Furthermore, the carrier's lines would never have been constructed in the first instance if it were not for valuable land grants and the power of eminent domain. It is argued that for many years the S. P. was an absolute transportation monopoly. While there are now other forms of transportation in the field, much of the carrier's freight business is effectively "rail-bound" because of the long distance it moves. Competition with other rail carriers does not exist at many points, and where it does, the railroads have identical rates and hence do compete price-wise. In return for this monopolistic position and the public assistance in its construction, the carrier owes a duty to perform some useful services for the public even though it loses money.

SERVICE IN QUESTION

At the time of the oral hearings (November 1967-January 1968), the Southern Pacific Company operated one set of passenger trains each day between Los Angeles, Calif., and New Orleans, La. These trains, known as the Sunset Limited, are numbered train No. 1, westbound, and train No. 2, eastbound. Another set of trains was operated each day between Los Angeles and Chicago, Ill. These trains, commonly known as the Golden State, were numbered train No. 3, westbound, and train No. 4, eastbound. These trains were consolidated between Los Angeles and El Paso, Tex., thereby becoming No. 1-3, westbound, and No. 2-4, eastbound.

The track mileage between Los Angeles and El Paso, the consolidation point, is 856 miles, and from El Paso to New Orleans 1,177 miles, for a total of 2,033 miles. The present scheduled running time eastbound from Los Angeles to El Paso is 19 hours and 45 minutes. From El Paso to New Orleans, the scheduled running time is 26 hours and 5 minutes. The total transit time from Los Angeles to New Orleans is 451⁄2 hours. On the westbound operation, the running time is 18 hours and 15 minutes between El Paso and Los Angeles, and 26 hours. and 34 minutes between New Orleans and El Paso, for a total transit time of 454 hours. These are computations taken from the published timetable and, as discussed later, do not reflect the average running times actually experienced by these trains.

The eastbound train No. 2-4 serves 15 intermediate stations between Los Angeles and El Paso and eastbound train No. 2 serves 21 intermediate stations, including 9 flag stops, between El Paso and New Orleans. Westbound train No. 1 serves 22 intermediate stations, including 8 flag stops, between New Orleans and El Paso, and train No. 1-3 serves 15 intermediate stations between El Paso and Los Angeles. Of the communities receiving direct service from these trains, 10 are in Louisiana, 14 are in Texas, 2 are in New Mexico, 8 are in Arizona, and 7 are in California.

Prior to August 1950, the running time from Los Angeles to New Orleans was 491⁄2 hours, and from New Orleans to Los Angeles 48 hours. With the inauguration of a new Sunset Limited service on August 29, 1950, these running times were reduced to 42 hours, which resulted in a reduction of 71⁄2 hours eastbound, and 6 hours westbound.

Trains Nos. 3 and 4 (Golden State) were permitted to be discontinued effective March 25, 1968 by order of this Commission, dated February 15, 1968 in Finance Docket No. 24746.

5 S. P. Timetable for Sunset trains is set forth in appendix B.

The "new" Sunset Limited service, consisted of 5 complete trains, included 30 new Pullman cars, 18 chair (coach) cars, 11 diners, 6 lounge cars, 11 baggage and mailcars, and 9 diesel passenger locomotives. The cost of this new equipment was approximately $15 million. Each train consisted of 4 chair cars, 6 sleeping cars, 2 baggage cars, a coffee shop-lounge car, a dining car, and a mid-train lounge car. The chair cars were equipped with reclining chairs with leg rests; the picture-size windows were "non-fogging"; beautiful color photo murals were added; individually controlled reading lights were provided; pressurized air conditioning was installed throughout; AM and FM radio equipment was provided in all chair cars; a public address system supplied service announcements and comments of passing interest to passengers; valet, pressing and minor tailoring service was available; showers for sleeping car passengers; beautiful interior decorating was applied to all interiors, and all seats in chair cars were reserved. These trains were undoubtedly among the finest in the world. Because of the "superior service" afforded by these trains a special service charge was levied in tariff circular No. 4259 (I.C.C. No. 7127) effective August 20, 1950. The special service charges, required in addition to proper passage tickets, ranged from $1.25 between New Orleans and Houston to $10.00 between New Orleans and Los Angeles for sleeping cars, and 75 cents to $3.50, respectively, for coach. Although the service on these trains at the present time can no longer be described as "superior", these special service charges are still being assessed under circular No. 4449 (I.C.C. No. 7199).

