during the initial 60-day period to help us determine which RI lines and services are “essential” and require continued directed service. See Kansas City Term. Ry. Co-Operate-Chicago, R. I. & P., supra, 360 I.C.C. at 293-94. Accordingly, public hearings were scheduled in 17 midwestern cities and interested persons were invited to express their views on the essentiality of RI service. See 44 F. R. 59999 (October 17, 1979).

The preponderance of the testimony indicated that most RI service is sufficiently "essential" to require at least a partial continuation of directed service. Cessation of directed service at the end of the initial 60-day period would produce a wide array of economic and transportation dislocations. Many businesses would possibly be forced to shut down or relocate if RI service were immediately discontinued. Many parts of RI's service territory are said to be poorly adapted to truck transportation due to such factors as poor road conditions, highway inaccessbility, weight limitations, and the like. Where truck transportation is feasible, the higher rates associated with such transportation would not only burden RI shippers but could also exacerbate the present inflationary spiral. While KCT moved much traffic over RI's lines during the initial directed service period, many grain elevators are still near capacity due to the recent bumper harvest, and many of RI's shippers-1,700 according to the Kansas City Board of Trade-are "captive" shippers served exclusively by RI.

Additionally, we note that numerous rail carriers, RI's bankruptcy court, and the United States Department of Transportation (DOT) have all indicated that more time is needed for the development of long-range solutions to RI's present financial crisis. The Secretary of Transportation is presently engaged in the so-called "section 401 planning process" to facilitate the transfer of RI properties and services to other rail carriers. See letter dated November 9, 1979, from DOT Secretary Goldschmidt (appendix A to this decision); accord Railroad Revitalization and Regulatory Reform Act of 1976 (4R Act), Public Law 94-210, section 401, 90 Stat. 31 (February 5, 1976). As Secretary Goldschmidt states in his letter:

Continuation of directed service on the Rock Island system after December 3, 1979, should be compatible with and supportive of the 401 process now underway. *** If directed service ended abruptly on December 3, we could not assume that other railroads which are interested in Rock Island properties would use their own resources to continue essential service over the Rock Island lines. *** We recognize that certain strategic lines may indeed be sought by carriers for interim operation, but we are concerned that "cherry-picking" of the Rock Island system at this time would

be disruptive to achieving an overall restructuring. *** Directed service after December 3 should be structured to maximize our chance of reaching a long-range solution this winter and next spring and to assure continuation of gathering and through-line rail services. [See appendix A, DOT letter at pages 2-3.]

In Secretary Goldschmidt's view, a 90-day extension of the basic directed service order would facilitate the section 401 planning process. Such an extension would "give all railroads interested in acquiring or using Rock Island lines a fair opportunity to study Rock Island traffic potential and how it would complement their own operations." See appendix A, DOT letter at page 3.

Further, we are aware of the recently enacted Milwaukee Railroad Restructuring Act, Public Law 96-101 (November 4, 1979) (MRR Act). This new act makes significant reorganization measures possible for RI in the next 90 days. For example, section 17 of the MRR Act substantially expedites the processing of RI abandonments and property transfers. Further, section 17(b)(3) authorizes the RI bankruptcy court to permit potential purchasers to "operate interim service over the lines to be purchased." In view of the MRR Act-and the fact that the RI trustee will submit a reorganization plan by December 10, 1979-it seems that directed service should be continued for another 90 days. This extension should provide ample time for the development of such long-range solutions to RI's difficulties as completion of the 401 process, implementation of a reorganization plan by the RI trustee, submission of expedited abandonment and purchase applications under section 17 of the MRR Act, and acquisition of court-issued "temporary authority" (TA) under section 17(b)(3) of the MRR Act.

In order to obtain a court-issued TA under section 17(b)(3) of the MRR Act, a potential purchaser must first reach agreement with the RI trustee. Then, the parties must submit the purchase proposal to the bankruptcy court and file an appropriate application with the Commission. Pending Commission review of the purchase application, the bankruptcy court "may, on a preliminary basis, authorize the sale or transfer proposed in such application *** [and] permit the purchasing carrier to operate interim service over the lines to be purchased." See section 17(b) of the MRR Act. We believe that the 90-day extension period is needed to permit the necessary negotiations and agreements to be completed.

Operating plan for extended directed service.-In formulating an operating plan for extended directed service, our paramount consideration has been "essentiality." Both Congress and the courts have made it clear that directed service is merely a vehicle to

"ensure that essential rail service provided by the bankrupt carriers *** would be continued pending development and implementation of a longer term reorganization of the bankrupt lines." [Emphasis added.] See Lehigh & New England Ry. Co. v. ICC, 540 F. 2d 71, 74 (3d Cir. 1976), cert. denied 429 U.S. 1061 (1977) (analyzing the legislative intent behind the directed service statute). We cannot ignore Congress' earnest desire to economize where possible, as reflected in the legislation adopting the directed service provisions of 49 U.S.C. 11125 and its predecessor 49 U.S.C. 1(16)(b). See Regional Rail Reorganization Act of 1973 (3R Act), Public Law 93236, 101(b)(6) and 601(e), 87 Stat. 986 (1974) (45 U.S.C. 701 et seq.); accord, Kansas City Term. Ry. Co.-Operate-Chicago, R. I. & P. supra, 360 I.C.C. at 294. Indeed, Congress has recently reaffirmed its commitment to having service directed only over "essential" lines. In the Conference Report on H.R. 4440 making appropriations for the DOT and related agencies, the committee addressed the issue in explicit terms:

The conferees strongly believe that directed rail service should be only a temporary mechanism to continue essential rail service for a brief period of time until a permanent solution is implemented ***. The conferees believe that directed rail service should be continued only where it is essential to prevent severe economic disruption. *** The conferees direct the Commission to consider only essential services for further directed service orders and to limit the duration of any further directed service orders to the minimum period of time found necessary to implement a permanent solution. [See 125 Cong. Reg. H-10548 (November 9, 1979) (Conference Report on H.R. 4440).]

