Class action accuses energy traders of inflating gas prices

Two energy trading firms allegedly inflated gasoline prices in California through a complex scheme that might have cost consumers billions of extra dollars at the pump, according to a proposed antitrust class action.

First mentioned in a similar case filed by state Attorney General Xavier Becerra, Vitol Inc. and SK Energy Americas are accused of taking advantage of market disruptions following a 2015 explosion at a Torrance refinery to drive up and maintain artificially high gasoline prices by engaging in sham trades.

No criminal charges have been filed against any employees or executives at the companies.

The complaint filed on Monday joins about 15 others in litigation consolidated in federal court in San Francisco seeking an injunction and an unspecified amount in damages.

"Our goal is to make California consumers whole after the defendants' alleged conduct cost consumers over $2 billion," lead plaintiffs' attorney Glenn Phillips, a partner at Milberg Philips Grossman LLP, said in a statement.

The price of gas in California is among the highest in the nation, which industry experts have blamed on taxes and the state's stricter clean-air regulations.

Gov. Gavin Newsom asked Becerra to look into the issue in October, after a state Energy Commission report found Californians spend $1.5 billion more than residents of other states for gasoline.

The investigation resulted in Becerra suing Vitol and SK Energy Americas in May for allegedly making illegal transactions that restrained competition. California v. Vitol Inc., CGC-20-584456 (S.F. Super. Ct., filed May 11, 2020).

State Justice Department attorneys did not respond to requests for comment.

Lawsuits filed by private plaintiffs detail an alleged scheme in which both companies traded with each other to spike gasoline prices.

The plaintiffs said SK Energy employee David Niemann, who also worked at Vitol for 10 years, hatched the plan. Niemann allegedly worked with his counterpart at Vitol, Brad Lucas, to manipulate a gasoline pricing service used by energy traders, according to the lawsuit.

The lawsuit claims that by driving up benchmark prices through illegitimate trades, the firms were able to sell their own products at higher amounts.

"This conduct was designed to create the illusion of a supply/demand imbalance for refined gasoline and to drive spot market prices to artificial highs during strategic pricing windows," wrote Milberg partner David Azar.

The plaintiffs claim that the defendants used the explosion that shut down part of the Torrance refinery, which supplied 10% of the gasoline in California, to explain the surge in cost.

Average gas prices in California jumped from $2.76 a gallon to more than $3.80 over the next few months, the plaintiffs said.

The alleged anticompetitive conduct cost retail gasoline purchasers billions of dollars over the class period from February 2015 to December 2016, claimed plaintiffs' attorneys Dennis Stewart. He cited the state Energy Commission analysis estimating that Californians paid an additional $1.5 billion in 2018 and $11.6 billion over the last five years for gasoline.

Plaintiffs' attorneys alleged violations of the Sherman Act and California's Cartwright Act and Unfair Competition Law. They can recover treble damages if they win on those grounds. Harris v. SK Energy Americas, Inc., 20-CV-04293 (N.D. Cal., filed June 29, 2020); Pacific Wine Distributors, Inc. v. Vitol Inc., 20-CV-03131 (N.D. Cal., filed May 6, 2020).

Vitol and SK Energy Americas are both energy trading leaders.

Vitol's parent company, Vitol Holdings B.V., is the world's largest independent oil trading house, while the owner of SK Energy America, SK Trading International Co. Ltd., is the largest refiner of crude oil in Korea.

They did not respond to requests for comment.

The consolidated litigation is before U.S. Magistrate Judge Jacqueline Scott Corley to determine related cases, which are being filed weekly.