Thursday, May 17, 2007

FTC Denied Preliminary Injunction Blocking Combination of Gas Suppliers

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

The Federal Trade Commission was not entitled to a preliminary injunction blocking a proposed combination of natural gas suppliers serving Allegheny County, Pennsylvania because the acquisition was immune from antitrust law under the state action doctrine, the federal district court in Pittsburgh has ruled.

The Pennsylvania Public Utilities Commission's (PUC's) approval of the transaction qualified Equitable Resources, Inc.'s proposed acquisition of The Peoples Natural Gas Company for state action immunity. Thus, the federal court action was dismissed.

Merger to Monopoly

The FTC had alleged that the acquisition would result in a merger to monopoly. It issued an administrative complaint on March 14, challenging the combination under the antitrust laws. Because the transaction could not go forward without PUC approval, the FTC waited to file for a preliminary injunction halting the transaction pending the agency's administrative proceeding until after the PUC had made its decision.

On April 13, the PUC approved the transaction, concluding that it was in the public interest. Shortly thereafter, the FTC filed its federal district court complaint seeking preliminary injunctive relief. The defendants sought dismissal of the federal court complaint on state action immunity grounds.

State Action Immunity Doctrine

As was required for the application of state action immunity, the State of Pennsylvania (1) had a clearly articulated and affirmative policy to displace competition with pervasive regulation and (2) actively supervised that policy.

The first prong of the two-part test was satisfied by state general assembly's express grant of authority to the PUC to review such transactions to determine whether they were in the overall public interest of the citizens of the Commonwealth of Pennsylvania. That the specific state Public Utility Code provisions implementing the policies of the state legislature and the PUC regulatory scheme directed that the PUC evaluate potential anticompetitive consequences did not undercut the fact that the state legislature had replaced free market competition with regulation, the court noted.

The second prong of the state action immunity test also was satisfied, in the court's view. The PUC took an active role in supervising public utilities, including natural gas distribution companies. Moreover, it explicitly retained jurisdiction to continue to actively monitor and review the approved merger transaction.

The text of the May 14, 2007 decision in FTC v. Equitable Resources, Inc., et al., will appear in CCH Trade Regulation Reports.

Merger Enforcement in Energy Sector

The FTC is known for its aggressive merger enforcement activities in the energy sector, and the federal district court’s decision was a setback for the agency. Administrative hearings on the acquisition had been scheduled to begin in late September 2007.

Last month, the agency had more success in another energy industry combination. The federal district court in in Albuquerque, New Mexico, granted the FTC's request for a temporary restraining order (TRO) blocking Western Refining, Inc.’s proposed $1.4 billion acquisition of Giant Industries, Inc. The agency is contending that the proposed acquisition may substantially lessen competition for the bulk supply of gasoline and light petroleum products to northern New Mexico.

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