Dan L. Duncan, et al.; Analysis of Proposed Agreement Containing Consent Order To Aid Public Comment, 50423-50426 [E6-14142]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 71, Number 165 (Friday, August 25, 2006)]
[Notices]
[Pages 50423-50426]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14142]


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FEDERAL TRADE COMMISSION

[File No. 051 0108]


Dan L. Duncan, et al.; Analysis of Proposed Agreement Containing 
Consent Order To Aid Public Comment

AGENCY: Federal Trade Commission.

[[Page 50424]]


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 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 September 18, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Dan L. Duncan, et al., File No. 051 0108,'' 
to facilitate the organization of comments. A comment filed in paper 
form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room 135-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to email messages 
directed to the following e-mail box: consentagreement@ftc.gov.
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at https://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at https://
www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Amanda L. Wait, Bureau of Competition, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-2220.

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 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 August 18, 2006), on the World Wide Web, at https://www.ftc.gov/os/
2006/08/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. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission, subject to its final approval, has 
accepted for public comment an Agreement Containing Consent Order 
(``Consent Agreement'') with Dan L. Duncan, EPCO, Inc., Texas Eastern 
Products Pipeline Company, LLC, and TEPPCO Partners, L.P. (collectively 
``Duncan''). The Consent Agreement remedies the anticompetitive effects 
that otherwise would be likely to result from the acquisition described 
herein. The terms of the Consent Agreement require Duncan to divest its 
interests in the Mont Belvieu Storage Partners natural gas liquids 
storage facility and related pipeline, land, and other assets to a 
buyer approved by the Commission.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days to solicit comments from interested people. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission again will review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw the proposed Consent Agreement or make it 
final.
    On February 24, 2005, EPCO, Inc., through DFI GP Holdings, L.P., 
acquired from Duke Energy Field Services, LLC: (1) TEPPCO's general 
partner, Texas Eastern Products Pipeline Company, LLC, for $1.1 
billion, and (2) 2.5 million limited partnership units of TEPPCO 
Partners, L.P., at an estimated value of $100 million (collectively 
``the acquisition''). The acquisition was not reportable under the 
Hart-Scott-Rodino Act. Both EPCO and TEPPCO are leading providers of 
salt dome storage for natural gas liquids (``NGLs'') in Mont Belvieu, 
Texas. EPCO operates the Enterprise NGL storage facility in Mont 
Belvieu. TEPPCO operates the Mont Belvieu Storage Partners NGL storage 
facility in Mont Belvieu. As a result of this acquisition, two of the 
four commercial storage providers for NGLs were placed under 
Enterprise's control.

I. The Parties

    Enterprise Products Partners L.P. (``Enterprise'') is one of the 
largest publicly traded midstream energy partnerships in the United 
States, with an enterprise value of approximately $15 billion. 
Enterprise's services include NGL fractionation, transportation, 
import/export terminaling, and storage. Enterprise owns the largest and 
most liquid NGL storage facility in Mont Belvieu, along with several 
pipelines into and out of Mont Belvieu, and substantial brine handling 
capacity in Mont Belvieu. Enterprise also markets NGLs in Mont Belvieu. 
Dan L. Duncan ultimately controls Enterprise and EPCO, Inc. (``EPCO''), 
the general partner of Enterprise.
    TEPPCO Partners, L.P. (``TEPPCO'') is a publicly traded master 
limited partnership. TEPPCO's general partner is Texas Eastern Products 
Pipeline Company, LLC (``Texas Eastern''), which, post-acquisition, 
ultimately is controlled by EPCO and Dan L. Duncan. Through various 
subsidiaries, TEPPCO owns and operates NGL transportation and storage 
assets. TEPPCO's Mont Belvieu NGL storage assets are owned by Mont 
Belvieu Storage Partners, a 50/50 joint venture between TEPPCO and 
Louis Dreyfus Energy Services L.P. TEPPCO controlled, and continues to 
control, the day-to-day operations of the Mont Belvieu Storage Partners 
NGL storage facility, through its wholly-

[[Page 50425]]

owned subsidiary, TE Products Pipeline Company, Limited Partnership. 
TEPPCO also owns and operates the TE Products Pipeline, the primary 
source of propane to the northeastern United States and an important 
outlet for NGLs stored at the Mont Belvieu Storage Partners facility.
    Since the acquisition, the general partners of Enterprise and 
TEPPCO have maintained separate boards of directors and management 
teams. The practical result of the acquisition, however, is that Dan L. 
Duncan ultimately owns and controls both entities.

