Citing a current depressed demand for electricity, particularly in the industrial sector, San Jose, CA-based Calpine Corp. last week put the breaks on its seemingly nonstop gas-fired power plant development program that currently covers 29 states, Canada and the UK. The company, whose stock and credit ratings have taken a hit, particularly in the wake of Enron’s fall, said it would complete “on schedule” its 27 projects (15,200 MW) now under construction, but it was halting 34 other projects (15,100 MW) under development, pending further review.

As a further reflection of the current recessionary economy, mild weather and depressed energy prices, Calpine has revised its 2001 earnings projection to $1.95/share, compared to a $2/share estimate the mid-part of last year. It is projecting $1.6 billion for “earnings before interest, taxes, depreciation and amortization” (EBITDA). Nevertheless, the company says it three-year (1999-2001) earnings growth should end up being a compound rate of 60%. New estimates for this year are revised downward to $1.70/share, or about $2 billion EBITDA.

The company expects to sell 100 million MWh of electricity this year, said Cartwright, and in response to questions, the company’s financial executive noted that 75 million MWh are already under contract.

Calpine said its forecasted capital spending for this year will be cut by as much as $2 billion (from $5 to $3 billion) for power plants, noting for the last six months that the normal average national power growth of 2.7% has been “essentially flat” for the past six months, according to Peter Cartwright, CEO/founder of Calpine. Even with the current “choppiness” in the U.S. capital markets, Calpine raised $10.5 billion from various sources last year, Cartwright said.

The company is converting its industry-leading aggressive program–some critics have called it “too aggressive”–into “firm and flexible” segments, with as-yet-to-be-constructed projects in the advanced development stages continuing through pre-construction steps but then being held until market conditions warrant the projects going forward.

With 11,100 MW now in operation in North America and the UK, Calpine will complete its current plans to add 12,100 MW of new generation this year, an unprecedented amount of new electric generating capacity, Cartwright told a two-hour conference call with financial analysts Wednesday. Along with another 3,100 MW added in 2003, the company will have 26,300 MW operating by the end of 2003, but its increased target of having a total of 70,000 MW in its portfolio by the end of 2005 now is unlikely to be realized, the company acknowledged.

“No project will proceed until capital is available for it at attractive terms and conditions,” said Cartwright, noting that the company is working with its suppliers to modify the delivery and payment schedules for things like natural gas-fired turbines. “We don’t expect to be canceling any orders, however.”

Wall Street analysts these days are convinced that the drying up of capital markets for energy are reflecting the assessment that there is a “high risk” of the electricity market being over-built, said Andre Meade, U.S. utilities analyst for Commerzbank Securities, New York City. “That is causing companies to cut capital budgets and cancel plans or delay plans for new plants. Ultimately, that is in their own best interest because it means that longer term the outlook for power prices should be a lot more firm.”

Cartwright said that Calpine’s own “informal running tally” estimates nationally 82,000 MW of new power plants have been cancelled or deferred and another 118,000 MW of development plans up for sale. “We’ve made our own assessment of what plants now in development will now get built and came up with a conservative estimate of overall growth in demand averaging about 2.3%, but there are going to be far fewer plants moving ahead than when we made that forecast.”

“Long-term, I am very confident that our country is going to need power, our competitors are getting out of the business, so we are going to stand tall as the leading power plant developer/operator,” Cartwright said.

While the Calpine officials are acknowledging that tighter capital requirements, depressed energy prices, the recessionary economy and the Enron debacle have all impacted the company’s credit ratings and stock price, “there have been no significant impacts on the operations of the electric industry”–generators and marketers are selling and power is being delivered reliably.

Cartwright said by the company’s analysis the Calpine stock should be selling at considerably higher prices. (It closed Tuesday at $13.85, down 17.5% for the year.) He said the net present value of its power contracts over market prices is $6.5 billion and the value of the companies electricity and natural gas assets is $16.5 billion, with debt totaling about $15 billion, leaving about $8 billion of equity. Divided among current shareholders, that equates to about $21.40/share, Cartwright said.

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