State Favors Settlement in El Paso Case

Gov. Gray Davis said Tuesday that he preferred to reach a settlement with El Paso Corp. before regulators rule on whether the nation’s largest natural gas pipeline operator held back billions of dollars worth of supplies during the state’s energy crisis.

Industry analysts have said a settlement would be in the best interests of El Paso, which has been hit hard by a downturn in energy trading, and Davis, whose political popularity has eroded in recent months.

The Federal Energy Regulatory Commission has promised to issue a final decision by the end of March on California’s claim that it was overcharged by $3.3 billion for natural gas to fuel its power plants because El Paso capped pipeline shipments at 79% of capacity from November 2000 through March 2001. During that time, the state was rocked by a tenfold jump in wholesale electricity prices and rolling blackouts as utilities struggled to keep the lights on for consumers.

El Paso has denied any wrongdoing.

Settlement talks between California and El Paso are ongoing, Davis told reporters in Washington. “We have not reached what I consider a good settlement yet,” he said.

But tough terms sought by state Atty. Gen. Bill Lockyer and El Paso’s weak finances have dimmed hopes for a settlement, a source said. El Paso is among the energy trading firms hit by credit and debt problems after the collapse of Enron Corp.

El Paso shares rose 45 cents to close at $5 on the New York Stock Exchange.