Before WALD, MIKVA and GINSBURG, Circuit Judges.
UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT
SHIPPING AUTHORITY, TRAILER MARINE TRANSPORT CORPORATION, INTERVENORS
Nos. 81-2088, 81-2128 1982.CDC.124
Petitions for Review of an Order of the Federal Maritime commission.
Opinion for the Court filed by Circuit Judge WALD.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WALD
In September 1981 general rate increases were filed with the Federal Maritime Commission by four common carriers in the Puerto Rico and Virgin Islands domestic offshore trade. Operating for the first time under new, expeditious procedures enacted by Congress in 1978, the Commission approved the rate increases of three of the carriers and reduced the proposed increase of the fourth and most dominant carrier, the Puerto Rico Maritime Shipping Authority. We now consider petitions for review of the agency's order filed by the dominant carrier and by representatives of involved shippers, challenging various elements of the Commission's decision. We affirm the Commission's order in all respects. I. BACKGROUND
Under the Intercoastal Shipping Act of 1933, 46 U.S.C. §§ 843-848, the FMC was authorized to review the rates of intercoastal carriers in order to ensure that they were reasonable and just. In 1978, Congress amended the Act to streamline consideration of rate increases, while still protecting the interests of both carriers and shippers. *fn1 Under section 845 of title 46, as amended, the Federal Maritime Commission may set hearings to consider the lawfulness of any proposed rate increases, but only upon publication in the Federal Register of the specific issues to be resolved. 46 U.S.C. § 845(a) (Supp. III 1979). The Commission must adhere to strict time limits within which to complete its hearing and render a decision: the hearing must be completed within sixty days; an initial decision must be rendered within 120 days and the Commission must render a final decision within 180 days after the new rate is scheduled to go into effect. The Commission may once extend the 180-day limit for sixty days.
The 1978 Amendments also provided for special procedures for the conduct of the hearing: "Notwithstanding any other provision of law, in providing a hearing for the purposes of this chapter, it shall be adequate to provide an opportunity for the submission of all evidence in written form, followed by an opportunity for briefs, written statements, or conferences of the parties." Id. § 845(b). It is clear from the legislative history of the amendments that this provision was designed to allow expeditious completion of these hearings without running afoul of the Administrative Procedure Act. *fn2
The carrier has the burden of proof that its rates are just and reasonable. Id. § 845(b). If the Commission finds that the new rates are unjust or unreasonable it may determine and prescribe a maximum or minimum rate. See id. § 845a. Any amount charged to shippers over that which is ultimately determined to be just and reasonable must be refunded to the shipper by the carrier, with interest computed on the basis of the prime lending rate. See id. § 845(c)(2).
This case presents for review the premier use by the Commission of these new powers and procedures to evaluate tradewide, general rate increases. The Commission evaluated rate increases filed by the four major carriers in the Atlantic Gulf Coast trade. Chief among these carriers is Puerto Rico Maritime Shipping Authority , a nonstock corporation owned by the Commonwealth of Puerto Rico. *fn3 The primary offshore areas served in this trade are Puerto Rico and the Virgin Islands.
On December 5, 1980, PRMSA filed general rate increases in the Puerto Rico and Virgin Islands trades averaging 17.2 percent, scheduled to become effective February 3, 1981. PRMSA's competitors Sea-Land Service, Inc. (Sea-Land), Trailer Marine Transport Corporation , and Gulf Caribbean Marine Lines had filed similar general rate increases to become effective in January 1981. The increases filed by all of the carriers were protested by the Drug and Toilet Preparation Traffic Conference, a trade organization of shippers, the Puerto Rico Manufacturers Association, the Government of the Virgin Islands, and the Chamber of Commerce of Puerto Rico. C regulations require that voluminous data, reflecting past and future operations, be filed in support of an application for a rate increase exceeding 3 percent. *fn4 Detailed revenue and expense forecasts for a pro forma test year must be made prior to the filing of an increase. The pro forma test year by regulation commences the next month after the effective date of the rate increase. *fn5 Because a rate increase may not become effective until after a 60-day notice period, a carrier's forecasts must necessarily project revenues and costs for a period 4-16 months after a forecast is made.
Prior to the effective date of the PRMSA general rate increases, the Commission ordered an investigation, without suspension, of the rate increases of Sea-Land, TMT and GCML, *fn6 as well as PRMSA. *fn7 The investigation, Docket No. 81-10, was the first tradewide investigation held under the 1978 Amendments to the Intercoastal Shipping Act.
As required by the new law, the Commission published in the Federal Register the specific issues to be investigated:
(1) What is an appropriate rate of return for the carriers named as Respondents? In addressing this question consideration should be given to the average rate of return earned by other U.S. corporations and the inherent risks, if any, in operating in the affected trades.
