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law with the single exception of the 5,ut-tarel mini-un ter..
.pon prior discussions with the Nepotistiq ittee, the
lieves that this provision will not be Jel kay objected to.
It is, of course, understood to it this entire article

to study by pipe line experts representing tr Gvernment and t
and that the it may be advisable considerably to arylify the abort.

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The above provisions were discussed for pearly tw dess.

The subcommittee has tentatively obtained from the Staff atte cession which it deems of considerable importance. Megars. Asb. 1, Cy and Berquist seem now willing to admit that the 911-frist i vicior is cerned only with rebates under the Elkins Act

For this reason the orbemmittee proceedel, an was written

jer-cenotgeration, upon the assumption that w

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collect and retain any rate filed in any duly extast

Staff's caly concern wars to prevent rebates, cits, 4: ¢ * 1.5 .. tions against the duly established rates.

This conception of the problem led naturally to two crusta which were unqualificary insisted upon by the subion Attre. The tuzst clusion was that the language of the decree should be recta, o

payment by a cn carrier to its shipper- are or st

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If it be assumed (a) that a common carrier pipe line has a curvert et valuation of ; (b) that its net earnings during the course of the calendar yar ucunted to $1,200,000; and (c) that bil of its grees tariffs were collected from shipper-cwners or shipper-stockholters and that the other 5% of its gross collections were from third parties having no interest in the ownership or stock of the pipe line, the subcommittee's (and Staff's) conception of the application of the above stated formula would be as follows:

Since half the gross receipts were paid by the shipper-owner or ehipper-stockholder, the return permitted to be paid by the common carrier

to said shipper-owner or shipper-stockholder would be

one half the valuation (1.0)

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or $400,000.

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other one-half of gross receipts was, under our hypothetical case, collected fr shippers having no interest in the ownership of the carrier, there wald be no restriction upon dividends payable out of earnings revived

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S. The above formula would result in permitting the carrier to pay to its owner $600,000 out of rates collected from third persons. The Let result would be that the carrier could pay and (under Article the shipper-owner could receive total of $1,000, out of

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the hypothetical $1,200,000 earned (e. #400,000 $600,000 $1,000,000)

Conversely, out of the $600,000 of net earnings attributable to

shipments made by the owner, the carrier could only disburse by way of diviends or profits $400,000 and would be required to retain as surplus the alance of $200, alo.

The last mentioned sum could then be utilized in the carrier's

siness for the purpose of additions, betterments, etc.

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In all discussions relating to the permitted rate of return, he

Staff used a hypothetical figure of . The subcommittee was caref.int small

to indicate that the Industry would agree to such a rate of return covinced that, if acceptable to the Industry,-it-wi-ll-also-be-genanteil Butha-ötaple

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The purpose of this article is to prevent a shipper-owner or a shipper-stockholder from receiving any sum which a pipe line is prohibite. from paying under Article V.

As stated in the forwarding letter accompanying this report, no effort was made to deal specifically with product pipe lines.

The subcommittee tentatively revised the so-called mandatory provisions of the agenda and considerable discussion was had respecting these provisions. There are not included herewith for the reason that the Sta desires to reconsider the entire subject of mandatory provisions in the light of principles now tentatively agreed upon in Article III.

[From Platt's Oilgram, of March 24, 1941]

ICC ORDERS PIPELINES, RAILROADS TO CUT RATES ON PETROLEUM PRODUCTS FROM MIDCONTINENT

Washington.-Interstate Commerce Commission, in decision covering Petroleum Rail Shippers' Association case (ICC Docket 28106), has prescribed maximum rates for Great Lake Pipe Line Co. and Phillips Petroleum Co., based on 10 percent return on investment, and ordered acceptance by them of 5,000-barrel minimum tenders, to be held in storage at shipping point until a 25,000-barrel movement has accumulated. (New rates are based on average transportation costs for 32-year period ended June 30, 1940, plus 10 percent of carrier valuation as of December 31, 1939.)

Commission also ordered lower single carload rates on gasoline (representing reductions ranging from 3 cents per 100 pounds to St. Joseph, Mo., to 16 cents to Marquette and Escanaba, Mich.) from group 3 to various midwestern points, removal of prejudice in single-car rates favoring Illinois over Indiana destinations, and recommended railroads consider publication of trainload rates. These rates, together with maximum pipeline rates and new tender requirements, must be put into effect by June 11, ICC stated.

Commission found rate requirements of Great Lakes and Phillips for transportation of refined petroleum products and natural gasoline from origins in Oklahoma and Texas to their terminals in western trunkline territory to be unreasonable, and prescribed new maximum tariffs, which in case of Great Lakes, range from 28 cents per barrel to Kansas City, Kans., to 67 cents to Chicago, and for Phillips, from 33 cents to Kansas City, Kans., and 53 cents to East St. Louis, Ill.

Rates on single carloads of gasoline, other refined petroleum products taking the same rates, and natural gasoline, from midcontinent territory to certain points in western trunkline territory, Illinois and Indiana, were found unreasonable by Commission, which prescribed rates varying from 22 cents per 100 pounds to Kansas City, Kans., to 46 and 47 cents to Escanaba and Marquette, Mich.

