# Appendix — Puerto Rico Maritime Shipping Authority v. Federal Maritime Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0430%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1982 - **Citation:** 459 U.S. 906 ## Text PuverRTO Rico MARITIME SHIPPING AUTHORITY, Petitioner, Vv. FEDERAL MARITIME COMMISSION, Respondent. APPENDIX TO PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT AMY LOESERMAN KLEIN Counsel of Record KATHLEEN MA‘I0ON GALLAND, KHARASCH, CALKINS & Snort, P.C. 1054 Thirty-First Street, N.W. Washington, D.C. 20007 Telephone: (202) 342-5200 Attorneys for Petitioner July 16, 1982 WILSON - Eres Printine Co.. Inc. - 769-0096 - WasnincTron. D.C. 20001 TABLE OF CONTENTS APPENDIX A—Opinion of the Court of Appeals ...... APPENDIX B—Order of the Federal Maritime Com- mission Partially Adopting Initial Decision ............. APPENDIX C—Initial Decision of the Administrative Law Judge, Federal Maritime Commission ............... APPENDIX D—Orders of the Court of Appeals Deny- ing Petition for Rehearing snd — for Re- SNE ISR NOD SZ APPENDIX E—Statutes and Regulations ............... Shipping Act, 1916, § 18(a), 46 U.S.C. § 817(a).... {ntercoastal Shipping Act, 1933, as amended (Pub- Se ee I Clieeihentedthasttedenetchesinrenctnesumanticten Section 2, 46 U.S.C. § 844 ..................... Section 3(a), 46 U.S.C. § 845(a) .................. Section 3(b), 46 U.S.C. § 845(b)................ Section 3(c) (2), 46 U.S.C. § 845(c) (2) —...... 46 C.F.R. § 502.67(a) (2), (3) & (4) —.................. Gs EIN ccterrencsesnesinteccivennsceeresemamessecsemsennene ee _ E APPENDIX F—Materials in the Record Cited by the Court of Appeals: J.A. 704-712 ............... ERE 5la la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 81-2088 PuERTO RIcO MARITIME SHIPPING AUTHORITY, 7 Petitioner FEDERAL MARITIME COMMISSION and UNITED STATES OF AMERICA, Respondents TRAILER MARINE TRANSPORT CORPORATION, GOVERNMENT OF THE UNITED STATES No. 81-2128 GOVERNMENT OF THE VIRGIN ISLANDS and PUERTO RICO MANUFACTURERS ASSOCIATION, e Petitioners FEDERAL M4RITIME COMMISSION and UNITED STATES OF AMERICA, Respondents Sea-LAND SERVICE, INC., PuERTO RICO MARITIME SHIPPING AUTHORITY, TRAILER MARINE TRANSPORT CORPORATION, Intervenors al 2a Petitions for Review of an Order of the Federal Maritime Commission Argued January 28, 1982 Decided May 14, 1982 Amy Loeserziur, Klein, with whom Kathleen Mahon was on the brief, for Puerto Rico Maritime Shipping Authority, petitioner in No. 81-2088 and intervenor in No. 81-2128. ‘ John C. Cunningham, Attorney, Federal Maritime Com- mission, with whom C. Jonathan Benner, General Coun- sel, Federal Maritime Commission, was on the brief, for respondents. Edward G. Gruis, Attorney, Federal Mari- time Commission, also entered an appearance for re- spondent, Federal Maritime Commission. Barry Gross- man and Robert J. Wiggers, Attorneys, Department of Justice, also entered appearances for respondent, United States of America. George J. Weiner, with whom Edward J. Sheppard and Edward Aptaker were on the brief, for Government of the Virgin Islands and Puerto Rico Manufacturers Association, intervenors in No. 81-2088 and cross- petitioners in No. 81-2128. Michael Joseph for intervenor, Trailer Marine Trans- port Corporation, in Nos. 81-2088 and 81-2128. Daniel J. Sweeney and Steven J. Kalish were on the brief for intervenor, Drug and Toilet Preparation Traffic Conference, Inc. Donald J. Brunner was on the brief for intervenor, Sea-Land Service, Inc., in No. 81-2128. Before: WALD, MIKVA and GINSBURG, Circuit Judges. Opinion for the Court filed by Circuit Judge WALD. the rate increases of three of the carriers and reduced the proposed increase of the fourth and most dominant carrier, the Puerto Rico Maritime Shipping Authority. We now consider petitions for review of the agency’s order filed by the dominant carrier and by representa- tives of involved shippers, challenging various elements I. BACKGROUND Under the Intercoastal Shipping Act of 1933, 46 U.S.C. §§ 843-848, the FMC was authorized to review the rates of intercoastal carriers in order to ensure that they were reasonable and just. In 1978, Congress amended the Act to streamline consideration of rate increases, while still protecting the interests of both carriers and shippers.’ Under section 845 of title 46, as amended, the Federal publication in the Federal Register of the specific issues to be resolved. 46 U.S.C. § 845(a) (Supp. III 1979). The Commission must adhere to strict time limits within The Commission may once extend the 180-day limit for sixty days. Pub. L. No. 95-474, 92 Stat. 1496 (1978); S. Rep. No. 1240, 95th Cong., 2d Sess. 1 (1978), reprinted in 1978 U.S. Cope 4a The 1978 Amendments also provided for special proce- dures for the conduct of the hearing: “Notwithstanding any other provision of law, in providing a hearing for the purposes of this chapter, it shall be adequate to pro- vide an opportunity for the submission of all evidence in written form, followed by an opportunity for briefs, written statements, or conferences of the parties.” Jd. § 845(b). It is clear from the legislative history of the amendments that this provision was designed to allow expeditious completion of these hearings without run- ning afoul of the Administrative Procedure Act.* The carrier has the burden of proof that its rates are just and reasonable. Jd. § 845(b). If the Commission finds that the new rates are unjust or unreasonable it may determine and prescribe a maximum or minimum rate. See id. § 845a. Any amount charged to shippers over that which is ultimately determined to be just and reasonable must be refunded to the shipper by the car- rier, with interest computed on the basis of the prime lending rate. See id. § 845(c) (2). This case presents for review the premier use by the Commission of these new powers and procedures to evaluate tradewide, general rate increases. The Com- 2 The legislation . . . specifies that for the purposes of the act and the Administrative Procedures Act it is unnecessary to hold a full evidentiary hearing with the opportunity to present oral testimony and cross-examine witnesses. It provides instead that i: is sufficient to provide an opportunity to submit written statements, file briefs, or hold conferences. Moreover, it is expected that steps will be taken to expedite discovery. It had been suggested that the 180-day deadline could not be met because of the requirements imposed by the Administrative opportunity for a short oral presentation and opportunity for cross-examination. That, of course, could still be provided where appropriate. H.R. Rep. No. 474, 95th Cong., Ist Sess. 10 (1977). February 3, 1981. PRMSA’s competitors Sea-Land Serv- ice, Inc. (Sea-Land), Trailer Marine Transport Corpora- tion (TMT), and Gulf Caribbean Marine Lines (GCML) the Puerto Rico Manufacturers Association, the Govern- FMC regulations require that voluminous data, re- flecting past and future operations, be filed in support of an application for a rate increase exceeding 3 percent.‘ Detailed revenue and expense forecasts for a pro forma test year must be made prior to the filing of an increase. The pro forma test year by regulation commences the next month after the effective date of the rate increase.* Because a rate increase may not become effective until after a 60-day notice period, a carrier’s forecasts must necessarily project revenues and costs for a period 4-16 months after a forecast is made. Prior w the effective date of the PRMSA general rate increases, the Commission ordered an investigation, with- * See S. Rep. No. 1240, 95th Cong., 2d Sess. 2 (1978). *46 C.F.R. §$§ 5602.67, 512.2. § Jd. § 612.2(f) (1) (ii). 6a out suspension, of the rate increases of Sea-Land, TMT and GCML,° as well as PRMSA." The investigation, Docket No. 81-10, was the first tradewide investigation held under the 1978 Amendments to the Intercoastal Shipping Act. As required by the new law, the Commission pub- lished in the Federal Register the specific issues to be investigated : (1) What is an appropriate rate of return for the carriers named as Respondents? In addressing this question consideration should be given to the average rate of return earned by other U.S. corporations and the inherent risks, if any, in operating in the affected trades. (2) Is the methodology used by Respondents in mak- ing revenue and cargo volume projections ap- propriate? (3) Are Respondents’ revenue and cargo volume projections sufficiently accurate, and if not, what are the appropriate projections? (4) Have Respondents properly calculated their cost projections covering labor, fuel, vessel mainte- nance and administrative and general expenses, and, if not, what are the proper calculations? (5) Do the proposed rate increases impose an eco- nomic hardship on the affected interests repre- * Order of Investigation, Docket No. 81-10, 46 Fed. Reg. 11037 (Feb. 5, 1981). 7 PRMSA’s rate increases as originally filed on December 5, 1980 were based upon an eight-vessel complement, reflecting the antici- pated acquisition of a new roll-on/roll-off vessei. When this acquisi- tion fell through, PRMSA was given special permission to refile its application with all materials showing projected results under two possible vessel configurations. This Special Permission also granted PRMSA a new effective date of February 27, 1981. The investiga- tion of the rate increases of the other carriers was expanded to in- clude PRMSA. See 46 Fed. Reg. 15212 (March 4, 1981). Joint Appendix (J.A.) at 178-79.