Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: Second_Titan who wrote (11119)	12/15/2001 2:52:11 AM
From: Clement	Read Replies (1) \| Respond to of 23153

Second Titan, The current phase of Calpine's buildout plan calls for the construction of 11,000 MW in '02 are to come online. An additional 6,000 will come online in '03 (with completion by June '03). Personally I think that Calpine will slow its production by a bit. But bear in mind some of its competitors' plants will also not be built and we are using electricity at least as fast as our population growth. The critical thing to realize about Calpine's strategy is that it is a function of replacement in a certain area -- for instance in Texas where the markets are bad (most of them are coal), Calpine has deliberately not built merchant plants but industrial plants (ie specific to a specific industrial project/company need). It turns out that they can be cheaper than their competitors (ie coal) even while using gas because of the efficiency of their plants. Another critical component of the process is that Calpine continually attempts to lock in its spark spreads (ie difference between sale per megawatt and cost of gas per megawatt). As a result, for the remainder of this year, 90% of its income is already known. For 2002, 65% of income are already known and for 2003, 50% of income are already known. In addition to which, Calpine essentially forecasts their income every night. According to their mother-of-a-conference call, they said that they always "mark to market" based on the forward curve of the commodities of (a) selling the electricity and (b) the gas. That said, one of the thing that has concerned analysts is that Calpine has been wavering to confirm earnings estimates for '02. (they would have to forcast what prices will do based on yield curve) I speculate that the analyst confusion is because the swings in the spot market has been quite wide. Calpine noted that the weather was unanticipatedly warm and as we all know the economic downturn was fairly sudden. It would also be important to note that Calpine is generally one of the leading providers of electricity in the markets the serve (which is why a plant must be something like 200 miles away from the end user -- this is something that I read in one of the Peter Lynch books). So the bottom line is that for Calpine's selling and trading activities, if its customers decide to stop buying, their houses will go dark as they cannot easily replace their source of electricity. Prices for electricity will rise when the economy gets better and as weather gets colder/warmer. Ergo - I think that while it may take some time for the fundamentals of the industry to improve, Calpine's fundamentals have changed very little given their strategy. If anyone's still concerned about Calpine's liquidity, Calpine has already said that they will slow down their CAPEX if they need to. Clement