& Western Railway, the property costs in the instant case differ from the property costs presented in the Five Per Cent case. In the Five Per Cent case, 32 I. C. C., 328, we stated that the property investment accounts as now standing on the books of the carriers can not be accepted as accurately representing the fair value of their property devoted to serving the public.

The evidence shows that the road account, now designated "cost of road," was used prior to 1907 as a general clearing account into which was charged valueless and uncollectible items and liabilities which could not conveniently be absorbed into other accounts. This was not considered wrongful or bad bookkeeping in those days, and we do not desire to criticize these carriers now for such past practices. These respondents, for the purposes of their statements of investment and income, have merely revised their property accounts for recent years and have presented the result of such revisions as representative of cost of property. The property costs as in 1913 here presented total $2,023,076,827, of which $1,023,076,827 is representative of revised property accounts as deduced from the carriers' books and $1,000,000,000 of it represents unrevised property accounts. Even as to those two carriers, the Lehigh Valley and the Delaware & Hudson, which claim to have extended the revision. back to construction periods, books and records were not existent to enable them to get complete costs of property.

Property costs deduced from the old books of these carriers are not reliable. The fault is back of the books. This is well illustrated by the cost of construction of the Port Reading Railroad, which the carriers' expert has ascertained from its books to have been $3,025,000. This railroad is of recent construction, being completed in the year 1894. The Commission's examiners found, by their review of the construction contracts and records, that the actual cost of constructing this railroad was $1,525,000, and that the book cost includes $1,500,000 representing a bonus payment in securities to the construction company. Such practices were so prevalent in railroad construction in former years that we must regard property costs deduced from the old books as very unreliable.

The property costs per mile of line shown for the Erie Railroad are $199,832, and for the New York, Susquehanna & Western Railroad, $200,213, while for the Reading they are $157,732, and for the Pennsylvania, $180,543. Such property costs for the New York, Susquehanna & Western, whose terminal properties are very limited in comparison with the other lines mentioned, clearly indicate the unreliability of book costs as representative of actual cost of property. Counsel for the carriers frankly admits the dubious character of Erie property costs arising from the book entries of such costs in 1895.

The carriers have used the term "total property devoted to public use" as representative of the investment in their railway properties devoted to public use. They have included in their investment the cost of properties rented to tenants and used for private purposes, and they justify this by the assertion that it was acquired for railroad purposes and may in the future be used for railroad purposes. The Lackawanna Railroad has leased extensive properties to tenants for their use for private purposes. Among the properties so leased are a large number of retail coal trestles and properties which we have hereinbefore stated were rented to the Delaware, Lackawanna & Western Coal Company at less than their true and actual rental value. During the proceedings in this case we were advised by counsel for the Lackawanna that a new lease had been entered into whereby the coal company would pay an increased rent to the carrier, and the carrier's return on the property so rented after the payment of taxes would be 4 per cent per annum. Obviously, retail coal trestles and such structures erected on the carrier's premises, when the exclusive use thereof is leased to private parties, should not be described as property devoted to public use. Should the freight rates make up this difference between the general return of 6 per cent per annum claimed by the carrier and the 4 per cent per annum which the carrier accepts in rent from the tenant? The investment figures submitted in the several carriers' statements contain the cost of considerable property that is not devoted to public use.

UNPRODUCTIVE BETTERMENTS.

The Pennsylvania Railroad has expended on its new passenger terminal properties in New York City approximately $114,000,000. These properties are operated by the Pennsylvania Tunnel & Terminal Railroad Company, and the operations result in deficits each year. The deficit in the year ended June 30, 1913, was $2,087,000. The record shows that the terminal was constructed for the benefit of the Pennsylvania lines west of Pittsburgh as well as the lines east of Pittsburgh, but no part of its cost is, by the carrier, assigned to the income of the lines west of Pittsburgh. In the statements of investment and income the deficit is charged to the income of the Pennsylvania Railroad (the lines east of Pittsburgh), and the per cent of net operating income on the investment for the Pennsylvania Railroad is substantially reduced because of these deficits and the large investment in this terminal property. The record shows that when the New York Connecting Railroad, now under construction, is completed the terminal properties will some time in the future be used for passenger traffic between the Pennsylvania lines and the New York, New Haven & Hartford Railroad. Thus the question is pre

sented: Must the present effective freight rates of the Pennsylvania Railroad earn an annual return of 6 per cent on the investment in these passenger terminal properties? The record shows that $47,000,000 of the expenditures in this property has been charged to profit and loss and to income of the Pennsylvania Railroad; that is, its past surplus income has already contributed $47,000,000 to the cost of this property.

In the Five Per Cent case, 31 I. C. C., 351, 375, we called attention to investments made by the carriers in unproductive betterments. These carriers vested with governmental authority and charged with a public trust have in response to public demand and in compliance with legislative enactments made large expenditures for improvements which are relatively unproductive, at least such expenditures have not resulted in an increase in their revenues proportionate to such expenditures. It is in the public interest that such improvements should continue to be made, and for such purposes a railroad, no doubt, is justified in accumulating a reasonable amount of surplus. In order to give adoquate consideration to such matters, we must view the actual operating results of the carriers as presented in their annual reports which we have prescribed, showing their actual income, expenses, rentals, and surplus. These items are not set forth in a satisfactory manner in the carriers' statements of investment and income. We have under consideration the rates of the operating companies, and we must view their actual income and expenses.

THE ERIE LINES AND THE NEW YORK, ONTARIO & WESTERN RAILWAY.

