Farmers Union Central Exchange v. Federal Energy Regulatory Commission

Decision Date27 November 1978
Docket NumberNo. 76-2138,76-2138
Citation189 U.S.App.D.C. 250,584 F.2d 408
PartiesFARMERS UNION CENTRAL EXCHANGE et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION * and the United States of America, Williams Pipe Line Co., Explorer Pipeline Co., Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

John M. Cleary, Washington, D. C., with whom Frederic L. Wood, Washington, D. C., was on the brief, for petitioners.

Ron M. Landsman, Atty., Dept. of Justice, Washington, D. C., with whom John J. Powers, III, Atty., Dept. of Justice, Washington, D. C., was on the brief, for respondent, the United States.

Christine N. Kohl, Atty., I. C. C., Washington, D. C., with whom Mark L. Evans, Gen. Counsel and Charles H. White, Jr., Associate Gen. Counsel, Washington, D. C., were on the brief, for I. C. C.

J. Paul Douglas, Atty., Federal Energy Regulatory Commission, Washington, D. C., with whom Philip R. Telleen, Atty., Federal Energy Regulatory Commission, Washington, D. C., was on the pleadings, for respondent, Federal Energy Regulatory Commission.

Robert G. Bleakney, Jr., Boston, Mass., with whom David M. Schwartz and Robert L. Calhoun, Washington, D. C., were on the brief, for intervenor, Williams Pipe Line Co.

Donald W. Markham, Washington, D. C., with whom Jonathan B. Hill, Washington, D. C., was on the brief, for intervenor, Explorer Pipeline Co.

Hanford O'Hara, Atty., I. C. C., Washington, D. C., entered an appearance for I. C. C.

Robert B. Nicholson and Andrea Limmer, Attys., Dept. of Justice, Washington, D. C., entered appearances for respondent, United States.

Before McGOWAN, LEVENTHAL and WILKEY, Circuit Judges.

Opinion for the Court filed by McGOWAN, Circuit Judge.

McGOWAN, Circuit Judge:

Petitioners, a group of oil shippers, challenge an order of the Interstate Commerce Commission (ICC) sustaining (1) increased rates filed by intervenor Williams Pipe Line Co. (Williams) and (2) joint rates initiated by Williams and intervenor Explorer Pipeline Co. (Explorer), as against claims that the former are unreasonably excessive, See 49 U.S.C. § 1(5)(a), and the latter are discriminatory, See id. § 2, and illegally preferential, See id. § 3(1).

This review proceeding is unique in that, while pending before us awaiting briefing and oral argument, jurisdiction over the rates in question was transferred by Congress from the ICC to the Federal Energy Regulatory Commission (FERC), and the latter has been substituted for the ICC as the respondent agency. FERC has advised this court that it takes no position with respect to the merits of the order under attack, and urges us rather to forego adjudication on the merits in favor of a remand of the case to it so that it can formulate, independently to the ICC, the regulatory principles it finds to be suitable for application in this new area of responsibility committed to it. The United States, a statutory respondent, purporting to see deficiencies in the ICC's decision, supports FERC's remand request.

The court, now having had the benefit of full briefing and oral argument of the merits by all parties except FERC, has concluded, to the extent and for the reasons hereinafter appearing, to remand the case to FERC for determination by it, under its new authority, of the compatibility of the subject rates with 49 U.S.C. § 1(5)(a), and, in light of its findings thereon, for examination of the preference issue under Id. § 3(1). As to the existence of discrimination, however, petitioners' failure properly to raise the issue before the ICC mandates our affirmance of that agency's decision insofar as it is based on Id. § 2.


Williams, an independent common carrier, is a relatively new entrant in the oil pipeline transmission industry, having begun doing business in 1966 with the purchase of Great Lakes Pipe Line Co. (Great Lakes). It acquired the physical assets of Great Lakes from eight petroleum producer-owners for $287.6 million the highest among the competitive bids received. 1 The pipeline system thus acquired serves a large portion of the Midwest, with connections in such producing and refining cities as Tulsa, Fargo, Lincoln, and Topeka, and in such consuming cities as East St. Louis, Chicago, and Minneapolis. By interconnecting with intervenor Explorer Pipeline Co. (Explorer) at Tulsa, Williams also may connect refineries located along the Gulf Coast of Texas and Louisiana with consumers in the Midwest.

