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US Power generator,Calpine, files for bankruptcy

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US Power generator,Calpine, files for bankruptcy

Unread postby Leanan » Wed 21 Dec 2005, 08:03:53

http://msnbc.msn.com/id/10555406/
$this->bbcode_second_pass_quote('', 'T')roubled US power generator Calpine has filed Chapter 11 petitions to give it the breathing space to reduce its $18bn of debts and restructure its business.
The move, in a Manhattan court late on Tuesday, is the latest in a drama that has seen the collapse of one of the best known names in the North American electricity market.
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Re: Calpine files for bankruptcy

Unread postby FoxV » Wed 21 Dec 2005, 10:51:26

these guys have lots of generating capacity in California which already verges on a blackout on a good day.

any chance they would actually close down some plants
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Re: Calpine files for bankruptcy

Unread postby donshan » Wed 21 Dec 2005, 11:54:45

$this->bbcode_second_pass_quote('FoxV', 't')hese guys have lots of generating capacity in California which already verges on a blackout on a good day.

any chance they would actually close down some plants


Calpine has now obtained another $2 billion in loans to keep operations going. Some generating plants will be sold.

Immediately Calpine seems to be trying to use the bankruptcy to get the Judge to alter the terms of power sales contracts where the sale price is less than the cost of production. What amazes me is the stupidity of Calpine to sign contracts that don't adjust power rates with natural gas prices, but I suppose that is partly why the CFO got fired.

This is going to be another big fight in California per this quote from today's Wall St. Journal.
$this->bbcode_second_pass_quote('', 'A')lso at issue will be billions of dollars in wholesale power-supply contracts entered into by Calpine. Mr. May said the company intends "to commence discussions tomorrow [Wednesday] to modify those contracts" but added he is hoping to do so without a court fight. The California attorney general already has said he will defend contracts in which Calpine supplies the state's utilities with power at below-market prices. In the past, bankruptcy courts and federal regulators have been reluctant to disrupt power-supply contracts if that would hurt consumers.


It is an economic "no brainer". If the California customers want "semi-green" power from natural gas, they will have to pay what-ever it costs to buy the gas to make it, or blackout will happen. Unfortunately, a lot of lawyers will get rich fighting this principle trying to pass the buck.
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Re: Calpine files for bankruptcy

Unread postby nth » Wed 21 Dec 2005, 12:15:03

$this->bbcode_second_pass_quote('donshan', '
')It is an economic "no brainer". If the California customers want "semi-green" power from natural gas, they will have to pay what-ever it costs to buy the gas to make it, or blackout will happen. Unfortunately, a lot of lawyers will get rich fighting this principle trying to pass the buck.


Hrm... if you actually study this indepth, you will know that Calpine should have no problems providing power based on these contract prices. Californians pay high electricity rates. The rates they pay is more than enough to pay for natural gas power, even at $15 per mbtu.

Calpine's business model went bellyup because they have too much debt and they couldn't sell all the power the plants generate.

This is the fundelmental problem of having an open market for electricity. Powerplants cost a lot of they are not producing power 24hrs. The economics don't justify building a powerplant to be operating a few weeks of the year during peak power and only during the day. The electricity market has large peaks. Just in California- demand swings from 20mw to 45+mw. This large swing in demand does not warrant investors to invest in power to deliver the last few mw of power demand. That is the problem with a free market.
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Re: Calpine files for bankruptcy

Unread postby aahala » Wed 21 Dec 2005, 12:54:28

$this->bbcode_second_pass_quote('nth', '')$this->bbcode_second_pass_quote('donshan', '
')
Hrm... if you actually study this indepth, you will know that Calpine should have no problems providing power based on these contract prices. Californians pay high electricity rates. The rates they pay is more than enough to pay for natural gas power, even at $15 per mbtu.



I'm not sure what you meant by that.

The contracts appear not to be with the ultimate consumers, but with
intermediate power suppliers. Whether the prices within the contracts
are sufficient or not, I don't know, but knowing what the consumers are
paying tells us nothing about whether the contract prices are sufficient.
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Re: Calpine files for bankruptcy

Unread postby donshan » Wed 21 Dec 2005, 13:08:41

$this->bbcode_second_pass_quote('nth', '[')Calpine's business model went bellyup because they have too much debt and they couldn't sell all the power the plants generate.

This is the fundelmental problem of having an open market for electricity. Powerplants cost a lot of they are not producing power 24hrs. The economics don't justify building a powerplant to be operating a few weeks of the year during peak power and only during the day. The electricity market has large peaks. Just in California- demand swings from 20mw to 45+mw. This large swing in demand does not warrant investors to invest in power to deliver the last few mw of power demand. That is the problem with a free market.


Thanks for the added info. The question still becomes why couldn't Calpine sell most of their power, unless it was the price they needed to be profitable was too high because of high natural gas prices. Just to understand my point, if gas was so cheap that Calpine could burn gas and make power cheaper than hydropower the utilities were buying, then the plants would become base load plants running at 100% capacity and hydro would be surplus investment.

I suppose the only difference of opinion I have is, that even a fully regulated utility has the same problem of idle peak capacity and many use gas fired peaking turbines. Some spare capacity has to be built, typically with debt, even if it is only used for 2 weeks of peak power, regardless of who owns this peak capacity. Otherwise there are blackouts on hot days. The regulated utility is allowed to include these costs in rates. How is Calpine different? If the contract only called for power two weeks a year, the contract should have covered the fixed costs of unused capacity.

Calpine's business model is defective in that it did not anticipate the effect of high gas prices on demand for their power IMHO.
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