completion of the Commission's investigation in Ex Parte No. 319, Investigation of Freight Rates for the Transportation of Recyclable or Recycled Materials. Section 204 of the RRRRA directs the Commission, within 1 year, to conduct an investigation of the rate structure covering recyclable or recycled materials and competing virgin natural resource materails. We are directed to investigate the manner in which this rate structure has been affected by successive general increases; to determine after a public hearing, where the burden of proof shall be upon the railroads, that the rate structure as affected by rate increases is just, reasonable, and nondiscriminatory in whole or in part; and to order the removal of any unreasonableness or unjustness and discrimination from the rate structure. Pursuant to this legislation, the Commission, by order dated February 20, 1976, instituted Ex Parte No. 319. By further order dated April 2, 1976, the Commission ordered that the records in Investigation of Railroad Frt. Rate Structure, 345 1.C.C. 548 (1976), and Investigation of Railroad Frt. Rate Structure, 345 I.C.C. 867 (1976), as supplemented by exceptions and replies to the Coordinator's reports in these proceedings, be consolidated for decision with the record to be assembled in Ex Parte No. 319. We also ordered that the study date for rates on recyclables be changed to October 11, 1975, so that the Ex Parte No. 319 investigation would include a study of the rates and the increases resulting from part II of Ex Parte No. 313, supra, and Ex Parte No. 305-RE, Increased Freight Rates and Charges, 1975-Recyclable Materials. By further order served June 9, 1976, the Commission ordered that the investigation into the lawfulness of the rates in Ex Parte No. 305RE be held in abeyance pending completion of our investigation in Ex Parte No. 319.

The Commission recognizes the extent and sensitivity of the issues regarding recyclables, and that the issues under consideration by the Commission in Ex Parte No. 319 are, to a large extent, dispositive of the issues under our consideration, with respect to recyclables, in this proceeding. As such, we conclude that it is not proper, at this time, to make a final determination as to the lawfulness of the Ex Parte No. 318 increase on these commodities, and we order that this be held in abeyance pending completion of the Commission's investigation in Ex Parte No. 319. The Ex Parte No. 318 increase on recyclables went into effect on March 21, 1976, for the East and South, and April 18, 1976, for the West, subject to a refund provision. In view of our conclusion herein, we further order

the carriers, pending final decision in Ex Parte No. 319, to keep accurate account in detail of all amounts received by reason of the increased rates and charges on recyclables in Ex Parte No. 318, so that refund may be ordered in the event that the increased rates on these commodities are found not justified.

Apart from the problems presented by recyclable materials, several protestants contend that the increased rail rates will cause a diversion of traffic to motor carriage, which in some situations is less energy-efficient than rail service. As discussed in appendix E and from an overall view, we conclude that the record supports a finding that diversion of traffic as a result of any increases authorized would be minimal.

We further conclude that, apart from our findings regarding recyclable commodities, neither the immediate nor cumulative effect of the proposed increase will have a significant effect upon the quality of the human environment.

GENERAL CONTENTIONS

Several protestants submit that revenues from present rates on certain commodities exceed variable costs, and, in some instances, fully allocated costs. It is contended that increases under these circumstances are not justified. Other protestants argue that the carriers have failed to show that increases in operating costs related to the transportation of specific commodities are proportional to the rate increases proposed for such commodities.

We have concluded that such contentions do not warrant denial of the proposed increase. Rates in excess of fully allocated costs do not necessarily exceed a maximum reasonable level. General Motors Corp. v. New York Central R. Co., 311 I.C.C. 622, 625 (1960); 207 F. Supp. 641 (E.D. Mich. 1962), affirmed per curiam, 324 F. 2d 604 (6th Cir. 1963). Such is especially the case in a general increase proceeding where, of necessity, our primary concern must be directed to general bases of rates and charges. Further, additional revenues required to meet increased operating costs and fixed charges must be obtained from all traffic insofar as possible.

We have indicated in prior proceedings the desirability of submission by the carriers of expense and revenue data by commodity group for individual roads, by district, and for all districts combined. In this proceeding, respondents have chosen not to supply such data, although such information will be required in railroad general increases proceedings after September 1, 1977. See, Ex Parte No. 290, supra. Earlier in this report, we have found that

this deficiency in respondents' evidence does not preclude approval of the general increase authorized herein. However, respondents are forewarned that future selective increase proposals, not supported by data or estimates similar to those suggested in schedules C and D, discussed in our decision in Ex Parte No. 290, will run a serious risk of failure based upon burden of proof considerations.

Several protestants raise the issue of whether the railroads will be able to receive an additional 7-percent increase this year, suspension-free, on a commodity-by-commodity basis under section 202 of the RRRRA, after authorization of the Ex Parte No. 318 increase. While we receognize the bona fide concern of shippers that a railroad might seek additional increases on a specific commodity, under the new provisions of section 15(8), the issue to be resolved in this proceeding is whether the proposed general increase is justified on this record. The interpretation of section 15(8)(b) and (c) can more appropriately be resolved in a proceeding involving a filing under these new provisions. However, in order to avoid potential controversy, we shall consider the advisability of seeking clarification from Congress as to whether a railroad which has increased its rates in effect on January 1, 1976, by 7 percent pursuant to a general increase may nevertheless obtain an additional increase on a particular commodity, suspension free, under the socalled yo-yo provisions of the RRRRA.

