UNITED STATES OF AMERICA 72 FERC 61,274 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, Jr. Kerr-McGee Refining Corporation ) Docket No. OR91-1-001 and Texaco Refining and ) Marketing, Inc. ) ) v. ) ) Williams Pipe Line Company ) ORDER ON REHEARING (Issued September 21, 1995) On June 30, 1993, the Commission issued an Order on Complaint in the subject docket (June 30 order). 1/ In that order, the Commission determined that certain charges assessed by Williams Pipe Line Company (Williams) apply to services rendered while the petroleum products are in the jurisdictional transportation process and, therefore, must be published in Williams' tariffs. The Commission also found the complainants/shippers to be entitled to reparations only in the amount that the charges exceeded a reasonable rate for the services performed. Finally, the Commission denied the shippers' request for sanctions against Williams. On July 30, 1993, Williams and Kerr-McGee Refining Corporation (Kerr-McGee) filed requests for rehearing and reconsideration of the June 30 order. Williams asks the Commission, on rehearing, to determine that the charges do not relate to jurisdictional services. Kerr-McGee requests reconsideration of the Commission's determination concerning the level of reparations. As discussed below, we will grant Williams' request for rehearing based on additional facts included in an affidavit submitted by Williams and will deny Kerr-McGee's request for rehearing and reconsideration. 1/ Kerr-McGee Refining Corp. and Texaco Refining and Marketing, Inc. v. Williams Pipe Line Co., 63 FERC  61,349 (1993). Docket No. OR91-1-001 - 2 - Background On May 17, 1991, pursuant to sections 9 and 13(1) of the Interstate Commerce Act (ICA) 2/ Kerr-McGee and Texaco Refining and Marketing, Inc. (collectively "Shippers") filed a complaint against Williams contending that Williams had violated the ICA and the Commission's regulations by imposing new charges in connection with the transportation of the Shippers' petroleum products. 3/ The charges at issue were a Product Transfer Order (PTO) charge and a Product Authorization (PA) charge, neither of which, the Shippers alleged, was on file with or approved by the Commission. The Shippers sought a Commission order requiring Williams to cease levying the charges, awarding reparations to the Shippers, and imposing sanctions on Williams. In the June 30 order, the Commission found that PTOs are directions from a shipper that specific barrels of product at a terminal should be transferred to another shipper's account and that PAs are notices from a shipper that someone other than that shipper is authorized to remove the shipper's product from Williams' system. 4/ The Commission agreed with the Shippers that the PTO and PA services are jurisdictional under the ICA and required Williams to cease levying the charges until Williams filed tariffs stating the charges. In the June 30 order, the Commission also concluded, inter alia, that the Shippers would be entitled to reparations only in the amount that the PTO and PA charges exceeded a reasonable rate for the services rendered. 5/ Requests for Rehearing and Reconsideration Williams first alleges that the Commission erred in accepting the unsupported and misleading factual allegations made in the complaining Shippers' reply to Williams' motion for summary judgement. In particular, Williams cites the allegations that the PTOs and PAs occur during pipeline transportation, have a distinct transportation function, and are necessary to effectuate delivery. Second, Williams contends that the Commission erred in concluding that the PTOs and PAs constitute jurisdictional transportation services within the scope of the ICA. Third, Williams states that the Commission erred by 2/ 49 U.S.C. App.  9, 13(1) (1988). 3/ Conoco Inc., originally one of the complainants, withdrew from this proceeding prior to the issuance of the June 30 order. 4/ 63 FERC  61,349 at 63,217 (1993). 5/ Id. at 63,224. Docket No. OR91-1-001 - 3 - improperly disregarding its own precedents, and finally, Williams argues that the Commission erred in concluding that publication of the PTOs and PAs in Williams' tariffs is required by section 6(1) of the ICA. Kerr-McGee requests that the Commission reconsider its refusal to order the payment of reparations by Williams consisting of the amounts collected without tariff authority, plus interest. Discussion In the June 30 order, the Commission determined that the essential question to be answered was whether the PTO and PA services are jurisdictional under the ICA. The Commission's conclusion that the services are jurisdictional was based primarily on the finding that the PTO and PA services are provided prior to the completion of Williams' jurisdictional transportation service. Williams has now submitted evidence clarifying that the PTO and PA services occur almost exclusively after completion of the transportation service; therefore, as discussed below, the principal underpinning of the June 30 order falls, and the Commission will grant rehearing. In the June 30 order, the Commission based its factual conclusions on the affidavit of Williams' vice president, Steven Ball, who stated that the PTO documents a shipper's transfer of product to another shipper at a location "on the Williams system." 