[Congressional Record Volume 152, Number 62 (Thursday, May 18, 2006)]
[Senate]
[Pages S4803-S4805]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KOHL (for himself and Mr. DeWine):
  S. 2854. A bill to prevent anti-competitive mergers and acquisitions 
in the oil and gas industry; to the Committee on the Judiciary.
  Mr. KOHL. Mr. President, I rise today to introduce the Oil Industry 
Merger Antitrust Enforcement Act. This legislation will significantly 
strengthen the antitrust laws to prevent anticompetitive mergers and 
acquisitions in oil and gas industry.
  We have all seen the suffering felt by consumers and our national 
economy resulting from rising energy prices. Gasoline prices have now 
shattered the once unthinkable $3.00 a gallon level, have doubled in 
the last 5 years, and increased more than 30 percent in the last year 
alone. And prices for other crucial energy products--such as natural 
gas and home heating oil--have undergone similar sharp increases.
  Industry experts debate the causes of these extraordinarily high 
prices. Possible culprits are growing worldwide demand, supply 
disruptions, the actions of the OPEC oil cartel and limits on refinery 
capacity in the United States. But about one thing there can be no 
doubt--the substantial rise in concentration and consolidation in the 
oil industry. Since 1990, the Government Accountability Office has 
counted over 2,600 mergers, acquisitions and joint ventures in the oil 
industry. Led by gigantic mergers such as Exxon/Mobil, BP/Arco, Conoco/
Phillips and Chevron/Texaco, by 2004, the five largest U.S. oil 
refining companies controlled over 56 percent of domestic refining 
capacity, a greater market share than that controlled by the top 10 
companies a decade earlier.
  This merger wave has led to substantially less competition in the oil 
industry. In 2004, the GAO concluded that these mergers have directly 
caused increases in the price of gasoline. A

[[Page S4804]]

