Power providers deny electricity, natural gas collusion | TahoeDailyTribune.com
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Power providers deny electricity, natural gas collusion

SACRAMENTO (AP) – Saying they were driven by market forces, officials of Texas-based natural gas companies told legislators they did not create a virtual monopoly on California-bound gas and use it to jack up prices sharply.

Meanwhile, Attorney General Bill Lockyer said he will go to court to force two electricity generators to hand over documents he subpoenaed for his investigation of the state’s electricity market.

Lockyer wants a San Francisco Superior Court judge to order Reliant and Mirant to give up the information, despite their fears the sensitive material may be released.



The attorney general’s office, state and federal regulators, and state lawmakers all are investigating whether illegal price manipulation in the state’s energy market led to soaring power costs over the last year.

On Thursday, the Public Utility Commission started investigating whether a key block of independent generators are intentionally keeping their plants off line to break long-term contracts requiring them to sell electricity at prices far below the current market rate.



The small generators that rely on solar, wind, cogeneration and geothermal power say they can’t continue to operate because two utilities – bankrupt Pacific Gas and Electric and financially crippled Southern California Edison – owe them an estimated $700 million.

Soaring energy prices are hobbling California’s economy, said Assemblyman Darrell Steinberg, D-Sacramento, chairman of the Energy Oversight Subcommittee

Natural gas sold into California cost $6.6 billion in 1999, $12.3 billion last year, and $7.9 billion in the first three months of this year, he said.

A consultant for Southern California Edison told Steinberg’s subcommittee Wednesday the utility was charged about $750 million more over the last year for natural gas after El Paso Natural Gas Co. contracted first with Dynegy and later with its own marketing affiliate to control the pipeline capacity.

The deal between El Paso Natural Gas and El Paso Merchant Energy amounted to collusion, a PUC attorney claimed, because the parent company discouraged other bidders and gave its affiliate market information other bidders lacked.

Officials from the Houston-based companies denied any wrongdoing Thursday in sworn testimony before the Assembly subcommittee.

”Even though we have the same shareholders, the businesses have to be operated independently,” said El Paso Corp. Vice President Peggy Heeg. ”There are very strict rules on the discussions that can take place between the two entities.”

”We’re the biggest pipeline company in the United States, so we adhere to those rules very, very strictly,” said El Paso Merchant Energy Group President Ralph Eads.

Eads said competitors could have had the same advance market information as his company, and could have reached the same favorable business terms with El Paso Natural Gas.

”The implication is this is just some special deal – it’s not,” Eads said.

But he and Heeg acknowledged other companies did not take advantage of those opportunities.

Heeg said her company had no obligation to share the information with other companies that might bid on the contract. She said the affiliates are allowed to share certain price information under Federal Energy Regulatory Commission rules.

Critics said the contract allowed the affiliates to control the flow of gas into the state and thereby drive up the price last year.

But Eads, Heeg and El Paso Pipeline Group President John Somerhalder said changing market conditions, regional differences, weather, and business decisions – not market collusion – drove up prices.

Dynegy representatives said market factors actually cost their company $17 million during the two years of its contract with El Paso gas in 1998-1999, prompting the company not to renew the contract.

”The border price went down during our contract, not up,” testified former Dynegy counsel Kathy Patton. ”Looking back, we probably paid too much.”

But while gas prices fell during Dynegy’s contract in 1998 and 1999, they remained higher than those elsewhere in the nation, countered Assemblywoman Jenny Oropeza, D-Long Beach.

”If you were exercising market power, it appears to me you did a pretty damn poor job if you lost $17 million,” said Assemblyman John Campbell, R-Irvine. Campbell said he has not been convinced the companies did anything illegal.

Meanwhile, the Assembly on Thursday passed a resolution calling on the president, Congress and the FERC to regulate the price of natural gas flowing into California.

Lawmakers, state regulators and Gov. Gray Davis, California regulators and lawmakers have repeatedly criticized FERC for not doing enough to rein in what they say is a run-away market.

The Assembly also approved a resolution calling on the federal government to let California extend daylight-saving time to cut its energy use.


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