Sempra Energy Companies Face Jury Trial in $24 Billion Class Action Suit.

SAN DIEGO -- Judge Denies Sempra Motions for Summary Judgment; State, Cities, Counties, and Consumer Classes Seeking Damages in Antitrust Lawsuit

In a significant blow to Sempra Energy (NYSE:SRE), a far-reaching antitrust lawsuit alleging conspiracy and market manipulation that contributed to the state's devastating energy crisis in 2000 and 2001 will be heard by a jury. Announced today by the plaintiffs in the lawsuit, in a series of recent decisions, a San Diego County Superior Court judge denied Sempra's attempts to obtain summary judgment on claims seeking treble damages of approximately $24 billion.

The lawsuit charges that the Fortune 500 energy company, along with two Sempra-owned companies, Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E), conspired with El Paso Natural Gas Corp. (EPNG) to prevent competition for cheaper and plentiful Canadian natural gas and to protect their respective market dominance over the supply and transportation of natural gas both into and within California, reaping enormous profits at the expense of California consumers and businesses.

Economists have estimated that plaintiffs in the case have suffered $9 billion in damages due to the excessive energy costs during 2000 and 2001. Under California antitrust law, the amount awarded is automatically trebled after credit for payments by other defendants. Sempra's lead defense counsel Robert Cooper has admitted that the civil case is "life threatening " with the potential to "put San Diego's largest company out of business."

Plaintiffs in the action include the People of the State of California; the City and County of Los Angeles; San Bernardino County; the cities of Long Beach, Burbank, Glendale, Culver City, Vernon and Upland; Continental Forge Company; and numerous other companies and individuals. The case also includes a class of over 13 million California consumers who paid excessive gas and electric bills.

In December 2003, El Paso, the largest natural gas pipeline company in the country, settled the antitrust conspiracy charges against it by agreeing to pay $1.7 billion. The class action settlement was supported by California Attorney General Bill Lockyer, the Attorney Generals of Nevada, Washington and Oregon, the California Governor's Office, the California Public Utilities Commission, Pacific Gas & Electric Company, and Southern California Edison. In approving the resolution of the case against El Paso, San Diego Superior Court Judge J. Richard Haden praised the settlement as "the largest antitrust class action settlement in California history. It involves 13 million Californians, 3,000 industrial (non-core) users of natural gas...(and) contains significant structural benefits that will assure more plentiful and affordable gas to Californians for decades."

Commenting on the green light for trial against Sempra, Thomas V. Girardi, a lead plaintiffs' attorney with Girardi & Keese in Los Angeles, stated: "After four years of the Sempra defendants' desperately trying to avoid the day of reckoning, we are eager to have a jury of Californians pass judgment on the egregious behavior and schemes by these companies who preyed on the vulnerability of every person and business in California.

"The California energy crisis in 2000-2001 was no accident," Girardi added. "These greedy defendants manipulated the market shamelessly to gouge Californians. The world's fifth-largest economy was literally brought to its knees. The defendants' actions went far beyond aggravating the energy crisis - they effectively caused it and, in so doing, picked the pockets of every one of us."

The evidence against Sempra reveals a clandestine meeting held in a Phoenix, Arizona Embassy Suites hotel room in September 1996 where 11 senior executives (including two presidents) from SoCalGas, SDG&E and El Paso met without any legal counsel present and agreed that they would cooperate rather than compete with each other in supplying and delivering natural gas. The net result of this unlawful agreement was to enable them to artificially constrain the supply of natural gas to California and to escalate the price of gas and ultimately electricity produced from natural gas. The lawsuit maintains that these acts were the major cause of the state's energy crisis in 2000-2001.

Denying all four of Sempra's motions for summary judgment, Judge J. Richard Haden found that there are genuine issues of material fact regarding the alleged conspiracy that necessitate a jury trial. In his first ruling on September 16, 2004, Judge Haden concluded that Plaintiffs "have carried their...burden to present admissible evidence which tends to exclude, by a preponderance of the evidence, the possibility that the (Defendants) acted independently rather than collusively." Judge Haden noted that Plaintiffs "raise numerous material issues of fact" requiring a trial, including the following:

--"The unprecedented 9/25/96 meeting of eleven (11) senior executives of historic competitors, without legal counsel, who wished to 'get together and see if there were some mutually beneficial business opportunities' the two companies (El Paso and SoCalGas) could pursue 'in the form of a joint venture or something."

--"The notes taken by (a senior executive) of El Paso concerning the meeting raise a reasonable inference those present at the meeting discussed dividing California into two (2) teams, a Northern and Southern California territory, for distribution of natural gas and electricity and protection of SoCalGas' historic market power over intrastate gas distribution and to preserve El Paso's historic dominance of the interstate transportation of natural gas to California..."

--"...(F)ollowing the meeting, SoCalGas stopped competing on the Samalayuca Project in 1996, even though they had been vying for same, and even though they arguably had a competitive advantage over El Paso."

--"...El Paso stopped competing on a Northern Mexico pipeline to Rosarito even though (El Paso) arguably had a competitive advantage (over SoCalGas)..."

