Message-ID: <14529048.1075859666580.JavaMail.evans@thyme> Date: Wed, 29 Nov 2000 03:31:00 -0800 (PST) From: richard.sanders@enron.com To: mark.haedicke@enron.com Subject: RE: FW: ANNOUNCEMENT: Notice of Press Conference today Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Richard B Sanders X-To: Mark E Haedicke X-cc: X-bcc: X-Folder: \Mark_Haedicke_Dec2000_1\Notes Folders\All documents X-Origin: Haedicke-M X-FileName: mhaedic.nsf ----- Forwarded by Richard B Sanders/HOU/ECT on 11/29/2000 11:31 AM ----- Mark Palmer@ENRON 11/29/2000 10:56 AM To: Richard Shapiro/HOU/EES@EES, Steven J Kean/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron, Richard B Sanders/HOU/ECT@ECT, Paul Kaufman/PDX/ECT@ECT cc: Subject: RE: FW: ANNOUNCEMENT: Notice of Press Conference today Here's the suit filed against the generators. Reporter says our suit will look the same. Mark ----- Forwarded by Mark Palmer/Corp/Enron on 11/29/2000 10:53 AM ----- "Leopold, Jason" 11/29/2000 10:47 AM To: "'Mark.Palmer@enron.com'" cc: Subject: RE: FW: ANNOUNCEMENT: Notice of Press Conference today James C. Krause, Esq., SBN 066478 Ralph B. Kalfayan, Esq., SBN 133464 Patrick N. Keegan, Esq., SBN 167698 Stephen W. Poirier, Esq. SBN 200868 KRAUSE & KALFAYAN 1010 Second Avenue, Suite 1750 San Diego, CA 92101 Tel: (619) 232-0331 Fax: (619) 232-4019 Attorneys for Plaintiff (Additional Counsel on Signature Page) SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO PAMELA R. GORDON, on behalf of ) Case No. herself and all others similarly situated, ) ) CLASS ACTION COMPLAINT FOR ) VIOLATIONS OF CALIFORNIA Plaintiff, ) BUSINESS AND PROFESSIONS CODE ) oo16720, ET SEQ. AND oo17200 ET SEQ. vs. ) ANTITRUST and UNFAIR BUSINESS ) PRACTICES RELIANT ENERGY, INC.; SOUTHERN ) COMPANY; NRG ENERGY; DYNEGY, ) INC.; AES CORPORATION; WILLIAMS ) ENERGY; DUKE ENERGY NORTH ) AMERICA; and DOES 1 through 100, ) Inclusive ) ) Defendants. ) ___________________________________ ) TABLE OF CONTENTS I. NATURE OF THE CASE 1 II. VENUE 2 III. PARTIES 2 IV. CLASS ACTION ALLEGATIONS 5 V. COMMON ALLEGATIONS OF FACT 6 A. The California Wholesale Electricity Markets 6 B. Defendants' Improper Acts 8 C. Results of Defendants' Activities 13 FIRST CAUSE OF ACTION 15 Violation of Sections 16720 and 16726 of the California Business and Professions Code Trust In Restraint of Trade or Commerce in Violation of the Antitrust Act SECOND CAUSE OF ACTION 18 For Violations of the Unfair Trade Practices Act Based Upon Violations of the Antitrust Act THIRD CAUSE OF ACTION 19 For Violations of the Unfair Trade Practices Act Based Upon Defendants' Unfair Business Acts and Practices FOURTH CAUSE OF ACTION 20 Violations of the Consumers Legal Remedies Act VI. PRAYER FOR RELIEF 21 Plaintiff hereby alleges on information and belief based upon the investigation made by and through her attorneys, as follows: I. NATURE OF THE CASE 1. This is a class action seeking redress under the law of California for defendants' conduct in the market for wholesale electricity. During the spring and summer of 2000, a group of electricity generators and traders, including defendants, exercising market power, unlawfully manipulated the California wholesale electricity market, resulting in grossly inflated wholesale electricity prices throughout the state and much of the Western United States. Defendants accomplished this result by, inter alia, improperly using confidential real time generator capacity, use, and maintenance data, and transmission system flow data to "game" the wholesale electricity market, by withholding electrical generating capacity from the California Power Exchange's forward markets, by improperly parking power with affiliates in other states which was later resold in California at inflated rates, by scheduling previously unplanned plant outages to coincide with other plants' planned maintenance shutdowns, and by scheduling transmission flows to cause or exacerbate congestion. 2. The improper use of confidential real time data was in violation of the California Tariff by which defendants are authorized to sell wholesale electricity within California. 3. By engaging in said unfair business practices, defendants have directly and severely damaged purchasers of electricity supplied through the California Power Exchange. As noted in the August 30, 2000 San Diego Union Tribune: "The utility bills of all [electric] ratepayers in San Diego are exorbitant. . . . Rates that were 3 cents per kilowatt hour have risen to 19 cents per kilowatt hour in just three months -- nothing short of confiscatory rates." 4. In its November 1, 2000 Order, the Federal Energy Regulatory Commission ("FERC") expressly found that electricity prices in California have been maintained at "unjust and unreasonable" levels during the relevant period, though it determined that it did not have the authority to mandate refunds or other retroactive relief with respect thereto. In its November 22, 2000 response to the November 1st FERC order, the California Public Utilities Commission (CPUC) concluded that due to market manipulation by wholesale energy producers and traders, customers of electricity supplied through the California Power Exchange had been overcharged more than $4 billion dollars during the summer of 2000. In its November 22nd response to the November 1st FERC order, even the California Independent System Operator (CAISO) which manages California's transmission system infrastructure, known as the "power grid", found that the summer 2000 prices resulted from the exercise of intolerable levels of market power by generators and traders. II. VENUE 5. Venue is proper because defendants each transact business in the State of California and because the damages caused by defendants' unlawful manipulation of the price of wholesale electricity occurred in San Diego County. III. PARTIES 6. Plaintiff Pamela R. Gordon is an adult resident living in San Diego, California. Plaintiff Pamela R. Gordon is a retail electricity customer of SDG&E, and has been forced to pay rates for electricity during the Class Period (defined infra) that are unjust and unfair and that have been artificially inflated by defendants' misconduct. Moreover, plaintiff Pamela R. Gordon was born with no lymph nodes in her legs which