Appendix — Trans Alaska Pipeline Rate Cases
Supreme Court brief1978
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— Supreme Court, U.S, |
FILED
* - ) JAN 107°
Vol. Il -
Pages 596a to 789a MICHAEL RODAK, JR., CLEPE |
In The
Supreme Court of the United States
OCTOBER TERM, 1977
Nos. 77-452, 77-457, 77-551, 77-602
Mosr ALasKa Preetove Company, Exxon Pirg.ine
Company, BP Preziives Inc. and ARCO Pire Live
CoMPANY,
Petitioners,
—against—
Unrrep States or America, THE INTERSTATE
Commence Commission, et al.,
, Respondents.
ON WRITS OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIFTH CIROUIT
—EE SS i
PETITIONS FOR WRITS OF CERTIORARI
FILED SEPTEMBER 22, OCTOBER 12, OCTOBER 25, 1977
CERTIORARI GRANTED NOVEMBER 28, 1977
INDEX TO APPENDIX
VOLUME I
; PAGE
Relevant Docket Entries:
Court of Appeals iv
Interstate Commerce Commission:
No. 36611 viii
No. I & S 9164 xiii
=? me To TAPS Owners Requesting Tariff Data, June 2, :
a
ICC Supplemental Notice of Protest Schedule, June 13, 1977 ...... 2a
Protest of the State of Alaska Seeking Suspension and Investiga-
tion of Initial Rates and Tariffs Via the Trans Alaska —
System (TAPS), June 15, 1977 4a
Preliminary Statement of Special Counsel, Alaska Pipeline Com.
mission in Response to Request of the State of Alaska, June
15, 1977 83a
Protest and Petition for Suspension by United States Department
of Justice re TAPS, June 15, 1977 88a
Protest of the Arctic Slope Regional Corporation for Suspension
of Rates and Rules over TAPS, June 15, 1977 110a
Protest of the Bureau of Investigations and Enforcement (ICC)
for Suspension and Investigation, June 15, 1977 133a
Order of ICC Instituting Investigation of Rules Tariffs re TAPS,
June 17, 1977 216a
Response of Sohio Pipe Line Co. to Request for Tariff Data, June
15, 1977 2188
Response of Union Alaska Pipeline Co. to Request for Tariff
Data, June 15, 1977 228a
Response of BP Pipelines, Inc. to Request for Tariff Data, June
17, 1977 231a
Protest Reply of Mobil Alaska Pipeline Co., June 22, 1977 .......... 251a
Protest Reply of Exxon Pipeline Co., June 22, 1977 312a
Protest Reply of BP Pipelines, Inc., June 22, 1977 38la
Protest Reply of ARCO Pipe Line Co., (Omitting Appendices B
and G), June 22, 1977 396a
: PAGE
Protest Reply of Union Alaska, June 22, 1977 517a
Second Supplement to Protest by Arctic — Regional Corpo-
ration, June 23, 1977 538a
Protest Reply of Sohio Pipe Line Co., June 22, 1977 545a
Petition for Reconsideration, Exxon Pipeline Company, July 8,
GG wceccsssrscceeresrienssinesictessnecnicnsatnniniiiteiniatataiiuaiintlinasaiied . 578a
ICC Order of July 11, 1977 Setting Case for Hearing 594a
VOLUME II
Verified Petition of Mobil Alaska Pipeline Company to Annul,
Set Aside and Enjoin Enforcement of An Order of the Inter-
state Commerce Commission, July 6, 1977 596a
Order of the Interstate Commerce Commission, June 28, 1977,
with Corrections as Reissued July 11, 1977 623a
Affidavit of Charles R. Thompson, Mobil Alaska Pipeline Com-
ee, SURG G, BEG cecccccnsecnsceseenessicarntoneanneninesnininiaiaintanitipiniaatiasiaets 647a
Affidavit of Dale A. Lucas of BP Pipelines, Inc., July 11, 1977 ...... 650a
Affidavit of Richard M. Voripaieff of Exxon Pipeline Company,
/ 2 § , see
Affidavit of Ernest C. Terry as Filed with Interstate Commerce
Commission on June 22, 1977, July 12, 1977—Exxon Pipeline 657a
Letter of ICC Chairman George M. Stafford to Congressman
William L. Hungate with Corrected Schedules, Dated March 22,
1976, July 12, 1977—Exzon Pipeline . 684a
Excerpts From Verified Statement of Raymond B. Gary in ICC
Docket Ex Parte 308, July 12, 1977—Exxzon Pwpeline ................ 691a
Excerpts From Verified Statement of Ezra Solomon in Ex Parte
308, Filed with Court of Appeals July 12, 1977—Ezxzxon Pipeline 694a
Affidavit of Albert H. Fitzgerald, Chairman of the Suspension
and Fourth Section Board of the ICC, July 11, 1977—Mobil
Alaska 712a
Motion of State of Alaska for Leave to Appear as Party, July 12,
1977—-Mobil Alaska
-” PAGE
Excerpts From Memorandum of State of Alaska in Opposition to
Applications for Interlocutory Injunctions and Temporary
Restraining Order, July 13, 1977—Mobil Alaska 721a
Affidavit of J. D. Wessling of ARCO —— Line Co., July 14,
1977 723a
Motion of the United States of America to Consolidate and Dis-
enien, Gar Te, Ben OOO 726a
Excerpts From Arctic Slope Regional Corporation, Memorandum
in Opposition to Application for Interlocutory Judgment and
Temporary Restraining Order in 5th Circuit, July 14, 1977—
Mobil Alaska .. 728a
Decision and Order of the Court of aii Mobil Alaska Pipe-
line Co. v. United States, 557 F.2d 775, July 29, 1977—all cases 746a
Judgment of the Court of Appeals, entered July 29, 1977, Issued
as Mandate September 8, 1977—all cases ...2..........1c-.ceseceeeeeeeeeo-e--- 772a
Order of the Court of Appeals Denying Motions for Stay of Man-
date and Stay of ICC Order, September 8, 1977—Exzon Pipeline 773a
Order of the Court of Appeals Denying Petition for Rehearing,
September 8, 1977—BP Pipelines . . TT4a
ICC Order of September 27, 1977, Denying Petitions for Recon-
sideration, ete.
Order of the Supreme Court Granting paernemnitg for Stay of
ICC Order, October 20, 1977 . 784a
Order of the Supreme Court Further Effectuating Stay of ICC
Ef, REE aes Ser NAS se 785a
Order of the Supreme Court Granting the Petitions for Writs of
SSI, SON TD ST ciretiisieccecinentirenncecentiinetndecintnicnsmicicnaalenmsi 789a
EXHIBITS TO APPENDIX
Transcript of Oral Argument before Interstate Commerce Com-
mission, June 27, 1977
Exhibits in Aid of Oral Argument of the Bureau of Investigations
and Enforcement, June 27, 1977
Exhibits in Aid of Oral Argument of the State of Alaska, June 27,
1977
DaTE
7/ 6/77
7/6/77
7/ 6/77
7/ 6/77
7/ 8/77
7/11/77
7/11/77
7/11/77
7/11/77
7/11/77
7/12/77
7/12/77
7/12/77
iv
RELEVANT DOCKET ENTRIES
COURT OF APPEALS
Fitincs/PRocEEDINGS
Petition for Review of Order of ICC—Mobil Alaska
Flg. Petitioner’s Application for Temporary Restraining
Order—Mobil Alaska
Fig. Petitioner’s Application for Interlocutory Injunc-
tion—Mobil Alaska
F lg. Petitioner’s Memorandum in Support of their Appli-
cations for Interlocutory Injunction and Temporary
Restraining Order—Mobil Alaska
Petition for Review of Order of ICC—BP Pipelines
Motion to Intervene of Sohio Pipe Line Co.—Mobil Alaska
F'lg. Memorandum of Sohio Pipe Line Co. in Support of
Petitioner’s Application for Temporary Restraining
Order—Mobil Alaska
Petition for Review of Order of ICC—Ezzon Pipeline
Fig. Petitioner’s Motion to Stay, Restrain and Suspend
Order of 1.C.C.—BP Pipelines
F lg. Petitioner’s Memorandum in Support of Their Motion
to Stay, Restrain and Suspend Order of I.C.C._—BP Pipe-
lines
F lg. Motion of Exxon Pipeline Co. for Expedited Consider-
ation or, in the Alternative, for a Stay Pending Review,
a Memorandum in Support and Appendices to Memoran-
dum in Support—Ezzon Pipeline
Fig. Motion of State of Alaska for Leave to Appear as
Party Pursuant to 28 U.S.C. § 2323, and § 2348, and Rule
15 of FRAP—Mobil Alaska
Fig. Reply of L.C.C. in Opposition to Petitioner’s Applica-
tions for Interlocutory Injunction and Temporary Re-
straining Order—Mobil Alaska
Date
7/13/77
7/13/77
7/13/77
7/13/77
7/13/77
7/14/77
7/14/77
7/14/77
7/14/77
7/14/77
7/14/77
7/14/77
Petition for Review of Order of ICC—ARCO Pipe Line
Fig. Reply of Respondent, I.C.C., in Opposition to Peti-
tioner’s Motion to Stay, Restrain and Suspend Order of
1.C.C.—BP Pipelines
.Fig. Memorandum in Support of Motion of Respondent,
U.S.A., to Dismiss Appeal—Mobil Alaska
Fig. Memorandum of U.S.A. in Opposition to Applications
for Temporary Restraining Order and Interlocutory
Injunction—Mobil Alaska
Fig. Memorandum of State of Alaska in Opposition to
Applications for Interlocutory Injunction and Temporary
Restraining Order—Mobil Alaska
Motion to Intervene of Arctic Slope Regional Corp.—Mobil
Alaska
Flg. Memorandum of Arctic Slope Regional Corp. in Opposi-
tion to Application for Interlocutory Judgment and Tem-
porary Restraining Order—Mobil Alaska
Motion for Injunction [with Memorandum in Support] of
ARCO Pipe Line Co.—ARCO Pipe Line
Fig. Motion of Respondent, U.S.A., for Consolidation of
Nos. 77-2412, 77-2421 and 77-2437 and to Dismiss Petitions
—all cases
Fig. Telegram Confirmation of Interstate Commerce Com-
mission as Requested by the Ct. with respect to earliest
date projected for arrival of oil through pipeline
Valdez—Mobil Alaska .
Fig. Telegram Confirmation of Mobil Alaska Pipeline Co.
as Requested by Ct. with respect to earliest date pro-
jected for arrival of oil through pipeline to Valdez—Mobil
Alaska
Fig. Telegram Confirmation of Exxon Pipeline Co. as Re-
quested by Ct. with respect to earliest date projected for
arrival of oil through pipeline to Valdez—Ezxxon Pipeline
DaTE
7/14/77
7/15/77
7/18/77
7/18/77
7/18/77
7/19/77
7/19/77
7/19/77
Fig. Telegram Confirmation of ARCO Pipe Line Co. as
Requested by Ct. with respect to earliest date projected
for arrival of oil through pipeline to Valdez—ARCO Pipe
Line
Flg. Memorandum of U.S. in Support of Their Motion to
Dismiss, also fid. in Nos. 77-2412, 77-2421, and 77-2437—
all cases
Fig. Mobil Alaska’s Reply Memorandum in Support of
Application for Temporary Restraining Order and Inter-
locutory Injunction and Response to Motion to Dismiss.
(Copies were mailed directly to Judges’ home stations.)—
Mobil Alaska
Flg. Motion of Amerada Hess for Entry of Appearance as
a Party—Mobil Alaska
F lg. Exxon’s Reply to Motion of USA for Consolidation and
Motion to Dismiss (Copies sent directly to Judges’ home
stations.) —Exzxon Pipeline
F lg. Reply of ICC in Opposition to ARCO’s Application for
Interlocutory Injunction, and Exxon’s Motion for Expe-
dited Consideration (Copies sent directly to judges’ home
stations.)—ARCO Pipe Line and Exxon Pipeline
Flg. State of Alaska’s Supplemental Memorandum in Op-
position to Application for TRO and Interlocutory Injunc-
tion and in Support of Motion to Dismiss filed by Respon-
dent U.S. (Copies sent directly to home stations.)—all
cases
Minute Entry: Oral arguments were held in Houston, Texas
today on Cases 77-2392, 77-2412, 77-2421 and 77-2437 on
the motion to dismiss, temporary restraining order and
injunctive relief. The Court granted from the bench the
motion to consolidate these cases as well as the motions
of all parties to intervene. The motion to dismiss and
temporary restraining order and injunctive relief motions
were taken with the case. The Panel consisted of Judges
Brown, Godbold and Roney. Arguing for Petitioners
were: 1) Andrew J. Kilecarr (Mobil Alaska); 2) Richard
Date
7/22/77
7/25/77
7/29/77
8/15/77
8/17/77
8/19/77
8/19/77
8/25/77
8/29/77
9/ 1/77
9/ 8/77
9/ 8/77
J. Flynn (Exxon); 3) Marvin Schwartz (BP) and 4)
Robert Jordan who handled the rebuttal (for ARCO).
Arguing for Respondents were: 1) Charles H. White, Jr.
(ICC); 2) Donald A. Kaplan (D. of Justice); 3) Avrum
Gross (Atty. Gen., Alaska) and 3) Yale Lewis (Arctic
Slope)—Mobi Alaska
Fig. Suppl. Memorandum of State of Alaska in Opposition
to Memorandum in Support of Petition fid. by Intervenor,
Amerada Hess Pipeline Corp.—all cases
Fig. Motion of Union Alaska Pipeline Company to Appear
as a Party—Mobil Alaska and Exxon Pipeline
Opinion of Court of Appeals dismissing cases: all motions
to intervene granted; all motions for stay, suspension,
injunction, ete. denied—all cases
Petition for Rehearing En Banc—BP Pipelines
Received certified list of all documents submitted to ICC—
all cases
Fig. Petitioner’s Motion for Stay of Mandate Pending
Application for Certiorari—Ezxon Pipeline
Fig. Petitioner’s Motion for Stay of Order of Interstate
Commerce Commission pending application for certiorari
—Ezxzxon Pipeline
Fig. Response of Respondent, I.C.C., in Opposition to Mo-
tion for Stay of Order of LC.C. pending application for
certiorari—Exxon Pipeline
Fig. Memorandum of Respondent, U.S.A., in Opposition to
Motion for Stay—E-xzxon Pipeline
Fig. Response of State of Alaska in Opposition to Motions
of Exxon Pipeline Co. for Stay of Mandate and Stay of
Order of I.C.C.—Exaxon Pipeline
Fig. Order Denying Exxon’s Motion for Stay of Mandate
and Denying Exxon’s Motion for Stay of ICC’s order.
(JRB/PHR)—Ezaon Pipeline
Fig. Order Denying BP’s Petition for Rehearing and Deny-
ing Petition for Rehearing en banc. (JRB/PHR)—BP
Pipelines
DaTE
9/ 8/77
9/26/77
10/17/77
10/26/77
1/1/77
12/ 2/77
6/2/77
6/8/77
6/13/77
Judgment Issued as Mandate—all cases
Notice of Flg. of Cert. Pet. on 9-22-77—Mobil Alaska and
Exxon Pipeline
Notice of Flg. of Cert. Pet. on 10-12-77—BP Pipelines
Fig. Copy of Supreme Ct. Order staying order of L.C.C.
pending final disposition of petition for certiorari in
Supreme Ct.—Mobil Alaska
Notice of Flg. of Cert. Pet. on 10-25-77—ARCO Pipe Line
Order of S.C. granted [certiorari] 11-28-77—all cases
INTERSTATE COMMERCE COMMISSION
1.
2.
3.
Docket 36611
Title/Substance of Document
Notice: To Trans-Alaska Pipeline System owners.
Requesting prompt filing of data concerning proposed
rate levels and each company is asked to send a copy
of its data submittal simultaneously to the State of
Alaska.
[By] Rosert L. Oswaxp, Secretary (1 p.)
Notice: Requesting that any protests to the tariffs be
filed by 6/13/77, and that replies to protests be sub-
mitted by 6/15/77.
[By] Roserr L. Oswaxp, Secretary (2 pp.)
SuprpLEMENTAL Notice: Advising the effective dates of
tariffs filed by Sohio Pipe Line Company, BP Pipe-
lines, Inc., and Mobil Alaska Pipeline Company have
been postponed from 6/20/77 to 6/30/77, in view of
these postponements, the filing dates set forth in the
notice in item next above are modified, and that notice
should be disregarded and requesting that protests to
all of the tariffs now on file be submitted 6/15/77, and
replies by 6/22/77. Parties desiring to participate in
6/14/77
6/15/77
6/15/77
6/15/77
6/15/77
6/15/77
6/15/77
6/15/77
10.
11.
oral argument shall comply with rule 98 of the Com-
mission’s General Rules of Practice, by submitting a
request for an allotment of time on or before 6/17/77.
[By] H. G. Homne, Jr., Acting Secretary (2 pp.)
Petition: In aid of ICC Jurisdiction.
[By] Srate or ALasKa
(by J. M. Cleary) (6 pp.)
Repty: To the petition in item next above.
[By] Sono Prre Linz Company (4 pp.)
Protest/CoMPLAINT
[By] Srate or ALasKa
(by J. M. Cleary) (99 pp.)
Protest: And Petition for Suspension and Investiga-
tion.
[By] Burzeav or Investications anp ENFORCEMENT,
L.C.C.
(by E. D. Greenberg) (104 pp.)
PRELIMINARY STATEMENT
[By] Terry F. Lenzner (representing Alaska Pipe-
line Commission) (267 pp.)
Petition: Anp Compiarnt for suspension of initial
rates and rules for transportation of petroleum via the
Trans Alaska Pipeline System (TAPS) from Prudhoe
Bay, Alaska, to Valdez, Alaska, and for an investiga-
tion thereof.
[By] Arctic Store RecionaL, Corporation
(by W. W. Becker) (30 pp.)
Protest: And Petition for suspension.
[By] Unrrep States DepaRTMENT OF JUSTICE
(by P. J. Tomao) (29 pp.)
Letter: Transmitting data, they believe, that the rate
of earnings estimates will be produced by their initial
tariff will not exceed any lawful criterion of the reason-
ableness of such earnings.
[By] Sono Pree Love Company
(by J. T. Boltacz) (8 pp.)