II. Salt Dome Storage for Natural Gas Liquids in Mont Belvieu, Texas

    The relevant market in which to analyze the effects of the 
acquisition is the market for salt dome storage for natural gas liquids 
(``NGLs'') in Mont Belvieu, Texas. NGLs are a group of light 
hydrocarbons--including ethane, propane, normal butane, isobutane, and 
natural gasoline--which are used, among other uses, as feedstocks in 
the production of ethylene and propylene, as fuel for heating or 
industrial processes, and in blending components for motor gasoline. 
NGLs primarily are stored in large underground wells formed out of 
geological salt domes under the Earth's surface until they are 
delivered to end-users, usually via pipeline. Mont Belvieu, Texas, 
comprises the largest NGL storage system in the world and pipeline 
connections that allow NGL marketers to reach the broadest array of end 
use markets. There are no viable competitive alternatives to salt dome 
storage for NGLs in Mont Belvieu.
    The market for salt dome storage for NGLs in Mont Belvieu, Texas, 
is highly concentrated, with Enterprise and TEPPCO as the two largest 
suppliers based on storage volumes, and two of the three largest 
suppliers based on permitted storage volume. Together the two account 
for about 70% of storage volume in Mont Belvieu. Targa Resources, Inc. 
and Valero Energy Corporation are the two other competitors that 
account for the remaining volume.
    Storage wells are differentiated by their connectivity, both to 
pipelines bringing product into the wells from fractionators, and to 
pipelines taking product out of storage to the major product pipelines 
that transport NGLs to markets throughout the United States. Mont 
Belvieu's attraction as a storage hub for NGLs stems from the 
flexibility it provides to owners to move their product to various 
markets. Storage customers evaluate wells on the basis of the 
flexibility they provide in receiving and moving product.
    Prior to the acquisition, Enterprise and TEPPCO directly competed 
for storage volumes in Mont Belvieu based on price and service levels. 
Both Enterprise and TEPPCO are connected to the Dixie Pipeline and 
competed for storage volumes for customers wishing to ship product, 
primarily propane, into the Southeastern United States. In addition, 
Enterprise and TEPPCO, along with Targa Resources, Inc., competed for 
storage customers' marginal volumes. Many customers must store minimum 
volumes at certain facilities due to pipeline connections or other 
restrictions. Finally, Enterprise and TEPPCO competed for trading 
volumes. Because Enterprise and TEPPCO are the two most liquid storage 
providers, many trading customers ranked them as their first and second 
choice for storage.
    The acquisition significantly increased concentration in the Mont 
Belvieu market for salt dome storage for NGLs, leaving EPCO controlling 
a dominant share of storage volume and capacity. A combined Enterprise/
TEPPCO would have an enhanced ability unilaterally to exercise market 
power in the market because many customers view the two suppliers as 
first and second choices and the handful of other viable suppliers are 
incapable of replacing the competition lost as a result of the merger. 
Reducing the already small number of competitors also increases the 
likelihood of coordinated interaction after the merger. Thus, 
eliminating competition between the two leading suppliers likely would 
result in higher prices and lower levels of service for storage 
customers.

III. Entry

    Entry into the Mont Belvieu storage market is unlikely to deter or 
counteract the likely anticompetitive effects. Entry is difficult and 
time-consuming and potential entrants would face substantial barriers 
in the form of permit requirements and land use restrictions.

IV. Terms of the Proposed Consent Agreement

    The proposed Consent Agreement effectively remedies the 
acquisition's alleged anticompetitive effects by requiring TEPPCO to 
divest its interests in Mont Belvieu Storage Partners and certain 
related pipeline, land, and other assets (collectively the ``divested 
assets''). The Commission's purposes with respect to the divestiture 
are: (1) To ensure the continuation of the divested assets as a going 
concern in the same manner as of the date the Consent Agreement was 
signed, and (2) to remedy the lessening of competition resulting from 
the acquisition as alleged in the Commission's Complaint.
    In order to achieve these purposes, Paragraph II of the proposed 
Consent Agreement directs Duncan to sell TEPPCO's interests in certain 
Mont Belvieu NGL storage assets and related pipeline, land, and other 
assets to a Commission-approved buyer no later than December 31, 2006, 
and in a manner approved by the Commission, subject to the Commission's 
final approval. If Duncan is unable to divest this set of assets to a 
Commission-approved buyer within this timeframe, Paragraph III of the 
proposed Consent Agreement contains the standard divestiture trustee 
provisions pursuant to which the Commission may appoint a trustee to 
divest the assets to a Commission-approved buyer.
    Paragraph IV.A of the proposed Consent Agreement requires Duncan to 
provide prior notice to the Commission of its planned acquisitions, 
operatorships, or management of any NGL storage facility in Mont 
Belvieu, Texas, for a period of ten (10) years. Paragraph IV.C requires 
Duncan to send copies of all new NGL storage leases with third party 
NGL storage facilities in Mont Belvieu within the earlier of fifteen 
(15) days of being signed or becoming effective. These provisions 
ensure that subsequent acquisitions or leases do not adversely impact 
competition in the market at issue and undermine the remedial goals of 
the proposed Consent Agreement.
    In order to achieve successfully the Commission's purposes, 
Paragraph II of the proposed Consent Agreement contains provisions that 
ensure that the acquirer receives all resources necessary to operate 
the divested assets. First, Paragraph II requires Duncan to give the 
acquirer the opportunity to interview and hire employees who spend more 
than ten percent (10%) of their time working on the divested assets, 
and prevents Duncan from offering these employees incentives to decline 
the acquirer's offer of employment. This will ensure that the acquirer 
has access to staff who are familiar with the NGL storage, pipelines, 
and other related assets. Second, Paragraph II requires Duncan to 
convey to the acquirer licensed intangible property necessary for the 
operation of the divested assets to ensure that the acquirer has the 
software and other assets necessary to operate the divested assets in 
the same manner as of the day the parties signed the Consent Agreement.
    To maintain the competitive viability of the divested assets, 
including TEPPCO's interest in Mont Belvieu Storage Partners, in the 
same manner as

