ANALYSIS OF AGREEMENT CONTAINING CONSENT ORDERS
TO AID PUBLIC COMMENT

The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Orders ("Consent Agreement") from Dominion Resources, Inc. ("Dominion") and Consolidated Natural Gas Company ("CNG"), which is designed to remedy the anticompetitive effects resulting from Dominion's acquisition of CNG. Under the terms of the agreement, Dominion will be required to divest Virginia Natural Gas, Inc. ("VNG"), a subsidiary of CNG, which provides local gas distribution service within the Commonwealth of Virginia, within the time period set forth in the Stipulation entered into between the staff of the State Corporation Commission of the Commonwealth of Virginia, Dominion, and CNG in State Corporation Case No. PUA990020.

The proposed Consent Agreement has been placed on the public record for thirty (30) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the proposed Consent Agreement and the comments received, and will decide whether it should withdraw from the proposed Consent Agreement or make final the Decision & Order.

Pursuant to an Agreement and Plan of Merger dated March 31, 1999, amended May 11, 1999, Dominion agreed to acquire 100 percent of the issued and outstanding voting securities of CNG for $5.3 billion. The Commission's Complaint alleges that the acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, in the market for the generation of electric power in southeastern Virginia.

Dominion, through its subsidiary Virginia Power, accounts for more than 70 percent of the electric power generation capacity in the Commonwealth of Virginia. CNG, through its VNG subsidiary, is the primary distributor of natural gas in southeastern Virginia. Natural gas is one of a limited number of fuels that are used in the operation of an electric generating facility that supplies electric power to residential and commercial customers. The generation of electric power in the Commonwealth of Virginia is regulated by the Virginia State Corporation Commission and the Federal Energy Regulatory Commission. Deregulation of the electric power generation business in Virginia is slated to begin on January 1, 2002.

The market for the generation of electric power is highly concentrated, and the proposed acquisition would combine the dominant provider of electric power in the Commonwealth of Virginia with the primary distributor of natural gas in southeastern Virginia. With the acquisition of CNG by Dominion, entry into the electric power generation market in southeastern Virginia by companies unaffiliated with Dominion may be deterred because of Dominion's control over VNG. Dominion's control over VNG would likely deter or disadvantage new entry into the electric power generation market because Dominion may be able to raise the costs of entry and production to new entrants. The proposed acquisition would therefore allow Dominion to exercise market power unilaterally in southeastern Virginia, increasing the likelihood that purchasers of electric services would be forced to pay higher prices.

Substantial barriers to new entry exist in the market for the generation of electric power. Entry into the electric power generation market in southeastern Virginia by construction of plants that use fuels other than natural gas is unlikely to occur due to environmental restrictions. Natural gas is increasingly the fuel of choice for new electric generation plant construction. With Dominion's acquisition of CNG and its subsidiary VNG, Dominion may be able to deter new entry by raising the costs of entry and production. The market for the delivery of natural gas in southeastern Virginia is also characterized by high barriers to entry. It would be costly and time consuming for other natural gas transportation companies to extend pipelines from their existing network to southeastern Virginia. Moreover, other pipelines near the relevant area lack sufficient excess capacity to support a new pipeline into the area, and VNG has substantial excess capacity. Because of the difficulty of entry into the natural gas distribution market in southeastern Virginia, new entry is unlikely to deter or counteract the anticompetitive effects of the transaction.

The Consent Agreement effectively remedies the acquisition's anticompetitive effects in the market for the generation of electric power by requiring Dominion to divest VNG pursuant to the terms of the Stipulation entered into by Dominion and the staff of the State Corporation Commission of the Commonwealth of Virginia in State Corporation Case No. PUA990020. Under the Stipulation, Dominion has one year to divest VNG to a third party, and if it is unable to find a suitable purchaser, Dominion must spin off VNG to its shareholders. The Federal Trade Commission's Consent Agreement requires Dominion to comply with the terms of the Stipulation, and further prohibits any Dominion shareholder from receiving more than 5 percent of the voting shares of VNG. In order to ensure that VNG remains a viable, independent competitor pending its divestiture, the Federal Trade Commission has issued an Order to Hold Separate. Under the Order to Hold Separate, Dominion and CNG shall continue to provide services to VNG that CNG is currently being provided until VNG is divested. The Order to Hold Separate further provides that the Federal Trade Commission may appoint an independent auditor to monitor Dominion's and CNG's compliance with their obligations to hold VNG separate and independent.

The purpose of this analysis is to facilitate public comment on the proposed Consent Agreement, and it is not intended to constitute an official interpretation of the Consent Agreement or to modify its terms in any way.