%r 
 
 HE 
 
 UC-NRLF 
 
 B 3 12fi 220 
 
 ACCOUNTING 
 
 FOR PROPERTY AND EXPENSES OF INTERSTATE 
 
 CARRIERS UNDER THE DECISIONS OF THE 
 
 SUPREIME COURT OF THE UNITED 
 
 STATES IN THE MINNESOTA 
 
 RATE CASE AND OTHER 
 
 RECENT RATE. 
 
 CASES. 
 
 Memorandum of Hemy L. Stone, General Counsel, and 
 
 Wm. A. Colston, General Solicitor, Louisville & 
 
 Nashville Railroad Company. 
 
 Louisville, Ky., November 3, 1913. 
 
 
 Westekfield-Bokte Co., incorporated, Louisville, Kv. 
 

 ACCOUNTING 
 
 FOR PROPERTY AND EXPENSES OF INTERSTATE 
 
 CARRIERS UNDER THE DECISIONS OF THE 
 
 SUPREME COURT OF THE UNITED 
 
 STATES m THE MINNESOTA 
 
 RATE CASE AND OTHER 
 
 RECENT RATE 
 
 CASES. 
 
 Memarandimi of Henry L. Stone, G-eneral Counsel, and 
 
 Wm. A. Colston, General Solicitor, Louisville & 
 
 Nashville Railroad Company. 
 
 THE NECESSITY FOR AN ESTABLISHED SYS- 
 TEM OF ACOOUNTING FOR EXPENSES AND 
 PROPERTY OF INTERSTATE CARRIERS. 
 
 In the Minnesota Rate Case, the Supreme Court re- 
 iterated (pamphlet opinion, page 43), its previous ex- 
 pressions that the basis of calculation is the fair value 
 of the property used for the convenience of the public, 
 and that where the business of the carrier is both inter- 
 state and intrastate, the question whether a scheme of 
 maximum rates fixed by the State for intrastate trans- 
 portation affords a fair return must be determined by 
 considering separately the value of the property em- 
 ployed in the intrastate business and the compensation 
 allowed in that business under the rates prescribed. 
 
 311883 
 

 In litigation respecting State-made-rates, it is there- 
 fore necessary to determine with respect to the intrastate 
 traffic separately three large facts : 
 
 1. The Property devoted to the Intrastate Traffic. 
 
 2. The Kevenues or income from the Intrastate 
 Traffic. 
 
 3. The Operating Expenses, including taxes, or the 
 cost of doing the Intrastate Traffic. 
 
 The great bulk of operating revenues or income items 
 can be directly allocated to the intrastate traffic or to 
 the interstate traffic, and the proportion of common items 
 is so small that for all practical purposes, it may be said 
 that the distribution of operating revenues, earnings, or 
 income between intrastate traffic and interstate traffic can 
 be effected without considerable difficulty. 
 
 The distributions of property and of expenses, how- 
 ever, present a very different aspect. On interstate rail- 
 roads, intrastate traffic is carried in the same trains and 
 often in the same cars, and always over the same ties and 
 rails as interstate traffic and practically all of the prop- 
 erty used and practically all of the expenses incurred 
 are jointly used and incurred by the interstate traffic and 
 the intrastate traffic; and with respect to this property 
 jointly used and with respect to these expenses jointly 
 incurred, no one can say, except upon the establishment 
 of an authoritative rule, how much shall be charged to 
 the one kind of traffic, interstate, and how much shall be 
 charged to the other kind of traffic, intrastate. 
 
 There also arises, particularly in passenger rate cases, 
 the necessity or desirability of distributing property and 
 
expenses between the passenger traffic and the freight 
 traffic. It has been held, by some of the lower courts at 
 least, that in passenger rate litigation, it is not sufficient 
 merely to show that the return from all of the intrastate 
 traffic is insufficient, when compared with the property 
 devoted to that traffic, but it must also be shown that the 
 passenger rates in controversy contribute to the insuffi- 
 ciency, and in the Pennsylvania Railroad case, it was 
 held by a divided State court of last resort, that the in- 
 trastate passenger earnings should be separately consid- 
 ered in connection with the property devoted to that 
 particular traffic. 
 
 And even if it be not necessary to consider separately 
 the final returns from the intrastate passenger traffic, as 
 compared with the property devoted to that traffic, it is 
 generally necessary to make a distribution between the 
 freight traffic and the passenger traffic, in order to arrive 
 at a distribution between the interstate traffic and the in- 
 trastate traffic, because, w^hile, the interstate units in the 
 freight traffic have certain similarities to the intrastate 
 units in the freight traffic, and while the interstate units 
 in the passenger traffic have certain similarity to the in- 
 trastate units in the passenger traffic, there is no such 
 similarity between the passenger units and the freight 
 units as will enable a distribution of property and ex- 
 penses upon such units when considered together. That 
 is to say, one can not compare a passenger with a ton nor 
 can one compare a passenger-mile with a ton-mile, and 
 even a gross ton-mile of passenger train is an entirely 
 different thing from a gross ton-mile of a freight train. 
 
For many years rate cases have been tried upon the 
 opinions of experts showing that the intrastate traffic 
 costs to earn a certain percentage of the revenue more 
 than the interstate traffic costs, or more than all traffic, 
 interstate and intrastate combined costs, and distribu- 
 tions of property have also been made upon a revenue 
 basis. Not only do such distributions involve the fallacy 
 of petitio principii, because the greater the rates, the 
 greater the revenues and the greater the expenses and 
 the greater the amount of property apportioned to the 
 business under such distributions, but such distributions 
 have definitely been disapproved by the Supreme Court 
 of the United States in the Minnesota Rate case. 
 
 With respect to such distributions, the court said 
 (pamphlet opinion, pages 65-66) : 
 
 '^The statements of the complainants' witnesses 
 as to the extra cost of intrastate business, while en- 
 titled to respect as expressions of opinion, mani- 
 festly involve wide and difficult generalizations. 
 They embrace, without the aid of statistical infor- 
 mation derived from appropriate tests and sub- 
 mitted to careful analysis, a general estimate of all 
 the conditions of transportation and an effect to ex- 
 press in the terms of a definite relation, or ratio, 
 what dearly could be accurately arrived at only by 
 prolonged a.nd minute investigation of particular 
 facts with respect to the actual traffic as it was being 
 carried over the line. The extra cost, as estimated 
 by these witnesses, is predicated not simply of haul- 
 age charges, but of all the outlays of the freight 
 service including the share of the expenses for main- 
 tenance of way and equipment assigned to the freight 
 department. And the ratio, to be accurately stated, 
 must also express the results of a suitable discrimi- 
 
nation between tlie interstate and intrastate traffic 
 on through and local trains respectively and of an at- 
 tribution of the proper share of the extra cost of 
 local train service to the interstate traffic that uses 
 it. Tiie wide range of the estimates of extra cost, 
 from three to six or seven times that of the inter- 
 state business per ton-mile, shows both the difficulty 
 and the lack of certainty in passing judgment. 
 
 ^*We are of opinion that on an issue of this char- 
 acter involving the constitutional validity of State 
 action, general estimates of the sort here submitted, 
 with respect to a subject so intricate and import- 
 ant, should not be accepted as adequate proof to 
 sustain a finding of confiscation. While accounts 
 have not been kept so as to show the relative cost 
 of interstate and intrastate business, giving par- 
 ticulars of the traffic handled on through and local 
 trains, and presenting data from which such extra 
 cost, as there may be, of intrastate business may be 
 suitably determined, it would appear to have been 
 not impracticable to have had such accounts kept 
 or statistics prepared at least during test periods 
 properly selected. It may be said that this would 
 have been a very difficult matter, but the company 
 having assailed the constitutionality of the State 
 acts and orders was bound to establish its case, and 
 it was not entitled to rest on expressions of judg- 
 ment when it had it in its power to present accurate 
 data which would permit the court to draw the right 
 conclusion. ' * 
 
 Common carriers engaged in interstate commerce in 
 the United States are subject to two rate-making juris- 
 dictions, one the State Body and the other the Federal 
 Body, both have jurisdiction and both are in continual 
 session and can act at any time contemporaneously or 
 separately. 
 
6 
 
 Under such oircnmstances, the necessity for the adop- 
 tion of a fixed and uniform plan of distributing operat- 
 ing expenses and the properties of interstate carriers is 
 illustrated by the charts numbered from one to four on 
 the following pages. 
 
Total Expenses for ^i6tribution^2.ooo,ooo. 
 
 On ihe assumption of eoual ^i/ision yve 
 have 
 
 Jfc 
 
 i 
 
 /ntrastate 
 
 fhter state 
 
 ^ i 000^000. 
 
 ^ too 0^0 00. 
 
 Total Expenses for distribution SZpoo^ooo. 
 
 Of which Z0% is ^oubtful. 
 Result in Trial of /ntrastate Case. 
 
 \ ,Xo. 
 
 t. 
 
 mirasiaie \ 
 
 , fmerstaie 
 
 ■^600,000. \ 
 
 dtzoo, 000. 
 
8 
 
 Total Expenses for distribution ^Zooqooo. 
 Of which ZO Yo is ^ouhiful. 
 Pe^uH of- Trial in /yi^erstate Ca^e. 
 
 J/q:^3 
 
 /ntrasif-ate 
 
 ^f, zoo, 000, 
 
 /nterstate 
 
 00^ ooo. 
 
 Total Expenses for distribution ^Z,ooo,ooo. 
 Of which Z0% is ^ouhtfuL 
 Tfesoflt of Trial in Two Cases. 
 
 s 
 
 7^, 
 
 Tr?ira state, 
 
 /60Q 
 
 000. 
 
 xpenses incurret, 
 foryvhich the 
 y/ompcmj mts 
 n cre^'i t / /titersta te 
 
 p4oqooo.i 
 
 ^ So 0,000. 
 
Chart No. 1, represents the ideal condition of abso- 
 lute fact, ascertainable or to be fixed only by a supreme 
 intellect or by a supreme authority. In this ideal case, 
 the total expense of $2,000,000.00 (and the same reason- 
 ing will apply to a total property value of $2,000,000.00) 
 is correctly distributed in equal portions between the 
 intrastate traffic and the interstate traffic. 
 
 But we can not put the supreme intellect on the wit- 
 ness stand and the rule of division has not been estab- 
 lished by a supreme authority, or even by any authority 
 which will be recognised in the courts, and it is conser- 
 vative to say that at least 20 per cent of the expenses 
 may, in the differing opinions of reasonable men, be dis- 
 tributed to either the one class, interstate, or to the other 
 class, intrastate. 
 
 The rule adopted by the Supreme Court in the rate 
 cases appears to be that expenses and property must be 
 distributed with certainty before relief can be granted, 
 that is to say, when a railroad complains of rates fixed 
 by State authority or by Federal authority, the plaintiff 
 must show beyond a reasonable doubt that so much 
 property has been used or is required and so much ex- 
 pense has been incurred or is incurred in conducting the 
 traffic in litigation. 
 
 Thus in a contest involving the intrastate rates, re- 
 solving the 20 per cent of doubt against the complain- 
 ant, only $800,000.00 can be charged against the intra- 
 state traffic, which, under the assumed state of c^se, 
 should stand an expense of $1,000,000.00, and there must 
 be thrown against interstate traffic, which is not in con- 
 
10 
 
 troversy, the remainder of the expenses, or $1,200,000.00, 
 although the interstate traffic should be charged with 
 $1,000,000.00 only. This situation is illustrated by Chart 
 No. 2. 
 
 Similarly, in a trial of interstate rates only, the rail- 
 roads would be permitted to charge interstate traffic 
 with only $800,000.00, the remaining charge going to 
 intrastate traffic not then under consideration by the 
 court. This situation is shown in Chart No. 3. 
 
 Now, both jurisdictions undertake to act concurrently. 
 The State authorities assuming to act upon the intra- 
 state business only and the Federal authority assum- 
 ing to act upon the interstate business only, and (let 
 us suppose) the cases are tried in different courts. In 
 the court hearing the State case all reasonable doubts 
 must be resolved in favor of the State rates and in the 
 court hearing the interstate case, all reasonable doubts 
 must be resolved in favor of the interstate rates. As a 
 result, the railroad can charge only $800,000.00 to intra- 
 state traffic and only $800,000.00 to interstate traffic and 
 there is $400,000.00 of expense (or $400,000.00 worth of 
 property) for which or on account of which the railroad, 
 although it has made the expenditure, is permitted no 
 return whatever. This situation is illustrated by Chart 
 No. 4. 
 
 It is, therefore, respectfully submitted that, in order 
 for interstate carriers to hope to win law suits involving 
 the question of confiscation, either with respect to in- 
 terstate rates or with respect to intrastate rates. 
 
11 
 
 1. There must in future be a uniform method or sys- 
 tem of accounting, so that the railroad may ob- 
 tain credit for every dollar of expenses incurred 
 and for every dollar of property devoted to the 
 traffic, either in the one class of service or in the 
 other class of service. 
 
 2. It is preferable that the stamp of approval of the 
 supreme authority in such matters (Congress act- 
 ing either directly or through the Interstate Com- 
 merce Commission) should be obtained for the 
 method adopted. 
 
 The Southeastern carriers engaged in contesting rates 
 prescribed by the Alabama Legislature, recognized four 
 years before the decision in the Minnesota case, the 
 necessity for distributing operating expenses according 
 to the USE made of the property and expenses or accord- 
 ing to the SERVICE required for the several classes 
 of traffic and independently of the revenue produced, 
 and in September and October, 1909, conferences of lines 
 contesting the Alabama rates were held at Atlanta, Ga., 
 to consider such methods of accounting, and the general 
 principles of distributing operating expenses as between 
 interstate traffic and intrastate traffic upon what was 
 termed the Unit of Service Basis were adopted. 
 
 This basis was accepted by the Special Master and 
 approved by the Circuit Court (now the District Court) 
 of the United States for the Middle District of Alabama, 
 and the decree of the court enjoining the rates upon the 
 result reached by the Unit of Service Basis, has not been 
 appealed from. The following excerpt from pages 160 
 to 195 of the Special Master's Eeport in the Louisville 
 & Nashville case of the Alabama Rate Litigation (No. 
 
12 
 
 264 in Equity in the Circuit Court of the United States 
 for the Middle District of Alabama, 196 Fed. 800), af- 
 fords a general explanation of the plan. 
 
 UNIT OF SERVICE BASIS. 
 
 The division of operating expenses between interstate 
 and intrastate traffic, was made by complainant on what 
 it calls the Unit of Service Basis. And it is against this 
 theory that defendants have directed their chief attack. 
 
 It is reviled as having supplanted the methods pre- 
 viously used and as having been invented solely for the 
 purpose of this litigation. 
 
 In so far as it may supersede previous methods, that 
 might be a virtue if the older methods are themselves 
 unreliable and mere guess work. And as to the occa- 
 sion of its birth, Necessity is a reputable mother. 
 
 Before going into an explanation of the Unit of Serv- 
 ice basis I will refer to some views that confirm its re- 
 sults. 
 
 The complainant has thirteen divisions of its road do- 
 ing business in Alabama. In six of these, out of a total of 
 $23,394,060.83 of earnings for 1907-8, $21,436,516.67 was 
 earned, that is, 21-23 of the entire earnings were made 
 in six divisions, and of this $11,992,877.38 was interstate 
 and $9,443,639.29 was intrastate. (Record 1604.) 
 
 These six divisions were divided into two groups, one 
 typical interstate and the other intrastate. The former 
 are the N. & D.; M. & M.; and N. 0. & M.; while the intra 
 are the B. M.; A. M. and the S. A. 
 
 For the three years mentioned, 72.74% of the entire 
 business on the interstate divisions was interstate busi- 
 ness and 27.26% intrastate. In the other class 69.96% 
 of the business was intrastate and 30.04% inter. 
 
