duced in a given air quality region. The basic decision to impose a particular ceiling on total emissions in an air quality district, although having the possible effect of limiting business entry, would not itself come within the scope of the statute since it would not represent a discretionary decision to limit entry, but merely a finding that the Clean Air Act required a certain limitation on total emissions to meet statutory standards.

How to meet the ceiling requirement, however could require heed to the proposed least anticompetitive alternative standard. EPA might determine that three alternatives were available to it: First, the imposition of strict emission controls on new and existing sources, either by requiring the use of certain pollution control equipment or by mandating specific pollution reduction standards; second, a licensing process that places a ceiling upon the number of new firms that can locate in a given geographic area; or, third, an agreement among all firms in the market owning restricted pollution sources. If EPA selected the first option, the choice would not come within the proposed standards, because it would not meet the jurisdictional tests of the statute. However, before one of the other alternatives could be chosen the first would have to be considered in a least-anticompetitive-alternative review.


1. Regulates or Licenses Entry Under a Scheme in Which the Level of Entry is Subject to Limitation

Decisions as to entry and exit from a marketplace are at the heart of the competitive process. When agencies go beyond the setting of minimum qualifications for entry into or operation in a marketplace and attempt to restrict the total number of firms which may participate in a market, they directly replace the allocation mechanism of the marketplace with their own judgment. Agencies that choose to distribute entry "slots" should therefore be required to find that such an allocation mechanism is the least anticompetitive method of achieving regulatory goals and to use the least anticompetitive method of achieving regulatory goals and to use the least anticompetitive method in making the allocation or in passing upon entry applications of individual firms.

This standard is not directed toward situations in which an agency establishes minimum qualifications, be they financial responsibility, facility design, safety, etc., which allow any firm meeing those requirements to begin business, nor is it directed at regulatory mechanisms which establish minimum requirements as to emissions, working conditions, etc., with which all potential entrants may comply (and thus enter the marketplace) if they have the financial or physical capability of doing so. Rather, the language is directed toward situations in which an agency, with an eye toward the various regulatory goals set forth in its enabling legislation, undertakes as a matter of discretion to place some restriction on the total number of enterprises which may be licensed or otherwise allowed entry and then seeks to determine who will be permitted to do business. Such limitations need not be absolute; rather, the crucial factor is the agency's choice to restrict entry to specific levels.

The least anticompetitive alternative standard would not apply to a decision establishing a precise regulatory goal, but would apply to a decision to utilize an entry limitation to achieve that goal. For example, the decision to establish specific service obligations for motor carriers would not be covered while a decision to limit the number of motor carriers for the purpose of ensuring the availability of transportation services would be.

An illustration of the operation of this standard can be seen in the previous hypothetical involving the Environmental Protection Agency's decision to limit the total amount of emissions in a particular air quality region. Neither the decision to impose an absolute ceiling nor the level of the ceiling would be subject to the requirements of the statute. However, if EPA should implement its goals through direct limitations on entry of business firms, it would be required to consider the competitive implications of that decision and to choose the least anticompetitive alternative for allocating entry rights. Such alternatives theoretically might include a "free market" among existing and potential entrants for rights to pollute.


(a) ICC; CAB-entry certification activities of the ICC with respect to motor carriers and the CAB's certification practices for air carriers would generally be

included. To the extent, however, that the "public convenience and necessity" requirements that restrict entry are eliminated (as presently is the case for air cargo carriers) then this proposal would not be applicable, since all fit, willing and able carriers would be able to enter automatically and there would be no constraint on total entry.

(b) Comptroller of the Currency; Federal Reserve Board; Federal Deposit Insurance Corporation; Federal Home Loan Bank Board; National Credit Union Administration-financial institution chartering activities would be included insofar as these agencies limit the granting of certificates to prevent unsoundness due to "over banking" in particular regions. Bank supervisory activities, as such, would not be affected since they set minimum entry standards and ongoing requirements for banks which are not direct limitations on the total number of banks in a particular market.

(c) FCC-licensing procedures for broadcasters would be included if limitations on entry are imposed for frequency-management purposes. Communications common carrier certification would be included if fit, willing, and able carriers could be excluded for other public interest reasons related to the demand for proposed services.

(d) Department of Energy (Federal Energy Regulatory Commission) licensing of gas pipelines would be covered.

