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Sac Bee, Fri, 7/27: Hopes dim for a quick Edison deal SD Union, Fri, 7/27: Sempra's trading unit generates a windfall LA Times, Fri, 7/27: Smog Rules May Be Eased LA Times, Fri, 7/27: Federal Caps Didn't Deter Higher Prices SF Chron, Fri, 7/27: Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program SF Chron, Fri, 7/27: Generators continue to set high electricity prices SF Chron, Fri, 7/27: THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough OC Register, Fri, 7/27: Let's make a real deal with Edison (Editorial) LA Times, Fri, 7/27: California Sempra Continues Improved Results LA Times, Fri, 7/27: California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants LA Times, Fri, 7/27: Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits WSJ, Fri, 7/27: Calpine Net Soars On Added Plants; Sempra Profit Rises ------------------------------------------------------------------------------ ---------------------------------------------- Hopes dim for a quick Edison deal By Kevin Yamamura Bee Capitol Bureau (Published July 27, 2001) The Assembly will not return this week to consider a plan to save California's second-largest utility from bankruptcy, all but ending hopes that legislation would reach Gov. Gray Davis by a mid-August deadline. A group of legislators and Davis staffers has worked this week on an agreement that would restore Southern California Edison's credit and relieve the state of having to purchase energy for the utility. Assembly leaders, who convened the group, set an ambitious schedule that would have led to a vote today had they reached consensus and been able to recall enough of the 80 Assembly members from summer recess destinations. But the newly formed plan, which would issue $2.9 billion in consumer-backed bonds in exchange for several Edison concessions, remains too rough for a vote, said Paul Hefner, a spokesman for Assembly Speaker Robert Hertzberg, D-Sherman Oaks. Hefner was quick to note that Hertzberg has the Assembly "on call" for the scheduled monthlong break and is prepared to ask members to return if a deal comes in the next three weeks. But staff and lawmakers said earlier that organizing a mass return after today would prove nearly impossible because Assembly members are expected to travel throughout the state and beyond. Davis set an Aug. 15 deadline in his original Edison deal and recently said he could call a special session forcing legislators to return if they do not authorize a plan by then. His spokesman, Steven Maviglio, said Thursday the governor is not ruling out that idea but is waiting to see what comes of further legislative discussions. "It's pretty clear that everyone's working pretty hard to form a consensus, but they're just not there," Maviglio said. "The governor is optimistic about the Aug. 15 date." Even so, Edison does not expect a solution by then. Company officials stated earlier this week that they would wait for a political deal at least until lawmakers return Aug. 20. The Bee's Kevin Yamamura can be reached at (916) 326-5542 or kyamamura@sacbee.com <mailto:kyamamura@sacbee.com<. Sempra's trading unit generates a windfall \ objattph By Craig D. Rose UNION-TRIBUNE STAFF WRITER July 27, 2001 Sempra Energy, the parent company of SDG&E, reported a 25 percent surge in profit to $137 million last quarter but said yesterday it lost money on the sale of electricity under a long-term contract to California. On the other hand, Sempra said its largest source of profits was its energy trading unit, a middleman that earned $69 million during the quarter buying and selling energy produced by others. The results underscore the transformation of relatively simple utility companies into diversified energy holding companies that have learned to profit in new ways from the deregulation of electricity and the turmoil in energy markets. The surprising announcement -- that a company lost money selling power during California's run-up in electricity prices -- was explained by Sempra as an intentional consequence of the long-term contract it signed with the state to provide power. Stephen Baum, chairman and chief executive officer of Sempra, said the company agreed to provide a steep discount to California during the summer months but would recoup the losses later in the 10-year deal. California sought long-term electricity purchase contracts so it could reduce its purchases in daily and near-term power markets, where prices reached record levels. Critics say Gov. Gray Davis rushed into long-term deals because of concerns about getting through next year's election. They also say the contracts will saddle customers with higher costs for years. The governor has acknowledged that long-term contracts might cause consumers to pay relatively high prices for electricity in later years, but he maintains it is a