[Federal Register Volume 65, Number 251 (Friday, December 29, 2000)]
[Notices]
[Pages 83035-83038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33259]


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FEDERAL TRADE COMMISSION

[File No. 001 0121]


El Paso Energy Corporation, et al.; 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 
compliant 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 January 22, 2001.

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

FOR FURTHER INFORMATION CONTACT: Phillip Broyles, FTC/S-2105, 600 
Pennsylvania Ave., NW., Washington, DC 20580. (202) 326-2805.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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 December 31, 2000), on the World Wide Web, at ``http://
www.ftc.gov/os/2000/12/index.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 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from the El Paso Energy Corporation (``El Paso'') and 
PG&E Corporation (``PG&E'') (collectively the ``Proposed Respondents'') 
an Agreement Containing Consent Order (``the Proposed Consent Order''). 
The Proposed Consent Order remedies the likely anticompetitive effects 
in the natural gas transportation markets in the Permian Basin 
production area, the San Antonio-Austin area, and the Matagorda 
offshore production area. El Paso has also reviewed a proposed draft of 
complaint (the ``Proposed Complaint'') that the Commission contemplates 
issuing. The Proposed Consent Order is designed to remedy the likely 
competitive effects arising from the El Paso acquisition of all of the 
outstanding voting shares of PG&E Gas Transmission Teco, Inc., and PG&E 
Gas Transmission Texas Corporation, from PG&E (the ``Acquisition'').

II. Description of the Parties and the Proposed Acquisition

    El Paso Energy Corporation is an integrated energy company 
producing, transporting, gathering, processing, and treating natural 
gas. With over $21

[[Page 83036]]

billion in assets, El Paso Energy Corporation is one of the largest 
integrated natural gas-to-power companies in the world. El Paso Energy 
not only owns North America's largest natural gas pipeline system, but 
also has growing operations in merchant energy services, power 
generation, international project development, gas gathering and 
processing, and gas and oil production.
    El Paso has an interest in five pipeline systems in Texas: the 
Oasis pipeline, running from west Texas, through the San Antonio and 
Austin areas, to the Katy natural gas trading area (near Houston, 
Texas); the Channel Pipeline, extending from south Texas to the Houston 
Ship Channel; the Shoreline and Tomcat gathering systems, carrying gas 
from the Texas Gulf Coast to other larger transmission pipelines, and 
the Gulf States Pipeline, which runs from the Texas border to Ruston, 
Louisiana. In addition, El Paso owns the El Paso Natural Gas Pipeline 
that carries large volumes of gas from the Permian Basin gas gathering 
area to New Mexico, Arizona and Southern California.
    PG&E is a California holding company that provides energy services 
throughout North America. During 1999, PG&E's annual revenues were 
$20.8 billion. One of PG&E's divisions, PG&E Gas Transmission, provides 
natural gas transmission and distribution through three subsidiaries. 
PG&E Gas Transmission operates natural gas transportation in the 
northwestern United States through its wholly-owned subsidiary PG&E Gas 
Transmission Northwest and in Texas through two wholly-owned 
subsidiaries PG&E Gas Transmission Texas Corporation (``PG&E GTT'') and 
PG&E Gas Transmission Teco, Inc. (``PG&E Teco'').
    Together PG&E GTT and PG&E Teco own 8,000 miles of intrastate 
pipelines in Texas. PG&E's Texas pipeline capacity is about 3 billion 
cubic feet of gas per day (``Bcf/d.''). One PG&E pipeline system 
connects a prolific gas supply area of western Texas and southeastern 
New Mexico (the Permian Basin) to the cities of San Antonio and Austin 
and a major market trading area near Houston, called Katy. This is the 
Trans Texas pipeline. The Tufco pipeline, a second PG&E system, jointly 
owned with TXU Corporation connects the Permian Basin to another 
trading area near Dallas. A third PG&E system connects producing areas 
in southern Texas to the trading are of Agua Dulce.
    El Paso proposes to acquire all of the outstanding stock of PG&E 
Teco and PG&E GTT, owned by PG&E, for $840 million.

