[Federal Register Volume 63, Number 117 (Thursday, June 18, 1998)]
[Notices]
[Pages 33396-33408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16218]
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DEPARTMENT OF JUSTICE
Antitrust Division
Proposed Final Judgment and Competitive Impact Statement; United
States v. Enova Corporation
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final
Judgment, Stipulation, and Competitive Impact Statement have been filed
with the United States District Court for the District of Columbia in
United States v. Enova Corporation, Civil No. 98-CV-583 (TFH). The
proposed Final Judgment is subject to approval by the Court after the
expiration of the statutory 60-day public comment period and compliance
with the Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-
(h).
On March 9, 1998, the United States filed a Complaint seeking to
enjoin a transaction in which Pacific Enterprises (``Pacific'') would
merge with Enova Corporation (``Enova''). Pacific is a California gas
utility company and Enova is a California electric utility company.
Enova sells electricity from plants that use coal, gas, nuclear power,
and hydropower. Pacific is virtually the sole provider of natural gas
and transportation storage services to plants in southern California.
The proposed merger would have created a company with both the
incentive and the ability to lessen competition in the market for
electricity in California. The Complaint alleged that the proposed
merger would substantially lessen competition in the market for
electricity in California during high demand periods in violation of
Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.
The proposed Final Judgment, filed contemporaneously with the
Complaint, (1) orders Enova to sell certain of its generating assets to
a purchaser or purchasers acceptable to the United States; and (2)
limits Enova's ability to acquire similar assets. The Stipulation also
imposes a hold separate agreement that, in essence, requires the
defendant to ensure that, until the divestiture mandated by the Final
Judgment has been accomplished, Enova's generators subject to the
divestiture will be held separate and apart from, and operated
independently of, any of its other Enova assets and businesses. A
competitive Impact Statement filed by the United States describes the
Complaint, the proposed Final Judgment, and remedies available to
private litigants.
Public comment is invited within the statutory 60-days comment
period. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Written comments should be
directed to Roger W. Fones, Chief, Transportation, Energy, and
Agriculture Section, Antitrust Division, 325 Seventh Street, NW., Suite
500, Washington, DC 20530 (telephone (202) 307-6351).
Copies of the Complaint, Stipulation, proposed Final Judgment, and
Competitive Impact Statement are available for inspection in Room 215
of the U.S. Department of Justice, Antitrust
[[Page 33397]]
Division, 325 Seventh Street, NW., Washington, DC 20530 (telephone:
(202) 514-2481) and at the office of the Clerk of the United States
District Court for the District of Columbia, 333 Constitution Avenue.,
NW., Washington, DC 20001. Copies of any of the materials may be
obtained upon request and payment of a copying fee.
Constance K. Robinson,
Director of Operations & Merger Enforcement, Antitrust Division.
United States District Court, District of Columbia
United States of America, Plaintiff, v. Enova Corporation,
Defendant. Civil Action No. 1:98CV00583. Filed: March 9, 1998.
Judge: Thomas Hogan.
Stipulation and Order
It is stipulated by and between the undersigned parties, through
their respective attorneys, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto, and venue of this action is
proper in the District of Columbia.
2. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act, 15
U.S.C. Sec. 16, and without further notice to any party or other
proceedings, provided that Plaintiff United States has not withdrawn
its consent, which it may do at any time before the entry of the
proposed Final Judgment by serving notice thereof on Defendant and by
filing that notice with the Court.
3. Defendant shall abide by and comply with the provisions of the
proposed Final Judgment pending entry of the Final Judgment, or until
expiration of time for all appeals of any court ruling declining entry
of the proposed Final Judgment, and shall, from the date of signing of
this Stipulation, comply with all terms and provisions of the proposed
Final Judgment as though the same were in full force and effect as an
order of the Court.
4. This Stipulation shall apply with equal force and effect to any
amended proposed Final Judgment agreed upon in writing by the parties
and submitted to the Court.
5. In the event Plaintiff United States withdraws its consent, as
provided in Paragraph 2, above, or if the proposed Final Judgment is
not entered pursuant to this Stipulation, the time has expired for all
appeals of any Court ruling declining entry to the Final Judgment, and
the Court has not otherwise ordered continued compliance with the terms
and provisions of the proposed Final Judgment, then the parties are
released from all further obligations under this Stipulation, and the
making of this Stipulation shall be without prejudice to any party in
this or any other proceeding.
6. Defendant represents that the divestiture ordered in the
proposed Final Judgment can and will be made, and that they will later
raise no claims of hardship or difficulty as grounds for asking the
Court to modify any of the divestiture provisions contained therein.
Respectfully submitted.
For Plaintiff
United States of America
Jade Alice Eaton,
DC Bar # 939629.
Andrew K. Rosa,
HI Bar # 6366, Attorneys, Antitrust Division, U.S. Department of
Justice, 325 Seventh St., NW., Washington, DC 20004, (202) 307-6316,
(202) 307-0886.
For Defendant
Enova Corporation
Steven C. Sunshine,
DC Bar # 450078, Shearman & Sterling, 801 Pennsylvania Avenue, NW.,
Washington, DC 20004, (202) 508-8022.
Dated: March 9, 1998.
Order
It is so ordered, this ________ day of ____________________, 1998.
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United States District Court Judge
Final Judgment
Whereas Plaintiff United States of America (hereinafter ``United
States''), having filed its Complaint herein on March 9, 1998, and
Plaintiff and Defendant, by their respective attorneys, having
consented to the entry of this Final Judgment without trail or
adjudication of any issue of fact or law herein, and without this Final
Judgment constituting any evidence against or an admission by any party
with respect to any issue of law or fact herein;
And whereas Defendant has agreed to be bound by the provisions of
this Final Judgment pending its approval by the Court;
And whereas the essence of this Final Judgment is divestiture of
assets to ensure that competition, as alleged in the Complaint, is not
substantially lessened;
And whereas Plaintiff requires Defendant to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And whereas Defendant has represented to Plaintiff that as to the
divestiture ordered herein Defendant will later raise no claims of
hardship or difficulty as grounds for asking the Court to modify any of
the divestiture provisions contained below;
Now, therefore, before the taking of any testimony, and without
trail or adjudication or admission of any issue of fact or law herein,
and upon consent of the parties hereto, it is hereby Ordered, Adjudged,
and Decreed as follows:
I. Jurisdiction
This Court has jurisdiction over each of the parties hereto and the
subject matter of this action. The Complaint states a claim upon which
relief may be granted against Defendant under Section 7 of the Clayton
Act, as amended. 15 U.S.C.A. Sec. 18 (West 1997).
II. Definitions
As used in this Final Judgment:
A. ``Acquire'' means obtaining any interest in any electricity
generating facilities or capacity, including, but not limited to, all
real property, deeded development rights to real property, capital
equipment, buildings, fixtures, or contracts related to the generation
facility, and including all generations, tolling, reverse tolling, and
other contractual rights.
B. ``California Generation Facilities'' means (1) electricity
generation facilities in California in existence in January 1, 1998,
excluding such facilities that are rebuilt, repowered, of activated out
of dormancy after January 1, 1998, as long as such rebuild, repower, or
activation out of dormancy project, if done by Defendant, begins with
one year of purchase; and (2) any contract for operation and sale of
output from generating assets of the Los Angeles Department of Water
and Power (``LADWP'').
C. ``California Public Power Generation Management Services
Contract'' means a bona fide contract for managing for operation and
sale of output from California Generation Facilities owned by a
municipality, an irrigation district, other California state authority,
or their agents on January 1, 1998; provided, however, that a contract
for managing the operation and sale of output from generation assets of
LADWP shall not be deemed a California Public Power Generation
Management Services Contract.
D. ``Common Facilities'' means those facilities associated with the
generation assets to be divested that are located on
[[Page 33398]]
or near such assets, and that are necessary to the operation of non-
generating aspects of Enova's electric business, including, but not
limited to, the operation of Enova's distribution, transmission, and
communications systems.
E. ``Control'' means to have the ability to set the level of output
of an electricity generation facility.
