The Pennsylvania Public Utility Commission (PUC) has approved a settlement to allow Peoples Natural Gas Co. to purchase Equitable Gas Co. for $720 million, a deal which will also create the largest local distribution company (LDC) in the state.

The PUC voted 5-0 Thursday to approve an initial decision by Administrative Law Judge Mark Hoyer, who ruled on Nov. 1 that the merger was within the public interest.

Under the deal, Peoples will transfer approximately 15 Bcf of gas storage capacity, plus associated transmission pipelines and real property interests, to EQT Corp., Equitable’s parent company. The transfer will include the:

Peoples will also transfer approximately 200 miles of high pressure transmission pipeline to EQT, including associated interstate pipeline interconnections, compressor stations and other miscellaneous facilities.

“The merger represents a win for consumers,” said PUC Commissioner Pamela Witmer. “Allowing each company to focus on its core business will improve system safety and reliability while saving ratepayers money.”

In a separate statement, PUC Commissioner James Cawley said the merger was good for consumers because it would save an estimated $10 million to $20 million in operations and management costs, $50,000 in annual leak surveillance costs, $162 million in avoided pipeline replacement costs and $750,000 in avoided pipeline extension costs.

“Peoples has proven to have very effective management over its operations historically, with lower distribution and purchase gas costs relative to Equitable’s pipeline system,” Cawley said.

But Cawley cautioned that with the transfer of its assets, Peoples has agreed to bundled firm sales service from EQT. The latter, he said, “by its very nature, lacks the original flexibility afforded by…previous unbundled storage and transportation contracts on DTI [Dominion Transmission Inc.].” By comparison, Cawley said Peoples “was successful in providing gas supply service over 30% less expensively than Equitable.

“Going forward…Equitable’s midstream assets lack the same level of critical market liquidity that exists on DTI that provides the level of competitive pricing and options necessary to establish least cost purchase strategies…[but] I am convinced that Peoples will aggressively pursue all opportunities to undo the effects of Equitable’s asset acquisitions.”

SteelRiver Infrastructure Partners, which owns Peoples, announced its intention to purchase Equitable nearly a year ago (see Daily GPI, Dec. 21, 2012).