proper approach is not revisionist interpretation but in-court modification or, if necessary, dissolution. United States v. Atlantic Refining Co., 360 U.S. 19 (1959). From what we have seen in our review of these ports, a searching reexamination of the whole pipeline financing/rate of return/rebate question is probably in order. Such an inquiry, of course, goes well beyond the scope of the instant license application reviews and will be receiving further study by the Department of Justice. C. Other Approaches One possible solution is to prescribe the lesser of alternative tariffs: one derived from the Consent Decree/ICC rate of return formula, or one derived from the correct formula with a rate that will just return the true cost of capital. There are problems with this approach. First, someone will have to make a determination of an appropriate rate of return. This may be easier done if left to negotiation between the Secretary and the oil companies. Second, the lesser of the two undoubtedly will not be the Consent Decree-derived tariff. The oil companies conceivably could argue that the Consent Decree, with the weight of 25 years of practice behind it wherein the pipelines have structured their ownership to take full advantage of the 7% limitation, somehow "guarantees" such returns. But the traditional regulatory approach has been that the ICC 8% rate of return allowable is merely a guideline or suggested return. There is no guarantee of that return, and therefore nothing sacrosanct about the permissive 7% limitation, either. Another approach is to petition the ICC for a reevaluation of the rate of return formula it uses for pipelines. In fact, the ICC has instituted a proceeding looking into how the Commission should value pipelines, as well as what an appropriate rate of return for pipelines should be. (Valuation of Common Carrier Pipelines, Ex Parte No. 308) Participation in that proceeding eventually may lead to reexamination of the present rate of return formula and may lead to a rationalization of that formula. Alternatively, it could be argued before the ICC that allowable returns for the port need not and should not follow pipeline precedents. For the present, we believe it will suffice if the license is conditioned to require the applicants to accept the lesser of either the Consent Decree or a rate of return fixed by the Secretary. But we hasten to add that we are undertaking a searching reevaluation of the Consent Decree with a view toward, taking appropriate action in the near future. 4. Joint and Through Rates The port owners, through closely coordinated planning, are able to effect certain economies resulting from being integrated into the onshore distribution system in such a way as to reduce total transportation (i.e., ocean, port and onshore pipeline) costs. To illustrate, SEADOCK could be built more cheaply south of its planned location, where the 100 foot depth contour runs significantly closer to shore. This location was rejected by the owners, however, because it would have required more onshore pipeline investment to reach their refineries, almost all of which are well north of Freeport. But port locations further north and hence, closer to the refineries, would have been even more distant from shore. Considering total transportation costs, the economics favored Freeport. The point we are making here is not that this decision was necessarily bad or good, but that the optimum solution, in terms of all potential users (including several Small refiners located further south in the Corpus Christi area) might have been different. In fact, each owner used his ownership participation during the design phase to ensure that the resulting configuration would be as advantageous as possible to itself. for example, with a refinery at viewed the owners' tariff-setting policy as "critical," and their participation in setting that tariff as assurance "of the opportunity to influence the group favorably from our viewpoint in making this decision." The elimination of the onshore pipeline facilities from the SEADOCK system does not end the type of owner-preferenced thinking that deemed so critical. Beyond affecting port sizing, configuration and routing, there is the very real possibility that joint or through tariffs will be set up between the ports and the existing or new network of pipelines positioned to serve the port. If so, considerable care must be taken to ensure that proceedings to establish such tariffs are as closely scrutinized by those concerned as the tariffs exclusive to the port will be, in order that the tariffs do not discriminate against potential nonowner-shippers, many of whom may already find the proposed relationship between the port and the onshore system less than ideal for their needs. This may be the price the nonowner ust pay for being unwilling to commit himself to the financing of a project that is potentially of use to him, but our view is that once the port is built, the common carrier obligation overrides all this, and no joint or through tariff that exacerbates this state of affairs should be permitted. On the other hand, a joint tariff can be used as a device to minimize these problems. If the connecting pipelines cannot be reached directly through the licenses granted to the applicants, then at the very least, certain conditions in any joint tariffs between connecting pipelines owned or controlled by the port shareholders and the port itself can and should be imposed to achieve similar goals. Accordingly, we recommend that the Secretary of Transportation require, for example, the applicants to obtain his prior approval of any joint tariff condition prior to its being filed with the ICC. A minimum standard in this regard would be that the applicants be prohibited from putting in those joint tariffs any provisions which will operate to make the connecting carriers less accessible to nonownershippers than is the port. In this respect we urge adoption of the provisions in Article 17 of the DOT Draft License / designed to accomplish this very result. In this manner, the Secretary can legitimately achieve goals that otherwise might be thwarted