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“As stated in general increases in transcontinental, in fairness, standards shouldn't be changed without due notice. This report will serve as such notice to regard the evidentiary deficiencies discussed herein."

Now, in this case you have also the protest of the Department of Agriculture, do you not?

Commissioner WALRATH. That is correct. They have been in each one of these since way back in the early fifties.

Senator HARTKE. In this the Agriculture Department contended the railroad estimates were too high by some $260 million and they present some proof of that contention, isn't that true?

Commissioner WALRATH. I didn't hear the figure.

Senator HARTKE. They contended the estimates were high by $260 million and submitted evidence in proof of their contention.

Commissioner WALRATH. That is right.

Senator HARTKE. Then the Department suggested in any case, whether they were right or wrong, the ICC should delay its decision until it could review the actual wage payment data, which is the basis of your report here as contained on page 136 to the subcommittee, that the ICC should delay its decision until it could review the actual wage payment data which was to be submitted to the Commission by the railroads on February 14, 1968.

Incredible as it may seem, instead of waiting for this information to check its findings, ICC issued its decisions on February 15, 1968, without having any opportunity whatsoever to review the actual data.

Can you explain just why this extremely important decision was handled in this manner?

Commissioner WALRATH. Simply this, Senator, based on the entire record and our evaluation of the evidence

Senator HARTKE. Was it based on the entire record. You reviewed the findings in one day's time and gave the decision the next day?

Commissioner WALRATH. No, sir. I am talking about having studied this from the time the record was concluded and based upon

the evidence of record plus the fact that the railroads had establishedas a matter of fact, they hadn't asked for enough to meet their increased costs. And in the interest of preserving the marginal operations as a service factor we had to allow them enough, we felt, to continue to operate as a railroad system.

Now, as it turned out, they immediately had to file for another one and again the entire Commission, based on the entire record, not only argument of one party, either the railroads or others, made a judgment finding based on that record.

And, of course, these are all subject to appeal to courts if the party disagrees, but based upon that record and our best judgment in study of it we found again that that which we allowed them and that which they requested were far short of what their actual revenue requirements were.

Senator HARTKE. What was the vote of the Commission on Ex parte 256 and Ex parte 259?

Commissioner WALRATH. I would check it, but in each case I think it was unanimous. Am I correct in that? I have the reports right here, and I can tell you quickly.

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Ex parte 256 was a unanimous decision. The initial decision in 259 was also a unanimous decision. That was the interim report.

The final report in Ex parte 259 was also unanimous, Mr. Chairman. (Mr. Walrath later added the following :) In each of these cases the Commission had invited the National Association of Regulatory Utility Commissioners (the several states' regulatory commissions) to appoint a representative body of state commissioners to sit with the I.C.C. as co-operators. This was done in each case, with three appointed in Ex Parte 256 and four appointed in Ex Parte 259. In each case they actively participated from the outset and sat with us in analyzing the evidence, hearing oral argument and even in conference consideration preceding our final decisions. This courtesy to the States has been our practice in all recent rail general in

cases, in line with Congressional encouragement of federal-state cooperation.

While the cooperators do not have an official vote, their counsel and advice on the various issues is sought and considered. If they disagree in any particular, their views are printed as part of a report. I both Ex Parte 256 and in Ex Parte 259 the State Cooperators were in accord with our decision, a fact which was specifically included in the finall paragraph of Ex Parte No. 259 as follows:

The panel of cooperating State commissioners, the Honorable Vernon B. Derrickson of Delaware, the Honorable Charles J. Fain of Missouri and the Honorable Ralph H. Wickberg of Idaho have fully cooperated with the Commission throughout this proceeding and have advised with us in reaching our conclusions. We are authorized to state that they are in substantial accord with this report. The Honorable Edward L. Mason of Florida also participated in the earlier stages of the preceeding but he did not seek re-election and his term expired before our conclusions were reached.

They each had copies of all pleadings, including the Brief of the Department of Agriculture which prompted the questions, and answers concerning these Ex Parte proceedings.

Senator HARTKE. Mr. Walrath, let me ask you: I am trying to find out what happened here when this information which was submitted showed that the evidence of labor increases was not justified in the amounts that had been alleged in the hearings.

Commissioner WALRATH. That was not the sole issue. The issue really presented

Senator HARTKE. Was this not a factor?

