Noting that his company is well positioned long term for mid-range natural gas prices and tougher environmental restrictions, Calpine Corp. CEO Jack Fusco reiterated Friday that the nation's largest independent power producer continues to treat gas as its strategic ally. Calpine's mostly new, natural gas-fired power plant fleet has the ability to benefit from both price and demand increases when they occur in the electricity sector, Fusco said in reporting decreased earnings last year.

Calpine reported a loss of $24 million in 4Q2010 compared with a loss of $43 million in 4Q2009. For the full year 2010 net income was $31 million (6 cents/diluted share), compared with $149 million (31 cents) for all of 2009.

When asked about a shift to a more "neutral" (from "bearish") view of natural gas, COO Thad Hill said he sees natural gas prices declining to new low levels this year and into 2012. The dynamics of shifts to more shale gas and the increased cost of coal relative to gas are two factors that eventually will cause Calpine to become more bullish toward gas, Hill said.

In its Southeast region operations, Calpine expects to ink more long-term power supply contracts as the trend of coal-to-gas power generation conversions continues, both Fusco and Hill said during a conference call with financial analysts.

In response to questions about the resurgence of mergers and acquisitions in the electric sector, Fusco said his company does not need to do anything "transformational" now that it has completed its acquisition of Pepco Holding Inc.'s Conectiv 19 power plant fleet in the PJM market (see Daily GPI, Aug. 2, 2010).

"I think the industry is going through a transformation period," Fusco said. "The high-yield markets are back, so I think you are going to see more utility mergers, such as the Duke-Progress Energy, and your going to see assets being purchased, whether it is by the private equity guys or others. I would expect the merger/acquisition activity to continue.

"We're very optimistic about our future here at Calpine, and we have more than enough organic growth opportunities to add significantly to our value. I don't think we need to do anything transformational. I think we're positioned perfectly for future growth."

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