 The earnings and expenses shown on Exhibit W. A. 
 G; 67 are the entire earnings and expenses of each di- 
 vision for each year shown by the books of complain- 
 ant, and there is no doubt of their accuracy. Said Ex- 
 
13 
 
 hibit 67 shows that for the year 1906-7 the cost of earn- 
 ing a dollar upon the typical interstate divisions was 
 60.88 cents; while the cost to earn a dollar upon the intra 
 divisions was 93.24 cents, and that the cost to earn a 
 dollar upon the whole six divisions was 73.96 cents; 
 thus showing that for that year an excess of practically 
 40% of intra business done on the three typical intra- 
 state divisions, over the intrastate business on the three 
 interstate divisions, results in an increase of 32.96 cents 
 to earn a dollar on intrastate divisions. 
 
 For the year 1907-8, the cost to earn a dollar on the 
 interstate divisions was 67.92 cents; while the cost on 
 the intra was 90.85 cents, showing that an excess of in- 
 trastate business on the intrastate divisions of approxi- 
 mately 40% over the intra business on the inter divi- 
 sions, increased the cost to earn a dollar on intra divi- 
 sions 22.93 cents over the cost to earn a dollar on the 
 interstate divisions; while for the year 1909 a similar 
 difference in percentages of intrastate business increased 
 the cost to earn a dollar on the intrastate divisions 17.21 
 cents over the cost to earn a dollar on the inter divisions. 
 
 Taking the three years as a whole, an excess of ap- 
 proximately 40% of intrastate business done upon the in- 
 trastate divisions over the intrastate business done upon 
 interstate divisions resulted in an excess of 24.48 cents 
 to earn a dollar on the intrastate divisions for the en- 
 tire period over the cost to earn a dollar on the inter- 
 state divisions for said period. 
 
 24.48 is 40 per cent of 61.20 per cent, so that the re- 
 sult of these figures indicates that had the entire busi- 
 ness of the intrastate divisions been intrastate and the 
 entire business of the interstate divisions been intra- 
 state for the entire period of three years, the cost to 
 earn a dollar on the intrastate business during such en- 
 tire period would have been approximately 60 cents more 
 than the cost to earn a dollar upon interstate business. 
 
 In making these calculations the excess of the intra- 
 state business done upon the intrastate divisions over 
 the intrastate business over the interstate divisions, has 
 
14 
 
 been taken as 40%. As will be seen by Exhibit 67 this 
 is slightly in excess of the actual per cent. If the actual 
 per cent were taken it would show that the cost to earn 
 a dollar upon intrastate business was between 50 and 
 60 cents more than the cost to earn a dollar on inter- 
 state business. 
 
 These figures are not subject to the criticisms that 
 have been made of the various efforts to ascertain the 
 cost to earn a dollar in intrastate business in excess of 
 the cost to earn a dollar on interstate business by a dis- 
 tribution of expense. The figures used are accurate to 
 a cent and indisputable, and show beyond controversy 
 that on at least twenty-one twenty-thirds or 91.3-lOths 
 per cent of the entire business, it costs between 50 and 
 60 cents more to earn a dollar on intrastate business 
 than upon interstate business. 
 
 Mr. Colston's unit of service basis for the year 1907 
 shows that the excess of cost to earn a dollar in intra- 
 state traffic over the cost to earn a dollar in all traffic was 
 25.26 cents, Record, page 1599, while Exhibit 67 shows 
 that the excess of cost of earning a dollar where the in- 
 trastate business predominates to the extent of 40 per 
 cent is 32.36 cents over the cost to earn a dollar where 
 the intrastate business is 40 per cent less; or, in other 
 words, that the excess of cost of earning a dollar on in- 
 trastate business over the cost of earning a dollar on 
 interstate business was 81.40 cents. 
 
 Mr. Colston's unit of service basis for the year 1908 
 shows that the cost of earning a dollar in intrastate 
 business was 29.89 cents more than the cost of earning 
 a dollar on all business. Record, page 1599, while Ex- 
 hibit 67 shows that the cost to earn a dollar where the 
 intrastate traffic predominates about 40 per cent, was 
 22.93 cents over the cost to earn a dollar where intra- 
 state business was 40 per cent less; or, that it cost 57.32 
 cents more to earn a dollar in intrastate business than 
 in interstate business. 
 
 For the year 1909, Mr. Colston's unit of service basis 
 shows that it cost 28.73 cents more to earn a dollar on 
 
15 
 
 intrastate business than on all business; while Exhibit 
 67 shows that for that year it cost to earn a dollar where 
 the intrastate business predominates 40 per cent more, 
 17.21 cents more than it cost to earn a dollar where the 
 intrastate business was 40 per cent less; or that it cost 
 to earn a dollar on intrastate business 43.02 cents more 
 than it costs to earn a dollar on interstate business. 
 
 An examination of Exhibit 67 will further show that 
 for each year the cost to earn a dollar upon each of the 
 typical intrastate divisions was uniformly larger than 
 the cost to earn a dollar upon each of the typical inter- 
 state divisions, and that the results developed by a com- 
 parison of the three intrastate divisions with the three 
 interstate divisions are practically maintained by a com- 
 parison of the intrastate divisions with interstate di- 
 visions, division by division. 
 
 The results shown by Exhibit 67 for all practical pur- 
 poses accord with the results of Mr. Colston's unit of 
 service, and also with the testimony of all the expert 
 witnesses as to the extra cost to earn a dollar in intra- 
 state business over the cost to earn a dollar in all 
 business. 
 
 Exhibit 69 shows the entire business done during the 
 three years covered by the statutory rates with a re- 
 capitulation dividing the divisions into two classes, one 
 in which the interstate rates predominate, and the other 
 in which intrastate rates predominate. This exhibit 
 shows that the average cost to earn a dollar on all of 
 the divisions on which interstate predominates for the 
 three years was 67.53 cents, while the average cost to 
 earn a dollar on all divisions in which intrastate pre- 
 dominates was 87.20, in other words, that it cost an aver- 
 age of. 19.63 cents more to earn a dollar upon the divi- 
 sions upon which intrastate predominated, than to earn 
 a dollar on the divisions where the interstate predomi- 
 nated. The predominating intrastate divisions had 41.82 
 per cent more intrastate business than did the predomi- 
 nating interstate division, so that 41.82 per cent of in- 
 trastate business produced an additional cost of 19.63 
 
16 
 
 cents to earn a dollar on the intrastate divisions over 
 the cost to earn a dollar upon the interstate divisions. 
 19.63 is 41.82 per cent of 48 cents, so that if 41.82 per 
 cent of intrastate business produced an additional cost 
 of 19.63 cents to earn a dollar on the intrastate division 
 over the cost to earn a dollar upon the interstate di- 
 visions. 19.63 is 41.82 per cent of 48 cents, so that if 
 41.82 per cent additional intrastate traffic produced an 
 additional cost of 19.63 cents to earn a dollar, then had 
 all of the traffic been intrastate, it ought to have pro- 
 duced an additional cost of 48 cents to earn a dollar on 
 intrastate traffic over the cost of interstate traffic, which 
 corresponds with the results of Mr. Colston's unit of 
 service and also with the opinion of all the expert wit- 
 ness upon the subject. 
 
 Therefore, it seems by this analysis that wholly irre- 
 spective of the accuracy of the methods adopted by Mr. 
 Colston in his unit of service, it is conclusively shown 
 that the results produced thereby are almost mathema- 
 tically correct. 
 
 Algebra^ical Demonstration. 
 
 In Exhibit W. A. C. 68, Mr. Colston has formulated 
 two algebraical equasions, one from the business done 
 upon the typical intrastate divisions for the entire 
 period of three years, and the other from the business 
 done upon typical interstate divisions for the entire 
 three years, and on this basis he has obtained by alge- 
 Braical process that when each class of business is 
 handled under typical conditions it costs practically 57 
 cents more to earn a dollar on intrastate business than 
 to earn a dollar on interstate, and that it costs 32 cents 
 more to earn a dollar on intrastate business than it costs 
 to earn a dollar on all business. 
 
 In Exhibit W. A. C. 70, Mr. Colston has taken two 
 algebraical equasions, one from all of the interstate di- 
 visions for the entire period, and the other from all of 
 the intrastate divisions for the entire period, and has 
 
17 
 
 ascertained from these equasions that under the con- 
 ditions applying to all traffic for the State of Alabama 
 it costs practically 45 cents more to earn a dollar on 
 intrastate business than on interstate business, and that 
 it costs over 26 cents more to earn a dollar on intrastate 
 business than on all business. 
 
 I now proceed to give an explanation of the unit of 
 service basis, which can be applied to any road. And 
 as it was invented or devised by Mr. W. A. Colston, a 
 witness in this case, and a very intelligent and com- 
 petent man, I give the explanation substantially in his 
 words taken from the brief of H. L. Stone, leading coun- 
 sel for the complainant. 
 
 '^THE UOTT OF SERVICE BASIS OR PLAN OF 
 DIVIDING OPERATING EXPENSES.'' 
 
 The unit of service basis or plan is the result of an 
 effort to divide operating expenses between interstate 
 traffic and intrastate traffic without reference to the rev- 
 enue and in accordance with the service rendered or 
 required. 
 
 There exists considerable difficulty in such an under- 
 taking for the reason that the business carried on by 
 railroads consists of two quite dissimilar large divisions 
 —the freight traffic and the passenger traffic. It is im- 
 possible, of course, to compare a passenger with a ton, 
 or a passenger-mile with a ton-mile. 
 
 In response to request, the accounting officers of lines 
 engaged in the Alabama Rate Litigation held confer- 
 ences at Atlanta, Ga., in September and in October, 1909, 
 and considered in detail various known plans of divid- 
 ing operating expenses between States, between freight 
 and passenger traffic, and between interstate traffic and 
 intrastate traffic, and adopted as the principle upon 
 which distribution of operating expenses should be made 
 between interstate and intrastate traffic, the Unit of 
 Service basis by the following resolution (South & North, 
 Record, pp. 2571-2572) : 
 
18 
 
 '* RESOLVED, TTiat in the separation of operat- 
 ing expenses as between interstate traffic and intra- 
 state traffic upon a Unit of Service Basis, freight 
 and passenger expenses should first be divided as 
 between haulage and non-haulage items and general 
 expenses, and that freight haulage items should be 
 apportioned to interstate and intrastate traffic on 
 basis of the number of ton-miles in each class, equa- 
 lized or adjusted to local conditions; that freight 
 non-haulage items should be apportioned on basis 
 of tons so equalized or adjusted; and that general 
 expenses should be apportioned on basis of haulage 
 and non-haulage items so divided; and that pas- 
 senger expenses should be similarly divided on basis 
 of equalized or adjusted passenger miles or pas- 
 sengers. * ^ 
 
 And the application of this principle which has been 
 made by complainant in the present case has been tes- 
 tified to by experienced railroad accounting and operat- 
 ing officers not connected with complainant company, or 
 with any of the lines engaged in the Alabama Rate Liti- 
 gation, as being the best and most scientific method of 
 dividing operating expenses which has yet been devised. 
 
 The courts, the Interstate Commerce Commission, 
 railroad accountants and economists are substantially 
 a unit in the opinion that operating expenses can not 
 be divided between different classes of traffic with 
 mathematical accuracy. The opinion in the following 
 quotation from Northern Pacific Railway Co. v. Keyes, 
 91 Fed. 47, may be taken as that of the railway world: 
 
 * ^ The fundamental question in all cases like these 
 is, will the rates prescribed by the State pay the ex- 
 pense of doing the local business, and leave to the 
 carrier a reasonable compensation upon the fair 
 value of the property which it employs in perform- 
 ing the service. Certain of the factors necessary to 
 a determination of this question are capable of defi- 
 nite knowledge; others must forever rest largely 
 
19 
 
 upon opinion. The income derived by tlie carrier 
 from the business which it conducts within the State 
 can be ascertained accurately from the records of 
 the company, but the expense of doing that business 
 is not susceptible of mathematical ascertainment. 
 Many of its items apply equally to local and inter- 
 state business. The different kinds of traffic are 
 often carried in the same train, and not infrequently 
 in the same car. It is absolutely impossible to di- 
 vide the cost of traffic thus moved, and say that this 
 amount should be attributed to local business and 
 that amount to interstate. ' ' 
 
 But it appears from the testimony in this case that 
 it is possible for experienced accountants to state the 
 minimum costs which should be reasonably charged 
 against any particular traffic. And this complainant 
 has endeavored to do in this case, with respect to the 
 intrastate traffic; and in making the preliminary sub- 
 division of expenses between freight traffic and pas- 
 senger traffic complainant has stated the minimum costs 
 of doing the passenger traffic, because intrastate traffic 
 bears a larger proportion of the expenses of passenger 
 traffic than it bears of the expenses of freight traffic. 
 
 The results arrived at by complainant upon the Unit 
 of Service basis support and are supported by the tes- 
 timony of experts as to the excess cost of earning a 
 dollar of intrastate traffic as compared with the average 
 cost of earning a dollar of all traffic, interstate and in- 
 trastate combined, and also support and are supported 
 by the algebraical calculations which are shown in this 
 case. 
 
 The fairness and reasonableness of the Unit of Serv- 
 ice basis as a method or plan of dividing operating ex- 
 penses has also been testified to specifically in this case 
 by experienced traffic, operating and accounting officers, 
 both those connected with and those not connected with 
 com_plainant company. And this testimony as to the 
 fairness and reasonableness of the plan relates not only 
 
 r'. 
 
 
20 
 
 to the separate steps or parts of the method but also to 
 the results reached as a whole. 
 
 Outline and Explanation of the Plan. 
 
 The chart on the opposite page affords an outline 
 of the Unit of Service basis for dividing operating ex- 
 penses as between interstate and intrastate traffic, and 
 represents graphically, in six lines of circles, the process 
 of analysis and synthesis in accordance with which the 
 total operating expenses in the State of Alabama are 
 finally distributed into total interstate expenses and total 
 intrastate expenses for the State of Alabama. 
 
 Obviously, other conditions being the same, no separa- 
 tion of operating expenses can be based merely upon 
 the distinction between interstate traffic and intrastate 
 traffic. If the circumstances surrounding the handling 
 of interstate traffic were exactly the same as the circum- 
 stances surrounding the handling of intrastate traffic, 
 it would cost just as much to do the one kind of traffic 
 as it would cost to do the other kind. The basis of di- 
 vision must, therefore, be sought in differences of con- 
 ditions or characteristics of the two kinds of traffic. The 
 most distinguishing feature which can be employed for 
 this purpose appears to be that which underlies com- 
 plainant's plan— the average length of haul. The effect 
 of relative lengths of haul on relative costs of transpor- 
 tation has long been recognized by the courts, and this 
 fundamental distinction was observed in the recent opin- 
 ion in the Minnesota Rate Case, Shepard v. Northern 
 Pacific Railroad Co., et al.; 184 Fed. 765, April 8, 1911. 
 At page 781, Judge Sanborn says: 
 
 ** Every rate comprehends two terminal charges, 
 the initial and the final, and a distance haulage 
 charge. It is a cardinal principle of rate making 
 that a rate for a longer distance should be propor- 
 tionately smaller than one for a shorter distance; 
 that is to say, that a rate for 500 miles should be 
 
n-« 
 
 •Nl , 
 
 >i 
 
 "^ 
 
 •w 
 
 
 ■^ 
 
 <*i^ 
 
 p 
 
 ^ 
 
 •^ 
 
 
 <^ 
 
 
 ^ 
 
 
 
 
 > 
 
 
 
 
21 
 
 less than twice the rate for 250 miles, if conditions 
 of transportation be the same, because the rate for 
 250 miles includes two terminal charges, and, if the 
 rate for 500 miles were twice the rate for 250 miles, 
 it would manifestly include the equivalent of four ter- 
 minal charges. Even if the haulage charge were the 
 same per mile for a haul of 500 miles as for a haul 
 of 250 miles, which is contrary to the rule generally 
 applied in rate making, the rate per ton per mile 
 for the 500 miles should be less than for the 250 
 miles because in the one case the terminal charges 
 would be spread over 500 miles and in the other over 
 only 250 miles.'' 
 
