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Sempra Class Action Trial Delayed as Pre-Trial Motions, Scope Worked Out

The scheduled start for the jury trial for Sempra Energy's multi-billion-dollar class action lawsuit in which it is alleged to have manipulated wholesale Arizona border natural gas prices was delayed last week as hearings continued on 30 pre-trial motions in the case in a state Superior Court in San Diego County.

Meanwhile, attorneys for Sempra and the plaintiffs agreed to the scope of the trial, according to an 8-K filing with the federal Securities and Exchange Commission by the San Diego-based energy holding company.

Standard & Poor's Ratings Services reported Monday that it was holding firm on Sempra's "BBB+" corporate credit rating, despite the impending start of the jury trial in what is known as the Continental Forge antitrust case in which the plaintiffs' claims when trebled by California law in such cases total would reach about $23 billion.

Sempra said the initial jury trial, originally scheduled to begin Monday, "should begin after the hearings on the pre-trial motions are completed and other pre-trial issues are resolved." The company said no specific date has been set for starting the trial, but it expects "jury selection to begin later this month, followed by opening statements and the presentation of evidence."

On Sept. 8, the attorneys for Sempra and its two California utilities, Southern California Gas Co. and San Diego Gas and Electric Co., along with the plaintiffs attorney, gained the court's approval for their stipulation on the "size, scope, format and binding effect" of the eventual trial.

"Although the lawsuit represents a potentially large contingent liability for Sempra, and despite the unpredictability of a jury trial, the ratings are unaffected for a combination of reasons," said San Francisco-based S&P credit analyst Swami Venkataraman. "First, any financial impact from the lawsuit will be limited to $75 million for at least the next three years, and perhaps even longer. Second, a victory for the plaintiffs is not at all certain. Third, El Paso Corp. reached a global settlement on this and many other lawsuits in 2003 for a combined $1.6 billion."

Venkataraman said Sempra continues to work toward a similar settlement, and other lawsuits now underway could have an impact on the Continental Forge case, particularly Sempra's application to the Federal Energy Regulatory Commission (FERC), asking for it to declare exclusive jurisdiction in issues like the ones raised in the case pending trial.

For now, Sempra said in its Sept. 8 SEC filing that the $23 billion claims of damages have not been resolved and continue to be litigated at this point. "An initial jury trial is expected to commence shortly after the completion of ongoing hearings on the remaining pretrial motions," the company told the SEC.

If the plaintiffs gain a favorable judgment in an initial trial, Sempra and its utilities could appeal the judgment by posting a $75 million bond, Sempra said in the SEC filing. As of the end of June this year, Sempra reported it has accrued $241 million to cover the estimated cost of the litigation, including $110 million for the two California utilities.

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