just and equitable divisions of joint rates between connecting carriers. It is the duty of common carrier pipelines establishing through routes to provide reasonable facilities for operation of the through routes and make reasonable rules and regulations with respect to their operation. The ICC can compel joint through rates if there is a connection between two lines.43 The ICA requires that all charges made for any service be just and reasonable and the Act prohibits unjust and unreasonable charges." Moreover, it is the duty of all common carrier pipelines to establish, observe and enforce just and reasonable rates, tariffs, regulations or practices, as well as just and reasonable classifications of property.15 Common carrier pipelines are prohibited from charging, demanding, collecting or receiving any special rate or rebate. Any such payment is an unjust discrimination and is unlawful.. Additionally, the Elkins Act also prohibits rebates and makes such conduct a misdemeanor and punishable by fine. 46 It is unlawful for any common carrier pipeline to make, give or cause any undue or unreasonable preference or advantage to any shipper.48 This section is the derivation of the ICC's power to order prorationing in the event demand exceeds capacity. The Act also requires that all common carriers afford all reasonable, proper and equal facilities for the interchange of traffic between their lines and connecting lines and do not discriminate in rates, fares and charges between such connecting lines.49 The Act makes it unlawful for a common carrier pipeline to charge more for a short haul than for a long haul; more commonly known as the short haul-long haul clause.50 Also, it is unlawful, except with ICC approval, for a common carrier pipeline to enter into any contract, agreement or combination with another common carrier for the pooling or division of traffic, or of service, or of gross or net earnings.51 It is required that all common carrier pipelines file tariffs with the ICC containing rates, fares, charges and all rules and regulations that a shipper must meet in order to use the pipeline for both single line shipments and joint line shipments.52 The Commission can conduct investigations and hearings upon the complaint of third parties 53 or on its own initiative.54 Violations of the ICA can be the subject of such proceedings before the Commission and are punishable by fines and imprisonment.55 The Commission also can order reparations for damages sustained by shippers due to ICA violations.56 ICA, section 1 (4), 49 U.S.C. section 1(4). 43 ICA, sections 4, 15; 49 U.S.C. sections 4, 15. 44 ICA, section 1(5): 49 U.S.C. section 1(5). 45 ICA, section 1(6); 49 U.S.C. section 1(6). 46 ICA. section 2; 49 U.S.C. section 2. 47 49 U.S.C. sections 41. 43. 48 ICA, section 3(1); 49 U.S. C. section 3(1). 49 ICA, section 3(4); 49 U.S.C. section 3(4). 50 ICA, section 4(1); 49 U.S.C. section 4 (1). 51 ICA, section 5(1); 49 U.S.C. section 5(1). 52 ICA, section 6; 49 U.S.C. section 6. 53 ICA, section 13(1); 49 U.S.C. section 13(1). 54 ICA, section 13(2): 49 U.S.C. section 13 (2). ICA, sections 6(10), 8-10, 16 and 41-43; 49 U.S.C. sections 6(10), 8-10, 16 and 41-43. 41-43. ICA, section 13(1); 49 U.S.C. 13 (1). One of the most important functions of the ICC is its power to issue orders setting rates, both single and joint." The Commission can suspend wholly filed rates up to seven months pending investigation.58 The ICC is empowered to conduct valuations of common carrier pipelines to determine a rate loss; with specific information required by the ICC to be filed at the proper time; and with pipelines following the uniform rules of accounts and rates of depreciation.59 Common carrier pipelines are not subject to the ICA's provisions regarding the requirement for certificates of public convenience and necessity prior to commencement of operations. Pipelines do not need permission to abandon or terminate service. The commodities clause of the ICA 60 does not apply to common carrier pipelines. Nor do provisions regarding the extension of credit 61 nor the provisions concerning merger, consolidation, common control or interlocking directorates.62 The ICC cannot order extension of lines nor can it order pipelines to provide facilities needed to provide adequate service. It has no power to order pipelines to provide facilities for storage, for terminal operations or for most other purposes.63 "Congress thus has left the oil-carrying pipelines of the country on a basis of self-regulation or industry regulation as to many of the details of their business operation to a very much greater extent than it has the other forms of transport agencies." 64 ICC Chairman Owen Clark, testifying on October 23, 1957 acknowledged the limited nature of ICC pipeline regulation. It was his view that the ICC was concerned only with rate questions. The only operating practice the ICC attempted to regulate was minimum tender requirements. As the discussion below indicates, Chairman Clark's view is entirely correct. D. Early Failures To Deal with the Problem The passage of the Hepburn Act was viewed as the panacea to the ills of the pipeline industry. Producers unable to get their crude oil into pipelines were thought to have been given the ability to ship their production through the newly proclaimed common carriers. But such was not to be the case. Although pipelines theoretically were common carriers, they were not so in fact. The barriers that confronted the producers prior to the passage of the Hepburn Act remained. The history of the oil industry, from the standpoint of monopolization and restraints on trade, essentially consists of a recital of the efforts to assure equal treatment in, and equal access to, transportation. With the advent of pipeline transportation, abuse of powers, and predatory actions by the companies that owned the pipelines resulted in hardships throughout the petroleum industry. These conditions resulted in demands that the evils be cor ICA sections 15 (1), (3), (6); 49 U.S.C. sections 51 (1), (3), (6). 