El Paso Steps on Gas to Clear Name
Houston’s El Paso Corp. is seeking a Texas-style showdown before the Federal Energy Regulatory Commission, hoping to overturn a ruling that it illegally manipulated California’s natural gas market.
One analyst has dubbed it “high noon at the FERC building.”
El Paso’s call for a six-hour hearing before the full commission is part of a corporate lobbying and public relations blitz that also includes full-page newspaper ads, regulatory filings and a letter-writing campaign. The message: El Paso has been given a bum rap.
FERC’s chief administrative law judge ruled Sept. 23 that El Paso squeezed California’s natural gas supplies by not running its pipeline at full capacity in 2000 and 2001, causing prices of gas -- and the electricity generated from it -- to soar.
El Paso lost more than $4 billion in market value immediately after the decision by Judge Curtis L. Wagner Jr. And though the stock has rebounded slightly, rising Friday nearly 18% to $6.34 on news of a $165-million pipeline sale, it remains down nearly 46% on the New York Stock Exchange since the judge’s decision was released.
After the ruling, Moody’s Investors Service downgraded El Paso’s debt to its lowest investment-grade rating, other credit raters threatened downgrades, and several stock market analysts lowered their recommendations on the company’s stock.
FERC can accept, reject or modify Wagner’s ruling and order that El Paso repay profit from the alleged manipulation. But the real danger for El Paso lies in lawsuits by Californians who believe they paid too much for natural gas during the state’s energy crisis, legal and market experts say.
“El Paso certainly is in a tough situation,” said Anatol Feygin, who follows the company for J.P. Morgan Securities and gave the stock a “neutral” recommendation, down from “buy,” after the Wagner ruling.
“All of the tea leaves pointed to El Paso being largely unscathed in this investigation, and when it turned out that they are not only scathed but may be having the book thrown at them, it took the company and the capital markets by surprise,” Feygin said. “Now it’s a battle for their lives.”
El Paso is demanding a six-hour matchup against its accusers Nov. 22 in front of all four FERC commissioners. That’s three hours for El Paso and three hours for the other guys -- the California Public Utilities Commission, FERC staff and other complainants -- to present oral arguments on the issues.
El Paso says the hearing is justified because Wagner’s decision has created intolerable uncertainty about the company’s future.
In addition, the company asked FERC, in an Oct. 4 filing, to render judgment by the end of the year, because nothing less than the financial stability of the energy industry and the “strength and stability of the nation” are at stake.
The last time the commission met as a group -- “en banc” in legal terms -- to listen to oral arguments was in 1997, FERC spokesman Kevin Cadden said.
FERC has not responded to the request by El Paso. But the plan was seconded by the California PUC in a filing with the commission Thursday.
“It is a very significant case,” said Harvey Morris, the PUC lawyer who filed the original April 2000 manipulation complaint against El Paso and its subsidiaries that run the pipeline to California and sell gas to customers.
The face-off is just one of the avenues El Paso is pursuing to restore its reputation.
To explain its contention that Wagner’s ruling is seriously flawed, El Paso has taken out full-page ads in major newspapers as well as in smaller publications in areas where the company operates, including San Antonio and Birmingham, Ala.
El Paso also has written letters -- all made public through the company’s filings with the Securities and Exchange Commission and the corporate Web site -- to members of Congress and to editors of some publications that ran articles or editorials the company didn’t like.
On Wednesday, El Paso Chief Executive William A. Wise issued a letter to employees, shareholders and “neighbors” to explain the company’s position.
“I want you to know, in no uncertain terms, EPNG did not withhold capacity to California, and we did not take any action to manipulate gas prices in the state,” he wrote, referring to the company’s El Paso Natural Gas unit.
“Requiring a pipeline to operate at or near its maximum allowable operating pressure on a sustained basis without regard to safety or operational considerations is akin to requiring all motorists to drive at 65 miles an hour at all times, regardless of road and weather conditions,” Wise wrote.
El Paso says that safety concerns after a fatal explosion in 2000 kept its pipeline to California from operating at full capacity and that Wagner’s ruling, if upheld, would interfere with the ability of all natural gas pipelines to operate safely.
Morris said the safety issue was only El Paso’s latest legal maneuver, an argument it did not consider important enough to bring up in the previous hearings or in FERC filings on the complaint. Wagner’s ruling said El Paso used several tactics to withhold gas, including scheduling unnecessary maintenance and failing to use all available routes within its pipeline network to California.
El Paso spokesman Mel Scott declined to say how much the company is spending to tell its side of the story but noted that the suddenly greater scrutiny warrants an aggressive strategy.
“We’ve never had an issue like this before,” Scott said. “We’ve never been through something like this before.”
