House Report: Independent Generators 'Profited Immensely' in CA

The parent companies of California's six largest nonutility generators "profited immensely" from the escalating bulk electricity prices last year, with corporate profits for each more than doubling 1999 levels, according to a new report from the House Committee on Government Reform. Their California power subsidiaries recorded gains in operating income and profits of tenfold or more in 2000, it estimated.

"These numbers underscore the extent to which out-of-state energy companies have profited from California's high energy prices," Rep. Henry Waxman (D-CA), ranking minority member of the committee, wrote in a recent letter to House energy leaders. They also point up the need for "measures to curb these enormous windfalls."

The report was undertaken by the minority staff of the committee's Special Investigations Division at the request of Waxman. It claims to be the first analysis of the 2000 profits and revenues of Duke Energy, Dynegy, Mirant Corp. (formerly Southern Energy), NRG Energy, Reliant Energy and Williams Energy. The information was derived from the companies' annual reports recently filed with the Securities and Exchange Commission.

Corporate-wide, Duke Energy recorded a 110% gain in its operating profit to $3.8 billion and a 110% gain in net profit to $1.77 billion (minus a $600 million extraordinary gain for 1999) last year, according to the report. Duke's North American Wholesale Energy unit, which has operations in California, posted an even greater increase. Its operating income rose 132% to $488 million last year compared to $210 million in 1999.

Houston-based Dynegy turned in a 168% hike in operating income to $1.46 billion for 2000, while its net annual profit more than tripled to $501 million from $152 million for the previous year, the committee report said. This was largely due to the performance of Dynegy Marketing and Trading-its power generation and marketing subsidiary-which saw operating income in 2000 grow 171% to $770 million and net income jump a whopping 311% to $440 million compared to $107 million in 1999, it noted. Dynegy and NRG jointly own 2,768 MWs of generating capacity in California.

NRG Energy reported that its operating profits rose more than fivefold to $573 million last year, and that its net income more than tripled to $183 million. NRG Energy's California operations accounted for approximately one-third of the parent company's net come in 2000, the minority staff report said.

Operating income for Reliant Energy of Houston grew 49% to $1.88 billion last year. The company's wholesale energy business segment, which supplies power and energy services to California and other markets, turned in "substantial gains" during 2000, the report noted. The segment's operating income soared 1,685% to $482 million last year compared to only $27 million in 1999, it estimated.

"This increase occurred despite the fact that Reliant has not been paid for much of the power sold in November and December 2000 through the California Power Exchange and to [the] Cal-ISO."

Williams Energy Services saw its operating income almost triple to $1.56 billion last year, which enabled it to move up to 168 from 215 on the Fortune 500, according to the report. Subsidiary Williams Energy Marketing & Trading, which markets about 4,000 MW of generation in California, posted a 869% gain in profits to $1 billion last year compared to $104 million during 1999.

Lastly, Mirant's operating income rose 50% to $664 million for 2000, but its net income fell 4% to $359 million due in part to a $313 million gain on the sales of assets and to higher interest expenses in 2000, the report noted. Revenues from the Mirant Generation and Energy Marketing Products segment, which includes the company's California operations, rose tenfold to $12.8 billion from $1.08 billion in 1999 due primarily to the company's acquisition of a 40% interest in Mirant Americas Energy Marketing last August and greater demand in California, it said. The report did not break out the profits for the segment.

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