The foregoing table was prepared by the American Petroleum Institute Engineers' Committee on Pipe Line Depreciation and by a committee of engineers of the Bureau of Valuation. The table is intended only as a guide and is not binding for use by any individual pipeline carrier.

WASHINGTON, D. C., December 5, 1935.

EXHIBIT D

DECEMBER 7, 1935.

Subject: Conference with carriers' committee on the subjects of depreciation,

depletion, and pricing.

Memorandum to Mr. Hood:

Meeting was called at 10 a. m., December 3, 1935, in Director Lewis' office. Matters to be taken up by the committee were discussed in general. Adjourned at 11:30 a. m. to meet at 1 p. m. in Mr. Hood's office.

Meeting called in Mr. Hood's office at 1 p. m. The following were present (name, company, and headquarters):

G. L. Shanks, Shell Pipe Line Corp., St. Louis, Mo.

C. M. Rosebrugh, Gulf Pipe Line Co., Houston, Tex.

Harry Moreland, Great Lakes Pipe Line Co., Kansas City, Mo.
Guy L. Tate, Magnolia Pipe Line Co., Dallas, Tex.

J. H. Peper, Northern Group Pipe Lines, New York, N. Y.

O. Q. Lomax, Humble Pipe Line Co., Houston, Tex.

J. L. Shoemaker, Stanolind Pipe Line Co., Tulsa, Okla.

R. B. McLaughlin, the Texas Pipe Line Co., Houston, Tex.

C. R. Weidner, Sinclair Prairie Pipe Line Co., Independence, Kans.
John E. Hansbury, Interstate Commerce Commission, Washington, D. C.
John R. Thompson, Interstate Commerce Commission, Washington, D. C.
Louis Hood, Interstate Commerce Commission, Washington, D. C.
Carl Gasaway, Interstate Commerce Commission, Washington, D. C.
R. W. Shields, Interstate Commerce Commission, Washington, D. C.

It is understood that the members of the committee represent the committee only, and are not here acting as representatives of the various companies.

The meeting opened with a general discussion on the subject of depreciation. It was decided that whatever the committee agreed upon could be considered as a guide only, and that there was no authority vested in the committee members which would allow them to bind the individual companies. Possibly the only thing that could be agreed upon as far as physical service life is concerned would be a range of years.

In discussing the subject, Mr. Hood explained the general methods used in arriving at period prices for application to inventory quantities. First, annual prices would be agreed upon, and from a consideration of these annual prices over a certain number of years a period price would be arrived at. This would not be a simple or a weighted average of annual prices, but a judgment price developed after consideration of the agreed annual prices. Similarly, in developing a rate or condition to be applied to determine depreciation, consideration would be given to both physical and economic factors affecting the rate and from these figures a judgment figure would be arrived at to be used for limiting service life. In some cases it might be governed largely by the physical factors, and in others by the economic factors.

As to the case of a field which was estimated to last 20 years while the physical life of pipe was 35 years, it was explained that the cost of salvaging pipe would enter into the final determination of the cost new less depreciation; also where a field was depleted to such an extent that some lines which had only been in a few years were to be taken up, consideration would be given to the item of salvage.

Mr. Rosebrugh raised the question as to how a line which had been taken up several times and relaid would be handled. He stated that it was the practice of his company when the line was first taken up to retire the original cost and to write the line back in when relaid at a depreciated figure. Mr. Weidner stated that it was the policy of his company to depreciate a line pipe on an annual rate, which rate was based on their best estimate. This did not necessarily give consideration to the condition of the individual pipe when relaid.

Mr. McLaughlin requested that a definition be given of the total service life to be recorded in the inventory notes. Mr. Hood agreed that observed obsolescence would have to be included and considered in developing the physical service life, and stated that it was impossible to get the effect of such obsolescence out of one's mind and that there was no way of making a segregation between it and physical life due solely to wear and decay.

