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Reliant unit indicted in power case

Company is accused of manipulating prices during California crisis

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SAN FRANCISCO — A Reliant Resources Inc. power-trading unit and four employees were indicted Thursday in the first criminal case lodged against a company accused of manipulating power prices during California's energy crisis.

A federal grand jury indicted Reliant Energy Services Inc., its former vice president, a director, manager and trader in an alleged scheme to illegally increase electricity costs while creating a "false and misleading appearance of an electricity supply shortage."

The company is accused of shutting down four of its five generating stations, withholding power from the market and purchasing electricity instead of producing it to meet quotas.

The indictments, unsealed Thursday, said the company disseminated false and misleading rumors to brokers about the maintenance status of power plants and the availability of power for three summer months in 2000 at the time of rolling blackouts in California.

Artificially high spot-market power prices were the result of "defendants' conspiracy, scheme to defraud and manipulation," the indictment said.

Once those prices were inflated, the indictment says Reliant Energy Services then sold power at the higher prices, costing electricity purchasers some $32 million in overpayments.

In a statement, Mike Jines, Reliant's general counsel, said the charges were unfounded and that the company did nothing wrong. "We intend to contest these charges vigorously," he said.

Reliant's shares lost 23 cents to close at $8.46 Thursday on the New York Stock Exchange.

Last month, Houston-based Reliant announced to shareholders that it expected an indictment against the subsidiary. The subsidiary is responsible for buying fuel for and marketing power produced by its electric generation facilities.

Reliant Energy Services could face millions of dollars in fines on counts of wire fraud, conspiracy and commodity manipulation.

Conspiracy, wire fraud and commodities manipulation charges were also brought against Jackie Thomas, 49, a former vice president of Reliant's power trading division; Reggie Howard, 37, a former director of the west power trading division; Lisa Flowers, 37, a term trader; and Kevin Frankeny, 42, manager of Western operations. All live in Texas.

They are scheduled to surrender today Friday in San Francisco and to appear before Magistrate Judge James Larson.

Calls to their attorneys were not immediately returned.

Reliant said last month 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.

The six-count indictment stems from allegations that the unit illegally manipulated prices by shutting down the power plants during a two-day period.

The price of electricity rose through the remainder of the week after that action, according to the indictment. Artificially inflated spot prices were then posted for market participants throughout California, including Pacific Gas & Electric Co. in San Francisco.

The indictment says Reliant Energy then sold power at the higher prices, intending to reverse its losing financial position due to previously low electricity prices.

"The vast majority of corporate executives are honest, hardworking people," Attorney General John Ashcroft said at a news conference in Washington. "But when a company conducts itself in the manner Reliant Energy Services is alleged to have acted here, it will face severe consequences."