Appendices — ARCO PIPELINE CO. v. UNITED STATES, et al. (No. 77-602)

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APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 77-2392

MOBIL ALASKA PIPELINE COMPANY,

Petitioner,

V.

UNITED STATES OF AMERICA AND

THE INTERSTATE COMMERCE COMMISSION, ET AL.,

Respondents,

and

SOHIO PIPE LINE COMPANY, AMERADA HESS PIPELINE

CORPORATION, UNION ALASKA PIPELINE COMPANY,

Intervening Petitioners,

STATE OF ALASKA, ARCTIC SLOPE REGIONAL CORPORATION,

Intervening Respondents.

No. 77-2412

BP PIPELINES, INC.,

Petitioner,

V.

UNITED STATES OF AMERICA AND

THE INTERSTATE COMMERCE COMMISSION,

Respondents.

2a

No. 77-2421

EXXON PIPELINE COMPANY,

Petitioner,

V.

UNITED STATES OF AMERICA AND

THE INTERSTATE COMMERCE COMMISSION,

Respondents,

and

UNION ALASKA PIPELINE COMPANY,

Intervening Petitioner.

No. 77-2437

ARCO PIPE LINE COMPANY,

Petitioner,

V.

UNITED STATES OF AMERICA AND

THE INTERSTATE COMMERCE COMMISSION, ET AL.,

Respondents,

STATE OF ALASKA,

Intervening Respondent.

ON PETITIONS TO REVIEW AN ORDER OF THE

INTERSTATE COMMERCE COMMISSION

July 29, 1977

Before BROWN, Chief Judge, GODBOLD and RONEY,

Cireuit Judges.

3a

PER CURIAM:

Four petitions seeking injunctive relief and review of

a June 28, 1977 Order of the Interstate Commerce Com-

mission are before us, together with the United States’

motion to dismiss. For reasons discussed below, we grant

the government’s motion.

Background Of The Case

This controversy arose on the eve of the flow of crude

oil through the Trans Alaska Pipeline System (TAPS)?

1 No. 77-2392, Petition of Mobil Alaska Pipeline Company (Mobil)

to Annul, Set Aside and Enjoin Enforcement of an Order of the

Interstate Commerce Commission and Applications and Motions for

Temporary Restraining Order and Interlocutory Injunction. The

respondents in this case were the United States, the Interstate Com-

merce Commission (ICC or Commission) and the latter’s individual

Commissioners. The State of Alaska moved to appear as a party.

The Arctic Slope Regional Corporation moved to intervene. Both

opposed Mobil’s petition. Sohio Pipe Line Company moved to appear

as a party in support of Mobil’s petition, as did Amerada Hess Pipe-

line Corporation. Union Alaska Pipeline Company moved to appear

as a party.

No. 77-2412, Petition to Enjoin, Set Aside, Suspend and Review

Order of the Interstate Commerce Commission and Motion to Stay,

Restrain and Suspend Order of the Interstate Commerce Commission

filed by BP Pipelines, Inc. (BP), naming the United States and the

ICC as respondents.

No. 77-2437, Petition for view and Application for Interlocu-

tory Injunction filed by Arco Pipe Line Company (Arco). The

United States, the ICC and its individual Commissioners were named

as respondents. Alaska also sought leave to appear as a party in

opposition to Arco’s petition.

No. 77-2421, Petition for Review and Motion for Expedited Con-

sideration or, in the Alternative, for a Stay Pending Review, filed

by Exxon Pipeline Company (Exxon), naming the ICC and the

United States as respondents. Union Alaska Pipeline Company

moved to appear as a party.

The United States moved for consolidation and to dismiss. The

motion for consolidation was granted from the Bench during oral

argument on July 19, 1977. The court hereby grants all motions to

intervene.

In 1968 massive reservoirs of oil were discovered at Prudhoe

Bay. Plans to construct the pipeline were announced in 1970. From

4a

which stretches from oil fields in Alaska’s North Slope

at Prudhoe Bay to Valdez, Alaska, some 800 miles dis-

tant. The pipeline was constructed by the Alyeska Pipe-

line Service Corporation, an agent for its eight owners.*

Between May 27, 1977 and June 15, 1977, seven TAPS

owners filed the tariffs* which are at issue here,’ having

effective dates ranging from June 20 to July 1, 1977.

Protests were filed by the Department of Justice, the

its beginning the pipeline has been grist for judicial mills. See, e.g.,

Wilderness Society v. Morton, 479 F.2d 842 (C.A.D.C., 1975) (en

banc) ; Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S.

240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), rer'g 495 F.2d 1026

(C.A.D.C., 1974). Indeed, it literally took an act of Congress to

prevent further environmental litigation. Trans-Alaska Pipeline

Act, 43 U.S.C.A. § 1652(d). Construction was thus delayed until

1974 and took three years.

Oil began to enter the pipeline on June 20, 1977. An explosion

and fire at pump station No. 8 on July 8, 1977, resulted in a tem-

porary shutdown. The parties have informed the court that the

first oil is expected to reach Valdez around July 26, 1977.

* Each of the following companies owns an undivided interest in

TAPS:

Company Percentage Ownership

Mobil Alaska Pipeline Co. 5.00%

Sohio Pipe Line Co. 33.34%

ARCO Pipe Line Co. 21.00%

Exxon Pipeline Co. 20.00%

BP Pipelines Inc. 15.84%

Phillips Alaska Pipeline Corp. 1.66%

Union Alaska Pipeline Co. 1.66%

Amerada Hess Pipeline Corp. 1.50%

These companies are subject to ICC regulation by virtue of the

Interstate Commerce Act, 49 U.S.C.A. 5 101) (b), which covers com-

mon carriers engaged in the transportation of oil by pipeline.

* Tariffs must be filed with the ICC pursuant to 49 U.S.C.A.

§ 6(1).

Because Phillips, the eighth owner, filed its tariff on June 20,

1977 with an effective date of July 20, the time for filing protests

had not expired by June 28, the date of the ICC’s order. Phillips’

tariff was thus not covered by the Order and is not before this Court.

5a

State of Alaska, the Arctic Slope Regional Corporation,’

and the ICC’s Bureau of Investigation and Enforcement.

The Commission heard oral argument on June 27, 1977

* Alaska owns a one-eighth royalty interest in the oil from the

Prudhoe Bay fields. In addition, Alaska has an oil production sev-

erance tax. Both the value of the royalty oil and the severance tax

are tied to the value of the oil at the point of production, i.e., the

wellhead value. Alaska contends that the wellhead value is gen-

erally determined by the market price less the transportation costs.

Therefore, as the TAPS carrier rates increase, the value of Alaska’s

interest decreases.

Prior to the enactment of the Alaska Native Claims Settlement

Act (ANCSA), 43 U.S.C.A. §§ 1601-1627, the Inupiat Eskimos held

claims of unextinguished aboriginal title to the entire Arctic Slope

of the State of Alaska, an area which encompasses Prudhoe Bay

and much of the land over which TAPS was constructed. The Arctic

Slope Regional Corporation is one of 12 corporations established

pursuant to ANCSA to conduct Native Alaskan business for profit.

43 U.S.C.A. § 1606. As compensation for the extinguishment of all

aboriginal land claims, ANCSA granted Alaskan Natives fee title to

approximately 400 million acres of land. 43 U.S.C.A. §§ 1611, 1613.

All future revenues derived from that land will be the property of

the Native people. 43 U.S.C.A. § 1606. ANCSA further provided for

cash compensation of $962,500,000, to be paid over a period of years,

a portion of which is to be derived from a 2% royalty on the well-

head value of all crude oil production in Alaska under state or fed-

eral leases. 43 U.S.C.A. §§ 1605, 1608. Thus, on their theory, the

Native Alaskans’ revenue is inversely related to the rise in TAPS

tariffs.

