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Respondent (UP) states that a check of the short tariff or ratemaking mileages used by protestant in its opening statement in docket No. 36418, supra, indicated a number of errors. In some cases these errors were caused by mileages not being constructed over the shortest route. In other cases mathematical errors were noted in the construction of the mileages. The correct tariff miles are shown on respondent's exhibit SRF-2, immediately preceding respondent's main cost exhibit. Respondent, however, had already used protestant's original miles, and made no change after discovering the errors in mileage computations.

Respondent states that in the development of protestant's costs in docket No. 36418, supra, the terminal costs, interchange costs, and the cost per-car mile have all been increased to the January 1976 level using the update ratio of 109.6 percent. Respondent believes that this index factor is unreasonable and inappropriate. First, it points out that the presently effective rates are shown to be at the Ex Parte No. 313 level. Thus, a proper level of expenses for the carriers to compare with the Ex Parte No. 313 rate level would have been October 1, 1975, and not January 1976. The October 1, 1975 date was the cut-off date for increases in expenses utilized to justify Ex Parte No. 313 rate increases by the Nation's carriers. It is further alleged that the index computed by protestant is understated. Using the Commission's procedures outlined in statement No. 2-58, Rail Carload Cost Scales by Territories as of January 1, 1958, UP arrived at a ratio of 113.42 percent for adjusting the 1974 level of expenses to the October 1975 level.

Comparisons of respondent's restated costs with the revenues per car for the 17 movements are shown on exhibits 2, 3, and 4 of Mr. Herrity's statement. Respondent notes that both its own costs as well as protestant's costs are at the variable level of expense. It argues that if the fully allocated cost level were considered, the profit margin to the carriers would be much smaller, if not completely wiped out on some of the sample movements.

Finally, respondent reiterates its belief that costs of service are irrelevant in this proceeding. Respondent contends it would not have included a cost statement had protestant's initial cost evidence in docket No. 36418, supra, not contained material errors. Respondent also contends that it should not be inferred that its cost presentation represents an effective restatement of HWC's costs.

B. Protestant HWC's opinion on mileage and updating.-For the instant proceeding, protestant HWC revised the docket No. 36418, supra, escalation factor in its cost restatement. Protestant contends that use of the ICC Statement No. 2-58, supra, procedures results in an overstatement of costs. Also, it argues that the alternative use of AAR indices of railroad material prices and wage rates produces a pro forma level of expense which is both unreliable and unacceptable. For example, it notes that the indices between 1974 and 1975, indicate pro forma increases in expenses ranging from 10 to 33 percent, depending on the expense classification. The actual change in expense categories, however, based on actual accounting data, from 1974 to 1975, ranged from a decrease of 4.7 percent to an increase of 5.6 percent, for a combined total expense increase of 0.4 percent. Since the actual 1975 expenses of the carriers were only slightly greater than the 1974 expenses (0.4 percent), protestant states that it is obviously improper to use AAR indices to project changes in expense levels which reflect increases that range from 10 to 33 percent. In its restatement of costs, protestant used an escalation factor of 110.43 percent. This factor represents a comparison of the total actual expenses per gross ton-mile, 1975 versus 1974. Protestant used gross ton-miles to develop this index because it believes this is the key service unit factor used in the separation of expenses in the Commission's Rail Form A formula.

Protestant feels that a 1.1043 index factor represents a very conservative estimate. It is protestant's position that the Western District railroads, in all probability, experienced less of an increase than 10.43 percent in unit costs from 1974 to 1975. This would be expecially true if all other measures of operating efficiency were taken into full consideration.

In its reply statement in this proceeding, protestant restated its short tariff route miles in exhibit GML-8 (pages 121-124). Protestant has restated its costs based on these mileages.

C. Comparison protestant HWC's and respondent UP's ratios of revenue to variable costs. The following is a comparison between the composite revenue to variable cost ratios of the 17 movements in the instant proceedings computed by protestant in its rebuttal statement and by respondent in its opening statement. Each of the 17 movements depicted was weighted by respondent by the ton-miles of haul for each of the three weights costed. Protestant makes no such calculation in the instant proceeding.