The reason given by the S. P. for continuing to collect "special service charges" on the Sunset Limited is "that the total fare on the Sunset, including the special service charge, is a very reasonable one. It offers transportation on a lower rate per mile basis than many other railroads. In view of the deficit operations of the Sunset, it would be necessary to increase our regular fares to compensate for the loss of any revenue that would result as a discontinuance of this special service charge." The revenue derived in 1966 from these special charges amounted to $421,000. The S. P. feels that it would be faced with difficult problems in securing approval from the various State commissions to increase the regular fares in the normal manner.

One year prior to the institution of the new Sunset Limited service, the S. P. placed in service two brand new Shasta Daylight streamlined trains serving between Portland, Ore., and San Francisco, Calif. Following the Sunset Limited service, two new trains, known as Cascade, were placed in overnight service on the Portland-San Francisco run.

Between 1949, when the Shasta Daylight was inaugurated, to 1954, the S. P. spent over $1 million each year on passenger advertising and promotions systemwide. These promotional efforts continued, to a somewhat lesser degree, through 1958. The traveling public responded well to these new services from 1949 through 1952, which was the S. P's peak year for number of passengers carried. In that year 4,541,000 people rode these trains. By 1954, however, passengers carried had

• Section 5:

(a) Due to the superior service afforded by special service train, passengers using this train will be required to surrender a special service charge ticket at charges authorized in Section 22 between points between which the special service train is used.

(b) The special service charge ticket will be required in addition to proper passage tickets valid on these trains.

decreased 25 percent. Four years later the decline reached 52 percent of the 1951 peak figure, or 2,193,000 passengers.

As 1959 dawned, it seems fair to conclude that the S. P. "had had it". During the preceding 10 years it had invested $50 million in new passenger equipment and passenger locomotives, $16.5 million on the Sunset Limited, including 13 additional chair cars purchased in 1954. Its average annual expenditure for passenger advertising and promotion was more than $930,000. Thus the company invested very large sums of money in equipment, service and advertising during a full decade and saw the patronage on the Sunset Limited decrease by approximately 47 percent. Pullman passenger revenues decreased approximately 75 percent.

Beginning in 1959, the S. P. apparently began a program of passenger-train expense reduction. Advertising expenditures for the Sunset Limited were reduced to $45 thousand in 1959, $13 thousand in 1962, and $531 in 1965. In September 1963, trains Nos. 5 and 6, The Argonaut, were discontinued between Houston and New Orleans. On December 11, 1963 the S. P., together with the Chicago, Rock Island and Pacific Railroad Company, filed notice under section 13a(1) of the act, that effective January 11, 1964, the service of trains Nos. 3 and 4 (Golden State) would be consolidated with trains Nos. 39 and 40 (Imperial) between Chicago and Los Angeles. An investigation was instituted by this Commission's order dated December 27, 1963. Subsequently, by letter dated January 30, 1964, the carriers requested permission to withdraw their notice and the investigation order was vacated on February 6, 1964. Two months later the S. P. consolidated the service of trains Nos. 3 and 4 (Golden State) with trains Nos. 1 and 2 (Sunset Limited) between El Paso and Los Angeles. (See Appendix C.) This latter action was taken without notice to this Commission under section 13a (1) and without authority of the regulatory agencies of the States involved.

PATRONAGE OF THE TRAINS

On September 12, 1964, the sleeping-car consist on the Sunset Limited was reduced from 2 to 1 cars, except during the summer peak season of June, July and August when 2 sleepers were operated Tuesday through Saturday. On January 18, 1966 the diner-lounge car was removed. On February 28, 1966 the last sleeping-car was removed. The capacity of the sleeping cars operated during this time was 10 single roomettes and 6 bedrooms, with a total capacity of 22, if all bedrooms are occupied by 2 persons.

