Proposed Final Judgment and Competitive Impact Statement; United States v. Enova Corporation

DEPARTMENT OF JUSTICE

Antitrust Division

Proposed Final Judgment and Competitive Impact Statement; United

States v. Enova Corporation

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 Columbia in

United States v. Enova Corporation, Civil No. 98-CV-583 (TFH). The

proposed Final Judgment is subject to approval by the Court after the

expiration of the statutory 60-day public comment period and compliance

with the Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-

(h).

On March 9, 1998, the United States filed a Complaint seeking to

enjoin a transaction in which Pacific Enterprises (``Pacific'') would

merge with Enova Corporation (``Enova''). Pacific is a California gas

utility company and Enova is a California electric utility company.

Enova sells electricity from plants that use coal, gas, nuclear power,

and hydropower. Pacific is virtually the sole provider of natural gas

and transportation storage services to plants in southern California.

The proposed merger would have created a company with both the

incentive and the ability to lessen competition in the market for

electricity in California. The Complaint alleged that the proposed

merger would substantially lessen competition in the market for

electricity in California during high demand periods in violation of

Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.

The proposed Final Judgment, filed contemporaneously with the

Complaint, (1) orders Enova to sell certain of its generating assets to

a purchaser or purchasers acceptable to the United States; and (2)

limits Enova's ability to acquire similar assets. The Stipulation also

imposes a hold separate agreement that, in essence, requires the

defendant to ensure that, until the divestiture mandated by the Final

Judgment has been accomplished, Enova's generators subject to the

divestiture will be held separate and apart from, and operated

independently of, any of its other Enova assets and businesses. A

competitive Impact Statement filed by the United States describes the

Complaint, the proposed Final Judgment, and remedies available to

private litigants.

Public comment is invited within the statutory 60-days comment

period. Such comments, and responses thereto, will be published in the

Federal Register and filed with the Court. Written comments should be

directed to Roger W. Fones, Chief, Transportation, Energy, and

Agriculture Section, Antitrust Division, 325 Seventh Street, NW., Suite

500, Washington, DC 20530 (telephone (202) 307-6351).

Copies of the Complaint, Stipulation, proposed Final Judgment, and

Competitive Impact Statement are available for inspection in Room 215

of the U.S. Department of Justice, Antitrust

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Division, 325 Seventh Street, NW., Washington, DC 20530 (telephone:

(202) 514-2481) and at the office of the Clerk of the United States

District Court for the District of Columbia, 333 Constitution Avenue.,

NW., Washington, DC 20001. Copies of any of the materials may be

obtained upon request and payment of a copying fee.

Constance K. Robinson,

Director of Operations & Merger Enforcement, Antitrust Division.

United States District Court, District of Columbia

United States of America, Plaintiff, v. Enova Corporation,

Defendant. Civil Action No. 1:98CV00583. Filed: March 9, 1998.

Judge: Thomas Hogan.

Stipulation and Order

It is stipulated by and between the undersigned parties, through

their respective attorneys, that:

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

action and over each of the parties hereto, 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 United States 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 Defendant and by

filing that notice with the Court.

3. Defendant shall abide by and comply with the provisions of the

proposed Final Judgment pending entry of the Final Judgment, or until

expiration of time for all appeals of any court ruling declining entry

of the proposed Final Judgment, and shall, from the date of signing of

this Stipulation, comply with all terms and provisions of the proposed

Final Judgment as though the same were in full force and effect as an

order of the Court.

4. This Stipulation shall apply with equal force and effect to any

amended proposed Final Judgment agreed upon in writing by the parties

and submitted to the Court.

5. In the event Plaintiff United States withdraws its consent, as

provided in Paragraph 2, above, or if the proposed Final Judgment is

not entered pursuant to this Stipulation, the time has expired for all

appeals of any Court ruling declining entry to the Final Judgment, and

the Court has not otherwise ordered continued compliance with the terms

and provisions of the proposed Final Judgment, then the parties are

released from all further obligations under this Stipulation, and the

making of this Stipulation shall be without prejudice to any party in

this or any other proceeding.

6. Defendant represents that the divestiture ordered in the

proposed Final Judgment can and will be made, and that they will later

raise no claims of hardship or difficulty as grounds for asking the

Court to modify any of the divestiture provisions contained therein.

Respectfully submitted.

For Plaintiff

United States of America

Jade Alice Eaton,

DC Bar # 939629.

Andrew K. Rosa,

HI Bar # 6366, Attorneys, Antitrust Division, U.S. Department of

Justice, 325 Seventh St., NW., Washington, DC 20004, (202) 307-6316,

(202) 307-0886.

For Defendant

Enova Corporation

Steven C. Sunshine,

DC Bar # 450078, Shearman & Sterling, 801 Pennsylvania Avenue, NW.,

Washington, DC 20004, (202) 508-8022.

Dated: March 9, 1998.

Order

It is so ordered, this ________ day of ____________________, 1998.

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

United States District Court Judge

Final Judgment

Whereas Plaintiff United States of America (hereinafter ``United

States''), having filed its Complaint herein on March 9, 1998, and

Plaintiff and Defendant, by their respective attorneys, having

consented to the entry of this Final Judgment without trail or

adjudication of any issue of fact or law herein, and without this Final

Judgment constituting any evidence against or an admission by any party

with respect to any issue of law or fact herein;

And whereas Defendant has agreed to be bound by the provisions of

this Final Judgment pending its approval by the Court;

And whereas the essence of this Final Judgment is divestiture of

assets to ensure that competition, as alleged in the Complaint, is not

substantially lessened;

And whereas Plaintiff requires Defendant to make certain

divestitures for the purpose of remedying the loss of competition

alleged in the Complaint;

And whereas Defendant has represented to Plaintiff that as to the

divestiture ordered herein Defendant will later raise no claims of

hardship or difficulty as grounds for asking the Court to modify any of

the divestiture provisions contained below;

Now, therefore, before the taking of any testimony, and without

trail or adjudication or admission of any issue of fact or law herein,

and upon consent of the parties hereto, it is hereby Ordered, Adjudged,

and Decreed as follows:

I. Jurisdiction

This Court has jurisdiction over each of the parties hereto and the

subject matter of this action. The Complaint states a claim upon which

relief may be granted against Defendant under Section 7 of the Clayton

Act, as amended. 15 U.S.C.A. Sec. 18 (West 1997).

II. Definitions

As used in this Final Judgment:

A. ``Acquire'' means obtaining any interest in any electricity

generating facilities or capacity, including, but not limited to, all

real property, deeded development rights to real property, capital

equipment, buildings, fixtures, or contracts related to the generation

facility, and including all generations, tolling, reverse tolling, and

other contractual rights.

B. ``California Generation Facilities'' means (1) electricity

generation facilities in California in existence in January 1, 1998,

excluding such facilities that are rebuilt, repowered, of activated out

of dormancy after January 1, 1998, as long as such rebuild, repower, or

activation out of dormancy project, if done by Defendant, begins with

one year of purchase; and (2) any contract for operation and sale of

output from generating assets of the Los Angeles Department of Water

and Power (``LADWP'').

C. ``California Public Power Generation Management Services

Contract'' means a bona fide contract for managing for operation and

sale of output from California Generation Facilities owned by a

municipality, an irrigation district, other California state authority,

or their agents on January 1, 1998; provided, however, that a contract

for managing the operation and sale of output from generation assets of

LADWP shall not be deemed a California Public Power Generation

Management Services Contract.

D. ``Common Facilities'' means those facilities associated with the

generation assets to be divested that are located on

[[Page 33398]]

or near such assets, and that are necessary to the operation of non-

generating aspects of Enova's electric business, including, but not

limited to, the operation of Enova's distribution, transmission, and

communications systems.

E. ``Control'' means to have the ability to set the level of output

of an electricity generation facility.

F. ``Divestiture Assets'' means the Encina and South Bay

electricity generation facilities owned by Enova at Carlsbad and Chula

Vista, California, including, but not limited to, all real property

rights necessary to the operation of the facilities; buildings,

generation equipment, inventory, fixed assets and fixtures, materials,

supplies, on-site warehouses or storage facilities, and other tangible

property to improvements used in the operation of the facilities;

licenses, permits (including but not limited to environmental permits

and all permits from federal or state agencies), and authorizations

issued by any governmental organization relating to the facilities, and

all work in progress on permits or studies undertaken in order to

obtain permits; plans for design or redesign of these electricity

generating assets; contracts (including but not limited to customer

contracts), agreements, leases, commitments, and understandings

pertaining to the facilities and their operations; customer lists, and

marketing or consumer surveys relating to these electricity generating

assets; contracts for firm capacity and energy of longer than three

months relating to these assets; records maintained by Enova necessary

to operation of these assets; and all other interests, assets or

improvements customarily used in the generation of electricity at these

facilities.

