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Mr. GELLHORN. I do not think you can do it on a generic basis when you are addressing the economic regulatory agencies. Their decisional standards have evolved over the past years. Each of them have already, with minor exception, adopted a competition standard as part of their decisional process.
Let me take one which does not-the Nuclear Regulatory Commission. Here my statement asks: Would S. 382 effect NRC's mandate? I really don't think so, but it might add some finding requirements to the Nuclear Regulatory Commission. If anything, its impact will not be where one perhaps wants it to be. This does not appear to be desirable to me. It may have an effect where we don't want it.
Senator KENNEDY. The Atomic Energy Act states: "The Commission shall give due consideration to the advice received from the Attorney General and to such evidence that may be provided during proceedings in connection with the subject matter and shall make a finding whether the act of granting the license would create and maintain a situation inconsistent with any antitrust laws specified." It is probably longer than our bill.
Mr. GELLHORN. Except it is limited, when the Attorney General brings it before the agency. The question I would raise when they make a decision in connection with nuclear licensing, must they under S. 382 take into account the impact of that decision on competition in the coal industry, in the gas industry and in the oil industry?
I don't read the competitive effects language of S. 382 that broadly. I would suggest that is a possible reading. It would be a basis for judicial appeal, review and possible delay. Legislation is not costless. Inevitably, it raises questions. My concern is that I would like to be persuaded, I would like to see some evidence of where this bill is really likely to change agency decisions. I do not see it in the ICC. I do not see it in the FCC. I do not see it really in any of the significant economic regulatory agencies. That is the only reason I raise the question, sir. Senator KENNEDY. Mr. Pogue, do you agree with that?
Mr. POGUE. With due deference to my friend, Mr. Gellhorn, I really do not. I can see an opportunity in many different agency proceedings for various parties to rely on this specific congressional directive that has come out in 1979, in a period in which the world is tending toward deregulation and I can see that it can become an important factor in those agency considerations. I don't think, under the S. 382 as it is being modified, that the cost will be that significant. I don't see that there are going to be major delays in regulations and, therefore, if you stand back and look at it, I think you can say that the chance of its having some impact is significant, the cost is unlikely to be great and so what do you have to lose?
Senator KENNEDY. Mr. Rein, one of the points that you make is that you do not see S. 382 making much difference because some of the agencies apply similar tests now, and you cite the Local Cartage and Svenska decisions; both require that the act will not be deemed in the public interest unless it is "required by serious transportation needs or in pursuit or in furtherance of a valid regulatory purpose.
Once the public benefit or valid regulatory purpose is determined, there may be several methods to achieve it. Some are more anticompetitive than others. Nowhere do those standards require an analysis of the least anticompetitive alternative for achieving the goal; S. 382 would take the Svenska and Local Cartage decisions a step further and
require the agencies not only to think about competition technically when it was submitted by enabling statutes; is that not a significant change?
Mr. REIN. We are talking about two different versions of S. 382. The unrevised version clearly had that, because it was spelled out in three steps how you would approach the problem. The second version is more flexible because it deals with what is reasonably and practicably available, and that would give the agency more flexibility. You will have to recognize that Local Cartage and the Svenska test dealt with private agreements. There you are always in some tension between least anticompetitive and how much regulating you want to do. If you want to do minimum regulating, you have to say yes or no to a private agreement. If you want to start playing around with the least anticompetitive agreement, then you will get into conditions on that agreement. You will have to play around with it. Basically, it could be rewritten a little this way and a little that way.
You have to choose between saying to the agency, when you see a private agreement, it is either anticompetitive and not outweighed by benefits and so say no; or it is sufficiently outweighed and you ought to say yes. I think when you tell them that they also have flexibility to find some other means of refashioning that agreement and conditioning it, I think you are going to get increasing amounts of regulation under the guise of competition.
I think my basic point, however, on those cases was that those agencies devised word formulas over time which were quite similar to the word formulas in S. 382. These formulas were applied with 180 degree worth of difference by the agency at different points in time. The language you read from the ICC Act was not dissimilar to the old language of the FAA and under Chairman Kahn the CAB took that language and had multiple-permissive entry, which is like free entry and a zone of rate flexibility greater than the zone of rate flexibility in the Airline Deregulation Act. It was the very same language. So I am not sure it is language that governs. So if you look at the real world agency process, where agencies decide and the general counsel's office writes opinions, I am not really sure that getting just one more word formula into the opinion is going to make a lot of difference.
