L.A. Files Suit Over Pricing of Natural Gas

Two years after California’s energy crises, Los Angeles filed a lawsuit Friday against Reliant Energy Services, alleging that the company overcharged the city for natural gas and seeking a refund of $218 million.

The city’s Department of Water and Power contracted with the energy company in 1999 to help the city manage its natural gas program, including finding the lowest gas prices. Instead, the city charges that the Houston-based energy company and its subsidiaries made it appear there was a shortage of gas when one did not exist, and then overcharged the department.

The suit also charged that Reliant conspired with Enron Corp. to drive up gas prices, in violation of racketeering and antitrust laws.

“I hope that the rate-paying owners of the water and power company will get their money back and that Reliant will learn a lesson,” City Atty. Rocky Delgadillo said after a news conference Friday morning.

A Reliant spokesman declined to comment, saying that the company had not received a copy of the suit.

The city alleged that by use of EnronOnline and the DWP interstate pipeline rights, Reliant “engaged in schemes and tactics which caused the price of and indexes for gas to artificially rise.”

Delgadillo said that Reliant cost ratepayers an average of $155 each in extra gas charges in 2000 and that the city lost $15.3 million in revenue it would have received from the DWP if the municipal service hadn’t been gouged.

“That’s 153 police officers,” Delgadillo said.

Also, the city alleged that Reliant did not comply with a 2002 audit and has withheld important documents.

The problems began in 2000, during a contract extension that Delgadillo said should not be considered valid because the Board of Water and Power did not approve the extension as required.

Delgadillo said it was the responsibility of Reliant to monitor whether the yearlong extension was correctly approved. Since Reliant did not do that, he said, all the money paid to the company in 2002 should be returned.

If the court agrees, the city could receive a refund of more than $600 million, a spokesman for the city attorney said.

“It was during the second year of the contract, which began in August 2000, that Reliant began its manipulation of the natural gas market,” Delgadillo said.

“Through a series of fraudulent activities and questionable price-inflating tactics, Reliant drove up the cost of gas more than 500%.”

The city is aiming to get at least the $218 million, the amount Reliant was found in the city audit to have overcharged for natural gas.

Mayor James K. Hahn said in a statement that he had been pursuing a lawsuit against Reliant since he was city attorney.

In a letter to the DWP in June, Hahn said: “The city of Los Angeles placed its trust in Reliant’s ability to help manage complex issues associated with the natural gas market. It appears that Reliant abused this trust at the expense of our public ratepayers.”

Reliant refunded $13.8 million to the state of California in February after the Federal Energy Regulatory Commission found that the company had purposefully withheld power from the state so it could raise prices.