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U.S. Bankruptcy Judge Burton R. Lifland in a Manhattan federal court Thursday acted on Calpine Corp.'s initial motions in the company's multi-billion-dollar Chapter 11 bankruptcy filing earlier in the week, granting the company's immediate use of $500 million of some $2 billion debtor-in-possession (DIP) financing and authorizing the company to continue paying employee wages, salaries, and benefits during the court-supervised restructuring. In addition, Judge Lifland set a hearing Jan. 5 on Calpine's motion to suspend some of its below-market power contracts, two of which are in California, totaling 1,200 MW.
In stating its case in motions Wednesday on the contracts, Calpine said its total consolidated debt was about $18 billion, consisting of secured construction/project financing, capital lease obligations, senior notes, various other secured and preferred instruments, and unsecured notes and borrowings under lines-of-credit, leaving the national power plant operator facing approximately $3.9 billion of net operating loss carry-forwards and tax credits. Calpine asked the court to allow it to reject all eight of what it called its "unprofitable contracts," effective as of the petition date (Dec. 20) for its bankruptcy.
Calpine's court motion by its outside legal counsel, Kirkland & Ellis, LLP, said that the company estimated it "would lose approximately $1.2 billion if required to perform through the end of the eight identified contracts selling power at below-market prices. In another way of making its argument, Calpine's attorneys said the three most unprofitable contracts would cause the company to lose $1.1 billion in 2006 alone.
The eight projects as listed by Calpine in its motion are:
For one major contract with California's DWR, involving 1,000 MW at a fixed price of $59.50/MWh through 2009, the California Attorney General's Office already filed a petition with the Federal Energy Regulatory Commission asking it to prevent Calpine from walking away from its contractual obligations (see Power Market Today, Dec. 20). In setting the hearing, Lifland issued a temporary restraining order (TRO) against FERC taking any action ahead of his action on the company's motion.
Calpine CEO Robert P. May praised the judge's prompt approval on the first-day motions, which he said will "help Calpine continue its normal business operations without interruption."
In response to separate questions from NGI/Power Market Today, Calpine's San Jose, CA-based spokesperson Kent Robertson said it will be business as usual with high profile projects, such as a partnership with General Electric to build a new, super-efficient natural gas-fired power plant in Riverside County east of Los Angeles, the long-stalled, partially built Otay Mesa plant-and-San Diego Gas and Electric Co. power supply contract, and a still-developing energy trading partnership with Bear Stearns, CalBear (see Power Market Today, Sept. 9).
Calpine has 41 of its 91 power plants in California with 19 being the units at the Geysers geothermal complex in northern California, the biggest geothermal project overall in the world. Of the remaining 22 plants in California, there is about 4,500 MW of capacity, with about 2,250 MW under contract, according to Robertson, although he said that the total should be qualified as not all of the output is tied to specific generation units. Some 675 MW are tied to unit-specific peaking contracts, and another 350 MW are qualifying facility (QF) contracts.
As Robertson said earlier this month, Calpine's proposed Skipanon liquefied natural gas (LNG) project in the mouth of the Columbia River on the Oregon side "continues, and at this point, there are no changes to our plans."
CEO May said the court's authorization Thursday will allow the company "to perform under existing and new power and gas trading contracts and pledge collateral in support of transactions." In turn, May said this should "provide additional assurance that Calpine power plants will continue to provide reliable supplies of electric power to the markets that depend on us."
DIP financing okayed by the court will provide Calpine with "liquidity and flexibility" to continue running its power plant fleet, which totals some 27,000 MW with facilities in 21 states, several Canadian provinces and Mexico, May said.
The company reiterated it has established a toll-free restructuring information line for all stakeholders (1-866-504-6370).
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