study by the independent consumer watchdog Public Citizen found that in 
the 5 years between 1999 and 2004, U.S. oil refiners increased their 
average profits on every gallon of gasoline refined from 22.8 cents to 
40.8 cents, a 79 percent jump. And the grossly inflated profit numbers 
of the major oil companies--led by Exxon Mobil's $8.4 billion profit in 
the first quarter of 2006, which followed its $36 billion profit in 
2005, the highest corporate profits ever achieved in U.S. history, are 
conclusive evidence--if any more was needed--of the lack of competition 
in the U.S. oil industry. While it is true that the world price of 
crude oil has substantially increased, the fact that the oil companies 
can so easily pass along all of these price increases to consumers of 
gasoline and other refined products--and greatly compound their profits 
along the way--confirms that that there is a failure of competition in 
our oil and gas markets.
  More than 90 years ago, one of our Nation's basic antitrust laws--the 
Clayton Act--was written to prevent just such industry concentration 
harming competition. It makes illegal any merger or acquisition the 
effect of which ``may be substantially to lessen competition.'' Despite 
the plain command of this law, the Federal Trade Commission--the 
Federal agency with responsibility for enforcing antitrust law in the 
oil and gas industry--has failed to take any effective action to 
prevent undue concentration in this industry. Instead, it permitted 
almost all of these 2,600 oil mergers and acquisitions to proceed 
without challenge. And where the FTC has ordered divestitures, they 
have been wholly ineffective to restore competition. Consumers have 
been at the mercy of an increasingly powerful oligopoly of a few giant 
oil companies, passing along price increases without remorse as the 
market becomes increasingly concentrated and competition diminishes. It 
is past time for us in Congress to take action to strengthen our 
antitrust law so that it will, as intended, stand as a bulwark to 
protect consumers and prevent any further loss of competition in this 
essential industry.
  Our bill will strengthen merger enforcement under the antitrust law 
in two respects. First, it will direct that the FTC, in conjunction 
with the Justice Department, revise its Merger Guidelines to take into 
account the special conditions prevailing in the oil industry. In 
reviewing a pending merger or acquisition to determine whether to 
approve it or take legal action to block it, the FTC follows what are 
known as ``Merger Guidelines.'' The Merger Guidelines set forth the 
factors that the agency must examine to determine if a merger or 
acquisition lessens competition, and sets forth the legal tests the FTC 
is to follow in deciding whether to approve or challenge a merger. As 
presently written, the Merger Guidelines fail to direct the FTC, when 
reviewing an oil industry merger, to pay any heed at all to the special 
economic conditions prevailing in that industry.
  Our bill will correct this deficiency. Many special conditions 
prevail in the oil and gas marketplace that warrant scrutiny, 
conditions that do not occur in other industries, and the Merger 
Guidelines should reflect these conditions. In most industries, when 
demand rises and existing producers earn ever-increasing profits, new 
producers enter the market and new supply expands, reducing the 
pressure on price. However, in the oil industry, there are severe 
limitations on supply and environmental and regulatory difficulty in 
opening new refineries, so this normal market mechanism cannot work. 
Additionally, in most industries, consumers shift to alternative 
products in the face of sharp price increases, leading to a reduction 
in demand and a corresponding reduction in the pressure to increase 
prices. But for such an essential commodity as gasoline, consumers have 
no such option--they must continue to consume gasoline to get to work, 
to go to school, and to shop. These factors all mean that antitrust 
enforcers should be especially cautious about permitting increases in 
concentration in the oil industry.
  Accordingly, our bill directs the FTC and Justice Department to 
revise its Merger Guidelines to take into account the special 
conditions prevailing in the oil industry--including the high 
inelasticity of demand for oil and petroleum-related products; the ease 
of gaining market power; supply and refining capacity limits; 
difficulties of market entry; and unique regulatory requirements 
applying to the oil industry. This revision of the Merger Guidelines 
must be completed within 6 months of enactment of this legislation.
  The second manner in which this legislation will strengthen antitrust 
enforcement will be to shift the burden of proof in Clayton Act 
challenges to oil industry mergers and acquisitions. In such cases, the 
burden will be placed on the merging parties to establish, by a 
preponderance of evidence, that their transaction does not 
substantially lessen competition. This provision would reverse the 
usual rule that the government or private plaintiff challenging the 
merger must prove that the transaction harms competition. As the 
parties seeking to effect a merger with a competitor in an already 
concentrated industry, and possessing all the relevant data regarding 
the transaction, it is entirely appropriate that the merging parties 
bear this burden. This provision does not forbid all mergers in the oil 
industry if the merging parties can establish that their merger does 
not substantially harm competition, it may proceed. However, shifting 
the burden of proof in this manner will undoubtedly make it more 
difficult for oil mergers and acquisition to survive court challenge, 
thereby enhancing the law's ability to block truly anticompetitive 
transactions and deterring companies from even attempting such 
transactions. In today's concentrated oil industry and with consumers 
suffering record high prices, mergers and acquisitions that even the 
merging parties cannot justify should not be tolerated.
  As ranking member on the Senate Antitrust Subcommittee, I believe 
that this bill is a crucial step to ending this unprecedented move 
towards industry concentration and to begin to restore competitive 
balance to the oil and gas industry. Since the days of the break-up of 
the Standard Oil trust 100 years ago, antitrust enforcement has been 
essential to prevent undue concentration in this industry. This bill is 
an essential step to ensure that our antitrust laws are sufficiently 
strong to ensure a competitive oil industry in the 21st century. I urge 
my colleagues to support the Oil Industry Merger Antitrust Enforcement 
Act.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2854

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Oil Industry Merger 
     Antitrust Enforcement Act''.

     SEC. 2. STATEMENT OF FINDINGS AND DECLARATIONS OF PURPOSES.

       (a) Findings.--Congress finds the following:
       (1) American consumers are suffering from excessively high 
     prices for gasoline, natural gas, heating oil, and other 
     energy products.
       (2) These excessively high energy prices have been caused, 
     at least in substantial part, by undue concentration among 
     companies involved in the production, refining, distribution, 
     and retail sale of oil, gasoline, natural gas, heating oil, 
     and other petroleum-related products.
       (3) There has been a sharp consolidation caused by mergers 
     and acquisitions among oil companies over the last decade, 
     and the antitrust enforcement agencies (the Federal Trade 
     Commission and the Department of Justice Antitrust Division) 
     have failed to employ the antitrust laws to prevent this 
     consolidation, to the detriment of consumers and competition. 
     This consolidation has caused substantial injury to 
     competition and has enabled the remaining oil companies to 
     gain market power over the sale, refining, and distribution 
     of petroleum-related products.
       (4) The demand for oil, gasoline, and other petroleum-based 
     products is highly inelastic so that oil companies can easily 
     utilize market power to raise prices.
       (5) Maintaining competitive markets for oil, gasoline, 
     natural gas, and other petroleum-related products is in the 
     highest national interest.
       (b) Purposes.--The purposes of this Act are to--
       (1) ensure vigorous enforcement of the antitrust laws in 
     the oil industry;
       (2) restore competition to the oil industry and to the 
     production, refining, distribution, and marketing of gasoline 
     and other petroleum-related products; and
       (3) prevent the accumulation and exercise of market power 
     by oil companies.