 And Clements, Commissioner, said in the case of 
 Board of Trade of Trov, Ala., v. Alabama Midland E'y 
 Co., 6 I. C. E. 23: 
 
 **The cost of the services in railway transporta- 
 tion is the expense of the two terminals and the in- 
 termediate haul. The terminal expenses remain the 
 same without reference to the length of the haul. 
 A local rate covers the expenses of hotJi terminals, 
 but a division of a through rate allotted to either 
 of the terminal carriers of the through line can only 
 embrace the expense of one terminal, and because of 
 this difference in expense, among other reasons, local 
 rates are made, as a general rule much higher in 
 proportion to the length of haul than through rates 
 or any division thereof. ' ' 
 
 And in N. P. R'y Co. v. Eeyes, 91 Fed., pp. 51-53: 
 
 ** Length of haul is another element of prime im- 
 portance in determining rates for transportation. 
 
 ^^ There is no principle of railroading that is bet- 
 ter established than that the cost of doing business 
 rapidly decreases as the length of haul increases." 
 
 And practically all freight tariffs whether issued by 
 
22 
 
 the carriers themselves or promulgated by Commissions 
 or Legislatures take this principle into account. 
 
 In order that this principle may be applied to the 
 distribution of operating expenses between interstate 
 and intrastate traffic, it is necessary, of course, that a 
 distribution shall be made, as indicated in third line of 
 the chart, between haulage expenses or those which are 
 dependent upon the distance which a shipment or a pas- 
 senger travels, and non-haulage expenses, or those which 
 are independent of the distance moved. But, inasmuch 
 as it is not possible to compare a ton-mile with a pas- 
 senger-mile or a ton with a passenger as expense pro- 
 ducing factors, and it is not logical to make a distribu- 
 tion on gross tonnage of trains because a gross ton-mile 
 in passenger traffic is an entirely different thing from a 
 gross ton-mile in freight traffic, it is necessary first to 
 make a distribution of operating expenses between the 
 passenger service and the freight service, as indicated 
 in line 2 of the chart. 
 
 Distribution Between Passenger Expenses and Freight 
 
 Expenses. 
 
 The evidence in this case clearly shows, and it ap- 
 pears to be the general opinion among railroad account- 
 ants, that no exact distribution of operating expenses 
 between the passenger traffic and the freight traffic can 
 be effected. But, as we have pointed out, it is necessary 
 to make a distribution of operating expenses between 
 the passenger service and the freight service with as 
 close an approximation as possible in order that similar 
 units of service may be used as factors in making dis- 
 tribution between interstate and intrastate expenses. In 
 making this distribution of expenses between passenger 
 and freight, it is necessary to consider not only those 
 expenses which are caused by the movement of traffic, 
 but also those expenses which are independent of the 
 movement of traffic but which are required by and which 
 must be incurred on account of the movement of traffic 
 
23 
 
 —that is, it is necessary to consider not only factors of 
 causation, bnt also factors of requirement. This distinc- 
 tion is to be particularly made in the case of the expense 
 of maintaining the company's way and structures, which 
 expenses are due partly to wear or traffic, and are partly 
 due to weather stress, independently of the movement 
 of traffic. In making these distributions there must also 
 be observed that principle which was recognized both in 
 the accounting testimony given on behalf of complainant 
 and in the accounting testimony given on behalf of de- 
 fendants—that all items which can be allocated either 
 directly or by the opinion of experienced men must be 
 so treated before distributions are effected more or less 
 arbitrarily on factors of use or causation or requirement. 
 Many of the expenses, such as the repairs, renewals 
 or depreciations of freight cars and of passenger cars, 
 and fuel and supplies furnished, respectively, to freight 
 trains and to passenger trains, and the wages of train 
 men on passenger trains and freight trains, etc., may be 
 apparently directly allocated to the freight or passenger 
 service, and were so distributed by complainant, although 
 it appears from the testimony that considerable amounts 
 so charged to the freight service are really chargeable 
 in part to the passenger service on account of expenses 
 incurred by the freight service for the passenger serv- 
 ice resulting from freight trains taking sidings for pas- 
 senger trains, carriage of company's material on freight 
 trains, etc. Certain expenses, principally yard and 
 switching expenses, were distributed between the freight 
 service and the passenger service in accordance with 
 the opinion of the superintendents under whose jurisdic- 
 tion the expenses were incurred. These distributions 
 made by complainant were not objected to by defendants. 
 Certain other expenses, particularly those relating to 
 the maintenance of the company's way and structures, 
 were distributed in part as exclusively attributable to 
 one traffic or the other traffic in accordance with the opin- 
 ion of a civil engineer who was thoroughly informed as 
 to the lines in Alabama concerning which he testified. 
 In accordance with testimony of this engineer, complain- 
 
24 
 
 ant distributed certain percentages of a number of pri- 
 mary accounts under the general account ^'Maintenance 
 of Way and Structures" as exclusively attributable to 
 the passenger traffic, and the expense of maintaining 
 docks and wharves, which were used exclusively for the 
 freight traffic, was charged to the freight service. 
 
 With reference to those expenses under the general 
 head of Maintenance of Way and Structures which are 
 dependent upon the volume of traffic, it is shown by the 
 opinion of engineers best informed upon the subject con- 
 cerning which they testified that with reference to the 
 Louisville & Nashville Eailroad Company's lines in the 
 State of Alabama a passenger train-mile is at least as 
 destructive or at least as potent as an expense producing 
 factor as is a freight train-mile. And this opinion is 
 substantiated by the statistics of railways in the United 
 States as published by the Interstate Commerce Com- 
 mission. The wear proportion or repairs and renewals 
 of water stations and fuel stations is probably best meas- 
 ured by the number of tons of fuel handled. Complain- 
 ant distributed the wear proportion of way and structure 
 accounts in accordance with these principles. 
 
 With reference to those expenses under general cap- 
 tion of *' Maintenance of Way and Structures" which are 
 independent of the volumes of traffic, it appeared that 
 neither the volume of freight traffic nor the volume of 
 passenger traffic CAUSED or AFFECTED the expense, 
 but that the expense is proportionate to the amount of 
 material or road subjected to the action of the elements. 
 And it appeared further that at least as good a road and 
 as costly a road would be required for conducting ex- 
 clusively a passenger traffic as would be required for con- 
 ducting exclusively a freight traffic. And therefore it 
 seems that a logical distribution of such expenses is to be 
 made on the basis of the BEQUIREMENT of each kind 
 of traffic; and complainant effected such a distribution 
 by charging one-half to one kind of traffic and one-half 
 to the other kind of traffic. 
 
 The fairness and reasonableness of the distribution 
 
made by complainant of operating expenses between 
 freight and passenger were testified to in detail by 
 operating and aceoimting officers of other lines ; and as 
 to the final result of the distribution made by complain- 
 ant it appeared from the testimony that where com- 
 plainant's accountants had erred at all, they had erred 
 in charging too little to the passenger traffic and corres- 
 pondingly too much to the freight traffic, with the result 
 that intrastate traffic was ultimately undercharged and 
 interstate traffic ultimately overcharged a corresponding 
 amount. 
 
 A larger proportion of passenger traffic than of 
 freight traffic is intrastate and a larger proportion of 
 passenger expenses than of freight is chargeable to in- 
 trastate and therefore it is to the complainant's interest 
 in the distribution between freight and passenger traffic 
 to charge as much of the expense to passenger as pos- 
 sible, and it is to defendant's interest to charge as little 
 as possible to passenger traffic by throwing as great a 
 charge as possible against the freight service. In view of 
 these facts, the fairness of the distribution made by com- 
 plainant under the issues in this case may be checked in 
 another way. The schedules of freight and passenger 
 rates, having been made and adjusted by expert traffic 
 men in accordance with what experience has taught or 
 necessity has required, afford to a certain extent a fair 
 measure of the expenses which should be borne by the 
 freight traffic and passenger traffic, respectively, without 
 raising the question of distribution between interstate 
 traffic and intrastate traffic. Expenses might, therefore, 
 be appropriately divided between the passenger traffic 
 and the freight traffic in proportion to gross operating 
 revenues in each class, except for the fact that the object 
 sought in the preparation of the Unit of Service formula 
 is the division of operating expenses without reference to 
 the revenues. It appears from the reports of the Inter- 
 state Commerce Commission that generally throughout 
 the United States the cost of earning a dollar in passen- 
 ger traffic is at least as great as the cost of earning a del- 
 
26 
 
 lar in freight traffic, and the uncontradicted testimony of 
 traffic men familiar with conditions on the Louisville & 
 Nashville Eailroad lines in Alabama is to the effect that 
 on those lines it cost at least as much to earn a dollar in 
 passenger traffic as it cost to earn la, dollar in freight 
 traffic. And the testimony of accounting and operating 
 officials for other lines is to the same general eifect. 
 (Record, pp. 3661, 3914, 3992, 6314, 6317.) 
 
 The distribution between freight and passenger on 
 a revenue basis would be represented as follows: 
 
 
 Exhibit 
 
 
 
 
 
 W. A. C. 
 
 
 
 Passenger 
 
 Earnings. 
 
 No. 
 
 Total. 
 
 Passenger. 
 
 Percentage. 
 
 1906-1907 
 
 (55) 
 
 $8,325,545.72 
 
 $2,254,362.67 
 
 27.08 
 
 1907-1908 
 
 (56) 
 
 7,572,809.88 
 
 2,214,348.98 
 
 29.24 
 
 1908-1909 
 
 (57) 
 
 7,495,705.23 
 
 2,029,641.04 
 
 27.08 
 
 The following table (which can be verified by ref- 
 erence to Exhibits W. A. C. x-19, W. A. C. x-20, and W. 
 A. C. x-21) affords a comparison of the amounts which 
 would be charged to passenger on a straight Revenue 
 basis, and the amounts which were charged on the Unit 
 of Service basis : 
 
 Passenger and Passenger and 
 
 Percentages on Percentages on 
 
 Operating Expenses. Total. Eevenue Basis. U. of S. Basis. 
 
 1906-1907 (x-19) $6,303,912.26 $1,707,099.63 $1,629,760.14 
 
 27.08% 25.85% 
 
 1907-1908 (x-20) 6,064,891.94 1,773,374.40 1,601,000.71 
 
 29.24% 26.40% 
 
 1908-1909 (x-21) 5,203,397.28 1,409,079.98 1,385,952.33 
 
 27.08% 26.44% 
 
 It will be noted for the year ended June 30, 1908, 
 there would have been charged to passenger traffic on 
 a straight Revenue basis 29.24% of the total expenses, 
 or $1,773,374.40, instead of the amount of $1,601,000.71, 
 or 26.40% of the whole; or, in other words, there would 
 have been charged to passenger traffic on a straight 
 Revenue basis nearly 11% (10.75%) more than was 
 charged. The fact, therefore, that the distribution made 
 on the Unit of Service charges less to the passenger 
 traffic than would be charged on basis of Gross Ope- 
 
27 
 
 rating Revenues — is at least strongly persuasive of the 
 fact that with respect to the distribution between pas- 
 senger traffic and the freight traffic, the Unit of Service 
 Basis errs, if it errs at all, in favor of the passenger 
 traffic, and consequently in favor of the intrastate traffic. 
 
 Distribution Between Haulage and Non-Haulage 
 Expenses. 
 
 The distribution of total expenses between the pas- 
 senger traffic and the freight traffic having been effected 
 the next division to be made is one of the passenger ex- 
 penses between haulage and non-haulage passenger ex- 
 penses, and of the freight expenses between haulage and 
 non-haulage freight expenses, as indicated by line 3 of 
 chart, supra. The distinction between haulage expenses 
 and non-haulage expenses is by no means novel. Accord- 
 ing to the so-called *' Natural system'' of adjusting rail- 
 way charges to cost of service which 
 
 '*was adopted in Alsace-Lorraine in 1871; by the 
 connecting roads, on through business to or from 
 these provinces, in 1872; by Baden in 1873; by 
 Hungary in 1874. The rate on any class of goods 
 consisted of a fixed charge to cover terminal ex- 
 penses, independent of distance, plus a rate per mile 
 to cover movement expenses. For instance, the 
 tariff of Southwestern Germany, reduced to Ameri- 
 can units, was approximately as follows, per tan 
 of each class of goods: 
 
 Mileage 
 
 Terminal Rates 
 
 cents cents 
 
 Express 55 9.00 
 
 Parcels 44 3.60 
 
 Box car 
 
 Half car-load per ton 33 2.70 
 
 "Whole car-load per ton 22 2.25 
 
28 
 
 Platform car 
 
 Half car-load per ton 33 1.80 
 
 Whole car-load per ton 22 1.35 
 
 Coal 33 0.90^' 
 
 (Railroad Transportation — Hadley — New York and 
 London 1886— pages 243-244.) 
 
 In 1879 the McGraham scale, npon which is based 
 the Trunk Line Rate System, was readjusted to conform 
 more closely to the cost-of-service principle. 
 
 * * The plan, as thus revised, is the one still in force. 
 It recognizes that railway charges should he propor- 
 tioned to the length of haul, so far as actual costs of 
 haulage are concerned; but it first eliminates those 
 constant elements in cost which do not vary with dis- 
 tance. The original McGraham scale made no such 
 distinctions. The expenses at terminals, such as 
 loading and unloading, are, of course, entirely in- 
 dependent of the distance covered by the shipment. 
 These, being determined roughly by experimenta- 
 tion, are first deducted from an assumed Chicago 
 rate. From the remainder the rate per mile by the 
 shortest route to New York (920 miles) is then cal- 
 culated by simple division. This rate per mile is 
 then applied to the distance to any intermediate 
 point, and the terminal charge is again added. Thus 
 a rate is found which is reduced to a percentage of 
 the original Chicago base rate.'' 
 
 (Railway Problems — Ripley — Ginn & Co., Boston 
 1907— pages 317-318.) 
 
 * * The official rule from Proceedings of the Joint 
 Executive Committee, June 12 and 13, 1879, is as 
 follows : 
 
 '* * First: That from all points being less distant 
 from New York than Chicago new percentages be 
 adopted for making up rates on east-bound freight 
 
99 
 
 upon the following basis: the percentages from 
 points of the same or no greater distance from Chi- 
 cago, to continue as heretofore. ' 
 
 *' ^Second: That 6 cents per hundred pounds 
 be first deducted from an assumed rate of 25 cents 
 per 100 pounds, Chicago to New York, said deduction 
 to represent the fixed charges at both ends of long 
 or short hauls.' 
 
 ii < Third: That, after such deduction, the rate 
 per mile, which the remainder, or 19 cents per 100 
 pounds, produces from Chicago to New York, shall 
 be charged per mile from all common points named 
 in the first section, according to the percentages of 
 distance shown by the table adopted at Chicago, 
 April 30, 1876, to which results so computed the 6 
 cents per 100 pounds of fixed charges first above 
 deducted shall be again added, and the percentage 
 of the Chicago rate of 25 cents, produced by such 
 additions, shall thereafter constitute the percentage 
 of the Chicago rate, which shall be subsequently 
 charged from the points named in the first section. 
 
 For Illustration. 
 
 Chicago to New York, per 100 lbs 25o 
 
 Less fixed charges, per 100 lbs 6 
 
 Basis of rate for computation 19c 
 
 Columbus, Ohio, as at present 70 per cent of 
 
 Chicago net rate, will be 13.3c 
 
 To which add the fixed charges 6 
 
 19.3o 
 
 And the new percentages from Columbus will 
 hereafter be 77-2-10 per cent of Chicago, in lieu of 
 70 per cent, as at present.' " 
 
 (Idem, Note to page 318.) 
 
 It will be noted that the terminal or non-haulage 
 charge is 24 per cent of the total charge for a haul from 
 
30 
 
 Chicago to New York, 920 miles. For a distance of, say, 
 275 miles (the approximate average taul of interstate 
 freight on the L. & N. System) the non-haulage charge is 
 over 51 per cent of the total charge ; and for a dis- 
 tance of, say, 30 miles (the approximate average hanl of 
 intrastate freight on L. & N. Lines in Alabama) the non- 
 haulage charge is about 90 per cent of the total charge. 
 
