El Paso Corp. Lawsuit Can Proceed

A California judge ruled Wednesday that El Paso Corp., Southern California Gas and San Diego Gas & Electric can be brought to trial in a civil suit alleging that they contributed to the state’s energy crisis by carving up the natural gas market and killing key pipeline projects that would have brought more and cheaper gas to consumers.

“The allegations of a conspiracy involving the El Paso defendants, which violated the state antitrust laws and unfair competition laws, are adequately pled,” San Diego Superior Court Judge Richard Haden wrote in his four-page decision. “To the extent plaintiffs can prove their allegations they may be entitled to damages, restitution or disgorgement.”

El Paso and its co-defendants have denied wrongdoing and have been trying for two years to get the case dismissed. The firms contend that the federal government has sole authority over the case and the ongoing investigation by the Federal Energy Regulatory Commission into El Paso’s pipeline operations preempts state legal actions.

But Haden found that state antitrust laws do not conflict with federal law.

“Simply put, FERC cannot adjudicate this claim,” he said.

El Paso could not be reached for comment late Wednesday. Denise King, a spokeswoman for Southern California Gas, said her company and San Diego Gas & Electric are disappointed in the ruling and said the lawsuit itself “overlooks critical facts, relies on false speculation and has absolutely no merit.” The companies are subsidiaries of Sempra Energy.

Attorneys for the plaintiffs say they intend to force high-ranking energy executives to testify under oath about a 1996 meeting in a Phoenix hotel room. At that meeting, lawyers claim, the firms plotted to divide up California’s energy market and exclude cheaper Canadian gas from Southern California Gas. Under the alleged plan, El Paso agreed to kill a Canadian pipeline project, which would have competed with pipelines operated by Southern California Gas and SDG&E.; In exchange, Southern California Gas withdrew a bid for a pipeline project that it could have completed for significantly less money than El Paso, which also was bidding on the project.

The lawsuit alleges that Al Clark, El Paso vice president of marketing and operations, took notes at the meeting. As a consequence of the deal made at that meeting, the suit claims, natural gas prices soared up to 20 times their normal ranges at times during the California energy crisis in 2000 and 2001, costing consumers billions of dollars.

“I can’t wait to depose Clark,” said Carole E. Handler, a lead attorney for the plaintiffs.

A preliminary trial date of Sept. 4, 2003, has been set.

Last month, FERC administrative law judge Curtis L. Wagner ruled that El Paso’s failure to operate at “maximum allowable operating pressure” was key evidence of a scheme to manipulate the California energy market. The ruling was hailed as a breakthrough in efforts to hold industry players accountable for damages to California consumers.

El Paso is appealing Wagner’s decision to the full FERC board, which is slated to hear the appeal next month.