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B.

C.

Grass Tons Per Train. Complainants calculated the gross tons for origin trains by assigning a lading weight of 100 tons for covered hopper cars and 58 tons for boxcars observed at each station. A relationship was drawn between the percentage of tonnage traveled between each station to the total distance to form a weighted average for the line segment. For those lines on which no study was performed, complainants used Rail Porm A data. Complainants used system average data for gross tons per train for through trains and destination way trains where applicable. BN relied entirely on system average data.

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(6) Empty Return Ratio. BN used, without explanation, a
100 percent empty return ratio. Complainants' use of BN's
Rail Form A system average is more reasonable.

Switching Minutes

(1) Switching Minutes Per Carload at Origin. Complainants
developed switching minutes per carload at origin for the
origin stations studied and used Rail Form A data for the
remainder. BN used Rail Form A data.

(2) Destination Switching Minutes.
Form A data.

Both parties used Rail

(3) Switching By Yard Locomotives. Complainants used data
developed through field observations and discussions with
operating personnel in some cases supplemented by BN Rail
Form A data. BN used Rail Form A data.

(4) Inter/Intratrain Switching. Complainants adopted BN's
methodology of using its Traffic Analysis System to obtain
data on intertrain switches as the sample cars moved from
one train to the next. However, complainants did not accept
the results for four movements. They contend that the result
for those movements was too high and therefore relied on Rail
Form A data for the four movements. Complainants approach
appears to be reasonable.

Grain Doors

Complainants state that the Rail Form A does not develop a separate unit cost for installing grain doors in boxcars, but rather includes it under Terminal Train Supplies and Expenses (TTSE). They believe that the cost per carload for TTSE would tend to understate the actual cost of providing grain doors. They have therefore adopted the grain door cost of BN witness L. J. Day in Seasonal Rates on Grain to Minnesota and Wisconsin, 362 I.C.C. 79 (1979). This was updated by the general overhead ratio and indexed. BN states that based upon I.C.C. Statement JS3-72, Rail Revenue Contribution By Commodity and Territory for the Year 1972 (Burden Study), it used 8.5 percent of TTSE for each car. Complainants' cost calculation is more completely documented and appears to be the more reasonable.

D. Car Costs

(1) Railroad Owned.

Complainants accepted BN's Traffic Analysis System as an appropriate source for data on car-hours. However, they found that the data relied upon by RN included time during which cars were under demurrage, bad ordered, and unaccountably backhauled twice during one linehaul movement. They found

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that for some

cars for which the prior or subsequent movement was a loaded move, BN had considered a f the time to be as an empty move and for some moves for which the records did not Show prior or subsequent empty moves, BN assumed that the moves were empty movements. Complainants adjusted the BN data to correct for these factors.

BN used rental factors from Ex Parte No. 334, Car Compensation Basic Per Diem Charge Formula Revision In Accordance with the Railroad Revilization and Regulatory Reform Act of 1976, 361 1.0.c. 189 (1979) to calculate costs. It then updated the costs to the April 1, 1981 level. Complainants assert that it is inappropriate to update the car repair portion. Complainants calculated BN's average repair costs per car for boxcars and covered hopper cars in 1978, 1979 and 1980. They state that during the period, the average repair cost for 40 foot boxcars increased by 7.0 percent, the repair cost for 50 foot or longer boxcars decreased by 17.1 percent and for covered hopper cars it decreased by 8.2 ercent. Average car repair costs per mile increased by 46.4 percent for 40 foot boxcars, decreased by 18.1 percent for 50 foot or longer boxcars and decreased by 7.8 percent for covered hopper cars. Complainants attribute the increase for 40 foot boxcars to a precipitous drop in car-miles that is either the result of erroneous data or abnormal conditions. Complainants attribute the overall decrease in repair costs to the net increase in the size of the covered hopper fleet through the acquisition of new cars coupled with the reduction in the boxcar f it through the retirement of old cars. This is plausible because repair expenses may be expected to vary directly with the age of the car fleet. Complainants have argued convincingly that the use of the updating factor that is based solely on average changes in material prices and wage rates results in an apparent distortion in car repair costs.

