[Federal Register Volume 66, Number 61 (Thursday, March 29, 2001)]
[Notices]
[Pages 17179-17182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7785]


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FEDERAL TRADE COMMISSION

[File No. 001 0067]


DTE Energy Company, 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 April 23, 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: Dennis Johnson, FTC/S-2105, 600 
Pennsylvania Ave., NW., Washington, DC 20580. (202) 326-2712.

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 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 March 22, 2001), on the World Wide Web, at 
``http://www.ftc.gov/os/2001/03/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 
Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

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

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from DTE Energy Company (``DTE'') and MCN Energy Group 
Inc. (``MCN'') (collectively the ``proposed Respondents'') an Agreement 
Containing Consent Order (the ``proposed consent order''). The proposed 
Respondents have also reviewed a draft complaint contemplated by the 
Commission. The proposed consent order is designed to remedy the 
anticompetitive effects that are described in the Commission's draft 
complaint and that are likely to arise from the merger of DTE and MCN.

II. Description of the Parties and the Proposed Acquisition

    DTE, headquartered in Detroit, Michigan, is a holding company with 
subsidiaries engaged in various energy-related businesses. DTE's 
principal operating subsidiary, The Detroit Edison Company 
(``Edison''), is a public utility engaged in the generation, 
transmission, distribution, and sale of electricity in southeastern 
Michigan, including the Detroit metropolitan area.
    MCN, also headquartered in Detroit, Michigan, is a diversified 
energy holding company, with its primary operations involved in the 
production, gathering, processing, transmission, storage, and 
distribution of natural gas. MCN is the parent of Michigan Consolidated 
Gas Company (``MichCon''), a natural gas utility serving areas 
throughout the State of Michigan, including southeastern Michigan. 
MichCon distributes natural gas, and Edison distributes electricity, in 
a portion of southeastern Michigan consisting of the city of Detroit 
and all or parts of Macomb, Monroe, Oakland, Washtenaw, and Wayne 
Counties (the ``Overlap Area'').
    Pursuant to an Agreement and Plan of Merger dated October 4, 1999, 
and amended November 12, 1999, MCN plans to merge with a subsidiary of 
DTE. Each share of MCN common stock will be converted into the right to 
receive either $28.50 in cash or 0.775 shares of DTE common stock, 
subject to proration. The transaction is valued at approximately $2.6 
billion in cash and stock, plus the assumption of approximately $2 
billion in debt.
    The Commission has carefully examined all areas in which the 
proposed merger of DTE and MCN might be anticompetitive. The Commission 
found that the transaction raises competitive concerns in the Overlap 
Area, as described in the draft complaint, and the Commission proposes 
to take action to remedy these potential anticompetitives effects.

III. The Draft Complaint

    The draft complaint alleges that the merger of DTE and MCN would 
lessen competition in the local distribution of electricity and the 
local distribution of natural gas in the Overlap Area. According to the 
complaint, MichCon is the only distributor of natural gas within the 
Overlap Area. Similarly, except for the cities of Detroit and 
Wyandotte, which operate their own municipal electric utilities, Edison 
is the only distributor of electricity within the Overlap Area. 
Following the merger, Edison would effectively control the distribution 
of both electricity and natural gas within the Overlap Area.
    According to the complaint, entry into the distribution of 
electricity and the distribution of natural gas within the Overlap Area 
is effectively blocked by regulatory constraints, and would not be 
timely, likely or sufficient to prevent anticompetitive effects that 
may result from the merger.
    The draft complaint describes three ways in which the proposed 
merger would lessen competition. Each of these three ways is described 
below.

A. Self-Generation of Electricity

    According to the complaint, natural gas is the fuel of choice for 
new electricity generation in the Overlap Area. Other fuels are not 
likely to be used for new electricity generation because of various 
disadvantages

