Reborn Calpine in 'really good position,' CEO says
REBORN CALPINE LEANER, GREENER BUT ENERGY EXPERTS WONDER IF IT CAN RETURN TO PROFITABILITY
By Matt Nauman
Mercury News
Article Launched: 02/07/2008 01:51:31 AM PST
During two-plus years in bankruptcy, Calpine trimmed about 1,100 jobs, cut its debt by $7 billion and closed 19 offices. Now the San Jose energy company is emerging both leaner and greener, its CEO said, with power plants well-suited for the growing appetite for clean energy.
Calpine wrapped up Chapter 11 proceedings Jan. 31, and its stock could begin trading again on the New York Stock Exchange as early as today.
In an interview with the Mercury News, Chief Executive Robert May ticked off what he sees as Calpine's strengths: its plants and how they make power, its smaller staff, its power contracts and its stronger balance sheet.
May, a turnaround specialist who joined Calpine in late 2005 just weeks before the company went bankrupt with $18 billion in debt, said the reborn company is "in a really, really good position."
Not everyone agrees. One expert questions whether the energy market, especially in California, has changed enough so that an independent supplier like Calpine can make money.
But Calpine argues that it's got the right energy at the right time. It now operates 80 power plants, including the Metcalf Energy Center in South San Jose, down from 92 in 2005. More important, all of them are either natural-gas plants or geothermal facilities.
States like California are demanding that utilities get more power from renewable sources such as geothermal, wind and solar. And natural gas is considered a cleaner technology
than coal-fired power plants.
"We're sitting here with assets we feel are as green as anybody's, and in some cases, greener," May said.
The "old" Calpine ran into trouble because of an aggressive expansion strategy. With about 6,000 megawatts of generating capacity in 2001, the company said it would expand to 70,000 megawatts by 2005, making it the nation's biggest power company.
But financial and legal woes, and the high price of natural gas, forced the company into bankruptcy.
"I do look at this as a rebirth or rebuilding," May said. "One of the things this organization learned during this process was that your growth needs to be measured growth. You can't get too far out in front."
As an example of how it defines measured growth, Calpine is constructing only two new natural-gas plants - in San Diego and Canada - that would add between 1,285 and 1,601 megawatts to its 24,000-megawatt portfolio. It has been granted permission by the state to build another in Hayward. On Wednesday, the company said it had completed the sale of a partially constructed plant in Alabama.
"We're happy with where we are in terms of size and scope," May said. "We know gas-fired generation and geothermal. That's where our sweet spot is."
For John Bohn, a commissioner with California's Public Utilities Commission, Calpine's emergence from bankruptcy is another sign that the state is putting the energy crisis behind it.
"It shows institutions are recovering," he said, "that there are viable energy suppliers out there other than utilities."
But whether independent producers such as Calpine are on equal footing with utilities such as Pacific Gas & Electric - one of the hallmarks of deregulation - remains an open question.
"In my personal view, we're not there yet," Bohn said. "There's much too much ambiguity in the marketplace to provide vigorous competition from the independent suppliers that we want to see."
Less optimistic about Calpine's future is Jacob Rudisill, a former Calpine executive who now heads DAREnterprises, an energy consultancy in Pleasanton.
"We don't have a transparent, functional power market," he said. "And when you don't have that, it's very difficult for an independent power producer to survive."
He points to the fallout from the energy crisis of 2000-2001. Many independent power producers went bankrupt and "got out of the business," he said. "That's not a very good trend."
May agreed that the market for independent power companies in California is "improving," but "may not be all the way there."
Still, he said, "we like the California marketplace an awful lot. We've had some bumps and bruises there, we know."
Calpine might like the state's marketplace, but there's uncertainty about whether it will keep its corporate headquarters in the state. Calpine now lists San Jose and Houston as its principal offices.
Asked directly about its plans to stay in San Jose, May said he thinks of it as a California company. Still, his answer wasn't definitive.
"I don't want people to get nervous about where we hang our particular shingle," he said.
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Contact Matt Nauman at mnauman@mercurynews.com or (408) 920-5701.
