Utilities Sue DWP Over Power Deals

The state’s two biggest utilities sued the Los Angeles Department of Water and Power and 18 other government entities Thursday seeking to collect hundreds of millions of dollars in alleged overcharges on electricity sold during the California energy crisis.

Southern California Edison Co. and Pacific Gas & Electric, joined by the California Electricity Oversight Board, filed the lawsuit in U.S. District Court in Sacramento -- a new venue for a refund dispute that has simmered since the state’s power market meltdown in 2000-01.

The lawsuit alleges that the government power providers violated contracts by selling electricity at rates that the Federal Energy Regulatory Commission deemed “unjust, unreasonable and unlawful.”

Edison and PG&E; are seeking an unspecified amount in refunds for the utilities and their customers. In a statement Thursday, Edison said the claims could amount to as much as $500 million, although it was unclear how much of that ratepayers would get if the utilities were to prevail in court.

“It is a significant chunk of the money,” said Erik Saltmarsh, chief counsel for the Electricity Oversight Board. “It’s something we’re going to keep pursuing as long as we have an avenue to.”

A spokesman for the Los Angeles city attorney’s office, which is representing lead defendant DWP, declined to comment, saying lawyers for the city had not yet seen the lawsuit.

The other 18 defendants include an array of electricity providers, including cities, irrigation districts and public power agencies. The cities of Glendale, Pasadena, Anaheim, Burbank and Riverside are among the other local defendants.

All of them either declined to comment or could not be reached for comment late Thursday. However, the lawsuit notes that the defendants “have denied any liability” in connection with electricity sales made during the energy crisis.

Since the end of the crisis, which led to blackouts and soaring electricity bills, the state and its largest utilities have pushed for refunds of up to $9 billion from power sellers -- including private companies such as Enron Corp. and the government-controlled entities named in the lawsuit. They contend that Enron and others gamed the California power market and illegally drove up prices using schemes with nicknames like “Fat Boy,” “Death Star” and “Ricochet.”

In 2003, FERC said documents appeared to show that DWP, Glendale Water & Power and several other municipal utilities created false electricity congestion, inflated demand and sold nonexistent backup energy.

Enron and other private power traders such as Williams Cos. and Mirant Corp. ultimately paid steep settlements without admitting guilt. Federal regulators later closed their investigations without taking action against the municipal power providers.

Last year, however, FERC declared that the prices charged for electricity in California between May 2000 and June 20, 2001, were unjust and unlawful, and began ordering sellers to issue refunds.

Municipal sellers such as DWP challenged FERC in court, arguing that the agency had no authority to force government entities to pay refunds. Late last year, the U.S. 9th Circuit Court of Appeals agreed with DWP, but added that Edison, PG&E; and other buyers could pursue the refunds in federal court as a form of breach of contract.

In December, Edison, PG&E; and others filed claims with the various governmental power agencies. When those claims were denied, it cleared the way for Thursday’s lawsuit.

“This case isn’t about market manipulation. It’s about benefiting from unfair and unjust prices that were happening throughout the market,” said John Nelson, a spokesman for PG&E.; “It’s about the benefits that these [municipal] utilities received because the market was broken.”

Other refund lawsuits are probable. The attorney general’s office, representing the state Department of Water Resources, filed claims of as much as $650 million against the same defendants. If those are denied, the state could then file suit. Other complaints could be filed in the U.S. Court of Federal Claims against Bonneville Power Administration and the Western Area Power Administration.

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Times staff writer Marc Lifsher contributed to this report.