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Editor’s Notebook Corporate neighbors carrying carpetbags

Noticeably quiet during these past few months of turmoil over deregulated electricity rates have been the “other” big energy companies in town.

Due to the prominence of its name on our outrageously high electric bills this summer, San Diego Gas & Electric Co. has caught most of the flak from our outbursts of anger, despite the insistence of company executives that they were merely passing on the deregulated cost of power without markup.

SDG & E;’s parent, Sempra Energy, has been the focus of our communal contempt as well , and rightly so. After all, Sempra was a major beneficiary of the skyrocketing wholesale costs of electricity in California.

Overall corporate income at Sempra was up 16 percent for the first nine months of this year over the same time period last year. A large part of this was due to the growth of profits at Sempra Energy Trading (SET), Sempra’s wholesale energy trading arm.

According to Sempra’s third quarter filing, SET’s net income for the first nine months of 2000 was $102 million, up from $9 million for the same period a year before. Most of this growth was “primarily due to increased volatility in energy prices” as well as expansion into new markets.

But Sempra isn’t the only corporate neighbor making a killing on deregulated electricity. There are three other major energy corporations in town which have been keeping a decidedly low profile during all this tumult.

Take NRG Energy, for instance.

NRG , along with another energy wholesaler, Dynegy, Inc. , bought SDG & E;’s Encina Power Plant in Carlsbad in 1999, as well as 17 smaller SDG & E; gas turbine plants throughout the county. The power plants are currently operated under contract by SDG & E; and sell energy into the California Power Exchange (CalPX), the commodities market for electricity in California’s deregulated energy market.

According to its third quarter filing, energy wholesaler NRG Energy made a healthy buck or two this year.

NRG’s net income for the third quarter of 2000 rose to $113.67 million from $48.2 million for the same period last year. Its income for the first nine months of this year was $204.7 million, up from $55.8 million in 1999.

NRG’s partner, Dynegy, scored a pretty penny as well. According to its third quarter filings, Dynegy realized a net income of $235 million during its third quarter of 2000, up from only $50.7 million for the same period in 1999. Dynegy credits the “nationwide volatility in both the power and gas markets” for the incredible boost in earnings.

The first three quarters of the year saw similar growth for Dynegy, with a net income of $394.6 million, compared with only $106.7 for the same period last year.

Duke Energy Corp. saw similar profit growth this year. Duke acquired the right to operate or replace Chula Vista’s aging South Bay Power Plant, which SDG & E; sold to the San Diego Unified Port District last year.

Duke’s North American Wholesale Energy (NAWE) division saw earnings before interest and taxes rise to $231 million in this year’s third quarter, up from $84 million last year. For the first nine months of 2000, NAWE’s earnings before interest and taxes were $415 million, compared to only $156 million in 1999.

Duke attributes the massive profit increase to $49 million earned from selling off generating facilities, and “increased trading margins due to price volatility in gas and power.”

Like Sempra’s SET, PG & E; National Energy Group did a lot better this year than its sister division, Pacific Gas & Electric, the northern California utility. The wholesale energy producing and trading arm of PG & E; Corp. is planning to build a power plant on Otay Mesa.

According to PG & E;’s third quarter filings, its National Energy Group increased its net income in the third quarter by $40 million, to $225 million this year from $185 million last year. Its nine-month net income for this year was $753 million, up from $538 million last year.

Among other things, PG & E; credits “increases in the price of power and gas in the second and third quarters” for the increase in revenues and profits.

These companies would like us to believe their massive profit increases involved elements other than California’s dysfunctional deregulated power market. Yet is it realistic to think five separate companies all experienced such unbelievable profit growth through the normal course of business?

No. It is obvious their good fortune was made at the expense of ours. The hollow storefronts of local businesses forced out of existence by high electric costs are the legacy of their greed.

Now these companies come into town like carpetbaggers, promising their plans to produce more electricity locally will guarantee lower power costs for San Diegans. They neglect to say all the power they produce will be sold through the CalPX, where the highest bid , not the lowest , is what consumers end up paying.

These same corporate “neighbors” are fighting tooth and nail to prevent any changes in the California marketplace. When the California Independent System Operator, the nonprofit agency that oversees the running of the state’s power grid, proposed new cost-based price caps, the power generation industry complained to federal regulators that the ISO was “meddling” in the marketplace.

Faced with the possibility of lower price caps on wholesale electricity sales, Randy Hickock, Duke’s managing director for California commercial sales, was very clear what his company’s position was.

“We aren’t interested in a cost-of-service based industry,” he told Dow Jones Energy Service. “That clearly isn’t the market we came to participate in, and it would be a simple decision , we’ll take our turbines someplace else.”

Obviously, these firms are quite content with the dysfunction wrought by energy deregulation in this state. And just as obviously, they would like to see it continue, profiteering at the expense of everyone else’s business.

Hill is editor of the San Diego Business Journal.

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