[Federal Register Volume 66, Number 26 (Wednesday, February 7, 2001)]
[Notices]
[Pages 9342-9344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3191]


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FEDERAL TRADE COMMISSION

[File No. 001-0172]


Entergy 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 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 March 2, 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, Frank Lipson or Anne 
Schenof, FTC/S-2105, 600 Pennsylvania Ave., NW., Washington, DC 20580. 
(202) 326-3177, 326-2617 or 326-2031.

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 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 31, 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 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 the Complaint and Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission has accepted for public comment an 
Agreement Containing Consent Order (``Consent Agreement'') with Entergy 
Corporation and Entergy-Koch, LP (``EKLP''), a limited partnership 
owned equally by Entergy and Koch Industries, Inc., and has issued a 
Complaint and the Decision and Order (``Order'') contained in the 
Consent Agreement. The Order seeks to remedy the anticompetitive 
effects of EKLP's acquisition from Koch of the Gulf South Pipeline 
Company, LP (formerly the Koch Gateway Pipeline Company and referred to 
herein as ``Gulf South''). As a result of this acquisition, Entergy 
will own 50 percent of the Gulf South pipeline, a major natural gas 
pipeline serving Entergy's regulated utilities in Louisiana and 
Mississippi. The Order requires Entergy to adopt an open-solicitation 
process for its purchase of natural gas and gas transportation. 
Adoption of these measures will avoid affiliate bias in Entergy's 
purchase of gas supplies and the resulting higher energy prices.

II. Description of the Parties and the Proposed Joint Venture

    Entergy, a Delaware corporation, is engaged in the generation, 
transmission, and distribution of electricity. Entergy provides retail 
electric service to customers in portions of Arkansas, Louisiana, 
Mississippi, and Texas. Entergy also owns the local natural gas 
distribution utility in New Orleans and Baton Rouge, Louisiana. In 
1999,

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Entergy had revenues of approximately $8.77 billion and net income of 
approximately $595 million.
    Koch is a privately held corporation headquartered in Wichita, 
Kansas. Through its subsidiaries and affiliates, Koch markets natural 
gas, natural gas transportation, chemicals, petroleum products, 
minerals, and financial services. Koch conducts its natural gas 
business through Koch Entergy Trading and Gulf South. Koch Entergy 
Trading markets natural gas, electric power, and weather derivatives. 
Gulf South owns and operates the Gulf South pipeline (formerly known as 
the Koch Gateway pipeline). The Gulf South pipeline consists of about 
10,000 miles of natural gas pipeline serving parts of the states of 
Texas, Louisiana, Mississippi, Alabama and Florida.
    On May 26, 2000, Entergy and Koch entered into an agreement to form 
EKLP. Pursuant to that agreement, EKLP will acquire, among other 
things, Entergy Power Marketing Corporation (Entergy's subsidiary that 
markets electricity and gas in the United States) and Gulf South and 
Koch Entergy Trading from Koch. As a result of the joint venture 
agreement, Entergy will own 50 percent of Gulf South and Koch Entergy 
Trading.

III. The Complaint

    The Complaint alleges that consummation of the joint venture 
agreement 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 Complaint alleges two markets in which the proposed 
joint venture is likely to lessen competitive discipline on prices 
substantially: the sale of electricity to consumers in areas of 
Louisiana and western Mississippi where Entergy subsidiaries are the 
regulated electric utilities (Count I); and the distribution of natural 
gas to consumers in New Orleans and Baton Rouge, where Entergy 
subsidiaries are the regulated natural gas distribution utilities 
(Count II). The Complaint alleges that prices in these relevant markets 
are ``likely to rise as a result of Entergy passing on inflated costs 
for natural gas transportation to consumers and the difficulties that 
regulators will have in reviewing and challenging Entergy's purchase of 
natural gas transportation.''
    According to the Complaint, Entergy, through its regulated 
subsidiaries, has the exclusive right to sell retail electricity in 
parts of Louisiana and Mississippi. Entergy subsidiaries also have the 
exclusive right to distribute natural gas in New Orleans and Baton 
Rouge, Louisiana. Entergy purchases substantial quantities of natural 
gas transportation for its regulated subsidiaries.
    Under the current regulatory framework of the States of Louisiana 
and Mississippi and the City of New Orleans, Entergy is permitted, 
subject to review, to recover 100 percent of the cost of natural gas 
transportation purchased for its natural gas and electric utilities by 
passing on this cost directly to consumers. The Complaint alleges that, 
once Entergy shares in the profits of Gulf South, it will have the 
incentive and ability, and is therefore likely, to pay higher prices 
for the transportation of Gulf South, and purchase a level of 
transportation service from Gulf South above what is necessary for 
effective operation of Entergy's utilities.
    The Complaint alleges that after EKLP acquires the Gulf South 
pipeline it would be difficult for state and local regulators to 
determine whether Entergy improperly incurred inflation costs of 
natural gas transportation than before the transaction. Entergy's 
natural gas transportation purchasing decisions involve the 
consideration of multiple factors; the process by which Entergy 
purchases gas transportation is not transparent; and existing market 
benchmarks are inadequate to assist regulators in determining whether 
the cost was prudently incurred. Entergy's ownership of EKLP and the 
Gulf South pipeline increases Entergy's incentive to evade regulation 
and therefore, it is more likely that regulators will need to address 
such evasion.

