Apparently the judge was not persuaded by the 'smoking gun' memo and the refusal of El Paso's executives to testify in court. 

 -----Original Message-----
From: 	Bryson, Jesse  
Sent:	Tuesday, October 09, 2001 3:38 PM
To:	Hall, Steve C. (Legal)
Subject:	FW: USA: UPDATE 1-FERC judge - El Paso didn't drive up natgas price.



 -----Original Message-----
From: 	Bryson, Jesse  
Sent:	Tuesday, October 09, 2001 3:26 PM
To:	Cocke Jr., Stanley
Subject:	USA: UPDATE 1-FERC judge - El Paso didn't drive up natgas price.

USA: UPDATE 1-FERC judge - El Paso didn't drive up natgas price.
By Chris Baltimore
  
10/09/2001 
Reuters English News Service 
(C) Reuters Limited 2001. 
WASHINGTON, Oct 9 (Reuters) - A Federal Energy Regulatory Commission judge ruled on Tuesday that El Paso Corp. did not improperly drive up natural gas prices on its pipelines into California last year. 
Administrative Law Judge Curtis Wagner did find El Paso guilty of so-called affiliate abuse, in which the firm violated a FERC rule prohibiting communications between pipeline companies and their marketing affiliates. 
The full four-man FERC commission will consider Wagner's findings and determine penalties, if any, at a later date. 
California utilities accused El Paso, owner of several pipelines that ship natural gas into the state, of improperly sharing information with its affiliate El Paso Merchant Energy Co., which they said pushed up prices. 
"While El Paso Pipeline and El Paso Merchant had the ability to exercise market power, there was not a clear showing that they had in fact done so," Wagner told Reuters after issuing his 41-page report. 
The California Public Utility Commission, PG&E Corp.'s Pacific Gas & Electric, and Edison International's Southern California Edison, claimed El Paso withheld capacity on its four pipelines into the state from March through November of last year. The trio alleged that inflated prices and cost Californians an extra $3.7 billion. 
Natural gas is widely used to fuel electricity generating plants. Soaring prices for natural gas until this summer were blamed for exacerbating California's chronic power shortages. 
Houston-based El Paso has maintained it did not inflate natural gas prices on its pipelines into California. 
The company said it had no financial incentive to push prices higher because it had hedged roughly 90 percent of its natural gas to third parties before prices soared higher last year. 
JUDGE FINDS COLLUSION 
Wagner did not make a recommendation on financial penalties in the case despite finding El Paso violated FERC codes of conduct. 
"That would be the remedies phase that the full commission will consider at a later date," Wagner said. "I didn't even consider (financial) remedies at this point." 
"The record in this case is not at all clear that they in fact exercised market power," Wagner wrote. "The issue in the complaint concerning whether El Paso Pipeline and/or El Paso Merchant may have had market power and, if so, exercised it to drive up natural gas prices at the California border should be dismissed." 
The agency judge said transcripts of telephone conversations on Feb. 7 and Feb. 9 of last year between officials with El Paso Merchant and the company's Mojave Pipeline affiliate showed "blatant collusion" by the companies. 
Under FERC's standards of conduct, a pipeline must give information about natural gas transportation to all potential shippers as well as the company's own marketing affiliate. The rules also require a pipeline's operating staff and the staff of its marketing affiliate to function independently of each other. 
"These telephone transcripts demonstrate blatant collusion on the part of El Paso Merchant and Mojave/El Paso Pipeline to keep secret a discount for service on the downstream Mojave system until the open season ended, giving El Paso Merchant an advantage in making its bid for the total 1,220 million cubic feet per day," the judge wrote. 
EXECUTIVES DIDN'T TESTIFY 
Wagner also noted that neither El Paso Merchant or Mojave executive testified at the FERC administrative law hearing, despite El Paso attorneys' promise to have the witnesses appear. 
"The chief judge finds that El Paso Corp. and its affiliates El Paso Pipeline, Mojave and El Paso Merchant were in clear violation of standards of conduct," Wagner wrote. "There was little separation of regulated and non-regulated businesses by El Paso Corp with a sharing of information and close supervision by the corporate head." 
"While there are clear violations of the current standards of conduct in this case, those rules were promulgated many years ago and the gas industry has undergone tremendous changes since then with merger after merger creating large holding companies, such as the El Paso Corp., and very different methods of doing business than in bygone years," Wagner said.