F. ``Divestiture Assets'' means the Encina and South Bay
electricity generation facilities owned by Enova at Carlsbad and Chula
Vista, California, including, but not limited to, all real property
rights necessary to the operation of the facilities; buildings,
generation equipment, inventory, fixed assets and fixtures, materials,
supplies, on-site warehouses or storage facilities, and other tangible
property to improvements used in the operation of the facilities;
licenses, permits (including but not limited to environmental permits
and all permits from federal or state agencies), and authorizations
issued by any governmental organization relating to the facilities, and
all work in progress on permits or studies undertaken in order to
obtain permits; plans for design or redesign of these electricity
generating assets; contracts (including but not limited to customer
contracts), agreements, leases, commitments, and understandings
pertaining to the facilities and their operations; customer lists, and
marketing or consumer surveys relating to these electricity generating
assets; contracts for firm capacity and energy of longer than three
months relating to these assets; records maintained by Enova necessary
to operation of these assets; and all other interests, assets or
improvements customarily used in the generation of electricity at these
facilities.
G. The terms ``Enova'' and ``Defendant'' mean Enova Corporation, a
California corporation headquartered in San Diego, California, and
includes its successors and assigns, and its parents, subsidiaries,
directors, officers, managers, agents, and employees acting for or on
behalf of any of them.
H. The terms ``Independent System Operators'' or ``ISO'' means an
entity that operates the intrastate gas transmission pipelines and
related facilities of Pacific Enterprises. ``Operates'' includes full
operational and pricing control over all such facilities and total
authority to determine whether and how much capacity is available in
the intrastate pipeline, whether curtailment of transmission service is
require on any part of that system, whose service is curtailed, and the
prices to be charged.
I. ``Pacific'' means Pacific Enterprises, a California corporation
headquartered in Los Angeles, California, and includes its successors
and assign, and its parents, subsidiaries, directors, officers,
managers, agents, and employee acting for or on behalf of any of them.
J. ``Portland General Electric Contract'' means the contracts,
dated November 15, 1985, for 75 MW of firm capacity and associated
transmission.
K. The terms ``Auction Procedures'' and ``California Auction
Procedures'' mean the auction procedures set forth in a decision
addressing Enova's application under section 851 of the California
Public Utilities Code to divest the Divestiture Assets.
L. The term ``Southern California'' means the counties in
California currently served by Pacific's gas pipelines.
III. Applicability
A. The provisions of this Final Judgment apply to Defendant, its
successors and assigns, parents, subsidiaries, directors, officers,
managers, agents, and employees, and all other persons in active
concert or participation with any of them who shall have received
actual notice of this Final Judgment by personal service or otherwise.
B. Enova shall require, as a condition of the sale or other
disposition of all or substantially all of its assets, or of a lesser
business unit that includes Enova's business of intrastate transmission
and retail distribution and sale of natural gas, that the transferee
agree to be bound by the provisions of this Final Judgment.
IV. Divestiture
A. Defendant is hereby ordered and directed, in accordance with the
terms of this Final Judgment, and specifically in accordance with the
schedule in this section, to divest the Divestiture Assets to a
purchaser or purchasers acceptable to the United States, in its sole
discretion. Purchasers whose bids are accepted by the United States
under Section IV(D)(3) will be deemed acceptable.
B. Except as provided in Section VI, these divestitures shall occur
through the Auction Procedures and shall be subject to necessary
approvals by the California Public Utilities Commission (``CPUC'') and
other governmental authorities.
C. Defendant shall use its best efforts to accomplish the
divestiture as expeditiously as possible, but in any event within the
schedule set forth in Section IV(E) below. These efforts shall include,
but are not limited to, making the necessary regulatory filings and
applications in a timely fashion and using its reasonable best efforts
to obtain such approvals as expeditiously and timely as possible.
D. Certain Conditions on the Auction Procedures.
1. Enova may reject any bid submitted by any party for all or part
of the Divestiture Assets if the bid offers consideration in an amount
less than the book value of such assets as reflected on the most recent
regularly prepared balance sheet of Enova at the time the bid is
submitted; provided, however, that nothing in this section shall
prevent the CPUC from setting a minimum bid price or rejecting any bid
on the basis of price or otherwise.
2. Enova may structure its requests for bids to require reasonable
easements, licenses, and other arrangements for the continued operation
of Common Facilities by Enova.
3. Before Enova can accept a bid by a potential purchaser received
under the Autcion Procedures with respect to any of the Divestiture
Assets to be divested, the bid must be screened by the United States as
specified in this section. Enova shall provide to the United States
copies of all bids and any other documents submitted by any potential
purchaser pursuant to the Auction Procedures. The United States shall
have thirty days from the date it receives a copy of a bid to notify
Enova that the potential bid is unacceptable with respect to any of the
Divestiture Assets specified in the bid; provided, however, the United
States may extend the thirty-day review period for any such bid for one
additional thirty-day period by providing written notice to Enova;
provided further, in all cases the period for review of potential bids
by the United States shall expire no later than the earlier of five
days prior to the date set by the CPUC for submission of the proposed
winning bid by Enova or the thirty-day period (with one possible
thirty-day extension) described above. If the United States does not
notify Enova that a proposed bid is unacceptable within the applicable
time period specified above, the purchaser making such bid shall be
deemed acceptable by the United States with respect to all of the
Divestiture Assets specified in that bid. The United States shall base
its review of all potential bids screened pursuant to this paragraph
solely on the criteria identified in Section IV(I) of this Final
Judgment. The United States shall take all appropriate and necessary
steps to keep the information received pursuant to this section
confidential.
E. Timing.
[[Page 33399]]
1. Enova shall submit applications for authorization and approval
of the auctions specified in Paragraph IV(B) above for the Divestiture
Assets no later than ninety days after notice of entry of this Final
Judgment.
2. Enova shall complete the sale of the Divestiture Assets as soon
as practical after the receipt of all necessary governmental approvals;
provided, however, if the sale of any of the Divestiture Assets is not
completed within eighteen months after the date of the entry of this
Final Judgment, a trustee shall be appointed pursuant to Section VI of
this Final Judgment to effect the divestiture of any unsold assets;
provided further, the United States may extend the eighteen-month
period by six months by servicing written notice on Enova prior to the
expiration of the eighteen-month period; provided further, Enova and
the United States may be mutual agreement extend further the time in
which any of the Divestiture Assets shall be sold.
F. In accomplishing the divestiture ordered by this Final Judgment,
Defendant promptly shall make known, by usual and customary means, the
availability of the Divestiture Assets. The California Auction
Procedures shall be deemed to satisfy this requirement. Defendant shall
inform any person making an inquiry regarding a possible purchase that
the sale is being made pursuant to this Final Judgment and provide such
person with a copy of this Final Judgment. Defendant shall make known
to any person making an inquiry regarding a possible purchase of the
Divestiture Assets that the assets defined in Section II(F) are being
offered for sale. Defendant shall also offer to furnish to all bona
fide prospective purchasers, subject to customary confidentiality
assurances, all information regarding the Divestiture Assets
customarily provided in a due diligence process except such information
subject to attorney-client privilege or attorney work-product
privilege. Defendant shall make available such information to Plaintiff
at the same time that such information is made available to any other
person.
G. Defendant shall not interfere with any negotiations by any
purchaser to employ any employee of the Defendant necessary to the
operation of Divestiture Assets.
H. Defendant, shall, at minimum, permit prospective purchasers of
the Divestiture Assets to have reasonable access to personnel and to
make such inspection of the Divestiture Assets, and any and all
financial, operational, or other documents and information customarily
provided as part of a due diligence process.
I. Unless the United States otherwise consents in writing, the
divestiture or divestitures pursuant to this section, or by the trustee
appointed pursuant to Section VI of this Final Judgment, shall include
the Divestiture Assets as specified in this Final Judgment (though not
necessarily all to the same purchaser) and be accomplished by selling
or otherwise conveying the Divestiture Assets to a purchaser or
purchasers in such a way as to satisfy the United States, in its sole
discretion, that none of the terms of any agreement between any
purchaser and Defendant give Defendant the ability unreasonably to
raise the purchaser's costs, to lower the purchaser's efficiency, or
otherwise to interfere in the ability of the purchaser to compete
effectively in the provision of electricity in California; provided,
however, the purchaser need not continue operation of these assets.
V. Acquisition
A. General Prohibitions.
1. Defendant is enjoined from acquiring California Generation
Facilities without prior notice to and approval of the United States.
Such prior approval shall be within the sole discretion of the United
States.
2. Defendant is enjoined from entering into any contracts that
allow Defendant to control any California Generation Facilities without
prior notice to and approval of the United States. Such prior approval
shall be within the sole discretion of the United States.