--"...(T)he El Paso Defendants and the Sempra Defendants did not contest each others mergers."

--"...El Paso sold Altamont (Pipeline Project bringing gas from Canada to Southern California) to Nova in 1997, for minimal consideration. Nova decided to forego the project by failing to renew the Canadian National Energy Board (NEB) certificate for the Wildhorse Pipeline, a critical component of the Altamont Project..."

--"...SoCalGas and El Paso met in June 2000 to create a plan...to withhold interstate (gas) capacity and to manipulate (gas) storage..."

In a separate ruling on September 30, 2004, Judge Haden denied three other Sempra motions for summary judgment. The court determined that the parent company, Sempra Energy, was a proper defendant in the conspiracy case along with its subsidiaries, SoCalGas and SDG&E. His decision stated in part: "Plaintiffs have proffered substantial evidence that (Sempra's) gas acquisition committee did in fact manipulate gas storage and hub services during the gas crisis in 2000-2001, thereby increasing gas prices in California and creating enormous profits for Sempra." Judge Haden also stated: "A reasonable jury could determine from the evidence that the manipulation and resulting profits were...part of a corporate strategy..."

In his September 30th order, Judge Haden further ruled that, in addition to the damages inflicted on Californians, Sempra and its subsidiaries are also liable for the disgorgement of their profits as a result of their predatory activities. Plaintiffs' economist Dr. Andrew Safir estimates the amount to be more than $3 billion.

Sempra to date has not issued a news release concerning these adverse rulings. At a hearing on the conspiracy motion for summary judgment on July 22, 2004, Sempra lead attorney Robert Cooper, of Gibson, Dunn & Crutcher in Los Angeles, stated in open court to Judge Haden: "One point I want to make is that we represent companies that are faced with a...life-threatening lawsuit. Make no mistake...we don't have yet the damage figures... I think it's about $9 billion, single damages of course, which is automatically trebled. That's a little more than these companies can stand. It will put San Diego's largest company out of business."

In its 2003 Annual Report, Sempra reported that it had net income of $649 million, operating revenues of $7.9 billion, and total assets of $22 billion. Sempra's market capitalization is about $8.3 billion. The Sempra Energy utilities, serving 21 million consumers, have the largest utility base of any U.S. energy company.

In August, while the four motions for summary judgment were pending, Sempra Chairman and Chief Executive Officer Stephen Baum sold more than 421,000 shares of Sempra stock through options for nearly $15.1 million. This followed Baum's sale of nearly $6.3 million of Sempra stock in February 2004. In total, Sempra officers have sold nearly $25 million worth of shares through options so far this year according to public filings.

Commented Pierce O'Donnell, another lead plaintiffs' counsel with O'Donnell & Shaeffer in Los Angeles: "We intend to show the jury and the world compelling evidence exposing the cartel-like arrangements under which these behemoth energy companies, faced with deregulation and the threat of competition, secretly created their own brave new world and decided not to compete with one another. Instead, they colluded in various ways to restrict the pipelines and gas storage facilities providing vital natural gas to Californians. This was a cabal of the most flagrant kind, concocted at a time when the people of California had no recourse to combat rampant price gouging."

In the September 30th ruling, Judge Haden also rejected Sempra's fifth attempt to have the case dismissed on the ground that Federal energy laws preempt a state anti-trust damages case. Judge Haden determined that the Federal Energy Regulatory Commission's "exclusive jurisdiction does not reach to the non-rate based conspiracy at issue in this case that allegedly restrained natural gas capacity into California, resulting in a spike in the spot price for natural gas at the California border."

In his ruling that the conspiracy case must go to trial, Judge Haden relied in part on the expert testimony of Dr. Andrew Safir, a distinguished economist who, as Judge Haden noted in his ruling, presented on behalf of Plaintiffs substantial evidence that the "(California natural gas) market is conducive to collusion," "the economic irrationality of Defendants' behavior, and the evidence pointing to collusion...and the industry and pricing and bidding behaviors (were) more consistent with collusion than individual action..."

Trial is expected next year before Judge Ronald S. Prager, who replaced Judge Haden on October 1st in anticipation of Judge Haden's retirement at the end of the year. The action was originally filed in September 2000 at the beginning of California's energy crisis. More than 6 million pages of documents have been reviewed and 65 depositions have been taken over the past four years.

In addition to Girardi and O'Donnell, plaintiffs are also represented by lead counsel Walter Lack of Engstrom, Lipscomb & Lack as well as Lance Astrella of Astrella & Rice P.C.; Brad Baker of Baker, Burton & Lundy, P.C.; M. Brian McMahon; Michael J. Ponce; Douglas A. Stacey; J. Tynan Kelly; Maxwell Blecher of Blecher & Collins, P.C.; Los Angeles City Attorney Rockard Delgadillo; Long Beach City Attorney Robert F. Shannon; and Los Angeles County Counsel Lloyd W. Pellman.

For copies of Judge Haden's rulings, please go to www.oslaw.com and click "News/Updates" and then "Current Case Developments."