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Proposed Sale of Florida Gas Pipeline Ignites Antitrust Concerns

July 13, 2011 - 6:00pm

A proposed purchase of a natural gas conveyor could affect service to Central Florida and run afoul of antitrust regulations, Sunshine State News has learned.

The Williams Cos. is bidding to acquire Southern Union Co. Each firm owns natural-gas pipelines that serve Central Florida. If successful, Williams would have monopoly ownership of both pipes, reviving antitrust issues that were addressed in 2001.

Southern Union on Tuesday announced it would begin merger talks with Williams. Williams bid $39 a share for Southern on June 28.

Though another company, Energy Transfer Equity, subsequently bid $40 per share, the board of Southern Union said it had the right to enter into negotiations or discussions with Williams.

Energy Transfer Equity had earlier moved to block those talks, saying in a letter that Southern Union is not permitted to hold merger talks under its existing agreement.

But the board of the Houston-based Southern Union responded in a regulatory filing that the failure to take such actions would be reasonably likely to constitute a breach by the board of its fiduciary duties."

Industry analyst Jack Dollarhide told the Tulsa World he expects Williams to sweeten the pot during negotiations.

"I think it's a foregone conclusion," said Dollarhide.

The financial stakes are large, with Williams and Energy Transfer Equity vying to move into the upper tier of U.S. pipeline companies. Southern Union's portfolio of 15,000 miles in natural gas transportation, 5,000 miles in its gathering system and two gas utilities could push either of them into that group, analysts told the World.

The stakes are equally high for Florida.

"The prospect of monopoly ownership of the two pipelines providing the natural gas to Central Florida runs counter to the principles of a healthy, competitive energy market for the state," said a source close to the situation.

Critics say a Williams-Southern Union tie-up would violate existing antitrust regulations and are demanding an immediate investigation.

"Florida has crystal-clear precedent for objecting to its natural gas pipelines coming under the ownership of a single corporation," said one observer, who spoke on condition of anonymity.

In 2001, the Federal Trade Commission and the Florida attorney general's office blocked the sale of the planned Gulfstream Pipeline to the same company that owned the Florida Gas Transmission Pipeline.

Ironically, the firm that ultimately bought the Gulfstream Pipeline, then under development, was the Oklahoma-based Williams.

"The very same issue that occurred then would arise should Williams acquire Southern Union and, in turn, own Floridas other interstate natural gas pipeline, Florida Gas Transmission," the source said.

With 55 percent of Floridas electricity generated via natural gas, and Floridas demand far exceeding production, competition is crucial to both price and delivery, industry analysts say.

"Florida should take action now to investigate the ramifications of a sale of Southern Union and its Florida Gas Transmission Pipeline," said one political insider, speaking on background.

State Rep. Alan Williams, the ranking Democrat on the House Energy and Utilities Subcommittee, isn't ready to call for a formal investigation yet, but he expressed threefold concerns about a consolidation of pipeline ownership.

"We can't ultimately control what the private sector does from a cost standpoint, but we can weigh in on a policy standpoint to make sure citizens get safe, reliable and affordable natural gas," said Williams, D-Tallahassee.

Suggesting that the state would rely on "our federal partners" to look at any applicable antitrust issues, Williams said he will, in the meantime, "reach out to the energy and utilities staff" in the House.

Attorney General Pam Bondi's spokeswoman Jennifer Davis said in a statement:

"The attorney generals office is aware of the proposed purchase and is monitoring the matter closely. A transaction of this magnitude will be subject to a review by federal antitrust enforcers and, as with any transaction involving potential competitive effects on local markets in Florida, we would participate in such a review."

Neither Southern Union nor the Williams Cos. responded to Sunshine State News' request for comment.

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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 559-4719.

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