XII. ADDITIONAL VIEWS OF REPRESENTATIVES JOHN F. SEIBERLING, CHRISTOPHER J. DODD, JOSHUA EILBERG, GEORGE MILLER, AND MORRIS K. UDALL

ANTITRUST REVIEW

When the House considers the OCS bill, we will offer an amendment to require a 30-day antitrust review of each OCS lease sale. This review would enable the government to identify in each OCS lease sale any individual leases or conditions likely to have adverse effects upon competition. By authorizing the modification of such leases or conditions in order to reduce or eliminate these adverse effects, the amendment is intended to foster competition and to protect American consumers who might otherwise become the victims of "regional monopolies" and of unnecessary overcharges for oil and gas.2

The amendment would require the Secretary of the Interior to notify the Attorney General and the Federal Trade Commission prior to the issuance of OCS leases. The Attorney General would be required to conduct such antitrust review as he deems appropriate, and the FTC would be authorized to conduct such review. Both would be authorized to make non-binding recommendations to the Secretary. The amendment is similar to the antitrust review provisions that the 94th Congress enacted in the Naval Petroleum Reserves Production Act (Public Law 94-258) and in the Federal Coal Leasing Act Amendments (Public Law 94-377).

During the decade prior to this year, the Interior Department exhibited no interest in the effects of federal energy leasing policies upon competition, while the Justice Department was notably uninvolved in governmental decisions concerning the rights to vast quantities of federal energy resources. There was no inter-Departmental coordination or consultation, and neither Department examined the likely or actual effects of OCS lease sales on competition or developed an adequate data base from which to analyze or predict such effects.

In fact, the Justice Department still doesn't know how much oil and gas reserves each major company controls (on a worldwide, domestic, OCS, or regional basis), how much oil and gas each major company produces (on Federal lands and elsewhere, and in each relevant geographic market), what the relevant markets are for each phase of the oil and gas industries, what the degree of substitutability is between petroleum and the major alternative fuels (coal and ur nium) how prevalent OCS joint ventures are, which comm

1 By a 10-9 vote, the Committee deleted an antitrust review one in the OCS bill passed by the House in the 94th Congress we have re-drafted the provision to meet several speci Administration.

2 As the House Judiciary Committee stated recently: "The economic burden of many antitrust violations consumer in the form of higher prices for his goods an tions almost always contribute to inflation. They intre the marketplace, thus undermining our economic syst suming public that ultimately benefits from the H. Rept. 94-499, pp. 3-4,

members of which OCS joint ventures, whether joint ventures reduce or actually create or maintain-barriers to entry in OCS operations, whether CCS pipelines are in fact used by their owners to deny access or to charge excessive transportation rates to non-owner shippers (the Justice Department has testified that OCS pipelines may in theory be used in that manner), or whether OCS producers have improperly denied small and independent refiners reasonable access to OCS crude oil. In hearings last year, the Justice Department stated:

Energy information is not ordinarily collected by the Department of Justice on a regular, institutionalized basis... Instead, energy information is acquired on an ad hoc basis, typically as such data may be required in an investigation or suit in connection with our law enforcement activities.— (U.S. Senate, Committee on Interior and Insular Affairs, 94th Congress, 2d session, Hearings on S. 1864 [Energy Information Act], serial 94-31, Part 1, p. 1101.)

This year the Interior Department and the Justice Department appear at long last to have recognized the principles that (1) OCS leasing policies may have had adverse effects upon competition and (2) the Federal Government has the responsibility to minimize such effects in a manner that does not unduly interfere with other vital national objectives such as producing needed Outer Continental Shelf energy resources. We are also pleased that the Administration now includes competition policy among the major national objectives, and that it endorses the major provisions of H.R. 1614 (as reported) relating to competition.*

As OCS leasing, development and production are substantially expanded in the coming decade 5, these new pro-competition provisions should prove to be dramatic improvements over the current law and administrative practices relating to the OCS. However, the provisions in H.R. 1614 (as reported) will not be fully adequate unless accompanied by a requirement for an antitrust review of each OCS lease sale and by express authority for the Secretary of the Interior

3 We are encouraged by two recent developments which suggest that the Justice Department is showing a measure of interest in the energy industries. First, the Justice Department argued as an intervenor in ICC proceedings that the rates requested for the transportation of Alaska crude oil would result in consumers paying at least $800 million each year in unjustified monopoly overcharges. The ICC agreed with the Jutice Department and refused to grant the high rates which the Alyeska owners had requested. Second, in a report to Congress and the President, the Justice Department concluded that consumers might pay excessive prices (or face artificial limitations of the natural gas supplies) if major gas producers are permitted to own or operate the Alaska natural gas transportation system. Accordingly, the Justice Department has recommended a prohibition on producer ownership or operation of the system.

