A spokesman for California Attorney General Bill Lockyer downplayed reports last Monday that the state was near a settlement with El Paso Corp. over claims that the company’s major pipeline subsidiary withheld capacity to drive up natural gas prices during the California energy crisis in 2000 and 2001.

Both sides have been in talks for a year to resolve the allegations, but “any inference that this settlement is going to happen in a few days is wrong,” spokesman Tom Dresslar told NGI.

Reports of a possible settlement surfaced earlier Monday after Lockyer had said that of all the energy-related settlement negotiations California was involved in, El Paso was “closest to resolution.” But Dresslar noted that “saying something’s closest to resolution doesn’t necessarily mean it’s going to happen quickly.”

In a “Company Update” on El Paso last Tuesday, Credit Suisse First Boston analyst Curt Launer said he believed a settlement was the “best course of action” for El Paso, California and the Federal Energy Regulatory Commission, but he doubted one was imminent. “Recent FERC comments have added to potential for a settlement, but irresponsible sound bites [by California officials] like a call for ‘disgorgement of bonuses’ by [El Paso] management or claims for settlement amounts beyond the amount claimed make a quick agreement unlikely.”

For a settlement to become possible, Launer said California would have to significantly lower its claim. “We view the California claim of $3-4 billion as unreasonable, not supported by facts and unlikely to succeed at FERC or in the courts.” Because of the “damage” already done to El Paso’s stock valuation and the “cost of legal wrangling and appeals,” he said he viewed a “settlement in the range of $300-800 million on a net present value basis as a reasonable outcome for the parties.”

If a settlement is not brokered, FERC Chairman Pat Wood has said the agency expects to issue a ruling in the case by the end of the first quarter. Before the Commission is Chief Administrative Law Judge Curtis Wagner’s initial decision, which found that El Paso manipulated gas prices in California and abused the agency’s affiliate standards (See NGI, Sept. 30, 2002).

In a related development, El Paso’s disclosure last Monday of more incidents of deceptive price reporting, as well as charges by federal prosecutors that the company’s activities were part of a two-year-old conspiracy to manipulate prices, was “serious and embarrassing, but not likely to generate significant corporate financial risk,” said Launer (See Related Story).

“As with others in the industry, [El Paso] has cooperated with authorities and it is alleged that the manipulation worked both ways on prices (i.e., indexes were manipulated both higher and lower),” he noted.

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