Regulation of Pipe Lines as Common Carriers 9780231889391

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Regulation of Pipe Lines As Common Carriers

Map

BACKGROUND for the frontispiece map is a generalized tracing from the United States Coast and Geodetic Survey's Print No. 362, the use of which is gratefully acknowledged. On this tracing numerous points were located between which common carrier service was found to be available by consulting the National Petroleum Association's A Digest of Pipe Line Rales on Crude Petroleum Oil on File with the Interstate Commerce Commission (1941). T h e Association, through Mr. Harry S. Elkins, the editor of its rate digest, has kindly given its permission to make this use of its work. T h e precise location of the oil lines connecting the points so established was then determined largely through the use of uncopyrighted federal maps, such as the Department of the Interior's map entitled "Oil and Gas Fields of the United States," printed in 1932, and the maps in House Report No. 2192, 72d Congress, 2d session. Where tariffs on file in Washington, D.C., indicated that other routes were in operation than those shown on such official maps, straight lines were drawn connecting the new points with the older, established routes, with the result that in a few instances the lines on the map may be somewhat inaccurate. In view of (1) the refusal of the Interstate Commerce Commission to open its map files to the author, on the grounds that they contained confidential information vital to the national defense, and (2) the refusal of a private publisher of an authoritative map of oil pipe line routes to permit the use here of its copyrighted material, on the grounds that reproduction of such material would violate the terms under which it collected data for its map, greater accuracy than that achieved in the frontispiece map is not possible, given the author's existing resources. Despite minor inaccuracies, the map does, however, give a representative picture of the magnitude of interstate common carrier operations. THE

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Regulation of Pipe Lines As Common Carriers BY W I L L I A M

BEARD

New York : Morningside Heights COLUMBIA UNIVERSITY ι 9 4 ι

PRESS

COPYRIGHT

1941

COLUMBIA U N I V E R S I T Y PRESS, NEW

YORK

Foreign a genis: OXFORD UNIVERSITY I'RKSS, Humphrey Milford, Amen House, London, E.C., 4, England, AND Β I. Building, Nicol R o a d . B o m b a y , India: MARUZKN COMPANY, LTD., Ö Ν I hon basili, T o r i -Nicliome, T o k y o , J a p a n MAMIACTURFL)

IN

THF

UNITED

S Γ A T E S OL

AMERICA

Preface

T

is deeply grateful to numerous individuals for the assistance they have rendered in the preparation of the present volume. His heaviest debts are to Professors Schuyler C. Wallace, Arthur W . Macmahon, and Lindsay Rogers, of the Department of Public Law and Government, and to Professor James C. Bonbright, of the Department of Economics, of Columbia University, who have supervised the writing of this dissertation. Likewise deserving special mention is Fayette B. Dow, an attorney for the American Petroleum Institute, who pointed out several places where the manuscript could be strengthened. Among those in public life who have aided in the present undertaking, several merit special listing for their thorough and considerate response to the author's inquiries. With respect to federal activities, these include Joseph B. Eastman, of the Interstate Commerce Commission; Director Lewis, of its Bureau of Valuation; and Justin Wolf, of the Federal Power Commission's legal staff. T h e author is also appreciative of the services rendered him with respect to state matters by Clyde S. Bailey, General Secretary of the National Association of Railroad and Utilities Commissioners, and S. Freedman and W . F. Schillen, of the staff of the Pennsylvania Public Utility Commission. T h e author has received very helpful assistance from Miss H E AUTHOR

vi

PREFACE

Eloise M. Michel, of the American Petroleum Institute's library in New York City; from Luis Hilt, Librarian for the American Gas Association, in the same city; from Miss Frances Harkness of the Interstate Commerce Commission's library in Washington, D.C.; and from Dr. Luther Evans, of the Legislative Reference Service of the Library of Congress. T h e author wishes to acknowledge the further aid rendered him by the staffs of the general library and the law library of the County of Los Angeles, California, of the public library system in New York City, and of the Library of the University of Wisconsin, in Madison. WILLIAM

Madison, Wisconsin January, 1941

BEARD

Contents

ι. The Field of Interest 2. Origin of Common Carrier Legislation

3 10

3. Nature and Extent of Common Carrier Status for Pipe Lines

28

4. Rate Regulation

56

5. Service Regulations

84

6. Control over Pipe Line Affiliations

109

7. Coordination of Pipe Lines with Other Forms of Transportation 8. Summary and Conclusions Table of Cases Index

131 148 175 177

Regulation of Pipe Lines As Common Carriers

List of Abbreviations

F. Supp. Federal Supplement H.R. United States, House of Representatives, House Bill l.C.C. United States, Interstate Commerce Commission or Interstate Commerce Commission Reports 111. Illinois Reports N.E. North Eastern Reporter Pa. St. Pennsylvania State Reports Pac. Pacific Reporter P.U.R. Public Utilities Reports P.U.R. (N.S.)

Public Utilities Reports, New Series

S. United States Senate, Senate Bill S.E. Southeastern Reporter Sen. Doc. United States Senate, Document S.W. Southwestern Reporter U.S. United States Reports U.S.C.A. United States Code Annotated

CHAPTER 1

The Field of Interest

F

and state authorities have attempted to apply the ancient concept of the common carrier, inherited from the days of oxcarts and armored knights in feudal England, to that unique product of modern engineering skill, the longdistance pipe line, for a diversity of reasons and with a variety of consequences that form the theme of the present work. O n the technical side, the problem of making pipe lines common carriers has been solved in the following manner: A typical crude oil line will have gathering pipes of small diameter, extending to the tanks owned by oil producers. Measured amounts of oil belonging to the latter will be taken from these tanks, passed through the gathering lines, and stored in large tanks at some trunk-line terminal. At the appropriate time the oil will be turned into trunk pipes, some 6 to 10 inches in diameter, and forced over distances of as much as a thousand miles to its destination, by means of pumping stations spaced some thirty to forty miles apart. A t the end of its journey it will be emptied into the tanks of some consignee. It is easy enough to transmit fluids in the foregoing fashion, but how can shipments be identified for delivery purposes? Various devices are employed. Sometimes the oil flowing through a line is of substantially uniform grade, so that consignees may receive a measured amount roughly equivalent to that taken from the shipper, but without regard to the speEDERAL

4

THE

FIELD OF

INTEREST

cific origin of the oil so removed. Payments for service can then be exacted on the basis of the volume and the theoretical distance traveled by the oil. O n other occasions a batch of one type of fluid may be followed by a batch of another. Bysampling the stream of liquid as it moves past an inspection point, it is possible to determine when there is an abrupt change in the character of the fluid in transit, signifying the end of one batch and the start of the next. T o simplify the process, dyed fluids may be inserted at the beginning and end of "slugs" of oil. In some cases, water or even solid objects may be used to separate successive shipments of liquids. T h u s freight can be delivered almost intact. 1 O n the governmental side, the application of the common carrier concept to pipe lines has reached large proportions. Already formally classified as common carriers are great networks of pipes, p u m p i n g stations, tank farms, and associated telephone and telegraph dispatching facilities located in more than twenty states. T h o s e lines recognized as common carriers by the national government had a reported total of 38,871 miles of gathering lines and 57,102 miles of trunk lines, or a total of 95,973 miles, in 1938, which was approximately 40 percent as great as the steam railroad mileage of the country at that time. 2 T h r o u g h these facilities in 1938 flowed 794,000,000 barrels of crude oil and 65,000,000 barrels of refined products, or a combined volume sufficient to fill over 3,000,000 railroad tank cars. 3 Moreover, common carrier pipe line activities are growing and are expected to continue to do so for several years. 4 In short, the regulation of pipe lines as com1 F o r c o n t a m i n a t i o n p r o b l e m s , see p . 96. * P i p e line figures f r o m Interstate C o m m e r c e C o m m i s s i o n , Annual Report for >9}9, p. I". R a i l r o a d d a t a f r o m ÌYor.'d Almanac, 1940, p. 557. If full inf o r m a t i o n w e r e a v a i l a b l e o n the m i l e a g e of p i p e lines considered as c o m m o n carriers by t h e states a l o n e , a l a r g e r total c o u l d be ciled. 3 Interstate C o m m e r c e C o m m i s s i o n , Annual Report for 1930, p. 47. T a n k car e q u i v a l e n t c o m p u t e d b y t h e a u t h o r , o n t h e basis of 250 barrels io a car. * Federal C o o r d i n a t o r o f T r a n s p o r t a t i o n , Public Aids to Transportation (1940) V o l . I, p. 78. R a i l r o a d m i l e a g e has been d e c l i n i n g f o r years. World Almanac, 1940, p. 557. W i t h t h e d e p l e t i o n of oil deposits, p i p e line c o m -

THE

FIELD OF I N T E R E S T

5

mon carriers is the regulation of major units in America's transportation system. Important in their own right, pipe lines classed as common carriers derive still greater significance from their influence over other industries. Their capacity to convey crude oil cheaply and efficiently from wells to refineries, and gasoline and other products from refineries to distribution centers, contributes to the success or failure of thousands of producers, refiners, and oil merchants. 5 By helping the oil industry to market products at low prices, pipe lines have also been a major factor in the displacement of soft coal by liquid fuels in hundreds of thousands of homes and factories. So widespread has this substitution become that the ratio of the heat content of the petroleum to that of the soft coal consumed in the United States doubled in the decade from 1923 to 1932 β and it accounts to a considerable degree for the slump in soft coal operations which led Congress to pass the Guffey-Vinson Act in 1937 for the relief of the soft coal trade. Common carrier pipe lines produce repercussions far beyond the mineral trades just mentioned. By providing cheap and efficient means of moving petroleum and its products between fields and filling stations, common carrier pipe lines are responsible, in part, for the ability of motor vehicle owners to secure suitable fuel at prices within their capacity to pay. By conveying fluid freight that could be moved instead by railroad tank car, common carrier pipe lines contribute to the financial distress of many railroads and evoke from the latter retaliatory measures. By transporting crude oil from inland deposits to the seacoast, common carrier pipe pañíes now engaged in moving crude or refined petroleum may have to look for substitute freight to remain in business. Experiments with the transportation of coal and other commodities by pipe line indicate that the search may not be in vain. Infra, p. 26. » For the relative costs of transporting oil by pipe line, by railroad, and by tank steamer, see infra, pp. 133, 140, 144. β Computed from M. Van Kleeck, Miners and Management, p. 374.

6

T H E F I E L D OF

INTEREST

lines afford a considerable volume of valuable business to the operators of tank steamers.7 Moreover, common carrier pipe lines have an important bearing on the accessibility and cost of the fuel required for mobile armed units on land, at sea, and in the air, thereby leaving a mark on national defense operations. Because of their diverse influences on other transportation mediums, common carrier pipe lines require extensive consideration when efforts are made to coordinate governmental transportation policies in the large. Because they affect such essential industries, efforts to regulate pipe lines as common carriers have received repeated and extended attention from many bodies over a period of more than half a century. Congress has considered the issues involved when reviewing a long series of bills, beginning with fundamental pipe line legislation in 1906 and continuing to 1940. No less than five important common carrier pipe line measures have been presented to it since »934.® T h e matter of common carrier regulation has been discussed in various Congressional investigations, such as those of 1914,® 1931, 1 0 1933, 1 1 1935»12 and 1939. 13 Courts, both federal and state, have taken up the subject on numerous occasions.14 T h e Association of Railway Executives, 16 the American Pe1 Infra, p. 144. S. 573, introduced Jan. 10, 1935: S. 1398 on Feb. 8, 1937; H.R. 6794 on April 30, 1937; S. 3753 on April 8, 1940; and H . R . 9623 on May 1, 1940. » House Committee on Interstate and Foreign Commerce, 63d Congress, Hearings on S. . . . to Make Gas Pipe Lines Common Carriers (1914). House Committee on Interstate and Foreign Commerce, 71st Congress, Pipe Lines: Hearing, February ιη-iS, 1931, on H.R. 16695 . . . (1931). " House Committee on Interstate and Foreign Commerce, 7sd Congress, Report on Pipe Lines (1933). 12 In connection with the Rayburn holding company bill, H.R. 5423, 74th Congress. is Senate Committee on Interstate Commerce, 76th Congress, Hearings . . . on S. 1310 and S. 2016 . . . and S. loop (1939)· " For example, the Pipe Line Cases, 234 U.S. 548 (1914); Producers' Transportation Company v. Railroad Commission of California et al., 176 Cal. 499, 169 Pac. 59 (1917). is Cited in H. G. Moulton and associates, The American Transportation Problem (1933). p. 7 1 1 . 8

