PUC to Probe Gas Companies’ Market Activity

Times Staff Writer

State regulators ordered an investigation Thursday into whether market manipulation figured in natural gas price spikes that inflated customer bills and power generation costs during the 2000-01 energy crisis.

Without discussion, the California Public Utilities Commission voted 4 to 0 to examine gas trading practices by Sempra Energy -- the parent of Southern California Gas Co. and San Diego Gas & Electric -- and other companies.

The investigation is the latest effort to root out the causes and place blame for the energy crisis that brought major utilities to their knees and thrust the state into the power-buying business.

“We need to investigate all the potential wrongdoers,” and “we are not going to stop,” said PUC President Loretta M. Lynch in an interview. The parties included in the order “may not all be wrongdoers. Some of the buyers, the utilities, may have evidence ... as to how the system was gamed.”


The probe initially will concentrate on Sempra and its subsidiaries. But it will expand to include Edison International’s Southern California Edison and PG&E; Corp.'s Pacific Gas & Electric Co., their affiliated companies and several gas suppliers. The PUC ordered them to preserve their documentation and tell the commission what they know about gas market activity that may have affected prices.

Southern California Gas spokeswoman Denise King said the company will cooperate, but said “the investigation should be focused on all market participants to ensure a fair result.”

“There is no evidence to conclude we caused an increase in prices,” King said. “Our actions saved [customers] hundreds of millions of dollars” by keeping prices down.

SoCal Gas came under fire during hearings over PUC-approved incentives that have allowed the utility’s stockholders and ratepayers to reap a windfall when the company is able to buy gas below the market rate.

Over the last eight years, King said the shareholders have received or have pending about $80 million in payments, including a $30-million windfall in 2000-01.

Edison, which is not a gas utility, alleged that the incentive system encouraged SoCal Gas to use its market clout to manipulate prices to its advantage. SoCal Gas has denied such manipulation, saying price spikes resulted from factors beyond its control, including unusually cold weather.

Brian Cherry, PG&E;'s chief of regulatory relations, said his utility’s primary gas source is Canada and that its relatively modest trading at the Southern California border could not have affected prices.

The PUC has reported that high demand for natural gas and inadequate gas storage contributed to the price spikes, but it did not examine the role of gas trading at the border, where gas reserves from Texas and New Mexico enter the state.


Edison spokesman Gil Alexander commended the PUC for launching its probe, saying, “We believe natural gas prices were manipulated.... SCE and its customers were seriously harmed by these practices and we expect to be recompensed.