Trans Alaska Pipeline Rate Cases – Oral Argument – March 28, 1978

Media for Trans Alaska Pipeline Rate Cases

Audio Transcription for Opinion Announcement – June 06, 1978 in Trans Alaska Pipeline Rate Cases


Warren E. Burger:

We will hear arguments next in Mobil Alaska Pipeline Company against the United States and the consolidated cases.

Mr. Kilcarr, I think you may proceed whenever you are ready.

Andrew J. Kilcarr:

Good morning, Your Honors.

Mr. Chief Justice and May it please the court.

Your honors, in early 1969 and shortly after the discovery of oil on the North Slope of Alaska, planning commenced to build a pipeline that would reach from the Arctic Ocean in the location of Prudhoe Bay, 800 miles South to the Port of Valdez on the Gulf of Alaska.

After overcoming numerous engineering design and environmental obstacles, the Trans Alaska Pipeline System, indeed, TAPS was constructed.

TAPS is a unique feat of engineering.

Alone, it costs $9 billion.

But, it is unique also, Your Honors, because it took two Acts of congress to get it started, the Alaska Native Claims Act which settled aboriginal land claims by Alaskan natives and, of course, the Trans-Alaskan Pipeline Authorization Act passed in November of 1973 which effectively disposed of that massive environmental litigation which had delayed the project from its very inception.

The TAPS situation, Your Honors, is also unique because the regulatory treatment afforded it.

It was subjected to an unprecedented rate-making and suspension water.

I say unprecedented because there is nothing like it in the 90-year history of the Interstate Commerce Commission.

To put that order and the activities of the ICC in perspective, one point should be emphasized.

That is, though in fact, this is a single pipeline, it is, in law, eight separate pipelines.

This results from the decision on the part of the owners to form an ownership of the line on the basis of undivided interest.

So that as a result, we are looking at eight common carriers that are required under the Interstate Commerce Act to fill the capacity of their share of the line as common carriers and, thus, are subjected to all the responsibilities of the Act as well as all of the rights given to a common carrier under the Act.

In that context, the eight owners of the Trans Alaska Pipeline formulated their independently calculated tariffs for submission pursuant to Section 6-1 of the Interstate Commerce Act in early June.

For example, Mobil Alaska filed its tariff on June 10th to be effective June 20th and, at the request of the ICC, it postponed the effective date until the 30th of June.

The point to be emphasized here, and at this point, is that the calculation of these eight separate tariffs all followed a methodology that had prevailed in the industry for 35 years.

It is referred to repeatedly in the briefs as the Consent Decree approach to rate determination, which is referenced to the Atlantic Refining case that was settled by Consent Decree in 1941.

It was in Elkins Act case.

The case was or the aspects of that formulation were before this court in 1959 in Atlantic Refining versus the United States.

Very basically, what that Consent Decree requires is that owners of pipelines can receive no more than 7% of their share of the valuation of the pipeline.

That is an effective limitation on what can be paid out of the rate of return of the pipeline.

That is how these rates were independently calculated.

Following submission of the tariffs, again, pursuant to Section 6-1, there occurred the issuance of an order by the ICC in indicating that on June 27th a summary proceeding to consider possible suspension of the tariffs would be conducted by that agency and that, contrary to past practice, the entire commission would sit en banc in the proceeding and not a Suspension Board or some Intermediate Board.

The issuance of that notice of summary proceeding resulted in four protests being filed in writing with the agency.

One by the Justice Department, another by the State of Alaska, one by an organization representing Alaskan natives, and the fourth protest by the ICC’s own Bureau of Enforcement.

The protestants requested suspension of the filed rates, investigation of those rates, and the setting of interim rates in recognition that it would be contrary to the public interest to shut the line down.

Counsel, there was no protest filed by any independent producer?

Andrew J. Kilcarr:

No, sir, there was not.

Four in number.

Have any indicated dissatisfaction with the situation?

Do you know why there was no protest found?

Andrew J. Kilcarr:

We assumed at that time, Your Honor, it was recognized by all that the situation had no financial impact, that is, no impact on the end price of the oil, if you would, that the price of Alaska North Slope oil was not going to change as far as the refinery and, ultimately, the consumer for petroleum products based upon this tariff dispute.

We are at trial right now in the rate proceeding before the FERC.

In that proceeding, we have had intervention by one public interest group, but there was none during the regulatory phase.

The Interstate Commerce Commission held their summary proceeding.

It was characterized or described by the agency as an oral argument and, that, indeed was what it was.

It took place on June 27th and, in that connection, the owners of the line through their representatives had opportunity to try in very summary fashion to defend the calculation on the basis of their rate submissions.

At the same time, there was opposition in that argument to any authority on the part of that agency to suspend these rates or to set interim rates during the seven months suspension period.

The very next day, on June 28th, the ICC issued its order.

In that order, it purported to do and, indeed, in fact did four things.

It suspended the rates as filed by the carriers, set them for investigation, set interim rates as to which the carriers could file on one-day’s notice, and those interim rates were substantially, in the case of my client, 23% less than the rate as originally filed.

In addition, they established a refund provision in the order, making the filing of the interim rates conditioned upon the carriers’ undertaking to pay back the difference between either the filed rate, the interim rate, or whatever rate was ultimately determined to be the reasonable rate in accordance with the investigation ordered in the same order.

At this point, can I ask?

How far in advance of the startup time were these tariffs filed?

Andrew J. Kilcarr:

In the area of June 10th and the startup time, the actual loading of the first tanker in Valdez was July 31st, Your Honor.

Would it have been possible for your tariffs to have been filed, say, seven months ahead of its startup time?

Andrew J. Kilcarr:

Realistically, no, Your Honor, because this was a new entity and new service.

The line was under construction and one had to wait until at least they had some reasonable basis to determine what their operating would be and what their construction cost would be, all for purposes of casting the rate base for purposes ultimately of determining what rate of return in accordance with the Consent Decree formula.

Admittedly, when the tariffs were filed, that information was still estimated but it was better more sophisticated degree of estimation and it would be seven months in advance.

After issuance of the June 28th order, petitioners sought review and reversal in the Fifth Circuit.

A divided panel of that Circuit found, principally, that the suspension provision of the Interstate Commerce Act had no plain meaning.

This is Section 15-7 and the court’s majority found that since there was no plain meaning to the language of that Act.

That, indeed, the agency did have suspension authority and further, although the court was troubled, it appears by the setting of these interim rates concluded or reasoned that this indeed did not constitute the setting of an interim rate but, rather, was the exercise of a limited waiver of discretion on the part of the agency that did have suspension authority.

The dissenting judge, Circuit Judge Roni, characterized the order, in our opinion respectfully, Your Honors, it was for what it was.

He said that it was a rate-making order and, as a rate-making order, it was unlawful and it did not comply with the rate-making procedures and provisions explicated in Section 15-1 of the Interstate Commerce Act.

On that basis, he would find the order unlawful and he did not have to consider the question of suspension.

We are here, Your Honors, on a writ of certiorari.

Andrew J. Kilcarr:

As I said, we are already at trial commenced on the rate proceeding in November.

Since that time we have, of course, received from this court a stay of the June 28th order.

That was on October 20th.

A subsequent order was ordered superseding, but not effectively changing the stay.

That second order was on November 14th.

Your Honors, as to the suspension or alleged suspension authority of the Interstate Commerce Commission, now of course, the Federal Energy Regulatory Commission, because jurisdiction over oil pipelines has been transferred to the Department Energy Bill or Act to FERC.

We have analyzed in detail, Your Honors, in our brief the conclusion arrived at on the basis of the analysis of the Section 15-7, its language, the underlying Legislative History of that statutory provision, prior cases by the agency dealing with suspension situations.

In that analysis very summarily, Your Honors, we point out the essential linkage between suspension and Section 6-3 of the Act which requires 30-day notice being filed before any changes in rates and it is the essence of our position that Section 15-7 is limited to changes in rates or tariffs or practices affecting rates.

The court says 15-7 mentions new rates, does it not?

Andrew J. Kilcarr:

It does.

That is the language of the Act, Your Honor.

Your point is that in that very language, the phrase “new rates” implies the existence of old rates?

Andrew J. Kilcarr:

That is correct, Your Honor.

That is exactly our position, that the existence of a prior rate is what allows the continuity of service, the maintenance of status quo when the suspension takes place, and the proposed change or, literally, the new rate is examined for reasonableness by the agency.

William H. Rehnquist:

Are you familiar with the last sentence of Section 15-7 without having to refer to it?

The sentence beginning at any hearing involving a change in a rate, fare, charge, or classification?

Andrew J. Kilcarr:

Yes, sir.

