REPORT OF THE ATTORNEY GENERAL TO THE PRESIDENT

JULY 1977.

This Report is submitted to the President pursuant to Section 6 of the Alaska Natural Gas Transportation Act of 1976. Section 6 of the Act directs that any Federal officer or agency may submit written comments to the President with respect to the recommendation and report of the Federal Power Commission and alternative methods for transportation of Alaska natural gas for delivery to the contiguous states.1 This Report is principally concerned with item (6)—the impact upon competition of the respective proposed transportation systems.

The Department of Justice has done an extensive analysis of this subject in the Report of the Attorney General submitted to the Congress pursuant to Section 19 of the Act. Rather than repeat what already has been said therein, we are appending a copy of our Report to Congress. We believe that the contents of that Report fully set forth the antitrust implications of the various proposed projects.

The remainder of this Report will summarize briefly the areas of agreement or disagreement with the Federal Power Commission's competitive analysis in its Recommendation to the President. Also, in accordance with Section 6(c) we discuss the question of waiver of law. I. IMPACT ON COMPETITION: SUMMARY OF RECOMMENDATIONS OF THE FEDERAL POWER COMMISSION AND THE DEPARTMENT OF JUSTICE

The Federal Power Commission concludes generally that the certification of any one of the proposed systems will not have a significant impact upon competition among pipelines. The Department has reached the same overall conclusion.

The Commission has encouraged the participation of producers of substantial amounts of gas in the pipeline joint venture in order to contribute their significant financial resources to aid in the financing of the pipeline. The Department disagrees. We have recommended in the Report to Congress that an ownership interest, or participation in any form in the transportation system, by producers of significant amounts of natural gas, or their subsidiaries or affiliates, should be prohibited. The license to be issued to the selected system should contain a condition which prevents participation in any manner by such gas producers.

The Federal Power Commission has stated that it is strongly in favor of widespread distribution of Alaskan natural gas in order to limit reliance on Alaskan gas, to create incentives for participation in displacement arrangements and to provide easier private financing. The Department has stated that if, because of continued wellhead price

1 Attorney General Bell did not participate in the preparation of this Report due to conflict of interest considerations. Responsibility for this Report was delegated by Mr. Bell to Deputy Attorney General Flaherty.

various forms of compensation collateral to sales contracts for Alaskan gas, such arrangements should be disclosed and subjected to Commission scrutiny. As long as there is wellhead price regulation, the Commission, or its successor agency, should examine carefully each Alaskan gas purchase contract and disapprove or condition each such contract that it finds not in the public interest. In addition to the recommendations in the Report to Congress, we note further that the Commission should assess the impact of such arrangements in various producing fields because of the widespread existence of "favored-nation" clauses. Price increases which at first may appear innocuous, may have a greater impact throughout the field due to price increases in other contracts with such clauses.

In summary, while the Department agrees with the Commission's overall conclusion that certification of any of the proposed transportation systems will not have any significant impact upon competition, we have indicated our differences with other conclusions. We urge the President to consider each of these matters carefully and to append to any license the conditions we have suggested in our Congressional Report and which have been reiterated in this Report.

II. WAIVERS OF LAW

Section 6(c) of the Act directs each Federal officer or agency to report to the President actions to be taken by such officer or agency necessary or related to the construction and initial operation of the approved transportation system and to include recommendations with respect to any provision of law to be waived upon recommendation by the President to the Congress. It is the Department's view that no action must be taken by the Attorney General under section 9 (a) of the Act-action which is necessary or related to the construction and initial operation of the approved transportation system. Furthermore, it is the Department's view that none of the antitrust laws should be waived by the President.

Section 14 of the Act states:

Nothing in the Act, and no action taken hereunder, shall imply or effect an amendment to, or exemption from any provision of the antitrust laws.

It is plain from this provision that Congress did not mean for the antitrust laws to be waived in any manner and intended that they remain in full force and effect.

Many of the competitive effects indicated in the accompanying Report are prospective in nature. Thus, their full impact may not be known until the transportation system is built and operating. In light of this situation, it is the Department's view that none of the antitrust laws should be waived. The transportation system and its owners ought to be subjected to the full panoply of the antitrust laws and their possible enforcement should any violations of these laws appear in the future.

III. CONCLUSION

I conclude that antitrust considerations do not militate against selection of any of the three proposed projects as the transportation system for moving Alaskan natural gas to the lower 48 states; nor do

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competitive considerations point to selection of one of the three projects in preference of the other two. The problems we have identified in this Report and our Report to Congress may impact on any selected project and, therefore, do not make one project seem more desirable

than the others.

We have proposed several conditions which ought to be appended to a license issued to any of the proposed transportation systems. These recommendations are in the Report to Congress appended to this Report and are summarized in the Conclusion of the appended Report. Respectfully submitted.

PETER F. FLAHERTY, Deputy Attorney General.

This report is submitted to Congress in compliance with Section 19 of the Alaska Natural Gas Transportation Act of 1976. That provision requires the Attorney General to conduct a thorough study of the antitrust issues and problems relating to the production and transportation of Alaskan natural gas.

Based on our analysis of all information currently available, we find that antitrust considerations do not militate against selection of any of the three proposed projects as the transportation system for moving Alaskan natural gas to the lower 48 states; nor do competitive considerations point to selection of one of the three projects in preference to the other two. Although we have identified several potential antitrust problem areas associated with the projects, these problems may impact on any project that is selected and thus do not make one project seem more desirable than the others.

This report has identified several potential competitive problem areas, which can be addressed through: (1) the imposition of conditions upon the license issued to whichever project is chosen; (2) the enactment of legislation; and (3) collateral action by the Federal Power Commission, or its successor agency. Since some of the identified problems are not directly associated with the transportation of natural gas but are associated with the sale of natural gas, these problems would have to be addressed in the context of the required examination of the gas purchase contracts.

The report first provides a general introduction to the three proposed projects, the methods of transportation and routes proposed and the participants in each proposed project. There are two overland pipeline projects proposed by Alcan and Arctic Gas, and a combination pipeline and liquified natural gas tanker system proposed by EI

Paso.

(1) The Alcan route follows the Alaska oil pipeline route to Fairbanks and then follows the Alcan Highway through Canada. Alcan has proposed two different sized pipelines. Originally Alcan proposed a 42-inch pipeline but more recently has proposed a 48-inch pipeline similar to that of Arctic Gas.

(2) The Arctic Gas route proceeds east from the North Slope to the Mackenzie Delta of Canada, where it is expected additional gas reserves will be developed. The route then proceeds south through Canada to the United States border.

(3) The El Paso project calls for a pipeline to follow the Alaska oil pipeline to Point Gravina on Prince William Sound. There the gas would be converted to liquid natural gas and shipped by tanker to the coast of California.