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From Antitrust Law Daily, March 18, 2015

Energy company’s acquisition of Hawaii gas station operator conditionally approved by FTC

By Jeffrey May, J.D.

In light of concerns that a proposed acquisition could ultimately drive up gasoline prices for Hawaii consumers, the FTC has conditioned Par Petroleum Corporation’s proposed acquisition of Mid Pac Petroleum, LLC on the termination of Mid Pac’s rights at a key gasoline terminal in Hawaii owned by rival Aloha Petroleum, Ltd. Par is a diversified energy company based in Texas. Mid Pac owns and operates refined products terminals and operates gas stations as the exclusive licensee of the “76” gasoline brand in Hawaii (In the Matter of Par Petroleum Corp., FTC File No. 141-0171).

According to the FTC’s complaint, the proposed merger would reduce competition and lead to higher prices for bulk supply of Hawaii-grade gasoline blendstock (HIBOB), which is gasoline before it is blended with ethanol to make finished gasoline for motor vehicles. The transaction is likely to impede the ability of Aloha, which owns the only commercial gasoline terminal in Hawaii that is not controlled by a refiner, to use imports to constrain the local refiners’ bulk supply prices, according to the FTC.

There are only four firms that provide Hawaii with bulk supply of HIBOB: Par, Chevron Corporation, Mid Pac and Aloha. Par and Chevron have refineries in Hawaii to produce the product. Mid Pac and Aloha do not. They must buy their bulk supply from Par and Chevron or else import product. As a result of the proposed acquisition, Par would gain Mid Pac’s rights under a long-term agreement to Aloha’s Barbers Point terminal. The FTC is concerned that Par could exercise its rights in a manner that impairs Aloha’s use of its terminal.

Proposed remedy. A proposed consent order is intended to resolve the FTC's competitive concerns by preserving flexibility for HIBOB imports at Barbers Point Terminal. Par would be required to terminate its storage and throughput rights at the terminal. In addition, the consent order would obligate Par to notify the Commission prior to the acquisition of any leasehold, ownership, or any other interest in any assets engaged in the bulk supply of HIBOB in Hawaii.

Dissent. Commissioner Joshua D. Wright voted against the complaint and proposed consent order. In his dissenting statement, Wright expressed his view that the evidence did not support the complaint's theory of competitive harm arising from the proposed transaction.

“The Complaint articulates a theory of competitive harm arising from the proposed transaction based upon the possibility that Par, a bulk supplier of HIBOB, will foreclose a potential downstream customer, Aloha Petroleum, Ltd., from its ability to import to discipline the prices of bulk-supplied HIBOB,” Wright explained. He noted that the theory was plausible and worthy of investigation. However, Wright had “no reason to believe that post-acquisition, Par will have the incentive and ability to raise prices of the bulk supply of HIBOB.”

The four other commissioners issued a separate statement expressing their view that there was indeed evidence that market participants, including Aloha itself, believe Par might profitably seek to adopt an anticompetitive strategy of storing substantial amounts of gasoline for an extended period, thereby reducing the size of an import cargo that Aloha could receive at the terminal.

Attorneys: Anna Kertesz for FTC. Marc Schildkraut (Cooley LLP) for Par Petroleum Corp.

Companies: Par Petroleum Corp.; Chevron Corp.; Mid Pac Petroleum, LLC; Aloha Petroleum, Ltd.

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