and higher rates in others which is our freedom to do in any form of regulation we have to meet competition? Mr. TURNER. But don't you have studies now in the ICC, studies made either in 1969 or maybe even more recently, that show whether or not pipelines are exceeding the level of appropriate rate of return on a point-to-point basis as well as an overall basis? Don't you have that? Don't you know? Mr. STAFFORD. We are not aware of any point-to-point studies of any kind. I recall one committee hearing that I was in where there was some question about the fact that they charged a lower rate on one segment. Mr. TURNER. Have you ever asked for information to provide you with ability to weigh whether a segment rate is discriminatory? Have you ever asked for that? Have you ever looked at that on your own volition, not doing it for someone else? But have you ever looked at these rates to see where they may be discriminatory? Mr. STAFFORD. We have not Mr. TURNER. I know you had no complaints. I have heard that several times. Senator METCALF. Let us hear the witness' response to the question before you ask him another one. Go ahead, Mr. Stafford. Mr. STAFFORD. He doesn't scare me, Senator. Mr. TURNER. He scares me. Mr. STAFFORD. We have a limited amount of, as we said in our statement, of regulation available to us by law. Because we have so little problems involved in this area, because basically, this is basically one of the big carriers. They are giving the lowest cost service of any form of transportation that there is. They are a good buy in today's market, but to get back to your point, no, we have not made any point-to-point studies of any of the rate other than what we see and can see going beyond their limitation of 7 percent. Mr. STAFFORD. I am not sure. Of course that is a different operation because this will go, the pipeline itself is all within one State. However, we rule on the basis of the product being carried. It will be going into intercoastal waterways beyond that. So it will take a little closer surveying on our part. But we still have several years before we will have to. Mr. TURNER. With respect to the trans-Alaska pipeline, are you presently studying or obtaining information with respect to interlocking directorates between the owners of that line and suppliers, contractors, and financial institutions providing financial resources to the trans-Alaska pipeline? Are you looking at that? Mr. STAFFORD. NO. Mr. TURNER. In other words, if someone comes in with a complaint you would look at that? Mr. STAFFORD. I am sure we would if there was some complaint about that. Mr. KAHN. Mr. Turner, once again you are in the area where the Commission has no jurisdiction. Mr. TURNER. Are you saying that you have no jurisdiction with respect to section 10 of title XV of the United States Code? Mr. TURNER. I don't think you would know this, but I would frame the question that perhaps you might inquire into it or use this as an example of the kind of information I am talking about. On the Colonial pipeline, I am informed that the barrel-mile rate to Atlanta, Ga., is higher than the barrel-mile rate to New York City. Mr. STAFFORD. Yes. Mr. TURNER. There are many implications. Mr. STAFFORD. This was to meet competition. They did not go beyond the legal level. I recall, I believe, there was a committee meeting in the House that I appeared before. Mr. TURNER. But this kind of investigation as to pipeline rate, segment rates, and so forth, you don't have a continuing inquiry into that? Mr. STAFFORD. NO. Mr. TURNER. You merely look at the form P's, I guess that is the name of the form, that come in at the end of the year and see what their rate of return was on those forms. Beyond that, you make no other investigation? Mr. STAFFORD. That is right. Mr. TURNER. And the same will be true with the trans-Alaska pipeline, I presume, or would you have a separate kind of investigatory capacity? Mr. KAHN. I am saying again, Mr. Turner, that I would appreciate being enlightened as to the relationship between the Clayton Act and the Interstate Commerce Act where the Commission has no jurisdiction under the Interstate Commerce Act. Mr. TURNER. I don't want to get into a dialog on section 7. It was my understanding that you have just as much jurisdiction to require those companies to divest themselves of that line under section 7 as the Federal Power Commission does and as the Department of Justice does. Mr. KAHN. That is Clayton 10, is it not? Mr. TURNER. It says that Mr. KAHN. Isn't that the Clayton Act? Isn't that also another provision of the Clayton Act? Mr. TURNER. Yes. Mr. KAHN. I would pose the same question of you, Mr. Turner, with respect to section 10 as I did with respect to section 7. Mr. TURNER. This section 10-let me read it— After 2 years from the approval of this act, no common carrier engaged in commerce shall have any dealings in securities, supplies, or other articles of commerce or shal make or have any contracts for construction or maintenance of any kind, the amount of more than $50,000 in the aggregate in any other year with another corporation, firm, partnership or association when the said common carrier shall have upon its board of directors or as president, manager, or as its purchasing or selling officer or