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Enron Mail |
Power-company profits climb along with prices=20
By Craig D. Rose=20 SAN DIEGO UNION-TRIBUNE STAFF WRITER=20 October 18, 2000=20 A power company executive yesterday boiled California's ongoing electricity= =20 crisis down to the bottom line.=20 "Prices are rising, and I know that's hurting consumers =01) but it certain= ly=20 has been beneficial for Enron," said Jeffrey Skilling, president and chief= =20 operating officer of the Houston-based energy and trading company.=20 Enron declined to specify how much it earned from California during the pas= t=20 summer, when the state's deregulated electricity market sent power prices= =20 soaring. But the Texas company did say that profits of its sales and servic= es=20 unit =01) which trades California electricity and other commodities =01) in= creased=20 135 percent to $404 million.=20 Dynegy Inc., also based in Houston, reported that income from its marketing= =20 and trade unit soared more than 300 percent to $142 million.=20 Steve Bergstrom, president of Dynegy, said California was perhaps only the= =20 third-biggest contributor to that surge. But industry analysts said the=20 earnings reports are the first indication of a pattern expected in coming= =20 weeks.=20 "California clearly drove the positive momentum at both of these companies,= "=20 said Carol Coale, senior analyst of Prudential Securities. "And you probabl= y=20 just saw the beginning of a string of strong reports (from the power=20 industry)."=20 She and others say they suspect that power companies derived billions in=20 profits from the state, where tight supplies set the stage for huge price= =20 increases.=20 Companies did not necessarily have to own generating plants to profit from= =20 the deregulated market. Enron produces no electricity in California but is= =20 the nation's largest electricity trader, buying and selling the output of= =20 power plants owned by other companies.=20 Rep. Duncan Hunter, R-El Cajon, said the big profits should be seen in=20 something other than a business context.=20 "These massive profits by the energy companies translate directly into=20 thousands of San Diegans losing savings that were planned for education,=20 mortgage payments, health care and other .?.?. necessities," Hunter said.= =20 When the state power exchange saw dramatic price increases within a matter = of=20 hours, "it was clear that predatory pricing was producing massive profits f= or=20 someone," Hunter said.=20 Hunter insists that recent power prices violate federal law mandating that= =20 rates be "just and reasonable." He is calling for the Federal Energy=20 Regulatory Commission to order refunds. FERC is scheduled to issue a report= =20 on the California market by Nov. 1.=20 The political fallout from the price increases, meanwhile, appears to weigh= =20 heavily on power companies, which are reluctant to tout successes in=20 California for fear of being singled out for profiteering.=20 After noting that Dynegy's recent acquisitions in Illinois contributed=20 strongly to the company's success last quarter, Bergstrom was reminded that= =20 he had omitted mention of California.=20 "Illinois is not as politically volatile as California," Bergstrom said.=20 He acknowledged that Dynegy did "pretty well" in California because its pow= er=20 plants produced far more electricity this year than last. Bergstrom also=20 sought to correct an earlier report that Dynegy had quickly recouped the co= st=20 of power plants it recently acquired in the state.=20 He said that was true only of the plants it owns in Long Beach and El=20 Segundo, which it bought in 1998. Bergstrom said the cost of Dynegy's half= =20 interest in the former San Diego Gas & Electric Encina power plant in=20 Carlsbad =01) acquired at the end of 1998 =01) had not been recovered.=20 Typically, plant operators assume that it will take as long as 20 years to= =20 recoup such costs.=20 In comments to financial analysts, Skilling, of Enron, suggested that power= =20 companies could help provide a solution to California's power problems.=20 "Supply constraints and the resulting price pressures in California and oth= er=20 locations have demonstrated the need for skilled marketers like Enron to=20 provide reliable power and stable prices," Skilling said.=20 He predicted that California's utility companies =01) which now buy much of= =20 their power from other companies =01) would sign long-term contracts to=20 stabilize prices, following an approach suggested by many power generators= =20 and traders.=20 "If they were willing to extend the terms of their purchases to 10-year=20 contracts, then they could get contracts for $50 a megawatt, which is not= =20 much different than they were paying two or three years ago," Skilling said= .=20 But consumer advocates have noted that long-term contracts at those levels= =20 would lock consumers into price increases and leave them with little choice= =20 about suppliers. Advocates of electrical deregulation had predicted that=20 introducing competition would lead to reductions in power costs and to=20 greater consumer choice.=20 Harry Snyder, senior advocate for Consumers Union in San Francisco, said he= =20 was skeptical of solutions proposed by the power industry.=20 "Any proposal from the industry has to be suspect because they have engaged= =20 in faking out the California public and price gouging when there are=20 shortages," said Snyder, who advocates an end to deregulation.=20 "They do not have consumer interests at heart." ?=20
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