[Federal Register Volume 66, Number 181 (Tuesday, September 18, 2001)]
[Notices]
[Pages 48136-48145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23233]


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FEDERAL TRADE COMMISSION

[File No. 011 0011]


Chevron 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

[[Page 48137]]

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 October 9, 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 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 September 7, 2001), on the 
World Wide Web, at ``http://www.ftc.gov/os/2001/09/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 Proposed Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'' or ``FTC'') has issued 
a complaint (``Complaint'') alleging that the proposed merger of 
Chevron Corporation (``Chevron'') and Texaco Inc. (``Texaco'') 
(collectively ``Respondents'') would violate section 7 of the Clayton 
Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade 
Commission Act, as amended, 15 U.S.C. 45, and has entered into an 
agreement containing consent orders (``Agreement Containing Consent 
Orders'') pursuant to which Respondents agree to be bound by a proposed 
consent order that requires divestiture of certain assets (``Proposed 
Consent Order'') and a hold separate order that requires Respondents to 
hold separate and maintain certain assets pending divestiture (``Hold 
Separate Order''). The Proposed Order remedies the likely 
anticompetitive effects arising from Respondents' proposed merger, as 
alleged in the Complaint. The Hold Separate Order preserves competition 
pending divestiture.

II. Description of the Parties and the Transaction

    Chevron, headquartered in San Francisco, California, is one of the 
world's largest integrated oil companies. Chevron is engaged, either 
directly or through affiliates, in the exploration for, and production 
of, oil and natural gas; the pipeline transportation of crude oil, 
natural gas, and natural gas liquids; the refining of crude oil into 
refined petroleum products, including gasoline, aviation fuel, and 
other light petroleum products; the transportation, terminaling, and 
marketing of gasoline and aviation fuel; and other related businesses. 
During fiscal year 1999, Chevron had worldwide revenues of 
approximately $35.4 billion and net income of approximately $2.1 
billion.
    Chevron sold its natural gas and natural gas liquids 
transportation, distribution and marketing operations to NGC 
Corporation in 1996 and retained a stock interest in the company. NGC 
subsequently became Dynegy Inc. Dynegy is engaged in the gathering, 
processing, fractionation, transmission, terminaling, storage, and 
marketing of natural gas and natural gas liquids. Chevron owns 
approximately 26% of Dynegy. Chevron has a long-term strategic alliance 
with Dynegy for the marketing of Chevron's natural gas and natural gas 
liquids, and the supply of natural gas and natural gas liquids to 
Chevron's refineries in the lower 48 states of the United States. 
Chevron has three positions on Dynegy's Board of Directors. This 
relationship gives Chevron access to information concerning Dynegy's 
business and allows Chevron to participate in Dynegy's business 
decisions.
    Texaco, headquartered in White Plains, New York, is one of the 
world's largest integrated oil companies. Among its other businesses, 
Texaco is engaged, either directly or through affiliates, in the 
exploration for, and production of, oil and natural gas; the pipeline 
transportation of natural gas and natural gas liquids; the pipeline 
transportation of crude oil; the refining of crude oil into refined 
petroleum products, including gasoline, aviation fuel, and other light 
petroleum products; the transportation, terminaling, and marketing of 
gasoline and aviation fuel; and other related businesses. During fiscal 
year 1999, Texaco had worldwide revenues of approximately $35.7 billion 
and net income of approximately $1.2 billion.
    In 1998, Texaco contributed its U.S. petroleum refining, marketing 
and transportation businesses to two joint ventures and retained an 
interest in the ventures. The joint ventures are Equilon Enterprises, 
LLC (``Equilon''), which is owned by Texaco and Shell Oil Company 
(``Shell''), and Motiva Enterprises, LLC (``Motiva''), which is owned 
by Shell, Texaco, and Saudi Refining, Inc. (``SRI''). The two joint 
ventures are referred to collectively as ``the Alliance.''
    Equilon consists of Texaco's and Shell's western and midwestern 
U.S. refining and marketing businesses, and their nationwide 
transportation and lubricants businesses. Texaco and Shell jointly 
control Equilon. Equilon's major assets include full or partial 
ownership in four refineries, seven lubricants plants, about 65 
terminals, and various pipelines. Equilon markets through approximately 
9,700 branded gasoline retail outlets in the U.S.
    Motiva consists of Texaco's, Shell's, and SRI's U.S. eastern and 
Gulf Coast refining and marketing businesses. Texaco, Shell and SRI 
jointly control Motiva. Motiva's major assets include full or partial 
ownership in four refineries and about 50 terminals. Motiva markets 
through approximately 14,000 branded gasoline retail outlets.
    Pursuant to an agreement and plan of merger dated October 15, 2000, 
Chevron has agreed to acquire all of the outstanding common stock of 
Texaco in exchange for stock of Chevron. As a result of the merger, 
Chevron's shareholders will hold approximately 61%, and Texaco's 
shareholders will hold approximately 39%, of the new combined entity.

[[Page 48138]]