if the connecting pipeline were to impose such onerous conditions that the port itself becomes, as a practical matter, inaccessible to those users because they cannot obtain access to the connecting carriers. The staffs of the Department of Justice, Federal Trade Commission and Department of Transportation have worked closely together on the review of the LOOP and SEADOCK applications which each is making pursuant to its respective statutory responsibility. As previously indicated, this working relationship has involved extensive efforts to obtain documentary materials and interviews, as well as documentary codification and indexing. There has been an extensive consultation and exchange of views among the staffs on a variety of matters relating to antitrust issues. Following these consultations and discussions, the staff of DOT prepared a draft proposed license, which treats a number of subject areas that may require the imposition of license conditions, including antitrust issues. In the course of our further discussions herein, we refer to and endorse some of these Draft License conditions. Unless so noted, we do not endorse the Draft License generally, as many of its provisions are either beyond the scope of our antitrust review or somewhat inconsistent with our recommendations. E. Operations and Port Capacity 1. Operational Criteria for the Port In Sections II.A.4. and II.B.4., supra, we discussed decisions made by the applicants concerning port capacity, storage and operations. In this section we discuss the ramifications of those decisions. Our basic conclusion is that a subtle interplay of forces in the decision process may have resulted in a de facto denial of access to small shippers. On the one hand, there was a need to design optimal systems from an engineering and economic viewpoint. On the other hand, the systems were clearly designed in reasonable conformity with the particular desires of the owners. These needs often conflicted, with the final decision usually tending to conform with the owners' desires. The owners, more often than not, have large integrated operations with capabilities far exceeding those of the potential small shippers. Thus, the owners' desires do not or simply cannot reflect the needs of smaller potential users of the proposed port. In this subtle, perhaps at times even unintentional way, the owners have controlled and will continue to control which shippers will have effective access to the ports. By imposing uniform criteria upon all shippers, the owners avoid the charge they are discriminatorily denying access to some. But to the extent that the ports reflect design and operational criteria which small shippers cannot meet, the owners have effectively denied access to them. - LOOP has proposed a vessel size limitation, while SEADOCK has not. LOOP's limitation 50 MDNT appears realistic. SCADOCK officers and documents obtained from SEADOCK and its participants indicate a tentative size limitation of 75-80 MDT. This will impact adversely upon those nonowners (no SEADOCK owner has indicated it will use tankers below 200 MDWT) planning to use tankers in the 50-80 DWT range. SEADOCK was aware of this impact when it considered volumes for nonowners and knew that these volumes were more likely to be spot charters in tankers smaller than major company vessels. The owners no doubt felt that their use of larger tankers would maximize the efficiency of the port, but it does not follow that it is proper to attempt to limit access through vessel size limitations that ignore nonowners' needs. On the basis of what we have seen, we believe SEADOCK should be required to adopt a 50 MDWT minimum, with at least one of the four SPN's specifically designed to handle the small tankers. It is known that SEADOCK's Technical Steering Committee considered using one SPM fitted to handle small vessels in the Both LOOP and SEADOCK have proposed various design feanumber tures and criteria which will affect port capacity - of SPM's, hose size, pipeline size, pumping rates, and the like. These details, also discussed in sections II.A.4. & II.B.4., supra, are of considerable significance. Using a hose too large and heavy for small tankers to lift is an indirect way of excluding small tankers. As we have noted, several companies recognized this particular problem. LOOP proposes to use 16-inch tail hoses on some of its SPM's. CEADOCK's plans are apparently similar, but not documented in the application. In order not to defeat the 50 MDWT minimum, we recommend that for each port at least one SPM be required to be equipped with the hoses necessary to accommodate these smaller tankers. This merely illustrates, and by no means exhausts, the ways in which operational criteria may exclude or discriminate Other factors can affect that process. against small shippers. For example, the implementation of a simple first-come-firstserved rule concerning the SPM assignment and discharge order for tankers may prove impractical and uneconomic. Fair rocedures which do not unduly penalize small tankers or a larger nonowner's tankers have not yet been, but will have to be, established. All such criteria must be closely scrutinized for their anticipated effect on nonowners in order to preserve nondiscriminatory access. Were these deepwater ports to be independently operated, there would be somewhat less concern. Profit maximization by an independently owned or operated tariff-regulated transportation facility generally implies an effort to maximize transportation services at the regulated tariff, which, in turn, provides the incentive to make the facility as attractive as possible to all shippers, large and small. Our conclusion in this respect is that the license should be conditioned to require approval by the Secretary of all design and operational criteria prior to implementation by the licensees. We therefore approve and endorse the requirement in Article 6 of the DOT Draft License that the Port Operations Manuals contain all conditions, requirements and limitations on use of the port, that this Manual be approved by the Secretary prior to licensing, that operations be conducted in accordance |