(2) Is the methodology used by Respondents in making revenue and cargo volume projections appropriate?
(3) Are Respondents' revenue and cargo volume projections sufficiently accurate, and if not, what are the appropriate projections?
(4) Have Respondents properly calculated their cost projections covering labor, fuel, vessel maintenance and administrative and general expenses, and, if not, what are the proper calculations?
(5) Do the proposed rate increases impose an economic hardship on the affected interests represented by Protestants and Intervenors, and, if so, to what extent should this factor be considered in determining a reasonable rate of return for the carriers?
Joint Appendix at 178-79. *fn8
The hearing was conducted almost entirely in written form in three rounds of simultaneous submissions labeled Direct, Rebuttal and Surrebuttal. The hearing was concluded on May 6, 1981, and the final briefs were submitted by June 15 to the Presiding Officer, an Administrative Law Judge . On June 5, the Commission granted an extension of time for the final decision. Pursuant to that extension, the ALJ issued his decision on July 20, 1981, recommending approval of the increases of PRMSA, Sea-Land, and GCML. For TMT, the initial decision recommended neither approval nor disapproval of the increase, but stated that the ALJ was unable to find, from TMT's submissions, that TMT had presented sufficient evidence to carry its burden of proof that its increase was just and reasonable. *fn9 The ALJ suggested that TMT have another opportunity to show the Commission that its rate increase was justified by supplying more evidence or by referring to submitted evidence not discussed in its brief to the ALJ.
On September 25, 1981, the FMC issued the Order here under review, Docket No. 81-10, Sea-Land Service, Inc., Trailer Marine Transport Corporation, Gulf Caribbean Marine Lines, Inc., and Puerto Rico Maritime Shipping Authority, Proposed General Rate Increases in the Puerto Rico and Virgin Islands Trades (September 25, 1981). The Commission approved the increases of Sea-Land, GCML, and TMT, but disapproved PRMSA's increases to the extent they exceeded an average of 14.5 percent. The Commission ordered PRMSA to roll back its rates within thirty days and to refund to shippers that portion of the rate increase that had been found to be unreasonable and unjust.
PRMSA has petitioned for review of the decision. It challenges the Commission's rejection of its forecasted fuel expense, the Commission's calculation of the cost of debt for the group of companies used as a reference point for the proper rate of return for the carriers, and the composition of that reference group's asset base on which its rate of return was calculated. In a related case, consolidated with PRMSA's challenge, two protestant shippers also petitioned for review. The Government of the Virgin Islands and the Puerto Rico Manufacturers Association (together GVI/PRMA) challenge the allowed rate increases as unjust and unreasonable. First, they urge that TMT failed to carry its burden of proof as to the reasonableness of its rate increase. Second, they argue that the Commission made improper risk adjustments to rates of return. Third, they claim the FMC failed to consider the evidence before it and make findings as to three essential matters in the ratemaking. Finally, they assert that the Commission erred in failing to reject an allegedly unlawful expense claimed by Sea-Land.
A. The Shippers' Status to Appeal the Commission's Decision
As a preliminary matter, intervenor Sea-Land challenges the "status" of GVI/PRMA to petition for review. Sea-Land relies on a series of decisions concerning review of Interstate Commerce Commission general revenue proceedings. We find Sea-Land's argument unpersuasive: it is based on a misconception of the ICC cases, and it ignores the special processes established by Congress in the 1978 Act for general revenue proceedings before the FMC, which indicate the propriety of immediate plenary judicial review.
Courts have consistently held that shippers may not use review of an ICC general revenue hearing to challenge individual rates which will result from those general increases. In the seminal case of Algoma Coal & Coke Co. v. United States, 11 F. Supp. 487 (E.D.Va.1935), a three-judge panel reviewed a decision by the ICC not to suspend new and higher tariffs filed by railroads. Coal shippers were seeking in the same proceeding to have the new tariffs on coal transportation declared unjust and unreasonable. The court held that these shippers lacked "status" to bring such a challenge for two reasons. First, the Commission decision not to suspend the new rates was, under settled doctrine, not judicially reviewable. See id. at 495; Board of R.R. Comm'rs v. Great Northern R.R., 281 U.S. 412, 50 S. Ct. 391, 74 L. Ed. 936 (1930). Second, the appropriate method to gain review of specific rates was a separate shipper's remedy under section 13 of the Interstate Commerce Act that provided for challenge of individual rates. 11 F. Supp. at 493-94. A number of other courts have come to the same conclusion: specific rates may not be challenged during the review of an ICC general revenue hearing. See Atlantic City Elec. Co. v. United States, 306 F. Supp. 338 (S.D.N.Y.1969) (three-judge panel), aff'd by an equally divided Court, 400 U.S. 73, 91 S. Ct. 259, 27 L. Ed. 2d 212 (1970); National Small Shipments Traffic Conference, Inc. v. United States, 321 F. Supp. 500, 505-06 (S.D.N.Y.1970) (three-judge panel); Electronic Indus. Ass'n v. United States, 310 F. Supp. 1286 (D.D.C.1970) (three-judge panel), aff'd, 401 U.S. 967, 91 S. Ct. 1188, 28 L. Ed. 2d 318 (1971); Florida Citrus Comm'n v. United States, 144 F. Supp. 517 (N.D.Fla.1956), aff'd mem., 352 U.S. 1021, 77 S. Ct. 589, 1 L. Ed. 2d 595 (1957); Koppers Co. v. United States, 132 F. Supp. 159 (W.D.Pa.1955) (three-judge panel).
