Thursday, August 28, 2008

The Wenatchee Southern--The ICC Viewpoint--Part 5 Final



Submitted January 15, 1929. Decided February 5, 1929

Petition for further modification of certificate dated July 14, 1924, so as to extend the time within which construction thereby authorized is required to be completed, denied. Previous report, 90 1. C.C. 237.

A. N. Corbin for applicant.
Charles S. Albert for Great Northern Railway Company, protestant.
John O. Denney, James P. Neal, and O. R. Lonergan for Washington Department of' Public Works.


We issued in this proceeding on July 14, 1924, a certificate and order (1) authorizing the 'Wenatchee Southern Railway Company, hereinafter called the applicant, to construct a new line of railroad extending along the west shore of the Columbia River from Wenatchee to Beverly Junction, 53 miles, and from Hanford to a connection with the railroad of the Oregon-Washington Railroad & Navigation Company at a point about 5 miles west of Kennewick, 29 miles, all in Chelan, Kittitas, and Benton Counties, Wash., upon the express condition that construction of the line be begun on, or before January 1, 1925, and, be completed on or before December 31, 1926; and (2) granting permission to the applicant to retain for a period expiring not later than December 31, 1936, all its earnings derived from the proposed new construction, in excess of the amount provided in section 15a of the interstate commerce act, for such disposition as it might lawfully make of the same, also upon the express condition that construction of the line be completed on or before December 31, 1926. Facts of record upon which we found that construction of the line was required by public convenience and necessity are set forth in our previous report,' 90 I. C. C. 237.

Upon request of and for cause shown by the applicant, we subsequently modified the certificate of July 14, 1924, as follows: (a). By order dated December 2, 1924, extending the time for the beginning of construction from January 1, 1925, to July 1, 1925; (b) by, order dated July 1, 1925, further extending the time for beginning construction from July 1, 1925, to January 1, 1926; and (c) by supplemental order dated January 12, 1926, further extending the time for beginning construction from January 1, 1926, to July 1, 1926, and extending the time for completion of construction from December 31, 1926, to June 30, 1928., See 94 I. C. C. 673, 99 I. C. C. 349, and 105 I. C. C. 347.

On June 7_ 1926, a petition was filed in which the applicant prayed further extension of the time for beginning construction for a year and a half from July 1, 1926. The proceeding was reopened and assigned for further hearing at Wenatchee on July 28, 1926, but the order setting the hearing was vacated upon request of the applicant for leave to withdraw the petition and representations to the effect that the applicant had contracted for construction of the railroad and that construction work had been begun prior to July 1, 1926. Hence, there has been no alteration of our certificate as last modified to require completion of construction on or before June 30, 1928.

We are now called, upon to consider a petition filed on July 2, 1928, for further extension of the time for completion of the line for one year from July ,1, 1928. A, hearing was held at Seattle, Wash., on November 15, 1928. Counsel moved at the outset that an adjournment be taken for a period of six months in order to enable the applicant to submit a financial plan and to adduce such other evidence as it then might have. In support of the motion counsel testified that negotiations were pending with certain undisclosed parties for financial assistance, that these parties were engaged in investigating certain, unspecified phases of the matter, and that their decision to furnish or not furnish the necessary funds could be expected in a very short time-in later testimony fixed at not to exceed 60 days. A representative of the Washington Department of Public Works urged that the motion be granted on the ground that the proposed continuance would injure no one. A continuance was opposed by counsel for the Great Northern Railway Company, protestant herein. The motion was denied and the hearing proceeded to conclusion. The matter now stands submitted on

Under date of January 7, 1929, an officer and counsel joined in advice that the applicant had decided not to file a brief and suggested that if given until January 1, 1930, to obtain funds to complete the line, the applicant would be willing to have the certificate automatically canceled on the date mentioned if the applicant is unable to proceed at that time. In effect this suggestion proposes that the date for completion of the line be extended for some indefinite period from and beyond a date six months later than the time covered by the prayer of the pending petition. This suggestion can not be regarded as an amendment or the petition.

The protestant asks that the petition be denied and that the certificate originally issued be canceled and set aside.

The applicant's project includes about 81 miles of new line, estimated to cost approximately $3,600,000 without equipment, and 51 miles or trackage rights over two other railroads.

Work done in actual construction began on June 28, 1926, three days before the expiration of the time limit, and ceased at some date later in the same year. The work consisted of grading approximately 3,000 feet in the vicinity of Wenatchee and about' 6,000 feet at Beverly, and laying about 2,700 feet of track with light secondhand rails. The applicant secured rights of way covering about 58 per cent of the route proposed to be traversed and took options on about 25 per cent additional.
It was testified that the applicant has made expenditures and incurred obligations aggregating approximately $130,000, about half of which was for actual construction. The witness did not recall how the latter expenditures were divided, but in a letter dated September 12, 1928, the president of the' company advised us that the expenditures were as follows:

Engineering $28,550.71
Rights of way $19,151.40
Grading $15,464.96
Track $4,492.86

Total $67,659.99

The rails and ties have not been paid for. The remainder of the $130,000 was for organization and legal expenses, taxes, interest, etc. Expenditures since January 1, 1927, have amounted to approximately $1,500, all for office expense. One of the protestant's engineers estimated the cost of the work done at $16,250.

Based on the record made on prior hearings, we said in our original report, supra, page252:

“The applicant was incorporated with an authorized, capital stock of $50,000, all of which has been subscribed but not issued. Since the filing of the instant application the authorized capital stock ,has been, increased to $400,000.”

In the testimony now before, us it is stated that no steps have been taken to amend the applicant's charter so as to increase the amount of stock originally authorized.