results in a lack of circulation. Exposure to high temperatures will cause plaintiff Pamela R. Gordon's legs to swell, which can lead to possible severe health consequences. As a result of her condition, plaintiff Pamela R. Gordon must maintain her home at temperatures of not more than 67 degrees at night and 71 degrees during the day. Plaintiff Pamela R. Gordon is unable to terminate her electricity service and has been forced to pay unjust and unfair rates for electricity from SDG&E as a result of defendants' misconduct. Specifically, plaintiff Pamela R. Gordon was charged and/or paid the following rates for electricity by SDG&E during the Class Period: / / / / / / / / / / / / Dates Total Electric Charges 5-26 to 6-27-00 $180.92 6-27 to 7-27-00 $226.67 7-28 to 8-28-00 $311.84 8-28 to 9-27-00 $143.48 9-27 to 10-26-00 $84.71 7. Plaintiff was charged less for electricity per kWh prior to the Class Period and the inception of Defendants' wrongful conduct: Dates Total Electric Charges 3-29 to 4-27-00 $100.50 8. Defendant Reliant Energy (hereinafter "Reliant") is a Houston, Texas based public corporation doing business in the state of California as Reliant Energy Services. It is a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiff and the class, and is a WSCC member. Reliant operates five electricity generating plants in California which supply wholesale electricity to the California Power Exchange. 9. Defendant Southern Company (hereinafter "Southern") is an Atlanta, Georgia based public corporation doing business in the state of California as Southern Energy, Inc. It is a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiff and the class, and is a WSCC member. Southern Energy operates six electricity generating plants in California which supply wholesale electricity to the California Power Exchange. 10. Defendant Dynegy, Inc. (hereinafter "Dynegy") is a Houston, Texas based public corporation doing business in the state of California as Dynegy Marketing and Trade. It is a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiff and the class, and is a WSCC member. Dynegy operates two electricity generating power plants in California which supply wholesale electricity to the California Power Exchange. 11. Defendant NRG Energy, Inc. (hereinafter "NRG") is a Minneapolis, Minnesota based public corporation doing business in the state of California as NRG, a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiff and the class. In partnership with defendant Dynegy, NRG operates eight electricity generating plants in California which supply wholesale electricity to the California Power Exchange. 12. Defendant AES Corporation (hereinafter "AES") is an Arlington, Virginia based public corporation doing business in the state of California as AES Pacific Group, a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiffs and the class, and a WSCC member. AES Pacific Group operates four electricity generating plants in southern California which supply wholesale electricity to the California Power Exchange. 13. Defendant Williams Energy is a Tulsa, Oklahoma based public corporation doing business in the state of California as Williams Energy Marketing and Trading Company, a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiffs and the class, and a WSCC member. Williams Energy Marketing and Trading Company operates three electricity generating plants in southern California which supply wholesale electricity to the California Power Exchange. 14. Defendant Duke Energy North America (hereinafter "Duke Energy") is a Houston, Texas based public corporation doing business in the state of California as Duke Energy Trading and Marketing, LLC, a generator and trader of wholesale electricity which is ultimately sold to California consumers, including plaintiffs and the class, and a WSCC member. Duke Energy operates four electricity generating plants in California which supply wholesale electricity to the California Power Exchange. 15. Defendants DOES 1 through 100, inclusive, are sued herein under fictitious names because their true names are unknown to the Plaintiff. When their true names and capacities are ascertained, Plaintiff will amend this complaint by substituting their true names and capacities herein. Plaintiff is informed and believe, and based thereon alleges, that each of the fictitiously named Defendants is responsible in some manner for the occurrences herein alleged, and thereby proximately caused injuries and damages to Plaintiff, as herein alleged. Further, Plaintiff is informed and believes, and upon such information and belief alleges, that each of the Defendants designated by a fictitious name participated in and/or benefited from the wrongful acts, conduct, and omissions described in this complaint, and that said acts, conduct, and omissions directly and proximately caused injury and damages to Plaintiff and the class as alleged below. IV. CLASS ACTION ALLEGATIONS 16. Plaintiff brings this action pursuant to Section 382 of the Code of Civil Procedure as a class action on behalf of all electricity customers, including the retail customers of San Diego Gas & Electric Company (SDG&E), who purchased electricity supplied through the California Power Exchange during the period from May 22, 2000 through and including the date of trial (hereinafter the "Class Period"). All such persons and entities have paid and/or have been charged prices for electricity that were "unjust and unreasonable" and that were artificially inflated due to defendants' exercise of market power, improper use of confidential information, manipulations, and unlawful actions. Members of the Class are extremely numerous and their joinder would be impracticable. Approximately 1.2 million SDG&E customers are within the class. 17. Common issues of fact and law predominate over individual issues, including: -whether defendants committed unfair business practices by sharing confidential real time data in violation of ISO Tariffs and thereafter "gamed" the market; -whether defendants charged "unjust and unreasonable" prices for electricity during the Class Period or otherwise benefited from said inflated price for electricity; -whether defendants exercised "market power" in the California electricity market during the Class Period; -whether defendants received improper and excess profits which should be refunded and paid to members of the Class. 