III. The Investigation and the Proposed Complaint

    The Proposed Complaint alleges that consummation of the Acquisition 
would violate Section 5 of the Federal Trade Commission Act, as 
amended, 15 U.S.C. 45, and Section 7 of the Clayton Act, as amended, 15 
U.S.C. 18. The Proposed Complaint alleges that the Acquisition will 
lessen competition in each of the following markets: (1) The 
transportation of natural gas out of the Permian Basin; (2) the 
transportation of natural gas into the gas consuming area of Central 
Texas, which includes San Antonio, Austin, and the surrounding 
metropolitan area; and (3) the transportation of natural gas out of the 
Matagorda Island Offshore production area (``Matagorda''), located in 
waters off of the Texas coast near Galveston.
    To remedy the alleged anticompetitive effects of the Acquisition, 
the Proposed Consent Order requires Proposed Respondents to divest: (1) 
All of El Paso's share of the Oasis Pipe Line Company; (2) a 50 percent 
interest in the pipeline segment from Waha to New Braunfels; (3) all of 
PG&E's interest in the pipeline segment running from New Braunfels to 
Dewville, Texas; (4) all of PG&E's interest in the pipeline segment 
running from Dewville to Katy; and (5) all of PG&E's assets in 
Matagorda.
    The Commission accepted for public comment the Agreement Containing 
Consent Order after an extensive investigation in which the Commission 
examined competition and the likely effects of the acquisition in the 
markets alleged in the Proposed Complaint and in several other areas. 
The Commission conducted the investigation in coordination with the 
Attorney General of the State of Texas. Proposed Respondents have 
entered into an agreement with the State of Texas settling charges that 
the Acquisition would violate state antitrust law.
    The analysis applied in each market follows the analysis of the 
Federal Trade Commission and Department of Justice Horizontal Merger 
Guidelines (1997) (``Merger Guidelines''). The Proposed Complaint 
alleges in three counts that the Acquisition would violate the Federal 
antitrust laws in natural gas transportation in three separate 
geographic markets in Texas. The proposed Acquisition, if consummated 
would result in highly concentrated markets and allow Proposed 
Respondents to raise prices unilaterally. The Proposed Complaint also 
alleges that entry into any of the three markets would not be timely, 
likely, or sufficient to prevent a price increase. The efficiency 
claims of the Proposed Respondents, to the extent they relate to the 
markets alleged in the Proposed Complaint, are small compared to the 
magnitude and likely harm, and would not restore competition lost as a 
result of the acquisition even if the Proposed Respondents achieved the 
claimed efficiencies.

A. Count I--Loss of Competition in the Permian Basin

    The Permian Basin is a natural gas producing area in western Texas 
and southeastern New Mexico. As alleged in the Proposed Complaint, 
producers and marketers of Permian Basin gas have no alternative but to 
transport their gas to consuming areas on natural gas pipelines located 
in the Permian Basin. El Paso and PG&E today are two of the largest 
holders of natural gas pipeline capacity out of the Permian Basin, and 
El Paso would be the largest holder of capacity in this region if the 
Acquisition were completed.
    As alleged in the Proposed Complaint, the market for natural gas 
transportation from the Permian Basin would be highly concentrated 
after the Acquisition. For most times of the year, Permian Basis 
natural gas producers prefer to sell their gas to the San Antonio and 
Austin area (``Central Texas''). At other times, California is a 
desirable destination. The Proposed Complaint alleges that Proposed 
Respondents own or control most of the capacity from the Permian Basin 
to Central Texas. Proposed Respondents own almost all the capacity from 
the Permian Basin to California. The Acquisition is likely to eliminate 
actual and direct competition in this market between proposed 
Respondents with the likely effects of increased rates and reduced 
output of transportation in the market, and diminished production of 
natural gas in the Permian Basin.

