Value of Sempra Agreement Doubted

The California attorney general and two state agencies complained to a judge Friday that a proposed antitrust settlement by Sempra Energy was worth far less than the nearly $2-billion value claimed by class-action attorneys who had struck the deal.

In fact, the deal may be worth less than $200 million, according to lawyers for the state attorney general, the Department of Water Resources and the Electricity Oversight Board.

Sempra, which owns San Diego Gas & Electric Co. and Southern California Gas Co., had said Jan. 4 that it would pay $375 million in cash as well as change some business practices, give energy price discounts and provide other noncash benefits to settle claims brought by class-action attorneys, the cities of Los Angeles and Long Beach and the state of Nevada.

The settlement halted a jury trial in San Diego Superior Court over allegations that Sempra conspired with El Paso Corp. to restrict natural gas supplies -- and thus raise prices -- during the state’s 2000-01 energy crisis. Attorneys in the class-action antitrust case had sought as much as $23 billion in damages. Houston-based El Paso settled the suit and other energy-crisis complaints for $1.6 billion.

“We’re not hostile to a settlement. Ratepayer relief is always a good thing,” William Kissinger, an attorney representing the water resources department, told Superior Court Judge Ronald Prager. “We wanted to bring to your attention some concerns we have about the way the settlement is being presented.”

Attorney Pierce O’Donnell, who helped forge the settlement deal, dismissed the state’s objections, saying the $1.7-billion settlement figure was an “understated, conservative valuation” that was calculated by an economist and energy expert.

O’Donnell, the lead plaintiffs’ attorney during the trial, had said the $1.7-billion settlement valuation comprised the $375 million in cash, $300 million in electricity cost savings, $270 million in savings from changing electricity delivery locations, $73 million in natural gas price discounts from a Sempra facility in Mexico, $745 million in consumer benefits from changes to Sempra’s natural gas operations and other savings.

Plaintiffs in the antitrust case would get the largest share of the cash, $325 million, with the rest divided among Nevada, Los Angeles, Long Beach and another party.

In court papers, state agencies contend that, after subtracting as much as $170 million for attorney fees and costs, California ratepayers could receive as little as $155 million in cash.

The value of the noncash items would be “a bit dicey” because it would be determined by the outcomes of other Sempra disputes and action by state regulators, Kissinger said.

The agencies also questioned whether the broad liability releases granted in the pact would be used by Sempra to thwart the state’s cases against the energy company.

Attorney Robert Cooper, who represented Sempra, declined to take a position on the valuation but said, “The cash component alone is enough to make this settlement reasonable and fair.”

The state lawyers -- along with attorneys for utilities Pacific Gas & Electric Co. and Southern California Edison Co. -- argued that a proposed public notice should be rewritten to reflect the possibility that the settlement would be worth much less than $1.7 billion.

O’Donnell countered that the notice, to be published in newspapers and magazines in the coming weeks, didn’t have to include an “encyclopedic description” of the settlement’s terms. He said the noncash items in the pact “are not illusory.”

Prager approved the proposed public notice with slight clarifications, noting that the state agencies and others could object to the settlement’s substance before it comes to the judge for final approval in early June.