58 ICA, section 15(7): 49 U.S.C. section 15 (7). 50 ICA, section 19: 49 U.S.C. section 19. ICA, section 1(8): 49 U.S.C. section 1(8). 62 ICA, section 5; 49 U.S.C. section 5. 63 Consumer Energy Act, Stafford testimony at 1266. 4 ICC Commissioner Clyde B. Atchison, Nov. 9, 1948; in Consent Decree report at 245. rected by the enactment of legislation that would assure equal treatment among shippers. To this end, in 1906, in the Hepburn Act, Congress amended the Interstate Commerce Act to declare oil pipelines to be common carriers subject to its provisions, particularly the prohibitions in the Elkins Act against the payment of rebates. The Elkins Act and the Hepburn Act, however, did not bring about equality among pipeline users or eliminate the advantages enjoyed by the companies that owned the pipelines. The pipelines continued, for the most part, to be operated as private carriers for their owners and as plant facilities of the refineries to which they connected.65 66 The primary reason that independent producers found no relief was the poor record of the ICC. While the Hepburn Act was passed in 1906, it was not until 1911 that the ICC started proceedings to establish the Commission's authority and jurisdiction. The Commission conducted hearings, and over the industry's strenuous objections, it ordered the interstate pipelines to publish schedules of rates and charges and to operate as common carriers. In 1914 the Supreme Court upheld this order when it rejected the industry contention that the Hepburn Act was unconstitutional because the requirement to operate as common carriers was the taking of property without due process of law." 68 Thus the ICC was tied up in litigation until 1914 when it finally determined the extent of its jurisdiction. But even with this determination, the ICC showed no disposition to deal with pipelines and take any initiative in pipeline matters, especially rate matters. The rates and tender requirements filed were so high that nonowner shippers found it virtually impossible to use the lines.70 69 The ICC was preoccupied during this period with railroad problems. After all, it was the scandalous operation of the railroads that brought about the Hepburn Act in the first place and the Hepburn Act merely gave the ICC the power to act upon complaint, not upon its own initiative. It was not until the Mann-Elkins Act of June 18, 1910 that the ICC was given the power to suspend rates on its own initiative and investigate them." Moreover, the ICC was still probing its powers over railroad rates.72 With its attention focused on the railroads and with its energies going towards implementation of the Valuation Act Consent Decree report at 294-95. Harmon at 122. In the matter of Pipe Lines, 24 ICC 1 (1912). The Pipe Line Cases, 234 Ú.S. 548 (1914); this case has a brief summary of the tactics used by Standard Oil to gain control over the industry. The following conclusion is worth reiterating to indicate the general understanding of the problem: Availing itself of its monopoly of the means of transportation the Standard Oil Company refused through its subordinates to carry any oil unless the same was sold to it or to them and through them to it on terms more or less dictated by itself. In this way it made itself the master of the fields without the necessiy of owning them and carried across half the continent a great subject of international commerce coming from many owners but, by the duress of which the Standard Oil Company was master, carrying it all as its own. [234 U.S. at 559.] The Pine Lines cases carved out one exception to the general application of common carrier principles to interstate pipelines, known as the Uncle Sam exception (due to its application to the Uncle Sam Oil Company) which did not apply the Hepburn Act to a company-owned pipeline moving oil from its own wells across a state line to its own refinery for its own use. [234 U.S. at 562.] Johnson at 465. 70 Harmon at 122: Prewitt at 178. Hoogenboom at 60. 76 74 of 1913 73 and the Transportation Act of 1920, the ICC did no more than prescribe routine administrative requirements for pipeline companies subject to its jurisdiction.75 The ICC assumed pipeline rates were reasonable unless challenged. And although some complaints did trickle in, the Commission pursued a policy of avoidance of pipeline problems." Again, the major reason for the lack of complaints was that few nonowners were able to use the pipelines. Thus unlike the railroad situation where hundreds and eventually thousands of complaints poured in; 78 in the pipeline area few complaints were filed.79 During the entire 20-year period between 1914 and 1934, the ICC considered only two cases, both arising from the persistent complaints of the Brundred Brothers who wanted to ship crude oil from the MidContinent fields to Pennsylvania. After hearing the cases, the ICC ruled that the rates charged by the Prairie pipeline were reasonable, since the ICC had no basis upon which to judge the reasonableness of the rates and that the rates were not out of line with other pipeline rates. The tender requirement was reduced from 100,000 barrels to 10,000 barrels, but only for the shipments requested by Brundred; no general reduction was ordered. The case had no general application to the industry and had little or no impact upon the operations of pipelines in general.80 It was not until 1934 that the ICC moved in any meaningful