* The hearing was conducted almost entirely in written form in three rounds of simultaneous submissions labeled Direct, Rebuttal and Surrebuttal. The hearing was con- istrative Law Judge (ALJ). On June 5, the Commission granted an extension of time for Pursuant to that extension, the ALJ issued his on July 20, 1981, recommending approval of creases of PRMSA, Sea-Land, and GCML. >| 3 af 55 the initial decision recommended neither approval nor disapproval of the increase, but stated that the ALJ was unable to find, from TMT’s submissions, that TMT had presented sufficient evidence to carry its burden of proof that its increase was just and reasonable. The ALJ suggested that TMT have another opportunity to show the Commission that its rate increase was justified supplying more evidence or by referring to su evidence not discussed in its brief to the ALJ. On September 25, 1981, the FMC issued the here under review, Docket No. 81-10, Sea-Land Service, Ine., Trailer Marine Transport Corporation, Gulf Carib- bean Marine Lines, Inc., and Puerto Rico Maritime Ship- ping Authority, Proposed General Rate Increases in the Puerto Rico and Virgin Islands Trades (September 2£, 1981). The Commission approved the increases of Sea- ef Eg : § 512.6(d)(3) should be used for PRMSA in light of its unique financial structure. * Initial Decision (1. at 65-70; J.A. at 123-28. eu a | ab Sit tine Hit iy fl He ipl | * THERE | ai HI Ter Thy & Pat HLT a ile Ht pe mm “i FHA His .. ie : § tT | Hah ye ttgs +f ta tee Getted Goa 00 OL J appt et fot ments Traffic Conference, Inc. v. United States, 321 Supp. 500, 505-06 ‘S.D.N.Y. 1970) (three-judge panel Electronic Indus. Ass'n Vv. United States, 310 F. Supp. 1286 (D.D.C. 1970) (three-judge panel), afd, 401 U.S. 967 (1971) ; Florida Citrus Comm'n v. United States, 144 F. Supp. 517 (N.D. Fla. 1956), aff'd mem., 352 U.S. 1021 (1957) ; Koppers Co. v. United States, 182 F. Supp. 159 (W.D. Pa. 1955) (three-judge panel). : I Sas p35 38, a Wi ii i nits Hi é the Supreme Court’s discussion of the case in Aberdeen & Rockfish R.R. v. Students Challenging Regulatory Agency Procedures (SCRAP II), 422 U.S. 289 (1975). There the Court considered but declined to decide whether the obtain review of a genera] revenue hear- See id. at 317 n.18. Bl Haat fl * 283 i] it alate. lead iy epesee al | “i HE leue egdiei? § itl if Heli |! Peer i ia an, wie is Hye2atas ; F : | ati psd: ifs ai ealiend hy dat HUH eH PT Pas oT opgagcged cdg? gd > Tidegt a gee gt ek aa eect i tes ie, E Hal datahip® Glia dies thie exceeded its authority. Second, the court must ex- amine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order’s essential elements is supported by substantial evidence. Third, the court must determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have “basic data and the whys and wherefores” of its con- clusions. Government of Guam v. FMC, 329 F.2d 251, 255 (D.C.Cir. 1964). See also Colorado-Wyoming Gas Co. v. FPC, 324 U.S. 626, 634-35 (1945) ; Commonwealth of Puerto Rico v. FMC, 288 F.2d 419, 420 (D.C. Cir. judgment are proper and perhaps necessary.” Trans World Airlines, Inc. v. CAB, 385 F.2d 348, 358 (D.C.Cir. 1967), cert. denied, 390 U.S. 944 (1968). mandated speedy resolution of hearings under section 845. Strict limits are placed on the time that may be devoted to creation of the record and to consideration of that record by the ALJ and the Commission.“ As we said in a similar situation, “[{t]he direction to the agency to provide expedition will be taken to heart by the Courts, as an indication of legislative policy.” Houston Lighting & Power Co. v. United States, 606 F.2d 1131, 1145 (D.C.Cir. 1978) , cert. denied, 444 U.S. 1073 (1980). The time limits set by Congress indicate that a reviewing court should accord the Commission “an extra dollop of deference.” Id. This is especially true where, as here, 11 “The Commission’s exercise of its regulatory authority must be assessed in light of its purposes and consequences, and not by reference to isolated phrases from previous cases.” Permian Basin Area Rate Cases, 390 U.S. at 791 n.60. 12 See 45 U.S.C. § 845(b) ; S. Rep. No. 1240, 95th Cong., 2d Sess. 9-10 (1978). i l5a mandate to be arbitrary, capricious, irrational or sloppy. But strict time frames within which to work may require an agency to make its decision on a record more slender than desired and may render acceptable an unusually terse explanation of reasoning. Nonetheless, we examine the conclusions of the Commission to ensure they are based on consideration of all salient factors and are grounded in substantial evidence on the record. II. PRMSA’s CHALLENGES A. PRMSA’s Fuel Forecast PRMSA’s forecast of rising fuel prices for the pro occurring since it had been tabulated months earlier. C.D. at 32-35; J.A. at 32-35. PRMSA urges that this PRMSA’s forecast of fuel cost in large part relied for its veracity on the forecast of an independent fore- casting organization, Data Resources, Inc. (DRI). The forecast proceeded in three steps. First, PRMSA calcu- lated a correlation of .9501 between its actual fuel prices from the first quarter 1978 through the fourth quarter 4 This correlation established that the two tended together, e.g., a change in one could be used to explain most of change in the other. i rd REET ay eee ne he sh: EAT AH gis aq s% wor aqedces Pe lt i Brute aa elles MEF 13 dat gifs ays 5 git I + ie mae es an sé nF ait Baas i? y8 gris a 1 tion and the reliance on a “theoretical statistical correla- lation” between its extrapolation and the DRI forecast. Second, the Commission found that “dramatic changes in world oil markets have caused [the ARAD] forecasts to change substantially since the initiation of the pro- ceeding.” C.D. at 33; J.A. at 33. The Commission concluded that these deficiences would “ordinarily warrant disapproval of PRMSA’s forecast.” however. C.D. at 34; J.A. at 34. Faced with the problem, | . | Se ees i elie Hi 8 price test ply applied tbe fei Hit 4 ft “ge 5 i 43443 ich 1 | 3 i stitute an abuse of discretion.”* 7 The Commission referred to Exhibit C of the rebuttal testi- mony of PRMSA witness Vasquez. See J.A. at 825. This data sheet shows the relevant PRMSA fuel prices in dollars per barrel for 1980 to be 19.26, 20.60, 21.39, and 28.03, and hence shows quarterly increases of 1.34, .79 and 6.64. From this, PRMSA forecast a quar- ter. The high correlation between PRMSA’s forecast and not be equal in amount (one pound for one inch), but rather would show, for example, similar increases in weight for each increase ipa: HUNT HS aHHale pagil s Te ih ue aun i 33 Pedy. ui ie Ber iain | it HEEL, saa ally Hil i it fa ei fetal ei Het sis 26 val bh ad SSABB me | F i Haat at as sis sisk3 iy Sse 3 altiis Gta: i ee ap ESSSS ESSE eS 353 EAL bi? §83¢ sy! : at 3 AH ; i RH it a8 i slip 1! ain lle pellet ale Hal ibiielsrestc pled RHE Le i ein ili : he TE ue Hide it any WANT TH ee S$ ge! 8S ce S855 yes 2.4 8 i! i Hiieiglecastiin at iil aught tetas UE eT UL TH i BTieeL pte ar BS he: Eee ‘i : 5 ii . PRR an re cual dete acd HE . § é tHe Hee i Hh eli 33 iY at lays Ui ii . Hi i: Ht i i : in | : Hi estimate would have enormous conse- I 4 17 Z : S : BG vgs TREE halt: tHE the estimate beforehand as well as the magnitude of the ee ee ee this case, the disputed estimate accounts for over half the proposed rate increase, so that a significant vari- HAL hy 3 s Mi Te iii Hi it a "ef “a3 iil I 3 ete Bi | Hi iE ior 1 cases above. HRA or tai a He ghey palin i op Rea bee te se eile ted alte it iG s > a2 32% : Pree : nia! rth pelt " HES Hanis ll link? ag PRMSA’s last two challenges to the FMC’s rate review deal with the calculation of an appropriate rate of re- turn. Theoretically, the carriers should be allowed to earn B. The Embedded Cost of Debt i EIN ReMi ie ue i ie ir Fx ibe a ai Haat Ae hs if ils etal et ed (tel (ei tia}iecl fy fA RAnL Re ada elinila Wena RE te ae otisiti 4 Ht ny abet ‘i iy TEUBDRERAIE Ht iL HIT Doe PRR REL Ae ai ee siegnllitely: it Ei meaty at lel tate ape hidsel, (eis papi : Ak Hed 8 elt 29a reliable testimony on the rate of return issue in the record. C.D. at 14-15; J.A. at 14-15 (footnotes omitted). PRMSA asserts that the reasons underlying the Com- ae Hi a eit lle ite 4. peal eeSis si! if 6 siti i eine eae THE isla a Lil ital a 13335 +} HH isha ia ite t li : ai He Hell! itt es sig He Sla made reasonable use of its discretion based on a severely truncated proceeding as required by Congress, there is little to be gained by remanding for reconsideration of insubstantial, subsidiary errors. The Commission also acted within its discretion when it accepted Copan’s formulation which did not include short-term interest. We find no indication that this omission creates an unreasonable result, even though a theoretically more accurate figure might have otherwise been produced. There will always be finer and finer adjustments to be made in a practical science such as the estimation of rates of return. Yet at some point an agency must make “pragmatic adjustments” in light of the limits of agency resources, time, and human com- prehension. If the consequences are unreasonable, they cannot stand. FPC v. Hope Natural Gas Co., 320 U.S. 591, 602 (1944). In light of the constraints on the agency, however, we find that this particular “product of expert judgment” well deserves its “presumption of validity.” patible with and possibly supportive of Copan’s figure. Finally, the Commision stated it was unmoved by the arguments in PRMSA’s brief It is unimportant that, »s PRMSA notes, the brief included a citation of PRMSA’s witres and not mere legal argument. The FMC was not required to be convinced. We also note that PRMSA’s brief cites its witness for the number estimated by Copan, not the proposition that the figure was too low. See PRMSA Opening Brief Before FMC 38-39; J.A. at 216-17. Further, the cited portion of the Silberman testimony does not criticize the figure as too low, but only as an estimate without basis. See Silberman Surrebuttal at 23; J.A, at 986. On the following page the estimate is termed “appar- ently an incorrect, low interest rate.” Jd. at 24; J.A. at 987. The testimony gives no support or reasoning for the conclusion that the estimate was “apparently” low. Thus, the fine shred of expert testi- mony on which PRMSA would have us reverse the agency was not even cited to the agency in the brief that was putatively more than a brief. There is no indication that the Commission failed to con- sider properly the testimony of PRMSA’s expert, and no indication of abuse of discretion in the Commission’s rejection of the argu- ments in PRMSA’s brief. pes Id. The consegences here are not unjust and unreason- able, and the Commission’s actions are upheld. C. Total Capital of the Reference Group PRMSA’s final challenge concerns the interpretation of the FMC’s General Order 11, which sets forth the manner in which the reasonableness of a rate will be evaluated. In pertinent part, the Order states: “The reasonableness of a carrier’s return on rate base will be based on a comparative analysis of the carrier’s pro- jected return on rate base with the rate of return on total capital earned by comparable U.S. corporations.” See 46 C.F.R. § 512.6(d) (2) (ii) 1980. The question before us is whether the Commission properly interpreted “total capital” when it rejected the carrier’s approach to calcu- lation of the rate of return of the comparable, or refer- ence group, corporations. At the outset, we note that an agency’s interpretation of its own regulations is owed substantial deference. In Udall v. Tallman, 380 U.S. 1, 16 (1965), the Supreme Court acknowledged the “great deference” shown to an agency’s interpretation of the statutes it must administer. The Court continued, “When the construction of an ad- ministrative regulation rather than a statute is in issue, deference is even more clearly in order.” Id. We will accept the interpretation so long as it does not do violence to the language of the regulation itself. Since this involves an interpretation of an adminis- trative regulation a court must necessarily look to the administrative construction of the regulation if the meaning of the words used is in doubt... . [T]he ultimate criterion is the administrative in- terpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation. Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 413- 14 (1945). Applying these principles we have no trouble upholding the Commission’s interpretation. The “total capital” of the reference group is used to Utilities and other regulated industries have long been restricted to a rate base that is “used and useful” in See 7 z 4 me : method as inconsistent with the Commission’s regulations, LD. at 44 & n.21; J.A. at 102 & n.21, and the Commis- sion adopted this result. C.D. at 18; J.A. at 18. Silberman calculated the rate base of the reference group by adding its fixed assets to its working capital, thus excluding noncurrent assets. The noncurrent assets ™ See 46 C.F.R. § 512.6(d) (2) (ii). 84a were excluded because they were felt to be typically nonproductive or productive at a significantly lower rate than current assets. BIE’s Copan recalculated the rate base and related return with a rate base including the noncurrent assets, saying that he was compelled to do so by Commission regulations. J.A. at 971. At base, this is a question of interpretation. The Com- mission has interpreted its own regulations to preclude the use of a surrogate rate base for “total capital” and we find no reason to disturb this result. PRMSA argues that its own witness at the hearings which led to the adoption of the regulation advocated the approach in- corporated by the regulations and that its witness in- tended that the “total capital” of the reference group be a surrogate for rate base. However accurate PRMSA’s attempt to divine the intent of its own witness, the Com- mission is not necessarily restricted in its interpretation of its own regulation by the testimony of particular wit- nesses presented prior to adoption. This is the first case of which we are aware in which the Commission has in- terpreted the regulation and we find that interpretation to be plainly consistent with its wording. Having accepted the Commission’s interpretation of the Rock & Sand Co., swpra., 325 U.S. at 414. PRMSA argues that its interpretation, and not the Commission’s, is most consistent with the function performed by the comparable return calculation. Barring an arbitrary or capricious result, however, this is most appropriately a question for the Commission in the exercise of its expertise, bal- ancing the ease with which an interpretation may be implemented and the accuracy of the results obtained. It should be noted that the “surrogate” calculated by Silberman used current and noncurrent assets rather than operating and nonoperating assets. Although Silberman testified that this would exclude some elements he felt groups.” Given the uncertainties of the surrogate rate base proposed by PRMSA’s expert, as well as the per- vasive practicalities of expedited ratemaking, we find no basic flaw in the Commission’s approach. %* PRMSA attempts to show that Copan, the BIE’s witness, agreed li ere t } ' | Copan agreed to this assertion assuming any later adjustment for risk. See J.A. at 543. The risk-spreading effect of the nonoperating assets, typically of lower return and lower risk, will normally give the reference group a different risk profile than if only its operatin . assets are considered. Thus adjustments for risk will tend to take into account the diffeernce between “total capital” and the cai rier’s rate base. pripuiill GUtleL sui EU erty BS a tit I lie He Hq 4 hit duet yee ‘Al HHI ain i 4 | Heh viata rr Ht itl jan Ht i HAHEE : 3 i ie yeaE BY TEE HAT Ele areas Het rea Rate Cases, 390 U.S. 747, 792 (1968) (“pro- vestor and the consumer interests”); Permian Gas Co., 320 U.S. 591, 603 (1944) (“a balancing as the regulated industry. See FPC v. Hope : 5 figs eit al ALTE a SEE Patalal for each of his risk estimations. J.A. at 756-67. Both the ALJ and the Commission accepted his estimates. GVI/PRMA next argue that the Commission gave in- sufficient weight to the impact of the rate increases on the ratepayers. The rhetoric of ratemaking has long stated that it encompasses the interests of the ratepayer In light of Mr. Copan’s expert status, this was well within the discretion of the Commission.” i as Hse: ea HE i beaks : aie S Be ene eat if Ai B25 Soeg HIF : Hiei fattin 7 ili if HT cau ual | if iii i WA ‘| Watt 7 aE: piled AT fei ay Hah age rl Ee pec Pd Ly eee ital ie [: ii tH Hit ieee Hey Halitp tt aupRavabe jadlalla Wl initia Hep Hit it ; iH Pl BIR Hy geeedpeetaiead dans baadantiee atta ae ae H.R. Rep. No. 1240, 95th Cong., Ist Sess. 7 (1977). We conclude, therefore, that the FMC’s standard for special consideration, “extreme economic dislocation re- sulting directly from a carrier’s rate increases,” falls within its discretion and effects a rational result. Any lesser standard would shield the ratepayer from the realis- tic costs of the services he used. Fairness to the rate- payer is primarily subsumed in the limitation of rates to RUE BOT : 33f° TE question of price collusion cannot now Order of Investigation.” C.D. at il = 2 competition. 3 4 : i a 8-9 (1977). See also S. Rep. No. 1240, 95th Cong., 2d Sess. 14-15 (1978). It was neither arbitrary nor unfai B. TMT’s Burden of Proof GVI/PRMA claim that TMT has failed to meet its Commission. I.D. at 64-70; J.A. at 122-28. The Commis- sion accepted TMT’s proof in two of the three areas, based on explanations included in TMT’s brief on ex- ceptions. C.D. at 40; J.A. at 40. The first area concerns additional cargo that TMT expected to gain from GCML/’s termination of service to * But ef. Conway Corp. v. FPC, 510 F.2d 1264, 1274 (D.C. Cir. 1975), aff'd, 426 U.S. 271 (1976) (am agency may consider price- squeeze effects of wholesale and retail rates in setting rates within the “zone of reasonableness”); City of Batavia v. FERC, No. 80- 1072, slip op. at 41-42 (D.C. Cir. Feb. 9, 1982) (same). aaks While the Presiding Officer suggested that TMT As noted above, TMT cargo tional cargo for TMT which is based upon a loss of 100,000 tons by GCML will be accepted. C.D. at 40-41; J.A. at 40-41. We find no error in the Commission’s conclusion. Al- GVI/PRMA also challenge the basis of TMT’s pro- jected escalation of operating costs. The Commission ac- * Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1988). See also Trailways, Inc. v. ICC, No. 80-1713, slip op. at 6 (D.C. 44a estimates with citation to supporting ma- in the record. C.D. at 41; J.A. at 41. On review cepted terial of the relevant portions of the record, we again find that the Commission had adequate support for its conclusion. sions.” Both were attributed to the expenses incurred the “management commissions.” C.D. at 41-42; J.A. at 41-52. The gravamen of GVI/PRMA’s challenge is that this failure is indicative of an overall failure by TMT to its burden of proof. They argue that the three challenged areas establish a pattern of avoiding the issues ytaaeaaiany Heunlh i HLH Hitt much pported ve does submissi other ee. the udgment based that generally met i find no this C. Consideration of Evidence and Findings GVI/PRMA charge that the FMC failed to make find- ings as to three material issues of fact: PRMSA’s revenue projection, the carriers’ cost escalation factors, and the if ili EE se ieats|ealst ee ile Hetil Sata! eed dati Betleral (pi bos eieza’ + : HE rf He eee ele eat 208 3 :* vst aL al al a5 i! mes lel HE ji fg #2425 : E pidis saytaghas hae elated PEE £ HAE, 8 aa t sta] : sel iiiy Hie SHEE rate base of these carriers t is not a portion of the activity regulated. To subject to the ratemaking juris- theoretically it should be ex- with trifles, however, Commission 3 yum ie ae Bagh yo I ger costs of such “other cargo” unless it cumulatively exceeds and the five-percent of gross revenues. See 46 C.F.R. § 512.3(j). water and land transportation on a single It is FMC *8 See Puerto Rico Maritime Shipping Auth. v. ICC, 645 F.2d 1102 (D.C. Cir. 1981); Trailer Marine Transp. Corp. v. FMC, 602 F.2d 379 (D.C. Cir. 1979). footnote rejected the assertion that intermodal cargo was likely to expand to the point where it would need to The question of intermodal cargo involves a somewhat different issue: the necessity of making findings on all yt apcin sacapd Intermodal cargo is cargo that The evidence indicated that PRMSA’s intermodal cargo was 1.05 percent of its total carriage in 1980. See J.A. at 988. The ALJ accepted PRMSA’s cargo projection and in aah 47a be accounted for separately. See I.D. at 60-61 & n.26; J.A. at 118-19 & n.26. The Commission did not specifi- cally mention intermodal cargo in its decision. GVI/PRMA seize upon this as evidence that neither the ALJ nor the Commission considered the entire record, noting that the ALJ did not refer to the arguments made ; i 4 7 7: i ii! F . 2 E E 3. 8 Ps hi ait; te ay Ar -nee aH ec ip sie D. Sea-Land’s “Brokerage Payments” Finally, GVI/PRMA argue that part of Sea-Land’s listed expenses should have been disallowed as unlawful. FMC regulations require that carriers include in their tariffs any amount paid as compensation to independent ocean freight forwarders. See 46 C.F.R. §§ 510.24, 581.5 (b) (viii) (1980). Failure to include those payments in a tariff would make the payments unlawful. Among its test-year administrative and general expenses, Sea-Land included a projected cost of $607,547 in “freight broker- age.” GVI/PRMA claimed this to be an unlawful pay- ment because no such freight brokerage was included in Sea-Land’s tariffs. Sea-Land responded that it was a sales expense paid not to a licensed freight forwarder but to an independent company retained by Sea-Land to perform its sales functions in Puerto Rico. Sea-Land claimed this amount as an appropriate expense of sales even though it may have been entered under the wrong name. See J.A. at 844. GVI/PRMA state that the ALJ refused to consider the lawfulness of the payments because that had not been listed as an issue in the notice for the hearings. Actually the ALJ stated he probably could ignore the matter, bu it was his opinion that the record was inconclusive as the question. Further, he noted that even if the expense were not allowed, Sea-Land’s return would be within its allowable rate of return. See I.D. at 61-62 & n.27; J.A. at 119-20 & n.27. The Commission took a similar approach: s the trade. Nor has it been demonstrated that these payments were in fact unlawful under the Shipping C.D. at 38-89; J.A. at 38-39. GVI/PRMA attack this statement as improperly plac- ing the burden of proof on the shippers. Since the burden of proving that rates are reasonable and just falls on the carrier, the shippers assert that they must also prove 3 i : : u | H : : | | z i : i : a 5 Ta it He Efbe siete z Fa ® i i B : | : { =: the burden to the carriers. We are unswayed by argu- ments based on isolate’ sertences, viewed out of context, that when reasonably examined reveal that the Commis- sion found one side more persuasive than the other. Second, the only indication on the record that the pay- ments were unlawful is the use of the account “freight brokerage” by Sea-Land in its initial submissions. GVI/ PRMA complained that this appeared to be an unlawful payment because it is unmentioned in any tariff. See Protest of GVI/PRMA, et al. and Request for Investi- - AUTH SHE 3 gist if ih gtk iE The Order of the Commission is affirmed, and the stay of refunds that we ordered earlier is vacated. 