CMS Energy Corp.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9910046]

CMS Energy Corp.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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

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

[[Page 14726]]

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 May 26, 1999.

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

Room 159, 600 Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Frank Lipson or Mark Menna FTC/H-2105,

600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-2617 or

(202) 326-2722.

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

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 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 19, 1999), 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, 600 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 Sec. 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 CMS

Energy Corporation (``CMS'' or ``Proposed Respondent'') an Agreement

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

Consent Order remedies the likely anticompetitive effects in the market

for pipeline transportation of natural gas into parts of Michigan

arising from certain aspects of the proposed acquisition by CMS of all

voting securities of Panhandle Eastern Pipeline Company

(``Panhandle''), Panhandle Storage Company, and Trunkline LNG Company

(``Trunkline''), now held by Duke Energy Company (``Duke''), its

subsidiaries or affiliates.

II. Description of the Parties and the Transaction

CMS is a corporation organized, existing, and doing business under

and by virtue of the laws of the State of Michigan, with its office and

principal place of business at 330 Town Center Drive, Dearborn,

Michigan. CMS is a holding company for its principal subsidiary,

Consumers Energy Company (``Consumers Energy''). Consumers Energy is a

combination electric and gas utility company that serves customers in

broad sections of Michigan.

Duke is an integrated energy and energy services provider. Duke

delivers and manages electricity and natural gas throughout the United

States and abroad. Duke's Natural Gas Transmission segment is involved

in interstate transportation and storage of natural gas for customers

primarily in the Mid-Atlantic, New England and Midwest states. Duke's

earnings before interest and taxes for the three months ending

September 30, 1998, were $870.9 million.

Duke owns 100 percent of Panhandle Eastern Pipeline and Trunkline

Pipeline, both of which are natural gas pipelines regulated by the

Federal Energy Regulatory Commission (``FERC'') Panhandle originates in

the producing fields of Oklahoma and moves natural gas in a

northeasterly direction from Oklahoma into Michigan. Trunkline

originates in the Gulf Coast and transports gas produced from offshore

Gulf Coast wells north to the Midwest. Trunkline terminates at the

Michigan border. Both Panhandle and Trunkline interconnect with

Consumers Energy.

Respondent CMS entered into a Stock Purchase Agreement dated as of

October 31, 1998, with PanEnergy Corp. and Texas Eastern Corp.,

subsidiaries of Duke, to acquire all voting securities of Panhandle

Eastern Pipe Line Company, Panhandle Storage Company, and Trunkline LNG

Company for $1.9 billion plus the assumption of $300 million in debt.

III. The Proposed Complaint and Consent Order

The Commission has entered into an agreement containing a Proposed

Consent Order with CMS 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 proposed complaint alleges

that the acquisition will lessen competition in the pipeline

transportation of natural gas into Consumer Energy's gas service area

(the ``Service Area''). The Service Area includes all or portions of 54

counties in the lower peninsula of Michigan. Principal cities served

include Bay City, Flint, Jackson, Kalamazoo, Lansing, Pontiac, and

Saginaw.

Consumers Energy receives natural gas through interconnections with

Panhandle and Trunkline as well as other pipelines in which Consumers

Energy will have no financial interest after the proposed acquisition.

The proposed compliant alleges that Consumers Energy can unilaterally

decide to reduce the interconnection capacity or close the

interconnection altogether. The proposed complaint alleges that after

the acquisition, CMS will have an incentive to close or reduce the

interconnection capacity with the non-CMS pipelines. This action is

likely to increase demand for transportation service on Panhandle and

Trunkline and enable these pipelines to increase their rates. The

proposed compliant also alleges that such a rate increase may also

affect customers' natural gas prices and electricity prices in the

Service Area.

To remedy the alleged anticompetitive effects of the proposed

acquisition, the Proposed Consent Order allows a shipper to use another

interconnection on the Consumers Energy system if the shipper does not

incur increased costs. Alternatively, the Proposed Consent Order

requires CMS to supply gas from its own system to any shipper to which

CMS refuses transportation because of reduced interconnect capacity.

The shipper would have to return the borrowed gas, but not earlier than

the end of the calendar month following the month in which CMS reduced

interconnect capacity.

IV. Resolution of Antitrust Concerns

Consumers Energy, a CMS subsidiary, is the franchised monopoly

provider of local gas distribution services to residential, commercial

and industrial customers in large parts of Michigan. Gas enters the

Consumers Energy's intra-state transmission system at interconnections

with Trunkline, Panhandle and other pipelines (mainly, those owned by

ANR, Great Lakes and Michigan Consolidated Gas). While Consumers Energy

is the local distribution monopolist, it must offer transportation to

other firms on its transmission system. In this manner, it competes

with other companies in the

[[Page 14727]]

sale of natural gas to customers on the Consumers Energy system.

