[Federal Register: September 9, 2002 (Volume 67, Number 174)]
[Notices]               
[Page 57235-57239]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09se02-58]                         

-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 021 0040]

 
Conoco Inc. and Phillips Petroleum Company; Analysis To Aid 
Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before October 2, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: consentagreement@ftc.gov, as prescribed below.

FOR FURTHER INFORMATION CONTACT: Mark Menna, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2722.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with an accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC home page 
(for August 30, 2002), on the World Wide Web, at ``http://www.ftc.gov/
os/2002/08/index.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (ASCII format, WordPerfect, or Microsoft Word) as part 
of or as an attachment to email messages directed to the following e-
mail box: consentagreement@ftc.gov. Such comments will be considered by 
the Commission and will be available for inspection and copying at its 
principal office in accordance with section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice, 16 CFR 4.9(b)(6)(ii).

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission`` or ``FTC'') has issued 
a

[[Page 57236]]

complaint (``Complaint'') alleging that the proposed merger of Phillips 
Petroleum Company (``Phillips'') and Conoco Inc. (``Conoco'') 
(collectively ``Respondents'') would violate section 7 of the Clayton 
Act, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 
15 U.S.C. 45. The Commission and Respondents have entered into an 
agreement containing consent orders (``Agreement Containing Consent 
Orders'') pursuant to which Respondents agree to be bound by a proposed 
consent order that requires divestiture of certain assets and certain 
other relief (``Proposed Order'') and a hold separate order that 
requires Respondents to hold separate and maintain certain assets 
pending divestiture (``Hold Separate Order''). The Proposed Order 
remedies the likely anti-competitive effects arising from Respondents' 
proposed merger, as alleged in the Complaint. The Order to Hold 
Separate and Maintain Assets preserves competition pending divestiture.

II. Description of the Parties and the Transaction

    Phillips, headquartered in Bartlesville, Oklahoma, is an integrated 
oil company engaged in the worldwide exploration, production, and 
transportation of crude oil and natural gas; gathering of natural gas; 
fractionation of raw mix into specification products; refining, 
marketing, and transportation of petroleum products; and production and 
marketing of chemicals. Phillips is the nation's third largest refiner 
and fourth largest gasoline marketer, with approximately 10 percent of 
the United States refining capacity and 9 percent of gasoline 
marketing. In 2001, Phillips had revenues of $47.7 billion. Phillips 
has significant terminal facilities that it uses to distribute gasoline 
and other petroleum products to its customers. Phillips owns or 
licenses several gasoline brands under which gasoline is sold at 
approximately 11,700 stations throughout the United States. Phillips 
owns approximately 1,700 outlets in the Mid-Atlantic and Northeastern 
areas of the United States. These outlets currently sell gasoline under 
the Exxon and Mobil brands. Of the approximate 10,000 other outlets, 
primarily located outside the Mid-Atlantic and Northeastern United 
States, the great majority are owned and operated by independent 
marketers and dealers. Phillips also owns slightly more than 30 percent 
of Duke Energy Field Services, LLC (``DEFS''). DEFS is a significant 
gather of natural gas throughout the United States and has interests in 
many fractionation facilities throughout the United States.
    Conoco, headquartered in Houston, Texas, is a fully integrated 
petroleum company engaged in the worldwide exploration, production, and 
transportation of crude oil and natural gas; gathering of natural gas; 
fractionation of raw mix into specification products; and refining, 
marketing, and transportation of petroleum products. In 2001, Conoco 
had revenues and net income of $39.5 billion and $1.6 billion, 
respectively. Conoco has approximately 3 percent of refining capacity 
and 3 percent of gasoline sales in the United States, making it 
approximately the nation's eleventh largest refiner and ninth largest 
gasoline seller. Conoco owns petroleum product terminals throughout the 
United States. Conoco brand gasoline is sold through approximately 
5,000 stations primarily located in the Southeast, Southwest, Mid-
continent, and Rocky Mountain areas of the United States. The great 
majority of these stations are owned and operated by independent 
distributors and dealers.
    On November 18, 2001, Phillips and Conoco entered into an agreement 
to merge the two firms into a corporation to be known as 
ConocoPhillips, the estimated capital value of which, as of the date of 
the agreement, was approximately $35 billion. ConocoPhillips would be 
the third-largest integrated U.S. energy company based on market 
capitalization, and oil and gas reserves and production. Worldwide, it 
will be the sixth-largest energy company based on hydrocarbon reserves 
and the fifth-largest global refiner.

