Defendants note that the initial publication of complainant's rate at Schilling provided for routing via the Portland gateway. Routing via Butte and Silver Bow was added after publication of the original rate structure. According to records maintained by the railroads, the Butte-Silver Bow routing was not utilized until February 1976, and this gateway has never been considered the rate making route. In response to other allegations of complainant, defendants distinguish the rate on particleboard moving from Missoula, to southern destinations, from the instant proceeding. First, defendants argue that pulpboard and particleboard do not compete and have entirely different end uses. The commodities exhibit different transportation characteristics, in the areas of loading and the type of rail equipment utilized. Furthermore, although proponents of the particleboard rates from Missoula sought rates to Los Angeles on the same level as those existing from Baum, Oreg.. they were only granted rates 8 cents higher than the existing rate from Baum. (This differential has increased to 10 cents at both minimum weights of 115,000 pounds and 140,000 pounds.) The purpose behind the Missoula rate adjustment, was explained by the rail carriers as an attempt to secure entry of Missoula particleboard producers in the southern California particleboard market. However, this lower rate has not succeeded in generating traffic and is characterized by defendants as a "paper rate." Thus, the particleboard situation can be distinguished if for no other reason than that complaint, by its own admission, has been a viable competitor in the California market for some time.

The corrections made by defendants to complainant's mileage figures appear in appendix C. Basically, the errors consist of mileages not being constructed over the shortest route and mathematical miscalculations.

Defendants do not submit a cost study in support of their position, since they maintain that costs have no significance in this proceeding. However, they do point out discrepancies in the complaint's cost analysis and present a restatement of complainant's costs in rebuttal.

Defendants state that in development of complainant's costs, the terminal costs and the cost per car-mile have all been increased to the January 1976 level using an update ratio of 109.6 percent. However, defendants contend that complainant failed to update the way and through train costs per ton-mile. This assertedly results in an understatement of costs at the January 1976 level.

Defendants also believe that the index used to update complainant's costs is inappropriate. First, they point out that the rates presently in effect are shown to be at the Ex Parte No. 313 level. Thus, a proper level of expenses for the carriers to compare with the Ex Parte No. 313 rate level would have been October 1, 1975. This was the final date for increases in expenses utilized to justify Ex Parte No. 313 general rate increases by the Nation's carriers. It is further alleged that the index computed by complainant is understated. Using the Commission's Statement No. 2-58, supra, procedures for developing update factors, defendants arrived at a ratio of 113.42 percent for adjusting the 1974 level of expenses to the October 1975 level.

Finally, defendants take exception to complainant's method of developing interchange costs. Defendants note that complaint elected to determine these costs on 358 I.C.C.

a per loaded car-mile basis. However, they contend that if the number of actual interchanges are known, as is the case here, this cost should be developed on a per actual car basis.

In view of the apparent discrepancies in complainant's cost analysis, defendants attempted to correctly estimate the costs to the railroads for the subject traffic. In this regard, defendants restated complainant's costs using complainant's traffic factors, miles of haul, weights of lading, routes of movement, et cetra, as well as complainant's cost input factors.

Defendants, in addition to revising the interchange costs and the way and through train costs, indexed the costs to the October 1, 1975 level using their index factor of 113.42 percent. Comparisons of defendants` restated costs with the revenues per car for the 17 movements are contained in appendix D. Defendants note that both their own costs and complainant's costs are at the variable level of expense. Consequently, it is argued that if the fully allocated cost level were considered, the profit margin to the carriers would be much smaller, if not completely eradicated on some of the sample movements.

The following table is a comparison between the present revenue to variable cost ratios computed by complainant and by defendants.

Also following is a comparison of the ratio's of revenues resulting from complainant's proposed mileage scale rates to the variable costs as computed by complainant and defendants.

Defendants note that complainant's proposed mileage scale of rates was designed to produce revenue in excess of 160 percent of variable costs. However, as can be seen above, a comparison of these proposed rates with the restated costs indicates that none of the long-haul comparisons meets this 160-percent criteria.

