Settlement Protects Upstate Consumers From Increasing Fuel Prices

Attorney General Spitzer announced today that the State of New York has reached a settlement with El Paso Energy Corporation ("El Paso") and The Coastal Corporation ("Coastal") requiring them to divest their ownership shares of the Empire and Iroquois natural gas pipelines prior to their merger.

The proposed merger threatened to substantially reduce competition in the natural gas transportation markets in upstate New York, especially in and around Buffalo-Niagara Falls, Rochester, Syracuse, and the Albany metropolitan area (the New York Markets).

Attorney General Spitzer stated: "We cannot have one company controlling gas transportation prices, that may ultimately result in higher prices to consumers. This settlement preserves competition for natural gas transportation services in the upstate New York markets. In light of the cold winter that we are now experiencing, and the accompanying rise in natural gas prices, we need to be vigilant in protecting New York consumers from the type of market failures that have occurred in California. Gaining this settlement is just one part of our effort to keep natural gas and electricity prices reasonable for New Yorkers."

In explaining the problem posed by the merger, Spitzer said, "If the Tennessee Gas Pipeline and Empire are owned by the same company, there will be no competitively priced alternate supplier of natural gas to the Buffalo-Niagra Falls area and only one alternate supplier in the Rochester and Syracuse areas. Empire was built specifically to increase competition in upstate New York. It would thwart the purpose of its construction to allow it to be bought and operated by the owner of its competitor, Tennessee Gas Pipeline. Without a competitor putting pressure on them, these pipelines could raise natural gas transportation costs, thereby driving up home heating costs for millions of New Yorkers."

Together, El Paso and Coastal own or control a significant share of all pipeline capacity into the highly concentrated New York Markets. El Paso owns the Tennessee Gas Pipeline, which serves all of the New York Markets. Coastal is the operator and 50% owner of Empire Pipeline, an intrastate pipeline built in 1992 to serve Buffalo-Niagara Falls, Rochester and Syracuse. Coastal is also a minority owner of the Iroquois Pipeline, which serves the Albany- Schenectady-Troy areas on its route to New York City.

For some natural gas buyers, El Paso and Coastal pipelines are the only two economically reasonable options for long term firm transportation contracts into these areas. For other natural gas buyers, their pipelines are two of the only three options.

The settlement also requires divestiture of Coastal's minority interest in the Iroquois Gas Pipeline. El Paso's Tennessee Gas Pipeline, Iroquois, and Dominion Resources's CNG pipeline are the only gas transportation suppliers in the Albany metropolitan area. Dominion is also Coastal's pipeline partner in Iroquois. If the merger was allowed to proceed, each of Iroquois's pipeline owners would also have a wholly owned pipeline competing with Iroquois in the Albany metropolitan area. Dominion and El Paso would then have an incentive to discourage Iroquois from pursuing expansion projects in the Albany area, since any Iroquois expansion would likely draw customers from the partners' wholly owned pipelines in the region and potentially drive down prices.

Attorney General Spitzer will file a case in the Western District of New York, that will seek the Court's approval for the settlement agreement requiring the divestitures.

The case was brought by the Spitzer's Antitrust Bureau and was handled by Deputy Chief Kathleen Harris and Assistant Attorney General Aimee Pollak, under the supervision of the Bureau Chief, Harry First.


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