and for the past ask refund only of the emergency charge of 10 cents per ton imposed on and since November 15, 1937.

Complainants introduced a cost study, based on 1939 operations, in which they adopted the criticisms directed against their former study in so far as the necessary material was obtainable. Some of the information sought by complainants is not kept currently by defendants. Criticisms of the revised study as made by our Bureau of Transport Economics and Statistics were embodied in the examiner's proposed report and opportunity thus afforded for any of the parties to take exception to the Bureau's criticisms.

There is outlined below a resume of the changes made in the present study as compared with the previous study.

The costs in the present study were based on 1939 operations whereas the former study covered 1935 operations.2 The station and switching expenses were developed in the present study separately for carload and less-than-carload traffic, as follows:

(a) The maintenance and depreciation of station and office buildings, station employees, weighing and inspection and station supplies and expenses plus overheads, were first apportioned 15 percent to running and 85 percent to station. (b) The station portion was then redistributed 10 percent to carload and 90 percent to less carload.

The freight-train car repairs, depreciation, retirements, and car hire were distributed in the present study 60 percent to running and 40 percent to switching. In the former study, these expenses were distributed on the basis of active car-days, resulting in approximately 13 percent of the expenses being charged to running and 87 percent to switching.

Costs shown in the present study were developed for the "all train" expense instead of separately for through trains and way trains as was done in the former study. Intermediate classification expenses are computed by assuming 2.0 intermediate classifications per carload in lieu of 1.75 as in the former study, and the expenses for intermediate classifications are computed on a gross ton-mile basis whereas in the previous study they were computed on a per-car basis.

Complainants now use the Pocahontas lines "all train" cost for the purpose of computing the expenses for the movement of the traffic on the various connecting lines. In the previous study they used the unit way-train costs for those carriers, expanded by 10.59 percent to estimate these costs. The expansion factor of 10.59 percent was based on the ratio of the way-train costs for the southern region to the way-train costs for the Pocahontas region as developed in certain studies made by the Federal Coordinator of Transportation.

* In both studies the unit costs were applied to 1936 traffic movement in arriving at the aggregate expenses.

* Complainants first computed these expenses on a gross ton-mile basis, but later, in the appendixes attached to their brief, computed them on a per-car basis.

The costs are now shown separately for base and differential groups,* whereas in the previous study complainants applied base-district mileage to both base- and differential-district traffic in arriving at costs from the base district.

The following table shows the average cost per ton, arrived at by complainants, from the mines to points in the $2.65 group. The costs include freight operating expenses, rents, taxes, passenger operating deficits, less-than-carload operating deficits and return based on 534 percent of total property value.

The accuracy of the above figures is open to question for the reason that the cost study contains weaknesses, some of which were noted in connection with the previous study. The methods employed in the two studies are not precisely identical, but the more important deficiencies in the initial study are not removed in the revised study. The more important weaknesses are as follows:

1. Use of system average unit costs.-The applicability of such costs has been discussed in connection with the previous study.

2. Separation of switching and station expenses between terminal (originating and terminating cars), interchange, and intermediate classification. The accuracy of such separation has been discussed in connection with the previous study.

3. Computation of less-than-carload deficits.-Complainants computed the less-than-carload deficits by deducting the switching, clerical, and platform expense applicable to less carload traffic from the system less-than-carload revenue. No allowance was included for running expenses, pick-up and delivery payments, and loss and damage claim payments applicable to less-than-carload traffic. The exclusion of such expenses resulted in a serious understatement of lessthan-carload deficits.

• In computing the gross ton-miles, complainants apportioned an item of 275,000 tons originating on the C. & O. between the base and differential districts on the basis of the C. & O. experience.

The less-than-carload operating deficits are the amounts by which the less-carload switching, clerical, and platform expenses exceed the total less-than-carload system revenues.

4. Computation of revenue gross ton-miles.-Complainants in computing revenue gross ton-miles failed to exclude the gross ton-miles applicable to the return empty movement on nonrevenue traffic. This resulted in an understatement of the unit costs for running service. It is not possible from the record to estimate the effect on the costs if all the above objections were removed. The record does not contain sufficient data to entirely eliminate these objections. It is conceded that the first defect cannot be removed on the basis of the data of record.