Date
6/15/77
6/16/77
6/17/77
6/17/77
6/17/77
6/20/77
6/21/77
6/22/77
12.
13.
14.
15.
21.
22.
Lerrer: Transmitting the basis for the computation of
their tariff rate issued on 6/15/77.
[By] Union Auaska Piretine CoMPANY
(by D. M. Schwartz) (4 pp.)
SuppLeEMENTAL Petition: And Comp.arnt to the peti-
tion and complaint in item #13 above.
[By] Arctic Store RecionaL CorPoRaTION
(by W. W. Becker) (4 pp.)
Orpver: That the petition in item #4 above is denied.
[By] Tse Commission (Commissioners Murphy,
Hardin, and Christian not participating) (1 p.)
Orver: That an investigation is instituted; that the
investigation in this proceeding shall include all
matters and issues with respect to the lawfulness of
the said schedules under the IC Act; and that the car-
riers parties to the schedules are made respondents to
this proceeding.
[By] Tse Commission
Hardin, and Christian not participating)
[Requests for oral argument time omitted}
Response to the notice in item #1 above.
[By] BP Prire.uvgs, Inc.
(by D. A. Lucas) (23 pp.)
Protest: And Petition for suspension and investiga-
tion.
[By] Bureau or InvesricaTions aND ENFORCEMENT
(by E. D. Greenberg) (3 pp.)
Letrer: Transmitting a computation of the elements
making up the determination of their proposed rate
level.
[By] Amerapa Hess Pipeline Corporation
(by A. S. Tabor, Jr.) (10 pp.)
Notice: Advising time allotments for Pipeline Com-
panies and the protestants.
[By] H. G..Homme, Jz., Acting Secretary
(Commissioners Murphy,
(2 pp.)
(2 pp.)
Date
6/22/77
6/22/77
6/22/77
6/22/77
6/22/77
6/22/77
6/23/77
6/23/77
6/23/77
6/23/77
26.
27.
31.
32.
xi
Repty: To the protests in item #’s 6, 7, 9, 10 and 13
above.
[By] Mosm Axaska Preetine Company
(by . J. Kilearr) (67 pp.)
Repty: To the protests in item #’s 6, 9 and 10 above.
[By] Exxon Piretine Company
(by R. J. Flynn) (219 pp.)
Repty: To the protests in item #’s 6, 7, 9 and 10 above.
[By] Union Ataska Preetine Company
(by D. M. Schwartz) (25 pp.)
Repty: To the protests in item #’s 6, 7,9 and 10 above.
[By] Pumurs AtasKa Prretine Corporation
(by R. M. Shibley) (11 pp.)
Repty: To the protests in item #’s 6,7, 9 and 10 above.
[By] Sonto Pire Line Company
(by C. J. Lansdale) (34 pp.)
Repiy: To the protests in item #’s 6, 7,9 and 10 above.
[By] Amerapa Hess Prretine CorPoraTion
(by R. Moody, Jr.) (25 pp.)
Repty: To the protests in item #’s 6,7, 9 and 10 above.
[By] BP Preetuss, Inc.
(by J. Vickrey) (21 pp.)
Seconp Suprrement: To petition and complaint in
item #’s 9 and 13 above.
[By] Arctic Store Recionat Corporation
(by W. W. Becker) (8 pp.)
STaTEMENT |
[By] Axaska Piretive System
(by B. E. Benjamin) (13 pp.)
Repty: To the protests in item #’s 6, 7, 9 and 10 above.
[By] ARCO Prretove Company
(by R. E. Jordan, IIT) (198 pp.)
Date
6/27/77
6/27/77
6/27/77
6/27/77
6/27/77
6/27/77
6/27/77
6/27/77
7/1/77
7/5/77
37.
38.
39.
41.
45.
46.
Lerrer: Addressed to Douglas Baldwin, requesting
the Commission to reconsider its decision to close the
special meeting scheduled for 6/28/77.
[By] Unrrep Press INTERNATIONAL
(by G. Dillman) (2 pp.)
Letter: Addressed to H. Gordon Homme, request-
[By] Diane B. Conn (on behalf of Edward K.
DeLong, U.P.L.) (2 pp.)
Letrer: Addressed to A. Daniel O’Neal, requesting. .. .
[By] Common Cause
(by D. Cohen) (1 p.)
OraL ArcuMENT: For testimony adduced at the oral
argument held 6/27/77, see Volume 2 on page 9 herein.
[By] Tae Commission (208 pp.)
Motion: For leave to file memorandum in reply to the
responses of the carriers.
[By] Tae DepartTMENT or JUSTICE
(by D. A. Kaplan) (9 pp.)
OraL ARGUMENT EXxuHibiTs
[By] Srate or ALasKa
(by J. M. Cleary) (10 pp.)
OraL ARGUMENT EXHIBITS
[By] Bureau or InNvestTIGATIONS AND ENFORCEMENT
(by E. D. Greenberg) (14 pp.)
TransorniptT oF OraL ArGuMENT: No Exnuiusrrs In
EvImENCE
(By Tue Commission ) (206 pp.)
Tuirp SuPPLEMENTAL Petition: And CoMPLAINT.
[By] Arctic Store RecionaL CorPoRaTIon
(by J. T. French) . (4 pp.)
ConFErENCE: For testimony adduced at the conference
held 7/5/77, see Volume 2 on page 9 herein.
(By Tue Commission ) (19 pp.)
Date
7/12/77 47. Prorest/Compiarst: Seeking suspension and investi-
gation.
[By] State or ALasKa
(by J. M. Cleary) (10 pp.)
[End of Docket Entries in No. 36611 certified by the
Secretary]
INTERSTATE COMMERCE COMMISSION
Docket I & S 9164
6/28/77 1. Orper: That the operation of specified schedules is
suspended, that the use thereof in interstate or foreign
commerce be deferred from 6/30/77, and to and includ-
ing 1/29/78, except as to LC.C. 2, published by
Amerada Hess, which bears a July 1 effective date and
the operation of which is suspended to 1/31/78, unless
ordered by this Commission; that an investigation is
instituted into and concerning the lawfulness of the
rates contained in the suspended schedules, as well as
the interim schedules authorized to be filed, pursuant
to section 15(1) and section 15(7), with a view to mak-
ing such findings and orders in the premises as the
facts and circumstances shall warrant; that the investi-
gation in this proceeding shall include all matters and
issues with respect to the lawfulness of the said rates
under the IC Act; that the named carriers are author-
ized to file, upon not less than one day’s notice, interim
rates not exceeding specified amounts subject, how-
ever, to specified conditions; and that the said carriers
are made respondents to this proceeding. (This order
also embraces No. 36611).
By Tae Commission (Commissioner Brown approves
the order except insofar as it denied the motion of the
Department of Justice for leave to file a response to
the carrier’s responses) (21 pp.)
7/8/77 3. Pertrrion: For Reconsideration.
[By] Exxon Prretivne Company
(by R. J. Flynn) (20 pp.)
Date
7/15/77
7/15/77
7/19/77
7/26/77
xiv
8. Notice: A court action was instituted on or about
7/6/77, involving these proceedings before the U.S.
Court of Appeals for the Fifth Circuit.
[By] H. G. Homme, Jr., Acting Secretary (1 p.)
9. Notice: A court action... on or about 7/8/77. ...
10. Notice: A court action... on or about 7/11/77. ...
11. Notice: A court action ... on or about 7/13/77....
[End of Docket Entries in No. I & S 9164 certified by
Secretary]
VOLUME II
596a
Verified Petition To Annul, Set Aside And Enjoin
Enforcement Of An Order Of The Interstate Commerce
Commission, July 6, 1977.
UNITED STATES COURT OF APPEALS
For Tse Fiera Circuir
Case No. 77-2392
Mosrm Anaska Prretine Company,
Petitioner,
Vv.
Unttep States or AMERICA;
Tue Interstate Commerce CoMMIssION ; and
A. Dantet O’Nzat, Chairman
Cuarwes L. Capp, Vice Chairman
Rupert L. Murpuy, Commissioner
Viretnta Mak Brown, Commissioner
Grorce M. Starrorp, Commissioner
Date W. Harpry, Commissioner
Rosert C. Gresham, Commissioner
Aurrep T. MacFartanp, Commissioner
Betty Jo Curist1an, Commissioner
Respondents.
Mobil Alaska Pipeline Company (“Mobil Alaska”)
hereby petitions this Court to annul, set aside and enjoin
enforcement of an order of the Interstate Commerce Com-
mission (“Commission”) which (1) suspends for seven
months the effective date of the tariff rates filed by the
owners of the Trans Alaska Pipeline System (“TAPS”)
including the rate filed by Mobil Alaska pending investiga-
tion and hearing by the Commission, and (2) which pre-
scribes substantially lower rates to be applied by the TAPS
597a
Verified Petition of Mobil Alaska To Annmul [CC Order.
owners during the seven-month suspension period, on the
grounds that the said order of the Commission (1) unlaw-
fully exceeds its authority under the Interstate Commerce
Act, 49 U.S.C. § §1 et seqg.; (2) violates petitioner’s consti-
tutional right to due process of law; and (3) constitutes
gross abuse of discretion. TAPS is a newly-constructed
petroleum pipeline presently scheduled to commence com-
mon carrier operations on or about July 18, 1977, and the
relief sought by petitioner would permit it to conduct oper-
ations at the originally-filed and presumptively lawful
rates during the period of Commission investigation,
rather than at the reduced rate prescribed by the Commis-
sion. Petitioner alleges as follows:
Parties
1. Petitioner Mobil Alaska Pipeline Company is a cor-
poration organized and existing under the laws of the
State of Delaware with its principal office at 1201 Elm
Street, Dallas, Texas. Mobil Alaska’s sole business activity
consists of its ownership of a five (5) percent undivided
interest in the Trans Alaska Pipeline System. It has no
present or planned common carrier operations other than
those described in this petition.
2. Respondent, the United States of America is a
proper respondent in this action pursuant to 28 U.S.C.
§§ 2322, 2344.
3. Respondent Interstate Commerce Commission is an
agency of the United States organized and existing under
the provisions of the Interstate Commerce Act, 49 U.S.C.
§§ 1 et seq., as amended (“Act”).
4. Respondents David O’Neal, Chairman, Charles L.
Clapp, Vice Chairman, Rupert L. Murphy, Virginia Mae
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Verified Petition of Mobil Alaska To Annul ICC Order.
Brown, George M. Stafford, Dale W. Hardin, Robert C.
Gresham, Alfred T. MacFarland and Betty Jo Christian
are Commissioners of the Interstate Commerce Commis-
sion and in that capacity have been delegated certain
powers and duties pursuant to the Act. These respondents
are named herein in their official capacities and subsequent
references to “Commission” are intended, unless the con-
text otherwise indicates, to include both the Commission
and its Commissioners.
Jurisdiction and Venue
5. This action arises under the Interstate Commerce
Act, 49 U.S.C. § § 1 et seg. and the Fifth Amendment to the
Constitution of the United States.
6. The jurisdiction of this Court is invoked pursuant to
5 U.S.C. § § 702, 705 and 28 U.S.C. § § 2321(a), 2342(5) and
9349. Under 28 U.S.C. § § 2321(a) and 2342(5) the courts
of appeals of the United States are vested with exclusive
jurisdiction of proceedings to enjoin, set aside, suspend or
determine the validity of orders of the Interstate Commerce
Commission. Relief is requested pursuant to 28 U.S.C.
§ 2349, as well as 28 U.S.C. §1651(a) which authorize all
courts established by Act of Congress to “issue all writs
necessary or appropriate in aid of their respective jurisdic-
tions and agreeable to the usages and principles of law.”
7. Venue in this action is properly laid in the Fifth
Circuit Court of Appeals. Pursuant to 28 U.S.C. § 2343,
petitions to enjoin or set aside orders of the Commission
may be brought in the judicial circuit in which the peti-
tioner maintains its principal office.
8. Petitioner has exhausted all administrative remedies
available for the protection of its rights and has no prompt,
adequate or effective remedy of law.
599a
Verified Petition of Mobil Alaska To Annul ICC Order.
BACKGROUND
9. In 1968 the discovery of a very large deposit of oil
in the Prudhoe Bay area on the North Slope of the State of
Alaska generated immediate and substantial exploration
interest in that area on the part of the major oil companies
of the world. Bids were submitted to the State of Alaska
at its invitation for exploration and development rights on
the North Slope and the successful bidders were announced
on September 10, 1969, this sale contributing more than
$900 million to the State’s treasury.
10. Shortly after the Prudhoe Bay discovery, plans were
announced to construct a pipeline to transport the crude
oil approximately 800 miles south to the Port of Valdez
where it would be transshipped by tankers to domestic
markets. In 1970, seven oil companies (another company
joined the group later) agreed to jointly construct the pipe-
line through an agent corporation to be known as Alyeska
Pipeline Service Company. Alyeska means “the great
land” in the Aleut Language.
11. Research and planning for this complex project were
underway by 1971 and application to the Department of
Interior for right of way permits through federal lands
was made. However, the commencement of actual con-
struction was delayed from 1971 to 1974 by litigation over
the environmental consequences of the project.
12. The delay caused by the judicial and administrative
disputes over whether and how the pipeline should be con-
structed was ended by enactment on November 16, 1973, of
the Trans-Alaska Pipeline Authorization Act, 43 U.S.C.
§ § 1651 et seqg., which declared that “[t]he earliest possible
construction of a trans-Alaska oil pipeline . . . will best
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Verified Petition of Mobil Alaska To Annul ICC Order.
serve the national interest.” That Act further declared,
“The early development and delivery of oil and gas from
Alaska’s North Slope to domestic markets is in the national
interest because of growing domestic shortages and increas-
ing dependence upon insecure foreign sources.” 43 U.S.C.
§ 1651 (Supp. 1977).
13. Construction of the pipeline system began officially
in April, 1974 with work on the 360 mile-long haul road
north of the Yukon River. The haul road, completed in
only five months, made possible the first overland, all-
weather route from the Yukon to Prudhoe.
14. In addition to the haul road, fifteen permanent
access roads were built to link the main road with pump
station sites and with the three permanent airfields and
eight temporary airfields also built as part of the project.
A two lane bridge over the Yukon River at a point where it
is one-half mile wide was built as part of the pipeline route.
15. The project encountered numerous challenges.
TAPS crosses some of the most rugged terrain in North
America, varying from flood plains and river crossings to
high mountain passes with hostile climactic conditions.
Unusual design problems were caused by the permafrost, a
permanently frozen marsh, through which the line was to
be constructed. The heat caused by construction and actual
transportation of crude oil risked permanent damage to this
ecologically fragile environment without innovative design
techniques. The possibility of earthquakes further compli-
cated design and construction.
16. Response to these problems resulted in building 423
miles of pipeline above ground on cross beams supported
by vertical support members (“VSM”). A VSM is an 18-
inch pipe, specially designed and made for TAPS. The
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Verified Petition of Mobil Alaska To Annul ICC Order.
mounted pipe is fully insulated with four inches of resin-
impregnated fiberglass covered with a galvanized steel
jacket while the assemblies are covered with molded fiber-
glass and polyurethane foam. This insulation is to keep
the oil from chilling to below the pour point. To keep the
permafrost from warming, seventy percent of the 80,000
VSM’s have selfsupporting heat pipes enclosing systems
which take heat from the ground and transfer it to the air.
Some underground pipe is surrounded by insulation and
cooling units to protect the permafrost.
17. Thirty-one construction camps along the pipeline
route, each typically costing approximately 7-10 million dol-
lars, were built.
18. The Valdez marine terminal, built at a cost in excess
of $1 billion, is one of the most technologically advanced
marine facilities in the world; it includes ballast treatment
facilities, oil storage tanks and berths capable of handling
supertankers of 195 thousand deadweight tons. The TAPS
project as a whole is reputed to be the largest private con-
struction project in recent history. .
19. On June 20, 1977 the construction of the 800-mile
TAPS pipeline was completed at a cost exceeding $9 bil-
lion dollars, including over $1.2 billion dollars in interest
costs to date. A map illustrating TAPS’ route from the
Arctic Ocean to the Gulf of Alaska is attached as Exhibit
A. At the same time, the pipeline owners began to fill the
line with North Slope oil in preparation for the commence-
ment of common carrier transportation operations when
the oil arrives in the Port of Valdez. It is estimated that
the line-fill will not be completed until on or about July 18,
1977, since meticulous monitoring of the entire pipeline is
being employed to assure satisfactory performance.
602a
Verified Petition of Mobil Alaska To Annul ICC Order.
NATURE OF THE CONTROVERSY
20. Mobil Alaska and seven other companies own un-
divided interests in TAPS. Under the undivided interest
form of ownership, each owner holds its percentage share
of the system as its exclusive separate property, is required
to contribute its corresponding share of the total costs of
the system, and has the right and obligation to utilize its
percentage share of the capacity of the system as a com-
mon carrier to transport oil for any shipper without dis-
crimination. Each owner must separately publish tariffs
and receive tenders for shipments through its portion of
the capacity of TAPS. TAPS owners and their percentage
ownership interests are:
Sohio Pipe Line Co. ...............------------- 33.34%
Arco Pipe Line Co. 21%
Exxon Pipeline Co. ..............-.-c---+--+0++- 20%
ge, 3 15.84%
Mobil Alaska Pipeline Co. .................. 5%
Phillips Alaska Pipeline Corp. ........ 1.66%
Union Alaska Pipeline Co. ................ 1.66%
Amerada Hess Pipeline Corp. ........ 1.50%
21. Upon filling of the pipeline in mid July, 1977, crude
oil will be available for delivery at the TAPS Marine
Terminal at Valdez. At that time Mobil Alaska would be
able to operate as a common carrier subject to the provisions
of the Interstate Commerce Act, 49 U.S.C. §§ 1 et seq., if it
has on file at the Commission a tariff which has not been
cancelled or suspended.
292. Pursuant to 49 U.S.C. §6(1) every common carrier
subject to the Act must file with the Commission and pub-
lish a tariff “showing all the rates, fares, and charges for
transportation between different points on its own route.
603a
Verified Petition of Mobil Alaska To Annul ICC Order.
. . -” Deviation from tariffs so filed is prohibited by 49
U.S.C. § 6(7) ; transportation operations without a lawfully
filed tariff are prohibited by the same paragraph of § 6. The
Commission is without authority under § 6 to reject a tariff
filed under §6 unless its form is not in compliance with
Commission regulations, 49 U.S.C. §6(6), or it fails to
state its effective date, 49 U.S.C. § 6(9).
