FTC considers alleged antitrust actions by Shell, Unocal

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, July 8 -- The US Federal Trade Commission (FTC) Wednesday took steps to curb what it sees as potentially uncompetitive behavior by two large oil companies: Royal Dutch/Shell Group and Unocal Corp.

Following testimony before the subcommittee on Energy Policy, Natural Resources, and Regulatory Affairs of the House Committee on Government Reform, FTC General Counsel William Kovacic told lawmakers commissioners had approved a formal investigation of Shell.

The probe will focus on agency concerns that the company's November 2003 decision to shut down its Bakersfield, Calif., 70,000 b/d refinery may be illegal. Subpoenas have been issued, although senior FTC officials declined to say when or to whom the documents were sent. Agency officials also declined to say when they expect the staff to finish the investigation.

Following the staff inquiry, it is up to FTC's commissioners to decide what corrective action, if any should be taken, although regulators said the government could "in theory" force Shell to keep the refinery open.

Shell is cooperating with federal authorities; the facility is still slated to close by this November. The company last fall cited the "continual decline" of San Joaquin Valley Heavy Crude (SJV Heavy) as a key reason for closing the plant.

Some West Coast lawmakers and consumer groups allege Shell's action was taken to help drive up retail gasoline prices even further. Company critics argue there already is little or no competition in the US's most expensive motor fuel market. Also at the hearing, FTC officials invited Congress's independent watchdog, the General Accounting Office, to participate in a public conference on gasoline markets.

Specifically, FTC wants the two independent agencies to debate whether a recent GAO report definitively proves that recent oil mergers have exacerbated retail fuel prices and encouraged anticompetitive behavior. FTC disagrees with the way GAO conducted the study, released last May. A GAO official present at the hearing said he supported the conference, pending "institutional" approval by his supervisors.

Some industry observers said FTC's announcements reflected the White House's desire to help smooth tensions between the administration and Congress over volatile energy public policy issues.

In May, West Coast lawmakers led by Sen. Ron Wyden (D-Ore.) placed a "hold" on the nomination of Deborah Majoras, a former US Department of Justice antitrust official, to chair FTC. Wyden, and his colleague Barbara Boxer (D-Calif.) have sharply criticized the agency for not taking corrective action to control what they view as monopolistic practices by fuel marketers. At a Senate hearing this spring, Majoras said if confirmed, she would appoint a special energy counsel at FTC to study gasoline markets, including the impacts of past mergers on the industry.

But so far the hold remains in place and it is unclear when or if the senators will remove the procedural block before Congress leaves later this fall.

Separate action
In a separate action, the agency said it reinstated charges that Unocal violated antitrust laws by defrauding the California Air Resources Board (CARB) as it mulled new reformulated gasoline specifications.

FTC commissioners on a 5-0 voted reversed the ruling of an agency administrative law judge and sent the matter back for agency review. "Depending on the factual record to be developed, Unocal may or may not be subjecting competitors and consumers to massive, anticompetitive royalties and increases in the price of gasoline based on an exercise of unlawfully obtained market power," the opinion stated. The commission rejected Unocal's legal argument that the Noerr Pennington doctrine protected its conduct from antitrust scrutiny, and that limitations on FTC jurisdiction barred the complaint as a matter of law.

Unocal maintains its California reformulated gasoline formula is proprietary and other fuel suppliers should pay the company royalties to sell similarly made fuel. Suppliers say the formula stems from government regulation and a collaborative industry effort to meet those rules and is not patentable (OGJ Online, Dec. 2, 2003).

Contact Maureen Lorenzetti at [email protected].