Small businesses in CA sue for refunds from energy suppliers

CALIFORNIA’S politicians have trumpeted their efforts to take legal action against energy companies accused of boosting profits by manipulating the state’s electricity market. Gov. Gray Davis even called those companies "pirates" at one point.

By Alan Zibel, BUSINESS WRITER Oakland Tribune

State lawmakers have been holding legislative hearings and Davis administration officials are trying to persuade federal regulators that market manipulation so severe that it merits $9 billion in refunds.

Last month, a federal

grand jury in San Francisco served several energy companies with subpoenas seeking information on their activities in the California market.

But political leaders and prosecutors aren’t the only people gunning for such companies as Duke Energy, Williams Cos., Mirant Corp., Dynegy Inc. and Reliant Energy.

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Attorneys for more than 12 law firms representing private clients, city and county governments and the people of the state of California have sued these and other energy companies, hoping to win settlements for their clients and fees for their law firms.

One such plaintiff is Julian Potashnick, the owner of Leo’s Pharmacy and Leo’s Medical Center Pharmacy in Oakland. Potashnick, who has owned the pharmacies since 1972, said his energy bills have gone up 30 percent since the 2000-2001 energy crisis.

During the meltdown of the state’s electricity market "there was a lot of hanky-panky going on," Potashnick said. He knew attorney Paul Bennett’s San Francisco law firm from previous litigation against the pharmaceutical industry and was happy when he was invited to sue the power companies.

"Any time anybody wants to sue these (people), be my guest," Potashnick said.

Bennett’s firm filed suit in Alameda County Superior Court in May. The suit has since been consolidated with other similar lawsuits in San Diego, Bennett said. Plaintiffs’ attorneys are trying to get the lawsuits moved to state court rater than federal court, which they believe will be a receptive environment for their case.

"Basically the California market had been taken advantage of by, essentially, a bunch of Texas energy companies," Bennett said.

The case for manipulation in the California markets was made stronger in October, when former Enron Corp. trader Timothy Belden pleaded guilty to manipulating the state’s electricity market to drive up power prices. He is cooperating with prosecutors. However, Enron is not an attractive target for class action attorneys because it is in bankruptcy proceedings.

Representatives of the power industry are critical of the lawsuits. They argue that California officials are unfairly blaming all power companies for isolated misdeeds committed by a few bad apples.

Jan Smutny-Jones, director of the Sacramento-based independent Energy Producers Association, said he views legal action against energy company as a "nuisance" and not a serious attempt to solve problems.

And Gary Ackerman, executive director of the Western Power Trading Forum, called civil lawsuits "frivolous."

"You have to show intent," he said. "You have to show manipulation. You have to show some hard evidence."

Last month, Gov. Davis announced a $417 million settlement with Oklahoma-based Williams Cos. that, state officials said, settles a number of private lawsuits against the company. The city of Oakland, which also sued several energy companies, would get more than $3 million over five years in the settlement.

Class action attorneys will receive $15 million in the Williams settlement as compensation for their work, said San Diego attorney Michael Aguirre, who filed the first private lawsuit against energy companies in November 2000.

The Williams settlement was "not the greatest" for the plaintiffs and was reached because Williams appeared to be on the verge of bankruptcy, said Aguirre, who represents Lt. Gov. Cruz Bustamante and Assemblywoman Barbara Matthews, D-Tracy.

Aguirre said he won’t participate in another settlement that "doesn’t involve a much more significant recovery" from energy companies.

The private lawsuits have been valuable, Matthews said, because "there is nothing like" litigation to get opposing parties to the table to try to hash out an agreement.

"The private lawyers are the ones that are keeping the whole thing honest," Aguirre said.

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