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

To: jim_p who wrote (11142)	12/17/2001 2:17:24 PM
From: Clement	Read Replies (2) \| Respond to of 23153

Jim, Here I'm not sure I agree with you. While yes, I think cycles are inevitable, the problem being that electricity if my understanding is correct, is not as fluid as something like oil. My understanding is that the user must be within 200 miles (it could also be 500 miles). You cannot transport it for great distances -- and for that reason, whoever has a lock on Hawaii's electricity will have nothing to worry about from its mainland competitors. If you look at the situation in this context the one thing I think that many people are missing is that oversupply and undersupply is completely regional -- so those who are able to capitalize on better opportunities and have better locations, will be able to shut out competitors. "Overcapacity" cannot simply be generalized. Central to Calpine's strategy is their ability to lock up long term contracts -- so they know their costs and they know their revenues going forward -- so the question of variable cash flows is not an issue. A situation which is more comparable that I am aware of, is someone like Barrick in the gold market -- Barrick continues to make money while their competitors suffer greatly. Gold has definitely been in something of a prolonged down cycle <g>. This is a changing environment, without which, Calpine could not survive, but as a result of nuclear winter in the capital markets, many of Calpine's competitors will not be able to fulfil their build out plans -- significantly reducing the supply in the market place a few years from now. For Calpine to go belly up, a number of things must happen -- the price of gas must drop substantially lower than they are now and several of Calpine's counterparties must go bankrupt and not pay (ie their counterparties are all rated in the A's - except PG&E according to their mother-of-a-conference-call). In that context, if that is how you define a substantial downturn, I think you are right. Clement