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relative to natural gas. Coal and fuel oil, for example, have 
environmental problems that do not exist with natural gas. As a result, 
virtually all new electricity generation in the Overlap Area is likely 
to rely on natural gas as its source of fuel.
    The complaint alleges that customers in the Overlap Area who need 
electricity have limited options. They can have electricity delivered 
by Edison, or they can self-generate electricity using natural gas 
delivered by MichCon. Self-generation can take several forms, including 
cogeneration, generation by municipalities (such as the city of 
Wyandotte), and emerging forms of distributed generation, such as 
microturbines and fuel cells, that are fueled by natural gas. According 
to the complaint, MichCon has aggressively sought to encourage 
customers to install gas-powered self-generation equipment that would 
allow customers to minimize or eliminate the purchase of electricity 
from Edison.
    The complaint charges that DTE and MCN are competitors in the 
Overlap Area because Edison distributes electricity and MichCon 
distributes natural gas used for the self-generation of electricity. 
The complaint further charges that the proposed merger may 
substantially lessen competition or tend to create a monopoly in the 
distribution of electricity and natural gas in the Overlap Area in 
certain ways, including: (1) By eliminating competition between DTE and 
MCN in the distribution of electricity and the distribution of natural 
gas used for the self-generation of electricity in the Overlap Area, 
and (2) by increasing the likelihood that market power will be 
exercised in the Overlap Area in connection with the distribution of 
electricity and the distribution of natural gas used for the self-
generation of electricity, each of which increases the likelihood of 
anticompetitive prices and reduced competition in the distribution of 
electricity and the distribution of natural gas in the relevant market.

B. The City of Detroit

    The city of Detroit operates a municipal utility (the Public 
Lighting Department, or ``PLD'') that distributes electricity to 
industrial, business and public sector customers in Detroit. The PLD 
competes directly with Edison for new non-residential customers in 
Detroit.
    According to the complaint, the PLD has two sources of electricity. 
It purchases some power at wholesale, which is delivered over Edison's 
power lines, and it generates the rest of its requirements using 
natural gas delivered by MichCon. The PLD has no viable option for 
natural gas delivery other than MichCon, and after the merger will have 
to rely on its only direct electricity competitor for delivery of 
natural gas.
    The complaint charges that the proposed merger, if consummated, may 
substantially lessen competition or tend to create a monopoly in the 
distribution of electricity in the city of Detroit in certain ways, 
including: (1) By decreasing or eliminating competition in the city of 
Detroit in the distribution of electricity and the distribution of 
natural gas used to produce electricity, and (2) by facilitating DTE's 
ability to raise the costs of the Detroit PLD, each of which increases 
the likelihood of anticompetitive prices and reduced competition in the 
distribution of electricity and the distribution of natural gas used to 
generate electricity in the city of Detroit.

C. Competing Applications

    Electricity and natural gas compete directly for certain commercial 
and industrial applications. According to the complaint, some customers 
can choose either natural gas or electricity for specific energy needs, 
such as powering air compressors, commercial cooking, and various 
process applications. Customers who choose natural gas for these 
applications must use natural gas delivered by MichCon, and customers 
who choose electricity must use power delivered by the local electric 
utility, usually Edison. MichCon has aggressively sought to convert 
customers using electricity for such applications to natural gas, 
typically by attempting to convince customers of the relative economic 
benefits of natural gas compared to electricity.
    The complaint charges that the proposed merger, if consummated, 
would substantially lessen competition or tend to create a monopoly in 
the distribution of electricity and natural gas in certain ways, 
including: (1) By eliminating competition between DTE and MCN in the 
distribution of electricity and the distribution of natural gas in the 
Overlap Area, and (2) by increasing the likelihood that market power 
will be exercised in the Overlap Area in connection with the 
distribution of electricity and the distribution of natural gas, each 
of which increases the likelihood of anticompetitive prices and reduced 
competition for the distribution of electricity and the distribution of 
natural gas in the relevant market.

