TO AMEND THE INTERSTATE COMMERCE ACT AS TO

PIPE LINES

WEDNESDAY, MAY 29, 1940

UNITED STATES SENATE,

SUBCOMMITTEE OF COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C. The subcommittee met at 10 a. m., pursuant to call, in the Capitol, Senator Edwin C. Johnson of Colorado, presiding.

Present: Senators Johnson of Colorado (chairman of the subcommittee), and Schwartz.

Present also: Senator Austin of Vermont.

Senator SCHWARTZ. Senator Johnson of Colorado is chairman of this subcommittee, Inasmuch as he will be detained in serving on another committee for a few minutes he asked me to call the hearing to order and preside until he comes.

Under date of May 22, 1940, Senator Wheeler, Chairman of the Committee on Interstate Commerce, appointed a subcommittee of which the following composed the membership:

Senators Johnson of Colorado as chairman, myself and Senator Reed. We will now proceed with the hearing. As a preliminary I will ask the committee reporter to make the bill, S. 3753, a part of the record. (The bill, S. 3753, is as follows:)

[S. 3753, 76th Cong., 3d sess.]

A BILL To amend the Interstate Commerce Act, as amended

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 1 of the Interstate Commerce Act, as amended, is hereby amended by adding at the end thereof the following new paragraphs:

"(23) No pipe-line company subject to part I shall undertake the extension of its pipe line, or the construction of a new pipe line, or shall engage in transportation under part I through or by means of such additional or extended pipe line or newly constructed pipe line unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended pipe line.

"(24) The application for and issuance of any such certificate shall be under such rules and regulations as to hearings and other matters as the Commission may from time to time prescribe, and the provisions of this part shall apply to all such proceedings. Upon receipt of any application for such certificate the Commission shall cause notice thereof to be given to and a copy filed with the Governor of each State in which such additional or extended pipe line is proposed to be constructed or operated, with the right to be heard as hereinafter provided with respect to the hearing of complaints or the issuance of securities; and said notice shall also be published for three consecutive weeks in some newspaper of general circulation in each county in or through which said pipe line is proposed to be constructed or operated.

"(25) The Commission shall have power to issue such certificate as prayed for, or to refuse to issue it, or to issue it for a portion or portions of a pipe line, or

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extension thereof, described in the application, or for the partial exercise only of such right or privilege, and may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may require. Any construction or operation contrary to the provisions of this paragraph or of paragraphs (23) or (24) of this section may be enjoined by any court of competent jurisdiction at the suit of the United States, the Commission, any commission or regulatory body of the State or States affected, or any party in interest; and any pipe-line company which or any director, officer, receiver, operating trustee, lessee, agent, or person, acting for or employed by such pipe-line company who knowingly authorizes, consents to, or permits any violation of the provisions of this paragraph or of paragraph (23) of this section shall upon conviction be punished by a fine of not more than $5,000 or by imprisonment for not more than three years, or both.”

Senator SCHWARTZ (presiding). I wish to present for the record a telegram addressed to me from B. B. Brooks, president, Rocky Mountain Oil & Gas Association; also a resolution adopted by that association:

Hon. H. H. SCHWARTZ,

Senate Building, Washington, D. C.

CASPER, WYO.

The Rocky Mountain Oil & Gas Association vigorously protest enactment of Senate bill 3753, a bill to amend Interstate Commerce Act as amended stop Protest being forwarded air mail today.

Hon. H. H. SCHWARTZ,

ROCKY MOUNTAIN OIL & GAS ASSOCIATION,
B. B. BROOKS, President.

Senate Building, Washington, D. C.

At a meeting of the directors of the Rocky Mountain Oil & Gas Association held at the office of the Association at Capser, Wyo., on the 27th day of May 1940, the following resolution was, by unanimous vote of the meeting adopted: "Whereas there has been introduced in the Senate of the United States by Senator Johnson of Colorado a bill designated S. 3753 entitled 'A Bill to Amend the Interstate Commerce Act, as Already Amended' the purpose of which bill is to require any person, firm, or corporation desiring to lay, construct or build a pipe line for the transportation of petroleum products or any already existing pipe lines desiring to extend their facilities, to first apply to the Interstate Commerce Commission for a certificate of convenience and necessity, and

"Whereas the peculiar conditions in the State of Wyoming relating to petroleum and its products reveal that more oil and/or gas is being produced within the State of Wyoming than is required for consumption or use and it is necessary to the existence of the oil industry in the State of Wyoming that the excess of oil and/or gas would be transported to points nearer the center of distribution, and "Whereas the passage of the aforesaid Johnson bill will seriously hamper, interfere with and cripple the oil and gas industry in the State of Wyoming: now therefore, be it

