Winston Secures Dismissal of Complaint For $180 Million Against Allegheny

The Federal Energy Regulatory Commission (FERC) has dismissed a complaint filed by the California Attorney General (AG) and associated state agencies and utilities seeking $180 million in penalties from Allegheny Energy Supply Company, LLC (now owned by FirstEnergy). The complaint, which was filed in July 2009, alleged that Allegheny and other wholesale power marketers unfairly profited from power sales to the Scheduling Division of the California Department of Water Resources (known as CERS) in the wake of California’s dysfunctional energy markets in 2000 and 2001. Among the allegations in the complaint, the AG claimed the power sellers profited from an inflated “pricing umbrella” created by the manipulative acts of some participants, such as Enron Power Marketing and its affiliates, and that the sellers otherwise failed to abide by their obligations under the Federal Power Act.

In moving to dismiss the claims, Allegheny argued the AG failed to show it had engaged in any wrongdoing, and even pointed to the prices in Allegheny’s contracts with CERS as a benchmark of reasonableness. Allegheny also argued that the AG’s pricing umbrella theory was legally invalid and that the complaint was time-barred.

FERC agreed. In dismissing the complaint, FERC ruled that “it seeks an unavailable remedy, advances inadequate legal theories and, to the extent it raises an appropriate legal theory . . . the claims are not sufficiently supported.” FERC further rejected “the California AG’s unsupported theory of vicarious liability . . . under the premise of a ‘pricing umbrella,’” found that the AG’s generalized allegations of wrongdoing against “virtually all sellers” was insufficient to support a complaint against Allegheny, and that the AG’s claims were time-barred in any event under the Federal statute of limitations. In rejecting the claims, FERC also denied several related procedural motions filed by the AG and its associated litigants.

FERC’s rulings — coupled with a decision two weeks ago finding that Allegheny lacked market power in California during the time period at issue — comprise a resounding and complete victory for Allegheny, and vindication for its business practices at the time. It also validates Allegheny’s decision to vigorously defend its conduct against the AG’s claims and the legal strategy it pursued to achieve this result. Allegheny’s legal defense was spearheaded by Winston & Strawn team Gordon Coffee, Ray Wuslich, Chimera Bowen and Lauren Butcher.

To see a copy of FERC’s recent rulings, please view the attached materials.