Nevada Power files suit against gas firms

Kevin Rademacher

Tuesday, April 22, 2003 | 9:53 a.m.

Nevada Power and its parent company, Sierra Pacific Resources, Monday filed a federal fraud lawsuit in Las Vegas seeking $600 million from several natural gas providers, putting a $1.7 billion settlement with El Paso Corp. at risk.

The suit claims El Paso Corp., Sempra Energy, Dynegy Holdings and their subsidiaries participated in restraint of trade, fraud and a conspiracy, allegedly driving up natural gas prices between 1996 and 2001.

Nevada Consumer Advocate Tim Hay said a March 21 settlement between El Paso, Nevada and three other Western states over similar claims of price manipulation could generate as much as $65 million for Nevada consumers. Terms of the deal, however, indicate that new suits against El Paso would invalidate the settlement.

"There's substantial potential that the Nevada Power suit would nullify the settlement," Hay said.

Peter McNulty, an attorney representing Sierra Pacific, said the suit and the settlement are "separate and independent acts."

"We disagree that one would affect the other," he said. "We are a private company that has private claims. The state's settlement, one, wasn't designed to compensate Nevada Power for the bad acts. We were never consulted and we never agreed to it."

McNulty added that the suit had been in the works long before the settlement was reached.

"We have been planning on filing this case for a long time," he said. "But certainly no one offers to pay over $1 billion, even if it is over 20 years, if they did nothing wrong."

McNulty also pointed to the recent release of a 300-page Federal Energy Regulatory Commission report outlining manipulation in the Western energy market as shoring up the claims made in the case.

Additional lawsuits are expected to be filed against other Nevada Power suppliers, he said.

The suit claims that the companies acted together in plans to inflate prices.

"The defendants ... planned and executed schemes designed to reduce or control supplies, drive up or control prices and defraud customers in the product market for delivered natural gas," the complaint said.

The suit also named Houston-based Enron Corp. as a co-conspirator, but the company cannot be named a party to the suit because of bankruptcy court protection.

The suit alleges that the conspiracy was sealed when executives of El Paso Natural Gas and Sempra Subsidiaries Southern California Gas Co. and San Diego Gas and Electric met in Phoenix on Sept. 25, 1996.

"The Phoenix meeting was only one of a number of surreptitious meetings and communications in which the conspiracy was planned or carried out," the suit said.

Following the Phoenix meeting, participants scrapped plans to expand the Kern River natural gas pipeline, preventing competition among natural gas suppliers, the suit said. El Paso also agreed not to compete with San Diego Gas and Electric and Southern California Gas Co, the suit said. Parties also agreed not to interfere with mergers, the suit alleges.

Those moves, the complaint said, allowed the firms to drive up prices and control supplies.

Richard Hidalgo, a spokesman for Sempra's San Diego Gas and Electric Co. and Southern California Gas Co., discounted the suit.

"While we are reviewing the complaint, it appears as if it is very similar to the California suit that these companies conspired to drive up prices," he said, adding that the suit "relies demonstrably on false speculation."

That speculation, he said, is that Sempra would benefit from inflating prices.

"We have nothing to gain from a conspiracy to drive up natural gas prices," Hidalgo said. "We are not intending to settle, because the truth will bear out the fact that this suit has absolutely no merit."

A spokesman for Dynegy said the company would not comment until it finished its review of the case. El Paso Corp. officials could not be reached.

The lawsuit is the third filed by Nevada Power and Sierra Pacific in as many weeks. Early this month, the utility filed an $850 million lawsuit against Merrill Lynch and Allegheny Energy, claiming Merrill Lynch provided false and misleading testimony to the state Public Utilities Commission that led to a $180 million disallowance in a 2002 rate case.

The company also filed a lawsuit seeking protection from a $25 million claim made against the company by Morgan Stanley Capital Group.