Washington, D. C. May 21, 1941

Mr. Secretary Service Corporation Utility Building Fort Wayne, Indiana

Dear Sir:

Thank you for your letter of January 9, 1941, enclosing your reply to our questionnaire of October 29, 1940. On the basis of the information supplied, and other data and information secured from the records of the Interstate Commerce Commission and other sources in the course of our investigation, it is my opinion that Indiana Service Corporation, at least in the operation of the North Division of its electric railway, was on August 29, 1935, and has been since that date, an "employer", as defined in the Railroad Retirement and Rail­ road Unemployment Insurance Acts.

In your reply to our questionnaire you state that, "Although the Company is not subject to the jurisdiction of the Interstate Com­ merce Commission, it has for the sake of uniformity of accounting pro­ cedure, followed largely, the Interstate Commerce Commission System of Accounts for electric railway companies". Your belief that the company is not subject to the Interstate Commerce Act apparently arises out of the fact that effective with the close of the year 1928 Indiana Service Corporation was excused by a division of the Interstate Commerce Com­ mission from filing further annual reports with the Commission. How­ ever, the company was excused from filing annual reports upon the representation to the Interstate Commerce Commission that its revenues from interstate freight during the year 1928 constituted a small pro­ portion of its total revenues, the principal part of which was derived from its electric power and light business. The Railroad Retirement Board, upon inquiry of the Commission, was informed in October 1934, in a letter from Commissioner that "this action on the part of the Commission did not relieve the company from under our jurisdic­ tion", The company has continued to be regarded by the Commission as subject to the Interstate Commerce Act, but merely has been relieved from compliance with certain of the provisions of the Act. As a common carrier by railroad subject to the Interstate Commerce Act, Indiana Service Corporation has continued to file freight and passenger tariffs, powers of attorney, and concurrences with the Commission.

Since Indiana Service Corporation is a carrier by railroad subject to Part I of the Interstate Commerce Act, it is an "employer" within the meaning of the Railroad Retirement and Railroad Unemployment Insurance Acts unless it falls within the electric railway exemption proviso in section 1(a) of the Acts, which provides in substance that the term "employer" shall not include any "street, or sub­ urban electric railway" unless it is operating as a part of a or the general steam-railroad system of transportation. In the operation of its North Division, Indiana Service Corporation is more than a street, interurban, or suburban electric railway and therefore does not fall within this exemption.

Indiana Service Corporation was incorporated January 15, 1920, originally as successor to the Fort Wayne and Northern Indiana Traction Company. Through acquisitions since 1920, the railway lines of Indiana Service Corporation eventually consisted of lines extending from Kendallville south through Garrett to Fort Wayne with a branch from Garrett to Waterloo, the street railway system in the city of Fort Wayne, lines extending south from Fort Wayne to Bluffton and thence southwest to Marion, and lines extending southwest from Fort Wayne through Peru to Lafayette. Local street railway service, and later, bus service, was also provided at some intermediate points. For many years Indiana Service Corporation and its predecessors, together with Indiana Railroad and its predecessors, had provided through service from Fort Wayne to via Peru, Logansport and Bluffton, the line of the Inter­ state Public Service Company (later known as Public Service Company of Indiana) providing through service south from Indianapolis to Louisville.

Control of Indiana Service Corporation was acquired in 1925 by the Insull interests through the Midland Utilities Company. The Central Indiana Power Company, an Insull affiliate, had controlled since 1922 the Northern Indiana Power Company, whose line of railroad, extending from Marion through Kokomo to Frankfort, had been acquired from the Indiana Railways and Light Company. In 1929 Midland United Company, which controlled Midland Utilities Company, acquired control of Public Service Company of Indiana. Integration of all these proper­ ties into one operating unit, known as the "Indiana Railroad System" followed the acquisition of control by the Insull interests in 1930, through purchase by the Indiana Railroad of the main line properties of the Union Traction Company of Indiana, whose lines formed the link between the previously unconnected properties already acquired. The system thus formed consisted of lines radiating from Indianapolis, in a network covering the northeast, central, and eastern portions of the State of Indiana and extending south to Louisville, Kentucky. In 1931, also, the line of the Terre Haute, Indianapolis and Eastern Traction Company, running both east and west of Indianapolis, was acquired and merged into Indiana Railroad. This latter acquisition combined under one management the four dominant and connected systems of electric railway in Indiana, comprising by far the major portion of the electric railway mileage of the state, together with certain smaller lines. As you indicated in a previous questionnaire, the interurban and city lines of Indiana Service Corporation were operated as a unit of, and were Mr. Secretary

coordinated into the "Indiana Railroad System". Following establish­ ment of unified management, certain paralleling, as well as some unprofitable lines were abandoned.