III. The Investigation and the Complaint

    The Complaint alleges that the merger of Chevron and Texaco would 
violate section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and 
Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 
45, by substantially lessening competition in each of the following 
markets: (1) The marketing of gasoline in the western United States 
(including the States of Arizona, Idaho, Nevada, New Mexico, Oregon, 
Utah, Washington, and Wyoming), the southern United States (including 
the States of Alabama, Florida, Georgia, Kentucky, Louisiana, 
Mississippi, North Carolina, Oklahoma, Tennessee, Texas, Virginia, and 
West Virginia), the States of Alaska and Hawaii, and smaller areas 
contained therein; (2) the marketing of CARB gasoline in the State of 
California; (3) the refining and bulk supply of CARB gasoline for sale 
in the State of California; (4) the refining and bulk supply of 
gasoline and jet fuel in the Pacific Northwest, i.e., the States of 
Washington and Oregon west of the Cascade mountains; (5) the bulk 
supply of Phase II Reformulated Gasoline (``RFG II'') in the St. Louis 
metropolitan area; (6) the terminaling of gasoline and other light 
petroleum products in Arizona (Phoenix and Tucson), California (San 
Diego and Ventura), Mississippi (Collins), and Texas (El Paso), and the 
islands of Hawaii, Kauai, Maui, and Oahu in Hawaii; (7) the pipeline 
transportation of crude oil from California's San Joaquin Valley; (8) 
the pipeline transportation of crude oil from portions of the Eastern 
Gulf of Mexico; (9) the pipeline transportation of offshore natural gas 
to shore from locations in the Central Gulf of Mexico; (10) the 
fractionation of raw mix into natural gas liquids specification 
products in the vicinity of Mont Belvieu, TX; and (11) the marketing 
and distribution of aviation fuel, including aviation gasoline and jet 
fuel, to general aviation customers in the western United States, 
including the States of Alaska, Arizona, California, Idaho, Nevada, 
Oregon, Utah, and Washington, and the southeastern United States, 
including the States of Alabama, Florida, Georgia, Louisiana, 
Mississippi, and Tennessee, and smaller areas contained therein.
    To remedy the alleged anticompetitive effects of the merger, the 
Proposed Order requires Respondents to divest all of Texaco's interests 
in the Alliance (including both Equilon and Motiva), which includes 
(among other businesses) all of Texaco's interests in the following: 
(a) Gasoline marketing in the States of Alaska and Hawaii, in the 
Western United States (Arizona, Idaho, Nevada, New Mexico, Oregon, 
Utah, Washington, and Wyoming), and the Southern (Alabama, Florida, 
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, 
Tennessee, Texas, Virginia, and West Virginia); (b) marketing of CARB 
gasoline in California; (c) refining and bulk supply of CARB gasoline 
for sale in California; (d) refining and bulk supply of gasoline and 
jet fuel in the Pacific Northwest; (e) the Explorer Pipeline and the 
bulk supply of RFG II into St. Louis; (f) terminaling of gasoline and 
other light products in ten metropolitan areas in Arizona, California, 
Mississippi, and Texas, and four islands in Hawaii; (g) the Equilon 
pipeline that transports crude oil from California's San Joaquin 
Valley; and (h) the Equilon crude oil pipeline in the Eastern Gulf of 
Mexico. In addition to its interest in the Alliance, Texaco must divest 
its one-third interest in the Discovery pipeline system; its interest 
in the Enterprise fractionating plant in Mont Belvieu; and its general 
aviation business in fourteen states (Alaska, Alabama, Arizona, 
California, Florida, Georgia, Idaho, Louisiana, Mississippi, Nevada, 
Oregon, Tennessee, Utah, and Washington) to Avfuel Corporation.
    The Complaint alleges in 11 counts that the merger would violate 
the antitrust laws in various lines of business and sections of the 
country, each of which is discussed below.

A. Count I--Marketing of Gasoline

    Chevron and Texaco, through its ownership interest in the Alliance 
(including Equilon and Motiva), are competitors in the marketing of 
gasoline in the Western and Southern United States and in the States of 
Alaska and Hawaii. The marketing of gasoline in numerous markets within 
these areas would become highly concentrated, or significantly more 
concentrated, as a result of the proposed merger.\1\ For example, in 
some markets in the states of Louisiana, Mississippi, Oregon and 
Washington, the proposed merger would increase concentration by more 
than 1,000 points to HHI levels above 3,000. In many other markets, the 
proposed merger would result in significant increases in concentration 
to levels at which competition may be harmed. Complete divestiture of 
Texaco's ownership interest in the Alliance is the most practical 
solution to resolve the anticompetitive effects in these markets that 
would result from the proposed acquisition. This total divestiture will 
achieve relief in all markets where the merger would substantially 
lessen competition.
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    \1\ The Commission measures market concentration using the 
Herfindahl-Hirschman Index (``HHI''), which is calculated as the sum 
of the squares of the shares of all firms in the market. FTC and 
Department of Justice Horizontal Merger Guidelines (``Merger 
Guidelines'') Sec. 1.5. Markets with HHIs between 1000 and 1800 are 
deemed ``moderately concentrated,'' and markets with HHIs exceeding 
1800 are deemed ``highly concentrated.'' Merger Guidelines 
Sec. 1.51.
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    The marketing of gasoline is a relevant line of commerce, i.e., a 
relevant product market, for which the proposed merger may lead to an 
increase in price. Gasoline is a motor fuel used in automobiles and 
other vehicles. It is produced in various grades and types, including 
conventional unleaded gasoline, reformulated gasoline (``RFG''), 
California Air Resources Board (``CARB'') gasoline, and others. There 
is no substitute for gasoline as a fuel for automobiles and other 
vehicles that are designed to use gasoline.
    The Complaint alleges that the proposed transaction would lessen 
competition in the western United States (Arizona, Idaho, Nevada, New 
Mexico, Oregon, Utah, Washington, and Wyoming), the southern United 
States (Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, 
North Carolina, Oklahoma, Tennessee, Texas, Virginia, and West 
Virginia), the States of the Alaska and Hawaii, and in smaller areas 
contained therein. Numerous metropolitan areas in the western United 
States \2\ and the southern United States,\3\ would be affected by the 
proposed acquisition. The Commission used metropolitan statistical 
areas (``MSAs'') as a reasonable

[[Page 48139]]

approximation of geographic markets for gasoline marketing in Shell Oil 
Co., C-3803 (1998), British Petroleum Co., C-3868 (1999), and Exxon, C-
3907 (2000).
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    \2\ Phoenix and Tucson, AZ; Boise, ID; Las Vegas and Reno, NV; 
Albuquerque-Santa Fe, NM; Eugene, Klamath Falls-Medford, and 
Portland, OR; Salt Lake City, UT; Seattle-Tacoma, Spokane, and 
Yakima, WA; and Casper-Riverton, WY. In addition, in Alaska, the 
relevant areas are Anchorage, Fairbanks, Juneau, Ketchikan, and 
Sitka. In Hawaii, there are four individual islands, Hawaii, Kauai, 
Maui, and Oahu, that would be affected by the proposed transaction.
    \3\ Anniston, Birmingham, Decatur-Huntsville, Dothan, and 
Montgomery, AL; Mobile-Pensacola, AL/FL; Fort Lauderdale-Miami, Fort 
Pierce-West Palm Beach, Gainesville, and Panama City, FL; Albany, 
Atlanta, Columbus, Macon, and Savannah, GA; Lexington and Paducah, 
KY; Alexandria, Baton Rouge, El Dorado-Monroe, Lafayette, Lake 
Charles, New Orleans, and Shreveport, LA; Biloxi-Gulfport, Columbus-
Tupelo-West Point, Hattiesburg-Laurel, Jackson, and Meridian, MS; 
Greenville-New Bern-Washington, NC; Ada-Ardmore, OK; Lawton-Wichita 
Falls, OK/TX; Chattanooga, TN; Bristol-Johnson City-Kingsport, TN/
VA; Abilene-Sweetwater, Amarillo, Austin, Beaumont-Port Arthur, 
Brownsville-Harlingen-Weslaco, Corpus Christi, Dallas, El Paso, Fort 
Worth, Houston, Lubbock, Midland-Odessa, San Angelo, San Antonio, 
Temple-Waco, and Tyler, TX; Lynchburg-Roanoke and Petersburg-
Richmond, VA; and Beckley-Bluefield-Oak Hill, WV.
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    The marketing segment of the business involves the wholesale and 
retail sale of branded and unbranded gasoline. Branded gasoline is sold 
under an oil company trade name (or ``flag'') such as Chevron, Texaco, 
Exxon or Shell. Unbranded gasoline is typically sold under a private 
label or independent trade name. Gasoline is generally sold to the 
general public through several different types of retail outlets, 
including: (1) Company-operated stations, which are owned and operated 
by the parent oil company; (2) lessee-dealers, stations leased from the 
parent oil company, but operated by independent dealers; (3) open 
dealers, stations owned and operated by independent dealers under a 
franchise agreement with the parent oil company or under a supply 
agreement with a distributor; and (4) distributors (or ``jobbers''), 
who own and operate a network of stations in a particular area under a 
franchise agreement with the parent oil company.
    Branded oil companies set the retail prices of gasoline on a 
station-by-station basis at the stores they operate. Lessee-dealers and 
many open dealers purchase from the branded company at a delivered 
price (``dealer tank wagon'' or ``DTW''). DTW prices charged by major 
oil companies are typically set using ``price zones.'' Price zones, and 
the prices used within them, take account of the competitive conditions 
faced by particular stations or groups of stations and are generally 
unrelated to the cost of hauling fuel from the terminal to the retail 
store. Distributors or jobbers typically purchase branded gasoline from 
the branded company at a terminal (paying a terminal ``rack'' price), 
and deliver the gasoline to their own stations or to jobber-supplied 
stations at prices set by the distributor.
    New entry is unlikely to constrain anticompetitive behavior in the 
markets at issue. New entrants typically face significant obstacles to 
becoming effective competitors, including obtaining a reliable supply 
of gasoline at a competitive price, and gaining access to a sufficient 
number of retail outlets. As a result, it is unlikely that entry will 
constrain a price increase resulting from the merger.
    The Complaint alleges that Texaco, through the Alliance, and 
Chevron are direct competitors in the marketing of motor gasoline in 
the relevant geographic areas. The Commission is concerned that the 
proposed merger would increase the likelihood of coordination among the 
few participants in the relevant areas, by effectively combining the 
Chevron, Texaco and Shell brands, which would lead to an increase in 
the price of gasoline in the affected areas. To address the overlap in 
gasoline marketing between Chevron and Texaco in the relevant markets, 
the Proposed Order requires Texaco to divest its interest in Equilon 
and Motiva.

