Senator probes Pentagon energy contract

A California senator is questioning a Pentagon contract awarded in May to a subsidiary of Reliant Energy, months after the parent company was indicted for its role in the California energy crisis.

In a June 24 letter to the Defense Department, Sen. Dianne Feinstein, D-Calif., questioned the $36 million contract to the company, now under criminal indictment for allegedly taking advantage of California's energy customers.

Under the terms of the contract, Reliant Energy Solutions East, a subsidiary of Reliant Energy, would provide electricity to several military installations, including Andrews Air Force Base in Maryland and the Walter Reed Army Medical Center in Washington.

The company and four of its officers were indicted April 8. The indictment charges the company with conspiracy to commit wire fraud and manipulating electricity prices. In addition to the criminal indictment, Reliant Energy agreed to pay $82.6 million in settlement costs to the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission.

Feinstein points out in her letter that Reliant Energy, like most government contractors, is required to certify during the application process that none of its principals are under indictment or otherwise criminally or civilly charged by the government.

"I do not doubt that Reliant's response to the solicitation was truthful," Feinstein wrote. "But I am concerned that Reliant did not amend its bid after the indictment and prior to the issuance of the contract."

In her letter, Feinstein questions whether the Pentagon has begun debarment or suspension proceedings against the company in accordance with acquisition regulations, which allow government agencies to suspend contracts with companies under indictment. Pentagon officials at the Defense Energy Support Center could not be reached for comment.

Reliant Energy Solutions East applied for the opportunity to bid on the Pentagon contract in November 2003, nearly six months before the indictment was handed down. The company did not feel compelled to amend its bid because the subsidiary was not named in the indictment, said Eddie Daniels, Reliant's general counsel.

In addition, there was no need to disclose the indictment to Pentagon contracting officials because the required certification called for in the solicitation focuses on crimes involving federal, state and local governments, he added. The indictment against Reliant Energy Services, a separate subsidiary, did not allege crimes in those categories, Daniels said.

"This was a competitive bidding process," Daniels said, adding that Reliant was the low bidder. "If the department had not picked us, they would have paid more money to somebody else."