BN also added general overheard costs to the car hire rates. Complainants objected, arguing that Ex Parte No. 334, supra, includes distribution of general overhead expenses between car ownership costs and other expenses. They conclude that the result is an overstatement of car costs. Complainants' discussion does not differentiate when such expenses are incurred by car owners and car users, respectively. In instances where cost studies incorporate actual car hire rates paid by car owners by foreign railroads, the overhead expenses incurred by both owning and using railroads should be included. SpecifiCally, overheads borne by the car owners are included within the car hire rate, while a provision for overheads borne by the car Hier is reflected through application of the user's R11 Form A overhead ratio to the car hire monies paid. However, in situstions where single line traffic is loaded in the wandling railroad's own cars (as is generally true with the involved traffic) and where car ownership costs inted upon Rali Porm A average are rejected in favor of rates in the car hire table reflecting specific car ages and values, the overhead costs of only one railroad constituting hoti wher and user need be Covered. Thus, for purposes of tuls proceeding a general overhead ratio should not be separately applied to the car hire rate applicable to BN equipment.

(2) Privately Owned. The parties used actual per diem and mileage rates in computing costs for privately owned cars. Crew Wagen

Complainants developed crew wages through their study. IN used Rall

Firm costs.

No. 37809P

F. Indexes

Complainants developed indexes to use in increasing BN's 1977 Rail Form A costs to the April 1, 1981, level. They used the procedure described in the publication, ICC Statement No. 1E3-78, Explanation of Rail Cost Update Procedure, to develop a weighted average index for the BN and UP. The index factors used in the calculations were obtained from the publication, Indexes of Railroad Material Prices and Wages, Series GMPW 111, published by the Association of American Railroads. The 1977 base year expenses, rents, and taxes were obtained from BN's and UP's R-1 Annual Reports. Net car hire rents were excluded from the calculation because car hire data was based upon current car hire rates.

BN also states that it followed 1E3-78 procedures. However, BN calculated a weighted index to reflect both expenses and embedded debt cost of capital. Since complainants have provided the details of their calculations while BN has not, and since the use of a weighted index is inappropriate, complainants' index is the accurate one.

G. Helper Service

Complainants included the cost of two SD-40 locomotives for 36 miles each for helper service. BN states that complainants should have used 72 miles to take into account two empty returns. The helper service cost included herein is for westbound trains. Defendent submitted no evidence to show that the returning locomotives are not used in eastbound trains. Therefore, I have accepted complainants' helper service unit cost based upon 36 miles.

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(1) UP Reciprocal Switching Cost. In situations where the
destination line haul railroad delivers the loaded cars to
another carrier as Union Pacific does at Portland for
placement at consignee facilities, the charge assessed
by that carrier ordinarily constitutes a better measure of the
linehaul railroad's costs than its Rail Form A system average
data. However, in the instant proceeding complainants'
destination terminal cost derived from Rail Form A and updated
including an allowance for constant costs, closely approximates
the $64.74 charge. These costs reflect the destination
functions performed by UP, 1.e., road train-industry switching,
special services, and terminal train supplies and expenses.
Because both methods produce essentially the same result,
complainants' calculations for the Portland movements do not

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(3) Terminal Train Supplies and Expenses. Complainants adjust Terminal Train Supplies and Expenses to reflect the Burden Study factor of .08515 for railroad-owned covered hoppers.

(4) Embedded Cost of Capital.
revised the embedded cost of
levels of 6.4222 percent for
percent for equipment.

Complainants state that they capital to reflect the 1980 road property and 9.6460

Summation of Cost Evidence

All of the differences between the parties in their cost presentation, with the exception of the matter of tare weight, are resolved in favor of complainant. In new of the negligible effect upon total costs arising from minor differences between average tare weight and specific tare weights recorded for cars in respondent's study, the net result of

No. 37809F

the probable combination of overstatements in complainant's calculation is believed to be hardly perceptible. Thus, the revenue/cost ratios as calculated by complainant and which appear in the following table constitutes the best evidence of record with respect to handling the subject traffic.

In sum, complainants have demonstrated through their cost evidence that the involved traffic has the following aggregate ratios of rate to

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When this complaint was filed on March 27, 1981, the regulations regarding market dominance were those promulgated in Ex Parte No. 320, Special Procedures for Findings of Market Dominance, 353 I.C.C. 874 (1976). On June 24, 1981, the Commission in Ex Parte No. 320 (Sub-No. 2), Market Dominance Determinations, 365 I.C.C. 118, issued new market dominance regulations, which became effective on August 7, 1981. Complainant argues in this proceeding that due process should prevent the application of the guidelines promulgated in Ex Parte 320 (Sub-No. 2). Complainants in this instance have not shown that a manifest injustice would result from the application of the new guidelines. Cf. Bradley v. Richmond School Board 416 U.S. 696, 711 (1974). The new guidelines will be applied in this case.