fair price to pay for lowering prices that were devastating the state economy. Michael Shames, executive director of the Utility Consumers' Action Network in San Diego, said the steep discount Sempra provided to the state on power this summer raised questions about the governor's proposal to help San Diego Gas & Electric Co. clear a debt of $750 million. SDG&E says it is owed that money for power purchases on behalf of its customers. In a media conference last month, Davis said the agreement would eliminate the threat of a possible balloon payment for consumers, who he said might have faced the so-called balancing account debt as early as next year. Shames says the proposal, which took the form of a memorandum of understanding, or MOU, is costly for consumers and a bonanza for Sempra. He said the relatively cheap power provided by Sempra this summer "makes the MOU sound like more of a hidden payback to Sempra than a real relief plan for local ratepayers." Shames said he will release an analysis of the state's Sempra plan next week. The state Public Utilities Commission is expected to rule on the plan in August. A Sempra spokesman said there is no connection between discount power and the tentative agreement to clear the $750 million debt. Doug Kline, the Sempra spokesman, said the power contract with the state was signed in early May and the agreement on the balancing account was reached in mid-June. Sempra Energy Trading, meanwhile, said only 10 percent of its $69 million profit was earned from sales of energy in the western region, which includes California. The trading operation earned $40 million in profit during the comparable period last year. California's Independent System Operator, which manages most of the state power grid, and other investigators have said trading and bidding strategies were tools used by energy companies to raise prices during the California power crisis. Though Sempra earned money on trading, its wholesale power generating business lost $9 million during the quarter. Baum said the discounts on electricity provided the state were the prime cause of the loss for Sempra Energy Resources but added that a plant outage also contributed. Sempra Energy Resources, which co-owns a generating plant near Las Vegas with Reliant Energy, earned $2 million during the second quarter last year. Baum added that Sempra's long-term contract with the state -- under which it will provide up to 1,900 megawatts -- has allowed its wholesale business to pre-sell about half the power it expects to generate from the Nevada plant, which will be expanded, and three generating facilities it expects to build. Profits at SDG&E slipped to $37 million during the quarter ended June 30, down from $40 million last year, according to Sempra. SDG&E, whose business is restricted to delivering gas and electricity, said it provided increased customer service during the crisis, which lowered profits. Wall Street analysts generally applauded Sempra's results, noting that the company was ahead of its plan to generate at least a third of its profits from its newer businesses by 2003. "They're really two years ahead of schedule for their non-utility businesses," said Brian Youngberg, an analyst with Edward Jones & Co. Bud Leedom, a San Diego-based analyst with Wells Fargo Van Kasper, said Sempra's move into energy trading now seems shrewd. "We never dreamed they were setting themselves for a windfall like this," Leedom said. Investors pushed Sempra shares up 17 cents yesterday, to close at $25.49 in trading on The New York Stock Exchange. Bloomberg news service contributed to this report. Smog Rules May Be Eased Power plants: EPA proposes a sweeping change in how utilities' emissions are curbed, a flexible approach favored by the industry. By GARY POLAKOVIC and ELIZABETH SHOGREN Times Staff Writers July 27 2001 WASHINGTON -- U.S. Environmental Protection Agency Administrator Christie Whitman proposed sweeping changes Thursday in the regulation of power plant pollution that would replace five of the government's toughest programs with a single, flexible approach favored by utilities. Whitman outlined a plan for cleaning up major components of power plant smog that represents a significant departure from the EPA's traditional regulatory dictums. She called for a major expansion of pollution credit trading, which, up to now, has had varying success. Under the new plan, the EPA would scrap some of the most stringent measures devised by the agency to deal with power plant emissions. One provision to be set aside aims to cut harmful mercury emissions; another is meant to reduce emissions from Midwestern power plants by 85%; another is designed to restore visibility at national parks. Especially unpopular with industry, one measure, known as new source review, requires the installation of advanced pollution controls whenever