William H. Rehnquist:

Is it your position that when that sentence refers to a hearing involving a change in a rate, fare, charge, or classification it is, in effect, defining what a new rate means?

Andrew J. Kilcarr:

We so argue, Your Honor, that when that language came into the Act in 1920, it was brought in to make the change synonymous with the early use of “new rate” and that, as we characterized it, constituted in authoritative gloss upon the statute as originally enacted in 1910 by the Congress known as the “Mann-Elkins Act.”

If “new” initially included an issue, then you are suggesting that the section which my brother Rehnquist referred qualified or modified or narrows the word “new.”

Andrew J. Kilcarr:

Your Honor, the word “initial.”

Actually, an initial rate can be a new rate, can it not?

William H. Rehnquist:

It could and we so contend, Your Honor.

The word “initial” is really misleading because it tends to suggest exclusively synonymous with the word “original” and that is not the way the agency uses the word “initial.”

The word “initial” can be an initial filing and filing of an initial schedule that can contain the old rate.

That is why we further contend that the other statutes within the Interstate Commerce Act.

You do not think the word “new” can include original rates?

Andrew J. Kilcarr:

No, sir, I do not.

I think there is an ambiguity.

William H. Rehnquist:

I would think you would.

Warren E. Burger:

That is your whole case.

Andrew J. Kilcarr:

That is right.

Absolutely correct, Your Honor.

I do not know.

It does not have to be if you look at the rest of the section.

Andrew J. Kilcarr:

I suggest and the petitioners suggest, Your Honor, that the concept of original rate, the first rate for a new service on a new entity, was beyond the whole ambit of this statutory enactment.

The rate for a new service could never be a new rate.

Andrew J. Kilcarr:

No, Your Honor, it could never be a new rate in the statutory sense of the word “new.”

It would always be an original rate.

The very purpose of the statute, we suggest, was to maintain the status quo and suspension of an original rate on a new service and a new entity would result in no service for a period of seven months.

That, particularly in the context of this case, would have been contrary to the national interest.

The ICC, itself, so found that that could not be permitted.

Thus, in exercising their alleged authority or their putative authority, they had to do something and that is where we get the interim rate coming into the context of this case.

The interim rate, we suggest, stands or falls here only if the suspension authority is valid because, without suspension authority, and these were rates make no mistake about it, these rates were found absolutely in disregard of Section 15-1 which is the rate-making provision of the Act.

William H. Rehnquist:

What would be the effect on the type of business that you are talking about if the ICC had the power or the FERC had the power to suspend rates but not to fix interim rates?

Andrew J. Kilcarr:

In this case, Your Honor, it would seem to me that if that were true, that the line would be shut down for seven months. There would be no service.

William H. Rehnquist:

The rate filed would be suspended and, unless the carrier came in and filed a new rate that was not suspended, there would be no tariff he was permitted to charge.

Andrew J. Kilcarr:

That is right because he cannot achieve common carrier status until his filed rate is approved.

There could be the situation of repetitive filings.

But, in a suspension proceeding, there is not be no prejudgment as to the reasonableness of a rate.

Thus, you would have no road map, if I might use that expression, as to what kind of rate to file.

The commission here gave you one.

Andrew J. Kilcarr:

They did more, respectfully, Your Honor.

They went well beyond that and they set the rates.

They set a rate at which you could file, it would not be suspended.

Andrew J. Kilcarr:

That is correct, Your Honor.

They gave you a roadmap.

Andrew J. Kilcarr:

In doing so, they also prejudge the very investigation that they had ordered.

Warren E. Burger:

How did they prejudge it when they left the matter open with the impoundments procedure?

It might go up or down after that.

Andrew J. Kilcarr:

But, in the context of this particular case and looking at the order that they did issue on June 28, we suggest that it is an absolute prejudgment.

There was not opportunity for us to realistically make the kinds of defense of the rate that we were entitled to.

We have a record that goes down to an administrative law judge who was going to try the rate proceedings.

In that record, he is being told explicitly by his appellate authority, if you will, that we were 23% higher than we should have been when we filed that rate.

I suggest respectfully that that is prejudgment and it is serious prejudgment.

It is what is not supposed to occur in rate-making procedures before administrative agencies.

William H. Rehnquist:

You say that that does not occur, I take it, where the FERC or ICC suspends a changed rate because there is already a rate in effect which is either been found to be reasonable or which at least has not been suspended.

Andrew J. Kilcarr:

It is presumptively reasonable, Your Honor.

That is exactly our position, that it is a naked suspension of a proposal.

That proposal, then, is subjected to adjudicative investigation and a determination is made as to its reasonableness without any prejudgment.

At the mean time, everything continues as it was before, except the carrier is not allowed to benefit off the increasing rates.

William H. Rehnquist:

It really is the fixing of the interim rate rather than the suspension that would constitute the prejudgment, is it not?

Andrew J. Kilcarr:

That is correct, Your Honor.

But, suspension was unauthorized and unlawful quite apart from the rate-making aspects simply because of the basis of the construction of the Legislative History.

William H. Rehnquist:

It was beyond the commission’s statutory powers.

Andrew J. Kilcarr:

That is right, exactly, Your Honor.

That is precisely right.

Also, the fact that the status quo was found to be not in the public interest.

Mr. Kilcarr, on the question of whether new includes initial, do you agree that in the Motor Carrier Act it does?

Andrew J. Kilcarr:

Your Honor, it does and it includes initial even in 15-7.

Our point of continuing, if you will, confusion is with this word “initial.”

That is, it is contrasted to original?

Andrew J. Kilcarr:

That is correct.

Would you explain that?

Andrew J. Kilcarr:


At least, for my benefit.

Andrew J. Kilcarr:

Your Honor, initial rates can be filed in any number of circumstances.

For example, in the Motor Carrier Act back in, I assume it was, 1935 when they were bringing thousands of motor carriers into the regulatory regiment they were filing for the first time rates.

Those were initial rates.

We can have mergers of various parties and a formation of a new rate because there is a new entity.

Andrew J. Kilcarr:

We can have what were formerly joint rates put together as a single composite rate and re-file.

That is an initial filing.

But, none of these equate to the situation before, Your Honors, today that of an original rate.

Thurgood Marshall:

But, could they all not be called original?

Andrew J. Kilcarr:

Pardon me?

Thurgood Marshall:

It needs one of the three to be called original?

Andrew J. Kilcarr:

No, not quite.

Whether you call it original or not, it is the conceptual stand-alone identity in a regulatory sense that these kinds of rates have.

It is this situation regardless of label, Your Honor, that the commission is not authorized to suspend because suspension is contrary to the essence of the statute which is the maintenance.

Let me ask you the question in a different form then.

Do you contend that if there were a new motor carrier went into business, it never been in business before, and it filed a tariff, would the commission suspend that tariff?

Andrew J. Kilcarr:

Your Honor, the Motor Carrier Act is a different regulatory system.

But it uses the same language as this.

Andrew J. Kilcarr:

Assuming that it is the same as 15-7 and it is a startup business, new route, new filing, it is comparable to and it is identical with the situation here.

Then, is the answer no?

What is your answer to my question?

Andrew J. Kilcarr:

The answer is no suspension.

They could not suspend as to a motor carrier.

Andrew J. Kilcarr:

As to a motor carrier.

William H. Rehnquist:

But a motor carrier has to get a certificate to operate without regard to its terms, does it not?

Andrew J. Kilcarr:

The situation in the Motor Carrier Act, as we find in Water Carrier and some of the other Acts, is this certification process.

Here, in those Acts, you do have the requirement that a Certificate of Public Convenience and Necessity is required.

The rate is part of the submission or can be followed within 90 days.

The filing of the original rate can be filed after the certificate has been applied for.

The agency, the ICC, would then have the option whether in fact they would do it or not and there is some debate in the briefs whether they do it or not, but would have the option of withholding the Certificate of Public Convenience and Necessity.

But the question is whether they would have the power to grant the certificate and say, “We will do these things one step at a time.

We will grant the certificate.

We will suspend your rate.”

Could they do that?

You would say no, I guess.

Do you say no?

Andrew J. Kilcarr:

No, Your Honor.

It is not.

Andrew J. Kilcarr:

It is not.

What we have contended is that although there may be question as to whether they can suspend or not, in a Motor Carrier Act, the certification process is such a part of it that they can withhold the certificate if they disapprove the rate.

Yes, they can do that.

But, that is just turning the question around.

Do they have statutory power to grant the certificate and then suspend the rate and say “we will let you know, we were going to give you the certificate but we just do not think you are rated”?

Andrew J. Kilcarr:

Probably not, Your Honor, in that circumstance.

What about the Federal Power Commission, if there is a new pipeline starting up and they filed rates.