G. The terms ``Enova'' and ``Defendant'' mean Enova Corporation, a

California corporation headquartered in San Diego, California, and

includes its successors and assigns, and its parents, subsidiaries,

directors, officers, managers, agents, and employees acting for or on

behalf of any of them.

H. The terms ``Independent System Operators'' or ``ISO'' means an

entity that operates the intrastate gas transmission pipelines and

related facilities of Pacific Enterprises. ``Operates'' includes full

operational and pricing control over all such facilities and total

authority to determine whether and how much capacity is available in

the intrastate pipeline, whether curtailment of transmission service is

require on any part of that system, whose service is curtailed, and the

prices to be charged.

I. ``Pacific'' means Pacific Enterprises, a California corporation

headquartered in Los Angeles, California, and includes its successors

and assign, and its parents, subsidiaries, directors, officers,

managers, agents, and employee acting for or on behalf of any of them.

J. ``Portland General Electric Contract'' means the contracts,

dated November 15, 1985, for 75 MW of firm capacity and associated

transmission.

K. The terms ``Auction Procedures'' and ``California Auction

Procedures'' mean the auction procedures set forth in a decision

addressing Enova's application under section 851 of the California

Public Utilities Code to divest the Divestiture Assets.

L. The term ``Southern California'' means the counties in

California currently served by Pacific's gas pipelines.

III. Applicability

A. The provisions of this Final Judgment apply to Defendant, its

successors and assigns, parents, subsidiaries, directors, officers,

managers, agents, and employees, and all other persons in active

concert or participation with any of them who shall have received

actual notice of this Final Judgment by personal service or otherwise.

B. Enova shall require, as a condition of the sale or other

disposition of all or substantially all of its assets, or of a lesser

business unit that includes Enova's business of intrastate transmission

and retail distribution and sale of natural gas, that the transferee

agree to be bound by the provisions of this Final Judgment.

IV. Divestiture

A. Defendant is hereby ordered and directed, in accordance with the

terms of this Final Judgment, and specifically in accordance with the

schedule in this section, to divest the Divestiture Assets to a

purchaser or purchasers acceptable to the United States, in its sole

discretion. Purchasers whose bids are accepted by the United States

under Section IV(D)(3) will be deemed acceptable.

B. Except as provided in Section VI, these divestitures shall occur

through the Auction Procedures and shall be subject to necessary

approvals by the California Public Utilities Commission (``CPUC'') and

other governmental authorities.

C. Defendant shall use its best efforts to accomplish the

divestiture as expeditiously as possible, but in any event within the

schedule set forth in Section IV(E) below. These efforts shall include,

but are not limited to, making the necessary regulatory filings and

applications in a timely fashion and using its reasonable best efforts

to obtain such approvals as expeditiously and timely as possible.

D. Certain Conditions on the Auction Procedures.

1. Enova may reject any bid submitted by any party for all or part

of the Divestiture Assets if the bid offers consideration in an amount

less than the book value of such assets as reflected on the most recent

regularly prepared balance sheet of Enova at the time the bid is

submitted; provided, however, that nothing in this section shall

prevent the CPUC from setting a minimum bid price or rejecting any bid

on the basis of price or otherwise.

2. Enova may structure its requests for bids to require reasonable

easements, licenses, and other arrangements for the continued operation

of Common Facilities by Enova.

3. Before Enova can accept a bid by a potential purchaser received

under the Autcion Procedures with respect to any of the Divestiture

Assets to be divested, the bid must be screened by the United States as

specified in this section. Enova shall provide to the United States

copies of all bids and any other documents submitted by any potential

purchaser pursuant to the Auction Procedures. The United States shall

have thirty days from the date it receives a copy of a bid to notify

Enova that the potential bid is unacceptable with respect to any of the

Divestiture Assets specified in the bid; provided, however, the United

States may extend the thirty-day review period for any such bid for one

additional thirty-day period by providing written notice to Enova;

provided further, in all cases the period for review of potential bids

by the United States shall expire no later than the earlier of five

days prior to the date set by the CPUC for submission of the proposed

winning bid by Enova or the thirty-day period (with one possible

thirty-day extension) described above. If the United States does not

notify Enova that a proposed bid is unacceptable within the applicable

time period specified above, the purchaser making such bid shall be

deemed acceptable by the United States with respect to all of the

Divestiture Assets specified in that bid. The United States shall base

its review of all potential bids screened pursuant to this paragraph

solely on the criteria identified in Section IV(I) of this Final

Judgment. The United States shall take all appropriate and necessary

steps to keep the information received pursuant to this section

confidential.

E. Timing.

[[Page 33399]]

1. Enova shall submit applications for authorization and approval

of the auctions specified in Paragraph IV(B) above for the Divestiture

Assets no later than ninety days after notice of entry of this Final

Judgment.

2. Enova shall complete the sale of the Divestiture Assets as soon

as practical after the receipt of all necessary governmental approvals;

provided, however, if the sale of any of the Divestiture Assets is not

completed within eighteen months after the date of the entry of this

Final Judgment, a trustee shall be appointed pursuant to Section VI of

this Final Judgment to effect the divestiture of any unsold assets;

provided further, the United States may extend the eighteen-month

period by six months by servicing written notice on Enova prior to the

expiration of the eighteen-month period; provided further, Enova and

the United States may be mutual agreement extend further the time in

which any of the Divestiture Assets shall be sold.

F. In accomplishing the divestiture ordered by this Final Judgment,

Defendant promptly shall make known, by usual and customary means, the

availability of the Divestiture Assets. The California Auction

Procedures shall be deemed to satisfy this requirement. Defendant shall

inform any person making an inquiry regarding a possible purchase that

the sale is being made pursuant to this Final Judgment and provide such

person with a copy of this Final Judgment. Defendant shall make known

to any person making an inquiry regarding a possible purchase of the

Divestiture Assets that the assets defined in Section II(F) are being

offered for sale. Defendant shall also offer to furnish to all bona

fide prospective purchasers, subject to customary confidentiality

assurances, all information regarding the Divestiture Assets

customarily provided in a due diligence process except such information

subject to attorney-client privilege or attorney work-product

privilege. Defendant shall make available such information to Plaintiff

at the same time that such information is made available to any other

person.

G. Defendant shall not interfere with any negotiations by any

purchaser to employ any employee of the Defendant necessary to the

operation of Divestiture Assets.

H. Defendant, shall, at minimum, permit prospective purchasers of

the Divestiture Assets to have reasonable access to personnel and to

make such inspection of the Divestiture Assets, and any and all

financial, operational, or other documents and information customarily

provided as part of a due diligence process.

I. Unless the United States otherwise consents in writing, the

divestiture or divestitures pursuant to this section, or by the trustee

appointed pursuant to Section VI of this Final Judgment, shall include

the Divestiture Assets as specified in this Final Judgment (though not

necessarily all to the same purchaser) and be accomplished by selling

or otherwise conveying the Divestiture Assets to a purchaser or

purchasers in such a way as to satisfy the United States, in its sole

discretion, that none of the terms of any agreement between any

purchaser and Defendant give Defendant the ability unreasonably to

raise the purchaser's costs, to lower the purchaser's efficiency, or

otherwise to interfere in the ability of the purchaser to compete

effectively in the provision of electricity in California; provided,

however, the purchaser need not continue operation of these assets.

V. Acquisition

A. General Prohibitions.

1. Defendant is enjoined from acquiring California Generation

Facilities without prior notice to and approval of the United States.

Such prior approval shall be within the sole discretion of the United

States.

2. Defendant is enjoined from entering into any contracts that

allow Defendant to control any California Generation Facilities without

prior notice to and approval of the United States. Such prior approval

shall be within the sole discretion of the United States.

B. Limitations on Prohibitions.

1. Acquisition cap--Defendant may acquire or control California

Generation Facilities without prior approval of the United States if

Defendant does not own or control, in the aggregate, more than 500 MW

of capacity of California Generation Facilities. The capacity of

Defendant's existing nuclear generation assets are excluded from the

calculation of whether the 500 MW cap has been reached so long as the

prices Enova receives for electricity generated by the existing nuclear

generation assets are fixed by law or regulation. The Portland General

Electric Contract capacity (75 MW) shall be included in the calculation

of whether the 500 MW cap has been reached (reducing the total

available to 425 MW), unless and until the Portland General Electric

Contract terminates or is divested. The capacity of the Divestiture

Assets shall be included in the calculation of whether the 500 MW cap

has been reached, as long as Defendant owns such assets.

