[Federal Register Volume 68, Number 107 (Wednesday, June 4, 2003)]
[Notices]
[Pages 33490-33492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14032]


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FEDERAL TRADE COMMISSION

[File No. 031 0068]


Southern Union Co., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before June 27, 2003.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed in the 
Supplementary Information section.

FOR FURTHER INFORMATION CONTACT: Dennis Johnson, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, 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(f), 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, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for May 29, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/05/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected]. Such comments 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 made 
public a draft complaint (``Complaint'') alleging that the proposed 
acquisition of Panhandle Eastern Pipeline Company (``Panhandle'') from 
Respondent CMS Energy Corporation (``CMS'') by Respondent Southern 
Union Company (``Southern Union'' or ``SU'') 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 order (``Agreement Containing Consent 
Order'') pursuant to which Respondents agree to be bound by a proposed 
consent order (``Proposed Consent Order'') that remedies the likely 
anticompetitive effects arising from the proposed acquisition, as 
alleged in the Complaint.

II. Description of the Parties and the Transaction

    Southern Union, headquartered in Wilkes-Barre, Pennsylvania, is 
engaged either directly or through affiliates in the distribution and 
sale of natural gas to residential, commercial and

[[Page 33491]]

industrial customers located in certain states, including Missouri, 
Pennsylvania, Rhode Island and Massachusetts. For the fiscal year ended 
June 30, 2002, SU reported sales of nearly $1.3 billion and assets of 
approximately $2.67 billion.
    Pursuant to an agreement executed November 20, 2002, which 
continued until the agreement was terminated on May 12, 2003, 
Respondent SU's subsidiary, Energy Worx, Inc. (``Energy Worx''), served 
as the operator and manager of the Central pipeline. The Central 
pipeline, which transports natural gas to customers in certain 
Midwestern states, including Kansas and Missouri, is owned by American 
International Group, Inc. (``AIG'') through its affiliate Southern Star 
Central Corp. (``Southern Star'').
    CMS, headquartered in Dearborn, Michigan, is engaged either 
directly or through affiliates in the business of oil and gas 
exploration, natural gas transportation, liquefied natural gas 
services, independent power production, gas and electricity 
distribution, and marketing and management services. Panhandle, a 
subsidiary of CMS, owns and operates the Panhandle pipeline, which 
transports natural gas to customers in certain Midwestern states, 
including Kansas and Missouri.
    Pursuant to an agreement dated December 21, 2002, and a letter of 
understanding dated December 20, 2002, Southern Union and affiliates of 
AIG agreed to acquire all of the capital stock of Panhandle from CMS. 
The agreement provided that Southern Union would own approximately 
77.9%, and affiliates of AIG would own approximately 22.1%, of the 
equity interest in Panhandle. On May 12, 2003, in order to resolve 
competitive issues arising from this transaction, Southern Union, 
Southern Union Panhandle Corp., and CMS Gas Transmission Company 
entered into an amended and restated stock purchase agreement pursuant 
to which Southern Union Panhandle Corp., a wholly-owned subsidiary of 
Southern Union, intends to purchase all of the capital stock of 
Panhandle from CMS Gas Transmission Company, a wholly-owned subsidiary 
of CMS. AIG is not a party to the revised transaction and will have no 
ownership interest in Panhandle. The total value of the transaction is 
approximately $1.8 billion.