2. Sets or Reviews With Authority to Accept, Reject or Modify, the Monetary Price Charged for the Provision of Goods or Services

The setting of prices is also a crucial element of the competitive process. Agency intervention in the price setting process represents a judgment that regulation is required because the structure of the given industry is noncompetitive, or that such intervention with respect to price is necessary to achieve social objectives of a regulatory scheme (for example, to underwrite the provision of services through cross-subsidies). Such intervention in the pricing mechanism presents clear potential for unnecessary restrictions on competition. Where an agency is not directly mandated to engage in price intervention as a method of achieving another regulatory goal, it therefore would be subject to the proposed test, i.e., price intervention would have to be the least anticompetitive alternative of achieving that goal. The reference to "monetary price" is intended to insure that "price" is not read to encompass terms and conditions of sale, such as cost disclosure information, or contractual rights among parties, elements of what one might broadly construe to be "price."


(a) ICC; CAB-regulation of prices, including decisions on methodologies for pricing formulas; (b) FCC-regulation of prices, including decisions on methodologies for pricing formulas; (c) Department of Energy-(FERC) regulation of natural gas prices and of rates for natural gas and petroleum pipelines and (ERA) regulation of petroleum prices; (d) Department of Agriculture-pricing provisions of milk marketing orders; (e) Federal Reserve; Federal Home Loan Bank Board; National Credit Union Administration-regulation of interest charges and payments.

3. Sets, Limits or Allocates the Economic Output of Providers of Goods or Services When Government agencies intervene in a market to directly restrict output, or to establish a mechanism by which the output of goods is allocated among purchasers, such agencies directly impact the competitive process in affected industries. Agency action designed to establish or implement such a limitation or allocation scheme should be subject to at least anticompetitive alternative test. The phrase "economic output" used in this subsection is intended to ensure that regulation designed to control the incidental, nonmarket byproducts of an industrial society, such as pollution, is not construed as falling under this test.

This subsection encompasses a broad range of activities. For example, it would cover the Department of Agriculture when USDA determines to accomplish its statutory objectives concerning agricultural production by establishing marketing orders which limit the output or schedule shipments of various commodities, Also included are agency restrictions on the ability of common carriers to offer a new service to the public. In addition, mechanisms to allocate goods during shortages and to ensure the preservation of particular buyers by "freezing" buyersupplier relationships, as in the petroleum industry, come within the scope of this subsection.


(a) ICC; CAB-regulation of service offerings by transportation common carriers, including ICC allocation of railroad box cars and restrictions on railroad abandonments; (b) FCC-control over communication common carrier service offerings; (c) DOE—(FERC and ERA) regulation to allocate natural gas, and petroleum products. as well as allocations of bulk electric power during shortages; (d) USDA-the establishment and implementation of non-price provisions of agricultural marketing orders; (e) Federal Reserve; Federal Home Loan Bank Board; and National Credit Union Administration-restrictions on service offerings by financial institutions.

4. Reviews, Approves, Rejects or Regulates the Terms and Conditions of Agreements Among Actually or Potentially Competing Providers or Purchasers of Goods or Services

Agreements among competitors are inherently dangerous to competition. For that reason all aspects of agency activity regarding agreements among competitors must be subject to careful scrutiny under a least anticompetitive alternative standard. While some agencies, particularly the CAB, have power to approve a broad range of agreements among competitors, it is expected that such agreements will fall into three major categories: price cartels, self-regulatory organizations, and mergers.

Price cartels, such as truck and rail rate bureaus and ocean shipping conferences, are prevalent in the transportation sector and their competitive dangers need little elaboration. Self-regulatory organizations play an important role in various aspects of the securities industry. These groups of industry participants have been authorized to perform various policing functions to protect the public. Self-regulation can be used, however, to stifle competition and innovation. To avoid or limit these effects the proposal would cover the establishment and approval of self-regulatory organizations, the rules governing their behavior, and regulatory sanction of their activities.

Mergers raise somewhat special concerns. Several regulatory agencies are empowered to review mergers among firms falling within their jurisdiction. Most regulatory schemes, either by statutory language or judicial interpretation, require an agency review of a merger to take competitive concerns into consideration. Mergers are generally allowed unless shown to be a anticompetitive or contrary to other regulatory agency goals.

