El Paso Pipeline Withheld Calif. Supplies
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Reuters Business Report
El Paso Pipeline Withheld Calif. Supplies
Monday September 23, 2:56 pm ET
By Chris Baltimore
WASHINGTON (Reuters) - El Paso Corp. (NYSE:EP - News) pipelines illegally squeezed natural gas supplies needed by California electricity generating plants at the height of the state's power crisis, a judge at the Federal Energy Regulatory Commission (FERC) said on Monday.
El Paso's stock plunged $4.17 to $7.50 per share on the New York Stock Exchange, or about 36 percent as investors tried to size up the company's liability for potential fines or refunds.
FERC Chief Judge Curtis Wagner issued a report finding that El Paso during November 2000 through March 2001 "withheld extremely large amounts of capacity that could have flowed to its California delivery points."
During that period, California struggled with a jump in prices for natural gas, which is used to fuel many power plants, and with rolling blackouts.
Wagner also recommended the four-member commission penalize El Paso for the unlawful exercise of market power and for violating the agency's standards of conduct for corporate affiliates. He did not elaborate on what penalties should be imposed against the company.
Under FERC procedures, the administrative law judge makes recommendations to agency commissioners, who decide on the final action.
El Paso and its affiliates were obligated to ship about 3.29 billion cubic feet (bcf) per day to California delivery points. But Wagner said the company's average flow was only 2.59 bcf per day during that period, which was 79 percent of its design capacity.
In addition to the shortfall, El Paso could have shipped an extra 100 million cubic feet per day through its Peco station, "which it chose not to do, even though it had a capacity shortage in its system," the judge wrote.
The California Public Utility Commission, PG&E Corp.'s (NYSE:PCG - News) Pacific Gas & Electric and Edison International's (NYSE:EIX - News) Southern California Edison claim El Paso's actions contributed to a sharp rise in prices and cost Californians an extra $3.3 billion.
El Paso, which has previously denied any wrongdoing, was not immediately available for comment on the decision.
EL PASO HIT BY SECTOR DOWNTURN
The agency judge's decision was the latest blow for Houston-based El Paso, which is one of several large energy trading companies that have been forced to cut trading staff to boost liquidity and lift credit ratings. The company said in August it would sharply cut 2003 capital spending and sell another $2 billion in nonstrategic assets to trim its debt.
El Paso is the nation's biggest natural gas pipeline owner, and also has interests in electricity generation, oil and gas exploration and gas processing.
Wagner also reversed his finding of last October and said El Paso "had the ability to exercise market power," which it did by withholding supplies.
"The new evidence produced in this phase of the case shows a clear withholding of substantial capacity during the relevant period, which clearly indicates an exercise of market power by El Paso Pipeline," Wagner wrote in a 23-page decision.
Natural gas is used to fuel many power generating plants in California. Record high prices for natural gas were blamed for contributing to the state's electricity shortages during the crisis, which began in mid-2000 and ended one year later.
The FERC is writing new rules to create standards of conduct to ensure that a natural gas pipeline company shares market-sensitive information about available capacity in a fair way with all companies, not just its affiliates. The agency has proposed requiring pipelines to announce all discounts on the Internet and to limit the capacity that an affiliate can hold on a pipeline.
The El Paso decision was issued in FERC docket RP00-241. |
