State Power Exchange Sues Former Execs, Board
The California Power Exchange has sued its former officers and board of governors over controversial decisions -- including rich payments to executives -- made as the state’s power system melted down in late 2000 and early 2001.
The Pasadena-based exchange also has accused former executives and board members of acting “in a desperate and irresponsible manner” by relaxing credit requirements, which helped pave the way for huge defaults by the state’s two largest electric utilities.
The defunct electricity marketplace emerged from bankruptcy protection last year with a plan to reimburse about $3 billion in claims from suppliers that sold power through the exchange during the energy crisis.
The plan, among other steps, called for suing to get back money that the exchange’s new managers believed was improperly paid or carelessly lost by their predecessors.
In a flurry of complaints filed during the last two weeks, the reorganized California Power Exchange has sketched a portrait of an organization struggling to survive in late 2000. That was when its two largest participants, Edison International’s Southern California Edison and PG&E; Corp.’s Pacific Gas & Electric Co., were fast running out of the cash needed to pay record electricity prices being charged by suppliers at daily auction.
At the time, one of the complaints contends, the exchange’s management was making hasty decisions out of a self-interested desire to keep the operation running rather than acting “for the benefit of consumers of energy or the stability of the energy markets” or the health of the state economy.
The former exchange executives and their attorneys have previously defended the actions as necessary steps taken during a chaotic period. They’ve said their aim was to stabilize the market and to keep crucial employees on the job as the state-chartered electricity marketplace began to shut down.
Dana Perlman, a lawyer representing former Chief Executive George Sladoje and former Chief Financial Officer Lynn Miller, declined to comment Tuesday, saying he had not seen the complaints.
One complaint, filed in Los Angeles County Superior Court on Jan. 2, accuses at least 13 former executives and board members of the Power Exchange of breaching their fiduciary duties by relaxing the exchange’s credit rules on Jan. 4, 2001. That way, SCE and PG&E; could continue to trade even though their credit was deteriorating.
The two utilities ultimately defaulted on about $2.9 billion in payments for electricity, with “a significant portion” of that total coming in the two weeks after that decision, the complaint alleges.
Federal regulators have said the exchange was “unreasonable” to allow uncreditworthy utilities to continue buying electricity on an unsecured basis, according to the suit. Federal officials, the complaint adds, never approved the decision to relax the credit standards.
A separate complaint, filed in U.S. Bankruptcy Court on Dec. 24, also claims the exchange overpaid eight top officers by more than $3 million in the months surrounding its March 2001 bankruptcy filing.
The complaint echoes an October 2002 filing by creditors that detailed sharp increases in bonuses, retention payments and other compensation paid to Power Exchange officials as the nonprofit neared a bankruptcy filing.
Bankruptcy Judge Erithe A. Smith subsequently ruled that some of the payments were not properly disclosed.
A third suit, filed Dec. 31 in Superior Court, accuses former Power Exchange officials of breaching fiduciary duties by allowing a valuable piece of collateral, a $79.8-million letter of credit maintained by Mirant Corp., to lapse in December 2001 because of sloppy office procedures.
