Friday, December 31, 2004
Copyright © Las Vegas Review-Journal

NEVADA UTILITIES: Gas price scheme alleged

State official seeks damages from Reliant

Outgoing consumer advocate Tim Hay, who negotiated a $48 million settlement for Nevada in a natural gas conspiracy case against El Paso Corp., filed a class-action lawsuit Thursday against Reliant Energy over an alleged anti-competitive gas trading scheme with Enron Corp.

The lawsuit accuses Houston-based Reliant of conspiring with an unidentified Enron official in a trading scheme to drive natural gas prices first up and then down at Topock, a key trading point near Needles, Calif. It doesn't seek a specified amount of damages, but Hay expects it will be in the billion-dollar range.

No representative of Reliant could be reached for comment late Thursday.

The lawsuit complains that Reliant and Enron employees used a technique called "churning" to increase the volume of gas traded. Reliant bought from and sold to Enron large quantities of gas, which made it appear demand was increasing. The gas was sold through the Enron Online trading platform between November 2000 and March 2001, according to the lawsuit.

"They essentially engaged in a series of rapid-fire transactions to make it appear that there was a lot more gas being bought and sold than there was," Hay explained.

"All sellers wishing to sell gas through (the platform), sold their gas to Enron. Likewise, all purchasers wishing to purchase gas through (the platform) also purchased their gas from Enron," the lawsuit says. "As a result, Reliant's overall selling price greatly exceeded its overall purchase price, amounting to significant profits for itself and a significantly higher price for natural gas paid by Southern Nevada consumers and Southeastern California core natural gas consumers."

As a result of the alleged churning, natural gas customers and electric power customers in Southern Nevada and southeastern California paid "excess charges," according to the lawsuit.

The transactions allegedly happened during the Western energy crisis when power rates were soaring. The lawsuit said some of the upward pressure on electric power prices came from these transactions, which affected the cost of producing electricity from gas-fired generation plants.

Enron's trading platform was active only in trading gas that passed through Topock, Ariz., according to the complaint. It was "the most dominant and influential trading point in California" before March 2001, according to the lawsuit.

After that time, Enron's trading platform also used the Blythe, Calif., trading location, according to the lawsuit. The limited Southern California wholesale gas markets made the Enron trading platform "ripe for manipulation," according to the lawsuit.

Reliant also entered into another scheme with Enron to make sure it always had adequate gas for its own needs, according to the lawsuit.

Hay expects the lawsuit against Reliant to result in a recovery similar to the $1.3 billion settlement that El Paso Corp. made to Nevada and other Western states. That lawsuit alleged that El Paso conspired to limit gas supplies.

Hay filed the lawsuit on behalf of Nevada, class representatives Peggy Maze Johnson and Launa Wilson. The Las Vegas law firm of Dickerson, Dickerson, Consul & Pocker signed the lawsuit on behalf of class representative Larry Lancto of Big Bear, Calif. Defendants include Kathleen Zanboni of the Los Angeles area and Centerpoint Energy.