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Robert Albergotti, a bankruptcy partner in Haynes and Boone in Dallas, says he’s a lucky man because he’s getting a rare second chance to work on the case of a career. The first time was in El Paso nearly a decade ago, when Albergotti represented the unsecured creditors’ committee in the El Paso Electric Co. bankruptcy. When it was filed in 1992, it was only the second bankruptcy of an investor-owned utility since the Great Depression. “It was kind of a career project basically,” Albergotti says. But now, nine years later, Albergotti is spending much of his time in California, where he has been hired to advise the speaker of the California Assembly, Robert Hertzberg, on how to handle the huge, debilitating energy crisis in California. “This California thing is many, many times more complex, more interesting. The public interest implications are so gigantic,” he says. “I’m confident I’ll never have a chance to work on something like this again.” California’s power problems stem from deregulation approved by the state Legislature in 1996. The plan to help lower consumer electric bills backfired when few companies agreed to sell electricity in California and wholesale costs went up just as large utilities were prevented from increasing the rates they charge consumers. A number of Texas companies, including units of power providers Reliant Energy Inc. and Dynegy Inc., are owed hundreds of millions for electricity sold in California. They are at the brunt of criticism from public officials and defendants in various suits. On May 2, for instance, California Lt. Gov. Cruz Bustamante and Assemblywoman Barbara Matthews filed a class action suit in state court in California against five large power generators, including Reliant and Dynegy, alleging they conspired to fix prices. They seek billions in damages in Cruz M. Bustamante, et al. v. Dynegy Inc., et al., No. BC249705. It is the sixth class action suit filed against power generators and marketers, including some Texas companies, since the fall of 2000. The rash of litigation means Albergotti isn’t the only Texas lawyer building up frequent-flyer miles between Texas and California. And in addition to the class action suits, California’s largest utility, Pacific Gas & Electric, filed for Chapter 11 in April. Earlier, the California Power Exchange, the state’s primary electricity marketplace under deregulation, also sought refuge in bankruptcy court. Since Houston is ground zero for the energy industry, some Texas energy companies and their lawyers are drawn into the politically tinged hotbed of litigation in California. Firms with Texas lawyers in active public roles in litigation in California include Baker Botts, Gibbs & Bruns, Fulbright & Jaworski and Weil, Gotshal & Manges. Some firms, like Vinson & Elkins, have lawyers working on a more behind-the-scenes basis. Joseph Dilg, a co-head of the business and international section at V&E, says the firm is advising a number of Texas energy clients with interests in California, but he declines to name them because the firm is not, for instance, counsel of record in a bankruptcy in California. “I’d really rather not get into specifics,” Dilg says. COMPLICATIONS Houston’s Reliant Energy is a creditor in the PG&E bankruptcy and its counsel is Baker Botts, Reliant’s longtime go-to firm. Lawyers from Baker Botts also are defending Reliant, Reliant Energy Services Inc. and Reliant Energy Resources Corp. from the class action suits that allege power generators, traders and marketers of wholesale electricity supplied to California markets conspired to overcharge the market by creating an artificial shortage of electricity. Gibbs & Bruns of Houston represents Enron Corp., Enron Energy Services Inc. and Enron Power Marketing Inc. in the class actions. Some Texas lawyers are also involved in PG&E’s bankruptcy. Lawyers from Fulbright, including Evelyn Biery, a bankruptcy partner in the firm’s Houston and San Antonio offices, represent Coral Energy and Arizona Electric Power Cooperative, creditors in the PG&E bankruptcy. Fred Yanney, a partner in Fulbright’s Los Angeles office, meanwhile, says he and others are also giving a lot of advice to other clients in the wake of the energy crisis. Weil Gotshal represents parent company PG&E Corp. in the PG&E bankruptcy. Alan Gover, a partner in the firm’s Houston office who heads the firm’s team, says he has worked for the parent company for more than three years on various restructuring and financings. And Glenn West, a partner in the firm’s Dallas office, handled a billion-dollar financing for the parent company that closed in March. Gover, who was lead counsel for Zale Corp. and Greyhound Lines Inc. in their bankruptcies, and David Burns, a bankruptcy partner in Baker Botts who is helping Reliant with its credit problems in California, agree with Albergotti’s belief that the PG&E bankruptcy should raise complex, fascinating issues. “It’s very complicated … . This is the intersection of political, economic, legal and public relations problems,” Burns says. One issue is whether PG&E Corp. will be able to put a wall between its bankrupt utility unit and the assets of its other, unregulated businesses. But the same intersection between politics and the law applies to the class action suits, says J. Gregory Copeland, a Baker Botts partner who is defense counsel for Reliant in the litigation. “In the final analysis, this is a social problem and by that, it’s a policy problem, and we’ve got a state in which they don’t have an adequate amount of power and lawsuits aren’t going to resolve that,” Copeland says. Enron’s attorney, Robin Gibbs, a partner in Gibbs & Bruns, says class action litigation often follows highly publicized economic events. “They are a part of the turmoil, if you will, that has aptly been characterized as the energy crisis in California,” he notes. Richard Wheatley, director of corporate communications for Reliant, and Steve Stengel, Dynegy’s spokesman, dispute the allegations in the suits. “Clearly the lawsuits we have seen do not reflect the true workings of the flawed system that was put in place after passage of [deregulation] assembly bill 1890,” Wheatley says. “But having said all that, we continuously maintain our innocence and standards of ethics and law in all of our dealings.” Stengel says the suits do nothing to address the central issues in California, such as the need to increase the power supply and reduce demand. The lieutenant governor’s suit was filed in state court in Los Angeles, but three of the other class actions were filed in state court in San Diego and two in San Francisco. Lawyers for the defendants removed the five earlier suits to federal court and have asked the multidistrict-litigation panel of federal judges to consolidate the suits and assign them to a judge in Washington, D.C., or somewhere outside California. The MDL panel has set a hearing on that motion for May 31. Other Texas companies are defendants in the litigation and creditors in the PG&E bankruptcy, but they are primarily using firms outside Texas. Houston-based Dynegy, for instance, uses New York’s Simpson Thacher & Bartlett in the PG&E bankruptcy and Pillsbury Winthrop in San Diego in the class actions. Leonard Simon, a partner in Milberg Weiss Bershad Hynes & Lerach of San Francisco, which filed two of the class action suits, says the suits should be heard in state court. He isn’t opposed to consolidation, but he says if the litigation stays in federal court, he wants a judge in California to preside. A SOLUTION Albergotti says he started working for the California Assembly in January. He got the job because of his past relationship with David Wiggs, the former chairman of the board of El Paso Electric who now lives in California and advises Speaker Hertzberg. Albergotti says his role was to help devise a legislative way to solve the supply and cost problems with the power supply in California while helping to prevent investor-owned utilities from declaring bankruptcy. While the other utility experiencing severe financial problems, Southern California Edison, may have worked out a deal to sell its transmission lines to the state to raise about $2.76 billion to reduce its debts, PG&E went the bankruptcy route. “Basically PG&E just gave up on the governor,” Albergotti says. Albergotti says he’s being paid at a 35 percent discount from his normal billing rate of $450 an hour. Albergotti doesn’t believe the California energy crisis can be solved solely in bankruptcy court, primarily because a judge cannot confirm a reorganization plan for a regulated industry unless the Public Utilities Commission in California approves a rate change. “At the end of the day, there can be an awful lot of hand wringing and gnashing of steel and sparing in the bankruptcy court, but ultimately there has to be a political solution,” he says.

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