Union Tribune

October 3, 2003

Reliant reaches settlement agreement
Firm could pay $50 million in price-manipulation case


By TOBY ECKERT
COPLEY NEWS SERVICE

WASHINGTON Federal regulators and Reliant Energy struck an agreement yesterday to resolve several allegations of price manipulation during California's power crisis, in return for payments that could total $50 million over the next three years.

The Federal Energy Regulatory Commission called it the largest settlement in the commission's history.

It "should serve as a warning to all energy companies that attempts to manipulate energy markets will have consequences," FERC Chairman Pat Wood said in a statement.

Reliant admitted no wrongdoing under the agreement.

The settlement covers charges that Reliant engaged in improper bidding practices between May 2000 and October 2000, withheld power from the market and schemed with another company, BP Energy, to inflate prices at a key Arizona electricity trading hub in April 2000.

BP settled with FERC for $3 million this summer.

California officials, who have been harshly critical of other settlements between FERC and power companies accused of price gouging during the 2000-01 power crisis, said it shortchanged the state's consumers.

Erik Saltmarsh, chief executive director of the state Electricity Oversight Board, said Reliant should refund at least $250 million for the period covered by the settlement, if the company were limited to the legally prescribed "just and reasonable" prices for power it sold.

"Once again FERC has given California consumers probably 20 cents on the dollar," said Saltmarsh, whose agency is pressing for $9 billion in refunds from the crisis.

Tom Dresslar, a spokesman for California Attorney General Bill Lockyer, said assessing the refund order would take time.

"Fifty million sounds good, but we'll have to look at the order, study it in detail, compare it to the evidence we submitted before we can fully evaluate its appropriateness," he said.

The agreement with Reliant does not cover other cases that are pending, including $8.9 billion in refunds California is seeking from an array of power sellers and a proposal by FERC's trial staff to settle other allegations against the company for $836,000.

At the same time, FERC said its Office of Market Oversight and Investigations "concluded that no further investigation was warranted" into allegations that Reliant had improperly idled power plants between May 2000 and June 2001 to inflate prices.

Dresslar raised concerns about that decision, saying California officials had presented evidence that Reliant had shut down plants on seven occasions when they appeared to be available to produce power.

"Those were phony outages," he said.

Reliant agreed to pay $13.8 million in February for improperly shutting down power plants in June 2000.

The settlement announced yesterday requires the company to pay $15 million in cash within 30 days. Two more installments of $5 million each are due by Sept. 30, 2005, and Sept. 30, 2006.

Up to $25 million more could come out of a complex deal under which proceeds from Reliant's auctioning of 824 megawatts of power-generating capacity would become part of the settlement. California utilities would have right of first refusal for the low-cost capacity.

The settlement proceeds will be deposited in a special U.S. Treasury fund for consumers in California and other Western states. FERC will determine how to distribute the money in another proceeding.

It was the latest in a flurry of settlements or proposed settlements between FERC and numerous energy companies arising from the commission's investigation of the power crisis that rocked the West Coast.

California officials have criticized some of the proposed settlements and asked FERC this week to reject several, including the $836,000 Reliant deal. The officials say the power crisis cost the California economy billions of dollars and enriched energy companies, but that FERC's trial staff is settling for relatively small sums.

Responding to the criticism, FERC Chairman Wood counseled patience.

"Judgment of the commission's overall response to the California electricity crisis should be reserved until we complete these complicated proceedings," he said in a written statement.

He also noted that FERC lacks authority to impose hefty civil penalties, something Congress is considering changing.

However, Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica noted that FERC failed to exercise the authority it had to revoke Reliant's right to sell power at market rates, rather than regulated prices.

Considering the overcharges and the penalty, said Heller, "The Reliant settlement is like giving a murderer 10 hours of community service."

Staff writer Craig Rose contributed to this report.