§ Recognizing the importance of the controversy, the ICC, in an

extraordinary move, bypassed its usual procedural channels and

took the suspension proceeding for its own direct consideration.

While Commission regulations consider a protest and petition to

suspend “as addressed to the discretion of the Commission,” 49

C.F.R. § 1100.42 (1976), suspension protests and petitions are in

practice routinely referred to the Be d of Suspension. See 49

C. F. R. § 1100.200 (1976); Mobil Memorandum In Support of Ap-

plication for Interlocutory and Temporary Restraining Order at 7;

Reply of Interstate Commerce Commission in Opposition To Ap-

plication For Interlocutory Injunction and Temporary Restraining

Order at 4. The Commission heard arguments for one full day be-

fore issuing its suspension order.

Although a transcript of that hearing was made, the papers on

file with the Court contain only excerpts from that proceeding. E. g.,

6a

without making any formal evidentiary record.“

Appendix A to Justice Department’s Memorandum in Support of

Motion to Dismiss; Appendix C to Memorandum of the State of

Alaska in Opposition to Application for Interlocutory Injunction

and Temporary Restraining Order. Also, the tariff filings them-

selves, with any supporting submissions, were not filed with the

Court. On file with the Court, however, were several exhibits such

as “Reply of Exxon Pipeline Company to Protests” (Appendices of

Exxon Pipeline Company for Expedited Consideration or in the Al-

ternative Stay Pending Review) and statements by C. R. Thompson,

Controller-Treasurer of Mobil Alaska Pipeline Co. (Appendix D to

Memorandum of the State of Alaska in Opposition to Application

for Interlocutory Injunction and Temporary Restraining Order).

8 The briefs of the parties contained references to the informa-

tion which the ICC apparently had before it during the suspension

proceeding. Such information included: (i) written representa-

tions in the form of protests from the State of Alaska, the Arctic

Slope Regional Corporation, the United States Department of Jus-

tice, and the Bureau of Investigations and Enforcement of the

ICC (Memorandum of the State of Alaska in Opposition to Appli-

cations for Interlocutory Injunction and Temporary Restraining

Order at 2); (ii) verified statements offered by the TAPS Carriers

in support of their rate calculations (Memorandum in Support of

Exxon Pipeline Company’s Motion for Expedited Consideration or,

in the Alternative, for a Stay Pending Review at 46) [hereinafter

Exxon Memorandum]; (iii) statement of Dr. Michael J. Ileo (sub-

mitted with Alaska’s protest) which discusses the unreasonableness

of carriers’ rate calculations (Exxon Memorandum at 46); (iv)

sworn testimony of Raymond B. Gary, a Managing Director of

Morgan Stanley & Company, and Dr. Ezra Solomon, Dean Witter,

Professor of Finance at the Graduate School of Business of Stan-

ford University, filed in Ex Parte No. 308, Valuation of Common

Carrier Pipelines (Exxon Memorandum at 38); (v) letters sent

from Mobil Alaska Company to ICC (obtained under the Freedom

of Information Act, 5 U.S.C.A. § 552) which deal with such topics

as TAPS start-up, depreciation, dismantling and restoration, an-

ticipated salvage, and estimated annual operating expenses (Memo-

randum of the State of Alaska in Opposition to Applications for

Interlocutory Injunction and Temporary Restraining Order at 25-

6); (vi) calculation of the rates of return on valuation for 90 regu-

lated pipelines for the years 1970-72, made by George M. Stafford,

former ICC Chairman (Exxon Memorandum at 40-1); and (vii) a

variety of carrier-provided data concerning the normal traffic vol-

ume for the beginning years of TAPS, costs, depreciation charges,

and investment calculations (ICC June 28 Order at 5-7 and Ap-

pendices to Order).

7a

The ICC’s June 28 Order“ instituted an investigation

into the lawfulness of the tariffs pursuant to 49 U.S.C.A.

§§ 15(1)* and 15(7)." The rates filed were suspended

® The Order is set forth as an Appendix to this opinion.

10 15 U.S.C.A. § 1501) reads in pertinent part as follows:

“Whenever, after full hearing, upon a complaint made as pro-

vided in section 13 of this title, or after full hearing under an

order for investigation and hearing made by the Commission

on its own initiative, either in extension of any pending com-

plaint 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 transporta-

tion of persons or property, as defined in section 1 of this title

is or will be unjust or unreasonable . . . the Commission

is authorized and empowered to determine and prescribe what

will be the just and reasonable individual or joint rate, fare, or

charge, or rates, fares, or charges, to be thereafter observed

in such case, or the maximum or minimum, or maximum and

minimum to be charged . and to make an order that the

carrier or carriers shall cease and desist from such violation to

the extent to which the Commission finds that the same does

or will exist, and shall not thereafter publish, demand, or collect

any rate, fare, or charge for such transportation other than the

rate, fare, or charge so prescribed, or in excess of the maxi-

mum or less than the minimum so prescribed, as the case may

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1 15 U.S. C. A. §15(7):

“Whenever there shall be filed with the Commission any sched-

ule stating a new individual or joint rate, fare, or charge, or

any new individual or joint classification, or any new individual

or joint regulation or practice affecting any rate, fare, or

charge, the Commission shall have, and it is given, authority,

either upon complaint or upon its own initiative without com-

plaint, 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 law-

fulness 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 writ-

ing of its reasons for such suspension, may from time to time

suspend the operation of such schedule and defer the use of

8a

for seven months without prejudice to the filing of in-

terim rates during the suspension period. The Commis-

sion additionally authorized the filing, upon not less than

one day’s notice, of interim rates which were not to ex-

ceed certain levels, subject, however, to the condition that

the carriers keep account and that (i) the interim tariffs

contain a refund provision to the effect that if the new

rates exceed those subsequently authorized or prescribed

by the ICC, the carriers will refund the excess with in-

terest; and (ii) the carriers file a similar refund provi-

sion applicable to the original proposed rates. The Order

thus had the following effect on the carriers’ proposed

rates per barrel:

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, classi-

fication, regulation, or practice goes into effect, the Commis-

sion may make such order with reference thereto as would be

proper in a proceeding initiated after it had become effective.

If the proceeding has not been concluded and an order made

within the period of suspension, the proposed change of rate,

fare, charge, classification, regulation, or practice shall go into

effect at the end of such period; but in case of a proposed in-

creased rate or charge for or in respect to the transportation of

property, the Commission may by order require the interested

carrier or carriers to keep accurate account in detail of all

amounts received by reason of such increase, specifying by

whom and in whose behalf such amounts are paid, and upon

completion of the hearing and decision may by further order

require the interested carrier or carriers to refund, with in-

terest, to the persons in whose behalf such amounts were paid,

such portion of such increased rates or charges as by its deci-

sion shall be found not justified. At any hearing involving a

change in a rate, fare, charge, or classification, or in a rule,

regulation, or practice, after September 18, 1940, the burden

of proof shall be upon the carrier to show that the proposed

changed rate, fare, charge, classification, rule, regulation, or

practice is just and reasonable, and the Commission shall give

to the hearing and decision of such questions preference over

all other questions pending before it and decide the same as

speedily as possible.

9a

As Filed by Authorized

TAPS Owners By Order : Reduction

Amerada Hess Pipeline Corp. $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 " $8

Mobil Alaska Pipeline Company 6.31 4.84 1.47

Phillips Alaska Pipeline Corp. 6.22 Not Yet Acted Upon

Sohio Pipe Line Company 6.16 4.70 1.46

Union Alaska Pipeline Company 6.09 4.89 1.20

The carriers estimate that the Order will result in an ir-

retrievable $340 million loss over the seven-month sus-

pension period.