T H E F I E L D OF I N T E R E S T 18

7 17

troleum Institute, the American Gas Association, together with a variety of individuals, 18 have likewise devoted time and energy to the development of the subject. Despite the potentials of federal and state regulation of pipe lines as common carriers and the diverse studies made of this regulation by numerous official bodies and private persons, year after year has gone by without the appearance of a single comprehensive volume on the subject. In the extensive survey of the American transportation situation presented by Harold G. Moulton and his associates in 1933, only a few pages are devoted to the public regulation of pipe lines as common carriers and even these fail to indicate either how many states regulate the lines as common carriers or what fluids other than oil or gasoline are involved.' 9 There are two small, privately printed volumes on pipe lines, but they are confined to the petroleum business and virtually ignore state regulation. 20 There are also many federal and state documents dealing with common carrier pipe lines, but only in passing or in a highly specialized manner. 21 T h e present volume seeks to provide a more systematic treatment of federal and state regulation of pipe lines as common carriers. It concentrates on those pipe lines which are obligated to convey fluids between designated places for ordinary shippers under such circumstances as to be recognized by formal legal pronouncement as common carriers.22 is Through its pipe line committee. IT Proceedings, Natural Gas Department, 1935, pp. 66-74. ι» For example, R . F. Breyer, "Oil Pipe Lines," The Annals of the American Academy of Political and Social Science, Jan., 1934, pp. 217-27. is The American Transportation Problem, pp. 701-16. 20 J . E. Pogue, Economics of Pipe-Line Transportation in the Petroleum Industry (1932); R . Van A. Mills, The Pipe Line's Place in the Oil Industry (1935). 21 For example, the Report on Pipe Lines (1933), published for the Committee on Interstate and Foreign Commerce of the House of Representatives, deals primarily with the financial and business structure of oil companies and only secondarily and incidentally with common carrier regulations. Moreover, it throws very little light on state regulation. 22 Some pipe lines operate as common carriers in reality, but until they have heen definitely designated as such by appropriate constitutional, statu-

8

THE

F I E L D OF

INTEREST

It covers, therefore, only a segment of the total pipe line industry.-' In dealing with common carrier pipe lines of the type just defined, the present study focuses attention on their regulation by federal and state authorities as common carriers. When a state public service commission issues an order requiring a specified pipe line system to convey crude oil for the public between designated points at the rate of twenty cents per barrel, it is clearly regulating that line as a common carrier, and hence its order lies within the scope of this treatise. On the other hand, the investigation does not purport to reach the regulation of pipe lines as instrumentalities other than common carriers. T o illustrate, if a state passes a statute controlling the manner in which pipe lines are to cross flood protection levees, it is evidently regulating the lines essentially as menaces to public safety, rather than as common carriers. This is true even where the burdens of the prescription happen to fall on some common carrier company. With the regulation of pipe lines as menaces to public safety, as conveyors of untaxed gasoline, or as anything other than common carriers, the present volume is not concerned. T h e field of interest, so defined, has been studied (1) to discover the circumstances in which the regulation of pipe lines as common carriers originated, (2) the objectives of such regulations as set forth by their sponsors, (3) the jurisdictional extent of regulation, (4) the fundamental principles applied tory, administrative, or judicial prescription ihey are not deemed to be common carriers f o r the purposes of this text. 23 T h e present study, f o r instance, excludes f r o m consideration purely private pipe lines, such as certain crude oil lines conveying solely the property of their owners. Likewise beyond the scope of this volume are the lines of the typical water c o m p a n y , which is a p u b l i c utility but not a common carrier. T h a t is. it must charge specified rates b u t is not obligated to take shipments of water through its lines as the property of the shippers and deliver it at designated points on a common carrier basis. Similar considerations exclude f r o m trealmenl here many attificial gas lines, sewers, and olher piping systems.

T H E F I E L D OF I N T E R E S T

9

in regulation, (5) the primary problems raised in the process of regulation, and (6) the status of the issues presented by the development of regulation up to the present time. T h e product of the survey is not a complete directory of all the pertinent facts—an impossibility within the compass of a single volume —but a summary of fundamental principles, illustrated by appropriate examples.

CHAPTER 2

Origin of Common Carrier Legislation

W

HY DID federal and state authorities undertake to regulate certain pipe lines as common carriers? Answers to this query vary considerably, according to the character of the fluids handled. Of these fluids, the first to be moved on an important commercial scale was petroleum. OIL

LINES

"Automatic" evolution of the common carrier concept.— In the early days of the American oil industry, the quest for a cheap and efficient means of conveying petroleum led to the construction of a number of short pipe lines from producing properties to near-by railroads, refineries, or watercourses. T h e owners of some of these lines, of their own volition, chose to open their facilities to general public use. T h a t is, they tapped tanks belonging to producers, received oil into their lines, gave the shippers thereof a receipt, transmitted the oil to designated places for a specified fee, and there delivered it to consignees named by the shippers. Courts of law, called upon to settle disputes between users of such lines and the lines themselves, early detected what was to them a resemblance between such activities and those of common carriers at common lavv.1 With the judiciary apply1 T h u s in Hall v. Cumberland Pipe L i n e Co., 193 Ky. 728, 237 S.W. 405 (ig22), the court held that the pipe line company was a common carrier of oil

MOVEMENT

FOR

REGULATION

11

ing common law concepts to pipe lines, it was but a step for legislative bodies to modernize, amplify, and clarify these concepts and set up a formal system of administrative regulation of oil lines as common carriers. By the above process, the regulation of certain oil lines as common carriers came about more or less automatically. Problems arising in connection with private carriers.— Other crude petroleum pipe line organizations took special pains to avoid such automatic classification as common carriers. Outstanding among them were the Standard Oil interests, which made a practice of buying oil before actually turning it into their pipe lines. 2 Consequently the Standard group claimed to be conveying solely its own oil through long reaches of its lines, under such circumstances as to remain a purely private carrier. Under the foregoing arrangement, many producers and independent refiners were largely at the mercy of the Standard group. Producers could not market their oil at distant points along the Standard lines, for they had no way of retaining ownership of the oil during its journey through the lines and hence no way of delivering it to prospective buyers many miles away. Producers, therefore, frequently sold their oil to the Standard interests at prices more or less dictated by the latter. 8 Refiners, too, had their troubles. T h e y found that the Standard group was under no obligation, in many cases, to deliver any oil to them through its pipe line system. In a few instances, independents owned facilities spaced some distance apart on a line. Hugh King, of the Columbia Oil and had operated as such prior to the passage of a Kentucky statute (Chapter (>959). ['• ">·

' " O n its own motion, the Board of R a i l r o a d Commissioners of Montana, for instance, inquired into the reasonableness of common carrier oil pipe line rates in the Cat Creek field. 16 Montana Utilities Reports ir, (1923). « 4 9 U.S.C.A. §§ 1 ff. •r,° Heerings Generai Laws of California (1958), Act 638(1. '>1 1935 Colorado Statutes Annotated, C h a p . 6 t , §§ 27-30. Dart's General Statutes of Louisiana, § 7985. ·" Sew Mexico Statutes, Annotated, 1929 Compilation, g 104-106. Remington's Revised Statutes of Washington (1933), §§ 10342-45, 1038g.

66

RATE

REGULATION

sufficient. In these and similar terms, a general rule of reason has been set up by legislative bodies as a basis for pipe line rates. Even where statutes do not formally announce the rule of reason, courts may be in a position to apply it by judicial prescription under the common law or under appropriate constitutional clauses." In Texas the statutes go beyond mere generalities about the reasonableness of rates to lay down rather specific rules. There the law provides that the Railroad Commission shall fix rates for common carrier pipe lines conveying crude oil which will give a fair return upon the aggregate value of the property of such carriers, used and useful in the services performed, after providing reasonable allowance for depreciation and other proper factors and for reasonable operating expenses under honest, efficient, and economical management. T h e standard so set forth is modified, however, to the extent of permitting the Railroad Commission to exercise "reasonable latitude" in dealing with competitive situations.1,3 T h e legislature of the state of Kansas has provided for an alternative application of the rule of reason. It has accorded the state corporation commission the power to prescribe reasonable rates for common carrier crude oil pipe lines, but specifies that in no case shall the charges so established exceed the following maxima, per barrel of 42 gallons: 57 6 Over 6 Over 15 Over 40 Over 80 Over 100

miles miles miles miles miles miles

or less, but not but not but not but not but not

over 15 miles, over 40 miles, over 80 miles, over 100 miles, over 150 miles,

5 6 7 8 10 15

cents cents cents cents cents cents

In discussing common carrier p i p e line rates f o r natural gas, a federal court declared the rule of reason applicable. M o n t a n a Eastern P i p e L i n e Co. v. Montana Dakota Utilities C o m p a n y , 26 F. Supp. 284 (193S). For the rule of reason in an Arkansas common carrier pipe line case, see Clear Creek Oil a n d Gas Co. v. Ft. S m i t h Spelter Co., 1 6 1 A r k . 1 2 , 255 S.W. 903, 9 0 3 - 5 (1923). 'β Vernon's Texas Statutes, A r t . 6049a. 07 General Statutes 0/ Kansas, Annotated, 1935, SS "> _ ."°3 1 0 5Γ»~5°·Ι· CG-ioi.

RATE

REGULATION

Over 150 miles but not over 200 miles, Over 200 miles but not over 250 miles, Over 250 miles but not over 300 miles,

67 20 cents 23 cents 25 cents

Subject to a few amplifications and qualifications, then, a broad rule of reasonableness has been prescribed by legislative bodies as the general standard to be used by administrative agencies when engaged in fixing common carrier pipe line rates. Administrative

attitude

toward

the fair-return

concept.—

W h e n interpreting various reasonable rate statutes of the foregoing types, administrative agencies have several courses open. One policy would be to try to identify reasonable rates with the principle of a fair return on a fair value. T h e Interstate Commerce Commission did not use this plan, at first. K. L. Hyder, a private appraiser, declared, in 1932, that the Commission had not sought to regulate rates and charges of common carriers by pipe line through establishing a fair value and a fair return thereon. 58 T h e Commission's own records confirm these judgments by revealing that it did not start to value pipe line properties until 1934, twenty-eight years after it received the power to regulate rates.58 In 1940, the Interstate Commerce Commission stated with respect to numerous common carrier pipe lines that "it is evident that the rates charged by the respondents are not made with any relation to the cost of service." 80 Yet these rates were on file with, and had been accepted by the Commission. It was not until December, 1940, that the Commission expressed a desire to limit the rate of return, for pipe lines subject to its jurisdiction, to 8 percent on their official valuations. 61 »β κ . L. Hyder, "A New and Hazardous Venture in Pipe-Line Regulation," Public Utilities Fortnightly, March 16, 1933, p. 345. w Supra, pp. 60-61. 00 Interstate Commerce Commission, No. 265-0, Reduced Pipe Line Rates and Gathering Charges, Decided December 2j, 1940 (1940), Mimeographed, Sheet 37. ei Ibid., Sheets 43-44, 46,

68

RATE

REGULATION

There appears to have been a closer approximation to the fair-return principle in the setting of pipe line rates by some of the state commissions,®2 notably that of Texas. 63 Nevertheless, it cannot be said that state rates, in general, have been based on anything like a strict application of the fair-return principle. Competition as a rate-making element.—Why has the fairreturn concept received only limited application at the hands of federal and state regulatory agencies? A partial explanation is that under certain competitive conditions it is utterly impossible to apply the fair-return rule in unadulterated form. This may be demonstrated by considering two crude oil lines lying wholly within Montana and connecting the Cat Creek oil field with the nearest rail facilities at Winnett." In the opinion of the Board of Railroad Commissioners of Montana, these two common carrier lines might reasonably be classified as competitors for the same trade. On the theory that a slight difference in rates would benefit the company with the lower charge, if not actually destroy the carrier with the higher tariff, the Board followed the customary procedure, under such circumstances, of holding that the rates for the two pipe lines For example, the California Railroad Commission noted the déficits incurred by the General Pipe Line Company nnder existing rates and proceeded to approve a new and higher schedule, 24 Decisions of the Railroad Commission of California 281 (1923)· In Pennsylvania, the National Transit Company reported a deficit of approximately one percent on the fair value of its property under certain existing rates. It proposed increased rates calculated to earn a 4-pcrcent return on its investment, and they were approved by the state regulatory body. Crew Levick Co. v. National Transit Co., Complain: Docket 522, Pennsylvania Public Service Commission (1916). es A report made by the Texas Railroad Commission showed an average net earning of 29.67 percent on their investments for intrastate oil pipe lines in Texas. According to Ernest O. Thompson of the Commission, this represented about three times the return allowed by law. After the release of the report, he announced that the Commission would seek to adjust the rates. By orders issued during 1933 this was done, common carrier oil line tariffs being cut by 20 percent. Pipe Line News, Jan.. 1933, p. 3 1 , March, 1933, p. 3; United States, Senate Committee on Interstate Commerce, Hearings on S. i}io and S. 2016 . . . S. 1869 . . . and S. 2009 . . . April 3 to 14, lyjy (1939), Ρ- 605. « In re Petroleum Tariffs. 14 Montana Utilities Reports 1.41, 141-42.

