No. 36516

SWITCH CONNECTION CHARGE AT BETHPAGE, N.Y., LONG ISLAND RAILROAD

Decided August 26, 1977

A separate charge for maintaining a switch connection on a private sidetrack of General Motors Corporation at Bethpage, N.Y., found not shown to be just and reasonable. Proceeding discontinued.

George M. Onken, Richard H. Stokes, and Walter J. Myskowski for respondent.

Dennis J. Helfman and Benson T. Buck for protestant.

REPORT AND ORDER OF THE COMMISSION

DIVISION 2, Commissioners Hardin, MURPHY, and Clapp

BY DIVISION 2:

The modified procedure was followed. Due and timely execution of our functions under section 15(8) of the Interstate Commerce Act imperatively and unavoidably requires the omission of an initial decision in this proceeding.

By schedule filed to become effective January 31, 1977 (after postponement of initial effective date of January 15, 1977), the Long Island Railroad Company (respondent or LIRR) published LIRR Freight Tariff 72, ICC 1119, proposing a maintenance charge for operating a switch connection on a private sidetrack of General Motors Corporation (protestant or GM) at Bethpage, N.Y. Respondent sought to require protestant to bear the entire expense of maintaining both the switch connection and that portion of the sidetrack located within its right of way, at the Bethpage facility. Upon protest filed by GM, the Commission did not suspend, but instituted an investigation into the lawfulness of the proposed rate. The principal issue is whether the proposed rates are just and reasonable. Respondent has the burden of proof. Evidence in support of the schedules was submitted by respondent, in opposition

by protestant, and in reply by respondent. Pursuant to a Notice of Determination of Market Dominance, served by division 2 on April 28, 1977, respondent was found to have market dominance of the subject traffic.

Respondent's evidence.-The reason for the proposed charge, according to respondent, is primarily the need for additional revenues to meet increased costs of maintaining a switch connection. In this regard, respondent contends that it is sustaining increases in cost levels far in excess of revenues sought in this proceeding Respondent claims that it is entitled to reasonable compensation for the cost of maintaining a switch connection under section 1(9) of the act, citing in support Allied Container Corp. v. Maine Central Railroad Co. (not printed), decided October 27, 1976. Respondent submits that the rate in question will be assessed only where no contractual agreement exists. At present, protestant is the only shipper which refused to enter into a contractual agreement for the maintenance of the switch connection.

Further, respondent presents cost evidence relating to movements on its own lines and on the lines of connecting carriers. In developing its data, respondent estimated an annual maintenance cost of $1,808. This amount consists of the following expenses: depreciation, inspection, lubrication, snow removal and general maintenance, as shown in table 1.

'These figures are based on an average cost, excluding depreciation which was based on current construction costs of $30,400 over a life expectancy of 25 years, and which result in one-half the annual charge of $1,216 (or $608).

Respondent contends that this total amount is almost equal to the $1,887.30' which protestant would have had to pay at the proposed This total should be adjusted to $1,769.17 (403 x $4.39).

rate of $4.39 per car if it was assessed on the 403 cars received at the Bethpage plant in 1976.

Respondent maintains that its existing line-haul rates do not cover the full costs of maintenance expenses. To illustrate, respondent developed revenue-cost ratios for auto parts traffic from various origins in official territory to Bethpage. Based on this study, respondent concluded that the overall ratio of revenue-to-variable cost on this traffic studied is 59 percent. It is stated that respondent's share for its segment of the traffic was 54 percent while the share for other carriers was 63 percent. See table 2 below.

Respondent took a 10-percent sample from 403 carloads of auto parts destined for GM's facility in 1976, resulting in 40 sample carloads. These 40 carloads had 7 different origins. This sample consisted of cost information including route of movement, billed weight, actual weight shipped, car type, and revenue breakdown by railroad. Respondent received each of those shipments at Fresh Pond, N.Y., from ConRail, and moved them 33 miles to its destination at GM's Bethpage plant. Respondent averaged the trailing weight for the movement of a car (loaded and unloaded) from Fresh Pond, to Bethpage and return. However, respondent does not show how these results were obtained."

Respondent assessed car costs for the LIRR portion of each movement based on per diem and mileage rates paid by LIRR for

'An average revenue per carload of $278 for carriers other than the LIRR and $222 for LIRR, amounting to $500 total carload revenue.

each movement. The weighted average cost incurred for per diem and mileage costs was computed at $30.59 per car.