2. Acquisitions above the cap--In any event, the Defendant may

acquire or control, California Generation Facilities in excess of 500

MW, subject to the prior approval of the United States as provided in

Paragraphs V(A)(1) and V(A)(2).

C. Exceptions.

1. Outside California--Defendant may own, operate, control, or

acquire any electricity generation facilities other than California

Generation Facilities.

2. Cogeneration facilities--Defendant may own, operate, or control

any cogeneration or renewable generation facilities in California.

3. Tolling agreements--Defendant may enter into tolling and reverse

tolling agreements with any electricity generation facilities in

California, provided Defendant does not control such facilities;

provided further, that all such tolling and reverse tolling agreements

include the following provision: ``In accordance with the Final

Judgment in United States v. Enova Corporation, entered on [date],

Enova's successors and their affiliates shall not have any ability to

set the level of output of this electricity generation facility.''

4. California Public Power Generation Management Services

Contracts.--Defendant's entry into California Public Power Generation

Management Services Contracts is not prohibited under Section V(A)(2)

above, regardless of whether the contract allows for Defendant to

exercise control of such facilities, and such contracts shall not be

included in the calculation of whether the Acquisition Cap in Section

V(B)(1) has been reached; provided however, Defendant may not enter

into California Public Power Generation Management Services Contracts

that allow the Defendant to exercise control of such facilities,

without notice to the United States.

5. Notification of California Public Power Generation Management

Services Contracts--Unless such transaction is otherwise subject to the

reporting and waiting period requirements of the Hart-Scott-Rodino

Antitrust Improvements Act of 1976, as amended, 15 U.S.C.A. Sec. 18a

(West 1997) (``HSR Act''), for each California Public Power Generation

Management Services Contract it enters for which notice is required,

Defendant shall provide notice thereof to the United States as follows:

a. Notification shall be provided within five days of acceptance of

the contract, and shall include copies of all contracts, the names of

the principal representatives of the parties to the agreement who

negotiated the agreement, and any management or strategic plans

discussing the California Public Power Generation Management

[[Page 33400]]

Services Contract that was the subject of the transaction.

b. This Section shall be broadly construed and any ambiguity or

uncertainty regarding the filing of notice under this Section shall be

resolved in favor of filing notice.

D. Methods of Obtaining Prior Approvals and of Providing Notice--

Defendant shall obtain prior approval and provide notice by sending the

required materials to Chief, Transportation, Energy, and Agriculture

Section, Antitrust Division, United States Department of Justice, 325

Seventh Street, N.W., Suite 500, Washington, DC 20004.

E. Other Legal Requirements--Nothing in this section limits the

Defendant's responsibility to comply with the requirements of the HSR

Act, with respect to any acquisition.

VI. Appointment of Trustee

A. In the event that Defendant has not divested all of the

Divestiture Assets within the time specified in Section IV of this

Final Judgment, the Court shall appoint, on application of the United

States, a trustee selected by the United States to effect the

divestiture of the assets.

B. At or anytime after the appointment of the trustee, if either

party believes a conflict may exist between this Final Judgment and an

order of the CPUC relating to the Divestiture Assets, that party may

move the Court for a resolution of the conflict in light of the status

of any relevant CPUC proceeding and the purpose of this Final Judgment.

C. After the appointment of the trustee becomes effective, the

trustee shall have the right to sell the Divestiture Assets. The

trustee shall have the power and authority to accomplish the

divestiture at the best price then obtainable upon a reasonable effort

by the trustee, subject to the provisions of Sections VI and VII of

this Final Judgment, and shall have such other powers as the Court

shall deem appropriate. Subject to Section VI(D) of this Final

Judgment, the trustee shall have the power and authority to hire at the

cost and expense of Defendant any investment bankers, attorneys, or

other agents reasonably necessary in the judgment of the trustee to

assist in the divestiture, and such professionals and agents shall be

accountable solely to the trustee. The trustee shall have the power and

authority to accomplish the divestiture at the earliest possible time

to a purchaser acceptable to the United States, in its sole judgment.

Defendant shall not object to a sale by the trustee on any grounds

other than the trustee's malfeasance. Any such objections by Defendant

must be conveyed in writing to Plaintiff and the trustee no later than

ten calendar days after the trustee has provided the notice required

under Section VII of this Final Judgment.

D. The trustee shall serve at the cost and expense of Defendant, on

such terms and conditions as the Court may prescribe, and shall account

for all monies derived from the sale of the assist sold by the trustee

and all costs and expenses so incurred. After approval by the Court of

the trustee's accounting, including fees for its services and those of

any professionals and agents retained by the trustee, all remaining

money shall be paid to Enova and the trust shall then be terminated.

The compensation of such trustee and of any professionals and agents

retained by the trustee shall be reasonable in light of the value of

the Divestiture Assets and based on a fee arrangement providing the

trustee with an incentive based on the price and terms of the

divestiture and the speed with which it is accomplished.

E. After the appointment of the trustee becomes effective,

Defendant shall take no action to interfere with or impede the

trustee's accomplishment of the required divestiture, and shall use its

best efforts to assist the trustee in accomplishing the required

divestiture, including best efforts to effect all necessary regulatory

approvals. Subject to a customary confidentiality agreement, the

trustee and any consultants, accountants, attorneys, and other persons

retained by the trustee shall have full and complete access to the

personnel, books, records, and facilities related to the Divestiture

Assets, and Defendant shall develop such financial or other information

relevant to the Divestiture Assets to be divested customarily provided

in a due diligence process as the trustee may reasonably request.

Defendant shall permit prospective purchasers of the Divestiture Assets

to have access to personnel and to make such inspection of physical

facilities and any and all financial, operational or other documents

and information as may be relevant to the divestiture required by this

Final Judgment.

F. After the appointment of the trustee becomes effective, the

trustee shall file monthly reports with Defendant, the United States,

and the Court, setting forth the trustee's efforts to accomplish

divestiture of the Divestiture Assets as contemplated under this Final

Judgment; provided, however, that to the extent such reports contain

information that the trustee deems confidential, such reports shall not

be filed in the public docket of the Court. Such reports shall include

the name, address and telephone number of each person who, during the

preceding month, made an offer to acquire, expressed an interest in

acquiring, entered into negotiations to acquire, or was contacted or

made an inquiry about acquiring, any interest in the Divestiture

Assets, and shall describe in detail each contact with any such person

during that period. Defendant may request that information in such

reports that has been provided as confidential by the Defendant be

deemed confidential by the trustee. If the trustee does not deem the

information to be confidential, the information shall not be made

public before Defendant has an opportunity to seek a protective order

from the Court. The trustee shall maintain full records of all efforts

made to divest these operations.

G. If the trustee has not accomplished the divestiture required by

Section IV of this Final Judgment within six months after the

appointment of the trustee becomes effective, the trustee shall

promptly file with the Court a report setting forth (1) the trustee's

efforts to accomplish the required divestiture, (2) the reasons, in the

trustee's judgment, why the required divestiture has not been

accomplished, and (3) the trustee's recommendations; provided, however,

that to the extent such reports contain information that the trustee

deems confidential, such reports shall not be filed in the public

docket of the Court. The trustee shall at the same time furnish such

reports to Defendant and the United States, who shall each have the

right to be heard and to make additional recommendations. The Court

shall thereafter enter such orders as it shall deem appropriate to

accomplish the purposes of this Final Judgment, which shall, if

necessary, include extending the term of the trustee's appointment by a

period requested by the United States.

VII. Notification

Within two business days following execution of a definitive

agreement, contingent upon compliance with the terms of this Final

Judgment, to effect, in whole or in part, any proposed divestiture

pursuant to Sections IV or VI of this Final Judgment, Defendant of the

trustee, whichever is then responsible for effecting the divestiture,

shall notify Plaintiff of the proposed divestiture. If the trustee is

responsible, it shall similarly notify Defendant. The notice shall set

forth the details of the proposed transaction and list the name,

address, and telephone number of each person not previously identified

who

[[Page 33401]]

offered to, or expressed an interest in or a desire to, acquire any

ownership interest in the assets that are the subject of the binding

contract, together with full details of same. Within fifteen calendar

days of receipt by Plaintiff of such notice, Plaintiff may request from

Defendant, the proposed purchaser, any other third party, or the

trustee, if applicable, additional information concerning the proposed

divestiture and the proposed purchaser. Defendant and the trustee shall

furnish any additional information requested within fifteen calendar

days of the receipt of the request, unless the parties shall otherwise

agree. Within thirty calendar days after receipt of the notice or

within twenty calendar days after Plaintiff has been provided the

additional information requested from Defendant, the proposed

purchaser, any third party, and the trustee, if there is one, whichever

is later, the United States shall provide written notice to Defendant

and the trustee, if there is one, stating whether or not it objects to

the proposed divestiture. If the United States provides written notice

to Defendant and the trustee that it does not object, then the

divestiture may be consummated, subject only to Defendant's limited

right to object to the sale under Section VI(C) of this Final Judgment.

