Reliant to Pay Up to $50 Million
Reliant Resources Inc. agreed to pay up to $50 million to resolve allegations that it squeezed electricity supplies to California and other Western states during the energy crisis, federal regulators said Thursday.
The settlement with the Federal Energy Regulatory Commission is the largest in the history of the agency. The deal requires cash-strapped Reliant to shell out $25 million over three years as well as up to $25 million from the sale of below-cost electricity generated by three of its California power plants.
The money would go into a fund to compensate ratepayers. Some California officials criticized the settlement as inadequate.
The agreement, approved Thursday by FERC’s three commissioners, resolves the bulk of the allegations against Reliant stemming from the energy crisis of 2000 and 2001, when electricity and natural gas prices soared and blackouts swept California.
But Reliant and dozens of other electricity sellers remain on the hook for more than $3 billion in refunds for alleged electricity overcharges -- a figure that California officials contend should total closer to $9 billion.
“Today’s settlement should serve as a warning to all energy companies that attempts to manipulate energy markets will have consequences,” FERC Chairman Pat Wood III said. Wood said he expected other companies to settle as Reliant did to avoid the cost of continuing to fight charges of market manipulation.
Reliant did not admit to wrongdoing in accepting the settlement. But the Houston company, which replaced most of its top management in the last year, for the first time acknowledged that it must be held accountable for its behavior.
“Reliant must assume responsibility for its actions,” Chief Executive Joel Staff said. He added that the company has implemented new ethics policies and training.
“Resolving the issues related to California continues to be a major goal of Reliant,” Staff said. “We are committed to cooperating with those remaining agencies that are continuing to review the events of 2000 and 2001 in an effort to resolve any other outstanding issues.”
In January, Reliant reached another FERC settlement, in which it paid California $13.8 million for shutting down power plants on two days in June 2000 that denied the state much-needed energy and drove up prices.
The company in August agreed to pay $836,000 to settle allegations that it gamed electricity markets.
Reliant remains part of a Justice Department investigation into manipulation of California energy markets.
The latest settlement generated a mixed response from state officials.
“It sounds pretty good on the face of it, and $50 million is definitely not something to summarily thumb your nose at,” said Tom Dresslar, spokesman for Atty. Gen. Bill Lockyer. Even so, the settlement may not equal the profit Reliant reaped from questionable behavior in California, he said.
In evidence submitted to FERC in March by California as part of its quest for refunds, Reliant is frequently accused of reporting phony plant problems to the state grid operator.
In a sample 30-day period, Reliant units accounted for seven of 14 questionable plant outages, according to state documents.
Steven Maviglio, press secretary to Gov. Gray Davis, called the settlement “chump change” representing “pennies on the dollar of stolen profits.”
“What incentive is there for generators to play by the rules if they can get away with this?” Maviglio said in a statement.
Sen. Barbara Boxer (D-Calif.) expressed dismay at the settlement, saying, “This woefully inadequate settlement diminishes the seriousness of that crime.”
FERC member William L. Massey said he voted for the settlement reluctantly because he believed the commission should have used a broader measuring stick to determine whether power prices were too high. In addition, Massey and Wood said they regretted that the commission’s penalty authority was limited to ordering only disgorgement of profits.
Under Thursday’s settlement, Reliant will make an immediate $15-million payment to a special Treasury Department fund, with $5-million checks to follow in 2005 and 2006.
The agreement also obligates Reliant to auction 824 megawatts of generating capacity from its California plants at low rates, putting up to $25 million worth of proceeds from the sales over the next three years into the settlement fund to compensate ratepayers.
FERC said it would decide later how to disburse the money from the fund.
The settlement frees Reliant from accusations that it shut down some power plants or offered some electricity at prices so high they were sure to be rejected, thereby driving up the profit from the electricity it did sell into the market.
The agreement also resolves a FERC investigation into whether Reliant and a subsidiary of London-based oil giant BP manipulated Southwestern electricity prices through bogus trades in April 2000. BP separately settled for $3 million in July.
Reliant agreed to allow close monitoring of its power sales in Western markets for the next year. FERC could have stripped the company of its ability to sell power into the markets.
In addition, FERC cleared Reliant of accusations that one of its natural gas traders, working out of her Long Beach oceanfront apartment, improperly drove up prices by the rapid-fire buying and selling of gas.
The agency said the trader did not violate any market rules and had no intent to manipulate the market. Instead, FERC said, the trader simply was attempting to get the lowest prices possible for the firm’s gas supply.
