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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: Roger A. Babb who wrote (181)12/13/2001 1:46:08 AM
From: Clement  Read Replies (2) of 555
 
Roger,

Quite frankly, the market has done no such thing in pronouncing the energy markets dead. In fact it has worked in several states. California was simply a dumb market where political forces did not fully allow incentives to take hold nor create the incentives to create a true market.

With respect to the Enron failure, things have changed marginally. Will congress want to make regulatory changes? Perhaps, but bear in mind the President still must sign it into law and his office's position is to allow markets to work.

What has been happening to Calpine is merely pure panic. And frankly it was dumb -- as you can see from the knee jerk reactions (today's trading was very much indicative of that). Californian events have not linked deregulation to high prices and uncertainty given California's deregulation wasn't much of a deregulation at all. I think that the NYT's article was in fact somewhat motivated by the mistrust in deregulation which is very much unfounded. The problem was in the execution.

Much of Calpine's growth model is dependent on displacement of aging plants. Consider Calpine's business model that would not have existed without deregulation. Calpine is one of the companies that is building clean natural gas plants that are also the lowest cost out there. Contrast that with the disincentives for efficiency with utilites. Contrast that with the falling spot prices for electricity which Calpine argues is a function of greater competition to begin with -- so deregulation is working. Those who have the best spreads do so through innovation and doing what is effective/efficient.

Clement
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