Oil and Gas:

ABA's antitrust chair discusses FTC priorities on market manipulation, OPEC

How will the new Federal Trade Commission address manipulation in wholesale petroleum markets? What will FTC's energy priorities be this year? During today's OnPoint, James Wilson -- a partner at Vorys, Sater, Seymour and Pease and chairman of the American Bar Association's antitrust law section -- previews the new FTC priorities on energy and market manipulation. He discusses how FTC's new chairman, Jon Leibowitz, will shift the commission's tone and direction. Wilson also explains what the political climate is like for action against OPEC this year.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With me today is James Wilson, a partner at the law firm Vorys, Sater, Seymour and Pease and chair of the American Bar Association's Antitrust Law Section. Jim, it's good to have you on the show.

Jim Wilson: Thanks for having me.

Monica Trauzzi: Jim, with the big focus the Obama administration is putting on energy there are potentially some key issues that could arise pertaining to antitrust issues in the energy sector coming out of the FTC over the next year or so. First and foremost, Obama has chosen Jon Leibowitz to head up the FTC. He's been a member of the commission since 2004. He's the only Democrat on the commission. What are your impressions of the selection and how are you expecting things to shift from the last eight years?

Jim Wilson: Well, I think we started to see a shift even before Jon Leibowitz's appointment as the chairman of the commission. But I think what everyone can expect is more vigorous enforcement, especially on the merger side. Also I think on pricing practices and other related issues Chairman Leibowitz has for a number of years expressed some skepticism about the studies that have shown that gasoline pricing was not impacted by a lack of competition in the industry. So I think things are going to be looked at very carefully there.

Monica Trauzzi: So, what would you say, what are your expectations for the FTC's biggest priorities over the next few years?

Jim Wilson: Well, I think the energy sector has been a priority at the FTC and that's only going to increase. Obviously the price at the pump is going to determine, to a large degree, how much energy is put into enforcement at that level. But, if you look over the last three or four years on the merger side you see that with respect to petroleum producers they have suffered a much higher level of scrutiny than other industries, even mergers going from five to four or four to three players in an industry have routinely been challenged in the petroleum industry, whereas, in most industries that's passed without any serious scrutiny.

Monica Trauzzi: So, is that an unfair amount of scrutiny?

Jim Wilson: Well, you do wonder why the standard is different in this sector. Certainly it's one that the public pays more attention to probably than any other sector. It's one in which prices, at least at a superficial level, don't always seem to make sense and it's one that the press pays a lot of attention to. I think a lot of people would say that the level of scrutiny that that industry has gotten is the level that all industry should be getting. But certainly I don't think anyone thinks, in the Obama administration, it's going to get any less scrutiny.

Monica Trauzzi: And so beyond energy, where might some of those other priorities be, something like the financial services industry?

Jim Wilson: Well, I think the Department of Justice is typically focused more on financial services and obviously they're going to be spending a lot of their energy there in the Federal Trade Commission. And the pharmaceutical industry I think is going to be the number one area of concern. Commissioner Leibowitz has repeatedly said that he thinks that conduct in the pharmaceutical industry is a problem that rises to the level of a challenge to our national health care and that's obviously another priority of the Obama administration. So I think financial services, energy, health care are probably going to be the three biggest areas of antitrust scrutiny in the coming years.

Monica Trauzzi: On energy the FTC is tasked with maintaining competition in the petroleum sector and the commission is currently writing rules to deter manipulation in wholesale petroleum markets and they have been tasked with implementing new penalties against manipulation. So how is that rulemaking process going to go over the next year?

Jim Wilson: Well, I think that the process is largely finished. I'm not sure anyone is very happy with the process. I'm not sure that the FTC itself even wanted this rulemaking authority, but Congress gave it to them. From the antitrust lawyer's perspective I suppose things have gotten better than they might have gone in the sense that there hasn't been a different sort of antitrust standard set for the energy sector or for the petroleum industry. What the FTC has really done is followed more the model that you see in the Securities Exchange Commission, sort of the standard of market manipulation or fraud that you would see in a securities market. How that's going to really play out in the energy sector is difficult, I think, to say at this point because I think the primary factor is going to be what happens to energy prices? If they stay relatively flat I don't think we're going to see any enforcement actions, but if they start to go up and there are unexplained sort of corners of the market, I think that this FTC will take the opportunity to try to enforce its rules.

Monica Trauzzi: And speaking of those corners of the market, there were allegations that the FTC, under the Bush administration, was not responsive enough in investigating large variations in gas prices in certain areas of the country. I know Senator Schumer has talked about this. Is the expectation that the new FTC will be more responsive, more proactive about this type of investigation?

Jim Wilson: I think that's right. I think that at least there's going to be more skepticism given to the data that has been seen in the past. I think the last time that the FTC did one of these market studies Commissioner Leibowitz at the time, now Chairman Leibowitz, actually dissented or offered his own comments suggesting that he had some doubts that the findings that this was not inconsistent with competition were really supported by the data. So under his direction I think we're going to see people looking very carefully have those kinds of issues.

Monica Trauzzi: Overall, what's the climate like for action against OPEC?

Jim Wilson: Again, whatever happens with the price of a gallon of oil will determine it, but Senator Kohl and the Senate has already reintroduced the so-called NOPEC bill, the bill that would essentially allow the Department of Justice or the Federal Trade Commission to go after the OPEC nations and challenge them as a cartel. That bill has come close in the past to making it through. If prices at the pump stay $2 to $3, I'm not sure there's going to be enough incentive, given everything else on Congress's plate, for it to go through. But if it's back up there close to four dollars, I think there's going to be a huge amount of pressure on Congress to pass that bill.

Monica Trauzzi: So, something we could see potentially this summer?

Jim Wilson: Absolutely.

Monica Trauzzi: When prices are generally high.

Jim Wilson: Absolutely.

Monica Trauzzi: Talk a bit about FTC's use of administrative litigation in future challenges to mergers or other anti-competitive conduct in the energy sector. How might that play out under the new commissioner?

Jim Wilson: Well, that's an important shift that we've seen at the Federal Trade Commission. It really hasn't impacted the energy sector so far. But last fall, starting out of the Whole Foods case, which is a fairly well-publicized merger case that the Federal Trade Commission initially lost, they really changed their whole focus on how they're going to challenge mergers. Traditionally they had gone into court and tried to get an injunction and that was the end of it. They either won or lost in court. Now, they've changed their rules. Using historic authority, what they will do is try to convince a court that they are entitled to an injunction under a very low standard simply in order to allow them to spend six to nine months to have an administrative trial, a trial internal to the FTC on the merger. From their perspective it makes a lot of sense. They've had a terrible track record. In court judges have been skeptical of their merger challenges and they really hadn't won very many over the last 10 years. But it does really create a lot more complexity if you're trying to defend one of these mergers.

Monica Trauzzi: All right, we'll end it right there on that note. I thank you for coming on the show.

Jim Wilson: Thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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