Now, to follow the theory of a stipulated annual return on all railway property: The Erie Railroad has not revised its property accounts prior to the last receivership and reorganization of the Erie properties, in the year 1895. We have in another part of this report referred to the overcapitalization of the Erie lines. It seems pertinent to here point out that, based on the showing contained in the carriers' exhibits for the year 1913, the Erie's net operating income would have to be augmented to the extent of 42.80 per cent in order to make it sufficient to produce 6 per cent return on the property investment claimed, and the year 1913 was one of the prosperous years. The New York, Susquehanna & Western would require 162.07 per cent greater income to reach the 6 per cent measure of return. The New York, Ontario & Western Railway would require 37.64 per cent more income to attain the 6 per cent result in 1913. It is apparent that rates which would produce the 6 per cent result for the Susquehanna & Western and the Ontario & Western would be absolutely extortionate.

The collieries in the Wyoming region are served by eight railway lines. All these lines extend to tidewater except the Delaware & 9479°- -VOL 35-15-19

Hudson Company, and the Delaware & Hudson reaches New England states markets by means of connections with several New England lines.

The Scranton branch of the New York, Ontario & Western Railway was extended into the mining region and completed in July, 1890. This was the seventh railway line constructed into the Wyoming region.

In 1881 the New York, Susquehanna & Western Railroad Company, which reaches tidewater at Edgewater, N. J., was formed by the consolidation of six railway companies, and in 1882 it established a connection with the Delaware, Lackawanna & Western Railroad at Stroudsburg, Pa. It also constructed certain branch lines of railway in the Wyoming region connecting the collieries of its coal company, the Pennsylvania Anthracite Coal Company (which subsequently became the New York, Susquehanna & Western Coal Company), with the Lackawanna Railroad. The Lackawanna transported the coal gathered on these branch lines to the New York, Susquehanna & Western Railroad at Stroudsburg until the WilkesBarre & Eastern Railroad was completed. The Wilkes-Barre & Eastern Railroad, extending from a connection with the New York, Susquehanna & Western near Stroudsburg into the Wyoming region, was completed in 1894. Its capital stock is owned by the New York, Susquehanna & Western, and its extension into the mining region constituted the eighth railway line constructed into the Wyoming region.

When the New York, Susquehanna & Western Railroad was projected, it offered, through its coal company, to buy coal from operators on 50 per cent contracts. The price before that had been 40 to 45 per cent. The extension of the New York, Ontario & Western Railway into the Wyoming region resulted in a further increase in the contracts to 65 per cent of the selling price at tidewater. Reading case, 226 U. S., 361. These carriers made use of their public franchises as common carriers to aid themselves as vendors in suppressing or controlling the activities of their customers and competitors, the individual operators. That such a course of conduct would result in inviting the construction of additional railway lines was but the natural consequence of such acts. The welfare of the shippers was incompatible with the mining and selling operations of the carriers. Had the carriers performed their public duties in an impartial and nondiscriminatory manner and established just and reasonable rates for all shippers, would eight lines of railway have been constructed into the Wyoming region?

The anthracite tonnage which the Erie commands is divided between two railway lines, its own route and the joint route, the New York, Susquehanna & Western-Wilkes-Barre & Eastern, both of

which extend to tidewater. The joint route has been controlled since the year 1898 by the Erie Railroad. It reaches four collieries, three owned and operated by the Erie's coal company, the Pennsylvania Coal Company, and one colliery, of small capacity, operated by an independent operator.

The Erie Railroad acquired the entire capital stock ($26,000,000) of the New York, Susquehanna & Western Railroad in 1898 by giving in exchange therefor its own capital stock to an equal amount, which was issued for that purpose. The market price of Erie stocks at that time ranged from $7 to $8 for common, $19 to $22 for first preferred, and $9 to $11 for second preferred; New York, Susquehanna & Western stocks were quoted on the market at from $5 to $7% for common and $141 to $19 for preferred. Quotations of both companies were based on par value of $50 per share.

Here are two lines, the New York, Ontario & Western and the New York, Susquehanna & Western, whose earnings are unfortunately limited by the customs which have prevailed in marketing anthracite coal. Their competitors control the traffic at its source, so these two carriers can get only the tonnage from the lands that were not acquired by their competitors who entered the mining regions before them.

The joint route, New York, Susquehanna & Western RailroadWilkes-Barre & Eastern Railroad, receives 97 per cent of the coal tonnage it transports from the mining region from the two coal companies owned by the Erie, and it is apparent that the anthracite tonnage hauled by this joint route consists only of that which the Erie elects to divert from its own line to tidewater. Anthracite coal constitutes 80 per cent of the total freight tonnage of the Wilkes-Barre & Eastern Railroad. Obviously, if reasonable rates and transportation conditions had been accorded by these respondents to the individual operators, a large part of this joint route would not have been constructed.

Giving consideration to the said conditions, it is apparent that 6 per cent per annum earnings on the whole property of a railway system or a group of railways under such circumstances is unattainable.

INCOME OF THE INITIAL ANTHRACITE CARRIERS.

For the year ended June 30, 1913, the total operating revenues of these carriers were $448,711,496, their total freight revenues were $342,499,310, and the revenue they derived from transporting anthracite coal was $96,516,183. The ratio of their anthracite coal revenues to their total freight revenue ranged from 6 per cent to 86 per cent.

The revenues of railway companies being subject to considerable fluctuations from year to year, the statement thereof is viewed on a better basis if we consider the average for a period of years. The