Andrew J. Kilcarr:

There, the situation is absolutely clear, Your Honor.

Under the Federal Power Act and under the Natural Gas Act and for the last 30 years, the Federal Power Commission has held by regulation that they do not have.

That is just the construction of the statute, is it not?

And it admits it is the same statute.

Andrew J. Kilcarr:

It is the same statute, Your Honor, but to the extent that it has a certification situation built into it.

The courts as well as the commission have consistently recognized that since this is going to be a contract for a long period of time we will be very cautious about issuing the certificate until we know what the sale price of the rate is going to be.

There, you have in basic relief form that the situation as contrasted to the Motor Carrier Act and what we are looking at in this situation on oil pipelines.

William H. Rehnquist:

Mr. Kilcarr, in Section 15-7 of 49USC, I see the language “new rate” used and I see the language change in a rate used.

It is a long section.

I glanced over it.

I do not see the word “original” or “initial” used in it.

Andrew J. Kilcarr:

That is correct.

William H. Rehnquist:

Are those words of art or do they come from some other section?

Andrew J. Kilcarr:

They are regulatory words of art, Your Honor, and I tried to make the point early.

You do not see this language in the Act, and when you bring it in to describe what the character of the rate is, it tends to be misleading.

That is particularly true as to the word “initial” because initial is not synonymous with original.

Initial can be a schedule file that contains an old rate.

William H. Rehnquist:

Initial could be just one of many at any stage of the proceedings.

Andrew J. Kilcarr:

It could, Your Honor.

It could certainly.

Andrew J. Kilcarr:

Thank you.

Warren E. Burger:

Mr. Flynn?

Richard J. Flynn:

Mr. Chief Justice and May it please the court.

The points that I would like to address myself to are independent of your decision on the suspension power.

Like Judge Roni, I will assume, for purposes of my argument, that the commission did have power to suspend the rates.

It is our position that the order is still unlawful because of the prescription of rates and the imposition of the refund conditions.

We start off, I think, with less disagreement on certain fundamental parts of the law among the parties.

Our opponents concede that you cannot prescribe a rate under 15-7 or 15-1 without a hearing.

They argue that there was no prescription.

The court below held expressly that its imposition of refund conditions did not arise under the power in 15-7, which is expressly limited to increases in rates.

They found both the power to state the interim rate and the power to impose refund conditions not only on the interim rate, but on the originally filed rates to arise as valid corollaries of the suspension power.

Our opponents here not only support that but say, if they had the suspension power, that is the end of the case.

You cannot look at what they did under those valid corollaries.

To submit that there is plenty of law in this court and elsewhere that you cannot review a refusal of the commission to suspend because this court has held that courts have been deprived of the injunctive power in that area.

But, I find no case that says you cannot review an exercise of suspension power.

I think that statute makes it clear because it says if the commission refuses to suspend, it does not have to say anything.

But if decides to suspend, it has to state the reasons therefore.

To me, that is consistent with review.

Here, the commission itself has said that when you set the interim rates, they did not set them with regard to anything that was going to happen.

The only period in which they could apply, the interim period, will not let back for reconsideration and they said “we know these rates are going to be right for the interim period.

We knew that when we did it and we know, even more strongly now, that your pump station eight is off and you will not have any throughput, but that does not matter.”

Yet, our opponents say “you cannot review that kind of an interim rate.”

Even if they have had a decent rate, it would be unlawful.

The sole reliance for the power to prescribe and the power to impose refunds is on the Chesapeake and Ohio decision.

The court below and our opponents interpret that decision as saying “you cannot impose any kind of a condition you want.”

on but to refuse to exercise the suspension power?

When, of course, we started off here, they did not refuse to exercise the suspension power.

They exercised it, they say.

But, clearly, this court did not give the Interstate Commerce Commission or its successor, the Federal Energy regulatory Commission, that kind of a license.

The Chessie case has got to be one of the narrowest decisions that has come from this court.

Richard J. Flynn:

All that you did was the obvious thing of telling railroads came in and asked for a 10% increase in rates, and admitted they could only justify 3% of it on the basis of cost and they wanted the other 7% to catch up on deferred maintenance.

That if it was all right for the commission to tell them that if they were to get the money, they had to spend it for what they said they wanted it for.

That, certainly, is not a rate-setting decision.

The carriers set the rates themselves.

The commission did not alter their rates.

They accepted them.

I think the difference between that case and what we have here is made clear by reference to a couple of other decisions, one of this court’s.

In SCRAP I the appellants or the respondents were attempting to convert the carrier-made rates there and the commission-made rates by arguing that the commission had imposed a condition on the rate.

In that case, there was another general rate increase.

They asked for an emergency 2.5% increase until they could get around to filing selective rates.

The commission attached to that a condition that they include an expiration date so that those rates would expire when the selective rate increases came in.

This court said that was perfectly reasonable and did not convert those carrier-made rates into commission-made rates.

A decision of the Court of Appeals for the District of Columbia that came out on March 13th, it is number 75-2143, the Federal Energy Regulatory Commission was dealing with a request that they imposed a condition on a rate that they had a right to set.

It was a rate for voluntary wheeling of electricity, moving electricity from one system to another.

Richmond Power Company said “that is great,” but hold that rate to be unreasonable unless the carriers agree to continue wheeling even involuntarily.

The commission looked at the statute and looked at the history, and said “Congress expressly declined to give us the power to impose involuntary wheeling and, therefore, that kind of a condition is unlawful.”

That is what we have here.

Congress expressly denied the Interstate Commerce Commission and the Federal Energy Regulatory Commission the power to set a rate without a hearing.

It expressly refused to give them the power to establish refund conditions except in the case of increased rates.

These are wholly beyond their power and you cannot, as this court has said so many times, do indirectly through conditions which are expressly prohibited from doing directly.

But Mr. Flynn, going back to Chessie for a minute, Congress did not give the commission power to require the railroad to spend money on deferred maintenance, did they not?

Richard J. Flynn:

They did not withhold that power.

They did not have a contrary provision in the statute.

I see.

It is different between an expressed prohibition and an absence of power.

Richard J. Flynn:

I do not think that I would stand here and contend that the Interstate Commerce Commission has no power to impose any conditions regardless of what they are on the exercise of one of its other powers.

All I ask you to find, as you have done before, is that if the statute says “you have got to have a hearing to set a rate,” then they cannot set a rate without a hearing as a condition of their suspension power.

If the statute says “you can only fix refund conditions on increased rates,” then you cannot impose refund conditions on rates that are not increased rates as a condition of the exercise of the suspension power.

Warren E. Burger:

Is that another form of the argument your colleague made about new or original?

Richard J. Flynn:

No, it is not.

Richard J. Flynn:

I am referring to the language of 15-7 which says “in the case of an increased rate, the commission may require the carriers to keep account and to make refunds.”

You are assuming, for the purpose of your argument, the power to suspend.

Richard J. Flynn:

Yes, sir.

I share Mr. Kilcarr’s views there and that they did not have the power to suspend in the first place.

But you are assuming that.

Richard J. Flynn:

That is right.

If he is right, I do not have to make these arguments because these two actions collapse with their own weight.

The other case, that I guess we rely on is the Moss case from the DC Circuit, which is remarkably similar to this except that nobody alleges that what this commission did was done in consultation with the industry or was for the benefit of the industry.

That case just is in this.

The commission had a suspension procedure which was summering, and require evidence, they held an argument, they issued an order, they suspended the rates that have been filed, and they spelled out in detail a whole rate plan and announced that they would not suspend it.

The evil found there by the court was that, under that Act that insulated those rates from judicial review, the rates were not suspended.

They went into effect and there was no order of the CAB which would be reviewable.

Here, the commission held an argument, suspended the rates, and then announced that it would not suspend precise rates rather than a rate scheme.

The contention here is that you cannot review that.

That was the intention.

It was to get a rate in, a lower rate for a seven-month period, and insulate it from your review.

The court in Moss found that was a prescription of a rate.

It was not advice.

The court below did not find that.

But, clearly, it should have.

There was nothing more coercive than this rate.

You had a $9-Billion pipeline sitting there.

You had oil starting to run in and you had a congressional mandate to get the oil to the lower 48 as fast as you could.

You had this ongoing energy crisis in this country.

The commission knew, as Judge Roni said, that there was not any doubt if they put up that interim rate the carriers would have to file it.

That is a prescription of a rate.

Thank you.

Warren E. Burger:

Mr. Easterbrook?

Frank H. Easterbrook:

Mr. Chief Justice and May it please the court.

Before turning to the questions of statutory construction and the details of Legislative History that are the centerpiece of this case, I want to address two themes of petitioners’ argument.

Frank H. Easterbrook:

These themes run through and appear to be the foundation for almost all of petitioners’ particular contentions.