"Resolved, That the Rocky Mountain Oil & Gas Association respectfully requests the proper committee in the Senate of the United States that before said bill is considered that it be given an opportunity to appear and present its reasons why the passage of the aforesaid bill would embarrass the oil industry of the State of Wyoming; and be it further

Resolved, That the Rocky Mountain Oil & Gas Association express itself as being opposed to the passage or consideration of said bill; and be it further

"Resolved, That a copy of these resolutions be sent to the Interstate Commerce Committee of the United States Senate; to Senator Johnson of Colorado; to the Honorable J. C. O'Mahoney and the Honorable H. H. Schwartz, Senators from Wyoming.

ROCKY MOUNTAIN OIL & GAS ASSOCIATION, By B. B. BROOKS, President.

Senator SCHWARTZ (presiding). If any agreement has been reached as to what persons will appear before the subcommittee this morning I would like to have their names.

EDWARD KEATING, Secretary to Senator Johnson of Colorado. Those gentlemen who hope to be heard this morning are Judge R. V. Fletcher, vice president and general counsel of the Association of American

Railroads, Joseph G. Kerr, chairman of the Southern Freight Association, and T. J. McGrath, representing the Railway Labor Executives Association. The announcement might be made at this time I take it that we will also have a hearing Monday morning, and the place at which such hearing will be held has not as yet been selected. Senator SCHWARTZ (presiding). You have heard the announcement made by the clerk of the subcommittee. After hearing those persons named we will hear others if we have time this morning, and then will adjourn until Monday morning at 10 o'clock. At the moment we do not know just where the subcommittee will meet Monday morning, but that information may be obtained from the clerk.

We will now hear Judge Fletcher.

STATEMENT OF R. V. FLETCHER, VICE PRESIDENT and GENERAL COUNSEL, ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

Mr. FLETCHER. My name is R. V. Fletcher. I am a lawyer, and live in Washington. I am vice president and general counsel of the Association of American Railroads.

That association is a voluntary organization, and included in its membership are practically all of the class I railroads of the United States. By class I railroads is meant any railroad having a gross revenue of as much as $1,000,000 per annum. That classification is

made by the Interstate Commerce Commission.

I suspect that the Association of American Railroads represents roughly 95 percent of the railroad mileage of the United States.

The bill you have under consideration, S. 3753, is one which the Association of American Railroads advocates, and I appear here in support of the bill.

The bill has been made a part of the record by direction of Senator Schwartz, and I do not need to spend any time in an analysis of the bill further than to say that its purpose is to provide that pipe-line companies which are common carriers shall not be permitted to build new lines, nor to extend existing lines, until they have secured from the Interstate Commerce Commission a certificate of convenience and necessity.

This particular bill is drawn in almost precise conformity with the provisions of paragraphs 18, 19, and 20, of section 1, of the Interstate Commerce Act, those sections applying to railroads.

In the Transportation Act of 1920, approved February 28, 1920, it was for the first time provided that railroads could not build new lines, nor extend their existing lines, nor engage in operation as common carriers under the act, until they had secured certificates of convenience and necessity from the Interstate Commerce Commission. This bill proposes to extend to pipe lines which are common carriers substantially the same provisions that now apply to railroads; with the exception, Mr. Chairman, that there is no provision here which prohibits a pipe-line company from abandoning its line without securing the consent of the Interstate Commerce Commission. It is barely possible that that provision should be included in this bill; but it does not at the present time appear here. This bill refers only to extensions of pipe lines and new construction of pipe lines.

I might say as a matter of historical interest that prior to the year 1920, which was the year when the Transportation Act first required certificates to be secured from the Interstate Commerce Commission, many States had provisions in their statutes similar to the one put into the Interstate Commerce Act.

For a long time it has been recognized that in the case of public utilities of various kinds the public interest required that there should be certificates of convenience and necessity issued before construction and operation could be begun.

I happen to have here report number 456, which was the report of the House Committee on Interstate and Foreign Commerce, dealing with the Transportation Act of 1920, in which the statement appears with reference to this new legislation requiring railroads to secure certificates of convenience and necessity:

A similar provision in the laws of several States has proven successful in preventing the construction of weak lines.

In all the literature on the subject it will be found that reference is made to these early State enactments which require certificates of convenience and necessity.

Now, with your permission I should like to put into the record a paragraph from that report of the House Committee on Interstate and Foreign Commerce explanatory of the reasons why it was considered desirable for the Federal Government to regulate the construction of new railroad lines and extension of existing railroad lines. It is very short and I may read it, perhaps.