Commissioner WALRATH. It was one factor. One of the rail arguments.

Senator HARTKE. But you didn't even insist on filing their own reports. The reports were due February 14, 1968. They did not come in on time. You issued a report the next day. They didn't even comply with the record.

Commissioner WALRATH. Well, the details of when certain things were due frankly have slipped my memory but I am quite familiar with the cases themselves and they base their requests for additional revenues on their need for funds to meet additional costs—basically their increased wage costs but also increased cost of procurement and they established that in our judgment.

That is not to say the Department of Agriculture was totally wrong in their analysis of labor cost increases but we had to measure the revenues of the railroads against their expenses and we found, as I said, unanimously that they desperately required additional revenue if we could expect them to continue to operate.

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7 This panel was selected and appointed by the National Association (State) Regulatory Utility Commissioners, upon invitation by this Commission, at the outset of this proceeding and were designed to be representative geographically of the eastern, midwestern, western, and southern areas involved in this proceeding.

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Senator HARTKE. Well, I don't know what the Department of Agriculture did in relation to appealing this but on page 8 of their brief they said "page 6 of the Secretary's brief filed in this proceeding appeared a table which demonstrated the consistently exaggerated claim of the railroads regarding increased cost due to compensation and payroll taxes and—” now I am just going to read for the record here whether this is correct or not. That is something else. “In Ex parte 168 the total error in the railroad figures over the estimate, the error was $761,841,000. In 175 it was $65,879,000. In 196 it was $30,194,000. In 206 it was $298,900,000. In 212 it was $633,245,000. In 223 it was $610,247,000.

These are errors.

Commissioner WALRATH. May I suggest the ICC could not afford and still be responsible to the Congress to take the argument of one party and decide this case on their argument, on their evidence. You are reading from only one party of many, many protestants in that case.

Senator HARTKE. I am reading this in the light of the fact that there was a requirement of a submission of material which was due February 14 and that could not possibly have been reviewed in my opinion by February 15 unless somebody had prejudged the whole situation.

Commissioner WALRATH. I am not aware of the report you have reference to but I am aware of the fact when Ex parte 259 was filed within a month of that time the Department of Agriculture tried to get us not to accept it even despite the condition of the railroads and had we delayed this thing to satisfy their desire for detailed information that is not in our judgment a part of a general revenue case as distinguished from a rate case, we could have had a series of bankruptcies on our hands which would have been contrary to the public interest.

As I say, there were probably more than a hundred protestants of responsible stature in this case.

Senator HARTKE. How do you know a series of bankruptcies were imminent?

Commissioner WALRATH. We knew their rates of return.
Senator HARTKE. Is that in the record ?
Commissioner WALRATH. Yes, sir.
Senator HARTKE. Who was going bankrupt?

Commissioner WALRATH. Many marginal carriers. Rock Island is one today and was then.

Senator HARTKE. Who wrote the decision in 256 ?

Commissioner WALRATH. I am glad you asked because the Examiner who heard 256 and heard a major portion of 259 is a former attorney for the Department of Agriculture and had been on the other side of the bench for many years.

Senator HARTKE. The same man wrote both of them, right?

Commissioner WALRATH. No. The man in charge of the first one was Examiner Walter Matson, former Department of Agriculture man. The examiner, chief examiner in the second one, was Mr. Robert Bamford.

Senator HARTKE. Did they write the decision?
Commissioner WALRATH. They helped us write it.
Senator HARTKE. Any special Commissioner who was

Commissioner WALRATH. I was in administrative charge of it and they and many others helped write it because we had a number of side

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hearings. We had to have them in order to progress. I am giving you the names of the chief examiners in charge.

Senator HARTKE. Let me get it clear. I thought maybe I missed it.
Was the examiner the same in 256 and 259 ?

Commissioner WALRATH. Not the one in charge. Mr. Matson, who heard 256 and helped—and was in charge of that as head of the task force and the principal hearing officer on the final report, was also assisting Mr. Bamford who was in charge of 259, so that not only those two, but three or four others also heard side hearings on various selective commodities.

I should add that while you asked who "wrote" these decisions, I personally read each brief and the transcripts of testimony and based on this, supervised the "writing” of each of the Commission's reports in both cases.

Senator HARTKE. You agree though that these are tremendously important decisions.

