If FERC should find El Paso Corp. affiliates manipulated natural gas prices in California, some energy industry experts believe the Commission has “very broad authority” to take disciplinary action against the energy corporation and essentially could destroy it, while others believe the agency’s remedial powers are “somewhat limited.”

FERC “has the ability to extract significant punishment which would have a major impact on the company at the receiving end. Essentially, it could eliminate your ability to do business,” said one Washington, DC, energy source. “Don’t just think about monetary penalties. FERC is aware they have many other options” at their disposal, he said.

The agency could strip El Paso Natural Gas of its pipeline certificate or take away El Paso Merchant Energy Co.’s license to sell electricity at market rates, if either or both are found guilty of withholding pipeline capacity to ratchet up gas prices in the California market, or committing affiliate abuses, the expert said. The agency also could yank El Paso’s license to market gas.

“That’s real world stuff…that has the potential to destroy your business and do damage on Wall Street,” he told NGI. “If they want to extract a pound of flesh, they know how they are going to get it.”

It’s “not only what FERC could do to them [El Paso], but it’s the spillover effect” on Wall Street and in the courts, said a former FERC insider. He believes an unfavorable decision for the Houston-based company could provide the fuel for more lawsuits by California. The effect on Wall Street could be substantial, he said. “The whole industry is kind of in a hair trigger environment, and the slightest piece of bad news triggers concern by the investment community.”

The Commission’s authority to order refunds and penalties, however, is a bit more narrow, experts agree. Under Section 5 of the Natural Gas Act (NGA), which is the applicable law in complaint cases, FERC has no power to order retroactive refunds for gas overcharges. It can call for refunds after conducting Section 206 investigations on the electricity side, but it can’t do this in gas complaint proceedings that are either brought by third parties or instituted by the Commission itself.

FERC’s ability to impose monetary penalties also is restricted. The penalty level “by today’s standards is pretty de minimis,” said the ex-FERC official, adding the fines for violations “were set back when the statute [NGA] was first enacted in 1938,” and they haven’t changed much since then. The Commission’s penalty capability under the NGA is limited to about $500, but it can levy penalties of $3,000 a day per violation under the Natural Gas Policy Act (NGPA), said another energy expert and avid FERC watcher. But since pipelines no longer sell gas, they aren’t subject to the NGPA, she noted.

The Commission’s real remedial authority might be found in El Paso pipeline’s certificate, assuming the pipeline violated it, she said. The ex-FERC official agreed, noting that El Paso’s certificate or tariff might provide a “hook” for FERC to take harsher action.

Experts are split over whether the Commission might refer the case to the Justice Department. “Some provisions under the [Natural] Gas Act call for referral of certain cases to the Justice Department,” said the former FERC member, who thinks the agency may pursue this action. But two other industry experts immediately ruled this out as a possibility.

Some believe that FERC’s final decision in the California vs. El Paso case, which Chairman Pat Wood said Thursday is likely to be issued late in the first quarter 2003, could be the most significant ruling it has ever made, but the experts disagreed. “I think it’s an important decision, but it’s not the most important one,” said one.

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