Reliant claims California utilities, others reaped 'windfalls'

By the OGJ Online Staff

HOUSTON, July 11 � Operating costs and sales quantities are driving the revenue gains of California gas-fired generators, not increases in operating margins, Reliant Energy Inc. reported in a filing with federal regulators.

The Houston company said its operating profit for spot market transactions between October 2000 and May 2001 amounted to less than $130 million, not the multimillion dollars the state is demanding in refunds for alleged overcharges.

Reliant said its gas costs represented about 65% of its 2000 revenue, compared to 45% in 1998, in filings with the Federal Energy Regulatory Commission. Operating profits rose to $41/Mw-hr between October 2000 and May 2001 from $38/Mw-hr in 1998, Reliant said. Meanwhile, the company's sales quantities in 2000 were four times what it sold in 1998.

As a result, over this same period, Reliant's operating margins "have not dramatically changed," the company said.

Reliant said its analysis showed California's three investor-owned utilities and the Los Angeles's municipal utility collected more than half the $27 billion power bill in 2000. Another 22% went to British Columbia Hydro (BC Hydro), Bonneville Power Administration, and others who were buying little or no gas, it said in documents filed with the Federal Energy Regulatory Commission as part of the pending settlement case with California over alleged overcharges.

Net of gas costs, about 8% of the revenue associated with wholesale costs were paid the independent generators, or less than 24% of the revenue when gas costs are included, Reliant said, based on various public documents.

Because natural gas-fired generation is the marginal source of generation in California, the increase in gas costs contributed directly to the increase in overall wholesale power costs, the company said.

The implication an "alleged massive transfer of wealth moved to Texas-based entities, or to entities based in states outside the West" seems implausible, Reliant said, since the largest outside supplier to California was the Canadian supplier, BC Hydro, which along with numerous western suppliers provided the bulk of energy to California from outside the state.

Generation retained by Southern California Edison Co., Rosemead; is principally nuclear, and in the case of Pacific Gas & Electric Co., San Francisco, nuclear and hydroelectric generation. For owners of hydro and nuclear facilities, the increase in revenue in 2000 was not offset by increasing fuel and emissions cost.

As gas prices increased, nuclear and hydro became more profitable.

"Lower variable cost nuclear and hydro enjoyed a very large windfall as power prices rose due to gas-fired generation on the margin and increased gas costs," Reliant said. Its analysis showed operating margins of the investor-owned utilities was almost two-and-one-half times that of the independent generators.