A federal judge in Pittsburgh Monday dismissed the Federal Trade Commission's (FTC) lawsuit seeking to halt Equitable Resources Inc.'s proposed purchase of Dominion Peoples, saying the federal agency must defer to Pennsylvania regulators who approved the $970 million deal in April.

"The federal antitrust laws are obviously important to the proper functioning of the free market system in this nation, and so is the role of the FTC, which no doubt has acted zealously and in good faith to further its mandate to enforce those laws. However, 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 in a 19-page opinion.

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, the judge said. But the PUC in its April ruling "found that the benefit of gas-on-gas distribution competition to the 500 customers caused increases to the other 600,000-plus customers (primarily retail customers)" affected by the merger, he noted.

Pennsylvania regulators concluded that "this limited, and solely intrastate, gas-on-gas distribution competition was inefficient, and that the elimination of said competition through the proposed transaction would produce greater overall efficiencies, eliminate costly duplication, and [would] be in the public interest," Schwab said.

He noted that granting the FTC's request for a preliminary injunction "would cause public harm by substantially delaying, and for all practical purposes barring, the implementation of the PUC's determination that the transaction is in the public interest," and it "would interfere and abrogate the statutory duty of the PUC to protect the interest of the public in Pennsylvania."

A spokesman for the FTC said the agency "was still looking over the ruling by the judge," and had not decided whether it would challenge the decision in a federal appeals court.

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). In seeking to halt the transaction, the lawsuit alleged that Equitable and Dominion exercise market power "through price discrimination, charging nonresidential customers for whom they do not compete the maximum regulated tariff, while providing discounts for customers for whom they do compete. Equitable and Dominion are the most significant, if not the only, constraints on each other's ability to raise prices."

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 that aspect of the proposed acquisition. Dominion Peoples and Dominion Hope are owned by Dominion Resources of Richmond, VA.

If completed, 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 is returning the Peoples utility to Pittsburgh ownership.

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