9910178

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS:
Robert Pitofsky, Chairman
Sheila F. Anthony
Mozelle W. Thompson
Orson Swindle
Thomas B. Leary

In the Matter of

El Paso Energy Corporation, a corporation.

DOCKET NO. C-3915

DECISION AND ORDER

The Federal Trade Commission ("Commission"), having initiated an investigation of the proposed acquisition of all the outstanding securities of Sonat Inc., by El Paso Energy Corporation and it now appearing that El Paso, hereinafter sometimes referred to as "Respondent," having been furnished with a copy of a draft complaint that the Bureau of Competition proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge Respondent with violations of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. 18; and

Respondent, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by Respondent of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by Respondent that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission's Rules; and

The Commission having thereafter considered the matter and having determined that it had reason to believe that the Respondent has violated the said Acts, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of thirty (30) days, and having duly considered the comment received pursuant to Section 2.34 of its Rules, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following Order:

1. Respondent El Paso Energy Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware with its office and principal place of business located at 1001 Louisiana Street, Houston, Texas 77002.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the Respondent, and the proceeding is in the public interest.

ORDER

I.

IT IS ORDERED that, as used in this Order, the following definitions shall apply:

A. "Respondent" means El Paso Energy Corporation, its directors, officers, employees, agents, representatives, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled by El Paso Energy Corporation, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.

B. "Acquisition" means the acquisition by El Paso Energy Corporation of 100 percent of the voting securities of Sonat, pursuant to the Agreement and Plan of Merger dated March 13, 1999 by and between El Paso and Sonat.

C. "Commission" means the Federal Trade Commission.

D. "Competing Pipeline" means any existing, planned or proposed pipeline owned or operated by anyone other than El Paso or Sonat that transports, or is intended to transport, natural gas produced in the Gulf of Mexico Outer Continental Shelf.

E. "Connection Agreement" means any agreement between natural gas pipelines that provides for, among other things, (i) the connection of a pipeline and the associated installation of valves, measurement apparatus, flanges and other devices necessary to deliver or receive natural gas and (ii) the measurement, nomination, scheduling, or balancing of the volume of natural gas received or delivered.

F. "Destin Interest" means Sonat's ownership interest in Destin Pipeline Company, L.L.C. Sonat owns 33 and 1/3 percent of the membership interests of Destin.

G. "Divestiture Period" means the period of time beginning on August 1, 1999, and ending on the date Respondent divests ETNG.

H. "ETNG" means the East Tennessee Natural Gas Company, a wholly-owned subsidiary of El Paso.

I. "Exhibit A" means the arbitration provisions attached to and made part of this Order.

J. "Gulf Offshore Area A" means a quadrilateral shaped area of the Gulf of Mexico cornered by and including the following blocks (as those areas and blocks are defined by the Mineral Management Service of the United States Department of Interior): Vermilion Area Block 148, Garden Banks Area Block 122, Garden Banks Area Block 278, and West Cameron West Addition Block 407.

K. "Gulf Offshore Area B" means a quadrilateral shaped area of the Gulf of Mexico cornered by and including the following blocks (as those areas and blocks are defined by the Mineral Management Service of the United States Department of Interior): Viosca Knoll Area Block 38, Viosca Knoll Area Block 1006, Mississippi Canyon Area Block 441, and Grand Isle Area Block 25.

L. "Leviathan" means Leviathan Gas Pipeline Partners, L.P., a publicly held Delaware limited partnership, in which El Paso owns a 34.5 percent effective ownership interest and of which El Paso is the General Partner.

M. "Open and Non-Discriminatory Access Obligations" means the obligations (i) to permit any shipper requesting access to Viosca Knoll to obtain such access, at the shipper's expense if any construction of pipe is required; (ii) to permit any other pipeline to interconnect with Viosca Knoll, at the expense of the pipeline requesting the connection, and (iii) not to engage in discrimination in scheduling, rates and terms and conditions of service on Viosca Knoll.

