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the primary function of determining whether departures should be sanctioned. The present proposal would have the effect of restoring the situation which existed before 1910.
Rates which do not conform to the long-and-short-haul clause without adequate justification may be found to violate other sections of the act. However, the forms of discrimination against which this clause is specifically directed have always tended to arouse acute public dissatisfaction, which was most widespread prior to 1910 when the carriers were free from regulation in this respect. The water carriers and commercial interests in the West and South in the past have been among the principal proponents of the long-and-short-haul clause. Most of the States have statutes prohibiting long-and-short-haul departures and some of their constitutions have had such provisions. We do not recommend the proposed amendment.
The fact that rates of motor carriers are not subject to the clause is sometimes urged as a reason for removing its application to rail and water carriers. We have long recognized that some modification to conform to present-day conditions would be desirable, and we submitted a suggested amendment in the form of a draft bill to the appropriate committees of the Congress, May 3, 1955. It was introduced as H. R. 6208, which we recommend as a substitute for section 4 of H. R. 6141.
In this section it is proposed to amend a provision added to the Interstate Commerce Act by the Panama Canal Act in 1912, which among other things authorized the Commission to establish maximum proportional rates by rail to and from ports on waterborne traffic. Little use has been made of this provision. It was amended in 1920 so as to permit the Commission “to establish proportional rates, or maximum, or minimum, or maximum and minimum proportional rates," etc.
In H. R. 6141 it is now proposed to limit our authority by removing the power to establish "maximum and minimum proportional rates." This would be a change of little or no practical importance, for our present authority to establish “proportional rates," i. e., the precise rate to be charged, would remain unchanged. (It seems likely that the draftsman overlooked this fact.)
We consider it preferable that the present provision (sec. 6 (11) (b) of the Interstate Commerce Act) remain in its present form, but the proposed amendment is of slight importance.
(a) At present section 13 (3) of the act makes it possible in proceedings thereunder to bring in issue "any rate, fare, charge, classification, regulation, or practice, made or imposed by authority of any State.” In section 6 (a) of this bill it is proposed to add to the matters above listed “or any State service requirement (including any constitutional statutory, administrative, or judicial requirement to provide, operate, or maintain railroad service or facilities, or the refusal or omission of any State agency or tribunal having jurisdiction, upon application, request, or notice duly presented thereto, to authorize or permit discontinuance or curtailment of such service or facilities within one hundred and eighty days after the presentation of such application),”.
This proposal grows out of a belief that State regulatory commissions have been unduly hesitant in authorizing discontinuance of intrastate railroad passenger service which has ceased to be profitable. We have no statistical information bearing on this supposition. If the Congress deems it to be substantiated by the facts, the proposed amendment would be justified, for, as pointed out by the Supreme Court, “Congress as the dominant controller of interstate commerce may, therefore, restrain undue limitation of the earning power of the interstate commerce system in doing State work” (Wisconsin R. R. Comm. v. Chicago, B. & Q. R. R. CO., 257 U. S. 563).
We have no objection to the proposed enlargement of the scope of section 13 (3), and the wording of the amendment seems appropriate to the purpose.
(b) It is proposed in this paragraph to amend section 13 (4) of the act, which states the powers which we may exercise upon finding undue prejudice and preference “as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce.” Two changes are proposed.
First, upon finding that a service requirement of the kind discussed in connection with paragraph (a) "causes or will cause a net loss in revenue to the car. rier or carriers involved, or otherwise unduly burdens or will unduly burden interstate or foreign commerce" we would be authorized to prescribe the "service requirement thereafter to be observed.” Such action would be subject to the proviso that “the Commission shall not issue such order prescribing or requiring discontinuance or curtailment of service covered thereby unless it finds that there is or will be available to the public reasonably adequate service in lieu thereof of other carriers or modes of transport (including private carriage) in the event of discontinuance or curtailment of the particular service or facility involved.” We have no objection to this enlargement of our authority.
Second, by section 13 (4) at present in dealing with intrastate rates, etc., we may "prescribe the rate, fare, or charge, or the maximum or minimum, or maximum and minimum, thereafter to be charged, and the classification, regulation, or practice thereafter to be observed, in such manner as, in its (the Commission's) judgment, will remove such advantage, preference, prejudice, or discrimination." Under the amendment here proposed we could only "prescribe such just and reasonable minimum or maximum rate, fare, or charge thereafter to be charged.” While we have no great objection to this change, neither do we see any need for it.
