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Calpine Aggressively Seeking Gas Supplies for Power Plants
The acquisition and management of natural gas supplies is a key part of San Jose, CA-based Calpine Corp.'s five-year strategy to have generating plants totaling 25,000 MW by the end of 2004, the aggressive merchant power plant developer/operator's senior executives told the company's annual shareholders' meeting last week.
Amid a spreadsheet full of substantial financial growth figures in revenues (53% to $850 million last year), earnings-per-share ($1.23), capitalization ($3.8 billion) and new projects under construction or development (about 14,000 MW), Calpine's executive vice president Ann Curtis said 75% of Calpine's power plants are natural gas fueled, and the company intends to continue to seek gas reserves and complementary pipelines to allow them to keep down fuel costs, which represent 60% of the cost of each megawatt of electricity produced.
"We have a very good natural gas strategy for assuring that we are going to be the low-cost producer (of electricity)," Curtis said. "And we must make sure that in light of rising prices in fuel, we'll be able to keep our costs down. One of the ways to do that is to continue to seek out, identify and purchase gas reserves and complementary pipelines so we can move our gas to our plants at lower prices."
She noted that what she called "three very strategic" gas deals were closed last year, representing 238 Bcf, plus complementary pipelines. And more important than the assets in these acquisitions was the ability to further vertically integrate by bringing in top quality experts in the area of oil and natural gas.
Calpine estimates it will be spending more than $4 billion annually for natural gas after 2004 when it has 25,000 MW of power in its portfolio, Curtis said. That equates to about 5% of the current gas sold in the U.S.
"We've just begun to scrape the surface of what we need to do in providing natural gas for our future," said Peter Cartwright, Calpine's CEO. "The acquisition of the Sheridan Energy Co. and its (Texas-based) team gives us expertise in identifying, negotiating acquisitions, and in getting the most out of a gas field. It helps reduce the costs of our operations and the costs of delivering fuel to our plants. It is very, very important that we get a hold of and retain as much gas as we can to reduce the cost of fuel for our power plants.".
In addition to power plants, he said Calpine will expand into other areas, such as "retail sales," Cartwright said. For the most part now, it sells wholesale to utilities, marketers and aggregators, aside from a limited amount of sales to large industrial customers. As other states open up, Cartwright said it "gives us access to selected retail markets selling to large end-users." In Texas, Calpine plans to sell directly to developments adjacent to plants and to schools and other institutions directly.
The company also announced last week it is going after the high-tech and telecommunications industries' growing need for reliable, high-quality electricity by offering distributed generation with back-up reliability services. Calpine has a 30 MW unit going to an undisclosed customer and several other units in the queue, according to Bob Hepple, president of Calpine's new "c*Power" business unit. The name stands for "critical power," which is a term commonly used in the high-tech industries.
Potentially the computer- and telecom-based industries' appetite for clean power is insatiable. The market could reach 150,000 MW in the U.S. alone, equating to potentially tens of billions of dollars, Hepple said. Calpine proposes to construct, own and operate distributed generation units ranging from 5 to 50 MW and sell power, chilled water and back-up service to customers. It would own and maintain the units, which can be free of the utility power grid or attached to it.
Richard Nemec, Los Angeles
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