Friday, March 16, 2007

FTC Challenges Combination of Natural Gas Distributors in Southeastern Pennsylvania

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

The FTC has issued an administrative complaint challenging a proposed combination of the only two competitors in the pipeline delivery of naturalgas to nonresidential customers in the greater Pittsburgh area and other parts of Allegheny County, Pennsylvania.

Equitable Resources, Inc.’s proposed acquisition of The Peoples Natural Gas Company would result in a merger to monopoly, according to the agency. The FTC has not yet moved for a preliminary injunction in federal district court to block the proposed transaction, because the deal can not proceed without Pennsylvania Public Utilities Commission (PUC) approval. A decision by the PUC is not expected until later this month or in early April.

The Peoples Natural Gas Company is a subsidiary of Dominion Resources,Inc. The transaction, valued at $970 million, includes Equitable’s purchase of Hope Gas, Inc., another subsidiary of Dominion. The complaint does not challenge the acquisition of Hope Gas, Inc.

Monopoly in Distribution of Natural Gas

“By removing Dominion Peoples as a competitor through this transaction, Equitable obtains a monopoly in the distribution of natural gas to many nonresidential customers in the Pittsburgh area,” said FTC Bureau of Competition Director Jeffrey Schmidt. “The transaction will thus result in higher prices for these nonresidential customers, including hospitals, schools, churches and apartment buildings, and likely increase the prices these customers charge consumers for their important services.”

According to the FTC complaint, the proposed acquisition may substantially lessen competition in the following ways, among others: (1) by eliminating competition between Equitable and Dominion in the local distribution of natural gas in the relevant markets;(2) by increasing the likelihood of, or facilitating, collusion or coordinated interaction between the combined entity and other providers of local distribution of natural gas in the relevant markets; and (3) by increasing the likelihood that the combined entity will unilaterally exercise market power in the local distribution of natural gas.

Authorization to Seek Injunction

While the FTC has not filed a motion for a preliminary injunction, its staff has been authorized to seek such an injunction, should it become necessary to preserve its ability to obtain effective relief while the administrative trial process proceeds. The Commission voted 4-1 to issue the administrative complaint and to authorize the staff to seek a preliminary injunction, with Commissioner Pamela Jones Harbour voting no.

The administrative complaint approved by the Commission on March 14,2007, for In the Matter of Equitable Resources, Inc., Dominion Resources,Inc., Consolidated Natural Gas Company, and The Peoples Natural Gas Company, FTC Dkt. 9322, is available here at the FTC web site.

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