be inappropriate for dealing with competitive problems in the pipeline industry as a whole.*/ As Assistant Attorney General Shenefield said concerning the rules for deepwater ports in testimony prepared for the Antitrust Subcommittee: On the balance, I believe the basic flaw The other possible solution is divestiture - the separation of pipeline ownership from the other oil industry operations. Again, as Mr. Shenefield observed: */ The proposal for regulating deepwater ports involved four Competitive Rules:" 1. 2. 3. 4. Deepwater ports must provide open and nondiscrimina- Deepwater ports must provide open ownership to all The ownership shares of the deepwater ports' owners must be revised frequently (annually) so that each owner's share equals his share of average throughput. It is relevant to note there that application of these four Rules to pipelines on the Outer Continental Shelf was considered and rejected by the Senate during the debate on the OCS Lands Act Amendments. The objection was to the complexity and the Divestiture...attacks the problem Petroleum The orgument may be summed up as follows. pipelines are natural monopolies. The only way nonowner shippers, and ultimately the public, can be protected from the abuse of the monopoly power invested in their owners is through effective regulation. Effective regulation, however, is impossible given both the present statutory scheme and the · industry structure. The choices, therefore, are between a massive expansion of regulation, and in particular regulation of capacity and other investment decision, on the one hand, and divestiture, on the other. Policy Reasons for FTC Action The purpose of this last section is to examine briefly why the pipeline ownership question is a matter that ought to be resolved by the FTC. Even though, as was set out earlier in this petition, the FTC clearly has jurisdiction over the matter, an argument might be advanced that other branches of the government are better equipped to deal with the ownership issue. On close examination, however, it is clear that only the FTC has the necessary jurisdiction and regulatory flexibility to deal effectively with the problem. There are several other possible approaches, but each has significant disadvantages. Energy, through its Energy Regulatory Administration and Federal Energy Regulatory Commission, does have the authority to deal with one aspect of the problem. In its Organization Act, the Department fell heir to the ICC's Clayton Act jurisdiction. Within the Department, the Clayton Act functions have been split between the Secretary (or his designee, which is currently the Administrator of the ERA) and the FERC. The FERC has the authority to decide Clayton Act questions which are brought before it; however, such matters can only be initiated and brought before the Commission by the Secretary. At present, the ERA is continuing a formal investigation (Ex Parte No. 308 /Sub-No.1/) originally begun by the ICC, involving pipeline ownership. While at first this might seem like a reasonable vehicle for resolution of the question, there is a major difficulty: The DOE's ability to deal with the question of shipperownership is confined to the boundaries of Section 7 of the Clayton Act. Section 7 can be used to deal with two aspects of the pipeline ownership problem. It can address the question of ownership when it results from mergers or acquisitions that "tend to lessen competition," and it can be used to address the formation of joint ventures which have anticompetitive effects. Both of these are, of course, useful. And successful action under Section 7 may, in some instances, resolve the ownership problem. Nevertheless, Section 7 does not precisely address the ownership problem. It is not particularly relevant how a particular oil company became the owner of a particular pipeline, nor is joint ownership by itself the source of the competitive problem. In the simplest terms, the problem is shipper-ownership, not how the ownership was acquired or through what corporate device it is exercised, or even, in all cases, the fact that it is exercised jointly. Thus, the problem of shipper-ownership cannot be confronted within the narrow bounds of Section 7 of the Clayton Act. There is an even more important reason for the issue Petroleum being resolved in a broader forum than the FERC. case observed: ...pipeline companies have none of the special regulatees under the Act concerning acquisi- If pipelines are not to be subjected to the same degree of regulation as other common carriers, then their position within the competitive structure of the oil industry becomes even more important. Their place as pieces in the system of vertical integration in the oil industry has enormous significance. The integrated oil companies' ownership of these lines cannot escape scrutiny under the broader considerations of antitrust policy contained in the Sherman Act and the FTC Act simply because the FERC has exclusive jurisdiction over pipeline operation as such. It is, of course, relevant here that existing law provides no authority for the FERC to adopt the kind of regulatory solution applied to deepwater ports. The Deepwater Ports Act of 1974 (33 U.S.C. § 1506) permitted the Secretary of Transportation to use the licensing to impose this kind of regulation, but there is no similar authority relating to federal licensing or certification of conventional pipelines. A second possible approach to resolving the pipeline question would be for the Department of Justice to take the issue to the federal courts. This has certain obvious advantages, at least over the DOE approach. The Department of Justice does have the authority to enforce not only the Clayton Act, but also the Sherman Act. And the Department of Justice has a large amount of institutional expertise on the issue. As is amply demonstrated by Mr. Shenefield's testimony referred to earlier, the Department has devoted an enormous amount of talent and energy to the issue. The problem with this approach is that it can be done only on a case-by-case basis in a slow-moving, adjudicative context. Since 1942, the Department has approached the |