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Kinder Morgan-El Paso Deal Gets FTC Clearance

Kinder Morgan Inc.'s (KMI) acquisition of El Paso Corp. has received approval from the Federal Trade Commission (FTC), provided the company's Kinder Morgan Energy Partners (KMP) relieves itself of some Rocky Mountain pipeline, gas processing and storage assets as it previously said it would do.

The FTC is requiring KMI, one of the largest U.S. transporters of natural gas and other energy products, to sell its 50% stake in the Rockies Express pipeline, as well as Kinder Morgan Interstate Gas Transmission and Trailblazer pipelines. KMI also was directed to sell two gas processing plants in the Rocky Mountain region and associated storage capacity within 180 days. KMI previously said it would sell the assets (see Daily GPI, March 19).

The FTC charged that the deal as originally proposed without the asset sales would have illegally reduced competition in several natural gas pipeline transportation and gas processing markets.

Specifically, the FTC said that the deal without the asset divestitures would have harmed competition in markets for pipeline transportation and processing of gas in the Rocky Mountain production areas in and around Wyoming, Colorado, Nebraska and Utah, in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act.

"Without the pipeline divestitures, the combined firm would dominate natural gas transportation options in five Rockies production areas: 1) the Denver/Julesburg/Niobrara Basin, 2) the Powder River Basin, 3) the Wind River Basin, 4) the Western Wyoming areas, including the Green River Basin, the Red Desert Basin, and the Washakie Basins; and 5) the Piceance Basin," the FTC said.

In each of these areas, the FTC said, the market for gas pipeline transportation is highly concentrated. The agency charged that the proposed acquisition would significantly increase this concentration, while eliminating the current direct competition between Kinder Morgan and El Paso, and might lead to higher transportation costs for natural gas shippers in these areas. The FTC also alleged the deal would lead to anti-competitive effects and higher prices for transportation to the Colorado Front Range.

The FTC said without the concessions, the deal would harm competition in two other markets: natural gas processing and "no-notice" pipeline transportation services. The FTC's concerns related to no-notice service are confined to the Colorado Front Range.

Kinder Morgan is required to provide transitional support, such as licensing necessary intellectual property, to the company purchasing the divested assets. In addition, the proposed order allows the buyer to recruit any Kinder Morgan employees who work on the assets to be sold, and for two years bars Kinder Morgan from trying to rehire employees who are hired by the buyer.

If Kinder Morgan fails to divest the required assets within 180 days, the proposed order allows the FTC to appoint a divestiture trustee to oversee their sale. It also requires Kinder Morgan to maintain the assets as competitive entities and to hold them separate from the rest of its operations until they are divested to an FTC-approved buyer.

Last month KMI said it expected to complete the El Paso transaction during the third quarter (see Daily GPI, April 20). CEO Rich Kinder said numerous parties had expressed interest in the assets to be divested.

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