The first theme is that petitioners have been treated unfairly by the commission and that there must be some remedy for unfair treatment.

The second theme is that the only legitimate use of the suspension power is to preserve the status quo.

The suspension here did not preserve the status quo, petitioners say, and so there must be something wrong with it.

The arguments based on unfairness fail, we believe, at the outset because the court does not have any authority to review suspension orders.

That was the holding of Arrow Transportation Co. and the holding of SCRAP I.

Congress entrusted to the commission the decision whether to suspend.

The only question that may be raised here is not whether the suspension was fair or not, but whether there was statutory authority to suspend original or initial rates.

As I understood your brother, he said while the court may not have authority to review suspension orders, it may rather order an order declining to suspend.

It may have authority to review suspension orders.

Did SCRAP and Arrow both involve suspension orders?

Frank H. Easterbrook:

They both involved decisions not to suspend.

Not to suspend, did they not?

Frank H. Easterbrook:

They did.

When did they then stand for the proposition that the court has no power to review a suspension order?

They do not, do they?

Frank H. Easterbrook:

The court indicated in Arrow at page 570 of Volume 372 that similar principles would apply in the case of a decision to suspend.

But neither those cases involved a suspension order.

Frank H. Easterbrook:

Neither involved a suspension and the direct holdings of them do not support it.

I would, however, point to a case in the Second Circuit in the Court of New York authority that 451Fed2-783 which says that that principle logically follows from Arrow.

That decision was, by the way, cited by the court with approval in SCRAP I.

But, I need not maintain the broad position about un-reviewability in order to demonstrate the difficulty with petitioners’ arguments.

The suspension here is no more unfair to petitioners than the suspension of an increase in rates.

In either case, the carriers lose the difference between what they want to charge and what the commission by exercising the suspension power allows them to charge.

That difference in this case was approximately 20% of the rates that the carriers wanted to charge.

Many times established carriers seek to increase their rates by 20% and that increase is suspended.

The difference between what the carriers want and what the carriers are allowed to receive is the same whether we are talking about initial rates or whether we are talking about increased rates.

William H. Rehnquist:

Mr. Easterbrook, you are not arguing that just because it is not unfair the commission must have the power, are you?

Frank H. Easterbrook:

No, I am not, Mr. Justice Rehnquist, not at all.

I am simply responding to the argument that because it is unfair, the commission must not have the power which is something of a different argument.

John Paul Stevens:

There is a difference too.

Is it not true that whether there is an existing carriers in effect, the suspension could not be conditioned on reducing the existing rate?

Say, they asked for a 10% increase, they could not say “no, we will suspend the 10% increase.

We want you to reduce it by 23%.”

Frank H. Easterbrook:

They could not say that, Mr. Justice Stevens.

John Paul Stevens:

So there is a little broader power in this situation.

Frank H. Easterbrook:

It is at least in the case where that type of thing might otherwise occur.

But, I think I can go a little further than that too.

Suspension proceedings in their nature involve a balance of considerations.

Somebody loses in a suspension case no matter what happens.

The shippers and the public may lose, perhaps irreparably, if rates are too high and are allowed to go into effect.

Congress’ perception that shippers and the public would often lose was the reason why it gave the commission the suspension power.

On the other hand, the carriers may lose if rates are unnecessarily or improvidently suspended.

Nothing can avoid the fact that someone is hurt, whether rates are suspended or not.

The Attorney General of Alaska will discuss at greater lengths how high rates hurt Alaska and why the suspension power for initial rates is necessary.

But, my point is that petitioners’ contention that they were aggrieved by the suspension is just one-half of the balance.

It is, therefore, not a sufficient reason to study it in great detail.

Finally, it is hard to see how the commission acted unfairly here.

The commission accepted all of the carrier’s data about the costs that they invested in building the pipeline even though those data are subject to very short dispute.

It accepted the carrier’s contention that the appropriate period of depreciation is 25 years even though 35 years is the commission’s ordinary period for computing depreciation of oil pipelines.

The commission accepted the carrier’s disputed contentions about income tax considerations.

It afforded the carriers a 10% return on valuation even though the commission’s standard practice with respect to pipelines is 8%.

This is not an equity case where we are evaluating whether or not the issuance of an injunction was fair or unfair.

This is a matter of statutory construction, is it not?

Frank H. Easterbrook:

I agree entirely.

Then what has fairness go to do with it?

Frank H. Easterbrook:

My point is that the carriers are claiming that they have been treated unfairly and that there must be a remedy for that.

My observation is that that is far from obvious.

I did not understand that to be their argument.

Frank H. Easterbrook:

The other half of my opening observation is that petitioners’ argument that the suspension power exists only for the purpose of preserving the status quo, confuses ends with means.

Frank H. Easterbrook:

The suspension of rates, the temporary freezing of the status quo, is a means to an end, not a purpose in itself.

It would be pointless to preserve the status quo just for the purpose of preservation.

The reason why Congress gave the commission, the power to suspend rates is because it may appear that the rates that have been proposed are too high and that some persons may be harmed by rates that are too high.

Shippers and the public need protection, at least for the short-term before full rate-making proceedings can occur while the commission conducts a more thorough investigation.

A suspension of rates offers the public that protection.

William H. Rehnquist:

You are saying that that is a preservation of status quo or it is something bigger and better than that?

Frank H. Easterbrook:

My argument here is that preservation of a status quo is not an end, but a means.

William H. Rehnquist:

How would simple suspension of the rates here, in this particular case, without any interim rates preserve the status quo?

John Paul Stevens:

No oil.

Frank H. Easterbrook:

No oil.

The status quo would be exactly what it was before.

No one was shipping any oil through the pipeline before and no one is shipping it.

William H. Rehnquist:

So the thing is simply delayed for seven months.

Frank H. Easterbrook:

It delays it for seven months.

Everything is left exactly the way it was before.

But, the reason why the commission suspends rates is not because it does not want to see oil flowing through the pipeline.

It is not because it does not believe that a particular transportation service should be offered.

It is because it believes that the rates that have been proposed for those transportation services appear to be too high.

If we keep in mind that distinction between ends and means, the end being a protection of the public during an interim period from rates that appear to be too high, and the means being the suspension.

Petitioners’ argument, we believe, falls apart.

Preservation of the status quo loses the status as a shibboleth that petitioners would give it.

The process really is dynamic and it works like this; the carriers propose a rate and if the commission believes in the short time available to it that the rate appears to be too high, it suspends the rate.

The suspension freezes the status quo but only for a while.

The suspension does not believe that the commission thinks the old rate or, in this case, no rate is the best rate.

The suspension means only that the proposed rate seems to be too high.

The carriers then can return to the commission, as Section 6 of the Interstate Commerce Act allows, with another rate proposal.

If the second rate proposal also appears to be too high, the commission will suspend the second rate proposal.

If it does not appear to be too high, it will allow it to go into effect.

The process can be repeated until the carriers hit upon a rate proposal that the commission does not think appears to be too high.

The commission allows that to go into effect.

Frank H. Easterbrook:

Meanwhile, the investigation of rates triggered by the initial suspension is proceeding and that the conclusion of the investigation, the commission will set a rate under Section 15-1 after the full hearings that are possible, only given adequate time.

Warren E. Burger:

What would be the time span involved approximately?

Frank H. Easterbrook:

In many cases, the time span is a year or less.

In this case, the time span, Mr. Chief Justice, is a good deal longer.

It often exceeds seven months.

Frank H. Easterbrook:

It often exceeds seven months.

Typically, it does, does it not?

Frank H. Easterbrook:

Yes, the Mann-Elkins Act in 1910, by the way, authorized the suspension to run for longer than seven months, authorized it to run for 10 months.

The length of its suspension represents more of political compromise and a balance of the interest than any measure of how long the commission’s investigation takes.

The suspension process then is one that moderates carrier’s rate proposals in order to give effect.

William H. Rehnquist:

What happens at the end supposing that you are right, there is a suspension power and the commission suspends for seven months.

The carriers do not, in the meantime, propose a rate that satisfies the commission.

At the end of the seven-month period, does the rate originally filed go into effect?

Frank H. Easterbrook:

They can put the original rate into effect and the commission can do nothing about it.

William H. Rehnquist:

It is not a rollover type of thing like the SCC claimed in the earlier case?

Frank H. Easterbrook:

The commission does not claim the authority to have successive seven-month suspensions, certainly not 37 of them.

The process by which proposals are moderated to take into account the observation that rates appear to be too high explains why, in the Chessie case, the court approved the decision of the commission to suspend particular rates at the same time as it announced to the railroads that if they proposed other rates with a particular condition, it would not suspend them.

