Mr. STAFFORD. They are here. Mr. DINGELL. Why don't we just hold up on any introductions of them. We will call on them Mr. STAFFORD. I believe we have all of the staff members you invited, plus perhaps another one or two. Mr. DINGELL. I think under the circumstances the Chair will administer the oath to you and Mr. Brewer at this time. I guess Mr. Kahn appears as an adviser to you at this time and we will treat him in that capacity. Gentlemen, if you will rise. Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God? Mr. STAFFORD. I do. Mr. BREWER. I do. Mr. DINGELL. Gentlemen, you may consider yourselves sworn. The Chair under the circumstances will recognize our able counsel for questions and the Chair does feel compelled at this time to say that I am increasingly disturbed-counsel informs me that you do have a prepared statement. Mr. STAFFORD. I do have a prepared statement. If you prefer I put it in the record, I would be happy to do it. Mr. DINGELL. I think in view of the time and the fact that we have so many fine people lined up I think it would be appropriate if you excerpted from it and we will consider it as if given. The Chair does find himself increasingly disturbed, I must say, at the $650,000 contract which has just been given to a former member of the Senate to become a special counsel in a freight-rate case now proceeding under your Agency. The Chair does confess to some distress that the longer the staff of the Congress investigates this matter, the more disturbed I have become. On a number of occasions, representatives of your Agency have requested to come before my office to explain this matter in privacy. I must confess in other times I have gone at it this way and I have always found at a time later I felt it better that this kind of thing be discussed on the public record so that the matter could be explained in a public forum and the record would be created. I think there are a number of questions to be posed; one, why did the Commission feel they had to go to an outside source to contract this freight-rate investigation when this is the main role of the Commission? Two, the legality of the contract is open to serious question and will be explored by the committee. The GAO is investigating this matter now and the record of this hearing will, of course, be turned over to that Agency. During our investigation of the contract, the committee discovered that the ICC is also letting another $884,000 in contracts, and the Chair does have some questions relating to what I believe are serious conflicts of interest on the part of former employees. Hopefully, this hearing today, gentlemen, will clear up the suspicions that frankly have been raised in the mind of the Chair in connection with the entire allocation of contracts. And so we will recognize you at this time, Mr. Chairman, for appropriate comments. Before that, the Chair does note that an old friend, colleague and associate in this and other endeavors, is present, Mr. Conte. Mr. CONTE. Thank you, Mr. Chairman. I certainly appreciate those kind remarks. I have worked with you for a long time. I might say we had ICC before our Appropriations Committee only last week and we did go into the subject matter, so I am quite familiar with it and will be very pleased to hear what is going on here today, and see if we can be helpful in bringing everything out. I was well satisfied with our hearings before the Subcommittee on Appropriations and the DOT budget, and I know Chairman McFall asked questions on this. Mr. STAFFORD. Thank you. I recall we went into it in considerable depth before the Appropriations Committee. Mr. Chairman, I had asked to pass over my statement and put it in the record, but a number of questions that you proposed were spoken to in this statement. It is in our statement here this morning. If you would like to do that to get it on the record Mr. DINGELL. You are recognized to proceed in whatever fashion you feel appropriate. Mr. STAFFORD. Thank you, sir. I am pleased to appear before you today to discuss the Interstate Commerce Commission's contract for special counsel in its investigations of the railroad freight-rate structure and other related cases. Speaking for the Commission, we hope that our statements and any questions and answers that may follow will inform the subcommittee of our reasons for entering a sole-source, cost-reimbursable, no-fixed-fee type of contract. Most of the information concerning this contract has already been submitted to this subcommittee by letter of March 5, 1973. Accordingly, my statement today will merely summarize the highlights of the factual information already supplied. As you are aware in Ex parte 270 and related cases, the Commission has undertaken a far-reaching and intensive investigation of the railroad rate structure, the adequacy of railroad service, and the railroad rate base and rate of return. These investigations respond to widespread concern that general increases in railroad rates, made necessary by the upward trend in wages