United States v. El Paso Natural Gas Co.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

United States v. El Paso Natural Gas Co.; Proposed Final Judgment

and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final

Judgment, Stipulation and Competitive Impact Statement have been filed

with the United States District Court for the District of

[[Page 5218]] Columbia in United States v. El Paso Natural Gas Company,

Civil No. 1:95CV00067 as to El Paso Natural Gas Company (``El Paso'').

The Complaint alleges that El Paso forced well operators seeking to

connect natural gas wells to El Paso's gas gathering system in the San

Juan Basin of New Mexico and Colorado to also purchase meter

installation service from El Paso, when the operators might otherwise

have preferred to purchase such installation elsewhere or on different

terms.

The proposed Final Judgment enjoins El Paso from requiring well

operators to purchase meter installation only from El Paso as a

condition of receiving natural gas gathering services from El Paso in

the San Juan Basin. The proposed Final Judgment also enjoins El Paso

from setting and implementing standards and procedures related to meter

installation for wells connected to its San Juan gathering system that

would enable El Paso to discriminate against persons providing meter

installation in favor of its own meter installation services.

Public comment on the Proposed Final Judgment is invited within the

statutory 60-day comment period. Such comments and responses thereto

will be published in the Federal Register and filed with the Court.

Comments should be directed to Roger Fones, Chief, Transportation,

Energy and Agriculture Section, Room 9104, U.S. Department of Justice,

Antitrust Division, 555 4th Street, NW., Washington, DC 20001

(telephone: 202-307-6351).

Constance K. Robinson,

Director of Operations, Antitrust Division.

The United States District Court for the District of Columbia

United States of America, Plaintiff, v. El Paso Natural Gas

Company, Defendant. Case Number 1:95CV00067; Judge: Harold H.

Greene; Deck Type: Antitrust; Date Stamp: 01/12/95.

Complaint

The United States of America, through its attorneys, acting under

the direction of the Attorney General of the United States, brings this

civil action to obtain equitable and other relief against the defendant

named herein and alleges as follows:

I

Nature of this Action

1. The United States brings this civil antitrust action to obtain

injunctive relief against an anticompetitive tying arrangement of the

defendant El Paso Natural Gas Company (``El Paso'') that violates

Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.

2. El Paso owns and operates a natural gas gathering system located

in the San Juan Basin of the United States, which it uses to transport

natural gas produced in the basin to points of connection with mainline

interstate pipelines. El Paso's San Juan gathering system has market

power for gas gathering for wells in the San Juan Basin. Many San Juan

Basin producers have no alternative to El Paso for gas gathering. El

Paso requires persons operating gas wells in the San Juan Basin to

purchase meter installation service from it as a condition of

connecting a well or wells to its gathering system.

3. El Paso's practice of tying meter installation to its gas

gathering service has caused many well operators seeking to connect a

well to El Paso's gathering system to purchase meter installation

service at a cost higher than they otherwise would have paid, to wait

longer for installation than otherwise necessary, or both.

4. The United States seeks an injunction, pursuant to Sherman Act

Sec. 4, 15 U.S.C. Sec. 4, prohibiting El Paso from conditioning the

connection of a well to its San Juan gathering system upon a well

operator agreeing to purchase meter installation from El Paso.

II

Jurisdiction, Venue and Interstate Commerce

5. This complaint is filed and this action is instituted under

Section 4 of the Sherman Act, 15 U.S.C. Sec. 4, to prevent and restrain

the continuing violation by El Paso, as hereinafter alleged, of Section

1 of the Sherman Act, 15 U.S.C. Sec. 1. The Court has jurisdiction over

this matter pursuant to 28 U.S.C. Secs. 1331 and 1337.

6. Venue is proper in this district under 15 U.S.C. Sec. 22 and 28

U.S.C. Sec. 1391(c), because El Paso transacts business and is found

within this district.

7. El Paso is a Delaware corporation with its principal place of

business in El Paso, Texas. El Paso's total revenues for 1993 were $908

million.

8. El Paso owns and operates one of the nation's largest natural

gas transmission systems, which it uses to transport natural gas from

supply regions in New Mexico, Colorado, Texas and Oklahoma to end-users

located throughout the southwestern United States. El Paso's interstate

natural gas pipeline system provides 48 percent of the total interstate

pipeline capacity serving California. El Paso is also the principal

interstate natural gas pipeline system serving Arizona, southern

Nevada, New Mexico, and El Paso, Texas. Thus, El Paso is engaged in,

and its activities substantially affect, interstate commerce.

III

El Paso's Natural Gas Gathering System in the San Juan Basin

9. In addition to its mainline, interstate natural gas transmission

services, El Paso provides natural gas gathering services in various

gas producing basins in the United States, including the San Juan

Basin. The San Juan Basin is located primarily in northwestern New

Mexico and southern Colorado.

10. Gathering services include collecting natural gas at the well-

head and transporting the gas to locations where the gas can enter

mainline interstate transmission pipelines. ``Gathering system'' refers

to the facilities used to provide gathering service.

11. El Paso's San Juan gathering system is spread throughout the

basin and includes thousands of miles of pipeline and over 9,500 meter

stations. Approximately 200 new wells are connected to El Paso's

gathering system each year. El Paso gathers over 855 million cubic feet

per day of gas per year in the San Juan Basin.

12. Although there are other gas gathering companies that provide

gathering in the San Juan Basin, most wells are able to connect to only

one of these systems. Many well operators have no practicable

alternative to using El Paso's gathering system to get their gas out of

the San Juan Basin.

IV

El Paso's Meter Installation Practice

13. A meter measures the volume of natural gas flowing from a well

or wells into a gathering system. The volume measurements provided by

the meters are necessary to calculate charges to well operators for gas

gathering services.

