The following post is probably well to add to the equation when thinking about investing in Crestreet, or anything similar:
Message 22856295
>>>they could purchase enough gas in the futures and spot market to cover their hedge committments<<<
Forgot to mention.
Calpine sold a bunch of power to California in the late winter of '01 at rather strong prices. They could have provided the power from the their own generators and gas supply. Electric bottom in Dec '01 - remember Enron - and they covered their "short" to net $800 million. They didn't tell anyone.
In the summer of '02 with the merchant generator equity markets tanking, the analyst community cemanded why Calpine wasn't "monetizing" its power sold forward contracts.
California had challenged all these contracts. By the summer of '03, FERC FINALLY upheld these contracts. It was then and only then that Calpine announced that they had flipped the electric for $800 million. I had a good belly laugh. It didn't do any good - Calpine filed for protection in Dec '05.
I feel that I should explain further. It sounds like Calpine abused California. Nothing could be further from the truth. Calpine gave California a great deal on power - about $60/MWhr out through about 2010.
In Feb '02 - about a year after California had entered the contracts, it challenged them. Calpine told California that it had no legal base, but to be nice, it cut perhaps $0.20 off the price and dropped the last two years ('09 and '10). It told California that it would come begging on its knees in '09 and '10 to get the $60/MWhr it was turning down in '02 for its supply in '09 and '10. California said thanks for the advice, but we don't want it.
California challenged everyone's contracts. They went forst to the 9th circuit. The 9th circuit told California that FERC had jurisdiction. FERC heard the matter for 18 months, and told California that it had signed a contract to which it would have to abide. California then went back to the 9th circuit, and claimed that FERC had misapplied the law. They told California to shove it. California then went to the Supreme Court, which refused to hear the matter. California then had its congressional delegation add language to the Dec '04 version of the energy bill to "abrogate" the contracts. The Republicans told them to bugger off. Of course with the threat of a lot of power hitting the market, nobody wanted to lend Calpine $$$ at reasonable rates. Who could blame them. Contractual law had been suspended.
I bailed on Calpine in early '04 at about $4. ouch, but glad I did.
Calpine filed for protection in Dec '05. Of course in Dec '05, NG was $15, and the contracts California had with Calpine for about $60 were deep in the money. The spot could have been as high as $105 for fuel alone based on a 7K heat rate CCGT plant. In BK, underwater business commitments are usually dissolved. California seeing that it would suddenly have to pay, say $140 for electric instead of $60, went to a very high level court, and claimed that FERC had jurisdiction over these contracts instead of the federal BK courts, because after all, they were electric contracts. The matter was moved to FERC. I haven't heard what happened.
So I bought my Calpine at $13 and sold it at $4. A pretty bitter experience. But I did have the moral satisfaction of seeing California crawling and begging FERC to enforce the contracts which for years it had struggled to dissolve.
Three morals here:
1) Never do business with California. They are nuts, and will backstab you at the drop of a hat.
2) Never enter a business whose life depends upon the government. In my naivete, I laughed when California tried to break the contracts, knowing full well that they were contracts, and the government would uphold them. I didn't realize that Calpine's existence really depended upon the government, and there were enormous political forces being brought to bear. Anybody here long ethanol??? Physics dictates that we have electricity. It is at best, a silly government mandate to use ethanol. Regardless of its silliness, it is nothing but a mandate. The ethanol business is totally, 100%, in its entirety, dependent upon the government.
3) Always watch the government. I know, I know. It is much more interesting to watch rig counts and hurricane tracks. But it is far less important then what the government does. |
