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Evidence Mounts On Price Fixing

By CBSNews.com staff CBSNews.com staff

August 7, 2001 / 5:42 PM EDT / CBS

At the height of California's energy crisis, the price of natural gas jumped 700 percent as it crossed the state line on an El Paso Corporation pipeline.

For several months a judge has been investigating the state of California's charges that El Paso used secret deals to cut out competitors and drive up prices, reports CBS News Correspondent Vince Gonzales.

"We can definitely document hundreds of millions of dollars that California is due in refunds because the price of natural gas was artificially high because of El Paso's illegal activity," says Lorretta Lynch of the California Public Utilities Commission.

Price-Fixing Proof?

A lawsuit claims this year's California energy crisis can be traced in part to a meeting almost five years ago.

On September 26, 1996, just three days after deregulation became law, top executives from three major natural gas companies met in a Phoenix hotel room.

A draft agenda of the meeting 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.

Last week, Chief Judge Curtis Wagner of the Federal Energy Regulatory Commission told El Paso's lawyers, "I think this is hanky panky if I ever saw it and you need to get somebody in here to explain it."

But in a surprise move Monday, El Paso decided no more explanations were needed and declined to call any witnesses. The case is now in the judge's hands.

"I think we have dead-bang evidence from California that what they did was illegal," says Lynch. "They're presenting no defense to that. We have tape-recorded conversations about what they did."

El Paso told federal regulators they did not cut any secret deals, but after looking at e-mails and transcripts of phone conversations, Judge Wagner said: "If ever there was a deal being made it was being made there ... It's all buddy-buddy stuff."

The company denies any wrongdoing. In June, El Paso CEO William Wise testified that the deal that gave his compancontrol of the flow of natural gas into Southern California was just "a good business proposition."

But when El Paso gave up control of the flow of gas, prices plunged. Now the state hopes the judge will order some of El Paso's record profits to flow back to California.

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