottleneck  I"), aff'd on reh'g, STB Decision of April 28, 1997
("Bottleneck  II"). It has been a venerable principle of railroad rate
 regulation that the reasonableness of a rate is to be assessed  on a
"through basis"--that is to say, a shipper may challenge  only the
rate of the origin-to-destination route as a whole,  rather than the
reasonableness of rates charged for a particu- lar segment of the
route. See, e.g., Lousiville & Nashville  R.R. v. Sloss-Sheffield
Steel & Iron Co., 269 U.S. 217, 234  (1925). In the Bottleneck cases,
three shippers challenged  this longstanding principle. Each shipper
sought to compel a  bottleneck rail carrier to establish separate
local rates for a  bottleneck segment of a through route, which would
then be  subject to separate reasonableness challenges before the 
Board. Recognizing that the shippers' complaints raised  common issues
that would affect broadly the railroad industry  and its customers,
the Board sought public comment. The  respondent bottleneck carriers,
supported by the railroad  industry, urged that the shippers'
complaints be dismissed.  They argued that granting the shippers the
relief sought, and  allowing separate rate challenges to bottleneck
rail segments,  would severely damage the revenue adequacy of their


The Board defines a reasonable rate as one that allows a  railroad to
recover the "Stand Alone Cost" (SAC) of providing  for the shipper's
transportation.1 However, competition over  non-bottleneck segments of
rail tends to drive rates for those  segments down toward marginal
cost, a level often lower than  average total cost given the
capital-intensive nature of the  railroad industry. If the Board were
to permit shippers to  challenge separately the reasonableness of a
bottleneck seg- ment rate, the railroads argued, the through rate
would  inevitably be lower than the overall cost to the carriers of 
providing the transportation.


The Board's decision reaffirmed its longstanding policy that  a shipper
ordinarily is only entitled to challenge the reason- ableness of rates
on a through basis, even where the route  contains a bottleneck
segment. See Bottleneck I at 11-13.  But the Board created a
significant exception to this princi- ple. Where a bottleneck carrier
cannot provide origin-to- destination service for an entire through
route, and where a  shipper secures a separate negotiated contract for
the non- bottleneck segment--as opposed to a common carriage rate 
according to a published tariff--the shipper may separately  challenge
a common carriage bottleneck segment rate. See  Bottleneck I at 13-14.
The Board based this exception on its  interpretation of a provision
of the Staggers Rail Act of 1980,  see 49 U.S.C. s 10709(c), which the
Board concluded left it  without "rate reasonableness jurisdiction"
over negotiated  contracts between shippers and rail carriers.
Bottleneck I at  13. Then, on rehearing in Bottleneck II, the Board
clarified  the implications of this "contract exception." It stated
that,  where a shipper entered into a contract with a non-bottleneck 
carrier, the Board if necessary would compel the bottleneck  carrier
to establish a separately challengeable rate that could  be used to
complete the transportation. See Bottleneck II at 




__________

n 1 The SAC is the rate that a hypothetical railroad would charge  in
order to recover the costs of constructing and operating a  railroad
capable of accommodating the shipper's traffic. See Coal  Rate
Guidelines, 1 I.C.C.2d 520, 554 (1985); see also Burlington N.  R.R.
Co. v. STB, 114 F.3d 206, 212 (D.C. Cir. 1997).


9-10. Both the shippers and railroads petitioned for review  of the
Bottleneck decisions.


While the Bottleneck cases were pending before the Eighth  Circuit, FMC
sought to negotiate new contracts with each of  its rail carriers. It
did reach new contracts with CSX for the  destination segment, but it
was unable to forge a new agree- ment with Union Pacific on the rates
for the bottleneck origin  segment. FMC then requested that Union
Pacific establish,  pursuant to its statutory common carrier
obligations, see 49  U.S.C. s 11101(a), common carriage rates for its
portion of  the route. Union Pacific ultimately acquiesced and estab-
lished rates for the origin segment. But there was a "kick- er." Those
rates could be used only in conjunction with the  common carriage
rates that CSX had maintained for the  destination segment--not with
the FMC-CSX contract rates.  FMC filed a petition before the Board
protesting Union  Pacific's condition, arguing that the Bottleneck
cases obligat- ed Union Pacific to establish rates that could be used
in  conjunction with FMC's contracts with CSX.


