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Sempra, State Settle Suit Over Power Crisis

The energy company allegedly failed to disclose a conflict of interest over its supplies of natural gas.

October 14, 2006|Elizabeth Douglass | Times Staff Writer

Sempra Energy said Friday it would pay customers of its San Diego Gas & Electric Co. subsidiary nearly $6 million and would give the utility a discounted option to buy a Nevada power plant as part of a broad settlement that ends a state lawsuit and two investigations into the company's actions during California's 2000-01 energy crisis.

The agreement would "provide significant benefits to SDG&E's customers," said Michael Peevey, president of the California Public Utilities Commission. Sempra, which didn't admit wrongdoing, settled to remove "the financial uncertainties of these energy-crisis-related cases," President Neal E. Schmale said.

State Atty. Gen. Bill Lockyer and the California Public Utilities Commission sued the San Diego holding company in November, accusing Sempra of failing to disclose a conflict of interest among its subsidiaries and of misleading state officials about its ability to provide natural gas supplies to SDG&E customers.

During the energy crisis, an unregulated Sempra subsidiary sent large quantities of natural gas to customers in Mexico and then didn't have enough pipeline capacity to deliver the needed supplies to its sister company, SDG&E, the lawsuit contended. The shortfall forced SDG&E to cut gas supplies to large customers for 17 days during the power market meltdown -- disrupting service, raising energy prices and forcing power plants to use more-polluting fuels.

Under the agreement, regulators and Lockyer agreed to drop the lawsuit and end two related inquiries by the utilities commission. The settlement already has been approved by the PUC and by the San Diego County Superior Court judge who presided over the civil case.

Sempra agreed to pay $5.7 million to SDG&E over two years beginning in 2009. The utility would use the money to reduce the cost of buying power for its 1 million electricity customers, SDG&E spokesman Art Larson said.

As a result of the payment, "SDG&E customers will see lower bills than they otherwise would have," Larson said.

Another provision in the pact requires Sempra and its affiliates to disclose more information about any changes to utility services or operations that might benefit one of its unregulated subsidiaries.

In addition, SDG&E and its sister utility, Southern California Gas Co., must pay Lockyer's office $2 million to cover legal fees.

Sempra said in a statement that the after-tax cost of the settlement would be less than $5 million.

"We think this is an adequate remedy," said Randy Wu, general counsel at the state utilities commission. "There is considerable savings for SDG&E's ratepayers."

The reaction from Marcel Hawiger, staff attorney at San Francisco-based Utility Reform Network, was mixed.

"In pure financial terms, the settlement seems like fair compensation for the limited curtailments, but we'll never know if it is adequate punishment for the fact that Sempra executives potentially lied to the commission," Hawiger said. "The facts surrounding what Sempra executives knew about the adequacy of their gas supplies, versus what they were telling us and the commission, were all kept in confidential documents."

Hawiger and others said the power plant option could turn out to be the most valuable part of the settlement for the public.

The agreement grants SDG&E an option in 2011 to buy -- at book value -- a 480-megawatt power plant in Boulder City, Nev., that is owned by sister company Sempra Generation. Sempra said the plant cost $280 million to build in May 2000, but its book value would be an estimated $180 million.

Next year, SDG&E will begin lining up multiyear power contracts, and it will weigh the value of the Nevada plant against bids from competing producers, Sempra said.

If it opts to buy the Nevada plant, it would have to win approval from state and federal regulators.

"It really is a benefit to consumers if SDG&E buys it at a discount price," said Michael Shames, executive director of the Utility Consumers' Action Network, a San Diego consumer group.

If the dollar values from Sempra are correct, he added, "then Sempra is paying the equivalent of a $100-million fine."

Electricity from the Nevada plant is enough to power more than 350,000 homes.

Friday's settlement doesn't end Sempra's energy-crisis woes. The state has a lawsuit pending that accuses Sempra of illegal trading schemes in 2000-01 and has ongoing disputes with the company over a long-term power contract and possible consumer refunds related to the crisis.

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