23. The regulations of the Commission, Tariff Circular
20, Rule 57, 49 C.F.R. § 1300.57, require that tariffs applica-
ble to newly constructed pipelines be filed with the Commis-
sion not less than ten days before the effective date of said
tariffs. Tariff changes are required by 49 U.S.C. § 6(3) to
be filed on thirty-days’ notice unless special permission to
file on less notice is obtained.
24. Pursuant to the requirements of Tariff Circular 20,
Mobil Alaska filed its first and only tariff over the Trans
Alaska Pipeline System on June 10, 1977 effective June 20,
1977. Mobil Alaska’s Tariff I.C.C. No. 1 included the rules
which would govern its acceptance and shipment of crude
oil. This tariff covering the rules is not in controversy.
Mobil Alaska’s Tariff I.C.C. No. 2 included only its rate, the
amount in cents per barrel of crude oil which it will charge
for transportation from Prudhoe Bay to Valdez. In order
to accommodate a Commission request, Mobil Alaska filed
a supplement extending the effective date of its rate tariff
to June 30, 1977, and it is this rate tariff which is the sub-
ject of this controversy.
25. Mobil Alaska’s rate tariff was lawfully filed in
accordance with the requirements of 49 U.S.C. § 6 and it is
presumptively lawful and reasonable under the Act unless
and until adjudicated unlawful on the basis of record evi-
dence developed at a “full hearing” pursuant to 49 U.S.C.
§ 15(1).
604a
Verified Petition of Mobil Alaska To Annul [CC Order.
26. On June 13, 1977, the Commission issued a Notice
announcing that it would conduct a summary suspension
proceeding to consider TAPS rate tariffs. The Notice con-
tained a schedule which provided for submission of pro-
tests to the six TAPS rate tariffs then on file at the Com-
mission, and also provided for the submission of replies to
any protests by the TAPS owners. The Notice further
announced that oral argument would be held on June 27,
1977 and stated that the deadline for a Commission decision
on any relief requested by protestants would be June 29,
1977.
27. On June 15, 1977, the United States Department of
Justice, Antitrust Division, the Bureau of Investigations
and Enforcement of the Interstate Commerce Commission,
the State of Alaska and the Arctic Slope Regional Corpora-
tion (“Protestants”) filed protests to the TAPS tariffs then
on file at the Commission. Alleging all the TAPS rates to
be unlawful, each of the four Protestants requested that the
Commission suspend the TAPS owners’ tariffs, including
that of Mobil Alaska, and that it institute a formal investi-
gation of all the TAPS rates. In addition, each of the Pro-
testants urged the Commission to establish interim rates,
substantially lower than the carrier-filed rates, which the
TAPS owners would be allowed to refile on one day’s notice.
Such interim rates were requested to supplant the carrier-
initiated rates and to remain in effect pending the expected
formal hearing adjudicating the lawfulness of the TAPS
rates. Protestants stated that they urged the prescription
of interim rates in order to avoid the effect of a suspension
decision—preclusion of lawful transportation operations—
during the pendency of the suspension period.
605a
Verified Petition of Mobil Alaska To Annul ICC Order.
28. On June 22, 1977, Mobil Alaska submitted its reply
to the protests in which it argued that its challenged rate
was both reasonable as well as lawful; that the Commission
lacked authority to suspend a first rate filed for a newly-
constructed pipeline which was planned and constructed to
offer transportation services not previously available at
that location; and that a suspension order entered without
prejudice to refiling at a lower rate suggested or prescribed
by the Commission would be unlawful.
29. On June 27, 1977, the full Commission heard oral
argument on the protests, including Mobil Alaska’s conten-
tions that the Commission lacked the power to suspend the
TAPS rate tariffs and that any Commission order designed
to result in refiling of TAPS rates at lower levels would
constitute unlawful prescription of rates.
The Commission’s Order
30. The full Commission, on June 28, 1977, entered an
order suspending the rate tariffs as filed by Mobil Alaska
and six other TAPS owners; the eighth owner’s tariff hav-
ing been filed later than the rest, it was found by the Com-
mission as not ripe for disposition. The order suspended
the rates for the maximum period of seven months as speci-
fied in 49 U.S.C. § 15(7); instituted an investigation into
and concerning the lawfulness of the rates in the suspended
schedules; and authorized the TAPS owners to refile, on
not less than one-day’s notice, “interim rates” not exceeding
rates specified in the order. A copy of this order is attach
as Exhibit B. ‘ ”
606a
Verified Petition of Mobil Alaska To Annul ICC Order.
31. The interim rates set by the Commission are sub-
stantially lower than those filed by the TAPS owners:
As Filed
By TAPS Authorized
rs_ By Order Reduction
Amerada Hess Pipeline Cor-
poration ..... $6.44 $4.85 $1.59
Arco Pipe Line Company ...... 6.04 4.91 1.13
BP Pipelines Inc. 6.35 4.68 1.67
Exxon Pipeline Company ...... 6.27 5.10 1.17
Mobil Alaska Pipeline Com-
pany 6.31 4.84 1.47
Phillips Alaska Pipeline Cor-
ee 6.22 Not Acted Upon Yet
Sohio Pipe Line Company... 6.16 4.70 1.46
Union Alaska Pipeline Com-
EE ccnpctinicernninieinnins 6.09 4.89 1.20
32. The TAPS owners argued that the Commission was
not empowered to suspend originally filed rates, and even
if so authorized, no basis existed for suspension of the
TAPS rates:
[TAPS owners] argue that protestants would not
be harmed by allowing the proposed rates to go into
effect, inasmuch as refunds or reparations would be
available if the investigation should show that the
filed rates are too high. Order at 3.
33. The Protestants argued that the possibility of
refunds did not constitute adequate protection:
The Arctic Slope Regional Corporation, which
represents Alaskan Natives, notes that the longer
it must wait for its share of royalty revenues (which
607a
Verified Petition of Mobil Alaska To Annul ICC Order.
are adversely affected by high transportation rates),
the less value such revenues will have. Protestants
also argue that the maintenance of pipeline rates at
too high a level would act as a deterrent to the use
of the pipeline by independent oil producers. Order
at 3.
34. The Commission held:
Although we recognize that the refund remedy is
available, we do not believe that the rates can be
allowed to go into effect, without suspension, when,
as here, the protestants have made a showing or
probable unlawfulness. Moreover, as noted by pro-
testants, the maintenance of excessively high rates
could act as an obstacle to the use of the pipeline by
non-affiliated oil producers, and would also delay the
Alaskan interests in obtaining revenues that depend
upon the wellhead price of the oil. Under the cir-
cumstances, we have concluded that the proposed
rates, as filed, should be suspended, pending our
investigation, for the statutory period of 7 months.
Order at 3.
35. The Commission further concluded that the power
to allow interim rates is inherent in the suspension power
and that to suspend without “allowing” interim rates
“would be to preclude the carriers from commencing their
operations during the suspension period.” Order at 4. The
Commission also recognized that the TAPS owners “may”
have no means of obtaining restitution in the event that
they acceded to the Commission’s order and the investiga-
tion proved the interim rates imposed during the sus-
pension period to be too low. Order at 4.
608a
Verified Petition of Mobil Alaska To Annul ICC Order.
36. The interim rate set for the Mobil Alaska portion
of TAPS was alleged to have been computed by the Com-
mission using “basic data supplied” by petitioner and other
TAPS owners. Mobil Alaska has not, however, supplied
to the Commission the data upon which it computed its
originally filed rate. Therefore the Commission’s calcula-
tions necessarily were based in part upon assumptions con-
cerning both the data applicable to Mobil Alaska’s rate, as
well as assumptions by the Commission concerning the pro-
cedures followed by petitioner when it computed its rate
as originally filed.
Relevant Statutory Provisions and Regulations _
37. Those to be regulated by the Commission are cov-
ered in Section 1 of the Act which states in relevant part
(1) That the provisions of this part shall apply
to common carriers engaged MDs és
(b) The transportation of oil . . . by pipe line,
or partly by pipeline and partly by railroad or by
water. 49 U.S.C. §1 (emphasis added)
38. The Commission’s power to suspend tariffs is gov-
erned by § 15(7), incorporated into the Act with the pas-
sage of the Mann-Elkins Act in 1910, Pub. L. No. 61-218, ch.
309, 36 Stat. 539, June 18, 1910, which states in relevant
part:
Whenever there shall be filed with the Commission
any schedule stating a new individual or joint rate,
fare, or charge, or any new individual or joint classi-
fication, or any new individual or joint regulation or
practice affecting any rate, fare, or charge, the Com-
mission shall have, and it is given, authority, either
upon complaint or upon its own initiative without
Verified Petition of Mobil Alaska To Annul ICC Order.
complaint, at once, and if it so orders without answer
or other formal pleading by the interested carrier
or carriers, but upon reasonable notice, to enter upon
a hearing concerning the lawfulness of such rate,
fare, charge, classification, regulation, or practice;
and pending such hearing and the decision thereon
the Commission, upon filing with such schedule and
delivering to the carrier or carriers affected thereby
a statement in writing of its reasons for such sus-
pension, may from time to time suspend the opera-
tion of such schedule and defer the use of such rate,
fare, charge, classification, regulation, or practice,
but not for a longer period than seven months beyond
the time when it would otherwise go into effect; and
after full hearing, whether completed before or after
the rate, fare, charge, classification, regulation, or
practice goes into effect, the Commission may make
such order with reference thereto as would be proper
in a proceeding initiated after it had become effec-
tive... . 49 U.S.C. § 15(7) (emphasis added).
39. A proceeding pursuant to §15(7) to determine
whether to suspend a proposed “new” tariff rate is a sum-
mary, informal proceeding designed to permit a discretion-
ary decision not ordinarily subject to judicial review. It is
made within the short period of time after a rate is filed
but before its effective date. No evidentiary rights exist
in @ suspension proceeding nor is any record developed as
a basis for judicial review, Commission Rules of Practice
(“Commission Rules”), Rule 200, 49 C.F.R. §1100.200.
Commission Rule 57, 49 C.F.R. § 1100.57, specifically pre-
eludes use of normal discovery devices in hearings gov-
erned by Rule 200.
40. To ensure the complete separation of the summary
suspension proceeding from a due process hearing pursuant
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Verified Petition of Mobil Alaska To Annul ICC Order.
to § 15(1), Commission Rule 19, 49 C.F.R. § 1100.19 declares
that documents filed in a suspension proceeding shall not
constitute evidence
Recitals of material and relevant facts in a plead-
ing filed prior to oral hearing in any proceeding,
unless specifically denied in a counterpleading filed
under these rules, shall constitute evidence and be
a part of the record without special admission or
incorporation therein, but if request is seasonably
made, a competent witness must be made available
for cross-examination on the evidence so included in
the record. Pleadings may contain specific refer-
ences to or quotation from the tariffs or schedules
containing the several rates, fares, charges, sched-
ules, classifications, regulations or practices alleged
to be material. A filing under Rule 42 Petitions for
suspension of tariffs or schedules, shall not be con-
sidered a pleading for purposes of this rule. 49
C.F.R. § 1100.19.
41. The Commission’s power to determine and prescribe
rates is governed by Section 15(1) of the Act which states
in relevant part:
That whenever, after full hearing, upon a com-
plaint made as provided in Section 13 of this title, or
after full hearing under an order for investigation
and hearing made by the Commission on its own ini-
tiative, either in extension of any pending complaint
or without any complaint whatever, the Commission
shall be of opinion that any individual or joint rate,
fare, or charge whatsoever demanded, charged, or
collected by any common carrier or carriers subject
to this chapter for the transportation of persons or
6lla
Verified Petition of Mobil Alaska To Annul ICC Order.
property .. . is or will be unjust or unreasonable
. .. or otherwise in violation of any of the provi-
sions of this chapter, the Commission is hereby
authorized and empowered to determine and pre-
scribe what will be the just and reasonable individual
or joint rate... 49 U.S.C. § 15(1). (emphasis added)
FIRST CAUSE OF ACTION
42. Mobil Alaska repeats and realleges paragraphs 1
through 41 above with full force and effect as if fully set
forth herein.
43. The Commission’s actions and order suspending
petitioner’s TAPS tariff rate were in excess of its lawful
authority and without observance of the procedures
required by law. Petitioner will suffer irreparable harm
by reason of its tariff rate not being in effect when the
TAPS pipeline is ready to commence common carrier
operations on or about July 18, 1977.
44. Petitioner’s originally-filed tariff rate for the TAPS
pipeline is not a “new” rate within the meaning of Section
15(7) of the Act and thus cannot be suspended by the Com-
mission.
a. The Trans Alaska Pipeline System is newly-
constructed to afford crude oil transportation in a
geographic location previously devoid of any regu-
lated common carrier operations performing the
same or similar services.
b. The Trans Alaska Pipeline System is clearly
sut generis in the history of pipeline construction
projects attempted in the United States due to the
unique climatic conditions, terrain circumstances
612a 613a
Verified Petition of Mobil Alaska To Annul ICC Order. Verified Petition of Mobil Alaska To Annul ICC Order.
and environmental concerns which the builders were
required to overcome.
ce. The Trans Alaska Pipeline System was built
in three years with minimum effect on the surround-
ing environment, a remarkable construction and
engineering feat considering the uniquely adverse
conditions which had to be surmounted.
d. The Congress of the United States declared
that the “earliest possible construction of a trans-
Alaska pipeline from the North Slope of Alaska to
Port Valdez in that State will make the extensive
proven and potential reserves of low-sulfur oil avail-
able for domestic use and will best serve the national
interest,” 43 U.S.C. §1651(c) (emphasis added),
thus further distinguishing the construction of
TAPS from any other pipeline construction project.
e. The operation of the Trans Alaska Pipeline
System will present continuing financial risks to its
owners quite unlike any associated with other petro-
leum pipeline operations in the United States since
environmental concerns required that 423 miles of
TAPS be constructed above ground making it vulner-
able to sabotage, earthquake, and climatic damage
which could result in damage to the surrounding
environment in the event of a break in the line.
f. The tariff rates originally filed by the TAPS
owners, while computed in accordance with standard
rate-determination procedures as established and
endorsed by past Commission practice, nevertheless
present unprecedented rate-determination questions
for eventual disposition by the Commission.
g. The originally-filed TAPS tariff rates are not
“new” rates within the meaning of Section 15(7),
and thus not subject to the Commission’s summary
suspension power for the further reason that they
do not
i. change, replace or otherwise affect an exist-
ing rate;
ii. pertain to a pipeline or other transportation
facility presently engaged in transportation within
the meaning of the Act; and
iii. pertain to a transportation service which,
upon summary suspension of the “new” rate, would
continue to be available to the public.
h. Mobil Alaska’s originally-filed TAPS tariff
rate, not constituting a “new” rate within the mean-
ing of the Act, the Commission is prevented by the
Act from making any determination concerning the
reasonableness, justification, and lawfulness of said
tariff unless and until a full evidentiary hearing is
held, and petitioner afforded meaningful oppor-
tunity to discover and test the evidence, if any, upon
which the reasonableness of its rate is challenged, so
that the Commission’s determination would be sus-
ceptible to judicial review.
i. Mobil Alaska is not a common carrier subject
to regulation by the Commission since it is not
“engaged” in transportation within the meaning of
the Act, 49 U.S.C. § 1, and will not be in a position to
engage in transportation until such time as TAPS is
filled and ready to deliver crude oil at the Port
Valdez in Alaska. Suspension of petitioner’s tariff
presents petitioner with two choices, either (1) delay
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Verified Petition of Mobil Alaska To Annul ICC Order.
commencement of common carrier operations pend-
ing investigation, full hearing and ultimate deter-
mination of the TAPS rate questions by the
Commission, or upon expiration of seven months,
whichever should occur first; or (2) accept the Com-
mission’s interim rate pending final rate determina-
tion or the expiration of the seven-month period.
The Commission’s power to suspend “new” rates
does not include the power to impose further sanc-
tions of this nature upon pipeline owners and further
evidences that petitioner’s originally-filed TAPS
tariff is not a “new” tariff within the meaning of the
Act.
SECOND CAUSE OF ACTION
45. Mobil Alaska repeats and realleges paragraphs 1
through 41 above with full force and effect as if fully set
forth herein.
46. Even if Mobil Alaska’s originally-filed TAPS tariff
is a “new” tariff within the meaning of Section 15(7) of the
Act, in summarily determining “that there has been a suffi-
cient showing of probable unlawfulness,” and in ordering
the suspension of petitioner’s tariff rate, the Commission
acted arbitrarily and capriciously and grossly abused its
discretion.
a. Mobil Alaska has not been permitted appro-
priate opportunity to present any evidence concern-
ing the procedures followed and the standards
complied with in the formulation of its originally-
filed rate. The Commission’s rules do not require
submission of such evidence when a rate is filed, 49
U.S.C. §6, the requirement arising only upon insti-
615a
Verified Petition of Mobil Alaska To Annul ICC Order.
tution of an investigation by the Commission in
accordance with Section 15(1) of the Act. The
investigation of petitioner’s tariff commenced with
the Commission’s order which was issued on June
28, 1977 and which also ordered the suspension of
said tariff rate.
b. The Commission’s Rules do not permit filings
made seeking suspension of rates to be considered
as evidence. Rule 19.
ce. Since the Trans Alaska Pipeline System is a
newly-constructed property located in a part of the
United States where oil has only recently been dis-
covered, and since the magnitude and complexity of
the TAPS construction project is unrivaled in the
history of the petroleum pipeline industry, the Com-
mission lacked the experience as well as the expertise
upon which it might call for purposes of prelimin-
arily assessing the “probable unlawfulness” of peti-
tioner’s originally-filed rate.
d. The Commission’s actions and order suspend-
ing petitioner’s TAPS rate were in fact based upon
the opinions of representatives of the protestants,
State of Alaska and Arctic Slope Regional Corpora-
tion. Petitioner was deprived of any reasonable
opportunity to test the validity of those opinions, in
particular, their claims that maintenance of the rates
as originally filed by the TAPS owners pending final
determination as to reasonableness by the Commis-
sion following investigation and hearing (1) “could
act as an obstacle to the use of the pipeline by non-
affiliated oil producers”; (2) that the longer the Arc-
tic Slope Regional Corporation, which represents the
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Verified Petition of Mobil Alaska To Annul ICC Order.
