Calif Probe Focuses On Dynegy,Mirant Plants-Commissioners  ????
Updated: Monday, May 21, 2001 05:28 PM?ET ????? 
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By Jason Leopold and Mark Golden 

Of DOW JONES NEWSWIRES 

LOS ANGELES (Dow Jones)--California officials are focusing an investigation 
into the state's wholesale electricity markets on two power plants operated 
by two of the state's largest merchant power companies, Mirant Corp. (MIR, 
news, msgs) and a joint venture between Dynegy Inc. (DYN, news, msgs) and NRG 
Energy (NRG, news, msgs), according to two commissioners on the California 
Public Utilities Commission. 

The CPUC and the state Attorney General are investigating whether output was 
withheld in order to maintain high prices over the past seven months at 
Mirant's Pittsburg plant in northern California and the Encina power plant, 
which is equally owned by Dynegy and NRG, near San Diego. 

All power plants in the state are being examined, but investigators have 
found that the Encina and Pittsburg plants have reduced power during supply 
shortages, causing market prices to rise. 

But so far, the commissioners said, investigators have found no activity that 
is clearly illegal. 

"Is it unethical? Yes," one PUC commissioner said. "But is it illegal? No, 
unless there was collusion. This is the system we set up. What the generators 
are doing would be the appropriate thing to do if you are going to maximize 
your profit to shareholders." 

Spokesmen for Mirant and Dynegy flatly denied the charges. 

"What we did was both legal and ethical," said Mirant spokesman Chuck 
Griffin. "There was a very forthright attempt to keep these plants up and 
running. Unequivocally, we have never held anything back." 

Some of the turbines at the Encina plant are peaking units, which are 
supposed to ramp up and down to meet demand, Dynegy spokesman Steve Stengell 
said. The plant is operated by NRG, but Dynegy markets the power from the 
plant and tells NRG how much power to generate based on what has been sold. 

"We've done absolutely nothing to manipulate prices," Stengell said. 
"Electricity demand increases and decreases throughout the day. Our 
production increases and decreases to follow changing demand. Ultimately, the 
ISO determines the exact amount of dispatch." 

A spokesman for Attorney General William Lockyer declined to comment on the 
ongoing investigation. 

CPUC President Loretta Lynch told California newspapers last week that her 
office and that of Lockyer's have enough information to take legal action 
against generators next month, though she declined to name the companies 
involved and she said that the exact nature of the legal action is still 
under review. 

"We get really tired of these assertions with no evidence to back them up," 
Griffin said. "This whole idea that any generation was held back at any time 
is completely bogus. It is pure political rhetoric." 

Mirant's California power plants have run at full power during critical times 
except under one of two conditions, Griffin said. Either generating units 
were broken and had to be taken off line to be fixed, or they were beginning 
to run in a way that violated environmental restrictions and Mirant had to 
get permission to run at full power any longer. 

"There are no other reasons than those two," said Griffin. 

Nevertheless, several employees at the power plants involved have testified 
that generating units were ramped down even when the state's Independent 
System Operator had warned of tight supplies, according to one commissioner. 

And a senior NRG employee at the Encina power plant in Carlsbad told Dow 
Jones Newswires that he was told by Dynegy's Houston trading floor to "ramp 
down" the large 951-megawatt plant on at least 10 occasions when he knew 
power supplies were tight. 

"We would be told to ramp down the units even when we knew the state needed 
the megawatts," the employee said. "Then the spot price would go up, but we 
didn't really pay too much attention to that, because as far as we know 
everybody was doing this. We knew how much power other plants were operating 
at, and we knew they weren't at full capacity." 

NRG spokeswoman Meredith Moore said that the ISO gives instructions to Dynegy 
and Dynegy tells NRG what to do. "And there have been conditions when the ISO 
told us to ramp down during Stage 2 emergencies," Moore said. 

Also, one CPUC commissioner pointed out that the state's deregulation law 
doesn't require owners of power plants to bid all of their capacity into the 
market. 

The state's incumbent utilities, who were forced to sell their power plants 
as part of deregulation, also may have contributed to the problem, according 
to an ISO study. By not securing nearly enough power in advance to meet their 
customers projected needs, the state's three main utilities contributed to 36 
Stage 1 and 2 power emergencies last summer and forced the grid operator to 
pay a much higher price to keep the lights on. 

The utilities argued that they underscheduled their load so they wouldn't 
have to pay the generators' high bid prices. The ISO market last year had a 
price cap, while other markets did not. 

Mirant's Griffin, meanwhile, said all the finger pointing isn't solving the 
state's problem. 

"If they are going to get to a solution in California, they have to get 
beyond silly political rhetoric," Griffin said. "The real solution to the 
problem is to get new supply, and if they are going to do that they have to 
make this market look attractive to the kind of people who can build power 
plants." 

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; 
jason.leopold@dowjones.com 

(Mark Golden in New York contributed to this article.)