El Paso Merchant Energy, an affiliate of El Paso Natural Gas, isreaping “monopoly rents in excess of 7,000% higher than the justand reasonable rate approved by the Commission for its regulatedsibling,” Southern California Edison told the Federal EnergyRegulatory Commission last week.

To remedy this, FERC should act quickly on a complaint seekingabrogation of the 1.22 Bcf/d transportation contract arrangementbetween the pipeline and its affiliate, Edison said, citing therapid escalation in gas delivery costs to the Southern CaliforniaBorder.

In light of the “extraordinary events in the California gas andelectricity markets,” Edison urged FERC to “immediately consider— and grant” summary disposition of the complaint in which theCalifornia Public Utilities Commission (CPUC) alleged that El PasoMerchant was given “preferential treatment” by El Paso during theopen season for the capacity. The CPUC had sought summarydisposition of the complaint last August, but FERC has yet to act.

Since then, the average price of gas at El Paso’s SouthernCalifornia Gas delivery points has increased from $6.13 (Aug. 13)to $36.245/Mcf on Dec. 7, Edison told FERC. There were price quotesas high as $53/Mcf last Thursday. “And as the Commission ispainfully aware, the California border price of natural gas is amajor force behind the astronomical increase in Californiaelectricity prices.”

Given that San Juan Basin gas prices rose only to $9.150/Mcffrom $3.585/Mcf during the period ended Dec. 7, this means “thevalue of El Paso capacity from the San Juan Basin to the Californiaborder — a significant portion of which is held by the pipeline’saffiliate [El Paso Merchant] — has increased in value to almost$27,” the electric company said.

“And the current market value of the El Paso transportation heldby [El Paso Merchant] is over 7,000% higher than El Paso’s 100%load factor rate for firm transportation of approximately 38cents,” Edison estimated.

While at the outset of this complaint proceeding, “theCommission may have viewed this.as a theoretical exercise in thestudy of market power. Today’s California energy market presentsthe harsh reality of an abuse of that market power that can nolonger be permitted to continue,” Edison argued.

In the event FERC chooses not to act quickly on the CPUCcomplaint, Edison asked the Commission in the alternative toenforce a September order that directed El Paso Merchant to turnover certain materials to the CPUC and other involved parties.Edison contends El Paso Merchant has refused to comply with theorder, blocking resolution of the complaint.

While El Paso Merchant “drags out the process of resolving thiscomplaint, the escalating California border prices continue toprovide [it] with the opportunity to profit from arrangements thatare alleged in the complaint to be anticompetitive.”

California Dairies Inc., a farmer-owned dairy cooperative withfive milk-processing plants in the state, also asked the Commissionto rule quickly on the CPUC complaint involving El Paso and itsaffiliate.

“We believe that your positive action on this complaint holdsthe best chance to influence a reduction in the gas price in thenear term,” wrote Executive Vice President J.A. Gomes in a letterlast week to Chairman James J. Hoecker.

Gomes said California Dairies, which consumes 1,762,000therms/month, has seen its gas costs increase from $670,000 in Mayto $2.2 million in December, and it expects the costs to nearlydouble to $4 million in January.

“This is a sixfold increase amounting to over $100,000 per day,”he noted. “Since we cannot recover these costs in our productprices, it puts our business in jeopardy. Further, I believe thatthese gas prices will be a severe financial challenge for mostbusinesses and could result in an economic crisis for California,”Gomes warned.

“We don’t understand how increases of this magnitude can occurin a ‘competitive’ natural gas market.”

Susan Parker

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