The power industry should look to the Federal Energy Regulatory Commission, not Congress, to accomplish the restructuring of the electric power market, Dynegy Chairman Chuck Watson told a Washington audience Thursday. “FERC knows how to get things done.”

Keynoting the Energy Bar Association’s annual meeting, Watson praised FERC’s initiative on regional transmission organizations (RTOs). “FERC set the parameters. Chairman Wood said we’re going to have four RTOs. Nobody thinks there’s going to be four, but guess what, from that position it’s not going to be 20, it’s not going to be 30. It might be six. He wants four. I want one. That’s what we have in the gas business. We have one.”

The power industry “doesn’t have to look very far to see a pattern of success with open transportation; they have it in the gas industry.” Prices went down precipitously with deregulation and they mainly have stayed there in real terms. Even with the collapse of Enron, the “self-proclaimed leader” of the gas and power market, happening during bidweek, the market functioned with no disruption or price gyrations. Watson estimated that 80% of the wholesale natural gas market is deregulated, versus only about 20% of the wholesale power market.

Transmission and the wholesale power market are the first things that have to be deregulated, Watson said. Opening up transmission will average out prices. Without deregulated transmission “the two outside ends of the market can’t see each other.” He pointed to the power price spike in Chicago four years ago, saying it wasn’t a supply problem. “We had the supply, but we couldn’t get it there. The market’s not working; you’re not getting a fair assessment of deregulated market because we don’t have one.” Nor can you “deregulate retail if the wholesale market isn’t fixed.”

The California crisis “wasn’t a failure of deregulation; it was a failure to deregulate.” It was also about 12 years of growing demand with no new facilities built, a flawed deregulation plan and a booming economy. Citing environmental constraints, Watson said, “You couldn’t get a permit. You still can’t. Nothing’s changed at all.” And California’s problems exist in other parts of the country as well; they just haven’t been as severe or focused.

The Dynegy chairman told the audience of energy attorneys that recently on a visit to Washington he was “bombarded” with questions from a congressperson and her staff as to why Dynegy hadn’t proposed any new plants in California. After a pause to let the laughter from the audience die down, Watson continued. “Hello? I was dumbfounded. My comment was that my stock would go down.” Dynegy currently is fighting between seven and eight lawsuits about the California crisis, the state is attempting to renege on long-term contracts that it signed, and it is opting for caps and collars on prices.

Until “we stop playing the blame game,” and “start really cooperating with constructive dialogue there will be no new capital” going into energy in California, Watson said.

He warned against the danger of Congress enacting onerous laws changing the rules retroactively, noting that danger is greatest in the months before the November election.

Watson also defended corporate America, warning against dangerous legislation and tarring all companies with the Enron brush. Consumers are angry, but they have to get over the “notion that every company is dishonest… Enron was way outside the bounds; it wasn’t a little bit outside. It was way outside You don’t see that anywhere else.” Dynegy employees and management “really believe in doing things the right way, and I believe it is the same with corporate America.” Despite increased financial disclosure since the Enron debacle, very few companies have been found cheating, “and those that have, have ended up on the front page. I wish they would put all the companies that didn’t cheat on the front page.”

There has to be an end to “post-Enron bashing of all corporate America. We have to have more trust in one another.” The United States is in danger of losing its place as the leader of the free market system, the Dynegy chairman said. Last Friday China announced it was breaking up its state power company. “If China can get it right, why not California, or Florida or any of the other states?”

Questioned on other issues, Watson said Dynegy expects to complete the takeover of Northern Natural Gas July 1 after the deadline passes for Enron to buy it back. According to terms of the deal signed by the two companies when Dynegy was making a rescue bid for Enron, the bankrupt company has until the end of June to buy it back. But “they may have difficulty finding a partner that will finance it,” Watson said. “I’m not expecting that will occur,” and the pipeline “will make a very strong increment” to Dynegy’s asset base. Most of the pipeline’s transmission management level switched to Dynegy in January after it won out in a lawsuit challenging the deal, and the rest are expected to join the Dynegy fold July 1.

Questioned on the recent run-up in natural gas prices, Watson said some of it was due to fundamentals, but it was mostly in sympathy with the rise in oil prices.

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