B. Count II--Marketing of CARB Gasoline

    Texaco, through Equilon, and Chevron are competitors in the 
marketing of CARB gasoline for sale throughout the State of California. 
The merger would result in highly concentrated markets throughout the 
State of California.\4\ Concentration in some markets, such as 
Bakersfield, Fresno-Visalia, and Palm Springs, would increase to HHI 
levels above 2,500. The proposed merger would increase concentration in 
each of the California markets alleged in the complaint by more than 
100 points to HHI levels above 2,000.
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    \4\ The metropolitan areas alleged in the Complaint are 
Bakersfield, Chico-Redding, Fresno-Visalia, Los Angeles, Modesto-
Sacramento-Stockton, Monterey-Salinas, Oakland-San Francisco-San 
Jose, Palm Springs, San Diego, and San Luis Obispo-Santa Barbara-
Santa Maria.
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    The refining and marketing of gasoline in California is tightly 
integrated, and there are only a small number of independent retail 
outlets that might purchase from an out-of market firm attempting to 
take advantage of a price increase by incumbent refiner-marketers. The 
extensive integration of refining and marketing makes it more difficult 
for the few non-integrated marketers to turn to imports as a source of 
supply, since individual independents lack the scale to import cargoes 
economically and thus must rely on California refiners for their usual 
supply. Refiners that lack marketing in California, and marketers that 
lack refineries in these relevant markets, do not effectively constrain 
the price and output decisions of incumbent refiner-marketers. Entry is 
not likely to constrain an anticompetitive price increase.
    The marketing of CARB gasoline in metropolitan areas in California 
is a relevant market. CARB gasoline is a motor fuel used in automobiles 
that meets the specifications of the California Air Resources Board 
(``CARB''). CARB gasoline is cleaner burning and causes less air 
pollution than conventional gasoline. Since 1996, the sale or use of 
any gasoline other than CARB gasoline has been prohibited in 
California. There are no substitutes for CARB gasoline as a fuel for 
automobiles and other vehicles that use gasoline in California. In the 
current investigation and in past decisions, the Commission concluded 
that the marketing of CARB gasoline in metropolitan areas in California 
is a relevant market.\5\
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    \5\ Shell Oil Co., C-3803 (1998); Exxon, C-3907 (2000).
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    More than 90% of the CARB gasoline sold in California is refined by 
seven vertically-integrated refiners (Chevron, Equilon, BP, Ultramar, 
Valero, ExxonMobil and Tosco). These seven firms also control more than 
90% of retail sales of gasoline in California through gas stations 
under their brands.
    CARB gasoline is a homogeneous product, and wholesale and retail 
prices are publicly available and widely reported to the industry. 
Integrated refiner-marketers carefully monitor the prices charged by 
their competitors' retail outlets, and therefore can readily identify 
firms that deviate from a coordinated or collusive price. ]
    California is largely isolated from most external sources of 
supply. CARB gasoline is generally manufactured primarily at refineries 
in California and at one other refinery located in Anacortes, 
Washington. The next closest refineries, located in the U.S. Virgin 
Islands and in Texas and Louisiana, do not supply CARB gasoline to 
California except during supply disruptions at California refineries. 
Non-West Coast refineries are unlikely to supply CARB gasoline to 
California in response to a small but significant and nontransitory 
increase in price because of the price volatility risks associated with 
opportunistic shipments.
    The Complaint charges that the proposed merger, absent relief, is 
likely to result in an increased likelihood of coordination in the 
marketing of CARB gasoline on the West Coast, and is likely to lead to 
higher prices of CARB gasoline in California. The Complaint further 
charges that Chevron/Texaco would likely be able to unilaterally 
increase prices in California in the absence of coordination. To remedy 
the likely harm, the Proposed Order requires Texaco to divest its 
interest in Equilon, which holds Texaco's marketing interests in the 
State of California.

