Because of the California energy crisis and the Enron Corp. bankruptcy, the merchant generation business was quickly covered up by “mountains of misinformation,” which will take a couple of years to overcome, according to an energy expert speaking at the GasMart/Power 2002 conference in Reno Tuesday.

Joined by executives with Calpine Corp. and MRW & Associates, Dynegy Inc.’s Peter Esposito blasted California and federal politicians for misleading information about the causes of California’s energy crisis last year and about Enron’s hand in supposedly manipulating the power markets. However, the three panelists agreed that the misinformation has led to financial problems for merchant generators, and will most likely remain a dilemma for more generation building for the next two years.

Esposito, a Dynegy vice president and regulatory counsel for several business units, told the capacity audience that merchant generators did not cause California’s energy crisis, and Enron did not manipulate the derivatives market or power prices. “The real cause was weather and demand,” Esposito said, that collided with California’s power market design and lack of price signals. “When in doubt, allege greed.”

Dynegy has taken some heat, said Esposito, because it saw its profits increase during the same time as the California crisis. However, he pointed out that mergers had led to the company’s revenue doubling. “Get over it. The aliens did not steal California power,” he said, referring to Gov. Gray Davis’ contention that out-of-state marketers were gouging residents.

The aftermath of California has led for a call to regulate energy derivatives (in a bill sponsored by California Sen. Dianne Feinstein). Esposito said the senator’s bill was merely a way to “get back at us” for making money.

Additional regulation or not, the panel said the next couple of years will be difficult for merchant generators. Already, Calpine and other generators have announced they will delay construction for many power plants on the drawing board two years ago, mostly because of the fallout from Enron and resulting financial liquidity concerns.

Steve Schleimer, director of Calpine’s market and regulatory affairs in the western region, said the industry was facing several challenges, and his company had slowed down development in “some areas” because of it. “It is more difficult to find financing for ‘pure’ merchant construction,” he said, resulting in more mid- and long-term contracts for output from facilities.

While the Federal Energy Regulatory Commission appeared committed to making the “electric side work as well as the gas side,” Schleimer noted that in the states, the trends were not as positive. “States have an increased desire to assert control over utility procurement now,” he said, and are also adding “tough permitting requirements.” However, Calpine and other generators will “regain their strength by allaying the remaining liquidity and credit concerns,” and “maintaining a substantial cash cushion.”

Robert B. Weisenmiller, PhD, a principal of MRW & Associates based in Oakland, CA, warned that the “unparalleled magnitude” of Enron and California’s problems will lead to problems in energy supply within five years as more companies delay construction. “The real impact is in the financial community,” said Weisenmiller, “which has gone from boom to bust.” Post-Enron, Weisenmiller noted that credit ratings for many of the major generators, including Calpine and Dynegy, have been downgraded, leading to the slowdown in plant construction — especially in the West.

“The financial community is terrified by the West,” he said, and will use caution before giving the green light on any projects. However, the economy will pick up again, and there are “brighter days out there.”

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