power plants are expanded or modified. It too would be phased out. "New source review is certainly one of those regulatory aspects that would no longer be necessary," Whitman told Sen. George Voinovich (R-Ohio) at the hearing by the Environment and Public Works Committee. "All of those [programs] could be aligned into one regulatory process" that she said would work better than existing rules. Whitman's comments offer the first peek into the administration's plans for cleaning some of the dirtiest polluters left in the nation. Debate over the administration's clean-air approach has shifted to Congress as it considers whether to revise the national Clean Air Act. The magnitude of the proposed revisions caught environmentalists by surprise but buoyed industry representatives who say existing controls are costly and inefficient. "She has raised an appalling prospect of junking virtually every rule and strategy to deal with emissions of electric companies in return for some vague industry-sought plan for an emissions trading scheme," said Frank O'Donnell, executive director of the Clean Air Trust, an environmental advocacy group. "If they go forward with this, it means a wholesale fight over the Clean Air Act in Congress." After the hearing, Whitman stressed that the overall goal is to clean the air more efficiently than current rules do. Although the administration has not yet released a so-called multipollutant cleanup strategy, Whitman contended that collapsing several regulations into one far-reaching approach would be easier for regulators and industry to manage. "What we're looking for is targets under this legislation that significantly clean up the air beyond what our current regulatory, statutory requirements would do," Whitman said. She added that new source review, for example, "could potentially be no longer necessary if you have the right kind of targets set in a multi-emissions bill. We have to wait and see where the targets are set." Utilities have lobbied Vice President Dick Cheney's energy task force to prevent the EPA from aggressively enforcing the new source review regulation. Industry and administration officials say the provision is onerous and prevents plant upgrades, although EPA officials say it is a key tool for forcing dirty, old plants to cut emissions by up to 95%. During the Clinton administration, federal officials charged that 32 coal-fired power plants in several Southern and Midwestern states ignored a requirement that companies install advanced emission controls when their plants were upgraded. The government reached settlement with three utilities, but a provision in the Bush administration's energy plan stalled those enforcement actions pending a review of power plant controls. C. Boyden Gray, attorney for the Electric Reliability Coordinating Council and former White House counsel for the first President Bush in the 1980s, praised the administration's proposal. He said major utility companies he represents, including Southern Co., Duke Energy Co. and the Tennessee Valley Authority, could clean up with greater flexibility and less cost under the plan outlined by Whitman. "To put everything in a market-incentives basis is a great step. It would be a real breakthrough and a plus for the business community," Gray said. For example, Gray said EPA has four separate measures to control nitrogen oxides from power plant combustion, including programs to cut acid rain, ozone and haze. Another program scheduled to take effect in May 2004 requires power plants in 19 states to cut summer emissions by 1 million tons annually. He said those programs can be confusing and costly and could easily be replaced by a credit-trading program run largely by power companies. Under the program being considered by the Bush administration, an emission limit could be established at hundreds of power plants followed by annual reductions in mercury, a toxic metal, as well as smog-forming nitrogen and sulfur oxides. However, a provision to reduce carbon dioxide, a gas implicated in global warming, was dropped under industry pressure. Power companies that reduce beyond their limits could sell emission credits, which represent a pound of pollution, to companies that exceed their limits. Although industry and free-market advocates favor such programs, they are not without controversy. The record of market-driven programs is mixed. On the one hand, the nation's acid rain program uses marketable permits and is widely credited with cutting sulfur oxides at less cost. On the other hand, the world's first market-driven program to tackle urban smog has not worked in Los Angeles, where nearly 400 power companies and manufacturers failed to achieve significant cleanup for the nearly eight years the program has been in effect. Further, many environmental groups are wary of market-driven programs because by design