inadequate to meet shippers' demands. This fleet more than fulfilled the requirements. Following the final cessation of re-icing on January 1, 1974, there was some apprehension as to the carriers' ability to meet shippers' demands. Although the Commission had been assured by the carriers that there would be an adequate fleet of mechanically refrigerated cars to meet the demands of perishable shippers, this assurance was based on normal conditions and without the knowledge that the shippers this year would be confronted with an energy crisis having the effect of diverting much traffic from the highway to the rails. The Commission, however, was cognizant of the fact that something would have to be done to meet the unexpected increased demand for rail transportation by the perishable shippers. The Commission also realized that the only quick solution was to improve utilization of the available fleet as any immediate addition to the mechanically refrigerated car fleet was remote. The Commission, took several actions: (1) Issued an order requiring expeditious handling of all traffic by railroads, including placing, pulling, and forwarding of cars within 24 hours. (2) Issued an order prohibiting the loading of mechanically refrigerated car with commodities other than those requiring protective services; and (3) Issued an order requiring heavier loading of mechanically refrigerated cars. The increased cost for motor carrier transportation plus the uncertainty of fuel and reduced speed limits probably lessened the demand for motor carrier trailers with few complaints being registered in this respect. (c) Presently only sporadic shortages of mechanically refrigerated cars are being reported. It is quite evident that the actions taken by the Commission prevented what might have been a serious shortage of equipment to move our nation's food products. The Southeast is having no difficulty whatsoever. In fact, refrigerator car owners are reporting surpluses. On the West Coast only sporadic shortages are being reported and from all reports the movement of perishables at the present time is fluid. We feel that this has been accomplished by the fine cooperation among shippers, carriers, and the Commission. It is expected that no problems will be encountered from now until possibly September. With regard to the subject of deficiencies in the ownership of railroad freight cars, there is attached hereto a copy of the recent report of the Commission's Bureau of Accounts, which Commissioner Rupert L. Murphy has transmitted to Senator Vance Hartke.1 Also attached is a copy of the press release of July 5, 1974, announcing the Commission's institution of a formal investigation into certain practices which have allegedly created a "black market in grain cars. Question. (a) To what extent does the Commission have the authority to require the railroads to equip themselves with specific types of equipment? (b) What, if any, additional authority is needed? (c) What standards do you believe should be applied in this regulatory process? Answer. (a) Section 1(21) includes the authority to order railroads to equip themselves with an adequate supply of specialized equipment. This conclusion is supported by the presence of the phrase "including special types of equipment" in the definition of car service as set forth in section 1(10) of the Act. (b) I do not believe that any additional authority is needed in this area. The definition of car service as set forth in section 1(10) of the Act is extremely broad. (c) The statutory standard governing equipment acquisition orders in section 1(21) conditions such an order on a finding that the expense involved will not impair the ability of the carrier to perform its duty to the public. Application of this standard is a major issue to be considered in connection with the Commission's order in Ex Parte No. 241, which is a pending matter. Question. Should a carrier have the right to refuse service as part of its efforts to secure a rate increase? Why or why not? Answer. Under the Interstate Commerce Act a common carrier, once it has been granted authority by the Commission, is obliged to render service within the limits of its authority. An unjustified refusal to render service, to the extent it holds authority, would subject the carrier to the possible suspension or revocation of its certificate. 1 See p. 126. 2 See p. 133. Question. To what extent should a carrier be able to refuse service when that service does not meet the carriers standard for a reasonable rate of return? Answer. As indicated in the preceding response, a common carrier cannot refuse to render service. If it is not satisfied with its rate of return the carrier can seek a modification. Question. To what extent should the Commission be able to issue directions for handling, routing, and movement of affected traffic in the case of the failure of proper public service via railroads? Answer. In such a situation, the Commission is able to issue directions under section 1(16) of the Interstate Commerce Act as amended by section 601 (e) of the Regional Rail Reorganization Act of 1973. Under this recent amendment the Commission is now authorized to direct one railroad to operate over the tracks of another when the latter is not able to transport the traffic offered to it. Question. How long has the proposed merger between the Rock Island and Union Pacific Railroads been before the Commission? When do you expect a resolution of this issue? Why has it taken so long? Answer. Attached hereto is a copy of a letter to Senator Hartke dealing with this matter. It represents the views