and other costs of providing railroad service, may have had an adverse impact on shippers, railroads, and the general consuming public. There is little doubt that the railroads needed additional revenue to meet the rising costs of doing business. What is not clear is whether the rate structure as it existed before this current inflationary period, or as it has evolved as a result of the increases, yields an economically effective and equitable system of prices for the movement of traffic by rail. The rate structure investigation is exceedingly complex. It involves literally thousands of individually formulated rates and rate patterns which may or may not have pertinence one to the other. The relationship of these rates to the costs of providing the services, the competition among sources and markets for the hundreds of commodities transported by rail, the competition among the railroads and between railroads and alternative modes of transport, the quality of service rendered by railroads and that desired by their patrons, the investment patterns and needs of the railroads, and the public interest in a viable railroad system are all serious questions which must be examined. In our initial report of November 5, 1971-340 ICC 886, at 823-3we related that several parties to the proceedings strongly urged the appointment or a special counsel, with a staff apart from our established organization to assist in the identification of issues and development of formal records. Recognizing the impact of these proceedings upon the Nation's economic welfare, and of the general public interest in the development of an adequate record, we decided to seek the necessary funding to contract for special counsel and supporting staff. The mission of special counsel is to appear as a party to the proceedings representing the general public interest. More specifically, he is expected to formulate issues, obtain, compile and analyze available information and data, present the results of his analysis as evidence in the proceedings, and cross-examine witnesses for other parties. Upon analysis of the entire record, he should take a position on all issues, with a full statement of his views and reasoning, and recommend changes in the rate structure, the applicable law, or ratemaking policy which he believes the records establish are in the best interests of the Nation as a whole. Mr. HUNGATE. Mr. Chairman, may I inquire at that point- Mr. HUNGATE [continuing]. As to the statement there on page 3: The mission of the special counsel is to appear as a party to the proceedings, representing the general public interest. Does not the ICC do that in the absence of special counsel? Mr. HUNGATE [reading]: More specifically, he is expected to formulate issues, obtain, compile and analyze available information and data, present the results of his analysis as evidence in the proceedings. Does not the ICC do that in the absence of special counsel? Mr. KAHN. If you are thinking in terms of public counsel as a member of the staff of the ICC, ICC does not have public counsel as does the CAB, or the FPC or FCC, for example, and the ICC has been subject to some criticism in the past for not having had public counsel on its staff. Mr. HUNGATE. Let me ask this same point, then you thought it wise to respond to that criticism by employing counsel for this purpose; is that correct, Mr. Chairman? Mr. STAFFORD. That was not the purpose. We did not reply to criticism in this matter he is referring to. From time to time we have had suggestions from a number of sources that we ought to suggest Mr. HUNGATE. Some of the suggestions I get are critical. Mr. STAFFORD. All right. I think in the past 2 or 3 years the entire ability of the Congress, or the Government, to continue to govern has been questioned in many instances and we happen to be one of them. Mr. HUNGATE. Mr. Chairman, let's assume that the need was there. Apparently you thought the need was there and you do not recommend it. Is that right? Mr. STAFFORD. For this case, we will develop Mr. HUNGATE. For having somebody available to formulate issues. Mr. STAFFORD. Yes, sir. Mr. HUNGATE. My question is, Why would this approach be made to a special counsel rather than acquisition of a regular counsel on the staff, adding someone to the regular, full-time staff? Mr. STAFFORD. It is in my statement as we go on through, but it has to do with the complexities of the case. Mr. HUNGATE. Could you help me right here with it, please? Mr. STAFFORD. Yes. It has to do with the complexities of the development of this case that we are involved in. And Mr. HUNGATE. You consider it better to handle it through a special counsel rather than a regular counsel you might add to your staff. Mr. STAFFORD. Yes. Because of the nationwide interest in this, and the shipping and transportation community, we felt that it was the best policy to get a complete separation from Commission production and make this available for the outside Mr. HUNGATE. Thank you, Mr. Chairman. Mr. STAFFORD [continuing]. Outside consideration. If I may proceed Mr. DINGELL. Yes. Mr. STAFFORD. The Commission received funding of $1,460,000 with which to contract with private concerns for economic studies and to contract for special counsel and staff. For special counsel, $650,000 was provided. We estimate that the funding for special counsel, staff, and support will cover 2 years. If the proceedings are completed prior to that time, the funds not expended will be returned to the Treasury. On the other hand, additional funds may be required to complete the proceedings. Although we do not presently anticipate that this will occur, it remains a possibility which should be mentioned. The $650,000 contract estimates $350,000 for staff salaries and $300,000 for whatever additional economic studies may be desired. These figures are not firm, but the intent is to grant special counsel flexibility and discretion on how to spend the money. Since this is a cost-reimbursement contract, we have the necessary controls to assure the proper expenditure of the funds. Our economic research contract calls for a series of studies involving the nature of the rail rate structure and how it has changed since 1966, the relationship of costs to the rate structure, the characteristics of demand for railroad service, the quality of rail service in relation to rates, and the various matters associated with the railroads' rates of return. So far, we have obligated $575,000 for this work and expect to obligate $155,000 more by June 30, 1973. Work in these areas is in various stages of production and we expect to finish this first phase of the investigations by the close of fiscal year 1974. In addition, we have retained individuals on a consultant basis to assist us in certain study areas being developed by the Commission staff. Mr. DINGELL. Mr. Chairman, not to interrupt you there-are you referring at this point to the RMC contract? Mr. STAFFORD. Yes. The Commission is requesting an additional $450,000 for fiscal year 1974 to fund economic studies which were not contemplated when its first appropriation was sought. As a result of increased emphasis on environmental issues, it is necessary to expand our present studies to consider more fully the question of how the demand for rail transportation of recyclable materials might respond to changes in rates. In addition, the Commission staff has in progress an initial study of rail service characteristics. In developing the specifications for this study, it was found necessary to encompass a wider range of service considerations to provide a closer focusing on the rail service performance in relation to the demand for service. Special counsel will have access to the results of the economic research performed under contract as well as internally by our staff. The studies will be used by special counsel in the second or hearing phase of the proceedings. This subcommittee may be interested in the reasons the Commission chose to contract for economic studies and special counsel rather than use its own staff to perform the work involved. As we explained to the House Appropriations Committee on March 29, 1973, the reasons are compelling. First, in recent years, the proliferation and sheer complexity of economic, regulatory, and other problems experienced by the transportation industry and the public it serves have threatened to overwhelm our capacity to administer the provisions of the Interstate Commerce Act committed to us by Congress. The Commission has little or no control over the number or kind of proceedings it received for decision in the public interest. Legislation and judicial decisions continue to impose new and added decisional responsibilities on the Commission. Significant among these duties is the need to explore, in every proceeding, the environmental consequences of, and alternatives to, a considered proposal and to explain in detail the economic and environmental trade offs embodied in our final decison. Despite the successes achieved through the Commission's constant efforts to streamline and improve its procedures, by comprehensive investigations and rulemaking proceedings, its limited budgetary resources, as well as its growing statutory duties, make it increasingly difficult to adjudicate these proceedings in the prompt and responsible fashion so vital to the smooth and efficient flow of our Nation's commerce. As the Commission's caseload increases in both size and complexity, so does the need for experienced professional and supporting staff. The assistance of economic experts, financial analysts, accountants, investigators and car service agents, and secretarial and other clerical support must be made available on a continuing basis to the Commission and its legal staff who are daily confronted with increasingly complex problems. For example, these matters include sophisticated financing techniques, problems resulting from the creation of conglomerates and mergers, more refined cost finding in rate increase proceedings, the |