they preclude active government intervention. Critics say such programs could potentially limit public review of power plant operations, allow emissions to concentrate in poor communities and slow efforts to cut haze in national parks downwind from plants that elect to buy pollution credits instead of cleaning up. The Bush administration's power plant strategy was aired before the Senate Environment and Public Works Committee, which is chaired by Sen. James M. Jeffords (I-Vt.), whose dramatic departure from the GOP threw control of the Senate to the Democrats. Jeffords is proposing legislation, different from the administration's approach, that would control four power plant pollutants, including the greenhouse gas carbon dioxide, an approach rejected by the Bush administration. Prospects appear to be increasing that Congress will pass one or more measures designed to reduce carbon dioxide emissions, a belated response to this week's decision by more than 180 countries to deal with the problem without the involvement of the United States. Indeed, in recent weeks several members in the GOP-led House and Democratic Senate have voted on bills with the intention of disassociating themselves from President Bush's environmental policies before the next election. Among the votes, the House struck down a provision supported by the Bush administration that could hinder progress on global climate change policy. The Senate banned new coal mining and oil and gas drilling in national monuments. Other recent rebuffs included rejections of administration initiatives on such issues as the Endangered Species Act, hard-rock mining regulations and offshore drilling for oil and gas. Copyright 2001, Los Angeles Times <http://www.latimes.com<; Federal Caps Didn't Deter Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the imposed limits. By NANCY VOGEL TIMES STAFF WRITER July 27 2001 SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California, which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity, according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company offered to sell a megawatt-hour from $149 to $195. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Reliant spokesman Richard Wheatley said, "We're looking at the data, and we question whether or not it is correct." A combination of cool weather, heavy conservation, the start-up of new power plants and recently signed long-term power contracts that guarantee supplies have eased the state's electricity crisis in recent weeks. Market prices that as recently as May averaged $271 per megawatt-hour have dropped to less than $100 per megawatt-hour. The more abundant power supplies have freed grid operators to ignore higher-priced bids. But they will have to consider paying such prices to avoid blackouts if supplies tighten, Wolak said. Such a scenario would test the effectiveness of the Federal Energy Regulatory Commission order issued June 19, he said. The bids of the five companies analyzed were offers of sales to Cal-ISO, a Folsom-based agency that manages the electrical transmission grid serving 75% of California. Cal-ISO buys power on short notice to smooth the flow on the state's electrical freeway and avert blackouts. As California's fledgling market began to go haywire last fall, Cal-ISO workers struggled to purchase as much as 30% of the state's power demand with just hours to spare. Since then, the market has stabilized, and Cal-ISO's purchases now amount to roughly 5% of the electricity California consumes. RELATED STORY Power profits: Power plant operator Calpine said its quarterly profit more than doubled. C2 Copyright 2001, Los Angeles Times <http://www.latimes.com<; Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program Carolyn Said, Chronicle Staff Writer <mailto:csaid@sfchronicle.com< Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright< URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ BU234287.DTL< Fueled by high electricity prices, power generator Calpine Corp. reported strong second-quarter results yesterday. Calpine of San Jose said profit for the quarter ended June 30 almost doubled to $107.7 million (32 cents per share) from $59.5 million (20 cents) during the year-ago quarter. Revenue almost quadrupled to $1.61 billion from $417.2 million a year ago. Excluding charges related to the acquisition of Canada's Encal Energy, Calpine's net income was $132.2 million (39 cents), well above the 31 cents per share predicted by analysts, according to Thomson Financial/First Call. Calpine is on an ambitious path to expand its roster of generating plants. By the end of 2005, it expects to have 75,000 megawatts in operation in the United States, including 12,000 megawatts in California. A megawatt is about enough power for 1,000 homes. The company, which generates 2,428 megawatts in California, this summer opened the