Gas Ruling Clouded by Safety Issues
Federal safety officials are raising doubts about a judge’s ruling that El Paso Corp. should have run its natural gas pipeline at peak pressure during the California energy crisis.
The questions--echoed by industry safety experts--could bolster the Houston energy company’s claim that it did not illegally squeeze gas supplies to drive up prices in California.
Last week, Administrative Law Judge Curtis L. Wagner Jr. of the Federal Energy Regulatory Commission ruled that El Paso’s failure to operate at “maximum allowable operating pressure” was key evidence of a scheme to manipulate the California energy market.
Wagner’s decision was hailed as a breakthrough in efforts to hold industry players accountable for damages to California consumers. But the reaction from safety experts suggests that Wagner’s ruling may be vulnerable when the full FERC board considers El Paso’s appeal. The board can overrule the judge.
James Mitchell, a pipeline safety spokesman for the U.S. Transportation Department, said the judge’s position had raised concerns among safety regulators.
“We never require people to operate at maximum allowable operating pressure,” Mitchell explained. “You wouldn’t find pipelines constantly operating at [maximum], because they would be going above it frequently....We fine companies that exceed” that mark.
The maximum allowable pressure of a pipeline is a safety limit intended to prevent leaks and explosions, Mitchell said. It is separately calculated for different pipeline segments, following a formula found in federal regulations.
El Paso has maintained that safety was a key factor in its decision not to run the pipeline at full bore. In August 2000, one of its pipelines ruptured at a campground near Carlsbad, N.M., triggering an explosion that killed 12 people. As a result, the company was ordered by the Transportation Department to reduce pressure on part of its system.
Decreasing the pressure diminishes the amount of gas that can be pushed through the pipeline.
On Friday, the Interstate Natural Gas Assn. of America warned the FERC board that Wagner’s decision was “not in accordance with prudent pipeline practices or applicable safety requirements.”
El Paso Chairman William A. Wise made much the same point in a Sept. 26 letter to Congress in which he complained that Wagner’s ruling “converts a safety-driven ‘maximum allowable operating pressure’ into a market-driven ‘maximum required operating pressure.’ ”
“If allowed to stand, this decision would place pipeline operators in a Catch-22 situation,” Wise said. “Pipelines would be forced to operate at [maximum] on a sustained basis despite their best judgment regarding safety, reliability and operational requirements, or they would risk being in violation of the standard created” by the judge.
Mitchell, the Transportation Department spokesman, said his agency concurred: “We would say that the letter raises valid concerns about applying these criteria outside of the safety area.”
The department’s Office of Pipeline Safety is not a party to the California price-gouging case.
El Paso’s failure to operate at maximum pressure accounts for about 60% of the 345 million cubic feet of natural gas a day that Judge Wagner identified as having been clearly withheld by the company. The entire amount is enough to serve about 1.5 million homes.
“This failure to operate at or near [maximum pressure] constitutes a clear withholding of available capacity by El Paso pipeline, and is a clear violation of its duty,” Wagner wrote.
Daniel Collins, an El Paso lawyer, called Wagner’s reasoning “flat-out wrong.”
But Kevin Lipson, a lawyer representing plaintiffs against El Paso, said Wagner made the right call: “For El Paso to attempt to imply that the [plaintiffs] are somehow suggesting conduct inconsistent with safety is wrong, is unsupported by the evidence and is an attempt to shift the target.”
Lipson said none of the four key compressors on El Paso’s system reached maximum pressure on even a single day from November 2000 through March 2001. In fact, he said, they ran 4% to 14% below the maximum.
“There are no legitimate safety issues that are a defense to their failure to operate at or reasonably close to the maximum,” said Lipson, who represents Southern California Edison, the utility arm of Edison International of Rosemead.
When El Paso was forced to reduce pressure after the New Mexico explosion, the company assured the government that the measure would not curtail supplies to California, said Mitchell of the Transportation Department.
But an El Paso spokeswoman said that when demand for gas rose during the winter heating season, the safety mandate reduced El Paso’s capability to meet the market’s needs.
Plaintiff attorney Lipson countered that the effects of the safety order alone cannot explain the shortfall in supply.
If the FERC board ultimately finds that El Paso manipulated the California market, the company could be ordered to return profit to the state’s utilities. Natural gas is the main fuel for generating electricity.
The case arose from a complaint filed by the California Public Utilities Commission. The PUC alleges that two units of El Paso colluded to restrict supplies.
Harvey Morris, a PUC staff attorney, called the safety concerns a red herring.
“The witnesses all took into account the safety and integrity of the system,” he said, “and Judge Wagner still found that El Paso withheld capacity from the market.”
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(BEGIN TEXT OF INFOBOX)
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Holding Back?
The capacity of the El Paso pipeline system and the amount of gas actually shipped to California make up the central issue in a market manipulation case before federal regulators.
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Capacity
Approved capacity -- 3,290**
Average flow -- 2,594
Shortfall -- 696
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Accounting for Shortfall
Operating below maximum pressure -- 210
Failure to ease bottleneck -- 100
Nonessential maintenance -- 35
Total accounted for -- 345
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**Million cubic feet per day.
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Source: Federal Energy Regulatory Commission