14. El Paso has required or otherwise coerced its gathering

customers to purchase meter installation from it along with gathering

services. The term ``meter installation'' as used in this Complaint

means the provision of certain service necessary to connect a well to

El Paso's gathering system, including the construction and installation

of the metering equipment and the well-tie line. A well-tie line is the

pipe that connects the metering equipment to the gathering system.

15. When a well operator contacts El Paso seeking to connect a well

to El Paso's San Juan gathering system, it is El Paso's practice to

inform the operator [[Page 5219]] that El Paso will provide the

necessary meter installation. The well operator generally must agree to

pay El Paso a flat fee for the construction and installation of the

meter equipment necessary to connect the well to El Paso's system. El

Paso will not begin to install the meter until the operator has prepaid

the installation charge.

16. As an interstate pipeline, El Paso's gathering services and

rates are regulated by the Federal Energy Regulatory Commission

(``FERC'') in accordance with the Natural Gas Act (``NGA''), 15 U.S.C.

Secs. 717-717W, and the Natural Gas Policy Act (``NGPA''), 15 U.S.C.

Secs. 3302-3432. Under the NGA, all rates and charges for any

transportation or production area service subject to FERC jurisdiction

must be ``just and reasonable'' and shown on tariff schedules filed

with the FERC. The tariffs filed by El Paso at the FERC set forth the

minimum and maximum rates that El Paso may charge for mainline

transportation and production area services, including gathering.

17. El Paso charges well operators separately for meter

installation and for its gathering service. El Paso's FERC tariff for

gathering services in the San Juan Basin does not include a rate for

meter installation. Although the FERC must approve the maximum rate

that El Paso can charge for gathering, it does not regulate the price

El Paso may charge for meter installation. There are no FERC

regulations that require El Paso to perform meter installation or that

would prohibit well operators from installing their own meters.

18. The speed with which a well can be connected to the gathering

system is a significant factor in determining the potential

profitability of that well. Once a well operator has agreed that El

Paso will perform the meter installation, the well operator must rely

on El Paso to schedule that installation. In many instances, El Paso

has taken a significantly longer time to complete meter installation

than it would have taken if the well operator had been able to use an

alternative to El Paso.

19. El Paso contracts with outside construction companies in the

San Juan Basin to perform the meter installation for El Paso. These

construction companies follow El Paso's specifications regarding the

type of metering equipment and the manner of installation.

20. There are numerous construction companies in the San Juan Basin

that can properly perform meter installation. Since 1990, El Paso has

used three different outside construction companies to perform meter

installation.

21. El Paso does not manufacture the meters it uses in its meter

installations. Metering equipment meeting El Paso's specifications is

available from national companies or their agents to anyone seeking to

purchase such equipment.

22. During the past few years, a number of well operators have

requested permission from El Paso to do meter installation themselves,

rather than purchase the service from El Paso, and have been told by El

Paso that they had to use El Paso's meter installation service if they

wanted to connect a well to El Paso's gathering system.

23. Other well operators have within the last three years requested

to use someone other than El Paso to install meters when connecting a

well to El Paso's San Juan gathering system. These well operators have

abandoned their efforts to install their own meters because of

anticipated delays and unreasonable requirements imposed by El Paso. In

order to avoid these delays, these operators agreed to purchase meter

installation from El Paso rather than an alternative provider.

V

Violation Alleged

24. El Paso's provision of meter installation to well operators for

well connections in the San Juan Basin constitutes an agreement or

agreements within the meaning of Section 1 of the Sherman Act.

25. Natural gas gathering and meter installation are separate

products.

26. El Paso has market power for gas gathering from many wells

located in the San Juan Basin.

27. The amount of commerce affected in the market for meter

installation service in the San Juan Basin is substantial.

28. El Paso forces well operators to use El Paso for meter

installation when they might otherwise have preferred to purchase such

installation elsewhere or on different terms.

29. El Paso's practice of tying meter installation to gas gathering

in the San Juan Basin unreasonably restrains trade and is unlawful per

se under Section 1 of the Sherman Act.

30. The effect of El Paso's unlawful tying practice has been to

force well operators to pay a higher price for meter installation than

they might otherwise have paid, to wait longer for meter installation

than otherwise necessary, or both.

Prayer for Relief

Wherefore, the plaintiff the United States prays that:

1. El Paso be enjoined from requiring well operators to purchase

meter installation only from El Paso as a condition of receiving

gathering services from El Paso in the San Juan Basin;

2. El Paso be enjoined from setting and implementing standards and

procedures relating to meter installation for wells connected to its

San Juan gathering system that would enable El Paso to discriminate

among persons providing meter installation in favor of its own

installation services;

3. the United States be granted such other relief that the Court

may deem just and proper; and

4. the United States recover costs in this action.

Dated: January ____, 1995.

Anne K. Bingaman,

Assistant Attorney General.

Robert E. Litan,

Deputy Assistant Attorney General.

Mark C. Schechter,

Deputy Director of Operations, Antitrust Division, U.S. Department of

Justice, Washington, D.C. 20530.

Roger W. Fones,

Chief.

Donna N. Kooperstein

Assistant Chief.

Jade Alice Eaton,

Attorney, D.C. Bar No. 939629.

Jill A. Ptacek,

Attorneys, Antitrust Division, U.S. Department of Justice, 555 4th

Street, N.W. Washington, D.C. 20001, (202) 307-6316.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, v. El Paso Natural Gas

Company, Defendant. Civil Action No.: 95-0067.