Absent written notice that the United States does not object to the

proposed purchaser or upon objection by the United States, a

divestiture proposed under Section IV or Section VI shall not be

consummated. Upon objection by Defendant under the proviso in Section

VI(C), a divestiture proposed under Section VI shall not be

consummated. Provided, however, a proposed divestiture pursuant to the

Auction Procedures approved by the United States under Section IV(D)(3)

of this Final Judgment shall be deemed acceptable to the United States

under this section.

VIII. Affidavits

A. Within thirty calendar days of the filing of this Final Judgment

and every forty-five calendar days thereafter until the divestiture has

been completed whether pursuant to Section IV or Section VI of this

Final Judgment, Enova shall, with respect to Divestiture Assets,

deliver to Plaintiff an affidavit as to the fact and manner of

Defendant's compliance with Sections IV or VI of this Final Judgment.

Each such affidavit shall include, inter alia, the name, address, and

telephone number of each person who, at any time after the period

covered by the last such report, made an offer to acquire, expressed an

interest in acquiring, entered into negotiations to acquire, or was

contacted or made an inquiry about acquiring, any interest in the

Divestiture Assets, and shall describe in detail each contact with any

such person during that period. Each such affidavit shall also include

a description of the efforts that Defendant has taken to solicit a

buyer from the Divestiture Assets and to provide required information

to prospective purchasers, including the limitations, if any, on such

information.

B. For Divestiture Assets being sold using the California Auction

Procedures, during such Auction Procedures, submission of bids to the

United States in compliance with Section IV shall satisfy compliance

with the required contents of the affidavits in Section VII(A).

C. Within twenty calendar days of the filing of this Final

Judgment, Defendant shall deliver to Plaintiff an affidavit which

describes in detail all actions Defendant has taken and all steps

Defendant has implemented on an on-going basis to preserve the

Divestiture Assets pursuant to Section X of this Final Judgment and

describes the functions, duties and actions taken by or undertaken at

the supervision of the individuals described at Section X(J) of this

Final Judgment with respect to Defendant's efforts to preserve the

Divestiture Assets. Defendant shall deliver to Plaintiff an affidavit

describing any changes to the efforts and actions outlined in

Defendant's earlier affidavits filed pursuant to this section within

thirty calendar days after the change is implemented. The United States

shall take all necessary steps to keep the information received

pursuant to this section confidential.

D. Defendant shall preserve all records of all efforts made to

preserve and divest the Divestiture Assets.

IX. Financing

Defendant shall not finance all or any part of any divestiture made

pursuant to Sections IV or VI of this Final Judgment.

X. Preservation of Assets

Until the divestiture required by the Final Judgment has been

accomplished:

A. Defendant shall take all steps necessary to ensure that the

Divestiture Assets will be maintained and operated as an ongoing,

economically viable and active competitor in the provision of

electricity; and that, except as necessary to comply with Sections X

(B) to X (K) of this Final Judgment, the management of any electricity

generating facilities shall be kept separate and apart from the

management of Defendant's other businesses and will not be influenced

by Defendant, and the books, records, and competitively sensitive

sales, marketing and pricing information associated with electricity

generating facilities will be kept separate and apart from that of

Defendant's other businesses.

B. Defendant shall use all reasonable efforts to maintain and

increase sales of electricity by the Divestiture Assets, and Defendant

shall use reasonable efforts to maintain and increase promotional,

advertising, sales, marketing, and merchandising support for wholesale

electricity sold in California.

C. Defendant shall take all steps necessary to ensure that the

Divestiture Assets are fully maintained in operable condition and shall

maintain and adhere to normal maintenance schedules for the Divestiture

Assets.

D. Defendant shall provide and maintain sufficient lines of sources

of credit to maintain the Divestiture Assets as viable, ongoing

businesses.

E. Defendant shall provide and maintain sufficient working capital

to maintain the Divestiture Assets as viable ongoing businesses.

F. Defendant shall not, except as part of a divestiture approved by

the United States, remove, sell, or transfer any of the Divestiture

Assets, other than sales in the ordinary course of business.

G. Unless it has obtained the prior approval of the United States,

Defendant shall not terminate or reduce the current employment, salary,

or benefit arrangements for any personnel employed by Defendant who

work at, or have managerial responsibility for, electricity generating

facilities, except in the ordinary course of business.

H. Defendant shall continue all efforts in progress to obtain or

maintain all permits necessary for operating their electricity

generating capacity.

I. Defendant shall take no action that would jeopardize its ability

to divest the Divestiture Assets as viable, ongoing businesses.

J. Defendant shall appoint a person or persons to oversee the

Divestiture Assets, and who will responsible for Defendant's compliance

with Section X of this Final Judgment.

K. Prior to the sale of Divestiture Assets, Enova shall not

transfer any of the Divestiture Assets to any affiliate not regulated

as a public utility by the CPUC.

XI. Compliance Inspection

Only for the purposes of determining or securing compliance with

the Final Judgment and subject to any legally recognized privilege,

from time to time:

A. Duly authorized representatives of the Plaintiff, including

consultants and other persons retained by the United

[[Page 33402]]

States, upon written request of the Assistant Attorney General in

charge of the Antitrust Division, and on reasonable notice to Defendant

made to their principal offices, shall be permitted:

1. Access during office hours of Defendant to inspect and copy all

books, ledgers, accounts, correspondence, memoranda, and other records

and documents in the possession or under the control of Defendant, who

may have counsel present, relating to enforcement of this Final

Judgment; and

2. Subject to the reasonable convenience of Defendant and without

restraint or interference from it, to interview, either informally or

on the record, its officers, employees, and agents, who may have

counsel present, regarding any such matters.

B. Upon the written request of the Assistant Attorney General in

charge of the Antitrust Division made to Defendant's principal offices,

Defendant shall submit such written reports, under oath if requested,

with respect to any matter contained in the Final Judgment.

C. No information or documents obtained by the means provided in

Section VIII or Section XI of this Final Judgment shall be divulged by

a representative of 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 Plaintiff is a

party, including grant jury proceedings, 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

Defendant to Plaintiff, Defendant represents and identifies in writing

the 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 Defendant marks each pertinent page of such

material, ``Subject to claim of protection under Rules 26(c)(7) of the

Federal Rules of Civil Procedure,'' then ten calendar days notice shall

be given by Plaintiff to Defendant prior to divulging such material in

any legal proceeding, other than a grant jury proceeding.

XII. Retention of Jurisdiction

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 such further orders and direction as may be necessary or

appropriate for the construction or carrying out of this Final

Judgment, for the modification of any of the provisions hereof, for the

enforcement of compliance herewith, and for the punishment of any

violations hereof.

XIII. Termination and Modification

A. This Final Judgment will expire on the tenth anniversary of the

date of its entry unless the Final Judgment is terminated pursuant to

Section XIII(B); provided, however, the Final Judgment will terminate

when the United States notifies Enova and the Court that Enova has

provided to the United States documentation sufficient to prove (1)

that the merger between Enova and Pacific identified in the Complaint

has been terminated; or (2) that an Independent System Operator has

assumed control of Pacific's gas pipelines within California in a

manner satisfactory to the United States. The United States shall, in

its sole discretion, determine whether the documentation proffered by

Enova is sufficient.

B. After five years from the date it is entered, this Final

Judgment shall terminate if Defendant demonstrates to the Court that

(1) it no longer owns any of its existing nuclear assets, or (2) such

assets are no long in operation, or (3) the output of those nuclear

assets is required by law or regulation to be sold at a fixed price.

C. Enova's obligation to divest an asset shall terminate if any

governmental authority permanently revokes any license or permit

necessary for the operation of such asset, properly exercises power or

eminent domain with respect to such asset, or enters into settlement

agreement with Enova regarding he disposition of such asset to a third

party.

D. Modification of Section V.

1. In the event that Defendant divests all of its existing nuclear

generation assets, the total ownership capacity limit in Section

V(B)(1) of this Final Judgment will increase to 800 MW; however, in no

event shall the total ownership capacity limit in Section V(B)(1)

exceed the greater of 500 MW or 10% of Defendant's total electricity

retail sales.

2. In the event that Defendant's total retail electricity sales at

any point exceed 8,000 MW capacity, the total capacity ownership limit

in Section V(B)(1) of this Final Judgment will be increased up to 10%

of such retail electricity sales.

XIV. Effect of Regulatory Approvals

The approvals by the United States required by his Final Judgment

for sale of Divestiture Assets are in addition to the necessary

approvals by the CPUC or any other governmental authorities for the

sale of such assets.

