Epic Gas Trading Cartel Case Nears Fork in the Road

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By Eleanor Tyler

Natural gas companies including Xcel Energy Inc., CMS Energy Corp., and Dynegy Inc. may be headed to trial over allegations of fixing prices in the early 2000s, bringing to a close a massive 14-year effort to resolve discovery and other pretrial disputes ( In re Western States Wholesale Nat. Gas Antitrust Litig. (Learjet, Inc. v. ONEOK Inc.) , D. Nev., No. 2:03-cv-01431-RCJ-PAL Case No. 2:06-cv-00233-RCJ-PAL Case No. 2:07-cv-00987-RCJ-PAL, 6/5/17 ).

The consolidated class action in a Nevada federal court has involved virtually all U.S. Western natural gas traders as defendants. The plaintiffs alleged that these companies used market tricks and manipulation in 2001 and 2002 to drive up prices and caused a market crisis in western states. Over the years, some defendants have settled while other have litigated aggressively. The case has already resulted in at least two appeals to the circuit court and one to the U.S. Supreme Court.

The case now is headed into a new phase. With discovery concluded and several defendants out of the case, the consolidated litigation should soon be broken into its constituent parts and returned to the federal courts in which each was filed for trial. Having done their pre-trial work together in one court, each putative class of plaintiffs will return to its home state for a separate trial. Dispositive motions from both sides are pending and fully briefed in the case.

Polsinelli P.C. partner Russell S. Jones , Jr. in Kansas City, who represents most of the plaintiffs, told Bloomberg BNA he looks forward to seeing the case reach a jury. “We believe the plaintiffs paid hundreds of millions more for gas than they should have,” he said, adding that he’d like to see them finally get full recovery at trial.

Narrowing the Field

The cases that remain are as follows: Xcel Energy and its subsidiary E Prime Energy are defendants in all of the four remaining putative class actions — in Missouri, Wisconsin, Kansas, and Colorado. El Paso Energy Corp. and CMS are defendants in the Wisconsin plaintiffs’ action, which also involves companies related to The Williams Companies Inc., Dynegy, and Reliant Energy Inc.

The Missouri and Kansas plaintiffs are also pursuing claims against Dynegy, Williams, and Reliant.

As of June 5, the court dismissed American Electric Power Co. Inc. and AEP Energy Services Inc., Coral Energy Resources LP, Duke Energy Trading and Marketing LLC and Duke Energy Carolinas LLC, ONEOK Inc. and ONEOK Energy Services Co. LP following settlements.

Also on June 5, Judge Robert C. Jones granted preliminary approval on two more settlements that plaintiff groups from Kansas and Missouri reached in January with El Paso Corp. and El Paso Merchant Energy, and CMS Energy, CMS Energy Resources Management Co., and CMS Field Services, Inc. CMS will pay the settling classes $5.125 million, and El Paso will pay $10 million.

Ghosts of Enron

The consolidated case dates to the Enron Corp. energy scandal of 2001 when deregulated energy markets and new trading technologies led to an energy crisis in western states. California had suffered an emergency as energy prices soared 266 percent from 1999 to 2000, leading to rolling blackouts.

The Federal Energy Regulatory Commission (FERC) capped wholesale electricity rates in April 2001, and in May issued a bombshell report showing that Enron traders had created phony traffic and congestion on California’s energy grids. Sen. Barbara Boxer (D-Calif.) alleged in Senate hearings at the time that the fraud amounted to $8.9 billion in electricity rate overcharges.

Lawsuits followed alleging that other natural gas traders fixed prices through wash trades (buying and selling the same commodity) and other manipulative tactics. They were consolidated in Nevada in 2003.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

The court's preliminary approval for the El Paso and CMS settlements is at http://src.bna.com/pyk.

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