A federal appeals court in Philadelphia has placed a hold on Equitable Resources Inc.’s proposed purchase of Dominion Peoples Natural Gas Co., pending an appeal of a lower court’s ruling that dismissed the Federal Trade Commission’s (FTC) lawsuit to halt the $970 million deal.

The U.S. Court of Appeals for the Third Circuit granted the FTC’s motion to enjoin the transaction until it can consider the case. Both companies sought expedited consideration of the appeal, which was granted. The court scheduled a ruling for September.

The appellate court’s action comes only weeks after a U.S. District Court judge in Pittsburgh dismissed the FTC’s lawsuit seeking to block Equitable Resources’ acquisition of Dominion Peoples (see Daily GPI, May 16). The district court said the federal agency would have to defer to Pennsylvania regulators who approved the transaction in April.

“The FTC must defer to the Pennsylvania General Assembly and the [Pennsylvania Public Utility Commission]…since the state action immunity doctrine insulates the PUC’s approval of the merger between Equitable Gas and Peoples Gas from federal antitrust scrutiny,” said U.S. District Judge Arthur J. Schwab at the time.

The FTC argued that the merger of the two natural gas distribution companies would rob about 500 Pennsylvania industrial and commercial customers of gas-on-gas distribution competition. But the PUC in its April ruling “found that the benefit of gas-on-gas distribution competition to the 500 customers caused [rate] increases to the other 600,000-plus customers (primarily retail customers)” affected by the merger, Schwab said.

The FTC filed its lawsuit shortly after Pennsylvania regulators approved a settlement in mid-April allowing Pittsburgh-based Equitable Resources to buy Dominion Peoples (see Daily GPI, April 16).

Equitable is seeking to acquire Dominion Peoples’ gas distribution system, which covers 9,400 square miles in southwestern Pennsylvania and serves approximately 357,000 customers; Dominion Peoples’ midstream gas system, which spans 861 gathering miles and has 44.6 Bcf of throughput capacity; and storage facilities, which include 33.2 Bcf of on-system storage and 10.8 Bcf of off-system storage. The deal also calls for Equitable to acquire Dominion Hope, which serves thousands of gas customers in West Virginia, but the FTC did not challenge this aspect of the proposed acquisition. Dominion Peoples and Dominion Hope are owned by Dominion Resources of Richmond, VA.

The agreement allows either Equitable or Dominion to walk away from the deal if it is not completed by June 30.

The acquisition, which was first announced in March 2006, would make Equitable the largest gas service provider in Pennsylvania and second largest in West Virginia. Dominion Peoples and Dominion Hope would be integrated into the operations of Equitable Gas Co., a division of Equitable Resources. The acquisition would triple Equitable Gas Co.’s customer base. It currently provides service to approximately 257,000 gas customers in western Pennsylvania, and to 13,474 and 3,702 customers in West Virginia and Kentucky, respectively.

Dominion Resources picked up Peoples and Dominion Hope when it acquired Consolidated Natural Gas of Pittsburgh in early 2000. With the proposed acquisition, Equitable Resources said it would return the Peoples utility to Pittsburgh ownership.

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