More often than before, we have felt obliged this year to permit discontinuance of trains because the removal of mail and express traffic has rendered a borderline operation no longer profitable. Thus, the tendency of the Post Office Department to change to highway transportation is reducing the availability of passenger trains to the public. In the New Haven case, Finance Docket No. 23831, reported at 327 I.C.C. 151, the Commission considered the proposal of that carrier which virtually would terminate its passenger operations, including its through connecting service with the Pennsylvania Railroad and the Boston & Maine Corp., and its services for an estimated 30,000 daily commuters in the west end suburban zone of New York City. A total of 273 New Haven interstate trains were the subject of the notice. Our order required the New Haven to continue operating its New York commuter trains, as well as those in the Boston suburban zone, and approximately 50 percent of its scheduled through trains running between New York and Springfield and Boston.

In reaching our decision in the New Haven case, we observed:

It is clear to us that many passenger operations in this country are essential and should be preserved. It is also clear that the public and certain of its governmental units through willingness to underwrite and, in some cases, assume responsibility for the operation of such services, have demonstrated their conviction that an essential rail passenger system is no less required than an essential rail freight system.

We therein recognized that the immediate circumstances dictated a result in the case which would be only an interim solution to the problems made apparent. Concerning the achievement of a long-range solution, we concluded that, just as the railroad has an obligation to sustain and improve essential rail passenger service, the public has an obligation also to provide its support. We stated:

That the reasonable level of public support should in fact be construed as that level of financial or other public assistance which will stimulate the carrier to initiate or, if already initiated, continue its own reasonable effort to sustain and improve essential and economically viable passenger services. This, we think, is the kind of creative cooperation which will most productively revitalize and invigorate the operation of America's privately owned rail passenger operations.

In Finance Docket No. 23800, we required the continued operation of Southern Pacific's trains Nos. 39 and 40 between Tucumcari, N. Mex., and Phoenix, Ariz., because it was evident that the carrier had discouraged use of the trains by the traveling public. Therein we stated:

Whenever it appears, as it does in this proceeding, that a carrier has deliberately downgraded its service in order to justify discontinuance of a train irrespective of the actual or potential needs of the traveling public, the Commission will order the service to be continued. ***The Commission will not find burdens on interstate commerce within the meaning of section 13a of the act to be "undue" if those burdens are voluntarily created by carriers for the purpose of obtaining a favorable decision from the Commission.

Similar action was taken in Finance Docket No. 23756 in which we required the Southern Pacific to continue operating its trains Nos. 9 and 10, known as the Shasta Daylight trains, between Portland and San Francisco.

Also see p. 83.

Highway Service

In two groups of Commission decisions issued in January 1966, it was recognized that there is some confusion among motorbus operators and brokers of passenger transportation regarding the operations which may lawfully be conducted under authority to provide sightseeing and pleasure tours. Michaud Bus Lines, Inc., Extension— Tours, 100 M.C.C. 432, and Greyhound Corp. v. Edwards, 100 M.C.C. 453, discussed the existing situation and the problems with which passenger carriers and brokers are faced. It was noted that those motor carriers of passengers providing regularly scheduled intercity service are greatly concerned about alleged encroachments upon their operations by passenger brokers and by carriers providing special and charter service. In order to explore the possibility of defining more precisely their respective areas of service, rulemaking proceedings have been instituted in Ex Parte No. MC-29 (Sub-No. 1), Passenger Transportation in Special Operations, and Ex Parte No. MC-29 (Sub-No. 2), Operations of Brokers of Passenger Transportation. It is expected that these proceedings will be handled without oral hearings. Interested parties were given until October 17, 1966, to file written statements, and those wishing to file reply statements were given to December 19, 1966.

Also see Legislative Activities, p. 100, and the Passenger Situation Chapter, p. 87.

ABANDONMENTS

As for many years past, abandonments of railway lines and operations during this reporting period were confined mostly to short lines or branch lines over which traffic declined to a point where profitable operations were no longer possible. Another reason for abandonment is becoming prevalent and will probably become more important in succeeding years. This is the abandonment of line to permit railroad rights-of-way to be used in connection with the construction of highways. For instance, on October 29, 1965, we granted an application filed by the State of Oklahoma in Finance Docket No. 22858 for abandonment of a short segment of the Tulsa-Sapulpa Union Railway Co. to permit construction of Interstate Highway I-244. Also, the construction of Interstate Highway 66 is involved in the Finance Docket No. 23492 application filed by the Washington & Old Dominion Railroad, for abandonment of its entire line of railroad between Alexandria and Purcellville, Va., A hearing examiner's report recommend

ing grant of the application was served in the proceeding and exceptions to the report were filed.

