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Dynegy warns it'll shut down plants Supplier doubts ISO's ability to pay

By Dean Calbreath UNION-TRIBUNE STAFF WRITER April 13, 2001

Houston's Dynegy Corp. is threatening to stop selling energy from its San Diego plants into the California power grid, a move that could deprive the state of enough electricity to serve more than 250,000 homes.

Dynegy says it no longer wants to sell power to the California Independent System Operator, which runs 75 percent of the state's power grid, because it is afraid that it will not be paid.

"The ISO cannot lawfully compel Dynegy or any other market participant to sell without providing a credit-worthy buyer," Dynegy President Stephen Bergstrom said yesterday.

State requests for power spending now top $5 billion Texas energy company says Pacific Gas owes it $570 million Harrah's adds rising power costs to room rates Theme parks hope lights stay on but prepare for worst -------------------------------------------------------------------------------- Developments in California's energy crisis

A spokesman for Gov. Gray Davis questioned Dynegy's action and said the ISO has had no problem paying its bills. San Diego Gas and Electric, which is in charge of running Dynegy's 18 turbine generators through May 22, said it will continue to sell the power from the generators for as long as it can.

"To insist that the combustion turbines be silenced ... reveals a callous indifference to the basic needs of all Californians," SDG&E President Debra Reed wrote to Bergstrom yesterday. "Given the energy crisis currently gripping our state, we are appalled you would even consider such an action."

Consumer activists say there may be an ulterior motive to Dynegy's move: By taking the generators off-line, Dynegy can boost the prices it charges from its other plants in the state. Some are calling on the Davis administration to seize the plants.

"If Dynegy is willing to turn the lights out on California, we have to turn the lights out on Dynegy," said Doug Heller, an advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica. "They are in effect demanding a ransom payment, and we shouldn't negotiate with terrorists."

Steve Maviglio, spokesman for the governor, said that "any threat by a generator to shut down plants while we're in dire need of power is outrageous and irresponsible." Maviglio added that the governor "hasn't ruled out taking over plants to keep the power flowing in California."

Houston-based Dynegy entered the California market on the eve of deregulation in the late 1990s. In 1999, it bought 18 turbine generators from SDG&E and joined with NRG Energy to buy a power plant in Carlsbad.

Over the past year, Dynegy has been one of the main businesses profiting from the California energy crisis.

Last year, Dynegy sold power in California for a peak average of $113.51 per megawatt-hour. In comparison, its average peaks ranged between $36.43 and $39.96 per megawatt-hour in the other areas of the country where it operates.

The state of California is suing Dynegy and several other power companies, claiming they have manipulated the energy market to drive prices higher. The Federal Energy Regulatory Commission has slapped Dynegy with $22 million in fines for alleged overcharges that occurred in January.

An ISO survey named Dynegy as generating the fourth-highest amount of energy overcharges in the state last fall, after BC Hydro, Southern Co. and Reliant Energy, The Los Angeles Times reported this week.

Dynegy denies any wrongdoing. It says its chief concern is whether the ISO has enough money to continue paying its bills after the bankruptcy of its biggest customer, Pacific Gas and Electric.

"We are more than willing to sell to someone who can pay for it -- to a credit-worthy entity," Dynegy spokesman Steve Stengel told the Bloomberg wire service. "We want to be paid for the output."

This is not the first time Dynegy has been involved in such a dispute. During the spate of blackouts this winter, Dynegy joined Reliant in trying to get out of agreements to supply power in an emergency to avert outages. Dynegy's attorney essentially argued that the state should buy power at any price the generators determine.

On Tuesday, Bergstrom called Sempra Energy Chairman Stephen Baum and advised him that he intended to stop sales from the 18 generators, which provide power during peak energy usage. Baum, whose company owns SDG&E, balked at the request and then began a public relations assault against Dynegy, informing the press of Bergstrom's intentions.

At the same time SDG&E is taking a firm stance against Dynegy, it is also trying to get the Davis administration to pay more for the utility's transmission lines -- a key component to Davis' proposed solution to the energy crisis.

Over the past month, Davis has been trying to buy transmission lines from the state's three big utilities: Southern California Edison, PG&E and SDG&E. Although his plan was stymied by PG&E's bankruptcy filing last Friday, Davis on Monday announced an agreement to purchase Edison's transmission lines for $2.76 billion, or 2.3 times their book value -- a high price by market standards.

Davis is pitching a similar deal to Sempra, offering $1 billion to buy SDG&E's transmission lines, currently valued at $437 million, Baum said.

But Baum said the state must compensate Sempra for depreciation of its transmission lines, which would boost the price to between $1.2 billion and $1.4 billion.

"We're cooperating with the state," Baum said. "I endorse the state's ownership of the transmission grid. I think that would be a good thing. But we think something should be done to equalize the differences in depreciation (between Sempra and Edison)."

Davis spokesman Maviglio seemed skeptical as to whether Sempra will get its wish.

"The template we used for the Edison purchase is the one we'll use for Sempra," Maviglio said, although he added that "everything's under negotiation. We'll give in some areas, get in others."

Some market watchers say the state is already paying too much for the transmission system.

