EX PARTE NO. 320

SPECIAL PROCEDURES FOR MAKING FINDINGS OF MARKET DOMINANCE AS REQUIRED BY THE RAILROAD REVITALIZATION AND REGULATORY REFORM ACT OF 1976

Decided September 30, 1976

Upon further consideration, findings in prior report, served August 23, 1976, modified in some respects, otherwise affirmed and clarified.

Appearances as shown in prior report, and in addition, H. Leroy Weidner for shipper intervener.

REPORT OF the CommiISSION ON FURTHER CONSIDERATION

BY THE COMMISSION:

This proceeding was instituted in compliance with section 202 of the "Railroad Revitalization and Regulatory Reform Act of 1976.”1 In the interim report, served August 23, 1976, standards and procedures for making market dominance determinations were. adopted subject to further comment by the parties. Thirty-seven additional comments have been received from the railroads, shippers, shipper interests, and Government agencies. Although the response to the interim report has been generally favorable, the parties have suggested various modifications in the rules, some of which have been adopted. Our revised rules incorporating these changes are set forth in full in appendix A. In addition, it appears that certain matters treated in the interim report require clarification.

Upon consideration of the comments of the parties, we are persuaded that a rebuttable presumption of market dominance where a rate exceeds 160 percent of variable cost will more accurately reflect the absence of effective competition.2 Available evidence indicates that railroad fully allocated cost approximates

'Hereinafter, the 4R Act.

The presumption set out in the interim report would have become operative when a rate exceeded 180 percent of variable cost.

3

129 percent of variable cost. If an allowance is made for Federal income taxes and a reasonable profit level, a ratio of fully allocated costs to variable costs between 140 percent and 150 percent (including margin for error) would appear to be the highest level at which a rail carrier could be said to possess only minimal market power. Where a rate exceeds 160 percent of variable cost, a rail carrier actually moving traffic thereunder will usually have substantial market power.

Some parties have argued that no single variable cost percentage can account for all cost levels which may vary significantly from commodity to commodity. The Department of Justice (Justice) notes that a higher percentage would be more appropriate for those movements which reflect higher ratios of fully allocated cost to variable cost. We believe that the use of a single average percentage figure presents less difficulty in application and would lead to more accurate determinations than the proposed alternatives. At the same time, we recognize that exceptional situations will exist where the particular ratio of fully allocated to variable cost may vary significantly from the average 129-percent figure. In these unusual instances, any party may show that the 160-percent figure would not reflect the actual costs of the traffic or movement in issue, and state the special circumstances which the Commission should consider. We believe this approach to be superior to the use of a variable percentage based on the commodity groups, which appears to be unwieldy and difficult to administer."

It must also be remembered that the standard set forth herein and in the interim report is not rigidly fixed. The Commission is presently in the process of complying with section 307 of the 4R Act in docket No. 36367, Revision to the Uniform System of Accounts for Railroads, 41 F.R. 33016, August 6, 1976. Standards adopted in that proceeding may result in the need for reformulation of this presumption at some future date. As with all other standards and procedures adopted herein, the Commission will continue to reassess their usefulness and accuracy in the light of actual experience.

We reiterate that a finding of market dominance based on the relationship of the rate in issue to the variable cost of the service

*See "Railroad Carload Cost Scales of 1973," Interstate Commerce Commission Bureau of Accounts, Statement No. 1C1-73, p. 150.

'The rail revenue contribution studies are based upon the carload waybill sample. See Investigation of Railroad Frt. Rate Structure-Coal, 345 I.C.C. 493, 534, where infirmities in the waybill study are discussed.

does not necessarily imply that the rate is unjust or unreasonable. The market dominance test is merely a threshold determination to direct the Commission's attention to those situations in which competitive forces may be insufficient to insure just and reasonable rate levels.

Several minor changes in the language of the regulations have been adopted. Section 1109.1(a)(4) has been amended to provide that information should be submitted whenever the rate in issue has been docketed before a rate bureau. We agree with the contention of the Drug and Toilet Preparation Traffic Conference that analysis of the docketing procedure may better permit the Commission to determine the existence of tacit collusion where two or more similar rates are published under right of independent action at or about the same time. A new section 1109.1(a)(8) has been added to emphasize further that the railroads may produce any relevant evidence pertaining to the issue of market dominance. Section 1109.1(c) has been amended to make it clear that railroads and shippers alike are not required to produce information which cannot realistically be obtained by them. We note that pleadings in a market dominance proceeding will be verified. In addition, the Commission will seek to ascertain that information alleged to be practicably unavailable is in fact unavailable.

Section 1109.1(d) has been amended to permit the complainant in any formal complaint proceeding in which the issue of market dominance is raised to file a reply to any verified answer to the complaint. Any such reply must be filed within 10 days of the due date for filing an answer, and must be limited to the issues relating to market dominance raised in the answer. This exception to the Commission's General Rules of Practice is justified in order to narrow the Commission's focus and permit these complex issues to be developed more fully. The narrower time constaints in proceedings to suspend a rate prevent any similar treatment there.

Finally, two minor changes have been made in the language of the presumptions to conform them to the intent of the Commission expressed herein and in the interim report. Section 1109.1(g)(1) has been amended to provide that any carrier which participates in the rate will have its market share included in any computation of the market share of the "proponent carrier." Section 1109.1 (g)(3) has been amended to emphasize our intent that rail-related facilities be

"However, we cannot agree with the contention that the rate bureau presumption should be triggered by mere publication of a rate by a rate bureau without evidence of docketing, discussion consideration, or approval of the rate at issue.

considered within the scope of the substantial investment presumption.

The first matter which requires clarification is the manner in which the presumption will be applied. The Department of Transportation (DOT) expressed the opinion that "where market dominance is proven under one or more tests, and effective competition under one or more of the others, the presumptions would effectively cancel one another out." This statement reflects a misunderstanding of the rules. As was noted in the prior report, the presumptions do not imply their converse. A protestant need establish only one presumption at which point the burden of coming forward with evidence of effective competition shifts to the proponent of the rate. Any relevant evidence of effective competition, as outlined in the interim report,' can be offered to establish effective competition. This may be evidence which relates to one of the presumptions, or it may be other relevant evidence. Nevertheless, it should not be inferred that proof that a particular presumption does not apply necessarily rebuts any other presumption.

The railroads argue that the standards and procedures adopted herein result in an unauthorized shifting of the statutory burden of proof, insofar as they require the railroads to produce certain evidence in proceedings in which they do not have the burden of proof. They claim that such a result would violate the revised section 15(8)(d) of the Interstate Commerce Act.

A clear distinction should be drawn between the burden of proof in the sense of the burden of persuasion and the burden of producing evidence. The requirements contained herein impose on all parties the burden of producing certain available evidence in a limited. number of situations in which they may not have the ultimate burden of persuasion. As we have pointed out in the interim report, the party best able to present particular evidence should do so in each proceeding in order to foster informed Commission decisions in all proceedings involving market dominance. However, the burden of persuasion at the suspension level remains on the protestant, who must affirmatively demonstrate the existence of market dominance. The burden of proof in any proceeding is merely the burden of persuading the finder of fact that the interpretation of

"Interim report, p. 20, 21.

Interim report, p. 98-101.

"See, for example, rule 301 of the Federal Rules of Evidence. See also, McCormick, "Evidence" (1954), sections 306 and 307.