Energy Legal Blog

Reliant Settles Litigation over Energy Crisis

Houston-based Reliant Energy announced August 15, 2005, that it has entered into a comprehensive settlement agreement with many of the parties to the ongoing litigation over the 2000-2001 California energy crisis, including FERC staff, the states of California, Oregon and Washington, California's three largest investor-owned utilities, and various private class-action plaintiffs.  The settlement will end much of Reliant's liability exposure from sales made during the crisis. 

Pursuant to a Memorandum of Understanding ("MOU") executed by the settling parties, Reliant will make a $150 million cash payment and has agreed to waive all claims to its receivables for electricity sold into California's organized markets from January 1, 2000, to June 21, 2001, plus interest.  To preclude future market manipulation through withholding of resources, Reliant also agreed to allow independent audits of outages for 12 months following FERC approval of the settlement and to continue its "must offer" obligations under an earlier 2003 settlement for two additional years.  According to FERC, the total value of the settlement is estimated to be approximately $460 million, which is in addition to $65 million that Reliant has already paid in earlier settlements.  In exchange, the other parties to the settlement agreed to absolve Reliant from all claims related to the energy crisis, including:  FERC's generic refund proceeding regarding the Western markets; pending appeals of prior FERC orders relating to the crisis; all market price investigations by the Attorneys General ("AGs") of the three settling states; civil litigation filed by the California AG, including a pending Clayton Act antitrust lawsuit; private class action lawsuits filed on behalf of ratepayers in California, Oregon, Washington, Idaho, and Utah; and natural gas price issues raised by any of the settling parties, except the private class action litigants and local governmental entities. 

Once a formal agreement is in place between the parties, it must be approved by FERC, the California Public Utilities Commission, and the courts overseeing the class actions.  The parties indicated that the settlement will be filed at FERC sometime in September, and in a press release, newly minted FERC Chairman Joseph Kelliher applauded the agreement.  Reliant thus becomes the last of the out-of-state generators to settle allegations arising out of the energy crisis.  If approved, Reliant's settlement would bring the total settlements with California to $6.3 billion.  [NEW MATTER]