Looks like this won't be over soon.

---------------------- Forwarded by Rebecca W Cantrell/HOU/ECT on 06/12/2001 
10:50 AM ---------------------------


"Tracey Bradley" <tbradley@bracepatt.com> on 06/12/2001 08:09:43 AM
To: <jlimone@aeglobalmarkets.com>, "Aryeh Fishman" <afishman@bracepatt.com>, 
"Andrea Settanni" <asettanni@bracepatt.com>, "Charles Shoneman" 
<cshoneman@bracepatt.com>, "Kimberly Curry" <kcurry@bracepatt.com>, "Paul 
Fox" <pfox@bracepatt.com>, "Ronald Carroll" <rcarroll@bracepatt.com>, 
"Randall Rich" <rrich@bracepatt.com>, <agold@coral-energy.com>, 
<rreilley@coral-energy.com>, <joe.hartsoe@enron.com>, 
<Rebecca.W.Cantrell@enron.com>, <pat.cradock@huskyenergy.ca>, 
<doug.little@powerex.com>
cc: "Duscha Brown" <dbrown@bracepatt.com> 

Subject: FERC expands El Paso Pipeline hearing on Calif


A copy of FERC's order reopening the investigation into affiliate abuse is 
attached.

Monday June 11, 10:08 pm Eastern Time
FERC expands El Paso Pipeline hearing on Calif
(UPDATE: adds NYMEX closing price)

By Julie Vorman

WASHINGTON, June 11 (Reuters) - U.S. regulators on Monday expanded a legal 
proceeding into whether El Paso Corp (NYSE:EPG - news) affiliates improperly 
shared information to boost the price of natural gas deliveries into 
energy-starved California.

The Federal Energy Regulatory Commission (FERC) reversed an earlier decision 
and granted a request by the California Public Utilities Commission for a 
hearing on the activities of El Paso Pipeline, El Paso Merchant Energy-Gas 
L.P., and Mojave Pipeline Co.

All are involved in shipping natural gas into California, where utilities 
depend on the fuel to run electricity generating plants.

The California Public Utilities Commission alleged that the El Paso 
affiliates' three shipping contracts for 1,220 million cubic feet per day of 
guaranteed capacity to California were rigged to boost prices during much of 
last year. Utilities and state regulators claim the high prices cost 
Californians an extra $3.7 billion, a figure disputed by El Paso.

AFFILIATE ABUSE AT ISSUE

FERC, which regulates interstate pipelines and electricity markets, had said 
in March that it found no sign of what is known in the industry as affiliate 
abuse. The agency has rules requiring arms-length deals within a corporate 
family.

``The commission now sets for hearing the issue of whether El Paso Pipeline 
and/or El Paso Merchant engaged in affiliate abuse or violated the affiliate 
standards in bidding for or awarding the El Paso contracts, including the 
transportation discount granted by Mojave,'' FERC said in the Monday order.

The new hearing will become part of an ongoing case in which FERC 
Administrative Law Judge Curtis Wagner is trying to determine if El Paso 
deliberately curbed gas shipments to boost prices.

Although California prices eased in recent days, they have soared as much as 
100 times higher than other states.

El Paso has denied any wrongdoing.

``The bottom line is that FERC had all the evidence before them when they 
made their initial decision (in March) that there was no affiliate abuse. And 
that evidence has not changed,'' said Norma Dunn, a spokeswoman for El Paso.

``We're very confident that they will rule in the same fashion again,'' she 
added.

In late March, FERC ordered the first El Paso proceeding to determine if the 
company exercised market power to drive up the price of natural gas in 
California. But FERC also rejected at that time allegations that El Paso 
Pipeline had improperly favored its affiliates during the so-called ``open 
season'' when pipelines accept bids for contract deliveries.

The new FERC action came after California regulators alleged that El Paso 
Merchant received secret information from Mojave during the open season.

``The commission now believes these allegations raise factual issues that are 
best resolved in an evidentiary hearing,'' the FERC order said.

Separately, Judge Wagner asked FERC for ``guidance'' on whether he should 
gather evidence on possible violations of the affiliate standards, which 
could have influenced prices.

PUNISHMENT REMAINS UNCLEAR

On the New York Merchantile Exchange (NYMEX), Hub gas prices for July rallied 
25.7 cents, or almost seven percent, to close at $4.179 per million British 
thermal units (mmBtu) on Monday.

Under the FERC order, Judge Wagner has until June 21 to set a date for a 
hearing on the new issue.

The agency also said it was premature to identify what punishment is 
available if Judge Wagner determines that El Paso improperly exercised market 
power.

The expanded proceeding means that a Sept. 4 deadline for a decision by Judge 
Wagner has been suspended, FERC said.

The FERC order was endorsed by new FERC commissioner Pat Wood, a former Texas 
utilities regulator and confidant of President George W. Bush. Wood joined 
FERC earlier this month and is widely rumored to be in line to head the 
agency.

Current FERC chairman, Curtis Hebert, a Mississippi Republican, took over the 
leadership role in January at the insistence of then-Senate Majority Leader 
Trent Lott.

In a concurring opinion filed with the new FERC order, Wood wrote that the 
agency must ``act expeditiously'' on complaints. The El Paso allegations were 
first raised in April 2000 but FERC did not move on the case until nearly one 
year later.

``In overseeing competitive energy markets as a joint effort with our 
colleagues at state commissions, it is critical that the FERC be seen as a 
watchful and vigilant partner,'' Wood wrote. ``Expeditious referral and 
action on filed complaints is a central tool in our market oversight 
toolbox.''

Hebert also wrote a concurring opinion, in which he said he was committed to 
a speedy resolution of the case.

 - rp00-241-000.pdf