Posted on 09/24/2002 9:43:28 AM PDT by Ernest_at_the_Beach
WASHINGTON – El Paso Corp. illegally manipulated California's natural gas market during the height of the state's energy crisis and should be penalized, a regulatory judge ruled yesterday.
Judge Curtis Wagner Jr. issued a finding that El Paso subsidiaries "withheld extremely large amounts of capacity that could have flowed to its California delivery points" from November 2000 to March 2001.
Wagner, the chief judge for the Federal Energy Regulatory Commission, said El Paso's actions resulted in soaring prices while California was reeling from an energy crisis and rolling blackouts. It was the first ruling by a federal regulatory official that widespread energy manipulation had taken place.
California officials praised Wagner's decision and said it reflected their long-standing view that corporate market abuses contributed to the state's electricity crisis. Natural gas is used to fuel many power generating plants in California.
In the 23-page ruling released yesterday, Wagner sided with California Public Utilities Commission officials who filed a complaint in 2000 accusing El Paso and its affiliates of inflating the price of natural gas by reducing deliveries to the state. California officials said the firm's price manipulation cost consumers $3.7 billion.
Wagner said El Paso "substantially tightened the supply of gas" by withholding capacity from at least 21 percent of its pipelines that delivered natural gas to the California border.
As a result, Wagner recommended that FERC "institute penalty procedures" against El Paso subsidiaries for violating its conduct standards and for the "unlawful exercise of market power" by its El Paso Natural Gas Co. subsidiary.
But an aide to Gov. Gray Davis, a frequent critic of the power industry and federal regulators, was wary that FERC would carry out the judge's recommendations.
"Consumers in California have known about these abuses all along," said Steve Maviglio, a spokesman for Davis. "The big question is: What is FERC going to do next? They are awfully slow to responding to consumers' concerns."
Yesterday, El Paso's president criticized Wagner's decision, saying the judge's findings ignored evidence that the company properly operated its pipelines.
"Given the critical safety and deliverability concerns associated with operating a natural gas pipeline, it is inappropriate and without precedent to second-guess a pipeline's day-to-day operations," El Paso president William Wise said.
Following the judge's decision, El Paso's market shares fell sharply on the New York Stock Exchange.
Harvey Morris, principal attorney for the PUC, had argued before Wagner during lengthy hearings that El Paso shareholders earned enormous profits "from increasing natural gas prices to California."
Yesterday, Morris said the PUC was vindicated by Wagner's decision against El Paso, which owns the largest natural gas interstate pipeline serving California.
"California's natural gas customers really suffered during the winter of 2000-2001, and we've waited 21/2 years for this ruling," Morris said. "But we won't be satisfied until we get rate relief from FERC for California consumers."
California officials suggested that they would seek relief for the price of natural gas they said was two to three times more than elsewhere in the United States.
But FERC officials said they cannot decide on a penalty until they review possible appeals. Appeals and opposing arguments must be filed within 50 days, officials said.
The judge's decision came on the heels of a PUC report released last week that said several power generators withheld electricity to drive up prices, contributing to the state's power blackouts from 2000 to 2001.
Although El Paso Corp. was not named in the PUC report, the Houston-based company has been targeted by federal regulators in a sweeping investigation following "preliminary evidence" of electricity price manipulation in the California energy crisis.
Last month, FERC revealed findings of an initial investigation into the power crisis, and said it was conducting a more in-depth investigation into Enron Corp., the fallen energy giant, and two other energy companies that dealt with Enron, including El Paso.
California authorities are seeking $8.9 billion in refunds from power sellers stemming from inflated electricity prices, including El Paso.
Federal authorities yesterday declined to say whether Judge Wagner's finding about El Paso's role in the natural gas market would have an impact on its investigation.
But Sen. Dianne Feinstein, D-Calif. said she will seek a hearing "so that this new evidence can be evaluated and that we can learn the extent of this manipulation."
Feinstein called the judge's decision a "tremendous victory."
"Judge Wagner's decision validates what I have long suspected – and described in floor speeches and other speeches – that by withholding natural gas capacity in the pipeline, El Paso Natural Gas caused natural gas prices to increase by nearly 600 percent." El Paso Natural Gas was one of the El Paso Corp. affiliates cited by Wagner.
As a result of El Paso's actions, Feinstein said, "customers in Southern California were forced to pay exorbitant prices for natural gas."
According to Wagner, El Paso had the capacity during 2000-2001 to deliver about 3.3 billion cubic feet a day to the California border and was obligated to make the full capacity available to natural gas shippers. But millions of cubic feet were withheld each day, the judge said.
In the meantime, prices for gas along the California-Arizona border soared more than eightfold from November to December 2000, according to Wagner.
Wagner's finding yesterday partially reversed a ruling he made in October when he declined to say that El Paso abused its market power. Wagner made his initial finding after lengthy hearings into PUC complaints.
Two months later, FERC ordered more hearings after regulators found evidence of unused pipeline capacity through the winter of 2000-2001.
