[Federal Register: June 4, 2003 (Volume 68, Number 107)]
[Notices]
[Page 33490-33492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04jn03-90]
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FEDERAL TRADE COMMISSION
[File No. 031 0068]
Southern Union Co., et al.; Analysis 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 that accompanies the consent agreement 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 27, 2003.
ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW.,
Washington, DC 20580. Comments filed in electronic form should be
directed to: consentagreement@ftc.gov, as prescribed in the
Supplementary Information section.
FOR FURTHER INFORMATION CONTACT: Dennis Johnson, FTC, Bureau of
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202)
326-2712.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 of
the Commission's 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 29, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/05/index.htm.
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.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. Comments filed in paper form should
be directed to: FTC/Office of the Secretary, Room 159-H, 600
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains
nonpublic information, it must be filed in paper form, and the first
page of the document must be clearly labeled ``confidential.'' Comments
that do not contain any nonpublic information may instead be filed in
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as
part of or as an attachment to e-mail messages directed to the
following e-mail box: consentagreement@ftc.gov. Such comments will be
considered by the Commission and will be available for inspection and
copying at its principal office in accordance with Sec. 4.9(b)(6)(ii)
of the Commission's rules of practice, 16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'' or ``FTC'') has made
public a draft complaint (``Complaint'') alleging that the proposed
acquisition of Panhandle Eastern Pipeline Company (``Panhandle'') from
Respondent CMS Energy Corporation (``CMS'') by Respondent Southern
Union Company (``Southern Union'' or ``SU'') would violate section 7 of
the Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the Federal
Trade Commission Act, as amended, 15 U.S.C. 45, and has entered into an
agreement containing consent order (``Agreement Containing Consent
Order'') pursuant to which Respondents agree to be bound by a proposed
consent order (``Proposed Consent Order'') that remedies the likely
anticompetitive effects arising from the proposed acquisition, as
alleged in the Complaint.
II. Description of the Parties and the Transaction
Southern Union, headquartered in Wilkes-Barre, Pennsylvania, is
engaged either directly or through affiliates in the distribution and
sale of natural gas to residential, commercial and
[[Page 33491]]
industrial customers located in certain states, including Missouri,
Pennsylvania, Rhode Island and Massachusetts. For the fiscal year ended
June 30, 2002, SU reported sales of nearly $1.3 billion and assets of
approximately $2.67 billion.
Pursuant to an agreement executed November 20, 2002, which
continued until the agreement was terminated on May 12, 2003,
Respondent SU's subsidiary, Energy Worx, Inc. (``Energy Worx''), served
as the operator and manager of the Central pipeline. The Central
pipeline, which transports natural gas to customers in certain
Midwestern states, including Kansas and Missouri, is owned by American
International Group, Inc. (``AIG'') through its affiliate Southern Star
Central Corp. (``Southern Star'').
CMS, headquartered in Dearborn, Michigan, is engaged either
directly or through affiliates in the business of oil and gas
exploration, natural gas transportation, liquefied natural gas
services, independent power production, gas and electricity
distribution, and marketing and management services. Panhandle, a
subsidiary of CMS, owns and operates the Panhandle pipeline, which
transports natural gas to customers in certain Midwestern states,
including Kansas and Missouri.
Pursuant to an agreement dated December 21, 2002, and a letter of
understanding dated December 20, 2002, Southern Union and affiliates of
AIG agreed to acquire all of the capital stock of Panhandle from CMS.
The agreement provided that Southern Union would own approximately
77.9%, and affiliates of AIG would own approximately 22.1%, of the
equity interest in Panhandle. On May 12, 2003, in order to resolve
competitive issues arising from this transaction, Southern Union,
Southern Union Panhandle Corp., and CMS Gas Transmission Company
entered into an amended and restated stock purchase agreement pursuant
to which Southern Union Panhandle Corp., a wholly-owned subsidiary of
Southern Union, intends to purchase all of the capital stock of
Panhandle from CMS Gas Transmission Company, a wholly-owned subsidiary
of CMS. AIG is not a party to the revised transaction and will have no
ownership interest in Panhandle. The total value of the transaction is
approximately $1.8 billion.
III. The Complaint
The Complaint alleges that the acquisition of Panhandle from
Respondent CMS by Respondent SU would violate section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. 45, by substantially lessening
competition in the transportation of natural gas by pipeline into the
Kansas City area. To remedy the alleged anticompetitive effects of the
merger, the Proposed Order requires Respondent Southern Union, prior to
the proposed acquisition, to terminate the Management Services
Agreement with AIG for the management of the Central pipeline. The
proposed order also prohibits Southern Union from acquiring an equity
position in AIG or the Central Pipeline. In addition, the Proposed
Order prohibits Respondents Southern Union and CMS from transferring or
otherwise providing any ownership interest in the Panhandle pipeline to
AIG.
The Complaint alleges that a relevant line of commerce, or product
market, in which to analyze the effects of the proposed acquisition is
the transportation of natural gas by pipeline. The only way to
economically transport commercial quantities of natural gas over
significant distances is through large diameter, high pressure
pipelines. Transportation of natural gas by other methods would be
unsafe, prohibitively expensive, and otherwise not viable. Buyers of
natural gas transportation services could not and would not switch to
other means of transportation, or to alternative fuels, if the cost of
pipeline transportation of natural gas were to increase by 5% to 10%.
The Complaint further alleges that the proposed transaction would
lessen competition in a geographic market in the Kansas City area,
consisting of Cass, Henry, Jackson, Johnson, Lafayette, Pettis and
Saline Counties in Missouri, and Anderson, Butler, Chase, Coffey,
Franklin, Johnson, Lyon, Marion, Miami and Osage Counties in Kansas.
