California regulators and two state utilities have asked FERC Chief Administrative Law Judge Curtis Wagner to admit a highly sensitive internal memorandum, that allegedly demonstrates the intimate working relationship between parent El Paso Corp. and affiliates El Paso Natural Gas and El Paso Merchant Energy Co. (EPME), into the record of the high-profile proceeding exploring charges of affiliate abuse.

The April 14, 2000 memo from Greg Jenkins of El Paso Merchant to El Paso Corp. Chairman William Wise “demonstrates an in-depth reporting of EPME’s daily operations, including hiring decisions, the settling of claims, purchasing, bidding intentions, ongoing negotiations, negotiating expectations, acquisitions, personnel programs, and, of course, EPME’s activities regarding the 1,220 MMcf/d of capacity that it sought” on the El Paso pipeline, claims the California Public Utilities Commission (CPUC), Pacific Gas & Electric (PG&E) and Southern California Edison. How EPME came to win a 15-month contract for the 1.22 Bcf/d of capacity on El Paso pipeline is at the center of the case.

The CPUC and utilities have asked Wagner to admit the 18-page memo as evidence so it “may be relied upon by the Chief Judge and the Commission when rendering a decision” on whether El Paso pipeline violated FERC regulations prohibiting favoritism to affiliates when it awarded the capacity on its system to EPME. “Given the sensitive nature of the information within the document,” the CPUC and utilities said they “would not object to the admission of the [memo] under the existing protective order” to prevent it from being disclosed to other parties in the case and to the public.

This marks the second time the CPUC and utilities have attempted to get the controversial memo included in the hearing record. Wagner initially ruled that it contained “commercially sensitive” information, and shouldn’t be available to other parties in the proceeding. The judge, however, did allow a “copy of the address portion” of the memo, and the list of individuals who received copies of the memo to be admitted. The CPUC and utilities said the judge took this action even though he found that the “unadmitted portions” of the documents were “relevant” to the affiliate-abuse case.

Wagner said the memo demonstrates “the extent to which Mr. Wise micro-manages Merchant and El Paso,” and called it “one of the best summaries of everything that is occurring in the company [EPME] from anything that I have seen from any company,” according to the CPUC and utilities.

The document shows that managers at El Paso Corp. and affiliate El Paso pipeline “were intimately aware of EPME’s day-to-day activities and intentions,” they said, adding that Wagner cited it as an example of “playing both sides of the fence.”

The hearing phase of the proceeding, which explored both the potential violation of FERC’s affiliate standards and market-power abuses by EPME and El Paso pipeline, ended two weeks ago. Both sides still must submit initial briefs and reply briefs in the case. An initial decision from Wagner is expected in early October.

In a related development, FERC dismissed the requests of El Paso pipeline and EPME to reconsider a mid-June order in which it set for hearing the affiliate abuse charges against the companies, after having dismissed the allegations in March as being unfounded (RP00-241). FERC reversed its earlier ruling immediately after Wagner had sought guidance from the Commission on whether he should re-open the affiliate abuse issues, suggesting that evidence had emerged since then to warrant further review of the charges.

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