STATE OF CA, COUNTY OF LA, REGENTS OF THE UNIV OF CA, et al VS BP AMERICA PRODUCTION COMPANY, et al (Defts 170.6)

Complaint Information

KAMALA D. HARRIS Attorney General of California JACQUELINE S. DALE (SBN 170800)

Supervising Deputy Attorney General ELECTRONICALLY KENNETH J. SUGARMAN (SBN 195059) HEATHER B. HOESTEREY (SBN 201254) Sup ilc OI;TEC?M,B Deputy Attorneys General County of San Francisco 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 %|59{k2°¥4|zgg'u?t Telephone: (415) 703-5958 BY:ALISON AGBAY Fax: (415) 703-5480 Deputy Clerk

E-mail: Kenneth.Sugarman(@doj.ca.gov Attorneys for the People of the State of California

SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO

STATE OF CALIFORNIA ex rel. CHRISTOPHER J. SCHROEN, et al., Case No. CGC-12-522063

FIRST AMENDED COMPLAINT IN INTERVENTION OF THE PEOPLE OF THE STATE OF CALIFORNIA DEMAND FOR JURY TRIAL

Plaintiffs, V.

BP AMERICA PRODUCTION COMPANY, et al.,

Defendants.

THE PEOPLE OF THE STATE OF

CALIFORNIA, Plaintiff-Intervenor, V.

BP AMERICA PRODUCTION COMPANY, a Delaware corporation; BP ENERGY COMPANY, a Delaware corporation; BP CORPORATION NORTH AMERICA, INC,, Inc., an Indiana corporation; and DOES 1 20,

Defendants.

1 First Amended Complaint in Intervention of the People of the State of California (CGC-12-522063)

1 First Amended Complaint in Intervention of the People of the State of California (CGC-12-522063) Plaintiff, the People of the State of California, based on information and belief, alleges for its complaint as follows:

Plaintiff, the People of the State of California, based on information and belief, alleges for its complaint as follows:

INTRODUCTION

1. This action arises from Defendants’ violations of the False Claims Act from approximately April 2003 to the date of trial.

2. Defendants have overcharged the State of California and numerous California political subdivisions' millions of dollars for natural gas purchases under three successive contracts with the Department of General Services (“DGS”), an executive department in the California Government Operations Agency.

3. The contracts entered into with DGS provide for the purchase of gas under two different pricing structures: (1) the market (or index) price as of the beginning of the delivery month; or (2) an alternative price, agreed upon by the parties ahead of time. The latter type of purchases are referred to herein as “Special Pricing” purchases.

4. The contracts expressly prohibit Defendants from quoting a price for a Special Pricing purchase “that exceeds the Market Price plus $ 0.15 per MMBtu.””

5. Notwithstanding this provision, Defendants continually and systematically quoted the state prices for Special Pricing purchases that exceeded the market price by more than $0.15 per MMBHtu, thereby inducing the state to enter into hundreds of purchase agreements for overpriced gas.

6. Defendants’ internal communications report average state margins on the order of $0.25 per MMBtu or higher, or at least $0.10 per MMBtu more than the state was supposed to pay. In July 2009, Defendants reported that, for Defendants’ relevant business region, the state accounted for 35 percent of the customer profit margin, even though the state comprised only

eight percent of their business by volume. “Squeezing gold out of that goose” is how one of

' The State of California and the relevant California political subdivisions may be referred to herein collectively as the “state.” A Btu is a standard unit of measurement denoting the amount of heat energy in fuels. A Btu 1s the amount of heat required to increase the temperature of a pound of water by one degree Fahrenheit. An MMBtu stands for one million Btu’s.

2 First Amended Complaint in Intervention of the People of the State of California (CGC-12-522063)

2 First Amended Complaint in Intervention of the People of the State of California (CGC-12-522063) Defendants’ employees closest to the DGS account described transacting with the state for Special Pricing volumes.

Defendants’ employees closest to the DGS account described transacting with the state for Special Pricing volumes.

7. Through this action, the People seek to recover treble damages and penalties under the False Claims Act, restitution and penalties under the Unfair Competition Law, prejudgment interest, the costs of this action, and such other relief as the Court deems proper.

PLAINTIFF

8. Plaintiff is the People of the State of California (“Plaintiff, or the “People™).

9. Pursuant to Government Code section 12652, the People, by and through the Attorney General, may elect to intervene and proceed with an action brought by a private person (the “qui tam plaintiff”) under the False Claims Act, Government Code section 12652, subdivision (c)(1), for violations of the Act (a “qui tam action”), and seek damages and penalties as provided in section 12651, subdivision (a). Pursuant to section 12652, subdivision (¢)(1), where the People proceed with the action, the People shall have the primary responsibility for prosecuting the action.

10. On July 2, 2012, Christopher J. Schroen, the qui tam plaintiff, brought this action as a qui tam action.

11. On November 4, 2014, pursuant to Government Code section 12652, subdivision (©)(8)(D)(1), the People gave notice that they intend to intervene and proceed with the action.

12. Pursuant to Business and Professions Code sections 17204 and 17206, the Attorney General 1s authorized to bring a civil action in the name of the People of the State of California for the assessment and recovery of restitution and civil penalties for each violation of the Unfair Competition Law, Business and Professions Code sections 17200 to 17210.

DEFENDANTS

13. Defendant BP America Production Company is a Delaware Corporation, registered with the California Secretary of State, and authorized to do business and doing business in California.

JURISDICTION AND VENUE

19. The Court has subject matter jurisdiction pursuant to Article 6, section 10 of the California Constitution.

FACTUAL ALLEGATIONS

I. THEDGS NATURAL GAS SERVICES PROGRAM

24. At all times relevant to this complaint, DGS has operated a program called the Natural Gas Services (“NGS”) program.

25. The NGS program procures natural gas supplies and related services for California state agencies and California political subdivisions that elect to participate in the program. Participants during the period covered by this complaint include, without limitation, DGS itself, several state executive agencies; California State University (“CSU”), including CSU’s San Francisco campus, SFSU; the University of California (“UC”), including UC campuses in San Francisco; and the County of Los Angeles.

il. DEFENDANTS’ CONTRACTUAL OBLIGATIONS

26. DGS and BPE entered into three successive master contracts under which BPE has been, with limited exceptions, the “full requirements” supplier for the NGS program. Under the contracts, BPE has obligations to procure natural gas required by program customers and to provide related services, including coordinating the pipeline nominations and transportation required for the delivery of natural gas to customers’ gas meters, and monitoring customers’ actual usage.

27. Collectively, the contracts provide for gas supplies flowing from April 1, 2003 through June 2016, though certain Special Pricing purchases transacted under the third contract provide for gas to be supplied through June 2017.

A. The Contracts Provide for Default Pricing and Special Pricing Purchases

28. The DGS contracts include two pricing structures for gas to be supplied under the contracts. The first pricing structure is “Default Pricing.”

29. The Default Pricing structure is a published index price—i.e., a price to be determined as of the delivery month by reference to a specified, published gas price index for that month. Default Pricing purchases are not at issue in this action.