XV. Public Interest

Entry of this Final Judgment is in the public interest.

Dated:-----------------------------------------------------------------

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

United States District Judge

Competitive Impact Statement

The United States, pursuant to Section 2(b) of the Antitrust

Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16 (b)-(h),

files this Competitive Impact Statement relating to the proposed Final

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

The United States filed a civil antitrust Complaint on March 9,

1998, alleging that the proposed merger of Pacific Enterprises

(``Pacific'') and Enova Corporation (``Enova'') would violate Section 7

of the Clayton Act, 15 U.S.C. Sec. 18. The Complaint alleges that

Pacific is a California gas utility company and Enova is a California

electric utility company, and that this transaction would give the

combined company (``PE/Enova'') both the incentive and the ability to

lessen competition in the market for electricity in California. In

particular, this acquisition would give PE/Enova the incentive and

ability to limit the supply of natural gas to California electric power

plants, raising their costs and the price California consumers pay for

electricity. The acquisition is thus likely to lessen competition

substantially among providers of electricity, and so violate Section 7

of the Clayton Act. The prayer for relief in the Complaint seeks (1) a

judgment that the proposed acquisition would violate Section 7 of the

Clayton Act; (2) a preliminary and permanent injunction preventing

consummation of the proposed merger; (3) an award to the United States

of the costs of this action; and (4) such other relief as is proper.

At the same time the Complaint was filed, the United States also

filed a proposed settlement that would permit Pacific Enova to merge,

but requires a divestiture that would preserve competition in the

market for electricity in California. This settlement consists of a

Stipulation and Order (``Stipulation'') and a proposed Final Judgment

(``Final Judgment'').

The proposed Final Judgment orders Enova to sell all of its rights,

titles, and interests in Encina and South Bay electricity generation

facilities located at Carlsbad and Chula Vista, California (the

``Divestiture Assets''), to a

[[Page 33403]]

purchaser or purchasers acceptable to the United States in its sole

discretion.\1\ Enova must submit required applications to divest the

assets no later than ninety days after entry of the Final Judgment, and

complete the divestiture as soon as practicable after receipt of all

necessary government approvals, in accordance with the procedures

specified in the proposed Final Judgment. The Stipulation and Final

Judgment also require Enova to ensure that until the divestiture

mandated by the Final Judgment has been accomplished, the management of

any electricity generating facilities will be kept separate and apart

from the management of Enova's other businesses.

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\1\ The Final Judgment provides that the approvals by the United

States required by this Final Judgment for sale of these assets are

in addition to the necessary approvals by the California Public

Utilities Commission (``CPUC'') or any other governmental

authorities for the sale of such assets.

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The United States and Enova have stipulated that the proposed Final

Judgment may be entered after compliance with the APPA. Entry of the

proposed Final Judgment would terminate this action, except that the

Court would retain jurisdiction to construe, modify, or enforce the

provisions of the proposed Final Judgment and to punish violations of

it.

II. Description of the Events Giving Rise to the Alleged Violation

A. Enova, Pacific, and the Proposed Transaction

Enova, a California corporation headquartered in San Diego,

California, owns San Diego Gas & Electric Co. (``SDG&E''), which is an

electric utility that serves the San Diego area. Through SDG&E, Enova

is a major provider of electricity in southern California, with

approximately $1.6 billion in annual electricity sales. It sells

electricity generated by plants that use coal, gas, nuclear power, and

hydropower for fuel.

Pacific, through its wholly owned subsidiary Southern California

Gas Company, is virtually the sole provider of natural gas

transportation services to plants in southern California that use

natural gas to produce electricity (``gas-fired generators'' or ``gas-

fired plants''). Pacific is also the sole provider of natural gas

storage services throughout all of California.

Under an Agreement and Plan of Merger and Reorganization dated

October 12, 1996, Enova and Pacific will each become wholly owned

subsidiaries of a common holding company parent as soon as all state

and federal regulatory approvals have been obtained.

B. Trade and Commerce

The Complaint alleges that the effect of the merger of Pacific and

Enova would be to lessen competition substantially in the provision of

electricity in California during high demand periods.

California's electricity industry is dominated by Enova and two

other regulated, investor-owned utilities. Electricity services are

also provided by California public power providers such as

municipalities, water districts, irrigation districts and the state of

California. As a result of a legislatively mandated restructuring, the

California electric power market will experience significant changes in

1998. As of March 31, 1998, most electricity generated in California is

bought and sold through the California Power Exchange (``the pool''), a

central, computerized bidding system that matches electricity supply

and demand during every half-hour period during the day. State

regulations require regulated utilities to buy and sell all their

electricity through the pool during a four-year transition period.\2\

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\2\ Under these state regulations, the utility companies

continue to own California's electricity transmission grid. The

transmission grid, however, is under the operational control of an

Independent Systems Operator (``ISO''), and distribution continues

to be regulated by the CPUC.

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With the pool, all sellers of electricity send in bids for every

half hour in which they want to sell electricity. Similarly, all buyers

of electricity send in bids for every half hour in which they wish to

buy. The pool allocates power until all demand is met. The price per

unit of electricity for any given half hour is determined by the most

expensive unit sold that half hour with all sellers receiving that

price, regardless of their costs or their bids. Nuclear-powered

generators, however, will continue to receive regulated rates for at

least four years after the California pool began operation.

Currently, regulated electric utilities sell over 80% of all retail

electricity in California. Because these utilities must buy all of

their electricity from the pool, the pool prices--the price the

utilities pay for the electricity they distribute--will directly affect

the price most consumers in California pay for electricity.

Electricity sold in California is generated from power plants using

one of four fuels--gas, coal, hydropower, and nuclear--and the costs of

generating electricity from these plants differ significantly. Although

certain gas-fired plants are more efficient than others, gas-fired

plants are in general the most costly to operate. Because they cost the

most to operate, the gas-fired plants will bid the highest prices into

the pool and are the last ones to be turned on to meet consumer demand

for electricity. They operate about 30% to 50% of the time, primarily

during periods of high electricity demand, such as the summer when

consumer use of air conditioning and other electric-powered appliances

increases and less expensive hydroelectric power is unavailable. During

these periods, the gas-fired plants, as the most costly to operate and

thus the highest bidders into the pool, are able to set the price for

all electricity sold through the pool.

Gas-fired power plants cannot and do not switch to other fuels in

response to price increases in natural gas transportation or storage

services, and in California Pacific controls almost all gas-fired

generators' access to gas supply because the state of California has

granted Pacific a monopoly on transportation of natural gas within

southern California. Consequently, 96% of gas-fired generators in

southern California buy gas transportation services from it. Pacific

also has a monopoly on all natural gas storage services throughout

California. Although regulated by the California Public Utilities

Commission (``CPUC''), Pacific has the ability to restrict the

availability of gas transportation and storage to consumers, including

gas-fired generators, by limiting their supply or cutting them off

entirely. Limiting or cutting off gas supply raises the price gas-fired

plants pay for delivered natural gas and in turn raises the cost of the

electricity they produce.

C. The Relevant Market

The Complaint alleges that the provision of electricity in

California during high demand periods constitutes a relevant market for

antitrust purposes--that is, in the language of the Clayton Act, it is

a ``line of commerce'' and is in a ``section of the country.''

Consumers of electricity in California cannot and do not switch to

other products in response to an increase in the price of electricity.

Thus, a small but significant and nontransitory increase in prices for

electricity would not cause a significant number of electricity

consumers to substitute other energy sources for electricity, and

electricity is a relevant product for antitrust purposes.

During periods of high demand, California consumers can only obtain

electricity from local power plants. There is very limited electricity

transmission capacity into California,

[[Page 33404]]

with only two major transmission lines leading into the state, one from

the hydroelectric and coal-rich northwestern United States, and one

from several coal and nuclear plants in Arizona. During peak hours, the

two major transmission lines are filled to capacity, and generation

located within the state must supply the remaining electricity required

by California consumers. Thus, in periods of high demand, consumers are

unable to turn sources of electricity generated outside of California,

and California is therefore a relevant geographic market for antitrust

purposes.

D. Anticompetitive Consequences of the Acquisition

The Complaint alleges that, if the proposed transaction would have

the following effects, among others, unless it is restrained:

1. Competition in the market for electricity in California during

high demand periods may be substantially lessened; and

2. Prices for electricity to consumers in California during high

demand periods are likely to increase.