Regulatory statutes may, however, permit anticompetitive merger to be approved in order that broader regulatory goals be achieved. It is in these instances that the least anticompetitive alternative standard would come into play. This is similar to the Airline Deregulation Act of 1978, which expressly requires the CAB to apply a least anticompetitive alternative standard before it approves an anticompetitive merger as necessary to achieve the transportation convenience and needs of communities. Likewise, by judicial interpretation, a least anticompetitive alternative standard has been applied to the "convenience and needs" defense used by banking regulatory agencies in approving mergers among banks. The proposal would apply this test to all regulatory agency decisions in which an attempt is made to justify an anticompetitive merger on the basis of other regulatory objectives.


(a) CAB-review of agreements among carriers filed under Aviation Act Section 412 and mergers under section 408; (b) ICC-review of consolidations and pooling agreements under section 5 and rate bureau agreements under the Red Bulwinkle Act; (e) FMC-review of shipping conference agreements; (d) FCC-review of mergers among communications con mon carriers; (e) Securities and Exchange Commission-review of agreements of self-re-ulatory organizations under the Securities Exchange Act of 1934 and merger agreements under the Public Utility Holding Co. Aet; (f) Commodity Futures Trading Commission-review of agreements of commodities industry self-regulatory organizations; (g) Federal Reserve; Federal Deposit Insurance Corporation; Comptroller of the Currency; Federal Home Loan Bank Board-review of mergers involving bank holding companies and financial institutions; (h) Federal Trade Commission-approval of Webb-Pomerene Act export associations.

See section 412 of the Federal Aviation Act as amended.

↑ See Silver v. New York Stock Erchange, 373 U.S. 341 (1963).

United States v. Third National Bank in Nashville, 390 U.S. 171 (1988).


Ms. BERNSTEIN. Thank you, Mr. Chairman.

Ms. BERNSTEIN. As Mr. Shenefield said, I am here as general counsel of a regulatory agency whose primary mission is to protect the public health and the environment.

At the same time, I like to think my Agency is also sensitive to the competitive effects of what we do. That is why I am here, very briefly, to add our support to the approach set out in Mr. Shenefield's testimony. We believe it properly focuses on the concerns of Government constraints and competition, and also provides, in our judgment, a relatively clear set of guideposts for the agencies, private parties, and the courts to know which regulatory activity will require at least some additional specification.

I believe that such guidance is essential to minimize the need for regulatory and judicial procedures.

We also support the Department of Justice's proposal in regard to judicial review of the competitive analysis.

I look forward to working with the committee and the Department of Justice to articulate in further detail the legislative language to carry out these purposes.

Thank you.

Senator KENNEDY. We are glad to have you here, and we appreciate your testimony. We look forward to working closely with you and with the other agencies.

I think it is vital that competition be taken into account in the agency decisionmaking process, and that it be treated as a matter of considerable priority.

We intend to work with you to try to insure the creation of a viable uniform standard that will not cause excessive delay. I think this can be done.

I have no other questions.

[The letter and prepared statement of Ms. Joan Bernstein follows:]

U.S. Senate

Washington, D.C.

Washington, D.C., March 22, 1979.

DEAR MR. CHAIRMAN: I appreciated the opportunity to join Assistant Attorney General Shenefield on March 20, 1979, in testifying before the committee on issues relating to S. 382, the Competition Improvements Act of 1979.

Unfortunately, my appearance seems to have generated some confusion, reflected in press reports, about the Environmental Protection Agency's views on the issues raised by this important piece of legislation.

The statement I had prepared to deliver represents EPA's views, and was cleared by OMB. To clarify any existing misconceptions, I respectfully request that the written record of the hearing include that statement (a copy of which is enclosed), together with this explanatory letter.

I understand from Mr. Shenefield's testimony that the Department of Justice will shortly be submitting to the committee revised statutory language designed to further the competitive goals addressed by S. 382, while assuring the ability of regulatory agencies to preserve other fundamental societal goals, such as the protection of public health and the environment. I look forward to working with the committee and the Department of Justice in this important effort.


General Counsel.

Senator THURMOND. To be helpful to us, we ought to receive those before we act on the bill.

Senator THURMOND. Thank you, Mr. Chairman.

Senator KENNEDY. Thank you very much.

Senator DeConcini.

Senator DECONCINI. No questions.

Senator KENNEDY. Senator Leahy.

Senator LEAHY. No questions.

We will be working with the Justice Department and the other agencies on this legislation.

Thank you very much.

[Whereupon, at 10:30 a.m., the hearing was adjourned, subject to the call of the Chair.]

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