On the strength of these cases, one court has held that the result of a general revenue hearing is not reviewable on the complaint of shippers at all. In Alabama Power Co. v. United States, 316 F. Supp. 337 (D.D.C.1969) (three-judge panel), aff'd by an equally divided Court sub nom. Atlantic City Elec. Co. v. United States, 400 U.S. 73, 91 S. Ct. 259, 27 L. Ed. 2d 212 (1970), the majority reasoned that Algoma and its progeny left disgruntled shippers with only one remedy: to challenge the individual rates applicable to them in separate proceedings. They could not challenge the general increase which spawned the individual increases. Since the plaintiffs in Alabama Power were contesting the general revenue determination and not its application to specific commodities, we find the Alabama Power court's reliance on the earlier ICC cases problematic. As Circuit Judge Wright noted in dissent, the
courts in both Algoma Coal and Florida Citrus did review the results of the general revenue hearing at the behest of the shippers even though they refused to consider the effect on specific commodities. 316 F. Supp. at 339 (Wright, J., dissenting).
This interpretation of Algoma Coal is in line with the Supreme Court's discussion of the case in Aberdeen & Rockfish R.R. v. Students Challenging Regulatory Agency Procedures , 422 U.S. 289, 95 S. Ct. 2336, 45 L. Ed. 2d 191 (1975). There the Court considered but declined to decide whether the shippers could obtain review of a general revenue hearing. See id. at 317 n.18, 95 S. Ct. at 2354 n.18.
Thus, in the current state of the law, it is unclear whether a general revenue hearing under the Interstate Commerce Act is reviewable on challenge of shippers. *fn10 Hence, it would seem inappropriate to deny status to the shippers here based on questionable precedent in ICC cases without looking to the specific provisions of the statutory scheme actually before us. Our examination of that statute and its legislative history leaves no doubt that the order before us is reviewable.
The 1978 Amendments to the Intercoastal Shipping Act of 1933 were intended to "expedite the decisionmaking process of the FMC in its regulation of the domestic offshore trades." S.Rep.No.1240, 95th Cong., 2d Sess. 1 (1978), U.S.Code Cong. & Admin.News, p. 3331. The changes to section 845 of title 46 dealing with review of general rate increases established streamlined procedures for consideration of these increases and endowed the Commission with greater power to suspend rates and order refunds. These changes were designed, inter alia, to "assure that the shipping public receives the benefit of prompt adjudication of matters before the Commission." Id. It is clear therefore that Congress considered shippers such as those represented by GVI/PRMA to have a distinct interest in general rate increase proceedings.
The congressional concern for expeditious resolution of general revenue proceedings also strongly militates in favor of shipper-triggered judicial review of the general-rate-increase hearing. Forcing shippers to resort to challenge of each individual rate would hardly foster rapid and consistent agency oversight of the general level of carrier rates. To be sure, review of a general rate increase cannot be used as a sham to attain review of a limited set of rates. The remedies provided by 46 U.S.C. § 821 to challenge individual rates are adequate and may well be exclusive for that purpose. But we believe the purposes of the Act are best served by allowing participation of interested shippers in review of the general rate increase proceedings. And we are reassured by the fact that the FMC itself has not challenged the shippers' participation in this appeal or argued that such participation will obstruct its regulatory functions.
