No. 362651 UNITED STATES STEEL CORPORATION-PETITION 1. In docket No. 36265, Southern Railway System found to have an obligation to provide coal cars to the United States Steel Corporation for the movement of coal from the Wentz mine to Gary, Ind. 2. In docket No. 36383, refusal of defendants to supply coal cars, upon a basis equal to the divisional share of the revenue, not shown to be unjust and unreasonable or otherwise unlawful. Complaint dismissed. 3. Proceedings discontinued. Wayne L. Emery for United States Steel Corporation. Donald M. Tolmie and Richard W. Kienle for Norfolk and Western Railway Company. Charles N. Marshall for Southern Railway Company and Interstate Railroad Company. William C. Leiper for Elgin, Joliet and Eastern Railway Company. DECISION AND ORDER An appeal from the initial decision of the Administrative Law Judge, which was served on Feburary 23, 1977, was filed by the Southern Railway Company (Southern) and its affiliates on March 15, 1977. Replies to the appeal were filed on April 4, 1977, by the Norfolk and Western Railway Company (N&W) and by the Elgin, Joliet and Eastern Railway Company (EJ&E). On July 13, 1977, Southern filed a petition for leave to file a supplement to its appeal for the purpose of explaining the significance of an order served by the Commission on July 5, 1977, in Ex Parte No. 241, Investigation of Adequacy of Freight Car Ownership, 335 I.C.C. 264 (1969). Since Southern's appeal relies in part on Ex Parte No. 241, supra, the petition is granted. The supplement to the appeal and the reply to the supplement filed by N&W and EJ&E on August 2, 1977, are made part of the record in these proceedings. Southern alleges that the Administrative Law Judge erred in his findings and conclusions and that the Commission should order that upon the request of the origin carrier (Southern), the connecting 'This report also embraces No. 36383, Interstate Railroad Company, et al v. Elgin, Joliet and Eastern Railway Company, et al. carriers (N&W and EJ&E) must provide a supply of cars equal to their divisional share of the revenue for movements of coal from Wentz mine in southwestern Virginia to U.S. Steel's facility in Gary, Ind. Southern's main concern is that during a period of car shortage it would be called upon to devote a disproportionate part of its own fleet to the movement in question and unfairly disadvantage its other customers. However, Southern maintains that once a call is made on the connecting carriers for a supply of cars, that relationship would be fixed and a binding commitment created which would obligate Southern to continue to accept cars from those lines pro rata for as long as the movement lasted, even through times of surplus. In the initial decision, the Administrative Law Judge determined that the Southern formula for determining car supply obligations on the basis of divisions of revenue is impractical. He stated that this standby formula would make it exceedingly difficult, if not impossible, to budget properly for freight cars because the "on call" obligation could never be accurately known. The Administrative Law Judge also noted that in Huerfano Coal Co. v. C. & S. E. R. R. Co., 28 I.C.C. 502 (1913), it was recognized that a carrier's first duty is to its on-line shippers, and that in times of shortage it is incumbent on such a carrier to distribute all its cars to its on-line shippers before distributing them to others. The Administrative Law Judge concluded that the Wentz mine is served by and dependent upon the Southern for car supply and, thus, the obligation to meet all of the car requirements for movements of coal from the Wentz mine is on Southern. He further concluded that complainants did not sustain their burden of proof that defendants, N&W and EJ&E, are in violation of section 1(11) and 1(12) of the Interstate Commerce Act. Having considered the entire record, we find that there has been no showing of material error in law or fact in the recommended decision. We further note that the practical question raised in these proceedings is not the adequacy of a carrier's fleet but the obligation of car supply. In this regard, the Administrative Law Judge's decision does not undermine the Commission's report in Ex Parte No. 241, supra. IT IS ORDERED: The initial decision in these proceedings is affirmed and adopted as our own and these proceedings are discontinued. Decided September 9, 1977. CHAIRMAN O'NEAL, concurring: While the decision of the Administrative Law Judge is reasonable, the Southern Railway System (SRS) has proposed a modification of the Commission's existing car supply rules which has a firm basis in equity and economics. I believe the Judge and the majority of the division should have given it greater consideration. The Administrative Law Judge's decision reflects the fact that the Commission has traditionally placed on the origin carrier the sole responsibility of supplying cars to movements originating on its lines. The rationale has been that the originating carrier is better able to perceive the demands of those shippers for rail service. Moreover, the origin carrier will always derive some of the revenue from any rail haul involving shippers on its line, regardless of the destination of the movement. Connecting or terminating carriers may derive more of the revenue from some hauls than does the origin carrier, but the revenue of the interlining carriers may cease once there is a change in the direction of the movement of these shipments. Finally, placing the car supply obligation squarely on the origin carrier provides for certainty in allocating cars in times of a shortage, and is a rule which has stood the test of long and generally successful experience. Placing the sole responsibility for car supply on the origin carrier is not the only rational means for defining the railroads common carrier responsibility. In defining the carrier's car ownership