In the News: Recent Developments
 


May 2, 2001

Bloomberg NewsDuke, Others Sued Over Power Prices in California

(Sacramento, California) California’s top five power producers were sued by two state officials who accuse the generators of manipulating the energy market to extract illegal profits.

Duke Energy Corp., Dynegy Inc., Mirant Corp., Reliant Energy Inc. and Williams Cos. were sued today in Los Angeles Superior Court. California Lieutenant Governor Cruz Bustamante and Assemblywoman Barbara Matthews, both Democrats, filed the suit.

“When you put us in the corner, we’re going to fight back, and we’re going to use everything in our power to fight back with,” Bustamante said at a press conference in (Sacramento, California.

The suit is the latest effort by California officials to determine if power generators illegally manipulated the market to reap excess profits. The suit comes as Governor Gray Davis plans to meet next week with generators and pressure them to accept reduced repayment for power sold to the state. California’s two largest utilities owe $3.7 billion to power generators.

`All Avenues’

“We’ll use all avenues available to us, including prosecution by the (California) Attorney General’s office and lawsuits,” Davis said in an interview yesterday. Davis didn’t join Bustamante’s suit, said spokesman Steve Maviglio.

“I commend Lt. Governor Bustamante and Assembly Member Matthews for their efforts to protect California consumers,” Davis said in a statement. “That action in filing litigation opens a second front in California’s war against price gougers.”

The suit accuses the companies of using 19 natural-gas-fired power plants to manipulate supply in the state, in effect creating a monopoly. That market power allows the generators to set electricity prices in the state, which has suffered blackouts this year, the officials claimed.

If the suit succeeds, a judge could force the companies to pay back profits from any illegal activities and pay fines, including triple damages.

“The allegations in the lawsuit are false, defamatory and totally without merit,” Reliant Resources Inc.
spokesman Richard Wheatley said. Reliant Resources is the power-generating and trading unit that Reliant Energy Corp. spun off yesterday. “We have not engaged in any of the activity alleged in that lawsuit.”

Duke, Dynegy, Mirant

Duke spokeswoman Cathy Roche said California politicians have been making generators the villains in the state’s power crisis since it began last year. “The allegations are more of the same falsehoods,” she said.

Dynegy officials haven’t seen the suit yet, said spokesman Steve Stengel. “If this is like other suits filed in California, it does nothing to increase supply or reduce demand and we feel that time would be better spent working on solutions rather than assessing blame,” he said.

Mirant has “done nothing wrong,” said spokesman Brian O’Neel. “We’ve operated from day one by the rules that California and the Federal Energy Regulatory Commission put in place.”

Officials at Williams couldn’t immediately be reached to comment. Generating companies have repeatedly said they obeyed the law in setting prices for California’s newly deregulated power market.

The suit named the companies as well as 14 of their top executives, including Williams Chief Executive Keith Bailey, Mirant Chief Executive William Dahlberg, Reliant Chief Executive Steve Letbetter, Duke Chief Executive Richard Priory and Dynegy Chief Executive Charles Watson.

Allegations

The suit alleges violations of California’s antitrust law and unfair business practices statute. Bustamante and Matthews filed as private citizens acting on behalf of California taxpayers. The state of California isn’t a plaintiff in the suit.

“Each of the defendants acted with the anticompetitive purpose of using economic and physical withholding of electricity from the California electric-generation market in order to derive monopoly profits,” the suit claims.

The suit “obviously is intended to put pressure on the generators as well as provide potential leverage to negotiate lower prices” for electricity, said David Huard, an energy-law attorney at Manatt Phelps & Phillips in Los Angeles.

The five companies all had increases of at least 54 percent in their first-quarter profits, partly from higher power prices in the West.

Generator Profits

Tulsa, Oklahoma-based Williams’ profit more than doubled in the first quarter, as did Reliant’s. In addition to being a power generator, Williams is the No. 2 U.S. pipeline owner. Reliant is the No. 2 U.S. utility owner, with regulated utilities in Texas.

Charlotte-based Duke, which saw the smallest increase in profits, at 54 percent, is the top U.S. utility owner. The majority of its profit still comes from regulated utilities in the Carolinas.

PG&E Corp.’s Pacific Gas & Electric and Edison International’s Southern California Edison, the state’s two biggest utilities, owe more than $3.7 billion to generators, said Joseph Fichera, Governor Davis’s chief financial adviser on energy. The utilities have accrued more than $14 billion in losses buying power for more than they are allowed to charge customers.

Under the state’s deregulation laws, wholesale power prices are allowed to float while customer rates have been temporarily frozen. Pacific Gas & Electric last month filed for Chapter 11 bankruptcy protection. Southern California Edison is nearly insolvent.

Houston-based Reliant is owed $337 million from California sales, Reliant’s Letbetter told shareholders today. The company’s California receivables aren’t growing, he said, because of a court victory that allows the company to stop selling power to entities with poor credit.

Duke Offer

Duke, which supplies about 5 percent of California’s power market, has approached the governor’s staff with an offer to accept less than it was owed for power sold in the state in return for an end to state and federal investigations, Davis spokesman Maviglio said.

Davis wasn’t present at those meetings, which covered their offer only in “general terms” Maviglio said. Davis said yesterday that the investigations would continue.

“We are moving ahead full speed,” Davis said.

California Attorney General Bill Lockyer is investigating whether the generators illegally manipulated the electricity market in the state, as is a state Senate special committee. Private suits have also been filed in the state.

–Daniel Taub, in (Sacramento, California) (310) 770-1292 or dtaub@bloomberg.net, and David Ward in San Francisco, with reporting by Margot Habiby in Houston, Anna Marie Stolley in Los Angeles and Samantha Zee in San Francisco, through the San Francisco newsroom, (415) 912-2980/dfr


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