Finally, defendants reiterate their belief that the costs of service are irrelevant in this proceeding. Defendants contend they would not have included a cost statement had it not been for the fact that complainant's cost evidence contained errors. Defendants also contend that it should not be inferred that their cost presentation represents restatement of the actual costs. The reason for this is that defendants accepted, without verification, the mileages used by complainant, which were subsequently found to be in error. Thus, the defendants' costs show the relative impact of the errors made by complainant, except where mileages were checked and found to be correct. Defendants state that accurate costs are not of record.

358 I.C.C.

COMPLAINANT'S REBUTTAL

Complainant submitted a statement in reply to defendants, in which it makes various corrections in its initial computations in light of defendants' reply statement. The following table represents a summary comparison of the ratios of present rates, proposed mileage scale rates, and rates resulting from inclusion of Schilling in the Wallula-Lewiston origin rate group, to the variable costs as restated by complainant.

Complainant's rebuttal argument is directed primarily to defendants' allegations that water competition is the basis for the rate structure in the Pacific Northcoast region and is an important factor in maintenance of existing rate relationships in the area. Complaint argues that water competition has not been established and that even if it once was a factor in the establishment of the rate structure, it has long since ceased being a potential threat to rail movements in the coastal area. Although geographically there is the potential for diversion to water transportation "[t]he intercoastal movement by which the rate disparity is sought to be justified is based on a phantom fleet operating to non-existent terminals at illustory costs," citing Saskatchewan v. United States, 253 F. Supp. 504 (W.D. Wash. 1965).

DISCUSSION AND CONCLUSIONS

A complicated situation exists along the border between any two rate territories. All territorial dividing lines are more or less arbitrary, and such lines generally have the appearance of injustice to some point or points across the line. See Southern Class Rate Investigation, 128 I.C.C. 567, 585; Coleman Co., Inc. v. Akron, C. & Y. R. Co., 281 I.C.C. 777, 784; Mount Vernon, Ind., Cham. of Com. v. Abilene & S. Ry. Co., 302 I.C.C. 549, 557. The practice of grouping points of origin or destination and applying the same rate to all points within the group is a longstanding characteristic of the rate structure of the country. Commodity Rates on Lumber and Other Forest Products, 165 I.C.C. 561, 565. This is particularly true in the Pacific Northcoast territory which is sparsely populated with a basic imbalance of returning northbound traffic. Rate groups cannot be extended indefinitely and the discrimination inherent in all group adjustments must not be undue. Groups long maintained, however, are presumably fair and are not to be disrupted unless substantial justice clearly requires it. Dissatisfied producers deprived of the benefit of their proximity to common markets must show that they are actually injured and by an unjust and unlawful discrimination. Galloway Coal Co. v. Alabama G. S. R. Co., 40 I.C.C. 311. The sought mileage scale is not a viable alternative for the Pacific Northcoast territory. This is true not only because producing points are so distant from each other, but because of the potential for diversion which is greatest for the extreme northern points. Under a mileage scale, these points would take the highest rates on southbound movements. Potential water competition as a factor in the rate structure of the Pacific Northcoast territory was an area of dispute between the parties. Complainant maintained and cited authority for the proposition that that water competition is not realistically a threat in the Pacific Northcoast territory. One case relied upon extensively by complainant was Saskatchewan v. United States, supra. However, on remand, Saskatchewan Minerals v. Chicago, M., St. P. & P. R. Co., 335 I.C.C. 8, actual water competition was found to exist. Certainly based upon geographic location, the Pacific Northcoast territory is in closer proximity to water than Schilling, which brings us to the decisive factor in this case. Schilling is located not only outside the group basing points, but in another territory altogether. Montana has consistently taken different rates than points in the States included in the Wallula-Lewiston origin group. To disrupt established territorial limits and relationships based upon this record would require a complete revision of the longstanding rate structure of the Pacific Northwest territory, which we do not feel is warranted.