The Board agreed. See Finance Docket No. 33467, FMC  Wyoming Corp. v.
Union Pacific R.R. Co., STB Decision of  Dec. 12, 1997 ("FMC
Decision"). The Board explained that  Union Pacific's action was at
odds with the contract policies it  established in its Bottleneck


In Bottleneck I, we ... determined that, notwithstanding  prior
precedent generally restricting rate reasonableness  challenges to
origin-to-destination rates, when the non- bottleneck segment of a
through route is covered by a  railroad/shipper contract, the rate
covering the bottle- neck segment is separably challengeable.... As we
 further explained in Bottleneck II ... notwithstanding  [Union
Pacific's] reluctance to have its [proposed] rate  separately
challenged, once a shipper has a contract rate  for transportation to
or from an established interchange,  the bottleneck carrier must
provide a rate that permits  the shipper to utilize its contract with


FMC Decision at 4 (internal citations omitted). The Board  accordingly
ordered Union Pacific to establish common car- riage rates that could
be used by FMC in conjunction with  the FMC-CSX transportation
contracts. Id. at 6.


Union Pacific petitioned for review. We held Union Pacif- ic's petition
in abeyance pending the Eighth Circuit's resolu- tion of the
Bottleneck cases. In MidAmerican Energy Co. v.  STB, 169 F.3d 1099
(8th Cir. 1999), the Eighth Circuit  affirmed most of the Board's
conclusions in the Bottleneck  cases without reaching the merits of
the so-called "contract  exception" policy. It concluded that the
Bottleneck contract  exception policy was not ripe because none of the
petitioning  shippers had secured a contract for a non-bottleneck seg-
ment. See id. at 1109.


II.


Although we now have before us actual negotiated con- tracts for the
non-bottleneck portions of routes, without which  the Eighth Circuit
thought the controversy was not ripe, the  Board maintains the
bottleneck contract exception policy  itself is still not ripe because
it has not yet ruled on the  reasonableness of any bottleneck rates.
All it has done is to  order Union Pacific to publish separate tariffs
for the bottle- neck portion of a bifurcated route which, then, can be
chal- lenged in proceedings before the Board.


Examining petitioner's argument carefully in light of the  Board's
ripeness challenge, we note that petitioner claims  that to be ordered
to publish separate bottleneck rates is  contrary to law because the
only purpose of publication is to  permit an independent challenge to
those rates' reasonable- ness. Petitioner claims that procedure is
inconsistent with  the statute and governing cases construing the
statute. The  Board concedes--as it must--that petitioner certainly is
enti- tled to challenge its order directing publication. That chal-
lenge, however, would be a sterile exercise if it did not bring  into
play the underlying Board Policy on which the order is  predicated. We
think, therefore, the Board's contract excep- tion is squarely before
us. Yet the Board has a point. 


Petitioner devotes much of its brief to the proposition that 
permitting separate challenges to the reasonableness of pub- lished
bottleneck rates will jeopardize the adequacy of U.S.  railroad
revenue--which is a statutory objective.2 We do not  see how that
contention can possibly be ripe before the Board  has ever decided the
reasonableness of any bottleneck rates.  Even if petitioner were
correct in assuming that the very  possibility of separate challenges
to bottleneck rates would  ineluctably put downward pressure on total
railroad reve- nues--an assumption which the Board correctly noted de-
pends upon "numerous imponderables," Bottleneck I at 12  n.21--we
could not estimate the amount of diminished reve- nue, and
petitioner's argument perforce depends on the scale  of the financial
impact. Accordingly, we have before us a ripe  controversy over the
legality of the contract exception to the  bottleneck policy, but we
must decide it without regard to  petitioner's concerns about revenue
adequacy. Such a claim  will have to await Board rate rulings.


III.


A.


As we noted, the Board justified its exceptions-a partial  departure
from the long-standing principle that the reason- ableness of a
railroad rate is to be judged on a "through"  basis-on the Staggers
Rail Act of 1980, Pub. L. No. 96-448,  94 Stat. 1895. A provision of
that Act states:




__________

n 2 See 49 U.S.C. s 10101(3) (articulating objective of "pro- mot[ing]
a safe and efficient rail transportation system by allowing  rail
carriers to earn adequate revenues"); 49 U.S.C. s 10704(a)(2)  (In
setting ratemaking policies, "[t]he Board shall maintain and  revise
as necessary standards and procedures for establishing [ade- quate]
revenue levels."). In the event that the Bottleneck contract 
exception leads to the calamitous revenue consequences that Union 
Pacific and amicus Association of American Railroads predict, it is 
conceivable that sufficient tension might exist between the Board's 
revenue-adequacy obligations and the language of section 10709(c)  to
require the Board to reassess its Bottleneck contract holdings.


