El Paso?s $1.6 Billion Settlement Clears More Hurdles

By Published On: December 14, 2003

The second piece of El Paso Corp.?s four-part deal to mitigate alleged natural gas price gaming that drove up prices was approved by the Federal Energy Regulatory Commission last week. But the third and crucial leg of the restitution issue still hung in the balance in San Diego Superior Court at press time. Although the FERC board said it finalized a deal for $1.6 billion for alleged withholding of natural gas supplies November 14, the action doesn?t go into effect until after the San Diego Court case is decided [Continental Forge v. SoCal Gas and El Paso et al., J.C.C.P. 4221 et al.]. ?It is a conspiracy between El Paso and Sempra to prevent pipeline construction,? said plaintiff?s attorney Barry Himmelstein of Lieff Cabraser. That claim in the pending suit is known as the ?Southern California? theory. The San Diego case is based on two allegations, referred to as the Northern and Southern California theories. The latter alleges a ?rigged auction? between El Paso Pipeline Co. and El Paso Merchant Energy, according to Himmelstein. Plaintiffs maintain that the pipeline company reserved 1.2 bcf/day for its merchant affiliate, forcing firm capacity holders to buy energy on the spot market. The seller on the spot market was the very same El Paso Merchant. While this week?s court case involves only El Paso settlement issues, it includes Sempra in the strange story of the ?Phoenix motel room.? Under the Southern California theory, plaintiffs allege that a secret meeting took place in the Sky Harbor Airport Motel near Phoenix, Arizona. There, El Paso and Sempra high management allegedly schemed to prevent construction or expansion of competitive pipelines, restricting the availability of capacity on the El Paso pipeline. The lack of competition, termed a ?conspiracy? in court briefs, is blamed for ?extreme? gas prices during the energy crisis. The Sempra part of the case is set for trial next September, while the El Paso settlement nears completion. El Paso did not respond to requests for comment. While FERC staff have been pursuing settlements in cases of wholesale electricity market gaming with nearly 40 firms, this is the biggest related natural gas case involving alleged price gouging during the energy crisis. California ratepayers are set to receive about $1 billion of the settlement, with the rest going to Nevada, Washington, and Oregon. The first part of the El Paso gas price controversy involved the California Public Utilities Commission?s recent proposed allocation to ratepayers if the other parts of the settlement come through. The fourth leg of the matter is a stipulated judgment in federal court among El Paso, the state, and Southern California Edison.

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