of the entire Commission. At this time I can only add that this matter will be decided in the near future. [Attachment:] INTERSTATE COMMERCE COMMISSION, OFFICE OF THE CHAIRMAN, Washington, D.C., December 13, 1973. Hon. VANCE HARTKE, Chairman, Surface Transportation Subcommittee, DEAR SENATOR HARTKE: We appreciate the opportunity you have given us, through your letter of November 27, 1973, to explain the time and procedural aspects of the Rock Island merger case. We are also concerned about the amount of time that it has taken to complete consideration and evaluation of the numerous issues raised by this matter. A fair appraisal of the Commission's performance in terms of timeliness of decision can best be obtained from facts and statistics. In matters involving carrier mergers or the consolidation or transfer of carrier operating rights or properties, this Commission passes upon more than 1,000 such transactions per year. Some of these transactions can reach disposition within weeks or even days after the application is completed. A railroad consolidation usually takes more time than other mergers, because it ordinarily is a large, complex transaction affecting a great many people and a wide variety of interests. For 35 major "merger" cases decided in the recent merger era (since 1960), the average time from the application filing date to decision date was 13 months. Ten of the 35 required oral hearings, and their average disposition time was 34 months. As you can see from these statistics, the Rock Island case is extraordinary. Many things go to make up the unique character of the Rock Island case: It encompasses almost every class I railroad and three class II railroads west of the Mississippi River. Among the parties are 19 railroads. 6 truck lines. 11 State bodies and the Southeastern Association of Railroad and Utilities Commissioners. 47 local governments and civic or commercial groups. 2 national labor organizations and the Department of Justice. While the case was instituted July 5, 1963 (when CNW applied for authority to acquire control of the Rock Island), the applications were not completed until February 6, 1967 (when the Santa Fe Trail Transportation Company filed for authority to purchase certain operating rights of Rock Island Transit). It is 16 cases, not just one. It also has a direct involvement with two other complex cases-The Milwaukee Road-Chicago and North Western consolidation, and the Burlington Northern Merger. There were novel procedural matters (raised by the competing applicants) which consumed much time and energy. For example, there were Union Pacific's effort to obtain Rock Island stockholder commitment by issuing UP certificates of deposit in exchange for Rock Island stock, and Chicago and North Western's similar effort by issuing CNW certificates for the UP certificates. The contingent status of several matters compounded the issues and the record. As an example CNW, at one and the same time, seeking (1) merger with the Chicago, Great Western, (2) consolidation with the Milwaukee Road and (3) control of the Rock Island. Ultimately CNW was spun-off from its conglomerate affiliation with Northwest Industries, sold to an employee group, and in the process made a dramatic change in its posture in the "Rock Island" case. Two hearing examiners (now called administrative law judges) were assigned, but one had to be hospitalized with a broken leg and he later retired, and the other subsequently had a heart attack followed by a brief seizure. As to the latter (which is the case of Administrative Law Judge Klitenic), the Commission studied the medical reports and weighed the alternatives then available, and thereupon decided that the most expeditious way to reach a decision was to have Mr. Klitenic complete his report which at that time was well on the way. That course was chosen in preference to by-passing a report and recommended order and assigning other staff to begin anew in drafting a report for the Commission. That decision was based on the extraordinary complexity of the issues, the unusually large size of the record, and Mr. Klitenic's familiarity with the matter, gained from several years of total immersion in it. Like the vast size of the case, the record here is enormous, and an adequate appraisal requires more than the ordinary amount of time. There were 279 days of hearings: Primarily between May 4, 1966 and August 22, 1968, November 18 and 19, 1969, April 15 and 16, 1970. To meet due process requirements hearings were held in seven locations-Washington, D.C., Chicago, Ill., St. Louis, Mo., Kansas City, Kans., Dallas, Tex., Denver, Colo., and San Francisco, Calif. After the report was served, parties on both sides sought extra time for filing exceptions, their ground being that extending this phase would enable them to crystallize the remaining issues and identify the parts of the record needing most attention. Among those seeking more time were Applicants Union Pacific and Southern Pacific. Applicant for inclusion in the transaction Denver & Rio Grande. Protestants Missouri Pacific, Burlington Northern, Chicago & North Western, Frisco, and Kansas City Southern. The Administrative Law Judge recommended a wide-ranging plan for realigning most of the rail operations west of the Mississippi River. Protestants and applicants have taken exception to that proposal, thus giving rise to counterproposals which, in turn, require appraisal time. The above aspects, and others, make this proceeding one of a kind, defying comparison-even with the largest mergers of the past or the well-known superannuated antitrust dissolution