 In 1835, Sir Rowland Hill, the author of the Penny 
 postage system on investigation found that the non-haul- 
 age cost of the mail was 66% of the whole cost, and that 
 the average haulage cost of a letter was one cent. And 
 that the cost of haulage did not increase proportionately 
 with the distance. As the result of his investigation the 
 postage on letters in England was fixed at two cents. 
 
 Clements, Commissioner, in the case of the Board of 
 Trade of Troy, Ala., v. Alabama Midland Railway Com- 
 pany (6 I. C. R. 23), made clear the distinction between 
 haulage and non-haulage cost in the quotation above 
 made from his opinion in that case. 
 
 And the distribution of expenses between haulage 
 and non-haulage does not present any great difficulties. 
 Haulage expenses are simply those which are affected by 
 distance, and non-haulage expenses are those which are 
 not affected by distance. Many of the Primary Operat- 
 ing Expense accounts are assigned by complainant in 
 their entirety to haulage and non-haulage, and defend- 
 ants admit (see p. 188 of their brief) that the distribu- 
 tion of such accounts has been properly effected. Some 
 of the accounts are assigned partly to haulage and partly 
 to non-haulage, and against the distribution made of 
 such accounts defendants make no objection, except as 
 to the distribution of expenses for freight car repairs, 
 renewals and depreciation. Complainant has distributed 
 these accounts in part to haulage and in part to non- 
 haulage; defendants claim the entire charges to these 
 accounts should be treated as haulage items. The un- 
 contradicted testimony in the record (see also South & 
 North Record, pp. 2177-2178) supports the distribution 
 made by complainant; and it further appears from the 
 
31 
 
 testimony of expert railroad accountants not connected 
 with the company (Krebs, p. 4131; Langhton, p. 4277) 
 that the distribution made by complainant between haul- 
 age and non-haulage is on the whole fair, and that all 
 doubts have been resolved in favor of the non-haulage 
 items, that is, that in all cases of doubt the smaller 
 amounts have been charged to the non-haulage accounts, 
 and consequently the smaller amounts have been ulti- 
 mately charged to the intranstate traffic. 
 
 Distribution of Haulag-e and Non-Haulag'e Expenses 
 Between Interstate and Intrastate Traffic. 
 
 Distribution of expenses between haulage items and 
 non-haulage items having been effected the next distribu- 
 tion made under the Unit of Service plan of dividing 
 operating expenses was one between interstate and in- 
 trastate haulage and interstate and intrastate non-haul- 
 age, separately for passenger expenses and for freight 
 expenses, as shown by line 4 on the chart, supra. These 
 distributions were made on basis of equalized ton-miles 
 and equalized passenger-miles for the division of haul- 
 age expenses, and on basis of ton-terminals and passen- 
 ger-terminals for the division of non-haulage expenses, 
 thus carrying out the idea expressed by Commissioner 
 Clements in Board of Trade of Troy v. Alabama Mid- 
 land Railway, supra, and by Judge Sanborn in Shepard 
 V. Northern Pacific Railway, supra, that the cost of the 
 services in railway transportation is the expense of the 
 two terminals and the intermediate haul. 
 
 If haulage expenses, or distance expenses, were ap- 
 portionable strictly in accordance with the distance 
 which a unit travels, they might properly be divided be- 
 tween interstate traffic and intrastate traffic on a basis 
 of passenger-miles for the passenger expenses and on 
 the basis of ton-miles for the freight expenses. But, as 
 was indicated by Judge Sanborn in Shepard v. Northern 
 Pacific Railway Co., supra (184 Fed. 781) — that the 
 haulage charges should be the same per mile for the 
 
32 
 
 long haul as for the short haul is contrary to the rule 
 generally applied in rate making — ^before using the ton- 
 mile and the passenger-mile (which represent products 
 of amounts of business multiplied by the distances which 
 those amounts of business are carried) as units for the 
 distribution of haulage expenses, complainant endeavored 
 to equalize as far as possible the more expensive short 
 haul unit with the less expensive long haul unit. It is 
 shown without contradiction in the record that the haul- 
 age cost for the short haul intrastate unit per mile is 
 greater than the haulage cost for the long haul interstate 
 unit per mile, and the principle recognizing the extra cost 
 of intrastate or short haul traffic runs through the deci- 
 sions; this extra cost is attributable to many causes, such 
 as lighter loads of local trains, greater expenses of trains 
 from longer time consumed and more frequent stops 
 and startings of trains engaged in local traffic, but in 
 order to support theory by experiment complainant had 
 made a special test of the business carried on all trains 
 in the State of xMabama for one week. In this test the 
 actual expense for certain allotable accounts, the same in 
 all cases, was found separately for each train, and the 
 expenses of each separate train were distributed between 
 interstate traffic and intrastate traffic upon the assump- 
 tion that when hauled on the same train the intrastate or 
 short haul traffic cost as much and no more per ton-mile 
 or per passenger-mile than the interstate or long haul 
 traffic cost. This assumption is shown by uncontradicted 
 testimony in the record to be unduly favorable to the in- 
 trastate traffic, it appearing that the distribution of ex- 
 penses for passenger trains should be made upon some 
 factor intermediate between the passenger and the pas- 
 senger-mile, and that the distribution of expense for 
 freight trains should be made upon some factor inter- 
 mediate between the ton and the ton-mile. Distributions 
 made upon the passenger-mile and ton-mile, respectively, 
 for the separate trains, necessarily overburdened to some 
 extent the long haul interstate traffic and the resulting 
 excess cost per haulage unit of intrastate traffic as com- 
 
33 
 
 pared with the cost per haulage unit of interstate traffic 
 obtained upon the assumption stated was necessarily less 
 than the real excess haulage cost of handling the intra- 
 state traffic, and the resulting adjustment of haulage 
 units upon which haulage operating expenses were di- 
 vided necessarily charged less to the intrastate traffic 
 than might have been charged to that traffic. It appears 
 from the testimony of both traffic and accounting officials 
 familiar with the conditions surrounding the business of 
 the Louisville & Nashville Lines in the State of Alabama, 
 that the period adopted for making the test was a fairly 
 representative period, and it further appears from the 
 testimony (e. g., Mr. Colston, pp. 6508, et seq.) that it is 
 proper to use ton-miles and passenger-miles as equalized 
 for train expenses as a basis for the apportionment of 
 all haulage expenses. (See also Krebs, pp. 4126-4127, 
 and Laughton, pp. 4271-4272.) For the purpose of dis- 
 tributing haulage expenses, complainant equalized the 
 intrastate ton-miles with the interstate ton-miles and the 
 intrastate passenger-miles with the interstate passenger- 
 miles by multiplying the intrastate units by the percent- 
 ages which the haulage costs per intrastate haulage unit 
 were ascertained to be of the haulage costs per inter- 
 state haulage unit in the special test which was made for 
 that purpose. 
 
 The reduction of interstate and intrastate tour and 
 passengers to interstate and intrastate ton-terminals and 
 passenger- terminals was affected on basis of an actual 
 count of the terminals made by interstate units and the 
 terminals made by intrastate units in two months of each 
 fiscal year. The percentage of terminals to tons and the 
 percentage of terminals to passengers for each class of 
 traffic, interstate and intrastate, having been separately 
 determined for the two months in each fiscal year, the 
 same percentage was used to ascertain the number of 
 terminals made by the total number of tons and total 
 number of passengers during the year. 
 
34 
 
 Synthesis. 
 
 The passenger interstate haulage and the passenger 
 interstate non-haulage having been separately ascer- 
 tained, as outlined above, the total amount of passenger 
 interstate expenses was arrived at, and in a like manner 
 by a combination of passenger intrastate haulage ex- 
 penses and passenger intrastate non-haulage expenses 
 the total passenger intrastate expenses were arrived at 
 and by a combination of freight interstate haulage ex- 
 penses and freight interstate non-haulage expenses the 
 total amount of freight interstate expenses was arrived 
 at, and by a combination of freight intrastate haulage 
 expenses and freight intrastate non-haulage expenses 
 the total amount of freight intrastate expenses was ar- 
 rived at, as indicated in fifth line of chart, supra. 
 
 And by combining passenger interstate expenses with 
 freight interstate expenses the total interstate expenses 
 were arrived at ; and by combining passenger intrastate 
 expenses" with freight intrastate expenses the total in- 
 trastate expenses were arrived at, as shown in the last 
 line. No. 6 of chart, supra. 
 
 ILLUSTEATION OF THE UNIT OF SEEVICE 
 BASIS OF DIVIDING OPEEATING EXPENSES 
 AS APPLIED TO THE EXPENSES FOR THE 
 FISCAL YEAR ENDED JUNE 30, 1909. 
 
 It will probably conduct to a clearer understanding of 
 the plan to show its actual operation as applied in detail 
 to the expenses of some particular period. The follow- 
 ing illustration shows the result of applying to the 
 operating expenses of the fiscal year ended June 30, 
 1909, the Unit of Service basis for dividing operating 
 expenses as between interstate and intrastate traffic. 
 For convenience the chart, supra, is repeated on the op- 
 posite page, and the amounts represented by each cir- 
 cle are shown, and will be explained in the illustration. 
 
ns> 
 
 ■^-.. 
 
 2: 
 
 1 
 
 \ 
 
 
 C-, 
 
 c^ 
 
 
 
 
 •>» 
 
 
 
 
 1 
 
 ^ 
 
 ^ 
 
 
 <^ 
 
 ^ 
 
 
 ^ 
 
 :>- 
 
 •v. 
 
 
 1 
 
 
 
 f^ 
 
 ^ 
 
 
 § 
 
 C; 
 
 
 <v 
 
 
 X 
 
 ^ 
 
 -^ 
 
 \ 
 
 *^s^ 
 
 ^ 
 
 ;t> 
 
 y^^ 
 
 
 k 
 
 
 V 
 
 ' > 
 
 •>j 
 
 y 
 
 Hi 
 
 § 
 
 
 1 
 
 
 :i 
 
 
 •»« 
 
 
 s- 
 
 C/> 
 
 
 §^ 
 
 ^ 
 
 
 ft 
 
 vo 
 
 §. 
 
 ^ 
 
 ^ 
 
 
 ^"S 
 
 
 N§ 
 
 
 -§ 
 
 1 
 
 
 •^ 
 
 
 ^ 
 
 :::h 
 
 
 ^ 
 
 s 
 
 ^ 
 
35 
 
 The actual amount of operating expenses 
 for complainant's lines in the State of 
 Alabama for the fiscal year ended June 
 30, 1909, represented by the single circle 
 in line 1 of the chart, excluding deprecia- 
 tion of way and structures and not in- 
 cluding taxes, amounted to (Exhibits W. 
 A. C. 63, W. A. C. 65, W. A. C. 75 and 
 W. A. C. 79) $5,203,397.28 
 
 The distribution of this total into passenger 
 expenses and freight expenses, repre- 
 sented by the two circles in line 2, re- 
 sulted in the following amounts (Ex- 
 hibits W. A. C. x-21 and W. A. 0. x-29) : 
 
 Passenger expenses $1,385,952.33 
 
 Freight expenses $3,817,444.95 
 
 It will be noted, as above shown, that the passenger 
 expenses are 26;44% of the total expenses. The passen- 
 ger earnings for this year amounted to $2,029,641.04 out 
 of a total of $7,495,705.23 (Exhibit W. A. C. 57) or to 
 27.08%. If the distribution between passenger and 
 freight had been made by complainant upon a Gross 
 Earnings basis, instead of upon the Unit of Service basis, 
 there would have been charged by complainant to pas- 
 senger traffic the amount of $1,409,079.98 instead of the 
 amount of $1,385,952.33 actually charged. 
 
 The distribution of passenger expenses and of freight 
 expenses into passenger haulage expenses, passenger 
 non-haulage expenses, freight haulage expenses and 
 freight non-haulage expenses, indicated by the four cir- 
 cles in line 3 of chart resulted in the following amounts 
 (W. A. C. x-21) : 
 
 Passenger $1,385,952.33 
 
 Haulage $1,138,447.85 
 
 Non-Haulage 247,504.48 
 
 Freight 3,817,444.95 
 
 Haulage . . . ., 2,486,655.61 
 
 Non-Haulage 1,330,789.34 
 
36 
 
 The percentages of non -haulage to total expenses are 
 much lower than the percentages of non-haulage em- 
 braced in the rate-making scheme of the Central Freight 
 Association and Trunk Line Territories above noticed, 
 where the haulage and non-haulage distinction is ob- 
 served. 
 
 The statistics from which equalized passenger-miles, 
 equalized ton-miles, passenger-terminals and ton-termi- 
 nals were arrived at for the distribution between inter- 
 state and intrastate traffic separately, of passenger haul- 
 age and non-haulage expenses and freight haulage and 
 non-haulage expenses, as indicated by the eight circles 
 in line 4 of chart, are as follows : 
 
 Passenger-miles (Becord, p. 2149) 
 
 Interstate 37,793,739 
 
 Intrastate 34,318,389 
 
 Total 72,112,128 
 
 Passengers (Record, p. 2149) 
 
 Interstate 425,309 
 
 Intrastate 1,322,802 
 
 Total 1,748,111 
 
 Ton-miles (Record, p. 2149) 
 
 Interstate 465,570,834 
 
 Intrastate 202,138,791 
 
 Total 667,709,625 
 
 Tons (Record, p. 2149) 
 
 Interstate 4,315,751 
 
 Intrastate 7,060,260 
 
 Total 11,376,011 
 
 From the special test which complainant 
 caused to be made in order to ascertain 
 relative haulage costs of interstate and 
 intrastate traffic, it was ascertained 
 (Exhibit W. A. C. 72) that the percent- 
 age which the intrastate expense per 
 passenger-mile is of the interstate ex- 
 pense per passenger-mile is 180.317% 
 
37 
 
 and (Exhibit W. A. C. 71) that the per- 
 centage that the intrastate expense per 
 ton-mile is of the interstate expense per 
 
 ton-mile is 159.259% 
 
 As a result of the count of terminals for 
 the two months in the fiscal year it was 
 ascertained (Record, p. 1684) that 100 
 interstate passengers made, .terminals 75.42 
 
 while 100 intrastate passengers made . . 
 
 terminals 189.26 
 
 and (Record, p. 1685) that 100 inter- 
 state tons made terminals 65.95 
 
 and that 100 intrastate tons made 
 
 terminals 169.62 
 
 And the processes of equalization of passenger-miles 
 and ton-miles, the determination of passenger-terminals 
 and ton-terminals, and distributions on basis of equalized 
 passenger-miles and ton-miles for haulage expenses and 
 on basis of passenger-terminals and ton-terminals for 
 non-haulage expenses of the haulage and non-haulage 
 passenger expenses and of the haulage and non-haulage 
 freight expenses, represented by the third line of circles 
 in chart, for the purpose of arriving at the interstate and 
 intrastate expenses, haulage and non-haulage, passenger 
 and freight, separately, represented by the fourth line of 
 circles in chart, are shown by the following tables : 
 
 HAULAGE EXPENSES PASSENGER. 
 Percentages Passengers 
 
 
 Passenger 
 
 Applied to Miles Percentage 
 
 Haulage 
 
 
 Miles. 
 
 Equalize. Equalized. Equalized. 
 
 Expenses. 
 
 Interstate-. 
 
 ._. 37,793,739 
 
 37,793,739 37.92 
 
 431,699.42 
 
 Intrastate-. 
 
 ._- 34,318,389 
 
 180,317 61,881,889 62.08 
 
 706,748.43 
 
 Total — 
 
 — 72,112,128 
 
 99,675,628 100.00 
 
 1,138,447.85 
 
 
 NON-HAULAGE EXPENSES PASSENGER. 
 
 
 
 
 Percentages 
 
 Non- 
 
 
 
 Applied to Passengers Percentages 
 
 Haulage 
 
 
 Passengers. 
 