By virtue of its monopoly over natural gas transportation and

storage, Pacific currently has the ability to increase the price of

electricity, when during high demand periods, electricity from

California gas-fired generators is needed to supplement less costly

electricity. Pacific can restrict gas-fired generators' access to gas,

which has the effect of raising the cost of gas-fired generators in

general. Alternatively, Pacific can cut off or impede the more

efficient gas generators' access to gas, leaving higher-cost generators

to meet consumer demand for electricity. In either case, Pacific is

able to increase the cost of electricity from gas-fired plants, thereby

increasing the prices they bid into the pool and ultimately the price

of electricity sold through the pool. But Pacific currently owns no

electricity generation plants that would benefit from an increase in

the pool price for electricity.

Enova, on the other hand, controls over 2600 MW of electricity,

some of which comes from lower cost plants that run most of the time,

and as a consequence, would benefit from an increase of the price of

electricity sold through the pool. However, Enova currently has no

ability to increase the price of electricity by raising the costs of

competing electric utilities because it does not control any input,

such as gas.

Once Pacific's control of gas is combined with Enova's low-cost

electricity generation facilities, the merged firm, PE/Enova, would

have the ability to raise electricity prices by limiting gas supply to

competing gas-fired generators, as well as the incentive to do so. PE/

Enova's ownership of lower-cost generation would enable it to profit

substantially from any increase in the price of electricity sold

through the pool, and these profits would more than offset any losses

from reducing its gas transportation and storage sales to competing

gas-fired plants. The merged firm, PE/Enova, would thus have the

incentive and ability to lessen competition in the market for

electricity in California. As a result, consumers would likely pay

higher prices for electricity.

E. Entry

Successful entry or expansion in either the market for electricity

generation or the market for intrastate natural gas transportation and

storage in California would not be timely, likely, or sufficient to

prevent any harm to competition. Entry or expansion would be difficult,

time consuming, and costly, as well as extremely unlikely. Entry into

electricity generation could counteract a post-merger price increase

only if the entrants provided significant generation capacity and were

not dependent on natural gas to generate electricity. Entry by building

new hydro-powered, coal-fired, or nuclear-powered generators is highly

unlikely, however. Each of these face substantial safety,

environmental, and other regulatory barriers that would make entry

costly, time consuming, and uncertain. Similarly, entry by building new

lines to transmit electricity from outside California requires myriad

environmental, safety, and zoning approvals, which would be difficult,

costly, an time consuming to obtain. Finally, California's present

regulatory scheme makes it economically impossible for alternative

suppliers of natural gas transportation to enter the California market.

California's pipeline certification process discourages entry by

intrastate firms, while its restrictions on access to intrastate gas

transportation markets discourages entry by interstate pipelines.\3\

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\3\ Entry into gas storage requires access to appropriate

geologic formations, such as drained aquifers and abandoned gas

fields and sale mines of a particular size and porosity, which, in

California, are all owned by Pacific.

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III. Explanation of the Proposed Final Judgment

The proposed Final Judgment would preserve the competition that

would have been lost in California's emerging competitive market for

electricity had the PE/Enova merger gone forward as originally

structured. Within eighteen months after filing the proposed Final

Judgment, Defendant must sell all of Enova's rights, titles, and

interests in the Divestiture Assets. The assets and interests will be

sold to a purchaser or purchasers acceptable to the United States in

its sole discretion. In addition, the Final Judgment limits the ability

of the merged company to reacquire or control any similar assets, or to

enter into contracts to manage generating plants in California.

A. Divestiture

The Final Judgment requires Defendant to sell all generation assets

that would likely give PE/Enova the incentive to raise electricity

prices.\4\ To that end, the Final Judgment requires Defendant to divest

all of its low-cost gas generators--1644 MW of generation assets in

total. In particular, Defendant is required to divest South Bay plant

(951 MW) in Chula Vista, California, and the Encina plant (693 MW) in

Carlsbad, California. Because these generators operate in almost all

hours of the year and are relatively low-cost, if PE/Enova were to own

them, it could earn substantial profits (revenues exceeding its costs)

by restricting the supply of natural gas which, as explained above,

would increase the overall price for electricity in the pool and thus

the price PE/Enova would receive for electricity.

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\4\ The relief in the proposed Final Judgment is intended to

remedy only those anticompetitive effects stemming from the PE/Enova

merge. Nothing in the Proposed Final Judgment is intended to limit

the United States' ability to investigate or to bring actions, where

appropriate, challenging other past or future activities of Pacific

or Enova.

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Under the Final Judgment, Enova is required to use its best efforts

to sell the Divestiture Assets under auction procedures approved by the

CPUC. Enova has already requested that the CPUC begin an auction of all

of the Divestiture Assets.\5\ Under the Final Judgment, bid proposals

will be submitted to the United States for review to determine whether

the divestiture to that bidder would be acceptable.

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\5\ The CPUC proceeding contemplates 18 months for completion of

the divestitures. See Application of San Diego Gas & Electric

Company (U 902-E) for Authority to Sell Electrical Generation

Facilities and Power Contracts before the CPUC (Dec. 19, 1997).

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Defendant will have eighteen months after entry of the Final

Judgment to auction the Divestiture Assets.\6\ The United States may

extend this eighteen-month period, and both parties may jointly agree

to extend the auction

[[Page 33405]]

period further. If any part of the Divestiture Assets are not sold

within the eighteen months or any extension, Defendant must withdraw

those assets from the California auction process and allow them to be

sold by a trustee, under specific procedures designed to ensure

expeditious sales.

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\6\ The divestiture period, which is longer than the usual

period permitted by the Division, avoids unnecessary conflict with

the ongoing state regulatory process for divestiture.

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Enova is not required to divest certain generation assets that are

not likely to provide an incentive to raise pool prices. These are

combustion turbine assets (``CTAs''), nuclear assets, cogeneration

assets presently under contract (``Cogeneration Assets''), and a long-

term contract with Public Service Company of New Mexico (``New Mexico

Contract'').\7\

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\7\ Although the Final Judgment does not place any additional

obligation on the Defendant to sell any assets beyond South Bay and

Enicina, the Defendant has applied to the CPUC to sell all its

generation assets, including the nuclear assets, the CTAs, and the

Cogeneration Assets, in the CPUC auction. See Application of San

Diego Gas & Electric Company (U 902-E) for Authority to Sell

Electrical Generation Facilities and Power Contracts before the CPUC

(Dec. 19, 1997).

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1. CTAs--The CTAs are seventeen generators scattered throughout

California, none of which exceed 20 MW capacity. They are fueled

primarily by natural gas, and in some cases by diesel fuel. They are

very expensive to run and were built to be used only at times of the

very highest peak demand. Owning CTAs gives PE/Enova little, if any,

incentive to raise electricity prices--even with increased electricity

prices, PE/Enova cannot count either on selling the electricity from

these generators or obtaining a price that significantly exceed their

costs. Further, air pollution restrictions may prevent operation of

certain CTAs during peak summer hours.

2. Nuclear--Enova holds a 20% (or 430 MW) non-operating interest in

the San Onofre Nuclear Generating Station (``SONGS'') and its output.

PE/Enova, however, will not receive the pool price for SONGS

electricity for at least the next four years, because nuclear plants

will remain price regulated. If nuclear power prices become deregulated

after 2001, the Final Judgment provides that (1) SONGS capacity will

count towards calculation of Defendant's reacquisition cap (see

discussion of cap, infra); and (2) the Final Judgment will remain in

effect for ten years instead of five.

3. Congeneration Assets--The cogeneration assets comprise nine

contracts of no more than 50 MW each, for a total of 207 MW. Their

output is more costly than most of the electricity produced in

California and will be sold at a regulated rate. Retention of these

assets, therefore, does not provide PE/Enova with the incentive to

increase the pool price for electricity.

4. The New Mexico Contract--This contract provides Enova with 100

MW. Given the other divestitures, the small amount of capacity

involved, and the fact that the contract expires in less than three

years, it provides little incentive to raise the pool price.

B. Limitations on Acquisition

1. Reacquistion. The Final Judgment limits Enova's ability to

reacquire the same kind of assets that it has been ordered to divest:

existing, low-cost assets inside California. These assets are referred

to in the Final Judgment as ``California Generation Facilities.\8\ At

any time during the Final Judgment, if Defendant owns or controls more

than 500 MW (total) of California Generating Facilities,\9\ then it

cannot acquire or gain control of additional California Generation

Facilities without prior approval of the United States.\10\ Because the

Divestiture Assets count towards calculation of the 500 MW acquisition

cap, Enova cannot acquire or gain control of any more California

Generation Facilities without prior approval by the United States until

Enova substantially completes the divestiture.

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\8\ The Final Judgment specifically defines ``California

Generation Facilities'' to mean ``(1) electricity generation

facilities in California in existence on January 1, 1998, excluding

such facilities that are rebuilt, repowered, or activated out of

dormancy after January 1, 1998, as long as such rebuilding,

repowering, or activation out of dormancy project, if done by

Defendant, begins within one year of purchase; and (2) any contract

for operation and sale of output from generating assets of the Los

Angeles Department of Water and Power.''

