011 0011 UNITED STATES OF AMERICA
In the Matter of Chevron Corporation, a
corporation, and COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and the Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission ("FTC" or "Commission"), having reason to believe that Respondent Chevron Corporation ("Chevron") and Respondent Texaco Inc. ("Texaco") have entered into an agreement and plan of merger whereby Chevron proposes to acquire all of the outstanding common stock of Texaco, that such agreement and plan of merger violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows: I. RESPONDENTS Chevron Corporation 1. Respondent Chevron is a corporation organized, existing and doing business under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at 575 Market Street, San Francisco, CA 94105. 2. Respondent Chevron is, and at all times relevant herein has been, a diversified energy company engaged, either directly or through affiliates, in the exploration for, and production of, oil and natural gas; the pipeline transportation of crude oil, natural gas, and natural gas liquids; the refining of crude oil into refined petroleum products, including gasoline, aviation fuel, and other light petroleum products; the transportation, terminaling, and marketing of gasoline, diesel fuel, and aviation fuel; and other related businesses. 3. Respondent Chevron owns approximately 26% of Dynegy Inc. ("Dynegy"). Dynegy is engaged in the gathering, processing, fractionation, transmission, terminaling, storage, and marketing of natural gas and natural gas liquids. Chevron has a long-term strategic alliance with Dynegy for the marketing of Chevron's natural gas and natural gas liquids, and the supply of natural gas and natural gas liquids to Chevron's refineries in the lower 48 states of the United States. Chevron has three positions on Dynegy's Board of Directors. This relationship gives Chevron access to information concerning Dynegy's business and allows Chevron to participate in Dynegy's business decisions. 4. Respondent Chevron is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44. Texaco Inc. 5. Respondent Texaco is a corporation organized, existing and doing business under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at 2000 Westchester Ave., White Plains, NY 10650. 6. Respondent Texaco is, and at all times relevant herein has been, a diversified energy company engaged, either directly or through affiliates, in the exploration for, and production of, oil and natural gas; the pipeline transportation of crude oil, natural gas and natural gas liquids; the refining of crude oil into refined petroleum products, including gasoline, aviation fuel, and other light petroleum products; the transportation, terminaling, and marketing of gasoline, diesel fuel, and aviation fuel; and other related businesses. 7. Respondent Texaco is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44. 8. In 1998, Texaco contributed its U.S. petroleum refining, marketing and transportation businesses to two joint ventures and retained an interest in the joint ventures. The joint ventures are Equilon Enterprises, LLC ("Equilon"), which is owned by Texaco and Shell Oil Company ("Shell"), and Motiva Enterprises, LLC ("Motiva"), which is owned by Texaco, Shell, and Saudi Refining, Inc. ("SRI"). 9. Equilon consists of Texaco's and Shell's U.S. western and midwestern refining and marketing businesses, and their nationwide transportation and lubricants businesses. Texaco and Shell jointly control Equilon. Equilon's major assets include full or partial ownership in four refineries, seven lubricants plants, about 65 terminals, and various pipelines. Equilon markets through approximately 9,700 branded gasoline retail outlets in the U.S. 10. Motiva consists of Texaco's, Shell's, and SRI's U.S. eastern and Gulf Coast refining and marketing businesses. Texaco, Shell and SRI jointly control Motiva. Motiva's major assets include full or partial ownership in four refineries and about 50 terminals. Motiva markets through approximately 14,000 branded gasoline retail outlets. II. THE PROPOSED MERGER 11. Pursuant to an agreement and plan of merger dated October 15, 2000, Chevron intends to acquire all of the outstanding common stock of Texaco in exchange for stock of Chevron. The value of the transaction at the time of the agreement was approximately $45 billion. The combined entity is to be called ChevronTexaco Corporation. As a result of the merger, Chevron's shareholders will hold approximately 61%, and Texaco's shareholders will hold approximately 39%, of the new combined entity. III. TRADE AND COMMERCE A. Relevant Product Markets 12. Relevant lines of commerce in which to analyze the
effects of the proposed merger are:
13. Gasoline is a motor fuel used in automobiles and other vehicles. It is produced from crude oil at refineries in the United States and throughout the world. Gasoline is produced in various grades and types, including conventional unleaded gasoline, reformulated gasoline ("RFG"), California Air Resources Board ("CARB") gasoline, and others. There is no substitute for gasoline as a fuel for automobiles and other vehicles that are designed to use gasoline. 14. CARB gasoline is a motor fuel used in automobiles that meets the specifications of the California Air Resources Board ("CARB"). CARB gasoline is cleaner burning and causes less air pollution than conventional unleaded gasoline. Since 1996, the sale or use of any gasoline other than CARB gasoline has been prohibited in California. CARB gasoline is generally manufactured primarily at refineries in California and at one other refinery located in Anacortes, Washington. There are no substitutes for CARB gasoline as fuel for automobiles and other vehicles that use gasoline in California. 15. Jet fuel is a fuel used in jet engines. It contains a large amount of kerosene. Jet engines must use fuel that meets stringent specifications and cannot switch to any other type of fuel. There is no substitute for jet fuel for jet engines designed to use such fuel. 16. Phase II Reformulated Gasoline ("RFG II") is a motor fuel used in automobiles. RFG II is cleaner burning than some other types of gasoline and causes less air pollution. The United States Environmental Protection Agency requires the use of RFG II in certain areas (including, as relevant here, the St. Louis metropolitan area). RFG II is supplied in bulk from facilities that have the ability to deliver large quantities of the product on a continuing basis, such as pipelines or local refineries. There are no substitutes for pipelines or refineries for the bulk supply of RFG II. Smaller facilities that deliver RFG II in small quantities, such as tank trucks, are not cost competitive with pipelines or refineries. 17. Terminals are specialized facilities with large storage tanks used for the receipt and local distribution by tank truck of large quantities of gasoline and other light petroleum products. There are no substitutes for terminals for the storage and local distribution of gasoline and other light petroleum products. 18. Crude oil pipelines are specialized pipelines for the transportation of crude oil from production fields to refineries or locations where the crude oil can be transported to refineries by other means. Chevron and Equilon each own a crude oil pipeline that transports crude oil out of the San Joaquin Valley in California. There are no alternatives to pipelines for the transportation of crude oil out of the San Joaquin Valley. 19. Two crude oil pipeline systems transport crude oil from locations in the Eastern Gulf of Mexico to on-shore terminals: the Delta Pipeline System and the Cypress Pipeline System. The Delta system is wholly owned by Equilon. Chevron owns 50% of the Cypress system and is the operator. There are no alternatives to these two pipelines for the transportation of crude oil from locations in the Eastern Gulf of Mexico to on-shore terminals. 20. Natural gas pipelines are used to transport natural gas from offshore producing platforms to shore for processing and distribution. There are no alternatives to pipelines for the transportation of natural gas from offshore gas producing platforms to shore. Chevron and Texaco own controlling interests in competing offshore natural gas pipelines. Chevron and its affiliate Dynegy own a combined 77% interest in the Venice Gathering System. Texaco owns approximately 33% of the Discovery Gas Transmission System. Texaco's ownership share is sufficient to allow it to effectively exercise control over important aspects of the business of the Discovery pipeline. 21. Fractionators are specialized facilities that separate raw mix natural gas liquids into specification products such as ethane or ethane-propane, propane, iso-butane, normal-butane, and natural gasoline by means of a series of distillation processes. These specification products are ultimately used in the manufacture of petrochemicals, in the refining of gasoline, and as bottled fuel, among other uses. There are no substitutes for fractionators for the conversion of raw mix natural gas liquids into individual specification products. 22. Aviation fuel is used as fuel for aircraft. There are two types of aviation fuel: aviation gasoline and jet fuel. Aviation gasoline is used in piston-powered aircraft engines, while jet fuel is used in jet engines. There are no substitutes for aviation gasoline or jet fuel for aircraft designed to use such fuels. Aviation fuel is sold through several channels of distribution, including the general aviation channel, which includes fixed base operators ("FBOs") that sell aviation fuel to general aviation customers at airports and distributors that sell to FBOs. B. Relevant Geographic Markets 23. Relevant sections of the country in which to analyze the proposed merger are the following:
Market Structure 24. The marketing of gasoline in the markets described in Paragraphs 23b through 23e would become highly concentrated, or significantly more concentrated, as a result of the proposed merger. For example, in some markets in the States of Louisiana, Mississippi, Oregon, and Washington, the proposed merger would increase concentration by more than 1,000 points to HHI levels above 3,000. In many other markets, the proposed merger would result in significant increases in concentration to levels at which competition may be harmed. 25. The marketing of CARB gasoline in the markets described in Paragraph 23a would be highly concentrated following the proposed merger. The proposed merger would increase concentration in each of these markets by more than 50 points to HHI levels above 2,000. 26. The market for the refining and bulk supply of CARB gasoline for the State of California would be highly concentrated following the proposed merger. The proposed merger would increase concentration in this market by more than 500 points to an HHI level above 2,000. 27. The market for the refining and bulk supply of gasoline and jet fuel for the Pacific Northwest would be highly concentrated following the proposed merger. The proposed merger would increase concentration in this market by more than 600 points to an HHI level above 2,000. 28. Chevron and Texaco (directly and indirectly through Equilon) each hold substantial interests in the Explorer Pipeline, the largest pipeline provider of bulk RFG II supply into the St. Louis metropolitan area. Chevron owns approximately 16.7 % of Explorer Pipeline, and Equilon and Texaco combined own approximately 35.9% of Explorer. Equilon also has a long-term contract through which it obtains supplies of RFG II for the St. Louis metropolitan area. The market for the bulk supply of RFG II into the St. Louis metropolitan area is highly concentrated and would become significantly more concentrated following the proposed merger. The proposed merger would increase concentration in this market by more than 1,600 points to an HHI level of 5,000. 29. The terminaling of gasoline and other light petroleum products in each of the markets identified in Paragraph 23i would be highly concentrated following the proposed merger. The proposed merger would increase concentration in each of these markets by more than 300 points to HHI levels at or above 2,000. 30. The market for the pipeline transportation of crude oil from the San Joaquin Valley in California is highly concentrated and would become significantly more concentrated as a result of the proposed merger. The proposed merger would increase concentration in this market by more than 800 points to an HHI level above 3,300. 31. The pipeline transportation of crude oil from markets in the Eastern Gulf of Mexico identified in Paragraph 23k is highly concentrated and would become significantly more concentrated as a result of the proposed merger. The proposed merger would give the combined Chevron/Texaco substantial ownership interests in the only two pipelines that compete to transport crude oil from the Eastern Gulf of Mexico. 32. The pipeline transportation of offshore natural gas to shore from each of the markets described in Paragraph 23l is highly concentrated and would become significantly more concentrated as a result of the proposed merger. The proposed merger would give the combined Chevron and Texaco controlling interests in the only two pipelines, or two of only three pipelines, in each of these markets. 33. Because of Chevron's affiliation with Dynegy, the acquisition of Texaco would give Chevron a financial interest in three of the four fractionators in Mont Belvieu, Texas. 