N. "Schedule A Properties" means "ETNG", "Destin Interest", and "Sea Robin," also set forth in Schedule A attached to and made part of this Order.

O. "Schedule B Agreement" means those transportation and storage agreements listed in Schedule B attached to and made part of this Order.

P. "Sea Robin" means the Sea Robin Pipeline Co., a wholly-owned subsidiary of Sonat.

Q. "Sonat" means Sonat Inc. as it was constituted prior to the acquisition, its predecessors, subsidiaries, divisions, groups and affiliates controlled by Sonat Inc. and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.

R. "TGP" means Tennessee Gas Pipeline Company, a wholly-owned subsidiary of El Paso.

S. "Viosca Knoll" means the Viosca Knoll Gathering Company, a Delaware joint venture, which is 99 percent owned by Leviathan, or the natural gas gathering system it owns in Gulf Offshore Area B.

II.

IT IS FURTHER ORDERED that:

A. Respondent shall divest, absolutely and in good faith, and at no minimum price, within six months from the date Respondent executes the Agreement Containing Consent Order, the Schedule A Properties.

B. Respondent shall divest the Schedule A Properties only to an acquirer or acquirers that receive the prior approval of the Commission and only in a manner that receives the prior approval of the Commission.

C. The purpose of the divestiture of the Schedule A Properties is to ensure the continued use of the Schedule A Properties in the same business in which the Schedule A Properties are engaged at the time of the acquisition, and to remedy the lessening of competition resulting from the acquisition as alleged in the Commission's complaint.

D. Pending divestiture of the Schedule A Properties, Respondent shall take such actions as are necessary to maintain the viability and marketability of the Schedule A Properties and to prevent the destruction, removal, wasting, deterioration, or impairment of any of the Schedule A Properties except for ordinary wear and tear.

III.

IT IS FURTHER ORDERED that:

A. If Respondent has not divested, absolutely and in good faith and with the Commission's prior approval, the Schedule A Properties within the time set forth in Paragraph II, the Commission may appoint a trustee to divest the Schedule A Properties. In the event that the Commission or the Attorney General brings an action pursuant to  5(l) of the Federal Trade Commission Act, 15 U.S.C.  45(l), or any other statute enforced by the Commission, Respondent shall consent to the appointment of a trustee in such action. Neither the appointment of a trustee nor a decision not to appoint a trustee under this Paragraph shall preclude the Commission or the Attorney General from seeking civil penalties or any other relief available to it, including a court-appointed trustee, pursuant to  5(l) of the Federal Trade Commission Act, or any other statute enforced by the Commission, for any failure by the Respondent to comply with this Order.

B. If a trustee is appointed by the Commission or a court pursuant to Paragraph III. A. of this Order, Respondent shall consent to the following terms and conditions regarding the trustee's powers, duties, authority, and responsibilities:

1. The Commission shall select the trustee, subject to the consent of Respondent, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in acquisitions and divestitures involving natural gas pipelines. If Respondent has not opposed, in writing, including the reasons for opposing, the selection of any proposed trustee within ten (10) days after notice by the staff of the Commission to Respondent of the identity of any proposed trustee, Respondent shall be deemed to have consented to the selection of the proposed trustee.

2. Subject to the prior approval of the Commission, the trustee shall have the exclusive power and authority to divest the Schedule A Properties.

3. Within ten (10) days after appointment of the trustee, Respondent shall execute a trust agreement that, subject to the prior approval of the Commission and, in the case of a court-appointed trustee, of the court, transfers to the trustee all rights and powers necessary to permit the trustee to effect the divestiture required by this Order.

4. The trustee shall have twelve (12) months from the date the Commission approves the trust agreement described in Paragraph III. B. 3. to accomplish the divestiture, which shall be subject to the prior approval of the Commission. If, however, at the end of the twelve-month period, the trustee has submitted a plan of divestiture or believes that divestiture can be achieved within a reasonable time, the divestiture period may be extended by the Commission, or, in the case of a court-appointed trustee, by the court; provided, however, the Commission may extend this period only two (2) times.

