After the Illinois Commerce Commission had denied a railroad's
request for authority to increase intrastate passenger fares for
its Chicago suburban commuter service, claimed as necessary to
enable it to operate such service without an out-of-pocket loss,
the railroad petitioned the Interstate Commerce Commission for
relief under 49 U.S.C. § 13(4). The latter Commission found that
the railroad's revenues from this particular service fell short of
meeting the out-of-pocket cost of such service, concluded that this
caused undue discrimination against interstate commerce, and
prescribed higher intrastate fares to produce enough revenue to
eliminate the out-of-pocket loss and to allow $77,000 annually as a
contribution to indirect costs and taxes. It also increased
interstate fares to two points in Wisconsin to conform to the
increased intrastate fares. The District Court set aside the
Commission's order, enjoined its enforcement, and remanded the case
to the Commission for further proceedings.
Held: the judgment is modified and affirmed. Pp.
355 U. S.
301-312.
1. The Commission's findings were not adequate to support its
order under § 13(4). Pp.
355 U. S.
306-309.
(a) The deficit from this single commuter operation cannot
fairly be adjudged to work an undue discrimination against the
railroad's interstate operations without findings which take into
account the carrier's other intrastate revenues from Illinois
freight and passenger traffic. Pp.
355 U. S.
306-309.
(b) The portion of the prescribed increases designed to produce
$77,000 annually as a contribution to indirect costs and taxes is
not based on adequate findings. P. 309,
n 8.
2. The Interstate Commerce Commission did not err in considering
evidence which was not presented by the railroad to the State
Commission. Pp.
355 U. S.
310-311.
Page 355 U. S. 301
3. The District Court did not err in setting aide so much of the
Commission's order as authorized an increase in the interstate
fares to the two Wisconsin points, since those rates are so
interwoven with, and so closely bound to, the intrastate rates that
a proper disposition of this case requires that the Commission
reconsider them as part of its reconsideration of the entire
Chicago suburban commuter service. Pp.
355 U. S.
311-312.
146 F. Supp. 195 affirmed with modifications.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The State of Illinois, the Illinois Commerce Commission, and the
Milwaukee Road Commuters' Association, aggrieved by an order of the
Interstate Commerce Commission fixing intrastate passenger fares
for the Milwaukee Road's Chicago suburban commuter service higher
than the fares authorized by the State Commission, brought this
action in the District Court for the Northern District of Illinois,
Eastern Division, seeking
Page 355 U. S. 302
relief under 29 U.S.C. § 1336. The ICC order, 297 I.C.C. 353,
was made under 49 U.S.C. § 13(4), [
Footnote 1] which authorizes the ICC to prescribe
intrastate fares if it finds that
". . . any such . . . [existing intrastate] fare . . . causes .
. . any undue, unreasonable, or unjust discrimination against
interstate . . . commerce."
The three-judge District Court set aside the order, enjoined its
enforcement, [
Footnote 2] and
remanded the case to the ICC for further proceedings. 146 F. Supp.
195. The District Court held,
inter alia, that the ICC
failed to make findings appropriate to show that the existing fares
caused undue, unreasonable or unjust discrimination against
interstate commerce. The judgment was appealed under 28 U.S.C. §
1253. [
Footnote 3] We noted
probable jurisdiction, 352 U.S. 939.
Page 355 U. S. 303
The ICC found that the Milwaukee Road's 1954 passenger revenues
from the Chicago suburban commuter service fell short by $306,038
of meeting the out-of-pocket cost of the service. This was the
basis of the conclusion that the existing intrastate fares caused
undue discrimination against interstate commerce. To remove this
discrimination, the ICC prescribed fares to produce $383,000
additional annual revenue, enough to eliminate the determined
out-of-pocket loss and to allow $77,000 annually as a contribution
to indirect costs and taxes. The question for our decision is
whether the District Court properly set aside the ICC order as void
for lack of findings necessary to support an order under §
13(4).
The Chicago suburban commuter service, except for a relatively
insignificant exception mentioned below, is entirely an intrastate
service. It is provided in two directions from Chicago's Union
Station. One direction, wholly within Illinois, is west from
Chicago some 37 route miles to Elgin, Illinois. The other direction
is north from Chicago to Walworth, Wisconsin; however, 62 of the 74
route miles in that direction, and 24 of the 26 station stops, are
located with Illinois. [
Footnote
4] Total 1954 passenger revenues from this service were
$1,796,231 from 4,869,064 passengers. Commuters traveling on
commutation and
Page 355 U. S. 304
multiple-ride tickets numbered 3,910,526 of this total, and
accounted for $1,374,261 of the revenue.