III. The Complaint

    The Complaint alleges that the acquisition of Panhandle from 
Respondent CMS by Respondent SU 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 the transportation of natural gas by pipeline into the 
Kansas City area. To remedy the alleged anticompetitive effects of the 
merger, the Proposed Order requires Respondent Southern Union, prior to 
the proposed acquisition, to terminate the Management Services 
Agreement with AIG for the management of the Central pipeline. The 
proposed order also prohibits Southern Union from acquiring an equity 
position in AIG or the Central Pipeline. In addition, the Proposed 
Order prohibits Respondents Southern Union and CMS from transferring or 
otherwise providing any ownership interest in the Panhandle pipeline to 
AIG.
    The Complaint alleges that a relevant line of commerce, or product 
market, in which to analyze the effects of the proposed acquisition is 
the transportation of natural gas by pipeline. The only way to 
economically transport commercial quantities of natural gas over 
significant distances is through large diameter, high pressure 
pipelines. Transportation of natural gas by other methods would be 
unsafe, prohibitively expensive, and otherwise not viable. Buyers of 
natural gas transportation services could not and would not switch to 
other means of transportation, or to alternative fuels, if the cost of 
pipeline transportation of natural gas were to increase by 5% to 10%.
    The Complaint further alleges that the proposed transaction would 
lessen competition in a geographic market in the Kansas City area, 
consisting of Cass, Henry, Jackson, Johnson, Lafayette, Pettis and 
Saline Counties in Missouri, and Anderson, Butler, Chase, Coffey, 
Franklin, Johnson, Lyon, Marion, Miami and Osage Counties in Kansas. 
Buyers of natural gas in this geographic market can receive natural gas 
only from pipelines that travel through or terminate in that geographic 
market, and cannot economically access natural gas pipelines outside 
that area.
    The only pipelines that transport natural gas to the relevant 
geographic market are the Panhandle pipeline, the Central pipeline, and 
two smaller pipelines that service only part of the western portion of 
the relevant geographic market. These other two pipelines could not act 
as a pricing constraint on Central or Panhandle because of operational 
limitations, capacity constraints, and distance limitations. As a 
result, for many buyers of natural gas transportation services in the 
relevant geographic market, Central and Panhandle are the only viable 
alternatives.
    Pursuant to a Management Services Agreement with an affiliate of 
AIG, Southern Union's subsidiary, Energy Worx, served as the operator 
and manager of the Central pipeline from November 20, 2002, until the 
parties to that Management Services Agreement terminated it on May 12, 
2003, in order to resolve competitive issues arising from this 
transaction. The Central pipeline transports a significant portion of 
the natural gas delivered to the relevant geographic market. Pursuant 
to the Management Services Agreement, Southern Union had effective 
control over the business of the Central pipeline, access to 
confidential competitive information about the Central pipeline, and a 
financial interest in the Central pipeline. The Management Services 
Agreement also contemplated that Southern Union would have an equity 
position in the Central pipeline.
    The market for the pipeline transportation of natural gas to the 
relevant geographic market is highly concentrated and would become 
significantly more concentrated as a result of the proposed 
acquisition. As originally proposed, common ownership interest and/or 
common management and control would exist between the only two 
alternatives for the transportation of natural gas for many buyers in 
the relevant geographic market.
    Entry into the relevant line of commerce in the relevant section of 
the country is difficult and would not be timely, likely or sufficient 
to prevent anticompetitive effects that are likely to result from the 
proposed acquisition. Building a new pipeline is capital intensive, 
would involve significant sunk costs, is subject to significant 
regulatory constraints, and would require more than two years to 
accomplish. As a result, new entry would not be able to prevent a 5-10% 
increase in the price of pipeline transportation of natural gas.
    The Complaint charges that the proposed acquisition, absent relief, 
is likely to substantially lessen competition and lead to higher prices 
for the transportation of natural gas by pipeline to the Kansas City 
area, by eliminating direct competition between the Panhandle pipeline 
and the Central pipeline; by placing the Panhandle pipeline and the 
Central pipeline under common ownership and/or common management and 
control; by increasing the likelihood that unilateral market power 
would be exercised in the

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relevant geographic market; and by increasing the likelihood of, or 
facilitating, collusion or coordinated interaction in the relevant 
geographic market.

IV. Resolution of the Competitive Concerns

    The Commission has provisionally entered into an Agreement 
Containing Consent Order with Respondents Southern Union and CMS in 
settlement of the Complaint. The Agreement Containing Consent Order 
contemplates that the Commission would issue the Complaint and enter 
the Proposed Order to remedy the likely anticompetitive effects arising 
from the proposed acquisition, as alleged in the Complaint.
    The parties have agreed to a proposed consent order that requires 
Southern Union to terminate the Management Services Agreement with AIG 
for the management of the Central pipeline by Southern Union's wholly-
owned subsidiary, Energy Worx, prior to the proposed acquisition. 
Southern Union and AIG terminated the Management Services Agreement on 
May 12, 2003. In addition, the Proposed Order prohibits Southern Union 
and CMS from transferring any ownership interest in the Panhandle 
pipeline to AIG. The Proposed Order remedies the anticompetitive 
effects that are likely to result from common ownership and/or common 
management of the Panhandle pipeline and the Central pipeline in the 
relevant geographic market.
    Paragraph II of the Proposed Order requires Respondents SU and CMS, 
prior to the acquisition date, to secure the consent or waiver of AIG 
for the termination of the Management Services Agreement and to 
absolutely terminate the Management Services Agreement. The Proposed 
Order explicitly prohibits Southern Union and CMS from consummating the 
proposed transaction until the agreement has been terminated. Following 
the acquisition, Respondent SU shall not, directly or indirectly, 
operate or manage the Central Pipeline. Additionally, the Proposed 
Order prohibits Respondent SU from acquiring any ownership interest in 
AIG or the Central pipeline. This paragraph is designed to ensure that 
Southern Union will not have an ownership interest in AIG, or any role 
in managing or operating the Central pipeline.
    Paragraph III of the Proposed Order prohibits Respondents Southern 
Union and CMS from transferring any ownership interest in Southern 
Union, Panhandle or the Panhandle pipeline to AIG. If either Respondent 
SU or CMS transfers a non-public ownership interest in Southern Union, 
Panhandle, or the Panhandle Pipeline to someone other than AIG, it must 
transfer such interest subject to a restriction that prohibits the sale 
of such interest to AIG. Paragraph III is designed to prevent the 
parties from providing any interest in the Panhandle pipeline to AIG.
    Paragraphs IV through VII contain standard reporting, notice and 
access provisions. Pursuant to Paragraph IV, Respondents are required 
to submit to the Commission a verified written report of compliance 
every thirty days until the Order is complied with and annually for 
nine years after the first year the Order becomes final. Paragraph V of 
the Proposed Order provides for notification to the Commission in the 
event of any corporate changes in the Respondents. Paragraph VI 
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. Finally, Paragraph VII terminates 
the Order ten years from the date it becomes final.

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. 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 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. 03-14032 Filed 6-3-03; 8:45 am]
BILLING CODE 6750-01-P