III. The Complaint

    The Complaint alleges that the proposed merger and its consummation 
would violate section 7 of the Clayton Act, as amended, 15 U.S.C. 18, 
and section 5 of the Federal Trade Commission Act, as amended, 15 
U.S.C. 45. The Complaint alleges that the merger will lessen 
competition in each of the following markets: (1) The bulk supply of 
light petroleum products (a) in Eastern Colorado and (b) in Northern 
Utah; (2) light petroleum product terminaling services in the 
metropolitan statistical areas (``MSAs'') of Spokane, Washington and 
Wichita, Kansas; (3) the bulk supply of propane in (a) Southern 
Missouri, (b) the St. Louis MSA, and (c) Southern Illinois; (4) natural 
gas gathering in more than 50 sections of the Permian Basin; (5) and 
fractionation in Mont Belvieu, Texas.
    Count I of the Proposed Complaint concerns the bulk supply of light 
petroleum products for sale in Eastern Colorado. Both Phillips and 
Conoco compete within this market. The Complaint alleges that the 
merged firm would have more than 30 percent of the market, which will 
be highly concentrated post-merger. The Complaint further alleges that 
the proposed merger would lead to higher prices for light petroleum 
products because the merged firm, in combination with other similarly 
situated firms, could profitably coordinate to raise prices and reduce 
output in Eastern Colorado. Successful coordination is likely because: 
(1) Prices for bulk supplies are transparent; (2) the merged firm and 
its similarly situated competitors have the ability to inexpensively 
divert bulk supplies away from Eastern Colorado to other markets; (3) 
other sources of bulk supply to Eastern Colorado are already largely at 
capacity (products pipelines and local refineries) or suppliers have no 
economic incentive to divert light petroleum products from more 
lucrative areas in the Rockies to Eastern Colorado; and (4) cheating on 
the coordination could be detected and punished by coordinating firms. 
Furthermore, there is some evidence that some degree of coordination 
has been lifting prices in areas of the Rockies outside of Eastern 
Colorado.
    Count II of the Proposed Complaint concerns the bulk supply of 
light petroleum products for sale in Northern Utah. Phillips competes 
in this market through its ownership of a refinery in Salt Lake City, 
and Conoco competes in this market through its 50 percent undivided 
ownership interest in Pioneer Pipeline, the only pipeline bringing bulk 
supplies of light petroleum products into Northern Utah. The Complaint 
alleges that the merged firm would own or control about 24 percent of 
the refining and pipeline capacity serving Northern Utah, and that 
Northern Utah will be highly concentrated after the merger. The 
Complaint asserts that in highly concentrated markets, increasing 
concentration is likely to facilitate and more completely give effect 
to tacit coordination. With respect to entry into the bulk supply 
market, the Complaint alleges that in either Eastern Colorado or 
Northern Utah, entry is difficult and would not be timely, likely, or 
sufficient to deter or counteract anticompetitive effects that may 
result from the merger.
    Count III of the Proposed Complaint concerns terminaling services 
in the Spokane, Washington MSA. Petroleum terminals are facilities that 
provide temporary storage of gasoline and other petroleum products 
received from a

[[Page 57237]]

