The Williams Companies, Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 981-0076]

The Williams Companies, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before June 2, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Phillip Broyles, FTC/S-2105, Washington, DC 20580. (202) 326-2805.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for March 27, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room,

Room H-130, Sixth Street and Pennsylvania Avenue, NW., Washington, DC

20580, either in person or by calling (202) 326-3627. Public comment is

invited. Such comments or views will be considered by the Commission

and will be available for inspection and copying at its principal

office in accordance with Section 4.9(b)(6)(ii) of the Commission's

Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

The Federal Trade Commission (``Commission'') has accepted from The

Williams Companies, Inc. (``Williams,'' or ``Proposed Respondent'') an

Agreement Containing Consent Order (``Proposed Consent Order''). The

Proposed Consent Order remedies the likely anticompetitive effects in

two product markets arising from certain aspects of Williams' proposed

acquisition of MAPCO Inc. (``MAPCO'').

II. Description of the Parties and the Transaction

Williams, headquartered in Tulsa, Oklahoma, is a multinational

company doing business in the energy and communications industries.

Williams operates natural gas processing plants in Wyoming and

pipelines that supply prepare to the upper Midwest. During 1997,

Williams had total revenues of approximately $4.4 billion.

MAPCO, also with headquarters in Tulsa, Oklahoma, is involved in

the energy industry. One of its principal businesses is the production,

shipment, and sale of natural gas liquids, such as propane, butane, and

natural gasoline. In 1997, MAPCO had sales and operating revenues of

approximately $3.8 billion.

On November 23, 1997, Williams and MAPCO entered into an agreement

and plan of merger under which MAPCO will be acquired by Williams.

Under the agreement, each share of MAPCO common stock will be exchanged

for shares of Williams common stock plus preferred stock purchase

rights.

III. The Proposed Complaint and Consent Order

The Commission has entered into an agreement containing a Proposed

Consent Order with Williams in settlement of a proposed complaint

alleging that the proposed acquisition violates Section 5 of the

Federal Trade Commission Act, 15 U.S.C. 45, and that consummation of

the acquisition would violate Section 7 of the Clayton Act, 15 U.S.C.

18, and Section 5 of the Federal Trade Commission Act. The complaint

alleges that the acquisition will lessen competition in the following

markets: (1) the transportation by pipeline and terminaling of propane

to (a) central Iowa, including Des Moines and Ogden; (b) northern Iowa

and southern Minnesota, including Clear Lake and Sanborn, Iowa, and

Mankato,

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Minnesota; (c) eastern Iowa, including Iowa City; (d) southern

Wisconsin and northern Illinois, including Janesville, Wisconsin and

Rockford, Illinois; and (e) north central Illinois, including Tampico

and Farmington; and (2) the transportation by pipeline of raw mix from

southern Wyoming to New Mexico, Texas, Oklahoma, and Kansas.

To remedy the alleged anticompetitive effects of the proposed

acquisition, the Proposed Consent Order requires Williams to: (1)

comply with a Pipeline Lease and Operating Agreement between Williams

and Kinder Morgan Operating L.P. ``A'' (``Kinder Morgan''); and (2)

agree to connect Williams' Wyoming gas processing plants to any

proposed raw mix pipeline that could compete with MAPCO and requests

such a connection. The Proposed Consent Order also provides that no

modification to the Kinder Morgan Agreement shall be made without prior

approval by the Commission.

For ten (10) years after the consent order becomes final, Williams

is prohibited from acquiring any interest in a concern that provides,

or any assets used for, the pipeline transportation or terminating of

propane in Iowa or within 70 miles of the Iowa border, without giving

prior notice to the Commission.

Williams is required to file annual compliance reports with the

Commission for the next ten (10) years, with the first report due one

year after the proposed order becomes final. Within 60 days and 120

days after this order becomes final, Williams is required to provide

the Commission with a report detailing its compliance with Paragraph

III.C. of the order.

IV. Resolution of Antitrust Concerns

The Proposed Consent Order alleviates the alleged antitrust

concerns arising from the acquisition in the markets discussed below.

A. Pipeline Transportation and Terminaling of Propane to Markets in the

Upper Midwest

Propane is shipped by pipeline from production centers in Kansas

and Canada to terminals in the upper Midwest, including Iowa,

Wisconsin, Illinois and Minnesota. Retail propane dealers pick up

propane at these terminals for delivery to users of propane. Important

uses for propane in the local markets involved here includes

residential heating and agricultural crop drying.

Williams and MAPCO own pipelines and transport propane to terminals

that serve customers at various locations in Iowa, Illinois, Wisconsin

and Minnesota. In several areas, terminals supplied by Williams and

MAPCO pipelines are the only, or almost the only, sources of propane.

These area are: (a) central Iowa, including Des Moines and Ogden; (b)

northern Iowa and southern Minnesota, including Clear Lake and Sanborn,

Iowa, and Mankato, Minnesota; (c) eastern Iowa, including Iowa City;

(d) southern Wisconsin and northern Illinois, including Janesville,

Wisconsin and Rockford, Illinois; and (e) north central Illinois,

including Tampico and Farmington.

MAPCO owns and operates pipelines that transport propane to MAPCO's

terminals in these areas. MAPCO has terminals in Ogden, Sanborn and

Iowa City, Iowa; Janesville, Wisconsin; Farmington, Illinois; and

Mankato, Minnesota.

