(9/23/02)

A federal administrative law judge ruled Monday that Houston-based El Paso Corp. "withheld extremely large amounts of capacity" and deliberately drove up the price of natural gas during the state's electricity crisis, resulting in high prices for power.

The company denies it and says it will appeal the ruling.

Judge Curtis Wagner, chief administrative law judge for the Federal Energy Regulatory Commission, ruled that El Paso's pipeline subsidiary withheld at least 10 percent of the capacity on its pipeline connecting Southwest gas fields to California. The judge said this went on between November 2000 and March 2001, the peak of the state's power crisis.

Many power plants in California are fueled by natural gas, and with less gas available that was needed, prices for the commodity rose substantially, contributing to the bankruptcy of Pacific Gas & Electric Co. and financial distress for the state's two other investor-owned power companies, Southern California Edison and San Diego Gas & Electric.

Judge Wagner has recommended that FERC impose penalties on El Paso.

But state officials said Monday that wasn't enough. They want El Paso forced to refund $200 million in what state officials say were overcharges.

"Judge Wagner's decision validates what I have long suspected ... that by withholding natural gas capacity in the pipeline, El Paso Natural Gas caused natural gas prices to increase by nearly 600 percent," Sen. Dianne Feinstein, D-Calif., said in a prepared statement.

"I intend to ask [Senate] Energy Committee Chair Jeff Bingman to hold a hearing on this matter so that this new evidence can be evaluated and that we can learn the extent of this manipulation," Ms. Feinstein said.

The judge's ruling will go to FERC for final disposition. It is there, El Paso says, that it will get a hearing that it would find more favorable.

"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," said William Wise, chairman, president, and chief executive officer of El Paso Corp. in a prepared statement.

© 2002 American City Business Journals Inc.