18. Plaintiff's interests are typical of, and not antagonistic to, the interests of the class. 19. Plaintiff has retained competent counsel experienced in class action and consumer fraud litigation and intends to vigorously prosecute this action. 20. A class action is superior to all other methods for the fair and efficient adjudication of this controversy. The size of the individual damages is small in comparison to the complexity and scope of the defendants' operations and alleged misconduct. A class action is the only method whereby plaintiff and the class can efficiently seek redress and obtain a uniform adjudication of their claims. Plaintiff does not anticipate any difficulty with the management of this action. / / / V. COMMON ALLEGATIONS OF FACT A. The California Wholesale Electricity Markets 21. In 1996 California deregulated its electricity industry and required the State's privately owned utility companies to divest themselves of their generating plants. The purpose of deregulation was to introduce competition into the electricity markets, with the intention of reducing rates for electrical power. In fact, however, certain participants in this recently deregulated industry have, in violation of their operating Tariff, taken advantage of structural flaws in the system and improperly obtained confidential competitor information to artificially inflate prices for electricity, yielding themselves billions of dollars in windfall profits at the expense of California consumers. 22. As part of the deregulation, several new entities were created to facilitate the workings of this new market. California's investor owned utilities, Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) (the"Utilities"), now purchase electricity for their customers from independent generators and traders, including defendants, through a market known as the California Power Exchange (PX). The PX maintains a market for the purchase and sale of wholesale electricity through a variety of forward contracts and real time markets. Under the California deregulatory scheme, the Utilities were, until just recently, required to purchase power through the PX and prohibited from independently contracting for power outside this market. 23. The deregulated market also led to the creation of the California Independent System Operator (CAISO). The CAISO is an "independent" non-profit corporation, though its managing board includes representatives from among the generators and traders, that was created to manage the flow of electricity and ensure reliability along the long distance, high-voltage power lines that make up the bulk of California's transmission system. Approximately 75% of California's electricity is distributed through the CAISO managed "power grid". The CAISO monitors electrical loads (i.e., demand) on an on-going basis and ensures that there is an adequate supply of power to meet that demand. / / / 24. The CAISO accomplishes this by maintaining a Real Time Imbalance Market (the "Real Time Market"). When the CAISO receives bids from suppliers that are insufficient to meet the demand for power, it must accept any bid, which then sets the market-clearing price for that hour. Under the single price auction system used by the CAISO, all sellers of electricity in the Real Time Market automatically receive the market clearing price, which is the (second) highest price paid in the market, even if they were willing to sell and had in fact bid to sell electricity at lower prices. This mechanism allows sophisticated market participants, such as defendants, to game the market by withholding bids in an effort to maximize the clearing price. 25. The Real Time Market was not designed to handle large transactions, but merely to provide a mechanism to correct short term imbalances in supply and demand. Defendants nonetheless pushed a substantial portion of the daily wholesale electricity sales into this market by under bidding capacity to the forward market leaving wholesale customers no alternative place to obtain the power to satisfy their retail customers' demand. 26. The CAISO also manages the Replacement Reserve Market, which is used to balance supply and demand of electricity. Sellers in the Replacement Reserve Market receive a fixed premium for having available capacity. If called upon by the ISO to deliver energy, sellers in the Replacement Reserve Market also receive the Real Time Market price. Thus, if generators know that capacity is short, they have an incentive to withhold supplies from the spot markets and push as much as possible into the Replacement Reserve Market. Access to real time generating information facilitates such "gaming" of the markets by demonstrating, in real time, available competing supply. 27. In times of high demand, the CAISO has the authority to purchase energy from out-of-state sources, as to which there is no operative price cap. The CAISO was forced to do so during the Summer of 2000. California generators and marketers can export electricity to surrounding markets in order to create artificial shortages and drive up prices in the California markets. They can then resell that electricity to the CAISO at inflated and uncapped prices. As the PX Compliance Committee noted in its November 1, 2000 Report ("the PX Compliance Report"): / / / "During periods of high Out-of-Market purchases, when prices are above the Real-Time energy price cap, in-state generators have an incentive to export energy out of California. Surrounding control areas can effectively park that energy for resale to the CAISO Out-of-Market calls and return it to the state." Id. at p. 44. 28. Notably, the summer of 2000 witnessed an approximately 370% increase in exports from the California energy market, despite the very high prices and short supplies that existed in the State. "Market power" is defined by the CAISO as the ability to significantly influence market prices and cause them to vary from competitive levels for a material period of time. Generators and suppliers (including defendants) can exercise market power by physically or economically withholding electricity from the market, moving electricity out of the California markets, and by pricing and bidding their resources in ways that impede the efficiency of the market. 