Midwest Gas Services, Inc. And Midwest Gas Storage, Inc. v. Indiana Gas Company, Inc., Indiana Energy Services, Inc., and Proliance Energy, LLC

317 F.3d 703
CourtCourt of Appeals for the Seventh Circuit
DecidedFebruary 19, 2003
Docket01-2727
StatusPublished
Cited by32 cases

This text of 317 F.3d 703 (Midwest Gas Services, Inc. And Midwest Gas Storage, Inc. v. Indiana Gas Company, Inc., Indiana Energy Services, Inc., and Proliance Energy, LLC) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Midwest Gas Services, Inc. And Midwest Gas Storage, Inc. v. Indiana Gas Company, Inc., Indiana Energy Services, Inc., and Proliance Energy, LLC, 317 F.3d 703 (7th Cir. 2003).

Opinion

WILLIAMS, Circuit Judge.

The plaintiffs in this antitrust action, Midwest Gas Services, Inc. (Services) and Midwest Gas Storage, Inc. (Storage), appeal from the district court’s dismissal of their lawsuit. In granting separately filed motions to dismiss defendants Indiana Gas Company, Inc. (IG), Indiana Energy Services, Inc. (IES), and ProLiance Energy, LLC (ProLiance), the district court ruled that the plaintiffs failed to properly show that they had standing to sue under the antitrust laws and had suffered injuries covered by the antitrust laws. For the reasons described below, we affirm the district court in part, reverse in part, and remand for further proceedings.

I. BACKGROUND

Indiana Gas, a local natural gas utility, services 50 counties in southern and central Indiana. The natural gas industry is partially deregulated, with companies like Indiana Gas providing traditional public utility services for small customers within their service area. These utilities, called Local Distribution Companies (LDCs), are regulated by the relevant state authority. 1 In Indiana, the state authority is the *707 Indiana Utility Regulatory Commission (IURC), which allows LDCs such as IG to unbundle their distribution charges. This allows large volume customers or “transport eligible customers,” including industrial and institutional buyers, to buy their gas and interstate transportation of that gas from the source to its destination on the open market. Gas delivered through interstate pipelines for transport-eligible users is brought as far as the connection to IG’s distribution network. Indiana Gas, as an LDC, is required to transport the gas from that point to the end user, receiving a fee for this last piece of the transportation puzzle. This is compared to the traditional fee structure used by LDCs for their residential and other small-quantity customers, who pay one bundled rate combining gas and all of the gas transport charges.

The right to transport natural gas within the interstate pipeline system from one point to another on a specific pipeline is “capacity” and may be freely bought and sold by the pipelines, LDCs, transport-eligible end users, or brokers. In addition, capacity can be partitioned using secondary delivery points. For example, a holder of capacity on a particular pipeline from Point A to Point Z (the two primary delivery points) can sell their rights so that one pai'ty buys the Point A-to-Point D segment, another acquires the Point G-to-Point Q segment, and a third purchases the Point S-to-Point Z segment, with Points D, G, Q, and S being secondary points where gas is put into or taken out of the pipeline. This means that instead of relying on one pipeline to transport gas from the wellhead to its final destination, a “virtual pipeline” can be constructed by piecing together capacity along different intersecting pipelines to its final destination. Of course, most end users are not willing to take on these logistics, so companies like Services and ProLiance act as brokers who put together supply and transport contracts for their customers. 2 See generally FERC Order No. 637, Regulation of Short-Term Natural Gas Transportation Services, Etc., 65 Fed.Reg. 10,-155, 10,157-58, 10,185-95 (Feb. 25, 2000); John Decker, Note, Authorization of Natural Gas Pipeline Construction: Moving Decisions From Regulators to the Marketplace, 12 Va. Envtl. L.J. 505, 508 (1993).

An LDC is required to provide guaranteed service for its residential customers and those other small-scale customers who rely on the LDC for bundled gas and gas transport services. To guarantee that it will have enough capacity during times of peak demand (such as the winter heating season), an LDC must purchase capacity in excess of its average needs. It could turn around and sell this excess capacity via short-term contracts just like any other holder of capacity. IG, as an LDC, was required by the IURC to make its excess capacity available to the market on an equal-access basis, where it could be acquired by others intending to use or resell the capacity.

ProLiance was formed in 1996 as a 50/50 joint venture between a sister company of IG, IGC Energy, Inc., 3 and a wholly-owned *708 subsidiary of a different LDC in Indiana, Central Gas & Coke Utility (CG). ProLiance works with IG and CG to provide all of their gas supplies, purchasing sufficient capacity to serve both IG and CG’s requirements. In addition, ProLiance acts as a marketer of gas and gas transportation for transport-eligible end users, selling the surplus capacity it acquires as a result of servicing IG and CG’s needs back into the marketplace. Because ProLiance does not provide any public utility functions, ProLiance is not subject to IURC regulations and, therefore, unlike IG and CG, is not required to sell off its surplus capacity to the general marketplace. From 1994-96, before ProLiance was created, IG created a marketing affiliate, IES, which provided similar services in the same manner as ProLiance, but only for IG.

Storage operates a gas storage field in Clay County, Indiana, and is the only independent gas storage field in IG’s service area. Storage functions as a kind of gas warehouse, where customers can store gas in preparation for high-demand times, or as a kind of bridge, routing the gas from one pipeline connected into the storage field, through the field, and out a different pipeline. Storage was authorized by FERC to operate the field in 1991. The field was once connected to the Terre Haute Gas Company’s distribution system, which was in turn connected to Texas Gas Transmission’s (TGT’s) interstate pipeline. IG purchased the Terre Haute facilities in 1990. The field is also located close to the Panhandle Eastern Pipeline’s interstate pipeline (PEPL), and a connection between the PEPL pipeline and the storage field was completed in 1994.

Services, a marketing affiliate of Storage, saw an opportunity in the storage field’s proximity to the TGT and PEPL pipelines. The TGT pipeline transports gas to Indiana from wells on the coast of the Gulf of Mexico, gas that costs more than the PEPL gas from north Texas and Oklahoma. If Storage could connect to the IG/Terre Haute system, transport-eligible customers in IG’s distribution system who had previously purchased high-priced gas from the TGT pipeline could buy cheaper gas from the PEPL pipeline, using the storage field as a shortcut which would eliminate the extra transportation fees that would otherwise make such a choice financially unattractive. Also, Services could market the storage field to customers for gas storage, allowing them to hedge against seasonal upswings in gas prices. The problem with this plan was that Storage’s storage field was no longer connected to the Terre Haute/ IG system. Though the necessary connections would only have to span thirty feet at one point and a mile at another, Storage needed to negotiate with IG to establish the interconnect between the respective facilities.

After a series of failed negotiations with IG in an attempt to establish the interconnect, the plaintiffs filed a complaint in February 1999 alleging antitrust violations by IG and two state law claims.

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Bluebook (online)
317 F.3d 703, Counsel Stack Legal Research, https://law.counselstack.com/opinion/midwest-gas-services-inc-and-midwest-gas-storage-inc-v-indiana-gas-ca7-2003.