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Proposed CPUC Decision Would Drop Two Sempra Gas Investigations

In what could be a final curtain call for the investigations and lawsuits that have littered the last five years in the wake of California's 2000-2001 energy crisis, two state regulatory administrative law judges (ALJ) earlier in the month released a proposed decision recommending that regulators drop two investigations of Sempra Energy and its major utilities regarding alleged California border wholesale natural gas price manipulations. To date, Sempra has settled almost all of the allegations in court and regulatory agreements.

The ALJs said the investigations should be dropped and the conditions for the utilities' current incentive rate-setting mechanisms ("gas cost incentive mechanism, or GCIM, and performance-based rates, or PBR) should be removed. "Closure and removal of the conditions on GCIM and PBR will satisfy the condition precedent in the Curtailment Action Settlement Agreement for receiving substantial consideration for SDG&E's [San Diego Gas & Electric] ratepayers, including making available additional supplies of energy at commission-regulated rates that would not have been available otherwise," the ALJs wrote in their proposed decision released Nov. 14.

Earlier in the year, Sempra settled a multi-billion-dollar class action lawsuit that was in a jury trial proceeding. As part of that deal, the company will be paying out close to $400 million over the next eight years to various plaintiffs.

In addition to California's outgoing Attorney General Bill Lockyer, one of Sempra's biggest utility customers, Southern California Edison Co., relentlessly went after Sempra's Southern California Gas Co. and SDG&E utilities for allegedly creating shortages in the midst of the power crisis that further exacerbated the situation and drove up wholesale gas prices at the California-Arizona border.

In September, Edison filed a motion with the California Public Utilities Commission (CPUC) to withdraw all claims in the proceedings against Sempra, the utilities or their affiliates because it had signed on to a settlement agreement earlier with the Sempra companies. The agreements contain proposed changes in the Sempra utilities' gas transmission/storage operations that were filed with the CPUC in August as part of a request for approval.

On Sept. 21 the CPUC, Lockyer, Sempra, SoCalGas and SDG&E entered into a settlement agreement, and in October the California Superior Court approved the curtailment action settlement. Later in October, an informational workshop was held to allow all the parties to seek clarification and the proposed end of the ongoing investigations.

The original investigation by the CPUC was started in November 2002 and focused on what caused the wholesale price spikes in the period of March 2000 through May 2001, naming both Sempra utilities. Subsequently, a second investigation was launched to run concurrently, looking at Sempra energy affiliates, the utilities and the holding company.

Part of the agreement gives SDG&E the option to acquire at book cost El Dorado Energy LLC, a 480 MW natural gas-fired generation plant at Boulder City, NV, from Sempra's independent power generation unit. The plant would become part of the utility's rate base.

One of the issues for the five-member CPUC to consider before making its decision is the fact that the settlements all have arisen outside separate regulatory investigations, coming from various court litigations. Dissenters in the CPUC investigation raised concerns about some of the gas operational changes proposed as part of the deals. SoCalGas, SDG&E and Edison all agree that hearings on contested issues should be held by the CPUC.

The proposed decision notes that the two gas price investigations were started on the CPUC's own initiative (under a different leadership), and they have expended "considerable resources both by the parties and the commission."

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