Agency: Co. Had Role in Gas Price Rise

With partial control of a key pipeline, El Paso Corp. likely wielded sufficient market power to inflate the cost of natural gas going into Southern California last year, according to staff findings of a federal energy agency.

The conclusions by a Federal Energy Regulatory Commission staff economist came amid administrative hearings into allegations that market manipulation by El Paso Corp. led to soaring natural gas prices in California last year.

California regulators allege that El Paso Corp., which owns a gas marketing company as well as one of the largest pipelines connecting Southwest gas fields to California, used its market power to inflate the price of gas sold in California last year by as much as $3.7 billion.

El Paso Corp., based in Houston, Texas, has denied that it overcharged customers or manipulated the markets. It has attributed the high cost of gas to supply and demand and to constraints in California's distribution system.

Curtis Wagner, FERC's chief administrative law judge, began a week of hearings Monday into the allegations and is expected to produce a finding by the end of June. The full commission will be able to either accept or reject the ruling.

"We're pleased to be here and finally get out all the facts. We're confident El Paso will be completely exonerated. We did nothing wrong," said Norma Dunn, a senior vice president of El Paso Corp., after the first day of the FERC hearing.

El Paso's witnesses are scheduled to testify later in the week.

In papers filed as part of the proceedings, FERC staff economist Jonathan Ogur said that it "is likely that El Paso Corp. had and exercised market power" which allowed it to keep the price of gas "above the competitive level for a significant period of time" last year.

The allegations stem from an agreement in February 2000 in which El Paso Natural Gas Co., sold to El Paso Merchant Energy, a marketing company, the right to ship 1.2 billion cubic feet of natural gas on its pipeline from Texas and New Mexico into California.

The deal between the two subsidiaries of El Paso Corp., accounted for about 30 percent of the pipeline's capacity and about one-sixth of California's daily demand.

FERC has said there was nothing wrong with the deal itself, but ordered a further investigation to determine whether El Paso used the capacity to manipulate the market and drive up prices of natural gas going into California.

Natural gas prices have soared in the California market and remain substantially higher than prices across other parts of the country. While wholesale gas has been selling in the range of $5 a thousand cubic feet at most trading points, it has been as much as $14 at the California border.

Southern California Edison, one of California's financially struggling utilities, submitted a report to FERC last week alleging that El Paso's market strength resulting in $3.7 billion in added natural gas costs during a 13-month period ending last March. It said high natural gas prices added $1 billion to the cost of electricity produced by SoCal's gas-fired power plants alone.

Wagner in opening the hearing Monday, said the burden of proof rests with the plaintiffs to show market manipulation and that El Paso will be given a chance to rebut the allegations.

One issue, said Wagner, was to determine whether Southern California should be considered a separate market or whether the relevant geographic market - as El Paso contends - actually is the entire state.

When the entire state is considered, El Paso shows a much smaller market share and no market dominance. However the plaintiffs argue pipeline constraints make Southern California a separate market for gas.

lasvegassun.com