RRI,
Jim_P,thoughts on this report:
TIA,
=DJ Reliant Criminal Charge Would Be A First, Maybe A Last
--------------------------------------------------------------------------------
Thu Mar 11 13:58:14 2004 EST
By Jessica Berthold
Of DOW JONES NEWSWIRES
LOS ANGELES (Dow Jones)--If federal prosecutors bring charges as expected
against a unit of Reliant Resources Inc. (RRI) for withholding electricity to
drive up prices in California, it will be the first time a company has been
tried for what many observers believe went on during the state's power crisis.
Legal experts are of two minds whether it will be the last.
Reliant said this week it believes the U.S. Department of Justice plans to
file criminal charges against trading unit Reliant Energy Services as well as
four current and former traders for withholding electricity in an effort to
manipulate prices.
Federal prosecutors may be starting with their strongest case and hoping it
paves the way for indictments of other companies, legal experts said in
interviews this week. Reliant was an easy first choice, because transcripts of
conversations between its traders are particularly damning.
Stephen Ryan, an attorney with Manatt Phelps & Phillips in Washington, D.C.,
who specializes in energy and white collar crime, said it's a common strategy
among prosecutors to try to leverage their strongest case to bring additional
charges in the future.
"It makes sense to think the company wasn't acting in a vacuum," Ryan said.
"It also makes sense to start with one company and move out from there. It's a
logical and standard technique with this kind of investigation."
It could also be, however, that Reliant is the only company against which
federal prosecutors feel they have enough evidence to win the case, Ryan and
others said.
Generators deny that they created California's power shortage, which federal
energy regulators say was genuine. While a handful of traders have faced
charges for a variety of misbehaviors, no person or company has been charged
for withholding power.
Two Days Of Shutdowns
At issue is a decision by Reliant employees to shut down power plants in an
effort to move power prices higher on two days in June 2000. Telephone
transcripts released last year, when Reliant paid $13.8 million to settle
charges brought by the Federal Energy Regulatory Commission over the event,
show exultant Reliant traders and operators discussing how they withheld power
from the market.
"We decided that the prices were too low on the daily market, so we shut down
everything except Ormond," a plant operator said. Ormond Beach Generating
Station is owned and operated by Reliant.
Federal prosecutors said they'll indict two current and two former traders at
Reliant Energy Services, the power marketing and fuel purchasing arm of Reliant
Resources, Reliant spokeswoman Pat Hammond said. The two current employees have
been on administrative leave since last year, she said.
Federal prosecutors won't discuss their plans for Reliant, so the potential
charges aren't known. Lawyers guess, however, that they will likely involve
antitrust issues or wire fraud and conspiracy.
"They could make a case that if the employees lied about why the company
didn't run plants, that is fraud," an energy lawyer following the issue said.
"There also could be criminal antitrust violations. Withholding for purposes of
abusing market power sounds vaguely like antitrust, which can carry criminal
sanctions."
The Sherman Antitrust Act forbids the deliberate manipulation of prices in
interstate commerce, Schwab Capital Markets analyst Christine Tezak wrote in a
research note Wednesday.
The criminal charges against Reliant are likely to be the same as those
against the company's employees, Ryan said. To win their case, prosecutors will
need to show the employees' actions were within the scope of their job
responsibilities - which won't be hard to do, several lawyers agreed.
"You'd have to show the action wasn't the rogue act of a single trader....but
that the trader was acting in an employment capacity, as part of a corporation
doing business," Ryan said. "That's easy to prove."
Ryan has no ties to Reliant, but is representing Nevada utility Sierra
Pacific Resources (SRP) in a case at FERC against Enron that relates to the
Western power crisis.
Market Rules Not Violated
Reliant, which brought the instances of withholding to FERC's attention
itself, believes it didn't violate any laws or market rules in effect at that
time, Hammond said. The California Independent System Operator, the state's
power market and grid operator, investigated the shutdowns and found Reliant
didn't violate any market rules in place at the time, ISO spokesman Gregg
Fishman said.
"I can't speak to whether what they did goes to antitrust or other criminal
violations, but at the time there was nothing in our market rules saying they
weren't supposed to be doing that," Fishman said.
Reliant is one of five generators accused by California officials of causing
blackouts and driving up wholesale power prices during the energy crisis. The
others, which bought plants from California's utilities as part of a 1998
deregulation law, are Mirant Corp. (MIR), Dynegy Inc.(DYN), Duke Energy Corp.
(DUK) and Williams Cos. (WMB).
Williams has settled with FERC over charges it shut down a power plant to
sell more expensive power to the state's grid operator from another plant
instead.
Wider abuses involving specific plants haven't been proven. Last year, FERC
staff found no evidence to support California regulators' claims that most of
the state's crisis-era power outages could have been avoided if generators had
produced all available power.
The commission is still investigating whether generators withheld power to
drive up prices. Reliant and Duke have already settled the issue of physical
withholding with FERC, spokesman Bryan Lee said.
California Attorney General Bill Lockyer has a civil antitrust case pending
against Reliant and Mirant, alleging they used market power to drive up prices.
The suit, currently in a federal appellate court, seeks damages and divestiture
of some assets, said Lockyer spokesman Tom Dresslar.
If Reliant were to be found guilty of a crime, it would face fines and could
lose government contracting privileges. Those punishments, however, would the
least of its worries, an energy lawyer familiar with the case said.
"The real bite for a company like Reliant, that's been through tough
sledding, is that it's another blow to their corporate image and reputation,"
the lawyer said. "In the end, that costs the company much more than any fine."
-By Jessica Berthold, Dow Jones Newswires; 323-658-3872;
jessica.berthold@dowjones.com
(END) Dow Jones Newswires
03-11-04 1358ET
13:58 031104 |
