Academic journal article Energy Law Journal

Report of the Antitrust Committee

Academic journal article Energy Law Journal

Report of the Antitrust Committee

Article excerpt

This report summarizes antitrust developments of particular interest to energy law practitioners that occurred in the year 2005.1 The topics are covered in the following order:

I. Federal Trade Commission (FTC) Enforcement Actions

II. FTC Retail Gasoline and Ethanol Reports

III. FTC Comments on Federal Energy Regulatory Commission (FERC) Proposals

IV. Judicial Decisions

V. Major FERC Competition-Related Rules and Orders


A. Valero L.P., Valero Energy Corp., and Kaneb Services LLC, Kaneb Pipe Line Partners, L.P.

On July 26, 2005, the FTC approved a final consent order involving Valero Energy Corp.'s (Valero) acquisition of partnership interests in Kaneb Services and Kaneb Pipe Line Partners (Kaneb), resulting in the companies' becoming wholly-owned subsidiaries of Valero.2 In its complaint, the FTC alleged that the transaction would violate section 7 of the Clayton Act3 and section 5 of the Federal Trade Commission Act (FTC Act)4 by substantially lessening competition in the following markets: (1) terminaling services for bulk suppliers of light petroleum products in the Greater Philadelphia Area; (2) pipeline transportation and terminaling services for bulk suppliers of light petroleum products in the Colorado Front Range; (3) terminaling services for bulk suppliers of refining components, blending components, and light petroleum products in Northern California; and (4) terminaling for bulk ethanol in Northern California.5 For the Greater Philadelphia Area and the Northern California markets, the FTC found that Kaneb was the only independent provider of terminaling services (i.e., it did not own or market any of the products in its terminals) and thus, unlike its competitors, had no economic interest in the price of the products in its terminals; the elimination of the sole independent provider of terminaling services would thus restrict access by third-party marketers to these markets, reducing competitive pressures on the vertically-integrated suppliers and allowing them to maintain higher prices in the downstream markets for these products.6 The FTC also considered vertical impacts in the Northern California bulk ethanol market, finding that the merged entity "could use control over bulk ethanol terminaling to limit access to ethanol storage by refusing to renew storage agreements with terminaling customers, by canceling contracts at some terminals to force competitors to truck longer distances, or by simply raising prices or abusing confidential information for ethanol terminaling."7 The FTC found this particularly significant because ethanol is a required ingredient in California Air Resources Board (CARB) Reformulated Gasoline (RFG), and any price increases in this market could increase the price of finished gasoline.8

To remedy the horizontal harms of the transaction, the companies agreed to divest terminals in the Greater Philadelphia Area, pipelines and terminals in the Colorado Front Range, and terminals in Northern California.9 To address the vertical harms associated with the bulk ethanol market in Northern California, Valero committed "not to discriminate in favor of or otherwise prefer Valero Energy in bulk ethanol terminaling services and to maintain customer information confidentiality at the Selby and Stockton terminals."10 The FTC approved the required divestitures on September 16, 2005.11

B. Chevron Corp. and Unocal Corp.; Union Oil

The FTC undertook two related enforcement actions involving CARB RFG and Unocal Corp. (Unocal). The first involved Chevron Corp.'s (Chevron) proposal to purchase Unocal and merge it into Chevron as a wholly-owned subsidiary.12 Chevron was a leading refiner and marketer of CARB RFG, which is required to be sold in California to reduce air pollution and for which there is no substitute as an automotive fuel in California. Unocal had no downstream operations in refining or gasoline retailing, but was the owner of relevant U. …

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