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a. Minimum tenders
The use of minimum tenders in the past was a major obstacle to nonowner use of pipelines. A tender is a presentment to a carrier of goods to be transported; 88 it is the minimum amount a shipper must give to the pipeline at any one time. 84 Pipelines, however, have wide discretion in the application of minimum tender requirements. Some pipelines require the minimum amount to be tendered at one time; others will take possession of the oil and accumulate for the shipper until the pipeline can handle the shipment; others take the oil at any time and ship it in its common stream without waiting for accumulation of the minimum amount. Selective application of these requirements can lead to discriminatory treatment.85
In the past, pipelines have used very high minimum tender requirements for individual shipments as a method of avoiding the common carrier requirements imposed by the Hepburn Act. Minimum tenders of 100,000 barrels were not uncommon and were used as a device to withdraw the pipeline from outside use.86 Most independent producers did not have storage facilities to accumulate 100,000 barrels at any one time and therefore could not take advantage of major oil company pipeline transportation, unless they sold the oil in the field to the oil company owner of the pipeline. The companies owning the pipelines, however, did not require these high minimum tenders to be tendered at one time for their own shipments.87
High minimum tenders existed throughout the period until the thirties. Splawn found the most common minimum tender was 100,000 barrels.88 Îhe TNEC hearings found the average to be 50,000 with the highest at 100,000 barrels.89
Up through the midthirties the ICC dealt with only one case involving minimum tenders and in that case it lowered the minimum tender to 10,000 barrels."
Finally, in the thirties, the ICC undertook a complete review of minimum tender requirements and eventually imposed what it considered reasonable minimum tender requirements on then existing pipelines. Thus the ICC found 10,000 barrel minimum tender requirements reasonable for crude pipelines 91 and 25,000 barrel minimum tender requirements for product pipelines.
With the ICC's decision on minimum tenders, the egregiously high minimum tenders have been lowered; however, the problem has not disappeared. New, modern large diameter pipelines have imposed high minimum tender and minimum offtake requirements and have justified these on the need to maintain product integrity in the operation of the pipeline. b. Storage facilities
Storage facilities or tankage are necessary for the efficient operation of the pipeline. Tankage is required at the input point so that the
88 Third Report of the Attorney General pursuant to section 2 of the Joint Resolution of July 28, 1955, consenting to an interstate compact to conserve oil and gas, Sept. 1, 1958, at 53 (Hereinafter cited as *3d AG Report"]. bi See Wolbert at 25-29 for an excellent discussion of tenders ; see also, $d AG report $5 3d AG report at 53-55. 86 Wolhert at 23 ; Cook at 39 ; Beard at 98-99 ; Prewitt at 184–85. 88 & aliun at lxvi. olbert at 24.
i at 98-99; Brundred Brothers v. Prairie Pipe Line Company, et al., 68 ICC 458 I Rates and Gathering Charges, 243 ICC 115 (1940).
87 Wolbert at 23.
shipper can tender the oil to the pipeline in proper quantities (usually the minimum tender or tenders in excess of that amount). Tankage is required along the pipeline, known as working tankage, to accommodate line size changes. Finally, tankage is required at delivery points for the delivery of the oil from the pipeline. Thus, the availability of tankage can have a distinct impact upon the ability to use the pipeline.
As a general rule, pipelines do not provide tankage at input and delivery points. Working tankage along the route of the pipeline is provided, but is available only for pipeline operations and not for delivery or storage purposes.
As early as 1914, Oklahoma's Attorney General West, testifying before Congress stated that common carrier pipeline transportation was of no advantage to independent operators unless there was storage. 93
Others have commented on the lack of storage facilities for use by independent shippers as well as the large capital investment required to furnish sufficient tankage at input and delivery points.'* Shippers on pipelines have emphasized the importance of provision of storage facilities to increased access to pipelines.95
Williams Brothers, an independent pipeline, is a prime example of a pipeline with common tankage available to all shippers. Williams provides this service at many points along its pipeline for a fee. Many small shippers have been able to take advantage of pipeline shipments through Williams Brothers and deliver to many points with minimum capital investments. Competition from independents, as a result, is more intensive in the area served by Williams than in most other areas of the country.