6/ Mr. Ball further stated that when a PTO is utilized, Williams' ATLAS computer deducts product from the inventory balance of the initiating shipper and credits it to the receiving shipper. 7/ It thus appeared that delivery of the product was not completed until the computerized transaction was accomplished and the product was credited to the account of the receiving shipper. The Commission also relied on Mr. Ball's statement that PAs permit a shipper to authorize a non-shipper to withdraw product from the shipper's inventory. 8/ The Commission thus concluded that, when a PA is utilized, the transportation service is not completed until the non-shipper receives the product in accordance with the PA. In addition, the Commission, relying on other statements in Mr. Ball's affidavit, concluded that the services increase the value of the basic transportation service to the shippers. 9/ Although it accepted the fact that use of 6/ Id. at 63,220 citing Ball Affidavit at 2. 7/ Id. 8/ Id. 9/ Id. Docket No. OR91-1-001 - 4 - the services is optional for shippers, the Commission agreed with the Shippers that the services serve a significant purpose in that once a shipper has determined to have Williams transfer product within the system to a third party, the PTOs and PAs are necessary to effect delivery to the proper party. Other means by which a shipper could transfer product to a third party were found to be distinguishable from PTOs and PAs as not requiring Williams' involvement to the same extent and not involving documentation. 10/ Williams has now submitted the affidavit of Robert G. Van Hoecke, its Manager, Tariffs and Regulatory Affairs, to provide additional information concerning the nature of the PTO and PA services and to correct what Mr. Van Hoecke says are factual inaccuracies in the June 30 order. Mr. Van Hoecke first states that it is incorrect that PTOs and PAs usually or always take place in the course of pipeline transportation on Williams' system. He explains that PAs can be made only in relation to product that has been delivered into Williams' terminals, where it remains an average of more than 44 days prior to execution of a PA. Mr. Van Hoecke states that the same is true for most PTOs, although in limited situations involving specialty products or products moving to an off-line, non-Williams terminal, Mr. Van Hoecke concedes that PTOs can be executed while the product is in transit. 11/ Mr. Van Hoecke next addresses the Commission's conclusion that the PTO and PA services generally relate to product that is already within the Williams system. Because Williams owns and operates terminals as well as pipeline facilities, Mr. Van Hoecke explains that the term "Williams system" is used by the company to refer to both the terminal and pipeline facilities. Therefore, while it is correct that PTOs and PAs do occur while the product is "in the Williams system," Mr. Van Hoecke clarifies that the product is not necessarily in Williams' pipeline when these transactions occur. 12/ Indeed, as noted above, Mr. Van Hoecke explains that most PTO and PA transactions occur after the product has been delivered to one of Williams' terminals. Responding to the statement in the June 30 order that the transportation provided by Williams does not end until the product is delivered in accordance with the directions given to Williams via the PTOs and PAs, Mr. Van Hoecke cites Item 135 of 10/ Id. at 63,220-21. 11/ Affidavit of Robert G. Van Hoecke (Van Hoecke Affidavit) at 1-2. 12/ Id. at 2-3. Docket No. OR91-1-001 - 5 - Williams' Rules and Regulations Tariff. 13/ He emphasizes that this item establishes that delivery occurs when product enters a terminal on Williams' pipeline. At that point, the shipper is notified and the product becomes subject to the shipper's control. According to Mr. Van Hoecke, the shipper may direct that the product be loaded into trucks immediately or stored for subsequent loading, as warranted by market demand, with or without the intervention of PTOs and PAs. He further explains that PTOs and PAs are not directions to load product into trucks; truck loading at Williams' terminals is done by and at the request of shippers or persons designated by shippers to load trucks from inventory at the terminals. 14/ Another inaccuracy pointed out by Mr. Van Hoecke is the Commission's conclusion that PTOs and PAs serve a distinctly transportation function. In particular, he states that PTOs and PAs do not change the destinations of shipments on the Williams system; rather, irrespective of the execution of any PTOs or PAs, Williams transports the product to the destinations specified by the shipper at the point of origin and collects the tariff rate from the shipper upon origination. According to Mr. Van Hoecke, changes in destination are effectuated by reconsignments in accordance with Item 115 of Williams' tariff. He emphasizes that PTOs and PAs do not effectuate reconsignments or modify execution of instructions given by the shipper at the time of tender, that PTOs and PAs can be applied to product that enters the terminal by rail rather than by pipeline, and that successive PTOs can apply to the same volumes of product. 