Commissioner WALRATH. Indeed we do. In fact that is why we used so much manpower. That is why we set up a task force. I want to emphasize we were looking at these figures the minute they were filed and before they were ever questioned by anyone to determine and verify-I want to agree with Commissioner Murphy that I misused the words “independent study” when I said that. We verified, through our own cost section, the validity of the information given us.

Senator HARTKE. Have you looked back again after these decisions, to see whether or not the evidence and material and your decision in this case were in fact comparable to actual events?

Commissioner WALRATH. Yes. I think what we had in fact thought we had done for the railroads has actually fallen short of what it accomplished for them. If I might just refer you to the rates of return, which are of record and which we verified and which are correct (and I think no one challenged this) on page 603 of the interim report in ex parte 259, decided in November 1968, the actual rate of return in 1968 for the eastern district railroads was 1.77, less than 2 percent return on investment.

The constructive year they presented and which we verified was 2.37. (Their experience unfortunately, has been less than that.) Southern district had an actual 1968 operation of 3.65 and a constructive year, which included the proposed increases, would have been 4.36. (To date it has been less than that.) In the western district, the 1968 rate of return on investment was 2.93. Their constructive year, which would include all of the requested adjustments, would have been 3.35, but here again, has not measured up to their expectations so far.

For the United States as an entirety, in 1968 the actual rate of return was 2.58 and for the constructive year which would have included the requested adjustments taken into account, costs and everything, was 3.12.

Experience shows that the actual rate of return of the railroads in 1969--I mean in the period subsequent to the constructive year—is not measuring up to the 1968 constructive year, but in fact again is below that of record in Ex parte 259.

Senator HARTKE. Let me be inquisitive now, and I am inquisitive and I direct this to you and through you and over your heads to the railroads themselves to think about this: If what you say is true and if the report that the Department of Agriculture filed in its brief on ex parte 259 is correct, the rate of return has dropped in every case even though there has been an increase in the rates.

Commissioner WALRATH. I cannot agree that the analysis of the Department is correct, but you are correct that the rates of return have, in recent years dropped despite authorized increases in rates.

Senator HARTKE. Have you ever given thought then to the possibility that maybe somebody ought to examine exactly why that is true? Could it be that what is really happening here is that the increase in rates has in fact been a detriment to the progress of the railroad rather than an asset.

Commissioner WALRATH. That is all part of the record in these cases. Because of 259 coming immediately behind 256 we had a very good chance to see what had happened from 256 and it is simply the increased cost.

Senator HARTKE. Let me refer you to some additional documents.

Commissioner WALRATH. May I say this: I pointed out yesterday that their rate levels are back on a 1956 to 1960 level while everything else has gone up. Even with these increases, their general rate levels are much lower than the increase in the general cost of living.

Senator HARTKE. Except there were no rate increases in the period 1960 to 1967 and those years the rates of return went up.

Commissioner WALRATH. Well, 1967 is not considered to be a good year to study.

Senator HARTKE. 1960 to 1967.

Commissioner WALRATH. Well, I am sure you are correct. I would have to check it. I accept it as being correct. But it didn't go up to even a 4-percent return. We found consistent since 1925 to my knowledge, reading the cases, that anything under 4 percent on return on billions of dollars of investment that what they have realized is less than an adequate return.

Now they probably never will be able to reach an adequate return because of their heavy fixed investment, for competitive reasons. If they increase too much they will lose traffic, divert it. But at least they are having to pay the same rate of interest in the open market for credit that any other business does and they are earning less than 4 percent and as little as 2 percent or less in the eastern district.

They are just marginal, Mr. Chairman. That is all you can say about it.

Senator HARTKE. I am not trying to make an assessment on margin or nonmargin. According to source information filed in ex parte 259, coming from Transportation Facts and Trends, Yearbook of Railroad Facts, Yearbook of Railroad Building Information, in those years in which there were no increases in rates, the rate of return went from 1.97 in 1961, 1962, 2.74. 1963, 3.12. 1964, 316. 1965, 3.69. 1966, 3.90. Then ex parte 256 was decided and the rate went down to 2.45.

All I ask you to do is look with an eagle eye. I hope the railroads would too as to what we are doing to them.

Commissioner WALRATH. I would think they would appreciate any help.

Commissioner WALRATH. 3.90—in 1966 that is not an adequate return on investment.

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