HOUSTON, May 15, 2002 — Reliant Resources Inc. on Monday announced its preliminary findings of its review of power trading transactions involving simultaneous purchases and sales with the same counterparty at the same price.
On May 10, 2002, the company canceled its $500 million, ten-year debt private placement when it became aware subsequent to the pricing of the debt offering, that it had likely engaged in so-called “round trip” trades.
Reliant Resources currently reports all power trading transactions on a gross basis with the transactions being reported in revenues and expenses. Therefore, any round trip trades impact the company’s total revenues and expenses. However, since the “round trip trades” are done at the same price, there is no effect on cash flow or net income.
While Reliant Resources is still completing its review of these trades, to date it believes that it engaged in trades of this nature on the order of 30 million megawatt hours (MWH) in 1999, 30 million MWH in 2000, and 78 million MWH and 45 billion cubic feet of gas in 2001. These transactions had the effect of increasing revenues by about 10 percent over the three-year period.
The accounting for these transactions was in accordance with the company’s accounting policies. For the future, however, the company is considering presenting all mark-to-market transactions on a net, rather than gross, basis.
The company is currently consulting with its outside auditors, Deloitte & Touche, and intends to consult with the SEC staff, about this issue. Management believes the net reporting would be a better representation of performance of the business, and would provide shareholders and the market with more useful information.
“These transactions were inconsistent with our company philosophy,” said Steve Letbetter, chairman, president and chief executive officer.” We are about creating value for our shareholders and acting with integrity. These transactions resulted from some misguided employees who believed that being higher in the league tables of energy trading was important. These types of transactions are no longer occurring at Reliant and will not occur in the future.”
Reliant Resources also announced that it is calling a “time out” to reassess its mark-to-market trading activities. In the interim, the company will more narrowly focus its trading activities on optimizing the value of its core physical assets. This will entail a reduction in the company’s mark-to- market activities that are not directly tied to its assets.
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.For more information, visit our web site at www.reliantresources.com .