and was manifestly within the range of prudent investment, the Board was correct in allowing Bull to claim depreciation on the basis of such cost.

With respect to residual value, the Board allowed the carriers to charge annual depreciation against a residual value equal to estimated scrap value. The Commonwealth argues that the residual value is unrealistically low, and that at the end of their service lives, the ships are likely to be worth much more. The Commonwealth's argument is based entirely on conjecture. It is impossible to know whether after the approximately seven remaining years of their service life, the ships will be worth more or less than the residual value ascribed to them on the carriers' books.

If it should turn out that the ships have a value in excess of the book residual value, the carriers are required under the tax laws to apply such excess against the tax base of any replacement vessel in the purchase of which the proceeds of the prior vessel are used. Thus, even if there is an excess, such excess does not represent a windfall to the carrier, but instead, reduces the depreciation expense borne by ratepayers during the life of the replacement vessel.

B. Summary of Argument in Response to Brief of United States Atlantic & Gulf-Puerto Rico Conference

I. The Conference's petition should be dismissed for want of jurisdiction. The Board's decision finds the Conference's rate increases to be just and reasonable. It consequently does not adversely affect the Conference, nor does it have any present impact upon the Conference. All that the Conference can complain about is the possible application of statements in the Board's report in a way that may adversely affect petitioners in some future rate case if future contingencies should so eventuate. This position is wholly conjectural and fails to present at this time any case or controversy for decision. Moreover, the Conference can not at one and the same time both support the Board's decision and attack it.

II. The Board did not err in considering Bull as the "ratemaking carrier." The "ratemaking carrier" approach followed in the instant case is consistent with Board precedent. It correctly recognizes that Bull is by far the largest carrier in the trade, and that its service is almost entirely free of any foreign admixture. Unlike the other carriers in the trade, Bull's service presents no serious problems of cost or asset allocation.

In arguing against the "ratemaking carrier" approach, the Conference wishes to introduce Alcoa and Lykes into the ratemaking picture in a way that accords them equal weight with Bull and Waterman. Since Alcoa, and to a lesser extent, Lykes, operate in an atypical fashion, their introduction into the ratemaking picture would materially distort the results.

The use of Bull as the "ratemaking carrier" brings about an end result closely similar to that which would be reached if a composite of Bull, Waterman, and Lykes were used. Since Alcoa, by reason of its highly peculiar operations is not entitled in any event to consideration in the ratemaking process, the Board's use of the "ratemaking carrier" approach did not adversely affect the Conference.

III. The Board did not err in excluding from the carriers' rate base certain terminal properties used but not owned by the carriers. The exclusion of such non-owned property is consistent with Board precedent. A contrary approach would permit the carriers to earn a return on property which they have never risked or put into the public service.

This is especially true in the instant case. The terminal used by Bull at Philadelphia is rented to Bull by the Municipal Port Authority at a favorable rental as a promotional device to increase traffic through the Port of Philadelphia. The terminal used by Bull at Baltimore is owned by an I.C.C.-regulated railroad, which permits Bull to use it free of charge. Thus, both the Philadelphia and Baltimore terminals have already been dedicated to and paid for by the public, and it would be an injustice to

require the public to pay again for such property. Such payment would give Bull an unearned windfall. With respect to the terminal used by Bull at New York, the Board was satisfied that the rental payment was prudent, and the inclusion of such payment as an operating expense made it unnecessary to include the asset value as an element of Bull's rate base. The Board thus treated all used-but-not-owned terminals consistently.

IV. The Board did not err in allowing the carriers an insufficient working capital. As computed by the Board, the working capital allowed the carriers was equivalent to the expense of one complete round voyage for each of the ships in the service. This sum is ample to meet all working capital needs of the carriers. Under the terms of the carriers' tariff, freight in the Puerto Rico trade is prepaid and consequently the carriers, unless they depart from their own tariff, have in hand the voyage's revenues before the voyage begins. The Conference has failed to show that it needs any allowance greater than that fixed by the Board.