4 The Administration is very supportive of the bill's new bidding systems, which are intended to reduce or eliminate barriers to entry in OCS production by smaller and newer companies which cannot afford the substantial bonus payments required by the old system. The bill also contains Administration-endorsed provisions to require that the Secretary of the Interior consult with and give due consideration to the views of the Attorney General and the Federal Trade Commission in the formulation of all regulations affecting competition. In addition, the bill calls for an annual antitrust report (focusing largely on the effectiveness of the new bidding systems), and it requires that 20 percent of OCS production be offered at market prices to small and independent refiners.

5 In the last 4 years alone. there have been 15 OCS lease sales, with a total of 1,134 individual leases being issued for a total of $11 billion in bonus payments. The OCS is expected to provide a large percentage of the new oil and gas which in the years ahead will have to be discovered, developed, and produced to help meet America's energy needs. In the immediate future, there may well be an average of six OCS lease sales per year. with each sale averaging 60-70 leases and bringing in bonus payments of $400 million to $800 million in addition to royalties. Each OCS lease sale, therefore, involves a substantial transfer of Federal energy resources.

to take appropriate and timely steps to ameliorate any likely anticompetitive effects.

There are several specific concerns which deserve close attention in an OCS lease sale antitrust review:

(1) Regional concentration.-There might well be adverse antitrust consequences if the same few companies which control most of the North Slope and Prudhoe Bay reserves and the TransAlaska Pipeline System were to acquire an inordinate share of the OCS leases off the coast of Alaska. Similarly, there might be cause for concern if an inordinate share of the OCS leases off California were to be issued to the one company which currently dominates all phases of the oil industry (ownership of reserves, production, refining, pipelines and marketing) affecting California. In one recent OCS lease sale, a single company acquired 30 percent of the leases issued. Whether that figure represents an inordinate share probably depends on the company's share of all reserves and production in the relevant region or regions of the country.

(2) Joint ventures.-Approximately 85 percent of Outer Continental Shelf leases are issued to joint ventures. Nonetheless, the Justice Department has never conducted a careful analysis of the producers' rationale for such a pattern of joint ventures-that they are necessary to raise capital, to spread risks and costs, and to enable smaller companies to participate in Outer Continental Shelf operations. Even if this rationale may properly apply to bonus bidding operations, it may not be applicable to Outer Continental Shelf operations under the new bidding systems created by the bill. Regular Outer Continental Shelf lease sale antitrust reviews would enable the Justice Department and the Interior Department to make relevant determinations and to establish appropriate guidelines with respect to Outer Continental Shelf joint ventures.

(3) Pipelines.-In testimony before the Outer Continental Shelf Committee, the Justice Department stated that Outer Continental Shelf pipelines present the opportunity for anticompetitive abuse in that (1) "vertically-integrated" petroleum companies are able to use Outer Continental Shelf pipelines to take monopoly profits despite the appearance of government regulation and (2) the owners and operators of at least some Outer Continental Shelf pipelines have a financial incentive to constrict pipeline capacity and throughput. Some of the problems associated with Outer Continental Shelf pipelines may be redressed through appropriate regulations. However, an antitrust review would enable the Justice Department and the Interior Department to identify specific leases where pipeline antitrust problems are most likely to occur, so that necessary modifications may be made in such leases prior to their issuance.

(4) Barriers to entry.-The bidding systems, pipeline control, and perhaps regional concentration and joint venture patterns have created and may continue to maintain barriers to entry into Outer Continental Shelf operations, particularly by smaller and newer companies. A careful antitrust review might identify other

barriers to entry in Outer Continental Shelf operations, or in other phases of the oil and gas industries as a result of Outer Continental Shelf policies and leasing.

Of course, a well-designed and well-implemented antitrust review might reveal other antitrust problems and other adverse effects likely to result from Outer Continental Shelf lease sales. The amendment we will offer, therefore, would require an antitrust review whose form and nature would be determined by the Attorney General and the Secretary of the Interior.