Alaskan Natives, “must wait for its share of royalty
revenues (which are adversely affected by high
transportation rates), the less value such revenues
will have”; and (3) that the possibility of refunds
does not constitute “adequate protection” for the
protestants. Order at 3.
e. Sub-paragraphs a. through i. of paragraph 44
above are repeated and realleged with full force and
effect as if fully set forth herein.
THIRD CAUSE OF ACTION
47. Mobil Alaska repeats and realleges paragraphs 1
through 43 above with full force and effect as if fully set
forth herein.
48. The Commission’s actions and order prescribing the
rate at which petitioner would be permitted to operate its
portion of TAPS as a common carrier until January 29,
1978 were in excess of its lawful authority and without
observance of the procedures required by law. Petitioner
will suffer irreparable harm by reason of its originally-
filed tariff rate not being in effect for the specified seven-
month period.
49. Section 15(1) of the Act provides the procedures to
be followed before the Commission is empowered to deter-
mine and prescribe a rate and to issue an order prohibiting
a carrier from publishing, demanding or collecting any rate
other than the rate prescribed, 49 U.S.C. §15(1). Section
15(1) provides that the Commission may only prescribe a
rate “after full hearing.”
50. Neither Section 15(1) nor Section 15(7) of the Act
grants to the Commission any authority to prescribe a rate
617a
Verified Petition of Mobil Alaska To Annul ICC Order.
on the basis of summary proceedings that deprive the
carrier of the right to discovery, as provided in the Rules,
as well as the right to a full hearing on the record with the
opportunity to present evidence to support the reasonable-
ness of its rate and to test by cross-examination and other-
wise, allegations that its rate is unreasonable.
FOURTH CAUSE OF ACTION
51. Mobil Alaska repeats and realleges paragraphs 1
through 41 above with full force and effect as if fully set
forth herein.
52. Even if the Commission is empowered to prescribe
interim rates on the basis of summary proceedings and is
not required to take such action after full hearing, the exer-
cise of such power on June 28, 1977 as to Mobil Alaska was
arbitrary and capricious and constituted gross abuse of
Commission discretion for the reasons set forth in subpara-
graphs (a) through (i) of paragraph 44 above and sub-
paragraphs (a) through (d) of paragraph 46 above.
FIFTH CAUSE OF ACTION
53. Mobil Alaska repeats and realleges paragraphs 1
through 41 above with full force and effect as if fully set
forth herein.
54. The Commission’s actions and order suspending
petitioner’s originally-filed TAPS tariff rate and the set-
ting of an interim rate as a condition precedent for the
commencement of common carrier operations by petitioner
as an owner of the Trans Alaska Pipeline System, are pro-
hibited by the Fifth Amendment to the Constitution of the
United States and violate elementary and controlling prin-
ciples of fairness and administrative due process for the
618a
Verified Petition of Mobil Alaska To Annul ICC Order.
reasons set forth in subparagraphs (a) through (i) of
paragraph 44 above and subparagraphs (a) through (d) of
paragraph 46 above.
SIXTH CAUSE OF ACTION
55. Mobil Alaska repeats and realleges paragraphs 1
through 41 above with full force and effect as if fully set
forth herein.
56. The interim rate of $4.84 per barrel which the Com-
mission seeks to impose upon petitioner’s operation of its
portion of the Trans Alaska Pipeline System for the period
on or about July 18, 1977 through January 29, 1978 would
not permit Mobil Alaska to cover its share of operating
expenses for TAPS during that period, nor its capital costs
of doing business. The interim rate of $4.84 per barrel
would not produce enough revenue during the period to
allow Mobil Alaska to service its debt and allow a return
on equity sufficient to attract capital (Order at 7).
57. Mobil Alaska will have no opportunity to recoup the
losses in revenue and other losses which it will incur if the
interim rate becomes effective during the suspension
period. Thus, the Commission’s actions and order sus-
pending petitioner’s originally-filed tariff rate, and the set-
ting of an interim lower rate as a condition precedent to
petitioner’s operation of its portion of TAPS for the
period July 18, 1977, or thereabouts, through January 29,
1978 constitutes confiscation of Mobil Alaska’s property
without just compensation in violation of rights guaranteed
by the Fifth Amendment to the Constitution of the United
States.
619a
Verified Petition of Mobil Alaska To Annul ICC Order.
IRREPARABLE INJURY
58. Unless enjoined and restrained by this Court,
respondents’ actions and orders as herein before alleged
will cause immediate, substantial and irreparable injury to
petitioner and others, including the following:
a. The Commission’s actions and order of June 28,
1977 will require Mobil Alaska to choose between the
following alternatives on or before July 17, 1977,
each of which will cause irreparable injury to peti-
tioner:
(i) Petitioner can elect not to refile its TAPS
tariff at the $4.84 rate prescribed by the Commis-
sion, which would deprive it of common carrier
status under the Act and thus effectively prevent
operation of its portion of TAPS until such time
as the Commission completes its determination as
to the lawfulness of petitioner’s originally-filed
rate or until January 29, 1978, whichever should
occur first. This course of action would postpone
for at least some months the time when Mobil
Alaska could expect its investment in TAPS to
commence producing revenue, and would thus con-
stitute a revenue loss of up to $88,000 per day to
Mobil Alaska for each day after July 18, 1977,
which is the date presently scheduled for the com-
mencement of TAPS common carrier operations.
(ii) Petitioner can otherwise elect to commence
common carrier operations on or about July 18,
1977 by refiling its tariff at $4.84 in accordance
with the Commission’s order, which would result in
a daily loss of revenue to Mobil Alaska, due to the
$1.47 reduction in its original rate, of between
620a
Verified Petition of Mobil Alaska To Annul ICC Order.
$44,100 to $88,200 per day until January 30, 1978
or ultimate Commission determination of the
TAPS rates, whichever should occur first.
b. If petitioner is forced to accede to the Commis-
sion’s actions and order, and operates its portion of
TAPS at the reduced interim rate set by the Com-
mission for the suspension period, it will suffer a loss
amounting to approximately $18,522,000. The esti-
mated loss which would be suffered by all TAPS
owners resulting from the pipeline operation for the
suspension period at the reduced rates would be
approximately $343,335,000. These losses in revenue
could not be recovered by the TAPS owners in the
event that the Commission ultimately determines
that their originally filed rates for TAPS are just,
reasonable and lawful.
In contrast, royalty-owner protestants, as recog-
nized by the Commission, Order at 3, stand to suffer
delay in receipt of, but not loss of, royalty revenue
should the originally filed rates remain in effect and
the Commission ultimately determine a lower rate to
be reasonable. Thus, if the interim rates were found
to be the lawful rate, and the originally filed rates
were effective during the suspension period, Alaska’s
royalty interest in Mobil Alaska’s overcollection
would be approximately $2,315,000, and $46,000 of
that amount would represent the interest of Arctic
Slope Regional Corporation. Thus, the Commis-
sion’s actions and order, if implemented, will require
Mobil Alaska permanently to forego $18.5 million in
revenues for the principal purpose, according to the
order, of merely assuring against any possibility of
delay in royalty payments amounting to $2.3 million
621la
Verified Petition of Mobil Alaska To Annul ICC Order.
for the State of Alaska and $46,000 for the Arctic
Slope Regional Corporation.
c. If Mobil Alaska and/or other TAPS owners
decide that it is in their best individual interest not
to refile tariff rates at the interim levels set by the
Commission, an alternative which is probably not
economically viable given the magnitude of the
investment made in TAPS and the owners’ need to
have that property start producing revenue, the
resulting shut-in of all or part of the TAPS crude oil
transportation capacity would cause irreparable
injury to the national energy policy and the overall
economy of the United States.
d. The respondents’ actions will have a chilling
effect upon future decisions to invest in petroleum
pipeline property subject to Commission regulation
due to the ad hoc and summary approach taken by
the Commission in responding to the unsupported
claims made against the TAPS rates by protestants.
59. The price to be paid by refiners on the West Coast
of the United States for the North Slope crude oil to be
transported by TAPS, and thus the price to be paid by
consumers for the petroleum products to be manufactured
from said crude, will not be affected by the subject contro-
versy concerning the TAPS rates since the Federal Energy
Administration (FEA) established the prices refiners will
pay for North Slope crude and the TAPS transportation
cost will be included within, and not in addition to, the FEA
determined prices.
PRAYER
Wuenrerore, petitioner prays that this Court:
A. Enter judgment annulling and setting aside the
Commission’s order of June 28, 1977 in Investigation and
622a
Verified Petition of Mobil Alaska To Annual ICC Order.
Suspension Docket No. 9164, “Trans Alaska Pipeline Sys-
tem (Rate Filings)”;
B. Enter judgment enjoining and restraining the
respondents and all persons acting under their direction
and authority, or in active concert or participation with
them from taking or attempting to take any action to pre-
vent the tariff rates as originally filed by the TAPS owners,
including the $6.31 rate as filed by petitioner, from becom-
ing immediately effective and from remaining effective as
the lawful rates applicable to the common carrier operation
of that petroluem pipeline unless and until the Commission
should determine and prescribe, following investigation
and after full hearing, that rates other than those as
originally filed are reasonable, just and lawful.
C. Enter judgment as prayed for in paragraph B above,
preliminarily until ten (10) days after final determination
of this action on the merits by this Court.
D. Grant petitioner such other, further or different re-
lief as to the Court may seem just and proper.
Dated: July 5, 1977
Respectfully submitted,
Donovan Leisure Newton & IrvINE
Of Counsel:
James R. Kinzer Anprew J. K1icarr
General Counsel Maureen O’Bryon
Mobil Alaska Pipeline 1666 K Street, N. W.
Company Washington, D. C. 20006
Box 900 Telephone: (202) 785-8900
Dallas, Texas 75221
Council For Petitioner
Mobil Alaska Pipeline Company
[Verification of James R. Kinzer, Certificate of Service
and Map of Trans Alaska Pipeline Route (Exhibit A)
omitted in printing.]
Order of
Tariffs and
“Exhibit B”
Commerce Commission Suspending
ing Interim Rates, Attached As
erified Petition of Mobil Alaska Pipe-
line Co., Filed July 6, 1977.
ORDER *
At a General Session of the INTERSTATE COMMERCE
COMMISSION, held at its office in Washington, D.C.,
on the 28th day of June, 1977.
INVESTIGATION AND SUSPENSION
DOCKET NO. 9164
TRANS ALASKA PIPELINE SYSTEM
(Rate Filings)
No. 36611
TRANS ALASKA PIPELINE SYSTEM
(Rules and Regulations)
Initial rate tariffs have been filed by eight pipeline
companies, proposing to operate as common carriers of
crude petroleum over the Trans Alaska Pipeline System.
Protests and petitions for suspension of the tariffs
have been filed by the United States Department of Jus-
tice, the State of Alaska, the Arctic Slope Regional Corpo-
ration and our Bureau of Investigations and Enforcement.
These pleadings seek to invoke our power under section
15(7) of the Interstate Commerce ‘Act (1) to enter upon
a hearing concerning the lawfulness of the tariffs and
(2) pending the hearing and decision, to suspend the
operation of the tariffs for a period no longer than seven
months. Replies to the protests have been filed by each
of the eight carriers.
The tariffs are identified in Appendix 1 to this order.
As noted therein, the various rules contained in the
tariffs have already been placed under investigation by
Commission order dated June 17, 1977, No. 36611. Con-
sideration of the tariff rates, however, was deferred
* Corrected to include changes set forth in Correction Notice dated
June 29, 1977.
624a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
to the present order. The rates per barrel proposed by
the respective companies are as follows:
Amerada Hess Pipeline Corporation $6.44
Arco Pipe Line Company 6.04
BP Pipelines Inc. 6.35
Exxon Pipeline Company 6.27
Mobil Alaska Pipeline Company 6.31
Phillips Alaska Pipeline Corporation 6.22
Sohio Pipe Line Company 6.16
Union Alaska Pipeline Company 6.09
With respect to these rates, we have given careful
consideration to the protests, and to the carriers’ replies.
In addition, we have heard oral argument by the parties.
It is our conclusion that a formal investigation concern-
ing the lawfulness of the proposed rates should be in-
stituted pursuant to sections 15(1) and 15(7) and that
because of the close interrelationship of the rate filings
and the applicable rules and- regulations, they should
be considered in the same proceeding. We further con-
clude that such rates should be suspended, without preju-
dice to the filing of interim rates, during the suspension
period. -
In reaching these conclusions, we have considered the
following issues: (1) whether an investigation should
be instituted; (2) whether the proposed rates can and
should be suspended; (3) whether interim rates can and
should be authorized; (4) what level of interim rates
should be authorized: and (5) what conditions should
be attached to the acceptance of interim rate filings.
The institution of an investigation.
Section 15(7) of the act empowers the Commission
to enter upon a hearing concerning the lawfulness of a
filed tariff stating a new rate or charge. In order for a
rate to be lawful, a primary requirement is that it be
625a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
just and reasonable (section 1(5)). The act sets forth
other requirements as well, and if an investigation is
instituted, any and all aspects of the lawfulness of the
rate may be considered. However, the question raised
by the protests is whether there is reason to believe the
proposed rates are not just and reasonable.
Protestants contend that the filed rates would provide
excessive profits, whether compared with a traditional
rate of return on valuation or with the carriers’ capital
costs. They also contend that the cost data provided
by the carriers is overstated.
The carriers reply that their rates were computed to
allow a 7 percent return on valuation, as contemplated
in a 1941 consent agreement between the Justice De-
partment and a number of shipper-owned pipelines
(United States v. Atlantic Refining Co., C.A. No. 14060,
D.D.C. decided December 23, 1941). They also assert
that the standards used by protestants are unrealistic
in that they do not recognize that the carriers are able
to maintain high levels of debt financing only because
such debt is guaranteed by the parent oil companies.
The carriers argue that, without such guarantees, they
would have to resort to a larger amount of equity fi-
nancing, and their overall capital costs would be higher
than the amounts recognized by protestants. The carriers
also deny that their cost data is overstated. However,
they do not object to a formal investigation of the filed
rates.
For reasons set forth below, we do not accept the 1941
consent decree as a standard of reasonableness under the
Interstate Commerce Act. Moreover, while there may be
merit to the carriers’ contentions that the standards
used by protestants do not cover their true costs of capi-
tal, this is a matter that cannot be resolved until a
more complete record is developed. Finally, evidentiary
hearings will be necessary to develop acceptable cost
626a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
data for use in applying whatever measures of reason-
ableness are found to be appropriate. Therefore, we con-
clude that there has been a sufficient showing of prob-
able unlawfulness to warrant the institution of a formal
investigation concerning the proposed rates.
The suspension of the proposed rates. Some of the
carriers argue that the Commission is without power
to suspend initial rates. They rely on numerous ref-
erences in legislative history and past cases to exercise
of the suspension power in instances of “increased” rates.
They rely on such references to conclude that the power
of suspension does not apply to initial rates. However,
the reason that the suspension powers are usually dis-
cussed in the context of increased rates is clear: the
vast majority of rate proceedings involve situations where
increases in existing rates are at issue.
We see no basis in the sources cited for concluding
that we may not suspend initial rates. If this were the
Congressional intention, we believe that it would have
been explicitly stated. It was not so stated, and the car-
riers have been unable to cite any direct authority for
their position.
It is stated in section 15(7) that the Commission is
authorized to enter upon a hearing concerning “any
schedule stating a new individual or joint rate, fare, or
charge.” Pending this hearing and decision, the Com-
mission may suspend, for up to seven months, the schedule
being investigated. In Rail-Water, Grain in Bulk, Mo.,
Ill., and Ind., to Buffalo, 321 1.C.C. 564, 566 (1963),
it was said that the term “new rate” in section 15(")
encompasses “both changed and initial” rates.
Similar suspension powers pertaining to other modes
of carriage are contained in sections 216(g), 218(c), 307
(g), and 406(e) of the act. In each of these sections,
there is “grandfather” language making the provisions
627a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
inapplicable to “initial’’ rates filed on or before a certain
date. By implication, then, the investigation and sus-
pension provisions are applicable to initial rates filed
after such date.
As noted, if it were intended to exclude initial rates
from the suspension power of section 15(7), one would
expect specific language to this effect. No such language
appears. Accordingly, we have no doubt that the sus-
pension power is applicable to initial rates.
The carriers also question whether, even if the sus-
pension power is applicable, we should exercise it here.
They argue that protestants would not be harmed by
allowing the proposed rates to go into effect, inasmuch
as refunds or reparations would be available if the in-
vestigation should show that the filed rates are too high.
Protestants, however, do not consider the possibility of
refunds to be adequate protection. The Arctic Slope Re-
gional Corporation, which represents Alaskan Natives,
notes that the longer it must wait for its share of
royalty revenue (which are adversely affected by high
transportation rates), the less value such revenue will
have. Protestants also argue that the maintenance of
pipeline rates at too high a level would act as a deterrent
to the use of the pipeline by independent oil producers.
Although we recognize that the refund remedy is
available, we do not believe that the rates can be allowed
to go into effect without suspension, when, as here, the
protestants have made a showing of probable unlawful-
ness. Moreover, as noted by protestants, the maintenance
of excessively high rates could act as a deterrent or an
obstacle to the use of the pipeline by non-affiliated oil
producers, and would also delay the Alaskan interests
in obtaining revenues that depend upon the wellhead price
of the oil. Under the circumstances, we have concluded
that the proposed rates, as filed, should be suspended,
628a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
pending our investigation, for the statutory period of 7
months.
The specification of interim rates. Protestants seek
to have the Commission name specific rates that may be
charged by each carrier while the investigation is be-
ing conducted. The carriers, however, contend that the
Commission has no power to do so. They argue that the
specification of interim rates would be a rate prescrip-
tion within the meaning of section 15(1) of the act,
and that we are empowered to take such action only
after a full hearing.