RATE REGULATION

69

should be identical. It then issued an order directing each of the lines to charge 32.5 cents per barrel for oil moved over this run." Was such uniformity in rates compatible with a fair return for the rival interests? As far as pipe line equipment was concerned, the Elk Basin Consolidated Petroleum Company, owner of one of the lines, was more or less on a par with the Montana Independent Pipe Line Company, owner of the other line.' 6 Both organizations seem to have had sufficient capacity to handle all the oil produced at Cat Creek. 87 Even their investments were roughly comparable, the original investment indicated by the vouchers of the Elk Basin unit being $313,000, 68 as compared with $417,000 put into the other enterprise.69 As for volume of business, the prospective division was anything but equal. T h e Elk Basin interests, according to testimony before the Montana Board of Railroad Commissioners, produced or owned 70 percent of the oil coming out of the Cat Creek pool and had contracts for an additional 16 percent.70 Under the circumstances, one of its witnesses argued at rate hearings before the Board that there was then no possibility of the rival Montana Independent Pipe Line Company ever getting even 25 percent of the oil in the field to carry, "unless we voluntarily turn oil over to them to transport which we can transport through our own line." 71 After reviewing all these factors, the Board of Railroad Commissioners stated that if the most favorable estimate ever made for the independent line were accepted, namely that it would get 30 percent of the Cat Creek production to convey, the Elk Basin Company would earn a 76.28 percent return on its investment, as against a 7 percent return for its competitor, under the standard rate of 32.5 cents per barrel established for ββ es Ibid., pp. 143, 145-46. 14 Montana [bid., p. 163; 15 Montana Utilities Reports en 14 Montana Utilities Reports 148, 156. 70 15 Montana Utilities Reports 1 1 , 17. • ι 14 Montana Utilities Reports 148, 155.

Utilities Reports 148, 163. 1 1 , 13. «» Ibid., p. 158.

7o

RATE

REGULATION

both enterprises by the Commissioners. 72 Evidently it \vas impossible to work out a rate that would insure a fair return to both carriers simultaneously under these conditions. In the end, the Board concluded that rather than burden shippers with excessive rates over the Elk Basin line, it should pay less attention to the exceedingly weak competitor and reduce the rates to 20 cents per barrel. This rate, the Board stated, would cover the expenses of the independent line only if it could obtain half of the transportation business available at Cat Creek. 73 Competitive inequality between facilities serving the same territory, arising from the affiliation of pipe lines with shippers,74 is by no means confined to any one region; it is commonplace throughout the country. Moreover, inequality due to this factor is frequently augmented by physical differences in facilities, brought about by discrepancies in the skill with which lines are engineered. Where two lines differ in the efficiency of their pumping installations, in the rate at which their pipes corrode, and in their working pressures, one may be able to move a given quantity of oil at less cost per barrel than its rival. These factors, and many others, prevent the strict application of the fair-return principle to scores of competing routes. And much of the nation's common carrier pipe line mileage is on a competitive basis, partly owing to the general lack of requirements for the issuance of certificates of convenience and necessity before beginning the construction of lines.70 Uncertainty over field life.—To competition must be added a second barrier to the efficient use of the fair-return principle —uncertainty as to the life of the mineral deposits served by a given common carrier pipe line system. Speaking of this problem in connection with the two Montana pipe lines mentioned above, the Board of Railroad Commissioners of that " 15 Montana Utilities Reports τ* Infra, Chap. 6.

n . 18.

73 [bid., pp. 19-21. " Infra, pp. 86-88.

RATE REGULATION

71

state pointed out that when the Cat Creek field was exhausted or production dropped to a low point as it neared the end, a pipe line in place would become of little or no value. If the customary rate-making principles are to be employed in this situation, said the Board, then annual charges must be set up which would, by the termination of activity at Cat Creek, cover the value of the lines when new, minus whatever salvage was finally obtainable. T o determine the size of the annual charge, of course, one must know how long the Cat Creek pool will survive. At hearings on the subject before the Board, some witnesses felt that five years would be too long an estimate, while the majority placed the life of the field at from five to eight years. T h e vice president of the Elk Basin Consolidated Petroleum Company, the leading interest in the pool, testified that the field would still be producing oil twenty years thence, though the current rate of production would not hold up for more than five years. Other witnesses indicated that if oil were found at lower depths than those then being worked, the picture would be correspondingly altered.™ In the midst of such uncertainty, 77 how is a public authority to fix a rate for carrying oil by pipe line which will not only cover the amortization of the lines during the life of the field, but will also leave excess revenue equivalent to a fair return every year? Under some circumstances, of course, difficulties of this type "β 14 Montana Utilities Reports 148, 159-60. For further consideration of the life of the field, wherein a common carrier pipe line requested continuance of the existing oil rates on the grounds that the field would soon be exhausted, and the Board countered by saying that the evidence does not prove that there will be quick exhaustion, see 16 Montana Utilities Reports 15- ι 6 (>9*S)· 77 Uncertainty exists elsewhere than in Afontana. For example, the Louisiana Public Service Commission reported that it is impossible to estimate with any degree of accuracy the life of the oil fields served by a certain common carrier pipe line in Louisiana. Louisiana Public Service Commission v. Standard Oil Company of Louisiana et al., Public Utilities Reports, 1924A, 422. Speaking of common carrier pipe line conditions in Arkansas, the state court said: " T h e life and extent of gas fields are very uncertain. What promises a fine field one year may fail the next." Clear Creek Oil and Cías Co. v. Ft. Smith Spelter Co., 161 Ark. 12, 255 S.W. 903 (1923).

72

RATE

REGULATION

may be kept within workable bounds. T h e Federal T r a d e Commission, speaking of the five major pipe line systems serving the mid-continent area, stated that the building of pipe lines in that region had usually followed rather than preceded the development of oil pools, 78 thereby avoiding some of the risks of the pioneer. T h i s conservative pipe-line building policy, coupled with the great productivity of the fields, had in its estimation greatly lessened investment hazards. At least, it reported that the companies evidently thought so, for the average depreciation charge made by them against gross investment was less than 5 percent per annum, a sign that they expected a large volume of production over a considerable period of time. 7 " Given such favorable conditions, a fair-return program would seem to have some chance of success. Limitations on production.—A third disturbing element in pipe line rate making is the effort of state authorities, with the assistance of the federal government, to limit crude oil production to market demands, by setting quotas for the output of specific fields and individual wells within these fields. As the quotas expand or contract, the expected life of a given pool must fluctuate, yielding corresponding changes in the amount that should be set aside on a yearly basis for amortizing the lines against the day when pool exhaustion will reduce or substantially extinguish their value. As the quotas expand or contract, too, the volume of oil which common carriers are legally permitted to move is altered to a corresponding degree. T h i s shifts the total income theoretically or practically available under a given rate and also changes the per-barrel overhead costs of moving oil by varying the percentage of capacity at which lines are operated. If the fair-return principle is to be rigidly applied to pipe line companies that are subject to proration ing orders, then rates must evidently undergo constant readjustment. Some very swift and drastic shifts in book' s Federal Petroleum Ibid.,

Trade

Commission.

(191C), p. xxvii. pp. x x v i i - x x v i i i .

Report

on

Pipe-Line

Transportation

of

RATE REGULATION

73

keeping would be required to keep pace with production control in this fashion. Acceptance of tariffs as filed.—Still a fourth obstacle to the use of the fair-return principle is the presumption that the rates filed by a pipe line company are reasonable.80 Until very recently the tariffs presented to the Interstate Commerce Commission by common carrier pipe lines have ordinarily been automatically accepted by it. 81 Nor is the national government alone in this respect, for states have frequently followed the same procedure. 82 T h e presumption that pipe line tariffs are reasonable as filed, in the absence of conclusive proof to the contrary, has elements of weakness. This was shown during a proceeding in which a common carrier pipe line company requested permission to charge a rate of 15 cents per barrel for conveying oil between two Montana points. This rate had been arbitrarily developed, in advance of the construction of the line, when neither building nor operating costs were yet known. If it should prove compensatory, the Montana Board of Railroad Commissioners remarked, that would be "wholly accidental." 83 Moreover, the company was in the embarrassing position of having roundly condemned the 15 cent scale in April, 1921, as arbitrary, unreasonable, and inadequate, 84 while in June of the same year it turned about to praise the rate 80 A typical expression of this point oí view is to be found in 14 Montana Utilities Reports 137 (1921). In Montana Eastern Pipe Line Company v. Montana Dakota Utilities Company, 26 F. Supp. 284, 28 Public Utilities Reports (N.S.) 430, the court said, with reference to a common carrier natural gas system, that the presumption is the pipe line actcd in good faith in setting rates. Consequently, the burden is on the party attacking the common carrier rates to show that such rates are unreasonable. «i J . E. Pogue, Economics of Pipe-Line Transportation in the Petroleum Industry (1932), p. 20. 82 A case in point was the temporary acceptance by the Board of Railroad Commissioners of Montana of the 20 cent per barrel rate proposed by the Illinois Pipe I.ine Company for gathering oil in the Sunburst Field, carrying it to the Sunburst siding, and there loading it in cars. 15 Montana Utilities Reports 188 (1922). »3 i [ Montana Utilities Reports 148, 152. 84 14 Montana Utilities Reports 141, 143.

74

RATE

REGULATION

generous. 85

as Meanwhile a tariff of 32.5 cents per barrel had been filed by a rival line for service between the same points. T h i s rate appears to have been reached by guesswork. It had been evolved before the investment in the line to which it was to apply had been fully settled and before operating costs were known. Nor was the admission of the promoter and secretary of the line that he was "totally inexperienced as far as pipe lines are concerned" altogether reassuring as to the soundness of the 32.5 cent rate.88 Which of these two tariff suggestions should the Board acccpt as the reasonable rate to be employed by both competitors? T h e Board finally adopted the 32.5 cent charge, for though it had a "no more respectable background" than the 15 cent rate, at least its proponents had not taken diametrically opposed views as to its fairness a few weeks apart.87 In the federal sphere, the shortcomings of the tendency to accept tariffs as filed was demonstrated in the sole case, in over thirty years of regulation," 8 in which a shipper challenged common carrier pipe line rates before the Commission. Here the Brundred Brothers, producers and dealers in crude petroleum oil, contended that the rates filed with the Commission for conveying oil from wells in Kansas, Oklahoma, and Texas to Franklin and Lacy Stations in Pennsylvania were unreasonably high. T h e Commission sustained the rates, however, on the grounds that they were more or less in accord with other pipe line rates for services elsewhere and that it would not be warranted in reducing the attacked rates below the general level. Was this general level itself reasonable? T h e Brundred Brothers apparently did not think so, for they presented data designed to show that the total earnings of the pipe lines here involved were unreasonably high during the 1915-19 period. But the Commission avoided going into this matter by stating that while the issue of total earnings might 8' 14 Montana Utilities Reports 148, 165. M Ibid., p. 157. β' Ibid., pp. 165-66.

a* Supra, pp. 63-64.

RATE REGULATION

75

properly be brought up in a proceeding to secure a general reduction in rates, it could not be raised in one merely challenging specific rates, as in this instance.89 In essence, the Commission presumed the specific pipe line charges attacked by Brundred Brothers to be reasonable, on the ground that they were in line with other rates, also presumed to be reasonable. All this presuming seems to have been due, in part at least, to a lack of precise information with which to replace presumptions by scientific determinations and to the difficulty of applying such knowledge in practice. ACTUAL

PIPE

LINE

EARNINGS

Despite the various difficulties confronting them in making rate determinations, ranging from the problem of enabling competing lines to survive to that of estimating the duration of oil deposits, regulatory bodies ultimately reach decisions in specific instances. What have these decisions meant, in terms of common carrier pipe line earnings? One of the most comprehensive of the early efforts to find this out was that of the Federal Trade Commission. T h e Commission went over the books of the five major pipe line systems serving the rnidcontinent field and prepared its own set of accounts in accordance with a standard plan. From the resultant figures it concluded that the aggregate net investment of these five units was, in 1913, $43,857,000. T h e Commission explained that the net investment, in the sense in which it used the term, was equal to the gross investment, plus the estimated working capital needed, minus depreciation, which it figured at the rate of 5 percent per year. If the lines had applied the posted rates to all oil carried by them, the Commission reported, the annual net earnings would have been $18,213,000. This would have produced a rate of return on the net investment of 41.5 percent for the year, a figure which ran, in particular cases, from the "low" of 14 percent for the Magnolia system to about SO 68 I.C.C. 458, 458-62, 466.

7r>

RATE REGULATION

62 percent for the Prairie system. 00 Hence the current rates appeared to be excessive. Owing to the peculiarities of tiie pipe line industry at the time, the ability of the Commission to demonstrate that the posted pipe line rates were excessive does not mean that the earnings of the companies were likewise excessive. A small volume of oil appears to have been conveyed under the posted rates. T h e remainder was oil belonging to companies affiliated with or owning the lines. T h i s was not automatically conveyed under the rates posted for outside shippers, 91 probably owing to laxity in the enforcement of common carrier laws pending the determination of their validity in the Pipe L i n e Cases.9T h e Federal T r a d e Commission does not reveal what the lines actually charged the oil companies interested in them for moving what seems to have been the great bulk of the fluids which flowed through the five systems. Consequently the public is left substantially in the dark as to what the lines really earned under the loose forms of government regulation then prevailing. T h e y might have been making 5 percent or 50 percent or nothing at all on their pipe line investments, utterly regardless of the posted rates. Under these circumstances, it becomes necessary to refer to other and later sources for reliable data on the actual earnings of pipe line companies. Some years later, research workers for a Congressional committee examined the reports filed by common carrier pipe lines with the Interstate Commerce Commission and reported that the average rate of return on their recorded investment was 14.49 percent for the decade from 1921 to 1 9 3 1 , while the average return on their net investment for the slightly shorter period from 1923 to 1 9 3 1 was 25.43 percent. 93 From these figures it was concluded that in general pipe line earnings had »>) Federal T r a d e Commission, Report on Pipe-Line Transportation of Petroleum (igiC), pp. x x i x - x x x , 17. " i ibid., pp. xxviii-xxx, 17, 333. 82 T h e Pipe Line Cases, 234 U.S. 548 (1914): supra, p. 33. "3 United States, House Committee on Interstate and Foreign Commerce, Report on Pipe Lines (1933). Part 1, p. Ixxii.