Stipulation

It is stipulated by and between the undersigned parties, by their

respective attorneys that:

1. The Court has jurisdiction over the subject matter of this

action and over each of the parties thereto, and venue of this action

is proper in the District of Columbia;

2. The parties consent that a Final Judgment in the form hereto

attached may be filed and entered by the Court, upon the motion of any

party or upon the Court's own motion, at any time after compliance with

the requirements of the Antitrust Procedures And Penalties Act (15

U.S.C. Sec. 16), and without further notice to any party or other

proceedings, provided that Plaintiff has not withdrawn its consent,

which it may do at any time before the entry of the proposed Final

Judgment by serving notice thereof on Defendants and by filing that

notice with the Court; [[Page 5220]]

3. In the event plaintiff withdraws its consent or if the proposed

Final Judgment is not entered pursuant to this Stipulation, this

Stipulation shall be of no effect whatsoever, and the making of this

Stipulation shall be without prejudice to any party in this or in any

other proceeding.

This 6th day of January, 1995

For the Plaintiff the United States of America:

Roger W. Fones,

Chief, Transportation, Energy, and Agriculture Section.

Donna N. Kooperstein,

Assistant Chief, Transportation, Energy, and Agriculture Section.

Jade A. Eaton,

Attorney, Transportation, Energy, and Agriculture Section.

Jill A. Ptacek,

Attorney, Transportation, Energy, and Agriculture Section.

For the Defendant El Paso Natural Gas Company:

Mary Anne Mason,

Esquire, Andrews & Kurth, L.L.P., 1701 Pennsylvania Ave., N.W.,

Washington, D.C. 20006.

Final Judgment

Plaintiff, United States of America, filed its Complaint on January

12, 1995. Plaintiff and defendant, by their respective attorneys, have

consented to the entry of this Final Judgment without trial or

adjudication of any issue of fact or law. This Final Judgment shall not

be evidence against or an admission by any party with respect to any

issue of fact or law. Therefore, before the taking of any testimony and

without trial or adjudication of any issue of fact or law herein, and

upon consent of the parties, it is hereby

Ordered, adjudged, and decreed, as follows:

I

Jurisdiction

This Court has jurisdiction of the subject matter of this action

and of each of the parties consenting hereto. The Complaint states a

claim upon which relief may be granted against the defendant under

Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.

II

Definitions

As used herein, the term:

(A) ``agreement'' means a contract, arrangement, or understanding,

formal or informal, oral or written, between two or more persons;

(B) ``defendant'' means El Paso Natural Gas Company;

(C) ``document'' means all ``writings and recordings'' as that

phrase is defined in Rule 1001(1) of the Federal Rules of Evidence;

(D) ``gathering'' means collecting natural gas from the point of

entry into the gathering system and moving the gas to a point where it

is introduced into mainline transmission facilities; for gas that is

compressed, processed, or treated subsequent to receipt into the

gathering system and prior to delivery into mainline transmission

facilities, gathering also includes the act of compressing, processing,

or treating, as applicable;

(E) ``gathering system'' means the facilities used by the defendant

to perform gathering in the San Juan Basin;

(F) ``including'' means including but not limited to;

(G) ``inspection log'' means the log the defendant is required to

create and maintain pursuant to Section VI(C) of this Final Judgment,

setting forth the information recorded by the defendant pursuant to

Section VI(C)(1)-(7);

(H) ``meter'' means those devices used to measure the volume of

natural gas flowing into or through the gathering system;

(I) ``metering facilities'' means any of the equipment necessary to

connect a meter to the gathering system and to measure the flow of gas

from a well or wells into the gathering system, including the meter,

the meter house, and the meter run;

(J) ``meter installation'' means the provision of service necessary

to connect a well or wells to the gathering system, including

construction and connection of metering facilities and the well-tie

line;

(K) ``meter installation inspection'' means any inspection of

metering facilities that is required before gas may enter the gathering

system through those facilities;

(L) ``person'' means any natural person, corporation, firm,

company, sole proprietorship, partnership, association, institution,

governmental unit, or other legal entity;

(M) ``San Juan Basin'' means that area of northwestern New Mexico

and southern Colorado in which defendant owns and operates a gathering

system;

(N) ``tap'' means the interconnection between the well-tie line and

the gathering system that requires a breach of the gathering pipeline

wall, including the valve connecting the well-tie line with the

gathering pipeline wall;

(O) ``uniform'' means reasonably consistent under the

circumstances; but does not require that identical procedures must be

applied to every situation. If procedures are not identical, uniformity

requires that there exists a reasonable and lawful basis to explain any

differences or changes in the procedures applied, or in the manner in

which stated procedures are applied;

(P) ``well operator'' means any person with whom the defendant

contracts, or would contract, for meter installation, or from whom the

defendant receives an inquiry regarding connecting a well or wells to

the gathering system;

(Q) ``well-tie line'' means the pipe connecting the metering

facilities to the gathering system.

III

Applicability

(A) This Final Judgment applies to the defendant and to each of its

successors, assigns, and to all other persons in active concert or

participation with any of them who shall have received actual notice of

the Final Judgment by personal service or otherwise.

(B) Nothing herein contained shall suggest that any portion of this

Final Judgment is or has been created for the benefit of any third

party and nothing herein shall be construed to provide any rights to

any third party.

IV

Prohibited Conduct

The defendant is enjoined and restrained from:

(A) requiring a well operator to purchase metering facilities or

meter installation from the defendant, or a third party under contract

to the defendant, as a condition of connecting a well to the gathering

system;

(B) requiring a well operator to purchase construction or

installation of any pipeline that connects a well to the metering

facilities from the defendant, or a third party under contract to the

defendant, as a condition of connecting that well to the gathering

system, or imposing upon a well operator any requirements for such

construction and installation if the operator chooses to purchase such

pipeline construction and installation from a person other than the

defendant;

(C) requiring a well operator to pay any charge, other than one

included in the gathering rate, for a metering facilities maintenance

provided by the defendant or a third party under contract to the

defendant;

(D) entering into an agreement with a well operator to provide

meter installation, meter installation inspection, or installation of a

tap without first disclosing to the operator that the well operator may

have the meter installation provided by a person [[Page 5221]] other

than the defendant, or a third party under contract to the defendant.