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of the date the Consent Agreement was signed, the proposed Consent 
Agreement contains several provisions relating to the operation of 
TEPPCO's TE Products Pipeline. TEPPCO provides ``open stock'' service 
to propane shippers from Mont Belvieu Storage Partners, a service 
whereby shippers who ship on the pipeline and who have adequate 
inventory in the TEPPCO system, given certain inventory and 
availability requirements, can take delivery of propane at any of 
TEPPCO's terminals along the pipeline without having to wait for the 
pipeline transit time it would take to move the product physically from 
origin to destination. The open stock service allows TEPPCO to transfer 
product from any origination point along the pipeline it chooses to 
meet shippers' needs, irrespective of the storage facility in which the 
shipper actually has inventory. EPCO's plans to build a pipeline 
connecting its Mont Belvieu storage facility to the TEPPCO pipeline 
raises several concerns regarding its ability to disadvantage any 
prospective acquiror of TEPPCO's interest in Mont Belvieu Storage 
Partners. First, TEPPCO could decline to offer the open stock service 
at Mont Belvieu Storage Partners, or offer the service there at less 
advantageous terms than at EPCO's Mont Belvieu facility. Second, TEPPCO 
could impede Mont Belvieu Storage Partners' ability to market its 
storage capacity by allocating product from other storage facilities 
along the pipeline to meet shipper's needs, keeping Mont Belvieu 
Storage Partners' capacity occupied disproportionately. The proposed 
Consent Agreement contains provisions addressing these concerns.
    First, the proposed Consent Agreement requires TEPPCO to continue 
to operate the TE Products Pipeline on open stock service for propane. 
Second, if Duncan builds a pipeline, referred to in the proposed 
Consent Agreement as the ``New Pipeline,'' connecting the TE Products 
Pipeline to any NGL storage facility it owns in Mont Belvieu, Texas, 
the proposed Consent Agreement requires Duncan to (1) connect the new 
pipeline to the Mont Belvieu Storage Partners NGL storage facility at 
its own cost, (2) operate the TE Products Pipeline for propane on an 
open stock basis for shippers who ship from Mont Belvieu Storage 
Partners on terms and conditions that are no less advantageous than 
those for shippers who ship propane from an NGL storage facility in 
Mont Belvieu owned by Duncan, and (3) operate the TE Products Pipeline 
for products other than propane on terms and conditions that are no 
less advantageous than those for shippers who ship products other than 
propane from an NGL storage facility in Mont Belvieu owned by Duncan.
    Third, the proposed Consent Agreement contains provisions relating 
to the implementation of new allocation procedures for the TE Products 
Pipeline. Paragraph IV.B requires TEPPCO to provide advance written 
notice to the Commission of any new allocation procedures relating to 
the movements of NGLs on the TE Products Pipeline originating in Mont 
Belvieu, Texas. Paragraph VI requires any new allocation procedures to 
include a requirement that shippers originating product movements on 
the pipeline from the Mont Belvieu Storage Partners NGL storage 
facility nominate that movement to both TEPPCO and Mont Belvieu Storage 
Partners and also provides that such new allocation procedures shall 
allow shippers who ship product originating at Mont Belvieu Storage 
Partners' facility to ship on terms and conditions that are no less 
advantageous than those given to shippers who ship from an NGL storage 
facility owned by Duncan.
    The purpose of the provisions relating to the operation of the TE 
Products Pipeline is to maintain the competitive viability of the Mont 
Belvieu Storage Partners NGL storage facility in the same manner as of 
the date the Consent Agreement was signed by ensuring that Duncan 
cannot disadvantage shippers who originate product movements from the 
Mont Belvieu Storage Partners' facility in favor of shippers who 
originate product movements from its own storage facility in the event 
that Duncan interconnects an NGL storage facility it owns in Mont 
Belvieu, Texas, to the TE Products Pipeline.

V. Opportunity for Public Comment

    By accepting the proposed Consent Agreement, 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 Consent Agreement, 
including the proposed divestitures, to aid the Commission in its 
determination of whether it should make final the proposed Consent 
Agreement contained in the agreement. This analysis is not intended to 
constitute an official interpretation of the proposed Consent Agreement 
or modify the terms of the proposed Consent Agreement in any way. 
Further, the proposed Consent Agreement has been entered into for 
settlement purposes only and does not constitute an admission by Dan L. 
Duncan, EPCO, Texas Eastern, or TEPPCO that it violated the law or that 
the facts alleged in the Complaint, other than jurisdictional facts, 
are true.

    By direction of the Commission.
Donald S. Clark,
Secretary.
 [FR Doc. E6-14142 Filed 8-24-06; 8:45 am]
BILLING CODE 6750-01-P