What’s Happening In California
[January 2006]

On January 4, 2006, Sempra Energy and various subsidiaries, including San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), announced that they have entered into agreements to settle three class-action lawsuits resulting from the 2000-2001 Western energy crisis. According to a filing made by Sempra Energy with the U.S. Securities and Exchange Commission, the settlements, which are still subject to court approvals, would resolve antitrust and price misreporting litigation in California and an antitrust case in Nevada. Those lawsuits alleged that Sempra Energy, SoCalGas and SDG&E conspired to restrict natural gas supplies to California and Nevada, and that Sempra Energy and Sempra Energy Trading Corp. conspired to manipulate the price of natural gas in California through price misreporting and engaged in “wash trade” transactions.

To end the litigation, Sempra Energy and its subsidiaries agree to:

• Make cash payments totaling approximately $377 million, of which approximately $347 million will be paid to the State of California and cities of Los Angeles and Long Beach for the California antitrust and price reporting litigation, and $30 million will be paid to the State of Nevada;
• Reduce the price at which the California Department of Water Resources purchases electricity from a Sempra Energy affiliate under a long-term power sales contract, leading to a potential savings of approximately $300 million over the remaining six years of the contract;
• Sell to SDG&E and SoCalGas, through a separate Sempra Energy subsidiary developing a liquefied natural gas terminal facility in Baja California, Mexico, re-gasified liquefied natural gas at the California border price minus $0.02, up to a maximum daily amount; and
• Change SDG&E’s and SoCalGas’s natural gas operations to “increase regulatory oversight of natural gas operations, enhance the transparency of utility operations to market participants and provide large customers more choices as to how they can gain access to, and operate on, the utility systems.”

Sempra Energy and its subsidiaries “vigorously deny any wrongdoing alleged in the litigation.”

This settlement agreement does not resolve two lawsuits filed in November 2005 by the State of California against Sempra Energy. Those cases claim that Sempra Energy Trading Corp. manipulated wholesale electricity prices during the 2000-2001 energy crisis, and that Sempra Energy, SoCalGas and SDG&E intentionally misled the CPUC about their available natural gas pipeline system capacity for the benefit of another Sempra Energy affiliate, Sempra Energy International.

On January 11, 2006, Rachelle Chong was appointed by Governor Arnold Schwarzenegger as the California Public Utilities Commission’s (CPUC) newest Commissioner. Chong replaces former Commissioner Susan P. Kennedy, who became Governor Schwarzenegger’s Chief of Staff on January 1, 2006. Although Chong has been sworn in and can serve as a Commissioner, her appointment must still be confirmed by the State Senate within 365 days. If she is confirmed, Chong’s term would expire on December 31, 2008. According to the CPUC, Chong, a Republican, has more than 21 years of experience in telecommunications law and policy, including three years as a Commissioner with the Federal Communications Commission. Prior to her appointment to the Federal Communications Commission, Chong practiced law in San Francisco.

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