5. The trustee shall have full and complete access to the personnel, books, records and facilities related to the Schedule A Properties or to any other relevant information, as the trustee may request. Respondent shall develop such financial or other information as such trustee may request and shall cooperate with the trustee. Respondent shall take no action to interfere with or impede the trustee's accomplishment of the divestiture. Any delays in divestiture caused by Respondent shall extend the time for divestiture under this Paragraph in an amount equal to the delay, as determined by the Commission or, for a court-appointed trustee, by the court.

6. The trustee shall use his or her best efforts to negotiate the most favorable price and terms available in each contract that is submitted to the Commission, subject to Respondent's absolute and unconditional obligation to divest expeditiously at no minimum price. The divestiture shall be made in a manner and to an acquirer or acquirers as set out in Paragraph II of this Order; provided, however, if the trustee receives bona fide offers from more than one acquiring entity, and if the Commission determines to approve more than one such acquiring entity, the trustee shall divest to the acquiring entity or entities selected by Respondent from among those approved by the Commission, provided, however, that Respondent shall select such entity within five (5) days of receiving notification of the Commission's approval.

7. The trustee shall serve, without bond or other security, at the cost and expense of Respondent, on such reasonable and customary terms and conditions as the Commission or a court may set. The trustee shall have the authority to employ, at the cost and expense of Respondent, such consultants, accountants, attorneys, investment bankers, business brokers, appraisers, and other representatives and assistants as are necessary to carry out the trustee's duties and responsibilities. The trustee shall account for all monies derived from the divestiture and all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court, of the account of the trustee, including fees for his or her services, all remaining monies shall be paid at the direction of the Respondent, and the trustee's power shall be terminated. The trustee's compensation shall be based at least in significant part on a commission arrangement contingent on the trustee's divesting the Schedule A Properties.

8. Respondent shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, liabilities, or expenses arising out of, or in connection with, the performance of the trustee's duties, including all reasonable fees of counsel and other expenses incurred in connection with the preparation for, or defense of any claim, whether or not resulting in any liability, except to the extent that such liabilities, losses, damages, claims, or expenses result from misfeasance, gross negligence, willful or wanton acts, or bad faith by the trustee.

9. If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in Paragraph III. A. of this Order.

10. The Commission or, in the case of a court-appointed trustee, the court, may on its own initiative or at the request of the trustee issue such additional orders or directions as may be necessary or appropriate to accomplish the divestiture required by this Order.

11. In the event that the trustee determines that he or she is unable to divest the Schedule A Properties in a manner consistent with the Commission's purpose as described in Paragraph II, the trustee may divest additional assets of Respondent that are ancillary to the operation of the Schedule A properties, but shall not include additional pipelines, and effect such arrangements as are necessary to satisfy the requirements of this Order.

12. The trustee shall have no obligation or authority to operate or maintain the Schedule A Properties.

13. The trustee shall report in writing to Respondent and the Commission every sixty (60) days concerning the trustee's efforts to accomplish divestiture.

IV.

IT IS FURTHER ORDERED that, for a period of ten (10) years from the date this Order becomes final, Respondent shall not, without providing advance written notification to the Commission, directly or indirectly:

A. Acquire any stock, share capital, equity or other interest in any concern, corporate or non-corporate, engaged in at the time of such acquisition, or within the two years preceding such acquisition, the transportation of natural gas by pipeline in Gulf Offshore Area A or Gulf Offshore Area B, or in the area north of latitude 34 degrees North within the States of Georgia or Alabama. B. B. Acquire any assets used or previously used (and still suitable for use) in the transportation of natural gas by pipeline in Gulf Offshore Area A or Gulf Offshore Area B, or in the area north of latitude 34 degrees North within the States of Georgia or Alabama.