pipeline, and then redeliver these products from the terminal's storage 
tanks into trucks or transport trailers for ultimate delivery to retail 
gasoline stations or other buyers. There are no economic substitutes 
for petroleum terminals. The Complaint alleges that Conoco and Phillips 
are two of the only three providers of terminal services in Spokane. 
The Complaint further alleges that the merged firm would be able to 
unilaterally, or in concert with others, raise prices of terminaling 
services in Spokane. Entry into the terminaling of light petroleum 
products is difficult and would not be timely, likely, or sufficient to 
deter or counteract anticompetitive effects that may result from the 
merger.
    Count IV of the Proposed Complaint concerns terminaling services in 
the Wichita, Kansas MSA. There are five firms currently providing 
terminaling services in the Wichita market. Some of these competitors 
are unlikely to restrain a price increase in the future. The Complaint 
charges that the terminaling of light petroleum products in Wichita is 
highly concentrated, and would become significantly more concentrated 
as a result of the merger. The Complaint alleges that the merged firm 
would be able to coordinate or raise prices unilaterally in Wichita. 
Entry into the terminaling of light petroleum products is difficult and 
would not be timely, likely, or sufficient to deter or counteract 
anticompetitive effects that may result from the merger.
    Count V of the Proposed Complaint concerns the bulk supply of 
propane in Southern Missouri. Propane is a versatile fuel used by 
residential, industrial and agricultural consumers. It is produced as 
part of the crude refining process or extracted from natural gas. Bulk 
supply of propane is the provision of large quantities of propane to an 
area for distribution by wholesale distributors. In most of its 
applications, propane is used where natural gas is not available. The 
Complaint charges that Phillips and Conoco are two of four bulk 
suppliers of propane in Southern Missouri. There is reason to believe 
that other competitors are unlikely to effectively constrain the merged 
firm's pricing. In Southern Missouri, the merged firm would control the 
vast majority of the propane market. The Complaint alleges that the 
merger likely would enable ConocoPhillips to unilaterally raise prices 
(or reduce output) or to coordinate with other suppliers in the bulk 
supply of propane in Southern Missouri. Entry into the bulk supply of 
propane is difficult and would not be timely, likely, or sufficient to 
deter or counteract anticompetitive effects that may result from the 
merger.
    Counts VI and VII of the Proposed Complaint concern the bulk supply 
of propane in the St. Louis MSA and Southern Illinois areas, 
respectively. There are four bulk suppliers in St. Louis and Southern 
Illinois. There is reason to believe that other competitors are 
unlikely to effectively constrain the merged firm's pricing. The 
Complaint alleges that ConocoPhillips could raise prices unilaterally 
or in concert with others. The Complaint further alleges that entry 
into the bulk supply of propane is difficult and would not be timely, 
likely, or sufficient to deter or counteract anticompetitive effects 
that may result from the merger.
    Count VIII of the Proposed Complaint concerns natural gas gathering 
in several areas of the Permian Basin. The Permian Basin is an oil and 
gas rich area of western Texas and southeastern New Mexico. The 
relevant markets are limited to many small areas within Eddy, Chavez 
and Lea counties in New Mexico and Schleicher County, Texas. The likely 
production rates of the natural gas fields in the overlap areas and 
cost of building gathering lines in the Permian Basin limit the markets 
to areas with a radius of no more than three miles. Phillips owns about 
30 percent of DEFS. Conoco is a substantial competitor in providing 
gathering services in the Permian Basin. The Complaint alleges that 
DEFS and Conoco are the only competitors in the areas identified by the 
Commission. The Complaint alleges that after the merger, 
ConocoPhillips' complete or partial ownership of the only two gathering 
systems would likely reduce competition. The Complaint alleges that 
there are substantial costs to entering the gathering business such 
that entry would not be timely, likely, or sufficient to deter or 
counteract anticompetitive effects that may result from the merger.
    Count IX of the Proposed Complaint concerns fractionation of raw 
mix into specification products, such as butane and ethane. The 
Complaint alleges that there is no alternative to fractionation 
services. Many pipelines deliver raw mix and transport fractionated 
specification products from Mont Belvieu, Texas. There are four 
fractionators in Mont Belvieu. Mont Belvieu is an active trading hub 
for each specification product. DEFS owns an interest in two 
fractionators and Conoco has an interest in a third fractionator. The 
Complaint alleges that the combined firm would have access to 
competitively sensitive information of Mont Belvieu fractionators 
accounting for more than 70 percent of the market capacity and would 
have veto rights over significant expansion decisions. The Complaint 
further alleges the merger would reduce competition by allowing 
fractionation competitors to share information and exercise veto rights 
over expansion decisions. The Complaint charges that there are 
substantial entry barriers in fractionation in Mont Belvieu such that 
entry would not be timely, likely, or sufficient to deter or counteract 
anticompetitive effects that may result from the merger.

