Calpine Corp., one of two West Coast merchant power plant developers to take it on the chin last Thursday, reported depressed second quarter financial results, mirroring unprecedented low wholesale electricity prices nationally in which the average spark spread between fuel prices and power prices are at historic lows below $5. Both PG&E Corp. (see separate story) and Calpine reported net income that was reduced for the quarter compared to the period a year earlier.

Calpine CEO/founder Peter Cartwright said 2002 is “proving to be one of the most — if not the most — challenging of years for the U.S. power industry.” His company lowered its worst case earnings estimate for the full year 2002 to the $80 to $100 million level from the $120 million level, dropping entirely any projected earnings from trading, essentially seeing that sector in “meltdown.”

At Calpine, for the three months ended June 30, 2002, fully diluted earnings were 19 cents/share, compared with 39 cents/share for the second quarter of 2001. For the same periods, so-called “GAAP” (generally accepted accounting principles) fully diluted earnings were 19 cents/share and 32 cents/share (after merger expense), respectively. For the six months ended June 30, 2002, fully diluted earnings from recurring operations were 30 cents/share, compared with 75 cents/share for the six months ended June 30, 2001. For the same periods, GAAP fully diluted earnings (loss) were a loss of 1-cent/share (after effects of pre-tax equipment cancellation costs of $168.5 million) and 68 cents/share, respectively.

Financial results for the second quarter of 2002 also reflect higher project development costs as the company expensed $18.1 million in costs related to increased cancellations or delays in some of its proposed power plant projects. Nevertheless, total electrical generating production for the three and six months ended June 30, 2002, increased substantially — 99% and 101%, respectively, as Calpine brought additional facilities into operation.

“Financial results for the three and six months ended June 30, 2002 reflect a significant decrease in electricity prices, gas prices and spark spreads as compared with the same periods in 2001, primarily reflecting an increase in supply and a softened demand resulting from depressed economic activity,” Calpine said in its earnings report. “Declines in market prices for electricity were mitigated by the company’s volume of long-term contracts. The company did experience a significant drop in mark-to-market gains from trading activities, which reflects the company’s decision to limit this activity due to costs associated with credit support for trading.”

Previous talk about a merger of Calpine’s trading unit with a major outside firm or alliance of firms is still under discussion, Cartwright said in a conference call, but it is on a much slower pace.

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