This is a very good synopsis of the gas crimes trials in California.  Please 
note comments of Assembly Republican John Campbell---perhaps the sole bright 
spot in the California Legislature...

Competing evidence clouds Calif. investigation

Prompted in part by the California Public Utilities Commission, the 
California Assembly
has been scrutinizing the role that interstate pipelines have played in the 
state,s current
energy crisis. In the efforts to find a smoking gun, legislators have leaned 
heavily on a
report prepared by The Brattle Group, a consultancy commissioned by utility 
Southern California
Edison to dig up evidence of market power abuse.

But the state,s biggest transporter of gas to California -- El Paso Natural 
Gas -- is not
ready to take the rap. The pipeline has commissioned its own study, which it 
recently presented
as evidence that it has not circumvented any laws or regulation.

As reported in both the trade press and national media, SoCal Ed and the CPUC 
are pointing
the finger of blame at El Paso for alleged manipulation of California border 
prices through
affiliate deals and capacity hoarding. And exhibit A in their case against El 
Paso is The Brattle
Group,s study of the California market.

Richard Zeiger, a spokesman for Assembly Member Darrell Steinberg, chairman 
of the
California Assembly Judiciary Committee, told Gas Daily that The Brattle 
Group,s market
study proved that the surge in gas prices at the California border was not 
caused by normal
market forces (GD 4/20). His remarks followed an oversight hearing during 
which Assembly
members questioned Dynegy and El Paso officials about their involvement in 
the California
market.

El Paso presented a different version of events to the Assembly. In a report 
presented to
legislators, a research group hired by El Paso concluded that a convergence 
of factors, not a
conspiracy, caused the price run-up.

Lukens Consulting Group, a Houston-based consultancy, was retained by El Paso 
to conduct
work on several fronts. In its study of the California market, Lukens 
concluded that the
increasing convergence of the gas and electricity businesses was one of the 
main culprits in the
California gas price imbroglio.

Assemblyman John Campbell, a Republican member of the oversight committee, 
said he
"didn,t see any smoking gun" in either report.

"We had our committee hearing, and we certainly had a lot on the Brattle 
Study and a little
on the Lukens study. To some degree, I,m not sure that the California 
legislature is the best
place to adjudicate the differences between these two studies," Campbell 
said. "I believe FERC
is looking at this situation " and it would seem to me that that,s the 
appropriate place."

Campbell said that the CPUC had been prodding the California legislature to 
give support
to its claims of market power abuse by pipelines. "It,s being pushed 
basically by the Public
Utilities Commission here, which believes that there was collusion" by 
pipeline companies to
push up gas prices in California, he said.

The CPUC, Campbell suggested, sought satisfaction before the California 
assembly when
it had failed on the federal level: "There,s a concerted effort, not just on 
natural gas but on other
things here in California, for entities and organizations here to point the 
finger elsewhere for
the problems that we,re having in this state and I think you,re seeing some 
of that with the
public utilities commission."

Whether either report wins over the public incensed by high natural gas 
prices is a different
matter entirely. In the meanwhile, the dueling California market studies seem 
to have taken
on a life of their own.

The Brattle Group Study, for instance, has become the center of a heavily 
litigated effort to
force FERC to compel the release of market data by California market 
participants. Following
on a request by SoCal Ed, which said it needed additional data to round out 
The Brattle Group
report, FERC Chief ALJ Curtis Wagner issued subpoenas to the other three 
major pipelines that
serve the state as well as to Sempra Energy Trading.

Several parties resisted FERC,s call for market information, saying the 
requested data
contained commercially sensitive information. FERC allowed the discovery 
process to move
forward but only after attaching strict data protection rules restricting 
access to evidence
(GD 4/23).

Critics of the pipeline industry have already suffered one setback in their 
case. The commission
recently dismissed the CPUC,s claim that El Paso rigged the auction of a 
large block of
pipeline capacity in favor of affiliate El Paso Merchant Energy. In 
addressing the California
Assembly, representatives of Dynegy said that FERC,s recent ruling on the 
California border
controversy obviated the need for more investigation.

