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Feds indict firm in California energy crisis

/ Source: The Associated Press

A subsidiary of Reliant Resources Inc. and four of its employees were indicted Thursday on charges of driving up prices during the 2000-2001 California energy crisis. It's the first company to face criminal charges in the case.

The six-count indictment returned by a federal grand jury in San Francisco and released by the Justice Department in Washington stems from allegations that the unit of Houston-based Reliant, Reliant Energy Services Inc., illegally manipulated prices during June 2000 by shutting down four of its five power plants during a two-day period to create a phony shortage.

The price of electricity rose through the remainder of the week after that action, according to the indictment. Artificially inflated spot prices were then posted for market participants throughout California, including Pacific Gas & Electric Co. in San Francisco.

Once those prices were inflated, the indictment says Reliant Energy Services then sold power at the higher prices, costing electricity purchasers some $32 million in overpayments. The indictment says the intent was to reverse Reliant's losing financial position due to previously low electricity prices.

"The vast majority of corporate executives are honest, hardworking people," Attorney General John Ashcroft said. "But when a company conducts itself in the manner Reliant Energy Services is alleged to have acted here, it will face severe consequences."

Reliant Energy Services is charged with wire fraud and conspiracy and could face millions of dollars in fines on counts of wire fraud, conspiracy and commodity manipulation.

Conspiracy, wire fraud and commodities manipulation charges were also brought against Jackie Thomas, 49, a former vice president of Reliant's power trading division; Reggie Howard, 37, a former director of the west power trading division; Lisa Flowers, 37, a term trader; and Kevin Frankeny, 42, manager of western operations. All live in Texas.

Reliant previously agreed to return the $13.8 million it made by cutting back the energy production and paid an $836,000 fine to settle Federal Energy Regulatory Commission charges of abuse during the crisis in 2000 and 2001, when the state was hit with a series of rolling blackouts and energy prices skyrocketed.

Reliant Resources, a leading U.S. power producer and marketer, reported a third-quarter loss of $916 million last fall in part because of a previous settlement regarding energy market manipulation in 2000.

Several other energy companies have paid fines stemming from the energy crisis. Three former Enron Corp. traders have been charged with wire fraud related to price manipulation in California. Two of them have pleaded guilty and a third awaits trial in October.