The suspension left the pipeline companies without

tariffs on file, and they are forbidden by §6(7) of the

Act to engage or participate in the transportation of oil

unless they file new tariffs: The carriers thus had two

alternatives open to them. They could file new tariffs

within the ICC guidelines or they could shut down the

TAPS system for the seven-month suspension period. Un-

happy with either choice, the pipeline companies filed

their petitions and motions and the United States moved

to dismiss.“ This Court heard oral argument on July 19,

1977.

The major issues raised by the parties are (i) whether

we have jurisdiction to review the ICC order; (ii) wheth-

er the Commission has the authority under 49 U.S. C. A.

§ 15(7) to suspend the first and only (“initial”) rate of

a carrier; (iii) whether as part of a purported suspension

order the ICC may prescribe or suggest optional maximum

interim rates; (iv) whether the ICC’s order authorizing

12 According to the ICC, these rates reflect a 10% rate of return

on tentative valuation. See pp. 4-8 of the ICC Order, and Appen-

dices 2-5 thereto.

18 See note 1, supra.

10a

the filing of maximum interim rates without a full hear-

ing amounted to a prescription of rates within the mean-

ing of 49 U.S. C. A. § 15 (1); (») whether the Commission

acted outside its statutory authority in ordering the re-

fund provisions in the tariffs; (vi) whether the Commis-

sion’s action was arbitrary, capricious or constituted an

abuse of discretion; (vii) whether the maximum interim

rates authorized were confiscatory in violation of the

Fifth Amendment.

1. Reviewability and the authority

of the Commission

The government has moved to dismiss the petitions for

review on the ground that this court has no jurisdiction

to review suspension orders of the ICC issued pursuant

to 49 U.S. C. A. § 15(7). True, courts do not have juris-

diction to review ICC suspension orders. Congress has

committed the decision to suspend or not to suspend pro-

posed rates exclusively to the discretion of the Commis-

sion. U.S. v. Students Challenging Regulatory Agency

Procedures (SCRAP), 412 U.S. 669, 37 L.Ed.2d 254

(1973) ; Arrow Transportation Co. v. Southern Railway

Co., 372 U.S. 658, 10 L.Ed.2d 52 (1963); K. Davis, Ap-

MINISTRATIVE LAW TREATISE 966 (1970 Supp.). As a

panel of this circuit noted:

The Interstate Commerce Commission . . is vested

with power to suspend, at its discretion, for a period

of seven months, rates filed with it pending hearing

and decision on their lawfulness. 49 U.S.C. § 15(7).

The existence of this power in the ICC, it has been

held, evinces the deliberate decision of Congress to

extinguish judicial power to grant any injunction

which interferes with the Commission’s discretionary

decision to suspend rates filed with it at anytime be-

fore the Commission finally determines the lawfulness

of the rates.

lla

Texas v. Seatrain International, 518 F.2d 175 at 178

(CA5, 1975). But the rule of unreviewability presup-

poses an affirmative answer to a preliminary inquiry into

whether the Commission has acted within the authority

granted to it by §15(7). A suit to enjoin a suspension

order may be entertained if the complaint shows that the

agency lacked the basic statutory authority to issue such

an order. Great Western Packers Experss, Inc. v. U.S.,

246 F.Supp. 151, 154 (D.Colo., 1965) (three-judge court) ;

Long Island Railroad Co. v. U.S., 193 F.Supp. 795, 800

(E.D.N.Y., 1961) (three-judge court).

Section 1507) gives the ICC the power to suspend “any

schedule stating a new individual or joint rate fare or

charge, or any new individual or joint classification, or

any new individual or joint regulation or practice affect-

ing any rate fare or charge” for a period not to exceed

seven months, and to order an investigation and full hear-

ings on those new charges. The above language has no

plain meaning. The term “new” can refer to both

changed and initial rates or only to changed rates. The

statutory history of the Mann-Elkins Act (1910), which

added § 15(7) to the Interstate Commerce Act, yields little

insight on whether the ICC is empowered to suspend ini-

tial rates since no one seems to have debated or even dis-

cussed this specific question. However, our examination

of statutes modeled on § 15(7) and of the legislative pol-

icy underlying that section convinces us that it was Con-

gress’ intention that the Commission have the power to

suspend initial as well as changed rates.

Section 15(7) has served as the prototype of other

agency rate suspension provisions in the Interstate Com-

merce Act and in other regulatory acts as well. In many

of these acts, when Congress has wished to exclude initial

rates, either in part or across the board, it has done so

in specific language. In the Interstate Commerce Act it-

sel’, there are provisions modeled on 49 U.S. C. A. § 15(7)

12a

giving the ICC authority to suspend new rates, proposed

by motor carriers, 49 U.S.C.A. § 316(g), by water car-

riers, 49 U.S.C.A. § 907(g) (i), and by freight forward-

ers, 49 U.S.C.A. § 1006 (e). Each of these provisions

contains a grandfather clause exempting certain initial

rates from suspension. If initial rates were not covered

there would have been no need for the grandfather clauses.

Another example is 49 U.S.C.A. § 1482(g), which gives

the Civil Aeronautics Board suspension powers similar to

those granted to the ICC with one significant difference:

it specifically provides that “[t]his subsection shall not

apply to any initial tariff filed by any air carrier.” Thus,

we conclude that if Congress had wished to exempt initial

tariffs from the purview of § 15(7) it would have done

so specifically, and that Congress’ omission to specially ex-

empt initial rates in this section indicates its intent that

initial rates be subjeet to the ICC’s § 15 07) suspension

powers.

The conclusion that initial rates are covered by § 15(7)

is consistent with the legislative policy underlying that

section. Section 15(7) evidences a belief on the part of

Congress that the normal hearing and reparation proc-

esses of the ICC are not sufficient to protect the public

against potentially excessive charges. The need for this

protection is no less in the case of initial rates than in

the case of changed rates. Absent a specific legislative

decision that initial rates are not covered, it would be

illogical to assume that Congress intended to leave such

a gap in the legislative scheme.

2. The suggested interim rates

The petitioners challenge the action of the Commission

with respect to suggested interim rates. They point out

that § 15(7' contains no provisions for establishing in-

terim rates and that, in any event, rates can only be

prescribed after full hearings. See 49 U.S.C.A. § 15 (1).

13a

The Commission's position is that it has not actually fixed

a rate but, in a situation of urgent national interest and

as an incident of its power to suspend, it has given ad-

vance indication of the maximum rates with respect to

which—if the carriers elect to file them—the Commission

will not exercise its power to suspend.

The Commission Order refers to “interim rates,” but

baldly describing the issue as the power of the Commis-

sion to set interim rates is misleading. As we have held,

the Commission had the power to unconditionally suspend

the proposed tariffs, leaving the carriers without any

tariffs but free to file new tariffs if they wished, which

would be subject to new exercise of the Commission’s

power to suspend. The ICC chose not to exercise to its

full limits the drastic but available power of unconditional

suspension and instead announced that if petitioners would

file interim tariffs at or below Commission-announced

ceilings the Commission would not unconditionally sus-

pend the tariffs originally filed.

The petitioners maintain that the §15(7) power to

suspend is an all or nothing instrument. We think not.