This disclosure shall be made in the following manner:

(1) at the time of each initial contact between the defendant and a

well operator concerning the provision of gathering which will require

meter installation, the defendant shall expressly inform the well

operator that the operator may choose to provide meter installation

itself, subject to any specifications and inspections required by

defendant consistent with Section V(A)-(D);

(2) at the time of the initiation of any discussion between the

defendant and a well operator concerning the terms of any agreement

that will require the well operator to bear any cost of meter

installation, the defendant shall provide the well operator with the

following materials arranged in the following order:

a. a copy of the Notice to El Paso Natural Gas Company Gathering

Customers attached as Attachment A to this Final Judgment;

b. a statement that the defendant will, as soon as practicable,

provide the well operator with the estimates described in Section

V(D)(3);

c. A sample of the contract that the defendant uses when it

provides meter installation for a well operator;

d. a sample of the contract that the defendant uses when the well

operator provides all or part of the meter installation;

e. a copy of any specifications, standards and procedures that the

defendant, consistent with the provisions of Section V(A)-(D), may

require the well operator to follow when the operator performs the

meter installation;

(3) as soon as practicable after the initiation of any discussion

between the defendant and a well operator concerning the terms of any

agreement that will require the well operator to bear any cost of meter

installation, the defendant shall provide the well operator with:

a. a statement of the estimated total price that the defendant will

charge the well operator if the defendant provides meter installation,

and a detailed statement setting forth each of the services or

materials, and costs for those services or materials, that comprise

that total price;

b. a statement of the estimated total price that the defendant will

charge the well operator for construction or inspection if the well

operator chooses to provide for meter installation itself, and a

detailed statement setting forth the services and materials, and costs

for those services and materials, that comprise that total price;

(E) entering into an agreement with a well operator, pursuant to

which the well operator will perform meter installation, and which

includes any specifications, standards and procedures that the

defendant has imposed pursuant to Section V(A)-(D), without including

in the document memorializing that agreement:

(1) the following clause regarding access to inspection logs:

The well operator shall, upon reasonable notice, have access to

any inspections logs maintained by El Paso Natural Gas Company that

pertain to any meter installation covered by this contract, and, for

comparison purposes, access to any inspection logs maintained by El

Paso Natural Gas Company that relate to meter installation provided

by El Paso Natural Gas Company.''; and

(2) the following clause, unless the well operator waives in

writing its right to the inclusion of such clause:

In the event of a dispute related to the interpretation or

performance of this agreement, each party shall designate an

authorized agent to investigate, discuss and seek to settle the

matter between them. If the two agents are unable to settle the

matter within 10 days after notification of the designation, the

matter shall be submitted to a senior officer of each party for

consideration. If settlement cannot be reached through their efforts

within an additional 20 days, or such longer time as they shall

agree upon, the parties shall enter into a biding form of

arbitration of their dispute, the costs of which shall be

apportioned by the arbitrator.

V

Limiting Conditions

Nothing in this Final Judgment shall prohibit the defendant from:

(A) specifying the type of metering facilities a well operator must

use when connecting a well or wells to the gathering system, provided

that the specifications uniformly apply to all persons, including the

defendant;

(B) specifying standards and procedures that must be followed for

meter installation, provided that the standards and procedures

uniformly apply to all persons performing such installations, including

the defendant;

(C) requiring that meter installations provided by a well operator,

or third parties under contract to the operator, be subject to

inspection by the defendant to ensure compliance with any standards and

procedures specified by the defendant, provided that:

(1) if the defendant requires any meter installation inspections,

it does so for all meter installations, including those meter

installations provided by the defendant;

(2) the inspection process the defendant uses is uniform for all

meter installations, including those meter installations provided by

the defendant. The defendant shall ensure that the persons conducting

the inspections do not unreasonably withhold any necessary approvals,

or impose any unreasonable compliance requirements;

(3) the defendant requires persons conducting the inspections to

keep a contemporaneously written log for each inspection they conduct,

including any inspections of metering facilities installed by the

defendant;

(D) requiring a well operator to pay for any inspections the

defendant requires, consistent with the provisions of Section V(C),

provided that any charge the defendant requires for such inspections is

reasonable, calculated on a uniform basis, and is uniformly applied to

all meter installations, including those provided by the defendant;

(E) requiring a well operator to use only those persons designated

by the defendant to install a tap, provided that the defendant either:

(1) charge the well operator no more than the actual cost of

materials, equipment and labor, which labor charge shall include only

wages, benefits and payroll taxes, incurred in installation when the

defendant installs the tap, or

(2) include in any such designation at least three persons in the

San Juan Basin, other than the defendant or any third party under any

contractual relationship with the defendant, whom the operator can

select to perform such installation;

(F) specifying to a well operator the location at which a well will

be connected to the gathering system;

(G) requiring a well operator to convey to the defendant title to

the metering facilities connecting a well to the gathering system that

are installed at the operator's expense, as a condition of connecting

that well to the system, provided that the defendant agrees at the time

of any such required conveyance that title for those facilities will

revert back to the operator upon abandonment or plugging of the well,

or upon the operator's request that the defendant discontinue gathering

gas from the well;

(H) requiring the well operator to agree to indemnify the defendant

against any liability arising from the acts or omissions of the

operator, or a third party under contract to the operator, which are

related to meter installation performed by the operator or third

party; [[Page 5222]]

(I) requiring the well operator to provide defendant with a copy of

all permits or other documents issued by, or filings required by, any

authority to evidence the operator's compliance with local, state and

federal laws and regulations applicable to meter installation;

(J) requiring the well operator to provide the defendant with

copies of all right-of-way authorizations and permits;

(K) making reasonable changes to any specification, standard, or

policy instituted with regard to meter installation;

(L) providing meter installation pursuant to the provisions of

contracts between the defendant and well operators in effect prior to

May 18, 1994.

