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Calpine Reiterates Strategy After Stock Plunge

Calpine Reiterates Strategy After Stock Plunge

Stung by a negative financial report from an independent newsletter that dropped its stock price 17%, San Jose, CA-based Calpine Corp. reacted quickly last week to reiterate its aggressive strategy for developing groups of gas-fired merchant power plants throughout the U.S. over the next five to 10 years. It also said it would continue to grow its related power and gas marketing operations.

Senior officials noted the company is busy signing up various large municipal customers for its new plants in California, but it is also looking at retail power sales as a business line that can grow. The firm also expects to develop a peaking plant offshoot to many of its new baseload facilities, which are operating, under construction or in development in 20 states.

The critical financial report focused on the accounting methods Calpine used for the potential future revenue streams from several projects in Washington and California, as well as the energy marketing and gas resource purchases it made over the past year.

"These types of transactions complement our marketing and power generation business and will probably grow in the future, but they had zero impact on earnings and very little (less than 2%) impact on revenues in 1999," said Calpine CEO Peter Cartwright.

Countering the report by the Center for Financial Research and Analysis, Cartwright said his company's generation plants are operating very well and he sees 2000 results on track to be "another great year."

"New plants will be coming on line this year and electricity prices are up in all of our key markets," Cartwright told analysts and industry observers in a one-hour conference call open to the public. He called the research report "erroneous," coming from a source with little knowledge of Calpine or its strategy.

"There are no accounting irregularities practiced by Calpine or aggressive accounting positions taken here."

One focal point for criticism was Calpine's deal last year to restructure a standard offer (SO) contract for its Gilroy, CA, plant with Pacific Gas and Electric. Cartwright calls it a "landmark" deal that will be used as a "template" for restructuring other deals totaling another 500 MW in northern California, where he sees Calpine establishing a regional power network with a total of 5,000 MW when facilities now under construction come online in a few years.

In other areas where Calpine is trying to build "networks" of multiple merchant plants, the same template as used in the PG&E deal will be negotiated, Cartwright said. "We're growing our company in a conservative way. Our goal is the to be largest, most profitable power plant developer in the United States. Our program for building new gas-fired combined-cycle plants is probably the largest of its kind ever in this country (26 plants under construction or announced for development).

"Since January we have announced 10 new projects and we will announce additional projects in the months ahead. We have the resources, people and equipment on order (126 large, advanced gas turbine engines, valued at more than $5 billion). We're very confident that our earnings will continue to grow as our portfolio continues to grow."

Cartwright said Calpine will eventually move into international markets, including looking for opportunities along the Canadian and Mexican borders. "We're already looking at opportunities. We're working with some of our large industrial customers who have cogen facilities and have large industrial facilities overseas. That is a new area with tremendous growth potential."

Calpine is also looking at other opportunities for selling retail power with a number of customers and government entities, said Cartwright, noting that none of these are included in current revenue and earnings projections. Calpine sees all of its 25,000 MW of power (targeted to be online by 2004) as being Calpine-owned, baseload power.

"We can find opportunities to add peaking power to all of our plants longer term. That is a whole new market that could add very significantly to earnings and revenues, but none of that is included in our forecasts." Cartwright said.

Richard Nemec, Los Angeles

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