Junction, 4.97 miles, and (2) to acquire and operate the narrow-gage line of the C. & S. extending from Sheridan Junction to Leadville, 144.82 miles, together with 67.03 miles of branches, a total of 211.85 miles of railroad, in the counties previously mentioned. A hearing upon these proposals was held for us by the Public Utilities Commission of Colorado. The State of Colorado, Park County, the County Commissioners of Lake County, the South Park Hay Growers Association, and the Climax Molybdenum Company, oppose both applications, with certain qualifications respecting the proposal of the D., L. & A. The Colorado Mining Association favors that application but only on certain conditions. The C. & S. favors the granting of one application or the other. Both applications will be dealt with in this report.

The narrow-gage lines covered by the applications were built, with some exception, between 1878 and 1884, during a period of great mining activity. They were sold at foreclosure in 1889 and again in 1898, when they came into the possession of the C. & S. In September 1928, the C. & S. applied for permission to abandon the part of the properties west of Waterton, comprising 185.05 miles of road. It offered to give this mileage, or any part thereof, to any local interests or communities that might wish to operate it, together with such rolling stock used thereon as might be necessary for continued operation, and to allow the operator entry into Denver.

Our report in the proceedings upon the C. & S. application, Colorado & S. Ry. Co. Abandonment, 166 I.C.C. 470, contains a full description of the railroad, the country traversed, and the industries served. It states that every effort apparently had been made to keep the cost of operation low, but suggested further economies in operation and the possibility of securing reductions in taxes. In our conclusions we said:

The record before us, so far as it relates to existing operations, would justify the issuance of the certificate sought. It shows continuing losses in large amounts for many years from the operation of the line in question. Operations at the cost of so serious a burden upon interstate commerce can not be expected to be continued indefinitely. We must, however, consider the needs of the communities and interests served and their showing as to future prospects of traffic for the railroad. Although, as indicated herein, the testimony as to those prospects is conflicting, we are sufficiently impressed with the representations of the protestants to afford an opportunity to test their predictions.

Accordingly, on June 2, 1930, the application was denied, but without prejudice to its renewal after 36 months if the C. & S. could then show that the situation with respect to earnings had not materially improved.

During the five years 1923-27 the freight traffic of the South Park lines remained fairly constant, averaging 103,310 tons a year. In each of the next 4 years 11 months ended November 30, 1932, in order, the freight movements amounted to 94,786, 93,834, 87,525, 69,756, and 83,881 tons, or an average of 87,413 tons a year. In 1932 there was a notable increase in ore shipments and some increase in ice, but the volume of most other commodities fell off. One of the principal ore shippers is the American mine at Alma, which has usually shipped to a smelter at Leadville, but which, since September 1932, has trucked its ore to Divide because the Leadville smelter could not take it. The record does not show whether rail movement from this mine will be resumed. The recent heavy decline in rail shipments of timber and hay is attributed chiefly to the use of trucks, but it is admitted that less of these commodities is being shipped.

During the eight years 1920-27, the annual operating deficits of the lines averaged $226,479 before taxes, or $339,170 after taxes. For each of the years 1928-31, and 11 months of 1932, in order, the results of operation were as follows: Revenues $338,968, $328,800, $298,101. $238,240, $264,274; expenses $504,756, $441,955, $445,991, $340,813, $292,758; net revenue from railway operation (deficit) $165,788, $113,155, $147,890, $102,573, $28,484; taxes $146,386, $147,218, $141,398, 141,665, $112,860; and net railway operating income (deficit) $312,174, $260,373, $289,288, $244,238, $141,374.

The C. & S. operates a triweekly passenger-train service between Denver and Leadville. The train usually consists of a partitioned coach and a combination mail-and-baggage car. At Como it connects with a truck that carries express and mail to and from Fairplay and Alma. The frequency of freight service is not clearly shown except that there are two trains a week each way on the branch from Como to Alma.

The C. & S. extension and refunding mortgage, covering the entire system, secures $28,000,000 of bonds which mature in 1935. In its original offer the C. & S. proposed to procure the release of the lines which it desired to abandon from the lien of this mortgage, stating on brief that it had assurance from the trustee that this would be arranged if abandonment were authorized and the company's offer to other interests accepted. After the lapse of three years the C. & S. finds itself unable to discharge the mortgage or give any assurance that the trustee will release it as to the lines in question, but promises to try to obtain such a release. The C. & S. hopes that a release can be obtained because it would be relieved of losses from operation of the lines.

The D. I. S. was incorporated November 15, 1930, with an authorized capital stock of $3,000,000, for the purpose of taking the

South Park lines over for operation. It is stated that all this stock, except directors' qualifying shares, has been issued to the W. C. Johnstone Investment Company, in return for which the latter is obligated to acquire the lines for the D. I. & S., and that the investment company has paid all moneys for service and cruising, as well as incorporation and organization expenses, and has paid and will pay all expenses incident to the acquisition of the railroad properties for the D. I. & S. The stock was issued without authority from us under section 20a of the Interstate Commerce Act and is therefore void.

It was testified that since July 1928 the investment company has spent about $67,000 in investigating the possibilities of the lines and the resources of the territory which they serve. On March 12, 1929, Johnstone obtained from the C. & S. a written offer of a quitclaim deed to the lines from Waterton to Leadville, with branches, subject to the action of the trustee. The deed would include equipment and the C. & S. further agreed to grant trackage rights from Waterton to South Park Junction on stated terms. The offer was made subject to certain conditions precedent intended to assure the new company available capital of $500,000, of which $200,000 in cash was to be deposited in escrow before the company was organized and the remainder might be raised by a bond issue. It was further stipulated that Johnstone and his associates must develop an operating program and a financial showing approved by the principal interests that had opposed abandonment of the lines, and satisfactory to the C. & S. The offer was subject also to approval by public authorities and was to hold good only until April 1, 1929, unless extended.