agent any person who is at the same time a director, manager or purchasing, selling officer with a substantial interest in the other corporation, firm or partnership. Then it goes on to say that-well, you know what I am referring to. I am just wondering whether or not with respect to that section, whether the Interstate Commerce Commission is given certain jurisdiction, whether or not you are looking into any possibilities of this happening with respect to the Trans-Alaska pipeline. I am not suggesting there are any violations. I am merely asking whether or not you are obtaining that information. Mr. KAHN. The answer is no. Mr. TURNER. Thank you. Mr. STAFFORD. We don't have the authority. Just to make the record complete, we do not have the authority, sir. Senator METCALF. You do not believe you have the authority. Mr. TURNER. I have no further questions. Senator METCALF. I have no further questions, either. Both Senator Brock and Senator Percy had anticipated being here. They have a real concern and an interest in this area. I know that if they had been able to get away from some other committee meeting, they would have been here. I know that they will study the record. Again, I want to applaud the Commission for its activities in going forward after the publication of the disclosure by the committee in following through on the nominee lists and getting aggregates. The activity of the Southern Railway in getting together the various nominees and being able to submit a list of the aggregate ownership shows that it can be done by all. I hope that the Interstate Commerce Commission will press for that kind of information gathering. I think we are on the right track. Mr. STAFFORD. Thank you, Mr. Chairman. Senator METCALF. Thank you very much for coming, Mr. Stafford. Thank you for bringing your staff with you. Thank you for the response to our inquiry. This is the conclusion of the hearing this morning. The subcommittee will reconvene tomorrow here in this room at 10 a.m., at which time we will hear from Hon. John N. Nassikas, Chairman, Federal Power Commission, and Hon. Phillip S. Hughes, Assistant Comptroller General, General Accounting Office. [Information subsequently supplied for the record follows:] NORTON SIMON, Los Angeles, Calif., May 28, 1974. Mr. VIC REINEMER, Senator Lee Metcalf's Office, U.S. Senate, Washington, D.C. DEAR VIC: As I mentioned to you on the phone, recent testimony by Mr. McCormick of ICC Chairman Stafford's staff before your Subcommittee is incorrect with respect to my role in the supposed ICC follow-up to Mr. Simon's complaints about proper disclosure in a recent security offering. Mr. McCormick stated that Mr. Simon was given an opportunity through a meeting with me to participate in ICC proceedings leading to approval for sale of the $60 million Burlington Northern bond issue. He further stated that I declined, citing Mr. Simon's current position on the BNI board as the reason. However, I did not meet with Mr. McCormick or discuss this matter with him at any time during that period. The facts are that the only meeting I have ever participated in with Mr. McCormick took place in Mr. Grady's office in the ICC building in Washington, D.C. on Feb. 7, 1974. This meeting was called at my request so I could develop a better understanding of ICC public disclosure policies. The meeting took place several weeks after the Burlington Northern filing had been approved by the ICC, some 23 days after the bonds in question were actually sold to the public, and 15 days after Mr. Simon had resigned from the Burlington Northern board in protest. I would appreciate it if you would include these relevant facts in the published record of the Subcommittee's proceedings. In the public interest, this misstatement by a public official should not stand uncorrected. Sincerely, MR. E. WINSLOW TURNER, ALVIN E. TOFFEL, Special Consultant to Norton Simon. STANLEY H. RUTTENBURG & ASSOCIATES, INC., Washington, D.C., April 24, 1974. Chief Counsel, Subcommittee on Budgeting, Management and Expenditures, Senator Lee Metcalf, Montana, Chairman, U.S. Senate, Washington, D.C. DEAR MR. TURNER: I am responding to your invitation to cite chapter and verse on the lack of information in the Interstate Commerce Commission on joint venture oil pipeline "systems". There are two types of oil pipeline joint ventures. The first is the 35 pipelines which are separate and clearly identifiable corporations owned by two or more oil companies. Like any corporation, they maintain a set of books which reveals their operating figures, balance sheet, and other pertinent data. These data are reported on Form P annually and quarterly. The second is the 22 oil pipeline "systems" (Trans-Alaska Pipeline will make it 23) for which there are no statistical, financial, or economic data. The reason is simple: a "system" pipeline, also called an "undivided interest" pipeline, is not a separate corporation. Instead, each joint venture owner records its proportionate share of the system on its own operating data where it become entirely invisible in the consolidated figures. We examined the Gulf, Shell, Indiana, and ARCO annual reports because these are companies who are partners in pipeline systems. There was not a single instance of identification of