El Paso Energy denies driving up California gas prices

El Paso Energy Corp. denied categorically any responsibility for the record gas prices in California in its response to a pair of class action lawsuits filed against it and Sempra Energy.

The lawsuits filed Dec. 18 in California Superior Court in Los Angeles allege units of Sempra and El Paso illegally conspired not to compete against each other in the southern California gas market.

�El Paso Energy Corp. nor any of its affiliates have been or are now engaged in any illegal activities to increase energy prices or create energy shortages in California,� said Norma Dunn, spokeswoman for El Paso in a statement.

Dunn noted El Paso has limited its opportunity to profit from increases in natural gas prices. It had put in place financial hedges designed to protect against falling prices.

According to El Paso, the high natural gas and electricity prices in California result from warm summer weather followed by high winter demand, low gas storage levels, poor hydroelectric power conditions, maintenance downtime at generating facilities, and price caps that discouraged power movement from out-of-state into California.

The lawsuits, filed on behalf of a metal and steelmaker and a retailer, note that wholesale natural gas prices soared in the spot market from about $5/MMbtu in November to over $20/MMbtu in less than 3 weeks. And recently, prices have hit highs of $50-$60/MMbtu.These prices are unmatched in the rest of the country where delivered gas prices are in the range of $7-$9/MMbtu.

El Paso owns one of the largest interstate gas pipelines which transports gas from the producing basins to the California border. Its affiliate El Paso Merchant Energy was awarded the right to a majority of that pipeline�s capacity in a bidding process early in the spring.

The lawsuits allege El Paso Merchant has withheld some of that capacity from the market driving up prices. But in its statement, El Paso said it nominates virtually all of its pipeline capacity to California every day. If it does not nominate the capacity itself, the Federal Energy Regulatory Commission rules require that it make the capacity available to other shippers, Dunn said.

El Paso says 95% of its capacity is hedged in the financial markets. These hedges fix the value that El Paso Merchant can receive for that capacity. El Paso says it will defend itself against the lawsuits.

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