Reliant faces criminal charge

Tuesday, March 9, 2004 | 10:58 a.m.

SUN STAFF AND WIRE REPORTS

HOUSTON -- 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 Houston-based 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.

In October, federal regulators approved a $50 million settlement with Reliant over allegations that the energy trader and producer manipulated Western markets in 2000 by withholding power to drive up prices.

Nevada Power Co. of Las Vegas has contested contracts with Reliant and eight other energy providers, claiming the deals were inflated by market manipulation during the Western energy crisis. The Federal Energy Regulatory Commission has so far upheld those contracts, despite findings of manipulation.

Nevada Consumer Advocate Tim Hay said market manipulation in California drove up prices in Nevada.

"The escalation of prices caused a ripple effect throughout the West," he said.

The subsidiary is responsible for buying fuel for and marketing power produced by its electric generation facilities. 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's 550-megawatt Bighorn power plant near Primm, south of Las Vegas, went into service last month.

Shares of Reliant, which produces power in 12 U.S. states besides Nevada, today fell on news of the expected indictment.

The shares fell 37 cents, or 4.6 percent, to $7.68 at 11:17 a.m. in New York Stock Exchange composite trading. A close at that price would mark the biggest drop for Houston-based Reliant since Feb. 17.

The announcement may portend a slew of class-action lawsuits, an analyst said.

"The direct liability from this is not that great," said Craig Shere, an analyst at Standard & Poor's Equity Research Services who rates Reliant shares at "buy" and doesn't own any. "My only concern is if a court found them guilty, would that expose them to civil suits that could be large?"

Reliant also may face civil or criminal charges by the U.S. Attorney's Office in Houston, according to a public filing Tuesday. Prosecutors there have been investigating whether the company reported bogus natural-gas trades to industry newsletters in an attempt to manipulate prices, Reliant said.