Judge says Calif. refunds likely
Energy shares decline as feds limit power prices
By Kristen Gerencher, CBS.MarketWatch.com
Last Update: 2:26 PM ET June 23, 2001
SAN FRANCISCO (CBS.MW) -- Energy companies' stocks have been sliding ahead of talks Monday on possible refunds for California power charges.
The judge in the case said he is leaning toward an opinion that generators owe "several billion dollars" in overcharges to the state.
Judge Curtis Wagner, who will head Federal Energy Regulatory Committee settlement talks, said California Gov. Gray Davis' demand for a $9 billion refund is too high. If the 15 days of negotiating fail, the matter will be sent to the full FERC board, Reuters reported.
"We're talking several billion dollars -- $2 (billion), $2 1/2 billion, maybe a little more. But I don't think it is $9 (billion)," Wagner told The Sacramento Bee. Of the power companies, he said, "I think they're now ready to talk settlement, they're ready to put this behind them."
Wagner told The Bee that talks would also take into account the billions of dollars that power generators are owed by cash-strapped utilities and the state Department of Water and Resources, which took over the purchase of power in January.
Under California's power deregulation law, utilities were forced to buy power on the spot market, without long-term contracts, and had revenue limited by consumer rate caps. Pacific Gas & Electric (PCG: news, msgs, alerts) filed for bankruptcy protection in April and Southern California Edison (EIX: news, msgs, alerts) has an accord with Davis to sell its power transmission lines as a way to pay its power debt. That accord is hung up in the state legislature.
Enron Corp. (ENE: news, msgs, alerts) , Mirant Corp. (MIR: news, msgs, alerts) , Duke Energy Corp. (DUK: news, msgs, alerts) , Williams Cos. (WMB: news, msgs, alerts) , Reliant Energy Inc. (REI: news, msgs, alerts) , and Dynegy Inc. (DYN: news, msgs, alerts) are among the producers subject to FERC's refund decision. The companies have said they did nothing wrong.
As the California power crisis shifts, energy company shares have dropped as much as 31 percent in June alone. The slide comes after a year when wholesalers reaped hefty profits by selling power at higher prices, especially in California where the hikes were among the highest in the nation.
Investors' pessimism is temporary, said Mark Easterbrook, a diversified energy analyst with Dain Rauscher Wessels in Dallas.
"A lot of it has to do with government putting on new pricing limitations out West, and I think people are getting fearful that we may be headed toward re-regulation,'' Easterbrook told the Associated Press.
Reliant and Calpine (CPN: news, msgs, alerts) were the biggest losers of the month, with shares falling 31 and 23 percent respectively since June 1. Calpine closed at $37.70 Friday while Reliant finished at $31.39.
Meanwhile, Mirant lost 18 percent to close at $41.06. Houston's Enron Corp. came in at $44.83, a loss of 15 percent. Dynegy fell 8 percent in June to $44.08, Duke Energy declined 7 percent to $26.11, Tulsa's Williams Cos. dropped 4 percent to $29 a share, and AES (AES: news, msgs, alerts) Corp. took an 8 percent hit to close at $41.06.
Until now, almost all the generators have refused to offer refunds for power prices that at times topped $1,000 per megawatt-hour, according to The Sacramento Bee. The only exception has been Duke Energy Corp., which offered refunds of unspecified amounts in a secret letter to Davis in March.
Even as the FERC-ordered negotiations approach and a refund settlement looks imminent, at least one major generator said it isn't expecting to make any paybacks. "We'll make a strong case for the way we have operated," Reliant Energy Inc. spokesman Richard Wheatley told The Bee.
Still, the company isn't ruling out a compromise. Added Wheatley: "We're going to go in with an open mind."
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