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The committee does intend to call upon members of the ICC staff in relation to the contracts in question as appropriate.

Mr. Conte?

Mr. CONTE. Well, Mr. Chairman, how do you classify these investigations that the committee has instituted in terms of the national economy?

Mr. STAFFORD. I would classify these investigations as matters of national urgency. Discrimination and prejudice may have crept into the present rail-rate structure due to the general rate increases which the railroads have justifiably sought and received to partially offset increased wage and other costs.

The justification for the manner in which the pricing of transportation service operates today and its long history of development must be examined. The economic health and marketing structure of thousands of small as well as large industries rest upon the stability and reasonableness of the rail rate structure.

The adequacy of rail service depends upon a rate structure which permits the railroads to operate in a ratio of costs to earnings which will permit continual maintenance and provide innovations to meet the changing competitive needs of shippers.

Mr. CONTE. I will have to ask you this question.
Will this person go into the rate structure.

I have already complained about the grain freight rates from Toledo, Ohio, to Fitchburg, Mass., which are $12.20 a ton, as compared to grain freight rates, from Cincinnati, to High Point, N.C., at $5.07 per ton.

Now, will you go into something like that?

Mr. STAFFORD, Mr. Congressman, I recall well that you have made this point for the last 2 or 3 years before your committee and we feel this will give us an opportunity to see whether such a study as this cannot help us in determining if there is a deficiency and distortions in this rate structure with which you are primarily concerned at the moment.

Mr. CONTE. Well, if you can correct this inequity, then the whole position may be worthwhile.

Do you anticipate that these investigations will permit the Commission to correct deficiencies discovered?

Mr. STAFFORD. This is pretty much in line with the problem you have been involved with for a number of years and we hope that it will.

Mr. CONTE. My special case

Mr. STAFFORD. When we are presented with a record relating to the divers subjective interests of the shippers as compared to those of the railroads and the objective evidence and considered analytical opinion of the special counsel, we hope to find adequate remedies through revised rate policy determinations or programs even amending legislation, sir.

Mr. CONTE. Most of the people in my district are small businessmen. What does this all mean to the small businessman?

Mr. STAFFORD. Well, this will be just as pointed to the small businessman as it will to the large businessman. One of the first objectives of this investigation is to minimize, if there is such, unfair discrimination and preference that may have crept into the rate structure as a result of those general rate increases.


Small shippers and receivers, of course, are particularly vulnerable to distortions and disparities in the rate structure as they compete with larger businesses in the marketplace. Of course, we hope that this will help straighten that out.

Mr. CONTE. Does this contract for the special counsel give the Commission control over the costs incurred by this special counsel?

Mr. STAFFORD. Yes. This gives full control to the Commission over his costs and whether he is spending this, Mr. Brewer would like to speak to it.

Mr. BREWER. He will prepare a bill which we will have to approve and our auditing people will maintain a constant audit on the expenditures to see that they are within the contract rules and if they are being exceeded and there will be a constant monitoring.

Mr. DINGELL. Has the contract been signed?

Mr. BREWER. Not the definitive contract. As a result of your requests, we did not complete the definitive contract.

Mr. DINGELL. I see.
Have you got a copy of what you proposed to sign with you?

Mr. BREWER. No, sir. It is being worked upon, but we don't have it finished yet.

Mr. DINGELL. I am curious to know how you know what is going to be in the contract when it is not yet signed.

Mr. BREWER. It is in the drafting stage and we will have the responsibility of seeing that the proper things are in there before it is signed; and that is one of the conditions we will put into the contract. Actually, the letter contract covers most of the things.

Mr. DINGELL. Do you have a copy of the letter contract?

Mr. BREWER. That is right. We refined that by such things as budgeting, number of people, salaries, and all the other things.

Mr. DINGELL. Do you have the letter contract with you this morning?

Mr. BREWER. Yes, sir.
Mr. DINGELL. I don't believe that is submitted.
Mr. BREWER. We submitted that to you-
Mr. DINGELL. Does the letter contract provide for this?
Mr. STAFFORD. Provide for what?

