L.A., Long Beach Claim Gas Prices Were Manipulated
A lawsuit alleging two subsidiaries of San Diego-based Sempra Energy conspired with a Texas energy corporation to keep energy prices artificially high has now spread.
The cities of Los Angeles and Long Beach have each filed lawsuits against Sempra and Houston-based El Paso Natural Gas. These lawsuits come on top of two earlier suits filed against Sempra and El Paso Natural Gas on Dec. 18 by a coalition of attorneys from law firms in Southern California and Colorado.
Los Angeles special assistant city attorney Brian Williams said the new round of lawsuits, filed March 20 in the Los Angeles Superior Court, are largely similar to the earlier litigation. Like the Dec. 18 suits, the cities allege unfair competition and unlawful monopoly set in motion at a “secret meeting” in Phoenix on Sept. 25, 1996.
Officials from San Diego Gas & Electric Co., Southern California Gas Co. , then owned by separate entities , and El Paso Natural Gas allegedly agreed not to compete with each other on building new pipeline projects into Southern California and elsewhere. That tightened supplies, resulting in higher and more unstable prices for natural gas in the region, according to the lawsuits.
At roughly the same time, the parent companies of SDG & E; and SoCal Gas began negotiations on a merger to form Sempra Energy. El Paso Natural Gas agreed not to block the lucrative merger, which went through in July 1998. In return, Sempra agreed not to compete with El Paso Natural Gas on building a pipeline to Mexico, the lawsuits allege.
In addition, handwritten notes obtained from that meeting seem to indicate that attendees agreed to partition California. Attendees at the meeting would take Southern California as “Team 1,” while “Team 2” would consist of other natural gas providers supplying Northern California, according to the lawsuits.
Higher Energy Prices
The result for Southern California consumers was higher natural gas prices. Also, since most power plants in California are fueled by natural gas, electricity prices soared as well, the lawsuits allege.
The major difference in the new lawsuits is that Los Angeles and Long Beach have added another cause of action , Section 17200 of the Business & Professions Code. This restates the unfair competition and monopoly allegations, but then declares the cities, as public guardians, can file suit on behalf of their citizens, Williams said.
The city of Los Angeles joined the lawsuit as a large producer of electricity, and therefore a large consumer of natural gas. There are also several large users of natural gas throughout the Los Angeles area , the airport, the convention center, the port and the sewage treatment plant, he said.
Rebates Desired
Ultimately, the city hopes to stop the unfair competition and obtain some money to rebate to the community. At some point, the city will decide on an amount for monetary damages, Williams said.
Fritz Ortlieb, deputy city attorney for San Diego, said he was familiar with the lawsuits being pressed by the two cities. The San Diego attorney’s office is looking into whether the city should join in the litigation, and may confer with the San Diego City Council in the near future.
Brad Baker, attorney with Hermosa Beach-based Baker, Burton & Lundy, one of the five law firms pressing the Dec. 18 suits, said the litigation by Long Beach and Los Angeles is a separate action. However, the cities are seeking assistance from the attorneys handling the original suits.
The fact that these cities are joining the crusade gives added immediacy to the lawsuit, Baker said.
“The fact that L.A. and Long Beach have now jumped on board makes it really, really credible. It’s going to be very difficult for Sempra to deny everything,” he said.
Denise King, spokeswoman for Sempra, expressed surprise the lawsuit is growing.
“We are stunned that (these cities) are choosing this route to express their frustration with the current energy crisis, instead of seeking productive solutions,” she said. “We actually put in a call into the Los Angeles City Attorney, and have offered to brief him on the facts, because we really believe that the lawsuit overlooks the facts and relies on false speculation and has absolutely no merit.”
The events that took place at that meeting “are purposefully being misrepresented,” King said. Instead, SoCal Gas and SDG & E; went into that meeting looking to find ways to lower costs to ratepayers, she said.
For example, SoCal Gas had a large amount of excess capacity on its natural gas lines, and consumers were paying for that. SoCal Gas was looking to sell that capacity back to El Paso, King said.
As to the Altamont Pipeline, one of the natural gas pipelines that the lawsuit alleges was quashed at the 1996 meeting, this was not even discussed at the time, she said.
“It was generally known before the 1996 meeting that the Altamont project was not an economically viable project, because there was already too much capacity in the marketplace at the time,” King said.
King was not familiar with the meaning of “Team 1” and “Team 2,” taken from what she called “scribble notes” from that meeting. This was written by an official from El Paso, and was not related to the reason SDG & E; or SoCal Gas was there. Nor was the concept of “Team 1” and “Team 2” discussed at the meeting, she said.
SDG & E; remains just as concerned about high prices for natural gas as everyone else, since the utility is forced to pay high prices on the spot market for its natural gas, she said.
In fact, SDG & E; has filed an application with the Federal Energy Regulatory Commission to reinstate price caps on the cost of transporting natural gas through the pipelines into California, King said.
SoCal Gas supported the filing, she said.
“There are proactive steps that we’re taking to try to deal with those high prices at the California border,” she said.
