Calpine to honor low-rate contract
Calpine Corp. on Friday agreed to continue supplying relatively cheap power to California under a contract signed during the state’s 2000-01 energy crisis, eliminating a dispute that could have derailed the company’s planned emergence from bankruptcy protection.
California Atty. Gen. Jerry Brown, who had fought to keep the contested contract intact, called Calpine’s decision an “excellent outcome.”
This month, Brown and other state officials filed papers with the U.S. Bankruptcy Court in New York opposing Calpine’s reorganization plan, arguing that it was “fatally flawed” because it would nullify a California power contract that a court already said could be canceled only by federal regulators.
San Jose-based Calpine reversed course Friday, filing papers seeking the court’s approval to retain the contested contract with the state’s Department of Water Resources. Calpine said its request would be considered by the court Sept. 11.
Calpine Chief Executive Robert May said the change would “remove a potential impediment to our timely emergence from Chapter 11.” He added that Calpine was “especially proud to have upheld our commitment to the state throughout Calpine’s Chapter 11 restructuring and are pleased to be in a position to formally assume this important contract for Calpine and the state of California.”
Calpine, which remains one of California’s largest power providers, filed for bankruptcy protection in late 2005.
Under the contract at issue, Calpine agreed to sell 1,000 megawatts of electricity to the state around the clock at a fixed price to areas served by PG&E; Corp.’s Pacific Gas & Electric Co. through 2009. If Calpine had been allowed to ditch the deal, California would have had to buy more expensive replacement power -- at an estimated added cost of $150 million to $200 million, said Erik Saltmarsh, executive director and legal counsel at the state Electricity Oversight Board.
The challenge from the state “was a very real cloud over the bankruptcy proceeding,” Saltmarsh said. Now, “Calpine is taking the contract out of the plan and, as a consequence, we’re taking our opposition to the plan out of the court.”
During the energy crisis, Calpine signed four power-supply contracts with the state. One has expired, and two of the three remaining contracts were not being challenged by Calpine.
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