Finally, the petitioning "shippers" in this case are particularly well suited to bring a challenge to a general rate increase. Puerto Rico Manufacturers Association represents over one thousand shippers of many diverse products. The Government of the Virgin Islands properly represents the interest of its people as shippers and consumers. See Government of Guam v. FMC, 117 U.S. App. D.C. 296, 329 F.2d 251, 252-53 (D.C.Cir.1964). There is no indication that either of these parties is proceeding with a hidden agenda, hoping to obtain premature review of specific rates rather than review of the propriety of the general rate increase. Cf. Atlantic City Elec. Co. v. United States, 306 F. Supp. 338, 342 (S.D.N.Y.1969) ("But the fact remains that in this case as in (Algoma) plaintiff's real concern is the increased rates which the order authorized on the commodities in which they are interested."), aff'd by an equally divided Court, 400 U.S. 73, 91 S. Ct. 259, 27 L. Ed. 2d 212 (1970).
We conclude, then, that the noncarrier petitioners have status to invoke this court's jurisdiction to review the FMC's general-rate-increase order.
Before turning to the specific contentions raised by the parties, we address the applicable standard of review appropriate to the Commission's proceedings. Ratemaking is "an intensely practical affair" requiring the conversion of inexact data into exact rates or limits upon rates. See Trans World Airlines, Inc. v. CAB, 128 U.S. App. D.C. 126, 385 F.2d 648, 658 (D.C.Cir.1967), cert. denied, 390 U.S. 944, 88 S. Ct. 1029, 19 L. Ed. 2d 1133 (1968). Courts must take proper cognizance of both the difficulty of the task and the expertise of the agency performing it.
In FPC v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S. Ct. 281, 287, 88 L. Ed. 333 (1944), the Supreme Court stressed that rates should not be overturned for minor infirmities of method if they do not yield an unreasonable result. In addition, a presumption of validity stemming from the agency's expertise adheres, and "he who would upset the rate order ... carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences." Id.
In the Permian Basin Area Rate Cases, 390 U.S. 747, 791-92, 88 S. Ct. 1344, 1372-73, 20 L. Ed. 2d 312 (1968), the Supreme Court identified three essential responsibilities of a reviewing court:
First, it must determine whether the Commission's order, viewed in light of the relevant facts and of the Commission's broad regulatory duties, abused or exceeded its authority. Second, the court must examine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order's essential elements is supported by substantial evidence. Third, the court must determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court's responsibility is not to supplant the Commission's balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors.
Yet the court's review must not merely rubberstamp the agency's decision. The agency must make clear the "basic data and the whys and wherefores" of its conclusions. Government of Guam v. FMC, 117 U.S. App. D.C. 296, 329 F.2d 251, 255 (D.C.Cir.1964). See also Colorado-Wyoming Gas Co. v. FPC, 324 U.S. 626, 634-35, 65 S. Ct. 850, 854, 89 L. Ed. 1235 (1945); Commonwealth of Puerto Rico v. FMC, 110 U.S. App. D.C. 17, 288 F.2d 419, 420 (D.C.Cir.1961). We must determine whether the Commission properly carried out its mandate from Congress to review the carrier-filed rates for justness and reasonability. As the Supreme Court has noted: "That is not a standard so vague and devoid of meaning as to render judicial review a perfunctory process. It is a standard of finance resting on stubborn facts." Colorado Interstate Gas Co. v. FPC, 324 U.S. 581, 605, 65 S. Ct. 829, 840, 89 L. Ed. 1206 (1945) (footnote omitted). As Judge Leventhal commented sagely: "An agency's decision cannot rest significantly on a judgment pulled solely out of the air, without an anchor in the record. In appraisal of a record, however, generous dollops of judgment are proper and perhaps necessary." Trans World Airlines, Inc. v. CAB, 128 U.S. App. D.C. 126, 385 F.2d 648, 658 (D.C.Cir.1967), cert. denied, 390 U.S. 944, 88 S. Ct. 1029, 19 L. Ed. 2d 1133 (1968).
These general standards must be applied to the review of the particular proceeding before us. *fn11 Congress has mandated speedy resolution of hearings under section 845. Strict limits are placed on the time that may be devoted to creation of the record and to consideration of that record by the ALJ and the Commission. *fn12 As we said in a similar situation, "(t)he direction to the agency to provide expedition will be taken to heart by the Courts, as an indication of legislative policy." Houston Lighting & Power Co. v. United States, 196 U.S. App. D.C. 224, 606 F.2d 1131, 1145 (D.C.Cir.1978), cert. denied, 444 U.S. 1073, 100 S. Ct. 1019, 62 L. Ed. 2d 755 (1980). The time limits set by Congress indicate that a reviewing court should accord the Commission "an extra dollop of deference." Id. This is especially true where, as here strict time limitations have been coupled with specially mandated procedures for creation of the record. An order by Congress to consider a matter expeditiously is not a mandate to be arbitrary, capricious, irrational or sloppy. But strict time frames within which to work may require an agency to make its decision on a record more ...