Power Provider Reliant to Pay State $13.8 Million

Reliant Resources Inc. has agreed to pay California $13.8 million for withholding power and trying to manipulate prices on two days during the energy crisis in June 2000, federal regulators said Friday.

Under the settlement, Houston-based Reliant will compensate customers of the California Power Exchange -- mostly large utilities -- within the next few weeks. The settlement between Reliant and the Federal Energy Regulatory Commission is just a small part of the federal government’s probe into California’s electricity marketplace in 2000-01.

“This is us doing our job: investigating ... to get money back into the pockets of California customers as soon as possible,” FERC spokesman Kevin Cadden said.

State officials are demanding $8.9 billion in refunds from energy providers that they say exploited market conditions during the energy crisis. According to Friday’s settlement, Reliant limited the power it offered to the California Power Exchange, then the state’s primary electricity market, on June 21 and 22, 2000.

Reliant executives maintained Friday that the abuses were isolated and that the company promptly brought them to the attention of federal officials when it discovered them last year in a review of California trading practices. The executives said that it was unknown whether their traders actually influenced the market and that there were genuine power supply shortages on the days at issue.

“Reliant is committed to conducting our business with the highest integrity,” Chief Executive Steve Letbetter said in a statement. “Such self-disclosure and today’s announcement reinforce Reliant’s deep desire to do the right thing and face the future with confidence.”

Reliant spokesman Richard Wheatley said the incident violated no laws or regulations but “was not in keeping with the way we conduct our business.”

Nonetheless, FERC officials have concluded that taped transcripts contained “smoking gun” evidence that Reliant employees attempted to “game” California’s energy market.

In the order, federal regulators said Reliant traders held back about 1,000 megawatts of electricity -- enough for 750,000 homes -- on each of the two June days to raise prices so that the company would lose less money on “existing forward positions.” Reliant apparently had bet that prices later in the summer would rise, but the market was not cooperating.

The FERC order points to language used by Reliant employees in trades, which are routinely recorded. Those statements seem to show a strategy of trying to exploit the system, as when one employee used the phrase “market manipulation attempts on our part.”

An unnamed employee is quoted as declaring that “we decided that the prices were too low on the daily market so we shut down.” In another instance, an unidentified employee said, “Everybody thought it was really exciting that we were gonna play some market power.”

The FERC report asserted: “Thus, Reliant employees intentionally withheld capacity from the day-ahead market to manipulate prices.” In determining the settlement, FERC calculated the “worst-case scenario” of Reliant’s actions on the market; the amount represents about one-tenth of 1% of the company’s $11.4 billion in annual revenue.

The employees involved were subjected to “appropriate personnel actions,” spokesman Wheatley said, but he had no information about what that constituted. The vice president of trading who ordered employees to withhold supplies left the company last year, Wheatley said; he declined to name the man.

FERC Commissioner William L. Massey expressed qualms about the decision, saying he would have preferred to have more information from the broader, continuing investigation before settling the matter, as well as a limitation on Reliant’s ability to sell at market rates the 3,800 megawatts produced by its five Southern California power plants.

Still, he said, he ultimately approved the deal, as did his two fellow commissioners, noting that it allowed FERC “to make the smoking gun evidence ... available to the public immediately.” Reliant also agreed to retain an independent engineering company for two years to certify plant outages as legitimate.

In a statement Friday, California Public Utilities Commission President Michael R. Peevey said he was “gratified that FERC has seen fit to return some funds to California. I hope they continue with that trend.”