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From Antitrust Law Daily, November 23, 2015

Natural gas monopolization, RICO claims partially rejected

By Greg Hammond, J.D.

The federal district court in San Francisco has partially dismissed a complaint against the leading utility provider in northern California, finding that a competitor failed to sufficiently plead antitrust injury or foreclosed competition in support of an attempted monopolization claim. While the competitor adequately pleaded that certain defendant employees engaged in three separate schemes in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), it failed to demonstrate that the provider was guilty of RICO violations on an agency basis (United Energy Trading, LLC v. Pacific Gas & Electric Co., November 20, 2015, Seeborg, R.).

Pacific Gas & Electric Co. (PG&E) has allegedly been the regulated monopoly utility in California since 1905, providing both electricity and natural gas to end-users. After the California legislature sought to partially deregulate the state’s natural gas utility industry, it created a pilot program giving consumers the opportunity to purchase gas from PG&E or certain private providers known as Core Transportation Agents (CTAs). United Energy Trading, LLC, a natural gas supplier, is a qualified CTA operating in PG&E’s services area. Under its Core Gas Aggregation Services agreement with PG&E, United Energy purchases natural gas on the open market and then sells it to end-users, using PG&E’s distribution system. PG&E also acts as United Energy’s billing and collections agent.

United Energy alleges, however, that PG&E and certain employees engage in unlawful billing, collection, and payment schemes that misappropriate funds, defraud United Energy, and unfairly compete for natural gas customers. Consequently, United Energy brought claims for attempted monopolization of the deregulated retail natural gas market; RICO violations in which certain PG&E employees are participating in schemes that defraud United Energy and its customers; and violations of various state laws. PG&E moved to dismiss.

Attempted monopolization. The court granted PG&E’s motion to dismiss the monopolization claim, finding that United Energy failed to sufficiently plead that the alleged schemes caused antitrust injury or foreclosed competition in a substantial share of the relevant market. In particular, United Energy claimed that PG&E’s conduct caused United Energy customers to revert back to PG&E, resulting in a reduction in competition. These allegations, however, failed to demonstrate whether PG&E’s practices extended beyond its relationship with United Energy and how they affect other CTAs and providers within the commodity natural gas market.

Employee RICO claims. United Energy also detailed 10 alleged acts of fraud directed and carried out by three PG&E employees, involving the same type of data transmission for the same purpose, spanning over two years, and continuing to the present day. In addition, for each predicate act of wire fraud alleged, United Energy identified the manner in which false information was transmitted by the individual defendants, the exact date, the information contained in the transmission, the reason why it was incorrect, and the damages that resulted. United Energy therefore adequately alleged a RICO claim against the individual defendants, the court concluded.

PG&E RICO claim. The court, however, dismissed the RICO claim with regard to PG&E. United Energy alleged that PG&E is liable on an agency theory for the racketeering activities committed by three of its employees because PG&E (1) is distinct from the consolidated billing program operated by the three employees; (2) has benefitted from its employees’ racketeering activities; and (3) exercised control over the individual defendants’ racketeering activities. However these conclusory allegations, according to the court, failed to demonstrate the necessary understanding between PG&E and the enterprise, or how PG&E was in control of the illegal undertaking.

The case number is 15-cv-02383-RS.

Attorneys: Charles Lagrange Coleman, III (Holland & Knight LLP) for United Energy Trading, LLC. Arnold Barba (Lim Ruger Kim LLP) and Dennis S. Ellis (Paul Hastings LLP) for Pacific Gas & Electric Co.

Companies: United Energy Trading, LLC; Pacific gas & Electric Co.

MainStory: TopStory Antitrust RICO CaliforniaNews

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