34. The marketing of aviation fuel to general aviation customers in the markets described in Paragraphs 23n and 23o would be highly concentrated as a result of the merger. The proposed merger would increase concentration in the southeastern United States by more than 250 points to an HHI level above 1,900, and would increase concentration in the western United States by more than 1,600 points to an HHI level above 3,400. Entry Conditions 35.Entry into the relevant lines of commerce in the relevant sections of the country is difficult and would not be timely, likely or sufficient to prevent anticompetitive effects resulting from the proposed merger. IV. VIOLATIONS CHARGED First Violation Charged 36. Chevron and Texaco are competitors in the marketing of gasoline in the following relevant sections of the country: (a) the western United States (excluding California), including the States of Arizona, Idaho, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming, and smaller areas contained therein, including, but not limited to, the following metropolitan areas: Phoenix and Tucson, AZ; Boise, ID; Las Vegas and Reno, NV; Albuquerque-Santa Fe, NM; Eugene, Klamath Falls-Medford, and Portland, OR; Salt Lake City, UT; Seattle-Tacoma, Spokane, and Yakima, WA; and Casper-Riverton, WY; (b) the southern United States, including the States of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, Tennessee, Texas, Virginia, and West Virginia, and smaller areas contained therein, including, but not limited to, the following metropolitan areas: Anniston, Birmingham, Decatur-Huntsville, Dothan, and Montgomery, AL; Mobile-Pensacola, AL/FL; Fort Lauderdale-Miami, Fort Pierce-West Palm Beach, Gainesville, and Panama City, FL; Albany, Atlanta, Columbus, Macon, and Savannah, GA; Lexington and Paducah, KY; Alexandria, Baton Rouge, El Dorado-Monroe, Lafayette, Lake Charles, New Orleans, and Shreveport, LA; Biloxi-Gulfport, Columbus-Tupelo-West Point, Hattiesburg-Laurel, Jackson, and Meridian, MS; Greenville-New Bern-Washington, NC; Ada-Ardmore, OK; Lawton-Wichita Falls, OK/TX; Chattanooga, TN; Bristol-Johnson City-Kingsport, TN/VA; Abilene-Sweetwater, Amarillo, Austin, Beaumont-Port Arthur, Brownsville-Harlingen-Weslaco, Corpus Christi, Dallas, El Paso, Fort Worth, Houston, Lubbock, Midland-Odessa, San Angelo, San Antonio, Temple-Waco, and Tyler, TX; Lynchburg-Roanoke and Petersburg-Richmond, VA; and Beckley-Bluefield-Oak Hill, WV; (c) the State of Alaska, and smaller areas contained therein, including, but not limited to, Anchorage, Fairbanks, and the southeastern towns of Juneau, Ketchikan, and Sitka; and (d) the State of Hawaii, and smaller areas contained therein, including, but not limited to, the islands of Hawaii, Kauai, Maui, and Oahu. 37. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the marketing of gasoline in the relevant sections of the country identified in the previous paragraph, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of gasoline will increase in the relevant sections of the country. Second Violation Charged 38. Chevron and Texaco are competitors in the marketing of CARB gasoline for sale in the State of California, and smaller areas contained therein, including, but not limited to, the following metropolitan areas: Bakersfield, Chico-Redding, Fresno-Visalia, Los Angeles, Modesto-Sacramento-Stockton, Monterey-Salinas, Oakland-San Francisco-San Jose, Palm Springs, San Diego, and San Luis Obispo-Santa Barbara-Santa Maria. 39. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the marketing of CARB gasoline for sale in the State of California, and smaller areas contained therein, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of CARB gasoline will increase in the relevant sections of the country. Third Violation 40. Chevron and Texaco are competitors in the refining and bulk supply of CARB gasoline for sale in the State of California. 41. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the refining and bulk supply of CARB gasoline for sale in the State of California, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of CARB gasoline will increase in the relevant section of the country. Fourth Violation 42. Chevron and Texaco are competitors in the refining and bulk supply of gasoline and jet fuel in the Pacific Northwest, i.e., the States of Washington and Oregon west of the Cascade mountains. 43. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the refining and bulk supply of gasoline and jet fuel in the Pacific Northwest, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of gasoline and jet fuel will increase in the relevant section of the country. Fifth Violation Charged 44. Chevron and Texaco (directly and indirectly through Equilon) each hold substantial interests in the market for the bulk supply of RFG II in the St. Louis metropolitan area. 45. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the market for the bulk supply of RFG II in the St. Louis metropolitan area, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of bulk supply of RFG II in the St. Louis metropolitan area will increase. Sixth Violation Charged 46. Chevron and Texaco are competitors in the terminaling of gasoline and other light petroleum products in the metropolitan areas of Phoenix and Tucson, AZ; San Diego and Ventura, CA; Collins, MS; and El Paso, TX; and the islands of Hawaii, Kauai, Maui, and Oahu, HI. 47. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the terminaling of gasoline and other light petroleum products in the relevant areas identified in the previous paragraph, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price for terminaling of gasoline and other light petroleum products will increase in the relevant sections of the country. Seventh Violation Charged 48. Chevron and Texaco are competitors in the pipeline transportation of crude oil from the San Joaquin Valley in California. 49. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the pipeline transportation of crude oil from the San Joaquin Valley in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of crude oil pipeline transportation will increase in the relevant section of the country. Eighth Violation Charged 50. Chevron and Texaco are competitors in the pipeline transportation of crude oil from portions of the Eastern Gulf of Mexico to on-shore terminals. 51. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the pipeline transportation of crude oil from portions of the Eastern Gulf of Mexico to on-shore terminals in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of crude oil pipeline transportation will increase in the relevant sections of the country. Ninth Violation Charged 52. Chevron and Texaco are competitors for the pipeline transportation of offshore natural gas to shore from certain locations in the Central Gulf of Mexico, including the South Timbalier and Grand Isle Areas, and their South Additions, as defined by the Department of Interior Minerals Management Service, including, but not limited to, South Timbalier Blocks 30, 37, 38, 44, 45, 58, 59, 61-63, 86-88, 123-35, 151-53, 157, 158, 178-80, 185-87, 205-08; South Timbalier South Addition Blocks 223-27, 231, 233-37, 248, 251, 256, and 257; Grand Isle Blocks 52, 53, 59, 62, 63, 70-76, 84, and 85; and Grand Isle South Addition Block 86. 53. The effect of the proposed merger, if consummated, may be substantially to lessen competition in offshore pipeline transportation of natural gas from the relevant areas identified in the previous paragraph, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of offshore natural gas pipeline transportation will increase in the relevant sections of the country. Tenth Violation Charged 54. Chevron and Texaco, either directly or through affiliates, each have ownership or financial interests in competing facilities used for the fractionation of natural gas liquids raw mix into natural gas liquids specification products at Mont Belvieu, Texas. By virtue of its ownership interest in one fractionator, Texaco obtains confidential information about the operations of that fractionator and also can affect the outcome of voting among owners of the fractionator. Texaco's ownership interest in the fractionator gives Texaco the ability to prevent competition from that fractionator against the other fractionators at Mont Belvieu in which Chevron has a financial interest. 55. The effects of the acquisition, if consummated, may be substantially to lessen competition in the fractionation of natural gas liquids in the vicinity of Mont Belvieu in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, in the following ways, among others:
each of which increases the likelihood that prices will increase for fractionation services in the vicinity of Mont Belvieu. Eleventh Violation Charged 56. Chevron and Texaco are competitors in the marketing of aviation fuel to general aviation customers in the western United States, consisting of the States of Alaska, Arizona, California, Idaho, Nevada, Oregon, Utah, and Washington, and smaller areas contained therein; and the southeastern United States, consisting of the States of Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee, and smaller areas contained therein. 57. The effect of the proposed merger, if consummated, may be substantially to lessen competition in the marketing of aviation fuel to general aviation customers in the western United States, the southeastern United States, and in smaller areas contained therein, in violation of 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, in the following ways, among others:
each of which increases the likelihood that the price of aviation fuel will increase in the relevant sections of the country. Statutes Violated 58. The proposed merger between Chevron and Texaco violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and would, if consummated, 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. WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this seventh day of September, 2001, issues its complaint against said Respondents. By the Commission, Chairman Muris recused. Donald S. Clark SEAL: |