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Government Knew of Indictment But Awarded Contract Anyway

July 6, 2004

Government Knew of Indictment But Awarded Contract Anyway

Reliant Energy Solutions East, Which Got $35.9 Million Contract, and Reliant Energy Services, Indicted for Role in CaliforniaEnergy Crisis, Are Subsidiaries of Larger Company

WASHINGTON, D.C. – Government officials knew that Reliant Energy Services was under indictment when they awarded a related Reliant company a $35.9 million contract, they admitted in a recent letter to Public Citizen. But they rationalized the award by falsely claiming that the two subsidiaries are geographically separate entities and that the actions of one cannot be attributed to the other.

In truth, Reliant Energy Services – the indicted subsidiary – and Reliant Energy Solutions East, which got the contract, are owned by the same parent company (Reliant Energy) and share top officers. They do business with each other and are controlled by Reliant Energy, Public Citizen said in a reply letter sent today detailing the close relationship between the two companies.

The government claimed that Reliant Energy Services operates in the West and that Reliant Energy Solutions East operates on the East Coast, and concluded the two were separate. However, Reliant Services conducts most of its operations on the East Coast and sells large quantities of electricity to its East Coast sister company, Public Citizen said in its letter.

“All available data contradict the government’s explanation for awarding a contract to people who are at the helm of an indicted company,” said Public Citizen President Joan Claybrook. “These subsidiaries are like peas in a pod. The government should review the contract and begin debarment procedures immediately.”

On April 8, Reliant Energy Services was charged with conspiracy to commit wire fraud and manipulation of the price of electricity. Additionally, Reliant Energy Services agreed to pay $125 million to government authorities in fines, settlements and refunds for intentionally shutting down power plants to create blackouts that drove up profits. On May 19, the Department of Defense awarded the contract to the Reliant Energy Solutions East.

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

Public Citizen called on the government to debar Reliant Energy Solutions East from this and future contracts. To read the government’s letter to Public Citizen, click here. To read Public Citizen’s reply letter, click here.