The Federal Trade Commission has negotiated a proposed consent order designed to remedy the likely anticompetitive effects arising from the acquisition of two Pacific Gas & Electric ("PG&E") subsidiaries (PG&E Gas Transmission Teco, Inc. and PG&E Gas Transmission Texas Corporation) by El Paso Energy Corporation ("El Paso"). El Paso proposes to acquire all of the outstanding voting shares of these two subsidiaries for $840 million. As alleged by the FTC, the acquisition would reduce competition in three natural gas transportation markets: 1) the prolific gas supply area of western Texas and southeastern New Mexico ("the Permian Basin"); 2) the natural gas consuming area of the San Antonio-Austin area ("Central Texas"); and 3) the Matagorda Island offshore production area. The proposed consent order would allow the acquisition while ensuring that competition is maintained for natural gas transportation in these three Texas markets.
The proposed consent order would require El Paso and PG&E ("respondents") to divest: 1) all of El Paso's interest in the Oasis Pipe Line Company; 2) all of PG&E's share of the "Teco Pipeline"; and 3) all of PG&E's assets in Matagorda. The Teco Pipeline is three segments of a natural gas pipeline running from the Permian Basin through Central Texas to a market trading area in Katy, which is near Houston. El Paso will divest a 50 percent interest in the pipeline segment running from Waha to New Braunfels (in Central Texas), the pipeline segment running from New Braunfels to Dewville, Texas (east of San Antonio), and PG&E's 50 percent interest in the pipeline segment running from Dewville to Katy.
"While El Paso and PG&E are substantial companies in these markets, the large divestitures required by the consent order will ensure continued competition among natural gas transporters in these parts of the country," said Richard G. Parker, Director of the FTC's Bureau of Competition.
The FTC conducted the investigation leading to the complaint and proposed settlement in coordination with the Attorney General of the State of Texas. The respondents have entered into an agreement with the State of Texas settling charges that the acquisition would violate the state's antitrust laws.
El Paso Energy Corporation is an integrated energy company producing, transporting, gathering, processing and treating natural gas. With more than $21 billion in assets, El Paso is one of the largest integrated natural gas-to-power companies in the United States.
PG&E is a California holding company that provides energy services throughout North America. During 1999, PG&E's annual revenues were $20.8 billion. One of PG&E's divisions, PG&E Gas Transmission, provides natural gas transmission and distribution in Texas.
The FTC's complaint alleges that the acquisition, if consummated, will lessen competition in each of the following markets: 1) the transportation of natural gas out of the Permian Basin; 2) the transportation of natural gas into Central Texas; and 3) the transportation of natural gas out of the Matagorda Island offshore production area (located in waters off of the Texas coast near Galveston) in violation of Section 5 of the Federal Trade Commission Act and Section 7 of the Clayton Act. In addition, the complaint alleges that the acquisition, if consummated, would result in highly concentrated markets and would allow El Paso to raise prices unilaterally. The complaint also alleges that entry into any of the three markets would not be timely, likely or sufficient to prevent a price increase.
The Permian Basis is among the largest natural gas producing areas in the United States. According to the complaint, if the merger were completed, El Paso would own more natural gas transportation capacity out of the Permian Basin than any other company, and would be the owner of almost all of the natural gas transportation capacity from the Permian Basin to Central Texas. The proposed merger would therefore result in a highly concentrated market, and El Paso could raise prices of transportation unilaterally.
Central Texas, which includes the metropolitan areas of San Antonio and Austin, is an important natural gas consuming area. Many buyers of natural gas, such as gas and electric utilities and merchant power plants, have no economic alternative to using pipelines located near metropolitan San Antonio and Austin. According to the FTC's complaint, certain Central Texas transportation customers must use either El Paso's Oasis pipeline or PG&E's Trans Texas pipeline for all or a significant portion of their transportation needs. Other pipelines in the area have insufficient capabilities to offset the anticompetitive effects of the acquisition. The complaint alleges that, absent relief, the acquisition would enable El Paso to raise transportation prices to these customers, which would likely raise the cost of electricity to Central Texas consumers.
El Paso and PG&E own the only two pipeline systems that transport gas from the Matagorda off-shore production area to on-shore processing facilities. The complaint alleges that the acquisition would eliminate actual and direct competition between the two pipelines with the likely result of increased rates and reduced output of transportation which could diminish the production of natural gas in the Matagorda area.
To remedy the alleged anticompetitive effects of the acquisition, the proposed consent order would require the respondents to divest all of El Paso's share of Oasis Pipe Line Company to Aquila Gas Pipeline Corporation ("Aquila," a subsidiary of Utilicorp United Ltd.), Dow Hydrocarbons and Resources, Inc. ("Dow," a subsidiary of Dow Chemical Company) and the Oasis Pipe Line Company (the corporate owner of the Oasis pipeline). The consent order would require the respondents to divest the Teco Pipeline to Duke Energy Field Services, LLC ("Duke," a subsidiary of the Duke Corporation). The proposed consent order also would require the respondents to divest all of PG&E's pipeline assets in Matagorda to Panther Pipeline. The respondents must divest these assets to these approved buyers not later than 10 days after the Commission places the Agreement Containing Consent and Proposed Consent Order on the public record or the closing of the acquisition, whichever is later.
In addition, for a period of 10 years from the date the proposed consent order becomes final, El Paso would be prohibited from acquiring, directly or indirectly, any of the assets to be divested or altering the governance provisions of the Teco pipeline without obtaining the prior approval of the Commission. PG&E's obligations under the proposed consent order would terminate after completing the acquisition.
Further, under the terms of the proposed consent order, in the event that El Paso does not divest the assets required to be divested under the terms and time constraints of the proposed settlement, the Commission may appoint a trustee to divest those assets expeditiously.
The Commission vote to accept the proposed consent agreement was 5-0. A summary of the proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment until January 22, 2001, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 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 $11,000.
Copies of the complaint, proposed consent agreement and an analysis of the agreement to aid in public comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD 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.
Office of Public Affairs
Phillip L. Broyles
Bureau of Competition
(FTC File No.: 001 0121)