[Federal Register Volume 66, Number 26 (Wednesday, February 7, 2001)]
[Notices]
[Pages 9339-9342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3190]


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FEDERAL TRADE COMMISSION

[File No. 001 0086]


El Paso Energy Corp., 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 
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 February 28, 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: William Vigdor or John Weber, FTC/S-
2105, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-3177 
or 326-2829.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 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 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 January 29, 2001), on the World Wide Web, at http://www.ftc.gov/os/2001/01/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Ave., NW., Washington, DC 
20580, either in person or by calling (2020) 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 31/2 inch diskette 
containing, and 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 rule of practice (16 CFR 
4.9(b0(6)(ii)).

[[Page 9340]]

Analysis of the Complaint and Proposed Consent Order to Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment an Agreement Containing Consent Orders and a proposed 
Decision and Order (``proposed Order'') with El Paso Energy Corporation 
(``El Pasoa''), The Coastal Corporation (``Coastal''), and Dominion 
Resources, Inc. (``Dominion''). The proposed Order seeks to remedy the 
anticompetitive effects of El Paso's acquisition of Coastal by 
requiring El Paso and Coastal (``Respondents'') to divest their 
interests in ten pipelines and one pipeline yet to be constructed. The 
divestitures are in locations where the Respondents already own 
additional pipelines and their ownership of the pipelines to be 
divested would likely injure competition. Additionally, the proposed 
Order seeks to remedy competition by establishing a development fund to 
be made available to the purchaser of the Green Canyon and Tarpon 
pipelines for the purpose of paying to construct pipelines into a 
defined area of competitive concern.

II. Description of the Parties and the Proposed Acquisition

    El Paso, a Delaware corporation, is engaged in the transportation, 
gathering, processing, and storage of natural gas; the marketing of 
natural gas, power, and other energy-related commodities; power 
generation; the development and operation of energy infrastructure 
facilities worldwide, and the domestic exploration and production of 
natural gas and oil. El Paso owns or has interests in more than 38,000 
miles of intrastate and intrastate natural gas pipelines connecting the 
nation's principal natural gas supply to consuming regions. In 1999, El 
Paso had revenues of $106 billion and earnings of $191 million, before 
interest and taxes.
    Coastal, a Delaware corporation, is a diversified energy and 
petroleum products company. Coastal explores for, produces, gathers, 
processes, transports, stores, markets and sells natural gas throughout 
the United States. It is also engaged in refining, marketing, and 
distributing petroleum products; coal mining; and marketing power. 
Coastal owns or has interest in more than 18,000 miles of natural gas 
pipelines that serve the Rocky Mountain area, the Midwest, the south 
central United States, New York State, and other areas of the 
northeastern United States. In 1999, Coastal reported revenues of $8.2 
billion, and earnings of $996.1 million before interest and taxes.
    El Paso will acquire all of Coastal's common stock and the former 
Coastal shareholders will, as a result, own approximately 53% of El 
Paso's voting securities (``proposed Acquisition''). The total dollar 
value of the transaction (which includes about $6 billion in debt and 
preferred securities) is estimated to be $16 billion. The Respondents 
will have an asset base of approximately $31.5 billion.

