The U.S. Justice Department has kicked off an investigation intoutility-owned ProLiance Energy LLC for possible antitrustviolations in the Midwest pipeline capacity market. The outcome ofthe probe, as well as a decision by an Indiana appellate court onrelated issues, may have ramifications for other utility-ownedmarketers, sources close to the case say.

“I would assume that there are other companies that have eitherformed such an entity like this or are in the process of formingone. I’m sure that the gas industry is looking at this very closelyto see what Justice feels about the increased market power or thealleged market power that ProLiance has” in the Midwest capacitymarket, said Mike Leppert, a spokesman for the Indiana UtilityRegulatory Commission (IURC), which also has looked intoIndianapolis-based ProLiance’s activities in the past.

ProLiance, a joint venture of Citizens Gas &amp Coke Utility andIndiana Gas, which both serve Indiana markets, plans to meet withJustice officials this week to answer questions about the formationof the marketing company in March 1996 and about the effects of thesecondary capacity rights it holds on several Midwest pipelines oncompetition, according to a press release issued by the company.

“ProLiance Energy, along with its two owners, intends to fullycooperate with the inquiry and believes the information provided tothe department will demonstrate the marketplace for secondaryinterstate pipeline capacity is more competitive now than it wasprior to the formation of [the company],” the marketer said.Justice confirmed that a case was on-going and that it issued civilinvestigative demands (similar to subpoenas) in mid-August toProLiance and its owners, but it declined to comment further.

ProLiance markets more than 200 Bcf a year to over 400customers, making it the largest gas purchaser and transporter onTexas Gas Transmission and Duke Energy’s Panhandle Eastern PipeLine systems. The gas marketer holds 300,000 Dth/d of firm capacityon Panhandle; 295,000 Dth/d of firm space on Texas Gas; and 5,000Dth/d of firm on ANR Pipeline, as well as 37 Bcf of storagecapacity on the three pipelines. It also holds transportationoptions on several Midwest pipelines. ProLiance is the solesupplier of gas to its utility owners, and administers theirtransportation and storage contracts – a point that has elicitedcriticism from marketing competitors trying to break into theregion, industrial gas consumers and consumer watchdog groups.

All of this gives ProLiance the “power and negotiating strengththat most marketing firms or distribution companies could not hopeto achieve,” the company’s Web site trumpets.

In response to a complaint, the Indiana regulators last yearquestioned “whether or not they [ProLiance] should be regulated”because of its affiliation with the utilities, and “whether or notthese utilities had the authority to form ProLiance without seekingcommission approval,” Leppert noted. In the end, the commission”didn’t disallow the formation of the company,” but it issued “somecautionary messages about the formation of such an entity withoutseeking commission approval.”

The state’s Consumer Advocate and Indiana Industrial ElectricConsumers, a coalition of industrial customers, have since appealedthe decision to the Indiana State Court of Appeals, Leppert noted.They have been joined in their effort by the Office of UtilityConsumer Counselor and other marketers.

The Consumer Advocate has argued before the court thatProLiance’s unregulated status, which excuses it from having toprovide cost data and other information in quarterly gasadjustments, makes it next to impossible for state regulators toknow whether the gas purchasing practices of Citizens Gas andIndiana Gas have been prudent or not, Leppert said. “Obviously, theindustrial customers [and other marketers] have taken a moreexpansive perspective – that is, that the formation and size of themarketer is stifling competition and limiting choice for theirclients.”

What prompted the Justice probe? “I would expect that either acustomer or a potential competitive marketer may have contactedJustice,” Leppert said. “It wasn’t brought to their attention bythis agency.”

Susan Parker

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