[Federal Register Volume 77, Number 88 (Monday, May 7, 2012)]
[Notices]
[Pages 26760-26763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-10870]


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FEDERAL TRADE COMMISSION

[File No. 121 0014]


Kinder Morgan, Inc.; Analysis of Proposed Agreement Containing 
Consent Orders 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 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 4, 2012.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write AEl Paso Kinder Morgan, 
File No. 121 0014'' on your comment, and file your comment online at 
https://ftcpublic.commentworks.com/ftc/elpasokindermorganconsent, by 
following the instructions on the web-based form. If you prefer to file 
your comment on paper, mail or deliver your comment to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Philip M. Eisenstat (202) 326-2769, 
FTC, Bureau of Consumer Protection, 600 Pennsylvania Avenue NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and 2.34 the 
Commission 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 1, 2012), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. 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.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before April 16, 2012. 
Write AEl Paso Kinder Morgan, File No. 121 0014'' on your comment. Your 
comment B including your name and your state B will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any A[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a

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result, we encourage you to submit your comments online. To make sure 
that the Commission considers your online comment, you must file it at 
https://ftcpublic.commentworks.com/ftc/elpasokindermorganconsent by 
following the instructions on the web-based form. If this Notice 
appears at http://www.regulations.gov/#!home, you also may file a 
comment through that Web site.
    If you file your comment on paper, write AEl Paso Kinder Morgan, 
File No. 121 0014'' on your comment and on the envelope, and mail or 
deliver it to the following address: Federal Trade Commission, Office 
of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before June 4, 2012. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (the ``Commission''), subject to its 
final approval, has accepted for public comment an Agreement Containing 
Consent Orders (Consent Agreement) with Kinder Morgan, Inc. (``KMI'' or 
``Respondent'') and El Paso Corporation (``El Paso''). The purpose of 
the proposed Consent Agreement is to remedy the anticompetitive effects 
that otherwise would likely result from Respondent's acquisition of El 
Paso. Under the terms of the agreement, Respondent will divest its own 
Rockies Express (REX), Kinder Morgan Interstate Gas Transmission, and 
Trailblazer pipelines, as well as associated processing and storage 
capacity.
    On October 16, 2011, KMI announced that it had entered into a 
definitive agreement whereby KMI will acquire all of the outstanding 
shares of El Paso for approximately $38 billion, including the 
assumption of $17 billion in debt (the ``Acquisition''). The 
Acquisition would combine the nation's largest two natural gas pipeline 
owners. Separately from any Commission action, El Paso will sell its 
exploration and production (``E&P'') assets to another company, 
delivering its midstream components and the proceeds from the E&P sale 
to KMI.
    Without some form of relief, the Acquisition is likely to result in 
anticompetitive effects in areas in the Rocky Mountains where the 
combination of the KMI pipelines and the El Paso pipelines threatens to 
lessen competition substantially in pipeline transportation. The 
Acquisition is also likely to result in anticompetitive effects in 
other markets related to pipelines: Gas processing and ``no-notice'' 
service. The proposed Consent Agreement effectively remedies these 
possible anticompetitive effects by requiring KMI to divest three of 
its natural gas pipelines and two natural gas processing plants.

II. The Parties

A. Kinder Morgan, Inc.

    KMI is a publicly traded corporation principally engaged in 
midstream petroleum and natural gas services. KMI is the general 
partner in the master-limited partnership (``MLP'') Kinder Morgan 
Energy Partners (KMEP) (collectively, ``Kinder Morgan''). KMEP owns 
over 38,000 miles of pipelines and 180 terminals in North America for 
the transportation and storage of natural gas, refined petroleum 
products, crude oil, and carbon dioxide.

B. El Paso Corporation

    El Paso is a publically traded corporation principally engaged in 
natural gas transportation, natural gas gathering and processing, and 
E&P. El Paso is the general partner in the MLP, El Paso Pipeline 
Partners (EPPP), into which El Paso placed some of its pipelines. 
Between El Paso and EPPP, El Paso owns or has interests in over 43,000 
miles of natural gas pipelines and gathering systems.