The Commission may elect to exercise its power less than

fully, or putting it another way, may partially waive the

suspension power. We are guided by the Supreme Court’s

decision in U.S. v. Chesapeake & Ohio Railroad Co., 426

U.S. 500, 49 L.Ed.2d 14 (1976) (“Chessie’’). In Chessie

the ICC suspended a carrier-proposed tariff increase but

at the same time authorized the railroads to refile, incor-

porating conditions which would assure that the addi-

tional revenue would be expended on capital improvements

and deferred maintenance. The Supreme Court upheld

the refiling provision as directly related to the ICC’s sus-

pension power. The Court noted that the ICC could simply

suspend the originally proposed rates for the full statu-

tory seven-month period but that instead “it pursued a

more measured course and offered an alternative tailored

l4a

far more precisely to the particular circumstances pre-

sented.” 426 U.S. at 514, 49 L.Ed.2d at 23. Chessie es-

tablishes the right of the ICC to choose to exercise its

suspension power to less than its outer limits, in order

to meet the needs of a particular situation. The ICC’s

authorization to file interim rates was the type of “more

measured course” or partial waiver which the Supreme

Court approved in Chessie.

Moss v. CAB, 430 F.2d 891 (C.A.D.C., 1970), relied on

by tre petitioners, is not to the contrary. In Moss the

Court of Appeals for the District of Columbia held that

the Civil Aeronautics Board (CAB) could not, after ex

parte meetings with the air cariers, “suggest” a compre-

hensive rate formula that it would not suspend or in-

vestigate. Moss involved what for all intents and pur-

poses was the establishment of permanent rates. By at-

tempting to establish a permanent rate structure through

its suspension power the CAB took actions which went

beyond the strongest action it could have taken under its

suspension power, i.e., suspending the proposed increases

for 180 days. 49 U.S.C.A. § 1482(g). In essence what

the CAB attempted to do in Moss was to waive a right

it did not have. In contrast, the ICC’s suggestion of in-

terim rate ceilings in the present case is an action which

is more restrained, or measured, than its right to uncon-

ditionally suspend the original tariff for a period of seven

months. If in seven months the ICC has not completed

its investigation, the carriers will be free to levy their

originally filed charges subject to a refund order.

Also, in Moss the practical effect of the CAB’s actions

would have been to immunize the suggested permanent

rate structure from judicial review.“ In the present case

1% Judge Leventhal in his concurring opinion in Continental Air-

lines, Inc. v. CAB, 522 F.2d 107 at 131 (C.A.D.C., 1975) (en banc),

emphasized the evasion of judicial review as the key to Moss.

15a

the ICC has not sought to shield its final decision from

judicial review. Instead the Commission has commenced

hearings on the original rates proposed by the petitioners,

and any eventual final order stemming from those hear-

ings is subject to judicial scrutiny.

In a case involving initial rates, if the ICC could not

couple its suspension order with a statement of maxi-

mum allowable interim ceilings, the Commission would

be forced to allow initial rates to go into effect, even if

facially outrageous, subject only to lengthy investiga-

tion and hearing procedures, or to watch a possibly vital

public service close down for want of a rate schedule.

We doubt the Congress would have intended that the

Commission face that Hobson’s choice.

The use of interim rates as a condition to a suspen-

sion order is not unprecedented. In I & S Docket No.

8645, Orders (May 27, 1971, and June 29, 1971) the

Commission ordered that increased lighterage charges

proposed by the Penn Central Railroad be suspended

but allowed the company to file interim rates contain-

ing additional charges not to exceed 50% of those in-

itially proposed. The ICC’s orders also require that

Penn Central maintain an account from which refunds

could be made to the extent that the proposed tariffs

could not be justified to the Commission. In Port of

New York Authority v. U.S., 451 F.2d 783, 785-88 (CA2,

1971), the Second Circuit held that the Order was un-

reviewable and that federal courts lacked subject matter

jurisdiction over an action challenging the Order.

We conclude that the ICC as corollary to its sus-

pension power had the power to set out allowable rate

ceilings for the seven-month period which, if filed, it

would not suspend. Therefore, this aspect of its Order

is not reviewable by this court.

16a

3. The refund provisions

As a condition precedent to the interim rates which

the Commission stated it would accept, the Commission

required the carriers to establish refund provisions for

use in the event that either the interim rates or the

originally filed tariffs or both should be found to be

excessive.

With respect to this exercise of power for the seven-

month period, like the power to suggest the interim rates

themselves, we find this is a valid corollary to the sus-

pension power, which we lack jurisdiction to review.

See Port of New York Authority v. U.S., supra. We

are less certain of the Commission’s power to require

the carriers to establish refund provisions with respect

to the originally filed rates. However, we view this

exercise of power as corollary to the power to suspend.

Thus, insofar as the Commission’s order reaches beyond

the seven-month period, we are guided by Chessie, where

the condition upheld by the Supreme Court was per-

manent.”

4. Arbitrariness and confiscation

The petitioners assert that the Commission action was

an abuse of discretion and that the interim rate ceilings

are so grossly insufficient that they are confiscatory in

violation of the Fifth Amendment. Restating, we under-

stand these contentions to be that even if the Commis-

sion is authorized by § 15 (7) to act with respect to the

subject matter, its exercise of power departed from con-

15 As we noted previously, if the Commission does not complete

its investigation within seven months from the date of its suspen-

sion Order, the carriers’ originally filed rates automatically go into

effect.

Under § 15(7) the Commission may require carriers to keep

records and make refunds after the seven-month period has expired.

This expressly conferred authority is not what we rely upon—it

relates to “a proposed increased rate or charge.”

17a

stitutional standards. Assuming that we can review the

Commission Order through these constitutional entry

points the record before us gives no basis upon which

we can act.

RONEY, Circuit Judge, dissenting:

I respectfully dissent. The thesis of the Commission

is that it has the unreviewable authority to suspend the

pipeline’s initial rate filing and, as an adjunct of that

authority, it has the power to fix an unreviewable in-

terim rate for the seven month period. The idea that

the Commission can set an unreviewable rate without

following the statutory ratemaking procedures runs

counter to the entire plan established by Congress in the

Interstate Commerce Act.

This is ratemaking. We should not hide from that

fact. The Commission candidly admits that it is making

an interim rate. To suggest that the rate is “voluntary,”

that no rate has been set by the Commission because

theoretically the pipeline companies could accept the

seven month stay and not file for the interim rate, exalts

form over substance in a way rarely countenanced by

this Court. The Court, the Commission, the pipeline com-

panies, and all parties to this proceeding know that an

interim rate will have to be accepted by the respondents.

Without a filed tariff, no oil can flow. No one has made

the slightest suggestion in brief or oral argument that

it would be either in the public or private interest for

the transportation of this oil to be suspended for seven

months while the Interstate Commerce Commission de-

termines whether or not the proposed tariff is reasonable

and just. See 43 U.S.C.A. § 1651 (Supp. 1977). We are

given to understand that the rate here under considera-

tion does not affect the price of oil at the delivery point,

or the eventual price to the consuming public. Any

transportation cat adjustment affects only the wellhead

18a

price of oil. Although there is almost complete identity

between the affiliates which own the pipeline and those

who receive the wellhead price, there are some others

involved, and the royalty to the State of Alaska and

property owners varies with the wellhead price.

The argument that this is not ratemaking because it

is only an interim and not a permanent rate loses force

in numbers. The pipeline companies claim the difference

between what they should get and what they will get

under the interim rate could amount to $340,000,000.

This sum is undoubtedly greater than the amount at stake

in many permanent rates subject to ICC approval.

Although Arrow Transportation Co. v. Southern Ry.,

372 U.S. 658 (1963), and United States v. Students Chal-

lenging Regulatory Agency Procedures (SCRAP), 412

U.S. 669 (1973), are cited for the proposition that the

grant or denial of a suspension order is not reviewable,

they in fact only hold that a court has no authority at

all to suspend a rate and that an ICC refusal to sus-

pend is not reviewable under any statutory standard.

They do not hold that a suspension order is unreview-

able under constitutional due process standards. I would

think that a suspension order in this case, where the

lack of any tariff would effectively close down the Alaska

Pipeline for seven months, and would eliminate any

method of transporting the oil from the Alaska oil fields

for that period of time, would be reviewable on a con-

stitutional due process standard.

