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08/16/88 Lefton Iron & Metal v. the Illinois Commerce

August 16, 1988

LEFTON IRON & METAL COMPANY, PLAINTIFF-APPELLANT

v.

THE ILLINOIS COMMERCE COMMISSION ET AL., DEFENDANTS-APPELLEES



Before the issues may be identified, it is necessary to set out the applicable law. Before October 1, 1980, the Illinois Commerce Commission (Commission) had full jurisdiction to require that Illinois intrastate rail rates be maintained at reasonable levels. On that date, the Staggers Rail Act of 1980 went into effect (49 U.S.C. § 11501 et seq. (1982)) and preempted State jurisdiction to regulate intrastate railroad rates unless it first be shown that the railroad exercised "market dominance" over the transportation to which the rate applied. (49 U.S.C. §§ 10701(a), (b), 10709 (1982).) Market dominance means "an absence of effective competition from other carriers or modes of transportation for the transportation to which a rate applies." (49 U.S.C. § 10709(a) (1982).) Section 10709(d) creates an irrebuttable presumption that a railroad does not have market dominance if the railroad proves that the rate charged results in a revenue-variable cost percentage that is less than a specified amount, in this case 180%. (49 U.S.C. § 10709(d) (1982).) "Revenue-variable cost percentage" is defined as the "quotient, expressed as a percentage figure, obtained by dividing the total revenues produced by the transportation of all traffic received by rail carriers for rail transportation by the total variable cost of such transportation." (49 U.S.C. §§ 10709(d)(1)(ii), (2) (1982).) The defendant Terminal Railroad Association of St. Louis introduced evidence before the defendant Illinois Commerce Commission (Commission) that the proposed rate would result in revenue of $404 per car and that its variable cost was $249.54 per car, thereby seeking to establish a revenue-variable cost percentage of 162%. The plaintiff, Lefton Iron & Metal Company (Lefton), introduced evidence that the variable cost was not $249.54 but approximately $187.69, which would produce a revenue-variable cost percentage of 312%. The Commission adopted the figures of TRRA and concluded that since the revenue-variable cost percentage was less than 162% and was below the jurisdictional threshold percentage in the statute, the rate was deemed reasonable. The issues are whether the Commission's findings were against the manifest weight of the evidence, were legally insufficient, were inconsistent or manifested confusion on the part of the Commission.

APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

529 N.E.2d 610, 174 Ill. App. 3d 1049, 124 Ill. Dec. 629 1988.IL.1258

Appeal from the Circuit Court of Cook County; the Hon. Harold A. Siegan, Judge, presiding.

APPELLATE Judges:

JUSTICE EGAN delivered the opinion of the court. HARTMAN, P.J., and BILANDIC, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE EGAN

This is an appeal from a judgment of the circuit court affirming an order of the Illinois Commerce Commission the effect of which was to approve a railroad rate increase.

Lefton is a processor and vendor of scrap metal located in East St. Louis, Illinois, and makes 50% of its sales to a single customer, Granite City Steel Division of National Steel Corporation (Granite) at Granite City, Illinois. TRRA is a switching railroad which services the Granite plant and is the only railroad with lines that reach the Lefton plant.

Lefton competes with nine other scrap processors for Granite's business and is one of Granite's four "principal suppliers." Two of the other three are located on the Missouri side of the Mississippi and are also served by TRRA. The third other supplier is located on the grounds of the Granite plant and is not served by TRRA.

On June 10, 1985, TRRA filed a tariff with the Commission which would increase the rate Lefton paid for transporting scrap to Granite. Before the effective date of the tariff, TRRA had been operating under lower rates for transporting scrap metal from East St. Louis to Granite. That rate was $237.50 per car, which the plaintiff factored to be $3.39 per net ton. At the same time, the rate from Missouri to Granite was $7.05 per net ton. TRRA claimed that its out-of-pocket variable costs were $249.54 per car, resulting in a net loss per car of $12.04 for each car transported from Lefton to Granite. TRRA stated that it performed the same function and covered the same distance in transporting Lefton's intrastate load as it did transporting the Missouri scrap dealers' interstate loads to Granite. Therefore, it issued the same rate of $404 per car for both interstate and intrastate hauling. The new tariff averaged to $5.53 per net ton, which was an increase to Lefton of 63.25%. The rate to the Missouri vendors decreased 21.50% from $7.05 per net ton. Although Lefton referred to the rate adjustments of the Missouri customers, it acknowledges that only the reasonableness of the Illinois increase was before the Commission. The other rate adjustments were interstate and thus subject to the Interstate Commerce Commission.

Pursuant to 92 Ill. Adm. Code § 1580.90 (1985), Lefton filed a timely protest and petition for suspension and investigation with the Commission. The Commission declined to suspend the increase but did order that the reasonableness of the rate be investigated. That investigation was done through a hearing. Prehearing discovery was available to representatives of the Commission and the parties.

TRRA's sole witness was Charles Cross, its vice-president for traffic, real estate and tax. As vice-president of traffic, his duties involved the solicitation of freight and pricing of TRRA's services and included setting rates and tariffs. He was not an accountant, but had prepared actual cost studies and appeared before the Illinois and Missouri commissions on prior occasions. He described each step in the operation, beginning with the departure of the cars from the switching yards of the Norfolk & Western or Missouri Pacific Railroads in St. Louis, Missouri, to Madison, Illinois, to Lefton's premises for loading, back to Madison, then to Granite for delivery, back to Madison and then back to St. Louis. The cost of each step was described; and he testified that the total variable costs were $249.54 per car.

Two witnesses testified for Lefton. Gerald W. Fauth was the vice-president and senior cost analyst for a transportation and economic consulting firm specializing in cost analysis. He disagreed with some of Cross' testimony and criticized his analysis. In sum, he said that while Cross underestimated certain expenses, he overestimated others and the overestimates outweighed the underestimates.

Norman Lefton is an economist and since 1975 had been chairman of the plaintiff board. Most of his testimony was directed to the detrimental impact the increased rate would have on Lefton's operation. He said that the effect of the rate increase on his company was relevant to the issue of its reasonableness.

The hearing officer found that TRRA had "convincingly" met its burden of showing that the variable cost per car for the movement of scrap was $249.54. At a revenue rate of $404 per car, the revenue-variable costs percentage was 161.89%. The Commission adopted the hearing ...


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