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US power cos make millions as users groan

Aseem Chhabra in New York

Even as California faces acute power problems with rising electricity costs and occasional blackouts, reports indicate that large power firms in that state have made massive profits over the past year.

The power crisis has led federal regulators to try and enforce price caps on the sale of electricity to California, and the state's attorney general has called for a criminal grand jury to investigate into charges of price gouging by large power corporations.

Enron Corporation of Houston, Texas -- one of the major power companies doing business in California -- last year reported a fourth quarter profit of $777 million, more than double the $263 million reported in the same quarter in 1999.

Enron, which has a checkered history, is also embroiled in a dispute with the Maharashtra State Electricity Board over pricing by its India operation - the Dabhol Power Company. Enron owns 65 per cent stake in the Dabhol plant.

On June 17, Enron said that contractors had halted construction of the Dabhol plant's second phase as lenders shut off funds for the embattled project. The cash strapped Maharashtra State Electricity Board, Dabhol's sole customer in India, owes the company more than $48 million in overdue power bills. On June 18 Enron's stock -- traded on the New York Stock Exchange -- closed at an 18 month low of $44.70.

A report in last week's San Francisco Chronicle indicated that between May 2000, when the California power crisis started and April 2001, several top executives of the major power companies doing business in the state reaped hundreds of millions of dollars in capital gains on their stock deals.

The newspaper added that 19 top executives at Enron earned $127.33 million, by exercising their stock options. Kenneth Lay, the company's chairman, who is also said to be the unofficial energy adviser to President George W Bush, earned a total of $27.19 million in capital gains during the same period.

"We are a global energy company and California is a very small part of our business," Karen Denne, a spokesperson for Enron, said. She denied reports that the company made excessive profits at the expense of the state's residents.

Denne added that Enron did not keep a record of how much profit it earns from California.

"You know, we don't break up any specific region or any one state. So I can't say how much comes from California, but I can say it is very small."

Gary Ackerman, the executive director of the San Jose-based Western Power Trading Forum - a non-profit group whose members include the major energy companies in the United States -- also supported Denne position.

"These companies are multinational corporations and they make only a percentage of their earnings here in California," Ackerman said. "It would be ironic to try and tie together California wholesale electric prices with their earnings. It has nothing to do with the stock earnings or the stock options that the officers have."

The statements made by Denne and Ackerman were refuted by Nettie Hoge, head of The Utility Reform Network, a San Francisco-based energy activist and a watchdog group.

"If they want to make a case they would tell us what percentage of profits comes from California," Hoge said. "You know as well that inside their trading operations they probably have incentives for their traders. They have the most sophisticated trading programming in the world. And they know exactly where every penny is coming from."

"If they wanted to dispel the myth, they would tell the truth."

In the last year, while the executives at Enron and at other top power suppliers were reaping high capital gains, the prices their companies were charging soared by 289 per cent from an average of $28.34 to $110.51. In December 2000, prices rose from $31.88 to $425.59.

"The prices accelerated so much that the wholesale prices went out into the stratosphere" Hoge said. "Because the cap was in place (until last year the customers were not charged higher rates), the utilities just kept paying, because of their obligation to serve and they eventually spent out all their capital."

As a result the Pacific Gas and Electric Company declared bankruptcy in April 2001 and Southern California Edison is in deep financial trouble. In January 2001, the state's Public Utility Commission initiated a 9.6 per cent hike in electricity prices for residential customers, Hoge said.

In March, they issued another order which would increase prices by another 30 per cent, she added.

Ackerman would not speak specifically about any particular member company, especially Enron, but said that the high electricity prices in California were the result of the rules that the people of the state asked for in 1996.

"The prices were not capped in any way and they did not enter into long-term contracts," Ackerman said.

"Electricity was supposed to be bought in the spot market. The generators and sellers had nothing to with those rules. I am not trying to blame government officials. But my belief is that government officials do not do anything without public support," he added.

Ackerman said that California attorney general Bill Lockyer had the right to call a grand jury to investigate the allegations of price gouging by large power firms.

"We do not think the case has any merit, because the companies followed everything according to the rules," he added.

Hoge, meanwhile, said that electricity prices in California are so high that it is almost 'immoral and obscene'.

"Electricity is an essential commodity, be it here or in India. The money that should be spent on infrastructure, roads, health and human services, welfare planning, education and clean water ends up with these merchants," she said.

"Every dollar that goes to these greedy energy merchants is money that we don't get to spend on our own future," she said. "They are the energy barons and we are becoming their vassals, their serfs."

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