There is a typographical error on page 7 of H. R. 6141, in line 16 of which the word interstate should be intrastate.
In this section it is proposed to make a number of amendments to section 15 of the Interstate Commerce Act. Three paragraphs of section 15 would be affected.
(a) By section 15 (1), when the Commission finds that part I of the act has been violated by carriers subject thereto, it is authorized “to determine and prescribe what will be the just and reasonable individual or joint rate, fare, or charge, or rates, fares, or charges, to be thereafter observed in such case, or the maximum or minimum, or maximum and minimum, to be charged, and what individual or joint classification, regulation, or practice is or will be just, fair, and reasonable, to be thereafter followed."
By section 7 (a) of H. R. 6141 Commission's authority would be to “determine and prescribe such just and reasonable minimum or maximum rate, fare or charge, or such relationship, classification, regulation, or practice, as in its judgment may be necessary to remove such violation," etc. The effect would be to take away the Commission's present power to prescribe the precise rate, fare, or charge and the maximum and minimum.
The Advisory Committee apparently believes that this change is necessary in order to give the railroads greater freedom in initiating rates, for it states that one of the principal purposes of these controls was "to protect the general public against railroad monopolistic pricing" and that the controls originated in “the period when the railroads were the sole or or predominating intercity form of transportation."
Before 1920, when the present wording of section 15 (1) originated, the Commission could prescribe maximum rates only. It is true that in 1920 the act applied chiefly to railroads and to a less extent to water carriers. The powers were broadened in that year because it appeared desirable to strengthen the Commission's authority to deal with such particular situations as might arise. It was assumed that the new powers would be used judiciously, as they have in fact been.
In the past 35 years our power to prescribe precise rates or a “zone of reasonableness” (to use the words of the Advisory Committee in referring to maximum and minimum rates) has been used in relatively few instances. By far the greater number of our outstanding rate orders prescribe maximum rates or minimum rates, but not both. We have at all times recognized the undesirability of making such an order more restrictive than necessary. However, we believe that our present powers in this respect should be continued for use in the occasional situation where there is a clear need for their exercise.
In the proposed amendment the word “relationship” is twice used (lines 10 and 19 on sheet 9) in connection with “classification, regulation, or practice.” The latter words are used in the present act, but "relationship” is new. Apparently the purpose pertains to the removal of undue prejudice and preference, but the present wording is adequate for that purpose. We fear that addition of "rela
tionship" might give rise to controversy over its interpretation. The word is not needed and should be omitted.
(b) The amendment here proposed is to section 15 (3), by which we are empowered to establish through routes and joint rates. Our present power to prescribe the precise joint rate or the maximum and minimum rates would be removed. The existing language was also adopted in 1920.
The power to prescribe the exact rate by this paragraph is of some importance because of the fact that the affected carriers or some of them would not establish the joint rates except under compulsion. It is therefore necessary to fix the precise rate in order to dispose of the controversy promptly. Also it may happen that the participating carriers to the new joint rate are unable to agree on the measure thereof. We therefore do not favor the proposed amendment.
Section 15 (3) in its final sentence now provides :
“If any tariff or schedule canceling any through route or joint rate, fare, charge, or classification, without the consent of all carriers parties thereto or authorization by the Commission, is suspended by the Commission for investigation, the burden of proof shall be upon the carrier or carriers proposing such cancellation to show that it is consistent with the public interest * * *.”
As above indicated, the participating carriers may be in disagreement as to the desirability of cancellation, and the burden of proof is properly placed on the carriers "proposing such cancellation."
This sentence would be changed to read as follows:
"No existing through route shall be canceled except by agreement of all carriers whose lines are embraced therein unless the Commission shall, upon application and after hearing, find that cancellation is consistent with the public interest * * * and the burden of proof shall be upon the carrier or carriers to show that the cancellation is consistent with such public interest."
If this amendment is found desirable, the sentence above quoted should be clarified by inserting after the word "earriers” (line 24 of p. 10) the words "proposing such cancellation."
(c) A far-reaching amendment proposed in H. R. 6141 is that in section 7 (c), pertaining to the power of suspension.