Commuter fares of most of the railroads providing commuter
service in the Chicago area have been determined at least since
1950, in joint hearings conducted by the ICC and the State
Commission under 49 U.S.C. § 13(3). [
Footnote 5] 297 I.C.C. 353, 354. On July 24, 1952,
however, the Milwaukee Road, instead of filing petitions or
schedules with both Commissions, filed a petition with the State
Commission only requesting
"authority to discontinue all off-peak Chicago suburban
passenger trains and consolidate certain peak-hour trains and also
to increase one-way, round-trip and commutation fares to such
extent as will after taking into consideration the economy effected
by
Page 355 U. S. 305
such discontinuances and consolidation of trains, give
respondent sufficient revenues to permit operation of the Chicago
suburban service without an out-of-pocket loss."
297 I.C.C. at 355.
The State Commission did not act on the application until 1954.
Meanwhile, the Milwaukee Road changed the suburban service from a
steam to a diesel operation. The State Commission found that the
cost savings effected by this change eliminated the out-of-pocket
loss, and, on November 10, 1954, denied the application. The
Milwaukee Road thereupon, in February, 1955, petitioned the ICC for
relief under § 13(4).
This case presents once again the problem of adjusting state and
federal interests in the regulation of intrastate rates. These
intrastate rates are primarily the State's concern, and federal
power is dominant "only so far as necessary to alter rates which
injuriously affect interstate transportation."
North Carolina
v. United States, 325 U. S. 507,
325 U. S. 511.
Thus, whenever this federal power is exerted within what would
otherwise be the domain of state power, the justification for its
exercise must "clearly appear."
Florida v. United States,
282 U. S. 194,
282 U. S. 212.
The statute provides a practical method of minimizing the
inevitable irritations inherent in the conflict by requiring the
ICC to notify the State whenever there is brought before it any
fare imposed by state authority. In addition, the ICC may confer
with the state regulatory authority, or may hold joint hearings
with the state agency, when the State's ratemaking authority may be
affected by the action taken by the ICC. 49 U.S.C. § 13(3).
The occasion for the exercise of the federal power asserted by §
13(4) is the necessity for effecting the required contribution by
intrastate traffic of its proportionate share of the revenues
necessary to pay a carrier's
Page 355 U. S. 306
operating cost and to yield a fair return. [
Footnote 6] When intrastate revenues fall short of
producing their fair proportionate share of required total
revenues, they work an undue discrimination against interstate
commerce, and the ICC may remove the discrimination by fixing
intrastate rates high enough reasonably to protect interstate
commerce.
Illinois Commerce Commission v. United States,
292 U. S. 474,
292 U. S. 479;
Railroad Commission of Wisconsin v. Chicago, B. & Q. R.
Co., 257 U. S. 563,
257 U. S. 586;
United States v. Louisiana, 290 U. S.
70,
290 U. S. 75. In
determining whether an undue revenue discrimination against
interstate commerce is caused by intrastate rates, the ICC may
consider,
"among other things, the need, in the public interest, of
adequate and efficient railway transportation service and the need
of revenues sufficient to sustain such service,"
a standard written into 49 U.S.C. § 15a(2).
King v. United
States, 344 U. S. 254,
344 U. S. 264.
No formal requirements are prescribed for the findings to be made
by the ICC under § 13(4).
United States v. Louisiana,
290 U. S. 70,
290 U. S. 80.
Reasonable determinations suffice.
Florida v. United
States, 292 U. S. 1,
292 U. S. 9. But
the justification for the exercise of this exceptional federal
power to interfere with intrastate rates must be made definitely
and clearly apparent.
Florida v. United States,
282 U. S. 194,
282 U. S.
212.
In the instant case the ICC interfered with suburban commuter
rates -- intrastate rates peculiarly localized in impact upon the
Chicago suburban community. In substance, the ICC found that,
because this single segment of the Milwaukee Road's intrastate
operations in Illinois did not meet out-of-pocket costs, there was
an undue
Page 355 U. S. 307
discrimination against the road's interstate operations, without
regard to the contribution of other Illinois intrastate revenues,
freight or passenger, concerning which both the record and the
findings are entirely silent.
