Energy Price-Fixing Proof?

Lucien Geldrich, left, checks a customer's ID as he rings up a purchase at the Frugal MacDoogal Beer Warehouse in Nashville, Tenn., Wednesday, May 9, 2006. A bill, which is expected to undergo a final vote in the Tennessee House on Thursday, would require everyone, no matter what their age, to show proof of legal age in order to buy beer. But in a twist that reflects the state's convoluted alcohol laws, people buying wine or hard liquor won't face the same ID requirement because it only applies to beer sales, prompting questions about how much the measure will cut underage drinking. (AP Photo/Mark Humphrey) AP Photo/Mark Humphrey

Companies that power California's economy, such as metal forging businesses, are feeling the heat from high natural gas prices.

After the gas bill for Continental Forge jumped 500 percent, company founder Charles Haueisen filed a lawsuit.

"We felt that something had to be done about it," recalls Haueisen, who fears he'd may eventually have to start laying off workers.

The suit claims California's current crisis can be traced to a Phoenix, Ariz. hotel. There, on September 26, 1996, just three days after deregulation became law, top executives from three major natural gas companies met in room 431, reports CBS News Correspondent Vince Gonzales.

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A draft agenda obtained by CBS News reads: "Opportunities Resulting from Electric Industry Restructuring." The lawsuit claims the companies "intended to destroy competition within the natural gas industry in Southern California."

Al Clark, of El Paso Corporation, took notes. "We all shook hands, sat down around a table, and started discussing the matters that were on the agenda," says Clark.

But in depositions from a related case obtained exclusively by CBS News, he couldn't remember what many of his own notes meant.

"I don't have any recollection about that at all," Clark says.

The executive who drafted the agenda couldn't recall many details about the meeting.


Click here to check regional natural gas prices


Shortly before the meeting, El Paso gained control of a rival pipeline project that would have brought cheap Canadian natural gas to California. One month after the meeting the project was abandoned — diminishing, says the lawsuit, the competition deregulation was designed to promote.

According to depositionsand Clark's notes, the companies also discussed bids for pipeline projects they were competing for in Mexico.

Less than a month after the meeting, two of the companies merged. The lawsuits allege the new Sempra Energy walked away from a pipeline project El Paso wanted and then El Paso walked away from a pipeline Sempra wanted.

"There was absolutely no secret deal. It was a straightforward business meeting with one of our principle suppliers," says Rick Murrow.

Morrow, with The Gas Company, a Sempra subsidiary, says the pipeline from Canada wasn't built because demand for natural gas was low in the mid-'90s.

"The reason it was not going to be constructed, it was not economically viable."

El Paso declined repeated requests for interviews, but also denies any wrongdoing. Sempra and El Paso claim the meeting has no relation to today's high prices — which they blame on supply and demand.

Other businesses, as well as the cities of Los Angeles and Long Beach, have also filed lawsuits, citing the Phoenix meeting.

"We investigated this and found this was in fact a violation of the law," says Brian Williams of the Los Angeles City Attorney's Office.

"They knew there was an opportunity here to reap huge profits on the backs of the consumers here in California. They conspired on that day to do that and that is in fact what they've been doing — take a look at your gas bill," says Williams.

In a separate case, federal regulators are investigating whether El Paso used control over pipelines to push up prices this year. They want to know why, as gas crossed the California border on this El Paso pipeline, the price jumped as much as 700 percent.

And although the company insists it was due entirely to other factors, last month, when El Paso lost control of much of the natural gas flowing into the state, prices plunged.


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  • CBSNews.com staff CBSNews.com staff

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