Lane, Robert A.

Pajalich, Mary Morgan

English

University of Denver

COMMENTNO "COMMON OWNERSHIP" PROBLEM IN CALI FOR NIAMARY MORGAN PAJALICH* AND ROBERT A. LANE**Neither the California Commission nor the trucking or shippingindustries, to the writers' knowledge. have had any problem withintermodal transportation. As we understand it, the concern is that acommon control of various modes of transportation can so channelbusiness back and forth between "ramilv" concerns as to stil'Ic ordestroy competition.F:undamental to our regulation is the regulation of rates. Thus thethreat of' inter-carrier economic competition is diminished. Partialcontrol of entry into the field. control of joint or through rates and jointuse of" facilities have taken care of part of any additional potentialproblem: the virtually unlimited entry into the highway carrier field by"permitted" carriers has taken care of most of the rest.RATESIn the late twenties the truck emerged as a signif'icant factor intransportation.A new type of carrier emerged. They either served a relatively I'ewshippers or served many shippers in a restricted area. They were notcommon carriers in the traditional sense and they were not governed bythe pre-1930 regulations of railroads and regular route highway commoncarriers. At about this time also, the great depression was upon the land.Chaos struck transportation as a result of the combination of'unregulated trucks competing with regulated rails, on the one hand, andthe general depression. on the other hand. In this atmosphere, regulationof truck transportation was born.In the early 30's there was general concern with developing chaoticconditions in transportation. The Commission concluded after extensivestudy that either the trucks should be regulated or, in the alternative, therails should be deregulated and the laws of the jungle "allowed full andequal play." The general hue and cry was for "government to doChief Counsel, California Public Utilities Commission; J.D., San Francisco LawSchool (1932).** Principal. Freight Economics Branch. Transportation Division, California PublicUtilities Commission: A.A., San Mateo Jr. College (1932): College of Advanced Traffic(1951).1Pajalich and Lane: No Common Ownership Problem in CaliforniaPublished by Digital Commons @ DU, 1970THE TRANSPORTATION LAW JOURNALsomething." Responsive thereto the Commission recommendedregulation of these new truck carriers. It proposed to the 1933legislature, revised legislation providing for the conventional type of'regulatory control coupled with heavy reliance on restricted entry intothe field. These legislative proposals failed to pass.Between 1933 and 1935 the chaotic conditio'ns increased, makinglegislative action imperative. In the 1935 session, compromise legislationwas hammered out for regulation of trucking which had the support ofagricultural, business, industrial and carrier interests.This legislation did not follow the conventional pattern. It departedfrom the limited entry theory; in fact, it reversed it. It embodied aconcept of unrestricted entry and, instead of the usual carrier establishedand published rates, the Commission was directed to establish andapprove maximum or minimum rates. It thus became the Commission'sresponsibility to establish rate control within the framework of thelegislative policy. This California system is unique.Californa's pattern of regulation was in fact a dual system. The railcarriers generally were subject to the conventional scheme of regulationand the so-called permit truck carriers were subject to regulation throughrate control. This dual pattern of regulation is in existence today.California's current pattern of regulation has not been followed oradopted to any significant degree by any other state to our knowledge.Other jurisdictions have followed the conventional pattern,Rates are fixed on a graduated scale according to size of the shipment.based upon costs. Small shipments have a fully compensatory rate,truckload rates, also cost-related, reflect the lesser unit cost to transportgreater weights.The minimum rates (which in practice tend to be the going rates)provide a "basement" for all highway carriers, regardless of their typeor common control. If rail rates are lower than minimum rates for thetransportation of the same commodity between the same (rail) points.the highway carrier may apply the rail rate as an alternate to theminimum rate.Rail rates are subject to Commission scrutiny and comparison withmini rmum rates, and if clearly out of line the Commission mayinvestigate them.While unique, and in many ways not perfect, this rate system hasprovided a practical equality of rates between competing rail andhighway carriers, and has provided a healthy transportation system forthis constantly growing state.2Transportation Law Journal, Vol. 2 [1970], Iss. 1, Art. 10https://digitalcommons.du.edu/tlj/vol2/iss1/10COMMON OWNERSHIP IN CALIFORNIACONTROL OF ENTRYTransfers or MergersSection 85 1 of the California Public Utilities Code prohibits, absentprior Commission authorization, any disposition of necessary and usefulpublic utility property, any franchise or permit or any right thereunderor any merger or consolidation with another public utility.Security IssuesSection 852 prohibits. absent prior Commission authorization, theacquisition of the capital stock of one public utility by another. Thecriterion for such authorization is whether it will or will not be adverseto the public interest. In arriving at a decision' the Commission wouldconsider any protests and whether the resultant transfer or merger wouldtend to stifle competition or to unfairly increase the ability of' thetransferee or surviving utility to compete.Certificates of Public Con venience and Necessity- PermitsThe California Legislature has provided that