B. Limitations on Prohibitions.
1. Acquisition cap--Defendant may acquire or control California
Generation Facilities without prior approval of the United States if
Defendant does not own or control, in the aggregate, more than 500 MW
of capacity of California Generation Facilities. The capacity of
Defendant's existing nuclear generation assets are excluded from the
calculation of whether the 500 MW cap has been reached so long as the
prices Enova receives for electricity generated by the existing nuclear
generation assets are fixed by law or regulation. The Portland General
Electric Contract capacity (75 MW) shall be included in the calculation
of whether the 500 MW cap has been reached (reducing the total
available to 425 MW), unless and until the Portland General Electric
Contract terminates or is divested. The capacity of the Divestiture
Assets shall be included in the calculation of whether the 500 MW cap
has been reached, as long as Defendant owns such assets.
2. Acquisitions above the cap--In any event, the Defendant may
acquire or control, California Generation Facilities in excess of 500
MW, subject to the prior approval of the United States as provided in
Paragraphs V(A)(1) and V(A)(2).
C. Exceptions.
1. Outside California--Defendant may own, operate, control, or
acquire any electricity generation facilities other than California
Generation Facilities.
2. Cogeneration facilities--Defendant may own, operate, or control
any cogeneration or renewable generation facilities in California.
3. Tolling agreements--Defendant may enter into tolling and reverse
tolling agreements with any electricity generation facilities in
California, provided Defendant does not control such facilities;
provided further, that all such tolling and reverse tolling agreements
include the following provision: ``In accordance with the Final
Judgment in United States v. Enova Corporation, entered on [date],
Enova's successors and their affiliates shall not have any ability to
set the level of output of this electricity generation facility.''
4. California Public Power Generation Management Services
Contracts.--Defendant's entry into California Public Power Generation
Management Services Contracts is not prohibited under Section V(A)(2)
above, regardless of whether the contract allows for Defendant to
exercise control of such facilities, and such contracts shall not be
included in the calculation of whether the Acquisition Cap in Section
V(B)(1) has been reached; provided however, Defendant may not enter
into California Public Power Generation Management Services Contracts
that allow the Defendant to exercise control of such facilities,
without notice to the United States.
5. Notification of California Public Power Generation Management
Services Contracts--Unless such transaction is otherwise subject to the
reporting and waiting period requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, 15 U.S.C.A. Sec. 18a
(West 1997) (``HSR Act''), for each California Public Power Generation
Management Services Contract it enters for which notice is required,
Defendant shall provide notice thereof to the United States as follows:
a. Notification shall be provided within five days of acceptance of
the contract, and shall include copies of all contracts, the names of
the principal representatives of the parties to the agreement who
negotiated the agreement, and any management or strategic plans
discussing the California Public Power Generation Management
[[Page 33400]]
Services Contract that was the subject of the transaction.
b. This Section shall be broadly construed and any ambiguity or
uncertainty regarding the filing of notice under this Section shall be
resolved in favor of filing notice.
D. Methods of Obtaining Prior Approvals and of Providing Notice--
Defendant shall obtain prior approval and provide notice by sending the
required materials to Chief, Transportation, Energy, and Agriculture
Section, Antitrust Division, United States Department of Justice, 325
Seventh Street, N.W., Suite 500, Washington, DC 20004.
E. Other Legal Requirements--Nothing in this section limits the
Defendant's responsibility to comply with the requirements of the HSR
Act, with respect to any acquisition.
VI. Appointment of Trustee
A. In the event that Defendant has not divested all of the
Divestiture Assets within the time specified in Section IV of this
Final Judgment, the Court shall appoint, on application of the United
States, a trustee selected by the United States to effect the
divestiture of the assets.
B. At or anytime after the appointment of the trustee, if either
party believes a conflict may exist between this Final Judgment and an
order of the CPUC relating to the Divestiture Assets, that party may
move the Court for a resolution of the conflict in light of the status
of any relevant CPUC proceeding and the purpose of this Final Judgment.
C. After the appointment of the trustee becomes effective, the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture at the best price then obtainable upon a reasonable effort
by the trustee, subject to the provisions of Sections VI and VII of
this Final Judgment, and shall have such other powers as the Court
shall deem appropriate. Subject to Section VI(D) of this Final
Judgment, the trustee shall have the power and authority to hire at the
cost and expense of Defendant any investment bankers, attorneys, or
other agents reasonably necessary in the judgment of the trustee to
assist in the divestiture, and such professionals and agents shall be
accountable solely to the trustee. The trustee shall have the power and
authority to accomplish the divestiture at the earliest possible time
to a purchaser acceptable to the United States, in its sole judgment.
Defendant shall not object to a sale by the trustee on any grounds
other than the trustee's malfeasance. Any such objections by Defendant
must be conveyed in writing to Plaintiff and the trustee no later than
ten calendar days after the trustee has provided the notice required
under Section VII of this Final Judgment.
D. The trustee shall serve at the cost and expense of Defendant, on
such terms and conditions as the Court may prescribe, and shall account
for all monies derived from the sale of the assist sold by the trustee
and all costs and expenses so incurred. After approval by the Court of
the trustee's accounting, including fees for its services and those of
any professionals and agents retained by the trustee, all remaining
money shall be paid to Enova and the trust shall then be terminated.
The compensation of such trustee and of any professionals and agents
retained by the trustee shall be reasonable in light of the value of
the Divestiture Assets and based on a fee arrangement providing the
trustee with an incentive based on the price and terms of the
divestiture and the speed with which it is accomplished.
E. After the appointment of the trustee becomes effective,
Defendant shall take no action to interfere with or impede the
trustee's accomplishment of the required divestiture, and shall use its
best efforts to assist the trustee in accomplishing the required
divestiture, including best efforts to effect all necessary regulatory
approvals. Subject to a customary confidentiality agreement, the
trustee and any consultants, accountants, attorneys, and other persons
retained by the trustee shall have full and complete access to the
personnel, books, records, and facilities related to the Divestiture
Assets, and Defendant shall develop such financial or other information
relevant to the Divestiture Assets to be divested customarily provided
in a due diligence process as the trustee may reasonably request.
Defendant shall permit prospective purchasers of the Divestiture Assets
to have access to personnel and to make such inspection of physical
facilities and any and all financial, operational or other documents
and information as may be relevant to the divestiture required by this
Final Judgment.
F. After the appointment of the trustee becomes effective, the
trustee shall file monthly reports with Defendant, the United States,
and the Court, setting forth the trustee's efforts to accomplish
divestiture of the Divestiture Assets as contemplated under this Final
Judgment; provided, however, that to the extent such reports contain
information that the trustee deems confidential, such reports shall not
be filed in the public docket of the Court. Such reports shall include
the name, address and telephone number of each person who, during the
preceding month, made an offer to acquire, expressed an interest in
acquiring, entered into negotiations to acquire, or was contacted or
made an inquiry about acquiring, any interest in the Divestiture
Assets, and shall describe in detail each contact with any such person
during that period. Defendant may request that information in such
reports that has been provided as confidential by the Defendant be
deemed confidential by the trustee. If the trustee does not deem the
information to be confidential, the information shall not be made
public before Defendant has an opportunity to seek a protective order
from the Court. The trustee shall maintain full records of all efforts
made to divest these operations.
G. If the trustee has not accomplished the divestiture required by
Section IV of this Final Judgment within six months after the
appointment of the trustee becomes effective, the trustee shall
promptly file with the Court a report setting forth (1) the trustee's
efforts to accomplish the required divestiture, (2) the reasons, in the
trustee's judgment, why the required divestiture has not been
accomplished, and (3) the trustee's recommendations; provided, however,
that to the extent such reports contain information that the trustee
deems confidential, such reports shall not be filed in the public
docket of the Court. The trustee shall at the same time furnish such
reports to Defendant and the United States, who shall each have the
right to be heard and to make additional recommendations. The Court
shall thereafter enter such orders as it shall deem appropriate to
accomplish the purposes of this Final Judgment, which shall, if
necessary, include extending the term of the trustee's appointment by a
period requested by the United States.
