LA County, school district sue Los Angeles utility for inflating electric bills by more than $300 million

Whistleblower initiated fraud lawsuit under state false claims law

April 1, 2002 - Los Angeles County, Los Angeles Unified School District and other county entities are suing the Los Angeles Department of Water and Power (DWP) for deliberately overcharging them for more than a decade, costing them hundreds of millions of dollars.

DWP inflated its electric bills to governmental customers beginning as early as 1990 - well before the state's power crisis two years ago, according to a lawsuit brought by the county, the school district, the Los Angeles Community College District and the Los Angeles County Metropolitan Transportation Authority (LAMTA). The California Attorney General's office also intends to join the case.

The lawsuit, filed in Superior Court in San Francisco, was made public today.

"The county, the school district, the community colleges, LAMTA and the state have analyzed DWP's bills and have concluded they have been greatly overcharged, a San Francisco attorney with Phillips & Cohen LLP, which is representing all of the entities bringing the lawsuit. "DWP boosted its revenues at the expense of schools and taxpayers."

The lawsuit says that DWP deliberately disregarded a state law that allows publicly-owned utilities to charge schools and other governmental customers no more than their proportionate share of the capital costs associated with the electric facilities from which they get power. So if a state agency uses five percent of the power generated by a facility, it should be charged no more than 5 percent of the facility's capital costs.

DWP had done a study, known as a "cost-of service" study, to determine the proportionate share that each governmental customer should pay. But DWP billed those customers without any regard to the results of that study and actually charged them up to 60 percent more than their legitimate share of capital costs, resulting in over $300 million in overcharges, the lawsuit says.

The lawsuit was initiated by Sam Barakat, an energy consultant, and brought under the state whistleblower law known as the California False Claims Act. It was filed in 2000 "under seal," as required by the law, to give the state and local governments time to investigate the allegations and determine whether they had merit.

After many months of investigating, each of the governmental agencies concluded that they had been overcharged by the DWP.

"It is significant that every public agency that bought power from the DWP has decided that the case has merit, including the California Attorney General. It was clear to each one that DWP had greatly overcharged them."

The state False Claims Act allows private individuals to sue any entity that is defrauding municipalities, the state or their agencies. Liable defendants may be required to pay as much as three times damages plus up to $10,000 for each false claim.

Case referred to above is: State of California ex rel. Barakat v. Los Angeles Department of Water & Power.

For more information, please see the following news stories:

  • California agencies sue DWP on overcharges," The Electricity Daily, 4/4/02.
  • "Four local agencies claim DWP overcharges of $200 million," Tina Daunt, Los Angeles Times, 4/2/02.
  • "Southland public agencies sue DWP," Beth Barrett, Daily News of Los Angeles, 4/2/02.
  • "A judge unseals the False Claims Act suit against the Department of Water and Power," Dennis Pfaff, Daily Journal, 4/2/02.