embodied in agreements reached with various unions betweer February 10, 1971 and May 12, 1972. The history of these agreements is included in our report in the prior general increase proceeding and need not be repeated here.

Subsequent to Ex Parte No. 281, a 5-percent increase became effective for all employees on October 1, 1972. Operating employees and employees represented by the Brotherhood of Railway Clerks received increases of 15 cents per hour on January 1, 1973, and 10 cents per hour on April 1, 1973, while wages of other employees were increased by 25 cents per hour on April 1, 1973 Increases in payroll taxes include a 1.5 cent per man-hou increase in the tax for supplemental annuities, effective July 1, 1972 and an increase in the tax base and tax rate for retirement an medicare which became effective on January 1, 1973. Responden calculate the annual increases in these wage-related items at $12 million; we have restated this figure to $120 million for reason previously set forth.

The increase of $98 million in material prices represents annual cost to the railroads of the rise in prices of fuel, material and supplies between January 1, 1972, and January 1, 1973, based consumption at 1972 traffic levels. Based on testimony at th hearing, it appears that actual increases in material costs, 1973 ove 1972, will probably exceed the $98 million figure which we find be a reasonable estimate.

Other cost increases totaling $70 million include increase experienced by the railroads, 1972 over 1971, in depreciation an retirement charges, State and local taxes, equipment rents, and fixe and contingent charges. These figures, based on data reported to the Commission, have been checked and are correct. No amount included therein for increases since 1971 in loss and damage personal injury expenses, or insurance and pensions; these items are tabulated only in annual reports which were not available to respondents at the time they submitted their increase proposal. Upon review of the evidence, we are satisfied that the annual cost increases depicted in table 2, with the adjustments discussed above, are substantially correct, and that approximately $890 million of the total represents increases which have occurred since the closing of the record in Ex Parte No. 281. These figures do not portray a precise increase in expenses in 1 calendar year over another, since that comparison would be affected by the timing of the cost 'Published in Transportation Statistics in the United States.

increases and employment levels. Nevertheless, this evidence of rising costs, together with other financial data hereinafter discussed, provides an adequate basis for approval of the increases to the extent hereinafter authorized.

In this regard, it should be noted that a number of parties appearing in this proceeding acknowledged the need for some rate increase. General Services Administration, for example, stated as follows:

Withal, GSA is not unmindful of the cost increases documented by the carriers as having been sustained since the record in Ex Parte No. 281 was closed. There is no suggestion here that the industry can or should absorb these costs in their entirety out of present revenues. Such a requirement could only serve to unduly dissipate carrier resources and endanger the industry's continuing recovery from its economic tribulations of the recent past.

The Quaker Oats Company supported an immediate increase of not less than 3 percent to offset cost increases resulting from wage settlements. Similarly, General Mills supports an increase for the purpose of meeting increases in the carriers' costs of operation. The Commissioner of Transportation for the State of Maine, while opposing the increase proposed on grain and feedstuffs to the Northeast, conceded that the carriers' need for additional revenue is genuine and that expeditious relief should be made available in order to preserve essential rail service.

The Eastern Industrial Traffic League (composed of approximately 150 manufacturers and receivers in New England and the Middle Atlantic area) indicated awareness of the increased costs incurred by the railroads and stated it was not opposed to whatever increase we find to be supported by the facts. Other shippers took a similar position. Virtually all parties acknowledge, and indeed it would be difficult to dispute, the revenue needs of the eastern railroads. Thus, the principal thrust of most opposition to the increase is directed to the fact that greater increases are proposed in the West and South, where there is a lesser revenue need than in the East, or it is alleged that particular commodities should not take the full increase because of market competition or other factors.

GENERAL REVENUE NEEDS

The overall financial condition of the Nation's railroads has been extensively reviewed and analyzed in the last several general increase proceedings. In Increased Freight Rates, 1970 and 1971,

supra, we commented that "the financial condition of the railroad industry as a whole, and the financial status of many individual carriers by rail, must be found to be at a dangerously low level." (page 173). More recently, in Increased Freight Rates and Charges, 1972, supra, we referred to the railroads' already weakened financial structure and concluded that required absorption of a greater portion of their increased costs would jeopardize the carriers' ability to provide essential services. Since the granting of that increase, there has been some improvement in earnings, reflecting in part an increase in revenue ton-miles from 740 billion in 1971 to 778 billion in 1972. However, the financial data submitted herein clearly establishes that the respondents cannot absorb rising costs without a rate increase.