The construction work was done under two successive contracts. The first was with the Railway Construction Company, which was, organized solely for the purposes of the contract. The contractor was required to furnish $10,000 to the applicant and arranged to have this sum advanced by a local bank on 90-day notes of the applicant. After advancing between $4,000 and $5,000, the bank declined to honor further checks drawn on the deposit because the applicant's assets were found to be poor. This contract was on a cost-plus basis.

Eventually the contract with the Railway Construction Company was canceled, and on December 3, 1926, a new contract to build the line was made with another company. This concern likewise was required to advance $10,000 for preliminary pay-roll construction costs on the applicant's promissory note for 90 days, with the privilege of extension for 180 days. The note, as extended, has matured and has not been paid. The contractor did not proceed with the work, but furnished experienced labor for employment under direction of the applicant's engineer. The second contract provided that the contractor should not be required to make any expenditures in excess of the funds available to the, applicant for repayment, of which fact the contractor was to be the sole judge.

The evidence shows that the applicant has never had any assurance of funds to build the line or any considerable part thereof, nor any contract with respect, to trackage rights over the line of railroad which would physically connect the two disjoined segments of line proposed to be constructed by the applicant. It is apparent that when the applicant began construction, three days before the expiration of the thrice-extended time limit, it had no funds to build the line nor any definite prospect of obtaining the necessary financial support. Until nearly two years after the work was begun, all the negotiations for financing the project, consuming several years, were conducted with one company. It is admitted that the project can not be financed locally.

Most of the right-of-way deeds have covenants for reversion of the land to the grantors at various times in case the line is not built, and apparently some of these limitations have already become effective. Application for rights of way across public lands was rejected on May 19, 1926, subject to the usual right of appeal. On August 4, 1926, the applicant was notified that since it had not availed itself of that right, the decision was final and the case closed. The applicant still has no map of definite location such as is required to obtain rights of way on Government lands.

The evidence shows that excepting the engineer the only person connected with the applicant having any experience in railway matters is the treasurer, who once held a clerical position with a railroad company.

It appears that the applicant did not learn definitely until about the end of May, 1928, that the concern with which it had been in negotiation for several years could not finance the project; that since that time effort has been exerted to interest other parties; and that between 30 and 45 days before the hearing an unnamed local resident claiming to represent Eastern financial interests, whose identity is not known to the applicant, made a proposal to have these interests undertake the financing. It is apprehended that the success of negotiations for financial assistance is prejudiced by doubt concerning retention of the certificate by the applicant.

The protestant contends that, in order to be able to make its plans, it should know where it stands and what traffic it must provide for, without the continuing threat of diversion of the traffic. It is further contended that the applicant, by failing to complete its line by July 1, 1928, has forfeited its certificate and is in the same position as if it had never had one; that the record shows laches and want of good faith in the applicant's conduct under the authority granted to it; and that since we decided the case in July, 1924, there have been important changes affecting the merits.

Thus, it was testified, the protestant, subsequent to the time mentioned, has made extensive improvements in its facilities, including, a new yard at Wenatchee; that the protestant has had no complaints as to its service at Wenatchee since 1923; and that in that year, the Western Fruit Express took over the protestant's refrigerator equipment, assumed the duty of supplying cars for the Wenatchee district, and has since fully satisfied all the traffic requirements of the Wenatchee Valley Traffic Association.

Shippers that produce or handle a large part of the outbound freight testified that since 1923 there has never been a shortage of cars and that the service performed by the protestant has been adequate and good. This testimony is not controverted. On behalf£ of the applicant it is conceded that the protestant is now serving the Wenatchee district as well as a railroad can.

In the period from 1914 to 1923, inclusive, the volume of apple shipments from the Wenatchee district almost tripled. The tonnage moving in 1923 has not been equaled in the four succeeding years. For the three years 1925, 1926, and 1927, the shipments averaged 16,480 cars per annum. Total claims paid on carload shipments of apples declined from $622,135.10 in 1920 and $408,557.71 in 1924 to $130,266.57 in 1927. In the 3-year period 1925-1927, claims paid for freezing or heater failures averaged approximately $61,000 per year.

The volume of fruit traffic alone originating in the territory expected to be served by the applicant warrants the assumption that the territory is not lacking in prosperity. Both from the standpoint of original financing and the standpoint of adequate earnings during the early period of operation, the hope of the applicant's project has been largely the support of the people and shippers of the territory represented to be in need of an additional railroad. Yet, after the expiration of more than eight years from the incorporation of the applicant in September, 1920, for the purpose of constructing and operating the railroad, efforts to attract the necessary initial capital have been ineffective. In view of all the circumstances, we can not escape the conclusion that there is little likelihood of a higher degree of success in enlisting the aid of investors whose chief concern in the project would be security of their funds and at least reasonably certain assurance of a satisfactory return thereon.

Whether or not detriment might result to any party from the grant of the extension prayed for, we are persuaded that little advantage would be gained by protracting this proceeding. We are unable to find that good cause has been shown for the extension of time sought by the applicant. It follows that the petition must be denied. Since it has already expired by limitation, it is unnecessary, if not improper for other reasons, that the certificate be canceled and set aside.

An appropriate order will be entered.



Entered February 5, 1929

A hearing and investigation of the matters and, things involved in the petition filed herein July2, 1928, having been had, and the commission having, on the date hereof, made and filed a supplemental report containing its findings of fact and conclusions thereon, which report is hereby referred to and made a part hereof:

It is ordered, That the petition filed in this proceeding on July 2, 1928, by the Wenatchee Southeri1 Railway Company, for further modification of the certificate and order issued herein on July 14,
1924, by extension of the time required for completion of construction of a proposed line of railroad in Chelan, Kittitas, and Benton Counties, Wash., be, and it is hereby, denied.