Judge Concludes Energy Company Drove Up Prices

WASHINGTON, Sept. 23 — An administrative law judge concluded today that the El Paso Corporation illegally helped to drive up prices for natural gas in California during the state's power crisis in 2000 and 2001, the first time any federal regulatory official has determined there was widespread manipulation of energy supplies.

In the ruling, Curtis L. Wagner Jr., the chief administrative law judge at the Federal Energy Regulatory Commission, essentially validates the suspicions of California officials that El Paso, the nation's largest natural gas company, withheld natural gas from the state, thus driving up the cost of electricity that was generated by gas-fired turbines.

"El Paso Pipeline withheld extremely large amounts of capacity that it could have flowed to its California delivery points," Judge Wagner said in the ruling. El Paso's actions significantly increased the price of natural gas flowing to California, he added, and "substantially tightened the supply of natural gas at the California border."

Executives at El Paso, which is based in Houston, said the ruling "is unsupported by the evidence and is inconsistent with FERC policy."

Judge Wagner recommended that the energy agency begin determining penalties against El Paso for violating federal rules and "for the unlawful exercise of market power."

The ruling sent shares in El Paso down $4.16, or 36 percent, to $7.51.

California officials and one of the state's major utilities, which argued the case in hearings at the energy commission, said they would seek to recover nearly $4 billion in what they contended were higher power and gas prices caused by El Paso's actions.

The company also faces a number of lawsuits, which will be aided if the ruling is upheld.

But the decision faces review by the four-member energy regulatory commission and, if upheld there, an almost certain appeal to a federal appellate court.

El Paso predicted that the ruling would be reversed. In a statement, the chairman and chief executive of El Paso, William A. Wise, said: "We are disappointed that today's proposed decision does not recognize the substantial record evidence supporting El Paso Natural Gas's position that the pipeline was operated properly. We are confident in the strength of our position."

"Given the critical safety and deliverability concerns associated with operating a natural gas pipeline," Mr. Wise said, "it is inappropriate and without precedent to second-guess a pipeline's day-to-day operations."