82 FR 12102 - Enbridge Inc. and Spectra Energy Corp; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

Federal Register Volume 82, Issue 38 (February 28, 2017)

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the complaint and the terms of the consent orders-- embodied in the consent agreement--that would settle these allegations.

[Federal Register Volume 82, Number 38 (Tuesday, February 28, 2017)]
[Notices]
[Pages 12102-12104]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-03889]


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FEDERAL TRADE COMMISSION

[File No. 161 0215]


Enbridge Inc. and Spectra Energy Corp; 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 methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent orders--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before March 20, 2017.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/enbridgespectraconsent online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of 
Enbridge Inc. and Spectra Energy Corp File No. 161-0215'' on your 
comment and file your comment online at https://ftcpublic.commentworks.com/ftc/enbridgespectraconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of Enbridge Inc. and Spectra Energy 
Corp File No. 161-0215'' on your comment and on the envelope, and mail 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024.

FOR FURTHER INFORMATION CONTACT: Eric Cochran (202-326-3454), Bureau of 
Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing 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 February 16, 2017), on the World Wide Web, 
at http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before March 20, 2017. 
Write ``In the Matter of Enbridge Inc. and Spectra Energy Corp File No. 
161-0215'' on your comment. Your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including, to the extent practicable, on the public Commission Web 
site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of 
discretion, the Commission tries to remove individuals' home contact 
information from comments before placing them on the Commission Web 
site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/enbridgespectraconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``In the Matter of 
Enbridge Inc. and Spectra Energy Corp File No. 161-0215'' on your 
comment and on the envelope, and mail your comment to the following 
address: Federal Trade Commission, Office of the Secretary, 600 
Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, 
or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC. If 
possible, submit your paper comment to the Commission by courier or 
overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before March 20, 2017. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') with Enbridge Inc. (``Enbridge'') and Spectra Energy Corp 
(``Spectra''). The Consent Agreement is designed to remedy the 
anticompetitive effects that likely would result from Enbridge's 
proposed merger with Spectra (the ``Merger'').

[[Page 12103]]

    The Merger, if consummated, will result in Respondent Enbridge 
having ownership interests in the two closest and likely lowest-cost 
pipelines that provide or can provide natural gas pipeline 
transportation from many Deepwater Outer Continental Shelf oil and gas 
leasing and exploration blocks (``blocks'') in certain natural gas 
producing areas in the Gulf of Mexico. Enbridge, through a wholly owned 
subsidiary, owns and operates the Walker Ridge Pipeline. Spectra has an 
indirect, minority ownership interest in the Discovery Pipeline. The 
Complaint alleges that, resulting from the Merger, Enbridge will have 
access to competitively sensitive information of its competitor, the 
Discovery Pipeline, and gain voting rights over the Discovery 
Pipeline's significant capital expenditures, including expansions 
needed to connect to new wells. Without adequate safeguards, Enbridge 
could misuse that information and its voting rights, leading to 
anticompetitive conduct that would make the Discovery Pipeline a less 
effective competitor or would facilitate coordination in the industry. 
To remedy these concerns, under the terms of the Proposed Decision and 
Order (``Order'') contained in the Consent Agreement, Enbridge is 
required to erect firewalls to limit its access to non-public 
information relating to the Discovery Pipeline. In addition, all board 
members appointed by Enbridge or Spectra to the boards of directors 
overseeing the Discovery Pipeline must recuse themselves from any vote 
pertaining to the Discovery Pipeline, with limited exceptions.
    The Commission has placed the Consent Agreement on the public 
record for 30 days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After 30 days, the Commission will again review the Consent 
Agreement and the comments received, and will decide whether it should 
withdraw from the Consent Agreement, modify it, or make the Order 
final.

II. The Parties

A. Enbridge
    Enbridge is an energy delivery company that operates primarily in 
the United States and Canada. Its primary business is in pipeline 
transportation of crude oil; however, it also has significant natural 
gas gathering, processing, transportation, and storage assets. Enbridge 
owns several interconnected natural gas pipelines that export natural 
gas from the Gulf of Mexico to processing plants in Louisiana.
B. Spectra
    Spectra is one of the largest North American pipeline and midstream 
companies. Spectra predominately focuses on natural gas, providing 
natural gas gathering, storage, and transportation in the southeastern 
and northeastern United States and in southeastern Canada. Through a 
joint venture with Phillips 66 (``Phillips''), Spectra owns an indirect 
minority interest in the Discovery Pipeline, a natural gas pipeline 
that transports natural gas from Deepwater areas in the Gulf of Mexico 
to processing plants in Louisiana.

III. The Proposed Merger

    Respondent Enbridge and affiliated companies under its control 
entered into a merger agreement with Spectra, dated September 5, 2016, 
pursuant to which Sand Merger Sub, Inc., a newly created direct wholly 
owned subsidiary of Enbridge, will merge with and into Spectra, with 
Spectra surviving the Merger. The combined entity will be the largest 
energy infrastructure company in North America, with a geographically 
diverse asset portfolio used in the gathering, processing, storage, and 
transportation of natural gas and the pipeline transportation of crude 
oil.
    The Commission's Complaint alleges that the Merger, if consummated, 
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 for the 
transportation of natural gas from wells in certain natural gas 
producing areas in the Gulf of Mexico, to processing plants or 
interconnects with other natural gas pipelines.

