Calpine unaffected by aftermath of California crisis, execs say

Calpine Corp. said it is emerging from the California energy crisis with no overhanging issues in a conference call with financial analysts Tuesday. The company sold most of its electricity portfolio in California forward before electricity prices fell, and executives said they were confident Gov. Gray Davis will not renegotiate those long-term contracts.


By Ann de Rouffignac
OGJ Online Staff

HOUSTON, Aug. 28 -- Calpine Corp. said it is emerging from the California energy crisis with no overhanging issues in a conference call with financial analysts Tuesday.

The San Jose, Calif., company sold most of its electricity portfolio in California forward before electricity prices fell, and executives said they were confident Gov. Gray Davis will not renegotiate those long-term contracts. Calpine also is not exposed to potential refunds for power previously sold to the grid operator should compensation be ordered by the Federal Energy Regulatory Commission. Executives said financially strapped Southern California Edison Co. does not owe the company any money.

Under Pacific Gas & Electric Co.'s reorganization plan, Calpine is scheduled to receive full payment of $267 million plus interest for power generated and delivered by its qualifying facilities. Executives said the company has no exposure to debts from the now defunct California Power Exchange, and almost no exposure to the California Independent System Operator's unpaid bills.

"We are emerging from the California crisis with no lingering issues," said Jim Macias, senior vice-president. "We locked in very favorable margins on power contracts that were protected when prices fell."

California is using Calpine's long-term contracts as part of the collateral to issue bonds to reimburse the treasury for power purchased on behalf of the state's ailing utilities. There is no "exit clause" for the state in these contracts, he said.

The contracts have sufficient "headroom" given existing retail rates to allow the state to pay Calpine and service the bonds, Macias said. He said the governor won't renegotiate the contracts because that would be tantamount to agreeing with Davis's critics that the contracts were bungled and he mismanaged the energy crisis.

Looking to the future, Calpine said it has locked in firm gas supplies for all of its long-term fixed electricity contracts in California. Executives said the contracts carry a weighted average spark spread over the next 5 years of $26/Mw-hr, but declined to break it down on an annual basis.

Analysts pointed out Calpine won't benefit from declining gas prices, but Calpine executives responded the company is not exposed to declining electricity prices either.

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