B. Count II--Loss of Competition in Central Texas

    Central Texas, which includes the metropolitan areas of San Antonio 
and Austin, is an important natural gas consuming area. Buyers of 
natural gas, gas and electric utilities and merchant power plants, have 
no alternative to using pipelines located near metropolitan San Antonio 
and Austin. These Central Texas customers also do no have economic 
alternatives to using natural gas to fuel all or a significant number 
of their power plants. El Paso's Oasis pipeline and PG&E's Trans Texas 
pipeline account for almost all of the natural gas pipeline capacity 
into Central Texas.

[[Page 83037]]

    Today, the market is highly concentrated and would become more so 
if the Acquisition were to occur, absent the proposed divestitures. 
Certain Central Texas transportation customers must use either Oasis or 
Trans Texas for all or a significant portion of their transportation 
needs. Other pipelines in the area have insufficient capabilities to 
offset the anticompetitve effects of the Acquisition. Absent relief, 
the Acquisition would enable El Paso unilaterally to raise prices to 
these customers, which would also raise the price of electricity to 
Central Texas consumers.

C. Count III--Loss of Competition in Matagorda

    El Paso and PG&E own the only two pipeline systems that transport 
gas from the Matagorda off-shore production areas to on-shore 
processing facilities. The Proposed Complaint alleges that the 
Acquisition will eliminate actual and direct competition between 
Proposed Respondents, with the likely effects of increased rates and 
reduced output of transportation in the market, and diminished 
production of natural gas in the Matagorda area.

IV. The Proposed Consent Order

    The Commission accepted for public comment an Agreement Containing 
Consent Order with Proposed Respondents, which would settle allegations 
contained in the Proposed Complaint. The Agreement Containing Consent 
Order contemplates that the Commission would issue the Proposed 
Complaint and enter the Proposed Order.
    The Proposed Consent Order requires the Proposed Respondents to 
divest all of El Paso's interest in Oasis Pipe Line Company to Aquila 
Gas Pipeline Corporation (``Aquila,'' a subsidiary of Utilicorp United 
Ltd.), Dow Hydrocarbons and Resources, Inc. (``Dow,'' a subsidiary of 
Dow Chemical Company) and the Oasis Pipe Line Company (the corporate 
owner of the Oasis pipeline). Aquila, Dow and El Paso currently own 
Oasis Pipe Line Company. The Proposed Consent Order also requires the 
Proposed Respondents to divest: (1) A 50 percent interest in the Trans 
Texas pipeline segment from Waha to New Braunfels; (2) all of PG&E's 
interest in the Trans Texas pipeline segment running from New Braunfels 
to Dewville, Texas; and (3) all of PG&E's interest in the Trans Texas 
pipeline segment running from Dewville to Katy. Prior to PG&E's 
Acquisition in 1997, these three pipeline segments were known as the 
Teco Pipeline. The Proposed Respondents must divest the Teco Pipeline 
to Duke Energy Field Services, LLC (``Duke,'' a subsidiary of the Duke 
Corporation). The Proposed Consent Order also requires Proposed 
Respondents to divest all of PG&E's pipeline assets in Matagorda to 
Panther Pipeline. The Proposed Respondents must divest these assets to 
these approved buyers not later than 10 days after the Commission 
places the Agreement Containing Consent Order on the public record or 
the closing of the Acquisition, whichever is later.
    Under the terms of the Proposed Consent Order, in the event that El 
Paso does not divest the assets required to be divested under the terms 
and time constraints of the Proposed Consent Order, the Commission may 
appoint a trustee to divest those assets, expeditiously, and at no 
minimum price.
    For a period of ten (10) years from the date the Proposed Consent 
Order becomes final, the Proposed Consent Order prohibits El Paso from 
acquiring, directly or indirectly, any of the assets that are to be 
divested or altering the governance provisions of the Teco pipeline 
without obtaining the prior approval of the Commission. PG&E's 
obligations under the Proposed Consent Order terminate after completing 
the Acquisition.
    The Proposed Consent Order also requires the Proposed Respondents 
to provide the Commission with a report of compliance with the terms of 
the Proposed Consent Order within thirty (30) days after the Order 
becomes final. Proposed Respondents must also file annual compliance 
reports detailing their compliance with the notice provisions under the 
Proposed Consent Order.

