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February 5, 1973

NATIONAL GYPSUM COMPANY (HURON CEMENT DIVISION), Buffalo, New York and the Algoma Steel Corporation, Ltd., Sault Ste. Marie, Ontario, Canada, Plaintiffs,
UNITED STATES of America and Interstate Commerce Commission, Washington, D.C., Defendants, and The Baltimore and Ohio Railroad Company et al., Intervening Defendants

The opinion of the court was delivered by: MANSFIELD

MANSFIELD, Circuit Judge:

Plaintiffs have instituted this action pursuant to 28 U.S.C. §§ 1336, 1398, 2284 and 2321-2325 to set aside a report and order of the Interstate Commerce Commission ("Commission") to the effect that proportional rates charged by 39 intervening railroad defendants ("the railroads") *fn1" for transportation of coal from points in the Appalachian coal fields to Toledo, Ohio, where the coal is transshipped by lake vessel to plaintiffs' plants on the upper Great Lakes, are neither discriminatory nor unreasonable and therefore do not violate §§ 1, 2 and 3 of the Interstate Commerce Act. *fn2"

The Huron Cement Company of National Gypsum Company ("Huron"), one of the plaintiffs, operates a cement plant at Alpena, Michigan. The Algoma Steel Corporation Ltd. ("Algoma") operates steel mills in Sault Ste. Marie, Ontario, Canada. Both use large quantities of coal shipped to their plants from the Appalachian coal fields. The coal used by Huron is known as bituminous steam coal, whereas most of the coal used by Algoma is metallurgical coal.

 The Commission's decision followed plaintiffs' filing of complaints charging that the railroads, named therein as defendants, had failed to establish and maintain fair, reasonable and non-discriminatory proportional rates for transportation of coal from the mines to Toledo, Ohio, for transshipment by water. Hearings were held at which evidence was introduced. In a report and recommended order dated May 25, 1967, the Hearing Examiner found that the rates did not violate §§ 1 and 3 of the Act, but that they violated § 2 for the reason that different rates were charged to different customers for like service in the transportation of traffic under substantially similar circumstances and conditions. On December 11, 1968, Division 2 of the Commission filed its report and order, 332 I.C.C. 655, adopting the Hearing Examiner's findings as to the claims based on §§ 1 and 3, but reversing his finding as to § 2 and holding that the rates were not unlawfully discriminatory. Review was declined by the full Commission. Thereafter plaintiffs dropped their claims of violation of § 3.

 The case has been submitted to us for summary judgment, plaintiffs contending that as a matter of law the conclusions of the Commission were erroneous and should be set aside. Defendants, on the other hand, contend that the action should be dismissed. We grant summary judgment dismissing the complaint.

 Upon this review we are limited to a determination of whether the Commission's judgment and order are within its statutory powers and whether its findings are rational and based on substantial evidence. Illinois C.R. Co. v. Norfolk & W.R. Co., 385 U.S. 57, 69, 87 S. Ct. 255, 17 L. Ed. 2d 162 (1966); Universal Camera Corp. v. Labor Board, 340 U.S. 474, 488, 71 S. Ct. 456, 95 L. Ed. 456 (1951). Due deference must be given to the Commission's expertise in the determination of the reasonableness of rates, Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 251, 71 S. Ct. 692, 95 L. Ed. 912 (1951), and plaintiffs bear the burden of making a convincing showing that the rates are unjustly discriminatory or unreasonable, Permian Basin Area Rate Cases, 390 U.S. 747, 767, 88 S. Ct. 1344, 20 L. Ed. 2d 312 (1968) (quoting from FPC v. Hope Natural Gas Co., 320 U.S. 591 at 602, 64 S. Ct. 281, 88 L. Ed. 333).

 The facts as found by the Commission are for the most part beyond dispute. The commodities in question, steam and metallurgical coal, are transported over the same rail routes from the same mine origin districts in West Virginia, Ohio, Pennsylvania and Kentucky to Toledo, Ohio, where the coal is dumped into lake cargo vessels for water transportation to various destinations on the Great Lakes. Since the railroads are not responsible for the water transportation, their sole service is the transportation of the coal from the mines to the port of Toledo. Despite the fact that this service consists of transporting the identical commodity (coal) between the same points over the same land routes, the railroads charge different proportional rail rates to receivers located at certain ultimate destinations on the Lakes than those charged to receivers at other destinations, depending on whether loss of the traffic to competitive lower cost fuels or transportation is threatened at the destination, e.g., residual oil, coal-slurry lines, natural gas, or lower transportation costs from other coal fields.