VI

Compliance Program

(A) The defendant is ordered to maintain an antitrust compliance

program which shall include designating, within 30 days of entry of

this Final Judgment, an Antitrust Compliance Officer with

responsibility for accomplishing the antitrust compliance program and

with the purpose of achieving compliance with this Final Judgment. The

Antitrust Compliance Officer shall, on a continuing basis, supervise

the review of the current and proposed activities of the defendant to

ensure that it complies with this final Judgment.

(B) The antitrust Compliance Officer shall be responsible for

accomplishing the following activities:

(1) distributing, within 60 days from the entry of this Final

Judgment, a copy of this Final Judgment to all officers and employees

with responsibility for marketing of the defendant's gathering, or for

approving and supervising the connection of a well to any of the

defendant's gathering systems;

(2) distributing in a timely manner a copy of this Final Judgment

to any officer or employee who succeeds to a position described in

Section VI(B)(1);

(3) briefing annually those persons designated in Section VI(B)(1)

on the meaning and requirements of this Final Judgment and the

antitrust laws and advising them that the defendant's legal advisors

are available to confer with them regarding compliance with the Final

Judgment and the antitrust laws;

(4) obtaining from each officer or employee designated in Section

VI(B)(1) an annual written certification that he or she: (a) has read,

understands, and agrees to abide by the terms of this Final Judgment;

and (b) has been advised and understands that his or her failure to

comply with this Final Judgment may result in conviction for criminal

contempt of court;

(5) maintaining a record of recipients to whom the Final Judgment

has been distributed and from whom the certification in Section

VI(B)(4) has been obtained;

(6) distributing, within 60 days from the entry of this Final

Judgment, by first-class mail, postage paid, a copy of the Notice to El

Paso Natural Gas Company Gathering Customers that is attached as

Attachment A to this Final Judgment to all well operators that on the

date of entry of this Final Judgment have contracts with defendant for

gathering.

(C) Each time the defendant requires a meter installation

inspection, the defendant shall create a written record setting forth

at a minimum, the following information:

(1) the name of the well operator for whom the meter installation

is being provided;

(2) the name of the person or persons providing the meter

installation;

(3) the location of the well or wells associated with the meter

installation that is the subject of the inspection;

(4) the date or dates of the inspection and the amount of time

spent engaged in the actual inspection;

(5) the total price charged for the inspection and a detailed

description of how the defendant arrived at that price;

(6) with respect to any materials or work assoicatied with the

installation which the inspector rejects, a detailed explanation of why

the inspector made the rejection;

(7) if the inspector rejects any materials used or work performed

by the person performing the installation, a detailed description of

the steps that the inspector informed that person he or she could take

to pass the inspection. The defendant shall maintain in its Farmington,

New Mexico office, a log containing the information recorded pursuant

to this subsection for a period of two years, and shall, upon

reasonable notice, make available to a well operator those portions of

the log pertaining to that well operator and any portions of the log

that pertain to meter installations provided by the defendant.

(D) At any time, if the defendant's Antitrust Compliance Officer

learns of any past or future violations of Section IV of this Final

Judgment, the defendant shall, within 45 days after such knowledge is

obtained, take apporpriate action to terminate or modify the activity

so as to comply with this Final Judgment.

VII

Certification

(A) Within 75 days after the entry of this Final Judgment, the

defendant shall certify to the plaintiff whether it has designated an

Antitrust Compliance Officer and has distributed the Final Judgment in

accordance with Section VI above.

(B) For each year of the term of this Final Judgment, the defendant

shall file with the plaintiff, on or before the anniversary date of

entry of this Final Judgment, a statement as to the fact and manner of

its compliance with the provisions of Section VI above.

VIII

Plaintiff Access

(A) To determine or secure compliance with this Final Judgment and

for no other purpose, duly authorized representatives of the plaintiff

shall, upon written request of the Assistant Attorney General in charge

of the Antitrust Division, and on reasonable notice to the defendant

made to its principal office, be permitted, subject to any legally

recognized privilege:

(1) access during the defendant's office hours to inspect and copy,

at the plaintiff's expense, all documents in the possession or under

the control of the defendant, who may have counsel present, relating to

any matters contained in this Final Judgment; and

(2) subject to the reasonable convenience of the defendant and

without restraint or interference from it, to interview officers,

employees or agents of the defendant, who may have counsel present,

regarding such matters.

(B) Upon the written request of the Assistant Attorney General in

charge of the Antitrust Division made to the defendant's principal

office, the defendant shall submit such written reports, under oath if

requested, relating to any matters contained in this Final Judgment as

may be reasonably requested, subject to any legally recognized

privilege.

(C) No information or documents obtained by the means provided in

Section VIII shall be divulged by the plaintiff to any person other

than a duly authorized representative of the Executive Branch of the

United States, except in the course of legal proceedings to which the

United States is a party, or for the purpose of securing compliance

with this Final Judgment, or as otherwise required by law.

(D) If at the time information or documents are furnished by the

defendant to plaintiff, the defendant represents and identifies in

writing the [[Page 5223]] material in any such information or documents

to which a claim of protection may be asserted under Rule 26(c)(7) of

the Federal Rules of Civil Procedure, and the defendant marks each

pertinent page of such material, ``Subject to claim of protection under

Rule 26(c)(7) of the Federal Rules of Civil Procedure,'' then 10 days'

notice shall be given by plaintiff to the defendant prior to divulging

such material in any legal proceeding (other than a grand jury

proceeding) to which the defendant is not a party.

