The current commissioners on the Federal Energy Regulatory Commission “may be planting the seeds for a massive failure of the energy infrastructure,” a veteran market analyst said on Wednesday, citing “the most unprecedented and blatantly political decision” made by FERC’s chief law judge against El Paso Corp.

“We have an ALJ decision crippling a company because, in his professional operational opinion, El Paso’s pipeline — the one which exploded just six months earlier — should have been run at or above [maximum allowable operating pressure],” Becca Followill, with Howard Weil in Houston, said in a letter to Chairman Pat Wood.

Weighing in on the ALJ decision, Fitch Ratings Senior Director Hugh Welton said it effectively shifted the focus of blame for California’s energy crisis to a regulated gas pipeline company instead of the unregulated energy merchant sector, which could add a whole new element of regulatory risk to the pipeline sector.

Fitch said despite increasing counterparty credit risk arising from the energy merchants’ weakened credit quality over the last year, the ongoing exodus from marketing and energy trading activities by several of the major energy merchants could mean moderate improvement in counterparty credit quality over the longer term. “The end result of this trend ultimately looks to be the re-emergence of highly rated utilities and major integrated oil companies as primary pipeline customers,” Welton added.

Citing a “regulatory witch hunt,” Followill said six or more utilities could fail over the next year. “Companies who actually can build pipelines don’t have enough financially viable shippers to sign up for capacity. With this ALJ decision, companies are questioning whether or not they even want to invest in regulated assets when they run the risk of being second-guessed on basic operating procedures.”

On the purely operational side “pipelines are concerned that this winter, they will be inundated with hundreds of phone calls from individual shippers instead of the aggregators or marketers who helped ensure efficiency, thereby running the risk of not being able to serve customers on critically cold days.”

Followill also charged that the “sanctity of United States contract law is being brought into question by having basically forced mediation talks between California and power generators.”

Acknowledging that companies also were at fault for “bad business decisions, poor judgment calls and were just plain greedy,” the analyst nonetheless said “the pendulum has swung too far in the opposite direction, and now we run the risk of not just decimating an industry, but jeopardizing critical infrastructure investment.”

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