III. The Complaint

    The Complaint alleges that the relevant line of commerce (i.e., the 
product market) in which to analyze the proposed Acquisition is the 
transportation of natural gas via pipeline. For many end users, there 
are no substitutes for natural gas, and there is no practical 
alternative to pipeline transportation. The relevant market can be 
further delinated by focusing on long term firm transportation, which 
is a type of natural gas transportation service requiring the pipeline 
company to guarantee for one year or more that it will transport a 
specified daily quantity of natural gas from one destination to 
another, without interruption. Many natural gas users cannot bear the 
risk of interruption and, in areas where pipeline capacity is 
constrained periodically, these users must purchase long term firm 
transportation. For these customers, other pipeline services and 
periodic resales of transportation by holders of long term 
transportation rights are not reasonably interchangeable. Another 
relevant market in which to analyze the effects of the proposed 
Acquisition is the provision of tailored services. Tailored services 
allow users of natural gas to balance their changes in natural gas 
demand with their supply of natural gas and transportation. Tailored 
services include limited notice and no notice service, and are 
typically sold in conjunction with natural gas storage services.
    The Complaint further alleges that the proposed Acquisition, if 
consummated, will eliminate and direct competition between the two 
companies in violation of Section 5 of the FTC Act, as amended, 15 
U.S.C. 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, 
in the following 20 sections of the country (i.e., the geographic 
markets): (a) Central Florida, (b) metropolitan areas of Buffalo, 
Rochester, Syracuse, and Albany, New York; (c) the metropolitan area of 
Milwaukee, Wisconsin; (d) the metropolitan area of Evansville, Indiana; 
and (e) 13 areas in the Gulf of Mexico. The Complaint alleges that each 
of these markets is highly concentrated, and the acquisition would 
substantially increase that concentration. In each of the relevant 
markets, pipelines owned by El Paso and Coastal are two of the most 
significant competitors. In some instances, El Paso and Coastal are the 
only two options available to customers, and in other instances, they 
represent two of three options. The merger not only eliminates existing 
competition between El Paso and Coastal pipelines but also threatens to 
forestall potential new competition as well. After the proposed 
acquisition, with the elimination of competition between El Paso and 
Coastal, it is likely that prices of transportation will increase and 
output of transportation will be reduced in the relevant markets, 
thereby increasing the cost of electricity and natural gas service.
    The Complaint further alleges that new entry into the relevant 
geographic markets would not be likely, timely, or sufficient to 
prevent or counteract these anticompetitive effects and to prevent the 
Respondents from maintaining a price increase above pre-acquisition 
levels. There are substantial barriers to entering these markets, as 
building additional pipelines to natural gas production areas, to 
natural gas consuming areas, to natural gas storage fields, or outside 
the geographic market is expensive and would take more than two years. 
Major pipeline projects require approval from the Federal Energy 
Regulatory Commission, which is likely to take three or four years. In 
addition, it requires considerable time for a new entrant to secure 
rights of way, overcome landowner and environmental hurdles, secure 
sufficient advance commitments from customers, and obtain regulatory 
approvals in the face of opposition from competition.

IV. Terms of the Proposed Order

    The proposed Order is designed to remedy the alleged 
anticompetitive effects of the proposed Acquisition. Under the terms of 
the proposed Order, the Respondents must, within twenty days from the 
date upon which the Commission places the proposed Order on the public 
record, divest their interests in: Gulfstream Natural Gas System to 
Duke Energy and Williams Gas Pipeline; the Empire pipeline to Westcoast 
Energy; the Green Canyon and Tarpon pipelines to Williams Field 
Services; the Manta Ray, Nautilus, and Nemo pipelines to Enterprise 
Products; and the Stingray pipeline to Shell Gas Transmission and 
Enterprise Products. The Respondents must also divest their interests 
in the Midwestern Gas

[[Page 9341]]

