Gas Co. Owes Huge Refund, Judge Says

Southern California Gas Co. manipulated the natural gas market during California’s 2000-01 energy crisis and should refund more than $28.8 million to customers, a state regulatory judge said Tuesday.

The California Public Utilities Commission said it turned the findings over to state Atty. Gen. Bill Lockyer, who is investigating Southern California Gas -- the nation’s biggest gas utility -- and its San Diego-based parent, Sempra Energy, in connection with the crisis. Lockyer spokesman Tom Dresslar said his office planned to “carefully evaluate” the findings, written by PUC Administrative Law Judge Charlotte TerKeurst.

Southern California Gas denied wrongdoing and blasted the so-called proposed decision, which is subject to approval by the five PUC commissioners.

The proposed decision “is seriously flawed and will not be upheld by the full commission,” said Denise King, spokeswoman for the Los Angeles utility. The company maintained that high prices were caused by a “perfect storm” of conditions, including an explosion on a major pipeline bringing gas to California.

The PUC is scheduled to take up the matter Dec. 16.

The commission launched its investigation in November 2002, examining whether the natural gas trading strategies of Southern California Gas and another Sempra subsidiary, San Diego Gas & Electric Co., sought to maximize profit at the expense of utility customers.

Southern California Gas serves about 19 million people through more than 5 million customer accounts, primarily residential and small business.

The probe focused on PUC-approved incentives that allowed the gas utility to reap a windfall when the company was able to buy gas below market rates. Profit earned in the program was divided among ratepayers and shareholders.

The company’s shareholders earned nearly $30 million from that program in 2000-01, when natural gas prices soared to record levels, helping push electricity prices to their own records. During an eight-year period ended in 2002, profit totaled about $80 million, the utility said at the time.

In the proposed decision Tuesday, TerKeurst found that Southern California Gas manipulated that program from June 2000 to March 2001. That helped gas prices to soar to a record $60 per million British thermal units in December 2000 along the California border, where much of the state’s gas is bought and sold. Earlier in 2000, gas sold for less than $3 per million BTU, a common measurement for large gas trades. (A typical California home uses 1 million BTU of gas in five or six days.)

Specifically, TerKeurst said, the utility failed to store enough gas for the winter, failed to use some of the gas it did store, lent gas to big users and scheduled repayments at times of high use, which reduced pipeline capacity. The utility also sold gas when prices rose, profiting from the price increases it caused, she said.

Southern California Gas “knowingly contributed to supply constraints and effectively withheld gas supply during peak winter months,” TerKeurst said.

The company “exercised market power and manipulated the gas market” and should refund about $28.8 million, plus interest, of “ill-gotten” gains, she said.

Commissioner Loretta M. Lynch, who was PUC president when the investigation started, issued a statement saying the probe “represents the commission’s first real, detailed analysis of the utilities’ actions during that time” and provides evidence that Southern California Gas “operated its pipeline and storage systems to manipulate the Southern California natural gas market and drive up consumers’ natural gas bills.”

King, however, called the investigation “a politically motivated hit piece” orchestrated by Lynch, whom she described as a “disgruntled lame duck who was removed from her position as commission president due to her inept leadership during California’s energy crisis.”

Lynch, whose term ends Jan. 1, lost her president’s post to Michael R. Peevey nearly two years ago. Observers at the time attributed her removal to conflicts with then-Gov. Gray Davis.

The PUC said it was still investigating Sempra and other companies for their roles in the energy crisis.