Southern California Gas manipulated natural gas prices and must refund customers nearly $29 million in ?ill-gotten? gains, according to a draft order by a California Public Utilities Commission administrative law judge. Judge Charlotte Terkheurst?s November 16 findings, which the CPUC says will be delivered to the state Attorney General?s Office, stem from an investigation into spikes in the price of natural gas delivered along the California-Mexico border during the energy crisis. The utility loaned gas earmarked for small ratepayers starting in the summer of 2000 to large energy consumers but failed to store adequate reserves for core customers, which increased reliance on winter peak supplies. SoCal Gas ?knowingly contributed to supply constraints and effectively withheld gas supply? when it chose not to withdraw stored gas for residential and small business customers, asserts Terkheurst in the draft order. In addition, SoCal Gas exercised market power by profiting from selling gas during price spikes and tightening supplies, the judge concluded. She proposed that SoCal Gas refund $28.8 million from an incentive program that rewarded the utility for purchasing gas that was priced below market rates. ?The proposed decision is a politically motivated hit piece orchestrated by only one of the CPUC?s five commissioners,? said Ed Van Herik, SoCal Gas spokesperson. He pointed to commissioner Loretta Lynch, who has overseen the border price-spike probe. Trina Horner, Lynch?s chief of staff, said Terkheurst was responsible for crafting the document and coming up with its findings. ?We believe that the proposed decision is seriously flawed and will not be upheld by the full commission,? Van Herik added. SoCal Gas loaned out gas to noncore customers and other parties for a fee, he explained, because futures prices were lower than the summer price. SoCal Gas expected that prices would go down in the winter months and not skyrocket, he said. The Attorney General?s Office confirmed it would evaluate the commission?s findings as part of a probe into the conduct of Sempra and other market participants during the energy crisis, said Tom Dresslar, spokesperson for the AG?s office. The border price-spike draft decision comes months after the commission appeared to give Sempra, SoCal Gas?s parent company, an edge over other liquefied natural gas suppliers. It authorized SoCal Gas & SDG&E to establish LNG access points for the Baja California gasification plant Sempra is developing with partner Shell. Whether Terkheurst?s order could put a damper on Sempra?s designs is a looming question. The Sempra affiliates are expected to ask the commission to roll into their rate bases up to $300 million of pipeline upgrade work required to move LNG in their systems (<i>Circuit</i>, October 8, 2004). In addition, they are required to file a proposal for a joint gas transportation rate to move LNG over their systems before the end of the year. ?What could rock the investment community? is a definitive statement from the Attorney General?s Office that these regulated affiliates are not allowed to enter into LNG supply contracts with parent company Sempra or a parent company?s joint venture, said Bill Powers, Border Power Plant Working Group chair. The group is part of a coalition pressing regulators to reconsider their vote on LNG policies. Powers noted that the coalition?s petition for rehearing warns that allowing Sempra to control LNG through its distribution by affiliates opens the door for abuse of market power. The draft decision underscores these hazards, according to Powers. The second phase of the border price-spike investigation will consider whether Sempra influenced SoCal Gas and San Diego Gas & Electric. It will also evaluate whether they contributed to soaring border prices and shared confidential information. As for Sempra, the company maintains that the CPUC?s investigation of the energy crisis should not affect plans for the Baja California facility to receive LNG by 2008. That project represents a significant new source of competitive natural gas for Mexico, California, and the Southwest, said Art Larson, Sempra spokesperson. The proposal is scheduled for a vote at the commission?s December 16 meeting.