RATE

REGULATION

77

been high and that fair returns could have been earned at lower rates. Among the exceptions, however, were lines that were poorly located, or had faced oil exhaustion or severe competition, as in the case of certain eastern facilities.®* T h e common carrier pipe line data printed by the Interstate Commerce Commission for 1936 reveal that the Phillips Pipe Line Company made a dividend appropriation for the year of 8,400 percent, four other companies made dividend appropriations of from 150 to 200 percent, and eleven more appropriated over 25 percent for the year. No interest was reported in default by any line subject to the Commission's supervision in 1936, nor was any such line in the hands of trustees or receivers at the close of the year.95 Conditions appear to have been somewhat improved in 1937, for in that year the Phillips Pipe Line Company paid regular dividends of 1 1 , 1 0 0 percent, the Wabash Pipe Line Company paid 4,200 percent in regular dividends, and two others had regular dividends in excess of 200 percent.®" Summing up the situation in the 1930's, J. Paul Kelley, an examiner for the Commission, stated that rates for common carrier pipe lines subject to federal supervision had been high and profits in dividends had been enormous.97 In fact, a review of reports from numerous such pipe line companies, covered in a general survey of rates, shows that practically all of them had returned in dividends to their owners, during the period from 1929 to 1938, all the moneys invested in the lines,98 and these were depression years. Pipe line earnings, as reported by state agencies, tell a similar story. Speaking of a common carrier pipe line system, 9' Ibid., p. Ixxiii. •β Interstate Commerce Commission, Selected financial and Operating Statistics from Annual Reports of Pipe Line Companies, Year Ended Dec. j i , '9)6 (1937). 06 Same f o r 1937. " Proposed report on Docket 86570, mimeographed, on file in the Commission's library, Washington, p. 34. β» Interstate Commerce Commission, No. 26570, Reduced Pipe Line Rates and Gathering Charges, Decided December 2), içjo (1940), MimeogTaphed, Sheet 27.

78

RATE

REGULATION

the Louisiana Public Service Commission remarked: "We know that more than 300 percent of the cost of construction of the entire pipe line system of the Standard Oil Company has already been earned by the Standard Oil Company of Louisiana and are informed that a great deal more has been earned from the said system." 98 With reference to a common carrier pipe line serving the Cat Creek field, Chairman Dennis of the Montana Board of Railroad Commissioners said that figures for 23 months of operation showed its entire pipe line investment to have been amortized and in addition the pipe line company had made a return of 29 percent per annum on the aggregate book value claimed by the company. 100 The Texas Railroad Commission released a report covering 18 pipe line companies, in which it gave their average net earnings as 27.34 percent for the year 1930. A further study by the Commission, covering net pipe line earnings for 37 companies for 1932, stated that they averaged 29.67 percent on the investment. 101 Speaking of a common carrier oil line, a Texas court said there is evidence that the line had gross earnings in 1934 from oil transportation of over $230,000 and a transportation cost of less than $67,000. T h e value of all tangible property devoted to transportation by this line was not over $i26,ooo. 102 What accounts for the high rates of return indicated above? One explanation would seem to be that pipe line capitalizations are purposely kept rather low. 103 T h e Federal Trade »»Louisiana Public Service Commission v. Standard Oil Company of Louisiana et al., Public Utilities Reports, 1924A, p. 424. 100 Dissent in 16 Montana Utilities Reports 15 (1923). ici "Report on Pipe Line Profits," Pipe Line Nervs, Jan., 1933, p. 3 1 . ios Reagan County Purchasing Company, Inc. v. State, 1 1 0 S.W. (2d) 1194, 1200 (1937). lc: > As a pipe line must be kept filled in order to operate, Mr. Hyder a'gucs that the fluid required to fill it is a permanent investment as essential to it as rolling stock is to a railroad. Yet the value of the oil needed to fill lines is omitted from the common carrier investment accounts filed with the Texas Railroad Commission. "A New and Hazardous Venture in Pipe-Line R e f l a tion," Public Utilities Fortnightly, March 16, 1933, p. 350. If the value of such oil were inserted in the rate base, then obviously rates of return would shrink.

RATE REGULATION

79

Commission, after a careful investigation of major common carrier pipe line systems serving the mid-continent oil fields, reported in 1916 that the large fixed investment of these systems, as shown by company books, corresponded closely with the actual construction cost of facilities. 104 This situation was attributed in part to the fact that the pipe line companies involved were accustomed to building and equipping their own lines, thereby avoiding the necessity for paying an intermediate profit to an outside construction company. 105 Another federal document revealed a like state of affairs in 1933. "With few exceptions," it declared, "pipe lines are undercapitalized, some greatly so." 104 R . Van A. Mills confirmed this judgment in 1935 by indicating that pipe line common carriers of oil are greatly undercapitalized. He attributed this to the practice of expanding oil systems with funds advanced by parent oil companies, without the necessity of the pipe line companies themselves issuing any additional capital stock.107 From statements of the foregoing variety, it seems probable that if pipe lines were loaded down with stocks and bonds, after the fashion of certain other common carriers which have been financed through the direct sale of securities to the public, the reported dividend rates would assume less spectacular proportions. R . Van A. Mills reveals some of the possibilities. He calls attention to a common carrier pipe line company which reported to the Interstate Commerce Commission a stock dividend of 343.51 percent, in the depression year of 1933. This concern, he adds, was capitalized at $1,000,000; its actual pipe line investment aggregated $12,400,000, howIE the line owns such "displacement" oil, the inclusion is legitimate, but if shippers supply the oil, inclusion is unwarranted. 48 l.C.C. Valuation Reports 249, 859 ('938). ιοί Federal Trade Commission, Report on Pipe-Line Transportation of Petroleum (1916), p. xxvii. loa ibid., p. 8. ιοβ United States, House Committee on Interstate and Foreign Commerce, Report on Pipe Lines (1933), Part 1, p. Ixxiii. 10T The Pipe Line's Place in the Oil Industry (1935), pp. 51-53·

8o

RATE

REGULATION

108

ever. If the latter sum were utilized in figuring the rate of return, net earnings would drop to less than 28 percent. In criticizing an Interstate Commerce Commission report on recent pipe line earnings, Mr. Mills estimated that whereas it gave the average dividend on stock declared by common carrier oil pipe lines at 32 percent for 1933, the average return on the total pipe line investment was 14.1 percent. 109 While write ups in capitalization would reduce the percentage rate of dividends and thereby be advantageous to the lines from a public relations standpoint, they would be expensive, for they would necessitate payment of heavy additional state capital stock taxes. 110 These taxes constitute strong deterrents to stock-watering 011 a scale sufficient to improve public relations. In analyzing reported rates of return, consideration should also be given to the specialized nature of pipe line service for dwindling mineral deposits. When an oil pool first "comes in," for instance, and the volume of crude to be conveyed by pipe line is great, the cost per barrel of pumping it is small. Later, dwindling production brings about rising per-barrel costs, 111 unless new pools are tapped so as to maintain traffic. T h e best solution for declining business of this variety, says Mr. Mills, is to set a rate that will average out all right over the life of a field. Such a rate may appear to the casual observer to be too high at the peak of oil flow and too low when the field is old. 1 1 2 Uncertainty about the life of a pool and hence the rate at which pipe line investment should be written off, coupled with the possibility that better pools may suddenly divert demand to new areas, produce inescapable hazards in the pipe line business which also tend to justify to some degree a fairly large initial rate of return. For instance, a swift rise in output in the Los Angeles oil basin in 1923 resulted in io» Idem. ιw Idem. 11 Interview with L. C. Stevens, of the Standard Oil Company of New Jersey, Aug. 21, 1940. »Ii R . Van A. Mills, The Pipe Line's Place in the Oil Industry (1935), pp. 49-5 1 · 112 Idem.

RATE

REGULATION

81

large shipments of oil by boat to Atlantic Coast refineries, replacing much of the oil normally drawn by pipe line from midcontinent sources. 113 PUBLIC

CONSEQUENCES

OF

RATE

REGULATION

What would happen if federal and state regulatory bodies were to bring about further reductions of pipe line charges, on the ground that they were too high, even considering extenuating circumstances? T h e largest group which would be affected by common carrier pipe line rate changes consists of corporations owning or otherwise having substantial interests in the pipe lines through which they ship fluids. Where an oil corporation engages in numerous phases of the oil business, from production and pipe line transportation to refining and marketing, a reduction in its pipe line rates may enable it to charge itself less for carrying its own oil and may permit it to realize correspondingly greater revenues on the remaining phases of its activity. But why bother to cut rates, merely to readjust the interdepartmental bookkeeping of such a corporation? From the company's standpoint, the answer partially lies in the fact that lower rates spell lower taxes on pipe line transportation charges. 114 Reduced rates, by reducing profits on pipe line operations and permitting smaller losses on other aspects of its business, may also enable the corporation to reduce excess profits taxes and the total taxable income of its subsidiaries. 1 1 5 For these and other reasons, companies owning pipe lines sometimes apply to state commissions for permission to charge lower rates for hauling their own property. 1 1 6 u s J . E. Pogue, Economics of Pipe-Line Transportai ioti in the Petroleum Industry (193s), pp. 1 8 - 1 9 . ii< l'or reference to the federal tax on pipe line charges, see p p . 143-44. u s Federal tax laws forbid the oiïsetling of the losses of one subsidiary by the profits of another subsidiary, thus "catching companies in their o w n brackets." 11« Testimony of Ernest O. T h o m p s o n , member of the T e x a s R a i l r o a d Commission, United States, Senate Committee 011 Interstate Commerce. Hearings on the Transportation Act of u>}· * H . G. M o u l t o n a n d associates, The American Transportation Problem ('93S)> Ρ· 7 ' 5 - S o m e of this d i f f e r e n c e m a y b e a t t r i b u t e d to t h e a p p l i c a t i o n of "full crew l a w s " t o r a i l r o a d s b u t n o t t o p i p e lines. » N a t i o n a l R e s o u r c e s C o m m i t t e e , Technological ("937). P· ' 9 7 ·

Trends

and National

Policy

PIPE LINES AND O T H E R

CARRIERS

133

more complicated and expensive means of providing power. Pipe lines move only the commodity transported, while railroads must also haul cars and associated equipment along with the freight, as dead weight. Moreover, shippers by tank car must pay for the return of empties, where suitable mineral shipments are not available in the reverse direction. Furthermore, pipe lines avoid some of the fire risks attendant upon rail movements of mixed freight.® Evaporation losses, especially for gasoline, may also be notably lower by the former than by the latter mode of transportation. 7 On the other hand, railroads move many kinds of commodities by train, which means that they can afford to handle a few tank cars in an area in which the volume of fluids alone is not sufficient to justify building a pipe line. So strong are the technological advantages enjoyed by pipe lines that under current business methods they are able to move freight at considerably less expense than the railroads. "From the standpoint of carrier cost," said the Interstate Commerce Commission in a recent rate case, "transportation is much more economical by pipe line . . . than by rail." 8 J . E. Pogue, an oil engineer, is more specific. T h e average cost of pipe line transportation probably does not exceed 0.4 cents per ton-mile, according to his estimate, as against a cost for moving freight by rail of about 0.75 cents per ton-mile.9 6 Federal T r a d e Commission, Report on Pipe-Line Transportation of Petroleum (1916), p. 12. » P. A. Walker, "Pipe-Line Transportation of Gasoline," The Annals of the American Academy of Political and Social Science, Jan., 1934, p. 233. s 171 I.C.C. 286, 303. 9 In his Economics of Pipe-Line Transportation in the Petroleum Industry (1932), p. 10. Such computations of comparative costs are by no means exact sciences. Where pipe lines are affiliated with producers or processors, or both, allocations of overhead expenses to pipe line operations alone may be both complicated and debatable. Nor is the figuring of depreciation in the case of either pipe lines or railways a precise operation. Moreover, comparisons of pipe line and rail costs represent averages. Under some conditions, especially the presence of heavy traffic, pipe line costs may be further below rail costs than in the average instance, while if the traffic in lluids is light and diversified, rail costs may even be considerably less than pipe line costs to particular points. Moreover, comparisons between bulk methods of moving oil by

134

PIPE

LINES AND OTHER

CARRIERS

Having, as a rule, both technological and economic advantages over the railroads, pipe lines are able to give them strong competition. Frequently this competition arises from the carrying of identical commodities by the two mediums of transportation. T h e extent of such rivalry may be judged from the National Resources Committee's report that in 1937 some 24 times as much crude oil was being moved by pipe line as by rail. 1 0 Moreover, pipe lines for refined oil are making fresh inroads on railroad business. T h e Interstate Commerce Commission declared that in 1939 federally regulated common carrier pipe lines conveyed 65,000,000 barrels of refined oil, including gasoline. 11 Another variety of competition consists of the movement by pipe line of fluids which displace solid freight, transportable by rail. Pipe lines conveying liquid fuels, for example, have contributed to the displacement of coal in many homes and factories, thereby materially reducing the coal-hauling activities of the railroads. 12 The choice of policies.—What should be done about the regulation of pipe line rates and services, in view of the lines' capacity for cutting into railroad business? One course would be to try to coordinate the regulation of pipe lines and of railroads in such a way as to allow common carrier pipe lines only that degree of freedom compatible with a certain preservation of railroad property values. A second course would be to recognize the relative technological efficiency of the two modes of transportation and allow the pipe lines to take all the traffic they can get, on that basis. T h e r e are strong inducements to government to follow the former course. Under existing federal legislation, the Interstate Commerce Commission is required to consider the needs of railroads for revenues sufficient to maintain adequate servpipe line and individual carload methods of conveying oil by rail discriminate against railroad operations. Infra, p. 140. 10 Technological Trends and National Policy (1937), p. 197. 11 Interstate Commerce Commission, Annual Report foi ryip, p. 47. M. Van Kleeck, Miners and Management, p. 374.

