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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.
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