The definition we are adopting will accommodate traditional rate making practices and also will allow the railroads the flexibility necessary to introduce innovative rate making practices. However, we reject a definition that places no restrictions on what will constitute a distinct rail service. For example, the phrase "without limitation" contained in RR's proposed definition is unacceptable. We agree with AFFI, Grefco, USDA, FI, and NITL that separate rates for individual distinct rail services could lead to a detrimental breakdown of existing line-haul rates. Thus, we have included in the adopted definition of distinct rail services the phrase "which are separate from line-haul transportation services necessary for the movement of freight." However, it should be remembered that Congress has by this legislation sought to promote separate charges for distinct services. We also note that in the past the railroads have at one time or another separately published charges for virtually every service rendered in addition to the line-haul service.

We reject RR's contention that a definition of distinct rail services should intentionally fail to encompass changes in existing line-haul rates and charges. The decision in Inspection in Transit, Grain and Grain Products, 349 I.C.C. 89 (1975), discussed below in part 5 of this report, represents the present state of the law and cannot be ignored.

Specific criticism concerning the language and content of the proposed definition have also been considered. We point out that the adopted definition defines the term "distinct rail services" only in the context of what will be regarded as such a transportation service. Language with respect to the elements of cost and demand are not included in the adopted definition so as to distinguish the definition of a distinct rail service from the justification of a distinct rail service rate. A transportation service may be regarded as a distinct rail service, but the distinct rail service rate may or may not be regarded as reasonable. The elements of cost and demand are to be employed in the determination of the latter. Thus, the terms "cash-outlays" and "demand" are to be defined separately and independently from the definition of the term "distinct rail services."10

The adopted definition takes into consideration the intent of section 15(18) to leave the final decision of offering a distinct rail service and rate to the discretion of railroad management. However, in response to DOT's comments, we emphasize that the Commission remains the final arbiter in determining whether or not a certain

Part 4 of this report provides a discussion of the terms "cash-outlays" and "demand."

transportation service is a distinct rail service and whether or not the distinct rail service rate is reasonable. Also, the phrase in the proposed definition, "thereby according shippers and receivers the opportunity to negotiate for those services they require," has been eliminated because we regard it as unnecessary and confusing in light of the comments submitted. We agree with those participants who view the phrase "negotiated for those services" as inappropriately suggesting something more than the purchasing of a distinct rail service. We do believe, however, that it is necessary to emphasize that portion of section 15(18) which encourages the railroads to publish a distinct rail service rate upon the request of any shipper or receiver of freight. The adopted definition appropriately accomplishes this.

DOT's suggestion that the definition should take into consideration the form of the tariff publication containing the distinct rail service rate is inappropriate as subject matter for inclusion in the definition of the term. It is our opinion that the form of the tariff publication be left to the discretion of the railroads. However, we stress that sufficient notice be given to the shipping public that distinct rail service rates are contained in the particular tariff publication in which they are published, whether they are part of an existing tariff or a new tariff."

The proposed definition included a listing of transportation services that would be considered distinct rail services. We have eliminated this list. On further consideration, it does not appear appropriate to categorize distinct rail services at this time. A determination of whether a specific transportation service is within the application of section 15(18) will be done on a case-by-case basis.

3. NEGOTIATED v. CONTRACT Rates

Many parties introduced arguments as to the merits and feasibility of contract rates as an innovative concept to facilitate the achievement of the goals of this rulemaking.

GF urges the Commission to include explicitly contract rates within the definition of distinct rail services, and notes support of such a position by PNTL, DOT, and NITL. GF and GMI feel that contract rates would enable the rail carriers to compete more effectively with competitive modes of transportation. GF defines contract rates as bilateral, mutually binding agreements reflective of "The regulations adopted herein, notably sections 1109.15(c) and (d), seek to achieve this end.

specific circumstances. DOT is of the opinion that a definition of distinct rail services encompassing contract rates will substantially reduce protests and other expensive regulatory tactics which would act to frustrate the intended expeditious nature of the procedures to be created by this proceeding. PNTL argues that, unless contract rates are brought within the purview of this proceeding, the Commission has done nothing more than restate existing law, policy, and practices.

Contract rates are not considered to be a panacea by all however. CBT feels that an ultimate result of such a rate system would be rate wars, which, in turn, would be detrimental not only to the railroad industry but to the shipping and consuming public as well. Neither Anheuser, FS et al, WTA, Steel, nor Penn can read anything in the act nor its legislative history which shows a congressional intent which would allow a rail carrier to participate in contract rates. ADM supports this argument and also points to previous instances. where such rates were found to be unlawful.

