FERC clears El Paso of affiliate abuse; calls for market power hearing

The Federal Energy Regulatory Commission Wednesday said El Paso Natural Gas Co. did not violate the agency's bidding rules and found no affiliate abuse, as claimed by California regulators. However, the commission appointed an administrative law judge to hear regulators' charges El Paso drove up gas prices at the California border through its control over pipeline capacity. El Paso said it is confident after reviewing the record, FERC will conclude the company 'has not exercised market power.'


By Kate Thomas
OGJ Online

HOUSTON, Mar. 28�The Federal Energy Regulatory Commission Wednesday said El Paso Natural Gas Co. did not violate the agency's bidding rules and found no affiliate abuse, as claimed by the California Public Utilities Commission in a complaint to FERC.

However, the commission appointed an administrative law judge to hear California regulators' charges El Paso drove up gas prices at the California border through its control over pipeline capacity. Gas prices reportedly topped $30/Mcf this winter at the border.

In a statement, El Paso said it is confident after reviewing the full record, FERC will conclude the company "has not exercised market power."

A spokesman said the Houston-based company was pleased the commission found its action and behavior with respect to affiliate transactions in California were "legal and appropriate." The ruling confirmed El Paso's longstanding commitment to insure relationships between its business units are lawfully permitted, the company said.

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. El Paso said capacity held by El Paso Merchant Energy has been used or made available for use by others to serve California and other Western markets.

El Paso has reiterated its contention that as recently as last year, there were periods when significant quantities of unused capacity were available on the pipeline. Notwithstanding its availability, the company has said, this capacity was not used by shippers to California to fill in-state natural gas storage facilities for future use.

El Paso has said misplaced reliance on the continuing availability of excess capacity prompted the California Public Utilities Commission to encourage Pacific Gas & Electric Co, Southern California Edison Co. and Southern California Gas, beginning in 1996 and continuing into 1998, to relinquish over 1.5 bcfd of firm transportation capacity on the El Paso pipeline.

If California had stored in 2000 the same volumes of natural gas stored in 1999, El Paso has said, "reliance on the spot market would have been reduced and the steep rise in prices at the California border could have been substantially mitigated or avoided."

Lawsuits filed Dec. 18 in California Superior Court in Los Angeles allege units of Sempra Energy and El Paso illegally conspired not to compete against each other in the southern California gas market. No "conspiracy'' existed in 1996 to limit new interstate pipeline capacity into California, according to the company. It has said all new pipelines considered during the 1990s were either built or were not viable because they lacked sufficient customer support to justify construction.

More in Pipelines & Transportation