Question
From:
(Redacted)
Sent:
Wednesday, November 18, 2009 11:55 AM
To:
Verne, B. Michael
Subject: HSRQuestion-New Facilities Exemption
Mike, hope all iswell with you. The purpose of this email is to request your advice concerningan HSR issue relating to the application of the new facilities exemption in 16 C.F.R.802.2(a). The facts are as described below:
FactualCircumstances
A is a companythat is in the business of operating refineries and controls the generalpartner of a master limited partnership (the "MLP") which is in thebusiness of operating pipelines. At the present time, A does not"control" B for purposes of the HSR regulations although it has inthe past and may again in the future depending on various factors relating tothe outstanding units of the MLP and its balance sheet.
From time to timeA builds pipelines for the purpose of resale. The MLP has a right of firstrefusal with respect to such assets.
A has engaged intwo "drop down" transactions with the MLP in recent months and is nowconsidering two other transactions, all of which caused us to look at theaggregation rules under 16 C.F.R. 801.13. For reasons I won't go into here, itis quite possible that no aggregation would be required of all four of thetransaction, but the more straightforward course of analysis appears to be todetermine whether three of the four transactions, each involving newly builtpipelines, would fall under the new facilities exemption.
In Transaction 1,A sold the MLP a new pipeline. This pipeline was built for the purpose of sale.When the MLP bought it, it was "operational" but A was simply usinghalf of it for storage and half of it to ship some refinery crude oil supply.However, the pipeline had generated no revenues (A not charging itself). At thetime of the MLP's purchase, no third party had shipped product on it.
Transactions 2and 3 are to be consummated shortly, with the MLP buying two additionalpipelines built by A for sale. The facts are the same as in Transaction 1. A iscurrently using both the pipelines for storage until the sale. A has shippedsome of its crude oil on one of them. Neither pipeline has generated revenues.No third party has shipped product on either of them.
HSR Analysis
The threepipelines in question are new facilities that have not produced income andwhich were built by A for the purpose of sale. Because of these facts and thefact that no third party had or will have obtained transport of product throughthe pipelines at the time of the MLP's purchase, FTC informal interpretation0511021 indicates that the three transactions all fall within the newfacilities exemption, with the result that there is no aggregation issue under16 C.F.R. 801.13 with respect to the three transactions.
Could you pleaseadvise if you agree with the above analysis?