[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