general-commodity revenues obtained by a obtained by a carrier under a particular rate bureau's tariffs can be used to provide needed stability. The new definition overcomes a major criticism of the past definition of "traffic study carriers," that the traffic study carrier group changes with every change in "issue traffic." Furthermore, because appendix B of the prescribed procedures calls for operating ratios on both the issue and nonissue traffic, and because the "eachto-each" costing scheme recognizes the relative impact of each study carrier's traffic and cost characteristics, we believe redefining "traffic study carriers" will satisfy our data needs.

C. Instruction 27 carriers.—In reply to questions raised by certain carrier interests, we note that only those instruction 27 carriers, as defined in 49 CFR 1207.27, which meet the other criteria established in section 1104.2 of the prescribed procedures, are to be used to determine the traffic study carriers. However, additional carriers may be included as "traffic study carriers" if full explanation and appropriate justification for their inclusion is provided.

D. Sampling data.-In view of the redefinition of traffic study carriers, section 1104.2, paragraph (b)(2), at 351 I.C.C. 56, can be eliminated. The last sentence in paragraphs (c)(1), and all (c)(2) and (c)(3), at 351 I.C.C. 56, may also be eliminated to remove undue burden on the carriers. These requirements merely made more specific the requirement in the first part of section 1104.2(c)(1). Since our experience with the conduct, results, and use of the CTS indicates that there has been no misunderstanding with section 1104.2(c)(1), the more specific requirements can be eliminated.

E. "Carried" and "through" traffic bases.-Parties continue to debate the relative merits and usefulness of cost and revenue data submitted on the "carried" traffic versus the "through" bases. Carriers favor the "through" basis, while shipper interests advocate the "carried" basis.

After the informal conference we will determine whether data on the through basis should be required. There are substantial questions to be answered as to whether the sampling bias inherent in this data can be corrected, and as to the accuracy and usefulness of this information.

F. Issue traffic.-"Issue traffic" should be defined as in the past except for the addition of the word "directly." However, "issue traffic" should no longer be used to determine the selection of the traffic study carriers, but instead, used to determine how the results of the traffic and cost studies and other data are to be developed and

submitted. Thus, section 1104.2(e) should be revised to define "issue traffic" as follows:

(e) For cost and revenue purposes "issue traffic" is defined as those shipments on which the freight rates or charges would be directly affected by the rate proposal.

III. COST STUDY (SECTION 1104.3)

A. Operating ratios by standard weight brackets. In the Notice of Proposed Rulemaking in Ex Parte No. MC-98, New Procedures in Motor Carrier Restructing Proceedings, served January 7, 1976, we noted:

Relevant to the question of restructuring the less-than-truckload and small shipment rate structure are the regulations that have been prescribed in Ex Parte No. MC-82, New Procedures in Motor Carrier Rev. Proc., 339 I.C.C. 324, 340 L.C.C. 1, and 351 LC.C. 1, as codified in 49 CFR 1104.1 et seq. Those regulations, in addition to governing the submission of evidence in motor carrier general revenue proceedings proposed by designated rate bureaus on behalf of their motor common carrier members, also govern the submission of evidence in support of “a proposal general adjustment with the objective of restructuring the rates on wide range of traffic involving both increases and reductions in rates and charges". *** However, at this time, the ability of the Commission and other interested parties to evaluate proposals which would cause rate restructuring is seriously hampered by the fact that under the MC-82 procedures there is no requirement for furnishing a breakdown of operating ratios applicable to all categories of traffic, including less-than-truckload, in a uniform manner. Accordingly, the Commission at this time proposes to adopt certain amendments to the regulations in Ex Parte No. MC-82, supra, that would, if adopted. provide the Commission with additional data showing the breakdown of operating ratios applicable to all categories of traffic including less-than-truckload traffic. Under the proposed amendments, the present procedures would be modified to require in all instances a showing of operating ratios for the following weight brackets.

3. 200 - 499

4. 500 - 999

5. 1,000 - 1,999

6. 2.000 - 4,999

7. 5,000 9.999

8. 10.000 - and over

9. Total LTL (Lines 2 through 8)

10. Total minimum charges and LTL (Lines 10 & 11)

11. Truckload

12. Total all shipments (Lines 10 & 11)

Separately appended to the notice in Ex Parte No. MC-98, supra, were the revisions proposed to be made to section 1104.3 Cost Study, paragraph (a), in Ex Parte No. MC-82, New Procedures in Motor Carrier Rev. Proc., 351 I.C.C. 1, 57. Also, as a part of those revisions a new appendix E, Operating Ratios by Standard Weight Brackets on Issue and Non-Issue Traffic, was proposed.

Comments received in Ex Parte No. MC-98 showed a need for, and recognized the usefulness of, operating ratios by standard weight brackets. The parties raised a number of technical matters, such as: the designation of traffic study carriers and the definition of "issue traffic," both discussed previously. Since we have resolved these technical problems, the proposal in Ex Parte No. MC-98, supra, to revise section 1104.3 of the Ex Parte No. MC-82 procedures to require the submission of operating ratios by standard weight brackets, as modified, can now be incorporated into the Ex Parte No. MC-82 procedures as a new appendix B.

