Dynegy Agrees to Cancel 2 Pacts With Kroger, Rework 2 Others

By Elizabeth Douglass

July 4, 2003 12 AM PT

Times Staff Writer

Dynegy Inc. agreed to cancel two disputed energy supply contracts and restructure two others that were signed by grocery giant Kroger Co. during California’s energy crisis, according to a settlement announced Thursday.

Under the agreement, Kroger will pay Houston-based Dynegy $110 million in return for nullifying two contracts and reducing the prices in the others. Dynegy will continue to indirectly supply Kroger’s California-based subsidiaries such as Ralphs and Food 4 Less with 50 megawatts of power through 2006.

Both companies also agreed to drop related contract litigation that is pending before the Federal Energy Regulatory Commission. The settlement must be approved by FERC, which is expected to rule on the agreement within 60 days, the companies said in separate announcements.

Cincinnati-based Kroger and the state of California separately challenged the validity of high-priced deals they signed with Dynegy in 2000 and 2001, when the state was reeling from rolling blackouts and skyrocketing energy prices. Federal investigators have accused Dynegy and other power firms of manipulating California’s energy market for profit during the crisis.

Dynegy has denied any wrongdoing and has said the prices in the disputed contracts are reasonable. Dynegy’s contract with the state to supply about $500 million in power through 2004 was upheld last month by FERC.

Dynegy said that as part of the settlement with Kroger, it expected to record a second-quarter pretax charge of about $30 million. Kroger said it would take an after-tax second-quarter charge of $41 million, or 5 cents a share, because of the deal.

Kroger did not quantify its expected savings from the settlement, other than to say the newly reduced energy prices will add a penny a share to its 2003 earnings and 2 cents to earnings in 2004. Company representatives did not return a call for comment.

Dynegy shares fell 3 cents to $4.28, while Kroger fell 9 cents to $16.88, both on the New York Stock Exchange.