Williams owns and operates pipelines that supply propane to

terminals owned by Kinder Morgan in these areas. Williams has

agreements with Kinder Morgan under which Kinder Morgan leases pipeline

capacity from Williams to supply its customers at Kinder Morgan

terminals. One agreement gave Williams an option to terminate with one

year's notice. The other agreements are due to expire by 2001.

Williams' pipeline is the only source of propane for Kinder Morgan's

terminal in Clear Lake, Iowa. Kinder Morgan's terminals in Rockford and

Tampico, Illinois, and Iowa City and Des Moines, Iowa, receive propane

from the Williams pipeline or a Kinder Morgan pipeline. The Williams

pipeline supplies a substantial portion of the propane delivered to

these Kinder Morgan terminals. Kinder Morgan needs this capacity to be

an effective competitive constraint on MAPCO. Because it owns and

operates the pipeline, Williams can effectively control the supply of

propane to the Kinder Morgan terminals under the current agreement.

Each geographic area indicated above is a relevant antitrust

geographic market because pipeline and terminal operators in each

market could profitably raise prices by a small but significant and

nontransitory amount without losing enough sales to other areas to make

such an increase unprofitable. Retail propane dealers cannot

economically turn to other areas to obtain their propane supply because

of the additional costs associated with using more distant sources.

The acquisition will eliminate Williams and MAPCO as independent

competitors in the pipeline transportation of propane in these areas.

The acquisition also will increase the ability of the combined

Williams/MAPCO, either unilaterally or through coordinated interaction,

to raise prices and restrict the supply of propane. In addition,

following the acquisition, Williams will have both the incentive and

the ability to restrict access to propane at Kinder Morgan's terminals,

which will diminish Kinder Morgan's ability to compete with MAPCO. New

entry is unlikely to be timely and sufficient to defeat an

anticompetitive price increase because it would entail substantial sunk

costs. The transaction could raise the costs of propane in these

markets by more than $2 million per year.

To remedy the potential anticompetitive effects, Paragraph II of

the Proposed Consent Order requires the Proposed Respondent to comply

with the Pipeline Lease and Operating Agreement between Williams and

Kinder Morgan dated March 3, 1998. This Agreement will ensure Kinder

Morgan's access to pipeline capacity, prevent Williams from affecting

Kinder Morgan's ability to act as an independent competitor in the

transportation and terminaling of propane in these markets, and thus

prevent any lessening of competition.

B. Transportation of Raw Mix From Southern Wyoming

``Raw mix'' is a mixture of natural gas liquids--including ethane,

butanes, and propane--that remains after the natural gas is extracted.

MAPCO owns the only pipeline that transports raw mix from natural gas

processing plants in southern Wyoming to fractionation plants in Texas,

New Mexico, Kansas, and Oklahoma. Those fractionation plants separate

the raw mix into its component products. Williams operates two large

gas processing plants in Wyoming, where it obtains raw mix from

processing natural gas of its own and for others. Williams and the

other owners of this raw mix ship it from southern Wyoming to

fractionation plants on the MAPCO pipeline.

The pipeline transportation of raw mix from southern Wyoming to New

Mexico, Texas, Oklahoma, and Kansas is a relevant antitrust market.

MAPCO could profitably raise the price of such transportation by a

small but significant and nontransitory amount without losing enough

volume to make such an increase unprofitable. Owners of raw mix cannot

economically use other means of transportation to deliver their product

to fractionators in these states.

Because of MAPCO's monopoly position, other companies have

considered building a competing pipeline to transport raw mix to

fractionators. Reacting to the potential

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competition, MAPCO planned to expand the capacity of its pipeline and

to offer a discounted tariff.

Williams had discussions with companies about building a pipeline

to compete with MAPCO. Once it entered into the agreement and plan of

merger with MAPCO, Williams ended these discussions.

MAPCO perceived that Williams would be an important participant in

a competing pipeline because of the location of its gas processing

plants and the volume of raw mix extracted at these plants. The

proposed acquisition would likely eliminate the possibility that any

new or planned competing pipeline could connect to Williams' gas

processing plants, which in turn would make it difficult or impossible

for the owners of raw mix in Williams' plants to commit their volume to

the competing pipeline. The unavailability of this volume would have

made the construction of a competing pipeline very unlikely. As a

result, the merged Williams/MAPCO would have an increased ability to

raise prices and limit capacity on the MAPCO raw mix pipeline from

southern Wyoming. Without the Proposed Consent Order, the merger could

raise costs to raw mix owners in southern Wyoming by approximately $8

million or more per year.

To remedy this harm, Paragraph III of the Proposed Consent Order

provides that, within 30 days of receipt of a written request from an

exiting or proposed pipeline, Williams must agree to connect each of

Williams' Wyoming gas processing plants to the pipeline.

V. Opportunity for Public Comment

The Proposed Consent Order has been placed on the public record for

sixty (60) days for receipt of comments by interested persons. Comments

received during this period will become part of the public record.

After sixty (60) days, the Commission will again review the Proposed

Consent Order and the comments received and will decide whether it

should withdraw from the Proposed Consent Order to make the order

final.

The purpose of this analysis is to invite public comment on the

Proposed Consent Order to aid the Commission in its determination of

whether to make final the Proposed Consent Order. This analysis does

not constitute an official interpretation of the Proposed Consent

Order, nor is it intended to modify the terms of the Proposed Consent

Order in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-8763 Filed 4-2-98; 8:45 am]

BILLING CODE 6750-01-M