INVESTIGATION AND SUSPENSION DOCKET No. 4224 PETROLEUM BETWEEN CALIFORNIA, OREGON, AND

NEVADA

Submitted November 2, 1936. Decided January 14, 1937

Reduced rates on petroleum oils and petroleum products from points in California and Oregon to Klamath Falls and Chiloquin, Oreg., and adjacent points, found not justified. Suspended schedules ordered canceled and proceedings discontinued.

J. E. Lyons, J. R. Bell, G. H. Muckley, R. E. Wedekind, A. J. Clynch, R. J. Hagman, J. P. Plunkett, and Thomas Balmer for respondents.

Frank C. McColloch, H. H. Sanborn, E. H. Kendall, William P. Ellis, and Ralph L. Shepherd for interveners.

REPORT OF THE COMMISSION

DIVISION 2, COMMISSIONERS AITCHISON, TATE, AND SPLAWN

AITCHISON, Commissioner:

By schedules filed to become effective July 15, 1936, and later dates, respondent Southern Pacific Company and certain of its connections proposed to reduce rates on petroleum and petroleum products, in carloads, from San Francisco Bay points and certain other points in California to Klamath Falls and Chiloquin, Oreg., and adjacent points. Respondent Great Northern Railway Company also proposed similar reductions from Portland, Willbridge, and Linnton, Oreg. Upon protest of the Tank Truck Operators Association of California, the schedules were suspended until February 15, 1937. Unless otherwise indicated rates will be stated in amounts per 100 pounds.

This proceeding had its inception in Petroleum from California to Oregon, 214 I. C. C. 668, and in Public Utilities Commissioner of Oregon, Dockets F-1757 and F-1758, heard jointly and disposed of cooperatively. This Commission found justified the reduced rates

1 San Francisco Bay points are San Francisco, Oakland, Richmond, Oleum, Martinez, and Avon. Other origins are Bakersfield and points taking the same rates, including Lamont, Maltha, Oil City, Ribier, and Seguro, from Coalinga and points taking the same rates including Crump, Le Roy, and Ora, all of which are on the lines of the Southern Pacific Company, from Hanford on the Atchison, Topeka & Santa Fe Railway, and from Maricopa and points taking the same rates, including Pentland, Shale, and Taft on the Sunset Railway.

* Including Algoma, Oreg., on lines of the Southern Pacific Company, and Malin, Oreg., and Stronghold, Calif., on the Great Northern Railway.

there proposed on refined petroleum and petroleum products, in carloads, from the same California origins as those involved in the instant proceeding and from North Bend-Marshfield, Oreg., and Portland Terminals to destinations on the line of the Southern Pacific Company in Oregon, Goshen to and including Gregory and certain other points on connecting carriers. The rates found justified to Medford, Oreg., representative of the destinations, are 30 cents from San Francisco Bay points and 28 cents from the Portland district for average distances of 398 and 337 miles respectively. The differences in the rates approved and distances are two cents and 61 miles, respectively, in favor of the Portland District.

The reductions approved were for the purpose of meeting competition by the respondent, Southern Pacific Company, with its allrail route from San Francisco Bay refineries northward toward Portland, and various privately owned vessels over water routes from ports in California to Crescent City, Calif., Marshfield, North Bend, and Portland, Oreg., thence by motor tank trucks to destinations.

The destinations there involved are on the Southern Pacific Company's Siskiyou line, operating west of the Cascade Mountains. Klamath Falls, representative of the destinations involved in this proceeding, is on the Cascade line of that carrier, operating east of the mountains, 322 miles south of Portland and 380 miles north of San Francisco Bay.

On the date of the hearing in Petroleum from California to Oregon, supra, the rate from the Portland district to Klamath Falls was 50 cents, in tank-car loads, and from San Francisco Bay points 58 cents. To avoid undue prejudice to Klamath Falls by establishing the proposed rates to Medford and continuing the existing rate to Klamath Falls, respondent undertook to establish a rate of 40 cents on this product from both San Francisco Bay points and the Portland district to Klamath Falls. Details as to the volume of traffic, methods of transportation, competition, and storage facilities are set out in the report therein and will not be repeated.

Later, on May 16, 1936, respondent, Southern Pacific Company, established on this traffic to Klamath Falls rates of 38 cents from Portland and 40 cents from San Francisco Bay points, without the addition of any emergency charge. The established difference of 2 cents in favor of Portland was based on the view of the Public Utilities Commissioner of Oregon, expressed informally to respondent, that the same difference should be maintained at Klamath Falls as that approved at Medford.

Klamath Falls is also served by the Great Northern Railway Company from Portland, operating over the Spokane, Portland

and Seattle Railway Company lines to Wishram, Oreg., Oregon Trunk Railway to Bend, Oreg., its own line to Chemult, Oreg., and over tracks jointly operated with the Southern Pacific Company beyond; and from California over a route composed of the Western Pacific Railroad Company's lines and its connections to Bieber, Calif., thence Great Northern Railway.

