Energy Advisory Bulletin
CPUC Rejects Proposed ALJ Decision That Southern California Gas Company Gamed the Gas Market and Contributed to California Gas Price Spikes
By Christopher A. Hilen
[December 2004]
On Dec. 16, 2004, the California Public Utilities Commission (Commission) by a 3-2 vote rejected a proposed decision by an administrative law judge that would have found that Southern California Gas Company (SoCalGas), a subsidiary of Sempra Energy, manipulated natural gas markets and exercised market power to artificially raise natural gas prices during 2000 and 2001 through its gas storage, lending and trading activities.
The proposed decision, which was issued in the Commission’s investigation into whether California utilities or their affiliates contributed to the gas price spikes that occurred in 2000-2001, also would have forced SoCalGas to return the $28.8 million it received under its gas cost incentive mechanism for the period between June 2000 and March 2001. It also would have forwarded the Commission’s findings of market manipulation to the California Attorney General, who is investigating the activities of Sempra and its subsidiaries during the energy crisis. The proposed decision, if it had been adopted by the Commission, could also have been used by the plaintiffs in a class action lawsuit pending against Sempra in San Diego that seeks billions of dollars in damages. DWT discussed the proposed decision in the Dec. 1, 2004 Advisory Bulletin.
Prior to the Commission meeting, the Administrative Law Judge revised the proposed decision to cut back on findings that SoCalGas intended to manipulate the market and shifted its focus to SoCalGas’ actual deeds. At the Commission meeting, Commissioner Geoffrey Brown took the lead in comments opposing the proposed decision. Brown reasoned that while SoCalGas had the ability to manipulate the gas market, there was no evidence that it had intentionally tried to do so, that it had in fact manipulated the market, or that it had any idea natural gas pipeline conditions would be constrained during the winter of 2000-2001. Moreover, he said the record does not even justify a finding that SoCalGas was imprudent, or unreasonable, in its gas storage and trading activities and should suffer a disallowance. However, he wants the Commission to complete a prudency review of SoCalGas’s actions during that time period.
In contrast, Commissioner Susan Kennedy said the case against SoCalGas should be closed entirely because “the proposed decision provides no evidence that [SoCalGas] planned or contributed to price spikes.” Commission President Michael Peevey joined Brown and Kennedy in voting against the proposed decision. Departing Commissioners Loretta Lynch and Carl Wood voted for the proposed decision.
In the next phase of the investigation, the Commission will examine the role of Sempra and its non-utility subsidiaries in the border gas price spikes, including possible violations of the Commission’s standards of conduct governing the relationship between SoCalGas and its affiliates. In the third phase, the Commission will examine the role of PG&E, Southwest Gas Corporation and Southern California Edison Company in the price spikes.
Given the Commission’s decision on the proposed decision, however, and the departure of Commissioners Lynch and Wood from the Commission on December 31, it is not clear how vigorously the rest of the investigation will be prosecuted.
Separately, on Dec. 21, 2004, the California Court of Appeal summarily denied Sempra Energy's appeal from a San Diego Superior Court order denying Sempra's motion for summary judgment on the class action complaint against it for conspiracy, unfair business practices, and state antitrust violations. The gravaman of the class action complaint is that Sempra and its two utility subsidiaries, SoCalGas and San Diego Gas & Electric Company, conspired with El Paso Natural Gas Company to divide up the California gas market in an attempt to preserve SoCalGas' historic market power over intrastate gas distribution and storage in Southern California and to preserve El Paso's historic dominance of the interstate gas transportation market into California, actions which allegedly drove up California natural gas prices in 2000-2001. The summary denial of Sempra's appeal means the trial on the class action complaint, which seeks $9 billion in damages that could be trebled under the Unfair Business Practices Act, will go forward next year. The Superior Court is expected to schedule the trial for sometime next summer.
For more information, please contact:
This Energy Advisory is a publication of the Energy Department of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of recent developments in energy law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Copyright © 2004, Davis Wright Tremaine LLP.
return to Advisory Bulletins main page
|