Buyers of natural gas in this geographic market can receive natural gas
only from pipelines that travel through or terminate in that geographic
market, and cannot economically access natural gas pipelines outside
that area.
The only pipelines that transport natural gas to the relevant
geographic market are the Panhandle pipeline, the Central pipeline, and
two smaller pipelines that service only part of the western portion of
the relevant geographic market. These other two pipelines could not act
as a pricing constraint on Central or Panhandle because of operational
limitations, capacity constraints, and distance limitations. As a
result, for many buyers of natural gas transportation services in the
relevant geographic market, Central and Panhandle are the only viable
alternatives.
Pursuant to a Management Services Agreement with an affiliate of
AIG, Southern Union's subsidiary, Energy Worx, served as the operator
and manager of the Central pipeline from November 20, 2002, until the
parties to that Management Services Agreement terminated it on May 12,
2003, in order to resolve competitive issues arising from this
transaction. The Central pipeline transports a significant portion of
the natural gas delivered to the relevant geographic market. Pursuant
to the Management Services Agreement, Southern Union had effective
control over the business of the Central pipeline, access to
confidential competitive information about the Central pipeline, and a
financial interest in the Central pipeline. The Management Services
Agreement also contemplated that Southern Union would have an equity
position in the Central pipeline.
The market for the pipeline transportation of natural gas to the
relevant geographic market is highly concentrated and would become
significantly more concentrated as a result of the proposed
acquisition. As originally proposed, common ownership interest and/or
common management and control would exist between the only two
alternatives for the transportation of natural gas for many buyers in
the relevant geographic market.
Entry into the relevant line of commerce in the relevant section of
the country is difficult and would not be timely, likely or sufficient
to prevent anticompetitive effects that are likely to result from the
proposed acquisition. Building a new pipeline is capital intensive,
would involve significant sunk costs, is subject to significant
regulatory constraints, and would require more than two years to
accomplish. As a result, new entry would not be able to prevent a 5-10%
increase in the price of pipeline transportation of natural gas.
The Complaint charges that the proposed acquisition, absent relief,
is likely to substantially lessen competition and lead to higher prices
for the transportation of natural gas by pipeline to the Kansas City
area, by eliminating direct competition between the Panhandle pipeline
and the Central pipeline; by placing the Panhandle pipeline and the
Central pipeline under common ownership and/or common management and
control; by increasing the likelihood that unilateral market power
would be exercised in the
[[Page 33492]]
relevant geographic market; and by increasing the likelihood of, or
facilitating, collusion or coordinated interaction in the relevant
geographic market.
IV. Resolution of the Competitive Concerns
The Commission has provisionally entered into an Agreement
Containing Consent Order with Respondents Southern Union and CMS in
settlement of the Complaint. The Agreement Containing Consent Order
contemplates that the Commission would issue the Complaint and enter
the Proposed Order to remedy the likely anticompetitive effects arising
from the proposed acquisition, as alleged in the Complaint.
The parties have agreed to a proposed consent order that requires
Southern Union to terminate the Management Services Agreement with AIG
for the management of the Central pipeline by Southern Union's wholly-
owned subsidiary, Energy Worx, prior to the proposed acquisition.
Southern Union and AIG terminated the Management Services Agreement on
May 12, 2003. In addition, the Proposed Order prohibits Southern Union
and CMS from transferring any ownership interest in the Panhandle
pipeline to AIG. The Proposed Order remedies the anticompetitive
effects that are likely to result from common ownership and/or common
management of the Panhandle pipeline and the Central pipeline in the
relevant geographic market.
Paragraph II of the Proposed Order requires Respondents SU and CMS,
prior to the acquisition date, to secure the consent or waiver of AIG
for the termination of the Management Services Agreement and to
absolutely terminate the Management Services Agreement. The Proposed
Order explicitly prohibits Southern Union and CMS from consummating the
proposed transaction until the agreement has been terminated. Following
the acquisition, Respondent SU shall not, directly or indirectly,
operate or manage the Central Pipeline. Additionally, the Proposed
Order prohibits Respondent SU from acquiring any ownership interest in
AIG or the Central pipeline. This paragraph is designed to ensure that
Southern Union will not have an ownership interest in AIG, or any role
in managing or operating the Central pipeline.
Paragraph III of the Proposed Order prohibits Respondents Southern
Union and CMS from transferring any ownership interest in Southern
Union, Panhandle or the Panhandle pipeline to AIG. If either Respondent
SU or CMS transfers a non-public ownership interest in Southern Union,
Panhandle, or the Panhandle Pipeline to someone other than AIG, it must
transfer such interest subject to a restriction that prohibits the sale
of such interest to AIG. Paragraph III is designed to prevent the
parties from providing any interest in the Panhandle pipeline to AIG.
Paragraphs IV through VII contain standard reporting, notice and
access provisions. Pursuant to Paragraph IV, Respondents are required
to submit to the Commission a verified written report of compliance
every thirty days until the Order is complied with and annually for
nine years after the first year the Order becomes final. Paragraph V of
the Proposed Order provides for notification to the Commission in the
event of any corporate changes in the Respondents. Paragraph VI
requires that Respondents provide the Commission with access to their
facilities and employees for the purposes of determining or securing
compliance with the Proposed Order. Finally, Paragraph VII terminates
the Order ten years from the date it becomes final.
V. Opportunity for Public Comment
The Proposed Order has been placed on the public record for thirty
(30) days for receipt of comments by interested persons. Comments
received during this thirty day comment period will become part of the
public record. After thirty (30) days, the Commission will again review
the Proposed Order and the comments received and will decide whether it
should withdraw from the Proposed Order or make final the agreement's
Proposed Order.
By accepting the Proposed Order 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 and 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.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-14032 Filed 6-3-03; 8:45 am]
BILLING CODE 6750-01-P