With a recent history that includes emerging from Chapter 11 bankruptcy two years ago, Calpine Corp. is focused on a post-coal electric generation future.
But Friday the here and now took center stage as the independent generator reported more red ink for the second quarter this year as a result of its operations, which were greatly expanded in the mid-Atlantic PJM market.
Calpine reported a net loss of $115 million, or minus 24 cents/share, for the second quarter, compared with a net loss of $78 million, or minus 16 cents/share, for the same period in 2009.
CEO Jack Fusco, marking his second anniversary leading the restructured merchant power company focused on earnings before interest, taxes, depreciation and amortization (EBITDA), which was $381 million for the second quarter this year, instead of the red ink. However, he had to admit that even EBITDA was down compared to the same period last year when it was $457 million.
Fusco talked bullishly about the future, stressing that Calpine’s “young, modern efficient fleet” of mostly natural gas-fueled, combined-cycle power plants is well positioned to take care of what he sees increasingly becoming a post-coal world driven by climate change and environmental rules aimed at greatly shrinking the nation’s carbon footprint. He characterized Calpine as the “lowest-cost provider with the smallest carbon footprint” in all of its markets (West, Texas, North and Southeast).
There are three overarching forces impacting the power generation sector, according to Fusco, and Calpine is positioned well to deal with them: aging national fleet of power plants, the majority of which are coal-fired; impending Environmental Protection Agency (EPA) regulations of various pollutants; and the abundance of North American shale gas supplies.
He thinks the first two are likely to force the retirement of many coal-fired plants in the next two years, and natural gas will be the “clear winner” in the future as a result. Fusco said that more than 40% of the nation’s electric generation plants are more than 30 years old, and are in “desperate need of replacement or environmental retrofits and upgrades.”
With an average plant age in its fleet of 10 years, Calpine has an advantage over competitors, Fusco said. He said the negative impact on coal-fired plants from impending EPA regulations is going to “happen sooner than many think.” EPA is under court-order to issue the stronger emission restrictions by March next year, and compliance is supposed to kick in by 2014, he said.
In the question-and-answer period on an earnings conference call, Fusco and other Calpine senior officials confirmed that the cost differences between coal and natural are continuing to narrow significantly.
With the closing of coal plants accelerating (see related story), Fusco was asked by an analyst if Calpine is beginning to think where and when it wants to develop its next generation of new generation plants? “We are doing this, we’re very active, particularly in PJM,” he said.”We think the PJM market is going to see some of the most immediate benefits [from a deemphasis of coal-fired generation] from a more activist EPA and a shutdown of coal units.
“We have begun a very aggressive program to identify our sites and begin a permitting process to build the next generation of units,”said Fusco, who promised to make public on his third quarter conference call the overall number of megawatts Calpine will be pursuing in its new generation plant building program.
In response to more questions, Fusco said that the two coal-fired plants Calpine acquired in the recently closed purchase of Pepco Holdings Inc.’s 19 Conectiv generation facilities (one under construction) totaling 4,490 MW, Fusco said that since July 1 the two plants now run on natural gas, with oil as a backup.
Finally, on the status of one of Calpine’s 140 MW upgrade of the 180 MW Los Esteros simple-cycle peaking plant north of San Jose, CA, Fusco said following state regulatory approval of a contract with Pacific Gas and Electric Co. on Thursday, Calpine will pursue detailed engineering/procurement work later this year and “hopefully get into construction next year for a commercial start date in the summer of 2013.”
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