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Calpine, Bear Stearns Aiming at 'Very Significant' Energy Trading Share

Citing their respective physical and financial strengths in announcing an energy marketing and trading joint venture Thursday, Calpine Corp. and Bear Stearns Companies Inc. indicated they hope to capture a "very significant" part of the natural gas and electricity trading business in North America.

Paul Posoli, Calpine's executive vice president heading its trading operations, told NGI Thursday that the new company, CalBear Energy LP, will greatly expand Calpine's current market position, which represents about 3% of the natural gas and power markets traded last year. He said the operation will be based at Calpine's current Houston marketing headquarters.

Calpine has been trading about 2.5-3.0 Bcf/d of natural gas, and on the electric side is the nation's fifth biggest power trader. With Calpine's extensive physical presence in the natural gas-fired power plant market and Bear Stearns deep financial pockets, the newly created joint venture, "really gives us a unique model," Posoli said.

Noting that having a national presence with what he called a "broad scope and scale," Posoli said there are "huge barriers to entry [into energy trading] right now, so being able to look at all markets in North America, and provide products to pretty much all asset owners -- from gas producers through load-serving entities -- is a big advantage." He repeated that CalBear will emphasize this broad scope and scale as its main marketing tool.

What sort of strategies and goals have been set for growth in markets?

''We're not giving any projections at this point in regard to margins or revenues," he said. "But we expect to be one of the premiere marketing and trading shops in the industry."

After working with Bear Stearns beginning in 2002 to evaluate a new "structure" for its trading, Calpine and the venerable Wall Street firm have formed CalBear Energy LP, a wholly owned Bear Stearns subsidiary, to handle the physical natural gas and power trading and related transactions, Calpine said in its formal announcement and conference call with the financial community. CalBear trading operations are expected to start in the fourth quarter, following federal regulatory approvals.

"About a year ago we realized the most efficient way to get a credit enhancement was to team up with a financial institution," said Posoli, indirectly alluding to Calpine's continuing mountain of $16 billion in debt, which translates into low credit ratings. "The past year we have been working with Bear Stearns on this structure."

Calpine said the joint venture will benefit from Bear Stearns "risk management expertise and client reach," combined with the power plant developer/operator's energy market-related skills and expertise. "These strengths will provide a solid foundation to establish the new venture's market position in the growing merchant energy trading business," a Calpine spokesperson said.

As part of the transaction, Calpine formed a wholly owned subsidiary, Calpine Merchant Services Company, Inc. that will include the employees and information infrastructure of it existing Calpine Energy Services, LP, unit. CalBear has entered into an agreement with Calpine Merchant that makes the new Calpine company the exclusive agent on power and gas trades.

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