Calpine Stock Hit by Comparison With Enron, Analyst’s Downgrade
Investors fled the stock of recent darling Calpine Corp. on Monday, pushing the share price to a one-year low after a newspaper article compared the San Jose electricity producer with decaying giant Enron Corp. and an influential Wall Street analyst downgraded the company.
Calpine, the country’s largest independent power producer, reacted furiously to an article Sunday in the New York Times that described the company as a near twin of Houston-based Enron, which filed the largest bankruptcy in U.S. history Dec. 2 after a precipitous seven-week decline in investor confidence brought about an all but fatal cash crunch.
Other independent power producers that also were downgraded to “neutral-volatile” from “strong buy-volatile” by Kit Konolige, utility analyst with Morgan Stanley Dean Witter & Co., saw their stocks slump too, including Mirant Corp., NRG Energy Inc. and Reliant Resources Inc.
Konolige said he is taking a more cautious stance on such unregulated power producers in the near term, reflecting weak electricity and natural gas prices, the increasing likelihood that California will renegotiate its long-term power contracts at lower prices and negative investor sentiment lingering from the Enron debacle.
Energy merchants’ stock prices have eroded from highs of last winter and spring on sharply lower power prices, a dragging economy and a slowdown in the pace of deregulation. Enron’s rapid disintegration into bankruptcy proceedings further slammed these stocks as the market fretted that other generators and traders might be owed large amounts by Enron or might similarly rely on aggressive trading and accounting practices.
“There’s a lot of Enron overhang,” said Chris Ellinghaus, who follows power and natural gas companies for Williams Capital. “People are afraid that there’s going to be another Enron, and I don’t think there will be.”
Calpine, which reached an all-time high of $58.04 in March, closed Monday at $17.79, down $3.58, or 17%, on the New York Stock Exchange. Mirant lost $2.64 to close at $22.42, NRG fell $1.19 to $14.11, and Reliant dropped $2.14 to $14.71, all on the NYSE.
The New York Times article said that “in some ways, Calpine is looking more like Enron by the day” because Calpine’s earnings are growing rapidly and its financial statements can be difficult to understand--just as with pre-crisis Enron. The article also pointed to Calpine’s $10 billion in debt and its Enron-like reliance on “the kindness of investors and lenders” to keep the company in business.
“Frankly, a comparison between Calpine and Enron is ridiculous,” Calpine Chairman and Chief Executive Peter Cartwright said. “Calpine’s business model is very different from Enron’s.”
Enron prided itself in owning few hard assets, generating most of its profit and revenue from trading a variety of energy and other commodities.
Calpine, in contrast, owns power plants generating 12,000 megawatts of electricity as well as companies that supply the natural gas to fuel the plants. Power plants that will generate 17,000 megawatts are under construction, but the company has no need to return to capital markets to complete them, Calpine executives said.
Although $1.33 billion, or 23%, of Calpine’s revenue in the first nine months of the year came from business with Enron, the company no longer has any net exposure to Enron, Cartwright said. That means that Calpine is owed virtually nothing if what Enron owes Calpine is subtracted from what Calpine owes Enron.
Cartwright said Calpine employs no off-balance-sheet partnerships. Such partnerships helped fuel Enron’s rapid growth in the last few years and then led to its sudden fall, as investors turned their backs on Enron, fearing that trading losses and huge debts were hidden in the partnerships.
Analyst Ellinghaus sees little resemblance between Enron and Calpine, the former once the world’s largest energy trader and the latter only a modest trader, primarily of its own electricity.
“Enron is about having no power plants, and Calpine is about having too many,” Ellinghaus said. Calpine is “asset-based, so people shouldn’t be concerned about it turning to dust.”