Mr. DINGELL. Does the letter contract provide for the accounting, costs, et cetera? It does provide for that?

Mr. CERRA. It does provide for that.
Mr. Conte?

Mr. CONTE. If I correctly remember, when you appeared before our Appropriations Committee last week, you discussed the functions of the special counsel. You didn't discuss it here today.

He would be independent and disassociated from the ICC.

Would you elaborate on that? You went into a great deal more on that before the other committee.

Mr. BREWER. I would be very happy to.

With your indulgence, I would like to ask our general counsel to comment on that in more legal terms, if I may. It has to do with the protection, the privacy, the sanctity, free from taint, unbiased, nonprejudiced kind of investigation, keeping the commissioners themselves separate and apart so that they can be free to vote upon the result without having ex parte communication.

Mr. CERRA. The function primarily will be to act as a party participant in the proceedings.

Mr. DINGELL. If it is all the same, we have not sworn you. I would rather have it come from these commissioners or the Chairman. If you want to testify, we would be glad to administer the oath.

Mr. STAFFORD. We would like to have our counsel able to speak on the issue.

Mr. DINGELL. Very good.

Do you sloemnly swear that you will tell the truth, the whole truth, , and nothing but the truth, so help you God?

Mr. CERRA. I do.
Mr. DinGELL. You are recognized.

Mr. CERRA. As I started to indicate, the purpose of the special counsel is to appear as a party to the proceeding representing the public interest. His mission will be to assure that the record is complete, as complete as can be possibly made, to permit the Commission to make a determination as to what adjustments need to be made in the rate structure.

As a party to the proceeding, he will be obligated to conduct all his communications with the Commission on the record. This means that he cannot behind closed doors, without the presence of the other parties to the proceeding, shippers and railroads, communicate ideas, discuss evidence that was put in the record. His objective is to present the evidence and list the evidence, to cross-examine the experts of the other parties and to recommend what he believes will be best in the national interests in the form of revisions to the rate structure.

That, in a sense, in essence, is what his mission is in this proceeding.

Mr. BREWER. If I may add to that, it will go to a formal hearing procedure in which there will be an opportunity for those who differ with the recommendations of the special counsel to cross-examine in a hearing procedure and to--as in any other proceeding we have.

Mr. CONTE. One last question. Before the Appropriations Committee, you mentioned that you had a very difficult job trying to find an individual of the right caliber, the right background, to fill this job.

You gloss it over here in this statement. Could you expand on that? Mr. BREWER. I would be very happy to.

I got into this matter-as you know, I am on the Commission now about 3 years. Commissioner Walrath handled this matter for the time up to then when I came on board and after I came on board until 1972 when he retired, he was very much involved in it, together with Mr. Fred Dolan, who is here today and I hope will have an opportunity to elaborate a little on the proceedings prior to the time I got involved.

I call your attention at the beginning to this order, interim order, which was issued by the Commission on November 5, 1971, Ex parte 270, Investigation of Railroad Freight Rate Structures.

In that there were some—they are listed here—141 statements had been received at that time in response to our publishing of this proposal, representing an even larger number of interests since many joint statements were filed.

These interests expressed a diversity of views. Railroads, Federal and State agency, port interests, individual shipper organizations, transportation consultants and individuals, including Members of Congress responded.

The demand for this kind of investigation has been pretty much before the Commission for some time. In fact, I believe I am correct, and I could stand corrected on this if I am wrong, but I believe at one time, the railroads themselves undertook this kind of investigation and due to the very nature of the competitive situations of railroads, they weren't able to get together to finish it.

These investigations in my opinion need to be done, must be done, if we are to correct disparities and distortions and prejudices and discriminations that have crept into the ratemaking procedure with regard to railroads in the last 85 or 86 years.

In this same pamphlet, Mr. Chairman and Mr. Conte, we described the kind of man we wanted. The Commission recommended that we hire a special counsel. All of that is in this pamphlet.

Proceeding from there, we then had to determine how we could go about getting the funds. At that time there was a sum of money that was impounded by the Bureau of the Budget from our original allocated appropriated funds.

