With an informal inquiry under way by the Securities and Exchange Commission (SEC), Reliant Resources Inc. CEO Steve Letbetter revealed last week that the company suspended an employee in its accounting department and another employee in the risk management division who apparently were involved in the company’s earnings restatement, first announced in February. Reliant Resources said earlier this month that the SEC had launched in informal inquiry, but the CEO said he was unaware of any outstanding issues.

Letbetter, speaking at the Howard Weil Energy Conference in New Orleans, told reporters he was planning to meet with SEC officials soon, but said he did not think the SEC inquiry was related to the second and third quarter 2001 earnings restatements. The SEC, he said, has already approved those restatements, which were released in late March in a 10-K filing with the SEC (see NGI, April 1).

In early February, Reliant Resources announced it would increase earnings for the second and third quarters of 2001 by $100-$130 million — profit it was originally going to record in 2002 and 2003 (see Power Market Today, Feb. 6). The earnings restatement reclassified purchases and sales of natural gas and electricity, originally accounted for as “cash flow hedges.” Instead, Reliant Resources discovered that the transactions did not meet all criteria for hedge accounting set out in the applicable rule on accounting for derivatives and hedging.

The discovery was made by Reliant Resources’ accounting department and brought to the attention of its outside auditors, outside counsel and the audit committees of its board and the board of Reliant Energy Inc., which is the 82% shareholder.

At the energy conference, Letbetter also noted that while the first two months of 2002 have not been “great” for market prices, the company is “still comfortable” it can meet its 2002 earnings forecast if normal market conditions continue through the rest of the year. Analysts with Thomson Financial/First Call expect Reliant Resources to earn on average $1.18 per share in 2002, down from $2.07 in 2001. Letbetter said he expects the company to achieve a 12-15% compound annual growth rate off of its 2002 earnings.

Reliant Energy and Reliant Resources expect to file their 10-Ks related to the annual reports for 2001 with the SEC on April 15.

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