C. Count III--Refining and Bulk Supply of CARB Gasoline

    Texaco, through Equilon, and Chevron are competitors in the 
refining and bulk supply of CARB gasoline for

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sale in the State of California.\6\ The market for the refining and 
bulk supply of CARB gasoline would be highly concentrated following the 
proposed merger. Based on CARB refining capacity, the proposed merger 
would increase concentration for the refining of CARB gasoline by West 
Coast refineries by more than 500 points to an HHI level above 2,000.
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    \6\ A bulk supply market consists of firms that have the ability 
to deliver large quantities of gasoline on a regular and continuing 
basis, such as pipelines or local refineries.
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    The refining and bulk supply of CARB gasoline is a relevant product 
market, and the West Coast is a relevant geographic market. As 
explained in Count II, only CARB gasoline can be legally sold in the 
State of California. No refineries outside of California and one 
Washington refinery regularly produce CARB gasoline in significant 
quantities. The relevant geographic market is the West Coast. The West 
Coast is geographically isolated, and California's volatile wholesale 
gasoline prices discourage imports. Refiners outside of the West Coast 
are unlikely to bring in CARB gasoline to defeat a price increase. The 
extensive integration of refining and marketing makes it more difficult 
for the few non-integrated marketers to turn to imports as a source of 
supply, since individual independents lack the scale to import cargoes 
economically and thus must rely on California refiners for their usual 
supply.
    Entry is difficult and unlikely. New refineries are not likely to 
be built, and the lack of independent buyers in California makes it 
unlikely that regular supplies would be brought to California by a non-
West Coast refiner. A new refinery would face severe environmental 
constraints and substantial sunk costs.
    The Complaint charges that the proposed merger would likely reduce 
competition in the refining and bulk supply of CARB gasoline in 
California, thereby increasing wholesale prices of CARB gasoline. The 
proposed merger increases the likelihood of coordination among 
refiners, as well as unilateral reduction in output by Chevron/Texaco. 
The Proposed Order requires Texaco to divest its interest in Equilon, 
which holds Texaco's interest in the refineries that produce CARB 
gasoline for sale in California.

D. Count IV--Refining and Bulk Supply of Gasoline and Jet Fuel

    Texaco, through Equilon, and Chevron are competitors in the 
refining and bulk supply of gasoline and jet fuel in the Pacific 
Northwest, i.e., the States of Washington and Oregon west of the 
Cascade mountains. The market for the refining and bulk supply of 
gasoline and jet fuel for the Pacific Northwest would be highly 
concentrated following the proposed merger. The proposed merger would 
increase concentration in this market by more than 600 points to an HHI 
level above 2,000.
    Gasoline and jet fuel constitute relevant product markets. There 
are no substitutes for gasoline in gasoline-fueled automobiles. Jet 
fuel is a motor fuel used in jet engines. Jet engines must use fuel 
that meets stringent specifications and cannot switch to any other type 
of fuel. There is no substitute for jet fuel for jet engines designed 
to use such fuel.
    The Pacific Northwest is a relevant geographic market. Customers in 
the Pacific Northwest cannot practicably turn outside of the market to 
obtain supplies in sufficient quantities in response to a small but 
significant and nontransitory increase in price.
    Entry by a refiner would not be likely, timely or sufficient to 
defeat an anticompetitive price increase. The West Coast as a whole is 
supply-constrained both in terms of available local production and its 
geographic isolation from other refining centers. A new entrant would 
face severe environmental constraints and substantial sunk costs.
    The Complaint charges that the proposed merger would eliminate 
direct competition in the refining and bulk supply of gasoline and jet 
fuel between Chevron and Texaco, and would increase the likelihood of 
collusion or coordinated interaction between Respondents and their 
competitors, which would likely result in increased prices for the 
refining and bulk supply of gasoline and jet fuel in the Pacific 
Northwest. The Proposed Order requires Texaco to divest its interest in 
Equilon, which holds Texaco's interest in the Alliance's West Coast 
refineries, to remedy the overlap presented by the merger.

E. Count V--Bulk Supply of Phase II Reformulated Gasoline

    Phase II Reformulated Gasoline, referred to as ``RFG II,'' is a 
motor fuel used in automobiles. RFG II is cleaner burning than some 
other types of gasoline and causes less air pollution. The United 
States Environmental Protection Agency requires the use of RFG II in 
certain areas, including the St. Louis metropolitan area. RFG II is 
supplied in bulk from facilities that have the ability to deliver large 
quantities of the product on a continuing basis, such as pipelines or 
local refineries.
    The bulk supply of RFG II is a relevant product market. There are 
no substitutes for pipelines or refineries for the bulk supply of RFG 
II. Smaller facilities that deliver RFG II in small quantities, such as 
tank trucks, are not cost competitive with pipelines or refineries.
    One area in which RFG II is required is the St. Louis metropolitan 
area. Customers in the St. Louis area cannot turn to RFG suppliers 
outside of the area in response to a small but significant and 
nontransitory increase in the price of RFG II in the St. Louis area.
    Texaco, through Equilon, and Chevron each hold substantial 
interests in the market for the bulk supply of RFG II in the St. Louis 
metropolitan area. Chevron owns approximately 16.7% of Explorer 
Pipeline, and Texaco holds interests totaling approximately 35.9% of 
Explorer. The Explorer Pipeline is the largest pipeline provider of 
bulk RFG II supply in the St. Louis metropolitan area. Equilon also has 
a long-term contract through which it obtains supplies of RFG II for 
the St. Louis metropolitan area.
    The market for the bulk supply of RFG II into the St. Louis 
metropolitan area is highly concentrated and would become significantly 
more concentrated following the proposed merger. The proposed merger 
would increase concentration in this market by more than 1,600 points 
to an HHI level of 5,000. Entry would not be likely, timely or 
sufficient to prevent anticompetitive effects resulting from the 
proposed merger.
    The Complaint charges that the proposed merger would substantially 
lessen competition in the market for the bulk supply of RFG II in the 
St. Louis metropolitan area by eliminating direct competition between 
Chevron and Texaco, and by increasing the likelihood of collusion or 
coordinated interaction in the bulk supply of RFG II in the St. Louis 
area. The Proposed Order requires Texaco to divest Equilon, which will 
prevent the increase in concentration that would result from the 
merger.

F. Count VI--Terminaling

    Texaco, through the Alliance, and Chevron are competitors in the 
terminaling of gasoline and other light petroleum products in 
metropolitan areas in Arizona, California, Mississippi, and Texas, and 
on certain islands in the State of Hawaii. The terminaling of gasoline 
and other light petroleum products in each of these markets would be 
highly concentrated following the proposed merger. The

[[Page 48141]]

proposed merger would increase concentration in each of these markets 
by more than 300 points to HHI levels above 2,000.
    The terminaling of gasoline and other light petroleum products is a 
relevant product market. Terminals are specialized facilities with 
large storage tanks used for the receipt and local distribution of 
large quantities of gasoline and other products. There are no 
substitutes for terminals for these uses. The proposed merger would be 
likely to lessen competition in Phoenix and Tucson, AZ, San Diego and 
Ventura, CA, Collins, MS, and El Paso, TX, and on the islands of 
Hawaii, Kauai, Maui, and Oahu, HI.
    Entry is not likely to defeat an anticompetitive increase in the 
cost of terminaling in the affected areas. The combination of sunk 
costs, significant scale economies, and environmental regulations make 
terminal entry unlikely.
    The Complaint alleges that the effect of the proposed merger would 
be to substantially lessen competition in the terminaling of gasoline 
and other light petroleum products in the relevant markets. 
Respondents, either unilaterally or in coordination with other terminal 
operators, would likely be able to increase the price of terminaling 
gasoline and other light petroleum products in the relevant sections of 
the country as a result of the merger. The Proposed Order requires 
Texaco to divest its interests in the Alliance, which holds its 
interests in the terminals in the relevant areas.