A contract that is authorized by this section, and trans- portation
under such contract, shall not be subject to this  part, and may not
be subsequently challenged before the  Board or in any court on the
grounds that such contract  violates a portion of this part.


49 U.S.C. s 10709(c)(1). The Board, in the Bottleneck cases,  construed
this provision to mean that it is "without rate  reasonableness
jurisdiction over the rates of any rail trans- portation provided by
contract." Bottleneck I, at 13. Where  one of the two segments of a
route is governed by a contract  rate, the Board reasoned, it could
not assess the reasonable- ness of the rate as a whole, as to do so
would "indirectly  result in review of the contract rate." Id.
Petitioner quar- rels with the Board's interpretation of this
section--particu- larly objecting to the Board's use of the term
"jurisdiction."  Union Pacific maintains that the statute merely bars
the  Board from regulating the terms of shipper-carrier contracts;  it
does not preclude the Board from continuing to assess the 
reasonableness of the entire through rate. By so doing, the  Board
would only be "taking the contract rate into account,"  not regulating


We think the statute can be read either way; it is ambigu- ous as to
the scope of the Board's authority ("authority"  seems a better term
than "jurisdiction" in this setting) over a  contract, which is why
the Board relies on Chevron U.S.A.  Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837  (1984), to support its interpretation of
the statute. Petitioner  never places its challenge to the Board's
statutory interpreta- tion in the Chevron framework, but implicitly
suggests that  the Board's interpretation is unreasonable (even if the
statute  is ambiguous), because it is inconsistent with the Board's 
interpretation of other jurisdictional statutory provisions and  court
cases sustaining those interpretations. Union Pacific  relies heavily
on Great Northern Railway Co. v. Sullivan, 294  U.S. 458 (1935). In
Great Northern, a shipper challenged the  reasonableness of the rate
of an American rail carrier's  segment of an international through
route. The Supreme 


Court rejected the shipper's claim; even though the ICC3  lacked true
"jurisdiction" over the Canadian segment of the  through route under
the Interstate Commerce Act,4 the ship- per could not separately
challenge the domestic carrier's rate.  See id. at 463; see also
Canada Packers, Ltd. v. Atchison,  Topeka & Santa Fe Ry. Co., 385 U.S.
182, 183-84 (1966)  ("[W]here a carrier performing transportation
within the  United States enters into a joint through international
rate  covering transportation in the United States and abroad, the 
Commission does have jurisdiction to determine the reason- ableness of
the joint through rate and to order the carrier  performing the
domestic service to pay reparations in the  amount by which that rate
is unreasonable."). Union Pacific  argues that, just as the Board has
authority to take into  account an international portion of a route
over which it has  no jurisdiction in determining the reasonableness
of a  through rate, the Board must consider a contract rate in  making
a through rate reasonableness determination despite  its inability to
regulate the contract itself under section  10709(c).


The Board has some difficulty in reconciling its construc- tion of
section 10709(c) with its application of the general  jurisdictional
provision at issue in Great Northern. It might  well be thought that
the Board has even less authority over  the Canadian portion of a
through shipment (really outside of  its "jurisdiction") than it does
over a domestic contract, and  therefore it would be more justified
for the Board to allow a  shipper to protest the domestic portion of a
through interna- tional rate than a bottleneck rate. But as the
intervenor  points out, the situations are quite different
economically.  The Great Northern holding--and the broader principle
that  the reasonableness of rates is to be assessed on a through 




__________

n 3 The ICC is the predecessor agency to the STB. See ICC  Termination
Act of 1995, Pub. L. No. 104-88, 109 Stat. 803.