Said notification shall be given on the Notification and Report Form set forth in the Appendix to Part 803 of Title 16 of the Code of Federal Regulations as amended (hereinafter referred to as "the Notification"), and shall be prepared and transmitted in accordance with the requirements of that part, except that no filing fee will be required for any such notification, notification shall be filed with the Secretary of the Commission, notification need not be made to the United States Department of Justice, and notification is required only of Respondent and not of any other party to the transaction. Respondent shall provide the Notification to the Commission at least thirty days prior to consummating the transaction (hereinafter referred to as the "first waiting period"). If, within the first waiting period, representatives of the Commission make a written request for additional information or documentary material (within the meaning of 16 C.F.R.  803.20), Respondent shall not consummate the transaction until twenty days after submitting such additional information or documentary material. Early termination of the waiting periods in this paragraph may be requested and, where appropriate, granted by letter from the Bureau of Competition. Provided, however, that prior notification shall not be required by this paragraph for a transaction for which notification is required to be made, and has been made, pursuant to Section 7A of the Clayton Act, 15 U.S.C.  18a. Provided, however, nothing in this Order shall require prior notification to the Federal Trade Commission of the acquisition of stocks, assets or other interests if the total consideration does not exceed nine million dollars ($9,000,000).

V.

IT IS FURTHER ORDERED that:

A. Respondent shall cause Viosca Knoll to adhere to the Open and Non-Discriminatory Access Obligations.

B. Respondent shall cause Viosca Knoll to submit to binding arbitration at the request of any shipper, producer, or pipeline owner who alleges that Respondent is not adhering to the Open and Non-Discriminatory Access Obligations.

C. Within thirty (30) days of receipt of a written request from a Competing Pipeline to interconnect with Viosca Knoll, Respondent shall cause Viosca Knoll to enter into a Connection Agreement with such pipeline. Such Connection Agreements shall be on terms that are usual and customary for pipeline connection on the Outer Continental Shelf of the Gulf of Mexico. Provided, that Respondent need not enter into a Connection Agreement that would require Viosca Knoll to receive natural gas from a "natural gas company" or otherwise cause it to become a "natural gas company" as defined by 15 U.S.C.  717a(6).

D. If the Respondent and a Competing Pipeline are unable to agree on the terms and conditions of a Connection Agreement under Paragraph V. C., and if the Competing Pipeline elects to cause the issue to be submitted to binding arbitration, Respondent shall cause Viosca Knoll to submit to such arbitration.

E. Respondent shall cause Leviathan to publish Paragraph V. of the Order and related definitions on Leviathan's electronic website and incorporate Paragraph V into future contracts with shippers and connecting pipelines and shall notify all shippers and connecting pipelines with whom it has existing contracts of this obligation.

F. Respondent shall immediately notify the Commission of the initiation of any arbitration proceedings under this Paragraph. Arbitration under this Paragraph shall be pursuant to the terms of the alternative dispute resolution procedures of the Federal Energy Regulatory Commission ("FERC") set forth at 18 C.F.R.  385.605 (Rule 605), or if the Rule 605 procedures are unavailable (for reasons other than the refusal of the other party to the arbitration to agree to a FERC arbitration), in accordance with the procedures in Exhibit A. Failure of Respondent thereafter to abide by the arbitrator's decision shall be a violation of this Order. Provided, however, Viosca Knoll will not be required to abide by an arbitration decision if the decision is vacated by the FERC.

G. The provisions of Paragraph V. shall be suspended upon a showing by Respondent by means of affidavit that at least one-third of the membership interests in Destin Pipeline Company, L.L.C. is controlled by a person who does not have an interest in wells or leases in the Viosca Knoll, Mississippi Canyon, Destin Dome, or De Soto Canyon areas of the Gulf of Mexico Outer Continental Shelf. The suspension shall be effective for periods of six months each, beginning 30 days following the submission of Respondent's affidavit, unless the Assistant Director of the Compliance Division of the Bureau of Competition determines that the affidavit is incorrect. Arbitrations under Paragraph V. that were begun during the time the provisions of Paragraph V. were in effect, and the validity of arbitration decisions made thereunder, shall not be affected by the suspension permitted by this subparagraph.