29. Notably, the California energy market consists of a relatively small number of firms, some of which control a substantial fraction of the total generating capacity. The small number of suppliers facilitates the exercise of market power during periods of high demand, even when there is not a true scarcity of available generating capacity. In addition, the relatively inelastic demand for energy further facilitates the exercise of such market power. B. Defendants' Improper Acts 30. Prior to May 22, 2000, the CAISO began supplying the Western Systems Coordinating Council ("WSCC"), an organization consisting of electric industry participants, including defendants, with real time industry data as to electricity generating levels, known as metering data, and transmission system flow data, known as scheduling data, pertaining to individual market participants. Through the WSCC Internet web site, wholesale electricity market participants, including defendants herein, were thereby given access to real time data as to their competitors' actions, although access to such data was forbidden by the ISO Tariff. When requested by various governmental entities, including the California Public Utilities Commission ("CPUC") the WSCC refused access. / / / / / / / / / 31. CAISO/FERC Tariff section 10.2.6 states in relevant part; Meter Data supplied by an ISO metered entity shall be made available by the ISO to the scheduling coordinator representing such ISO metered entity and other authorized users identified in its meter services agreement, but shall not be disclosed to any third party except as otherwise may be required by law, FERC any local regulatory authority or other provision of this ISO Tariff. 32. CAISO/FERC Tariff section 20.3.1 states in relevant part: The ISO shall maintain the confidentiality of all of the documents, data and information provided to it by any Market Participant that are treated as confidential or commercially sensitive under Section 20.3.2; provided, however, that the ISO need not keep confidential: (1) information that is explicitly subject to data exchange through WEnet pursuant to Section 6 of this ISO Tariff; (2) information that the ISO or the Market Participant providing the information is required to disclose pursuant to this ISO Tariff, or applicable regulatory requirements (provided that the ISO shall comply with any applicable limits on such disclosure); or (3) information that becomes available to the public on a non-confidential basis (other than as a result of the ISO's breach of this ISO Tariff). 33. CAISO/FERC Tariff section 20.3.2 states in relevant part: The following information provided to the ISO by Scheduling Coordinators shall be treated by the ISO as confidential: (a) individual bids for Supplemental Energy; (b) individual Adjustment Bids for Congestion Management which are not designated by the scheduling coordinator as available; (c) individual bids for Ancillary Services; (d) transactions between Scheduling Coordinators; (e) individual Generator Outage programs unless a Generator makes a change to its Generator Outage program which causes Congestion in the short term (i.e. one month or less), in which case, the ISO may publish the name of that Generator. 34. CAISO/FERC Tariff section 20.3.2 states in relevant part: No Market Participant shall have the right hereunder to receive from the ISO or to review any documents, data or other information of another Market Participant to the extent such documents, data or information is to be treated as in accordance with Section 20.3.2; provided, however, a market Participant may receive and review any composite documents, data, and other information that may be developed based upon such confidential documents, data, or information, if the composite document does not disclose such confidential data or information relating to an individual Market Participant and provided, however, that the ISO may disclose information as provided for in its bylaws. 35. Part of the CAISO Tariff is the ISO Market Monitoring & Information Protocol (MMIP). The objective of this Protocol (MMIP) is to set forth the workplan and rules under which the ISO will monitor the ISO markets to identify abuses of market power. The MMIP part of the tariff applies to all ISO Market Participants, including Defendants. 36. MMIP Section 2.1.1. states in relevant part: Anomalous market behavior, which is defined as behavior that departs significantly from the normal behavior in competitive markets that do not require continuing regulation or as behavior leading to unusual or unexplained market outcomes. Evidence of such behavior may be derived from a number of circumstances, including: MMIP 2.1.1.1 withholding of generation capacity under circumstances in which it would normally be offered in a competitive market; MMIP 2.1.1.2 unexplained or unusual redeclarations of availability by Generators; MMIP 2.1.1.3 unusual trades or transactions; MMIP 2.1.1.4 pricing and bidding patterns that are inconsistent with prevailing supply and demand conditions, e.g., prices and bids that appear consistently excessive for or otherwise inconsistent with such conditions; and MMIP 2.1.1.5 unusual activity or circumstances relating to imports from or exports to other markets or exchanges. The Market Surveillance Unit shall evaluate, on an ongoing basis, whether the continued or persistent presence of such circumstances indicates the presence of behavior that is designed to or has the potential to distort the operation and efficient functioning of a competitive market, e.g., the strategic withholding and redeclaring of capacity, and whether it indicates the presence and exercise of market power or of other unacceptable practices. 