The Federal Trade Commission has approved the merger between Enbridge and Spectra, following the parties’ acceptance of certain terms designed to preserve competition between natural gas pipelines in the Gulf of Mexico. The FTC’s action highlights the continued focus on mergers in the midstream and upstream energy sector and the remedies agreed upon illustrate ways to preserve competition through means other than divestitures and that are specifically tailored to the assets at issue.
On March 24, 2017, the FTC issued its Final Order allowing the merger between Enbridge, Inc. and Spectra Energy Corp to proceed. The Final Order follows a 30-day notice-and-comment period after the FTC entered an agreement with Enbridge and Spectra to resolve the FTC’s concerns. Pursuant to the agreement, Enbridge will take precautionary measures to preserve competition among natural gas pipelines servicing the Gulf of Mexico. These measures include firewalls that will limit Enbridge’s access to certain information regarding the Discovery Pipeline, and requirements that Enbridge and Spectra-appointed members of boards controlling the Discovery Pipeline recuse themselves from certain votes.
Enbridge and Spectra entered into a merger agreement September 5, 2016, which would create the largest energy infrastructure company in North America. The FTC filed a complaint, alleging that, as initially proposed, the merger would vest Enbridge with ownership interests in the two closest and lowest-cost pipelines servicing offshore natural gas producing areas in the Gulf of Mexico. The FTC alleged that the relevant markets for analyzing the merger were natural gas pipeline transportation in the Green Canyon, Walker Ridge, and Keathley Canyon offshore natural gas producing areas. Enbridge, through a wholly owned subsidiary, owned and operated the Walker Ridge Pipeline. After the merger, Enbridge would acquire Spectra’s indirect, minority ownership interest in the Discovery Pipeline. This would give Enbridge access to competitively sensitive information about the Discovery Pipeline, and Enbridge would gain voting rights over significant expenditures for the Discovery Pipeline, such as future expansions to connect the Discovery Pipeline to wells.
In light of the concerns raised by the FTC, Enbridge and Spectra agreed to a consent order in which Enbridge would erect firewalls that limit its access to non-public information relating to the Discovery Pipeline. Additionally, the consent order requires that all board representatives appointed by Enbridge or Spectra to the two entities having an ownership interest in the Discovery Pipeline recuse themselves from certain votes. Specifically, such board members are required to recuse themselves from any vote pertaining to the Discovery Pipeline, except for initiatives to expand the Discovery Pipeline beyond natural gas pipeline services in the Gulf, and changes in one of the entity’s ownership interest in the Discovery Pipeline.
The definitions of the relevant markets used by the FTC in the proceedings, as well as the specific remedies agreed upon, may be indicative of strategies used in future enforcement proceedings.