Energy Firms Get Jolt From Wall St.

Investors dumped energy stocks Tuesday amid fears that the documents pointing to Enron Corp.’s rigging of California’s electricity market could lead to revelations about other traders and power suppliers.

The memos say other unidentified firms used Enron’s techniques, and the stock market “is concerned that if the state of California can prove that Enron manipulated the market--and this seems a step in that direction--then some of the other companies did the same thing,” said Mark Easterbrook, an analyst with RBC Dain Rauscher, an investment firm.

The head of the power industry’s trade group said the Enron memos “raise serious questions that must be resolved” and urged the Federal Energy Regulatory Commission to aggressively keep probing for any wrongdoing.

“If anyone ultimately is found to have engaged in these practices, we will join with FERC and all California customers in condemning this behavior and seeking appropriate remedies,” Lynne Church, president of the Electric Power Supply Assn., said in a statement.

Wall Street chose to sell the industry’s stocks and ask questions later, and shares of power companies fell sharply regardless of their market presence in California. Among the worst hit: Mirant Corp., which tumbled $1.34 a share, or 12%, to $9.75; Calpine Corp., down $1.05, or 11%, to $8.70 a share, and Dynegy Inc., which plunged $2.59, or 17%, to $12.26 a share, all on the New York Stock Exchange.

FERC late Monday released memos from Enron lawyers that outlined tactics used by Enron’s traders to create artificial power shortages and increase the company’s profits during California’s energy crisis in 2000-01. Critics immediately declared the documents the “smoking gun” that proves Enron’s culpability.

The memos also mentioned other unidentified companies following the same practices in California, echoing allegations made by state officials that several power firms manipulated the state’s electricity market for their advantage.

Indeed, strategies like those detailed in the Enron memos were not unknown to California energy officials and were not confined to Enron, according to a report last year by California’s grid operator.

The report accused electricity producers and resellers of overcharging Californians by $6.7billion between May 2000 and March 2001, and bolstered the state’s case that California is due as much as $9billion in refunds from power companies.

Several public and private energy sellers used a variety of techniques, lumped together under the term “economic withholding,” to manipulate electricity prices in California, said the report, prepared by economists for the California Independent System Operator, which operates the state’s electricity grid and market.

The report, based on confidential bidding data, also discussed the physical withholding of electricity by generators. That report did not identify the companies involved, but a confidential document later obtained by The Times revealed that Enron was sixth on a list of 10 firms accused of reaping excessive profits in the California market.

Others on the list included Mirant, Reliant, Dynegy and Duke Energy Corp. All the companies denied the allegations, and critics have said the study was based on faulty assumptions.

Regardless of the new Enron documents, “we stand by our [prior] statements that we followed the rules,” said John Sousa, a spokesman for Houston-based Dynegy. “In no way did Dynegy engage in any collusion with Enron, or any other company for that matter, in connection with the bidding strategies disclosed in the [Enron] memos.”

Reliant issued a statement saying, “The alleged actions of one company should not be used as a blanket condemnation of all participants in the California energy markets--be they wholesale power generators, traders, marketers, investor-owned utilities, municipally operated utilities, or the California Independent System Operator.”

Some observers also cautioned against a rush to judgment of the companies based on the newly disclosed Enron documents.

Shannon Burchett, chief executive of energy consulting firm Risk Ltd. in Irving, Texas, and a former energy trader, said the Enron disclosure “doesn’t prove anything about the culpability of anyone else.” But, he said, “it’s a smoking gun that creates an impetus to re-look at things with the other players” in the industry.

The market is overreacting to headlines about the Enron memos without actually reading the memos, said Jon Kyle Cartwright, senior energy analyst with Raymond James & Associates brokerage firm in St. Petersburg, Fla. “When you have a panicky market, these are the results.”

*

(BEGIN OF TEXT OF INFOBOX)

Losing Power

(text of infobox not included)