VII. Notification
Within two business days following execution of a definitive
agreement, contingent upon compliance with the terms of this Final
Judgment, to effect, in whole or in part, any proposed divestiture
pursuant to Sections IV or VI of this Final Judgment, Defendant of the
trustee, whichever is then responsible for effecting the divestiture,
shall notify Plaintiff of the proposed divestiture. If the trustee is
responsible, it shall similarly notify Defendant. The notice shall set
forth the details of the proposed transaction and list the name,
address, and telephone number of each person not previously identified
who
[[Page 33401]]
offered to, or expressed an interest in or a desire to, acquire any
ownership interest in the assets that are the subject of the binding
contract, together with full details of same. Within fifteen calendar
days of receipt by Plaintiff of such notice, Plaintiff may request from
Defendant, the proposed purchaser, any other third party, or the
trustee, if applicable, additional information concerning the proposed
divestiture and the proposed purchaser. Defendant and the trustee shall
furnish any additional information requested within fifteen calendar
days of the receipt of the request, unless the parties shall otherwise
agree. Within thirty calendar days after receipt of the notice or
within twenty calendar days after Plaintiff has been provided the
additional information requested from Defendant, the proposed
purchaser, any third party, and the trustee, if there is one, whichever
is later, the United States shall provide written notice to Defendant
and the trustee, if there is one, stating whether or not it objects to
the proposed divestiture. If the United States provides written notice
to Defendant and the trustee that it does not object, then the
divestiture may be consummated, subject only to Defendant's limited
right to object to the sale under Section VI(C) of this Final Judgment.
Absent written notice that the United States does not object to the
proposed purchaser or upon objection by the United States, a
divestiture proposed under Section IV or Section VI shall not be
consummated. Upon objection by Defendant under the proviso in Section
VI(C), a divestiture proposed under Section VI shall not be
consummated. Provided, however, a proposed divestiture pursuant to the
Auction Procedures approved by the United States under Section IV(D)(3)
of this Final Judgment shall be deemed acceptable to the United States
under this section.
VIII. Affidavits
A. Within thirty calendar days of the filing of this Final Judgment
and every forty-five calendar days thereafter until the divestiture has
been completed whether pursuant to Section IV or Section VI of this
Final Judgment, Enova shall, with respect to Divestiture Assets,
deliver to Plaintiff an affidavit as to the fact and manner of
Defendant's compliance with Sections IV or VI of this Final Judgment.
Each such affidavit shall include, inter alia, the name, address, and
telephone number of each person who, at any time after the period
covered by the last such report, made an offer to acquire, expressed an
interest in acquiring, entered into negotiations to acquire, or was
contacted or made an inquiry about acquiring, any interest in the
Divestiture Assets, and shall describe in detail each contact with any
such person during that period. Each such affidavit shall also include
a description of the efforts that Defendant has taken to solicit a
buyer from the Divestiture Assets and to provide required information
to prospective purchasers, including the limitations, if any, on such
information.
B. For Divestiture Assets being sold using the California Auction
Procedures, during such Auction Procedures, submission of bids to the
United States in compliance with Section IV shall satisfy compliance
with the required contents of the affidavits in Section VII(A).
C. Within twenty calendar days of the filing of this Final
Judgment, Defendant shall deliver to Plaintiff an affidavit which
describes in detail all actions Defendant has taken and all steps
Defendant has implemented on an on-going basis to preserve the
Divestiture Assets pursuant to Section X of this Final Judgment and
describes the functions, duties and actions taken by or undertaken at
the supervision of the individuals described at Section X(J) of this
Final Judgment with respect to Defendant's efforts to preserve the
Divestiture Assets. Defendant shall deliver to Plaintiff an affidavit
describing any changes to the efforts and actions outlined in
Defendant's earlier affidavits filed pursuant to this section within
thirty calendar days after the change is implemented. The United States
shall take all necessary steps to keep the information received
pursuant to this section confidential.
D. Defendant shall preserve all records of all efforts made to
preserve and divest the Divestiture Assets.
IX. Financing
Defendant shall not finance all or any part of any divestiture made
pursuant to Sections IV or VI of this Final Judgment.
X. Preservation of Assets
Until the divestiture required by the Final Judgment has been
accomplished:
A. Defendant shall take all steps necessary to ensure that the
Divestiture Assets will be maintained and operated as an ongoing,
economically viable and active competitor in the provision of
electricity; and that, except as necessary to comply with Sections X
(B) to X (K) of this Final Judgment, the management of any electricity
generating facilities shall be kept separate and apart from the
management of Defendant's other businesses and will not be influenced
by Defendant, and the books, records, and competitively sensitive
sales, marketing and pricing information associated with electricity
generating facilities will be kept separate and apart from that of
Defendant's other businesses.
B. Defendant shall use all reasonable efforts to maintain and
increase sales of electricity by the Divestiture Assets, and Defendant
shall use reasonable efforts to maintain and increase promotional,
advertising, sales, marketing, and merchandising support for wholesale
electricity sold in California.
C. Defendant shall take all steps necessary to ensure that the
Divestiture Assets are fully maintained in operable condition and shall
maintain and adhere to normal maintenance schedules for the Divestiture
Assets.
D. Defendant shall provide and maintain sufficient lines of sources
of credit to maintain the Divestiture Assets as viable, ongoing
businesses.
E. Defendant shall provide and maintain sufficient working capital
to maintain the Divestiture Assets as viable ongoing businesses.
F. Defendant shall not, except as part of a divestiture approved by
the United States, remove, sell, or transfer any of the Divestiture
Assets, other than sales in the ordinary course of business.
G. Unless it has obtained the prior approval of the United States,
Defendant shall not terminate or reduce the current employment, salary,
or benefit arrangements for any personnel employed by Defendant who
work at, or have managerial responsibility for, electricity generating
facilities, except in the ordinary course of business.
H. Defendant shall continue all efforts in progress to obtain or
maintain all permits necessary for operating their electricity
generating capacity.
I. Defendant shall take no action that would jeopardize its ability
to divest the Divestiture Assets as viable, ongoing businesses.
J. Defendant shall appoint a person or persons to oversee the
Divestiture Assets, and who will responsible for Defendant's compliance
with Section X of this Final Judgment.
K. Prior to the sale of Divestiture Assets, Enova shall not
transfer any of the Divestiture Assets to any affiliate not regulated
as a public utility by the CPUC.
XI. Compliance Inspection
Only for the purposes of determining or securing compliance with
the Final Judgment and subject to any legally recognized privilege,
from time to time:
A. Duly authorized representatives of the Plaintiff, including
consultants and other persons retained by the United
[[Page 33402]]
States, upon written request of the Assistant Attorney General in
charge of the Antitrust Division, and on reasonable notice to Defendant
made to their principal offices, shall be permitted:
1. Access during office hours of Defendant to inspect and copy all
books, ledgers, accounts, correspondence, memoranda, and other records
and documents in the possession or under the control of Defendant, who
may have counsel present, relating to enforcement of this Final
Judgment; and
2. Subject to the reasonable convenience of Defendant and without
restraint or interference from it, to interview, either informally or
on the record, its officers, employees, and agents, who may have
counsel present, regarding any such matters.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division made to Defendant's principal offices,
Defendant shall submit such written reports, under oath if requested,
with respect to any matter contained in the Final Judgment.
C. No information or documents obtained by the means provided in
Section VIII or Section XI of this Final Judgment shall be divulged by
a representative of the Plaintiff to any person other than a duly
authorized representative of the Executive Branch of the United States,
except in the course of legal proceedings to which the Plaintiff is a
party, including grant jury proceedings, or for the purpose of securing
compliance with this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by
Defendant to Plaintiff, Defendant represents and identifies in writing
the material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and Defendant marks each pertinent page of such
material, ``Subject to claim of protection under Rules 26(c)(7) of the
Federal Rules of Civil Procedure,'' then ten calendar days notice shall
be given by Plaintiff to Defendant prior to divulging such material in
any legal proceeding, other than a grant jury proceeding.
XII. Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders and direction as may be necessary or
appropriate for the construction or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violations hereof.
XIII. Termination and Modification
A. This Final Judgment will expire on the tenth anniversary of the
date of its entry unless the Final Judgment is terminated pursuant to
Section XIII(B); provided, however, the Final Judgment will terminate
when the United States notifies Enova and the Court that Enova has
provided to the United States documentation sufficient to prove (1)
that the merger between Enova and Pacific identified in the Complaint
has been terminated; or (2) that an Independent System Operator has
assumed control of Pacific's gas pipelines within California in a
manner satisfactory to the United States. The United States shall, in
its sole discretion, determine whether the documentation proffered by
Enova is sufficient.