Consumers Energy controls the operation of its system, including

its capacity to receive gas at pipeline interconnections. Currently,

Consumers Energy, as a purchaser of interstate transportation services,

has the incentive to maintain competitive access to its intra-state

system to maintain maximum flexibility and minimum prices for the gas

delivery. In fact, prices on both Panhandle and Trunkline are

substantially below the maximum permitted by FERC. After the

acquisition, however, CMS would have the incentive to restrict access

to the Consumers Energy system by non-CMS pipelines to support higher

post-acquisition transportation prices on Trunkline and Panhandle. CMS

could restrict the access non-CMS pipelines have to the Consumers

Energy system by reducing the capacity of the interconnections that

service those pipelines. It is unlikely that either State or Federal

regulatory agencies have the authority to interdict this behavior.

The resulting increase in the price of natural gas transportation

into the Consumers Energy system would likely increase the price of gas

sold to customers in the Service Area. In addition, the proposed

acquisition is likely to adversely affect industrial plants locate in

the Service Area that rely on natural gas as a feedstock to generate

their electricity. Increased gas transportation rates are likely to

increase the cost of self-generation and may force these plants,

instead, to purchase electric power from Consumer Energy.

The Proposed Consent Order is designed to prevent CMS from

restricting or eliminating the interconnection capacity available to

competing pipelines. The Proposed Consent Order identifies a designated

capacity for each interconnection based on historical usage to maintain

non-CMS capacity at current levels. CMS may adjust the designated

capacity for reasons related to force majeure or routine maintenance,

resulting in an adjusted designated capacity for each

interconnection.\1\

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

\1\ The Proposed Consent Order refers to these measures as

``Designated Capacity'' and ``Adjusted Designated Capacity.'' The

Proposed Consent Order refers to actual capacity as ``Available

Interconnection Capacity,'' meaning the amount of natural gas that

Consumers Energy is ready, willing and able to receive at a non-CMS

interconnection. Exhibit A to the Proposed Consent Order lists the

eight non-CMS interconnection points at issue, along with the

Designated Capacity of each interconnection.

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

The Proposed Consent Order requires CMS to give shippers two

options if they cannot deliver gas into Consumers Energy's service area

because the available interconnection capacity is less than actual

capacity for any reasons other than force majeure or routine

maintenance. First, if the shipper is able to nominate its shipments to

another pipeline interconnection point into the Consumers Energy system

at no additional cost to the shipper, CMS will accept the gas at such

other pipeline interconnection point. Second, if the shipper would

incur additional cost in delivering at another interconnection point,

or if no other interconnection point is available to the shipper, CMS

will provide gas from its own supply of gas and without interruption on

the Consumer Energy system for the shipper's account equal to the

volume of gas nominated by the shipper that could not be transferred

through any of the interconnection points. The shipper must return the

gas to Consumers Energy without penalty by the end of the month

following the month in which CMS provided gas in offset to the

shipper's blocked gas.\2\

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

\2\ The procedure is iterative in that the process repeats

itself if Consumers Energy declines a shipper's return of gas

because actual non-CMS interconnection capacity is less than current

capacity, thereby giving the shipper additional time to settle the

offset with Consumers Energy.

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

The Proposed Consent Order requires CMS to post to an electronic

bulletin board information which will let shippers know whether actual

capacity is less than current capacity at non-CMS interconnects.

Specifically, the Proposed Consent Order requires Consumers Energy to

provide (for each interconnection point) the current capacity, current

capacity as adjusted for maintenance and force majeure conditions

(including the cause of the adjustment and the date it is expected to

end), actual capacity, shipments nominated and confirmed (no later than

the second business day of each month), and throughput for the previous

month.\3\ This information will permit industry participants to monitor

access to CMS's intra-state distribution system.

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

\3\ The Proposed Consent Order requires the listing of

``Recorded Throughput,'' meaning the data obtained electronically by

Consumers Energy from its Supervisory Control And Data Acquisition

system units located at each of the interconnection points at issue.

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

The Proposed Consent Order, which will be effective for a period of

ten years, requires Consumers Energy to incorporate these obligations

into the tariffs it has filed with the Michigan Public Service

Commission and into its contracts with shippers.

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 or make the order

final.

By accepting the Proposed Consent Order subject to final approval,

the Commission anticipates that the competitive problems alleged in the

complaint will be resolved. 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 is not intended to 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. 99-7403 Filed 3-25-99; 8:45 am]

BILLING CODE 6750-01-M