G. Count VII--Crude Oil Pipelines Out of San Joaquin Valley, CA

    Texaco, through Equilon, and Chevron are competitors in the 
pipeline transportation of crude oil from California's San Joaquin 
Valley. This market is highly concentrated and would become 
significantly more concentrated as a result of the proposed merger. The 
proposed merger would increase concentration in this market by more 
than 800 points to an HHI level above 3,300.
    Crude oil pipelines are specialized pipelines for the 
transportation of crude oil from production fields to refineries or to 
locations where the crude oil can be transported to refineries by other 
means. Chevron and Equilon each own a crude oil pipeline that 
transports crude oil out of the San Joaquin Valley in California. There 
are no alternatives to pipelines for the transportation of crude oil 
out of the San Joaquin Valley.
    New entry is unlikely to constrain anticompetitive behavior in this 
market. New pipeline construction requires substantial sunk costs, and 
existing pipelines have a significant cost advantage over new entrants.
    The Complaint alleges that the proposed merger eliminates direct 
competition between Chevron and Texaco and that the merger, if 
consummated, increases the likelihood of coordinated interaction for 
the pipeline transportation of crude oil from the San Joaquin Valley. 
In order to remedy the anticompetitive effects arising from the 
proposed merger, the Proposed Order requires Texaco to divest its 
interest in Equilon, which owns one of the pipelines that transports 
crude oil from the San Joaquin Valley.

H. Count VIII--Crude Oil Pipelines From the Eastern Gulf of Mexico

    Texaco, through Equilon, and Chevron are competitors in the 
pipeline transportation of crude oil from portions of the Eastern Gulf 
of Mexico to on-shore terminals. The pipeline transportation of crude 
oil from locations in the Eastern Gulf of Mexico is highly concentrated 
and would become significantly more highly concentrated as a result of 
the proposed merger. The proposed merger would give the combined 
Chevron/Texaco substantial ownership interests in the only two 
pipelines that compete to transport crude oil from certain locations in 
the Eastern Gulf of Mexico.
    A relevant product market is the pipeline transportation of crude 
oil. A relevant geographic market consists of locations in the Eastern 
Gulf of Mexico, including the Main Pass, Viosca Knoll, South Pass and 
West Delta Areas, as defined by the Department of Interior Minerals 
Management Service. There are two pipeline systems that transport crude 
oil from locations in the Eastern Gulf of Mexico to on-shore terminals: 
the Delta Pipeline System and the Cypress Pipeline System. The Delta 
system is wholly owned by Equilon. Chevron owns 50% of the Cypress 
system and is the operator. There are no alternatives to these two 
pipelines for the transportation of crude oil from locations in the 
Eastern Gulf of Mexico to on-shore terminals. Moreover, new entry into 
this market is unlikely because of the large economies of scale enjoyed 
by existing pipeline carriers.
    The Complaint alleges that Chevron and Texaco are direct 
competitors in the pipeline transportation of crude oil from portions 
of the Eastern Gulf of Mexico to on-shore terminals, and that the 
proposed merger would give Respondents the ability to unilaterally 
raise prices for the pipeline transportation of crude oil from 
locations in the Eastern Gulf. To remedy the Commission's concerns, the 
Proposed Order requires Texaco to divest its interest in Equilon, which 
owns the Delta pipeline system.

I. Count IX--Offshore Pipeline Transportation of Natural Gas

    Chevron and Texaco own interests in competing offshore natural gas 
pipelines in the Central Gulf of Mexico. Chevron and its affiliate 
Dynegy own a combined 77% interest in the Venice Gathering System. 
Texaco owns approximately 33% of the Discovery Gas Transmission System. 
Texaco's ownership share is sufficient to allow it to effectively 
exercise veto control over important aspects of the business of the 
Discovery pipeline. The pipeline transportation of offshore natural gas 
to shore from each of the markets alleged in the Complaint is highly 
concentrated and would become significantly more concentrated as a 
result of the proposed merger. The proposed merger would give the 
combined Chevron and Texaco controlling interests in the only two 
pipelines, or two of only three pipelines, in each of these markets.
    The pipeline transportation of natural gas from locations in the 
Central Gulf of Mexico is a relevant market. Natural gas pipelines are 
specialized pipelines used to transport natural gas from offshore 
producing platforms to shore for processing and distribution. There are 
no alternatives to pipelines for the transportation of natural gas from 
offshore locations to shore.
    The affected areas are certain individual lease blocks \7\ in the 
Central Gulf of Mexico, in areas including the South Timbalier and 
Grand Isle Areas, and their South Additions, as defined by the 
Department of Interior Minerals Management Service. Producers within 
these areas have few or no alternatives to the Discovery and Venice 
pipelines for transporting natural gas to shore.
---------------------------------------------------------------------------

    \7\South Timbalier Blocks 30, 37, 38, 44, 45, 58, 59, 61-63, 86-
88, 123-35, 151-53, 157, 158, 178-80, 185-87, and 205-08; South 
Timbalier South Addition Blocks 223-27, 231, 233-37, 248, 251, 256, 
and 257; Grand Isle Blocks 52, 53, 59, 62, 63, 70-76, 84, and 85; 
and Grand Isle South Addition Block 86.
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    Entry is difficult and unlikely. New pipeline construction requires 
substantial sunk costs, giving existing pipelines a significant cost 
advantage over new entrants.
    The Complaint alleges that the proposed merger will decrease 
competition in the offshore pipeline transportation of natural gas from 
the specified blocks in the affected areas. The proposed merger would 
enable the combined Chevron/Texaco to

[[Page 48142]]

unilaterally increase price for those areas that have no alternative to 
Respondents' pipelines, and would increase the likelihood of 
coordination among pipelines for producers who have only limited 
alternatives to Respondents' pipelines. To remedy the Commission's 
competitive concerns, the Proposed Consent Order requires Respondents 
to divest Texaco's entire interest in the Discovery System, including 
the offshore natural gas pipeline, processing plant and fractionation 
plant.

