tion and Suspension Docket No. 600, while others have to do with charges imposed for various special transportation services. Apart from commodities involved in import and export tariffs under suspension herein, there are also other miscellaneous commodities upon which increases have been proposed by tariffs on file and under suspension. The increases last mentioned have been suspended and are under investigation in Investigation and Suspension Docket No. 606. The effort has been made to constitute the present investigation essentially one of the propriety of increased rates which the carriers seek to impose upon a relatively small number of articles of heavy movement in the territory affected.

As the carriers first presented testimony relating to the inadequacy of their present revenues, that question may properly be considered prior to any consideration of the reasonableness of the proposed rates.

The general region in which the increases are proposed includes the states of Illinois, Wisconsin, Minnesota, North Dakota, South Dakota, Colorado, Nebraska. Iowa, Kansas, Missouri, Arkansas, Louisiana, Texas, Oklahoma and New Mexico. Indiana, Kentucky and Alabama are also affected as regards the coal traffic. The greater part of the territory involved by the suspended tariffs is comprised within well defined districts subject to the jurisdiction of three distinct agencies the Western Trunk Line Committee, the Southwestern Tariff Committee, and the Trans-Missouri Freight Bureau.

The boundary line of the western trunk line territory extends south from Chicago via the Chicago, Indiana & Southern to Danville, Ill.; thence via the Chicago & Eastern Illinois to Tuscola; thence via the Illinois Central through Mattoon to Effingham; thence west by south via the Vandalia to East St. Louis, Ill., and St. Louis, Mo. From St. Louis the boundary runs south along the west bank of the Mississippi River to the eastern point of the common boundary of Missouri and Arkansas; thence westward along the southern boundary lines of Missouri, Kansas, and Colorado to a point just south of Trinidad, Colo.; thence north through Trinidad, Pueblo, Colorado Springs, and Denver to Cheyenne, Wyo.; thence via the Union Pacific to the Wyoming-Nebraska state line; thence north along the western boundary lines of Nebraska and the Dakotas; thence east along the northern boundary lines of North Dakota and Minnesota; thence southwest skirting the shore of Lake Superior; thence east along the northern boundaries of Wisconsin and the upper peninsula of Michigan; thence south along the eastern and southern boundary lines of the upper peninsula of Michigan; thence south by the eastern boundary of Wisconsin and Illinois to Chicago. The central office of the Western Trunk Line Committee is at Chicago, Ill.

The Trans-Missouri Freight Bureau's jurisdiction lies for the most part within the territory just described, and embraces Kansas, Nebraska, eastern Colorado, and southwestern Missouri south and west of Marsh

field and Sedalia, Mo.; and also Colorado and Utah common points, but not the territory lying between Cheyenne, Denver, Colorado Springs, and Pueblo on the east and the Utah common points on the west. This bureau's central office is at Kansas City, Mo.

Map showing western trunk line, trans-Missouri freight bureau, and southwestern tariff committee territories.

The Southwestern Tariff Committee, with central office at St. Louis, Mo., exercises general jurisdiction, with certain exceptions, over traffic between Texas, Oklahoma, Arkansas, and Louisiana points west of the Mississippi River.

The accompanying map will indicate the general region involved and the boundaries of the transportation territories embraced therein.

The aggregate additional revenue which would annually accrue to the carriers by reason of the proposed increase in freight rates was originally estimated by them at $10,000,000. This estimate, however, apparently included savings that would arise from the elimination of certain special transportation services and revenue from higher charges collected for such services. As previously indicated, these special services have been transferred to another docket; and the proposed increase in passenger fares is also suspended in another proceeding. From various estimates of record made by witnesses for the protestants and the respondents, and based upon the higher figure where the estimates disagreed, the following table is compiled as indicating roughly the annual increase in the carriers' revenue were the tariffs involved in this proceeding allowed to go into effect: Grain and grain products...

Live stock.....

Packing-house products and fresh meats.

Hay and straw.

Broom corn.

Coal ..

Fruits and vegetables..

Rice.....

Import rates

Total......

$2,940, 237 1,500,000

1,500,000

175,000

31, 623 1,226, 122

134, 265

42,000

55,000

7,604, 247

For the 41 roads included in the carriers' exhibits the total freight revenues received in the fiscal year 1914 were approximately $641,000,000. It appears, therefore, that the increases proposed in the present proceeding would fall within 2 per cent of the total freight Such additional freight revenue as might accrue from tariffs under suspension in Investigation and Suspension Docket No. 606 might possibly bring the total increase to 2 per cent of the carriers' freight revenue for 1914. The amount of additional revenue from proposed increases in passenger fares is not of record in this case.

revenue.