In Chessie, the commission used its suspension power to alter the status quo in an important way and, to do so permanently.

This court approved it because what the commission had done ultimately reflected only its judgment about the reasonableness of rates.

If the court agrees with that point, the rest of my argument follows, I believe, almost inexorably.

Petitioners say that the commission cannot suspend initial or original rates because initial rates for new services are not new rates within the meaning of Section 15-7.

But, the reasons for having a suspension power for original rates apply in the same way to those rates as they apply to changed rates.

Either an initial rate or a changed rate may appear to be too high.

The suspension in either case allows the agency additional time to study things before the rate takes effect, thus protecting the public.

The carriers always can propose other lower rates until the commission decides not to suspend.

William H. Rehnquist:

But a changed rate represents a departure from a rate which is presumably been found reasonable before, does it not?

Does it not have more going against it than a new rate which has never been found either reasonable or unreasonable?

Frank H. Easterbrook:

In many cases, Mr. Justice Rehnquist, a proposal to change a rate is simply a proposal to change a carrier-made rate.

That is, a carrier may propose a rate and it is not suspended or set aside.

Two years later, the carrier proposes to increase the rate.

Frank H. Easterbrook:

There is no greater or less presumption of reasonableness attached to that rate which has been, in effect, two years only because the carriers made it.

William H. Rehnquist:

Do we not assume that if had been unreasonable, ICC would have suspended it or caused an investigation to be made into it?

Frank H. Easterbrook:

If shippers or members of the public had protested, the chances of an unreasonable rate being set aside or investigated are considerably greater than if no one protests.

But in other even, Mr. Justice Rehnquist, the point is that it was a carrier-made rate to begin with and entitled to whatever presumption of reasonableness the carrier’s own rate proposals take with them.

But, if fine gradations can be made in line of presumptions of reasonableness, a responsive argument might be that rates that have never been in effect are not entitled to a presumption of reasonableness and that is all the more reason for the commission to suspend them while it studies them.

Mr. Easterbrook, the question of whether new includes initial or original, those petitioners rely on summary 364 and you do not mention it in your brief.

You do not find it troublesome?

Frank H. Easterbrook:

We do not find it troublesome.

In fact, we could not figure out what proposition they were sighting it for.

They quote from it.

When they produce or commence an interstate sale for a particular field, there are, by definition, no existing rates.

Accordingly, the suspension provisions which are bottomed on delaying the effectiveness of and suspending changes are not relevant.

Frank H. Easterbrook:

Mr. Brennan, that was the same proposition that this court made in the CATCO case, Atlantic Refining against the Public Service Commission.

It depends entirely on peculiarities and the statutory language concerning the Power Act.

The Power Act provides and the portion of it was discussed in CATCO and in that case, provides that regulated companies must file schedules “plainly stating the change or changes to be made in schedules then enforced.”

It then gives the Power Commission, now the Energy Regulatory Commission, the authority to suspend “such new schedules.”

so your amswer is that

Frank H. Easterbrook:

It is a very different statute.

William J. Brennan, Jr.:

And its terms deal only with changes.

Frank H. Easterbrook:

Yes, Mr. Justice Brennan.

William J. Brennan, Jr.:

And makes that clear, whereas, that is not the case with the statute.

Frank H. Easterbrook:

In the context of the Power Act, the reference is to change or changes in schedules then enforced.

Byron R. White:

But the 4E starts out when any such new schedule is found.

You would put a gloss on the word “new” as you have?

Frank H. Easterbrook:

I would not put a gloss on the word “new,” Mr. Justice White.

I would emphasize the word “such” because the “such” refers back to the things foregoing.

I might point out, by the way, that the statement in the portion of the opinion that Mr. Justice Brennan read and the statement in CATCO simply reflected what the Power Commission’s practice had been.

The Federal Energy Regulatory Commission has not decided whether it agrees with the Power Commission’s interpretation of that authority.

I do not want it in any way to foreclose the reconsideration of it.

But, I think it is important that the statutes are very different statutes.

Frank H. Easterbrook:

There are, however, some statutes that look exactly like Section 15-7.

Those statutes are in the Motor Carrier and Water Acts and in the Federal Communications Act.

Those statutes that look exactly like 15-7 talk about the suspension of new rates.

But, they unmistakably give the Commerce Commission and the Communications Commission the authority to suspend original rates even though they use exactly the language of 15-7.

Those statutes are discussed at pages 28.

Lewis F. Powell, Jr.:

Original or initial?

Frank H. Easterbrook:

Original rights and initial rights.

Lewis F. Powell, Jr.:

Do you think there is a difference?

Frank H. Easterbrook:

The difference appears nowhere in the statute, Mr. Justice Powell.

Lewis F. Powell, Jr.:

Neither word appears anywhere in the statute.

Frank H. Easterbrook:

The only word that appears in the statute is “new rates.”

Lewis F. Powell, Jr.:


Frank H. Easterbrook:

We have argued that any rate that does not represent a rate already in effect is a new rate.

It can be new because it is an increase.

It can be new because it has never been used before.

The word “new” stands in that statute in opposition to “old.”

These rates are as new as new can be.

It is very hard to find any rates newer than these.

Lewis F. Powell, Jr.:

If it is standing opposition to old, then is there not an implication that there has been an old rate?

The implications must be there had been an old rate if it stands as an end to old.

Frank H. Easterbrook:

Or, the fact that there simply was no old rate, that these rates, whatever else they might be, are not old rates.

If they are not old rates, then they are new.

Lewis F. Powell, Jr.:

My question is, perhaps you misapprehended my question, does it not use of the word “new” imply the existence of something that is old?

Frank H. Easterbrook:

We do not believe that it does.

I can refer to the popular usage of that.

When someone introduces a new product, it does not mean that it is replacing some old product.

It may be quite new.

It has never been used before.

Colored television was new not because it replaced something old, but because it was new.

Lewis F. Powell, Jr.:

It replaced non-colored television.

Frank H. Easterbrook:

Let me try black-and-white television.

Harry A. Blackmun:

Or, what about a new baby in the home when there has not been one there before?

Frank H. Easterbrook:

Also so, Mr. Justice Blackmun.

Harry A. Blackmun:

There had been people there.

Frank H. Easterbrook:

I can refer to an analogy under the Federal Power Commission practice, one of which this court is familiar in.

It is the definition of new gas.

Federal Power Commission treats as new gas, gas that flows from wells that have just been dug.

In fact, it has two categories of new gas.

One is gas from new flowing wells and another is increased flows over flows in existing wells.

They are both new gas.

That is the same kind of thing that is happening here.

The increase in an existing rate and a brand new rate are both thought of as new rates.

William H. Rehnquist:

Mr. Easterbrook, on whom is the burden of proof with respect to the suspension of a new rate under 15-7?

Frank H. Easterbrook:

The commission must find that the new rate appears to be unreasonable and it is required by the statute to state reasons for its decisions.

That implies at least that the commission has to make a finding.

There is no explicit allocation in the statute of a burden of proof.

William H. Rehnquist:

What is the difference between the way the commission proceeds under the last sentence of 15-7, where you are talking about a change in a rate, fare, or classification and the way it proceeds when it is talking about what you would describe as a new rate and which you say is different and broader than that?

Frank H. Easterbrook:

The commission understands that to state the circumstances under which it can, as a matter of a straight order, require refunds.

That sentence entered the Act in 1920 in the Transportation Act.

William H. Rehnquist:

Are you speaking of the last sentence?

Frank H. Easterbrook:

The last sentence of Section 15-7.

William H. Rehnquist:

All of the Transportation Act there was changed to the date.

I thought that was the last sentence of the Mann Act.

Warren E. Burger:

What my brother Rehnquist means is the next to the last sentence “at any hearing involving a change in a rate, fare, charge, or classification the burden of proof shall be upon the carrier.”

Is that not the sentence?

William H. Rehnquist:

I thought that was the last sentence.

Warren E. Burger:

I think it is the next sentence that penultimate sentence.

Frank H. Easterbrook:

I am sorry, Mr. Justice Rehnquist.

William H. Rehnquist:

Since the beginning, at any hearing.

Frank H. Easterbrook:

I now, I am afraid, have lost the thread of your question.

William H. Rehnquist:

How does the commission proceed differently?

As I take it, under your analysis, it would have to if a change in a rate or fare is a much narrower category of things, and then the filing of a new rate.

How does it proceed differently when it is going about suspending a changed rate than a new rate?

Frank H. Easterbrook:

Mr. Justice Rehnquist, as far as the suspension power is concerned, the commission’s position is that that sentence does not provide that a changed rate receives different suspension treatment than an original or an initial rate.

