Justice, Courts Eye ProLiance's Activities in Midwest
The U.S. Justice Department has kicked off an investigation into
utility-owned ProLiance Energy LLC for possible antitrust
violations in the Midwest pipeline capacity market. The outcome of
the probe, as well as a decision by an Indiana appellate court on
related issues, may have ramifications for other utility-owned
marketers, sources close to the case say.
"I would assume that there are other companies that have either
formed such an entity like this or are in the process of forming
one. I'm sure that the gas industry is looking at this very closely
to see what Justice feels about the increased market power or the
alleged market power that ProLiance has" in the Midwest capacity
market, said Mike Leppert, a spokesman for the Indiana Utility
Regulatory Commission (IURC), which also has looked into
Indianapolis-based ProLiance's activities in the past.
ProLiance, a joint venture of Citizens Gas & Coke Utility and
Indiana Gas, which both serve Indiana markets, plans to meet with
Justice officials this week to answer questions about the formation
of the marketing company in March 1996 and about the effects of the
secondary capacity rights it holds on several Midwest pipelines on
competition, according to a press release issued by the company.
"ProLiance Energy, along with its two owners, intends to fully
cooperate with the inquiry and believes the information provided to
the department will demonstrate the marketplace for secondary
interstate pipeline capacity is more competitive now than it was
prior to the formation of [the company]," the marketer said.
Justice confirmed that a case was on-going and that it issued civil
investigative demands (similar to subpoenas) in mid-August to
ProLiance and its owners, but it declined to comment further.
ProLiance markets more than 200 Bcf a year to over 400
customers, making it the largest gas purchaser and transporter on
Texas Gas Transmission and Duke Energy's Panhandle Eastern Pipe
Line systems. The gas marketer holds 300,000 Dth/d of firm capacity
on Panhandle; 295,000 Dth/d of firm space on Texas Gas; and 5,000
Dth/d of firm on ANR Pipeline, as well as 37 Bcf of storage
capacity on the three pipelines. It also holds transportation
options on several Midwest pipelines. ProLiance is the sole
supplier of gas to its utility owners, and administers their
transportation and storage contracts - a point that has elicited
criticism from marketing competitors trying to break into the
region, industrial gas consumers and consumer watchdog groups.
All of this gives ProLiance the "power and negotiating strength
that most marketing firms or distribution companies could not hope
to achieve," the company's Web site trumpets.
In response to a complaint, the Indiana regulators last year
questioned "whether or not they [ProLiance] should be regulated"
because of its affiliation with the utilities, and "whether or not
these utilities had the authority to form ProLiance without seeking
commission approval," Leppert noted. In the end, the commission
"didn't disallow the formation of the company," but it issued "some
cautionary messages about the formation of such an entity without
seeking commission approval."
The state's Consumer Advocate and Indiana Industrial Electric
Consumers, a coalition of industrial customers, have since appealed
the decision to the Indiana State Court of Appeals, Leppert noted.
They have been joined in their effort by the Office of Utility
Consumer Counselor and other marketers.
The Consumer Advocate has argued before the court that
ProLiance's unregulated status, which excuses it from having to
provide cost data and other information in quarterly gas
adjustments, makes it next to impossible for state regulators to
know whether the gas purchasing practices of Citizens Gas and
Indiana Gas have been prudent or not, Leppert said. "Obviously, the
industrial customers [and other marketers] have taken a more
expansive perspective - that is, that the formation and size of the
marketer is stifling competition and limiting choice for their
What prompted the Justice probe? "I would expect that either a
customer or a potential competitive marketer may have contacted
Justice," Leppert said. "It wasn't brought to their attention by