Before 1910 the Interstate Commerce Act did not authorize suspension of tarifës making changes in rates. Whenever such tariffs were considered unsatisfactory by interested shippers or other persons, their only remedy was to apply to the courts for injunctions, which in some instances were granted. This lack of opportunity for hearing, was of serious consequence to shippers in many cases, and the injunctions of the courts resulted in confusion and seemed likely to bring about the very discrimination which the Interstate Commerce Act had been designed to prevent. Therefore the suspension power was added to the act in 1910.
The suspension period originally was 120 days, but if more time was required to dispose of the proceeding the Commission could extend it for not more than 6 months. In 1920 the additional period was shortened to 30 days, reducing the possible total suspension period from about 10 months to 5 months. The latter period proved to be too short, and in 1927 the period was fixed at 7 months, the present period. It is now proposed to reduce the time to 3 months, 2 months less than the period in effect from 1920 to 1927, which was unsatisfactory.
Experience has proved that 7 months is just about the minimum time which is practicable for satisfactory disposition of suspension proceedings. Section 15 (7) since its first enactment has specified that "we shall give to the hearing and decision of such questions preference over all other questions pending before it, and decide the same as speedily as possible.” We have endeavored to conform to this requirement. Necessarily, however, much of the suspension period is taken up by the interested parties in preparing and presenting their evidence and arguments, and for this part of the process alone 3 months would be insufficient in all but the simplest cases.
If the rates were to go into effect at the end of 3 months, they would of course be subject to cancellation by our order at the conclusion of the period, but in the meantime irreparable injury might be done.
The proposed amendment would also impose other undesirable restrictions upon our suspension power. At present this power is broadly discretionary, exercised “either upon complaint or upon its own initiative without complaint, at once, and if it (the Commission) so orders without answer or other formal pleading by the interested carrier or carriers.” We are, however, required to deliver to the latter “a statement in writing of its reasons for such suspension.”
Under the proposed modification the Commission could suspend “only if it determines on the basis of factual information by sworn complaint, affidavit, or other evidence, furnished by the complainant, or as a result of its own investigation, (a) that the rate, fare, charge, classification, regulation, or practice would probably be unlawful, and (b) that making such rate, fare, charge, classification, regulation, or practice effective would result in injury to the complainant, and (c) that remedies available to the complainant would, in the absence of suspension, be inadequate.” Only 30 days would be available for the determination required by this provision.
The requirement that there be a "basis of factual' information” might prove impracticable to comply with rigidly, for the reason that the probable effect of the tariff in question would necessarily be difficult to ascertain on the basis of such existing facts as might be hurriedly collected. Furthermore, the assumption seems to be that the question merely involves an issue of private interest as between the publishing carrier and some "complainant," who might be injured. Actually in most instances involving suspension there is a broad overlying issue of public interest. For that reason it happens occasionally that we consider it desirable to suspend tariffs on our own initiative in the absence of protest from shippers or others. The proposed amendment would continue our power to suspend on our own initiative, but the restrictions on the use of the power raise a serious question whether it could be exercised except for the protection of one or more particular individuals.
At present "at any hearing involving a change in a rate, fare, charge, or classification, or in a rule, regulation, or practice, the burden of proof shall be upon the carrier filing the schedule to show that the proposed rate, fare, charge, classification, rule, regulations, or practice is lawful.” It is now proposed to add an exception-"unless the complainant is also a carrier.” We question the wisdom of this exception. It occasionally happens that protestants include both carriers and other persons. Who would have the burden of proof in such instances is not clear.
We consider it proper that respondent carriers have the burden of proof in all instances. Usually the proposed rate change has been under consideration for some time, and the respondents may be expected to have given thought to the question whether their proposal is lawful and in the public interest. They should be readily able to come forward with the facts which have convinced them of the propriety of their proposal without transferring the burden of proof to a protestant merely because the latter happens to be a competing carrier. Experience has shown that many unjustifiable rates are proposed because carriers succumb to shipper pressure. After publishing these rates carriers frequently make but feeble effort to defend them. With the removal of the burden of proof from the proponents such instances would inevitably increase. Moreover, data indicating whether proposed rates are compensatory are largely within the knowledge of thhe carriers proposing them. Because of this, if the burden of justifying proposed rates were not on the proponent carriers, we would in many instances be left without an adequate record upon which to make a proper determination. Necessary rate structures cannot be maintained if individual adjustments are handled in this manner.
