FERC agrees to hear El Paso affiliate abuse allegations

The Federal Energy Regulatory Commission reversed a Mar. 28 decision and granted a request by California regulators and others for a hearing on the propriety of transactions between El Paso Pipeline and El Paso Merchant Energy, affiliates of El Paso Corp.


By the OGJ Online Staff

HOUSTON, June 11 -- The Federal Energy Regulatory Commission reversed a Mar. 28 decision and granted a request by California regulators for a hearing on the propriety of transactions between El Paso Pipeline and El Paso Merchant Energy, affiliates of El Paso Corp.

The California Public Utilities Commission, Southern California Edison Co., Rosemead, Calif., and Pacific Gas & Electric Co., San Francisco, had requested a rehearing on the issue. The commission previously found that El Paso Pipeline and El Paso Merchant, Houston, did not violate the commission's standards of conduct for interstate pipelines and marketing affiliates when negotiating contracts. The agency has rules requiring arms-length dealings among affiliated companies.

The commission earlier agreed to hear charges El Paso exercised market power driving up gas prices through its control of pipeline capacity that brings gas to California. Those hearings are in progress.

During the hearings on market power, FERC�s chief administrative law judge asked the commission for "guidance" with the respect to the scope of the hearing on market power. The judge asked if commissioners wanted him to compile a complete record on possible affiliate abuse given the information emerging in the market power abuse hearings.

Further, FERC noted the PUC, Pacific Gas & Electric Co., and Southern California Edison claimed El Paso Merchant had "secret and material information that was unavailable to other potential bidders, thereby tainting the process," according to the FERC order issued today.

El Paso did not return phone calls by press time but has repeatedly denied wrongdoing.

The PUC asserted El Paso Merchant negotiated lower rates for large volumes utilizing Mojave Pipeline Co.�s interruptible rates to Wheeler Ridge, a delivery point in California, and that no other party knew of this discount until after the close of the open season.

California regulators further contended in their request for a rehearing that the open season for pipeline capacity was skewed to favor a bid by El Paso Merchant. FERC initially rejected allegations El Paso Pipeline improperly favored its affiliates during the open season when pipelines accept bids for contract deliveries. The PUC and the utilities argued the commission misinterpreted the evidence relating to the open season and the discount in the March 28 order.

"The commission now believes these allegations raise factual issues that are best resolved in an evidentiary hearing," according to the order today.

Commissioner Patrick Wood in his first official order as a new FERC commissioner wrote a concurring opinion noting the original complaint was more than a year old. He said FERC must act "expeditiously" on complaints.

"It is critical that FERC be seen as a watchful and vigilant partner. Action on filed complaints is a central tool in our market oversight toolbox," he said.

More in Companies