We see no basis for considering such action to be a
prescription of rates... We may authorize interim rates
without requiring that the rates proposed in the tariffs
be cancelled, and without precluding the proposed rates
from taking effect at the end of the 7-month suspension
period if our investigation is not then completed (sub-
ject, however to a refund provision as hereafter de-
scribed). These interim rates would not be intended to
have permanent effect, but would merely be interim rates
that we would allow to be collected during the suspension
period. Such rates, if filed, remain subject to Commis-
sion scrutiny and are not to be considered as prescribed
1 Moss V. C. A. B., 480 F.2d 891, is clearly distinguishable. That
case involved ex parte meetings and the substitution by the Board
of “‘a complete and innovative scheme for setting all passenger rates
for the Continental United States,” with an indication that such a
filing would not be suspended. In Moss, the court noted that unlike
the Interstate Commerce Act, the Federal Aviation Act has no pro-
vision for reparations, thus rendering the procedural safeguards of
the Aviation Act the public’s sole defense. The court also pointed
out its view might have been different if interim action were in-
volved. In the present TAPS proceeding, both the proposed rates
and any interim rates which may be filed will remain subject to
full investigation. See also Consolidated Edison Co. of New York
v. F. P. C., 168 U.S.App.D.C. 92, 512 F.2d 1882, 1340, distinguishing
Moss Vv. C. A. B. and stressing th- behind-the-scenes aspect of the
Moss case.
629a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
within the meaning of the decision in Arizona Grocery
v. Atchison, T. & S. F. Ry., Co., 284 U.S. 370, 52 S.Ct.
183, 76 L.Ed. 348.
We believe that the power to allow interim rates is in-
herent in the suspension power. Without it, the Com-
mission could be faced with the choice of allowing the
carriers to operate at any rate they choose, whether
or not lawful, or precluding carrier operations alto-
gether. We do not believe that Congress could have
intended our powers to be so inflexible. If the suspension
power did not include the discretion to permit interim
rates, it would be a substantially less satisfactory tool
for serving the public interest.
Having concluded that we possess the power to author-
ize interim rates, we have no hesitation about taking
such action in the present circumstances. If we were to
suspend the proposed rates without allowing interim
rates, the result would be to preclude the carriers from
commencing their operations during the suspension pe-
riod. Such a result would be contrary to the interests
of all concerned.
The level of interim rates. We believe that the proper
question to be asked concerning our action in these pro-
ceedings is not whether we have the discretion to author-
ize an interim rate. Rather, the question should be
whether we have exercised such discretion in a reason-
able manner.
The key to a proper exercise of our discretion in this
situation lies in recognizing the possible consequences
of our action. We must bear in mind that the carriers
may have no means of obtaining restitution if initially
required to maintain too low a rate. On the other hand,
a remedy by way of refunds or reparations is available
to persons injured by the charging of a rate that is
ultimately found to be too high. In these circumstances,
630a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
the reasonable approach to determining an interim rate
is (1) to accept the basic data supplied by the carriers
and (2) at the same time to require the refund provi-
sion in the event that such amounts are ultimately de-
termined to exceed a reasonable level. This, then, is the
course that we shall follow.
The process of arriving at an acceptable interim rate
requires two steps. The first is to define the basic
carrier data that will be employed, and the second is to
perform computations using such data.
The data that we will employ is set forth in Appendix
2. For the purposes of the present decision, we have,
for the most part, employed the figures supplied by the
carriers. Appendix 2 displays this data both in total
dollars and in dollars per barrel. The conversion to per-
barrel figures is based on the assumption that the normal
traffic volume for the beginning years will be 438 million
barrels a year (1.2 million barrels a day), and that this
number of barrels will be apportioned among the car-
riers according to their respective ownership shares in
the pipeline.
Of the items set forth in Appendix 2, substantial
questions have been raised at this stage ui the proceed-
ing particularly with regard to removal and restoration
costs and depreciation. Removal costs are the costs ex-
pected to be incurred at the end of the useful life of the
pipeline in order to meet environmental requirements.
According to the Alyeska Pipeline Service Company,
these costs will amount to about $1.049 billion in 1977
dollars. Some of the carriers propose to simply set aside
one twenty-fifth of their total share of this amount
each year for 25 years. Others propose more detailed
computations to inflate the removal costs to dollar costs
for the year 2002, and to allow for compounded interest
on the yearly accruals. The protestants, on the other
631la
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
hand, seek to reduce the yearly removal charges by re-
quiring that they be amortized over a period longer than
25 years.
With respect to depreciation charges, the carriers uni-
formly propose a 25-year service life, on the basis. that
known recoverable reserves on the North Slope are ex-
pected to be depleted in terms of economic recovery in
25 years. Protestants propose that service lives as long
as 35 years be required, on the basis that additional
oil fields exist on the North Slope that are likely to extend
the pipeline’s useful life and that even the present re-
serve may have a longer life than 25 years."
Both of these issues will receive substantial attention
during our formal investigation. However, at this stage
of the proceedings, the data presented concerning addi-
tional reserves is of a somewhat uncertain nature. We
do not deem this data sufficient to warrant a reduction
in the amount allowed for depreciation for the purposes
of determining the lawfulness of the proposed rates
at the suspension level. By the same token, we will not,
at this time, compute removal charges over an amortiza-
tion period of more than 25 years.
For removal costs, we have used the same per-barrel
allowance for each carrier, because we see no basis for
cost differences among the carriers on this item. Our al-
lowance is based on a simple amortization without in-
flation or discounting. While this approach may some-
what understate the amounts that need to be accrued, the
magnitude of the discrepancy would not be great in
terms of the overall tariff computation. It may well be
outweighed by overstatement in the depreciation charges.
An additional issue is raised by protestants concerning
the investment and valuation figures. It is their conten-
* It should be noted that at oral argument several protestants did
not dispute the use of 25 years at the suspension level.
632a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
tion that these figures are affected b
struction costs. Needless to say, this Neen” rey Noe
— focus of our formal investigation. However, as
ms protestants themselves concede, this is not a matter
rg can be properly dealt with at the present stage of
= proceeding. Accordingly, the investment figure pro-
; meyoe , — bony be used at this time. Our valua-
as use
foun ae eae _ —_ data in providing valuation
In one aspect, the investment data shown on Appen
di
4 differs from figures supplied by certain lie in
a it does not include an amount for working capital.
ry all of the carriers reported working capital as part
of their investment. Those that did appear to have used
no consistent standard. For this reason, and because
a satisfactory basis for judging the carriers’ working
capital needs has not been shown, we have omitted it
from the investment figures. We believe that our ac-
tion in this respect is more than compensated by our
liberality in not averaging down the i
for depreciation over the first few noon see diac
Having the basic data at hand
question of rate computation. uerniageso dang
In justifying the filed tariff rates, the carri
ers con-
tend that the proposed rates are merely sufficient to
— expenses and interest and to allow an after-tax
= urn on equity equal to 7 percent of their valuation.
ey consider this method of gauging a return on equity
to be permissible since it is used in the 1941 consent
agreement between the Justice Department and a lar
number of shipper-owned pipelines. “
However, the consent decree standard h
employed in a Commission proceeding as the test of =
* An allowance for working capita
the staff evaluation estimates at pone bye included in
633a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
sonableness of rates. Its sole legal status is as a limit
on the amount of dividends that pipelines may pay to
shipper owners without risking prosecution under the
Elkins Act for illegal rebates. Moreover, as a standard
of reasonableness, it has nothing to recommend it from
a conceptual standpoint. Although valuation is a meas
ure of the entire investment, the consent decree standard
allows a return on valuation to be used entirely to com-
pensate one segment of the capital invested. Such a stand-
ard can have no relationship, except by coincidence, to
the carriers’ true capital costs. As shown in Appendix
3, the filed rates would produce returns on equity rang-
ing from 81 percent to 96 percent. Accordingly, it can
be seen that the tariff rates would produce returns ex-
ceeding capital costs, even where the carriers’ own ex-
pense and investment data are accepted.
Inasmuch as the carriers’ justification does not appear
satisfactory, we must next consider what standards
would be appropriate based on our own precedents. As
we noted in No. 36538, Petroleum Products, Williams
Brothers Pipe Line Company, —— 1.C.C. —— (1976),
the standards we have applied in the past have been an
8 percent return on valuation for crude oil pipelines and
10 percent on valuation for petroleum products pipelines.
At the outset, we have questions about the appropriate-
ness of an 8 percent return in this instance, where an-
nual interest rates generally exceed 8 percent. The small
margin of earnings in excess of interest that would re-
sult is demonstrated in Appendix 4. As may be seen,
rates computed on this basis would range from $3.74 for
BP to $4.16 for Exxon. Further study of this table shows
that five of the eight carriers would have returns on
equity of 10 percent or less under this standard, and
returns for some would be lower than 3 percent. Such
a return would be unreasonably low.
634a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
It should be noted that the 8 percent on valuation
standard arose in the early 1940’s, when capital costs
were substantially lower than they are today. It could
continue to provide a substantial return on original in-
vestment to established carriers, whose valuations have
risen well above their actual investment because of in-
flation. In the case of the TAPS carriers, however, their
property was constructed so recently that valuation is
little higher than actual cost, and an 8 percent return
on valuation becomes quite deficient.
The question arises, then, as to whether the Commis-
sion can permissibly depart from its previous standards
in these proceedings. The answer lies in the fact that,
whatever standards we use, the earnings allowed to the
carriers must comply with governing judicial require-
ments. The controlling standard, set forth in Federal
Power Commission v. Hope Natural Gas Co., 820 U.S.
591, 603, 64 S.Ct. 281, 83 L.Ed. 388 (1944), is that a
regulated firm must be aliowed enough revenue not only
for operating expenses, but also for the capital costs
of the business. Such revenue must cover service on the
debt and a return on equity sufficient to attract capital.
[See also section 15a(2).]
For the purposes of the present decision, we have de-
termined that the standard of a 10 percent return on
valuation for petroleum products pipelines is appropriate
for the TAPS carriers. Our selection of the 10 percent
return on valuation standard is based primarily on two
factors. One is that the magnitude and inherent attri-
butes of the TAPS project produce a higher risk factor
than is normal in crude oil pipeline operations. Many of
the construction features are being tested for the first
time. Geographic terrain, environmental and tempera-
_ ture problems, possible earthquakes, vulnerability to sabo-
tage, future oil pricing policies, and regulatory uncer-
tainty are among the factors to be considered. More
635a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
over, a 10 percent return on valuation appears generally
sufficient to cover estimated capital costs. As previously
noted, an 8 percent return on valuation produces gen-
erally insufficient returns on equity.
As shown in Appendix 5, a 10 percent return on
valuation produces for the individual carriers on their
actual capital structure returns on equity ranging from
13.8 percent to 54.8 percent, with no figure for Mobil
which claims to be totally debt financed. The composite
return on equity is 23 percent.
While these returns on equity have been challenged
by protestants, the carriers note that they have an ab-
normally high proportion of debt in their capital struc-
tures, which is made possible by the fact that their debt
obligations are unconditionally guaranteed by their parent
oil companies. The carriers would argue that tariff rates
based on 10 percent return on valuation provide a much
lower return on equity with a more normal capital struc-
ture.
Although the 10 percent return on valuation appears
suitable for present purposes, we stress that it is not
intended to be a general standard nor to be a prejudg-
ment of criteria to be used upon the conclusion of the
investigation in these proceedings, nor is it in any way
to be considered a prejudgment of the issues in Ex Parte
No. 308.
Conditions for the acceptance of interim rate filings.
The Bureau of Investigations and Enforcement asks that
the carriers be required to produce a number of types
of documents as a condition to our acceptance of interim
rates. The carriers, however, contend that BIE’s pro-
condition is an attempt to circumvent the Com-
mission’s established discovery rules, and should not be
adopted.
636a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
We have concluded not to impose the requested con-
dition in the present order. We do not believe that such
orders are a necessary subject for inclusion in an order
disposing of petitions for suspension of a tariff. Any
future request for orders can be handled as separate
matters later, when all factors concerning the production
of the requested data can be properly considered. In
addition, we note that at oral argument, the carriers
indicated their willingness to cooperate in the production
of documents. We shall expect them to abide by this
agreement.
The other condition requested by protestants pertains
to possible refunds of excess charges collected. We recog-
nize that even the lower interim rate levels may prove
upon investigation to exceed reasonable levels. Therefore,
as a condition to filing such interim rates, we will require
that the carriers keep account of the amounts collected
under the interim rates or the proposed rates should they
become effective and that they agree to refund any por-
tion of such amounts that may ultimately be established
as excessive.
Immediately prior to the oral argument on June 27,
1977, the Department of Justice filed a memorandum in
reply to the responses of the carriers together with a
motion for leave to file. Neither the special procedure
adopted in this case nor our rules of practice contem-
plate replies to replies and the motion for leave to file
is denied.
In the paragraphs below, the tariffs of Phillips Alaska
Pipeline Corporation are not included. As noted in Ap-
pendix 1, a separate order with respect to Phillips will
be issued before July 20, 1977.
It is ordered, That the operation of the schedules au-
thorized below be, and it is hereby, suspended, and that
the use thereof in interstate or foreign commerce be
637a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
deferred from June 30, 1977, and to and including Jan-
uary 29, 1978, except as to I.C.C. 2, published by Amerada
Hess, which bears a July 1 effective date and the opera-
tion of which is suspended to January 31, 1978, unless
otherwise ordered by this Commission ;
AMERADA HESS PIPELINE CORPORATION
LC.C. NO. 2
ARCO PIPE LINE COMPANY
1.C.C. NO. 1030
on page 14, the rate of $6.04
BP INDUSTRIES, INC.
I.C.C. NO. 2
EXXON PIPELINE COMPANY
I.C.C. NO. 125
MOBIL ALASKA PIPELINE COMPANY
I.C.C. NO. 2
SOHIO PIPE LINE COMPANY
L.C.C. NO. 742
on the title page, the rate of $6.16
UNION ALASKA PIPELINE COMPANY
1.C.C. NO. 2
It is further ordered, That an investigation be, and it
is hereby, instituted into and concerning the lawfulness
of the rates contained in the suspended schedules, as
aforesaid, as well as the interim schedules authorized to
be filed, pursuant to section 15(1) and section 15(7),
with a view to making such findings and orders in the
premises as the facts and circumstances shall warrant.
In the event the schedules here under investigation are
changed, amended or reissued, upon termination of the
suspension period and the investigation not having been
concluded, such changed, amended or reissued schedules
will be included in this investigation.
ee A EN I TO TO AON
ee
638a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
It is further ordered, That the investigation in this
proceeding shall include all matters and issues with re-
spect to the lawfulness of the said rates under the In-
terstate Commerce Act.
It is further ordered, That the named carriers be,
and they are hereby, authorized to file, upon not less than
one day’s notice, interim rates not exceeding the follow-
ing amounts:
Amerada Hess Pipeline Corporation $4.85
Arco Pipe Line Company 4.91
BP Pipelines Inc. 4.68
Exxon Pipeline Company 5.10
Mobil Alaska Pipeline Company 4.84
Sohio Pipe Line Company 4.70
Union Alaska Pipeline Company 4.89
subject, however, to the condition that the carriers keep
account and that (1) the interim tariffs contain a re-
fund provision to the effect that if the rates charged
exceed the rates subsequently authorized or prescribed
by the Interstate Commerce Commission, the carriers
will refund the difference between the rates charged and
any rates which may subsequently be authorized or pre-
scribed by the Interstate Commerce Commission with in-
terest computed in accordance with section 15(8) (e)
of the act, added by the Railroad Revitalization and Reg-
ulatory Reform Act of 1976; and (2) that the carriers
file (effective on not less than 1 day’s notice) a similar
refund provision applicable to the original proposed rates.
Although that section does not apply to pipelines, it rep-
resents the latest expression of Congressional interest,
and the Commission’s notice of April 14, 1977 indicated
its applicability to all carriers under Part I. It should
also be noted that the carriers at the oral argument ex-
pressed assent to an even higher rate of interest in the
event of an investigation without suspension. Under
the circumstances, we believe interest computed in ac-
639a,
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
cordance with section 15(a)(e) would be fair to all
parties.
And it is further ordered, That a copy of this order
be filed an ihe schedules in the office of the Interstate
Commerce Commission, and that copies hereof be served
upon the carriers parties to the said schedules, and that
the said carriers be, and they are hereby, made respond-
ents to this proceeding.
By the Commission. (Commissioner Brown approves
the order except insofar as it denies the motion of the
Department of Justice for leave to file a response to the
carriers’ responses) .
H. G. HoMME, JR.,
Acting Secretary.
[SEAL]
APPENDIX 1
INITIAL TARIFFS APPLICABLE TO THE TRANS ALASKA PIPELINE SYSTEM
Effective Date
a ee ee a
= LCC. No. 1030 May 27, 1977 June 30, 1977
— oe file | Re
Smeg =e city) tom Ret Se Sk
“Pdetemeey «GEA Samet tne
ne ee tame ee
— LCC. No, 742 Jane 3, 1977 June 90, 1977
UMpdee Company == LG Nad jee 6S
ta ee le lad ty oo to meen al itt Comuretion ofthe rate fled by
wee bel!
ee
APPENDIX 2
640a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
CREB ERCREECELERL
AL ELEL EL EL EL i
1&8 No, 9164
641a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
FOOTNOTES TO BASIC CARRIER DATA
Amerada Hess
1,
PPR PH >
Reported in undated statement submitted by Amerada Hess en-
titled “General Assumptions for Calculating TAPS Tariff as of
May, 1977.”
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Amerada Hess’ ownership share (1.50
percent).
Amerada Hess’ share (1.50 percent) of Alyeska investment
($7,959 million for facilities plus $16 million for land), plus
Amerada Hess’ capitalized construction interest ($22,670,500)
and capitalized overhead costs ($1,735,400) as reported by letter
from R. K. Stafford dated May 13, 1977.
Reported in letter from R. K. Stafford dated June 1, 1977.
Reported in “General Assumptions” statement.
Reported in “General Assumptions” statement.
Interest divided by debt.
Investment minus debt.
Staff estimate based on reported investment figures.
Arco
1. Reported in letter from J. D. Wessling dated June 1, 1977.
2.
3.
SBP >
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Arco’s ownership share (21 percent).
Arco’s share (21 percent) of Alyeska investment ($7,959 million
for facilities, plus $16 million for land), plus Arco’s capitalized
construction interest ($257,100,000), as reported in letter from
J. D. Wessling dated June 1, 1977.
Reported in letter dated June 1, 1977.
Interest divided by interest rate.
Reported in June 1, 1977 letter.
Weighted average interest rate of debt issues shown in a letter
from J. D. Wessling dated June 2, 1977.
8. Investment minus debt.
9.
BP
1.
2.
3.
Staff estimate based on reported investment figures.
