It’s not just the energy producers and wholesalers who are making a mint off the state’s energy crisis. The lawyers are cleaning up, too, including some right here in L.A. And L.A.-based entities are either on the filing or receiving end of many of these lawsuits.
Already, at least a half dozen major lawsuits have been filed, with many more to come. “We’re talking about billions of dollars at stake here, so it’s little wonder that the attorneys have been involved,” said Arthur O’Donnell, editor and associate publisher of California Energy Markets, an industry newsletter. “When all is said and done, the lawyers are going to rake in tens of millions of dollars, if not more, in fees.”
Here’s the rundown of key lawsuits so far:
-Southern California Edison filed suit last month against the Federal Energy Regulatory Commission for failing to cap wholesale power prices. Gov. Gray Davis filed an amicus brief siding with Edison, but so far, it’s done little good. A federal judge turned Edison’s request down and sent Edison back to the FERC for relief.
-Edison and Pacific Gas & Electric have filed suit against the state Public Utilities Commission, asserting that the agency does not have the authority to keep power rates capped. Edison, represented in court by noted local attorney Ron Olson of Munger, Tolles & Olson, won the first round last week when U.S. District Judge Ronald Lew ruled that Edison is entitled to pass on reasonable costs to its ratepayers.
-The Pasadena-based California Power Exchange filed suit two weeks ago in the U.S. Court of Appeals against the FERC, seeking to reverse portions of FERC’s Dec. 15 order for remedies to California’s malfunctioning wholesale power market. Specifically, the Power Exchange wants reinstatement of the utilities’ ability to buy power in the “day-ahead” market and of the rates it was charging in its futures market.
-Last month, a group of law firms specializing in class-action litigation filed a class-action lawsuit on behalf of customers of Edison, PG & E; and San Diego Gas & Electric, alleging that eight power marketing firms have manipulated the wholesale electricity market and gouged consumers. The suit seeks $1 billion in refunds and some $3 billion in punitive damages.
-Another pair of lawsuits from class-action specialty firms was filed last month, seeking unspecified billions of dollars in damages against Southern California Gas Co., SDG & E; and El Paso Natural Gas Corp. The suit, filed by five law firms, including L.A.-based O’Donnell & Schaeffer, alleges that executives of the gas companies met in 1996 and conspired to drive up natural gas prices by agreeing not to compete with each other.
Newsletter editor O’Donnell said the legal fun and games are just beginning. Last week in his State of the State address, Gov. Davis said he would, if necessary, seize control of power plants to ensure that they deliver electricity to California customers. “There’s no way Davis can do that without some legal authority; and if he tries, the generators will be in court before you can blink an eye,” O’Donnell said.
Other proposals to fix the state’s broken power deregulation system are also likely to end up in court, including the taking of land for construction of new power plants.
But all this would pale before the legal bonanza that would occur if Edison or PG & E; or both were to file for bankruptcy. In that case, dozens of law firms and hundreds of lawyers would swoop in. Institutional utility shareholders and bondholders would send in their lawyers, as would several classes of creditors, from power generators to lending institutions and assorted vendors. Consumer groups would want to be at the bankruptcy table, as would major industrial power users. The state would have a whole battery of lawyers, as would various cities that buy power from the utilities.
“If there’s a bankruptcy or even a series of defaults, that would probably lead to a legal pileup,” O’Donnell said. “The legal fees would increase exponentially into the hundreds of millions of dollars.”
New Transit Head
With well-respected Julian Burke announcing last week that he plans to step down as chief executive of the Los Angeles Metropolitan Transportation Authority, the MTA’s 15-member board is once again in executive search mode.
The agency is not quite the basket case it was when Burke was named to the position three and a half years ago. Then, the MTA was on the brink of financial meltdown as a result of the billions of dollars it had poured into building subways. Burke quickly brought spending under control and helped shift the agency’s focus towards improving the bus system.
They may be big shoes to fill, but already a couple names have surfaced as possible successors to Burke. One is James Hankla, chief executive of the authority overseeing construction of the Alameda Corridor, the $2.4 billion rail project connecting the ports with the railyards southeast of downtown. Hankla, who was previously Long Beach city manager and before that chief administrative officer for L.A. County.
But Hankla has never run a bus system. That’s not a handicap of the other rumored candidate: John Catoe, chief executive of Santa Monica’s Big Blue Bus system. Although much smaller than the MTA, the Big Blue Bus operation has the enviable reputation of being one of the most reliable, well-run bus systems in the state.
In announcing he will step down, Burke said he would wait until a successor is found and set no firm deadline for that search being concluded. However, local transit experts say that one likely deadline is June 30, the day L.A. Mayor Richard Riordan leaves office. It was Riordan who brought in Burke to help stabilize the MTA. The thinking goes that Riordan would like to leave a legacy of ensuring a smooth transition in MTA leadership for the first time in its 8-year history.
Clarification
Los Angeles Business Journal president and publisher Matthew Toledo is co-hosting a fundraising event for L.A. mayoral candidate Steve Soboroff.
Toledo is personally supporting Soboroff’s mayoral bid and is helping to raise funds for his campaign, but the Business Journal is not endorsing Soboroff or any other candidate.
Staff reporter Howard Fine can be reached by phone at (323) 549-5225, ext. 227 or by e-mail at [email protected].
