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Reliant Energy Agrees to $460M Settlement to Resolve Western Energy Crisis Claims

FERC last Monday announced that a settlement was brokered with Reliant Energy to resolve claims stemming from its role in the 2000-2001 energy crisis on the West Coast.

The agreement requires Houston-based Reliant Energy to pay out $460 million to settle FERC and class-action court proceedings involving Reliant's questionable activities during the western energy crisis. It does not resolve criminal matters pending before the federal court system in California. The payout would be in addition to the nearly $65 million the company paid in prior settlements in 2003.

In addition to the $460 million cash payment, the agreement calls for Reliant Energy to allow an independent audit of outages for a year following FERC approval of the pact, and to continue its "must offer" obligations under provisions of a 2003 settlement for an additional two years.

Parties to the settlement include FERC enforcement staff, California, Washington State and Oregon attorneys general, the California Electricity Oversight Board, Southern California Edison, Pacific Gas and Electric and San Diego Gas & Electric.

Under the terms of the agreement, parties will forego all claims to monetary damages for Reliant Energy's sale of electricity from January 2000 through June 2001, according to FERC. The settlement is expected to be filed in September, and must be approved by the Federal Energy Regulatory Commission, the California Public Utilities Commission and the courts where class-action cases are pending. All approvals are expected by the end of the year, parties said.

In February 2003, FERC ordered Reliant to pay $13.8 million for withholding electricity from California to affect prices on two days in June 2000. Later that same year, FERC approved a $50 million settlement with Reliant Energy Services Inc. and its five California-based merchant electric generation facilities to resolve allegations of price manipulation.

The latest settlement comes on the heels of the $1.52 billion settlement reached with Enron Corp. last month to resolve market manipulation and price-gouging claims stemming from the sale of electricity and natural gas during the western energy crisis.

FERC Chairman Joseph Kelliher said the Reliant settlement, if approved by the agency, would bring the total dollar amount of settlements relating to the western energy crisis to $6.3 billion. "The Commission aims to speed resolution of the refund proceeding and other administrative matters still pending from the 2000-2001 energy crisis...Settlements promise to end the regulatory uncertainty remaining from the 2000-2001 crisis, which is serving as a disincentive for the investment in power plants and transmission lines needed to prevent the next crisis."

California officials Monday touted the latest refund settlement. Both the governor and state attorney general in California issued statements, with Attorney General Bill Lockyer saying that the latest deal resolves all outstanding 2000-2001 energy crisis-related claims with the five major out-of-state energy suppliers that provided energy to California during the 2000-2001 crisis. In addition to Reliant, the suppliers include Dynegy, Mirant Corp., Williams and Duke Energy.

Reliant Energy CEO Joel Staff called the settlement "a critical step forward in resolving a number of issues arising from the California energy crisis." California Gov. Arnold Schwarzenegger said the deal was "great news" for California whose citizens "deserve affordable and reliable energy supplies."

Schwarzenegger placed a $460 million value on the settlement, while Reliant put the value at around $445 million, saying that it included a cash payment of $150 million. Another part of the deal's total value is an estimated $299.5 million write-off of unpaid bills owed to the Houston-based energy supplier by the California utilities, said AG Lockyer, who characterized Reliant as "one of the Four Horsemen of the Apocalypse who rode in from Texas and ran roughshod over California consumers, taxpayers and businesses."

Included in the agreement, according to Reliant, are six major areas of resolution:

"Over the last four years, we have worked diligently to operate our plants to help serve the citizens of California," Reliant Energy said. "With these issues and the uncertainty they created behind us, we look forward to continuing to play a constructive role in helping to meet the state of California's future energy needs."

This marks the third major settlement California has announced this year, including the $1.5 billion deal with Enron in July and a $750 million settlement with Mirant Corp. last January. Schwarzenegger said that since the beginning of 2004, the state has negotiated more than $3.2 billion in settlements with "various energy companies who reaped unjust profits during 2000 and 2001."

Including prior settlements related to allegations that Reliant gamed the California energy markets, the company has paid more than $524 million for its alleged energy market misconduct and overcharges, Schwarzenegger said in a prepared statement.

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