El Paso CEO Admits Approving Subsidiaries’ Natural Gas Deal
The chief executive of a Texas energy company testified Friday that he approved a controversial deal between two subsidiaries that critics allege contributed to Southern California’s soaring natural gas prices.
However, El Paso Corp. Chief Executive William A. Wise said he did not decree that El Paso Merchant Energy Group, which sells natural gas, enter into the $38.5-million deal with El Paso Natural Gas Co., which owns a major pipeline system. He also said he was unfamiliar with the details of Merchant’s bid for about one-third of the pipeline system’s capacity.
“What I don’t do is micromanage,” Wise said under questioning by Judge Curtis L. Wagner Jr. in a trial-like hearing before the Federal Energy Regulatory Commission. “I agreed we should go forward and bid on this capacity . . . but I didn’t direct them to bid or not to bid for it.”
Describing his role in a meeting at which the plan was presented to him, Wise said, “I had no part in preparing for the meeting--I just showed up.”
Wagner will now have to determine if Wise’s role violated FERC rules on arm’s-length relationships within the same corporate family, essentially circumventing federal policies to prevent pipeline companies from exercising monopolistic power.
The California Public Utilities Commission has alleged that El Paso Merchant took advantage of the contract to withhold space on the pipeline, creating an artificial shortage that led to a price spike that raised California’s total energy costs by an estimated $3.7 billion.
El Paso counters that high prices are due to increased demand from power plants that burn natural gas, unusual weather and other factors--not market manipulation. They dismiss the $3.7-billion estimate.
Separately Friday, the Senate unanimously confirmed President Bush’s nominations of Patrick Wood III and Nora Brownell to fill two empty seats on FERC’s five-member governing board. Wood, who heads the Texas Public Utility Commission, is widely expected to be named the next FERC chairman. The new board members are expected to bring a more activist style to the agency, which functions like a national utility commission.
Also Friday, FERC issued a late-afternoon order clarifying technical details of its plan to keep California electricity prices in check during power emergencies this summer. The order addresses such issues as how to compute a price for natural gas.
The El Paso case represents the closest yet to a trial of allegations that energy companies are manipulating the California market. Wagner, who is FERC’s chief judge, will render an initial decision to the agency’s governing board, which has the power to order the return of ill-gotten profits.
Attorneys for the plaintiffs said Wise’s testimony was important because it suggests an effort by a single corporate entity to use its subsidiaries in an end-run around FERC’s system of checks and balances against monopoly power.
“It shows it was a coordinated strategy at the highest levels of El Paso Corp.,” said Frank Lindh, a lawyer representing Pacific Gas & Electric, which is one of the plaintiffs.
During his cross-examination, Lindh sought to emphasize that, as a former executive of the pipeline company, Wise was intimately familiar with the workings of the industry and with federal curbs on monopoly power.
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