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Study: Calif. Gas Prices Inflated by Associated Press New York Times, May 13, 2001

SACRAMENTO, Calif. (AP) -- Natural gas suppliers were able to corner enough of the pipeline capacity into California to drive up prices artificially, an Assembly subcommittee has concluded, contradicting adamant industry denials.

El Paso Natural Gas Co. and its affiliates negotiated contracts with each other and boosted the cost of natural gas nearly 500 percent during the 12 months ending in February, the Energy Oversight Subcommittee says in a report to be issued Monday.

Company officials could not be reached for comment Saturday. But the company adamantly denied any impropriety or illegal market manipulation in two days of testimony before the subcommittee last month.

The subcommittee, controlled by Democrats, also believes the Republican-controlled Federal Energy Regulatory Commission has approved contracts that are contributing to California's energy crisis, according to the report obtained by The Associated Press.

Many of the state's power plants are driven by natural gas, contributing to California's spiraling electricity prices and the supply shortage that has led to six days of rolling blackouts so far this year.

Californians paid $6.6 billion for natural gas in 1999, $12.3 billion last year, and $7.9 billion this year through March, the report says. At one point there was a 2,795 percent difference between the price of gas at its source in the Southwest and its cost at the California border.

During their testimony, gas company officials said market conditions, not cost and capacity manipulation, caused the price spikes. And Republican Assemblyman John Campbell has said that after listening to the testimony he remained unconvinced that improper market manipulation led to the price boosts.

Interstate natural gas shipments fall under the jurisdiction of FERC, which declined to send representatives to testify before the subcommittee.

``The FERC's approval of the El Paso pipeline contracts raises serious questions about whether it met its statutory duty under the federal Natural Gas Act to protect consumers from unjust and unreasonable rates,'' the report says.

FERC officials say they are investigating energy overcharges. The commission has installed limited caps on electricity prices but has rejected demands for more stringent cost controls.