Independent electric generation developer/operator, Calpine Corp.'s emergence from Chapter 11 bankruptcy Jan. 31 begins a new chapter in the company's multi-billion-dollar bet on the gold rush-like attraction of natural gas-fired electric generation the past 20 years. With a 24,000 MW portfolio of relatively new power plants, Calpine's bet on gas will be tested going forward.

After a quiet existence in the 1980s as a small geothermal power producer among large utility interests at The Geysers in Northern California, Calpine took on high-tech-like growth after replicating a model for gas-fired generation plant development around the nation and going public in the mid-1990s. Its stock was approaching triple-digit levels at one point before the Enron Corp. unraveling and the wholesale power market meltdown of 2001, at the start of which Calpine was reporting a 158% increase in earnings/share for 2000, with 24 natural gas-fired power plants under construction and more than 13,000 MW of plants already in operation.

The growth in power plants continued post-2001, but the profit and stock price growth did not. Debt mounted, and even its goal of holding natural gas reserves equaling up to half of its fuel needs came crashing down when in mid-2005 the company was forced to sell for $1.05 billion its reserves in Texas and elsewhere, it also sold its Canadian reserves.

(In addition to Western Canada, Calpine's oil and gas interests were primarily located in the Sacramento Basin of California, South Texas and the Gulf of Mexico, with additional holdings in Colorado, New Mexico and Utah. Its land interests included 386,674 net developed and undeveloped acres and its gas assets currently produce 90 MMcfe/d from 607 net wells.)

Before bankruptcy, the company had nearly 29,000 MW of electricity generating capacity operating or under construction in more than half of Lower 48 states and three Canadian provinces. In early 2008, Calpine now begins stand-alone operations again with 23,973.5 MW collectively -- all but 715 MW of it being natural gas-fired.

Although its top management and board of directors have changed completely, a few key executives from the pre-Chapter 11 filing remain, including the senior executives involved in operating the gas-fired fleet and separately the geothermal units at The Geysers.

Upon leaving bankruptcy last Thursday, Calpine closed its $7.3 billion exit financing facility, including a $300 million bridge loan the reorganized independent power plant developer/operator expects to pay off by the end of the first quarter. Calpine's exit came a month past the two-year anniversary of its original filing Dec. 21, 2005.

A week prior to the Chapter 11 filing, CEO Robert May, 58, who took over the beleaguered, debt-heavy company that had been under founder/CEO Peter Cartwright, for its entire history. Upon leaving court-protection, May called the milestone "a wonderful day," stressing the pride he felt in overcoming numerous obstacles the past two-plus years. He claims the company was able to slash its overall debt during its stay in Chapter 11 by about $7.2 billion.

Senior officers now feel the company has streamlined its operations and it has a "strong core power generation business" to run once again, but the task of making its natural gas-fired fleet profitable will be more daunting than it was in the heyday of its build out in the mid- to late-1990s.

Calpine's court-approved reorganization plan assigned a total enterprise value on the newly stand-alone company of $18.95 billion. The company estimates that it will make some initial distributions of newly issued common stock to holders of allowed claims and interest by Feb. 10.

After entering Chapter 11 protection in the U.S. Bankruptcy Court, Southern District of New York with $2 billion of debtor-in-possession loans and more than $18 billion of accumulated debt, Calpine resumes operations with an entirely different senior management team and board of directors, intending to issue 485 million new shares of common stock that will trade on the New York Stock Exchange under "CPN."

In addition to the 485 million new shares, Calpine plans to reserve 15 million common shares for its senior executives and directors as part of an incentive program that will be implemented along the lines of the court-approved reorganization plan.

Calpine said it will set aside another 62 million common shares to account for disputed unsecured claims. Under current estimates, Calpine said, general unsecured creditors ultimately will recover about 99.9% of their allowed claims; senior note holders will recover approximately 100%, and subordinated note holders will recover approximately 75%. (The allowed claims involve both principal and pre-petition interest.)

The Chapter 11 exit was foreshadowed last Monday when Calpine announced that a unit of Ohio-based FirstEnergy won the bidding for its partially built 707 MW natural gas-fired electric generation plant in Fremont, OH, for $253.6 million -- double the price established between Calpine and a public-sector power utility group in the state last November. The sale requires approval of the bankruptcy court.

Calpine has one other generation asset still for sale, according to its Houston-based spokesperson. It is the 774 MW Huckabee Energy Center in Alabama, on which Calpine has already spent $365 million and estimates another $100 million is needed. A unit of Baltimore-based Constellation Energy began the bidding in January at $122 million. The auction ends Tuesday and the sale is to be completed the following day.

"Calpine's restructuring was truly remarkable," said Gregory Doody, Calpine general counsel and the chief restructuring officer during Chapter 11. "In just a little more than two years, Calpine dramatically improved its capital structure, reducing approximately $7.2 billion in debt while generating a significant recovery for our creditors."

For the future, there will be a number of major question marks surrounding the Calpine power plant fleet's operations including wholesale natural gas prices and supplies globally, reserve margins in the power industry, renewable portfolio and resource acquisition requirements, and responses to global climate change issues -- to mention the impact of technological breakthroughs.

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