COMMENTS OF THE POLICY BOARD

The policy board, after reviewing the panels' positions, stated: The recommendation of the user and investor panels for the repeal of section 15a, the rule of ratemaking applicable to railroads and other carriers subject to part I of the Interstate Commerce Act is, we think, unquestionably sound. The rule has never really served one of its principal purposes, that is, to assure a financially healthy railroad system. As indicated above, the original form of this legislation, which provided for a specific fair return on railroad property and recapture of excess earnings, was repealed in 1933 in favor of what was thought to be a more flexible standard. The Commission at that time spoke in terms of the desirability for railroad income to vary with the business cycle and of the necessity for good carrier earnings during prosperous times in order to offset the inevitable pinch during depressions. Though Congress did not write this latter thought into the law in so many words, the present rule confers ample authority on the Commission to follow such a policy. But now that generally prosperous times are here the Commission seems to have forgotten its earlier prescription for carrier financial health.

Instead of serving as the statutory basis for maximum rate regulation, one of the prime aims of which is to assure adequate revenues to the carriers being regulated, the ratemaking rule has been used primarily by the Commission to whittle down carriers' requested increases in rates. Most of these actions have not been based squarely on a finding that the new rates would be unreasonable to the shippers paying them but apparently in large part on the Commission belief that the increases proposed would reduce the volume of traffic by diverting business to other forms of transportation and hence would not bring the additional revenue estimated by the carriers. The Commission has also consistently taken a more optimistic attitude than the carriers toward future business prospects and because of this often concluded that financial need for the entire increase requested has not been demonstrated.

Both the language and history of section 15a indicate that it constitutes statutory authority and even a directive to the Commission to participate actively in the making of carrier pricing policy. We think a change in emphasis to indicate that Congress now intends a minimum of paternalism can best be achieved by repeal of the ratemaking rule and by inserting in the declaration of transportation policy broad language referring to the necessity of adequate earnings for carriers of all forms of transportation subject to the Interstate Commerce Act, where it may serve as one of the expressed aims of Congress to be considered by the Commission. The language finally chosen by the user and investor panels, that it shall be the policy of Congress "to permit the maintenance of carrier credit and the attraction of equity capital" particularly the words "to permit," aptly indicates the intent of these panels. We interpret them as meaning that regulation should allow sound financial conditions to exist to the full extent that control to prevent unreasonably high or discriminatory charges to shippers will permit, but should not take an active hand in determining the methods as to how such conditions are to be attained.

Repeal of section 15a will not strip the Commission of its power to prevent the establishment of unreasonably high rates. The "just and reasonable" standard of section 1 of the act will protect against such rates, whether they are rates which would unduly enrich the carriers or unreasonably high rates which result from inefficiency on the part of the carriers. But in applying the "just and reasonable" standard the Commission will be guided by the declaration of policy and not by a ratemaking rule which up to now the regulatory agency has considered as authority for substituting its judgment for that of carrier management as to what will best promote the financial health of the carriers. So long as the Commission retains what it considers to be specific authority to determine what level of rates will attract the most favorable volume of traffic and receives conflicting evidence on this score from the proponents of and protestants against a general rate increase, the easiest solution for the Commission will continue to be not to accept the contentions of either party completely but to reach its own conclusions as to what rates it would charge if it were carrier management. In the frequent absence of sufficient knowledge on the part of the Commission to enable it to reach an intelligent conclusion, the result is simply a split of the difference between the conflicting claims. We believe that the carriers are best judges of the most desirable level of rates from the revenue viewpoint.

The railroad panel favored deletion of certain parts of the ratemaking rule and the addition of some new language but opposed repeal of the entire provision.

Though the railroad panel position differed from that of those panels recommending repeal of section 15a, its purposes in seeking changes in the rule appear to have been identical to the goals sought by the panels supporting repeal. We believe that repeal of the rule, coupled with the proposed amendment to the declaration of policy, constitutes the more effective means to the attainment of these aims.

The highway and waterway panels have also opposed repeal of section 15a. It appears that both these panels fear that such action would somehow facilitate railroad rate reductions. Certainly this is not the expressed purpose of those panels favoring repeal; their attention was centered on rate increases and the necessity for relieving the Commission of any right or duty to decide whether rate increases are wise from the point of view of the carriers. We do not believe that repeal of section 15a would bring any substantial change in minimum rate regulation. Nor do we think that repeal of this rule of ratemaking will affect the Commission's attitude toward the value-of-service factor in its prescription of rates, as the pipeline panel and some other panel representatives seem to fear. The value-of-service idea had been incorporated in the "just and reasonable" standard of section 1 of the act long before the enactment of section 15a. If Congress proves willing to repeal section 15a, a suitable expression of Congressional intent not to disturb the value-of-service concept should be adequate to prevent change in the Commission's policy in this respect without the addition of new value-of-service language to the act as proposed by the pipeline panel.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The board of directors of the TAA after careful consideration was not in favor of repeal of section 15a of the Interstate Commerce Act, but recommended deleting from section 15a that clause which requires the ICC to give consideration "to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed"; and adding to section 15a a clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capital. In taking this position, the board of directors did not have in mind any change in the principles of ratemaking embodied in other portions of the act, and the interpretations thereof.

The board particularly was agreed that the value-of-service concept of ratemaking should not be jeopardized. While there was such agreement on this principle, it has not been possible to get agreement on exact legislative wording to insure this.

