Editorials

A large Texas energy company did not illegally drive up the price of natural gas in California during the height of the state’s energy crisis last year, a federal regulatory judge ruled Tuesday. 

However, El Paso Corp. of Houston, through two subsidiaries, violated federal rules governing the award of natural gas contracts, according to Curtis L. Wagner, chief administrative law judge of the Federal Energy Regulatory Commission. 

Wagner’s eagerly awaited ruling disappointed the California Public Utilities Commission and two investor-owned utilities that had complained that El Paso’s actions created an artificial shortage of natural gas, sending prices to unprecedented levels in California last year and early this year. 

Gas prices in Southern California plummeted after the El Paso contract expired at the end of May.  

But Wagner attributed the earlier higher prices to increased demand and an actual shortage of gas. 

“We see the two issues as interrelated,” said Harvey Morris, a lawyer for the PUC.  

“We thought the record was clear that there was an abuse of the standards and the exercise of market power.” 

Morris said the PUC probably would appeal to FERC, which can accept or reject the judge’s decision. 

Kevin Lipson, a lawyer for Southern California Edison, said his client planned to appeal. Officials with Pacific Gas and Electric, the other utility involved in the case, did not immediately respond to a request for comment. 

El Paso welcomed the ruling by Wagner concerning price manipulation. 

“We’re gratified by the judge’s...finding that El Paso was not the cause of high gas prices in California,” said Norma Dunn, El Paso’s vice president for communications. “That’s been our position from day one.” 

In March 2000, El Paso Natural Gas Co., a pipeline company regulated by FERC, signed a contract with El Paso Merchant Energy, an energy marketing company, that gave Merchant the right to ship 1.2 billion cubic feet of natural gas a day through a pipeline from Texas to Southern California. 

That amount constituted nearly 20 percent of the state’s supply. 

The allegations against El Paso focused on two points — that the pipeline subsidiary unfairly favored the marketing subsidiary in the award of the contract, and that El Paso then withheld natural gas to drive up prices. 

Wagner dismissed the allegation that El Paso had illegally manipulated prices. However, he upheld the complaint about the subsidiaries. Dunn said the firm will appeal the aspect of the ruling. 

The PUC along with Edison and PG&E have claimed that El Paso’s actions added $3.7 billion to gas prices because other sellers of natural gas also benefitted. 

California wants FERC to order El Paso to refund at least $200 million, roughly equivalent to El Paso’s profits from the contract. 

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On the Net: 

Federal Energy Regulatory Commission: http://www.ferc.fed.us/ 

El Paso Corp.: http://www.epenergy.com/