Finally, just a word about recent action taken by the Department regarding antitrust enforcement involving the entire pipeline industry. We have launched a full-scale FBI investigation of all crude and products pipelines jointly owned by the major oil companies to detect any anticompetitive aspects of the joint ownership. This is one of the most comprehensive investigations undertaken by the Department in recent years and I can assure you that it will go forward as rapidly as possible. This investigation will cover pipeline operations throughout the United States except the area included in the West Coast case.

In sum, from all of the foregoing, my hope is that the Department's antitrust and judgment enforcement program will ultimately help eliminate whatever pipeline abuses do exist and thus restore competition in this phase of the petroleum industry.

CONSENT DECREE PROGRAM OF THE DEPARTMENT

OF JUSTICE

WEDNESDAY, OCTOBER 23, 1957

HOUSE OF REPRESENTATIVES,
ANTITRUST SUBCOMMITTEE OF THE
COMMITTEE ON THE JUDICIARY,
Washington, D. C.

The subcommittee met, pursuant to recess, at 10:10 a. m., in room 346, Old House Office Building, Hon. Emanuel Celler (chairman) presiding.

Present: Representatives Celler (chairman), Rodino, and Keating. Also present: Herbert N. Maletz, chief counsel; Kenneth R. Harkins, cocounsel; Milton Eisenberg, associate counsel; and Julian H. Singman, assistant counsel.

THE CHAIRMAN. The subcommittee will come to order. Our first witness is the distinguished Chairman of the Interstate Commerce Commission, Mr. Owen Clarke. We are very glad to have you here. I understand you have a statement.

MR. CLARKE. Yes, I have.

The CHAIRMAN. I take it you would like to read it completely without being interrupted, I suppose.

MR. CLARKE. I would prefer it that way.

THE CHAIRMAN. All right.

TESTIMONY OF HON. OWEN CLARKE, CHAIRMAN, INTERSTATE COMMERCE COMMISSION; ACCOMPANIED BY ROBERT MINOR, COMMISSIONER, ICC; CECIL W. EMKEN, DIRECTOR, BUREAU OF ACCOUNTS, COST FINDING AND VALUATION, ICC; AND G. F. HOWSER, CHIEF, ENGINEERING BRANCH, BUREAU OF ACCOUNTS, COST FINDING AND VALUATION, ICC

MR. CLARKE. Mr. Chairman and members of the Antitrust Subcommittee: My name in Owen Clarke. I am the present Chairman of the Interstate Commerce Commission and have served in that capacity since January 1, 1957. I am appearing today on behalf of the Commission and in response to the invitation of Chairman Celler to explain the Commission's procedures in making valuation reports of pipeline companies.

Also present is Commissioner Minor, a member of the Commission's Legislation Committee and on my left is Mr. Cecil Emken, Director of the Bureau of Accounts, Cost Finding Evaluation. On my right is Mr. Howser, Chief of the Engineering Branch Section Evaluation of the Bureau of Accounts.

The CHAIRMAN. We welcome those gentlemen. I have been informed by counsel that you and your staff have been very, very cooperative.

Mr. CLARKE. Thank you.

The CHAIRMAN. We are very grateful.

Mr. CLARKE. In the statement which follows I will discuss generally the background of valuation reports and will give special attention to questions propounded by members of the committee's staff in discussions with members of our staff relating to pipeline valuation work. The authority for and responsibility to perform valuation work is contained in section 19a of the Interstate Commerce Act, which directs the Commission to ascertain and report in detail as to each piece of property owned or used by each common carrier for common carrier purposes:

(1) the original cost to date;

(2) the cost of reproduction new;

(3) the cost of reproduction less depreciations; and
(4) other values and elements of value, if any.

Congress also provided that upon the completion of valuation— the Commission shall thereafter in like manner keep itself informed of all extensions and improvements or other changes in the condition and value of the property of all common carriers, and shall ascertain the value thereof and shall from time to time revise and correct its valuation.

*

In other words, the Commission was not only to value the property as of a given time, but it was to maintain a record of the extension, improvements, and other changes in the cost, value, condition, and classification as to use of this vast property.

These changes have been substantial and have varied greatly with different parts of the country. The fieldwork on railroad valuation was practically completed by the close of 1920.

In all, the Commission issued about 1,200 tentative railroad valuations covering 1,825 individual corporations.

Numerous disputes with the carriers, however, arose even before the completion of the tentative valuations. The act provides that tentative valuations shall be served on the carriers and others with an opportunity to protest within 30 days.

In cases of protested valuations, the act provides for full hearings by the Commission with appeal to the courts.

The submission of a tentative finding as to value became the signal, in nearly half the railroad valuations, for an intensive effort to upset that finding and to increase the total amount of the valuation. The railroads, with few exceptions, extended cooperation to the Commission on all technical matters in the progress of the work. However, when the final value became the issue, the Commission was confronted with a persistent attack on its methods, its policies, and its decision. The hearings, attendant conferences, and court litigation incident to this valuation work continued without interruption for more than a decade from 1922 to 1933.

This experience led to the inescapable conclusion that the Commission was confronted with an almost impossible task if the then existing involved and legalistic procedures were to be continued. Accordingly the method of handling valuation protests was revised by resorting to joint conferences composed of representatives of the Commission's staff and rail industry technicians.

Their function was to seek agreement on disputed questions of fact. The States were invited to participate in these joint conferences which generally resulted in partial, and in many instances in complete agreement on facts and principles that were later incorporated in the records on which the Commission or courts had to pass in determining value. This resulted in the completion of the initial valuation of railroad properties during 1933.

The rise in importance of pipelines for the transportation of oil and its products, combined with the institution of litigation over rates, and the enactment of legislation providing for production regulation by an Administrator for the petroleum industry, caused the Commission in 1934 to order the valuation of the oil pipelines. This also was advocated by the Administrator as a necessary foundation for rate determination.

In recognition of the benefits inherent in a cooperative undertaking, based on the extensive experience gained in the valuation of railroad properties, the Commission sought the counsel of State and industry representatives concerning methods which would best serve the new job to be done. Meetings were held with representatives of the Oklahoma, Texas, Missouri, and Kansas State commissions and. at the request of the ICC, the American Petroleum Institute appointed a committee to take part in these discussions.

Upon development of practical procedures the work of valuing the properties of carriers by pipeline was officially started in May of 1935, values being determined as of December 31, 1934, for all 53 carriers then reporting to the Commission. Later, this number was increased to 80 as other pipeline companies came under the provisions of the act.

Lack of appropriations resulted in the suspension on July 1, 1944, of the departmental work of compiling original cost and bringing forward the inventories of the land and other property changes of pipelines. As a result, the Commission was unable to process the data on file and to have readily available for its use current information relating to the physical consist and original cost of the pipeline companies then reporting to it.

As a result of the curtailment of pipeline valuation activities by the ICC, pipeline companies experienced difficulty in complying with the 1941 consent decree. In view of this the House Appropriations Subcommittee, although recommending a considerable reduction in the appropriation for the Bureau of Valuation for fiscal year 1950, did provide $35,000 for the Commission's use in performing pipeline valuation work.

As the appropriation bill was finally passed, $100,000 of the appropriation was earmarked for pipeline work. Since no additional funds were actually provided, however, this necessitated curtailing other Commission work.

By the end of 1947, unprocessed property changes had assumed vast proportions, and price levels had changed materially from those prevailing as of December 31, 1934, the date of the previously found valuations for the majority of the pipeline carriers.

Since no shortcut methods of approximating current values could be considered reliable, it was decided to require a restatement of inventory and the original cost thereof, as of December 31, 1947.