5la APPENDIX B SERVED September 25, 1981 Federal Maritime Commission FEDERAL MARITIME COMMISSION Docket No. 81-10 PROPOSED GENERAL RATE INCREASES IN THE PUERTO RICO AND VIRGIN ISLANDS TRADES ORDER PARTIALLY ADOPTING INITIAL DECISION This proceeding was instituted by Order of Investiga- tion, served January 29, 1981, to determine the lawful- ness of genera] rate increases filed by Sea-Land Service, Ine. Land Transport Corporation ene AUR all jae TTR it Ty erie DISCUSSION ee Oe 95-475,° the 18] Hie 2 The Chamber of Commerce of Puerto Rico, although technically @ party did not actively participate at any stage of the proceeding. bu (the Act) (46 U.S.C. inter alia: (a) a BSSELSE e i 3% iti iia file hardship on the affected interests represented by Protestants and Intervenors, and, if so, to what extent should this factor be considered in deter- mining a reasonable rate of return for the carriers? The February 27, 1981 Order Amending Order of In- vestigation stated that because of PRMSA’s peculiar capi- tal structure,‘ consideration should be given to the fixed coverage ratio standard of reasonableness stated in 46 C.F.R. 512.6(d) (3) in determining the reasonable- ness of its proposed rate increases. Due to the number of issues and subissues presented, and their complexity, the findings of the Presiding Officer, | anen eatin! Po pein 2% i Bes Ht iF it at seater te es Cention Gh x entnaod oe tacts tay) falas “ : et tai u HR cr ig il Fe hd? ih rH i Hi i et HG projected future. In applying this methodology Counsel arrived at an average rate of return through 1980 of 12.5% with an upward adjustment 2% for current trends* and a reference group rate of return of 14.5% for the projected year at issue. Hearing Counsel then analyzed the business and financial risks of each carrier as it compared to the reference group and concluded that: PRMSA should be awarded a risk $ 23 should be awarded a risk premium of 1.5% for a total reasonable rate of return of 16% ; and GCML should be awarded a risk premium of 2.5% for a total reasonable rate of return of 17%. The Presiding Officer construed the conclusions reached by Hearing Counsel as suggesting that on a trade-wide *The 2% upward adjustment for current trends was based upon overall rate of return trends from 1968-1979. idnuaeee HE Hie |e ATH fala Hil HRs tH Th. é de : cae HIE ht aE ah SUPE elt PTH Et Lizeii: 1:13! sa lilies Hea Hee Jets Ep if eth TE: TTR 393 pee he HIE ‘lt Pau bie it ae poche S¥.sas subEiiiel iaful status can be adequately considered. GVI/PRMA argue that Sea-Land cannot be awarded risk premiums to compensate for past shortfalls in earn- that is greater than any previously allowed by the mission and that it is attempting to reap excessive profits. 'TMT’s Reply finds the rate of return determinations of the Initial Decision acceptable. GVI/PRMA’s refusal to consider risk premiums is allegedly based upon a cost of capital approach which is contrary to G.O. 11. PRMSA’s Reply also supports the Presiding Officer’s zone of reasonableness and his risk premiums findings. PRMSA points out that both statistical and subjective studies were utilized to support the Presiding Officer’s determinations and it was proper for him to reject a cost of capital approach as contrary to G.O. 11. PRMSA denies that its 100% debt financing reduces its business risk. Sea-Land’s Reply challenges the allegation that none of the rate of return testimony was accepted by the Presid- ing Officer, pointing out that its testimony was accepted with the exception of the premiums for past shortfalls. group. However, it is alleged that the interest expense estimated by Mr. Copan is reasonable in light of the phe of the disparities in methodology utilized by the various parties resulted, in each instance, in rates of return markedly favorable to the ultimate position of the party to predict what appears to be unreasonable levels of returns in the test year.* 7 Although Dr. Ileo surveyed rates of return from 1976-1980, he ultimately based his rate of return findings only on the results of 1980. (Tleo Testimony at 7). His risks differential was based solely upon the difference in the imbedded debt cost of PRMSA and that of the average U.S. manufacturing firm. (Ileo Testimony at 10). ! | specifically rejected by the Commission in its promulga- tion of G.O. 11.* The same infirmity applies to the testimony of Dr. Brennan, testifying for GYI/PRMA™ Dr. Silberman, sponsored by PRMSA, substituted the G.O. 11 formula upon an assumed correlation with Aaa bond yields. (Nadel Testi- mony at 26). Dr. Nadel’s 3% premium to account for past short- falls in the carriers’ rates of return is an overadjustment above any reasonable maximum level of return. (Nadel Testimony at 29-30). rate regulation. Galveston Elec. Co. v. Galveston, 258 U.S. 388, 395 (1922). This rule of law is not unfair to the carrier in light of the fact that confiscatory rates cannot be established on the basis of the carriers’ past actual profits. Board of Public Utility Commis- sioners v. N.Y. Telephone Company, 271 U.S. 23 (1926). * See, Financial Reports of Common Carriers in the Domestic Offshore Trades, FMC Docket No. 78-46, 19 S.R.R. 1283 (1980). 1° See, Germaine Testimony at 18. 1 See, Brennen Testimony at 5. 12 See, Silberman Testimony at 6, Silberman Rebuttal Testimony at 13-14. ficiencies, the failure to follow the requirements of G.O. 11 precludes any reliance upon them. The Presiding Officer, however, did not accept Mr. Copan’s estimated imbedded debt cost figure utilized to compute the benchmark rate of return for U.S. manufac- turing firms. Mr. Copan used a 7% estimated interest figure which he derived from his primary data base, FTC Quarterly Reports. While certain adjustments to Mr. Capan’s conclusions are warranted based on certain policy considerations discussed below, the Commission does not share the Presiding Officer’s skepticism regard- ing the imbedded debt cost. The bases cited for the Presiding Officer’s belief that the 7% interest figure was “too low” were the current cost of money, the estimate of Dr. Ileo and the argu- ments of PRMSA in its brief.” The figure used by Mr. Copan was not intended to reflect the current cost of money but the average interest costs of U.S. manufac- turing firms from 1968-1979.* It is certainly beyond dispute that average interest rates were lower during that period of time than they are today. Mr. Copan ad- justed his rate of return results for current trends in the cost of money by 2%, thereby compensating for any po tential distortion. Dr. Ileo’s 9.5% interest estimate was applicable only to 1980” and this supports rather than undermines Mr. Copan’s estimate of a significantly lower rate for an earlier period. Finally, assertions of PRMSA’s counsel on brief do not alone impeach the otherwise reliable expert opinion of Mr. Copan.** There- 18 See, L.D. at 38. 14 See, Copan Testimony at 8. 15 See, Ileo Testimony at 7, Table IV. 1* Even as an “unexplained” expert opinion, it is entitled to more weight than the argument of a party in interest on brief. See 7 Wigmore on Evidence § 1922, 1988 (Chadbourn rev. 1978); Frank- lin Supply Co. v. Tolman, 454 F.2d 10569, 1071 (9th Cir. 1972). a ri ; F Ate atte fies Lu lily | THEE Hla a itt! Auta bait) eH ut ne HRA F Paks zie} ae i fli ‘in alia! ABH BEIT bel ifistt TH alee nly sagecllgeet ; nl strate layed festa! pins Hit! FE PALE i ; ye! Ea abrehta Sy i “i 2 2 ae ii pegs garmrap Care thy -Pgten sagem tage ge auiaiie GaGe abhay Ee iments eon avoid by adopting the rate of return on rate base test and rejecting the rate of return on equity test of reason- ableness.” Each of these considerations operates in an opposing manner when used in evaluating the desirabil- ity of establishing a trade-wide maximum rate of return.” ie uy! SF a “given” and allows carriers who have high risk financial struc- tures, high comparative costs and erratic earnings histories to be allowed a higher overall return than a carrier who has a conserva- tive financial structure, low comparative costs and a stable earnings va ee bila Ut: i ea 3° 434! il Li et il ie i i at ti hist cid nip : te Hid bit i HHH ET TE Hy for each carrier are: (a) 16.5% for GCML;* (b) 15.5% for TMT; (ce) 16% for Sea-Land; and (d) 17% for PRMSA.” The Commission will now consider the fixed charges coverage ratio as an alternative standard for measuring the reasonableness of PRMSA’s rates. Hearing Coun- achieve higher earnings through a reduction of costs rather than sel’s suggestion that the fixed charges coverage ratio be used as the primary test of reasonableness of PRMSA’s rates is contrary to the requirements of G.O. 11 which clearly contemplates the use of this standard only when the rate of return on rate base test produces unreason- able results." Under any of the above rate of return analyses PRMSA is entitled to the highest rate of return in the trade and will obtain a significant margin of net profit over and above all operating costs and debt main- tenance. Accordingly, it does not appear that in this case the results of the rate of return analysis are un- reasonable regardless of the theoretical problems pre- sented by its application to PRMSA. The fixed charges 5 H + : ay : ard as the primary test for all cases involving PRMSA. REVENUES AND EXPENSES The Initial Decision The major issues addressed in the Initial Decision, concerning revenues and expenses of the carriers, cen- tered around the proper methodology to be applied in estimating the cargo tonnage to be carried in the test year, the adjustment for inflation in the carrier’s cost projections (exciuding labor * and fuel), and the projected ™ 46 C.F.R. 512.6(d)(1); Docket No. 78-46, supra, 19 S.R.R. at 1310. is not recognized as a test of reasonableness in G.O. 11. ** Although noted as an issue in the Order of