SPRECHER, Circuit Judge.

In this case, we review the decision of the Interstate Commerce Commission ("ICC") to allow the Baltimore and Ohio Railroad ("BO") to abandon a railroad line. We find that the ICC's decision was arbitrary and capricious. Further, we find that, under the circumstances of this case, the parties should have been allowed the opportunity for cross-examination regarding supplementary evidence received by the ICC.

I

This is an action to review decisions the ICC issued in Docket No. AB-19 (Sub-No. 27), Baltimore and Ohio Railroad Company Abandonment Between Flora and Sangamon Junction In Clay, Effingham, Fayette, Shelby, Christian and Sangamon Counties, IL. The administrative process we review has followed a tortuous course.

By application filed March 17, 1975, the BO sought a certificate of public convenience and necessity permitting abandonment of a 103.29 mile line of railroad between Flora, Illinois and Sangamon Junction, Illinois ("Flora line"), pursuant to § 1(18) of the Interstate Commerce Act ("IC Act"), 49 U.S.C. § 1(18)-(22), now codified at 49 U.S.C. § 10903-07. This line of track constitutes the middle segment of a 228-mile line of BO track between Beardstown and Shawneetown, Illinois.

The BO gave notice of its application to abandon the Flora line as required under the IC Act and the ICC's regulations. The abandonment was opposed by various shippers, public officials, and other interested persons, including the petitioners here: the Illinois Department of Transportation, the State of Illinois and the Illinois Commerce Commission, United Transportation Union, and BO Concerned Citizens Committee (a group composed of 34 shippers, farm interests, and local community organizations). In October, 1976, the ICC referred the abandonment application to an administrative law judge for hearing and an initial decision. Hearings, in which the parties had the right of cross-examination, were held during 1977.

In an initial decision, served in November, 1977, and made after eleven days of hearings, the law judge denied the abandonment application, finding that the BO had failed to meet its burden of proving that the present or future public convenience permitted the abandonment. The law judge made a detailed study of the 1974 and 1975 operating and financial data submitted by the BO and concluded that the BO had failed to substantiate several of the costs it had attributed to movement of traffic on the line. Excluding only those unsubstantiated expenses which could be ascertained from the record, the law judge arrived at the following restated historical financial results of BO's operations on the line. For 1974, the BO had claimed a net loss of $1,135,691, but the law judge found a net gain of $2,454. For 1975, the BO had claimed a net loss of $1,108,856, but the law judge found a possible net loss of $18,437. The law judge qualified this figure, however, by finding that, due to the fact that restatement of unsubstantiated expenses claimed could not be determined from the evidence of record, it was questionable whether the BO sustained any loss at all in 1975. The law judge's decision was 16 pages and was supplemented by six appendices totalling 57 pages, including a detailed financial analysis.

On appeal by the BO, the ICC's Division I reversed. In a seven page decision, Division I accepted the law judge's restated figures but rejected without explanation the law judge's conclusion that those restated figures were insufficient to support the BO's argument that operating the line caused a financial burden which was more substantial than the impairment of public convenience caused by the abandonment.

Petitioners sought administrative review of the Division I decision. The ICC denied all parties' petitions for administrative review. Petitioners then filed for judicial review of the ICC's decision in this court.

Just prior to the due date for its reply brief, however, the ICC requested a remand of this matter on the grounds that the Division I decision may have contained material error. On January 31, 1979, this court granted the ICC's motion to remand. On remand, the full Commission found that it was unable to decide the matter because the record lacked adequate cost and financial data. The data in the record reflected the financial results of the operation of the line in calendar years 1974, 1975, and the first six months of 1976. The ICC directed the BO to supplement the information by providing revenue and avoidable cost information for the years 1976, 1977, and 1978. The BO filed such a supplementary statement. The petitioners appealed the decision to consider this supplemental evidence. The ICC denied those appeals. The petitioners were not afforded the right of cross-examination regarding the supplementary evidence.

On March 3, 1980, the ICC issued its final decision, affirming the June, 1978, decision of Division I granting the abandonment. That ICC decision is the subject of this appeal. The petitioners launch three general arguments against the ICC's final decision. First, petitioners argue that the ICC should not have accepted supplementary evidence for the years 1976-78. Second, petitioners argue that the ICC decision is not supported by substantial evidence in the record and is arbitrary and capricious. Third, petitioners argue that the ICC should have afforded the parties the opportunity for cross-examination regarding the supplementary evidence received. We find that: the ICC properly received the supplementary evidence; the final decision was arbitrary and capricious; and the parties should have been afforded the opportunity for cross-examination.