Under section 10709(d) of the Act, in the period from October 1, 1981 through September 30, 1982, the Commission must find that the rail carrier publishing a challenged rate does not have market dominance over the transportation to which the rate applies, if the carrier proves that the rate charged results in a renewal-variable cost percentage for such transportation, that is less than 165 percent, during the period beginning October 1, 1982 and ending September 30, 1982. As shown earller herein complainants have demonstrated by their cost presentation, and as evaluated by me, that the involved traffic returns revenue substantially exceeding that threshold.

As to utramodel competition, complainant points out that RN is the only railroad running from Montana to the Pacific Coast, which proves that it has an effective monopoly. While this appears true as to rail competition, BN points out that there are other means of transportation of grains. It points out that since 1953 eight dams have been completed on the Columbia and Snake Rivers.

As a result there has been a consequent creation of slack water pools, and a large number of grain elevators established at river locations. These elevators receive grain by truck and ship by barge to Portland and Astoria, OR and Kalama and Vancouver, VA. BN presents evidence that shows that the shipments of grain through the locks of the Bonneville Dam grew from 1,276,939 tons in 1960 to 5,356,873 in 1980.

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No. 37609F

The traffic at McNary Dam grew from 2,000,266 tons in 1974 to 4,765,935 tons in 1980. The traffic at Lower Granite Dam grew from 147,519 tons in 1975 to 1,164,604 tons, in 1980. BN states that in order to meet truck/barge competition, on 15 occasions it lowered its rates for grain shipped westward. It also submitted statistics gathered by the Montana Crop and Livestock Reporting Service that show that from December 1979 May 1980 and June - November 1980, 35.0 and 50.6 percent, respectively, of all Montana wheat that was shipped out of state was transported by truck. BN also showed that during the same periods, 32.6 and 49.3 percent of the wheat shipped west was transported by truck. The aggregrates for the one year period are 42.6 percent and 40.7 percent, respectively. The data does not show any barge transportation.

Complainants contend that BN's evidence concerning grain shipments by barge is meaningless because it concerns all grains, not just wheat and barley. They also point out that there is no indication of how much of the grain is from Montana. Complainants state that there are no barge unloading facilities east of the Bonneville Dam, which is the last lock of the river system prior to reaching Portland and other export locations. Therefore, the data for the Bonneville Dam is cumulative for the whole system. However, complainants introduced their own evidence concerning grain transported through the Bonneville Dam. This shows that from April, 1980 through May, 1981, 7,064,687 tons of grain moved by barge through the dam. of that, 5,192,595 tons was white wheat that is produced in Oregon, Washington and Idaho. Complainants contend that very little of the 414,897 tons of barley and 1,457,195 tons of spring and winter wheat transported through the dam came from Montana. Complainants state that according to unloading records, less that 7 percent of the unloading receipts are for trucks.

Grain elevators in Montana are required to furnish the Montana Department of Agriculture with information concerning all grain purchased and where and how it is shipped to points outside Montana. The data shows that in 1979 and 1980, 83.3 and 83.1 percent, respectively, of the wheat and 72.7 and 69.2 percent, respectively, of the barley that moved directly from Montana origins to Pacific Coast points moved by rail. In December 1980, coincidental with BN's publication of multiple car rates, the respective percentages for wheat and barley jumped to 90.9 and 93.6 percent.

The Commission in Ex Parte No. 320 (Sub-No. 2), supra, changed its approach in considering the issue of market dominance. This is not the result of a change in the statutory definition, which as set out in Section 10709(a) remains "an absence of effective competition from other carriers or modes of transportation for the transportation to which a rate applies." Ex Parte No. 320 (Sub-No. 2) made geographic competition and product competition considerations in determining market dominance. "Geographic competition is a restraint on rail pricing stemming from a shipper's or receiver's ability to get the product to which the rate applies from another source, or ship it to another destination." Ex Parte No. 320 (Sub-No. 2) supra, at 128. It is apparent from the defini tionas well as the suggested types of evidence concerning geographic competition listed at p. 134, that in considering geographic competition, the Commission intends to look outside the scope of the routes to which the challenged rate applied and to look at other markets to determine their competitive effect on the extent of the railroad's true economic power to independently set the price for its services.

Complainants have shown that BN, as the sole railroad providing rail transportation between Montana and the Pacific Northwest ports, is the predominant source of transportation for Montana wheat and barley to those ports. Complainants' evidence from the Montana Department is persuasive concerning BN's position in the overall market in the transportation of the involved grains between Montana and the Pacific Northwest ports. The fact that BN's share of the transportation market Jumped significantly in December 1980, when it introduced multiple car

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