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Calpine Loses Partner Bear Stearns, Plans to Sell 20 Plants, Cut Jobs

The devolution of Calpine Corp. continues, most recently with the exit of Bear Stearns from CalBear Energy LP and the announcement that Calpine will sell 20 power plants and cut 775 jobs.

Bear Stearns and Calpine launched their energy marketing and trading joint venture in September. The complexity of Calpine's ongoing bankruptcy was blamed for Bear Stearns' exit.

"While we have decided not to move forward with Calpine under this current agreement, we are in active discussions with them regarding alternative arrangements," a Bear Stearns spokesman told NGI. "In any event, Bear Stearns remains committed to the energy trading sector, and we intend to continue expanding our presence into the market."

Spokesman Russell Sherman had no comment on the reasons for exiting CalBear nor on what Bear Stearns' next move in the energy markets might be. Calpine spokesman Katherine Potter said the company's trading operation will not be affected by the Bear Stearns pullout from CalBear. The CalBear arrangement only handled short-term trades of 60 days or less and up to $350 million. Existing customer commitments will be fulfilled, she said. Support to Calpine collateral that came from CalBear will be offset by Calpine's $2 billion worth of debtor-in-possession financing, Potter said.

Paul Posoli was the Calpine executive vice president named to head the CalBear venture. He left the company abruptly last month. "Calpine remains fully committed to its merchant services business and to CalBear Energy, our energy venture with Bear Stearns," Calpine said in a statement at the time. Potter said that Posoli's departure and the Bear Stearns pullout are unrelated.

CalBear was formed by Bear Stearns and Calpine in September 2005 (see NGI, Sept. 12, 2005). At the time it was touted as a way for Calpine to bolster its credit rating. "About a year ago we realized the most efficient way to get a credit enhancement was to team up with a financial institution," Posoli said at the time, alluding to Calpine's $16 billion in debt. "The past year we have been working with Bear Stearns on this structure."

Calpine also said it plans to sell about 20 power plants and cut its work force by 775, which when combined with previously announced measures will trim annual costs by more than $150 million.

"We are refocusing Calpine's resources on what we do best, power generation," said CEO Robert P. May. "We're downsizing our portfolio and market reach, and focusing on core assets and markets where Calpine can best compete. Calpine is selling high-quality non core assets, and by doing so, will become a smaller, more focused power company, purposefully structured around profitable operating areas."

Calpine said a review of the entire company identified about 20 plants in operation or under construction that are no longer considered to be core operations due to factors including financial performance, market prospects and strategic fit. The goal is to sell the majority of the assets by the end of the year. A company spokesperson said no more information was available about what plants would be sold.

Calpine also is closing offices in Atlanta, Boston and Dublin, CA. Operations will be consolidated into Calpine's San Jose, CA headquarters as well as offices in Houston and Folsom, CA. The company will cut staff by about 775 positions, most by the end of the year. About 100 employees will be affected immediately.

"We're making the tough decisions that are essential for Calpine to emerge from bankruptcy a viable and valuable enterprise," May said. "I'm encouraged by the progress we are making in our restructuring. Together with our cost-cutting actions announced in February, we will reduce our annual costs by over $150 million. I believe Calpine has good people, good assets and all the right ingredients for long-term success."

Late last month Calpine said its foreign non debtor affiliate agreed to sell its 45% interest in the 525 MW Valladolid III power plant, currently under construction on the Yucatan Peninsula in Mexico. Calpine is selling its equity interest to the two remaining partners in the project, Mitsui & Co. Ltd. and Chubu Electric Power Co. Inc.

Alliant Energy CEO William Harvey last week would not rule out the possibility of the utility making a bid to buy Calpine's RockGen Energy Center in Dane County, WI. According to Calpine's website, RockGen is a more than 400 MW gas-fired, simple-cycle facility and is the largest peaking plant in Wisconsin. The RockGen Energy Center provides electricity to Wisconsin Power and Light Co. (WP&L), an Alliant subsidiary, under the terms of a seven-year agreement. When WP&L does not call on the plant's output, the RockGen facility can sell electricity to the Wisconsin wholesale power market.

"The bankruptcy trustee has taken no action yet as it relates to that facility," Harvey said in response to a question. "To be very directly responsive to your question -- is there any possibility that we could be interested in the purchase of that facility? The answer's of course, yes."

Calpine filed for bankruptcy in December (see NGI, Dec. 26, 2005).

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