Sempra Energy agreed Wednesday to a settlement worth as much as $1.9 billion to resolve lawsuits claiming that the company limited natural gas supplies and overcharged customers during California's 2000-01 energy crisis.
San Diego-based Sempra, which owns San Diego Gas & Electric and Southern California Gas Co., said it "vigorously" denied wrongdoing. Sempra Chairman Stephen L. Baum said the company settled to end uncertainty about the ultimate outcomes and costs.
Under terms of the deal, Sempra would pay $377 million in cash over the next decade, with the remainder of the settlement provided through electricity price discounts to California power customers, natural gas price discounts and business practice changes designed to save customers money.
The pact halts a San Diego trial that threatened to bankrupt Sempra if jurors believed antitrust allegations, including accounts of a meeting between competitors in a Phoenix hotel room to carve up Southwestern energy markets.
Attorneys in that case, representing California ratepayers, accused Sempra of conspiring with El Paso Corp. to restrict natural gas supplies and had sought as much as $23 billion in damages. 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.
An adverse ruling in the antitrust case, if upheld on appeal, "would have been fatal to the company," Baum said Wednesday. "We're not in the business of betting the company."
Sempra's settlement also would end energy crisis-related cases filed by Nevada, the cities of Los Angeles and Long Beach, and others. Yet to be resolved: a federal refund case of electricity overcharges, an energy contract dispute with the state Department of Water Resources and two lawsuits filed in November by California Atty. Gen. Bill Lockyer accusing Sempra of manipulating energy prices during the market meltdown.
Still, the news brought praise from Michael R. Peevey, president of the California Public Utilities Commission. "This settlement will provide significant economic benefits to electric and natural gas consumers in California, both in lower electricity and gas costs and in the structural changes in the natural gas operations of SDG&E; and SoCalGas, which the PUC will carefully review," Peevey said in a statement.
The settlement must be approved by the San Diego Superior Court judge presiding over the class-action trial, the cities of Los Angeles and Long Beach and the Nevada District Court for Clark County -- a process Sempra expected to take six months or more. The California utility commission must approve Sempra's operational changes.
Thomas V. Girardi, an attorney who spent nine months negotiating the Sempra settlement on behalf of the class-action plaintiffs and others, called the pact "a fair and just resolution for everyone involved."
Girardi and other plaintiffs attorneys set the settlement's value at $1.9 billion. Noncash items included in that estimate were: $300 million in discounts over 5 1/2 years on a major state energy contract; $270 million in savings caused by a change in energy delivery locations; $74 million in discounts for natural gas from a Sempra facility in Mexico; $5 million in savings from changing Sempra's gas structure. An estimated $861 million in savings would come from merging certain gas operations at Sempra units, adding controls on gas purchasing and giving big customers greater access to Sempra gas pipelines and storage.
Baum, who gave up his chief executive post at the end of the year and is retiring from Sempra at the end of this month, said he hoped to resolve the company's outstanding disputes with the state. "I don't think it's good for our company to be at war with the [attorney general] or the state," he said in an interview.
Tom Dresslar, spokesman for Lockyer, said the state wouldn't abandon its cases.
"We consider this [settlement] a down payment," he said, "and we will continue to pursue our litigation to get back the rest of the money that Sempra ripped off."
Baum told Wall Street analysts that the deal would cost Sempra $350 million after taxes, including a $100-million charge the energy company booked in the fourth quarter of 2005.
He said the settlement wouldn't materially reduce earnings in future years or affect its credit ratings.
Even with the settlement, Baum said Sempra expected to beat its earlier estimates for 2005 earnings.
The company raised its profit estimate to $3.60 a share, up from a range of $3.40 to $3.60, because of strong results at its commodity trading business. Analysts had expected the company to earn $3.54 a share.
Sempra stock closed at $45.54, down 60 cents, before the announcement.