Investigation there was virtually no disagreement with the carriers’ projected labor costs, these being determined by negotiated contracts. I.D. 71. H HAE : pagel joi a ee 8 nade ae it th if Le ar ln nH TRIES $72 &93° > amy aaa AR, iv tet tees : Aili fle Hi : Eee LTTE LEE ' HULME URE ag3 Sptgggz esis Bosbesesgs Hi aie HHA eh a A: wage? ais1a! i i segment of the trade. tonnage reduction was at- tacked by both Hearing Counsel and GVI/PRMA on the ground that it presumed that an increase in available in Sea-Land’s projections. With this adjustment, Sea- Land’s rate of return was determined to be 16.28%. a 9.8% annualized rate. Upon the suggestion of Hear- ing Covnsel, this was raised to 9.9%. Utilizing this inflation factor in computing Sea-Land’s expenses, the Officer concluded that Sea-Land’s rate of re- turn would be 16.04%, again within the zone of rea- TMT and GCML utilized the same basic methodology : | 5 E : pervision fees to Crowley Maritime Corporation (CMC), TMT’s parent company. Also, it was noted that GVI/PRMA’s contentions concerning the application of inflation fac- tor to unidentified expense items and a $7.4 million over- estimate of rate base were not adequately explained. No findings of TMT’s rate of return were made in light of GVI/PRMA excepted to the refusal of the Presiding allow revisions to the submissions of PRMSA upon actual operating results obtained since the 233 HEE THE Ze ate i 2s AE Hu eu al Wii ati aH ‘lt bel papi Hie ial Hp iit iti 2 HOHE HE ahah HT pi SHH HGF Fae ar tiln 3i THE HL: Hl ue! GF bgstescagaggagvasg ees HL elie Pals elt 3 HERR ss tadys! sheet Hifi uipea ay eaten able on this basis. Sea-Land excepts to the rejection of its projected decline SFE ni! a ge9232 3 igs si5s3y ; aie believe T4a self-serving. GVI/PRMA submit that TMT’s supervision fees/management commission allocation argument does not refute the apparent double counting of expenses. GVI/PRMA argue that even if TMT’s rate base was not expressly put at issue in this proceeding, the signifi- cant discrepancy in its submissions reveals the inherent unreliability of all of the carrier’s projections and justi- fication of its rates. The inflation factor application ex- planations of TMT are alleged to be insufficient and in- consistent. Finally, GVI/PRMA maintain that TMT’s workpapers do not contain all of the information cited in TMT’. Exceptions and that the additional informa- tion cannot now be considered by the Commission. TMT argues that contrary to the assertions of the Pro- testants, it has met its burden of proof on the basis of the sequent to the institution of the proceeding was proper and did not violate the due process rights of the Protes- tants. PRMSA also insists that there was no double count of plant closings in its cargo forecasts because its market survey took this into account. PRMSA views Protestants’ trend line analysis, to arrive at an inflation factor, as un- reliable and subjective. The independent service used in the Initial Decision is supported as being both objective and historically reliable. PRMSA opposes 1! ‘] | [ hf i 75a that P.L. 95-475 requires that there be some limitation on the submission of testimony and evidence in order to ex- peditiously dispose of rate proceedings. Finally, PRMSA supports TMT on the burden of proof issue. It argues that TMT has in fact adequately clarified the record. PRMSA would also have the Commission keep in mind the impact that a rollback of TMT’s rates would have on PRMSA, who is said to have clearly justified its rate increase. Sea-Land submits that its brokerage expense was a sales commission to its Puerto Rican subsidiary and is a lawful and proper expense. The problem with the payment al- legedly was not as to its accuracy or propriety, but rather its classification. Hearing Counsel’s Replies to Exceptions are intended to clarify its position on the issues now before the Com- mission. The “rule of reason” standard, for the use of actual operational data advanced in the Initial Decision, does not go as far as Hearing Counsel originally desired, but is deemed acceptable for the purpose of expediting rate proceedings. Hearing Counsel admit that in applying this standard the Presiding Officer was correct in allowing PRMSA to adjust its projections due to the late delivery of the PONCE and refusing to allow the Protestants to reduce the carriers’ fuel cost projections on the basis of the recent OPEC oil price freeze. Hearing Counsel believe that the Presiding Officer was correct in rejecting Sea- Land’s projected decline in tonnage in the North Atlantic segment of its service because this reduction is incon- sistent with gains projected in other segments of the trade. Conclusion Before contentions concerning the individual revenue and expense projections of the carriers can be addressed, certain general matters affecting all of the carriers pro- jections must first be discussed. These are: (a) the ac- ceptance or rejection of actual operating results obtained after the commencement of the proceeding; (b) the ap- 76a propriate methodology to be applied to arrive at an infla- tion factor for all non-labor and non-fuel expenses; and (ec) the appropriate methodology to be applied to arrive at a predicted average cost of fuel for the test year. The Commission finds that actual operating results should not be accepted unless they are based upon changes standard approximates the Presiding Officer’s “rule of reason.” It is particularly important that parties not be per- mitted to supplement their cases after the close of the rec- ord and after an Initial Decision is issued, as both Hearing Record, issued August 14, 1981, aside from all other ques- tions of the legality of such a procedure, it to practioally inappropriate under the time limitations of P.L. 95-475. The methodology proposed by Hearing Counsel to deter- 4. 3 ak ‘| 3 3 1876, ; —Rate Increases, 18 fag oe 1441, ‘1444 (1978). This standard has in cases arising after the enactment of P.L. 95-475. See, Matson Navigation Company—Bunker Surcharge, 19 S.R.R. 1067 (1979). See aleo Villages of Chatham and River- ton, Illinois v. FERC. No. 80-1826, Slip Op. at 11 (D.C. Cir. August 11, 1981). Tla a a9 3d) 12] provides a sufficiently reliable [index] as a check on the in the record. The methodology of GVI/PRMA was suc- lished by a recognized independent forecasting service and propriety of the carrier’s projections. types of costs incurred by the carriers. The index is pub- His i i Hlth HUTT cessfully shown to be unacceptable.* PRMSA’s method- ology is also very tenuous. If PRMSA had established a direct relationship be- tween its costs and ARAD forecasts, its data might be acceptable. However, only a theoretical statistical cor- ee ee aon eS eee ent =Up 2 eal Bet : i 3 Dr. V. Huy 110 é ad bt: {i tiple: i atjet! wil aZaaace ote iy i didnt Hil: : 3 supra, at 800. yp pg sores g hace one: for two reasons: (1) PRMSA’s last ' i. i : ae | He $2583 qi fink ih known . Andie, gga 1 eat Hi al le I i -i Hine ! i se li £ BEE g ‘ it Ht i at Hit aus F a etadi ty it EAT piles i it ; inalvel iif dal F He ggee Salk 5 ae a * Vasquez Rebuttal Testimony at 18-19, Exhibits F-J. —". $f3 he = ALE reli . PhS: gas Wii tieaai: all Tht fi Tet Het get lag i vealye rit lit HUE radical HF nig | i ali anil # ne i at Hh itt were made, goals, eope of the Presiding its Lg tor. feel a cae ie ia neat cee Ss ee RH .f hig aan tiie ondaees-talies te camman. i ; it ' if te He ia any as to * See, LD. at 58; Roazynski Testimony at 9-10. weal dt tial i ay il 533 tits Lit «ete Of] 1 allie i aa he be 1 HE i PLU HBL niet i inl! FL i] i ath HHT A at 2. * Hearing Counsel Opening Brief, Appendix A. #5 It should also be noted that Sea-Land cancelled the increases would have arrived at a rate of return below the 16.04% found here. * GCML projected a decline of 100,000 tons of cargo in the trade. Baci Testimony at 5. ‘ i 2! i. adjusted for extraordinaries, was found to be reasonable. : However, one of the extraordinaries it claimed, i.e. i 33% ag y. 53 UNE i # a3 2 + ih i tal th at * This data is reflected in GCML’s original the Commission pursuant to Rule 67(a) (2) pry deen Rules of Practice and Procedure (46 C.F.R. 502.67(a) (2)). The initial methodology used by TMT in to be a satisfactory explanation of the “supervision” ex- penses, it completely fails to address “management com- missions.” TMT’s explanation of its claimed “management com- missions” is that CMC incurs expenses in managing all its operating units, including the Caribbean Division, of which $3.013 million were allocated to TMT operations in por- tion of the Caribbean Division expenses. CMC’s overall operating expenses are not itemized in the record.” TMT has therefore failed to sustain its burden of proof on this issue, and accordingly the $3.018 million in “manage- ment commissions” will be disallowed as an expense.” TMT adjusted its rate base downward due to a double counting of vessel improvements in response to protests to its original projections. During the proceeding, it was alleged that an additional $7 million of rate base was overstated.“ TMT’s response to this allegation has been ** See Farmer Testimony 4-7; TMT Exceptions at 18-19. * See Farmer Testimony, Exhibit F, p. 1; TMT Exceptions at 10-11. % See Farmer Testimony, Exhibit G. *! Administrative and general expenses were specifically included as an issue in this proceeding in the Order of Investigation and TMT bears the burden of proof on these issues. @1.D. at 70. § ih : esas Based upon the above determinations, TMT’s rate of return will be 15.88%, below the 15.5% maximum rea- sonable rate of return permitted. Accordingly TMT’s rate increases are found to be just and reasonable. ECONOMIC HARDSHIP The Initial Decision attained diet rf E aapeeiyes 3% ess atl HRT f ates i ids. eashl2tisaysi*s in some cases compelling but as simply not addressing % See Docket No. 79-48—TMT—Proposed General Increases in Rates, 19 S.R.R. 986, 988 (1979). tH HT Le LE Milt ap TT ile Hel EMH tl et) rita ns tape Pee el HH ne Ml gg s sana S28" zB the other carriers are operating at in reference groups. I find t with Dr. Silberman, Mr. . Germane that PRMSA’s and other car- measurably higher than those of the refer- that the Commission has indeed recog- techniques employed in this case to measure business risk. See cases cited in PRMSA’s pp. 10-11, and the discussion refuting Mr. Brennan on the risk issue in PRMSA’s reply brief, pp. 8-11. Nor do I agree with GVI/PRMA’s arguments on brief criticizing expert witnesses other than their own Mr. Brennan for subjectivity in evaluating risk factors. I think it is clear that every witness is guilty of some degree of subjectivity, including Mr. Brennan. See PRMSA’s reply brief, pp. 25-26. Accordingly, I