This is a consolidated action involving Mi-dAmerican Energy Company (MidAmerican), Central Power & Light Company (CP & L), and Pennsylvania Power & Light Company (PP & L) (collectively the utilities). They petition for review of two orders of the Surface Transportation Board (the Board) dismissing their complaints against rail carriers. The carriers cross-appeal from the portion of the Board’s decisions regarding reasonableness review of contractual shipping rates, arguing that the issue was not ripe for adjudication. We affirm the dismissal of the utilities’ complaints. We dismiss the cross-appeal for lack of jurisdiction.
I.
MidAmeriсan ships coal approximately 750 miles from the Powder River Basin in Wyoming to its generating facility near Sergeant Bluff, Iowa. At the time it filed its complaint, MidAmerican was shipping the coal from origin to destination under contract with the Union Pacific Railroad (UP). This contract was scheduled to expire at the end of 1997. Anticipating the contract’s expiration, Mi-dAmerican began to compare UP’s rates with those of other carriers to obtain the most favorable shipping rates. The only other carrier offering rail service originating in the Powder River Basin is thе Burlington Northern Railroad (BN).
UP refused to provide the rate. Instead, it provided a rate for the entire route from the Powder River Basin to the generating station. This precluded MidAmerican from using BN as a carrier from Wyoming to Council Bluffs, essentially extending the bottleneck over the entire 750-mile route. Consequently, MidAmerican brought an action before the Board requesting a rate prescription over the 90-mile bottleneck segment. Although MidAmerican could not challenge a local “unit-train” rate for the bottleneck service, it asked the Board to prescribe a reasonable rаte for the bottleneck if it found the published “class” rate for the 90-mile stretch unreasonable.
CP & L transports coal from the Powder River Basin in Wyoming to its Coleto Creek generating station in Texas. Although both BN and UP offer rail service originating at the coal mines, the Southern Pacific Railroad (SP) is the only carrier from an interchange point in Victoria, Texas, to Coleto Creek.
SP refused to provide either rate, offering instead to provide a joint rate with UP. CP & L chose to obtain a unit-train rate from UP for service from Wyoming to Victoria, and to ship from Victoria to Coleto Creek under SP’s class rate.
Conrail refused to provide such rates. Consequently, PP & L filed a complаint challenging ConraiPs class rates from the interchange points to the stations and requesting that Conrail be required to provide local unit-train rates instead.
Rather than providing the rates, however, Conrail negotiated a joint rate for origin-to-destination service with CSX and a proportional rate for similar service with NS. As a result, Conrail, rather than PP & L, took advantage of the competition between NS and CSX for service from the central Appalachian mines. PP & L then petitioned the Board for rate prescription on the bottleneck based on a renewed challenge to the class rates.
Although petitioners’ cases involve distinct facts, they were consolidated by the Board for adjudication on common issues regarding “the extent to which bottleneck carriers may exert their market power over the routes and rates made аvailable to shippers for needed rail service.” Central Power & Light Co. v. Southern Pac. Transp. Co., No. 41242, 1996 STB LEXIS 358, at *8-*9 (Surface Transp. Bd. Dec. 27, 1996) (Bottleneck /). Before reaching its decision, the Board solicited commentary on bottleneck regulation from all potentially affected shipper and carrier organizations. After oral argument and consideration of the submitted materials, the Board denied the utilities’ requests for bottleneck relief.
In considering the utilities’ requests, the Board grappled with the tension between two competing policies expressed in the Interstate Commerce Act (the Act). Under 49 U.S.C. § 10701а(a) (1995) (now 10701(c)), rail carriers possess broad discretion in setting rates and routes. This reflects Congress’s
The Board resolved this tension in favor of the “rate freedom” of bottleneck carriers. Specifically, it held that bottleneck carriers satisfy their common carrier duties and thus comply with the Act by providing origin-to-destination service that includes the bottleneck, as in MidAmerican’s ease, or by providing joint or proportional service with other carriers that includes transportation over the bottleneck, as in CP & L’s and PP & L’s cases. In addition, the Board held that shippers may not challenge class rates as an “indirect basis for obtaining prescription of a local unit-train rate” for bottleneck segments. Subsequently, the utilities moved for clarification and reconsideration of the decision. The Board responded by issuing a second decision, granting in part the motion for clarification and denying the motion for reconsideration. See Central Power & Light Co. v. Southern Pac. Transp. Co., No. 41242, 1997 STB LEXIS 91, at *28 (Surface Transp. Bd. Apr. 28,1997) (Bottleneck II). The utilities appeal from both rulings.