 Equalize. Equalized. Equalized. 
 
 Expenses. 
 
 Interstate- 
 
 425,309 
 
 75.42 320,768 11.36 
 
 28,116.51 
 
 Intrastate- 
 
 — 1,322,802 
 
 189.26 2,503,535 88.64 
 
 219,387.97 
 
 Total — 
 
 — 1,748,111 
 
 2,824,303 100.00 
 
 247,504.48 
 
38 
 
 HAULAGE EXPENSES FREIGHT. 
 
 
 Percentages 
 Applied to 
 Ton-Miles. Equalize. 
 
 Ton 
 
 Miles Percentages 
 Equalized. Equalized. 
 
 Haulage 
 
 Expenses. 
 
 Interstate.. 
 
 .-465,570,834 
 
 465,570,834 59.12 
 
 1,470,110.79 
 
 Intrastate-. 
 Total -__. 
 
 .-202,138,791 159.259 
 .-667,709,625 
 
 321,924,216 40.88 
 787,495,050 100.00 
 
 1,016,544.82 
 2,486,655.61 
 
 
 NON-HAULAGE EXPENSES FEEIGHT. 
 
 
 
 Percentages 
 Applied to 
 Tons. Equalize. 
 
 Tons Percentages 
 Equalized. Equalized. 
 
 Non- 
 Haulage 
 Expenses. 
 
 Interstate— 
 
 .. 4,315,751 65.95 
 
 2,846,238 19.20 
 
 255,511.56 
 
 Intrastate— 
 Total—. 
 
 .- 7,060,260 169.62 
 ._ 11,376,011 
 
 11,975,613 80.80 
 14,821,851 100.00 
 
 1,075,277.78 
 1,330,789.34 
 
 It will be noted that these results differ in some cases 
 by the amount of 1 cent from the results shown on 
 Exhibit W. A. C. x-29, which discrepancy is explained 
 by the fact shown by Mr. Colston, Kecord, page 2796, 
 that distribution on Exhibit W. A. C. x-29 by primary 
 accounts was made merely for convenience of counsel 
 for defendants. The subdivisions used by complainant 
 were arrived at by application of the percentages to 
 total haulage and non-haulage expenses, freight and 
 passenger separately. The figures on Exhibit W. A. C. 
 x-29 exhibit the slight discrepancy shown by reason of 
 gain or loss in the giving and taking of fractional parts 
 of a cent for the separate or primary accounts. 
 
 The processes of sjmthesis by which the passenger 
 interstate, passenger intrastate, freight interstate and 
 freight intrastate expenses, represented by the four cir- 
 cles in line 5, are obtained are apparent. The sum of 
 passenger haulage interstate 
 
 expenses $ 431,699.42 
 
 and passenger non-haulage in- 
 terstate expenses 28,116.51 
 
 equals the amount of passen- 
 ger interstate expenses $ 459,815.93 
 
39 
 
 The sum of passenger haulage 
 
 intrastate expenses 706,748.43 
 
 and passenger non-haulage in- 
 trastate expenses 219,387.97 
 
 equals the amount of passen- 
 ger intrastate expenses 926,136.40 
 
 The sum of freight haulage in- 
 terstate expenses 1,470,110.79 
 
 and freight non-haulage inter- 
 state expenses 255,511.56 
 
 equals the amount of freight 
 
 interstate expenses 1,725,622.35 
 
 The sum of freight haulage in- 
 trastate expanses 1,016,544.82 
 
 and freight non-haulage intra- 
 state expenses 1,075,277.78 
 
 equals the amount of freight 
 
 intrastate expenses 2,091,822.60 
 
 And in like manner the sum of 
 passenger interstate expenses, 459,815.93 
 and freight interstate expenses 1,725,622.35 
 equals the amount of total in- 
 terstate expenses shown in line 
 
 6 (and in Exhibit W. A. C. 75) 2,185,438.28 
 And the sum of passenger in- 
 trastate expenses 926,136.40 
 
 and freight intrastate expenses 2,091,822.60 
 equals the amount of total in- 
 trastate expenses shown in 
 line 6 (and Exhibit W. A. C. 
 75) $3,017,959.00 
 
 Depreciation of Way and Structiires. 
 
 But the expenses distributed above do not include 
 depreciation of way and structures, for which provision 
 
40 
 
 must be made. The amount of this depreciation not 
 taken care of and the distribution between interstat'O 
 and intrastate traffic are as follows (Exhibits W. A. C. 
 11, W. A. C. 63, W. A. C. 65 and W. A. C. 79) : 
 
 Total $263,835.61 
 
 Interstate 117,137.36 
 
 Intrastate 146,698.25 
 
 Adding these amounts of depreciation, interstate and 
 intrastate, respectively, to the total interstate and intra- 
 state expenses obtained in above analysis, we arrive at 
 the following amounts of operating expenses, including 
 depreciation on way and structures, but not including 
 taxes : 
 
 Interstate $2,302,575.64 
 
 Intrastate 3,164,657.25 
 
 Total ,. . . . 5,467,232.89 
 
 The operating revenues for the same fiscal year, in- 
 terstate, intrastate and total, were as follows (Exhibit 
 W. A. C. 79) : 
 
 Interstate $4,331,660.36 
 
 Intrastate 3,164,044.87 
 
 Total 7,495,705.23 
 
 from which it will be noted that the ratios of operating 
 expenses as adjusted to operating revenues are: 
 
 For interstate traffic 53.16% 
 
 For intrastate traffic 100.02% 
 
 For all traffic ,. . . 72.94% 
 
 and it will be further noted that the excess cost 
 of earning a dollar in intrastate traffic over the 
 cost of earning a dollar in all traffic is something 
 
 over 27 cents 
 
 or 27% of the revenue, or approximately the 
 average excess cost shown by the algebraical 
 calculation for three years 26 cents 
 
41 
 
 From distributions similarly made on the Unit of 
 Service basis for the fiscal years ending June 30, 1906, 
 1907, 1908 and 1910, it appears that the excess cost of 
 earning a dollar in intrastate traffic over the average 
 cost of earning a dollar in all traffic has varied from 
 23.21% for the fiscal year ended Jnne 30, 1906, to 29.20% 
 for the fiscal year ended Jnne 30, 1910 (Record, pp. 1598 
 and 1613; Exhibits W. A. C. 79 and W. A. C. 79-a), 
 which results again support and are supported by the 
 average results shown by the algebraical calculation for 
 the three years 1907, 1908 and 1909. 
 
 Taxes. 
 
 The total amount of taxes for the fiscal year ended 
 June 30, 1909, was $311,293.15 (Exhibits W. A. C. 65 and 
 W. A. C. 66), of which amount there was charged to 
 interstate traffic $127,723.55 and to intrastate traffic 
 $183,569.60. License taxes were charged in their entirety 
 to intrastate traffic, and all other taxes were divided be- 
 tween interstate and intrastate traffic on basis of operat- 
 ing expenses as adjusted. 
 
 In view of the overwhelming preponderance of the 
 testimony in favor of the distributions made on the Unit 
 of Service basis or plan of dividing operating expenses, 
 and in view of the agreement of its results with expert 
 testimony as to the average excess cost of earning a dol- 
 lar in interstate traffic over the cost of earning a dollar 
 in all traffic, and in further view of the corroboration af- 
 forded by the algebraical calculation, it seems that the 
 amounts of operating expenses and taxes as stated by 
 complainant, and as divided on the Unit of Service basis 
 or plan of dividing operating expenses, afford the proper 
 answer to Inquiry 21, and they are approved as set forth. 
 
 Of course, the Unit of Service basis depends, in a 
 considerable degree, as is forcibly pointed out by defend- 
 ants in their argument, on the opinion of experts as to 
 many matters, such, for instance, as the percentages of 
 the primary accounts in block of Maintenance Way & 
 
43 
 
 Structures accounts wMch pertain peculiarly to passen- 
 ger business, and this, if it stood alone, might generate 
 more or less doubt about the result. But when this ex- 
 pert proof is practically uncontradicted and the result 
 of the method is supported by the algebraical calcula- 
 tions above pointed out, and just as forcibly by the 
 analysis of the accounts as they stand in the books of the 
 company, also above shown, there are independent double 
 demonstrations that the conclusion is absolutely accurate 
 in this case. 
 
 And it is Avell enough to add that the same mathe- 
 matical demonstration was made in the South & North 
 Alabama Eailroad case with practically the same re- 
 sults. 
 
 When the data for Algebra are given, and the figures 
 involve the relation sought, there is no option left about 
 accepting the result. 
 
 And that the data and figures and the operation and 
 results are correct, we know from the proof as a fact, 
 and may infer, if there was any doubt, from the circum- 
 stance that they are unas sailed and unanswered in argu- 
 ment. 
 
 DETAILS BY PRIMAEY ACCOUNTS OF THE DIS- 
 TRIBUTIONS BETWEEN FREIGHT TRAFFIC 
 AND PASSENGER TRAFFIC AND BETWEEN 
 HAULAGE AND NON-HAULAGE ITEMS WITH 
 BRIEF EXPLANATION IN SOME CASES OF 
 THE REASONS FOR THE DISTRIBUTIONS 
 MADE. 
 
 The following details of the formulas used in dis- 
 tributing operating expenses between freight traffic and 
 passenger traffic and between haulage items and non- 
 haulage items, together with brief explanations in some 
 cases of the reasons for the distributions made, were 
 
4Q 
 
 compiled by Mr. Geo. W. Lamb, Second Assistant Comp- 
 troller of the Louisville & Nashville Eailroad Company, 
 from the records in the Alabama Rate Cases, and have 
 been furnished by him for the purposes of this memo- 
 randum. 
 
 In considering these formulas, it should be borne in 
 mind that, pursuant to the permission granted by the 
 Literstate Commerce Commission, the Louisville & Nash- 
 ville Railroad Company has sub-divided some of the 
 Operating Expense Accounts shown in the classification of 
 Operating Expenses prescribed by the Commission. For 
 example, in the Maintenance of Way and Structure 
 Block, certain expenses are shown as extraordinary ex- 
 penses, such as Ballast Extraordinary, Ties Extraordi- 
 nary, etc. The expenses included in the extraordinary 
 accounts are the expenses which would be included under 
 the Interstate Commerce Classification in the ordinary 
 accounts of the same nature, except that the extraordi- 
 nary accounts kept by the Louisville & Nashville Rail- 
 road Company represent expenses arising from acts of 
 nature such as storms, fires, floods, etc., which do not 
 arise in the ordinary operation of the road. And, in the 
 general blocks of Traffic Expenses and Transportation 
 Expenses will be found sub-divisions of certain accounts 
 as between passenger traffic and freight traffic, and as 
 between passenger trains, freight trains and mixed 
 trains, which sub-division is in accordance with the prac- 
 tice which has been followed for many years by the 
 Louisville & Nashville Railroad Company. 
 
44 
 
 FoEMULA Used in Classifying Operating Expenses as to 
 Passengee and Feeight for Louisville & Nash- 
 ville Lines in Alabama. 
 
 Expla^nation of Terms "Passenger'' and "Revenue Train 
 Mileage" Percentages. 
 
 Wherever the expression "2% Passenger" or "T^o 
 Passenger'^ is shown, for certain accounts, as for Super- 
 intendence and Ballast, is meant that this percentage 
 of the total expenses is first directly assigned to the 
 Passenger Traffic, owing to the necessity of more care- 
 ful supervision and maintaining at a higher standard a 
 road for the Passenger Traffic. 
 
 These percentages were obtained from our Engi- 
 neering Department, and are based upon engineering 
 testimony, or opinion, of an engineer thoroughly famil- 
 iar with all conditions surrounding the operation of the 
 particular Division or Divisions, under consideration. 
 
 Wherever "Revenue Train Mileage" is shown, this 
 is intended to represent the percentage of common ex- 
 penses which is dependent upon the volume of traffic, 
 and therefore, distributable upon the Revenue Train 
 Mile basis — Passenger and Freight. 
 
 Revenue Train Miles — Mixed were apportioned to 
 Passenger and Freight on the basis of number of passen- 
 ger and freight-car miles run in mixed trains, and in- 
 cluded in figures for revenue passenger — ^and freight- 
 train miles. 
 
 In the opinion of engineers thoroughly informed up- 
 on the subject, with reference to Louisville & Nashville 
 
45 
 
 Lines in the State of Alabama, a passenger-train mile 
 is at least as destructive, or at least as potent as an ex- 
 pense producing factor, as is a freiglit-train mile. 
 
 With reference to those expenses nnder the general 
 caption * ^ Maintenance of Way & Structures," which are 
 independent of the volume of traffic, it appearing that 
 neither the volume of freight traffic nor the volume of 
 passenger traffic CAUSED or AFFECTED the expense, 
 but that the expense is proportionate to the amount of 
 material or road subjected 'to the action of the elements, 
 and it appearing further that at least as good a road, 
 and as costly a road, would be required for conducting 
 exclusively a passenger traffic as would be required for 
 conducting exclusively a freight traffic, therefore, a 
 logical distribution of such expenses is to divide them 
 on the basis of the EEQUIKEMENT of each kind of 
 traffic, and such a distribution is made by charging one- 
 half to one kind of traffic and one-half to the other kind 
 of traffic. 
 
 Maintenance of Way and Structures. 
 
 1. Superintendence. 
 
 2% Passenger. 9.8% Kevenue Train Miles — 
 Passenger and Freight. Balance (88.2%) all 
 Maintenance of Way and Structure Expenses. 
 
 The passenger business requires more careful 
 supervision than the freight business on account 
 of the element of risk and insurance which the 
 Railroad Company carries of a life of a man as 
 against a ton of freight. For lines with passen- 
 ger trains upon them we give a greater amount 
 
46 
 
 of supervision than for a line which would be 
 exclusively freight. The greater amount of super- 
 vision is given whether there are specially fast 
 trains upon the line or not. For the Alabama 
 Case the percentages shown are the average for 
 the whole State of Alabama. If divided up into 
 Divisions, certain Divisions ought to have prob- 
 ably a little higher percentage than other Divi- 
 sions. 
 
 The percentage shown as representing the 
 volume of traffic in this, and all subsequent ac- 
 counts, is made up for the ordinary changes we 
 could expect. They are not made up for a change 
 of 100%. They are estimates based on necessity 
 and the reasonably expected condition of this 
 particular road. 
 
 2. Ballast. 
 
 7% Passenger. 69%% Revenue Train Miles 
 — Passenger and Freight. Balance (23%%) 
 one-half Passenger and one-half Freight. 
 
 The 7% shown as being chargeable particu- 
 larly to the passenger service grows out of the 
 fact that the fast passenger service requires a 
 smoother track than the freight service, for the 
 comfort of the passengers, and in order to get 
 that smoother track we are constantly tamping 
 up the joints and continually tamping up the 
 cross-ties, which has the effect of destroying a 
 portion of the ballast, and further, in order to 
 obtain a smooth track it is necessary to have a 
 greater depth of ballast, and a greater depth of 
 ballast requires a greater annual renewal. Then 
 the speed of a passenger train is faster; it is 
 continually hammering the ballast at a greater 
 speed than the other service, and continually 
 destroying it, so that there is an increased de- 
 struction of the ballast due to the high speed of 
 the passenger train. The 7% represents an aver- 
 age for all lines in Alabama. 
 
47 
 
 As indicated above, 7% of charges to this ac- 
 count are made direct to passenger traffic, and 
 69%% is divided on Eevenue Train Miles. This 
 percentage represents the proportion of the ex- 
 pense dne to the volume of traffic, or the move- 
 ment of trains over the track. The remainder, or 
 23%%, arises from decay and exposure to the 
 elements, which is sometimes termed ^'weather 
 stress. '^ This is assigned one-half to passenger 
 and one-half to freight. 
 
 3. Ballast — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 4. Ties. 
 
 15% Eevenue Train Miles — Passenger and 
 Freight. Balance (85%) one-half Passenger and 
 one-half Freight. 
 