IV. Terms of the Proposed Consent Order

    The proposed consent order is designed to remedy the Commission's 
competitive concerns about the proposed merger. Under Paragraph II of 
the proposed consent order, the proposed Respondents must divest 
certain assets (the ``Divested Assets'') to Exelon Energy Company 
(``Exelon'') pursuant to and in accordance with the terms of a 
Divestiture Agreement between MichCon and Exelon, no later than five 
(5) days after the proposed merger is consummated.\1\ The Divestiture 
Agreement consists of two separate agreements: (1) An ``Easement 
Agreement'' entered into between MichCon and Exelon, and (2) an 
``Auditor Agreement'' entered into between MichCon, Exelon, and a third 
party that serves an oversight function with respect to the Easement 
Agreement between MichCon and Exelon.
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    \1\ However, if the Commission determines to make the Order 
final, but notifies the proposed Respondents either that Exelon is 
not an acceptable acquirer, or that the Divestiture Agreement is not 
an acceptable manner of divestiture, then proposed Respondents are 
to divest the Divested Assets, at no minimum price, within 90 days 
of the date the Order becomes final, to an acquirer that receives 
the prior approval of the Commission and in a manner that receives 
the prior approval of the Commission.
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    The Easement Agreement has been approved by the Michigan Public 
Service Commission as a special contract between MichCon and Exelon. 
See Order Approving Special Contract, In the Matter of the Joint 
Application of Michigan Consolidated Gas Company and Exelon Energy 
Company for Ex Parte Approval of a Special Contract for Certain 
Transportation and Storage Rights, Case No. U-12825, February 14, 2001.
    The Easement Agreement conveys to Exelon an easement over MichCon's 
local natural gas distribution system that will allow Exelon to engage 
in the distribution and storage of natural gas in the Overlap Area. 
Pursuant to the Easement Agreement, Exelon is entitled to the use of 
five billion cubic feet (``Bcf'') of annual transportation capacity 
(``Initial Capacity'') to serve any end use customers within the 
Overlap Area. Exelon is then entitled to an additional 15 Bcf of annual 
transportation capacity (``Supplemental Capacity''), in increments of 1 
Bcf, that must serve at least 50% Electric Displacement Load, (Electric 
Displacement Load, or ``EDL,'' includes on-site electric power 
generation such as cogeneration, municipal generation, emerging forms 
of distributed generation (such as fuel cells and microturbines), and 
other gas-fired

