Union Tribune

November 14, 2003

El Paso to pay state $1.6 billion

By JOE CANTLUPE and TOBY ECKERT
COPLEY NEWS SERVICE

WASHINGTON El Paso Corp. agreed to pay California $1.6 billion to settle the state's complaint before the Federal Energy Regulatory Commission that the company drove up prices by improperly withholding large amounts of natural gas from the state.

In the settlement announced yesterday, El Paso, the nation's largest natural gas pipeline company, did not admit wrongdoing but agreed to make the payment, which exceeds the $1 billion the state was seeking.

Both El Paso and FERC officials praised the settlement. An attorney for the state Public Utilities Commission declined comment until he had a chance to see final details.

El Paso faces separate legal actions in San Diego and Los Angeles that could force the Houston-based company to make additional payments.

The commission has been a key player in several ongoing legal fights against the Houston-based company. When all the cases are resolved, penalties could be more than double what El Paso agreed to pay California yesterday, officials said.

The case against El Paso has been before FERC for more than two years. California officials had hoped to recoup at least $1 billion from the company, saying that El Paso intentionally withheld more than 20 percent of its gas obligations to the state so it could drive up prices during the energy crisis of 2000-01.

El Paso repeatedly denied wrongdoing, saying it was a scapegoat for failed state energy policies.

A FERC administrative law judge found that El Paso tightened the supply of natural gas in the state. During the winter of 2000-01, the state paid natural gas prices two to three times higher than what was being charged elsewhere.

Yesterday's agreement between El Paso and FERC "is in the public interest because it resolves a lengthy and heavily contested proceeding in a manner that is consistent with the commission's policies," FERC said in a statement.

FERC officials did not say how the $1.6 billion would be paid to California, though officials of the state PUC believe the money might be paid over a decade or more. Ratepayers eventually will see savings, though it was uncertain what the eventual relief would be. FERC said the payment would be made "through a variety of mechanisms."

"While saving the ratepayers some money, the settlement preserves the rights of gas shippers," FERC said. "The certainty achieved by the settlement also permits parties to make long-term plans regarding their capacity and natural gas needs."

A spokesman for El Paso said the company was satisfied with the settlement.

PUC attorney Harvey Morris was less certain.

"This is just one part," he said. "I haven't seen the written ruling. With modifications, I don't know if it is good or not."

Other cases pending against El Paso include one in San Diego in which the plaintiffs are seeking $1 billion, Morris said. That settlement is expected next week.

Another suit is pending in Los Angeles.

"Until the three cases are settled, nothing is settled," Morris said. "Those are all critical steps."

Also yesterday, the commission adopted rules designed to prevent market abuses like those that occurred in California during the 2000-01 power crisis. They include a ban on bogus price reporting, collusion and other manipulative practices.

Electricity and natural gas sellers who violate the rules could lose their proceeds and their ability to trade on the open wholesale energy market.

California's electricity grid manager, the Independent System Operator, had urged the commission to adopt tougher penalties, arguing that loss of unfair profits would not be enough to deter market manipulation.

The grid manager proposed that penalties be based on how much a particular scheme affected the market and harmed customers.

FERC officials have said they lack legal authority to impose civil penalties or punitive damages. Congress is considering tougher enforcement authority for FERC as part of a comprehensive energy bill.