Joe Bob Perkins, COO and president of Reliant Energy Inc.’s wholesale group and group president of the wholesale businesses for Reliant Resources, as well as Shahid J. Malik, president of Reliant Energy Services, both resigned Thursday. Their news was followed in the afternoon by CMS Energy Corp., also caught up in the energy trading melee, which reported that Tamela W. Pallas, president and CEO of the company’s energy market unit, also has resigned.

Perkins, well known throughout the energy community, also was a member of the office of the CEO for Reliant. In a written statement, Steve Letbetter, chairman of Reliant Energy and Reliant Resources, said Perkins and Malik had resigned to “pursue other interests.”

Perkins was named president and COO of Reliant Energy Wholesale Group when it was formed in October 1998 to consolidate Reliant Energy’s power generation, natural gas transportation and wholesale energy trading and marketing capabilities. Previously, he was president and COO of the Reliant Power Generation Group with responsibility for all domestic power generation activities and assets. He joined Reliant Energy in June 1996 as vice president of corporate planning and development, where he helped to lead the acquisition of NorAm Energy Corp.

Perkins assumed responsibility for the acquisition, development and commercialization of unregulated generating assets in the United States and Canada in January 1998, when he became president of the unregulated power generation subsidiary. Prior to joining Reliant, Perkins had worked at Coral Energy Resources LP, Shell Oil Co. and Tejas Gas Corp.

Malik was in charge of Reliant Energy Services’ risk management, marketing and trading arm for Reliant Energy. He was responsible for Reliant Energy’s gas trading and marketing operations, financial gas trading, bandwidth marketing and trading, power and other commodity trading, as well as research and trading support. Malik also was responsible for the commercialization of Reliant’s unregulated generation assets.

Letbetter named Stephen W. Naeve, formerly executive vice president and CFO, as president and COO of Reliant Resources. Naeve has been with the company for almost 30 years, beginning his career with Houston Lighting & Power Co. in 1972. He moved to the corporate office in 1993 and was named CFO in 1996. He has been executive vice president and CFO of Reliant Resources since its formation.

Naeve will assume overall responsibility for the operations of Reliant Resources and will be directly responsible for the company’s wholesale group activities. The company will conduct an external search for a new CFO. In the interim, Rex Clevenger, Reliant Resources’ senior vice president of finance, will assume those duties.

Pallas had headed CMS Marketing, Services and Trading Co. (CMS-MST) since November 1999, and “was responsible for the organization during the period in which the recently publicized ’round trip’ electricity trading activity occurred,” the company said in a written statement.

Pallas “expressed regret over the controversy that has resulted from this trading activity, and her belief that it was in the best interest of CMS Energy for her to step down,” according to the company. CMS on Wednesday said a preliminary internal review indicated that CMS-MST entered into round-trip electricity trades between May 2000 through mid-January 2002 that represented $4.4 billion of revenue and expense in that period. The internal review found that these trades included 79.3 MM MWh in 2001 and 29.6 MM MWh in 2000. With these trades subtracted, electric trading volumes totaled 31 MM MWh in 2001, and 8.3 MM MWh in 2000.

“These round trip trades are not consistent with the company’s values and high standards of integrity,” said CMS Energy Chairman William T. McCormick Jr. “The company is committed to ensuring that such practices are never repeated.”

CMS said it ceased doing these types of trades in January 2002. After the third quarter of 2001, the company changed its accounting treatment so that these trades were no longer included in 2001 revenue and expense.

David B. Geyer, vice president and chief risk officer of CMS Enterprises, has been named interim president of CMS-MST. “David is a very capable and experienced manager who I am confident will provide solid leadership for CMS-MST,” said McCormick.

Also on Thursday, Moody’s Investor Services revised the ratings outlook for CMS to “stable” from “positive,” with a credit rating on its senior unsecured notes at Ba3. The revision, said Moody’s, affects $15 billion worth of debt, and was predicated by the CMS-MST news.

“While the contribution from CMS-MST to CMS Energy’s operating net income is expected to be less than 15% in 2002, event risks associated with an ongoing Securities and Exchange Commission investigation and the increased risk associated with potential litigation make it highly improbable that an upgrade in the company’s rating will occur in light of these current circumstances,” Moody’s said. “It is Moody’s intention to reevaluate the company’s rating outlook when the current situation clarifies itself.”

U.S. Commodities Futures Trading Commission Chairman James Newsome told reporters on Thursday that his staff has stepped up an investigation of the energy trading practices of several companies, including CMS, after allegations surfaced of manipulative trading practices. “We’re looking at all allegations, ” Newsome said.

Also on Thursday, Reliant Resources and Reliant Energy told the Securities and Exchange Commission that they will be delayed in filing their 10-Q quarterly earnings statements for the first quarter until Monday (May 20) so that they can review the trades conducted by the wholesale and marketing business, as well as review Reliant Resources’ accounting practices.

At least two lawsuits alleging artificial price inflation have been filed against Reliant Resources this week. The lawsuits claim that Reliant Resources issued false and misleading information regarding quarterly and annual financial performance. Specifically, the lawsuits allege that Reliant Resources’ stated and represented revenue in 1999 and 2000 materially was overstated because 10% of such revenue represented purchases and sales with the same counterparty at the same price. The lawsuits also claim the company improperly accounted for certain transactions in its conventional accrual accounts as cash-flow hedges.

Reliant Resources’ shares have lost almost half of their value in less than a month, closing down Wednesday at $7.73, a 52-week low. Reaction to the resignations and SEC news was tepid, with the stock falling a little more than 4% to close down at $7.39 Thursday.

Last Friday Reliant Resources cancelled a $500 million bond offering after news leaked that it had engaged in round-trip trading transactions, similar to those reported last week between CMS Energy and Dynegy. On Monday, Reliant Resources admitted that an average of 10% of its energy trading revenues over the past three years came from so called “round trip” transactions, in which an amount of power or gas is sold to a counterparty and then repurchased at the same price for no net profit or loss.

Reliant said the transactions were designed purely for boosting trading volume to make it look like a larger market player than it actually was. The company said it fired the two employees who orchestrated the “round-trip” deals, most of which were done with counterparty CMS Energy. Letbetter said Reliant had 33 million MWh in round-trip trades in 1999, 31 million MWh in 2000, and 78 million MWh of power and 45 Bcf of gas round-trip trades in 2001. He said 20% of all trading volumes in 2001 were from these types of transactions (see Daily GPI, May 14).

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