II.
Before we address the specific issues raised in these cases, we briefly review the relevant history of railroad regulation. From its passage in 1887 until the mid-1970s, the Interstate Commerce Act provided for a strict regulatory framework to govern the federal railroad industry. This legislative approach resulted in an industry chronically plagued by capital shortfalls and service inefficiencies. See H.R.Rep. No. 96-1035, at 33 (1980), reprinted in 1980 U.S.C.C.A.N. 3978, 3978; Coal Exporters Ass’n of United States v. United States,
To assure railroads greater freedom in establishing routes and rates, Congress modified the Act with the Railroad Revitalization and Regulatory Reform Act (4R Act), Pub.L. No. 94-210, 90 Stat. 31 (1976), and the Staggers Rail Act (Staggers Act), Pub.L. No. 96-448, 94 Stat. 1895 (1980). See H.R.Conf.Rep. No. 96-1430, at 79 (1980), reprinted in 1980 U.S.C.C.A.N. 3978, 4110. These acts were intended to end “decades of ICC control over maximum rates and to permit carriers not having market dominance to set rates in response to their perception of market conditions.” Midtec Paper Corp. v. United States,
Underlying these reform efforts was the notion that market forces would operate in the rail industry as they do in other spheres. Congress believed that free competition for rail services would ensure that consumer demand dictated the optimal rate level, while facilitating enough long-term capital investment to maintain adequate service. Congress was also mindful, however, that the free market wоuld protect consumers only if there was “effective” competition. Therefore, the new enactments included provisions allowing regulatory intervention where competition would not control prices. See 4R Act § 101(b), 90 Stat. 31, 33; Staggers Act § 101(a), 49 U.S.C. § 10101a(6) (now 10101(6)); Coal Exporters,
Indeed, in bottleneck situations the Staggers Act actually “increased the ICC’s regulatory power — by authorizing the agency to require railroads to enter into agreements to ‘switch’ other railroads’ cars to and from shippers located along each other’s lines.... ” Baltimore Gas & Elec. Co. v. United States,
Congress’s decision to deregulate the railroad industry has been largely successful. Experts for both sides in these cases have acknowledged that- competition has led to more efficient routes, increased profits, better service, and an enhanced ability to attract сapital investment. See, e.g., Verified Statement of William J. Baumol & Robert D. Willig at 6-7, J.A. at 1111-12; Verified Statement of Alfred E. Kahn at 15-16, J.A. at 2931-32. However, the experts dispute the role of bottleneck rail segments in increasing profits and facilitating the overall revenue adequacy of the railroad industry.
III.
We have jurisdiction under 28 U.S.C. §§ 2321 and 2341 (Supp.1998), which provide' for review of the Board’s decisions. Because Congress has entrusted the Board with interpreting and administering the Act, in reviewing its decisions we ask only whether they are “ ‘based on a permissible construction of the statute.’ ” Caddo Antoine & Little Missouri R.R. Co. v. United States,
As the utilities and shipper organizations assert, carriers are bound both at common law and under the Act to “provide ... transportation or service on reasonable request” to any shipper. GS Roofing,
As the Board and the railroads assert, however, there are significant limitations to the common carrier duties. It is usually at the discretion of the carrier how it wishes to satisfy its duty to provide rates and service. See 49 U.S.C. § 10701a(a) (now 10701(c)). Consequently, a carrier may in most circumstances provide service in the farm of a joint rate with another i’ailroad, such as Conrail did with CSX in PP & L’s case, or a proportional rate, as Conrail did with NS. See, e.g., Great Northern Ry. Co. v. Sullivan,
Further, a carrier generally may provide common carrier service in a manner that protects its “long hauls.” See 49 U.S.C. § 10705(a) (now 10705(a)). The Board may order a carrier to px'ovide service over a shorter haul than it wishes only if the Board first makes specific findings under the Act. See id. § 10705(a)(2). Thus, a carrier such as UP may nox-mally choose to provide service to a shipper such as MidAmerican over a route longer than the 90 miles from Council Bluffs to Sergeant Bluff, unless the longer route would be “unreasonably long”- or inefficient. See Thompson,
Therefore, the Act protects both shippei-s and carriers. It guarantees that shippex-s will receive rail service at reasonable rates, and it allows cax’riers to provide such sendee in a manner that аchieves revenue adequacy.
