Reliant Says Indictment Expected

Associated Press | March 8, 2004

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HOUSTON (AP) -- Federal prosecutors plan to indict a unit of Reliant Resources Inc. and four current and former workers in what would be the first criminal case against a company accused of manipulating power prices during California's energy crisis, the company said Monday.

Reliant said the U.S. Attorney's Office in the Northern District of California in San Francisco notified the company Friday of its intention to seek the indictments. The charges are based on allegations that the subsidiary, Reliant Energy Services, manipulated the prices for two days in June 2000 by curtailing Reliant's electricity generation.

The subsidiary is responsible for buying fuel for and marketing power produced by its electric generation facilities. Houston-based Reliant "intends to vigorously contest any charges," the company said.

Patrick Robbins, head of the securities fraud unit at the U.S. Attorney's Office in San Francisco, declined comment Monday on possible indictments.

Reliant spokeswoman Pat Hammond said the two current employees targeted in the probe have been on administrative leave for several months. None of the workers, who were not identified, are Reliant officers, the company said.

Reliant said the criminal investigation targets the same actions that led to a settlement with the Federal Energy Regulatory Commission in January 2003. In that deal, Reliant neither admitted nor denied wrongdoing and agreed to return $13.8 million it made by shutting down power plants over two days in June 2000.

Transcripts released by FERC of phone conversations between Reliant and power traders and plant operators showed the shutdowns were done to manipulate prices.

"Tomorrow we will have all the units at Coolwater off," one operations manager told a plant operator on June 20, 2000. "More due to some market manipulation attempts on our part."

The plant operator responded: "Trying to shorten the supply, uh? That way the price on demand goes up."

In another conversation, a Reliant trader told an unidentified employee that a senior company executive thought the shutdowns were "the coolest strategy ever" and enabled the company to make up for trading losses incurred earlier in the week.

"It's about time," said Peter Navarro, associate professor at the University of California at Irvine's Graduate School of Management, upon hearing of pending indictments. "If you want deregulation to work, and you want a market to be efficient, you can't have people go into the markets thinking it's the Wild West and anything goes."

Three former Enron Corp. traders have been charged with wire fraud related to price manipulation in California. Of those, two pleaded guilty, and a third, John Forney, is awaiting trial in October.

Reliant is among a string of energy companies that have settled allegations of so-called "round-trip" trades with the Commodity Futures Trading Commission and the Securities and Exchange Commission. So far no companies have faced criminal charges related to price manipulation or illegal trading practices.

Round-trip trades involve simultaneous energy swaps recorded as trades to increase volume, and in some cases revenue, without bringing in cash. Reliant settled such allegations with the CFTC in November last year for $18 million, and settled a similar SEC investigation in May 2003 without paying a fine. In both cases, Reliant neither admitted nor denied wrongdoing.

Copyright 2004 Associated Press, All rights reserved

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ping

[Spruce]

If CA built a power-plant or two they'd be paying the same as me for electricity. Parasites.