Energy Providers Reaping Huge Profits

As California sucks up megawatts and pays megabucks for them, enormous sums of money are flowing through the power business.

“The mentality of power trading is a lot like the mentality of the stock market,” says Arthur O’Donnell of the California Energy Report. “People are going to maximize their gains, they’re going to try to buy low and sell high.”

Companies generating and selling power to California posted enormous gains in the third quarter of 2000. Duke Energy of Charlotte, N.C., saw earnings up 73 percent; at AES of Arlington, Va., earnings were up 93 percent; Calpine of San Jose, Calif., saw earnings up 159 percent; and at Reliant Energy of Houston, earnings in their wholesale energy group were up a whopping 700 percent.

Paying Off Investments

And all that was before prices really rocketed in December. Actual profits may not always be as high as the numbers suggest because everyone is buying and selling at high prices. But clearly, these provider companies are doing very well.

Reliant, for example, bought the Ormond Beach electric plant from Southern California Edison less than two years ago for what was, at the time, an inflated price of $43 million. By one estimate, the plant will make a $90 million profit for the year 2000, allowing Reliant to pay off its investment and still make a huge amount of money.

“Our new business, which is the unregulated power generation business, is doing very well,” says Steve Letbetter, president of Reliant Energy.

Money Flows Quickly

But money, like energy, keeps on moving — the power suppliers can’t hold onto it either.

“If you listen to the politicians, they believe that all of that money is being kept in-house, when quite frankly, a lot of it is going back out the door to the production and exploration companies out there,” says Fred Schultz, an analyst at Raymond James Associates.

So, bills paid by the customers in California ultimately will finance the drilling of new gas wells and the construction of power plants to ease the crisis in the coming years.