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Enron Mail |
---------------------- Forwarded by Eric Thode/Corp/Enron on 10/18/2000 02:=
55=20 PM --------------------------- Eric Thode 10/18/2000 02:41 PM To: Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Steven J=20 Kean/NA/Enron@Enron, James D Steffes/NA/Enron@Enron cc: =20 Subject: San Diego Union Tribune Have you seen this? Eric Power-company profits climb along with prices=20 =20 =20 By Craig D. Rose=20 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,=20 president and chief operating officer of the Houston-based energy and tradi= ng=20 company. Enron declined to specify how=20 much it earned from California during the past summer, when the state's=20 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 o ther commodities =01) increased 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. 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 weeks.=20 "California clearly drove the positive momentum at both of these companies,= "=20 said Carol Coale, senior analyst of Prudential=20 Securities. "And you probably just saw the beginning of a string of strong= =20 reports (from the power industry)." She and others=20 say they suspect that power companies derived billions in profits from the= =20 state, where tight supplies set the stage for huge price increases.=20 Companies did not necessarily have to own generating plants to profit from= =20 the deregulated market. Enron produces no electricity in California=20 but is the nation's largest electricity trader, buying and selling the outp= ut=20 of 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. "These massive profits=20 by the energy companies translate directly into thousands of San Diegans=20 losing savings that were planned for education, mortgage=20 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=20 massive profits for someone," Hunter said. Hunter insists that recent powe= r=20 prices violate federal law mandating that rates be "just and reasonable."= =20 He is calling for the Federal Energy Regulatory Commission to order refunds= .=20 FERC is scheduled to issue a report 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=20 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=20 also sought to correct an earlier report that Dynegy had quickly recouped t= he=20 cost 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=20 in the former San Diego Gas & Electric Encina power plant in Carlsbad =01)= =20 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=20 to provide reliable power and stable prices," Skilling said. He predicted= =20 that California's utility companies =01) which now buy much of their power = from=20 other companies =01) would sign long-term contracts to stabilize prices,=20 following an approach suggested by many power generators 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=20 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=20 choice about suppliers. Advocates of electrical deregulation had predicted= =20 that introducing competition would lead to reductions in power costs=20 and to 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=20 are shortages," said Snyder, who advocates an end to deregulation.=20 "They do not have consumer interests at heart." =20 =20
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