Senator KENNEDY. Of course, Mr. Kahn and the current chairman thought it would help.
Mr. REIN. It certainly was one of the goals of the CAB to have a permanent enforcement of some of the interpretations they have made of the act and that there were judicial challenges, but I think the agency had a good faith belief they would survive or they would not have made those decisions. They didn't say we have decided it this way because we are barred. They said we decided it this way because there is some doubt. We would like to confirm it. Chairman Kahn felt that a future Chairman would not have the same view of economics that he did. He wanted Congress to endorse that view. As the views of the agency shift, and you can see it in the FCC as well as the CAB, certainly their microwave policies now under the same statute are different than they were 10 years ago; you will get different results, I guess.
My concern with a new form of words, is that you can change the substance when they have big staffs to write opinions who can play the words. I agree with Mr. Gellhorn; when you get outside agencies
that traditionally deal in those words, that is when you get into social regulatory agencies; S. 382 would have the same impact on them as NEPA had on the economic agencies. It would make them think for the first time about something they tried very hard to ignore. I think that is of substantial value.
Senator KENNEDY. We will have your statements printed in the record in full. Many thanks.
The meeting is adjourned.
[The prepared statements of Messrs. Gellhorn, Pogue, and Rein follow:]
PREPARED STATEMENT OF DEAN ERNEST GELLHORN
My name is Ernest Gellhorn and I am a professor of law and dean at the University of Washington Law School in Seattle, Wash. My primary areas of teaching and scholarship are administrative and antitrust law. I am also chairman of the Industry Regulation Committee of the American Bar Association's section on antitrust law. 1
My comments will seek to evaluate the requirements that S. 382 would impose on Federal agencies and the impact it would have on agency decisionmaking, and then to assess some of this bill's benefits and costs. One.cannot, of course, be certain how agencies would in fact apply the "competitive effects" test of S. 382, and my assessment is necessarily tentative. Nor can all problems of coverage, of the detail of particular provisions, of the requirement of findings, and so forth be forecast with assurance. Nevertheless, as this statement seeks to develop, it seems to me unlikely that passage of S. 382 would have a substantial beneficial affect on agency decisionmaking. Therefore, in light of some of the costs which it seems likely would result from adoption of S. 382, I would urge that this committee and the Congress first explore less costly-and I believe more effective-alternatives which seem more likely to improve regulatory performance.
While the most recent modification of S. 382 narrows its coverage as compared to its lineal predecessors in the 95th and earlier Congresses (e.g., S. 2625), problems remain. As now drafted, S. 382 would apply to four types of administrative reregulation, namely, controls on (a) entry, (b) price, (3) products, and (d) private agreements. On its face, this proposal has considerable appeal. It builds on the lessons of the findings and reasons requirements of the Administrative Procedure Act and the action-forcing mechanism of the National Environmental Policy Act. Both were designed to require agencies to consider the bases of agency action. Both rely on a primary assumption which I believe to be sound-that by forcing agency attention to the reasons for their actions and to particular considerationssuch as environmental concerns the decisions which follow are more likely to reflect a reasoned consideration of all arguments and alternatives.
Even as now limited to four specific types of agency action, the coverage of S. 382 is broad and numerous agency decisions would be required to consider the competitive effects of their action and to conclude that the approach they have chosen causes the least competitive harm of any alternative legally available. Taking entry regulation as a first illustration, almost all actions of the Interstate Commerce Commission (ICC), the Federal Communications Commission (FCC), and even of the Nuclear Regulatory Commission (NRC) fall with its ambit. This raises, it seems to me, two immediate questions. Is it likely that these agencies would in fact reach different decisions as a consequence; that is, would adoption of S. 382 force new and different considerations to the fore? Unless it does, there would seem to be little justification for its consideration. Second, are newly directed competitive considerations appropriate matters for inclusion in the decisions of these and other affected agencies? Again, the answer must be yes for S. 382 to be approved. A review of how S.382 would operate in these three typical agencies suggests to me that neither question can be answered affirmatively with confidence. Of the three, I believe that only the FCC takes competitive considerations into account in its entry decisions, and then only as one factor among others. Although the ICC has increasingly looked toward limiting licensing controls and encouraging
1 This statement, however, has not been approved by either the Committee on Industry Regulation or the section on antitrust law and I am not speaking on behalf of the ABA.
