In addition to filing requests with the Commission for TA to operate parts of the RI system, we also note that the RI bankruptcy court has been empowered by section 17(b)(3) of the MRR Act to issue "TA's" to persons filing RI purchase applications under section 17(b). Accordingly, we encourage interested rail carriers to file purchase applications under section 17(b) and to request temporary operating authority from the RI bankruptcy court.

We expressly retain jurisdiction selectively to discontinue directed service over those portions of the RI system as to which TA's are granted either by the court or by the Commission. In this way, directed service may be phased out earlier than 90 days, while essential services are preserved. The process for filing TA requests and petitions for similar relief is described below under the heading "Long-Range Restructuring."

We caution affected persons that directed service will cease at the end of the 90-day period. Accordingly, appropriate arrangements should be made by such persons for the transition to the postdirected service period. For example, carriers interested in operating or purchasing portions of the RI system should immediately begin developing the plans and conducting the negotiations which are a condition-precedent to their operational or acquisitional intentions. Further, shippers concerned about the movement of their traffic should immediately begin to investigate the availability of alternative transportation needs.

LONG-RANGE RESTRUCTURING

Section 401 process.-We encourage and support DOT's ongoing efforts under section 401 of the 4R Act, supra, to coordinate purchase and sale plans. We shall direct the Commission's Section of Rail Services Planning to assist DOT and interested parties in facilitating the section 401 planning process. We urge all parties interested in acquiring portions of the RI system to so notify DOT and our Rail Services Planning Office, and to participate in the section 401 process.

RI reorganization plan.-The RI bankruptcy court has set December 10, 1979, as the deadline for the RI trustee's submission of a reorganization plan for RI. Under the court's timetable, comments on the plan may be filed until January 10, 1980. The reorganization plan will assist interested parties in determining which parts of the RI system will not be included in any RI "core" and which, therefore, will not be operated absent financial

assistance or a change in ownership. We encourage all interested parties to study the trustee's reorganization plan and to use this as a basis for developing their own purchase or subsidy plans. Both DOT and the Commission should be apprised of any such purchase or subsidy plans as soon as possible.

Abandonment and purchase applications.-Under the newly enacted MRR Act, supra, an expedited process has been established for handling RI abandonment and transfer requests. See sections 17(a-b) and 19 of the MRR Act. The Commission is currently developing special regulations, on an expedited basis, to govern the handling of such abandonment and purchase applications. These regulations will be published in the Federal Register as soon as possible under the following docket designations: (1) the abandonment regulations will be docketed as Ex Parte No. 274 (SubNo. 4); and (2) the transfer regulations will be docketed as Ex Parte No. 282 (Sub-No. 4). Due to the extremely short time frames envisioned by the MRR Act, these regulations shall be promulgated as final regulations without prior notice and comment, pursuant to the exemption in section 553(b)(B) of the Administrative Procedure Act (5 U.S.C. 553(b)(B)).

Temporary operating authority. As previously indicated, the RI bankruptcy court has been authorized by section 17(b)(3) of the MRR Act to issue temporary operating authority to persons filing RI purchase applications under section 17(b) of the MRR Act. Moreover, under 49 U.S.C. 11123 and 11125, the Commission has authority-in certain emergency situations-to authorize temporary operations by one rail carrier over the lines of another. We encourage interested parties to seek such temporary operating authority either from the RI bankruptcy court or from this Commission as soon as possible. We have already expressed our willingness selectively to discontinue directed service over those RI lines as to which either court-issued or Commission-issued TA's may be granted.

CONCLUSION

For the foregoing reasons, we have decided to extend the initial directed service order (Directed Service Order No. 1398) for an additional 90 days beyond the initial directed service period, with the moderate reduction in service contemplated by option 1. In view of KCT's expertise and proximity to the situation, we have further decided to designate KCT as the sole DRC, subject to

possible later modification. We expressly reserve jurisdiction, however, selectively to discontinue directed service over those RI lines as to which temporary operating authority may be granted to other interested carriers.

We find:

1. Good cause has been demonstrated to warrant an extension of the initial directed service order for an additional 90 days, pursuant to 49 U.S.C. 11125(b)(1).

2. Our action in this decision will not result in a violation of 49 U.S.C. 11125(b)(2)(A-B).

3. This action will not significantly affect either the quality of the human environment or conservation of energy resources. See 49 CFR Parts 1106, 1108 (1978).