After obtaining this offer, Johnstone applied to Peabody, Houghteling & Company for a loan of $750,000, which was to be used to put the road in condition. By the time the report in the abandonment case was made, it is stated, it had become impossible to accomplish such financing; but estimates of traffic and earnings made in connection with the efforts to obtain the loan have been submitted in the record as bearing upon the results that may be expected under independent operation.

The D. I. & S. now relies on much new traffic expected to be produced by affiliated corporations organized by Johnstone to exploit the resources of the territory. The Park County Coal & Development Company, a subsidiary of the investment company, has obtained options, without cost, on 76,000 acres of mineral and agricultural land. In this field 72,000,000 tons of coal has been proved by drilling and the company expects to mine 4,000 tons a day near Como. The quantity of minable coal does not appear. The devel

opment company would also exploit the timber and silica resources of the territory and manufacture fertilizer. A sawmill and a fertilizer factory would be established at Como, which would become the center of the development company's industries. It is estimated that the industries to be established at once would give the railroad in the first year of independent operation about 5,000 cars of coal, 800 cars of lumber, and 500 cars of crossties, yielding additional revenue of about $372,000. It is claimed that this additional traffic could be doubled each year for the succeeding five years until the industries reach their maximum production. For the first year gross revenue and operating expenses are estimated at $700,000 and $371,000 respectively.

All the projects discussed appear to depend on Johnstone alone. Control of the railroad is the keystone of his plan. He holds that, as an independent line, the railroad would require no new financing, and he is unwilling to accept a certificate conditioned on his proving ability to finance it, or otherwise. He expects a clear title. Johnstone now expects to finance his several development projects through loans from governmental agencies.

The D. I. & S. submits a proposed contract under which it would take over the lines covered by its application and the equipment to operate them. This proposed contract, which was drawn in the course of negotiations with the C. & S., but was never executed, would convey substantially all the road and equipment covered by an agreement between the C. & S. and Victor A. Miller, mentioned later, together with the line between Sheridan Junction and South Park, about 3 miles.

On December 16, 1929, Miller, a lawyer of Denver without previous railroad experience, was appointed receiver of the Rio Grande Southern Railway Company, hereinafter called the R. G. S. His success in keeping the R. G. S. properties in operation, and his belief in the economy of operating the South Park lines as an independent railroad, led him to negotiate a contract to acquire these lines from the C. & S. for the D., L. & A., subsequently organized. This contract, dated July 14, 1932, expresses the offer of the C. & S. reduced to concrete form, and would be the basis of its agreement with any other applicant to whom we might grant a certificate, although minor changes might be considered. The protestants suggest that, as now drawn, the contract would make the grantee liable for payment of the C. & S. bonds, but both parties to the agreement state that this is not intended. In view of the conclusions herein reached, further discussion of the contract is unnecessary.

Pursuant to its provisions Miller organized the D., L. & A. with an authorized capital stock consisting of 10,000 no-par shares, of

which 9,000 shares are to be issued to Miller and 600 to members of his family. No investment would be made except by Miller. No stock has been issued by this corporation and the necessary application under section 20a has not been filed with us. On receipt of a certificate, Miller would turn over to the D., L. & A. $25,000 in cash, or its equivalent, for working capital, and provide funds for necessary capital expenditures, now estimated at $17,904, including $4,000 for repair shops at Como. This small initial capital is defended on the ground that it would be sufficient; that the D., L. & A. would be a close corporation, with the backing of the Miller Estate, a partnership, which will lend Miller personally amounts necessary to his project; and that it is impossible to sell securities now except on ruinous terms. The applicant estimates that it will spend $175,000 for additions to road and equipment during the first five years of operation. Miller offers to furnish a bond of $100,000, executed by himself and some members of his family, and by the Miller Estate, to insure operation of the line for five years unless prevented by one of a number of specified contingencies. Miller believes that the South Park lines will be released from the C. & S. mortgage because it would be in the interest of the bondholders to release them and because the C. & S. has a legal right to demand a release and has promised to do so. He is willing for us to prescribe any conditions we see fit with respect to the mortgage and to have our certificate require that he must provide the necessary equipment to operate the railroad, whatever it may cost.

Miller testified that a small narrow-gage railroad cannot be operated economically as part of a large standard-gage system, the organization, equipment, and methods of which are not suited to that purpose, and that such small lines should be operated flexibly, as an ordinary business man would operate a small business. A detailed estimate is submitted to show that the D., L. & A. could have operated the South Park lines with some profit in 1931. It is assumed that it would have earned the same gross revenue shown by the C. & S., $238,241, subject to a deduction for revenues of the Denver Terminal. Operating expenses, excluding the terminal, are estimated at $174,019. As stated by the C. & S., actual expenses were $340,813, including $17,367 assigned to the terminal. Allowing $30,000 for taxes and deducting $7,771 on account of the Denver Terminal revenues and other items, net railway operating income is estimated at $11,878. This estimate is made in the light of results achieved on the R. G. S. In 1931, the cost of maintenance of way and structures on the South Park lines was approximately $401 a mile, and $280 a mile on the R. G. S. For the hypothetical operation $264 a mile is allowed. The cost of maintaining equipment was