The Pennsylvania Public Utility Commission (PUC) on Thursday conditionally approved the $580 million sale of PG Energy, the largest natural gas distributor in the central part of the state, to UGI Corp.

By a 3-to-2 vote, state regulators cleared the acquisition on the condition that the merger partners agree to revise a portion of a settlement that deals with the management of natural gas supply delivered to customers. The PUC agreed to the other terms of the settlement, which call for a rate freeze for UGI’s gas and electric divisions for two years; require PG Energy’s parent — Southern Union Co. — to fund the unfunded benefit obligations under the PG Energy pension plan; and require PG Energy to make adjustments to its pending request for a rate rake hike, including reducing pension expenses to $2.5 million a year from $9.2 million annually.

The settlement pact was reached between the merger partners and parties who filed formal complaints to the proposed sale, including the Pennsylvania Office of Consumer Advocate, the Commission on Economic Opportunity, the AFL-CIO, UGI Industrial Intervenors and PGE Industrial Intervenors. The settlement was not unanimous with the state’s Office of Small Business Advocate and the PUC’s Office of Trial Staff opposing it.

“Under this settlement, the rate increase requested for PG Energy customers is significantly reduced, jobs and pensions are protected and the company’s corporate headquarters is returning to Pennsylvania,” said PUC Vice Chairman James Cawley. “The public good of this settlement overshadows the gas supply issue.”

Earlier in the year, PG Energy parent Southern Union moved its headquarters from Wilkes-Barre to Houston, TX. However, with PG Energy’s planned purchase by UGI of Valley Forge, PA, the company’s corporate headquarters will once again return to Pennsylvania, a PUC spokeswoman said. The sale is expected to close in the third quarter.

PG Energy is a natural gas operating division of Southern Union. It serves approximately 158,000 customers in 13 counties through northeastern and central Pennsylvania, including the cities of Scranton, Wilkes-Barre and Williamsport.

UGI is a holding company with propane marketing, utility and energy marketing operations. Through subsidiaries, it owns 44% of AmeriGas Partners LP, the nation’s larges retail propane marketer, and owns Antargaz, one of the largest distributors of liquefied petroleum gas in France.

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