B. Updating costs.-To bring costs up to a more current level, beyond the base calendar-year actual, the procedures in our last report, 351 I.C.C. 1, 57, provided three methods of updating. Essentially these were:

(1) individual carrier updating, that is the "each-to-each" method,

(2) composite carrier "updating" data-based on those individual study carriers whose revenues from the issue traffic amount to 50 percent or more of their respective total system revenues-applied to the study carriers' base data, and,

(3) composite carrier “updating" data for those study carriers which in total account for 50 percent of the total issue traffic revenues for all study carriers.

In method (3), the study carriers to be used for the purpose of determining the 50-percent cutoff were to be selected from a list of study carriers arrayed in descending order beginning with that carrier deriving the greatest percentage of its total system operating revenues from the traffic at issue. Also, method (3) was authorized only if method (2) indicated less than six carriers obtaining 50 percent or more of their respective total system operating revenues from the issue traffic.

Certain carrier interests take exception to what they contend to be the arbitrary nature of using method (3): that is, only if method (2) criteria produces less than six carriers. They suggest that the method (3) array in descending order should be based on the carrier's gross revenues from the issue traffic rather than the percent of issue traffic revenues to its total system revenues. Another carrier interest also believes that the method (3) array should not stop at 50

percent but cover 70 to 80 percent of the issue traffic. Carrier interests also suggest other language changes and methods. These matters, however, are not significant and need not be detailed.

On the other hand, certain shipper interests support method (3) as preferable to method (2), which they urge should be eliminated. Others argue that the individual carrier basis, method (1), is preferable.

In our opinion, method (1) is preferable for the purpose of updating costs. Alternative methods were provided in the past as a matter of expediency for situations where method (1) created an undue burden on the carriers, or when time and data constraints did not permit the use of all the traffic study carriers for this purpose. While method (1) is preferable a reasonable alternative has been developed for updating costs for certain purposes. Section 1104.3 will be revised extensively to recognize the methods and procedures to be followed when updating costs on the "carried traffic" and the "through traffic" bases. Paragraph (f) of this revised section will also require that all rate proposals having an effective date of July 1, 1979, or thereafter, be based on the "each-to-each" costing method when computing costs on the "carried traffic" basis for all time. frames.

C. Use of wholesale price index to update nonlabor costs. Certain shipper interests are critical of the carriers' use of the Wholesale Price Index for Industrial Commodities as a basis for determining nonlabor cost increases. They contend that the index was neither designed nor intended for this purpose and that its use should be prohibited in favor of a requirement that updating must rely on "provable" increases in the carriers' costs and prices. On the other hand, certain carrier interests favor its continued use, arguing that specific studies have corroborated the index as a reasonable measure of changes in nonlabor costs. They note that it has been accepted by the Commission in past proceedings.

The prescribed procedures presently do not specify any particular data base to be used for updating nonlabor costs. For example, our last report, 351 I.C.C. 1, 57, simply used such language as "provable wage, price and productivity levels," and "provable labor and nonlabor costs increases for the purpose of updating."

We are aware that this index has been used by the carriers in past proceedings. In I&S M-27312, Restructured Rates and Charges, Central States, 352 I.C.C. 502, 521, we noted:

Admittedly, use of the WPI to update nonlabor motor carrier costs has other shortcomings in addition to the reasons stated above. This method can properly be

criticized because (1) no causal link between these costs and the WPI has been established, (2) the index does not reflect seasonal and long-term fluctuations in these costs, and (3) commodities unrelated to transportation are included. However, when the index is used with actual carrier data as the respondents have done, we believe that it is the most accurate updating tool available. In this matter, we are dealing with projections, and a certain margin for error is acceptable. With regard to respondents' use of the WPI for updating of nonlabor costs, we do not believe this margin to be excessive.

The Administrative Law Judge is, of course, correct that the carriers' own data could provide a more accurate updating of their costs. It is nevertheless unclear exactly how much more accurate such a methodology would be over the respondents'. In any event, respondents correctly note that in this proceeding, their cost evidence justifies the proposed restructuring by so great a margin that minor discrepancies in updating are insignificant.

Notwithstanding our decision in the above case, we are reluctant to look into the prescribed procedures, at this time, one specific data base for the purpose of updating nonlabor costs.

For the present the key in the prescribed procedures will continue to be "provable" cost increases. For the future, we plan to develop a motor carrier cost index specifically to measure increases in nonlabor costs for use in motor carrier general increase proceedings.

D. Reconciliation of expenses and revenues to annual report totals. This issue was discussed at some length in our previous report at 351 I.C.C. 1, 21-24, and in appendix I at 351 I.C.C. 1, 5354. Inadvertently, the prescribed procedures were not changed to comport with our conclusions; and, thus, both carrier and shipper interests debate this issue once again. We are satisfied that our conclusions on this issue are proper. Accordingly, the following sentence which appeared at the end of section 1104.3(c), 351 I.C.C. 1, 57, is being deleted.

The sample values for expenses and revenues shall be expanded to full year values without adjustments to known annual report figures of any carrier.

IV. REVENUE NEED (SECTION 1104.4)

A. Consolidated reporting. In the prior report, the filing of appendixes B and C data on a consolidated as well as "carrier only" basis was prescribed upon the urgings of the motor carrier petitioners for creation of an expanded data base. Several petitioners request that implementation of this additional disclosure requirement be deferred until the year following formal adoption of consolidated data reporting for annual report purposes.