 Where the railroads have faced such competition at certain locations, they have lowered their rates to meet it but have maintained their regular rate structure for coal destined for shipment to other destinations. For example, in 1961 the Detroit Edison Company took steps toward construction of a pipeline capable of carrying 4 million tons of coal annually in slurry form into this area at lower prices than would be paid for coal shipped over the routes of the intervening railroad defendants. Having previously been threatened with loss of transportation of coal when a pipeline was constructed from Cadiz, Ohio, to a utility in East Lake, Ohio, the railroads, rather than risk similar loss of transportation of 4 million tons annually into the Detroit Edison Company's area, published in 1963 an annual volume tariff which reduced the rate by 37 1/2 cents per net ton, conditioned on the receipt of 6 million tons of steam coal annually for transportation into certain Michigan destinations and by 12 1/2 cents per ton on tonnage in excess of 6 million tons.

 In similar fashion train load rates on some coal shipped to eastern utilities were reduced by the railroads to meet competition from residual oil and mine-mouth generating plants. Further rate reductions, some in the form of minimum annual volume rates and others as reductions on single car or individual minimum shipments, were made to other points on the Great Lakes (e.g., Menominee, the Milwaukee-Racine area and Green Bay) in order to meet competitive rate reductions of other railroads for transportation of coal from the midwestern coal fields, and to meet or forestall natural gas competition (e.g., in the Milwaukee-Racine area) and water competition (e.g., at Muskegon, Essexville and Milwaukee).

 The competitive rate reductions made by the railroads were limited strictly to those destinations where it was necessary to meet or counter competition and to the type of coal required to meet such competition. For instance, since metallurgical coal could not be furnished by competition at the lower rates, the railroads limited their reductions to steam coal and did not reduce the proportional rates for transportation of metallurgical coal.

 Plaintiffs are located at ultimate destinations where the railroads have not faced loss of traffic to competitive lower rates. Hence plaintiffs pay higher rates than do receivers at certain other destinations for the same service. Huron, for instance, pays a proportional railcargo rate of $3.16 per net ton applicable to single-car movements of steam coal from Appalachian mines in the "Inner Crescent" area (embracing parts of eastern Kentucky, western and southern West Virginia and a portion of southeastern Virginia) to Toledo, Ohio, for transshipment to Huron's cement plant at Alpena, Michigan, whereas the rate for carriage of the same coal to Toledo for transshipment to other ultimate destinations on the Great Lakes in multiple car lots or guaranteed minimum annual volumes varies from $2.59 per net ton to $2.93 1/2 per net ton. Algoma uses approximately 2 1/2 million tons of bituminous coal for production of iron and steel at Sault Ste. Marie, of which 2 million tons consist of metallurgical or coking coal. It pays the same rate as Huron for transportation of steam coal from the Inner Crescent to Toledo, but pays the higher rate of $3.46 per ton for transportation of metallurgical coal from the same origin mines, without restriction as to the size of shipments or annual volume.

 Plaintiffs contend that the higher rates charged to them by the railroads violate § 1 of the Interstate Commerce Act because (1) they are based upon the use to which the coal is to be put, and (2) they are unreasonably high since they exceed the rates assessed other receivers of lake cargo coal for identical services performed under substantially similar circumstances. Plaintiffs further contend that the rates violate § 2 because they are unjustly discriminatory.

 The Claim that the Rates Violate § 1

 Plaintiffs' first contention is that the different rates published by the railroads for steam coal and metallurgical coal violate the basic rule against establishment of rates or classifications on the basis of the different uses to which the same commodity is to be put by the receiver. Interstate Commerce Commission v. Baltimore & O. Ry. Co., 225 U.S. 326, 32 S. Ct. 742, 56 L. Ed. 1107 (1912); Ex-River Coal from Mount Vernon, Ind. to Chicago, 294 I.C.C. 233 (1955); Food Machinery Corp. v. Alton & S.R., 269 I.C.C. 603, 606 (1948). Application of the rule, it is argued, would prohibit railroads from charging higher rates for transportation of coal to Toledo ...

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