PROTESTANTS' EVIDENCE

The protestants collectively argue that respondents' evidence fails to show that intrastate rates discriminate against, or are a burden on, interstate commerce.

The Montana Department of Agriculture, Montana Wheat Research and Marketing Committee, and Montana Grain Growers Association (MDOA) jointly filed cost evidence attempting to show that Montana intrastate wheat traffic makes a greater revenue contribution over variable costs on a per-ton-mile basis than does interstate grain traffic originating in Montana.

MDOA developed variable costs for 8 typical Montana intrastate wheat moves and for 40 typical interstate wheat moves from 40 Montana origins to Portland, Oreg. The costs were developed separately for moves in boxcars and covered hoppers. All movements were treated effectively as BN single-line movements. Intrastate movements were treated as being wholly way-train movements, while interstate commerce was treated partially as waytrain and partially as through movements. Through-movements mileage was increased 17 percent for circuity, but no mileage adjustment was made for intrastate movements.

As shown in table I, infra, MDOA compared variable costs for the intrastate movements with intrastate rates at the Ex Parte No. 305 level, and compared variable costs for the interstate movements with interstate export rates at the Ex Parte No. 336 (N/C_5057) level. They conclude from these comparisons that intrastate wheat traffic makes a greater revenue contribution per ton-mile over variable costs than does interstate wheat traffic, and that, therefore, present intrastate wheat rates are not a burden on interstate

commerce:

TABLE I

Contribution over variable costs-wheat, interstate and Montana intrastate
(per ton-mile over variable cost)

The Montana commission attacks the rate comparisons used by respondents on the grounds that the comparisons have not been found reasonable by this Commission. It submits evidence which shows that Montana's contribution to total systemwide operating expenses for Union Pacific and Milwaukee increased from 1972-74 and declined slightly for 1975. BN experienced a decline in contribution of intrastate revenue to total systemwide expenses from 1972-74, and a slight increase in 1975. The Montana commission concludes from this evidence that Montana intrastate traffic is contributing its fair proportion to total operating expenses, and that Montana intrastate rates do not discriminate against interstate traffic.

Finally, the Montana commission criticizes respondents' comparison of interstate and intrastate train crew wages as misleading because it fails to consider the revenue generated per thousand miles, thus giving no way to judge the significance of the figures presented.

In their reply, the respondent railroads reiterate that they have shown that existing Montana intrastate rates are a discrimination against and a burden on interstate commerce, and argue that protestants have shown no facts which defeat respondents' case.

DISCUSSION AND CONCLUSIONS

An investigation under section 13(4) is directed to either or both of these findings: first, undue or unreasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce on the one hand, and, interstate or foreign commerce on the other; and second, undue, unreasonable, or unjust discrimination against, or undue burden on interstate or foreign commerce. No evidence of prejudice or injury to any shipper or locality has been presented here, which precludes a finding of undue preference or prejudice. The respondents by their evidence seek a finding of discrimination against, or burden on, interstate

commerce.

There are several established basic findings necessary for relief under section 13(4): (1) that existing intrastate rates are normally low and do not contribute a fair share to the railroads' revenue need; (2) that conditions surrounding the movement of intrastate traffic are not more favorable than those existing in interstate commerce; (3) that the rates cast an undue burden on interstate commerce; (4) that the requested increase would yield substantial revenues; (5) that

the increases would remove the unlawfulness and would not result in unreasonable rates. See Public Service Commission of Utah v. United States, 356 U.S. 421, 425-6 (1958); King v. United States, 344 U.S. 254, 267-70 (1952).

Since this is a general revenue proceeding, evidence of the carriers' systemwide financial condition carries great weight. State Corporation Commission of Kansas v. United States, 216 F. Supp. 376, 380 (D.Kans., 1963), affirmed per curiam, 375 U.S. 15 (1963). The railroads' comparisons of combined system revenues, operating expenses and net operating income show that operating revenue has increased over 60 percent, but expenses have increased by over 70 percent. Net operating income was 24.8 percent less in 1975 than in 1966. We particularly note that the system revenue margin has decreased from $0.67 per thousand gross ton-miles to $0.13 per thousand gross ton-miles.

The evidence submitted by respondents shows rapid increases in expenses for wages, fringe benefits, materials, supplies, equipment, and new track. It also shows that transportation conditions surrounding Montana interstate and intrastate commerce are substantially similar. Intrastate traffic moves on the same trains, receives similar services, and is handled by the same personnel as interstate traffic.

Respondents have shown, by means of rate comparison, that a rate disparity exists, and that application of this increase to intrastate traffic will not result in unreasonable rates, since in most cases, intrastate rates will be no higher than interstate rates charged on similar commodities for similar distances. The amount of revenue the railroads hope to gain by application of these increases, $2,052,965, shows that the disparity which presently exists is substantial. Moreover, as noted in State Corporation Commission of Kansas, supra, intrastate traffic, even though intermingled with interstate traffic, moves predominantly in lesser tonnages on local trains, handled by crews which receive a higher wage rate and more overtime, strongly suggests that there is need for an increase here to enable intrastate traffic to meet its fair share of the transportation burden.