The Board has recognized that an important part of achieving revenue adequacy is differential pricing. See Consolidated Rail Corp. v. United States,
In the present case, the Board determined that exploiting bottlenecks by refusing to provide separately challengeable bottleneck rates also assists carriers in achieving revenue adequacy. Specifically, in the Mi-dAmerican case, allowing UP to provide only an origin-to-destination rate enables it to charge up to SAC over the entire 750-mile route, rather than just over the 90-mile section from Council Bluffs to Sergeant Bluff. Were UP required to provide a separate bottleneck rate, it would be forced to charge lower competitive rates from the mine to Council Bluffs. Similarly, in the CP & L and PP & L eases, allowing the bottleneck carriers to negotiate through rates and joint rates for origin-to-destination service enables them, rather than the shippers, to take advantage of the competition between non-bottleneck carriers. After negotiating competitive rates for the non-bottleneck carriage, the bottleneck carriers will be able to charge the bottleneck shippers up to SAC for the entire route, rather than just over the bottleneck. See Western Resources, Inc. v. Surface Transp. Bd.,
Based on these economic factors and extensive expert testimony, the Board concluded that the Act did not require carriers to provide separate bottleneck rates. Regardless of how we would resolve the tension in the Act if we were to independently rule on the utilities’ claims, we cannot say that the Board’s interpretation was incorrect. The Board’s considerable expertise in the economic underpinnings of the railroad industry is entitled to a great degree of deference, and its decision to allow carriers to determine how they wish to fulfill their duties under the Act is consistent with the current national railroad policy of maximizing carrier discretion in setting routes and rates. Because the utilities have not demonstrated that the Board’s rulings were incorrect, we affirm the Board’s dismissal of the utilities’ complaints.
We note that the Board’s decisions explicitly provide the utilities three potential avenues of recourse. First, bottleneck shippers may obtain contracts for service over the competitive segments of rail. See Bottleneck I, 1996 STB LEXIS 358, at *30-*31; Bottleneck II, 1997 STB LEXIS 91, at *22. Once a contract is secured, the bottleneck carrier will be required to provide local service over the bottleneck in light of its common carrier obligations. Bottleneck II, at *22. Because such service will be actually “held out” to bottleneck shippers,
Indeed, as soon as a bottleneck shipper obtains a contract for non-bottleneck carriage, bottlеneck carriers would have no incentive to refuse to provide a local rate for bottleneck service. The Board’s regulations clearly allow bottleneck carriers to charge up to SAC for bottleneck service, and carriers would not attempt to charge more than SAC because they would immediately be subject to rate reasonableness review by the Board. See Western Resources, Inc. v. Surface Transp. Bd.,
Seсond, if the utilities can adequately demonstrate an absence of effective competition
Third, the utilities could request relief under the competitive access rules, 49 C.F.R. § 1144.5 (1997), over the entire origin-to-destination route. See Bottleneck I, at *20-*26; Bottleneck II, at *6. To invoke these rules, the utilities would be required to show that the carrier engaged in “anticompetitive” conduct. See Bottleneck I, at *26; Midtec,
The utilities rely on San Antonio v. Burlington Northern,
Nothing in the Act explicitly requires carriers to provide separate local rates for bottleneck service. Furthermore, requiring carriers to provide separately challengeable rates on bottlenecks would prevent them from exploiting bottlenecks and charging rates up to SAC for complete origin-to-destination service. In the Bоard’s view, this would impede the industry’s efforts to achieve revenue adequacy, which is necessary for long-term capital investment and, ultimately, for a safe and efficient rail system. The Board therefore properly reconciled the competing policies of the Act when it deferred to carrier discretion in setting routes and rates and held that carriers are not required to provide separately challenge-able bottleneck rates.
The Board’s dismissal of the utilities’ complaints is affirmed.
IV.