operating results for the systems ownership. The following observations are in order: 1. The ICC has never collected any financial operating figures on oil pipeline "systems" as they have on the 35 joint venture stock companies or 64 other singly owned oil pipelines. There is no information on debt-equity ratios because the ICC has no information on debt. There are no barrelage shipments and it is not possible to assess efficiency of capacity usage. There are no figures on dividend appropriation which would permit the ICC to police capital investment. The whole subject of pipeline "systems" in the ICC is a vast mystery because of the absence of data. Equally significant is that no one there seems to be aware of or concerned with this vast gap. 2. The ICC, charged with responsibility to regulate pipeline systems in accordance with the 1941 consent decree of return on investment, does not have the means to do so. Although they presumably have the ability to arrive at a valuation figure, they do not have the net profit figures and hence cannot tell whether the returns on valuation fall above or below the consent decree guideline. In other words, there is an abdication of regulation on investment return. 3. An ICC staff economist said that system pipeline rates are reported to the ICC by each participant. If there had been a rate complaint, he added, the ICC might go into return on investment for the specific instance but there has never been a complaint. This begs the question. The ICC has the responsibility to enforce the consent decree on its own initiative with or without complaint. If rates were set too high and all shippers-owners and non-owners-paid that rate, all would receive equal treatment. The nonowner shipper would have no basis on which to make the complaint because he pays as much or as little as do the others. In the meantime, the owners could reap exhorbitant rebates in the form of dividends. 4. It has been remarked that "systems" pipelines as a whole are much smaller than the stock company joint venture pipelines and hence are not particularly important. That is not true now and will be even less true in the future. Capline is a very large "system" pipeline going from Louisiana to Illinois and Bayou is a relatively large line from Texas to Baton Rouge. Transcending all in importance, however, is the fact that Trans-Alaska Pipeline is set up as a system and it will surely rank along with Colonial as one of the two most significant oil pipeline transportation systems in the U.S. 5. According to ICC technicians, nothing stands in the way of the Commission's ability to gather information on pipeline systems. There is always a designated operator of a system and it would be easy to make that operator the focal point for the information. Moreover, the ICC has the statutory power to collect this information. We hope the foregoing will be of assistance to you and we are at your disposal for any further help. Please convey our warm regard to Senator Metcalf for the fine public service he is performing. Sincerely, NORMAN MEDVIN, [Whereup, at 11:45 a.m., the subcommittee recessed, to reconvene at 10 a.m., Wednesday, April 24, 1974.] CORPORATE DISCLOSURE WEDNESDAY, APRIL 24, 1974 U.S. SENATE, SUBCOMMITTEE ON BUDGETING, MANAGEMENT, AND EXPENDITURES AND THE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS, Washington, D.C. The subcommittees met at 10 a.m., pursuant to recess, in room 3302, Dirksen Senate Office Building, Hon. Lee Metcalf (chairman of the Subcommittee on Budgeting, Management, and Expenditures) presiding. Present: Senator Metcalf. Also present: Vic Reinemer, staff director; E. Winslow Turner, chief counsel; Lyle Ryter, minority counsel; Álan Chvotkin, professional staff member; and Jeanne McNaughton, chief clerk, of the Subcommittee on Budgeting, Management, and Expenditures; and Alvin From, staff director; Jane S. Fenderson, counsel; and Lucinda T. Dennis, chief clerk, of the Subcommittee on Intergovernmental Relations. Senator METCALF. The subcommittees will be in order. This is a continuation of hearings of the Subcommittee on Budgeting, Management, and Expenditures and the Subcommittee on Intergovernmental Relations on Corporate Disclosure. This morning we are privileged to have before us the Chairman of the Federal Power Commission who is going to discuss some of the problems of the Commission, Mr. Nassikas. You have a prepared statement. We are honored and privileged to have you here before us today. If you will identify your colleagues and go right ahead. STATEMENT OF HON. JOHN N. NASSIKAS, CHAIRMAN, FEDERAL POWER COMMISSION, ACCOMPANIED BY EMMETT J. GAVIN, ASSISTANT TO THE CHAIRMAN; LORIN H. DRENNAN, JR., CHIEF, OFFICE OF ACCOUNTING AND FINANCE; DANIEL GOLDSTEIN, ASSISTANT GENERAL COUNSEL; DAVID S. SCHWARTZ, ASSISTANT CHIEF, OFFICE OF ECONOMICS; WILLIAM POWELL, CHIEF, DIVISION OF SYSTEMS, OFFICE OF ACCOUNTING AND FINANCE; CHARLES FRANKLIN, CHIEF, DIVISION OF REPORTS AND STATISTICAL ANALYSIS, OFFICE OF ECONOMICS; AND DANIEL LAMKE AND FRANKLIN P. GOULD, OFFICE OF GENERAL COUNSEL Mr. NASSIKAS. Thank you, Mr. Chairman. I am most pleased to be here today. Starting from my right, Dr. David Schwartz, Assistant Chief of Economics; Emmett Gavin, my Administrative and Legal 33-456 (Pt. 2) O 74 - 10 |