STATES (1) - FEDS (0): FTC’s Bid to Block Natural Gas Acquisition Rejected Under State Action Immunity Doctrine

On May 15, 2007, a U.S. District Judge for the Western District of Pennsylvania dismissed the U.S. Federal Trade Commission's (FTC) request for a preliminary injunction blocking Equitable Resources Inc.'s proposed acquisition of a Pennsylvania natural gas company. The ruling could have potential implications for federal antitrust authorities challenging mergers or conduct in industries that are subject to comprehensive state regulation. The FTC has appealed the District Court's ruling.

Background

On March 15, 2007, the FTC announced its decision to challenge Equitable Resources, Inc.'s proposed acquisition of The Peoples Natural Gas Company (Dominion Peoples), a subsidiary of Dominion Resources, Inc. The proposed acquisition, which was valued at $970 million, would merge the only two distributors of natural gas to nonresidential consumers in the greater Pittsburgh area. Equitable contended that the merger would create efficiencies by allowing the distributors to eliminate surplus pipelines. The distributors estimated that these efficiencies would reduce costs by approximately $145 million, saving customers nearly $10 million. To further enhance the appeal of the merger, Equitable agreed to refrain from raising rates for three years following approval of the acquisition.

Despite these claimed benefits of the acquisition, the FTC voted 4-1 to issue a preliminary complaint in opposition to the merger. The complaint alleged that consummation of the merger agreement would violate Section 7 of the Clayton Act, 15 U.S.C. ß 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. ß 45. Specifically, the FTC argued that the merger would allow Equitable to obtain monopoly power in several Pennsylvania markets, thereby reducing future competition for natural gas distribution and eliminating customer discounts. In the complaint, the FTC noted that "Equitable and Dominion competed vigorously for the business of individual nonresidential natural gas distribution customers in their overlapping service territories by offering discounts from the maximum rates Ö." By reducing the number of distributors in certain markets, the Commission contended that the merger would facilitate coordinated interaction between distributors while also eliminating any incentive to provide customer discounts. On April 13, 2007, the FTC filed a complaint in U.S. District Court to seek a preliminary injunction to prevent the distribution companies from consummating the...