A. Resolution of the Competitive Concerns

    The Proposed Consent Order, if finally issued by the Commission, 
would settle all of the charges alleged in the Commission's Proposed 
Complaint.
1. The Proposed Order Resolves Competitive Concerns in the Permian 
Basin and Central Texas
    Under the terms of the Proposed Consent Order, Respondent El Paso 
will divest all of its interest in the Oasis Pipe Line Company to 
Aquila, Dow, and the Oasis Pipe Line Company. Proposed Respondents also 
have agreed to divest to Duke all of the Teco Pipeline.
    El Paso will sell its Oasis Pipe Line Company stock to Dow, Aquila 
and the Oasis Pipe Line Company. Oasis Pipe Line Company will retire 
its El Paso stock. Oasis currently operates as a single pipeline with 
three owners, Aquila, Dow and El Paso. After the proposed divestitures 
are completed, El Paso will no longer have any interest in the Oasis 
Pipe Line Company, and current owners will continue to own and operate 
Oasis. The divestiture therefore enables Oasis to compete with El Paso 
and Duke to serve Permian Basin producers and marketers of natural gas.
    The Teco Pipeline is being divested to Duke, a firm that is not 
presently in the market. Under the Proposed Consent Order, Duke will be 
able to sell gas on or expand the Teco Pipeline without obtaining the 
approval of El Paso. These protections will afford Duke the opportunity 
to compete with El Paso to serve the Permian Basin. In 1999, Duke had 
annual revenues of $21.7 billion. Duke currently owns and operates 
natural gas and other pipelines through the United States.
    The proposed divestitures resolve competitive concerns in the 
Permian Basin by giving Permian producers two new options for 
transportation. The proposed divestitures lower Permian Basin 
concentration levels below pre-Acquisition concentration levels. The 
proposed divestitures also give Permian producers new options for 
shipping natural gas to the most desirable destination. Before the 
Acquisition, Permian producers had two companies competing to deliver 
gas to Central Texas, PG&E and Oasis (owned by El Paso). After the 
divestitures, they will have three alternatives, Duke, Oasis 
(independent of El Paso) and El Paso.
    In Central Texas, the divestiture creates a market less 
concentrated than before the proposed Acquisition. Presently, firms 
that need natural gas transportation have two primary options. Oasis 
and PG&E. After the divestiture these firm will have a third option in 
Duke.
2. The Proposed Order Resolves Competitive Concerns in the Matagorda 
Area
    Under the terms of the Proposed Consent Order, Proposed Respondents 
will divest PG&E's Matagorda area pipeline assets to Panther Pipeline 
Company. Panther has substantial experience operating pipeline and 
gathering systems. By divesting all of the PG&E assets, Matagorda 
producers will continue to have two pipelines with which they may 
contract for natural gas transportation.

B. Opportunity for Public Comment

    The Proposed Consent Order has been placed on the public record for 
thirty (30) days for receipt of comments by

[[Page 83038]]

interested persons. Comments received during this period will become 
part of the public record. After thirty (30) days, the Commission will 
again review the Proposed Consent Order and the comments received and 
will decide whether it should withdraw from the Proposed Consent Order 
or make it final.
    By accepting the Proposed Consent Order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
Proposed Complaint will be resolved. The purpose of this analysis is to 
invite public comment on the Proposed Consent Order, including the 
proposed divestitures, to aid the Commission in its determination of 
whether it should make final the Proposed Consent Order. 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.

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 00-33259 Filed 12-28-00; 8:45 am]
BILLING CODE 6750-01-M