Xcel Energy 2002 Annual Report Download - page 75

California Litigation NRG and other power generators and power traders have been named as defendants in a multi-district litigation
proceeding. These cases were all filed in late 2000 and 2001 in various state courts throughout California. They allege unfair competition,
market manipulation and price fixing. All the cases were removed to the appropriate United States District Courts, and were thereafter
made the subject of a petition to the multi-district litigation panel. The cases were ultimately assigned to Judge Whaley. In December
2002, Judge Whaley issued an opinion finding that federal jurisdiction was absent in the district court, and remanded the cases to state
court. On Feb. 20, 2003, however, the Ninth Circuit stayed the remand order and accepted jurisdiction to hear an appeal of the remand
order. NRG anticipates that filed-rate/federal preemption pleading challenges will once again be filed once the remand appeal is decided.
A notice of bankruptcy filing regarding NRG has also been filed in this action, providing notice of the involuntary petition.
Although the complaints contain a number of allegations, the basic claim is that by underbidding forward contracts and exporting
electricity to surrounding markets, the defendants, acting in collusion, were able to drive up wholesale prices on the Real Time and
Replacement Reserve markets, through the Western Coordinating Council and otherwise. The complaints allege that the conduct violated
California antitrust and unfair competition laws. NRG does not believe that it has engaged in any illegal activities, and intends to vigorously
defend these lawsuits. These six civil actions brought against NRG and other power generators and power traders in California have
been consolidated in the San Diego County Superior Court, and the plaintiffs in these six consolidated civil actions filed a master
amended complaint reiterating the allegations contained in their complaints and alleging that the defendants’ anti-competitive conduct
damaged the general public and class members in an amount in excess of $1.0 billion. Two of the defendants in these actions, Reliant
and Duke, subsequently filed cross-complaints naming additional market participants, some of whom removed the actions to the United
States District Court for the Southern District of California federal court. Now under advisement in that court is the plaintiffs’ motion
to remand the cases to state court and motions by the cross-defendants to dismiss the cases against them.
In addition, Public Utility District No. 1 of Snohomish County, Washington, has filed a suit against NRG, Xcel Energy and several
other market participants in United States District Court for the Central District of California contending that some of its trading
strategies, as reported to the FERC in response to that agency’s investigation of trading strategies discussed above, violated the California
Business and Professions Code. Public Utility District No. 1 of Snohomish County contends that the effect of those strategies was
to increase amounts that it paid for wholesale power in the spot market in the Pacific Northwest. Judge Whaley granted a motion
to dismiss on the grounds of federal preemption and filed-rate doctrine, which the plaintiffs have appealed.
Separate class action lawsuits alleging unfair competition similar to those filed in California, as discussed previously, have been filed in
Oregon and Washington. These lawsuits have named both Xcel Energy and NRG as respondents.
California Attorney General In addition to the litigation described above, the California Attorney General has undertaken an investigation
into actions affecting electricity prices in California. In connection with this investigation, the Attorney General has issued subpoenas
and requested other information from Dynegy and NRG. NRG responded to the interrogatories as requested. Management cannot
make any evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss in the above-
referenced private actions at this time. NRG knows of no evidence implicating NRG in plaintiffs’ allegations of collusion.
FirstEnergy Arbitration Claim In August 2002, FirstEnergy terminated the purchase agreements pursuant to which NRG had agreed
to purchase four generating stations for approximately $1.5 billion. FirstEnergy’s cited rationale for terminating the agreements was an
alleged anticipatory breach by NRG. FirstEnergy notified NRG that it is reserving the right to pursue legal action against NRG and
Xcel Energy for damages. On Feb. 21, 2003, FirstEnergy submitted filings with the United States Bankruptcy Court in Minnesota
seeking permission to file a demand for arbitration against NRG. On Feb. 26, 2002, FirstEnergy commenced the arbitration proceedings
against NRG, but have yet to quantify their damage claim. NRG cannot presently predict the outcome of this dispute.
General Electric Company and Siemens Westinghouse Turbine Purchase Disputes NRG and/or its affiliates have entered into several turbine
purchase agreements with affiliates of General Electric Company (GE) and Siemens. GE and Siemens have notified NRG that it is in
default under certain of those contracts, terminated such contracts and demanded that NRG pay the termination fees set forth in such
contracts. GE’s claim amounts to $120 million and Siemens’ approximately $45 million in cumulative termination charges. NRG has
recorded a liability for the amounts they believe they owe under the contracts and termination provisions. NRG cannot estimate the
likelihood of unfavorable outcomes in these disputes.
Fortistar Litigation On Feb. 26, 2003, Fortistar Capital, Inc. and Fortistar Methane, LLC filed a $1-billion lawsuit in the Federal District
Court for the Northern District of New York against Xcel Energy Inc. and five former NRG or NEO Corp. employees. In the lawsuit,
Fortistar claims that the defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed fraud by
engaging in a pattern of negotiating and executing agreements “they intended not to comply with” and “made false statements later to
conceal their fraudulent promises.” The allegations against Xcel Energy are, for the most part, limited to purported activities related to the
contract for the Pike Energy power facility in Mississippi and statements related to an “equity infusion” into NRG by Xcel Energy. The
plaintiffs allege damages of some $350 million and also assert entitlement to a trebling of these damages under the provisions of the
RICO. The present and former NRG and NEO officers and employees have requested indemnity from NRG, which requests NRG is
now examining. Xcel Energy cannot at this time estimate the likelihood of an unfavorable outcome to the defendants in this lawsuit.
notes to consolidated financial statements
xcel energy inc. and subsidiaries page 89