37. MMIP Section 2.1.3 states in relevant part: "Gaming", or taking unfair advantage of the rules and procedures set forth in the PX or ISO Tariffs, Protocols or Activity Rules, or of transmission constraints in periods in which exist substantial Congestion, to the detriment of the efficiency of, and of consumers in, the ISO Markets. "Gaming" may also include taking undue advantage of other conditions that may affect the availability of transmission and generation capacity, such as loop flow, facility outages, level of hydropower output or seasonal limits on energy imports from out-of-state, or actions or behaviors that may otherwise render the system and the ISO markets vulnerable to price manipulation to the detriment of their efficiency. 38. Market participants used their trade organization, the WSCC, to share access to and use real time information, notwithstanding the fact that its publication and use violated the ISO's operating procedures, as set forth in tariffs and protocols that were filed with and approved by FERC, and by adoption made part of the contracts by which defendants were authorized to sell electricity to the PX. Those tariffs and protocols required that such data be kept confidential to prevent gaming the market and not be used by market participants to engage in anti-competitive behavior. 39. It has been reported in the Dow Jones Work. Com Newswire on October 19, 2000, that: "Electricity generators may have used real-time plant activity reports from the state's grid operator to their advantage in California's wholesale electricity market, according to an official with the Western Systems Coordinating Council. * * * * * * * "At issue is real-time information the California Independent System Operator provided the Western systems Coordinating Council, a governmental [sic] organization that monitors electricity reliability in the western U.S., about power plant activity in the state. "The real-time information allows market participants . . . to access data via an internet site that shows how much capacity a plant with more than 200 megawatts has online at any given moment. . . . . "The information was intended to be used to monitor electric reliability on the grid . . . . "Last month, however, the ISO's attorneys alerted the WSCC that the 'data is being used against them and to game the market,' according to Bill Commish, director of dispatch with the WSCC. * * * * * * "Commish said generators could use the information to withhold supply and drive up power prices or to identify transmission congestion in a particular region and use that to gouge customers. "However, the ISO, which controls about 75% of the state's power grid and real-time market, may have violated a FERC rule because it is required to keep such information confidential for 90 days, an ISO attorney told the WSCC. "Beginning Monday, the ISO will no longer provide such information to the WSCC or other market participants." 40. Starting on or about May 22, 2000, Defendants used such real time data to exercise market power by, among other things, reducing their output, strategically under-bidding supply to the forward markets, and exporting electricity from the State in order to drive up the Real Time Market price and other market prices. As a direct result of their improper access to and use of this information, the price of wholesale electricity spiked sharply upwards on May 22, 2000 and has remained at artificially inflated prices ever since. FERC, CPUC, and CAISO Dept. of Market Analysis, have all now concluded that market participants should be excluded from the CAISO board. 41. As noted in the North County Times on October 19, 2000: "A case study of San Diego County's two big power plants has concluded that they held back from full production of electricity in June, even as prices skyrocketed and California's power manager was scrambling for supplies to prevent blackouts. "To the study's author . . . the low production in San Diego county is clear evidence that the companies that generate and trade electricity in CA were creating an artificial shortage to drive up prices. * * * * * * McCullough's hour-by-hour analysis of power output for June found that the Encina plant in Carlsbad generated 44 percent of the megawatt hours that it could have during periods when prices were higher than the plant's cost of production. The South Bay power plant in Chula Vista generated 61 percent of what would be expected under traditional economic theory. Economists estimate it costs $45-$55 per megawatt hour to generate electricity at the plants. The wholesale price in June averaged $120 per megawatt hour. A separate analysis conducted by the North County Times revealed "mysterious cutbacks in Carlsbad during a heady market of sky-high prices." * * ** * "Investigators and market analysts have documented extensive evidence that electricity traders have waited until prices rose on California's market this summer before they would commit their power plants to production." "'We did see evidence of withholding in the bidding,' according to Jim Detmers, the ISO's operations chief." 42. In addition, defendants used such real time information about their competitors to improperly withhold electrical supplies from the forward markets operated by the PX in order to take advantage of the ISO's need to balance supply and demand in the spot market and thereby benefit from the single price auction system by obtaining the highest price paid at any given period. In addition, certain defendants sold or parked electricity with affiliates in other states in order to artificially drive up prices in the California markets. They then sold that electricity back into the California markets at the artificially inflated prices they had created. These tactics forced buyers in the California wholesale electricity market to purchase more than 30% of their electricity needs in the inflated Spot Market, rather than the less than 5% that should be sold in that market. The Spot Market was solely intended to satisfy last minute fluctuations in the demand for energy. C. Results of Defendants' Activities 43. From late May 2000 through the present, defendants' activities have raised wholesale electricity prices to record levels, well above the rates that would prevail in a competitive marketplace and disproportionate to the costs of generating that electricity. Those prices have resulted in an approximate tripling of electricity rates in areas served by SDG&E, where retail rates have been deregulated and represent in large part a pass through of SDG&E's costs for such power, which it purchases from the defendant generators and traders through the California Power Exchange. 