[Federal Register Volume 64, Number 211 (Tuesday, November 2, 1999)]
[Notices]
[Pages 59179-59182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28552]


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FEDERAL TRADE COMMISSION

[File No. 991 0178]


El Paso Energy Corporation; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before November 23, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Phillip Broyles, 
FTC/H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580 (202) 326-
2574 or 326-2805.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for October 22, 1999), on the World Wide Web, at ``http://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC 
20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of the Draft Complaint and Proposed Consent Order To Aid 
Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from El Paso Energy Corporation (``El Paso'') an 
Agreement Containing Consent Order (``the proposed consent order''). El 
Paso has also reviewed a draft complaint that the Commission 
contemplates issuing. The proposed consent order is designed to remedy 
likely anticompetitive effects arising from El Paso's proposed 
acquisition of all of the voting securities of Sonat Inc.

II. Description of the Parties and the Proposed Acquisition

    El Paso, a Delaware corporation headquartered in Houston, Texas, 
owns and operates natural gas transmission, gas gathering and 
processing, energy, marketing, power generation and international 
energy infrastructure development companies. It operates through the 
following business units: Tennessee Gas Pipeline Company, East 
Tennessee Natural Gas Company, El Paso Natural Gas Company, El Paso 
Field Services Company, El Paso Energy Marketing Company, and El Paso 
Energy International Company.
    In addition to its wholly-owned interests, El Paso also controls 
offshore pipelines through its interest in Leviathan Gas Pipeline 
Partners, L.P. (``Leviathan''), a publicly held Delaware limited 
partnership. El Paso holds a 34.5 percent effective ownership interest 
in, and is the general partner of, Leviathan. Leviathan owns interests 
in pipelines across the Gulf of Mexico, including Stingray and Viosca 
Knoll Gathering

[[Page 59180]]

Company (``VKGC''), the two pipelines relevant to this matter. El Paso 
operates both of these pipelines.
    Sonat, a Delaware corporation headquartered in Birmingham, Alabama, 
is an integrated energy company engaged in exploration and production 
of oil and natural gas, interstate transmission of natural gas and 
energy services. Through its natural gas transmission segment, Sonat 
owns interests in more than 14,000 miles of natural gas pipelines. 
Sonat's Southern Natural Gas Company is the major pipeline in the 
southeast, with customers in seven states. Sonat's 50 percent-owned 
Florida Gas Transmission Company is the principal pipeline serving 
Florida. Sonat's revenues for the year ending 1998 were $3.7 billion. 
It has assets of nearly $4.4 billion.
    On March 13, 1999, El Paso and Sonat entered into an Agreement and 
Plan of Merger pursuant to which El Paso intended to acquire 100 
percent of the voting securities of Sonat.

III. The Draft Complaint

    The draft complaint alleges two relevant lines of commerce: the 
transportation of natural gas out of producing fields and the 
transportation of natural gas into gas consuming areas.

