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Court Rejects Munis' Bid to Enjoin Producers over High Prices

A federal court in Washington, DC, last Thursday denied a request to enjoin major gas producers from refusing to sell gas for delivery to a number of Midwest municipalities and from raising the average wellhead price above the year-end 2004 level of $5.85/Mcf for the municipalities until a pending lawsuit is resolved.

Eighteen municipalities in Kansas, Missouri, Minneapolis, Indiana, Texas and Illinois petitioned the U.S. District Court for the District of Columbia for preliminary injunctive relief in December as part of a lawsuit they filed in June 2004 against several natural gas suppliers, alleging violations of the antitrust laws including artificially inflating the price of natural gas; monopolizing, attempting to monopolize and conspiring to monopolize the gas market; and price discrimination. A preliminary injunction is intended to maintain the status quo pending the outcome of a lawsuit.

Gas suppliers named as defendants in the lawsuit were ExxonMobil Corp., BP America Inc., Coral Energy Resources LP, ChevronTexaco Corp. and ConocoPhillips Corp.

In denying the injunction, District Court Judge Richard W. Roberts said the municipalities "have failed to meet their burden of establishing that there is a substantial likelihood they will succeed on the merits [of their lawsuit], and that they will be irreparably injured if an injunction is not granted." The municipalities requested that the price of natural gas for delivery to their towns be set at $5.85/Mcf, which was the average gas price between November 2004 through March 2005. Roberts pointed out that the $5.85/Mcf price level was exceeded in November 2004, more than a year before the municipalities filed their motion for a preliminary injunction.

With the municipalities' "irreparable harm allegation based upon outdated price projections, with a delay of over one year after prices exceeded their suggested level before plaintiffs filed their motion for a preliminary injunction, with no proof that the utilities [that] plaintiffs run or the cities themselves will be forced out of business by the high prices of natural gas, and with no ability to substitute proof of irreparable harm to the public for their own, plaintiffs have not met their burden of establishing they will suffer irreparable harm if an injunction does not issue," the court said.

The municipalities also "present no evidence to rebut the claim that the hurricanes [last summer] affected the price of natural gas or even to show that the defendants lied about the reason for the increase in the price of natural gas" in late 2005, Roberts said. In short, they failed to show that the natural gas suppliers conspired to drive up prices, he noted.

The Midwest municipal utilities "have not sufficiently supported their claim of a conspiracy and thus their price-fixing claim does not have a likelihood of success on the merits. [They] have shown that the defendants reaped staggeringly high profits in the third quarter of 20005...However, the defendants have offered a reasonable economic justification for the increase in price, namely, a tight supply exacerbated by a destructive hurricane season. Defendants' justification is corroborated by the falling natural gas prices since the end of January, attributed to reports of mild winter weather and a corresponding decrease in demand," Roberts said.

The municipalities alleged that the gas suppliers named in their lawsuit control 70% of the market, while the suppliers countered that they control not more than 3% of the technically recoverable reserves in the United States. "Beyond their experts' opinion...[the municipalities] offer no further documentation or evidence to rebut defendants' contrary evidence. Other than the assertions of the aggregate market share of the defendants, the [municipalities] have alleged no predatory or exclusionary acts that would further an inference of the defendants' specific intent to monopolize," the court said. In the end, the municipalities failed to "carry their burden" of showing that the gas suppliers conspired to monopolize, Roberts noted.

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