Off Peak

September 15, 2001

Let's Play "Spin the Pipeline"

 

The El Paso case just won't quit.

It began over a year ago, on April 4, 2000. That's when California accused El Paso Natural Gas Co. of manipulating capacity rights on its natural gas pipeline by auctioning them off to its own affiliate, El Paso Merchant Energy.

It might have ended the following spring, on March 28, when the Federal Energy Regulatory Commission (FERC) said the sale was kosher. But the case took on a second wind when newspapers aired stories suggesting that company officials tried to bully the market. So FERC opened a new investigation - to see if El Paso had "gamed" the pipeline to drive up gas prices in California.

Yet soon came a third twist: Not a crooked auction, nor a conspiracy theory. No, this new spin pointed to nothing more than a classic overbooking: a shortfall in planning and investment that left too much demand chasing too little space on the pipeline. And the pressure, some said, had come not from California, but from shippers serving Arizona and Texas to the East, buying up more than their fair share of pipeline capacity.

This idea grew out of hearings at FERC, and testimony given by John Somerhalder, president of El Paso Corp. Pipeline Group:

Question:"So we know on the 3rd of January [2000] that already we've got some problems; isn't that correct?