suits. The Commission just held two days of very beneficial oral argument as requested by the parties in their exceptions and replies. A special task force was digesting the record and reporting to the Commission even while the parties were preparing their exceptions. Now the Commission, in consultation with the task force, is working toward a final decision on a top-priority basis. It is hard to predict the completion date for a decision giving adequate attention to all the proposals and their ramifications, to the many issues, and the more than 150,000 pages of evidence in the record. We are now estimating in terms of two or three months, depending upon developments in other high-priority or crisis matters. In the meantime we have considered ways to speed up hearings and decisionmaking in big merger cases. We have in mind such things as identifying the kinds of evidence required (particularly matters already computerized or susceptible of computer storage and reproduction), prescribing regulations to improve comparability of data and expedite both adduction and appraisal of evidentiary data, and modifying hearing procedures. Pursuant to your request, this letter represents the views of the entire Commission. We trust that it will be helpful in understanding the difficulties which the Commission faces in sorting out the facts and at the same time trying to develop a solution equitable to all the parties and interests that have a stake in the proceeding. We will earnestly strive to fulfill our decisional responsibility and make a final determination of this highly complex case within the shortest time possible. Sincerely yours, GEORGE M. STAFFORD, Chairman. Question. Following the collapse of the Penn Central, the ICC initiated a study into the causes of the bankruptcy and related issues. No final report synthesizing the materials gathered by the Commission was ever issued. What is the status of this study? When do you expect a final report will be issued as a result of this study? Answer. The Commission instituted an investigation and a certain amount of input was made by our Bureau of Enforcement, but very little was presented by anyone else. The new management of the Penn Central (the trustees in reorganization) had nothing to offer because they were unacquainted with the factual background. The old management was under heavy attack in the press and ultimately in court, in both civil and criminal suits. If the old management is guilty of criminal conduct, that is a matter for the criminal courts to decide in the pending actions. Similarly, if a civil cause of action arises out of the bankruptcy, issues thereon would be decided in the courts. About a year after the bankruptcy the House Banking and Currency Committee issued a report dealing with certain securities aspects of the bankruptcy. The report contains some allegations to the effect that, if the SEC rather than the ICC had jurisdiction over the disclosure aspects of carrier securities, the Penn Central situation might have been different. The fact is that, the Commission, in its public reports and orders dealing with Penn Central's securities issues in the years immediately preceding the bankruptcy, fully disclosed to the public the precarious financial condition of the merged railroad and very candidly divulged the risks involved to the investing public. It also warned Penn Central, publicly in those reports, against the continued use of short-term credit for financing long-term merger goals. Certain aspects of the securities problem were within the jurisdiction of the SEC: sales of stock by insiders in "secondary distributions", and changes in stock holdings by insiders. In addition, the Penn Central holding company, which is the entity whose stock was publicly held was wholly within the SEC's jurisdiction and not at all within the ICC's jurisdiction. It must be kept in mind that 12 railroads 1 in this country are in reorganization under Section 77 of the Bankruptcy Act, and all are in the territory served by Penn Central. No other section of the country has a bankrupt railroad. During the deliberations in the PC merger case, the Commission learned that of the 9 railroads then serving the port of New York, not one was making a profit from railroad operations. Prior to its takeover by the C&O, the B&Q was in financial difficulty, as was the Nickel Plate just before it was rescued through merger with the Norfolk & Western. Also some of the largest motor carriers which were in bankruptcy (Yale) and in financial straits (Associated Transport and others) operate primarily in the territory served by PC. These are strong indications that the trouble runs with the territory rather than with any particular carrier. In fact the subcommittee chaired by Senator Hartke issued a report in 1972 spelling out details about the territory's economic decline, noting such things as the flight of heavy industry from New England and the disappearance of the anthracite coal industry from the Mid-Atlantic States. Synthetics displaced the silk industry and eliminated the daily fast trains of raw silk from the Orient to Pennsylvania. The "Big John" car subverted the poultry and flour production of New England and largely destroyed heavy grain shipments to that section. The St. Lawrence Seaway and early construction of superhighways also took their toll of former rail traffic. The dense population, and urban impaction in the Northeast created a high ratio of terminal to linehaul costs and further compounded the woes of the area's railroad industry. In the face of these and other almost overwhelming factors bearing adversely upon that industry, the Commission has given predominate and urgent attention to the preservation of rail service and restructure of the rail industry in the territory. In the order of priorities dictated by the public need, the Commissionconsidering the limitations on its resources and staff-has devoted its attention and energies to the pressing current crises and anticipated future problems. Question. Chairman Stafford has told this Committee that a special office would be formed within the Commission to oversee the administration of Commission regulations regarding rail passenger service. (a) What progress has been made in the establishment of this office? 