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Reliant Resources objects to California market analysis report

HOUSTON, Texas, Oct. 14, 2002 — Citing numerous inaccuracies and omissions about the company’s operations in California, Reliant Resources Inc. said it rejected conclusions and inferences contained in an unofficial report issued last month to a state senate committee by Loretta Lynch, president of the California Public Utilities Commission (CPUC).

In countering the report, Reliant responded to a request by California’s Senate Select Committee to Investigate Price Manipulation in the Wholesale Energy Market, chaired by Senator Joseph Dunn. Sen. Dunn asked Reliant to respond to the report after it was presented to his committee.

“The report has no basis in reality,” said John H. Stout, Senior Vice President, Asset Commercialization. “It is a superficial analysis of a complex matter, filled with errors and omissions, and biased in both methodology and use of available data.”

The company examined in detail incidents on 12 different days when the report identifies Reliant as having a large number of megawatts that were not bid or generating.

Reliant offered available capacity into the California market through the California Independent System Operator (CAISO), the California Power Exchange or the California Department of Water Resources (CDWR)/California Energy Resources Scheduler in each of the days considered in the report.

In its response to the report, the company said, “It displays a lack of understanding about the sound practice of power plant operation and how the California electricity market was supposed to operate at that time.”

According to Reliant’s analysis, the following are major inaccuracies about references made in the report to the company and its operations in California.

Reliant said that the market analysis report:

• Relies on incomplete and erroneous outage records that conflict with the CPUC’s own outage inspection reports and information publicly posted on the CAISO website;
• Selectively ignores data available to the CPUC, which indicates that bids were offered into the Daily and Hourly energy markets, as well as bids that were offered into the Daily and Hourly ancillary services markets during the periods in question;
• Ignores the effect of environmental regulatory restrictions, which limited how much energy a generator could produce;
• Ignores operational limitations, such as the lead time for starting large units, CAISO bidding limitations, software/communications failures, and pricing anomalies that punished generators for producing energy during emergencies;
• Ignores the ability the CAISO had to directly dispatch online units and to purchase adequate reserves and energy to avoid blackouts and interruptions;
• Ignores Reliant’s efforts to produce record amounts of electricity from an aged fleet of generating units, in working with state regulators to remove roadblocks that prevented units from operating during emergencies, and in bringing additional energy into California from power plants outside the state; and,
• Ignores the fact that Reliant and the CDWR agreed, with the knowledge and concurrence of the CAISO, that Reliant would offer its available capacity and energy from its California units to CDWR on a bilateral basis, rather than bid into the CAISO.
• The report only dealt with a small universe of the total amount of potential generation available to the state, disregarding power that should have been supplied by other entities. For example, the report failed to note the impacts of the loss of about 3,000 megawatts of generation from California Qualifying Facilities because they were not paid by the investor-owned utilities.

Reliant operates five power plants in southern California with a rated capacity of approximately 3,800 megawatts. The plants were purchased in 1998 from Southern California Edison.

During 2000, they produced 12 million megawatts of power — almost three times the production level of the former owner, prior to Reliant’s purchase. In 2001, the plants produced 13 million megawatts of power. Since acquiring the facilities, the company has invested some $80 million in capital to upgrade the plants’ environmental controls and improve operational efficiency.

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

It has more than 21,000 megawatts of power generation capacity in operation, under construction, or under contract in the U.S. The company also has nearly 3,500 megawatts of power generation in operation in Western Europe.

At the retail level, Reliant Resources provides a complete suite of energy products and services to 1.7 million electricity customers in Texas ranging from residences and small businesses to large commercial, institutional and industrial customers. For more information, visit our web site at www.reliantresources.com.