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The disclosure of internal Enron memos detailing strategies for increasing profits by manipulating California energy markets roiled shares of independent power producers (IPP). Dynegy (DYN
), Mirant (MIR
), and Calpine (CPN
) were down 18%, 13%, and 11%, respectively, on May 7.
Enron officials previously had said California's flawed electricity deregulation plan, the lack of new power-generation capacity, and a drought that reduced available hydropower caused California's power crisis. But memos written by Enron lawyers show that its traders used strategies to boost profits from buying and selling power in the state.
PAPER TRAIL. The memos describe "dummied-up" power-delivery schedules, false information submitted to the state, and the effective increasing of costs to all market participants, according to news reports. Published reports say the documents state that other power companies were using Enron's practices in the California market.
Enron's manipulations could have an impact on the debate over California's demand for refunds from IPPs and IPP demands for collection of overdue receivables. It also may bring Enron's energy-trading unit -- sold earlier this year to UBS Warburg, a division of Swiss bank UBS -- back in the spotlight.
Still, with the lack of evidence implicating non-Enron companies and depressed valuations vs. the overall market, S&P is maintaining its investment opinions on the IPP group. S&P has a 4 STARS (accumulate) recommendation on Mirant, Calpine, El Paso (EP
), and Williams (WMB
). S&P has a 3 STARS (hold) recommendation on Dynegy, Aquila (ILA
), and AES (AES
).
Shere is an equity analyst covering independent power producers for Standard & Poor's
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