Calpine Reiterates Strategy After Stock Plunge
Stung by a negative financial report from an independent
newsletter that dropped its stock price 17%, San Jose, CA-based
Calpine Corp. reacted quickly last week to reiterate its aggressive
strategy for developing groups of gas-fired merchant power plants
throughout the U.S. over the next five to 10 years. It also said it
would continue to grow its related power and gas marketing
Senior officials noted the company is busy signing up various
large municipal customers for its new plants in California, but it
is also looking at retail power sales as a business line that can
grow. The firm also expects to develop a peaking plant offshoot to
many of its new baseload facilities, which are operating, under
construction or in development in 20 states.
The critical financial report focused on the accounting methods
Calpine used for the potential future revenue streams from several
projects in Washington and California, as well as the energy
marketing and gas resource purchases it made over the past year.
"These types of transactions complement our marketing and power
generation business and will probably grow in the future, but they
had zero impact on earnings and very little (less than 2%) impact
on revenues in 1999," said Calpine CEO Peter Cartwright.
Countering the report by the Center for Financial Research and
Analysis, Cartwright said his company's generation plants are
operating very well and he sees 2000 results on track to be
"another great year."
"New plants will be coming on line this year and electricity
prices are up in all of our key markets," Cartwright told analysts
and industry observers in a one-hour conference call open to the
public. He called the research report "erroneous," coming from a
source with little knowledge of Calpine or its strategy.
"There are no accounting irregularities practiced by Calpine or
aggressive accounting positions taken here."
One focal point for criticism was Calpine's deal last year to
restructure a standard offer (SO) contract for its Gilroy, CA,
plant with Pacific Gas and Electric. Cartwright calls it a
"landmark" deal that will be used as a "template" for restructuring
other deals totaling another 500 MW in northern California, where
he sees Calpine establishing a regional power network with a total
of 5,000 MW when facilities now under construction come online in a
In other areas where Calpine is trying to build "networks" of
multiple merchant plants, the same template as used in the PG&E
deal will be negotiated, Cartwright said. "We're growing our
company in a conservative way. Our goal is the to be largest, most
profitable power plant developer in the United States. Our program
for building new gas-fired combined-cycle plants is probably the
largest of its kind ever in this country (26 plants under
construction or announced for development).
"Since January we have announced 10 new projects and we will
announce additional projects in the months ahead. We have the
resources, people and equipment on order (126 large, advanced gas
turbine engines, valued at more than $5 billion). We're very
confident that our earnings will continue to grow as our portfolio
continues to grow."
Cartwright said Calpine will eventually move into international
markets, including looking for opportunities along the Canadian and
Mexican borders. "We're already looking at opportunities. We're
working with some of our large industrial customers who have cogen
facilities and have large industrial facilities overseas. That is a
new area with tremendous growth potential."
Calpine is also looking at other opportunities for selling
retail power with a number of customers and government entities,
said Cartwright, noting that none of these are included in current
revenue and earnings projections. Calpine sees all of its 25,000 MW
of power (targeted to be online by 2004) as being Calpine-owned,
"We can find opportunities to add peaking power to all of our
plants longer term. That is a whole new market that could add very
significantly to earnings and revenues, but none of that is
included in our forecasts." Cartwright said.
Richard Nemec, Los Angeles