responsibility, the Commission has relied upon the number of carmiles over the line in question rather than upon the number of cars originating on line: Ex Parte No. 241, Investigation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution, Rules and Practices, supra. Using car-miles over a carrier's line as the preferable guideline to car ownership provides for a closer alignment of car ownership with the use of cars on its own lines than would a formula based on the number of cars originated. Since the revenue a carrier receives relates more closely to the number of carmiles over its lines than to the number of cars it originates, the Commission's car ownership formula imposes the responsibility of car ownership in direct proportion to the revenue earned by those cars. 357 I.C.C. Should the obligation to supply cars be predicated upon the same basis as car ownership? The Commission in Ex Parte No. 241 did not disturb the requirement that the duty to supply cars rests with the originating carrier. Car ownership and car supply are not the same things. The former involves the creation and maintenance of rail equipment; the second pertains to its utilization, particularly in times of car shortage. The obligation to supply cars should bear some relationship to the obligation to acquire and own them, however. Otherwise, the obligation to supply cars may be placed upon these carriers which have not been obliged to acquire them, and vice versa. In its order served July 5, 1977, the Commission reaffirmed its car ownership formula but terminated its proceeding to require the Nation's railroads to show cause why the Commission should not require them to acquire cars pursuant to the car ownership formula. In dismissing the show cause proceeding, the Commission cited its attempts to "create an environment conducive to voluntary acquisition of freight cars ***." This attempt to rationalize the rate structure of the railroad industry through the establishment of rules designed to bring the costs of providing rail service into alignment with the benefits derived from that service, rather than relying upon administrative fiat, seems to be in keeping with the spirit of the Railroad Revitalization and Regulatory Reform Act of 1976. That approach is relevant to the consideration of this proceeding. The present rule, as even the Southern Railway System concedes, is that the origin carrier has an obligation to supply cars to the shippers on its line. The SRS argues, however, that the origin carrier should have recourse against an interlining carrier, and that the interlining carrier or carriers has a responsibility to provide cars on demand to the origin carrier in proportion to the interlining carrier's share of divisions. The Southern stresses the fact that in the movement at issue in this proceeding, it hauls the cars only 16.7 miles and gets 12.5 percent of the divisions as opposed to the N&W and the EJ&E, which haul the cars 712 and 7.5 miles, respectively, and jointly receive 87.5 percent of the revenue. SRS claims it is unreasonable and inequitable to require SRS to supply the approximately 400 cars necessary for a movement the revenues from which chiefly accrue to its connections. The mere fact that the SRS connections reap most of the revenue from these movements is not sufficient reason to impose an obligation on them to supply cars for the movement, however. The obligation to supply cars implies the obligation to own them. Given the nature of that commitment, that obligation should not be imposed on a connecting carrier unless there is some indication that the movement is a repetitive one. The evidence of record does offer support for the proposition that the Wentz to Gary movement will continue. United States Steel has a contract with the mine's operators and indicates it will continue to use coal from the mine. The movements from Wentz to Gary commenced on a regular basis at the beginning of 1975. And the N&W connection is the most efficient routing between the Wentz mine and the Gary plant. The SRS is seeking the imposition of a car supply obligation in part due to its concern that the movement might cease and the cars could be idled. If the evidence suggested a good prospect that the movement might be interrupted, however, that would appear to be an argument for placing the burden on the origin carrier. The chief threat to any movement between two points is not that the shipments will cease entirely, but that the shipments will move from the point of origin to another destination. In such circumstances, the origin carrier could always count on part of the haul, and would be assured of collecting per diem on its cars. A connecting carrier may be cut out entirely if the shipments move to another destination. The chief justification for adopting the rule proposed by the SRS in this and in similar cases is the proposition that the carrier which makes an investment should realize the return on that investment, and the carrier which receives the revenue from rates designed to provide a return on investment should be the carrier which has in fact made the investment. In this proceeding, the N&W is receiving most of the revenue from the haul, but has not made any investment in the cars used to provide the service. On the other hand, the carrier which has made the investment in the cars used in the service, the SRS, receives very little of the revenue for the haul. Per diem payments compensate the car owner for the use of its car, but, even as established in Ex Parte No. 334, Car Service Compensation-Basic Per Diem Charges, 358 I.C.C. 715 (1977), they do not provide the same return to the carrier as does the rate. And while supplying the car is only one of the factors in providing rail service, it is a significant one. As the SRS notes in its pleadings, the obligation of the connecting carrier to provide cars must be accompanied by an obligation by the |