OGJ Online Staff
HOUSTON, Feb. 28�Calpine Corp. agreed to sell the California Department of Water Resources (DWR) 1,000 Mw of power for $5.2 billion over 10 years, just 2 weeks after cutting a $4.6 billion 1,000 Mw electricity deal with the state agency.
Further, Calpine agreed to a 20-year contract with the DWR for up to 495 Mw of peaking power in a contract valued at up to $3.1 billion.
The three contracts commit Calpine to selling the state almost 2,500 Mw of power for about $13 billion over 10-20 years. Calpine also has committed to spend $4 billion over the next 4 years to build power plants in California.
Experts said Calpine doesn�t like commodity risk, and the long-term contracts will smooth some volatility from its earnings. But the company must have embedded in the new state contracts a hefty spread between the price of gas and the price of the power, said Ed Krapels, director gas and power for Energy Security Analysis Inc.
�This is probably a $70 or $80 or $90/Mw-hr deal. They could easily go to a gas company and get $4 or $5/Mcf gas to go out a long way,� Krapels said.
He said it�s good to make long-term deals when the price is high. At the same time, he said, it isn�t too wise for California to enter into such very long-term contracts and put so many eggs in the natural gas basket.
�California has been suffering from bad energy governance for 10 years. They will pay a price for that,� said Krapels.
Under terms of the contract reported earlier this month, Calpine will sell 1,000 Mw for 10 years to DWR starting with 200 Mw in October and building to 1,000 Mw by January 2004.
Under the fixed price contract reported Wednesday, the company will begin delivering 200 Mw in July and increase to 1,000 Mw from July 2002-2011.
The peaking power contract commits Calpine to supplying 90 Mw of power by August with the rest by August 2002. Investors were not impressed and sent the stock down 5% or $2.70 to close at $44.49.
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