Petitioners are a group of oil producers and refiners located primarily in the Great Plains area who historically have used the Great Lakes-Williams pipeline system to transport their petroleum products to the Midwest. In late 1971 and early 1972, Williams informed them that it was raising its rates by approximately 15 percent (or 3 cents a barrel) across the board. At the same time as it generally increased its rates, Williams, together with Explorer, initiated joint rates for through service from the Gulf Coast to the Midwest. These joint rates are uniformly 9.5 cents a barrel lower than the combination of Williams' and Explorer's local rates.

Shortly after the appropriate tariffs were filed with the ICC, petitioners made them the subject of complaints under the provisions of the Interstate Commerce Act which, Inter alia, regulates oil pipeline rates, 49 U.S.C. § 1(1) (b). Petitioners' protests led the ICC to initiate investigations into the lawfulness of both sets of rates, although the disputed rates have remained in effect without suspension since their inception, pending the outcome of these proceedings. Although many claims were originally raised by the parties, the course of administrative consideration has left three major issues of import on appeal.

First, petitioners argue that Williams' rate increases for the transportation of oil in the area formerly served by Great Lakes are unreasonable under Id. § 1(5)(a), 2 because they are derived from an inflated valuation rate base 3 and allow an excessive rate of return on that rate base (10%); and further because certain operating expenses 4 and tax allowances 5 used by Williams in computing its rates were unreasonable. Second, petitioners claim that by charging them local rates to transport their oil from the Great Plains to the Midwest while charging the Gulf Coast shippers less (per mile) under the joint Williams-Explorer rates to transport their oil to the same destinations, intervenors are giving the Gulf Coast shippers an unjust preference. Id. § 3(1). 6 Finally, petitioners argue that by unevenly dividing the joint rate revenues with Explorer, Williams is giving the eight Gulf Coast shippers that jointly own Explorer a discriminatory rebate. Id. § 2. 7 Petitioners asked the ICC to order Williams to lower and Williams and Explorer to readjust the rates in question, and to pay reparations plus interest, costs, and attorneys' fees.

Petitioners do not contest the propriety of the procedures used by the ICC in adjudicating their complaints. The administrative law judge announced his decision favorable to Williams on June 6, 1974, after holding several days of formal hearings in 1972 and 1973 and after considering copious written submissions. Petroleum Products, Williams Bros. Pipe Line Co. (unpublished initial decision) (hereinafter referred to as Initial Decision and cited to Joint Appendix (JA)). Exceptions were filed by the petitioners on both sets of issues, thereby entitling them to consideration by a three-commissioner division of the ICC. On the basis of the record as well as the exceptions and replies filed by the parties, the division, one commissioner dissenting, accepted the findings of the administrative law judge. Petroleum Products, Williams Bros. Pipe Line Co., 355 I.C.C. 102, 126 (1975) (hereinafter referred to as Williams I ).

Petitioners next asked the entire Commission to reconsider the case, arguing that it involved "matters of general transportation importance" the standard that must be met to secure reconsideration by the full Commission. Although asserting that the issues did not rise to the requisite level of importance, the full Commission felt that reconsideration of the record, as supplemented by written submissions by the parties, was merited "because of the relative dearth of precedent concerning petroleum pipeline rates, and in view of the substantial sums of money at issue. . . ." Petroleum Products, Williams Bros. Pipe Line Co., 355 I.C.C. 479, 481 (1976) (hereinafter referred to as Williams II ). In an opinion filed December 3, 1976, the full Commission, one commissioner dissenting and two not participating, affirmed the findings of the administrative law judge and the division, Id., and petitioners sought direct review by this court.


In 1906, the Interstate Commerce Act of Feb. 4, 1887, c. 104, 24 Stat. 379, was amended by the Hepburn Act to include companies engaged in the "transportation of oil . . . by pipe line" among the common carriers subject to regulation thereunder. Act of June 29, 1906, c. 3591, § 1, 34 Stat. 584. Yet, while pipeline companies joined railroads, and were later joined by motor carriers, as regulatory subjects of the Interstate Commerce Act, those companies never faced the degree of regulation to which the vehicular common carriers were subject. Thus, while under the same duty as railroads and/or motor carriers to furnish or allow continuous transportation, 49 U.S.C. §§ 1(1), 1(4), 7, to establish, file, and publish reasonable, nondiscriminatory rates subject to ICC approval, Id. §§ 1(5), 3(1), 4(1), 6, 15(1), to avoid certain pooling relationships, Id. § 5(1), to file certain financial reports, and to use certain accounting procedures subject to ICC specifications, Id. §§ 20(1), (2), (4), (5), pipeline companies have none of the special obligations imposed upon the vehicular regulatees under the...

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