We think this is a case where the ICC cannot be sustained in
altering intrastate rates merely because the Chicago suburban
commuter traffic -- of the Milwaukee Road's total intrastate
Illinois traffic, freight and passenger -- is not remunerative or
reasonably compensatory.
Cf. Florida v. United States,
282 U. S. 194;
North Carolina v. United States, 325 U.
S. 507. The limited and exceptional federal power
asserted by § 13(4) over intrastate rates must be exercised with
"scrupulous regard for maintaining the [primary] power of the state
in this field."
North Carolina v. United States,
325 U. S. 507,
325 U. S. 511.
It is, of course, desirable that each particular intrastate service
should as nearly as may be pay its own way and return a profit --
but the State Commission, not the ICC, has the responsibility in
the first instance to achieve that desired end. Passenger deficits
have become chronic in the railroad industry, and it has become
necessary to make up these deficits from more remunerative
services. The ICC has recognized this practical reality of today's
railroading, and has changed its rate-fixing policy so that, if
interstate passenger service inevitably and inescapably cannot bear
its direct costs and its share of joint or indirect costs, the ICC
feels compelled in a general rate case to take the passenger
deficit into account in the adjustment of interstate freight rates
and charges.
King v. United States, 344 U.
S. 254,
344 U. S. 261.
An equally broad power must be conceded to a state commission in
the exercise of its primary authority to prescribe and adjust
intrastate rates.
In view of that policy, we do not think that the deficit from
this single commuter operation can fairly be adjudged to work an
undue discrimination against the Milwaukee
Page 355 U. S. 308
Road's interstate operations without findings which take the
deficit into account in the light of the carrier's other intrastate
revenues from Illinois traffic, freight and passenger. The basic
objective of § 13(4), applied in the light of § 15a(2) to this
case, is to prevent a discrimination against the carrier's
interstate traffic which would result from saddling that traffic
with an undue burden of providing intrastate services. A fair
picture of the intrastate operation, and whether the intrastate
traffic unduly discriminates against interstate traffic, is not
shown, in this case, by limiting consideration to the particular
commuter service in disregard of the revenue contributed by the
other intrastate services. [
Footnote 7]
A requirement for findings which reflect the commuter service
deficit in the totality of intrastate revenues is not a departure
from previous holdings of this Court. The precise situation
presented by this case has not heretofore been considered by the
Court. The previous cases involving Commission orders increasing
intrastate rates in the interest of the carrier's revenue (as
distinguished from cases of discrimination against particular
persons and localities,
see Houston, E. & W.T. R. Co. v.
United States, 234 U. S. 342)
involved statewide orders raising intrastate rates. In passenger
fare cases, ICC orders were sustained on a showing that, following
general increases in interstate passenger rates, state commissions
refused to increase intrastate passenger rates to the same level
for what were essentially identical services.
Railroad
Commission of Wisconsin
Page 355 U. S. 309
v. Chicago, B. & Q. R. Co., 257 U.
S. 563;
New York v. United States, 257 U.
S. 591. It was held that the state passenger rates in
that circumstance were not producing their fair proportionate
share. In
North Carolina v. United States, 325 U.
S. 507, also a passenger fare case, the ICC order was
not sustained because the findings were held to be insufficient.
Nonpassenger fare cases in which ICC orders raising intrastate
rates were sustained were
United States v. Louisiana,
290 U. S. 70;
Florida v. United States, 292 U. S.
1, and
King v. United States, 344 U.
S. 254. The order was not sustained, however, in an
earlier Florida case,
Florida v. United States,
282 U. S. 194. The
only case ostensibly based upon a revenue discrimination caused by
a local operation was not a passenger fare case.
Illinois
Commerce Commission v. United States, 292 U.
S. 474. Basically, the discrimination there complained
of, however, was a "persons and locality" discrimination against
interstate shippers.
It should also be noted that, in
King v. United States,
supra, the Court adverted to those very factors among the
ICC's findings whose absence in the present case we find to be a
fatal defect. The Court there emphasized the ICC finding that the
entire intrastate traffic, freight and passenger, constituted a
revenue drain upon the carrier's revenues from interstate traffic.