B. After five years from the date it is entered, this Final
Judgment shall terminate if Defendant demonstrates to the Court that
(1) it no longer owns any of its existing nuclear assets, or (2) such
assets are no long in operation, or (3) the output of those nuclear
assets is required by law or regulation to be sold at a fixed price.
C. Enova's obligation to divest an asset shall terminate if any
governmental authority permanently revokes any license or permit
necessary for the operation of such asset, properly exercises power or
eminent domain with respect to such asset, or enters into settlement
agreement with Enova regarding he disposition of such asset to a third
party.
D. Modification of Section V.
1. In the event that Defendant divests all of its existing nuclear
generation assets, the total ownership capacity limit in Section
V(B)(1) of this Final Judgment will increase to 800 MW; however, in no
event shall the total ownership capacity limit in Section V(B)(1)
exceed the greater of 500 MW or 10% of Defendant's total electricity
retail sales.
2. In the event that Defendant's total retail electricity sales at
any point exceed 8,000 MW capacity, the total capacity ownership limit
in Section V(B)(1) of this Final Judgment will be increased up to 10%
of such retail electricity sales.
XIV. Effect of Regulatory Approvals
The approvals by the United States required by his Final Judgment
for sale of Divestiture Assets are in addition to the necessary
approvals by the CPUC or any other governmental authorities for the
sale of such assets.
XV. Public Interest
Entry of this Final Judgment is in the public interest.
Dated:-----------------------------------------------------------------
----------------------------------------------------------------------
United States District Judge
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16 (b)-(h),
files this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
The United States filed a civil antitrust Complaint on March 9,
1998, alleging that the proposed merger of Pacific Enterprises
(``Pacific'') and Enova Corporation (``Enova'') would violate Section 7
of the Clayton Act, 15 U.S.C. Sec. 18. The Complaint alleges that
Pacific is a California gas utility company and Enova is a California
electric utility company, and that this transaction would give the
combined company (``PE/Enova'') both the incentive and the ability to
lessen competition in the market for electricity in California. In
particular, this acquisition would give PE/Enova the incentive and
ability to limit the supply of natural gas to California electric power
plants, raising their costs and the price California consumers pay for
electricity. The acquisition is thus likely to lessen competition
substantially among providers of electricity, and so violate Section 7
of the Clayton Act. The prayer for relief in the Complaint seeks (1) a
judgment that the proposed acquisition would violate Section 7 of the
Clayton Act; (2) a preliminary and permanent injunction preventing
consummation of the proposed merger; (3) an award to the United States
of the costs of this action; and (4) such other relief as is proper.
At the same time the Complaint was filed, the United States also
filed a proposed settlement that would permit Pacific Enova to merge,
but requires a divestiture that would preserve competition in the
market for electricity in California. This settlement consists of a
Stipulation and Order (``Stipulation'') and a proposed Final Judgment
(``Final Judgment'').
The proposed Final Judgment orders Enova to sell all of its rights,
titles, and interests in Encina and South Bay electricity generation
facilities located at Carlsbad and Chula Vista, California (the
``Divestiture Assets''), to a
[[Page 33403]]
purchaser or purchasers acceptable to the United States in its sole
discretion.\1\ Enova must submit required applications to divest the
assets no later than ninety days after entry of the Final Judgment, and
complete the divestiture as soon as practicable after receipt of all
necessary government approvals, in accordance with the procedures
specified in the proposed Final Judgment. The Stipulation and Final
Judgment also require Enova to ensure that until the divestiture
mandated by the Final Judgment has been accomplished, the management of
any electricity generating facilities will be kept separate and apart
from the management of Enova's other businesses.
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\1\ The Final Judgment provides that the approvals by the United
States required by this Final Judgment for sale of these assets are
in addition to the necessary approvals by the California Public
Utilities Commission (``CPUC'') or any other governmental
authorities for the sale of such assets.
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The United States and Enova have stipulated that the proposed Final
Judgment may be entered after compliance with the APPA. Entry of the
proposed Final Judgment would terminate this action, except that the
Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations of
it.
II. Description of the Events Giving Rise to the Alleged Violation
A. Enova, Pacific, and the Proposed Transaction
Enova, a California corporation headquartered in San Diego,
California, owns San Diego Gas & Electric Co. (``SDG&E''), which is an
electric utility that serves the San Diego area. Through SDG&E, Enova
is a major provider of electricity in southern California, with
approximately $1.6 billion in annual electricity sales. It sells
electricity generated by plants that use coal, gas, nuclear power, and
hydropower for fuel.
Pacific, through its wholly owned subsidiary Southern California
Gas Company, is virtually the sole provider of natural gas
transportation services to plants in southern California that use
natural gas to produce electricity (``gas-fired generators'' or ``gas-
fired plants''). Pacific is also the sole provider of natural gas
storage services throughout all of California.
Under an Agreement and Plan of Merger and Reorganization dated
October 12, 1996, Enova and Pacific will each become wholly owned
subsidiaries of a common holding company parent as soon as all state
and federal regulatory approvals have been obtained.
B. Trade and Commerce
The Complaint alleges that the effect of the merger of Pacific and
Enova would be to lessen competition substantially in the provision of
electricity in California during high demand periods.
California's electricity industry is dominated by Enova and two
other regulated, investor-owned utilities. Electricity services are
also provided by California public power providers such as
municipalities, water districts, irrigation districts and the state of
California. As a result of a legislatively mandated restructuring, the
California electric power market will experience significant changes in
1998. As of March 31, 1998, most electricity generated in California is
bought and sold through the California Power Exchange (``the pool''), a
central, computerized bidding system that matches electricity supply
and demand during every half-hour period during the day. State
regulations require regulated utilities to buy and sell all their
electricity through the pool during a four-year transition period.\2\
---------------------------------------------------------------------------
\2\ Under these state regulations, the utility companies
continue to own California's electricity transmission grid. The
transmission grid, however, is under the operational control of an
Independent Systems Operator (``ISO''), and distribution continues
to be regulated by the CPUC.
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With the pool, all sellers of electricity send in bids for every
half hour in which they want to sell electricity. Similarly, all buyers
of electricity send in bids for every half hour in which they wish to
buy. The pool allocates power until all demand is met. The price per
unit of electricity for any given half hour is determined by the most
expensive unit sold that half hour with all sellers receiving that
price, regardless of their costs or their bids. Nuclear-powered
generators, however, will continue to receive regulated rates for at
least four years after the California pool began operation.
Currently, regulated electric utilities sell over 80% of all retail
electricity in California. Because these utilities must buy all of
their electricity from the pool, the pool prices--the price the
utilities pay for the electricity they distribute--will directly affect
the price most consumers in California pay for electricity.
Electricity sold in California is generated from power plants using
one of four fuels--gas, coal, hydropower, and nuclear--and the costs of
generating electricity from these plants differ significantly. Although
certain gas-fired plants are more efficient than others, gas-fired
plants are in general the most costly to operate. Because they cost the
most to operate, the gas-fired plants will bid the highest prices into
the pool and are the last ones to be turned on to meet consumer demand
for electricity. They operate about 30% to 50% of the time, primarily
during periods of high electricity demand, such as the summer when
consumer use of air conditioning and other electric-powered appliances
increases and less expensive hydroelectric power is unavailable. During
these periods, the gas-fired plants, as the most costly to operate and
thus the highest bidders into the pool, are able to set the price for
all electricity sold through the pool.
Gas-fired power plants cannot and do not switch to other fuels in
response to price increases in natural gas transportation or storage
services, and in California Pacific controls almost all gas-fired
generators' access to gas supply because the state of California has
granted Pacific a monopoly on transportation of natural gas within
southern California. Consequently, 96% of gas-fired generators in
southern California buy gas transportation services from it. Pacific
also has a monopoly on all natural gas storage services throughout
California. Although regulated by the California Public Utilities
Commission (``CPUC''), Pacific has the ability to restrict the
availability of gas transportation and storage to consumers, including
gas-fired generators, by limiting their supply or cutting them off
entirely. Limiting or cutting off gas supply raises the price gas-fired
plants pay for delivered natural gas and in turn raises the cost of the
electricity they produce.
C. The Relevant Market
The Complaint alleges that the provision of electricity in
California during high demand periods constitutes a relevant market for
antitrust purposes--that is, in the language of the Clayton Act, it is
a ``line of commerce'' and is in a ``section of the country.''
Consumers of electricity in California cannot and do not switch to
other products in response to an increase in the price of electricity.