The railroads cross-appeal the Bоard’s determination that it may assess the reasonableness of bottleneck rates as soon as the utilities obtain contract rates over the non-bottleneck segments. Under Article III of the Constitution, we may only rule on existing eases or controversies. Because none of the utilities possesses a contract rate for non-bottleneck service, none has an existing claim for bottleneck rate review on this basis. As the railroads themselves point out, the Board’s ruling on the contract issue presents no live controversy for adjudication. Thus, we dismiss the cross-appeal for want of jurisdiction.
Notes
.A local unit-train rate is a published rate applicable to transport of a trainload of a specific good between two points on a carrier’s line. A local class rate, on the other hand, is a published rate applicable to transport of a certain type of good in smaller quantities between two points on a carrier’s line. Railroads must maintain class rates because of their common carrier obligation to transport goods to any point on their lines upon request by a shipper. See Thompson v. United States,
. Based on stipulations entered into by the parties prior to the Board’s hearing, we will disregard the fact that SP and UP have merged since the initiation of this action, resulting in UP’s ability to offer unit-train service from Wyoming to Coleto Creek.
. SP’s class ratе for the coal shipment from Victoria to Coleto Creek was $19.95 per ton. At the Board's hearing, CP & L offered the testimony of eight expert witnesses that the highest reasonable rate for this stretch was $0.63 per ton, less than one-thirtieth of the actual class rate charged.
. Some shippers have eschewed the role of supplicant to the Board arid have constructed connecting lines on their own. See Daniel Machalaba, Tired of Costs, Delays of Railroads, Firms Lay Their Own Tracies, Wall St.J., February 6, 1998, at A-1.
. As is by now well known, subsequent to the submission of this case the Board approved the division of Conrail bеtween NS and CSX. See Bruce Ingersoll, U.S. Approves Plan to Divide Conrail in Two, Wall St.J., June 9, 1998, at A-3 (" 'This transaction, as conditioned, creates two strong competitors in the East that can handle the transportation needs of an expanding economy,’ said [Board] Chairwoman Linda Morgan”). See also Norfolk Southern, CSX assume control of Conrail, Railroad NewsWire (Aug. 27, 1998) chtlp:// www2.trains.com/trains/News/News.shtml>. What effect the NS’s acquisition of Contrail's lines in Pennsylvania will have on PP & L’s transportation needs remains to be seen.
. Although Conrail admits that PP & L sent test shipments from the interchange points to its generating stations prior to filing the complaint, it denies that such shipments were sent using a class rate.
. The ICC was subsequently replaced by the Board in the ICC Termination Act of 1995, Pub.L. No. 104-88, 109 Stat. 803 (Dеc. 29, 1995). The Termination Act also substituted the new Interstate Transportation Act for the earlier Interstate Commerce Act, both located at Subtitle IV of Title 49 of the United States Code. Pub.L. No. 104-88 §§ 102, 103, and 106. Although most of the provisions of the Interstate Commerce Act were re-enacted in the Interstate Transportation Act, the parties have relied, and we will base our decision, on the provisions of the old act because these cases were initiated before passage of the Termination Act.
.The complaints of MidAmerican and CP & L were dismissed in full; that portion of PP & L’s complaint requesting rate prescription оver the bottleneck segments was also dismissed. PP & L had amended its complaint to also challenge the joint and proportional rates with CSX and NS; the Board allowed this challenge to proceed, and the parties subsequently reached a settlement on that issue. We will thus address only the utilities' requests for rate prescription on the bottleneck segments in this appeal.
. Stand-alone cost represents the minimum amount that a hypothetical carrier, or the shipper itself, would have to spend to build a new rail line to compete over thе bottleneck segment. See Coal Rate Guidelines,
. Historically, a shipper could not challenge a rate unless the carrier held out service at that rate. See Routing Restrictions,
. Under the Act, effective competition exists if the complaining shipper cannot establish the existence of market dominance under the criteria set forth in 49 U.S.C. § 10709(d) (now 10707(d)). Under that provision, a carrier has market dominance if its revenue to variable cost percentage for the rail segment in question is greater than 180 percent. See 10709(d)(2); Midtec,
There is substantial evidence that bottleneck carriers possess market dominance. See, e.g., West Texas II,