"The new evidence produced in this case shows a clear withholding of substantial capacity during the relevant period, which clearly indicates an exercise of market power," Wagner said yesterday. Market power is a term for the ability of a company to improperly influence prices.
Gas ruling clouded by safety issues
Federal safety officials are raising doubts about a judge's ruling that El Paso Corp. should have run its natural gas pipeline at peak pressure during the California energy crisis. The questions--echoed by industry safety experts--could bolster the Houston energy company's claim that it did not illegally squeeze gas supplies to drive up prices in California.
From what I can gather the FERC judge is probably looking for a scapegoat to give to California. Personally, I think that the question is going to boil down to "during a Gov Declared energy emergency, should a pipeline be allowed to reduce its capacity because of a recent death causing explosion until such a point as the integrity of the pipeline has been throughly checked and tested."
That is going to be a frightening precident (sp) if FERC doesn't overturn the decision.
Actually, that could be good politics for Republicans! Althought I don't like the idea of using safety in politics, it seems less un-ethical that cartoons of Bush pushing little old ladies in wheelchairs off a cliff. The Democrats deserve just about anything the Republicans give to them after that.
Let me explain. The main backers of more restrictive pipeline operations toward increasing safety are Democratic Senators and Congressmen from the State of Washington and a few other states. This could be an interesting wedge issue for Republicans to pick up nationally. Patty Murray, the Senate campaign finance chair is a strong spokesperson for more pipeline safety. This could drive a wedge between many democrats in California and those in Washington, New Mexico, and some of the states along the Mississippi River. Since Republicans control the Administration, it should be easy to set up.
This: Gramm Accuses Clinton, Bush of Abusing Energy Law to Deal with California Crisis
Eric J. Fygi, the Energy Department's acting general counsel who drew up the emergency order signed by Mr. Clinton and extended by Mr. Bush, said it was proper to use the powerful law because northern California military bases were threatened. But he said there is "a legitimate issue" as to whether the U.S. will be liable for damage claims if the PG&E Corp. unit fails to pay its bills when they come due Feb. 25.After the hearing Friday, PG&E spokesman Shawn Cooper indicated that there isn't any problem paying that bill. PG&E, he said, will be able to pay the $300 million owed to 27 gas suppliers covered by the order. California has allowed PG&E to pass on natural-gas price increases to consumers, he said, unlike retail electricity prices in the state, which remain capped.
Mr. Fygi said the unprecedented order was signed by President Clinton on Jan. 19 after he received pleas from California Gov. Gray Davis and from PG&E's chairman. On Jan. 23, Spencer Abraham, the new energy secretary, heeded another plea from Gov. Davis. "Secretary Abraham, with two full days of the job under his belt, instructed me to extend these orders," Mr. Fygi said. The two orders, one dealing with natural gas and another sending electricity supplies into the state under a different law, ended Feb. 6.
Mr. Fygi testified that Clinton administration lawyers realized they couldn't order the sales without invoking the Defense Production Act. The act was passed at the height of the Korean War to give the president powers to commandeer scarce materials for defense purposes.
Mr. Fygi said the problem wasn't a scarcity of natural gas, but rather PG&E's credit woes. The lawyers decided the potential threat to military bases in the area and facilities of the National Aeronautics and Space Administration justified the use of the law.
"In this extraordinary use of the Defense Production Act, President Clinton delegated authority to the Energy Secretary, and the Energy Secretary, under the name of the Defense Production Act, forced suppliers to sell to parties that they would not have supplied in the absence of the use of the police power of the federal government."They issued an order that required a sale to be made under conditions where the sellers would never have agreed to sell in the absence of the use of the police power of the federal government. It was an order that required a sale at a price the seller never would have accepted under any ordinary circumstance and with no guarantee that the product – in this case, natural gas – would be paid for. I am not aware that the natural gas has yet in fact been paid for.
Once again, the "gougers" were never paid?
BTW, the Defense Production Act is the one that Nixon used to impose wage and price controls. It was re-authorized in 2001, with no significant changes that I could see. I guess Sen. Gramm was not persuasive.
Did we get this one:
Natural-Gas Companies Find Unexpected Lift in California ,/a>
Now the latest Business Week thinks this is going to make Gay Davis look good again.
My head hurts. This is becoming typical. If the "gougers" were not paid, how come California needs to borrow all that money? I know....they are democrats, and democrats always need more money..(/sarcasm)
Of Course! It's all Al Gores fault!
Someone in the Administration should get FERC judge Wagner (or someone in the SEC) to make a finding that Occiental Petroleum was price gouging and withholding needed natural gas from the California market during a declared energy emergency.
Say anyone want to pass this along to the Power Generators that are now auditing the Cal PX?
NEVER MIND!
5. Once operation is resumed, restrict the maximum allowable operating pressure to 80 percent (80%) of the operating pressure of Line 1103 at the time of failure, which was calculated to be 538 psig.
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