the following mustobtain certificates of public convenience and necessity from theCommission prior to commencing operations: Vessels operatingintrastate (Sec. 1007), express corporations and freight forwarders (Sec.1010), buses (Sec. 1031). highway common carriers, cement carriers andpetroleum irregular route carriers (Sec. 1061). Pipelines which transportcrude oil or other fluid substances (except water) are not requred toobtain a certificate but must file tariffs. Of course, these may besuspended and investigated.By comparison, the Highway Carriers' Act (Sec. 3501 et seq.)provides much less costly and virtually unlimited entry into the field ofhighway transportation. No public convenience and necessity need beshown, upon the filing of an application, required insurance, andestablishment of financial responsibility, the Commission "'shall issue apermit" (Sec. 3572). Such permits are issued to radial highway commoncarriers, highway contract carriers, petroleum contract carriers andcement contract carriers. Newly enacted amend ments create the categoryof dump truck carriers (Sec. 3517 et seq.). The effect of these sectionsis to provide competition with the certificated carriers by the permittedcarriers, to say nothing of the economc impact of unregulated personsoperating trucks or pipelines which transport only their own property,and farmers and nonprofit agricultural cooperative associations which3Pajalich and Lane: No Common Ownership Problem in CaliforniaPublished by Digital Commons @ DU, 1970THE TRANSPORTATION LAW JOURNALtransport their.own. neighboring farmersI or members' property (Sec.351 I).JOINT USE, JOINT RATESThe Comnission may order joint use of the facilities of public utilitiesand may prescribe reasonable compensation therefor (Sec. 767). It may%order the establishment of joint rates between two or more commoncarriers (Sec. 732) and prescribe the division if the carriers do not agree(Sec. 733 ).INSTANCES OF COMMON CONTROL OF DIVERSE CARRIERSWhile the Commission's control of rates, partial control ol'entr\. andcompetition between various modes of transportation have served tocontrol anv "common ownership" problems. a fairly recent developmenthas been the acquisition b\ truck lines of express or freight forw~arderoperating rights to fill out their operations. IThis has resulted in theconsolidation of less-truckload shipments by the express or freightforwarder entity and their shipment over the common carrier truck lineentitv at the latter's truckload rate. the saving to the controlling cntity.of course, being the difference between the less-truckload rate and thetruckload rate. There is no adverse impact on shippers. and nounreasonable'impact on competitors in this method of operation.The only instance of a problem in the common control of diversemodes arose out of Southern Pacific Company's control of SouthernPacific Pipelines, Inc. The pipeline was built along the railroad's rightof way. There is no requirement that a pipeline obtain a certificate ofconvenience and necessity. It filed its rate schedules for thetransportation of petroleum between points served hv the petroleum-carrying barges of River Lines, Inc. and others at substantially lowerrates. In River Lines, Inc., et al. v. Southern Pacific Pipe Lines, Inc.,et al., (1964) 62 CPUC 238, the Commission found that thereasonableness of Pipelines' rates, alleged to be unreasonably low by itscompetitors, would be determined by the Commission. The Commissionfound them to be reasonable either on the basis of out-of-pocket costsor fully distributed costs. Complainants also alleged that because of thecommon ownership and control of Southern Pacific Company andPipelines, the Commission should treat Pipelines as the alter ego of therail line, and thus a "land carrier"; that Section 727 of the PublicUtilities Code declares that it is the policy of the State to encourage useof waterways, and that in fixing water carriers' rates the Commission is4Transportation Law Journal, Vol. 2 [1970], Iss. 1, Art. 10https://digitalcommons.du.edu/tlj/vol2/iss1/10COMMON OWNERSHIP IN CALIFORNIAdirected to establish a difl'crential under the rates of" "competing landcarriers" such that the water carriers shall be able fairly to compete forsuch business. The Commission lound that the creation of' the subsidiaryhad not frustrated the lawl'ul operation of the statute: that the 'act thatthe pipeline was owned by a railroad made it no less a pipeline: that thestatute dealt with rate relationships between railroads (and highwavcarriers) on the one hand and water carriers on the other, and simpl vdid not apply to pipelines. In River Lines, et al.. v. CPL(. el al.. (1965)62 C.2d 244. the Calil'ornia Supreme Court alirmed the decision of' theCommission. holding. however, that the statute required the Commissionto adjust water carriers' rates and not those of' the land carrier. TheCourt stated that if' it were to conclude "'that to encourage competitionthe commission was required to raise rates of competing land carrierswhere the costs of' water carriers exceeded those of' the land carriers,"this would not only create "an administrative aberration, but would beeconomically unsound at the expense of the consuming public."CONCLUSIONDue primarily to our unique rate regulation and secondarily to broadjurisdictional powers, we conclude that there is at least at this time no"common ownership" problem in California.5Pajalich and Lane: No Common Ownership Problem in CaliforniaPublished by Digital Commons @ DU, 19706Transportation Law Journal, Vol. 2 [1970], Iss. 1, Art. 10https://digitalcommons.du.edu/tlj/vol2/iss1/10

No Common Ownership Problem in California

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No Common Ownership Problem in California

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