Proposed Rate Increase of the Alaska Railroad

Published by the Government Accountability Office on 1971-04-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     COMPTROLLER      GENERAL     OF     THE       UNITE/D   STATES
                                    WASHINGTON.    DC.         20546                              24

B- 171707

        In your letter   of January 4, 1971, you requested us to consider
investigating     aboposed     rate increase of-the Alaska_Rai,lroad~        In
response to your r~~~~~~~~~-~~~~~:~~leloped        the following    information.

       The authority  to fix, change, or modify rates for the transportation
of passengers and property    by the Alaska Railroad     presently  is vested by
law and executive    order in the Secretary of Transportation      subject to the
requirement    that he give due regard to certain    actions of the Interstate
Commerce Commission.

         The construction    and operation       of the Alaska Railroad      was authorized
by the act of March 12, 1914 (38 Stat. 305), entitled                  "An Act to authorize
the President       of the United States to locate,         construct,     and operate
railroads     in the Territory       of Alaska, and for other purposes.H            By Execu-
tive Order No. 11107, April 25, 1963 (28 F.R. 4225), the President                      dele-
gated authority        for operation     of the railroad    to the Secretary      of the
Interior     (subsequently     transferred     to the Secretary of Transportation).
Section 3 of the order, in effect,             authorized   the Interstate     Commerce
Commission to act with regard to rates of the Alaska Railroad                   in the same
manner as it acts with regard to the regulation                of interstate    railroad
rates under part I of the Interstate              Commerce Act.

        The Secretary    of Transportation      granted permission        to the Alaska
Railroad    to petition     the Interstate     Commerce Commission (Special Permis-
sion 71-2500) for a 15-percent           rate increase,     effective     January 14, 1971.
Some of the reasons given by the railroad              for the requested         increase
were (1) substantial        increases    in its cost of operation,          including     labor
costs, (2) increase in the cost of supplies,               (3) the fact that its
traffic    pattern    is largely    one way, which results         in an extraordinarily
high percentage       of empty car, non-revenue-producing             movements, and (4)
present projections        of a net loss of $642,000 for fiscal            year 1971.

       Because of the       many protests     to the proposed rate increase,      including
those received      from    the State of Alaska, local city governments in Alaska,
and numerous private          shippers and interested     parties, the Interstate
Commerce Commission         suspended the proposed rate increase until August 14,
1971 (Investigation         and Suspension Docket No. 8604). The proposed rate
increase is currently          under investigation    bjr the Commission.

                             50 TH ANNIVERSARY                 1921- 1971


                B- 171707

                        We found that the Alaska Railroad        has had only one overall           rate
                increase since 1939. This was a g-percent             increase authorized         by the
                Interstate     Commerce Commission to become effective             on September 1, 1968.
                By comparison, the railroads       in the contiguous        United States have been
                granted numerous rate increases         in the post-World       War II period.         Between
                1968 and 1970, U.S. railroads,         exclusive   of Alaska, were granted two rate
                increases totaling     12 percent.      These railroads      petitioned     for additional
                increases to become effective        in November 1970. These proposed increases
                were suspended by the Interstate          Commerce Commission and placed under
                investigation.      On March 23, 1971, the Commission authorized               increases
                for these railroads     ranging from 6 percent to 14 percent to become effec-
                tive upon not less than 15 days notice to the Commission and the general

                       Shortly after the railroads        petitioned    fo r increases   in November 1970,
                the Commission announced that it was going to investigate                 (ex parte 270)
                not only the railroad       freight   rate structure      but also the rail rate base
                to be used in determining         the rate of return as a factor in ruling          on
                general freight      rate increase requests by railroads.            One of the issues
                in the investigation      of the freight       rate structure     is the possible   self-
                defeating     nature of general rate increases with respect to generating

                       In view of the investigation        proceedings currently  being conducted
                by the Interstate    Commerce Commission on the proposed increases by the
                Alaska Railroad    and considering      the fact that a study is now being made
                by the Commission to determine whether or not rate increases have the
                desired result    of increasing     revenues, we believe    that further investiga-
                tion of the matter by this Office at this time would merely duplicate               the
                work being done by the Commission.

                        With regard to your comment concerning            the use of subcontractors
                by the Alaska Railroad,        we have been advised by the Assistant               to the
                General Manager of the Alaska Railroad               that the railroad      has no subcon-
                tracts for hauling      services.        This official    has told us that they do have
                one agreement with the Mukluk Freight              Lines, Inc., for the delivery           on
                an irregular      basis of well-drilling        supplies,    equipment,     etc., from the
                railroad's     tracks to the Fairbanks International             AirFort.      This irregular
                service is performed       for a charge corresponding          to the portion        of the
                through rate applicable        to that part of the movement.              The governing
                tariff     is on file with and is subject to the regulations                of the Interstate
                Commerce Commission.


       We will   be happy to discuss   these matters       with     you or members of
your   staff.
                                               Sincerely          yours,

                                 Assistent     Comptroller  General
                                               of the United States

The Honorable     Mike Gravel
United States     Senate