State Files Suit Against 4 Energy Firms

The California attorney general’s office sued four major energy companies for $150 million Monday, alleging that they broke contracts to provide emergency power to the state’s power grid operator and instead sold the electricity on the lucrative spot market on thousands of occasions.

In many cases, the lawsuits allege, the state was forced to buy its emergency electricity from the costly spot market, paying a second time for the same power withheld in the first place by the energy companies.

State officials said the suits demonstrate that big energy companies began “gaming” the state’s power grid operation within months of its creation and within two years of the 1996 law that deregulated wholesale energy markets and caused utilities to sell most of their generation facilities.

“These companies fattened their wallets at the expense of California consumers and ratepayers,” Atty. Gen. Bill Lockyer said.

Lawsuits filed in San Francisco County Superior Court allege that from April 1998 to September 2000 Dynegy Inc., Mirant Corp., Reliant Energy Inc., Williams Energy Marketing and Trading Co. and various affiliates flagrantly violated rules designed to ensure the reliable and safe operation of the state’s electricity transmission system. The suits seek a total of $150 million from the four companies in restitution, penalties and all profits from what Lockyer described as selling “the same electrons twice.”

Company representatives declined comment until the suits could be reviewed, but all said they have done nothing illegal or improper and have complied with state rules.

“Throughout the California energy crisis there have been numerous state and federal investigations conducted which have resulted in no evidence of illegal acts by Reliant,” said Richard Wheatley, a spokesman for the Houston-based company. “At all times, Reliant has acted legally and ethically in operating its plants to keep the lights on in California, in accordance with the rules that California itself established.”

The actions are the latest in the state’s ongoing investigation into alleged price gouging and other profiteering during the energy crisis. California is seeking billions of dollars in refunds from generators for spot market purchases. Recently state regulators asked the federal government to void or modify $45 billion in long-term power contracts signed by the state. And the attorney general sued Pacific Gas & Electric Co.’s parent two months ago, alleging that it illegally siphoned off more than $4 billion from the utility and helped drive it to bankruptcy.

“There are numerous energy-related lawsuits in line,” Lockyer said at a news conference here Monday. “This is just one provable case where we have the hard evidence to show they are double selling.”

The four lawsuits revolve around reserve generating capacity that the California Independent System Operator, or ISO, purchased to ensure that the state had adequate electricity during a major outage or some other emergency. The generators were paid to keep the reserves on hand, and if the grid operator needed them to balance supply and customer demand, the companies were to be paid for the power itself.

The lawsuits allege 10,000 violations of these rules by Dynegy, 4,000 each by Mirant and Reliant and 2,500 by Williams as the companies collected millions of dollars for electricity generating capacity that they failed to provide.

“Reserves the ISO was counting on to keep the lights on . . . were simply not there,” Lockyer said.

The power, state officials said, was sold on the volatile and expensive hourly spot market, where generators could fetch a premium. And in many instances, they said, the power was purchased for California.

The practices of the generators not only cheated California utilities and customers but also artificially drove up prices on the wholesale market, Lockyer said.

The state’s grid operator became aware of the problem by June 1998 and issued notices to power providers warning them to meet their obligations. But, Lockyer said, “The industry thumbed its nose at the ISO. Unfortunately the ISO did not have the personnel or systems in place at the time to effectively enforce its rules, and the industry knew it could get away with it.”

Jan Smutney-Jones, executive director of the Independent Energy Producers Assn., predicted that the lawsuits would go nowhere.

Lockyer said efforts were underway to determine whether there are additional violations.