---------------------- Forwarded by Eric Thode/Corp/Enron on 10/18/2000 02:55 
PM ---------------------------


Eric Thode
10/18/2000 02:41 PM
To: Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Steven J 
Kean/NA/Enron@Enron, James D Steffes/NA/Enron@Enron
cc:  

Subject: San Diego Union Tribune

Have you seen this?

Eric



Power-company profits climb along with prices 
 
 
 By Craig D. Rose 
UNION-TRIBUNE STAFF WRITER 
October 18, 2000 

A power company executive yesterday boiled California's ongoing electricity 
crisis down to the bottom line. 

"Prices are rising, and I know that's hurting consumers ) but it certainly 
has been beneficial for Enron," said Jeffrey Skilling, 
president and chief operating officer of the Houston-based energy and trading 
company.  Enron declined to specify how 
much it earned from California during the past summer, when the state's 
deregulated electricity market sent power prices 
soaring. But the Texas company did say that profits of its sales and services 
unit ) which trades California electricity and o
ther commodities ) increased 135 percent to $404 million. 

Dynegy Inc., also based in Houston, reported that income from its marketing 
and trade unit soared more than 300 percent to $142 million.   Steve
Bergstrom, president of Dynegy, said California was perhaps only the 
third-biggest contributor to that surge. But industry analysts said the 
earnings
 reports are the first indication of a pattern expected in coming weeks. 

"California clearly drove the positive momentum at both of these companies," 
said Carol Coale, senior analyst of Prudential 
Securities. "And you probably just saw the beginning of a string of strong 
reports (from the power industry)."  She and others 
say they suspect that power companies derived billions in profits from the 
state, where tight supplies set the stage for huge price increases. 

Companies did not necessarily have to own generating plants to profit from 
the deregulated market. Enron produces no electricity in California 
but is the nation's largest electricity trader, buying and selling the output 
of power plants owned by other companies. 

Rep. Duncan Hunter, R-El Cajon, said the big profits should be seen in 
something other than a business context.  "These massive profits 
by the energy companies translate directly into thousands of San Diegans 
losing savings that were planned for education, mortgage 
payments, health care and other . . . necessities," Hunter said. 

When the state power exchange saw dramatic price increases within a matter of 
hours, "it was clear that predatory pricing was producing 
massive profits for someone," Hunter said.  Hunter insists that recent power 
prices violate federal law mandating that rates be "just and reasonable." 
He is calling for the Federal Energy Regulatory Commission to order refunds. 
FERC is scheduled to issue a report on the California market by Nov. 1. 

The political fallout from the price increases, meanwhile, appears to weigh 
heavily on power companies, which are reluctant to tout successes in 
California for fear of being singled out for profiteering. 

After noting that Dynegy's recent acquisitions in Illinois contributed 
strongly to the company's success last quarter, Bergstrom was reminded that 
he 
had omitted mention of California. 

"Illinois is not as politically volatile as California," Bergstrom said. 

He acknowledged that Dynegy did "pretty well" in California because its power 
plants produced far more electricity this year than last. Bergstrom 
also sought to correct an earlier report that Dynegy had quickly recouped the 
cost of power plants it recently acquired in the state. 

He said that was true only of the plants it owns in Long Beach and El 
Segundo, which it bought in 1998. Bergstrom said the cost of Dynegy's half 
interest 
in the former San Diego Gas & Electric Encina power plant in Carlsbad ) 
acquired at the end of 1998 ) had not been recovered. 

Typically, plant operators assume that it will take as long as 20 years to 
recoup such costs. 

In comments to financial analysts, Skilling, of Enron, suggested that power 
companies could help provide a solution to California's power problems. 

"Supply constraints and the resulting price pressures in California and other 
locations have demonstrated the need for skilled marketers like Enron 
to provide reliable power and stable prices," Skilling said.  He predicted 
that California's utility companies ) which now buy much of their power from 
other companies ) would sign long-term contracts to stabilize prices, 
following an approach suggested by many power generators and traders. 

"If they were willing to extend the terms of their purchases to 10-year 
contracts, then they could get contracts for $50 a megawatt, which is not 
much 
different than they were paying two or three years ago," Skilling said. 

But consumer advocates have noted that long-term contracts at those levels 
would lock consumers into price increases and leave them with little 
choice about suppliers. Advocates of electrical deregulation had predicted 
that introducing competition would lead to reductions in power costs 
and to greater consumer choice. 

Harry Snyder, senior advocate for Consumers Union in San Francisco, said he 
was skeptical of solutions proposed by the power industry. 

"Any proposal from the industry has to be suspect because they have engaged 
in faking out the California public and price gouging when there 
are shortages," said Snyder, who advocates an end to deregulation. 

"They do not have consumer interests at heart."