Agreement Settles Charges that NGC Acquisition of Chevron Fractionation Assets Would Create Duopoly, Lead to Higher Prices
The Federal Trade Commission has negotiated a settlement with NGC Corporation over its plan to acquire certain natural gas transportation and processing assets from Chevron Cor poration. The FTC said the settlement would boost from three to four the number of companies operating natural gas liquids fractionation plants in Mont Belvieu, Texas (near Houston), the nation’s hub for such services. Absent the FTC action, the deal would have left only two com panies operating four fractionation plants, and extended NGC’s control to three of those plants, representing 70 percent of the fractionating capacity at Mont Belvieu. The settlement resolves charges that the transaction would have substantially reduced competition in violation of federal antitrust laws, and ultimately could have led to higher fees for fractionating of natural gas liquids.
NGC, based in Houston, currently has an interest in and operates two fractionation plants in Mont Belvieu: the Trident Mont Belvieu I fractionating plant, which it co-owns with Union Pacific Fuels, Inc.; and the Gulf Coast Fractionators plant, which NGC co-owns with Liquid Energy Corporation and Conoco Inc. Chevron, based in San Francisco, currently owns and operates a large fractionation plant at Mont Belvieu, the Warren fractionator. A third company, Enterprise Products Co., operates the Enterprise fractionator, which it co-owns with four other companies.
In the deal at issue, NGC was to acquire Chevron’s Warren fractionator along with certain natural gas processing facilities, transportation and storage assets, and marketing and sales contracts, in exchange for a 28 percent ownership interest in NGC and $300 million cash among other things.
The FTC said Mont Belvieu is the nation’s hub for fractionation of raw mix natural gas liquids and the premier marketplace for sale of specification natural gas liquids -- ethane, pro pane, normal-butane, iso-butane, and natural gasoline. Fractionation plants separate raw mix natural gas liquids into these higher value specification products, which are used in the manu facture of petrochemicals and gasoline and as bottled fuel sold to consumers. “Producers of raw mix natural gas liquids throughout much of Texas, New Mexico, western Wyoming and western Colorado have no good alternative to Mont Belvieu for their fractionation needs,” states the FTC complaint detailing the charges in this case, adding that “Mont Belvieu offers extensive storage facilities, unmatched pipeline connections for raw mix and specification products, and numerous specification products buyers.”
The fractionation market at Mont Belvieu also is difficult for new competitors to enter, the FTC complaint states. Therefore, the acquisition would reduce competition in violation of antitrust laws by eliminating competition between NGC and Chevron, and increasing the like lihood that NGC will unilaterally raise prices or engage in coordinated interaction.
The FTC has negotiated a proposed consent agreement with NGC to settle these charges, and is announcing the agreement today for a public comment period before determining whether to make it final and binding. The proposed settlement would allow NGC to go ahead with the deal and to own and operate the Warren plant, so long as it resigns as operator of both plants it currently operates and holds an interest in, and sells its 80 percent interest in the Mont Belvieu I plant to a Commission-approved buyer.
NGC could retain a minority passive interest in the Gulf Coast Fractionator, but could have no operating role in the facility and could not participate in negotiations of fractionation fees charged by the facility to third parties. The proposed settlement also contains certain provisions to ensure that NGC could not prevent or interfere with a future decision by the other owners to expand the capacity of the Gulf Coast Fractionator.
NGC is required to transfer commercial operator functions (the ability to enter into contracts with buyers and set prices) for the Mont Belvieu and Gulf Coast facilities to third parties, or otherwise assign these functions to independent operators, by Sept. 20 (30 days after it signed the proposed consent agreement). NGC also must resign as operator of the Gulf Coast facility by Dec. 19 (120 days after signing), provided that a replacement operator agrees to assume all the facility operator functions by that time. All other NGC obligations, including the sale of its ownership interest in the Mont Belvieu I fractionator, would be completed within six months.
The settlement also would require NGC, for 10 years, to notify the FTC before acquiring any interest in or operatorship of an existing fractionation facility within 10 miles of Mont Belvieu. Finally, the settlement contains various reporting and recordkeeping provisions that would assist the FTC in monitoring compliance.
The Commission vote to announce the proposed consent agreement for public comment was 5-0. An announcement of the agreement will be published in the Federal Register shortly, and the Commission will seek public comments on the agreement for 60 days thereafter. Com ments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.
Copies of the complaint, proposed consent agreement, and an analysis of the agreement to assist the public in commenting are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
(FTC File No. 961 0046)
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