California Crisis Pays Dividends to Calpine, Sempra

With the backdrop of California's continuing energy upheavals, two of the state's major energy companies announced substantial first quarter earnings increases that were driven largely by the price and supply volatility for power.

Citing increased electric production and a widening sparks spread between the cost of natural gas and the sales price for the power, San Jose, CA-based independent power plant developer Calpine Corp.last Thursday reported first quarter earnings increases in the triple-digit percentage range with net income up 424% over the first quarter of last year to $94.8 million. Diluted earnings-per-share were up 329% to 30 cents/share. Revenue was up 410% to $1.2 billion, compared to $235.4 million for the same period in 2000.

Electric production for the first quarter increased 7.2 MWh, and the average spark spread on those sales averaged $19.84 in the first quarter, compared to $13.88/MWh in the same quarter last year, Calpine reported.

As part of a conference call with financial analysts, Calpine officials said the company has no direct impact from FERC's latest decision to impose temporary price caps during power alerts called by the California transmission grid operator, Cal-ISO, because it does not sell its power supplies in the real-time Cal-ISO spot market. Virtually 90% of its output is locked up in bilateral contracts for this year and more than 80% next year as far as California-based electricity supplies it produces. For all of its current and future generation over the next three years, about 60% of the output is hedged, Calpine officials said.

Indicative of Calpine's recent acquisition of oil/gas production assets, the company's first quarter revenues for oil/gas sales were $175 million, compared to $17 million the first quarter of last year. Calpine continued to shoot for a goal of having equity natural gas interest of about 25% of its fuel needs nationally, although the percentage may vary in its three regions-West, Central and East.

"We strengthened our construction and development program, and turned in another quarter of outstanding plant performance," said Peter Cartwright, Calpine CEO. "We are well on our way to achieving our 2005 operating goal of generating 70,000 MW throughout North America."

While reiterating the company's commitment to "helping alleviate California's energy crisis," Cartwright and other Calpine officials said the company will soon go in the Pacific Gas and Electric Co.'s bankruptcy to determine how it will get paid for past-due billings. Like other qualifying facility (QF) suppliers, Calpine confirmed that as of this month it is getting paid going forward by the PG&E utility, but the payments are based on the utility's estimates as opposed to the suppliers' actual billings.

As of April 6, the company said it had approximately $270 million of accounts receivable and $69 million of notes receivable owed to it by Pacific Gas and Electric Co., which is now in Chapter 11 bankruptcy proceedings. It has not taken any reserves to date for the receivables owed by the PG&E utility.

In terms of temporary peaking generation to help California's short-term power crunch, Calpine said it expects to have two peaking plants on line this summer and two others by the end of the year.

San Diego-based Sempra Energy, holding company for two of the nation's largest utilities, reported net income of $178 million, or 88 cents/diluted share, for the first quarter, a 58% increase over the same quarter last year ($113 million, or 49 cents/share) with almost all of the increase attributable to new, nonutility businesses. Utility earnings from San Diego Gas and Electric and Southern California Gas companies were essentially flat.

Almost half of the quarterly earnings ($86 million) was produced by Sempra's Stamford, CT-based energy trading operation, Sempra Energy Trading, which it describes as "one of the fastest growing wholesale commodity traders in the United States," marketing natural gas, electricity, crude oil and risk-management products worldwide.

Sempra CEO Stephen L. Baum called the growth in its nonutility businesses, which also include power plant development, energy services, international ventures in Mexico and Latin America and financing, a "critical part" of its corporate strategy to diverse its growth potential in various nonutility ventures.

In the first quarter, natural gas volumes for Sempra Energy Trading were 12.2 Bcf/d, up 51% from the same quarter in 2000; electricity volumes were 18 billion kWh, an increase of 154% from the same period last year; and crude oil and liquid products were 2.4 million barrels/d, up 14% from last year's first quarter.

All of the other nonutility businesses showed profits for the first time, and Sempra Energy now said it anticipates overall 2001 annual earnings to be around $2.50/share, compared to earlier estimates at the $2.20/share range

In the gas utility business, Sempra said Southern California Gas Co. was dealing with record demand from electric power plants, and because of that continuing demand, it will be increasing its intrastate delivery capacity by up to 5% by the end of the year.

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