PIPE LINES AND O T H E R CARRIERS 135 ice, under efficient management. During the crisis that began in 1929, almost all railroads were finding it difficult, if not impossible, to secure what is conventionally regarded as adequate income. A number of great lines, including the Wabash, the Erie, the Missouri Pacific, and the Chicago, Milwaukee and St. Paul, went into bankruptcy. Others suffered lesser degrees of financial distress. Branch lines were abandoned, stations were closed, and services curtailed in regions where competition had made operations unprofitable. Employment was cut deeply. T o bolster up the railroads, the Reconstruction Finance Corporation, a federal agency, proceeded to lend millions of dollars to needy lines. With a regulatory responsibility for the railroads and a financial stake in them, under the pressure of widely scattered security holding interests, and in recognition of the vital relation of railways to national interests, the government has been impelled to give serious attention to the stabilization of the railroad industry. In part, such stabilization means assisting the railroads to meet competition from pipe lines, through suitable coordination of rate and service regulations for the two mediums of transportation. On the other hand, it may be argued that the railroads are not entitled to such consideration. An investigation, by the Committee on Interstate Commerce of the United States Senate, of ten years of recent railway financing has revealed many practices deemed by it to be reprehensible. 13 Private students of the subject, too, show how banking interests have 011 various occasions manipulated railroad finances to their own benefit and to the serious injury of railway companies and their investors. 14 Why, it may be asked, should concerns that have been guilty of gross financial mismanagement be helped to secure good returns on their capital, in competition with pipe lines that have been built economically and efficiently, at cap13 United States, Senate Committee on Interstate Commerce. Report Committee on Interstate Commerce Pursuant to S. Rts. 7 1 (19.10). n For example, M . Lowenthul, The Investor Pays.

of

the

136 P I P E L I N E S A N D O T H E R C A R R I E R S italizations so low as to be characterized by government officials as undercapitalization? 15 It may be said, too, that, since the railroads have already received far more public assistance than the pipe lines, they should be satisfied. T h e Federal Coordinator of Transportation has gathered extensive information on public aids to railroads. His report reveals loans of government money to the railroads of $115,000,000 from the Reconstruction Finance Corporation, $46,000,000 from the Federal Emergency Administration of Public Works, $48,000,000 in federal loans for the building of the early Pacific railroads, and $50,000,000 in the form of subscriptions by state and local governments to railroad stocks and bonds. He adds to this a total of $429,000,000 in land giants, $6,000,000 representing drawbacks of tariff duties on railroad iron, tax exemption by state and local governments valued at $13,000,000 and numerous other items.1® In contrast, he finds public aids to pipe lines amount to only some $77,000." Is not this discrepancy in favor of the railroads enough, it may be asked, without widening it by regulations calculated to assist the railroads at the expense of their pipe line competitors? Amid the confused state of current opinion as to whether the regulation of pipe lines and railroads should be so coordinated and adjusted as to aid the railroads, or whether the two mediums should be allowed to fight it out with a minimum of governmental intervention, no consistent official policy has been developed. T h e most that can be said is that certain methods of discouraging or encouraging competition between the two mediums of transportation stand out with sufficient sharpness to deserve recognition here. Projects of this type are not only important for the immediate bearing they have on current pipe line regulation, but for the guidance they is Supra, pp. 78-80. 10 Federal Coordinator of Transportation, Public (1940), Vol. I, p. 19. 1- Ibid., p. 34.

Aids to

Transportation

PIPE LINES AND O T H E R CARRIERS 137 offer those who would formulate broad and coordinated national transportation policies. Pipe lines on railroad rights of way.—To some degree, the character and extent of pipe line competition with the railroads is affected by governmental regulations requiring the two mediums to maintain entirely separate facilities. 18 Colorado is a case in point, for while common carrier pipe lines there can condemn a passage across a railroad, they cannot condemn a right of way along any railroad. 10 New York has a statute which goes beyond the mere matter of condemnation to forbid common carrier pipe lines to take or use the lands, fixtures, or structures of any railroad corporation except for purposes of a direct crossing.20 Both pieces of legislation might well tend to stand in the way of easy working arrangements between common carriers by pipe and common carriers by rail, arrangements which in the past have caused trouble for many shippers. 21 Maintaining differentials between pipe line and rail rates.— The extent and severity of competition between common carrier pipe lines and railroads are also partly determined by the relationship between the rates which the two agencies of transportation are permitted to charge. As a rule, pipe lines are authorized by federal and state regulatory bodies to operate under lower rates than the railroads. A Congressional document, published in 1933, states that pipe line rates on crude oil were then generally materially lower than those available by rail. 22 J . Paul Kelley, an examiner for the Interstate Commerce Commission, provides later and more specific information. He reports that a large sampling of common carrier pipe 18 For instances in which pipe lines have used railroad rights of way, see supra, pp. 42-43. For payments by pipe lines for the use of such rights of way, see n. 5 1 , supra, p. 42. 19 19)} Colorado Statutes Annotated (1937), Chap. 6 1 , § 4 5 . 20 Thompson's Laws of New York (1919). Transportation Corporations [.aw, Sec. 84. 21 Supra, pp. 1 3 - 1 4 . 22 United States, House Committee on Interstate and Foreign Commerce, Report on Pipe Lines (1933). Part 1, p. lxxii.

i38 P I P E L I N E S A N D O T H E R CARRIERS line rates for crude oil revealed, by the process of simple averaging, that the pipe line charge was 35.72 percent of the rail rate. 23 T o a limited degree, gasoline pipe line rates are also below those q u o t e d by rail, as a report to Congress demonstrated by contrasting the 7.04 cents per 100 pounds which was charged for m o v i n g gasoline by pipe line from Bay way, N e w Jersey, to T u c k e r t o n , Pennsylvania, with the corresponding rail rate of 21 cents per 100 pounds. H o w e v e r , pipe line and rail rates on gasoline through the M i d d l e W e s t tend to be more or less identical, according to the same source. 24 O n e possible governmental policy, obviously, w o u l d be to preserve these existing relationships between pipe line and rail rates, with a view to allowing the pipe lines to enjoy their present advantages over the railroads in the current struggle for business. Increments in the rate differential.—An alternative policy would be to widen the existing gap between pipe line and rail rates by reducing the level of the former. It may be argued on behalf of this plan that many pipe lines are earning large profits 25 and could still enjoy a fair return if their charges were cut considerably. If such a step were taken, then competition between pipe lines and railroads could reflect to a greater degree than at present the relative technological advantages of the two modes of conveying fluids. Y e t such a venture would, by tending to divert still more business from the railroads, stir u p opposition from the latter as well as from those shippers who, for various reasons, depend entirely 011 the railroads for m o v i n g freight. Moreover, federal and state regulatory bodies are under some obligation to help the railroads earn a return on their investment. Further impairment of rail earnings w o u l d obviously increase the difficulties already encountered Proposed report in connection n i t h I.C.C. Docket No. 26570, mimeographed, p. 14, located in the Commission's library. 2 * United States, House Committee on Interstate and Foreign Commerce, Report or. Pipe Lines, Part i, p. 491. 25 Supra, pp. 76-78.

PIPE LINES A N D O T H E R C A R R I E R S 139 in discharging this responsibility. Whether these considerations will prevent a general pipe-line rate reduction is doubtful, however, as this volume goes to press.28 Lowering railroad rates.—Rather than to maintain or increase the existing gap between common carrier pipe line and railroad rates, government might pursue a third course by striving to equalize rates for the two mediums of transportation. One way of attaining this result would be to lower railroad rates toward the pipe line level. Certain mid-continent refiners pointed out the supposed advantages of such a course when they urged before the Interstate Commerce Commission a reduction in rail rates to the East to the lowest level within the zone of reasonableness, on the theory that it would greatly increase rail tonnage. T h e Commission countered by stating that the cost of moving freight by pipe line is much less than the cost by rail and by intimating that it was not reasonable to suppose the pipe lines would stand idly aside and permit the railroads to enjoy the full advantage of such a change. 27 While the Commission has been skeptical as to the ability of lowered rail rates to bring railroads a sudden increment of business, it has admitted that reductions might help them to retain such traffic as they already have. On this theory it has frequently acted. For instance, it granted a request by a group of railroads for lower rates on refined oils moving from the Southwest to Chicago, a step designed to discourage diversion of business to gasoline pipe lines, one of which was then under construction to serve that territory. From this ruling Commissioner McManamy dissented, arguing that the rates so established still were not low enough to prevent the loss of rail traffic, for they were 50 percent above the level requested by oil interests as a condition for using the railroads rather than building pipe lines to carry gasoline. 28 Such discussions tend to exaggerate the difficulty of lowerA pipe-line rate reduction was pending in Feb., 1941, supra, p. 67. s? 183 I.C.C. 2f, 24-28. 28 183 I.C.C. 24, 29-30.

140

PIPE

LINES

AND

OTHER

CARRIERS

ing rail rates toward the pipe line level, because they compare an unfavorable rate structure in the case of the railroads with a favorable one in the case of the pipe lines. T h a t is, railroads base their minimum charge for handling oil on the cost of moving individual carloads between a diversity of points by means of mixed trains, with all the attendant switching, stopping and starting, whereas important long-distance interstate pipe lines base their charges on the simpler process of handling runs that would fill at least 400 carloads, as single shipments. 2 " If, on the other hand, the railroads revised their rates to take full advantage of the economies possible through bulk shipments, comparable in size with those handled by pipe line, a very different condition might be produced. According to the Federal Coordinator of Transportation, full trainloads of oil could be moved from a single track at some point of origin to a single track at some destination, without any yarding operations, at a cost of less than 2 mills per net ton-mile. a0 If railroads offered such service at correspondingly low rates, their trunk-line tariffs would not only be well below the existing level but might be less than the rates for the same type of bulk shipment by pipe line. 3 1 T h o u g h the Interstate Commerce Commission has regulatory powers over both pipe lines and railroads, and hence is in a position to equalize their rates in the above manner, it long refused to adopt such a course. In condemning multi-car rates, it was upheld by the Supreme Court of the United States on the grounds of public policy. T h e Commission's view was that lower rates on many cars than on single carloads would benefit only those few shippers by rail who were able to send large 23 Minimum tender rules, supra, pp. 92-93. 30 United States, Federal Coordinator of Transportation, Freight Traffic Report (1955). Vol. I, p. 103. 31 T h e Coordinator's report placed the cost of trainload lot rail movements at less than t. mills per net ton-mile, as against 2.1 mills for pipe line transportation, but these figures were for trunk line service only; ibid., pp. 98, 103. How the cost of bringing oil from wells to trunk line facilities and of delivering it from trunk lines to individual refineries would compare for the two mediums of transportation is not indicated in the cited document.

PIPE

LINES AND O T H E R

CARRIERS

141

quantities at a time and would thereby work an injustice on the small man, unable to fill a train of cars.32 Was the above policy of discriminating between pipe lines and railroads as to sizes of shipments justifiable? It appeared to spring from a desire to help "the little fellow." When he sought to ship by pipe line, he was told that owing to the intermingling of small lots on long runs, it was impractical to take the contents of a single tank car from him and try to deliver it, pure and sound, by long-distance interstate pipe line. Being excluded from this channel of commerce, he turned to the railroads, where his one-car batch would be accepted for transit and where his oil could be kept unadulterated in a tank car throughout its journey. T h e net result was that by virtue of technological necessity the big shipper got the exclusive use of the cheaper means of transportation—the pipe line—and the little shipper was allowed to use the more expensive rail routes. It is easy to understand the result—nearly twenty-five barrels of crude oil are carried by pipe line for every barrel carried by rail," and the large concerns utilizing the pipe lines have pretty well driven their small rivals, shipping by rail, out of business. In view of the technological situation thus presented, it would appear that the effort to save "the little fellow" by preserving the carload rate idea as applied to railroads has neither saved him nor done much to relieve the railroads. A new policy would thus appear to be in order. Its beginnings may, perhaps, be seen in a recent decision by the Interstate Commerce Commission covering multi-car shipments of molasses. Here the Commission accepted as valid the principle that special multi-car rail rates were needed, to compete with bulk rates by water. An extension of the idea to the oil industry was being considered while these pages were going to press, in the Petroleum Rail Shippers Association case, involving a 32 For a history of these decisions, see 235 l.C.C. 485 (1939). 3» United States, National Resources Committee, Technological National Policy (1937), p. 197.

