the facts de novo in any court; (2) the selection or tenure of an officer or employee of the United States other than examiners appointed pursuant to section 11; (3) proceedings in which decisions rest solely on inspections, tests, or elections; (4) the conduct of military, naval, or foreign affairs functions; (5) cases in which an agency is acting as an agent for a court; and (6) the certification of employee representatives * * *

"(d) Declaratory Orders.-The agency is authorized in its sound discretion, with like effect as in the case of other orders, to issue a declaratory order to terminate a controversy or remove uncertainty."

The uncertainty" in connection with the consent decree is occasioned by the lack of any definitely known method of valuation used by the ICC. The provisions of 19 (a) require the Commission to ascertain and report different elements of value and also "an analysis of the methods of valuation employed.” In its valuation decisions, the Commission sets forth the different cost values and elements of value and usually concludes with the catchall sentence

"After careful consideration of all facts herein contained, including appreciation, depreciation, going-concern value, working capital, and all other matters which appear to have a bearing upon the values here reported, the values, for ratemaking purposes, as of December 31, 1934, of the property owned or used by the carrier, are found to be as follows: * *

and naming the value. The decisions and the report do not disclose the exact method of computation by which the final value is reached, and the Commission takes the position that it is not required to do so under the foregoing provision. But, if some arrangement could be made for the Commission to formally set forth, either in general terms or specifically as to pipelines, the method it uses or would use in bringing valuations down to date, the wording of the consent decree indicates that it could be relied upon by the pipelines in disposing of their earnings without uncertainty.

Under the foregoing provisions of the Administrative Procedure Act, any pipeline or group of pipelines could file a petition with the ICC, outlining the uncertainty with which they are confronted with respect to the provisions of the consent decree relating to bringing valuations down to date, and ask for a declaratory order setting forth the Commission's method. This would require a hearing either before a Commissioner or an examiner, upon which the declaratory order would be issued. At such hearing, the Department of Justice or any other interested party could intervene.

In any proceeding involving valuations or method of valuation, there is always the possibility of some adverse ruling being made, but if either plan 1 or 3 is followed, by first obtaining ICC approval and cooperation, such risk would be minimized. Since Stanolind's records are in such shape that they could be introduced as exhibits at a hearing, probably an individual petition by Stanolind for a declaratory order would be most effective as to our particular interests, but it might be objectionable to other pipeline companies, insofar as it raises a question which some, particularly the Texas Co., would prefer to treat as settled. There is also the probability that the Commission might go into the question of depreciation and we would wind up with lower rates of depreciation and greater earnings, which would involve the objectionable feature of additional income tax. Also, the Commission might hold that the proper method of valuation would be to apply the 1934 period prices throughout, or the Department of Justice might seek to have the cost of reproduction now eliminated from consideration in determining values, in accordance with a recent Supreme Court decision in a gas company case. On the other hand, the Department of Justice might welcome clarification of this provision of the decree in some manner, and if an explanation was made and an understanding had beforehand with the Commission, there is little likelihood of any radical departure from the past methods of valuation which are generally acceptable and satisfactory to Anytime we face the issue, we will encounter a certain amount of risk, and the amount involved (now about $4 million) does not justify our continuing to follow a course of continual uncertainty.

us.

Of the three methods of approach, we favor the declaratory order route. By seeking a formal declaration as to method of bringing valuations to date only, it confines itself to the ICC, avoids the problems connected with the large volume of detail work otherwise involved, sidesteps the matter of appropriations, and could accomplish the results desired in much less time than the other two possibilities. The only objectionable point I can see is that, so far as we know, the procedure has not yet been followed in any case before the ICC and a first case would get publicity.

For further consideration, we should have Mr. Campbell's and Mr. Jones' opinions as to whether a formal declaration by the ICC as to its method of bringing a pipeline valuation down to date would meet the requirement of the decree. J. L. BURKE.

Mr. B. C. CLARDY,

Building.

STANOLIND PIPE LINE Co., Tulsa, Okla., December 5, 1947.

