Dynegy not affected by California woes

By Ann de Rouffignac
OGJ Online

HOUSTON, May 23--Dynegy Inc. told analysts yesterday that it didn't expect any more fallout from California, despite the war of words Gov. Gray Davis is waging against generators.

But the big energy company said in an analysts' conference it was not too interested in building additional capacity in that state.

Dynegy said it expects to be paid the $313 million of past due bills for power delivered to utilities but unpaid. And the company said it is getting paid on a going forward basis for power generated by its California assets.

Dynegy revealed details about its long-term contract with the California Department of Water Resources at the conference. Dynegy agreed to sell 1,000 Mw of power to the California Department of Water Resources in 2001 and 2,300 Mw in 2002-2004, according to a report on the conference by James Yannello, analyst with UBS Warburg LLC.

The contract includes some power at a fixed price and some in a tolling arrangement allowing Dynegy to pass through all of its gas and emissions costs to California.

"The contract stipulates that the DWR agree that Dynegy's rates are just and reasonable," Yannello said in the report. Because of the contract, California rhetoric of seizing privately owned power plants will not affect Dynegy's plants, according to Yannello.

But the rhetoric has taken a toll on energy company power plant plans for California.

Just yesterday Gov. Davis reminded the media that California is in a "war with energy producers." He said generators were "squeezing the state dry charging outrageous rates." The governor said the best way to avoid blackouts and minimize "price gouging" was to build more power plants.

Only Calpine Corp., a California-based energy producer, and Covanta Energy Corp., a small biomass power plant developer, have filed new applications for large power plants recently.

Dynegy and partner NRG Energy Inc. have a power project pending before the California Energy Commission to replace and expand the capacity of an old gas-fired power plant in Los Angeles County. "[Dynegy]We have made no decisions if we will make an additional capital investment in California," said Steve Stengle, spokesman for Dynegy. "We will work through the permitting process though."

Plans had been filed to replace the aging 350-Mw plant with a new 630-Mw power plant in Dec. 2000 before the rhetoric and name-calling had become a daily activity by California officials. The application for certification was declared "data adequate" by the California Energy Commission on Feb. 7. The commission then began a 12-month review process.

Given the almost daily negative remarks by state officials, Dynegy is not willing to commit the $350 million-plus for that power plant yet.

Other large generators, including Mirant Corp. and Duke Energy Corp., told OGJ Online the same thing.

Mirant has two large power plant projects in the permitting stages pending at the commission.

"We want to get them permitted. But once it comes to putting steel on the ground, we could put those turbines someplace else. We will have to reevaluate the business climate to go forward," said Chuck Griffin, spokesman for Mirant.

Duke has announced no new plants for California this year but is moving rapidly ahead in other regions of the country, said Tom Williams, spokesman for Duke.

Duke says it will proceed with permitting for a 1,200 Mw power plant proposal for Morro Bay. That plant application was filed in October of last year.

"But once permitted, we will look at the economic and regulatory situation and decide whether to move forward," Williams said.