 5. Ties — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 6. Kails. 
 
 3% Passenger. 87.3% Eevenue Train Miles 
 — Passenger and Freight. Balance (9.7%) one- 
 half Passenger and one-half Freight. 
 
 The 3% charged directly to Passenger for 
 **Eails'' grows out of the necessity for super- 
 elevating the rails for high-speed passenger 
 trains so as to prevent them from mounting the 
 outer rail. A freight train, drawn at a slower 
 rate of speed will ride the lower rail and will de- 
 stroy the lower rail by reason of the specific 
 super-elevation of the outer rail for the fast- 
 speed passenger train, and that is the principle 
 element of extra cost chargeable to *'EaDs'' and 
 is due to the super-elevation of the outer rail for 
 passenger trains. If passenger trains were not 
 operated, the outer rail would only be elevated 
 so as to put an equal load on both the outer rail 
 and inner rail and would not unnecessarily wear 
 
48 
 
 the inner rail. This operates only on curves. In 
 arriving at the 3%, consideration was taken of 
 the curved track; the percentage is the percent- 
 age of the maintenance of the whole track and 
 not the percentage of the maintenance of the 
 curve, on which the extra wear and tear occurs. 
 
 7. Rails — Extraordinary. 
 
 One-half Passenger and" one-half Freight. 
 
 8. Other Track Material. 
 
 2% Passenger. 88.2% Eevenue Train Miles 
 — Passenger and Freight. Balance (9.8%) one- 
 half Passenger and one-half Freight. 
 
 The percentage shown as chargeable exclu- 
 sively to passenger traffic for this account arises 
 from the necessity of keeping a track safe, par- 
 ticularly about the switches, for high-speed 
 trains, which requires us to take out switch 
 points and frogs and light material before they 
 are worn out for freight service, because a small 
 defect in the switch point would not destroy the 
 switch point for freight service, but it would 
 destroy, or make it dangerous for passenger serv- 
 ice, and the 2% is fixed as the average amount 
 of the extra cost due to passenger service for 
 ''Other Track Material.'' 
 
 9. Other Track Material — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 10. Roadway and Track. 
 
 7% Passenger. 46.5% Revenue Train Miles 
 — Passenger and Freight. Balance (46.5%) one- 
 half Passenger and one-half Freight. 
 
 The percentage shown for ''Roadway and 
 Track'' is simply the labor. The same argument 
 applies to this account which applies to "Bal- 
 last, ' ' and is based principally upon the necessity 
 of keeping the track smoother for the comfort of 
 
49 
 
 passengers and for the safety of passenger trains 
 at high speed than would be necessary if all trains 
 were freight trains at slower rate of speed. 
 
 11. Eoadway and Track — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 12. Roadway and Track — Assessments for Public Im- 
 
 provements. 
 
 One-half Passenger and one-half Freight. 
 
 13. Cleaning Eight of Way. 
 
 12% Passenger. Balance (88%) one-half 
 Passenger and one-half Freight. 
 
 The cleaning of right of way is done partly 
 for the protection of the right of way and partly 
 for the looks. Now, that item which goes into the 
 looks, which includes the cleaning up around the 
 stations, in cutting of the weeds more often than 
 we otherwise would, is attributed solely to the 
 desire to please the passengers passing over the 
 line, and is the difference between what the clean- 
 ing of right of way would be if only freight trains 
 were operated, and what it is, operating both 
 freight and passenger. 
 
 14. Removal of Snow, Sand and Ice. 
 
 One-half Passenger and one-half Freight. 
 
 15. Tunnels. 
 
 One-half Passenger and one-half Freight. 
 
 16. Tunnels — Extraordinary. 
 
 One-half Passenger and one -half Freight. 
 
 17. Bridges, Trestles and Culverts. 
 
 15% Revenue Train Miles — Passenger and 
 Freight. Balance (85%) one-half Passenger and 
 one-half Freight. 
 
 18. Bridges, Trestles and Culverts — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
50 
 
 19. Over and Under Grade Crossings. 
 
 One-half Passenger and one-half Freight. 
 
 20. Over and Under Grade Crossings — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 21. Grade Crossings, Cattle Guards, and Signs. 
 
 One-half Passenger and one-half Freight. 
 
 22. Grade Crossings, Cattle Guards, and Signs — Ex- 
 
 traordinary. 
 
 One-half Passenger and one-half Freight. 
 
 23. Eight of Way Fences. 
 
 One-half Passenger and one-half Freight. 
 
 24. Eight of Way Fences — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 25. Snow and Sand Fences and Snow Sheds. 
 
 One-half Passenger and one-half Freight. 
 
 26. Signals and Interlocking Plants. 
 
 25% Passenger. Balance (75%) one-half 
 Passenger and one-half Freight. 
 
 Signals and Interlocking plants are installed 
 principally for the benefit of fast passenger 
 trains, although freight trains get the benefit of 
 them in passing over the line. The 25% of the 
 total maintenance is estimated by the engineers 
 to be properly chargeable to the passenger trains. 
 It is a question of speed and safety. A collision 
 on a crossing of a passenger train is a serious 
 matter, whereas with freight trains it is destruc- 
 tion of a certain amount of property. 
 
 27. Signals and Interlocking Plants — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 28. Telegraph and Telephone Lines. 
 
 One-half Passenger and one-half Freight. 
 
51 
 
 29. Telegraph and Telephone Lines — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
 30. Electric Power Transmission. 
 
 No Charges. 
 
 31. Water Stations. 
 
 5% Number of tons of coal consumed in Pas- 
 senger and Freight Train Service. Balance 
 (95%) one-half Passenger and one-half Freight. 
 
 The number of tons consumed in Mixed Serv- 
 ice is included in Passenger and Freight on the 
 basis of passenger and freight-car miles run in 
 Mixed Trains. The number of tons consumed in 
 Switching Service is included in Passenger and 
 Freight on the basis of the relative cost of pas- 
 senger and freight switching. 
 
 32. Fuel Stations. 
 
 Same as Account No. 31, ** Water Stations. '* 
 
 33. Shops, Engine Houses, etc. 
 
 5% Kevenue Train Miles — Passenger and 
 Freight. Balance (95%) one-half Passenger and 
 one-half Freight. 
 
 34. Station, Office, and Other Buildings. 
 
 7% Passenger. Balance (93%) one-half Pas- 
 senger and one-half Freight. 
 
 The renewal of buildings is due to the desire 
 to please passengers by having a pleasant, or 
 more attractive appearance. We paint the stations 
 more often because we have passengers going to 
 them and because we have passengers passing 
 over the line of the railroad and desire to please 
 them. 
 
 35. Buildings, Fixtures and Grounds — Extraordinary. 
 
 One-half Passenger and one-half Freight. 
 
52 
 
 36. Buildings, Fixtures and Grounds — Assessments 
 
 for Public Improvements. 
 
 One-half Passenger and one-half Freight. 
 
 37. Docks and Wharves. I nn. • i . 
 
 V Freight. 
 
 38. Docks and Wharves — Extraordinary. ) 
 
 39. Eoadway Tools and Supplies. 
 
 7% Passenger. 46.5% Eevenue Train Miles — 
 Passenger and Freight. Balance (46.5%) one- 
 half Passenger and one-half Freight. 
 
 The percentage chargeable directly to the 
 Passenger Traffic under this account is depend- 
 ent on the item for ^^ Eoadway and Track" since 
 it is the tools for which expenditures for ''Eoad- 
 way and Track" are made. 
 
 40. Injuries to Persons. 
 
 25% Eevenue Train Miles — Passenger and 
 Freight. Balance (75%) one-half Passenger 
 and one-half Freight. 
 
 41. Stationery and Printing 1 One-half Passenger and 
 
 42. Other Expenses J one-half Freight. 
 42-a. Other Expenses — Depreciation. 
 
 All other ''Maintenance of Way & Struc- 
 tures" Expenses. 
 
 43. Maintaining Joint Tracks, Yards, and Other Facil- 
 
 ities — Dr. 
 
 Allocated to Passenger and Freight where 
 possible. Common or indeterminable items were 
 classified on basis of Eevenue Train Miles — Pas- 
 senger and Freight. 
 
 44. Maintaining Joint Tracks, Yards, and Other Facili- 
 
 ties — Cr. 
 
 Same as Account No. 43, "Maintaining Joint 
 Tracks, Yards, and Other Facilities — Dr." 
 
53 
 
 Maintenance of Equipment. 
 
 45. Superintendence. 
 
 All other ^'Maintenance of Equipment'' Ex- 
 penses. 
 
 46. Steam Locomotives — Repairs. 
 
 Eepairs to Passenger and Freight Locomo- 
 tives were classified as Passenger and Freight, 
 respectively. Eepairs to Switch Locomotives 
 were classified on the basis of the relative cost 
 of Passenger and Freight Switching. Repairs 
 to Locomotives in Mixed Service were classified 
 on the basis of the number of Passenger and 
 Freight-car Miles run in Mixed Trains. In arriv- 
 ing at Revenue Locomotive Miles — Passenger and 
 Freight, the miles of locomotives in Mixed Service 
 ^ere apportioned to Passenger and Freight on 
 the basis of the number of Passenger and Freight- 
 car miles run in Mixed Trains, and included in 
 figures for Passenger and Freight. Switching 
 Miles were left out. 
 
 47. Steam Locomotives — Renewals. 
 
 Revenue Locomotive Miles, as explained 
 under Account No. 46, ** Steam Locomotives — 
 Repairs. ' ' 
 
 48. Steam Locomotives — Depreciation. 
 
 The value of Passenger, Freight, Switch and 
 Work Locomotives as of July 1st (each year), 
 ^as ascertained and the percentage that the value 
 of each class bears to the total value was calcu- 
 lated. The percentage accruing to Switching 
 Locomotives was classified as Passenger and 
 Freight on the basis of the relative cost of Pas- 
 senger and Freight Switching. The percentage 
 accruing to Work Locomotives was classified as 
 Passenger and Freight on the basis of total 
 charges to Passenger and Freight on all ''Main- 
 
54 
 
 49. 
 50. 
 51. 
 52. 
 53. 
 54. 
 55. 
 56. 
 57. 
 
 tenance of Way & Structures'' Accounts. By ad- 
 ding the percentage accruing to Passenger Loco- 
 motives and the Passenger proportions of the 
 percentages accruing to Switch and Work Loco- 
 motives, respectively, the total Passenger was ar- 
 rived at, and by adding the percentage accruing 
 to Freight Locomotives and the Freight propor- 
 tions of the percentages accruing to Switch and 
 Work Locomotives, respectively, the total Freight 
 percentage was obtained. The total charges to 
 Passenger and Freight were apportioned on the 
 percentages for Passenger and Freight thus ob- 
 tained. 
 
 Electric Locomotives- 
 Electric Locomotives- 
 Electric Locomotives- 
 Passenger-train Cars- 
 Passenger-train Cars- 
 
 -Repairs 
 
 -Renewals 
 
 -Depreciation 
 
 -Repairs 
 
 Renewals 
 
 Passenger-train Cars — Depreciation 
 Freight-train Cars— Repairs 
 Freight-train Cars— Renewals 
 Freight-train Cars — Depreciation 
 
 58. Electric Equipment of Cars- Repairs 
 
 59. Electric Equipment of Cars — Renewals 
 
 60. Electric Equipment of Cars- 
 
 Depreciation 
 
 No 
 Charges. 
 
 Direct to 
 Passen- 
 ger. 
 
 Direct to 
 Freight. 
 
 No 
 Charges. 
 
 61. Floating Equipment— Repairs 
 
 62. Floating Equipment— Renewals 
 
 63. Floating Equipment— Deprecia- 
 
 tion 
 
 15% Revenue 
 Train Miles- 
 Passenger and 
 Freight. Bal- 
 ance (85%) 
 one-half Pas- 
 senger and 
 one -half 
 Freight. 
 
55 
 
 64. 
 65. 
 66, 
 
 67. 
 
 68, 
 
 69. 
 70. 
 71. 
 
 Work Equipment— Repairs 
 Work Equipment— Renewals 
 Work Equipment— Depreciation 
 
 Total charges 
 for Passenger 
 and Freight 
 for all */ Main- 
 ten a n c e of 
 Way and 
 Structure ' ' 
 Expenses. 
 
 Shop Machinery and Tools. 
 
 Allocated costs of repairs for all classes of 
 equipment (including '^Work"). 
 
 Power Plant Equipment. 
 
 No Charges. 
 
 Injuries to Persons 
 
 Stationery and Printing 
 
 Other Expenses 
 
 Allocated costs of re- 
 pairs for all classes of 
 equipment (including 
 ^^Work'O. 
 
 72. Maintaining Joint Equipment at Ter- 
 
 minals— Dr. 
 
 73. Maintaining Joint Equipment at Ter- 
 
 minals— Cr. 
 
 Allocated to 
 Passenger 
 
 and 
 Freight. 
 
 Traffic Expenses. 
 
 74. Superintendence— Passenger. 
 
 Direct to Passenger. 
 
 75. Superintendence — Freight. 
 
 Direct to Freight. 
 
 76. Outside Agencies — Passenger. 
 
 Direct to Passenger. 
 
 77. Outside Agencies — Freight. 
 
 Direct to Freight. 
 
 78. Advertising — Passenger. 
 
 Direct to Passenger. 
 
M 
 
 79. Advertising — Freight. 
 
 Direct to Freight. 
 
 80. Traffic Associations — Passenger. 
 
 Direct to Passenger. 
 
 81. Traffic Associations — Freight. 
 
 Direct to Freight. 
 
 82. Fast Freight Lines. 
 
 Direct to Freight. 
 
 83. Industrial and Immigration Bureaus. 
 
 Gross Earnings— Passenger and Freight. 
 
 84. Stationery and Printing — Passenger. 
 
 Direct to Passenger. 
 
 85. Stationery and Printing — Freight. 
 
 Direct to Freight. 
 
 86. Other Expenses. 
 
 Oross Earnings — Passenger and Freight. 
 
 Transportation Expenses. 
 
 87. Superintendence. 
 
 All other Passenger and Freight Charges to 
 Transportation Accounts. 
 
 88. Dispatching Trains. 
 
 Revenue Train Miles — Passenger and Freight. 
 
 89. Station Employes — Passenger. 
 
 Direct to Passenger. 
 
 90. Station Employes — Freight. 
 
 Direct to Freight. 
 
 91. Weighing and Car Service Associations 1 Direct to 
 
 92. Coal and Ore Docks f Freight. 
 
57 
 
 93. 
 
 94. 
 95. 
 
 96. 
 
 97. 
 
 98. 
 
 99. 
 100. 
 101. 
 102. 
 
 103. 
 
 104. 
 
 105. 
 
 106. 
 
 Station Supplies and Expenses. 
 
 Apportioned to Passenger and Freight in the 
 ratio of charges to Accounts No. 71, *^ Station 
 Supplies— Passenger/' and No. 72, ^^ Station Sup- 
 plies—Freight,'' for the fiscal year 1906-1907. 
 (Last year for which separation of Passenger and 
 Freight was made.) 
 
 Yardmasters and their Ckrks 
 
 Yard Conductors and Brake- 
 men 
 
 Relative cost o f 
 Passenger and 
 Freight Switch- 
 ing. 
 
 Based on percen- 
 tages of Switch- 
 ing Expenses as- 
 signed to Pas- 
 senger and 
 Freight Service 
 on hasis of ac- 
 tual time e n - 
 gaged in each 
 class of service. 
 
 Yard Switch and Signal Ten- 
 ders 
 
 Yard Supplies and Expenses 
 
 Yard Enginemen 
 
 Enginehouse Expenses— Yard 
 
 Fuel for Yard Locomotives 
 
 Water for Yard Locomotives 
 
 Lubricants for Yard Locomo- 
 tives 
 
 Other Supplies for Yard Lo- 
 comotives 
 
 Operating Joint Yards and Terminals— Dr. 
 