4. Any findings made elsewhere in this decision but not specifically enumerated here are hereby expressly adopted.

Commissioner CLAPP, Concurring:

I would not encourage piecemeal filings for temporary authority while the KCT is performing directed service operations in the next 90 days. Under the provisions of the Milwaukee Railroad Restructuring Act, the Rock Island bankruptcy court will be considering applications for temporary operations over portions of the Rock Island, but that is unlikely to occur much before the expiration of the 90-day directed service period. In line with that timetable, I would neither encourage nor authorize any temporary operations by other carriers to become effective prior to expiration of KCT's directed service operations.

The KCT has done a commendable job with a difficult task. I see no good reason to make that task more difficult by introducing new carriers to the scene. Moreover, I am not convinced that TA's will in fact lessen the overall cost to the government. On the other hand, I am convinced, that the operational and accounting complexities of directed service will increase significantly under any multicarrier approach.

COMMISSIONER GRESHAM, dissenting:

I would extend subsidized service only through Friday, December 7, 1979. Furthermore, I would limit operations during the last 4 days to the transportation of traffic already tendered to the subsidized carrier.

This may seem to some to be a harsh approach. I consider it merely realistic. It is time to close the public coffers. Our staff has

calculated that the taxpayers are picking up a tab of $457 per carload for this service. The majority, in my opinion, has made little attempt to assess the cost/benefit situation. Taken in their best light, the arguable benefits of directed service clearly do not justify a taxpayer subsidy of this magnitude. The plain truth is that the "emergency" which triggered subsidized service is over. The midwestern grain harvest is past. Moreover, the record from our hearings clearly shows an abundance of transportation alternatives available to almost all Rock Island shippers. It is conceded that those alternatives carry a higher cost, but I seriously doubt that it approaches $457 a car.

I seems to me that section 11125 was primarily designed to serve two purposes: cushion economic transition and continue only essential services in the interim. Those two purposes have been more than adequately served in this instance. In reaching this decision we should have taken more guidance from the recent Conference Report on H.R. 4440, including this agency's appropriation: "The conferees believe that directed service should be continued only where it is essential to prevent severe economic disruption." I am unpersuaded that a cessation of subsidized service at this juncture will create any "severe economic disruption."

Finally, I think it is worth keeping in mind that there are new mechanisms available under section 17 of the Milwaukee Railroad Restructuring Act. A continuation of cost-plus operation offers no incentives to the parties to use those mechanisms. This decision reflects little faith in private initiative. The majority forgets that negotiations for sale of Rock Island assets have been going on for years, and that agreements are likely to be reached quite soon if we are willing to cut off the Federal largess.

COMMISSIONER TRANTUM, dissenting:

The time has come to place economic realities above political expediency. I agree with Commissioner Gresham's separate expression and vote to discontinue directed service after December 7, 1979.

The rail problem has been in large part created and extended by political interests and regulatory rigidities having prevented management from making normal adjustments to current economic problems. The natural results are indirect subsidies to various interests, slow liquidation of the rail industry (manifested in inadequate maintenance), and a distorted incentive structure. If we do not have the courage to deal with the Rock Island situation

rationally and expeditiously, there is little hope for the entire rail system over the long run.

It is ordered:

49 CFR 1033.1398 (Sub-No. 1), KANSAS CITY TERMINAL RAILWAY COMPANY-DIRECTED TO OPERATE OVER-CHICAGO, ROCK ISLAND & PACIFIC RAILROAD COMPANY, DEBTOR (WILLIAM M. GIBBONS, TRUSTEE)

1. KCT shall continue as sole DRC, unless otherwise ordered, over the RI system-as modified by "option 1"-for a period of 90 days from the expiration of the initial 60-day directed service period.

2. The terms and directions of the initial directed service order (Directed Service Order No. 1398) are hereby retained and extended, except as changed in this order and except as such terms and directions may have been modified in the various supplemental orders and authorizations interpreting Directed Service Order No. 1398.

(a) 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 indicated in this decision.

3. All letters, pleadings and other submissions in this proceeding relating to the initial directed service order should bear the docket number "Directed Service Order No. 1398," and all submissions regarding this extension of the directed service order should bear the docket number "Directed Service Order No. 1398 (Sub-No. 1).” (a) Copies of all submissions in this proceeding should be sent to the following Commission offices in the Commission's headquarters at 12th and Constitution Avenue, NW., Washington, DC 20423:

Office of the Secretary (Room 2215) (original)

Section of Finance (Room 5417)
Office of Proceedings (3 copies)

Section of Rail Services Planning (Room 7375)