Enron not California’s largest power supplier, but merger could affect prices

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The Associated Press

When Houston-based Dynegy Inc. announced Friday that it had bought Enron, its larger rival for $7.8 billion shares of stock, some energy traders predicted fluctuating power prices in the coming months throughout the West as the market settles into a new hierarchy with one fewer provider.

“The fragility of the system is such that a small perturbation can turn everything upside down very easily,” said Gary Ackerman, executive director of the Western Power Trading Forum, of which Enron is a member. “A week ago I don’t think many people would have even contemplated this.”

The loss of Houston-based Enron will “make prices more jumpy and more uncertain and it’s going to take the market some time to calm down,” Ackerman said. Should the Northwest have a chilly winter, prices could spike with fewer sellers in the market, he said.

And that in turn could affect California’s pocketbook, though the state buys a negligible amount of electricity from Enron, said Oscar Hidalgo, spokesman for the state Department of Water Resources, which buys electricity for the customers of two financially ailing utilities. Hidalgo said the state had a long-term contract with Enron earlier this year though the marketer opted out of it after a month.

“They have indicated to us that we were somewhat of a credit risk for them, like many generators at the time,” Hidalgo said.

Earlier this year, Enron attempted to cancel its contract as electricity and natural gas provider to California’s two public university systems, which spent more than $170 million combined last year on the fuels. It was unclear Friday what would happen to those contracts.

Enron‘s reach in California goes beyond keeping the lights on.

The state’s retirement pension fund owns 3 million shares of Enron stock – about 1 percent of its total investments – said CalPERS spokeswoman Pat Macht. The CalPERS board will meet next week to discuss the situation, she said.

“I can only say at this point that we were as surprised and shocked as the rest of the world was about what has been going on there and we’re assessing our options,” Macht said.

Enron Corp.’s outspoken support for deregulation of the country’s electricity markets sparked resentment in California as rolling blackouts swept through earlier this year, although the energy marketer is not one of California’s largest power providers.

Some felt the financial downfall of the nation’s top buyer and seller of natural gas and major electricity seller was justified.

“The principles of karma seem to be working here,” said Harvey Rosenfield, founder of the Santa Monica, Calif.-based consumer advocacy group the Foundation for Taxpayer and Consumer Rights. “Here Enron was one of the chief proponents of deregulation and took advantage of it and benefitted enormously and now is reaping the consequences.”

Earlier this year, California Attorney General Bill Lockyer subpoenaed Enron‘s electricity trading records as he sought to prove the state was the victim of price gouging which led officials to spend more than $9 billion buying electricity for the customers of two financially troubled utilities. Enron repeatedly denied all accusations of market manipulation.

Enron, the nation’s top buyer and seller of natural gas and the top wholesale marketer in the United States, had become one of the nation’s 10 largest companies, recording revenue of $100.8 billion in 2000.

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