In response to Mr. Weidner's question as to whether his definition of the service life to be recorded as stated in his memorandum to our fieldmen was acceptable and in line with what the Bureau wished to have considered, Mr. Hood stated that he would advise him on December 4 in regard to that.

Mr. Tate stated that the service life table he had prepared and submitted to our fieldmen was in accordance with Mr. Weidner's definition.

In general it was agreed that physical life and observed obsolescence were the factors entering into the determination of service life to be recorded in the notes; and that the remainder of the factors which should be considered were to be discussed fully in the special notes.

In response to Mr. Rosebrugh's question as to the manner in which a report would be prepared and served, Mr. Hood stated that the first step would be a preliminary engineering report showing in detail the various items, condition percents, quantities, unit prices, cost of reproduction new, and cost of reproduction less depreciation. The carrier would be allowed a certain length of time, probably 30 days, in which to file objections and would come in for an informal conference. After as many questions as possible were settled, a revised report would be issued. This to be one of the bases of the tentative valuation report. A tentative valuation report would then be served, and the carrier would be given a certain length of time in which to issue a formal protest and would be permitted to come in for a formal hearing. The carrier would be the one to prove the errors in the report, and would possibly be given a chance for oral argument if the issues warranted it.

An engineering report covering a common carrier railroad was brought in and gone over in detail. Considerable time was spent in discussing it. Members of the committee were given samples of forms 562 and 563.

The question of idle and "standby" property was discussed, and it was explained that the fact that certain property had not been written off the books did not govern as to whether that property would appear in the engineering report. Further discussion is to be had with individual companies as to how much "standby" or idle property would be included.

Adjourned at 3:30 p. m. to meet at 10 a. m. on December 4, 1935.

Committee met December 4, 1935, at 10 a. m., in Mr. Hood's office to continue the discussion on the subject of depreciation.

Mr. Hood stated that it was not the intention to fix a specific service life at this time, and that opinions expressed at this time would be subject to any revision necessary at the meeting to be held in January.

Mr. McLaughlin called attention to the carriers' statement of service lives previously submitted and stated there was fairly close agreement in the figures. He asked Mr. Hansbury if his studies had developed anything that would affect the service life previously set down for line pipe. Mr. Hansbury stated that he thought 33% years was too short a life.

Mr. Hood again stated that whatever was talked about or tentatively agreed to could be later changed.

Mr. McLaughlin stated that at the January meeting all would have more definite views on the subject. He called attention to the slight difference between the carriers' schedule and the Bureau's figures.

Mr. Hood asked Mr. Weidner if he disagreed with the 33 years for line pipe. In response to Mr. Tate's question, "Are these physical lives?" Mr. Hood stated that they were; that this was about all that could be agreed upon now; and that other factors would be considered and decided upon later. He stated that when we go out in the field all we can put down is what we see, and use our judgment. The figures discussed did not include supersession, inadequacy, depletion, et cetera. That only general figures were to be recorded, and they did not apply to any individual company.

Mr. Tate asked if the 33 years for line pipe were an average of trunk and gathering lines. Mr. Hood stated that they were. Mr. Tate stated that he thought there should be a distinction. Mr. McLaughlin stated that the carriers all seemed to be in accord that there should be a distinction. Mr. Weidner pointed out that in developing service lives for his company he had made a distinction. It was Mr. Hood's opinion that we should deal with the subject in a broad manner and should not make a separation between trunk and gathering pipe. Mr. Mclaughlin stated that he was inclined to think that the carriers' statement of average physical lives previously submitted was still the proper thing to use.

In response to Mr. Tate's question as to whether the Interstate Commerce Commission's field engineers were privileged to discuss and agree on service lives for his company, Mr. Hood replied that they were. Mr. Tate stated that he had agreed with our field parties on service lives for his company.

In view of the statement of Mr. Hansbury that the southwestern companies had not lived long enough to actually fix service lives, Mr. Rosebrugh asked what