competition in trucking, even then the standard of S. 382 seems inappropriate. Adding competitive considerations to the NRC's current burdens seems to me both futile and undesirable.
Trying to apply S. 382 to ICC actions raises the immediate and obvious question of whether the bill seeks to override or modify the "public interest, convenience and necessity" standard of the Interstate Commerce Act as amended-or otherwise substantially broaden the scope of the Commission's consideration of entry decisions. In licensing regulated-common carrier and contract-trucks, the ICC has traditionally looked only at competition among regulated trucking and sought to protect certificated firms from nonregulated carriers. Would S. 382 rewrite the ICC's mandate so that the Commission should modify its regulatory approach and eliminate these protected enclaves? If not, then S. 382 would be a meaningless paperwork exercise for the Commission-especially since it already considers competition among, regulated firms in making licensing decisions. On the other hand, if the ICC is to change its approach, this seems an awkward and indirect way in which to rewrite the Commission's primary regulatory role. That is to say, the ICC already seeks to maintain as much competition as it believes feasible within the regulated trucking market-assuring service on the one hand and reasonable prices on the other. To do so, however, it has protected regulated trucking from inroads by nonregulated firms where possible, and this action is obviously contrary to a competitive market approach. To change this basic approach through S. 382 seems far beyond the understanding of its proponents and an inappropriate way of rewriting specific legislation by generic amendment. It would then be further required to consider the impact of its actions on competition in allied industries such as railroads, barges and air freight. Yet, if S. 382 is not to be read so broadly, as rewriting the Commission's mandate and as applying to all competition, one must wonder whether it would have any affect on ICC decisionmaking.
However, more needs to be determined. If S. 382 is viewed as being hortatory legislation only and as requiring no specific agency response, I would not be here raising questions except to wonder whether we really need more aspirational statutes. A reading of S. 382 suggests to me that it may impose additional requirements on the agencies such as the ICC and that it would result in judicial review of agency compliance with them. While section 3(a) of the bill specifies only that the agency "consider" and "conclude"-which appear to me to be exhortations only-section 3(b) states that "findings" required by section 3(a) must be included in an agency's opinions and statements.2 Thus an agency failure to outline how it considered competitive factors in its decisionmaking or to show that the action it approved was the least anticompetitive available, would seem to constitute a basis for reversal. Particularly significant in this regard are the provisions of section 5 of S. 382 on costs and the deletion of section's judicial review provisions. As a consequence, the review authorizations of the Administrative Procedure Act (5 U.S.C. 701-706) would govern and agency compliance with the directions of S. 382 would therefore be subject to procedural and substantive review. See, e.g., Environmental Defense Fund, Inc. v. Corps of Engineers, 470 F. 2d 289 (8th Cir. 1972), certiorari denied, 412 U.S. 908 (1873) (requiring review of both procedural requirements and the merits of NEPA directions to the agencies where the statute made no specific provision for judicial review). What this means in the ICC context is that the agency's actions pursuant to S. 382 not only would be a basis for delay, objection and review, but also that the troublesome questions of coverage and application suggested earlier could be raised by those objecting to ICC actions. This, it seems to me, is a substantial additional reason for further clarification of S. 382 so that there can be no doubt as to the meaning of its direction to the agencies; both the agencies and the courts need a meaningful standard to apply.