AFFI and ADM point out that the term "negotiated" as used in section 1109.15(a) of the NPRO is not analagous to contract rates as those parties initiating discussion of this issue must have interpreted that term. AFFI explains that, as a practical reality, carrier rates and charges are oftentimes negotiated between shippers and carriers before their establishment and publication. This usually occurs in the course of proceedings before carrier rate bureaus but also occurs in one-to-one discussions between a carrier and his customers. Therefore, AFFI concludes, the capability of negotiating for rates already exists. RR, CBT, and the Illinois Department of Agriculture (Illinois) suggest that the concept of contract rates is not unique to distinct rail services and that, if the Commission's policy against such rates is to be challenged, it should be done so in a separate proceeding.

Conclusion.-We concur with the contention that consideration of contract rates in this proceeding would not be appropriate. The concept of contract rates involves a completely different system of rate making totally unlike the current rate publication system. Obviously, the relatively narrow issue of establishing expeditious procedures for the purpose of encouraging publication of a particular type of rate or charge does not embrace such a concept.

The term "negotiated" as used in section 1109.15(a) in the NPRO was not intended by the Commission to be equated with contract rates. To clarify this intent we have deleted this term completely but have retained the concept of encouraging carriers to continue to

accept, discuss, or consider suggestions as to what specific services may be desirable to a particular customer, industry, or geographic region. This concept appears in section 1109.15(a) Purpose of the rules as adopted in appendix D. For additional discussion of the issue of contract rates, see the Commission's report in Ex Parte No. 324, Standards and Expeditious Procedures for Establishing Railroad Rates Based on Seasonal, Regional, or Peak-Period Demand for Rail Services, decided January 28, 1977. As a final point, it is important to note that while we encourage a close interrelationship between rail carriers and shippers, we stress that the critical factor, and the one distinguishing this concept from contract rates, is the subsequent publication of a rate and thus the availability and public notice of that rate to all similarly situated shippers dealing with the publishing carrier, preventing the opportunity for discriminatory practices.

4. CRITERIA TO BE EMPLOYED IN DETERMINATION OF REASONABLENESS OF DISTINCT RAIL SERVICE Rates

Congress directed that the reasonableness of the pricing of distinct rail services should be evaluated in accordance with the publishing rail carrier's cash-outlays for such services and the shipper's demand therefor. In light of the response of the participants concerning these two terms, we have defined them in the regulations (1109.15(b)) and adopted them as guidelines along with other criteria (1109.15(h)) which will be utilized by the Commission in the evaluation of the reasonableness of distinct rail services published pursuant to section 15(18).

The two terms are discussed separately below. The initial discussion deals solely with comments made with regard to the definition of "cash-outlays" offered in the NPRO. The following section concerns itself with the need for a definition of the term "demand" and the use of these two factors in the regulations as adopted.

A. Cash-outlays.-Several parties argued that cash-outlays should not or need not be defined. RR submit that a definition of cashoutlays is unnecessary since the ultimate difference between the Commission's definition and variable costs is unclear. RR explain that, while the proposed definition excludes allowances for depreciation, it includes annualized cash-outlays equivalent to the carriers' capital investment. RR note that such language indicates the Commission's intent to include a "capital recovery charge"

which would amount to 100 percent of the depreciation plus an allowance for the opportunity costs of capital invested. Similarly, COWPS contends that cash-outlays will, in practice, be at least as great as variable cost and perhaps equal to fully allocated costs. DOT suggests that a case-by-case approach, allowing a proponent carrier to use and describe its own definition, is preferable to a rigid standard. DOT concedes, however, that the Commission could reject the data if it believes the definition on which it is premised is unreasonable. DOT also makes the observation that section 307 of the 4R Act directs the Commission to prescribe a uniform cost and revenue accounting system and points out that the definition of cash-outlays should await completion of the new costing methodology. NITL also assails the proposed definition because of its failure to recognize the importance of asset replacement. GMI believes that the definition should be eliminated altogether or, in the alternative, revised to make it simply an interpretative guide rather than a rigid definition. Barringer suggests that the Congress': apparent intent in introducing the term cash-outlays was to create a somewhat lower floor for distinct rail service charges than that set by variable cost, but since the railroads prefer the old standard, it might be advisable to define cash-outlays as synonymous with variable cost.

On the other hand, several parties offered support for the proposed definition, however, certain reservations and concerns were also expressed. Georgia Pacific Corporation (G-P) offered support for both the definition and the principle it suggested-that carriers would be able to price services in accordance with their out-of-pocket costs. Anheuser and Tidewater Grain Company (TGC) also sanction the proposed definition. However, they express concern that safeguards should be employed so that carriers will not be permitted to employ this concept to assess additional charges by "defining the cash-outlays at the several different terminals, publish line-haul rates between various points, and then provide terminal costs at various origins and destinations."

Swift and Company and Swift Agricultural Chemicals Corporation (Swift) urges that great care must be exercised by the Commission in defining the term "cash-outlays." This definition should be, and must be, exact and not subject to various and sundry interpretations. Swift stresses that such precision is required because the final definition will be the guideline in all future instances in determining whether a new rate or charge for a distinct rail service is just and reasonable.