(5) ISSUE: Are the increased rates reasonable?

Based on the evidence of record, we conclude that the sought intrastate increases will result in rates that are just and reasonable. Under the proposed intrastate increases, many intrastate rates would be lower than the comparable interstate rates. For example, the following table illustrates rate comparison for major movements of barley and wheat to Great Falls, Mont., moving over comparable BN distances. These rates apply to movements, within Montana inbound to transit which are characterized as interstate commerce. They are published in Western Trunk Line Tariffs. They are not unused "paper rates," as the Montana Department of Agriculture contends. However, they do not include all of the interstate barley and wheat rates that are applied in Montana. Approximately 75 percent of Montana interstate traffic is shipped to the west coast, moving under interstate rates published in North Pacific Coast Freight Bureau 13 Tariff. No party introduced into evidence comparisons of these interstate rates. Compared in table 10 are Montana interstate, Montana intrastate, Minnesota intrastate, and North Dakota intrastates rates.

357 I.C.C.

TABLE 10

Even after applying the sought increases, Montana intrastate grain rates are lower in all instances than Montana interstate grain rates, and in most instances lower than Minnesota and North Dakota intrastate grain rates.

Respondents have also presented evidence of rate comparison for the principal representative commodities listed in table 8; prepared animal or poultry feed, grain and related articles, sugar, pulpwood chips, and scrap iron and steel, and have shown these rates will be no higher than rates for similar traffic and distances. These comparisons are not reproduced here. They lead to a conclusion similar to that for blarley and wheat. If the sought intrastate increases are applied on these commodities in most instances, the intrastate rates would still be lower than the comparable interstate rates. In the remaining few instances they would be equal to the interstate rates.

Montana has objected that the rate comparisons on iron and steel scrap are "paper rates." However, the comparisons are valid upon explanation and correction of them in BN's reply statements. The comparisons initially failed to account for increased distances due to a line abandonment. Since they are not distances rates, they do not change upon correction of the distances in question.

Montana Consumer Counsel attacks the proof of reasonableness of the increases by stating the railroads' evidence fails to examine the profitability of the Montana intrastate rate structure. However, the rate comparisons presented are sufficient to establish reasonableness of the increases in this case. If for any reason, a particular rate is unreasonable, Montana may apply to modify the rate structure by proving with cost-revenue studies that an exception to the general increase in rate level is justified.

The railroads have presented a prima facie case. The Montana authorities have not shown fault in the case to rebut it. As yet, they have not shown that exceptions from a general increase for particular traffic would be justified. All parties still have the opportunity to do so.

Petitioners evidence show that such increases will result in additional revenues of over $1.5 million annually to the three Montana railroads. We found in Ex Parte Nos. 318, 330, 336 and 305-RE that the increases authorized for application to interstate traffic would not result in unjust and unreasonable rates. Respondents are in need of additional revenues to offset increased costs which fall alike on interstate and intrastate traffic. There is no basis upon which we can conclude that the findings of

reasonableness made as to interstate rates do not apply as well as to Montana intrastate rates. We, therefore, find that the establishment of increases in intrastate rates and charges as approved will not result in unreasonable rates and charges, or in rates and charges that are unreasonable in relation to interstate rates or charges, and will increase substantially the respondents' revenues. The revenues resulting from the increased rates and charges are required from intrastate traffic in Montana to enable the respondents to provide adequate and efficient railway transportation service.

This decision is not a major Federal action significantly affecting the quality of the human environment, within the meaning of the National Environmental Policy Act of 1969.

COMMISSIONER MURPHY, concurring:

I am in agreement with the majority insofar as it finds that the Montana intrastate rates cause unjust discrimination and undue burden on interstate commerce.

I am seriously concerned with the attempt or ploy of the rail respondents in circumventing consideration of their proposal by the State of Montana. The procedures attempted by respondents in this instance smack of the same device attempted in the proceedings leading up to the institution of No. 35203, Intrastate Freight Rates and Charges in Southern States, 1969. Despite the contentions of respondents that the criteria specified by the State of Montana are difficult to meet, in my opinion, respondents should not be allowed to circumvent the requirement that they first seek relief from the appropriate State body before filing a petition with this Commission. I would go one step further beyond what the majority herein proposes and I would put the rail respondents on notice that should they seek to utilize a similar device in the future that their petition will be rejected out of hand.

It is ordered:

1. Respondents shall cease and desist from practicing unjust discrimination against, and undue burden on interstate commerce by 45 days from the service date of this order. Respondents shall give notice of their actions to this Commission and the general public in the manner required by section 6 of the Interstate Commerce Act. 2. Respondents shall establish and maintain rates and charges for intrastate transportation from and to points in the State of Montana

within 45 days from the service date of this order. The rates established shall not exceed the rates and charges found reasonable in this report. Respondents shall give notice of their actions to this Commission and to the general public in the manner required by section 6 of the Interstate Commerce Act.

3. If the Montana Public Service Commission notifies the Interstate Commerce Commission, within 30 days of the date of service of this decision, that it will promptly permit the increase allowed by this order, this order will be void.

APPENDIX

Reproduction of analysis by, Dale L. Maristuen, employee of BN of the four basic methods of providing costs of intrastate operations

1. Separation of intrastate expenses.-This concept contemplates a determination of intrastate expenses on an actual or close to actual basis at the subaccount level. This in effect would result in a set of books kept for each State in which the BN operates. Each account, such as Account 214-Rails, Account 314-Freight Train Car Repairs and Account 401-Trainmen, just to name a few, would be established for each State and then further separated between those expenses related to interstate and intrastate service.

These accounting procedures would be impractical since the accounting system would be virtually unmanageable. Furthermore due to the co-mingling of the interstate and intrastate traffic in many instances the separations would be no more than arbitrary. The difficulty with this method is that a railroad operating in 19 States, such as BN, still only operates one railroad, not 20—one in each State plus interstate. 2. Rail Form A approach.-This concept uses the ICC Rail Form A formula. The formula was developed several years ago for broad territorial application as a means of providing a standardized tool for measurement comparison. The formula was never intended to reflect actual costs nor was it intended to be used for anything more than a minimum rate level guideline.

The unit costs developed from the formula are no more than system average costs reflecting the average expenses associated with operatings over the entire system. The procedures would call for these unit costs being applied to the intrastate service units, such as car originated, car miles et cetera. This concept hardly eliminates the criticism of using system average costs.

3. Intrastate allocation formula-such as the North Carolina formula.-This concept allocates system expenses to the various States and then further allocates the State's expenses between interstate and intrastate. The basis for the allocation is a number of traffic characteristics representing the State's interstate and intrastate relationships. This approach has been described as too simplistic at its present stage of sophistication.

4. Train study.-This concept is used by the BN in I.C.C. 36634, Montana Intrastate Rail Freight Rates and Charges-1977. It is a study of the entire traffic movement and 357 I.C.C.