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Court Approves Sempra Class Action Settlement

A state Superior Court judge in San Diego has approved the pending settlement previously announced for Sempra Energy and its two major California utilities in a multi-billion-dollar class action lawsuit.

Dating back to the 2000-2001 western energy crisis, the so-called Continental Forge class alleged Sempra's utilities conspired with El Paso Natural Gas Co. to drive up wholesale natural gas prices at the Arizona-California border in the midst of the crisis.

Late last Wednesday Judge Ronald Prager tentatively upheld Sempra's $1.8 billion class action settlement announced early in January and then the next day held several hours of objections to the deal from attorneys representing various state and utility interests. California's attorney general has argued the settlement could preclude several pending legal actions involving Sempra and that the value of the deal is overstated.

In its announcement of the judge's action, Sempra specifically said that the settlement approval "does not terminate other ongoing energy-crisis-related litigation against Sempra Energy and its affiliates, including some claims by individual plaintiffs." It also said that final approval of a related $30 million settlement of a Nevada class-action lawsuit is expected later this year.

Sempra CEO Donald Felsinger said his energy holding company can now "focus firmly on the future," specifically investing in energy infrastructure and supplies for California and other areas of the nation. He said the approval "puts the major pieces of the energy crisis behind us." Sempra already has recorded the financial impact of the settlement in prior reporting periods, Felsinger said.

In approving the deal, Prager said the plaintiffs case "was not strong;" and the risk, expense, complexity and duration of further litigation would have been what he called "astronomical;" and the amount of the cash settlement alone -- $350 million -- "is sufficient in light of the circumstances surrounding this action."

In part of his nine-page final ruling, Prager somewhat dismissed the state attorney general's concerns about the impact on other pending litigation, pointing out that is a separate recent settlement between Sempra and Southern California Edison Co., the San Diego-based energy holding company "unambiguously conceded" that the terms of deal would not interfere with other legal actions.

In play is the conclusion of a long-running, $23 billion class action lawsuit that alleged that Sempra's San Diego Gas and Electric Co. and Southern California Gas Co. and El Paso colluded to drive up wholesale prices. The settlement was originally valued at $350 million, and later raised to more than $1.5 billion by Sempra when the overall value to the state and major retail utilities were all considered.

As in his draft ruling, Prager's final approval seemed predisposed toward the settlement, which he noted came after "a long arduous fight that expended unbelievable resources in an attempt to remedy an unprecedented situation." He also noted that when the plaintiffs filed the class action lawsuit in 2000, California Attorney General Bill Lockyer's office "declined to participate."

As part of the draft ruling, Prager said it is "undisputed" that what he called a "comprehensive" discovery by the class action plaintiffs' attorneys was done with no assistance from the Attorney General's Office. "The attorney general recently became active in this case after he initially declined to participate," Prager said. "The attorney general's participation is curious since he objects to the settlement and does not support its resolution."

The judge called the noncash parts of the settlement -- all subject to approval by the California Public Utilities Commission -- "significant," placing a value of "millions" on them, although he acknowledged the exact value was disputed.

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