Squeezing a Pipeline

El Paso runs one of the largest pipeline networks, with half the capacity to the state, which brings natural gas into Southern California from the Southwest and Mexico. According to California officials, the company rigged a contract in early 2000 to award a large block of pipeline space to its own affiliate, El Paso Merchant Energy. Then, El Paso Merchant Energy left half of its share of the pipeline idle and raised barriers to other shippers who could have paid for the excess space, according to the complaint. It was further alleged that El Paso rationed service to other suppliers on its remaining capacity, limiting the amount of gas they could send to California to about 79% of full capacity.

After an initial court decision found that El Paso had withheld capacity and exercised market power, El Paso agreed to a $1.7 billion settlement, although it continued to deny any wrongdoing. It also agreed to operate its pipeline at full capacity for five years and to bar its subsidiaries from making shipping deals with one another.

Sources: Tansey, Bernadette, "PUC Contends Pipeline Ploys Jack Up Prices," San Francisco Chronicle, February 11, 2001:A1, A12; Tansey, Bernadette, "Battle of the Energy Titans," San Francisco Chronicle, July 29, 2001:A1, A15; Brooks, Nancy Rivera, "California, El Paso Reaches $1.7-Billion Deal to End Energy Pricing Probe," Los Angeles Times, March 21, 2003:Business 1.