Power-company profits climb along with prices 



By Craig D. Rose 
SAN DIEGO 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 other 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."
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