Trends

and

142 P I P E L I N E S A N D O T H E R C A R R I E R S request for low rates on trainloads of at least 25 cars of gasoline. 31 While the federal government has yet to apply the multi-car lot principle to oil shipments by railroad, state authorities have already experimented with it. T h e Federal Trade Commission mentions that some rail rates, based on a minimum number of carloads or on trainloads of at least a certain number of cars, have been decidedly lower than the ordinary rates for individual carloads. "Trainloads" of five or more cars of crude oil, it reports, once could be dispatched from the Caddo and Mansfield areas in northern Louisiana to Shreveport, in the same state, at a cost 50 percent lower per barrel than was possible under carload tariffs. 35 Raising pipe line rates.—Having discussed one means of narrowing the gap between pipe line and rail rates, namely, the proposal to reduce the latter, it now remains for us to deal with the alternative means of narrowing that gap—raising pipe line charges. By appropriate action on the part of regulatory bodies, it is conceivable that pipe lines could be ordered to increase their tariffs to a considerable degree. This would tend to swell the earnings of pipe line companies, already quite attractive," to points where it might not be easy to justify them in court or before the public, and hence there would seem to be some very practical limitations to the process. Moreover, a large volume of fluid moves through pipe lines owned by producing, refining, or marketing organizations. T h e latter would experience no difficulty in continuing to ship via the facilities of their pipe line subsidiaries, even under drastic rate increases, since the profits under such rates would be returned in the form of pipe line dividends. A shift in rates would not, therefore, necessarily divert the traffic of integrated companies s* For molasses rates, see 235 I.C.C. 485 (1939). For the trainload rate on gasoline, see Oil and Gas Journal, January 23, 1941. p. s i . Federal T r a d e Commission, Report on Pipe-Line Transportation of Petroleum (1916), pp. 447-48. 3« Supra, pp. 76-78.

PIPE LINES AND O T H E R C A R R I E R S 143 to the railroads. In short, there is no magic for the railroads in the suggestion that pipe line rates be raised toward the railroad level. Taxation has been suggested as an alternative means of augmenting pipe line charges. This possibility was explored in 1932, during the discussion of a proposal made in Congress by Representative Crisp for placing an 8 percent tax on charges for the transportation of oil by pipe line, without levying any corresponding tax on the railroads. 37 Commenting on the project, Representative Hastings took the view that in the presence of the tax the pipe lines would raise their charges by 8 percent.58 T o the extent that this proved to be the case, the differential between rail and pipe line charges would be cut, and the railroads would have improved their competitive condition—a possibility about which Representative Kvale inquired. 30 Here, it might appear, is a plan whereby pipe line rates might be increased without simultaneously raising the already attractive earnings of the lines. In the end a bill was passed, effective July 15, 1932, whereby a 4 percent levy was made on the amounts actually paid for the transportation of crude oil or its liquid products by pipe line, provided such sums represented fair charges for the service. Where pipe lines billed affiliated interests too little or nothing for conveying oil, then the government computed "fair charges," on which it proceeded to collect a 4 percent tax.40 Did the measure really improve the competitive position of the railways? The answer is confused. In the case of the so-called "independent pipe lines" a positive answer may be indicated. But in the case of certain large oil companies, engaged in moving oil through their own pipe lines, the tax led to a re37 Congressional Record, March 3 1 , 1932, pp. 7225-26. An 8 percent tax on pipe line transportation charges, and a 3 percent tax on railroad charges was levied by Title V, Sec. 500, of the Revenue Act of 1918. se Congressional Record, March 3 1 , 1932, p. 7227. se Idem. 47 U.S. Stats, at Large 275; 48 U.S. Stats, at Large 206; 49 U.S. Stats, at Large 431; 50 U.S. Stats, at Large 358.

144 P I P E L I N E S A N D O T H E R C A R R I E R S duction in their rates, in an effort to establish a lower "fair charge" scale for transporting their own oil, so as to minimize their tax bills. 11 Here the railroads were not aided. PIPE

LINE

COMPETITION

WITH

TANKERS

Nature and extent of tanker competition.—While the railroads, under existing arrangements, constitute a more expensive means of transportation than pipe lines, modern tank vessels provide a less costly method of moving oil than do the pipe lines.42 For this reason, a large Heet of tankers has appeared under the American flag. In 1938 there were 418 oil tankers of 1,000 gross tons or over, bearing American registry, plus various smaller coastal vessels and boats and barges plying the inland waterways.43 It is estimated that floating equipment engaged in coastwise traffic alone moves a little over a third as much crude oil as the pipe lines.44 During the first six months of 1939, the chief movements of domestic petroleum by tanker were from California to the East Coast and from the Gulf to the East Coast. T h e former amounted to 4,332,000 barrels, as compared with 194,916,000 barrels for the latter.45 T h e effects of these movements on pipe lines are diversified. Some pipe lines are almost if not entirely devoted to moving oil to the coast for loading on tankers and are thus benefited by tanker operations.46 In other instances, pipe lines, carrying oil from fields far inland to refineries in « Supra, p. 81. 42 According to the testimony of J . Howard Pew, president of the Sun Oil Company, his concern was able to transport crude oil by tank vessel, in 1937, at a cost of 0.063 cents per ton-mile, whereas the cost by crude oil pipe line was 0477 c e n t s per ton-mile. United States, Temporary National Economic Committee, Investigation of Concentration of Economic Power—Hearings before the . . . Committee . . . (1940), Part 14, pp. 7163, 7178. P a n a m a R e f i n i n g C o m p a n y v. R y a n , 293 U.S. 388 (1935); Schechtcr v. United Stales, 295 U.S. 495 (1935). so «91 U.S. 502 (1934).

SUMMARY AND CONCLUSIONS

167

comparatively recent. Although at first associated in a systematic manner with actions taken under anti-trust legislation against trade unions engaged in strikes which obstructed commerce, it later developed into a theory capable of justifying sweeping social, labor, and economic legislation. It is the basis of the "Hot Oil" Act which was approved on February 22, 1935, and which is now scheduled to expire in 1942. This measure prohibits the transportation in interstate commerce of oil shipped contrary to state regulations and prescribes heavy penalties for violations. For the purpose of introducing flexibility, the President is authorized by the law to lift the embargo on "hot oil" when he finds that the amount of petroleum and its products moving in interstate commerce is so restricted as to cause, in whole or in part, a "lack of parity between supply and consumptive demand resulting in an undue burden on or restriction of interstate commerce in petroleum and its products." T h e administration of this measure is now vested in the Secretary of the Interior, as Oil Administrator. From a broad statement made by Chief Justice Hughes, it would seem that the doctrine of the free flow of commerce might be extended much further, perhaps permitting regulation of the entire oil industry in considerable detail. The congressional authority to protect interstate commerce from burdens and obstructions [he said] is not limited to transactions which can be deemed an essential part of a "flow" of interstate or foreign commerce. Burdens and obstructions may be due to injurious action springing from other sources. . . . That power [to regulate commerce] is plenary and may be exerted to protect interstate commerce "no matter what the source of the dangers that threaten it." If intrastate activities, he continued, have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions, Congress cannot be denied the power to exercise that control. . . . That intrastate activi-

168

SUMMARY AND

CONCLUSIONS

ties, by reason of close and intimate relation to interstate commerce, may fall within federal control, is demonstrated in the case of carriers who are engaged in both interstate and intrastate transportation. There federal control has been found essential to secure the freedom of interstate traffic from interference or unjust discrimination and to promote the efficiency of the interstate service.31 With integration proceeding in the oil industry of its own accord, or through government encouragement, the foregoing legal formulas might be applied to the development in some such way as this: (1) T h e policy of conserving natural resources, as expressed in existing prorationing orders issued by states and supported by federal authorities, might justify public supervision of production. (2) Conservation, perhaps aided by demands for more national defense in these days of motorized armies, might be utilized to permit control over refining operations, so as to weed out inefficient plants and confine oil processing to the really modern plants capable of doing the best work. (3) Pipe lines connecting oil fields with refineries, and refineries with points of distribution, could be controlled on the principles under which they are now regulated, namely, that the public has acquired an interest in them because they cross public lands, public roads, or public streams, and because they exercise the right of eminent domain, a right that can be employed only for a public purpose. (4) The powers of the government to stabilize industries, as sustained in the milk business and as exerted in the soft coal trade, might serve as a basis for regulating over-all rates and services. (5) And the doctrine of the "free flow of commerce" might be employed to fill the gaps left by the use of the other legal formulas. Through a proper coordination of all these means, it would be feasible to develop a unified plan for placing the oil industry on a quasi public-utility footing, subject to such rate and service regulations as might be necessary to increase its technical efficiency and service to the nation. • i National Labor Relations Board v. Jones and Laughlin Steel Corporation, 301 U.S. 1 (1937).

SUMMARY AND CONCLUSIONS

169

Such a program would have major consequences, in terms of governmental transportation policies. It would be relatively easy to remove from the common carrier category those pipe lines now connected through common ownership with other phases of the mineral industry. Pipe lines at present enjoying an independent status could, in some cases, become affiliated with the concerns they serve and thereby leave the common carrier group. T h o u g h these steps would take time and effort, the final result might very well be to leave few, if any, pipe lines in the common carrier classification. T h i s would, of course, virtually eliminate the difficulties now encountered in trying to coordinate the regulation of pipe lines with that of other types of common carriers.

WHICH

VIEW

SHOULD

PREVAIL?

Is the horizontal view better? Should pipe lines be treated primarily as transportation agencies, by labeling them as common carriers? Or should the vertical view be taken, that they are plant facilities of the mineral industry, and that entire companies in that industry, rather than their mere pipe line segments, should be regulated on public utility principles? T h e latter attitude appears to be the more closely in line with existing industrial organization. If pipe lines are to become common carriers in fact as well as in name, it seems highly probable that they will have to be broken away from the oil and other interests to which they are now tied. O n the other hand, the vertical public utility principle could be applied to companies with little disturbance of their business structures, since most of the oil and gasoline pipe lines are already parts of integrated oil companies. T h o u g h the vertical plan appears to be more in accord with current business organization in the pipe line field than the horizontal plan today, is this state of affairs likely to continue? T h e bulk of the common carrier pipe lines now convey pe-

170 SUMMARY AND CONCLUSIONS troleum or its products. 32 These lines are now largely the property of vertical companies. As the oil fields are depleted, these concerns will look for substitute fuels with which to remain in business. As new forms of freight for pipe lines appear, such as alcohol made from vegetable matter, or liquefied or powdered coal, it is reasonable to suppose that the interests involved will seek to preserve their organizations by adapting their pipe line, refining, and marketing properties to the new commodities, as best they may. Under the circumstances, and other things being equal, the vertical form of organization now found in the oil industry might very well be preserved. Governmental organization is, and will probably remain adapted to either the horizontal or the vertical system. T h e national authorities regulate oil pipe lines as common carriers, through the Interstate Commerce Commission, and natural gas pipe lines as parts of vertical utilities, through the Federal Power Commission. Many state commissions simultaneously regulate oil pipe lines as common carriers and water and gas pipe lines according to the vertical public-utility principle. Considering the total situation as to business and governmental organization, it is probable that the vertical principle could be universally applied in practice with fewer changes in structure than would be required to make the common carrier plan genuinely effective. Whether it is desirable, however, to take the path of least resistance in the matter of organization depends on many considerations. Among these is the popular attitude toward "smallness" as compared with "bigness." T h e horizontal plan might foster smallness in business, while the vertical plan certainly would have the opposite tendency. In other words, where pipe lines are common carriers they may be required to pump fluids for small concerns that cannot afford to build or operate lines at all, permitting at least some of them to survive. If the major lines were, however, made the 82 As pointed out elsewhere, many natural gas lines are nominally common carriers, but in practice few, if any, such lines really operate as common carriers. Supra, pp. j i - j a , 57-5H.

