September 23, 2002 PUC: 84

Media Contact: PUC Press Office, 415.703.1366, news@cpuc.ca.gov

PUC PREVAILS IN FERC ALJ RULING ON MARKET POWER COMPLAINT AGAINST EL PASO

The California Public Utilities Commission (PUC) was vindicated by the Federal Energy Regulatory Commission's (FERC) Chief Administrative Law Judge (ALJ), who ruled today that El Paso Natural Gas Company (El Paso) exercised market power by tightening the supply of natural gas and driving up natural gas prices to California during the winter of 2000-2001. During that winter, the price of natural gas sold at the California border was two-to-three times the price of natural gas sold anywhere else in the U.S.

The PUC had filed a complaint at FERC against El Paso and its marketing affiliate on April 4, 2000. The PUC warned that El Paso, which owns the largest natural gas interstate pipeline serving California, would be engaging in anticompetitive conduct in light of a contract the company had entered into with its marketing affiliate, enabling the shareholders of El Paso to receive enormous profits from increasing natural gas prices to California. After 10 weeks of hearings before the ALJ and extensive briefs by all of the parties, the ALJ found that El Paso exercised market power.

In his initial decision, the ALJ found that El Paso had exercised market power by withholding "extremely large amounts of capacity that could have flowed to California delivery points in violation of its certificate obligation and ... its 10-year settlement agreement which substantially tightened the supply of natural gas at the California border significantly broadening the basis differential." The basis differential is the price difference between the natural gas producing basins that serve California and markets throughout the U.S. and the California border.

"California's natural gas customers really suffered during the winter of 2000-2001, and we've waited 2 ½ years for this ruling," said Harvey Morris, principal counsel for the PUC. "But we won't be satisfied until we get rate relief from FERC for California consumers, and we look forward to the remedy phase of this complaint proceeding at FERC."

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