Facing a class action trial that could last up to six months, San Diego-based Sempra Energy and its two California utilities have been working their way through 30 pre-trial motion hearings in a California Superior Court in San Diego. In the midst of these proceedings, the judge in the case indicated jury selection should begin on Oct. 24.
The multi-billion-dollar litigation alleging manipulation of the California-Arizona interstate border price of natural gas was originally to have begun a jury trial early last month. Known as the Continental Forge antitrust case -- named for one of the major industrial customers that is a plaintiff --Sempra and plaintiffs' attorneys made a joint motion to limit the scope of the case, and the judge granted the motion, so the initial trial will include two plaintiff sub-classes -- residential gas and electricity customers in Ventura County, the county immediately northwest of Los Angeles, and all other Southern California Edison Co. electric utility customers -- with an estimated exposure at up to $1.2 billion. The overall litigation carries a potential judgment of $23 billion when California trebling of damages provisions are applied.
Sempra outlined the court's initial limitations in size, scope, format and binding effect in a Securities and Exchange Commission filing early in September. "If a judgment favorable to the Ventura residential customer sub-class were to be entered at the conclusion of the initial trial, Sempra Energy and its two utilities (Southern California Gas Co. and San Diego Gas and Electric Co.) could appeal the judgment by posting a bond in an amount not to exceed $75 million," the company said in its Sept. 8 SEC filing.
If the appeals failed, Sempra said then additional "trials and other trial court proceedings with respect to other plaintiffs could proceed."
At the time of the SEC filing, Sempra acknowledged that the holding company and its utilities have spent "substantial amounts" on fighting this litigation that alleges they conspired to manipulate interstate natural gas wholesale prices at the Arizona border in the midst of the state's 2000-2001 energy crisis. As of June 30, 2005, the Sempra companies had spent $240 million, the SEC filing said, including $74 million for SoCalGas and $36 million at SDG&E. The companies cannot estimate the ultimate cost of this litigation as it is too complex and fraught with uncertainty, the SEC filing noted.
Last month as the jury trial was postponed, Standard & Poor's Ratings Services reported holding firm on Sempra's "BBB+" corporate credit rating. "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 [based on the joint motion approved by the judge]. 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."
In its web site and through its corporate spokespeople, Sempra has given no indication that a settlement is imminent or even remotely possible at this point. A corporate spokesperson at Sempra did not return a call from NGI to update the status of the case.
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