PROCEDURAL MATTERS

The North Dakota Public Service Commission submits a motion to strike the testimony contained in Reply Verified Satement No. 47. It is asserted that the statement in relation to the issue of diversion goes far beyond the scope of protestants' statements in violation of 49 CFR 1100.49, and is incompetent, irrelevant, and based on hearsay. It is further argued that the reply does not conform to the Commission's General Rules of Practice in that the Hertz Truck Division study discussed in the statement was not appended to the reply, nor entered in the original carrier's case in chief.

This motion to strike is denied. The reply statement in question is in rebuttal to a large number of protests which alleged that the proposed rate increases will divert traffic to motor carriage. The reply deals with factors that are directly influencing the cost of motor carriage, which may minimize or eliminate possible diversion from the railroads. The reply is responsive and an appropriate

rebuttal to protestants' evidence. The nature of evidence contained in the reply is properly admissible.

The Society of the Plastic Industry, Inc., submits a motion to strike the reply verified statement of Joseph Feldman filed April 29, 1976. It is argued that this submission by the carriers is without authority either from the Commission's orders of February 20 and March 4, 1976, or the General Rules of Practice. In our order of February 20, it was ordered that since the railroads filed a brief along with their reply verified statements, other parties should be afforded a similar opportunity; therefore, briefs were permitted to be filed by any party other than the carriers on or before March 24, 1976, with the proviso that no new evidence be included in these briefs. In the March 4 order, we extended the due date of these briefs until April 9, and vacated the prohibition against new evidence. However, we did not provide for a further reply by the carriers.

The railroads assert that they have the right to reply to new evidence which they contend is present in protestants' brief. Whether the evidence contained in the briefs is new matter is not material here. Under our orders of February 20 and March 4, the carriers are not entitled to file a further reply statement. As such, the motion to strike this reply statement by the carriers is granted.

The Council of Forest Industries of British Columbia, Alberta Forest Products Association, and Canadian Forest Products, Ltd., requests the Commission to permit the filing of additional briefs and verified statements with regard to Supplement No. 7 to the master tariff in order to permit them an adequate opportunity to be more clearly heard. Protestants contend that their participation in this phase of the proceeding was prevented by the confusion generated by the Canadian railroads in their uncertainty as to their participation in the Ex Parte No. 318 increase. Protestants submit that the late date when they discovered that lumber from western Canada would take the Ex Parte No. 318 increase prevented them from filing adequate statements.

The record shows that these protestants filed lengthy and rather detailed protests to Supplement No. 7 on April 6, 1976. These protests were considered in the Commission's order of April 15, 1976, with respect to Supplement No. 7. Thus, it is clear that protestants had an effective opportunity to be heard, and their evidence evaluated. It appears to the Commission that the parties are using the alleged confusion generated by the Canadian railroads as a means to submit further pleadings to attempt to rebut so-called

inaccurate and misleading statements and arguments contained in the carriers' reply to these protests. Such further briefs and verified statements are not warranted at this point in the proceeding. As such, protestants' request is denied.

COMMODITY GROUPS

In appendix F, we have analyzed the increases applicable to particular commodities and have attempted to deal with individual situations requiring possible special treatment. We point out that our final order in this investigation is not to be construed as approving increases which result in unjust discrimination or undue preference and prejudice, and situations of this nature, if any, should be called to the Commission's attention. Our conclusions with respect to particular commodities are reflected in our ultimate findings and in appendix G.

DISCUSSION AND CONCLUSIONS

The petitioning respondents have a need for additional revenue which requires that they be allowed to increase their rates and charges. Since October 1974, the carriers have incurred cost increases aggregating in excess of one billion dollars, as shown in table 6. Based on this, and giving consideration to the carriers' overall financial condition, it is clear that there is a substantial need for additional revenues. Without such revenues, the record in this proceeding clearly demonstrates that respondents' earnings would be insufficient to enable them to provide adequate and efficient railway transportation service consistent with the public interest and the national transportation policy.

On the record before us, we conclude that an increase of 7 percent is warranted in the freight rates and charges of the petitioning carriers, subject to the specified exceptions and holddowns listed in the master tariff, as. amended, and further exceptions and holddowns listed by us in appendix G. We find that this increase, which became effective March 21, 1976, for eastern and southern territories, and April 18, 1976, for western territory, except for those items in Supplement Nos. 7 and 9 which were suspended, is just and reasonable and may be lawfully continued in effect. We order the suspended items to be canceled. The record initially indicated that the revenue yield from this increase would be approximately $480 million, based on the gross estimates shown in table 3. The additional exceptions and holddowns that we have