A. Transportation of Natural Gas Out of the Producing Fields

    The draft complaint alleges two relevant sections of the country in 
which to analyze the acquisition by El Paso of Sonat's natural gas 
pipelines out of the producing fields. The first is the area of the 
Gulf of Mexico off the coast of the State of Louisiana that contains 
portions of the areas known as the West Cameron Area, West Cameron 
South Addition Area, East Cameron Area, East Cameron South Addition 
Area, Vermillion Area and Vermillion Area South Addition, and the 
Garden Banks Area. Pipeline capacity for transporting natural gas out 
of this section of the country is approximately 2900 million cubic feet 
per day.
    El Paso and Sonat are direct and substantial horizontal competitors 
in this relevant market. El Paso, through its interests in Leviathan, 
controls a 50 percent share of Stingray Pipeline Company, which owns a 
large natural gas transmission system extending more than 100 miles 
into the Gulf of Mexico off the coast of Louisiana. It gathers gas from 
these areas and delivers the gas to shore. Sonat owns and operates Sea 
Robin Pipeline Company which starts from shore a few miles east of 
Stingray. Sea Robin also gathers gas from these area and delivers it to 
shore.
    The draft complaint alleges that the post-merger market would be 
highly concentrated and that the acquisition would substantially 
increase concentration in the market. The acquisition would increase 
the Herfindahl-Hirschman Index (commoly referred to as ``HHI'') \1\ in 
the geographic market by over 1000 points to over 4400.
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    \1\ The HHI is a measurement of market concentration calculated 
by summing the squares of the individual market shares of all the 
participants.
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    The draft complaint further alleges that the effect of the 
acquisition may be substantially to lessen competition or tend to 
create a monopoly in the transportation of natural gas out of producing 
fields in the relevant section of the country by eliminating actual and 
potential competition between El Paso and Sonat; by eliminating actual 
and potential competition among competitors generally; and by 
increasing concentration in the transportation of natural gas out of 
producing fields in the relevant section of the country, therefore 
increasing the likelihood of collusion.
    The draft complaint alleges that entry would not be timely, likely 
or sufficient to prevent anticompetitive effects in the relevant 
markets.
    The second relevant offshore geographic market consists of portions 
the offshore Gulf of Mexico areas known as the Main Pass, including its 
additions and extensions; South Pass; South Pass East Addition; Viosca 
Knoll; and Mississippi Canyon. Pipeline capacity for transporting 
natural gas out of this section of the country is approximately 3050 
million cubic feet per day.
    El Paso, through its control of VKGC, and Sonat, through its 
ownership interests in Destin Pipeline Company, L.L.C. (``Destin''), 
and in other ways, are direct and substantial competitors in the 
business of transporting natural gas out of producing fields in the 
relevant sections of the country listed above. VKGC operates a large 
natural gas gathering system extending more than 100 miles into the 
Gulf of Mexico off the coast of Louisiana. Destin owns a large natural 
gas gathering system extending more than 100 miles into the Gulf of 
Mexico off the coast of Louisiana. Sonat owns a one-third membership 
interest in Destin and operates the pipeline owned by Destin.
    The draft complaint alleges that the post-merger market would be 
highly concentrated, and that the acquisition would substantially 
increase concentration in the market. The acquisition would increase 
the HHI in the geographic market by over 1000 points to over 4300.
    The draft complaint alleges that the effect of the acquisition may 
be substantially to lessen competition or tend to create a monopoly in 
the transportation of natural gas out of producing fields in the 
relevant section of the country by eliminating actual and potential 
competition between El Paso and Sonat; by eliminating actual and 
potential competition among competitors generally; and by increasing 
concentration in the transportation of natural gas out of producing 
fields in the relevant section of the country, therefore increasing the 
likelihood of collusion.
    The draft complaint further alleges that entry would not be timely, 
likely, or sufficient to prevent anticompetitive effects in the 
relevant market.

B. Transportation of Natural Gas Into Gas Consuming Areas

    The draft complaint alleges that a relevant line of commerce is the 
transportation of natural gas into gas consuming areas and a relevant 
section of the country is eastern Tennessee and northern Georgia and 
submarkets thereof. This region includes the metropolitan areas of 
Atlanta, Georgia and Chattanooga and Knoxville, Tennessee. Customers in 
this area of the country purchase contracts for the transportation and 
delivery of over 750 million cubic feet of natural gas per day.
    El Paso and Sonat are direct and substantial competitors in the 
business of transporting natural gas into this section of the country. 
El Paso's Tennessee Gas Pipeline Company owns and operates a large 
natural gas transmission system extending from producing fields in the 
Gulf of Mexico, Texas, and Louisiana through several states in the 
southern United States, including Tennessee, and on into the northern 
United States. In the State of Tennessee, Tennessee Gas Pipeline 
interconnects with, and delivers natural gas to, a pipeline owned and 
operated by East Tennessee Natural Gas Company (``ETNG''), also an El 
Paso subsidiary. ETNG transports natural gas received from Tennessee 
Gas Pipeline Company, and from other sources, to many local gas 
distribution utilities in eastern Tennessee and northern Georgia. Sonat 
owns Southern Natural Gas Company, which owns and operates a large 
natural gas transmission system extending from producing fields in the 
Gulf of Mexico and Louisiana through several states in the southern 
United States, including Georgia and Tennessee. Sonat, either directly, 
or via interconnection with East Tennessee Natural Gas, transport

[[Page 59181]]

natural gas for many local gas distribution utilities in east Tennessee 
and northern Georgia. El Paso offered reduced transportation rates to 
local gas distribution utilities located in eastern Tennessee in 
response to a threat by Sonat to by-pass ETNG by extending its own 
pipeline.
    The draft complaint alleges that the post-merger market would be 
highly concerned, and that the acquisition would substantially increase 
concentration in the market. In the least concentrated submarket of the 
geographic market, the acquisition would increase the HHI by over 1000 
points over 5700. In certain other submarkets, the acquisition would 
increase the HHI by over 4500 points to 1000.
    The draft complaint alleges that the effect of the acquisition may 
be substantially to lessen competition or tend to create a monopoly in 
the transportation of natural gas into the relevant section of the 
country by eliminating actual and potential competition between El Paso 
and Sonat; by eliminating actual and potential competition among 
competitors generally; and by increasing concentration in the 
transportation of natural gas into the relevant section of the country, 
therefore increasing the likelihood of collusion.
    The draft complaint further alleges that entry would not be timely, 
likely or sufficient to prevent anticompetitive effects in the relevant 
markets.

