California Accuses BP of Inflating Gas Contract


BP and its traders routinely manipulated prices to overcharge California as much as $300 million when it sold natural gas to the state, California and a fired BP employee allege in a lawsuit against the British energy company.

The BP employee, who had helped administer $2 billion in exclusive gas contracts with California, filed the case as a whistleblower, and it was kept under seal while California Attorney General Kamala Harris decided whether to join the litigation.

Harris’s office notified San Francisco County Superior Court earlier this month that the state would join the case, and Judge Ernest Goldsmith made the lawsuit public in an order Wednesday.

For the past decade, California’s Department of General Services entered into exclusive contracts with BP PLC to provide natural gas for state entities in hopes of locking in a reasonable and stable price, the lawsuit says. Instead, the state alleges, BP sellers routinely sold natural gas to the state at a price well above market price, and BP reaped a profit margin that typically was at least three times what was set in the contract.

Through the overcharges, BP “made more of a profit margin off California than any other customer,” Niall McCarthy, a San Francisco attorney representing state agencies in the civil lawsuit, said Thursday.

BP called the allegations in the lawsuit “meritless.”

“We will respond to the claims in detail through legal filings to be made at the appropriate time,” the company said in an emailed statement.

The case was originally brought by Christopher Schroen, who handled the day-to-day natural-gas sales to California for BP from 2004 until he was fired in 2012, when the high costs of the contract were coming under greater scrutiny, the lawsuit alleges.

Schroen alleges senior BP managers oversaw and approved the overcharges, including signing off daily on profit margins higher than those set in the contract.

In an email, David Beltran, a spokesman for the attorney general, said the state was intervening in the case “to secure accountability and protect California taxpayers.”

The lawsuit states that some of the BP contracts run through 2017, and McCarthy, the private attorney, said some state bodies have renewed the contracts despite the lawsuit alleging routine overcharging.

A spokesman for California’s Department of General Services said he could not immediately speak regarding the contracts or legal case.

BP shares fell 51 cents, or 1.2 percent, to close at $40.67 Thursday. In after-hours trading, the shares dropped another 2 cents to $40.65.

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