Union Tribune

July 16, 2003

Sempra, SDG&E will talk to FERC
Both deny wrongdoing during energy crisis


WASHINGTON Sempra Energy, its San Diego Gas & Electric Co. subsidiary and dozens of other companies are expected here next week for talks with regulators on allegations they manipulated electricity prices during California's power crisis.

The Federal Energy Regulatory Commission has urged the companies to begin settlement discussions to avoid lengthy hearings before administrative law judges. The companies could be forced to surrender unfair profits.

"The commission, as a matter of course, encourages settlement," said FERC spokesman Bryan Lee. "It will save (the companies) money in the long run over litigation."

A Sempra spokesman said the company "will consider all options, including a settlement."

Sempra and SDG&E have denied wrongdoing.

FERC invited the 43 companies and municipal utilities to a July 24 conference with the commission's trial staff to discuss "the approach it intends to take to deal with each identified entity" and to determine their "willingness to expeditiously resolve the instant case."

The companies and municipal utilities were named in a sweeping order that FERC issued last month in the wake of a yearlong investigation of alleged price manipulation during California's 2000-01 power crisis. FERC threatened to force them to surrender ill-gotten profits unless they can prove they did nothing wrong.

Wholesale electricity and natural gas prices soared during the crisis, causing widespread power shortages and rolling blackouts. California and its taxpayers were saddled with enormous costs after the state stepped in to buy power on behalf of utilities teetering on the edge of bankruptcy.

San Diego-based Sempra and SDG&E were named among the companies that FERC said "appear to have participated" in manipulative practices. Those practices included creating phony congestion on California's power grid, shipping power out and then back into the state to avoid price caps and selling bogus reserve power.

Sempra was also among several companies accused of forging "strategic alliances" to apparently engage "in market manipulation schemes that had profound adverse impacts." Other companies entered partnerships with Enron, the bankrupt energy-trading giant that pioneered the schemes, the commission said.

The companies have denied engaging in any improper behavior during the power crisis.

Sempra "will be represented at the July 24 FERC meeting," said spokesman Doug Kline. "While the company complied with the applicable federal and state regulations in its trading activities during the California energy crisis, we will consider all options, including a settlement in the case, and will ultimately pursue the course of action that is in the best interest of our shareholders."

Representatives of SDG&E also plan to attend.

"We're always willing to sit down with people to listen to their points of view. We do want to examine all our options," said SDG&E spokesman Ed Van Herrik.

In a related decision yesterday, a FERC judge ruled that Enron should repay $32.5 million for violating the Federal Power Act during the California energy crisis.

FERC Judge Carmen Cintron also reiterated FERC's finding last month that Enron's wholesale electricity trading license should be revoked. The administrative law judge's decision now goes to the three-member commission, which can reject, accept or modify it.

Enron spokesman Eric Thode said the firm was studying the ruling and would cooperate with FERC.

Cintron presided over a case that focused on a questionable trading partnership Enron held with El Paso Electric Co., a Texas utility unrelated to El Paso Corp.

Reuters contributed to this report.