In stark contrast to the Williams Brothers operation is the experience of an independent marketer desiring to use Explorer pipeline for shipment and delivery to the Dallas area. This independent marketer was able to arrange for a contract for gasoline with the refiner-owner connected to the Explorer system. The marketer did not have a terminal connected to Explorer for deliveries in the Dallas area, nor did he have a terminal close enough to the pipeline route to make a connection economically attractive. The marketer contacted several companies with terminals connected to Explorer but was unable to secure any space. Even major companies with prior relations with the marketer or friendly attitudes toward the marketer refused to terminaling space.
The refiner-owner attempted to intervene in this situation, since the contract was a good one and provided a new marketing opportunity. The refiner-owner went to the owners of other terminals connected to Explorer without any success. The refiner-owner was aware that one of the owners of Explorer had excess terminal capacity in the Dallas area that was available for purchase. The refiner-owner was able to conclude an arrangement for terminal space with this owner; however, the terminal owner placed a veto power in the contract permitting the terminal owner to veto any marketing arrangement not to its satis
* Wolhert at 4n.
* Transportation of Oil by Pipe Lines, Hearings Part I Before the House Committee on Interstate & Foreign Commerce, 63 Cong., 2d sess. (1914) (Statement of Attorney General West).
* Prewitt at 185-86 ; Splavon at Ixviii: Small Business report at 17; Consumer Energy Act at 669. 1026 ; Market Performance, part 1 at 12–13.
* Ind. Reorg., part 8 at 5947.
faction. When the refiner-owner attempted to use the terminal for deliveries to the independent marketer, the terminal owner vetoed the arrangement. The refiner-owner therefore was not able to make deliveries to the independent marketer and the contract eventually fell through. This same refiner-owner found that it was unable to build its own new terminals in areas along Explorer where it did not have existing terminals, since the cost would be too great and would make any marketing efforts uneconomic.
Terminals at delivery points are extremely important to independent marketers. Without delivery tankage, they cannot obtain a prod-, uct from pipelines unless the owners of the tankage permit it. New companies without their own existing tankage. even substantial majors, may find it difficult to enter new markets if they must rely on existing terminals (with veto restrictions or other similar arrangements) or on constructing new tankage. Experience indicates that independent marketers willing to enter new markets if terminals such as those Williams Brothers operates exist, have been stymied from entering markets served by pipelines through privately owned terminals. The disadvantage is not a theoretical one, but one that is very real and one that effectively limits access to most major integrated oil companies' pipelines. c. Pipeline location
The location of a pipeline is a more subtle form of access denial. Pipelines are configured by their owners to best serve their needs. The location or needs of nonowners are given little thought. Thus, putting a pipeline several miles from existing nonowner shipper's facilities means that for all intents and purposes the pipeline is unavailable for use by that nonowner shipper. Providing spur lines to trunklines may be very costly, especially through populated areas. The problem is not a new one. In 1924, a Senate committee headed by Senator Robert M. La Follette concluded:
Pipelines must be made real common carriers. Delivery stations must be established wherever a reasonable demand for them can be shown to exist so that pipelines shall no longer serve simply the great companies, but shall serve on an equal basis every transporter of petroleum ... in an efficient manner. If this is done, refineries can be established throughout the country along pipeline routes so that communities may be served locally, instead of as at present transporting oil vast distances from the fields to refineries, and then again transporting the product long distances from the
refineries to the consuming public. 96 Testimony before the TNEC hearinrs in the late thirties and early forties elicited further recognition of the competitive problem of pipeline placement. Thus, a major difficulty for independent refineries was that pipelines did not go near independent refineries—"they don't go where they need to go to reach the small man's product." 97 This same problem has again been voiced in more recent testimony, by ex-chair
96 High Cost of Gasoline and Other Petroleum Products, vol. 1, Committee on Manufacturers, U.S. Senate. (1924) pp. 67-68. in Beard at 89-90.
* Petroleum industry hearings before the Temporary National Economic Committee. American Petroleum Institute, New York, 1942, Part VI at 454. (Hereinafter cited as "IT VEC".)
man Stafford of the ICC indicating that pipeline location and independent refinery location diverge, creating substantial problems for independent refiners; 98 and therefore the route design benefits the owners to the detriment of nonowners. d. Other service requirements
Mention has been made that other service requirements may be devices to deny access to pipelines. Thus, product specifications and shipping schedules may be used to delay access to pipelines and lead to virtual denials of access.
Product specifications deal with the requirements imposed by pipelines for the oil or products shipped through the line to conform to specific specifications in order to avoid contaminating other shipments on the line. If specifications are too narrowly drawn, nonowners may find it difficult to meet them and be precluded from use of the pipeline.
