There have been referred to the Commission by the Interstate Commerce Commission applications for certificates of public convenience and necessity for the construction of lines as follows:

Pacific Southwestern Railroad Company.

The Pacific Southwestern Railroad Company in Finance Docket No. 2694 applied to the Interstate Commerce Commission for authority to construct a railroad from Lompoc to White Hills, both in Santa Barbara County. This application was investigated by the engineers of the Commission in connection with this proceeding.

Southern Pacific Branch southeasterly from Calipatria.

Southern Pacific Company in Finance Docket No. 2798 applied to the Interstate Commerce Commission for a certificate of public convenience and necessity to construct and operate a line 21.3 miles long from Calipatria to a point 7 miles north of Holtville, Imperial County. From an investigation made by the transportation division it was found that the extension would redound to the benefit of the public and the Railroad Commission thereupon recommended that the extension be authorized. The Interstate Commerce Commission later granted this application.

Southern Pacific Magunden-Arvin Branch.

The Southern Pacific in Finance Docket No. 2819 requested the Interstate Commerce Commission for authority to construct a branch line from Magunden north a distance of 17.6 miles to a point near Arvin, together with certain spur tracks and branch lines. It was estimated by the company that the construction would cost $506,423 exclusive of equipment and the line would serve a considerable area of fruit and garden lands now being developed. Recommendation was made after investigation that the extension be authorized.

Construction of Santa Fe to Los Angeles Harbor.

The Santa Fe and Los Angeles Harbor Railway, a subsidiary of the Santa Fe Company, in Finance Docket No. 2434 requested the Interstate Commerce Commission for authority to construct a new line of railroad from El Segundo to Los Angeles Harbor. The main purpose of the construction was to connect the Santa Fe Company's system with the harbor of Los Angeles by its own tracks. This application involved an additional survey to ascertain the advisability of constructing the new line from an operative standpoint and in connection with large number of crossings proposed of important thoroughfares in Los Angeles County by the railroad. In cooperation with the chief engineer of the board of public utilities and the harbor engineer of Los Angeles, the chief engineer and transportation engineer of the Railroad Commission prepared a report on this matter which was submitted before the Interstate Commerce Commission. The grade crossing proceeding involving this extension was pending before this Commission at the close of the year.

Southern Pacific-Central Pacific Unmerger Proceeding.

As noted in last year's report, the Supreme Court of the United States. on May 29, 1922, rendered its decision directing the severance of the control of the Central Pacific Railway by Southern Pacific Company through stock ownership or lease. This decision was in a suit begun in 1914 by the Attorney General of the United States under the Sherman.

Anti-trust Act and was a somewhat similar proceeding to that in which the Union Pacific Railway Company was ordered to divest itself of the control of Southern Pacific Company.

On October 17, 1922, Southern Pacific Company made application to the Interstate Commerce Commission for an order authorizing the acquisition of the control of Central Pacific Railway Company under the provisions of the Transportation Act of 1920. It was contended that this act had superseded the Federal Anti-trust Act of June 2, 1890, known as the Sherman Anti-trust Act, as far as the control of one railroad by another was concerned.

Since this application was filed there commenced on the part of the Union Pacific Railroad an organized effort opposing the granting of the application and on the part of the Southern Pacific an effort to secure all the public support possible for granting the application. The efforts of these two contending interests resulted in a flood of propaganda almost unparalleled in the railroad history of the state. Particular efforts were made to secure the support of the associations of shippers and chambers of commerce in the form of resolutions endorsing either the retention of the control of the Central Pacific by the Southern Pacific or in favor of their separation. As a result of this the Commission was in receipt of hundreds of such resolutions and letters in addition to the verbal arguments of many committees representing the larger traffic associations. Following the receipt of this application the Engineering Department of this Commission made an extended investigation with particular reference to the effect in the State of California of the granting of the application and the Commission's chief engineer with its attorney proceeded to Washington for hearings before the Interstate Commerce Commission in November, 1923, where the former as a witness presented evidence on behalf of the Commission.