 Allocated to Passenger and Freight where 
 possible. At yards at which both Passenger and 
 Freight Switching was done, the expenses were 
 classified as Passenger and Freight on the basis 
 of relative cost of Passenger and Freight Switch- 
 ing at that yard when this was known; otherwise, 
 on basis of Revenue Train Miles. 
 
 Operating Joint Yards and Terminals— Cr. 
 
 Same as Account No. 104, '^Operating Joint 
 Yards and Terminals— Dr. 
 
 Motormen. 
 
 No Charges. 
 
58 
 
 107. Road Enginemen— Passenger. 
 
 Direct to Passenger. 
 
 108. Road Enginemen— Freiglit. 
 
 Direct to Freiglit. 
 
 109. Road Enginemen— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 110. Engineliouse Expenses— Road. 
 
 Expenses were classified as Passenger, Freight 
 and Mixed on the basis of engines of those classes 
 handled at the roundhouse. The amounts accru- 
 ing to Passenger and Freight Locomotives were 
 classified accordingly. The amounts accruing to 
 Locomotives in Mixed Service were classified as 
 Passenger and Freight on the basis of the number 
 of Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 111. Fuel for Road Locomotives— Passenger. 
 
 Direct to Passenger. 
 
 112. Fuel for Road Locomotives— Freight. 
 
 Direct to Freight. 
 
 113. Fuel for Road Locomotives— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 114. Water for Road Locomotives. 
 
 Number of tons of coal consumed in Passenger 
 and Freight Train Service. The number of tons 
 consumed in Mixed Service is included in Pas- 
 senger and Freight on the basis of Passenger and 
 Freight-car Miles run in Mixed Trains. The num- 
 ber of tons consumed in Switching Service is in- 
 cluded in Passenger and Freight on the basis of 
 the relative cost of Passenger and Freight Switch- 
 ing. 
 
59 
 
 115. Lubricants for Road Locomotives— Passenger. 
 
 Direct to Passenger. 
 
 116. Lubricants for Road Locomotives— Freight. 
 
 Direct to Freight. 
 
 117. Lubricants for Road Locomotives— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 118. Other Supplies for Road Locomotives— Passenger. 
 
 Direct to Passenger. 
 
 119. Other Supplies for Road Locomotives— Freight. 
 
 Direct to Freight. 
 
 120. Other Supplies for Road Locomotives— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 121. Operating Power Plants 1 ^^ ^, 
 
 ^No Charges. 
 
 122. Purchased Power J 
 
 123. Road Trainmen— Passenger. 
 
 Direct to Passenger. 
 
 124. Road Trainmen— Freight. 
 
 Direct to Freight. 
 
 125. Road Trainmen— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
 126. Train Supplies and Expenses— Passenger. 
 
 Direct to Passenger. 
 
 127. Train Supplies and Expenses— Freight. 
 
 Direct to Freight. 
 
 128. Train Supplies and Expenses— Mixed. 
 
 Passenger and Freight-car Miles run in Mixed 
 Trains. 
 
60 
 
 129. 
 
 130. 
 
 131. 
 132. 
 
 133. 
 
 134. 
 135. 
 
 136. 
 137. 
 138. 
 
 139. 
 
 140. 
 
 141. 
 
 Interlockers, Block and Other 
 Signals— Operation. 
 
 Crossing Flagmen and Gate 
 men. 
 
 Drawbridge Operation. 
 
 Clearing Wrecks. 
 
 Revenue Train 
 Miles— Passenger 
 and Freight ;Eev- 
 enue Train Miles 
 —Mixed, were ap- 
 portioned to Pas- 
 senger and 
 Freight on basis 
 of number of Pas- 
 senger and 
 Ffeight-car Miles 
 run in Mixed 
 Trains, and in- 
 cluded in figures 
 for Rev. Passgr. 
 and Freight Train 
 Miles. 
 
 Telegraph and Telephone— Operation. 
 
 Revenue Train Miles— Passenger and Freight. 
 Revenue Train Miles — Mixed, were apportioned 
 to Passenger and Freight on basis of number of 
 Passenger and Freight-car Miles run in Mixed 
 Trains, and included in figures for Revenue Pas- 
 senger and Freight Train Miles. 
 
 Operating Floating Equipment. "] 
 
 >No Charges. 
 
 ^ Revenue Train Miles 
 — P assenger and 
 Freight. 
 
 Express Service. 
 
 Stationery and Printing. 
 Other Expenses. J 
 
 Loss and Damage— Freight. 
 
 Direct to Freight. 
 Loss and Damage— Baggage. 
 
 Direct to Passenger. 
 Damage to Property. 
 
 Revenue Train Miles— Passenger and Freight. 
 Damage to Stock on Right of Way— Passenger. 
 
 Direct to Passenger. 
 
61 
 
 142. Damage to Stock on Eight of Way— Freight. 
 
 Direct to Freight. 
 
 143. Injuries to Persons (not Employes) —Passenger, 
 
 Direct to Passenger. 
 
 144. Injuries to Persons (not Employes)— Freight. 
 
 Direct to Freight. 
 
 145. Injuries to Employes— Passenger. 
 
 Direct to Passenger. 
 
 146. Injuries to Employes— Freight. 
 
 Direct to Freight. 
 
 147. Operating Joint Tracks and Facil- 
 
 ities— Dr. 
 
 148. Operating Joint Tracks and Facil- 
 
 ities— Or. 
 
 Eevenue 
 Train Miles 
 —Passenger 
 and Freight. 
 
 General Expenses. 
 
 149. Salaries and Expenses of General Of- 
 
 ficers. 
 
 150. Salaries and Expenses of Clerks and 
 
 Attendants. 
 
 151. General Office Supplies and Expenses. 
 
 152. Law Expenses. 
 
 153. Insurance. 
 
 154. Eelief Department Expenses. 
 
 155. Pensions. 
 
 156. Stationery and Printing. 
 
 157. Other Expenses. 
 
 158. General Administration Joint Tracks, 
 
 Yards and Terminals — Dr. 
 
 159. General Administration Joint Tracks, 
 
 Yards and Terminals — Cr. 
 
 Passenger 
 
 and 
 
 Freight 
 
 Charges 
 
 to 
 
 all 
 
 Other 
 
 Accounts 
 
62 
 
 The percentages shown for the various accounts in 
 the ^ * Maintenance of Way and Structures Block/' rep- 
 resenting the expenses which should be charged direct 
 to the passenger service, and the percentages due to the 
 volume of traffic, are percentages worked out by Mr. 
 J. E. Willoughby, Engineer of Construction of the Louis- 
 ville & Nashville Railroad Company, upon conditions 
 surrounding the operation of Louisville & Nashville 
 Lines in Alabama, which justified such percentages. 
 
 For Louisville & Nashville Lines in Alabama, on the 
 main track of the Mobile & Montgomery Division, the 
 amount of ballast that would be destroyed in keeping 
 the tracks smooth is far greater than the amount of 
 ballast that would be destroyed in keeping the track in 
 surface for freight traffic, for instance, on some of the 
 branches of the Birmingham Mineral Division. 
 
 As to Engineering and Supervision : The percentage 
 is a general percentage which would apply practically 
 to all of our Lines. The repairs to roadbed of our tracks 
 in Alabama would vary for the South & North Alabama 
 Railroad, or a line curved like that, from repairs to 
 roadbed and track on the Alabama and Florida Rail- 
 road. There would be a greater amount of repairs on 
 the main line of the Louisville & Nashville Railroad road- 
 bed and track as compared with the branch lines of 
 this Railroad. For example: Mr. Willoughby, on tak- 
 ing the figures for roadbed and track, figured that the 
 extra cost of keeping the track smooth would amount 
 in labor to .2 of one man per mile. The apportionment 
 of labor for a track is .2 of a man per mile. He worked 
 
63 
 
 that out as to liow mucli it would amount to for a rail- 
 road division for years, and figured the percentage in 
 that way. And the question whether this .2 of a man, or 
 %th of a man, per mile, is sufficient, is a question pe- 
 culiarly attributable to the Lines in Alabama. On the 
 Louisville, Cincinnati & Lexington Division, for example 
 the .2 would not be enough. There we have an un- 
 stable roadway, whereas in Alabama we have usu- 
 ally a stable roadway, and the .2 would not be suffi- 
 cient in Eastern Kentucky, on Lines like the Cumber- 
 land Valley Division, where we have a great number of 
 slides, and where the drainage is a more serious ques- 
 tion than in the sandy soils in Alabama, and the charge 
 for percentage for the looser soils for maintaining a 
 smooth track would be less than for a sticky soil like we 
 have on the Louisville, Cincinnati & Lexington Division. 
 
 The conditions in Alabama are not such as would 
 make necessary a larger percentage to Passenger Traf- 
 fic than in other States. The Lines in Alabama on which 
 we have a passenger traffic, as compared with other lines 
 of the Louisville & Nashville System, are possibly an 
 average, or a little better than an average. (This refers 
 to the roadway.) 
 
 Cross-ties rot out quicker in Alabama on account of 
 heat and moisture, and the character of ties. Pine ties, 
 for instance, rot faster than oak ties. Other wooden 
 structures decay faster in Alabama than they do in Ken- 
 tucky. 
 
 The 2% of Supervision peculiarly incurred by 
 and chargeable to the Passenger Traffic, is due to 
 
64 
 
 the extraordinary care given. For example: A pas- 
 senger train is late ten (10) minutes — a report is 
 made of it, but if it is a freight train no report is made. 
 That requires a Clerk's time, and requires additional 
 help to keep track of the passenger traffic because it is 
 slightly late. Because there is a fast passenger train 
 on the road the Supervisor and Section Foreman will 
 send out watchmen at night to look over the track, and 
 go over it themselves and give additional care to it, and 
 because they have a fast passenger train, everybody will 
 be devoting more time to supervision. The actual track 
 work has to be done in such a method as not to interfere 
 with or delay the passenger trains, more than would be 
 if it were merely a freight train. There are no items of 
 Superintendence, no extra care or superintendence given 
 to freight movements. There is a general care for all 
 train movements, and then there is an additional care 
 given for passenger movements. 
 
 It may not be possible to put your finger down and 
 say just when this additional expense begins and when 
 it ends. It will accumulate for a System or Division 
 and will finally get to be an additional force. You run 
 a passenger train over a line that has not heretofore had 
 a passenger train on it, and you will have to increase 
 your force. As the passenger traffic goes on, additional 
 labor is spent, and additional expense incurred. 
 
 The percentages shown as chargeable to Passenger 
 are exclusive of any benefits the Freight Traffic would 
 derive. They are percentages that are exclusively 
 chargeable to the Passenger Traffic. In other words, 
 
65 
 
 if there were no passenger trains operated at all 
 on the Lines in Alabama, there would be a saving 
 of 7% in ballast. When ballast is put on for a freight 
 line, eight (8) inches is used; when put on for a passen- 
 ger line, we use twelve (12) inches. 
 
 The 7%, representing the saving on ballast if no 
 passenger trains were operated, is arrived at 
 
 1st — hj the maintenance of 50% of present amount 
 
 of slag, and 
 2d — the continual tamping to keep the tracks 
 smooth, which 
 destroys the ballast. The 7% is the average for Louis- 
 ville & Nashville Lines in Alabama. 
 
 Taking Interlocking Plants : We would not put down 
 an interlocking plant at all for freight service, therefore 
 if we take the passenger service off we would save the 
 entire cost of interlocking plants. 
 
66 
 
 Formula Used in Classifying Operating Expenses of 
 Divisions Wholly or Partly in the State of 
 Alabama, as ' ' Haulage ' * and ' * Non- 
 Haulage. ^ ' 
 
 Maintenance of Way and Structures. 
 
 1. Superintendeiice. 
 
 General — Divided in proportion to all other 
 ** Maintenance of Way and Structures'' Accounts. 
 
 2. Ballast. 
 
 3. Ballast--Extraordinary. 
 
 4. Ties. 
 
 5. Ties — Extraordinary. 
 
 6. Bails. 
 
 7. Bails — Extraordinary. 
 
 8. Other Track Material. 
 
 9. Other Track Material — Extraordinary. 
 
 10. Boadway and Track. 
 
 11. Boadway and Track — Extraordinary. 
 
 12. Boadway and Track — Assessments for Public Im- 
 
 provements. 
 
 13. Cleaning Bight of Way. 
 
 Superintendent's report as to what percentage of each ac- 
 count on his particular division is Haulage and what percentage 
 Non-Haulage. For example: Expenditures for Ballast, Ties, 
 Rails, Other Track Material, Roadway and Tracks, etc., in con- 
 nection with maintenance of a team track, warehouse track 
 or any delivery or receiving track, including interchange tracks 
 with connecting lines (which tracks are used by switching en- 
 gine and not by trains) and yard tracks or terminal tracks, 
 except when they are used for the passage of trains with road 
 engine-power, considered as terminal expenses or Non-Haulage. 
 The distinction drawn was one between tracks and facilities 
 for trains between stations, or affected by distance, and tracks 
 and facilities used for handling cars at stations, or not affected 
 by distance. In the former case the cost of maintenance was 
 charged to Haulage and in the latter to Non-Haulage. 
 
67 
 
 14. Removal of Snow, Sand and Ice. 
 
 15. Tunnels. 
 
 16. Tunnels — Extraordinary. 
 
 17. Bridges, Trestles, and Culverts. 
 
 18. Bridges, Trestles, and Culverts — Extraordinary. 
 
 19. Over and Under Grade Crossings. 
 
 20. Over and Under Grade Crossings — Extraordi- 
 
 nary. 
 
 21. Grade Crossings, Cattle Guards, and Signs. 
 
 22. Grade Crossings, Cattle Guards, and Signs — Ex- 
 
 traordinary. 
 
 23. Right of Way Fences. 
 
 24. Right of Way Fences — ^Extraordinary. 
 
 25. Snow and Sand Fences and Snow Sheds. 
 
 26. Signals and Interlocking Plants. 
 
 27. Signals and Interlocking Plants — Extraordinary. 
 
 28. Telegraph & Telephone Lines. 
 
 29. Telegraph & Telephone Lines — Extraordinary. 
 
 Superintendent's report as to what percentage of each ac- 
 count on his particular division is Haulage and what percentage 
 Non-Haulage. For example: Expenditures for Ballast, Ties, 
 Rails, Other Track Material, Roadway and Tracks, etc., in con- 
 nection with maintenance of a team track, warehouse track 
 or any delivery or receiving track, including interchange tracks 
 with connecting lines (which tracks are used by switching en- 
 gine and not by trains) and yard tracks or terminal tracks, 
 except when they are used for the passage of trains with road 
 engine-power, considered as terminal expenses or Non-Haulage. 
 The distinction drawn was one between tracks and facilities 
 for trains between stations, or affected by distance, and tracks 
 and facilities used for handling cars at stations, or not affected 
 by distance. In the former case the cost of maintenance was 
 charged to Haulage and in the latter to Non-Haulage. 
 
 30. Electric Power Transmission : No Charges. 
 
 31. Water Stations. 1 
 
 32. Fuel Stations, j ^^ ^^^' 
 
 33. Shops, Engine Houses, Etc. * il Non- 
 34. Station, Office, and Other Buildings. J Haulage. 
 
ee 
 
 35. 
 
 Buildings, Fixtures, and Grounds ' 
 —Extraordinary. 
 
 
 36. 
 
 Buildings, Fixtures, and Grounds 
 —Assessments for Public Im- 
 
 
 
 provements. 
 
 " Non-Haulage. 
 
 37. 
 
 Docks and Wharves. 
 
 
 38. 
 
 Docks and Wharves — Extraor- 
 dinary. 
 
 
 39. 
 
 Eoadway Tools and Supplies. 
 
 
 40. 
 
 Injuries to Persons. 
 
 General — Divided 
 
 41. 
 
 Stationery and Printing. 
 
 in proportion to 
 all other *^ Main- 
 
 42. 
 
 Other Expenses. 
 
 tenance of Way 
 
 42-[ 
 
 I. Other Expenses— Deprecia- 
 
 and Structures'' 
 
 
 tion. 
 