IX

Further Elements of the Final Judgment

(A) This Final Judgment shall expire ten years from the date of

entry.

(B) Jurisdiction is retained by this Court for the purpose of

enabling any of the parties to this Final Judgment to apply to this

Court at any time for further orders and directions as may be necessary

or appropriate to carry out or construe this Final Judgment, to modify

or terminate any of its provisions, to enforce compliance, and to

punish violations of its provisions.

(C) Entry of this Final Judgment is in the public interest.

ENTERED:

----------------------------------------------------------------------

UNITED STATES DISTRICT JUDGE

Notice To El Paso Natural Gas Gathering Customers

Any customer seeking to connect a well to El Paso Natural Gas

Company's (EPNG) gathering systems has the legal right to choose to

provide meter installation subject to the conditions listed below,

rather than to have EPNG provide for installation. See United States v.

El Paso Natural Gas Company, D.D.C., No. ______ (Dec. ______ 1994).

Meter installation includes the construction and connection of metering

facilities (including the meter, the meter house, and the meter run)

and the well-tie line. If a customer chooses to perform its own meter

installation, EPNG may:

1. Specify the type of metering facilities the customer must use

when connecting a well or wells to the gathering system.

2. Specify standards and procedures that must be followed for meter

installation. EPNG's standards and procedures will be applied uniformly

to any persons providing such installations, including EPNG.

3. Require that all meter installation performed by customers be

subject to inspection by EPNG to ensure compliance with any standards

and procedures specified by EPNG. The inspection process will be

uniform for all meter installations, including those meter

installations EPNG provides. The EPNG inspectors will not unreasonably

withhold any necessary approvals or impose any unreasonable compliance

requirements. EPNG inspectors will keep a contemporaneously written log

for all inspections they conduct, including any inspections of meter

installations provided by EPNG.

4. Require the customer to pay a reasonable charge for any meter

installation inspection that EPNG conducts pursuant to 3 above. Any

such charge will be calculated on a uniform basis and uniformly applied

to all meter installations, including those performed by EPNG.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, v. El Paso Natural Gas

Company, Defendant.

Case Number 1: 95CV00067

Judge: Harold H. Greene

Deck Type: Antitrust

Date Stamp: 01/12/95

Competitive Impact Statement

Pursuant to Section 2(b) of the Antitrust Procedures and Penalties

Act, 15 U.S.C. Sec. 16(b)-(h), the United States submits this

Competitive Impact Statement relating to the proposed Final Judgment

submitted for entry with the consent of defendant El Paso Natural Gas

Company (``El Paso'') in this civil antitrust proceeding.

Nature and Purpose of the Proceeding

On January 12, 1995 the United States filed a civil antitrust

Complaint alleging that El Paso had entered into a contract,

combination or conspiracy in restraint of trade in violation of Section

1 of the Sherman Act, 15 U.S.C. Sec. 1. The Complaint alleges that El

Paso, which provides natural gas gathering services in the San Juan

Basin area of New Mexico and Colorado, tied the installation of

metering facilities to the provision of its gas gathering service.

On January 12, 1995 the United States and El Paso filed a

Stipulation by which they consented to the entry of a proposed Final

Judgment designed to prevent any recurrence of such tying activity in

the future. Under the proposed Final Judgment, El Paso will be enjoined

from conditioning the provision of gas gathering service upon the

gathering customer also purchasing meter installation from El Paso. In

addition, El Paso will be required affirmatively to inform its

gathering customers that they have the option of using someone other

than El Paso to provide installation of all or part of the metering

facilities. The proposed Final Judgment allows El Paso to continue to

provide meter installation, but only after a customer has been

explicitly informed that it has the option of using someone other than

El Paso to provide this service. The decree also contains provisions to

ensure that El Paso does not disadvantage well operators who choose

competing meter installation providers.

I

Events Giving Rise to the Alleged Violation

In order to market natural gas, it must be carried by pipeline from

the point of production to the point of use. Without transportation

away from the well, natural gas has virtually no value, and no means of

transportation other than via pipeline is economical. To market gas, it

is first ``gathered'' from wells through small diameter pipes. The gas

is then fed from the gathering system into one or more interstate

pipelines that carry the gas to local distribution systems which in

turn deliver the gas to the end users (consumers). Thus, gathering is

an essential step in getting natural gas to market. Because of scale

economies and network efficiencies associated with pipelines, it is

often uneconomical associated with pipelines, it is often uneconomical

for a producer to be served by more than one pipeline system.

The San Juan Basin is a natural gas production area located in

northwestern New Mexico and southern Colorado. El Paso's gas gathering

system permeates the basin. Many of the producers that have wells

connected to El Paso's San Juan gathering system have no alternative

means of transportation. El Paso's San Juan gathering system is

regulated by the Federal Energy Regulatory Commission (``FERC''). FERC

regulations require El Paso to limit to a published tariff rate the

amount that it may charge for gathering. The FERC does not regulate the

rate that El Paso charges for meter installation associated with the

provision of its gathering service.

El Paso provides gathering at a charge based upon the volume of gas

transported. A meter is a device used to measure the volume of gas

flowing from a well into the gathering system. Connecting a well to the

gathering system involves laying pipe from the well-head to the

gathering pipeline. At the same time, metering equipment is installed

at the well-head or along the pipe leading to the gathering system.

