For Release: December
21, 2000 FTC Settlement Preserves Competition in
Markets for Natural Gas Transportation in Areas in Texas
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. |