El Paso, CA Submit First Part of Price Manipulation Settlement; More to Come
El Paso Corp., California regulators and other state parties on Wednesday met FERC's deadline for filing a settlement to resolve allegations of natural gas price manipulation and other questionable activities, but it wasn't the whole settlement.
El Paso and other parties submitted what they called a "structural settlement," which they said was the first part of an overarching settlement between the company and a number of public and private parties in California, Nevada, Oregon and Washington. "The remaining portions of the settlement are in final stages of preparation. The company expects that all related documents will be approved by the parties and executed within the next two weeks," El Paso said in a prepared statement.
"El Paso and the other parties have worked night and day to resolve their differences in these complicated proceedings, and the filing of the structural settlement is the first critical step to put these issues to rest so that El Paso and its stakeholders can move forward with certainty," said El Paso CEO Ronald L. Kuehn Jr. "We hope that the Federal Energy Regulatory Commission will promptly review the settlement and approve it as being in the public interest."
None of the terms or details of the so-called structural settlement were disclosed.
Having already granted El Paso, the California Public Utilities Commission (CPUC) and other parties two filing extensions, the Commission has grown somewhat exasperated and warned them last month against any further delays (see Daily GPI, May 12).
El Paso revealed in late March it had reached a "comprehensive settlement agreement in principle" to resolve all regulatory and legal actions related to the sale or delivery of natural gas and electricity to California and three other western states from September 1996 to the present (see Daily GPI, March 24). The cost of the settlement was pegged at $1.7 billion. At the time, El Paso and California asked FERC to give them some time while they finalized the settlement.
The proposed agreement, which would require the approval of FERC and the courts, essentially "closes the doors on all [of El Paso's] significant financial exposure related to the California crisis," El Paso General Counsel Peggy Heeg said in March. El Paso admitted no wrongdoing in the agreement.
Parties to the El Paso settlement were private class-action litigants in California, state Gov. Gray Davis and the lieutenant governor, the attorneys general of California, Oregon, Washington and Nevada, the CPUC, the California Electricity Oversight Board, Pacific Gas and Electric, Southern California Edison and the City of Los Angeles.
Terms of the initial agreement called for El Paso to:
- Make an up-front payment of $100 million into an escrow account upon execution of a definitive settlement;
- Pay $2 million from the company's office bonus pool;
- Issue $125 million in El Paso common stock to parties once the settlement becomes effective; the number of shares issued will be based on the 30-day average price for the company stock prior to Thursday (March 20);
- Deliver to the California border $45 million in gas annually for 20 years starting in 2004;
- Reduce the costs of its power contracts with the California Department of Water and Power by $125 million during the remaining term through 2005;
- Pay $22 million annually for 20 years starting one year after the settlement takes effect; El Paso has the option to make 50% of any payment in stock;
- Maintain existing deliveries of 3.29 Bcf/d on El Paso Natural Gas to the California border over a five-year period; and
- Keep the subscribed capacity of El Paso's affiliates on the El Paso pipeline at their existing levels.
Among other things, the settlement is intended to resolve allegations in a complaint, filed by the CPUC more than two years ago, that El Paso Natural Gas and a merchant energy affiliate conspired to withhold transportation capacity from California to drive up wholesale gas prices at the state border [RP00-241]. The gas price spikes came in the midst of the wholesale electricity market meltdown, further driving up the cost of bulk power.
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