El Paso issues final defense in affiliate abuse case

By the OGJ Online Staff

HOUSTON, Aug. 28, 2001 – Energy merchant El Paso Corp., concluding its defense of an affiliate abuse complaint pending at the Federal Energy Regulatory Commission, claimed its units El Paso Natural Gas and El Paso Merchant Energy Co. didn’t withhold pipeline capacity from the California market and complied with all FERC regulations.

The California Public Utility Commission last year alleged affiliate abuse led to control by El Paso companies of most of the pipeline capacity delivering natural gas into southern California. The PUC charged El Paso’s units conspired to withhold capacity from the market driving up prices. An administrative law judge is expected to rule in the case before Oct. 8.

El Paso, Houston, argued the PUC couldn’t sort out the cause of high gas prices in California. It was up to the PUC to prove “market power” not market conditions affected natural gas prices, El Paso said.

“The price increases in California during 2000 and early 2001 were due to the tightening of supply/demand factors in electric and natural gas sectors, and the constraints that existed on pipelines delivering gas to California and on pipelines operating within California,” according to El Paso’s FERC filing.

El Paso said such factors as weather, low hydroelectric production, demand growth, lack of generation facilities, and a flawed electric power market led to record gas demand in 2000 and part of 2001 that was 20% higher than in previous years.

With respect to market power, El Paso said El Paso Natural Gas’s (EPNG) pipeline system was full or nearly so throughout the period beginning in June 2000 when natural gas prices were so high. It said the fact the pipeline was full undermines the theory El Paso Merchant Energy exercised market power by withholding capacity.

El Paso also noted all unused capacity on the interstate pipeline was made available to any potential shipper willing to pay EPNG’s FERC-approved tariff for interruptible transportation service.

“They chose not to do so,” El Paso said. “Anyone could use that capacity on an interruptible basis.”

Mojave discount discounted
El Paso also denied EPNG structured its February 2000 open season for 1.2/bcfd of capacity to favor Merchant Energy over other bidders. El Paso said it posted its minimum revenue requirement.

El Paso conceded it knew it might receive a discount from Mojave Pipeline Co., an El Paso intrastate pipeline subsidiary, during the open season. But El Paso said it didn’t know for “certain” if it would receive such a discount after the open season closed.

Nevertheless, El Paso said the information about the discount was posted for others “well within the time required by the commission regulations.”

El Paso maintained the Mojave discount wasn’t that important anyway. “The much-touted Mojave discount was of no consequence either to the outcome of the open season or of Merchant’s subsequent utilization of capacity,” the filing said.

The California PUC said recorded telephone conversations between individuals at Merchant and at the pipeline “show that the operating employees of each company were not functioning independently.” Potential bidders were not made aware of a new discount at Mojave in time to determine its value, the PUC said.

“El Paso Merchant Risk Management group had an undue competitive advantage of factoring the new Mojave discount into a successful bid for all El Paso Pipeline’s open season capacity,” the filing said.

In a supporting brief, Southern California Gas Co. (SOCAL), a unit of Sempra Energy, San Diego, also objected to the way the marketing affiliate obtained a long-term discount from Mojave during the open season but didn’t publicly announce it until after the open season closed, “as Merchant requested.”

SOCAL said the transaction “raises issues of improper communication between the marketing affiliate and the interstate pipelines.” The record supports a finding the commission’s guidelines governing affiliate transactions were compromised, SOCAL said.


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