FERC’s Brownell calls for strengthened market monitoring role

By the OGJ Online Staff
HOUSTON, Jan. 14, 2002 — Federal Energy Regulatory Commissioner Nora Mead Brownell urged the agency to strengthen its oversight of potential market power abuse.

Brownell made the recommendations Friday in a case involving El Paso Natural Gas. The Public Utilities Commission of California and other parties have alleged the pipeline and its affiliate El Paso Merchant Energy exercised market power, driving up natural gas prices in California.

El Paso Natural Gas, a unit of El Paso Corp., owns a large interstate pipeline that serves the state. El Paso Merchant won most of the firm pipeline capacity on El Paso Natural Gas’ pipeline in an auction. Between Nov. 1, 2000 and March 31, 2001, gas spot prices in California were consistently in the $20-$30/Mcf range and spiked up to $60/MMcf. The price in the rest of the country averaged less than $10/Mcf.

FERC Chief Administrative Law Judge Curtis Wagner initially determined EL Paso didn’t deliberately restrict availability of capacity on the pipeline and wasn’t responsible for driving up the price of natural gas. Last week, the full commission considering the findings and sent the case back to the judge for a supplemental hearing to be concluded by March 31. Wagner said a new decision will be made by August 2002.

Brownell called the California situation “unique.” Given the elevated price levels over an extended period, she said, every question raised must be investigated and answered. Brownell hinted in her letter that a “timely resolution” was critical. “I urge all the parties to expeditiously conduct this supplemental hearing, so we can go to decision and move on,” she said.

Brownell used the letter to expand on what she sees as top priorities for FERC. As the markets change, she said, market monitoring and enforcement capabilities become even more critical. She also recommended separating FERC’s market oversight function from litigation.

She pointed out during the El Paso litigation last year, the oversight and enforcement section was also conducting an investigation of the same parties and issued conclusions, while the litigation was still under way. “It is important that our market monitoring activities are distinct from the litigation process,” she wrote. “Otherwise doubt about fairness will cloud our legitimate inquiry into the facts.”

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