find Mr. Brennan’s recommendation of a 15 percent rate of return to be unacceptable. Having found that the more extreme witnesses on the edge of the table have not been persuasive, I now turn to the more moderate witnesses nearer to the center of the itty HEL i af i LESSEE eed LEETEE i (el Wet Hit Wife want ide eee Hie By shite ‘ PBs Brees Her : qujdies + 3 33 3 lets 53 . i elated el F { Phe ue ne ie & eig’t oe sEetai4g 12 ayy aglags thas | ait Hagiisa]ietitstaa%: ay fi dag] s2! Hit uh AT Ms : at ATRIA RIA RET HITH ae HIM MBe TFET iti i rath tail rat taht UT RTAER TE arm piled aituee file ite if Ra ETA RBH GRAS rs wr 3 aa | a5 559242595388 if uh 134 ial Halt if int ; && fue 2° as S¢ mits Hegeelal ia ‘i etl siete wield 2 at Pe as, 8 ALLL THe EAT ai ull bali li i ann ST toil oui : SHA ett fF ath Lae i it 4 Hiatt te (i ; HH iu a iis repay TS Hl 2 Wh § Hat a iis gla =" be HEI baa il rt ith BEL iF ile FA eli lp dagitiii Ht tr Hat + ae Rett, hn aj : i a gooey eal at Hi etd Ee PALO At AE ial unt H TLE : indi ri UH Hi : He. oitealitls FALE Hi + alll ee abitiglll iat TA ae tt ts : Tt = $= ites a al: : A AUTO Eee il confirms what I have said above, i.e., that even if high ocean freight rates were the main problem affecting them (and this was by no means clearly shown), their testi- mony would be much more relevant in an individual- commodity rate investigation, not a general-revenue case. No matter how impressed I was by Ms. Creque, for ex- ample, I do not see how I can convert GVI/PRMA’s b Pg Ts edcagesinecsgegesaay Je uae HH aii a ‘a zeae? = Bs 333 HH bones SE i Ene sil Pappy aiht Boal taiealeii nak aot ALLE Heena, fi Hee HHH i dfey eH - Hae reel aistili tall anh itis Abu The Matter of Use of Current or Revised Data in Lieu of Carriers’ Pre-Docketed Data I have alluded to a problem which has occurred in previous rate cases both under P.L. 95-475 and before, BIE’s contention that it is essential in rate cases, which niust be expedited under P.L. 95-475 time schedules, that carriers and all parties confine themselves to the carriers’ pre-dockected cases submitted to the Commission and that other parties essentially do likewise. In other words, BIE objects to the admission of any evidence such as current data which is dated after the original submis- gious except perhaps for corrections of obvious arithmetic errors. BIE believes that this problem is so critical for all Commision rate cases that “it is essential that a definitive statement resolving this question be issued in this proceeding.” BIE reply brief, p. 56. I do not doubt that this problem has been a recurrent thorn in the sides of litigants in Commission rate cases and that a “definitive” statement would be very helpful. However, I am not sure that a statement engraved in cement can be fashioned in this case or in any case. Un- fortunately, time and other reasons do not permit me to give the matter the attention it deserves but, as I have said, the Commission, which enjoys a 43-day period (from August 14 to September 26, 1981) between the last pleading and final decision may be able to improve upon my suggestions. in redelivery of the PONCE and the effect of Reagan budget cuts. (I have already decided earlier that I would consider the effects of the late delivery of the PONCE but that the evidence of the effects of the Reagan budget cuts was too speculative. Therefore, I cannot find that my comments in this troublesome matter should be con- sidered as pure dicta.) * But even BIE does not wish to litigate issues concerning PRMSA’s projections under its ATLANTIC BEAR case since the BEAR apparently will not be acquired by PRMSA, as I have noted earlier. But this fact was not known until after PRMSA made its original filing on December 5, 1980. Even BIE does not expect everyone to litigate complicated issues about the poor BEAR while she was still in her cave and would probably never come out. If BIE’s rigid position were to be adopted, then I would have rejected considerable evidence as a matter of law upon current data or data which case was docketed. For example, Ff some of BIE’s own witnesses’ evidence, for example, per- haps even BIE witness’s Fratter’s recalculation of Sea- Land’s cost inflation factor because she utilized data running through December 1980 or later, after Sea- 2 E submitted its case. Indeed so extreme is BIE’s so principled is BIE) that it urges its own witnesses. 7 5 g i hs a : i i 1 3 | , , and Coleman relating to updated fuei prices. ) : I find that BIE’s position, no matter how tempting and easy, is simply too extreme. At the least, as has hap- pened in previous rate cases (see, e.g., Docket No. 79-55, Matson Navigation Co.—Bunker Surcharge, 19 SRR ae f 4! & ES ‘i rr! cial : : i E : | i sidering what became P.L. 95-475 that the carrier’ ‘ i i | tee i eh : pis fi & Es original cases but still allowed some flexibility. In Docket No. 75-57, Matson Navigation Co.—Proposed Rate Increases, etc., 18 SRR 1441 at 1444, cited by BIE (BIE “were the basis for the carrier’s decision to increase its rates” and allowance of revisions “contravenes the Com- mission’s policy of expediting general revenue inquiries and hinders effective participation by persons opposed to rate increases.” (Id.) I conclude that although the legis- q iH f 3 i Bs ae 1 PE FE r i | gE if ¢ gat issues under investigation, subject to the rights posing parties to test the new evidence in whatever man- ner would be appropriate. (GVI/PRMA reply brief, pp. 93-94.) PRMSA, elaborating upon the test which the Commission adopted in Docket No. 79-55 (from my Ini- tial Decision in that case), would establish a “flexible rule of reason” by which the presiding judge could “bal- ance the equities and decide the admissibility of the proffered data.” (PRMSA reply brief, p. 49.) Essen- tially PRMSA’s rule would permit admission of largely uncontested data which was not subject to constant change if it were introduced early enough in the proceed- ing to allow all parties to test is reliability. better be promulgated in a rulemaking proceeding which 8 : &F i s z equgagagangss JUpAgsplgesate!i EH Tey fillet ! [iui Saisie lel eis 1 TELE PrP EHR LS juh ean yt ety | it t+: gisfacce ids di-goey § S252 TRU Ba eae PHILS EH ET ee OTF LEHR EH qin i ef TAR . if aH Hi Hi jae atellay li i «ennatia apt tad Hi EL arent gjicays i. luli HE sly ithe ph iF gig 28ade,4) visage - wilh fi Sues eiaens i, ails Liles se it SHH eee eH LAT 217a (1) Protestants’ cases have been tested and found wanting in most respects as compared to the more per- suasive cases and rebuttal arguments and evidence pre- sented by respondent carriers and by BIE. (2) The Commission must amend and clarify General Order 11 in numerous critica] respects in order to elimi- nate repetitive and unnecessarily expensive rate pro- ceedings. . (3) The Commission should, in its Orders of Investiga- (A) Protestants (mainly GVI/PRMA) have been given a fair opportunity to present a reliable, effective case. However, in almost every major respect their evidence and arguments were shown to be significantly defective OP eee igi GHA AH it Hb CEA a ! | Pooks : ae Hl isi iat Slee Hyiigesiis! HUE HELE ny RHE : art F Z i He RH Ree EE be relied upon more than DRI, Inc., are current data always a better base for forecasting than earlier data in declined as of March 1981 because of a current oil glut be allowed to cloud sound and dispassionate forecasting. GVI/PRMA’s envigorating emotional arguments in their ** The serious flaws in Dr. Andic’s revised forecast are cogently exposed in PRMSA’s reply brief, pp. 68-70; 73-75. so" PH Et ert eres LEE a Let THUD A LEE Heap Hit tite Heh BH qitllyd f gist Enlil rely ifilall — a]ifs 41] ; ae itty HEH i : Les ately win : a apie dia i Sigesgit sttie ge! ys #1! EHR hil Hill HLT = err er ei he eed EE eet atthe ies i Hallie ga THIF H THe fail! ae eth baal tet lie a ! auf F 5 HHH I HEL PTET FARE HU RHEH Catal i ee eaanutaiiaa consideration of Sea-Land’s Dr. Nadel’s total of five per- cent premiums added onto his 18.5 percent recommended rate of return, yet other evidence supports Sea-Land’s contention that its increases are within a zone of reason- ableness, I have rejected Dr. Silberman’s “surrogate” G.O. 11 formula, as GVI/PRMA urge, and have found little support for his method of elevating benchmark rate of return to compensate for PRMSA’s tax-exempt status, yet other evidence supports a rate of return for PRMSA of 17 to 18 percent or so. However, as to the remainder of their case concerning their alternative calculations for rate of return, cargo volume and revenue projections, fuel cost projections, and general inflationary factors, as I have indicated, the overall conclusion to which I am inescapably drawn is that GVI/PRMA are struggling to eradicate the effects of a well-prepared and well-presented methodology or argument that will ultimately appear to be persuasive. I find their efforts to have been diligent, massive, and resourceful but increasingly expedient in ap- pearance and ultimately unsuccessful. In short, GVI/ PRMA were unable to show that PRMSA had utilized de- fective methodology and had prepared a defective, irre- sponsible case when it decided to file its general rate in- creases. I think that GVI/PRMA and DTPTC have had a fair opportunity to demonstrate the superiority of their cases or at least the failure of PRMSA and the other respondents to mount a persuasive case but they have not succeeded notwithstanding the amazing zeal and ingenuity poured into 380 pages of post-hearing briefs by GVI/ PRMA’s counsel nor even the fact that GVI/PRMA have had the benefit of several months of actual data and hindsight (the use of which, however, is subject to serious attack, especially by BIE, as a matter of law) .