The San Diego Union-Tribune
In the first criminal action against a company accused of market rigging during the California power crisis of 2000-2001, Reliant Resources and four former executives were indicted yesterday on charges of shutting down power plants to drive up prices.
A federal grand jury in San Francisco charged the company and former officials with conspiracy to commit wire fraud and manipulate energy prices, U.S. Attorney General John Ashcroft said yesterday in Washington, D.C.
“A thriving free market depends on a marketplace of integrity, a marketplace that is transparent,” Ashcroft said. “When the market is manipulated, trust is abused and the corrupt profit at the expense of the law-abiding.”
Reliant denied the allegations, saying it was “not in violation of any laws, tariffs or regulations in effect at the time.” The company said it would contest the charges.
In yesterday’s indictment, the Justice Department said defendants “created the false and misleading appearance of an electricity supply shortage to the market and its participants for the purpose of artificially inflating” electricity prices in California.
Reliant paid $13.8 million last year to settle similar charges brought by the Federal Energy Regulatory Commission, or FERC.
FERC said the Houston-based company idled power plants on two days in June
2000 to withhold 1,000 megawatts of electricity from California’s wholesale electricity market and drive up prices.
The commission released transcripts of telephone conversations in 2000 by Reliant traders discussing a successful attempt to manipulate prices as “exciting,” “cool” and “fu-un!”
The company’s five plants in California have a combined 3,800 megawatts of capacity, or about 9 percent of the state’s total.
The maximum penalty for the commodities manipulation charge is $1 million or twice the profit made, whichever is greater.
The maximum penalty for the wire fraud charges is $500,000 or twice the profits made, whichever is greater.
The state electricity crisis struck first in San Diego during June 2000, when San Diego Gas & Electric became the first — and as things turned out, the only — utility to charge customers unregulated rates.
Prices doubled, then tripled and sparked a local consumer revolt before the Legislature intervened to restore limits on consumer payments for power.
But suppliers continued to charge record prices for electricity, and the situation worsened in the winter of 2001, when supplies fell short and rolling blackouts followed.
At the time, suppliers said power shortages were caused by breakdowns, aging plants and simple lack of supply.
But consumer advocates and growing numbers of elected officials said the suppliers were rigging the market by withholding supplies, as well as through complex bidding and power-scheduling schemes.
Other companies?
Yesterday’s Reliant indictments brought a measure of vindication, consumer advocates said, but added that more companies need to be charged.
“Reliant was among a group of large energy companies that robbed California blind during deregulation, so this should only be the beginning of indictments,” said Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
He and others said justice for consumers would be incomplete without refunds for overcharges.
“If the Bush administration wants justice for California’s consumers, they should order comprehensive refunds and that is what they have been unwilling to do,” said Matt Freedman, staff attorney for The Utility Reform Network in San Francisco.
California has a request for about $9 billion in refunds for overcharges pending at FERC, which has so far approved about $100 million in payments, as well as overseen a $1.4 billion settlement with Williams Cos., another major power supplier accused of market manipulation.
In addition to the Reliant company, yesterday’s indictments charged Jackie R. Thomas, 49, former vice president of power trading; V. Reginald Howard, 37, former director of the west power trading division; Lisa L. Flowers, 37, a former trader; and J. Kevin Frankeny, 42, former manager of Western operations. All are from Texas.
15 lawsuits
Reliant is also a defendant in 15 class-action lawsuits filed by holders of securities issued by Reliant and its former parent, CenterPoint Energy.
San Diego attorney Michael Aguirre, who filed one of the first civil suits against a host of suppliers, said convictions on the charges of withholding electricity would strengthen efforts to get restitution for consumers.
He noted that state power grid officials have long documented the withholding of power to drive up prices during the crisis.
“These were pervasive practices and the indictment tears at the core of power companies’ defense that they never did anything like this,” Aguirre said. “The amount of money stolen by power companies could wipe out the California budget deficit.”
California Gov. Arnold Schwarzenegger “welcomes any federal prosecution that brings to justice individuals or corporations that preyed upon California consumers,” press secretary Margita Thompson said.
State investigators also have sought to show that Reliant, Duke Energy, Dynegy and other power suppliers manipulated prices in California by withholding electricity.
Although Reliant is the first corporation to face criminal charges in the California power crisis, three former Enron power traders are facing criminal charges. Two have pleaded guilty and a third is awaiting trial, scheduled to begin in October.
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Craig Rose: (619) 293-1814; mailto:[email protected]