IV. The Proposed Consent Order

    The Proposed Order is designed to remedy the alleged anti-
competitive effects of the proposed merger. Under the terms of the 
Proposed Order, the merged firm must: (1) Divest the Phillips refinery 
located at Woods Cross, Utah, and all of Phillips' related marketing 
assets served by that refinery; (2) divest Conoco's Denver refinery 
located at Commerce City, Colorado, and all of Phillips' marketing 
assets in Eastern Colorado; (3) divest Phillips light petroleum 
products terminal in Spokane, Washington; (4) enter into a petroleum 
products throughput agreement that includes an option to buy a 50 
percent undivided interest in Phillips' Wichita, Kansas, light 
petroleum products terminal; (5)(a) divest Phillips' propane terminal 
assets in Jefferson City, Missouri, and East St. Louis, Illinois; and 
(b) provide a long-term propane supply agreement; (6) divest certain 
Conoco natural gas gathering assets in New Mexico and Texas, including 
Conoco's Maljamar processing facility and enter into a long-term 
agreement to process natural gas gathered in Texas; and (7) create 
firewalls that prevent the transfer of competitively sensitive 
information among Mont Belvieu fractionators.
A. Phillips Woods Cross Assets
    Paragraph II of the Proposed Order requires the divestiture of the 
Phillips Woods Cross assets to restore competition in the bulk supply 
of light petroleum products in Northern Utah. The assets to be divested 
include Phillips' refinery located in Woods Cross, Utah, and 
substantially all of the related distribution, marketing and retail 
operations. This includes the refinery, crude oil supply pipelines, 
truck loading racks, light petroleum product pipelines and storage 
terminals used in the operation of the refinery. The assets to be 
divested also include all gasoline retail stations currently owned by 
Phillips and served by the Woods Cross refinery and, by assignment, all 
Phillips' agreements with marketers served by the Woods Cross refinery. 
Respondents will also be

[[Page 57238]]

required to provide to the buyer of the assets Phillips proprietary 
(branded) and non-proprietary credit card services, Phillips additive, 
and brand support at Phillips' costs.
    The Proposed Order will require Respondents to grant to the 
acquirer an exclusive 10-year royalty free license to use brands 
currently used by Phillips in Utah, Wyoming, Montana and Idaho to sell 
gasoline, kerosene, diesel fuel and any other product typically sold at 
a gasoline station through the gasoline outlet channel of distribution 
and a nonexclusive 10-year royalty free license to use brands currently 
used by Phillips in Utah, Wyoming, Montana and Idaho to sell those 
products typically sold in gasoline stations (e.g., motor oil) outside 
of the gasoline outlet channel of distribution.
    The assets must be divested to a buyer receiving prior approval 
from the Commission within 12 months of the date Respondents executed 
the Agreement Containing Consent Orders, and Respondents must maintain 
the viability and the marketability of the assets until they are 
divested.
B. Colorado Assets
    Paragraph III of the Proposed Order requires the divestiture of 
refinery and marketing assets to restore competition in the bulk supply 
of light petroleum products in Eastern Colorado. The assets to be 
divested include Conoco's refinery located in Commerce City, Colorado, 
and all of the related distribution assets, including crude oil supply 
pipelines, truck loading racks, light petroleum product pipelines and 
storage terminals used in the operation of the refinery, and pipelines 
assets ensuring the distribution of jet fuel.
    The assets to be divested also include: (1) All gasoline retail 
stations that are currently owned by Phillips located in Colorado and, 
by assignment, all Phillips' agreements with marketers served by 
Phillips' Eastern Colorado bulk supply assets; (2) an exclusive 10-year 
royalty free license to use brands currently used by Phillips in 
Colorado to sell gasoline, kerosene, diesel fuel and any other product 
typically sold at a gasoline station through the gasoline outlet 
channel of distribution; (3) a nonexclusive 10-year royalty free 
license to use brands currently used by Phillips in Colorado to sell 
products typically sold at gasoline stations (e.g., motor oil) through 
channels outside of gasoline outlets; and (4) provision of Phillips 
proprietary (branded) and non-proprietary credit card services, 
Phillips additive, and brand support at Phillips' costs.
    These refinery and marketing assets must be divested to a buyer 
receiving prior approval from the Commission within 12 months of the 
date Respondents executed the Agreement Containing Consent Orders, and 