SUMMARY AND CONCLUSIONS 171 private property of large vertical companies and closed to outside shippers, little concerns would be driven to the wall by being deprived of transportation facilities. This would encourage bigness. Indeed, it is conceivable that if consolidation were deliberately promoted under the public utility plan and bigness pushed to the limit, the oil industry might be brought together into a few major systems, as the railroads were united under government control during the World War. There are signs that some states favor the latter course, while the federal authorities favor the former, 33 a situation which, if aggravated, might well give rise to a disturbing conflict of power and of principles. A choice between the horizontal and the vertical schemes requires consideration of the further element of their relative efficiency. If common carrier lines were consolidated and their operation correspondingly revised, either under private or public ownership, certain important gains in efficiency would become technically possible. The practice of working competing lines well below capacity and subjecting them to mixed types of fluid freight could be replaced by that of using fewer lines, operating them closer to capacity, and assigning each to some particular variety of freight. Though no careful analysis of the savings that might be so achieved is available, the gains in efficiency would appear to be substantial. If, under the stress of some military or other emergency, the government were not only to take over and operate common carrier lines with a view to increasing transportation efficiency, but also were to try to eliminate inefficient refiners and producers through priorities or other controls, an even higher over-all efficiency might be obtainable in the mineral industries. Adoption of the vertical plan, however, would perhaps permit equal or even greater efficiency. At least a unified management for the entire process of handling oil, from wells to filling stations, would have greater opportunities for improving efficiency than exist in a 33 Supra,

pp. 117-18, 120, is6-a8.

172 S U M M A R Y AND C O N C L U S I O N S mere reorganization of common carrier pipe lines, as such, either alone or reinforced by government regulation of refineries. Would greater efficiency, under either the horizontal or the vertical plan, be accompanied by lower prices for petroleum products? T h e struggle for business among oil companies, if encouraged through government regulation or public ownership capable of making effective common carriers out of pipe lines generally, might well lower prices. Indeed, if the competition became sufficiently intense, perhaps with the assistance of anti-trust actions and other measures, oil might sell below the actual cost of handling and refining, the gap being met through absorption of investors' savings. Recourse to the vertical plan, whereby the production, transportation, refining, and marketing of oil became a continuous process carried on by single organizations, with prices regulated by the government as in the case of water, gas, or electric companies, might produce either of two effects on prices. It might encourage companies to pad their valuations as a means of charging more for oil within the fair-return framework of pertinent legislation. On the other hand, if public agencies were able, by regulatory action, to translate the gains in efficiency, made possible through unified management and the elimination of competitive conditions, into price reductions, the public might benefit substantially. Just what would actually happen to prices, were one plan chosen in preference to the other, would, in short, depend on the accompanying policies and the manner in which they were executed. T h e r e are certain other advantages inherent in the plan of regulating entire mineral industries as public utilities. As applied to the oil business, the policy would put an end to the awkward situation which now exists, whereby companies condemn private land for rights of way for pipe lines that may be common carriers in name but which are, in fact, operated wholly for private ends, in flat defiance of the spirit of the law

SUMMARY AND CONCLUSIONS

173

requiring that the power of eminent domain be exercised solely for a public purpose. A greater gain from the treatment of the oil industry as a public utility would be that a broad governmental policy could then be applied to it, rather than having diverse policies applied to its various components, such as pipe lines. Experience with the regulation of natural gas companies as public utilities other than common carriers indicates that such comprehensive treatment of a mineral industry as a unit is thoroughly feasible. Moreover, such coordinated control should make possible a more effective conservation of oil resources. Even if inadequately administered, a broad public utility policy could scarcely be less efficient in the control of the businesses involved than the present program, whereby many lines are regulated only on paper, or could scarcely subject the oil industry to greater vicissitudes than they have suffered under the regime of alternate encouragement and prosecution as combinations alleged to be in restraint of trade.

Table of Cases

Associated Pipe Line Co. v. Railroad Commission of California et al., 169 Pac. 62 30, 35-37 C h a m p l i n Refining Co., In re, 264 Pac. 160 Charleston Natural Gas Co. v. Low el al., 44 S.E. 410 .

32 .

41-42

Clear Creek Oil and Gas Co. v. Ft. Smith Spelter Co., 255 S.W. 903 66M,

71 Η

C u m b e r l a n d Pipe Line Company et al. v. Commonwealth ex rei. Sheriff of Estill County, 79 S.W. (2d) 366 98η Hall v. Cumberland Pipe Line Co., 237 S.W. 405 .

.

.ion

M o n t a n a Eastern Pipe Line Co. v. Montana Dakota Utilities Co., 26 F. Supp. 284 66m, 73η National Labor Relations Board v. Jones and Laughlin Steel Corporation, 301 U.S. 58 54, 167-68 National T r a n s i t Co. v. Weston et al., 121 Pa. 485 .

.11«

Nebbia v. New York, 291 U.S. 502

166

Panama Refining Co. v. Ryan, 293 U.S. 388

166

Pierce Oil Corporation et al. v. Phoenix Refining Co., 190 Pac. 857; 2 59 U.S. 125 3 1 - 3 2 , 44-45- 1 0 3 " Pipe Line Cases, T h e , 234 U.S. 548 l i . 12, 33-34. 3°. 5°-5'> 58, 737- >3 8 · >43· >45-46. 153. >56. i6o'i Conservation, of oil a n d gas, 72; i n fluence o n need f o r p i p e - l i n e service, 88; m o d e r n refineries as a n aid to, 98η; enforced t h r o u g h regulati n g p i p e lines, 101-2; p u b l i c interest i n , 164-65, 168

116-20

C o m m e r c e , see I n t e r s t a t e commerce " C o m m o d i t i e s Clause," 114-16, 125 C o m m o n carriers by p i p e line, m a n ner i n which shipments are m a d e via, 3-4; e x t e n t of, 4, 46-48; influence of, 5-6; o r i g i n of legislation c o v e r i n g , 10-27, 148-50; c h a r a c t e r of

legislation d e f i n i n g , 28-55, 150-51; m a y d o very little c o m m o n carrier b u s i n e s s , 82-84, 94, 99, 105, 111-12,

• 5«, ' 5 5 . 172-73: see also P i p e lines; for contrast with private carriers, see P r i v a t e carriers; for rates, see Rates; for regulation of services, see Service; for affiliations with other enterprises, see Affiliates C o m m o n carriers by rail, as related t o c o m m o n carriers by p i p e line, 5, 4243. >34-44. >46-47. >57-6o C o m m o n carriers by water, 145-46 C o m m o n p u r c h a s e r statutes, 126-28, 130, 162-63

C o m p e t i t i o n , of p i p e lines with coal industry, 5; of p i p e lines with railroads, 5, 13, 14, 131-44; e x t e n t of, in o i l industry,

of legislative p o w e r over p i p e lines, 28-29; c o m m o d i t i e s clause, 11416; a n t i - m o n o p o l y legislation, 11g; c o m m o n p u r c h a s e r legislation, 128; tax legislation, 143; d e b a t e s , h e a r ings, investigations, 6, 11-12, 17-18,

16-17, 1 1 0 - 1 3 , >54;

in n a t u r a l gas industry, 22; between p i p e lines, 68-70, 85-87; a n t i - t r u s t actions t o restore, 116-20; of p i p e lines with trucks, 131; of p i p e lines w i t h tankers, 144-46 C o n d e m n a t i o n of l a n d f o r p i p e lines, see E m i n e n t d o m a i n Congress, c o m m o n carrier legislation, 6, 18, 20, 25, 33, 46, 64η, 157; sources

C o n t a m i n a t i o n of s h i p m e n t s , by p i p e line, 4, 96-98, 100; by p i p e line a n d r a i l r o a d , c o m p a r e d , 141 C o n t i n e n t a l Oil C o m p a n y , i n n Costs, of p i p e - l i n e c o n s t r u c t i o n , i2>i; of p i p e - l i n e a n d r a i l r o a d s h i p m e n t of oil, 14; d e t e r m i n a t i o n of, by acc o u n t i n g a n d v a l u a t i o n work, 58C3; d u p l i c a t i o n as s o u r c e of extra, 85-86; i n t e g r a t i o n as affecting, 110, 121; construction a n d o p e r a t i o n , f o r p i p e lines a n d r a i l r o a d s , 132-33, 140η; of o p e r a t i n g t a n k e r s , 144η Crisp, R e p r e s e n t a t i v e , 143 C r u d e o i l , see P e t r o l e u m a n d i t s products C u d d y , Loftus, 89 Cumberland Pipe Line Company, i o n , 98η, 118 Delivery of s h i p m e n t s , see Shipments by p i p e line D e n n i s , C h a i r m a n , 78 D e p r e c i a t i o n a c c o u n t i n g , 59, 72, 80 Dividends, pipe-line, see Earnings Dow, Fayette Β., 131Π D u p l i c a t i o n of p i p e - l i n e facilities, sec Efficiency E a r n i n g s , pipe-line, 75-81. 111, 152; relation between p i p e - l i n e and rail, 138, 142, 147, 159-60; u n d e r gove r n m e n t o w n e r s h i p , 156 E a s t m a n , Joseph B., 114

INDEX Efficiency, duplication of pipe lines as detrimental to, 85-87; of integrated oil companies, 98, n o , 161-62; possibilities for increasing pipe-line, 171-72 Klk Basin Consolidated Petroleum Company, 69-70, 105, 113 Eminent domain, difficulties encountered by pipe lines not possessing power of, 12-13; common carrier status associated with right of, 3233· 39 42. 43; applied to farm lands, 132η; desire to avoid, by placing pipe lines on railroad property, 137; spirit of right of, violated by pipe-line companies, 172-73 Empire Pipeline Company, 49, 107 Eureka Pipe Line Company, 118 Fair return, principle of, see Rates Federal Coordinator of Transportation, 25-26, 136, 140 Federal Power Commission, 92η, 170 Federal T r a d e Commission, figures on pipe-line construction costs, 12η, 78-79; survey of natural gas lines, 22, 34η; report on pipe lines in Arkansas, 52-53; depreciation study, 72; figures on pipe-line earnings, 75-76, 82; need for refinery connections indicated by, 89; on minimum tenders, 93-94; trainload rates for oil mentioned by, 142 Fifth Amendment to the Constitution of the United States, 28, 30 Foraker, Senator, 24-25, 126 Ford, Representative, 113, 116 Fourteenth Amendment to the Constitution of the United States, 29-30 Fuels, see Coal; Gas, artificial; Natural gas; Petroleum and its products Fuller's earth, pipe lines for, 48, 151 Gas, artificial, 47, 161 Gas, natural, see Natural gas Gasoline, conveyance by pipe line of, 19 20, 133; regulation of pipe-line service, 88, 94-95, 159; affiliations of oil industry with gasoline lines, 121; movement of, by truck, 131η;

»79

railroad and pipe-line rates for, 138-39, 142; see also Petroleum and its products General Pipe Line Company, 49, 91η, 107 Government ownership of pipe lines, proposed, 156-57, 160 Grain, piping of, 26 Grants, see Public grants Great Lakes Pipe Line Company, 95 Gulf Oil Corporation, 109-10, 111, 145, 146 Hastings, Representative, 143 Highways, see Roads Hoch, Representative, 112, 115 Holding companies, railroad, 125; pipe-line, 125, 128-29 Holmes, Justice, 54 Hopkins, Senator, 18η " H o t O i l " Act, 167 Huddleston, Representative, 125 Hughes, Chief Justice, 167 H u m b l e Pipe Line Company, 96η Hyder, K. L „ 67, 78η Illinois, judicial decision, 35 Income tax, see T a x e s Independent Oil Producers' Agency, 3* Indiana, has no common carrier law, 49; grades of oil produced in, 96 Indiana Pipe Line Company, 48, 118 Industrial Commission, United States, 13". '4 Interior, Secretary of the, 119, 128, 167; Department of, 156, 164, 166 Interstate commerce, powers of Congress over, 28, 34; when are pipe lines engaged in?, 48-55; doctrine of the free flow of, 54, 166-68; federal policies toward, may conflict with state programs, 129-30; see also Interstate Commerce Commission Interstate Commerce Act, 59, 61, 99, '25· '57-59 Interstate Commerce Commission, reports on extent of common carrier pipe lines, 4, 134; extent of jurisdiction over pipe lines, 22, 33-34, 4243, 49-53, 107-8, 170; regulation of

ι8ο

INDEX

I. C. C. (Continued) pipe-line rates by, 33-34, 57-65, 67, 73 /7. 79-8°. '52-53. "55; regulation of services by, 87, 91-100, 152; attitude toward pipe-line affiliates, 116; coordination of railroad with pipe-line regulation, 133-35, 13742, 155, 157; control over carriers by water, 145; proposed valuation by, preliminary to public ownership of pipe lines, 156 James, Representative, 114-15 Justice, United States Department of, 162η Kansas, natural gas in, 22-23; status of pipe lines as common carriers in, 46; regulation of rates, 57, 66-67; regulation of services, 87, 99, 102, 105 Kelley, J. Paul, 77, 137 Kentucky, status of pipe lines as common carriers in, 46-47; method of delivering oil in, 98η Kerosene, piping of, 19 King, H u g h , 11-12, 89 Kvalc, Representative, 143 La Follette, Robert M., 84, 89 Leakage, pipe-line, 106 Lewis, Ε. I., 6 i n Lloyd, H . D „ 15 Lodge, Senator, 18, 89 Louisiana, status of pipe lines as common carriers in, 37, 40, 46-47; regulation of rates, 57, 62η, 65, 78; regulation of services, 90, 92, 101, 103, 105 n, 106 M c M a n a m y , Commissioner, 139 Magnolia Petroleum Company, 98 Mapes, Representative, 121 Maritime Commission, United States, •45 Maryland, Standard Oil lines in, 50-51 Michigan, brine pipe lines, 44, 48, 56. 105-6, 151; oil and gas lines, 46 47, 87; pipe lines as common purchasers, 126 Mills, R . Van Λ., 7g, 80, 123