Our conclusion with respect to section 7 of H. R. 6141 as a whole is that it should not be enacted into law. We do not, however, want to be understood as being opposed to the greatest practical expedition in the disposition of suspension matters. We are for it wholeheartedly, but we do not see how the proposed legislation wuold contribute to this end. Rather, we believe it would merely constitute a legislative directive which could not be complied with, if we are to perform our duties in a satisfactory and proper manner, and which would permit many unjustifiable rates to become effective.
This section proposes a substitute for the present section 15 a or the Interstate Commerce Act which as thus amended would consist of 5 paragraphs. The first two of there are germane to the present subject matter of this section, which is commonly known as the rule of ratemaking. The other three are not so germane.
(1) and (2) section 15a was added to the act in 1920. Previously the act contained no such rule but only the provisions of section 1 requiring rates, fares, etc., to be "just and reasonable.” The 1920 rule directed the Commission in prescribing reasonable rates so to adjust them that the rail carriers
a whole would earn net railway operating income equivalent so far as possible to a fair return on the value of their property. This rule proved to be difficult to comply with. Furthermore, there came to be a widespread feeling that the rule had a tendency to make rates higher than some traffic could be expected to bear.
In 1925 the Congress adopted the Hoch-Smith resolution declaring the true policy in ratemaking to be pursued by this Commission “that the conditions which at any given time prevail in our several industries should be considered insofar as it is legally possible to do so, to the end that commodities may freely move." Construing this language in Ann Arbor R. Co. v. United States (281 U. S. 658, 666–7), the Supreme Court said:
“This policy is not new. In ratemaking under existing laws it has been recognized that conditions in a particular industry may and should be considered along with other factors in fixing rates for that industry and in determining their reasonableness; and it also has been recognized that so far as can be done with due regard for the interests affected rates should be such as will permit the commodities to which they relate to move freely in the channels of commerce,"
The rule of ratemaking in section 15a was rewritten in 1933 to read as follows:
“In the exercise of its power to prescribe just and reasonable rates the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic; to the need, in the public interest of adequate and efficient railway transportation service at the lowest cost consistent with the furnishing of such service; and to the need of revenues sufficient to enable the carriers, under honest, economical, and efficient management, to provide such service."
The mention of "effect of rates on the movement of traffic" was a repetition of the thought expressed by Congress in the Hoch-Smith resolution. In 1940 this provision was amended to read, as in its present form, “to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed.” This modification was generally understood to have been made at the request of water and motor carriers who feared that otherwise their rates might be increased for the purpose of protecting rail traffic.
In H. R. 6141 it is now proposed to wipe out this affirmative rule of ratemaking and substitute therefor certain negative rules which would direct the Commission not to do certain things. In the proposed paragraph (1) there would be a direction that it “shall not consider the effect of such charge on the traffic of any other mode of transportation; or the relation of such charge to the charge of any other mode of transportation; or whether such charge is lower than necessary to meet the competition of any other mode of transportation.” This is in line with the proposed omission of the reference to "unfair or destructive competitive practices” from the proposed statement of national transportation policy.
If the present rule of ratemaking were to be repealed, as proposed, there would probably be controversy as to whether the effect would be to prevent the Commission from considering matters now mentioned in the rule. The history of the rule before recited would support an argument that the rule as it now reads is in the nature of a declaratory statute, repeal of which would leave the Commission free to consider any matter deemed pertinent other than those expressly barred by the new substitute rule.
In the proposed paragraph (2) it would be provided that in determining just and reasonable maximum charges “the Commission shall not require such charges to be reduced below the full cost of performing the services to which they apply, exclusive of losses in other services." The meaning of the term “full cost,” etc., is doubtful. Possibly it refers to what are commonly known as “fully distributed costs." Likewise the reference to "losses in other services” is not clear.
In recent years much progress has been made in determining transportation costs, which by nature fall into two categories. First, there are the out-of-pocket or direct expenses which vary with changes in volume of traffic handled and may be assigned to commodities on a cost-of-service basis. Second, the remainder of the costs, i. e., the difference between total revenue needs of the carriers and the out-of-pocket costs, which are of a fixed or constant character, is designated as the overhead costs, or burden. (Total revenue needs embrace operating expenses, rents, taxes (including income taxes), and an allowance for return on investment or profit.) The total revenue needs as so defined are distributed on the basis of statistical apportionments, and the sum of the out-of-pocket costs and apportioned overhead costs is referred to as fully distributed costs. Such