Senator SCHWARTZ (presiding). We will be glad to hear it.

Mr. FLETCHER. On page 18 of the report to which I have just referred, that being report number 456, it is stated:

EXTENSIONS AND ABANDONMENTS

Section 402 further provides that extensions of an existing railroad or the construction of a new line or the abandonment of a line shall not be permitted unless and until there shall have been obtained from the commission a certificate that the present or future public convenience and necessity require or will require such construction or abandonment. A like provision can be found in the statutes of a number of States. Your committee believes that the requirement of such a certificate, so far as extensions are concerned, will tend to stabilize existing conditions and prevent the construction of unnecessary or parallel lines which, without any reasonable hope of profitable operation, would become a burden to the public. A similar provision in the laws of several States has proven successful in preventing the construction of weak lines. The provision of the bill, however, does not extend to the construction or abandonment of side-tracks, or of spur, industrial, team, or switching tracks, or of street car and electric interurban lines, if such tracks or lines are located or are to be located wholly within one State.

I just mention that as the basis of the action of the Congress in applying this principle to railroads.

Perhaps as clear a statement as can be found dealing with the necessity of having legislation of this kind for all common carriers appears in two certain decisions of the Supreme Court of the United States, and they are quoted in Sharfman's The Interstate Commerce Commission, a standard work dealing with the question of regulation, volume III-A. I would like to read from those decisions, if I may just briefly, in order to indicate the views of one of the greatest of all of our judicial statesmen, as to the necessity for legislation of this character. Senator SCHWARTZ (presiding). We will be glad to hear it.

Mr. FLETCHER. Mr. Sharfman's short reference to the matter is as follows:

These powers were conferred upon the Commission to further the maintenance of adequate railroad service, as an integral part of the new policy introduced by the Transportation Act. (See pt. I, pp. 177-244, especially at pp. 235–244.) "By that measure," it has been judicially declared, "Congress undertook to develop and maintain, for the people of the United States, an adequate railway system. It recognized that preservation of the earning capacity, and conservation of the financial resources, of individual carriers is a matter of national concern; that the property employed must be permitted to earn a reasonable return; that the building of unnecessary lines involves a waste of resources and that the burden of this waste may fall upon the public; that competition between carriers may result in harm to the public as well as in benefit; and that when a railroad inflicts injury upon its rival, it may be the public which ultimately bears the loss." (From the opinion of Justice Brandeis in Texas & Pac. Ry. v. Gulf Ry. (270 U. S. 266 (1926)), at pp. 277-278.) And more concretely, on another occasion: "The purpose of paragraphs 18 to 22 is to prevent interstate carriers from weakening themselves by constructing or operating superfluous lines, and to protect them from being weakened by another carrier's operating in interstate commerce a competing line not required in the public interest.' (From the opinion of Justice Brandeis in Texas R. R. v. Northside Ry. (276 U. S. 475 (1928)), at p. 479.) (See pp. 328 and 329.)

I do not know that the matter has been better stated at least not in any declaration on the subject which has come to my attention. It is to be remembered that pipe lines are common carriers and are so declared to be by the act to regulate commerce. As such their rates are subject to the Interstate Commerce Act; they are required to file their rates and to maintain them. Their accounting has been under the direction of the Interstate Commerce Commission. They are required to make reports to the Interstate Commerce Commission. Pipe lines were thus made a part of the system of regulation as far back as 1906. It was in the Hepburn Act, I believe, when they were first subjected to regulation. In section 1, paragraph 1, subsection (b) of the present law this language is found:

That the provisions of this part shall apply to common carriers engaged in— (b) The transportation of oil or other commodity, except water and except natural or artificial gas, by pipe line, or partly by pipe line and partly by railroad or by water.

And again in subsection 3 of paragraph (b) of section 1 of the Interstate Commerce Act the term "common carrier" is defined as follows: The term "common carrier" as used in this part shall include all pipe-line companies.

So they are subject to the Interstate Commerce Act with respect to accounting, rates, reports, and perhaps in other respects. Through some curious oversight they have not been subjected to that important provision of the law requiring the obtaining of certificates of convenience and necessity before new lines may be constructed or existing lines expanded.

Furthermore the Commission is required to find the value of these pipe lines. Many interesting reports have come out of the Commission dealing with the valuation of pipe lines.

In passing I should like to say that the original act of 1906 had some language reading in this way:

That pipe lines shall be considered and held to be common carriers within the meaning and purpose of this Act.

Just to make the story complete I will say that the pipe-line people, after that language was inserted in the act of 1906, challenged the