Indiana Railroad was placed in receivership in 1933, but operation of all these lines as the "Indiana Railroad System" seems to have continued until late in 1934. In that year, the Public Service Company of Indiana contemplated abandoning its line and Indiana Service Corporation contemplated abandonment of its lines south of Fort Wayne. The receiver of Indiana Railroad, in order to prevent the dismemberment of the through route from Fort Wayne to Louisville, which would have resulted from abandonment of these segments, undertook their operation under leases effective October 1, 1934. The lines so leased were oper­ ated by the receiver on August 29, 1935.

Perfection into unified management of the system of electric lines in 1930 and 1931 had been followed by negotiations with the steam railroads serving the same territory, as a result of which through rates and through routes with the steam railroads were established late in 1931. The extent to which the electric railway lines operated by Indiana Railroad dovetailed into the national system of railroad trans­ portation may be judged by the fact that, during a period described as typical in testimony in Electric Railway Docket No. 1 Indiana Railroad (transcript of testimony pp. 58-61) by representatives of the Indiana Railroad, it handled carload and less-than-carload freight originating at or destined to almost every state in the Union and Canada. Accord­ ingly, both as to its owned and leased lines, Indiana Railroad has been held to be an "employer" on the ground that it was more than a street, interurban, or suburban electric railway and on the further ground that its operations constituted it a part of the general steam-railroad system of transportation. Indiana Railroad, 229 I.C.C. 48 (1938).

After the lease to the receiver of the Indiana Railroad, the Indiana Service Corporation continued to operate its city lines in Fort Wayne, and the North Division, acquired in 1924 from the Fort Wayne and Northwestern Railway Company. The North Division of Indiana Service Corporation, although more of a branch of the main lines to the south and a feeder to and from Fort Wayne, performed substantially the same transportation functions as other component parts of the "Indiana Rail­ road System", such as the lines operated by the Indiana Railroad, which were found to constitute an "employer" entity. The extent to which the North Division has been divorced from the remainder of the system since the lease of 1934, and the extent to which the common management pre­ viously prevailing has persisted, is not clear.1/ However, whether

1/ Service continued for a number of years after the lease to be offered in the Official Guide jointly by Indiana Railroad and Indiana Service Corporation as the Indiana Railroad System with the same supervisory and management officials listed. Likewise, many tariffs have been issued jointly by the Indiana Railroad and Indiana Service Corporation. the North Division continued to be operated with Indiana Railroad as part of the same system, under common or separate ownership (See Excess Income of St. Louis and 0 1Fallon Ry. Co., 124 I.C.C. 3,10; St. Louis and 0 1Fallon Ry. Co. v. United States, 279 U.S. 461, 483; Missouri Pacific R. Co. v. Ault, 256 U.S. 554, 560; Hines v. Dahn, 267 Fed. 105, 109 (C.C.A. 8th), aff'd sub nom, Dahn v. Davis, 258 U.S. 421; Deficit Settlement With Cripple Creek and Colorado Springs Railroad, 90 I.C.C. 271, 273, 274) need not be considered here, since the facts clearly show that the North Division has been in itself more than a street, interurban, or suburban electric railway and, therefore, not within the exemption proviso in section 1(a).