Thus, a small but significant and nontransitory increase in prices for
electricity would not cause a significant number of electricity
consumers to substitute other energy sources for electricity, and
electricity is a relevant product for antitrust purposes.
During periods of high demand, California consumers can only obtain
electricity from local power plants. There is very limited electricity
transmission capacity into California,
[[Page 33404]]
with only two major transmission lines leading into the state, one from
the hydroelectric and coal-rich northwestern United States, and one
from several coal and nuclear plants in Arizona. During peak hours, the
two major transmission lines are filled to capacity, and generation
located within the state must supply the remaining electricity required
by California consumers. Thus, in periods of high demand, consumers are
unable to turn sources of electricity generated outside of California,
and California is therefore a relevant geographic market for antitrust
purposes.
D. Anticompetitive Consequences of the Acquisition
The Complaint alleges that, if the proposed transaction would have
the following effects, among others, unless it is restrained:
1. Competition in the market for electricity in California during
high demand periods may be substantially lessened; and
2. Prices for electricity to consumers in California during high
demand periods are likely to increase.
By virtue of its monopoly over natural gas transportation and
storage, Pacific currently has the ability to increase the price of
electricity, when during high demand periods, electricity from
California gas-fired generators is needed to supplement less costly
electricity. Pacific can restrict gas-fired generators' access to gas,
which has the effect of raising the cost of gas-fired generators in
general. Alternatively, Pacific can cut off or impede the more
efficient gas generators' access to gas, leaving higher-cost generators
to meet consumer demand for electricity. In either case, Pacific is
able to increase the cost of electricity from gas-fired plants, thereby
increasing the prices they bid into the pool and ultimately the price
of electricity sold through the pool. But Pacific currently owns no
electricity generation plants that would benefit from an increase in
the pool price for electricity.
Enova, on the other hand, controls over 2600 MW of electricity,
some of which comes from lower cost plants that run most of the time,
and as a consequence, would benefit from an increase of the price of
electricity sold through the pool. However, Enova currently has no
ability to increase the price of electricity by raising the costs of
competing electric utilities because it does not control any input,
such as gas.
Once Pacific's control of gas is combined with Enova's low-cost
electricity generation facilities, the merged firm, PE/Enova, would
have the ability to raise electricity prices by limiting gas supply to
competing gas-fired generators, as well as the incentive to do so. PE/
Enova's ownership of lower-cost generation would enable it to profit
substantially from any increase in the price of electricity sold
through the pool, and these profits would more than offset any losses
from reducing its gas transportation and storage sales to competing
gas-fired plants. The merged firm, PE/Enova, would thus have the
incentive and ability to lessen competition in the market for
electricity in California. As a result, consumers would likely pay
higher prices for electricity.
E. Entry
Successful entry or expansion in either the market for electricity
generation or the market for intrastate natural gas transportation and
storage in California would not be timely, likely, or sufficient to
prevent any harm to competition. Entry or expansion would be difficult,
time consuming, and costly, as well as extremely unlikely. Entry into
electricity generation could counteract a post-merger price increase
only if the entrants provided significant generation capacity and were
not dependent on natural gas to generate electricity. Entry by building
new hydro-powered, coal-fired, or nuclear-powered generators is highly
unlikely, however. Each of these face substantial safety,
environmental, and other regulatory barriers that would make entry
costly, time consuming, and uncertain. Similarly, entry by building new
lines to transmit electricity from outside California requires myriad
environmental, safety, and zoning approvals, which would be difficult,
costly, an time consuming to obtain. Finally, California's present
regulatory scheme makes it economically impossible for alternative
suppliers of natural gas transportation to enter the California market.
California's pipeline certification process discourages entry by
intrastate firms, while its restrictions on access to intrastate gas
transportation markets discourages entry by interstate pipelines.\3\
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\3\ Entry into gas storage requires access to appropriate
geologic formations, such as drained aquifers and abandoned gas
fields and sale mines of a particular size and porosity, which, in
California, are all owned by Pacific.
---------------------------------------------------------------------------
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment would preserve the competition that
would have been lost in California's emerging competitive market for
electricity had the PE/Enova merger gone forward as originally
structured. Within eighteen months after filing the proposed Final
Judgment, Defendant must sell all of Enova's rights, titles, and
interests in the Divestiture Assets. The assets and interests will be
sold to a purchaser or purchasers acceptable to the United States in
its sole discretion. In addition, the Final Judgment limits the ability
of the merged company to reacquire or control any similar assets, or to
enter into contracts to manage generating plants in California.
A. Divestiture
The Final Judgment requires Defendant to sell all generation assets
that would likely give PE/Enova the incentive to raise electricity
prices.\4\ To that end, the Final Judgment requires Defendant to divest
all of its low-cost gas generators--1644 MW of generation assets in
total. In particular, Defendant is required to divest South Bay plant
(951 MW) in Chula Vista, California, and the Encina plant (693 MW) in
Carlsbad, California. Because these generators operate in almost all
hours of the year and are relatively low-cost, if PE/Enova were to own
them, it could earn substantial profits (revenues exceeding its costs)
by restricting the supply of natural gas which, as explained above,
would increase the overall price for electricity in the pool and thus
the price PE/Enova would receive for electricity.
---------------------------------------------------------------------------
\4\ The relief in the proposed Final Judgment is intended to
remedy only those anticompetitive effects stemming from the PE/Enova
merge. Nothing in the Proposed Final Judgment is intended to limit
the United States' ability to investigate or to bring actions, where
appropriate, challenging other past or future activities of Pacific
or Enova.
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Under the Final Judgment, Enova is required to use its best efforts
to sell the Divestiture Assets under auction procedures approved by the
CPUC. Enova has already requested that the CPUC begin an auction of all
of the Divestiture Assets.\5\ Under the Final Judgment, bid proposals
will be submitted to the United States for review to determine whether
the divestiture to that bidder would be acceptable.
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\5\ The CPUC proceeding contemplates 18 months for completion of
the divestitures. See Application of San Diego Gas & Electric
Company (U 902-E) for Authority to Sell Electrical Generation
Facilities and Power Contracts before the CPUC (Dec. 19, 1997).
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Defendant will have eighteen months after entry of the Final
Judgment to auction the Divestiture Assets.\6\ The United States may
extend this eighteen-month period, and both parties may jointly agree
to extend the auction
[[Page 33405]]
period further. If any part of the Divestiture Assets are not sold
within the eighteen months or any extension, Defendant must withdraw
those assets from the California auction process and allow them to be
sold by a trustee, under specific procedures designed to ensure
expeditious sales.
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\6\ The divestiture period, which is longer than the usual
period permitted by the Division, avoids unnecessary conflict with
the ongoing state regulatory process for divestiture.
---------------------------------------------------------------------------
Enova is not required to divest certain generation assets that are
not likely to provide an incentive to raise pool prices. These are
combustion turbine assets (``CTAs''), nuclear assets, cogeneration
assets presently under contract (``Cogeneration Assets''), and a long-
term contract with Public Service Company of New Mexico (``New Mexico
Contract'').\7\
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\7\ Although the Final Judgment does not place any additional
obligation on the Defendant to sell any assets beyond South Bay and
Enicina, the Defendant has applied to the CPUC to sell all its
generation assets, including the nuclear assets, the CTAs, and the
Cogeneration Assets, in the CPUC auction. See Application of San
Diego Gas & Electric Company (U 902-E) for Authority to Sell
Electrical Generation Facilities and Power Contracts before the CPUC
(Dec. 19, 1997).
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1. CTAs--The CTAs are seventeen generators scattered throughout
California, none of which exceed 20 MW capacity. They are fueled
primarily by natural gas, and in some cases by diesel fuel. They are
very expensive to run and were built to be used only at times of the
very highest peak demand. Owning CTAs gives PE/Enova little, if any,
incentive to raise electricity prices--even with increased electricity
prices, PE/Enova cannot count either on selling the electricity from
these generators or obtaining a price that significantly exceed their
costs. Further, air pollution restrictions may prevent operation of
certain CTAs during peak summer hours.
2. Nuclear--Enova holds a 20% (or 430 MW) non-operating interest in
the San Onofre Nuclear Generating Station (``SONGS'') and its output.
PE/Enova, however, will not receive the pool price for SONGS
electricity for at least the next four years, because nuclear plants
will remain price regulated. If nuclear power prices become deregulated
after 2001, the Final Judgment provides that (1) SONGS capacity will
count towards calculation of Defendant's reacquisition cap (see
discussion of cap, infra); and (2) the Final Judgment will remain in
effect for ten years instead of five.
