FTC Accepts Divestitures in $13 Billion Merger of Enterprise Products Partners and GulfTerra Energy Partners

The Federal Trade Commission today announced that Enterprise Products Partners L.P. (Enterprise) has agreed to make several divestitures to settle allegations that the $13 billion merger of Enterprise and GulfTerra Energy Partners L.P. (GulfTerra) would harm competition. The Commission’s consent order requires divestitures of: 1) an interest in a natural gas pipeline transportation system in the Western Central Deepwater region of the Gulf of Mexico, and 2) an interest in a propane storage and terminaling services facility in Hattiesburg, Mississippi, which serves the Dixie Pipeline, the only common-carrier propane pipeline in the southeast United States.

The Commission’s order is designed to remedy the alleged anticompetitive effects of the transaction as originally proposed. It also contains a hold separate order requiring the companies to maintain the assets to be divested as separate, viable, and competitive entities pending their sale to an FTC-approved purchaser.

“The strong conditions required by the Commission’s order will ensure that competition in these important energy transportation, and storage and terminaling markets is maintained in the post-merger environment,” said Susan A. Creighton, Director of the FTC’s Bureau of Competition. “The order effectively addresses the FTC’s concerns in each of the markets affected by the merger.”

The Parties’ Relevant Holdings

The Commission has identified relevant overlaps among Enterprise’s and GulfTerra’s energy transportation and terminal holdings. In the West Central Deepwater region of
the Gulf of Mexico, the companies constitute two of the three primary bidders toprovide pipeline transportation for natural gas producers in that increasingly significant area for natural gas exploration and production. Enterprise owns a 50 percent interest in the Starfish Pipeline Co. (Starfish), which owns the Stingray/Triton pipeline system. GulfTerra owns the High Island Offshore System (HIOS) and the East Breaks Extension (East Breaks) in the same area (collectively, the HIOS/East Breaks pipeline system).

Hattiesburg, Mississippi, is the only large-scale underground propane storage market east of Baton

Rouge, Louisiana, and a key storage and injection point for suppliers of propane to the southeastern United States. The parties have an ownership interest in three of the four local propane storage facilities in Hattiesburg. Enterprise currently owns a 50 percent interest in a propane storage and terminaling facility, with Dynegy Midstream Services (Dynegy) owning the remaining 50 percent. Enterprise also owns a 100 percent interest in a second propane storage facility in Petal, a Hattiesburg suburb. GulfTerra currently owns and operates a propane storage and terminaling facility in Hattiesburg as well.

The FTC’s Complaint

According to the Commission’s complaint, the transaction as originally proposed would eliminate competition in violation of the FTC Act and the Clayton Act, as amended, in the following relevant markets: 1) the pipeline transportation of natural gas from the West Central Deepwater region of the Gulf of Mexico, and 2) propane storage and terminaling services in Hattiesburg, Mississippi.

West Central Deepwater Assets. The complaint states that the West Central Deepwater market is highly concentrated, with assets controlled wholly or in part by Enterprise and GulfTerra accounting for two of the three major pipelines that provide the market with natural gas pipeline transportation services. Combined, these two pipelines account for approximately 60 percent of the natural gas pipeline capacity in the West Central Deepwater market. Further, the proposed merger would substantially increase concentration in this already highly concentrated market, and due to the high costs associated with pipeline construction, new pipeline entry is highly unlikely to mitigate the loss of competition that would result from the transaction. According to the FTC, by eliminating actual and direct competition between Enterprise and GulfTerra in this market, the proposed merger would likely cause substantial competitive harm to natural gas producers, which must buy pipeline transportation services in the West Central Deepwater market.

Hattiesburg Propane Assets. The complaint also contends that the market for propane storage and terminaling services in Hattiesburg, Mississippi, is highly concentrated, with Enterprise and GulfTerra currently controlling approximately 53 percent of the propane storage capacity in that market. The companies are direct and substantial competitors in the provision of propane storage and terminaling in Hattiesburg. The proposed merger would provide the companies with a controlling interest in three of the four propane storage and terminaling facilities in Hattiesburg, and would substantially increase concentration in an already highly concentrated market. New entry into this market is unlikely to be timely or sufficient to alleviate the FTC’s competitive concerns with the proposed transaction.

The Consent Order

To address the possible anticompetitive effects of the transaction as originally proposed, the consent order requires selected divestitures of the companies’ West Central Deepwater pipeline transportation assets and Hattiesburg propane storage and terminaling assets.

West Central Deepwater Assets. The consent order requires that the parties divest either: 1) Enterprise’s 50 percent interest in Starfish, or 2) the HIOS/East Breaks pipeline system. If they fail to divest either of these competing pipeline assets on or before March 31, 2005, the FTC may appoint a divestiture trustee to oversee their sale.

Hattiesburg Propane Assets. The consent order requires Enterprise to divest either: 1) its 50 percent interest in the propane storage facility Enterprise co-owns with Dynegy, or 2) its wholly owned Petal propane storage facility. If Enterprise fails to divest either of these assets by December 31, 2004, the FTC may appoint a divestiture trustee to ensure the sales are completed. The deadline is designed to ensure that a new owner will be in place before the 2005-06 propane storage contract season, which begins in April 2005.

Hold Separate Order

The consent order also contains an order to hold separate and maintain assets, which is designed to preserve the viability, marketability, and competitiveness of the assets to be divested. The hold separate order requires the parties to operate Enterprise’s interest in Starfish and Enterprise’s 50 percent interest in the Hattiesburg propane facility independently from Enterprise and GulfTerra pending the required divestitures under the consent order. In the hold separate order, the FTC has named Richard J. Black as a monitor to oversee the management and operations of Starfish and the propane facility until the completion of the required divestitures. Finally, the consent order requires the parties to file reports with the Commission periodically until they have divested the assets to be sold.

The Commission vote to accept the consent agreement and place a copy on the public record was 5-0. The order will be subject to public comment for 30 days, until October 29, 2004, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. 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 $11,000.

Copies of the complaint, consent agreement, and an analysis to aid public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No.: 041-0039)