II

We begin with the use of supplementary evidence. In an abandonment application, the applicant has the burden of proof to show that abandonment of the rail line is consistent with the present and future public convenience and necessity. 49 U.S.C. § 10904(b) (1978). The petitioners argue that the fact that the ICC was unable to decide the abandonment case on the basis of the 1974-76 data proves, as a matter of law, that the BO failed to carry its burden of proof.

Petitioners base their argument on two grounds. First, they point out that the ICC's abandonment regulations require the filing of financial results and other evidence for two calendar years prior to the filing of the abandonment application. Second, they argue that financial results of operations after the filing of an abandonment application are inherently nonrepresentative. This second argument is relevant to the weight to be given to the evidence and is discussed in Part IV of this decision. But even if the evidence is nonrepresentative, we are not persuaded that the ICC cannot, as a matter of law, take additional evidence.

ICC regulations require an applicant for abandonment to submit operating data with regard to the two years prior to the filing of the abandonment application. 49 C.F.R. § 1121.32(c), (d)(2), (4), (5). But nothing in the statute, regulations, or case law prohibits the ICC from requesting and accepting new evidence when, because of the administrative process described above, the evidence before it was three years out of date. Although no case has been cited by the parties which interprets whether the two-year evidence regulation is meant to preclude additional evidence in circumstances similar to the case at bar, it is clear that the IC Act specifically allows the ICC to reopen a rail carrier proceeding or to grant a rehearing "at any time on its own initiative" because of new evidence or substantially changed circumstances. 49 U.S.C. § 10327(g)(1)(1978). Here, since the information regarding the line was three years old, the updated information satisfies either of the requirements of new evidence or substantially changed circumstances.

Furthermore, the Supreme Court has held that reopening of a case for further evidentiary hearing is a matter entrusted to an agency's broad discretion and has declined to interfere with an agency's judgment. See Bowman Transp. v. Arkansas-Best Freight System, 419 U.S. 281, 294-95, 95 S.Ct. 438, 446, 42 L.Ed.2d 447 (1974); American Farm Lines v. Black Ball Freight, 397 U.S. 532, 540-41, 90 S.Ct. 1288, 1293, 25 L.Ed.2d 547 (1970); I.C.C. v. Jersey City, 322 U.S. 503, 516-17, 64 S.Ct. 1129, 1135, 88 L.Ed. 1420 (1944). For the above reasons, we are unable to find the ICC's action in requesting and receiving supplementary evidence was improper.

III

The petitioners' second argument is actually two arguments: that the ICC's final decision was unsupported by substantial evidence in the record and was arbitrary and capricious. To consider whether we can reach these arguments, we must first determine the appropriate standard of review. See Citizens To Preserve Overton Park v. Volpe, 401 U.S. 402, 413-14, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971). The standards of judicial review are set forth in § 706 of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, which states that a "reviewing court . . . shall hold unlawful and set aside agency action, findings, and conclusions found" not to meet six separate standards. Of these six standards, four apply to all cases. Any agency action is to be set aside if it is (1) "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," or if the action fails to meet: (2) constitutional, (3) statutory, or (4) procedural requirements. 5 U.S.C. § 706(2)(A), (B), (C), (D). The remaining two standards only apply to certain narrow situations. Standard (5) provides that action which is "unsupported by substantial evidence" is to be set aside only in "a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute". 5 U.S.C. § 706(2)(E). Finally, (6) a court must set aside agency action which is "unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court." 5 U.S.C. § 706(2)(F).

Since the "arbitrary and capricious" standard applies to all cases, it is clear we must review the ICC's final decision by this standard. But it is not clear whether we also are to review that decision by the "substantial evidence" standard. The touchstone of whether the substantial evidence standard applies is whether this case is (1) subject to sections 556 and 557 of the APA or (2) "reviewed on the record of an agency hearing provided by statute." 5 U.S.C. § 706(2)(E).

