Neighboring California utilities, Sempra Energy’s Southern California Gas Co. and Edison International’s Southern California Edison Co., traded accusations during the opening last week of evidentiary hearings in an 18-month-old state regulatory investigation of the wholesale natural gas market during the state’s energy crisis in 2000-2001.

SoCalGas has had to fight off relentless accusations by Edison that the gas utility and its Sempra affiliate, San Diego Gas and Electric Co., constrained supplies from storage to push up wholesale gas prices. In fact Edison was joined last week by the city/county of San Francisco and the county of Santa Clara, which filed lawsuits against Sempra in a California Superior Court in San Diego accusing Sempra’s two utilities and other companies of purposely driving up wholesale gas prices during the 2000-2001 energy crisis.

“It is clear that the illegal actions of the gas sellers and traders artificially increased the price of gas for millions of California consumers as well as for public entities like San Francisco,” according to San Francisco’s City Attorney Dennis Herrera.

A Sempra spokesperson labeled the legal action “meritless” but said the company had not been formally served with copies of the lawsuits. He said that from news reports of the lawsuits it appears the actions are “long on hyperbole, short on substance and teeming with false allegations.” He said Sempra and all of its companies have “followed the rules (of the wholesale energy markets) and none of their activities have in anyway adversely impacted consumers.”

One of the allegations in the lawsuits is that Sempra and others reported false sales to energy trade publications that publish price indexes that in turn are used widely in the industry to set prices. Along with the Sempra companies, the others named in the lawsuits are: Reliant Energy, CenterPoint Energy, Coral Energy, WD Energy Services Inc., EnCana Corp.;s U.S.-based trading unit, CMS Energy, Aquila Inc., and Cantera Gas Co.

The hearings that started last week are expected to continue through July 16, dealing with the first phase of the California Public Utilities Commission’s probe centered on the two Sempra utilities. The second phase of the investigation will look at the other major private-sector utilities in the state, Pacific Gas and Electric Co., Las Vegas-based Southwest Gas Corp., and Edison, which is a major gas wholesale buyer.

At the opening day of the hearings, Edison and SoCalGas continued to squabble over documents the electric utility wants from the nation’s largest natural gas distributor. The gas utility allegedly is refusing to provide some requested information or it is taking longer than Edison would like to come up with the data.

The charges are that SoCalGas, which operates the only major natural gas storage system in the southern half of the state, manipulated storage levels downward going into the 2000-2001 heating season, helping to drive up wholesale gas prices, which in turn helped contribute to the extreme wholesale electricity price spikes during that period.

Edwin Guiles, the CEO of Sempra Energy’s utilities, appeared as a policy witness in the opening hearings, adamantly denying that the gas utility drove up prices, and stressing instead that it undertook gas hedges to lessen the impact of market price surges on its retail customers.

Earlier this year, the CPUC administrative law judge in the case reviewed loans that SoCalGas provided non-core customers in 2000, and alleged false reporting of trades and prices to national trade press by both Sempra utilities. In addition, the judge has agreed to review Sempra’s risk management unit and the CPUC-authorized gas-cost incentive regulatory mechanism under which both of its utilities operate.

Edison has sponsored an outside economist expert witness that alleged that SoCalGas could have manipulated the Arizona border prices for gas in the early winter of 2000-2001 because it has no competition for storage in its service territory. Edison alleges the gas price manipulation cost its retail power customers millions of dollars in higher retail electricity costs.

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