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Federal Trade Commission v. Equitable Resources

May 14, 2007


The opinion of the court was delivered by: Arthur J. Schwab United States District Judge



Defendants are public utilities which operate under the authority and regulation of the Pennsylvania Public Utility Commission ("PUC"), pursuant to the Pennsylvania Public Utility Code (66 Pa.C.S. §§ 101-3351), who seek to dismiss the Complaint (doc. no. 1) of the Federal Trade Commission ("FTC"). The FTC in its Complaint requests preliminary injunctive relief to halt an intra-state acquisition of defendant Peoples Natural Gas Company ("Peoples Gas") by defendant Equitable Resources Inc. ("Equitable Gas"), that was recently approved by the PUC,*fn1 after substantial and extensive documentation, hearings, and fact findings by Administrative Law Judge John H. Corbett, Jr. (the "ALJ") and by the PUC's subsequent Opinion and Order of April 13, 2007, ruling that said transaction was in the public interest.

The FTC complains that the PUC's approval of the stock transfer and acquisition by Equitable Gas would have a detrimental effect on approximately 500 Pennsylvania customers (who currently have "gas-on-gas" distribution competition); while on the other hand, the PUC focused its decision on the public as a whole (more than 600,000 Pennsylvania customers that will be favorably impacted by the transaction). Pennsylvania has a unique situation in that in a few locales there are two (2) gas distribution systems. This "gas-on-gas" distribution competition herein permits approximately 500 industrial and commercial customers to negotiate substantially lower prices from the currently separate Equitable Gas and Peoples Gas. In evaluating and approving the transaction, the PUC found that the benefit of gas-on-gas distribution competition to these 500 customers caused increased prices to the other 600,000 plus customers (primarily retail customers), and in the exercise of the PUC's statutory authority after consideration of a host of statutory considerations, concluded that this limited, and solely intra-state, 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 be in the public interest, including the interest of the 600,000 plus customers who would be impacted.

This Court grants the Motion to Dismiss (doc no. 18)*fn2 because the PUC's approval of the transaction qualifies for state action immunity. See California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980); Parker v. Brown, 317 U.S. 341 (1943). Further, the granting of the requested preliminary injunction would cause public harm by substantially delaying, and for all practical purposes barring, the implementation of the PUC's determination (PUC Opinion and Order, dated April 13, 2007) that the transaction is in the public interest.*fn3

Said proposed injunction thus would interfere and abrogate the statutory duty of the PUC to protect the interest of the public in Pennsylvania.

A. General Assembly's Grant of General Authority to the PUC

Each of the defendants are public utilities within the Commonwealth of Pennsylvania and, as such, defendants are subject to the requirements of the Pennsylvania Public Utility Code (the "Code") (66 Pa.C.S. §§ 101- 3315), established by the General Assembly of the Commonwealth of Pennsylvania ("General Assembly"). The Commissioners of the PUC are appointed by the Governor, confirmed by the Pennsylvania Senate, and serve as full-time government officials. 66 Pa.C.S. § 301. In general, the General Assembly, by enacting the Code, granted a broad public mandate to the PUC to regulate public utilities across a broad spectrum of activities, including safety standards, regulation of rates, competition, services and facilities, and the enforcement of the Code. 66 Pa.C.S. §§ 501, 1101-1102. In particular, the PUC is the state administrative agency specifically empowered by the General Assembly to regulate defendants in this case, and the PUC, in fact, has considered the joint application for approval of the merger of Equitable Gas and Peoples Gas, and has approved said merger in an 87 page Opinion and Order dated April 13, 2007.

Under this general and extensive authority, the PUC is expressly authorized by the General Assembly, pursuant to the Code, as follows:

* To grant certificates of public convenience, upon a determination by the PUC that said grant is necessary or proper for the service, accommodation, convenience or safety of the public. See 66 Pa.C.S. § 1103.

* To determine that rates are just and reasonable and in conformity with the PUC's regulations and orders. See 66 Pa.C.S. § 1301. This PUC authority includes regulation of rates for natural gas distribution service (see 66 Pa.C.S. § 2203(11)), and review and approval of gas supply costs for natural gas distribution customers. See 66 Pa.C.S. §§ 1307 (f), 1307(g), 1308, 1317, and 1318.

* To evaluate, and to approve or reject proposed acquisitions, or transfers of assets, or mergers of public utilities. See 66 Pa.C.S. § 1102.

B. General Assembly's Grant of Specific Authority to the PUC to Make Determinations on Scope and Nature of Competition Through its Regulatory Authority

The determination of the permissible and appropriate scope and nature of competition among public utilities, based upon the public interest, is within the jurisdiction of the PUC, and its "exclusive direction." City of Pittsburgh v. West Penn Power Co., 993 F.Supp. 332, 338 n.13 (W.D.Pa. 1997), aff'd 147 F.3d 256 (3d Cir. 1998), citing Peoples Natural Gas Co. v. Pa. PUC, 554 A.2d 585, 592 (Pa. Cmwlth. 1989), and 66 Pa.C.S. § 501(b).

Historically there was a time in which the PUC encouraged "gas-on-gas" competition in the 1980s and 1990s. Later, end-users of natural gas (generally, large industrial consumers) were able to acquire natural gas from producers and transport the natural gas supply via the interstate natural gas distribution system. This process was accelerated by a Pennsylvania statute, entitled the "Natural Gas Choice and Competition Act" (66 Pa. C.S. §§ 2201-2212 (effective July 1, 1999)), permitting all customers (i.e., large industrial and commercial customers, as well as retail customers) to acquire natural gas from independent suppliers which would be transported by their local natural gas distribution company. See also 66 Pa.C.S. § § 2204(a)*fn4 and 2203(2).

As part of this new statutory scheme, the General Assembly mandated to the PUC the responsibility to evaluate, regulate, and make determinations relating to competition within the retail natural gas supply service market in the Commonwealth of Pennsylvania. See Ch. 22 of the Code, 66 Pa.C.S. § 2201-2212. And, as to proposed mergers under Chapter 11 of the Code, the General Assembly in the Natural Gas Choice and Competition Act in Chapter 22 directs the PUC to evaluate possible "anticompetitive or discriminatory" effects in the natural gas supply service market in its determination of whether to approve acquisitions, transfers of assets, or mergers of natural gas suppliers or natural gas distribution entities. 66 Pa.C.S. § 2210. (In particular, as applied to the case herein, the PUC since the passage of the National Gas Competition Act of 1999 consistently has determined that "gas-on-gas" distribution competition in overlapping service territories is "wasteful and a duplication of fixed distribution facilities." See PUC Opinion and Order of April 13, 2007 at 56.) Section 2210 of the Code further grants the PUC authority to reject any acquisition, transfer of assets, or merger upon a finding of discriminatory or anti-competitive effects. 66 Pa.C.S. § 2210(b).

C. General Assembly's Grant of Specific Authority to the PUC to Evaluate and Approve or Reject ...

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