Power Engineering - Reliant Resources' subsidiaries reach agreement with FERC on western market issues

HOUSTON, Oct. 3, 2003 -- The Federal Energy Regulatory Commission (FERC) issued an order Thursday approving an agreement with subsidiaries of Reliant Resources, Inc. to settle all inquiries, investigations, and proceedings instituted by FERC involving the company in connection with FERC's ongoing review of western energy markets.

The settlement does not address the pending FERC refund proceeding (Docket No. EL00-95-000). Reliant has established a reserve, totaling $103 million as of June 30, 2003, for the purposes of covering potential liability under the refund proceeding.

The settlement, and the settlement with FERC trial staff announced several weeks ago regarding the so-called "Enron gaming practices," if approved by FERC, close out all outstanding FERC-initiated proceedings and investigations with regard to Reliant arising from the California and West- wide energy crisis.

"Reliant must assume responsibility for its actions," said Joel Staff, Reliant's chairman and chief executive officer. "We intend to conduct our business in a fashion that not only meets the letter and spirit of the law, but also sets a standard of excellence based on the highest ideals of corporate responsibility. To this end, we have implemented a comprehensive set of reforms aimed at ensuring that all of our activities are consistent with a corporate philosophy based on these principles."

According to Staff, "Resolving the issues related to California continues to be a major goal of Reliant. We are committed to cooperating with those remaining agencies that are continuing to review the events of 2000 and 2001 in an effort to resolve any other outstanding issues." Earlier this year, Reliant announced a settlement with the United States Securities and Exchange Commission and another California-related settlement with FERC.

The settlement resolves all outstanding issues with respect to Reliant of FERC's western markets investigation (Docket No. PA02-2-000), including: the show cause proceeding instituted in March, 2003, regarding certain trades that had been conducted with BP Energy (Docket No. EL03-59-000); an investigation being conducted by FERC into allegations of anomalous bidding behavior (Docket No. IN03-10-000); and an investigation being conducted by FERC into allegations of physical withholding of power.

The settlement, a complete copy of which is available on the company's website at www.reliantresources.com , generally provides that:

* All proceeds under the settlement, which could total $50 million, will be paid into a fund established at the U.S. Treasury for the benefit of California and Western electricity consumers.

* Reliant will make three settlement payments, totaling $25 million. Within 30 days of the effective date of the settlement, Reliant will pay $15 million into the fund described above. Additional payments of $5 million each shall be made on September 30, 2005 and September 30, 2006.

* In addition to the settlement payments, Reliant will also offer capacity from a portion (totaling 824 megawatts) of its generation portfolio in California to the market for 2004, 2005, and 2006 on a unit-contingent, gas-tolling basis. Reliant will pay the difference, up to $25 million, between the collected auction revenues and Reliant's projected cash costs to generate the power into the fund described above. The requirement to offer this capacity to the market ceases at the earlier of three years, or the point in time when projected auction revenues less Reliant's cost to generate power reach $25 million.

* For a period of 12 months following the effective date of the settlement, Reliant's sales in the Western power market will be subject to review, and Reliant will report sales data to FERC on a transaction-by-transaction basis. Reliant has also made other commitments in the settlement regarding providing information to FERC upon request.

Under the terms of the settlement, Reliant will continue to retain the ability to make sales of power at market-based rates.

FERC also found no reason to investigate Reliant further with respect to physical withholding of power.

In addition, the FERC order issued Thursday in connection with the settlement clarified that portion of the FERC Staff Report issued earlier this year regarding Reliant's gas trading activities at the Topock trading hub.

The order acknowledges that the investigation found no evidence that Reliant had any intent to manipulate gas prices and that Reliant's trading activities were subject to FERC's jurisdiction and were not prohibited by FERC regulations or Reliant's blanket gas marketing certificate. The commission explicitly found that no remedy was appropriate.

Reliant Resources, Inc., based in Houston, Texas, provides electricity and energy services to retail and wholesale customers in the U.S. and Europe, marketing those services under the Reliant Energy brand name.

The company provides a complete suite of energy products and services to approximately 1.7 million electricity customers in Texas ranging from residences and small businesses to large commercial, industrial and institutional customers.

Reliant also serves large commercial and industrial clients in the PJM (Pennsylvania, New Jersey, Maryland) Interconnection. The company has approximately 22,000 megawatts of power generation capacity in operation, under construction or under contract in the U.S. and nearly 3,500 megawatts of power generation in operation in Western Europe.

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