- The Washington Times - Wednesday, May 29, 2002

HOUSTON (AP) Dynegy Inc. announced the resignation of its chief executive yesterday, while its stock spiraled amid questions about possible sham trades, in yet another top-level shake-up of an energy-trading company.
Chuck Watson, a co-founder of Dynegy, became the latest casualty of turmoil that has spread through the industry since the Enron Corp. scandal broke last fall. He led an abortive attempt to buy Enron as it was collapsing.
With his company's stock down as much as 88 percent in a year, Mr. Watson stepped down as both chief executive officer and chairman of the board. He will be replaced on an interim basis by two board members, according to the company, which tried to portray the move as unrelated to the company's troubles.
"This is not about scandal," said Steve Bergstrom, Dynegy president and chief operating officer. "This is about two guys that are going to come in and help me focus on what I enjoy and do best: make this operation hum."
The lead director of Dynegy's board, Otis Winters, said Mr. Watson's resignation had nothing to do with issues faced by the company. He also said ChevronTexaco, which holds a 26.5 percent interest in Dynegy, played no role in the appointments.
ChevronTexaco's vice chairman, Glenn F. Tilton, was appointed as Dynegy's interim chairman. Board member Daniel L. Dienstbier, who is president of Northern Natural Gas Co., was made interim chief executive.
"The board and Chuck concluded that a change was necessary to address the challenges and issues that Dynegy faces," Mr. Winters said.
Mr. Watson was the second CEO of an energy-trading company to resign in less than a week amid federal inquiries into simultaneous power swaps between energy traders that artificially boosted trading volume and, in some cases, added to revenue.
William T. McCormick Jr., chairman and chief executive of CMS Energy Corp., announced his resignation Friday, less than two weeks after the company admitted conducting energy trades it used to falsely inflate revenue by more than $4.4 billion.
The transfers, dubbed "round-trip trades," involve simultaneous swaps of electric power for the same price and have been questioned by the Federal Energy Regulatory Commission and the Securities and Exchange Commission.
"When we look at the other players in the industry, we all look similar," Mr. Bergstrom said. "We are all going through the same issues."
Investors and analysts said the departures may foreshadow removals at rivals such as Reliant Resources Inc. and Williams Cos.
Reliant, Williams, Duke Energy Corp. and Aquila Inc. have said they engaged in "round-trip" energy trades.
"The problem you're seeing at Dynegy is going to spread like a virus to the other trading companies," said Art Gelber, vice president of the Gelber Group Inc., a Houston energy consultant. "You very well may see more CEOs, presidents and heads of trading forced to resign."
Bogus trades and accounting errors disclosed by energy companies also have caught the attention of regulators probing suspicions that California's power market was manipulated. Congressional investigators have released documents that show Enron Corp. may have manipulated electricity sales to drive up prices in California in 2000 and 2001.
"We now know that other companies have been doing some of things that Enron has been doing," said Sen. Dianne Feinstein, California Democrat, last week.
Energy companies that own generating plants in California or transmission lines to move power into the state are likely to draw the greatest scrutiny, Mr. Gelber said.
"Dynegy and Reliant will probably pay the biggest price," he said.
Merrill Lynch analyst Carl Kirst said keeping Mr. Bergstrom in place was critical for Dynegy.
He called that "a proactive step by an engaged board to restore management credibility." He also said it increased ChevronTexaco's visibility in Dynegy's operations.
"Clearly, the change in management should be a positive catalyst for restoring confidence," he said.
Dynegy disclosed this month that the SEC is looking into trades made by the company last fall. Dynegy said it conducted the trades to test its system and that they didn't yield any profits for Dynegy or its trading partner.
The SEC is also investigating one of Dynegy's natural-gas contracts. That contract provided an $80 million tax benefit in 2001 and resulted in about $300 million in net cash flow during 2001.
Wall Street responded positively to the shake-up. The company's stock rose 39 cents a share to $9.69 yesterday on the New York Stock Exchange. In the past year, Dynegy's stock has been as high as $54.75.

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