Transmission pipeline (``MGT'') within 120 days of the date upon which 
the Commission places the proposed Order on the public record, UTOS by 
April 1, 2001, and the Iroquois pipeline within 90 days of the date 
upon which the Commission places the proposed Order on the public 
record.
    The Commission is satisfied that the acquirers identified in the 
proposed Order are well-qualified acquirers and will compete vigorously 
with the Respondents. The Commission will evalute additional proposed 
acquirers for assets to be divested under the proposed Order to make 
certain that such acquirers will not prevent competitive problems.
    In connection with the divestiture of their interests in the 
Empire, MGT, Stingray, and UTOS pipelines, the proposed Order requires 
the Respondents to provide transitional services to the purchaser of 
these pipelines, at a reasonable fee, sufficient to operate the assets. 
The Respondents must provide these services for a period of up to nine 
months. Also, in connection with the divestiture of these assets, the 
Order requires the Respondents to give the acquirers an opportunity to 
transfer applicable employment relationships from either Coastal or El 
Paso to each acquirer. These provisions of the proposed Order help 
assure that there will be a successful and reasonably short transition 
of the pipelines to the new owners.
    The proposed Order also contains additional provisions with respect 
to the divestiture of Gulfstream Natural Gas System. Gulfstream Natural 
Gas System is beginning to construct a 140-mile natural gas pipeline 
that will originate near Mobile Bay, Alabama; extend across the Gulf of 
Mexico to the west coast of Florida near Tampa; and extend inland to 
various destinations in the Florida peninsula. To ensure that the 
pipeline meets its scheduled in-service date of June 1, 2002, the 
proposed Order requires Respondents to provide consulting services, at 
a reasonable fee, to the buyer of Gulfstream until June 2002. The 
proposed Order prohibits the Respondents from acquiring any long term 
firm capacity on Gulfstream (except for their own end use) and from 
disclosing or making available any Gulfstream confidential information 
to any person. The Respondents are further prohibited from using any 
Gulfstream confidential information, except to provide consulting 
services to the buyer of Gulfstream.
    In connection with the divestiture of the MGT pipeline, the 
proposed Order requires the Respondents to include and enforce a 
provision in the MGT purchase and sale agreement that requires the MGT 
acquirer to connect MGT to the Guardian pipeline (``Guardian 
Interconnection''). The Respondents are prohibited by the proposed 
Order from engaging in any action, or failing to take any action, the 
result of which would prevent, hinder, or delay completion of the 
Guardian Interconnection. Furthermore, the proposed Order prohibits the 
Respondents from engaging in any unfair or deceptive practice that 
would prevent, hinder, or delay construction of the Guardian pipeline; 
and requires Respondents to notify publicly the Federal Energy 
Regulatory Commission and the Public Service Commission of Wisconsin if 
Respondents fund any third-party effort to oppose the Guardian 
pipeline. These provisions are designed to ensure the effectiveness of 
the Commission's remedy. With regard to the MGT divestiture, the 
Respondents must divest MGT to a buyer approved by the Commission 
within 120 days from the date upon which the Commission places the 
proposed Order on the public record.
    In connection with the divestiture of its interests in the Iroquois 
pipeline, the proposed Order prohibits Respondents from divesting more 
than 8.72% of their partnership interest in Iroquois pipeline to 
Dominion Resources. This limitation prevents Dominion Resources from 
acquiring additional control or influence over the Iroquois pipeline 
that could be used to thwart competition. The proposed Order also 
prohibits Respondents from serving on any committee of the Iroquois 
pipeline, attending any meeting of any such committee, or receiving any 
information from the Iroquois pipeline not made available to all 
shippers or to the public at large. Furthermore, until the Respondents 
are removed from the Iroquois Management Committee, the proposed Order 
requires that the Respondents' vote be case in favor of expansion, if 
such a vote should arise. The Respondents are also deemed, by proposed 
Order, to vote to create unanimity when unanimous action is required 
within a voting bloc in order to cast that bloc's vote. These 
provisions prevent the Respondents from gaining access to competitively 
sensitive information that could be used to prevent competition between 
Respondents and the Iroquois pipeline, and keep the Respondents from 
limiting the ability of the Iroquois pipeline to expand in the Albany 
market.
    The proposed Order also requires that the Respondents to create a 
fund to encourage expansions of the Tarpon and Green Canyon pipelines 
by providing $40 million, within ten days from the date of the 
divestiture of the Tarpon and Green Canyon pipelines, to be deposited 
in an interest-bearing account. The Tarpon and Green Canyon pipelines 
will be permitted to use the fund to pay the direct costs of 
constructing a natural gas pipeline or related facility that originates 
at any pipeline owned by the Green Canyon and Tarpon acquirer, and 
which extends to a location within a specified area. The fund will 
ensure that competition is maintained by allowing the Tarpon and Green 
Canyon acquirer to extend its pipelines into an area of competitive 
concern and to compete against the Respondents in that area. Without 
this fund competition would be reduced and the Tarpon and Green Canyon 
acquirer would be at a competitive disadvantage due to the longer 
distance between the acquiring firm's pipelines and the areas of 
concern. Any money remaining in the fund after twenty years will be 
paid to Respondent El Paso.
    The proposed Order further requires that the Respondents assist the 
acquires of the Gulfstream, Empire, Iroquois, MGT, Green Canyon, 
Tarpon, Nautilus, Manta Ray, Nemo, Stingray, and UTOS pipelines in 
obtaining any approval, consent, ratification, waiver, or other 
authorization (including governmental) that is or will become necessary 
to complete the divestitures required by the proposed Order.
    Additionally, for a period of 10 years after the proposed Order 
becomes final, the Respondents must provide written notice to the 
Commission prior to acquiring any interest in any of the assets which 
are required to be divested by the proposed Order. The proposed Order 
also prohibits the Respondents from entering into any agreement to 
acquire any rights to long term firm transportation on the Gulfstream, 
Empire, or MGT pipelines from the date Respondents sign the Agreement 
Containing Consent Orders until Respondents have divested the 
applicable pipeline. After that date, and for a period of ten years, 
Respondents must provide advance written notification before entering 
into an agreement to purchase long term firm transportation greater 
than 100,000 dekatherms per day on either the Empire or MGT pipeline. 
There is an exception to these restrictions where the purchase of the 
transportation is for the Respondents' own end use. Furthermore, the 
Respondents must provide the Commission with a report of compliance 
with the proposed Order within 60 days after the proposed Order becomes 
final, annually thereafter until