We are not confronted, however, with just a suspension

order. The order before us is schizophrenic. It is both

a suspension order and a ratemaking order.

This is a situation never previously confronted by the

courts. It most situations, if a new rate is submitted to

the ICC and the agency chooses to suspend it, this merely

means that the carrier involved will continue to charge

19a

the rates already in existence. Thus the ICC need not

take further action to ensure that the carrier can stay

in business and collect charges that at least at one time

were assumed to be reasonable, during the seven month

period. Here, however, the Commission was faced with

a brand new entity. The Trans-Alaska Pipeline System

had no preexisting rate schedule when it filed its “new”

rate with the ICC. Thus, after deciding to suspend the

filed rate, the ICC was faced with a situation which

left no legal rate in effect for the seven month period.

Unwilling to allow the pipeline to shut down, the Com-

mission had to promulgate what is a “second” order, a

ratemaking order.

Rate setting orders are clearly reviewable under the

statute. Therefore I would not review the possible legality

of just a suspension order here. I would accept this case

for what it is: an attempt by the Commission to do

two things, the first of which it would not do had it not

the power to do the second. There is no indication in

anything before us that the Commission would suspend

the proposed tariff if it could not set an interim rate.

Thus I would not reach the constitutional considerations

that might demand review of a suspension order alone

in this unique situation. There is no indication that the

Commission would follow such a course. Its claimed

authority to do so becomes merely the theoretical exer-

cise of power onto which it hangs its ability to set an

interim rate.

So I would assume without deciding that the Com-

mission has the power to suspend the initial rate and

go to the question of whether it can set the interim rate

in the manner done here. If the interim rate cannot

stand, I would send the case back to the Commission for

whatever action it wishes to take within the confines of

its legal authority. If it chooses to suspend without an

interim rate, then on review a court could consider

20a

whether that action alone under the circumstances of this

case can withstand the due process requirements of the

Constitution. Or, if it chooses to arrive at some interim

rate through procedures that have some resemblance to

the ratemaking procedures which Congress had required,

that too could be reviewed. However, I do not think that

in order to decide the case before us we need to make

any definitive decision as to whether an initial rate sus-

pension alone, under the facts of this case, would be legal,

or whether the Commission can ever set interim rates

in connection with a rate suspension. All I would now

hold is that the Commission has no authority to do

what it did here.

United States v. Chesapeake & Ohio R. R., 426 U.S.

500 (1975), is the only controlling authority relied upon

for the proposition that interim ratemaking is a neces-

sary power under the suspension authority. In deciding

that interim ratemaking is unreviewable, the majority

opinion completely overlooks the fact that the Supreme

Court considered the “conditions” imposed on the pro-

posed tariff there to be reviewable.

In this Court, Chessie has argued that . . the ap-

plication of the Commission’s action to it is ar-

bitrary and capricious. ... Since the District Court

held that the Commission did not have the power

to impose conditions on the refiling of the tariff, it

did not address this question. Chessie, if it chooses,

may raise the matter on remand in the District

Court.

426 U.S. at 515. To distinguish the point on the ground

that in Chessie, the rate was permanent, must also dis-

tinguish the case beyond support for the proposition

espoused in the case at bar.

This case is factually and legally different from Port

of New York Authority v. United States, 451 F.2d 783

21a

(2d Cir. 1971), relied upon by the majority. There the

initial decision had been made to suspend the effective

date of the proposed increase in tariffs. There was a

tariff in effect after suspension, one which had already

been determined to be reasonable either through Com-

mission action or lack of complaint. The suspension order

was concededly within the sole discretion of the Com-

mission, and all that was involved was timing. The Com-

mission offered to let the carrier collect an interim in-

crease, if it chose to do so. For two reasons that case

is not helpful here.

First, in that case, there was a good faith suspension

order of the rate increase which did not cut off services.

Here there is no indication that the Commission would

suspend the tariff and consequently cause a seven month

delay in service. In fact, we are told that in oral argu-

ment before the Commission, the director of the Com-

mission’s Bureau of Investigation and Enforcement in-

dicated the owners of the pipeline might be subject to

civil or criminal penalties if they did not file for these

“voluntary” interim rates. Such view would dispel any

thought that the public interest required a rate sus-

pension. This is pointed out not to suggest that a sus-

pension order would be reviewable under the statutory

public interest standard, but only to emphasize that the

Commission has made no such decision upon which to

hang the Port of New York Authority holding.

Second, the pipeline companies’ choice is not whether

to adhere to present rates for seven months, or accept

an interim increase, as was the case in Port of New York

Authority, but whether to do business at all, or accept

an interim rate. This does not make acceptance or re-

jection of the interim rate the viable choice that was

available in that case.

The interim rate being reviewable, the next question

is whether it can stand. Even if the Commission is

22a

permitted some leeway, and allowance is made for the

fact that it “pursued a more measured course and offered

an alternative tailored far more precisely (than a simple

suspension) to the particular circumstances presented,”

Chessie, 426 U.S. at 514, the manner of arriving at the

interim rate was beyond the most liberal reading of its

statutory authority.

Congress has set well-established limits on the ICC’s

power to make rates. First, historically, the ICC did not

have ratemaking power. It could set aside a rate as

being unreasonable, but the Supreme Court found no im-

plied power to set a reasonable rate. JCC v. Cincinnati,

New Orleans & Texas Pacific Ry., 167 U.S. 479 (1897).

Only nine years later did Congress amend the Act to

give the ICC power to set maximum rates, Act of June

29, 1906, ch. 3591, § 4, 34 Stat. 689, and not until 1920

was it given power to set minimum rates, Act of Feb.

28, 1920, ch. 91, § 418, 41 Stat. 484.

Second, the ICC has the power to set rates only after

it has determined that a proposed rate is unreasonable.

That principle has been reiterated in several cases which

indicate that it is the carriers who have the right to

propose initial rates. ICC v. Louisville & Nashville R.R.,

227 U.S. 89 (1913) (“Under the statute the carrier re-

tains the primary right to make rates, but if, after hear-

ing, they are shown to be unreasonable, the Commission

may set them aside and require the substitution of just

for unjust charges. The Commission’s right to act de-

pends upon the existence of this fact, and if there was

no evidence to show that the rates were unreasonable,

there was no jurisdiction to make the order.” 227 U.S.

at 92). See also New York v. United States, 331 U.S.

284 (1947); United States v. Illinois Central R.R., 263

U.S. 515, 522 (1923); Southern Pacific Co. v. ICC, 219

U.S. 433 (1911); ICC v. Chicago Great Western Ry.,

209 U.S. 108, 118-119 (1908).

23a

Third, a proposed rate can be found unreasonable only

after a full hearing. Atchison, Topeka & Santa Fe Ry.

v. United States, 284 U.S. 248, 262 (1932) (“The legal

standards governing the action of the Commission in de-

termining the reasonableness of the rates are unaltered.

In the discharge of its duty, a fair hearing is a funda-

mental requirement.“) The courts have consistently held

that a finding by the ICC of unreasonableness of the

rate proposed by the carrier must be supported by sub-

stantial evidence on the record as a whole. Atchison,

Topeka & Santa Fe Ry. v. Wichita Board of Trade, 412

U.S. 800, 806 (1973); Western Paper Makers’ Chemical

Co. v. United States, 271 U.S. 268, 271 (1926); Skinner

& Eddy Corp. v. United States, 249 U.S. 557, 562 (1919) ;

Archer Daniels Midland Co. v. United States, 301 F.

Supp. 328 (D. Minn. 1969) (3-judge court); Atchison,

Topeka & Santa Fe Ry. Co. v. United States, 282 F.