way to do something about pipelines, and only then at the instigation of Congress which urged the ICC to look into the pipelines' exorbitant rates and outrageous service requirements.81 In the interim, the pipelines settled into a comfortable routine complying with the limited number of formal regulatory requirements and ICC inaction.82 Thus as far as rates and practices of oil pipelines were concerned, the impact of Federal regulation between 1914 and 1931 was minimal. Even the Brundred Brothers case worked no significant changes in minimum tender requirements. For practical purposes, Federal regulation remained largely a formality and the pipelines companies found the ICC willing and anxious to consult with them on how the formalities should be handled. The ICC bought the companies pronouncements that pipelines were not built as common carriers and, with no complaints, the ICC merely went through its statutory formalities without reconciling practice with its statute.83 Thus up until 1934, the 73 37 Stat. 701 (1913). This Act directed the ICC to ascertain and report detailed cost data on each price of common carrier property. 74 This Act gave the ICC greatly expanded jurisdiction of railroads. ICC permission was required for a railroad to build a new line or extend an old one, its lines or any part of them, or obtain new capital by selling securities. Additionally the ICC was given authority to establish minimum as well as maximum rates and to established exact rates upon a finding that a rate charger was unreasonable. Johnson at 188, 195. 70 Id. 77 Id. at 196. 78 Hoogenboom at 55. 79 Prewitt at 203-04. 80 Johnson at 204: Harmon at 122. See. Crude Petroleum Oil From Kansas and Oklahoma to Lacy Station, Pennsylvania, 59 ICC 483 and Brundred Brothers v. Prairie Pipe Line Company, et al., 68 ICC 458 (1922). $1 Johnson at 465: Prewitt at 204: the congressional investigations took place in 1931 and 1932. Hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 71st Cong., 3 sess., on H.R. 16695, Feb. 17 and 18, 1931: Report on Pipe Lines, Parts I and II, 72d Cong., 2d sess., H. Rept. 2192, 1933 (the Splawn report); and Crude Petroleum, hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 73d Cong., 1st sess., on H.R. 5010, Apr. 18 and 19, 1933. 82 Johnson at 465. 83 Johnson at 206; see also, 51 Yale L. J. 1358; Black at 510; and Harmon at 121-124. powers of the ICC over pipelines were exercised less than its powers over any other type of carrier subject to its jurisdiction.84 Clearly, the regulatory body once feared by pipeliners had now come to be regarded as a bulwark against the dangers associated with unpredictable congressional action. The ICC had shown no disposition to question pipeline practices or to upset existing pipeline relationships. If anything, the existence of the regulatory statute had strengthened them by accepting the integrated framework as given. What was to be feared, then, was that Congress might, without fully comprehending the consequences, decide to force an alteration in the integrated structure with which the ICC was accustomed to working.85 In the meantime, the pipelines were not idle. As indicated earlier, it was the refiner that integrated backward with pipelines to secure an assured supply of crude oil. Such backward integration was responsible for the rise of the Standard Oil Companies and eventually for the rise of its major rivals-Texaco, Gulf, Shell, Pure and Sun.86 Thus the refiner was responsible for the development of crude and product pipeline systems as part of its refining operations and not as purveyors of transportation services engaged in for profit.87 But, in 1911, the Standard Oil divestiture decree put a halt to this process by the Standard Oil Companies. Thirty-four companies were broken off from the original Standard Oil Company group. The precarious position of many of these companies as a result of the divestiture led to the reintegration of most of them. Within 20 years of the decree, each of the major companies spun off in 1911 reintegrated and formed vertically integrated units able to compete again in the industry.88 Thus the 34 companies formed as a result of the divestiture decree in 1911 eventually merged into 19 companies.89 In addition, by 1931 there were 18 important crude oil trunk pipeline systems traversing parts of the Mid-Continent and Gulf Coast with 16 owned by large integrated oil companies. This concentrated ownership indicated that the oil companies had learned their lesson well from the Standard Oil Company prototype.90 The reintegration phenomenon coincided with the ICC's early failure to deal with the problem: History shows that almost all the independent pipeline companies created by the dissolution of the Standard Oil Trust were soon absorbed by the former members of the Trust. Furthermore, almost all new lines were constructed by these same firms plus a few well financed non-Standard firms (e.g. Shell, Texas Company, etc.) which were growing rapidly and themselves becoming vertically integrated. The reasons for such developments are not dif 84 Whitesel, Theodore L., Recent Federal Regulation of the Petroleum Pipe Line As A Common Carrier, 32 Cornell Liq. 337, 357 (1947) [Hereinafter cited as "Whitesel"]. 8 Johnson at 229. Wolbert at 112-113. 87 Wolbert at 113. See Mitchell, ed., at 191-214 for an excellent discussion of the efforts of Standard Oil Company (Indiana), Prairie Oil & Gas Company, Standard Oil Company (New Jersey), Ohio Oil Company, Standard Oil Company of New York, the Standard Oil Company (Ohio), Atlantic Refining Company and other Standard Oil companies to reintegrate. 89 PICA report at 102; see also, Splawn report at 24-28; Johnson at 120-136. Johnson at 143, 463. 28-444-78-8 |