J. Count X--Fractionation of Natural Gas Liquids at Mont Belvieu, TX

    Texaco competes with Chevron's affiliate, Dynegy, in the market for 
the fractionation of natural gas liquids at Mont Belvieu, Texas. 
Fractionators are specialized facilities that separate raw mix natural 
gas liquids into specification products such as ethane or ethane-
propane, propane, iso-butane, normal-butane, and natural gasoline by 
means of a series of distillation processes. These specification 
products are ultimately used in the manufacture of petrochemicals, in 
the refining of gasoline, and as bottled fuel, among other uses. There 
are no substitutes for fractionators for the conversion of raw mix 
natural gas liquids into individual specification products.
    Mont Belvieu, TX, is an important hub for the fractionation of raw 
mix natural gas liquids and the subsequent sale of fractionated 
specification products. Producers of raw mix natural gas liquids 
throughout the areas served by Mont Belvieu, which includes much of 
Texas, New Mexico, and other states, would not likely turn to 
fractionators located outside Mont Belvieu for their fractionation 
needs.
    There are four facilities providing fractionation services at Mont 
Belvieu. Chevron's affiliate Dynegy owns large interests in two of the 
Mont Belvieu fractionators, the Cedar Bayou fractionator and the Gulf 
Coast fractionator. Chevron's 26% ownership of Dynegy gives it 
representation on Dynegy's Board of Directors as well as a direct 
financial stake in Dynegy's prices and profits. Texaco owns a minority 
interest in another fractionator known as the Enterprise fractionator.
    Competitive concern arises from the ability of a firm in Chevron's 
position to lessen competition among the few separate facilities in 
this market. Competitive vigor could be compromised if, for example, 
sensitive information about one competitor's plans or costs were to 
become known by another competitor in the market. Also, Texaco's 
minority interest could provide a swing vote that could prevent the 
Enterprise fractionating facility from making a competitive move 
against either of the other two facilities affiliated with Chevron.
    The Complaint charges that the proposed merger would lessen 
competition by eliminating direct competition between Texaco and 
Chevron's affiliate Dynegy in the fractionation of natural gas liquids 
at Mont Belvieu; by providing Dynegy with access to sensitive 
competitive information about one of its most important competitors in 
Mont Belvieu; by providing Chevron, through its control of Texaco's 
voting at the fractionator in which Texaco has an interest, with the 
ability to prevent competition from that fractionator against the other 
fractionators in Mont Belvieu in which Dynegy has an interest; and by 
increasing the likelihood that the combination of Chevron and Texaco 
will unilaterally exercise market power. The Proposed Order requires 
Chevron to divest Texaco's interest in the Enterprise fractionator 
within six months to a purchaser approved by the Commission.

K. Count XI--Marketing of Aviation Fuel

    Chevron and Texaco are competitors in the marketing of aviation 
gasoline and jet fuel to general aviation customers in the western 
United States (Alaska, Arizona, California, Idaho, Nevada, Oregon, 
Utah, and Washington) and the southeastern United States (Alabama, 
Florida, Georgia, Louisiana, Mississippi, and Tennessee).
    Aviation fuel is used as a motor fuel for aircraft. There are two 
types of aviation fuel: aviation gasoline and jet fuel. Aviation 
gasoline is used in piston-powered aircraft engines, while jet fuel is 
used in jet engines. There are no substitutes for aviation gasoline or 
jet fuel for aircraft designed to use such fuels. Aviation fuel is sold 
through several channels of distribution, including the general 
aviation channel. This channel consists of fixed base operators 
(``FBOs'') that sell fuel at retail to customers at airports, and 
distributors that sell to FBOs. FBOs in turn sell fuel to general 
aviation customers such as corporate aircraft, crop dusters, owners of 
private airplanes, and similar users (other than commercial airlines 
and military aircraft).
    Chevron and Texaco are among only a few marketers of aviation fuel 
to general aviation customers in the western and southeastern United 
States. The marketing of aviation fuel to general aviation customers in 
each of these markets would be highly concentrated as a result of the 
merger. The proposed merger would increase concentration in the 
southeastern United States by more than 250 points to an HHI level 
above 1,900, and would increase concentration in the western United 
States by more than 1,600 points to an HHI level above 3,400.
    The Complaint alleges that the proposed merger will likely lessen 
competition in the marketing and distribution of aviation fuel to 
general aviation customers in the western United States and the 
southeastern United States, by increasing the likelihood that the 
merged firm will unilaterally exercise market power, and by increasing 
the likelihood of collusion or coordinated interaction. The Proposed 
Consent Order requires Respondents to divest Texaco's general aviation 
business in the western and southeastern United States to an up-front 
buyer, Avfuel Corporation, within ten (10) days following the merger, 
to remedy the Commission's concerns.

IV. Resolution of the Competitive Concerns

    The Commission has provisionally entered into the Agreement 
Containing Consent Orders with Chevron and Texaco in settlement of the 
Complaint. The Agreement Containing Consent Orders contemplates that 
the Commission would issue the Complaint and enter the Proposed Order 
and the Hold Separate Order for the divestiture of certain assets 
described below.

A. The Alliance

    The proposed combination of Chevron and Texaco would effectively 
combine the downstream operations of Chevron, Shell, and Texaco in the 
United States. In order to deal with the overlap issues involving the 
downstream segments of the businesses, Paragraphs II--III of the 
Proposed Order require Respondents to divest Texaco's entire interest 
in the Alliance. Paragraph IV contains provisions dealing with the 
licensing of the Texaco brand and Chevron's ability to compete for 
dealers and distributors using the Texaco brand following the merger.
    Paragraph II of the Proposed Order requires Respondents to divest 
either (a) the Alliance interests to Shell (and SRI in the case of 
Motiva) no later than the date of the Chevron/Texaco merger, or (b) 
within eight months after the Chevron/Texaco merger, at no minimum 
price, either (i) the Alliance interests to Shell (and SRI in the case 
of Motiva), or (ii) the Texaco subsidiaries that own the Alliance 
interests (TRMI and TRMI

[[Page 48143]]

East)\8\ to an acquirer or acquirers approved by the Commission. Shell 
and SRI are appropriate buyers of the assets because they already are 
partners with Texaco in the Alliance. All assets in each portion of the 
Alliance already are under common ownership and control, and 
divestiture of these interests to Shell and SRI would closely maintain 
the situation that currently exists. If the required divestitures occur 
prior to or on the date of the Chevron/Texaco merger, they are to be 
accomplished by Respondents; if they occur after the merger date, they 
are to be accomplished by a divestiture trustee pursuant to the 
provisions of Paragraph III of the Proposed Order.
---------------------------------------------------------------------------

    \8\ Texaco's interest in the Alliance is held by a Texaco 
subsidiary, Texaco Refining and Marketing, Inc. (``TRMI''). A 
subsidiary of TRMI, known as TRMI East, holds Texaco's interest in 
Motiva.
---------------------------------------------------------------------------