On August 29, 1935, the North Division of Indiana Service Corporation consisted of the line from Fort Wayne through Garrett to Kendallville, about 31.5 miles, and the branch line from Garrett to Waterloo, about 9.8 miles. Early in 1937 the lines from Garrett to Kendallville and from Garrett to Waterloo, about twenty-one miles in all, were abandoned, and passenger service on the North Division dis­ continued. Today the North Division of Indiana Service Corporation consists of a line from Fort Wayne to Garrett, 20.3 miles long. At several points, located in Fort Wayne and along the line north of Fort Wayne, connections are maintained with steam railroads and facil­ ities are available for transfer of carload shipments from steam rail­ roads. At Garrett transfer of less-than-carload freight with The Baltimore and Ohio Railroad is effected. In addition, a small amount of freight and passenger business has been interchanged in Fort Wayne with Indiana Railroad. Switching is performed by India.na Service Corporation in Fort Wayne between tracks of the New York Central at Spy Run Yards, the Lake Erie and Fort Wayne and the New York, Chicago and St. Louis at McKinley Yards, on the one hand, and various industries located in the city of Fort Wayne on the other. Since equipment of Indiana Service Corporation is not accepted by the steam railroads in interchange, all of the shipments received from connecting steam car­ riers with the exception of the less-than-carload traffic handled in connection with The Baltimore and Ohio Railroad at Garrett are moved by the Indiana Service in steam railroad cars.

According to figures supplied by you, revenue from freight and switching has formed an important part of the total revenue of this line since 1932, and since 1954 the greater part of the revenue has represented earnings from freight and switching service. Since the discontinuance of passenger service early in 1937, all the revenue has been derived from freight and switching. It appears that at least since 1934, the three main functions to which the North Division has been devoted have been the transportation of coal used by Indiana Service Corporation at its generating plant in Fort Wayne, the handling of freight interchanged with connecting steam railroads, and, until 1937, the movement of local passenger traffic. In addition, the line has furnished local freight service and has carried passengers traveling on interline tickets issued by other electric lines. The passenger traffic on the North Division has consisted largely of local traffic, the revenues of which, from October 1, 1934 to February 14, 1937, have averaged 89.05 per cent of passenger revenue. Interline revenues have formed the remaining passenger revenues. It does not appear from the information furnished whether the movement of company coal is the prin­ cipal freight service performed, but its dominance or subservience is unimportant since you have indicated and records of the Interstate Commerce Commission reveal that commercial freight is also handled under tariffs filed with the Interstate Commerce Commission at points at which company coal is received. Under such circumstances Indiana Service Corporation is a common carrier by virtue of its transportation services rendered to the public even though it might be found that most of its traffic is its own and that only a small part is carried for others. Compare Tap Line Cases 234 U.S. 1, 24 (1913); Decatur Naviga­ tion Co. v. Louisville & Nashville R.R. Co., 31 I.C.C. 281, 285 (1914); Empire Steel and Iron Co. v. Director General, 56 I.C.C. 158, 163 (1919).

Both in the service it holds itself out to perform for the public and in the business it actually conducts, Indiana Service Cor­ poration is far from a merely local railroad facility. On August 29, 1935, it was a party to 269 freight tariffs, of which 246 applied on interstate shipments, and to 14 passenger tariffs, of which 9 applied on interstate movements. Under its freight tariffs Indiana Service Corporation undertakes to originate shipments destined to 36 states and Canada and to participate, as terminal or intermediate carrier, in shipments originating in 44 states and Canada. The territory through which these rates apply covers all but three states of the Union. The service thus offered to the public and the obligations thus assumed are too far reaching in character to be regarded as a typical local interurban service. And it appears from your reply to our question­ naire that the bulk of the traffic of Indiana Service Corporation generally originates at, or is destined to, points in such widely separated regions and states as Alabama, Arkansas and Louisiana, Wis­ consin, Michigan, Illinois, Kentucky, Indiana, Ohio, West Virginia, Virginia, Pennsylvania and New York, and Iov/a, Missouri, Idaho, Oregon and Washington. The commercial freight handled by the company has included such commodities as coal, poles, lumber, cement, syrup, sugar, malt, hops, barley, dry grain, flour, bottles, soda ash, alum, lime, chlorine, carbon and plaster, in addition to various commodities handled in less-than-carload lots.

