With the political and economic sensitivities that have built up over the past 18 months in the state toward Texas-based energy giants, California officials are expected to put in their own two cents regarding the proposed $23-24 billion buyout of Enron Corp. by Dynegy Corp. The two are among the half-dozen prominent national energy firms selling energy in California that the state’s political leaders have openly criticized as alleged “price gougers” and “market power abusers.”

With the increased politicization of state energy matters, the Los Angeles Times reported Sunday that the state is expected to “play a central role” in the proposed merger of the two Houston-based energy companies, attributing confirmation of that prediction to anti-trust experts and other experts watching the proposed marriage unfold. The state Attorney General’s Office, which has an ongoing investigation related to a number of out-of-state power generator/marketers that allegedly abused their market power last year and earlier in 2001, has begun studying the proposed Dynegy-Enron deal.

A newly combined Enron-Dynegy company would have a large presence in California energy markets for both natural gas and electricity, according to the Times, raising concerns among state officials.

“I would hope that people who look at the anti-trust implications would consider this one carefully,” state Sen. Steve Peace, one of the political backers of the state’s electricity restructuring five years ago, was quoted in the Times. “If anything, Dynegy would be in an even stronger position to be able to manipulate markets than it was before.”

Dynegy co-owns and operates three major baseload electric generating plants in California, more than a dozen peaking plants and has signed long-term contracts with the state that have turned politically controversial, and Enron has long been a political punching bag for the governor and state legislative leaders frustrated by the state’s wholesale power market that went haywire last year.

Along with the state attorney general beginning to scrutinize the proposed merger, a state legislative leader, Sen. Debra Bowen, said in the Times that she plans to ask the Federal Energy Regulatory Commission to look “beyond traditional measurements of how much the companies own in the market to examine ‘inputs’ into the market such as gas pipeline capacity controlled by the two companies and their combined gas trading.”

Opposition by California could be a “severe hindrance” to the Dynegy-Enron deal, according to a Washington, DC-based attorney and former Federal Trade Commission anti-trust investigator, Garret Rasmussen, who was quoted in the Times.

If the state chooses to abandon its usual hands-off approach to mergers, the state attorney general’s action could de-rail the proposed deal. And in other quarters, environmental leaders are saying state leaders should use whatever leverage they have to renegotiate their long-term power deals with Dynegy that now give the company a virtual blank check in having the state pay for added emission costs charged to the company’s in-state generating plants in the future.

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