Outgoing Sempra Energy CEO Steve Baum said he expects to have the bulk of the energy crisis-spawned litigation facing the company resolved in settlements by the time he retires in January next year.
Baum made the prediction in response to a question following the San Diego-based utility holding company's third quarter earnings conference call, in which it announced a $319 million increase in legal financial reserves, which carries a $189 million after-tax impact on quarterly earnings.
In responding to the questions, Baum gave the impression that the settlement negotiation talks have reached a point where they are ripe for some sort of resolution, but he gave no specifics.
As of Sept. 30, Sempra had put aside $554 million pre-tax in total litigation reserves related to 2000-2001 energy crisis litigation, he said. "This amount includes our judgment of the total costs in conjunction with our current energy crisis litigation, including the Continental Forge class action case," he said, basing his estimate on the ongoing settlement discussions, estimated trial costs and what he called the "uncertainties inherent in complex jury trials."
Earlier this week Sempra announced a settlement in the latter case with 12 of the plaintiffs, but it represented a "very small fraction" of the amounts outstanding in the class action case, which carries potential damages of a little more than $1.2 billion (see Daily GPI, Nov. 1). Terms were not divulged, but Baum repeated that the agreement represented "a very small part of the overall class action litigation, and an insignificant portion of our litigation reserves."
In viewing the class action case now in jury trial in a California Superior Court in San Diego as a "risk to be managed," Baum reiterated that one of his major goals for his final year's performance is the "satisfactory resolution" of the outstanding litigation before the end of this year. This prompted an analyst to ask the outgoing CEO, who will be replaced by Sempra's current President and COO Donald Felsinger, whether he expected to complete a settlement in the remaining part of his tenure.
"It is one of my written goals with the board of directors to reach satisfactory resolution before the end of the year of the energy crisis litigation," Baum said. "I expect to meet my goal."
Baum was questioned about why the company is increasing its litigation reserves now as opposed to earlier in the year. He said with settlement negotiations having evolved and become "more pointed," and the litigation itself having progressed, there is a lot more information on which the company has to estimate its exposure. "It is not a lot more complicated than that," he said.
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