After the close of the hearings the Interstate Commerce Commission, in order to expedite final decision, requested the views of all parties regarding arrangements to be sanctioned and required, in case the decision was favorable to the acquisition of the control of the Central Pacific by the Southern Pacific, the terms and conditions that would safeguard all interests and suggested specific consideration to the authorization of such control to the following extent by the following means:

(a) By lease until December 31, 1984, subject to termination by order of this Commission, if and when found by this Commission to interfere with the consummation of its final plan of consolidation when promulgated under section 5 of the Interstate Commerce Act, as amended; and (b) By ownership of all of the issued and outstanding capital stock of the Central Pacific during the continuance of the lease subject to the following conditions:

First-The Southern Pacific shall join with the Union Pacific in maintaining via the lines of said companies between Omaha, Nebraska, and San Francisco Bay points, as parts of one connected continuous line, through passenger, mail, express and freight train service between San Francisco, or Oakland, California, and Chicago, Illinois, at least equal in every respect to that afforded by either with its connections between Los Angeles, California, or Portland, Oregon, and Chicago, Illinois.

Second-The Southern Pacific shall join with the Union Pacific in

fornia, and Omaha, Nebraska, as parts of one connected, continuous line, perishable freight train service from Roseville, California, to Chicago, Illinois, at least equal in point of time to that afforded by either with its connections from San Bernardino or Colton, California, to Chicago, Illinois.

Third-The Southern Pacific shall cooperate with the Union Pacific in the maintenance of train schedules under which neither shall discriminate as to time of service against the other in favor of any other connection through Ogden or Salt Lake City.

Fourth-The Southern Pacific shall, at the request of the Union Pacific, provide for the publication and maintenance of rates via the Central Pacific through Ogden between all Southern Pacific and Central Pacific points in California west of Banning, and Oregon on the one hand, and Colorado common points and points east thereof on the other, no higher than apply concurrently between these same points via any other route in which it participates. While the Commission may have no power to impose any conditions upon the Union Pacific in this proceeding, it is suggested that the same course should be pursued by the Union Pacific in connection with rates between the same points via its various routes. Fifth-The Southern Pacific shall cooperate with the Union Pacific to secure by active solicitation the routing of the maximum of freight traffic via Union Pacific and Central Pacific lines through the Missouri River and Ogden as parts of one connected continuous line between all points in California north of and including Caliente and Santa Margarita (including points in Oregon and the Klamath Falls Branch, Kirk and south) on the one hand, and points north and west of a line along the the northern boundaries of Oklahoma and Arkansas to the Mississippi River, thence via the Mississippi and Ohio rivers (but not including intermediate cities on the Ohio River) to Wheeling, West Virginia, thence north on a line drawn just east of Pittsburgh and West Virginia, thence north on a line drawn just east of Pittsburgh and Buffalo to Niagara Falls. We shall be glad to have the view of the interested parties upon the suggested plan.

After a review of the evidence the Commission (California Commission) advised the Interstate Commerce Commission as follows:

We conclude that the Interstate Commerce Commission will not hesitate to exercise its new far reaching powers and that in such exercise the Commission will be governed by the needs of the "public interest" in the sense that this term is used in the Transportation Act. Applying this test to that present proceeding, the merits of the case seem to us to permit only one answer:

No public benefit of any kind and character can possibly result by the separation of the Central Pacific lines from the Southern Pacific lines and by the creation of an independent competing carrier such as the Central Pacific could hope to become even in the most optimistic forecast of the final result of an attempted dissolution. As far as the State of California is concerned the result could be nothing but confusion, duplication and waste, a waste that in numerous ways would be bound to add to the burden to be carried by the people in freight and passenger rates. A separation could not, in the nature of things, be permanent and after a shorter or longer interim of uncertainty and waste, the Central Pacific would again, in accordance with economic laws, gravitate towards the one or the other of its natural alliances, the Southern Pacific or the Union Pacific.

Believing these views to be sound we earnestly urge upon the Interstate Commerce Commission the granting of the Southern Pacific application under such conditions as the Interstate Commerce Commission may deem proper to impose.

The terms and conditions quoted above were also approved.