3. Congeneration Assets--The cogeneration assets comprise nine
contracts of no more than 50 MW each, for a total of 207 MW. Their
output is more costly than most of the electricity produced in
California and will be sold at a regulated rate. Retention of these
assets, therefore, does not provide PE/Enova with the incentive to
increase the pool price for electricity.
4. The New Mexico Contract--This contract provides Enova with 100
MW. Given the other divestitures, the small amount of capacity
involved, and the fact that the contract expires in less than three
years, it provides little incentive to raise the pool price.
B. Limitations on Acquisition
1. Reacquistion. The Final Judgment limits Enova's ability to
reacquire the same kind of assets that it has been ordered to divest:
existing, low-cost assets inside California. These assets are referred
to in the Final Judgment as ``California Generation Facilities.\8\ At
any time during the Final Judgment, if Defendant owns or controls more
than 500 MW (total) of California Generating Facilities,\9\ then it
cannot acquire or gain control of additional California Generation
Facilities without prior approval of the United States.\10\ Because the
Divestiture Assets count towards calculation of the 500 MW acquisition
cap, Enova cannot acquire or gain control of any more California
Generation Facilities without prior approval by the United States until
Enova substantially completes the divestiture.
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\8\ The Final Judgment specifically defines ``California
Generation Facilities'' to mean ``(1) electricity generation
facilities in California in existence on January 1, 1998, excluding
such facilities that are rebuilt, repowered, or activated out of
dormancy after January 1, 1998, as long as such rebuilding,
repowering, or activation out of dormancy project, if done by
Defendant, begins within one year of purchase; and (2) any contract
for operation and sale of output from generating assets of the Los
Angeles Department of Water and Power.''
\9\ A contract with Portland Gas & Electric for 75 MW, along
with the same amount of firm transmission capacity, is included in
the 500 MW cap, because it is a source of low-cost generation that
can be sold in the pool. The Final Judgment allows Defendant to keep
the contract, which expires Dec. 31, 2013, but reduces the cap by 75
MW until the contract is divested.
\10\ The Final Judgment defines ``acquire'' to include
``obtaining any interest in any electricity generating facilities or
capacity,'' and defines ``control'' to mean ``have the ability to
set the level of output of an electricity generation facility.''
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Prior approval of subsequent acquisitions ensures that PR/Enova
does not circumvent the divestiture ordered by the Final Judgment by
acquiring or controlling generating facilities that give it the same
incentive to raise the pool price for electricity as the Divestiture
Assets did. Because of the California electricity market restructuring
(which includes CPUS orders requiring major divestiture from regulated
utilities), unusual and significant amounts of generating capacity will
be readily available for purchase, lease, or contractual control for
the next few years.
2. The Acquisition Cap. The Final Judgment allows the merged
company to own or control 500 MW of existing California Generation
Facilities. As a California retail distributor, PE/Enova may operate
more effectively if it owns or controls some local capacity. This 500
MW capacity provides PE/Enova a source of back-up electricity for its
1600 MW retail sales in case of problems with electricity supply bought
on the open market. At the same time, it does not provide PE/Enova with
sufficient wholesale electricity sales to give it the incentive to
raise the pool price for electricity by reducing its gas sales.
3. Limitation Applicable Only to Existing California Assets. The
Final Judgment does not impose the prior approval requirement on
Enova's acquisition of assets outside of California. As noted above,
Pacific has the ability to raise the price of electricity during high
demand periods because significant transmission constraints limit
electricity imports from outside of the state. These import constraints
mean that PE/Enova cannot count on the sale in the California pool of
electricity from assets outside California, and thus acquisition of
such assets would not give it the incentive to raise the pool price.
In addition, the Final Judgment does not prevent PE/Enova from
building new capacity in California, or from acquiring capacity built
in California after January 1, 1998. New capacity will only be built in
California if the output is inexpensive enough to be sold in many
hours. By increasing the amount of less expensive power available to
meet demand, new, low-cost capacity will reduce the number of hours in
which the most costly gas-fired capacity is needed. This in turn will
limit PE/Enova's ability to raise the pool price since it is more
costly and difficult for PE/Enova to restrict gas to more numerous low-
cost plants. For the same reasons, the Final Judgment allows the merged
company to acquire or gain control of plants that are rebuilt,
repowered, or activated out of dormancy after January 1, 1998. Output
from such plants is the equivalent of output from new-build capacity.
Finally, Enova may own, operate, and control any cogeneration or
renewable resources and may enter into tolling agreements and reverse
tolling agreements,\11\ so long as it does not
[[Page 33406]]
control the plan's output level. None of these arrangements or
facilities will provide PE/Enova significant additional ability or
incentive to raise the price for electricity by reducing its gas sales.
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\11\ Tolling agreements allow one company to produce electricity
with its own gas at another company's generator for a set fee.
Reverse tolling agreements allow a gas supplier to stop providing
natural gas to a generator at the supplier's discretion. The Final
Judgment provides that Defendant may enter into tolling and reverse
tolling agreements with any electricity generation facilities in
California, provided Defendant does not control such facilities;
provided further, that all such tolling and reverse tolling
agreements include the following provision: ``In accordance with the
Final Judgment in United States v. Enova Corporation, entered on
[date], Enova's successors and their affiliates shall not have any
ability to set the level of output of this electricity generation
facility.''
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C. Limitations on Management Contracts
The Final Judgment provides a check on Enova's ability to acquire
control of California Public Power Provider (``CPPP'') owned assets
through management contracts.\12\ With the exception of Los Angeles
Department of Water and Power's (``LADWP'') facilities, the generation
facilities owned by CPPPs are primarily small, gas- and oil-fired or
hydroelectric plants. Management contracts enable CPPPs to hire experts
in generation management to run their plants for them. The current
investor-owned utilities, including Enova, plan to compete for these
contracts. Under these contracts, the manager may obtain control of the
generation facilities and all or most of the profits which, if PE/Enova
were the manager, could give it the incentive to raise electric prices.
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\12\ The Final Judgment defines a specific type of management
services contract--a ``California Public Power Generation Management
Services Contract''--to mean ``a bona fide contract for managing the
operation and sale of output from California Generation Facilities
owned by a municipality, an irrigation district, other California
state authority, or their agents on January 1, 1998; provided,
however, that a contract for managing the operation and sale of
output from generation assets of LADWP shall not be deemed a
California Public Power Generation Management Services Contract.''
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The Final Judgment directs that Defendant shall provide notice to
the United States of any management contract that Defendant enters,
unless such management contract is reportable under the Hart-Scott-
Rodino Antitrust Improvements Act. The notice provision balances the
efficiencies of competition for CPPP management contracts with the
possible anticompetitive effect from Defendant controlling CPPP assets.
It enables the United States to monitor Defendant's level of capacity
control without removing it as a viable competitor for these contracts.
If PE/Enova were to enter into a management contract with LADWP,
however, it would be required to obtain prior approval from the United
States. LADWP controls 3700 MW of capacity in or directly linked to
California. A large part of this capacity is low cost. Absent the prior
approval requirement, the merged company could regain in one
transaction even more incentive to raise the pool price than it had
before auctioning the Divestiture Assets. The probable competitive harm
threatened by Defendant's sudden reacquisition of all or a substantial
part of LADWP's 3700 MW of generation via management contacts more than
offsets possible efficiencies gained by Enova bidding on a LADWP
management contracts.
D. Termination or Modification of the Final Judgment
The Final Judgment--and its prior approval and notice obligations--
remain in effect until the tenth anniversary of the date of its entry
unless the Final Judgment is terminated earlier under specific
conditions. The Final Judgment also provides that the reacquisition
limitations will be modified under certain conditions.
1. Termination of the Final Judgment. The Final Judgment provides
that it shall terminate at any time if the United States determines
that the merger between Enova and Pacific identified in the Complaint
has been terminated. It will also terminate if the United States
determines that an Independent System Operator (``ISO'') has assumed
control of Pacific's gas pipelines within California. In that event,
PE/Enova will lose the ability to control access to gas transportation
and storage. Without these tools, the merged company will not be able
to raise the price for electricity sold through the pool by reducing
its gas sales, and the basis for the Final Judgment would be removed.
