Various Authors noon, Feb. 16
- Community Blog
- Encanto Gas Holder
BP Sued By Obama Administration, With Sempra Implications?
Federal officials in the Justice Department announced today that BP and several contractors have been sued under the Clean Water Act and other statutes for the cost of Gulf of Mexico cleanup operations. The Gulf disaster response was required after BP's Deepwater Horizon oil rig exploded and sank, killing 11 and spilling millions of barrels of crude oil into the sea.
The Obama administration is seeking billions in damages. None of the sought damages in District Court prevents individuals in affected Gulf Coast states from suing for their own damages as to their loss of livelihood due to environmental consequences to local industries.
It is unknown how BP's potential liabilities in this federal Clean Water Act suit may impact its relationships with Sempra Energy (SRE), parent of San Diego Gas and Electric Company. Sempra Energy has close commercial ties to BP and at least one BP component.
Sempra Energy component Sempra Generation is currently bringing at least two wind farms online with BP Wind Energy. Interestingly enough, one BP-Sempra wind farm in Colorado is named Cedar Creek II. Cedar Creek was the apparent starting point of the massive 2003 Cedar Wildfire in San Diego County. Other 2007 county wildfires were attributed to SDG&E overhead equipment failures, and SDG&E has initiated several rate hike applications to have ratepayers foot the bill for damages and legal expenses.
A much more lucrative relationship may be that of BP and Sempra Energy relating to the Energia Costa Azul project in Baja California. The contract is unusual due to its canceled delivery provisions (a "flexible contract" according to BP Global) where it appears that Sempra Energy will be compensated for deliveries of liquid natural gas (LNG) that are diverted to other countries. The Energia Costa Azul project has generated controversy for Sempra Energy on allegations that Mexican officials were bribed and that SDG&E ratepayers may have financed the $20 million construction tab of an exclusive executive retreat for Donald Felsinger, a senior-most Sempra Energy executive.
Last month, Fitch Ratings downgraded Sempra Energy and SDG&E debt and equity issues by a notch, and issued a Negative Outlook advisory on the firms. There appears to be no direct connection between today's announced Clean Water Act lawsuit and the Fitch Ratings actions regarding the downgrades and advisory, but Fitch Ratings may issue statements clarifying the situation.