Since the Commission has not in this case found whether or not the
commuter rates, viewed in the light of the Illinois intrastate
operation as a whole, constitute an undue revenue discrimination
against the Milwaukee Road's interstate operations, the judgment of
the District Court in remanding the case to the Commission for
further consideration must be affirmed. [
Footnote 8]
Page 355 U. S. 310
The District Court also held that the ICC erred in considering
evidence which was not presented by the Milwaukee Road to the State
Commission. The evidence in question concerned certain depreciation
and maintenance of way expenses totaling $258,172, which the ICC
took into account in computing out-of-pocket costs. The District
Court said:
"If different evidence is to be offered or a different basis of
fares is to be urged before the interstate commission, the state
commission should have been given a chance to fix fares on the same
evidence and the same basis."
"
* * * *"
"Where a railroad seeks the fixing of higher intrastate rates by
the interstate commission after failing in such endeavor before a
state commission, § 13(4) does not contemplate that the state
commission is to be considered only a way station in a journey to
the interstate commission."
146 F. Supp. 195, 201, 202.
Page 355 U. S. 311
This holding in effect restricts the ICC in decisions under §
13(4) to the identical evidence presented by the railroad to the
State Commission. So to restrict the ICC's consideration as to
whether intrastate rates work an undue discrimination against
interstate commerce might seriously interfere with the Commission's
duty to remove the discrimination to protect the exclusive federal
domain of interstate commerce. It is contrary to this Court's
holding in
Florida v. United States, 282 U.
S. 194. There, the State Commission had not
affirmatively prescribed the existing rates which the ICC
increased. It was urged that, until the State Commission did so, §
13(4) granted no power to the ICC to prescribe higher rates. This
Court rejected this contention, saying,
"To hold . . . that there can be no adjustment of intrastate
rates by the Interstate Commerce Commission so far as may be needed
to protect interstate commerce until the state itself has first
'sat in judgment on the issue of the lawfulness of those intrastate
rates' would be to impose a limitation not required by the terms of
the statute and repugnant to the grant of authority."
Id. at
282 U. S.
210.
In this case, the ICC might more wisely have arranged for joint
hearings under § 13(3) or have deferred action pending an
opportunity for the State Commission to consider this evidence.
However, nothing in the statute compels either course, or denies
the ICC the power to determine the question presented by the
railroad's petition, whatever may have been the evidence presented
before the State Commission.
See North Carolina v. United
States, 128 F.
Supp. 718,
aff'd, 350 U.S. 805;
Illinois v. United
States, 101 F. Supp.
36, 47,
aff'd, 342 U.S. 930.
Finally, it is argued that the District Court erred in setting
aside so much of the ICC order as authorized an increase in the
interstate fares to the two Wisconsin points. We believe, however,
that these rates are so interwoven
Page 355 U. S. 312
with and so closely bound to the intrastate rates that a proper
disposition of this case reasonably requires that the Commission
reconsider them as part of its reconsideration of the entire
Chicago suburban commuter service. The only reason why the ICC
increased the interstate rates was to make them conform to the
increased intrastate rates.
Paragraph 3 of the District Court judgment dated June 14, 1956,
is modified to provide that the remand to the ICC shall be for
further proceedings not inconsistent with this opinion.
It is so ordered.
* Together with No. 27,
United States v. Illinois et
al., and No. 28,
Interstate Commerce Commission v.
Illinois et al., also on appeals from the same Court.
[
Footnote 1]
24 Stat. 383, as amended, 41 Stat. 484, 49 U.S.C. § 13(4):
"Whenever in any such investigation the commission, after full
hearing, finds that any such rate, fare, charge, classification,
regulation, or practice causes any undue or unreasonable advantage,
preference, of prejudice as between persons or localities in
intrastate commerce, on the one hand, and interstate or foreign
commerce, on the other hand, or any undue, unreasonable, or unjust
discrimination against interstate or foreign commerce, which is
forbidden and declared to be unlawful it shall prescribe the rate,
fare, or charge, or the maximum or minimum, or maximum and minimum,
thereafter to be charged, and the classification, regulation or
practice thereafter to be observed, in such manner as, in its
judgment, will remove such advantage, preference, prejudice, or
discrimination. Such rates, fares, charges, classifications,
regulations, and practices shall be observed while in effect by the
carriers parties to such proceeding affected thereby, the law of
any State or the decision or order of any State authority to the
contrary notwithstanding."
