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Gold/Mining/Energy : CPN: Calpine Corporation
FRO 23.66-0.3%Nov 7 9:30 AM EST
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To: Raymond Duray who wrote (162)12/8/2001 4:50:17 PM
From: Clement  Read Replies (1) of 555
 
Raymond

While I think the article is quite valid, I do not believe that this is terribly relevant to Calpine.

The concepts most apply to the trading activities and financial instruments that are created in IPP's. My basic read is that the value/profit is locked in through hedging and that is sometimes subjective. It is also where Enron ran into some of their problems as their trading activities were more extensive and extended far beyond their own production capabilities.

This however is not the case for Calpine. As stated on their conference call, 90% of Calpine's trading activities pertain their own production. They also added that the amount of incremental returns that could be made were relatively minor (150-200 bps I think).

re: Chris Edmonds' article was somewhat jaded. Another article was published a couple of days later with the company's rebuttal point by point. I'm not sure if it is fair to charactize the balance is being weak given their dependence on locking in long term contracts and ownership of at least part of their production (top line and costs) -- they will not build until 65%-70% of their capacity is locked in. To argue that they will not grow as quickly is also not a very good bearish argument given that even if they do not grow at all, they have tremendous free cash flow (over $3) more than enough to justify their current price. Keep in mind that much of this free cash flow is locked in and Calpine is a low cost producer.

Clement
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