This problem was explored in the Deepwater Port report of the Attorney General with regard to crude oil segregations. The larger the number of separate segregations of crude oils the ports could handle, the larger the potential number of shippers shipping differing types of crude could be accommodated. Decisions by the owners to limit the number of segregations would adversely atfect the ability of nonowners to use the ports. 100
Shipping schedules normally are developed through computerized control and advance knowledge of the number and types of shipments. Such schedules are developed far enough in advance to accommodate the needs of all shippers. Variations in the shipping schedule could affect the ability of any shipper to meet the schedule and therefore create additional problems in using the pipeline.
Again the Deepwater Port report shed light on the problems encountered in the length of cycle for the shipments of all crude segregations. Thus, if the cycle time is too long, the amount of crude shipped during that period may be so large as to require large storage facilities, limiting the ability of smaller shippers to comply.
The following discussion concerning operational criteria of the deepwater ports is apropos to common carrier pipelines as well:
On the one hand, there was a need to design optimal systems from an engineering and economic viewpoint. On the other hand, the systems were clearly designed in reasonable conformity with the particular desires of the owners. These needs often conflicted, with the final decision usually tending to conform with the owners' desires. The owners, more often than not, have large integrated operations with capabilities far exceeding those of the potential small shippers. Thus, the owners' desires do not or simply cannot reflect the needs of smaller potential users of the proposed port. In this subtle, perhaps at times even unintentional way, the owners have controlled and will continue to control which shippers will have effective access to the ports. By imposing uni
e Marketing Performance, Part 3 at 900.
* Small Business report at 13, 16: Consumer Energy Act at 1026, citing the evidence against Colonial and the many favors given to owners and not nonowners.
100 Report of the Attorney General pursuant to section 7 of the Deepwater Port Act on the Applications of Loop, Inc. and Seadock, Inc. for Deepwater Port Licenses, Nov. 5, 1976, at 24-25. 42–43, 74-75. (Hereinafter cited as “Deepwater Port Report"').
301 Id. at 75.
form criteria upon all shippers, the owners avoid the charge they are discriminatorily denying access to some. But to the extent that the ports reflect design and operational criteria which small shippers cannot meet, the owners have effectively denied access to them. 102 Pipeline operations are essentially similar to the deepwater port situation and the same principles apply. Thus, pipeline owners have turned to more subtle, sophisticated methods to deny access to potential nonowner shippers.
An actual incident points up the power of the pipeline owner to exclude nonowners. Apco Oil Company, offering a higher price for crude than Sun, was able to purchase crude oil from General Crude Corp. in west Texas. The same oil had formerly been purchased by Sun Oil, also the owner of the Texas intrastate common carrier pipeline transporting the crude from field to refinery. When Apco tendered the crude to Sun, Sun refused to carry the crude, insisting that Apco's crude be segregated from Sun's crude. The testimony of Mr. Ć. P. Seiss, Jr., president of Apco, elucidates the problem:
Mr. Seiss. They said that it didn't meet the vapor specifications for their system.
Senator TUNNEY. But they had been moving that same crude with the same vapor characteristics up until that point; is that correct?
Mr. Seiss. Yes, sir; they certainly had, and we discussed that point with them for several days. And very honestly we got down to the point where we were advised that-İ believe it was 1 o'clock on Saturday morning—the tanks would be full and they would have to advise General Crude that they were going to shut the leases in.
And of course, our deal with General Crude was such that we would have had to pay for the crude even though the leases were shut in, if we expected to keep it.
So we, on a Friday moming very early, contacted the president of Sun Pipeline Co. in Tulsa, advising him that we had reviewed the situation in depth, and indeed had spent the night reviewing it, and that if they did not advise us by noon that they were going to move the crude we were going to file suit.
About 10:30 that morning, they called back and said that they would move the crude.
Senator TUNNEY. If you had not been able to move that crude on the Sun pipeline, what would that have meant to your company?
Mr. Seiss. Well, we would have had to, if we wanted to keep that crude, continue to purchase 23,000 barrels of crude at $3.90 a barrell, which roughly, I believe, turns into about $100.000 a day, approximately, for whatever period of time we couldn't move the crudeif expected to keep it.
And with our balance sheet we would not have lasted very long.
102 Id. at 68.