IV. The Relevant Markets

    The Commission's Complaint alleges that the relevant product market 
within which to analyze the Merger is natural gas pipeline 
transportation. Natural gas producers contract with natural gas 
pipelines to connect to and transport natural gas from wells to 
processing plants or interconnects with other natural gas pipelines. 
Even if pipeline transportation rates increased slightly, shippers 
would continue to use pipelines as no economic or practical alternative 
to natural gas pipeline transportation exists.
    The Commission's Complaint alleges that the relevant geographic 
markets within which to analyze the Merger are no broader than the 
Green Canyon, Walker Ridge, and Keathley Canyon offshore natural gas 
producing areas in the Gulf of Mexico off the coast of Louisiana 
(collectively and individually referred to as ``Gulf Producing 
Areas''). Other transportation methods for natural gas in the Gulf 
Producing Area are significantly more costly, less reliable, and 
potentially more hazardous than the parties' pipelines.

V. Market Structure

    The Commission's Complaint alleges that Enbridge and Spectra own 
interests in the two pipelines closest to wells drilled in certain 
blocks in the Gulf Producing Areas, including blocks that lie between 
the pipelines. Enbridge, through a wholly owned subsidiary, owns and 
operates the Walker Ridge Pipeline. Spectra holds an indirect minority 
ownership interest in the Discovery Pipeline, via its 50-50 joint 
venture with Phillips (DCP Midstream, LLC (``DCP''), which in turn has 
an effective 36.1 percent limited partner interest in DCP Midstream 
Partners, LP (``DPM'')). DPM owns a 40 percent interest in the 
Discovery Pipeline; Williams Partners L.P. owns the majority interest 
(60 percent) in the Discovery Pipeline and is its operator.
    The Commission's Complaint alleges that the length of pipeline 
needed to connect an existing pipeline to a well is a major factor in 
determining the overall cost for the pipeline to connect to the well. 
Thus, more distant pipelines likely face higher costs to connect to 
wells, resulting in higher natural gas pipeline transportation prices 
for natural gas producers. Where the Walker Ridge Pipeline and the 
Discovery Pipeline are a producer's nearest options--as they are for 
many blocks in the Gulf Producing Areas--they each likely could expand 
to connect to the producer's well for the lowest costs. As such, the 
Walker Ridge Pipeline and the Discovery Pipeline are the two pipelines 
most likely to compete successfully for projects in certain blocks in 
the Gulf Producing Areas.

VI. Effects of the Merger

    While Spectra does not outright own the Discovery Pipeline or hold 
a majority interest in it (or operate it), through its indirect, 
minority ownership interest in DPM, Spectra has access to competitively 
sensitive information of the Discovery Pipeline and significant voting 
rights. This relationship creates two primary competitive concerns 
after the Merger. First, Enbridge-appointed directors will vote on the 
Discovery Pipeline's significant capital expenditures, which likely 
will include future expansions needed to connect to wells. Enbridge 
will have the incentive

[[Page 12104]]

and ability to reduce the competitiveness of Discovery Pipeline bids 
for projects for which the parties' pipeline are the closest and 
lowest-cost options.
    Second, Enbridge will have access to the Discovery Pipeline's 
competitively sensitive information. When its Walker Ridge Pipeline 
competes with the Discovery Pipeline, Enbridge may use this 
competitively sensitive information to raise transportation costs for 
natural gas producers. The exchange of information also may increase 
the likelihood of tacit or explicit coordination between the Walker 
Ridge Pipeline and the Discovery Pipeline.

VII. Entry Conditions

    Entry into the relevant markets would not be timely, likely, or 
sufficient to deter or counteract the anticompetitive effects arising 
from the Merger. Barriers to entry are significant. Building pipeline 
underwater is an expensive and lengthy process, often taking several 
years from the initial proposal to the end of construction.

VIII. The Agreement Containing Consent Order

    The proposed Order resolves the anticompetitive concerns described 
above by requiring that (1) Enbridge erect firewalls to limit its 
access to non-public information relating to the Discovery Pipeline, 
and (2) all representatives appointed by Enbridge or Spectra to the DCP 
or DPM boards of directors recuse themselves from any vote pertaining 
to the Discovery Pipeline, with two limited exceptions. First, 
Enbridge's representatives may vote on initiatives to expand the 
Discovery Pipeline beyond natural gas pipeline services in the Gulf of 
Mexico. This provision ensures that Enbridge does not have to 
participate in business ventures unrelated to the Discovery Pipeline's 
current business. Second, Enbridge's representatives may participate in 
votes to change DPM's ownership interest in the Discovery Pipeline. The 
use of firewalls and recusal provisions is appropriate because the 
competitive concerns arise from a discrete overlap that constitutes a 
relatively small portion of DCP's and DPM's overall physical footprints 
and business portfolios.
    The proposed Order allows the Commission to appoint a monitor. The 
Commission has appointed Robert Ogle, who currently is associated with 
Claro Group LLC. Mr. Ogle will help ensure the effectiveness of the 
firewall provisions and ongoing compliance with the Order. The 
Commission routinely appoints monitors for orders involving firewall 
provisions. Mr. Ogle will serve for a 5-year term, but the Commission 
may extend or modify the term as appropriate. The Order will have a 
term of 20 years.
    The Commission does not intend this analysis to constitute an 
official interpretation of the proposed Order or to modify its terms in 
any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2017-03889 Filed 2-27-17; 8:45 am]
 BILLING CODE 6750-01-P