This analysis has suggested that adoption of S. 382 could pose additional burdens on the ICC without corresponding benefits. Similar conclusions are suggested by a review of its application to FCC license renewals of broadcasters or decisions by the NRC to license nuclear plants. Broadcast renewals are normally approved by the FCC even when challenged unless it is shown that the broadcaster's performance was inferior. Questions of competitive effects are seldom considered, although they have been included as a factor-and in light of crossownership rules, sometimes a controlling factor-in licensing standards developed by the agency under the "public interest" measure. As with the ICC, the application of S. 382 to these entry actions of the FCC raises questions of coverage and
The reference to "findings" in section 3(b) seems somewhat anomalous in light of the modification of section 3(a) and may reflect its continuation without change from S. 2625.
scope. The agency already takes competitive factors generally into account. It usually does not apply them to broadcast renewals, a policy which has withstood judicial review under the Communications Act. Would it now be required to make findings and review its decisional standards for broadcaster renewal? As in the case of the ICC, my initial reaction was that this was not within the purpose of S. 382, especially since other committees of the Congress are considering this and similar matters of communications regulation in the Communications Act "rewrite" process. To make such a major shift by indirection seems inappropriate. On the other hand, what purpose would the application of S. 382 to the FCC otherwise serve-other than forcing it to make additional findings and subjecting its decisions to another basis for objection and review. A look at NRC plant license decisions further compounds the questions raised here. As recent events highlight, the primary question in this agency determination is public safety. Competitive considerations do not appear to play a significant role. Whether one favors or opposes nuclear power, it seems hard-perhaps impossibleto argue that the lengthy and complex nuclear licensing procedures be further burdened by consideration of competitive effects. The standard seem wholly inappropriate to nuclear powerplant licensure. Nor does the NRC seem designed or equipped to make an assessment of competitive effects of its licensing decisions. Whether these problems or questions are overriding should depend on the possible beneficial effects of the proposed legislation. Additional costs, confusion over coverage and application, or delay may be worth the price as in the case of the NEPA, administrative decisions are altered and important considerations are taken into account as a consequence. My difficulty with S. 382 is that in trying to ascertain how it would affect the actions of these three-or other-agencies, I could not locate agency decisions which would be altered as a consequence of S. 382's application, nor am I aware that this showing has been made by others. Since concrete benefits for particular agency actions are not readily apparent, it seems appropriate to remain doubtful and to suggest that the burden of establishing such benefits should be borne by the bill's sponsors or supporters.
Of course, even after one locates a series of agency actions which would indeed be substantially affected by adoption of S. 382, additional questions would need to be raised and answered. Can one identify in a particular context what constitutes adequate consideration of "competitive effects" or a sufficient determination that the agency action takes the least anticompetitive route? This is not to suggest that Congress must define these standards more precisely, but rather to note that they are not self-defining and would impose some additional burden on the agencies to which they apply. These have proved difficult concepts to apply even within the confines or the Sherman, Clayton and Federal Trade Commission Acts. Applied to the vast array of regulatory statues administered by Federal agencies, the problems of interpretation must be multiplied severalfold. We need some assurance that agency decisions would in fact be improved.
The underlying problem with this proposal, it seems to me, and the reason for my skepticism about S. 382 is that there simply is no single cause which can be pinpointed as the basis for the perceived regulatory malaise. Thus no single procedural response is likely to have much of an impact. The problems of the administrative process are many; most are peculiar to a specific agency or subject. Even where general principles or common threads seem identifiable, their application will vary and they must be tailored to the particular problem at hand. Turning to the effect of agency regulatory actions on competition, it is not at all clear that agency failure to account for competitive considerations is in fact a reason for current reform pressures. Where relevant most agencies have considered them. I might not agree with the administrative choice, but under the existing agency structure and legislative mandate, most decisions do not seem so flawed that S. 382 would have any effect.
I would therefore suggest that a realistic reform effort must shun procedural solutions to substantive problems and establish necessary priorities. Thus, the first order for regulatory reform is not S. 382 but a systematic congressional program to examine and, where possible, cut back existing regulatory authorizations. ICC control of railroads and trucking seems a prime candidate and current efforts in this direction deserve support. A second and closely related prioritywhich S. 382 indirectly addresses—is for Congress to give the agencies much clearer directions. It simply must face the hard questions and make basie value choices instead of passing the problems to the agencies. Nor is it a solution to urge that the agencies consider competitive factors in addition to the public interes. More