DEAR SIR: You have asked for an explanation as to why the $487,000 not earned in the year 1944, as shown on the consent decree report for that year, cannot be used after the year 1947.

The year 1944 report to the Attorney General shows 7 percent of valuation as $5,691,351 and the transportation earnings for that year were reported as $5,204,106.20. A note was made on the report to the effect that $487,244.80 was not earned but may be paid within any one or more of the next succeeding 3 years in addition ot payments permitted to be paid in each such subsequent year. Paragraph III of the consent decree limits distributions to shipper-owners to 7 percent of the valuation and the only indication that these distributions have any relationship to profits or earnings is contained in subparagraph (c) and (d). Subparagraph (c) provides that amounts permitted to be credited or paid if earned and withheld may be paid at any time thereafter unless the earned and withheld sums have been invested in carrier property and included in the valuation. The amounts in our undeclared dividend account invested in Government bonds represent earnings of this nature. Subparagraph (d) reads as follows: "Any amounts permitted to be credited, granted, paid, or given during any calendar year as hereinbefore provided, if not earned, may be cerdited, granted, paid or given within any 1 or more of the next succeeding 3 years, in addition to credits and payments permitted during each such subsequent year."

The wording of paragraph III must have contemplated different practices in handling the accounting between pipelines and their shipper-owners. For example, we know that some of the pipelines have credited their shipper-owners for the value of materials and supplies purchased for their account and have received in cash from the shipper-owner amounts sufficient to pay their operating expenses. These pipeline companies in turn have charged the shipper-owner with the amount of transportation bills and any amounts declared as dividends. This means that their accounts are settled almost entirely by credits or book entries. Stanolind Pipe Line Co. has dealt with its shipper-owner entirely on a cash basis so that any credits we might attempt to give the shipper-owner would be a change in accounting policy. Our credits to the shipper-owner require a cash payment. The only way we can pay a dividend is in cash or by the transfer of other actual assets. We cannot credit the shipper-owner with any so-called dividend and, at the same time, retain the funds either in cash or as securities and accomplish a credit or payment to the shipper-owner under paragraph III. Paragraph III limits the amount of payments that SPL can make to the shipper-owner in any year to 7 percent of the valuation plus any additional amounts that may arise under subparagraphs (c) and (d). Subparagraph (c) is definite since it covers payments not previously made. Subparagraph (d)

is more difficult to interpret because of the reference to earnings.

If the distribution under paragraph III were limited to profits or earnings of 7 percent, then the ordinary interpretation of subparagraph (d) would be that the amounts not earned could be credited against excess earnings in subsequent years and thereby reduce the amounts to be frozen as provided in paragraph V of the decree. However, paragraph III does not refer to earnings but to distributions so that subparagraph (d) from its actual wording permits either a credit or a payment to the extent that 7 percent of the valuation is not earned in any year. Paragraph III sets up a yardstick to measure the amount of payment to be made to the shipper-owner and $487,000 should be paid whether it represents a dividend of profits or return of capital. As was stated in the foregoing paragraph, we cannot credit this amount to the shipperowner except by an actual cash payment.

Our reports for 1945 and 1946 showed earnings of less than 7 percent and we expect to earn less than 7 percent in 1947 which is the third year following 1944. Therefore, the $487,000 deficiency in earnings for 1944 cannot be used as a credit against excess earnings of the next 3 years but, under the decree, the payment of that amount can be made to the shipper-owner in addition to any other payments permitted for 1947. If the earnings for the year 1948 should

be in excess of 7 percent, the 1944 deficiency cannot be carried forward for the fourth year but we would be entitled to offset such excess earnings with $526,677 deficiency in earnings for the year 1945 since 1948 is the third year following that deficiency.

A statement is attached which shows the status of earnings and distributions under the decree.

Yours very truly,

J. L. SHOEMAKER. DECEMBER 9, 1947.

Mr. F. O. PRIOR

Standard Oil Co.,

Chicago, Ill.