In addition, the decree will terminate after five years under
certain conditions. As noted above, the decree imposes continuing prior
approval and notice obligations to ensure that PE/Enova does not simply
reacquire assets similar to those it has divested, which it could
readily do during the restructuring of California's electricity
market.\13\ Most of the changes in ownership in electric generation and
control should occur in the next five years. Hence termination of the
decree at the end of five years would be reasonable.
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\13\ As discussed above in Section III(B)(1), significant
amounts of generating capacity will be available for purchase,
lease, or contractual control during the next few years.
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There would be a cause for concern, however, if PE/Enova could sell
SONGS capacity at the unregulated pool price--it would be in essence be
acquiring 430 MW of output without opportunity for the government to
challenge. For this reason, the decree will terminate in five years
only if (1) Enova no longer owns any of its existing nuclear assets;
(2) its nuclear assets are no longer in operation; or (3) the output of
those nuclear assets is required by law or regulation to be sold at a
fixed price.
Finally, the Final Judgment will partially terminate as to any
Divestiture Asset if any governmental authority permanently revokes any
license or permit necessary for the operation of such asset, properly
exercises power or eminent domain with respect to such asset, or enters
into a settlement agreement with Enova regarding the disposition of
such asset to a third party.
2. Modification of Reacquisition Limits. The Final Judgment
provides that the 500 MW ownership cap may increase under two
conditions: (1) If Enova divests all of its existing nuclear generation
assets, the acquisition cap will increase to 800 MW; and (2) if
defendant's total retail electricity sales at any point exceed 8,000 MW
the ownership cap will be increased up to 10% of such retail
electricity sales. The first condition allows an adjustment of the
ownership cap in the event the SONGS is sold to replace a portion of
the SONGS generation. (The 500 MW cap is a cap on acquisitions in
addition to holding SONGS.) The second condition provides for the
possibility that SONGS is not sold but that Enova's retail sales exceed
8,000 MW, and it allows defendant sufficient local generation to back
up its expended retail sales.
E. Trustee Provisions
Until the ordered divestiture takes place, Enova must take all
reasonable steps necessary to accomplish the divestiture, and cooperate
with any prospective purchaser. If defendant does not accomplish the
ordered divestiture within the specified time period, the proposed
Final Judgment provides for procedures by which the Court shall appoint
a trustee to complete the divestiture. In that case, Defendant must
cooperate fully with the trustee.
If a trustee is appointed, the proposed Final Judgment provides
that Defendant will pay all costs and expenses of the trustee. The
trustee's compensation will be structured so as to provide an incentive
for the trustee to obtain the highest price for the assets to be
divested, and to accomplish the divestiture as quickly as possible.
After the effective date of his or her appointment, the trustee shall
serve under such other conditions as the Court may prescribe. After his
or her
[[Page 33407]]
appointment becomes effective, the trustee will file monthly reports
with the parties and the Court, setting forth the trustee's efforts to
accomplish the divestiture. At the end of six months, if the
divestiture has not been accomplished, the trustee shall file promptly
with the Court a report that sets forth (1) the trustee's efforts to
accomplish the divestiture, (2) the reasons, in the trustee's judgment,
why the divestiture has not been accomplished, and (3) the trustee's
recommendations. The trustee's report will be furnished to the parties
and shall be filed in the public docket, except to the extent the
report contains information the trustee deems confidential. The parties
each will have the right to make additional recommendations to the
Court. The Court shall enter such orders as it deems appropriate to
accomplish the purposes of this Final Judgment.
F. Provisions for Separate Management
The Stipulation and Final Judgment require Enova to ensure that,
until the divestiture mandated by the Final Judgment has been
accomplished, the management of any electricity generating facilities
shall be kept separate and apart from the management of defendant's
other businesses, and will not be influenced by defendant. Enova must
appoint a person or persons to oversee the Divestiture Assets and to be
responsible for it's compliance with these provisions.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorney's fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
Sec. 16(a), the proposed Final judgment has no prima facies effect in
any subsequent private lawsuit that may be brought against Enova.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and the defendant have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within
sixty days of the date of publication of this Competitive Impact
Statement in the Federal Register. The United States will evaluate and
respond to the comments. All comments will be given due consideration
by the United States, which remains free to withdraw its consent to the
proposed Final Judgment at any time prior to entry. The comments and
the responses of the United States will be filed with the Court and
published in the Federal Register.
Written comments should be submitted to: Roger W. Fones, Chief,
Transportation, Energy, & Agriculture Section, Antitrust Division,
United States Department of Justice, 325 Seventh Street, N.W., Suite
500, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits of its Complaint against
Defendant. The United States is satisfied, however, that the
divestiture of the assets and other relief contained in the proposed
Final Judgment will preserve viable competition in the market for
electricity in California that otherwise would be affected adversely by
the acquisition. Thus, the proposed Final Judgment would achieve the
relief the government would have obtained through litigation, but
avoids the time, expense, and uncertainty of a full trial on the merits
of the government's Complaint.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty-day comment
period, after which the Court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' In making that
determination the Court may consider.
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions of enforcement and
modifications, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. Sec. 16(e). As the United States Court of Appeals for the
District of Columbia Circuit has held, this statute permits a court to
consider, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the Final Judgment is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the Final Judgment
may positively harm third parties. See United States v. Microsoft, 56
F.3d 1448, 1461-62 (D.C. Cir. 1995).
In conducting this inquiry, ``the Court is nowhere compelled to go
to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly settlement
through the consent decree process.''\14\ Rather,
\14\ 119 Cong. Rec. 24598 (1973), See also United States v.
Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public
interest'' determination can be made properly on the basis of the
Competitive Impact Statement and Response to Comments filed pursuant
to the APPA. Although the APPA authorizes the use of additional
procedures, see 15 U.S.C. Sec. 16(f), those procedures are
discretionary. A court need not invoke any of them unless it
believes that the comments have raised significant issues and that
further proceedings would aid the court in resolving those issues.
See H.R. Rep. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in (1974)
U.S. Code Cong. & Ad. News 6535, 6538.
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absent a shoring of corrupt failure of the government to discharge
its duty, the Court, in making its public interest finding, should *
* * carefully consider the explanations of the government in the
competitive impact statement and its response to comments in order
to determine whether those explanations are reasonable under the
circumstances.
United States v. Mid-America Dairyman. Inc., 1977-1 Trade Cas. para.
61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by
the decree a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988), quoting United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th
[[Page 33408]]
Cir.) cert denied, 454 U.S. 1083 (1981); see also Microsoft, 56 F.3d at
1460-62. Precedent requires that
the balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
United States v. Bechtel, 648 F.2d at 666 (citations omitted) (emphasis
added.\15\
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\15\ See United States v. BNS, Inc. 858 F.2d at 463; United
States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D.
Cal. 1978); United States v. Gillette Co., 406 F. Supp. at 716. See
also United States v. American Cyanamid Co., 719 F.2d 558, 565 (2d
Cir. 1983).
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The proposed Final Judgment, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetition effect of a particular practice or whether it mandates
certainty of free competition in the future. Court approval of a final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of the public interest.' ''
United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 150
(D.D.C. 1982) (citations omitted) (quoting United States v. Gillette
Co., 406 F. Supp 713, 716 (D. Mass. 1975)), aff'd sub nom, Maryland v.
United States, 460 U.S. 10Q1 (1983), United States v. Alcan Aluminum.
Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985).
VIII. Determinative Documents
There are no determinative materials of documents within the
meaning of the APPA that were considered by the United States in
formatting the proposed Final Judgment.
Dated: June 8, 1998.
Respectfully submitted,
Jade Alice Eaton*
Andrew K. Rosa
Trial Attorneys.
U.S. Department of Justice, Antitrust Division, Transportation, Energy
& Agriculture Section, 325 Seventh Street, N.W., Suite 500, Washington,
DC 20004, (202) 307-6316.
*Counsel of Record.
Certificate of Service
I hereby certify that I have caused a copy of the foregoing
Competitive Impact Statement to be served on counsel for defendant in
this manner in the manner set forth below:
By first class mail, postage prepaid:
Steven C. Sunshine,
Shearman & Sterling, 801 Pennsylvania Avenue, N.W., Washington, DC
20004.
Jade Alice Eaton,
Antitrust Division, U.S. Department of Justice, 325 Seventh Street,
N.W., Suite 500, Washington, DC 20530, (202) 307-6456, (202) 616-
2441(Fax).
[FR Doc. 98-16218 Filed 6-17-98; 8:45 am]
BILLING CODE 4410-11-M
