By last Friday, Sempra Energy’s stock price was clawing its way back upward after dropping nearly 10% earlier in the week on the news that a California state Superior Court judge had rejected the company’s multiple requests for a summary judgment, declaring that a class action lawsuit against Sempra was ready for a jury trial some time next year.

The lawsuit alleges that Sempra and its two major California utilities conspired to drive up interstate natural gas prices at the California border. Sempra said the lawsuit is “frivolous” and “without merit,” noting that the judge’s decision was procedural and had nothing to do with the merits of the allegations.

Standard & Poor’s Ratings Services last Wednesday issued a bulletin saying the judge’s ruling would not affect Sempra’s solid investment-grade credit ratings, nor those of any of the other defendants, which at one time included Houston-based El Paso Natural Gas Co. “Although [we] recognize that this is an unfavorable development, any financial impact will be reflected after a final nonappealable verdict has been reached,” S&P said. “El Paso Corp. reached a settlement with respect to all charges in the lawsuit in 2003.”

While noting that Sempra’s stock dropped 9% the first day after the plaintiffs’ attorneys issued a press release last Monday, a Credit Suisse First Boston (CSFB) bulletin said the investment bank’s initial conclusion is that the plaintiffs’ complaint is “largely without merit,” based on a review of the master complaint filed in February 2003 and another petition by Sempra’s attorneys filed earlier this month.

However, CSFB did acknowledge that the plaintiffs are seeking $24 billion in damages related to the alleged Sempra participation in anti-competitive activities leading to the California wholesale energy market meltdown in the 2000-2001.

As noted by CSFB, two former parties to the class action, El Paso and Williams, have carved out separate settlements with the California attorney general. El Paso’s deal was valued at $1.7 billion, and Williams’ was $400-500 million. Sempra has a long-term power supply contract with the California Department of Water Resources, which the state attorney general has been trying to get the energy company to renegotiate, and its net present value as calculated by CSFB is about $1.2 billion.

Sempra General Counsel Javade Chaudhri said there is “no factual basis” for the plaintiffs’ allegation, in a written statement released last Monday. “It is unfortunate that their trial lawyers believe they can achieve their litigation goals by trying to manipulate the news media. We will continue to oppose vigorously the allegations of the lawsuit. We expect to prevail.”

While Chaudhri acknowledged in his prepared statement that gaining summary judgment is no easy task, he nevertheless thinks Judge Haden “erred in not granting” the energy company’s motion. Sempra is now asking for “immediate review” by the state appellate court.

The basis for the plaintiff attorneys’ promotion of their case in the news media was a series of rejections of the company’s legal motions by San Diego County state Superior Court Judge Richard Haden, who essentially, but not unequivocally, set for trial the class action lawsuit. The plaintiffs said that their economists’ estimated there could be $9 billion in potential damages involved; others place the number much higher.

Sempra on Oct. 15 filed with a state appellate court asking for the lower court ruling to be set aside and the motion by the utilities to be granted, calling the case “frivolous and without merit,” making “inferences that are not backed up by hard evidence.” A Sempra spokesperson said last Monday that they expect to hear from the appellate court in the next 30 to 60 days; and it is “unclear’ whether the class action lawsuit will ever come to trial.

“Obviously, we are extremely disappointed by the judge’s action,” said a Sempra spokesperson in Los Angeles. “We knew there were some hurdles to a summary judgment, but we expected it to be granted. It is too bad the frivolous lawsuits are allowed to get this far. We will vigorously oppose these allegations, which are utterly without merit. There was never any conspiracy.”

The plaintiffs’ attorneys said they expect the trial to begin next year before a newly assigned Judge Ronald S. Prager, who replaced Judge Richard Haden Oct. 1 in view of Haden’s upcoming retirement. Haden first rejected the Sempra motion for summary judgment Sept. 16, and then on Sept. 30 rejected three such motions by the utility holding company.

A source at a competing major California utility characterized judge’s rejection of Sempra’s four motions for summary judgment as very significant, setting the possibility of a major legal case carrying huge implications for the San Diego-based utility holding company and its two major subsidiaries, San Diego Gas and Electric Co. and Southern California Gas Co.

Plaintiffs in the case, which include the city and county of Los Angeles, San Bernardino County, six smaller cities in Los Angeles County, and a major industrial customer, Continental Forge, contended in an announcement on the legal proceedings Monday that one of Sempra’s outside counsel called the case potentially “life threatening” to Sempra. (Although the plaintiffs claim the state of California is also a party, Sempra’s attorneys said that is not the case.)

The allegations in the four-year-old case are that Sempra’s utilities and El Paso conspired to prevent competition from cheaper, more plentiful Canadian gas, creating windfall size profits for the gas companies. At the heart of the class action lawsuit and several other legal actions was an alleged secret meeting in September 1996 where 11 senior executives from SoCalGas, SDG&E and El Paso met in a Phoenix hotel with attorneys present to agree not to compete for supply gas to the southern half of California.

The plaintiffs said Monday that Superior Court Judge Haden found what they characterized as “genuine issues of material fact regarding the alleged conspiracy that necessitate a jury trial.” Among the facts submitted by the plaintiffs that the judge supposedly found compelling are:

The class action lawsuit was originally filed in September 2000 at the outset of California’s energy crisis. More than six million pages of documents have been reviewed and 65 depositions taken over the past four years, the plaintiffs said.

“The California energy crisis in 2000-2001 was no accident,” said Thomas Girardi, a Los Angeles-based attorney who is the lead attorney for the plaintiffs. “There greedy defendants manipulated the market shamelessly to gouge Californians.

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