4 See Interstate Commerce Act of 1887, Pub. L. No. 49-104, 24  Stat.
379. The current provision providing for the Board's jurisdic- tion is
49 U.S.C. s 10501(a)(2) (Board's jurisdiction applies only "to 
transportation in the United States.").


basis--was based on an understanding that "[t]he shipper's  only
interest is that the charge shall be reasonable as a  whole." Great
Northern, 294 U.S. at 463; see also Louisville  & Nashville R.R. Co.
v. Sloss-Sheffield Steel & Iron Co., 269  U.S. 217, 234 (1925). This
is no longer the case. By permit- ting a shipper to enter into
contracts that are beyond review  of the Board, the Staggers Act
entitles a contracting shipper  to--as FMC puts it--"the benefit of
its bargain." Were its  position to prevail, Union Pacific would be in
a position to  recover for itself the "benefit" of FMC's bargain with
CSX, as  it could set a rate that allowed it to obtain the difference 
between a reasonable through rate and the FMC-CSX con- tract price.


To be sure, that is not a point that the Board itself made.  But the
Board did rely on the recent Staggers Act as  justifying its new
policy and we think intervenors' explanation  is implicit in the
Board's admittedly terse rationale. In any  event, the Board was
entitled to draw the inference that  Congress, in specifically
addressing the contract situation,  wished a different result than the
old ICC had reached with  respect to international transportation.


Nor is the Board's position in the Bottleneck cases under- mined by our
decision in Ford Motor Co. v. ICC, 714 F.2d  1157 (D.C. Cir. 1983). In
Ford a shipper challenged before  the ICC a joint rate established by
two railroad carriers.  After the ICC issued a statement expressly
encouraging  settlement of rate reasonableness challenges because of
an  "extraordinary case load bulge," the shipper negotiated an 
agreement with one of the railroads giving the shipper an  "allowance"
which would end automatically "if the ICC or- dered a reduction of the
joint rate." Id. at 1166-67. In light  of the settlement, the shipper
dropped the railroad from its  complaint before the ICC. The ICC
granted the remaining  railroad's motion to dismiss the case,
concluding that it no  longer had jurisdiction because the settling
railroad had been  a "necessary party" to the shipper's rate
challenge. The  Commission claimed that it was "impossible ... to
determine  the reasonableness of a joint rate or market dominance in
the  absence of cost evidence for all participating railroads." Id. 


at 1168 (internal quotations omitted). In rejecting the ICC's  claim,
we expressed incredulity that the ICC could make this  claim of
"impossibility" in light of the international rate cases  like Great
Northern, where "the Commission can and does  determine ... the
reasonableness of a joint rate though all  participants are not before
the ICC as defendants." Id. at  1169-70.


As the Board correctly observes, Ford reasonably can be  distinguished
from this case. See Bottleneck I at 14 n.24.  For one thing, our
decision in Ford was plainly influenced by  the inconsistent positions
of the ICC in that case. After  expressly encouraging shippers to
settle their rate dispute,  the ICC punished a shipper for doing
precisely that. See id.  at 1169. Ford also did not involve a
challenge to a contract  rate, but instead to a joint rate where one
of the carriers  subsequently entered into a side settlement with a
shipper.  This is a meaningful distinction, as no separate contract
rate  was being "reviewed" by the ICC in Ford. Indeed, the  settlement
provided that, if the joint rate were found unrea- sonable by the
Board, the reduced joint rate--rather than the  settlement--would
apply. More fundamentally, although  Ford was decided after the
Staggers Act it simply did not  address the language of section
10709(c) relied on by the  Board in the Bottleneck cases.5




__________

n 5 For quite similar reasons, Union Pacific's reliance on the  ICC's
decision in Metropolitan Edison Co. v. Conrail, 5 I.C.C.2d  385
(1989), is misplaced. In Met Edison, as in Ford, a shipper  challenged
a joint rate where the shipper had entered into a  settlement with one
of its rail carriers, not a through rate where  one factor of the
transportation was a contract rate from the outset.  And while the ICC
did make a general statement in that decision  that its conclusion was
not altered by the contractual provisions of  the Staggers Act, see
id. at 409 n.32, Met Edison did not specifically  consider the
language of section 10709(c). Of course, even if we  were to accept
Union Pacific's characterization of this footnote in  Met Edison as a
prior interpretation of section 10709(c), the Board  is entitled to
change that position if it provides a reasoned explana- tion for doing
so, see Amax Land Co. v. Quarterman, 181 F.2d.  1356, 1365 & n.6 (D.C.
Cir. 1999)--which we believe the Board did 


