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revenue, at the pro forma level, as compared with respective corresponding actual 1975 operating figures of $8,907,431; $8,797,627; 98.8 percent; and $109,804.

A comparison of the increases in revenues and expenses, from the statement of operations for respondent's system operation, indicates that respondent's total revenues at the pro forma level, including the proposed 8-percent increase, have increased $513,597 (5.77 percent) over the base year, and respondent's expenses at the projected pro forma level after the indicated adjustments have increased $556,936 (6.33 percent) over the base year.

After developing revenues and expenses for its system operation at the projected year levels, respondent's revenues and expenses were separated between issue and nonissue traffic. The basis for this separation was a 4-week special passenger study to determine the proper allocation factors. The study was based on a selection of data for 1 week in each 13-week period from October 1, 1974 through September 30, 1975. The results of this study were expanded by 13 to develop annual totals. Appendix D hereto reflects respondent's showing of expanded study results along with a comparison of the actual data for the same period. To allocate its system revenues and expenses between the issue and nonissue traffic, revenues were assigned on a direct basis and pro forma expenses were allocated to issue traffic on a judgement basis. The allocated issue traffic passenger revenues amount to 30.40 percent of the total passenger revenues. After allowance of the subsidy discount reduction and the allocation of the subsidy revenues to the issue traffic, the total issue traffic revenues amount to 27.05 percent of total system revenues. In allocating its system pro forma expenses to issue traffic, respondent employed several methods in the distribution of all expense accounts not assigned on a direct basis. In brief, all expenses, with the exception of those assigned on a direct basis and those indicated hereinafter, were assigned on the basis of formulas derived from the 4-week passenger study. Other supervisory expenses were assigned on the weighted average wage assignment of transportation supervisors and dispatchers. Other transportation expenses for drivers were assigned on the same percentage assignment as drivers' wages. Station supplies, collection and delivery expenses were assigned on the weighted average assignment of all other station expenses. All traffic and solicitation expenses

This 5.77-percent increase reflects not only the proposed 8-percent increase on commutation traffic and receipt of subsidy payments, but also other fare increases on nonissue traffic.

were assigned on the basis of gross passenger revenues. Public liability and property damage and advertising expenses were assigned on a total operating revenue basis. Work mens compensation, employee welfare expenses, and social security taxes were assigned on the same basis as wages, and all administrative and general expenses, except employee's welfare. were assigned on the weighted average assignment of all other expenses, including those expenses assigned on a direct basis. The total issue traffic expense assignment amounts to approximately 27 to approximately 27 percent of system operating expenses.

The results of respondent's cost study based on allocation factors, as seen, indicate that without the proposed increase, respondent on a system basis would incur a $154,687 net operating loss in commutation service for the projected year ending June 30, 1977, resulting in an operating ratio of 106.5 percent for commutation services. After taking into consideration cost of capital at 11 percent, respondent would have a computed system net loss of $206,005 in commutation services for the indicated projected year. In the latter connection, respondent submits that its use of the cost of capital concept is based on Rules to Govern Assembling & Presenting Cost Evidence, 337 I.C.C. 298, 325, where the Commission recognized that imputed interest on equity capital is a cost to the carrier and the rate of such return is a factual matter to be determined in the light of contemporary financial and economic conditions. In the opinion of its independent certified public accountant under current financial and economic conditions, the 1!-percent cost of capital used in a less than the actual cost of capital, which the public accountant testified is at least 13.16 percent and has been as high as 18.94 percent in the past 2 years for HTL and its affiliates. The cost study further shows that even with the proposed increased fares, respondent's net system operating revenue from commutation service would be only $1,818 for the projected year, resulting in an operating ratio of 99.9 percent for commutation service. However, after cost of capital is taken into consideration, respondent maintains that it would have a computed net loss in commutation service under the proposed increased fares of $49,500 for the projected year ending June 30, 1977. Including all other traffic, projected system net operating revenue is estimated to be $66,465 with the proposed increased fares in effect, resulting in an operating ratio of 99.3 percent. After cost of capital, computed at $191,413, is taken into consideration, however, respondent submits it will incur a net operating loss of $124,948 even with the proposed increase.

One of the protestants, John McCaffrey, a practitioner who resides in Oakland, N.J., and commutes to New York City via HTL, directed his testimony to the fact that respondent does not sell its 50-trip ticket at the Port Authority Bus Terminal in New York City, for a reason unknown to him. This necessitates his traveling to Paramus, N.J., or Suffern, N.Y., 13 and 8 miles away, respectively, to obtain this type of ticket since there is no longer any ticket outlet at Oakland. He also directs attention to the fact that Oakland no longer has bus service after 7:15 p.m., which requires him to take the bus to Pompton Lakes, N.J., if he works late, and be picked up by a member of his family or take a taxi home. He believes HTL's fares are already too high from New York City to Oakland on the basis of a comparison with fares to Pompton Lakes, which he indicates, is a similar distance from New York (about 25 miles). According to this protestant, the fare to Pompton Lakes from New York City is $1.36 per ride as compared to the current fare of $1.49 per ride to Oakland by HTL using a 50-trip book. He is aware of the fact that HTL also has available for its commuters a 40-trip book, which offers a lower fare per passenger, or $1.35 per ride to Oakland using a 40-trip book. Mr. McCaffrey concluded by urging the Commission to deny the proposed increase.