44. As the Market Surveillance Committee ("MSC") of the CAISO concluded in its September 6, 2000 Report ("the MSC Report"), during the months of May and June 2000 revenues from the sale of ISO loads in the California energy market were 37% and 182%, respectively, above the revenues that would have been generated under competitive pricing conditions. MSC Report at p. 2. The MSC Report unambiguously concluded that market participants exercised a "significant amount of market power" in the California energy markets, beginning as early as October 1999 and increasing dramatically during the Class Period. Id. at pp. 4, 15, 17. 45. The average market clearing price in California's wholesale markets during August of 2000 was $166.24/MWh under moderate load conditions, compared with $32.31/MWh a year earlier. While load demand conditions in California during August 2000 were slightly higher than in August 1999, they were similar to those during August 1998 when prices were much lower. Peak demand in August 2000 was lower than in August of either of the prior two years, negating representations by industry leaders that excessive demand caused these price increases. Indeed, some California electricity producers were only running at 60% of capacity during the so-called emergency periods. 46. These price hikes have even been effect during the middle of the night, when electricity is abundant and demand is low. Further, prices in November 2000, when demand for electricity is much lower than during the summer months, continue to be substantially in excess of the prior years' levels and in excess of the levels that should prevail in a competitive marketplace. 47. As a result of defendants' exercise of market power, they artificially increased prices to record levels and have obtained huge windfall profits. As reported in the October 17, 2000 San Diego Union Tribune, analyst Anatol Feygin of JP Morgan estimated that electricity industry profits from California for the 3 months ended September 30, 2000 could reach $6 billion, even after taking into account cost increases. Feygin stated, "'The industry was literally at eight times the profitability of last year . . .. that is a fortune.'" 48. Defendant Reliant has reported that its third quarter earnings will top last year's figure by about $110 million. Similarly, defendant Dynegy reported an 83 percent increase in its third quarter 2000 income, as compared to its third quarter 1999 figures. Profits from Defendant Dynegy's wholesale energy generating and trading division quadrupled to $141.9 million, which represented 80 percent of Dynegy's overall profits. "This is the most successful quarter in Dynegy's history", reported chairman and chief executive officer, Charles 'Chuck' Watson. Other defendants also obtained large windfall profits during this period. 49. Prior to deregulation, the historical cost to produce a megawatt hour of electricity in San Diego County was approximately $23-45 per MWh. During the Summer of 2000, defendants' conduct caused the Real Time Market price of wholesale electricity to frequently reach $750 per MWh, resulting in an approximate tripling of SDG&E customers' bills. 50. In its Order issued on November 1, 2000, FERC concluded that wholesale prices of electricity in California had been at "unjust and unreasonable" levels during the Summer of 2000. CAISO and CPUC responses to the November 1st FERC order both concluded that wholesale prices during Summer 2000 were due to a substantial exercise of market power by generators and traders. 51. Plaintiffs and the class were injured by the manipulated and inflated prices paid for wholesale electricity, including retail customers of SDG&E since costs were fully passed through to them. The CPUC's November 22, 2000 report to FERC concluded that the exercise of market power by wholesale producers resulted in a $4 billion dollar overcharge for the delivery of electricity to California during the summer of 2000. Due to the unlawful conduct alleged above, plaintiffs and the class paid approximately $4 billion dollars more for electricity than they otherwise would have, causing great hardship to numerous individuals and businesses. As Congressman Brian Bilbray stated: "Every day that goes by you've got small businesses bleeding to death. People are literally dying financially from this situation." Work.com Newswire (10/21/00). 52. The improper sharing and use of real time wholesale electricity generation and transmission data by defendants to withhold generation by unplanned outages and to maintain bidding strategies which led to contrived and artificial shortages, and other manipulative conduct, had the effect of artificially inflating and maintaining wholesale electricity prices above competitive prices allowing defendants to reap illegal profits amounting to billions of dollars, at the expense of plaintiffs and the class. FIRST CAUSE OF ACTION Violation of Sections 16720 and 16726 of the California Business and Professions Code Trust In Restraint of Trade or Commerce in Violation of the Antitrust Act (Against All Defendants) 53. Plaintiffs reallege and incorporate by reference each and every allegation set forth above. 54. The Cartwright Act states, at o16726, that: "Except as provided in this chapter, every trust is unlawful, against public policy and void." A trust is defined at o16720 as follows: 55. "A trust is a combination of capital, skill or acts by two or more persons for any of the following purposes: (a) To create or carry out restrictions in trade or commerce. (b) To limit or reduce the production, or increase the price of merchandise or of any commodity. (c) To prevent competition in manufacturing, making, transportation, sale or purchase of merchandise, produce or any commodity. (d) To fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity of merchandise, produce or commerce intended for sale, barter, use or consumption in this State. (e) To make or enter into or execute or carry out any contracts, obligations, or agreements of any kind or description, by which they do all or any or any combination of the following: (1) Bind themselves not to sell, dispose of or transport any article or any commodity or any article of trade, use, merchandise, commerce or consumption below a common standard figure, or fixed value. (2) Agree in any manner to keep the price of such article, commodity or transportation at a fixed or graduated figure. (3) Establish or settle the price of any article, commodity or transportation between them or themselves and others, so as directly or indirectly to preclude a free and unrestricted competition among themselves, or any purchasers or consumers in the sale or transportation of any such article or commodity. (4) Agree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected." 