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'Table 6, page 150, of protestant's Reply Statement of Facts and Argument.
'Exhibits 2, 3, and 4 of respondent's Statement of Western Railroad Association.

As may be seen the average difference between respondent's and protestant's costs is less than 5 percent. Both parties show that the rates, via either the short-haul Silver Bow/Ogden gateway or via the longer haul routes, are clearly compensatory.

OUR COMMENTS

In this proceeding, protestant Hoerner Waldorf is objecting to the commercial closing of the Silver Bow/Ogden gateway by the cancellation of pulpboard and fibreboard commodity rates. The remaining alternatives include shipment via longer routes through Oregon and Washington gateways.

As may be seen by the above comparison, the rates via either the short-haul Silver Bow/Ogden gateway or through longer routings are clearly compensatory. Added to this fact is the close proximity of respondent UP's and protestant HWC's variable

costs.

Neither protestant nor respondent had made showings of costs for the subject movements at the fully allocated level. This would have been desirable. As noted by defendants, if the fully allocated level of costs were considered, the indications of profit margin to the carriers would be much smaller than with a comparison of the rates with the variable costs.

The mileages used by protestant in docket No. 36418, supra, were shown by respondent to be in error in several instances. Nonetheless, in respondent's restatement of the docket No. 36418, supra, costs the same mileages were used. In protestant's cost restatement, revised mileages were used for several of the movements. A simple average of the mileages used in respondent's restatement and protestant's restatement indicates an average difference of only 24 miles for the shorthaul movements and 5 miles for the long-haul movements. Thus, the question of which mileages are correct becomes moot as the effect on the rate cost comparisons would be insignificant. Further, these mileages are short-and long-tariff mileages and would, therefore, not necessarily represent the actual route of movement mileages. Presumably, if a traffic study were made, the actual average mileages applicable to these movements would be somewhere between the short-haul and long-haul mileages shown here. As a consequence, the actual costs would be somewhere between the short-and long-haul costs computed by the parties.

The workpapers detailing the development of the index factor used by respondent was not made a part of the record. Therefore, the accuracy of this factor cannot be verified. However, to the extent that defendant made use of the AAR indices in developing their update factor it would appear that this factor would be somewhat overstated. These AAR indices can provide a useful tool in predicting expense increase. However, when, by a comparison of these indices with actual accounting data, they are shown to be excessive, their value is negated. This is the case here, the AAR indices indicated the expenses would increase from 10 to 33 percent, whereas the actual increase in expense items in total was only 0.4 percent.

Protestant's development of a restated update ratio represents a step in the right direction with the intent of giving some effect to changes in service units and their effect on costs. However, there is a fallacy in this procedure in that it assumes that all expenses are related to and vary with changes in gross ton-miles. This is not the case, as some expenses are incurred as a result of cars or car-miles, while other expenses are related to engine minutes, and car days. Other expenses are constant expenses and are not directly related to any service unit. The effect of changes in these service units cannot be determined on this record. Consequently, we are unable to accurately assess the reasonableness of protestant's revised updating factor.

SUMMARY

1. The cost studies submitted by the Union Pacific in its opening statement and by the Hoerner Waldorf Corporation in its reply statement vary only slightly and both studies show in their rate-to-variable cost comparison that the rates are compensatory. 2. Differences in respondent UP's costs and in protestant HWC's costs are found in the mileages used and in the updating of 1974 costs to the October 1975 level. 3. Neither respondent UP nor protestant HWC have shown that their method of updating rail costs adequately depicts costs at the October 1975 wage and price level. 357 I.C.C.

No. 36393

THE ADMINISTRATOR OF GENERAL SERVICES v.
BURLINGTON NORTHERN, INC. ET AL.'

