FTC Clears Enbridge and Spectra Merger With Behavioral Conditions

On February 16, 2017, the United States Federal Trade Commission (“FTC”) announced that energy infrastructure companies Enbridge Inc. (“Enbridge”) and Spectra Energy Corp (“Spectra”) agreed to settle FTC charges that the proposed $28 billion merger of Enbridge and Spectra likely would harm competition in the market for pipeline transportation of natural gas in three production areas off the coast of Louisiana.

According to the FTC’s complaint, the merger likely would reduce natural gas pipeline competition in three offshore natural gas producing areas in the Gulf of Mexico – Green Canyon, Walker Ridge and Keathley Canyon – leading to higher prices for natural gas pipeline transportation from those areas.  In portions of the affected areas, the FTC alleged, the merging parties’ pipelines are the two pipelines located closest to certain wells and, as a result, are likely the lowest cost pipeline transportation options for those wells.

Under the settlement with the FTC, the companies have agreed to behavioral conditions that will preserve competition in those areas.  Enbridge is the sole owner and operator of the Walker Ridge Pipeline.  Through its indirect stake in DCP Midstream Partners, LP (“DCP”), Houston-based Spectra indirectly owns a 40% interest in the Discovery Pipeline.  According to the FTC, the proposed merger will give Enbridge an ownership interest in both pipelines, which will give it access to competitively sensitive information of the Discovery Pipeline, as well as significant voting rights over the Discovery Pipeline.  Access to its competitor’s competitively sensitive information and significant voting rights would provide Enbridge with the incentive and opportunity to unilaterally increase pipeline transportation costs for natural gas producers located in the affected areas.  The exchange of information also may increase the likelihood of tacit or explicit anticompetitive coordination between the Walker Ridge Pipeline and the Discovery Pipeline.

Competition from a new pipeline or from expansion of an existing one appears unlikely because pipeline applications face a lengthy regulatory review, and laying new pipeline infrastructure in the Gulf of Mexico is expensive.

The proposed consent agreement resolves anticompetitive concerns by requiring Enbridge to establish firewalls to limit its access to non-public information about the Discovery Pipeline.  Board members of the Spectra-affiliated companies that hold a 40% share in the Discovery Pipeline must recuse themselves from any vote involving the pipeline, with two limited exceptions.  Also under the order, Enbridge must notify the FTC before acquiring an ownership interest in any natural gas pipeline operating in the Green Canyon, Walker Ridge and Keathley Canyon areas, or increasing the 40% ownership interest of Spectra affiliate DCP in the Discovery Pipeline.  The proposed order, which is to remain in effect for 20 years, allows the FTC to appoint a monitor to ensure that Enbridge complies.

The FTC vote to issue a complaint and accept the proposed consent order for public comment was 2-0.  The consent agreement will be subject to public comment for 30 days, through March 20, 2017, after which the FTC will decide whether to make the proposed consent order final.