NGI The Weekly Gas Market Report
The mergers of Columbia Energy and NiSource Inc. and El Paso Energy and Coastal Corp. breezed through the FERC review process last Wednesday, collecting seals of approval, at the same time the agency said it wanted to take another look at two proposed mergers of electric utilities.
The Commission’s merger review authority is limited to examining the impact on the wholesale electric market. In the Columbia-NiSource and El Paso-Coastal reviews the Commission found neither the horizontal nor vertical aspects of the proposed mergers raised any concerns about competition.
Natural gas plays a minimal role in determining power prices in the electric market areas of Columbia-NiSource, FERC said. Columbia has committed to selling off its ownership interests in four independent generating facilities before the merger is completed. FERC also noted NiSource has committed to join a regional transmission organization, as provided for by FERC Order 2000.
Regarding the El Paso-Coastal merger which will create a mega-pipeline empire, the Commission said it posed no significant competitive concerns regarding the combination of the companies’ generating resources or the combination of generating resources with its upstream gas and coal interests. The combined company does not have the market share or market power in downstream markets to drive up electricity prices through its deliveries of natural gas.
The combined interstate transmission system of El Paso/Coastal will consist of over 58,000 miles of pipeline reaching all the major growth areas in the country. It will be the second largest gatherer of natural gas in the United States and the third largest U.S. producer of natural gas – after BP Amoco and ExxonMobil – with over 5 Tcf of proved gas equivalent reserves and approximately 20.7 Bcf/d of transportation. Together the companies control over 12,000 net MW of power generation worldwide, 5,500 MW of which is in the U.S. (See NGI, Jan. 24)
The Federal Trade Commission is reviewing the impact of the $16 billion El Paso/Coastal merger. The companies expect the transaction, which was announced in January, to be completed in the fourth quarter. Stockholders have already approved the transaction.
The final approval of the Columbia/NiSource merger must come from the Securities and Exchange Commission. That transaction also is expected to be completed before the end of the year.
The Columbia/NiSource combination already has been approved by the nine states in which the companies operate. Columbia agreed to the $6 billion transaction on Feb. 28, and the deal was approved by both sets of shareholders on June 1 and 2 this year (see NGI, March 6; June 5). The union is set to create a mega energy powerhouse serving more than 4 million customers, stretching from Chicago in the west to New England in the east and south to the Gulf of Mexico.
The merger marries Columbia’s two long lines, Columbia Gas and Columbia Gulf, plus its five distribution subsidiaries in Ohio, Pennsylvania, Virginia, Kentucky and Maryland with NiSource’s Northern Indiana Public Service (NIPSCO) electric and gas utility and two smaller utilities in Indiana. NiSource also owns Market Hub Partners, a storage operator and developer; Crossroads Pipeline, a 201-mile, 20-inch line from Indiana to Ohio; and Granite State Gas Transmission, which runs a small line in New England. Columbia is in the process of selling off its wholesale and retail energy marketing operations to Enron Corp. subsidiaries or ventures. It has sold its Cove Point LNG facilities to Williams for $150 million, and put Columbia Propane Corp. and Columbia Petroleum up for sale.
Regarding the Midcontinent merger proposal of UtiliCorp United with St. Joseph Light & Power and Empire District Electric Co., the Commission said the applicants had not shown that the mergers would not adversely affect competition as a result of consolidating generation and transmission. And, in fact, results of the market power analysis submitted by the companies “heighten our concerns that the proposed mergers could adversely affect competition.” In pronouncing a conditional approval, FERC said the merger partners should submit a revised competitive analysis six months prior to commencement of integrated operations, at which time the Commission would “impose any conditions necessary to mitigate potential adverse competitive effects.’
In the West, merger applicants Sierra Pacific Power and Nevada Power with Portland General Electric failed to provide an adequate analysis of the vertical and horizontal market power effects to enable the Commission to determine whether competition would be harmed. Consequently, FERC set out specific procedures for obtaining additional information analysis and intervenor input.
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