We love Texas energy gougers and deregulation !!
sfgate.com
Gas suppliers accuse El Paso
pipeline firm of constricting flow to
drive up prices
Bernadette Tansey, Chronicle Staff Writer
Sunday, July 29, 2001
The Texas energy company already accused by state
officials of manipulating the natural gas market now
faces new allegations by fellow industry players that
last winter it systematically starved the state of
necessary fuel in order to drive up consumer prices
and boost profits.
Formerly tight-lipped shippers that lease space on the
pipeline El Paso Corp. runs from the gas fields of the
Southwest to Southern California are blaming El
Paso for California's energy price explosion. And a
lawyer for one group of pipeline customers is urging
fellow shippers to unite against El Paso as a
"common enemy" that is strangling traffic in natural
gas to preserve its bottom line.
The new accusations came as a result of evidence
presented at a hearing before a federal regulatory
judge in May. El Paso Corp., which has been
targeted by state regulators, utilities and legislators
convinced it helped cause California's disastrous
season of soaring energy costs, had hoped that the
hearing would lay all suspicions to rest.
Instead, the hearing has given rise to a fresh round of
grievances -- not only from state officials, but also
from industry heavyweights.
Major shippers say that while heating bills soared and
California's gas prices were the highest in the nation
last winter, they were willing but unable to get more
gas into the state because El Paso curtailed their
deliveries -- even though they held contracts for
pipeline space.
'CAUSED ENORMOUS HARM'
"Shippers are losing multimillions of dollars," the
suppliers said in a July 13 complaint to federal
regulators. "These problems also have contributed to
artificially high gas prices . . . which have caused
enormous harm to both gas and electric markets
throughout the West."
El Paso officials declined to give detailed responses
to the new complaints while they are pending before
the Federal Energy Regulatory Commission.
"We all here at El Paso feel very confident that the
facts will demonstrate that we have abided by the
terms of our contracts," company spokesman Mel
Scott said.
El Paso runs the biggest interstate pipeline system
serving California, accounting for about half the
capacity to the state. The federal hearings held in
Washington, D.C., on May 14 concerned accusations
by state regulators and utilities, described in detail in
a May 13 article in The Chronicle, that the company
had rigged a contract in early 2000 to award a huge
block of pipeline space to its own gas-sales affiliate.
The affiliate, El Paso Merchant Energy, then left half
its share of the pipeline idle and raised barriers to
other shippers who could have paid for the excess
space, according to the complaint.
The result: Gas supplies shrank and prices in
California soared to as much as 10 times the national
average, costing the state an extra $3.7 billion for gas
and electricity in 2000 and early 2001, according to
consultants for Southern California Edison, which
joined in the complaint.
El Paso Corp. has called the claims against its
affiliate unfounded. The company says the price rise
was caused by dry weather that forced hydroelectric
plants to cut back, pushing up demand for power
from natural gas- fired plants. It also says supplies
were squeezed because of inadequate pipeline
networks within California.
RELIEF COULDN'T GET THROUGH
The latest accusations against El Paso concern a
larger chunk of pipeline space -- about two-thirds of
its capacity -- that the company did not lease to its
affiliate.
A group of major energy firms that bought rights to
that pipeline space from El Paso say they have been
unable to get extra supplies through to California --
an influx that could have lowered prices during the
big crunch last winter -- because El Paso rationed
service to them.
Those shippers, including Amoco Production Co., BP
Energy Co. and Burlington Resources Oil & Gas
Co., complained to the FERC this month that El Paso
oversold its pipeline space, then failed to deliver what
it promised. Instead of using the remaining one-third
of the pipeline to meet those obligations, the gas firms
complain, El Paso sold that block to its own affiliate
and reaped a windfall at their expense.
"El Paso and its marketing affiliate, El Paso
Merchant, have been unjustly enriched by this
situation," the complaint says.
According to the gas suppliers' complaint, El Paso
officials testified in the Washington hearings that the
company could not ship all the gas it promised to
California because of growing demand from Arizona,
Nevada and New Mexico.
The major shippers to California, joined by the state's
utilities and the Public Utilities Commission, say El
Paso is accommodating a dramatic increase in
demand by Southwestern customers while skimping
on gas to California.
Gas suppliers in Sun Belt states say they're entitled to
all the gas they need under their own El Paso
contracts. But the California shippers want the
FERC to set limits on how much gas customers in
other states can draw from the pipeline.
BREACH OF PROMISE ALLEGED
Joel Greene, a lawyer who represents a group of gas
firms and utilities east of California, including Arizona
Electric Power Cooperative Inc., Public Service Co.
of New Mexico, Salt River Project and the Southern
Union Gas Co., said the warring shippers should stop
quibbling with each other and focus on El Paso,
which he described as the "common enemy" that has
broken faith with all of them.
Greene said El Paso breached a promise to all the
shippers, who collectively saved the company from
ruin in 1996 when El Paso had a glut of capacity it
couldn't sell. Shippers on both sides of the state
border agreed to pay higher rates through 2006 to
cover the pipeline's operating costs. In exchange,
Greene said, El Paso promised to expand its network
if necessary to meet demand.
Greene said El Paso was warned in 1999 that gas
demand was catching up with supply, but that the
company failed to invest in new pipelines. El Paso
would not have gotten more revenue for the new
construction because its rates were frozen under the
1996 settlement, according to the complaint the
shippers filed with the federal commission.
"If you're El Paso, why go out of your way to build if
you can't recover until 2006?" Greene said.
El Paso recently filed plans with the FERC for a new
pipeline that would help meet the needs of shippers to
California. Suppliers on both sides of the state border
want the FERC to require El Paso to use all future
expansions to fulfill its existing contracts before it
takes on any new customers.
The FERC still is not finished with the first complaint
against El Paso -- the one accusing the company of
awarding pipeline space to its own affiliate, which
then, allegedly, withheld it from the market.
SUBPOENAS THREATENED
El Paso executives, including company President
William Wise, will face another round of questioning
as a second phase of hearings begins Thursday
before Curtis Wagner Jr., the commission's chief
administrative law judge.
Wagner threatened to subpoena Wise in May,
complaining he was "getting the runaround" from
other executives.
Harvey Morris, an attorney for the PUC who is
arguing the state's case against El Paso, said
evidence that emerged in the last round of hearings
strengthened the state's demand that the federal
government order El Paso to refund as much as $200
million in profits -- though he added, "It'll never make
California whole."
Morris is preparing briefs claiming El Paso's pipeline
affiliate reduced pressure on the system to further
worsen the scarcity of gas flowing to California, at
the same time its gas-sales arm was withholding
pipeline capacity from competing shippers.
Once gas prices started to peak in November, Morris
claims, the pipeline restored the lost pressure -- and
El Paso Merchant Energy used all its capacity to
reap the profits.
"This wasn't just El Paso Merchant Energy
exercising market power," Morris said. "It was the
pipeline company itself exercising market power." |