Since October 1, 1934, freight interchanged with connecting steam railroads has averaged over 81 per cent of the total tonnage handled by Indiana Service Corporation and has accounted for over 89 per cent of the freight revenues of the North Division. Since 1936 this interchanged freight has become progressively more Important than y -6- Mr. I, Secretary

local freight, having accounted for 93, 92, 97.05, and 96.04 per cent of the total freight revenue during the years 1937, 1938, 1939, and the first nine months of 1940, although having amounted to only 83, 70, 88.99, and 85.99 per cent of the total tonnage during the same periods. During the years 1934, 1935, and 1936, when both freight and passenger service were maintained, the freight business increased steadily. Revenue from freight and switching during those years accounted for more than 45, 51, and 53 per cent of the total revenue from transpor­ tation operations on the North Division. In 1937, during the early part of which passenger service was discontinued, freight and passenger revenue comprised over 89 per cent of the total, and since 1937 all revenue has been derived from freight and switching.2/

It is quite apparent that Indiana Service Corporation, as an electric railway engaged in the general transportation of freight freely interchanged with steam railroads, the greater portion of which is handled in interstate commerce under joint rates with the steam railroads, has more of the characteristics of a commercial railroad operated by electric power than of an interurban as that term is used in the exemption proviso in section 1(a) of the Railroad Retirement and Railroad Unemployment Insurance Acts. Texas Electric Railway 208 I.C.C. 193, 202 (1935), review by injunction proceedings dismissed, Texas Electric Railway Co. v. Eastus, 25 F. Supp. 825 (N.D. Tex. 1938), affirmed by the Supreme Court without opinion 308 U.S. 512 (1939); Indiana Railroad 229 I.C.C. 48, 55. As stated by the Interstate Com­ merce Commission in the Texas Electric case (p.202) holding that company not to be a street, interurban or suburban electric railway within an identical provision in the Railway Labor Act;

2/ Comparative figures supplied by Indiana Service Corporation showing the revenues attributable to passenger service, freight and switch­ ing service and to total transportation operations are as follows:

Passenger Freight Switching Total Revenue From Revenue Revenue Revenue Transportation

1933 $21,402 $21,145 $4,375 $49,315 1934 28,637 21,247 4,784 56,986 1935 29,099 31,820 3,153 66,488 1936 33,965 40,183 2,717 79,865 1937 4,019 36,950 1,737 43,023 1938 ------26,219 1,913 28,132 1939 —-— 29,407 4,843 34,051 1940(9 mos.)— 28,506 4,712 33,218 "The Commission's views as to what constitutes an interurban were stated in Rules for Testing Other Than Steam Power Locomotives, supra. Those views should not be lightly departed from after Congress has authorized the Commission to determine the status of electric railways under a similar exemption pro­ vision in an Act not otherwise administered by us. In harmony with that and similar decisions, we are of the opinion that an electric railway which is engaged in the general transportation of freight, whether the revenue therefrom is greater or less than its passenger revenue, which handles the bulk of such freight in standard equipment similar to that used by the steam railroads, which freely interchanges the same with the steam railroads for transportation to or from points on their lines, a considerable portion thereof being handled in interstate or foreign commerce, and which participates in joint rates with the steam railroads for interstate transportation, has more of the char­ acteristics of a commercial railroad operated by electric power than of an interurban as that term is used in the exemption provision under considera­ tion. Of course, there are many other circumstances and conditions which may have a bearing on the question, and some electric railways are of such an unusual character that their status might depend on other things, but we believe the factors referred to are generally the most important and should be given great weight where all of them exist together."

And as stated by the Commission in the Indiana Railroad case (p.55):

"In Texas Electric Ry., supra, there are certain characteristics set forth which are usually present for electric railways that are more than . The Indiana possesses all of the characteristics therein set forth except possibly the one specifying that such railways handle the bulk of their freight in standard equipment similar to that used by the steam railroads. However, in the handling of carload freight the steam railroad cars used constituted about 44 to 62 per cent of the total number of cars used. Moreover, as indi­ cated in Texas Electric Ry., supra, it is not necessary that a railway possess all of the characteristics set forth therein."