"The utilities are making out like bandits on this deal," said Jesus Arredondo, spokesman for the now-defunct Power Exchange, which oversaw energy sales through much of the past year. "For one thing, there's a clause that allows the utilities to buy the whole thing back, which of course they'll do at prices that are advantageous to them."

Michael Shames, who heads the Utilities Consumers Action Network, said that the $1 billion price tag for the SDG&E transmission lines "was on the high end of credible. To ask for $1.2 billion is lapsing into the laughable. To try for $1.4 billion is outrageous."

http://www.signonsandiego.com/news/reports/power/20010413-9999_1n13power.html

-- Martin Thompson (mthom1927@aol.com), April 14, 2001

Answers

SATURDAY APRIL 14 2001 Dynegy in Californian power clash BY CARL MORTISHED, INTERNATIONAL BUSINESS EDITOR DYNEGY, the US power company, is threatening the shutdown of power generators in California because it fears that it will not be paid for its electricity. San Diego Gas and Electric, a Californian utility that operates the generators under contract, accused Dynegy of ordering their shutdown and said that the action could affect 250,000 homes.

Debra Reed, president of the San Diego utility, told Dynegy that it would refuse to discontinue sales to California Independent System Operator, which operates the grid. “Given the energy crisis currently gripping our state, we are appalled that you would even consider such an action,” she said.

California has been beset by electricity blackouts and a financial crunch that has rocked leading utilities, such as Pacific Gas & Electric. Fingers have been pointed at out-of-state power companies, which have been accused of profiteering from the soaring cost of electricity in California.

In a letter to the San Diego utility, Stephen Bergstrom, Dynegy’s president, denied telling it to shut down power stations, but insisted that it was entitled to restrict sales to customers who could pay. He cited a federal court ruling that generators did not have to supply the grid unless it could provide a creditworthy buyer. Copyright 2001 Times Newspapers Ltd.

http://www.thetimes.co.uk/article/0,,5-114599,00.html

-- Martin Thompson (mthom1927@aol.com), April 14, 2001.

Friday April 13, 9:57 am Eastern Time

Press Release Letter From Dynegy President and COO Steve Bergstrom to San Diego Gas & Electric Chairman Stephen Baum

HOUSTON--(BUSINESS WIRE)--April 12, 2001--Following is the full-text (not excerpted) version of a letter sent today to San Diego Gas & Electric (SDG&E) by Dynegy Inc. President and Chief Operating Officer Stephen W. Bergstrom:

Mr. Stephen Baum Chairman and CEO San Diego Gas & Electric 8330 Century Park Court San Diego, CA 92123-1530

Dear Steve:

I am disappointed by the letter I just received from San Diego Gas & Electric ("SDG&E") President Debra Reed. That letter seriously mischaracterizes the conversation you and I had yesterday. It also incorrectly references language from a letter Dynegy sent to SDG&E today. To make matters worse, SDG&E simultaneously issued a news release selectively quoting from Ms. Reed's letter before I even had an opportunity to read it.

First, contrary to the assertion in Ms. Reed's letter, Dynegy Power Marketing Inc. (as scheduling coordinator for Cabrillo II LLC, "Dynegy") has not asked SDG&E to ignore lawful ISO orders. As you know, last week, both the U.S. Court of Appeals for the 9th Circuit and the Federal Energy Regulatory Commission clarified, in no uncertain terms, that the ISO may not compel generators to provide energy to the ISO unless the ISO can provide a creditworthy buyer. After requesting, and not receiving, credit assurances from the ISO, and in accordance with the FERC order, Dynegy has restricted sales through the ISO to transactions which involve a creditworthy purchaser. The ISO cannot lawfully compel Dynegy or any other market participant to sell without providing a creditworthy buyer.

Second, Dynegy did not instruct SDG&E to shut down generating units, nor did we suggest that we would not make power available to creditworthy buyers. It has always been Dynegy's practice to make the output of its California generation facilities available for sale to meet the State's electricity needs. In fact, last month, Dynegy executed a long-term agreement with the California Department of Water Resources to sell up to 2,300 MW of electricity (substantially all of West Coast Power's(a) generating capacity) to California over the next three-and-a-half years. Contrary to your press release, the full output of the Cabrillo units is available to any creditworthy buyer, including SDG&E. We have reaffirmed this point with both the ISO and the California Department of Water Resources.

Finally, I will gladly discuss any concerns that you may have. We continue to believe the best way to address California's energy situation is to resist the urge to sensationalize normal business proceedings. Such actions only serve to generate unnecessary controversy and misinterpretation, and thwart the efforts of all parties to work together to ensure the State's long-term energy needs are met.

Cordially,

Stephen W. Bergstrom President and Chief Operating Officer

(a) West Coast Power is the 50-50 joint venture between Dynegy and NRG Energy Inc.

http://biz.yahoo.com/bw/010413/0033.html

-- Martin Thompson (mthom1927@aol.com), April 14, 2001.

"Steve Maviglio, spokesman for the governor, said that "any threat by a generator to shut down plants while we're in dire need of power is outrageous and irresponsible." Maviglio added that the governor "hasn't ruled out taking over plants to keep the power flowing in California."

I would say that a continually exploding population is also outrageous and irresponsible.

-- Guy Daley (guydaley@altavista.com), April 14, 2001.