Decided July 29, 1977

Transportation of 93 shipments of zinc slab found for or on behalf of the United States, and claims thereon timely filed under section 16(3)(i), assailed rates shown unlawful, overcharges determined, reparations awarded, and proceedings discontinued.

Francis X. Davis, Victor Hightaian, Spence W. Perry, Leonard A. Salters, and Donald P. Young for complainant.

Robert S. Davis, Richard S. M. Emrich III, Peter M. Lee, David A. McCormick, James R. Paschall, and R. H. Stahlheber for

defendants.

REPORT OF THE COMMISSION

Division 2, Commissioners Hardin, MURPHY, AND Clapp

BY DIVISION 2:

The modified procedure has been followed. Seven cases were consolidated into three, and all were treated in one initial decision. The Administrator of General Services (GSA or complainant) filed exceptions to the initial decision of the Administrative Law Judge, and defendants' replied. The conclusions of this report differ in part from those of the initial decision. The facts will be restated to the extent necessary to explain our differing conclusions. Exceptions and requested findings not specifically discussed in this report nor reflected in our findings or conclusions have been considered and found not justified.

'This report also embraces Docket Nos. 36394 & 36395, The Administrator of General Services v. The Baltimore and Ohio Railroad Company, et al., Docket Nos. 36398 & 36399, The Administrator of General Services v. Penn Central Railroad Company, et al., and Docket Nos. 36407 & 36409 The Administrator of General Services v. Missouri Pacific Railroad Co., et al. 'Burlington Northern Inc., et al., The Baltimore and Ohio Railroad Company, et al., (identified in the initial decision as Chessie System, et al.), Penn Central Transportation Company, Debtor, et al., and Missouri Pacific Railroad Company, et al.

Complainant is an agency of the United States Government. By seven informal complaints filed in October, November, and December 1975, and formal complaints filed on July 7 and August 6, 1976, it alleges that rates charged on 94 shipments of zinc slabs from the General Services Administration, Federal Supply Service stockpile depots located in Ohio, and Illinois to destinations of Amarillo and Corpus Christi, Tex., during the period of June through December 1972, were in excess of the legally applicable rates, were unjust and unreasonable, were unduly discriminatory, and constituted undue and unreasonable preference or advantage to others and prejudice and disadvantage to itself, in violation of sections 1, 2, 3, and 6 of the Interstate Commerce Act. Reparations for unlawful rates not based on overcharges are sought in the amount of $96,990.99 and, in the alternative, overcharges are sought in the amount of $5,773.75.

The facts basic to the controversies are similar in all of the proceedings. The United States Government was stockpiling and disposing of zinc slabs. GSA contracted to sell the zinc to American Smelting and Refining Company (ASARCO) and also to bear the cost of transportation of the zinc to ASARCO's refineries. ASARCO, as shipper in its own name, shipped the zinc to Amarillo and to Corpus Christi, Tex., and paid the transportation charges to the defendant railroads. GSA thereafter reimbursed the company in full. ASARCO has assigned to GSA any rights which it had for damages incurred on these shipments.

All of the shipments at issue moved prior to dates on which section 22 rates afforded as accommodations to the Government became effective. Shipments which moved under those rates are not at issue here. The section 22 quotation rates are significantly lower than the applicable class rates here in issue. The transportation of the shipments constituted a high volume movement; it was not accomplished in isolated or sporadic shipments. Only seven shipments weighed under 119,000 pounds, and most weighed over 120,000 pounds.

In docket No. 36393, complainant was charged at the applicable 176-cent3 aggregate rate, on the nine-shipment movement from Proving Ground, Ill., to Amarillo, Tex. The sought rate is 80 cents, which was the rate applicable at the time of movement northbound from Amarillo, to La Salle, Ill. The short-line distances of the two routes are approximately the same. GSA seeks reparations of $10,564.45.

'All rates are stated in cents per 100 pounds, unless indicated otherwise. The assailed rate are 40,000-pound minimum; the sought rate, 120,000-pound minimum.

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