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2068Re: [hreg] Coal, Wyatt and Texas power

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  • chasmauch@aol.com
    Jul 3, 2003
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      In a message dated 7/3/03 8:09:34 AM Central Daylight Time, mrj53@... writes:

      I have generally heard of Oscar Wyatt being a crooked businessman, and
      I am willing to believe the worst about him. But I have not heard this
      story and would certainly like to see a reference to educate me about it.



      This happened a long time ago - in the 1960s as I recall. It was a continuing story in most newspapers in south Texas for several years about the problems between SA, Corpus Christi, and other south Texas towns vs Coastal. Texas Monthly did a detailed, feature-length article that gave the best blow-by-blow description I know of. Don't know if their archives go back that far but you might find it in a library. Don't remember the exact date.

      One thing I would request, is to not lump all scams in the same
      category -- I think it is important to *understand* scams so honest
      people can better protect themselves. My understanding is Enron was a
      particular type of criminal business behavior; I would not want to say
      another criminal businessman is "like Enron" unless it is absolutely true.



      There can be a fine line between sharp business practices and outright deliberate criminal behaviour. Wyatt always had a reputation of walking that line and kept a bevy of sharp lawyers on the payroll to make sure he remained about an hour ahead of the posse. I will try to explain very generally below what he did, and you can decide if it was a scam or sharp business.

      I guess by now I am one of the older folks, and this is specialized
      knowledge that we *don't* all remember. Actually, I want to express
      real skepticism that Wyatt was that influential in the building of
      lignite/coal plants in Texas. One cannot "convert" a natural gas plant
      to coal, as coal requires some elaborate and expensive machinery to
      handle it. I try to stay aware of electric generating technology and
      have never heard of a gas plant being converted to coal. If I am wrong
      then please have mercy and point me to some education.



      Wyatt was a legendary figure around Corpus where he started out, and I was working as an independent petroleum engineer in Corpus at the time. Everyone claimed to know him but of course most did not. He was able to sell gas quick at the best price available so lots of folks wanted to do business with him, but it was a kind of scary thing because he also had the reputation of screwing his partners and just about everyone else around. I never had any direct dealing with him but knew a lot of folks who did, and as one used to say, you had to be very careful - he said it was OK to dance with a bear but be sure to keep an eye on your partner.

      Most people who read the papers were following the whole scam (business transaction?) closely, and those in the "oil bizness" were following it even closer, so guess we just assumed that everyone else was too. And no, you can't just convert from gas to coal - that was bad wording on my part. But the city did start to change over - I assume by building new plants - and eventually did pretty much make the conversion.

      Lignite is a traditional fuel and in ample cheap supply in certain
      areas of Texas. Furthermore, the utilities in question cannot simply
      make a fuel choice arbitrarily, many are municipals (e.g. Austin and
      San Antonio) and so the city government is the body to give approval
      for any spending plan. Others such as Dallas' TXU must go to the PUC
      for approval of new plants -- granted TXU knows how to manipulate the
      PUC fairly well but it's not the style of Oscar Wyatt to have the
      patience to participate in PUC dockets (not unless somebody else does
      the huge amounts of routine work). It's easy to *imagine* a person
      like Oscar Wyatt setting energy policy for Texas, but believe me the
      real process is slow, painstaking, and includes many checks and
      balances which inhibit one person from having much influence.



      After I failed to become a rich independent oilman, I got married and had to find honest employment so went to work for a major company (Sun Oil) for the next 30 years as a natural gas engineer and eventually in the natural gas marketing department as a gas sales rep. The marketing situation was wild in those days since interstate sales were regulated by the Federal Energy Regulatory Commission (FERC) and intrastate sales were not. The price of the regulated gas was held ridiculously low while the unregulated intrastate market was much higher (not to mention all the heavy-handed regs pertaining to interstate sales) so naturally everyone avoided the interstate market if they possibly could.

      At one time there were as I recall about 15 different prices for gas, depending on a varitey of strange factors. The Natural Gas Act outlined the marketing rules very generally and relied on the FERC and the courts to interpret what the various provisions of the law meant. Often various portions of the regs were tied up in court on apeal for years during which time no one was sure what the rules were, so clearly it was a lawyer's dream and a nightmare for everyone else. In this situation, clever lawyers find all kinds of loopholes, and Coastal was one of the best in this regard.

      What they did was sign a long-term contract to supply gas to SA, Corpus, and the other cities at a fixed price of about 25 cents per thousand cubic feet. They convinced the various city councils that they had vast reserves to back up this commitment but in fact these reverves were tremendously overstated and they did not have anywhere near what they claimed to have. Then very soon the price of gas shot up above a dollar, leaving Coastal in a very bad positon. They did not have their own gas reserves under contract so would have to buy it on the open market for over a dollar and sell it for 25 cents - a situation guaranteed to result in bankruptcy in short order for anyone. Everyone thought Wyatt's goose was finally cooked but incredibly he managed to escape from the contracts. I am not sure how he pulled it off but it was a feat that would have done Houdini proud.

      Sorry to be so longwinded so will stop. Oceans of ink have been used writing about these transactions and a number of questions remain unanswered to this day. That's about all I know about it. If it was not a scam it was pretty close, and IMO the public got ripped off big time. I do not "imagine" that Wyatt "set the energy policy for Texas" but there in no question that he was pretty directly responsible for a lot coal coming in from out of state to replace natural gas. I guess it's all ancient history now. Oscar is a respectable billionaire businessman and we are still trying to figure out how to meet our energy needs when the oil and gas supply drops below demand, which won't be much longer. Gonna be some big changes made.

      Charlie

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