Weeks after emerging from two years in Chapter 11 bankruptcy, Calpine Corp. senior officials Friday talked bullishly about the reorganized independent power plant developer's future in a carbon-conscious environment. They think the company can take advantage of shrinking reserve margins and are talking up California and Texas markets in which the company has the majority of its fleet of natural gas-fired power plants.

By 2011, the company expects to hit some watershed years in the two large, gas-dependent western states. This is the year that Calpine calculates that always fickle supply-demand for electricity will be in equilibrium in the key markets in which it participates -- California, Arizona and Texas, among others.

A further key is natural gas and wholesale gas prices in looking at the overall U.S. power market, Calpine's executives stressed. They feel for this year most of the company's exposure to rising gas prices is covered by hedging, but in future years the company could be more vulnerable.

"The real issue is what generation is setting the market price for electricity," said Todd Filsinger, who has been a Calpine acting senior executive for commercial operations as part of his role as a managing partner with the UK-based global firm, PA Consulting Group. "And with respect to Calpine's portfolio, California and Texas have gas on the margin, so in those two states gas is setting the price for power."

When this picture is superimposed over a carbon-constrained future, the advantages for Calpine's fleet of mostly gas-fired plants, representing about 24,000 MW, are even more dramatic going forward, Filsinger said. "A combined-cycle gas-fired generation plant has about half of the carbon costs when compared to the competitive landscape of a typical coal plant."

Outgoing CEO Robert May stressed the theme that "Calpine will be providing clean power for future generations" in heading a conference call with financial analysts in which the company's gross revenues and EBITDA (earnings-before-interest-taxes-depreciation-amortization) were shown to have grown substantially compared to a year earlier. "We are principally a green company, and we have the facts to back it up. This is one of the primary reasons I think Calpine is an attractive investment in the future."

May said Calpine owns "terrific assets" in the markets in which it operates with a fleet of plants whose average age is just eight years old. In addition, he said, "we really understand the markets in which we operate." After announcing before the call that he plans to leave as soon as a new permanent CEO is named, May added that he expects to be an investor in Calpine "for a long time to come" after he leaves his post, which was the first energy industry job for the turnaround specialist.

In response to questions on its geothermal power production, Michael Rogers, senior vice president for power operations, reiterated the company's earlier announced $200 million, five-year plan to "mitigate the decline of The Geysers [in northern California] through new well-drilling, new piping and other measures that are primarily aimed at keeping production from declining, although we do have some new growth opportunities, but until we prove up the resources, we don't have any good estimates on what volumes that would be."

With the run-up in wholesale gas prices in the past few weeks, Calpine officials fielded questions about what they mean to its power generation portfolio that is so heavily gas-dependent. Filsinger said the impact on projected 2008 revenues is "somewhat mitigated" because Calpine is about "75-80% hedged" on gross margins, so he expects gas prices to have a fairly limited impact on the company's performance this year.

"Beyond that, you could see a fairly significant impact," Filsinger said, on the unhedged portion of revenues.

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