Connecting a well to the gathering system also includes placing a

``tap'', or break of the gathering pipeline wall at [[Page 5224]] the

point of interconnection with the well-tie pipeline. ``Meter

installation'' as used in the Complaint and this statement, refers to

the construction and installation of metering equipment or facilities,

as well as the construction and installation of the pipe used to

connect the metering equipment to the gathering system. Installation of

meters and associated pipe requires adherence to certain safety

precautions due to the proximity of the meter installation construction

to the existing gas gathering pipeline, as well as the need to minimize

hazards associated with future operations involving a pipe which will

carry natural gas.\1\

\1\Installation may require compliance with standards developed

by the United States Department of Transportation Office of Pipeline

Safety Standards, the American National Standards Institute, the

American Petroleum Institute, the American Society of Mechanical

Engineers and the American Society of Testing and Materials.

---------------------------------------------------------------------------

When a well operator is considering whether to drill a well in a

production area, it must determine first whether the well will be

profitable. In deciding whether to drill, the operator will consider

many factors including the gathering charge, transportation fees and

the amount of money it will have to pay initially for the construction

of the facilities necessary to hook the well to the gathering system.

In an older field such as the San Juan Basin where wells do not

generally produce at high rates, meter installation costs can make the

difference between whether or not a well is drilled, affecting whether

additional natural gas sites are made available to meet consumer

demand.

The Complaint alleges that El Paso forced customers (or ``well

operators'') who needed to purchase El Paso's gathering service to

purchase meter installation services from El Paso as well. The

Complaint also alleges that when contacted, El Paso informs a potential

gathering customer that El Paso will connect a well after the operator

has agreed that El Paso will perform the meter installation associated

with connecting that well to El Paso's system and has prepaid a flat

fee for the installation. El Paso contracts out almost all of this

construction work to other companies in the San Juan Basin and then

charges the customer for the materials, El Paso labor, and

``overheads''. ``Overheads'' account for as much as one third of the

total bill to the customer.

The speed with which a well can be connected to the gathering

system is a significant factor in determining the potential

profitability of that well. Once a well operator has agreed that El

Paso will perform the meter installation, the well operator must rely

on El Paso to schedule that installation. In many instances, El Paso

has taken a significantly longer time to complete meter installation

than it would have taken if the well operator had been able to use an

alternative to El Paso.

Over the past three years, El Paso has permitted only three well

operators, and then only reluctantly, to perform meter installation

using their own contractors, and El Paso's permission in those three

instances extended to only a limited number of well connections. Each

of these operators concluded that they could perform the installation

for substantially less cost than El Paso, even if they had to follow El

Paso's specifications when doing so. These well operators were able to

perform meter installation at each well for nearly one-half of the El

Paso construction cost estimate, thereby saving from $5,000 to $7,000

per well on each of the 121 wells they connected. Since 1991, a total

of 453 wells have been connected to El Paso's gathering system.

However, El Paso predicts that a significantly larger number of wells,

2200 or more, will be connected to its gathering system over the next

five years. If well operators are able to secure like savings, either

from third party competitors or from El Paso responding to the new

competitive environment, then well operators in the San Juan Basin will

likely save from $11 to $15 million dollars over the next five year

period. Depending upon the number of new wells connected over the ten

year life of the proposed Final Judgment, savings could reach the tens

of millions of dollars.

III

Explanation of the Proposed Final Judgment

The proposed Final Judgment is designed to prevent El Paso from

tying the service of meter installation to the provision of gathering

on its San Juan gathering system. The proposed Final Judgment

explicitly prohibits such tying. Section IV(A) provides that El Paso

may not condition the provision of gathering upon a well operator

agreeing to purchase either the metering equipment or its installation

from El Paso.

The proposed Final Judgment does not, however, prohibit El Paso

from providing meter installation in the future. The proposed Final

Judgment, therefore, contains a number of safeguards to ensure that in

the future El Paso makes known to its gathering customers that they

have the option of providing their own meter installation and gives its

customers sufficient information to make a reasoned choice. To this

end, at the time of any initial inquiry concerning gathering and

connection to its gathering system, Section IV(D) of the proposed Final

Judgment requires El Paso to fully disclose to the well operator that

the operator has the option of having someone other than El Paso

provide meter installation. Compliance with this section requires that

El Paso provide the well operator with written notice that the customer

has the right pursuant to this Final Judgment to choose a construction

company other than El Paso; provide an estimate of all charges that El

Paso will require from the well operator, both if the operator selects

El Paso to do the installation and if it does not; provide the operator

with sample copies of the contracts that El Paso will use if the

operator chooses to have El Paso do the installation or selects to have

someone other than El Paso do the meter installation; and, provide a

copy of the specifications, standards, and procedures that El Paso will

require the operator to follow if the operator performs the

installation. With this information, the well operator will be able to

make an informed choice as to whether to use El Paso or another

contractor for meter installation.

The proposed Final Judgment recognizes that El Paso has a

reasonable need to assure the safety and integrity of its gathering

system, and may have some legitimate concerns regarding its liability

when well operators perform meter installations for wells connecting to

its gathering system. Pipe and equipment that connect to El Paso's

gathering pipeline can pose safety hazards if they are constructed in a

substandard manner or with faulty materials.

Section V(E) of the proposed Final Judgment permits El Paso to

protect its safety and liability concerns consistent with the tying

prohibition found in Section IV(A). Connection of the well-tie line

requires a ``tap'' into the gathering pipeline--an actual opening into

the pipe. Welding and other construction of lines carrying natural gas

must be done in a manner that safeguards the workers and the pipe

involved. For this reason, Section V(E) allows El Paso to require well

operators to use El Paso or El Paso contractors for the tap, but limits

the price that El Paso may charge for this service.

In recognition of El Paso's safety and liability concerns, Sections

V(A)-(B) permit El Paso to specify to well operators reasonable

specifications for the construction and installation of metering

facilities. At the same time, these sections also set forth conditions

[[Page 5225]] that limit El Paso's discretion regarding the type of

standards and procedures El Paso may require and the manner in which it

implements these standards and procedures. These limiting conditions

will ensure that El Paso will not use its standard setting practices to

discourage its gathering customers from using other contractors for

meter installation in the future. Thus, specifications that have the

effect of steering well operators to use of El Paso or El Paso-provided

equipment for meter installation would violate this Final Judgment.