IV. Terms of the Order

    The Order issued by the Commission remedies the alleged 
anticompetitive effects of the proposed joint venture by establishing a 
transparent process that will increase the potential for competition 
and provide a benchmark that will make it easier for regulators to 
detect possible rate evasion. The Order affects how Entergy purchases 
its gas supply, whether it purchases pipeline transportation to deliver 
natural gas to facilities operated by its regulated utilities or it 
purchases delivered natural gas.
    The Order recognizes Entergy's requirement to purchase a flexible, 
reliable, and economical gas supply. For this reason, this Order 
provisions are tailored to reflect the duration of Entergy's contracts. 
Paragraph II. B. of the Order applies to long-term (over three months) 
and short-term purchases (longer than one day but less than or equal to 
three months) and requires Entergy to prepare a written plan before 
requesting proposals for gas supply. This plan must include, among 
other things, a statement explaining the goals Entergy is attempting to 
achieve (e.g., reliable supply of gas at certain plants). These 
planning documents will allow state and local regulators to compare 
actual purchases with Entergy's forecasted gas supply requirements.
    The Order also requires Entergy to post information about its gas 
supply requirements on its website. The information posted and the 
timing of the post are based on the duration of the contract terms and 
the pace of the market activity. For long-term purchases (Paragraph 
II.C.1.), Entergy must post a request for proposal (``RFP'') where each 
RFP must contain, among other things, the criteria that suppliers must 
satisfy to be eligible for consideration and the types of services, the 
amount of gas, and the duration of the contract. Entergy must post this 
RFP at least 30 days before any purchase under a contract whose term is 
one year or more, and at least 14 days in advance of any purchase under 
a contract whose term is between three months and one year. These time 
frames provide suppliers with adequate time to prepare their bids, 
without causing unnecessary delay. Further, the Order requires Entergy 
to provide requests for proposals to any potential supplier upon its 
request, and to consider any proposal for any potential supplier.
    The process is similar for short-term purchases (Paragraph 
II.C.2.). Entergy must post this information at least 72 hours before 
considering any proposal for a term of at least one month. As with 
long-term purchases, the Order requires EKLP to ensure that Gulf South 
posts each announcement on its electronic bulletin board before 
submitting a proposal to Entergy, and requires Entergy to consider all 
proposals from any potential supplier. The order requires Entergy to 
create a log for all short-term purchases documenting the date, time, 
seller, and terms of all offers received, and indicating the selected 
proposals(s).
    For daily purchases, (Paragraph II.C.3), the Order requires Entergy 
to publish on its website its intention to purchase gas supplies at 
various receipt and delivery points. The information contained in this 
notice is more limited than the requests that Entergy must publish for 
short-term and long-term purchases. The Order requires Entergy to 
provide potential suppliers, upon request, with the specific terms and 
conditions for which it seeks to purchase gas supplies. Entergy must 
maintain a log containing the same information that is required for 
short-term purchases. The Order does not

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require Entergy to develop a planning document for its daily purchases, 
which is required for the other types of purchases.
    These procedures will create a competitive, transparent process 
that will make it easier for regulators to detect whether Entergy 
purchased gas supplies at inflated costs. The planning document will 
provide regulators with Entergy's operational requirements for gas and 
gas transportation. The open-solicitation process will create 
competition to supply Entergy and establish a market price for gas 
supplies. Regulators will then be able to compare Entergy's operational 
requirements, Entergy's purchases and the market prices to identify 
whether Entergy purchased gas supplies from EKLP at inflated prices or 
a level of service that is above that necessary for effective 
operation.
    The Order also designates Stephen P. Reynolds as Implementation 
Trustee. Mr. Reynolds has the expertise to determine the precise 
information that should be included in an RFP or other solicitation 
package, or information to be contained in a gas purchasing planning 
document. EKLP must bear all of the trustee's costs and expenses. The 
Implementation Trustee will serve until the earlier of one year or the 
date on which he certifies to the Commission that the parties have put 
in place adequate procedures with the Order and the Commission accepts 
such certification.

V. Effective Date of Order and Opportunity for Public Comments

    The Commission issued the Complaint and the Decision and Order, and 
served them upon the respondents; at the same time it accepted the 
Consent Agreement for public comment. As a result of this action, the 
Order has already become effective. The Commission, in August 1999, 
adopted procedures to allow for immediate effectiveness of an Order 
prior to a public comment period. The Commission announced that it 
``contemplates doing so only in exceptional cases where, for example, 
it believes that the allegedly unlawful conduct to be prohibited 
threatens substantial and imminent public harm.'' 65 FR 46267 (1999).
    This case is an appropriate one in which to issue a final order 
before receiving public comment because it preserves an effective 
remedy for the Commission by subjecting the respondents to civil 
penalties for failing to comply with the Order. This ensures that the 
safeguards embodied in the Order will be implemented on schedule.
    The Order has also been placed on the public record for 30 days for 
receipt of comments by interested persons, and comments received during 
this period will become part of the public record. Thereafter, the 
Commission will review the Order, and may determine, on the basis of 
the comments or otherwise, that the Order should be modified.\1\
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    \1\ If the respondents do not agree to such modifications, the 
Commission may (1) initiate a proceeding to reopen and modify the 
Order in accordance with Rule 3.72(b), 16 CFR 3.72(b), or (2) 
commence a new administrative proceeding by issuing an 
administrative complaint in accordance with Rule 3.11, 16 CFR 3.11. 
See 16 CFR 2.34(e)(2).
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    The Commission anticipates that the Order, as issued, will resolve 
the competitive problems alleged in the Complaint. The purpose of this 
analysis is to invite public comment on the Order to aid the Commission 
in determing whether to modify the Order in any respect. This analysis 
is not intended to constitute an official interpretation of the Order, 
nor is it intended to modify the terms of the Order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-3191 Filed 2-6-01; 8:45 am]
BILLING CODE 6750-01-M