<<The California squeeze had absolutely nothing to do with generating capacity. It occurred while the state was at 60% of maximum generating capacity. The whole thing was a fraudent scheme.>>I've heard some recent speculation that this is the case, but haven't really seen anyone make a solid case...If you run across an article, please post a link.
<<This [gov't providing limited credit guarantees] simply cannot occur in this current environment of skepticism in the capital markets.>>Excessive skepticism in the capital markets would actually be both the reason and justification [along with concerns over future energy shortfalls] for such action. But I'm not predicting that will occur, just considering it as a possiblity...a longshot.
<<Calpine is a busted stock. It's "story" has been blown completely out of the water.>> Yep & yep. Glance at the chart confirms this...and the superhot growth story is looking pretty cold. OTOH, the transition to cash cow story hasn't left the barn yet.
<This is, at best, a lousy investment for the next 8 years.>>I respectfully disagree. The Best case on this has substantial upside and a number of potential routes and catalysts. A hot summer, a cold winter, Enronitis concerns subsiding, a bit of regulatory help, solid free cash flow as curtailed construction liberates revenue from capex [03+], recognition that the parts are worth more than the current price. I see this coming together a lot sooner than 8 years, but the rest of this year will be dicey.
<<Potentially, it is much worse.>>Yep, there's risk.
Here's a comment from a Bill Miller associate that states the case a bit more eloquently and with more authority than I have:
6. What's the thesis with Calpine?
The thing I like about Calpine [down 84% over the past 12 months] is that psychological and cyclical issues are depressing the stock so much that I'm fairly confident it's mispriced in the one- to three-year time horizon. ... It looks to me that their comment that they can earn $1.70 this year is true; that the assumptions behind it make sense.
I think the company is currently in a depressed environment, which I don't think will continue. The psychological issue ... is that they have Enron dust on them. They're automatically thrown out [because] nobody wants to own these companies, so that increases the probability that things are mispriced. Calpine was ... going to be this new-age power generation company of the future. I don't know if that ever comes back. It probably doesn't.
If they just stop building [plants] altogether, and just use their maintenance capital expenditure, I believe it would be worth 10 times that free cash flow, which I believe is $18 or $19 right now. My analyst thinks it's worth $25, but I don't really agree with him yet.
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