state's first two major power plants in a decade. The new plants in Yuba City (Sutter County) and Pittsburg generate 547 and 555 megawatts, respectively. Combined with a new plant in Arizona that sells power to California, Calpine's new facilities helped the state stave off threatened blackouts this summer, Chief Executive Officer Peter Cartwright said. Calpine is building the 847-megawatt Delta Energy Center in Pittsburg, scheduled to open in May, and a 750-megawatt plant in Kern County, due in June 2003. It is also awaiting an August decision by the California Energy Commission on its proposed 600-megawatt Metcalf Energy Center in San Jose. "California is a very good market for us," said Bill Highlander, a Calpine spokesman. "The pricing in California has benefited Calpine." However, he said, the company was not one of the traders that focused on making top dollar in California's volatile spot market, because its business model concentrated on selling electricity through long-term contracts. During the past few months, Calpine signed 10-year and 20-year contracts with the state for as much as 2,500 megawatts, at prices ranging from $58.60 to $73 per megawatt hour. With most of its plants fired by natural gas, Calpine wants to control about a quarter of the gas it uses, Highlander said. Its April purchase of Encal Energy for $1.77 billion more than doubled its gas reserves, to about 1. 7 trillion cubic feet equivalent, according to Hoover's Online. Calpine's stock closed up $1.08 at $36.89 yesterday. E-mail Carolyn Said at csaid@sfchronicle.com <mailto:csaid@sfchronicle.com<. ,2001 San Francisco Chronicle </chronicle/info/copyright< Page B - 1 Generators continue to set high electricity prices Friday, July 27, 2001 ,2001 Associated Press URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/27/state 0359EDT0121.DTL< (07-27) 00:59 PDT LOS ANGELES (AP) -- Power wholesalers continued to demand higher prices for energy despite federal regulation that capped electricity rates, according to a confidential report by the California Independent System Operator. In one case, an energy company charged as much as five times more for electricity than the federal cap, which were imposed June 20. State grid operators have given the study to federal regulators for a possible investigation, the Los Angeles Times reported Friday. Five companies were identified by code in the report and sources familiar with the study named the wholesalers for the Times. They include Duke Energy, Dynegy Corp., Mirant Corp., Reliant Corp., and Williams Cos. The average price charged by the five power companies was $105 per megawatt-hour, which closely matches the federal price limit in California set at $101 per megawatt-hour. Four of the five companies submitted bids either just below or just above their cost of production. Houston-based Reliant, however, asked as much as $540 per megawatt-hour in some cases. Overall, the company's average bid was close to costs, the report said. The state wasn't required to purchase power at the rates set by wholesalers but the bids reflect a potential repeat of charging exorbitant electricity prices if temperatures soar and conservation dwindles, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." The Cal-ISO report singled out Duke Energy, noting it "continues to bid significantly in excess of its operating costs." The report shows the company's cost to produce electricity was between $85 and $121 but it offered to sell a megawatt-hour from $149 to $195. Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates what each paid for natural gas to fuel the plants. "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood," said Duke spokesman Tom Williams. ,2001 Associated Press THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough Christian Berthelsen, Scott Winokur, Chronicle Staff Writers <mailto:cberthelsen@sfchronicle.com< Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright< URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ MN236840.DTL< An environmental group filed suit yesterday to overturn a permit granted to Duke Energy Co. to expand a major power plant south of Santa Cruz. Saying the permit was illegally awarded, the suit warns that the resulting project will damage the ecologically important Elkorn Slough. Voices of the Wetlands accuses the board that awarded the permit of violating federal law by not requiring Duke to use the best possible technology to minimize impacts on the environment around the Moss Landing power plant. If plans to expand the plant proceed without change, the group said, it would kill off critical organisms at the bottom of the food chain. The suit, filed in Monterey County against the California State Water Resources Control Board and the regional board that serves the central coast, seeks a court order to return the case to the regional water