(As before stated, the defendants propose such an adjustment devised to increase their revenue from intraterritorial divisions by about 5 percent.) Having found that the defendants' cost studies understate the costs of the midwestern lines for reasons before pointed out, we could not properly approve the use of these scales. Another suggestion by the same witness, not advanced as a proposal, was based on use of the so-called 29886 scale of divisional factors prescribed in Official-Southwestern Divisions, 287 I.C.C 553, for movements in midwestern territory, and a scale similarly constructed from the intraterritorial class-rate scale prescribed in Class Rates, Mountain-Pacific Territory, supra, (appendix 3) commonly referred to as the 30416 scale, for application within that territory. The suggested scale for the latter territory on the average is 22 percent higher than the 29886 scale. These scales would afford the midwestern lines less revenue than they now receive according to the defendants' showing and less than they would receive by use of the cost scales discussed in the next-preceding paragraph.

Consistency with our action in prescribing intraterritorial class rates for mountain-Pacific territory higher than those in the rest of the country based on the so-called 28300 scale makes it logical to provide a higher scale of divisional factors for that territory here, but a difference of more than 10 percent would not be justified in our opinion. The scales shown in appendix C reflect that difference. They would produce moderate increases in some of the most important midwestern divisions.

Transit and reconsignment.-The midwestern lines ask that certain traffic subject to transit arrangements and reconsignment involving unusual out-of-line or backhaul service be excepted from application of the divisions prescribed in this report. There are now special divisions covering this traffic which have resulted from agreements between midwestern and transcontinental lines. Although some of the traffic moves to or from eastern territory, the proportions of the eastern railroads are not affected by these special divisions.

As an illustration of this traffic, the midwestern lines cite a transit movement of barley from the Twin Cities to Chicago and malt from that point through Council Bluffs to the Pacific coast. They assert that any general basis of divisions would be inappropriate for such traffic, and that any revision of the special divisions thereon "that might be called for in light of the divisions prescribed on on the general body of traffic could probably be worked out by negotiations between the interested carriers."

212-397 O-66-7

The proposed exception is opposed by the defendants, which charge that these special divisions constitute "an unusually preferential divisions arrangement." There is no evidence to support this contention. In our judgment it is proper to except the special divisions from the general bases herein prescribed.

FINDINGS

1. We find that the present divisions of joint rates applicable to the transportation of property between points in eastern or official territory and points in transcontinental territory (including Montana) as between the complainants in No. 31503 (including the Missouri-Illinois Railroad Company) and in No. 31503 (Sub-Nos. 4 and 5), on the one hand, and the defendants in the said complaints, cross-complainants therein, and the complainants in No. 31503 (Sub-No. 1), on the other hand, are unjust, unreasonable, and inequitable.

2. We find that just, reasonable, and equitable divisions in lieu of those referred to in finding 1 would be those set forth in appendix B hereto.

3. We find that the present divisions of joint rates applicable to the transportation of property between points in midwestern territory, as herein defined, and points in transcontinental territory (including Montana), as herein defined, as between the complainants in No. 31503 (Sub-Nos. 1, 2, and 3) and the defendants and cross-complainants in the said complaints, are unjust, unreasonable, and inequitable.

4. We find that just, reasonable, and equitable divisions in lieu of those referred to in finding 3 would be those set forth in appendix C hereto.

The hearing examiners' rulings on evidence are affirmed, for reasons stated in the recommended report.

An appropriate order will be entered.

COMMISSIONER BUSH, Concurring in part:

I concur in the finding that the existing divisions assailed in these complaints are unjust, unreasonable, and inequitable, although the divisions prescribed for the future are more favorable to the complainants than I would be inclined to prescribe in the exercise of my own individual judgment.

The discussion of the cost evidence in the report, I believe, satisfies the requirement of section 15(6) that there be due consideration of "the amount of revenue required to pay their respective operating expenses, taxes, and a fair return on their

railway property." In addition, consideration was given to relative financial needs, which, as the courts have consistently recognized, is a pertinent factor, New England Divisions Case, 261 U. S. 184, 191;United States v. Abilene & S. Ry. Co., 265 U. S. 274, 284; Baltimore & O. R. Co. v. United States, 298 U. S. 349, 360. In the decision last cited it was expressly pointed out that we are not limited to consideration of the return to services covered by the divisions under consideration but may take into account returns from all service.

It is clear that there have been changes in conditions affecting transportation in mountain-Pacific territory which have been advantageous to the railroads in that territory. There were found to justify reductions in the class rates to, from, and within that territory, Class Rates, Mountain-Pacific Territory, 296 I.C.C. 555, 655. As recognized by the Supreme Court such changes may be considered in passing upon divisions as well as rates, Beaumont, S. L. & W. Ry. Co. v. United States, 282 U. S. 74, 88.