\9\ A contract with Portland Gas & Electric for 75 MW, along

with the same amount of firm transmission capacity, is included in

the 500 MW cap, because it is a source of low-cost generation that

can be sold in the pool. The Final Judgment allows Defendant to keep

the contract, which expires Dec. 31, 2013, but reduces the cap by 75

MW until the contract is divested.

\10\ The Final Judgment defines ``acquire'' to include

``obtaining any interest in any electricity generating facilities or

capacity,'' and defines ``control'' to mean ``have the ability to

set the level of output of an electricity generation facility.''

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Prior approval of subsequent acquisitions ensures that PR/Enova

does not circumvent the divestiture ordered by the Final Judgment by

acquiring or controlling generating facilities that give it the same

incentive to raise the pool price for electricity as the Divestiture

Assets did. Because of the California electricity market restructuring

(which includes CPUS orders requiring major divestiture from regulated

utilities), unusual and significant amounts of generating capacity will

be readily available for purchase, lease, or contractual control for

the next few years.

2. The Acquisition Cap. The Final Judgment allows the merged

company to own or control 500 MW of existing California Generation

Facilities. As a California retail distributor, PE/Enova may operate

more effectively if it owns or controls some local capacity. This 500

MW capacity provides PE/Enova a source of back-up electricity for its

1600 MW retail sales in case of problems with electricity supply bought

on the open market. At the same time, it does not provide PE/Enova with

sufficient wholesale electricity sales to give it the incentive to

raise the pool price for electricity by reducing its gas sales.

3. Limitation Applicable Only to Existing California Assets. The

Final Judgment does not impose the prior approval requirement on

Enova's acquisition of assets outside of California. As noted above,

Pacific has the ability to raise the price of electricity during high

demand periods because significant transmission constraints limit

electricity imports from outside of the state. These import constraints

mean that PE/Enova cannot count on the sale in the California pool of

electricity from assets outside California, and thus acquisition of

such assets would not give it the incentive to raise the pool price.

In addition, the Final Judgment does not prevent PE/Enova from

building new capacity in California, or from acquiring capacity built

in California after January 1, 1998. New capacity will only be built in

California if the output is inexpensive enough to be sold in many

hours. By increasing the amount of less expensive power available to

meet demand, new, low-cost capacity will reduce the number of hours in

which the most costly gas-fired capacity is needed. This in turn will

limit PE/Enova's ability to raise the pool price since it is more

costly and difficult for PE/Enova to restrict gas to more numerous low-

cost plants. For the same reasons, the Final Judgment allows the merged

company to acquire or gain control of plants that are rebuilt,

repowered, or activated out of dormancy after January 1, 1998. Output

from such plants is the equivalent of output from new-build capacity.

Finally, Enova may own, operate, and control any cogeneration or

renewable resources and may enter into tolling agreements and reverse

tolling agreements,\11\ so long as it does not

[[Page 33406]]

control the plan's output level. None of these arrangements or

facilities will provide PE/Enova significant additional ability or

incentive to raise the price for electricity by reducing its gas sales.

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\11\ Tolling agreements allow one company to produce electricity

with its own gas at another company's generator for a set fee.

Reverse tolling agreements allow a gas supplier to stop providing

natural gas to a generator at the supplier's discretion. The Final

Judgment provides that Defendant may enter into tolling and reverse

tolling agreements with any electricity generation facilities in

California, provided Defendant does not control such facilities;

provided further, that all such tolling and reverse tolling

agreements include the following provision: ``In accordance with the

Final Judgment in United States v. Enova Corporation, entered on

[date], Enova's successors and their affiliates shall not have any

ability to set the level of output of this electricity generation

facility.''

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C. Limitations on Management Contracts

The Final Judgment provides a check on Enova's ability to acquire

control of California Public Power Provider (``CPPP'') owned assets

through management contracts.\12\ With the exception of Los Angeles

Department of Water and Power's (``LADWP'') facilities, the generation

facilities owned by CPPPs are primarily small, gas- and oil-fired or

hydroelectric plants. Management contracts enable CPPPs to hire experts

in generation management to run their plants for them. The current

investor-owned utilities, including Enova, plan to compete for these

contracts. Under these contracts, the manager may obtain control of the

generation facilities and all or most of the profits which, if PE/Enova

were the manager, could give it the incentive to raise electric prices.

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\12\ The Final Judgment defines a specific type of management

services contract--a ``California Public Power Generation Management

Services Contract''--to mean ``a bona fide contract for managing the

operation and sale of output from California Generation Facilities

owned by a municipality, an irrigation district, other California

state authority, or their agents on January 1, 1998; provided,

however, that a contract for managing the operation and sale of

output from generation assets of LADWP shall not be deemed a

California Public Power Generation Management Services Contract.''

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The Final Judgment directs that Defendant shall provide notice to

the United States of any management contract that Defendant enters,

unless such management contract is reportable under the Hart-Scott-

Rodino Antitrust Improvements Act. The notice provision balances the

efficiencies of competition for CPPP management contracts with the

possible anticompetitive effect from Defendant controlling CPPP assets.

It enables the United States to monitor Defendant's level of capacity

control without removing it as a viable competitor for these contracts.

If PE/Enova were to enter into a management contract with LADWP,

however, it would be required to obtain prior approval from the United

States. LADWP controls 3700 MW of capacity in or directly linked to

California. A large part of this capacity is low cost. Absent the prior

approval requirement, the merged company could regain in one

transaction even more incentive to raise the pool price than it had

before auctioning the Divestiture Assets. The probable competitive harm

threatened by Defendant's sudden reacquisition of all or a substantial

part of LADWP's 3700 MW of generation via management contacts more than

offsets possible efficiencies gained by Enova bidding on a LADWP

management contracts.

D. Termination or Modification of the Final Judgment

The Final Judgment--and its prior approval and notice obligations--

remain in effect until the tenth anniversary of the date of its entry

unless the Final Judgment is terminated earlier under specific

conditions. The Final Judgment also provides that the reacquisition

limitations will be modified under certain conditions.

1. Termination of the Final Judgment. The Final Judgment provides

that it shall terminate at any time if the United States determines

that the merger between Enova and Pacific identified in the Complaint

has been terminated. It will also terminate if the United States

determines that an Independent System Operator (``ISO'') has assumed

control of Pacific's gas pipelines within California. In that event,

PE/Enova will lose the ability to control access to gas transportation

and storage. Without these tools, the merged company will not be able

to raise the price for electricity sold through the pool by reducing

its gas sales, and the basis for the Final Judgment would be removed.

In addition, the decree will terminate after five years under

certain conditions. As noted above, the decree imposes continuing prior

approval and notice obligations to ensure that PE/Enova does not simply

reacquire assets similar to those it has divested, which it could

readily do during the restructuring of California's electricity

market.\13\ Most of the changes in ownership in electric generation and

control should occur in the next five years. Hence termination of the

decree at the end of five years would be reasonable.

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\13\ As discussed above in Section III(B)(1), significant

amounts of generating capacity will be available for purchase,

lease, or contractual control during the next few years.

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There would be a cause for concern, however, if PE/Enova could sell

SONGS capacity at the unregulated pool price--it would be in essence be

acquiring 430 MW of output without opportunity for the government to

challenge. For this reason, the decree will terminate in five years

only if (1) Enova no longer owns any of its existing nuclear assets;

(2) its nuclear assets are no longer in operation; or (3) the output of

those nuclear assets is required by law or regulation to be sold at a

fixed price.

Finally, the Final Judgment will partially terminate as to any

Divestiture Asset if any governmental authority permanently revokes any

license or permit necessary for the operation of such asset, properly

exercises power or eminent domain with respect to such asset, or enters

into a settlement agreement with Enova regarding the disposition of

such asset to a third party.

2. Modification of Reacquisition Limits. The Final Judgment

provides that the 500 MW ownership cap may increase under two

conditions: (1) If Enova divests all of its existing nuclear generation

assets, the acquisition cap will increase to 800 MW; and (2) if

defendant's total retail electricity sales at any point exceed 8,000 MW

the ownership cap will be increased up to 10% of such retail

electricity sales. The first condition allows an adjustment of the

ownership cap in the event the SONGS is sold to replace a portion of

the SONGS generation. (The 500 MW cap is a cap on acquisitions in

addition to holding SONGS.) The second condition provides for the

possibility that SONGS is not sold but that Enova's retail sales exceed

8,000 MW, and it allows defendant sufficient local generation to back

up its expended retail sales.