The record shows, for example, that in September 1964, an average of 16 persons per trip occupied the sleeping-car when it left New Orleans, load factor 70 percent. During this same month 16.6 persons per trip detrained from the sleeping-car at Los Angeles. During the course of each trip the maximum occupancy at any one time averaged 20.8 persons. With this as an explanation the following graph reflects the daily average maximum sleeping-car patronage from September 1964 to February 1966. By "average maximum" is meant the largest number of passengers occupying the sleeping-cars at any one time.

These trains averaged a daily maximum of 24 sleeping-car passengers in each direction when 2 sleeping-cars were operated, for a mean load factor of 54.5 percent. During the 15 months when only 1 sleeping-car was operated, maximum average of 18 sleeping-car passengers were accommodated per trip, for a mean load factor of 81.8 percent.

The coach passenger carrying consist of trains Nos. 1 and 2, as of January 5, 1968, amended to reflect discontinuance of trains Nos. 3 and 4 (Golden State) effective March 25, 1968, is 3 chair cars, capacity averaging 44 seats, totaling 132 seats.

The latest available passenger count includes the first 10 months of 1967. This count (Ex. 141, App. RMJ-20A) gives only monthly totals and not an "on-off" count which is necessary for a comprehensive assessment of the adequacy of the coach equipment available. Since no complaints have been voiced regarding the adequacy of the number of chair-car accommodations, it can be assumed that the 3 coaches being operated meet the present needs. These trains were averaging 163 coach passengers per trip during the period described.

51-728 71 - pt. 2 -- 4

OPERATING COSTS

In computing the costs of operating the involved trains the carrier has used actual costs in instances where ascertainment was practicable, and mileage and system average costs as related to passenger train service where the actual figures were not available, which is the case in most instances. These expenses were developed on the basis of a formula used regularly by the carrier's cost-finding personnel in their reports to management and in section 13a proceedings.

The carrier's cost figures for 1966, reflect total revenues of trains Nos. 1, 2, 3, and 4, of $10,712,000, consisting of $6,890,000 from passengers, $3,029,500 from mail, $86,500 from express, $48,600 from other transportation, and $657,400 from dining and buffet. They show operating expenses of $14,868,900, thereby resulting in a net loss of $4,156,900 for that year. (See Appendix D.) No feeder value has been included which is a proper factor to be considered and which would reduce the deficit figure.

Included in these "out-of-pocket" costs are those for other transportation, other maintenance of equipment, maintenance of way and structures, traffic, general, haul of company material, interest-diesel locomotives, and interest-passenger cars. Generally, such items are disallowed in discontinuances of passenger trains where, as here, they are not shown as expenses which would be eliminated as a result of discontinuance. These are fully allocated costs and are not of a savable

nature.

Adjusting these costs to reflect the disallowance of the abovementioned allocated costs, the stated deficit would be reduced to $2,046,400. Due to the discontinuances of trains Nos. 3 and 4, the carrier's revenue and expense figures for current operations have been further adjusted later in this report and in appendix E.

Although the carrier submitted revenue and expense figures for the first six months of 1967, since they do not include operations during the peak summer vacation season or the Christmas holiday peak season, the examiner elected to use the figures for the last full year period of 1966. It is considered that the full year operation is much more meaningful. For instance, in 1966, 20 percent more passengers used train No. 1 west of El Paso in the last six months than in the first. East of El Paso, the passenger count was 23 percent higher the last half year than the first half.

The C.P.U.C. computations of the various out-of-pocket factors vary from those of the carrier. This is due to the difference in methods used by each in determining the costs. Since the C.P.U.C. used 1965 statistics and its methods of computations are in many instances different than those accepted or used by this Commission, its very detailed and exhaustive analysis of the carrier's cost evidence will not be restated in detail. The result of this analysis indicates that, in the opinion of the California commission's cost engineers, the deficit claimed by the carrier is overstated to a considerable degree.

PASSENGER-SERVICE LABOR COSTS

A major element of cost of passenger-train operations consists of operating employees' wages, health and welfare benefits, and payroll taxes. For the year 1966, on the involved trains, these costs constituted 26.21 percent of the total operating expenses.