Public Citizen Calls for Debarment of Reliant Energy from Federal Contracts Due to Company’s Indictment for Role in California Energy Crisis

May 26, 2004

Public Citizen Calls for Debarment of Reliant Energy from Federal Contracts Due to Company’s Indictment for Role in California Energy Crisis

Although Indicted, Reliant Has Snagged $35.9 Million Defense Contract; Corporations Shouldn’t Be Rewarded While Under Investigation for Criminal Activities, Group Says

WASHINGTON, DC – Public Citizen today called for the debarment of Reliant Energy from its newly awarded $35.9 million electricity contract by the U.S. Department of Defense (DOD) – and any new contracts – while it is under federal indictment for its role in creating the California energy crisis.  Tuesday’s contract announcement designated Reliant as the sole electricity provider to several military installations, including Andrews Air Force base in Maryland and Walter Reed Army Medical Center in Washington, D.C.

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].” In April 2004, the U.S. Department of Justice 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.

“Reliant Energy is neither a responsible nor ethical company,” said Wenonah Hauter, director of Public Citizen’s energy program.   “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.  Both Enron and Arthur Andersen were barred from federal contracts when they were indicted; in fact, Arthur Andersen was suspended from new contracts in March 2002, prior to its June 2002 jury conviction. Further, WorldCom was suspended for five months while under investigation for falsifying balance sheets to hide expenses and inflate earnings in 2003.

In the WorldCom case, the U.S. General Services Administration (GSA), which is responsible for managing building and services contracts for the government, noted that “suspension from government procurements is appropriate where adequate evidence shows that a company or person has committed misconduct related to business ethics and integrity, or other irregularities relevant to their present responsibility, and where a pending investigation or legal proceeding is examining those questionable activities.”

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:

– In July 2002, California regulators ordered Reliant to pay $42 million to settle allegations that the company manipulated the state’s energy market.

– In January 2003, Reliant agreed to pay $13.8 million to the Federal Energy Regulatory Commission (FERC) to settle allegations that the company withheld power from the California market.

– In October 2003, the company agreed to pay as much as $50 million to FERC to settle charges that Reliant engaged in economic withholding and physical withholding of generation, and attempts to manipulate prices at an electricity trading hub near the California border.

– In November 2003, Reliant agreed to pay $18 million to the Commodity Futures Trading Commission to settle charges of false reporting and attempted manipulation, as well as charges of illegal sales.

Reliant has contributed $539,900 to President Bush and the Republican National Committee from the 2000 election on. Two former Reliant executives – Don Jordan, the former chairman, and J. Steve Letbetter, the former chief executive officer – were named Pioneers (the honorary title given to backers who raise at least $100,000) by the Bush administration for their campaign contributions in 2000. A third Reliant executive, former president and CEO David McClanahan, was named a Pioneer in 2004. Moreover, the company has given $1.7 million to all federal candidates since 1999, 83 percent of which went to Republican candidates.

To read Public Citizen’s letter calling for the debarment of Reliant Energy, click here.

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