British energy giant BP, which supplies natural gas to California state agencies under a $250-million annual contract, overcharged the state by as much as $300 million over eight years, a lawsuit contends.
The oil company failed to buy gas for the state at competitive prices, the whistle-blower suit says, and then knowingly sold it at inflated prices.
"BP's management manipulated its profit margin to exceed any reasonable amount of profit and greatly exceeded these contractual caps," according to the complaint. "The amount of overcharging to plaintiffs on special purchases was rarely less than three times greater than allowed under the contract and was often five to six times the cap."
The California attorney general's office has joined the case alleging a violation of the California False Claims Act. The complaint was unsealed Wednesday in San Francisco Superior Court.
According to the state, BP, the exclusive gas supplier to California government agencies, overcharged agencies by as much as 10 times what it billed other bulk-purchase customers between 2004 and 2012.
The suit was originally filed by a former employee of a BP subsidiary company based in Houston. The whistle-blower, Christopher A. Schroen, was a member of a BP team that worked on the company's natural gas supply account with the California Department of General Services during the eight-year period.
Plaintiffs in the case include the state of California, the county of Los Angeles, the University of California Board of Regents and the Trustees of California State University.
A spokesman for California Atty. Gen. Kamala D. Harris said her office joined the lawsuit because Harris "takes allegations of fraud very seriously." Harris intervened, spokesman David Beltran said, "to secure accountability and protect California taxpayers."
BP, through a spokesman, called the charges "meritless," noting that Schroen was fired more than a year before the suit was first filed.
BP would respond to specific plaintiffs' complaints at the appropriate time in the legal process, the spokesman said.
California entered into the long-term gas contract with BP as a way to leverage its massive buying power to secure favorable prices and protect itself from unexpected spikes in the cost of natural gas used to heat state buildings, including universities and government office buildings, said Niall McCarthy, a lawyer at San Francisco-based Cotchett, Pitre & McCarthy.
Instead, the state was overcharged between $150 million and $300 million on total gas sales of $2 billion, McCarthy said. BP, he said, padded its billing by exceeding an agreed-upon maximum profit margin of 15%. Then, it hid the excess charges "in an intentionally convoluted fashion so the state could not unwind the transactions."
What's more, the state says, BP's traders only sold California gas from BP sources at inflated prices and "did not obtain natural gas at competitive market prices."
BP management "had actual knowledge on a daily basis of the fact of overcharging and the significant amounts that were involved," and the company was billing more to California than it charged similar bulk clients, the state said.
Whistle-blower Schroen was the lowest-ranking member of a small BP team that handled the California contract, the suit said. Upon his hiring in 2004, he "was indoctrinated into the manner in which BP was doing business with DGS" and had "first-hand knowledge" of how BP maximized its profits.