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Enron Mail |
Energy Firms' Mixed Message Is Focus of Inquiry
Deregulation: Senate panel will investigate whether suppliers were being misleading when they promised lower rates for consumers while they were also predicting bigger profits for investors. By ROBERT J. LOPEZ and RICH CONNELL, Times Staff Writers In the summer of 1999, a top official with a major player in California's power market testified during a congressional committee hearing in support of speeding up deregulation. Unleashing market forces, said the Dynegy Inc. executive, would ensure "maximum customer savings" and "low-cost power." That same month, the Houston-based firm made a far different pitch to Wall Street: Deregulation and major swings in electricity prices would boost revenue and stock value. "We know how to take advantage of volatility spikes across the gas and power market," Chief Executive Officer Charles Watson declared in a publication targeting large investors. "The energy marketplace," he predicted, "will simply get more volatile." Dynegy was not alone, a review of federal filings, company documents and public records shows. In the years since California's pioneering deregulation plan was approved, other major out-of-state energy suppliers were sending similar, seemingly contradictory signals to the public and stock buyers. Now, those divergent messages--electricity prices will fall but corporate revenue and profits will climb--will be a key focus of a special state Senate committee charged with investigating the alleged manipulation in the power market. "How you can tell your investors you're about to make a whole ton of money in the very short term, and tell the consumers of California you're about to get lower rates?" said Sen. Joe Dunn (D-Santa Ana), a former consumer attorney who is heading the legislative probe. Investigations by the state attorney general and federal regulators are continuing, but remain largely secret. The Senate panel could offer the most open and wide-ranging examination yet of alleged misconduct among power sellers. The bipartisan panel expects to begin requesting documents from power producers as early as today and begin hearings in a few weeks. Committee members stress that they are hoping the power companies will cooperate but are ready to issue subpoenas if necessary. Suppliers Deny Misleading Public The legislative probe comes as many state officials are moving aggressively to expose alleged market manipulation and overcharges totaling billions of dollars by the power suppliers. "Somewhere along the line, there may be a skunk in the woodpile. And if there is, we need to find out about it," said K. Maurice Johannessen (R-Redding), the committee's ranking Republican. Another panel member, Sen. Debra Bowen (D-Marina del Rey), noted that all companies try to maximize profits. "But [we want] to understand how the market was manipulated and how sellers took advantage of the market." The power traders strongly deny acting improperly or sending misleading signals to the public. "Hogwash," said Tom Williams, spokesman for North Carolina-based Duke Energy. Spokesmen for Dynegy said there was nothing inconsistent in the statements of their executives. The companies maintain that California's problems stem from soaring electricity demand, lagging power plant construction and a faulty deregulation plan adopted by the Legislature in 1996. "You have a flawed structure there," said Dynegy spokesman John Sousa. Sousa and executives of other power suppliers say their comments to the general public and to Wall Street are not contradictory because unfettered competition--not the California model--would have created opportunities to both make money and cut rates. Still, regulators, lawmakers and ratepayer groups note that only half the promises made by the power dealers have been realized so far--their earnings and stock prices have risen at record rates as electricity prices have soared. "The big lie was, while they were telling ratepayers to 'Trust us, we're going to lower your rates,' they were planning the entire time to raise the rates," said San Diego attorney Michael Aguirre, a former federal prosecutor who specialized in fraud cases. Aguirre is representing state ratepayers in a class-action lawsuit against the power companies. Just last month, California's independent grid operator reported that many power sellers "used well-planned strategies to ensure maximum possible prices." Potential overcharges could total nearly $6.3 billion. The Senate panel wants to track information that Dynegy and other generators were providing to the investment community in the 1990s as a possible way of determining whether they entered the California market with plans to run up electricity costs. Among many other things, the committee plans to seek internal projections of how the firms expected wholesale prices and profits to rise under deregulation. Members also want to know how the suppliers expected to recoup billions in outlays for California power plants being unloaded by regulated utilities. Some of the purchases were far above book value, stunning analysts. "What did they know that the rest of us didn't at the time they were purchasing those generations facilities?" asked Dunn. "They knew something." One thing the power wholesalers say they did know was that tight power supplies in California would probably boost prices, at least for a time. "They were going anywhere where they thought energy [use] would spike upward," recalled market analyst Joan Goodman, who was familiar with company pitches. "California was one of those places because it didn't have sufficient [power] plants." Duke Energy projected that prices would rise after 2000, although the company says it did not foresee the huge increases that occurred, according to spokesman Williams. However, when the company sealed one of the first packages of power plant purchases in the state in 1997, Chief Executive Officer Richard Priory said in a press release it would "deliver greater value" to California customers. The publicity spin was similar when Edison's sprawling beachfront power plant in El Segundo changed hands the following year. "Consumers in California will begin to benefit from more competitively priced electricity and more vibrant economy," announced Craig Mataczynski, vice president of Minneapolis-based NRG Corp., a partner in the purchase with Dynegy. Big Growth Was Predicted Utilities reaping profits from plant sales also trumpeted the consumer windfall theme. Electricity rates would drop 20% by 2001, Pacific Gas & Electric's top executive, Robert Glynn, said in early 1998. "There is no product bought on a daily basis that has such a predictable downward price trajectory into the future." But to its Wall Street audience, the power suppliers emphasized climbing revenues. Atlanta-based Southern Co., now Mirant, told investors in 1999 that its plan to buy plants and market power had brought the company to the "doorstep of significant growth opportunities." "We believe our strategies will result in the best shareholder return available," Bill Dahlberg, then-chief executive officer, said shortly after buying three California plants. Mirant spokeswoman Jamie Stephenson said assurances given the public and assumptions directed to Wall Street were "just a different way of delivering the same message." The firm was saying it would be "reliable to shareholders and reliable to consumers." Now, with rolling blackouts and record electricity bill increases, federal and state authorities are alleging that large energy suppliers played the power market too hard. Last month, the Federal Energy Regulatory Commission said it found evidence of $124 million in "unjust and unreasonable" charges during the severest periods of electricity shortage. The commission, often criticized for being too lenient on private power companies, ordered the firms to refund the money or further justify the charges. Some firms are contesting the findings, saying the prices they charged were justified. Investigators and regulators have faced a vexing challenge trying to unravel the complex financial workings of the large power traders. The companies closely guard information, and some recently refused to comply with subpoenas from the state Public Utilities Commission, which is also probing the power market. Whether the Senate investigating committee will have the resources and tenacity to get much further remains to be seen. But Democrats and Republicans alike insist they are serious about untangling how the power market went haywire. "I haven't seen that much smoke where there hasn't been a fire," Dunn said. Copyright 2001 Los Angeles Times
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