Mr. DiNGELL. That was a sum of funds that was allocated to specific expenditures, not for special counsel, but for in-house work of the kind we are discussing now.

Mr. BREWER. No, no, no. The kind
Mr. DINGELL. In-house.
Mr. STAFFORD. It was not an in-house study, sir.

Mr. BREWER. It was appropriated for regular operating funds but was impounded at that time. Our regular budget has been reduced by that amount.

Mr. DINGELL. Are you saying that you retrieved some of the reductions by going to the device of procuring special counsel?

Mr. BREWER. I didn't understand the statement.

Mr. DINGELL. Are you saying that by going to special counsel you retrieved some of these funds?

Mr. BREWER. No, no. What we did, we went to the Bureau of the Budget and we told them the necessity of investigation and we very much would like to conduct it; that we did not have the funds to conduct it in-house; that we felt it was best to conduct it with an unbiased interest counsel and, under those conditions, we got the $740,000 which was the original amount we had.

Subsequently we got the additional amount from the Appropriations Committees.

Back to your question; I am sorry to have taken so long to get to it, Congressman.

The first thing we described in the Commission was the profile of the kind of man that would be necessary to give to this kind of a study the appropriate analysis, the judicial analysis, the careful attention that would be necessary in evaluating the various statements that had been put into the record and also be put into the record, evaluate them, assess them, then together with such recommendations that the RMC will come up with, involving literally thousands of commodity classifications, the long haul, short haul, disparity of across-the-board increases, where you give the long-haul shipper increases of $4 a ton; that is, 40 cents; you give a short hauler $2 a ton; that is only 20 cents, you see.

So the disparities continued to be there.

Secondly, we need to know whether or not those captive commodities whose products are not shippable by any other means than the railroad, for example, are they bearing more than their proportionate share because of competitive influences that hold down the prices on other matter that could be shipped by any mode.

We need to know that.

There are many, many other things we need to know. The profile of the man had to do and the image before us, I guess, had to do with Mr. Justice Brandeis because the only other time that this Commission to my knowledge ever conducted an outside investigation under contract was with Mr. Justice Brandeis I believe in 1914, the famous 5-percent case.

So this was a profile we had in mind, a man of that kind of reputation. So we searched among ourselves and there was considerable correspondence in the file and between the chairman and this Commission relative to this kind of person asking that we study diligently and come up with names to be considered.

So we had a research started and our first thought was a very eminent Federal judge who has been widely recognized in the transportation field in some of his decisions. Of course, not to embarrass him and his august position, we asked our General Counsel, Mr. Kahn, if he would make such discreet inquiries as were necessary to determine whether this particular jurist would have any interest in this matter.

Mr. CONTE. Did he actually approach the jurist?

Mr. BREWER. No, sir. The jurist was never approached, to my knowledge; and I think I am correct.

Mr. CONTE. How did you find out if he was interested?
Mr. DINGELL. Have you been sworn?

Mr. CONTE. This is going to be the swearingest hearing you have ever heard.

Mr. DinGELL. Mr. Kahn, do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth so help you God?

Mr. Kaun. I do.
Mr. DINGELL. You are recognized for testimony.

Mr. Kaun. The judge was not contacted because the inquiry made disclosed that he would not be leaving the bench until a later time than the Commission sought to retain his services,

Mr. DINGELL. Well, if the gentleman will yield, in point of fact, your response to the Chair indicated that you had had under consideration a number of people; am I correct?

Mr. STAFFORD. Right.

Mr. DINGELL. And you have listed for us a number of Federal judges whose names are in the record. You also stated that you had had under consideration former Senator Frank Lausche. No contacts were made with him?

A former colleague of mine Mr. George Springer, in favor of whose confirmation, by the way, I testified before the Senate, was involved in negotiations with you; wasn't he?

Mr. BREWER. We had negotiations with him for approximately 6 months.

Mr. DINGELL. And then you had negotiations with the present holder of the-well, I would say supposed holder of the contract, Mr. Allott; is that correct?

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