Supp. 430, 434 (D. Kan. 1968) (3-judge court).

Last, the ICC can establish a rate only after a full

evidentiary hearing. Atchison, Topeka & Santa Fe Ry.

v. United States, 284 U.S. 248, 262 (1932); ICC v. Louis-

ville & Nashville R.R., 227 U.S. 89, 93 (1913). That

hearing requirement is not satisfied by the “brief and

informal hearing” which accompanies a suspension order.

Arrow Transportation Co. v. Southern Ry., 372 U.S.

658, 672 (1963). The case for strict enforcement of

the hearing requirement is particularly strong because

this rate applies to so few companies, and the administra-

tive inconvenience of multiple parties which sometimes

justifies lowered procedural standards is not present.

Compare Londoner v. Denver, 210 U.S. 373 (1908) (in-

dividual property assessment without hearing invalid)

with Bi-Metallic Investment Co. v. State Board of Equal-

ization, 239 U.S. 441 (1915) (city-wide revaluation does

not require individual adjudication). Even in the multi-

party rate cases, administrative hearings have withstood

attack only when the agency granted adequate notice

24a

and opportunity to comment both on the original rate

proposal and on the comments made by others. See Shell

Oil Co. v. FPC, 520 F.2d 1061, 1074-1076 (5th Cir.

1975), cert. denied sub nom., California Co. v. FPC, 426

U.S. 941 (1976).

In this case where is the finding of unreasonableness

of the proposed rate on an evidentiary record, and where

is the record to support the interim rate? The Commis-

sion readily admits that it cannot support either finding

by record evidence.

But procedural unfairness is only the beginning of

the arbitrariness in this case. The real difficulty, and the

problem that makes the procedural shortcuts so detri-

mental to the petitioners, is that Congress through the

Act has provided a reasonable way to protect all parties

in this proceeding against the effect of error in the

proposed rate, but the Commission has, without offer of

justification, ignored it in the proposed interim tariff.

If the rate is determined to be too high, the carriers may

be forced to refund, with interest, 49 U.S.C.A. § 15(7)

(Supp. 1977), or pay back as damages, with costs and

attorneys’ fees, 49 U.S.C.A. § 8, an overcharge collected

prior to rate determination. In other words, the parties

overcharged can be made whole. If the interim rate is

too low, however, the ICC program provides no means

whatsoever for the pipeline to recover the difference be-

tween what it was required by the Government to charge,

and what that same Government later decides would

have been a reasonable rate. To have a way to protect

all interests, and not take it, and subject one party to

the possibility of irreparable loss, is impermissible under

even the most deferential standard of judicial review.

The complainants argue that a system of refunds

would produce justice at the price of delay. Even jus-

tice delayed, however, is preferable to justice forever

denied. At oral argument, Commission’s counsel sug-

25a

gested no harm had been done because the interim rate

is the highest rate that could reasonably be established

for the pipeline. That statement constitutes a gross

prejudgment of what the ICC will do, and overlooks en-

tirely the reviewable nature of the Commission’s ultimate

ratemaking action. Without a sufficient record to sup-

port a finding of anything at all, and with serious ques-

tions about the rate of return, the treatment of infla-

tion, and allowances for depreciation, counsel would have

this Court predict what Commissioners, who may not be

in office now, will do on the evidence presented them,

and what a court of judges, who may not be in office now,

will do on review of whatever those Commissioners do.

Nor can this Court sustain the interim rate by obeis-

ance to the expertise of the Commission. Only after a

fully hearing upon complaint made does the law give

weight or significance to the opinion of the Commission.

Atlantic Coast Line R.R. v. ICC, 194 F. 449 (Commerce

Ct. 1911). The expertise of the Commission can only

be relied upon after it has exercised its expert judg-

ment on the record before it. See Pedersen, Formal

Records & Informal Rulemaking, 85 Yale L.J. 38 (1975).

Hence I would hold that the Commission had no au-

thority to set in the way it did the interim rate which

was forced upon the carriers. I would set aside that

proposed interim rate for these reasons: first, the Com-

mission did not even attempt to follow congressionally

mandated procedures for setting rates; second, without

some specific finding of unreasonableness in the pro-

posed rate, it appears arbitrary not to follow the statutory

plan by which all parties could be protected against any

eventual rate determination, and to follow a course

which would cause irreparable damage to the pipelines

if their position is eventually sustained; third, the interim

tariff itself appears to be based on a rate of return more

akin to that of corporate bonds than to the speculative

26a

risks of equity capital, a rate arrived at without suffi-

cient supportive evidence concerning the speculative na-

ture of these investments or the appropriate rate there-

for.

I would set aside the Commission’s Order of June 28,

1977 and remand the case to the Commission for further

consideration consistent with its statutory authority.

27a

APPENDIX B

[1] CLOSED SESSION

BEFORE THE

INTERSTATE COMMERCE COMMISSION

COMMISSION CONFERENCE

CLOSED SESSION

TRANS ALASKA PIPELINE SYSTEM

Interstate Commerce Commission

Room 4223

12th & Constitution Avenue, N. W.

Washington, D. C.

9:10 p.m.

Tuesday, June 28, 1977

Commissioners :

A. Daniel O’Neal, Chairman

Charles L. Clapp, Vice Chairman

Rupert L. Murphy

Dale W. Hardin

Betty Jo Christian

George M. Stafford

Robert C. Gresham

Alfred T. MacFarland

Virginia Mae Brown

Staff:

Mark Evans, General Counsel

Charles H. White, Jr., General Counsel’s Office

Janice M. Rosenak, Office of Proceedings

William T. Bono, Cost and Valuation

28a

Ronald S. Young, Accounting

Thomas L. Gire, Section of Rates

Douglas P. Baldwin, Commissioner’s Office

Gloria E. Blazsik, Commissioner’s Office

Richard B. Felder, Commissioner’s Office

Alan Heifetz, Commissioner’s Office

Richard D. Heironimus, Commissioner’s Office

Dan G. King, Commissioner’s Office

Louis Mackall, Commissioner’s Office

Chester A. Nauminow, Commissioner’s Office

John H. O’Brien, Commissioner’s Office

Kathleen D. Ribaudo, Commissioner’s Office

[52] AFTERNOON SESSION

(1:00 p.m.)

Commissioner O’Neal: What I thought we would do,

once this is circulated, is just run through the various

issues addressed in the—why don’t we go through the

order, issue by issue, and then if you, Jan, would read

the parts that are changed, we will briefly discuss each

item.

Ms. Rosenak: Okay.

Commissioner O’Neal: Now, the first part is the ques-

tion of whether we have the power to suspend initial rates,

right?

Ms. Rosenak: Uh-huh.

Commissioner O’Neal: I didn’t have any problem with

that discussion, I don’t know if somebody else did. Then

we get into whether the rates should be suspended, given

—well, it was whether it should be suspended, right?

Now, what—there are some changes on this page, too,

and let’s see what it is.

Ms. Rosenak: Yes, the changes on page 1 are merely

to substitute “authorized” for “specified” and to indicate

that the suspension, or the interim rates are for the sus-

pension period only.

29a

On page 2—

Commissioner O’Neal: In other words, do you under-

stand why she’s—that she’s put in the word “authorize”

for “specify” because using the word—well, where it says

—let’s [53] get it here

Ms. Rosenak: Yes. We felt that was more consistent

with a lack of prescription.

Commissioner O’Neal: Well, let’s find an example.

Ms. Rosenak: All right. An example would be the

last paragraph on page 1, under Number 3, “whether in-

terim rate can and should be“, instead of “specified”, we

used “authorized”. It’s the same thing in the next sen-

tence.

Commissioner O'Neal: The reason being that we don’t

want any mistake made about whether there is prescrip-

tion of rates or not.

