El Paso files briefs with FERC disagreeing with California PUC claims

HOUSTON, Sept. 13, 2001 – El Paso Natural Gas Company and El Paso Merchant Energy have filed reply briefs with the Federal Energy Regulatory Commission (FERC), disagreeing vehemently with opening briefs submitted by the California Public Utilities Commission.

In separate briefs to be filed with FERC Chief Administrative Law Judge Curtis L. Wagner, Jr., the El Paso companies said that El Paso did not exercise market power to drive up California natural gas prices.

The briefs also said that El Paso complied fully with applicable laws in conducting an capacity auction on the El Paso Natural Gas pipeline system.

“The California parties’ briefs merely continue the well worn and unsubstantiated allegation that, because natural gas prices were high in California during 2000 and early 2001, somehow the state was victimized by market manipulation,” said William A. Wise, president, chairman, and chief executive officer of El Paso Corporation. “In fact, it is inescapable that a diverse set of market conditions have caused energy price volatility in California.”

In their reply briefs, the El Paso companies answered each point brought up in California PUC’s opening briefs and provided a response to each, concluding that El Paso did not contribute to high natural gas prices in California.

The briefs stated the following:

* Extraordinary demand, not market power, caused high natural gas prices. Despite the California parties’ simplistic view that El Paso must have exercised market power because prices went up, the record affirmatively shows that price increases were a legitimate reaction to supply and demand forces.

* El Paso did not withhold pipeline capacity from the California market. El Paso Natural Gas, as well as other pipelines delivering natural gas to California, operated at full capacity during the time that California prices were high. Nobody was withholding or restricting gas supply, and it is thus clear that extraordinary demand caused high natural gas prices in California.

* Under FERC’s regulations, El Paso could not withhold pipeline capacity from the market. Under FERC’s regulations, on any day that capacity is not being used by a firm customer, the pipeline is required to make that capacity available to other customers. El Paso Natural Gas complied with these regulations and the California parties presented no evidence to the contrary.

* The California parties failed to identify any evidence regarding the marketing affiliate issues raised in the CPUC’s complaint that had not been addressed by the FERC in its March 28 order. In that order, the FERC unanimously concluded that the capacity auction on the El Paso Natural Gas pipeline and a discount granted to El Paso Merchant Energy by an affiliated pipeline were in full compliance with FERC regulations. As such, the affiliate abuse claims are meritless.

Judge Wagner is expected to issue his recommended decision on October 9. “We are pleased that this phase of the proceeding is behind us and are confident that Judge Wagner, the Commission, and a reviewing court will conclude that the record inescapably demonstrates that El Paso’s actions were completely proper and in compliance with the law,” concluded Wise.

El Paso Corporation is committed to meeting energy needs throughout the United States and the world, with operations that span the energy value chain from wellhead to electron. El Paso Corporation is involved in every segment of the natural gas industry, including production, gathering and processing, and transmission. The company also provides merchant energy services, international project development, energy financing, power generation, and telecommunications services. El Paso is focused on speeding the development of new energy sources to address critical energy shortages across the globe. For more information, please visit www.elpaso.com .

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