Reported in BP’s submission of June 15, 1977, in explanation of
filed tariff rates.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by BP’s ownership share (15.84 percent).
BP’s share (15.84 percent) of Alyeska investment ($7,959 million
for facilities plus $16 million for land), plus BP’s capitalized
ei nn «
ee
FR Oe eR omer ee
642a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
construction interest and overhead costs ($204 million), with
the latter as reported in BP’s submission of June 15, 1977.
Reported in BP’s submission of June 15, 1977.
Investment less equity.
Reported in a leter from P. H. Jones dated May 27, 1977.
Interest divided by debt.
Reported in a letter from P. H. Jones dated June 14, 1977.
Staff estimate based on reported investment figures.
Exzzon
1.
2.
PW MKNKQOARS
Reported in Appendix. A to Exxon’s reply to protests.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Exxon’s ownership share (20 percent).
Exxon’s share (20 percent) of Alyeska investment ($7,959
million for facilities, plus $16 million for land), plus Exxon’s
capitalized construction interest ($242 million), with the latter
. a in a letter from J. D. Sturtevant dated March 21,
Reported in a letter from J. D. Sturtevant dated June 1, 1977.
Interest divided by interest rate.
Reported in Appendix A to Exxon’s reply to protests.
Reported in Appendix A to Exxon’s reply to protests.
Investment minus debt.
Staff estimate based on reported investment figures.
Mobil
po
Sere
Reported in a letter from C. R. Thompson dated May 27, 1977.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Mobil’s ownership share (5 percent).
Mobil’s investment, including capitalized construction interest
($57.7 million) and capitalized overhead costs ($3.2 million) as
reported in a letter from C. R. Thompson dated April 29, 1977.
Reported in letter dated May 27, 1977.
Debt presumed to be 100 percent of investment. Data filed by
Mobil gives no indication of equity financing.
Reported in letter dated May 27, 1977.
Interest divided by debt.
Investment minus debt.
Staff estimate based on reported investment figures.
Phillips
1.
Reported in a letter from James Mullen dated July [sic; June]
20, 1977.
IH
643a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Phillips’ ownership share (1.66 percent).
Phillips’ share (1.66 percent) of Alyeska investment ($7,959
million for facilities plus $16 million for land), plus Phillips
capitalized construction interest ($14,944,000) and capitalized
overhead costs ($40,000), with the latter items as reported in
letter of June 20, 1977. Working capital ($1,480,000) excluded.
Reported in undated statement entitled “Phillips Petroleum Com-
pany—Estimate of Expenses.”
Reported in letter of June 20, 1977.
Reported in letter of June 20, 1977.
Interest divided by debt.
Investment minus debt.
Staff estimate based on reported investment figures.
Sohio
1.
2.
Reported in a letter from J. T. Boltacz dated June 13, 1977.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Sohio’s ownership share (33.34 percent).
. Sohio’s investment (3,138.5 million) as reported in letter dated
June 18, 1977. Working capital ($18 million) excluded. Sub-
tracting Sohio’s share of Alyeska investment would indicate
$479,635,000 as capitalized construction interest and overhead
costs.
Reported in letter dated June 13, 1977.
Reported in letter dated June 13, 1977.
Reported in letter dated June 13, 1977.
Interest divided by debt.
Investment minus debt.
Staff estimate based on reported investment figures.
Union
a
2.
3.
Tt
Reported in a letter dated May 27, 1977, from E. J. Takach.
Estimated Alyeska removal cost ($1,049 million) divided by 25
years, multiplied by Union’s ownership share (1.66 percent).
Union’s share (1.66 percent) of Alyeska investment ($7,975 for
facilities plus $16 million for land), plus Union’s capitalized con-
struction interest ($10.6 million), with the latter as reported in
a letter from David M. Schwartz dated June 14, 1977. .
Reported in letter dated May 27, 1977.
Reported in letter dated June 14, 1977.
Computed from debt description in letter dated June 14, 1977.
Interest divided by debt.
Investment minus debt.
Staff estimate based on reported investment figures.
~~ wee
Ae tO
645a
Order of Interstate Commerce Commission
ariffs and Authorizing Interim
Rates.
Suspending T
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646a
Order of Interstate Commerce Commission
Suspending Tariffs and Authorizing Interim Rates.
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APPENDIX 5°
TARIFF COMPUTATION
ALLOWING 10 PERCENT RETURN ON VALUATION—ACTUAL CAPITAL STRUCTURE
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647a
Affidavit of C. R. Thompson, Controller and Treasurer
of Mobil Alaska Pipeline Co., in Support of Application
for Temporary Restraining Order, July 6, 1977.
UNITED STATES COURT OF APPEALS
ror THE Firra Cracuir
[Caption Omitted In Printing]
AFFIDAVIT
Cuartes R. Txompson, being duly sworn, deposes and
says
1. I am a Certified Public Accountant and Controller
and Treasurer of Petitioner Mobil Alaska Pipeline Com-
pany and make this affidavit in support of the Application
for Temporary Restraining Order and Application and
Motion for Interlocutory Injunction filed herewith.
2. I have examined the Interstate Commerce Commis-
eion’s Order of June 28, 1977, in No. 36611 (“Order”) and
the petitions and protests of the State of Alaska and the
Arctic Slope Regional Corporation, Based on the differ-
ences between the carrier-initiated TAPS rates suspended
in the Order and the “interim” rates authorized therein, I
have prepared Appendix A to petitioner’s memorandum in
support of its applications for temporary restraining order
and interlocutory injunction.
8. I computed for each TAPS owner the difference
between its own rate (Column 2) and the “interim” rate
authorized in the Order (Column 3). The reduction in the
rate to the Commission’s “interim” rate, expressed in dol-
lars per barrel of crude oil shipped, for each TAPS owner
is set forth in Column 4.
4. Assuming a throughput of 1.2 million barrels per
day through TAPS for a period of seven months (210
days), I computed the total barrels of crude which would
be shipped through TAPS during a seven-month suspen-
FN OO EL _
648a 649a
Affidavit of C. R. Thompson, Mobil Alaska. Affidavit of C. R. Thompson, Mobil Alaska.
sion period. Multiplying that figure by the percentage sSy
ownership interest of each TAPS owner in TAPS (Column $18 & x B ‘| i
1) I caleulated the barrels each TAPS owner would ship Rez sr
during a suspension period of seven months (Column 5). E
Multiplying the total barrels for each TAPS owner by that 2 an | ©
owner’s reduction in revenue per barrel I obtained the total t 3- E 4 |
revenue reduction for each TAPS owner (Column 6). oye ' eo
5. Based on the assumption that the total reductions in Eat
revenue for all TAPS owners, $343,335,000, would cause an : S o ‘in
equivalent increase in the wellhead value of crude oil, I cal- a 2 é iy: ° z © & g 8 8 a A
culated the total amount of increased revenues to the State eee gs a & oe “| 3
of Alaska from the use of the “interim” rates during a er ; ;
seven-month suspension period. Since Alaska owns a 3 co =
12.5% royalty interest in the wellhead value of erude to i pes n <5 *o33 393 h ~
be shipped through TAPS, by multiplying 12.5% by the -ageg * o. 6 SS 3 =| 8
total revenue reduction for TAPS (Column 6) I obtained «| 4 gigs .
a figure representing the maximum royalty benefit to the = " S 5
State from operations at the Commission’s “interim” rate : <| 2 a: ; ¥ rm
levels during a seven-month period (Column 7). : sSice ¢ &. g S . S < ® : 8 ~
6. The Arctic Slope Regional Corporation (“ARSC”) ofc 3 z
has a right to a total of $500,000,000 of Alaska’s royalty g ae 4, #2 : @5e2 58 8 &
interest in the wellhead value of the crude accumulated by His : ao A
payment from Alaska of 2% of its own royalty interest & ; I s¢2ekNSKS28 &
(.02 x .125 == .0025 or .25%). By multiplying Column 7 by og Z y i gee e © 6 © ©
2% I obtained a figure representing the maximum benefit & g2*
to the ARSC from operations at the Commission’s see # F "
“interim” rate levels during a seven-month period (Column ities 4 id & 8 s 3 . * i
8). =] “ =
Date: July 2, 1977 *
a
Cuartzes R. Taompson
(Sworn to on July 2, 1977.)
in
Amerada Hess Pipe-
_ Vine Corporation
1608
reduction for al] carriers other than Phillips Alaska Pipeline Corporation
lement Act, usc Sec.
1.2 million berrels daily for 7 months (210 days)
Claims Sett
upon yet
weight average
Alaska Natives
650a
Affidavit of Dale A. Lucas, Manager of Transportation
of BP Pipelines Inc., in Support of Application for
Temporary Restraining Order, July 11, 1977.
UNITED STATES COURT OF APPEALS
ron THe Firra Crmovir
[Caption Omitted In Printing]
AFFIDAVIT
Tue Strate or Texas
County or Harnis
Darz A. Lucas, being duly sworn, deposes and says:
I am Manager of Transportation of BP Pipelines Inc.
(“BP”), the petitioner in this proceeding. I make this
affidavit in support of BP’s motion for an order staying,
restraining and suspending an order of the Interstate Com-
merce Commission which suspends for seven months tariffs
filed by BP with the Commission for the transportation of
crude oil in the Trans-Alaska Pipeline System (“TAPS”).
BP owns an 15.84% undivided interest in TAPS.
Schedule A to this affidavit shows projected operating
results for BP for its share of TAPS over the seven-month
period ending January 31, 1978, the approximate period of
the suspension ordered by the LC.C.
The figures appearing on this Schedule A are compiled
from data furnished by BP to the I.C.C., on which the LC.C,
bases the calculations appearing in the appendices to its
order now under review.
The figures on Schedule A reflect a build-up over the
period covered in the amount of oil to be transported by
BP. The I.C.C.’s calculations are based on operation for a
full year at a rate which our figures show will not actually
be reached until late in the suspension period. By the
LC.C.’« approach, BP would transport about 35 million
barrels over the suspension period; actually, as Schedule
65la
Affidavit of Dale A. Lucas, BP Pipelines.
A shows, we estimate BP will transport only 25.75 million
barrels over that period, with correspondingly less revenue.
Schedule A shows operating results based on two dif-
ferent tariff rates. The figures in the right-hand column
use the $6.35 initial rate tariff filed by BP, which the I.C.C.
has suspended. The figures in the left-hand column use
the $4.68 rate which the I.C.C. has said it would approve.
As Schedule A shows, under the IL.C.C. suggested rate BP’s
revenues would be, over the seven-month suspension period,
$43 million less than under BP’s suspended tariff.
In fact, as Schedule A shows, the $4.68 tariff will result
in a net loss to BP of about $3.6 million over the seven-
month suspension period.
D. A. Lucas
[Sworn to on July 8, 1977.]
er er me ee em et et re
652a
Affidavit of Dale A. Lucas, BP Pipelines.
SCHEDULE A
BP PIPELINES INC.
Operating Results for Seven Month
Period Ending January 31, 1978
(Operations Commencing August 1, 1977)
($000)
Line Tariff Rates
No. Description $4.68 $6.35
(a) (b) (c)
1 Throughput (thousand
IE cenncititbiniensticticssanisessiianin 25,750 25,750
2 Operating Revenue .................... $120,510 $163,513
3 Operating Expense:
4 Depreciation’ .......................... 29,901 29,901
5 Dismantling/Restoration’ .... 3,323 3,323
6 Other Operating Expenses’ ...... 33,052 33,052
7 Net Carrier Operating Income ¢ 54,234 $ 97,237
8 Interest Expense’ ...................... 57,833 97,833
I Te cette — 20,840
10 Net Income (Loss) .................... $ [3,599] $ 18,564
NoTEs:
1. 1977 figure 7 to the I.C.C., plus 1/12 of 1978 figure
reported to the I.C.C. (as presented in explanation of initial tariff,
dated June 15, 1977).
2. One-half annual amount applied by I.C.C. in Order of June
28, 1977.
653a
Affidavit of Richard M. Voripaieff, Vice President—
Administration and Treasurer of Exxon Pipeline Com-
pany, in Support of Motion for Expedited Considera-
tion or, in the Alternative, for a Stay Pending Review,
July 12, 1977.
UNITED STATES COURT OF .APPEALS
FOR THE Firrx Cimcuir
[Caption Omitted in Printing]
AFFIDAVIT
Strate or Texas
County or Harris
Ricuarp M. Vorrparr, being duly sworn, deposes and
says:
That I am the Vice President—Administration and
Treasurer of Exxon Pipeline Company.
That, to the best of my knowledge, information and belief
as of the time Exxon Pipeline Company filed its I.C.C.
Tariff No. 125, the anticipated revenue barrels to be trans-
ported through its undivided interest share of the capacity
of the Trans Alaska Pipeline System for the period from
July 26, 1977, through January 29, 1978, were as shown on
Table 1 attached to this Affidavit. Since thé filing of I.C.C.
Tariff No. 125, an industrial accident occurred resulting in
the loss of certain critical facilities at one of the pipeline
system’s pump stations. Thus, the anticipated revenue
barrels for the period July 26, 1977, through January 29,
1978, will be substantially less than the previous estimate.
That, to the best of my knowledge, information and belief,
the figures and calculations shown in Tables 2 and 3
attached to this Affidavit are correct.
RicHaRD M. Vonsparars 3
[Sworn to on July 11, 1977.)
ee
654a
Affidavit of R. Voripaieff, Exxon Pipeline.
TABLE 1
Exxon Pipeline Company
TAPS Anticipated Revenue Barrels
July 26, 1977 Through January 29, 1978
Scheduled Throughput
Date —
7-26 128
7-27 160
UIE deiadbestlassinsetsniitinaaiaeidabacetueenidaiiail 176
7-29 .. 182
7-30 ...... - - . 182
7-31 185
8-1 185
8-2 n 190
8-3 195
SIE ‘dacnshesiesesiesstieridetstntaiteniaiisaaieatidananeataattsiauadiantiateacinitas 200
ITEP oeniceiviasteaiecniicatettnanidtltandesicieaniasiasiaiaieneiieeiabiaabaaniaaieniaiiin 205
EP ccinlasthicisepihaihtdincaieiiasoapntiiltnatesaniiaaiteibasiitiinaenisbieiineess 210
eee 215
220
8-9 .. 225
Se 230
8-11 . 235
8-12 sane aiiiabiiapnetniesideion 240
8 ET TT 33,840
Total 37,403
Less: 10% for TAPS downtime, fuel and other
factors 3,740
Working inventory in terminal tankage at 3
days throughput ...... 720
Total Revenue Barrels Through 12-31-77 ................ 32,943
1-1-78 Through 1-29-78 6,960
Less: 5% for TAPS downtime, fuel and other
factors " 348
Total Revenue Barrels 1-1 through 1-29-78 ............ 6,612
Total Revenue Barrels During Period .................... 39,555
; —
655a
Affidavit of R. Voripaieff, Exxon Pipeline.
TABLE 2
Minimum Rate for the Period June 30, 1977 through
January 29, 1978 Using ICC Method Adjusted to Reflect
Anticipated Throughput
MS$
Return on Valuation @ 10% (includes
both net income after taxes and gross
interest expense) $ 99.8
Operating Expenses 25.8
Ad Valorem Taxes j 14.4
Book Depreciation 36.6
TAPS Dismantling 43
Provision for Income Taxes 46.6
Total Revenue $227.5
S/bbl_
$2.520
Rice a.
656a
Affidavit of R. Voripaieff, Exxon Pipeline.
TABLE 3
Minimum Rate for the Period June 30, 1977 through
January 29, 1978 Using ICC Method Adjusted to Reflect
Anticipated Throughput, Anticipated Dismantling
Expense, and Anticipated Income Taxes
MS = S/bbL.
Return on Valuation at 10% (includes
both net income after taxes and
gross interest expense) $ 99.8 $2.520
Operating Expense ......................-.--s-0-+ 25.8 651
Ad Valorem Taxes ..........2.........:..c::-00++ 14.4 363
Book Depreciation ........................---+-+- 36.6 924
ee I ciniciceneniimetocsnnnicunitn 8.1 .205*
Provision for Income Taxes ................ 46.9 1.187°*
_. 2 ss EEE $231.4 $5.850
* Based on $16.4 million annual removal costs for Exxon pro-
rated on the basis of an average throughput of 211,000 barrels per
day for the interim period (total revenue barrels of 39,555,000 for
Exxon as shown in Table 1).
** Based on increased dismantling expenses shown above.
657a
“Appendix A” to Memorandum of Exxon Pipeline Co.
In Support of Application for Injunction: Verified
Statement of Ernest C. Terry, C.P.A. of Exxon Pipeline
Co. Describing Calculation of Tariff Rates for Trans
Alaska Pipeline as Submitted to Interstate Commerce
Commission, July 12, 1977.
UNITED STATES COURT OF APPEALS
FOR THE Firtrae Crmovir
STATEMENT OF ERNEST C. TERRY
My name is Ernest C. Terry. I am employed by Exxon
Pipeline Company. I graduated from Southern University
in New Orleans in 1964 with a bachelor of Science degree
in Accounting. Following graduation, I was employed for
three years with the Kaiser Aluminum and Chemical Cor-
poration as a Cost Accountant. In 1967, I joined Johnson
and Johnson as a Supervisory Accountant. In May 1969,
I was employed by the Humble Oil & Refining Company
(now Exxon Company, U.S.A., a division of Exxon Corpo-
ration) as a Budget and Cost Accountant in the Production
Department and was later transferred to the Controller’s
corporate staff. Subsequently, I was assigned to the
Marketing Department as a Financial Reporting Super-
visor. In 1976, I was employed by the Exxon Pipeline
Company. In my various assignments, I have had experi-
ence in long-range forecasting, investment evaluation and
financial analysis, both near-term and long-term.
I am a Certified Public Accountant (CPA), and member
of the American Institute of Certified Public Accountants
and the National Association of Black Accountants.
In my present assignment, my duties include budget
development, long-range financial planning and develop
ment of tariff rates for Exxon Pipeline Company’s interest
in the Trans Alaska Pipeline System.
In my statement, I will describe the procedure employed
in the computation of the initial tariff rate filed by Exxon
658a
Verified Statement of E. Terry, Exxon Pipeline.
Pipeline Company. Specifically, my testimony will cover
(1) computation of an estimated ICC valuation, (2)
description of the elements used in the development of the
rate, (3) computation of the rate and (4) the latest earn-
ings forecast for Exxon Pipeline Company attributable to
its interest in the Trans Alaska Pipeline System for the
years 1977 and 1978 based on the rate filed.
