FTC conditionally okays Southern Union $1.8 billion Panhandle Pipeline purchase

May 30, 2003
The US Federal Trade Commission announced a proposed consent order conditionally allowing CMS Energy to sell its interstate natural gas pipeline unit, CMS Panhandle Cos., and that business unit's accompanying subsidiaries.

By OGJ editors

WASHINGTON, DC, May 30 -- The US Federal Trade Commission Thursday announced a proposed consent order conditionally allowing Dearborn, Mich.-based CMS Energy Corp. to sell its interstate natural gas pipeline unit, CMS Panhandle Cos., and that business unit's accompanying subsidiaries, to Wilkes-Barre, Pa.-based Southern Union Panhandle for $1.828 billion.

FTC's proposed order is subject to public comment and requires SU to terminate an agreement that allowed its subsidiary Energy Worx Inc. to manage the Central pipeline, which delivers natural gas to the same Kansas City, Mo., distribution area.

Last December, Southern Union Panhandle Corp. (SUPC)—a newly formed entity owned by Southern Union Co. and AIG Highstar Capital LP—agreed to pay $662 million in cash and assume $1.166 billion in debt for the CMS asset (OGJ Online, Dec. 23, 2002).

Provisos included
The proposed order precludes SU and CMS from transferring any interest in Panhandle to AIG, the owner of Central pipeline. FTC told the companies that after the deal is finalized, neither SU nor its subsidiaries may operate, manage, or hold any interest in, the Central pipeline.

"The transaction as proposed would have eliminated direct competition between the Central and Panhandle pipelines by placing them under common ownership or common management and control," said Joe Simons, director of the FTC's Bureau of Competition.

"The consent agreement reached with the commission appropriately addresses these concerns, preserving competition and protecting consumers from higher prices for natural gas pipeline services in the Kansas City area," Simons added.

FTC inferred that a Dec. 21, 2002, agreement signed by SU, affiliates of AIG, and CMS was anticompetitive because SU would have owned about 78% of Panhandle, with the AIG affiliates owning the remainder.

On May 12, to address potential anticompetitive effects of the acquisition, SU entered into an amended agreement under which SUPC, a wholly owned SU subsidiary, would buy all Panhandle capital stock from CMS Gas Transmission Co., a wholly owned subsidiary of CMS, for about $1.8 billion. AIG is not a party to the revised transaction and will have no ownership interest in Panhandle, FTC said. At the same time, affiliates of SU and AIG entered into an agreement terminating the agreement for Energy Worx to manage and operate the Central pipeline.

Proposed consent order
Under the proposed consent order, SU and CMS may not transfer any ownership interest in SU, Panhandle, or the Panhandle pipeline to AIG. If a nonpublic ownership interest in these assets is sold to someone other than AIG, the sale must be made with the requirement that the assets will not be transferred to AIG, FTC officials said.

Finally, the proposed order contains standard reporting, notice, and access provisions designed to allow the FTC to verify SU and CMS's compliance with its terms. The proposed order will end 10 years from the date it becomes final. The proposed consent order will be subject to public comment for 30 days, until June 27, after which FTC will determine whether to make it final.