The Interstate Commerce Commission in its decision dated February 6, 1923, allowed Southern Pacific Company to acquire control of the Central Pacific subject to certain conditions among which are the following:

(f) That the aforesaid lease shall contain a provision that the same shall become null and void and of no effect whenever this Commission shall find that the control, acquisition of which is herein approved and authorized, interferes with the consummation of the complete plan of consolidation adopted and published under the provisions of section 5 of the Interstate Commerce Act, as amended;

(g) That the control herein authorized by lease and stock ownership shall be held subject to termination by order of this Commission if and when found by this Commission to interfere with the consummation of its complete plan of consolidation under the provisions of section 5 of the Interstate Commerce Act and for this purpose the Commission reserves full jurisdiction over the case to make such order or orders as, after hearing, it may deem to be necessary and appropriate;

(h) That the Southern Pacific Company shall not voluntarily sell, pledge or otherwise dispose of the capital stock of the Central Pacific Railway Company or any part thereof without the consent of this Commission, except that any existing pledge of such stock may be ratified and confirmed;

(i) That this proceeding may be reopened at any time by order of the Commission either upon the initiative of the Commission or, in the discretion of the Commission, upon the motion of any person claiming an interest in the matter, for the purpose of making such orders as the Commission may deem necessary or appropriate supplementary to the present order.

CONSOLIDATION OF RAILROADS.

Reference is made in last year's report to proceedings instituted by the Interstate Commerce Commission in the matter of consolidation of railroads. The Interstate Commerce Act, to review briefly, provides that the Commission shall as soon as practicable prepare and adopt a plan for consolidation of the railway properties of the continental United States into a limited number of systems. In so doing, competition shall be preserved as fully as possible and wherever practicable the existing rates and channels of commerce shall be maintained. Cost of transportation as between competitive systems and as related to the values thereof, shall be as nearly the same as possible for the purpose of the employment of uniform rates in the movement of competitive traffic and, further, subject to the foregoing requirements, the competitive systems are to earn substantially the same rate of return on the value of their respective properties.

The act makes the states parties to these proceedings. Under these sections the Interstate Commerce Commission has prepared a tentative plan of consolidation and under Interstate Commerce Commission Docket No. 12964 "in the matter of consolidation of the railway properties of the United States into a limited number of systems," served this plan upon the states and the interested railroads.

After preliminary hearings in Washington the Interstate Commerce Commission set two hearings in California, one in San Francisco and one at Los Angeles.

This Commission asked a committee, consisting of its rate expert, attorney and chief engineer, to investigate the proposed plans of consolidation as far as California was concerned with a report of its findings. This report was prepared and it explained the situation and drew attention to the following matters of importance, which should have considera

(a) Flow of Traffic:

(The north and south traffic in California and between Oregon and Washington on the north and Arizona on the south through California is heavy and as important, if not more so, as the east and west through traffic. This fact emphasizes the importance of maintaining and strengthening the railroad transportation facilities for the California and Pacific coast local service as distinguished from the east and west through service.)

(b) Betterments and Improvements:

Other things being equal, the state is interested in favoring such consolidation as will most likely bring about, as early as necessary, the important improvements and betterments necessary to take care of California traffic and desirable in the upbuilding of the state. Among these improvements are:

1. The betterment of the Central Pacific by double-tracking and grade reduction through the Sierra Nevadas.

2. The broad-gauging of the Central Pacific from Mina, Nevada, to Owenyo and Keeler, California.

3. The grade reduction of the Central Pacific main line over the Siskiyous.

4. Double-tracking and grade reduction of Southern Pacific over Tehachapi mountains.

5. The development and upbuilding of the Northwestern Pacific, with a possible continuation beyond the Oregon boundary and a possible connection with the Portland main line.

6. The building of a facility on the Southern Pacific main line between Oakland and Sacramento to do away with the Benicia-Port Costa ferry operations.

7. Los Angeles terminal unification and grade crossing elimination. 8. The construction of an adequate passenger station in Sacramento (this improvement has been agreed to by the Southern Pacific).

9. The best development of the railroad facilities serving the Los Angeles harbor and between the harbor and the city of Los Angeles.

10. The creation of better terminal facilities for the Santa Fe on the east side of the San Francisco Bay and in San Francisco.

11. The best possible regulation and interchange of car supply throughout the state, especially the supply of lines now weak in this respect.

12. Necessary branch line construction.

13. There should be kept in mind the ultimate electrification of certain of the main lines, especially through the mountain sections.

This report was also presented at several conferences which the Commission called with representatives of shippers, chambers of commerce, trunk lines and short lines. At this time the issues narrowed down to the following points:

(1) Should the Central Pacific be consolidated with the Southern Pacific or some other system.

(2) Should the Western Pacific be consolidated with the Santa Fe or with some other system.

(3) Should the Northwestern Pacific,