FTC Requires Kinder Morgan to Sell Rocky Mountain Pipelines as a Condition of Acquiring El Paso Corporation

Agency Takes Action to Protect Natural Gas Shippers from Higher Prices

The Federal Trade Commission will require Kinder Morgan, Inc., one of the largest U.S. transporters of natural gas and other energy products, to sell three natural gas pipelines and other related assets in the Rocky Mountain region as part of a settlement resolving charges that Kinder Morgan's $38 billion acquisition of El Paso Corporation would be anticompetitive.

The case is the most recent example of the FTC's ongoing efforts to promote competition in the energy sector. The FTC charged that the deal as originally proposed would have illegally reduced competition in several natural gas pipeline transportation and gas processing markets.

Kinder Morgan is a publicly traded company that provides pipeline transportation and storage for petroleum and natural gas. It owns more than 38,000 miles of pipelines and 180 terminals in North America for the transportation and storage of natural gas and other energy products. El Paso also is publicly traded, and is in the business of natural gas production, processing, and transportation. It owns, or has interests in, more than 43,000 miles of natural gas pipelines and gathering systems. In October 2011, Kinder Morgan announced an agreement to acquire all outstanding shares of El Paso for approximately $38 billion.

According to the FTC's complaint, Kinder Morgan's proposed acquisition of El Paso would harm competition in the markets for pipeline transportation and processing of natural gas in the Rocky Mountain gas production areas in and around Wyoming, Colorado, Nebraska, and Utah, in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act. Without the pipeline divestitures, the combined firm would dominate natural gas transportation options in five Rockies' production areas: 1) the Denver/Julesburg/Niobrara Basin, 2) the Powder River Basin, 3) the Wind River Basin, 4) the Western Wyoming areas, including the Green River Basin, the Red Desert Basin, and the Washakie Basins; and 5) the Piceance Basin.

In each of these areas, the FTC contends, the market for natural gas pipeline transportation is highly concentrated. The agency charged that the proposed acquisition would significantly increase this concentration, while eliminating the current direct competition between Kinder Morgan and El Paso, and might lead to higher transportation costs for natural gas shippers in these areas. The FTC also alleges the deal would lead to anticompetitive effects and higher prices for transportation to the Colorado Front Range.

The FTC's complaint also alleges that the deal would harm competition in two other markets: natural gas processing, which removes natural gas liquids before natural gas can be transported by pipeline; and "no-notice" pipeline transportation services, which allow customers to ship natural gas without advance notice. The FTC's concerns related to no-notice service are confined to the Colorado Front Range.

The proposed settlement order requires Kinder Morgan to divest its Rockies Express pipeline, Kinder Morgan Interstate Gas Transmission pipeline, and Trailblazer pipeline, as well as two gas processing plants in the Rocky Mountain region and associated storage capacity, within 180 days. Kinder Morgan also is required to provide transitional support, such as licensing necessary intellectual property to the company purchasing the divested assets. In addition, the proposed order allows the buyer to recruit any Kinder Morgan employees who work on the assets to be sold, and for two years bars Kinder Morgan from trying to rehire employees who are hired by the buyer.

If Kinder Morgan fails to divest the required assets within 180 days, the proposed order allows the FTC to appoint a divestiture trustee to oversee their sale. It also requires Kinder Morgan to maintain the assets as competitive entities and to hold them separate from the rest of its operations until they are divested to a Commission-approved buyer.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 4-0-1, with Commissioner Edith Ramirez recused. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, through June 4, 2012, 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 "Invitation To Comment" part of the "Supplementary Information" section. Comments can be submitted electronically. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period 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.

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. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. 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 $16,000.

The FTC's Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.