56. Plaintiffs and the Class are empowered by the Cartwright Act o16750 to commence a private action for up to three times their damages and equitable relief due to the injuries they have suffered and continue to suffer as a result of defendants' violations of the Antitrust Act. The Cartwright Act states: Any person who is injured in his or her business or property by reason of anything forbidden or declared unlawful by this chapter, may sue therefore . . . and to recover three times the damages sustained by him or her, interest . . . and preliminary or permanent injunctive relief . . . . 57. Plaintiffs and the Class, are "persons" within the meaning of the Antitrust Act as defined in o16702. 58. Beginning on or about May 22, 2000, the exact date being presently unknown to Plaintiffs, Defendants embarked on a conspiracy to make available and use confidential real time industry data as to electrical generating, power plant capacity, utilization, and outages through the WSCC, an organization consisting of Defendants, and others, to inflate the market prices of wholesale electricity, in restraint of trade and commerce in California. As a result of these efforts, Defendants engaged in acts and entered into Agreements, which were intended to and have in fact restrained trade and commerce in the California Power Exchange and other electricity markets, in violation of the Antitrust Act, which violations are continuing to the present day. 59. The aforesaid acts, contracts, agreements, combinations and conspiracies in restraint of trade or commerce have consisted of continuing agreements, undertakings and concert of action among Defendants, the substantial terms of which were to artificially limit the supply of electricity to the California markets. Through these acts and Agreements, Defendants acted to set, raise and maintain the prices of electricity on the Real Time Imbalance Market and other markets to wholesale purchasers of electricity, and, indirectly and ultimately, to California consumers, at supra-competitive prices. 60. Defendants successfully set, raised and maintained supra-competitive wholesale prices for electricity beginning on May 22, 2000, to the customers of the California Power Exchange. 61. Such overcharges were paid by consumers of electricity, such as Plaintiff and the Class she seeks to represent. 62. Defendants' acts, contracts, agreements, combinations and conspiracies were intended to restrain and did, in fact, restrain trade and commerce in California during the Class Period. 63. Defendants' unlawful restraints of trade have had and, unless enjoined, threaten to continue to have the following anti-competitive effects, among others: (a) Prices charged by Defendants for electricity to wholesale purchasers, and, ultimately, to the customers of SDG&E in California have been and will continue to be set, raised and maintained at artificially high and non-competitive levels; (b) Fair and equitable price competition for the supply of electricity and retail and wholesale price levels for electricity have been restrained and adversely affected; and (c) Plaintiff and other Class members have been deprived of the benefit of free and open competition in the electricity market in California. 64. As a direct and proximate result of the violations alleged herein, Plaintiff and members of the Class have been unable to and will continue to be unable to purchase electricity at prices determined by free and open competition, and Plaintiff and members of the Class have been damaged and will continue to be damaged by their respective purchases and/or charges for electricity at prices higher than they would have otherwise paid, absent Defendants' unlawful conduct. 65. Plaintiff and the Class have no adequate remedy at law for their irreparable injuries. 66. Defendants' acts, contracts, agreements, conspiracies, and combinations in restraint of trade violate the Antitrust Act. Accordingly, Plaintiff and the Class seek three times their damages caused by Defendants' violations of the Antitrust Act and a permanent injunction enjoining Defendants' continuing violations of the Cartwright Act. / / / SECOND CAUSE OF ACTION For Violations of the Unfair Trade Practices Act Based Upon Violations of the Antitrust Act (against all defendants) 67. Plaintiffs reallege and incorporate by reference each and every allegation set forth above. 68. The Unfair Trade Practices Act prohibits all unfair competition, which is defined as "any unlawful, unfair or fraudulent business act or practice," and includes violations of the Cartwright Act, oo16700 et seq. of the B&P Code. 69. As alleged hereinabove, beginning as early as May, 2000, defendants unlawfully conspired, agreed, arranged and combined to prevent and restrain competition for the sale of electricity, in violation of oo 16700 et seq. and oo 17200 et seq. of the B&P Code. 70. Pursuant to B&P Code oo 17200 et seq., Plaintiff brings this action seeking injunctive relief to enjoin defendants' unfair trade practices and requiring defendants' disgorgement of all monies obtained by virtue of their violations of the Cartwright Act as described hereinabove. 71. As a direct and proximate result of the violations alleged herein, Plaintiff and members of the Class have been unable to and will continue to be unable to purchase electricity at prices determined by free and open competition, and Plaintiff and members of the Class have been damaged and will continue to be damaged by their respective purchases and/or charges for electricity at prices higher than they would have otherwise paid, absent defendants' unlawful conduct. 