San Diego Union-Tribune

May 26, 2001

Natural gas CEO denies deal was improper

By JOE CANTLUPE 
COPLEY NEWS SERVICE 

WASHINGTON -- The head of a Texas energy company that is accused of wrongfully driving up California's natural gas prices told a federal administrative law judge yesterday that he approved a deal between two subsidiaries, but denied that it was an improper, sweetheart arrangement.

William Wise, the chief executive officer of El Paso Corp., said the Houston-based company has "stringent" rules that separate the operations of its pipeline subsidiary, El Paso Natural Gas, from its gas marketing division, El Paso Merchant Energy.

"Functionally, that is the way they perform," said Wise of the corporate subsidiaries. "They can be very autonomous from each other and the parent company."

Wise defended the corporation's practices in testimony before Curtis L. Wagner, Federal Energy Regulatory Commission administrative law judge.

Wagner is examining allegations by California officials that El Paso and its divisions entered into improper business practices before the deal was struck. California officials charge that El Paso bolstered profits by withholding natural gas capacity, costing the state about $3.7 billion. El Paso officials deny the allegations.

FERC's governing body has dismissed allegations of an improper relationship between the subsidiaries, but Wagner said he is still examining the issue before making recommendations to FERC.

Wise was hastily summoned to testify yesterday, a day after Wagner sharply criticized the credibility of another top El Paso Corp. executive about Wise's involvement in discussions about the Merchant bid.

In his testimony, Wise said he gave the OK, on Valentine's Day 2000, to allow Merchant Energy officials to bid on the natural gas capacity within the El Paso Natural Gas Co. pipeline. Wise said he was unaware of details about the bid.

The El Paso Merchant Energy subsidiary eventually won the $38.5 million bid on the pipeline, which supplies about one-sixth of the natural gas that California imports from throughout the Southwest. The company earned more than $180 million in profits.

If El Paso is found to have manipulated the power market, it could face hundreds of millions of dollars in penalties.