DEAR MR. PRIOR: On December 8 I handed you a comprehensive statement of earnings and distribution under the consent decree. With this statement was a copy of a memorandum from J. L. Shoemaker to me, dated December 5, in which Mr. Shoemaker discussed the proposed cash payment of approximately $487,000, to cover the deficiency in earnings for the year 1944.

Mr. Shoemaker's memorandum clearly outlines the reason why we cannot expect to prolong the 3-year time limit during which we could make up the $487,000 by credits or bookkeeping entries. After discussing the matter thoroughly with Mr. Shoemaker, I only wish to add that if we did pay the $487,000 cash this year, it could only be a charge to our surplus account or our undeclared dividends account, which would reduce the amounts available for future distribution from these accounts by the same amount. Since there is no question that both our surplus and undeclared dividends accounts are, and will continue without limitation, to be available for distribution at any time we may have the cash available for that purpose, actually nothing would be gained by paying the $487,000.

You will note from the figures on line No. 10 of the enclosed statement that although we will forfeit the right to keep alive the $487,245, we still have more than $1,200,000 of underearnings to make up successively during the next 3 years, if we should have earnings during those years in excess of 7 percent of the maximum. It is my hope that we can keep our rate structure so adjusted that there will be no necessity for earning in excess of the 7 percent, and run the risk of further accumulation of frozen funds.

If there are any further questions in connection with this matter, please advise us and we will obtain the answers for you.

Yours very truly,

B. C. CLARDY.

Total earnings other than transportation.

Year 1942

Year 1943

Year 1944

Year 1945

Year 1946

$34, 357, 549
34, 143
34,391, 692

Earnings within 7 percent of minimum valuation

15. Earnings invested in carrier property.

16. Interest on borrowed capital.

18. Balance available for dividends.

NOTE.-Income balance for 1942-45 includes interest expense on borrowed

• Memo only.

Mr. HARKINS. In 1950, when Service Pipe Line conferred with the Department of Justice with respect to securing an opinion that would clarify the meaning of "valuation" as used in the decree, does the Department of Justice know how much money was contained in Service Pipe Line's undistributed dividends account?

Mr. HANSEN. You mean did the Department of Justice at that time know, or do they now know?

Mr. HARKINS. Do they now know, or did they know at that time, according to the records of the Department of Justice?

Mr. HANSEN. I cannot speak for the prior period. I do not have the current knowledge.

Mr. HARKINS. According to the documents furnished by the Service Pipe Line Co., the amount of money in the undistributed dividends account in 1947 amounted to $4,557,657. Did Service Pipe Line advise the Department of Justice in the conferences that preceded the opinion given by Mr. Bergson on September 14, 1950, that it desired an interpretation in order to pay out the funds that it had set aside in its undeclared dividends account, according to the records of the Department of Justice?

Mr. HANSEN. I cannot answer that.

Mr. HARKINS. Mr. Karsted?

Mr. KARSTAD. The answer is "No."

Mr. HARKINS. The answer is "No."

In fact, the first amended reports that were submitted by Service Pipe Line on August 21, 1950, contained valuations that were less than the valuations contained in the reports that it originally submitted; is that not true?

Mr. KARSTED. For some of them, not all of them.

I think from 1942 to 1946 or 1947 they were lower. The 1948 and 1949, I am not sure. As I recall, I think they were higher, but I am.

not sure.

Mr. HARKINS. But for most of the years, they were lower?
Mr. KARSTED. Most of the years, they were lower.

Mr. HARKINS. And the reasons that Service Pipe Line gave in sub-mitting the first amended reports was that annual prices instead of period prices had been used in computing valuations, and it was necessary also, they said, to amend the original reports in order to deduct interest paid to public lending agencies before computation of earnings.

Do you recall that?

Mr. KARSTED. Yes, that is right.

Mr. HARKINS. Mr. Chairman, at this point I would offer for the record the documents submitted to the Department of Justice by the Service Pipe Line in connection with the conference in 1950 for construction of the decree.

The CHAIRMAN. They will be accepted.

(The documents above referred to follow :)