The association still believes that the Commission should not use section 15a as a basis for substituting its judgment for that of management as to the effect of proposed rates on carrier earnings. However, since the whole problem of revision of the rule of ratemaking has been greatly complicated by the proposals in the Cabinet Committee report, the association does not list the elimination of the phrase regarding "the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed" as a priority recommendation at this time.

It does believe that the addition to section 15a of the clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capital is important. (The association takes no position at this time on the minimum rate control question.)

COMPARISON WITH H. R. 6141

H. R. 6141, by repealing the present section 15a of the act does away with the phrase "effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed." It does not propose a directive to "permit the maintenance of carrier credit and the attraction of equity capital" in its substitute proposal for section 15a. In its Statement of National Transportation Policy it favors providing for and developing "under the free enterprise system of dynamic competition, a strong, efficient, and financially sound national transportation industry, etc." The TAA proposals deal with an amendment to section 15a as it now exists. The TAA has no proposals for a revision of the national transportation policy statement in the act.

Mr. BAKER. I will now pass to the final sheet which is the conclusion.

As shown above, TAA has given these subjects very careful consideration.

It should be pointed out that our work included the drafting of specific legislative language to carry them out. Therefore, we are prepared, if so desired, to submit to the committee a draft of legislation on any of the subjects discussed today on which our position calls for specific action except as we have explained on the recommendation in regard to shippers' associations.

As stated in our opening remarks, we urge separate consideration of at least some of the issues covered by the Cabinet Committee report. At the annual meeting of the TAA board of directors, five of the subjects on which we have here presented testimony were listed as priority items for 1956. These were the proposals dealing with section 22, unprofitable services, publication of contract carrier rates, definition of shippers' associations, and opposition of repeal of the bulk commodity exemption.

Out of those five we believe the section 22 and unprofitable services issues can well be given especial consideration. These recommendations have two very important points in common: 1, they have a most unusual amount of agreement on them; 2, they both deal with an injustice to the general interstate shipping public.

Since H. R. 525 handles the section 22 problem separately and, since it was introduced well before H. R. 6141, we urge that it be considered by the committee while these hearings are still in process. In this way we feel that an important piece of constructive transportation legislation can be acted on favorably at this session of Congress. Thank you, Mr. Chairman.

Mr. HARRIS. Dr. Baker, if you desire, you may include A Summary of Policy Positions, How To Build a Better Transportation System. I notice it is not very long. Even though it does include points beyond those that you discussed and are tied up with these bills, I think for the information of the committee, and perhaps others, it would be helpful to include it in the record if you so desire."

Mr. BAKER. I would like very much to do so. (The material referred to is as follows:)

HOW TO BUILD A BETTER TRANSPORT SYSTEM-A SUMMARY OF POLICY POSITIONS

The Transportation Association of America is a nonprofit research and educational institution. It is dedicated to the preservation of the transportation industry in private ownership; and it is engaged in developing and advocating sound national transportation policies.

GROUND RULES

In its study of transportation problems and in arriving at policy positions, the following guides were established as basic principles:

1. There should be no legislative restriction against private carriers (the user performing transportation of his own goods for his own account) except for safety purposes.

2. Fair competition, both within regions and throughout the country as a whole, should be preserved in our transportation system subject only to such regulation as may be required in the public interest.

3. No regulation shall be imposed upon or continued in force with respect to any means of transportation unless such regulation is specifically required in the public interest.

4. No regulation shall be imposed upon any means of transportation merely because the public interest requires that it be imposed upon one or more other means of transportation.

TRANSPORTATION-A VITAL BUSINESS

The American people spend at least $60 billion a year for transportation—or approximately a fifth of the national income. Transportation is thus a vital factor to every businessman in the cost of doing business and to everyone in the cost of living.

The growth in production and wealth predicted for the next two decades can take place only if the transportation system is strong and healthy. Similarly, any program of national defense is dependent upon an adequate national transportation industry.

The American transport system must be fit and able to keep pace with the rest of industry-each segment performing its proper part with fair treatment and opportunity and a healthy mixture of competition and cooperation. Seeking to help build a better transport system, the Transportation Association of America's board of directors has reached the policy positions stated on the following pages after research and thorough consideration.

Available to the directors for guidance are the following groups:

Eight panels, representing users, investors, and all forms of transport which study issues and then take positions on them.

A coordinating committee, made up of the chairmen and other representatives of all panels, which consults on differences in panel positions and discusses possible agreements.

Association members, regional forums, enterprise councils and other local organizations which submit views which are particularly useful in areas where differences of opinion exist.

A policy committee of the board of directors which receives panel recommendations, and transmits them, with any dissents, to the board, along with its own recommendations.

The above procedure is available to the TAA Board for Guidance in reaching positions,

TAA POLICY POSITIONS

1. Government conduct of carrier operations

It should be the policy of the Congress that the United States Government should not engage in any for-hire transport services where adequate privately owned transportation facilities of any type are or can be made readily available; or, to the extent consistent with national-security requirements, engage in any transportation of persons or property which privately owned carriers are fit, willing, and able to perform.

All panels supported this proposal. Two Hoover Commission reports dealing with transportation and buisness enterprises cite many cases of Government competition in the transportation field, and claim that many such activities