El Paso Corp. is making “very good progress” in moving toward a settlement of allegations that it withheld transportation capacity from the California market to ratchet up prices for natural gas during the energy crisis in 2000 and 2001, said the company’s new chairman, Ronald L. Kuehn Jr.

“I am convinced the company and its people have done nothing wrong. Absolutely convinced. But the political realities and hostile public sentiment environment in California is such that, if it is possible to do so on reasonable terms, we would like to achieve a settlement of this issue, as distasteful as that is,” he said in a video to El Paso employees on Tuesday.

“I believe we are making very good progress in moving forward towards a settlement that will not impair the company’s ability to get back on track and get this issue behind us. If we are not able to reach a settlement on reasonable terms, we will continue to defend our position before the FERC and the courts,” Kuehn noted.

A transcript of his comments has been filed with the Securities and Exchange Commission (SEC).

El Paso and California have about a week left to reach a settlement of the charges that the company manipulated gas prices. FERC Chairman Pat Wood has said the Commission intends to issue a ruling in the case at its March 26 regular meeting. Wood, however, has indicated on several occasions that he would prefer the parties to settle the matter. The complaint case against El Paso, which was brought by California regulators, has been pending at the agency since April 2000.

In a related development, FERC on Tuesday said it will release to the public all documents that have been submitted as part of the complaint case involving El Paso Natural Gas pipeline and other El Paso affiliates, except for information obtained from other federal agencies [RP00-241]. The documents have been shielded from the public under protective orders and claims of privilege.

El Paso and other parties have five days in which to protest the agency’s decision to divulge the information.

As for El Paso’s current health, Kuehn said the company’s financial position was “greatly improved” as a result of a series of recent transactions. “Last week we closed a $1.2 billion two-year secured loan and used the proceeds to pay off the $825 million balance of the Trinity River financing.” This improved the company’s liquidity position, and enabled it to retire the $1 billion Limestone Electron notes as well, he said.

“We also just issued a total of $700 million of bonds in Southern Natural and ANR,” two El Paso pipeline subsidiaries.

El Paso’s goal now is to “bring our costs in line with what we are going to be — not what we were,” Kuehn noted. “Last year we reduced annual expenses $300 million; this year our target is to achieve additional cost savings of at least $150 million.”

A key part of its plan is to “preserve and enhance the value” of the company’s core businesses — pipelines, production, midstream and a portion of its power business, according to Kuehn. He estimated that 35% of El Paso’s capital expenditures this year are committed to maintaining and expanding the company’s pipelines, 50% are devoted to production and the rest is earmarked for other businesses.

The divestiture of El Paso’s non-core businesses “is going extraordinarily well in a very difficult environment,” he noted. “To date we have closed or have signed agreements to sell $1.5 billion of assets.” El Paso’s target is to sell $3.4 billion in assets this year.

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