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 &amp 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 clients."

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 this agency."

Susan Parker

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