Powerex, the energy trading arm of B.C. Hydro, is at the centre of a billion-dollar lawsuit launched by the California Attorney-General that alleges the Crown utility and three other companies engaged in price gouging during the state's electricity crisis.

"We're attacking illegal profiteering from California's energy crisis," Bill Lockyer, California's Attorney-General, said in a statement. "We are seeking to make the power pirates pay a California penalty for their illegal profiteering."

The lawsuit, filed with the state's Superior Court, alleges that Powerex, Mirant Corp., Williams Cos. Inc. and Coral Energy, the marketing arm of Royal Dutch/Shell Group, engaged in hundreds of thousands of illegally priced sales of electricity in 2000 and 2001, which Mr. Lockyer said could result in fines of more than US$1-billion.

Mr. Lockyer said the state's investigation was continuing and more energy companies would likely be sued.

A spokesman for B.C. Hydro reserved comment until the utility reviewed the lawsuit. Representatives for Coral and Williams also declined comment.

However, Patrick Dorinson, a spokesman for Mirant, told Reuters the lawsuit comes just as both Mr. Lockyer and Gray Davis, the state's Governor, prepare for an election campaign this fall.

"We continue to have lawsuits, we continue to have punitive legislation and we still don't have a long-term solution to California's energy crisis," Mr. Dorinson said. "While suing energy companies might make great election-year politics, it makes horrible long-term energy policy."

Powerex is one of the best-performing units of B.C. Hydro, industry observers say. "It has generated whopping dividends for the B.C. government and consumers," said Tom Adams, executive director of Energy Probe, an industry watchdog. "It's really one of the bright spots."

He said the trading company reaped huge benefits during California's electricity crisis, which saw supply shortages, skyrocketing hydro prices and rolling blackouts during 2000 and 2001.

"Powerex was selling into California very aggressively," Mr. Adams said. "It was in overdrive, exploiting the opportunity and pumping power at peak prices."

According to B.C. Hydro's most recent annual report, Powerex enjoyed a record-breaking year in fiscal 2001. In the first quarter alone, Powerex revenue broke $1-billion, matching total revenue for the previous fiscal year. Powerex finished the year with revenue of more than $5-billion, and its performance helped B.C. Hydro post a 127% increase in revenue in 2001, to $7.8-billion from $4.4-billion.

In the report, B.C. Hydro cited Powerex's trades in California as a contributing factor. Revenue from sales in California accounted for 42% of B.C. Hydro's trade revenue in 2001, up from 30% in the previous year. "Unique market conditions in California resulted in an unusually high demand for power in the state and market-driven high prices for electricity," B.C. Hydro said.

Powerex ran into problems in Canada when it and Enron Canada were accused in 1999 of manipulating electricity prices in Alberta's wholesale market. However, the Competition Bureau cleared both companies after an investigation.