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Tuesday, Jun 25, 2024

Energy—Lawsuits accuse power producers and traders of market manipulation

State regulators couldn’t do it. The state Legislature couldn’t do it. Federal regulators couldn’t give San Diegans long-term relief from skyrocketing electrical costs either.

Now, here come the lawyers.

Two lawsuits have been filed alleging collusion and market manipulation among electricity producers and marketers trading in California’s deregulated energy market.

The Utility Consumers’ Action Network announced a class-action lawsuit Nov. 29 on behalf of all utility customers who purchase their power from San Diego Gas & Electric Co., Southern California Edison, and Pacific Gas and Electric.

Parties names in the lawsuit include affiliates of Duke Energy, Dynergy, Enron, NRG Energy, Pacific Gas & Electric, Reliant Energy, Sempra Energy, and Williams Energy.

The UCAN lawsuit comes on the heels of a similar class-action lawsuit filed Nov. 28 by the San Diego firm of Krause & Kalfayan. The two lawsuits could possibly be combined, said one of the attorneys involved.

Joining UCAN in the lawsuit are Michael Aguirre, of the law offices of Aguirre & Meyer; Paul Kiesel, of the law offices of Kiesel Boucher Larson LLP; Harvey Levine, of the law offices of Levine, Steinberg, Miller & Huver; and Leonard Simon, attorney with the law offices of Milberg Weiss Bershad Hynes & Lerach LLP.

Michael Shames, executive director of UCAN, said he joined with the lawyers because out of all the law firms that have approached him about filing a class-action suit, these are the best and the brightest.

“They are the big guns for San Diego who are going to fight against the big gougers who took a lot of money from us this summer,” he said.

Refunds Demanded

The lawsuit demands the energy companies refund electricity overcharges paid by consumers and distribution utilities over the summer. Those overcharges are estimated to be $500 million paid by San Diego residents, and $5 billion in the rest of the state, Shames said.

Simon said a multibillion-dollar settlement could take as long as seven years, but the first visible benefits could come in a matter of months.

“Can positive things happen in six months, nine months, 12 months, 18 months? Of course they can. The generators will start thinking differently about the situation tomorrow, because they will understand they are under the microscope,” he said.

Simon believes energy regulators will also start thinking differently about the matter. Between Gov. Gray Davis, the Legislature, the California Public Utilities Commission and the Federal Energy Regulatory Commission, some action could take place in addition to any jury verdict, he said.

Another possibility is that the lawsuit may lead to a preliminary injunction against the power providers and traders, but it’s a bit premature to discuss that, he said.

The UCAN lawsuit would target electricity marketers and generators to compel them to refund money to California ratepayers and also prevent similar overcharges in the future, he said.

‘Veil Of Secrecy’

The trial lawyers were getting involved because the state, California regulators and even the FERC was not able to pull back the “veil of secrecy” and get to the root of the problem, Levine said.

Levine cited several studies that were unable to conclude there was any evidence of price manipulation because they were incomplete.

“The reason they say the studies (were) incomplete is because of the secrecy. And the secrecy prevents them from obtaining the production data that would make the study more empirical. And that’s exactly the focus of the lawsuit , to obtain through the judicial process the production data that others have been wanting so badly,” he said.

At the heart of the lawsuit is the alleged violation of California’s antitrust laws and unfair business practice laws. Under California’s system of energy deregulation, power companies were able to conspire with each other, Simon said.

“Those market players have not been acting in the manner of independent businesses competing to sell the most power and to make profit in a fair, honorable American way. They have rather been looking to the left, looking to the right, winking, nodding and colluding, holding power off the market when they thought it was advantageous to them,” he said.

Art Larson, spokesman for Sempra Energy, released a statement saying Sempra has not yet been served with any lawsuit, and therefore cannot comment on any potential litigation claims.

However, he did go on to say that any allegations that the company or its subsidiar ies violated antitrust or other laws are “completely false and frivolous.”

“As a matter of fact, Sempra Energy and San Diego Gas & Electric have been leading the charge to reform California’s dysfunctional deregulated electricity market.

“Both companies also have been pressing regulators to order refunds from power suppliers for last summer’s high electricity prices,” Larson said.

Similarly, Tom Williams, spokesman for Duke Energy, strongly denied the allegations in the lawsuit. Duke had been investigated by the California Independent Systems Operator, the California Power Exchange and FERC, all of whom concluded there was no inappropriate behavior by market participants, he said.

“In 1999, our power plants in California produced about 9.5 million megawatt hours of electricity. This year we expect the plants to produce between 16 and 17 million megawatts of electricity. These numbers obviously do not indicate that we have been withholding electricity,” Williams said.

“We have instead been running 30- and 40-year-old equipment as hard as possible to meet the demand.”

Williams also disputed Levine’s claims that the lawyers would find something previous investigations had not been able to obtain.

“We have given the FERC an inordinate amount of documents,” he said. “The documents they were asking for were pretty critical market information. And they used that information to conclude there was no inappropriate behavior.”

The FERC staff concluded that while “there was evidence” of potential energy market abuse in California last summer, the agency had neither the time nor the documents needed to draw a proper conclusion.

Attorney Paul Kiesel said FERC had only conducted what he called an “informal investigation.” He does not know what documents FERC had access to, but the fact that the investigation was informal leads him to guess it might have been a voluntary sharing of documents rather than the compulsory turning over of evidence a class-action lawsuit would require, he said.

Williams added that Duke has come up with a number of solutions to stabilize California’s energy load, putting an end to the state’s electricity crisis.

He cited Duke’s offer of 3,300 megawatts at a fixed price to serve SDG & E;’s entire load. Similar contracts had been signed between PG & E; and SoCal Edison, he said.


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