*° * In all fairness, I should mention that PRMSA has itself some- times struggled to elevate shaky evidence from the speculative to the probative. This occurred when PRMSA’s witness, Mr. Lopez- ad, (B) It is imperative that the Commission, once and source (such as FTC-QFR, Value Line, Standard and Poor’s, etc.) and a standard time period for comparison Mangual, tried strenuously to quantify the effects of the Reagan budget cute on PRMSA’s cargo volume forecasts. Among other things, Mr. Lopez-Mangual tried to use Census data which he parently did not realize contained inexplicable inaccuracies total-capital will most likely be present in a comparable-earnings study performed without such a separation but does not show the degree of the distortion as far as I can tell. (C) It is imperative to follow the requirements of P.L. 95-475 when the Commission frames its Orders of protests, merable lines btedly very expensive as well as exhausting in view ve P.L. 95-475. Clearly it has not ended. It is, moreover, particularly important to determine whether an adver- sary-type, ad hoc proceeding like the present massive investigation is a better procedure to resolve compli- cated General Order 11 or Rule 67 issues rather than a data or post-docketed evidence and, if so, under what circumstances? BIE argues that it is critical for parties to obtain a “definitive” rule of procedure from the Com- mission. In this proceeding, BIE apparently chose to dis- of such evidence was unnecessary. However, if the Com- mission does not agree with BIE, then the staff in future cases will be obliged to reckon with later factual changes and give testimony where appropriate. (E) It is imperative that the Commission, once and ; E : i the future, they have shown justification for their 16-18 percent general rate increases. Moreover, the various cal- culations performed by the carriers, as adjusted to satisfy BIE’s objections or to factor in indisputable facts such as the cancellation of the increases in Sea-Land’s Canadian tariff or the delayed redelivery of the PONCE to PRMSA, have corroborated the basic finding that these increases will not exceed a reasonable rate of return level. There- fore, as a consideration to the shippers, businesspersons, and consumers who testified in this proceeding, I recom- mend that the Commission announce that it will encour- age individualized attention to particular rate problems and will lend its good offices to any reasonable attempts to adjust any particular individual rate that appears to be causing problems. In any event, however, the Com- mission owes it to individual persons who are concerned over particular rates to save their time and money by steering them to negotiations or to proceedings in which their individualized rate evidence is relevant, i.e., indi- rate problems and rate relationships in the tariffs is not meant to disparage the economic impact testimony prof- fered by GVI/PRMA. It is rather designed to direct at- tention to areas where relief t be available and iti alt FALE ; hl Hag te HABA il . list fii; He fill Ha e2s2izig? ay 3 Hea Hit ati hit at uke 7 ite dal bth i ‘ i el Washington, D.C. July 17, 1981 “7 ar Oe 7 a 231a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1981 No. 81-2088 PUERTO RICO MARITIME SHIPPING AUTHORITY, Vv Petitioner FEDERAL MARITIME COMMISSION And consolidated case No. 81-2128 (Filed June 25, 1982) Before: Wald, Mikva and Ginsburg, Circuit Judges. ORDER On consideration of petitioner’s petition for rehearing, filed June 11, 1982, it is ORDERED by the Court that the aforesaid petition is denied. Per Curiam For THE CouRT: Gerorce A. FISHER Clerk By: /s/ Robert A. Bonner Rosert A. BONNER Chief Deputy Clerk : 232a | UNITED STATES COURT OF APPEALS | FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1981 No. 81-2088 PuERTO RICO MARITIME SHIPPING AUTHORITY, . Petitioner FEDERAL MARITIME COMMISSION and UNITED STATES OF AMERICA, Respondents TRAILER MARINE TRANSPORT CORPORATION, et al., Intervenors And consolidated case No. 81-2128 (Filed June 25, 1982) Before: Robinson, Chief Judge, Wright, Tamm, Mac- Kinnon, Wilkey, Wald, Mikva, Edwards, Gins- burg and Bork, Circuit Judges. ORDER Petitioner’s suggestion for rehearing en banc has been circulated to the full Court and no member of the Court has requested the taking of a vote thereon. On considera- tion of the foregoing, it is ORDERED by the Court en banc that the aforesaid suggestion is denied. Per Curiam bas Shipping Act, 1916, i 46 U.S.C. § 817(a): ne i TE lite a fidilh +t ith ayia! i LEE if OO Acer aes tf 4312] HE AHH HE Hit ee it Hae shh tint] pigniashics: edn hr wer 2 omg, brag ra Hh HE Intercoastal Shipping Act, 1983, as amended, § 2, 46 U.S.C. § 844 (Public Law 95-475) become effective immediately upon notice to the Commission. Intercoastal Shipping Act, 1933, as amended, § 3(a), 46 U.S.C. § 845(a) (Public Law 95-475) : (a) Whenever there shall be filed with the Fed- eral Maritime 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 protest or upon its own initiative without protest, and if it so , the tration of this chapter, the Commission shall, within aoe | . : qe 22% pees i. fl IGE palin Pap PRUH GE Fat sate rif anes A anpillihy lis HEH i iis brett] if u iy! ; penis UES Ui zt catia li srinflaats Hits i tiie gg oH : iif : in TREE Hie teeta 2H i a fea HE ees i i THE ite Sih: Gomter ts Cenamtitaniin tir anon the granting of such extension together with— ute if a full explanation of the reasons for the Ps 2 (B) the issues involved in the matter before the Commission, (C) the names of the personnel of the Com- mission working on such matter, and (D) a record of how each Commissioner voted on the extension. If a final decision is not issued by the Commission within the one hundred and eighty day period, or by the end of any extension period, such rate, fare, charge, classification, regulation, or practice shall, for purposes of this section, thereafter be deemed to be just and reasonable. However, if the Commission finds that it is unable to issue a final decision within yey A san weeloe> Dp ean ange hich are directly attributable to the proponent of ; i Bell oS A eras ‘. Intercoastal Shipping Act, 1933, as amended, § 3(c) (2), 46 U.S.C. §845(c)(2) (Public Law 95-475), in relevant part: increase an amount equal to that portion thereof found to be not just and reasonable plus interest on such amount computed on the basis of the average of the prime rate charged by major banks, as published by the Board of Governors of the Federal Reserve System, during the period to which the refund ap- plies. FEDERAL MARITIME COMMISSION REGULATIONS 46 C.F.R. § 502.67 (a) (2), (3) & (4): (2) No general rate increase or decrease shall take effect before the close of the sixtieth day after the day it is posted and filed with the Commission. A vessel operating common carrier (VOCC) shall file, under oath, concurrently with any general rate increase or decrease testimony and exhibits of such composition, scope and format that they will serve oe eee ee ee eee matter is set for formal investigation, together wi oF cuiptes ouencis Gall ts he toneaies of the testimony and exhibits. The VOCC shall also certify that copies of testimony, exhibits and under- lying workpapers have been filed simultaneously with the Attorney General of every non-contiguous State, Commonwealth, possession or Territory having ports specifically authorized by an order sion or a presiding officer. A copy and exhibits shall be made available at every port in the trade at the offices of the VOCC or its agent during usual business hours for inspection and copy- ing by any person. (8) Workpapers underlying financial and operat- ing data filed in connection with proposed rate rates in the domestic offshore trades filed by vessel to the (d) The Commission reserves to itself the right to employ other bases for allocation and calculation and to consider other operational factors in any instance where it is deemed necessary to achieve a fair and reasonable result. 46 C.F.R. § 512.2(f) : a particular Trade, or which would result in an in- than shall simultaneously file in duplicate: (1) Financial and operating data in support of proposed rate changes as follows: (i) An actual midyear rate base exhibit (Exhibit A-a) and supporting schedules computed for a 12- month period commencing not more than fourteen (14) months prior to the date of filing the proposed rates; (ii) A projected midyear rate base exhibit (Ex- changes are proposed to become effective; 5 Tks P 1A meg “ + 2428 (iii) An actual income account exhibit (Exhibit (f) (1) (i) of this section; (iv) A projected income account exhibit (Exhibit B-p) and supporting schedules for the 12-month period commencing on the first day of the month following the date on which the changed rates are ? " t : (Exhibits C-a and C-p) coinciding with the time periods covered by the income statements furnished in response to paragraphs (f) (1) (iii) and (iv) of this section ; and (2) The work papers described in § 512.4. MATERIALS IN THE RECORD CITED BY THE COURT OF APPEALS: J.A. 704-712 J.A. 704: New York Times, February 26, 1981 OPEC MEETING SOON NOW SEEMS UNLIKELY By DouGLAS MARTIN Last week’s meeting of representatives from six mem- bers of the Organization of Petroleum Exporting Coun- tries will not lead to a special meeting of the organiza- tion before the regular meeting scheduled May 25, the Indonesian oil minister, Subroto, said yesterday at a news conference in Jakarta. Hamid Zaheri, the OPEC spokesman, confirmed in a oil surpluses caused by the resumption of almost two million barrels of daily production from Iran and Iraq and by slack demand in consuming countries. Concern has been growing among OPEC members that some producing countries will have to cut output soon to prevent a price-depressing glut of crude oil on world Te gunn ae ut aI a fit fh : # i 4 | Hi lle hell ai TH bg A full OPEC meeting would not be necessary before Saudi Arabia or any other member decided to reduce not price traders $34 but practice of reviewing production levels monthly, a cut in output could come as early as March 1. J.A. 705-07: Petroleum Economist, October 1980 Hit, Ue la pe ig a nie (lead | IGT nie! iN oh SRA itil ell eid an Han HE eer rate ih ni dul it Hiv #345 Htiph ie 1 ae Tee ree et Ei elf 1 Lane ibe FEEL bs ne a BY ate ial ul i: ine, Dian i ae er HS eBay TL BAN iy ibveeel fey fuyttlil atl taney Gi penile ¢ ii EES ab: ca pag ap a - Hy: it if tf netaal fit “i ia Helin ty Ha aH (ult natet a bata HELE F srbsdd “Tallis HIE Ae RHEE ty uy o ses i gs Hn i PAM LE THLE Hy 32 ti Bue Tet ; au df PH : ated illite eat Hi i tle i TAR iH ale aii iibishé AGT My > Ait faint a +. + Hit pupa siasvaii te lutte product daring 19 3 alt jibes il 5 Hy: Ss é ral i Ee i AT dt date i ’ 3 ak ie i fetiitie peaked, for how for all time. The less oped countries will follow suit, having run through their temporary borrowing res- With stagnant consumption and non-OPEC capacity growing, OPEC exports have been falling since 1973, and will keep falling. But prices will rise, despite excess supply, as in the past. It pays the dominant Persian Gulf countries to let potential capacity lie fallow, and Their long-term price strategy cited earlier is no empty boast, because they have not yet exerted their full price raising power. In one respect the Eighties are different. For the first time, it is worth asking how much more the traffic will bear. Synthetic fuels are of no importance before 1990, if then, but consumer reaction may well set a lower ceil- ing. Because the consumption response to higher prices is so slow, the producing nations are almost certain to overshoot, and raise the price higher than they would desire to set it if they had prompt information. The better they understand the demand for oil, the better for them, and in this instance their interest is the same as their customers.’ As in the Seventies, but now much more clumsily be- cawse of direct production control, the OPEC nations will adapt production to demand, on their terms. The official truth is that these nations will, for conservation’s sake, produce freely up to some limit. If we keep our consump- tion within that limit, happiness; if not, disaster. This idea runs counter to logic and experience. If the demand barrels an ak dapiyecth Pe tiied ive i Tuts rat iat “atl : alti) gaqiaiis Eas “Beads duiteh al He g232, 53 un i i atail ih yeti cis pPlalit és il hs Hen! request of Senator Bill Bradley (Democrat, New Jersey) by the international energy analysis division. The report reaches no policy couclusions. But it argues that signifi- cant price and economic disturbances would be set off by fulfilment of the 1 billion-barrel target, especially if the in a generally tight world market, OPEC will cut its pro- duction by 1 million barrels daily whenever purchases are being made for the SPR. Until they have been more fully evaluated, can be said with certainty is that the SPR programme is once more going forward—but that it than nine-tenths of its course ahead of it. included representatives from the oil industry and from commodities and securities brokerage firms. Oil com- panies providing committee members included Tenneco, Mabanaft, Dow Chemical, ISAB (Italy), British Petro- leum, Carless and Premier Consolidated Oilfields Amoco, Texaco and Shell held observer status on the committee. IPE will trade initially in German-grade light heating fuel, (also known as No. 2 fuel and gas oil). The spon- Anaaee S 254a were short-lived because of a lack of interest partly at- More recently, futures trading in contracts for No. 2 ee Se ee (heavy, or residual fuel) started on the New York Mercantile Exchange in Novem- tonnes, the New York contract is in lots of 1,000 barrels, which is roughly equivalent to 138 tonnes. A further variance is in sulphur content: in New York the maxi- mum is 0.2% (by weight), whereas the London contract will be 0.3%. ee 255a J.A. 708: New York Times, January 15, 1981 OIL-EXPORT RISE BY IRAN IS REPORTED Near-Prewar Levels Indicated; Prices Increased By Rosert D. HersHey Jr. Special to The New York Times WASHINGTON, Jan. 14 — Iran appears to have re- stored its exports of crude oil to levels equaling, or per- haps even exceeding, those that prevailed before the start of its war with Iraq, United States Government and in- dustry sources said today. Much of this oi] is coming through the country’s princi- pal oil-loading port of Kharg Island, which had been re- ported to have suffered war damage in varying degrees. The huge refinery at Abadan, about 185 miles north- west of Kharg Island at the head of the Persian Gulf, has been hit and largely shut down but its main function was to produce petroleum products for domestic use. A private-sector approach to financing oil purchases for the one-billion-barrel strategic petroleum reserve is being studied by Reagan administration strategists. Page D17. Up From 800,000 Barrels Iranian exports are estimated to be running as high as a million barrels a day, up from the 800,000 barrels or so shipped abroad before the fighting broke out in Sep- tember. Further evidence of Iran’s revival as a major world supplier, though still at a far lower level than the amounts exported before its revolution, came with the announce- ment today from Pars, Iran’s press agency, that the price “ for its basic crude oil was being raised by about $2, to $37 barrel. Although an increase was not unexpected in the light of the decision at the meeting of the Organization of Pe- troleum Exporting Countries in Indonesia last month to raise prices by roughly 9 percent, Lran’s increase was only about half those instituted elsewhere in the Middle East and left its prices below those of a number of cartel The increased prices, combined with the dollars of assets frozen by the United States. The higher prices and increased exports do not directly affect the United States since it halted imports of Iranian oil in November 1979, but greater supplies for other coun- tries could have a substantial indirect effect in what is a world market for crude. It was believed that the bulk of Iran’s exports are com- ing from current production from its major oilfields and not from sharply depleted inventories. 1 | ee Py ee win in a Ay a ae: OU +i; 3 a aly pil HH BT i id anit iy ieee: eae Mitte el Ti aj leit Hin pa i i 2 ils a} pat ate je aha iitt i ah iti a iat J.A. 709: Petroleum Economist, January 1981 OPEC AGAIN INCREASES CRUDE OIL PRICES bepsae pee pitt rit geet ti Ute i ue Ht Ht ell Hees a HEE HET PERG Te Hie os § 8 fang: WE ayil a; HE 4 ; 3 a | 1h ibis St sae Gas , eanepaiitiy (eT TI a (Ny il inte Ht feat piney tune ial rie r i é i: H- ste qle Ctl nesiey le eli tii til bil : yyis 2 etayEt "ai Heat i Bie Heil Wo Se “jag aiilal 261a than offset by gains on Alaska’s North Slope and some increases for natural gas liquids. With Venezuela reporting lower figures throughout the year—down by over 10% for some months—Mexico was Latin America’s star performer as production continued a rapid build-up toward its interim ceiling of 2.7 million b/d. By October the rate averaged 2.4 million b/d, and the year’s total was 36% up at an estimated 110 million of crude and NGL. Neighbouring Guatemala, firm figures are lacking, appears to be developing of the Atlantic const of South Amerien, with Argentina to self i HH. for 1980 (see Petrolewm Economist August 1980, page output from Statfjord, which had come onstream in No- 13 i : i li i. belly ti ¢ AY gE FE Be & Hk i . if sear ge : i] 4 a: e H e “sg oe a second major producer, Romania, fell far short of its target in 1979 and there is no evidence of a recovery last year. But Albania has claimed a rapid rise in production be 263a J.A. 710: New York Times, February 6, 1981 DROP IN USE OF OIL RAISES EXPECTATION OF GLUT BY SUMMER Slowing of the World Economy May Help to Soften OPEC’s Prices as Supplies Stay Ample By Yousser M. IBRAHIM Special to the New York Times LONDON, Feb. 6—A new glut in world oil supplies may be deve‘oping, officials of Western governments and international oi] companies say, and by summer more oil may be available to consumers than they require. More- over, the growing supplies are putting pressure on some OPEC producers to cut back the surcharges they have added to their official oi] prices. “The thing that happened last year was that demand for oil was dropping much faster than anybody antici- pated,” a senior official of a West European government said in an interview. “It flabbergasted virtually every Western government and all the major oil companies.” The drop in demand has almost nullified the impact of the five-month-old war between Iraq and Iran, which has reduced production by as much as 3.5 million barrels a day. ; Price Rises Linked to Decontrol [In New York, oil analysts said yesterday recent price run-ups for heating oil and gasoline 10 cents a gallon in the United States despite the world supply situation was principally the result dent Reagan’s recent decontrol of domestic oil prices OPEC’s last price increase. [Lawrence Goldstein of the Petroleum Industry search Foundation calculated that crude oil costs in United States will have risen by between $3 and $7 ie oF & 2644 barrel, or as much as 20 cents a gallon, between late December and early spring.] According to Ulf Lantzke, executive director of the In- ternational Energy Agency in Paris, the level of oil con- & & 4 5 = : = 5 g g g 2. : Hen ai Al taae bi s shii a HG Gla fh 3 F $34 Hey at i aad boca uiliy abot, Budd 78) HE The calm mood on the spot market has also been helped by cooperation among the major oil companies, which are all Western, and Western governments, which are mem- bers of the International Energy Agency, official say. 266a J.A. 711-12; Business Week, February 9, 1981 February 8. 1981 ae 4 ante? oe gD =" Bi +4 » i ‘a bee, athe F iff § yHhe Bi o +4 5 i a >. ves ‘ 2 a 7S tin , ~ im 2%. -" ee e. : , — ted oh -_ ’ fn, ™ | om “eo, i597 5 4. *? - ws & ? * 4 -* o ‘* * _— “ae © emer ° t: AS Se = wet ot? 2 = Ss - - oe 2 GW a = * . * as : Non-Communist countries | a = __h— “ae % paw. Pe ¥ er ~ . . . 267a Om & Gas DWINDLING DEMAND STEADIES OIL Prices appear to be easing as plentiful supplies calm anxieties about the future For months the world’s oil pundits have warned that by increases in the U.S., President Reagan’s decision to decontrol U.S. crude prices immediately should help dis- courage demand as a deepening recession in Europe cuts ever more sharply into oil use there. “The impact of the [Iran-Iraq] war on the world oil markets has been relatively limited up to now,” says an optimistic John Lichtblau, executive director year from 51.5 million bbl. per day to 505 million bbl. 1979. One prominent London oil analyst lowered his as One factor that clearly has not played a role is weather, because in most major oii-consuming regions winter has been colder than normal. Data compiled by Oilgram News, a McGraw-Hill publication, indicates that, on the basis of weather alone, heating oi] demand from Octo- ber to December should have been about 756 higher in the U.S. than in 1979, 11.5% higher in Europe, and 18.5% higher in Japan. the U.S. and Europe, more conservation and effi- ciency in use than analysts had foreseen, and greater and more effective use of nonoil energies, particularly last year because of conservation. He attributes 90% of & E : F bi i this kind of experience with the drawdowns people are talk- ing about.” Lichtblau recently explained to a congressional com- mittee in Washington that spot prices for sweet (low- sulfur) crudes are now no higher than contract prices, while sour crudes are bringing only a 10% premium above contract prices. “This means that in the consensus view of countries that regularly or sporadically trade in the spot market—including most of the world’s companies—there is now no need to bid up spot prices to obtain additional supplies,” he says. With the spot market moribund, attention is shifting to contract sales, which make up the bulk of the oil market. 2. “Prices might stay at present levels,” says Tor Meloe, chief economist for Texaco Inc. “But there’s substantial downward pressure on them even now.” By the second or third quarter, Meloe feels contract prices may be slip- ping. Sind (SSR ai sell 38535238 + sili cH aida WR + ig SILT Sgesety e Ie sts a fyi ree taba i iat ie TREE valid eat iste --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0430%3A2. Public record. Not legal advice.