The principal business of Indiana. Service Corporation has been its electric power, water, and gas business. And in addition to its North Division, Indiana Service Corporation operates a street rail­ way and bus service in the city of Fort Wayne. On the basis of the ✓ Secretary

information you have submitted, the latter service appears to be a "street electric railway", within the meaning of the exemption proviso. Thus, only local and no interline fares are honored on the city lines, and we have no definite evidence that operation of the city system is coordinated with that of the North Division. However, the inclusion of the North Division as an "employer" under the Railroad Retirement and Railroad Unemployment Insurance Acts would necessarily result in the inclusion of the street railway lines and of any other enterprise carried on by the Corporation which does not represent nor actually constitute in itself an enterprise identifiable and separable from the North Division. Section 202.03 of the Regulations under the Railroad Retirement Act (4 Federal Register 1478) provides:

"With respect to any company or person prin­ cipally engaged in business other than carrier business, but which, in addition to such principal business, engages in some carrier business, the Board will require submission of information per­ taining to the history and all operations of such company or person with a view to determining whether some identifiable and separable enterprise conducted by the person or company is to be considered to be the employer. The determination will be made in the light of considerations such as the following:

"(a) the primary purpose of the company or person on and since the date it was established; (b) the functional dominance or subservience of its carrier business in relation to its noncarrier business; (c) the amount of its carrier business and the ratio of such business to its entire business; (d) whether its carrier business is a separate and distinct enterprise.

"In the event that the employer is found to be an aggregate of persons or legal entities or less than the whole of a legal entity or a person operating in only one of several capacities, then the unit or units com­ petent to assume legal obligations shall be responsible for the discharge of the duties of the employer."

It is apparent from the information you have submitted, such as the estimated values of the various properties and the great pre­ ponderance of nonrailway revenues, especially in later years, over railway revenues, that the electric railway is subservient to the larger and more important electric power, gas, and water enterprise of Indiana Service Corporation. It is apparent, also, that the electric e power, gas, and water business is susceptible of segregation for pur­ poses of the Retirement and Unemployment Insurance Acts by just such tests as are suggested in the foregoing regulation. While you say that the "railway business" (the North Division and the city lines) "is not conducted as a separate and distinct enterprise" and cite in support the facts that no complete segregation of property by classes of utilities has been made upon the corporation's books, that certain facilities of the company are used jointly in its railway and nonrail­ way operations, that the same mortgage indentures cover both railway and nonrailway property, and that certain directors, officers, accounting and general office personnel perform duties related to the conduct of both the railway and nonrailway business, you do furnish other informa­ tion which affords a sufficient basis for regarding the nonrailway operations as separable and clearly identifiable. Thus you state that the accounting practices of the corporation segregate the railway revenues and expenses from the electric, gas, and water revenues and expenses; that the uniform system of accounts for electric railways prescribed by the Interstate Commerce Commission is followed for the railway business, while the system of accounts followed for the elec­ tric power, water, and gas operations is that prescribed by the Public Utilities Commission of Indiana for such utilities. Finally, separate pay rolls are maintained for those employees engaged in railway opera­ tions and those engaged in electric, gas, and water operations, and you are able to state for each year the number of railway and nonrailway employees since 1952. Those individuals who are covered by the Acts may thus be definitely identified.

It is not apparent from the information furnished by you whether sufficient factors are present to warrant a further segrega­ tion of the city lines from the North Division. If you believe that there is a basis upon which the city lines may be segregated from the North Division, please submit the data upon which you believe such a segregation may be made.

My conclusion is, therefore, that Indiana Service Corporation, at least with respect to the operation of its North Division, was on August 29, 1955, and has been since then more than a street, interurban, or suburban electric railway, and that it was on August 29, 1955, and has been since then an "employer" as defined in the Railroad Retirement and Railroad Unemployment Insurance Acts. Accordingly service to Indiana Service Corporation in the operation of all its electric rail­ way lines, with the exception of its Fort Wayne city lines, is credit­ able from January 15, 1920, the date of the company's incorporation, to date. Unless the city lines in Fort Wayne constitute a separable and identifiable enterprise, service for the city lines and compensation therefor must also be held creditable under the Acts. My opinion on this question, however, will be reserved until the receipt from you of further information thereon. -10- Mr. Secretary

This ruling that Indiana Service Corporation is an "employer" under the Acts with respect to the North Division will be made final by the Board if you will confirm the acquiescence of Indiana Service Cor­ poration in this ruling. Concurrence by the company will avoid the necessity of a proceeding before the Interstate Commerce Commission for a determination pursuant to section 1(a) of the Acts.

We thank you for your cooperation in this matter, and would appreciate being informed whether the company concurs in this opinion as soon as possible. You may furnish information with respect to the coverage under the Acts of the city lines in Fort Wayne in a subsequent communication.

Very truly yours,

General Counsel