E. Trustee Provisions

Until the ordered divestiture takes place, Enova must take all

reasonable steps necessary to accomplish the divestiture, and cooperate

with any prospective purchaser. If defendant does not accomplish the

ordered divestiture within the specified time period, the proposed

Final Judgment provides for procedures by which the Court shall appoint

a trustee to complete the divestiture. In that case, Defendant must

cooperate fully with the trustee.

If a trustee is appointed, the proposed Final Judgment provides

that Defendant will pay all costs and expenses of the trustee. The

trustee's compensation will be structured so as to provide an incentive

for the trustee to obtain the highest price for the assets to be

divested, and to accomplish the divestiture as quickly as possible.

After the effective date of his or her appointment, the trustee shall

serve under such other conditions as the Court may prescribe. After his

or her

[[Page 33407]]

appointment becomes effective, the trustee will file monthly reports

with the parties and the Court, setting forth the trustee's efforts to

accomplish the divestiture. At the end of six months, if the

divestiture has not been accomplished, the trustee shall file promptly

with the Court a report that sets forth (1) the trustee's efforts to

accomplish the divestiture, (2) the reasons, in the trustee's judgment,

why the divestiture has not been accomplished, and (3) the trustee's

recommendations. The trustee's report will be furnished to the parties

and shall be filed in the public docket, except to the extent the

report contains information the trustee deems confidential. The parties

each will have the right to make additional recommendations to the

Court. The Court shall enter such orders as it deems appropriate to

accomplish the purposes of this Final Judgment.

F. Provisions for Separate Management

The Stipulation and Final Judgment require Enova to ensure that,

until the divestiture mandated by the Final Judgment has been

accomplished, the management of any electricity generating facilities

shall be kept separate and apart from the management of defendant's

other businesses, and will not be influenced by defendant. Enova must

appoint a person or persons to oversee the Divestiture Assets and to be

responsible for it's compliance with these provisions.

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 as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damages the person has suffered, as well as costs and reasonable

attorney's fees. Entry of the proposed Final Judgment will neither

impair nor assist the bringing 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 facies effect in

any subsequent private lawsuit that may be brought against Enova.

V. Procedures Available for Modification of the Proposed Final Judgment

The United States and the 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 sixty 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

sixty days of the date of publication of this Competitive Impact

Statement in the Federal Register. The United States will evaluate and

respond to the comments. All comments will be given due consideration

by the United States, which remains free to withdraw its consent to the

proposed Final Judgment at any time prior to entry. The comments and

the responses 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, & Agriculture Section, Antitrust Division,

United States Department of Justice, 325 Seventh Street, N.W., Suite

500, Washington, DC 20530.

The proposed Final Judgment provides that the Court retains

jurisdiction over this action, and the parties may apply to the Court

for any order necessary or appropriate for the modification,

interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

The United States considered, as an alternative to the proposed

Final Judgment, a full trial on the merits of its Complaint against

Defendant. The United States is satisfied, however, that the

divestiture of the assets and other relief contained in the proposed

Final Judgment will preserve viable competition in the market for

electricity in California that otherwise would be affected adversely by

the acquisition. Thus, the proposed Final Judgment would achieve the

relief the government would have obtained through litigation, but

avoids the time, expense, and uncertainty of a full trial on the merits

of the government's Complaint.

VII. Standard of Review Under the APPA for Proposed Final Judgment

The APPA requires that proposed consent judgments in antitrust

cases brought by the United States be subject to a sixty-day comment

period, after which the Court shall determine whether entry of the

proposed Final Judgment ``is in the public interest.'' In making that

determination the Court may consider.

(1) The competitive impact of such judgment, including

termination of alleged violations, provisions of enforcement and

modifications, duration or relief sought, anticipated effects of

alternative remedies actually considered, and any other

considerations bearing upon the adequacy of such judgment;

(2) the impact of entry of such judgment upon the public

generally and individuals alleging specific injury from the

violations set forth in the complaint including consideration of the

public benefit, if any, to be derived from a determination of the

issues at trial.

15 U.S.C. Sec. 16(e). As the United States Court of Appeals for the

District of Columbia Circuit has held, this statute permits a court to

consider, among other things, the relationship between the remedy

secured and the specific allegations set forth in the government's

complaint, whether the Final Judgment is sufficiently clear, whether

enforcement mechanisms are sufficient, and whether the Final Judgment

may positively harm third parties. See United States v. Microsoft, 56

F.3d 1448, 1461-62 (D.C. Cir. 1995).

In conducting this inquiry, ``the Court is nowhere compelled to go

to trial or to engage in extended proceedings which might have the

effect of vitiating the benefits of prompt and less costly settlement

through the consent decree process.''\14\ Rather,

\14\ 119 Cong. Rec. 24598 (1973), See also United States v.

Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public

interest'' determination can be made properly on the basis of the

Competitive Impact Statement and Response to Comments filed pursuant

to the APPA. Although the APPA authorizes the use of additional

procedures, see 15 U.S.C. Sec. 16(f), those procedures are

discretionary. A court need not invoke any of them unless it

believes that the comments have raised significant issues and that

further proceedings would aid the court in resolving those issues.

See H.R. Rep. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in (1974)

U.S. Code Cong. & Ad. News 6535, 6538.

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absent a shoring of corrupt failure of the government to discharge

its duty, the Court, in making its public interest finding, should *

* * carefully consider the explanations of the government in the

competitive impact statement and its response to comments in order

to determine whether those explanations are reasonable under the

circumstances.

United States v. Mid-America Dairyman. Inc., 1977-1 Trade Cas. para.

61,508, at 71,980 (W.D. Mo. 1977).

Accordingly, with respect to the adequacy of the relief secured by

the decree a court may not ``engage in an unrestricted evaluation of

what relief would best serve the public.'' United States v. BNS, Inc.,

858 F.2d 456, 462 (9th Cir. 1988), quoting United States v. Bechtel

Corp., 648 F.2d 660, 666 (9th

[[Page 33408]]

Cir.) cert denied, 454 U.S. 1083 (1981); see also Microsoft, 56 F.3d at

1460-62. Precedent requires that

the balancing of competing social and political interests affected

by a proposed antitrust consent decree must be left, in the first

instance, to the discretion of the Attorney General. The court's

role in protecting the public interest is one of insuring that the

government has not breached its duty to the public in consenting to

the decree. The court is required to determine not whether a

particular decree is the one that will best serve society, but

whether the settlement is ``within the reaches of the public

interest.'' More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.

United States v. Bechtel, 648 F.2d at 666 (citations omitted) (emphasis

added.\15\

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\15\ See United States v. BNS, Inc. 858 F.2d at 463; United

States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D.

Cal. 1978); United States v. Gillette Co., 406 F. Supp. at 716. See

also United States v. American Cyanamid Co., 719 F.2d 558, 565 (2d

Cir. 1983).

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The proposed Final Judgment, therefore, should not be reviewed

under a standard of whether it is certain to eliminate every

anticompetition effect of a particular practice or whether it mandates

certainty of free competition in the future. Court approval of a final

judgment requires a standard more flexible and less strict than the

standard required for a finding of liability. ``[A] proposed decree

must be approved even if it falls short of the remedy the court would

impose on its own, as long as it falls within the range of

acceptability or is `within the reaches of the public interest.' ''

United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 150

(D.D.C. 1982) (citations omitted) (quoting United States v. Gillette

Co., 406 F. Supp 713, 716 (D. Mass. 1975)), aff'd sub nom, Maryland v.

United States, 460 U.S. 10Q1 (1983), United States v. Alcan Aluminum.

Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985).

VIII. Determinative Documents

There are no determinative materials of documents within the

meaning of the APPA that were considered by the United States in

formatting the proposed Final Judgment.

Dated: June 8, 1998.

Respectfully submitted,

Jade Alice Eaton*

Andrew K. Rosa

Trial Attorneys.

U.S. Department of Justice, Antitrust Division, Transportation, Energy

& Agriculture Section, 325 Seventh Street, N.W., Suite 500, Washington,

DC 20004, (202) 307-6316.

*Counsel of Record.

Certificate of Service

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

Competitive Impact Statement to be served on counsel for defendant in

this manner in the manner set forth below:

By first class mail, postage prepaid:

Steven C. Sunshine,

Shearman & Sterling, 801 Pennsylvania Avenue, N.W., Washington, DC

20004.

Jade Alice Eaton,

Antitrust Division, U.S. Department of Justice, 325 Seventh Street,

N.W., Suite 500, Washington, DC 20530, (202) 307-6456, (202) 616-

2441(Fax).

[FR Doc. 98-16218 Filed 6-17-98; 8:45 am]

BILLING CODE 4410-11-M