That is so for a number of reasons. One is that that same sentence appears in the Motor Carrier Act, Section 3-16, in which it is perfectly clear that Congress intended to give the commission the authority to suspend initial rates.

William H. Rehnquist:

Which was passed 25 years later.

Frank H. Easterbrook:

But, it adapted the language of Section 15-7 because Congress thought that that is what that language meant.

To that extent, Mr. Justice Rehnquist, Congress has spoken authoritatively on the meaning of that language and has adapted it and used it for a particular purpose indicating what it thinks that purpose is.

My second answer is that the commission’s view is that change, for the purpose of that sentence, refers not only to a change from a rate to a higher rate, but a change from no rate to some rate.

It is sufficiently broad.

It is necessary to read it that way in order to make sense of the Motor Carrier Act.

William H. Rehnquist:

Then, that means the same thing as new rate, does it not, under your definition?

Frank H. Easterbrook:

We believe it does.

William H. Rehnquist:

Why in the Mann Act did they used the word “new” in one sentence and “changed rate” in another sentence of the same section?

Frank H. Easterbrook:

I still believe that that sentence came in 1920 and it is the basis for petitioners’ claim of authoritative gloss, that Congress has placed an authoritative gloss on the word “new” by placing that sentence in the statute.

My response as to why the language is different is that Congress, in 1920, simply does not appear to have thought about the differences in the language but, that it does not appear to have used them in different ways in light of the way it treated that same language in the Motor Carrier Act.

The language came in without Legislative History.

Byron R. White:

What about the sentence?

At the expiration, the seventh-month period and rate goes into effect but there is a power in the commission to require records and a refund, it says “but in case of a proposed increase rate or charge for, in respect with transportation of property, the commission may order the interested carriers to keep up.”

If there is an original rate, there never has been a rate but the rate is suspended, as you say the commission has power to do, and seven months goes by and the rates go into effect.

Does the commission have the power under this language to require a record-keeping and refund?

Frank H. Easterbrook:

The commission has not interpreted that, although it entered a record-keeping provision here and the carriers did not contest to that.

Byron R. White:

Yes, but I take it, did it purport to exercise this power?

Frank H. Easterbrook:

It did not purport to exercise that refund power in this case.

Byron R. White:

No, this was a condition, an ancillary to your other argument, I suppose.

Frank H. Easterbrook:

It did set a condition.

It did not purport to exercise that power to set the refund condition.

Byron R. White:

You say that this language remains un-interpreted.

Frank H. Easterbrook:

The commission’s full attention has not yet been devoted to that language.

Byron R. White:

How about yours?

Frank H. Easterbrook:

Our position, Mr. Justice White, is that we need not devote full attention to it here because the commission’s order can be sustained quite fully on the grounds that it gave.

My submission so far has dealt with the problem of the suspension of initial rates.

If the commission can suspend rates, and we think it follows that it can announce some lower rate that it will not suspend.

The purpose of suspension, as I have said, is to prevent the charging of a price that appears to be too high.

It is not at all to stop the carriers from offering a service.

In order to determine what is too high, the commission must have at least a tentative view of how to distinguish excessive rates from permissible rates.

In stating reasons for suspension, the commission may decide and announce how it made that decision, how it established a tentative line.

It revealed here that the rates appeared to be too high because the carriers had used an improper method of computing the rate of return on investment.

If it had stopped there, petitioners could have figured out for themselves what rates they could have charged that will be low enough that the commission would not suspend them.

The commission performed that chore of the carriers.

Petitioners seem to think that the commission did too good a job of thinking through why their rates appeared to be too high and announcing its reasons.

But, it will be bizarre if the commission could proceed within the law only by concealing the reasons for its decisions.

Its statement of reasons should not expose it to a charge of illegal conduct.

Petitioners say, though, that this is rate-making without the formal hearings required for rate-making.

If the commission is having a good reason for believing that particular rates are too high is rate-making, then I suppose this case is rate-making.

But, that does not carry petitioners very far.

It is more a play on words than an argument.

Congress authorized the commission to suspend rates and required it to have reasons for doing so.

The commission complied fully with the statutory requirement of having reasons.

Petitioners’ attempt to hang a phrase on that decision does not do anything to impeach it.

But we do not, however, agree that this is rate-making as that word is understood within the meaning of Section 15-1.

The commission has opened a full investigation in the petitioners’ rates.

The rates will be made after full hearings that are now in progress before FERC.

They will then be subject to full judicial review.

This case concerns only the rates that were to be charged during the first seven months, months now gone by.

Congress clearly created, in the suspension power, a special control that could be exercised during those seven months without regard to the more formal proceedings with Section 15-1 that Congress knew consumed more than seven months to carry out.

The entire reason for having a suspension power is that rate-making cannot be completed in seven months and certainly cannot be completed before rates go into effect in the first instance.

Petitioners’ argument, that their rates during the first seven months were influenced by the suspension power and by the fact that the commission announced what made it think that the rates were too high, is nothing but a resurrection of their result of the suspension power itself.

If, as we argue, the commission can suspend initial rates all together, it can relax that suspension by stating reasons and allow lower rates during the first seven months.

The final argument here concerns the refund condition.

Frank H. Easterbrook:

This condition, we think, should be sustained for the same reason that the court upheld the commission’s decision in Chessie.

The condition is intimately related to the reasonableness of the rates during the seven-month period.

The commission was willing to take the carrier’s assertions about investment depreciation and the like at face value, only if it could be sure that any error in the carrier’s favor allowing the collection of excessive rates would eventually be corrected.

The commission was concerned about the level of the rates and if a refund condition were unavailable, the commission might well have been unwilling to approve rates even as high as those that are allowed to go into effect without suspension.

This court has held that the Federal Power Commission, which lacks a general power to order refunds, may condition the grant of the Certificate of Public Convenience and Necessity on the carrier’s willingness to make refunds.

The case in which it did that is United Gas Improvement Company against Callery Properties, 382US.

The court said, indeed, that a refund condition was essential to protect the public and that it could be made a condition even though Congress had been unwilling to provide the commission affirmatively with that power

.This court, itself, imposed a refund condition when it allowed petitioners to collect the rates that the commission had suspended.

The principle is really the same here.

The commission could have suspended outright and it can protect the public by conditioning non-suspension on the carrier’s agreement to refund rates later determined to be excessive.

In sum, the commission has used its suspension power for the purpose it was created to serve, to protect the public from rates that appear to be excessive and to do so during the seven months before a more thorough study can be completed.

This purpose applies to the suspension of original rates in just the same way as it applies to the suspension of any other rate.

This purpose explains why the commission can allow lower rates to go into effect, once rates that have not been too high have been proposed.

It demonstrates why the commission legitimately may request the carriers to agree to refund rates determined to be excessive.

The same purpose underlying the suspension power explains everything the commission did here.

Its decision is, therefore, correct.

Warren E. Burger:

We will not ask if the Attorney General of Alaska to fragment his argument.

We will resume at 1 o’clock.

Mr. Attorney General, you may proceed when you are ready.

Avrum M. Gross:

Thank you, Mr. Chief Justice.

Mr. Chief Justice, Associate Justices, May it please the court.

The court has already spent a great deal of time on discussing whether or not Section 15-7 which applies to new rates only really applies to changed rates.

I had intended to spend my time primarily on the interim rate question and the refund provision, which attended the ICC’s suspension of rates in this case.

However, before leaving the question of statutory interpretation, I would like to make one very simple but I think important point.

Section 15-7, on its face, is clear.

The language says that you may suspend a new rate.

I think under any common interpretation of the word “new,” this is a new rate.

The discussion in this court has focused primarily on other portions of the statute or other portions of other statutes, Congress enacting an amendment in 1920, Congress adapting legislation in 1940, and Federal Power Commission Act.

In my capacity, I worked with the state legislature a good deal.

It is asking, I think, a good deal for a legislature to be internally consistent within a lengthy Act all by itself.

Avrum M. Gross:

It is asking even more when you ask that subsequent legislatures, 10 or 20 years later, approaching the question from different points of view and in different statutes to be equally as consistent.

You can probably prove a lot or nothing through reference to subsequent statutes.

If the interpretation of this statute on its face, 15-7 and if “new rates,” meaning new rates, led to some illogical or strange result, it would seem to me that that interpretative process would be a very valuable one.

But, here, the statute makes eminent sense as it was originally written.

If you interpret “new” as only meaning changed, what you are really ending up with is a statute which protects the public for a substantial amount of its business and leaves the public absolutely defenseless for the filing of initial rates or new rates absolutely defenseless.

Certainly, the public needs the suspension power in the ICC, as this case so clearly demonstrates, certainly as much for new rates as it does for changed rates and the carriers are in no worst position when new rates are suspended than when changed rates are suspended.