district so that more environmentally sensitive cooling technology can be ordered for use at the plant. State officials said yesterday that the issues raised in the suit were considered and rejected during the initial permit approval process last year, and again during the appeal process this year. The case comes amid enormous pressure on state officials, in light of California's energy crisis, to rapidly accelerate power plant approvals and expand the amount of power generation available. Against this backdrop, the state water board on June 21 essentially rejected environmental groups' appeal that had sought to overturn the district board's decision approving the Moss Landing expansion permit. On another front, board members of the California Energy Commission took testimony earlier this week on a proposal to curtail public review of plant project proposals, with one board member, Robert A. Laurie, acknowledging in an interview that he believed "in some cases" it posed one of the most time- consuming aspects of project approval. A recommendation is expected within the next month. Duke, of Charlotte, N.C., bought the Moss Landing plant from Pacific Gas & Electric Co. in 1998, when the Northern California utility sold off many of its facilities to prepare for deregulation of the energy market. The plant was built in 1950 using a cooling system technology that sucks water out of the Elkorn Slough and Monterey Bay to cool generating turbines before spitting the water out into the Pacific Ocean. The group says wildlife conditions and sea otter population have improved markedly since PG&E mothballed many of the generating units at Moss Landing in 1995. But Duke now is proposing to resurrect parts of the cooling system in a major expansion that will make Moss Landing the state's largest power plant after its completion next summer. With an output of 2,538 megawatts, the plant when completed is expected to account for 30 percent of all new electricity generated in California next year, serving about 2.5 million households in the Monterey, Santa Cruz and southern Santa Clara County areas, including San Jose. Regional water quality board officials declined comment yesterday, citing the pending litigation. But in public documents filed yesterday, water officials said cooling alternatives had been considered and rejected. The documents did not elaborate on why they were not mandated. Duke had acknowledged during the process that more ecologically sensitive technologies were available, but at prohibitive costs of $20 million to $50 million more. Deborah Sivas, an attorney for the Earthjustice Environmental Law Clinic, which filed the suit on behalf of Voices of the Wetlands, considered the best technology alternatives mandatory, not optional. She said the board had not considered alternative approaches in reaching its conclusions. E-mail the writers at swinokur@sfchronicle.com <mailto:swinokur@sfchronicle.com< and cberthelsen@sfchronicle.com <mailto:cberthelsen@sfchronicle.com<. ,2001 San Francisco Chronicle </chronicle/info/copyright< Page A - 3 Let's make a real deal with Edison July 27, 2001 By JONATHAN LANSNER The Orange County Register When any government official tries to play business executive, it's time to get nervous. Take the Edison bail out as evidence. At its essence, the deal works like this: Taxpayers give the utility a big pile of cash; the state gets some old, rickety transmission lines in return. Don't be fooled: The power bounty is basically a political ploy. The state doesn't need to control electric distribution. What politicos need is a face-saving trade as evidence that this is a business deal - not a government handout. The state probably should just write the check and eat its losses. But if bureaucrats wanted real remuneration from this bail out, California would eye some juicy Edison assets. As a public service, I'll list a few. Now, for argument's sake, I won't differentiate between the utility and its parent company, Edison International. Hey, lawyers built those walls between the two. Let 'em figure out how to take 'em down. For starters, you'd figure an energy-strapped state would like some regional power plants, no? Like the San Onofre facility. However, it might be laughable to see Sacramento-types defending their future handling of the local nuclear plant. OK, if that's a tad too dicey for the state, how about a coal-fired plant in Nevada? Heck, Edison had a buyer at half a billion bucks before the state oddly quashed that deal. Maybe the state could grab it from Edison -- then flip it to pay off electricity-related debts. Of course, buying one of the out-of-town power plants that Edison's sister company in Irvine has acquired might be educational for Sacramento. Owning a plant in Illinois or Pennsylvania or possibly New Zealand might show state honchos how easy - or not - it is