In what it even admits is an “unusual” move, the FERC Office of General Counsel’s Market Oversight and Enforcement Section (MOE) has called for a “more complete investigation” into whether El Paso Natural Gas violated the Commission’s open-access regulations by refusing to provide interruptible transportation (IT) service last winter to customers in an attempt to maintain “upward pressure” on prices for natural gas delivered to the Southern California border.

The request by MOE comes only three weeks after Chief Administrative Law Judge Curtis Wagner Jr. recommended the dismissal of charges that El Paso and its affiliate, El Paso Merchant Energy Co., illegally exercised market power to drive up prices for gas transported to the border beginning in mid-2000 [RP00-241]. Wagner found merit, however, to the charge that El Paso rigged its capacity bidding process to favor El Paso Merchant, ruling that the pipeline engaged in “blatant collusion.”

MOE said the issue it was raising — whether El Paso made its unused capacity available to shippers on an IT basis, as required by FERC’s open-access rule — was neither the focus of the hearing last summer nor Wagner’s initial decision that was issued last month (see Daily GPI, Oct. 10).

MOE’s review of the public portion of the hearing record suggests that El Paso may have committed “potential violations” of FERC’s Part 284 open-access regulations by withholding IT capacity, it said, but it conceded there may be “other potential explanations” for the existence of unused capacity on the pipeline. “We recommend a more complete investigation of the reasons why capacity went unused on the pipeline at times during the period [of] November 2000 through March 2001.”

It suggested that the Commission either direct MOE to conduct a further probe, remand the decision to Judge Wagner for consideration or use other procedures. Although “this step is unusual, it is not unprecedented for the Commission’s enforcement staff to inform the Commission of its views regarding potential violations concerning a pending proceeding,” MOE said.

Noting that the company was “outraged,” El Paso attorney Bill Scherman called the enforcement section’s action an “abuse of process,” adding that this “has never, ever happened before. It’s unsanctioned [under] FERC rules.” If MOE “had not been so sloppy” in its review of the hearing record, “it would have seen that the judge addressed this issue,” he told NGI.

In fact, the one issue that the parties agreed on during the hearing was that El Paso’s pipeline was full between November 2000 and March 2001, and that there was no withholding of capacity, Scherman said. He noted he plans to file a motion Thursday to strike MOE’s request for a probe, citing “violation of due process” as the reason.

But MOE believes the hearing record suggests otherwise. “Record evidence disclosed that [El Paso’s] capacity was not fully used at times during the November 2000 through March 2001 period, which coincided with periods of high gas prices in California. The record further indicates that in the five months ending in March 2001, El Paso Merchant Energy Co. undernominated its contract demand for reasons unrelated to pipeline maintenance, in a pattern consistent with strategic behavior to withhold capacity to increase commodity prices at the SoCal border.

“The record also suggests that requests for interruptible service that became available as a result of Merchant’s undernominations, by shippers to the pipeline, went unfilled during this period. If [El Paso] did not make available unused pipeline capacity on an interruptible basis, Merchant’s undernominations [then] could have put upward pressure on prices at the SoCal border,” MOE told the Commission. It stressed that two players were necessary to drive up prices. “Withholding by a firm shipper [Merchant, for example] is only a successful strategy if the pipeline does not provide interruptible service that would compensate for the reduction in firm nominations.”

However, MOE noted the record at this point “is inadequate to determine the reasons for the apparent unused capacity [on El Paso] since this was not the focus of the parties at the hearing” last summer.

“It is possible that problems in the scheduling process, or other technical reasons, made it difficult [for shippers] to acquire interruptible transportation. Because even small amounts of unused capacity can affect prices during periods of supply-demand imbalance, there is a strong public interest in determining the existence and reasons for unused pipeline capacity during such periods, so that the Commission can prospectively eliminate such barriers to open-access transportation.”

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