[
Footnote 2]
The injunction was stayed pending the hearing of the appeal to
this Court. The excess fares are being impounded under a provision
of the stay order providing for their refund to the persons who
paid them in the event the judgment appealed from is affirmed.
[
Footnote 3]
The Milwaukee Road is the appellant in No. 12. The United States
is the appellant in No. 27. The ICC is the appellant in No. 28.
Each appeals from the particular provisions of the judgment by
which it is aggrieved.
[
Footnote 4]
The interstate fares to the two Wisconsin points were also
raised in this proceeding by an ICC order entered November 21,
1955, and Order No. 26550,
Passenger Fares and Surcharges,
214 I.C.C. 174, was modified so as to permit the rates to be made
effective. No affirmative order raising the intrastate rates was
made, however, until March 2, 1956. The ICC report allowed the
Milwaukee Road and the Illinois Commerce Commission 60 days in
which to adjust the intrastate rates on the bases prescribed in the
report. Failing such adjustment, the order of March 2, 1956,
prescribing the intrastate rates was entered and Order No. 11703,
Intrastate Rates Within Illinois, 59 I.C.C. 350, was
modified to permit the Milwaukee Road to make the intrastate rates
effective.
[
Footnote 5]
24 Stat. 383, as amended, 41 Stat. 484:
"Whenever, in any investigation under the provisions of this
chapter, or in any investigation instituted upon petition of the
carrier concerned, which petition is hereby authorized to be filed,
there shall be brought in issue any rate, fare, charge,
classification, regulation, or practice, made or imposed by
authority of any State, the commission, before proceeding to hear
and dispose of such issue, shall cause the State or States
interested to be notified of the proceeding. The commission may
confer with the authorities of any State having regulatory
jurisdiction over the class of persons and corporations subject to
this chapter or chapter 12 of this title, with respect to the
relationship between rate structures and practices of carriers
subject to the jurisdiction of such State bodies and of the
commission, and to that end is authorized and empowered, under
rules to be prescribed by it, and which may be modified from time
to time, to hold joint hearings with any such State regulating
bodies on any matters wherein the commission is empowered to act
and where the ratemaking authority of a State is or may be affected
by the action taken by the commission. The commission is also
authorized to avail itself of the cooperation, services, records,
and facilities of such State authorities in the enforcement of any
provision of this chapter or chapter 12 of this title."
[
Footnote 6]
Railroad Commission of Wisconsin v. Chicago, B. & Q. R.
Co., 257 U. S. 563,
257 U. S.
586.
"The effective operation of the [Interstate Commerce] [A]ct will
reasonably and justly require that intrastate traffic should pay a
fair proportionate share of the cost of maintaining an adequate
railway system."
[
Footnote 7]
This would seem to be particularly required here in light of the
Commission's recognition "that the deficit from the [Milwaukee
Road's] total passenger operations is relatively greater than from
its suburban operations."
297 I.C.C. 353, 359.
The Commission found that the Milwaukee Road earned in 1954 from
its freight operations $37,293,050, and suffered a deficit from all
passenger operations of $22,824,532, resulting in a net railway
operating income of $14,568,518. This represented a return of
approximately 2%.
[
Footnote 8]
We agree with the District Court that that portion of the
prescribed increases designed to produce $77,000 annually as a
contribution to indirect costs and taxes is not based upon adequate
findings. There is no finding of the total of indirect costs and
taxes to which contribution is to be made, nor any finding from
which we may infer how the ICC derived its conclusion that a
$77,000 contribution was fair. It is axiomatic that, to know
whether something is a fair proportionate part of something else,
we must be told what the something else is.
On the other hand, we cannot agree with the District Court that
there was not support in the evidence for the ICC's finding that
the prescribed rates would be just and reasonable for the future.
The ICC did not rely solely upon the comparison with the similar
fares of the Northwestern, for there was ample other evidence in
the record to sustain their findings. But the factors which
determine the reasonableness of a rate are so different from the
factors which determine what is a fair proportionate share of a
carrier's total income that a finding of the reasonableness of the
rates prescribed does not embrace all the findings necessary to
support the exercise of the § 13(4) power.