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Sempra Not Going to Be 'Threatened' into CA Settlement, Company Says

Calling the California Attorney General's lawsuit without merit and an outgrowth of legal threats, Sempra Energy late Wednesday accused the state's chief law enforcement officer with filing a bogus lawsuit to force a settlement.

Sempra's trading unit is being accused of manipulating the wholesale energy market in 2000-2001. Sempra Vice President/Associate General Counsel W. Davis Smith said the state's lawsuit attempts to make the same case that FERC has already reviewed and closed.

Nevertheless in a filing Wednesday in a state Superior Court in Sacramento County, California AG Bill Lockyer called Sempra "one of the worst of the bad actors who ripped off businesses and consumers during the energy crisis" four years ago. He accused Sempra Energy Trading (now Sempra Energy Commodities) of "rampant use of Enron games" that violated California's unfair business competition laws and unlawful commodity transactions statutes.

Although in China on a state trade mission, Gov. Arnold Schwarzenegger's press office issued a prepared statement from the governor on the lawsuit, noting that the state's utility ratepayers have suffered from "over-priced electricity contracts since the 2000-2001 energy crisis, and I believe they deserve justice."

"My position has always been that the Attorney General's Office has legitimate claims to pursue in this case and that if a comprehensive settlement could not be reached, the state would take its case to court on behalf of the ratepayers," said Schwarzenegger, adding that his administration has been involved in what he called "intensive negotiations with Sempra Energy and other parties" for months.

Late in the day following the advance news media announcement and the AG filing, Sempra's Smith issued a five-paragraph prepared statement accusing Lockyer's office of "repeatedly" having threatened the lawsuit that was filed Wednesday. With Sempra's ongoing class action jury trial in another Superior Court in San Diego County now into its fourth week, Smith said the timing of the state's action "is highly inappropriate" given the trial [Continental Forge class action alleging Sempra's utilities' rigged natural gas supplies and prices] under way in San Diego.

Lockyer said in the filing that Sempra should be subjected to damages and civil penalties as a means of holding the company "accountable and deterring future violations." He said the amount is still unspecified and will be awarded based on the evidence, but he characterized them in the "hundreds of millions of dollars" category.

Using the legally charged words of "manipulative and fraudulent schemes" to characterize Sempra's trading action, the state AG's lawsuit said the company was paid by the California Independent System Operator (CAISO) to keep capacity in reserve and provide that capacity in case the state grid operator needed it on an emergency basis to generate extra power supplies. "But [the trading unit] never provided the capacity," the lawsuit contends, "and never intended to provide it."

"That was the 'Get Shorty' game," said Lockyer's spokesperson, referring to trading strategy that was named after the Elmore Leonard novel. Between January 2000 and June 2001, Sempra Energy Trading played 'Get Shorty' during 924 hours, according to the complaint.

"After a preliminary review of today's lawsuit, it appears to be nothing more than old news about a case that already has been addressed and closed by the Federal Energy Regulatory Commission," Sempra's Associate Counsel Smith said in his prepared statement. "The AG's motives are made even more transparent by the fact that the courts have dismissed these types of cases filed by [Lockyer] in the past, because these cases are preempted by federal law and fall under the jurisdiction of the FERC."

Smith noted that in 2003, Sempra Commodities (formerly Trading) reached a settlement with FERC on substantially the same issues."Sempra Commodities did not engage in any improper market activities and abided by the law, regulations, and market rules in existence," he said.

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