H. The provisions of Paragraph V. shall be terminated upon a showing by Respondent by means of affidavit that (a) Respondent is not the operator of Viosca Knoll, (b) Respondent is not the general partner of Leviathan, and (c) El Paso's effective ownership interest in Viosca Knoll and in Leviathan falls below 15 percent or (d) neither Leviathan nor El Paso owns a majority interest in Viosca Knoll.

I. The purpose of this Paragraph is to remedy the anticompetitive effects of the acquisition as alleged in the Complaint, if Sonat's interest in Destin Pipeline Company, L.L.C., is sold to a firm with interests in wells or leases in the area in which VKGC or Destin Pipeline Company, L.L.C., are likely to compete.

VI.

IT IS FURTHER ORDERED that:

A. Within ten (10) days from the date that the Commission accepts the Agreement Containing Consent Order in this matter, Respondent shall provide to each customer who has signed a Schedule B Agreement a written notification (i) extending the period during which such customer may give notice of its election to terminate, extend, or roll over such Agreement(s) to 60 days after the date of the divestiture of ETNG, and (ii) extending, at the customer's option, the termination date of the Schedule B Agreement(s). Such termination date may be extended, without penalty, at the customer's option, to either October 31 of the year in which ETNG is divested or October 31 of the year after the year in which ETNG is divested. The customer's option concerning the termination date of the Schedule B Agreement must be exercised at the time the customer provides its notice of election to terminate, extend, or roll over its Schedule B Agreement(s).

B. Any Schedule B Agreements and the following agreements entered into, or extended, by an ETNG customer during the Divestiture Period may be terminated, without penalty, if the customer gives notice to ETNG and TGP within 60 days after the date ETNG is divested: 1) firm transportation agreements on ETNG; 2) firm transportation agreements on TGP for Primary Deliveries into ETNG; or 3) firm storage agreements on TGP that utilize a firm transportation agreement on TGP for Primary Deliveries into ETNG. Termination shall be effective on October 31 of the year the customer gives notice or October 31 of the following year at the customer's option.

C. Respondent, for at least three years from the date of the ETNG divestiture, shall refrain from taking any action that causes the TGP/ETNG interconnects at Lobelville, Tennessee, and at Ridgetop, Tennessee, to cease having swing capability within the meaning of Section 7.1 of ETNG's FERC Tariff Rate Schedule LMS-MA ("Section 7.1") and, thereafter, until the tenth anniversary of the divestiture of ETNG, to provide at least 60 days' written notice to each TGP customer that receives Primary Deliveries at either Lobelville or Ridgetop of Respondent's change in operation which would cause such interconnect to no longer have swing capability within the meaning of Section 7.1.

VII.

IT IS FURTHER ORDERED that:

A. Within thirty (30) days after the date this Order becomes final and every thirty (30) days thereafter until Respondent has fully complied with the provisions of this Order, Respondent shall submit to the Commission a verified written report setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with this Order. Respondent shall include in its compliance reports, among other things that are required from time to time, a full description of the efforts being made to comply with the Order, including a description of all substantive contacts or negotiations for the divestiture and the identity of all parties contacted. Respondent shall include in its compliance reports copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning divestiture. The final compliance report shall include a statement that the divestiture has been accomplished in the manner approved by the Commission and shall include the date the divestiture was accomplished.

B. One year (1) from the date this Order becomes final, annually for the next nine (9) years on the anniversary of the date this Order becomes final, and at other times as the Commission may require, Respondent shall file a verified written report with the Commission setting forth in detail the manner and form in which it has complied and is complying with this Order.

