PUC concludes Sempra utility didn't rig prices

In a 3-2 vote, the California Public Utilities Commission rejected an administrative law judge's decision that Sempra's Southern California Gas Co. be fined about $29 million and that evidence gathered in a two-year probe be forwarded to law enforcement authorities.

Voting with the majority, Commissioner Geoffrey Brown said the evidence did not support the judge's decision.

"I cannot conclude that SoCal Gas intentionally created gas spikes," Brown said.

The decision was applauded by the utility, which attacked the draft decision as biased when it was issued last month and predicted it would not be upheld by the full commission.

"We applaud the commission for its thorough review of the facts," said William Reed, a senior vice president of SoCal Gas. "The gas company has always acted with honesty and integrity, and our employees worked extremely hard to achieve outstanding results for our customers during the energy crisis."

SoCal Gas was accused of failing to build its gas inventories during the winter of 2000-2001 and then engaging in loans of the commodity and other maneuvers that tended to move gas prices upward. The company has contended that it acted to save consumers money during the crisis.

But yesterday's vote does not end the PUC's scrutiny of San Diego-based Sempra's role in the natural gas price spike, a jump linked to soaring electricity prices during the state's power crisis four years ago.

The PUC is still scheduled to proceed with an investigation of the role played by Sempra Energy Trading, an unregulated subsidiary in Connecticut that is one of the nation's largest gas traders.

In a statement from Sempra, also the parent of San Diego Gas & Electric, the company said it expected the law judge to rewrite her decision to reflect the view of the full commission.

Under PUC rules, any commissioner may also submit alternate decisions in a case. The commission would then vote to approve one of the decisions.

Southern California Edison, which raised the allegations regarding SoCal Gas, said it was disappointed by yesterday's vote and looked forward to seeing an alternate decision.

Aside from the regulatory actions, a class-action lawsuit alleging Sempra conspired with other suppliers to rig the natural gas market with other suppliers is proceeding in federal court.

El Paso Corp., which faced similar allegations, reached a $1.6 billion settlement with the state to resolve the matter but did not admit wrongdoing.

Because natural gas is used to fuel electric generating plants, there is a strong link in the price of both commodities. And the state's monumental electricity crisis was accompanied by a historic rise in natural gas prices.

Yesterday's PUC vote, meanwhile, split the commission along a familiar fault line that is soon to disappear.

Commissioners Brown and Susan Kennedy joined with President Michael Peevey in voting against the conclusion that SoCal Gas' actions pushed prices higher, while Carl Wood and Loretta Lynch voted for it.

Lynch and Wood are slated to leave the commission next month and have often disagreed with Kennedy and Peevey, with Brown often a swing vote.

When the proposed decision on the gas probe was released in November, Sempra blamed the conclusion on Lynch, whom the company accused of being biased. It sought to bar her from yesterday's vote.

Lynch denied the bias charge and declined to recuse herself.

Brown spoke at greatest length yesterday in opposition to law judge Charlotte TerKeurst's conclusions.

Although a late revision to the decision removed references to SoCal Gas' intent during the power crisis, Brown said he still found her conclusions not supported by the evidence.

Brown said further investigation of Sempra was warranted, disagreeing with Kennedy, who proposed ending any probe into the company's role in gas market spikes during the crisis.

"I don't see anything in the investigation that warrants keeping this investigation open," Kennedy said.

Lynch emphasized that SoCal Gas entered the 2000-2001 heating season with low levels of natural gas in storage and had aggressively loaned some of the gas it did have to others.

"Southern California Gas contributed to supply constraints by selling gas," she said.

The suggested fine of $28.8 million, she noted, would equal the total profits retained by SoCal Gas from its gas market dealings during the period.

Voting with Lynch in support of the fine and conclusion of market manipulation, Wood said, "The gas company was not prudent and should be required to disgorge their profits."

Brown and Peevey noted that their opposition to the report was shared by the Office of Ratepayer Advocates, a consumer group within the PUC. The ORA said it had examined the evidence and disagreed with the conclusion reached by the law judge.

In some remarks, the commissioners seemed to imply that The Utility Reform Network, or TURN, shared opposition to the findings of the gas market probe. But Michael Florio, senior staff attorney for the San Francisco-based consumer group, said the group had reached no conclusion.

He said the group had not invested the large amount of time it would have taken to come to a conclusion. But Florio said TURN believes that an investigation is needed into the role played by Sempra Energy Trading during the power crisis.

"Sempra Trading made a whole lot more (from the crisis) than SoCal Gas," Florio said.

The attorney also noted that TURN and others reached an agreement with SoCal Gas several years ago in which the utility agreed to refund more than $70 million in profits it would have otherwise retained from gas market purchases and sales during the crisis.

That agreement did not involve admission or denials of wrongdoing.

Denise King, a spokeswoman for SoCal Gas, said the utility agreed to forgo the profits because it recognized that the PUC incentive plans were not designed for the "unusual times that we all experienced during the winter of 2000-2001."

"We felt the settlement was fair to our customers and shareholders alike, King said.

Craig Rose: (619) 293-1814; craig.rose@uniontrib.com

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