For when a carrier files a changed rate, by definition, it is asserting that the rate which it is changing is unreasonable and is leading it not to make a reasonable profit.

So, suspending a changed rate leaves the carriers in no worst position than they claim they are here today.

What I am suggesting is that simply taking the sentence as it was written and interpreting it in its normal fashion will lead to an extremely sound and logical result.

If you stretch and reach for an unusual result, you will arrive at a system which leaves a whole area of regulation open.

For the remainder of my argument, I would like to focus on the suspension power.

I am going to assume that the court will hold that there is a suspension power over newly filed rates and focus on whether the interim rate procedures used in this case, and the refund provision adapted it as a condition to filing interim rates, was a valid exercise of the ICC’s power.

The question simply stated is whether the commission’s actions were directly related to its power to assess the reasonableness of rates filed before it and to their power to suspend rates pending an investigation.

To analyze that relationship, you have to understand a little bit more about the background of these proceedings because if you do, it not only shows the soundness of the statutory interpretation which was urged earlier by Easterbrook.

But also, that both of the procedures used by the ICC when it suspended rates and suggested a level of interim rates which would accept and require a refund provision are not only rationally related to their review function but absolutely necessary to the exercise of that power.

I am here, of course, as a representative of the people of Alaska who, for the last three or four years, have undergone what we at Alaska laughingly refer to as pipeline impact.

Pipeline impact, roughly defined, is inflation, increased crime, housing shortages, and crowded classrooms.

These are caused by rapid infusion of people into a state with no facilities to handle them.

Warren E. Burger:

Something like an occupying army?

Avrum M. Gross:

Something like that, Mr. Chief Justice, very close.

The Arctic Slope Native Corporation, which is not here today but represented in part by myself, had it even worse.

They suffered not only the things I spoke about, but they suffered cultural dislocation on the Eskimo community in the North Slope.

Traditionally, that type of impact is met by socialite action of one sort or another.

To do that in Alaska, we need money.

The money comes from the oil and, thereby, lies the problem.

The money that comes to the State of Alaska from the production of oil comes from its royalty and its severance tax.

Both of which are based on the wellhead value of the oil.

The wellhead value is inversely related to the cost to transport the oil to market.

The higher the tariff, the less the State of Alaska receives specifically, for each penny that the tariff is too high, the state of Alaska receives $1 million less a year.

$2 equals $200 million and in a state whose budget has never exceeded $1 billion, that is an exceptionally large amount of money.

Avrum M. Gross:

When these tariffs were filed, in our view, they were initially too high, something between $2 and $2.50 too high.

We alleged, before the ICC, that the tariffs were outrageous for a number of viewpoints.

First, that the depreciation was improperly calculated, that the costs of building the pipeline had been vastly overblown, the taxes had not been treated properly, and a whole host of things.

We pointed out before the commission that we believed, and our calculations, the companies would receive a return on their equity of something approaching 46%.

The oil shippers responded to us, pipeline companies, by saying “there is no real problem.

Wait for your money.

There is a situation.

You can get reparations.”

If this commission ultimately decides that the rates are too high, you can always go through the judicial proceedings required to obtain reparations.

We replied before the commission that that was totally unsatisfactory for two reasons.

The first one was that it was simply our money and not theirs and we had a right to receive it.

But, the second reason was the most important.

We had an immediate need for the money.

We had suffered impact for years.

We had children who were crowded in classrooms.

We had serious social conditions which we were trying to alleviate.

We needed the money to do it.

As the counsel for the North Slope pointed out before the ICC so eloquently, it was small solace to an Eskimo child to be told that, sometime down the road, there would be money for a school.

That did not do much for his education.

We felt that reparations would be inadequate and a risky remedy.

Legally, it is extremely risky.

Traditionally, in reparations cases, of course, the shippers seek the reparations.

But here, as the court has undoubtedly noticed, there does not seem to be much of an outrage from the shippers for the costs of shipping this oil down the pipeline which is not terribly surprising since the people who own the oil who are shipping it own the subsidiaries who operate the pipeline.

John Paul Stevens:

Is it not also true that the price of the oil at the end of the pipeline is not really much affected by the rate?

Avrum M. Gross:

That is correct.

John Paul Stevens:

That is because?

Avrum M. Gross:

That is because the price of oil in the west coast market is primarily set by competition with Saudi Arabian crude and, whatever these transportation rates are, the oil cannot go above that price.

That is competitive basis.

John Paul Stevens:

Even if the original or initial price—

Avrum M. Gross:


John Paul Stevens:

The cost to the oil could be competitive.

Avrum M. Gross:

Yes, that is correct.

John Paul Stevens:

With the imported oil.

Avrum M. Gross:

That is correct.

John Paul Stevens:

Are there not some independent producers up there not tied into the pipeline?

Avrum M. Gross:

Yes, but they are extremely minimal.

Their interests are minimal and I suggest that the take on the major oil companies over an issue of whether the tariffs should be $1 higher or 50 cents higher is an impractical situation.

We sought the suspension rate before the Interstate Commerce Commission because we wanted to receive our royalty and our severance tax now.

The ICC reviewed the rates and it balanced a whole host of needs.

It balanced the state’s needs for its money now.

It balanced the North Slope’s need for its money.

It considered the availability of reparations, the likelihood of the tariffs being eventually approved, and if so, at what level.

The fact that the shippers were owners of the pipeline companies themselves and, therefore, the damage, if any, would be minimal and the fact that a suspension would only be in effect for seven months.

They concluded, after all that, that they would accept the company’s factual data though it was severely challenged by the petitioners.

That it would refuse to accept one aspect of their methodology, in essence, the law of the case and would approve interim rates filed at a level which use the appropriate methodology as spelled out by the ICC and the company’s numbers saying the numbers can be challenged in the investigation.

In essence, it was very much like a summary judgment where the facts were accepted and the ICC, in essence, said “you are mistaken as to the methodology you should use.

The ICC accepted interim rates which, in its view, would have resulted in a more than satisfactory return on equity but would have resulted in $1.37 less per barrel.

That would have been about $70 million for the State of Alaska.

The ICC could have played what I can only consider is games.

It could have turned their rates down.

It could have said it is your guess how to get to the right number.

“You try and figure out what we just said.”

The companies could have come in with a new number.

The ICC could have thrown that one out and they could have gone back and forth.

But, the ICC did something different.

It said “here is what we mean.

Your rates do not qualify because you are using the wrong methodology.

Here is the right methodology and here is what it would produce.”

Anything below up to that level will approve providing that you also impose a refund condition, that you also assure us that if we allow you to collect this tariff during the seven-month period, which is based on numbers which are severely under challenge and which we frankly anticipate that the final tariff will be substantially lower, that you require or you setup a system to refund the excess to the State of Alaska and the Arctic Slope which needs this money quickly.

Harry A. Blackmun:

Mr. Attorney General.

Avrum M. Gross:


Harry A. Blackmun:

May I ask, on that refund provision, we have a refund provision on our state order.

Avrum M. Gross:

In your state, I am sorry, yes.

Harry A. Blackmun:

Our state order includes the refund.

Avrum M. Gross:

Yes, sir.

Harry A. Blackmun:

Does that supersede the ICC’s refund order?

Avrum M. Gross:

Yes, I would assume so.

Harry A. Blackmun:

If it does, then one of the questions presented by the petitioners is the validity of that refund provision in the ICC order.

Is that before us or is that superseded by our refund provision?

Avrum M. Gross:

As I understand it, the ICC state order requires the companies to keep the moneys isolated that would be collected between their interim tariff and the tariff which was ultimately approved.

What you did is you stayed the ICC’s order requiring the interim tariff or setting at the level of the interim tariff.

You permitted the companies to collect the tariffs that they had originally filed and required that they keep an accounting between this higher tariff and the interim tariff.

That money, supposedly, is in a fund.

Harry A. Blackmun:

That is the greater, is it not?

Avrum M. Gross:

I am sorry?

Harry A. Blackmun:

That is the greater.

Avrum M. Gross:

Yes, as a matter of fact.

Harry A. Blackmun:

Does that swallow up the lesser?

Avrum M. Gross:

In any event, if you rule in our favor, the money will come back to us through one vehicle or another.

Warren E. Burger:

Is it not a bit like a dependent relative revocation.

If one does not hold, the other one takes over.

Avrum M. Gross:

Something like that, yes, Mr. Chief Justice.

John Paul Stevens:

I think they do not have the same time period, do they?

It is conceivable we would decide or make a decision as to the top branch that would leave the other still in effect.

You would still need the reparations for continuing proceedings before the commission, would you not?

Avrum M. Gross:

That is correct.

Within the time frame of seven months, the court order protects it as well as the ICC order, beyond the seven months, it is only the ICC order.

