In addition, we note that the shippers' position is premised on the theory that all rates should bear a uniform relationship to cost. This theory would require that all of a carrier's rates include a pro rata share of the carrier's fixed costs. However, such a requirement would preclude a carrier from transporting traffic that, for one reason or another, would not move at so high a rate level. Yet, it is in the interest of both the carrier and its shippers that such traffic be handled, if it will move at any rate level above the variable costs incurred to transport it. Any contribution that such traffic makes to the coverage of the carrier's fixed costs reduces the fixed-cost burden to be borne by the carrier's other traffic. Thus, a carrier's rates are not required to have a uniform relationship to cost, but may take into account other factors, such as competition and demand.

In this proceeding, the Shipper Group concedes' that the joint rates are high enough to be compensatory. The record indicates little likelihood that they could be substantially increased. Even at their existing level, the volume of the through traffic moving during the period of initial operations was less than anticipated. It was the opinion of Explorer's president that they were at about the highest level that the traffic would bear.

In fact, the Shipper Group does not seek to have the joint rates raised, but rather to have the local rates lowered. To illustrate the magnitude of the reductions desired by the shippers, we have set forth below their comparison of the respective rates to total costs, including a pro rata allocation of fixed costs:

We do not accept the particular cost calculations underlying this table, because they assume an original cost rate base. Nevertheless, it can be seen from this table that substantial reductions in the local rates would be required to place them in the same relationship to cost as the joint rates. Clearly, if such reductions were required, the level of WBPL's total revenues would be jeopardized. We find no warrant for such reductions where WBPL's revenues under existing rates have not been shown to be excessive.

Finally, we agree with division 2 that no issue of discrimination arises from the ownership of Explorer by its shippers. As the division found, Explorer is a separate entity from its shippers, and its arrangements with WBPL are not within the purview of section 2. Whether shipper ownership of petroleum pipelines has undesirable anticompetitive effects is another question. That question is now under consideration by the Commission in a proceeding instituted February 19, 1976, in Ex Parte No. 308 (Sub-No. 1), Investigation of Common Carrier Pipelines.

FINDINGS

On reconsideration, we conclude that the ultimate findings of division 2 are correct and should be affirmed.

Thus, we find that in dockets No. 35533, No. 35533 (Sub-No. 1), and No. 35533 (Sub-No. 2) the rates are just and reasonable and otherwise lawful; in fourth-section application No. 42327 authority be granted to establish and maintain increased rates without observing the long-and-short-haul provisions of the Interstate Commerce Act; in dockets No. 35540 and No. 35720 the rates are not shown to be unjust and unreasonable and otherwise unlawful.

COMMISSIONER O'NEAL, dissenting:

In my view this record is not sufficient for this Commission to find that the rates of WBPL are just and reasonable. Moreover, while the Shipper Group (within the limitations of its access to information) may have failed to prove either preference and prejudice or discrimination, it has raised serious questions concerning these matters as well as the undesirable anticompetitive effects possible because of the nature of WBPL's joint rate with the shipper-owned Explorer pipeline. Accordingly, those considerations make it impossible for me to be sanguine about the majority's resolution of the issues relating to competition.

Last year division 2 reached the same ultimate conclusion as the majority has in these proceedings (351 I.C.C. 102). Former Commissioner Corber dissented' making a number of points which still appear to be valid.

Among other things, Commissioner Corber raised questions concerning the tying of reasonableness to some theoretical value of the pipeline as a function of the Commission's valuation process. He urged consideration of determining reasonableness on the basis of a fair rate of return on shareholder's equity or on the basis of a combination of such return and a return based on the cost of debt. No such alternatives have yet been adequately explored and it does not seem sufficiently dispositive of the issue in these proceedings to say, in effect, that pipeline rate of return will be reexamined in another pending proceeding or that the instant rates should be approved because we based our findings on the ICC valuations approach in 1940, 1941, and 1944.