All cars involved were boxcars-general service, equipped. The weight paid for (billed weight) was used for the purpose of determining revenue and the actual weight shipped was used for the purpose of determining costs. The average tare weight used was 36 tons, taken from ICC Statement No. 1C1-74, Rail Carload Cost Scales, 1974.

Respondent applied unit costs to the traffic and operating characteristic developed from an application of Rail Form A, Statement No. 1F1-63, Formula for Use in Determining Rail Freight Service, to the 1975 expenses and statistics of the LIRR. These costs were updated to reflect a July 1976 level on the LIRR portion of each movement. Variable costs for the other involved carriers were based on territorial average costs (official territory, excluding New England), region III, as taken from ICC Statement No. 1C1-74, Rail Carload Cost Scales, 1974, indexed to the July 1976 level. The method used in updating the 1974 costs was not indicated nor was the specific update ratio developed by the respondent shown. Also, respondent did not indicate its specific method of cost computation.

Respondent submits that no interchange cost was included for the interchange between LIRR and ConRail at Fresh Pond Junction, N.Y. However, respondent contends that Rail Form A counts these cars as cars interchanged, and allocates a portion of switching expenses to this type of switching Consequently, respondent asserts that LIRR's costs for other types of switching are understated.

Protestant's evidence. Protestant generally assails respondent's cost analysis as deficient in many respects. It alleges that rail operating costs alone are nondeterminative in measuring maximum reasonableness; that the rates on auto parts traffic are at a high level; that respondent's cost-revenue comparisons are incorrect, faulty and unreliable; and that the existing rates are adequately compensatory. Furthermore, it attributes respondent's financial dilemma to its ratemaking and operating practices rather than to its existing linehaul rates.

Specifically, protestant states that the principal issue in this proceeding is whether the maintenance charge coupled with the line-haul rate exceeds a maximum reasonable level. In determining the maximum reasonableness of a rate, protestant contends that neither rail operating cost alone nor cost data is a proper standard, citing as support Class Rate Investigation, 1939, 262 I.C.C. 447, 693

(1945), Southeastern Assn. of R. & Util. Commrs. v. A., T. & S. F. Ry., 321 I.C.C. 519, 545 (1964), and General Motors Corp. v. New York Central R. Co., 311 I.C.C. 622, 625 affirmed General Motors Corp. v. New York Central R. Co., 207 F. Supp. 641 (E.D. Mich. 1962).

In addition, protestant submits that the publication of a separate charge for service already included in-the line-haul rate is simply an increase in the total charge to the shipper. Moreover, this increase will effectuate an additional compensation for maintenance of a facility which respondent is obligated to as a common carrier. This duty of a carrier has long been recognized by the Commission in Valley & Siletz R. R. Co. v. S. P. Co., 53 I.C.C. 397 (1919), and in Anaconda Copper Mining Co. Terminal Service, 266 I.C.C. 387 (1946). Further, protestant adds that respondent's obligation extends to the cost of constructing and maintaining a switch connection, citing Merchants Refrigerating Co. v. New York Central R. Co., 238 I.C.C. 599 (1940), and section 1 (41, 49 USC $1(4)).

Protestant submits that rail revenue contribution studies (otherwise "burden studies") by the Commission are the best indicator in measuring rates on specific commodities to railroad revenue in general. In addition, protestant submits that these studies are based on the most reliable information available, citing Increased Freight Rates, 1956, 298 I.C.C. 279 (1956), and Increased Freight Rates, 1958, 304 I.C.C. 289 (1958). According to the current burden studies, protestant submits that automotive traffic has produced higher freight rates and has greatly contributed to carrier's revenues, citing as support, Increased Freight Rates and Charges, 1972, 341 I.C.C 290 (1972).

In opposing the increase, protestant also submits that respondent's cost-evidence comparisons are inadequate because its sampling cannot be verified. It notes that traffic movement revenue is understated and the rail costs are overstated. In 10 instances, protestant found that its records indicated a higher charge than respondent's cost study reflected. With regard to sampling, protestant points out that only 6.7 percent of the sample carloads. occurred in May, while the sampling universe showed 17.5 percent of the movements were in May. Several alleged costing discrepancies were noted by protestant. Among others, protestant states that the latest AAR data indicated that the average tare weight is 33.16 tons, almost 10 percent less than respondent's cost study showed