In what was a major setback for El Paso Corp., the Federal Energy Regulatory Commission Wednesday granted the request of the Office of General Counsel’s Market Oversight and Enforcement Section (MOE) for an expanded investigation into whether El Paso Natural Gas withheld transportation capacity from customers last winter in an attempt to drive up prices for natural gas delivered to the California border.

In the order, the Commission remanded the long-standing complaint case against El Paso to Chief ALJ Curtis Wagner Jr. to conduct a “supplemental” hearing into the “limited” issue of whether the pipeline denied interruptible transportation service to customers from November 2000 through March 2001.

“The question of whether El Paso pipeline made all of its capacity available at its California delivery points is a uniquely important issue that requires further development because gas spot prices during this period were elevated to the $20 to $30/MMBtu level, with price spikes as high as $60/MMBtu,” the FERC order said (RP00-241).

In October, Judge Wagner issued an initial decision that found El Paso pipeline had rigged the bidding process for capacity on its system to favor its affiliate El Paso Merchant Energy Co., but it vindicated the pipeline and its merchant energy affiliates of allegations of market-power abuses. On Wednesday, FERC effectively directed Wagner to re-open the record in the proceeding to explore the third issue.

The El Paso companies argued that MOE’s request was an attempt to retry the case, and amounted to an “abuse of process,” and would be detrimental to their rights. However, FERC rejected their arguments, noting that “contrary to the allegations of El Paso pipeline and El Paso Merchant, this remand does not abridge their due process rights.”

The El Paso companies further claimed that the issue — withholding of transportation capacity last winter — already was addressed by Wagner during hearings last summer, but the Commission begged to differ. “The existing record in this proceeding does not provide an adequate basis for resolution of this issue,” the order noted.

The hearing will focus on the issue of whether, during the period from November 2000 through March 2001, El Paso made all of its capacity available to shippers at its California delivery points and offered non-discriminatory access to such capacity. FERC finds that the public interest required it to examine this issue in order to protect California customers.

El Paso responded to the latest action. “Given the high level of publicity that this case has engendered, it is not surprising that FERC seeks to ensure that every question raised has been answered,” said Peggy Heeg, general counsel of El Paso Corp. “The sole issue to be examined in this limited hearing is whether El Paso Natural Gas pipeline company fully complied with the regulations to make all of its capacity available for interruptible service during the winter of 2000-2001. We are confident that Chief Judge Wagner will reconfirm his conclusion that El Paso Natural Gas fully complied with FERC’s regulations by making its capacity available.”

Within 20 days of this new order, Wagner must convene a pre-hearing conference in this proceeding to permit the judge to establish dates for the hearing. He also must issue a supplemental decision “as soon as practicable” addressing the limited issue of whether El Paso made all of its capacity available to shippers at its California delivery points.

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