Section 557 of the APA only applies when a hearing is required by § 556; § 556 sets forth the rules for hearings required by §§ 553 and 554. Section 553 applies to rule making and § 554 applies to adjudication. Since this case involves an adjudication, the question becomes whether this case is covered by § 554 or whether this case is "otherwise reviewed on the record of an agency hearing provided by statute." 5 U.S.C. § 706(2)(E). But both of these criteria are the same because § 554 only applies to certain cases "of adjudication required by statute to be determined on the record after opportunity for an agency hearing." 5 U.S.C. § 554. Thus, we may use the substantial evidence standard of review only if agency hearings in railroad abandonment cases are required by statute.

We now turn to the railroad abandonment statutes, 49 U.S.C. § 10903-04. Section 10903(a) states that the ICC can grant abandonment only if it finds that the "present or future public convenience and necessity" requires or permits the abandonment. 49 U.S.C. § 10903(a). Section 10903(a) then states that, in making this finding, the ICC shall consider whether the abandonment will have a serious, adverse impact on rural and community development. Section 10904(c)(1) provides that the ICC, in considering the public convenience, "shall, on petition, and may, on its own initiative, begin an investigation to assist it." 49 U.S.C. § 10904(c)(1). As to the use of a public hearing in such an investigation, the statute provides: "An investigation may include public hearings. . . . The hearing may be held on the request of an interested party or on the initiative of the Commission." 49 U.S.C. § 10904(c)(1). Because of the use of the word "may", it appears that the ICC is not required by statute to hold a hearing on an abandonment application. Thus, the requirement for the use of the substantial evidence test is not met.

In this case, the parties did not argue the applicability of the substantial evidence test. The ICC apparently conceded the test was applicable. ICC Br. at 12. Moreover, we have discovered a recent railroad abandonment case where the substantial evidence standard was used by the reviewing court. Concord Township, et al. v. United States, 625 F.2d 1068, 1072-73 (3d Cir. 1980). But the Concord Township court did not discuss its decision to use the substantial evidence test. It may have been that the question there was also not disputed by the parties. Based on our analysis, we have doubts regarding the applicability of the substantial evidence standard. Because this issue was not litigated, we decline to use that standard and we review the ICC's decision solely in terms of the "arbitrary and capricious" standard.

The primary requirement of the "arbitrary and capricious" standard of review is the "simple but fundamental rule of law" that an "agency must set forth clearly the grounds on which it acted." Atchison, Topeka Santa Fe Ry. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 807, 93 S.Ct. 2367, 2374, 37 L.Ed.2d 350 (1972). While we accord full deference to the expertise and discretion of the ICC and the presumptions to which its actions are entitled by law, this deference is not intended to shield the agency's action "from a through, probing, in-depth review." Overton Park, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136. As the court in National Crushed Stone Ass'n v. E.P.A., 601 F.2d 111, 116 (4th Cir. 1979), cert. granted, 444 U.S. 1069, 100 S.Ct. 2982, 64 L.Ed.2d 852 (1980), stated, "[c]ourts are no longer satisfied with bare administrative ipse dixits and the [a]gency must make reasoned decisions with full articulation of the reasoning and take into account all relevant factors."

Under the arbitrary and capricious standard, the scope of our review, although relatively narrow, is to be "searching and careful." Bowman Transp. v. Arkansas-Best Freight System, 419 U.S. 281, 285, 95 S.Ct. 438, 441, 42 L.Ed.2d 447 (1974). This court, of course, cannot substitute its judgment for that of the ICC. Id. But we must consider whether the ICC's decision "was based on a consideration of the relevant factors and whether there were any clear errors of judgment. Id., quoting Overton Park, 401 U.S. at 416, 91 S.Ct. at 823. "The agency must articulate a 'rational connection between the facts found and the choices made.'" Id., quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962).

Two important considerations in defining the degree of precision required in an agency's statement of reasons are first, whether the decision is "legislative" or "adjudicative" and, second, whether the agency's final decision differs from the decision made by its fact-finder. With regard to the first consideration, to the extent that an agency is dealing with broad "legislative" policy questions, it need not respond in detail to all issues. But when confronted with "adjudicative" questions based on a determination of particular facts, the agency must clearly address the specific legal and factual issues raised. Harborlite Corp. v. I.C.C., 613 F.2d 1088, 1092 (D.C. Cir. 1979). In the case at bar, this abandonment application is an adjudicative issue involving specific financial information of the operations of the Flora line. Therefore, it is important that the ICC clearly address the precise issues raised by the petitioners.