Accordingly, after analyzing the results of the public hearings and the staff's recommendation on essentiality, we have decided to extend the initial directed service order-with the partial cutback described below-for 90 days with KCT as the sole DRC, subject to possible later modification.

In deciding the extent to which directed service operations should be reduced, we have considered several options. We believe that one option reflecting a moderate reduction in the lines and services directed ("option 1") provides the best accommodation between the needs of the shipping public and our duty to direct service only over essential lines. Under option 1, directed service would continue only over 6,259 miles of RI's sytem (89 percent of total mileage). Based on 1978 operations, there would be a reduction of 7,449 originating-and-terminating (O&T) carloads out of a total of 774,000 carloadings. Based on 1978 revenues, this would project a reduction

of 1 percent in revenues under option 1. The number of RI employees needed to perform directed service would be reduced by 300-400 out of a total work force of 8,270. The specific lines excluded from directed service under option 1 are described in appendix B.

3

While option 1 may produce some hardships on certain RI shippers, we believe that the cutbacks envisioned in option 1 are justified by present traffic patterns and national transportation needs. As we had stated in the initial directed service order, Kansas City Term. Ry. Co.-Operate-Chicago, R. I. & P., supra, 360 I.C.C. at 294, affected persons should "recognize the fiscal and time constraints on directed service and *** prepare for a winding-down of many operations now being conducted over RI lines."

We have decided to extend the directed service period for only 90 days, rather than 180 days, for several reasons. In light of the bankruptcy court's schedule for the RI reorganization plan and the Federal Railroad Administration's (FRA) anticipated timetable for the results of its section 401 planning process, it appears that a 90day extension (through March 2, 1980) would be quite adequate to permit restructuring plans to be initiated. The RI reorganization plan is due to the court on December 10, 1979; comments on the plan are due on January 10, 1980. FRA and interested railroads can use the remainder of January to finalize purchase and sale plans. The railroads and the RI trustee can use February to negotiate purchase agreements under the MRR Act, file purchase applications with the Commission and the bankruptcy court, and request temporary operating authority from the court pursuant to section 17(b)(3) of the MRR Act. Since we believe 90 days would be adequate for the development and initiation of long-range restructuring plans for RI, we are not disposed to require taxpayer subsidization of directed service beyond this 90-day extension. See 125 Cong. Reg. H-10548 (November 9, 1979) (Conference Report on H.R. 4440), supra.

We have determined that KCT should be retained as the sole DRC, at least initially, to operate all RI lines except those excluded from the directed service system under option 1. See appendix B for a comprehensive listing of the lines which will not be served under option 1. For all the reasons stated in our initial directed service

"Although we are ending directed service over the lines listed in appendix B, we recognize that there may be substantial amounts of RI equipment and traffic en route on these lines. Accordingly, we shall give KCT 10 days to move all necessary RI rolling stock from these lines and to complete the routing of traffic (other than traffic originating or terminating on these lines) which was already en route along these lines at the end of the initial 60-day directed service period.

order, KCT is the logical choice for DRC. See Kansas City Term. Ry.-Operate-Chicago, R. I. & P., supra, 360 I.C.C. at 295-297. Moreover, since KCT has been the sole DRC during the initial 60day period, it is thoroughly familiar with the present directed service situation. The KCT management team is already in place and can ensure that there is no interruption in service between the 60day and 90-day periods.

In directing service for an additional 90 days, we shall retain and extend all the provisions and directions contained in the initial directed service order (Directed Service Order No. 1398), except as changed herein and except as such provisions and directions may have been modified in the various supplemental and authorization orders and letters interpreting Directed Service Order No. 1398. Thus, our initial directions regarding such matters as reimbursement, rates, rehabilitation, and accounting shall continue to be effective during the upcoming 90-day period and are hereby expressly incorporated by reference. All supplemental orders and authorizations interpreting Directed Service Order No. 1398 shall remain in effect during the next 90 days to the extent necessary to effectuate Directed Service Order No. 1398 (Sub-No. 1), except to the extent any particular supplemental order or authorization is expressly scheduled to expire at the termination of the initial directed service period. Authorization Order No. 15 (served November 23, 1979), which provides for continuation of FRA's car rebuilding program, is expressly extended. Appropriate agreements to extend this extension among the parties shall be filed with the Commission.

Our decision to direct service for another 90 days does not mean we shall not be receptive to requests from interested carriers to provide service over RI lines at no cost to the government. As we stated in the initial directed service order:

The issuance of this directed service order does not preclude interested rail carriers (including the DRC) from filing petitions with the Commission to operate all or part of the RI system on a noncompensated basis under 49 U.S.C. 11123 *** or similar provisions. In addition, we urge the DRC to consider waiving its right to government reimbursement under 49 U.S.C. 11125(b)(5) where such reimbursement is not essential to the provision of directed service operations. [See Kansas City Term. Ry. Co-Operate-Chicago, R. I. & P., supra, 360 I.C.C. at 298.]

We hereby expressly reiterate this request and encourage all interested carriers to petition us for authority to operate all or part of the RI system on an unsubsidized basis.