Ms. Rosenak: Right. Then, on page 2, the first para-

graph, we've deleted the word chief“ the end of the

first paragraph, the second line from the bottom—it will

read now, “However, the question raised by the protest

is whether there is reason to believe the proposed rates

are not just and reasonable”. It’s a question of emphasis.

Commissioner O’Neal: Anything else on page 2?

Ms. Rosenak: That’s the only change on 2.

Commissioner O’Neal: The next issue which, I guess,

really comes up here on page 3 is whether the Commission

can name specific maximum reasonable rates and whether

that’s a prescription of rates, and that’s dealt with here

on page—starting on page 3, right?

Ms. Rosenak: Uh-huh.

[54] Commissioner O'Neal: Any other—

Ms. Rosenak: Changes on—

Commissioner O'Neal: Were there any changes on 3?

Ms. Rosenak: No, the changes on 3 are minor; again,

“authorization”, up above. It was suggested that this be

worded “could act as a deterrent or an obstacle” and

there’s a typographical error in the—

Commissioner O'Neal: Where is that?

30a

Ms. Rosenak: The middle of the second last para-

graph, second paragraph from the bottom.

Commissioner O’Neal: “Moreover, it is noted by Pro-

testants the maintenance of excessive high rates“

Ms. Rosenak: Yes, “could act as a deterrent or an

obstacle”.

Commissioner O'Neal: You put in “or an obstacle’?

Ms. Rosenak: Yes, deterrent. And two lines above

that is showing “of probable cause“, which is a typo-

graphical error.

The changes on sheet 4—

Commissioner O’Neal: On this sheet, we get into the

discussion of what is a—the level of the interim rates.

Ms. Rosenak: Most of the changes were editorial until

near the bottom where there is a Number 1, the third

line from the bottom.

The language we previously had was to view the avail-

able 55] data in a light that is favorable to the car-

riers”. In the substitute sheet 4 that we have just cir-

culated, that language has been deleted and, instead, it

will read “to accept the basic data“

Commissioner O’Neal: Supplied by the carriers.

Ms. Rosenak: —“ supplied by the carriers“.

Commissioner O’Neal: There is a “to” there, it should

be “to accept the basic data”.

Ms. Rosenak: This is basically what the Protestants

did, as well as the Commission, was at the suspension

level, use the figures supplied by the carriers, with minor

exceptions.

Commissioner O’Neal: Almost, I think, everybody yes-

terday was saying, We accept the data for now“, realiz-

ing that it’s subject to further investigation by the Com-

mission, and realizing that we don’t have the information

now to make any changes.

Commissioner Hardin: Jan, back on page 2 we

changed “specified” to “authorized” somewhere. Where

was that?

31a

Ms. Rosenak: Yes. Page 2—

Commissioner Hardin: Or on page 1, I guess.

Ms. Rosenak: Les.

Commissioner O’Neal: Page 1, at the bottom there.

Ms. Rosenak: On page 1 in two places.

Commissioner Hardin: Should be “authorized”. The

reason I raised the question is that on page 4 we, again,

talk about [56] “specify”.

Ms. Rosenak: We've left it in in one or two places

but, in most instances, we've taken out specify“.

Commissioner Hardin: I don't know, I just wondered

whether you— whether it was intentional or whether it

was an oversight in leaving it in there.

On the changed page 4, you’re still talking about speci-

fying?

Commissioner Murphy: Well, I think it’s the way—if

I may interject—the one on sheet 1 read “whether interim

rates can be and should be specified”. Now, over on sheet

2—I mean 4—in paragraph 11 of interim rates“

Ms. Rosenak: That will be removed. That is an error.

“To be specified” will come out.

Commissioner O’Neal: Where is that, now?

Ms. Rosenak: That’s on page 4; we missed that. I

don’t mind if it’s in the text but it shouldn’t be in that

heading. So that will just read “the level of interim

rates”, period.

Commissioner Brown: That's the way it does read on

mine.

Ms. Rosenak: Oh, then I did catch it. All right.

Mr. Evans: You’re thinking of the heading on page

3, Jan.

Ms. Rosenak: Okay. There was one that we had

missed and I thought that was it.

Commissioner O'Neal: So, the change did get made?

Ms. Rosenak: Les, that’s correct.

[57] Commissioner O'Neal: Except that we do have

something in the text here on—

32a

Commissioner Hardin: Yes, that first sentence after

that heading, it says “whether we have the discretion to

specify an interim rate“.

Ms. Rosenak: All right. It will only take us a second

to change that.

Commissioner O’Neal: Yes, I wonder—that ought to

be added in.

Commissioner Gresham: How are you going to word

it, Jan?

Ms. Rosenak: “Authorize an interim rate“.

Commissioner O'Neal: So that third line under “level

of interim rates” on page 4 wouid read “We have the

discretion to authorize an interim rate”, rather than

“specify an interim rate”.

Ms. Rosenak: Les.

Commissioner Hardin: And in the sixth line from the

top you have “the rates that would be specified would not

be intended to have a permanent effect”. “Rates that

would be authorized would not be intended to have a

permanent effect“?

Commissioner O’Neal: Well, if it doesn’t cost us any-

thing, why don’t we take it out of there?

Commissioner Christian: How about “these interim

rates would not be intended”?

Ms. Rosenak: Yes, “these interim rates“.

[75] Commissioner Brown: I don’t understand the re-

fund.

Commissioner O’Neal: How the refund provision

works, the 15 (8) (e)?

Commissioner Brown: Well, you’re talking about in

regard to both?

Commissioner O’Neal: Yes. In other words, Commis-

sioner Murphy—

Commissioner Brown: You’re putting in the interim

—what would you refund?

33a

Commissioner O'Neal: Well, it may be higher.

Ms. Rosenak: If their rate base is overstated, even

the interim rates could be too high following the hearing.

Commissioner O'Neal: In other words, we're going

with, say, a $5.10 rate for EXXON. After we’ve gone

through the investigation, we might find that that rate

should be $4.50 and so a refund would apply.

Commissioner Clapp: We've tried to err, I think, on

the generous side in the interim rates.

Commissioner Gresham: Jan, couldn’t you take care

of that problem by simply saying, “However, subject to

the condition that any tariffs filed or authorized contain

a refund provision“?

The last paragraph, “subject, however, to the condition

that any tariffs filed or authorized contain a refund [76]

provision”, wouldn’t that take care of the original ones

as well?

It only takes about three words.

Commissioner Stafford: Do we have the authority to

do it, to force a refund, Mark?

Commissioner O’Neal: There might be some question

that, whether that applies to previously filed.

Ms. Rosenak: Would you consider doing this later?

Commissioner Gresham: Yes, sure.

Ms. Rosenak: Mr. Chairman, I think that we could

easily put out a separate order between now and the

seven-month period.

Commissioner O’Neal: But do we lose the leverage

here if we do that?

Commissioner Hardin: Yes, we do.

Commissioner O'Neal: Right now we can make it a

condition.

(Simultaneous discussion. )

Mr. Evans: Commissioner Stafford just asked a ques-

tion that might be worth raising, whether the Commission

34a

does have the authority to impose a refund provision with

respect to the initially filed tariffs.

What I responded was I thought that the statute was

somewhat doubtful on the face of it insofar as you’re

talking about—if there was no suspension, it would be

doubtful.

177] But insofar as the refund provision is made a

condition of the willingness of the Commission to accept

a lower filed rate in the interim, that may get us over

that hurdle.

Ms. Rosenak: Yes, I believe that would bet us over

that hurdle.

Commissioner Stafford: Once their rate they’ve filed

for, which we’re preparing to knock down, but at the

end of seven months, we assume, then, their rate would

go into effect, the one that they have filed for, can they

say we don’t ogree to the refund provision?