Similarly, El Paso has a bonafide interest in providing maintenance

for meter equipment connected to its system because such maintenance is

necessary to assure continuing provision of safe and efficient gas

gathering. For this reason, Section IV(C) of the proposed Final

Judgment allows El Paso to provide maintenance and to recover the cost

for such maintenance, but only in the rate for gathering charged all

gathering customers.

Well operators generally connect new wells again and again over the

years. The proposed Final Judgment prevents El Paso from implementing

practices designed, or having the effect when implemented, to

discourage well operators who elect to perform their own meter

installation from exercising that option again. Thus, although Section

V permits El Paso to set standards and procedures that a well operator

must follow when installing meters connected to El Paso gathering

system, and to require well operators to submit their installations to

inspection by El Paso, it places certain restrictions on El Paso to

assure that its specifications, procedures and inspections do not

impose undue cost or delay.

As a means of monitoring El Paso's conduct with respect to the

requirements it imposes, Section V(C) of the proposed Final Judgment

provides that if El Paso does require meter installation inspections,

its inspectors must create logs of their inspections of both El Paso

and non-El Paso installations. El Paso must maintain these logs and

made them available to well operators that choose to perform their own

meter installation. To assure well operators timely access to these

logs, the proposed Final Judgment (Section IV(E)) requires that any

contract between a well operator and El Paso that provides for meter

installation inspections must also contain a clause giving the well

operator access to inspections records. These well operators will then

be able to examine logs for their installation jobs and compare logs

pertaining to meter installations performed by El Paso to aid in

determining whether El Paso is conducting uniform and reasonable

inspections.

Finally, the Final Judgment (Section IV(E)) requires that El Paso

must give the well operator the unconditional option of including a

clause in the meter installation contract that would permit the well

operator to elect binding arbitration rather than court litigation to

resolve differences under the contract.

The United States is satisfied that the proposed Final Judgment

sufficiently resolves the antitrust violations alleged in the

Complaint. The provisions of the proposed Final Judgment should prevent

any future tying activities, and will allow El Paso to safeguard the

integrity and safety of its own gathering system while at the same time

assuring that those operators who choose to perform their own meter

installation are not indirectly burdened by El Paso for their choice.

Compliance with the proposed Final Judgment would prevent any

recurrence of the violations alleged in the Complaint, and thus

provides complete relief.

IV

Remedies Available to Potential Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any

person who has been injured in his business or property as a result of

conduct forbidden by the antitrust laws may bring suit in Federal court

to recover three times the damages suffered, as well as costs and

reasonable attorneys fees. Entry of the proposed Final Judgment will

neither impair nor assist the brining of any private antitrust damage

action. Under the provisions of Section 5(a) of the Clayton Act, 15

U.S.C. Sec. 16(a), the proposed Final Judgment has no prima facie

effect in any subsequent private lawsuit that may be brought.

V

Procedure Available for Modification of the Proposed Final Judgment

The United States and defendant have stipulated that the proposed

Final Judgment may be entered by the Court after compliance with the

provisions of the APPA, provided that the United States has not

withdrawn its consent. The APPA conditions entry upon the Court's

determination that the proposed Final Judgment is in the public

interest.

The APPA provides a period of at least 60 days preceding the

effective date of the proposed Final Judgment within which any person

may submit to the United States written comments regarding the proposed

Final Judgment. Any person who wishes to comment should do so within 60

days of the date of publication of this Competitive Impact Statement in

the Federal Register. The United States will evaluate the comments,

determine whether it should withdraw its consent, and respond to

comments. The comments and the response of the United States will be

filed with the Court and published in the Federal Register.

Written comments should be submitted to: Roger W. Fones, Chief,

Transportation, Energy, and Agriculture Section, Antitrust Division,

Judiciary Center Building, 555 4th Street, N.W., Rm 9104, Washington,

D.C. 20001.

VI

Alternative to the Proposed Final Judgment

The alternative to the proposed Final Judgment would be a full

trial of the case against El Paso. In the view of the Department of

Justice, such a trial would involve substantial cost to the United

States and is not warranted because the proposed Final Judgment

provides relief that will remedy the violations of the Sherman Act

alleged in the United States' Complaint.

VII

Determinative Materials and Documents

There are no materials or documents that the United States

considered to be determinative in formulating this proposed Final

Judgment. Accordingly, none are being filed with this Competitive

Impact Statement.

Dated: January 12, 1995.

Respectfully submitted.

Anne K. Bingaman,

Assistant Attorney General Antitrust Division.

Jade Alice Eaton,

Attorney, U.S. Department of Justice, Antitrust Division,

Transportation, Energy, and Agriculture Section, Judiciary Center

Building, 555 Fourth Street, N.W., Washington, DC 20001. (202) 307-

6316.

Certificate of Service

I hereby certify that I have caused a copy of the foregoing

COMPLAINT, STIPULATION, proposed FINAL JUDGMENT, and COMPETITIVE

IMPACT STATEMENT to be served upon counsel in this matter in the

manner set forth below:

By hand: Mary Anne Mason, Andrews & Kurth, L.L.P., 1701

Pennsylvania Avenue, N.W., Washington, D.C. 20006.

[[Page 5226]] Dated: January 12, 1995.

Jill A. Ptacek,

Antitrust Division, U.S. Department of Justice, 555 4th Street, N.W.,

Washington, D.C. 20001, (202) 307-6607.

[FR Doc. 95-1989 Filed 1-25-95; 8:45 am]

BILLING CODE 4410-01-M