Reliant derivatives probe may hit core business

Public Citizen, the Washington, DC-based pressure group, has called for the debarment of Reliant Energy from its newly awarded $35.9 million electricity contract by the US Department of Defense - and any new government contracts - while it is under federal indictment for its role in creating the California energy crisis.

Reliant has just been designated as the sole electricity provider to several military installations, including Andrews Air Force base in Maryland and Walter Reed Army Medical Center in Washington, DC.

In April 2004, the US Department of Justice (DoJ) obtained an indictment of Reliant for price-gouging California consumers during the energy crisis in 2000-2001. The company is accused of shutting down power plants to increase energy prices before the alleged 'electricity shortages' began. It is also accused of using so-called derivatives 'wash trades' to inflate the size of its trading book.

In addition to the criminal indictment, Reliant has agreed to pay $125 million thus far to government regulators to settle allegations that the company manipulated energy markets.

And, as Public Citizen notes, according to the Code of Federal Regulations, 48 CFR 9.406, government agencies "shall solicit offers from, award contracts to, and consent to subcontracts with responsible contractors only... Indictment ... constitutes adequate evidence for suspension [of any government contract]."

"Reliant Energy is neither a responsible nor ethical company," said Wenonah Hauter, director of Public Citizen's energy programme. "Federal tax dollars should not be awarded to companies that are under criminal indictment. It's particularly egregious that one government agency would award Reliant with a contract when just last month it was indicted by another government agency."

Precedent has been set for banning or suspending companies from new contracts when they are either under investigation or have been convicted of a federal crime, Public Citizen noted. Both Enron and Arthur Andersen were barred from federal contracts when they were indicted.

But Reliant said the Department of Defense contract will save taxpayers $11.7 million when compared with the regulated standard offer service. It adds that the entity that was awarded the contract was not in existence let alone implicated when the DoJ began investigating Reliant for allegations of market abuse.

Reliant Energy Solutions East was the entity awarded the DoD contract, but Reliant Energy Services was the business implicated in the investigations. "We intend to vigorously contest the [DoJ] allegations and an indictment is not tantamount to guilt," said Reliant spokeswoman Pat Hammond.

Reliant also this month won a Baltimore Metropolitan Council contract to supply 134 megawatts of electricity to 23 Maryland government entities including the city of Baltimore.

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