The initial rate was developed and computed using the
traditional guidelines of the Interstate Commerce Commis-
sion as described to me by the Exxon Pipeline Company
legal advisors, applying, however, an earnings limitation
of 7% on estimated ICC valuation consistent with the Pipe-
line Consent Decree.
It was necessary to compute an estimated TCC valuation
for Exxon Pipeline Company’s interest in the Trans Alaska
Pipeline System in order to compute an initial tariff rate.
In computing the estimated TCC valuation, the general
guidelines reported by the Interstate Commerce Commis-
sion in Ex Parte No. 308 as shown in the testimony of
Jesse C. Oak, Senior Valuation Engineer, Bureau of
Accounts, of the Interstate Commerce Commission were
followed. Attachment I to this statement shows the com-
putation of the estimated TCC valuation used for the 1978
computation, The estimated valuation for Exxon Pipeline
Company’s 20% interest in the Trans Alaska Pipeline
System is $1,976.5 million. The general guidelines given
by Mr. Oak, his description of the elements of valuation
and the method used by Exxon Pipeline Company to esti-
mate valuation are:
(1) Cost of Reproduction New. Mr. Oak described
this as “the estimated cost of reproducing substan-
tially the identical or similar property constructed in
a prior period at a price level as of a subsequent
659a
Verified Statement of E. Terry, Exxon Pipeline.
date.” Attachment IT shows the computation of an
estimated cost of reproduction new. Column 1 shows
original cost by year of expenditure and Exxon Pipe-
line Company’s 20% share. To this 20% share, esti-
mated interest capitalized during construction was
added. Column 2 lists the annual indices issued by
the Interstate Commerce Commission for the years
1969 through 1975 and estimated indices for the
years 1976 through 1978. The indices for 1976
through 1978 were estimated by compounding the
1975 index by 6% inflation factor. Column 3 is the
reciprocal of Column 2. Column 4 reflects the 1947
Period Prices calculated by multiplying Column 1
times Column 3. Column 5, 1977 Period index, was
determined by taking the average of the annual
indices for the five-year period, 1974 through 1978,
Column 6 shows the computation of the estimated
cost of reproduction new for the Trans Alaska Pipe-
line System and Exxon Pipeline Company’s 20%
share. An interest amount was added to this 20%
share. Two factors were considered in calculating
the interest:
(a) a predetermined annual interest rate, and
(b) an estimated construction period.
The annual interest rate presently allowed by the
ICC for this purpose is six (6) percent. The con-
struction period considered was approximately 39
months. The interest additive was arrived at by
applying six (6) percent for one-half of the construc-
tion period plus three months to the cost of repro-
duction new. The estimated cost of reproduction
new for Exxon Pipeline Company’s interest in the
Trans Alaska Pipeline System is $1,877.0 million.
660a
Verified Statement of E. Terry, Exxon Pipeline.
(2) Cost of Reproduction New Less Depreciation.
Mr. Oak described this as “a value arrived at after
giving consideration to the effects of observed physi-
cal wear, decay and functional inadequacy or obso-
lescence.” Since the Trans Alaska Pipeline System
is a newly constructed pipeline facility, the cost of
reproduction new less depreciation was assumed to
be the same as cost of reproduction new,
(3) Original Cost. Mr. Oak described the origi-
nal cost as “the actual cost of construction or acqui-
sition of property to the first person or corporation
dedicating such property to public use.” Exxon
Pipeline Company used the original cost number
received from Alyeska Pipeline Service Company.
These estimated costs were furnished to the Commis-
sion by letter dated April 27, 1977 and are shown on
Attachment ITI. More recent estimates from Aly-
eska Pipeline Service Company show these costs to
be slightly higher. Nevertheless, for the purpose of
our estimate we have used the estimate previously
provided the Interstate Commerce Commission.
(4) The Present Value of Land. Mr. Oak
described this as “a present fair average market
value of all parcels of land owned or used by a car-
rier in common carrier services.” For the purpose of
this estimate, the original cost of land as reported by
Alyeska Pipeline Service Company was used. Exxon
Pipeline Company’s share of this cost was $.6 mil-
lion dollars and consistent with Mr. Oak’s guidelines,
half of this amount was used in estimating an initial
valuation.
(5) Present Value of Rights of Way. Mr. Oak
described this as “the unamortized balance of car-
66la
Verified Statement of E. Terry, Exxon Pipeline.
rier’s cost paid for an easement across a landowner’s
property.” For the purpose of this estimate, Exxon
Pipeline Company’s share of the original costs of
rights of way were used. This amount was $.2 mil-
lion.
(6) Working Capital. Mr. Oak described work-
ing capital as consisting of “investment in material
and supplies suitable and intended for maintenance
and operation and a fund of money necessary to meet
current operating demands which much be supplied
in addition to the receipts of common carrier opera-
tions.” In Exxon Pipeline Company’s letter to the
Interstate Commerce Commission of June 1, 1977
(Attachment TV), working capital was estimated to
be $8 million and this was used in estimating valua-
tion.
(7) Going Concern Value. Mr. Oak described this
as “an intangible value of an assembled and estab-
lished pipeline doing business, as compared with one
which has not yet commenced operation.” Mr. Oak
stated in his testimony that the Commission has used
in pipeline valuation 6% of the value of depreciable
property before adding the amount for present value
of land, present value of rights of way and working
capital. Exxon Pipeline followed this procedure in
estimating valuation.
Using the estimated valuation, a tariff rate was caleu-
lated for a full year’s operation at the maximum through-
put levels. At the time the tariff rate was calculated, the
Trans Alaska Pipeline System was expected to receive line
fill on June 20, 1977. Because of the uncertainty of initial
throughput and operating conditions through year end
$ALE LA
Verified Statement of E. Terry, Exxon Pipeline.
1977, a rate based on 1977 was not calculated. A compara-
ble rate for that period would be higher than a tariff rate
during a full year of operation. A rate of $6.53 per barrei
was computed for the year 1978. Attachment V shows the
computation of that rate.
The elements that were used in developing the 1978 rate
were:
(1) Operating Expenses
Sheet 3 of Attachment IV shows the forecasted
expenses for 1978. Operating expenses are com-
posed of Alyeska Pipeline Service Company’s esti-
mated field and administrative costs, Exxon Pipe-
line Company’s estimated cost of fuel for operations,
ad valorem taxes and other required support costs.
Details of the estimated operating expenses for 1978
were sent to the Interstate Commerce Commission
in Exxon Pipeline Company’s letter dated June 1,
1977. The more significant elements of each ex-
pense item are:
(a) Field and administrative costs include all
costs items to be incurred such as personnel costs,
catering, maintenance contracts, maintenance ma-
terials, commercially purchased fuel and power,
communications, equipment and building rentals.
Maintenance services will be primarily performed
by outside contractors.
(b) Fuel Furnished in Kind. Exxon Pipeline
forecasts that its share of natural gas require-
ments in 1978 will be 1.5 billion cubic feet, Exxon
Pipeline’s share of fuel extracted from topping
plants for 1978 are forecasted to be approximately
Verified Statement of E. Terry, Exxon Pipeline.
3 million barrels. This latter requirement will
be secured from shippers in Exxon Pipeline’s
capacity. Tariff rules and regulations require
payment to the shippers.
(¢) Exxon Pipeline Company will require office
personnel, data processing service, and other serv-
ices to support the operation of the Trans Alaska
Pipeline System. These costs are estimated at
$725M dollars for 1978.
(d) Ad valorem taxes were estimated at 2% of
gross investment in property, plant and equip-
ment.
(2) Depreciation
Depreciation was calculated using the straight line
method and a 25-year life. Details on the computa-
tion of depreciation were sent to the Interstate Com-
merce Commission by Exxon Pipeline Company’s
letter of April 27, 1977. (See Attachment III.)
Cost of depreciable assets were computed to be
$1,842.4 million, This includes Exxon Pipeline Com-
pany’s 20% share of the latest estimated depreciable
construction costs from Alyeska Pipeline Service
Company of $8,003 million and includes $241.7 mil-
lion which represents Exxon Pipeline Company’s
interest capitalized during construction.
(3) Dismantling and Restoration
The Federal and State of Alaska right-of-way per-
mits require that upon the completion of use the per-
mittees shall remove all aboveground facilities and
restore the right of way to a condition satisfactory
:
'
;
6640
Verified Statement of E. Terry, Exxon Pipeline.
to the Department of Interior and the State of
Alaska. Assuming that all buried pipe can be left
in place, Alyeska has estimated that the total cost in
1977 dollars to meet this requirement is $1,049 mil-
lion (Exxon Pipeline’s share is $209.8 million in
1977 dollars). Based on a six percent per annum
inflation factor, Exxon Pipeline estimates this future
cost to be $4,052 million (Exxon Pipeline’s share is
$900.4 million).
An amount required to recover these costs has been
include in the rate in a manner that will result in no
gain or loss to Exxon Pipeline. The amount to be
included was calculated using sinking fund tables
and an estimated earnings rate of 6% after income
taxes on the reinvestment of funds collected. This
earnings rate is essentially equivalent to the return
available on high-grade tax-exempt municipal securi-
ties. On this basis, Exxon Pipeline will only col-
lect $212.5 million after income taxes from shippers
to fund a total cost before tax of $900.4 million.
(4) Interest Expense
Interest expense was included based on an Exxon
Pipeline average interest rate of 8% on outstanding
debt invested in its share of the Trans Alaska Pipe-
line System. For 1978, debt is estimated to be 80%
of total capital expenditures including interest capi-
talized during construction.
(5) Income Taxes
Provision is made for income taxes taking into con-
sideration a Federal tax rate of 48% and a State
of Alaska tax rate of 9.4%.
Verified Statement of E. Terry, Exxon Pipeline.
(6) Earnings on ICC Valuation
For 1978, provision is made for earnings at 7% on
Exxon Pipeline Company’s estimated Interstate
Commerce Commission’s valuation for its interest
in the Trans Alaska Pipeline System.
The tariff rate of $6.53 for the year 1978 as shown on
Attachment V was computed by dividing the annual rev-
enues by the throughput volumes for 1978. Throughput
volume used for 1978 was 240,000 barrels per day, which
represents Exxon Pipeline Company’s 20% share of the
initial design rate of the Trans Alaska Pipeline System of
1,200,000 barrels per day.
The $6.53 rate computed for 1978, if established as the
initial rate, could require a reduction as of January 1, 1979
depending on the facts at that date. The adjustment would
be required because of changes in expenses and the amount
required to keep earnings within the 7% pipeline Consent
Decree dividend limitations. To avoid the necessity of
such an early change, the rate was computed which would
allow Exxon Pipeline Company to maintain an earnings
level that provides are reasonable return on the estimated
valuation by limiting the earnings to the permissible divi-
dend level under the three year carry forward provision
for deficiencies as permitted by the pipeline Consent Decree.
For the purpose of computing a rate on this basis, the
first four full years, 1978-1981 was selected as the rate
period. An ICC valuation for each of the additional three
years was estimated in the same manner as the 1978 esti-
mated valuation which was described earlier. Using these
valuations and the same elements used in the 1978 rate
computation, a rate of $6.27 was computed as shown on
Attachment VI.
666a
Verified Statement of E. Terry, Exxon Pipeline.
Throughput volumes for the four year period were cal-
culated by using Exxon Pipeline Company’s 20% share of
the current design capacity of the Trans Alaska Pipeline
System of 1,200,000 barrels per day for the years 1978
through 1980. Exxon Pipeline Company is currently fore-
casting an expansion of the system which, considering the
necessary construction period, would be completed and
available for service on July 1, 1981. For 1981, Exxon
Pipeline Company throughput volumes were calculated at
240,000 barrels per day from January 1, 1981 to June 30,
1981 and 308,600 barrels per day from July 1, 1981 through
December 31, 1981. Operating expenses for the years
1979, 1980 and 1981 were forecasted considering the mid-
year 1981 expansion and by escalating the 1978 operating
expense forecast made by Alyeska at 5% per year
compounded.
For the year 1981, an additional amount of depreciation
was added to cover the incremental cost of the expansion
which is estimated at $90.7 million of which $81 million
represents construction costs and $9.7 million represents
interest capitalized. This latter capitalization was then
depreciated over 21.2 years which represents the remaining
life of the system at the time of the expansion.
The dismantling and restoration costs remain the same
as 1978. Interest expense for the years after 1978 were
calculated by retiring debt with 90% of the cash flow from
book depreciation and deferred income taxes.
Using the $6.27 filed rate, a forecast of earnings was
made for the remaining portion of 1977 and for the year
1978. In developing and computing the $6.27 rate, no pro-
visions were made for the loss of revenues due to system
downtime and other factors that could result in less than
667a
Verified Statement of E. Terry, Exxon Pipeline.
100% of expected throughput. For the purpose of fore-
casting financial results for the remaining portion of 1977
and 1978, we estimate throughput at 90% of capacity for
1977 due to the uncertainties of start up and operating
conditions; for the year 1978, a 95% factor was used. At-
tachment VII shows the forecast of revenues and expendi-
tures for 1977 and 1978. The rate of return on estimated
ICC valuation expected for the remaining portion of 1977
is 5.4% and the rate of return on estimated ICC valuation
for the full year 1978 is 5.8%.
m ~ po
CO IMH go
668a 669
Verified Statement of E. Terry, Exxon Pipeline. Verified Statement of E. Terry, Exxon Pipeline.
ATTACHMENT II
ATTACHMENT I
ESTIMATED INITIAL VALUATION pa a2 Bt Bh Eee Ey, Se a SE
= Soa 9A” BF BH SA 2 ©
$M s) HNN A on
Original Cost (Including Interest
a $1,835.9 .
Ce x ” wy w w w “ w w
Reproduction Cost New .... $1,877.0 a “ahs er er eS |
a iicdiesenecsenennes $3,712.9 -
Reproduction Cost New, less
SITTIN siteiasitiehitesenieiiniamecaniienigiliin $1,877.0 323
= Imes On es ao fF& 42 62 O82 FS SCS @
PUNE Ie TIPS ncctnenicsitieiccnennicties eotsinieieniaaiinaionas 49.45% & => "“S3tel @o onnesaan.se
_ oie iin to
A PTE cctrntarsenneeneenensntinsenmentidevemmeisin 50.55 % * =
I TO teal tic aattiiatiaetaial $ 907.8 an _
LE eee $ 948.8 Picts SE
fi5la] a fala on mo NHR ARR
EE OF Ee ihitsnicticsiineninicteitinslininnnininicions $1,856.6 Sia 7 ag i ie i , e fe
Condition Per Cent (4 divided by 2) ...... 100.0% ab 20
Value of Depreciable Property . <
(Multiply 9 by 10) 2... eeecceeeeccsees $1,856.6 a 8
z a aAaaaAnrese® Ss 8 8
Going Concern and Other Intangibles ZISiz| ~ ee ee ee ee
EE UE TEE shiniuhstiinerasinieminiineiiapeenneenaints $ 111.4 i ‘
Present Value of Land ($.6 M X 14)...... $ 3 : a. ‘ve a a 2 eo a S e «
Present Value of Rights-of-Way ($.2).... $ 2 E a iz = $ ° 2. SHR a e | gs 2
~~ lanl ~ ve) an “
Working Capital - . $ 890 oa aoa a!
Estimated Valuation ..............................-.-- $1,976.5 s Pe
wi none ne mone HeehlUlUcoOmlUCUrenClClU z
pn ee ee 8 iT)
MRAARREARRARAB
° 8
S
Ea
rm)
189.0
1,877.0
Interest
Total CRN
241.7
Total Original Cost 1,835.9
(1) excluding land ($3.0 M) and right of way ($1.0 M)
Capitalized Interest
670a
Verified Statement of E. Terry, Exxon Pipeline.
ATTACHMENT OI
[LETTERHEAD OF EXXON PIPELINE COMPANY ]
April 27, 1977
Re: ACA/RJL
Mr. John A. Grady, Director
Bureau of Accounts
Interstate Commerce Commission
Washington, D. C. 20423
As requested in Mr. Ronald Young’s letter of January 4,
1977, we are submitting our views on the Trans Alaska
Pipeline System (TAPS) service life and estimated cost as
of December 31, 1977. These details are shown on Attach-
ments I and II.
In response to your other questions, we offer the follow-
ing information:
1. Known recoverable reserves from the Prudhoe Bay
Field (Sadlerochit Reservoir) are estimated at 9.6 billion
barrels, including condensates and gas liquids, as reported
in Appendix B, page 83, of the latest edition of the
API-AGA publication, “Reserves of Crude Oil, Natural
Gas Liquids and Natural Gas in the U.S. and Canada”, dated
December 31, 1975. Although other commercial reserves
could be discovered or developed in the area tributary to
TAPS some time in the future, such discoveries are specu-
lative and cannot now be classified as known recoverable
reserves for this purpose. TAPS service life should be
based on presently known recoverable reserves and
adjusted if and when additional or new reserves are dis-
covered and proven in the area tributary to TAPS.
67la
Verified Statement of E. Terry, Exxon Pipeline.
2. The anticipated annual throughput, based on Prud-
hoe Bay Field reserves, is shown on Attachement III. Use
of the Mortada estimate as indicated on the table should
not be construed to imply agreement with other elements
of the study.
3. We understand that you define the minimum annual
economic throughput level as being the level at which cash
inflow from tariff charges will be equal to cash needed to
cover out-of-pocket expenses. Since this information is to
be used by the ICC to determine service life for deprecia-
tion, we submit that the minimum economic throughput
level thus defined is not relevant. Instead, the facilities
should be depreciated over a period during which the
Owner can expect to earn a fair return based upon ICC
valuation, giving proper consideration to the high level of
risk inherent in the construction and operation of TAPS
under the facts and circumstances. We estimate that a
fair rate of return can no longer be earned when through-
put declines to a level of 200-300 HBPD.
We would like to emphasize that estimating this through-
put level for TAPS is extremely difficult and to a large
degree is arbitrary because it depends upon estimating sev-
eral factors for a period many years in the future such as
a) the level of pipeline operating and maintenance costs
and expenses in a totally new and radically difficult envi-
ronment for a pipeline that is subject to rigorous govern-
ment specifications and oversight, b) the impact of infla-
tion on such costs and expenses, and c) the maximum tariff
rates that the ICC will approve and shippers will be able
to pay considering producers’ operating expenses and
prices being paid or permitted for crude oil in the fields
connected.