Protestant MDOA challenged the sufficiency of the railroads' cost evidence and submitted evidence purporting to show that intrastate grain rates are not a burden on interstate commerce and, in fact, contribute more than their fair share to the transportation burden. However, we find the costs submitted by MDOA unpersuasive. Their study, among other defects, does not have general

applicability to Montana carriers. other than BN, does not show whether the selected origins and destinations are representative, incorrectly adjusts for circuity, and severely understates interchange costs. 10

9

Protestants object to the respondents' failure to meet the Montana commission's requirement that respondents allocate operating expenses to Montana intrastate traffic in order to show whether Montana intrastatę traffic is bearing its full share of operating expenses. Respondents argue that the evidence the Montana commission requires is an impossible burden of proof, and requests that this Commission retain jurisdiction over Montana intrastate rates and continue this investigation until further notice to determine whether subsequent general increases should be applied to Montana traffic.

(

Section 13(4) of the act specifically states that this Commission may find intrastate rates a burden on interstate commerce:

*** [Without a separation of interstate and intrastate property, revenues, and expenses, and without considering in totality the operations or results thereof of any carrier or group or groups of carriers wholly within any State), ***.

However, we cannot assume that the Montana commission will continue to require the same burden of proof or that the railroads will continue to fail to meet that standard. Moreover, the 4R Act amendments to section 13 of the act indicate that this Commission may not exercise continuing jurisdiction over an intrastate rates proceeding for the purpose of bypassing a State regulatory commission. Section 13(5) removes language in section 13(4) which permitted the Commission to consider requests for investigation regardless of the pendency of the proceedings before a State

"Protestants' adjustment for circuity consisted of increasing through train-miles 17 percent for all movements and for both types of cars. This circuity adjustment is incorrect. In ICC Bureau of Accounts Statement No. IC1-74, Rail Carload Cost Scales, 1974, page 131, table 5, the rail circuity factors are published. The instructions for use of those factors indicate that column (2) of table 5 should be used for single-line traffic. Thus, the mileage for wheat moving in covered hoppers should have been increased 10 percent for circuity and the mileage for wheat moving in boxcars should have been increased either 8 or 11 percent, depending on whether the boxcar is special or general service, respectively. Protestants also improperly failed to apply the circuity factor to the way-train mileage. Of course, protestants are free to use other circuity factors provided they adequately explain their reasoning.

"In addition, protestants' comparison of revenue contribution per ton-mile over variable cost is inappropriate here because of the vast difference in mileage between the intrastate and interstate study moves. The 40 interstate moves showed short-line distances ranging from 729 miles to 1,473.7 miles, while the 8 intrastate moves showed distances from 355 miles to 541.4 miles. Since the distances in interstate and intrastate moves are dramatically dissimilar, there is no reason to believe that their contributions to burden are similar.

regulatory body, and added a requirement that carriers first seek changes in intrastate rates from the appropriate State regulatory body. The intent is clear that the railroads should first seek changes in intrastate rates on the State level. Therefore, we reject respondents' request for continuing jurisdiction.

Respondent railroads have demonstrated a need for additional revenues and have shown that present Montana intrastate rates, which are lower than comparable interstate rates, are not contributing their fair share to respondents' revenue needs. The evidence indicates that transportation conditions on interstate and intrastate traffic are substantially similar and that increases pursuant to Ex Parte Nos. 310 and 313 will not result in unreasonable rates. The interstate increases authorized in Ex Parte Nos. 310 and 313 were based on the proven needs of all the railroads, including these respondents. These revenue needs resulted from increased operating and labor expenses on both interstate and intrastate traffic. The respondents here seek a revenue contribution from Montana intrastate traffic in approximately the same amount as the interstate increases. The Commission has found this to be a fair contribution in the past. See Intrastate Freight Rates and Charges, 1969, 339 I.C.C. 670, 675 (1971). We conclude that general increases in Montana freight rates are warranted under section 13(4) of the act.

We find that:

1. The conditions surrounding intrastate transportation of freight in Montana are not more favorable than conditions surrounding interstate transportation of freight from, to, and through Montana.

2. The amounts and percentages by which interstate freight rates and charges between points in Montana and points in adjoining States were increased, as authorized by Ex Parte No. 310 and Ex Parte No. 313, were just and reasonable.

3. The present intrastate freight rates and charges in Montana are abnormally low, do not contribute their fair share of the revenues required by respondents to enable them under honest, economical, and efficient management to provide adequate and efficient transportation service.

4. The present Montana intrastate rates cast, and to the extent they are maintained in the future will cast, an undue burden upon and unjust discrimination against, interstate commerce. The evidence shows that the burden is undue to the extent that intrastate rates and charges are less than they would be on the basis of Ex Parte No. 310 and Ex Parte No. 313.