[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
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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