The second consideration regarding the degree of precision required in an agency decision is whether that decision differs from the decision of the agency's factfinder. See N.L.R.B. v. P.P.G. Industries, Inc., 579 F.2d 1057, 1058 (7th Cir. 1978). In the case before us, the ICC relies on facts determined by the law judge, but then draws a conclusion diametrically opposed to that of the law judge. Although the agency certainly may draw a differing conclusion, it is important for the agency to clearly explain the nature and rationale of its differing conclusion.

The ICC seems to argue that it is not required to explain its departure from the decision of the law judge, relying on § 557(b) of the APA, 5 U.S.C. § 557(b); N.L.R.B. v. Interboro Contractor's Inc., 388 F.2d 495, 499 (2d Cir. 1967); Bangor Aroostook R.R. v. I.C.C., 574 F.2d 1096, 1110 (1st Cir. 1978); Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 595, 65 S.Ct. 829, 836, 89 L.Ed. 1206 (1945); Bowman Transp., 419 U.S. at 285, 95 S.Ct. at 441: Colorado v. United States, 271 U.S. 153, 169, 46 S.Ct. 452, 456, 70 L.Ed. 878 (1926); and Minneapolis St. Louis R.R. v. United States, 361 U.S. 173, 193, 80 S.Ct. 229, 241, 4 L.Ed.2d 223 (1959). But the very statute and cases upon which the ICC relies either support, or are not inconsistent with, our conclusion that an agency must clearly explain a decision that differs from a factfinder's decision.

Although § 557(b) of the APA states that when an agency reviews an initial decision of a presiding officer, it has all the powers that it would have if it were making the decision in the first instance, it does not state that the agency need not clearly and precisely explain the reason for its different conclusion. Indeed, § 557(c) specifically requires a statement of reasons for an agency's findings and conclusions.

The cases cited by the ICC are equally unavailing. In fact, the Interboro decision, selectively quoted by the ICC, directly supports the petitioners. To be sure, the court stated that an agency may reject an examiner's findings, even though not clearly erroneous. 388 F.2d at 499. But the Interboro court emphasized that a reviewing court must look much more critically at such a decision than a decision consistent with an examiner's findings. Id. Accord, N.L.R.B. v. P.P.G. Industries, Inc., 579 F.2d 1057, 1058-59 (1978).

The ICC relies on Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206 (1945), but the situation there did not even involve a difference between the Commission and a fact-finder. Indeed, the Court refused to overturn findings which were quite summary because those findings had incorporated by reference the staff's exhibits on allocation of costs. 324 U.S. at 595, 65 S.Ct. at 836. There was no suggestion of disagreement with the staff's findings or the conclusions to be drawn from those findings. The ICC's reliance on other cases cited above is equally misplaced. Thus, we reject the ICC's argument that it is not required to explain its departure from the differing decision of the administrative law judge in this case. Indeed, we hold that because the law judge's conclusion was specifically and directly related to his financial findings, the ICC must clearly and precisely explain its differences from that decision where it accepts the financial findings but rejects the conclusions drawn from those findings.

IV

Having summarized the appropriate scope of review, we now proceed to consider whether the ICC's decision was arbitrary and capricious. The statutory standard governing the abandonment decision is whether the present or future public convenience and necessity requires or permits the abandonment. 49 U.S.C. § 10903(a). In making this determination, the ICC must balance the present and prospective need for the line against any burden on interstate commerce from continued operation of the line. Colorado v. United States, 271 U.S. 153, 168-69 (1926). The burden of proof as to public convenience and necessity is specifically placed by the IC Act upon the railroad applying for abandonment. 49 U.S.C. § 10904(b). Simply stated, the fundamental contested issue in this proceeding has been whether the Flora line has been and will continue to be operated at a financial loss.

On remand from this court, the ICC issued a three page opinion which concluded that continued operation of the Flora line is a burden on interstate commerce and that this burden outweighs any inconvenience to shippers. 360 I.C.C. at 681. In making its final decision, the ICC had before it the findings and conclusions of the law judge and of its Division I as well as supplemental evidence. The ICC had admitted that its Division I decision might have been erroneous and could not be relied upon. The ICC final decision, although addressing the same issues before the law judge, made no reference to the differing findings and conclusions of the law judge and made only slight references to the record of the case developed over eleven days of hearing. In the final opinion, the ICC did admit that the BO had earned a profit in 1975. 360 I.C.C. at 682. The ICC's decision to allow abandonment rested solely on its findings, based on the supplementary evidence received, that the BO had net operating losses of $32,695, $492,279, and $276,374 for the years 1976, 1977 and 1978, respectively. 360 I.C.C. at 683.