Respondents must maintain the viability and the marketability of the 
assets until they are divested.
C. Phillips' Propane Assets
    Paragraph IV of the Proposed Order restores competition in bulk 
supplies of propane by requiring Respondents to divest the Phillips 
propane business and associated assets to a buyer receiving prior 
approval of the Commission by January 15, 2003. Respondents must divest 
all the physical assets (storage, truck racks, pipelines connecting the 
storage tanks to common carrier pipelines and truck racks) related to 
Phillips' propane terminal operations in Jefferson City, Missouri, and 
East St. Louis, Illinois. Phillips must also assign all propane supply 
agreements between Phillips and its customers from those terminals. The 
acquirer will have the unqualified ability to expand the propane 
terminal assets. The Proposed Order also imposes restriction on 
Respondents to ensure that the buyer of the propane business obtains 
nondiscriminatory access to the Blue and Shocker Lines. With access to 
the Blue Line and Shocker Line common carrier pipelines, the acquirer 
will be able to ship propane to the Jefferson City or East St. Louis 
terminals from the propane markets in Conway, Kansas. Until the propane 
assets are divested, Respondents must maintain the viability and the 
marketability of those assets.
    Paragraph IV.D requires Respondents to, by the date of divesting 
the Propane Business, enter into a propane supply contract with the 
acquirer of the divested propane business. The contract must give the 
acquirer the ability to purchase propane at a price equal to the price 
at Conway, Kansas, plus the Blue Line and Shocker Line tariffs from 
Conway to the applicable terminal.
    Respondents must also enter into a terminal operating agreement 
with the buyer of the propane business. The agreement must provide for 
the maintenance, upkeep, repair, security, and operation of the 
Jefferson City, Missouri, and East St. Louis, Illinois, terminals at 
Respondents' actual costs.
    In the event that Respondents are unable to divest the propane 
business by January 15, 2003, to a buyer receiving prior approval of 
the Commission and in a manner approved by the Commission, Respondents 
must divest: (1) A 50 percent undivided interest in the Blue Line 
between Borger, Texas, and the connection to the Shocker Line (near 
Wichita, Kansas); (2) the Shocker Line; (3) Respondents' entire 
interest in the Blue Line from the connection with the Shocker Line to 
the East St. Louis, Illinois terminal; (4) the East St. Louis terminal; 
(5) the Jefferson City, Missouri terminal, and (5) the Ringer, Kansas 
terminal.
D. Phillips' Spokane Terminal
    Paragraph V of the Proposed Order requires the Respondents to 
divest the Phillips terminal in Spokane, Washington, no later than six 
months after the date Respondents execute the Agreement Containing 
Consent Orders. The acquirer of the Phillips Spokane Terminal must have 
the prior approval of the Commission. Until Phillips Spokane Terminal 
is effectively divested, Respondents will be required to maintain the 
viability and the marketability of the terminal. The purpose of the 
sale of Phillips Spokane Terminal is to maintain the existing level of 
competition.
E. Phillips' Wichita Terminal
    Paragraph VI of the Proposed Order requires the parties to enter 
into a 10-year products throughout agreement with Williams Pipe Line 
Company, LLC (``Williams''), or another firm, receiving the prior 
approval of the Commission, within nine months of Respondents' 
execution of the Agreement Containing Consent Orders. Williams owns and 
operates common carrier refined products pipelines and terminals 
serving, among others, the Mid-continent areas of the United States. 
The throughput agreement must provide for at least 8,500 barrels per 
day and cannot specify a minimum volume. The agreement must also 
provide for the acquisition of additive and information technology 
services, and provide an option to purchase a 50 percent undivided 
interest in Phillips terminal assets in Wichita, Kansas.
F. Natural Gas Gathering
    Paragraph VII of the Proposed Order requires the Respondents to 
divest all of Conoco's natural gas gathering, compression, processing 
and transportation assets within specified areas of Chavez, Lea and 
Eddy Counties in New Mexico, within nine months from the date 
Respondents execute the Agreement Containing Consent Orders. These 
assets include Conoco's Maljamar Processing Plant, and all necessary 
agreements or contracts related to the operation of that plant. The 
Commission must give its prior approval before any acquirer may 
purchase these assets. Until these assets are sold, they will be

