United States v. El Paso Natural Gas Co.
Headline: Merger of two interstate pipelines reversed; Court orders breakup, ruling the acquisition likely reduced competition and threatens California consumers and rival pipelines.
Holding: The Court held that El Paso’s purchase of Pacific Northwest likely reduced competition in California’s natural gas market, reversed the lower court’s dismissal, and directed the District Court to order prompt divestiture.
- Directs breakup of the merged pipeline companies to restore competition
- Protects California utilities and consumers by increasing supplier choice
- Limits future pipeline mergers that could reduce California supply options
Summary
Background
The U.S. government sued a large pipeline company, El Paso Natural Gas, after it acquired Pacific Northwest Pipeline Corporation’s stock and assets. The government said the deal violated the Clayton Act because it reduced competition in the sale of natural gas in California. El Paso had already become the sole out-of-state supplier to California, and the District Court dismissed the government’s case after trial, adopting findings prepared by the defendants.
Reasoning
The central question the Court addressed was whether the acquisition had a real tendency to lessen competition for natural gas in California. The Court found that Pacific Northwest, though not yet supplying California, had strong reserves, contracts, geographic proximity, and had negotiated to sell gas to major California buyers. Those competitive possibilities mattered because Congress meant to stop mergers that probably lessen competition, not only those that certainly would. The Supreme Court concluded the acquisition likely reduced competition and reversed the lower court’s judgment, directing the District Court to order divestiture quickly.
Real world impact
The ruling affects California utilities, ratepayers, and rival pipeline companies by restoring the possibility of more suppliers and choice. It requires the merged company to be broken up so competition can return in the California market. The Court expressly ordered divestiture to address the anticompetitive effect found on the record.
Dissents or concurrances
A Justice agreed the merger violated the law but disagreed with the Supreme Court’s immediate order of divestiture; he would have sent the matter back to the District Court to craft the relief and criticized the lack of a written opinion below and the overlap with federal regulatory approval.
Opinions in this case:
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