72. Plaintiff and the Class have no adequate remedy at law for their irreparable injuries. 73. Defendants' acts, contracts, agreements, conspiracies, and combinations in restraint of trade and free and open competition, alleged herein, violate the Antitrust Act. Accordingly, Plaintiff and the Class seek restitution and disgorgement by defendants to the Class of all monies obtained by defendants' acts of unfair competition with respect to the contract, conspiracy, combination and trust, and a permanent injunction enjoining defendants' continuing violations of the Cartwright Act. / / / / / / THIRD CAUSE OF ACTION For Violations of the Unfair Trade Practices Act Based Upon Defendants' Unfair Business Acts and Practices In Charging Unjust and Unreasonable Rates (against all defendants) 74. Plaintiffs reallege and incorporate by reference each and every allegation set forth above. 75. Section 17200 et seq. of the California Business & Professions Code prohibits acts of unfair competition, which include any "unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising". 76. The Defendants consistently engaged in numerous acts of "unfair competition", as more fully described above, by inter alia, manipulating the price of wholesale electricity in the California markets. 77. In addition, pursuant to the Federal Power Act: "All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission . . . shall be just and reasonable and any such rate or charge that is not just and reasonable is hereby declared to be unlawful." 16 U.S.C. Section 824d(a). 78. Defendants are public utilities within the term as used in the foregoing statute. 79. The FERC has specifically found that the prices defendants charged for the wholesale electricity they sold in the California markets during the Class Period were in fact unjust and unreasonable. The California Public Utilities Commission has determined that said unjust and unreasonable prices resulted from the exercise of market power by generators and traders in the California wholesale electricity market. 80. As a result of the conduct described above, the defendants unlawfully acquired money and property from Plaintiff and the Class and have been and will be unjustly enriched at the expense of Plaintiff and the members of the Class. Specifically, defendants have deprived Plaintiff and the Class of billions of dollars in monies from the sale of electricity at unjust, excessive, and manipulated prices. / / / 81. Pursuant to Section 17203 of the California Business & Professions Code, Plaintiff and the members of the class seek an order of this Court restoring to them all money wrongfully taken from them and allowing them a claim in the full amount of all of defendants' ill-gotten gains, so as to restore any and all monies to Plaintiff and the members of the Class and the general public, which were acquired and obtained by means of such unfair and deceptive acts and practices. 82. Pursuant to Section 17203 of the California Business & Professions Code, Plaintiff and the members of the class seek an order of this Court providing appropriate equitable and/or injunctive relief restraining defendants from charging unjust and unreasonable rates and from manipulating the electricity markets. FOURTH CAUSE OF ACTION Violations of the Consumers Legal Remedies Act (Against All Defendants) 83. Plaintiffs reallege and incorporate by reference each and every allegation set forth above. 84. Such acts and practices by defendants violate the Consumer Legal Remedies Act, Civil Code Section 1750, et seq. Defendants' acts warrant appropriate injunctive and declaratory relief, including an injunction restraining them from charging unjust and unfair rates or manipulating the market for electricity. FIFTH CAUSE OF ACTION Unconscionability (Against All Defendants) 85. Plaintiffs reallege and incorporate by reference each and every allegation set forth above. 86. Defendants charged rates for wholesale electricity that were unconscionable given their cost of production, the newly emergent markets for that product, and the consumers' need for electrical power. 87. Defendants' rates were inherently excessive, invalid and unconscionable, particularly in light of the deceptive and manipulative practices they used to inflate the market prices and the vital need consumers and businesses have for electrical power. / / / 88. Defendants' unconscionable prices were passed through to Plaintiff and the majority of the Class in the retail electricity rates charged by SDG&E and thereby directly damaged Plaintiff and the Class. VI. PRAYER FOR RELIEF WHEREFORE, Plaintiff and the Class pray for judgment against defendants as follows: (a) That the Court determine that this action may be maintained as a class action and direct that reasonable notice of this action be given to the members of the Class; (b) That the combination, contract, arrangement, agreement, conspiracy and trust alleged herein be adjudged and decreed to be an unreasonable restraint of trade in violation of Sections 16720 and 16726 of the California Business and Professions Code; (c) That damages be granted according to proof, and that Plaintiff and the Class be awarded treble damages or statutory damages, where applicable, attorneys' fees, costs and disbursements; (d) That Plaintiff and the Class be awarded pre- and post-judgment interest; (e) That the Court enter appropriate injunctive and other equitable relief, including the disgorgement of defendants' unlawful profits; and (f) That Plaintiff and the Class have such other and further relief as the Court may deem just and proper under the circumstances. Dated: November 27, 2000 KRAUSE & KALFAYAN _______________________________ James C. Krause, Esq. Ralph B. Kalfayan, Esq. Patrick N. Keegan, Esq. Stephen W. Poirier, Esq. Attorneys for Plaintiff OF COUNSEL: David B. Zlotnick, Esq., SBN 195607 Attorney at Law 1010 Second Avenue, Suite 1750 San Diego, CA 92101 Tel: (619) 232-0331 Fax: (619) 2 -----Original Message----- From: Mark.Palmer@enron.com [mailto:Mark.Palmer@enron.com] Sent: Wednesday, November 29, 2000 8:44 AM To: Leopold, Jason Subject: Re: FW: ANNOUNCEMENT: Notice of Press Conference today Got the announcement. Can you forward the complaint (suit) as an attachment? Mark