III. Market Structure and Competitive Effects in Pipeline 
Transportation

    Natural gas pipelines provide the critical connection between 
natural gas wells, which produce natural gas, and consumers who use 
natural gas to generate heat and power. Pipeline transportation is the 
only economical means to transport natural gas between the producers 
and consumers. Pipelines that cross state lines are regulated by the 
Federal Energy Regulatory Commission (``FERC''). FERC regulates 
maximum-allowable interstate natural gas pipeline transportation fees, 
but does not eliminate competition between pipelines. So long as the 
pipelines comply with their tariffs, they are otherwise free to compete 
by offering prices below their maximum tariff rate, as well as 
competing on other terms of service.
    The competitive overlaps between Kinder Morgan and El Paso in 
pipeline transportation are in the Rocky Mountain gas production areas 
in and around Wyoming, Colorado, and Utah. Kinder Morgan and El Paso 
pipelines dominate the transportation options for five production areas 
in the Rockies: (1) The Denver/Julesburg/Niobrara Production Basin; (2) 
the Powder River Production Basin; (3) the Wind River Production Basin; 
(4) the Western Wyoming Production areas including the Green River 
Production Basin, the Red Desert Production Basin, and the Washakie 
Production Basins; and (5) the Piceance Production Basin. Each of these 
production areas is a relevant geographic market for the transportation 
of natural gas.
    Production areas are connected to more than one pipeline and some 
pipelines connect to more than one production area. Some pipelines do 
not connect directly to the basins but interconnect with the pipelines 
leaving the basins and are necessary to get natural gas from the basins 
to consuming markets. There are four Kinder Morgan pipelines that serve 
the basins and interconnections in the Rockies and four El Paso 
pipelines that serve those same basins and interconnections.
    In each of these relevant geographic markets, the pipeline 
transportation of natural gas is highly concentrated. The Acquisition 
would significantly increase concentration and eliminate direct 
competition between the pipelines owned by the two companies, leading 
to higher prices for pipeline transportation of natural gas to the 
detriment of producers and consumers of natural gas.
    One consumption area in the Rockies is also a relevant geographic 
market. The Colorado Front Range, which runs from Fort Collins, 
Colorado in the north to Pueblo, Colorado in the south, contains the 
major population centers in the Rockies. It overlaps the Denver/
Julesburg/Niobrara Production Basin but requires substantial additional 
natural gas from the other production areas in the Rockies, 
particularly in the winter. The pipeline transportation of natural gas 
into this market from the other production areas is highly 
concentrated. The Acquisition would significantly increase 
concentration and eliminate direct and potential competition between 
the pipelines owned by the two companies, leading to higher prices for 
pipeline transportation of natural gas to

[[Page 26762]]

the detriment of consumers of natural gas along the Colorado Front 
Range.

IV. Other Markets Impacted by the Proposed Acquisition

    Two other markets, the processing of natural gas and the provision 
of no-notice pipeline transportation services, would also be impacted 
by the Acquisition. Both services are related to the pipeline 
transportation of natural gas.
    Natural gas must meet certain standards before an interstate 
pipeline can accept it. In some areas, natural gas contains heavy 
hydrocarbons, commonly referred to as natural gas liquids or NGLs. 
Interstate pipelines have a limit on how much NGLs natural gas can 
contain and be transported on a pipeline. Gas that contains excessive 
amounts of NGLs must be treated at a gas processing plant to remove 
those liquids before it can be transported on interstate pipelines. 
Currently, the high value of NGLs, relative to the natural gas, would 
cause the gas to be processed regardless of the specifications of the 
pipelines. There is no substitute for gas processing to remove the 
NGLs. The relevant geographic market for processing gas is in the Wind 
River Production Basin and surrounding areas. For some wells in areas 
around that basin, only El Paso and Kinder Morgan have processing 
plants to treat gas before it goes onto interstate pipelines. The 
Acquisition would eliminate direct competition between the processing 
plants owned by the two companies, leading to higher prices for gas 
processing to the detriment of producers of natural gas.
    No-notice service is also a relevant market. Interstate pipelines 
typically require advance notice before a customer transports gas on a 
pipeline. Some customers' demand for natural gas fluctuates so much 
that the customers cannot give the required notice to the pipeline and 
still obtain the natural gas that they need. No-notice service is the 
term that refers to gas transportation where the customer is not 
obligated to provide advance notice before shipping gas. Utility 
customers whose natural gas demand can shift suddenly due to changes in 
the weather often require no-notice service. No-notice service is 
provided by pipelines at a premium price. It is not economical for each 
utility that has need for no-notice service to build sufficient storage 
to meet all of its peak needs through building its own storage 
facility. Many utilities are dependent on pipeline companies to provide 
no-notice service utilizing pipeline owned or third party storage. The 
relevant geographic market for no-notice service is the Colorado Front 
Range. Only those pipelines that currently serve this area can offer 
no-notice service. Currently only El Paso offers no-notice service in 
that area, but Kinder Morgan is a likely potential entrant into the 
market. The acquisition by Kinder Morgan of El Paso would eliminate 
potential competition for no-notice service to the detriment of utility 
customers.

