El Paso Will Pay $20 Million to Settle Price-Fixing ProbeRussell Gold, Staff Reporter
The Wall Street Journal, March 27, 2003
CFTC Says it is Still Investigating more than 25 Other Energy Firms
El Paso Corp. agreed to pay $20 million over three years in a settlement with the Commodity Futures Trading Commission over charges that it attempted to manipulate the natural-gas market by reporting fictitious trades to industry indexes.
In addition, the CFTC has continuing investigations into more than 25 other energy companies, some of which have voluntarily turned over trading records, e-mails and other information, said enforcement director Gregory Mocek.
El Paso, based in Houston, is the second company to settle claims. Dynegy Inc., also of Houston, settled a similar claim for $5 million in December. Neither company admitted wrongdoing.
Traders from both companies are facing federal criminal fraud charges in Houston for falsely reporting trades.
American Electric Power Co., Williams Cos. and CMS Energy Corp. are all cooperating with federal officials on similar probes, company officials say. In addition, McGraw-Hill Cos., publisher of several natural-gas indexes, confirmed it received a subpoena this past fall for information.
From January 2000 to mid-2002, the government alleges, key participants in the natural-gas markets fabricated trades and changed the prices and volumes of actual trades in order to manipulate both the spot cash market and the regulated futures market.
In an unrelated action, the Federal Energy Regulatory Commission recommended that companies be required to keep data reported to indexes for three years, making it easier to reconstruct published price data. The commission also recommended that price indexes used for FERC-regulated pipeline transactions be audited.
Such natural-gas indexes are still widely used. Buyers and sellers of natural gas often peg contract prices to the published spot prices. State utility commissions use the index prices to make adjustments to regulated gas and electricity rates.
El Paso will pay $10 million immediately and another $10 million within three years to settle the claims against its El Paso Merchant Energy LP unit. "We settled in order to put this issue behind us," said company spokeswoman Norma Dunne. El Paso is in the process of shutting down its energy trading operation.
The natural-gas pipeline company is fighting to maintain liquidity by selling off billions of dollars in assets. It also has slashed its annual dividend and cut its capital-spending program. El Paso shares are trading near record lows and the company's credit is below junk status. At 4 p.m. in New York Stock Exchange trading Wednesday, El Paso was trading at $5.73, down 25 cents, or 4%.
This month, El Paso and California officials agreed to a proposed settlement to resolve allegations the company withheld substantial natural-gas capacity, driving up prices and contributing to the state's energy crisis. The company will pay $100 million in cash and $125 million in stock immediately as part of a settlement package valued at about $1.1 billion.
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