Southern California Gas Co. Fined $3.5 Million

More than 500 Montebello landowners who contend they were cheated by Southern California Gas Co. won a bitter victory Thursday when the California Public Utilities Commission fined the giant utility nearly $3.5 million for allegedly forcing the property owners to sell their mineral rights at unfair prices and lying about their actions to regulators.

The fine is part of a settlement that allows the property owners, many of whom are elderly, to undo the deals with the gas company. Southern California Gas must also develop an ethics course for its employees and those of other utilities.

Critics said the settlement, in which Southern California Gas admitted no wrongdoing, robs landowners of their chance at a public hearing and provides paltry punishment for the Los Angeles utility, which is owned by San Diego-based Sempra Energy.

Southern California Gas executive Lee Stewart said the agreement, which came after more than a year of investigation by the PUC staff, will allow the utility to mend fences with the affected landowners while avoiding the cost of protracted litigation with the state.

The settlement was approved unanimously by the five commissioners after they received assurances that the $3.495-million fine would be paid by Sempra shareholders, not ratepayers. The fine, assessed for alleged misrepresentations to the utilities commission rather than to the landowners, will go to the state fund, not to the property holders.

The dispute centers on an innocuous stretch of land in Montebello and the underground natural gas storage area that Southern California Gas began leasing from property owners in the 1950s.

In the early 1990s, with leases on the mineral rights approaching expiration, Southern California Gas sought to buy the rights. Some landowners balked at selling, and the utility was granted permission by the PUC to use the power of eminent domain to force them to sell.

The PUC granted the permission in June 1997, over objections from then-state Sen. Charles Calderon, who was hearing from angry constituents, because Southern California Gas assured the agency the facility was necessary to utility operations.

Six months later, after buying the mineral rights at what the PUC says were below-market prices, Southern California Gas told the commission it wanted to sell the Montebello facility because it was no longer necessary to utility operations.

Landowners charged in depositions that they were bullied by utility employees into selling their mineral rights at a fraction of what they were worth. The landowners contend that Southern California Gas did not tell them the land contained potentially valuable oil deposits.

Landowner Chet Needelman of Newport Beach figures that the oil alone is worth at least $20 million and perhaps more than $500 million, adding that owners of a neighboring property have successfully extracted the pricey resource. He said landowners also lost the chance for payments as the utility extracts the natural gas stored there--an asset he estimated is worth at least $500,000--as well as several years of lease payments.

“They misled and bullied the landowners. The $3.5 million doesn’t do anything for the people who were really harmed by this,” Needelman said. “Most of these people are in their 70s and 80s and could use the extra money.”

Stewart, president of Southern California Gas’ energy transportation services unit, said the utility never intended to mislead property owners or the commission. The quick turnabout on the Montebello facility’s necessity to the utility was the result of miscommunication within the company, he said.

“We weren’t trying to steal mineral rights from these people,” Stewart said, adding that the oil on the property is probably not extractable.

“Some of these people do feel they have been wronged,” he acknowledged. “We would like to right that wrong.”

Property owners will not be required to return proceeds from the earlier mineral rights sales.

The ruling will not prevent property owners suing for damages from Southern California Gas, but Needelman said such lawsuits would be highly unlikely because each owner has a relatively small claim.