15/ Mr. Van Hoecke disputes the finding of the June 30 order that transactions allowing the shippers to achieve the same results as PTOs and PAs are distinguishable because they do not require Williams' involvement to the same extent that the PTO and PA services do and there is no indication that Williams provides 13/ Item 135 of the General Rules and Regulations reads as follows: [u]pon arrival at Destination, Petroleum Products shall be delivered into terminal or other facilities provided by the Consignor or Consignee, or into terminal facilities furnished by the Carrier where Carrier furnishes terminal facilities, pending receipt by Carrier from Consignor or Consignee of instructions relative to the further transportation thereof.... 14/ Van Hoecke Affidavit at 3. 15/ Id. at 4. Docket No. OR91-1-001 - 6 - documentation of these transfers. He argues that, to the contrary, these transactions do not require any special involvement by Williams at all and that exchange of title to products is pervasive in the oil industry. Mr. Van Hoecke asserts that the fact that shippers do not need services such as the PTO and PA services in order to ship is confirmed by the absence of such services from a number of pipeline tariffs that he reviewed. Finally, Mr. Van Hoecke emphasizes, as did Mr. Ball, that usage of the PTO and PA services declined after the charges were levied. Thus, he contends, this fact and the fact that the two remaining complainants use the services for only a small portion of their throughput support the notion that the PTO and PA services are not necessary incidents of transportation. 16/ On review of the additional facts submitted by Williams, the Commission agrees that the PTO and PA services generally occur separately from Williams' jurisdictional transportation services. First, it is helpful to understand that the term "Williams system" is used by the company to refer to its terminals as well as to its pipeline facilities. Second, our examination of Item 135 of Williams' tariff confirms that the transportation services are completed at the time the petroleum products enter the terminal or other facilities pending receipt from the consignor or consignee of instructions relative to further transportation, rather than at a later time. Mr. Van Hoecke also made it clear that the PTO and PA services generally apply to product that has been in the terminal for more than 40 days. Mr. Van Hoecke also has clarified that PTOs and PAs are not instructions to load product into trucks at the terminals. Rather, the shippers or their designees provide the loading instructions, and any changes in destinations are accomplished by way of reconsignments, which are addressed in Item 115 of Williams' tariff. 17/ These facts further support a conclusion that PTO and PA services occur separate from jurisdictional transportation. 16/ Id. at 5. 17/ Item 115 provides in part: If no out-of-line or backhaul movement is required and if the current scheduled operations will permit, Consignor may reconsign, without charge, any shipment that is in Carrier's possession to Destinations, or any point intermediate thereto, or to Destinations on other pipelines.... Docket No. OR91-1-001 - 7 - Thus, the majority of PTO and PA services occur after the jurisdictional transportation service is performed. The limited PTO services, which do occur in transit on the pipeline, are neither incidental nor necessary for Williams to perform jurisdictional transportation service. 18/ They do occur during jurisdictional transportation. However, the Commission believes these bookkeeping charges are ancillary to providing transportation service and merely offered for the convenience of the pipeline's shippers. 19/ The holding of the June 30 order was based on a number of considerations. However, the pivotal factors were the determinations that the PTO and PA services occur during the course of jurisdictional transportation on Williams' pipeline and that they serve specific transportation functions. Those determinations now have been shown to have been based on incorrect information. Accordingly, the Commission grants rehearing and holds that the PTO and PA services are not jurisdictional under the ICA and need not be published in Williams' tariffs. In light of this ruling, we need not address the other arguments advanced by Williams on rehearing. Our determination here that the PTO and PA services are nonjurisdictional moots Kerr-McGee's request for rehearing and reconsideration with respect to the issue of reparations. Accordingly, Kerr-McGee's request for rehearing and reconsideration is denied. The Commission orders: (A) Williams' request for rehearing of the June 30 order is granted as discussed in the body of the order. (B) Kerr-McGee's request for reconsideration is denied as discussed in the body of the order. By the Commission. ( S E A L ) Lois D. Cashell, Secretary. 18/ See Burkley Produce Co. v. Pennsylvania R.R. Co., 277 ICC 319, 322 (1950). 19/ See Coastal States Trading, Inc. v. Shell Pipeline Corp., 573 F. Supp. 1415 (S.D. Tex. 1983). Docket No. OR91-1-001 - 8 -