The ICC final decision calculating these losses made conclusions regarding four issues: rehabilitation costs, maintenance expenses, system line financial information, and the impact of abandonment on the BO's net operating income. Petitioners primarily attack the conclusions regarding maintenance expenses and the impact of abandonment.

In its final decision, the ICC found that from 1974 through 1978, the BO had maintenance-of-way expenses averaging $3,583 per mile. The ICC stated without elaboration that these expenses were "reasonable" That these maintenance costs were included in the determination of the financial "bottom line" of the BO for the years after 1977 is very important to the ICC's subsequent determination that the BO operated at a loss during these years. The average maintenance expenditures for 1977-78 exceeded the average of such expenditures in 1974-75 by $313,031 per year. This added maintenance cost exceeded the loss of $276,374 found for 1977 and would greatly reduce the loss of $429,279 found for 1978.

There are two major problems with the ICC's finding of "reasonableness". First, the finding consists solely of a conclusory statement. The ICC did not state why the expenses are reasonable. Second, the ICC did not respond to petitioners' argument that the maintenance costs incurred after 1976 were the result of the BO's failure to perform adequate maintenance in the past and that the ICC has a clear policy of disallowing such expenses. Had these expenses been disallowed here, there would have been no finding of a loss for any year except 1977, the year in which the record showed that the traffic of the largest shipper on the line was affected by a five month strike. Because of the importance of the maintenance expenses to the calculation of "loss", the ICC's failure to respond to this argument regarding maintenance expenses constitutes material error.

Intervenor BO attempts to rationalize the ICC's decision on a ground relating to track maintenance expense which was not relied on by the ICC. BO argues that had it spent more for maintenance during 1974-75, i.e., had it performed "normalized maintenance" during those years, those expenses would have changed the financial outcomes from profits to losses.

First, this court cannot accept appellate counsel's post hoc rationalizations for agency action. If an agency's order is upheld, it must be on the same basis articulated in the order by the agency itself. F.P.C. v. Texaco, Inc., 417 U.S. 380, 397, 94 S.Ct. 2315, 2326, 41 L.Ed.2d 141 (1974); Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962); S.E.C. v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 1577, 91 L.Ed. 1995 (1947). Second, as stated in the Division I opinion, the ICC's policy is not to consider "normalized maintenance" expenses in lieu of actual expenses. 354 I.C.C. at 799-800, No. AB-19 (Sub-No. 27) at 2. For the above reasons, we find that the ICC's conclusion that the maintenance expenses submitted by the BO were "reasonable" was arbitrary and capricious.

Petitioners next challenge the ICC's findings regarding the impact of proposed abandonment. The ICC authorized abandonment would reduce the "drain" on BO's net operating income caused by operation of the Flora line. 360 I.C.C. at 683. It concluded that the BO was sustaining a loss from operating the line and that the line did not generate and, because future traffic was speculative in nature, would not generate, sufficient traffic to justify further operations. Id. In reaching these conclusions, the ICC relied on the supplementary evidence submitted by the BO indicating that the Flora line created net operating losses of $32,695, $492,279, and $276,374 in 1976, 1977 and 1978, respectively. Id.

Petitioners raise several challenges to these conclusions by the ICC. First, petitioners argue that results of operating the line subsequent to the filing of the abandonment application are, by their very nature, nonrepresentative of normal operations on the line. In support of this argument, they correctly point out that the ICC's abandonment regulations require the filing of financial results for two calendar years prior to the filing of the abandonment application, 49 C.F.R. § 1121.32(c), (d)(2), (4), (5), and argue that the ICC's requirement recognizes that such "pre-application" operations are usually reasonably representative of normal operations on the line.

