Merged energy company must limit access to non-public information about Discovery Pipeline
Energy infrastructure companies Enbridge Inc. and Spectra Energy Corp have agreed to settle Federal Trade Commission charges that the proposed merger of Enbridge and Spectra likely would harm competition in the market for pipeline transportation of natural gas in three production areas off the coast of Louisiana.
According to the FTC’s complaint, the merger likely would reduce natural gas pipeline competition in three offshore natural gas producing areas in the Gulf of Mexico—Green Canyon, Walker Ridge and Keathley Canyon—leading to higher prices for natural gas pipeline transportation from those areas. In portions of the affected areas, the FTC alleged, the merging parties’ pipelines are the two pipelines located closest to certain wells and, as a result, are likely the lowest cost pipeline transportation options for those wells. Under the settlement with the FTC, the companies have agreed to conditions that will preserve competition in those areas.
The proposed transaction was initially valued at $28 billion when it was announced in September 2016. Enbridge is the sole owner and operator of the Walker Ridge Pipeline. Through its indirect stake in DCP Midstream Partners, LP, Houston-based Spectra indirectly owns a 40 percent interest in the Discovery Pipeline.
According to the FTC, the proposed merger will give Canada-based Enbridge an ownership interest in both pipelines, which will give it access to competitively sensitive information of the Discovery Pipeline, as well as significant voting rights over the Discovery Pipeline. Access to its competitor’s competitively sensitive information and significant voting rights would provide Enbridge with the incentive and opportunity to unilaterally increase pipeline transportation costs for natural gas producers located in the affected areas. The exchange of information also may increase the likelihood of tacit or explicit anticompetitive coordination between the Walker Ridge Pipeline and the Discovery Pipeline.
Competition from a new pipeline or from expansion of an existing one appears unlikely. According to the complaint, pipeline applications face a lengthy regulatory review, and laying new pipeline infrastructure in the Gulf of Mexico is expensive.
The proposed consent agreement resolves anticompetitive concerns by requiring Enbridge to establish firewalls to limit its access to non-public information about the Discovery Pipeline. Board members of the Spectra-affiliated companies that hold a 40 percent share in the Discovery Pipeline must recuse themselves from any vote involving the pipeline, with two limited exceptions. Also under the order, Enbridge must notify the Commission before acquiring an ownership interest in any natural gas pipeline operating in the Green Canyon, Walker Ridge and Keathley Canyon areas, or increasing the 40 percent ownership interest of Spectra affiliate DCP Midstream Partners, LP in the Discovery Pipeline.
The proposed order, which is to remain in effect for 20 years, allows the Commission to appoint a monitor to ensure that Enbridge complies.
More information about this proposed merger and the FTC’s consent agreement can be found in the analysis to aid public comment.
The Commission vote to issue a complaint and accept the proposed consent order for public comment was 2-0. The FTC will publish the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through March 20, 2017, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Supplementary Information” section of the Federal Register notice.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. 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 up to $40,654.
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