In an order dated April 20, 1966, we confirmed the hearing examiner's denial of the applications filed by the Mackinac Transportation Co., in Finance Docket No. 22917, to abandon its entire line across the Straits of Mackinac; by the Michigan Central Railroad Co. and the New York Central Railroad Co. in Finance Docket No. 22933 to abandon 63 miles of line from Gaylord, Mich., to the straits; and by the Pennsylvania Railroad Co. and Pendel Co. in Finance Docket No. 22990 to abandon 223.6 miles of line in Michigan extending from the straits. No appreciable advantage to either shippers or the carriers would have resulted from the proposed abandonments.

An examiner's report recommending approval of the application of the Chicago, Rock Island & Pacific Railroad Co. in Finance Docket No. 23748 for authority to abandon 87.09 miles of its railroad line between Horton, Kans., and Beatrice, Nebr., was served May 17, 1966. The carrier contended that the line's traffic and revenue had declined to a point where continued operation of the line was no longer possible. Data on abandonment, construction, acquisition, and operation applications handled during the year are shown in appendix B.

FINANCE AND ACCOUNTS

Improper capitalization and unsound accounting practices have always been primary causes of business failures. Because transportation fulfills a public necessity there must be a warranty that continuity of service will not be threatened by ill-structured capitalization or faulty accounting methods. Detailed in this chapter are the noteworthy securities and accounting issues confronting the Commission this year.

Highlights

● Carriers continued trend of investing in noncarrier enterprises for diversification purposes.

Court upheld Commission's approval of 20 percent REA stock sale to Greyhound Corp.

A reconciliation between book basis net income and estimated taxable net income in carrier annual reports is under consideration. New accounting rules issued.

● Depreciation orders prescribed rates based on revised service lives for carrier-accounting by railroads, pipelines, and water carriers.

DIVERSIFICATION

Under sections 20a and 214 the Commission may authorize carriers to issue securities which contribute to a soundly capitalized transportation industry, capable of adequate service at reasonable rates. A carrier's proposal to issue securities related to the purchase of a noncarrier type of enterprise often requires that the Commission consider a number of important questions before granting approval. There is nothing in the act, however, to prevent a carrier from acquiring a noncarrier operation if the transaction is made without the issuance of securities or assumption of obligation.

During the year various carriers continued their earlier established diversification programs. Included were moves by the Pennsylvania Railroad to acquire Macco, a west coast realty concern, and the New York Central Railroad to purchase Strick Corp., a manufacturer of van trailers. Noncarriers also expressed interest in carriers, e.g., PepsiCo, Inc., and its subsidiary applied to the Commission for authority to acquire North American Van Lines, Inc., through an exchange of stock.

SECURITIES

The 164 security applications filed by railroads and moter carriers under sections 20a and 214 showed a slight decrease from the 166 filed

last year.

In our last report we referred to Finance Docket No. 23324, Railway Express Agency, Inc., Stock, decided March 15, 1965, wherein Division 3 authorized REA to issue and sell approximately 20 percent of its authorized capital stock to Greyhound Corp. which, in 1963, became a noncarrier holding company with diversified interests. The Division found REA urgently needed the $10 million it would realize from the sale for capital improvements. Opposing parties instituted action against the order in the U.S. District Court for the District of Colorado entitled The Denver and Rio Grande Western Railroad Co., et al., v. United States and ICC, civil action No. 9205. On April 11, 1966, the court sustained the Commission's order (255 F. Supp. 704), and the plaintiffs appealed the district court's decision to the Supreme Court.

LOAN GUARANTY

In prior reports we noted that the provisions of part V terminated. on June 30, 1963, except with respect to applications then pending and guaranties previously made. All applications pending on that date have been disposed of, and the proceeds of all guaranteed loans have been disbursed.

As to part V loans to the New Haven Railroad (the only railroad in default to date), the United States paid to the lenders a total of $14,375,000, representing the unpaid balance of principal on two loans, one for $13 million and another for $1,375,000, plus accrued interest to time of default. The two remaining outstanding part V loans of New Haven at that time were assumed by the trustees of New Haven; one in original principal amount of $500,000, covering acquisition of maintenance-of-way equipment, and another in original principal amount of $8,159,400 for the financing of 30 new locomotives. The $500,000 loan has been paid in full, and the installment payments on the locomotive loan are current; the unpaid principal balance as of June 30, 1966, being $4,895,640. After New Haven went into receivership, two loans to the trustees in total principal amount of $12,500,000, which mature in 1971, were guaranteed under part V and they are secured by trustees certificates.

During the year, an agreement was reached between the New Haven trustees and the Department of Justice providing for a settlement on the above $1,375,000 defaulted loan in which accrued interest would be waived and the principal paid in installments during 1966 and 1967. The other loan in default, in original principal amount of $13 million has been reduced by payments made by the trustees to $12,372,100. It