City of Los Angeles files lawsuit against Reliant

The City of Los Angeles has filed a $218 million lawsuit against Houston-based Reliant Energy and its successor companies, alleging breach of contract and conspiracy to drive up the price of natural gas.

The suit, filed in US district court in Los Angeles, stems from a 1999 agreement between Reliant and the city-owned municipal utility, the Los Angeles Dept of Water and Power (LADWP). Under this deal the city retained Reliant for a 12-month period to provide all the utility's gas needs, and to manage the LADWP's portfolio of interstate pipeline contracts and a long-term gas supply contract.

The agreement was amended and extended for an additional year in 2000 without approval from the LADWP board, according to LA City attorney, Rocky Delgadillo. “Under the terms of this relationship, Reliant had a fiduciary duty to act in the best interests of the LADWP and get the lowest and best price for natural gas,” Delgadillo said. “In reality, LADWP and its resident-owners were bilked [duped] out of hundreds of millions of dollars.”

An audit by LADWP showed that the material changes in the contract during the second year cost the department’s customers $87 million more than if the terms had remained unchanged. In total, manipulation of the natural gas markets by Reliant caused LADWP ratepayers to pay around $218 million more than they would have paid if the original contract terms had been followed in the second year, LA City alleges.

Last year, Reliant Energy was spun off into two major entities - Reliant Resources and CenterPoint Energy - both of which are named in the suit. Also named are affiliate Reliant Energy Services and Long Beach-based trader Mary Kathleen Zanaboni, who federal regulators claim drove up natural gas costs in California by more than $1.1 billion in the winter of 2000/2001.

The City of Los Angeles also alleges that Reliant engaged in "wash" trades, which involve buying and selling the same energy commodity at the same price to boost volumes; "churned" the market by use of high-volume and rapid-fire trading; manipulated the volume of gas supposedly being transported in California's pipeline systems; and reported false information to the gas price index publishers.

The attorney’s office is also charging Reliant with violation of the civil Racketeer Influenced and Corrupt Organisation Act, the Sherman and Cartwright Acts, and the False Claims Act - which would require Reliant to pay three times the city's claims of damages, plus interest. A Reliant spokesman told RiskNews' sister publication EPRM that he had not seen the suit and declined to comment.