The ICC responds that data after the abandonment application is as reliable as pre-application data because, under the ICC's abandonment regulations, it is known in advance of the application that a line is going to be subject to abandonment. In support of that argument, the ICC states that 49 C.F.R. § 1121.20(b)(1) "require(s) the railroad to identify a line as a potential candidate for abandonment in its system diagram map three years prior to the filing of an abandonment application." ICC Br. at 19. But the ICC has materially misstated the cited regulation. There is no requirement that a line appear as a candidate for abandonment for three years prior to the filing of an abandonment application. The requirement is that the railroad identify lines which it anticipates will be the subject of an abandonment application "within the 3-year period following the date upon which the diagram . . . is filed with the Commission." 49 C.F.R. § 1121.20(b)(1). Such a line need appear on the diagram map for only four months prior to the filing of an abandonment application. 49 C.F.R. § 1121.23(d). Contrary to the impression the ICC seeks to create, it need be known for only four months prior to the filing of an abandonment application that a railroad will attempt to abandon a line. Thus, the cited regulation would affect only four months of the representativeness of evidence of operating results for the two calendar years prior to the filing of the abandonment application. Moreover, the cited regulation does not indicate, in any way, that the ICC's reliance on "post-application" data is justified.

Petitioners also argue that post-application data is inherently nonrepresentative because, in the process of applying for abandonment, a railroad becomes committed to abandonment and provides poorer service than previously. Although we find that financial information for the years subsequent to the abandonment application can be considered in evidence, as discussed in Part II, we also recognize obvious problems with the representativeness of that evidence. In this case, that financial information will reflect data of operations on the line after the BO told shippers it was abandoning the line; after it filed and vigorously sought approval of the abandonment application; after Division I had approval was published, but not yet implemented, pending judicial review. Petitioners argue that while an abandonment application is pending, shippers are hesitant to expand facilities and rail shipments for fear that rail service might be lost. Petitioners also argue that a railroad seeking abandonment is unlikely to continue the quality of application and that such poorer quality rail service would further discourage rail traffic. The fact that these arguments are substantial is demonstrated by the fact that, in the initial decision, the law judge found that the BO had diminished services and had, in effect, caused its own losses on the Flora line. ICC No. AB-19 (Sub-No. 27), slip op. at 1074, 1075.

Second, petitioners argue that the record on reopening confirms the nonrepresentative character of the post-application financial data. As discussed earlier, petitioners argue that maintenance expenses increased after the application because the BO was forced to undertake a major track rehabilitation project in order to cure the effects of neglected track maintenance during the period 1968-75. Petitioners also argue that the BO has continued to discourage service while this matter has been under appeal. Last, petitioners argue that the data for 1977 is nonrepresentative because the traffic of the largest shipper on the line was adversely affected by a five month strike. As discussed earlier, if the above average maintenance expenses are discounted, 1977 is the only year in which the Flora line suffered a loss.

These challenges to the post-application financial evidence are vital and serious. In its decision reopening the matter, the ICC stated that it would "give appropriate weight" to the updated financial evidence in its decision on the merits. But the final order contains no discussion whatsoever of the appropriate weight to be given to this evidence. The ICC apparently gave the BO's supplementary evidence great, indeed determinative, weight without so much as a word of discussion concerning the representative character of that evidence.

In its brief, the ICC responds that any downgrading of service by the railroad after application for abandonment is inconsistent with the BO's legal obligation to continue to provide service. The ICC states that evidence of such downgrading may be introduced by petitioners as factors weighing against a grant of abandonment. ICC Br. at 19. That is precisely what petitioners have done in this case. But the ICC has ignored the petitioners' protests. As Commissioner Clapp, dissenting from the ICC final decision, pointed out, the ICC disregarded, and Division I dismissed with a single sentence, the law judge's finding that the BO had downgraded the line. 360 I.C.C. at 684. Thus, although the ICC did have the discretion to receive additional evidence, its refusal to consider the serious challenges to that evidence was arbitrary and capricious.

Petitioners next challenge the ICC's predictions regarding future traffic. First, they challenge the ICC conclusion that the evidence of cars handled post-1975 bore out the Division I finding that future traffic prospects were speculative. The ICC relied for its conclusion on its finding that the BO did not handle a sufficient number of cars to "break-even". The ICC did not discuss how it calculated the break-even point. Presumably, the calculation of cars required to break even was based on the calculation of operating net income or loss. But since there are serious challenges, discussed above, to the operating financial figures, the break-even point calculations must be subject to those same challenges. In addition, petitioners launched a detailed attack on the original finding by Division I that future traffic prospects were speculative.

