El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Responds to Mischaracterizations and Inaccurate Reports of FERC Hearing
HOUSTON, TEXAS, August 10, 2001ŚEláPaso Corporation (NYSE:EPG) believes that it is necessary to respond
to continuing mischaracterizations and inaccurate press reports regarding the
recently completed Federal Energy Regulatory Commission (FERC) hearing in which
it participated. This distorted coverage has fostered unwarranted fears in the
marketplace fueled by misunderstandings about the nature of the FERC proceeding,
the testimony and evidence presented, and the applicable regulatory standards.
"I am very concerned that the investing public has been misled by recent
reports describing the current state of a FERC proceeding and quoting comments
made by the presiding FERC administrative law judge," said William A. Wise,
chairman, president, and chief executive officer of EláPaso Corporation.
"These reports have seriously mischaracterized EláPaso's actions and the
legal standards by which those actions must be measured. I am confident that
once the facts are fairly evaluated and the appropriate legal standards are
applied, EláPaso will be vindicated. Despite the heated rhetoric by the
complaining parties and comments by the administrative law judge himself,
EláPaso believes as a matter of law and fact that the complaining parties have not
met their burden of proof and no burdens of proof have shifted. No other legally
sustainable conclusion can be reached."
The following facts are necessary to a complete and accurate understanding of
this administrative proceeding. In April 2000, the California Public Utilities
Commission (CPUC) filed a complaint with the FERC, alleging that EláPaso Natural
Gas Company (EPNG) improperly awarded capacity on its pipeline to an affiliated
energy marketing company, EláPaso Merchant Energy (EPME). It was also alleged
that EPME had improperly been granted a discount on the Mojave pipeline system
in violation of the FERC's marketing affiliate rules and had unlawfully
exercised market power. For almost a year thereafter, FERC reviewed and
evaluated comments submitted by all parties and extensive evidence and documents
that EláPaso produced. On March 28, 2001, the FERC issued an order based on this
evidence that addressed all three issues.
With respect to the CPUC's allegations regarding violations of the affiliate
regulations, FERC ruled, in an unanimous decision, that:
The current EláPaso contracts were awarded following an open season that was
conducted in accordance with Commission rules and policies. The Commission finds
no merit in the allegations that the bidding process . . . was skewed to favor
EláPaso Merchant and that EláPaso Merchant possessed certain information
concerning a discount that was not available to other bidders. Further, the
Commission has examined the evidence and does not find a violation of the
Standards of Conduct for Interstate Pipelines with Marketing Affiliates.
That same order specifically discussed the very telephone transcripts that
have been the subject of recent press coverage. Notwithstanding certain public
observations of the administrative law judge in the current hearing, the
Commission unanimously concluded that "the transcripts do not indicate that
Mojave's Transportation Marketing Negotiator agreed to the tiered arrangement
sought by EláPaso Merchant Energy." That order unequivocally held that the
conversation reported in the transcripts is not an affiliate standard violation,
concluding that under the marketing affiliate regulations, "Mojave was
under no obligation to post affiliate discount information until the time at
which gas first flowed under the transaction."
The market power issues were set for an evidentiary hearing, which commenced
on May 14, 2001, and concluded in June.
On June 11, 2001, the FERC granted rehearing of its March decision solely to
resolve any factual issues raised by the allegations of the CPUC's complaint
concerning affiliate abuse and violation of the FERC's Standards of Conduct.
That hearing commenced on August 2 and concluded on August 6. EPNG, EPME, and
the CPUC each called one witness to testify on these issues. The CPUC presented
no new facts or evidence and relied solely on the same documents that the
unanimous Commission had ruled failed to prove any of the alleged affiliate
Since the FERC's unanimous March 28 decision was rendered on the basis of the
same facts that are now a part of the evidentiary record before the judge, there
should be no legal basis for the Commission to change that decision when the
case returns to it.
"Contrary to press reports, EláPaso's senior executives did not refuse
to appear at the hearing," said Mr. Wise. "The judge requested that
some executives be available to answer his questions, and EláPaso made them
available for that purpose. At the appropriate time, EláPaso raised several
legal objections to any further EláPaso witnesses being required to testify.
Contrary to press reports, the judge agreed with EláPaso's arguments and there
was no further questioning of the executives. The hearing then concluded."
The evidence in the hearing also establishes that there is no basis for the
allegations of market power abuse. During the period from June 2000 to March
2001, when the price of natural gas in California was sharply increasing,
pipeline capacity was plainly not being withheld from the marketplace. Instead,
the evidence demonstrates that during this crucial period, 95 percent of the
available capacity on EPNG's pipeline was being utilized. In fact, on many days
utilization by EPNG's customers amounted to 100 percent of the pipeline's
available capacity. During the same period, EPNG's customers utilized
approximately 97 percent of the pipeline's available capacity into southern
California, the region where the complaining parties allege that prices were
significantly higher than in the rest of California. Thus, the objective data
conclusively demonstrate that at the times when the complaining parties allege
that pipeline capacity was used to manipulate natural gas prices, the capacity
on EPNG's pipeline was not being withheld, and that the high natural gas prices
were clearly caused by other factors now widely recognized to be responsible for
the shortages experienced.
All briefs in the proceeding must be filed by September 7, 2001, and the
judge has stated he will issue his proposed decision by October 9, 2001. In the
event that the judge reaches a decision adverse to EláPaso on the market power
issue, or reaches a different conclusion on the affiliate issues than was
reached by the full Commission in March 2001, EláPaso will appeal the decision
to the full Commission and, if necessary thereafter, the courts.
"I am confident that, when appropriate legal standards are applied to this
case, we will be vindicated. The law and the facts are on our side," said
EláPaso Corporation is committed to meeting energy needs throughout North
America and the world with operations that span the energy value chain from
wellhead to electron. The company is focused on speeding the development of new
energy sources to address critical energy shortages across the globe. Visit
EláPaso at www.elpaso.com.
This release includes forward-looking statements and projections, made
in reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The company has made every reasonable effort to ensure that
the information and assumptions on which these statements and projections are
based are current, reasonable, and complete. However, a variety of factors could
cause actual results to differ materially from the projections, anticipated
results or other expectations expressed in this release. While the company makes
these statements and projections in good faith, neither the company nor its
management can guarantee that the anticipated future results will be achieved.
Reference should be made to the company's (and its affiliates') Securities and
Exchange Commission filings for additional important factors that may affect