Reliant Settles Energy Crisis Suit

Reliant Energy Inc. said Monday that it would pay $460 million to resolve claims that it withheld power and overcharged for electricity during California’s energy crisis in 2000 and 2001, becoming the last major out-of-state power producer to settle disputes from the troubled time.

The settlement, which would include limited refunds directly to California consumers, closes outstanding civil cases against the company brought by California, its utilities and private plaintiffs, as well as those brought by Washington state and Oregon. Reliant didn’t admit wrongdoing.

“It’s been a long time coming. But to have Reliant done is a huge step,” said Gary Ackerman, executive director of the Western Power Trading Forum, which represents traders and power plant owners.

Gov. Arnold Schwarzenegger called the agreement “great news for California,” adding that he would “continue to fight for justice from companies that took advantage of California residents and businesses during the energy crisis.”

During the state’s yearlong energy ordeal, which brought record prices and rolling blackouts, California officials accused several major power producers, including Reliant, of manipulating the electricity market through false plant shutdowns and trading schemes. Last year, a federal grand jury indicted a Reliant subsidiary and four of its managers in connection with an alleged scheme to turn off power plants to force up prices. That criminal case isn’t affected by Monday’s settlement.

At one point, California regulators and others claimed that ratepayers were owed as much as $9 billion because of alleged electricity overcharges.

California Atty. Gen. Bill Lockyer, who has led the state’s fight for refunds, said the Reliant deal was important for ratepayers because “the dollar amount is one of the more significant claims ... and it’s real money.”

Two larger settlements, with Enron Corp. and Mirant Corp., are not likely to be collected in full because the companies are in Chapter 11 bankruptcy reorganization. The state has reached agreements worth more than $5 billion with 11 energy companies that sold electricity during the power crisis, including smaller settlements with El Paso Corp., Duke Energy Corp., Dynegy Inc. and Williams Cos.

Reliant Chief Executive Joel Staff said the Houston-based company agreed to the settlement to remove lingering uncertainty from litigation and regulatory proceedings.

“Part of moving forward is responsibly addressing legacy issues such as these. Today, Reliant is a very different company than it was in 2000 and 2001,” Staff said, adding that Reliant has “worked diligently” during the last four years to operate its five power plants “to help serve the citizens of California.”

Reliant said the settlement would result in a $350-million pretax charge in the third quarter. The company’s shares rose 3 cents to $12.68 on Monday.

Under the Reliant agreement, the California parties -- including the state Department of Water Resources and utilities Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric -- would share proceeds worth $453 million. At least $135 million of that would be in cash; about $310 million would be used to erase outstanding bills with Reliant for electricity purchases during the crisis, along with the interest that accrued on those bills over the last few years.

An additional $7 million would be shared by Washington and Oregon, $4.5 million would go to private class-action plaintiffs and $3 million to several municipalities and water districts.

By Lockyer’s calculation, California ratepayers would get the benefit of about $430 million of the settlement through refunds and credits that would reduce future rate increases.

Once the agreement wins approval from the Federal Energy Regulatory Commission and the California Public Utilities Commission, state regulators will reduce electricity rates to reflect the refunds. Edison, which serves 4.6 million customers, said it expected the Reliant refunds to flow through to its customers starting early next year.

Reliant represents the last major energy crisis case involving a company based outside California. The largest case still pending is against Sempra Energy, parent company of San Diego Gas & Electric, which was accused of manipulating natural gas prices. Lockyer said he was seeking more than $1 billion from the San Diego-based company. Sempra has denied the charges.

Yet, even as they wrap up the remnants of the 2000-01 debacle, Lockyer and others acknowledge that there is little to prevent a repeat performance in California. “There is the continuing potential for energy companies to game the system,” Lockyer said.

What’s more, California regulators and others continue to fret about the state’s thin cushion when it comes to power supplies.

“The sad news is that we really haven’t progressed very far” in four years, said Ackerman of the power trading group. “There’s been a lot of growth in Southern California; there are a lot more homes and a lot more businesses plugged into the grid.... They demand power, and we don’t have enough to meet their needs over time.”

Less than a month ago, a heat wave across the West and a smattering of plant outages forced operators of the state’s electricity grid to declare its first Stage 2 power emergency since 2002. The situation didn’t escalate into rolling blackouts, but it triggered conservation programs that curtailed electricity use at homes and businesses that volunteered to do so in exchange for lower rates.

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Crisis settlements

Here are a list of financial settlements to resolve claims from the California energy crisis of 2000-01.

*--* Firm Date Amount El Paso 3/20/03 $1.70 billion Enron* 7/15/05 $1.52 billion Reliant Energy** 8/15/05 $525 million Mirant* 1/14/05 $495 million Williams 2/25/04 $417 million Dynegy 4/26/04 $281.5 million Duke Energy 7/13/04 $200 million Total $5.14 billion

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*The actual value may change depending upon the value of allowed claims in Bankruptcy Court.

**Includes $65 million in refunds by Reliant previously ordered by the Federal Energy Regulatory Commission.

Source: Southern California Edison