Sempra Accord Faces Challenge
Lawyers for the California attorney general’s office and others mounted a last-ditch effort Thursday to alter a nearly $1.8-billion settlement with Sempra Energy over allegations that it conspired to restrict natural gassupplies and raise prices during the state’s energy crisis.
San Diego Superior Court Judge Ronald Prager had given the pact his blessing in a tentative ruling issued late Wednesday. The judge listened to settlement objections for more than three hours Thursday afternoon and said he would rule “very soon.”
If approved, the settlement would end an antitrust case that stretched over half a decade and threatened to cost Sempra as much as $23 billion in damages if the San Diego energy company had lost. The case, brought on behalf of 13 million California natural gas and electricity gas customers, was two months into a jury trial when the two sides reached an out-of-court settlement in early January.
Pierce O’Donnell, the lead plaintiffs’ attorney during the trial, touted the proposed deal as historic and “record-breaking” and urged the judge to approve it as is. Sempra, which owns San Diego Gas & Electric Co. and Southern California Gas Co., also backed the existing agreement.
Under the settlement’s terms, Sempra agreed to pay $375 million in cash as well as change some business practices, give energy price discounts and provide other noncash benefits to settle claims brought by class-action attorneys representing customers, the cities of Los Angeles and Long Beach, the state of Nevada and others. The company didn’t admit wrongdoing.
In his tentative ruling, Prager said the proposed settlement “amounted to the consumers’ ‘last chance’ at redress in the court system” for the rolling blackouts and sky-high energy prices they experienced during California’s 2000-2001 energy crisis. Because the class-action case was “arguably an uphill battle,” he added, “the amount of the cash settlement alone is sufficient.”
But state Atty. Gen. Bill Lockyer has criticized the pact, arguing that it included overly broad liability releases that could limit future judgments against Sempra in unrelated cases that also stem from the energy crisis.
In the case being settled, the core antitrust allegations stemmed from a Sempra meeting with El Paso Corp. executives in a Phoenix hotel room. There, the two companies allegedly agreed not to operate competing pipelines in the Southwestern energy market -- a move that caused natural gas prices to soar during the electricity market meltdown, according to the suit.
Houston-based El Paso, which owns a major pipeline to California, settled the case and other energy-crisis complaints for $1.6 billion in 2003.
Lockyer has two court actions and two arbitration cases pending against Sempra, and the state is one of several entities seeking ratepayer refunds from the company in proceedings at the Federal Energy Regulatory Commission. Those disputes involve allegations of illegal electricity trading, breach of a state electricity contract and other matters.
Attorney Martin Goyette, representing Lockyer, said the Sempra settlement “has been drafted as if it were a global settlement” of all litigation involving the energy crisis. Without a stipulation otherwise from Sempra, he told the court, the existing pact “is totally improper.”
Those fears were echoed by the state Electricity Oversight Board and Pacific Gas & Electric Co., California’s largest electricity utility. A separate settlement between Sempra and Rosemead-based utility Southern California Edison, reached May 30, included a pledge from Sempra not to use the settlement to thwart federal refunds, as long as the refunds stayed below a certain level.
Erik Saltmarsh, chief counsel for the Electricity Oversight Board, said the provision in the Edison’s side deal is “only a partial correction to our concerns.” He noted that the state hopes to win federal rulings that would increase the refunds beyond the limit set by Sempra.
In his Wednesday ruling, Prager seemed unimpressed by the possibility that the agreement would compromise other proceedings that would yield big benefits for consumers. “The court is unwilling to gamble away substantial benefits to the class based on nothing more than pure conjecture,” he said in the tentative decision.
The California Public Utilities Commission, which is conducting its own investigation into Sempra’s conduct in the natural gas market, also objected to the pending settlement.
The commission’s Assistant General Counsel Harvey Morris said Thursday that several provisions in the settlement “interfere with the CPUC on issues that are our exclusive jurisdiction.”
Morris told the judge that Sempra representatives “are already circumventing” the commission’s rulings. The settlement; for instance, potentially could force Sempra’s utilities to buy gas from a sister company if they wanted to take advantage of the promised discounts, he said.
Critics also questioned the overall value of the Sempra deal, suggesting that the plaintiffs’ attorneys have overestimated the benefits of several provisions.
Plaintiffs’ attorney O’Donnell had said the $1.7-billion valuation included the cash, $570 million in electricity savings, $73 million in natural gas discounts and $745 million in other benefits.
Plaintiffs in the antitrust case would get the largest share of the cash, $325 million, with the rest divided among Nevada, Los Angeles, Long Beach and another party.
However, the judge has tentatively approved payment of more than $160 million in attorneys fees. Adding $9 million in costs, attorney payments would eat up 45% of the cash award. It is unclear how much the settlement would benefit ratepayers.
As for the attorneys’ fees, O’Donnell countered, “any way you slice it and dice it, in this case, we didn’t ask for enough.”