Inasmuch as the work of railroad valuation by the Commission. has not as yet sufficiently advanced to afford definite knowledge of the true value of the railroad properties involved in this proceeding, we are confronted at the outset with the problem of finding an appropriate method, if such there be, which might aid in determining the reasonableness and propriety of the proposed increased rates. It is hardly necessary to say that the duty of determining the justice and reasonableness of rates devolved by law upon the Commission prior to the authorization by Congress of the work of valuation, and that the Commission has been obliged to determine this issue without having available for its use authoritative valuations of the carriers' property. In approaching this problem we shall first study variations in the operating ratio for recent years. We shall next analyze the investments of carriers since 1907 and

Our account

the concomitant variations in the revenue returns. ing rules have been in force since that date, and the statements of additions and betterments to property and the contemporaneous revenue returns are believed to be substantially accurate. We shall thereafter analyze the variations in the carriers' revenues as compared with the book cost of their property, a procedure hitherto employed, but always with acknowledgment of the unverified character of the book cost in 1907 and the infirmity which its inclusion in subsequent figures of book cost entails. Next in order will come an analysis of such evidence as is of record with reference to valuations made by state commissions, by the carriers themselves in some instances, and by engineers who have testified in this case. Finally, before undertaking the study of increases proposed on individual commodities, we shall scrutinize the evidence bearing upon the financial experience of the carriers as regards their returns and their credit.

THE OPERATING RATIO.

The operating ratio for any year, as that term is technically employed in the Commission's statistics, is the ratio of that year's operating expenses to operating revenues. From the standpoint of the railway corporation it may be not inappropriate to assimilate taxes and rentals to operating expenses, as all are costs which must be paid out of gross revenue. In gauging the profitableness of the railroad industry, therefore, the inclusion of taxes and rentals along with operating expenses may more accurately mirror its situation than the use of the operating ratio in the sense above defined. At all events, no confusion of thought is involved if in comparing various operating ratios they are all based upon the same method, either excluding or including taxes and rentals in all cases.

It is almost a commonplace to say that the operating ratio can be used as an index of the relative prosperity of carriers only after due allowance is made for other factors which might qualify the showing which the operating ratio indicates upon its face. The ratio shows the number of cents out of each dollar of operating revenue which is charged to operating expenses and thus indirectly the amount treated as net operating revenue.

An increased operating ratio is compatible with increased net return upon investment where, without corresponding increase in the carriers' investment, the gross revenues rise and still afford a larger net revenue over the contemporaneously increased expenses of operation. In the present analysis of the operating ratio, however, we proceed without making assumptions as to the amount of investment. The subsequent study of the concomitant variations as between increments of investment since 1907 and the increments in net revenues accruing since 1907 will serve as a check against erro

neous deductions which might otherwise be drawn from the use of the reported book cost.

Similarly a number of factors such as unusual expenses incurred by reason of floods or washouts or occasioned by the shrinkage of heavy traffic due to strikes or the cessation of shipments from industries of large output, such as coal mines, might indicate by the rise in the operating ratio a depression in the prosperity of the carrier, which would be as transient as the causes which may for the time being have raised the operating ratio.

Another factor which may easily alter the operating ratio is a change in accounting. Should a new method of accounting make charges to operation not theretofore customary, such as allowances for depreciation, or more generous apportionments for maintenance than were formerly in vogue, the effect might be reflected in an increased operating ratio. Such an increased ratio would in reality mirror not a decline in the carriers' prosperity, but merely an addition to the list of operating expenses.

This consideration is of particular mportance in the instant case, where the protestants aver that the Commission's accounting rules established in 1907 and changes in the carriers' practices required thereby have been largely responsible for the subsequent rise in the carriers' operating ratio. A careful statistical study of this factor has been made, with results indicated in Table 10, p. 519, infra, where the attempt has been made to measure the correction necessary for one of the most important changes in accounting rules prescribed in 1907.

To test the change in the operating ratio of the carriers parties to this case, we have compared for the period 1901-1914 the data submitted for 41 roads by the carriers' witness Wettling, the data for 13 roads submitted by the protestants' witness Powell, and for 26 roads selected by ourselves. As will be indicated by Table 1, figures for the carriers' group and for the Commission's group are given for each group as a whole, and for the western and southwestern divisions thereof. In constituting our group of 26 carriers we have excluded the Union Pacific, the Northern Pacific, and the Great Northern on the ground that their participation in the increases proposed is slight, even though they are technically parties to the case. Except for the three carriers named, our group of 26 roads embraces all carriers in the territory affected having gross revenues in excess of $5,000,000 in the fiscal year 1914. In subdividing these carriers as between the southwest and the western trunk line and trans-Missouri territories, we have included the Santa Fe and the Rock Island n each group because their lines extensively penetrate the entire territory.

Except for the exclusions just noted, our basis for the selection of the 26 carriers which we take as representative is the geographical