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Terry Lenzer, Esq.
Hala, laikrader & Ross
1320 19th St., NW
Washington, D.C. 20036

Mr. Michael J. Ilco
Technical Assoc., Inc.
Suite 840,
Fidelity Bldg.
830 E. Mirin St.
P.O. BOX 1-T
Richmond, VA 23202

John M. Cleary, Esg.
Donelar, Cleary, Wood

& Maser
914 Washington Bldg.
Washington, D.C. 20005

Albert S. Tabor, Jr., Esq. Rush Moody, Jr., Esq. Vinson, Elkins, Scarls,

Connally & Smith 1702 Penil. Ave., Ste. 1.120 Washington, D.C. 20006

Robert E. Jordan, III, Esg. James 11. Pipkin, Jr., Esq. 1250 Connecticut Ave., NW Washington, D.C. 20036

Notice: This opinion is subject to formal revision before publication in the Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the Clerk of any formal errors in order that corrections may be made before the bound volumes go to press.

United States Court of Appeals


No. 76-2138





Petition for Review of an Order of the Interstate Commerce Commission

Argued April 5, 1978

Decided June 27, 1978

John M. Cleary, with whom Frederic L. Wood was on the brief, for petitioners.

* Substituted as respondent agency in place of the Interstate Commerce Commission by virtue of Public Law 95-91, § 402 (b), 91 Stat. 584 (August 4, 1977) and Executive order No. 12009, 42 Fed. Reg. 46267 (September 15, 1977).

Bills of costs must be filed within 14 days after entry of judgment. The court looks with disfavor upon motions to file bills of costs out of time. Ron M. Landsman, Attorney, Department of Justice, with whom John J. Powers, III, Attorney, Department of Justice, was on the brief, for respondent, the United States of America.

Christine N. Kohl, Attorney, Interstate Commerce Commission, with whom Mark L. Evans, General Counsel and Charles H. White, Jr., Associate General Counsel, were on the brief, for Interstate Commerce Commission.

J. Paul Douglas, Attorney, Federal Regulatory Commission, with whom Philip R. Telleen, Attorney, Federal Regulatory Commission, was on the pleadings, for respondent, Federal Regulatory Commission.

Robert G. Bleakney, Jr., with whom David M. Schwartz and Robert L. Calhoun were on the brief, for intervenor, Williams Pipe Line Company.

Donald W. Markham, with whom Jonathan B. Hill was on the brief, for intervenor, Explorer Pipeline Company.

Also Hanford O'Hara, Attorney, Interstate Commerce Commission, entered an appearance for Interstate Commerce Commission.

Also Robert B. Nicholson and Andrea Limmer, Attorneys, Department of Justice, entered appearances for respondent, United States of America.

Before MCGOWAN, LEVENTHAL and WILKEY, Circuit Judges.

Opiniun for the Court filed by Circuit Judge MCGOWAN.

MCGOWAN, Circuit Judge: Petitioners, a group of oil shippers, challenge an order of the Interstate Commerce Commission (ICC) sustaining (1) increased rates filed by intervenor William Pipe Line Co. (Williams) and (2) joint rates initiated by Williams and intervenor Explorer Pipeline Co. (Explorer), as against claims that the former are unreasonably excessive, see 49 U.S.C. $ 1(5) (a), and

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the latter are discriminatory, see id. $ 2, and illegally preferential, see id. $ 3(1).

This review proceeding is unique in that, while pending before us awaiting briefing and oral argument, jurisdiction over the rates in question was transferred by Congress from the ICC to the Federal Energy Regulatory Commission (FERC), and the latter has been substituted for the ICC as the respondent agency. FERC has advised this court that it takes no position with respect to the merits of the order under attack, and urges us rather to forego adjudication on the merits in favor of a remand of the case to it so that it can formulate, independently to the ICC, the regulatory principles it finds to be suitable for application in this new area of responsibility committed to it. The United States, a statutory respondent, purporting to see deficiencies in the ICC's decision, supports FERC's remand request.

The court, now having had the benefit of full briefing and oral argument of the merits by all parties except FERC, has concluded, to the extent and for the reasons hereinafter appearing, to remand the case to FERC for determination by it, under its new authority, of the compatibility of the subject rates with 49 U.S.C. $ 1(5)(a), and, in light of its findings thereon, for examination of the preference issue under id. $ 3(1). As to the existence of discrimination, however, petitioners' failure properly to raise the issue before the ICC mandates our affirmance of that agency's decision insofar as it is based on id. $ 2.


Williams, an independent common carrier, is a relatively new entrant in the oil pipeline transmission industry, having begun doing business in 1966 with the purchase of Great Lakes Pipe Line Co. (Great Lakes). It acquired the physical assets of Great Lakes from eight petroleum producer-owners for $287.6 million—the highest among the competitive bids received. The pipeline system thus acquired serves a large portion of the Midwest, with connections in such producing and refining cities as Tulsa, Fargo, Lincoln, and Topeka, and in such consuming cities as East St. Louis, Chicago, and Minneapolis. By interconnecting with intervenor Explorer Pipeline Co. (Explorer) at Tulsa, Williams also may connect refineries located along the Gulf Coast of Texas and Louisiana with consumers in the Midwest.

Petitioners are a group of oil producers and refiners located primarily in the Great Plains area who historically have used the Great Lakes-Williams pipeline system to transport their petroleum products to the Midwest. In late 1971 and early 1972, Williams informed them that it was raising its rates by approximately 15 percent (or 3 cents a barrel) across the board. At the same time as it generally increased its rates, Williams, together with Explorer, initiated joint rates for through service from the Gulf Coast to the Midwest. These joint rates are uniformly 9.5 cents a barrel lower than the combination of Williams' and Explorer's local rates.

Shortly after the appropriate tariffs were filed with the ICC, petitioners made them the subject of complaints under the provisions of the Interstate Commerce Act which, inter alia, regulates oil pipeline rates, 49 U.S.C. $ 1(1)(b). Petitioners' protests led the ICC to initiate

1 The ICC did not approve this sale for the reason that, unlike its regulatory authority with respect to other common carriers such as railroads, its jurisdiction over oil pipelines does not extend to the sale or acquisition of a pipeline company. See 40 U.S.C. $ 5(13); p. 9 infra. Although petitioners do not appear to claim that the price paid was irrational, they do insist that it was subject to the inflationary trend that has recently affected the American economy. The exact relationship of the price to the "fair market value," replacement cost, and reproduction cost of the Great Lakes enterprise

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