    Paragraph II further provides that Chevron and Texaco may not 
consummate the merger unless and until Texaco has either divested the 
Alliance interests to Shell and/or SRI, or has transferred TRMI and 
TRMI East to a trustee. The paragraph also contains provisions that 
ensure that Shell's and SRI's rights under the agreements establishing 
the Alliance will be protected. It also provides that, if the trust is 
rescinded, unwound, dissolved or otherwise terminated at any time 
before the divestitures have been accomplished, then Respondents will 
hold TRMI and TRMI East separate and apart from Respondents pursuant to 
the Hold Separate Order.
    If the divestiture has not occurred before the merger, Paragraph 
III of the Proposed Order requires Respondents to enter into a trust 
agreement and transfer TRMI and TRMI East to the trustee. A divestiture 
trustee will then have the sole and exclusive power and authority to 
divest the Alliance interests, subject to the prior approval of the 
Commission. The trustee will have eight months to accomplish the 
divestitures, at no minimum price, to a buyer or buyers approved by the 
Commission (which could still include Shell and/or SRI). Respondents' 
transfer of the Alliance interests into trust does not prevent Shell 
and/or SRI from exercising any rights they may have under the 
applicable joint venture agreement to acquire Texaco's interests in 
Equilon or Motiva. Further, if Shell or SRI decline to exercise their 
rights to acquire Equilon or Motiva under the joint venture agreements, 
then they may offer to acquire the interests from the trustee, on equal 
footing with any other interested buyers.
    The trust will have a divestiture trustee to accomplish the 
divestitures, and two operating trustees (one for TRMI and one for TRMI 
East) to manage and operate the Alliance interests separate and apart 
from Respondents' operations. The proposed Divestiture Trustee is 
Robert A. Falise, who most recently has been Chairman and Managing 
Trustee of the Manville Personal Injury Settlement Trust. Mr. Falise is 
an attorney and businessman with extensive experience in mergers and 
acquisitions. The proposed Operating Trustees are Joe B. Foster and 
John Linehan. Mr. Foster is the Chairman of Newfield Exploration 
Company, a Houston-based oil and gas exploration and production company 
that he founded in 1989. Mr. Linehan most recently served as Executive 
Vice President and Chief Financial Officer of Kerr-McGee Corporation. 
Both Mr. Foster and Mr. Linehan have extensive experience in the types 
of business engaged in by the Alliance.
    Paragraph IV of the Proposed Order deals with issues concerning the 
licensing of the Texaco brand. It provides that Respondents shall offer 
to extend the license for the Texaco brand provided to Equilon and 
Motiva, on terms and conditions comparable to those in existence when 
the Agreement Containing Consent Orders was signed, on an exclusive 
basis until June 30, 2002 for Equilon and June 30, 2003 for Motiva. 
These dates correspond with the dates when the franchise agreements 
expire for many of the Equilon and Motiva distributors.
    If Equilon agrees to waive certain provisions in its contracts with 
distributors and dealers requiring the distributors and dealers to 
repay money that has been paid or reimbursed by Equilon for various 
Alliance programs during the past few years, such as station re-
imaging, and if it agrees to waive any deed restrictions prohibiting or 
restricting the sale of motor fuel not sold by Equilon at any retail 
outlet that does not agree to become a Shell branded outlet, then 
Texaco shall offer Equilon an additional year of exclusivity (so 
exclusivity would expire at the same time for both Equilon and Motiva). 
If Equilon and Motiva waive the provisions described above, Texaco 
shall offer additional license extensions, on a non-exclusive basis, 
until June 30, 2006, for all retail outlets for which Equilon and 
Motiva have entered into agreements for re-branding under the Shell 
brand. If Equilon or Motiva do not waive the contract provisions 
requiring repayment from dealers and distributors, then Respondents are 
required to indemnify the dealers and distributors for all such amounts 
(plus litigation and arbitration costs), provided that (1) the dealer 
or distributor has declined a request for payment from Equilon or 
Motiva, (2) Equilon or Motiva has commenced litigation or arbitration 
to compel payment, and (3) the dealer or distributor has either 
defended the litigation or afforded Respondents the right to do so. In 
addition, no indemnification need be provided for any retail outlet (1) 
as to which the dealer or distributor terminates its brand relationship 
prior to the date on which Equilon and Motiva lose their license 
exclusivity for the Texaco brand (June 30, 2002 or June 30, 2003), (2) 
which becomes a Shell branded outlet, or (3) which receives 
compensation for such amounts from another source.
    Paragraph IV also provides that, for a period of one year following 
the date on which Equilon or Motiva stops supplying gasoline under the 
Texaco brand to any retail outlet branded Texaco as of the date the 
Agreement Containing Consent Orders is executed by Respondents, 
Respondents shall not enter into any agreement for the sale of branded 
gasoline to such retail outlet, sell branded gasoline to such retail 
outlet, or approve the branding of such retail outlet, under the Texaco 
brand or under any brand that contains the Texaco brand, unless either 
(1) such agreement, sale, or approval would not result in an increase 
in concentration in the sale of gasoline in any metropolitan area (or 
county outside a metropolitan area), or (2) there are no sales of 
Chevron branded gasoline in that market. The purpose of this provision 
is to prevent Respondents from defeating the purpose of the Proposed 
Order by supplying Texaco-branded gasoline to the same stations that 
resulted in the original violation.
    By requiring divestiture of Texaco's interests in the Alliance, the 
Proposed Order remedies anticompetitive effects in the following 
markets: (a) Gasoline marketing in markets in the western United 
States, the southern United States, and the States of Alaska and 
Hawaii; (b) the marketing of CARB gasoline in California; (c) the 
refining and bulk supply of CARB gasoline for sale in California; (d) 
the refining and bulk supply of gasoline and jet fuel in the Pacific 
Northwest; (e) the bulk supply of RFG II gasoline into St. Louis; (f) 
the terminaling of gasoline and other light products in markets in the 
States of Arizona, California, Hawaii, Mississippi, and Texas; (g) the 
pipeline transportation of crude oil from California's San Joaquin 
Valley; and (h)

[[Page 48144]]

the transportation of crude oil from locations in the Eastern Gulf of 
Mexico.