Before analyzing this financial evidence, which is more detailed and complete than the data submitted in prior rail general increase proceedings, it should be noted that a number of protestants, including the Secretary of Agriculture, contend that the railroads' evidentiary showing is deficient in that they have not supplied all the information called for pursuant to the so-called “interim procedures" contained in appendix B of our report in Ex Parte No. 281.

In that case, we expressed an intent to institute a rulemaking proceeding looking toward prescription of minimum evidentiary requirements in railroad general increases to supplement existing regulations in 49 CFR 1102. That proceeding was instituted as Ex Parte No. 290 by order dated December 1, 1972, and is presently pending. As an interim measure, we set forth in the appendix referred to by protestants certain guidelines concerning financial evidence and expense and revenue data which would facilitate analysis of the financial posture and revenue needs of individual petitioning railroads, as well as groups of such railroads, and all railroads combined.

In conformity with those guidelines, the railroads have supplied schedule A financial data for calendar years 1970, 1971, and 1972, schedule B income statement data (actual, present, and constructed) and affiliate data for individual roads and by districts; they have not provided schedules C and D information, namely expense and revenue data by commodity group (separated between single-line and interline, transported by individual railroads and totals for each district and all districts combined) and expenses and revenues "The increases authorized were less than the annualized cost increases.

associated with special and accessorial services such as collection on delivery and wharfage charges.

As pointed out by respondents, treatment of the suggested guidelines as "requirements" would in effect nullify consideration of the issues in the pending rulemaking proceeding wherein respondents are challenging the proposed evidential requirements which they claim "would require the simultaneous production of thousands of cost studies, any one of which in an individual case could well require months when the care necessary for evidential purposes is taken into account." Moreover, we have already ruled that the interim procedures set forth in appendix B of the report in Ex Parte No. 281 were not prescribed by our findings in that proceeding. In an order dated December 27, 1972, denying a petition of respondents for vacation of such appendix as contrary to the Administrative Procedure Act, the following was stated:

That, for the reasons indicated, the interim procedures are not to be interpreted as prescribed as formal evidentiary requirements, but are intended as guidelines to encourage the submission of more reliable data and to reduce the time necessary for final disposition, pending the prescription of procedures in Ex Parte No. 290;

Under the circumstances, we conclude that the evidence submitted is sufficient to justify the across-the-board increase approved in this report. In order to avoid recurrence of this evidentiary problem in future general revenue proceedings, Ex Parte No. 290 will be accorded expedited handling. Also, respondents are hereby forewarned that any selective increase proposal, not supported by data or estimates similar to those suggested in schedules C and D, will run a serious risk of failure based upon burden of proof considerations.

Turning now to the financial data of record, the dangerously low level of working capital, insufficient cash flow, inadequacy of earnings and rate of return on net investment and equity-all these factors attest to the need for additional revenues, particularly in the eastern district, if the carriers are to provide adequate and efficient railway transportation service as contemplated by the Interstate Commerce Act and the national transportation policy.

Net working capital.—As a primary index of financial condition, respondents' net working capital position remains a matter of serious concern. Net working capital of class I railroads, excluding long-term debt due within 1 year, amounted to $21.1 million on December 31, 1972, down sharply from the average annual net

working capital position of $319.7 million for the 5-year period 1965 through 1969 and from the $658.8 million average for the period 1960 through 1964. As of December 31, 1972, the eastern district railroads had a working capital deficit of $107.8 million. Although this deficit position is due in large part to the six bankrupt roads currently under reorganization,' the situation is still one which cannot be lightly regarded. It must be recognized that the financial health of all railroads depends to a great extent upon the ability of the others to contribute to the movement of interline traffic.

Certain protestants contend that rate relief alone will not solve the problems of these bankrupt roads. We fully agree and have proposed a comprehensive plan in Ex Parte No. 293, Northeastern Railroad Investigation. The fact that some Federal aid may ultimately be forthcoming, however, clearly does not constitute grounds for denial of an increase proposal substantiated by a showing of present revenue needs.

The following summary of net working capital at yearend 1972 reveals that even the financially stronger southern and western territory railroads lack the working capital necessary to service maturing long-term debt:

'Total current assets excluding material and supplies less long-term debt due within 1 year.

In 1958, when the respondents' long-term debt maturing within a year was only $394 million, the Senate Committee on Interstate and Foreign Commerce referred to $600 million as "the minimum safe 'Boston and Maine Corporation, The Central Railroad Company of New Jersey, Erie Lackawanna Railway Company, Lehigh Valley Railroad Company, Penn Central Transportation Company, and Reading Company.