More importantly, petitioners argue that the ICC's finding that prospects of future traffic are "speculative" is erroneous because the ICC failed to take account of evidence which showed: (a) the number of carloads in 1977-78 was affected by a five month strike in 1977 at the plant of the largest shipper on the line; (b) the BO continued to fail to supply sufficient freight cars to permit additional shipments; (c) the pendency of the abandonment application caused some shippers to use other means of transportation; and (d) traffic on the line was growing, particularly originating and terminating traffic.

The ICC final decision does not contain one word in response to these arguments. As Commissioner Clapp, dissenting, stated, "[b]oth the division and the majority decisions also disregard all testimony regarding current and potential traffic and the railroad's lack of interest." 360 I.C.C. at 684. Certainly this court should not — and cannot — substitute its judgment for that of the ICC. But this court can require that the ICC present a reasoned decision that fairly and adequately addresses the complex issues and arguments of the parties before it. That, the ICC has not done. Because of the evidence and issues ignored by the ICC, we hold that its findings regarding future traffic are arbitrary and capricious.

With regard to the issue of alternate transportation for rail shippers, the ICC's final decision and the Division I decision merely recite the same phrase: the ICC has weighed the inconvenience to the shippers from "incurring higher costs of alternative transportation." 360 I.C.C. at 683. Both decisions wholly ignored petitioners' arguments that substantial evidence existed to show that: (a) alternative transportation was inadequate to accommodate the volume of grain and fertilizer that would be displaced by abandonment, (b) highways and bridges in the area are inadequate to accommodate the truck traffic necessary to pick up a part of that displacement, and (c) grain shippers relegated to truck transportation cannot remain competitive with railserved grain shippers. No findings of fact were made in either decision. Neither the full ICC nor Division I gave any rationale for how they reached their identically stated conclusions. Thus, because the ICC failed to articulate any findings of fact or a reasoned basis for its conclusions, its conclusions regarding alternative transportation are arbitrary and capricious. See Harborlite Corp. v. I.C.C., 613 F.2d 1088, 1099-1100 (D.C. Cir. 1979).

At oral argument, petitioners raised another challenge to the ICC's findings. On September 23, 1980, the ICC announced approval of the merger application of the Chessie System and the Family Lines railroads. CSX-Control-Chessie System and Seaboard Coast Line Industries, I.C.C. Finance Docket 28905 (Sub-No. 1). The petitioners argued that this merger would result in significant additional revenues to the Flora line. While we make no decision on the merits of the substantive question of whether the merger would produce increased revenues on the Flora line, we do think that this factor should now be considered. As the court stated in Dept. of Public Service Regulation, etc., Montana v. United States, 344 F. Supp. 1386, 1389 (1972), "evidence as to the effect of [a] merger may have significant effect upon the financial conclusions drawn by the Commission."

The BO, of course, disputes the petitioners' arguments. In addition to arguing that there was substantial evidence and a reasoned basis for the ICC's final order, it argues that the ICC could have authorized abandonment on the basis of the "opportunity cost" incurred by BO in keeping the value of the rail and land in the right-of-way tied up in a deficit operation. But the ICC final decision did not rely on any "opportunity cost" argument. An agency's decision may not be upheld on a basis not articulated by the agency. See F.P.C. v. Texaco, Inc., 417 U.S. 380, 397, 94 S.Ct. 2315, 2326, 41 L.Ed.2d 141 (1974); Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69, 83 S.Ct. 239, 245, 246, 9 L.Ed.2d 207 (1962); S.E.C. v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 1577, 91 L.Ed. 1995 (1946).

V

Petitioners' final challenge in this appeal is that, if the ICC can receive the supplementary evidence submitted by the BO, the parties should be afforded an opportunity for cross-examination. The ICC responds in its brief that cross-examination is not required because the written statements submitted by the parties provided an adequate basis to resolve the facts.

We begin with a reluctance to interfere with an agency's freedom to fashion its own rules of procedure. See Vermont Yankee Nuclear Power Co. v. Natural Resources Defense Council, 435 U.S. 519, 543, 98 S.Ct. 1197, 1211, 55 L.Ed.2d 460 (1978). But although requests for cross-examination are addressed to the discretion of an agency, that discretion is not unlimited. A court may determine that "extremely compelling circumstances," Vermont Yankee, 435 U.S. at 543, 98 S.Ct. at 1211, exist to indicate that an agency's decision constitutes an abuse of discretion. The question before us, then, is whether the facts here rise to such extremely compelling circumstances that the ICC should have afforded the parties the opportunity for cross-examination.

