Utah Public Service Commission v. El Paso Natural Gas Co.
Headline: Antitrust merger fight over natural gas: Court vacates lower court’s divestiture plan, orders full separation and reallocation of gas reserves, limiting El Paso’s ability to retain control and protecting California competition.
Holding: The Court found the district court’s divestiture plan failed to comply with the Court’s prior mandate, vacated the judgment, and remanded for a complete divestiture, cash sale, and reallocation of gas reserves to restore competition.
- Requires a full, cash divestiture to separate El Paso from the new company.
- Shifts more gas reserves to the new company to improve its California competitiveness.
- Likely prolongs litigation and delays new competition in California’s gas market.
Summary
Background
This dispute involves a decade-long antitrust fight under the Clayton Act about El Paso Natural Gas Company’s acquisition of Pacific Northwest Pipeline and how that deal hurt competition for gas sold in California. The District Court approved a plan creating a “New Company,” giving El Paso preferred stock convertible after five years and assigning the New Company about 21.8% of San Juan Basin reserves plus more than half of post-merger additions; the New Company also assumed about $170 million of El Paso debt. The State of Utah filed papers asking the Supreme Court to review whether the decree complied with this Court’s earlier mandate to restore competition.
Reasoning
The Supreme Court found the District Court’s decree did not satisfy the prior mandate. The Court said the allocation of gas reserves did not place the New Company in the competitive position Pacific Northwest had before the merger, and the plan did not effect complete divestiture because financial and managerial ties would remain. The majority vacated the judgment and sent the case back for further proceedings directing a reallocation of reserves, reopening consideration of who should acquire the New Company, and insisting on complete severance (only a cash sale would meet the Court’s minimal divestiture standard).
Real world impact
The decision forces a stronger breakup of the merged companies and a new look at how gas supplies are split so a replacement supplier can actually compete in California. The ruling delays final implementation of a buyer and likely means more hearings and litigation before competition is restored; the allocation of key reserves, especially in the San Juan Basin, must be reconsidered.
Dissents or concurrances
Justice Harlan (joined by Justice Stewart) dissented, arguing the Court improperly intervened despite most parties accepting the District Court’s plan and that the Court had not given adequate briefing or argument before overturning the decree.
Opinions in this case:
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