672a
Verified Statement of E. Terry, Exxon Pipeline.
4. Based on the throughput profile shown on Attach-
ment ITI and the position stated in the answer to question
3, we estimate the economic ownership life of the TAPS
system at no more than 25 years. At the end of that time,
throughput is expected to be down to 240,000 barrels per
day and declining. At or below that throughput level, it is
likely that shippers would not be able to pay the tariff rates
required to keep the pipeline in operation were the depre-
ciation charges still a major factor of costs.
As you know, the U.S. pipeline industry has no experi-
ence in operating a pipeline of the design and in an environ-
ment similar to that existing for TAPS. Under these con-
ditions, maintenance problems and costs are extremely diffi-
cult to predict, and we think the costs of prolonging the life
of the pipeline in excess of 25 years might be prohibitive at
such low throughput levels.
5.. Provisions in the Federal and State right of way per-
mits require that the Owners of TAPS, upon completion of
the use of all or a very substantial part of the right of way,
remove the improvements and equipment installed thereon
and restore the environment to an approved condition.
While this cost is not epected to be expended until about the
year 2002, it is a constractual commitment of the Owners
that was essential to TAPS’ construction. Accordingly, it
must be recognized as a cost of operating the System.
Since this cost is expected to exceed any net salvage
credits accruing to the project, we propose that the cost
of dismantling and environmental restoration be accounted
for separately from depreciation in order to preclude nega-
tive net plant investment balances later in the life of
TAPS. Accordingly, zero salvage should be assumed for
depreciation purposes.
Alyeska is currently making a study of TAPS abandon-
ment, salvage and environmental restoration costs. This
673a
Verified Statement of E. Terry, Exxon Pipeline.
information should be available about May 1, 1977, and will
be provided as soon thereafter as possible.
6. We understand that the ICC is currently considering
the unit of production (throughput) method as a possible
alternative to straight-line depreciation for TAPS. Con-
sidering the probable throughput buildup and decline for
this system, as shown in Attachment ITI, we have no objec-
tion to the application of the unit of production method for
TAPS. The unit of production method would more closely
match depreciation expense with the revenues generated by
line throughput and thus minimize the extent to which
tariffs would have to be adjusted from time to time. To be
consistent, the unit of production method would also be
used to accrue the reserve for dismantling, abandonment,
and environmental] restoration. Should additional recover-
able oil reserves be developed that are tributary to and
delivered into TAPS, the unit of production basis would be
adjusted accordingly.
Several of the TAPS owner-company representatives
will be in Washington on May 2 and May 3 and will be
available to discuss the above matters with you and Mr.
Young at your convenience.
J.D. Sturtevant
JDS :hm
Attachments
bee + atts.: Messrs. G. E. Uthlaut
R. R. Die
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676a
Verified Statement of E. Terry, Exxon Pipeline.
ATTACHMENT III
TAPS ANTICIPATED ANNUAL THROUGHPUT
Million MMBPD
Barrels § Equivalent
1977 72 0.60°
ee . 438 1.20
79 .. , 438 1.20
& .... . 548 1.50
—————— - 548 1.50
82 .. a 548 1.50
83 548 1.50
—— 548 1.50
85 548 1.50
————————eEEE 518 1.42
87 476 1.30
en 442 1.21
—_ en 405 1.11
__ 377 1.03
91 347 0.95
92 318 0.87
DD ccncccnsennssceasesnesmenssesossonssnassess 296 0.81
94 .... 268 0.73
— EE 240 0.66
96 213 0.58
7 . 193 0.53
ED ansprcnsssnenssumusensemneveunssenesoneassene 170 0.47
99 146 0.40
2000 126 0.35
01 105 0.29
02 .... 88 0.24
8,964
* Average rate for last four months of 1977.
s . “The Determination of Equitabl ‘cine Levels for
North Alaskan Crude Oil” dated November 19%6 ( Mortada
Study), Table VI-2, with minor adjustments for 1977 and 1979
aan ep en one Ca é eae
startup and completion of first expansion. throughput estimates
in excess of 1.2 ne ome Se Se ee ee
en dey ay ep eet a AY or such
an expansion at this time.
677a
Verified Statement of E. Terry, Exxon Pipeline.
ATTACHMENT IV
June 1, 1977
Mr. John A. Grady, Director
Bureau of Accounts
Interstate Commerce Commission
Washington, D.C. 20423
As requested in Mr. J. Richard Berman’s letter of May
11, 1977, we are submitting Exxon Pipeline Company’s pro-
jected operating expenses applicable to our 20% undivided
interest ownership in the Trans Alaska Pipeline System
for the calendar year 1978. Since the major portion of
costs related to the start-up of TAPS will have been
expended in 1977, the calendar year 1978 estimates repre-
sent costs for a more normal level of operations. These
estimates are reflected in Attachment 1.
In response to Mr. Berman’s other questions, we offer
the following information:
1) Latest projections by Alyeska indicate that the first
oil will be received into the Trans Alaska Pipeline System
at Prudhoe Bay by July 1, 1977. The initial pipeline fill
rate will be approximately 300,000 barrels per day, with
deliveries into tankers at Valdez beginning in August 1977.
It is expected that the throughput will increase gradually,
reaching 1.2 million barrels per day, which is the design
capacity of the present System, in September 1977.
2) Information concerning our assumptions as to the
service life of TAPS, including a projected throughput
profile, was contained in our letter dated April 27, 1977.
3) Alyeska has estimated the cost to remove the above
ground TAPS facilities and restore the environment to an
approved condition at $1.049 billion (in 1977 dollars),
678a 679a
Verified Statement of E. Terry, Exxon Pipeline.
EPC’s 20% share of which is $210 Million. We believe
Verified Statement of E. Terry, Exxon Pipeline.
AG LALIIEI
that the ultimate cost of this effort to be incurred at the me
end of the life of TAPS, after allowing for inflation, should TRANS ALASKA PIPELIIIE SYSTEM
be provided for ratably over the life of TAPS and oT Ti ars)
accounted for separately from the depreciation reserve.
We plan to include an appropriate charge in our initial Senn 20% of Expenses Expenses —- Total
. : . I
TAPS tariff and to account for this accrual using accounts io. Name ay ty Dy mee vy _— ‘ce
660 (debit) and 63 (credit). |
_ 4) The projected operating expenses for 1978 included x6 Series 4. Vane - ba Se
in Attachment 1 represent Exxon Pipeline Company’s 20% 4 Grete etal tes —_ 4.088.2 eant sctes.2
share of Alyeska’s latest Operating Budget dated May 16, 340 O11 Losses and Shortages — wae —_
1977. To these amounts we have added our own estimates Total Operations RLS EMS 8 WIERes
of expenses to be incurred by Exxon Pipeline Company
and allocable to our ownership in TAPS. Also included in to eiorigs and Wages 1,328.6
the attachment are our estimated interest expenses for po er ae Seenes ma ° me Y.
1978. 430 Maintenance Materials 1,732.2 ——s 1,732.2
Total Maintenance W.327.8 ———s ee
5) Our assumptions regarding the throughput to be
used in computing our initial TAPS tariff are not yet fet.
finalized es and Wages 3,579.4 395.0 3,974.4
| SAK ee an ar
6) Exxon Pipeline Company’s estimate of Working Rentals 1,466.6 "30.0 1,436.6
Capital ry to — to = La in EPC’s valua- fs Peon‘ $e Spettentien 1am r 7+310.0 "Tans
tion as of January Il, 18 ilhon. sp ons ot oe pos P a ; i.
iwi ; ne taxes . ° )
Original Signed Ral = Yoemso Woe
J. D. Srurrevant
JDS/MJB/ems ced Interest Expense 1,860.8 114,500.0 116, 360.8
feaelen ter re for removal and restoration = 16 ,400.0 16,400.0
"Total Other B08 730,900.0 132,760.8
Attachment
ec: Messrs. G. E. Uthlaut GRAND TOTAL 44,759.4 241,725.0 286,484.4
R. R. Die —_—
F. L. Heard, Jr.
R. H. Voripaieff
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682a
Verified Statement of E. Terry, Exxon Pipeline.
ATTACHMENT VII
FORECAST OF EXXON PIPELINE COMPANY'S
TAPS EARNINGS FOR THE YEARS 1977 AND
1978 AT A RATE OF $6.27
1977 1978
MS M$
Amount Amount
Revenue 206.6 521.8
Operating Expense 21.9 50.0
Ad Valorem Taxes 11.8 31.9
Bood Depreciation 30.7. 73-7
TAPS Dismantling 6.8 16.4
Interest Expense 49.3 114.5
Taxable Income 86.1 235.3
Provision for Income Taxes 41.3 120.6
Earnings 44.8 114.7
Throughput - MB 32.9 83.2
IccC Valuation 1,976.5 1,976.5
Return on Valuation - % 5.4 5.8
683a
Verified Statement of E. Terry, Exxon Pipeline.
VERIFICATION
Strate or Texas
County or Harris
Ernest C. Terry, being duly sworn, deposes and says
that he has read the foregoing statement, knows the con-
tents thereof, and that the same are true as stated.
Ernest C. Terry
Subscribed and sworn to
before me this 21st day
of June 1977.
Detia Hevrine,
Notary Public in and for
Harris County, Texas.
Detia HEeveRine
My Commission Expires 10-31-78.
684a
“Appendix B” to Memorandum of Exxon Pipeline Co.
In Support of Application for Injunction: Letter of
Chairman Stafford, ICC, To Rep. Hungate Enclosing
Corrections To “Hungate Report” July 12, 1977.
LETTERHEAD OF INTERSTATE COMMERCE COMMISSION
March 22, 1976
Honorable William L. Hungate
Chairman
Subcommittee on Activities of
Regulatory Agencies
Committee on Small Business
House of Representatives
Washington, D.C. 20515
Dear Chairman Hungate:
By letter of November 10, 1975 to you, I answered certain
questions contained in your letter of October 7, 1975. These
answers provided supplemental information on several
items covered in my testimony before the Subcommittee on
October 2, 1975. The answer to question No. 5 provided
figures on the average return on investment for companies
owning oil pipelines for the last five years. Since that
information was forwarded, it has been discovered that
there is a discrepancy in the data for “Rate of Return on
Valuation, Year-1972.” This was caused by inadvertently
picking up from the wrong year the net income (or loss)
figure.
We have made the necessary corrections to the affected
schedules, schedules I and IV, and I am enclosing copies of
those corrected schedules. I request that these schedules
be substituted for the corresponding schedules that are
presently contained in the answer to question No. 5.
I regret this mistake, and I hope that we have discovered
it in time to have it corrected on the record. Please let me
know if I can assist you any further in this matter.
Sincerely yours,
Georce M. StTArFForD
Chairman
Enclosures
ot nk
685a
Letter of ICC Chairman to Congressman Hungate.
SCHEDULE I
Oi Pire Line Companires—Rates or RETURN ON VALUATION
Years 1970 turv 1973
From SupportTinG ScHEDULEs II THRU V
Name of Company
Acorn Pipeline Company
Allegheny Pipeline Company
American Petrofina Co. of Texas,
Products Pipeline Dept.
Amoco Pipeline Company
Arapahoe Pipe Line Company
Arco Pipe Line Company
Ashland Pipe Line Company
Atlantic Pipe Line Company!
Badger Pipe Line Company
Belle Fourche Pipe Line Company
. Black Lake Pipe Line Company
Buckeye Pipe Line Company
. Butte Pipe Line Company
Calnev Pipe Line Company
Cherokee Pipe Line Company
Chevron Pipe Line Company
Cheyenne Pipe Line Company
Chicep Pipe Line Company
Cities Service Pipe Line Company
Collins Pipe Line Company
. Colonial Pipe Line Company
Continental Pipe Line Company
. Cook Inlet Pipe Line Company
. CRA, Inc.
. Crown Central Pipe Line and
Transportation Company
Crown-Rancho Pipe Line Corp.
Diamond Shamrock Corp.
Products Pipe Line Dept.
Dixie Pipeline Company
Emerald Pipe Line Corp.
Eureka Pipeline Company
. Exxon Pipe Line Company?
Four Corners Pipe Line Company
Gulf Refining Company
1970
16.58
5.72
6.62
7.61
1.45
4.25
4.96
4.09
6.51
4.90
4.00
4.72
1971
16.96 16.42
5.38 3.9
775 7.24
211 1.32
372 3.54
6.70 693
747 = & 32
2.62 2.65
3.60 3.75
389 3.88
13.05. 11.61
344 ~~ 3.18
5.98 6.30
= 7.08
(1.15) (1.17)
745 5.82
407 3.62
6.29 7.69
8.69 987
049 1.17
(1.63) (25.69)
19.38 18.69
(1.93) (0.43)
527 6.32
4.34 5.68
170 4.16
5.55 6.20
193 143
4.05
3.12
1972
1973
14.20
4.72
6.77
0.85
6.80
10.81
4.83
4.08
9.61
8.89
1.27
5.64
7.52
2.58
6.60
4.84
3.94
7.45
8.49
(1.11)
(9.09)
17.70
(0.85)
4.56
6.82
(0.18)
6.35
0.40
4.27
686a
Letter of ICC Chairman to Congressman Hungate.
SCHEDULE I
Ou Pree Line CompANIES—RATES OF RETURN ON VALUATION
Years 1970 turv 1973
From SupporTING SCHEDULEs II THRU V
Name of Company
Hess Pipe Line Company
Hydrocarbon Transportation, Inc.
Jayhawk Pipe Line Corporation
Jet Lines, Inc.
Kaneb Pipe Line Company
Kaw Pipe Line Company
Kenai Pipe Line Company
Kerr-McGee Pipeline Corp.
Lake Charles Pipe Line Company
Lakehead Pipe Line Co., Inc.
Laurel Pipe Line Company
Mapco, Inc.
Marathon Pipe Line Company
Michigan-Ohio Pipeline Corp.
Mid-Valley Pipeline Corp.
Minnesota Pipe Line Company
Mobil Pipe Line Company
National Transit Company
Ohio River Pipe Line Company
Okan Pipeline Company®
Olympic Pipe Line Company
. OMR Pipe Line Company*
. Paloma Pipe Line Company
Panotex Pipe Line Company
Phillips Petroleum Company
Products Pipe Line Dept.
59. Phillips Pipe Line Company
60. Pioneer Pipe Line Company
61. Plantation Pipe Line Company
62. Platte Pipe Line Company
63. Portal Pipe Line Company
64. Portland Pipe Line Corp.
65. Pure Transportation Company
66. Shamrock Pipe Line Corp.
67. Shell Pipe Line Corp.
SBSRARPESSSSSRSAAS
6
1970
3.30
1.86
4.03
0.93
4.58
3.01
2.93
5.33
3.82
2.68
2.98
3.18
2.81
4.72
14.95
3.92
1.79
(4.23)
5.77
4.59
7.04
11.22
1.50
9.01
6.20
8.00
3.57
5.95
2.98
4.69
5.93
4.35
5.71
1971
1972
2.95
1.01
3.35
2.19
5.29
4.77
4.29
4.32
1.80
3.68
3.92
1.60
5.13
15.67
4.00
(0.69)
(3.55)
3.48
5.00
(0.25)
2.75
3.30
2.91
6.10
3.59
6.63
5.06
0.71
4.01
5.06
0.59
1973
1.68
3.21
4.52
2.34
5.34
2.88
7.25
5.63
5.65
2.05
2.61
3.60
1.14
4.65
10.38
3.33
(3.40)
35.95
3.30
687a
Letter of ICC Chairman to Congressman Hungate.
SCHEDULE I
Om Pree Line Companres—Rates or RETURN ON VALUATION
Years 1970 trurv 1973
From Supportinc ScHepu.es II tarv V
Name of Company 1970 1971 1972 1973
68. Skelly Pipe Line Company 2.38 5.24 4.82 (3.53)
69. Sohio Pipe Line Company 2.62 3.75 3.79 5.29
70. Southcap Pipe Line Company 0.45 4.11 4.01 5.22
71. Southern Pacific Pipe Line, Inc. 8.24 8.62 8.40 9.10
72. Sun Oil Line Co. of Michigan — 2.65 9.04 4.26
73. Sun Pipe Line Company 4.69 7.07 6.29 5.35
74. Tecumseh Pipe Line Company 1.41 1.29 2.74 6.71
75. Texaco-Cities Service Pipe Line
Company 2.23 1.94 1.48 0.46
76. Texas Eastern Transmission Co. 4.33 — 4.15 —
77. Texas Pipe Line Company 5.86 5.76 6.08 4.38
78. Texas-New Mexico Pipe Line Co. 5.74 4.88 5.14 5.22
79. Trans-Mountain Oil Pipe Line Corp.5 17.73 17.49 21.53 20.46
80. Trans-Ohio Pipeline Company 1.17 2.59 11.26 14.43
81. UCAR Pipeline Inc. — a _ (1.80)
82. Wabash Pipe Line Company® 0.91 1.76 1.67 —
83. West Emerald Pipe Line Corp. 6.29 5.87 3.28 3.00
84. West Shore Pipe Line Company 7.19 7.48 6.10 4.16
85. West Texas Gulf Pipe Line Company 5.98 5.80 6.54 6.06
86. White Shoal Pipeline Corp. 16.20 1196 1243 15.45
87. Williams Pipe Line Company 3.36 3.08 3.41 3.61
88. Wolverine Pipe Line Company 0.51 1.95 0.36 0.77
89. Wyco Pipe Line Company 3.91 5.75 7.19 6.35
90. Yellowstone Pipe Line Company 6.44 7.85 6.74 6.11
Average—All Companies 4.73 4.71 4.69 4.68
1. Merged with Arco Pipe Line Company in 1971.
2. Name changed from Humble Pipe Line Company.
3. Major portion of carrier’s properties sold to Oki ine Company i
1973. Net income reflects income from properties eg paytee de
base determined by the Commission as of 12-31-73.
4. Merged with Sun Pipe Line Company in 1972.
5. Carrier is controlled by Trans Mountain Pipe Line Company, a Canadian
corporation, through ownership of all the outstanding capital stock.
1237 72 es with Marathon Pipe Line Company as of close of business
Note—1974 Valuation Reports were not available to calculate a rate of return.
SS eS ee
Letter of ICC Chairman to
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