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Attorneys in Sempra Trial Focus on Notes Listing Team 1, Team 2

Posted on: Tuesday, 8 November 2005, 21:00 CST

By Penni Crabtree, The San Diego Union-Tribune

Nov. 8--Handwritten notes by a bored executive and an agenda for a meeting in a Phoenix hotel room took center stage yesterday in a class-action lawsuit that alleges Sempra Energy and its utility companies conspired with a Texas company to limit natural gas supplies.

Depending on which side interpreted the often sketchy paperwork, those few pages amount to either a plot between the San Diego energy company and El Paso Gas Co. to stifle competition or an attempt by the companies to be more competitive and save California ratepayers money.

Sempra and its subsidiaries, Southern California Gas and San Diego Gas & Electric, face a $24 billion lawsuit in San Diego Superior Court brought by plaintiffs that allege natural gas shortages contributed to California's electricity crisis of 2000-01. The plaintiffs include the city of Los Angeles and Ventura County.

In their opening statement and during the past few days of the trial, plaintiffs attorneys have homed in on a handwritten note that lists El Paso, SoCal Gas, Southern California electricity generators and Southwest natural gas producers as "Team 1." The note includes a "Team 2" designation for Northern California energy suppliers and producers.

Plaintiffs attorneys say the memo provides evidence of El Paso and Sempra carving up the regional natural gas market in a two-team structure to stifle competition.

That team concept was forged in a 1996 hotel room meeting in Phoenix, where SoCal Gas and SDG&E representatives met with El Paso, the company that owned the largest east-west gas pipelines into California and supplied gas to SoCal Gas, according to plaintiffs attorneys.

At the time of the meeting, Sempra did not exist, but the parent companies of SoCal Gas and SDG&E were in negotiations to merge. The merger that created Sempra was completed in 1998.

Lance Astrella, a plaintiffs lawyer, portrayed SoCal Gas and El Paso yesterday as a team that worked in concert to thwart competition.

SoCal Gas, fearful that it would be cut out as a middleman supplier of natural gas, agreed to give preference to El Paso's pipeline over other competitors, he said. In turn, El Paso agreed not to bypass SoCal Gas and sell its natural gas directly to the generating plants that used it to produce electricity, according to Astrella.

Steven Miller, the Sempra manager who presented the Team 1-Team 2 idea at the Phoenix meeting, denied yesterday that there was anything sinister about the "team."

Miller, director of business strategies for SoCal Gas' parent company at the time of the meeting, said the designation of Team 1 and Team 2 was a football team metaphor for the competition that was emerging after the state-mandated restructuring of the electricity industry.

He said that Southern California "Team 1" was at a competitive disadvantage to Northern California's "Team 2," in part because SoCal Gas was paying for excess capacity on El Paso's pipeline that it didn't use -- and was forced to pass those costs onto customers.

Miller said the main purpose of the Phoenix meeting was for a frustrated SoCal Gas to persuade El Paso not to expand its pipeline for a project in Mexico and to instead use SoCal Gas' excess capacity.

It was only at the end of the Phoenix meeting that Miller said he presented an idea for a "single combined rate" that El Paso and SoCal Gas could agree to charge for delivery of natural gas to Southern California electricity plant clients.

Each company would agree to charge less, so together they could offer a price that was competitive with the price of natural gas coming from Canada into Northern California, Miller said.

Southern California clients could then better compete with Northern California generating plants, more plants would be built in Southern California, and that in turn would help soak up the excess capacity on the El Paso line, Miller said.

In the end, Miller said his "brainstorming" was deemed not feasible and the rate plan was never implemented.

Though the Team 1-Team 2 concept was Miller's, the actual notes about it from the Phoenix meeting were taken by Al Clark, an El Paso Gas marketing executive.

In video testimony last week, Clark said he took the notes but had "no recollection of a Team 1 or Team 2 doing anything in particular."

In a court proceeding devoid of humor, Clark's testimony drew a sympathetic laugh from the jury when he identified as his a page of notes that contained doodles and his signature written several times in increasingly ornate style.

"All the scribbling, I think I was genuinely bored during the meeting," Clark said.

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Source: The San Diego Union-Tribune

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