Another defeat for Davis.  Tough break.  Is the judge's proposed decision available?
Best,
Jeff
FERC Judge Urges Dismissal Of Calif Complaint Vs El Paso
WASHINGTON -(Dow Jones)- An administrative law judge has recommended the U.S. Federal Energy Regulatory Commission dismiss a complaint alleging El Paso Corp. (EPG) manipulated the market for natural gas sales into California . 
The ruling in the high-profile, politically charged case was a setback for California , which had sought to hold El Paso financially accountable not only for higher natural gas prices, but also for the resulting higher electricity prices in a state heavily dependent upon gas-fired power plants. 
"While ... El Paso Pipeline and El Paso Merchant had the ability to exercise market power, the record in this case isn't at all clear that they in fact exercised market power," Curtis Wagner, FERC's chief administrative law judge, concluded in an initial decision forwarded to the commission late Tuesday. 
The California Public Utilities Commission, which filed the complaint against El Paso, said later Tuesday that it would appeal Wagner's decision on market manipulation. 
In a small victory for the state, Wagner did find that El Paso officials violated FERC's "standards of conduct" rules barring the sharing of market-sensitive information between pipeline companies and their natural-gas marketing affiliates. 
"El Paso Corp., El Paso Pipeline, and El Paso Merchant are guilty of affiliate abuse," Wagner concluded. 
"There was a dialogue between the pipeline affiliates and the marketing affiliate that gave an unfair advantage to the bidding" by the marketing unit for El Paso pipeline capacity into California , Wagner said. 
FERC had dismissed the issue of affiliate abuse on March 28 without a hearing. At Wagner's request, the commission later agreed to reopen the issue during a hearing into the market-manipulation complaint. 
The proceeding, which began April 4 and concluded August 6, resulted in a hearing record of 32 volumes and totaled 5,573 pages, while 515 exhibits were entered into evidence, Wagner reported. 
"The briefs measured approximately one linear foot," he said. 
 
     Contracting With Affiliates 
   
At issue are contracts worth $38.5 million that El Paso's marketing unit entered into with its pipeline affiliate to secure 1.2 billion cubic feet per day of firm transportation capacity into California from March 2000 through June 2001. 
California argued El Paso had used its control of pipeline space to limit the supply of gas into the state and boost prices. 
The contract period coincided with an unprecedented period of power-market volatility, in which skyrocketing natural gas costs contributed to extreme spikes in electricity prices that ultimately rendered the state's utilities insolvent. 
The judge found that the contracts gave El Paso Merchant more than a 35% market share, the market-power threshold under FERC's merger guidelines, based on his interpretation of the relevant market. El Paso had argued for the higher antitrust-law threshold of 50%, but Wagner ruled that the lower standard should apply. 
But while that market share gave El Paso the "ability to exercise market power," Wagner said, "it is not at all clear from the record in the proceeding that El Paso Merchant and El Paso Pipeline exercised market power." 
The record offers only mixed support for allegations by the CPUC and utilities in the state that El Paso withheld gas supplies to drive up prices, Wagner said. 
From March through October 2000, El Paso's capacity utilization rate was about half the rate of other shippers, while for the remainder of the contract, the full capacity was used. 
Wagner concluded that El Paso's compliance with FERC rules requiring companies that control pipeline capacity to offer unused capacity to other shippers constituted an effective check against market power. 
 
     Improper Communications Seen 
   
Where the state scored a win was in the second phase of the hearing, where Wagner heard evidence on allegations of affiliate abuse. 
Wagner cited telephone records and correspondence to conclude that El Paso violated FERC rules requiring pipelines and affiliated marketers to operate independently of one another. The rules also restrict communications between pipeline operating personnel and affiliated marketers. 
Transcripts of telephone conversations between pipeline and marketing employees of El Paso "demonstrate blatant collusion ... to keep secret a discount for service" on El Paso's Mojave system until the open season was over in which Merchant was bidding for the pipeline capacity on the sister pipeline, Wagner said, including the transcripts in his opinion. 
Wagner determined that the transcript offered a "prima facie" case of affiliate abuse, and urged El Paso to present witnesses to rebut his finding. But El Paso declined to present the witnesses, the opinion noted. 
Wagner also cited a confidential memorandum to William Wise, El Paso's chief executive, from the head of El Paso Merchant as contributing to his conclusion that El Paso and its pipeline and marketing affiliates "were in clear violation" of FERC's affiliate-abuse rules. 
El Paso replied in a statement that the commission had considered the same evidence and found no abuse in its March 28 ruling. The commission would commit a "legal error" if it adopted the judge's views, the company said. 
The parties have 30 days to file briefs taking exception to the judge's findings. The commission can either accept or reject the judge's findings. 
However the commission ultimately rules in the case, it is expected to end up appealed before a federal appeals court.