U.S. Orders Further Inquiry Into Natural Gas Charges

WASHINGTON —  The Federal Energy Regulatory Commission ordered further inquiry Wednesday into allegations by California officials that El Paso Natural Gas Co. manipulated the natural gas market by keeping supply artificially low, thus contributing greatly to the skyrocketing price of electricity in the state.

But the commission dismissed the portion of the complaint filed a year ago by the California Public Utilities Commission asking it to invalidate a contract between El Paso and an affiliate. The PUC said El Paso Merchant Gas won the contract on the basis of bidding information unfairly provided by its parent company.

The issue of market manipulation will go before an administrative law judge, who has 60 days to make a recommendation to the FERC commissioners. At a hearing before then, each side will present its case and call witnesses.

Separately, a single commissioner said after Wednesday’s FERC meeting that the decision by California regulators Tuesday to adopt the state’s largest electricity price hike in history should clear the way for federally imposed price caps on wholesale electricity prices.

“California has done what many people thought they should do: pass on some of the increased costs to consumers,” said William Massey, who has been the commission’s only voice for price caps. “Is this agency going to keep its part of the bargain and comply with a federal law that’s 65 years old that calls for federal regulators to ensure just and reasonable rates?”

But Massey faces an uphill battle. FERC Chairman Curt Hebert Jr. echoed President Bush’s staunch opposition to such intervention at a press briefing after the commission’s hearing Wednesday.

Asked if he would go as far as blocking any attempt by fellow commissioners to pass price caps on the electricity market, Hebert said: “Absent someone proving to me that price caps worked in the form of producing more supply or less demand, yes.”

Hebert’s stance is likely to be bolstered by Bush’s appointment this week of two Republicans to the commission, filling out a five-member board that had been operating with only three commissioners.

FERC’s decision to dismiss part of the complaint against El Paso drew expressions of deep disappointment from PUC officials. And they vented their frustration that it had taken federal regulators so long to set a hearing on the charge of market manipulation.

“We have been killed on natural gas prices in California during this whole time that FERC has been sitting on it,” said Harvey Morris, a PUC lawyer. “Now, after the winter heating season is over, they finally schedule a hearing. The big question now is what can they do to help us if we were right all along.”

Morris said he needed to review a copy of the order, which had not yet been made available, to determine if the decision to call the hearing had the potential to provide some relief for prices he called “outrageous.”

The PUC first asked FERC to invalidate the contract between El Paso Natural Gas Co. and its subsidiary, El Paso Merchant Gas, last April. That contract is set to expire at the end of May.

The price of natural gas to the California market has played a central role in the current energy crisis because natural gas fuels half of the state’s electricity production. Industry observers have noted that natural gas sold at the state’s borders has been wildly more expensive than in any other market in the nation.

Massey said he believed that the issue of affiliate abuse and the allegations of market manipulation should have been put before an administrative law judge--although he voted with his two fellow commissioners to dismiss part of the complaint.

Kim Wallace, a spokeswoman for the Houston-based El Paso corporation, said the company was gratified that FERC found no evidence of affiliate abuse. “We’re just pleased that we are going to get a resolution to this expeditiously,” she said. She said she was “confident” a review of the full record would exonerate El Paso.