movement of the commodities support the MCA position.

5

Respondents argue primarily that the level of allowances on covered hopper cars is not an issue in this proceeding and that the proper procedure for institution of any challenge to the existing allowances is by formal complaint under the Commission's General Rules of Practice. Proceeding arguendo to MCA's challenge of existing allowance levels, respondents maintain that MCA has not met the burden of proving these allowances unjust or unreasonable.

The

The issues in this proceeding are somewhat broader than respondents contend, and they do include the question of lawfulness of the present allowances that MCA has raised. respondents' proposed tariff revisions, stating a new mileage equalization rule and certain new exceptions to the prevailing allowance provisions, are contained in section 2 of the proposed tariff, Mileage Tariff 7-A. Also included in section 2 is a republishing of the existing allowances, as contained in the presently effective tariff, Mileage Tariff 7, I.C.C. H-32. The Commission's order of investigation initiating this proceeding specifically designated section 2 "in full" as the subject of the investigation. The order specifically provided:

"It is further ordered, That the investigation in
this proceeding shall not be confined to the matters
and issues hereinbefore stated as the reason for
instituting this investigation, but shall, include
all matters and issues with respect to the law-
fulness of the said schedules under the Interstate
Commerce Act."

Even though the existing allowances are merely republished and are not "new" rates within the meaning of section 15 (7) of the act, the Commission is broadly empowered under section 15(1) to investigate them in connection with the related changes proposed for mileage equalization and other mileage accounting rules. See Coal Rates from Oak Mills, Colo., 30 I.C.C. 505 and Ayreshire Collieries v. U. S., 335 U. S. 573. Accordingly, the MCA proposal will be examined on its merits.

5

Respondents also argue, as they did recently in L&S, Docket No. 8406, that the Commission's jurisdiction as to allowances is limited to a determination of the reasonable maxima which may be paid by the respondents. In their decision in I. & S. Docket No. 8406, served on April 14, 1969, these examiners made a detailed survey of this jurisdictional issue, and concluded that Commission jurisdiction does lie to prescribe reasonable allowances on private freight cars furnished railroads by shippers. No new or different arguments are stated in this proceeding, and the examiners here reaffirm their prior conclusion on this issue.

To the extent the pertinent cost and other statistical data was available for the private covered hopper fleet, MCA developed its proposed 6-level allowance structure in accordance with procedures generally approved within certain guidelines by the Commission in the 1967 Tank Car Allowances case. .6 Where such data was not available, MCA made use of factors derived from the Commission's Rail Form A cost formula, together with special operating studies as more fully discussed below.

The principal cost data was taken from a study of the 1966 private covered hopper fleet, prepared by the AAR from responses by the car owners to AAR's detailed questionnaires. That study was made available to MCA by the AAR in accordance with an order of the Commission several months prior to the hearing. The data included for the 15,743 cars included in the AAR survey:

(1) The original market value or cost, including

additions and betterments through December 31,
1966, of each car constructed since 1940;

(2) The lightweight of each car (used to construct
the current reproduction cost of cars built
prior to 1940 by application of the currently
determined Interchange Rule 112 cost per

pound), plus the additions and betterments of
cars built prior to 1940;

(3) The year built for all cars;

(4) The operating cost (which principally includes
repair and maintenance) for all cars;

(5) The loaded and empty miles run in the year 1966
(loaded miles complete, empty miles partial)
for all cars;

(6) The cubic foot capacity for all cars; and

(7) The nominal capacity for all cars.

"In Tank Car Allowances, Southern Ry. System, 329 I.C.C. 466 (1967), the Commission made a comprehensive examination of the methods and procedures which could properly be used to establish a new multilevel system of mileage allowances to be paid by the railroads for tank cars furnished by shippers.

From that information MCA developed the current reproduction cost as of 1966:

(a) For cars built in 1940 and subsequently

original market value or cost of each car was
factored through 1966 reproduction cost levels
by applying the construction indices from the
Commission's accounting rules.

(b) For cars built prior to 1940 - The current
reproduction cost of each car was developed by
applying .2093¢ per pound to the lightweight
of each such car. That per pound price
reflects the 1966 Rule 112 valuation used in
settlement of claims for cars wrecked or damaged
in railway service. To this is added the

additions and betterments through December 31, 1966.