The lawfulness of certain challenged rates is in issue here. Much more than the majority's passive, almost mechanical, response is Commissioner Corber's dissent appears at 351 I.C.C. 127-132.

required for fair resolution of these important issues in the public interest. I do not subscribe to the view that a fundamental change from previous policy may not properly be adopted for the first time in a proceeding involving the existing rates of a particular pipeline. An earlier approach by the ICC must not be used to sanction unlawful rates if that analysis and the resulting policy is in error. Equity could warrant softening of the impact of the new findings, but it certainly does not bar correcting any major ratemaking principles believed to be in error. Prior policy pronouncements do not bar new analysis necessary in examining particular rates or new conclusions on the issue of their lawfulness based upon that analysis. Especially is that true in this case since it is the first oil pipeline rate case to come before the Commission in over 30 years. Should it be otherwise, 35 years from now in the year 2011 the Commission or a successor agency may be looking back to this decision as a policy pronouncement barring a new objective analysis of the lawfulness of the then existing rate of a particular pipeline.

This case was reopened over a year ago for the purpose, I thought, of examining the basis for division 2's decision in this case which rested primarily on precedent. But as happens in too many important cases, the agency has done little more than review additional representations of the parties. The challenging shippers. are clearly at a disadvantage in this case, suggesting strongly that we should not rely solely on the submissions of the parties in making our decision.

Take, for example, the appropriateness of a 10-percent rate of return, which has been challenged in addition to and independently of questions about what is a proper rate base. A 10-percent rate of return seemed reasonable to this Commission in 1941 when it looked back over the period between the World Wars, saw increasing quantities of petroleum and petroleum products enter the stream of commerce and saw pipelines increasingly important for its transportation. In Petroleum Rail Shippers Assn. v. Alton & S. R., 243 I.C.C. 589 (March 11, 1941), a proceeding in which WBPL's predecessor, Great Lakes Pipe Line Company, was a defendant, the defendants argued that the future of the pipelines was precarious. Among the reasons advanced by the pipelines as to why the rate of return on investments in those companies should exceed that on industries in general were:

o Pipelines were initially highly speculative ventures, and could not have been financed through bond issues except at very high interest rates and at heavy discounts.

o An element of speculation in investments in pipeline transportation had continued with oil industry changes.

o Diminution and exhusation of sources of crude-oil supply causing shut-downs or dismantling of refineries, the competition of other forms of transportation, and the discovery and production of crude oil within the destination territory, had all contributed to the risk of investment.

o Volume transportation had made the operation of a pipeline successful, and a substantial loss in volume could wipe out all opportunity for profit.

o Trucking of refined petroleum products from refineries into some States had increased dramatically.

o Transportation by water also had greatly increased.

o Changes in the oil industry had resulted in a decrease in shipments from some terminals, and other decreases were anticipated.

o There had been a temporary disuse of some pipeline and pumping stations, representing substantial unproductive investments.

In short, a high rate of return was supported upon arguments of risk including those based on the need for continuing transportation, market changes, and competitive forces.

Are these arguments valid today? Were they even scrupulously tested then? It is noteworthy that one of the principle issues under review in the cited proceeding was whether certain minimum railroad rates were unlawfully unreasonable, discriminatory, or preferential and prejudicial when measured against increased competition from pipelines, the lower cost mode. Such considerations of competition for railroads were not likely to focus attention on the lowering of pipeline rates on the basis of rate of return. But even assuming that objectively a 10-percent rate of return was appropriate as we entered the 40's how can we, upon challenge, reasonably justify affirming that rate of return for the 70's without reexamining the financial experience of the pipeline in the intervening years or the risk and investment situation today?

Apart from these failures to exercise our expertise with respect to these broad rate of return questions, there are also serious questions relating to what are appropriate inclusions should the Commission valuation approach taken by the majority be utilized. Some of them are: Why are we allowing the pipeline to apply the statutory tax rate of 48 percent against its revenue when the pipeline has paid much lower actual taxes in the 70's and no taxes the 5 years prior thereto; why is property which is used, but not owned, being included in the valuation; why were not payments to affiliates or parent companies closely examined; what is the actual effect of our treatment of new facilities added during the year but not in use for the full year; and why should not we examine how the costs vary among different