To remove prejudices favoring Illinois, ICC held future rates from group 3 to Indiana groups should not exceed Effingham, Ill., rate by more than 3 cents per 100 pounds to Terre Haute, 6 cents to Indianapolis, 9 cents to Muncie, and 12 cents to Fort Wayne.

MEMORANDUM FOR MR. ANDREWS:

APRIL 1941

I am in Washington this week trying to clean up odds and ends with the staff.

Colonel Klein has asked me to get Senator Pepper to start giving consideration to the form the decree will ultimately take. Mr. Hall has already asked John W. Davis to think about the matter, and the Texas Co. has made a similar request of the New York law firm which is their outside counsel. Standard of Indiana has asked Mr. Kirkland to study the matter.

What Colonel Klein hopes is that Senator Pepper will take our original memorandum to the industry in which we restated Mr. Arnold's remarks about the form of decree and see whether he can devise a practical means of giving effect to the Arnold suggestion.

I was unable to reach Senator Pepper Saturday and was not able to reach him by telephone this morning. The negotiating committee would appreciate it very much if you would either get in touch with him direct or through Alan Montgomery and ask that some study be given to the matter.

Next week Colonel Klein hopes that we can begin to compare notes on what the various outside counsel think about the Arnold suggestion and how it could be made practically effective.

I will be in Philadelphia next week and the entire committee is coming to Washington again on the 23d of April to conclude the negotiations. By April the 23d we hope that ideas about the form of decree will be pretty well crystallized so that we can discuss the problem with the staff.

C. I. T.

98505 0-58-pt. 1, vol. 2- -38

EXCERPT FROM APRIL 9, 1941, AGENDA

V. That the major and secondary defendants, and their present and future subsidiaries and successors, which now or hereafter own or operate common carrier crude oil gathering and trunk pipelines engaged in the transportation of crude oil in interstate commerce, agree:

(1) To provide and furnish reasonable facilities and connections for receiv ing, transporting, interchanging, and delivering crude oil and to make such facilities and connections available to all shippers who shall comply with the provisions of duly filed and published tariffs and the rules and regulations therein contained.

(2) To include in all duly filed and lawfully published tariffs reasonable rules and regulations, subject to the approval of duly authorized Federal and State regulatory authorities, respecting: (a) Specifications of crude oil to be received and transported, in such terms as will not exclude good merchantable petroleum, free from water and other foreign substances, and of such viscosity and gravity as will permit its being freely and safely handled and transported and of such kind as not to damage or change materially the characteristics of the common stock oil being currently transported, (b) apportionment, when crude oil tendered and actually ready for shipment is in excess of the quantities of crude oil which can be immediately transported, (c) minimum tenders not exceeding 5,000 barrels of oil meeting such specifications, (d) tankage necessarily incident to transportation, demurrage charges for failure to accept timely delivery and liens for charges due the carrier, (e) the right of the carrier to deliver the kind of crude oil shipped, within reasonable tolerances, or out of common stock, and (f) such additional matters as are customarily and properly a part thereof.

Nothing hereinabove contained shall require any common carrier to furnish any facility or service not required by the Interstate Commerce Act.

VI. That each and every crude oil gathering and trunk pipeline common carrier engaged in the transportation of crude oil in interstate commerce and now or hereafter owned or controlled by a major or secondary defendant or by their present or future subsidiaries and successors agrees:

(1) That it will not grant or pay, directly or indirectly, to its shipper-owner(s) or shipper-stockholder(s) through any means or device whatsoever, any sum of money or other valuable consideration which results in a refund, rebate, offset, concession or discrimination from duly established tariff rates filed with the Interstate Commerce Commission for the transportation of crude oil.

(2) The payment by any such common carrier as just compensation to its shipper-owner(s) or shipper-stockholder (s) of an amount not exceeding an annual return upon the carrier's current valuation (as hereinafter limited and defined) shall not constitute or be construed to result in a refund, rebate, offset, concession or discrimination in violation of the foregoing.

(3) Annual return as used in subparagraph (2) hereof shall, for the purposes of this decree, mean an amount which shall not exceed percent of current valuation (as hereinafter defined) if the common carrier shall during any calendar year transport any crude oil for its shipper-owner(s) or shipper-stockholder (s) including their subsidiaries.

(4) Current valuation as hereinabove used shall mean the latest final valuation of the carrier property as made by the Interstate Commerce Commission plus additions and betterments, less physical depreciation and retirements computed as of the close of the last preceding calendar year. Said additions, betterments, depreciation, and retirements shall be annually approximated by the common carrier in accordance with accounting and valuation methods approved or utilized by the Interstate Commerce Commission in bringing valuations down to date.

(5) Any amounts permitted to be paid during any calendar year, if not earned, or if earned and withheld, may be paid at any time within 5 years thereafter, in addition to payments permitted for current years.

(6) Any funds earned by the common carrier over and above the amounts permitted to be paid shall be transferred to surplus and utilized for commoncarrier purposes exclusively. The above shall not prevent the shppier-owner(s) or shopper-stockholder (s) upon the forced sale or final liquidation of the com mon carrier from receiving all the assets of said carrier.

NOTE. The above language has been suggested by the staff but has not beer discussed in this form by the negotiating committee.

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