[[Page 9342]]

the order terminates, and at other times as the Commission may require.
    The parties will also be subject to an ``Order to Maintain 
Assets,'' to be issued by the Commission. Under the Order to Maintain 
Assets, between the date the Respondents sign the Agreement Containing 
Consent Orders and the date of divestiture of the applicable asset, the 
Respondents must maintain the assets to be divested in substantially 
the same condition as existing on the date the Respondents signed the 
Agreement Containing Consent Orders; use their best efforts to keep 
available the services of current personnel relating to the assets to 
be divested and to maintain the relations and good will of those 
entities which have business relationships with the assets to be 
divested; and preserve the assets to be divested intact as an ongoing 
business. Under the Order to Maintain Assets, the Respondents must also 
provide the acquirers of the assets to be divested an opportunity to 
transfer employment relationships from the Respondents to the 
acquirers. In addition, the Order to Maintain Assets imposes several 
obligations on the Respondents which are also imposed by he proposed 
Order and which are mentioned earlier in this notice.
    Further, Dominion Resources, which already owns 16% of the Iroquois 
pipeline, has been made a party to the proposed Order for the purposes 
of requiring it to provide the Commission with advance written 
notification before increasing its interest in the Iroquois pipeline.
    Finally, under the terms of the proposed 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 Order, the Commission may 
appoint a trustee to divest those assets, expeditiously, and at no 
minimum price. The proposed Order also authorizes the Commission to 
appoint a Monitor Trustee to oversee the Development Fund by ensuring 
that those funds are used in a manner consistent with the terms of the 
proposed Order.

V. Opportunity for Public Comment

    The proposed 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 Order and the comments 
received and will decide whether it should withdraw from the proposed 
Order or make it final. By accepting the proposed 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 Order, including 
the proposed divestitures, to aid the Commission in its determination 
of whether to make the proposed Order final. This Analysis is not 
intended to constitute an official interpretation of the proposed 
Order, nor is it intended to modify the terms of the proposed Order in 
any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-3190 Filed 2-06-01; 8:45 am]
BILLING CODE 6750-01-M