VIII.

IT IS FURTHER ORDERED that Respondent shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate Respondent that may affect compliance obligations arising out of the Order, such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation.

IX.

IT IS FURTHER ORDERED that, for the purpose of determining or securing compliance with this Order, upon written request, Respondent shall permit any duly authorized representative of the Commission:

A. Access, during office hours and in the presence of counsel, to all facilities and access to inspect and copy all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession or under the control of Respondent relating to any matters contained in this Order; and

B. Upon five days' notice to Respondent and without restraint or interference from it, to interview officers, directors, employees, agents or independent contractors of Respondent.

X.

IT IS FURTHER ORDERED that this Order will terminate on January 6, 2020.

By the Commission, Commissioner Leary not participating.

Donald S. Clark
Secretary

SEAL:

ISSUED: January 6, 2000

Attachments:

Schedule A

Schedule B

Exhibit A

Schedule A
Properties

Properties to be divested:

ETNG

Destin Interest

Sea Robin

Schedule B
Agreements

1. Each TGP firm transportation agreements that has (i) a Primary Delivery Point at an TGP/ETNG interconnect, (ii) an initial term of twelve months or longer, and (iii) a currently effective election deadline in the Divestiture Period:

Designated as TGP FT agreements on the attached spreadsheet.

2. Each ETNG firm transportation or storage agreement with an initial term of twelve months or longer that has a currently effective election deadline in the Divestiture Period:

Designated as ETNG FT or ETNG FS Agreements on the attached spreadsheet.

3. Each TGP storage agreement with an initial term of twelve months or longer that has a currently effective election deadline in the Divestiture Period and was entered into with a person who also has a firm transportation agreement with ETNG:

Designated as TGP FS agreements on the attached spreadsheet.

Exhibit A
Arbitration Provisions

(a) A person desiring arbitration under the Order will give at least ten days notice in writing of the subject it wishes to discuss, provide a written statement of the dispute, and designate an officer or other representative of such party with complete power to resolve the dispute to attend the meeting. Within ten days after receipt of such request, the Respondent will provide a responsive written statement and will designate an officer or other representative of such party who will attend the meeting with complete power to resolve the dispute.

(b) If the meeting fails to resolve the dispute among the officers or other representatives of the parties, the dispute shall be submitted for nonappealable, binding determination through arbitration.

(c) An officer or other representative with complete authority to resolve the dispute for each party shall attend the arbitration. Three arbitrators shall be chosen from the arbitrators available through the Houston, Texas office, of the American Arbitration Association ("AAA") (or any successor thereto, or if there is no successor thereto, the Judicial Arbitration and Mediation Services, Inc.).

(d) The arbitrators shall be appointed by the AAA in accordance with the AAA's rules for selection of arbitrators. Unless otherwise agreed by the parties, the arbitrators shall be individuals with a minimum of ten years experience in the pipeline and energy industry and who are not, and have not previously been, employed by either party (or an affiliate thereof), and do not have a direct or indirect interest in either party (or an affiliate thereof) or the subject matter of the arbitration.

(e) The parties shall make discovery and disclosure of all matters relevant to the dispute to the extent and in the manner provided by AAA. The arbitrators will rule on all requests for discovery and disclosure and discovery shall be completed within 30 days of the date of first notice pursuant to (a) above. The arbitrators may consider any matter relevant to the subject of the dispute and shall follow the statutes and decisions of the substantive law of Texas. The arbitrators shall issue a final ruling within 60 days of the date of the first notice pursuant to (a) above.

(f) The ruling of the arbitrators shall be in writing and signed and shall be final and binding upon the Parties. The fees and expenses of counsel, witnesses and employees of the Parties and all other costs and expenses incurred in connection with arbitration shall be allocated as determined by the arbitrators. All meetings and arbitration help pursuant to this Section shall take place in Houston, Texas.