The annual movement of petroleum and petroleum products over the Great Northern Railway from the Portland district to Klamath Falls for the 7-year period 1929-35, ranged from 9,042 tons in 1934 to 13,199 tons in 1930, and from San Francisco Bay points for the five years 1931-35 ranged from 191 tons in 1931 to 4,227 tons in 1934, and during the six months' period January 1 to June 30, 1936, the movement from Portland to Klamath Falls and Chiloquin was 193 carloads by the Great Northern Railway and 85 carloads by the Southern Pacific Company. The corresponding shipments from San Francisco Bay points were 17 and 6 cars respectively.

The rates at issue are (1) from California to the destinations referred to, which are interstate, (2) from Portland terminals (a) over Southern Pacific Company, which are primarily intrastate but may also be used for interstate application, and (b) over the Great Northern, which are also interstate.

The average rail distances, the rates in effect on the date of hearing, and the proposed rates from the various origins to Klamath Falls, are as follows:

From Avon, Martinez, Oleum, and Richmond, the only refineries on San Francisco Bay.
To become effective July 15, 1936, suspended.

From Avon, Martinez, and Richmond.

To become effective August 15, 1936, suspended.

To become effective August 1, suspended.

Includes Willbridge and Linnton on Spokane, Portland & Seattle Railway.

The storage tanks of certain oil companies in the Portland district are on the lines of other carriers who perform the switching service. The charges therefore are absorbed by the respective respondents.

Chiloquin is intermediate to Klamath Falls on the lines of both respondents from Portland, and the rate on petroleum and petroleum products to the latter point is observed as maximum at the former. From San Francisco Bay points the rate to Chiloquin on this traffic is 3 cents higher than to Klamath Falls, and from other points in California rates are constructed differentially higher than from San Francisco, customarily 10 cents from Hanford, 12 cents from Coalinga, 14 cents from Bakersfield, and 16 cents from Maricopa. The proposed rates from the respective California groups in the table above, to become effective July 15, average 62.5, 67.7, 66.8, 69.8, and 70.7 percent, respectively, of rates prescribed in Mountain-Pacific Oil Cases, 192 I. C. C. 599, 650, for the distances shown. The corresponding averages of rates proposed to become effective August 15 are 51, 58.3, 59.8, 61.1, and 62.3 percent, respectively, and from Portland the proposed rate is 48.7 percent.

Prior to September 1, 1926, Klamath Falls was on a branch of the Southern Pacific Company extending from Weed, Calif., and a rate of 81.5 cents applied on these articles from San Francisco Bay points. On that date the Natron cut-off was opened for traffic, placing both Klamath Falls and Chiloquin on the main line between Portland and California. With the opening of the new line fifthclass rates of 67.5 cents from Portland and 76 cents from San Francisco Bay points were established. At that time petroleum generally moved in the West on fifth-class rates. On March 19, 1927, the rate from Portland was reduced to 60.5 cents. On May 1, 1928, the Great Northern Railway Company, completing its line from Portland to Klamath Falls established the same rate as that maintained by the Southern Pacific Company. Later both carriers reduced their rates on oil in tank cars to 50 cents from Portland, and on October 4, 1930, the Southern Pacific Company reduced its rate from San Francisco Bay points to 58.5 cents and on August 20, 1934, to 58 cents. Except for short intervening periods between August 15, 1930, and May 16, 1936, the spread between Portland and San Francisco was either 8 or 8.5 cents in favor of Portland. To Chiloquin the rates from Portland were the same as to Klamath Falls, and from San Francisco Bay points were either 3 or 4 cents higher than Klamath Falls.

The reduction by the Southern Pacific Company on May 16, 1936, to conform to the understanding in Petroleum from California to Oregon, supra, precipitated a rate war between respondents over the amount of the spread to be maintained at Klamath Falls, as between

Not including Willbridge and Linnton.

the respective origins. Thereafter alternate reductions from Portland were initiated by the Great Northern Railway Company and from San Francisco by the Southern Pacific Company. The purpose of the reductions by the former was to reestablish in part the former existing spread and by the latter to maintain the 2-cent difference referred to above. Each reduction made by one of the respondents, except the rate of 22.5 cents from Portland, to become effective August 1, 1936, was also published by the other. The following table showing the rates initiated by each respondent and the resulting differences in favor of Portland will illustrate the situation:

Both respondents admit that the suspended rates are unnecessarily low and if reductions are continued they will result in rates that are less than reasonably compensatory. The substitution of the Commission's jurisdiction in lieu of the exercise of carriers' managerial discretion is made necessary only because respondents have refused to compose their differences either before or after hearing, although they were accorded an opportunity of doing so. Respondent Southern Pacific Company's position is that the most economical method of transporting this traffic is by its direct all-rail route from the points of manufacture to destinations where it is consumed, and that there is no transportation condition that entitles the Portland district to rates on these commodities more than 2 cents lower than from San Francisco Bay points, especially since the rate from the latter points is depressed by water and truck rates. On the other hand, the Great Northern Railway Company contends that a spread of 7.5 cents in favor of the Portland district should be established, otherwise that all of the traffic will move from California to the detriment of Portland and its line. The Portland interests intervened seeking the restoration of differentials that have in the past been favorable to them.