Minimum tenders, edects of high, 9295; asserted need for high, 95-98; regulation of, 98-101; relation of, to pipe-line competition with railroads, 140-42 Missouri, gas lines in, 35η Molasses, multi-car shipments of, 141 Monopoly, so-called Standard O i l , 11-17, 34> 94 ; concentration of power in natural gas industry, 22: California suit regarding alleged pipe-line monopoly, 36-37; as means of reducing duplication of facilities, 86-87; commodities clause aimed at, 115; anti-trust suit against Standard Oil interests, 117-18; attitude of New Deal toward, 119-20; concentration of power in oil industry, >54 Montana, status of pipe lines as common carriers in, 18-19, 3 1 · 38. 43. 46, 49η; regulation of rates, 57, 65, 68-71, 73-74, 78; regulation of services, 85, 90, 92, 97, 101. 103, 105, 106; affiliations of pipe lines with oil companies, 113 Montana-Dakota Utilities C o m p a n y , 9*" Montana Independent Pipe Line Company, 69-70, 113 Morgan, Senator, 18η Moulton, H . G., 7, 94, 115 Mountain States Gasoline Corporation, 87-88 National defense, pipe-line transportation of motor fuels as an aid to, 6; large refineries and, 98η; pipeline affiliations and, 120, 162η; legislation to promote, 165, 168 National Industrial Recovery A c t , 119, 166 National

Resources

Committee,

26,

'34 National Transit Company, 14, r,o, 118 Natural gas, efforts to make common carriers out of lints conveying, a i 24, 150-51; f u t u r e of natural gas lines, 25; holding company control of pipe lines, 34η; common carrier

INDEX status for pipe lines conveying. 37, 41-42, 47-48; minimum tender for common carrier pipe line, 92; prorationing production and shipments, 101, 103; relation of pipe lines to other phases of the natural gas industry, 115-29, 162-63; regulation of pipe lines as public utilities, 160-61, 170, 173 Nebraska, status of pipe lines as common carriers in, 38, 40, 46-48; refinery connections, 90; pipe lines passing through farm lands, 132η Nevada, status of pipe lines as common carriers in, 19, 38, 43, 46; regulation of services, 90, 92, 103, 106; pipe lines as common purchasers, 127 New Mexico, status of pipe lines as common carriers in, 46-47; regulation of rates, 65; regulation of services, 102, 103, 105, 106; lines through farm lands, 132η New York, status of pipe lines as common carriers in, 25, 27, 46-48; regulation of rates, 56; receipts for shipments, 106-7; relations of pipe lines with railroads, 137 New York Transit Company, 50 North Dakota, status of pipe lines as common carriers in, 38, 40, 43, 46, 47, 49η; regulation of services, 90, g ì , 103, 106; pipe lines as purchasers of oil and gas, 127-28 Ohio, status of pipe lines as common a r r i e n in, 40-46, 47; grade of oil produced in, 96 Ohio Oil Company, 118 Oil, see Petroleum and its products Oklahoma, status of pipe lines as common carriers in, 21-23, 3 l ~3 s > 44-45, 46-48; regulation of rates, 60, 99; regulation of services, 103η, 104; pipe lines as common purchasers, 127; control of oil production, 164 Oklahoma Pipe Line Company, 52 Panama Canal Zone, oil pipe lines in, 17-18«

181

Pennsylvania, status of pipe lines as common carriers in, 46; regulation of rates, 64; regulation of services, 89; grade of oil produced in, 96 Pennsylvania Railroad, 14 Petroleum and its products, method of shipping by pipe line, 3-4, 10; extent of pipe-line transportation of, 4; value of, to defense, 6, 168; efforts to control the transportation by pipe line of, io-so, 148-50, 151-54, •56-57; exhaustion of, 25, 70-72, 80; common carrier legislation covering the pipe-line transportation of, 30-41, 43-47; interstate transportation of, 48-55; regulation of the rates of pipe lines carrying, 57-83; regulation of the services of pipe lines carrying, 84-108; problems raised by integrated companies concerned with, 109-30; competition between pipe lines and railroads for the business of transporting, 13144, 159-60; tankers for transporting, 144-46; suggestions for dealing with the industry interested in, 163-69, 1 l 7 "73: see also Gasoline Phillips Pipe Line Company, 77, 95 Phoenix Refining Company, 31-32, 44". »031 Pierce Oil Corporation, 31-32, 44-45, 103η Pipe-line technology, 3-4; construction costs, 12η; natural gas lines, 23-24; future developments in, 2527, 170; operating changes made in an attempt to avoid federal regulation, 50-53; and competition between lines, 70, 85-86; displacement oil, 78-790; types of fluids suitable for a line, 91-92; minimum tenders, 95-98; under integrated operation by large companies, 122, 161-62, 171-72; compared with that of railroads, 132-33, 140η, 158-59; compared with tanker operations, 144η Pipe lines, extent of, 4; relation to other industries, 5, 6; relation to tanker service, 144-46; summary and conclusions as to, 148-73; public ownership of, 156-57; affiliates

182

INDEX

Pipe lines (Continued) of, see Affiliates; as common carriers, see Common carriers; as private carriers, see Private carriers; carrying specific commodities, see Alcohol; Brine pipe lines; Coal; I'uller's earth; Cas, artificial; Casoline; Natural gas; Petroleum and its products; regulation of rates, see Rates; regulation of services, see Service; relations with railroads, see Railroads; technology of, see Pipeline technology Plant facilities, pipe lines considered as, 114, 148, 160-73 Pogue, J . E., 73, 1 1 5 , 1 1 8 , 123, 133 Prairie Oil and Gas Company, 42, 5253. 100, 118 Prairie Pipe Line Company, 85-86, 97, 99· '23 President, of United States, 18, 11920, 167 Prices, influence of pipe lines on oil market, 5-6, 14, 15, 82, 172; for oil at the wells, 1 1 , 1 1 3 , 128; naturalgas, 21, 128; influence of integration in the oil industry on oil market, n o ; stabilization of, 163-64, 166 Private carriers, Standard Oil pipe lines as, 11 ; problems in connection with, 1 1 - i g ; refined oil lines as, 20; court decisions as to what constitutes, 33-37; California fee for, 39; attempts to make interstate lines, 50-52; oil tankers as, 145-46 Private property, see Eminent domain, also, Private carriers Producers' Transportation Company, 29". 3 s · 4» Production of oil, limitations on, see Conservation Public convenience and necessity, certificates of, 86-88 Public domain, crossing of, by pipe lines, as source of common carrier obligations, 28-29, 37-38, 128; crossing of, as basis for common purchaser legislation, 128 Public grants, as source of public obligations for pipe-line companies, 28-30: of right to do business, may

necessitate operation of pipe lines as common carriers, 43-45; of land for pipe lines, or of right to condemn private property, see Right of way Public interest, businesses affected with a, 29-30, 163-66 Public use, voluntary devotion of pipe lines to, 28-37, 105, 107-8, 14g Purchasers, common, see Common purchaser statutes Quality cf pipe-line shipments, 91-92, 96-98 Railroads, as competitors of pipe lines, 5, 1 1 5 , 131-44, 146-47; pipe lines on property of, 13, 42-43, 137; rates, in relation to pipe-line charges, 13-14, 134-35· «S7 44. >49: forbidden to carry certain commodities, 114-16, 125; financing of, 135-36; coordination of railroad and pipe line regulation, 157-60 Rates, agencies regulating pipe-line, 56-57; filing of proposed, 57-58; accounting and valuation work as basis for, 58-63; rate decisions, 63-75; earnings of pipe lines under established, 75-81, 152: consequences of changes in, 81-83; duplication of pipe-line facilities affects, 85; problem of determining which facilities belong in rate base, 1078; effects of dividends earned under prevailing, 1 1 1 ; federal control of, 120; effects of separation of pipe lines from rest of oil industry on, 122; relations between pipe-line and rail, 137-43, 147, 159-60; effect of taxes on, 143-44 Reconstruction Finance Corporation, >35· '36 Reed, James Α., 23 Refineries, oil, pipe-line connections with, 5, 1 1 - 1 2 , 89-90, 153; effects of high minimum tenders on, 93-94; contamination of oil in pipe lines affects operations of, 96; advantages of large, 98η, ι 6 ι , 162; owned by

INDEX large oil companies, n o , u s , 11718, 121-23, 147, 154; excess capacity of, 123-24 Regulation of pipe lines, see Rates, Service, also under names of individuai states and under Interstate Commerce Commission Restraint of trade, see Competition Return, rate of, see Earnings Rhinock, Representative, 115 Right of way, across private property, >*->3. 3* "33> 39-43. 'S*"» «37. 172-73; across public domain, 2829, 37-38, 128; use of roads for, 33, 38-39; low cost of pipe-line, 132 Ritchie, A. S„ 94, 112 Roads, use of, by pipe lines, 13, 33, 38-39 Rockefeller, John D., 16 Roosevelt, Franklin D., 119-20 Rule of reason, see Rates Salt, see Brine pipe lines Separation of pipe lines from their affiliates, see Affiliates Service, nature and extent of common carrier pipe-line, 4-5; early common carrier pipe-line, 10; by integrated oil companies, 11-12, 15-16, 17, 1819, 31-32, 82-83, 107-8, 111-12, 12223, 12G-28, 149, 151-52; relation of pipe-line to rail, 13-14, 134, 139-42, 158-59; natural gas, 21-24, 41-42; government regulation of pipe-line, 84-107, 152, 153; tanker, 144-45; by government-owned pipe lines, 156; effects of a consolidation of pipe lines on, 171-7* Shipments by pipe line, how moved, 3-4, 10; extent of, 4, 134; ownership by company owning the line, see Affiliates; injurious to railroads, see Railroads; charges for making, see Rates; terms under which made, see Service Shipping, see Tankers South Dakota, status of pipe lines as common carriers in, 40, 46-47, 48 Splawn, Walter M. W., 121 Standard Oil group, early dominance of pipe line industry by, 11-18, 148-

183

49; refined oil line, 20; coal pipe line, 26η; involved in Pipe Line Cases, 33-36; acquisition of right of way by, 39η, 40η, 42-43; rearrangement of interstate facilities of, 5052; valuation of line in Louisiana, 62η; earnings, 78; acquisition of pipe lines, 86, 124, 146η; minimum tender rules, 94; anti-trust suit against, 117-18; tankers owned by, 145-46 Standard Pipe Line Company, 62η Stanolind Pipe Line Company, 86 States, see under individual names, e. g., Texas Stripper wells, service for, 123 Sulzer, Representative, 115 Supreme Court, United States, see United Stales Supreme Court Taft, William Η., 18η, 29η Tank farms, 107-8 Tankers, relations between pipe lines and, 144-47 Tarbell, Ida, 13, 15, 42η, 50-51, 156 Tariffs, pipe-line, see Rates Taxes, on pipe-line stock, 80; income, 81, 129; related to pipe-line rates, 8i, 143-44 Temperature changes, as affecting size of pipe-line shipments, 106 Temporary National Economic Committee, 120, 154 Tennessee, 47 Texas, status of pipe lines as common carriers in, 38, 40, 43, 47, 48, 151; regulation of rates, 62-63, 65, 66, 68, 78, 153; regulation of services, 87, 90, 92, 99, 100-1, 102, 103, 106; pipe lines as common purchasers, 127-28; holding companies, 128-29; control of oil production, 163-64 Texas Company, 104 Tidewater Pipe Company, 35 Tidewater Pipe-Line Company, 13 Tillman, Senator, 21, 22 Transportation, coordination of pipeline, rail, and water, 131-47, 157-60 Trucks, as competitors of pipe lines, >3· Tuscarora Pipe Line Company, 20

184

INDEX

Uncle Sam Oil Company, 34-35 Union Oil Company, 17-18« Unit operation, of oil pools, 161η United States Pipe Line Company, 13η United States Supreme Court, Pipe Line Cases, 33-36, 51, 58η, 76, 94; review of state decisions, 41, 44-45: definition of matten within the commerce clause, 54; valuation case, 62n; anti-trust decision, 11819; on the N R A , 119, 166; interpretation of the commodities clause, 125: on carload rates, 140 Valuation of pipe lines, 59-63, 67; depreciation problems in, 71-7»; estimated rates of return on a fair, 75-80; problem of determining

what facilities should be included in a, 107-8 Voluntary devotion of pipe-line facilities to public use, 28-37

Wabash Pipe Line Company, 77 Washington, state of, pipe lines as common carriers in, 31, 40, 44, 47, 48; regulation of rates, 65 Water, transportation by, see Tanken Water, transportation of, by pipe line, 8n, 24-25, 48, 160, 170 West Virginia, natural gas lines, 4142; oil lines, 47, 100 World War, emergency legislation. 165 W y o m i n g , 47-48