The controversy, however, is far from over. FERC last month also ordered a 
hearing into
whether El Paso Natural Gas and its affiliates manipulated capacity to drive 
up the price of gas
delivered into California (GD 3/29). That hearing is likely to take place 
this summer. (RP00-
241, et al.) NH





	Rob Bradley
	04/25/2001 09:13 AM
		
		 To: Jeff Dasovich/NA/Enron@Enron
		 cc: Alan Comnes/PDX/ECT@ECT, James D Steffes/NA/Enron@Enron, Janel 
Guerrero/Corp/Enron@Enron, Jeff Dasovich/NA/Enron@Enron, Joe 
Hartsoe/Corp/Enron@Enron, Karen Denne/Corp/Enron@Enron, Leslie 
Lawner/NA/Enron@Enron, Paul Kaufman/PDX/ECT@ECT, Richard 
Shapiro/NA/Enron@Enron, Sandra McCubbin/NA/Enron@Enron, skean@enron.com, 
Susan J Mara/NA/Enron@Enron
		 Subject: Re: Some Background on California Gas Price Spikes--The Other Side 
of the Story

Here is the Q&A I will give to Ken on this topic, and I invite any 
improvements:

Question: "What is your opinion about the study of the Brattle Group (Dr. 
Paul Carpenter) that market power exercised by El Paso and Dynegy exacerbated 
the natural gas price spike at the California border that contributed to the 
electricity price spike."

Answer:  "I always discount conspiracy theories when prices rise or fall and 
believe fundamental forces of supply and demand explain prices in this 
instance.  I will say, however, that the transmission grid must be more open 
and transparent to improve everyone's confidence in the economics behind 
price formation.  Long term contracting in the wholesale commodity market 
should also reduce speculation about price manipulation."

- Rob





	Jeff Dasovich
	Sent by: Jeff Dasovich
	04/24/2001 06:57 PM
		 
		 To: Richard Shapiro/NA/Enron@Enron, skean@enron.com, James D 
Steffes/NA/Enron@Enron, Paul Kaufman/PDX/ECT@ECT, Leslie 
Lawner/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, Rob 
Bradley/Corp/Enron@ENRON, Janel Guerrero/Corp/Enron@Enron, Karen 
Denne/Corp/Enron@ENRON, Alan Comnes/PDX/ECT@ECT, Sandra 
McCubbin/NA/Enron@Enron, Susan J Mara/NA/Enron@ENRON
		 cc: 
		 Subject: Some Background on California Gas Price Spikes--The Other Side of 
the Story

Last week, I distributed a presentation that the Brattle Group gave before 
the California Inquisition (i.e., legislative gas oversight committee looking 
into the gas price spikes at the Cal border).  

The Brattle Group is a consulting firm that Edison has long used to beat up 
on SoCalGas (recall that Edison used to be a big gas customer when it owned 
power plants).  Edison "arranged" for the Brattle Group to be the star 
witness at the Cal Leg gas hearing.  Their job was to set up El Paso and 
Dynegy for the hit at hearings that took place the following day.  Their 
message was simple (and simplistic):

El Paso and Dynegy have market power.
They have used the market power to drive up basis and thus the price of gas 
at the border (to "obscene" levels).
That, in turn, has driven up electricity prices.

Ken Lay is giving a gas talk tomorrow, and Rob Bradley asked that I provide 
the alternative view to the Edison/Brattle rant, in the event that he gets 
any questions on the topic.  It's attached.  Apologies, it's quick and dirty, 
but it provides the basics.

Obviously no need for us to defend El Paso or Dynegy, but might be useful to 
offer a more rationale explanation than the one that the California 
Legislature is peddling.

Finally, we were also fingered somewhat as culprits at the hearing (the 
California PUC FERC lawyer claimed that ENA and TW colluded to drive up basis 
when ENA controlled a portion of  the capacity), but the overriding goal of 
the hearing was to go after EP and Dynegy.

Best,
Jeff