Sierra Pacific Resources and subsidiary Nevada Power filed a lawsuit Monday against El Paso, Sempra Energy and Dynegy, charging the companies and Enron conspired to restrict pipeline capacity and gas supplies and made false price reports in order to drive up prices. The lawsuit, filed in U.S. District Court in Las Vegas seeking $600 million in damages, alleges the companies engaged in restraint of trade, fraud, violation of Nevada’s RICO Act and civil conspiracy.

The conspiracy was far-reaching, the Nevada utility maintains, going back to 1996 and the mergers of Tenneco Inc. with El Paso and that of the parent companies of Southern California Gas and San Diego Gas & Electric into Sempra.

The Sierra Pacific lawsuit contends that the defendants “planned and executed schemes designed to reduce or control supplies, drive up or control prices, eliminate competition, cause price instability, increase volatility in wholesale prices and defraud customers in the product market for delivered natural gas … .” It adds that “anticompetitive and fraudulent behavior…not only harmed competition for delivered natural gas, but also produced exorbitant and illegal profits for the defendants.”

Because of the actions of the gas suppliers, Nevada Power was forced to pay “artificially high, supracompetitive prices.” The utility is seeking compensatory, punitive and other damages.

While Enron Corp. and certain of its subsidiaries, including Enron North America, are listed as co-conspirators, they cannot be made a party to the lawsuit because they are in bankruptcy proceedings.

The lawsuit states that the foundation for the conspiracy was laid during a secret meeting in late September 1996 in Phoenix, AZ, between the president of El Paso subsidiary El Paso Natural Gas, the president of SoCal Gas and an executive vice president of SDG&E. The meeting “was only one of a number of surreptitious meetings and communications in which the conspiracy was planned and carried out” and “was just one of the pieces of El Paso’s conspiracy…to control output and increase prices.”

The lawsuit cites a written agenda for the Phoenix meeting that deals with a joint venture for the Samalayuca pipeline in northern Mexico, an “alliance” for gas distribution in the northern Mexico region of Baja California, a “realignment” of Tenneco assets purchased by El Paso and opportunities resulting in restructuring of the electric industry. Handwritten notes from that meeting are also cited.

The suit alleges that “the Phoenix meeting resulted in or was part of the formation and/or performance of an illegal agreement … in which SoCal Gas, SDG&E and El Paso reciprocally agreed not to compete with one another, not to interfere with one another’s economic interests, and to kill off competitive pipeline development projects that would threaten the dominance of the defendants in southern Nevada and southeastern California over the transportation, distribution and pricing of natural gas.”

A central part of the conspiracy involved realignment of the assets of Tenneco, the lawsuit says. Tenneco had been posing a threat to SoCal Gas’ dominance in the region since the mid-1980s, with its Kern River pipeline project. However, El Paso acquired Tenneco in late 1996, and thereafter El Paso and the other defendants launched their conspiracy, the lawsuit says.

“Tenneco’s elimination of its Altamont expansion project to expand the Kern River pipeline (with low-cost gas from Canada and northern Montana), pursuant to El Paso’s instructions, and its abandonment of its Baja California expansion project in exchange for El Paso’s exclusive rights to the Samalayuca project was done pursuant to an unlawful agreement by El Paso, SoCal Gas and SDG&E to perpetuate the artificial geographic isolation of the gas markets at the border of Arizona and Southern California,” the suit says.

The lawsuit adds, “Preservation of the isolation of markets subject to prices determined at the Border Market preserved the market power of SoCal Gas and, later, El Paso, and perpetuated the exposure of Nevada Power to exploitation through the destruction of gas deliveries and artificial price increases.”

The lawsuit also alleges that as part of the Phoenix meeting, the defendants agreed not to interfere with each other’s merger plans. At the time of the meeting, El Paso’s acquisition of Tenneco was under discussion, and three weeks after the meeting the parent companies of SoCal Gas and SDG&E agreed to merge and form Sempra.

“Each knew the other could materially jeopardize the necessary regulatory approvals for their respective mergers,” the suit says. “One of the purposes and motives of El Paso, SoCal Gas and SDG&E in making the unlawful agreements … . was to secure each other’s agreement not to oppose each other’s merger deals and to cooperate in completing their respective acquisitions.”

Regarding the alleged manipulation of natural gas prices indexes, the suit says El Paso Merchant Energy, Dynegy Marketing, Enron and possibly others “harmed plaintiffs and natural gas market competition by systematically misrepresenting the price and volume of their trades” to trade publications whose indexes are used in establishing prevailing industry prices. The lawsuit says such misrepresentation started in 2000 and continued at least through the beginning of 2002, creating “the appearance of supply volatility and escalating prices.”

The lawsuit seeks damages resulting from the alleged anti-competitive conduct in an amount of at least $150 million, plus treble damages of $450 million, bringing the total to at least $600 million.

Sierra Pacific Resources is a holding company based in Las Vegas, whose principal subsidiaries are Nevada Power, the electric utility for most of southern Nevada, and Sierra Pacific Power, the electric utility for most of northern Nevada and the Lake Tahoe area of California.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.