[[Page S4805]]

     SEC. 3. BURDEN OF PROOF.

       Section 7 of the Clayton Act (15 U.S.C. 18) is amended by 
     adding at the end the following:
       ``In any civil action brought against any person for 
     violating this section in which the plaintiff--
       ``(1) alleges that the effect of a merger, acquisition, or 
     other transaction affecting commerce may be to substantially 
     lessen competition, or to tend to create a monopoly, in the 
     business of exploring for, producing, refining, or otherwise 
     processing, storing, marketing, selling, or otherwise making 
     available petroleum, oil, or natural gas, or products derived 
     from petroleum, oil, or natural gas; and
       ``(2) establishes that a merger, acquisition, or 
     transaction is between or involves persons competing in the 
     business of exploring for, producing, refining, or otherwise 
     processing, storing, marketing, selling, or otherwise making 
     available petroleum, oil, or natural gas, or products derived 
     from petroleum, oil, or natural gas;

     the burden of proof shall be on the defendant or defendants 
     to establish by a preponderance of the evidence that the 
     merger, acquisition, or transaction at issue will not 
     substantially lessen competition or tend to create a 
     monopoly.''.

     SEC. 4. ENSURING FULL AND FREE COMPETITION.

       (a) Review.--The Federal Trade Commission and the Antitrust 
     Division of the Department of Justice shall jointly review 
     and revise all enforcement guidelines and policies, including 
     the Horizontal Merger Guidelines issued April 2, 1992 and 
     revised April 8, 1997, and the Non-Horizontal Merger 
     Guidelines issued June 14, 1984, and modify those guidelines 
     in order to--
       (1) specifically address mergers and acquisitions in oil 
     companies and among companies involved in the production, 
     refining, distribution, or marketing of oil, gasoline, 
     natural gas, heating oil, or other petroleum-related 
     products; and
       (2) ensure that the application of these guidelines will 
     prevent any merger and acquisition in the oil industry, when 
     the effect of such a merger or acquisition may be to 
     substantially lessen competition, or to tend to create a 
     monopoly, and reflect the special conditions prevailing in 
     the oil industry described in subsection (b).
       (b) Special Conditions.--The guidelines described in 
     subsection (a) shall be revised to take into account the 
     special conditions prevailing in the oil industry, 
     including--
       (1) the high inelasticity of demand for oil and petroleum-
     related products;
       (2) the ease of gaining market power in the oil industry;
       (3) supply and refining capacity limits in the oil 
     industry;
       (4) difficulties of market entry in the oil industry; and
       (5) unique regulatory requirements applying to the oil 
     industry.
       (c) Competition.--The review and revision of the 
     enforcement guidelines required by this section shall be 
     completed not later than 6 months after the date of enactment 
     of this Act.
       (d) Report.--Not later than 6 months after the date of 
     enactment of this Act, the Federal Trade Commission and the 
     Antitrust Division of the Department of Justice shall jointly 
     report to the Committee on the Judiciary of the Senate and 
     the Committee on the Judiciary of the House of 
     Representatives regarding the review and revision of the 
     enforcement guidelines mandated by this section.

     SEC. 5. DEFINITIONS.

       In this Act:
       (1) Oil industry.--The term ``oil industry'' means 
     companies and persons involved in the production, refining, 
     distribution, or marketing of oil or petroleum-based 
     products.
       (2) Petroleum-based product.--The term ``petroleum-based 
     product'' means gasoline, diesel fuel, jet fuel, home heating 
     oil, natural gas, or other products derived from the refining 
     of oil or petroleum.
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