Union Pacific also argues that the Bottleneck contract  exception is
inherently inconsistent with other parts of the  Bottleneck decisions.
Union Pacific points to the Board's  conclusion that where a
bottleneck carrier can provide origin- to-destination service for the
entire through route it cannot  be forced to interchange with another
carrier--even if the  shipper has secured a contract for the
non-bottleneck seg- ment. Bottleneck I at 7-8; Bottleneck II at 6-7.
How can  this conclusion, Union Pacific asks, be reconciled with the 
Board's "jurisdiction-stripping" interpretation of section  10709(c)?
This is an inconsistency, in our view, born not of  the Board's
Bottleneck opinion, but of the Board's separate  statutory obligation
to protect a bottleneck shipper's "long  haul" where it can provide
origin-to-destination service, see 49  U.S.C. s 10705(a)(2); see also
Chicago, Milwaukee, St. Paul  & Pac. R.R. v. United States, 366 U.S.
745, 749-50 (1961).  The Board offers a lengthy and well-reasoned
explanation of  the intersection of the conflicting mandates of its
contractual  and long-haul provisions, see Bottleneck II at 6-9, and
we  think it resolved the tension between these mandates in a 


We therefore conclude that, while the objections Union  Pacific raises
to the Bottleneck contract exception policy are  well-presented, none
of them is persuasive. We affirm the  Board's interpretation of
section 10709(c).


B.


We find little merit in Union Pacific's remaining arguments  that the
Board nonetheless exceeded its authority when it  compelled Union
Pacific to establish rates for the bottleneck  segment that could be
used in combination with the FMC- CSX transportation contracts. In
Bottleneck II the Board  discussed a bottleneck carrier's obligations
where a shipper 




__________

n in this case. See Bottleneck I at 13 (explaining its interpretation
of  section 10709(c)); see also id. at 14 (distinguishing Met


has entered into a separate contract with the non-bottleneck  rail
carrier:


In those circumstances, the bottleneck carrier cannot  insist on only
providing joint-rate service and, as a result,  refuse service when it
is unable to make those rates;  instead, its common carrier obligation
requires it to  provide a rate necessary to complete the
transportation.


Bottleneck II at 10. Union Pacific responds that, unlike the 
hypothetical carrier discussed in Bottleneck II, it has indeed 
offered rates that "complete FMC's transportation." The  Board was
right to reject this claim as advancing a distinction  without a
difference. Just as the bottleneck carrier effective- ly negates a
shipper-carrier contract by refusing to offer  anything other than
joint-rate service, Union Pacific sought to  override the FMC-CSX
contracts. We agree with the Board  that Bottleneck II precludes Union
Pacific from effectively  "thwart[ing] the right of FMC and its
destination rail carriers  to make separate transportation contracts


Union Pacific objects that the Board's order--and the  Board's policy
announced in Bottleneck II--violates its statu- tory right to "rate
and route initiative," see 49 U.S.C.  s 10701(c). We do not think this
provision helps Union  Pacific. As the Board noted in Bottleneck II,
these rate- setting prerogatives are shared by bottleneck and non-
bottleneck carriers alike, Bottleneck II at 9-10. Were we to  grant
Union Pacific the relief it seeks, it would merely mean  that CSX's
rate-setting rights would be undermined, rather  than Union Pacific's.
Moreover, to grant Union Pacific "rate  initiative" in this instance
would have required the Board to  override the very contract that it
is without authority to  review under section 10709(c). There may well
be tension  between these two provisions, but we think the Board
proper- ly resolved that tension in favor of solicitude for the
shipper  and non-bottleneck carrier's contract--particularly since the
 non-bottleneck carrier also shares the "rate initiative" that  Union
Pacific believes justifies it unilaterally to override the  FMC-CSX


* * * *


As our colleagues in the Eighth Circuit noted in affirming  the
Bottleneck cases' non-contract holdings, the Board is  required to
implement statutes that express competing and  occasionally
conflicting policy objectives. See MidAmerican  Energy Co., 169 F.3d
at 1104-05. We think that the Board  adequately reconciled the
particular statutory tensions raised  by the Bottleneck cases;
confronting the unenviable task of  balancing the rail carriers' rate
and route prerogatives and  the shippers' contract rights, the Board
produced what is, on  balance, a reasonable policy. Cf. Bottleneck II
at 14 (Morgan,  Chairman, commenting) ("Rather than choosing between 
the[ ] two diametrically opposed positions [of the railroads  and
shippers]--a result which the statute did not envision-- our decisions
in these bottleneck cases have concluded that  Congress intended that
these goals be implemented in a  balanced and complementary way."). We


So ordered.