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CPUC Rejects Allegations Sempra Utilities Manipulated Past Gas Market

December 20, 2004
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CPUC Rejects Allegations Sempra Utilities Manipulated Past Gas Market

With the stark animosity that has come to mark the split among its five members, the hardened majority at the California Public Utilities Commission Thursday rejected an outgoing commissioner's allegations that a state-conducted probe proved Sempra Energy's Southern California Gas Co. utility conspired to drive up wholesale natural gas prices at the Arizona border in the 2000-2001 western energy crisis.

The vote was 3-2 with the majority commissioners using unusually critical language denouncing the proposed decision that was sponsored by Loretta Lynch, whose term on the CPUC expires at the end of this month.

The allegations in various forms are still the subject of several lawsuits and ongoing investigations in the state Attorney General's Office, but after two CPUC investigations, the issue appears to be dead at the state regulatory panel, and Lynch will leave on another sour note. She was soundly criticized by the majority of her colleagues for advocating that SoCalGas refund more than $28 million in shareholder incentives that it won during the past period under the utility's CPUC-sanctioned gas-buying incentive mechanism.

While acknowledging there was no proof that SoCal specifically intended to manipulate wholesale prices, Lynch argued that its actions in the summer and fall of 2000 "deferred the acquisition of supplies needed for the core customers' winter use, thus requiring more expensive gas purchases later, an outcome detrimental to core customers, but with no shareholder consequences."

The CPUC majority commissioners did not just vote against Lynch, they took the time to soundly rebuke her publicly, although not evoking her name in most instances. They noted that even the state's two major utility consumer group parties to the case -- the CPUC's independent Office of Ratepayer Advocates (ORA) and The Utility Reform Network (TURN) -- failed to support the proposed decision sponsored by Lynch.

Calling the Lynch proposal that was revised at the eleventh hour in the last few days "internally inconsistent," Commissioner Geoffrey Brown said a rival utility's attorney from Southern California Edison Co. in oral argument "offered an initially compelling argument that there was manipulation (by SoCal), but on careful examination it appeared to be pieced together bits of a puzzle that when viewed as a whole failed to complete the picture." Brown said a "smoking gun" type of evidence "would have been nice," but in regulatory proceedings it is rarely discovered.

Brown said "coincidence -- rather than intent (by the utility)" -- appears to be a more reasonable explanation of what happened with Arizona-California border wholesale gas prices in the late 2000-early 2001 period.

"When this (proposed CPUC) decision came out, the hype was that there was intentional manipulation of the market as the selling point of this decision," Brown said. "Today, (the advocates) have retreated from that particular line. Now we're into something less than that. Second, it is interesting that Commissioner Lynch now says that this (proposed) decision does not find any evidence of intent. That is a very important statement to underscore."

Commissioner Susan Kennedy was even more blunt, saying "very few things associated with California's energy crisis are unambiguous, even in hindsight, but the facts in this case are extraordinary in their clarity. The proposed decision supplies no evidence to support the conclusion that SoCalGas planned, or deliberately caused, the border price spikes in natural gas in December 2000. In fact, at nearly every turn the evidence contradicts those conclusions."

Kennedy disagreed with Brown's feeling that the case might undergo some further review, particularly regarding the role of Sempra's unregulated energy trading business during the period in question. She said two CPUC investigations have shown there is "not one shred of evidence of any 'smoking gun' to be found."

CPUC President Michael Peevey joined the two other majority commissioners in turning down the proposal, but before taking the vote he made the aside that he had "no doubt" that after the vote when the CPUC is in recess, "the charge will be made (to news media and the public) that somehow the majority of the commission has been duped by SoCalGas, which is utterly untrue. But as certain as night follows day, one commissioner will allege that, as she has alleged many, many more troublesome things about the majority of this commission for the past two years."

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