In the midst of a concerted public relations/lobbying blitz by their cornered regulatory prey, El Paso Corp., lawyers who have built the case for alleged market power abuses by the Houston-based gas pipeline giant are unabashedly confident that they will get a favorable decision from the Federal Energy Regulatory Commission by the end of this year.

That in turn will help proponents for separate lawsuits in California aimed against El Paso and other for alleged anti-trust moves to drive up wholesale gas prices in the state in the winter of 2000-01, the attorneys maintain.

In the meantime, the lawyer for Southern California Edison Co., which along with California regulators and Pacific Gas and Electric Co., have pushed the case against El Paso, said he will file exceptions to part of the FERC chief administrative law judge’s proposed decision when it is due Wednesday. He believes the FERC commissioners should reverse the ALJ’s finding that subsidiary El Paso Merchant Energy did not exercise market power, although Judge Curtis Wagner said El Paso’s interstate pipeline clearly did.

El Paso, which has requested a daylong hearing before the four current FERC commissioners in late November to argue its side of the case, also will file its exceptions Wednesday. Wagner’s proposed decision was the first time a federal regulatory official agreed with the Californians’ long-standing allegation that El Paso and its merchant affiliate manipulated pipeline capacity into their state in order to widen the basis between the California-Arizona wholesale border price and prices at other hubs to the East.

Banking on public comments by the FERC Chairman Patrick Wood that the commission will act by the end of the year on this two-year-old issue, Kevin Lipson, Edison’s Washington, DC-based attorney with Hogan & Hartson, said “finally there is going to be some redress of California’s grievances and there will be appropriate remedies. Everyone knows there were ample opportunities to manipulate the market during that period (November 2000 through March 2001).”

Lipson said his involvement in the issue of alleged interstate gas pipeline capacity into California being withheld began back in 1996 in a FERC filing that was subsequently dismissed against Dynegy, which then held a lion’s share of the same Southwest capacity into the state. “Edison predicted then that any one holder of this volume of capacity has the potential to exercise market power,” said Lipson, noting that FERC at the time said it wasn’t going to look at any anti-trust claims. “We appealed that to the DC Circuit Court of Appeals, and that court reversed FERC’s decision and said it had to look at anti-trust issues, and that was actually the seedling for this case.”

Edison and the other California interests indicated they think the record of 121 days of operation in which El Paso’s pipeline never operated close to its so-called “maximum allowable operating pressure” (MAOP) will make it “impossible” for the federal regulators to reverse the ALJ, and in fact, Lipson thinks they will include El Paso Merchant Energy among the culpable parties.

As everyone focuses on the FERC commissioners, no one publicly is speculating about appeals, but any decision surely will be challenged by the losing side. In addition, Lipson thinks a finding of market power abuse by the full commission will carry enormous impact on the 11 civil lawsuits in California state courts that allege anti-trust violations by El Paso and Sempra Energy’s two utilities, Southern California Gas Co. and San Diego Gas and Electric Co. A Superior Court judge last Wednesday agreed the cases can move forward into the discovery phase, pending the outcome of the FERC case.

“The factual predicate contained in this (FERC) decision is extremely helpful in prosecuting those suits,” Lipson said. “Now that the judge has decided those suits can go forward, this case assumes tremendous significance in those (California) proceedings.”

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