Bloomberg reports forwarded by Bracewell & Patterson.  Note the report from today in the last half.

 -----Original Message-----
From: 	"Tracey Bradley" <tbradley@bracepatt.com <mailto:tbradley@bracepatt.com>>@ENRON [mailto:IMCEANOTES-+22Tracey+20Bradley+22+20+3Ctbradley+40bracepatt+2Ecom+3E+40ENRON@ENRON.com] <mailto:[mailto:IMCEANOTES-+22Tracey+20Bradley+22+20+3Ctbradley+40bracepatt+2Ecom+3E+40ENRON@ENRON.com]> 
Sent:	Monday, August 06, 2001 5:48 PM
To:	jlimone@aeglobalmarkets.com <mailto:jlimone@aeglobalmarkets.com>; Charles Shoneman; Kimberly Curry; Randall Rich; Cantrell, Rebecca W.
Subject:	El Paso Dealings Appear to Violate Rules, Judge Says (Update5)

FYI

El Paso Dealings Appear to Violate Rules, Judge Says (Update5)
By Jim Polson


Washington, Aug. 3 (Bloomberg) -- El Paso Corp. may have violated federal rules by letting its merchant energy unit outbid rivals for capacity on a natural-gas pipeline into California, a federal regulatory judge said.

Curtis Wagner, a U.S. Federal Energy Regulatory Commission chief judge, is investigating accusations that the El Paso unit locked up more than a billion feet of capacity so other gas suppliers couldn't use it.

California utilities and government officials say El Paso used the transaction to cut the state's gas supplies and drive up prices. Wagner said he was disturbed by a transcript of telephone conversations between an El Paso merchant-energy executive and a salesman from the company's pipeline unit, who appeared to exchange information ensuring no rival could get the capacity.

``If that's not hanky-panky, there's no such thing,'' Wagner said at the hearing. ``This is the kind of stuff we passed affiliate standards to prevent, and now it's out in the open. I want to know if this sort of thing goes on every day, and I think the commission wants to know too.''

Patricia Shelton, El Paso pipeline unit president, disputed the judge's interpretation, saying the two men hadn't reached an agreement and that El Paso had followed FERC's rules properly.

The El Paso units didn't discuss the bidding process in advance, said Mark T. Mitchell, who handled the trading unit's bid. The telephone call mentioned by Wagner didn't affect the bid, Mitchell said.

Shares of El Paso fell $1.97, or 3.7 percent, to $51.25. They have fallen 28 percent this year.

El Paso's pipeline network is the biggest in North America, at more than 55,000 miles long. The Houston-based company also owns a separate merchant-trading unit that buys and sells gas.

FERC Rules

Under FERC rules, El Paso must give everyone who wants to move gas on its U.S. interstate pipelines an equal opportunity to bid for access. The rules also discourage or ban the company's pipeline and merchant units from sharing many types of information.

FERC is investigating why the average price of natural gas jumped almost fivefold in California in the first quarter from a year earlier and why prices in the state are higher than elsewhere in the U.S.

California's average electricity prices soared more than ninefold earlier in the first quarter, in part because of the cost of gas used to fuel many power plants.

New hearings into the issue started yesterday, and participants expect them to continue into next week. The judge held weeks of hearings on El Paso's role in California earlier this summer.

In addition to California's regulators, plaintiffs in the case included the state's two largest utilities, PG&E Corp.'s Pacific Gas & Electric Co. and Edison International's Southern California Edison Co.

El Paso Chairman William Wise testified May 25 that he didn't come up with the plan to have the merchant unit bid for the pipeline capacity, though he did approve it. Wise said he didn't speak to the pipeline group about the contract.
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08/06 17:46

El Paso Chief Executive Won't Testify at Gas Hearing (Update2)
By Jim Polson


Washington, Aug. 6 (Bloomberg) -- El Paso Corp. faces federal sanctions on its pipeline system, the longest in the U.S., if federal officials conclude its units violated rules on bidding for California pipeline capacity.

Curtis Wagner, U.S. Federal Energy Regulatory Commission chief administrative law judge, said the company may lose its case because Chief Executive William Wise and other executives refused to counter evidence that El Paso favored its energy-trading unit in bidding for more than a billion cubic feet of pipeline capacity.

Wagner has ``a wide range'' of sanctions he may recommend to the commission by Oct. 2, FERC spokeswoman Tamara Young-Allen said. Testimony ended today.

``The burden of proof has now shifted to El Paso Corp.'' from California's utilities and state regulators, Wagner said after testimony by executives of El Paso's pipeline and energy trading units. He said he might rule against El Paso without persuasive testimony by Wise.

``In the end, we will be vindicated,'' El Paso spokeswoman Norma Dunn said.

El Paso attorneys said Wise and other executives would only answer questions from Wagner. The judge said if they took the stand, they also would have to answer questions from California attorneys. When El Paso refused, Wagner adjourned the hearing.

Gas Prices

The FERC is looking into why the average price of gas jumped almost fivefold in California during the first quarter compared to a year earlier, and why prices there are higher than elsewhere in the country. Gas is used to fuel many power plants, and the average price of electricity at the California-Oregon border soared more than ninefold earlier this year.

California utilities and government officials say El Paso used the transaction last year to cut the state's gas supplies and drive up prices.

Wagner said he was disturbed by a transcript of telephone conversations between an El Paso merchant-energy executive and a salesman from the company's pipeline unit, who appeared to exchange information ensuring no rival could get the capacity.

``If ever a deal was made, there was a deal made there,'' Wagner said. He discounted testimony by El Paso pipeline and trading executives that the discussion was proper under federal rules and gave the trading unit no advantage in the bidding.

An April 14, 2000 memorandum to Wise and the head of El Paso's pipeline unit details ``what must happen for El Paso Merchant Energy to make it'' on the contract, Wagner said. ``If ever there were playing both sides of the fence, that's it.'' Wise testified before Wagner in May during the first round of hearings.

Competition Rules

Under FERC rules, El Paso must give everyone who wants to move gas on its U.S. interstate pipelines an equal opportunity to bid for access. The rules also discourage or ban the company's pipeline and merchant units from sharing many types of information.

In March, FERC exonerated El Paso of allegations it had favored its trading affiliate in pipeline capacity bidding, and ordered Wagner to hold hearings on whether it had manipulated gas prices. In June, after 17 days of hearings that included testimony by Wise and others, the commission allowed Wagner to expand his inquiry to include the handling of the pipeline contract.

Attorneys on both sides will make final arguments to Wagner in briefs due Aug. 24.

Shares of El Paso fell $1.30 to $49.95. They have fallen 30 percent this year.