U.S. Broadens Inquiry Into Alleged Gas Monopoly

In a departure from a previous ruling, federal regulators Monday broadened a high-profile inquiry into allegations that a Texas energy company manipulated California’s natural gas market.

The Federal Energy Regulatory Commission is already conducting a trial-like hearing into allegations that Houston-based El Paso Corp. acquired monopolistic power in California last year, adding an estimated $3.7 billion to the state’s total energy bill.

On Monday, FERC’s governing board ordered its chief judge also to gather evidence on whether two subsidiaries of El Paso violated agency rules on arms-length conduct when they entered into a controversial contract last year. The subsidiaries are El Paso Merchant Energy, which sells natural gas, and El Paso Natural Gas Co., which owns a major pipeline system serving California.

“This order . . . expands the scope of the hearing in this proceeding to include the issue of whether El Paso pipeline or El Paso Merchant . . . violated commission standards in bidding for or awarding the El Paso contracts,” FERC Chairman Curt Hebert wrote in supporting the unanimous decision. “I recognize the seriousness of natural gas prices in the California market and I am committed to providing all commission resources to determine the actuality of that price situation.”

The ruling appears to be part of a shift toward a more assertive course by FERC, its five-member board bolstered by two new commissioners who advocate closer oversight of industry.

“It’s about time,” California Public Utilities Commission President Loretta Lynch said of FERC’s action. “What this shows is that it may well be a new commission. . . . They’re going to give our day in administrative court.”

In a separate action Monday, the commission scheduled a potentially significant meeting next week on its strategy for helping California keep the lights on this summer at a reasonable cost. FERC is facing heavy political pressure from the new Democrat-controlled Senate and from House Republicans to expand the modest measures it has adopted to limit electricity costs.

In the El Paso case, FERC’s governing board had previously ruled that the two companies did not violate agency standards when they entered into a deal to ship as much as 1.2-billion cubic feet of natural gas a day to California--as much as 17% of the state’s supply.

As recently as March, the FERC board had ruled there was “no merit” to allegations that the bidding on the contract was skewed in El Paso Merchant’s favor and no evidence that the two subsidiaries entered into anything other than an arms-length contract.

“We knew all along there was a major problem here,” said Harvey Morris, a lawyer for the California PUC. “We’re glad that FERC has finally seen the light and set this issue for a hearing.”

The PUC and California utilities have accused the El Paso subsidiaries of pursuing a coordinated strategy to raise the price of natural gas by withholding supply during much of last year. El Paso Corp. has steadfastly denied the allegations, saying California’s high natural gas prices were the result of weather, demand from power plants and other factors.

El Paso spokeswoman Norma Dunn said she was sure that FERC would reaffirm its previous opinion. Lawyers for El Paso had unsuccessfully battled to keep the proceedings more narrowly focused.

The commission broadened the inquiry after Chief Judge Curtis L. Wagner Jr. asked for clarification of its March ruling.

Plaintiffs in the case say still-sealed documents allegedly indicate that El Paso Merchant executives believed the deal would give the company substantial influence over the California market.

Southern California natural gas prices have plunged since the El Paso contract ran out May 31 and some 30 different shippers acquired the capacity previously held by Merchant alone.

Meanwhile, Congress continues to ratchet up pressure on FERC for stricter limits on electricity prices.

The issue may come to a head at a meeting scheduled for Monday. The agency is running out of time to finalize a plan for helping California this summer.

*

Times staff writer Dan Morain in Sacramento contributed to this story.