Ms. Rosenak: Well, by putting it in this order, it’s

sort of quid pro quo for allowing them to have these

interim rates. So if it is included in this order, I think

that we’re okay.

Mr. Evans: They would have a choice, I think, then,

of either—if they didn’t agree, either not refiling—

Ms. Rosenak: Yes, that’s right.

Mr. Evans: Or if they refiled, they would also have

to file amendments to the initial tariffs or what would

it be? How would you characterize the refund pro-

vision insofar as it applies to the original tariffs?

Commissioner Hardin: Proposed rates.

Ms. Rosenak: Les, yes.

Mr. Evans: But would it be a supplement to the

tariffs that would add the refund provision?

178] Ms. Rosenak: Yes, they would have to publish

a refund provision. The other thing we could do is re-

quire them to keep a count, tut then it wouldn’t be self-

implementing, and we did this to get over the question

35a

that was raised about these affiliated companies, would

one really refund it to the other.

Commissioner Stafford: And this doesn’t get us any

closer to the Moss case?

Ms. Rosenak: No, I don’t think the refunds do. The

problem with the refund provision is our statutory au-

thority is somewhat questionable. This works really un-

der the 4-R Act, but the old theory was that you had

refunds after seven months.

The other thing is the statute refers to refunds in the

case of increased rates. Here you have initial rates, but

if we do it as part of allowing interim rates instead of

a suspension, I think we’re within reasonable limits.

Commissioner Murphy: If you put increased rates,

they’ll let it go back up to the ones we’ve put in here on

that—

Ms. Rosenak: That’s right.

Commissioner Murphy: You’ve got increased rates

right there.

Ms. Rosenak: Yes, I think we are all right on this.

At least we have to take the chance. I think refunds

are essential.

[79] Commissioner Christian: I’d feel more comfor-

table if it was in this order.

Ms. Rosenak: Yes.

Commissioner O’Neal: We have got to have some-

thing in the order.

Mr. Evans: I wonder if I can suggest a possible

way to handle it neatly and, I think, cleanly. Why not

say, “subject however, to the following conditions; one,

that the interim tariffs contain a refund provision” just

like you’ve got.

And when you’re through with that, have a semicolon,

and “two, that the carriers file supplements to their origi-

nal tariffs containing a similar refund provision”, or

something to that effect.

36a

That way it's quite clear we're talking about two

separate provisions —

Commissioner ONaĩ? Ves.

Mr. Evans: And hopefully clear.

Commissioner O’Neal: That would seem like a nice,

clean way to do this. General Counsels are handy to have

around.

Mr. Evans: That’s the nicest thing anybody has said

to me since I’ve been here. (Laughter. )

Commissioner Clapp: And probably the nicest thing

that will be said to you by the time you go. (Laughter.)

Commissioner Murphy: That all has to be subject to

the 24-hour notice, the order.

37a

APPENDIX C

STATUTORY AND CONSTITUTIONAL

PROVISIONS INVOLVED

United States Constitution

Amendment V. No person shall be . . . deprived of

life, liberty, or property, without due process of law.

Interstate Commerce Act

§ 15. Determination of rates, routes, etc.; routing of

traffic; disclosures, etc.

Commission empowered to determined and prescribe

rates, classifications, etc.

(1) Whenever, after full hearing, upon a complaint

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 initiative, either in

extension of any pending complaint or without any com-

plaint 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 property, as defined in section 1 of this

title, or that any individual or joint classification, regula-

tion, or practice whatsoever of such carrier or carriers

subject to the provisions of this chapter, is or will be

unjust or unreasonable or unjustly discriminatory or un-

duly preferential or prejudicial, or otherwise in violation

of any of the provisions of this chanier, the Commission

is authorized and empowered to determine and prescribe

what will be the just and reasonable individual or joint

rate, fare, or charge, or rates, fares, or charges, to be

thereafter observed in such case, or the maximum or

minimum, or maximum and minimum, to be charged,

and what individual or joint classification, regulation, or

38a

practice is or will be. zust, fair, and reasonable, to be

thereafter followed, and to make an order that the car-

rier or carriers shall cease and desist from such viola-

tion to the extent to which the Commission finds that

the same does or will exist, and shall not thereafter

publish, demand, or collect any rate, fare, or charge for

such transportation other than the rate, fare, or charge

so prescribed, or in excess of the maximum or less than

the minimum so prescribed, as the case may be, and shall

adopt the classification and shall conform to and observe

the regulation of practice so prescribed. 49 U.S.C. § 15

(1) (1976) (originally enacted as Interstate Commerce

Act of 1887, Ch. 104, pt. I, § 15, 24 Stat. 384, as amended

by Act of June 29, 1906, Ch. 3591, § 4, 34 Stat. 589;

Act of June 18, 1910, Ch. 309, § 12, 36 Stat. 551; Act

of Feb. 28, 1920, Ch. 91, § 418, 41 Stat. 484; Act of

June 19, 1934, Ch. 652, § 602 (b), 48 Stat. 1102; Act

of Aug. 9, 1935, Ch. 498, § 1, 49 Stat. 543; Act of Sept.

18, 1940, Ch. 722, Tit. I, S 10 (a), 54 Stat. 911).

8 * * *

Commission to determine lawfulness of new rates;

suspension; refunds; nonapplicability to common car-

riers by railroad subject to chapter.

(7) 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 classification,

or any new individual or joint regulation or practice

affecting any rate, fare, or charge, the Commission shall

have, and it is given, authority, either upon complaint

or upon its own initiative without complaint, at once,

and if it so orders without answer or other formal plead-

ing by the interested carrier or carriers, but upon rea-

sonable notice, to enter upon a hearing concerning the

lawfulness of such rate, fare, charge, classification, regu-

lation, or practice; and pending such hearing and the

decision thereon the Commission, upon filing with such

39a

schedule and delivering to the carrier or carriers affected

thereby a statement in writing of its reasons for such

suspension, 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 effective. If the proceeding

has not been concluded and an order made within the

period of suspension, the proposed change of rate, fare,

charge, classification, regulation, or practice shall go into

effect at the end of such period; but in case of a pro-

posed increased rate or charge for or in respect to the

transportation of property, the Commission may by order

require the interested carrier or carriers to keep accurate

account in detail of all amounts received by reason of

such increase, specifying by whom and in whose behalf

such amounts are paid, and upon completion of the hear-

ing and decision may by further order require the in-

terested carrier or carriers to refund, with interest, to

the persons in whose behalf such amounts were paid,

such portion of such increased rates or charges as by

its decision shall be found not justified. At any hearing

involving a change in a rate, fare, charge, or classifica-

tion, or in a rule, regulation, or practice, after September

18, 1940, the burden of proof shall be upon the carrier

to show that the proposed changed rate, fare, charge,

classification, rule, regulation, or practice is just and

reasonable, and the Commission shall give to the hear-

ing and decision of such questions preference over all

other questions pending before it and decide the same

as speedily as possible. This paragraph shall not apply

to common carriers by railroad subject to this chapter.

40a

49 U.S.C. §15(7) (1976) (originally enacted as Mann-

Elkins Act of 1910, Ch. 309, § 12, 36 Stat. 551, amend-

ing Act of Feb. 4, 1887, Ch. 104, pt. I, § 15, 24 Stat.

384, and as amended by Act of Feb. 28, 1920, Ch. 91,

§ 418, 41 Stat. 484; Act of Mar. 4, 1927, Ch. 510, § 2,

44 Stat. 1447; Act of Sept. 18, 1940, Ch. 722, Tit. I,

§10(c), 54 Stat. 912; Act of Feb. 5, 1976, Pub. L. No.

94-210, Tit. II, § 202 (e) (1), 90 Stat. 36).