Depreciated reproduction value was calculated by applying an annual rate of 2.65 percent to the undepreciated reproduction values. Annual interest expense was determined by applying a rate of 6 percent to the depreciated reproduction values, and the annual operating costs were drawn from the AAR's survey of 1966 operations. The 1966 study fleet then was separated into six value groups, five of which were based on depreciated reproduction values, and one based on age:

All cars 30 years of age or more were placed in value group
1. The values of the other cars as shown assume a ceiling
of $25,000 in the undepreciated value of cars. A similar
valuation ceiling was discussed by the Commission in the
1967 Tank Car Allowances case. Such a ceiling is based
on the theory that there is a cost limit beyond which the
excess car value cannot be related to the transportation
function of the car. MCA also prepared analyses of the
relevant hopper car costs with a $35,000 valuation ceiling,
and with no valuation limit, and it asks here that the use
of the $35,000 ceiling be approved.

In the 1967 Tank Car Allowances case the Commission concluded that it would not be an unreasonable practice for the carriers to impose a $25,000 valuation ceiling on

tank cars for the purpose of their proposed allowance formula. In doing so, the Commission observed that a higher ceiling might be justified in the future "depending upon changed conditions and the number and range of future value groupings." In the present case MCA believes that a $35,000 value limit should be imposed on covered hoppers, not because it will make any significant present difference in aggregate compensation, but because the upper limit will become increasingly important as inflation in car construction cost and increasingly more sophisticated car types affect the price of future car acquisitions. The examiners conclude that a $25,000 valuation ceiling would be consistent with the guidelines of the 1967 Tank Car Allowances case, which dealt with a similar problem, and that there is no specific support for a higher level. MCA presents neither a strong factual basis nor a compelling argument for use of a higher valuation ceiling than $25,000.

The total cost per car on an annual basis for the 1966 study fleet was as follows:

The respondents argue generally that the basic cost data used by MCA is not shown to be reliable for the purpose of prescribing new mileage allowances, and that the individual components of cost in the MCA proposal have neither been explained nor shown to be just and reasonable.

As noted earlier, the principal cost data used by MCA was taken from the results of an AAR survey of the operations of 15,743 private hopper cars for 1966. MCA did not conduct its own operating survey, but relied upon the computer run of information turned over to MCA in response to a Commission order. The Commission order, dated July 17, 1968, required respondents to produce and make available to MCA:

"*** copies of any and all draft studies, work
papers, summaries and schedule compilations based
upon responses to a survey of the privately-owned,
covered hopper car fleet for 1966, conducted on
behalf of respondents by the Association of Amer-
ican Railroads."

The MCA proposal of allowances based on the 1966 survey, as reflected in the computer run made available by the AAR, was served upon respondents in August 1968, about 3 months

prior to the start of the hearing. Respondents subsequently filed two reply statements detailing numerous specific criticisms of the theoretical and statistical bases of the MCA formula. The questionnaire procedure used by the AAR to gather data on the 1966 private hopper fleet was similar to that used by the railroads to justify modifications in tank car allowances, and that method generally appears to be reasonable and efficient for that purpose.

The examiners conclude that MCA has made a prima facie showing that the 1966 cost and operating data, among other data, is reasonably reliable for the purpose for which MCA employed it. Given the diversity of the operations of private hopper car owners, questionnaire surveying would seem a useful method for gathering information for ordinary business decisions. MCA members, among others, cooperated in this survey. Respondents knew well in advance of the hearing the purpose for which MCA requested this data, and, once MCA presented its rationalized and reasonable utilization of this data in the instant proceeding, a burden shifted to the respondents to show why we should not rely upon it. Respondents have not met that burden. Something more compelling than a characterization of that information as "raw data" was required of respondents if they were to support rejection of its use as the basis of the MCA allowance proposal.

The special procedures used by MCA to convert the 1966 study data into the mileage and cost components of an allowance formula were generally in conformity with procedures given approval by the Commission in the 1967 Tank Car Allowances case. While it would certainly be open to the respondents themselves to develop and to adopt a different type of formula for covered hopper cars, a formulation suitable and reasonable for determining average unit costs for privately owned tank cars would seem prima facie suitable and reasonable for private covered hopper cars also.

Covered hopper cars, like tank cars, can transport onl" a limited range of products; each type of car normally is used primarily for one-way loaded movements. There are fewer hopper cars than tank cars in the national freight car fleet, in absolute and in relative terms, but the relevance of that fact, at this point, is not clear. In any event, it does not suggest to the examiners that the tank car costing formula could not appropriately be applied to covered hopper cars. In this connection, it should be borne in mind that the MCA position essentially is that the railroads should promptly introduce a new and "permanent" allowance structure more fairly related to covered hopper car costs than are present allowances, and that until the railroads do so, an interim allowance structure, based on the 1966 study costs should be imposed upon them. Seen in this light it is clear that the MCA formulation or annual unit costs for each value group is a just and reasonable method of reaching a cost-based allow

ance structure.