1 Boston & Maine. Boston & Providence, the New Haven, Erie-Lackawanna, Lehigh Valley, Central of New Jersey, Reading, Lehigh & Hudson River. New Hope & Ivyland, Ann Arbor, Cadillac & Lake City, and PC. The Tennessee Central estate has been wound up. (c) The Amtrak Improvement Act of 1973 gave important new responsibilities to the Interstate Commerce Commission in order to facilitate the improvement of rail passenger service in the United States. The Act directs the Commission to promulgate such regulations as it considers necessary to provide adequate service, equipment, tracks, and other facilities for rail passenger service. Considering the way in which the vast majority of inter-city rail passenger service is operated in this country (i.e., by private railroads under contract with the National Railroad Passenger Corporation), what regulatory action should the Commission take to insure that high quality service is provided? Do you feel that regulations that apply only to Amtrak and not to the operating railroads will be sufficient to improve the quality of rail passenger service in the United States? Why or why not? (d) As you know, one of the most serious problems that needs to be faced if rail passenger operations are to be improved is the upgrading of rights-of-way. This is why Congress gave the ICC power to require that tracks be upgraded beyond the condition they were in May, 1971, which standard the railroads are already contractually obligated to maintain. What steps do you believe should the Commission take in this important area? (e) In certain "corridor" areas upgrading of track would return substantial public benefits in terms of making passenger service highly competitive with other modes. What is your feeling on the Commission's possible role in facilitating this upgrading? Do you perceive section 801 of the Rail Passenger Service Act as sufficiently broad to permit the Commission to order track upgrading in corridor areas and allocate the cost (and benefits) of such upgrading between Amtrak and the applicable railroad? Answer. (a) The Commission has established a Passenger Service Branch within the Bureau of Operations' Section of Railroads. The new Branch has the responsibility of overseeing the administration of the Adequacy of Intercity Rail Passenger Service Regulations, Ex Parte No. 277 (Sub-No. 1). Under the regulations, the field staff of the Bureau of Operations conducts compliance surveys of Amtrak and other carriers providing rail passenger service. The results of these compliance surveys are forwarded to the Passenger Service Branch and analyzed for the purpose of determining the degree of compliance with the regulations on a regional and national basis. In instances where serious deficiencies in the quality of service are indicated, the Passenger Service Branch arranges for full investigations. It is our purpose to work with the offcials of Amtrak and other carriers providing rail passenger service to correct deficiencies, but when corrective action is not forthcoming, the penalty provisions of the Rail Passenger Service Act of 1970, as amended by the Amtrak Improvemont Act of 1973, will be instituted. Additionally, the regulations provide that an aggrieved passenger may file a complaint with Amtrak or another carrier providing rail passenger service. Regulations provide that the carrier must respond within 15 days, advising the complainant of the action taken to correct the situation. In the event the passenger is dissatisfied with the resolution, the Passenger Service Branch attempts to mediate the complaint, dismiss it, or investigate the allegation. If the matter complained of is substantiated by investigation, enforcement action may be necessary. The Bureau of Operations has a compliance survey program underway, and at this early stage the Passenger Service Branch is actively pursuing its responsibilities. At the present time there are several investigations underway in respect to reservations, equipment deficiencies, train delays and lack of station facilities. (b) Yes. Establishing a Passenger Service Branch within the Bureau of Operations Section of Railroads appears to be the most logical manner of overseeing compliance with our new adequacy regulations. The field staff of this Bureau is already experienced in compliance surveys and, therefore, it is merely a question of assigning sufficient personnel to properly handle adequacy matters. For the fiscal year 1975 it is estimated that there will be a need for 45 positions in this Branch. (c) Since responsibility for the adequacy of the service must be assigned to all who exercise some discretion over the working of the system, the regulations promulgated in Ex Parte No. 277 (Sub-No. 1) make Amtrak and its contracting railroads jointly and severally liable for adequate performance and for restitution. While both are subject to fines, where control is in the hands of one party, 41-630-75-8 |