V. The Board did not err in ascribing to carrier-owned terminals a rate base valuation of net book value. The carriers contend that since the Board allowed market value for ships, it should have done the same for carrier-owned terminals. The record, however, contained no evidence of market value for terminals. All that was available was an appraised value resulting from the consideration of a number of factors, including original cost, reproduction cost, present and future revenues, etc. There would have been no consistency if the Board used this appraised value for terminals and true market value for ships.

Moreover, the use of any "market value" for terminals introduces great uncertainty, since there is no active exchange of terminal properties. The Board was correct in using net book value for carrier-owned terminals.

VI. The Board did not err in rejecting the operating ratio approach. It has never followed such approach in any precedent case, although it has often been urged to

do so. The nature of the steamship industry is such as to make the fair-return-on-fair-value approach reliable. Since it is the method traditionally used, the Board would need some important reason for departing from it. The record discloses no such reason. Moreover, the Conference cannot claim that it is prejudiced by the Board's refusal to use the operating ratio aproach, since the Board found the rate increases to be just and reasonable on the basis of the approach which it did follow.

ARGUMENT

In empowering the Board to prescribe "just and reasonable" rates, the Intercoastal Shipping Act, 1933 (46 U.S.C. Sections 843-848), employs terminology which resembles that employed in other rate-regulatory statutes. But this resemblance should not be permitted to obscure some very important differences between the statutory scheme entrusted to the Board's jurisdiction and those entrusted to other rate-regulating agencies. These differences are so basic that they cast grave doubt upon arguments premised upon analogies between the Board and such other agencies as the I.C.C., C.A.B., F.P.C., and state public utility commissions.

3

The first of these differences lies in the fact that, unlike other rate-regulating bodies, the Board has no power to control entry into the regulated field of business. It cannot grant or withhold a certificate of public convenience and necessity. Such a certificate or some other type of license is a prerequisite to engaging in all other rateregulated businesses.

Because there is no licensing restriction in the domestic

3 Since enactment in 1940 of Part III of the Interstate Commerce Act, which applies to common carriers by water in commerce between points in one state and points in another state, the Intercoastal Shipping Act applies only to trade between points in the 48 contiguous states, on the one hand, and points in the outlying states and territories, on the other. The most important areas of application of the Intercoastal Shipping Act are the domestic trades to and from Alaska, Hawaii, Puerto Rico, Guam, and the Virgin

off-shore trades, carriers in those trades do not enjoy a protected monopoly. It is true that such carriers may, as they do in the trade under consideration, join together into conferences for the purpose of fixing rates in concert, as authorized by Section 15 of the Shipping Act, 1916 (46 U.S.C. Section 814). Such conferences, however, are purely voluntary, and regardless of their existence, new carriers are free to enter into the regulated service without any restriction whatsoever. Thus, while carriers in the domestic off-shore trades are subjected to rate regulation, they do not have the countervailing benefit of being protected against excessive competition.

A second difference between the regulatory scheme involved here and those applicable in other public utility fields is the absence of any governmental control over abandonment of service. Any carrier in the domestic offshore trade, although regulated as to its rate level, is unregulated as to whether and to what degree it will continue to operate in the regulated trade. Any such carrier can at will add to or subtract from its number of sailings or ports served; or it may abandon its service altogether if it wishes to.

A third difference between this regulated trade and most others lies in the mobility and adaptability of the capital equipment. The vessels used in domestic off-shore trade are equally capable of use in unregulated business. In this respect, the carriers' capital equipment is different from pipeline, communications, and power equipment, since these are immobile and unadaptable for use in any unregulated business. Railroad equipment can similarly be used only in regulated business. Even aircraft, although they are mobile, cannot be transferred readily into unregulated services, for there are only a limited number of unregulated activities in which aircraft can be used. The only other regulated business in which the capital equipment is, like ships, readily adaptable to unregulated activity is trucking. But motor carriers are given some protection against excessive competition by the regulatory requirement that new carriers must first obtain a certificate of