to rig supply and prices. Alternatively, the state could demand a small entity called Edison Capital. Basically, it's a bank. One specialty: the politically correct field of affordable-housing lending. A good fit for bureaucrats. Speaking of money, there's the Edison pension plan. Governments are really good at running retirement benefits. Heck, California already has a huge one. There's got to be some economies of scale - real cash savings - in merging the Edison plan with some state pension fund. Do note that Edison's plan might be overfunded by about $400 million. You can bet, though, that the state would never have the nerve to play 1980s corporate raider: profiting by grabbing some of a company's overfunded retirement kitty. Finally, there's Edison International Field in Anaheim. Stadium naming-rights contracts must have some value since corporations always seem to fight over these promotional gimmicks. (The utility's parent company paid $50 million in 1997 for two decades of "free" publicity.) Imagine the buzz the state could get out of the huge sign age on a nationally renowned stadium. Plus, maybe the Angels could be good corporate citizens and tie into this deal. It's possible they'd allow a slight change in the team name to better emphasize the state's role in the ballpark. So, how does "California Angels" sound to you? Business; Financial Desk California Sempra Continues Improved Results NANCY RIVERA BROOKS 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Sempra Energy on Thursday reported another quarter of higher earnings and revenue, a sharp contrast to California 's bigger and beleaguered investor-owned utilities. Although California 's electricity crisis has pushed Southern California Edison and Pacific Gas & Electricity into insolvency--and PG&E into U.S. Bankruptcy Court--the parent of San Diego Gas & Electric and Southern California Gas continues to post improved results on the strength of its non-utility businesses. Net income for the period ended June 30 rose 25% to $137 million, or 66 cents a share, up $25 million, or 55 cents, earned a year ago, the San Diego-based utility holding company said. Revenue jumped 40% to $2.1 billion. Pretax operating income rose 24% to $291 million. Sempra's earnings came in just ahead of the 65-cent average estimate of analysts surveyed by First Call/Thomson Financial. "Our strong second-quarter performance is primarily the result of our efforts to accelerate growth through new businesses," Stephen L. Baum, Sempra's chairman, chief executive and president, told analysts in a conference call. Sempra is in a vastly different position than Edison International and PG&E Corp. because its electric utility arm was able to avoid the deep financial woes afflicting their respective Southern California Edison and Pacific Gas & Electric utilities. SDG&E was first to sell its power plants two years ago and thus was freed from a rate freeze. That in turn allowed the utility to pass along to customers the soaring costs of electricity beginning last summer. The state Legislature eventually rolled back and capped the rates for SDG&E customers, but promised the utility it would be allowed to recover those losses. Edison and PG&E, however, continued to accumulate staggering debts because their retail rate freezes remained in place. In contrast, Sempra is solvent, with $1.5 billion in cash and $1 billion in available credit, Baum said. The performance of its utilities was lackluster, with Southern California Gas earning $47 million, unchanged from the second quarter of 2000, and SDG&E earning $37 million, down from $40 million in the year-ago period. But Sempra's unregulated businesses--including energy trading, power plant construction and operation, international electricity operations and energy services--turned in an overall strong performance, contributing 39% of the parent company's earnings. Sempra's trading unit provided most of that profit, contributing $69 million to second-quarter net income compared with $40 million in the same quarter last year. Sempra's stock gained 17 cents to close at $25.49 on the New York Stock Exchange. Business; Financial Desk California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants. 