B. The Non-Alliance Operations

    Paragraphs V through VIII of the Proposed Order deal with the 
divestitures that are required outside of the Alliance.
1. Pipeline Transportation of Offshore Louisiana Natural Gas
    Paragraph V of the Proposed Order requires Texaco to divest its 
interest in the Discovery pipeline, including the associated processing 
plant and fractionator (collectively the ``Discovery System''), within 
six months of the date of the merger, at no minimum price, to a buyer 
or buyers that receive the approval of the Commission and only in a 
manner that receives the prior approval of the Commission. The purpose 
of the divestiture of Texaco's interest in the Discovery System is to 
eliminate the overlap of ownership between the Discovery System and the 
Venice System and to remedy the lessening of competition resulting from 
the proposed merger as alleged in the Commission's Complaint.
    The Proposed Order also provides that Texaco shall resign its 
position as operator of the Discovery System immediately after it 
obtains the approvals of the other partners in the Discovery System. In 
addition, prior to divestiture of Texaco's interest in the Discovery 
System, Respondents are to offer to enter into an agreement with the 
acquirer for the purchase, sale or exchange of natural gas liquids that 
is no less favorable for the acquirer than the terms of an existing 
contract with one of Texaco's partners in the Discovery System. Texaco 
owns a natural gas liquids pipeline that transports liquids away from 
the Discovery fractionator. Williams, a co-owner of the Discovery 
System, currently has a contract with Texaco for the disposition of its 
natural gas liquids that are processed at the Discovery fractionator. 
The purpose of this provision is to ensure that Respondents do not 
attempt to impose rates or terms for pipeline transportation to markets 
from the Discovery System's fractionating plant that would impede the 
ability of the Discovery System to compete for natural gas 
transportation from the relevant areas in the Central Gulf of Mexico.
2. Fractionation of Natural Gas Liquids at Mont Belvieu, Texas
    Paragraph VI of the Proposed Order requires Respondents to divest 
Texaco's interest in the Enterprise fractionator at Mont Belvieu, at no 
minimum price, within six months after the merger, to an acquirer that 
receives the prior approval of the Commission and in a manner that 
receives the prior approval of the Commission. The purpose of the 
divestiture of Texaco's interest in the Enterprise fractionator is to 
eliminate the overlap of ownership between the Enterprise fractionator 
and other fractionating plants at Mont Belvieu, Texas, in which 
Respondents or their affiliates own interests, and to remedy the 
lessening of competition resulting from the proposed merger.
3. Marketing of Aviation Fuel
    Paragraph VII of the Proposed Order requires Respondents to divest, 
within ten days of the merger date, Texaco's general aviation business 
in 14 states (Alabama, Alaska, Arizona, California, Florida, Georgia, 
Idaho, Louisiana, Mississippi, Nevada, Oregon, Tennessee, Utah, and 
Washington), to an up-front buyer, Avfuel Corporation (``Avfuel''). 
Respondents must sell Texaco's general aviation business to Avfuel 
pursuant to an agreement approved by the Commission.
    Avfuel is an existing marketer of aviation fuel that, unlike most 
other marketers, is not vertically integrated into the production of 
aviation gasoline or jet fuel. The company is well regarded as an 
independent competitive force in the industry, and appears to be 
particularly well situated to purchase just the assets relating to 
these 14 states and successfully integrate them into its business. An 
up-front buyer is preferable for these assets because they consist 
largely of contractual relationships rather than an on-going divestible 
business. In addition, because the business being divested consists 
largely of contractual relationships, an existing participant in the 
business is likely to have advantages with respect to maintaining and 
growing these relationships.
    In the event Respondents fail to divest Texaco's general aviation 
business in the relevant areas to Avfuel, the Proposed Order requires 
Respondents to divest an alternative asset package that is broader than 
the initial divestiture assets. The broader package consists of 
Texaco's entire general aviation marketing business in the United 
States. The package is broader than the package being divested to 
Avfuel because other buyers may need the entire business in order to be 
viable. If this broader package is divested, the Order requires that 
the divestiture be accomplished within four months of the merger date, 
at no minimum price, to an acquirer that receives the prior approval of 
the Commission. If neither the divestiture to Avfuel nor the 
divestiture of the broader package has occurred within four months 
after the merger, then the Commission will appoint a trustee to divest 
Texaco's entire general aviation marketing business in the United 
States.
    If the business is not sold to Avfuel pursuant to the agreement, 
Respondents are required to assign to the other post-merger acquirer 
all agreements used in or relating to Texaco's domestic general 
aviation business. If Respondents fail to obtain any such assignments, 
Respondents are to substitute arrangements sufficient to enable the 
acquirer to operate the business in the same manner and at the same 
level and quality as Texaco operated it at the time of the merger's 
announcement. At the option of the acquirer, Respondents are to enter 
into an agreement that grants the acquirer, for a period of up to ten 
years from the date of such agreement, a license to use the Texaco 
brand in connection with the operation of Texaco's general aviation 
business in the U.S. For twelve months following the discontinuation of 
the supply of Texaco-branded aviation fuel to a fixed base operator or 
distributor, Respondents may not enter into any contract or agreement 
for the supply of Texaco-branded aviation fuel to such fixed base 
operator or distributor, or approve the branding of such fixed base 
operator or distributor with the Texaco brand. In addition, for six 
months following the consummation of any post-merger divestiture, 
Respondents are not to compete for the direct supply of branded 
aviation fuel to any fixed base operator or distributor that had an 
agreement for the sale of Texaco-branded aviation fuel in the U.S.
    Pursuant to Paragraph VIII of the Proposed Order, if Respondents 
have failed to divest either: (1) Texaco's general aviation business in 
the relevant overlap areas, or (2) Texaco's domestic general aviation 
business within four months of the merger date, the Commission may 
appoint a trustee to divest Texaco's domestic general aviation 
business, at no minimum price, to a buyer approved by the Commission.
    The purpose of the divestiture of Texaco's general aviation 
business in the affected areas, or of Texaco's entire domestic general 
aviation business, is to ensure the continuation of such assets in the 
same business in which the assets were engaged at the time of the 
announcement of the merger by a person other than Respondents, and to 
remedy the lessening of competition alleged in the Complaint.

[[Page 48145]]

C. Other Terms

    Paragraphs IX-XIII of the Proposed Order detail certain general 
provisions. Pursuant to Paragraph IX, Respondents are required to 
provide the Commission with a report of compliance with the Proposed 
Order every sixty days until the divestitures are completed. Paragraph 
X requires that Respondents provide the Commission with access to their 
facilities and employees for the purposes of determining or securing 
compliance with the Proposed Order.
    Paragraph XI provides that, no less than 30 days prior to the 
merger, Respondents must notify Shell and SRI of the projected merger 
date and provide copies of the Agreement Containing Consent Orders and 
all non-confidential documents attached thereto to Shell and SRI.
    Paragraph XII provides for notification to the Commission in the 
event of any changes in the corporate Respondents. Finally, Paragraph 
XIII provides that if a State fails to approve any of the divestitures 
contemplated by the Proposed Order, then the period of time required 
under the Proposed Order for such divestiture shall be extended for 
sixty days.

V. Opportunity for Public Comment

    The Proposed Order has been placed on the public record for thirty 
(30) days for receipt of comments by interested persons. The 
Commission, pursuant to a change in its Rules of Practice, has also 
issued its Complaint in this matter, as well as the Hold Separate 
Order. Comments received during this thirty day comment period will 
become part of the public record. After thirty (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 final the agreement's Proposed Order.
    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, and to aid the Commission in its determination of whether 
it should make final the Proposed Order contained in the agreement. 
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. 01-23233 Filed 9-17-01; 8:45 am]
BILLING CODE 6750-01-P