While stressing it is on target in shoring up its liquidity and balance sheet, San Jose, CA-based Calpine Corp. Tuesday reported third quarter earnings that were less than half of what they were for the same quarter last year — 36 cents/diluted share, or $161.3 million in net income, compared to 88 cents/diluted share, or $320.8 million, for the same quarter in 2001.

The company noted that before some “non-recurring items,” the quarter results were slightly better — 38 cents/diluted share, or $170.9 million.

Noting that Calpine put in place a revised business plan at the beginning of this year to meet “challenges and uncertainties” in the power industry and capital markets, Peter Cartwright, Calpine’s CEO/founder, said that the company’s workforce will have been reduced by 10% at the end of this year.

“We continue to execute and refine this program,” said Cartwright, noting the company has reduced its 2002-2003 capital spending budget by $4 billion. “We have continued to strengthen liquidity through non-strategic asset sales, and we have improved our balance sheet through the retirement of debt. Equally important, Calpine has completed more than $3 billion of financings this year, and we are in active discussions with our lenders as we prepare to launch our 2003 refinancing program.”

While Calpine will have a power plant portfolio totaling 20,000 MW in 21 states, two Canadian provinces and one large plant in the United Kingdom, Calpine officials indicated the company could defer up to 75% of its construction next year. (At one point, Cartwright in response to an analyst’s questions said Calpine is currently in confidential negotiations with its turbine suppliers and will complete its reduced orders by the end of this year.)

Generally, the quarterly results show that Calpine’s sales of purchased power or hedging dropped by nearly $400 million in the third quarter compared to the same period last year ($1.2 billion vs. $1.6 billion in the third quarter of 2001), and fuel expenses were increased by nearly $200 million ($525 million vs. $327 million in the third quarter of 2001).

Calpine’s natural gas portfolio, which used to roughly equate to 25% of its fuel needs at its power plants, has dropped somewhat proportionally, standing at about 18% of its power generation fuel requirements. The company held 1 Tcf of proven reserves valued at $1.4 billion at the end of the third quarter, said Bob Kelly, Calpine’s CFO. In power plant capacity equivalent, the company’s gas supplies equate to 2,100 MWh of what it calls “equity gas.”

Third quarter and nine-month results for 2002 have been affected by what Calpine said were “significant decreases in electricity prices and spark spreads,” compared to 2001, but it noted during the Q&A portion of its conference call that the company has seen some indications of a slight increase in spark spreads in some regions of the U.S., such as the Northeast and the West.

“With gas prices rallying as they have, underlying prices have increased,” said Paul Posoli, Calpine’s senior vice president for energy services. “Spark spreads have rallied slightly. In the third quarter, the Northeastern spreads were in the mid-$20 range; the West was in the low to mid teens ($13-15); and in the rest of the country spark spreads are all under $10. In the fourth quarter, things are obviously trading lower than this past quarter, with the Northeast (NEPool) still the strongest market.

“The entire Northeast is stronger than expected, with spark spreads up probably $5 over what they were during our last conference call. On a forward basis not a lot has changed, but in the West we have seen spreads rally by a couple of dollars.”

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.