V. The Proposed Agreement Containing Consent Orders

    Under the Proposed Agreement Containing Consent Orders (the 
``Consent Order'') Kinder Morgan has 180 days from the closing date of 
its acquisition of El Paso to completely divest three KMI pipelines and 
two processing plants in the Rockies. The fourth KMI pipeline, the 
TransColorado, does not raise competitive concerns because its 
competition with El Paso is limited and there are viable alternatives 
for transporting natural gas from the San Juan Basin. Accordingly, the 
TransColorado was not included in the divested assets. These 
divestitures maintain the competitive status quo ante in the Rockies. 
Pursuant to the Consent Order, Kinder Morgan may complete its 
acquisition of El Paso, while the divestiture of pipelines and 
processing plants already owned by Kinder Morgan will maintain the 
level of competition that already existed. The Order to Hold Separate 
and Maintain Assets (discussed in the next section) will protect the 
competitive status quo until Kinder Morgan successfully finds a buyer 
for the assets to be divested.
    The Consent Order requires Kinder Morgan to provide transitional 
assistance and support services to the buyer of the divested services. 
Kinder Morgan must also license any key software and intellectual 
property to the buyer. The Consent Order allows the buyer to recruit 
Kinder Morgan employees who work on the divested assets. For a period 
of two years, Kinder Morgan may not solicit employees that accept 
employment offers from the buyer to rejoin Kinder Morgan. The Consent 
Order also limits Kinder Morgan's access to, and use of, confidential 
business information pertaining to the divestiture assets.
    If Kinder Morgan fails to fully divest the assets within the 180-
day time period, the Order grants the Commission power to appoint a 
divestiture trustee to complete the divestiture. The Consent Order also 
governs the divestiture trustee's duties, privileges, and powers.
    The Consent Order requires Kinder Morgan, or the divestiture 
trustee, if appointed, to file periodic reports detailing efforts to 
divest the assets and the status of that undertaking. Commission 
representatives may gain reasonable access to Kinder Morgan's business 
records related to compliance with the consent agreement. The Consent 
Order terminates when all requirements of the divestiture order 
outlined in Paragraphs II and IV of the Consent Order are satisfied.

VI. The Order To Hold Separate and Maintain Assets

    The Order to Hold Separate and Maintain Assets (``Hold Separate 
Order'') requires KMI to separate out the divestiture assets from its 
remaining businesses and assets. Pursuant to the Hold Separate Order, 
Kinder Morgan will not exercise any control or influence over the 
divestiture assets while seeking a buyer. The Hold Separate Order seeks 
to preserve the divestiture assets as viable, competitive, ongoing 
businesses, and it assures that Kinder Morgan does not access the 
confidential business information belonging to those businesses.
    The Hold Separate Order also empowers the Commission to appoint a 
hold separate trustee to monitor the divestiture assets and requires 
the Respondent to appoint a hold separate manager, subject to approval 
of the hold separate trustee in concurrence with Commission staff, to 
manage day-to-day operations. The Hold Separate Order outlines the 
rights, duties, and responsibilities of both the trustee and the 
manager, including access to business records, hiring necessary 
consultants and attorneys, and any other thing reasonably necessary to 
carry out their duties. The hold separate manager reports to the hold 
separate trustee and not to Kinder Morgan.
    The Hold Separate Order prohibits Kinder Morgan from interfering 
with the hold separate trustee and requires it to indemnify the 
trustee. The Hold Separate Order requires Kinder Morgan to provide 
certain support services and financial assistance to the divestiture 
assets to ensure they operate as they did before the merger.
    The hold separate trustee must submit periodic reports to the 
Commission concerning compliance with the Hold Separate Order. The 
Commission may appoint a different hold separate trustee if the 
original trustee fails to carry out his duties. The hold separate 
manager has authority to hire staff, maintain the assets, continue on-
going capital projects, and ensure employees of the divestiture assets 
are not involved in Kinder Morgan's other businesses.

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    The Hold Separate Order terminates either (1) one day after the 
divestiture is completed or (2) three business days after the 
Commission withdraws acceptance of the consent agreement.

VII. Opportunity for Public Comment

    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. The 
Commission has also issued its Complaint in this matter. Comments 
received during this comment period will become part of the public 
record. After thirty days, the Commission will again review the 
proposed Consent Agreement and the comments received and will decide 
whether it should withdraw from the Agreement or make final the 
Agreement's proposed Order.
    By accepting the proposed Consent Agreement 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 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.
    The purpose of this analysis is to aid public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the complaint or proposed order, or to modify in any 
way the proposed order's terms.

    By direction of the Commission, Commissioner Ramirez recused.
Donald S. Clark,
Secretary.
[FR Doc. 2012-10870 Filed 5-4-12; 8:45 am]
BILLING CODE 6750-01-P