First Big Recapture

The Interstate Commerce Commission last week moved again to enforce a section of U. S. law which it considers unenforceable. Section 15a of the Transportation Act of 1920 instructs the I. C. C. to "recapture" from all railroads, on the basis of their final valuations, one-half of all annual profits in excess of 6% of the road's investment. Funds thus assessed are to be pooled to help less prosperous carriers. In its last annual report the I. C. C., after a decade's experience with recapture, condemned Section 15a as "open to serious practical objections," difficult to administrate, productive of expensive litigation and of no benefit (TIME, Dec. 15). It asked Congress to repeal the provision. Because Congress failed to act, because therefore Section i$a is still the law of the land, the I. C. C. last week made its first final assessment thereunder against a Class I railroad. The Richmond, Fredericksburg & Potomac R. R. ("Washington-Richmond Line") was ordered to hand over $891,696.84 as its recapturable excess profit.*

First great test of the Commission's recapture power came in the famed case of the tiny St. Louis & O'Fallon Ry. (TIME. May 27, 1929). The Supreme Court voided the Commission's assessment against that Class II line on the ground that in fixing its valuation the Commission had not given due weight to reproduction costs at present price levels. An item might have cost a railroad $900 in 1913. The object might have been perfectly good and serviceable in 1923. But if the railroad were obliged to replace it, the railroad might have been obliged to pay $1,500 for a new one. In the R. F. & P. case, reproduction costs were thoroughly considered.

The I. C. C. valued the R. F. & P. at $29.400.000 for 1922, $30,100,000 for 1923. Section 15a allowed the road to earn $3,570,000 for those two years. But its books showed a profit of $5,353,393.68 or an excess of $1,783,393.68 above the legal rate of 6%. The Commission ordered it to turn back one-half of that amount--$891,696.84.

The R. F. & P. is only a n8-mi. bridge line, north & south across the Potomac. What promised to point up the R. F. & P. assessment into a test case of greater legal importance than the St. Louis & O'Fallon case, was the ownership of R. F. & P. Instead of a small independent carrier the I. C. C. was really tackling the six biggest and most powerful railroads in the East--Pennsylvania, Baltimore & Ohio, Chesapeake & Ohio, Atlantic Coast Line, Seaboard Air Line and Southern-- joint proprietors of the R. F. & P. and sole beneficiaries of its excess profits. Counting on the I. C. C.'s discouraged attitude on recapture, these major carriers were ready to fight to the legal limit for their prosperous little subsidiary.

*Against Norfolk & Western R. R. is pending a tentative I. C. C. recapture order for $15,849,344-

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