El Paso Corporation calls reports of FERC hearing ‘mischaracterizations’

HOUSTON, Aug. 13, 2001 – The chairman and CEO of El Paso Corporation issued a statement in response to reports on its participation in a recent FERC hearing, saying some reports are inaccurate mischaracterizations.

Chairman, president and CEO William Wise said coverage has fostered unwarranted fears in the marketplace fueled by misunderstandings about the nature of the FERC proceeding, the testimony and evidence presented, and the applicable regulatory standards.

“I am very concerned that the investing public has been misled by recent reports describing the current state of a FERC proceeding and quoting comments made by the presiding FERC administrative law judge,” Wise said. “These reports have seriously mischaracterized El Paso’s actions and the legal standards by which those actions must be measured. I am confident that once the facts are fairly evaluated and the appropriate legal standards are applied, El Paso will be vindicated. Despite the heated rhetoric by the complaining parties and comments by the administrative law judge himself, El Paso believes as a matter of law and fact that the complaining parties have not met their burden of proof and no burdens of proof have shifted. No other legally sustainable conclusion can be reached.”

The following facts are necessary to a complete and accurate understanding of this administrative proceeding. In April 2000, the California Public Utilities Commission (CPUC) filed a complaint with the FERC, alleging that El Paso Natural Gas Company (EPNG) improperly awarded capacity on its pipeline to an affiliated energy marketing company, El Paso Merchant Energy (EPME).

It was also alleged that EPME had improperly been granted a discount on the Mojave pipeline system in violation of the FERC’s marketing affiliate rules and had unlawfully exercised market power. For almost a year thereafter, FERC reviewed and evaluated comments submitted by all parties and extensive evidence and documents that El Paso produced. On March 28, 2001, the FERC issued an order based on this evidence that addressed all three issues.

With respect to the CPUC’s allegations regarding violations of the affiliate regulations, FERC ruled, in a unanimous decision, that the current El Paso contracts were awarded following an open season that was conducted in accordance with Commission rules and policies. According to its report, the commission found no merit in the allegations that the bidding process . . . was skewed to favor El Paso Merchant and that El Paso Merchant

possessed certain information concerning a discount that was not available to other bidders. Further, the Commission has examined the evidence and does not find a violation of the Standards of Conduct for Interstate Pipelines with Marketing Affiliates.

That same order specifically discussed the telephone transcripts that have been the subject of recent press coverage. The commission concluded that “the transcripts do not indicate that Mojave’s Transportation Marketing Negotiator agreed to the tiered arrangement sought by El Paso Merchant Energy.”

That order held that the conversation reported in the transcripts is not an affiliate standard violation, concluding that under the marketing affiliate regulations, “Mojave was under no obligation to post affiliate discount information until the time at which gas first flowed under the transaction.”

The market power issues were set for an evidentiary hearing, which commenced on May 14, 2001, and concluded in June.

On June 11, 2001, the FERC granted rehearing of its March decision solely to resolve any factual issues raised by the allegations of the CPUC’s complaint concerning affiliate abuse and violation of the FERC’s Standards of Conduct. That hearing commenced on August 2 and concluded on August 6. EPNG, EPME, and the CPUC each called one witness to testify on these issues. The CPUC presented no new facts or evidence and relied solely on the same documents that the unanimous Commission had ruled failed to prove any of the alleged affiliate violations.

Since the FERC’s unanimous March 28 decision was rendered on the basis of the same facts that are now a part of the evidentiary record before the judge, there should be no legal basis for the Commission to change that decision when the case returns to it.

“Contrary to press reports, El Paso’s senior executives did not refuse to appear at the hearing,” said Wise. “The judge requested that some executives be available to answer his questions, and El Paso made them available for that purpose. At the appropriate time, El Paso raised several legal objections to any further El Paso witnesses being required to testify. Contrary to press reports, the judge agreed with El Paso’s arguments and there was no further questioning of the executives. The hearing then concluded.”

The evidence in the hearing also establishes that there is no basis for the allegations of market power abuse, Wise said.

During the period from June 2000 to March 2001, when the price of natural gas in California was sharply increasing, pipeline capacity was not being withheld from the marketplace, Wise said. He said that during this crucial period, 95 percent of the available capacity on EPNG’s pipeline was being utilized.

All briefs in the proceeding must be filed by September 7, 2001, and the judge has stated he will issue his proposed decision by October 9, 2001. In the event that the judge reaches a decision adverse to El Paso on the market power issue, or reaches a different conclusion on the affiliate issues than was reached by the full Commission in March 2001, El Paso will appeal the decision to the full Commission and, if necessary thereafter, the courts.

“I am confident that, when appropriate legal standards are applied to this case, we will be vindicated. The law and the facts are on our side,” said Wise.

Visit El Paso at www.elpaso.com .

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