San Diego Union-Tribune

June 9, 2001

Price-gouging case still far from decision

By JOE CANTLUPE
COPLEY NEWS SERVICE

WASHINGTON -- Like gas spewing from a pipeline, the vitriol has been gushing for the past four weeks inside a federal regulatory hearing room as lawyers argue about whether a Texas gas company overcharged California consumers by $3.8 billion.

An administrative law judge is evaluating charges that El Paso Corp. inflated the price of natural gas by finagling to reduce deliveries to the state.

As the hearings completed their fourth week, California authorities say they have proved the claim.

But so far no single piece of evidence has been presented publicly before the Federal Energy Regulatory Commission administrative law judge that points to El Paso officials seeking to manipulate the market. Some documents have yet to be made public.

The case has put FERC's watchdog role in the spotlight.

As natural gas prices rose in Southern California, FERC asked companies selling in California to provide detailed information about possible price gouging and market abuse.

The FERC hearings are the first case stemming from the power crisis to reach anything close to a courtroom. Lawyers have used economic analyses, market reports, PowerPoint presentations and even poorly crafted handwritten drawings of "supply and demand" charts to undermine each other's
arguments.

They are hoping to sway Administrative Law Judge Curtis L. Wagner Jr., the 27-year chief judge for FERC.

The complex case is running weeks longer than expected. Wagner has indicated he might not make a recommendation to FERC until September. The outcome could determine whether El Paso relinquishes hundreds of millions of dollars.

Wagner was angered at one point and suggested a cover-up when an executive for El Paso Corp. deflected his questions about whether the
company CEO provided the OK for an El Paso subsidiary to bid on a pipeline.

Last year, the subsidiary, El Paso Merchant, won the $38.5 million bid to market natural gas on 30 percent of the pipeline of another El Paso Corp. subsidiary, which serves about 17 percent of California's market.

Lawyers for the California Public Utilities Commission and two financially troubled state utilities -- Pacific Gas and Electric Co. and Southern California Edison -- have suggested that the El Paso subsidiaries might be benefiting from sweetheart deals.

Also, they have filed documents showing that other pipeline companies were far more successful in delivering natural gas to California than El
Paso.

El Paso officials denied that they intentionally withheld natural gas. They were constrained by California's lack of capacity, they said.

El Paso also has blamed other companies, such as Southern California Gas, for failing to adequately store the natural gas. Officials at Southern
California Gas, a subsidiary of San Diego-based Sempra Energy, denied the allegation.