Calpine Corp. Continues its Acquisition Binge
Calpine Corp., the San Jose, CA-based merchant power plant
developer/operator, continued its aggressive growth strategy last
week, announcing separate acquisition and strategic alliances in
the central midsection of the U.S., along with startup and
development of new projects in Texas and California, respectively.
This latest growth spurt eventually could make Calpine by 2005 the
nation's largest merchant power plant operator with the youngest,
most natural gas-intensive electricity generating network.
In total, the 16-year-old, multi-billion-dollar company, which
went public four years ago, began the week by paying $576 million
and agreeing to take on more than $100 million in additional debt
to corral 43 plants or proposed plants in various stages of
development and the rights to an additional 58 General Electric gas
turbines capable of producing up to 14,000 MW of power. The assets
being acquired are all privately held.
Later, Calpine announced the startup of the 500-MW Hidalgo
Energy Center in Edinburg, TX, a plant in which it holds majority
ownership (78.5%) with the Brownsville (TX) Public Utilities Board.
Subsequently, on Thursday the company announced plans to build, own
and operate a fifth merchant generating plant in California on an
American Indian reservation in Southern California.
Calpine said it has acquired the rights to pursue a 600 MW
gas-fired generation facility near the town of Thermal in Riverside
County, CA, through a development deal with Adair International Oil
and Gas and a long-term lease agreement with the Torres Martinez
Desert Cahuilla Indians.
The $275 million facility, to be called the Teayawa Energy
Center, will be sited on the Cahuilla Indians' land in the
Coachella Valley, with construction to begin in mid-2001 and
commercial operation to get under way in late 2003.
In Texas, Calpine on June 14 began operating the energy center,
which is located within one mile of its Magic Valley Generating
Station, a 730 MW gas-fired facility currently under construction.
The Magic Valley facility is expected to be on line in the summer
of 2001. The Hidalgo plant will sell power into the Texas wholesale
market and potentially into the growing energy markets of northern
However, among the series of announcements last week it was the
major acquisition and alliances that promise an unprecedented
growth spurt for Calpine as it bought potential expansion into four
new states --- Wisconsin, Indiana, South Carolina and Georgia ---
increasing the company's potential portfolio of almost-exclusively
gas-fired power plants to 89 in 25 states, totaling 26,750 MW by
For $450 million, and agreement to assume its outstanding debt,
Calpine bought SkyGen Energy LLC, Northbrook, IL, from Michael
Polsky, its founder, and Wisvest Corp., a Wisconsin Energy Corp.
subsidiary. Polsky will continue to run SkyGen as a wholly owned
subsidiary of Calpine and will assume a seat on Calpine's board.
For another $126 million, Calpine bought into a strategic alliance
with Dallas-based Panda Energy International, Inc., obtaining the
rights to develop, construct, own and operate a 1,000 MW Panda
power plant proposed for Oklahoma and the potential to do the same
with seven other Panda projects in various earlier stages of
The Panda deal eventually could involve the largest current
merchant power plant under development in the U.S., the 2,720 MW El
Dorado plant in Arkansas for which Panda just last week announced a
contract with Trans-Union Interstate Pipeline to build a 42-mile,
30-inch-diameter natural gas supply pipeline to fuel generating
plant with up to 430,000 MMBtu/d. The pipeline will connect the
plant with Gulf States Pipeline, Sharon, LA, allowing access to gas
basins in three states (Texas, Louisiana and Oklahoma).
In total, Calpine obtains immediate development, ownership and
operating rights to Panda's 1,000-MW natural gas-fired Oneta
project in Oklahoma, scheduled to begin construction next quarter
and becoming Calpine's fourth plant hooked to the Southwest Power
Pool; in addition it obtains the rights to do similar acquisitions
of seven other Panda projects, including El Dorado. In each case,
Calpine will pay Panda a development fee and allow it to share in
the plant's eventual cash flow, according to a San Jose-based
Calpine spokesperson. Calpine also acquires from Panda the rights
to 24 GE gas turbines and 12 steam turbines, representing 9,600 MW
of gas-fired generation.
"Panda like Calpine is concentrated on the gas-fired generation
market," said Calpine's spokesperson. "What Panda will bring to us
is an opportunity to develop a total of eight projects totaling
10,650 MW of generation. It is structured so the seven projects
under development-two in advanced stages-once they are financed and
ready for construction, Calpine has the exclusive right to buy."
The SkyGen deal, involving mostly cogeneration facilities
offering both electricity and steam to large industrial customers,
provides Calpine with a diverse portfolio of 45 projects in various
stages of development-three now operating (780 MW total); three
being built (812 MW); 13 projects in the "late-stage development"
(5,258 MW); and another 16 (6,615 MW) classified as "development
Richard Nemec, Los Angeles