Because the Justice Department has an inadequate data base and will be starting almost from scratch, the first few Outer Continental Shelf lease sale antitrust reviews would probably have to focus primarily on any readily apparent anticompetitive conditions (such as any company acquiring an obviously inordinate percentage of the leases being issued). As the Justice Department over time develops a reliable data base and builds an expertise in the leasing of federal energy resources, the antitrust reviews should become more sophisticated and the Justice Department should be able to "flag" different kinds of anticompetitive situations within the very limited time period provided.

In order to minimize the overlapping of information-gathering by federal agencies, the amendment would authorize Justice Department access to all relevant data in other agencies, in a manner that will protect any confidential or proprietary information.

Finally, the amendment will expressly protect the right of the Government to bring subsequent cases based in whole or part on Outer Continental Shelf leases, even if the Justice Department fails to challenge a lease or set of leases at the time of issuance. A set of leases may not appear likely at the time of issuance to have future anticompetitive effects, but may later actually have anticompetitive effects or may become part of a pattern of monopolization. It is essential that the Government have the authority to take appropriate action whenever such effects or pattern become apparent.

Whether there is effective competition in the energy industries and whether energy consumers will enjoy the full benefits of such competition in the years ahead will depend largely on whether the 95th Congress is willing to require that federal antitrust officials pay proper attention to the yearly disposition of billions of dollars worth of Outer Continental Shelf energy resources. Adoption of the antitrust review amendment will help identify and minimize any anticompetitive forces affecting Outer Continental Shelf leasing, development and production.

JOHN SEIBERLING.
CHRISTOPHER J. DODD.
JOSHUA EILBERG.
GEORGE MILLER.

MO UDALL.

XIII. ADDITIONAL VIEWS OF REPRESENTATIVES JOHN F. SEIBERLING AND MORRIS K. UDALL

COMMON CARRIER PROVISIONS FOR OCS OIL PIPELINES

Pipelines are usually the cheapest and most efficient method of transporting OCS oil, and it is usually economically inefficient to build more than one oil pipeline from any OCS area onto shore. Nonetheless, the Government currently grants monopoly rights-of-way authorizing any private company (1) to build and operate a pipeline for the transportation of oil it has produced on federal OCS lands and (2) to refuse to transport OCS oil produced by other companies. The exercise of this right to deny access makes it necessary for other companies to build their own pipelines or use more expensive modes of transportation (such as barges). The result is unjustifiably high transportation costs, which are likely to be passed along to consumers in the form of higher prices.

When the House considers H.R. 1614, we will offer an amendment to require that OCS oil pipelines be operated as common carriers, like other oil pipelines on Federal lands. The effect would be to require that OCS oil pipelines accept, convey, transport, or purchase at reasonable rates and without discrimination OCS oil delivered by other companies. The aim of the amendment is to promote transportation efficiency, thus reducing producer costs and consumer prices.

JOHN SEIBERLING.
MO UDALL.

1 Section 28 of the Mineral Leasing Act of 1920 (30 U.S.C. 185) requires that oil pipelines through Federal lands (except Indian lands, National Park Service lands, and OCS lands) be constructed, operated, and maintained as common carriers, and that the owners of such pipelines accept, convey, transport, or purchase without discrimination all oil delivered to such pipelines. The Naval Petroleum Reserves Production Act of 1976 requires that any pipeline in the vicinity of a Reserve which accepts, conveys, transports, or purchases any Reserve oil must operate as a common carrier insofar as all Reserve oil is concerned.

Section 5(c) of the OCS Lands Act of 1953 provides that the Secretary of the Interior may grant pipeline rights-of-way "for the transportation of oil*** upon the express condition that such oil **pipelines shall transport or purchase without discrimination, oil produced *** in the vicinity of the pipeline in such proportional amounts as *** the Interstate Commerce Commission ***may*** determine to be reasonable, taking into account, among other things, conservation and the prevention of waste." Congress intended to exempt from this form of common carrier status only true operating lines (i.e., those operated wholly within the bounds of a single lease), just as such lines had been exempted from the common carrier requirements of the Mineral Leasing Act of 1920. Unfortunately, Interior Department regulations have expanded the operating line exemption to the point where virtually all OCS pipelines (including most pipelines which transport OCS oil to onshore locations) are exempt from common carrier status and obligations. Our amendment would limit the exemption to true operating lines.

(292)