 Accounts. 
 
 43. 
 
 Maintaining Joint Tracks, Yards, 
 
 Main Tracks— 
 
 
 and Other Facilities— Dr. 
 
 Haulage ; 
 
 44. 
 
 Maintaining Joint Tracks, Yards, [ 
 
 Other Tracks, 
 Yards, etc.— 
 
 "VT 1 1 
 
 
 and Other Facilities— Cr. 
 
 
 
 J 
 
 Non-haulage. 
 
 Maintenance of Equipment. 
 
 45. Superintendence. 
 
 General— Divided in proportion to all *^ Main- 
 tenance of Equipment'' Accounts. 
 
 46. Steam Locomotives — Eepairs. 
 
 Switching— Non-haulage ; Others— Haulage. 
 
 47. Steam Locomotives— Renewals. 
 
 Divided in ratio to value as of July 1st (each 
 year) of Road Locomotives and Switch Locomo- 
 tives to total value of all Locomotives; Switch 
 Locomotives being Non-haulage. 
 
69 
 
 48. Steam Locomotives— Depreciation. 
 
 Divided in ratio to value as of July 1st (each 
 year) of Eoad Locomotives and Switch Locomo- 
 tives to total value of all Locomotives; Switch Lo- 
 comotives being Non-^haulage. 
 
 49. Electric Locomotives— Eepairs. 
 
 50. Electric Locomotives— Eenewals. ^ No Charges. 
 
 51. Electric Locomotives— Depreciation. 
 
 52. Passenger-Train Cars— Kepairs. 
 
 53. Passenger-Train Cars— Eenewals. ^Haulage. 
 
 54. Passenger-Train Cars— Depreciation. ^ 
 
 55. Freight-Train Cars — Eepairs. 
 
 56. Freight-Train Cars — Eenewals. 
 
 57. Freight-Train Cars — Depreciation. 
 
 Charges to Accounts 55, 56 and 57 were classified as Haul- 
 age and Non-Haulage in the proportion that the time shipments 
 were in transit bears to the time freight cars were detained at 
 stations. The average detention was obtained from statement 
 furnished by the Alabama Demurrage & Storage Bureau. In 
 arriving at the average time a shipment was in transit, the 
 average haul (in miles) per ton of freight on divisions wholly 
 in Alabama, and on Alabama portions of divisions only partly 
 in Alabama, was obtained from the Auditor of Eeceipts. The 
 average haul, in miles, per loaded car per day was obtained 
 from a statement furnished by the Car Accountant, showing 
 this information for certain divisions and combinations of 
 divisions, and for the months of October, 1910, and June, 1911. 
 The averages for the two months given were added and divi- 
 ded by two and the result used as the average haul, in miles, 
 per loaded car per day. By dividing the average haul (in 
 miles) per ton of freight by the average haul (in miles) per 
 loaded car per day, the average number of days a shipment 
 was in transit was obtained. 
 
 58. Electric Equipment of Cars— Ee- 
 
 pairs. 
 
 59. Eleetric Equipment of Cars— Ee- 
 
 newals. 
 
 60. Electric Equipment of Cars— Depre- 
 
 ciation. 
 
 ^No Charges. 
 
70 
 
 61. 
 62. 
 63. 
 
 64. 
 65. 
 66, 
 67. 
 68. 
 
 69. 
 70. 
 71. 
 72. 
 
 73. 
 
 Floating Equipment— Repairs. 
 
 Floating Equipment—Renewals. 
 
 Floating Equipment— Deprecia- 
 tion. 
 
 Same as Account 
 No. 17/ ^Bridges, 
 Trestles and Cul- 
 verts,'' (Float- 
 ing Equipment 
 of this Company 
 is used exclu- 
 sively in repairs 
 of trestles.) 
 
 Work Equipment— Repairs. 
 
 Work Equipment— Renewals. 
 
 Work Equipment— Depreciation. 
 
 Shop Machinery and Tools. 
 
 Power Plant Equipment : No Charges. 
 
 Haulage. 
 
 Injuries to Persons. 
 Stationery and Printing 
 Other Expenses. 
 
 Greneral— Divided in pro- 
 portion to all other 
 '^Maintenance of 
 Equipment ' ' Accounts. 
 
 Maintaining Joint 
 Terminals— Dr. 
 
 Maintaining Joint 
 Terminals— Or. 
 
 Equipment at 
 Equipment at 
 
 Non-Haulage. 
 
 Traffic Expenses. 
 
 74. Superintendence — Passenger. 
 
 75. Superintendence— Freight. 
 
 76. Outside Agencies— Passenger. 
 
 77. Outside Agencies— Freight. 
 
 78. Advertising— Passenger. 
 
 79. Advertising— Freight. 
 
 80. Traffic Associations— Passenger. 
 
 81. Traffic Associations— Freight. 
 
 ^Non-Haulage. 
 
71 
 
 82. Fast Freight Lines. 
 
 83. Industrial and Immigration Bureaus. 
 
 84. Stationery and Printing — Passenger. 
 
 85. Stationery and Printing — Freight. 
 
 86. Other Expenses. 
 
 Non- 
 Haulage. 
 
 Transportation Expenses. 
 
 87. Superintendence. 
 
 General — Divided in proportion to all other 
 ** Transportation ' * Accounts. 
 
 JB8. Dispatching Trains: Haulage. 
 
 89. Station Employes — Passenger. 
 
 90. Station Employes — Freight. 
 
 91. Weighing and Car Service Associa- 
 
 tions. 
 
 92. Coal and Ore Docks. 
 
 93. Station Supplies and Expenses. 
 
 94. Yardmasters and their Clerks. 
 
 95. Yard Conductors and Brakemen. 
 
 96. Yard Switch and Signal Tenders. 
 
 97. Yard Supplies and Expenses. 
 
 98. Yard Enginemen. 
 
 99. Enginehouse Expenses — Yard. 
 
 100. Fuel for Yard Locomotives. 
 
 101. Water for Yard Locomotives. 
 
 102. Lubricants for Yard Locomotives. 
 
 103. Other Supplies for Yard Locomo- 
 
 tives. 
 
 104. Operating Joint Yards and Termi- 
 
 nals — Dr. 
 
 105. Operating Joint Yards and Termi- 
 
 nals—Or. 
 
 Non- 
 ^Haulage. 
 
72 
 
 106. Motormen: No Charges. 
 
 107. Road Enginemen — Passenger. 
 
 108. Road Enginemen — Freight. 
 
 109. Road Enginemen — Mixed. 
 
 110 Enginehouse Expenses — Road. 
 
 111 Fuel for Road Locomotives — Passen- 
 
 ger. 
 
 112 Fuel for Road Locomotives — Freight. 
 
 113. Fuel for Road Locomotives — Mixed. 
 
 114. Water for Road Locomotives. 
 
 115. Lubricants for Road Locomotives — 
 
 Passenger. 
 
 116. Lubricants for Road Locomotives — 
 
 Freight. 
 
 117. Lubricants for Road Locomotives — 
 
 Mixed. 
 
 118. Other Supplies for Road Locomotives 
 
 — Passenger. 
 
 119. Other Supplies for Road Locomotives 
 
 —Freight. 
 
 120. Other Supplies for Road Locomotives 
 
 — Mixed. 
 
 ^ Haulage. 
 
 Operating Power Plants. 
 Purchased Power. 
 
 Ko Charges. 
 
 121. 
 122. 
 
 123. Road Trainmen^ — Passenger. 
 
 124. Road Trainmen — Freight. 
 
 125. Road Trainmen — Mixed. 
 
 126. Train Supplies and Expenses- 
 
 senger. 
 
 127. Train Supplies and Expense s — 
 
 Freight. 
 
 -Pas- 
 
 ^ Haul age. 
 
T3 
 
 Haulage. 
 
 Haulage. 
 
 S^No Charges. 
 
 General— Divid- 
 ed in proportion to 
 J^all other ^* Trans- 
 portation*' Ac- 
 counts. 
 
 128. Train Supplies and Expenses — ^Mixed. 
 
 129. Interlockers and Block and Other Sig- 
 
 nals — Operation. 
 
 130. Crossing Flagmen and Gatemen: Non-Haulage. 
 
 131. Drawbridge Operation. 
 
 132. Clearing Wrecks. 
 
 133. Telegraph and Telephone — Operation 
 
 134. Operating Floating Equipment 
 
 135. Express Service. 
 
 136. Stationery and Printing. 
 
 137. Other Expenses. 
 
 138. Loss and Damage — Freight. 
 
 139. Loss and Damage — Baggage. 
 
 140. Damage to Property. 
 
 141. Damage to Stock on Right of Way 
 
 Passenger. 
 
 142. Damage to Stock on Right of Way- 
 
 Freight. 
 
 143. Injuries to Persons (Not 
 
 Employes) — Passenger. 
 
 144. Injuries to Persons (Not 
 
 Employes ) — Freight. 
 
 145. Injuries to Employes — Pas- 
 
 senger. 
 
 146. Injuries to Employes — 
 
 Freight. 
 
 147. Operating Joint Tracks and Facil- 
 
 ities — Dr. 
 
 148. Operating Joint Tracks and Facil- 
 
 ities — ^Cr. 
 
 Haulage. 
 
 General — Divided 
 in proportion to all 
 ^ other ** Transporta- 
 tion'* Accounts. 
 
 J 
 
 Haulage. 
 
74 
 
 General Expenses. 
 
 149. Salaries and Expenses of 
 
 General Officers. 
 
 150. Salaries and Expenses of 
 
 Clerks and Attendants. 
 
 151. General Office Supplies 
 
 and Expenses. 
 
 152. Law Expenses. 
 
 153. Insurance. 
 
 154. Relief Department Ex- , 
 
 penses. Y 
 
 155. Pensions. 
 
 156. Stationery and Printing. 
 
 157. Other Expenses. 
 
 158. General Administration 
 
 Joint Tracks, Yards 
 and Terminals — Dr. 
 
 159. General Administration 
 
 Joint Tracks, Yards 
 and Terminals — ^Cr. 
 
 General — Divided 
 in proportion to 
 all other '' Mainte- 
 nance of Way and 
 Structure s,'* 
 * ' Maintenance of 
 Equipmen t,'' 
 ^'Traffic" and 
 ^ ^ Transportation ' ' 
 Expenses. 
 
 THE UNIT OF SERVICE PLAN AND THE OKLA- 
 HOMA PLAN CONSIDERED IN CONNECTION 
 WITH A PLAN FOR CURRENT ACCOUNTING. 
 
 A committee appointed by the Oklahoma Lines to 
 formulate and arrange a plan for the apportionment of 
 operating expenses between freight and passenger serv- 
 ice, subdivided as between interstate and intrastate to 
 conform as nearly as might be to the rule laid down by 
 the Supreme Court of the United States to the effect that 
 the apportionment of expenses should follow the use of 
 
75 
 
 the property as closely as possible, have adopted a for- 
 mula known as the Oklahoma Plan. 
 
 It is believed that an investigation of both the Unit 
 of Service Plan and the Oklahoma Plan will show that 
 each plan affords a means of distribution which is at 
 least fair to the passenger traffic and to the intrastate 
 traffic as a whole; that is to say, in cases of doubt the 
 doubt has been resolved in favor of charging smaller 
 amounts to the passenger traffic and to the intrastate 
 traffic than might reasonably be charged to those classes 
 of traffic. 
 
 It will also be found that both plans are based upon 
 the same general principles; for example, both plans 
 recognize the necessity for a subdivision between pas- 
 senger traffic and freight traffic in order that the same 
 units may be used for the purpose of further subdivisions, 
 and both plans recognize the fact that other conditions 
 being the same, no separation of property or expenses 
 can be based merely upon the distinction between inter- 
 state traffic and intrastate traffic, and that if the circum- 
 stances surrounding the handling of the interstate traffic 
 were exactly the same as those surrounding the handling 
 of intrastate traffic, it would cost just as much to do the 
 one kind of traffic as it would cost to do the other kind, 
 and that the basis of divisions must therefore be sought 
 in differences of conditions or characteristics of the two 
 kinds of traffic. 
 
 And both plans agree in adopting as the most distin- 
 guishing feature which can be employed for this purpose, 
 the average length of haul, the distribution under the 
 
7« 
 
 Unit of Service plan being made between haulage and 
 non-haulage accounts and the distribution in the Okla- 
 homa plan being made as between terminal and line ac- 
 counts, the distinction involved being the same in each 
 case. 
 
 While both plans are based upon sound general prin- 
 ciples, and while, even under the varying application of 
 the same general principles to the several primary ac- 
 counts, both plans result in distributions which are fair 
 to intrastate traffic and to passenger traffic, and it would, 
 therefore, seem that either plan or both plans might be 
 adopted as a standard for the country, it is believed that 
 the expense involved in carrying out either of the plans 
 in its entirety as a current or continuous method of ac- 
 counting would involve a cost which would be prohib- 
 itive. To make the test of freight and passenger traffic 
 in the State of Alabama alone for one week on the lines 
 of the Louisville & Nashville System, aggregating less 
 than 1,300 miles, for equalizing the haulage units, 
 passenger miles and ton miles, as was done in the Unit 
 of Service Plan, required an expenditure of about ten 
 thousand dollars, and it is apparent from even a brief 
 consideration of the Oklahoma plan that the expenses in- 
 volved in collecting the statistics required for the details 
 of that plan would be considerably greater than that 
 amount. 
 
 It is, therefore, respectfully suggested that the confer- 
 ence which is to convene in New York on November 10, 
 1913, for the purpose of adopting a uniform plan of ac- 
 counting under the decision in the Minnesota rate case 
 
77 
 
 should nol: attempt to follow in its entirety either plan as 
 a regular method of accounting, but should use both plans 
 as affording light for the adoption of some other 
 plan, which, based upon the general principles adopted 
 by both plans, will provide for details of distribution by 
 primary accounts or parcels of property which will not 
 involve the expense contemplated by either of the plans 
 which have been adopted in the two sections of the coun- 
 try. It is further submitted that, as a statement of gen- 
 eral principles, the following resolution is in accordance 
 with both plans and is in accordance with what should 
 be adopted as the foundation of any plan for uniform ac- 
 counting under the Minnesota decision: 
 
 '^Resolved, That in the separation of operating 
 expenses as between interstate traffic and intrastate 
 traffic, according to use made or service performed, 
 freight and passenger expenses should first be di- 
 vided as between haulage, distance or line items on 
 the one hand and non-haulage, non-distance, or ter- 
 minal items on the other hand; that freight haulage 
 items should be apportioned to interstate and intra- 
 state traffic on basis of the number of ton-miles (gross 
 or net) in each class equalized or adjusted to local 
 conditions ; that freight non-haulage items should be 
 apportioned on basis of tons or ton-terminals (gross 
 or net) so equalized or adjusted; and that passenger 
 expenses should be similarly divided on basis of 
 equalized or adjusted passenger-miles and passen- 
 gers or passenger-terminals. 
 
 **By haulage, distance or line expenses are meant 
 expenses which vary according to the distance which 
 a shipment or passenger travels. By non-haulage, 
 non-distance, or terminal expenses, are meant ex- 
 penses which are not affected by the distance which 
 the shipment or passenger may travel. ' ' 
 
5 5 ■•) J? * 
 
 78 
 
 With such a resolution or a similar resolution as a 
 starting point, the problem confronting the conference 
 will be simplified to a consideration of the general rules 
 which should govern the equalization or adjustment of 
 the units of distribution, ton-miles, passenger-miles, tons, 
 ton-terminals, passengers and passenger-terminals, ac- 
 cording to local conditions which differ, of course, accord- 
 ing to the road or roads under consideration. And under 
 the application of the general principles there should be 
 observed, as far as possible, a general rule or plan of dis- 
 tribution for every step to be taken in the process. 
 Respectfully submitted, 
 
 Henry L. Stone, General Counsel, 
 "William A. Colston, General Solicitor, 
 Louisville d Nashville Railroad Co. 
 
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