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Ms. Felicia Greer August 19, 2004 Page 3 of 4

Electricity Supplier Application

As noted above, RESE filed its electricity supplier license application on March 6, 2003. In its application, RESE included a detailed response regarding actions against RESE and its affiliates engaged in the sale at retail and wholesale of electricity or natural gas, including suspensions, revocations, limitations, reprimands and fines. Public Citizen, however, alleges that RESE filed a false application by failing to disclose information in response to Question 8 of the application, “Reliability and Environmental Official Actions Against Applicants/Affiliates,” which requires disclosure of “Official Actions that have been taken against the Applicant and any Affiliate (if available to the Applicant) that engages in the sale at retail of electricity, or electric generation supply services, or natural gas for matters relating to environmental or reliability status for the past two years.” Public Citizen specifically alleges that RESE was required to disclose a “$25 million penalty” assessed on RESE’s affiliate by the California Independent System Operator (“CAISO”) pursuant to CAISO Tariff Section 5.6.3. This section of the CAISO tariff, which was cancelled by the FERC effective June 20, 2001, permitted the CAISO to assess penalties against scheduling coordinators during a declared system emergency. Although Public Citizen describes these charges as a single penalty, in fact, they were an accumulation of tariff-based charges for imbalances over a period of seven months and more than 25,000 individual dispatch intervals.

or

RESE reliability

believes the CAISO charges status” within the meaning

are of

not the

“Official Actions” relating

question.

These

charges

to "environmental were commercial

penalties that, unlike regulatory penalties, were not investigation, deliberation, or a finding of wrongdoing

the subject of any regulatory on the part of RES or any other

body’s market

participant assessed penalties pursuant to CAISO Tariff Section 5.6.3. They were routine settlement process which was used to calculate net amounts owed for each

part of the 10 minute

dispatch interval. These charges simply provided financial incentives to improve performance during emergency conditions. by allowing the CAISO to deduct from

dispatch monthly

remittances

an

amount

equal

to

two

times

the

highest

price

paid

by

the

CAISO

for

power

in

each

interval when an individual generator’s metered output fell short of day ahead and schedules combined with CAISO’s dispatch instructions. However, there often were reasons that a generator might be unable to comply with instructions. For example,

hour ahead operational the CAISO

dispatch instructions, despite often physically impossible contingencies. There were administrative proceedings to

best efforts by Reliant dispatching and operating personnel, were to meet due to ramping limitations and unexpected generation no docket numbers, offense dates, case numbers, or similar reference or disclose.

RESE’s application complied with the Commission’s requirements because RESE’s answer to Item 8 on the license application was then and is now correct. RESE carefully and thoroughly completed the application and required disclosure including, out of an abundance of caution, disclosure of various FERC proceedings against RESE’s affiliates not engaged in the sale of electricity at retail and, in one case, a former affiliate of RESE that had been engaged in the sale of gas at retail. RESE’s answers also referenced the more extensive disclosures provided in filings with the Securities and Exchange Commission, which filings were provided to facilitate

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