Another commuter-protestant also residing in Oakland, Richard R. Overeem, questioned the validity of respondent's 4-week passenger study in the light of the inclusion therein of only 4 weeks out of 52 and the asserted fact that it is based on mileage instead of by the "fill" of the bus. He questioned charging any expenses attributable to advertising, tickets, and baggage checks to commutation traffic. He also demanded the reason respondent does not sell the 50-trip ticket book either at Oakland, where it no longer maintains a terminal, or at the Port Authority. He pointed out that the 40-trip ticket book is assertedly good only 30 days, which makes the 50-trip book an attractive alternative, if the bus is not used on a daily basis for work. He contended that the proposed subsidy discount to Orange County riders was discriminatory as to all other riders and that respondent's commutation service is actually complementary or supportive of its other operations yet bears a disproportionate share of fully distributed cost. Mr. Overeem concluded that respondent's cost study was weak and that the proposed increase was not lawful.

The final protestant, Virginia Moore of Suffern, N.Y., directed her testimony to the problems of the commuter in the New York metropolitan area and concluded that if respondent actually needs

additional revenue, it should look to a source other than the commuter.

No protestant provided any cost evidence in support of his protest.

The Bureau reviewed and investigated the records of respondent and its affiliates, and analyzed their financial statements, and submitted evidence and its conclusions with respect to the impact of affiliate charges on respondent, the reasonableness of general officer salaries and the impact of subsidies on respondent's revenues.

It was the Bureau's approach that respondent is only 1 of 18 affiliated business enterprises that are largely under the common ownership and control of the same family of owners, that respondent has been and is engaged in numerous transactions with at least 9 of such affiliated companies and is dependent upon such dealings with affiliates for the continued operation of its motor passenger service. Based upon the foregoing considerations, it is the Bureau's position that a proper determination as to the justness and reasonableness of the proposed 8-percent fare increase under consideration requires a review of the operating and financial condition of the consolidated system, including the 9 transactional affiliates, and that this system of 10 interrelated companies should be considered for the purpose of this proceeding as a single entity. It urges that the Commission consider the consolidated financial results of this transportation system of affiliates by disregarding the individual corporate entities involved and piercing the corporate viels to implement the overriding statutory requirement as contained in section 216 of the act. In support of its position, it cites the cases of New York and New Brunswick Auto Exp. Co., Inc., Com. Car. App., 23 M.C.C. 663 (1940); Sterling Exp., Inc., Common Carrier Application, 17 M.C.C. 379 (1939); Freight Forwarding Investigation, 229 I.C.C. 201 (1938); Green Bay & W. R. Co., Common Carrier Application, 44 M.C.C. 401 (1945); Transportation Activities of Wartainer, 44 M.C.C. 131 (1944); Crone Storage Co., Extension-Household Goods, 48 M.C.C. 683 (1948); and Texas Electric Ry. Co. Abandonment, 271 M.C.C. 391 (1948).

The Bureau offered evidence supportive of its position that respondent is 1 of 15 corporations owned or controlled by David Rukin. Additionally, the Bureau asserted that Bus Exchange, Inc., which is engaged in the business of purchasing, reconditioning, and selling new and old motor buses, should also be considered as an affiliate. While conceding that David Rukin is neither a stockholder nor an officer of that company, the Bureau submitted that it falls

within the definition of an associated company as contained in the Commission's accounting regulations since certain of HTL's officers, stockholders, directors, and employees are also associated with Bus Exchange, Inc.. According to the Bureau's witness, intercompany charges to respondent in 1975, totaled $2,709,008, which was about 31 percent of its total operating expenses for that period. Of the indicated total, $71,658 represented direct reimbursement of expenses paid in behalf of HTL by the associated companies. Of the balance of the charges, $1,350,669 were for bus and service equipment rentals, $1,066,596 for commissions on sales of passenger tickets, and $220,085 for rentals of property. Respondent's charges to associated companies in 1975 totaled $913,656, of which $122,200 represented charges to Bus Exchange, Inc., and $653,184 charges to Hudson Transit Corp., including $284,511 for bus hire and $330,099 for allocation of expenses incurred by respondent in operations over Hudson Transit Corp.'s intrastate routes. Operating expenses are allocated to respondent and Hudson Transit Corp., on a passenger-mile basis established years ago by the New York State Department of Transportation, which reviews the allocations periodically and has found the bases to be reasonable and consistently applied. The Bureau offered a summary of 1975 intercompany transactions which showed that the total charges to respondent were $1,795,352 more than the charges from respondent to the affiliates. In connection with the rental of bus and service equipment from seven affiliates which totaled $1,350,669 in 1975, the Bureau's witness indicated that except with regard to Hudson Transit Corp., the buses are leased on a mileage basis with a maximum mileage allowance established for each year. The cost per mile and maximum mileage allowance vary according to the age of the bus, and rental charges for newer buses are greater because of higher mileage rate and maximum mileage allowance. The rental rates are structured to recover the leasing company's cost plus a profit of 6 percent. In the case of Hudson Transit Corp., rental rates are based on the depreciation expense of the leased unit plus 6 percent of its net book value. Based on his investigation of the commissions charged respondent by Short Line Terminal Agency, Inc. ($912,337) and Newburgh Terminal Corporation ($114,339) for sales of regular passenger tickets and commutation tickets, as compared with corresponding commissions charged other bus companies by those affiliates, the Bureau's witness concluded that a substantial portion of expenses incurred by the two affiliates would be considered necessary carrier operating expenses. The Bureau,

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