Federal regulators yesterday assessed a $13.8 million penalty on Reliant Resources Inc. after the Houston company admitted it had secretly cut back electricity production in California in June 2000 to tighten supplies and push up power prices.
In a transcribed recorded conversation from June 20, 2000, given to regulators by the company after its own internal investigation, a Reliant plant operator and a trader, both unidentified, congratulate each other on the maneuver.
"Trying to shorten the supply, uh?" the operator said. "That way the price on demand goes up . . . That's cool."
In a conversation the next day, a trader noted that all but one of the company's four California plants had been shut down. "We pulled about 2,000 megs [megawatts of power] off the market."
"That's sweet," a manager replied. "Isn't that fun when you can do things like that now."
The actions by Reliant, which purchased five California power plants in 1998, occurred on just two days, at the start of the state's year-long energy crisis. One employee said the maneuver boosted profit by $5 million.
The evidence buttresses allegations by California officials and utility executives that the withholding of power was a crucial factor in the shortages that caused rolling blackouts and sent electricity prices soaring in the state.
The Federal Energy Regulatory Commission, which imposed the penalty on Reliant, intends to wrap up its investigation of the California crisis in March and is expected to rule then on California's demands for nearly $10 billion in refunds because of alleged overcharging. Reliant's $13.8 million payment will go to the state's consumers immediately, FERC said.
In the transcripts released yesterday, Reliant employees appear to be discussing how cutting back on power sales to California would drive up prices on contracts for future deliveries and boost the value of existing contracts on the company's books.
One trader said Reliant would have to take steps to avoid being "puked out" of the market. In another conversation, a trader said the strategy would not have worked unless "everybody in the whole group bought into it wholeheartedly."
FERC Commissioner Nora Mead Brownell called the company's actions "a very egregious abuse of public trust."
"I am totally appalled that people in the marketplace, particularly people entrusted with such a life-important commodity as electricity, would be so irresponsible," Brownell said.
FERC Commissioner William Massey supported the action against Reliant with reservations, saying he would have preferred to act when a full investigation of Reliant's actions in California was concluded. "This order slices off two days of misbehavior by a single company and compensates customers accordingly," he said.
FERC said a Reliant vice president who directed the action is no longer with the company. Neither Reliant nor FERC identified the person.
Reliant is cooperating with FERC's investigation and considered the action an "isolated situation," said spokesman Richard Wheatley. "In terms of our own internal review, it is completed."