Calpine,Calif Meet On Power Pacts, No Agreement Reached Dow Jones Business News 12/17/01 12:54PM
LOS ANGELES -(Dow Jones)- Calpine Corp. (CPN) and California state officials held extensive talks last week in an effort to renegotiate billions of dollars in long-term power supply contracts the San Jose-based energy company signed with the state last spring, spokesmen for the state and Calpine said Sunday.
The parties haven't reached agreement on how the contracts, currently worth an estimated $13 billion, will be restructured, but an announcement could be made as soon as this week, Calpine spokeswoman Katherine Potter said.
"We did have some very good meetings with the state, but nothing is definitive yet," Potter said.
Concluding the renegotiations would give California a better deal and allow Calpine to showing Wall Street more certainty regarding its revenue stream from the forward contracts, Potter said.
"We're confident everyone will see this as positive step," Potter said.
Steve Fleishman, an analyst with Merrill Lynch in New York, agreed that concluding the renegotiations would be a "good thing" for Calpine, because it would remove uncertainty.
"If the contracts are renegotiated sooner it could be a positive first step for Calpine," Fleishman said.
Late Friday, Moody's Investors Service downgraded Calpine's debt ratings one notch to junk status, citing the company's heavy debt load, limited financial flexibility and "modest" operating profits at a time when Calpine is aggressively building up its generation portfolio.
Calpine operates 69 power plants with 12,000 megawatts of capacity and is in the process of building an additional 30 power plants with that will add 17,800 MW. The company plans to bring 70,000 MW of generation on line by 2005.
Senior Calpine officials and officials with the California Department of Water Resources, the agency buying power in lieu of California's struggling utilities, met for several hours on the contracts beginning last Thursday. People close to the discussions said Calpine would agree to trim the length of the contracts in exchange for higher cash payments up front. The state is looking at other ways to reduce the costs of the contracts, these people said.
Steve Maviglio, spokesman for Gov. Gray Davis, said the state and Calpine were engaged in serious discussions last week but were working to finalize an agreement.
"The state and Calpine were in heavy talks, but no deal has been finalized," Maviglio said.
Calpine holds the bulk of $42 billion in long-term power pacts California signed with about 29 energy companies in the spring. Two of those contracts commit Calpine to provide up to 2,000 megawatts of electricity from new and existing power plants over the coming decade. The company will also supply up to 735 megawatts of power when demand is highest from 15 new "peaker" plants through two separate agreements.
California entered into the power pacts at an average price of $70 a megawatt hour earlier this year after soaring power prices left the state's largest utilities unable to pay their bills. The power market has since crashed, and Davis has been criticized for locking consumers into expensive contracts running as long as 20 years.
The state now has a surplus of power that it expects to sell off at a loss of 80 cents on the dollar, which could cost consumers about $4 billion over the next decade, according to a report by the Department of Water Resources.
DWR officials approached Dynegy Inc. (DYN) last week and Sempra Energy Resources, a unit of Sempra Energy, last month to try and renegotiate the contracts the state signed with those companies. Steve Stengel, a spokesman for Dynegy said talks haven't taken place. Doug Kline, a spokesman for Sempra, wouldn't say whether Sempra has met with state officials. |
