Service Pipe Line Co. v. Reconstruction Finance Corp., 662.

• Decision Date: 07 December 1954
• Docket Number: No. 662.,662.
• Citation: 217 F.2d 312
• Parties: SERVICE PIPE LINE COMPANY, a Corporation, v. RECONSTRUCTION FINANCE CORPORATION.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

217 F.2d 312 (1954)

SERVICE PIPE LINE COMPANY, a Corporation, v. RECONSTRUCTION FINANCE CORPORATION.

No. 662.

United States Emergency Court of Appeals.

Heard at Oklahoma City, May 24, 1954.

Decided December 7, 1954.

T. W. Arrington and Ray S. Fellows, Tulsa, Okl., with whom Cecil L. Hunt and Charles R. Fellows, Tulsa, Okl., were on the brief, for complainant.

Anthony L. Mondello, Atty., Department of Justice, Washington, D. C., with whom Warren E. Burger, Asst. Atty. Gen., and Marvin C. Taylor, Atty., Department of Justice, Washington, D. C., were on the brief, for respondent.

Before MARIS, Chief Judge, and MAGRUDER and McALLISTER, Judges.

MAGRUDER, Judge.

This case involves the validity of an order issued under Defense Supplies Corporation Regulation 7 — Stripper Well Compensatory Adjustments (10 F.R. 6773).

Complainant Service Pipe Line Company, which corporation was formerly known as Stanolind Pipe Line Company, is engaged in the transportation by interstate pipe line, for others and for hire, of crude petroleum from the fields where produced to connecting carriers and refineries.

For purposes of such transportation, complainant gathers the oil from the producers' tanks through a network of pipe lines which are called gathering lines. The gathered oil goes into a pump station, where it is pumped into complainant's trunk pipe line and started on its way to refineries or to connecting carriers. The oil is relayed by pump stations located at intermediate points along the trunk line to its ultimate destination. As the oil is gathered from numerous leases, it is commingled so that the oil from any one lease completely loses its identity in the general mixture of the oil taken from all leased tanks connected to the gathering pipe line. When it is pumped at the gathering station into the trunk line, it is further commingled with all other oil being transported in the pipe line and becomes what is called the common stream. Oil or crude petroleum is accepted for transportation by complainant only on condition that it shall be subject to such changes in gravity, quality, or market value while in transit as may result from the commingling in the common stream with other crude petroleum in complainant's pipe lines or tanks. Complainant is under no obligation to make delivery of the identical crude petroleum which it may receive; but all crude petroleum received for shipment may be delivered out of the common stream at destination.

It is a well-recognized fact in the business of transporting crude petroleum by pipe line that losses occur between points of receipt and delivery thereof, losses resulting principally from breaks and leaks in the line, overflow of tanks, tank fires, evaporation, shrinkage due to temperature changes, the formation of sediment, the existence of water in the oil, etc. Complainant is allowed a tariff deduction of one-half of one per cent of the quantity of crude petroleum received by it from shippers for transportation; but aside from this deduction, it is obligated to deliver to its customers at the refinery, or to a connecting carrier, the same quantity which it has received for transportation and delivery. It may be that in the long-run average this deduction of one-half of one per cent is sufficient to cover losses of the sort described. But during shorter periods this is not necessarily so, for due to particularly bad accidents or disasters complainant has on occasion suffered losses of more than 130,000 barrels of petroleum during a thirty-day period.

Also, complainant has followed a long-accepted practice in the pipe line business of withdrawing from the common stream quantities of crude petroleum, as needed, for use and consumption as fuel to operate complainant's Diesel engines that furnish power for the pump stations located along its pipe line system. There is no way of identifying the petroleum so withdrawn or of knowing from what shipper or producing field it was originally secured.

Since 1939 complainant has followed the practice of making purchases from producers of crude petroleum sufficient to provide it with a substantial excess inventory to take care of eventualities and catastrophes and to make sure that it has on hand at all times enough crude petroleum to meet its delivery obligations, for the allowable one-half of one per cent deduction, aforesaid, has not been enough to cover the losses of the sort above described and the withdrawals from the common stream from time to time to run the Diesel engines at the various pump stations along the line. Among the producers from whom complainant has made such purchases of crude petroleum since 1939 has been Continental Oil Company, which owns and operates a number of oil leases in Montague County, Texas.