The objective in cases of this kind is not to equalize fortunes but to assure a national transportation system sound and healthy in all its parts. Herein, to my way of thinking, lies the public interest responsibility of the Commission in a difficult decision.

COMMISSIONER HUTCHINSON, dissenting in part:

While I agree with the majority that present divisions are unjust and unreasonable and that adjustment is warranted, I am not convinced the record justifies the prescription of divisions at the levels fixed by the report.

The majority seems to emphasize the revenue needs of the eastern roads without giving adequate consideration to the impact of the adjustment on the revenues of the transcontinental lines which originate the preponderance of the traffic and depend upon revenue from interterritorial traffic to a far greater extent than do eastern and midwestern carriers.

Although the report is silent as to the actual amount of revenue the prescribed divisions would shift from the transcontinental lines to eastern and midwestern carriers, estimates indicate the figure would exceed $50 million annually. The record does not warrant so substantial a shift of revenues between the contending carrier groups.

Accordingly, I do not believe the best interests of the public or the carriers, as a whole, will be served by the prescribed divisions.

COMMISSIONER FREAS, dissenting:

While it is true that the prescription of divisions involves the exercise of judgment, there must nevertheless be a clear enunciation of the reasons, with appropriate reference to the facts relied upon, for the conclusions reached. Section 8(b), Administrative Procedure Act. Here the gap between the evidence and the ultimate findings is not bridged. See Stanislaus County v. United States, 193 F. Supp. 145 (N. D. Calif. 1960). Although some adjustment may be warrented-certainly as to traffic to and from such points as Spokane, Reno, and Phoenixthe substantial changes prescribed by the majority are, in my opinion, not supportable.

The majority finds that none of the contending groups of carriers have been operated either more or less efficiently than another; yet the record contains substantial criticism of the past managements of two carriers which does not seem to have been given effect. It is also concluded that there are no differences in importance to the public of the services of the three groups of carriers. If, as it seems to me this report indicates, the controlling criterion is the revenue needs of the carriers based largely on costs, the record, in my opinion, is fatally defective.

The defendants submitted special studies concerning the handling of the particular traffic involved and have made various adjustments in their overall costs more precisely to reflect the aspects of the transportation, whereas the complainants have generally relied upon nothing more than overall territorial average costs. Considering especially the relationship of the total volume of traffic handled by the respective groups of carriers to the interterritorial traffic at issue, it was incumbent upon the complainants, who must sustain their burden of proof in order to get any relief, to present more meaningful and accurate data regarding the involved freight.

To the extent that costs are a consideration I deem it entirely proper to give effect to differences resulting from such basic factors as grades, curvatures, tunnels, and bridges. However, excepting possibly in situations not here present, I consider it improper to equalize the different fortunes of groups of carriers which are the result of economic conditions prevailing in the various localities. This is so whether done indirectly through the application of territorial average costs, or directly through a showing of density and flow of traffic or of net railway operating income produced from overall operations in a certain area. With

equalization as the objective there will be little point or incentive for either investor or management to seek out and invest money or expend effort in the more promising carriers.

COMMISSIONER GOFF, dissenting:

A glance at a relief map will disclose the series of mountain ranges, over and through which the mountain-Pacific lines must perform gathering or distribution service and line hauls. Insufficient consideration has been given to their relatively higher efficiency, to the importance to the public of their transportation services, and to the fact they are predominantly the originators of traffic. With all respect to my associates, primary consideration of revenue need seems here to have unduly swayed better judgment in arriving at the new scale of divisions.

I would retain the present basis as more equitable than the, to me, confiscatory extremes prescribed.

APPENDIX A

Notes

2. Individual carriers will sometimes be referred to by their initials or other abbreviations.

3. Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

4. The exceptions are as follows: Wyoming-stations on and east of the line of the UP, Laramie and east; Colorado-stations on and east of the line of the C&S between Cheyenne, Wyo., and Trinidad, Colo.; New Mexico-stations on the line of the Texas-New Mexico Railway Company.

5. The term "transcontinental territory" as used in this complaint embraces all of Arizona, California, Oregon, and Washington, substantially all of Nevada, and the western portions of Idaho, Utah, and New Mexico. "Midwestern territory" includes all of western territory east of the Rocky Mountains except Montana, Wyoming, North Dakota, and northern Minnesota. Sub-No. 1, however, covers divisions of interterritorial and intraterritorial joint rates to and from Montana points over routes via northern lines.

6. The oldest method of dividing joint rates disclosed by railroad history is the mileage prorate or some modification thereof. In 1893 a spokesman for the transcontinental lines in a controversy over divisions referred to the timehonored character of such a basis in the following words:

The question which we are now called to consider has been brought up repeatedly within the last 20 years. It has been often discussed and as often settled on the present basis. *** We contend that a basis of divisions which has stood the test of time since the first overland roads were completed-now nearly a quarter of a century-must have been founded on correct principles; principles which govern divisions of revenue on through traffic not only through