By OGJ editors
HOUSTON, Sept. 24 -- In a modified reiteration of a decision issued late last year, a Federal Energy Regulatory Commission judge found that El Paso Corp. illegally exercised market power by withholding supplies of natural gas to California at the time of a statewide power crisis during November 2000-March 2001, thereby inflating prices by a reported $3.7 billion.
Previously, FERC Administrative Law Judge (ALJ) Curtis L. Wagner ruled that the Houston-based energy company had not acted to drive up California gas prices on its pipelines unfairly, although they were, however, found to have engaged in "blatant collusion" in sharing shipping information (OGJ Online, Oct. 9, 2001). Last December, FERC reopened the investigation into whether El Paso unit El Paso Natural Gas (EPNG) manipulated the natural gas market (OGJ Online, Dec. 19, 2001).
Wagner's long-awaited, second round decision—which came late Monday—could, among other things, potentially serve as a precedent to call into question other natural gas suppliers who dealt with California during the period in question.
Wagner's proposed decision will now face review of the full commission.
Analyst reactions
Financial analyst UBS Warburg LLC, New York, said it was "not surprised" by the ALJ's reiteration of affiliate abuse findings. "However," the analyst said, "we . . . were not expecting the negative outcome on the market power issue—particularly given the history of the case and the ALJ's previous finding of no market power violations."
UBS expects the aftermath of the decision to be "a long and drawn-out process," it said, and one that will carry "significant political pressures." Both the California Public Utilities Commission and El Paso will have 50 days from the decision date to file and reply to briefs to FERC, UBS noted. Following this process, FERC would make its own ruling during a final hearing, something that UBS does not expect to occur until late in the first quarter of next year.
If it receives an unfavorable ruling, El Paso would likely apply for a rehearing with FERC, UBS explained. If this rehearing goes against El Paso, FERC would then schedule a time to decide on fines and any additional restitution. "Ultimately," UBS said, "we would not expect this issue to be resolved until at least mid-2004 unless a settlement was to be reached beforehand."
In a detailed analysis outlining the implications of the ALJ's ruling, Christine Tezak, analyst with Washington, DC-based Schwab Capital Markets LP, stated that the company is likely to have $185 million in profits ordered refunded if FERC determines that the pipeline withheld capacity.
In addition, if FERC accepts the ALJ's finding, the commission can revoke the pipeline's certificate authority, Tezak explained. Tezak noted, however, that a revocation of the pipeline certificate—which would result in a cease in natural gas flow to California—would be "very unlikely" as it would not benefit the public interest.
El Paso responds
El Paso issued a written response shortly after the release of the ALJ decision, which stated, "The proposed finding that (EPNG) did not make all of its capacity available is unsupported by the evidence and is inconsistent with FERC policy. The evidence in this case demonstrates that, at all times, (EPNG) operated its system to maximize the amount of capacity available to California."
William Wise, El Paso chairman, president, and CEO, said, "Given the critical safety and deliverability concerns associated with operating a natural gas pipeline, it is inappropriate and without precedent to second-guess a pipeline's day-to-day operations.
"We are disappointed that (the) proposed decision does not recognize the substantial record evidence supporting (EPNG's) position that the pipeline was operated properly," Wise stated, adding that he is "confident" in the company's current position and ultimately expects the company to receive a "favorable ruling."
The company also cited additional reasons for not agreeing with the ALJ's decision, UBS noted, namely:
-- Inconsistencies in the stated capacity of its pipelines as compared with FERC filings.
-- Possible "double counting" of particular portions of pipeline capacity.
-- Restraints placed on the line by the US Department of Transportation prior to, including, and after the period in question. These restraints were related to the August 2000 pipeline failure in Carlsbad, NM (OGJ Online, Aug. 21, 2000).
-- Other concerns, both upstream and downstream, that were not taken into consideration.