First, while there is no across-the-board right to oral argument in every administrative proceeding, F.C.C. v. WJR, 337 U.S. 265, 69 S.Ct. 1097, 93 L.Ed. 1353 (1949), the general principle is that the right to be heard in adjudicative proceedings encompasses due process rights in excess of the right to submit written evidence. Londoner v. Denver, 210 U.S. 373, 28 S.Ct. 708, 52 L.Ed. 1103 (1908). As the court stated in I.C.C. v. Louisville Nashville R.R., 227 U.S. 88, 93, 33 S.Ct. 185, 187, 57 L.Ed. 31 (1913):

[T]he more liberal the practice in admitting testimony, the more imperative the obligation to present the essential rules of evidence by which rights are asserted or defended . . . . All parties must be fully apprised of the evidence submitted or to be considered, and must be given opportunity to cross-examine witnesses, to inspect documents, and to offer evidence in explanation or rebuttal. In no other way can a party maintain its rights or make its defense. In no other way can it test the sufficiency of the facts to support the findings. . . .

Second, the ICC concedes that the tests of whether cross-examination should be required are whether material facts are in dispute and whether the verified statements do not provide an adequate basis for the resolution of those disputed factual questions. ICC Br. at 27. In this case, there is no question that material facts were in dispute. But the ICC contends that the submission of written statements by the parties provided an adequate basis to resolve those disputes. The problem with the ICC's argument, however, is that the ICC's final decision provides no inkling of how the ICC resolved the many factual disputes. Indeed, rather than resolve the challenges to the updated financial information, the ICC apparently merely adopted all of the BO statements in toto. There is no statement of reasons by the ICC in the record specifying precisely how the written supplemental information was sufficient to resolve the many factual disputes.

Third, the prior history of cross-examination in this case is very important for two reasons. First, the fact that the ICC did provide cross-examination regarding the 1974 and 1975 financial information suggests that cross-examination should not lightly be denied regarding the 1976-1978 financial information. Second, the record at the initial hearing demonstrates that the disputed facts were not subject to resolution on the basis of written verified statements. That history shows that the opportunity for cross-examination was critical in achieving an accurate determination of the facts.

In its abandonment application, the BO initially claimed losses of $1,135,691 in 1974 and $1,108,856 in 1975. But after the law judge heard the evidence, in hearings in which the participants were afforded the opportunity for cross-examination, he found the BO had earned a profit of $2,454 and had suffered a loss of $18,437 (later adjusted in the ICC final decision to a profit of $71,563) for those years, respectively. A brief review of the law judge's findings indicates over twenty references to admissions made on cross-examination. Thus, the unique history of this case indicates that the BO supplementary evidence might be less than accurate.

We emphasize the narrowness of our conclusion that the parties here should be afforded the opportunity of cross-examination with regard to the supplementary evidence received by the ICC. We do not hold that the ICC must afford cross-examination in all cases where supplemental evidence is taken after proceedings in which cross-examination was allowed. Rather, our conclusion is based on the combination of factors in this case: cross-examination was initially allowed; it played a key role in the determination of facts in the initial hearing; the agency then received supplemental evidence of the same type as that provided, and discredited after cross-examination, in the initial hearing; and the agency's final decision ignored the many serious factual disputes and gave no indication that the agency could have resolved those disputes on the basis of the written supplementary evidence submitted. These unique factors indicate that the opportunity for cross-examination, the "'greatest legal engine ever invented for the discovery of truth,'" California v. Green, 399 U.S. 149, 158, 90 S.Ct. 1930, 1935, 26 L.Ed.2d 489 (1970) quoting 5 Wigmore § 1367, was necessary regarding the 1976-78 financial information. Only by knowing that the parties here had the opportunity for cross-examination, can a reviewing court be assured that the ICC was relying on permissible evidence. Therefore, we find that the parties should have been afforded the right of cross-examination with regard to the supplementary evidence.

VI

For all of the foregoing reasons, we vacate the final ICC decision and remand this matter to the ICC for further proceedings not inconsistent with this decision.

Vacated And Remanded.