El Paso defends actions during California crisis to FERC

Sept. 3, 2001
El Paso Corp., Houston, concluding its defense of an affiliate abuse complaint pending at the US Federal Energy Regula- tory Commission, claimed its units El Paso Natural Gas and El Paso Merchant Energy Co. did not withhold pipeline capacity from the California market and complied with all FERC regulations.

El Paso Corp., Houston, concluding its defense of an affiliate abuse complaint pending at the US Federal Energy Regula- tory Commission, claimed its units El Paso Natural Gas and El Paso Merchant Energy Co. did not withhold pipeline capacity from the California market and complied with all FERC regulations.

The California Public Utility Com- mission last year alleged that affiliate abuse allowed El Paso companies to control most of the pipeline capacity delivering gas into southern California. CPUC charged that El Paso's units conspired to withhold capacity from the market, driving up prices. An administrative law judge is expected to rule in the case before Oct. 8.

Sorting out causes

El Paso argued that the CPUC couldn't sort out the cause of high gas prices in California. It is up to CPUC to prove "market power," not market conditions, affected natural gas prices, El Paso said.

"The price increases in California during 2000 and early 2001 were due to the tightening of supply-demand factors in electric and natural gas sectors and the constraints that existed on pipelines delivering gas to California and on pipelines operating within California," according to El Paso's FERC filing.

El Paso said such factors as weather, low hydroelectric production, demand growth, lack of generation facilities, and a flawed electric power market led to record gas demand in 2000 and part of 2001 that was 20% higher than in previous years.

With respect to market power, El Paso said that El Paso Natural Gas's (EPNG) pipeline system was full or nearly so through the period beginning in June 2000 when gas prices were so high. It said the fact that the pipeline was full undermines the theory that El Paso Mer-chant Energy exercised market power by withholding capacity.

El Paso also noted that all unused capacity on the interstate pipeline was made available to any potential shipper willing to pay EPNG's FERC-approved tariff for interruptible transportation service.

"They chose not to do so," El Paso said. "Anyone could use that capacity on an interruptible basis."

Mojave discount

El Paso also denied that EPNG structured its February 2000 open season for 1.2 bcfd of capacity to favor El Paso Merchant Energy over other bidders. El Paso said it posted its minimum revenue requirement.

El Paso conceded it knew it might receive a discount from Mojave Pipeline Co., an El Paso intrastate pipeline subsidiary, during the open season. But El Paso said it didn't know for sure if it would receive such a discount after the open season closed.

Nevertheless, El Paso said the information about the discount was posted for others "well within the time required by the commission regulations."

El Paso maintained the Mojave discount wasn't that important, anyway. "The much-touted Mojave discount was of no consequence either to the outcome of the open season or of Merchant's subsequent utilization of capacity," the filing said.

CPUC said recorded telephone conversations between individuals at El Paso Merchant Energy and at the pipeline "show that the operating employees of each company were not functioning independently." Potential bidders were not made aware of a new discount at Mojave in time to determine its value, the PUC alleges.

"El Paso Merchant Risk Management group had an undue competitive advantage of factoring the new Mojave discount into a successful bid for all of El Paso Pipeline's open-season capacity," a court filing said.

SoCalGas testimony

In a supporting brief, Southern California Gas Co. (SoCalGas), a unit of Sempra Energy, San Diego, also objected to the way the marketing affiliate obtained a long-term discount from Mojave during the open season but didn't publicly announce it until after the open season closed, "as Merchant requested."

SoCalGas said the transaction "raises issues of improper communication between the marketing affiliate and the interstate pipelines." The record supports a finding that the commission's guidelines governing affiliate transactions were compromised, SoCalGas said.