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electric displacement equipment.) If Exelon uses all of the Initial 
Capacity and Supplemental Capacity (a total of 20 Bcf, of which 7.5 Bcf 
must be used for EDL), then Exelon is entitled to additional 
transportation capacity (``Growth Capacity'') for use in serving on-
site generation customers within the Overlap Area. Exelon also is 
entitled to storage capacity equal to 10% of its Initial Capacity and 
Supplemental Capacity. Charges for the Initial Capacity, Supplemental 
Capacity, and Growth Capacity are set at levels designed to allow 
Exelon to compete with MichCon in the Overlap Area, and to provide 
Exelon with incentives to distribute natural gas for EDL applications.
    The Easement Agreement contains a number of provisions designed to 
ensure Exelon's ability to be a viable competitor. In particular, the 
agreement requires the parties to appoint an independent third-party 
auditor with knowledge of the natural gas industry to oversee the 
Easement Agreement and to perform such services as are necessary to 
effectuate the agreement, including arbitration of disputes and other 
duties and responsibilities designed to ensure that MichCon cannot 
unreasonably discriminate against Exelon. (Easement Agreement para. D-
17.) In addition, the Easement Agreement requires MichCon to repair and 
replace all components of the distribution system necessary for the 
proper operation thereof, and allows the Auditor to make repairs or 
replacements, at MichCon's cost, if MichCon fails to do so. (Easement 
Agreement para. 7.) Further, the agreement allows Exelon to expand the 
system if necessary, either at MichCon's expense or with the assistance 
of an expansion allowance paid for by MichCon. (Easement Agreement 
para. D-5.) Moreover, the Agreement requires that MichCon give Exelon 
and the Auditor advance notice of important operational events that may 
impact the distribution system, such as scheduled maintenance, outages, 
changes in operating standards, planned new receipt points, proposed 
modifications to nomination or measurement practices or quality 
specifications, and any other events that may affect Exelon or Exelon's 
ability to service its customers, and empowers the Auditor to revise or 
modify any such events if necessary to prevent an adverse impact on 
Exelon. (Easement Agreement para. D-6.)
    The proposed consent order also contains other provisions designed 
to ensure the continuation of a viable and competitive alternative 
supplier of natural gas distribution services to Electric Displacement 
Load customers in the Overlap Area. For example, Paragraph II.B.1 of 
the proposed consent order requires that proposed Respondents maintain, 
repair, and replace all components and other aspects of the MCN 
Distribution System (1) necessary for the proper or safe operation of 
that system; and (2) in full compliance with all rules and regulations 
of any federal or state agency, or any other governmental entity, 
having jurisdiction over any aspect of the MCN Distribution System. 
Paragraph II.B.2 of the proposed consent order requires that proposed 
Respondents operate the MCN Distribution System in a reasonable and 
non-discriminatory manner, and in full compliance with all rules and 
regulations of any federal or state agency, or any other governmental 
entity, having jurisdiction over any aspect of the MCN Distribution 
System.
    Paragraph II.B.3 deals with the Auditor, and provides that the 
Auditor shall have the power to take all actions as in the Auditor's 
judgment are necessary and appropriate to effectuate the purposes of 
the Divestiture Agreement, including the right to propose changes to 
the Divestiture Agreement necessary to ensure the competitive viability 
of the Acquirer, and shall have free access to all of proposed 
Respondents' books, records, information, systems, and facilities as 
deemed reasonably necessary by the auditor to monitor proposed 
Respondents' performance under the Divestiture Agreement. In obtaining 
and utilizing proprietary information, the Auditor is required to 
observe confidentiality restrictions designed to prevent the 
unauthorized disclosure of such information.
    Pursuant to Paragraph II.B.4, Respondents are required to provide 
Exelon with a list of all customers to which MCN transports natural gas 
in the Overlap Area, including the name, address, and rate 
classification for each such customer, and a statement indicating 
whether each such customer utilizes natural gas for Electric 
Displacement Load. In addition, under Paragraph II.B.5, Respondents 
must provide to the Auditor the results of a study conducted by MCN of 
Electric Displacement Load opportunities in the Overlap Area. 
Respondents must send a letter to each customer in the study advising 
the customer that gas distribution services may be purchased from 
Exelon and asking if the customer wishes the Auditor to provide the 
customer's study information to Exelon.
    Paragraph II.B.6 provides that, for two years after the date the 
Order becomes final, Respondents shall promptly comply with any request 
of any customer in the Overlap Area to terminate its transportation or 
distribution contracts with MCN, without cost or penalty to such 
customer, to enable such customer to purchase gas distribution or 
transportation services provided by Exelon.
    The proposed consent order also contains provisions dealing with 
the appointment of an alternative acquirer if Exelon terminates the 
Divestiture Agreement, as well as trustee provisions dealing with the 
responsibilities of any trustee appointed to accomplish any divestiture 
required by the order.
    The proposed Respondents are required to provide to the Commission 
a report of compliance with the proposed consent order within sixty 
days following the date on which the order becomes final, every sixty 
days thereafter until the divestitures are completed, and annually for 
a period of twenty years.
    The Auditor Agreement, executed by MichCon, Exelon and the Auditor, 
defines the duties, powers and obligations of the Independent Auditor 
required by Paragraph II.B.3 and Paragraph D-17 of the Easement 
Agreement. the Auditor has the ability to take all actions necessary 
and appropriate to effectuate the purposes of the Easement Agreement, 
including the right to assess consequential damages against MichCon if 
MichCon operates the distribution system in a manner that is 
prejudicial to Exelon. (Auditor Agreement para. 2.) The Auditor also is 
responsible for arbitrating disputes between the parties, as well as 
for performing other necessary duties and responsibilities under the 
Easement Agreement, such as verification of Exelon's Electric 
Displacement Load volume, system repair and maintenance if MichCon 
fails to do so, designation of applications that qualify as Electric 
Displacement Loads, resolution of complaints by Exelon, modification of 
operational changes that may adversely impact Exelon, and related 
duties and responsibilities. (Auditor Agreement Sch. A; Easement 
Agreement Paras. 3, 7, D-1(j), D-2, D-4, D-6.)
    The proposed buyer of the Divested Assets, Exelon Energy, is one of 
the largest unregulated suppliers of electricity and natural gas in the 
nation. It is a unit of Exelon Corporation, which was formed from the 
merger of Unicom Corporation and PECO Energy Company. The parent 
company has operations engaged in the generation, transmission, 
distribution and sale of electricity, the supply of natural gas and 
natural gas transportation services, the

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sale of distributed generation products, and related businesses. The 
company is extremely knowledgeable about the utility business and the 
distribution of electricity and natural gas. It currently markets 
natural gas to buyers in Michigan (as well as in other states), and has 
an affiliate that is engaged in the distribution of microturbines and 
distributed generation equipment.
    The Commission's goals in evaluating possible purchasers of 
divested assets is to maintain the competitive environment that existed 
prior to the acquisition. A proposed buyer must not itself present 
competitive problems. Exelon is a major energy company with substantial 
experience in natural gas, electricity, and the operation of utilities. 
The Commission believes that Exelon is well qualified to operate the 
divested assets and that divestiture to Exelon will not be 
anticompetitive.

 V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
thirty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the agreement and 
the comments received and will decide whether it should withdraw from 
the agreement or make the propose consent order final.
    By accepting the proposed consent order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
compliant will be resolved. The purpose of this analysis is to invite 
public comment on the proposed consent order, including the proposed 
sale of assets to Exelon, 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.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-7785 Filed 3-28-01; 8:45 am]
BILLING CODE 6750-01-M