Sempra to pay $400 million to settle energy crisis gaming complaint

Reporting from Sacramento— —  Sempra Energy has agreed to pay $400 million to settle accusations that the San Diego energy company engaged in “Enron-style gaming” of power markets and “a pervasive pattern of market manipulation and abuse” during the California energy crisis of 2000 and 2001.

The money will reimburse electricity ratepayers at the state’s three big investor-owned utilities: Southern California Edison Co., Pacific Gas & Electric Co. and San Diego Gas & Electric Co., which is a Sempra subsidiary. The exact distribution of the funds is still to be determined by the California Public Utilities Commission.

“The settlements will put hundreds of millions of dollars back into the pockets of California energy consumers who suffered blackouts and great economic harm during the energy crisis,” Atty. Gen. Jerry Brown said in Wednesday’s announcement of the agreement.

But residential consumers, the attorney general’s office cautioned, shouldn’t expect any windfall. The settlement is expected to cut their monthly bill by less than $1 by lowering a special energy crisis-related surcharge.

The Sempra money will pay down some of the approximately $11 billion the state borrowed to buy wholesale electricity to keep lights on and avoid rolling blackouts a decade ago, Supervising Deputy Atty. Gen. Martin Goyette said.

“You’re talking cents, not dollars,” said Michael Shames, executive director of the Utility Consumers Action Network, an advocacy group in San Diego.

Sempra spokesman Doug Kline denied that his company participated in any wrongdoing during the energy crisis. Chief Executive Donald E. Felsinger released a statement calling the agreement “a fair and reasonable outcome for both our shareholders and the state of California.”

According to a 2005 civil complaint in Sacramento County Superior Court, Sempra subsidiaries used a number of allegedly fraudulently tactics, including the creation of phony congestion on power lines and evasion of price caps, to boost its profit at the expense of residential, commercial and industrial electricity consumers.

Similar trading tricks were made infamous by traders at Enron Corp. using names like “Death Star” and “Ricochet.”

Such mechanisms contributed to an unstable electricity market that led to the bankruptcy of PG&E and almost took down Edison, Shames said.

The Sempra settlement isn’t the company’s first in connection with the energy crisis. In 2006, it settled a separate class-action lawsuit by providing $300 million in rate reductions to customers at the three utilities.

In all, the state has resolved 39 legal claims brought against energy providers that allegedly withheld power to drive up prices and create shortages that followed California’s 1996 deregulation of its electrical supply system. About $5 billion worth of claims remain outstanding.

“This settlement closes another chapter on California’s energy crisis,” Gov. Arnold Schwarzenegger said in a statement. “The people of California deserve affordable and reliable energy supplies.”

Sempra, the parent company of Southern California Gas Co., said the settlement would reduce first-quarter earnings by $96 million, or 38 cents a share. Sempra’s stock rose 48 cents Wednesday to $49.50.

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