[[Page 57239]]

placed into an Order to Hold Separate and Maintain Assets.
    Paragraph VIII of the Proposed Order requires the Respondents to 
divest all of Conoco's assets related to the gathering, compression, 
transportation or sale of natural gas within Schleicher County, Texas, 
within nine months from the date Respondents execute the Agreement 
Containing Consent Orders. This includes all gathering pipelines and 
any related contracts or agreements. The Commission must give its prior 
approval before any acquirer may purchase these assets. Until these 
assets are sold, they will be placed into an Order to Hold Separate and 
Maintain Assets. In addition, Respondents must enter into a processing 
agreement with the buyer of the divested assets. The processing 
agreement must allow the buyer to process at least the same volume of 
natural gas that is currently gathered on the system at Conoco's cost. 
This cost includes all direct costs, including raw materials, labor, 
utilities and third-party contract services actually used to provide 
services to the acquirer of the gathering assets. In addition, cost may 
include the pro rata share of the cost of the capital employed in the 
processing plant and indirect costs related to operating the processing 
plant, including taxes, depreciation, overhead and third-party 
contracts.
G. Fractionation
    Paragraph IX of the Proposed Order contains four ensuring that 
Respondents cannot transfer competitively sensitive information among 
fractionators or exercise voting rights to thwart expansion. First, 
beginning at the date of execution of the Agreement Containing Consent 
Orders, the Proposed Order prohibits Respondents from sharing 
competitively sensitive fractionation information with DEFS, Duke 
(owner of approximately 70 percent of DEFS), or any DEFS Board Member. 
Second, Respondents may not receive from Duke, DEFS, or any DEFS Board 
Member any competitively sensitive fractionation information of DEFS. 
Third, ConocoPhillips DEFS Board Members may not participate in any 
discussions with DEFS or Duke relating to the three fracitonators in 
which Respondents and DEFS own an interest. Fourth, ConocoPhillips DEFS 
Board Members may not participate in any vote of the DEFS board, unless 
such a vote is necessary and, if such a vote is necessary, then the 
ConocoPhillips DEFS Board Members must vote is the same way as the 
majority of the Duke DEFS Board Members.
H. Other Terms
    Paragraph X sets the guidelines for the appointment and powers of a 
Divestiture Trustee should the Respondents fail to complete one or more 
of the divestitures discussed above. Paragraph XI requires the 
Respondents to provide the Commission with a report of compliance with 
the Proposed Order every sixty days until the divestitures are 
completed. Paragraph XII provides for notification to the Commission in 
the even of any changes in the Respondents. Paragraph XIII requires the 
Respondents to provide the Commission with access to their facilities 
and employees for the purposes of determining or securing compliance 
with the Proposed Order. Paragraph XIV provides, among other things, 
that if a State fails to approve any of the divestitures contemplated 
in the Proposed Order, then the period of time required under the 
Proposed Order for such divestiture will be extended for ninety days. 
Finally, Paragraph XV provides that the Proposed Order will terminate 
ten years after the date the Order becomes final.

V. Gasoline Retail and Marketing Assets

    In this instance, the Commission is not seeking gasoline marketing 
relief outside the bulk supply areas discussed above (Eastern Colorado 
and Northern Utah). After a thorough investigation, the Commission 
concluded that the proposed merger of Phillips and Conoco is not likely 
to have any anticompetitive effect on gasoline marketing the Mid-
continent, Southeastern, or Southwestern United States. The Commission 
considered several factors in reaching its decision not to seek relief 
in those areas. First, Phillips and Conoco own and/or operate few 
retail outlets. With the exception of a small number of cities, 
Phillips and Conoco gasoline distribution relies significantly on 
independent gasoline marketers. Further, Conoco and Phillips, unlike 
the other major refiners, have not imposed significant costs of 
switching brands or de-branding on the predominant share of their 
marketers. Neither Phillips nor Conoco engage in redlining or zone 
pricing in areas investigated in this merger. Thus, the degree of 
vertical control over jobbers by Conoco and Phillips in these regions 
is significantly less than that exercised by other refiners in other 
parts of the country. Further, the Commission has found significant 
growth of low-priced gasoline retailing by supermarkets, club stores 
and mass merchandisers. The entry of these gasoline distribution 
competitors likely will prevent the merging firm from raising prices in 
the Mid-continent, Southeast and Southwest. In addition, entry by these 
low-priced competitors has induced jobbers to switch branch and de-
brand. Entry and growth by low-priced formats are likely to continue in 
these areas, in part, because of a plentiful supply of gasoline and 
diesel fuel. Areas under investigation in this merger have common 
carrier pipelines and terminals delivering and storing gasoline to both 
branded and unbranded jobbers. For these and other reasons, the 
Commission does not have reason to believe that the merger of Conoco 
and Phillips would lessen competition substantially in the Mid-
continent, Southeast and Southwest.

VI. Opportunity for Public Comment

    The Proposed Order has been placed on the public record for thirty 
days for receipt of comments by interested persons. Comments received 
during this period will become part of the public record. After thirty 
days, the Commission will again review the Proposed Order and the 
comments received and will decide whether it should withdraw from the 
Proposed Order or make it final. By accepting the Proposed Order 
subject to final approval, the Commission anticipates that the 
competitive problems alleged in the complaint will be resolved. The 
purpose of this analysis is to invite public comment on the Proposed 
Order, including the proposed divestitures, to aid the Commission in 
its determination of whether to make the Proposed Order final. This 
analysis is not intended to constitute an official interpretation of 
the Proposed Order, nor is it intended to modify the terms of the 
Proposed Order in any way.

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 02-22795 Filed 9-6-02; 8:45 am]
BILLING CODE 6750-01-M