Complainants attempt to cure the second defect but fail to show the applicability of the revised equating factors to the traffic under study. The revised study does not meet the criticism dealing with the separation of switching and station expense. The expense of assembling coal cannot be determined by adding yard expense to an arbitrary separation of train switching expenses and dividing this total by the total number of loaded cars of all types receiving terminal handling. Complainants' method of developing the cost of train switching by separating the expenses shown in a number of train and locomotive service accounts on the basis of locomotive-miles for line or running service and of train switching-miles for yard service gives no consideration to the fact that train and engine crews performing train switching in coal assembly service are paid at rates higher than the normal through freight-wage rates and accumulate more than the average amount of overtime in freight service. The error in this method of apportionment is further emphasized by the fact that train switching-miles are computed on an arbitrary basis of 6 miles per hour. The rate of pay basis for way-train crews is on a minimum of 121⁄2 miles per hour for all time on duty. The locomotive repair expense charged to train switching is low, because it was computed on the basis of the system average repair expense to yard locomotives, whereas the locomotives used in the coal assembly service are much larger. If the equating factors, that is, 0.45 for interchange service and 0.25 for intermediate classification, are substituted for the equating factors used in complainant's revised study, the C. & O. cost per ton, single line, from the base districts, for the weighted average, will show a decrease of 0.06 percent. The use of such equating factors remains open to question without proof of their applicability to the traffic under study.

The third weakness in complaint's study is the manner in which the less-than-carload deficit is computed. Complainants used the gross-revenue figures rather than the net-revenue figures and such figures were not reduced by the pick-up and delivery service payments. Loss and damage payments applicable to less-than-carload traffic are a proper element of cost of service as they influence the amount of

the less-than-carload deficit which becomes a burden for the carload traffic to bear. Although complainants admit that each commodity having loss and damage characteristics should be required to pay its full portion of such loss and damage expense, they failed to apply this method. Complainants assert that the difference between the lessthan-carload deficits as computed by them and by our Bureau amounts to only 0.1 percent, but the actual difference is 1.34 percent and is reflected in the Bureau's restatement. They state that all running (linehaul) expenses, including less-than-carload expenses, are reflected in their study and that to such extent they have overstated the carload expenses. Total line-haul expenses, including less-than-carload running expenses, were used and were divided by total gross ton-miles, including less-than-carload gross ton-miles, to obtain the unit cost for running expenses. This method does not develop the correct unit cost for running service to be applied to carload traffic. Since complainants undertook to separate a portion of the less-than-carload expenses, they should have developed the cost of running service applicable to the less-than-carload traffic and included this item in the less-than-carload expenses which were used to compute the less-thancarload deficit. The Bureau in making the restatement not only deducted the gross ton-miles applicable to the nonrevenue freight service, but also deducted the gross ton-miles incident to the handling of the less-than-carload freight. The effect of this total reduction in gross ton-miles is to increase the unit cost of the running expenses 5.71 percent for the C. & O., 6.44 percent for the N. & W., and 1.51 percent for the Virginian. The restated costs as shown in table 4 of the proposed report have been recomputed to show the application of the lower unit cost for running service, that is, based on complainants' use of total system gross ton-miles, to the study traffic and the comparison, in cost per ton, with table 4 is shown below:

The conclusion follows that complainants' method of computing the unit cost for running service will result in an understatement of the cost ranging from 1 to 5 percent.

Objection is made by complainants to the use of system averages by the Bureau in its restatement. System averages were used because the record does not contain data to permit a break-down by operating divisions of the freight portion of the operating expenses, rents, and taxes. Such system-average unit costs reflect the expense of handling the average net load for all commodities a distance equal to the average length of haul. The record indicates that the systemaverage unit costs are of limited value because the coal traffic under study moved an average distance of 378.2 miles to the complaining points, while the weighted-average distance that all traffic moved in 1940 over the Pocahontas lines was 274.3 miles. The use of systemaverage expenses for switching and station expenses is also open to question because the record clearly indicates that east-bound coal traffic receives more of these services than does the system-average traffic.

Complainants state that had it been possible to compute the running costs for through and way trains separately, a cost lower than that obtained by the use of all-train expense would have resulted. The restatement by our Bureau is based upon all-train expense, because the record does not contain sufficient data to make a separation of the expenses between through and way trains on a sound basis. Obviously, the resulting running costs will be correct only to the extent that the traffic in question receives the same relative movement in through and way trains as does the average traffic.

In the separation of the total switching expenses between terminal, interchange, and intermediate classifications, the restatement assumes an average of two intermediate classifications per carload on the traffic involved. Complainants used this factor in developing the system total number of intermediate classifications. By applying this factor, the coal traffic in question is charged with the estimated system-average classification expense per carload. The record does not conclusively show the specific number of intermediate classifications accorded east-bound coal traffic. Also, the restatement is computed on the basis of the inclusion of the platform expense with the station and switching expense developed for the connecting lines. This results in some overstatement in the costs of approximately 40 percent of the 1940 tonnage which was accorded joint-line service. The record does not contain sufficient data to correct this overstatement. The restatement does not include the less-than-carload deficits for the connecting lines. These deficits should be included in the constant cost in order to show the fully distributed cost apportionable