John Paul Stevens:

So we must decide the rule of these reparations provision in the commission’s interim order?

Avrum M. Gross:

Yes, sir.

Lewis F. Powell, Jr.:

If we agreed with the petitioners that the refund provision were invalid and the ICC order, if that issue is still before us, that is pretty Para 50 for them as long as our refund order remains in effect.

Avrum M. Gross:

As I read it though, your order was somewhat contingent upon the validity of the ICC’s suspension order.

Were you to say that they had no power to suspend, I would assume that your order would not operate in our favor.

I only wanted to say, as a last word, that I think it is important to realize that if this refund provision were not in the order of the ICC order, I think it is very reasonable to assume that the ICC level of interim rate would have been substantially less than was ultimately adapted.

Therefore, the two are intimately related.

Thank you very much.

Warren E. Burger:

Thank you, Mr. Attorney General.

Mr. Kilcarr, may I ask you this question first, perhaps it has already been covered.

Suppose instead of the rate that was asked for, you would ask four times that rate, would you think there would be no remedy?

What would you think the ICC power would have been?

Andrew J. Kilcarr:

Your Honor, that very question intrigued the commissioners and intrigued all three of the Justices on the Fifth Circuit panel that we argued before.

Our position then, and our position now, is suggesting respectfully that the question does not make commercial sense.

But assuming that, for purposes of this argument, our position would be that the ICC could not suspend that rate even though it was at an outrageously high figure.

Warren E. Burger:

Could they impose an impoundment requirement or does that stand flow with the suspension?

Andrew J. Kilcarr:

Impoundment in terms of a refund order.

Warren E. Burger:

Would there be any remedy absent to suspension?

Would there be any other remedy that they could deal with a rate which you concede, for these purposes, four times too high?

Andrew J. Kilcarr:

In a very literal sense and on the basis of statutory interpretation, the answer there would be no also.

Lewis F. Powell, Jr.:

Would there be a right to reparations?

Andrew J. Kilcarr:

That is the critical element in all of this, Your Honor.

Correctly so that the statutory plan, the congressional plan, calls for reparations.

I would like to come back to the Chief Justice’s question because what has intrigued us every time that question has been asked is the other side of the question.

If you assume suspension power, as our opponents do, could the commission set a rate for the transport of that oil at, say, $1?

The answer in those circumstances, and they have answered that question affirmatively before the Fifth Circuit, is yes, they could.

Where does the balancing come in?

I suggest respectfully that the balancing comes in when we are dealing with a rate established in the first instance or an original rate.

That the agency does not have authority to suspend that rate and to the extent that the hearing which does take place after it is filed, to the extent that the hearing finds that the rate was excessive, then the shipper has the right of reparations.

If on the other hand and what destroys this delicate balance, if on the other hand the agency asserts authority and suspends and then finds that interestingly the rate that was filed was a correct rate within the zone if reason, the carrier has no way to recover the moneys lost as a result of that suspension and as a result of that interim rate being set so low.

That, we consider to be the balance.

The Attorney General has made what is essentially an equity argument, talking about the need for money now in the State of Alaska and not wanting to wait until a reparations determination has been made.

But, the situation for the carriers, Your Honors, is that if we were right and we believed we were right and we did not overreach when we prepared and filed those original tariffs for the period July 31st through October 20th, when the stay of this court was entered, we will never recover that money.

Andrew J. Kilcarr:

That is tens upon millions of dollars.

Warren E. Burger:

Putting aside the question of the equities, whether they are relevant or not, there is a certain lack of parallel.

In the one case, the ICC is presumably neutral, whereas, in the first instance those fixing the rates are not neutral by definition and not neutral on the subject.

I do not mean that in any pejorative sense.

They are interested in the economics of it.

Andrew J. Kilcarr:

May I quickly respond, Mr. Chief Justice, by pointing out that although not neutral in that sense, the carriers when they sat down to calculate their rate had a formulation that existed for 35 years in the industry, that literally thousands upon thousands of pipeline rates had been calculated on the basis of and that this agency had never questioned in those 35 years.

It had never questioned that formulation and it is a formulation that was exposed to this court, and found to be a reasonable interpretation of the Consent Decree that was entered in 1941.

We were not completely alone and unfettered when those rates were calculated.

Mr. Justice White?

Byron R. White:

Suppose that we disagreed with you on your reading of prior commission cases in terms of how it has construed the statute down through the years.

Say, form 1920 on, we just disagreed with you that the commission has always asserted and read the statute as permitting it to suspend rates whether they are new, initial, or original.

What would be your response then?

Andrew J. Kilcarr:

I would say it would have weight, but not controlling weight, Mr. Justice White.

I would say further that what this court should look at for purposes of this question of statutory construction and interpretation is what the commissioners in 1910 sought from the Congress and what they said to the Congress about the authority that they sought.

Byron R. White:

It does not especially worry you that the amendment which was made with respect to changed rates and the burden of proof in the 15-7?

Andrew J. Kilcarr:

It does not worry us, Your Honor.

Indeed, we view that as a complimentary Act on the part of the Congress.

We view the Cummins Amendment in 1920 as using language believed to be synonymous with the “new rate” language used in 1910.

We do not see it as a divergence or as supportive of some limitation on the original line.

Byron R. White:

Who has got the burden of proving the reasonableness of an original rate, as you call it?

Andrew J. Kilcarr:

In a hearing, Your Honor?

Byron R. White:


Andrew J. Kilcarr:

In a hearing, we would have that burden.

Byron R. White:

Who has got the burden of establishing the unreasonableness of a change?

Andrew J. Kilcarr:

I misspoke.

I am terribly sorry.

Byron R. White:

I thought you did.

Andrew J. Kilcarr:

I am terribly sorry.

In a hearing, and we already have an order to this effect, the protesters have the burden.

Byron R. White:

Who has got the burden of proving the reasonableness of a changed rate?

Andrew J. Kilcarr:

The carrier in the hearing.

That is what that provision speaks to in that last provision.

It was entered at the end of 15-7.

Byron R. White:

That shows some awareness by the Congress as a difference between a changed rate and an initial rate because the burden of proof is different.

Andrew J. Kilcarr:

It is reflective, I suggest, Your Honor, of the agency practice that had grown up, up to that point, where the concept of an initial rate achieved a life of its own.

But, we have suggested that that life of an initial rate is not so broad as to encompass this rate established in the first instance, this first rate for a new entity, this original rate regardless of the label.

The label has been confusing, Mr. Justice White and that is why having to at least our satisfaction analyze the legislative history and looked at those old and new ICC faces.

Byron R. White:

Do you see any statutory difference between the Motor Carrier Act and the Interstate Commerce Commission Act for 15-7 purposes?

Andrew J. Kilcarr:

I do not believe it is clear, Your Honor, that under the Motor Carrier Act an original rate such as this could be suspended.

Byron R. White:

You take the same position with respect to the Motor Carrier Act as you do here?

Andrew J. Kilcarr:

I think that is a responsible position, but there is something even more important in the Motor Carrier Act and most of the others.

Indeed, all of the other statute cited for purposes of suggesting this pattern of congressional activity and the difference is that they are all licensing statutes.

15-7 is not a licensing statute.

The licensing authority can withhold the license if the original rate is unacceptable.

It does not have to get, in a very material sense, to the question of suspension.

It simply withholds the license.

William H. Rehnquist:

Mr. Kilcarr.

Andrew J. Kilcarr:

Yes, sir?

William H. Rehnquist:

Is there any reason that you know of, other than tradition, which would prevent the ICC or the FERC in a 15-1 proceeding from holding it on an expedited basis and having witnesses and findings?

Andrew J. Kilcarr:

I know of none, Your Honor, and we suggested just that alternative in the oral argument before the commission on June 27th that it could have been done on an expedited basis.

John Paul Stevens:

Mr. Kilcarr, as a matter of curiosity, has the term “common carrier” as a matter of statutory definition included a pipeline company since 1887 since the conception of the Act?

Andrew J. Kilcarr:

I believe it came into the Act later, your honor, and I cannot give you the precise date but the pipelines did come in, I think, under the Hepburn Act in 1906 but I am not sure.

John Paul Stevens:

I did know that pipelines really existed until about the late 1930s or so.

Warren E. Burger:


Andrew J. Kilcarr:

No, they did.

They were part of the standard oil Cartel case that was decided by this court in 1906 and that was the essence of that litigation.

Warren E. Burger:

Interstate pipelines.

Andrew J. Kilcarr:

Yes, sir.

Warren E. Burger:

Thank you, Gentlemen.

Andrew J. Kilcarr:

Thank you, Your Honor.

Warren E. Burger:

The case is submitted.