IV. Terms of the Proposed Consent Order

    The proposed consent order is designed to remedy the Commission's 
competitive concerns about the proposed acquisition. To solve the 
competitive concerns in the onshore market, the proposed consent order 
requires El Paso to divest ETNG, the owner of the El Paso system that 
serves cities in east Tennessee and northern Georgia. To solve the 
competitive concerns offshore, the proposed order requires El Paso to 
divest Sea Robin (a wholly owned subsidiary of Sonat) and Sonat's 33\1/
2\ percent interest in Destin.
    The proposed consent order requires divestiture of the relevant 
assets within six months of the date on which the consent agreement was 
signed at no minimum price to a buyer and in a manner that is approved 
by the Commission. In the event divestiture has not occurred within six 
months, the proposed order provides that the Commission may appoint a 
trustee to divest the assets. The proposed order does not require that 
EL Paso present the Commission with a buyer of the assets to be 
divested before acceptance of the proposed consent agreement for public 
comment (an ``up-front buyer'') because El Paso has satisfied the 
Commission that, in this instance, consumers will not be harmed by a 
post-order divestiture.
    In some cases the Commission has required a respondent to divest 
``crown jewel'' assets in the event the respondent fails to divest a 
narrower package of assets promptly. Such a crown jewel is unnecessary 
in this case. El Paso has agreed to divest a package of assets that 
includes ETNG and Sea Robin in their entirety, which should help ensure 
that the divestiture will convey a saleable and competitively viable 
set of assets. This will increase the likelihood of finding a buyer 
acceptable to the Commission in a timely manner. Therefore, the 
proposed divestiture should readily suffice to remedy consumer harm.
    The proposed order contains ancillary provisions in both the 
onshore and offshore markets. Many customers on the ETNG system have 
ETNG and Tennessee Gas Pipeline transportation and/or storage contracts 
with renewal elections to be made in the midst of the proposed ETNG 
divestiture process. The proposed order extends the renewal deadline 
for these contracts until 60 days following the divestiture of ETNG, 
provides customers the option of extending the expiration dates of 
these contracts, and allows customers to terminate certain other ETNG 
and Tennessee Gas Pipeline contracts entered into as the proposed 
divestiture process is underway. The purpose of these provisions is to 
permit the customer to know the identity of the acquirer of ETNG before 
having to commit to new contracts for transportation or storage either 
on ETNG or, more significantly, on the trunklines that transport the 
gas from the Gulf of Mexico into ETNG. The Commission anticipates that 
the acquirer of ETNG will open additional interconnections with 
trunklines that currently intersect with the ETNG system so as to 
provide customers with alternative routes for gas supply. The tolling 
provision will give customers the option of using these new sources if 
they so choose.
    The proposed order also contains ancillary provisions regarding 
VKGC which are in effect in the event Sonat's Destin interest is sold 
to a natural gas producer. The sale of Sonat's interest to a producer 
could result in Destin's being less than fully competitive in certain 
instances in which the producer elected to serve its own producing 
interests by reserving one part of the Destin system at the expense of 
independent producers seeking access to certain other parts of the 
Destin system. To remedy the potential for the divestiture to have this 
anticompetitive result, the proposed consent order requires El Paso to 
cause VKGC to adhere to benchmarks established by competition between 
VKGC and Destin. Specifically, the proposed order requires El Paso to 
cause VKGC to allow any shipper to obtain access to VKGC, which would 
be at the shipper's expense if any construction of pipe is required, 
and to allow any other pipeline to interconnect with VKGC, at the 
expense of the pipeline requesting the connection. The proposed consent 
prohibits El Paso from engaging in discrimination in scheduling, rates 
and terms and conditions of service on VKGC. The connecting pipeline 
can elect to submit a dispute regarding the terms and conditions of a 
connection to binding arbitration. El Paso is required to publish the 
arbitration clause in the order on Leviathan's electronic web site and 
to incorporate it into further contracts with shippers and connecting 
pipelines. El Paso is also required to notify the Commission of 
arbitration proceedings initiated under the proposed order. The 
requirement to provide open and non-discriminatory access to VKGC may 
be suspended upon a showing by El Paso that at least one-third of the 
membership interest in Destin is controlled by a person who does not 
have an interest in wells or leases in certain areas of the Gulf of 
Mexico.

V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
30 days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After 30 days, the Commission will again review the proposed consent 
order and the comments received and will decide whether it should 
withdraw from the agreement or make the proposed consent order final.
    By accepting the proposed consent order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
complaint will be resolved. The purpose of this analysis is to invite 
public comment on the proposed consent order in order to aid the 
Commission in its determination of whether to make the proposed consent 
order final. This analysis is not intended to constitute an official 
interpretation of the proposed consent order nor is it intended to 
modify the terms of the proposed consent order in any way.


[[Page 59182]]


    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-28552 Filed 11-1-99; 8:45 am]
BILLING CODE 6750-01-M