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Calpine Corp., one of the biggest U.S. power-plant builders, said Thursday that second-quarter earnings more than doubled, beating estimates, because of higher electricity prices in California and sales from new plants. Profit from operations rose to $132.2 million, or 39 cents a share, from net income of $59.5 million, or 20 cents, a year earlier. Revenue almost quadrupled to $1.61 billion. San Jose-based Calpine opened plants in the U.S. with a combined capacity of 1,545 megawatts--enough to light 1.5 million average homes--and benefited from existing plants in California . Calpine has insulated itself from rising fuel costs by buying natural-gas fields to supply its plants. "Given the strategy they have chosen, they're following through quite well," said Andre Meade, an analyst at Commerzbank Capital Markets Co. "They are growing from a small base and adding a lot of plants, so we'd expect high growth." Profit topped the 31-cent average estimate of analysts surveyed by First Call/Thomson Financial. Calpine said it expects to earn $2 a share this year. The average First Call forecast was $1.92, with a range of $1.80 to $2.04. Calpine's shares rose $1.08, or 3%, to close at $36.89 on the New York Stock Exchange. The shares had fallen 21% this year amid concern that generators might have to give back some of the profit they made selling power in California during the last year. In addition, cooler-than-normal weather and conservation efforts recently reduced power prices in the state. Calpine runs or is building natural gas plants in 29 U.S. states and Canada that produce more than 30,000 megawatts of power. The company plans to more than double capacity to 70,000 megawatts by the end of 2005. Calpine this month opened the $350-million Sutter plant, California 's first major generator in more than a decade. The company is building 11 plants to run during times of peak demand in the state and getting permits for four more, James Macias, who oversees Calpine's West Coast power plants, said in a conference call with analysts and investors. Separately, Arlington, Va.-based AES Corp., a power producer that supplies California and operates in 27 countries, said second-quarter profit fell 20% because of losses tied to currency fluctuations and the sale of a U.S. electricity retailer. Net income fell to $112 million, or 21 cents a share, from $140 million, or 28 cents, a year earlier. Sales rose 26% to $2.21 billion. California ; Metro Desk Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits. NANCY VOGEL 07/27/2001 Los Angeles Times Ventura County Edition Page B-1 Copyright 2001 / The Times Mirror Company SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California , the bids submitted by generators could be very costly to California ." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California , which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity , according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company's bids ranged from $149 to $195 per megawatt-hour. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Calpine Net Soars On Added Plants; Sempra Profit Rises By Rebecca Smith 07/27/2001 The Wall Street Journal Page B4 (Copyright © 2001, Dow Jones & Company, Inc.) Calpine Corp. reported net income nearly doubled in the second quarter, reflecting the independent power producer's aggressive plant-building program. Meanwhile, the parent of a San Diego utility said profit rose 25%. Calpine, of San Jose, Calif., said net was $107.7 million, or 32 cents a share, up from $59.5 million, or 20 cents a share, a year earlier. The latest results, which were in line with analysts' expectations, included a special charge of seven cents a share related to Calpine's purchase of Encal Energy Ltd., a natural-gas company. Revenue grew even more strongly, soaring to $1.61 billion from $417.2 million. Separately, Sempra Energy, parent of electric utility San Diego Gas & Electric, reported profit rose to $137 million from $110 million a year earlier. Revenue jumped 40% to $2.1 billion from $1.5 billion. Sempra Chairman Steve Baum attributed the growth, which stands in marked contrast to the financial woes of California 's other electric-utility-owning energy companies, to Sempra's unregulated operations. Calpine's profit increased despite paying substantially more for natural gas to fuel its plants. It spent an average of $4.80 per million British Thermal Units for natural gas, up from $3.31 a year before. At the same time, Calpine's revenue per megawatt hour of electricity sold also rose, to $71.03 in the latest period from $64.80 a year earlier. At Sempra, Mr. Baum said profit from Sempra's biggest utility unit, San Diego Gas & Electric, fell 7.5% to $37 million from $40 million. Results were flat at its gas-distribution company, Southern California Gas Co. Sempra Energy Trading was the big profit center, generating half its total profit, or $69 million, compared with $40 million a year earlier. Mr. Baum said Sempra's stock, which trades at a low price/earnings multiple of 10, still is being "affected negatively by the California situation." He also said the company made less money in spot-power markets than in prior quarters but nevertheless intends to invest $2 billion in new power plants. In 4 p.m. New York Stock Exchange composite trading, Calpine shares rose $1.08 to $36.89, while Sempra climbed 17 cents to $25.49.
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