Under the regime of price control pursuant to the Emergency Price Control Act of 1942, 56 Stat. 23, 50 U.S.C.A.Appendix, § 901 et seq., there were two price regulations having a bearing upon the present case — Revised Maximum Price Regulation 436 (9 F.R. 6024), imposing maximum prices, speaking generally, on sales and deliveries of crude petroleum, and Maximum Price Regulation 88 (9 F.R. 7137), imposing maximum prices, again speaking generally, on various crude petroleum products, including fuel oil.

It had developed that in some instances crude petroleum was being purchased and used as fuel, and this presented to the Price Administrator the problem whether such purchases should be priced under RMPR 436 or MPR 88. Without going into the details of the Price Administrator's dealing with this particular problem, it will suffice for present purposes to say that he concluded that it would be preferable to treat crude petroleum sold or ultimately to be used for other than refining purposes in the same manner as fuel oil; that is to say, that MPR 88 should be the governing regulation in such cases. Accordingly, § 2 of RMPR 436 (9 F.R. 6024) made that regulation applicable to "all sales and deliveries of crude petroleum" except "crude petroleum when sold * * to a consumer for a purpose other than the production of more than one petroleum fraction therefrom * * *"; in other words, RMPR 436 was not to be applicable to sales of crude petroleum to a consumer for other than refining purposes. Correspondingly, § 1.1 of MPR 88, as amended by Amendment 11, included within the coverage of that regulation "Crude petroleum when sold * * to a consumer * * * for a purpose other than the production of more than one petroleum fraction therefrom * *" (9 F.R. 7138).

So the matter stood on August 1, 1944, when the oil subsidy program, now to be described, went into effect.

Prior to that date, the authorities in charge of the stabilization program had become concerned with the maximum prices in RMPR 436 as applied to certain marginal high-cost production wells known as stripper wells. It was decided to institute a federal subsidy designed to give to these stripper wells an added price incentive to maintain production, thus avoiding the necessity of making a general crude oil price increase deemed inconsistent with the stabilization program.

Pursuant to an overriding Directive issued by the Director of the Office of Economic Stabilization on June 28, 1944, the subsidy program was put into operation as of August 1, 1944, by the conjoint action of Defense Supplies Corporation (to which respondent Reconstruction Finance Corporation is the statutory successor, 59 Stat. 310) and of the Price Administrator.

Regulation 7 — Stripper Well Compensatory Adjustments (10 F.R. 6773), issued by Defense Supplies Corporation, set forth the terms and conditions for the payment of the subsidy. The word "crude" as used in the regulation was defined to mean "crude petroleum." The phrase "designated area" was defined to mean "any pool or area listed in OPA Revised Maximum Price Regulation 436, section 12, hereto attached as Schedule A and made a part hereof." Section 7007.5 of the subsidy regulation, dealing with the amount of claims, provided in part as follows:

"(a) A claim with respect to the purchase of crude produced from any designated area shall be in an amount equal to the number of barrels of such crude purchased and paid for multiplied by the excess, if any, by which the amount per barrel paid for such crude exceeds the amount per barrel which the Office of Price Administration had specified as the maximum price which could be charged or paid for such crude prior to August 1, 1944: Provided, however, That such claim shall in no event be greater than an amount equal to the number of barrels of such crude purchased and paid for, multiplied by the amount per barrel appearing in the attached Schedule A opposite the designated area in which such crude was produced."

Claims for subsidy were to be filed monthly on forms provided by Defense Supplies Corporation, in accordance with instructions contained on such forms. By § 7007.4 of the regulation, Defense Supplies Corporation reserved the right to examine an applicant's books and records to verify the validity and correctness of claims and to require recoupment, upon demand, of previously paid claims found incorrect upon examination or audit.

The Schedule A referred to and incorporated into the subsidy regulation was a copy of the schedule inserted in RMPR 436 by Amendment 4 thereto issued by the Price Administrator on August 1, 1944, and effective the same day (9 F.R. 9406). Section 12 of RMPR 436, as thus amended, provided that the lawful maximum price for crude petroleum sold by a producer to a "claimant" should be increased by the amounts listed in the schedule with respect to the large number of stripper wells deemed to need the special price incentive. The pools listed in the schedule as entitled to this special maximum price increase were, we understand, all the pools throughout the country producing on the average less than nine barrels daily per well. See the Price Administrator's Statements...